Remarks of Secretary Julián Castro at the Mortgage Bankers Association 2014 Annual Convention and Expo
Monday, October 20, 2014
Las Vegas, NV
As prepared for delivery
Thank you very much, Dave (Stevens), for your kind introduction and for the great contributions you’re making as President and CEO. I’d also like to recognize your entire Board for their leadership.
In addition, I’d like to commend my colleague in government, Mel Watt, who’s coming on after me and is doing important work at FHFA.
Finally, I want to thank you, the members and supporters of the Mortgage Bankers Association. You sure know how to throw a convention. When my staff told me that I’d be following Kevin Spacey and that Hall and Oats was performing, I asked them to make sure we didn’t mix-up the MBA event with a VH1 event.
More importantly, I want to thank you for all that you do. Credit is the lifeblood of the housing industry and, over the past century, the members of this organization have helped folks from all walks of life achieve their hopes and aspirations.
This is powerful work, and I deeply appreciate the chance to be a part of your Annual Convention. At the outset, however, I must take a little issue with the title of this part of the program: “A View from Washington.”
While it’s true that as HUD Secretary I now work in DC, I’m still a Mayor at heart. I know that progress often begins at the local level. It’s where things get done.
So I don’t view my job as bringing Washington’s views to the American people. My job is to bring the American people’s views to Washington and ensure their voices are heard.
That’s why I’ve spent these first 84 days as Secretary traveling the country, from Alabama to Alaska. I’ve spoken with community, non-profit and business leaders. I’ve visited rural and urban areas.
And I’ve seen that the great American spirit of determination is as strong as ever. Folks deeply believe in this country and its future, and there are a number of reasons to be optimistic.
We gather at a time when our economy is growing. In the last 55 months, businesses like yours have added 10.3 million new jobs — the longest streak of private sector growth in history.
The unemployment rate is at its lowest level in six years. The housing market is getting stronger, with home sales, starts and values all rising in recent years.
We’re in a period of progress and momentum. The challenge now is to help more Americans participate in this growth. Our economy is strongest when everyone can thrive.
That’s why the President has put forth an agenda to help folks lift themselves up. It proposes new investments to make higher education more affordable and give young people the skills to succeed in the 21st century economy.
It advocates for targeted investments in infrastructure, research and manufacturing that will create jobs in growing industries. It’s helping millions of Americans secure affordable health coverage, cutting costs for families and businesses.
And it’s championing for equal pay and increasing the minimum wage so that hard work is rewarded. Across the board—from the classroom to the factory line— the President is determined to lay a new foundation for growth, which is very good news for the housing market.
For example, take communities of color, which will account for three-quarters of household growth over the coming decade and help determine the fortunes of your industry.
Unfortunately, lending to minorities is at a 14-year low, in part because these folks were hit hardest by the economic crisis. So it’s critical that we expand opportunity to all Americans so they can strengthen their financial futures and, in turn, strengthen the housing market of the future.
Another example is the Millennial generation. As you know, they aren’t striking out on their own at the same pace as previous generations. They came of age during the economic crisis, burdened with incredible student debt.
They are living with their parents longer, and delaying getting married and having children. These factors are a big reason why the homeownership rate among folks under 35 has reached historic lows. If we help them prosper, our housing market will prosper.
So the President’s work to create good jobs, spur growth, increase wages and lower student debt is critical for them and for the work that y’all do.
This Administration will continue to look for new and innovative ways to give folks their fair chance to contribute and succeed. And I promise you that HUD will be at the center of this work.
In fact, HUD is the Department of Opportunity because quality housing and strong communities provide the foundation families need to better their lives. During my listening tour, I asked folks how we could help and for many, the answer was to reopen the doors to homeownership for every American who is ready to buy.
And I’m proud to make this one of my top priorities. As Americans, we’re smart enough to heed the lessons of the past without forsaking our future.
It’s time to remove the stigma from promoting homeownership. It’s time to stop being apologetic about helping responsible folks buy their first home. And it’s time for folks to stop asking if the dream of homeownership ended during the crisis.
Make no mistake: young or old, black or white, rich or poor — that dream is alive and well, and it’s here to stay.
Of course, that’s not to say that renting is a bad thing. Life circumstances and career goals make renting the right choice for many folks — and that includes the new HUD Secretary who just moved to Washington.
And a bright spot in the market is that multifamily lending and construction have stepped up and begun to address our nation’s rental housing needs. Now we need homeownership to complement this work.
When done right, it helps folks build wealth and put down roots. It increases civic engagement and enhances communities.
It also boosts our overall economy because when there is demand for housing, homes are being built, construction workers are on the job, suppliers of building materials are selling more products, and more households are shopping at the local hardware store for their screwdrivers and light fixtures.
It’s in our entire nation’s interest to help more responsible Americans succeed in the housing market by expanding access to credit. Some believe that a few years ago, it was too easy to get a home loan. Now, it’s too hard.
In fact, according to the Urban Institute, the housing market is missing out on 1.2 million loans every year because credit is so tight. And even Ben Bernanke recently said that he’s having trouble refinancing his mortgage.
If the former Fed Chair is having trouble, imagine the frustration of average folks. The pendulum has swung too far in the other direction. There’s been a vacuum in the market and it needs to be filled. Thankfully, we’re already starting to see movement.
