Remarks of Secretary Shaun Donovan at the Mortgage Bankers Association's 100th Annual Conference

Washington, DC
Monday, October 28, 2013

As prepared for delivery

Thank you, Dave (Stevens), for that very kind introduction and for your leadership.

In light of recent events here in Washington, I can't imagine that you miss your time in government too much. But, we miss you at HUD and it's great to see you today.

Please allow me to also thank all of you with the Mortgage Bankers Association.

You play a critically important role in our economy, our nation and our future. 

And it's truly an honor to be here with you this morning to kick off your Annual Conference, especially as you celebrate this milestone anniversary.

I know that the members of this organization have seen some extraordinary things over the past 100 years. But it's hard to imagine any period quite like the last five.

Fighting Our Way Back

Back in the fall of 2008, we saw Lehman Brothers collapse. Every day, there was a new rumor that more trouble was on the way. It felt like the entire financial system was close to caving.

At the time, I was a Commissioner for Mayor Bloomberg in New York City. As many of you know, he has a bullpen setup, with no walls, so that his leadership team can easily interact and collaborate together.

As part of this setup, there is a giant TV screen, which has a ticker listing updates from across the city, like the number of complaints that have been answered and the number of potholes that have been filled.

And on the day the House of Representatives took its initial vote to rescue the financial industry, I vividly remember all of us gathering around the TV to watch. When it became clear that the measure had failed, Mayor Bloomberg uttered four words that I'll never forget: "the world is ending."

Indeed, the events of that time led to the worst economic crisis that most of us have ever seen. When President Obama took office in 2009, the housing market was in free-fall.

Home prices had fallen nearly 20 percent from the year before: the largest one-year drop ever measured. Roughly three million borrowers were seriously delinquent. Construction projects and plans came to a halt - causing the industry to lose 100,000 jobs a month. 

Across the board, we saw dramatic declines. And of course, these drops represented more than shifting numbers on a spreadsheet. They represented people's lives, savings and struggles.

So when the President and I took office, we set in place a number of priorities which still guide us today.

One, to provide immediate assistance to those in need. Two, to work with public and private sector partners to strengthen the housing market and help fuel an overall economic recovery. And three, to ensure a crisis of this magnitude never happens again.

Let me start with the first goal: providing immediate assistance to those in need. When I last spoke at your Annual Conference in 2011, I told you about a number of initiatives we undertook to help families and heal the market.

Although the crisis has eased, I'm proud to report we keep pushing for progress.

Back then, I told you that we had helped 5.1 million responsible families stay in their homes through mortgage modifications. Today, that number is over 7 million.

Back then, we had just launched HARP 2.0. In the time since, the number of homeowners who have refinanced through the effort has soared from 400,000 to 2.8 million as of July. I also mentioned our Neighborhood Stabilization Program, which addresses the foreclosed and abandoned properties that often hold back communities trying to rebuild.

Today, I'm proud to say that $7 billion has been allocated to neighborhoods in all 50 states to refurbish these properties, turning blight into progress. In fact, in more than 70% of these neighborhoods, vacancies are down and home prices are up compared to similar communities.

And during the most trying times, the Federal Housing Administration stepped up to keep capital flowing and stabilize the market. Of course, taking on such a big role carried costs, and FHA recently took a mandatory appropriation of $1.7 billion to close out Fiscal Year 2013.

To be clear: this doesn't reflect the MMI Fund's current health. This was an accounting transfer that has not yet caught up with reality. It's based on the housing market more than a year ago, and doesn't reflect policy changes we've made since then.

In fact, FHA has strengthened underwriting standards and its portfolio, resulting in dramatic improvements, even since this time last year.

A 15 percent drop in delinquency rates. A20 percent drop in foreclosures starts.

A 26 percent improvement on recoveries. And, more than a 90 percent improvement in Early Payment Defaults. 

FHA has nearly $50 billion in liquid assets, including more than $17 billion added in the Fiscal Year that just ended. And it continues to provide a wide-variety of qualified buyers with the opportunity to become homeowners.

Through these efforts and more, we are sending a clear message: that even as the financial crisis becomes more distant in our nation's rearview mirror, the Obama Administration's commitment to our recovery will never waver.

And in the larger picture, these actions, combined with leadership like yours, has helped write quite a comeback story since 2008. Sales are up. Prices are up. Construction is up. Optimism is up. In short, so many critical trends are going in a positive direction.

I thank you for the role you played in this growth. You have had to be creative and resilient in the face of incredible challenges - and I'm sure will continue to be with those that lie ahead.

Through it all, you have more than earned the right to highlight your strength with your conference theme: 100 Years Strong." And we are determined to work with you to ensure that the best years are ahead.

Taking Our Recovery to the Next Level

There are obviously key building blocks to achieving this goal, including:

  • empowering families with the tools they need to succeed in today's housing market;
  • making it easier for you single-family lenders to get your quality products to those ready to buy; and
  • to you multi-family lenders, supporting your work to develop quality, affordable housing.

