16th Housing Congress Association of Bankers of Puerto Rico


Thank you, Arturo Carri�n (Executive Vice President, Association of Bankers of Puerto Rico). Good afternoon. I am pleased to join you. Thank you for inviting me again this year.

I started my professional career as a Spanish instructor, so, with your permission, I will give a portion of this speech in Spanish, a language of refined culture and great humanity, of great literature and poetry, of passion and joy, a language I deeply love.

One of my favorite authors is Cervantes. And I believe the greatest novel is Don Quixote, a story that covers almost every subject of our common humanity. It is a model for all subsequent literature.

In Don Quixote there is an episode where the good knight rides into a village, raises his visor, and gives a speech to the assembled leaders. The speech is about struggle and honor and morality. He says that there are some things so important that they are worth fighting for, the things that make life worth living, worth every tenacious struggle. He tells them about God, duty, honor. And then, coupled together, he mentions "family and estate."

I would agree with him. Family and home. They do belong together. And a home is worth struggle and sacrifice. Our families and our homes belong together. They are life's reward for hard work and successful efforts. Our homes are where our families grow together, and even grow old together. In fact, for many people the home is more than a residence; in Spanish-speaking cultures the home is a faithful part of the family structure and family future. You see this coupling of family and home in Gabriel Garcia Marquez, Octavio Paz, and Carlos Fuentes, as well as in younger writers like Javier Marias and Arturo Perez-Reverte, and even among the new voices of literature, like the wonderful Puerto Rican and American writer Esmeralda Santiago.

Well, after Don Quixote finished, the villagers threw rocks at him, forcing him to retreat. They felt he was just trying to stir up trouble with all his talk.

I think there are some people who feel that way now about housing. There are some who now see the American Dream of homeownership as "quixotic," a new version of tilting at windmills, merely a fantasy beyond the means of many people. I know there are some who think the concept of a "homeownership society" is dead. They are wrong. Homeownership is part of the American Dream. Yes, some of the enormous gains of the first half of the decade may have been lost. But the answer is to find a way for people to find the right house and the right mortgage, not to abandon the idea of homeownership itself.

Housing is an important topic at any moment in history. But it surely is a challenging topic right now. It is estimated that the United States may face as many as 2 million foreclosures in the next year, and we know that hundreds of thousands of people have already lost their homes. We also know that the value of homes is dropping and there may be as many as ten million Americans "underwater" as the value of their home becomes less than their mortgage.

And many people blame the government, bankers, lenders, and investors for trying to help people own homes. They say that there are some people who simply shouldn't have a home, that we should stop trying to help low-income or minority Americans find a home. It is almost like they are picking up the stones, ready to throw them at anyone who wants to extend the American Dream.

I have a different view. Homeownership efforts over the last decade have been the right vision, especially because so many of those who obtained homes were from our minority communities, especially the Hispanic/Latino/Spanish heritage community. I do think we need to continue to help people obtain homes. But mistakes were made and we must learn from them. We must do a much better job to provide transparency, prudent decision-making, and credit responsibility. We must make sure that borrowers have more financial attachment to the mortgage, that they have "more skin in the game." We must help people into the right, affordable mortgage. There needs to be more responsibility and wisdom in the mortgage process. And we need to make sure that mortgages are clear, understandable, and reasonable. Any practice that make the mortgage vague or has even the scent of predatory lending must be corrected immediately.

We can do that, and it will help smooth out the harshness of the current housing cycle.

But there is more that we can do. That's why I've come here today. Together, we can transform the housing market. And through this transformation we can strengthen the American economy and help individual families keep their homes.

One thing we can do together is continue the process started with HOPE NOW, a voluntary industry effort that involves housing counselors and 27 of the nation's biggest mortgage companies, companies that hold about 90 percent of the subprime loans.

Last week HOPE NOW announced its figures for June 2008 and for the second quarter of 2008. In June alone, more than 181,000 mortgages were reworked to avoid foreclosure. In the second quarter, the number of loans worked out exceeded 522,000. In fact, since June 2007, HOPE NOW has reworked more than 1.9 million loans. There all mortgages that would have gone into foreclosure. I think it is very important that the industry engage in such efforts, and I hope to see even more voluntary action in the months to come.

There has been a second positive change: more reliance on housing counselors. I can't overestimate its importance, especially in urban settings and rural areas where it has proven to be very effective. There are 2300 HUD-approved housing counselors in the United States. Many programs, like "Operation Hope" or "Catholic Charities" help people find the right mortgage or refinance an existing mortgage. We know that approximately 97 percent of those in default who completed a housing counseling program with a HUD-approved housing counselor avoided foreclosure nationwide in 2007. That is powerful evidence about the difference that housing counseling can make. And 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. Housing counselors help avoid problems and help people with problems find affordable solutions.

