[House Hearing, 107 Congress] [From the U.S. Government Publishing Office] H.R. 3995--THE HOUSING AFFORDABILITY FOR AMERICA ACT OF 2002 ======================================================================= HEARINGS BEFORE THE SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS SECOND SESSION __________ APRIL 10, 23, 24, 2002 __________ Printed for the use of the Committee on Financial Services Serial No. 107-64 U. S. GOVERNMENT PRINTING OFFICE 79-319 WASHINGTON : 2002 ___________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 HOUSE COMMITTEE ON FINANCIAL SERVICES MICHAEL G. OXLEY, Ohio, Chairman JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York MARGE ROUKEMA, New Jersey, Vice BARNEY FRANK, Massachusetts Chair PAUL E. KANJORSKI, Pennsylvania DOUG BEREUTER, Nebraska MAXINE WATERS, California RICHARD H. BAKER, Louisiana CAROLYN B. MALONEY, New York SPENCER BACHUS, Alabama LUIS V. GUTIERREZ, Illinois MICHAEL N. CASTLE, Delaware NYDIA M. VELAZQUEZ, New York PETER T. KING, New York MELVIN L. WATT, North Carolina EDWARD R. ROYCE, California GARY L. ACKERMAN, New York FRANK D. LUCAS, Oklahoma KEN BENTSEN, Texas ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut BOB BARR, Georgia DARLENE HOOLEY, Oregon SUE W. KELLY, New York JULIA CARSON, Indiana RON PAUL, Texas BRAD SHERMAN, California PAUL E. GILLMOR, Ohio MAX SANDLIN, Texas CHRISTOPHER COX, California GREGORY W. MEEKS, New York DAVE WELDON, Florida BARBARA LEE, California JIM RYUN, Kansas FRANK MASCARA, Pennsylvania BOB RILEY, Alabama JAY INSLEE, Washington STEVEN C. LaTOURETTE, Ohio JANICE D. SCHAKOWSKY, Illinois DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas WALTER B. JONES, North Carolina CHARLES A. GONZALEZ, Texas DOUG OSE, California STEPHANIE TUBBS JONES, Ohio JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts MARK GREEN, Wisconsin HAROLD E. FORD Jr., Tennessee PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas CHRISTOPHER SHAYS, Connecticut KEN LUCAS, Kentucky JOHN B. SHADEGG, Arizona RONNIE SHOWS, Mississippi VITO FOSSELLA, New York JOSEPH CROWLEY, New York GARY G. MILLER, California WILLIAM LACY CLAY, Missouri ERIC CANTOR, Virginia STEVE ISRAEL, New York FELIX J. GRUCCI, Jr., New York MIKE ROSS, Arizona MELISSA A. HART, Pennsylvania SHELLEY MOORE CAPITO, West Virginia BERNARD SANDERS, Vermont MIKE FERGUSON, New Jersey MIKE ROGERS, Michigan PATRICK J. TIBERI, Ohio Terry Haines, Chief Counsel and Staff Director Subcommittee on Housing and Community Opportunity MARGE ROUKEMA, New Jersey, Chair MARK GREEN, Wisconsin, Vice BARNEY FRANK, Massachusetts Chairman NYDIA M. VELAZQUEZ, New York DOUG BEREUTER, Nebraska JULIA CARSON, Indiana SPENCER BACHUS, Alabama BARBARA LEE, California PETER T. KING, New York JANICE D. SCHAKOWSKY, Illinois ROBERT W. NEY, Ohio STEPHANIE TUBBS JONES, Ohio BOB BARR, Georgia MICHAEL E. CAPUANO, Massachusetts SUE W. KELLY, New York MAXINE WATERS, California BOB RILEY, Alabama BERNARD SANDERS, Vermont GARY G. MILLER, California MELVIN L. WATT, North Carolina ERIC CANTOR, Virginia WILLIAM LACY CLAY, Missouri FELIX J. GRUCCI, Jr, New York STEVE ISRAEL, New York MIKE ROGERS, Michigan PATRICK J. TIBERI, Ohio C O N T E N T S ---------- Page Hearings held on: April 10, 2002............................................... 1 April 23, 2002............................................... 44 April 24, 2002............................................... 91 Appendixes: April 10, 2002............................................... 133 April 23, 2002............................................... 275 April 24, 2002............................................... 425 WITNESSES April 10, 2002 Lee, Hon. Barbara, U.S. Representative from the State of CA...... 9 Sanders, Hon. Bernard, U.S. Representative from the State of VT.. 6 Brooks, Mary E., Director, Housing Trust Fund Project, Center for Community Change, Frazier Park, CA............................. 13 Faith, Bill, Executive Director, Coalition of Homelessness and Housing in Ohio; Chair, Board of Directors, National Low Income Housing Coalition.............................................. 14 Gonzales, Hon. Javier, Commissioner, Santa Fe County, New Mexico; President, National Association of Counties.................... 11 Hadley, Katherine, Commissioner, Minnesota Housing Finance Agency, on behalf of the National Council of State Housing Agencies....................................................... 16 Lawson, Robert, President, the Lawson Companies, on behalf of the National Association of Home Builders.......................... 38 Lopez, Rodrigo, President, AmeriSphere Multifamily Finance, L.L.C., on behalf of the Mortgage Bankers Association of America........................................................ 40 Racer, Catherine, Associate Director, Massachusetts Department of Housing & Community Development, representing the Council of State Community Development Agencies........................... 18 Roberts, Benson F., Vice President for Policy, Local Initiatives Support Corporation............................................ 36 Sard, Barbara, Director of Housing Policy, Center on Budget and Policy Priorities, Washington, DC.............................. 35 APPENDIX Prepared statements: Roukema, Hon. Marge.......................................... 134 Oxley, Hon. Michael G........................................ 137 Grucci, Hon. Felix J. Jr.,................................... 139 Israel, Hon. Steve J......................................... 140 Rahall, Hon. Nick J.......................................... 144 Brooks, Mary E............................................... 155 Faith, Bill.................................................. 166 Gonzales, Hon. Javier........................................ 148 Hadley, Katherine............................................ 189 Lawson, Robert............................................... 230 Lopez, Rodrigo............................................... 236 Racer, Catherine............................................. 198 Roberts, Benson F............................................ 221 Sard, Barbara................................................ 207 Additional Material Submitted for the Record Frank, Hon. Barney: Statement regarding the need for additional resources........ 146 Brooks, Mary E.: Written response to questions from the subcommittee.......... 165 Faith, Bill: 2,101 Endorsements of a National Housing Trust Fund.......... 242 WITNESSES April 23, 2002 Brown, Terri H., Executive Director, Cuyahoga Metropolitan Housing Authority, Cleveland, OH............................... 55 Byrd, Harry A., Jr., Principal, The Harkin Group, Huntersville, NC accompanied by John Kennedy................................. 60 Dekker, Hans, Executive Director, Baton Rouge Area Foundation, Baton Rouge, LA................................................ 58 Dowling, Telissa, President, Resident Advisory Board, New Jersey Department of Community Affairs, on behalf of the National Low Income Housing Coalition....................................... 50 Eisenman, Gary, Executive Vice President of Related Capital Company, on behalf of the National Multi-Housing Council and the National Apartment Association............................. 84 Frasier, Joan W., President, Atlantic City Residents Advisory Board, on behalf of Ed Williams, President of ENPHRONT......... 52 Friar, Maureen, Executive Director, Supportive Housing Network of New York; Advisory Committee Member, National Alliance to End Homelessness, Washington, DC................................... 80 Marchman, Kevin E., Executive Director, National Organization of African Americans in Housing, Washington, DC................... 54 Slemmer, Thomas, President and CEO, National Church Residences, Columbus, OH, on behalf of American Association of Homes and Services for the Aging......................................... 75 Sperling, Andrew, Deputy Executive Director, National Alliance for the Mentally Ill, Arlington, VA, and the Consortium for Citizens with Disabilities Housing Task Force.................. 78 Ziegler, Roy, Former Director, New Jersey Department of Community Affairs, Section 8, on behalf of National Leased Housing Association, Washington, DC.................................... 82 APPENDIX Prepared statements: Roukema, Hon. Marge.......................................... 276 Oxley, Hon. Michael G........................................ 278 Green, Hon. Mark............................................. 285 Grucci, Hon. Felix J. Jr.,................................... 288 Israel, Hon. Steve J......................................... 283 Jones, Hon. Stephanie T...................................... 280 Schakowsky, Hon. Janice...................................... 282 Brown, Terri H............................................... 357 Byrd, Harry A., Jr........................................... 346 Dekker, Hans................................................. 364 Dowling, Telissa............................................. 381 Eisenman, Gary............................................... 330 Frasier, Joan W.............................................. 376 Friar, Maureen............................................... 336 Marchman, Kevin E............................................ 371 Slemmer, Thomas (with attachment)............................ 400 Sperling, Andrew............................................. 340 Ziegler, Roy................................................. 418 Additional Material Submitted for the Record Watt, Hon. Melvin: Housing Authority of the City of Charlotte, NC, letter, January 31, 2002........................................... 302 Housing Authority of the City of Greensboro, NC, letter, February 5, 2002........................................... 297 Housing Authority of the City of Winston-Salem, NC, letter, January 31, 2002........................................... 293 ``Urban Renewal Can Be Tough On the Tenants,'' The Washington Post, May 1, 2002.......................................... 290 Creager, Kurt, on behalf of National Association of Housing and Redevelopment Officials, (NAHRO), submitted for the record..... 305 WITNESSES April 24, 2002 Bernardi, Hon. Roy A., Assistant Secretary, Office of Community Planning and Development, U.S. Department of Housing and Urban Development.................................................... 101 Cannon, Louis P., President, D.C. State Lodge, Fraternal Order of Police......................................................... 126 Courson, John, President, Central Pacific Mortgage Company, on behalf of the Mortgage Bankers Association of America.......... 119 Edwards, Martin, Jr., President, National Association of Realtors 121 Kelly, Kevin, President, Leon N. Weiner & Associates, Inc., Wilmington, DE, on behalf of the National Association of Home Builders....................................................... 122 Liu, Hon. Michael, Assistant Secretary, Office of Public and Indian Housing, U.S. Department of Housing and Urban Development.................................................... 102 McCool, Thomas J., Managing Director, Financial Markets and Community Investment, U.S. General Accounting Office........... 104 Shapoff, Edward L., Vice President, Goldman, Sachs & Co., on behalf of the Healthcare Financing Study Group................. 124 Weicher, Hon. John C., Assistant Secretary for Housing/FHA Commissioner, U.S. Department of Housing and Urban Development. 99 APPENDIX Prepared statements: Roukema, Hon. Marge.......................................... 426 Carson, Hon. Julia........................................... 428 Grucci, Hon. Felix J., Jr.................................... 430 Israel, Hon. Steve........................................... 432 Miller, Hon. Gary G.......................................... 433 Waters, Hon. Maxine.......................................... 434 Bernardi, Hon. Roy A......................................... 447 Cannon, Louis P.............................................. 515 Courson, John................................................ 474 Edwards, Martin, Jr.......................................... 482 Kelly, Kevin................................................. 495 Liu, Hon. Michael............................................ 453 McCool, Thomas J............................................. 460 Shapoff, Edward L............................................ 504 Weicher, Hon. John C......................................... 437 Additional Material Submitted for the Record Capuano, Hon. Michael E.: Written questions for Hon. Michael Liu....................... 523 Frank, Hon. Barney: Written questions for Hon. Michael Liu....................... 521 Lee, Hon. Barbara: Ilene Weinreb, prepared statement............................ 435 Liu, Hon. Michael: Written response to a question from Hon. Melvin Watt......... 459 H.R. 3995--THE HOUSING AFFORDABILITY FOR AMERICA ACT OF 2002 ---------- WEDNESDAY, APRIL 10, 2002 U.S. House of Representatives, Subcommittee on Housing and Community Opportunity, Committee on Financial Services, Washington, DC. The subcommittee met, pursuant to call, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding. Present: Chairwoman Roukema; Representatives Kelly, Miller, Cantor, Grucci, Tiberi, Frank, Carson, Lee, Schakowsky, Jones, Sanders, LaFalce, and Israel. Chairwoman Roukema. Today, we're having this hearing obviously on H.R. 3995, the Housing Affordability Act, we hope will be of 2002. These issues are certainly at the top of my agenda and always have been, because I guess I come from that old-fashioned school where my parents always taught me that owning your own home was the American dream. It was part of being a true American to own your own home, and I keep thinking that every time we have a new piece of housing legislation. Certainly the country is facing, however, despite the fact that we have a growing number, 68 percent of the homeownership rate, which is an amazing increase in homeownership, nevertheless, we still have an affordability problem for low- and moderate income families and that certainly is what this series of hearings that Mr. Frank and I have been sponsoring or focusing on. Our subcommittee hearings have focused on what community activist housing experts, local and Federal Government officials and representatives of the real estate industry and the homebuilding industry, as well as mortgage industries. We've had a few of those hearings already, and this is a continuation of that. Certainly we believe that, or I believe that H.R. 3995, the legislation that's under consideration today, is a good one and not necessarily perfect, but we would like to hope that we can have a really solid piece of legislation in this Congress so that we can get what we would I guess call mid-course corrections in housing programs that are some are under-used, and some are duplicative, and we want to have less regulation if possible. The bill includes a housing production program and preservation program within HOME that is targeted toward low- income families. In addition, this legislation provides flexibility and increases opportunities for local governments and local decisionmakers so that they can better meet the needs of their individual communities. That's certainly what we're hoping to do here. There has been under FHA the program that was originally designed to encourage lenders to make credit available, we have been notified or recently learned that there needs to be strength added to it and less regulation, because the needless regulation--at least it seems to be needless in some respects-- are adding to the cost of homeownership and we would hope that this legislation H.R. 3995 requires Federal agencies to do a housing impact analysis of any new rule that has an economic impact of $100 million or more. The Homeownership Opportunities Act for Public Safety Officers and Teachers, H.R. 3191, has also been incorporated into this legislation to make homeownership more available to those public servants. Today's hearing will specifically focus on the HOME Program Housing Production. New production of affordable single and multi-family housing is essential to the goal of expanding homeownership and affordable rental opportunities. H.R. 3995 creates a separate production program within HOME targeted toward low-and extremely low-income levels. HOME is the largest Federal block grant to State and local governments and it is designed exclusively to create affordable housing for these low-income households. And so we are amending the HOME program to establish a housing production program to increase the production and preservation of mixed income rental housing for the very low, 50 percent of median income, and extremely low- income families, 30 percent below the level of median income in the area. I won't go into more of that, I mean, of those specifics. I'm sure they will come up in the discussion with the people who are testifying today. But let me just say that H.R. 3995 includes a provision that establishes--and here I'm going to ask some questions hopefully, or listen very carefully for what is being said by our panelists concerning a thrifty production voucher. This thrifty voucher could be used in conjunction with the new construction or substantial rehabilitation. I don't believe that this thrifty voucher is carefully identified and defined as a different type of voucher, because it's based on the property operating costs, but we're going to be asking, exploring if not in questions today, certainly exploring through the legislative process how those vouchers would work and who would approve the vouchers and how they specifically are differentiated from the other vouchers that are presently in the law. It has been stated that the thrifty production vouchers can be combined with any capital subsidy program so as home or low- income housing tax credits, but I'm not quite sure exactly how that would work and we'll have to explore that in more detail. We will go into a lot of these questions. They're not insurmountable problems. They're not unanswerable questions, but we will use this hearing today to refine some of the parts of the program and certainly those who are here with us today have good, practical experience in the real world with these issues. So it's not theoretical, but it's a real world explanation of how we can increase the American dream and expand the American dream for all of our citizens. And with that, I would turn to the Ranking Member Congressman Barney Frank. Mr. Frank. Thank you, Madam Chair. I am very pleased that we are moving into a stage where we are actually going to be marking up legislation. We have a housing crisis, and it's important to note that we have a debate in this country, as to whether or not when you get great private sector performance, and when the level of prosperity in the private sector, as we measure it, is fairly high. The question is does that then not mean that Government doesn't have to do anything? I am generally skeptical of that proposition, but nowhere is it less valid than regard to housing. We have just come through a period in which we have proven results, given the inevitable unevenness of prosperity. Great prosperity, even for most Americans, exacerbates the housing crisis for many Americans. We have a housing crisis in many parts of this country today for lower income people, which leaves them worse off than they were before the great decade of economic prosperity happened. And so it is obvious that if the Government does not significantly increase its role, then we will not achieve that goal of housing. And I agree very much with what the Chair said. I was pleased when she said in the middle that we're talking about homeownership and rental housing. I do think we have to guard against the tendency to devalue rental housing. Low-income people need to have good rental housing; the American dream is a home, not homeownership. Homeownership is good for some people, it is heavily tax favored. If we have a subsidized rental housing for low-income people the way we subsidize through the Tax Code homeownership, we would have probably a surplus of low-income homes. No one is thinking we're going to get there, but it is important to mention rental housing. Now there will be some specific questions that we will have; our colleagues have got a proposal which I have cosponsored. There are some things in the bill. We'll be hearing from the Millennium Housing Commission. I thought that was supposed to be this millennium, I'm not sure, they were uncertain. [Laughter.] Mr. Frank. But we will hear from them at some point and all of those specifics will be very important, and I thank the Chair for the hearings last year and for responding, because basically almost everybody, I think all but one witness last year over a broad range, said you need a production program. And the Chair and I have both over the years noted that while the Section 8 program does some good, in some markets it is not suitable and is not the best way to go and that you need a range of housing programs, because not every housing market has a one-size-fits-all. Indeed, I think it's very clear and we ought to do a little classic economics here. Given the voucher program as a tenant- based-only, as long as there is no project based where it's not an incentive to build, in tight housing markets, what you do with Section 8 is add to demand in a way that is guaranteed not to add supply. Now that helps equity, but it also drives up costs. So that in tight housing markets, a voucher-only program by classical economic supply and demand is a very insufficient policy. The question though that really has to be addressed if it's not fully within our jurisdiction, but we're what, more than ten percent of the House, so we can influence this; it's money. You can't build bricks without straw and you can't build houses without money. And we can all try to be efficient and we can all talk about thrifty vouchers and cheap this and inexpensive that, but you still need some money. And I just want to summarize a statement. We've been having meetings with a variety of groups, a wide variety of groups, advocacy groups, business groups that are in the housing business, people who are trying to get housing rented, local officials, and I want to read the statement and particularly I want to read the list of signers. More than 15 million families in this country have critical housing needs. Too many are homeless. About one in every seven households do not have a decent affordable place to call home. We believe that to correct this problem, a significant and sustained commitment to increased funds for housing in both urban and rural areas should be made at the national level. A reasonable downpayment on that commitment would be an increase of $15 billion in the coming fiscal year's budget for housing and community development. This can include both tax expenditures and outlays benefiting low- and moderate income families which can leverage State, private and local funds beyond the $15 billion. This is signed by the National Housing Conference, the Mortgage Bankers Association of America, the American Association of Homes and Services for the Aging, the Public Housing Authorities Directors Association, National Affordable Housing Management Association, National Alliance to End Homelessness, the Council of Large Public Housing Authorities, Citizens Housing and Planning Association of Boston, the Housing Assistance Council, the National Leased Housing Association, the National Low Income Housing Coalition, the Council for Affordable and Rural Housing, the McAuley Institute, the Consortium for Citizens with Disabilities Housing Task Force, the National Community Development Association, the Local Initiatives Support Corporation, the U.S. Conference of Mayors, the Enterprise Foundation--I bet for once you're glad I talk too fast--the National Rural Housing Coalition, the Corporation for Supportive Housing, the National Fair Housing Alliance, the Alliance for Retired Americans, the National Association of Counties, the National Association for County Community and Economic Development, National Association of Local Housing Finance Agencies, Network, a National Catholic Social Justice Lobby, National Community Reinvestment Coalition, National Council of State Housing Agencies, the Center for Community Change, the National Housing Trust, the Council of State Community Development Agencies, the National Multi-Housing Council, the National Apartment Association and the National Association for Affordable Housing Lenders. This is the key question that has to be part of our deliberations. Yes we have some good proposals on the table to go forward, but without increased resource it won't work, and we simply cannot have a policy of cannibalizing existing programs to support new ones. There is a need for new money and this is part of what we have to do, but it has to be put in the context of the need for resources. Chairwoman Roukema. I thank the Ranking Member. I will acknowledge the fact that Congressman LaFalce, the Democratic leader on the Full Committee has joined us today and although I'm going to ask unanimous consent that all other opening statements be included in the record and that we go directly to the panel, I would give Congressman LaFalce the opportunity as the leader of the Committee Ranking on the Full Committee to make his opening statement. Mr. LaFalce. Well, I thank the gentlelady very much, and I would like to begin by commending the Chairwoman of the Housing Subcommittee for her diligence in developing an Omnibus Housing Bill, H.R. 3995. The bill includes a great number of very constructive provisions to address the issue of housing affordability, and I think that by the time we report