Remarks of Secretary Julián Castro
NYC Stern School of Business
Monday, November 16, 2015
New York, NY
As prepared for delivery
Thank you very much, Dean (Peter) Henry, for your kind words and your leadership of the Stern School of Business. You’re doing incredible work here, and it’s great to see you today. And thank you for ordering up this nice Texas weather.
Let me thank all of you: the students, business leaders, and community partners in the audience and watching online. I’d also like to recognize HUD’s Principal Deputy Assistant Secretary for Housing, Ed Golding, and his entire team for their service on behalf of the American people.
And a huge thanks to the Stern School of Business for hosting us today, and for the work you’re doing to empower others with the knowledge and the knowhow to achieve their dreams and make an impact on the world. This is a tremendous institution, and I’m honored to be here.
As students of business history, the Stern community knows better than anyone that our nation has long been considered the world’s undisputed land of opportunity. America is where Henry Ford dreamed of making cars affordable for families and invented the moving assembly line to make it happen.
It’s where two guys in their twenties developed a photo-sharing app called Instagram and, 17 months later, sold their company for $1 billion — even though they had just 13 employees and no office furniture. And it’s where NYU-graduate, Ursula Burns, made her journey from public housing to the corner office at Xerox, where she became the first African American woman to lead a Fortune 500 company.
The countless other stories you won’t read about in a magazine are every bit as telling — young adults who’re the first in their family to graduate college, the baby boomer who rose up the ranks from factory worker to manager, the elderly couple that’s retired comfortably in the neighborhood they love.
Without question, America is at its greatest when hard work is rewarded with opportunity. And for generations, HUD has extended this opportunity to folks from all walks of life.
This year is a special one for HUD: our 50th Anniversary. In 1965, when President Lyndon Johnson signed the HUD Act into law, he said that our work could give every family a home of dignity, a neighborhood of pride, a community of opportunity and a city of hope. Though the times have changed, our commitment to those ideals hasn’t.
I’m proud to say that HUD’s 8,000 dedicated employees strive every single day to give families the tools to better their lives, and our commitment to homeownership is central to this work. The chance to own a home has long been a cornerstone of the American Dream.
It’s represented a place to build a life, an avenue to accumulate wealth, and an accomplishment to take pride in. And for decades, American families have relied on HUD’s Federal Housing Administration to make their dreams a reality.
FHA has helped more than 44 million Americans become homeowners. It’s supported more than half of all first-time homebuyers. After years of intentionally excluding communities of color, FHA—now a part of HUD—has become a source of hope by insuring loans to half of all African American and Latino homebuyers in recent years.
It helped build the middle class, and opened doors for underserved families that would’ve been closed otherwise. And today, HUD is laser-focused on strengthening FHA for the long-term, and on bolstering a growing housing market so that it works for everyone.
Our approach in making this happen is simple: have faith in people who’ve established a record of responsibility. Level the playing field for those who’re ready and willing to buy a home. And, in doing so, spark billions in economic activity — from the construction site, to the realtor’s office, to the local hardware store. The President has already put safeguards into place to prevent the abuses that got our nation into the housing crisis. Now we’ve gotta focus on giving folks the opportunity to lift themselves up.
That’s why FHA lowered our Mortgage Insurance Premiums last January — too many folks were priced out of homeownership. Premiums had risen 145 percent in response to the crisis. FHA was collecting an average of $17,000 in fees on a loan when the average risk was a loss of $4,700.
Hardworking Americans of the present were being charged for the mistakes others made in the past. So we lowered our premiums to make homeownership more affordable for responsible families. This move was necessary for both the families being shut out, and the economy as a whole.
Now, I work in Washington, DC — a place where you can’t walk down the street without attracting some criticism. So, of course, some folks criticized the MIP reduction. They said it would damage FHA’s fiscal health. One person said it would continue a cycle of busts and bailouts. Nothing could be further from the truth.
Today, the housing market is better off because of our actions. Our total volume is up 50% over the first six months of the year compared to 2014. And we served 75,000 new, responsible borrowers with credit scores of 680 below — folks that the conventional lenders were shutting out like Paul and Tomeka Gueory.
