Remarks Prepared for Delivery by Michael J. Williams
Five Star Government Forum, Washington, DC
Good afternoon. It’s great to see many long-time industry colleagues, partners and government leaders who are committed to rebuilding the housing market. I’m delighted to be part of today’s forum, and I want to thank Ed Delgado for inviting me to share a few thoughts with you.
I had the opportunity to work shoulder-to-shoulder with Ed in the early days of the crisis. In fact, I started to see Ed so often that I wondered whether he had an office at Treasury? He told me he didn’t, but I’m still not sure about that. But seriously, I do appreciate Ed’s leadership during those difficult days and it is my pleasure to be here today.
First, I will focus on what Fannie Mae is doing today to serve the market and then I will comment briefly on housing finance reform.
As I look out across this group, I know everyone here is committed to get the housing sector back on track. We need to ensure that the right policies are in place to drive needed changes. Those changes should foster a housing sector that is stronger and sustainable over the long term.
For our part, Fannie Mae is taking steps now to build a stronger foundation for housing in our country. It is a foundation built on what I call a “new realism”… a return to sustainable lending … a reexamination of what constitutes sensible risk… and a longer-term view.
Still, the housing market is facing strong headwinds. While progress is being made, and the employment outlook is starting to improve, many families are still struggling to make their mortgage payments.
Fannie Mae recently released an update to our national survey of consumer attitudes about housing. A few key takeaways:
First, Americans are more confident about the stability of home prices – nearly 80 percent believe prices will hold steady or increase over the next 12 months.
Second, while most Americans still think that owning a home makes more sense than renting (84%), they are less confident than they used to be that it’s a safe investment (64%).
And finally, Americans are also less optimistic about their personal finances than a year ago, and therefore, more willing to rent. In fact, more current renters plan to continue to rent – rather than buy – their next home.
Overall, the survey demonstrates that Americans have become more realistic about home ownership.
Turning to our expectations of the U.S. economy, we believe it will move from a fragile recovery to a steadier expansion in 2011. We also expect slightly stronger growth in housing activity particularly in the second half of this year. Still, we are only cautiously optimistic, as we are still facing a number of challenges in the housing market.
Make no mistake. We have a lot of work ahead of us. I know everyone in this room is very aware of the human cost of this crisis to our families, and our communities.
Creating solutions requires practical, effective and long-term changes in our industry. We have a responsibility to get this right and at Fannie Mae, we take our responsibilities very seriously. I want to share five actions we are taking to strengthen the market today and into the future.
First: We must keep liquidity flowing.
We all know that the financial crisis of 2008 resulted in private investors exiting the mortgage market. The federal government provided Fannie Mae and Freddie Mac with substantial support, which allowed us to continue buying mortgages, keep funds flowing and hold down mortgage rates. All of this was crucial, in the context of the worst financial crisis since the Great Depression.
As the leading supplier of housing funds in America, Fannie Mae has delivered nearly $1.5 trillion in mortgage liquidity since 2009. But leaving aside, for a moment, that it’s a very big number – what does it mean for the people we serve?
It means that Fannie Mae and our lending partners have helped more than one million families buy homes and more than four million homeowners refinance into a lower-cost, safer mortgage. At the peak of the housing market in 2005, Fannie Mae was about 20 percent of the market. Today, we provide almost 40 percent of single family and about 35 percent of multifamily funding that is flowing to market.
Let me move to our second action – which is helping distressed homeowners.
Even though we’ve seen some strengthening in the market over the last year, millions of homeowners still struggle to keep their homes. Everyone loses when families are faced with a foreclosure. The cost to homeowners, their neighborhoods, the market, and to our company, is severe.
So, Fannie Mae has built one of the largest foreclosure-prevention operations in America. In 2010 alone, we helped more than a half-million families avoid foreclosure through modifications or workouts.
To reach families in need, we have implemented innovative outreach and education programs – both virtual and brick-and-mortar solutions. In hard-hit communities across America, we have established 6 Fannie Mae Mortgage Help Centers (and we are scheduled to open 3 more next month), where families work one-on-one with counselors to help resolve their mortgage. And our online educational initiative – Know Your Options.com – is a program designed to empower homeowners with the information they need to make good decisions for their families.
