PREPARED REMARKS FOR DAVID H. STEVENS ASSISTANT SECRETARY FOR HOUSING FHA COMMISSIONER U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AT THE THE WORLD BANK 4 TH GLOBAL CONFERENCE ON HOUSING FINANCE IN EMERGING MARKETS WASHINGTON, DC THURSDAY, MAY 27, 2010 [Please Note: These are prepared remarks. The Commissioner may add or subtract from these remarks during the course of his presentation. Portions of the text may be omitted during the speech.] - INTRODUCTION Thank you and good morning. It is a pleasure to be here and have the opportunity to speak to such a distinguished group of leaders. This conference could not be held at a more critical time. And, it is a great time to be in Washington, DC. History is being made. Financial Reform is on the horizon, the FHA Reform Act goes to House vote shortly, and because of the efforts of this Administration, we are beginning to see signs of economic recovery. These are unprecedented times. This housing finance system nearly brought the US economy to its knees. We know how it happened. What brought us to this place. Whether it was by providing exotic mortgages to gain market share or pushing the limits of underwriting standards, industry players knew that there was an over exuberance taking place. Housing as a means of shelter became almost secondary to housing as an investment strategy. Some say we brought this pain on ourselves. As the housing bubble got bigger, we created a system that ultimately was built on a house of cards. And everyone knows what happened next. So, as we move through this crisis, the housing finance industry has to take responsibility and make necessary change. We have experienced vast changes in the housing market. And, as we come through this crisis, Americans will have a changed industry. One that is more accountable and responsible. One that has integrity, transparency and consumer protections. We should expect no less, and we should demand these traits. 1
ADMINISTRATION ACTIONS The government had no choice but to intervene. It was an obligation, not an option. A year ago the U.S. financial system was on the brink of collapse and house prices were falling rapidly. Many were predicting a second Great Depression. We were losing an average of 753,000 jobs a month. Credit was frozen nearly solid. And, house prices were in freefall having fallen very month for 30 straight months since August of 2006. Home prices fell by nearly a third in that time and were expected to decline by another 5 percent by the end of 2009. This Administration faced enormous challenges. Fifteen months later, the nation s housing market is returning to stability. At the macro level, both the Federal Reserve and the Treasury intervened to keep interest rates at historic lows. This helped stabilize housing markets and the broader economy. The Recovery Act expanded the $8,000 First-Time Homebuyer Tax Credit and according to tax returns processed through the end of March, more than 2.2 million homeowners have claimed nearly $16 billion in tax credits since the program s inception in 2008. We continue to see progress. Yesterday we learned, as of April, new home sales are up 47.8 percent year over year and existing home sales for April are up 7.6 percent. This is welcome news. Nationally, inventory was down. The number of months for inventory turnover was down. And the price of new homes was up from over a year ago. The Washington Post recently reported new investor confidence in jumbo loans, which dropped from about 20 percent of the housing market in 2005 to about 2 percent of the market now. Lower rates have put money in families pockets and in state and local coffers. The more than 4 million borrowers who have refinanced in the past 15 months have saved an average of $1,800 per year on housing costs pumping over $7 billion annually into local economies and businesses, generating additional revenues for our nation s communities. These actions, taken together has begun to restore the confidence we need to get our economy moving, creating 290,000 jobs last month, the largest monthly increase in four years. This Administration has made foreclosure prevention a priority which has helped millions of homeowners keep their homes through vigorous, pro-active loss mitigation efforts. In fact, there is some good news. RealtyTrac s monthly US Foreclosure Report shows foreclosure activity decreased 9 percent in the month of April. For FHA borrowers alone, loss mitigation efforts over the past 18 months have saved 650,000 homeowners from foreclosure. We have been working with Treasury through the Making Home Affordable program to help troubled borrowers with mortgages not insured by the government. As of the end of April, 1.2 million families at risk of foreclosure have benefited from HAMP trial 2
modifications and nearly 300,000 families transitioned to a permanent modification with a median savings of over $500 per month in mortgage payments. However, two of the biggest threats to our housing recovery today are unemployment and underwater borrowers. Foreclosures are increasingly being driven by homeowners who find themselves unemployed or underemployed and can no longer make payments that were once affordable. Making matters worse, these borrowers often can t move to find a new job because they can t sell their homes because they owe more on their house than it is worth. At the end of last year, more than 11.3 million, or 24 percent, of all residential properties with mortgages were underwater, with five states Arizona, California, Florida, Michigan and Nevada accounting for 55 percent of the total. But the Administration and the market are responding. We have made changes to HAMP so that unemployed borrowers can get up to six months of relief while they look for work. And with investors and lenders increasingly concluding that it is in their interest to write down the value of underwater mortgages rather than incur the substantial cost of foreclosure, the Administration has recently introduced additional options to HAMP and FHA refinances that will leverage this private sector interest to catalyze significantly more principal reduction than government ever could provide on its own. As a result, some borrowers, who are now in mortgages that place them dangerously close to default, will have their loans modified or refinanced into more sustainable loans. By creating a framework for expanded FHA refinancing that relies primarily on loan originators as