National Council of
County Association Executives /
National Association of Counties

JANUARY 10, 2008

I want to thank you all for taking time from your busy schedules to come to Washington. I'm delighted to be able to talk with you today. Counties are extremely important to our republic. Alexis de Tocqueville called them "the intermediate power between the government and the citizen." This is still true-but sometimes forgotten.

Not by us. President Bush and I value the role you play-and the work you do. We believe in strong counties. And we believe you make them stronger by applying the time-tested principles of federalism. I look forward to discussing, face-to-face, the ways we can continue to restore the partnership.

Looking at a map of all 3,000-plus counties, parishes, and boroughs in the United States, I'm reminded of cells-the individual cells that make up our body politic. Healthy cells-healthy counties-make for a healthy nation.

So we've got to take good care of them. We must remember that counties are being asked to do more than ever before-everything from health care to child welfare to consumer protection. You have to promote economic development and put a lid on sprawl-at the same time. All while you perform your traditional duties. That's a heavy workload.

And, of course, you need to find ways to pay for it all. Counties get only about three percent of their revenues from the federal government. Property taxes account for much of the rest.

So I don't need to remind you of the importance of homeownership. And I don't need to tell you the housing market is going through some painful contractions. It affects your bottom line.

If a homeowner stops paying, you stop collecting. It's not hard to do the math. In nearby Fairfax County, for example, the number of foreclosures has soared from 198 in 2005 to more than 4,000 last year.

Property taxes account for nearly 60 percent of the county's general fund. As a result, they're looking at a deficit of $220 million for the current fiscal year.

As Fairfax County Board Chairman Gerald Connolly said, "When real estate catches a cold, local government budgets...are at risk of catching pneumonia."

But it goes beyond that. The impact of foreclosure sends ripples way beyond the home. Suddenly, the number of homeless increases. Suddenly, Lowe's and Home Depot produce less sales tax revenue. Suddenly, property values decline.

The U.S. Conference of Mayors predicts the housing crunch will cause property values to fall $1.2 trillion this year and cost more than half a million jobs.

As county officials, you have been asked to weather the storm, to keep services going while figuring out ways to help hard-hit families. That's our job at HUD, too. Like you, we cannot opt out of our responsibilities.

So the question is, how to help? We start from a few simple principles. First, that everyone has a stake in the solution.

No one is helped by foreclosure-not the mortgage industry, not counties, and certainly not families.

President Bush has noted that, "in the old days, you'd sit down with your lender and work out a deal." Today, with mortgages bundled up and resold to spread the risk, that's much harder to do. Surveys show about half the borrowers in foreclosure did not discuss it beforehand with their mortgage provider.

Several months ago, Secretary Paulson and I made a challenge to the mortgage industry. We wanted them to identify homeowners with past due accounts who were willing to do what it takes to keep their homes.

The result was the HOPE NOW Alliance. Companies representing 60 percent of all mortgages came together to help.

They launched a toll-free hotline number: 1-888-995-HOPE (4673), which has logged hundreds of thousands of calls.

They also sent out close to half a million letters to homeowners urging them to talk to their lender. It's a good start.

Many of these homeowners found themselves caught in the subprime mortgage mess. To be fair, the vast majority of subprime loans are sound. They have helped millions of families, including minority families, become first-time homeowners.

Only about 16 percent of subprime "ARMs" are delinquent. But the problem should not be minimized.

Some buyers were enticed with low "teaser" interest rates into selecting adjustable rate loans they didn't understand and couldn't afford.

A large number of subprimes went to borrowers without income verification. A few predators even bragged about their "NINJA" loans-that stands for "No Income, No Job, and No Assets." Terrible.

Now, of course, the bill is coming due. More than 1.8 million subprime interest rates are expected to reset in the next two years, threatening a wave of foreclosures.

It's no surprise that the American Dialect Society just voted "subprime" as its "Word of the Year." It beat out "Facebook" and "waterboarding."

Clearly, relief was needed. Working with the Alliance, we announced a three-option plan.

One, qualified subprime homeowners could refinance their loan.

Two, their current interest rate would be "frozen" for up to five years-the so-called "Teaser Freezer."

Or Three, homeowners could refinance into a safe, secure loan with the FHA-where foreclosure rates are about half that of subprimes.

Let me tell you about our FHASecure plan. Anyone can refinance into FHASecure.

What's new is that we are now allowing borrowers who are delinquent on their mortgages because of reset interest rates to refinance.

We're not talking about a narrow slice of homeowners here. Half of the homeowners with outstanding subprimes and resets may qualify for FHASecure. Nearly twenty percent may qualify for the "Teaser Freezer."

We're talking about responsible homeowners, by the way. We require a history of on-time payments under the original rate. We also require a solid debt-to-income ratio. And, yes, we verify income levels. What a concept!

