December 14, 2007
HP-734

UPDATE: Secretary Paulson to Visit Florida, Missouri, California to Discuss the Administration’s Efforts to Reduce Foreclosures

Secretary Henry M. Paulson, Jr. will travel to Orlando, Kansas City, Stockton, Calif. and Los Angeles next week to discuss the Administration's efforts to address mortgage market issues and help families struggling with their mortgage avoid foreclosure.

Paulson will meet with local officials, community leaders, and representatives from local businesses to discuss what has been proposed and what can be done to help more people. Last week Paulson joined President Bush and HUD Secretary Jackson to commend a private sector effort to streamline the refinancing and modification process and deliver quicker help to homeowners facing foreclosure. (For more information on this announcement go to: Remarks by Under Sec Steel to NYC Subprime Lending and Foreclosure Summit

December 12, 2007
hp-728

Remarks by Under Secretary Robert K. Steel
to the NYC Subprime Lending and Foreclosure Summit

New York, NY--Thank you, Scott, for your kind introduction. And let me also thank the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve Bank of New York, and the City of New York for hosting this important summit.

Today's event has brought together some of the best minds in housing, finance, government, regulatory and academic research institutions to discuss the importance of housing, here in New York City and throughout the nation. I am optimistic that we will all agree on the significance of these issues and learn from each other about ways to address current challenges.

The housing system in the United States is respected around the world. And our housing finance structure is a marvel in its size, scope, and efficiency. The strong American tradition of private ownership did not happen by accident; instead it has been fostered over many many years. As a society, we in this country have long felt that homeownership has many underlying benefits. For example, the late Edward Gramlich points out in his book that homeowners tend to save more, invest more in their children, and build more wealth than their neighbors in rental housing.

At the center of America's success in housing is our modern day housing finance system, which has produced high quality homes for millions of Americans and over time increased the homeownership rate to its current level of 68 percent.

One of the many recent benefits of our housing finance system has been the extension of credit to borrowers without a long credit history or perfect credit scores. Today, families with lower scores on the FICO scale – the most commonly used method of determining credit scores - can access mortgage credit at interest rates a few percentage points higher than the prime interest rate. The market for these borrowers has risen dramatically in recent years. In 1994, subprime mortgage originations were only $35 billion. Today, the subprime mortgage market is about $1 trillion.

Although today the term subprime evokes some uncomfortable feelings, we should pause for a moment and recognize that the increased use of subprime products over the last thirteen years resulted in millions of new mortgages. For example, one industry source estimates that there are currently about 6 million total subprime mortgages. In 2000, there were less than a million.

As a result of this financial innovation, together with the overall strength of the U.S. economy, the homeownership rate reached historic levels during the past thirteen year period. And the homeownership rate among minorities increased to new highs. For instance, the homeownership rate for African Americans rose from 42 percent to 49 percent, and the rate for Hispanic Americans rose from 45 to 50 percent.

Also during this period, the percentage of successful homeowners reached extremely high levels. Just two years ago, the foreclosure rate stood at less than 1 percent (0.97 percent) and the delinquency rate was only 4.44 percent – that is, almost 95 percent of American homeowners were successfully staying in their homes and paying their mortgage on time. It is worth pointing out however, that even during periods of historically strong housing markets, not all homeowners were successful. Even in strong housing years, some borrowers who over-extend themselves or experience a change in life circumstance find they can no longer afford their home. In fact, between 2001 and 2005 the rate of foreclosures started averaged approximately 1.7 percent a year, meaning more than 650,000 homeowners began the foreclosure process each year.

Foreclosures – like unemployment – are an unfortunate reality given the dynamism of our economy today. Recently, lax underwriting standards and resetting adjustable rate mortgages combined with falling house prices are causing the foreclosure rate to rise above its longer-term average. When foreclosures rise, and are concentrated in particular neighborhoods, they begin to have an even greater negative impact. Concentrated foreclosures drive down property values and undermine the financial stability