Prepared Remarks of Secretary Shaun Donovan During the GSE White Paper Call With the Treasury Department

Friday, February 11, 2011

Thank you, Tim. I am pleased to join you as the Obama  Administration delivers a strong plan to fix the fundamental flaws in the mortgage market and improve the way government supports affordable homeownership and rental housing.

I want to take a few moments to focus on access and affordability -- some of the steps we took to preserve them during this crisis and how this report proposes to preserve them going forward.

Since taking office, the Obama Administration has acted to help stabilize the housing market and provide critical support for struggling homeowners. 

We worked with Congress to put in place expanded tax credits for first-time homebuyers and provide additional support at the state and local levels. 

We unveiled mortgage modification and refinancing initiatives, housing counseling programs, expanded support for mortgage credit through FHA.

And of course, we have also provided ongoing financial support for Fannie Mae and Freddie Mac following the Bush Administration's decision to place them into conservatorship. 

These policies helped avert a deeper economic collapse and a more severe housing crisis. They preserved access to our mortgage markets at a moment they were threatening to seize up entirely. 

The President believes that we must continue to take the necessary steps to ensure that Americans have access to quality housing they can afford. 

This involves supporting a range of affordable options. While sustainable homeownership founded on safe mortgages continues to be an important source of stability and opportunity for American families, the goal here isn't for every American to be a homeowner. 

Every American who has the credit history, the financial capacity and the desire to own a home should have the opportunity to take that step. 

But, at the same time, we believe there should be a range of affordable options for the millions of Americans who rent.

And so, the question is how we provide those options.

To be clear, although some have suggested Fannie and Freddie's affordability goals were solely responsible for their failure, the vast majority of mistakes that were made--poor underwriting standards, underpriced risk, and insufficient capital with inadequate regulatory or investor oversight--closely mirrored those made in the private label securities market where affordability goals were a non-factor. 

Still, these goals weren't particularly effective -- responsive enough to the needs of underserved communities or properly aligned with lending in the primary market. 

Worst of all, they failed to prohibit the kind of high-cost, predatory loans which caused millions of foreclosures -- and reversed 15 years of hard-fought gains for countless families and neighborhoods.

As we work to establish new ways to ensure access and affordability, one of our top priorities must be to design policies that are better targeted, more transparent and more focused on providing support that is financially sustainable for families and communities alike.

And so, we are recommending in this report that we initially focus on four primary areas:

First, reforming and strengthening the FHA. We will continue to ensure that creditworthy borrowers that have incomes up to the median level for their area have access to affordable mortgages. 

As we have done over the past two years, we will do so in a way that is healthy for FHA's long term finances. 

We will consider options such as lowering FHA's maximum loan-to-value ratios for qualifying mortgages to ensure it remains financially sound and able to continue its mission providing access to homeownership for first-time homebuyers and underserved markets.

Secondly, we must provide targeted, transparent support for affordable rental housing. 

Right now, half of renters spend more than a third of their income on housing -- and a quarter spend more than half. 

And more support for rental housing is directly related to encouraging the return of private capital. 

One option, as we shrink FHA's footprint in the single-family market, could be to share risk with private lenders to expand FHA's capacity to support lending to the multifamily market. We could also develop dedicated programs that ensure we capture hard-to-reach segments like smaller properties.

Third, the plan commits us to helping ensure that capital is available to credit-worthy borrowers in all communities. 

The plan calls for greater transparency by requiring securitizers to disclose information on the credit, geographic, and demographic characteristics of the loans they package into securities.

The Administration will explore other measures to make sure that secondary market participants are providing capital to all communities in ways that reflect activity in the private market, consistent with their obligations of safety and soundness. 

Lastly, support for affordable housing requires consistent, flexible, and transparent funding.

That was the goal of the National Housing Trust Fund that was authorized by Congress in 2008 that has never gotten off the ground. 

That is why the Administration will work with Congress on developing a new dedicated, budget-neutral, financing mechanism to support homeownership and rental housing. 

And while we are talking about our report to reform our nation's housing finance market -- let's be clear: this process started virtually the moment we took office.

At the FHA, we have implemented important changes and reforms over the last two years including strengthening underwriting standards, improving processes and operations, and raising prices that have significantly improved their financial condition. 

Since Fannie Mae and Freddie Mac were placed into conservatorship, the FHFA has strengthened underwriting standards and adjusted pricing to better reflect risk as well. Key indicators show that the quality of loans they are making has improved substantially. As a result, the vast majority of the losses are from loans made prior to conservatorship.

And the Dodd-Frank Wall Street Reform law provides vital protections for consumers and investors that will help end abusive practices in the mortgage market and improve the stability of the overall housing finance market. 

But these measures are only first steps, which is why we need to work with Congress on a long-term solution. 

Ultimately, this plan is about bringing private capital back to pave the way toward the balanced national housing policy that ensures Americans have:

Rental options near good schools and good jobs, 

Access to credit for those in a position for sustainable homeownership,

Assistance for those who feel the strain of high housing costs, 

And above all -- choices in housing that make sense for them and for their families. 

That is what this report is about -- it's what this Administration is committed to working with Congress to provide. And it's why I'm proud to join Tim in representing President Obama today. 

And with that, we'd like to take some questions.


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