opposed to servicers, we believe there will be greater capacity to process these applications than homeowners have previously experienced. And by lowering barriers to principal write-down, the vast majority of the burden of writing down these loans will fall where it belongs: on lenders and investors, not on the taxpayer. Analysts like Amherst Securities Laurie Goodman have said that helping underwater borrowers is key to stemming the tide of foreclosures and that our HAMP and FHA changes represent a very important development. Mark Zandi of Moody s Economy.com as well has said that helping another million homeowners could be the difference between a double-dip in house prices and continued stabilization and believes that our changes have a very good chance of helping us reach that goal. And with new resources for state Housing Finance Agencies to develop innovative ways of stopping foreclosures in the hardest-hit markets, we believe all these actions will help to stabilize housing prices, the market, and our economy alike. 3
Where someone can t stay in their home, we re going to help them make the transition out of homeownership as smoothly as possible. Our Home Affordable Foreclosure Alternatives program went into effect earlier this month and will help to prevent costly foreclosures by providing incentives for servicers and borrowers to pursue short sales and deeds-in-lieu. Through $6 billion in two rounds of Neighborhood Stabilization funding, we re helping localities work with non-profits and CDCs to turn tens of thousands of abandoned and foreclosed homes that drag down property values into the affordable rental housing communities need. With this comprehensive but balanced approach, the Administration is providing responsible homeowners opportunities to prevent avoidable foreclosures and, for some homeowners, helping them make the transition into rental housing while also helping hard-hit communities avoid falling back into a spiral of oversupply and price declines. Collectively, we believe the result will lay the groundwork for more sustainable homeownership, for more stable communities and for a stronger housing market that makes home an asset families can rely upon once again. FHA AND RECOVERY The Federal Housing Administration (FHA) continues to play a pivotal role in housing recovery. Our growing market share has helped stabilize and sustain the housing market. Three years ago, when the housing market went into a slow, shattering downward dive, FHA was only about 2-3 percent of the housing market. We had been shoved aside in favor of wild, novelty mortgages that were an illusion no savings, no security, no stability. But then, after the housing market crashed, FHA had to step in to play a vital role. Over the last three years, FHA reacted by increasing its market share dramatically, helping those in need, especially those with low incomes and homeowners from minority communities. The seismic shift in FHA s market share is a significant part of our recovery. FHA insured nearly 30 percent of the single family mortgage market in 2009 insuring 1.9 million loans up from 1.1 million in 2008. In 2009, more than 50 percent of first-time buyers used FHA; nearly 80 percent of our purchase loans are to first-time homebuyers. In 2009, approximately 835,000 borrowers refinanced into lower interest rate FHA insured loans, saving them an estimated $1.3 billion. I would shudder to think of where the housing market and the economy would be without FHA. There would have been hundreds of thousands more foreclosures without our efforts. And because we provided liquidity at a time when it was desperately needed, we may have saved hundreds of thousands more homeowners and the many industries involved in the housing market -- realtors, homebuilders, lenders and those who service new homes with furniture and appliances. 4
FHA s countercyclical role in the mortgage market highlights the need for updates to the FHA program. These updates will come through a series of administrative changes to the program as well as through the passage of HR 5072 the FHA Reform Act of 2010. This bipartisan bill will provide FHA the ability to hold lenders accountable for the loans they underwrite and gives FHA the flexibility to respond to changes in the marketplace by granting additional authority to adjust the annual mortgage insurance premium and, in turn, reduce the upfront mortgage insurance premium paid by borrowers. If these changes are adopted during the current fiscal year, the estimated value to the MMI fund would be approximately $300 million per month, which would replenish FHA s capital reserves even faster than if this authority was provided through the annual appropriations process. CONCLUSION The housing market is slowly starting to come back, and it will be stronger than ever because of the changes made over the last year. Today, I ve outlined the Administration s comprehensive, balanced approach to tackling the housing crisis. We are doing what it takes to provide responsible homeowners opportunities to prevent avoidable foreclosures and, for some homeowners, helping them make the transition into rental housing. As we look forward, we will need to make the housing market sustainable, with steady, manageable, and solid growth. For this to happen, we will need transparency, responsible actions, sound investments, and best practices throughout the industry. And this is the time for all of us to set in place the programs and safeguards necessary for a sustainable housing market. Of course, it won t be easy. There are some actions that will be strongly opposed. But, in the end, we have to join together to oppose predatory lending, fraud, and irresponsible business practices that threaten the housing industry and the financial security of homeowners and people trying to save for retirements. We have to create a climate of trust and confidence that will attract investors and free liquidity. If we are wise now, the market will be healthier and more secure in the future. There is a lot of opportunity ahead. With the growing population, we a housing finance system that is stronger, with more integrity, more responsibility, and more accountability. Our goal must be nothing less than to craft a solid, sustainable housing market, a market with a secure foundation based on trust and integrity for the future. Thank you again for inviting me here today. #### 5
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