Leland C. Brendsel
Chairman and CEO
Freddie Mac

National Association of Mortgage Brokers Annual Convention
Cleveland, Ohio
June 16, 2002

Thank you. Good morning. It is great to be here. Don't you think Jim has done an outstanding job as Convention Chairman already? And he's not done.

I am honored to be introduced with the 1950s theme. Jim must have done some homework about me, noticing my age. I turned 60 this year, which means I was in high school in the late 1950s, in Lyons, South Dakota. Last night, I was talking to my wife about coming here to talk to you and about the rock and roll theme. I still have a stack of 45s. I pulled out one of my favorites and got out my old record player, but it had deteriorated over time. I brought the record along to see if someone could play it for me.

This one happens to be "Rock Around the Clock" by Bill Haley and His Comets. How many of you remember the song? [sings]

We're going to do one more from Bill Haley. How many of you remember his next hit - See you Later Alligator? [sings]

I could go on like this. I wouldn't say you would rather hear me sing than talk, but it does bring back great memories.

I am very pleased to be here. I would like to recognize Joe Falk for his tremendous work as your president. He continues to push mortgage brokers to uphold the highest standards in the lending industry. I would like to congratulate Armand Cosenza on his new role as president of this association, and A.W. Pickel as incoming President-elect.

I appreciate the support Joe and his fellow officers have provided to Freddie Mac. Freddie Mac has always enjoyed a great partnership with the broker community through this association. Your support of Freddie Mac's mission, your support of our mortgage products and your support of our technology have played a key role in helping us expand homeownership across this nation.

I am pleased to be here today to thank you directly for all of your support. And I am honored to join Willie Newman and Senator D'Amato in opening the conference this morning. I had the good fortune to get to know Senator D'Amato when he chaired the Senate Banking Committee. He was an outstanding senator. His understanding of this business, of the mortgage market and housing has always impressed me. His enthusiasm and commitment to housing and the people of New York are evident in everything he does.

Certainly, Willie, the Senator and I know a few things about housing. When it comes to rock-and-roll, while I remember it first-hand, I had to do a little bit of research. Housing and rock and roll have a few more similarities than I thought.

They both gained national attention about 50 years ago. Some would say both experienced some deterioration in the 1970s. Over the last two decades, both have grown — in size and significance — to become American institutions.

Rock and roll, as you already know, began when Cleveland disk jockey Alan Freed began playing a new kind of music about 50 years ago. It quickly evolved into bands from around the world. Today, we associate rock and roll with a broad array of musicians — from Elvis and the Beatles to the Rolling Stones, and even Ozzie Ozbourne.

Homeownership has also changed significantly over the past 50 years.

When President Truman signed the Housing Act of 1949, the homeownership rate was just 55 percent. His goal, as expressed in the Housing Act, was "a decent home and suitable living environment for every family." Indeed, at that time a low-downpayment, conventional mortgage was a rarity. There was only one type of lender that provided conventional loans at than time — the savings and loan industry. The market was far less competitive and far less innovative in terms of the products provided.

Today, the homeownership rate stands at 67 percent, and the housing industry and housing finance system have evolved to include a broad array of mortgage products and financing tools. Competition brings out the best in everyone — you are a critical part of that.

Demand for both housing and rock and roll is stronger than ever, and both, I think, will continue to evolve and change in the years ahead as consumer demand changes. While I cannot comment on the future of America's music, I can provide some insight into the future of America's housing market — a market that stands today as the best in the world. I think it is bound to get better in the years ahead.

In fact, the entire housing market continues to outperform all expectations in the current year, following a record last year in 2001. I think 2002 — we already see it — is shaping up to be another excellent year for housing.

Mortgage rates are below 7 percent — actually about six and three-quarters, or even less. I believe low interest rates will continue. They are going to spur, conservatively, total lending nationwide of $1.5 trillion. Actually it could be $1.6 or $1.7 trillion — a little less than last year's record-shattering $2.1 trillion, but still an excellent year for mortgage lending.

