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Remarks to National Association of HomebuildersSecretary Andrew Cuomo
Saturday, January 16, 1999
DON MARTIN, PRESIDENT NAHB...it gives me great pleasure to introduce Andrew Cuomo, a man we are fortunate to have as the Secretary of Housing and Urban Development, a friend of mine, a friend of housing, and in my opinion, the best housing Secretary ever, Mr. Andrew Cuomo.
SECRETARY CUOMO: Thank you. Thank you. Thank you. Thank you. Good afternoon. It is a good afternoon, isn't it?
SECRETARY CUOMO: First, to the FHA Commissioner, Bill Apgar, who is with us today; you heard on a panel, Jim Johnson here, he was here with us, he left; Frank Rains, who is the incoming President of Fannie Mae, a good friend of mine, a fellow who I have had the pleasure to work with in the President's Cabinet already on housing, we ALREADY did great things, and I can only look forward to what we're going to do together; all the Homebuilders who are with us, Don Martin. If we have had success at HUD - which we have had - as you who are in the housing industry know - it's been a great, great year at HUD - if we've had success at HUD it's only because the partnership with the Homebuilders is stronger today than it has ever been in the history of the Department of Housing and Urban Development, and that's why we're successful.
I've been Secretary for two years now and I've truly been blessed with two great, great Presidents at NAHB. My first year we had Dan Pincus, your President last year and Dan laid the foundation for this relationship. He changed the momentum of the relationship. He established new boundaries, and then Don built on that foundation. 1997 was a great, great year, we exceeded all expectations. 1998 was nothing short of a blockbuster. It would not have happened without the partnership, it would not have happened without the leadership of Don Martin. The FHA loan limit increase - which I'll talk about in a while - was a phenomenal undertaking. He was there day and night, shoulder-to-shoulder, it was a tough fight, he was there every step of the way. And I just want to take this opportunity to thank him and present him with a special award from the Department of Housing and Urban Development for outstanding leadership, Don Martin. Thank you, Don.
We've also had the pleasure over the six years that I have been at HUD - you've had the pleasure for 15 years - to work with Kent Colton. I was first an Assistant Secretary at HUD, and then I was the Secretary, and I was a very young Assistant Secretary. I came in, I was about 34, 35 years old. I'm only about 40 years old now - I know I look older, but if you did six years at HUD you would look older too. But Kent Colton was a great, great teacher. He is going to be sorely missed; but his lessons and his legacy, it will be our challenge to carry it on and we will. I'd also like to present Kent with a special leadership award from the Department of Housing and Urban Development, Kent Colton.
Incoming President Charlie Ruma and Tom Downs, Lord knows you have your work cut-out for you, the bar is set real high. I don't know how you're going to meet these expectations, but I think you will. And everyone in this room will be on your side and the Clinton Administration will be on your side to make sure next year's accomplishments even exceed this past year's, and I look forward to working with you on that.
MALE PARTICIPANT: Bravo.
SECRETARY CUOMO: Bravo, see that's the Italian in the group, Charlie. This year - it's always a pleasure to be with you at the Homebuilders, but the year that we've had makes it a special pleasure. You look at the numbers, it's just phenomenal what we did this year: 1.498 million housing starts, the first 11 months of 1998 - better than any 12 month period since 1987 - in just 11 months. Homeownership rate 66.8 percent up from 64.2 in '94. And the highest affordability index in 25 years. Who could have ever guessed when we started the year that we were going to have that kind of success?
I was with President Clinton the other day and I said, look, it might be a coincidence that we're breaking all these housing records and that I just happen to be Housing Secretary, but I'm going to take credit for it anyway - I'll tell you the truth, because the Lord knows if the numbers were going the other way I would be getting blamed for it. I would like to think we at HUD had something to do about it, I know that the Homebuilders had something to do about it.
And I come to you today not as a bureaucrat, but as a homebuilder. First HUD Secretary in 33 years who ever built housing. Amazing, isn't it? You would think that the HUD Secretary would have had some construction development experience, but actually I'm the first HUD Secretary who has built housing. And it colors the way I do the job, because I very much see it from your side of the table. I know what it's like to go through the governmental process to get approvals. I know what it's like to fight with the bank and then have to worry about the interest charges. I know what it's like to have to fight through the change orders. I see it from your side of the table and I know that government can be a help. I also know that government can hurt. And I brought both lessons to my job as HUD Secretary.