Our efforts to assist distressed homeowners are unprecedented in scope. They not only help families, they stabilize communities and enable Fannie Mae to limit losses, which benefits taxpayers. Unfortunately, foreclosure is still a reality in many situations. And when that is the case, we do our best to help families transition into other housing with dignity. We’re also protecting property values. Whether it’s initiatives such as First Look or Home Path, our team is focused on preserving value and preserving neighborhoods.
Our third action is to encourage sustainable lending.
At Fannie Mae, we are striving to help our industry address the problems of the past and position itself for a sustainable future. For example, we strengthened lending standards to help ensure that working Americans buy homes they can afford over the long-term. We are emphasizing long-term, fixed-rate mortgages – loans that protect homeowners from interest-rate swings. We are requiring better credit quality, documentation and property appraisals. We are creating tools for lenders to understand the quality of a loan before they sell it to Fannie Mae – helping the lenders and Fannie Mae to reduce future risks.
And, we’re committed to developing a better model for servicing mortgages. When the mortgage crisis hit, we turned to our servicers to help a huge volume of borrowers avoid losing their homes. But the existing servicing model provided little incentive for this different and greater responsibility. To solve this problem, we're working with our regulator, FHFA, Freddie Mac, FHA and Ginnie Mae to develop a new servicing model – one that will support servicing non-performing loans, improve service for borrowers, and reduce the financial risk for servicers. And let me acknowledge Ted Tozer’s leadership on this important effort.
From our loan quality initiative to rethinking the servicing model, we are committed to building a better system now, which will drive a new realism in housing and serve us well in the future.
Our fourth action is support for rental housing.
As demographics change, demand for quality, affordable rental housing will continue to grow. According to the Harvard Joint Center for Housing Studies, the number of households in America is expected to surge over the next decade... up to 1.4 million new households per year. Immigration is the key driver of the growth and substantially affects rental housing. Most of the growth in households will come from new Americans, who tend to rent first.
Fannie Mae is a leading provider of capital to the rental housing market. In conjunction with our multifamily lenders and housing partners, Fannie Mae provided nearly $17 billion in debt financing for the rental housing market in 2010. We also continue our commitment to affordable rental housing. Almost 90 percent of the units we finance are affordable to families earning at or below the area median income for their communities. In fact, last year we financed 213,000 units to families at or below 80 percent average median income and 53,000 units to families at or below 50 percent of the average median income.
Finally, our fifth action is building a better company.
We are taking important steps to begin restoring America’s trust in Fannie Mae.
We are working to improve performance. Loans acquired since 2009 compose over 40 percent of our book of business, and we expect them to be profitable over their lifecycle. As we continue to build a strong, profitable new book of business, our foreclosure prevention efforts reduce losses on our legacy book of business.
We are providing the market with needed liquidity.
We are setting standards for sustainable lending.
And, we are driving operational discipline to strengthen our company’s capabilities; reduce risk; and provide responsible stewardship of the resources we’ve been provided. We have a laser focus on delivering on our immense responsibilities today and creating value for tomorrow. We still have work to do, but we are making measurable progress.
Now, it’s clear the mortgage market will change in the years ahead. Many proposals have been put forward – including some by the people in this room. I’m sure you can understand that Fannie Mae is not taking a position for or against any specific proposal. We do continue to contribute information and insight as it is helpful to the process. And, as someone who has dedicated most of my career to housing, I care deeply about the outcomes of reform – what it will mean for families, communities and our country as a whole.
In the months ahead, it is important that policy makers carefully consider several questions. Questions such as:
- Should we continue providing liquidity for the 30-year fixed-rate, pre-payable mortgage? Do we value having a deep and liquid securities market, which enables homeowners to lock in a mortgage rate when they are approved for a home loan?
- Do we want to provide a secondary market that is open to all markets and all customers, and at all times?
- Do we want to provide for a balanced housing policy that serves multifamily and single-family needs?
- And, how do we ensure that our system provides low- and moderate-income families from all communities the same access to mortgage products as higher-income Americans?
The answers to these questions will have a lasting impact on the future of housing finance. We expect vigorous debate on all sides. The resolution, I hope, will support a U.S. housing system that is sustainable over the long term.
In closing, this is a pivotal time. At Fannie Mae, we commit to working diligently with you as our company, our industry and our country embrace a new realism and plan for a sustainable future for housing in America.