Press Briefing by Henry Cisneros, Secretary of Housing and Urban Development
The Briefing Room
1:05 P.M. EDT
MS. GLYNN: Hi, everyone. Secretary of Housing Cisneros is going to brief for a bit, and then we're going to take a short break and Mike will come on about 10 or 15 minutes after that.
SECRETARY CISNEROS: Thank you very much. I'm fresh from a speech by the President at the Omni Shoreham, where he spoke to the first annual meeting of what we're calling the National Homeownership Partners. This is a group that was formed at the President's direction about a year and a half ago when he spoke to the Realtors in Anaheim, October of 1994, and directed me to explore how we could raise the national homeownership rate, turn around the slide in the national ownership rate and to explore whether or not it was possible to actually set a goal of an all-time high national homeownership rate.
In the six months that followed that October speech, we actually organized a 56-partner coalition that includes, for example, the realtors, the homebuilders, the mortgage bankers, Fannie Mae, Freddie Mac, Enterprise, Habitat for Humanity, low-income housing advocates, et cetera -- 56 partners. And we together concluded that indeed it would be possible sometime over the next several years to exceed the all-time previous high homeownership rate, which had been 65.5 percent.
Well, here we are one year to the day -- actually yesterday the President in the East Room set in motion the official efforts to achieve this goal. And we've had the highest increase over the year, 1995, in 30 years in the homeownership rate. And we're now at the highest level we have been in 15 years. We're at 65.1, which is less than a half a point off the all-time high of 65.5. And we think that can be accomplished over the next several years.
One of the reasons -- well, there's several reasons why this is happening. Obviously, the first and most important is the general strength of the economy. Homebuilders will tell us that the most important dynamic is job formations. And we're obviously making some very good strides in job formations and look forward to even stronger numbers in the months ahead; and, of course, interest rates, one of the most intrasensitive sectors of the American economy is the homebuilding and homeownership sector. And we know that comparable to recent years, interest rates and mortgage rates are very healthy -- helpful. And then the third element of this is the way all these partners have worked together to change the way the homeownership opportunities occur.
These partners have advocated over 100 actions, some of them minute, some of them more significant, to try to make it easier for people to become homeowners and to drive this rate. One of them the President announced today, was a 25-basis point, .25 reduction in the FHA mortgage insurance premium. Now, as you know, FHA provides insurance to homeowners so that banks will make the loan. The bank is insured, and it's a profitmaking governmental enterprise. It has been profitable every one of its 60 years, and over 25 million Americans have become homeowners through FHA insurance.
The premium is 2.25 or has been 2.25; that is, 2.25 percent of the size of the overall loan is what you pay in insurance. This morning we reduced it by .25. So it's 2.00 for first-time homeowners. And that comes to something like $200 on the average housing transaction.
And this is the culmination of an effort that we've had underway now for about a year and a half to lower front-end transaction costs by $1,000. Most experts will tell us that one of the most significant barriers to homeownership is the first time, rather, the front end costs -- down payment, transaction costs, fees, closing costs. Sometimes the closing costs are roughly as much as the down payment. And it is an intimidating barrier for many, particularly, first-time and lower income homeowners.
The average closing cost in the country is $4,400. Our goal has been to reduce it by $1,000 to $3,400. And today's action by the President is the culmination of a process of reducing it by a $1,000. The first step was to reduce the FHA premiums in 1994 by $600. Then we are in the process of consolidating and making more efficient the actual transaction to reduce time. Our Denver office of FHA now, for example, has been able to reduce the processing time from six weeks to two days. And the President has directed me to take that model that's working so well in Denver and take it to the whole country. That's worth about $200. So, now we're up to $800. And when you add then the action that President authorized today -- a further reduction in the premium -- that takes us to $1,000 and the completion of our strategy of reducing closing costs as we can.
As I say, there's over 100 actions recommended by this partnership, so there's a lot of other things related to reducing the cost of construction and zoning barriers and regulatory fees at the local level and a lot of other things that the other partners can do.
Let me just say in closing that I noticed that the Dole spokespeople have already responded and called this "chump change." Well, it may be chump change to folks who work on exorbitant consultant fees or political salaries, but reducing the up-front cost of housing by $200, a thousand dollars is very significant to people in America. And there are families every day who are denied the opportunity to move to homeownership because of the front-end costs. And we are going to attack those costs dollar by dollar, increment by increment. They can call it chump change if they wish, but this is the real life business of the American people. It's pocketbooks and homes.
