Remarks of Secretary Shaun Donovan at Congressman Denny Heck's Conference: "The Future of Housing After the Crisis"

Wednesday, January 22, 2014
Tacoma, WA

As prepared for delivery

Thank you very much, Congressman Heck, for that generous introduction. And thank you for your contributions to the 10th District and the entire nation.

In particular, I appreciate your leadership with the HECM bill, allowing HUD to make important reforms to this program, while continuing to help seniors age in place with comfort and dignity.
And I am deeply grateful that you invited me to be here today.

I always love coming to Washington, and during this visit, there is a special excitement in the air.
Now, I am under no illusion that it's because the HUD Secretary is here. I know that all this joy is because the Seahawks are going to the Super Bowl.

To all you fans, congratulations on this milestone accomplishment. They made quite a comeback against the 49ers on Sunday. So I can't think of a better place to talk about the housing market's comeback and future than right here in Washington. 

The Progress We've Made

It's an important discussion to have because homes are the foundation of our lives and where we raise our families. Homes are at the center of healthy and thriving communities.

Owning a home helps families build wealth, start businesses and put their kids through college.
In short, home is critical to every aspect of our lives which is why we've got to ensure our housing market is healthy and provides opportunity to all responsible families.

Now, of course, this work hasn't been easy in recent times. Just a few years ago, our nation endured a once-in-a-lifetime crisis that devastated Americans across the nation. 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.

And of course, these drops represented more than shifting numbers on a spreadsheet. They represented people's lives, savings and struggles. So as soon as the President and I took office, we took action to stabilize the market and help those in need.

We helped nearly 8 million families modify their mortgages. We allocated $7 billion to communities in all 50 states through our Neighborhood Stabilization Program to address foreclosed and abandoned properties. And during the most trying times, the Federal Housing Administration stepped up to keep capital flowing and stabilize the market.

As a result of these and other efforts, the market is healing. From the beginning of 2012 to the third quarter of last year, the number of underwater borrowers fell by nearly half, lifting 5.7 million homeowners above water. During that same period, homeowners have seen $3.4 trillion in home equity restored. And, home prices continue to rise. 

Bottom line: progress is happening. But as all of us know, there is still more work to do.
Access to credit for responsible families is still too limited. Underwater borrowers are still too common. 

That's why the Administration is committed to accelerating the housing market recovery in a number of ways.

Accelerating Our Progress

First, we are empowering families with the tools they need to succeed in today's housing market.
I don't have to tell you that housing can be a complex and overwhelming source of frustration for families.

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.

Another focus of ours is making it easier for single-family lenders to get quality products to those ready to buy. Right now, one of the major obstacles blocking a full housing recovery is regulatory uncertainty. 

And I understand. The federal government has taken a lot of steps that were, in my view, necessary to restore confidence. But one of the outcomes was 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%.

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, which we finalized last month.  

It's the result of six federal agencies, including HUD, coming together to make QRM equal to QM in order to simplify the mortgage origination process. This is a direct result of the feedback we've received since the first proposal in 2011.

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 a dilution of our rule. But as you know, the Consumer Financial Protection Bureau's QM rule itself is a very strong measure. And we are confident that this will find the right balance between responsibility and opportunity moving forward.

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 conditions right for the single-family market.

We are also committed to doing the same with the multi-family community. I've made it a priority to make it easier to do business with HUD so that we can put an end to unnecessary delays on the ground. 

Case in point is our Low Income Housing Tax Credit Pilot Program. As you all know, in the past, investors using the Low Income Housing Tax Credit who wanted to access FHA financing had to follow an approval process that sometimes took a year or more.

Not only did that stall important affordable housing projects, it scared off other potential partners from trying in the first place. To address this challenge, we launched the pilot program last year and are seeing tremendous results.

Deals are taking an average of only 86 days from receipt of the complete application to closing.
And we are proud to be seeing these kinds of gains in a number of our initiatives. That's why we're committed to expanding this work with efforts like the transformation of our Multifamily Housing Office. 

To compliment this work, the Administration continues to fight for the Low-Income Housing Tax Credit. All of us here know how important the LIHTC has been in generating multi-family activity. 

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 announced last August. 
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 will go a long way in accelerating our housing market's growth.
And we want to make sure that this housing succeeds by working with public and private partners to improve surrounding community assets.

No housing can thrive if its residents don't have access to things like good jobs, quality schools and reliable transit options. That's why the Obama Administration has joined with local leaders to take a comprehensive approach to development.

At the community level, HUD launched the Choice Neighborhoods initiative, a competitive program that gives local leaders the flexibility to transform their neighborhoods in their own unique way.

Building off the HOPE VI public housing revitalization program, Choice expands the activities that resources can be targeted towards to include not just all forms of housing, but also neighborhood amenities.

This work is making a profound difference in communities like Yesler Terrace. In 2011, Seattle was one of the first five cities to be awarded Choice Neighborhoods implementation grant dollars - in total, receiving nearly $30 million. 