it out of subcommittee, Full Committee, and the floor of the House and get it signed into law, the Roukema Housing Bill will be a great testament to your great congressional career. I also personally appreciate the inclusion in the bill of a number of individual bills that I've introduced: specifically, H.R. 674, with respect to FHA loans for teachers, police and firemen; H.R. 858, to permanently authorize the FHA downpayment simplification formula; and H.R. 3926, which would prohibit the implementation of the 50 percent hike in the fees charged by Ginnie Mae. And I have a few others too that I think should be included in order to make it an even better bill, Madam Chairman, and will make an appointment with you for a cup of coffee to perhaps discuss those in your office. But before I close, I'd like to address the issue of affordable housing production, which is the major focus of today's hearing. Clearly in many parts of this country, rents are skyrocketing, vacancies are near zero percent, and low- income families and seniors are having an extremely difficult time finding an apartment to rent. And in many areas, simply having a Section 8 voucher is not enough for a low-income tenant to be able to find a place to live. So we need to build new affordable housing, and the provisions that are the subject of today's hearing certainly address such needs. But I'd also like to point out that these types of housing conditions do not exist in every part of the country and do not exist even in every urban area. There are a great many older urban areas, like those I represent, where a more pressing need is not building new housing but rehabilitating the existing housing stock. And there are many, many parts of the country where affordable housing preservation, in the narrower sense of the word, is not a critical concern because it's just not that attractive to opt out of assisted housing when market rents are not an attractive option. Therefore, I reiterate some of the comments that the Ranking Member, Mr. Frank, made. As we deliberate proposals to create new HUD programs, and as we consider proposals to revise existing programs, we must maintain flexibility in our policies to make sure they work for all communities nationwide. Where in one community the highest priority may be to build new housing, in another it may be to rehabilitate the housing we have. Where in one community it may be the highest priority to find new housing for the very lowest income families, in another, a major priority may be to bring middle income families into communities that are concentrated with poverty or to bring individuals who are extremely low-income into middle income communities. We need to do a better job to facilitate a more integrated society and I don't know that we've done a good enough job there. One size does not fit all. In order to sustain support for whatever we authorize, our policies have to work for all communities, for all local market conditions. I look forward to these hearings, and I look forward to working with you in further subcommittee consideration of an excellent start in H.R. 3995. I thank the Chair. Chairwoman Roukema. I thank Congressman LaFalce for his insightful statements. We will have more of a discussion or a debate whether public or private, but there are issues that we would want to discuss. Now I would ask unanimous consent that we go on to the panelists, but that all---- Ms. Jones. Madam Chairwoman. Chairwoman Roukema. Excuse me. Excuse me, but I was just going to say we're very limited in time with the votes that will be coming up, and we do want to begin to hear the panelists, but that all the opening statements would be made part of the record. Yes? [Pause.] Chairwoman Roukema. Congresswoman Jones has a personal point to make for all the Members of the subcommittee for their information. Ms. Jones. Thank you, Madam Chairwoman. Just on behalf of the family of my staff of Rodney Pulliam, who was killed in a car accident in Frederick, Maryland, about 3 weeks ago, on behalf of his family, I wanted to thank all of the Members of the subcommittee who expressed their sympathy and sent cards and the like, and just ask for a moment in support of his family from all the staffers, just a fine young staffer for the Banking Committee, and particularly for Housing. Chairwoman Roukema. Yes, there'll be a moment of silence. Ms. Jones. Thank you, Madam Chair. Chairwoman Roukema. Thank you, that was a terrible tragedy and we do appreciate your bringing to the attention so that we could properly pay homage to him and his family. All right, the opening statements will be included in the record, and with that I will open the hearing for our two colleagues, Congressman Bernie Sanders from Vermont, and Congresswoman Barbara Lee from California. From east to west, shall we do that? East to west. Congressman Sanders. STATEMENT OF HON. BERNARD SANDERS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VERMONT Mr. Sanders. Madam Chair, thank you very much for holding this important hearing, and I am particularly grateful to you for allowing me to testify in support of the legislation that I introduced last June, to create a national affordable housing trust fund and that is H.R. 2349, and I also want to acknowledge the extraordinarily good work for many years that Mr. Frank has done in fighting for affordable housing as well. The legislation that I introduced currently has 172 cosponsors. It is tripartisan--162 Democrats, 9 Republicans, and 1 Independent, and has been endorsed by more than 2,000. Mr. Frank started reading off a long list of people. Well, if I listed all of the people who endorsed this bill, we'd be here all day. Chairwoman Roukema. Please we'll include them in the record. Mr. Sanders. I will not. But I do want to say this. These 2000 groups represent national, State, and local organizations from one end of this country to the other. This is an effort that has been spearheaded by the National Low Income Housing Coalition and the National Coalition for the Homeless, and I want to applaud them for their grassroots efforts. But let me, just to give you an example of the diversity of support for this legislation, we have the AFL/CIO Housing Investment Trust Fund, the United Way, the Silicon Valley Manufacturing Group, the U.S. Conference of Catholic Bishops, Children's Defense Fund, Smart Growth America, Habitat for Humanity, Charter One Bank in Ohio, the Sierra Club's Challenge, the Sprawl Campaign, and the National Coalition Against Domestic Violence. As you can see, H.R. 2349 is supported not only by low- income groups, not only by business leaders and by unions and by religious groups, it is supported by almost every type of organization that you can imagine. And the reason for that is that all over this country, in urban areas and in rural areas, people understand that we have a major housing crisis that has been neglected for too long and that the time is now for the United States Congress to step up to the plate and protect the interests of millions and millions of families. Madam Chair, it is almost unprecedented to have an outpouring of support from such a broad array of groups, and I am very grateful for their support. According to the accounting firm Deloit and Touche, profits generated by the Federal Housing Administration are expected to exceed $26 billion over the next 7 years. Now Mr. Frank a moment ago said that if we are serious about building housing, we've got to be serious about putting real money into housing, and I agree. And this legislation puts real money into housing, and it begins in a serious way to address the national crisis that affects people in Congresswoman Lee's district, on the West Coast, and affects people in the State of Vermont. HR 2349 would use the surplus to create an affordable housing trust fund, a trust fund. And by creating a trust fund, the United States Congress says, we are serious, there will be a dedicated amount of money every year to address the crisis in housing. And this trust fund allows States and non-profit organizations to build affordable housing rental units in mixed income locations, to construct affordable homes for low-to middle income citizens and to provide rental subsidies to low- income individuals. According to housing experts, if the FHA surplus was used to build affordable housing, we could more than triple, more than triple affordable housing construction next year and provide accommodations to more than 200,000 families every single year. In other words, we will be taking a serious step forward to address the housing crisis facing this country. Madam Chair, there is an affordable housing crisis in this country. Millions of low-income citizens, the elderly, the disabled, and families with children are increasingly unable to afford decent housing. According to a study by the National Low Income Housing Coalition, 48 percent of the renters in my own State of Vermont are unable to afford the State median fair market rent of $619 including utilities for a two-bedroom apartment. What is going on in Vermont is going on throughout the United States of America. Nationally, the affordable housing crisis is getting worse. According to a survey by the U.S. Conference of Mayors, requests for emergency shelter in 27 cities increased an average of 13 percent over the last year. In 75 percent of the cities surveyed, request for shelter from families with children increased by more than 30 percent. In the United States of America, children should not be sleeping out on the street, should not be sleeping in shelters; they should be sleeping in safe, affordable housing. In New York City and Boston, they are experiencing a record number of homeless people. While homelessness is up by more than 20 percent in Kansas City, Chicago, Denver, New Orleans, and right here in Washington, DC. In addition, according to a recent report by the National Housing Conference, 13 million Americans are paying more than half of their limited incomes on housing or are living in severely substandard housing. And that's an important point to reiterate. You know everyone, the TV cameras focus on homelessness. That is a national tragedy. But what we don't pay enough attention to is that millions of people are spending 50, 60 percent of their incomes on housing, and how do you have money available for other needs when you're spending so much on housing. Madam Chair, H.R. 2349 begins to address this crisis by providing a reliable source of funding dedicated solely to producing affordable housing. Just as Congress provided a commitment to fund our highways and airports by creating a highway trust fund and an aviation trust fund, the time is long overdue to create a national, affordable housing trust fund. Highways are important, airlines are important, housing in fact is more important. I should add that not only would a national affordable housing trust fund help solve the housing crisis, it would generate approximately $1.8 million decent paying new jobs and nearly $50 billion in wages according to a Center for Community Change Study. As today's economy continues to sputter with layoffs and as millions of Americans are paying 50 percent or more of their limited incomes on housing, the creation of a national affordable housing trust fund is needed now more than ever. Madam Chair, thank you very much for this opportunity. Let us go forward in a serious way, let's develop a national affordable housing trust fund. Thank you very much. Chairwoman Roukema. I thank the Congressman. And Congresswoman Barbara Lee, be conscious of the time limit. STATEMENT OF THE HONORABLE BARBARA LEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA Ms. Lee. Thank you, Madam Chair, and thank you very much for allowing us to present this morning or at least be witnesses this morning, and also want to thank you for really addressing the affordable housing crisis that affects millions of all our constituents from coast to coast in a very bipartisan fashion, and I want to thank and commend the leadership of our Ranking Member also for making sure that both sides of the aisle really continue to move in a bipartisan fashion in addressing this major issue. Like my colleagues like yourself, I believe that the Congress must take action immediately. We just must make this housing crisis I believe a national priority. Certainly homeownership is key to realizing the American dream. This is the primary way that families individuals send their children to college, acquire some form of wealth to start a small business, but also, like yourself, I believe that any housing strategy must include provisions for those who may not necessarily be able to afford or want to purchase a home, and must include affordable rental programs as well as housing for the homeless as part of any housing initiative. Now I represent a portion of Alameda County, which is in the East Bay on the sometimes I say the sunny side of San Francisco. It includes the cities of Oakland, Berkeley, Alameda, Emoryville, Albany and Piedmont. My district--and I share this with you, because I think this is an example of what's going on in California--we benefited from the high tech boom of the 1990s, but it dramatically increased the housing costs which spread from Silicon Valley throughout the region. So even though the housing market now has leveled off, housing still remains unaffordable. According to the California Housing Law Project, one-third of California families spend over half of their income on housing. Data from the fourth quarter of the year 2000 indicates that nine of the ten least affordable metropolitan areas in California, of course led by San Francisco, Oakland, and my home city comes in at number eight. Now the housing wage in California is approximately $18.33 an hour. That's the wage that's required to afford the average two-bedroom apartment. The problem of course is that in California, our minimum wage is $6.25. So what do people who make the minimum wage? What do they do for housing? Where do they live? We, as policymakers, must ask these questions, and more importantly we must come up with solutions. We have 1.45 million housing units in need of replacement in California and 60 percent of substandard housing is rental housing. I could go on and on, but I want to save time for our rental housing experts to testify. But I think the point of it all is that we need a national housing production program. The National Housing Conference is recommending a $15 billion transfusion into our housing programs for this purpose to build, rehab, and preserve affordable rental housing, and I want to thank and commend my colleague from Vermont, Congressman Sanders, for introducing H.R. 2349. We've worked together on this and I think that he is exactly right when he talks about the fact that we need the resources and the funds. Using the funds from FHA and Ginnie Mae accounts that are above the statutory requirement makes sense because these funds have grown dramatically because of the housing boom. And it is sensible policy to put excess funds in these accounts back into affordable housing plans to help those who are being squeezed out of their home neighborhoods and away from their job centers. On Monday of this week, the California legislature, in fact, I believe it was the Assembly, we approved a $2.1 billion housing bond to help deal with this issue. The Housing Trust Fund would help leverage this money, so this is just a start. California, like most States, is now facing serious budgetary pressures, so it's time that the Federal Government really helped States with this burden. Finally, let me just say my colleague, our Ranking Member on the Ways and Means Committee, Congressman Charlie Rangel, he has introduced legislation making housing a constitutional right. And I fully support this. We live in the richest country in the world, and we should ensure that each and every person has access to decent affordable housing. To do that, however, Congress must put its money where its mouth is and dramatically increase funding for affordable housing programs nationwide. I want to thank you, Madam Chair, for this opportunity to be with you today and thank you for the privilege of serving on your subcommittee, and I look forward to working with you on H.R. 3995 as well as H.R. 2349. Chairwoman Roukema. Thank you, Congresswoman. We greatly appreciate your insights and your contribution to this discussion from both of the Members and we look forward to working with you as we go through. And hopefully before this session is concluded in the fall, we will have a bill up on the floor. Thank you very much. Mr. Sanders. Thank you very much. Chairwoman Roukema. Now will the second panel come forward, please. Thank you, we welcome you here today, and I will introduce each member in the order in which they are speaking, but I would like to State to those of you the usual procedure here, and that is that you will have 5 minutes in which to make an opening statement. Your written statements will by unanimous consent be introduced into the record, and your 5 minutes, of course, will be used to summarize your full statement, and then we will recognize Members, each of the Members of our subcommittee who have questions for you, and we will give them a maximum of 5 minutes to ask questions before this panel discussion is complete. Also, I might also note that each Member of our subcommittee has the opportunity and the right to submit in writing further questions so that you can submit the answers in writing to those questions for the full record and those responses, those questions and responses will be available not only to the public, but to every Member of the subcommittee. That having been said, I will now introduce you members in the order in which you will be heard. And our first witness is Javier Gonzales. Mr. Gonzales is the Commissioner on the New Mexico County Board of Commissioners in Santa Fe. He is testifying today on behalf of the National Association of Counties and the National Community Development Association for County, Community and Economic development. Mr. Gonzales you have considerable experience in your State of New Mexico and you are speaking out on behalf of counties across the country. Mr. Gonzales. STATEMENT OF JAVIER GONZALES, COMMISSIONER, SANTA FE COUNTY, NEW MEXICO, ON BEHALF OF THE NATIONAL ASSOCIATION OF COUNTIES, NATIONAL COMMUNITY DEVELOPMENT ASSOCIATION, NATIONAL ASSOCIATION FOR COUNTY COMMUNITY AND ECONOMIC DEVELOPMENT, AND NATIONAL ASSOCIATION OF LOCAL HOUSING FINANCE AGENCIES Mr. Gonzales. Thank you, Madam Chair. My name is Javier Gonzales and I'm a County Commissioner from Santa Fe County, New Mexico. Madam Chair, as you indicated, I currently serve as the President of the National Association of Counties. I'm appearing before you today on behalf of the National Association of Counties, the National Association of County Community and Economic Development, the National Association of Local Housing Finance Agencies, the National Community Development Association, and the U.S. Conference of Mayors. We applaud the subcommittee's leadership on the important issue of affordable housing and thank you for inviting us to speak today on H.R. 3995, the Housing Affordability for America Act of 2002. The groups that I represent here today would like to congratulate you, Madam Chair, on the introduction of H.R. 3995. More importantly, we appreciate the advocacy and leadership that you have provided over the years on the issue of affordable housing. Today, I'd like to address three themes; the need for more affordable housing, elements of a housing production program, and our support of homeless assistance programs. It is undisputed that communities are in need of more housing that is affordable for families and individuals. Research presented in 2001 by the U.S. Department of Housing and Urban Development indicates that nearly five million render households still pay more than half of their income for housing, or live in severely substandard housing. Many of these families are with children, the elderly, or they are disabled. In addition, HUD data states that the number of affordable housing units available to these households continues to diminish. The lack of housing availability causes demands and rents to increase. Further the report concludes that the private market is not producing enough affordable housing to meet demand. It is clear that additional housing that is both affordable and available to low-income individuals must be produced. For this reason, we support H.R. 3995. It is an important piece of legislation because it provides additional resources to local governments to create affordable housing. Our organization strongly supports provisions of H.R. 3995 that create a program for the production and preservation of rental housing within the Home Investment Partnerships Program. We are long supporters of the Home Program, as you are aware, Madam Chair. The Home Program is already targeted toward low-income families, flexible for local jurisdictions to utilize and has a demonstrated track record of success. Creating a funding stream for the production of housing within HOME makes sense, and mirrors a proposal developed jointly by our organizations. To date, there have been a number of bills introduced in Congress to increase housing production. These proposals are mainly focused on creating a national housing trust fund, a new and separate program from existing HUD programs that targeted all of the resources directly to just States. In effort to avoid a situation where such a program would compete with HOME and to provide a fair share of funds to both local governments and States, our associations support a housing production element within the HOME program. Our proposal seeks to dramatically increase the production of affordable mixed income rental housing, and relies on the infrastructure currently in place within the HOME program. Our proposal would provide grants and loans for the construction, rehabilitation, and preservation of multi-family housing. All of the resources made available under our proposal would benefit very low-income families. Funds would be appropriated 60 percent to local participating jurisdictions, and 40 percent to States. That is what is proposed in H.R. 3995. We also support the creation of the thrifty production voucher which can be used with capital subsidy programs such as HOME, the low-income housing tax credit, and the community development block grant program. This new voucher will work particularly well with the new home production program by providing a means for housing voucher recipients to access housing units made available through the program. Our organization also supports aspects of the bill addressing homeless housing assistance. We believe that Federal resources allocated toward programs that create temporary and permanent housing as well as supportive services for the homeless will enable local governments to better serve their communities. We're very supportive of provisions in H.R. 3995 that shift the renewals for the supportive housing program and the shelter plus care program to HUD's housing certificate fund. This shift will allow more of HUD's homeless assistance funding to be used to create new permanent housing for the homeless as well as provide a consistent source of renewal funds. In conclusion, Madam Chair, I want to commend the subcommittee for bringing attention to the issue of affordable housing and urge you to pass H.R. 3995 as quickly as possible. As local government leaders and community development practitioners, we are fully aware that decent affordable housing is crucial to the health, safety, and welfare of the citizens whom we represent. We appreciate the opportunity to be with you today. Thank you once again for your leadership and for inviting our testimony. I'd be happy to answer any questions that you or the subcommittee might have. [The prepared statement of Hon. Javier Gonzales can be found on page 148 in the appendix.] Chairwoman Roukema. Thank you. Our next member of the panel is Mary Brooks. Ms. Brooks is with the Center for Community Change, and she directs, as I understand it, you are the Director for the National Housing Trust Fund Project, is that correct? Yes. And we've been talking a lot about trust funds here so maybe you can give us some of your insights with respect to your own experience. Ms. Brooks. STATEMENT OF MARY E. BROOKS, HOUSING TRUST FUND PROJECT/CENTER FOR COMMUNITY CHANGE Ms. Brooks. Thank you. Chairwoman Roukema. Again, I ask you to be conscious of the time limit. Ms. Brooks. Yes, I will. Thank you for inviting me to testify and I too applaud you for taking serious consideration of addressing critical housing needs in this country. I have been directing the Housing Trust Fund Project for nearly 20 years and have followed and worked with housing trust funds all over the country. I have been asked to testify about the experience of local housing trust funds, and attached to my written testimony are maps indicating where housing trust funds exist throughout the country. There are few elements in life that are more pivotal than having a decent, affordable home, and housing trust funds address this need very directly. My intent today is to give you a picture of what the experience has been with local housing trust funds. There are presently more than 250 housing trust funds across the country in cities, counties, and States. These unique funds secure a dedicated source of public revenue to support critical housing needs. That single factor about housing trust funds is what is critical about their ability to succeed in addressing housing needs throughout the country. The earliest of