Remarks of Secretary Shaun Donovan at a National Council of La Raza’s “Rebuilding Our Communities Through Sustainable Homeownership” Forum
Wednesday, April 16, 2014
As prepared for delivery
Thank you very much, Wade (Henderson), for that kind introduction and all your great work at the Leadership Conference on Civil and Human Rights.
I’d also like to thank Janet Murguía—and the entire NCLR team—for their leadership and for organizing this important forum. It’s truly a pleasure to be back with you today.
And finally, I’d like to recognize all of you in the audience for your tireless work and advocacy. HUD has been proud to partner with you on a number of issues over the years. And I greatly appreciate the chance to be with you this morning to talk about a topic that’s critical to our nation and its future: sustainable homeownership.
The Impact of the Collapse
It’s no secret that homeownership has long been considered a part of the American Dream.
Historically, it’s served as a path to the middle class and helped families put down roots in a community. It’s been a vehicle for families to build wealth, put kids through college and start businesses. It’s strengthened neighborhoods and bolstered our economy.
But when the Great Recession hit a few years ago—and the housing market collapsed—many families saw their hopes dashed and dreams deferred. As advocates, you were on the frontlines and saw up close the impact the crisis had, especially on communities of color.
Over the years, I’ve heard a lot of startling figures that convey the pain caused by the housing collapse, but few were as striking as a Pew report which found that from 2005-2009 African American households lost 53% of their net worth, Asians lost 54% and Hispanics lost an incredible 66%.
These figures are stunning and heartbreaking. Think about all the home equity, all the savings and all the retirement funds and other assets that were wiped away in the four years before President Obama took office.
To be clear: this isn’t just a tragedy for communities of color. It’s an American tragedy.
That’s why—as we continue to fight our way back from the depths of the crisis—this conversation about “Rebuilding Communities Through Sustainable Homeownership” couldn’t be more timely.
An Opportunity Agenda
Today, I want to talk about two basic steps our nation needs to take to make sustainable homeownership, for all communities, a reality. The first step is to empower citizens with the tools they need to be responsible homeowners. That’s what the President has been doing since his first day in office, efforts that are making a tremendous difference on the ground.
We’ve seen American businesses create nearly 9 million new jobs over the past four years, meaning more families can save for the future and become homeowners. We’ve seen $7 billion in funds allocated to address foreclosed and abandoned properties in all 50 states through our Neighborhood Stabilization Program, strengthening communities that had been hit hard.
We’ve seen 9.5 million families use HUD approved housing counselors, like many of you, to equip themselves with new knowledge to improve their financial health. We’ve seen roughly 7.5 million Americans sign up for health coverage thanks to the Affordable Care Act. This is in addition to the millions more who got covered because of Medicaid and young people staying on their parents’ plans, clearly a huge win because no person should ever have their dreams of homeownership shattered because they get sick or injured.
And to keep this momentum going, the President is out there: fighting to get Congress to raise the minimum wage, fighting to give Americans the skills they need to succeed in the global economy, fighting to get immigration reform done once and for all and much more.
All of this work contributes to the goal of empowering families with the tools to achieve sustainable homeownership. But again, this is just the first step. The second step is to ensure that when families are ready to buy, the housing finance system provides them with the opportunity to do so. Unfortunately, the sad truth is that too many Americans are not getting that chance.
After the crisis, credit has simply become too hard to obtain, even for qualified buyers. And make no mistake: this is bad for our economy and our communities. To address this challenge, HUD has been working tirelessly under the current system to expand access to credit.
Specifically, through the Federal Housing Administration, we are looking 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 initiative, we are working to embed housing counseling throughout the FHA origination and servicing process, allowing borrowers who commit to housing counseling to qualify for lower upfront mortgage insurance premiums at closing, a permanent reduction in the annual premium after several years, or both.
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.
Through revisions to our Quality Assurance, we are making important improvements in how we monitor for lender compliance, as well as pushing back against the need for harmful credit overlays.
In total, FHA continues to fulfill its mission of helping open the doors to homeownership for a wide-variety of qualified, responsible buyers. But let me be clear: this kind of work can only go so far. It can only reach so many families. And, obviously, it can’t address all the concerns we share about the current housing finance system.
