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National Press Club Luncheon
"America's Homeownership Challenge:
Empowering Families, Strengthening Communities"

Remarks as prepared for delivery by
Secretary Mel Martinez

Washington, DC
Wednesday, June 26, 2002

Thank you, Tammy, for your very kind introduction. It is wonderful to be welcomed here by a representative from my hometown newspaper. I guess I should say "the award-winning representative from my hometown newspaper," now that you have been honored by the Society of Professional Journalists for your work here in Washington.

Congratulations, Tammy.

Thank you to the National Press Club for inviting me to address this great and historic institution.

And welcome to all of you representing the housing industry - from builders, to bankers, to buyers. I see many familiar faces, and many friends who work each day to create affordable housing opportunities for all Americans. Whether you are in the private sector, with a not-for-profit, a volunteer, or part of a faith-based effort, each of you plays a critical role in the success of the U.S. housing system. Thank you all.

I also want to acknowledge Vernetta Young. At the beginning of June, Vernetta became a new homeowner here in Washington through the help of Habitat for Humanity. We kicked off National Homeownership Month by dedicating Vernetta's house, and I will never forget the smile on her face when I handed her the key to the front door.

A success story like the one Vernetta has to tell is the reason we get up and come to work each day at HUD.

We have just completed the most exciting week in my time at HUD, and maybe the most exciting week in the Department's history. President Bush used the week to spotlight a top Administration priority, and a daily focus of our work at HUD: helping families realize the American Dream of homeownership.

HUD recently released a report outlining the barriers that prevent minorities from becoming homeowners. The report found that while nearly three quarters of non-Hispanic white Americans are homeowners, less than half of African Americans and Hispanic Americans own their own homes.

Some of the barriers causing this "homeownership gap" are economic. Others are rooted in discrimination or a lack of information about the homebuying process. These barriers are locking too many minority Americans - and particularly African-Americans and Hispanics - out of homeownership.

Last week, I accompanied President Bush to Atlanta, where he announced "America's Homeownership Challenge." This is a bold and unprecedented public/private commitment to knock down these barriers to homeownership and help more families own a home of their own.

The President is challenging government, the private sector, and not-for-profits to come together as partners and help achieve the goal of 5.5 million new minority homeowners by the year 2010.

The President's response to meeting this challenge has two parts: a new commitment by the private sector to boost homeownership, and a series of concrete steps the federal government will take to make homeownership an affordable option for more families.

It is impossible to overstate the importance of the role of the private sector in increasing the number of homeowners. The federal government can promote and encourage change, but it falls to the private sector to carry it out.

Therefore, President Bush is calling on the real estate, mortgage finance, and homebuilding industries to dramatically increase their efforts to reduce the barriers to homeownership. He has asked Fannie Mae and Freddie Mac to increase their commitment to financing mortgages for minorities by more than $440 billion - and they have agreed. He is asking homebuilders to focus on bringing more homeownership opportunities into urban centers. He is actively seeking the participation of faith-based groups to work with us to increase minority homeownership.

Through these partnerships, we can dramatically increase our effectiveness and our ability to tailor local solutions to local problems. America's communities have a variety of needs, and no two communities are alike. To tackle the homeownership gap by relying only on government programs or a "one-size-fits-all" approach will not generate the results we hope to inspire.

Homebuilders, lenders, local officials, faith-based organizations, and community leaders will work with us - and with one another - to build the ranks of homeowners. This national focus will help create new affordable housing where supply is inadequate. It will increase innovation in mortgage products and ensure better outreach into minority communities. And it will give more attention to financial education.

The other component of the Homeownership Challenge is the response of the federal government. The specific homeownership proposals the President outlined last week are built on the idea that government serves best when government helps individuals help themselves.

The single greatest barrier to first-time homebuyers is a high down payment. In response, we are urging Congress to fully fund the American Dream Downpayment Fund. The Fund will help 200,000 low-income families lift themselves into homeownership over the next four years.

The lack of information about homeownership opportunities is another barrier that prevents many potential buyers from owning a home. This is especially true for immigrant families, who are often unfamiliar with America's homebuying process and the opportunity for long-term financing.

Education is key; studies show that consumers who understand the homebuying process are more likely to buy a home they are happy with and less likely to be taken in by predatory lenders. So we are significantly boosting the budget for housing education.

