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the status quo is not a bad alternative to the unknown. Beyond the CEOs, continued personnel turnover at other senior levels is rapidly climbing the list of challenges facing the GSEs—especially considering the importance of personnel in managing the massive volumes of the GSEs and the risks of enterprise management posed by the loss of key personnel. Against this backdrop and the ongoing liabilities and exposure taxpayers face, the flight of Fannie Mae and Freddie Mac employees is disconcerting to say the least. In addition to the departure of several CEOs over the past four years, the Wall Street Journal reported in April that dozens of senior managers have left the GSEs. In Freddie Mac's financial reporting to the Treasury and FHFA in March, the institution cautioned that "disruptive levels" of employee turnover could lead to rates low, and there is an abundance of available homes. And in all but the hardiest of markets, the price point for housing is certainly favorable to the most modest of borrowers including firsttime homebuyers. According to its Monthly Volume Summary, Freddie guaranteed $22.1 billion in singlefamily refinance-loan purchase volume in May. Fannie completed more than $67 billion mortgage-backed securities (MBS) issuances in the same month, according to its Monthly Volume Summary. The GSEs' 2012 first-quarter earnings showed some improvements in the institutions' financials, but little reduction in volume. Fannie Mae reported a net income of $2.7 billion. Based on its earnings, it chose to decline funding from the Treasury and paid the company's dividend of $2.8 billion for the first quarter. Freddie Mac posted a net income of $577 million and a comprehensive net income of $1.21 billion. It It seems like today, five years later, the same instructions of "ratcheting down" the GSEs still confound the administration, Congress, and policymakers in Washington. Even Fannie Mae and Freddie Mac struggle with how to resolve their massive volumes and portfolios in addition to the industry's reliance on their securitizations. operational "breakdowns." This employee flight may be attributed to the salary and benefit reductions mandated by Congress or to the uncertainty surrounding the future of the GSEs. Either way, the problem certainly does not reaffirm the companies' stability. In speaking with several current GSE staff, they have indicated they would leave for a better opportunity if another existed in the D.C. area. Others believe a GSE will exist in some form or another in the future and are taking a "wait and see" attitude. Still Bringing in the Biz Despite the ongoing personnel concerns, Fannie Mae and Freddie Mac continue to do an enormous amount of business, supporting around $6 trillion in mortgages. For consumers with good credit, the mortgage market is flush with opportunity. The Federal Reserve does its part by keeping interest 52 paid $1.81 billion in dividends to the Treasury in the first quarter and requested a $19 million draw to cover its deficit. In addition to their focus on mortgage originations, Fannie Mae and Freddie Mac are the master servicers for massive servicing portfolios of delinquent loans. This servicing is a source of public debate among the FHFA, Congress, and the administration. For example, policymakers and lawmakers have advocated for principal reductions on the delinquent mortgages held by the GSEs, but FHFA Director Edward DeMarco has publicly opposed such efforts. FHFA has pursued its own efforts to improve the loss mitigation process for the GSEs with an eye toward limiting current and future taxpayer exposure. For instance, FHFA recently announced new standards for servicing short sales and deed-in-lieu of foreclosure transactions executed by the GSEs. The new standards require responses to borrowers' applications for short sales and bids within 30 days and a final determination within 60 days. Ironically, FHFA also suffers from the uncertainty and sometimes inherent conflicts of a dual mission. Director DeMarco and FHFA straddle the line between providing relief to distressed homeowners and protecting the billions in taxpayer dollars that went into bailing out the GSEs. Fannie Mae has received a total of $116 billion in aid, and Freddie Mac has received $72 billion. Although the GSEs have paid portions of these figures back —Fannie Mae paid $23 billion in dividends, and Freddie Mac paid $18 billion in dividends—they still have a long way to go. Behold the Bright Spots Setting the GSEs aside for a minute, the future looks somewhat brighter for the mortgage industry as early as 2013. The economy is expected to grow faster next year with increased GDP at about 2.4 percent. Unemployment will likely remain stable at current rates or perhaps decrease slightly. Perhaps 2013 will also bring a more meaningful recovery to the housing market. Mortgage rates should remain low despite the fact they will be somewhat higher than their record lows today. Average home prices are expected to increase in 2013, and distressed property values are expected to stabilize. Existing home sales are expected to increase. And although 2013 will likely see the end of the large refinance volumes we have seen in past years, purchase originations are expected to see considerable gains to an annual total of $770 billion. The improvements in the economy will hopefully strengthen housing as an investment, both for the government and the private market. Even in 2012, the U.S. housing market offers an investment opportunity with good returns as it truly is a "buyer's market" with low interest rates, bulk purchase programs, lower home prices, and ample supply. Foreign investors are already returning to the American housing market as a safe investment. In particular, I just returned from a housing conference in Beijing, China, where I spoke somewhat optimistically of the U.S. housing market. In fact, many Chinese buyers are already capitalizing on this opportunity. China is one of the fastest-growing investors in U.S. real estate. Since 2010, Chinese investment in residential real estate has increased by 88 percent to $9 billion in purchases.

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