Thank you. Good afternoon, ladies and gentlemen. It is good to see so many of you here.
I especially want to thank homeowners who have come looking for a solution. I am glad you are here.
I want to thank the Hope Now Alliance members for stepping forward during this housing crisis. We need your leadership and your experience. You have already taken significant steps to help people facing foreclosure. This forum is just one example of the many outreach efforts you have made.
Those efforts are needed. Last month, foreclosures in Southern California were up by 433 percent over the same month last year. Homes sales fell by 38 percent in January for the Los Angeles area. The median home price also fell by 18 percent for Los Angeles last month.
Clearly, there is cause for worry. But we must understand this crisis clearly, and not slip into fear or panic. Recently, the Economist Magazine described the housing problem as "uneven."
That's right. For most homeowners, there is no significant problem. The economy is still functioning well. There is a downturn, no doubt about it. But most people are doing fine, have more income, and their mortgage is secure. For them, the sun is shining.
But some people have a different experience, much different. They are caught in the vortex of powerful, dangerous economic forces. The housing market has become a torrential whirlpool, pulling down hundreds of thousands of homeowners and threatening hundreds of thousands more. You see it pulling down banks, lenders, mortgage companies, and investors. And we know that, nationally, 8.8 million homeowners are "underwater," in other words have a home whose value is less than the mortgage. For these people, they are either drowning or may soon find themselves in the whirlpool's swirling currents.
And we know that the housing crisis has hit our Hispanic/Latino community and the black community harder than the rest of the nation. Most subprime loans, for example, are held by members of our minority communities. And a recent study found that blacks will lose between $72 billion and $93 billion for subprime loans taken out over the last eight years. Latinos will lose between $76 billion and $93 billion. Because a home is still the most important source of wealth for low and middle-class Americans, these loses threaten efforts to increase minority wealth through homeownership.
This is not an easy crisis to address, and there is no silver-bullet. The housing crisis will not be addressed by one single, sweeping action. There is no easy way out of this.
But I know that we can help hundreds of thousands of people keep their homes, and we can calm the waters. Over the last year I have heard one valuable word often repeated. That word is "incentives." I think that is right. The incentives for unaffordable, suicide-loans were too strong to resist. We need to offer different incentives, those that help people in trouble keep their homes, and those who might get into trouble avoid it.
For example, we know that housing counseling works. And I want to thank the housing counselors who are here today. You are so important for the salvation of homeowners in trouble and to prevent foreclosures in the future.
Again and again we hear of people in trouble who didn't consult a housing counselor, and then didn't 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. Some of these people spoke a different language. Some of them didn't understand the homeownership process in this country. Some just didn't bother, and some just didn't think it was important. Whatever the reason, those people missed an opportunity to side-step trouble.
But other people were more fortunate: they went to a housing counselor. About 96 percent of those who saw a HUD-approved housing counselor last year avoided foreclosure. That is powerful evidence about the difference that housing counseling can make. In my view, anyone buying a home should consult a housing counselor. And I strong urge anyone who has limited income, or is considering a subprime loan, or doesn't speak English, or doesn't read well or understand the complex financial process of homeownership to definitely consult a housing counselor. If you have any doubts, see a counselor.
Because this is so important, 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. 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). That's the law that governs the house buying process. 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. Consumers need to walk into settlement with their eyes open before they sign on the dotted line.
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. This is a temporary initiative designed for families who are good credit risks but were steered into option ARM mortgages with interest rate resets that raised their mortgage payment to a level they could no longer afford. This initiative relaxed FHA guidelines to permit lenders to originate an FHA-insured new mortgage for a borrower who is delinquent as a result of an interest rate reset.
FHASecure has made a significant and positive impact on the housing market. 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 since the program was announced last fall.
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 over the entire prior year.
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. 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. If you haven't received a letter, and you want information, please contact FHA immediately.
We could use FHA to help more people if the laws were changed and the program was modernized. A stop-gap effort was included in 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. It is vital that FHA's loans are competitive with other loans. 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.
Ladies and gentlemen, we need FHA modernization as soon as possible...right now! Every day of delay places qualifying homeowners at unnecessary risk. Our estimates indicate that FHA modernization could help as many as 250,000 more families by the end of 2008, many of whom are in California. It is simply beyond my understanding why Congress delays sending this bill, which has passed both houses of Congress, to the President's desk.
And there are some actions we don't need; actions that I believe will only make the crisis worse. Congress wisely defeated a proposal mistakenly named the "Foreclosure Prevention Act," which will do nothing to help homeowners in need, but instead will merely bail 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, 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.
But there are other ideas out there that are dangerous. 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.
Some propose laws 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. 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. The Alliance members comprise more than 90 percent of the mortgage industry. I applaud their initiative. We need them...for Alliance members sitting here, we need you!!!! And I am delighted to work with you and Treasury Secretary Paulson to coordinate efforts to directly help homeowners.
For example, 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. The Alliance members 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 six Hope Now Alliance members to provide a temporary "pause" for homeowners in the foreclosure process. This effort is called "Project Lifeline." This 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 help people keep their homes. And we will do this, if we continue to work together.
Earlier I spoke of incentives. If we can put in place the right set of incentives, we can quickly get the housing market back on track. I believe we are doing that with housing counselors, through FHASecure, through FHA modernization, RESPA reform, and through a new culture of cooperation in the lending industry. This is the best way to smooth the torrent of foreclosure confronting many Americans. This is the way to slow down the housing downturn, to release hundreds of thousands of Americans from the fear of foreclosure, and to end the devastating gravitational pull of the housing crisis. Through our efforts, we can again help more and more people into homes they can afford.