Homeowner Preservation Forum
PREPARED REMARKS FOR
ALPHONSO JACKSON, SECRETARY OF HOUSING AND URBAN DEVELOPMENT
PALM BEACH, FLORIDA
SATURDAY, FEBRUARY 2, 2008
Thank you. My appreciation to the United Way of Palm Beach and the Palm Beach Affordable Housing Coalition for co-sponsoring this conference. Many thanks.
And, ladies and gentlemen, thank you for coming. The housing crisis has been a powerful, staggering shock to our economy. Millions of homeowners have felt it. Our nation�s lenders and mortgage brokers feel it. And that shock is felt worldwide. The ripple effect touches financial institutions and governments everywhere, with aftershocks that continue to make daily headlines.
That�s why we are here today, and it is appropriate we meet in a school. Schools have traditionally been places of community, especially in a time of crisis. So it is natural that we come here. There are lessons to be learned�and we better learn them quickly. And we will be tested by the decisions we make. There are positive, vital steps we can take to help hundreds of thousands of people avoid foreclosure. And those big numbers are really nothing more than helping one homeowner at a time. We are helping for the best of reasons: to help families keep their homes and to help them build a more prosperous future.
If you look around, you will see homeowners and lenders. That is one lesson we have learned. We need cooperation and communication, not competition and disregard. We can save hundreds of thousands of people from foreclosure, including those here today. But we have to change the culture of lending and open new avenues for doing business. If we can do that, then we can re-set the American housing market on a firmer foundation, avoiding the types of situations that have produced our current crisis.
In other words, help is available. We can address the mess and find solutions to foreclosure.
Let me explain all this in more detail.
This week we were told that foreclosures are up in the United States by 75 percent in 2007.
And Florida was hit hard�it remains a state with tremendous challenges in housing. More than 2 percent of Florida�s homes were in some form of foreclosure last year. So we face a formidable problem, here and in California, Nevada, Ohio, and virtually every state.
And we have observed some important patterns. For example, a survey released earlier this week found that fifty-eight percent of delinquent homeowners don't know their lenders may offer ways to help them keep their homes, and fifty-six percent don't know that free counseling exists to help them. So homeowners in trouble simply faced foreclosure in silence without trying to work out any details. That kind of fatalism is self-fulfilling and must end.
And we learned that many of these foreclosures involved subprime loans, with many of the loans issued since 2005. The reset rates were sending more and more people into foreclosure. That was a risk assumed at signing by both parties, and many people could afford the reset rates. But many could not. About 30 percent of the subprime loans were problematic, teaching us that for many people a subprime loan was simply a �suicide loan.� I think we also learned that some people � 70 percent � could handle the subprime loan situation, which worked for them. But others needed to be more realistic.
So we also learned that housing counselors are an indispensable part of the process. You see, many of the failed loans were a surprise because the homeowner didn�t read the fine print and didn�t understand the contract. Housing counselors could have helped the homeowner gain a better perspective about affordability and balanced expectations.
And we discovered that some of the lending companies were making some risky decisions�decisions that lacked transparency, practicality, and good sense. The lure of phantom paper profits was too tempting. Some of these executives have lost their jobs. And the companies have absorbed some large losses�which I hope leads to some lessons learned and more sound business practices.
And there were some companies that went further. They were predatory�violating the first rule of contracts�that a contract is more than offer and acceptance�both parties must benefit. They call that �consideration� in the law books. That�s a good word�both parties must have �consideration.� And when that doesn�t happen, when predatory practices lead to unjust enrichment through illegal practices, then the law must protect the American public.
Some companies have already been successfully prosecuted for mortgage fraud and other predatory practices. Some of those prosecutions have been here in Florida. And I know the Florida Attorney General has been very active, issuing subpoenas this month as part of a widespread review of the industry. I am pleased that the Justice Department, the Securities and Exchange Commission, and others have opened investigations into the practices of some other companies, particularly in the secondary mortgage industry. They are examining the possibility of accounting fraud, insider trading, and other illegal practices. We need to know if and when the law was compromised. And we need to have strong deterrence to make sure it doesn�t happen again.
At HUD, we believe that there is no place for predatory lending and other unfair lending practices in America! Of the complaints HUD received last year, five percent alleged discrimination in the area of lending.
To increase our efforts to enforce the �fair lending� provisions of the Fair Housing Act, we created a new Fair Lending Division within HUD to review mortgage lending practices throughout the nation.
The new division, which is a first for our Department, will investigate discrimination complaints against lenders who have allegedly violated the Fair Housing Act by refusing to make mortgage loans, refusing to provide the same information regarding loans, or imposing different terms or conditions for granting a loan, such as factors based on the race or national origin of the borrower.
I appeal to the representatives of the industry to carry back this message: predatory practices may initially look profitable, but those projections are nothing more than fool�s gold. Predatory practices are not the path to profits.
But I also ask you to add this message: we must build a culture of cooperation, not a callous culture of unconcern. I think we see such a culture of cooperation here today. And we can build on that�help it grow and spread throughout the industry into each state.
I know that we can change all this�and important steps have been taken already. This conference is a good example. This forum will help explain legal rights. It will help people learn about mortgage options. It will help prospective and current homeowners connect with a housing counselor. And it will help to explain some of the federal and state programs that may be of help.
For example, I have instructed my department to reach out to as many people as the law will allow. We have been able to expand the number of people who qualify for an FHA loan. Through an effort announced by President Bush last year called FHASecure, we have been able to assist more than 75,000 Americans to refinance their homes, including nearly 3,000 families in Florida.
We should be able to help up to 300,000 people across America by the end of the year.
We could do more if Congress would help us out. What I mean is this: If Congress would complete their work on a bill to modernize the FHA, then we could reach out to even more people. For two years, the President and I have urged Congress to let FHA reach more hard-working Americans. Despite passage by both Houses of Congress, a bill has still not been sent to the President. Every day of delay puts hundreds of thousands of homeowners at unnecessary risk of foreclosure. We need Congress to accelerate their efforts and submit the final legislation.
In addition, Treasury Secretary (Henry) Paulson and I have worked with the mortgage industry to address the housing crisis in another way: industry cooperation. The industry has responded with a program called the HOPE NOW Alliance to help homeowners at risk of foreclosure. The Alliance has implemented a plan that could help up to 1.2 million homeowners avoid foreclosure over the next two years by providing systematic relief that includes refinancing existing loans, moving borrowers into FHASecure loans, and implementing a five-year freeze on reset interest rates for subprime loans. The industry has already assisted 370,000 homeowners and HOPE NOW has contacted more than half a million borrowers in the second half of 2007.
In other words, there are many options; many sources of assistance. There is much that can be done. And it all starts with good decisions�such as a good decision to obtain more information. The President has asked me to help set up forums like this around the country, to bring people together and find ways to save homes and help homeowners. The President realizes that a home is an investment in the future�it is part of the American Dream.
So the housing crisis must not steal away our dreams. That would be criminal. Instead, when we face this crisis, we must do what Americans always do�come together, work together, find solutions together. That is our great strength�part of our national character. When tested by circumstances, we unite, we care for each other, we help each other, we come together, we find common purpose and shared strength, and we dissolve difference and discard division. We join hands�we bond as a community.
And I see that sense of courage and cooperation here today. Through forums like this we can create a new culture of cooperation. That way something good can come out of the housing crisis�a new and better way to buy a home in America.
Thank you again for coming.