Prepared Remarks for Secretary of Housing and Urban Development Shaun Donovan at the 21st Annual Consumer Federation of America Financial Services Conference

Washington, D.C.
Friday, December 4th, 2009

Thank you, Barry - for that very kind, warm introduction, for your leadership here at the Consumer Federation, and, most of all for your friendship. Let me also thank Steve Brobeck for his leadership as the Executive Director of the Consumer Federation of America.

It's an honor to join you all for the 21st annual Financial Services Conference and great to be with so many representatives from state and local consumer protection agencies, trade unions and folks from Capitol Hill.

For more than four decades, the Consumer Federation has been a powerful advocate for the American consumer - ensuring the safety of consumer products, protecting small children from unseen dangers, and educating consumers about financial literacy through efforts like your "America Saves" campaign.

And for more than half that time, you've convened this annual conference, assembling federal and state policymakers, regulators and private actors in common purpose to address pressing banking, insurance, investment, and housing issues.

In so doing, you've recognized something fundamental:

That the regulation of our financial markets and the health and well-being of the American consumer are inextricably linked.

In an age in which financial products have become as common as toasters, a conference like this would be important. But at this moment of crisis in our housing and financial markets, it is nothing less than essential.

This year, you have once again brought together some of the most influential policymakers - including some of my colleagues in the Administration, Chairman Shapiro, Assistant Secretary Barr and Phyllis Caldwell at the Department of Treasury. And I want to thank Congressional leaders as well, particularly Senator Merkley.

A Need to Protect the American Consumer:

Today, I want to talk about how the Obama Administration is working with Congress to ensure the strength and safety of our housing markets and the steps we are taking to ensure we never get into a crisis of this magnitude again.

Let me state at the outset that we share a common agenda rooted in a shared belief:

That the American consumer is the very backbone of our financial system.

And, as such, rebuilding our financial system for the 21st century should be based on a strong foundation of consumer protections.

To be sure, a home is the biggest financial investment most families will make. But you and I both know that a home is so much more than a financial investment. It's the foundation upon which we build our lives.

It's the place where we raise our children and plan for their future. It's an essential source of a family's stability - the building block with which we forge neighborhoods, put down roots, and build the communities that are the engines of our nation's economic growth.

But you and I also know that over the last several years, that foundation was eroded.

I won't revisit how it happened.

But we've all seen the catastrophic result. Millions of homes have gone into foreclosure. Neighborhoods have been torn apart by vacant or abandoned properties. Countless jobs have been lost.

That's why only weeks after President Obama took office, the Administration unveiled an unprecedented effort to stabilize the housing market and help millions of Americans stay in their homes.

The comprehensive approach the Administration has taken has allowed interest rates to hover around or below 5 percent for seven months - allowing first-time homebuyers to enter the market and helping some 3 million homeowners refinance, putting as much as $10 billion of additional purchasing power in the hands of American households every year.

On November 10th, we announced that the Making Home Affordable program had reached 650,000 trial loan modifications - having already beaten our initial goal of a half-million nearly one month ahead of schedule. At the same time, we expect another half million families with Federal Housing Administration insurance will be assisted in 2009.

To ensure that these modifications stick, HUD is pushing forward with a host of efforts.

With job losses now driving foreclosures starts, we've invested $14 billion through the Recovery Act in communities across the country - to jumpstart local economies and stabilize neighborhoods and communities.

To help consumers-including the 375,000 borrowers who have begun trial modifications and are scheduled to convert to permanent modifications by the end of the year-HUD is mobilizing its vast network of counselors. We've asked for a 50 percent increase in housing counseling funds in HUD's budget for next year to ensure that the families who need help get help.

We've worked closely with Treasury to make the process easier for borrowers and put pressure on servicers to ramp up their efforts - holding them to higher performance standards and issuing a public scorecard that lets the American people know what kind of progress their servicers are making.

All told, with the monthly pace of trial modifications now exceeding the monthly pace of completed foreclosures-with inventories of unsold homes receding, and new home sales and home prices increasing-we believe we may finally be seeing the light at the end of the tunnel.

