�Building the Dream:
Putting Homeownership On A Strong Foundation For The Future�
PREPARED REMARKS FOR
ALPHONSO JACKSON, SECRETARY OF HOUSING AND URBAN DEVELOPMENT
COMMONWEALTH CLUB ADDRESS
SAN FRANCISCO, CA
TUESDAY, MARCH 4, 2008
Thank you, Lynn Sedway, for that kind introduction.
It is a privilege to speak before the Commonwealth Club.
And it is always a treat to return to California, a place that is both down to earth and larger than life -- just like its "Governor," Arnold Schwarzenegger.
I had the pleasure of meeting with Gov. Schwarzenegger recently to discuss the foreclosure problem.
He is the latest in a long line of great Americans who made California their home, and whose life was uniquely "Californian."
Another one is a man who was alive when the Commonwealth Club was founded: Mark Twain.
Twain was not only a writer, he was an adventurer. And his adventure brought him here.
During the Gold Rush, Twain tried his hand at mining. Legend has it that one day, while at Angel's Camp, he quit panning just before coming across a sizable pocket of gold.
Too bad. Of course, he would soon find his fortune in another way, and the whole world would be the richer for it.
What made Twain come to California? It wasn't the promise of government benefits or a bailout. I know that's not a very "Blue State" thing to say, but it's true!
No, what brought him here was a word called opportunity, that restless spirit of discovery that is our birthright as Americans.
Twain said that "a nation is only an individual multiplied." He was right. And millions of citizens who came here to build their dream ended up building a great state and a great nation. Now, what did they find once they got here? Not gold, but high housing prices.
Listen to a description of San Francisco in 1851: "Lot property is valuable and in demand....There are no such things as empty houses....The present extravagant value of property in San Francisco cannot continue to be long sustained."
Of course, this would not be the last time housing prices in California would spike. In the 1990s, when the "rush" was for silicon, not gold, it seemed that prices would never come down.
But the higher they climb, the harder they fall. And this housing correction has been hard on all of us.
Here are some facts. In January, sales of existing homes nationwide fell to the slowest rate since 1999. Sales are down 20 percent since their all-time high in 2005. Here in the Bay Area, home sales have fallen to a 20-year low.
In 2005, there was about a four-month supply of unsold homes in the U.S. Today, it's a 10-month supply.
So owners, wanting to sell, are slashing prices. This is good news for bargain-hunters. However, many are waiting to see if the market has hit "bottom" yet.
They're twice-shy, having seen the most recent buyers get burned. Today, one in ten homeowners is "underwater," meaning they owe more to their lender than their house is now worth.
Another fact: foreclosure filings in California are up 120 percent compared to January 2007. That's second only to Nevada, and double the national rate.
A list of the nation's top ten metro areas for foreclosure reads like a drive down "the 99," including Stockton, Modesto, Merced, Bakersfield, and Riverside-San Bernardino.
Sixty Minutes recently interviewed a Stockton real estate agent who started a "Repo Bus" tour of vacant homes. He got the idea from tours of the stars' homes in Hollywood.
Some might laugh, but foreclosure is no joke. It breaks my heart to see families having to pack away their dreams and memories into boxes. And it hurts to know how many others are affected indirectly. Communities suffer from vandalism. Renters are evicted. Even pets are abandoned.
Now, I do not want to exaggerate the problem. Ninety-three percent of all mortgages are being paid on time; less than 2 percent are in foreclosure. The vast majority of subprime mortgages were sound then and are sound now.
The question is, what should be done about the rest?
Last week, a bill that would have had the government buy up billions of dollars in subprime loans was defeated in the U.S. Senate.
Like foreclosure itself, it would have created new and indirect victims. It would have distorted the market, raised interest rates, and strangled credit for new homebuyers. And the benefits would have helped lenders and speculators more than homeowners.
I believe Americans are a fair people. They want to help. But they understand that the answer to an economic challenge must ultimately come from the people who drive the economy.
They want the tools of recovery in their own hands, and to be empowered to use them. Above all, they do not want to kill the spirit of opportunity that made this country great.
And so I want talk about how we will put the American Dream of homeownership on a strong foundation for the future.
It starts with the most important element: the buyers themselves.
You might say that, homeownership starts with homework.
Mark Twain once said, "By temperament, I was the kind of person that does things first, and reflects afterward." That's good in a writer. But it doesn't quite work for a homebuyer.
I've spoken to so many people who did not know what they were agreeing to as they signed on the dotted line.
In some cases, buyers were lured by low "teaser" interest rates without understanding that those rates would double or even triple over time.
