Federal Home Loan Bank of Dallas


Thank you, Lee (Gibson). Good morning.

Today I will discuss the subprime situation. I am sure it is on your minds, too. It is the primary economic discussion underway throughout the world.

Yes, there is great concern about the housing market, but a concern that needs perspective and clarity. The stock market is rising, personal income is up dramatically under the Bush Presidency, and the housing market's growth in the United States has been unprecedented for over six years. 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. Six years! Now, looking over this audience, I am certain each of you knows what that means, and what a powerful impact such growth has on our nation's economy and world markets.

Of course, you also know that this boom couldn't go on forever and corrections needed to be made. Such phenomenal growth has led to some severe corrections. And with each correction there is media competition for new predictions of doom and gloom! For months now we have been on a rhetorical roller-coaster ride...headlines talking about "meltdown," "disaster," recession," "depression," and now, this week, "freefall." Yet, while we do confront a crisis, we cannot give in to fear and panic. We cannot let such rhetoric redefine our reality. It certainly does not reflect reality now...such headlines are over the top...extreme and shrill.

But this is the time for sober reasoning and clear vision.

Two weeks ago, the London Financial Times ran an editorial on economics and the housing market. The thesis was that a country's economy is only "as safe" as the housing market. I agree that housing market economics deserve our constant attention. And in the United States we still have a phenomenal story to tell. Our residential fixed investment is a large slice of our gross domestic product - 6 percent or $767 billion last year. If you include housing services, the percentage is closer to 20 percent - 3 to 4 percent more than the health care sector. Housing is a driving engine for our global financial leadership. And it is true that the subprime situation affects that leadership somewhat.

But one reason for our growth has been a commitment to open up the housing market, to increase the number of homeowners dramatically. That is an important point to remember. As you know, President Bush committed this nation to becoming a "homeownership society." Now, nearly 70 percent of all American families own a home. That's an amazing achievement, and it came about primarily because of sound economic policies and a "democratization of credit" through the subprime market.

And the accomplishment is important for each homeowner. The human desire for a home is age-old. It is part of the American Dream. Even with this correction, there are millions of Americans who are new homeowners and now live the Dream. That is also important to remember.

Behind that growth there are other stories. There was an astounding growth in the number of minority homeowners and ownership by female heads of households.

But we needed to do more. Some countries demonstrate that homeownership can reach higher levels...even 80 or 90 percent of families.

And homeownership must be both fair and equitable. If you break out our current numbers by race, no more than 50 percent of Black American families own a home, and only about 60 percent of Hispanic Americans and Asian American families are homeowners. Compare this figure to non-minorities, where the homeownership rate is 74 percent.

However, many first time and minority homebuyers face significant challenges when trying to purchase a home. According to one study, 40 percent of African Americans and 23 percent of Hispanics pay an interest rate three percent higher than the market rate. The Center for Responsible Lending reports that 51 percent of refinancing transitions in Black American neighborhoods are sub-prime loans. The loan denial rate is as much as twice as high for minority applicants than white households.

So, even with our success and before the subprime crisis, we still had much work to do.

For example, minority homeownership needs to increase. That is why the President has made a public commitment to increasing minority homeownership. President Bush has committed this country to five-and-a-half million new minority homeowners by the end of the decade, and we have made substantial progress. We are more than half-way there with 3 million new minority homeowners.

The goal of homeownership is still sound and desirable. I believe we can still do more to increase homeownership. That will require us to learn from our recent experience, and undertake actions that keep us from a deeper correction now and from such stark corrections in the future. We need to smooth out the housing cycle.

First, we must end 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 into unwarranted, illegal, or unethical loans. HUD and the Justice Department are working together to stop predatory lenders. There has been much attention to this problem on the state and local levels, too.

Second, we must urge prospective homeowners, particularly members of our minority communities, to use housing counselors. Consumers must be educated. Our citizens need to be empowered with the tools to know when to spot a sham. Often homeowners don't carefully read their contracts; some don't read them at all. 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 earlier this year, 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.

There are 2,300 housing counselors in the United States. The President has increased funding for housing counseling by 200 percent since assuming office, and he has asked for $50 million in his new budget. More and more Americans must factor housing counseling into their homeownership decisions. This is an important and simple and rational step that could avoid much of the subprime mess in the future.

Third, we must increase financial literacy. The President has directed several agencies, including HUD and the Department of Education, to work together to enhance financial literacy. This makes good sense, too. It also re-enforces the utilization of housing counseling.

Finally, we need Federal Housing Administration (FHA) Modernization. The President wants FHA to return to its original role, which was to help bring stability to the real estate market. This will help break the cycle of foreclosure and price depreciation, and bring much-needed liquidity to a mortgage market that has quickly become constricted.

As I told your Board in April, FHA has already pro-actively helped many borrowers this year. By working within our regulatory authority, FHA has already provided refinancing options to tens of thousands of homeowners who were eligible and faced foreclosure under their current non-FHA loan.

Since I spoke to you in April, the President has announced a new initiative that builds on our previous work. It is called "FHASecure." Under "FHASecure," borrowers who are otherwise creditworthy, but who have recently become delinquent on their mortgage, would now be able to participate. So, families with an otherwise strong credit history, but in default because of the reset in their mortgage rate, will receive some help.

The President's action is a positive step that is being immediately implemented. Through "FHA Secure," we estimate we can help an additional 80,000 delinquent yet credit-worthy borrowers re-finance into a safer FHA loan. This is in addition to the 160,000 non-delinquent borrowers we already expect to help next year, as the sub-prime market continues to unwind. This would bring the total of new borrowers assisted through FHA's existing re-finance program and "FHA Secure" to 240,000 next year.

But we need more than our own administrative actions...we need legislation to help even more people. So, the President has also pushed Congress for FHA Modernization. In fact, we have pushed and pushed for over two years. Last year and again this year, the House of Representatives passed a version of his request. The Senate has yet to act. I want you to note that fact, because modernization could have prevented a large portion of this steep correction. We were out ahead of this problem and needed legislative action to support our preventative efforts. We didn't get help last year...and this year we are still waiting...and waiting.

So we have much to do. And you can help me do it. Your corporations and associations are among the most powerful in our country. You have financial and political clout. If you speak, Congress must listen. And I urge you to speak loudly and often in demanding Congressional support for this Administration's efforts to address the subprime crisis. And I ask you to demand that Congress pass FHA Modernization without any further delay...not one more day or one more week of excuses or finger-pointing. We need passage of this legislation now...right now!!!

I am certain that the economic well-being of the country is essential to every person and every political party. Homeownership is empowerment. It is also about jobs and income and the possibilities of choice, the lifeblood of this economy. Homeownership gives each family a source of equity and wealth. And it is the place where we raise our families, and they grow up together, and we grow old together.

All of that is too important to risk or ignore.

Thank you.


Content Archived: December 27, 2011