A few years ago, Paul injured his back while on the job and needed spinal surgery. Then they lost everything during the housing crisis. The Gueorys moved in with family, and told me how they fought every morning to keep a smile on their face for their children. Although they were down, they weren’t done. They didn’t give up.
Tomeka held her job in IT. Paul got better, and they kept working, and saving, and striving, and dreaming. And all that effort paid off when they bought a house thanks to FHA and its MIP reduction. The Gueorys are proof that when you invest in the American people, when you give hard-working folks opportunity — our nation benefits.
Our housing market is full of momentum. Sales of existing homes are the strongest in years. Home prices are at the highest levels since 2007. And families have built nearly $6 trillion in housing wealth since April of 2009.
This progress in housing is strengthening the overall economy: a record 68 straight months of private sector growth. More than 13.5 million new jobs. An unemployment rate cut in half. Wages on the rise. Our nation is writing a great economic comeback story. FHA is playing an important part. And we’re working to ensure that it’s in a strong financial position to keep helping future generations.
It’s no secret that 2008 was the beginning of some difficult years for the American people. New Yorkers had a front-row seat to this turmoil when institutions like Bear Stearns and Lehman Brothers collapsed. The financial markets buckled and private mortgage lenders froze. So FHA stepped up. It gave folks a place to go to refinance or get credit, and it put a floor under the market. Independent economists say that FHA prevented housing prices from dropping another 25%, home sales another 33%, and construction another 60%.
It saved 3 million jobs and half a trillion dollars in economic output. FHA rescued the housing market, but that increased exposure came at a cost. Our Mutual Mortgage Insurance Fund—FHA’s main funding source—suffered significant losses, largely due to the loans insured from 2007 to 2009. This put FHA’s reserves below the Congressionally-mandated 2 percent capital reserve ratio.
So we took aggressive action to improve our underwriting standards. We introduced a credit score floor. We required a higher down payment from borrowers with a FICO score under 580. And we imposed higher minimum net worth requirements for lenders.
These actions worked. In Fiscal Year 2014, after falling into the red, FHA got back in the black thanks to $21 billion in growth to the fund over a two-year period. And that progress continues today.
This morning, I’m proud to announce that in Fiscal Year 2015, the Federal Housing Administration’s Mutual Mortgage Insurance Fund has reached a capital ratio of 2.07 percent — the first time since 2008 that it’s been above the statutory requirement of two percent.
I’m pleased to report that we’ve restored the Fund’s fiscal health. 2 percent shows that we’ve found the right balance between strengthening our finances and fulfilling our mission. 2 percent shows that reducing our annual premiums was the right move for the housing market and—despite what the critics predicted— didn’t hurt our bottom line.
2 percent shows that our books of business are among the strongest in our history with cash reserves going up and delinquencies going down. And 2 percent shows that FHA is in its best position in years, and looking ahead, we’re going to use our strength to serve the American people.
That’s what we do: we invest, we support, we strengthen. We’ve been doing it for the last 50 years, and we’re building on this legacy every day.
Three weeks ago to mark the third anniversary of Hurricane Sandy, I visited the Breezy Point neighborhood of Queens. The storm struck the community hard — damaged homes, destroyed businesses, crumbling infrastructure. Yeah, that was a strong hurricane. But the residents of Breezy Point were stronger. Breezy Point was their home. They stayed. They rebuilt. They worked to make their community better than before. And each day brings new progress.
On the day I visited, I met a couple, Eamonn and Roseanne Cunningham. And, with Mayor de Blasio, I had the honor of handing them the keys to their renovated home, which had been restored with HUD dollars. After we’d taken some pictures, as we were about to say goodbye, Mr. Cunningham turned to me and said “Lyndon Johnson would be proud.” And you know, I bet he would be.
He’d be proud that we helped the Cunninghams secure a place to call home again. He’d be proud that we’ve kept the dream of homeownership alive during the greatest financial crisis of our lifetimes. He’d be proud that FHA is in a strong place to serve the underserved. He’d be proud that we view every day as another chance to make a difference.
And we’re going to keep at it. We’re going to keep on empowering, keep on helping, and keep on investing to grow the middle class and strengthen the housing market so that we can all say about this incredible chapter in our nation’s history that HUD, and its Federal Housing Administration, did its part to ensure that the United States remained the undisputed land of opportunity for generations of American families.