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Housing Sec.: 'We Forgot How to Make Safe, Plain Vanilla Loans'

MICHEL MARTIN, HOST:

This is TELL ME MORE from NPR News. I'm Michel Martin. On the program today, we'll speak with a woman who found herself knee-to-knee on a recent flight with a woman she did not know but who she later discovered was texting bigoted remarks about her race and weight. Think about what you might do in that situation, and we'll find out what she did. That's later this hour. But first, another conversation that might hit close to home, literally.

If you are in the market for a new home lately, you might have noticed that after years of being at the center of this economy's doldrums, houses are selling faster and prices are inching up, at least in many places. We wanted to talk more about this and other issues related to housing, so we've called upon the nation's top housing official. We're joined now by the U.S. Secretary of Housing and Urban Development, Shaun Donovan. Secretary Donovan, welcome back to the program. Thanks for joining us.

SHAUN DONOVAN: Michel, great to see you again.

MARTIN: Before we get into the details of, kind of, the housing market now, I did want to just ask about you briefly, if I may. I mean, this is the point - a second term where many of your colleagues have decided to go back to private life or to move on to other things. You are among those who've decided to stay, and I just wanted to ask why?

DONOVAN: Well, Michel, first of all, I got young kids. They like it here, and we're definitely going to be staying on. But, you know, the work that we've got done in the first term has made a huge difference in people's lives, but we've still got a ways to go.

MARTIN: I was going to ask you about that. What do you think your biggest accomplishment was in the first term, and what's your biggest challenge for the second, or your top priority for the second?

DONOVAN: Well, as you just said, we have seen the housing market turn around, and there's no question, when you think about the millions of families that we've saved from foreclosure, the neighborhoods that were in a terrible, terrible spiral decline that are now turning back around. That's the biggest accomplishment.

On the other hand, we got too many folks sleeping on our streets, too many veterans that are sleeping on our streets, and we also have to build a housing market for the future where this kind of crisis is never going to happen again. We have to make sure that we won't see the kind of damage that we saw to people's lives, their savings, to whole communities that happened in the last economic collapse. And the president has said very clearly, that is a big part of his agenda. It's not just to fix the damage, it's to make sure that we protect middle-class, poor folks around the country from this kind of damage again.

MARTIN: And what is critical to that? I mean, I infer from your remarks that your priorities are the homeless, and that can be defined lots of different ways. I mean, homeless can mean for some people doubling up with relatives in less than desirable circumstances, for some people it can mean sleeping in a car, veterans, and what? What else?

DONOVAN: Well, in the short run, to make sure that people can get a loan. We've seen a very strong recovery in the housing market across the country over the last year and a half. But we still have too many folks who would like to buy a home who are having a hard time getting a loan - finding credit. And in fact, in some ways, that's the single biggest thing that is holding back an even faster recovery in our housing market, which would create more jobs, which would help lift the whole economy, create more of a virtuous cycle, which we're starting to see.

So that's one piece of it. But the other piece of it is to make sure that we build a system that gives people loans that are safe. It's as simple as that. What brought this economy down, what brought the whole world economy down, was that we forgot how to make - the financial industry did, we as a society forgot how to make safe, plain vanilla loans that not just got people into homes, but actually helped them stay in homes. And really, it's on us, at the federal level to build a system that will keep banks in check, and make sure they're not only helping people get in homes safely, but keeping them in homes.

MARTIN: A few months ago, we spoke with Time Magazine's Rana Foroohar and she said that the housing recovery is actually a mirage, that the numbers look good, but that's mainly because investors are buying up homes for cash, but that doesn't help the average person looking to buy a home to actually live in.

DONOVAN: Well, Michel, let's not overstate what's made this housing recovery possible. There have been, particularly in some communities, investors that have come into the market, but if you just look at the latest month of home sales, 18 percent of all home purchases were by investors, 28 percent were by people who were buying their very first home. So in fact, first-time homebuyers are more responsible for the recovery than the investors are, by a long way. And that number, the number of investors that are buying, is actually going down, particularly in the hardest hit markets. So I would disagree with the previous guest that that's what's driving the market.

The numbers just don't play that out. What I will say, though, is that in a healthy housing market, in a fully recovered housing market, we would see an even higher level of first-time buyers. And that is really related to credit. So two things I would say. One is, as we're debating what we should do about the future of our housing system, we should remember that the government and FHA, in particular, the Federal Housing Administration, which is part of HUD, play a critical role in making sure that people can get access to credit. Right now, half of all first-time homebuyers use an FHA loan. And particularly, if you think about folks who have traditionally had a harder time getting access to credit - half of African-Americans last year used an FHA loan to buy their home, half of Latinos in this country.

