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BIPARTISAN POLICY COMMISSIONER LAYS OUT SECONDARY MARKET REFORM PLAN In the latest of its consumer education videos, Zillow sat down with the Bipartisan Policy Center's (BPC) Barry Zigas to discuss the center's ideas for GSE reform and how they compare to current legislative efforts. In an interview with Zillow, chief economist Dr. Stan Humphries, Zigas—director of housing policy for the Consumer Federation of America and a commissioner on BPC's Housing Commission—described how the group's plan came together, a process that involved 16 months of research, hearings, and meetings with industry stakeholders. "What we emerged with was a plan that was very true to the principles that the commission agreed to use to guide its work," he said. BPC's plan shares similarities with those introduced by Sens. Bob Corker (R-Tennessee) and Mark Warner (D-Virginia) and by Rep. Jeb Hensarling (R-Texas) in that it calls for the unwinding of Fannie Mae and Freddie Mac over several years and the institution of a limited government guarantee on securities. Where it differs is in the details; for example, the Corker/Warner bill puts a hard number on the amount of loss that must be absorbed before a federal backstop is triggered (10 percent), while the BPC plan allows for more wiggle room to adjust to market dynamics. "For instance, if the insurer saw a housing bubble beginning to inflate, like we saw recently, they could basically make what we call 38 the capital call on the insurers and say, 'You need to put more capital in the pot,'" Zigas explained. On the other hand, Hensarling's proposed Protecting American Taxpayers and Homeowners Act (PATH) removes the government guarantee from the equation—a move that BPC regards as going too far, though Zigas acknowledged that a federal guarantor should only be involved in a "catastrophic" situation. "We came to believe through the work we did that the private market is not prepared to provide the levels of capital that are going to be necessary to meet homeowners' needs unless they know there's a federal guarantee behind those securities," Zigas said. "I think we agree with Congressman Hensarling on this one point, which is that the government should not be the guarantor of first resort. The government should be the guarantor of last resort." Asked about the probability that a bipartisan effort could even be achieved—especially at a time when political squabbling has brought the country to a standstill—Zigas said he is encouraged by the dialogues that have taken place so far and expects the left and right will be able to come together on the matter in the future. "How near that future is? That depends on a lot of factors that are very, very difficult to assess right now," he said. "I think the momentum is in the right direction." SHADOW INVENTORY FALLS TO LOWEST LEVEL SINCE AUGUST 2008 Overall residential shadow inventory, as of July 2013, was 1.9 million homes, CoreLogic reported last month. That's the lowest shadow inventory tally reported since August 2008. The industry's current shadow inventory carries a value of $293 billion by CoreLogic's assessment, down from $380 billion in July 2012. It represents 3.7 months' of supply and accounts for 85 percent of the 2.2 million properties that were seriously delinquent, in foreclosure, or bank-owned at July month-end. Of the fewer than 2 million properties in the shadow inventory, 874,000 properties were seriously delinquent (1.8 months' supply), 661,000 were in some stage of foreclosure (1.3 months' supply), and 318,000 were already in REO (0.6 months' supply). July's count of homes lurking in the shadows was down 22 percent from a year earlier, when CoreLogic says shadow inventory stood at 2.4 million homes. Shadow inventory reached a peak of 3 million homes in 2010. As of July, it's fallen 38 percent from that point. "Over the past year, the value of the U.S. shadow inventory dropped by $87 billion-a sign of increased normalcy in the housing market," said Anand Nallathambi, president and CEO of CoreLogic. "With a year-over-year decrease of 22 percent in July, the shadow inventory has now declined steadily for 10 consecutive months." CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of properties that are seriously delinquent, in foreclosure, or held as REO by mortgage servicers but not currently listed on multiple listing services (MLSs). Transition rates of "delinquency to foreclosure" and "foreclosure to REO" are used to identify the currently distressed unlisted properties most likely to become REO properties. Properties that are not yet delinquent but may become delinquent in the future are not included in CoreLogic's estimate of the current shadow inventory. KNOW THIS Freddie Mac has helped more than 10 million families buy, refinance, or rent a home since 2009.

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