Two basic functions that we fulfill: first is the more traditional function, the 'old hat,' if you will, that we run the FHA, Federal Housing Administration. Essentially a mortgage company. It's a phenomenal idea started 60 years ago. It said, "let's give people mortgages who the private sector doesn't serve." That's what the FHA basically is, it's the lender of last resort. When you can't get a private sector mortgage, maybe you can get a mortgage from FHA. People who were turned down by the private markets, either because they were not the cream of the credit crop, or because of the color of their skin. When no one else would give you a mortgage, look at FHA. Great idea 60 years ago and an even better idea today. The problem was that FHA wasn't administered as well as it could, so you had that great idea, that great concept, but we didn't fully utilize it because we had management problems with FHA at HUD.
Now, the simple promise I made when I first came was that we can't help you build homes until we get our own house in order at HUD. And our goal was to take HUD and make it operate it more like a business - and we have made tremendous strides. Our job isn't done, but we have made great, great progress. It's the reorganization plan that Frank was talking about. We brought in the best private sector minds. We brought in Booz-Allen and Price Waterhouse, a fellow name Jim Champy who did "Reengineering the Corporation." And we said take this thing, HUD and FHA, look at the function and tell us how to re-organize to do it. Make believe that you are organizing a business as opposed to a bureaucracy, how would you make this mortgage insurance company work better than ever before - and we have made tremendous strides.
We brought FHA into the 21st Century. We've moved from paper applications to automated underwriting. The underwriting time at FHA has gone from four weeks, four weeks to two minutes, believe it or not. We have a new cooperative effort with Freddie Mac, called the Freddie Mac/FHA Loan Prospector System. That's what Freddie Mac calls it. I call it the FHA/Freddie Mac Loan Processor System, Prospector System. It's essentially the same system but just depends on who is describing it, puts their name first. But it's an automated underwriting system, we're doing 10,000 loans per month. This year FHA will have it's own automated underwriting system.
We went from 81 retail offices down to four national centers. We brought in new talent to FHA. Two hundred and sixty new customer liaisons, not government bureaucrats, customer liaisons. Two hundred new experts in mortgage finance coming directly from the private sector to FHA. Why? So we think and act more like you do, more like our client does.
To increase consumer confidence we've created something called the Home Buyer Protection Program, which will revamp the entire inspection and appraisal process. As part of that overall plan I'm pleased to announce today what we call the 'one stop appraisal process.' Listen to this, for new construction FHA will now only require one model home to be appraised and any options or upgrades on other units can be value estimated, but only one appraisal on the model home and then you just estimate the cost of the upgrades. This can save thousands and thousands of dollars on the cost of appraisal for a subdivision.
We said that we would make FHA work for the middle class, and we developed a rehab product to do that and we have done just that. A rehabilitation program to ensure that FHA serves not just the low-income borrowers, but also a middle class rehabilitation product, that's where the market is going to be going. More and more rehab, they project over the next five years - more rehab, more remodeling then new construction. FHA wants to make sure that we have a product to serve that market, we have, we're excited about it, we're so excited about it we named it the Congressman Joseph P. Kennedy Program, in honor of my brother-in-law. You get a few perks as HUD Secretary.
And we said to really bring FHA along we had to raise the loan limit. Why? FHA before 1977 had the same loan limit that Fannie Mae and Freddie Mac had. Since 1977 Congress has passed laws that has limited the value of the FHA mortgages. And the FHA mortgage cap was $86,000. What are you going to do with an $86,000 cap when the average home was selling for 100,000? FHA - which was this great vehicle, basically - was unusable because it was artificially capped.
And in this speech at this convention last year I said we're going to raise the FHA cap so we take that great vehicle, we take that great potential, and we bring it to where it should be in the market place. Now this was heresy to talk about raising the FHA loan limit. By the time I go back to Washington, DC my phone was ringing off the hook, legions of lobbyists were threatening and cajoling, this was not going to happen, they were not going to allow the FHA loan limit to increase. By the way, it had been tried every year for the past four years and it had failed. So this was quite an undertaking.
