Richard F. Syron's Speech at the National Urban League – 2007 Annual Conference on July 26, 2007

Prepared Remarks for Richard F. Syron
Chairman & CEO, Freddie Mac

National Urban League – 2007 Annual Conference
St. Louis, Missouri

July 26, 2007

Thank you; it's an honor to be here. I want to thank Marc Morial for his visionary leadership and the Urban League for your support and partnership on financial literacy and other important issues.

The Urban League is an organization of tremendous importance and this audience should never be taken for granted. I mean that not only in the political arena, but economically as well.

I want to talk today about something very important to the well-being of African Americans. Homeownership is a key to the American Dream. It provides shelter, strengthens families, improves communities, enhances educational outcomes, and over the long term, it's a wise investment as well.

But all too often, African Americans have been locked out of the dream of owning a home. At one time, the main barriers were legal: redlining and other kinds of racial discrimination in home-buying and home finance.

On a personal note, I did my Ph.D. thesis on redlining in 1968. Decades later, equal treatment in credit is still an issue. In fact, I'm convinced the two great domestic challenges America faces in this century are race and inequality. And housing is where they come together.

As reflected in the Urban League's own Equality Index™, the highest barriers facing African Americans today tend to be economic. Working people like nurses, teachers, police and firefighters can't afford to live in the neighborhoods they serve. There is too little affordable housing in this country. And the unaffordability of housing overall – while color-blind in theory – in practice affects African Americans even more severely than others.

Why? Consider this terrible disparity. In 2004, “median net wealth for homeowners was $184,560 compared with only $4,050 for renters and just $2,600 for minority renters.”¹

The economic barriers at work here transcend incomes. African Americans typically buy their first home later in life than whites. That's partly because, on average, they inherit less wealth. The result is that African Americans have fewer years to build up their wealth through homeownership. That means less to pass on to their kids. And that's another vicious cycle.

At Freddie Mac, we're working hard to make homeownership more affordable for African Americans. This is a big part of our mission and it's one we take very seriously.

We are also committed to serving lower-income families and areas. Of the almost 3.3 million homes we financed last year, nearly 56 percent were affordable to low- or moderate-income families.

Over the years, the Government-Sponsored Enterprises, Freddie Mac and Fannie Mae, have helped to bring down the costs of getting a mortgage, increase consumer choice, and make the housing finance market more liquid and stable. We also made automated underwriting widespread, which has made applying for a mortgage less costly, more fair – and as color-blind as technology can make it.

Yet distressing gaps remain. The homeownership rate of African American families lags that of white and Asian American families by more than 25 percentage points. In 2007, in a country as wealthy as the United States, this is simply unacceptable.

On a related note, the devastation in New Orleans and elsewhere after Hurricanes Katrina, Rita and Wilma has been tragic. After the hurricanes struck, we pledged to buy $1 billion in mortgage revenue bonds from state and local housing finance agencies in the Gulf. Less than 12 months later, we fully met that huge commitment. The bonds we bought will help more than 10,000 families buy or rebuild a home. We also provided more than $1 million in Katrina relief last year directly to the National Urban League, to help you better serve hard-hit Gulf Coast communities.

Of course, the biggest instability in housing today is in the subprime market. Here too, African Americans are disproportionately affected. And here too, Freddie Mac is playing a vital role.

The subprime situation is causing pain at several levels. Thousands of adjustable-rate loans are resetting upward every week from their teaser rates. Families are finding the new rates unaffordable and many face potential foreclosure. Some neighborhoods – Detroit comes to mind – are already struggling with multiple foreclosures. All this results in empty homes, destroyed neighborhoods, and plummeting home values. And it erodes the family structure that is critical to healthy and stable communities.

During the boom, most subprime borrowers could always refinance if they had to, using the equity built up in their homes. It's when the market weakened that problems really came to light.

This is the kind of uncertain market situation for which Congress designed the GSEs to come in and provide some stability. And that is what we're doing.

In February, Freddie Mac became the first secondary market participant to announce we won't buy subprime mortgages that pose an unacceptable risk of excessive payment shock and possible foreclosure.

In April, we followed up by announcing we will buy up to $20 billion in mortgages that will give lenders more and better choices to offer subprime borrowers. Our products, the first of which came onto the market last month, will limit payment shock by offering reduced adjustable rate margins, longer fixed-rate terms, and longer reset periods.

The problems in subprime remind us of a basic truth. We need to broaden our focus from simply increasing homeownership – which will always be hugely important – to the broader concept of sustainable homeownership.

That's why Freddie Mac has provided leadership in three key areas. First, we realized that homebuyer education is crucial, so we developed an award-winning credit education curriculum called CreditSmart®. This is an important tool to help people assess, achieve and sustain homeownership.

Second, we have long worked with our customers to combat predatory lending. For example, we refuse to invest in mortgages that require mandatory arbitration, or carry excessive costs or fees.

Finally, we have been a leader over the years in foreclosure prevention. We've shown that appropriately underwritten workouts with eligible borrowers can lower the odds of home loss through foreclosure by more than two-thirds.

At Freddie Mac, we believe financial literacy is an important tool not only in preparing African Americans for homeownership, but in protecting potential borrowers against predatory conduct and enhancing their financial well-being. I want to thank the Urban League for being on the forefront of this issue – and for being instrumental in helping us get the word out about the importance of financial literacy.

We live at a time when inequality is growing alarmingly – a fact now acknowledged across the political spectrum. As the Urban League has emphasized, it's not enough to raise black incomes: we need to raise black net worth. That makes homeownership more important than ever.

Why? Because homeownership remains the best and biggest doorway into the middle class. Other investments can make you rich, no doubt. But owning that first home is what can get your kids into better schools, lower your income taxes, and begin to build your net worth.

This is more than an economic issue, or an issue of housing policy. It is an inescapable issue of fairness if we are fully to redeem America's promise. And it's a test for this nation that I'm convinced we must not and will not fail.

So I'll leave you with one last point in closing. Despite the obstacles I've mentioned, I am very optimistic about African American homeownership. And I believe it's extremely important for African Americans to keep their eye on the prize of owning and keeping a home.

There's no question if this should happen; only a question of how. And Freddie Mac wants to work with you to reach and hold on to this prize.