After the President's announcement, I visited the City of Tucson and toured a new development where 65 families who thought they might never own a home of their own, will soon become homeowners. Chicanos por la Causa is a HUD-certified housing counseling center in Tucson. The work of Chicanos por la Causa to educate families about homeownership and credit is playing an important role in helping make the American Dream a reality.

Many families find it extremely difficult to cross the bridge from subsidized housing into homeownership.

Last year, we began allowing Section 8 voucher holders to use their vouchers toward home mortgage payments. I joined folks in Chicago a week ago to help kickoff the Section 8 homeownership program in their city. I met Crystal Mack, a single mother raising five daughters. Four years ago, Crystal was unemployed and receiving public assistance. Thanks in part to this innovative program, she will soon be closing on her first house.

President Bush wants to expand the program's reach by letting families put up to a year's worth of their rental vouchers toward a home down payment.

It is hard to create more homeownership in a community where affordable homes are simply not available for sale. To encourage the development of 200,000 affordable homes in neighborhoods where housing is scarce, the President has proposed a Single-Family Affordable Housing Tax Credit. Over five years, this amounts to $2.4 billion in tax credits.

The final barrier is the confusing and costly homebuying process itself. We are addressing this as well, and I will have more to say about this later.

America's Homeownership Challenge reflects the belief of this Administration that homeownership is a tool that families can use to improve their quality of life - to lift themselves toward prosperity and peace of mind. We encourage families to pursue homeownership because its benefits are so profound.

As I visit cities around the country, mayors tell me about the transforming power of homeownership on both families and communities. Homeownership promotes strong neighborhoods by creating community stakeholders who coach the ball team, work in their schools, and join neighborhood crime prevention groups. Homeownership brings stability that helps to reduce crime and keep kids in school.

The day after we visited Atlanta, the President made a historic visit to HUD to highlight his commitment to expanding the number of homeowners, and put a greater focus on the work that we do at HUD. During his HUD visit, he said, "I'm here to celebrate National Homeownership Month because I believe owning a home is an essential part of economic security."

The value of our homes amounts to more than 20 percent of the wealth of American families. Homeownership is the biggest force for economic security and economic equality. And a house is a tangible asset that builds wealth and helps a family to grow financially. The financial security created by rising home values and increased homeowner equity can help a family start a small business.

By helping people create wealth, we empower them to help themselves and take control of their own lives.

Then there is economic security for cities and for the nation as a whole. As HUD reported this morning, sales of new single-family homes climbed 8.1 percent last month to reach a new monthly record. With housing construction starts holding steady during the recession, and now increasing by over 10 percent last month, the housing market is the source of plenty of economic good news.

A recent study showed that housing is the fuel that keeps the nation's economic engine going. Housing's contribution to the growth of the economy in 2001 was 40 percent, nearly twice its normal share. Housing - along with a well-timed tax cut - led the country out of recession.

A healthy economy depends on a vigorous, growing housing sector. When a family purchases a house, many parts of the local economy benefit - homebuilding, home improvement and remodeling, home furnishings, and those who are in the business of home financing.

Every segment of society will benefit from the President's challenge to increase homeownership. This is why it will remain a top priority of this Administration.

The report recently released by the Millennial Housing Commission represents a major review of housing programs and will certainly be the focus of much debate in the coming months. I am glad that the Commission supports the President's single-family tax credit proposal and work requirements for recipients of federal housing assistance, as well as my call to end chronic homelessness in ten years.

In addition to these specific proposals that the Administration supports, we are glad to see the Commission express support for finding creative ways to address the backlog of modernization needs in public housing.

Guiding families into homeownership is a major responsibility, but it is not HUD's only challenge. As you can imagine, our department has an enormous reach.

The HUD budget we have proposed for the coming fiscal year is $31.5 billion, an increase of 7 percent over this year. During a time of war and unprecedented homeland security needs, this kind of budget increase - the largest for a domestic department - shows the President's commitment to our issues.

Homeownership is not for everyone, so we remain committed to the families in this country who rent. We continue to provide renters with affordable, safe, and decent housing opportunities.

Three-quarters of the HUD budget - or about $23 billion next year - is dedicated to supporting the rental costs of low-income individuals and families. HUD has three major assistance programs that collectively help more than four million rental households: public housing and our two Section 8 programs. Communities can also apply for HUD grants to address a lack of affordable rental housing.

Although not technically a HUD program, the Low-Income Housing Tax Credit is one of the major initiatives through which the federal government encourages affordable rental housing construction. The tax credit supports more than 100,000 housing units annually.

