Remarks of Under Secretary for Domestic Finance Mary Miller at the Governor’s Housing Conference on Restoring Communities Across Maryland


As prepared for delivery

BALTIMORE, MARYLAND – October 17, 2013 – (RealEstateRama) — Good morning. Thank you, Secretary Skinner, for that kind introduction, and thanks for inviting me here today. I’m grateful to have the opportunity to talk about the housing market with you, and in my own hometown no less. Although I now spend most of the week in Washington, I’m proud to call Baltimore my home.

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I want to acknowledge Governor O’Malley and Secretary Skinner’s tremendous efforts to help homeowners and renters here in Maryland recover from the worst financial and economic crisis since the Great Depression. We have paid close attention to some of the initiatives undertaken in Maryland to aid the housing market. Frankly, I’m not surprised. Baltimore was a leader in some of the country’s most innovative housing programs in the 1970s and 1980s including urban homesteading and better access to rental housing. We only have to look at the neighborhood around this new hotel and our beloved Camden Yards to remember what has been accomplished to restore this area.

As Under Secretary for Domestic Finance, I have a broad portfolio of responsibilities. I am deeply involved in financial regulatory reform, monitoring the economy and markets, managing our national debt, and overseeing the wind-down of our TARP investments. Among all of this work, housing is a core focus so that we can help homeowners and strengthen our economy.

Today, Treasury plays a large role in shaping housing policy – a role unheard of as recently as five years ago. This is largely due to the financial impact of the housing market crisis and the collapse of Fannie Mae and Freddie Mac, which resulted in their conservatorship in the fall of 2008. To be sure, we work closely with our colleagues at the Department of Housing and Urban Development, the Federal Housing Finance Agency and other government agencies. But Treasury’s involvement reflects the Administration’s commitment to use every resource at its disposal to help distressed borrowers and neighborhoods, and rebuild a stronger housing finance system.

The depth of the crisis guaranteed that we would have a long road to travel. In the wake of the crisis, home prices, which had not declined nationally since the Great Depression, collapsed by nearly a third. Nearly one in four homeowners owed more on their mortgage than their home was worth. Mortgage delinquencies had more than doubled from their pre-crisis levels. And nearly one in ten single-family loans was seriously delinquent or in foreclosure.

When the President came into office, the housing market was in a freefall and credit markets were frozen. Fixing this required an around-the-clock, all-hands on deck approach. We worked with Congress to implement tax credits for first time homebuyers. We bolstered state and local housing finance agencies with borrowing assistance. We supported neighborhood stabilization and community development programs. We introduced mortgage modification and refinancing initiatives that helped families stay in their homes and transformed a mortgage servicing industry that was woefully unprepared for a crisis of this scale. And Treasury and the Federal Reserve committed substantial financial support to help keep mortgage rates low, ensure Americans could continue to access mortgage credit, and prevent the bottom from dropping out of the housing market.

These policies were critical to averting an even more severe, protracted housing crisis. And around the country, we see conditions in the housing market and broader economy gradually improving. The U.S. economy is getting stronger, registering 12 straight quarters of growth. GDP has recovered to its pre-crisis levels and the stock market is close to its 2007 high. The private sector has added over 5 million jobs over the last two and a half years.

These factors have helped support the housing market, which is also showing signs of improvement. Today, fewer borrowers are falling behind on their mortgage payments. Foreclosures are easing. And most recently, home sales, housing starts and home prices have all improved. These developments all support the very goals you are discussing here today: restoring communities, expanding housing choices, strengthening the housing market and creating jobs.

While we are seeing progress in the economy and housing market, we know that there is still a lot more work to do, in Maryland and elsewhere. And that’s ultimately the point of this conference, and so I’m especially glad to see so many people who have been on the front lines here today. The Administration wants to work with you to continuing to develop, strengthen, and refine our housing programs to support the housing market and continue to grow the economy.

Today, I want to talk about the Administration’s housing programs and how we can continue to work together to help homeowners and communities.

Perhaps Treasury’s best-known assistance program is the Home Affordable Modification Program, or HAMP, which helps struggling homeowners achieve more affordable payments and remain in their homes.