Other lenders pushed "piggyback loans" and other gimmicks that hid the true financial costs. As another real estate agent told Sixty Minutes, "They were getting loans in excess of 100 percent of the value of the property." In other words, "getting paid to buy a house."
Buyers share responsibility, too. Some do not read their prospectus. Many do not understand it. Often, the benefits are bannered while the penalties are buried in the fine print.
It reminds me of one humorist's line: "Why is it you can never read a doctor's prescription, but you can always read the bill?"
A good line, but a poor excuse.
There are more ways than ever before to buy a home. And so we must educate homeowners like never before. They must know their rights and responsibilities on the way in, not just on the way out.
In January, President Bush signed an executive order creating the Advisory Council on Financial Literacy. It is ably led by two distinguished Californians, Charles Schwab and my good friend John Hope Bryant.
The role of the Council goes beyond promoting ownership. We want families to know what goes into a home: planning, savings, good credit, and, above all, communication with your lenders. People must, as the President says, "be able to manage their assets."
So we're sending out four million copies of our new brochure, called "Home Economics," in both English and Spanish. It details the five key steps to become prepared to own a home.
The most important step may be to contact a housing counselor. Most homeowners don't even know that free housing counseling is available to them!
That's a shame. There are more than 2,300 HUD-approved counseling agencies across the country, ready and able to help, at all ends of the process.
This is not a trivial issue. This is at the heart of the matter.
Imagine that you're very sick. If a doctor told you that by getting a checkup you'd have a 96 percent chance of survival, you would visit him, right?
Well, in the first three quarters of 2007, 96 percent of households that saw a HUD-approved housing counselor and completed the program avoided foreclosure. Amazing.
We've increased funding for housing counseling by 150 percent since 2001. President Bush's new budget proposal would increase it further, by $65 million. Last week, Gov. Schwarzenegger announced an $8 million federal grant to expand counseling for rural and urban homeowners.
The President's Budget contains another $180 million for HUD's non-profit partner NeighborWorks. They began distributing those funds last week.
It's money well-spent. Studies show that homeowners respond more quickly to community and non-profit groups than to lenders and banks.
Let's face it, some people are in denial about their financial problems. Instead of picking up the phone, they withdraw. In fact, more than half of all home-owners in foreclosure did not discuss it beforehand with their servicer or lender.
Lenders have even resorted to mailing out letters that look like wedding invitations to get their attention!
We must change this attitude. With the help of our housing counselors, we are.
Sometimes the fault lies with the mortgage process itself. Mortgages are chopped up, sold, and resold, until it's hard to figure out who's in charge or who to call.
Last year, Secretary Paulson and I called on the mortgage industry to offer a broad response. And they did, creating the Hope Now Alliance.
Representing 90 percent of the subprime market, Hope Now members have contacted more than half a million homeowners. Their hotline receives more than 4,500 calls a day.
They recently announced a plan to help up to one million homeowners avoid foreclosure over the next two years, through initiatives such as the "teaser freezer." I am pleased by their actions.
Recently, Hope Now members took another step. It's called Project Lifeline. It "pauses" the foreclosure process for 30 days so eligible, at-risk homeowners can work with lenders and counselors to modify their loans.
For our part, HUD is bringing together lenders and families. We've held dozens of foreclosure prevention workshops across the country. I've been to many of them. And every time, I see denial and fear replaced with hope.
Listen to the experience of Christian Barron of Rialto, California. Ms. Barron attended a recent foreclosure prevention workshop in Riverside.
She and her husband had purchased a home using a mortgage they thought was fixed. It was not. On the first re-set, the payment increased by $2,000.
It turns out her lender's servicer was in the Middle East. Every day for months, she would get up at 5 a.m. to call and try to work something out. Nothing.
Finally, she called the HOPE NOW Hotline: 1 (888) 995-HOPE.
She was referred to the Neighborhood Housing Services of the Inland Empire. They were able to reach the lender, who agreed to a loan modification. The interest rate was reduced, and the home was saved.
It's a great story. And proof that foreclosure is not inevitable-in fact, it's preventable.
Of course, some voices now whisper that the American Dream is a mirage.
They didn't count on the President's economic stimulus plan. Proof that Washington can get things done!
The plan has two major elements.
First, immediate relief will go to homeowners so they can pay down mortgages or other housing-related bills. This will bring liquidity into the market to help break the cycle of foreclosure.
Second, the plan raises the Federal Housing Administration's loan limits, enabling more families to qualify for a safe, affordable FHA mortgage.
This is critical for California, where most families are currently priced out of FHA-backed loans. This has created a vacuum, which has been filled by exotic subprime loans.
Families with home loans up to $729,750 will qualify, depending on where they live.
