Prepared Remarks of Secretary Shaun Donovan at the Real Estate Board of New York Breakfast
New York City, NY Wednesday, February 27, 2013
Thank you Steven, for that kind introduction.
I want to thank REBNY for inviting me to be with you today. It’s a pleasure to be back in New York and see so many familiar faces.
I also want to join all of you in congratulating Michael Rothschild on his receiving the Residential Management Executive of the Year Award. That is quite an honor.
I don’t need to remind Michael or any of you how exciting this field of housing in which we work is. Certainly no more so than during these last several years. I am reminded of that old Chinese curse -- “May you live in interesting times.”
But to my mind, “interesting” is good. And while we’ve faced some real challenges over the last several years -- disasters of both economic and natural design -- we are beginning to turn the corner.
Make no mistake. We still face many challenges, whether it is the continuing economic crisis, the ongoing impact of Superstorm Sandy, or simply the long-term disinvestment that has impacted so many of our neighborhoods.
Housing Market Recovery and the FHA
But as a fellow New Yorker, I can also say, without reservation, that we will overcome these challenges. This morning I want to discuss some of the ways we are accomplishing this. But I also want to spend a little time focusing on a new and current challenge -- the self-inflicted sequestration--and what we stand to lose if Congress does not move quickly to get us out of this mess.
Let’s start with the positive. The economy. Now that’s not something you would have heard many people offer even a year ago.
But I’m pleased to say that today there are many encouraging signs in the economy and the housing market. Housing construction is growing faster than at any time since 2008 and we’ve had the strongest year of home sales since the economic crisis began, with rising home values lifting 1.4 million families above water.
Mortgage interest rates remain low, foreclosure starts are down, and around the country unemployment continues to fall, putting families and communities on the road to recovery, due in part to this administration’s policies.
Let me be clear, while there is cause for optimism, the recovery remains fragile, and rash actions could limit the progress we are now seeing. That’s why our priority is to restore our housing markets to full health and help families get back on their feet by making balanced changes that don’t threaten that progress.
Certainly a key component in our housing market recovery has been, and continues to be FHA. With a mission of providing access to homeownership for underserved, low-wealth populations, and critical financing for multifamily developments, nursing homes, assisted living properties and hospitals, the FHA is designed to fill gaps in the market, meet important community needs, and act as a stabilizing force during times of economic distress.
I’m pleased to say that FHA has done precisely what it was created and intended to do. By ensuring much needed liquidity in the nation’s mortgage finance markets, FHA was a vital stabilizing force during the worst economic decline since the Great Depression.
In the last four years the FHA made homeownership possible for over 3.5 million families, including 2.8 million first time buyers, and for 50 percent of all African-American and Latino homebuyers in 2011.
And FHA’s multifamily programs have been especially important to facilitating credit availability. As you are well aware, housing financing over the last few years has become scarce. Frozen credit markets posed a threat to homeowners -- especially to those in need of affordable housing.
FHA programs provide the critical mortgage financing opportunities that strengthen communities by addressing specialized financing needs -- including insurance for loans to develop, rehabilitate, and refinance multifamily rental housing.
The Mission to Provide Affordable Housing
In so doing, FHA also supported one of the key pieces of HUD’s mission -- and an essential element of this administration -- the creation and maintenance of affordable housing.
Having a strong compliment of multifamily programs that address the needs of families is essential to our mission of providing strong, sustainable, inclusive communities, and quality affordable homes for all.
That is no easy task, as we face a severe challenge to provide affordable housing. Indeed, as the need for affordable housing grows, the stock continues to decrease -- we are experiencing a tremendous loss of inventory.
This is simply unsustainable. We just cannot afford to keep losing 10,000 to 15,000 units of affordable housing a year -- and leave our most vulnerable families at risk.
This loss is accentuated because so many of the nation’s public housing apartments are already buckling under a capital needs backlog of more than $25 billion. Public housing owners now must make tough choices between repairing roofs and replacing plumbing -- or worse, demolishing units altogether -- because there simply isn’t enough money to go around.
I’m happy to report that HUD has been working on a number of initiatives to combat this.
One area in which we have experienced great success is with low-income housing tax credits, and we are working to improve the process and expand their reach.
Last year, we added nearly 15,000 units of new, completed LIHTC/TE apartments, which came on line in conjunction with FHA MF and Risk Sharing financing.
I expect this level of achievement to continue, thanks to our LIHTC pilot program, and due to activity resulting from the Tax Pilot Program and Risk Sharing.
With this tax credit pilot, we are creating a standard underwriting model that will align with the broader industry, and is expected to speed processing particularly on LIHTC transactions.