Since the spring of 2009, over 1.3 million borrowers have received a permanent HAMP mortgage modification or related assistance, and an additional 1.4 million borrowers have received help through the Federal Housing Administration, including many borrowers here in Maryland. Importantly, HAMP introduced standards on how to make modifications successful, as well as new consumer protection guidelines for servicers —who were, in most cases, completely unequipped to handle the rise in mortgage defaults.

As a result, nationwide, HAMP helped catalyze an additional three million private sector mortgage modifications by establishing the guidelines that most lenders follow today. Now, because of HAMP, servicers know how to design modifications so that they make economic sense not only for the homeowner, but also for the owner of the mortgage.

HAMP has also been instrumental in improving practices for troubled borrowers by introducing detailed “single point of contact” guidelines. These guidelines help ensure that a homeowner seeking assistance can receive personalized help from a mortgage servicer, to reduce time and avoid lost or misplaced paperwork. These guidelines have caused the biggest servicers to re-examine – and in many cases start providing –customer service for homeowners.

Servicers’ business models before the financial crisis were as payment processors, receiving payments from borrowers and passing them on to the owners of the loans. Today, servicers have learned, and mortgage investors demand, that the servicers need to work closely with struggling borrowers, and build a sensitive, customer-oriented system working to provide homeowners with solutions that prevent a foreclosure.

We also worked closely with the state Attorneys General and the Department of Justice in the national mortgage settlement over foreclosure practices. The HAMP standards served as a basis for many of the servicing standards required by the settlement. Maryland received $60 million under the settlement. I am pleased to see that these funds will be used by the state for neighborhood stabilization programs, housing counseling and legal aid programs, and combating mortgage fraud, among other purposes.

As you all know, helping homeowners refinance into more sustainable mortgages and take advantage of today’s historically low rates is also a major tool in our toolbox. So far, more than 1.5 million Americans have taken advantage of the Home Affordable Refinance Program (HARP). We’ve seen a recent surge in participation as deeply underwater borrowers have become eligible to refinance their mortgages as long as they are current on their payments. And like HAMP, HARP has taught us best practices, and proven that refinancing to a lower cost mortgage reduces the risk that a borrower will default.

But today, only homeowners whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac are eligible to participate in HARP. We want to expand refinancing opportunities for responsible homeowners regardless of who owns their loans, and the President is calling on Congress to do just that. This will continue to be a priority going forward.

These loan modification, refinancing and foreclosure programs have directly helped struggling homeowners, and have also reached even more homeowners by serving as models for private lenders operating outside of government guaranteed loans.

I also want to briefly mention two other areas of focus: Treasury developed standards to facilitate responsible short sales where appropriate, and has also worked with the FHFA to conform the short sale standards of Fannie Mae, Freddie Mac, and Treasury. Short sales, deeds-in-lieu and non-performing note sales are playing an increasingly large role as alternatives to foreclosures; this helps to stabilize housing prices and provide dignified alternatives to families for whom loan modifications don’t work. By avoiding foreclosures, these alternatives can minimize the damage to our neighborhoods and communities.

We are also working with FHFA to explore better ways to manage the resolution and disposition of the GSEs’ book of non-performing loans. Shifting the risk and servicing responsibility to special servicers, who have expertise in loan workouts, could give such servicers more flexibility to determine modifications or find faster resolutions for troubled borrowers. Several states, using Treasury’s Hardest Hit Fund, are experimenting with this approach by purchasing non-performing loan purchases from private lenders. So far, there is a great deal of interest in this innovative approach, and we hope for positive outcomes for individual borrowers as well as for local housing markets that should see fewer properties going into foreclosure.

We want these programs to reach as many homeowners as possible. Of course, no matter how many targeted programs we’ve designed, a homeowner that’s in trouble must know that this assistance is available and communicate when they need help. That’s where local government and local industry can help connect struggling borrowers with the resources we can offer, and that’s a reason why I’m glad to have the opportunity to speak with all of you here today.