We are doing this in a number of ways. First, HUD is working to give families the tools and support they need to make the best choices in today's increasingly complex financial system.

As we all know, a significant cause of the crisis was that many buyers simply didn't know what they were getting into.

That's why, in the last four years, HUD-approved housing counselors have worked with more than nine million families, both in the pre-purchase and post-purchase phases. By giving borrowers access to reliable and unbiased information, they will make better decisions and the entire market will benefit.

Of course, knowledge is only one critical component to successful homeownership.

Another factor-and perhaps the most obvious-is putting more money in people's pockets.

And that means jobs.

The good news is that American businesses have been growing for 43 consecutive months, resulting in 7.6 million new jobs. And as budget talks evolve, the President continues to fight for investments that will grow our economy and create economic opportunities.  

While doing so, the Administration is undertaking other efforts to relieve the financial pressures facing the American people. Literally just a few thousand dollars can make a huge difference in helping families secure sustainable housing.

That's what makes the Affordable Care Act so important to all of us in the housing community for two reasons.

One, the less the American people have to spend on medical costs, the more they'll have available for housing. Two, we all know that a sudden surge in medical costs can lead to families missing payments and losing their homes.

The good news is the first few weeks of open enrollment we have seen a real interest in affordable health insurance. About 700,000 applications for health insurance have been submitted nation-wide.

Unfortunately, as you all know, the website wasn't prepared to handle this volume of interest.

The President has said it will get fixed in the short term, and I know he means business. 

In the long term, we know that families will have access to affordable health care.

The ACA is paving a path that will save lives and money, and that's good for all of us.

Another effort that will be good for us and our pocketbooks is immigration reform.

On the most basic level, we all know that the system is broken and needs to be fixed.

That's why, last week, the President once again called on Congress to pass comprehensive reform.

It's good for our country. And it's good for the housing market. Home ownership has long been viewed as a part of the American Dream. One of the outcomes of fixing our broken system is a stronger marketplace.

From 2000 to 2010, immigrants accounted for almost 40% of new homeowners nationwide.

That's a lot of demand for your products and services. So expanding that circle of opportunity for those who are ready to own creates incredible benefits.

The President has stressed that it's in all of our interest to get this done. So let's do it now.

It's also in our interest to shape an environment that encourages good lenders to get their quality products to creditworthy families.

Unfortunately, as you know better than anyone, one of the major obstacles blocking a full housing recovery is regulatory uncertainty. And I understand.

I can imagine what it's like sitting at your desk back in your home state as you've watched the federal government respond to the crisis. We've taken a lot of steps that were, in my view, necessary to restore confidence and ensure that many of the bad practices that caused the mess were eliminated.

But one of the outcomes is that, too often, the rules of the road weren't clear enough and that led to a tightening of credit. According to the Federal Reserve, from 2007 to 2012, mortgage lending to borrowers with credit scores over 780 fell by a third. Loans to those with scores between 620 and 680 fell 90%.

There are a lot of qualified buyers out there who are being rejected. So my colleagues and I have been working with a wide-variety of stakeholders, including many of you, to simplify things moving forward.

Case in point is the qualified residential mortgage rule. As all of you know, in August, six federal agencies, including HUD, proposed a refined version of QRM to make it equal QM. 

This is a direct result of the feedback we've received since the first proposal in 2011. You told us it needed to be refined, and we listened. Now, our rule avoids greater complexity, and overly restrictive down payment requirements that could serve only to exclude creditworthy borrowers.

Some of our critics have called this adilution of our rule. But as you know, QM itself is a very strong measure, as I'm sure Director Cordray will tell you later in the conference. And we are confident that thiswill find the right balance between responsibility and opportunity moving forward.

Another example of proper coordination is HUD's Qualified Mortgage rule, which builds off the Qualified Mortgage definition set forth in CFPB's final rule.

It extends the CFPB patch defining loans that meet FHA policies as Qualified Mortgages.

And it increases the Safe Harbor and Rebuttable Presumption boundary to account for FHA mortgage insurance premiums. 

I thank you for your engagement on this issue. We very much look forward to continuing to listen to stakeholders like you so we get these rules right.

Another area where we are eliminating confusion is in the way FHA does business. 

Partners like you have told us that we need Single Family documents that are easier to understand and navigate. 

With over 1000 mortgage letters, housing notices, handbooks and other materials - we couldn't agree more and are taking action. We have committed ourselves to having a single, reliable source of policy.

That source is the new Single Family Housing Policy Handbook. The first draft section of the Handbook will be available for your review tomorrow. The language will be clearer.

You'll be able to find what you need quicker. And the process will cause you fewer headaches.

We want to make it easier for you to do your good work. And we also want to hear your feedback on the handbook as we shape it into a product that you can really use.

That's why we're changing our process to support a review period for each draft section before formal publication. Once we've got it right, you will be given sufficient implementation time to incorporate it into your business.

I urge you to go to to check it out when it's released tomorrow.

In the meantime, we've made real progress with you and other stakeholders on our prospective quality assurance framework. We want to ensure that FHA has a strong, consistent, transparent and timely enforcement process.

