Prepared Remarks of Secretary Shaun Donovan at the National Association of Real Estate Brokers Conference

Renaissance Worthington Hotel
Dallas, Texas
Tuesday, August 3, 2010

Thank you, Vincent, for that generous introduction. It's an honor to be before this organization, which for more than sixty years has been committed to fair and equal access to housing -- to building strong, sustainable, inclusive communities for all.

That is what this convention is about -- and that is a commitment that we share at HUD and across the Administration.

Like this association, HUD's work has continually been shaped by the forces of civil rights -- founded at a moment when America's cities were literally burning, and our urban areas were in crisis.

Like you, those forces have helped us make history. In 1966 when Robert Weaver was tapped by President Lyndon Johnson to serve as HUD's first Secretary, he became our nation's first African American Cabinet member.

Perhaps Secretary Weaver's most lasting achievement was the Fair Housing Act, which President Johnson signed into law in the wake of Dr. King's assassination.

But for all the progress we have made in the decades since, each of knows the terrible toll this crisis has taken on our communities. We've all seen how foreclosures in urban cores rolled back 15 years of gains in some areas -- and the disastrous impact they have had on household wealth for minority families in particular.

So, this morning, I want to discuss with you the progress of our housing recovery -- where we were only a few short months ago, the comprehensive response that has taken us to where we are today, and the steps we're taking to ensure this type of crisis never happens again.

I want to speak frankly about the challenges that lie ahead of us -- where we've succeeded, where we've fallen short and how it all impacts minority communities.

And I want to set the record straight about the totality of the Administration's housing efforts since we took office 18 months ago.

Back from the Brink

Let me begin by saying that we still have a ways to go. But there's no question that the state of today's housing market is in significantly better shape than anyone predicted a year ago.

Why is that?

I remember standing in Mayor Bloomberg's "bullpen" in New York's City Hall watching the roll call as Congress voted on the financial rescue plan in September of 2008 -- this was in the days after Lehman Brothers had failed and our financial markets were on the brink of collapse.

As it became clear that the vote was going to fail, I remember Mayor Bloomberg coming into the room and he said, in no uncertain terms, "the world is ending."

By the time President Obama was elected, it certainly looked that way to a lot of people. We were losing an average of 753,000 jobs a month. Home prices had fallen every month for 30 straight months -- by nearly a third. And home equity had been sliced in half, translating into a loss on average of over $80,000 for each American homeowner -- and worse, in African American communities.

Economists across the political spectrum were predicting a second Great Depression.

Thankfully, Mayor Bloomberg was wrong. The world didn't end. But it wasn't because we failed to act or because we got lucky.

Nearly 18 months after President Obama took office, our housing market is stabilizing and our economy has created private sector jobs for six straight months for the same reason: Because we did act -- because this Administration, immediately upon taking office, took swift and comprehensive action to stop the bleeding.

First -- Stop the Bleeding

At the macro level, both the Federal Reserve and the Treasury intervened to keep interest rates at historically low levels for more than a year. This helped stabilize housing markets and the broader economy.

But of course, low interest rates only benefit consumers if there are mortgages available at those rates.

That's why the Administration moved to restore confidence in Fannie Mae, Freddie Mac and the FHA, which have enabled a robust refinancing market to emerge.

Indeed, tying many of our efforts together has been the FHA, which has been every bit the countercyclical force for our housing market it was designed to be when FDR created it.

Now, you know as well as I that after a shameful legacy of discrimination, the FHA has come to be a uniquely powerful pathway to the middle class for African Americans.

Over the last three years, FHA's market share increased dramatically, helping those in need, especially those with low incomes and homeowners from minority communities.

The most recent data shows that 51 percent of African American homebuyers purchase homes with FHA financing -- and 45 percent of Hispanics.

Over the last 18 months, it has insured approximately 30 percent of purchases and 20 percent of refinances in the housing market.

During that time, FHA helped close to 1.1 million homeowners refinance into stable, affordable mortgages and insured loans for over 1.4 million homebuyers -- more than 80 percent of whom were first-time homebuyers.

Collectively, these initiatives have resulted in record affordability of mortgage credit across the market.

As the housing scorecard we released this month indicates, low interest rates have helped more than 7.2 million homeowners to refinance, resulting in more stable home prices and $12.9 billion in total borrower savings.

Homeowner equity started to grow again in the second quarter of 2009 and, to date, has increased by over a trillion dollars, or close to $14,000 on average for the nation's nearly 78 million homeowners -- bolstering seniors' retirement security, restoring an important source of college tuition support, and helping entrepreneurs start small businesses.

Second -- Addressing the Crisis

The second step the Administration took was to address the housing crisis -- by increasing the supply of mortgage capital, increasing demand for housing and by protecting responsible homeowners in distress.

While tools like the expanded First-Time Homebuyer Tax Credit have helped more than 2.5 million Americans purchase a home during these difficult times, we have also been working with Treasury through the "Making Home Affordable" program to help troubled borrowers.