We have also worked with state housing finance agencies to keep credit flowing to first-time home buyers and to encourage the development of affordable rental housing. Many of you may be familiar with one of the crucial elements of the 2009 Recovery Act which provided critical and timely support for Low Income Housing Tax Credits. As investor appetite for these tax credits dried up in the midst of the financial crisis and recession, this program allowed 55 state housing finance agencies to exchange tax credit allocations for cash. This exchange provided well over $5 billion to state HFAs to spur the development of affordable housing and create jobs – all told almost 1500 housing developments were constructed or redeveloped, with more than 89,000 rental units. Meanwhile the benefits of this spending spilled over to the broader economy.

I’ve talked about these programs and initiatives at the federal level, to provide some context for understanding the response to a deep and protracted housing downturn. However, at the same time as we continue to manage and refine these housing programs, we are also looking forward—to determine how we can build a stronger and safer housing finance market that considers the lessons of the financial crisis.

We believe reform should preserve those elements of our nation’s housing market that work well, while addressing the flaws that put taxpayer dollars at risk and placed our economy in such jeopardy. Our overarching goal is to strike a balance that preserves access to affordable mortgage credit in all communities for creditworthy borrowers across income-levels, while also strengthening the long-term health of the housing market and our economy.

As my colleagues and I have said in the past, guiding these decisions will be our strong view that the government’s role in the housing market should be limited to three core responsibilities:

consumer protection and strong oversight of mortgage market practices; targeted assistance for low- and moderate-income homeowners and renters; and ensuring market stability through economic cycles. That includes bringing more private capital back to the market, so Fannie Mae and Freddie Mac can be wound down responsibly and the government’s footprint in housing finance can shrink, without interrupting access to mortgage credit.

We are also focused on exploring ways that we might improve access to mortgage credit now. Even though today’s low interest rates mean that homeownership is at its most affordable level in recent history, many creditworthy people still struggle to obtain a loan.

That is why we were pleased to see the FHFA act to make it easier for lenders to extend credit by making changes to representation and warranty guidelines. The new guidelines will significantly shorten the period of time in which the GSEs can require a lender to buy back a troubled loan that they have guaranteed. These guidelines also call for quality control reviews closer to the time of origination, rather than at the time of default to catch problems earlier. By giving lenders a clearer sense of the conditions under which they may be forced to repurchase loans from Fannie Mae and Freddie Mac, they should be more confident in extending credit.

This specific example highlights both the experience gained from the housing crisis as well as the level of complexity in solving problems like access to credit.

One significant issue in reforming housing finance I want to highlight here is addressing the need to promote rental housing as well as homeownership. We want to help make sure all Americans have access to quality housing they can afford.

Our approach should support credit-worthy but under-served families who want to own their own home, as well as affordable rental options with access to quality jobs and schools for the one-third of Americans who rent their homes.

As we move forward to address the challenges of affordability and access, we can’t neglect to account for how those issues impact renters. Today, half of all renters spend more than a third of their income on housing, and a quarter spend more than half. And for low-income renters, adequate and affordable homes are increasingly scarce; only 32 out of every 100 extremely low-income American families have access to affordable rental homes.

The Administration is exploring different ways to provide greater support for rental housing. One approach – but not the only approach – is to expand FHA’s capacity to support lending to the multifamily market. The President’s 2013 budget proposed making FHA’s special risk-sharing program with housing finance agencies Ginnie Mae-eligible. This should lower the cost of capital for affordable rental investments.

In closing, I want to make it clear that we know the health of the housing market is important to the long-term strength of the U.S. economy. I’m encouraged by our progress as we move toward a more sustainable housing finance market – but I’m also conscious of the complexity and difficulty of the task. I am frequently reminded of the old adage that all real estate is local. For example, housing markets where a large portion of homeowners are deeply underwater need different approaches than states where debt ratios are lower, but unemployment remains stubbornly high. There is no single federal, state or private sector program that will solve all of the problems left by the legacy of the crisis.

We all know the critical role that housing plays in the economy. And that is why the themes of this conference are the same things we are focused on at the Treasury: expanding housing choices, creating jobs, and restoring communities – in Maryland and across the country. We have made significant progress, and the Administration’s housing programs have helped many homeowners and served as a template for many private sector initiatives. We also know that fundamental change in the future of housing finance is necessary. We look forward to working with you so that the housing sector can be a source of stability and security for communities and cities like Baltimore, and for our nation’s economy overall.

Thank you.

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