You know, another great Oklahoma native, Will Rogers, said that "banking and after-dinner speaking are two of the most nonessential industries we have in this country. I am ready to reform if they are."

So, Ron, if you're ready to reform, then we can wrap this up right now and go home.

But before we do, let me thank Scott Veitch, Kerry Williams, and all of you for coming out tonight. Since you did, I'll say a few words about the housing and mortgage markets from my vantage point, and a little about Fannie Mae.

Ron and Fannie Mae go back a long way. We know Ron as a customer and partner for affordable housing & as a past president of the MBA & and as an industry advisor to the company.

This afternoon, I got to see my favorite side of Ron -- tour guide. He took me to see The Vineyard -- a housing community with almost 300 affordable units for seniors. Seven years ago, Ron brought Fannie Mae into the project as a $3 million equity investor. It's a great development, the kind of "doing well by doing good" project we'll need to replicate across the country as baby boomers like me age. Gee -- I can't wait.

When last seen, Ron and I were at the Acoma Pueblo in New Mexico, in winter, at 8 a.m., and neither of us could read our speeches because we were shivering so much.

State of Housing

Fannie Mae manages millions of mortgages all over the country. So we keep a pretty close eye on the national housing market. Let me share what we're seeing.

Clearly, the superheated housing market of the past five years is cooling. The record inventory of unsold homes is driving down home prices across the country. In August, median prices for new homes fell for the first time in three years, and for existing homes, median prices fell for the first time in 11 years. Investors who had jumped in are now jumping out of the housing market, shrinking prices even further in some markets.

Here in Oklahoma, the market is also slowing a bit. You know that. But strong energy prices have been cushioning the blow and home sales, home prices, and housing starts remain pretty healthy, particularly in Oklahoma City.

Looking ahead, Fannie Mae's economists say we should expect home sales nationwide to come down by 10 to 15 percent this year and 5 to 7 percent next year, while inventories will stay high and prices weak. Our economists are also advising me that, according to their regression analysis, we're going to see a steep decline in reality TV shows like "Million Dollar Listing" and "Flip this House."

But before anyone jumps off a cliff, remember, we're coming off a housing market that no one really thought was sustainable. Even with the slowdown, 2006 should still be the third strongest year for home sales in history, and 2007 should be the fifth strongest.

Between 1890 and 2004, residential real estate, in real terms, rose 66 percent -- or four percent per year. Between 1997 and 2005, they rose 52 percent -- or 6.2 percent per year. So you gotta say -- we were way above trend.

In the long run, I have a lot of confidence in housing. This will continue to be a strong and growing market for a very simple reason -- this country is strong and growing.

Supply growth is tough. Demand is constant.

Over the next 10 years, the U.S. population is expected to grow by 25 to 30 million people, create 13 to 15 million new households, and require approximately 20 million more homes to be built. And to finance and refinance those homes, this country will need another $30 trillion in mortgage capital -- 50 percent more than in the last 10 years.

State of Mortgage Market

Let me touch on the mortgage market, which is also cooling off.

We expect about a 4 percent slide in home purchase originations this year and another 6 percent next year. Total originations, factoring in declining refis, should fall by 18 percent this year and 6 percent next year to $2.4 and $2.3 trillion, respectively.

At the same time, we expect total single-family mortgage debt outstanding to grow by 9.4 percent in 2006 and another 6.3 percent in 2007. So, while growth rates are down, the overall size of the market we operate in is still going up.

But the way people are financing their homes has changed dramatically, thanks to a combination of factors: Steep home prices and mortgage innovation. Sometimes, this is not all to the good.

With the run-up in prices, working families are struggling to get their foot in the door. The Census Bureau reported last week that in nearly every part of the country, the percentage of owners and renters spending almost a third or more of their paychecks on housing rose sharply from 2000 to 2005.

So home buyers are doing everything possible to keep their monthly payments down. And our industry has stepped up with a wide variety of new lending options -- interest-only ARMs & option ARMs with negative amortization & low-doc and no-doc loans & and piggyback seconds to pay for the down payment.

These products are more common in places like the East and West Coasts where a little two-bedroom bungalow can cost a million dollars, easy. Here in Oklahoma, consumers tend more towards the safe, standard long-term, fixed-rate loans -- the kind Fannie Mae was established to finance.

Much of this mortgage innovation is good -- good for home buyers, good for the mortgage industry, and, let's face it, inevitable. It's made our system the envy of the world. But we've been worried about some of these products -- especially ones that layer several nontraditional features on top of one another, or where borrowers who barely squeaked into the loan in the first place could see the house payment jump by a thousand bucks a month when the principal kicks in or rates go up.

We're not seeing an epidemic of delinquencies and defaults yet. And maybe we won't. But to be on the safe side, bank regulators just issued guidance to lenders to make sure they're protecting consumers and their own safety and soundness. We're looking at our own product options to make sure they comply with the guidance, and we will be working with our lender partners to help them if they need it.

Across the nation, by our analysis, at least one trillion of the nine trillion dollars in first-lien single-family mortgages outstanding are scheduled to "reset" next year, meaning the ARM coupon rate will change, the interest-only period will end and the principal payments will start, or the low teaser rate will jump to a much higher rate. Bottom line, more people could be facing higher monthly payments. We've looked at a few cases where payments can go from $300 to $2000.

