FOMC/FOMC20050630meeting/FOMC20050630meeting--85.txt MS. YELLEN So Fannie 's and Freddie 's books may look better in some sense -- less risky -- than they really are because of all of the second mortgages going up to possibly 125 percent . '' FOMC/FOMC20050630meeting/FOMC20050630meeting--85.txt MS. YELLEN We 've had changes in the rules for tax exemption and in 1997 on capital gains from the sale of primary residences that would make holding real estate assets more attractive . FOMC/FOMC20050630meeting/FOMC20050630meeting--85.txt MS. YELLEN One view that I think is very prevalent is that the use of credit in the form of piggyback loans , interest-only mortgages , option ARMs -LSB- adjustable-rate mortgages -RSB- , and so forth , involves financial innovations that are feeding a kind of unsustainable bubble . FOMC/FOMC20050630meeting/FOMC20050630meeting--85.txt MS. YELLEN One of the things that we looked at that we thought was interesting was the behavior of price-rent ratios for residential housing and for commercial office space . FOMC/FOMC20050630meeting/FOMC20050630meeting--85.txt MS. YELLEN So the increasing use of creative financing could be a sign of the final gasps of house-price appreciation at the pace we 've seen and an indication that a slowing is at hand . FOMC/FOMC20050630meeting/FOMC20050630meeting--85.txt MS. YELLEN Those mortgages have an 80 percent loan-to-value ratio and I suppose they are being sold off to June 29-30 , 2005 37 of 234 and Freddie , there 's no need for private mortgage insurance . FOMC/FOMC20050630meeting/FOMC20050630meeting--378.txt MS. BIES Two weeks ago S&P required additional June 29-30 , 2005 150 of 234 HELOCs are being used more for purchase money down payments . FOMC/FOMC20050630meeting/FOMC20050630meeting--378.txt MS. BIES So most of the mortgage originations in the 2001-2002 period were predominantly fixed-rate loans or they were ARMs that had fairly long fixed-rate periods before becoming adjustable . FOMC/FOMC20051213meeting/FOMC20051213meeting--78.txt MS. PIANALTO I expect productivity growth to hold up rather well next year , along the lines of that faster productivity growth alternative scenario in the Greenbook . FOMC/FOMC20051213meeting/FOMC20051213meeting--78.txt MS. PIANALTO The automobile industry has a large weight in my District , and recent developments there , though not unexpected , are pretty dreary , as President Moskow reported . FOMC/FOMC20051213meeting/FOMC20051213meeting--78.txt MS. PIANALTO At our last meeting , the Greenbook offered two alternative scenarios -- stagflation and a consumer sentiment slump -- which at least from the Fourth District 's perspective seemed plausible and worrisome . FOMC/FOMC20051213meeting/FOMC20051213meeting--78.txt MS. PIANALTO I believe , as a couple of others have already said , that with another move today our policy accommodation will have been substantially removed , making the timing and extent of additional firming more uncertain for me . FOMC/FOMC20051213meeting/FOMC20051213meeting--78.txt MS. PIANALTO Although I indicated in my report at our last meeting that we could see stronger pass-through of energy prices , I was not hearing that from my business contacts in their reports this time around . FOMC/FOMC20051213meeting/FOMC20051213meeting--78.txt MS. PIANALTO The 70 percent confidence range surrounding the Greenbook baseline projection is wide enough to include all of the alternative simulations . FOMC/FOMC20051213meeting/FOMC20051213meeting--78.txt MS. PIANALTO The Big Three automobile companies and their suppliers are under intense pressure to downsize and reduce costs , especially labor costs . FOMC/FOMC20050630meeting/FOMC20050630meeting--380.txt MR. OLSON According to some lenders , about 20 to 25 markets bear careful watching , and lenders have started to exercise restraint in those markets . FOMC/FOMC20050630meeting/FOMC20050630meeting--380.txt MR. OLSON To date , foreclosures have been limited and minimal at banks and bank mortgage June 29-30 , 2005 154 of 234 secondary market . FOMC/FOMC20050630meeting/FOMC20050630meeting--380.txt MR. OLSON This does not address the question that President Guynn raised about the risks associated with the activities of contractors or real estate developers , which is a separate and very significant risk . FOMC/FOMC20050630meeting/FOMC20050630meeting--380.txt MR. OLSON It sounded to me very similar to what the 1960s New York Yankees were doing with the old Kansas City A 's under Charlie O. Finley -- using them to improve asset quality . FOMC/FOMC20050630meeting/FOMC20050630meeting--134.txt MS. BIES I think the local economic employment situations were the drivers of delinquencies , and the regulators generally missed that because they missed the local economic impact . FOMC/FOMC20050630meeting/FOMC20050630meeting--134.txt MS. BIES We do n't want to turn off safe loans or the traditional types of lending activities , but we need to figure out where to go on some of these practices that are on the fringes . FOMC/FOMC20050630meeting/FOMC20050630meeting--179.txt MR. LEHNERT In fact , I 've read in the Wall Street newsletters that some people seem to believe that the current rate of refinancing is elevated by this flow out of ARMs into fixed-rate loans . '' FOMC/FOMC20050630meeting/FOMC20050630meeting--179.txt MR. LEHNERT The other point that I 'd make is that the fraction of originations that are ARMs often can overstate the role of ARMs in the total mortgage market , because people refinance out of ARMs into fixed-rate mortgages frequently . FOMC/FOMC20050809meeting/FOMC20050809meeting--165.txt MS. BIES Since ARMs are a big chunk of the mortgage market today , we have to realize that we ca n't just look at long-term mortgage rates and the affordability of housing . FOMC/FOMC20050809meeting/FOMC20050809meeting--165.txt MS. BIES I want to focus my comments today on some macroeconomic perspectives and on what we 're learning in the supervisory reviews of mortgage products that we and other regulators are undertaking now . FOMC/FOMC20050809meeting/FOMC20050809meeting--165.txt MS. BIES Also , I 'm a bit more pessimistic about what is happening with regard to some of these option ARMs and the more esoteric ARMs that are being marketed and have been marketed particularly in the last nine months . FOMC/FOMC20050630meeting/FOMC20050630meeting--9.txt MR. LEHNERT Thus , institutions with large amounts of mortgage credit risk on their portfolios are well positioned to handle severe losses . FOMC/FOMC20050630meeting/FOMC20050630meeting--9.txt MR. LEHNERT For a given drop in nominal house prices -LRB- the horizontal axis -RRB- , the vertical axis gives the percent of borrowers who would have negative equity . FOMC/FOMC20050630meeting/FOMC20050630meeting--9.txt MR. LEHNERT June 29-30 , 2005 9 of 234 Turning to the data , line 1 of the top left panel shows that the dollar value of RMBS pools has nearly doubled over the past two years . FOMC/FOMC20050630meeting/FOMC20050630meeting--9.txt MR. LEHNERT While the principal value of an IO loan does n't decline , if the initial down payment is large enough , the borrower may have a substantial equity cushion against price shocks . FOMC/FOMC20050630meeting/FOMC20050630meeting--9.txt MR. LEHNERT Moreover , as shown in line 2 , RMBS pools backed by interest-only , or IO , mortgages have increased almost sixfold , and now amount to nearly $ 300 billion . FOMC/FOMC20050630meeting/FOMC20050630meeting--9.txt MR. LEHNERT 7 , MR. LEHNERT. , '' As Josh noted , everyone 's talking about house prices ; but they also seem to be talking a great deal about mortgages .