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CNBC EXCLUSIVE: CNBC TRANSCRIPT: CNBC'S "SQUAWK BOX" INTERVIEWS JAMES LOCKHART, FEDERAL HOUSING FINANCE AGENCY DIRECTOR, TODAY

CARL QUINTANILLA: JIM LOCKHART, THE REGULATOR OF FREDDIE MAC, FANNIE MAE AND THE 12 FEDERAL HOME LOAN BANKS JOINING US FROM WASHINGTON. JIM IT'S GOOD TO SEE YOU AGAIN.

JAMES LOCKHART: GOOD MORNING, CARL.

QUINTANILLA: I WANT TO GET YOUR TAKE ON THE STATE OF SOME OF THESE MODIFICATIONS. A BIG PIECE I'M SURE YOU'VE SEEN ON THE FRONT PAGE OF THE NEW YORK TIMES TALKING ABOUT THE SLOW PROGRESS THAT SOME OF THESE COMPANIES ARE MAKING, TRYING TO GET SERVICERS TO MODIFY THE LOANS. THIS ONE EXAMPLE OF THIS COMPUTER ENGINEER IN LOS ANGELES HAS SUBMITTED THREE APPLICATIONS TO MODIFY THE LOAN ON HIS HOME. THE AGENT SAYS THEY CAN'T FIND ANY OF THEM. THIS IS GOING TO BE A LONG, SLOW PROCESS, IS IT NOT?

LOCKHART: WELL, IT'S TOUGH. THE SERVICES ARE STRETCHED PRETTY THIN AT THE MOMENT. THEY'RE ADDING PEOPLE AND THEY NEED TO ADD A LOT MORE TO DEAL WITH THESE MORTGAGES. SOME OF THE BANKS AND SERVICES ARE DOING BETTER THAN OTHERS AT THIS POINT. IT'S GOING TO TAKE A WHILE. I THINK THERE'S OVER 200,000 OFFERS NOW BEEN SENT OUT FOR MODIFICATIONS. THE SERVICERS ARE ALSO WORKING ON THE REFINANCINGS. FANNIE AND FREDDIE HAVE DONE 2 MILLION REFINANCINGS OVER THE LAST FOUR MONTHS.

QUINTANILLA: IN THE FIRST QUARTER YOU DID A FEW TOO, RIGHT? 37,000 I THOUGHT?

LOCKHART: IN THE FIRST QUARTER, FANNIE AND FREDDIE DID 37,000 LOAN MODIFICATIONS, YES. AND THEY HAVE TO DO MORE. THEY ARE GOING TO BE DOING MORE BY WORKING WITH THE SERVICERS.

QUINTANILLA: DO YOU BELIEVE THAT THE RATE IS FAST ENOUGH TO PREVENT A HUGE WAVE OF SECOND HALF, 2010 FORECLOSURES, DELINQUENCIES, SOMETHING THAT COULD UNDO THE GOOD WORK, SOME ARGUE, THAT WE'VE DONE SINCE DECEMBER?

LOCKHART: WELL, WE CERTAINLY HAVE TO DO IT A LOT QUICKER. NOW THAT THEY'RE GETTING STAFFED UP, NOW THAT THEY UNDERSTAND THE PROGRAM, NOW THAT THE RULES ARE OUT THERE, WE EXPECT IT TO CRANK UP PRETTY RAPIDLY. SORT OF BY THE END OF THE SUMMER WE SHOULD HAVE A MUCH FASTER RUN RATE.

WILBUR ROSS: I THINK JIM IS RIGHT. THE PROGRAM THAT PAYS SERVICERS TO DO MODIFICATIONS REALLY HELPS ABSORB A LOT OF THE INCREMENTAL EXPENSE BECAUSE THIS IS STUFF YOU HAVE TO DO LOAN BY LOAN, LOAN BY LOAN, VERY LABORIOUS. AND SOMETIME THE PEOPLE WILL PUT IN AN APPLICATION BUT IT WILL BE INCOMPLETE. TAKES A LOT OF WORK, A LOT OF TIME AND EFFORT. SO IT'S UNFORTUNATELY NOT GOT A SILVER BULLET THAT WILL SOLVE EVERYTHING.