Yesterday, I had the chance to visit Yesler Terrace and see up close the profound changes underway. The Housing Authority is overseeing the development of thousands of new, mixed-development homes. Seattle University is providing educational support services to help young people. 

And a wide-variety of partners are coming together to link the community with surrounding neighborhoods by creating paths for pedestrians to connect with the Little Saigon business district located just down the hill from Yesler Terrace …as well as to maximize the impact of the new street car rail line that will run through the neighborhood, better connecting residents to downtown and the medical district. 

In total, the partnerships created through Choice Neighborhoods are driving change and expanding opportunity. And at a time of tough budget choices, grantees are leveraging $8 for every $1 Choice Neighborhood brings, generating incredible outcomes at the community level.

At the regional level, the Partnership for Sustainable Communities is doing the same.
HUD has joined with the Department of Transportation, the Environmental Protection Agency and the U.S. Department of Agriculture to make entire regions more economically competitive.

The 143 planning grants we have awarded include 5 grantees from the state of Washington - representing an investment of nearly $12 million. 

One example is Puget Sound Regional Council's "Growing Transit Communities" plan to locate housing, jobs and services close to transit options so that everyone has access to opportunity.
Another example is Thurston County which has an ambitious plan to revitalize the Capitol-Martin Corridor. 

In total, our grants are touching and improving the lives of nearly half the U.S. population in a number of profound and innovative ways. This kind of work is ensuring that communities have all the support they need to grow. 

But we can't be satisfied by these results. After all, if the housing market were to collapse again, it would undermine all these efforts. 

That is why we've got to ensure that a crisis of the magnitude we just saw never happens again by reforming our housing finance system. 

Housing Finance Reform

Naturally, this will require action from Congress. Now, I know what you are all thinking: after the recent shutdown, what makes Shaun Donovan think that there can be movement in this area?
But I truly believe that housing can be an area of common ground - like it has been throughout history.

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 last year, we saw bipartisan progress in Congress on this issue.

So it is time for all parties to finally make reform a reality. Last 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 structure reform?
To start with, reform legislation should put private capital in a first loss position so that we can ensure that taxpayers are never again on the hook for bad loans and bailouts.

That means winding down Fannie and Freddie in their current form. As the President has said, for too long, their model was "heads we win, tails you lose." We can change this by making a smooth transition of assets-the people and infrastructure-as part of government's new limited and targeted role. 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.

Second, the government role should be explicit and defined, as opposed to before when it was implicit. This requires the new entities to pay for the government insurance similar to banks paying for FDIC deposit insurance.

It also requires an expansion of the capital magnet fund and the housing trust fund so that the new system explicitly supports more affordable housing initiatives. Specifically on this last point, we've got to ensure that reform yields a major fund of $5 billion a year for the production of affordable housing.

The need is as great as it's ever been. According to HUD's latest "Worst Case Needs" study-in 2011-8.5 million lower income families paid more than half their monthly income for rent … lived in severely substandard housing … or both.

This was a record high - up 43% since 2007. So it's clear that as we look to the future, we don't just need more available housing, we also need more affordable housing. And I look forward to working with all of you to meet this challenge. 

A third principle of reform outlined by the President is ensuring access to safe, responsible financing like the 30-year fixed rate mortgage market by, in part, shaping a competitive marketplace that gives community banks and smaller lenders the same access to the capital markets as the big banks.

Six years after the financial collapse, it is time to get this and other critical aspects of housing finance reform done. I want to thank Congressman Heck for his leadership in this work.
I know that many of the points I just outlined are aligned with the principles he's long championed.

As he recently wrote in an op-ed in the Tacoma News Tribune: "when considering family well-being and the health of our economy - there are few topics more important than this one."

He couldn't be more right which is why the time for action is now. We know that the Senate Banking Committee is working on housing finance reform.

They have held numerous hearings on everything related to housing finance - from structure to affordability to transition. We need work with the Committee and the Senate to keep the momentum going so that we can get bipartisan legislative action early this year.

The time to make our voices heard is now. Let's keep up the pressure to put housing finance reform at the top of the legislative agenda.

Conclusion

Make no mistake: this won't be easy. In fact nothing about the housing comeback has been easy.
The market collapse was tough on everybody here. 

But I know that the people of Washington are tougher. They are resilient. And as the Seahawks showed a few days ago, they don't stay down. They come back. 

This is a sprit that I've seen across America as we fight our way back from the recession. We've come a long way, and now we've got to finish the job. 

That means continuing to help struggling homeowners. That means giving families the knowledge they need to be successful homeowners.

That means eliminating uncertainty so that credit can go to families ready to own. That means supporting housing with comprehensive community development. 

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

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

Together, let's make the housing market work for both the industry and consumers. Together, let's shape a better and stronger America for all.

Thank you.

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