Mark Smith, the MBA President who you saw on the tape said, "it was like David versus Goliath, trying to raise the FHA loan limits." He was wrong, David had better odds. But we said we were going to do it and we said we were going to lock arms. And Don Martin stepped up and he said, I don't care how tough a challenge it is, it's right for America, it's right for homeownership, it's right for the Homebuilders, and we're going to make it happen.
And by God, we stood together, step-by-step, and we raised the FHA loan limits this past, two weeks ago we announced 208,000 dollars as the high limit for FHA. A totally different market is now open to us. FHA is a vehicle to make buyers who wouldn't have been buyers without FHA. Sales that wouldn't have been made without the higher limit are now possible because of what Don Martin and the Homebuilders did to raise that loan limit. Congratulations.
And we also learned from the lessons of Dan Pincus last year, clearing away the underbrush of the FHA, making it more streamlined, ending the micro-management. We had to simplify the down payment process. FHA had multiple down payments all across the country. You needed a degree in calculus to figure out the down payment. We simplified it, it's now three percent across the board.
We had flood plain regulations, which were nice in concept which didn't work in practice. We've straighten them out, so now we can actually do mortgages on homes that may be in flood plains.
We had a 10-year warranty requirement on a home, which didn't mean anything to anyone, but FHA required a 10-year warranty. It was too costly, it was ineffective. I'm pleased to announce today, "say goodbye to the 10-year warranty, say hello to a 1-year extended homebuilder warranty." It should save us up to $500 per home.
And since it's not just the big things that can be a problem, sometimes it's the little things. HUD is no longer going to regulate termite elimination. That's right, it's now up to you.
So we've cleared away the underbrush, we have the automated systems, we have the new loan limit, FHA is ready for business and ready for business in a big way, give it a second look. FHA can get people into homes who couldn't otherwise.
But there is a second role as the Housing Secretary, and its something I learned from your leadership here. In that sense HUD was created - the Housing Department was created - in 1966, and housing has basically been defined as low-income housing. And the HUD Secretary has predominantly concentrated on government housing, public housing, Section 8 housing, assisted housing. But the Department, the founding mission of the Department never had that stipulation.
And I said I wanted to work with the Homebuilders to change the emphasis of HUD, not just to be low-income housing which is a very, very important task, but to be the voice for homeownership in this nation. To be your seat at the Cabinet table. To be your advocate - and we have been doing that. I want to be not just the Secretary of Housing, but the Secretary of Homeownership, and an advocate for homeownership.
And the first tenet as the Secretary of Homeownership is this, government doesn't build housing, the private sector build housing. And the best thing government can do is keep the private sector strong. Let the private sector work, let the private sector work. You look at the numbers, you look at the success story, it's not because of anything HUD did by policy, it's because the economy was that strong. Keep the economy that strong.
The Administration's fiscal policies brought a 300 billion dollar deficit under control, 300 billion dollar deficit. We lived for a decade with that government deficit. You have to think twice to imagine that it's finally gone. And now they are talking about a surplus and they are talking about a record surplus.
This economy is the strongest economy in our nation's history. Lowest unemployment in 30 years, 4.5 percent, fastest real wage growth in more than 2 decades, stock market is up bouncing new records again, interest rate 6 3/4 are the lowest since the sixties. The best thing President Clinton can do for housing is keep that economy working the way it worked last year.
And that's why the main facet you'll hear the President talking about in his economic plan in the State of the Union is, let's not get ahead of ourselves, let's not start to spend that 'surplus' in more government programs or in more tax cuts, let's take care of Social Security first. Let's really stabilize this economy. Let's be fiscally conservative on this one, take care of Social Security, grow the economy, then we can do tax cuts, then we can do more spending, but first stabilize the economy, and that's the way to build housing also.
Also as the Homeownership Secretary, we have very complex issues that we're going to have to deal with, no doubt, but the answer cannot be a knee jerk movement towards government regulation or intervention. The truth is often more subtle and more complex. Take the issue of urban sprawl. It is going to be a very big issue this year. We cannot allow the issue to be a question of environmental protection or housing construction. It is a false choice, the answer is it must be both.
Where people are going to live is just as important a question is as how a tree will survive. Sure, we need to protect the environment, we are all environmentalists, but we also have 1.3 million households every year that are going to need housing and we need to answer both. We need to protect the economy and continue development. We need a realistic alternative.
