Turning Housing Around Top Priority For Treasury Secretary
Calling the current housing market downturn “the biggest challenge to our economy,” Treasury Secretary Henry Paulson told the Office of Thrift Supervision's National Housing Forum on Dec. 3 that the Administration is moving quickly to limit foreclosures and looking to Congress to assist in that effort and expand home financing opportunities through modernization of the Federal Housing Administration.
“NAHB applauds the federal government and the banking industry for coming together on an issue that is important to the American people and the economy,” said Jerry Howard, the association’s executive vice president and CEO, in commenting on the Treasury Department's efforts on foreclosure prevention with key mortgage lending and investment interests. “We encourage all parties to work out the details on this complex process as quickly as possible, and NAHB is committed to helping in any way.”
Panelists participating in the day-long discussions in Washington, D.C. — including lenders, builders, investors, consumer activists, housing economists and regulators — added that the Federal Reserve has no choice but to act aggressively to reduce interest rates in order to avert a full-scale economic recession, and they identified Fannie Mae and Freddie Mac as the best hope for quickly ending further erosion of battered housing markets in California and other high-priced parts of the country.
Speakers at the forum warned that the next several months will be especially tough on the industry, but they voiced optimism that housing can find its way to recovery next year.
Accent on the Positive
“I think the market can turn around quicker and faster than anyone thinks it can,” said builder Robert Toll, chairman and CEO of Toll Brothers, Inc., as builders respond to the need for working down the inventory of unsold homes by scaling back their construction activity.
“Builders are building to sales, not to speculation,” Toll said. “The inventory will shrink because builders aren’t adding to it.” In the meantime, he said that the focus needs to shift back to the positive effects of housing and he suggested the presidential elections would be a means to do this.
“Debate needs to turn from how bad things are to how good,” he added. “We have to talk about the future of the country. That bully pulpit has to be used to turn our country around.”
Higher Loan Limits
Allowing Fannie Mae and Freddie Mac to purchase loans higher than their current $417,000 limit would provide a major boost to housing in states like California, said Angelo Mozilo, chairman and CEO of Countrywide Financial Corporation. Eighty-five percent of the home mortgages in the state exceed that amount, and with private investors gone because of losses in the subprime market, there is a liquidity crisis.
“Going forward, we need a viable secondary market and to restore confidence in mortgage-backed securities,” Mozilo said. “The jump start is going to have to be through government agencies as it was during the Depression.”
Countrywide recently announced a $16 billion effort to allow borrowers who can’t afford the monthly payments when their loans are reset at a higher interest rate to keep their existing interest rate for a period of three to five years, and the program is expected to benefit 75,000 borrowers this year, he said.
Mortgage Refinancing and Modifications
With the number of home owners struggling with their resetting subprime mortgage expected to increase throughout next year, Paulson said that the Treasury is now working with lenders, loan servicers and investors on “an aggressive, systematic approach to fast-track able borrowers into a refinance or mortgage modification.”
The focus of this effort will be home owners with steady incomes and relatively clean payment histories who could afford the lower introductory mortgage rate but cannot afford the higher adjusted rate, he said.
“Given the diffuse nature of today’s motgage market, the steps toward refinancing and modification can be more difficult than it would seem,” Paulson said.
“The company collecting your mortgage payment every month is most often doing that on behalf of those who own the mortgage, and they are limited in the decisions they can make on behalf of those ultimate owners, who are spread all over the world,” he said.
“We are determined to bring this diverse group together, to develop a set of standards that will be implemented across the industry, from the largest mortgage servicers to the smaller specialty servicers. An industry-wide approach is critical to the effectiveness of this effort,” he said.
Paulson indicated that the standards should be finalized soon, and they will “define categories of borrowers for streamlined refinance and modification where that is in the best interest of both the borrower and the mortgage investor.”
The Treasury Secretary also highlighted state and local efforts to increase the availability of affordable mortgage solutions. In particular, he noted that several state housing finance agencies have initiated pilot programs backed by taxable bonds to help subprime borrowers refinance. He announced that the Administration is proposing to allow state HFAs to broaden their tax-exempt programs — which can only be used for first-time home buyers — to include mortgage refinancings.
Paulson said that Congress also needs to act on a number of key initiatives:
- Appropriate funds for mortgage counseling
- Pass FHA modernization
- Pass legislation to improve the regulatory structure of the government-sponsored enterprises (GSEs)
- Pass legislation to temporarily relieve tax liability for mortgage debt forgiveness
- Pass legislation to allow state and local governments to use tax-exempt bonds for home mortgage refinancings