recession, most defaults have been by necessity – that is, they have been prompted by a job loss, health problems or divorce coupled with the household being in negative equity. no doubt, however, there is some degree or duration of negative equity that may cause households to conclude that a default is inevitable and should be taken sooner rather than later. if this point were reached, defaults by choice could significantly swell the flow of homes into the foreclosure pipeline. the case for housing intervention all these factors imply that there are many potential equilibrium outcomes in terms of housing demand and home prices – some considerably more desirable than others. negative price expectations and flawed financing and administrative mechanisms, if left unaddressed, can contribute to ongoing weakness in housing demand and make it harder to generate a robust economic recovery. persistent weakness in housing is particularly problematic because it acts as a drag on spending and job creation in an environment in which such weakness can not be easily offset a number of these issues were documented by an interagency task force that included the federal reserve and are being addressed through consent orders requiring supervised institutions to remedy deficiencies. when the amount of debt secured by a property exceeds its likely net sales price, a “ short sale ” can be a less costly alternative to foreclosure. the short sale agreement between the homeowner and lender often grants the lender final approval of the sales price and may release the homeowner from any deficiency. bis central bankers ’ speeches by other policy adjustments. housing policy should seek to break adverse feedback loops, promote more economically efficient outcomes in housing and support growth. in recent speeches, 10 i have called for a “ comprehensive approach ” to stabilize the national real estate market and lay the foundations for recovery. i believe this should include measures to improve access to mortgage credit, reduce obstacles to refinancing, lessen the flow of homes into foreclosure through bridge financing and accelerated principal reduction, and to facilitate the absorption of reo back into use as owner - or renter - housing. many of these policies simply seek to solve or bypass the legal and incentive problems in the market today and mimic efficient private actions that might be taken if mortgage loans were all held in portfolio and accounting rules did not discourage net present value maximization. others seek to solve coordination problems and take account of the externalities or spillovers to generate outcomes that are superior from the broadest perspective of the nation as a whole. earlier this week chairman bernanke

been provided in some states under the hardest hit program. i favor a broad program to provide bridge financing for all qualified borrowers with demonstrated ability to service their debts who become unemployed involuntarily – though categorically not those who quit or are terminated with cause. in economic terms, this is a form of collective insurance. 15 my staff estimates that there are 4 million to 5 million “ at risk ” homeowners who can afford their mortgage, but who would struggle to make their payments in the event that the primary earner in the household became unemployed. with the current weak labor markets, they estimate around 600, 000 of these at - risk households will experience an involuntary job loss that lasts longer than a month over the next year. the average annual amount that would be required to keep the mortgage current for these households while unemployed and receiving unemployment insurance is around $ 21, 000. this would be a loan not a grant. 16 this implies an annual bridge lending program of $ 15 billion per year during the current stress period. this seems expensive, but this is not the cost of such a program, just the cash outlay in the early years. in the future, loan repayments would help to offset the program cost. moreover, when one factors in the reduced negative externalities achieved by limiting distress sales, the expected program cost would be even lower. of course, any bridge financing loans would need to be properly secured in order to protect taxpayers interests. in situations in which the value of the loan already exceeded the value of in the early 1980s, pennsylvania created such a loan program to assist homeowners dealing with unemployment due to the closing down of steel mills. the program was called the homeowners's emergency mortgage assistance program, or hemap. since its inception, over 80 percent of the loans made under the program have been fully repaid and the borrowers able to remain in their homes. a new program could be funded by the federal government or individual states. in addition, the repayment terms for the bridge loan once the owner becomes reemployed should be contingent on the owner ’ s reemployment earnings. bis central bankers ’ speeches the home, it might be appropriate to require lenders to write down the excess debt as a condition for the borrower obtaining a bridge loan. this would ensure that the bridging funds did not “ bail out ” the lender. writing down excess debt would likely be in the lender ’ s