Home sales also continue to be strong. They set a record in the first quarter of this year. Sales are expected to slow to a more normal rate for the remainder of the year, but the continuation of low interest rates should contribute to another outstanding year in home sales and housing construction.

Overall, housing fundamentals remain solid. While there may be some weakening in a few local markets, I think when you look nationally, there are a number of factors that are contributing to the continuation of this strong housing market, besides low interest rates and high housing affordability. Peoples' incomes continue to grow, and the inventory of unsold homes continues to be very low. With all of that, I think we can look forward to another excellent year.

The consistent performance of America's housing market has helped our nation build tremendous wealth and strengthened our economy.

Over the past two years, the increase in home prices has contributed to an increase in homeowners' equity by $1.3 trillion. For many households, the increase in net worth from gains in the value of their homes offset significant losses from the stock market during the same period, which amounted to more than $5 trillion over the past two years. Housing has proven to be a source of financial stability. As a result, consumers have remained confident enough to continue spending and investing.

In addition, last year borrowers refinanced homes in record numbers. All told, borrowers saved nearly $10 billion in monthly payments through refinancing their mortgages, and they took another $100 billion in cash out of their home equity — a relatively small amount given the gains they have experienced. This activity helped consumers leverage their wealth and contributed to the national economy.

In fact, the President as well as the Vice President remarked on this during the last few months. In remarks to the National Association of Home Builders earlier this month, Vice President Dick Cheney spoke about the importance housing brings to the national economy.

He said: "Housing and related industries account for about 14 percent of this nation's economy…. A healthy economy and a confident nation depend on a vigorous, growing housing sector — and this is one of the goals of our administration."

This week President Bush dedicated his entire radio address to his initiative to increase homeownership, which I am sure will get more attention over the next few weeks.

Certainly the numbers show just how vibrant our housing finance system is. However, all of us will be challenged to make the system even better to meet growing demands in the future.

Over the next decade, the nation's families are going to need $6 trillion in additional mortgage money. Today, there is about $6 trillion in mortgage debt outstanding. Over the next decade, that's going to grow from $6 trillion to roughly $12 trillion — that's a lot of money. Mortgage debt will double.

Not only will there be record numbers of borrowers this decade, but those borrowers will be more diverse than ever. Consider that there will be 15 million first-time homebuyers who will enter the market in this decade. Nine million of them will be minorities. Nearly one-third of new households will be of Hispanic background, and a majority of them will be immigrants.

Freddie Mac is committed to raising the capital necessary to finance this increase in mortgage lending. And we are committed to providing the products and technology to serve this growing and diverse generation of borrowers.

We continue to develop new securities, debt securities and mortgage-backed securities, to raise additional funds in the world's capital markets. And we search the globe to deepen the universe of investors in these securities. Five years ago, less than 10 percent of our borrowing was done overseas. Today, more than one-third of the debt we raise comes from overseas — money we make available to finance mortgages in communities across the nation.

In the decade ahead, Freddie Mac will continue to work with our partners to link Main Street to Wall Street. Broad sources of funding ensure that we can meet a variety of consumer needs and expand homeownership to serve underserved consumers.

We raise funds globally, and we work to deliver this money as efficiently as possible to our lenders. The widespread adoption of the Internet and technology is creating new opportunities for us to serve and reach more consumers.

Thanks to the online experience, today's homebuyers are much more savvy than they used to be. And consumers are more savvy thanks to the work you do. Consumers can now take virtual tours of homes for sale. They can compare mortgage rates and even lock in a rate online with some lenders. They are demanding faster and better service.

You are on the front lines. Mortgage brokers interact with these borrowers every day. You are the first to see new demands for financing. And you lead the industry in responding to consumer needs.

Freddie Mac is providing you with a variety of technology tools that make the lending process faster, simpler, fairer, and enable you to reach more borrowers in more communities. That is our vision for what we will continue to do in the future.

We've come a long way. In 1995, we introduced automated underwriting to the mortgage market. Our system is called Loan Prospector®. This technology has fundamentally changed the way mortgages are made.

Our automated underwriting system can now evaluate a loan for purchase and approve it in a matter of seconds — 15 or 20 seconds — about the time it takes to sign a traditional loan application.

