leveraged homeowners would be forced to sharply curtail their spending. to be sure, indexes of house prices based on repeat sales of existing homes have significantly outstripped increases in rents, suggesting at least the possibility of price misalignment in some housing markets. but a destabilizing contraction in nationwide house prices does not seem the most probable outcome. to be sure, the recent marked increase in the investor share of home purchases suggests rising speculation in homes. ( owner occupants are rarely home speculators because to sell, they must move. ) 10 however, nominal house prices in the aggregate have rarely fallen and certainly not by very much. and even should more - than - average price weakness occur, the increase in home equity as a consequence of the recent sharp rise in prices should buffer the vast majority of homeowners. for statistical methodology see karen dynan, kathleen johnson, and karen pence ( 2003 ), " recent changes to a measure of u. s. household debt service, " federal reserve bulletin, vol. 89 ( october ), pp. 417 - 26. a new survey by the national association of realtors reports that purchases of vacation homes and homes for investment amounted to more than a third of total existing home purchases last year. mortgage originations data reported under the home mortgage disclosure act ( hmda ) indicate that the share has been rising significantly since 1998. house prices, however, like those of many other assets, are difficult to predict, and movements in those prices can be of macroeconomic significance. there appears, at the moment, to be little concern about corporate financial imbalances. debt - toequity ratios are well within historical ranges, and the recent prolonged period of low long - term interest rates has enabled corporations to refinance liabilities and stretch out bond maturities. * * * the resolution of our current account deficit and household debt burdens does not strike me as overly worrisome, but that is certainly not the case for our fiscal deficit, which, according to the congressional budget office, will rise significantly as the baby boomers start to retire in 2008. our fiscal prospects are, in my judgment, a significant obstacle to long - term stability because the budget deficit is not readily subject to correction by market forces that stabilize other imbalances. one issue that concerns most analysts, especially in the context of a widening structural federal deficit, is inadequate national saving. fortunately, our meager domestic savings, and those

##s that they struggled to repay so soon after taking out the loan, the prevalence of " stated - income " lending was a clear culprit. substantial anecdotal evidence indicates that failing to verify income invited fraud. moreover, when we looked at the loan - level data we saw a clear correlation between " low - doc " or " no - doc " lending and performance problems, particularly early payment defaults. that is why we have proposed to complement a broad requirement to assess repayment ability with a specific requirement to verify the income or assets a lender relies on to make a credit decision. we recognize that stated - income lending may have a proper place when not layered on top of too many other risks. therefore, we would target the verification requirement to higher - priced loans, including the higher - priced end of the alt - a market, where the risks of stated - income lending could be layered on top of too many other risks. the proposal identifies standard documents that would be acceptable, such as w - 2 forms. it also allows, however, any third party documents that provide reasonably reliable evidence of income. some consumers may have access to only nonstandard documents and others, such as self - employed entrepreneurs, may have some difficulty documenting their income. this rule is meant to preserve consumer choice by allowing the market to identify credible nontraditional documentation of consumer income – for example, check - cashing receipts. to help ensure that the proposal preserves access to credit for the full range of consumers, we have sought public comment on this issue. escrows for taxes and insurance another part of our proposal for higher - priced loans – a requirement to escrow taxes and insurance – would also help ensure that borrowers can afford their payments. escrowing has become standard practice in the prime market, and the case for making it standard in the subprime market, too, appears compelling. consumers with shorter or weaker credit histories may be less likely to appreciate the sizable burden that taxes and insurance can add to the cost of homeownership, or more vulnerable to being misled by payment quotes that leave out these amounts. moreover, when we looked at the data, we saw in the unusually high level of early payment defaults possible evidence that the lack of escrows hurt consumers who did not have experience paying property tax and insurance bills. we have proposed to address the problem with a requirement to escrow taxes and insurance on higher - priced loans, accompanied by a limited allowance