Prepared by: LaVaughn M. Henry, Ph.D. VP & Sr. Regional Officer FRBC, Cincinnati Branch May 16, 2013

1. The Current Status and Outlook for the Housing
Market Recovery and Mortgage Finance

2. What are the Economic Realities that are Driving the
Current Housing Recovery?
The alignment in the housing market of supply and demand fundamentals appears to
substantiate the position that a sustained recovery is under way.
House prices, as measured by a variety of national indexes have risen since the beginning of
2012.
The recovery of house prices has been broad based geographically, with 90 percent of local
markets having experienced price gains over the year ending in February.
Since the beginning of 2012, housing starts and permits have risen by nearly 30 percent,
while new and existing home sales have also seen double-digit growth rates.
Homebuilder sentiment has improved notably, and real estate agents report stronger traffic of
people shopping for homes. In national surveys, households report that low interest rates and
house prices make it a good time to buy a home; they also appear more certain that house
price gains will continue.
While lending for residential real estate is increasing, underwriting standards remain tight,
thus slowing the rate of recovery in the market.
Reductions in mortgage originations has been most pronounced among borrowers with lower
credit scores.

3. THE FUNDAMENTALS OF
THE HOUSING MARKET
The Current Status and Outlook for:
3

4. House Prices a recovering strongly at the
national level…
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
12-monthGrowthRate
Source: Standard & Poor's/Case-Shiller 20-metro Composite Index4

5. 0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1983 - Q1 1992 - Q1 2001 - Q1 2010 - Q1
Ratio
Average from 1983-2000 = 1.0
Band indicates +/- 1 standard deviation
Equilibrium
* Ratio of Case-Shiller home prices to Owner’s Equivalent Rent
Source: Robert Shiller, Bureau of Labor Statistics
…while the ratio of Home Prices to Rent indicates
that home prices have recovered to a “fair” value.
5

6. Demand for housing continues to show
increasing signs of strength...
0
200
400
600
800
1000
1200
1400
1600
1800
0
1000
2000
3000
4000
5000
6000
7000
Jan-00
Aug-00
Mar-01
Oct-01
May-02
Dec-02
Jul-03
Feb-04
Sep-04
Apr-05
Nov-05
Jun-06
Jan-07
Aug-07
Mar-08
Oct-08
May-09
Dec-09
Jul-10
Feb-11
Sep-11
Apr-12
Nov-12
Thousands
Single Family Home Sales
Existing Homes New Homes
6 Source: U.S. Census Bureau, National Association of Realtors

7. …as low mortgage rates and house prices have helped
to increase Housing Affordability to historic levels.
3
4
5
6
7
8
9
90
110
130
150
170
190
210
230
Jan-00
Aug-00
Mar-01
Oct-01
May-02
Dec-02
Jul-03
Feb-04
Sep-04
Apr-05
Nov-05
Jun-06
Jan-07
Aug-07
Mar-08
Oct-08
May-09
Dec-09
Jul-10
Feb-11
Sep-11
Apr-12
Nov-12
FHFAContractInterestRate
NARHousingAffordabilityIndex
7 Source: FHFA, National Association of Realtors

8. Homebuilders are responding by gradually
rebuilding a diminished housing supply.
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan 1990 Jan 1994 Jan 1998 Jan 2002 Jan 2006 Jan 2010
Thousands,SAAR
Single Family Multi Family
8
Source: Census Bureau

9. CONSUMER INCOME AND
CREDIT CONDITIONS
The Demand for Mortgage Credit:
9

10. Both Real Disposable Personal Income and
Consumption are advancing at a slow pace…
-4
-2
0
2
4
6
8
2000 2002 2004 2006 2008 2010 2012
Fourquarterpercentchange
Consumption Real DPI
10 Source: Bureau Economic Analysis

11. 50
100
150
200
250
1980 1984 1988 1992 1996 2000 2004 2008 2012
Percentofdisposable
income
Equities Real Estate
…while Household Wealth continues its
recovery to pre-financial crisis levels.
11 Source: Federal Reserve Board

12. Growth in Consumer Credit Outstanding has
returned to pre-financial crisis levels…
-1
1
-10%
-5%
0%
5%
10%
15%
20% 2000-01
2000-06
2000-11
2001-04
2001-09
2002-02
2002-07
2002-12
2003-05
2003-10
2004-03
2004-08
2005-01
2005-06
2005-11
2006-04
2006-09
2007-02
2007-07
2007-12
2008-05
2008-10
2009-03
2009-08
2010-01
2010-06
2010-11
2011-04
2011-09
2012-02
2012-07
2012-12
12MonthpercentageChange
12
Source: Federal Reserve Board of Governors

13. …however, consumers have substantially
reduced their use of Revolving Debt.
-15%
-10%
-5%
0%
5%
10%
15%
20%
2001-01
2001-07
2002-01
2002-07
2003-01
2003-07
2004-01
2004-07
2005-01
2005-07
2006-01
2006-07
2007-01
2007-07
2008-01
2008-07
2009-01
2009-07
2010-01
2010-07
2011-01
2011-07
2012-01
2012-07
2013-01
12-monthGrowthRate
Nonrevolving
Revolving
13
Source: Federal Reserve Board of Governors

