will hamper the recovery of the housing market and, in doing so, restrain economic growth. moreover, the responses of lenders to these uncertainties may also have longer - term implications. if lenders are delaying needed developments in their own infrastructure, such as servicing systems and capacity, until they have more clarity about what the mortgage market will look like down the road, the resulting lack of infrastructure might constrain mortgage and housing markets in both the short term and the long term. choosing a path forward i have talked quite a bit about the factors that i believe are inhibiting a recovery in housing markets and some potential solutions to the problems i identified. we have had a severe financial crisis with housing and housing finance playing a central role, and recovery is not likely to be quick or easy. but i do believe there are some things that can help. so, if i were to write a prescription for housing recovery, i would include the following items. bis central bankers ’ speeches most important to the health of the housing market is the strength of the economic recovery – the labor market in particular. potential homeowners are unwilling to buy if they are uncertain about their income prospects. and credit standards will remain tight as long as lenders are concerned about borrowers ’ ability to repay. for its part, the federal reserve remains committed to fostering maximum employment consistent with price stability, which should help reduce some of the macroeconomic uncertainty. in addition, i think efforts under way to reduce the flow of foreclosed homes and distressed sales in the market will help to stabilize home prices. mortgage loan modifications, short sales, and deeds - in - lieu of foreclosure all act to reduce the number of homes in the foreclosure pipeline. recent price signals – higher rental rates and falling rental vacancies combined with low home prices and elevated single - family home vacancies – indicate that by reallocating some of the foreclosed home inventory to rental property, investors could help balance supply and demand in both the rental and the owner - occupied markets. neighborhood stabilization efforts can help alleviate some of the costs to neighborhoods of foreclosure and allow local decisions regarding low - value and dilapidated properties. many borrowers are current on their payments but are still unable to refinance to take advantage of low interest rates. recent changes to the home affordable refinance program, or harp, will allow more of these borrowers to refinance and lower their payments, thus reducing

the future structure of the mortgage market, including that of fannie mae and freddie mac and of private - label securitization. i think the effects of these uncertainties have an important bearing on the future strength of the housing market and would like to discuss each in a bit more detail. turning first to macroeconomic uncertainty, borrowers are more likely to default when they lose their jobs or when their houses decline in value. so long as unemployment remains elevated and further house price declines remain possible, lenders will be cautious in setting their requirements for credit, and rightfully so. but these factors should ease as the economic recovery gains steam and the trajectory for house prices appears more certain. although house price declines have moderated notably, the continuing effects on house prices of the large number of underwater mortgages and of the mortgages still in the foreclosure pipeline remain unclear. even professional forecasters diverge widely in their views about the future path of house prices : in one recent survey, house price forecasts for 2012 ranged from a decline of 8 percent to an increase of 5 percent. uncertainty about house prices and the high volume of distressed sales make the job of residential appraisers and lenders more difficult. in the current market, appraisers may tend to have a more conservative view of a home ’ s market value and, as long as house prices continue to decline, lenders may lean toward more conservative underwriting. taken together, these factors could discourage or even disrupt sales that might otherwise happen smoothly. like you, we have been hearing such reports. while macroeconomic uncertainty is likely an important contributing factor to tight mortgage credit conditions, we also observe that lenders have tended to be conservative in making some mortgages that are guaranteed by government - sponsored enterprises ( gses ) – loans in which lenders do not bear the credit risk in the event of borrower default – which suggests that issues other than macroeconomic risk are affecting lending decisions. indeed, analysis by federal reserve staff suggests that only about half of lenders currently offer mortgages to borrowers whose credit metrics fall into the lower range of gse purchase parameters. in the april sloos, lenders were asked targeted questions about the likelihood, compared with 2006, that they would originate mortgages with specific credit profiles. responses confirmed that lenders today are less likely – and often much less likely – to originate loans to gse borrowers with credit scores of 620 even when borrowers were making