We estimate that tens of thousands of Californians will benefit. I look forward to announcing the new loan limits soon.
The chief economist for the National Association of Realtors predicts that the plan "will have a big, immediate impact, especially in California," causing demand for housing to rise.
Unfortunately, the new loan limits expire at the end of the year. We need a more permanent solution. That means modernization of the FHA.
Don't get me wrong; the FHA has served us well, helping more than 35 million Americans buy a home. But it's showing its age-74 years, to be exact.
Two years ago, before the downturn, we introduced an FHA modernization bill to Congress.
Our plan offers flexible downpayment requirements and higher loan limits past December 31st, when the stimulus expires.
It would also enable the FHA to fairly price premiums, taking risk into account to reflect market realities. We don't want anyone caught by surprise again.
FHA modernization could help a quarter of a million families this year alone.
It passed the House and Senate in overwhelmingly bipartisan fashion. But a final bill has yet to cross the President's desk. Congress must act.
We haven't waited for Congress, though. Last August, the President and I introduced FHASecure.
It is helping responsible families who, because of reset interest rates, find themselves falling behind on their mortgage payments. For the first time, they would be able to qualify for an FHA loan. "Underwater" borrowers and those in the process of foreclosure may also qualify.
Now, there are rules. We require a history of on-time mortgage payments under the original rate. Also, multiple-property-flipping speculators need not apply. And we verify income levels-what a concept!
Since August, we've helped over 100,000 homeowners current or past due on their loans refinance through FHASecure. We expect to reach 300,000 by year's end.
This is quite a change. During the subprime explosion, FHA loans fell out of favor. We were called old-fashioned for documenting income levels. We couldn't compete with the gimmicks, such as "NINJA" loans-"No Income, No Job, No Assets" required.
But now, the FHA is back. We're letting people know about it, sending letters out to 850,000 homeowners-including 54,000 families in California-with resetting rates who might qualify.
And guess what-the schemes and shortcuts are starting to give way to transparency throughout the market.
That brings me to our next goal: stopping the Dream-breakers.
Who are the Dream-breakers? They're the ones who steer families into risky loans when they could afford better, or who use shady practices that promise something for nothing-a promise that is never kept.
The Dream-breakers are also those who discriminate on the basis of race, religion, gender, sexual orientation, family status, or disability.
This year is the 40th anniversary of the Fair Housing Act, something near and dear to me.
We're building on that historic legacy with our new Fair Lending Division.
It will hold lenders accountable who refuse loans for frivolous reasons, or who impose different terms or conditions based on a person's race or national origin.
Our budget also contains grants to States to develop best practices to stop lending discrimination. I want to hear your best ideas, so we can share and compare them.
Discrimination is one obstacle that keeps working Americans from living in the communities of their choice.
But sometimes the greatest barrier to affordable housing is an overlooked one: red tape.
Research shows that it increases housing costs between ten and thirty-five percent. Excessive regulations add about $12,000 to the price of an average, single-family subdivision home.
Last summer, we issued a National Call to Action to reform onerous regulations. Many communities have signed on to our America's Affordable Communities Initiative.
Recently, we gave a HUD award to the city of San Jose for overcoming complex land use and tax regulations, and freeing up thousands of affordable homes. I urge all communities to join this effort.
Many Americans are searching for affordable housing. That is their Dream. And the Dream is for everyone.
I believe every family deserves to live in stable, safe housing in vibrant communities. So, HUD has broken the old, outdated mold of concentrating poverty in one area and wealth in another.
We want families of all income levels to have access to good stores, good schools, and good people. It's good for the economy, and good for society.
President Bush has requested a $263 million increase for our HOME program. It's the nation's largest affordable housing block grant program.
And it works. Each HOME dollar allocated to a local jurisdiction stimulates more than $3 in public and private investments.
I am proud that, despite the housing slump, homeownership rates remain at near-record levels. Minority homeownership has increased dramatically since 2001.
These families are learning that homeownership remains the single best path to wealth and independence.
Now we must use all our tools to sustain these gains and keep the American Dream alive. Americans have learned a lot over the last few years. Or, should I say, they've gotten a refresher course.
Housing booms, like gold rushes, never last; they're always followed by corrections. You can't get something for nothing. And education is the great equalizer.
Because true change will never be led by government alone. It will be led by millions of individuals, acting in their own and their family's best interest.
This drive once led Americans to travel thousands of miles, braving the elements, the mud, the seasickness, to build new lives and homes.
And today, it leads them to make the sacrifices necessary to achieve the American Dream of owning a home.
Their influence will reach far beyond those four walls. And their dreams will make so many other dreams possible.