Q: Mr. Secretary, as long as you're in a responsive mood, I'm sure you won't be surprised to know that waiting for you on your desk apparently is a letter from the Dole campaign general counsel who is suggesting that your department has inappropriately expended funds to promote the President's reelection campaign and that this was really just a campaign event today. Would you like to respond to --
SECRETARY CISNEROS: I'll be happy to announce -- rather to respond. First of all, this is a partnership that is pathbreaking. It's the first time ever that all of the partners have come together, 56 partners from the whole homebuilding sector, first time ever that they've been pulled together and pulled together around a central theme, which is homeownership. It's been in the works, as I said, for 18 months, and this is the completion of one year's worth of work. And those are the dates and the time frames that drive this thing.
I'm sure that the Republican members of these organizations -- the homebuilders, the realtors, the mortgage bankers -- would be very surprised to hear that they're involved in a campaign event, because what they've been about is trying to lower the -- rather to increase the homeownership rate and lower housing transaction costs. And they've done a sincere job of it. And I think it's -- it's unfair to label their work as campaign work. Obviously --
Q: -- it's your work that's being labeled campaign work, not theirs, isn't it.
SECRETARY CISNEROS: Well, their work is the work that I'm involved in. And the gentleman referred to this event as a campaign event. And it simply is not. This is the business of governing.
Q: Mr. Secretary, how many people will be affected by this extra $200 bucks cut off closing -
SECRETARY CISNEROS: Last year FHA insured almost half a million Americans -- 450,000, -- which was the second highest year of FHA volume. So a high percentage of that were first-time homebuyers. And this is a premium reduction, a discount, geared to first-time homebuyers.
Q: Is your $3,400 figure legit? If I'm a first-time homebuyer and meet the FHA qualifications, and I sit down and do a closing, is it going to cost me $3,400 bucks?
SECRETARY CISNEROS: I just met with a young family that was with the President. I think some of you saw Lisa and Spencer Kasten. And were in the car riding over with the President, and he asked her -- obviously she had not be primed -- what was the total transaction costs on your house? And she said $3,200. A little lower than the $3,400 because their house was a little lower priced than the average. But, yes, it's a legitimate number.
Q: You said $4,400 was the average closing costs for housing in America.
SECRETARY CISNEROS: Correct.
Q: Is that the same average for FHA insured loans or is --
SECRETARY CISNEROS: That's correct. No, that's been the average -- it was the average when we this process and it's coming down. And our goal was to bring it down by $,1000. But, yes --
Q: If you shave $200 off of each of 450,000 deals, can you -- you're losing about a million dollars or something to the Federal Treasury as a result?
SECRETARY CISNEROS: Well, it won't be the full 450,000 because, as I said, not all of the 450,000 are first-time homebuyers, and this is dedicated to first-time homebuyers. It's a first-time homebuyer premium reduction.
FHA, as you know, is a revolving government enterprise. It's an insurance company. It's a government-sponsored insurance company -- 60 years old and been very successful. This is not a reduction. This is not a hit from a deficit standpoint because we've been able to find offsetting cuts in other aspects of FHA that will not allow this to be a hit on the deficit reduction strategies.
Q: But I think his question was the aggregate cost, Mr. Secretary, the marginal increase incremental cost is about a million dollars or something like that for this $200 --
SECRETARY CISNEROS: Bruce, do you have offhand the precise number that we --
MR. KATZ: The reduction revenue to FHA will be about $20 million. But that will be fully offset by reforms to the single family -- or the process of disposing of single family assets.
Q: And that $20 million if for the whole $1,000 reduction in the average --
MR. KATZ: No, that's for the $200 -- for this increment of $200.
SECRETARY CISNEROS: Over what span of time?
MR. KATZ: On an annual basis.
Q: Mr. Secretary, a couple of questions. How many first-time homebuyers will the $200 make a difference for? In other words, how many people are kept out of the market at all because they lack this $200 you're giving them? And the second question is, what is it about FHA's operations or the economy or the cost of money or whatever allows you to deduct this quarter point off now? Couldn't you have done it six months ago, 12 months ago, 18 --
SECRETARY CISNEROS: Let me answer the second question and then I'll ask Nick to come up -- Nick Retsinas, head of FHA, to answer the first.
The second is what makes it possible now is, first of all, the volume of FHA activity which is very strong, as I say, the second highest year last year in the history of FHA. So that's one thing that makes it possible now. And the other is that we've built the strength of the FHA fund from a financial and fiduciary standpoint. We're required to have 2 percent of capital available as a reserve, and we inherited an FHA coverage that was actually in deficit. We've increased it steadily and our expectation is that we're going to reach that 2 percent now as opposed to something that was mandated for the end of the century.
