RISMEDIA, June 27, 2007–The U.S. Department of Housing and Urban Development hosted a Homeownership Summit with leading California stakeholders in the housing community to discuss the impact of risky, high-priced loans and the need for safer, more affordable mortgage alternatives. Delivering the keynote address, HUD Secretary Alphonso Jackson pledged to continue pushing solutions for helping Californians get into and stay in their homes.
“For the past several months, we have been confronted with a sobering, steady series of stories: inappropriate sub-prime loans, predatory lending, staggering rates of foreclosure, and higher mortgage rates. We must give Californians the highest possible confidence in the housing purchasing process and make homeownership available to every one who wants a home and can safely afford one,” Jackson told more than 150 representatives from the housing industry, including mortgage brokers, bankers, housing counselors and consumer advocates.
In agreement with recent statements by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, Jackson said the economy remains strong and adjustments in the housing market are underway. But it could take two years or more to overcome the large inventory of homes for sale and complete the market correction, Jackson added. While 80% of subprime loans made in 2005 and 2006 are secure, Jackson said he is concerned about the remaining 20% whose mortgage payments will increase.
“For some people with exotic loans, what they see is not always what they get. Some families are, or will, have trouble affording the new higher payments. These are the loans that we must follow carefully over the next few months. We can help those with problems through housing counseling,” Jackson added.
A recent HUD-sponsored homeownership summit in Washington, D.C. revealed that half of all homeowners facing foreclosure are afraid to contact their lender for help. Jackson said he encourages families to contact one of the 2,300 HUD-approved housing counseling programs, which offer a wide array of services for buying a home, avoiding predatory lending, and assisting homeowners facing default. The Bush Administration has increased the budget for counseling from $13 million to $41 million – over a 200% increase. In the coming fiscal year, the President has requested $50 million for housing counseling grants.
Jackson also said Congress must pass legislation to modernize the Federal Housing Administration (FHA) in order to help prevent future problems. This legislation will level the playing field for all borrowers by providing a safe, fair and affordable mortgage alternative to exotic subprime loans. Too frequently, Californians have resorted to high-priced, high-risk mortgage loans to purchase a home. Recent studies by RealtyTrac, showed that of the top 500 zip codes in the U.S. for total foreclosures, one-third were in California. Many California families were steered toward accepting home loans that featured balloon payments and very low teaser rates that reset much higher after the first few years.
Since it’s inception in 1934, the FHA has helped more than two million families in California purchase and maintain their homes. Unfortunately, as the lending industry has changed through automated underwriting systems, risk-based pricing, and other new products, the FHA has been taken off the table for most Californians as an option. Few home buyers in the state have been able to use FHA financing because FHA loan limits, which range from $200,000 to over $362,000 in California, are not high enough to meet the cost of most homes in the state. In 1999, FHA insured 131,000 loans in California; in 2006, FHA insured only 2,500.
HUD anticipates that reform legislation, if approved by Congress, could increase the number of FHA insured loans in California by nearly 2,500 next year, more than 8,000 in 2008, and thousands more each year thereafter. The Department estimates that in 2010, a reformed FHA would help generate more than $5 billion in home loans for California alone.
“FHA reform is sensible and at no cost to the taxpayer. With expanded authority to set insurance premiums commensurate with risk, FHA could provide tens of thousands of Californians with an exit strategy from their subprime mortgages. It will help maintain the strength of our economy and promote and protect the American Dream of homeownership,” Jackson concluded.
Following the Secretary’s remarks, several panels took place to discuss ways government, nonprofit, financial and consumer mortgage groups can help borrowers safely get into homes and avoid foreclosure.
For more information, visit www.hud.gov and espanol.hud.gov.
