OTS National Housing Forum
PREPARED REMARKS FOR
ALPHONSO JACKSON, SECRETARY OF HOUSING AND URBAN DEVELOPMENT
MONDAY, DECEMBER 3, 2007
Thank you, Director (John) Reich. Good morning, ladies and gentlemen. I am pleased to open this conference.
We meet at a time of great challenge: the subprime crisis. This is a decisive moment in the economic history of our country. This is the time for our best efforts... for us to make a difference...to set the housing market on a more positive course. We must turn the housing market around, and create greater stability and predictability. We cannot let this descend into a free fall.
We can see the effects of the subprime crisis in this country on our landscape. The tragedy of a lost home is haunting. Even one foreclosure is too many. We see the jarring impacts on our larger economy.
And each day we are confronted with the ripple effect of the subprime crisis - reports out of China, Switzerland, Germany, and even rural Finland show that the subprime crisis has sent seismic shock waves through the world's economies.
So, this morning, we gather to discuss a topic that is on the minds of millions - maybe billions - of people worldwide: the U.S. housing market. And they are worried... some frightened. They see a litany of sour statistics: higher foreclosure rates, lower housing starts, and lower resale of existing homes.
They are suspicious of news from Wall Street. There is disbelief, second-guessing, loss of confidence, lack of trust, a somber mood. Positive employment rates and more consumer income are seemingly ignored, shrugged off, as hand-wringing and head shaking now greet any news, good or bad. Just last week we learned from the Commerce Department that the economy grew at a phenomenal 4.9 percent from July to September. But that was followed by sad faces predicting the growth won't last. It is as if we simply expect bad news. The Financial Times put it well last Wednesday (November 29, 2007, p. 9): "Grenades keep going off and nobody knows what to think or expect. The fear is of the unknown."
Precisely! That is right. There is fear... you can sense it. And some of this fear is based on changing circumstances and a stoic feeling of inevitability. I have heard some economists talk about a cycle of housing, a spiraling process of good periods followed by bad ones, and that the record gains from 2000-2005 must generate a deeper correction now, and perhaps for many months or years to come. Economists talk about market corrections and responsive reactions and orbital trajectories. They might as well use words like "fate" or "destiny," as if the future is already written in the stars. They talk about housing like a Greek tragedy, that the hammer of the gods has fallen and as mere mortals we cannot overcome the powerful fiscal forces unleashed by our good fortune in earlier years.
And, based on that view, many people wait for further gloomy reports. For them, the only question is one of length - how long must this go on?
Frankly, I've lost patience with all that. So have many Americans. People facing foreclosure don't want to be told that they are victims of a cycle or that their home is lost because of the whiplash of credit tightening. With respect, people want answers... solutions... and they want policy-makers and financiers to make sure this stops right now. They want us to do whatever it takes to prevent it from happening again.
They want you and I to be instantly reactive and at the same time proactive, helping to address the current crisis and avoiding a repetition in the future.
I know that we can stop many of the projected foreclosures. Let me repeat that...we can stop many of the upcoming foreclosures. We can help to end this cycle... perhaps end it quickly.
Let me explain. We have learned a hard truth about lending practices. The complex inter-relationships that stimulate global investment require a solid foundational structure. And that begins with the first loan... the loan to purchase a home. Loans themselves must be the solid bedrock. We know that a favorable housing market attracts lenders, and those who lend to the lenders, and repurchase the mortgages, and so on. Housing is an investment for the buyer and for those all along the mortgage lending and buying chain.
So lending practices must be sound, transparent, and responsible. We have learned that obviously nothing good comes from predatory lending or from shady lending practices. Ultimately, what goes around comes around: slick and sinister lenders are also devoured by their own questionable and unethical practices. And they hurt the rest of us too, as we see only too well now.
But there must also be an understanding that not all subprime loans are problematic. In fact, about 70 percent will not fall into foreclosure, which means that most subprime loans contributed to homeownership and wealth creation for millions of Americans.
