Secretary Jackson addresses the
Allard Annual Capitol Conference


FRIDAY, JUNE 8, 2007

Thank you, Senator (Wayne) Allard. Good morning.

I want to join the other speakers in welcoming you to Washington. We are honored to have you here.

I have often heard that Colorado is where "the earth reaches up to touch the heavens." I am sure that is true at Pikes Peak or on top of Mount Princeton. In fact, Colorado has so much, such a wealth of natural and man-made wonders: Rocky Mountain National Park, some of the best skiing in the world, the Garden of the Gods, and, of course, the Denver Broncos (good luck this season).

Colorado is such a beautiful, diverse state, a regional and national leader, home to so many different cultures and businesses. And I know that its many attractions also bring special challenges, such as managing growth, building necessary infrastructure, and providing homes and schools for an expanding population.

My department is in the "cities business." Our homeownership and rental programs create a culture of cooperation between Washington and the people of Colorado, as we work together to meet housing needs.

And we do work together. For example, two days ago, HUD sponsored a multifamily housing open house and walking tour in Denver. It allowed people to meet our staff, to ask questions about our programs, and then take a walking tour of a house with a Federal Housing Administration (FHA)-backed mortgage and affordable housing. This walking tour also allowed people to see some of our revitalization efforts in downtown Denver. On that same day, we hosted a similar open house for single family housing.

We are also actively involved in the state through the Community Development Block Grant program or CDBG. Another avenue of cooperation is the HOME Investment Partnership Program. This is the largest federal block grant program to produce affordable housing for low-income families.

In October, I was pleased to announce additional funding of $15 million for several efforts in Colorado to provide affordable housing for low-income elderly people and people with disabilities. These grants were for facilities in Longmont, Montrose, Pagosa Springs, and Greeley.

I also announced grants for affordable housing in rural areas. In Colorado, we awarded grants to the Huerfano-Las Animas Area Council of Governments in Trinidad to acquire or rehabilitate more rental units for low to moderate income families.

And, in October, I also was pleased to award a grant to the Colorado Coalition for the Homeless to provide fair housing education and outreach. We need more of that. Housing counseling and financial education is very important, especially for our low-income and minority citizens. We need to expand the use of housing counselors. I am very pleased that Congress and the Administration have 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. The use of these counselors could prevent a large number of avoidable foreclosures, especially those involving sub-prime loans.

I know you have read a lot about the housing market recently. Some people want to write its obituary. Well, don't you believe that it is dead! The state of American housing is alive and a lot stronger than some indicate. Homeownership stands near the all time high. Nearly 70 percent of all American families own a home. America has become what President Bush has termed an "ownership society," with homeownership at its core.

And we have made significant gains for our minority citizens. But, we have a long way to go. Right now, more than 50 percent of our minority families own a home. Compare this figure to non-minorities, where the homeownership rate is 74 percent. It's troubling that we have a 24 percent point gap between minority citizens and the non-minority population. We have to accelerate our progress and close the gap. So, the President set a goal of 5.5 million new minority homeowners by the end of the decade. We are already half way there. I am confident that goal will be reached, in spite of the problems in the sub-prime market.

Our near-record rates of homeownership have a personal financial advantage. The value of our investments in our homes has been growing. It is adding to the net worth side of our personal balance sheets. American home equity has grown from $6.6 trillion in 2000 to $10.9 trillion in 2006, a 66 percent increase over 6 years. There is another way to look at this - from a long-term perspective. The London Economist just reported that the value of American homes has risen 1,000 percent since 1975. That is a fantastic return on investment in just over 30 years.

The housing boom of the mid-decade has given way to slower growth and market adjustments. I know the slowdown has affected Denver and foreclosure rates are up. But there is no reason to believe we can't re-ignite the market. We are at full employment. Real income is up by over $3,000 per person since the President took office. And the population keeps growing. We have a high workforce participation rate. More and more people still want to buy homes. That means gains in housing are real and can be sustained.

Of course, the sub-prime loan problem presents a difficult test. I know you've heard a lot about this. Well, there are two kinds of sub-prime loans: those I term "exotic" and those I term "responsible." An exotic loan, for me, is one that didn't take into account the financial situation or the ability of the borrower to pay back the loan. It is the loan with initial low teaser rates and payments that increase dramatically when the interest rate resets after the initial period, or when the loan balance increases. It is exotic because it is financially irresponsible. I've also heard them called "suicide loans." Now, most sub-prime loans don't fall into that category. These are the financially responsible loans, which are most of the sub-prime loans. These loans remain viable and will not result in foreclosure. But some are problematic, especially as home prices slow down or decrease.

I can show you my distinction in another way. Sub-prime loans taken out in 2005 and 2006 have begun to experience increased payments. My department believes that 80 percent of sub-prime loans are sound. These are the financially responsible loans. As you know, Chairman of the Federal Reserve, Ben Bernanke recently confirmed that most sub-prime loans will remain secure. But the other roughly 20 percent of these sub-prime loans are headed for trouble. These are the exotic loans, where there will be difficulty affording the new higher payments. And another round of resets is due on many of these loans in 2008.

We have talked to Senator Allard and other Members of Congress about ways to address the sub-prime problem. I appreciate his leadership and support. Right now, we can help some of these people through HUD's Federal Housing Administration, the FHA. There are tens of thousands of homeowners whose reset rates are about to hit and could benefit from refinancing into federally-insured mortgages. FHA's lending relief measures to help families avoid problems before it's too late. Our lenders' foreclosure rate of 1.3 percent is half the sub-prime average. FHA and its lenders actively work with people who are running into financial difficulty. They do this by extending their loans terms, temporarily reducing their payments, or making a partial claim through the FHA insurance fund.

But, we could help more families - tens of thousands of families -- if Congress passes legislation to modernize the FHA. 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 could benefit from the safer products that FHA can provide.

I know that Senator Allard has studied our reform proposals carefully. I agree with him - that any reform must be financially viable and not add to the taxpayer's burden.

In the end, housing is more than figures and numbers and facts. It is a reflection of you and me. It represents our hopes, our aspirations, our financial security, and our community involvement. It is where we shelter our family. It is where we live, and grow up together, and grow old together. Housing is personal. And as we work together to help provide housing for Americans, we come together as a community and a nation.

Thank you.


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