January 30, 2008While a swift, simple and substantive fiscal growth package will provide a boost and add to job creation this year, it is not intended or expected to slow down the housing correction. After years of unsustainable home price appreciation, this is a necessary correction. On Monday, the Commerce Department reported that over the 12 months of 2007, new homes sales dropped 41 percent and new home prices declined by 10.4 percent. Other measures also show roughly flat or falling home prices over the last year. The Administration's focus has been --- and in addition to this fiscal growth plan will continue to be --- aggressive action to try to minimize the impact of the housing downturn on homeowners and the real economy by preventing avoidable foreclosures.
Last fall, we encouraged the creation of the HOPE NOW alliance, a coalition representing over 90 percent of the subprime servicing market and non-profit mortgage counseling organizations, trade associations and investors. This industry-wide effort employs multiple tools to reach and help struggling homeowners, including streamlining subprime borrowers into refinancings and loan modifications to avoid a market failure. And they are doing so without asking American taxpayers to pay the bill.
There are promising developments. According to HOPE NOW, the industry assisted 370,000 homeowners in the second half of 2007, and mortgage servicers modified subprime loans during the fourth quarter at a rate three times faster than in the third quarter. In its first two months, HOPE NOW sent over 480,000 letters to at-risk borrowers who had not reached out for help previously. Servicers estimate that, as a result of the first wave of letters approximately 16 percent, or 77,000 homeowners, have called their servicer or a non-profit counselor to see if foreclosure can be avoided.
We will receive regular progress reports in the coming months. As we learn more, we will look for additional measures to reach more borrowers and prevent as many avoidable foreclosures as possible.
The Administration has also, through FHASecure, expanded affordable mortgage options. Working with Congress, we have increased funding for mortgage counselors who assist struggling homeowners. We have also temporarily eliminated taxes on forgiven mortgage debt. But more action is needed in the housing sector, action that is as important as a short-term fiscal growth plan.
We have urged Congress to move quickly to finalize its work on the FHA modernization bill --- that will provide financing for about 250,000 borrowers. Congress should also allow states to issue tax-exempt bonds to raise funds for innovative refinancing programs.
And it is vitally important that Congress pass GSE reform legislation to enhance regulatory oversight for Fannie Mae and Freddie Mac. The House leaders decided to include a temporary increase in the GSEs' conforming loan limits in the economic growth bill. This could be helpful to jumbo mortgage borrowers; however, higher limits are inconsistent with the GSEs' affordable housing mission. Under the House bill, these higher limits expire at the end of this year, and this should not be an excuse for postponing much-needed reform. The House has already passed GSE reform legislation and Senate Banking Chairman Dodd has assured me that he will take legislation up soon. We will continue to press Congress for this reform and stronger GSE regulatory oversight.
