This morning, Treasury Secretary Tim Geithner and I unveiled the Obama Administration’s release of a strong plan to fix the fundamental flaws in the mortgage market and improve the way government supports affordable homeownership and rental housing. The plan puts real ideas on the table to preserve access and affordability for years to come in our housing markets.
Much of that work began with the Obama Administration’s work to help stabilize the housing market and provide critical support for struggling homeowners. Whether it was working with Congress to put in place expanded tax credits for first-time homebuyers and provide additional support at the state and local levels, unveiling our mortgage modification and housing counseling programs to keep responsible families in their homes, or providing ongoing financial support for Fannie Mae and Freddie Mac following the Bush Administration’s decision to place them into conservatorship, this Administration moved swiftly to preserve access to our mortgage markets at a moment they were threatening to seize up entirely.
But now the time has come to reform the housing finance system and shrink the government’s current footprint in it while ensuring that Americans still have access to quality housing they can afford.
As the report makes clear, this Administration believes this should involve supporting a range of affordable options. While sustainable homeownership founded on safe mortgages continues to be an important source of stability and opportunity for American families, that doesn’t mean every American should become a homeowner. Indeed, this report makes clear that this Administration believes there should be a range of affordable options for the millions of Americans who rent as well.
That’s why the Administration’s new report recommends initially focusing on four primary areas:
First, by reforming and strengthening the FHA.
• We will continue to ensure that creditworthy borrowers that have incomes up to the median level for their area have access to affordable mortgages – and we will do so in a way that is healthy for FHA’s long term finances. We will consider options such as lowering FHA’s maximum loan-to-value ratios for qualifying mortgages to ensure it remains financially sound and able to continue its mission providing access to homeownership for first-time homebuyers and underserved markets.
Second, by providing targeted, transparent support for affordable rental housing.
• Right now, half of renters spend more than a third of their income on housing – and a quarter spend more than half. And more support for rental housing is directly related to encouraging the return of private capital. One option, as we shrink FHA’s footprint in the single-family market, could be to share risk with private lenders to expand FHA’s capacity to support lending to the multifamily market.
Third, by helping ensure that capital is available to credit-worthy borrowers in all communities.
• The plan calls for greater transparency by requiring securitizers to disclose information on the credit, geographic, and demographic characteristics of the loans they package into securities. And the Administration will explore other measures to make sure that secondary market participants are providing capital to all communities in ways that reflect activity in the private market, consistent with their obligations of safety and soundness.
Lastly, by providing consistent, flexible, and transparent funding.
• Reliable funding for affordable housing was the goal of the National Housing Trust Fund created by Congress in 2008 – but it has never gotten off the ground. The Administration is committed to working with Congress on developing a new dedicated, budget-neutral, financing mechanism to support homeownership and rental housing.
While today we are talking about our report to reform our nation’s housing finance market – let’s be clear: this process started virtually the moment we took office.
At the FHA, we have implemented important changes and reforms over the last two years including strengthening underwriting standards, improving processes and operations, and raising prices that have significantly improved their financial condition.
Since Fannie Mae and Freddie Mac were placed into conservatorship, the FHFA has strengthened underwriting standards and adjusted pricing to better reflect risk as well. Key indicators show that the quality of loans they are making has improved substantially. As a result, the vast majority of the losses are from loans made prior to conservatorship.
Finally, the Dodd-Frank Wall Street Reform law provides vital protections for consumers and investors that will help end abusive practices in the mortgage market and improve the stability of the overall housing finance market.
But these measures are only first steps. That is why we need to work with Congress on a long-term solution that brings private capital back to pave the way toward the balanced national housing policy – that ensures Americans have rental options near good schools and good jobs, access to credit for those in a position for sustainable homeownership, assistance for those who feel the strain of high housing costs, and above all, choices in housing that make sense for them and for their families.
Bringing us closer to that goal is what our new report is about – and it’s why I was so pleased to be a part of making it possible.