Helping Struggling Homeowners

Today''s mortgage market is different than in the past and it requires policymakers to think and act creatively.

A first and important step is to bring mortgage servicers and the mortgage investors together in a coordinated effort to identify struggling borrowers early, connect them to a mortgage counselor and find a sustainable mortgage solution. In August, the President charged Secretary Alphonso Jackson and me to lead this effort. HUD and Treasury have been working closely with mortgage market participants to address the complexities of the modification process, especially in a mortgage market primarily based on a securitization model. The breadth of disaggregation in the mortgage market today is unprecedented, presenting a fundamental, practical problem that does not lend itself to an easy solution.


Recent surveys have shown that as many as 50 percent of the borrowers who have gone into foreclosure never had a prior discussion with a mortgage counselor or their servicer. That must change. Early intervention is critical – the earlier borrowers explore alternative options, the more likely they will find a workable solution and keep their home. We cannot expect to avert every foreclosure and, indeed, some are warranted. Even in years of strong housing performance, we witness several hundred thousand foreclosures. But today many homeowners out there can be helped, and we are committed to efforts designed to do just that.

Last week, I joined a group of mortgage servicers, counselors and investors as they launched a bipartisan alliance, called Hope Now, to coordinate efforts to reach more homeowners and find affordable solutions. I applaud this effort. This challenge is significant and only by working together will we reach more homeowners in need.

We have an immediate need to see more loan modifications and refinancing and other flexibility. For many families, this will be the only viable solution. The current process is not working well. This is not about finger pointing; it is about putting an aggressive plan together and moving forward. This alliance is dedicated to seeing that happen, and I expect to see results. I also call on those servicers who are not yet a part of this alliance to join. You have an obligation to help meet this challenge, and you can do so more effectively as part of an integrated effort.

Not all servicers are staffed for aggressive loss-mitigation. Preventing foreclosures is in investors'' interest and investors must take an active role in demanding that all servicers, large or small, are pursuing all available loss-mitigation strategies. Today the industry doesn''t have a thorough, standardized set of loss-mitigation metrics with which to evaluate servicers'' performance. I expect the Hope Now alliance to quickly develop and begin reporting those metrics so investors, policy makers, and homeowners can measure results.

The efforts of this private sector alliance alone will not solve the problem. But it is a critical piece of the solution. As we work with them, we will all learn and improve the means of reaching and helping homeowners to prevent foreclosures.

We must also take steps to make more affordable mortgage products available for struggling homeowners. In August, the President renewed his call on Congress to pass FHA modernization to make affordable FHA loans more widely available. To facilitate mortgage workouts, the President has also called on Congress to temporarily eliminate taxes on mortgage debt forgiven on a primary residence.

FHA reform is moving through Congress, and I am hopeful that it will reach the President''s desk soon. The tax relief proposal has cleared the House and is awaiting further action in the Senate. GSE reform has cleared the House, and also awaits action in the Senate. Congress should enact these bills as quickly as possible.

The GSEs also have a role to play in making affordable mortgage products more widely available. It is their mission. The secondary market in GSE mortgage-backed securities is functioning well. The GSEs could increase the flow of mortgage capital to refinance subprime borrowers if they securitized a greater number of these mortgages. To accomplish this, the GSEs must work closely with their private mortgage insurance company partners in the development of new products. The GSEs have additional capacity to help more blemished-credit struggling homeowners and we are hopeful that they will step up to this challenge.

In addition to these current initiatives, we welcome further input and will openly consider other ideas to assist struggling homeowners.

Public Policy Questions

We also need to make some changes in our laws and rules in order to prevent some of the excesses and abuses of the last few years from happening again. We must do so in a balanced, thoughtful way so as to avoid overreacting and introducing unintended consequences such as those that might shut off credit to able borrowers.

Homeownership brings substantial benefits to our society. For millions of Americans, their home is their largest financial asset, the key to their future financial security. And homeownership gives people a stake in their community that often leads to more civic involvement, better schools and safer neighborhoods.

While financial innovation has helped increase the homeownership rate in recent years, it has also introduced new complexities. Homebuyers today have more choices than ever before in finding a mortgage that best suits their circumstances. Yet, comparing the attractiveness of one mortgage product to another can be difficult. Homebuyer education and effective disclosure are critical to helping borrowers understand the risks of innovative mortgage products.

Furthermore, our complex and fragmented regulatory system complicates an already difficult situation. Existing federal laws address mortgage fraud, disclosures, fair lending, unfair and deceptive practices, and other aspects of the mortgage process. But the regulatory and enforcement authority varies across different federal agencies. States have also enacted an additional layer of regulation, typically applied only to certain institutions that operate within that state and enforced by the state agencies.

This patchwork structure should be streamlined and modernized.

Treasury is already spending considerable energy in developing ideas on how to improve the financial regulatory structure more broadly and, early next year, we will release a blueprint for comprehensive overhaul. Our goal is to improve oversight and allow our financial services industry to better adapt and compete in the global marketplace. However, fundamental changes to our regulatory system will take years to consider and implement. Homeowners should not wait years - we need to move now to make interim improvements to our current mortgage regulatory system.