So the point is the fund is strong. And rather than keep the money in the fund, this gives us the opportunity to reward Americans who have worked hard, saved money and are ready to become homeowners. So it's the classic not reaping the benefit and keeping it in a government account, but actually using it to make more homeownership possible.
Nick, do you want to answer the first part of the question?
ASSISTANT SECRETARY RETSINAS: In terms of the numbers of people, as I recall, the initial question, we would estimate that this program, this homeowner premium discount program, is targeted to first-time homebuyers who participate in homebuyer education or homebuyer counseling programs. The theory is that if they participate in those programs, they are more likely to continue to be homeowners, and thus, as an insurance company, end up reducing our default rate.
We would estimate initially that about 100,000 families for all first-time homebuyers would benefit from the premium reduction. That number would depend on the number participating in those homebuyer education programs.
Q: My question was of that 100,000, how many would be buying homes anyway and don't need a giveaway?
ASSISTANT SECRETARY RETSINAS: It's not a giveaway; it's a reduced cost. It's what we think -- as the Secretary indicated, we now exceed our capital ratio, which is a congressionally mandated capitaL ratio. For us to retain funds above that capitaL ratio, we can do that, and we have to make that as a business judgment with the solvency of the fund.
So it is a combination of some people who are now left out but could come in if they didn't have to raise that addition sort of $200. And on the other hand, like the Kasten's, there are many families and many of you perhaps when you bought your first home, buy the home very close to the margin. All their money is sort of saved. All their money goes into buying them a home. And then all of a sudden, they find out they need trash cans or they need a lawnmower and the like. This would provide that kind of flexibility and we think could make them better homeowners.
SECRETARY CISNEROS: Think of FHA not as a classic government subsidy program, but as a business. It's a government business. It's an insurance business. It was formed in 1934 during the Depression when banks weren't lending money. And Franklin Roosevelt came up with a mechanism by which people -- insurance would be provided so banks would loan.
Now, you used the word giveaway. It's the same as asking whether reduction or a discount in a car price is a giveaway. it's just the opposite. This is a pricing of a product. And if you don't need to charge that much because the fund is strong, then you don't charge that much and you return the benefit to the people. Furthermore, you create an incentive for more business by reducing the size of the premium. So it's not a giveaway, it's just the pricing of the product.
Q: To define this a little more clearly, in other words, you've got a surplus in your fund that you've got to rebate somehow.
SECRETARY CISNEROS: No, don't have to, but chose to in order to stimulate more business and -
Q: -- 1996 rather than the end of 1996 or the middle of 1995?
SECRETARY CISNEROS: No, I wouldn't read it as the middle or the end of 1996, but one year from the date in which we said we were going to implement a strategy of making homeownership easier. And at the -- literally, June 5, 1995, the President called on us to bring him a report on how we could do this; and June 6, 1996, we're implementing some of the recommendations.
Q: Just a follow-up, stipulating the value of this program and the probity of the financing involved therein, how many of those 100,000 families might be pushed over the edge into making this valid stakehold in the American dream by the wise program you've adopted today? How many families might do that?
SECRETARY CISNEROS: I don't know that we have that number. I don't know that we have that number. I don't know that's it's possible to get that number.
Q: My question is, these courses that they taking, the counseling, does that have a cost, like say $200 bucks or -- (laughter).
SECRETARY CISNEROS: No, these are not courses, per se. Counseling is a word that in the home field is used for sort of getting advice, and they get advice from their mortgage lender, or they get advice from nonprofit organizations --
Q: It's not a formal thing they have to take a course --
SECRETARY CISNEROS: No, it's not a course. It's not x-hours.
Q: Does it cost anything?
SECRETARY CISNEROS: It doesn't cost anything if the mortgage lender is providing it as advice, if the bank is providing it as advice, if Fannie Mae is producing it out of the private sector. It doesn't cost the government anything. Now, we do fund some counseling organizations, but that's a separate account, separate effort that we'd be making in any event.
Q: People who get the $200 rebate, will they be paying this money to get this counseling?
SECRETARY CISNEROS: No.
Q: Secretary Cisneros, some housing advocates say that the next step should be reducing down payments themselves. Does the government have a role in that kind of thing, do you think?
SECRETARY CISNEROS: We can reduce down payment costs by reducing the overall cost of the home. And we're trying to do that by working on new production technologies, new materials, working with local governments to reduce the fees that local governments charge, sometimes school fees or utility extension fees. If you reduce the overall size of the cost of the home, then you can reduce the size of the down payment.
Furthermore, we're working with government-sponsored enterprises -- Fannie Mae and Freddie Mac -- to do things that they can do to indicate that they will buy mortgages from banks that have a lower down payment. Fannie Mae has this 97 and 3 -- 3 percent down payment program, for example, that they've innovated over the last year.
