President Bush's housing chief urged Congress on Monday to quickly enact legislation that he said could help stave off future distress for homeowners with high-risk mortgages without spending government money.
Mortgage delinquencies and foreclosures have been surging, especially for people with tarnished credit or low incomes who took out high-priced home loans, known as subprime mortgages, during the housing boom that has turned into a slump.
Nearly 2 million adjustable-rate mortgages are resetting to higher rates this year and next, setting up a potential wave of foreclosures that has put policymakers on edge.
Alphonso Jackson, the secretary of housing and urban development, said, referring to the recent crisis in the high-risk mortgage market: "We knew that this was coming. We just didn't know it would come as quickly as it came."
Jackson said in a speech that "we can address upcoming subprime problems if we have the wisdom to get ahead of the curve. And we had better get ahead of the curve — or we're going to have serious problems." About 20 percent of all subprime mortgages "are headed for trouble," he said.
One way to get in front of the problem, he said, is by Congress enacting the long-standing proposal to overhaul HUD's Federal Housing Administration. It was not specifically written to respond to the recent crisis in the subprime mortgage market, but Jackson said the proposal could help tens of thousands of families with subprime home loans who are looking to refinance them.
The proposal would allow FHA to raise the maximum mortgage amount it can insure in higher-cost areas such as the Northeast, California and the mid-Atlantic. It is backed by the White House and has garnered support from Democrats in the House, including Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.
"FHA could help those thousands of borrowers who need an exit strategy from their suicide mortgages," Jackson said in his address to the National Press Club.
With many homeowners in trouble frightened to call their lenders to ask for help, HUD also has asked Congress for an increase in funds for housing counseling so that people can turn to local nonprofit agencies, Jackson noted.
"This is not a bailout program," Jackson said. HUD should not be a "bailout agency" and government money shouldn't be committed to such plans, he said.
Legislation proposed by Sen. Charles Schumer, D-N.Y., calls for $300 million of government money — matched by double that amount from the mortgage industry — to be channeled to community groups to work with distressed homeowners to help them avoid foreclosure.
Schumer's proposal has gained little traction in the Senate, however.
Many policymakers have underlined the disproportionate impact of subprime mortgages on minorities and the elderly, who often are targets of predatory lending practices that lure people into loans that they are incapable of repaying. But Jackson, answering a question after his speech, also insisted that many subprime borrowers were not unsophisticated, low-income people but what he called "Yuppies, Buppies and Guppies" — well-educated, young, black and gay upwardly mobile achievers — with expensive cars who bought $400,000 homes with little or no money down.
HUD will continue to "aggressively pursue" predatory lenders, and he is "about 65 percent" leaning toward federal action mandating new mortgage-lending standards, Jackson said.
- Cited his plans this week to announce the redevelopment of more than 500 affordable rental housing units in New Orleans' stricken Ninth Ward and nearly 100 new units in the city's downtown. In rebuilding in Hurricane Katrina's wake, Jackson said: "We are not going to simply renovate apartments that should be condemned. We are not going to merely replace dilapidated public housing that already existed. We have to do better than that."
- Denounced a federal lawsuit by public housing residents in New Orleans challenging the Bush administration's decision to raze four inner-city public developments where about 3,000 families lived before Katrina hit in August 2005. The plan to tear down the housing projects and replace them with "mixed income" neighborhoods has become an intense and emotional sticking point in the city's rebuilding.
- Said he favored limiting the amount of time that people could receive vouchers under HUD's so-called Section 8 program, which gives low-income recipients vouchers to help pay rent.