A New Era of Accountability:

But of all the numbers I've seen during this crisis, one is particularly revealing:

It was in The Wall Street Journal, which reported in December of 2007 that 61 percent of homeowners in subprime mortgages could have qualified for safer, prime mortgage products.

Put simply, nearly two out of every three homeowners with subprime mortgages were pushed into riskier mortgages by lenders and brokers.

That's wrong.

And that's why, for HUD, just as important as stopping foreclosures is ensuring that this crisis never happens again.

To ensure it doesn't, we've requested $37 million for an agency-wide initiative to Combat Mortgage Fraud and Predatory Practices - a third of which will go to curbing discrimination through increases in HUD's fair housing activities.

HUD's Office of Fair Housing and Equal Opportunity now has fair housing brochures, vital documents and other information in English, Spanish and eleven other languages. You can see and hear our public service announcements on predatory lending on Spanish language radio, TV and in print. And we are currently assessing the language capabilities of each of our regional and district fair housing offices.

The right to own or rent a home without discrimination should never depend on your race or how well you speak English. Not in America.

We're also stepping up enforcement for lenders who don't play by the rules. In one heartbreaking example, we found a company had steered an 88-year-old woman into purchasing an annuity which would not mature until she reached her 104th birthday.

That is not only heartless - it's shameless. And it's not going to continue on our watch.

We've suspended seven FHA-approved lenders this year, including Taylor, Bean and Whitaker. And we've withdrawn FHA-approval for 270 others, including Lend America just this week and Financial Mortgage USA, the lender responsible for the example I just cited.

With each effort, we're sending a very clear message: that if you don't operate ethically and transparently, we won't do business with you.

But no one agency is going to be able to stop fraud alone. That's why the recent creation of the Administration's Financial Fraud Enforcement Task Force is so important - identifying opportunities for coordinated, joint investigations and enforcement actions.

When it comes to preventing fraud, it's time the Federal government spoke with one voice.

Consumer Financial Protection Agency

Still, as much as housing was ground zero for discrimination and predatory lending in the run-up to this crisis, it's clear the federal response must be as interconnected and multidimensional as the challenges that we face.

To ensure we prevent another crisis from happening, we're working to create a Consumer Financial Protection Agency - the sole focus of which is to look out for ordinary Americans.

I know Assistant Secretary Barr discussed the agency yesterday afternoon - how it will have broad authority to protect consumers from unfair and deceptive practices. And I want to thank him for his leadership on this issue.

And while Chairmen Dodd and Frank continue to do remarkable work shepherding our proposal through their respective committees and chambers, obviously the details have not yet been finalized.

But when all is said and done, I wanted to tell you what this agency will mean for our mortgage markets and the core principles that will guide its work.

The first is transparency. That means simple, integrated federal mortgage disclosures that are reasonable, clearly written, and concise and communications with consumers that adequately present the risks and benefits of a mortgage product.

It's a simple idea: that we can only make informed choices if we have all the information.

The second principle is fairness. That means the agency would be authorized to require mortgage brokers to owe a "duty of best execution" to avoid conflicts of interest between themselves and the homeowners and to determine whether the mortgages they sell to borrowers are affordable.

The agency will also be authorized to put an end to abusive "yield spread premiums" - those side payments from lenders that encourage mortgage brokers to push consumers into riskier, higher priced loans than they qualify for. It could also require brokers to be paid over time based on continued loan performance rather than in a lump-sum at closing.

In addition, the agency would have the authority to restrict prepayment penalties, which we've learned can trap borrowers in bad loans and require loan originators and sponsors of securitizations to retain a percentage of the credit risk.

Bundling and packaging mortgages to sell on Wall Street not only fed the housing boom - it also led to an erosion of lending standards that deepened the housing bust.

With this plan, brokers and loan originators will have a vested interest in the performance of the loans they make, rewarding responsibility, not recklessness. No longer will homeowners and investors be the only ones with skin in the game.

Third, we will require real accountability. That means leveling the playing field so that financial players-banks, nonbanks, independent mortgage brokers-all play by the same rules. The days of lenders and brokers shopping for the most lenient regulator will be over.