Of course we have to end traffic congestion. Of course decrease the burden on our schools. Of course we have to decrease air pollution, but we also have to develop at the same time. We have to keep housing moving just for the need as well as for the economy. Let government help by redirecting development to the older suburbs in the cities. Let's take a different look as we go forward this year. Yes, develop out. Yes, build anew, but let's also think about rebuilding the older areas.
And let government help by removing the barriers to construction that we now have to fight every day. Let's remove and streamline zoning, let's simplify building codes, let's expedite environmental cleanup, and clarify environmental liability. Building codes - difficult topic - but a topic we can't afford not to address. There are some state codes that they estimate add $20,000 to the cost of a house - before you put a shovel in the ground. You have all sorts of studies that said we could reduce the cost of housing 25 percent if you came up with common sense and commonality in a building code. Let's start to look at those directions.
And we know how to do this, President Clinton is very big on substituting innovation for regulation. We have to make housing more energy efficient, we know that. But what the President said is, rather than doing it by mandate or dictate-ive government, let's do it in partnership with the private sector. And he formed something called PATH, Partnerships for the Advancement of Technology and Housing with the NAHB. Let's come together, put a builder at a table, government people at a table, and figure out the best way to make homes more intelligent, more energy efficient. Let's not do it by regulation, let's do it by innovation and it's working and it's working well.
We want to be your advocate for the future markets, 6.6 million new owners since 1994, 40 percent from the new minorities, 40 percent of the increase in homeownership since '94 are from the immigrants, new immigrants. They are the future. Let's talk about opening the doors and reaching out to them. Let's talk about coming together and fighting discrimination wherever we find it once and for all. Discrimination is bad for the individual, it's bad for business, it's illegal, and it's un-American. Let's take this issue that has eluded us for so long, put it on the table and address it once and for all.
Let's have the GSE's recognize their responsibility to meet the goals of affordable housing. They enjoy special public benefits, they must also recognize their public responsibility. And this year HUD is going to take the next step. Instead of just focusing on this country, HUD is going to be ambitious enough to go international. This nation is so advanced when it comes to housing that it is a sin for us not to share those lessons with the rest of the world. They need so desperately what we take for granted, what we understand as common-place technology.
I've done a lot of traveling over the past few months through the disaster efforts. Central America hurricanes devastated entire countries. How do we use our housing technology, our advancements, and bring it to those areas? They need tens of thousands of homes. By their current methodology it would take decades to rebuild the volume they need. For us, knowing what we know, we could do it in a matter of months. HUD International with NAHB working Central America disaster relief and opening up the new markets. We want to lead a delegation, together with the NAHB, to China this year, and let's bring our technology and our lessons to China also.
Let me close with this point, if I might, and Jim Johnson touched on it. We're at this convention because this is our business, homebuilding, the housing industry. But in many ways it is more than a business because it is also a pleasure. I was with a homebuilder a few weeks ago who had just finished a small subdivision and he was standing back on the street looking at one of the homes he had just finished with his arms crossed against his chest. And you could smell the fresh paint from the home, and the landscaping was in, and the sod was in, and you could still see the lines where it was cut, and the shrubbery was in, and he just had this great, great smile that went from ear-to-ear. With that sense of satisfaction, looking back on what you created. The gift that you brought.
I've had that feeling also. Feelings second only to creating a child. That probably is a greater gift in our life. But after bringing a child into the world, building something, making this country a better country, it truly is a pleasure, and it is a personal pleasure.
But more than that, it is a national service. Homebuilding is not just your occupation, it is what this country is all about. In my opinion, one of the great secrets to this nation's success is that we are different here from everywhere else - because our people own the country. They are vested in it, it's their land, not anybody else's.
That's what homeownership means, it's an entire culture, it's the way you think. Why else do immigrants try to get to this country from everywhere across the globe? They will take on any odds, they have to get across that ocean, they just want to get to the United States of America, they just want a part of that great country, that's homeownership. That's how they are literally rooted in America. That's where their identity is forged. That's where their commonality is forged. That's where community is forged, through homeownership.
Yes, it's great for the economy. Yes, it does all sorts of things for the numbers, 20 percent of the GDP. We want to keep this economy going, let homebuilding drive it, of course. But you want to keep the sense of community. You want to keep the dream alive. You want to keep the notion alive. You want to keep this nation together? Keep building homes. Together we will build more-faster-better than ever before. Thank you very much.
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