A third positive change has been more market involvement by the Federal Housing Administration (FHA). Currently, FHA has 4.8 million insured single-family mortgages and 13,000 insured multifamily projects in its portfolio. Since 1934, FHA has worked with more than 35 million families. Its share of the market is growing very fast, from 1.8 percent in 2006 to now about 10 percent at this moment. In the first quarter of calendar year 2008, compared to the same period last year, there has been an increase in applications, a surge of movement toward FHA. The surge of applications is evident in every state.

This is a major change which I believe will accelerate in the next few months.

It started through an expansion of our regulatory authority. In September 2007 FHA initiated a new program called FHASecure. Since that time we have helped roughly 290,000 families avoid foreclosure by refinancing into FHASecure. It is estimated that FHASecure will rescue a total of about 400,000 families by the end of the year.

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 $90 billion of mortgage activity into the housing market.

And with FHA-approved loans you get FHA's successful loss mitigation efforts. Last year, FHA maintained its normal foreclosure rate in spite of the difficulties in the economy. In fact, loss mitigation efforts have helped about 300,000 families keep their homes over the last three years. This means 300,000 less foreclosures. Successful loss mitigation efforts are an important advantage to FHA financing.

There was a further expansion of FHASecure last month. It will now begin to provide additional assistance to subprime borrowers with adjustable rate mortgages, and help to restore liquidity and stability to the markets. It will assist families 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 write down outstanding subprime mortgage principal.

The work at FHA was complimented by a fourth action, the Economic Stimulus Package. By temporarily increasing FHA loan limits, there was an instant impact on the market. With each month we see more and more people turning to FHA who were priced out before. Since March, thousands of families have already refinanced with FHA because we increased limits. We think the Economic Stimulus Package will help another 100,000 families save their homes this year.

A fifth action was a temporary policy announced in June to allow for the immediate sale of vacant foreclosed properties. Historically, FHA has prohibited insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition was intended to prevent property "flipping," a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. But, for one year, FHA will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. This new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.

Finally, there is the new housing legislation, the Hope for Homeowners Act, passed by Congress and signed by the President last week.

It enables FHA to insure $300 billion in new mortgages. The mortgages will be available to homeowners who show that they can afford a new loan. Banks may have to take a loss on the existing loan in exchange for avoiding an even costlier foreclosure.

There will be a new loan limit for FHA after this year. It will be less than the temporary loan limit in the Economic Stimulus Package, but substantially more than the old limit.

The new law bans seller-funded downpayments for FHA-insured loans. In the past, these loans have gone into default three times faster than borrower-funded downpayments.

The legislation also authorizes block grant funds for states to purchase and redevelop foreclosed properties. My department is in the process of developing a formula for the distribution of funding to cities and states. We will publish a notice with the new program requirements and allocation of funding.

The new law will go into effect on October 1st.

All of this should be helpful hundreds and hundreds of homeowners in need.

I also want to briefly mention another action of related interest. Yesterday, I announced almost $152 million in grants from my department to the State of Puerto Rico and 27 municipalities, including San Juan. There grants will assist community development, low-income homeownership and expansion of affordable housing, shelter and services for the homeless, and assistance to people with HIV/AIDS. These grants will help Puerto Rico meet the housing needs of people on the margins and also help in the process of revitalizing our cities and municipalities.

I want to conclude with a recollection from the beginning of Don Quixote. He decides to make his quest. So he prepares with reading and study. He shines his armor for travel. He obtains the horse, Rocinante. He knows that the quest will be difficult, the journey tremendously hard. But he believes in his dream, he has faith, and courage, and boldness. He is determined to make a difference, defying the odds, bending circumstances to his own steadfast, yet humanly fragile, will.

We are the modern successors of this valiant knight. We face awesome problems. Reaching the end of the housing crisis will be a difficult journey. Yet, a year ago, if someone had spoken of volunteer efforts by industry, or FHA expansion, or an economic package, or a flipping rule or even bipartisan housing legislation, we would have looked at them as fable-tellers, the quixotic ones. But now, empowered and emboldened by the actions of the last year, we can continue to look for the ways and means to help people keep their homes. And we can do more than that�we can help to reshape the housing market for a more stable, secure, and economically successful future that produces higher rates of homeownership, more equity, and greater financial security, for Americans and their families.

Thank you.


Content Archived: January 27, 2012