these housing trust funds was created in the 1970s, so we now have decades of experience with local housing trust funds. Today they commit nearly $750 million each and every year to addressing affordable housing. In my written testimony, I've outlined the key characteristics of local housing trust funds, but the element that I want to focus on is indeed the dedication of a revenue source. Identifying public revenue that can be committed to local housing trust funds is at the core of these housing trust funds. For most city housing trust funds they have committed developer fees, property taxes, excise taxes, hotel/motel taxes. County housing trust funds have relied on document recording fees. State housing trust funds have used real estate transfer taxes, interest from real estate escrow accounts and also document recording fees. More than two dozen different sources of public revenue has been committed to local housing trust funds. These revenue sources come from businesses, from real estate, and from citizens themselves. And in fact some housing trust funds, while most of them are passed by a vote of the State legislature or county commissioners or city council, some of them have been passed by a public vote. St. Louis' housing trust fund recently was passed by 58 percent of the voters; St. Louis County an astounding 78 percent. You don't need me to tell you how successful housing trust funds are. I can let them speak for themselves. Nebraska has awarded nearly $16 million to provide more than 800 units of housing and created more than 1700 jobs. New Jersey has committed almost $300 million to provide 16,000 affordable homes. Illinois commits $16-to $20 million each and every year from its housing trust fund. Vermont has committed more than $38 million through its trust fund to provide nearly 2500 homes. Sacramento, California has committed more than $19 million to provide another 2,000 homes. St. Paul has put more than $27 million into 260 affordable housing projects, providing nearly 500 jobs. Chicago $37 million to subsidize 11,000 units. Pennsylvania has created a model program enabling counties within that State to create their own housing trust funds and it amounts to about $15 million a year. We cannot do a meaningful housing program in this country without dedicating revenue to it. Increasing dollars for these housing trust funds has occurred over time. Their dollars are growing rather than reducing in more than half of the housing trust funds. We cannot solve the housing crisis without making a serious commitment of revenue. These 250 communities throughout the country have made a decision to dedicate revenue. They're asking the Federal Government to do the same, to do what they have done, to make a permanent commitment to providing decent housing for every American. The benefits are real, but they won't be real unless our commitment is real. If you create a national housing trust fund with a permanent stream of on-going revenue, we can make significant gains in addressing the housing crisis in this country. I think it's time to do so and I hope you do too. Thank you. [The prepared statement of Mary E. Brooks can be found on page 155 in the appendix.] Chairwoman Roukema. I thank you, Ms. Brooks. Our next panelist is William Faith. Mr. Faith is from Columbus, Ohio, and he's the Executive Director of the Ohio Coalition on Housing and Homelessness. And Mr. Faith it is my understanding that you are representing the National Low Income Housing Coalition today and speaking on their behalf. Mr. Faith. Again, 5 minutes. STATEMENT OF WILLIAM FAITH, EXECUTIVE DIRECTOR, OHIO COALITION ON HOUSING AND HOMELESSNESS, ON BEHALF OF THE NATIONAL LOW INCOME HOUSING COALITION Mr. Faith. Thank you, Chairwoman Roukema. I want to thank you for the opportunity to testify today. I am Bill Faith. I'm testifying as the Chair of the Board of Directors of the National Low Income Housing Coalition. I am, in my day job, the Director of the Coalition on Housing Homelessness in Ohio. We have over 600 organizational members in the State of Ohio representing a range of organizations providing housing assistance to our citizens. Before I get into some of the details, I just want to acknowledge and express my gratitude to yourself and your staff as well as members of the Ohio Delegation, Mr. Tiberi, Ney, Oxley, Ms. Jones for your ongoing intervention with HUD to free up the OTAG and ITAG funding. I promised Mr. Jones I would not speak about this today in depth. I do think, though, that your help and intervention has moved that process along and we're hoping we're getting a lot closer to resolving the situation. But I want to commend you also, Ms. Roukema, for convening this hearing today to discuss H.R. 3995 as well as H.R. 2349. I'm pleased to follow the testimony of Mary Brooks who is really the mother of the housing trust fund movement in the United States. She is the nation's foremost expert on housing trust funds and this valuable source of funding for affordable housing across the country. She has worked with us in Ohio where do have a State housing trust fund and several of our cities do as well. What Mary's research validates is that the critically important role that State and local trust funds play to the overall inventory of housing production and preservation that is required. However, we did a calculation over the last few days and in Ohio, all of our housing trust funds that we have generate about $30 million a year, which is probably better than average in the States. But that's only about 40 percent of Ohio's total home allocation, so while it's an important contribution, it does not come close to meeting the need. A substantial increase in investment is also required. The National Low Income Housing Coalition understands that there's not a single solution to the affordable housing crisis, but rather multiple layers of interventions are required. First, we must preserve the viable subsidized housing stock that we already have. Gains made in adding to the supply of affordable housing through new production should not be offset by losses in the existing stock. Ohio has the third highest number of Section 8 project-based units in the country outside of California and New York. Despite efforts by our State in dedicating tax credits, bond financing, home dollars, housing trust fund dollars, and other resources to preserving this stock, we still have 58,000 units with over 150,000 elderly, disabled, or low-income residents that are in jeopardy of being lost to the affordable housing supply. More money's needed to be able to purchase and renovate these buildings and to keep them affordable over the long term. We are pleased that your bill, as well as H.R. 2349, recognize preservation as an eligible activity and we applaud that. Second, we must increase low wage workers' purchasing power in the housing market with increased housing assistance or housing vouchers. We must improve the housing market's response to voucher holders by breaking down barriers to successful voucher use by low-income people. Third, we must build new housing, and I also want to emphasize in some markets it's equally important to rehabilitate existing housing. In many parts of my State in the old industrial areas, the stock is there; it's just not in a condition that's desirable. There are housing affordability problems for many low-and moderate income people, the data is overwhelming. The most acute affordable housing shortage is for households that are extremely low-income or incomes less than 30 percent of the area median. Both your bill, H.R. 3995, and H.R. 2349 create new sources of funding for housing production and preservation that serve the lowest income people. Chairwoman Roukema. Mr. Faith, your time is up. Can you summarize, please? Mr. Faith. Well, I want to quickly, one thing I'd like to do for the record is update the list of endorsers that Mr. Sanders talked about for the National Housing Trust Fund proposal. Chairwoman Roukema. We will put them in the record. We will put them in the record. Mr. Faith. There's now 2101 endorsers from throughout the United States. Chairwoman Roukema. Don't read all of them please. [Laughter.] Mr. Faith. I won't read any of them, but I would like to submit the list for the record. Chairwoman Roukema. Thank you. Thank you. Thank you. [The prepared statement of Willaim Faith can be found on page 166 in the appendix.] Chairwoman Roukema. Now, Ms. Hadley. Ms. Hadley is a Commissioner from Minnesota Housing Finance Agency and she is here today testifying as representing the National Council of Housing Finance Agencies. And as you know, or as we should all remember and be refreshed that National Council of Housing Finance Agencies is at least 30 years old or longer and has coordinated and has been a Federal advocate for the programs for all of those 30 years, and we look forward to working with you in the foreseeable future endlessly. Ms. Hadley. STATEMENT OF KATHERINE G. HADLEY, COMMISSIONER, MINNESOTA HOUSING FINANCE AGENCY, ON BEHALF OF THE NATIONAL COUNCIL OF HOUSING FINANCE AGENCIES Ms. Hadley. Thank you, Madam Chairwoman and Members of the subcommittee. I'm Kit Hadley, Commissioner of the Minnesota Housing Finance Agencies. I'm testifying on behalf of the National Council of State Housing Agencies which represents the Housing Finance Agencies in the 50 States. First I want to thank you, Madam Chair, Congressman Frank, and the many other Members of the subcommittee who have cosponsored H.R. 951, the Housing Bond and Credit Modernization and Fairness Act and encourage those of you who have not yet cosponsored to consider supporting this important legislation. NCSHA commends the Chair for recognizing the urgent housing needs of the lowest income families and households, and for proposing new Federal resources for producing rental housing for them. My comments this morning are focused on our belief that the HOME program is not the best mechanism for delivering these resources. I want to address three of the reasons why we recommend that any new rental production program be delivered by the States. First, States are uniquely positioned to coordinate and target scarce resources. States are close enough to real housing issues and needs that have enough perspective to bring a statewide or regional focus to problems that cannot be solved within municipal boundaries. Housing markets, labor markets, transportation and transit systems extend beyond municipal boundaries. Human services are funded by States and counties. The challenge of producing very affordable housing near new jobs and transportation, promoting economic integration in communities throughout the metropolitan area, and coordinating homeless prevention and assistance efforts on a metro-wide basis cannot be addressed as efficiently and effectively by numbers of separate local jurisdictions. State housing agencies can bring together resources, sister stage agencies, and local partners in ways that the Federal Government and local governments cannot. States are partnering now with organizations that use TANF funds in welfare reform efforts, Medicaid waiver funding and other types of human services funding to produce assisted living and supported housing for people with mental illness, chemical dependency and developmental disabilities. The second argument in favor of State administration is that small allocations to many jurisdictions will dilute a new rental housing production effort. Funds available under any reasonably anticipated budget scenario will be too scarce to be divided among more than the 50 States. We need production at scale. New construction and substantial rehabilitation is expensive and small allocations of money won't get us there. For example, in the Twin Cities' metropolitan area, four urban counties formed a consortium to become a participating jurisdiction for the HOME program. Given the allocation agreement among the four of them, even if a new Federal housing production program is funded at the $2 billion level, the jurisdiction that receives the most money under this formula could fully fund eight units of housing for extremely low- income people. Small allocations to the nearly 600 jurisdictions that receive home funds will add to the fragmentation and cost of affordable housing development, both in the development phase and in the long-term compliance and oversight phase. Finally, the third reason for State administration has to do with capacity. Look at the biggest production financing tools of the last 20 years, the ones that have actually produced real housing. States have consistently been the only parties that have delivered all three of these; the housing credit, rental housing bonds, and certain FHA multifamily insurance programs. States have the sophisticated underwriting finance and asset management capability to ensure the responsible use of scarce Federal resources. At whatever level a new Federal rental production program is funded, it will still be necessary to bring together multiple sources of mortgage and subsidy funding. States already do this, and in fact are the only point in the funding and delivery system where all the major resources can be accessed in one place. I appreciate the opportunity to comment on this important proposal. NCHSA looks forward to working with the subcommittee as it considers H.R. 3995. Thank you. [The prepared statement of Katherine G. Hadley can be found on page 189 in the appendix.] Chairwoman Roukema. I thank you for your testimony, and the focus at the State agencies. Now, our final panelist today, at least on this panel is Catherine Racer. Ms. Racer is the Director of the Massachusetts Department of Housing and Community Development. I might observe that I believe Congressman Frank thought he would be back by this time. Perhaps he's been unavoidably delayed undoubtedly, but perhaps he will come in as you continue to testify. And you are testifying today not only on behalf of the experience you've had in Massachusetts, but also on behalf of the Council of State and Community Development Agencies, and you certainly have worked long and hard on community development of affordable housing with these State agencies, yes, the State Community Councils, yes. STATEMENT OF CATHERINE RACER, ASSOCIATE DIRECTOR, MASSACHUSETTS DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT, REPRESENTING THE COUNCIL OF STATE COMMUNITY DEVELOPMENT AGENCIES Ms. Racer. Right. Thank you very much. Thank you, Madam Chair and distinguished Members of the subcommittee. Thank you so much for the opportunity to testify. Chairwoman Roukema. Turn your microphone on, please? Yes. All right, we'll start over. We'll give you a couple of extra seconds. Ms. Racer. Sure. Chairwoman Roukema. Go ahead. Ms. Racer. I used up about 15 seconds. OK. Thank you, Madam Chair and distinguished Members of the subcommittee and thank you so much for the opportunity to testify before you today. My name is Catherine Racer. I'm an Associate Director of the Massachusetts Department of Housing and Community Development. And, as the Chair indicated, I am testifying today on behalf of the Council of State Community Development Agencies or CSCDA regarding H.R. 3995. It was a particular honor for me to hear both Madam Chair's opening remarks and the opening remarks of Congressman Frank since I live and vote in the Massachusetts Fourth CD. First I want to thank the subcommittee for holding this hearing and drafting a bill that addresses many of our country's housing problems. We appreciate your efforts greatly and our State member agencies stand ready to work with you to address our collective housing needs. With a strong proven track record of successfully administering housing programs, States are uniquely positioned to address the myriad housing needs facing America's communities. Today, CSCDA would like to focus its remarks on three primary components of H.R. 3995; first, proposed changes to the HOME program, second, the need for a separate rental housing production program, and third, the thrifty production vouchers. CSCDA fully supports the changes to the HOME program proposed in H.R. 3995 with the exception of the proposed set aside for a new production program within HOME, which I will address in a moment. HOME is an extremely efficient and effective housing program responsible for creating hundreds of thousands of units across the country while leveraging nearly four dollars for every HOME dollar invested. The flexibility in the HOME program that allows States to address varying housing needs is the key to its success and H.R. 3995 will enhance the existing program. We applaud your efforts to streamline the program and promote the flexibility necessary for States to effectively address the unique housing needs of their communities. Specifically, we support your proposal allowing the use of State or area median income for rent determinations. This flexibility will spur the development of affordable housing particularly in rural areas currently under served. Along the same lines, the removal of fair market rents as the basis for home rents will enable more housing development in the areas where the FMR is artificially low and cannot support the required debt service for housing projects. In addition, we strongly support the provision allowing States to charge monitoring fees to cover compliance monitoring costs. This will provide States with the ability to ensure that HOME projects remain in compliance and affordable to low-income people over time. Second, while HOME is an excellent housing resource, and we greatly appreciate your focus on rental housing production, we oppose any set asides within the existing HOME program. COSCDA agrees there is a need for rental housing targeted to very low- and extremely low-income people, but we believe that a set aside within HOME is not the best mechanism for targeting extremely low-income people. In addition, we are concerned that this proposal would result in a set aside for production without adequate additional funding. Instead, we strongly support the creation of a separate, State administered rental housing production program. COSCDA firmly believes that States have a proven effective delivery system for producing affordable housing, particularly rental housing for extremely low and very low-income people. States have the resources and tools necessary to significantly leverage other funds to maximize Federal resources for rental housing production. States also are uniquely positioned to develop a comprehensive strategy for rental housing production that is fully integrated with existing housing programs. The creation of a separate production program administered by States will allow for strategic targeting of significant resources on a statewide basis. In Massachusetts we fully commit all our HOME funds each year with a significant percentage going to rental housing. Even so, the need for additional housing production remains immense. We welcome a separate production program which would complement the production efforts already underway with HOME. We hope you will consider endorsing a separate program as the bill moves forward. Third, in order to develop housing targeted to extremely low-income people, H.R. 3995 creates thrifty production vouchers. Capital subsidies alone generally cannot support housing for extremely low-income people. Therefore COSCDA believes these vouchers may serve as valuable and a cost effective tool for reaching extremely low-income people. COSCDA believes that any effort to create a thrifty production voucher should assure maximum compatibility with existing production programs as well as any new housing production initiatives. Lastly, while the focus of this hearing is HOME and thrifty production vouchers, because the bill contains provisions related to the Community Development Block Grant, and the McKinney-Vento Homeless programs, we would like to offer a few brief comments. First, with regard to CDBG, we hope the subcommittee will consider authorizing a dedicated stream of funding within CDBG for training similar to the current structure under HOME. With this training personnel from HUD, the State and local agencies, as well as non-profits, will be better able to effectively meet CDBG's goals. Madam Chair. Chairwoman Roukema. Can you summarize, please. Ms. Racer. Yes. In addition, COSCDA urges the subcommittee to provide States with flexibility between administrative and technical assistance funds within CDBG. Finally, H.R. 3995 reauthorizes the existing structure of the McKinney-Vento Homeless Assistance programs. COSCDA firmly believes that consolidating these programs and distributing the funds by formula allocation is a better approach. We hope the subcommittee will reconsider its position and we will look forward to an opportunity to testify before your subcommittee on these issues. Thank you very much, Madam Chair. [The prepared statement of Catherine Racer can be found on page 198 in the appendix.] Chairwoman Roukema. I thank you. Now we'll go through the subcommittee questioners please. I'm going to relinquish my question period to Mrs. Kelly from New York. Mrs. Kelly. Thank you, Madam Chair. I am interested and would like each one of you to respond to the problem that I've seen happening in the areas that are represented. Chairwoman Roukema. Mrs. Kelly, I think you'll have to push the microphone up. Mrs. Kelly. Does this help? Chairwoman Roukema. Yes, that's much better. Thank you. Mrs. Kelly. I'm interested in having you respond to the problem that I see in the areas that I represent which involves ``NIMBY-ism.'' We can provide funding, but the problem is people don't want affordable housing in their neighborhoods. I would like to ask what experience you've had and if you feel that this bill is going to help address that. I think it would be helpful to us. I'd like to start with you, Mr. Gonzales. Mr. Gonzales. Madam Chair, subcommittee Member thank you for that question. I've been a county official. Currently we're faced with those issues where people are concerned about developments in their communities. We maintain our support for the way the bill's allow for money to come directly to local communities, because local communities deal with a number of issues. We deal with planning and zoning issues. We have the ability to sit down with communities and talk about where should housing go, how do we integrate every social fabric of our community so that we don't have, in one part of our town, a lot of low-income housing, and in another part of the town middle income housing, and then upper income housing. We at the local community do our very best and continually do it better and better daily to integrate the social and the economic fabric of our communities. You can't run that from the State. You don't have the ability to do it from the State. So you're able at the local level to address the challenges of NIMBY-ism, of the not-in-my-back-yard syndrome by planning, by zoning, by conducting local hearings. In my community of Santa Fe, affordable housing is one of our top priorities. We have people who understand the importance of making sure that the issues of low-income housing as well as upper income housing need to be part of our social fabric. It needs to be part of our planning, it needs to be part of our zoning. At the local level, you can address it. It is a challenge, it's something that is real, but it's best to be confronted as we're going through our planning and zoning process. Mrs. Kelly. Thank you very much. I'd like to ask another question, and that has to do with the so-called surplus. The CBO said there isn't an FHA surplus. And I think that it's interesting about if there isn't a surplus, that we need to think about, if we're reaching into the FHA money, how we would replenish that pool. Would we then tax people, the people who are getting the supported mortgages? You think that the people borrowing should be taxed to refill and replenish the pool if we use a pool of money that's designated for FHA? Anyone can answer that. Anyone on the panel is welcome to jump in here. Ms. Brooks? Ms. Brooks. The issue of where the money comes from is indeed important. The independent study by Deloit and Touche certainly indicates that that fund is sound and that the available funds would be there, so I think we can also look to that report as some indication. I actually think this is a quite--I mean, as you know from my testimony, I'm quite serious about how important I think it is to find a dedicated source of public revenue and to have an on-going commitment of resources. And I think this is actually a good revenue source to look at for a Federal housing trust fund. As you know, we provide a far greater subsidy to homeowners in this country for their opportunity to own homes than we do in any other Federal assistance that we provide. So it seems to me appropriate to look to this revenue source as a way to support those who have yet been able to move into a homeownership position. Mrs. Kelly. Ms. Brooks, I'm running out of time here so I'm just going to ask you another follow-up question on that. What would you do if the default rate went up and we needed those FHA loans? Did Deloit and Touche talk to you about that. I mean, was that in their report? Ms. Brooks. Well, they did not talk to me. Mrs. Kelly. But was that in their report? Ms. Brooks. I actually do not know. I don't think there's any suggestion that looking at the FHA surplus as a source of revenue for the trust fund would jeopardize. The intent is not to jeopardize and in fact there is a protection for that fund, and so I think the intent is to use what the surplus is. Mrs. Kelly. Thank you. My time is over. I hope someone else will go