14. Low interest rates are helping households to
continue to deleverage…
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
1980Q1
1981Q3
1983Q1
1984Q3
1986Q1
1987Q3
1989Q1
1990Q3
1992Q1
1993Q3
1995Q1
1996Q3
1998Q1
1999Q3
2001Q1
2002Q3
2004Q1
2005Q3
2007Q1
2008Q3
2010Q1
2011Q3
Financial Obligations Ratio Debt Service Ratio
Source: Federal Reserve Board of Governors

15. 60
70
80
90
100
110
120
130
140
1980 1984 1989 1994 1998 2003 2008 2012
Debtasa%ofDisposable
Income
…reversing the 30-year trend of increasing
Household Debt to Disposable Income.
15
Source: Federal Reserve Board

16. TRENDS IN LENDING
The Supply of Mortgage Credit:
16

17. Foreclosure Rates continue to decline across
all major loan types…
17
0
1
2
3
4
5
6
1998Q1
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
Prime Loans
Subprime Loans
FHA Loans
Source: Mortgage Bankers Association National Delinquency Survey

18. …while delinquency rates of 90 days and
greater also are declining from their highs.
18
0
2
4
6
8
10
12
14
16
1998Q1
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
Prime Loans
Subprime Loans
FHA Loans
Source: Mortgage Bankers Association National Delinquency Survey

19. In response, Commercial Bank Charge-Off Rates
continue to decline to pre-Financial Crisis Levels.
0
2
4
6
8
10
12 2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
Rate
Credit Card Loans
Other Consumer
SF Residential
Mortgages
19
Source: Federal Reserve Board of Governors

20. However, Lenders remain reticent in Loosening Tight
Underwriting Standards on Mortgage Loans…
-20
0
20
40
60
80
100
120
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
NetPercentageofSurvey
Respondents
Prime
Nontraditional
Subprime
20
Source: Federal Reserve Board of Governors Sr. Lending Officer Opinion Survey

21. …but are selectively increasing lending in response to
growth in the demand for residential mortgages.
-120
-100
-80
-60
-40
-20
0
20
40
60
80
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
NetPercentageofSurvey
Respondents
Prime
Nontraditional
Subprime
21
Source: Federal Reserve Board of Governors Sr. Lending Officer Opinion Survey

22. While growth in mortgage applications is more
balanced among sectors as the recovery expands.
-100.0%
-50.0%
0.0%
50.0%
100.0%
150.0%
200.0%
January2007
May2007
September2007
January2008
May2008
September2008
January2009
May2009
September2009
January2010
May2010
September2010
January2011
May2011
September2011
January2012
May2012
September2012
January2013
12-monthpercentageGrowth
Conventional
Government
22
Source: MBA Applications Survey

23. MONETARY POLICY
The Current Status and Outlook for:
23

24. In response to the Financial Crisis, the Fed undertook
non-traditional policies to accommodate the recovery…
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
1/2/08 1/2/09 1/2/10 1/2/11 1/2/12 1/2/13
Millions
Federal Agency
Securities
Credit Markets
Lending to Financial
Institutions
Long Term Treasuries
Traditional
24 Source: Federal Reserve Board of Governors

25. …helping to reduce mortgage interest rates to
historically low levels.
0
2
4
6
8
10
12
Jan-90
Sep-91
May-93
Jan-95
Sep-96
May-98
Jan-00
Sep-01
May-03
Jan-05
Sep-06
May-08
Jan-10
Sep-11
Federal Funds
Effective Rate
10-yr Constant
Maturity Treasury
30-year Fixed Rate
Mortgage
25 Source: Federal Reserve Board of Governors

26. Interest Rate Thresholds (May FOMC Mtg.)
“…the Committee…currently anticipates that [the]
exceptionally low range for the federal funds rate
will be appropriate at least as long as:
- the unemployment rate remains above 6-1/2 percent,
- inflation between one and two years ahead is
projected to be no more than a half percentage point
above the Committee's 2 percent longer-run goal,
- and longer-term inflation expectations continue to be
well anchored.”
26

27. Key Points (from May FOMC Meeting)
The economy continues to grow, albeit at a
moderate pace.
Labor market conditions have shown some
improvement in recent months…but the
unemployment rate remains elevated.
The housing sector has strengthened further.
The Committee expects that, with appropriate
policy accommodation, economic growth will
proceed at a moderate pace and the
unemployment rate will gradually decline…
27

28. Asset Purchases (May FOMC Meeting)
“…the Committee decided to continue purchasing
additional agency mortgage-backed securities at a
pace of $40 billion per month and longer-term
Treasury securities at a pace of $45 billion per
month.”
“The Committee will continue its purchases of
Treasury and agency mortgage-backed securities…
until the outlook for the labor market has improved
substantially in a context of price stability.”
28

29. The majority of the FOMC do not to anticipate
rate tightening until 2015…
Source: Federal Reserve Board of Governors, March 2013 Projections

30. …with an increasing majority in agreement as
time passes.
Source: Federal Reserve Board of Governors

31. 31
Thank You.