average. declines in short - term interest rates and initiatives involving rate freezes will reduce the impact somewhat, but interest rate resets will nevertheless impose stress on many households. in the past, subprime borrowers were often able to avoid resets by refinancing, but currently that avenue is largely closed. borrowers are hampered not only by their lack of equity but also by the tighter credit conditions in mortgage markets. new securitizations of nonprime mortgages have virtually halted, and commercial banks have tightened their standards, especially for riskier mortgages. indeed, the available evidence suggests that private lenders are originating few nonprime loans at any terms. this situation calls for a vigorous response. measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy. at the level of the individual community, increases in foreclosed - upon and vacant properties tend to reduce house prices in the local area, affecting other homeowners and municipal tax bases. at the national level, the rise in expected foreclosures could add significantly to the inventory of vacant unsold homes – already at more than 2 million units at the end of 2007 – putting further pressure on house prices and housing construction. 4 helping distressed borrowers policymakers and stakeholders have been working to find effective responses to the increases in delinquencies and foreclosures. steps that have been taken include initiating programs designed to expand refinancing opportunities and efforts to facilitate and increase the pace of loan workouts. troubled borrowers will always require individual attention, and the most immediate impacts of foreclosures are on local communities. thus, the support of counselors, lenders, and organizations with local ties is critical. of course, care must be taken in designing solutions. measures that lead to a sustainable outcome are to be preferred to temporary palliatives, which may only put off foreclosure and perhaps increase its ultimate costs. solutions should also be prudent and consistent with the safety and soundness of the lender. concerns about fairness and the need to minimize moral hazard add to the complexity of the issue ; we want to help borrowers in trouble, but we do as already noted, foreclosure starts likely increased by roughly 50 percent to 1 - 1 / 2 million last year, and foreclosure starts are on track to rise further this year. lender

elizabeth a duke : come with me to the federal open market committee ( fomc ) speech by elizabeth a duke, member of the board of governors of the federal reserve system, at the money marketeers of new york university, new york, 19 october 2010. * * * thank you for inviting me to be here and to help you fulfill one of the money marketeers ’ key objectives, “ to enhance knowledge and understanding of the financial marketplace. ” i was a banker for more than 30 years before becoming a member of the board of governors, so i ’ ve spent my career trying to deepen my own knowledge and understanding of the financial marketplace. in particular, because the outlook for interest rates and the economy was so important to my bank and my customers, i spent considerable effort trying to understand the federal open market committee ( fomc ), the fed ’ s primary monetary policymaking body, and trying to anticipate the decisions coming out of individual fomc meetings. in fact, the first bank investment class i ever took included instruction on how to use the weekly reports of monetary aggregates to decipher fed actions. that will give you some idea of how long ago that was : it was before the committee began expressing its objective in terms of the federal funds rate – actually before the committee began saying much at all. now, after two years of participating in the decisionmaking process, i would like to share some observations that i believe might help you better understand the formulation of monetary policy. before i joined the board, i was advised to read two speeches, “ come with me to the fomc ” given by governor laurence meyer in 1998, and an updated version presented by governor mark olson in 2004. 1 it turns out that governor meyer ’ s speech was inspired by one given in 1967 by edward wayne, the president of the federal reserve bank of richmond. as i thought about how to frame this discussion, a reprise of these earlier speeches seemed appropriate. in some ways there has been little change since the first edition of the “ come with me ” speech was given more than four decades ago : members of the board of governors and presidents of the 12 reserve banks still meet regularly in washington, d. c., to discuss how best to set monetary policy to foster full employment and stable prices. but the ways in which these policymakers think and talk about the economic outlook, the formulation of monetary policy, and the communication of that policy have all changed dramatically, especially lately