International Housing Finance Policy Roundtable
Secretary Jackson addresses the International Housing Finance Policy Roundtable
I want to thank everyone for coming today. I especially want to thank our presenters. I appreciate your hard work and insight. I look forward to your presentations.
We must face up to some truths. The subprime mess is not just a housing issue, it's an economic issue. Fed Chairman (Ben) Bernanke noted that for every dollar a home falls in value, consumer spending falls between four and nine cents. The housing crunch affects not just homeowners, but banks and credit markets and job creators across the world.
And the whole world is watching our efforts to solve this problem.
The markets are finally paying attention. Investors are no longer in denial.
Now, the question is, will we let this newfound caution turn into fear? Will we let prudence turn into paralysis or even panic?
The housing market's troubles must not be used as an excuse to choke off credit to responsible families and businesses, in America or elsewhere. We cannot let it erode the trust and spirit that has made ours the most dynamic and influential economy in the world (an economy that, by the way, has enjoyed a record six years of uninterrupted growth).
We must have a balanced approach that sets a positive example for the world. So I'd like to talk about a few broad principles that I think should guide us.
The first basic principle is this: we must have responsible verification and transparency.
Why is this important? During the subprime explosion, many homebuyers no longer had to verify their income. You've heard the terms "liar loan" and "piggyback loan." One lender bragged of his "NINJA" loans: "No Income, No Job, No Assets."
The fall in housing demand led some brokers and lenders to drop their underwriting standards to attract more customers. They peddled loans with "teaser" starter rates and astronomical rate resets buried in the fine print. Over a quarter trillion dollars in loans will reset in the next year, causing a wave of foreclosures and write-offs.
How do we stop the bleeding? Well, by cracking down on predatory lenders. Our new Fair Lending Division is leading the way. It's charged with reviewing mortgage lending practices and investigating discrimination complaints.
Our federal banking regulators have also improved disclosure requirements. Lenders now must fully disclose fees, interest rates, and closing costs.
It's working. A Federal Reserve survey of 50 banks last month found that 14 of them had tightened standards on consumer loans, up from six in July. This sends a signal to markets that good money won't be thrown after bad. But we have to make sure not to over-restrict credit so that there is liquidity in the housing market.
The second basic principle is essentially market-based: The mortgage industry, not the government, must take the lead.
Lenders and brokers are not in the business of promoting foreclosure. I can tell this by the growing number of foreclosure assistance and homebuyer education programs sponsored by the industry. Foreclosure is in no one's interest.
Unfortunately, surveys show that about half of families in foreclosure did not discuss it with their lenders beforehand. With so many mortgages being resold and repackaged, some homeowners don't even know who to call.
We're working to change that. Treasury Secretary (Henry) Paulson and I have asked the mortgage industry to identify and contact homeowners with past due accounts who are willing to do what it takes to keep their home. Their answer was the industry-led HOPE NOW partnership. Their first nationwide mailing campaign is underway.
Here at HUD, we've increased our budget for housing counselors by 200 percent since 2001. Earlier this month we sponsored a homeownership workshop in Michigan, one of the states hardest-hit by foreclosure. It enabled homeowners to talk to counselors and mortgage officials face-to-face. It was a great success, made possible by industry leadership.
Third, another lesson is that we must not be risk-averse.
The American economy is built on calculated risk. Subprime loans are just one example. True, their failure rate is higher than other loans. But the vast majority of subprime loans are sound. They've enabled many Americans, including minority families, to realize the American Dream of homeownership for the first time.
I believe many homeowners who have fallen behind on their mortgage payments can avoid foreclosure and keep their homes. If they are willing to do what it takes, we should take a risk on them.
That's where our new FHASecure plan comes in. For the first time, it allows homeowners in default because of reset interest rates to obtain a safe, affordable FHA loan. Families still current on their loan may also qualify.
There are rules. A history of on-time mortgage payments under the original interest rates and a sound debt-to-income ratio are required. We want to encourage responsibility, not reckless behavior. This is not a bailout!
Under FHASecure, the average subprime homeowner would save about $400 a month. An estimated 240,000 homeowners would keep their homes under the FHA's programs.
Many more people could take advantage if Congress passes legislation to modernize the FHA. Eighteen months ago, President Bush proposed a bipartisan bill to lower its downpayment limits and raise its loan limits. Another 200,000 families, of every race and nationality, could be helped by these changes. Congress needs to act today.
As President Bush said, "We're in a period of transition as participants reassess and re-price risk.... [But] America's overall economy will remain strong enough to weather any turbulence."
Fourth, and finally, we must set an example for the world.
Many nations, including Ireland, Norway, and Spain, have higher home ownership rates than the U.S. We're eager to learn from them. But the entire world awaits our response to the housing crunch. Our example will say more than our words. We must continue to be a dynamic, innovative economy that leads, not a cautious, risk-averse one that merely follows the well-worn path.
We must show the world the benefits of transparency, openness, and freedom. We must show them that affordability in housing is not just possible, but necessary. And we must show them that the marketplace works. The actions we take here today will resonate far from our shores, and far into the future.