Prepared Remarks of Secretary Shaun Donovan Before the National Association of Home Builders
At the 2013 Spring Board of Directors and Legislative Conference
Saturday, June 8, 2013
As prepared for delivery
Thank you very much, Rick (Judson) for that kind introduction and for the great work you are doing as Chairman.
I’d like to also express my appreciation to all the senior officers for their steady leadership. And of course, I’d like to thank all of you: the members, partners and supporters of the National Association of Home Builders.
For more than 70 years, NAHB has helped generations of American families achieve their dreams of home ownership or access to quality affordable housing. I have had the pleasure of meeting with you a number of times over the years, and, for several reasons, I always appreciate the chance to come back and be with you.
One, it gives me the opportunity to see so many friends and partners who I have worked with over the years, and simply say “thank you” for your work to advance important housing issues.
Two, as someone who went to school to study architecture, I deeply value all the creativity and commitment you display every time you turn ambitious blueprints into real projects on the ground.
Lastly, as someone who, like you, cares about this country and its future, I know that the conversation we are having today is about more than just building homes. It’s also about building healthier communities, building a solid economy and building a stronger and more prosperous America for all.
I know that all of you are committed to these goals, and so is President Obama and all of us in his administration. In recent years, we’ve been proud to work with you to confront an historic economic crisis and turn the housing market around. And the good news is that these efforts are paying off.
The number of foreclosures has been cut by nearly two-thirds since the height of the crisis. New home construction levels are at their highest since before the financial crisis. New home purchases are up 29 percent over last year. And last year, rising home values lifted 1.7 million homeowners back above water and created $1.7 trillion in equity.
So the housing market is coming back, proof that the work we did together throughout the President’s first term has put our nation on the road to recovery. But, let me be clear: we can’t be content. I’m not content. And, certainly the President is not content.
That’s why at the start of his second term, I am so thrilled to be back with you to talk about accelerating the recovery and building a healthier housing market for the future.
Federal Housing Administration
I’d like to begin by talking about the Federal Housing Administration. As all of you know, the FHA has long played an important role in our nation’s housing market, providing access to homeownership for generations of American families.
And after the housing market collapsed a few years ago, its importance only grew, providing financing at a time when private capital froze up, especially for those in need of affordable housing.
As a result, FHA served as a major force, both in stopping the hemorrhaging and in steering the market back in a positive direction. In fact, independent economist Mark Zandi has noted that the crisis would have been 25 percent worse if not for the role FHA played in keeping credit flowing.
And it continues to have a positive impact today, even as the credit markets have eased and FHA reduces its footprint. For example, in Fiscal Year 2012, it insured mortgage loans for nearly 1.2 million families. So clearly, the FHA has played a big role for our nation by stepping up during a time of crisis and helping fuel our recovery.
Yet, right now, it is currently facing an issue that threatens our housing recovery. This crisis is that our GI/SRI fund is reaching its commitment authority limit.
Right now, we estimate that the $25 billion approved for Fiscal Year 2013 will not be enough to support the financing needs of our current multifamily and healthcare portfolio. In fact, earlier this week, HUD notified Congress that we have currently exhausted 75 percent of our authority for the year.
Without legislative action, we project we will run out of funds by mid-August. I repeat: mid-August. That’s not a lot of time. This means that shovel-ready multifamily and healthcare projects already in our pipeline will be delayed, or worse, unable to find financing.
I don’t have to tell you what kind of impact that would have. That’s why we cannot let this happen, both for the people directly impacted and the market as a whole. So if you value the role FHA plays for our market, as I know you do, I urge you to make your voice heard with Congress.
Contact your representatives and let them know how an additional $5 billion loan in commitment authority will be good for our communities, create 22,000 jobs, create an additional $200 million in receipts to the Treasury and benefit our entire nation.
The Mutual Mortgage Insurance Fund
In addition, we also have to let Congress Members know the real story behind the Mutual Mortgage Insurance Fund. As all of you know, the FHA endured certain stresses when it stepped up to stabilize the housing market during some incredibly difficult times.
As a result, the Fiscal Year 2014 budget projects that FHA may need $943 million in support to ensure it has sufficient reserves to pay 30 years of expected losses to the MMI Fund. Most of these losses came from the 2007-2009 book of business and the reverse mortgage program, and in recent years, we’ve taken bold steps to meet this challenge head on.
