Prepared Remarks by David H. Stevens Assistant Secretary for Housing and FHA Commissioner at the US Securitization and Research Conference

New York, New York
Wednesday, April 28th, 2010


Thank you, Michael (Nierenberg). Good afternoon. I am pleased to join you. Just a few minutes ago, I met with Thomas Montag and other senior management at Bank of America/Merrill Lynch. I told them that we have a great opportunity to place the housing market on a firmer, more stable foundation.

This is a decisive moment in our economic history. I am committed to working with Bank of America/Merrill Lynch and others to stimulate investment, to restore the housing market, and to move forward together. Our success will be measured by our ability to work together.


I want to stress that ... we have a chance for a partnership that will serve the public interest. We have a moment in history where we must visualize the future and shepherd the economy to renewed prosperity. We can help regain global confidence in our housing market. We can set the course for generations to come.

But we must do this together....this is a moment for joint action and shared initiative. We must take responsibility and necessary action to ensure we never end up in this place again.

My door is open. We need to work together. We need to restore trust and confidence in the housing finance system. I am passionate about this business. I stepped into this job knowing what a critical time it was in the housing market. As the first FHA Commissioner to come to this job with over 30 years of industry experience, I understand your concerns and the challenges we face. So I was pleased to discuss our areas of common interest. I look forward to our continued interactions because our cooperative efforts will serve the citizens of this country.


A year ago our financial sector was on the brink of collapse and house prices were falling rapidly. Many were predicting a second Great Depression. This Administration faced enormous challenges. A year later, the nation's housing market is returning to stability. Frozen liquidity is starting to melt. You can almost hear the ice cracking as the spring thaw is stimulating the economy back to life.

And, there is evidence for guarded optimism. Just last week we heard that new home sales were up 27 percent in March. That was welcome news. Sales here in the Northeast were up 35 percent. In the South new home sales are up 43 percent. Nationally, inventory was down. The number of months for inventory turnover was down. And the price of new homes was up from over a year ago. Last Saturday, the Washington Post reported new investor confidence in jumbo loans, which have dropped from about 20 percent of the housing market in 2005 to about 2 percent of the market now.

What is changing? Well, there is a sober sanity among investors that has led to stronger underwriting criteria and better business practices. You know what I mean. Institutions are less likely to take risks. And we have entered a new culture of cooperation with homebuyers, with much more attention by lenders and borrowers to have "skin in the game" and credit worthiness.

But the context of lending has been positively enhanced by a set of comprehensive actions by this Administration. And the strategic response to the recession is working. The American Recovery and Reinvestment Act of 2009 provided an $8,000 first-time home buyer tax credit, which has been particularly effective helping nearly 700,000 families own a home. The individual efforts of the Treasury and the Federal Reserve have combined to maintain mortgage interest rates near record lows for nine months.

This monetary policy is helping first-time homebuyers enter the market, has assisted over 3.8 million homeowners refinance, and is pumping $13 billion into our local economies and businesses every year - generating additional revenues for our nation's cities.

Through two rounds of HUD-administered Neighborhood Stabilization funding (NSP), communities across the country have been using $6 billion to reclaim foreclosed homes and place them back into productive use, stabilizing neighborhoods and property values alike.

This administration has made foreclosure prevention a priority which has helped millions of homeowners keep their homes through vigorous, pro-active loss mitigation efforts. Lenders across the country are required to utilize loss mitigation tools. For FHA borrowers alone, loss mitigation efforts have saved 650,000 homeowners from foreclosure. And there are loan modifications possible through HAMP. We have been working with Treasury through the "Making Home Affordable" program to help troubled borrowers with mortgages not insured by the government extending offers for trial modifications to nearly 1.5 million American homeowners.

And, recently we just announced enhancements to the HAMP and FHA refinance programs to address the needs of borrows who are unemployed or have negative equity in their homes.

These efforts reflect our commitment to examining every possible action to help support the recovery of our housing market.


The Federal Housing Administration (FHA) has also been a big part of the response to the housing crisis. Our growing market share has helped stabilize and sustain the housing market. Three years ago, when the housing market went into a slow, shattering downward dive, FHA was only about 2-3 percent of the housing market. Three percent! We had been shoved aside in favor of wild, novelty mortgages that were an savings, no security, no stability.

But then, after the housing market crashed, and FHA stepped in to play a vital role. Over the last three years, FHA reacted by increasing its market share dramatically, helping those in need, especially those with low incomes and homeowners from minority communities. I would shudder to think of where the housing market and the economy would be without FHA. There would have been hundreds of thousands more foreclosures without our efforts. And because we provided liquidity at a time when it was desperately needed, we may have saved hundreds of thousands more homeowners and the many industries involved in the housing market, especially homebuilders and those who service new homes with furniture and appliances.