One example is the top 10 lenders doing business with Ginnie Mae. Half of them are new to the top 10 compared to just three years ago, and some are even new to the business.
Lenders have stepped up and been successful in expanding credit to a wider-range of responsible borrowers. My question for you is where do want to be in this market opportunity? On the frontlines? Or do you want to leave business on the table?
All parties would benefit if you took action and expanded your reach. And I urge you to do so. But, I’m also aware that government must take action by shaping an environment where good lenders and good borrowers can work together without reservation.
This means creating more certainty for you, which is a top priority at HUD. In the wake of the crisis, we’ve seen a lot of frustration from lenders when it comes to their FHA business.
Many of you have been reluctant to lend because of regulatory uncertainty. You want to be able to manage your risk better — and so does FHA. So we’ve taken action by releasing our “Blueprint for Access”, which outlined a number of actions to get credit moving.
First, we are overhauling our “Single Family Housing Policy Handbook.” Now I doubt a document called the “Single Family Housing Policy Handbook” will ever be remembered by history like the “Bill of Rights” or the “Declaration of Independence.”
But you know how important it is. It streamlines the compliance process by bringing together over 900 mortgagee letters and other policy artifacts into a single document.
The first major section of the Handbook covering new loan originations has been published as final after getting your valuable feedback and will be effective next June. Additional sections have already been posted for feedback and we expect that the Handbook will largely be completed next year.
This is an important accomplishment and should give you confidence that you understand FHA’s policies and its expectations for compliance.
Second, we have announced our “Supplemental Performance Metric” to capture a more in depth view of a lender’s portfolio performance. Right now, FHA relies solely on a metric that compares a lender’s default performance against peers in its local market — and this simply doesn’t paint a complete picture.
The Supplemental Performance Metric addresses this by focusing on a lender’s performance compared to those also doing business in the credit score range that FHA is targeting. This idea came from you and we have embraced this concept to encourage broader access.
We’re finalizing this work and expect it to be available early next year. This will minimize the “Credit Watch Termination” risk for lenders moving to support credit-worthy borrowers with lower credit scores when their peers do not.
Finally, we’ve released a draft version of something we call a “Loan Defect Taxonomy.” Now, I sometimes get confused looks because folks think I’m talking about taxidermy — but you know what I mean.
This is a new way of looking at loan defects and it’s going to be a critical tool for our partners. FHA historically has used 99 different codes to describe defects in loans.
The taxonomy will bring this down to nine distinct categories, and offer some new insight into the significance of the deficiency. This new approach will give lenders the information they need to clearly identify where their challenges are and allow them to make changes.
It will allow FHA to monitor trends in deficiencies and determine if policies can be enhanced to help lenders avoid deficiencies. Together, we expect these changes will bolster your confidence so that you can originate more loans to credit-worthy borrowers in FHA’s credit box.
And to produce the best products, we’ve been engaging with partners like you every step of the way. I want to thank you for that help and I’m eager to continue working with you to give lenders the tools you need for the future.
We’re also working to give borrowers new tools as well. Our Homeowners Armed With Knowledge initiative—also known as HAWK—will allow homeowners who commit to housing counseling to qualify for reduced mortgage insurance premiums.
This will increase the pool of responsible borrowers and save the average FHA buyer nearly $10,000 over the life of the loan. This is good for our business, your business and, of course, for families.
Across the board, our Blueprint for Access is a big win for the housing market — and we’ll continue to work tirelessly to turn this blueprint into progress on the ground.
And HUD’s not stopping with FHA. Ginnie Mae is kicking off a pilot program to give small financial institutions more access to the secondary market.
In partnership with the Federal Home Loan Bank of Chicago, the effort allows members that do FHA, VA lending and Rural Housing loans to have access to our full-faith and credit guarantee, and get the execution that provides for their loans.
As a result, participating community lenders will get a better price in the marketplace, and use that capital to make credit available for other loans. Building on this success, we’ll be launching a nationwide effort in the first quarter of next year so more lenders can benefit.
My team is also working to help more Veterans buy a home. The VA program limits its loan guarantee to a maximum of 25%. This leaves a lot of small lenders awfully exposed and reluctant to offer Veterans credit under this initiative.
So Ginnie Mae is in discussions with private sector partners to design a program that would allow lenders to purchase additional insurance to supplement the VA guarantee.
In doing so, they can feel confident when offering these loans — giving more of our nation’s heroes a chance to buy a home in the country they risked everything to protect.
Overall, through Ginnie Mae and FHA, HUD will continue to do all we can to get credit flowing freely.
But we also know there are limits to what we can do. That’s why we continue to fight for Housing Finance Reform. We must use the bipartisan momentum that’s been generated to date to build a 21st century housing market that ensures opportunity for all those who work for it.
It’s time to get this done, once and for all.
Now, these goals won’t be achieved by themselves. Progress is never inevitable. Progress is a choice. Progress is a commitment — and it requires partnership.
Now, there’s no question that we will sometimes have our differences of opinion. But you and I, we share a common interest.
We all want a healthy and growing housing market. We all want credit flowing freely and responsibly. We all want to restore the trust between borrowers and lenders, industry and government.
And so my message to you is this: let’s work together. Americans are counting on us to get this right. Through partnership, I know we will and help more folks gain access to the American Dream.