Wells Fargo National Housing Symposium 2007:
Safeguarding the American Dream
Remarks for Secretary Alphonso Jackson
June 14, 2007
Thank you, Phil [Bracken] for that kind introduction. It is good to see you again.
I would also like to thank Cara [Heiden] of Wells Fargo Home Mortgage. It's always a pleasure and a privilege to work with you both.
I also want to thank Wells Fargo for bringing together such a tremendous group of industry leaders. Thank you for your hard work and commitment to homeownership.
And I want to thank Ken Harney for helping Americans become more aware of housing issues.
June is "Homeownership Month." But the March 24th edition of the Economist went so far as to say that this year it might need to be named "National Foreclosure Month."
Well, that is a harsh assessment, but one shared by many people. Certainly the headlines haven't been pretty. For example, earlier this week we learned that more than 176,000 home foreclosures were filed in the month of May - unfortunately, that's more foreclosures in one month than have been filed in history. Over the next five years, $1 trillion in adjustable-rate mortgages are expected to reset.
This kind of news has caused a lot of hand-wringing and finger-pointing. There have even been some folks who think that homeownership in America has hit a ceiling...that we just can't go any higher.
Well, that's what some people think. I beg to differ. We have hit a bump in the road - what I would argue was a needed correction. We are confronted with a housing market in flux. And it is a housing market that can continue to grow, and include millions of Americans who want to become homeowners.
We have not hit a ceiling. For example, while the U.S. has had a steadily increasing homeownership rate, other industrialized nations, such as Ireland, Norway and Spain have a substantially even greater rate -- some 8 to 10 percent higher.
And we can devote more of our Gross Domestic Product to housing. Last year, our nation invested $767 billion on residential fixed housing investment, or about 6 percent of GDP. Again, looking at how we measure up with other industrialized nations, we are in the middle of the pack, with Australia, Greece, Spain, Iceland, Portugal, Norway and Ireland all ahead of us.
So I think the future will be bright, once we get past this correction. The housing market can, and will, continue to grow. After all, homeownership stands near the all time high...at historic levels. Nearly 70 percent of all American families own a home. We should view that fact with pride. America has become what President Bush has termed an "ownership society," with homeownership at its core. We have also made significant strides in minority homeownership, thanks to an initiative by President Bush increase those numbers.
But there is work to be done. If we are going to stimulate growth in the housing market we will have to wisely engineer some important changes.
Let me mention one action that is vital...housing counseling. We need to do more to make sure that a buyer can actually afford to purchase a home...and get a home that is affordable to maintain. Housing counseling is one of the answers. The 2,300 HUD-approved housing counseling programs throughout the nation offer a wide array of counseling services to prepare families to buy their first home, to avoid predatory lending practices, and assist current homeowners facing default or foreclosure.
We know the value of such counseling. An educated consumer is much less likely to be taken advantage of by a predatory lender. The use of counselors can prevent a large number of families from accepting exotic sub-prime loans and help homeowners avoid foreclosure. For example, in Chicago, home sales fell by more than 45 percent in the neighborhoods where a counseling requirement was introduced. That sounds bad, but it's actually a good thing. These homeowners will come back when they are ready, and these measures will prevent them from jumping in too soon and losing their home and their savings.
The President and Congress have increased the budget for housing counseling from $13 million when the President took office to $41 million now. That is more than a 200 percent increase.
We must also offer sub-prime alternatives that are sound, and address upcoming sub-prime problems by getting ahead of the curve. One way we can do that is through FHA Modernization. By working to provide low and moderate-income families with affordable home loans, FHA has helped more than 34 million Americans become homeowners. You know this - you've been a valuable partner. And we have helped many of these families stay in their homes and avoid foreclosure as well.
But FHA has been left without the tools to address many of the current problems in housing. As the lending industry has changed through automated underwriting systems, risk-based pricing, and other new products, the FHA has been forced to stand still. And without a viable FHA, many first-time homebuyers have been left with fewer safe, fair and affordable options.
I know that Wells Fargo and its predecessors have been strong supporters of the FHA program for more than 30 years, and they know the benefits of FHA and modernization. In recent years, Wells Fargo has been, by far, the nation's leading originator and servicer of FHA mortgages, servicing more than one million FHA loans to homeowners. And I thank you for your support. You know that we need FHA reform, and we need it now.
Americans agree. Today I am pleased to comment on a new study, released by Wells Fargo this morning. It shows that nearly 80 percent of Americans want FHA reform.