Our primary objectives are to ensure that FHA has a quality assurance approach that does not hinder or discourage lending to targeted populations - and to promote alignment with you, our business partners.

Promoting alignment and reducing uncertainty will enable access to credit to prospective homeowners underserved by private capital. And we will work diligently and urgently to get this done.

Finally, for multi-family lenders, I want you to know that the Administration remains firmly behind the Low-Income Housing Tax Credit. All of us here know how important the LIHTC has been in increasing the supply of affordable housing.

That's why the President and I have championed it time and again, most recently, calling on Congress to continue to support this tool as part of his housing plan. And I urge you to continue to do the same by letting Congress know that not only do we need to keep the LIHTC, we need to expand it in order to better address the needs out there and provide more flexibility for the credit.

Together, all these steps to improve conditions for multi-family lenders, responsible single-family lenders and buyers will go a long way in accelerating our housing market's growth.

But we all know that in addition to recovery, we've also got to ensure that a crisis of this magnitude never happens again.

Housing Finance Reform

All of us in the Administration have already been working towards this important goal, and the President is eager to take the next steps towards reform.

Naturally, this will require action from Congress. I know what you are all thinking: after the recent shutdown, what makes Shaun Donovan think that there can be movement in this area?

Well, when you look at the shutdown, and set your sights past all the politics: nobody won.

It's clear that wild brinksmanship does not pay. So moving forward, I am hopeful that partisanship will give way to partnership, and that there is a chance to do big things over the next few months.

Historically, housing has been a source of common ground. President Truman and Senator Taft worked together on the Housing Act of 1949. Ed Brooke and Walter Mondale worked together to produce landmark housing legislation decades later. And similar bipartisan efforts have sprung up in 2013. 

Earlier this year, the Bipartisan Policy Center came out with a report that helped set the stage for a grownup conversation in Washington, DC about housing finance reform. I am also encouraged by the bipartisan progress we've seen in Congress on this issue. So it is time for all parties to finally make reform a reality.

In August, the President outlined a series of principles that he believes should be at the core of the housing finance system of the future, three of which I want to highlight today.

The first is that private capital should be at the center of the system. We all know that current conditions, where government guarantees more than 80% of mortgages through Fannie, Freddie and FHA, are unsustainable.

The risks and rewards of mortgage lending have historically been in the hands of the private sector, and should continue to be in the future. So how do we attract back private capital?

As I said before, one crucial step is by addressing uncertainty in the marketplace.

That's why steps, like our proposed QRM rule, are so important. They will go a long way in ending the uncertainty out there and increasing private sector participation in the market. 

To help ease this transition, reform legislation should have flexibilities that will allow for private capital to be creative and innovative, eventually leading to a more efficient market for all.

And by putting private capital in a first loss position, we can ensure that taxpayers are never again on the hook for bad loans and bailouts, which is the President's second principle of housing finance reform.

That means winding down Fannie and Freddie. As the President has said, for too long, their model was "heads we win, tails you lose."

He'll do this by making a smooth transition of assets-the people, their ideas, their infrastructure-as part of government's new limited and targeted role.

It's a role that should be explicit and defined, as opposed to before when it was implicit.

And as we make this transition, we remain firmly focused on doing it in a way that doesn't disrupt the credit market in the short-term so that our recovery can continue.

The third principle of reform outlined by the President is ensuring access to safe, responsible financing like the 30-year fixed rate mortgage market. Doing so will increase confidence of long-term investors in mortgage backed securities so that 30-year products will be offered in both good and bad times.

This also means shaping a competitive marketplace by giving community banks and smaller lenders the same access to the capital markets as the big banks. Five years after the financial collapse, it is time to get this and other critical aspects of housing finance reform done.

Let's all make our voices heard with the goal of getting a bipartisan bill through the Senate by the end of this year. It's time to put the politics aside, and put housing finance reform at the top of the nation's agenda, where it belongs.


As we gather here today, I think it's important that we look back and honor the extraordinary contributions that MBA has made over the past 100 years. You have made lasting contributions to communities and our nation and I commend you all.

Of course, in addition to looking back, it's also important to look forward. In so many ways, the next 100 years will be built on the foundation that we shape today.

So we've got to work together to ensure that this foundation embodies all of our greatest hopes and ideals.

That means continuing to help struggling homeowners turn the page on this painful chapter. That means giving families the knowledge they need to be successful homeowners. 

That means giving families access to affordable health care and reforming our immigration system. That means eliminating uncertainty so that credit can go to millions of buyers who are ready to own. 

That means finally getting housing finance reform done to ensure that a crisis like this never happens again.

All of these components can help shape a solid foundation for the future. Now we've just got to make it happen. 

Despite all that's occurred here in Washington recently-and in our economy over the past five years-I still believe we can get these things done.

We can make the housing market work for both the industry and consumers.

We can shape a better and stronger America for all.

And I look forward to working with the Mortgage Bankers Association to make these goals a reality.

Thank you.


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