QUINTANILLA: SOME OF YOUR THOUGHTS ON HOUSING OVERALL JIM. INTERESTING WEEK LAST WEEK FROM SOME OF THE HOME BUILDERS, KB HOME AND LENNAR TALKING ABOUT IMPROVED CANCELLATION RATES. CAN YOU PUT SOME OF THAT NEWS IN PERSPECTIVE FOR US?

LOCKHART: I THINK WE'RE IN A PROCESS AND WE MAY BE STARTING TO SEE SOME BOTTOMING. HOW LONG THAT WILL TAKE, WELL ITS ANYBODY'S GUESS. FOR INSTANCE, WE PUT OUT OUR MONTHLY HOUSE PRICE INDEX LAST WEEK, AND IT WAS ONLY DOWN 0.1%. IN FACT, FOR THE FOUR MONTHS OF THE YEAR, FIRST FOUR MONTHS, IT'S ONLY DOWN ABOUT 0.3%. SO WE MAY BE STARTING TO SEE SOME BOTTOMING. CERTAINLY MORTGAGE RATES BEING DOWN WHERE THEY WERE WERE VERY HELPFUL AT 5.4%. THEY'RE HIGHER, BUT THEY'RE STILL IN A RANGE THAT I THINK DOES ACHIEVE AFFORDABILITY.

QUINTANILLA: ANY DOUBT IN YOUR MIND WE HAVE SEEN THE LOWS, MAYBE A GENERATIONAL LOW IN MORTGAGE RATES?

LOCKHART: THAT'S -- THAT'S PROBABLY A REASONABLE STATEMENT, BUT YOU NEVER KNOW.

QUINTANILLA: THERE'S ALWAYS HOPE, I GUESS, RIGHT?

LOCKHART: YES.

QUINTANILLA: BUT ALL SIGNS WOULD SUGGEST WE ARE HEADING IN AN OPPOSITE DIRECTION NOW, WOULD YOU AGREE?

LOCKHART: WELL, I THINK WHAT WE HOPEFULLY WILL SEE SOME STABILIZATION AROUND THESE RATES. CERTAINLY THE FED AND THE TREASURY HAVE BEEN BUYING MORTGAGE-BACKED SECURITIES. I THINK THE FED HAS NOW BOUGHT OVER $700 BILLION AND FANNIE MAE AND FREDDIE MAC MORTGAGE-BACKED SECURITIES AND DEBT AND THE TREASURY IS OVER 150 BILLION.

QUINTANILLA: WAS IT YOUR HOPE THE FED WOULD HAVE ACCELERATED THOSE PURCHASES LAST WEEK OR DID YOU AGREE WITH THEIR STANCE TO KEEP -- TO STAY PAT?

LOCKHART: THEY'RE NOT STAYING PAT. THEY'RE CONTINUING TO BUY.

QUINTANILLA: SURE. BUT YOU UNDERSTAND?

LOCKHART: YEAH, I MEAN, THEY HAVE A COMMITMENT TO DO $1.25 TRILLION. THAT'S A SIGNIFICANT COMMITMENT. I THINK AS THEY CONTINUE TO BUY AND SUPPORT THE MARKET, IT WILL BE VERY HELPFUL.

ROSS: BUT IN TERMS OF FIXING THE HOUSING MARKET, IT REALLY DEPENDED ON HOW WELL THE MODIFICATIONS STICK. ONE OF THE DIFFICULTIES HAS BEEN PRETTY HIGH RECIDIVISM RATE. INDUSTRY WISE, SOMETHING LIKE 55%, HAVE GONE BAD WITHIN SIX MONTHS. SO IT MAY BE TO SOME DEGREE JUST PUSHING IT FORWARD INTO THE FUTURE. AND I THINK THAT'S GOING TO BE THE TRICKY PART, TO MAKE SURE THAT NOT ONLY THEY GET DONE, BUT THAT THEY STICK.

