Prepared Remarks of Secretary Shaun Donovan at the Multicultural Real Estate Policy Conference

Washington, DC
Thursday, March 3, 2011

Thank you, Vincent -- for that introduction and for your friendship. I want to thank you, as well as Alex Chaparro from NAHREP and Kenneth Li from AREAAA, for your remarkable work on behalf of minority homeowners, and for inviting me here today.

It's a pleasure to speak to this conference -- particularly given the work HUD has done with so many of your associations and civil rights organizations across the country these last two years to preserve fair and equal access to housing and build strong, sustainable, inclusive communities for all Americans.

And given the force with which the economic crisis hit minority communities, that work has never been more critical.

In my two years at HUD, I've been proud to call so many of you a partner, particularly on fair housing issues.

Working with our outstanding Assistant Secretary of Fair Housing and Equal Opportunity John Trasviña, NAHREP and AREAA have signed formal partnerships with HUD, and one with NAREB is on the horizon. Through these partnerships, you have conducted fair housing and foreclosure prevention workshops for your industry members and the wider community in multiple languages, from Miami to Las Vegas to Los Angeles.

And with your help, HUD has expanded our services to translate over a hundred vital documents in 16 different languages. Through all these efforts, your organizations have become a critical bridge to ensuring that all Americans have an understanding of their rights and responsibilities under the law -- and I can't thank you enough for the work that you do.

But our work together doesn't stop there. With your help--and the help of so many in this room today--we've provided housing counseling to millions of families and forged partnerships with financial institutions and non-profits to help us emerge from this foreclosure crisis.

We've worked together to provide the strongest consumer protections in our history through the Dodd-Frank Wall Street Reform law to ensure a crisis like this never happens again.

And just this past month, HUD put forward a budget proposal that makes crystal clear that winning the future requires us to harness the talent and abilities of all Americans of every race and ethnic background.

In it, we're proposing a historic level of funding to enforce our fair housing laws.

We're protecting vulnerable families hit hard by this recession -- 86,000 more families than we served in our last budget.

And we're moving forward on a comprehensive rental housing preservation agenda that addresses neighborhood segregation and isolation.

Because we can't win the future--or out-educate our competitors--if we are leaving a whole generation of kids behind in our poorest neighborhoods.

Indeed, that's why we worked closely with our partners in the civil rights community to develop a housing finance proposal that advances all these goals -- whether it is furthering fair housing, ensuring greater transparency or supporting stronger neighborhoods with sustainable homeownership and rental opportunities.

Today, as we emerge from the housing crisis and look to the future, I want to talk with you about that next step -- and how we ensure that the path forward on housing finance reform works for all Americans.

The Moment We're In

As I said a moment ago, we all know the impact this crisis has had on low-income and minority borrowers.

A report issued by the Center for Responsible Lending just last summer found that 1-in-6 Latino homeowners and more than 1-in-10 African-American homeowners have already lost their home to foreclosure or are at risk.

While the crisis is national in scope, four states with significant and growing Latino populations--California, Nevada, Arizona, and Florida--have been among the hardest hit. And we've seen once-stable neighborhoods in central cities with large minority populations losing inside of two or three years gains that had taken decades to achieve.

But we've worked hard to push back -- providing counseling to more than 4 million families these last two years. Indeed, distressed homeowners working with a housing counselor are nearly twice as likely to receive a modification.

That's one big reason the vast network of housing counselors that HUD funds remains one of our greatest strengths -- and it's why we included $168 million for housing counseling in our proposed 2012 budget, even in a tight fiscal climate.

And since the crisis began, we've worked to provide families with the assistance they need to stay in their homes.

We've worked with the Treasury Department to improve the "Making Home Affordable" program to help troubled borrowers -- and while there's no doubt that HAMP has helped fewer people than we'd initially hoped, let's be clear: it has made a difference. As we speak, 1.5 million families have a permanent or temporary modification because of this program.

More than 730,000 FHA loss mitigation actions and early delinquency interventions have helped over half a million people keep their homes.

Even more importantly, together, HAMP and FHA's loss mitigation programs have set a standard for mortgage modification efforts that the private market has scaled up.

Since April 2009, more than 4.2 million families have received restructured mortgages -- outpacing completed foreclosures by more than two-to-one. And foreclosures are down more than 30,000 per month from this same time one year ago.