back to that one. Thank you. Chairwoman Roukema. Thank you. Now, Congresswoman Lee from California. Ms. Lee. Thank you, Madam Chair. Let me just ask any of the panelists really about some what-ifs. If in fact the $15 billion, if that was funded, which is based on the National Housing Conference's recommendation, do you see that as actually putting a dent in the homeless problem or a dent in the affordable housing crisis, or is $15 billion too little? And then the second question I have is if we actually moved forward and developed a full housing production program using whatever vehicle which was appropriate, how do you see using these funds for creative types of housing developments such as transit villages, land trusts, congregate housing, housing that creates more sustainability and more of a livable communities concept. Do you think utilizing the resources to develop livable communities makes sense in a housing production program? Ms. Brooks. I can certainly speak quickly to the experience of local housing trust funds in that regard. I am working--in fact, I should be working right now--on completing a survey of the 250 housing trust funds that exist around the country and their ability to address critical housing needs in an innovative way is really quite astounding, and so we're seeing them not only create housing opportunities that remain affordable for low-income people, they have supported community land trusts, they have supported housing for people with disabilities, and have done even homeownership for very low- income people. So we're seeing a lot of innovative approaches to addressing a wide variety of housing needs. Ms. Racer. Representative, in answer to your question about the $15 billion, COSCDA definitely believes the $15 billion would make a dent. I can tell you that my division in Massachusetts gives out about $100 million a year. We're able to do about 2,000 rental production units in a very good year, perhaps 1500 in a less good year. Therefore, just doing quick arithmetic, $15 billion clearly could make a dent. I also think that to the extent the subcommittee is interested in having us behave, think very clearly about trying to fund innovative programs through a new production program that you certainly can direct us to do that in any statute that gives us a new production program. The States have been very respectful of the statute of Cranston-Gonzales and some of the direction that was given to us in 1990 through Cranston- Gonzales and we would be very respectful of any desire on the part of the subcommittee to have us be particularly aware of innovative uses of the money. Mr. Gonzales. Just to say very briefly from a local perspective, innovation is at its best at the local level through our--again, I can't emphasize enough local leaders are trying to establish strong, sustainable communities whether through in-fill in their communities, or through new development. And I assure you that with these types of funds, we will see integration where it's important and communities where people can live, work, go to school, without having to charge many of resources that are currently placed at the local level. Ms. Lee. Thank you. Madam Chair, do I have one more second? Chairwoman Roukema. OK. Just let me say, in H.R. 3995, do any of you feel that the bill is flexible enough to provide for this innovation or do we need Madam Chair put a provision in to ensure that these types of creative, innovative housing production programs would be allowed? Ms. Hadley. Madam Chair and Congresswoman Lee, I think the other side of the question about is $15 billion would it make a dent, and I think the answer is yes, is the issue of this flexibility. There are innovative production going on now, supported housing for extremely low-income people, mixed income housing that has some housing for extremely low-income people, in suburbs near transit hubs. There's all kinds of new urban village projects going on, a huge variety. With the kinds of resources that aren't so categorical that they force you into particular kinds of developments, I think that is a key part of any housing production program is to have that kind of flexibility that can really meet the local needs. Chairwoman Roukema. I think that's an excellent question, Congresswoman, and I would like to ask each one of the panelists to submit in writing your own assessment as to how strong this legislation is and if there is a loophole or a weakness that you think should be tightened up and stressed further. So if you'll submit that for the testimony, it's something that we really have to look at in depth. Thank you. Mr. Grucci, please. Mr. Grucci. Thank you, Madam Chair and thank you for holding these hearings today. I believe that they are very important to the quality of life in our communities. The question that I want to ask this esteemed panel, where I come from it's a suburb of New York City, it's got a pretty affluent area, it's got some very high rent areas, it's got some very high priced homes. In fact, the average home price is about $240,000, and in that we're a victim of our own successes. You can imagine that means that someone earning a sum of money at about $30,000 can't afford to buy a home. They can't afford to find rentals because of the situation that Congresswoman Kelly talked about, NIMBY-ism, and maybe that's something for this panel to think about. I know one of the things that we faced in local government, which is where I was from, was a phrase given to a program, known I believe it was the Low Income Housing Tax Credit Program. As soon as people heard that, they wanted no part of the program. And even though it was a great program that afforded great opportunities, for a lot of young families starting out, it never had a chance to get off the ground simply because of its name and I think the Congresswoman pointed out very adequately and very appropriately that NIMBY-ism is a huge problem. My question for you is, in those areas where there's high cost of living, again referring back to the district that I represent, the average price of a home being at about $240,000; the average tax paid on that home is about $10,000 a year, most of which is school taxes. Do you think H.R. 3995 addresses the needs of affordable housing in those types of markets? Do you think the eligibility levels are adequate? Do you think it should be raised? I'd be interested in hearing you opinions on that and anyone on the panel can certainly respond. Mr. Gonzales. Congressman Grucci you've described, in many respects, my own community of Santa Fe, New Mexico, where Santa Fe, in many respects has been discovered by many people from all over this great country and all over the world, and they've gone into the community, they've purchased homes, and we've seen the price of housing go up. Consequently, we've had what we call at the local level this economic gentrification where people from a very nice part of town had to move out to another part of town because they couldn't afford their property taxes. So what happened over the period of the eighties is we saw a lot of mobil home communities go up, and once people find their way into mobile home communities, it's difficult for them to come out of that. Santa Fe right now has made affordable housing their top priority, but it takes a couple elements. One, it takes the community's will to address it. The community needs to step up to the plate and say we want to solve this issue of affordable housing, and it takes the political will of the local leaders to say, through our own local jurisdiction powers, the ability to plan and zone and be able to create capacity so we can develop innovative public/private partnerships, we will make sure that every individual living in our community's going to have an opportunity and have access to housing, no matter what form. And when they get access to that housing, that it's quality of nature. To answer your question specifically, yes, this bill provides the flexibility to allow our community to be as innovative as possible to be able to address the huge needs of our community to make sure that citizens who can't afford to either rent or buy a home have access to a quality home to raise their children in a safe environment. Mr. Grucci. What would the median income in your community be? Mr. Gonzales. The median income is probably about $40,000 I believe, between $30,000 and $40,000. But the average price of a house, which there's not a direct correlation, is somewhere in the vicinity of about $270,000 to $280,000. So you have people who are involved in State government jobs, people who are involved in the tourism industry earning minimum wages that are just not getting access. Now our own community housing trust has been great and through their innovativeness they've been able to provide subdivisions where people can get entry level homes in place. Mr. Grucci. So it's your feeling that H.R. 3995 would address the problem of people not being able to qualify because their income levels would be higher than say a national average and therefore preclude them from being able to get housing grants or be able to have municipalities access, the funding necessary to help create affordable housing. You believe that this bill addresses those issues? Mr. Gonzales. Yes. And in our case in Santa Fe for someone who is even earning $11 or $12 an hour, hopefully there'd be taxes like this to afford some rents. It's quite expensive, the renting in our community. Mr. Grucci. It certainly is. Does anyone else on the panel wish to respond? Chairwoman Roukema. I'm afraid we're rather short of time. You'll have to make it very brief. Mr. Faith. Very briefly, Madam Chair, one of our concerns about the HOME proposal that's in this bill is it relies on recaptured Section 8 funds as its source of funding, and that's not a very reliable source of funding. I think a key to addressing the diverse housing needs of this country is to have a sufficient source of funds that would provide a level of funding that would be appropriate. I think the FHA source is a more appropriate source. It would generate much more revenue, and we also believe we should figure out what's wrong with the Section 8 program to make sure that we do a better job fully utilizing resource because that's very important. We should look to additional sources of funds for a production program that could work with the very diverse needs of our country because the local needs do vary, as you point out, all across the nation. Mr. Grucci. Thank you, Madam Chair. Chairwoman Roukema. All right, thank you, Congressman Grucci. Now we have Congresswoman Schakowsky. Ms. Schakowsky. Thank you very much, Madam Chairman, and I appreciate the direction of H.R. 3995 and many of its important provisions. A couple of points I want to make before I ask a question. One I wanted to just mention a couple, in my view, of troubling provisions and one is that the bill, as I read it, allows religious organizations to use taxpayer funds to carry out religious purposes, an element that I think is unconstitutional. The separation of church and State I believe to be critical aspect of our first amendment and while religious organizations often do incredibly valuable work on affordable housing issues, they are already funded by HUD and they're free to use their own money to carry out their religious missions. But they shouldn't be allowed to use Federal money for those purposes. So I hope that we can have a discussion on that and perhaps reconsider that inclusion in the bill. I wanted to say one thing about where's the money going to come from. And I'm sitting here feeling really frustrated, because we're engaging now in a serious budget debate and budgets aren't just about money, they're about priorities. And we're questioning where's the money going to come from. And we're looking, for example, at a $400 billion defense budget with a $48 billion increase. Now I sit as the Ranking Member on the Government Efficiency Subcommittee. We just had a hearing where the Inspector General of the Department of Defense said, we cannot account accurately for $1.2 trillion, trillion, trillion dollars in transactions at the Department of Defense. We had a hearing on $9 billion worth of credit card bills. We've issued 1.2 million credit cards to civilian and military personnel, and among the bills that you all are paying for are bills for gambling debts, travel, designer bags, breast enhancement surgery, bills at Hooters, those kinds of things, never mind whether you think some of the more supposedly legitimate expenditures are really going to make us safer and fight terrorism and provide homeland security. And we are here asking in the face of a housing crisis where in my city alone we're short 150,000 units of affordable housing, where there's been a 37 percent increase in the number of people seeking emergency shelters, where five million people are facing the worst housing crisis in the United States, and we are asking you where are we going to get the money. Is this a priority? And it just infuriates me that we don't have our priorities straight and that we can't find room to do it all, because I believe that we can make our nation safer, we can fight terrorism, we can provide homeland security, and for god sakes, we can provide housing for people. And the civility of this discussion, Ms. Brooks, after 20 years of fighting for affordable housing trust fund, amazes me at some level. You know, why we're not pounding on the tables and people trying to break down the doors to try and get a reasonable amount of money. I've been told by the Homeless Coalition that $1.5 billion could really make a dent in homelessness in this country, a lousy $1.5 billion compared to a $2.2 trillion budget for this year. So if I sound emotional, believe me, I am, and I think that we need to ask whether or not--you know, we're going to look at the Section 8 recapturing that money to put it into--now maybe there is some money available this year, but what if we were to really use that Section 8 money? Let me leave that as the question. And I think Mr. Faith you answered it somewhat. Is this, is this a reasonable way or a sufficient way, I don't want to say unreasonable, but is it a sufficient way--let me hear from some of the others of you--to fund a program for the next fiscal year and anything else you might want to comment on. I've had my say, thank you. Chairwoman Roukema. Excuse me, excuse me. But your time is just about up, and I would suggest that you're speaking to the choir here, they probably agree with you, they'd like to see a higher priority given to housing. But I would just then suggest, in terms of the last question, if you would submit your answer to the subcommittee in writing in answer to the last question. Ms. Schakowsky. That's fine, thank you. Chairwoman Roukema. There's simply not time for us now, particularly since I'm concerned that we haven't gone through this panel yet and we have a second panel that we're waiting to hear from today, and hopefully we can do that before we get over to a number of voting sessions. All right, now we have Mr. Miller from California. Mr. Miller. Thank you, Madam Chairwoman. I've enjoyed your testimony today, but there will never be an affordable housing market unless there's an affordable move- up market and an adequate move-up market that has to be addressed. The talk was that we need to look at these recaptured Section 8 vouchers and that's unreliable for this program so let's look at spending those, but I think Ms. Kelly brought an interesting issue and I think it needs to be expanded. If Deloit and Touche is correct, if you want to believe that assumption that there's this pot of money from the FHA Insurance Fund out there. We have to understand where that money came from. It came from homeowners and it came from homeowners who obviously are being overcharged. So if we're overcharging homeowners through FHA insurance, then maybe we ought to rebate those funds back to those homeowners who are paying too much rather than just look at this redistribution of income that we're talking about today. You can't help one homeowner who wants to be a homeowner to the detriment of another homeowner. And unless, like I said, you have a move-up market where these people can move out of affordable housing into a better home at a reasonable price, we're never going to resolve this country's problems; we're just going to say let's throw more Federal dollars at it, and the Federal dollars we're throwing at it today, there's no pot of money. It's like the Social Security Trust Fund, it's at the Treasury. We have got to go to the Treasury and get the money back. If we're going to take the money back, let's give it back to the people who we're overcharging. But you mention the ability of States in housing, Mrs. Hadley, and I appreciate that. I think there's what, about 24 States that are involved in housing trust funds, and they control development at the State and local level; we don't. So the problem I have is why should the Federal Government get involved in it when you admitted the States are much better at it than we ever could be. Why do we need a Federal bureaucracy involved in this housing issue and looking at Los Angeles marketplace, probably 59 percent of Section 8 voucher recipients aren't able to even find a home because there are no homes out there. They're not being built because of Government red tape as you know and this NIMBY issue that Mrs. Kelly brought up, which was a great issue, and I guess I'd like to ask the one question to Mr. Gonzales, you seem to be very knowledgeable in this. Why isn't there an adequate amount of housing being built out there? Mr. Gonzales. I think, Madam Chair, subcommittee Member, there's a number of reasons and it's different in every community. In our community, it's an issue of supply and demand in many respects. We know that there's a need for more affordable housing for many people in the community, but you know, we try to the best that we can, to create an environment through our own bureaucracy where we can creative incentives for the development community to actually step up the supply of housing so that we can use some of the market to adjust some of the housing prices, so that people, and I'm talking about homeownership. Mr. Miller. Are you cutting red tape and fast tracking? Mr. Gonzales. We're providing density incentives. Mr. Miller. I applaud you for that. Mr. Gonzales. Everything that we can possibly do to create a positive environment. We're balancing that also with the needs to balance our resources, to make sure that we keep a strong quality of life. But making sure that every new development that comes forward has an element for every member of our community. We don't want to create exclusive communities in our community. We want to make, and it's through innovation, through communication up front letting the development community know this is what we expect from you, this is what we're going to provide from you. In the end we are creating hopefully environments that again every member of our community will be living in sustainable communities where they can live and work. Mr. Miller. I guess exclusive communities varies from city to city and State to State. My concern is that in this country, we focus on just the low end, people at the bottom end. Yet, there's no place for those people to move to when their situation increases, they become a little more affluent, yet there's no place for those people to move so they can't get out of the low-income housing, because no housing is being provided to them at the local level for them to move into, because a sales price of a home in this country, 30 percent of that cost is Government fee directed. Fish and Wildlife finally did something good recently. A judge said you have to take economic impact into the analysis when you're setting aside habitat and he overturned about a half million acres in California for just one little bird, and about 17 of the 25 least affordable housing areas in the country are California. And I applaud your response and your comments and your concern and I wish more locals would look at providing an overall housing economy and an overall housing and marketplace so people at the bottom end could find a place to live. And if any others would like to respond, I think that's an area we need to go. Mr. Gonzales. I just want to say in closing, so they can respond, that more locals are doing that, Congressman. Mr. Miller. I'm glad to see that. Ms. Hadley. Madam Chair. Chairwoman Roukema. Yes, you'll have to make it short. Ms. Hadley. Congressman Miller, if I could address your point about Federal involvement. There has been a huge, in the last 15 years, shift of capital from the Federal level in terms of the HUD appropriation, in terms of changes made in the 1986 Tax Act with respect to tax treatment of rental housing and the tax exempt bonds. Whatever people's politics were around this change, it has represented a huge shift away of Federal support essentially for both the housing industry generally and affordable housing. And what we've seen in Minnesota is that the private market over the last 15 years has been increasingly unable to meet the needs of people. That people who can't buy housing or rent an apartment with 30 percent of their income is a bigger group of people and more middle class at the upper end. While we feel strongly about the role of Federal funding for the housing needs of very low-income people, we on the State level are taking a lot of steps to try to increase the production of privately unsubsidized housing at the low end of the market and working with local communities to try to do that. Mr. Miller. That's a good issue, and I wish there were more time, but I know she's been very generous with me to this point. Thank you, Madam Chairwoman. Chairwoman Roukema. Thank you. Mr. Sanders please, from Vermont. Mr. Sanders. Thank you, Madam Chair. Before I asked my question, I did want to comment on something that Ms. Kelly said and Mr. Miller said. Ms. Kelly is right about NIMBY-ism, and I share that concern, but you are not right about whether FHA profits can be used to create a national affordable housing trust fund. President Bush apparently has disagreed with CBO on this issue. The President used the projected $2.4 billion in FHA profits in his fiscal year 2002 budget proposal to lower the net level of funding for housing and to increase the Federal surplus. I think if the President can use the FHA profits for that purpose, for other purposes, we can use it for a trust fund. In terms of Mr. Miller, Mr. Miller raises a question about the wisdom of tapping the source of funding that we have tapped. He is not here, I think. I'm sorry. He may have a point. A better source of funding may be the $500 billion in tax breaks that the President and Congress recently gave to the wealthiest one percent of the population, and maybe he and I can work on diverting some of that money into affordable housing. But given the fact that that's not likely to happen, I think it's important that we do develop a reliable source of funding for a significant housing program and FHA profits are as good as any source that I can think of. I wonder if Ms. Brooks or Mr. Faith would want to comment on the use of FHA surplus for funding sustainable housing. Mr. Faith. Thank you, Mr. Sanders, Madam Chair. Attached to my testimony is actually a more recent report from Deloit and Touche. Mr. Sanders. Put the mike closer to you. Mr. Faith. Attached to my testimony is a more recent report from Deloit and Touche using data as of March 31st, and it shows that the FHA fund is of high quality and very healthy. I won't go into the details, but they run through a variety of worst case scenarios back on page 7 of their executive summary, and still show that the surplus ratio that's required, the amount of money that'll be there far exceeds any safety for existing homeowners. Current homeowners that use FHA will be protected. In fact, we have to remember that current homeowners receive a substantial subsidy, and myself as a homeowner, in tax season, am well aware of that subsidy, in order to be able to afford a home. What we're talking about with this bill with your trust fund legislation is to help those who are more in the rental side of the equation, who have no access to that subsidy, who don't get the benefits from the FHA Fund and who could. This is simply a scenario to identify a pot of money. And I agree with you, Mr. Sanders, that there may be other sources. This is just one idea. It just needs to be a substantial source so that when we talk about addressing the affordable housing crisis in this country, we're serious about it. Mr. Sanders. And the truth is that it is a strong source and a reliable source. Ms. Brooks, your organization, as I understand it, did a study on job creation in terms of building a significant amount of affordable housing. Do you want to say a few words about what this would do to the economy in creating decent paying jobs for Americans? Ms. Brooks. Well you make a good point and thank you for doing that. We did study what the impact would be of a proposed Federal housing trust fund, and you cited from that study earlier. It clearly indicates that by making an investment in the housing production program that we would generate substantial jobs and wages in this country. That study is important, but it is also important to note that most of the housing trust funds around the country can document the same kinds of benefits from their own trust funds. So we know from the experience of existing housing trust funds that indeed putting money into a housing production program generates