Making Homeownership a Reality Conference


PREPARED REMARKS FOR
ROY A. BERNARDI
DEPUTY SECRETARY
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
GREENVILLE, NORTH CAROLINA
TUESDAY, AUGUST 28, 2007

Thank you, Senator [Elizabeth] Dole, for those kind words and for hosting this event.

By the way, as a former mayor of Syracuse, it�s a pleasure to come to a state that�s equally crazy about basketball. Such great teams! Perhaps one of them, Duke, will meet Syracuse next March, Senator.

And thank you, Mayor [Don] Parrott, for welcoming us to your beautiful city of Greenville.

Let me also acknowledge and thank Carol Jones from the Greensboro HUD field office, who is presenting today.

Finally, I want to say a word about Gov. Mike Easley. This month he signed legislation cracking down on predatory lending and giving homebuyers and tenants new tools to fight unfair fees and penalties. North Carolina has long been a leader in fighting predatory lenders. And your Governor continues to lead the way.

This is HUD�s second event with Senator Dole this summer. In June, we joined you for a Housing Summit in Hickory. I thank you for the opportunity to talk with your constituents about the American Dream of homeownership.

To those of you working to help homebuyers navigate the process, I thank you. And to those of you considering buying a home, thanks for coming. I hope we will be able to answer your questions.

One of them might be, �What�s going on�? A fair question.

There are plenty of positive statistics I can recite: nationally, the rate of homeownership is at near-record levels: 69 percent in 2006. Minority homeownership has reached 3.5 million, on the way to President Bush�s goal of 5.5 million by 2010. This is reality.

But you know things have changed. Credit has gotten tighter. Foreclosures are up. The National Association of Realtors predicts that U.S. home sales in 2007 could reach a five-year low. Here in Greenville, the median monthly cost of owning a home has fallen considerably, creating opportunities, yes, but also potential hardships. This, too, is reality.

In spite of these challenges, the American Dream of homeownership is still attainable.

It starts with awareness. Buyers need to know, for example, the critical differences between fixed and adjustable rate mortgages, or ARMs. In North Carolina, ARMs now make up 55.8 percent of outstanding subprime mortgages.

Subprime loans have helped many Americans buy a home who, in the past, might have been shut out of the market. The vast majority of these loans are secure. But the ones that are not have hurt the housing market�and the economy.

Americans need to be educated to spot bad actors. Predatory lenders may try to keep customers in the dark until the dotted line is signed. Some lenders push so-called �liar loans,� accepting unverified income and savings levels. Another subprime mortgage is known as a �piggyback loan,� where borrowers take out a second loan for the downpayment. Such exotic loans promote risk, not discipline.

On August 19th, HUD published a list of tips for homebuyers in Parade Magazine. These include contacting your lender when you have a problem; knowing the foreclosure laws and the rights of borrowers in each state; avoiding common scams, such as �equity skimming� or fees-for-foreclosure help; and, of course, calling HUD through our toll-free hotline: 1 (800) 569-4287.

We also aim to cultivate good spending and savings habits. One of the biggest barriers to homeownership is saving enough for the downpayment. Another is poor credit. So we want all families to become financially literate for life. As the President has said, �The more financially literate our society is, the more hopeful our society becomes.�

The best time to educate a consumer is before the homebuying process begins. Let me tell you about HUD�s Housing Counseling Program. It supports a nationwide network of about 2,300 housing counseling agencies. Last year they provided advice and guidance to more than 1.6 million households.

The need for counseling has never been greater. And our support has been unprecedented. We�ve increased federal funding by more than 200 percent. Our 2008 budget request asks for an additional $50 million for housing counseling.

We want consumers to know the alternatives to risky subprime mortgages. One is the FHA. The Federal Housing Administration was created during the Great Depression. Its insured loans have helped more than 34 million Americans become homeowners.

FHA was adequate for its time. But it needs to change to reflect a changed world. Here in North Carolina, the volume of FHA-insured loans dropped 33 percent between 2000 and 2006. FHA mortgages have been edged out by subprimes, 5.9 percent to 5.2 percent.

We are working with Senator Dole and Congress to modernize the FHA. We have a plan on the table. It would increase the maximum loan amounts, so we can expand the pool of homeowners who could benefit from refinancing. We also favor a flexible downpayment requirement.

A modernized FHA could assist tens of thousands of borrowers who need an exit strategy from their subprime mortgages. Those paying interest rates of 10 percent or more could save about $3,000 to $4,000 in the first year on a $200,000 mortgage. And a little more safety and stability is a good thing for everyone.

Adding an extra level of protection is HUD�s loss mitigation program. It helped 75,000 FHA-insured families prevent foreclosure last year alone. This year, we�ve helped tens of thousands more.

As we adapt to change, the good news is, the fundamental benefits of homeownership have not changed. As Sen. Dole put it, �It�s the true foundation for building personal wealth and healthy communities.�

I couldn�t agree more. In fact, homeowner equity represents nearly one-fifth of the total net worth of all households and nonprofit organizations. And this equity is a solid anchor for families. The average homeowner�s equity is more than half of their home�s total value.

Homes have grown bigger. From 1975 to 2005, the average size of new single-family homes has grown by 48 percent, according to some estimates. And the market has grown younger. The number of people under 25 who own their own home has jumped from under 15 percent in 1993 to about one in four today, according to Census Bureau data.

Homeownership also creates jobs�one study a few years ago found nearly 2,500 full-time jobs created for every thousand single-family homes built. Anyone who�s been to a Home Depot or a Lowe�s on a weekend knows that.

Finally, let�s not forget the benefits for our seniors. More and more are using �reverse mortgages� to tap into the nest egg they spent a lifetime building, so they can help a grandson attend college�or, perhaps, spend their golden years enjoying North Carolina�s beaches or mountains.

Together, it adds up to what President Bush, Secretary Jackson and I like to call the �Ownership Society,� in which Americans have the economic tools to better manage their lives and control their destiny.

Through good money management and financial literacy, we believe that families of all income levels can achieve the American Dream of homeownership. Earlier this month Secretary Jackson visited Bobbie Wallace, a Memphis grandmother whose journey from public housing to a home of her own inspired us all. She called homeownership a �blessing.� Her story is repeated countless times every day.

Of course, we cannot do this alone. Recently, HUD hosted a Homeownership Preservation Summit, drawing 150 key industry representatives from the real estate, mortgage banking, and homebuilding industries.

And organizations such as the Greenville Housing Authority are helping families understand the homebuying process and the opportunities available to them.

Through conferences like this, we get the word out that homeownership is not a mystery or a burden but a realistic and exciting opportunity.

And what better place to send that message than in North Carolina, a state known worldwide for everything from pharmaceuticals to fiber-optics to PhDs.

In the knowledge economy, North Carolinians have proven that it�s not where you live, but what you know that counts. They turned change into opportunity.

That�s the beauty of America. We�ve always responded well to change. I see no end to the opportunities we can seize, if we�re smart, and disciplined, and go after the long-term good instead of the quick fix. Let us work together to make it happen.

Thank you.

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