In a speech on Nov. 12 at the George Washington University Center for Law, Economics and Finance Conference on the Dodd-Frank Act in Washington, D.C., Federal Reserve Governor Daniel K. Tarullo tackled a number of mortgage industry topics, including loan modifications, capital requirements and financial reform. Here are a few highlights of Governor Tarullo's address: On the rise of loan modifications ... "Whatever the merits and relative weights of these various explanations, the social costs of this situation are huge. It just cannot be the case that foreclosure is preferable to modification--including reductions of principal--for a significant proportion of mortgages where the deadweight costs of foreclosure, including a distressed sale discount, are so high. While some banks and other industry participants have stepped forward to increase the rate of modifications relative to foreclosures, many have not done enough. I would hope that both servicers and ultimate holders of the mortgages will take this occasion not just to correct documentation flaws and to contest who should bear the losses of mortgages gone bad, but to invigorate the modification process." On the implementation of the Dodd-Frank Act ... "What I can say is that, in implementing Dodd-Frank, the Board of Governors will be guided by the same norms of statutory construction that a court would apply. Most importantly, where Congressional intentions are clear from the language of the statute, we must faithfully execute those intentions. Of course, there are a good many provisions that do not admit of a single interpretation, and the implementation of those provisions will require the exercise of discretion by the Federal Reserve or other regulatory agencies. "I can also say that we are following a transparent and inclusive process that goes well beyond the classic notice and comment requirements for agencies adopting regulations. As to transparency: At the Federal Reserve, we are entering into the public record a summary of all communications with non-government groups or individuals regarding matters subject to a potential or proposed rulemaking under Dodd-Frank. As to inclusiveness: We have joined with the other banking agencies in sponsoring a series of joint forums to solicit views from industry, academics, and others on some key issues relevant to Dodd-Frank implementation. We are also hearing views on regulatory implementation at meetings that cover a broad range of topics, such as at our last Consumer Advisory Council session." On Basel III in relation to the housing and economic crises ... "There is no direct way to calculate how much equity is needed to assure markets that a banking organization is viable. In our internal analysis at the Federal Reserve in preparation for the Basel Committee deliberations, we analyzed distributions of actual losses suffered by larger institutions over the last several decades, on the assumption that an institution that could withstand such losses at a high confidence level would be regarded as a viable going concern. For the conservation buffer, we looked at actual pre-SCAP losses incurred by large banking firms during the recent stress period and SCAP estimates of additional losses associated with the recent stress period. Both these determinations required considerable judgment, and thus we developed ranges, rather than point estimates, for the levels we thought reasonable. In particular, government capital injections and debt guarantees in the fall of 2008 complicated the estimation of losses that might have been incurred in the absence of too-big-to-fail support. The ratios agreed to in Basel were at the lower end of, though still within, the ranges we had calculated." For more information, visit www.federalreserve.gov.