Now, the program wasn't perfect -- partly because we wanted to get it up and running as quickly as possible.

While our monthly housing scorecard once again shows a strong month-over-month increase in permanent modifications through HAMP--which remains on pace to help 3 to 4 million Americans by 2012--many borrowers who were offered trial mortgage modifications in the early months of the HAMP program were ultimately not eligible for a permanent modification.

But because we have created a standard for more affordable modifications and pushed lenders to step up their efforts, nearly half of all homeowners unable to convert from a HAMP trial modification to a permanent modification have entered into an alternative modification. Fewer than 10 percent of these canceled trials have moved to foreclosure sale.

At the same time HAMP has helped "right size" mortgages for borrowers by reducing payments by an average of $500 per month, FHA has helped over a half million more through 760,000 loss mitigation actions.

We're also providing over $87 million for housing and mortgage modification counseling in this year's budget -- an increase of more than a third. We just announced the competition for that money last week. Indeed, when it comes to reaching underserved populations, our vast network of counselors continues to be one of HUD's greatest strengths.

In all, since April 2009, servicers report that 2.8 million borrowers have received restructured mortgages -- more than twice the number of foreclosures completed in that time.

However, two of the biggest threats to our housing recovery today are unemployment and underwater borrowers.

As you know, foreclosures are increasingly being driven by homeowners who find themselves unemployed or underemployed and can no longer make payments that were once affordable. Making matters worse, these borrowers often can't move to find a new job when they can't sell their homes because they owe more on their house than it is worth.

At the end of last year, more than 11.3 million, or 24 percent, of all residential properties with mortgages were "underwater," with more than half of these homes concentrated in five states -- Arizona, California, Florida, Michigan and Nevada.

But the Administration is responding -- making changes to HAMP so that unemployed borrowers can get up to six months of relief while they look for work.

This is in addition to the $1 billion for HUD to assist unemployed borrowers and another $2 billion administered by Treasury to help homeowners that was included in the Dodd-Frank bill. HUD and Treasury will be announcing further details about this funding in the coming weeks.

The market is responding as well. With investors and lenders increasingly concluding that it is in their interest to write down the value of underwater mortgages rather than incur the substantial cost of foreclosure, the Administration has recently introduced additional options to HAMP and FHA refinances that will leverage this private sector interest -- to catalyze significantly more principal reduction than government ever could provide on its own.

As a result, some borrowers, who are now in mortgages that place them dangerously close to default, will have their loans modified or refinanced into more sustainable loans.

By lowering barriers to principal write-down, the vast majority of the burden of writing down these loans will fall where it belongs: on lenders and investors, not on the taxpayer.

Analysts like Amherst Securities' Laurie Goodman have said that helping underwater borrowers is key to stemming the tide of foreclosures -- and that our HAMP and FHA changes represent a very important development.

Mark Zandi of Moody's as well has said that helping another million homeowners could be the difference between a double-dip in house prices and continued stabilization -- and believes that our changes have a very good chance of helping us reach that goal.

We will be issuing a Mortgagee Letter implementing this new "FHA Short Refinance" program very soon.

And with new resources for state Housing Finance Agencies to develop innovative ways of stopping foreclosures in the hardest-hit markets, we believe all these actions have helped to stabilize housing prices, the market, and our economy alike.

Where someone can't stay in their home, we're going to help them make the transition out of homeownership as smoothly as possible. The Home Affordable Foreclosure Alternatives program is helping to prevent costly foreclosures by providing incentives for servicers and borrowers to pursue short sales and deeds-in-lieu.

Through $6 billion in two rounds of Neighborhood Stabilization funding—and an additional $1 billion on the way as a result of Dodd-Frank—we're helping localities work with non-profits and CDCs to turn tens of thousands of abandoned and foreclosed homes that drag down property values into the affordable rental housing communities need.

This month's housing scorecard shows early results from HUD's Neighborhood Stabilization Program (NSP).

Grantees report that NSP funds have been used to construct or rehab more than 21,000 units of affordably priced housing, demolish nearly 12,000 blighted properties, and provide over $180 million for down payment assistance or non-amortizing second mortgages putting sustainable ownership within reach for thousands of families.

And just last month, I announced in San Antonio the new FHA First Look program which will give communities and partnerships who received funds from the first and second rounds of NSP the first crack at buying foreclosed homes that were insured by the FHA.

Collectively, these efforts show that we are making progress. Our latest housing scorecard shows that monthly foreclosure starts in June slowed by some 18 percent compared to last year.

At the same time, RealtyTrac's Mid-Year report for metropolitan areas found that in the six months of 2010, foreclosure activity actually went down in nine of the 10 metros with the highest foreclosure rates -- which suggests our efforts are beginning to make a difference in the hardest hit markets.

Third -- Laying a Foundation for the Future

The third way the Administration has responded to the housing crisis is by laying a foundation for a better, more secure future.

And you can see what I mean with the changes we have made--and continue to make--at the FHA.