LOCKHART: THAT'S -- WILBUR, YOU'RE EXACTLY RIGHT. THAT'S A BIG ISSUE. PEOPLE REDEFAULTING HAS BEEN A PROBLEM. I LOOKED AT WHAT FANNIE AND FREDDIE DID THE FIRST QUARTER LAST YEAR, ONLY ABOUT 16% OF THEIR LOAN MODIFICATIONS HAD A REDUCTION IN THE PAYMENT. THIS QUARTER IT WAS 83%. I THINK WE'RE SEEING A WHOLE DIFFERENT KIND OF LOAN MODIFICATION WITH SIGNIFICANT REDUCTIONS IN PAYMENTS. AND THAT'S WHAT WILL HOPEFULLY HELP PEOPLE NOT TO REDEFAULT. OF COURSE, THE OTHER ISSUE IS JOBS. AND IF PEOPLE LOSE JOBS, IT'S TOUGH.

AMANDA DRURY: YEAH, ABSOLUTELY, ESPECIALLY IF THEY GO INTO NEGATIVE EQUITY AND WALK AWAY FROM THOSE LOANS. JAMES, I HAVE A QUESTION REGARDING A COMMENT THAT ONE OF MY GUEST LAST WEEK IN AUSTRALIA MADE, AND HE WAS ESSENTIALLY THE HEAD OF ONE OF AUSTRALIA'S LEADING MORTGAGE BROKERS. HE WAS SAYING THAT NOW BECAUSE IT'S MORE STRINGENT, THERE ARE MORE STRINGENT RESTRICTIONS ON WHO CAN GET A LOAN, ABOUT 30% OF ALL LOAN APPLICATIONS ARE NOW BEING KNOCKED BACK IN AUSTRALIA. I'M WONDERING IF YOU HAVE ANY FACT OR FIGURES ON HOW MANY APPLICATIONS ARE BEING KNOCKED BACK HERE IN AMERICA AND WHETHER OR NOT YOU THINK THAT MODIFICATIONS TO LOAN APPLICATIONS ARE GOING -- ARE BEING STRINGENT ENOUGH.

LOCKHART: WELL, CERTAINLY THE STANDARDS HAVE RISEN SINCE TWO YEARS AGO BUT THEY HAD TO RISE. WHAT WAS DONE THEN WAS APPALLING. SO, YES, IT'S TOUGHER TO GET A MORTGAGE. FANNIE AND FREDDIE HAVE BEEN IN THE MARKETPLACE. THEY HAVE BASICALLY HAD ABOUT 70% OF ALL NEW MORTGAGES ORIGINATED LAST QUARTER WERE BOUGHT BY FANNIE AND FREDDIE AND THE FHA, THE GOVERNMENT PROGRAM, HAS ALSO BEEN IN THE MARKET FOR OVER 20%. SO LOANS ARE -- MORTGAGES ARE BEING MADE. I THINK ONE OF THE PROBLEMS IS PEOPLE ARE STILL -- HAVE THAT LACK OF CONFIDENCE AND THEY'RE NOT COMING IN YET. WE'RE HOPING AS, YOU KNOW, WE STABILIZE, PEOPLE WILL START TO BUY MORE HOUSES.

QUINTANILLA: IS IT CLEAR TO YOU THAT INVENTORY LEVELS HAVE BOTTOMED OUT AS WELL, OR TOPPED OUT, I SHOULD SAY?

LOCKHART: WELL, IT'S HARD TO SAY WHAT CLEAR IS, BUT FROM MY STANDPOINT, YOU KNOW, WE ARE IN THIS BOTTOMING PHASE IN A VARIETY OF DIFFERENT WAYS. WE'LL SEE SOME CHOPPINESS. YOU KNOW, THERE COULD BE SIGNIFICANT UP AND DOWN SIDES TO THE CHOPPINESS.

QUINTANILLA: IT'S NOT THE FREEFALL SCENARIO WE SAW LAST YEAR, RIGHT, WHERE WE DIDN'T -- EVERY MONTH JUST BROUGHT A NEW RECORD, IT SEEMED.