So the answer is yes. There are a lot of things that are underway to try to reduce down payments. We don't in the government have any specific initiative in mind. There's no government law or program change, but a lot of cooperation.
Now, I might just say that one of the beauties of this partnership, 56 partners, is that this is a broad phalanx of all of the interests involved in the American homebuilding scene, working together for the first time and doing it not principally through governmental mechanisms, not through seeking legislation or new programs or alphabet soup organizations, but just by working together to try to make minute changes in the way we do our business.
Q: Secretary Cisneros, speaking of Fannie Mae and Freddie Mac, you probably are aware of this CBO report --
SECRETARY CISNEROS: Yes, I saw it last week.
Q: What's your response to that?
SECRETARY CISNEROS: Well, my sense is that the system works, that we have the finest housing in the world in the United States and we have the best system of housing financed in the world. As a matter of fact, I know that other countries are trying to copy our secondary mortgage mechanisms. I'm involved now with several international settings where they're trying to come in and understand the way our system works.
The system works, and I would not argue for changes in it at this time. The services that are provided by Fannie Mae and Freddie Mac are important, and I would worry about increasing mortgage rates for homeowners by banks not knowing that there existed this government bank -- not government-owned, but government-backed mechanism of the secondary market. It's an important part of the process of --
Q: So the administration would oppose any efforts to try to sell off or --
SECRETARY CISNEROS: The administration is now working on a formal position in response to this. This is my personal opinion as Secretary of Housing; it's not yet codified and cleared through OMB, et cetera, but my personal opinion as the Secretary of Housing is that the system works. I wouldn't want to see us change it.
Let me take, if I can, Sonia, because we talked yesterday and I owed her a telephone call last night.
Q: If the goal here is to take off $1,000 from --
SECRETARY CISNEROS: $4,400 to $3,400.
Q: Right. Why not just go ahead and do an authorization that would take $400 off instead of relying -- I'm assuming you're relying on some consolidation moves --
SECRETARY CISNEROS: Correct.
Q: -- to get rid ahead of the other $200. Why not just offer the $400 if you're trying to help people who are on the edge in buying homes?
SECRETARY CISNEROS: Well, there is a good reason, and that is that we have taken the premium down to a level that we believe is consistent with the strength of the fund, the fiduciary obligation to keep the reserves and so forth. So we have taken it down to what we think is prudent. Conceivably could come down more, but we think that is what is prudent to keep the fund financially sound and viable.
Furthermore, in the home-building/homebuying arena, time is money. When we go from six weeks, which is what it took in Denver, to two days, that's money, in many ways --in processing time and to the homeowner -- to home buyer. So these are real savings that can be documented. And the President's directive to me is to take that Denver model, that Denver demonstration and take it to the whole country. When we do, that will be $200 applied to this $1,000.
Q: Sir, did HUD pay for the Kasten's to come to Washington? Did HUD pick up their tab, travel expenses?
SECRETARY CISNEROS: I don't know the answer to that. No.
MS. GLYNN: We'll take the question.
SECRETARY CISNEROS: One of the -- some of the partners are underwriting aspects of this conference. So that's just another piece of the answer to your question of the letter.
Q: -- on the question that I had.
Q: Is this effective today, Mr. Secretary?
SECRETARY CISNEROS: No, it is a directive for FHA to set it in motion.
Q: When would somebody be able to take advantage of it?
Q: I'm trying to follow up on my earlier question. Would it have possible to give more than $200?
MR. CISNEROS: Conceivably, it could have been, but it's a judgment call as to maintaining the fiduciary soundness of the fund and moving forward in a prudent way. But we're waiting for an audit right now which, indeed, will be due in a few days. We hope I can have it out, perhaps by tomorrow. It's an independent audit so I don't have access to it. But we expect that it will show that we have exceeded our goals in terms of the soundness of the fund. But we think that .25 -- 25 basis points -- was a prudent step here.
Q: -- is it effective? I mean, how soon do you expect FHA to act?
ASSISTANT SECRETARY RETSINAS: To reduce the premiums? Our target is then end of the fiscal year, but we hope to be ahead of that. Again we are waiting --
SECRETARY CISNEROS: That would be the first of October.
ASSISTANT SECRETARY RETSINAS: September 31st.
SECRETARY CISNEROS: Thank you very much, ladies and gentlemen.
THE PRESS: Thank you.
END 1:21 P.M. EDT
William J. Clinton, Press Briefing by Henry Cisneros, Secretary of Housing and Urban Development Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/270563