The seismic shift in FHA's market share is a vital part of our recovery. FHA insured nearly 30 percent of the single family mortgage market in 2009 insuring 1.9 million loans - up from 1.1 million in 2008. In 2009, more than 50 percent of first-time buyers used FHA; nearly 80 percent of our purchase loans are to first-time homebuyers. In 2009, approximately 835,000 borrowers refinanced into lower interest rate FHA insured loans, saving them an estimated $1.3 billion.


At the moment, about 95 percent of new mortgages are coming from Freddie, Fannie, Ginnie Mae, and FHA. Private capital has virtually abandoned the market. As I am sure we all agree, this situation cannot continue. It would be economically unhealthy for the federal government to dominate the housing market over the long term. No one wants to federalize the mortgage market. Rather, we have stepped in to stabilize the market, a short-term, countercyclical effort that is not intended to become permanent.

Already, you see signals from the Fed and other sources that this dominance must gradually taper back to allow private liquidity in. And it is private liquidity that will help to establish stability into the market for the long term.

FHA will step back as new liquidity flows in. That is the countercyclical nature of our work. Over the last 70 years, FHA's market share has grown and subsided as needed. You will see FHA's market share diminish in the next few years, which is exactly what should happen.

You will also see other changes. Ginnie Mae has also grown. We should appreciate Ginnie Mae's role in the recovery. In Fiscal Year 2009, Ginnie Mae guaranteed $418.9 billion in Mortgage-Backed Securities (MBS). Its market share of total agency and non-agency MBS was 25 percent, which brought it back to the level of the mid-1990s. Last year, Ginnie Mae issued over $46 billion in one month, the highest monthly amount in its history.

Investors wanted the full faith and credit guarantee from Ginnie Mae. And that security helped stabilize the housing market. In fact, in this year, Ginnie Mae is on track to exceed Fannie and Freddie's MBS purchases. This is important because the Department of the Treasury, in an effort to allow liquidity to flow back in, has decreased its involvement in the MBS's market. So Ginnie Mae offers a powerful incentive for encouraging private liquidity to re-enter the housing market.

Ginnie Mae is also supporting a number of the federal government efforts to assist struggling homeowners by facilitating a secondary market for loans. When lenders know these loans can be pooled and then sold as Ginnie Mae MBS, they are more willing to make modifications and lend to borrowers who need the critical help intended by these programs.

So, with this in mind, we recently strengthened Ginnie Mae's ability to stabilize the housing market through greater competition.

I wanted to come here and tell you about it, because Bank of America/Merrill Lynch works so closely with Ginnie Mae, and accounts for a large portion of its loans.

Starting in July, we will allow lenders to securitize single loans. This will help small lenders to become more competitive when doing business with Ginnie Mae and FHA. As you know, mortgage lenders working with the FHA often bundle the loans they make into securities and sell them to investors. Ginnie Mae guarantees those securities so that investors continue to get their principal and interest if loans go bad or lenders are unable to make payments to investors.

Ginnie Mae will start allowing lenders to securitize single loans and will issue loans on a daily rather than weekly basis. This will help smaller lenders access Ginnie Mae and FHA directly. The single loans will be mixed into a pool of loans from multiple lenders.

The policy changes will give smaller institutions more flexibility and a competitive role in the lending process. We think that this will be a positive development for all concerned - investors across the spectrum -- because of its impact on the housing market. It will surely help small institutions keep borrowers out of foreclosure....a foreclosure that damages the housing market and the economy. Securitizing single loans will also help stabilize the market, which helps you and other investors.


We will continue to work on any and every action that will rebuild the housing market. Trust and confidence will come when the mortgage process is on firm foundation every step of the way...every step! So, I also want to mention the President's efforts to reform Wall Street. There must be accountability in every part of the lending process, from banks to brokers to investors. This is the best way to protect your investment and to protect the economy. The foreclosure crisis led to the loss of 8 million jobs. Millions of homes have been lost. Trillions of dollars in family savings and assets have disappeared. We must make sure nothing like this happens again.

So, I believe it is in our collective best interest to support of the President's efforts to enact the strongest consumer financial protection measures in history.

He wants clear, understandable information in the hands of borrowers. This information will allow for better individual decision-making.

The President wants new transparency and accountability in financial dealings. This benefits all of us -- investors, lenders, and borrowers. There needs to be an open marketplace in our financial dealings. This allows for fulfillment of fiduciary duties, less fraud, and more accountability.

We need to close the loopholes that allowed financial firms to engage in the risky and irresponsible behavior that endangered their companies and the economy.

We must demand a new set of rules that make banks and financial institutions pay for their bad decisions and ensure taxpayers don't have to bail them out.

And we must empower shareholders with votes on salaries and bonuses awarded to top executives. Shareholders must also have a stronger voice in corporate elections. This will ultimately allow American investors to have more control over their savings.

Yes, there is going to be a donnybrook in Washington over these proposals. But if we can get them through, your companies and your investments will be safer and more secure. There is every reason to support these measures. They make your companies stronger and better protect your investments.


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