Remarks of Secretary Shaun Donovan at the National Association of Hispanic Real Estate Professionals 2014 Housing Policy and Hispanic Lending Conference
Monday, February 3, 2014
As prepared for delivery
Thank you very much, Glenda (Gabriel), for that generous introduction.
I’d also like to thank your outgoing President, Juan Martinez, for all his contributions, as well as congratulate your incoming President, Jason Madiedo, on his new role.
Let me also acknowledge two friends who I know are here today: Henry Cisneros and Brian Montgomery. Thank you also to the entire Board of Directors for their leadership.
In particular, I want to recognize co-founder, Gary Acosta, for his remarkable service over the years. And I want to join you in remembering the life and work of NAHREP’s other co-founder: Ernie Reyes.
Like all of you, I was deeply saddened to learn of his passing over the weekend and send my best wishes to his family. Ernie was a man with great vision who made an indelible mark on his community and industry.
He was once asked why he and Gary founded NAHREP, and he responded by saying that “ideas are great, but they don’t mean a darn thing without some action behind them.”
In other words, it’s one thing to talk about progress – it’s another thing to fight for it. Throughout his life, Ernie Reyes fought for progress. He fought to highlight issues too often overlooked. He fought to expand opportunity for those too often denied it.
And I’m proud to be with you today to simply say thank you, Ernie. Your work will long be remembered. And we pledge to continue your fight for fairness and opportunity because our nation is at its best when everyone has a fair shot.
As President Obama once said, “whether our ancestors arrived on the Mayflower … signed in at Ellis Island … or crossed the Rio Grande … their diversity has not only enriched our country, it helped build the greatest economic engine the world has ever known.”
The members of NAHREP embody this spirit. In doing so, you’ve not only strengthened the Hispanic community, you’ve strengthened our entire nation. I thank you for this work and appreciate this chance to be with you.
The Value of Home
We’re all here today because we value the role that housing plays in our nation. Homes are the foundation of our lives and where we raise our families.
Homes are at the center of healthy and thriving communities. Owning a home helps families build wealth, start businesses and put their kids through college. That is why we’ve got to ensure our housing market is healthy and provides opportunity to all responsible families.
Now, of course, this work hasn’t been easy in recent times. Just a few years ago, our nation endured a once-in-a-lifetime crisis that devastated Americans across the nation. When President Obama took office in 2009, the housing market was in free-fall.
Home prices had fallen nearly 20 percent from the year before – the largest one-year drop ever measured. Both new and existing home sales were near all-time lows. Roughly three million borrowers were seriously delinquent.
I could go on, but I know I don’t have to because you saw this pain up close. A stat we all know but bears repeating for those outside this room is that from 2005-2009, the median household wealth for Hispanics fell 66%. Think about that: two-thirds of Hispanic wealth wiped out in just the four years before President Obama took office.
These numbers represent more than just figures on a spreadsheet. They represent people’s dreams turning into nightmares. And it was clear to the President and I when we took office that we needed to address this crisis head on – both for the Hispanic community and the overall market.
That’s why we’ve helped roughly 8 million responsible families modify their mortgage. That’s why we allocated $7 billion to address foreclosed and abandoned properties in all 50 states through our Neighborhood Stabilization Program. And that’s why HUD approved housing counselors have helped 9.5 million families get through these difficult times. As a result of these and other efforts, the market is healing.
From the beginning of 2012 to the third quarter of last year, the number of underwater borrowers fell by nearly half, lifting 5.7 million homeowners above water. During that same period, homeowners have seen $3.4 trillion in home equity restored. And existing home sales in 2013 were the strongest they’ve been in seven years.
Bottom line: progress is occurring across the country. But as all of us know, there is still more work to do. Access to credit for responsible families is still too limited. Underwater borrowers are still too common. Too many families are still struggling.
That’s why the Administration is committed to accelerating the housing market recovery in a number of ways. Specifically, we are working to empower families with the tools they need to become responsible homebuyers, ensure that these families can access credit when they are ready to buy and lastly, build a rock-solid housing finance system for the future by getting reform done.
First, I’d like to talk about the work the Administration is doing to help families strengthen their financial positions. At the heart of this effort is working with the private sector to create jobs.
Our nation’s economy has experienced 46 consecutive months of private sector growth – resulting in 8.2 million new jobs. And as the President said in his State of the Union address last Tuesday, he is determined to build on this progress by making 2014 a year of action.