substantial jobs, it provides resources to a local community in terms of increased taxes, and it also increases wages. So the expanded economic benefit from a Federal housing trust fund would be a substantial boost to the economy in this country. Mr. Sanders. Thank you. Lastly, Madam Chair, I would just say again thank you very much for this hearing. I would say in response to Mr. Miller, the reason that low-income people cannot afford housing is not because of the Endangered Species Act. It is because they are low-income. And when you make $6 and $7 an hour, you just cannot afford decent housing for your family and the Federal Government must play an active role in making sure that all families in this country have decent and affordable housing. Thank you, Madam Chairwoman. Chairwoman Roukema. All right, thank you Mr. Sanders. Now we have Congressman Tiberi from Ohio. Mr. Tiberi. Thank you, Madam Chair. I apologize. I had two other committee meetings to go to. My friend Bill Faith, welcome. I wish I was here to introduce you. I apologize for missing everyone's testimony, but I'll throw this question out. Bill's probably most familiar with it when we talk about a national housing trust fund. In Columbus recently I've received some phone calls in my office, Bill, over an issue that you're probably familiar with that maybe came up in somebody's testimony, maybe did not, but an issue in Columbus where money was approved by the local housing trust fund for homeownership at a level that some people in my neighborhood were astounded by. In my neighborhood, housing generally runs from about $90,000 to $150,000, a working class neighborhood in Columbus' north end, and some of this housing trust fund money was allocated for property that was incentives for people to move in certain areas of the city that was double, my understanding, that level. Is there any concern that as we move in the direction of trying to provide more dollars for affordable housing that we lose what I think was initially or originally the focus of affordable housing, rather than using precious dollars--and there's never enough to go around for everything--to subsidize what some of my neighbors say is excessive amounts of cost in housing. Does that make any sense, Bill? Mr. Faith. Yes. Madam Chair, Congressman Tiberi, it's very good to see you today. Let me respond to the local trust fund issue first. You have to understand this is local revenue and had nothing to do with the Federal Government. This is a purely Columbus, Franklin County trust fund. Also it was a loan at above market rate terms to encourage middle income people to move into a low-income census tract in the central City of Columbus. So I have to defend the project even though my eyebrows went up a bit initially. But it's purely a short-term loan at a higher-than-market interest rate to attract middle income homeowners back into the core central city. And as the Chairwoman noted, the homeownership rate in the United States is now 68 percent. However, in the central City of Columbus, like many cities, our homeownership rate is below 50 percent. So I think we do need to look at strategies to address that. However, local governments are doing more of that. We already have incentives in the Tax Code to help homeowners. As you know, in our city in Columbus, we're now going to use tax abatements to help attract homeowners into the central city. What the Federal Government needs to focus, I think where you were headed, which is, to use the precious resources that we can identify and prioritize those of the most modest means because that's where the need is greatest. That's where the local governments aren't able to do as much because of the level of subsidy involved and the need for ongoing rental assistance to keep that housing affordable and of high quality. I think Mrs. Kelly's point earlier about the NIMBY issue is critically important, and if we don't have the resources to build high quality housing, with sufficient operating funds to manage that housing well, we're going to run into even further NIMBY problems. Mr. Tiberi. Yes, go ahead. Ms. Racer. Representative, I'm not familiar with the program in Columbus, but I wanted to make two comments. First, while we can all be very proud of the homeownership rate, it is not equally high among different racial and ethnic groups, and that should remain a concern for all of us. Second, that the State administering agencies I believe are very capable of being careful not to over subsidize any homeowner through a variety of qualification tests. That's extremely important to us in Massachusetts. I'm sure it's equally important to Kit in Minnesota and to others who administer the homeownership programs. Mr. Tiberi. Madam Chair, no follow-up questions, just a comment. Bill I agree with you in terms of the precious resources. I think however, as we move in this direction, my only point is--and I know it's a local decision--but when you expand programs there's always a possibility that the Federal Government could get involved in the same thing. My only point is, is when you have middle class advocates suddenly raise their eyebrows and say, wait a second, I don't live in the greatest neighborhood and someone now is getting an incentive to purchase a house double the cost of mine. My only concern is that we don't throw the baby out with the bath water. The NIMBY issue is we've talked about it before. I'd like to follow up with you on this issue as well, because I just have some concerns about the messages it sends to those who are trying to go from no housing or rental housing into homeownership at the first level. Chairwoman Roukema. Yes. The time is up now, but if you have further comments to make in writing you can submit them for the record and we'll all read them, but I do thank you for those questions. Now Congressman Israel from New York. Mr. Israel. Thank you, Madam Chair. I'd like to continue to focus on a concept of an affordable housing trust fund and would like to direct my question to Ms. Brooks who noted that there are about 250 housing trust funds throughout the country. One of those trust funds is located in my home town, Huntington. I was a town councilman for 7 years and one of the final acts that I engaged in before coming to Congress was to pass legislation that created an affordable housing trust fund, funded it with town dollars, but also imposed a requirement on developers that to my surprise the development community supported. And the requirement was any time they came to the town board for a down zoning and realized a density bonus from that down zoning, they were required to deposit into the trust fund an amount of money equivalent to the enhanced value that they were receiving from that density bonus, in addition to dedicating a portion of the zoning on-site for affordable housing. It was an innovative program, the first of its kind on Long Island, but there were problems with its effectiveness and I'd like you to comment on this. Our experience was that when you're living on Long Island, as my colleague, Mr. Grucci, said, those kinds of trust funds, which I support, aren't as effective as you would like them to be because we live in a high-cost, high-property value area. Mr. Grucci's district is adjacent to mine. He gave you some statistics. The fact of the matter is that the conventional wisdom that affordable housing is more a crisis in New York City than Long Island is just plain wrong. The average rental for a two bedroom apartment in New York City is $949. The average rental for a two bedroom apartment on Long Island is $1,173. Monthly housing payments are consuming well over 30 percent for about 300,000 households on Long Island. So my question to you is, as much as I support affordable housing trust funds, I'm a cosponsor of Mr. Sanders' bill, what can be done to ensure that in these high cost, high property value areas, those trust funds are effective. Ms. Brooks. It's an excellent question and thank you. The experience with housing trust funds around the country I think really demonstrates that there is potential for addressing critical housing needs in virtually any housing market. You may have noticed from the list of housing trust funds that there are housing trust funds, for instance, in a place like Aspen, Colorado, where they tell me the median cost of a home there is one million dollars. Most of us can't afford that kind of housing, yet they have created a trust fund that is making some impact in that community where people who work in restaurants and dry cleaning establishments and other places have to commute great distances because they can't afford to live in the community. So they have begun to address that issue. I'm working with some folks in California communities where the median price of a home is above $500,000. And so we are seeing housing trust funds that are able to address a wide variety of housing needs. To me that's the beauty of the housing trust fund model is that it enables, we do know how to provide housing for low-income people in this country, we have the capacity to do that. What we don't have are the resources to do it. Mr. Israel. Would you follow up with my office? Perhaps we can meet to talk about how those trust funds are effectively working in those higher wealth areas. Ms. Brooks. I'd be glad to. Mr. Israel. That'd be great. Thank you. Chairwoman Roukema. Well I'd like to say that I'm going to be the cynic here and express reservations and I come from a high income area, but I don't know, I have a problem with this idea that somehow you're using limited trust fund money in areas like Bergen County, New Jersey, or Long Island or Aspen, Colorado. And I know something about Aspen, Colorado, and don't tell me that the waitresses need housing money there. They can just go a very short distance outside of Aspen and get all the housing they need. This is a problem that we're going to have to work through obviously, because I think we're really kind of shooting ourselves in the foot if we go to very high income areas, because then you're depriving the low-income areas and the moderate income areas of money that they need desperately. You put that in writing in terms of how you think that this can be spread out, and then we'll talk about it further as we go through the legislative process. And now we have a final questioner is Julia Carson from Indiana. Ms. Carson. Thank you very much, Madam Chair. This is so interesting and I know you have a limit on time and probably I'm asking the right question to the wrong group of experts here. I come from Indianapolis, Indiana. We've experienced the highest rates of foreclosures than in any other parts of the country. I recognize that a lot of that comes from three things. Number one, predatory lending. I'm trying to help a lady save her home now. They're white, retired income $1,006 a month from Social Security, she has a mortgage payment of $1,600 a month and the people that loaned her the money knew there was no way in the world with her income that she was going to be able to meet that payment and she's in the middle of an eviction at this particular time. She's blind and she's 80 years of age. I want to know if you could write me and tell me how does one offset that kind of abusive behavior on the part of banking institutions when people are comfortable in their homes and then suddenly something happens. Somebody knocked on the door and she signed her name; that's what happened. Then number two, I live in a low-income community historically, but over the years my low-income community has become a high income community and they just did a reassessment of property taxes. My personal property taxes on my home quadrupled, which is something I guess that was expected, but we got older people in that neighborhood who've been settled and we're going to have another Hilton Head where the people aren't going to be able to keep their homes because of this humongous tax increase on their property. You know what I'm saying? It's the value of the home. And there's been some building in my neighborhood called a homeownership zones and the empowerment zones where builders have come in and built houses and it's elevated the value of homes in the whole neighborhood, but we've got all these people out here who thought they were OK now, they've got their homes bought, and all of a sudden this high tax bill comes and they're not going to be able to meet it. And if you could sort of share with me what some of those experiences are in other parts of the country so I can try to deal with those on a local level, I would appreciate it. I'm Julia Carson from Indianapolis. We just have a preponderance of---- Ms. Hadley. Madam Chair and Congresswoman Carson, the rising property values in the poorest neighborhoods in the Twin Cities and in your community are real double-edged swords. On the one hand, it represents that there's more private investment in this community and that it's healthier in terms of the economics of the community. On the other hand, as you say, it's really wiping out people who are on fixed incomes, people who are on low incomes. At the State level, I'm not sure this is an appropriate Federal response, but have provided some tax relief for people against sort of multi-digit increases in property tax, just a State tax kind of relief. We're experiencing the same problems with predatory lending. I know there's some legislation under consideration at the Federal level and some States have passed laws regarding predatory lending, and it's forced us within the State to really strengthen our foreclosure prevention network around the State which is having some impact. Ms. Brooks. You correctly indicate that the predatory lending is just an abominable factor here in our culture, and I know Mr. Faith wants to speak to that. There are several housing trust funds that have actually focused on the issue that you are talking about where---- Ms. Carson. Indianapolis doesn't have one. Ms. Brooks. Not yet. They're working on it I might say, and have provided emergency housing assistance to enable people to stay in their homes when they have purchased them, yet the cost of maintaining that home becomes out of reach, and some housing trust funds have addressed that issue in particular to address exactly the kind of housing need that you're talking about. Ms. Carson. I've lived in my home 35 years. When I moved into the neighborhood it was mixed racially, income was sort of moderate up, and then there was an abandonment of the neighborhood. People fled, cut beautiful homes up into apartments which were ultimately destroyed after they had bled out all that they could out of them. And the neighborhood became crime-ridden, etc., but I hung in there and obviously it was worth my hanging in. But now it's in the reverse and the people that stayed there with me, which were quite a few, are not going to be able to even pay tax bills now. Ms. Brooks. There is a housing trust fund proposed in Indianapolis. In fact, it's on the books there. It has not yet been funded, but the mayor just indicated that he intends to fund that as a priority. Ms. Carson. Indiana's one of the broke States, so they don't have a lot of latitude in terms of doing---- Chairwoman Roukema. I'll give you just one minute, Ms. Racer, because then we have to go to the second panel. Ms. Racer. Surely. Madam Chair, thank you. Congresswoman, I believe there are several communities in Massachusetts with very, very high average and median sales prices where the communities willingly are providing some degree of tax relief to elderly homeowners. I will try to get you some information on that. Thank you. Chairwoman Roukema. All right. I do thank this panel, and obviously the answers are not easy or simple answers, and we're going to have to balance out the competing needs here. But we do appreciate your testimony and we look forward to the added testimony that you're going to submit to those questions that were submitted to you for further detail. Thank you very much and we look forward to working with you and getting this legislation passed in record time. If the second panel will come forward. I can't believe that we haven't been called over for votes yet, but let's see how far we can go now. Panel two. Ms. Carson. I keep hearing, Madam Chair, they're going to be voting pretty soon. Chairwoman Roukema. I know. I've been hearing that since 11:15. I don't know what's happened to our panelists--not the panelists, I mean the subcommittee Members. Hopefully, they'll be returning shortly, at least some of them. We're all concerned about when these votes are coming up, but hopefully we'll be able to hear your testimony before that happens. I'd like to introduce the panel. Barbara Sard is here with us today again from the Boston area. Massachusetts is overly represented today, aren't they? I'm sorry, I can't hear you. Ms. Sard. There are very many ``housers'' per capita in Massachusetts. Chairwoman Roukema. Oh, I see, I see. Ms. Sard. It hasn't solved the problem. Chairwoman Roukema. You're reflecting yourselves as standards for the nation, something simple like that. All right. But Ms. Sard is from the Boston area and is the Director of Housing Policy at the Center on Budget and Policy Priorities, something that we're going to be very interested in hearing about today, so we'll let you give your testimony and then I'll introduce each of the panel members as they testify. STATEMENT OF BARBARA SARD, DIRECTOR OF HOUSING POLICY, CENTER ON BUDGET AND POLICY PRIORITIES Ms. Sard. Thank you very much for inviting me to testify today. We applaud the recognition in H.R. 3995 of the need for additional resources for rental housing production and that a substantial share of any new resources should be targeted on extremely low-income households who are the families and individuals within our country with the most severe housing needs. Unfortunately, because their incomes are so low, capital subsidies do not work well alone to assist extremely low-income people and that is the conundrum that the bill has tried to deal with through the thrifty production voucher proposal which you've asked me to talk about. In the past with capital subsidies, either commonly extremely low-income households were not admitted at all, which has often happened in the tax credit program, because many owners have a rule that you have to have income of three times the rent, and if your income is very low, you don't have income of three times the rent, so you don't get in, or you are admitted and recent data in the HOME program shows that extremely low-income households who don't have rental assistance pay nearly 70 percent of their income for rent. By my calculations using data from FHA properties, it would take an income of about $18,000 a year on average merely to afford the operating costs without debt service of an average rental property in this country. H.R. 3995 attempts to deal with this tension between the need to assist extremely low-income people and the shallowness of a capital subsidy, by setting a rent cap that the rent would be, under the new Production and Preservation Program, no more than 40 percent of a household's income. It's a good attempt at a compromise, but like many compromises, it's unsatisfactory to either side. It is not going to provide enough of a rental stream to the owners when the households are extremely low-income because 40 percent of an extremely low-income household's income is not enough to cover the owner's costs, and yet it's still too much of an extremely low-income household's income to pay, and that's the role of rental assistance to fill. That shows that in addition to capital subsidies, you need rental assistance. Why thrifty production vouchers, to get to the question. The premise behind thrifty production vouchers, unlike other vouchers, is that it is preferable to have a major infusion of capital dollars, which is a one-time expenditure. It is easier for the Federal Government to plan for, to budget, to be basically heavy on the capital side in order over time for the rental subsidy that extremely low-income households need to be lower. And if we look at the average costs, again the data are in my testimony, we estimate that on average, the operating costs without debt service for new rental housing or newly rehabilitated rental housing would be below 75 percent of the fair market rent. And in the regular voucher program, rents are generally pegged to the fair market rent. The reason you can do it for less is by paying more on the capital side. It isn't just something for nothing. It's a choice that it is better policy to invest once on the capital side and then lower the on-going operating subsidy. And, because of that approach, the rent payment, the maximum rent for a unit would be pegged to the operating costs of the unit without debt service. And that is different from what has been done before. To make sure that it is cost effective, the proposal includes a cap of 75 percent of the local housing agency's payment standard, which is what's now used in the voucher program and in some cases that's slightly above the fair market rent, so that would be the cap. But the rent itself would be pegged to the operating subsidy cost. The proposal includes a new distribution mechanism which makes it easier to use these vouchers in combination with new capital money. Even though only housing authorities that run a voucher program would be eligible to administer these subsidies, the notion is that the vouchers ought to be allocated if Congress funds new ones in the same way that the capital dollars are allocated. Now there are some complex issues and my testimony includes some alternatives to the way the bill is drafted. [The prepared statement of Barbara Sard can be found on page 207 in the appendix.] Chairwoman Roukema. Yes. Your time is up and I'm going to have to be as strict about it. Perhaps there will be a question, but we're really running into a conflict here. The bell has rung and there will be a vote that we'll have to leave for on the floor, but evidently only one. I thought there were going to be a series of votes. Mr. Benson Roberts, I believe we can give you 5 minutes before we have to recess to go over to vote, and you of course are representing the Local Initiatives Support Corporation, and it's a creation of community leadership and it's a good example really of forward thinking with community leadership setting the standard. Go ahead, Mr. Roberts, please. STATEMENT OF BENSON ROBERTS, LOCAL INITIATIVES SUPPORT CORPORATION Mr. Roberts.Thank you very much, Madam Chair, and good afternoon. My name is Benson Roberts and I am with the Local Initiatives Support Corporation. We operate low-income community development programs in New Jersey, Indianapolis, Cleveland, and 35 other parts of the country. Our job is to help grassroots community organizations to rebuild their communities. We've raised $4 billion from the private sector in this effort and have used that money to help in community stabilization activities. We deeply appreciate the subcommittee's attention to housing production and the need to add more money for housing production. Indeed, we believe that the real issue here is money, rather than program design. We certainly have no objection to the proposal you've made in H.R. 3995 or to Representative Sanders' Housing Trust Fund and we appreciate the fact that they would generate new sources of money. But the existing programs, particularly HOME, work just fine in terms of moving money out to serve low-income people. If you look at HOME, 40 percent of HOME funds in rental housing serve extremely low- income people; 80 percent serve very low-income people. So States and localities are really exercising great stewardship there while retaining some flexibility to meet other needs as well. Incidentally, about a third of the homeowners receiving rehabilitation assistance under HOME are also extremely low- income and two-thirds are very low-income. Chairwoman Roukema. Would you talk a little bit more into the microphone, please. Mr. Roberts. So HOME is really meeting that need. The principal limitation is money. HOME was authorized at $2 billion 12 years ago. In today's dollars that would be $2.9 billion. The current appropriation is about 35 percent short of that. And if we really want to increase production of housing for low-income people, we just need to find some way, any way to get more money into the system. We'd argue that the best delivery system for that is the existing one that works extremely well. There's no need to create a new program, we would say. The one thing that capital subsidies cannot really do, as Barbara suggests, is that they cannot address a situation where poor tenants cannot afford to pay in rent even enough money to cover the operating expenses of a property. Obviously it's very important that the housing that is built be affordable to the people whom it's intended to serve. So there are sometimes efforts, we've seen it in both H.R. 3995 and in the Trust Fund bill, to peg maximum rents based on the tenant's actual income. Well, neither we nor anybody else in the private sector can underwrite a property on that basis. Everyone has to have some kind of certainty about how much money is going to be available to the property, and if we just don't know until the tenants show up and we can take a look at their income, then we can't make the loans or the investments to begin with. That's really where a Thrifty Voucher comes in. Because it really says to a developer, says to a lender, says to an investor, we know that you're going to have enough revenue on those units reserved for extremely low-income people to cover the operating