Allard Capitol Conference

FRIDAY, JUNE 13, 2008

Thank you, Senator (Wayne) Allard. Good morning.

Ladies and gentlemen, I want to join the other speakers in welcoming you to Washington. It is an honor to have you here. And I especially want to thank Colorado State University Ft. Collins and CSU-Pueblo for co-sponsoring this seminar. I must thank the educators at Pueblo for giving us Dana Perino. She is a fantastic press secretary and is providing outstanding service to the nation.

I should tell you that I have been on the job five days. I'm still trying to find the coffee maker.

But I wanted to come here to thank Senator Allard for his leadership and support in Congress. He has been a visionary and wise voice in the Senate. His support for my department is much appreciated. And I wish there was some way to talk him out of retirement.

Wayne, there is an old saying: "measure my mind by the shadow it casts." You cast a long, long shadow. Thank you for all of your dedicated work for our country.

Ladies and gentlemen, my department is about housing, helping people find shelter. We work to address the complex issue of homelessness. We help maintain and expand affordable rental housing for low-income Americans. We have a number of efforts to assist people to buy a home they can afford. We also are concerned with cities and their needs. Our programmatic initiatives help to revitalize cities. We have a substantial role in rebuilding cities after a disaster. And we have a central role in addressing the turbulence in the housing market.

The housing crisis is a national, even international, concern. I know you see its effects in Colorado. Foreclosures in Colorado were up 40 percent last year. There were almost 40,000 foreclosures in 2007, one for every 45 households. Home sales are down for the Denver area. Home prices also have fallen.

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. It is about you and your neighborhoods and communities.

But it is not inevitable. There is much we can do...and there is much we are doing. Many people can avoid foreclosure, if they take some important actions.

For example, one simple and common sense answer is to get housing counseling pre-mortgage, before buying a home. We know that housing counseling works. 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. Some people didn't understand because of the complexities of the contracts. Others can't understand because English is a second language, or because they come from cultures where you don't question contracts.

But we can address this problem, and address it powerfully with housing counseling. We know that about 97 percent of those who completed our housing counseling program with a HUD-approved housing counselor avoided foreclosure in 2007. 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. That is an increase of more than 150 percent since he assumed office. Housing counselor help prevent problems. They help the homeowner gain a better perspective about affordability and balanced expectations. Prospective homeowners must have a prudent mortgage, not a "suicide loan."

The Administration is also taking steps to ensure it is easy for homeowners to understand the fine print when they agree on the mortgage and sign on the dotted line. We must make mortgage "language" understandable and clear. Recently, HUD announced new regulations which will 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. These regulations are an important step forward in changing the climate of the home buying process.

And the Federal Housing Administration (FHA) is a powerful answer. It can be a home-saver. On March 5th, the Denver Post ran the story of Lewis and Patricia Gonzales, who faced an unmanageable adjustable rate mortgage of 10.8 percent. Part of the problem was that they were "underwater," with a home that was now valued less than the mortgage. So they couldn't get an acceptable "refi."

Well, one lender helped the couple refinance through FHA, with a mortgage that is now 6.5 percent. They are able to get this rate because FHA provides a U.S. government guarantee for the loan.

Their lender said that he has now made about 100 such loans...home saver loans.

This was a happy ending for the Gonzales Family. And, their story is being told around the country. Their first payment is the same as the last. They have the right home and the right mortgage.

Such an option is helpful in Colorado, where we know that 11 percent of subprime homeowners in Metro Denver have lost their homes through foreclosure. Another 15 percent are in foreclosure or more than 90 days late on their mortgages.

The foreclosure rate is substantially less on loans guaranteed by FHA. The foreclosure rate for FHA in Colorado is about one-fourth of the subprime foreclosure rate. In fact, the loss mitigation efforts - which is a fancy way of saying we work with you to save your home -- within FHA have helped many, many families here in Colorado avoid foreclosure.

Because FHA can be so helpful, in August 2007 the President introduced an effort called FHASecure. It helps many Americans who cannot afford their mortgage after the rate resets refinance into a safer FHA loan. There has been a noticeable increase in the number of closings with FHA. Already more than 230,000 homeowners have been able to refinance with FHA, and we expect another 270,000 to refinance with FHA by the end of the year. In Colorado, we are starting to see some effect.

In addition to helping struggling homeowners, the program has added much-needed liquidity to the real estate market. Since September 2007, FHA has helped pump more than $76.1 billion of mortgage activity into the housing market; more than $30.3 billion of that investment came through FHA refinancing.

Three months ago, in early April, HUD extended the FHASecure product to even more at-risk homeowners. In response to the shifting market conditions, the program is now serving families in default who encountered temporary economic hardship or who were affected by payment shock.

Expanding FHASecure in this way offers lenders a refinancing alternative that makes voluntary write-downs a viable option. Appropriately reducing the principal amount owed on subprime mortgages helps both troubled borrowers and lenders. FHA's loss mitigation efforts have saved more than 300,000 families avoid foreclosure over the last four years. And avoiding foreclosure is less costly for lenders than foreclosure. The Joint Economic Committee has estimated that foreclosure avoidance costs a lender about $3,000, while an actual foreclosure costs a lender almost $78,000.

Another helpful action was passage of the Economic Stimulus Package. The President's stimulus package has temporarily increased FHA's loan limits. For the rest of the year, we can back more mortgages in high-cost states and help homeowners hold on to their houses. The new loan limits were announced in March. For Colorado, the new loan limit varies across the state, but for Denver it is $406,000. We project that the new, temporary loan limits will help approximately 100,000 homeowners nationwide obtain safe FHA-backed loans by the end of this year.

But these loan limits will expire at the end of the year. So we need to determine the right limits to reflect the needs of the marketplace. We must move ahead in modernizing FHA to respond to an ever changing marketplace, and in reforming our GSE's with the kind of oversight demanded by their position in our capital markets and their criticality to American homeowners.

There is also more industry cooperation with government and homeowners. You see this with the Hope Now Alliance. This is a pro-active industry program to help homeowners at risk of foreclosure. The Alliance members comprise more than 90 percent of the mortgage industry.

The outreach efforts by the industry have been very helpful. The Hope Now Alliance hotline has received more than 4,000 a day. Since it started this effort, the industry has assisted more than 1.6 million homeowners, both through loan modifications and formal repayment plans.

All of this adds up. We can help hundreds of thousands of people. But we still need to do more. We know that much of this issue is still in front of us, considering the number of mortgage resets in the coming year and the lost equity in so many peoples' homes.

And while we are all committed to addressing the immediate challenges in the housing market, we must also think of the future. We must provide a longer-term foundation for reform in the institutions that give homeowners access to capital to make the American Dream possible, while also generating enduring confidence in our financial markets.

I believe we can do this.

Thank you again for inviting me.


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