also been hindered by the steep descent of house prices. to date, house prices have fallen by nearly one - third from their peak ( chart 23 ), pushing home equity as a share of personal income to its lowest level on record ( chart 24 ) and wiping out $ 7 trillion of housing equity. further, this decline in housing wealth – and the associated hit to consumer confidence – has not only been a meaningful and persistent drag on overall consumer spending, it has also been enough to push nearly 12 million homeowners underwater on their mortgages, that is their houses are now worth less than their mortgage balances ( chart 25 ). without equity in their homes, many households who have suffered hardships such as unemployment or unexpected illness have been unable to resolve mortgage payment problems through refinancing their mortgages or selling their homes. the resulting mortgage delinquencies have ended in all too many cases in foreclosure, dislocation, and personal hardship. neighborhoods and communities have also suffered profoundly from the onslaught of foreclosures, as the neglect and deterioration that frequently accompany vacant properties makes neighborhoods less desirable places to live and may put further downward pressure on house prices. 2 the problems that led to the mortgage crisis and the potential policy solutions to those problems are numerous and varied. even though time does not permit a full discussion of them here, i do believe that forceful and effective housing policies have the potential to significantly influence the speed and strength of our economic recovery. the federal see, for example, john y. campbell, stefano giglio, and parag pathak ( 2011 ), “ forced sales and house prices, ” american economic review, vol. 101 ( 15 ), pp. 2108 – 31 ; and john p. harding, eric rosenblatt, and vincent w. yao ( 2009 ), “ the contagion effect of foreclosed properties, ” journal of urban economics, vol. 66 ( 3 ), pp. 164 – 78. bis central bankers ’ speeches reserve has already acted to reduce mortgage rates by purchasing longer - term assets, in particular through the purchase of agency mortgage - backed securities. indeed, low rates combined with falling house prices have contributed to historically high levels of housing affordability ( chart 26 ). at the same time, rents have been rising, which should make homeownership a more attractive option relative to rental housing ( chart 27 ). despite this record affordability, home purchase and mortgage refinancing

mismatch at financial intermediaries, and we look at asset valuations, underwriting standards for loans, and credit growth for signs of a credit - induced buildup of systemic risk. we also monitor various systemic risk measures for the largest banking firms. these measures capture financial market perceptions of the risk such a firm could impose on the broader financial system were it to become stressed. such measures are based on firms ’ stock prices, credit default swap premiums, and stock price volatility, as well as the correlation in asset prices across firms. in addition, we use regular stress tests of the nation ’ s largest banking organizations to evaluate the ability of these firms to withstand worse - than - expected outcomes for the economy. these tests are based on detailed confidential data about the balance sheets of the large banks and provide a comprehensive and rigorous assessment of how their financial conditions would evolve over a multiyear period if economic and financial conditions were to deteriorate. the stress tests started in 2009 with the supervisory capital assessment program ( scap ), and they continued with the comprehensive capital analysis and review ( ccar ) in late 2010 and early 2011, in which we evaluated the capital planning processes of the firms and responded to requests to resume or increase shareholder payouts. in a couple of weeks, we will begin ccar 2012, building on the previous ccar, and roughly a year from now, we will conduct the annual supervisory stress tests mandated by the dodd - frank act. the dodd - frank tests will involve a larger group of banking organizations than the 19 firms covered in the scap and will be extended to include any financial institution the fsoc designates as systemically important. as additional data are collected on significant credit exposures, stress tests may evolve into an effective way to identify linkages across systemically important institutions that could lead them to fall into financial distress at the same time. another important element in identifying financial - sector vulnerabilities is the continued vigilance to the financial risks that might emerge in parts of the financial sector for which data are very scarce or that have developed more recently and are thus less well understood. the regulatory community has been working hard to fill these knowledge gaps. for example, in response to the need to improve the monitoring of leverage, particularly outside of the traditional banking system, the federal reserve instituted in 2010 a quarterly survey on dealer financing terms ( the senior credit officer opinion survey on dealer financing terms ). 3 this survey collects qualitative information