As many of you know, last fall an independent review showed the FHA capital reserve ratio had fallen below the congressionally mandated 2 percent threshold to 0.53 percent.

And, while the FHA fund has over $32 billion in total reserves spread between two accounts, we have continued to take necessary actions to continue strengthening the FHA fund.

Because this is a new FHA. And a new FHA means protecting the homeowner and the taxpayer alike.

It means managing risk -- putting mechanisms in place to keep FHA fiscally sound.

And under the leadership of Commissioner Dave Stevens, we are. FHA hired the first permanent Chief Risk Officer, Bob Ryan, in the agency's history. The Risk Officer is providing the most thorough and comprehensive risk assessment we've ever undertaken to ensure the quality and sustainability of new loans, increase FHA capital, and crack down on fraud.

Since we took office, FHA has announced and implemented new policies, increased enforcement reviews and established a risk management protocol that will strengthen FHA to better serve the American people. These actions are the most sweeping and significant steps to improve FHA soundness in decades, if not in its entire history.

These changes will insure the long-term viability of the program and increase FHA's capital reserves.

And, indeed, they are already making a difference. Just yesterday, FHA released its Quarterly Report to Congress on the health of its single-family insurance fund.

With the impact of future house prices uncertain, we need to be cautious. But the report shows that many aspects of the fund are in better shape -- with the amount of cash reserves in the fund nearly $3 billion higher than forecasted in last year's actuarial report.

It shows that the quality of loans made in 2009 and 2010--the years FHA has done the most significant volume--is much improved from our 2007 and 2008 books.

It shows the average credit score on current insurance endorsements has risen from 634 in 2007 to nearly 700 today.

And it shows claim payments are much lower than projected and the first year-over-year decline in new 90-day default reports in years.

Still, for FHA, the job's not done. Building a strong foundation for its future must include passage of legislation to reform and protect FHA.

Our legislative proposals provide FHA the ability to hold lenders accountable for the loans they underwrite. And, we have also proposed giving FHA the flexibility to respond to changes in the marketplace by granting additional authority to adjust the annual mortgage insurance premium and, in turn, reduce the upfront mortgage insurance premium paid by borrowers.

If these changes are adopted, the estimated value to the FHA would be approximately $300 million per month, which would help replenish FHA's capital reserves.

I am pleased that the House has approved these proposals, and we hope to see them passed by the Senate and signed into law as quickly as possible.

The Way Forward

So, where do we go from here? All along, we've said that as our housing market recovers, the Federal government will step back and encourage the private market to step back up. And in some ways, it's already happening.

It wasn't that long ago that the Fed discontinued its MBS Purchase Program -- and Treasury announced that it would be doing the same. And last week, the average on a 30-year loan dropped to 4.54 percent -- the sixth straight week at record low levels.

We've begun to see the first signs of the re-emergence of a market for mortgage-backed securities -- including the first jumbo mortgage securitization offering without government backing since late 2007.

And, of course, all of this is taking place in the context of Wall Street Reform.

Last month, President Obama signed the strongest consumer financial protections in history into law -- but consumers won't be the only ones to benefit.

Wall Street Reform will also level the playing field for responsible lenders and investors by putting an end to a system that put short-term profits before high ethical standards and had devastating consequences for our African American communities.

With these reforms, we can all, as NAREB says, "Serve Our Communities with Integrity, Trust and Truth."

Of course, much work still lies ahead. We are also working to put in place a set of broader reforms -- greening homes, reducing how much families need to spend on transportation simply to live in areas where housing is more affordable, and focusing on affordable rental housing.

This includes our "Transforming Rental Assistance" proposal, which would leverage some $25 billion from the private and public sectors to link public housing to investments in neighborhood schools, local businesses and other community anchors.

Instead of being a problem for neighborhoods, President Obama and I believe this housing can be an asset to our communities -- preserving affordability for underserved families, increasing property values in surrounding neighborhoods and bringing some of our poorest families into the housing mainstream.

Over half a century ago, the Warren Court's unanimous decision in Brown vs. Board of Education stated that, "separate educational facilities are inherently unequal."

Well, a separate housing system for low-income families is also inherently unequal.

It's time to complete this unfinished business of the Civil Rights movement.

It's time we worked together to ensure that all our families can live in sustainable communities of opportunity and choice.

In all of these efforts, we need your support.

We need your help to ensure the FHA can continue to be the beacon of opportunity for minority homebuyers it has been for decades.

Like you, I believe a home is the foundation upon which we build our lives, raise our children and plan for our futures.

Like you, I believe that how we develop our national housing policy is one of the great civil rights debates of the 21st century.

And like you, I believe that in America, we should never be able to predict a child's life expectancy by the zip code they grow up in. Not in America.

With home so central to our success as individuals, as families and as communities, ensuring that every American has access to decent, safe, and affordable housing is not just part of HUD's mission -- it is the core of our mission. Our shared mission.

And in the weeks ahead, may we work to realize it together. Thank you.


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