2007 Homeownership Summit
PREPARED REMARKS FOR
SECRETARY OF HOUSING AND URBAN DEVELOPMENT
AT THE HOMEOWNERSHIP SUMMIT
MONDAY, MAY 14, 2007
Thank you, Brian (Montgomery). And thank you for being such a strong leader on FHA reform.
Thank you, Frank (Davis) for all your good work.
Ladies and gentlemen, thank you for coming. We must preserve and protect homeownership. At this summit we need your prudent reflection, your sound advice, and your assessment of the future.
So we gather today to share, to listen, and to act. We need commitment and resolve for reform. And that means we must recognize our common ground.
I am certain that we can agree on several points.
The first is that we have a responsibility for sound stewardship of the housing market.
The housing market is central - vital - to the American economy. Housing is a leading indicator - maybe "the" leading economic indicator. It is what kept our economy afloat after 9-11. And markets are indeed resilient.
For example, as we examine concerns about exotic loans, we see the effect on our nation. These exotic loans have been front-page headlines for our financial media precisely because of the powerful, forceful role of American housing. We cannot underestimate that role.
We have to be responsible in our stewardship of this powerful force. It is not enough to react to problems after they happen. That is not the role people expect in this new century. The public wants us to anticipate problems, to be proactive, to get ahead of the curve. This is especially true in housing because of its global impact. Our actions and our words matter.
There is a second point upon which we can agree. We must take every responsible step to enable Americans to become homeowners.
Despite the problems in the market right now, homeownership as a goal is a good thing. I have read articles lately questioning whether homeownership is really the right path; whether homeownership has hit a ceiling. I recognize homeownership is not for everyone. But it should be the goal. When we have problems, like the exotic loan market, we cannot retreat from our homeownership commitment. We can't just say, "Well, some people just shouldn't own a home," or "The American Dream isn't for everyone." Rather, we must recognize that problems in the market are not problems with the Dream itself or our commitment to the Dream. The problems are challenges we must face and overcome to make the Dream possible for Americans.
And that is why we are here today.
Third, there is room for sub-prime possibilities, provided they are legal, fiscally responsible, and ethical.
Americans who are turned away from the prime lenders still deserve a chance at the American Dream. Most of the sub-prime loans remain viable and will not result in foreclosure. But we must keep some distinctions in mind.
For example, the loans taken out in 2005 and 2006 are just now beginning to experience increased payments on the sub-prime loan adjustable rates. Approximately 80 percent of these loans will fall into three categories:
- Borrowers will be able to pay the loans at current rates;
- Borrowers will refinance their loans into less expensive prime-rate loans; or
- Borrowers will sell their homes to take advantage of property-value appreciation.
These categories will account for roughly 80 percent of the sub-prime loans in 2005 and 2006.
We remain concerned about the other roughly 20 percent of these sub-prime loans. Even borrowers with sub-prime loans taken out in earlier years may still experience some problems with rate-and-payment resets. For many, large reset rates have just kicked in. Some people are, or will, have trouble affording the new payments. These are the loans that we must follow carefully over the next few months.
Fourth, prospective homeowners should investigate housing counseling.
The key is to read the fine print, and to understand it. That includes knowing when to ask for help. As one of our moderators, Michelle Singletary, noted recently in a column, half of homeowners who went into foreclosure didn't even pick up the phone to contact their lender.
That's why housing counseling and financial education is very important in this process. I am proud to say this administration has increased the budget for counseling from $13 million when we came in to $41 million now, more than a 200 percent increase. In the coming fiscal year the President has requested $50 million for housing counseling grants.
So not all sub-prime loans are bad; not all sub-prime loans are predatory.
One key advantage of the sub-prime market was the way it further "democratized" homeownership. We must offer sub-prime alternatives that are fiscally sound, addressing risk in a fiscally reasonable way. We must end any practices that threaten the security of not just homeowners but also investors. And we must have enough foresight to head-off future problems by acting now.
Fifth, we can agree that there is no place for predatory lending in the housing industry or as an investment practice.
