Thank you. And John Hope Bryant, thank you for that introduction. You have done so much to ease the burdens of so many people. I am honored to be here with you. And congratulations on being named Vice-Chairman of the President's Advisory Council on Financial Literacy.
John, someone told me that when you walk in the door, everyone knows that "hope" is on the way.
And Mr. Mayor (Antonio Villaraigosa), thank you for being here. I appreciate your commitment to homeownership and to affordable housing. And I thank you for all you have done to assist the homeless of Los Angeles.
Heather Peters is here representing the Governor. The Governor and I spoke in Washington last week, and I came away from that meeting impressed by his passionate determination to find the means to end the housing crisis in California. I know that he will do everything possible.
Ladies and gentlemen, I also thank you for coming. And it is appropriate that we meet in this sacred place. For here people traditionally gather to discuss problems in the community, to join together to overcome adversity, and to do this mindful of our brotherhood and sisterhood. This is where people help people. And we need that spirit today.
For we have much to discuss. We confront an emergency, a crisis. Los Angeles has been hard hit. We know that foreclosures in Southern California in January were up by 433 percent over the same month last year. I know that some of you have come over from Riverside County…it has been the hardest hit in the state. Homes sales are down by 38 percent in January for the Los Angeles area. The median home price also fell by 18 percent for Los Angeles last month.
You can see those statistics as you drive through neighborhoods in downtown Los Angeles, and in outlying areas, from Manhattan Beach up to Pasadena, from Santa Barbara to San Bernardino. You see the numerous "for sale" signs. You see houses standing empty. You understand all that means, that neighbors and friends have lost their homes, their dreams, and left the community. And then there are those in the process of foreclosure, or those who are fearful of possible foreclosure, or those who have lost equity in their homes, or those who are "under water" because their home is no longer as valuable as their mortgage. This is a crisis that is often measured by facts and figures, but we need to be mindful that this is about people, our friends and neighbors.
Yes, it all seems bleak and impossible. But there is much we can do...and much we are doing. We can save hundreds of thousands of people from foreclosure. Each person we save is a victory if we are responsible and compassionate.
I am mindful of some advice once given by one of your former governors, Ronald Reagan. He said that, in a time of emergency, "Let us go to our strength."
And I do that today, I turn to our strength in this housing crisis: each one of you.
You see, we know that this crisis will not be addressed by one single, sweeping action. There is no easy way out of this. But there is hope if we can provide the right incentives and help people make better decisions about mortgages. There is hope because we are doing more to help homeowners find more affordable, safer mortgages. There is hope because of a more cooperative culture between lender and homeowner. Added together, these and other solutions will work if we are wise, focused, and determined.
For example, we know that housing counseling works. And Operation HOPE is an example of the success HUD-approved counseling can have on a community. Their mortgage crisis hotline is receiving thousands of calls.
People need help to understand their mortgages and the terms of the contract. As many as half of the people in foreclosure did not read or understand their contracts. They just signed on the dotted line. But about 96 percent of those who saw a HUD-approved housing counselor in 2007 avoided foreclosure. That is powerful evidence about the difference that housing counseling can make.
So the President has requested $65 million in his new budget for housing counseling. Housing counselors could have helped the homeowner gain a better perspective about affordability and balanced expectations. Families must buy homes they can afford. They must understand the contracts – have an especially clear idea of the features of financing and the ramifications of resets, and the terms and the timelines. Prospective homeowners must have a prudent mortgage, not a "suicide loan." We must remove the mystery, confusion, and vagueness from the process. There must be full disclosure, understandable information, and a transparent process.
The Administration is also taking steps to ensure it is easy for homeowners to understand the fine print when they do sign on the dotted line. We must make mortgages understandable and clear. That's why we are committed to reform of the Real Estate Settlement Procedures Act (RESPA). We hope to publish a new RESPA rule in the coming days. Our goal is to bring much needed transparency and simplicity to the home-buying process for the 12.5 million Americans who buy or refinance a home every year.
We also need to maintain current homeownership and stimulate new purchases. In August 2007, the President and I introduced an effort, FHASecure, to help more Americans facing foreclosure refinance into a safer, more secure Federal Housing Administration (FHA) loan. We did this using current regulatory authority. There has been a noticeable increase in the number of closings with FHA. Already more than 100,000 homeowners have been able to refinance with FHA. Here in California, we are starting to see some effect. For example, in the last three months, we have doubled the number of California households who are in FHA-backed loans. By year's end, we expect FHA will be able to help more than 300,000 families refinance into affordable FHA-insured mortgages, many of whom are in California.