We also are addressing the shortage of affordable housing -- and more specifically, the capital needs backlog -- through our Rental Assistance Demonstration, known as RAD. This exciting initiative is allowing both Public Housing Authorities and private owners of some assisted housing to preserve the affordability of, and make necessary capital improvements to their housing stock by accessing new private funding sources.
The project was authorized last year as a demonstration as part of the broader rental housing agenda to preserve affordable housing. We have already seen strong interest in this program.
In the initial 30-day application window, PHAs submitted, and HUD gave initial approval, to proposals that can generate over $650 million in private debt and equity investments.
These investments will in turn help to preserve over 12,000 public housing units, and create over 9,000 jobs--all without any additional funding from the government.
It is these kind of smart and innovative efforts that we need to develop new funding sources, and to introduce additional private capital as the conventional market continues to struggle.
I mentioned earlier that we added 15,000 units using LIHTCs and risk-share. Today, the portfolio of risk sharing loans has grown to over $6 billion and represents 12.7 percent of the total FHA insured portfolio.
A completely new Risk Sharing Agreement was signed with Fannie Mae, and is in process with Freddie Mac, to update and modernize their relationship with FHA.
I should note that as part of this modernization, the Administration has begun to take steps to pay back taxpayers and to wind down the portfolios of Fannie Mae and Freddie Mac on a responsible timeline in order to pave the way for a robust private mortgage market and to reduce taxpayer risk, while ensuring that American families will continue to have access to quality housing that they can afford.
The Administration has already made strides in reforming our housing finance system through the National Servicing Settlement, the new rules issued by the CFPB regarding the Qualified Mortgage (QM) defining a borrower’s ability to repay a loan, as well as the new CFPB loan servicing regulations. There is still much work to be done in restructuring and revitalizing the private lending market.
All of these developments offer real opportunities for a stronger, more innovative future of housing finance.
Building Neighborhoods and Communities
We must look at the entirety of the housing market -- not just the availability and cost of credit for single family housing, but also ensuring the availability of affordable rental housing for hard working families, and making sure that the neediest among us have access to decent and sustainable shelter.
And as part of that we must focus not simply on providing housing, but on building strong neighborhoods and communities.
When a family chooses a place to live, they’re choosing more than a home -- they’re choosing a school for their kids, access to jobs and transportation, and all the services that neighborhood provides. They are choosing the things that are important to them.
HUD programs are critical investments in communities, helping to create high-quality, affordable housing and revitalized neighborhoods.
But the real value of these investments is only fully unlocked when they are coupled with transportation and land use planning that connects them to job centers -- and creates places that thrive.
That’s why programs like our Choice Neighborhoods initiative are so promising -- communities are partners in the transformation of a neighborhood, using public-private partnerships and proven mixed-use, mixed-finance tools to revitalize not just public housing, but create a ripple effect that brings partners and capital back into our communities.
Through these efforts we can connect vulnerable families with housing, but also with education, healthcare services and transportation to good jobs.
In short, these programs have the potential to transform distressed neighborhoods -- they are a key to introducing new sources of private capital to communities and to the affordable housing market.
It’s an idea the President championed in his State of the Union address -- the belief that Americans should have choices in housing that make sense for them and for their families. That a child’s zip code should never determine his or her destiny.
This means providing rental options near good schools and good jobs. It means access to credit for those Americans who want to own their own home, which has helped millions of middle class families build wealth and achieve the American Dream. And it means a helping hand for lower-income Americans, who are burdened by the strain of high housing costs.
An America built to last draws strength from its communities, which must be able to plan for the future and fully draw upon their resources -- most importantly their people. We cannot afford to leave our current and future labor force behind because they live in isolated neighborhoods of concentrated poverty.
Hurricane Sandy Recovery Efforts
Nowhere does this focus on neighborhood and community investment and rebuilding ring truer than with our efforts to rebuild this region after Hurricane Sandy.
The Task Force the president appointed me to head coordinates the efforts of federal, state and local governments, brings private and philanthropic groups to the table, and offers resources and support -- all to move towards one goal: rebuilding the region in a way that makes communities stronger, more sustainable and better able to withstand the next storm.
HUD recently announced its first round of CDBG-DR allocations, which included $1.77 billion for the City of New York -- and we’re working with the city to ensure it gets to the folks who need it as quickly as possible, those with damaged homes and small businesses.
In addition, we are working closely with the City and others to develop programs to provide long term housing solutions -- including multi-family housing -- to those impacted by the storm.
In conjunction with Fannie Mae and Freddie Mac, FHA extended for another 90 days the moratoriums we had imposed on the initiation of foreclosures and foreclosures already in process.
FHA also suspended evictions of persons from properties secured by FHA mortgages in the affected counties till April 30, 2013.
And most recently, FHA announced it would expedite the processing of applications from multifamily apartment owners in New York and New Jersey seeking to refinance their mortgages, substantially rehabilitating their properties or constructing new developments in areas impacted by Hurricane Sandy.
