WASHINGTON, DC-Measures that the government has taken to repairthe
 real estate finance markets are, in fact,having an impact--but
 more work needs to be done, FDICchairperson Sheila Bair told the 
audience at ULI’sannual conference, being held here.

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“Yes, we have achieved stability in the housing market, but atthe price of unprecedented government backing,” she said. Goingforward the US will have to decide which measures to continue to
emphasize--and which need to be discarded.

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The implicit guarantee of government backing that the GSEsreceived
 almost up until they were taken intoconservatorship is an example of
 the latter, Bair said.“We have two choices for GSE reform: either the
government should provide explicit support, and charge forthat
 support, which also must be actuarially sound, orit should be left
 strictly up to the private sector. Butthe halfway path we took was
 clearly a big mistake.”

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As the debate about the GSEs’ future moves 
forward,she said, “everything has to be considered” includingtax
 incentives that homeowners hold dear.
Bair maintained that many measures the government has put inplace--even some very recently--are starting to have an impact. Shepointed
 to the safe 
harbor rule that addresses thetreatment of assets during a potential
 insolvency of anFDIC-backed institution--and
 how it eliminates some ofthe incentives that motivated servicers to
 move forwardwith a foreclosure even when the borrower is trying to
work out a modification.

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Previously, a servicer would advance payments
 toinvestors if the borrower stopped paying. It would then be in the
servicer’s best interest to move forward with aforeclosure so it
 could get its money back. Under thenew rules, though, a servicer
 cannot advance more thanthree payments, Bair said.
 Not everyone in the industrywas happy with the changes--and there
 was dissent overthe financial overhaul as well, she acknowledged.
 Also,some pieces are still missing, such as the alternativefor
 credit rating agencies mandated under the financialoverhaul. “We are 
soliciting proposals now and hope tomake a decision by the end of
 this year.”

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There has been some good news in the financial markets, Bairalso
 said. The banking system is less under siege, andbank losses are
 expected to be less in 2010 compared to2009. At the same time, the FDIC 
is wringing out thebest value of the assets it seizes for taxpayers.
 “Thebidding process has become more robust and we are getting better
pricing,” she said. The end goal to all of thisconfusion and upheaval, Bair emphasized,
 is to bring thesecuritization markets back to life, but in a
sustainable manner.

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