This agency will be charged with setting clear rules of the road for consumers and banks, including requiring brokers to look out for the interests of hardworking Americans if they give advice about mortgages.

Protecting the consumer in this way will help business as well - particularly small business entrepreneurs who often rely on credit cards and home equity loans to finance their start-up businesses.

Of course, a number of the banks and big financial firms don't like this idea of a consumer agency very much. They don't think they can kill it altogether but they're trying their hardest to weaken it - by fighting to keep open every gap and loophole they can find. That's why I'm proud Chairmen Frank and Dodd have fought so hard on its behalf.

The President has made clear that we're not going to let special interests win this fight - and we're going to do our part to keep pushing to deliver on clear rules and strong enforcement for Main Street.

Along the same lines, let me say a few words about the Real Estate Settlement Procedures Act - or RESPA, as it's known. As you know, for the first time in more than 30 years, we have changed the regulatory requirements of RESPA.

I believe these changes will take away so much uncertainty borrowers have about the accuracy of disclosures.

By the first of the year, HUD will require that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate that clearly discloses key loan terms and closing costs.

Our goal is to provide clear, transparent disclosure of loan information that consumers can use to shop for the best loan - resulting in lower interest rates, lower origination and settlement costs for borrowers, virtually eliminating the kinds of unfair junk fees that surprise so many borrowers at closing.

By improving the disclosures borrowers receive when applying for a mortgage, and by promoting comparison shopping, we believe our new RESPA regulation will save consumers an average of nearly $700 in mortgage costs.

Giving the American Consumer More Choice:

Lastly, let me say a word about how we can protect consumers in a different way:

By giving them more choices.

Right now, some estimate that we have enough large-lot, single family housing to last us until the year 2025. At the same time we have this enormous unsold inventory, there's a historic number of people who've lost their homes - who can't afford to buy and can barely afford to rent.

So the crisis we're in isn't about supply and demand - it's about housing that doesn't meet the needs of people.

That's why we're working to build a comprehensive, balanced national housing policy - that supports homeownership, but also provides affordable rental opportunities so that families can make good, responsible choices for their families.

It's why we've proposed a $100 million Energy Innovation Fund in our budget, which would jumpstart an Energy Efficient Mortgage product for homeowners and a municipally-driven program for property owners to wrap energy improvements into property tax assessments.

When you buy a car, you know its energy efficiency because there's a sticker on the window - we need the same for our homes and our buildings.

If there's a cost of $5,000 to upgrade a house that will produce $10,000 in utilities savings over time, the perfect tool to realize those savings is a mortgage. What's needed is better data that proves these investments pay for themselves in the long run.

A similar idea motivates the transportation-efficient mortgage product we are developing. Today, the average low-income working family spends nearly 60 percent of their income on housing and transportation combined, their two largest expenses. And yet, because mortgages don't factor in how much it costs to drive to work or take your children to school, housing finance has continued to drive the construction of housing in the least sustainable places.

Using detailed mapping of transportation costs, we're developing a transportation-efficient mortgage that accounts for a home's proximity to jobs and schools.

In each instance, we see that reliable, useful and widely available information can not only help consumers make better, more informed borrowing decisions - but also help lenders make sound underwriting decisions, unlocking a much broader scale of innovation, driven not by the public sector but private investment.


It comes down to a fundamental belief:

That when you choose a home, you don't just choose a home.

You also choose transportation to work - schools for your children, and public safety.

You choose a community - and the choices available in that community.

A belief that our children's futures should never be determined-or their choices limited-by the zip code they grow up in.

I believe that when we protect the consumer, we protect our economy - that when we look out for the interests of ordinary Americans, we look out for America's best interests.

Rebuilding that strong foundation of consumer protections and putting our country on a stronger, more stable, sustainable path won't happen overnight.

It won't happen because of one bill or one agency.

But as I look at all of you today, I know one thing:

It will happen.

It will happen because as challenging as this moment is, the opportunities it offers for change are so much greater.

Working together, I know we can seize it. I know we will.

Thank you.


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