National Association of Counties Annual Conference

MONDAY, JULY 14, 2008

Thank you, President (Eric) Coleman. Congratulations to your incoming President, Don Stapley. Good afternoon, ladies and gentlemen.

It's terrific to be here with you today. The issues we look at on a national level, you all live with every day, in the communities you serve. Your focus on "restoring the partnership" provides an important guiding principle to all of us in public service. We each have to understand that we generally offer only part of a solution, but in partnership, with the right people we may be able to deliver the full package. In the case of HUD, most of our programs are delivered by local partners; state and local governments, not-for-profits, housing authorities and lenders. We are all ultimately serving the same person. If we aren't effective as partners, we are diminished in our ability to assist the people we are all here to serve. I am thankful to have been able to spend time with Larry Naake and NACo representatives because your perspective is very important for all of us to understand.

And because the mortgage crisis has such an impact on our communities, it is poignant that today, as we are meeting together we are kicking off a further expansion of the Federal Housing Administration's (FHA) foreclosure prevention efforts, which I will detail a bit later. At the end, I will also briefly discuss actions taken to support Fannie Mae and Freddie Mac.

We hear a lot in the news every day about how difficult the mortgage and housing markets are:

  • Experts estimate as many as 2.5 million filings for foreclosures this year, on top of 1.5 million in 2007. That compares with about 650,000 filings in a typical year.
  • Depending on the source, average nationwide housing prices are down between 4 and 17 percent from their peak.
  • Lenders have pulled back markedly from originating new loans. The Mortgage Bankers Association estimates show recent quarter mortgage originations at their lowest levels since 2000-2001.

We see the results in communities all over the nation:

  • Families and communities disrupted;
  • Lower revenues for cities and counties; and
  • Maintenance problems with vacant homes

It has created anxiety in the financial markets and that anxiety has turned to a precarious loss of confidence in some of our most essential institutions.

These factors are compounded by the fact that the wave of payment resets on subprime ARMs will continue into the next 12-18 months. Approximately one-quarter of these loans are seriously delinquent or in foreclosure. We need to be prepared to address this issue as it continues to come at us. As a result, of all of these factors I would like to discuss HUD's efforts; to do two things:

  • To help families stay in their home who could afford to if they only had the right mortgage; and
  • To provide liquidity and better support for new home buyers who we need to buy down the unsold inventory of homes.

With that said, let me start by talking about helping people stay in their homes. This effort not only benefits families but reduces additional flow of homes into the market and further investor losses.

Many people are trapped in a bad situation and just don't know the way out:

  • They don't know how to budget;
  • Their mortgage payment has increased and they can no longer afford it; and
  • They don't understand or have the tools to evaluate their options.

One area where we have seen dramatic results is housing counseling. There are 2,300 HUD-approved housing counselors in the United States. Many programs help people manage their finances, find the right mortgage or refinance an existing mortgage. We know that approximately 97 percent of those in default in 2007 who completed our housing counseling program with a HUD-approved housing counselor avoided foreclosure in 2007. That is why 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.

The Federal Housing Administration is also helping people stay in their homes by helping more people refinance out of loans they can't afford. FHA offers mortgage insurance, generally on 30 year, fixed-rate mortgages where the first payment is the same as the last. Our refinancing volume has increased five fold in two years, as we have increasingly become the path to a safer, more stable future.

This is, in part, due to measures taken to open FHA's door to more families. In late August 2007, President Bush introduced a new product called FHASecure for homeowners who were unable to make their mortgage payments after their interest rate reset. Since that time, FHA has refinanced 265,000 families.

Because the need has continued to grow, we're taking a bigger step. Starting today, FHASecure will begin to provide additional assistance to subprime borrowers with adjustable rate mortgages. FHA insurance will be available to people who have missed up to three monthly mortgage payments over the previous 12 months or have experienced temporary economic hardship, such as loss of overtime or medical needs, as well as those who were affected by payment shock. The expansion will also encourage lenders to voluntarily modify loans to make them more affordable to the borrowers.

We estimate this plan will help an additional 100,000 families refinance into more affordable FHA-insured loans by the end of the year. By the end of the year, we estimate 500,000 families will have refinanced with FHA since September 2007.

FHA has also added much-needed liquidity to the real estate market for new home buyers. Since September 2007, FHA has insured more than $93 billion, most of which is for new homes.