HUD also helps find homes for those with special needs, or individuals facing difficult circumstances. Much of this work is done through the network of grassroots social service providers we have drawn together.

Last year, I issued a challenge to end chronic homelessness within the next ten years. I truly believe this is something we can accomplish. With America's economic power and the inherent goodness of our people, chronic homelessness is a problem we can conquer. President Bush shares this vision, and to this end he has reactivated the Interagency Council on the Homeless and doubled its funding for the coming year. The Council's job is to better coordinate the work of the many federal departments that fund homeless services.

Philip Mangano is one of the nation's most committed advocates for homeless individuals. We are lucky to have him heading up the Council. Philip came to us from the Massachusetts Housing and Shelter Alliance.

In other work, our regulatory responsibilities include oversight of the two government-sponsored enterprises, Fannie Mae and Freddie Mac, and ensuring they achieve the housing goals set by HUD.

We protect consumers by aggressively pursuing unscrupulous lenders whose abusive practices violate the law and undermine the stability of families and communities.

Through our vigorous enforcement of the nation's fair housing laws, we help to preserve the right of every citizen to live in the neighborhood of their choice. And we ensure that disabled individuals have access to housing. Just last April, HUD and the National Association of Home Builders signed an agreement pledging to work together to educate the building industry about their responsibilities under the fair housing code.

Then there is the "Urban Development" portion of our mandate, which involves stimulating economic development and job growth at the local level. We do this in communities across the country, but we have focused a great deal of attention since September 11th on helping New York City rebuild and recover.

I recently presented Governor Pataki and Mayor Bloomberg with the first installment of a $2 billion grant - the largest single grant in HUD's history. That followed a $700 million grant HUD awarded to New York in February.

We also encourage economic development and promote affordable housing through HUD's Community Renewal Initiative. The 41 Renewal Communities and eight new Empowerment Zones created by the Bush Administration have access to a very important tool - $22 billion in tax relief they can put to work creating jobs, growing businesses, promoting renewal, and building houses.

HUD's Community Development Block Grants and our HOME program are key components of federal investment in America's cities. These programs work because HUD allocates the grants to local governments and organizations, who then determine the best way to spend them.

Under my leadership, HUD is focused on delivering the best possible services to those in need, and empowering Americans to take control of their own destinies.

Of course, our efforts to empower families to achieve the American Dream are meaningless if families cannot navigate their way through the homebuying process.

And so I want to return to the subject of homeownership to describe a fundamental step in the Administration's plan. Today, we are taking the most meaningful and comprehensive step in years to clarify a settlement process that is cloaked in confusion and uncertainty.

Every day, Americans enter into mortgage loans - the largest investment most families will ever make - without the clear and useful information they receive with most any other major purchase. This is a problem with the process itself, not with any one segment of the housing industry. Indeed, existing federal regulations contribute to the confusion.

After agreeing to the price of a house, too many families sit down at the settlement table and discover unexpected fees that can add hundreds, if not thousands, of dollars to the cost of their loan. And at that point, they have no other options.

On the spot, the borrower is forced to make an impossible choice: either hand over the extra cash and sign, or lose either the house or the funds needed to refinance.

Americans spend approximately $50 billion each year on settlement costs. I would guess that most of them did not know how much their mortgage loan would cost them until the eleventh hour, and had little or no opportunity to shop for settlement services. As a result, many homebuyers find the settlement process to be filled with mystery and frustration.

It is time to take the uncertainty out of the mortgage finance process. This Administration is going to streamline the process and make loan shopping and settlement simpler, so the consumer can shop for mortgage costs and better understand what will take place at the closing table.

Would-be homeowners - and for that matter, existing homeowners looking to refinance - need to be armed with the facts. To ensure that they are, I am unveiling a set of principles to guide the home settlement process called the Homebuyer Bill of Rights. This is the centerpiece of our efforts to empower consumers through access to mortgage finance information.

Let me explain why we need a Homebuyer Bill of Rights, and why today's announcement is such an important step forward for consumers. So let me tell you about the Real Estate Settlement Procedures Act - or RESPA.

Congress enacted RESPA in 1974 in response to complaints about abuses within the mortgage lending industry. The law forced greater disclosure of the nature and costs of real estate settlement services. It also set out to eliminate abusive settlement services like the payment of kickbacks and unearned fees.

