Secretary Jackson at the U.S. Conference of Mayors
Prepared Remarks for Alphonso Jackson
Secretary Jackson addresses the 75th Anniversary of the U.S. Conference of Mayors in Los Angeles.
I feel at home. I've worked for three mayors...in Washington, D.C., in St. Louis, and in Dallas. And now, as Secretary, I work with you to meet the housing needs of all Americans in your cities...and I want to stress that...ALL Americans.
This is the issue on which there must be common ground and steadfast consensus. This is what our citizens...our constituents... expect.
Believe me, I see my job through your eyes.
I know the importance of housing to each one of you.
It isn't just a part of your job.
Housing is the city. It defines our cities. It is where our citizens...our neighbors...live and relax and raise their families. Housing is about how we see ourselves and how we view others. It is the core of the city...its heart and its life.
I know housing is economically important for you, too. It creates part of your tax base. A house is a source of wealth and stable income for any city. Every house that falls into foreclosure harms families, neighborhoods, and communities - and hurts a city's bottom line. One recent study found that when foreclosure takes place, a city loses significant revenue. For example, for every $100,000 in the value of the home, foreclosure costs approximately $1,200 per year in lost revenues. And homes nearby also suffer. Properties within 150 feet of a foreclosed vacant house lose 10 percent of their value. Vacant properties cost cities millions of dollars in lost taxes, fees, and services.
On the positive side, for every new home, a new source of taxation and wealth is added. You know how this addition contributes...many of your cities rely on property taxes to pay for schools, for hospitals, for roads...for all the things that make your cities great places to live and work.
After several years of steady and accelerating growth in housing, your cities received positive changes in revenues. But, in 2005, things changed quickly. Now, with a deceleration in the market, and woeful predictions about the next couple of years, you are very concerned. And I understand.
I wanted to come here to ask for your assistance in addressing the problems we face, and to ask you to help me create a more housing friendly environment for the future.
Let me tell you what we are up against. The sub-prime problem haunts any discussion of housing. We know that hundreds of thousands of people have lost their homes...and some predict that we could see 2 million foreclosures in the coming year. The Mortgage Bankers Association just released a report that the percentage of late payments and new foreclosures spiked to an all time high in the first three months of this year.
We must also be mindful of the future. After all, more than one trillion dollars in mortgages are going to reset over the next 5 years. We know that some financial institutions, in this country and around the world, have warned of a long-term slump. Others, including Fed Chief Bernanke and Treasury Secretary Paulson see the slump as ending soon and have evidence that the worst is over. And significantly, they both argue that the housing slump has not spilled over into other areas of the economy.
I happen to agree with them.
But there is disagreement by some. Here is what some economists see. Yes, adjustments are underway. Sales of homes are down -- down 34 percent in Southern California, for example. And some analysts predicts that the values of homes may drop, too, with some predicting a 4 percent drop in the next year, again using Southern California as the example. Some believe that nationally it could take up to two years to work-off excess inventories of homes and to complete the market correction. At the same time, some believe that it could be up to five years before we see housing markets return to where they would have been without a boom-bust cycle during this decade.
Why the pessimism? That's because, historically, housing market cycles tend to be roughly 10 years in duration. A 5-year run-up, like we experienced from 2001 to 2005, is usually followed by a five-year period of correction and recovery. So, some economists tend to think that this market cycle just began its correction last year. And that we will not see any significant growth for years to come.
Some people seem to think that economic cycles are like destiny...fate. We are told that the cycles are as predictable as the seasons and as unchanging as the stars.
First, we need to recognize that several powerful factors continue to encourage homeownership. We are at full employment. Real income is up by over $3,000 per person since President Bush took office. And unlike in Europe, our 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.
In fact, homeownership still stands near the all time high...at historic levels. 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. While we will always have a need for rental properties, homeownership still continues to inspire the American Dream - for everyone, regardless of their skin color or spoken accent. We have made significant gains for everyone, including our minority citizens.
But we have a long way to go. Right now, more than 50 percent of our minority families own a home. But compare this figure to non-minorities, where the homeownership rate is 74 percent. A further breakdown of this figure shows that Black Americans have a homeownership rate of just 49 percent, Hispanic Americans have a rate of 50 percent, and other minority groups, such as Asian Americans, have a rate of under 60 percent.
We have to accelerate our progress and close these gaps. And part of this requires you and I to keep faith with the ideal of homeownership. Americans who want a home and can afford one shouldn't be discouraged from purchasing a home. The American Dream is still a solid vision for a family and this nation.
Let's not forget that our near-record rates of homeownership have a financial advantage on a very personal level. It is adding to the net worth of our people. American home equity has grown from $6.6 trillion in 2000 to $10.9 trillion in 2006, a 66 percent increase over 6 years. That is an astounding rate of growth that made a big difference to your cities!
However, recent growth came with problems like predatory lending. There is no place for it in American housing or lending practices - no place at all!!! Predatory lenders have targeted homebuyers - especially minorities -- and successfully manipulated many of us into unwarranted, illegal, or unethical loans. For minority citizens, in particular, affordable loans are hard to come by which is why slick and sinister predatory lenders often appear to be the only option for many. I will continue to aggressively pursue any predatory lender. And I ask you to do the same.
Second, Consumers must be educated. Our citizens need to be empowered with the tools to know when to spot a sham. The key is to be able to read and understand the fine print, and also to know when to ask for help. At a summit I convened last month, there was testimony that half of all homeowners facing foreclosure were afraid to contact their lender for help. That's right - instead of picking up the phone and asking for help, people are willing lose their house. We also learned that while most people facing foreclosure are afraid of their banks, they are much more open to talking to a local non-profit counseling agency about their problems.