Specifically, he put forth a series of concrete proposals to be taken—both with and without Congress—to strengthen the middle class and build ladders of opportunity for those trying to get there.
Accordingly, he has raised the minimum wage for Federal Contract Workers. He is enhancing training programs to help Americans get the skills they need to succeed in the global economy.
He is partnering with CEOs to put the long-term unemployed back to work. He is pushing for investment in our infrastructure so that people can get jobs rebuilding roads and upgrading ports.
In total, he is taking these and other actions to ensure that our nation is a place “where honest work is plentiful and communities are stronger … where prosperity is widely shared and opportunity is for all.”
If we do this, then more families will be in the position to escape the threat of foreclosure or buy that first home. So I ask you to support the President’s agenda in this year of action.
I also ask you to make your voices heard about other efforts we are taking to give more families the opportunity to strengthen their financial future. Literally just a few thousand dollars can make a huge difference in helping Americans obtain sustainable housing.
That’s what makes the Affordable Care Act so important to all of us in the housing community.
American families now have the chance to reduce their medical costs, freeing up resources for housing or other important needs. In addition, we all know that a sudden surge in medical costs can lead to families missing payments and losing their homes.
Those with coverage don’t have to carry this anxiety. That’s why it’s great news for NAHREP, and our entire nation, that 9 million Americans have signed up for private health insurance or Medicaid coverage.
To keep this momentum going, I ask all of you to help us get those you know, who don’t have insurance, covered by March 31st. It will be good for them, our housing market and our entire economy.
Another effort that will be good for us and our pocketbooks is immigration reform. This is a top priority of the President’s, which is why he called for action, again, during his State of the Union Address.
As you have pointed out, not only is reform common sense, it also makes good business sense: creating a new pool of millions of potential homeowners and pumping hundreds of millions in sales, income and spending into the U.S. housing economy. So let’s speak up and stand up to get this done – once and for all.
In total, all of the measures I just mentioned will go a long way in preparing families to buy a home in the future. But, that is just one part of the equation.
Increasing Access to Credit
The second part is ensuring that responsible families have access to credit when they are ready.
As we all know, before the crisis, credit was too easy to get. But now, it’s too hard to obtain for qualified Americans. According to the Federal Reserve, from 2007 to 2012, mortgage lending to borrowers with credit scores over 780 fell by a third. Loans to those with scores between 620 and 680 fell 90%.
Clearly, action is needed, which is why we’ve been working in a variety of ways to get credit to those ready to own. One way is by simplifying the regulatory environment for lenders. Case in point is the qualified residential mortgage rule, which we finalized in December.
It’s the result of six federal agencies, including HUD, coming together to make QRM equal to QM in order to simplify the mortgage origination process. This is a direct result of the feedback we’ve received since the first proposal in 2011.
Now our rule avoids greater complexity and overly restrictive down payment requirements that could serve only to exclude creditworthy borrowers. Some of our critics have called this a dilution of our rule.
But as you know, the Consumer Financial Protection Bureau’s QM rule itself is a very strong measure. And we are confident that our actions have found the right balance between responsibility and opportunity moving forward.
Another way we want to ensure credit is available for responsible low- and middle-income families is by strengthening the Federal Housing Administration for the long term. As you know, FHA has historically been a beacon of hope and opportunity for underserved communities.
And during the housing crisis, it helped keep the dream of homeownership alive for families by providing much needed liquidity to the nation’s mortgage finance markets. In fact, economist Mark Zandi has said that if not for the FHA, “the housing market would have completely shut down.”
And, FHA mortgages have been essential to the Hispanic community. Roughly 610,000 Hispanic households have purchased a home using an FHA guaranteed mortgage since President Obama took office in 2009. In 2012 alone, 55% of Hispanic homebuyers used FHA.
We want to make sure that future generations have this same opportunity by ensuring FHA is strong for years to come. That’s why we have strengthened underwriting standards and our portfolio, resulting in dramatic improvements.
FHA’s Mutual Mortgage Insurance has gained $15 billion in value over the last year. The actuary anticipates that the Fund will return to the required two percent capital reserve ratio in 2015, two years sooner than projected in the 2012 report.
To build on this progress, we will continue to execute policies that reduce losses and increase recoveries on troubling legacy loans. We also continue to look for innovative ways to get credit to those ready to buy and ensure these transactions have the best possible chance to succeed.