cost of the property, and that enables you to underwrite the property. The reason why Thrifties make sense here in Congress is that when we go to the appropriators and talk about additional rent subsidy, the appropriators say well, we know that if we sign up for one year, we have to renew this year after year and the cost is so high that we don't want to get started. Thrifties are very explicitly an attempt to address that concern, and they would, we believe, be at least 35 percent cheaper than existing vouchers and perhaps even cheaper than that.That's why we think they have a great role to play in this process. The tenants would still pay 30 percent of their income for rent, the same as they would with regular voucher, but the reason Thrifties are cheaper than tenant-based vouchers is, as Barbara says, instead of the payment standard being a fair market rent or higher, it would be based on the actual operating budget of the property. That tends to be substantially lower than fair market rent. You can't do that for existing housing, because existing owners have a debt they have to pay. [The prepared statement of Benson Roberts can be found on page 221 in the appendix.] Chairwoman Roukema. All right, thank you. We're going to have to leave to vote, and we'll be back within 15 minutes hopefully. [Recess.] Chairwoman Roukema. Let's go back on the record. I apologize profusely. I understand as soon as we got there we learned that there were successive votes on the floor that delayed us. We hope our staff made the appropriate announcement. I am terribly sorry, but we could not anticipate that. They just had the lights on for one vote. As we got out there, we learned that there were two 15-minute votes and two additional suspensions, so it took quite some time. Sorry about that. And given my schedule and your schedule, let's complete this. I don't know if any of the other Members are coming, but we will see if anyone else is coming. I doubt it. I think what we should do is get your statement on the record. Otherwise, you wouldn't even have the chairman here. OK? I'm sorry. I'm not avoiding you, but I have another commitment on for another hearing. Can you believe it? My incompetent staff scheduled me for two hearings today. I think I'll fire them all. Yes, do I have your permission to fire them all? I do that about every other week. All right. Now I believe that Mr. Lawson, Robert Lawson is next and you are representing? Mr. Lawson. The National Association of Home Builders. Chairwoman Roukema. Yes, yes the National Association of Home Builders and certainly if there's one interest group that we must hear from, it's the home builders, and we welcome you here and we will listen to your comments, because I think we all share the feeling that certainly housing is a national priority. Thank you very much. Mr. Lawson. STATEMENT OF ROBERT LAWSON, ON BEHALF OF THE NATIONAL ASSOCIATION OF HOME BUILDERS Mr. Lawson. Thank you very much. On behalf of the 205,000 members of the National Association of Home Builders, I want to thank you for inviting us to speak on the Housing Affordability Act. My name is Robert Lawson, I'm a builder from Virginia Beach, Virginia, and President of the Lawson Companies. For almost 30 years, our company has been active in the financing, development, and management of affordable and market rates single and multi-family housing. Let me begin by thanking Chairs Roukema and Oxley for introducing the first major housing bill in many years. We appreciate your willingness to address some very complex issues in order to provide more affordable housing for low-and moderate income households. I would like to confine my oral statement to the affordable housing production and preservation component of H.R. 3995. While commenting on your production proposal, I would also like to offer a different approach for the subcommittee's consideration as you begin your deliberations on the bill. Our proposal would meet the needs of affordable families at all income levels from the very low-to moderate income families. Section 101 of Title I creates a new affordable housing production and preservation program under HOME. The program would provide loans and grants for the production or preservation of existing affordable housing for very low and extremely low-income households funded with unobligated balances of recaptured Section 8 funds. While we appreciate that a funding source independent of annual home appropriation is identified, we question whether the source of money will appropriately meet the program's goal of increasing production for very low and extremely low-income households. This source of funding may prove inadequate as HUD improves the utilization rate of vouchers and reduces the amount of unobligated funds. If funding for the new program becomes problematic, there might be a temptation to require participating jurisdictions to set aside regular home funds for these purposes. NHB would oppose this unintended result. NHB believes that the establishment of a new rental housing product and rehabilitation program that produces 60,000 to 70,000 units annually should be a top housing priority for the Administration and Congress in the coming year. The often-cited reports by the Center for Housing Policy and Harvard University document the need for a new multi-family rental housing production program that would meet the affordable housing needs of households with incomes between 60 and 100 percent of area median income, America's working poor. These households are not eligible for housing assistance for most current Federal housing programs. NHB proposes a program to produce mixed income housing which has proven to provide greater financial stability and community acceptance than developments that concentrate on very low and low-income households. The program focuses primarily on the working poor with a portion of each property up to 25 percent reserved for very low and extremely low-income households. Although there are several ways in which this program could work, our proposal relies primarily on the low interest rates available through Ginnie Mae guaranteed lower floater securities which carry very low rates of interest, currently less than four percent. These securities could be issued by a variety of entities including developers, private lenders, housing finance agencies, and local governments. Ginnie Mae would guarantee the timely payment of principal and interest to investors, which would further lower financing costs. Underlying loans could be backed by the Federal Housing Administration, the Rural Housing Services, or could be conventional loans, though use of the latter would require a change in the Ginnie Mae charter. Interest rate subsidies or buy-downs would be employed to achieve additional affordability. To further reduce debt coverage, developers could also use sources of equity and soft second such as tax credits, HOME, the Federal Home Loan Banks Affordable Housing Program, and State housing trust funds. The only Federal budget dollars required would be for any credit subsidy needed for Ginnie Mae participation, interest rate subsidies or buy-downs, and a marginal increase in the cost of rental assistance vouchers. The program would require only a small amount of Federal Government subsidy per development and would provide for on-going maintenance and future capital improvements by building in adequate reserves from monthly cash flow at a level sufficient to rehabilitate the development in year 2000. Chairwoman Roukema. Mr. Lawson, I'm sorry. I don't know if you realize that your time has run out here, but I know you have a much more extensive report to give, and we'll go over it. Is there one minute that you'd like to summarize with the point that you want us most to focus on? Mr. Lawson. I think that the big thing is it's low cost program to the Government and it provides for incentives to the developers in a way to create good, mixed communities that focus on the broad range. I guess in summation, I would say if we're helping people only at 30 percent of median, where do they go when they hit 35 percent of median, because the market can only serve people starting at 100 percent of median. We've got to have a continuum to have a good, sound housing policy. Chairwoman Roukema. That's a point that's interesting to be made. I don't know how we'll deal with it, but we will certainly review it.. Mr. Lawson. Thank you very much. [The prepared statement of Robert Lawson can be found on page 230 in the appendix.] Chairwoman Roukema. Mr. Lopez. Mr. Rodrigo Lopez is from AmeriSphere, a mortgage banking company, but you're here in Nebraska nationally or is it ? Mr. Lopez. Nationally, but based in Nebraska. Chairwoman Roukema. Based in Omaha, Nebraska. But you are here today representing the Commercial Multi-Family Board of Governors of the Mortgage Bankers Association. So we do welcome you and we want to get your advice on how we deal with this problem or these problems. Thank you. STATEMENT OF RODRIGO LOPEZ, PRESIDENT, AMERISPHERE MULTIFAMILY FINANCE, L.L.C., ON BEHALF OF THE MORTGAGE BANKERS ASSOCIATION OF AMERICA Mr. Lopez. Thank you. Good afternoon, Madam Chairman and Members of the subcommittee. The MBA also applauds the Chair and Vice Chair of this subcommittee for introducing H.R. 3995. We believe that this legislation lays the groundwork for increasing American's access to affordable housing, both for those families buying their first home, and for those who are living in rental housing. There's no doubt that this country's facing a crisis in affordable housing, a significant shortage in decent, affordable housing exists in virtually every jurisdiction in America, and this problem is growing worse. The cause of the problem differs from region to region. In areas where housing prices are generally lower, the problem of affordability often stems from lack of income. The housing exists, but the rents are simply too high for lower income families. In these areas, income support programs, such as vouchers, are the most cost effective means to provide assistance. In other areas, the lack of existing rental housing has driven up rents to the point where even moderate income families cannot afford to live in the communities where they work. The fact that there has been little, or in some areas no new production has made many places virtually unaffordable for many families, even for some two full-time workers. The production program outlining H.R. 3995 utilizes these highly successful home investment partnership program, HOME, for production and preservation. MBA applauds the bill's provision dividing the allocation of HOME funds 60 percent to localities and 40 percent to States. We do, however, have several concerns about rental housing production provisions in the bill. Our first concern is with the targeting of the production program to very low and extremely low-income constituencies. While people in these income groups undoubtedly have faced critical housing needs, there's also a need for assistance for families making between 60 and 100 percent of median income. Currently, there are no Federal programs to help renters in these more moderate income brackets. Many of these people are municipal employees such as teachers, police, and firefighters, who cannot afford to live in the communities they serve. Second, MBA does not believe that the program set out in H.R. 3995 would generate new construction or substantial rehabilitation of affordable housing. Therefore the program would not address problems in high cost areas of the country where significant new housing production is badly needed. Finally, MBA believes that a mixed income is essential. As currently drafted, the provisions of H.R. 3995 would not produce mixed income developments. It is our opinion that families would be better served and Federal housing dollars would be better spent in properties with tenants whose income range from less than 30 percent to 100 percent of median income. To address the need for new production, MBA proposes the creation of a new Federal interest rate subsidy program. The most successful Federal housing production programs rely heavily on public/private partnerships that encourage the private sector to produce housing with support provided by the Federal Government. FHA Mortage Insurance programs have been extremely successful in producing new and rehabilitated housing at little or no cost to the Federal Government. Partnering FHA Mortage Insurance with interest rate subsidy will, in most markets, encourage private production of rental housing at rents that would be within the reach of families at 60 to 100 percent of median income. A new production program would reduce the cost of financing. The subsidy would reduce the interest rate significantly below market allowing lower rental rates. Such a program needs to work with other Federal programs including home, tax credits, and project-based vouchers to achieve a mix of incomes. MBA looks forward to working with the Members of the subcommittee and their staff to craft a new rental housing production program that will serve a variety of income groups. Through such a program, Government and private industry can work together to address the crisis in affordable housing. Thank you, Madam Chairman. We appreciate having the opportunity to present our views to you today. [The prepared statement of Rodrigo Lopez can be found on page 236 in the appendix.] Chairwoman Roukema. Thank you. Now I regret having to tell you that we're going to have to bring this to a close, not only because I'm the only person here, subcommittee Member here, but also because we inadvertently and hadn't really intended to, but because of circumstances beyond our control, I have another hearing at 2:00 o'clock on another subject, but nevertheless a subject under our jurisdiction. But I think that what we've learned here today and certainly I am most encouraged--we're concluding now; I'm sorry. Voice. You are. Chairwoman Roukema. Yes, we are. We have to leave here and I was going to say that the encouraging thing here today is that both the public groups, the community groups, the State and local governments and community groups are very consistently supportive of you and all that you're doing and reverse we haven't agreed on everything, certainly how it's going to be paid for and what the relative focus is relative to vouchers and the tax provisions, etc., and I think we can certainly come to agreement on how we target the low-income and the very low-income, and then what, if anything, and I believe Mr. Lopez, did you just mention the fact that-- was it Mr. Lopez or Mr. Lawson--just mentioned the fact that there's too much targeting of the very low-income and the more middle income people are being ignored. That would be a subject for great debate. I heard it, but I don't know how we deal with that in terms of realistically considering the money that is available. But we'll go over it. I guess that subject had some up in one form or another previously on the panel, on the previous panel. But if there's one final word that you wanted to say, you may make that statement now and then we'll adjourn for the day, and again, I invite you to submit any additional material for the record, and it will be part of the open record of the hearing. Mr. Lawson. Thank you very much. We will try and send additional material forward and I guess the time might be best utilized if I could answer any questions that you or any other Member might have. Chairwoman Roukema. No, as I said, I indicated that the time is very short and I have another hearing that I'm in charge of so I'm afraid we can't continue you it any longer. Mr. Lawson. Thank you, Madam Chairman. Chairwoman Roukema. Yes. Any final statement any one of the four Members want to make? [No response.] Chairwoman Roukema. All right. I'm sorry, Ms. Valezquez, you were busy in another committee hearing. I'm sorry. But I think you will find, as you go over this information that it was very, very helpful and very consistent both from the community groups as well sa the business groups, the homebuilders and the mortgage bankers. They're not in complete agreement, but I think we're all moving in the right direction. Thank you very much. Mr. Lawson. Thank you. [Whereupon, at 1:30 p.m., the hearing was adjourned.] H.R. 3995--THE HOUSING AFFORDABILITY FOR AMERICA ACT OF 2002 ---------- TUESDAY, APRIL 23, 2002 U.S. House of Representatives, Subcommittee on Housing and Community Opportunity, Committee on Financial Services, Washington, DC. The subcommittee met, pursuant to call, at 2:00 p.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding. Present: Chairwoman Roukema; Representatives Green, Ney, Kelly, Miller, Grucci, Tiberi, Velazquez, Carson, Schakowsky, Jones, Watt and Israel. Also Present: Representatives Oxley and Baker. Mr. Green. [Presiding.] Good afternoon. This hearing of the Subcommittee on Housing and Community Opportunity will come to order. Opening statements. Without objection, all Members' opening statements will be made part of the record. The Chairwoman of the subcommittee, Chairwoman Roukema, has been detained and will be joining us shortly, but I wanted to get things underway and I will at this time read her opening statement and will proceed to recognize Ms. Velazquez. This is a second in a series of hearings on H.R. 3995, the Housing Affordability for America Act of 2002, which is designed to increase the availability of affordable housing and expand home ownership and rental opportunities across the country. Our first hearing on this legislation focused specifically on the home program, housing production, the National Housing Trust Fund as proposed in H.R. 2349 and the Thrifty Production Voucher as proposed in H.R. 3995. As the Chair has stated before, new production of affordable single and multi-family housing is essential to the goal of expanding home ownership and affordable rental opportunities. That first hearing was most informative. Clearly there are different ways to address the shared goal of increasing production. The Chair trusts as we move forward on H.R. 3995 that we can all stay focused on the goal and keep an open mind on how best to achieve that goal. There are many problems that need our attention relative to housing in this country. Certainly we need to look at ways to increase production and we need to search for new ways to address the increasing costs of Section 8 contract renewal. If we do not, it will soon consume the lion's share of HUD's budget. In light of the country's growing elderly population, seniors are finding it harder and harder to find affordable housing or to simply stay in their home. There are over 34 million Americans 65 years and older. By the year 2025, that number will increase to 62 million, or one in every six Americans. Growing numbers of seniors are suffering from worst- case housing needs from 1991 to 1997. The number of senior low income renters paying more than 50 percent of income toward rent rose 8 percent. At the same time, the number of senior low-income households receiving public rental assistance dropped 13 percent. These factors could combine to create a crisis level lack of affordable housing for senior citizens within the next decade. We need to establish comprehensive aging-in-place strategies to link affordable shelter with compassionate services through public-private partnerships. The reality is that solutions to these problems will not be easy. That is precisely why Congress thought it necessary to establish both the Millennium and Seniors Housing Commissions. We have asked them to think outside the box and to come up with solutions to address these growing and pressing problems. H.R. 3995 is a first step toward addressing the problems that we could address right now in anticipation of a Millennium Housing and Senior Housing Commission reports that are due later this year. This hearing today will focus on programs that provide direct Federal housing assistance to low income Americans. We have asked our witnesses to comment on the Section 8 program, public housing, elderly, disabled, homelessness and HOPE IV. The Section 8 program is the primary type of direct Federal housing assistance to low income Americans. At last year's hearing, we heard how in certain communities, voucher underutilization is a significant problem. Underutilization of vouchers has been attributed to various causes, including the tight rental market, poor performance by public housing agencies, targeting of a large percentage of vouchers to very low income individuals, low fare market rents and rent caps of 40 percent of adjusted monthly income. H.R. 3995 includes provisions that provide flexibility to public housing authorities and tenants alike within the Section 8 program. Some of the provisions included in this legislation would establish a thrifty voucher production voucher to be used in conjunction with new construction or substantial rehabilitation, permit the 40 percent cap to be based on gross income versus adjusted income, and allow public housing authorities to use up to 5 percent of the funds allocated for counseling, down payment assistance, rental security deposits and other activities that assist families in finding suitable housing to directly assist hard-to-house families. Through the public housing program, HUD gives grants to public housing authorities to finance the capital costs of construction, rehabilitation or acquisition of public housing developed by these PHAs. Title 5 of H.R. 3995 includes provisions that would relieve some of the administrative burdens for PHAs such as giving the Secretary of HUD the ability to waive the resident commissioner requirement, suspending the reporting requirement for small PHAs of 100 or fewer, and granting HUD the authority to investigate the feasibility of an alternative evaluation system to assess the overall performance of a public housing agency. H.R. 3995 reauthorizes HUD's homeless programs through fiscal year 2004 and funds renewals of contracts through the housing certificate fund for one year at a time through 2004.In addition, it reauthorizes the Indian housing block grant programs, housing opportunities with AIDS and HOPE VI. Finally, H.R. 3995 includes reforms to the HOPE VI program that will allow eligibility for small PHAs. We are looking forward to all the witnesses' testimony today, and I want to thank all of you for being here. At this time, the Chair recognizes Ranking Member Velazquez for her opening statement. Ms. Velazquez. I just would like to note that I am not the Ranking Member on this subcommittee. It is Congressman Barney Frank from Massachusetts, but in light of the fact that a short notice was given about this hearing, he had a previous commitment. I will be reading my own opening statement. I would like to thank Chairwoman Roukema for holding this important hearing today and the witnesses for taking the time to share their expertise. The programs that we will be addressing during today's hearing are crucial safety nets for the most vulnerable among our population and we must ensure that as we move forward, we continue to meet the needs of the population they are meant to serve. Rental assistance programs, be it public housing, Section 8 or a program targeted to a special needs community such as the elderly, disabled or the homeless, are among the most vital programs administered by the Federal Government. They are the difference between families having a safe stable environment to call home and oftentimes living on the street. While I applaud the President's move to increase home ownership, it is imperative that we not lose sight of the fact that for many families it is simply beyond reach. I am troubled by implication that home ownership is the answer for all Americans when many of my constituents cannot afford low rent apartments. Making the leap to home ownership is not under the list of immediate priorities. Paying next month's rent is, and we need to ensure that they can afford to do that today. I was glad to see that the Chairwoman included in this bill a proposal that I had advocated to ensure the rights of Section 8 and have voucher holders remain in their homes. I believe this language is a good start and I look forward to working with her to ensure language matches the legislative intent. This bill contains several new proposals that, while aimed at increasing the availability of affordable housing, may have the opposite effect. Specifically I am eager to hear the witnesses' opinion on such items as the potential conversion of public housing to project base Section 8 and expanded ability of PHAs to engage in joint ventures. I believe it is important that the subcommittee knows what long-term impacts should we be expecting from such measures. Of particular concern to me is the fact that increases in worst case housing needs are greatest in urban areas and among working minority families with children. It is not enough to say that no child will be left behind. Actions must support the rhetoric. Yet when parents are forced to work 2 or 3 jobs to afford safe, decent housing, both children and families are left behind. We cannot allow this to continue. It is difficult to imagine how the proposed shift from the current standard of rents not exceeding 40 percent of net income to gross income will make housing any more affordable. It may push many families one or even two steps back. In closing, while this bill looks to address an impressive range of housing issues, it is my hope that we can do all of them justice. The Chairwoman should be commended for taking separate days to address different programs and I hope that we will seriously consider the comments