Predatory lenders and mortgage fraud harm everyone in the home purchasing process. We must expose, prosecute, and end predatory practices. HUD has vigorously investigated and prosecuted predatory lending. We have restrained or stopped several companies engaged in questionable practices. I am committed to using every possible means in my power to end predatory lending in America. We must give consumers the highest possible confidence in the housing purchasing process - and that confidence must be justified. In fact, I believe we must create an extremely high expectation of transparency and honesty for lending on all levels and by all lenders. This must be part of our work together.
Sixth, we can agree that FHA reform is long overdue.
The President and I have been strongly encouraging Congress to pass legislation that modernizes the Federal Housing Administration (FHA).
We need this reform now!!! Every day of delay places more and more homeowners at unnecessary risk. Over the past 73 years, the FHA has helped more than 34 million families become homeowners. And we have helped families stay in their homes.
Yes, it has worked well in the past. FHA has been a blessing for so many people. However, reforms must be made for FHA to adapt to today's marketplace. We have internally modernized FHA as much as we can. But the time has come to bring FHA into the 21st Century.
A new FHA could be an antidote for sub-prime difficulties. FHA reform could be one important answer to our sub-prime problems. Right now, without reform, FHA refinancing could help tens of thousands of families who currently have sub-prime loans. So the anti-reformers will say we really don't need to do anything...the sub-prime borrowers will come to FHA now anyway. But, we could help more families - tens of thousands of families -- if Congress expands our authority. With expanded authority to set insurance premiums commensurate with risk, FHA could potentially assist tens of thousands more borrowers who need an exit strategy from their sub-prime mortgages. Unfortunately, under today's restricted premium limits and maximum loan amounts, FHA simply cannot reach all the borrowers who need the "safety-net" that FHA can provide.
I would like you to reflect on one more part of the FHA reform process. If we had FHA reform last year, much of the sub-prime problem could have been avoided. We have to find the ways and means to convince Congress and others to get ahead of the curve on the housing market. We need to lead through incentives, not simply try to play catch-up after the fact. We could have saved many homeowners the heartache and tragedy of foreclosure.
Seventh, reform must not be turned into reward for bad investments.
Yes, there are structural adjustments that could be extremely helpful. But I don't think we should use the government to somehow cover bad investments. I know there are some who are calling for a sub-prime rescue. They propose large scale, massive bailouts to resolve the housing slowdown and to help homeowners and investors.
While I have sympathy for people who are in a tricky situation, I strongly disagree with that a bailout is the answer. Companies should not be rewarded for risky investment ventures that fail. There is a reason it is called "moral hazard." The American taxpayer shouldn't foot the bill for risky ventures. And we should not reward investors who were fiscally irresponsible.
Again, this is our challenge, to find solutions that provide the right kind of incentives and reward the most fiscally responsible behavior. We must not let such a powerful part of our economy find itself hostage to wildly risky behavior or to those who want to simply roll the dice. Fiscal prudence demands that we come up with answers that provide homeownership without placing the economy on a shaky foundation.
We should be realistic about the housing market. Yes, there is a short-term down-turn. Yes, the exotic loans are a serious challenge for us. Yes, there are Americans who have lost their homes and, in my view, one lost home is one too many. We must be compassionate and caring for those in need. But the market will continue to grow. The American population continues to grow: people are having babies. I should know - I am one of 12 children!! And people still keep coming to this country because of the promise of America.
I believe the down-turn is only an adjustment...a needed correction. Most sub-prime lenders will ride out the flux and turbulence of an adjusting market. After all, we are at virtual full employment, real income is up by almost $3,000 per American since President Bush took office, and half of that increase in real income has taken place in the last year. Credit is tightening, but not to a point where the market is strangled. All the elements for continued growth are there. We can expect a future boom in housing.
So now is the time to address the exotic loan problem and the time to look forward. We need FHA reform now!!! We need to have mechanisms in place to avoid foreclosures in the future. We need to do this to protect our economy and the American people.
Together, at this summit, we can join forces, craft a closer working partnership, and forge a new alliance. We must preserve and protect homeownership. We must help homeowners keep their homes. We must create a more stable, solid, and successful investment environment. We must provide protection for future homeowners and encourage future homeownership for millions of Americans.
Thank you for coming.