We expect FHASecureto save the average subprime homeowner about $400 a month, or $30,000 over the expected life of the loan. Some of that relief will no doubt find its way into county coffers. Assistant Secretary Brian Montgomery, the head of the FHA, will help answer your questions in detail.

To do even more good, we need Congress to act. We must expand the reach of the FHA, and bring it into the 21st century.

Bills have passed the House and Senate which would lower downpayment requirements for refinancing.

This would allow FHA to insure bigger mortgages in high-cost states such as California and New York-markets where FHA has been priced out.

We also want the FHA to be able to flexibly price insurance through something called "fair pricing." This can help break the vicious cycle of foreclosure and depreciation.

Congress deserves credit for doing some positive things, including passing a law to reduce tax liability for families that refinance. Now we call on them to enable more families to refinance.

The Senate finally passed its FHA bill. The differences should be ironed out between the House and Senate versions. They must send a bill to the President as soon as possible, so we can start helping homeowners as soon as possible.

A second principle we have followed is that all foreclosures are not created equal.

In the Upper Midwest, many foreclosures are the result of unemployment. In Sunbelt states, however, many are the result of speculators who got burned by the downturn in value.

California and Florida have the highest shares of mortgage resets in the country. Newsweek recently wrote about a Las Vegas suburb filled with vacant mansions with new phone books rotting in the sun.

The point is, what works for one county may not work for another. Our help must be flexible, targeted, and smart.

We cannot treat the laid-off worker and the "flipper" the same. That misses the point and compounds the problem. We must instead encourage responsible and sustainable homeownership. That's why families with second or third homes do not qualify for FHASecure.

Likewise, we should not tar all lenders with the same broad brush. I find predatory lending unacceptable.

So HUD is going after the unscrupulous sharks in the housing market waters. We created a new Fair Lending Division to review mortgage lending practices and investigate complaints of discrimination.

In our research, we found another problem. Homeowners were hesitant to talk to housing counselors employed by the mortgage industry.

So HUD is working to fill the gap. President Bush has increased funding for housing counseling by 150 percent since 2001. We asked Congress for another $50 million for counselors for FY08, and received it.

Another $180 million will go to the non-profit NeighborWorks, to help them mitigate foreclosures. It's money well spent.

There are now more than 2,300 HUD-approved counseling agencies in the country. They're helping consumers understand what they can afford and read the fine print before they sign on the dotted line.

We've also made a major push to help families become financially literate. Only by changing spending and savings habits can we change the conditions that caused this mess.

Last year we posted foreclosure prevention tips on our websites, and, and Parade Magazine ran our tips.

This month we will be releasing four million copies of a brochure called "Home Economics." It guides families through the steps needed to become a homeowner. If counties are the cells of the country, then families are the cells of the county. Let's keep them well-informed and strong.

There's one other thing we can do. Sometimes the greatest barrier to homeownership is a man-made one called red tape.

Red tape increases housing costs by anywhere from ten to thirty-five percent. Last summer HUD issued a National Call to Action to reform regulations and free more people to live where they want. Many localities have signed on. If you haven't yet, I urge you to do so.

Now, let me tell you about our third principle-which, I believe, is the most important one. We must not lose perspective.

Some people speak of foreclosure in this overheated market as inevitable. I disagree. People don't want to be told that they are destined to be victims, that they're too late to jump on the American Dream. Nonsense!

The worst thing we could do is allow the current downturn to send the message that homeownership is not a worthy goal, that buying a home is for suckers.

Let's look at the facts. Home equity rose from 6.6 trillion dollars in 2000 to 10.9 trillion dollars in 2006 before falling a bit. This is real wealth creation.

Overall, the rate of homeownership remains at near-record highs. The President's goal of 5.5 million new minority homeowners by 2010 remains on track.

The average new home size has grown from 1,400 square feet in 1970 to 2,300 square feet in 2004, even as family size has shrunk.

And Americans will spend over $170 billion remodeling their homes this year, according to the new book, "House Lust." They wouldn't do it if they didn't believe it was worth it.

Studies show that children who live in homes are healthier, better educated, and better protected from life's hard knocks. That is why we're focused on sustainable homeownership for the long haul.

When I headed the Dallas Housing Authority, it was a rewarding time. We were able to desegregate public housing and turn slums into healthy communities.

I'm pleased to say we're still doing it, in New Orleans and around the country.

I learned something valuable from that experience. To turn around neighborhoods, you have to turn around attitudes, first.

I want all Americans to take the small but critical steps that lead toward ownership and independence. I want them to realize that a home is a source of pride, wealth, and stability for a family, a community, and a country.

And I want to thank all of you who are helping to promote this message. Best of luck on your conference.


Content Archived: January 12, 2012