Since 2006, FHA has grown from less than 2 percent of the market share to about 10 percent now, and that percentage will increase by year's end. In Missouri and Kansas, FHA applications increased 195 percent and 145 percent respectively in the first quarter of this calendar year, compared to the same time last year. Our presence is critically important in a market longing for more home buyers.

As part of our expanded presence, we are instituting a fairer, more flexible premium pricing structure at FHA. FHA will price its insurance premiums for borrowers according to credit risk. This change is essential for FHA to be able to expand its support, maintain fair prices for its traditional customers, and protect the American taxpayer.

Some people have argued that risk-based pricing will harm lower income borrowers. The facts show quite the opposite. Risk-based premium pricing will actually benefit lower-income American families. An analysis of our borrowers shows that FHA families with lower incomes actually have higher credit scores. These are hard-working American families who live within their means and pay their bills on time. They should pay premiums that reflect that financial responsibility.

But, here's the problem. Despite the critical need for FHA to expand its support for homeowners in distress, legislation passed by the Senate on Friday would tie our hands from helping the very people who might be on the verge of losing their homes. The Senate bill imposes a moratorium on FHA's risk-based pricing structure. At the very time that FHA is providing mortgage relief to hundreds of thousands of homeowners in distress, and serving as an important source of financing for new home buyers, Congress would severely limit our reach to struggling homeowners.

If Congress imposes a moratorium on FHA's risk-based premium structure, FHA would have to seek some combination of:

  • Restricting access to its services;
  • Increasing pricing on all borrowers; and
  • Seeking funds from Congress.

There is an even greater irony here. The Senate bill would have us spend almost $1 billion to address the riskiest loans and set up a mechanism for banks to dump their worst loans on FHA, and possibly the taxpayers. The Congressional Budget Office estimates that about one in three loans backed by the proposed legislative initiatives will fail.

I am hopeful that reason will prevail and Congress will do the right thing for struggling homeowners and American taxpayers.

There are a couple of other steps we have taken to expand FHA's mission.

Last month, we announced a temporary policy that will allow FHA mortgage insurance to be used for the immediate sale of vacant foreclosed properties. Previously, an anti-flipping provision required a 90-day ownership period.

For one year, this action will allow homebuyers to purchase these homes quicker and in much greater numbers, and thus ease the excess supply of unsold homes in neighborhoods across the country.

Finally, as we look forward, we must make the mortgage process itself more understandable, more uniform, and more transparent. People need to be able to read and understand their loans. Buyer confusion and lack of understanding has contributed to the mortgage problem. HUD is working to reform the Real Estate Settlement Procedures Act (RESPA) to ensure borrowers have a clearer understanding of all settlement services, fees, and charges, and how that translates into the bill they will be paying each month.

Let me address what is happening with Fannie Mae and Freddie Mac. The Treasury Department and Federal Reserve are taking important steps to support Fannie Mae and Freddie Mac through one of the most difficult moments in their histories. Fannie, Freddie and the Federal Home Loan Banks support 80-90 percent of new mortgages in our country and have $6 trillion in securities trading in our capital markets. The Senate bill establishes a stronger regulator for these institutions.

The announcements yesterday would go a step further in providing a bedrock of confidence in Fannie and Freddie by ensuring that they have access to certain liquidity, that they have access to certain capital from the U.S. Treasury, and that the regulatory oversight they ultimately receive will include a very strong voice from the Fed, which acknowledges the strong systemic role these institutions play in the financial markets. Our markets today trade on confidence or doubt. These actions take doubt off the table and establish a stronger foundation for the future.

It is true that we have a big challenge ahead. But we are actively addressing many of the issues by:

  • Helping families keep their homes if they could afford to do so with the right mortgage;
  • Supporting the mortgage market to finance new home buyers; and
  • Putting in place a stronger foundation for the future.

In closing, let me say that much of what we are doing supports important efforts on a local level - - with local governments, not-for-profits, and businesses. We are seeing creative contributions being offered by counties that are working hard to address blight and fix up vacant homes.

There are substantial efforts to do just that in Fairfax County, Virginia where I live. I was just in Michigan last week, and was impressed by the fact that several vacancies in Detroit have been turned into urban farms, putting the land to good use. I know those efforts are mirrored in so many of your initiatives across the country.

Our programs at HUD and throughout the federal government will not be successful without the help and support of our nation's county officials and governments. You are vital to our success.

Again, thank you for all you do. I look forward to working with you.


Content Archived: January 27, 2012