Remarks Prepared for Delivery By Michael J. Williams
Burnham-Moores Center for Real Estate 15th Annual Real Estate Conference, San Diego, CA
Good morning, everyone. It’s great to be here with you in sunny San Diego…and away from the gray of Washington! I want to begin by thanking Mark for inviting me to share a few thoughts with you this morning. Let me also thank all of you who are working so diligently to put the real estate industry back on track.
We all want an industry that is stronger – and sustainable over the long term. I believe we are taking positive steps 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 common sense lending standards… a reexamination of what constitutes sensible risk… and a longer-term view.
Make no mistake: we have a lot of work ahead of us, and I know everyone in this room is very aware of the human cost of this crisis to our families, and our communities. We have a responsibility to get this right and at Fannie Mae, we take our responsibilities very seriously. Today, I will address what Fannie Mae is doing to help make realism the bedrock of a sustainable housing industry.
As we settle into a new year, the housing market is still facing strong headwinds. The economic recovery has been slow…unemployment remains high…and many families are struggling to make their mortgage payments.
We recently released an update to our survey of consumer attitudes about housing. In it, we found that 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. While most Americans still think that owning a home makes more sense than renting, they are less confident it’s a safe investment. They 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. But given the many variables at work, we are only cautiously optimistic.
California is a case study for these trends. As you know, the state suffered one of the greatest spikes and then one of the largest declines in housing values in history – with home prices falling 44 percent from their peak in 2007. Today, California has the nation’s third highest foreclosure rate, and leads America in foreclosure filings. Looking ahead, we expect further declines in housing prices this year, albeit modest, for both California and rest of the country. However, we believe our host city—the San Diego area—will be one of the bright spots, with prices growing moderately. We also expect existing home sales across the state to grow at a more moderate pace than the nation as a whole. Still, challenges persist in the housing market here in California and around the country.
Creating solutions requires practical, effective and long-term changes in our industry. I want to share five actions we are taking at Fannie Mae to help enable a stronger housing market.
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 keep 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 number-one supplier of housing funds in America, Fannie Mae has delivered nearly $1.5 trillion in mortgage liquidity since 2009. But leave aside, for a moment, that it’s a very big number – what does it mean for the people we serve? It means we’ve helped more than one million families buy homes and more than four million homeowners refinance. In California, since 2009, our financing has enabled 234,000 families to buy a home – and almost 750,000 families to refinance.
At the peak of the housing market in 2005, Fannie Mae was 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. At Fannie Mae, we remain true to our fundamental mission—enabling mortgage liquidity in all cycles, good and bad.
Second: Let me move to our second principle – 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 we’re doing everything we can to help them.
Fannie Mae has one of the largest foreclosure-prevention operations in America. In 2010, we helped 500,000 families avoid foreclosure through modifications or workouts. We have also undertaken innovative outreach and borrower education initiatives. One example is Know Your Options, a program designed to empower homeowners with the information they need to make good decisions for their families.
These efforts to help distressed homeowners are unprecedented in scope. And they are making a difference to people like Joyce Lee of Culver City. Joyce fought for two years to secure a mortgage modification. She tried working directly with her lender. She enlisted the support of her neighborhood association. But still could not get the help she needed. Then Joyce turned to the Fannie Mae Mortgage Help Center in Los Angeles. She worked one-on-one with a mortgage counselor, who assured Joyce that, together, they would find a solution. It was Joyce’s Christmas wish that she would secure a modification. On December 22nd, we told Joyce that her modification was approved, and she could stay in her home. Joyce wrote to thank us, and to say that our center is an important resource to struggling homeowners in her community.
These extensive foreclosure prevention efforts not only help families, they help stabilize communities and help Fannie Mae avoid 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 an initiative such as First Look or Home Path, our team is focused on preserving value and neighborhoods. Here in California, we have sold more than 40,000 foreclosed properties over the last two years, and on average have retained 98 percent of the property’s value on average.
Third: Let’s move to our third area of focus - encouraging 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, better documentation and better 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 tidal wave of families 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 FHFA, Freddie Mac and Ginnie Mae to develop a new servicing model – one that supports servicing non-performing loans, improves service for borrowers, and reduces the financial risk for servicers.
From the 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.
Fourth: Our fourth principle 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 1.5 million more 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. To help meet this need, 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. For example, we worked with San Diego’s Housing Commission and Greystone, a multifamily lender partner, to provide $37 million in long-term permanent debt. This enabled the city of San Diego to preserve more than 500 rental units for low- and moderate-income residents.
Finally, our fifth area of focus 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 excellence to strengthen our company’s capabilities; reduce risk; and provide responsible stewardship of the resources we’ve been entrusted.
We still have work to do, but we are making measurable progress.
We take our mission seriously and we are committed to helping our communities and our industry move to a new realism in housing. We know the mortgage market will change in the years ahead. Our company is preparing for change – preparing to best capture future opportunities to serve the market. As policymakers consider how to reform the housing system, we expect vigorous debate from all sides. We continue to contribute insight to the reform process based on the deep expertise and experience inside our company.
But most importantly, at Fannie Mae, we remain focused on delivering on our immense responsibilities today and creating value for tomorrow. This is a pivotal time for housing. And, we must remain focused on the challenges at hand.
We can build a better housing market - one that emerges from this difficult period stronger, healthier and better prepared for the future.
Thank you and I’m happy to take your questions.