So we have to make sure that we can continue to provide help through FHA. And there are some on Capitol Hill who would say, we should get government completely out of the housing market. That would be a disaster, not just for those homebuyers. It'd be a disaster for the market because we would see sales shrink and the recovery that we're seeing wouldn't be happening.

MARTIN: If you're just joining us, I'm speaking with the Secretary of Housing and Urban Development, Shaun Donovan. It's our first conversation with him after the beginning of the second Obama term. You mentioned race. HUD recently released a study that found that discrimination against African-Americans, Hispanics and Asian-Americans persists, although in subtle forms, and I think that one of the surprising data points there was that Asian-Americans experience a very high level of housing discrimination, according to this study. I wanted to ask, first of all, were you surprised by this, and secondly, why do you think that this persists?

DONOVAN: Well, Michel, I too noted that, you know, we do traditionally perceive, I think all of us, that African-Americans, in particular, and to some degree, Latinos, face the highest barriers, and we did see almost the same levels of barriers - discrimination against Asians. So I think it's a very important lesson that this continues to be an intrinsic part of our housing market and our culture that we have to keep attacking. The good news was that the kind of in-your-face discrimination that we saw two or three decades ago.

Literally you call on the phone, and the real estate agent - or you show up in the office, and the real estate agent says, I'm sorry, I don't have anything to show you. That we didn't see, almost at all. But what we did see was that an African-American couple with exactly the same credit, exactly the same background, assets, was shown 10 to 20 percent fewer homes, and because of that, their choices were limited.

MARTIN: Yeah, so what's the difference? So what if that's not in your face? So what? I mean, I'm puzzled by - you think that's better? That you're not even aware of what you're not seeing?

DONOVAN: The progress is that people are being shown homes, and that is better than not being shown a home at all. But - and your point is exactly right - this is still a serious problem in our country, because remember, when you choose a home, you choose where your kids go to school, you choose access to jobs, you choose public safety, you choose a whole range of things that are integral to your life chances. And if your choices are being limited, that is un-American, and it limits your economic opportunity going...

MARTIN: ...So what's the plan for addressing this now that your department has highlighted this problem again? What's the plan? I think it is worth noting that the government used to be an active participant in housing discrimination by actively promoting redlining through its guidelines through FHA in the 1960s. So...

DONOVAN: ...You know your history well, and your history is exactly right.

MARTIN: So what's the plan?

DONOVAN: The plan is - first of all, and I am proud to be the agency in the federal government that has a responsibility for enforcing the Fair Housing Act, one of Martin Luther King's great achievements, just in the year that he died. We are the enforcement agency. And so we have seen a president, Barack Obama, who has dramatically increased investment and focus on enforcement around these issues, and broadened it to look, for the first time ever - members of the LGBT community are protected by the definition of family in HUD housing.

So we've not only increased enforcement in the traditional areas of focus of the Fair Housing Act, we've expanded it. And it's also a question of when you build new housing, are you building it in communities that give access to opportunity to African-Americans, to Latinos, to others. And are you actively working to break up segregated neighborhoods in a way that you get more integrated, a broader set of choices for folks that have traditionally been discriminated against.

MARTIN: And speaking of enforcement, I wanted to ask about a couple more things. One is that last year, you helped negotiate a huge settlement with five of the country's biggest mortgage servicers. They're required to distribute $20 billion in relief to borrowers. An independent monitor recently found that there have been some improvements there, still some abuses. I wanted to ask about - one of the key criticisms of your administration in this area, there are people who say that there has just not been enough focus on bringing to justice people who have contributed to the disaster that we are now passing out of, by holding them accountable criminally for their conduct, in stripping people out of their homes - in some cases illegally - when they didn't have the right to.

And secondly, making sure that the relief that people are - deserve actually gets to them, that there has been progress, but it's just been too slow and there just has not been enough accountability for people who, in some cases, were actively engaged in criminal conduct. So I'd like to ask if you'd respond to that.

DONOVAN: Well, Michel, I'm not the sheriff in town in terms of the criminal side of the house. But we have worked very, very closely with Attorney General Holder - whether it's the head of a mortgage company that was using FHA loans, who's now doing time with Bernie Madoff in federal prison, or a range of others. We do have a series of criminal, not just charges, but indictments of those who were involved in the housing collapse.

MARTIN: We need to take a short break, but when we come back, we will continue our conversation with the Secretary of Housing and Urban Development, Shaun Donovan. We'll ask him if home ownership should still be part of the American dream. That's just ahead on TELL ME MORE from NPR News. I'm Michel Martin. Transcript provided by NPR, Copyright NPR.