and suggestions of our expert witnesses before rushing into a markup that does not fully address the needs at hand. Thank you, Mr. Chairman. Mr. Green. Thank you. At this time the Chair would recognize Chairman Oxley, Chair of the Financial Services Committee, for any opening statement he may have. Mr. Oxley. Thank you, and I want to commend you Vice Chairman Green and Chairwoman Roukema for your hard work on the bill. We are here to discuss the Housing and Affordability for America Act. Under your leadership, this subcommittee conducted a series of hearings last year examining the affordable housing crunch occurring in many of our Nation's areas and the obstacles that kept too many families out of homes. The hearings outline many of the complex issues involved in addressing various affordable housing problems across the Nation, and this bill makes the strong step toward addressing those issues. Today we will hear from many experts on public housing, Federal role subsidies, homelessness and elderly and disabled housing initiatives as we face what some depict as a housing problem in high cost areas. It is incumbent we not only address the home ownership side, but the other housing support systems that assist families to pursue the American dream. In that light, reinivigorated public-private partnership initiatives provide the best opportunity for new affordable housing. Though we can be proud that American home ownership is at a record high of nearly 70 percent, we know there are segments of our population that continue to face challenges to owning a home. As well as being a community anchor, housing is a point of strength in today's economy. Low interest rates have made home ownership more feasible, allowing many first-time buyers to enter the housing market. Rates have also created a boost in refinancing, which frees up cash to go to other sectors of the economy. The shaky state of the stock market has made real estate investment increasingly more attractive. And on the rental front, affordable rents for working families provides a foundation for future home ownership and ultimately strengthens families and communities. Not only is home ownership a good equity investment and good for the economy, it is an investment in our local neighborhoods. It is critical to communities that affordable housing is within reach for all income levels and that home ownership is an attainable goal for any working family. Housing affordability is an opportunity that everyone deserves, and this bill will help to ensure it is an option for more American families. Today I want to welcome Mr. Thomas Slemmer of Columbus, Ohio, who represents the National Church Residences. Approximately 6 months ago I attended a ribbon-cutting ceremony in Mansfield, Ohio, in my congressional district for 50 homes brought to our community by Mr. Slemmer's organization. We are proud of your work in Ohio and look forward to your testimony today. And I would like to welcome another Ohioan, Ms. Terri Hamilton Brown, who is executive director of the Cuyahoga Metropolitan Housing Authority, which includes Cleveland. I understand that you have made significant strides in your short tenure. To you and to all of the witnesses on this panel and the next, we look forward to your testimony and expertise in helping craft legislation that truly brings the American dream to our constituents. And I thank the Chair and yield back. [The prepared statement of Hon. Michael G. Oxley can be found on page 278 in the appendix.] Mr. Green. Chair recognizes Ms. Jones for 3 minutes for an opening statement. Mrs. Jones. Thank you, Mr. Chairman, Chairman Oxley, Ranking Member on a number of my committees, Ms. Velazquez, and to my colleagues, to the members of the panel, good afternoon. I seek unanimous consent that my full statement be included in the record. Mr. Green. All opening statements will be made part of the record. Mrs. Jones. Owning a home is the most rudimentary element of financial independence and the beginning of a wealth creation process. Furthermore, purchasing a house means more than just a place to live and a good investment. Home ownership is an opportunity for a better life. For many Americans, owning a house can also mean collateral for a small business loan or be the first steps toward building a strong credit history. It is of vital importance that we ensure the ability of all Americans to have access to the resources that are required to realize this basic piece of the American dream. Chairman Oxley spoke to the fact of 70 percent of home ownership in this country. But the reality is it is less than 50 percent for African Americans and less than 50 percent for Hispanics. And as much as I support and push home ownership and wealth education and the fact that predatory lending has taken over many of our communities where home ownership used to be, I am as much concerned about those who will never own a home, those who want affordable housing and need the opportunity to be able to live in affordable housing and affordable rental housing, and that is why I am pleased to have an opportunity to be a part of this hearing and this subcommittee. We are here today to discuss the merits of the Housing Affordability Act of 2002. The intention of the act is to increase availability of affordable housing and expand home ownership and rental opportunities. Although I support the spirit of the legislation, we must make sure that we address all of the issues in full. An inadequate or flawed response to the problem will not suffice, is not enough for us just to say that we passed a piece of legislation that might help housing or affordable housing in our country. As legislators, it is our job to look at all the evidence that is before us and to make some decisions as we pass legislation that will do what we are saying it is going to do, and the only way we can to do that is go to the people who are in the know. Having served in many other capacities--and I know that sometimes you put legislation or you put an ideal at the top and it never sinks down to the bottom, it kind of floats on the oil. It is important that we, as we deal with this housing crisis in this country--and we do have a housing crisis, that we take care and make sure that we do the right thing at the right time to save all the people who are looking for us to be their safety net in this community. I have some more, but I will not read it, Mr. Chairman. I ask that the balance be included in my statement. And I need to say from my congressional district, our executive director is here, but I will wait until my time to introduce her, because I do not have any time left now. [The prepared statement of Hon. Stephanie T. Jones can be found on page 280 in the appendix.] Mr. Green. Mr. Miller of California, do you have any opening statement? Mr. Miller. Thank you, Mr. Chairman. We continue to discuss barriers that really preclude us from providing affordable housing, and they are so numerous. If you talk to builders who are trying to build houses, the approval process is so slow in many cases that they just cannot provide enough housing to meet the demands, and that is the situation we are facing today. And when you have more demand, as you know, than you have supply, you artificially increase the price of housing. And this morning I was meeting on a separate issue, which is going to impact affordable housing, and that is Canadian soft wood lumber. On May 2, there is a hearing on whether a 29 percent tariff should be placed on soft wood from Canada. That equates to about $1,500 in increased costs for housing if that happens. And the problem we face in this country is we do not provide enough soft wood to meet the demand. And if you look to some groups, they want to continue to shut our forests down, but we continue to decrease the amount of logging that occurs, thereby decreasing the amount of lumber we have to be able to provide housing. I commend the Chairwoman for taking this on. We have a problem that is just growing daily, and it is not just one sector causing it, it is an overall ballooning of problems that the industry has to face and costs they have to absorb in providing housing. And, therefore, we are continuing to meet and discuss a problem that we know is probably going to be worse next year than it is this year, and we have to get to the root of the problem. I know in many of your western States, Endangered Species Act is a huge problem. When your builders go in and buy properties that they think are reasonable to produce affordable housing, just to find out that some spider, rat or fly lives on them, and all of a sudden, instead of owning property that they can provide affordable housing on, they own a habitat, and they go through countless years of litigation and lawsuits and spending money on attorneys just to end up, by the time they are through, meeting exorbitant requests by agencies, and therefore the cost of the housing is so much, it is no longer affordable. I commend each of you for trying to provide needed housing for people at the low-income levels who really need housing, and it is incumbent upon us to look beyond that and say what is causing this problem. And I agree with Mr. Green and many other Members of this subcommittee who are looking to that. We are trying to figure how do we get to the root of the problem. We continue to look at the problem and just put a Band-Aid over it and it will get us by to the next week, but it does not resolve the problem that is causing the sore, and the sore is a lack of affordable housing because the demand far exceeds the supply. And I keep repeating it, but until we have a move-up market for people to move up to that is affordable, there is never going to be an affordable housing market because 59 percent of the people who want affordable housing have no place to use a Section 8 voucher especially in California. So I am looking forward to the hearing today. Mr. Green. Mr. Watt, opening statement? Mr. Watt. Thank you, Mr. Chairman. In the interest of hearing the witnesses and time, I think I will waive my opening statement. I did, however, want to commend the Chairwoman for having a witness that will focus primarily on the HOPE VI program and some of the concerns that several people have raised about that. When we started the reauthorization process to award reauthorization of HOPE VI, I wrote to the housing authorities in my congressional district and asked them to submit any comments they may have, and also wanted to ask unanimous consent to submit the responses that I received from the Greensboro Housing Authority, Winston-Salem Housing Authority and Charlotte Housing Authority to my request and ask unanimous consent to submit their responses about the HOPE VI program. Mr. Green. Without objection, so ordered. [The information can be found on page 293 in the appendix.] Mr. Watt. And I yield back the balance of my time and thank the Chair for allowing me to introduce the witness from my congressional district, but I will do that later. Mr. Green. Mr. Baker, opening statement? Mr. Baker. Nothing at this time, thank you, Mr. Chairman. Mr. Green. As we introduce our first panel of witnesses, the Chair reminds witnesses that they will have 5 minutes to provide an oral summary of their testimony. Their full written statements will be made part of the record. Since we will be having Members who will be introducing individual members of the panel, we will introduce each speaker right before he or she speaks. Our first speaker is Telissa Dowling. She is the president of the Resident Advisory Board of the New Jersey Department of Community Affairs. The board represents 19,000 voucher holders throughout New Jersey. Ms. Dowling also serves as a member of the board of the National Low Income Housing Coalition. Welcome, Ms. Dowling. STATEMENT OF TELISSA DOWLING, PRESIDENT, RESIDENT ADVISORY BOARD, NEW JERSEY DEPARTMENT OF COMMUNITY AFFAIRS, ON BEHALF OF NATIONAL LOW INCOME HOUSING COALITION Ms. Dowling. Good afternoon. Thank you, Vice Chairman Green and Members of the subcommittee. I am honored to be here today to testify about H.R. 3995. My name, once again, is Telissa Dowling and I am the president of the Resident Advisory Board New Jersey Department of Community Affairs. The DCA administers the 19,000 vouchers throughout the State of New Jersey. I am testifying here today on behalf of the National Low Income Housing Coalition. I am a member of the coalition's board of directors and I am representing its members nationwide who share the goal of ending affordable housing crises. We know that the intent of the bill is to expand both rental and home ownership opportunities and to make existing programs work better. As the subcommittee knows, housing affordability, availability are serious problems. Vouchers do help close that affordability gap by paying rents that would be unaffordable otherwise. Today, 1.5 million low income families are served by vouchers. Choice and mobility are important attributes of vouchers but, as you know, people in many places, people with vouchers are having a lot of trouble finding a place to live. The bill would let PHAs use 5 percent of their funds for improving voucher success. While we think this is a good idea, we think it should be limited to 2 percent and to PHAs meeting certain criteria so there is a connection between the use of the funds and the need. And if PHAs take advantage of the new policy, they should have to report it in their PHA plan. We also have a problem with increasing the tenants' portion of the rent to 40 percent of the gross income. This could make housing accessible to voucher holders, but it comes only at the tenants' expense. The tenant would pay even more of an already small income on rent and really suffer trying to make ends meet. One way to improve voucher success that does not come at the tenants' expense is to let PHAs increase their payment standards to 120 percent of the fair market rent without HUD's approval if they meet certain conditions. My written testimony includes some other suggestions for increasing voucher success. We are very worried that some of the changes proposed in the bill will stifle opportunities for tenant input and participation. These opportunities became law only 4 years ago with the enactment of the Quality Housing and Work Responsibility Act of 1998, known as QHWRA, where PHAs were given more flexibility, but were also made accountable to their tenants and communities. We stand firmly against the proposed waiver of the tenant resident commissioner requirement. Exceptions already exist to this requirement and the Secretary should not have broad waiver authority for this requirement. We also oppose the 3-year suspension of the filing of PHA plans by PHAs with less than 100 units. Without the planning process, PHAs are under no obligation to include tenants in their decisionmaking process. In addition, depending how the terms small public housing agency is interpreted, the 3-year suspension could include PHAs with fewer or no public housing units, but significant numbers of vouchers. For example, my PHA administers approximately 19,000 vouchers, but has no public housing units. There are also PHAs around the country with fewer than 100 public housing units, but many more vouchers. In my own experience as a voucher tenant and as the president of the RAB, the planning process has made the PHA take tenants into account. The PHA has been making changes without understanding their effect on tenants. But the PHA planning process requires PHAs to consider tenants and their needs. And we also have serious misgivings about the development- based subsidy proposal in the bill. We worry that an untested concept for private financing will not be able to make up a big budget gap in an already underfunded program area. We are also very concerned about the loss of actual public housing units permitted through this program. My written testimony describes our concerns about the HOPE VI program and provides our proposal for reauthorization. We think that the loss---- Mr. Green. If you could wrap up your testimony, I would appreciate it. Ms. Dowling. We think that the laws of the public housing unit will help big in the development-based subsidies for public housing and will undercut the goals of the production program in the bill and will put even more pressure on the voucher program. And my written testimony addresses some additional issues that I did not have time to discuss today, including expanding the ROSS and the FSS program, improving enhanced vouchers and other issues. Thank you again for the opportunity to speak with you today. [The prepared statement of Telissa Dowling can be found on page 381 in the appendix.] Mr. Green. Thank very much for your testimony. And you did well rushing at the end. Do not worry. Our next witness is Ms. Joan Walker Frasier. She is the President of the Atlantic City Residents Advisory Board in Atlantic City, New Jersey. She also serves as a State delegate for the National Organization of Public Housing Residents, ENPHRONT. Did I get that right? STATEMENT OF JOAN WALKER FRASIER, PRESIDENT, ATLANTIC CITY RESIDENTS ADVISORY BOARD, ATLANTIC CITY, NEW JERSEY, ON BEHALF OF ED WILLIAMS, PRESIDENT OF ENPHRONT Ms. Frasier. Good afternoon. My name is Joan Walker Frasier. I am a disabled resident of public housing in Atlantic City, New Jersey; President of the Atlantic City Housing Authority Advisory Board and, as you state, a State delegate of the National Organization of Housing Residents, and we are affiliated with 46 members around this country. I am testifying this afternoon on behalf of Mr. Ed Williams who is president of that organization and unable to be with us today. I would like to first say greetings to Members of the subcommittee. ENPHRONT believes that the basis for well run public housing is not only about sound brick and cement, but also deep, sustained and meaningful participation by residents in shaping all aspects of a public housing agency's policies. To this end, ENPHRONT strongly opposes the provisions of H.R. 3995 that will waive the requirement that housing authorities appoint residents to their governing boards if they make their best efforts to do so, but fail to comply. When the Resident Commission Mandate was enacted in 1998, residents nationwide celebrated. The requirement marked a fundamental shift from the Federal Government's earlier policy of simply encouraging housing agencies to appoint resident commissioners. The requirement was also thought to be a necessity, given the fact that the Nation's 2200 housing agencies have been deregulated by the 1998 Public Housing Reform Act. And it is against this backdrop that we believe the provision in H.R. 3995 to be both harmful and unnecessary. Housing agencies have already been granted significant regulatory relief from the requirement. First, under current law, housing agencies can be exempted from the requirement if they first satisfy a few basic conditions. Second, when HUD released its proposed rule on resident commissioners in June of 1999, the draft rule required housing agencies to appoint resident commissioners within a set timeframe. Housing agencies immediately fought against the implementing schedule of the requirement, citing the complexity of local, political environments as the reasons for not being able to appoint resident commissioners within that timeframe. In response, HUD later published a final rule allowing housing agencies to appoint resident commissioners without a set deadline. Though the resident commissioner mandate remained intact, the final rule allowed the Nation's housing agencies to move at different speeds in complying with the requirement. It has been over 3 years since the enactment of the law on resident commissioners. ENPHRONT believes that by now the majority of the Nation's housing agencies should have done all necessary to make residents serve on governing bodies a reality. ENPHRONT also opposes an H.R. 3995 that would exempt small housing agencies from having to submit annual plans for the next 3 years. ENPHRONT questions the need for such a waiver provision. Under current rules, small housing agencies already submit to HUD's streamlined annual plans. Furthermore, HUD has the power to further simplify the format of planned submission. Why eclipse this provision and the relief provided by it with a 3-year waiver provision? Indeed, ENPHRONT does oppose the waiving of the annual plan requirement for small housing agencies, but on the other hand, we are willing to discuss ideas for further simplifying the process. In discussing these ideas, we are in no way in support of stripping away or watering down on resident participation policies currently in place. These policies include Resident Commissioner Mandate as a requirement that the housing authorities establish and provides support to resident advisory boards. On behalf of ENPHRONT and the millions of public housing residents nationwide, I thank you for this opportunity to testify before this subcommittee and look forward to working with you in the future. Thank you. [The prepared statement of Joan Walker Frasier can be found on page 376 in the appendix.] Mr. Green. Thank you very much for your testimony. Our next witness is Mr. Kevin Marchman, who is the Executive Director of the National Organization of African Americans in Housing, a non-profit organization here in Washington, DC. He has over 24 years of experience in the public housing field, having served as Assistant Secretary for the Office of Public and Indian Housing at HUD and as Executive Director of the Denver Housing Authority. Welcome. STATEMENT OF KEVIN E. MARCHMAN, EXECUTIVE DIRECTOR, NATIONAL ORGANIZATION OF AFRICAN AMERICANS IN HOUSING, WASHINGTON, DC. Mr. Marchman. Thank you. Members of the subcommittee, my name is Kevin Marchman and I am the executive director of NOAAH. I want to thank you for the opportunity to comment upon this bill. Like you, NOAAH is a champion of affordable housing opportunities for all people, especially people of color. NOAAH's membership is a unique combination of public housing agencies, including executive staff, housing professionals, consultants, contractors, industry trade groups and resident groups and other advocates. Indeed, as a former public housing resident and public housing director and assistant secretary, I have the vast pleasure of leading an organization that has the diversity and the experience to look at issues, programs and legislative initiatives from many perspectives. And while the subcommittee is interested in NOAAH's views on certain public housing issues relative to this bill, I would like Members to be aware that NOAAH's advocacy extends beyond simply those issues highlighted today and includes initiatives and programs targeting environmental and health issues, specifically lead, mold and pests, expanded home ownership for minorities, economic development for the low income, fair housing, especially increased penalties for predatory lending, the aggressive disposition of the FHA portfolio, the HOME program expansion and other opportunities on behalf of our diverse membership. And while our members often find themselves on competing sides of the same issues, all are committed to expanding opportunities for African Americans and other disenfranchised minorities. Four things with respect to public housing: The leveraging of public funds. This proposal in the bill will allow housing authorities mixed use of private and public financings to rehabilitate and modernize public housing developments. We believe this is a good thing, but there are some kinks. We have to make sure that this particular proposal safeguards the public housing stock in this country. The waiver of the resident commissioner requirement. NOAAH supports this waiver, but only in terms of where State laws preclude the requirement. The HOPE VI program. The HOPE VI program is probably one of the more successful programs that HUD offers, and for the last 10 years in the majority of the cases, it worked well in communities in which it has been implemented. It is not perfect, and I believe between working with Congress and the Administration and members of the public, this particular program can be made much better. Fourth, the suspension of the filing requirements for public housing authorities for 3 years. Good idea, but it is a bit short. We believe it should be at least 250 units. However, any suspension of the requirement must not preclude the active involvement and participation of public housing residents. There are others, but I will let my written statement stand. As I said, NOAAH is a housing advocate for all people of color. Our members are assisting NOAAH staff with identifying, creating and developing programs to increase affordable housing stock in this Nation. NOAAH's membership is constantly documenting best practices, designing initiatives using technology to improve the quality of life in identifying opportunities, public and private, for expanding availability of the affordable housing stock and improving the quality of life for the low and moderate income. Thank you very much. [The prepared statement of Kevin E. Marchman can be found on page 371 in the appendix.] Mr. Green. Thank you for your testimony. At this time the Chair recognizes Ms. Jones for an introduction. Mrs. Jones. Thank you, Mr. Chairman. It gives me great pleasure to be able to introduce to this subcommittee and other members of the panel and those listening to this testimony the Executive Director of the Cuyahoga Metropolitan Housing Authority, Terry Hamilton Brown. Prior to becoming the executive of one of the largest public housing authorities in this Nation, Ms. Brown served as the