Reforming America's Housing Finance Market

But we all know that we still have more to do.

That is why the Obama Administration recently delivered a report to Congress, "Reforming America's Housing Finance Market," which provides a path forward for reforming our nation's housing finance system.

The proposal would wind down Fannie and Freddie and help bring private capital back to the market. It would fix fundamental flaws in the mortgage markets and better target the government's support for affordable housing. And it provides choices for longer-term reforms.

Given the importance of this proposal to the communities represented here today, I'd like to focus on the Administration's commitment to housing affordability and access to mortgage credit, the critical role it proposes for the FHA going forward, and how we must work together to ensure housing finance advances opportunity in minority communities.

As he has expressed clearly throughout this crisis, 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.

Even today, after all we've witnessed, homeownership--sustainable homeownership, founded on safe mortgages--continues to be an important source of stability and opportunity for American families. Homeownership has been an important source of wealth-building for all Americans -- but minorities in particular.

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 housing finance offers an opportunity to provide them.

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 simply not a factor.

Still, let's be honest:

These goals weren't particularly effective.

They weren't particularly responsive to the needs of underserved communities.

And they weren't properly aligned with lending in the primary market.

Worst of all, they failed to prohibit the kind of high-cost, predatory loans which devastated minority communities.

As we work to establish new ways to ensure access to mortgage credit and housing 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, the Administration recommended in this report that we initially focus on four primary areas.

First, reforming and strengthening the FHA.

Before I go into how we propose to do this, let me say that all three long-term options laid out in our proposal would preserve and strengthen the FHA for the future.

In fact, in our proposal, we explicitly rule out the notion that there is no role for government to play in ensuring access to our mortgage markets through housing finance, as some have suggested.

We will continue to ensure that creditworthy borrowers with median level incomes have access to affordable mortgages.

As we have done over the past two years, we will strengthen and reform FHA in a way that is both healthy for its long term finances -- but also ensures that FHA is able to continue its mission.

As such, we will consider options such as lowering FHA's maximum loan-to-value ratios for qualifying mortgages to ensure it remains financially sound, while providing access to homeownership for first-time homebuyers and underserved markets.

I know some of you are concerned about the potential for even these small changes to perpetuate a so-called "dual credit market."

After a deep recession which has harmed so many families' lifetime of good credit, some have suggested we could be making it harder for families on the lower-end of the income scale to access our mortgage markets at fair prices.

But while it's true that a small group of borrowers will need to save for a longer period of time to be able to become homeowners, we are absolutely committed to ensuring they have access to quality affordability rental housing as they do save.

Indeed, the second proposal we make to ensure access and affordability is to provide targeted, transparent support for affordable rental housing.

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

One option could be to expand FHA's capacity to support lending to the multifamily market and share some of that risk with private lenders. 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 -- calling for greater transparency that requires secondary market actors to disclose information on the credit, geographic, and demographic characteristics of the loans they package into securities.

Greater transparency allows us know who is abiding by fair lending and equal credit obligations -- and who's not.

We've seen from this crisis that decisions made in the secondary market very clearly drive lending practices in the primary market -- and the potential for disparate impact in the availability and quality of mortgages in underserved communities is very real.

And so, 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 affordable homeownership and rental housing.

Winning the Future Starts at Home

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.

This Administration is committed to preserving and protecting access to mortgage credit and housing affordability in the housing finance system, both as we transition to a future system -- and in that future system itself.

This is just the beginning of the conversation -- one in which this Administration is committed to you being a part of.

You will be at the table with us.

Whether the system we build offers catastrophic reinsurance behind significant private capital, or one of the other options laid out in our report, ensuring that the outcome of this debate meets the needs of minority families will require the active engagement of everyone dedicated to sustainable minority homeownership.

That means not only the leadership in this room, but also that of your members in affiliated organizations across the country.

And if my experience as HUD secretary so far is any guide, you'll push us -- and we welcome a robust debate on this, particularly given its importance to our economy, our country and our ability to win the future, as the President put it in his State of the Union.

And that starts at home.

The less the American people think of this debate as being about capital markets, G-fees, risk-based capital, and mortgage-backed securities--and the more they think about it as essential to the futures of their own communities--the better system we'll build, the stronger our country will be, and the more opportunity we'll be able to provide every American.

That is what this debate is about -- and it's why I'm so proud to have each of you as a partner.

Thank you.

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