I share these thoughts not just to give you a sense of what's happening nationally, but also to make a point: That the market and borrowers may begin to back away from the more exotic and riskier innovations. And as they do, the nation might see a return to the kind of lending that Oklahoma has been doing all along.

Fannie Mae's Service to Customers

So, here's where we are: We have a housing market with a big hangover, but which we still expect to grow strongly over the next decade.

We have a mortgage market that's also slowing, correcting and somewhat uncertain, with lenders worried about overcapacity and shrinking margins.

In this market, what does Fannie Mae have to offer?

First, a little housekeeping: You may have read in the financial press that Fannie Mae got a lot of our accounting wrong. We're working to restate three years of financial results and taking other actions to put our house in order.

One of the lessons we've learned through this period is, never lose sight of your customer. It's a competitive market. You have a lot of choices in the secondary mortgage market. So we have to earn and re-earn your business every day.
So we're going back to basics and refocusing our business on three simple commitments: Service. Reliability. And value.

Here's what we mean by service.

This afternoon, Ron also took me over to a development here in Oklahoma City called the Las Rosas Addition. Not long ago, the land there was pretty empty, mainly woods. Soon, it will have 200 nice, new, affordable homes, all priced under $170,000, thanks to Tom Parrish, the developer, and Robert Lerma, a local builder.

I'm told that if you go to Las Rosas on a Saturday morning, it's like a festival. The local Hispanic radio station is broadcasting from there. And on many Saturdays, you'll see a guy named Ron McCord flipping burgers and turning hotdogs.

Ron spends time at Las Rosas because right in one of the model homes, his company has set up an office so that families who are interested in the homes can come in, sit down, and right there, find out if they can qualify for a mortgage -- and get started on the process.

One of the choices they can apply for is a Fannie Mae product called MyCommunityMortgage. It's designed specifically to help lenders help families who need a little help.

For example, it has a zero down payment option. It also scours for non-traditional factors in the applicants' financial and credit profiles that demonstrate their ability and willingness to make their mortgage payments -- say, if they always pay their rent and utility bills on time.

Or if the home buyer is a recent immigrant and doesn't have an established relationship with a bank, he can put up cash toward closing the loan. If a borrower doesn't have traditional credit, a co-borrower who does and also contributes more than half of the qualifying income can help close the loan.

We hope that products like these can help you give a boost to families who dare to dream of owning a home. And so loan applicants don't have to sit with a translator at their elbow, a couple of weeks ago, we jointly announced with our chief competitor, Freddie Mac, that we're providing Spanish translations of standard mortgage documents for all fifty states.

The so-called "emerging markets" are now the fastest growing group of new home purchasers. This trend will touch every community in America, including Oklahoma where the Hispanic population has increased by one-third in the past five years and where the Native-American population is already the nation's second largest.

Many of these families are also underserved by our industry, with the national minority homeownership rate at around 51 percent, far below the overall national average of 69 percent. That's a problem, but it's also a market opportunity.

Working family, minority family, immigrant family, American-Indian family -- these are future homeowners of America, and the future of mortgage lending. And we want to help you reach and serve these markets.

Fannie Mae is also trying to get better at letting local lenders know in advance what kind of products, services and variances we can give you -- instead of waiting until you ask the right question.

We're working to push decision-making down to the regional and local level, away from Washington, to help you get answers in hours and days, not weeks or months.

And we're working to improve our technology tools -- Desktop Underwriter, Desktop Originator, eCommiting, eCommitONE, and Loan Delivery.

That's what we mean by service -- providing the tools, technologies, products and pricing so you can serve more home buyers in the ways they need serving.

Next, here's what we mean by reliability: Always there, when you need us.

That is why we exist. Fannie Mae was founded as a government agency in 1938, three years after Black Sunday, the single worst day of the Oklahoma dust storms. We were founded because when banks failed, pulled back or couldn't extend more credit to homeowners, people lost their homes. No fault of their own. Since banks loaned from their own deposits, tough economic times meant even tougher times for housing.

So Fannie Mae was established to draw money from investors and make those funds available to bankers so you'd always have money to lend to home buyers -- and so homeowners and housing didn't suffer the ups and downs of the local economy.

A couple of generations later, a lot has changed. Fannie Mae is now a private company on the New York Stock Exchange, funded entirely with private capital. And today we finance mortgages by raising capital from investors all over the world.

Through good times and bad, we're always open for business & in all communities at all times & buying and securitizing conventional mortgages & providing a constant bid in the market for mortgage assets & keeping mortgage funds flowing nationwide and driving down the costs & offering lenders a variety of mortgage options & and acting as a secondary market backstop you can count on. Others may be the best bid most of the time, but when everybody else leaves the market, we're still there.

But none of that matters much if we can't provide you with value.

Here's what we mean by value: Helping you grow your business, serve more families, save them money and make a good living. We can never forget that the only way Fannie Mae can succeed is to help lenders succeed. We can never forget our roots. You. The local lender. You house America. We're here to help.

If you can think of any more ways we can provide service, reliability or value, please let me know. Or call our folks here, George Sierra or Rex Smitherman, who are sitting over there.

Yesterday, as I was heading out to Oklahoma, one of my staff gave me some advice in the form of a quote from Will Rogers. He said, "Never miss a chance to shut up."

But before I do, let me say, happy centennial to Oklahoma. And thank you for the chance to come here and see you.