Many other programs are still taking shape, and we’re considering a number of different approaches -- but we know they will have to be flexible and will have to take into account the unique nature of the city’s real estate market.
Over the coming months, your involvement in this process -- your ideas, your coordination and collaboration and your support -- will be crucial to the success of this rebuilding effort.
One key piece -- and something I hear consistently from folks on the ground is that they know we cannot simply rebuild as if storms like Sandy won’t happen in the future.
We know we have to move beyond the tired debate over long-settled science and address the reality of climate change. While it’s impossible to say climate change caused a particular weather event, the “hundred year storm” seems to be coming every few years -- and the overwhelming majority of established science points to the reality of climate change.
The President was very clear, in both his inaugural address and in the State of the Union, that he is determined to tackle this issue. This is not an abstract debate about when and whether climate change may impact people’s lives.
This is about acknowledging the reality of rising sea levels and more frequent extreme weather events -- and building stronger and smarter to mitigate their impacts in the future.
We know mitigation works -- we saw it during Sandy, when communities that had invested in building dunes suffered less damage than neighboring communities that hadn’t
We saw it in the Gulf Coast, where homes that had been raised and built with stronger roofs and used other mitigation measures went undamaged during storms, while others in the same community that did not take similar steps were severely damaged or destroyed.
Mitigation is simple common sense -- we know these storms will be more frequent in the future, so homes that wash away and electric substations located in flood zones must become a thing of the past.
Mitigation also makes good economic sense -- the Multihazard Mitigation Council examined 10 years of FEMA mitigation grants data and found government mitigation efforts offer a $4 to 1 return on investment by preventing future damage.
This is work that is critical to the future of these communities and could serve as a model for the nation and the world.
That’s why, in working with the City and State of New York on developing their multi-family housing programs, my Department has been encouraging more resilient and sustainable rebuilding efforts that include mitigation measures.
As many multi-family buildings suffered extensive flooding in their basements, moving the mechanicals to a higher floor or building a protective wall around the systems should be included when rehabilitating or repairing the building and can be considered eligible program costs.
We are also are encouraging the City and State to create programs that give the owner the ability to recapitalize or refinance a project that allows for not only for repairs but also to fund mitigation and resilient measures that preserves the affordable housing for the long term. We want owners to consider these MF programs and the available funding as an opportunity to revitalize their buildings for the long term.
We know that success will not be defined by building things back the way they were -- or by ignoring those communities that were struggling long before the storm hit.
Success means lifting up every community impacted by the storm -- ensuring that they rebuild in a way that makes them stronger, more economically sustainable and better able to withstand the next storm.
The Looming Danger of the Sequester
Unfortunately, there is a looming threaten to our efforts -- not just for our full recovery from Sandy, or to repair our economy, but in our work to restore the middle class and to provide affordable housing and other vital resources to those who need them most.
Should sequestration go into effect on March first, as seems very likely, the cuts would be deeply destructive, not just to HUD programs and those who rely on them--including hundreds of thousands of middle class and low-income individuals--but to entire communities across the nation.
Sequestration will also cause significant damage to our nation’s housing market at a time when it is helping lead our economic recovery.
Nationwide about 125,000 individuals and families--more than half of whom are elderly and disabled--could lose assistance provided through the Housing Choice Voucher program.
Another 100,000 homeless and formerly homeless people--the majority of whom are families, disabled adults or veterans-- would be removed from their current housing or emergency shelter programs.
This year alone, New York State stands to lose hundreds of millions, including $79 million in education funding, almost $61 million in lost wages due to furloughs of Department of Defense employees, and another $10 million in public health funding -- cutting vaccines for children, HIV screenings, and health emergency preparedness.
Finally, sequestration seriously threatens our Hurricane Sandy recovery efforts. A five percent cut amounts to a loss of $3 billion from the funding just passed by Congress. This would take away crucial funding for repair and recovery concerning housing, transportation, and other areas.
For example, the funding that would be cut from CDBG could help make necessary repairs to more than 10,000 homes and small businesses.
Whether it’s the man-made disaster of the recession or the natural disaster of Hurricane Sandy, HUD has been central to recovery efforts, and we cannot afford to threaten them.
Sequestration is a blunt and indiscriminate instrument that was intended to ensure more measured and deliberate cuts would be made. And we need you to make your voices heard to help prevent this from taking place.
Because we don’t forget anyone anywhere. We don’t leave neighborhoods behind because they’re poor or because of their zip code -- we invest in their futures, together.
We don’t leave people behind or on the streets -- we help them find housing.
We don’t leave people struggling -- we lift them up, together.
And we don’t tell folks they’re on their own when times get tough -- we help them as one nation, one people.
I look forward to continuing to work with you on this vital mission.