In addition to speed, more importantly, Loan Prospector's increased predictive power helps us approve an increasing number of loans and helps up approve the vast majority of applications. We are able to improve our ability to evaluate the borrower, without increasing the risk involved in extending mortgage credit.

The speed and enhanced predictive power of this system is helping Freddie Mac purchase more loans made to a growing and diverse number of homebuyers, including minority and low-income borrowers. It is enabling lenders to expand into underserved segments of the market.

Loan Prospector also enables us to purchase a wider variety of mortgage products. For example, we can buy more low-downpayment loans and we can offer underwriting terms that are more flexible — higher qualifying ratios, for example — to meet the needs of more homebuyers.

Freddie Mac is also using the Internet to put the power of Loan Prospector in your hands when you need it — at the time you take the loan application. I was told one mortgage broker, Rene Salvatierra, used it on a Friday night to approve a borrower in Starbucks, and I'm sure many of you have similar stories. Brokers like Rene are the biggest users of our system.

In fact, more than 50,000 individual brokers — representing about 13,000 mortgage brokerage firms in all 50 states — use Loan Prospector today. And more are signing up every day.

This month our Loan Prospector automated underwriting system reached another major milestone — we processed our 20 millionth loan. It took over 6 years to process the first 10 million loans using this system and only another 17 months to process the next 10 million. We did it because of you — thank you!

Now, our focus is to leverage automated underwriting to simplify the rest of the origination process. We are enhancing our Loan Prospector web site to provide more business tools for you. These include third-party services, such as flood, title insurance and appraisals. In the future, you will be able to access a full suite of tools you need to approve, to price, to process, to close and to fund a loan. These enhanced capabilities will help originators close loans in hours, rather than weeks and eliminate steps in these processes.

We also are using technology to reach out to borrowers who face substantial barriers to homeownership. Last week, we unveiled a Spanish-language version of our homebuyer educational tools on the web to help increase homeownership among Hispanic families. We also recently introduced technology that helps housing counselors extend valuable homebuyer education to consumers in communities across the nation.

We are committed to helping families purchase homes they can afford and keep. As part of this commitment we want to maintain the highest standards for all mortgage loans we purchase. Of course, we expect the same high standards from our lender partners. We refuse to do business with lenders who engage in predatory practices and who do not report, for example, full-file credit data to credit repositories each month.

Earlier this year we announced that we will no longer invest in subprime mortgages that have a prepayment penalty that exceeds three years. We want borrowers who display a record of timely payments to be eligible for lower-cost mortgages, which requires that their credit reports are up to date to reflect satisfactory payment experience. Then if they want to refinance, the costs are minimized.

Finally, we are using education to stamp out predatory lending practices and help borrowers keep their homes. I commend your leadership for developing and adopting a code of conduct that combats predatory practices. And I encourage you to continue to provide leadership to the mortgage industry and broker community on this issue.

Freddie Mac values the role you play in expanding homeownership.

This is the third year that we have recognized brokers who provide outstanding service through our Annual Service Awards at this conference. Today at noon, Freddie Mac will announce this year's grand-prize winner.

The mortgage industry has a history of innovating to meet consumer demands. You have a history of innovating to meet consumer demands. Fifty years ago there was no Freddie Mac; fifty years ago there were very few mortgage brokers and there was no National Association of Mortgage Brokers. We both evolved out of consumer needs, and we both contribute to the world's best housing finance system.

During the next 50 years, our industry must continue to innovate, and must continue to serve evolving demand in a more diverse market.

Freddie Mac is pleased to be your partner in meeting this goal. We will continue to search the globe for financing to meet this demand. And we will continue to leverage technology to deliver this capital more efficiently to you in your communities.

We will work the National Association of Mortgage Brokers to ensure this industry continues to be as vibrant, competitive and efficient in serving communities in the years ahead. If past history is any indication of future success, Freddie Mac and America's mortgage brokers are well positioned to make the world's best housing finance system even better. I look forward to seeing that happen.

Thank you.