We can also do more to keep people informed. That's why FHA has mailed letters to hundreds of thousands of at-risk homeowners to urge them to refinance with safer, more affordable FHA-backed mortgages. More than 54,000 have been mailed to homeowners in California. These letters are being sent to homeowners who already have or soon will confront the first reset of their adjustable rate mortgage, and are currently living in locations subject to FHA loan limits. We will be sending these letters out to about 850,000 at-risk homeowners.
We must also modernize FHA to meet the needs of the 21st Century. Of course, homeowners will benefit from the economic stimulus package President Bush just signed into law. It temporarily raises the loan limits for FHA. For Los Angeles County and Orange County the loan limit will be $729,750, which is well over the median price for a home. The new loan limit will allow for greater economic stability for our communities. It will provide much-needed liquidity for our housing markets. It will help FHA fill a void left by contracting mortgage credit opportunities. It will make FHA available to more people, perhaps as many as 30,000 Californians and as many as 250,000 homeowners nationwide.
But in January 2009 the loan limits will return to their previous setting. That is why we need to raise the loan limits permanently to an acceptable level. It is vital that FHA's loans are competitive with other loans. We need to be able to make loans available that can compete with the price of homes in states like California or New York. We also need to make the minimum down payment more flexible and create a fairer insurance premium structure. This will allow more families to use FHA.
But there are some actions we don't need; actions that I believe will only make the crisis worse. Congress has rejected the so-called "Foreclosure Prevention Act," which would have done nothing to help homeowners in need, but instead would have merely bailed out banks and speculators. However well intentioned, if we reward financial institutions for poor judgment, we send the wrong signals, set in place the wrong incentives, or give money to those who may not direct it back into housing, but use it to replace lost profits. Rather, we need to concentrate on saving homeowners, especially by putting them into loans they can afford and by giving them the stability and protect of institutions like FHA. That is the most direct, helpful way to stem the tide of foreclosures.
There are other bad ideas out there. We don't need to create new federal programs to redevelop abandoned and foreclosed homes. I don't think using public money to rehabilitate empty homes for resale is smart right now…there is a glut of homes and such a move will not help consumers or the housing market or new housing starts. And, you know such a plan would be extremely costly. It would not stimulate the economy. It might even prolong the time it would take for the housing market to recover.
I think we should also discourage attempts to re-write bankruptcy law and tax the administrative capacity of the Neighborhood Reinvestment Corporation. That's not what we need now. Rewriting bankruptcy laws seems an odd, time-consuming, distant way to help homeowners. It will only increase interest rates. And the litigation involved with such a move will negate any benefit, expect maybe to lawyers and their firms.
What we do need is industry cooperation with government and homeowners. That is happening with the Hope Now Alliance. This is a pro-active industry program to help homeowners at risk of foreclosure. The Alliancemembers comprise more than 90 percent of the mortgage industry. So these are some important lenders.
That is why it is helpful that the Alliance has implemented a plan that could help up to 1.2 million homeowners avoid foreclosure over the next two years. They are providing systematic relief that includes modifying or refinancing existing loans, moving borrowers into FHASecure loans, and implementing a five-year freeze on interest rate resets for subprime loans. And that is good news, indeed. The outreach efforts by the industry have been very helpful. The hotline has received more than 4,000 a day. The last round of letters sent to homeowners in trouble reached a 26 percent response rate. Through the second half of 2007, industry assisted more than 869,000 homeowners, both through loan modifications and formal repayment plans.
I also applaud a recent effort by all servers involved in the Hope Now Alliance initiative to provide a temporary "pause" for homeowners in the foreclosure process. This effort is called "Project Lifeline." It will allow each qualifying homeowner a chance to investigate other options, including refinancing with the lender or to refinance with FHA. This is a very responsible, sensible action for all involved.
Ladies and gentlemen, we must avoid foreclosure. And we can do this. If we can make housing counseling a standard part of home buying, then we can eliminate much of the risk of later foreclosure. If we can make FHA more competitive, then we will open it up to millions of future homeowners, and think of what that will mean in terms of the stability of the housing market and affordability of loans. If we can maintain industry cooperation, both within the industry and with homeowners, we can change the culture of lending. We must help people keep their homes.