November 19, 2007
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Under Secretary for Domestic Finance Robert K. Steel Remarks at Senator Norm Coleman’s Housing Townhall Forum

Minneapolis, Minn.- I appreciate the invitation to be here today. 

It has been a privilege working with Senator Coleman in Washington.  He has been highly focused on these mortgage issues and is working hard to help keep Minnesota homeowners in their homes.  I commend him for holding this townhall forum today.  Our discussion will give us a chance to learn together how we can better assist affected homeowners.

As you know, we are experiencing a period of adjustment in the housing and mortgage markets.  Fortunately, this market stress is occurring against a backdrop of healthy U.S. fundamentals and a strong global economy.  Yet, as Secretary Paulson has said, the housing decline is the most significant current risk to our economy.  

A significant number of homeowners will be affected by challenges in the housing market and many could face foreclosure. 

These are complex issues and we must look beyond the headline numbers when thinking about this challenge.  Each year, thousands of homes end up in foreclosure, even when housing markets are strong.   Between 2001 and 2005 more than 650,000 homeowners began the foreclosure process each year. 

Falling house prices, lax underwriting standards, and resetting mortgages have caused the foreclosure rate to rise above its natural rate.  And we expect the rate to remain elevated over the course of the next 18 months. 

About 2 million subprime mortgages will reset in the next year and a half, but not all of these mortgages will end in foreclosure. Some homeowners will be able to afford their new payments without trouble and many others will qualify for a refinanced, fixed-rate mortgage on their own. 

Other homeowners, however, have stretched too far beyond their means or have made bets on the housing market, buying up multiple houses expecting to make a profit. Unfortunately, for many of these borrowers, foreclosure is inevitable.  And let me be clear - we have no interest in bailing out speculators.  Our concern is for the Americans who are struggling to make payments on their primary residence.

Our challenge in Washington has been to work with the private sector to identify the group of homeowners who, with a bit of assistance, can stay in their homes. 

Treasury and the Department of Housing and Urban Development have encouraged mortgage servicers, lenders, investors and counselors to work together to reach as many struggling borrowers as possible.  Last month they announced the formation of an alliance called HOPE NOW and just two weeks ago unveiled a new direct mail campaign to help homeowners more effectively.
 
Today is an important day in this public-private outreach effort.  Starting today, HOPE NOW will send more than 300,000 letters by the end of this month alone to struggling homeowners who could be in a position to move into a more affordable mortgage.  That is 100,000 more homeowners than they initially expected to reach this month. And they will continue reaching out to more borrowers over the next several months.

We expect this new letter campaign, which will come from the HOPE NOW Alliance rather than from mortgage servicers, to increase their effectiveness reaching at-risk borrowers.

The method and technique of contacting borrowers is quite important. Many borrowers mistakenly believe that the lenders' or servicers' goal is to repossess their homes in foreclosure.  While many lenders and servicers are working hard on their own trying to help homeowners, they are not having as much success as they or we would like.  Servicers have reported limited success reaching at-risk customers, but independent counselors have reported a significantly higher success rate.

This letter will come from an alliance with the sole purpose of helping more homeowners keep their homes, encouraging at-risk borrowers to contact their servicer or the hotline, 888-995-HOPE, for help. 

Let me take a minute to emphasize the importance of these letters.  If you or someone you know receives a letter from HOPE NOW, please take notice. It is OK to reach out for help.  This Alliance is ready to lend a hand and the U.S. government endorses their efforts. 

It is in no one's interest to see a home go into foreclosure.  To date HOPE NOW consists of four counseling organizations; 20 mortgage servicers and lenders, comprising 65 percent of the U.S. market for mortgage servicing and 76 percent of the subprime servicing market; three investor groups, including the American Securitization Forum, which represents over 370 members; and 10 trade associations. 

The earlier we identify struggling borrowers, the more likely servicers and lenders will be able to modify or refinance into a more sustainable mortgage.  If we wait until borrowers miss several payments, their credit profiles will be tarnished and they will have far fewer refinancing options.

The Alliance is developing standard performance measures to identify categories of borrowers who can be helped, determine successful treatments, and measure the rate of successful outcomes. Additionally, servicers and counselors who join the Alliance agree to adopt a standard process that will strengthen and speed work flow, productivity, and communications between them.   All of these steps ultimately help to maximize the number of homeowners they reach. 

HOPE NOW's efforts are critical to reaching more homeowners, but President Bush has also directed the Administration to pursue other methods of assisting homeowners. Many of these initiatives require the assistance of Senator Coleman's colleagues in Congress.

For instance, the President has asked Congress to eliminate taxes temporarily on mortgage debt forgiven on a primary residence.  The Administration has also requested that Congress pass Federal Housing Administration (FHA) modernization to make affordable FHA loans more widely available.  Senator Coleman has supported all of these efforts and we are grateful.

And finally, just as the lenders, servicers and counselors have come together to develop metrics and standards that will measure the most effective ways to make counseling accessible to troubled borrowers, we have encouraged them to come together in a similar way to develop an efficient methodology for offering mortgage solutions such as loan modifications when appropriate.

Let me conclude by emphasizing one final point: Borrowers have a responsibility as well.  Mortgage providers must offer clear, transparent and understandable information on the mortgage products they sell.  And homebuyers have a responsibility to use that information and understand their mortgages. Buying a home today is a complex process, but that in no way excuses homebuyers from their obligation for due diligence. 

Thank you.  I look forward to our discussion.

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