Let me explain the relevance of the study. When presented with details about The Expanding American Homeownership Act of 2007, nearly 80 percent responded with a resounding "yes" to an improved FHA. That shows Americans want financially sound options...real choices. And Americans are in support of an FHA that could help even more first-time homebuyers and people with moderate incomes have access to safer mortgages.
Let me tell you a little more about the study. It found that many of those who could benefit most supported an improved FHA. There was strong support from our minority communities, and from many in the Northeast and the West, where real estate costs are the highest. Families with two or more children are overwhelmingly in support. These are the very people who want choice...need choice...and they must have it.
I hope Congress will listen to these Americans. This survey demonstrates the urgent need for Congress to pass legislation that modernizes the FHA.
With Congress's support, we could help hundreds of thousands, and we could do so without exposing the taxpayers to extraordinary risk. In fact, taxpayer risk is slight to none. Borrowers pay premiums and if our actuarial reviews are correct there will be no taxpayer risk. Through refinancing with FHA, tens of thousands of families with sub-prime difficulties could be helped.
I also want to talk about another way we can help older Americans - the reverse mortgage market. The bright spot in today's mortgage industry is that market. Baby Boomers are rushing toward their golden years at a rate of 10,000 a day according to the U.S. Census Bureau. Today, more than 34 million Americans are over age 65. By 2030, Americans 65 and older are expect to number almost 70 million and to represent 20 percent of the population.
Too frequently we hear stories about seniors - our grandfathers and grandmothers - eagerly waiting for their Social Security checks so that they can pay their bills or put food on the table. Reverse mortgages allow seniors to convert the equity in their home into cash without having to move. This opens the door for seniors to supplement their social security check, 401K plans or pension with additional cash and, most importantly, meet unexpected medical expenses or make home improvements.
The number of Federal Housing Administration-insured Home Equity Conversion Mortgages (HECM's) has been surging in recent years. In March of this year, for the first time ever, the number of monthly loans exceeded the 10,000 mark. And, for the first four months of 2007, more than 37,000 reverse mortgages were endorsed - 49 percent more than this time last year. In fact, originations of FHA-backed reserve mortgages soared 77 percent nationwide from 2005 to 2006.
Despite the tremendous growth and potential of reverse mortgages, seniors are not reaping the product's full benefits because a strong secondary market that can help increase liquidity and lower costs for the borrower does not exist yet.
But HUD's Ginnie Mae is stepping in to fill the void by offering a win-win scenario for borrowers, investors, and lenders. Ginnie Mae will have a HECM Mortgage-Backed Security ready for issuance in September 2007.
This type of mortgage backed security will help Ginnie Mae continue its mission of promoting affordable housing for low-to moderate income borrowers by extending a hand to help even more Americans - older Americans who want financial security in their golden years.
With increased activity in the reverse mortgage market and the emergence of a secondary market, it's clear that lenders are looking at a historic opportunity to help a record number of seniors maintain their independence in their own home.
I want to give you an example. Helen Jean Burn is 81 years young. She raised five kids as a single mother - helping three through college. With those responsibilities, she spent most of her life working, first as the CBS affiliate in Baltimore and later as a Head Writer for Maryland Public Television. But like many Americans, Helen had very little saved for retirement. She reached a point where her budget was so tight that she was forced to decide whether or not to get prescriptions filled. Her only asset was the condo one of her kids bought her.
Helen knew something had to change. She did considerable research online, at AARP, and with another reverse lender. Then, she turned to Wells Fargo who helped Helen close on her FHA reverse mortgage for seniors - a HECM 100 - in mid-March.
Thanks to her reverse mortgage, Helen now lives more comfortably. With the proceeds, she bought a new Toyota, which is large enough to take her walker and her four grandchildren to the movies! Helen is living a happier life. And in her words, she is "as healthy as a hog."
Helen is with us today. Helen, come on up here! We have a special gift for you!
You see, Helen, I wanted you to have a new plant for your home. That plant will remind you of this moment, and our personal commitment to you and your family.
Your warmth and joy touch all of us. Ladies and gentlemen, our work is like that. We deal in facts and figures, but we find our satisfaction in meeting the needs of our neighbors and their families. Our work does more than secure housing...it brings relief and financial assistance to people like Helen everyday. This is the point of our mission ... to give shelter and security to millions of Americans. They look to us and we must not fail them. And if we continue our partnership, we can continue to build our communities, one decision, one person, one home, one family at a time. That is how we continue to build a great nation.