We need to learn the difference between risky, but good loans, and ridiculous, unaffordable loans. The bad loans often came when some lenders exploited the homeowner with impossible repayment burdens. Often these bad loans were passed on to secondary lenders, carrying the impossible resets like a virus waiting to infect the process. No wonder the Bank of Japan Governor (Toshihiko Fukui) has called the subprime situation a "serious disease." It must look like that to some people. And we must not only cure the disease, but vaccinate ourselves against future outbreaks.
That is why I believe the role of housing counselors will remain prominent in the years to come. There are more than 2,300 HUD-approved housing counselors in this country. They can help a prospective homeowner determine if a loan is affordable or not. They can help a homeowner understand the contract and avoid unaffordable resets. The sad truth is that many foreclosures could have been avoided on the front end through more attention to the contract...and greater understanding of the fine print. The President understood the value of housing counselors years ago and funding for them has more than doubled. Earlier this year I announced more than $44 million in new housing counseling grants to over 400 state and local efforts. The President wants even more money for housing counseling, asking for some $50 million in his new budget. It is my hope that prospective homebuyers routinely consult housing counselors as part of the homeownership process.
We must also bring stability to the housing market, and the Federal Housing Administration (FHA) can help us do that. That was the original role of FHA in 1934, to help bring stability to the real estate market during the Depression. If we can do this, it will help break the cycle of foreclosure and price depreciation, and bring much-needed liquidity to a tight mortgage market.
As Secretary, I have directed FHA to pro-actively do as much as possible to help homeowners. By working within our current 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-backed loan.
But we needed to do more. So, this summer, the President announced a new initiative that builds on our previous work. It is called "FHASecure." This program is for both those who have either a conventional or a subprime loan. Under "FHASecure," borrowers who are otherwise creditworthy, but who have recently become delinquent on their mortgage, would now be able to get an FHA-backed loan. So, families with an otherwise strong credit history, but in default because of the reset in their mortgage rate, will get help. Through "FHASecure," 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. This would bring the total of new borrowers assisted through FHA's existing re-finance program and "FHASecure" to 240,000 next year.
People understand the value of this option. "FHASecure" was announced in September, two months ago. Already we have received more than 111,000 applications and closed on over 32,000. The mortgage value of the loans we approved is worth more than $4.2 billion. This shows the importance of this effort - and how much of a difference we can make for those facing foreclosure.
But we need more than that. We have exhausted our own administrative actions...we need legislation to help even more people. So, the President has also pushed Congress for FHA Modernization - a bill that the Administration introduced almost 2 years ago. With new legislation, refinancing, and other FHA products, we will be able to help nearly half a million people next year buy and keep their homes.
Each day of delay unnecessarily places thousands of families at risk of foreclosure. These families are in danger of losing their homes. Think of what this means to them.
So, I urge Congress to pass the President's baseline proposal right now. We need that legislation...now.
I also want to mention one public/private sector effort called HOPE NOW. It shows great promise. It is an alliance of mortgage industry lenders, national counseling agencies, and other investors and industry trade associations. At the request of Secretary (Henry) Paulson and me, they are contacting hundreds of thousands of Americans at risk of losing their homes.
The alliance has set up a hotline for homeowners to call: (888) 995-HOPE. That hotline is up and running, with service in both Spanish and English.
And the alliance members are working to adopt HUD credit counseling standards, which will help fortify lending practices. This cooperation is yet one more way we can smooth out the housing cycle.
We must do all of this and more. The cumulative effect can shift the market incentives, providing a smoother housing cycle...vastly reducing the distance between extreme fluctuations. In the near future, homeownership should continue to be the bedrock of our economy, this time with affordable loans that won't implode. We need to aim for a slow, steady climb. We must put in place a process that eliminates the highs and lows, or at least condenses the cycles into something more predictable and less severe.
This is the moment for strong, credible, bipartisan and global leadership. We need cooperation, statesmanship, and visionary action. We must dispel fear and uncertainty. We must act responsibility and wisely. And it is time to look beyond this moment to a new paradigm, a new housing market.
NOTE: To read the Press Release, visit: http://http://archives.hud.gov/news/2007/pr07-175.cfm