LOCKHART: OH, YEAH, LAST FALL, SEPTEMBER, OCTOBER, IT WAS A VERY SCARY TIME. WE'VE CERTAINLY GOTTEN THROUGH THAT PERIOD. I THINK THE GOVERNMENT PROGRAMS HAVE BEEN HELPFUL. T.A.R.P. HAS BEEN HELPFUL. CERTAINLY THE TREASURY AND FED BUYING THE MORTGAGE-BACKED SECURITIES HAS BEEN VERY HELPFUL. SO, YES, WE'RE DEFINITELY NOT IN A FREEFALL AND WE'RE STARTING TO EDGE OUR WAY OUT.

QUINTANILLA: WE HAD A DISCUSSION WITH SOME OF OUR TRADERS IN THE LAST BLOCK TALKING ABOUT ALL THE GOVERNMENT INVOLVEMENT THAT'S TAKING PLACE IN VARIOUS PARTS OF THE ECONOMY, AUTOS AND SO FORTH. AND FANNIE AND FREDDIE ARE STILL USED AS AN EXAMPLE OF HOW THAT MODEL IS BROKEN, OR IS WRONG. WHEN YOU GET THE GOVERNMENT INTO A BIG SECTOR OF THE ECONOMY, HOW THEY MANAGE TO MESS IT UP. CERTAINLY, THERE'S PLENTY OF EVIDENCE TO MAKE THAT ARGUMENT WITH FANNIE AND FREDDIE. DO YOU AGREE, HAS IT GIVEN GOVERNMENT INVOLVEMENT A BLACK EYE?

LOCKHART: I THINK AS WE THINK ABOUT THE FUTURE OF FREDDIE MAC AND FANNIE MAE, WE HAVE TO HAVE A MUCH CLEARER DIVIDING LINE BETWEEN WHAT IS GOVERNMENT AND WHAT IS THE PRIVATE SECTOR. ONE OF THE KEY PROBLEMS FANNIE AND FREDDIE HAD IS THEY WERE ALLOWED TO LEVERAGE THEMSELVES AT 100 TO 1. 1% CAPITAL. YOU LOOK AT BACKS AND THEY'RE LOOKING AT 10% CAPITAL. THAT KIND OF LEVERAGE, EVEN IF THEY HAD A FLAWLESS LOOK, ALMOST WOULD HAVE BEEN A PROBLEM. AND THEY HAVE 3% SERIOUS DEFAULT RATES. THAT HAS CREATED A MAJOR PROBLEM FOR THEM. I THINK THERE WAS A BIG ISSUE AND REGULATION AND THE POWER THE REGULATOR HAD, THE INABILITY TO SET CAPITAL STANDARDS, THAT WAS A PROBLEM.

ROSS: BUT ISN'T THERE CONGRESSIONAL PRESSURE NOW TO MAKE FANNIE AND FREDDIE LOOSEN THEIR STANDARDS AND GO TO EVEN HIGHER LOAN TO VALUE RATIOS?

LOCKHART: WELL, CERTAINLY THERE'S CONGRESSIONAL PRESSURE TO LOOK AT HELPING VARIOUS MARKETS AROUND THE COUNTRY. FANNIE AND FREDDIE BY CHARTER CAN'T GO OVER 80% LOAN TO VALUE. AND SO FAR WE HAVEN'T SEEN MUCH LEGISLATION THERE. WHAT WE HAVE ALLOWED THEM TO DO THOUGH IS IN THIS REFINANCING PROGRAM, IF THEY ALREADY OWN THE LOAN, IS TO REFINANCE IF THE CREDIT IS ABOVE -- IF THE LOAN TO VALUE IS ABOVE 80%.

QUINTANILLA: JIM, ALWAYS GOOD TO SEE YOU. APPRECIATE THE INSIGHT TODAY.

LOCKHART: GOOD SEEING YOU ALL.

QUINTANILLA: JIM LOCKHART JOINING US FROM D.C.




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