The RESPA law passed in 1974 was very appropriate for 1974. But the lending industry has changed dramatically in the past 28 years. The housing industry has changed dramatically, too. And yet, the RESPA regulations have not changed to keep up with the times. The disclosure requirements under RESPA have not been substantially revised in decades.

After I came to HUD, it was apparent to me that I had to take on RESPA reform. People told me it was too difficult and too controversial, and my efforts would probably not succeed. But I felt it was just too important to ignore.

Too many Americans seeking to buy a home are still not as well informed as they need to be. The process of financing or refinancing a home is too complicated, too costly, and too much of a mystery for many borrowers. Reforming RESPA is the right thing to do.

The Administration's Homebuyer Bill of Rights is the set of principles that from now on will guide the settlement process in this country. These principles are consumer driven and rooted in the homebuyer's right to know.

  • Homebuyers have the right to receive settlement cost information early in the process, allowing them to shop for the mortgage product and settlement services that best meet their needs;
  • Homebuyers have the right to have the disclosed costs be as firm as possible, to avoid surprises at settlement;
  • Homebuyers have the right to benefit from new products, competition, and technological innovations that could lower settlement costs;
  • Homebuyers have the right to simplified disclosure and access to better borrower education;
  • Homebuyers have the right to know they are protected through vigorous RESPA enforcement and a level playing field for all industry providers.

Those are the guiding principles. To put them into practice, I am undertaking major reform of RESPA through rulemaking to simplify and clarify the homebuying process.

HUD's new proposed rule would reform the settlement process by:

  • Fundamentally changing the way lender payments to mortgage brokers - the yield spread premiums - are recorded and reported to consumers;
  • Significantly improving HUD's Good Faith Estimate settlement cost disclosure, to make it firmer and more useful, so consumers can use it to shop for better deals;
  • And removing regulatory barriers, to provide more choices for consumers shopping for their mortgages.

We will complement this renewed commitment to consumer protection through legislation we are developing that will simplify and improve RESPA even further, offer consumers even better protections, and encourage more innovation in the industry.

I have committed HUD to a broad consumer education and empowerment campaign to accompany the new rule.

In addition, we will be conducting hearings around the country with stakeholders to review settlement practices. I will be soliciting recommendations on how to lower settlement costs and reduce the amount of paperwork at closing. We will also work with state Attorneys General to ensure enforcement.

Finally, I have directed new resources to be spent enforcing RESPA, looking for violations and tracking settlement costs to make certain consumers are benefiting from RESPA reforms.

A very important reason for reforming RESPA is to inject competition into the mortgage lending process and among settlement services. When consumers are empowered to shop for the best loan to meet their needs, the market will respond to the competition by lowering closing costs. When closing costs are reduced, home loans will become less expensive and more families will become homeowners.

Reforming RESPA is an integral part of this Administration's agenda to expand homeownership opportunities.

I was asked yesterday who I thought the winners and losers would be as we move forward in reforming RESPA. Clearly, those who dream of buying their first home have the most to gain. And I think the predatory lenders who turn dreams into nightmares are the biggest losers.

I was in Charlotte, North Carolina earlier this week, holding a town hall meeting to talk about the President's homeownership initiatives. A 16-year-old girl named Analaura told me a heartbreaking story.

Analaura's family had moved from Mexico to Charlotte 12 years ago. Her father found work doing lawn care. Her mother worked in a factory. Her parents saved everything they could for the down payment. This was supposed to be their American Dream.

She told me her parents signed the loan papers, but did not realize that the actual terms of the loan were not the terms they thought they had agreed upon. They ended up with an $118,000 mortgage on an $82,000 house, an interest rate of 12 percent, and a monthly payment of nearly $1,100.

These are the kinds of practices I am determined to end in order to help America's most vulnerable.

The Homebuyer Bill of Rights and our proposed rule represent significant progress in the long-overdue challenge of making homebuying more consumer friendly. I look forward to working with consumers, the Congress, and the industry as our proposals move forward.

I am committed to creating a homebuying and mortgage finance process grounded in transparency and simplicity. By reforming the rules governing the purchase and financing of a home, we will create new opportunities for first-time homebuyers, keep the American dream of homeownership alive for more families, and inspire greater public confidence in the mortgage lending industry.

This new focus on improving the process of buying and financing a home shows this Administration's commitment to lifting the ranks of American homeowners to even greater heights. I believe government can empower more citizens to become owners. In fact, this is how I believe government can best serve - by empowering people to take charge of their own lives and discover for themselves the promise of America.

Thank you.

Content Archived: March 16, 2010

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