By Dave Gatton
July 14, 2008

The Council for the New American City met June 20 to address the growing challenges that cities and metro areas face as the economic downturn continues and the housing crisis worsens.

David Iaia, Senior Principal of Global Insight Inc, reviewed the findings of the Council’s recent U.S. Metro Economy Report that forecast sluggish real growth of 1.4 percent for 2008 and 1.5 percent for 2009 for the nation’s 363 metro areas. The report predicted that 71 metro areas, nearly one in every five, would end the decade with fewer jobs than they started with.

On the housing front, the report forecasts that housing values will drop by $1.46 trillion in 2008. That projection is significantly worse than the previous Conference forecast of $1.2 trillion last November. Almost all metros, 93 percent, will see housing values decline this year.

"The housing crisis continues," said Conference of Mayors Past President Trenton Mayor Douglas H. Palmer, chair of the meeting. "There remains a tremendous amount of work to be done and I hope we can continue to press the case for action by both industry and Congress."

Kicking off an hour-long panel on responses to the mortgage foreclosure crisis, Federal Housing Commissioner Brian Montgomery addressed the Council on the role FHA is playing to help stem the tide of foreclosures.

Montgomery announced that FHA would soon send letters to over 625,000 homeowners who might qualify for refinancing under the FHA SECURE program, designed to help homeowners with adjustable rate mortgages refinance to fixed-rate FHA insured loans. The Commissioner urged mayors to encourage homeowners who receive the letters to call their lender or HUD certified counselors. The Council agreed to work with FHA to notify mayors on when the mailings for their jurisdictions would occur.

Montgomery told the mayors that FHA is central to the recovery of the housing market. "For a long time FHA was forgotten, marginalized in the minds of many Americans," he said. "But now, to quote the Philadelphia Enquirer, we are ‘back in vogue.’"

Montgomery thanked the Conference for its long'standing support for FHA reform and outlined the importance of a strong, modernized FHA in response to the mortgage crisis. A decade ago FHA insured one-in-five mortgages across the country. But as the mortgage finance industry brought new products to the market, particularly 100 percent financing with adjustable rates, FHA’s share of market dropped to only one-in-twenty loans. As a result, FHA essentially became a bystander as the mortgage lending spree of the last decade unfolded.

Through the FHA SECURE program, the agency has experienced a dramatic increase in applications in the first quarter of 2008 compared to a year ago. Applications from Florida are up 163 percent, Maryland 323 percent; Minnesota 288 percent; and Nevada, 343 percent. Since September 2007, FHA has helped pump more than $76.1 of mortgage activity into the housing market; $30.3 billion of that investment came through FHA SECURE, Montgomery told the mayors.

Now that private securitization of mortgage lending has all but vanished, FHA is poised for a comeback to its historic role. As the Conference convened in Miami June 20, the Senate was debating comprehensive mortgage foreclosure legislation that would provide FHA with an additional $300 billion of lending authority and modernize it operations to provide more flexibility in what kinds of mortgages it can insure.

"The U.S. Conference of Mayors was one of the first groups to endorse [FHA] modernization. And you have been a steady source of support ever since," Montgomery said. "I thank you for that. Modernization will help us remain competitive in the current housing market and for years to come," he added.

FHA modernization is part of H.R. 3221, a major housing reform bill that the Senate will resume debating when it returns from the July 4th recess. The bill also reforms the government sponsored enterprises (GSEs) of Fannie Mae and Freddie Mac by strengthening the federal government’s regulatory oversight of the entities. The bill contains additional home counseling funds and nearly $4 billion of critically needed CDBG funding for neighborhood stabilization efforts, which are strongly supported the the Conference. The White House, however, has raised the possibility of a veto of the bill if the CDBG funds remain in the comprehensive housing package.

Montgomery said Congress should preserve in the bill the ability for FHA to maintain its recently adopted "flexible risk-based premium structure," on the grounds that it would allow FHA to reach more families without placing excessive risk on the insurance fund or on taxpayers.

Montgomery told the mayors, however, that the administration was not in favor of continuing "seller-funded downpayment assistance" that has played a prominent role in FHA mortgages in the past. Such financing allows the seller, usually a homebuilder, to contribute funds to a non-profit agency, which, in turn, provides a gift to the homebuyer for downpayment or closing cost assistance. "Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded downpayment assistance to foreclosure at three times the rate of loans made to borrowers who make their own downpayments," the commissioner said.

The Council also heard from Charles McMillan, President Elect of the National Association of Realtors; David Kittle, Chairman-Elect of the Mortgage Bankers Association; Marietta Rodriguez of NeighborWorks America; Robert Klein, President and CEO of Safeguard Properties; and DeForest Soaries of the First Baptist Community Development Corporation of Somerset (NJ).

Working with the mayors, the group agreed to support sustainable HUD home counseling funds, recommend passage of comprehensive housing legislation including FHA reform, and cooperatively work on the development of model ordinances governing vacant properties as a result of foreclosures.

Southfield (MI) Mayor Brenda Lawrence, whose city and region have been hit hard by mortgage foreclosures, said, "It is clear this problem is bigger than any one of us, as mayors, can handle on our own. We need the help of the federal government to stabilize neighborhoods. We can help families save their homes and contain the collateral damage of declining property values, but to do so we need action now."

To help provide tools for cities to compete globally, the Council is working with Northeastern University scholar and President of Next Economics Anne Habiby to develop tools for businesses to grow in the global market place. Habiby is working on innovative ways for companies to develop their growth profile and to network that information with other companies to expand markets. The Council will follow Habiby’s work in this realm for its application to economic development strategies and international marketing of small to medium'sized businesses.

David Lattimore, representing the Initiative for a Competitive Inner City (ICIC), reviewed the U.S. Conference of Mayors/ICIC Partnership to identify each year the nation’s fastest growing inner city businesses. The Inner City 100 in May celebrated its tenth anniversary with plans to expand the program to larger number of participating nominations

Lee Bowman of the Federal Deposit Insurance Corporation (FDIC) announced that discussions were underway with the Conference to work on economic inclusion issues, including initiatives to bank the unbanked and to encourage savings. The FDIC plans to work with pilot cities to encourage such programs.