That's why housing counseling and financial education are so important. This Administration has increased the budget for counseling over 200 percent, with the President requesting another increase, to $50 million, in the coming fiscal year.
Housing counseling is vitally important for the future. We must help Americans better determine if they can afford a home, and how much home to buy.
Third, we must deal with the subprime problem. Some of these loans are responsible and democratized credit. Actually, about 80 percent of the subprime loans are going to be OK. But the remaining 20 percent are a problem. They are exotic loans that didn't take into account the financial situation or the ability of the borrower to pay back the loan. They were financially irresponsible loans. I've heard them called "suicide loans." And these loans were indeed financially suicidal.
There may be more pain to come. Another round of resets is due on many of these loans in 2008.
Well, there is much we can do. The Federal Housing Administration (FHA) is one answer. I have asked FHA to do everything possible to help refinance problematic subprime loans. And it did, helping tens of thousands of homeowners. They were able to refinance into safer, federally-insured mortgages. Our lenders' foreclosure rate of 1.3 percent is half the subprime 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 have done as much as we can with our current regulatory authority.
So, fourth, we need legislation to modernize the FHA. We need this reform now!!!
The FHA is a mainstay of the American housing enterprise. Over the past 73 years, the FHA has helped millions of families become homeowners. This month, we celebrated our 34 millionth FHA customer. And we have helped families stay in their homes. If Congress passes FHA reform, we could help hundreds of thousands and we could do so without cost or risk to taxpayers.
FHA reform would be a big help to Californians. Too frequently, Californians have had to resort to high-priced, high-risk mortgage loans to purchase a home. A recent study found that 139 of California's ZIP codes fell within the top 500 for total foreclosure filings in the U.S. - a third of all the top foreclosures were in this state. Many Californian families, like others elsewhere, were steered toward accepting home loans that featured balloon payments and very low teaser rates that reset much higher after the first few years. FHA has helped more than two million families in California purchase and maintain their homes over the years. Unfortunately, as the lending industry has changed through automated underwriting systems, risk-based pricing, and other new products, FHA has been taken off the table for most Californians. Few home buyers in the state have been able to use FHA financing because FHA loan limits, which range from $200,000 to over $362,000 in California, are not high enough given the high price of housing here. In 1999, FHA insured 131,000 loans in California; in 2006, FHA insured only 2,500.
We need to be able to help more first-time homeowners and low-income Americans - the groups we were designed to serve, and to serve safely. The National Association of Hispanic Real Estate Professionals has warned that gains in minority homeownership may be undone without FHA reform. And the Association also warns that minority homeowners who experience foreclosure usually need longer than the ten-year average to quality for another home. Most minorities just get one chance at homeownership. So we need to make sure it works for them the first time.
If Congress allows us to set insurance premiums commensurate with risk - which makes a lot of sense...and common sense is often forgotten in Washington...FHA could help those thousands of families who need an exit strategy from their suicide mortgages.
Ladies and gentlemen, think of this. We have to potential ability to save many people from foreclosure and financial ruin, without cost to the taxpayer. We can't sit back and hope it will all come out right in the end. Imagine if you and I were sitting in a half-empty lifeboat while someone was drowning in the water, and we callously did nothing at all. Indifference is not policy; it is neglect.
Well, that is what we face...Americans drowning in debt who could be saved...saved without swamping the boat...saved at no cost to you or me...saved by solid public institutions. I know later today you will discuss FHA reform in your resolutions. I strongly urge you to demand Congressional action as soon as possible.
Finally, we need to remove unnecessary and costly impediments to homeownership. So far, I have spoken primarily about what can be done on the federal level. But there are actions you can take in partnership with us that will create a more housing friendly market over time. We need to cut the runaway red tape that is suffocating the construction of homes that are affordable to working families!!
All across the country we see burdensome regulations, excessive fees, and out-of-date building codes as barriers to affordable housing. Development is often expensive, and that expense is passed on to the renter or homebuyer. HUD studies show that excessive regulations can increase the cost of housing by 35 percent - maybe more!
Research has also demonstrated how certain barriers can put the brakes on the production of workforce housing, literally choking the life out of affordable housing for working families. For example:
In fact, we found that, in 42 metropolitan areas, eliminating unnecessary regulations, fees and delays could reduce housing costs by an average of 10 percent.
Think of that...10 percent. That might be the difference between foreclosure and making it, if these barriers could be removed. One study found that, in some California communities, regulatory costs account for almost half of the price of a home.
I know that some regulatory restrictions are important; but some just don't make sense. So, at HUD, we are working with cities to change the regulatory mindset. HUD is reviewing all the federal regulations in the Department's program areas to determine if there are any unnecessary, duplicative or obsolete barriers. For the first time in the Department's history, all proposed regulations now must be reviewed for their potential impact on affordable housing before taking effect.
HUD is also helping communities across America identify and overcome regulatory barriers that strangle the availability of affordable housing. In fact, over 120 communities have heard this call for action and are taking steps to remove excessive and burdensome regulations.
I need you to join with us in this effort if you haven't already.
In my view, we must do all of this and more. The American housing enterprise is so important to our economy that we must have a paradigm shift in our thinking and in our actions. We must have vision and wisdom. We must do better for our constituents and their families, and for all Americans.
With your help, we can make the housing market stronger and better able to meet the needs of all Americans. We can do this together.
I am confident we will.