For his part, Barry Zigas, the director of housing policy at the Consumer Federation of America, dug a bit deeper into the problems plaguing the for-sale home market, FHA and government-sponsored entities. The picture is grim on the single-family front. Foreclosures to date have topped the two-million mark, he pointed out, and it's estimated that we'll see another eight million or more through 2012, if effective countermeasures are not found.

So far, the voluntary efforts that have been made by some lending institutions have not been successful at curbing the foreclosure rate. Meanwhile, house values are expected to continue in the mid-teens through 2010 before they stabilize.

On mortgages specifically, Zigas noted that there is currently $1.5 trillion worth of subprime loans with unpaid principal balances (UPB) in private-label securities (PLS), $1.1 trillion of which are performing. Some 42% of those loans are currently underwater, and that figure is projected to rise to 62% by next year. Another $400 million of mortgages are more than 90 days delinquent.

Further, the majority of subprime/Alt-A debt (80%) is in securities, accounting for 16% of all outstanding mortgages but 58% of all serious delinquencies. More than half of the $200 billion in outstanding Alt-A UPB payments are set to rise between this year and next by an average of 63%, adding $1,503 to the average monthly payment, which is currently $1,672.

Current pooling and servicing agreements (PSAs) don't encourage modifications and, in some cases, actually prevent them. Adding to the challenges is the fact that current voluntary modification models aren't providing sufficient levels of relief, Zigas pointed out.

[IMGCAP(2)]"Successful resolutions require quick legislative changes to rebalance and align the interests of servicers, investors and borrowers," he says, and efforts should be made to include such measures in the economic recovery package. Among his ideas for change are: judicial modifications should be allowed through bankruptcy proceedings to help homeowners keep their homes and encourage loan modifications; restructure the tax consequences of loan modifications for homeowners or investors; make REMIC tax status contingent on changing PSAs to remove hurdles to loan modifications, and obstacles to maximizing value for all investors as a group, rather than any single class of investors; and indemnify servicers acting in good faith according to a prescribed set of standards around loan modifications and asset sales.

The popularity of FHA, another financing took, has declined in recent years, allowing for a proliferation of subprime lenders that came in to fill the void, pointed out Retsinas. As that group has shrunk away, FHA financing is now making a comeback. Similar to HUD, the short-term priorities for FHA are to build up its personnel, address the housing crisis and, eventually, help bring about an economic recovery.

Yet while FHA has reemerged as a significant player in the mortgage finance market--its market share has risen from the single digits in 2006 to more than 20% in 2007--questions remain about its capacity, noted Zigas. As part of the earlier stimulus package, mortgage insurance limits were increased, and that exposed the program to much higher potential severities. It seems that for now, FHA's capital is adequate, but as the market shifts and volumes go up, it could quickly become undercapitalized. Also, he said a rapidly expanding broker channel raises concerns about sales practices and potential for fraud.

Meanwhile, the GSEs, including Fannie Mae and Freddie Mac, are under "unprecedented stress and uncertainty," says Zigas. Despite the government's conservatorship of Fannie and Freddie last September, the mortgage giants hold 80% of the current housing debt in the marketplace. Their portfolios are severely constrained, they're not much able to take on additional debt, and long-term debt is hard to raise at reasonable prices.

The Treasury's insistence that they shrink their long-term portfolios also complicates their current acquisition tactics. Luckily, the Fed is driving demand for MBS through the purchase of $500 million in securities. Still, local agencies are facing significant capital troubles.

Zigas believes we're likely to see a major restructuring of these organizations in 2009 or 2010. Congress will probably start talking about restructuring the GSEs, in an effort to restore liquidity, stability and standardization and access and affordability. Ideas, from making them a public utility to privatization, have been bandied about. Zigas said it's also possible to either fully nationalize the enterprises, combining Fannie, Freddie and Ginne Mae and reserving the backstop portfolio capacity, or establishing a "mixed ownership model with strong government investment, oversight and governance role, with participation by private investors in a more constrained business model."

The government's conservatorship of Fannie and Freddie was done to keep credit flowing to the housing market, said Retsinas, but limiting taxpayer exposure to the giants is also important. Those two goals don't necessarily go hand-in-hand, he added, because there's always going to be tension between the two. That matter can be addressed once we have a better handle on what the government's role in the housing market should be.

On the apartment front, Zigas noted, "Amidst a lot of dim results over the past few years, GSEs' multifamily lending has been positive." The concern, he said, is when that paper matures over the next few years--will there be enough demand to lend, particularly at levels where the deal will be successful?

Renters have been impacted significantly by the current downturn, and it's important they don't get left out. The good news is the current stimulus proposal contains a good deal of money devoted largely to multifamily housing, and a great deal of effort is also being made to unfreeze the low-income housing tax credit sector."HUD," said Zigas, "has a unique opportunity to really step up over the next few years."