That’s why we need to get reform done. And we need to make it happen now.
Housing Finance Reform
Fortunately, we come together at a time when we have a chance to make reform a reality.
Just a few weeks ago, Senators Johnson and Crapo released housing reform legislation that provides us with an opportunity to advance causes we all care about.
Under the current structure, low wealth families and minority communities are not getting mortgages while taxpayers remain on the hook for potential losses in the housing market.
Without comprehensive housing finance reform, GSEs have no incentive to expand credit—and at the same time—continue to rely on government support.
Johnson-Crapo addresses these concerns by putting an equitable access requirement that would open new doors for responsible buyers in underserved communities, in goods times and bad, while putting an end to Fannie and Freddie’s failed business model of “heads they win, tails taxpayers lose.”
The new system would also generate up to $5 billion a year for housing trust funds that would increase access to homeownership with tools like down payment assistance, as well as help produce affordable rental housing.
I know this forum is focused on ownership, but let’s not forget the role that renting plays in our lives. Whether you are a young professional just starting out, or a veteran returning home from overseas, affordable rental housing can serve as an important stepping stone to homeownership.
So these trust funds are key to achieving the larger goal of sustainable homeownership.
Finally, it’s important to recognize that legislation can take steps that other measures can’t.
Only Congressional legislation can put a definitive end to the GSEs’ failed business model and replace it with a system that shifts credit risk from taxpayers to the private sector and ensures that any government backstop is explicit and properly priced.
Without a blueprint and mandate, FHFA will be much more cautious in taking these steps and progress may not be consistent with the direction Congress ultimately determines for housing finance reform. This will continue to deter the return of private capital to mortgage financing, which is why we need to get reform done so that Mel Watt and his team have five years at FHFA to build for the future.
It’s also important to recognize that without Congressional action that defines the government’s role in the mortgage finance system, the revival of a robust non-agency securitization market may be challenging. The non-agency market is a critical source of private capital funded mortgages for families without requiring backing by American taxpayers. Bottom line: only legislation can reshape the housing finance system so that it reflects all the ideals and values we care about: opportunity, fairness and responsibility.
Is the bill perfect? Of course not. Nothing is. There are aspects all of us would change.
For example, from HUD’s point of view, Johnson-Crapo needs to preserve our existing authority in regards to the Fair Housing Act as it pertains to the secondary market, so we can continue to fight for a colorblind housing market.
I know all of you have suggestions as well, from integrating housing counseling to ensuring an incentive-based fee system provides access to the underserved.
But to be clear, despite its imperfections, this bill represents progress. That’s why we’ve got to push for it.
Right now, we have a chance and a choice. Our chance is to make reform a reality. The good news is that, historically, housing has been an area of cooperation here in Washington.
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. We’ve seen this proven again by Senators Johnson and Crapo, as well as Senators Corker and Warner last year. And in the larger context, we are beginning to see bipartisan cooperation on a number of fronts, including the budget and the debt ceiling.
So make no mistake: we have a chance to get something done. This brings us to the choice we have to make.
Do we as a nation accept the status quo, do nothing and allow a system that wiped out the majority of wealth in communities of color to endure? Do we allow the current system—which is clearly not serving communities of color—to continue?
Or should we engage, do all we can to get reform done and help shape a future worthy of our greatest ideals and hopes? The answer is clear: we must take action.
Now, I’m not saying this is easy. In fact, I remember taking part in an NCLR conference in 2011 about GSE reform and three years later, we are still having this conversation.
But that doesn’t mean we give in or give up. As you know better than anyone, progress isn’t always easy. It takes time, with setbacks along the way, something President Obama talked about last week when he marked the 50th Anniversary of the Civil Rights bill.
As he said then, securing the gains this country has made requires the vigilance of its citizens.
They are not given. They must be won. They must be nurtured through struggle and discipline, persistence and faith.
The same must be said about giving every American—who works hard and plays by the rules—a fair shot at becoming a homeowner. The Johnson-Crapo bill represents an important step forward in this long journey.
Let’s work together to help our nation take this critical step. Let’s work together to make reform a reality. Let’s work together to rebuild our communities through sustainable homeownership.
Let’s work together to restore hope and opportunity in every community.
These are big goals but together we can and will achieve them.