We have improved lender oversight, strengthened credit policies, increased premiums, improved loss mitigation and established an office to manage risk. These efforts are working. In fact, I’m proud to say that FHA’s most recent books of business are the strongest they have ever been.
A recent budget re-estimate revealed that as a result of these changes, the Fiscal Year 2014 budget projects FHA receipts of almost $13 billion, even as FHA market share and loan volume continues to be reduced. So I repeat, the FHA is currently issuing its strongest loans in history.
Progress is being made.
I thank you all for your support of this effort. You have taken an important leadership role on this issue by voicing your concern. And all of us must continue to tell others that drastic measures from Congress are not needed and, in fact, could possibly do more harm than good by restricting credit just as private lenders are beginning to return to the market.
We need to keep this momentum going and we are doing just that with a number of initiatives highlighted in our Fiscal Year 2014 budget request to Congress. First, we are asking for authority to make structural changes to the HECM reverse mortgage program so that it will no longer negatively impact our portfolio in a disproportionate way.
Updating this program so that it meets the needs of seniors who want to age in place—while making it less susceptible to uncertainty in the market—will do wonders in strengthening the health of the Fund.
Secondly, FHA is asking for a number of tools to improve our enforcement capabilities.
These new enforcement capabilities will help us address the delinquencies in our legacy books and strengthen FHA even further.
We will also strengthen FHA by reorganizing our structure in the multi-family space. For too long, our programs have been organized in a way that creates unnecessary red tape for our stakeholders.
I know Marie Head, from my office, talked about this with you on Thursday – so I won’t get too deep into the details. But today, I just want to reaffirm HUD’s commitment to reducing the number of headaches experienced by our stakeholders. With this consolidation, we will be able to deliver our services more effectively and efficiently than ever before.
Housing Finance Reform
Through all our efforts in both multi-family and single family, we are firmly focused on creating a 21st century FHA. But focusing on FHA alone won’t repair our broken housing finance system.
That’s why there is an urgent need for comprehensive, bi-partisan housing finance reform.
We have to be proactive, look into the future, and ask ourselves: what can we do to ensure this never happens again? What can we do to shape a new housing finance system that is guided by fairness, responsibility and equal opportunity? What can we do to bring private capital back into the market.
Comprehensive housing finance reform addresses these questions and more. And it is time to get it done here in Washington.
On the regulatory front, we need to increase credit availability and improve market safety through a number of efforts. Regulatory coordination through QM, FHA QM and QRM rulemaking is critical to this process.
We need to establish clear rules of the road for FHA insured lending and that we do so in consideration of the Consumer Financial Protection Bureau’s Qualified Mortgage rule. Our goal is to design FHA QM so that we do not cut off access to those borrowers that FHA is designed to serve.
We are also engaged in an interagency effort to clarify representations and warranties – knowing well that what might work for the GSEs may not be directly applicable to the PLS market. However, a deep dive into reps and warrants—and the creation of certain standards—can benefit all markets by improving lending and reducing the overlays that can reduce access to creditworthy borrowers.
In addition to regulatory changes, we are also committed to expanding refinancing opportunities.
The President has a proposed a refinancing plan that would save the average homeowner $3000 dollars a year. But Congress has yet to act on it, which is why it’s important for all Americans to express how this would benefit families and businesses.
We need your continued partnership to heal and protect the housing market, and to ensure that more homeowners have the opportunity to refinance through improved and expanded programs. We also need everybody, from both sides of the aisle, to be a part of the larger conversation about the housing finance system.
With the recent Bipartisan Policy Center report calling for reform, I truly believe we have a window where we can have a grown up conversation in Washington about what it should look like, particularly when it comes government-sponsored enterprises.
Now is a perfect moment to address refinancing, grow businesses and do it in a way that protects investors in those mortgages as well. And I, the President and everyone in the Administration, look forward to working with Congress to advance this issue in a bi-partisan way.
Conclusion: Building Together
We also look forward to continuing to work with you. As I said at the beginning of my remarks, I’ve long valued the work that this organization does. I know you’ve come here to Washington to make your voice heard so the dream of homeownership lives on for future generations.
And I look forward to working together in continued partnership to address the issues and causes we all care about. Together, we will strengthen the housing market and the middle class. Together, we’ll strengthen our nation’s economy. And together, we will build America’s best chapter yet.