Through our Homeowners Armed With Knowledge (HAWK) initiative, we are working to embed housing counseling throughout the FHA origination and servicing process. Through updated Manual Underwriting guidance and the Back to Work initiative, we are ensuring lenders look at the whole financial picture when underwriting a loan.
This helps those who may have experienced damaged credit due to the crisis—but are fundamentally creditworthy borrowers—to be considered for a mortgage. In total, FHA continues to fulfill its mission of helping open the doors to homeownership for a wide-variety of qualified, responsible buyers.
As a result, it has been critical in the housing recovery that I talked about earlier. In the overall market, sales are up. Starts are up. Confidence is up. But I know none of us are content.
After all, if the housing market were to collapse again, it would undermine all the progress we’ve made. That is why we’ve got to ensure that a crisis of the magnitude we just saw never happens again by reforming our housing finance system.
Housing Finance Reform
Naturally, this will require action from Congress. Now, I know what you are all thinking: after all that’s happened in Washington in recent years: what makes Shaun Donovan think that there can be movement in this area?
But I truly believe that housing can be an area of common ground, like it has been throughout history.
President Truman and Senator Taft worked together on the Housing Act of 1949. Ed Brooke and Walter Mondale worked together to produce landmark housing legislation decades later. And last year, we saw bipartisan progress in Congress on this issue.
So it is time for all parties to finally make reform a reality. Last August, the President outlined a series of principles that he believes should be at the core of the housing finance system of the future – three of which I want to highlight today.
The first is that private capital should be at the center of the system. We all know that current conditions—where government guarantees more than 80% of mortgages through Fannie, Freddie and FHA—are unsustainable. The risks and rewards of mortgage lending have historically been in the hands of the private sector, and should continue to be in the future.
So how do we structure reform to attract back private capital? To start with, reform legislation should put private capital in a first loss position so that we can ensure that taxpayers are never again on the hook for bad loans and bailouts.
That means winding down Fannie and Freddie in their current form. As the President has said, for too long, their model was “heads we win, tails you lose.” We can change this by making a smooth transition of assets—the people and infrastructure—as part of government’s new limited and targeted role.
And as we make this transition, we remain firmly focused on doing it in a way that doesn’t disrupt the credit market in the short-term so that our recovery can continue.
Second, the government role should be explicit and defined, as opposed to before when it was implicit. This requires the new entities to pay for the government insurance similar to banks paying for FDIC deposit insurance.
It also requires an expansion of the housing trust fund and the capital magnet fund so that the new system explicitly supports more affordable housing initiatives. Specifically on this last point, we’ve got to ensure that reform yields a major fund of $5 billion a year for the production of affordable housing, which will be good not only for the Hispanic community, but for our nation as a whole.
A third principle of reform outlined by the President is ensuring access to safe, responsible financing like the 30-year fixed rate mortgage market. This also means shaping a competitive marketplace by giving community banks and smaller lenders the same access to the capital markets as the big banks.
Six years after the financial collapse, it is time to get this and other critical aspects of housing finance reform done. We know that the Senate Banking Committee is working on housing finance reform.
They have held numerous hearings on everything related to housing finance - from structure to affordability to transition. We need work with the Committee and the Senate to keep the momentum going so that we can get bipartisan legislative action early this year.
The time to make our voices heard is now. Let's keep up the pressure to put housing finance reform at the top of the legislative agenda.
Make no mistake: this won’t be easy. In fact, as you know, nothing about the housing comeback has been easy. But I know that NAHREP doesn’t back down from a challenge.
In good times and bad times, you fight for progress and opportunity. Over the course of this conference—in addition to the proposals I’ve outlined—we are going to hear a lot of ideas about what we need to do next to continue this fight.
But to use the Ernie Reyes quote again: “ideas are great, but they don’t mean a darn thing without some action behind them.” So let’s take action together.
Let’s act to support the President’s 2014 agenda to create jobs and expand opportunity for all.
Let’s act to get more people covered with affordable health care so that they can secure the financial futures.
Let’s act to get immigration reform done – once-and-for-all. Let’s act to increase access to credit for responsible families. Let’s act to reform the housing finance system to ensure a crisis of this magnitude never happens again.
In short, let’s act in partnership to shape a fairer and more prosperous housing market and nation.
We have a great opportunity to do big things this year. Let’s answer the call for action.