Dr. Ben Carson
Secretary of Housing and Urban Development
National Association of Home Builders Executive Board Meeting
Washington D.C., May 23, 2018
Thank you, Randy, [Randy Noel, Chairman of the NAHB] for the kind introduction.
When I got the invitation, I knew I had to come up to 15th street to meet and talk to your leadership and members. Your industry is vital to the economy and there is no better advocate for home builders nationwide than your association. Recently I spoke to the National Association of Realtors, and they said, you’ve got to talk to the folks at the NAHB and get them to build more homes!
I know that I don’t have to tell anyone here about the basic laws of supply and demand. There simply are not enough homes being built – especially affordable homes for working families and young married couples – to satisfy the demand in our growing cities.
Just look at the District of Columbia. From my window at HUD, the skyline is filled with building cranes to meet the demand of housing for the rapid influx of new residents.
We understand that are some big obstacles are standing in your way from meeting this challenge. The first being the heavy regulatory burden carried by the housing industry. The daily news debrief that I receive are filled with articles and op-eds on such issues as construction defect liability and new enhanced zoning ordinances.
In fact, I was reading in Bloomberg News about the new legislation that just came out of California -- the one requiring almost all new homes to have solar panels installed. No doubt this will drive up prices for new homebuyers even further. Why are we not surprised that when this was announced, solar panel stock shares jumped, while home builder’s shares fell?
On these types of state legislative efforts, we do not have much of a say, but the President does, and he understands that your industry wants and needs regulatory relief. The overall number of regulations on a local, state and national level that all American businesses must comply with effects everyone’s bottom line. It’s a stealth tax.
In fact, one of the first actions by the President was to impose a two-for-one rule on new federal regulations. He ordered that for every new regulation, two old regulations must be eliminated.
At HUD we think the time is ripe to conform to the President’s agenda on eliminating or streamlining regulations and create a more coordinated regulatory environment. Recently, I promised the Manufacturing Housing Institute that we would start to shift away from writing more rules and regulations and provide for more regulatory flexibility. I will make the same pledge here today to help our nation’s home builders construct more affordable housing.
Bringing Leaders Back to FHA
The one big regulatory burden that we are tackling head-on is the application of the False Claims Act.
It’s no secret that HUD, and the Justice Department in the past have been accused of using the Act to sue FHA lenders for unintentional mistakes and honest errors they made in the originating loans. And consequently, many legitimate lenders have either left the FHA altogether, or have stayed in the program BUT have made it costlier for borrowers who can least afford it.
In the last eight years, the percentage of depository institutions willing to participate in originating FHA mortgages fell from nearly 45% down to 15%, as the percentage of non-depository lenders has increased.
These are totally understandable trends, as stiff penalties and scrutiny have made is harder for many banks to keep lending.
So, what are we doing?
First, we are working very closely with the Justice Department to review and address the False Claims Act to sue FHA lenders.
Second, we have asked for feedback from lenders and other stakeholders on how we can better lighten this regulatory burden, and we are reviewing and incorporating these suggestions as I speak.
Third, the FHA is looking at its defect taxonomy, which establishes defect categories and how we view the severity of each defect as well as the FHA’s own system of enforcement – so we can make even clearer our guidance on such enforcement matters.
In short, we are seeking to limit the use of the False Claims Act as a tool of last resort.
But let me be very clear, there will be no room at the FHA -- or Ginnie Mae -- for bad actors. We will not overlook those lenders who defraud borrowers or who make routine errors. In fact, just the other week, the FHA Mortgage Review Board heard cases that included both bad actors and careless mistakes. The former are no longer lenders, and the latter have penalties that are proportional to their actions.
At the end of the day, we want every “good” lender who makes responsible loans, and services them well, to feel confident that they can fully participate in HUD’s programs and that will make affordable loans possible.
Housing Finance Reform
Another key concern is that of housing finance reform. At least for the rest of this year the legislative agenda is full, but next year we should see action on this issue. The GSE’s have now been in receivership for 10 years. It’s time we came up with some creative solutions to move them from government control and taxpayers risk – perhaps using private capital as a backstop.
What is becoming un-stuck, fortunately, are some of our nominations. The Senate on Friday agreed to a vote on Brian Montgomery to head the FHA. Also, Michael Bright was officially nominated last week to be President of Ginnie Mae. Finally, I’m getting a full compliment of staffing to further our goals and policies.
Overall, we think one of the most important steps Congress could take is to recognize the critical need to modernize FHA’s technology --some of which is 40 years old. That’s why we’re requesting in our proposed 2019 budget, the authority to collect from lenders a small fee of up to $25 per loan.
The hallways of our homeownership centers are literally lined with paper case files. To understand the magnitude of the problem, here’s some numbers: each year these centers handle 400,000 case binders, averaging 300 pages, which comes to a total of 120 million pieces of paper. So much for the paperless office of the future.
Not only is FHA’s current IT system woefully outdated, it is unreliable. Last year alone, there were 73 outages of our origination systems, with some lasting several days.
As the Secretary of HUD with a specific mission to help our minorities, working class low-income families, and first-time home buyers, I believe that these folks should NOT have to depend for their financing on antiquated FHA technology. For far too long, our capabilities have lagged the rest of the mortgage market.
We can no longer be considered “the poor sister” of Freddie Mac and Fannie Mae. I am sure we would all agree that the families we serve at FHA deserve nothing less.
We have gone a long way since the collapse of the housing market. The landscape of the home building and lending market has shifted dramatically since then – and I think for the best. Where once FHA was totally focused on working with struggling homeowners facing foreclosure, today we are more centered on promoting among our lenders and new home applicants, responsible and sustainable homeownership. Responsible being the word here – we don’t want to return to the practices of the past which created the financial crisis.
As June is National Homeownership Month, I look forwarding to working with the membership of the National Association of Home Builders – specifically on supporting our efforts to further home ownership among the millions of desiring families who want a piece of the American dream.
Thank you again for the invitation to join you this morning.