Director of the Department of Community Development for the City of Cleveland, and it was under her leadership that the Housing Construction Office was created. As well as under her leadership in the City of Cleveland we have built more housing in the City of Cleveland in the last 12 years than there was built in the City of Cleveland from the Korean War. And it was under her leadership that that was done. She is responsible for more than 1,100 employees as director of CMHA. In addition to all the work that she does, she serves on the boards of the Urban League, Shore Bank, University Hospitals of Cleveland and the Greater Cleveland Roundtable. She is a graduate of MIT and the University of Chicago, is a native Clevelander, and resides down the street from me. So it is a great pleasure that I introduce the Director of the Cleveland Metropolitan Housing Authority. And just one liberty to all the other witnesses as well as the second panel, this event was scheduled for another day and I am in the midst of strategic planning with my congressional staff, and we do not get that opportunity very often. So if I slip out, it is not that I am not concerned about what you are doing. I can read very well and I will keep up, and I thank you, Mr. Chairman, for the opportunity. Mr. Green. Ms. Hamilton Brown, welcome. STATEMENT OF TERRI HAMILTON BROWN, EXECUTIVE DIRECTOR, CUYAHOGA METROPOLITAN HOUSING AUTHORITY, CLEVELAND, OHIO Ms. Brown. Good afternoon, Vice Chairman Green, Members of the subcommittee, and to my neighbor and Congresswoman, Stephanie Tubbs Jones, thank you for the kind introduction and thank you for the opportunity to testify before you today on behalf of the Council of Large Public Housing Authorities. In the time allotted I would like to highlight four points of my written testimony, and key to my comments and of most concern is adequate funding. No program or provision in this bill can be successful without adequate funding. First, thank you for proposing the reauthorization of the HOPE VI program. HOPE VI has proven to be successful at transforming distressed public housing and having a substantial impact on the surrounding communities. I support the provision of the bill to facilitate redevelopment needs of small housing authorities, but stress that targeting distressed properties must remain a primary focus of the program. Coming from Cleveland, being one of the first housing authorities created in the country, CMHA has a housing stock that was built in the 1930s and early 1940s. It is functionally obsolete and in some cases beyond modernization. In Cleveland we estimate that 21 family units are or will be eventually candidates for HOPE VI grants. As to the HOPE VI, my recommendation is to create a two- track grant-making system, one track that continues to provide large grants to the most severely distressed properties and a second track that would focus on smaller redevelopment projects that require other grants and work with small housing authorities. Next, related to the private debt financing strategy for public housing included in this bill, it appears that it is proposed that the expense of full funding of the capital fund program could limit the potential of private investment and could lead to opt-outs in public housing. As I see it, a successful private debt financing strategy needs to do three things. It needs to ensure adequate Federal funding, leverage private resources, and protect public housing units. This bill accomplishes only one of these. The provisions giving HUD the authority to remove low income use restrictions on public housing property in the event of foreclosure is of particular concern as it places public housing units at risk and in danger. This could result in additional loss of low income housing in many communities like Cleveland that have already experienced numerous HUD-insured property foreclosures. The debt financing model included in this bill takes away resources from the capital fund and does not necessarily recognize that public housing authorities are already using capital funds to leverage millions of dollars. While we appreciate additional development tools, we do not ask for it at the cost of capital funds and the loss of public housing. Third, the supportive housing for elderly provision in the bill does not include the conversion of public housing into assisted or supported housing. With nearly 700,000 seniors living in public housing, public housing authorities serve more seniors than any Federal housing program and should be included in this bill. In Cleveland we created a program called the Manor at Riverview. It includes 69 units of supportive housing and a health clinic through modernization efforts of a large elderly highrise. Our experience shows that it takes a huge investment in capital improvements and significant operating dollars to keep the ongoing personal care and health services as well as to fund social service coordinators. It is quite challenging finding the resources to make this affordable to very low income families. Additional Federal assistance is needed if we are going to support seniors and public housing, avoid premature shifts to nursing homes and save Medicaid funds. To that end, CLPHA is renewing its Elderly Plus proposal. This initiative would create a demonstration of $100 million of competitive awards for public housing authorities, both large and small, for innovative conversions of obsolete buildings. This would allow our seniors through Elderly Plus to remain and age in place and create equal access for supportive living environments. Lastly, related to the Section 8, the provisions in the bill we support. However, there would be an additional comment to add flexibility and improve utilization in tight real estate markets. While CMHA has moved from a troubled to a high performer and we have high utilization, that is not always the case for my colleagues in tight real estate markets. Despite good program management, people are having difficulty using the vouchers if there is a shortage of rental and affordable housing in their marketplace. We believe many of the Section 8 enhancements in H.R. 3995 will provide for better utilization, especially the provision that would assist hard-to-house families, and the simplification of rent calculations. The details of my recommendations related to that is included in the testimony. In conclusion, CLPHA members remain committed to providing quality housing for low income families. H.R. 3995 provides opportunities and tools to assist public housing authorities in carrying out our work but, I repeat, no program can be successful unless it receives adequate funding. Your efforts to provide policy guidance and increased resources for public and assisted housing is critical to ensuring that low income Americans can have access to safe, even affordable housing, both rental and home ownership. [The prepared statement of Terri Hamilton Brown can be found on page 357 in the appendix.] Chairwoman Roukema. [Presiding.] Thank you. I did not hear your whole testimony, but I am sure this whole panel is very constructive, and we will move along together to be constructive to get a good bill. But I do want to apologize to everyone for not being here on time, although I was on a delayed AMTRAK train from New York and New Jersey, not, however, the one that I understand was crashed this afternoon. No. We were just delayed and I am sorry for that and I regret it, and I do thank Congressman Green for sitting in for me and helping me, and I can assure you that we will go over in great detail all your testimony, and I thank you all. I understand that you all have been very compliant about conceding to the time limits here, because we not only have this panel, but a second panel to go through. And with that, I believe Mr. Baker would like to introduce his friend and colleague and authority from Louisiana. Mr. Baker. Thank you, Madam Chairwoman. I appreciate that courtesy and do wish to extend a welcome to Mr. Hans Dekker, who is not only a constituent, but a very distinguished leader in our community and State in bringing innovative thought to providing housing to those who need it. I think his experience in directing the Baton Rouge Area Foundation, which is one of the top 10 in the country as far as generating assets for quality housing, is very admirable. Prior to that 3-year stint, he, of course, was the director of the local initiative support corporation, known as LIST to most of us, for some number of years. So I am particularly pleased to have his testimony before the subcommittee, Madam Chairwoman. I think you will find him to have particular good insight and helpful recommendations. STATEMENT OF HANS DEKKER, BATON ROUGE AREA FOUNDATION, BATON ROUGE, LOUISIANA Mr. Dekker. Thank you, Madam Chairwoman, and I would like to recognize and thank Congressman Baker for his commitment to housing in neighborhoods in East Baton Rouge Parish. He has been a true leader in building a community-wide strategy to address our most pressing needs. HOPE VI is one of the most important community tools in the Nation. It represents one of the only very large focused investments available to revitalize distressed public housing and its surrounding neighborhoods. The private market, to a large extent, has left America's toughest neighborhoods and it is an important and vital role for the Federal Government to serve as a source of funding for revitalization. HOPE VI has and should continue to do this. The changes to the HOPE VI program proposed in H.R. 3995 are needed and timely. HOPE VI has always devoted most of its resources to help the most largest, most troubled public sites in the country. This policy has meant that much of the HOPE VI funding has benefited only the largest cities in the Nation. In fact, almost 50 percent of the HOPE VI funding for the year 2000 has gone to 13 different housing authorities. While targeting the largest, most troubled public housing sites was a deliberate policy objective at the beginning of HOPE VI, since 1996 the program has supposed to have been available to a wider swath of authorities. Unfortunately the bias for large cities and large public housing sites has continued in the program. It is biased in two fundamental ways. First, the way the funding is allocated greatly benefits large public housing authorities with large housing sites. Second, the funding and selection criteria that HUD uses are biased to large cities. This bias is ironic, because HOPE VI is really intended to reduce our Nation's stock of distressed not necessarily large public housing units. The fact is that in each of Baton Rouge three HOPE VI applications, they were awarded the maximum points for the distressed nature of their units for which they were applying. However, because of the bias in the allocation of funds toward larger public housing sites and, by extension, large cities, the distressed nature of sites is overwhelmed in the scoring process by the size of the complexes and the units. This bias exists despite the fact that in small and medium sized cities, especially in the southern United States, we have some of our Nation's highest rates of poverty and neighborhood distress. Let me use Baton Rouge as an example. The median household income in the 5 census tracts that make up the immediate neighborhood around the sites targeted in our HOPE VI application is between $5,000 and $11,000. The average net income for public housing residents in our HOPE VI application is $3,400. 25 percent of the land in the immediate neighborhood is vacant and/or abandoned. This poverty and abandonment translates directly into high levels of crime and disease concentrated in our most distressed neighborhoods. For the year 2000, Baton Rouge was ranked sixth in the Nation for crime rate. Our level of violent crime was twice the national average and Baton Rouge has the twelvth highest AIDS case rate per capita in the Nation among our major metropolitan areas. Simply put, we have great need, too. The 2001 HOPE VI awards exemplified the bias to large cities or public housing sites. Of the $540 million HOPE VI budget, 225 million was set aside for projects with 300 or more units at one site. If these large site applications were not funded from the site, they were automatically placed in the application pool for the remaining 265 million. A smaller applicant like East Baton Rouge with 171 units totaled between two sites could only compete in the second highly competitive pool of funds. As a result, only three sites in 2001 with less than 300 units were funded. These sites received just under 12 percent of the HOPE VI funding in 2001. Additionally, more awards were made in 2001 to housing authorities which have recently appeared on HUD's troubled housing authority list. This support for troubled housing authority has had predictable results, many of them being unable to execute their HOPE VI grants successfully. The support for troubled housing authorities is especially exasperating when you look closely at the scoring criteria for HOPE VI applications. One of the areas for which East Baton Rouge's most recent application lost points is the lack of experience and capacity of our housing authority to implement the grant. However, our housing authority is not classified as troubled; has acquired high quality assistance in the preparation and implementation of its grants and has successfully managed large scale HUD modernization grants; and has obligated funds in a timely and effective manner as required. There are numerous other technical aspects of the program that perpetuate a bias against small public housing sites that I have detailed in my written testimony, but the major point I would like to leave with you is that it is needed and timely for the HOPE VI program to open its funding and selection to all public housing authorities on an equal footing. Thank you. [The prepared statement of Hans Dekker can be found on page 364 in the appendix.] Chairwoman Roukema. I thank you. That was a very excellent testimony, right to the point, and you did it within the timeframe. Thank you. Mr. Harry Byrd. I believe, Congressman Watt would appreciate introducing you as one of his North Carolina representatives. Mr. Watt. Thank you, Madam Chairwoman. I want to thank the Chair for allowing two witnesses to talk about the HOPE VI program and for also giving me the opportunity to introduce Mr. Harry Byrd, our final witness on this panel, who is currently a Principal in The Harkin Group, a project management and consulting firm, and previously the Senior Vice President and chief Operations Officer of the Housing Authority of the City of Charlotte, North Carolina. In that capacity, he had a number of things under his supervision. Most important for our purpose today was the HOPE VI program at the Charlotte Housing Authority. And since he has left the Charlotte Housing Authority and formed his own consulting group and project management group, he has continued to consult not only with the Charlotte Housing Authority, but with other housing authorities which are implementing HOPE VI grants. He knows the successes and the shortcomings of HOPE VI, and I think it is important for us to hear both successes and problems, and we welcome him here today from my congressional district, Mr. Harry Byrd. STATEMENT OF HARRY A. BYRD, JR., PRINCIPAL, THE HARKIN GROUP, LLC, HUNTERSVILLE, NORTH CAROLINA, ACCOMPANIED BY JOHN KENNEDY Mr. Byrd. Thank you. Good afternoon, Chairwoman Roukema and other Members of the Subcommittee on Housing and Community Opportunity. My name is Harry Byrd, principal of The Harkin Group. With me today is John Kennedy, also a principal. On behalf of the company, I thank you for the privilege of addressing this subcommittee today and sharing with you some of our experiences and what we have learned as a result of working with the HOPE VI program over the last 9 years. The Harkin Group has been involved with the HOPE VI program since it was first introduced in 1993. Currently we associate it with HOPE VI as private consultants. Obsolete public housing sites that are redeveloped under the HOPE VI program are transformed from communities of isolation and hopelessness into viable self-sustaining neighborhoods of opportunity and vitality. The true intent of HOPE VI can be accomplished. However, we have recognized that there are strategic areas of this program that should be improved to afford housing agencies the opportunity to better accomplish the overall goals established by the program. Of major concern to us as well as to proponents and opponents of HOPE VI alike are a number of original residents of the public housing site who returned to the revitalized community. There are a number of reasons that this number may be lower than desirable. The design of HOPE VI communities seeks to decrease the concentration of poverty in a specific geographic region by decreasing density on the public housing site, resulting in decreased public housing inventory. Fewer units result in fewer residents that can be accommodated. Based on our experience, housing agencies are replacing from 35 to 50 percent of HUD-subsidized housing units lost through HOPE VI demolition revitalization. To combat this impact, it is necessary to strengthen the requirement for the development to ensure increased financial commitment on the part of the public and private sectors. This action would provide necessary resources to increase the boundaries of the revitalization area beyond the mere footprint of the public housing site itself, thus allowing an increase in the number of units developed. Currently, there is no requirement for one-for-one replacement of public housing units lost to HOPE VI development. While we realize that one-for-one replacement is difficult to achieve, a greater commitment toward achieving this goal should be emphasized in the requirements of the program. Typically, public housing residents living in a development targeted for HOPE VI revitalization are relocated prior to commencement of demolition and construction. It has been our experience that the timeframe between residents being relocated from the site and new housing units being developed that allows them an opportunity to return can be anywhere from 3 to 5 years or longer. Specific examples are cited in our written testimony. This time span alone can cause residents to be become frustrated and disillusioned with the program and choose not to return. Reducing the period between the time residents are relocated and the time they can return to the site can have a positive effect on the number of residents returning. One way to accomplish this is through comprehensive, up-front planning that ensures the housing agency is ready to begin immediately upon grant award. The greater degree to which all components are developed and in place, the greater degree of speed and efficiency in which they can be implemented. Along with involvement of residents at the outset, it is imperative that public housing agencies provide good tracking and monitoring of residents during redevelopment. PHAs must provide adequate follow-up and supportive services to keep residents involved in the redevelopment process and working toward their eventual return. In instances where this is lacking, many original residents who were displaced from the site are lost. Of foremost consideration in the HOPE VI programming and implementation are the residents for whose benefit the program was conceived and designed. Community and supportive services must be in place early on that include activities designed to help residents make smooth transitions into their new living environment. It is incumbent upon housing agencies to develop comprehensive transitional housing programs that provide the necessary support, training and resources through case management in assisting families to be prepared to return and to move toward self-sufficiency. Design and programming for build-out of the site should include economic strategies that will provide sustainability of these communities going forward. If the mix that is typically recommended by HUD can be achieved, then the economics of the project will define the level of private sector participation required to ensure sustainability. Another important element is the attraction of market-rate development and reinvestment back into the community by fostering public/private initiatives to change long-standing perceptions. Just as critical is the level of participation and commitment from local government. Although the program is funded through local housing agencies, local government buy-in and commitment of resources are essential to securing HOPE VI funding and to the long-term success of the program. The return on investment for these stakeholders is realized in the form of an increased tax base and elimination of revenue distressed and revenue-draining communities. Moreover, HOPE VI revitalization serves as a catalyst for economic and other development efforts in the city that may not otherwise occur. Chairwoman Roukema. Mr. Byrd, can you summarize and conclude please? Mr. Byrd. HOPE VI programs are very complicated and quite different from other capital improvement programs that many housing agencies have undertaken. Earlier program requirements call for housing agents to have program management in place to enhance capacity and to protect the interest of the PHAs as necessary. That requirement has been dropped. As a result, many housing authorities are left without capacity. If we can implement HOPE VI programs consistent with the requirements and guidelines established by HUD, we will build better communities that include senior housing, homeownership and family housing--neighborhoods that have been targeted into the broader community and include a true mixture of affordable, market rate and subsidized housing. In our opinion, the HOPE VI program was well-conceived and has provided many opportunities to public housing agencies and the residents they serve. We strongly feel this program should be continued. And I apologize for extending my time. [The prepared statement of Harry A. Byrd Jr. can be found on page 346 in the appendix.] Chairwoman Roukema. That is all right. Fine. I thank you for everyone's cooperation, and recognizing that I was late to begin with, but I will ask all my colleagues, in consideration of the number of people that we have here, that we are able to get through this first line of questioning. We will begin with Mr. Green. Mr. Green. Thank you, Madam Chairwoman. Let me begin with Ms. Dowling and Ms. Walker Frasier. You both expressed some concerns over the suspension of planning requirements for small PHAs and the waiver of the resident commissioner requirements. Can you offer some thoughts on how we can achieve the goal of regulatory relief for small PHAs and sort of ease the regulatory burden and the paperwork burden while still maintaining tenant access? Ms. Dowling. Yes. That is very simple. Because when the CORA went into place back in 1998, when it was mandated, all the hurdles that we had working out the PHA plan was addressed; and most of the housing authorities that are in good standing actually are allowed to submit a streamlined version of the PHA plan. So it is not like you would have to go every year and reinvent the wheel. It is just that you are going to plug in different components throughout the year. So that's why it is very difficult for us to understand why would small PHA plans--housing authorities have problems with submitting this plan when HUD gives it to you over the web, HUD gives you the opportunity to even have it streamlined from the beginning? So it is already there. We are just asking to use it. Mr. Green. So you don't see a need for regulatory relief I guess is what you are saying? Ms. Dowling. Maybe I am not clear what you are asking me about regulatory relief. Mr. Green. I guess what I am taking from your response is that you don't believe that PHAs do have a problem with onerous paperwork requirements they are filing. Ms. Dowling. No, not at all. Mr. Green. Ms. Walker Frasier. Ms. Frasier. I don't understand myself what the particular small housing agencies are telling you what their problems are. Because of the 18 components, then why not look at streamlining those requirements that they have to face? If they are talking about there is too much information being asked from them, then the requirements made by HUD need to be looked at. Mr. Green. I guess, Mr. Marchman, I would like to get your response. I know that your organization is in favor or at least supports the resident waiver--commissioner requirement being waived. Ms. Frasier. No, I am sorry. Mr. Marchman. On the onset of public housing authorities developing these plans, I think it was about 4 or 5 years ago, perhaps in a hearing like this, the then secretary of HUD, in response to a question from a subcommittee Member, talked about the lack of strategic planning for public housing authorities. We spoke about it a lot, and the criticism was that PHAs simply did not do a good job in planning for the future. The PHA plan was created, I submit to you, for large, medium and small--it is too much information, information that HUD does not read and does not have the capacity to do anything meaningful with. If you look at even the smallest housing authorities, some of which I work with, those 18 points just don't get to the issues of how to run and plan for a well-run public housing agency. That does not preclude, however, the very strong need to have involvement of residents and other community members in the planning of that housing authority. I think that is crucial. Indeed, I would say that public housing agencies have become much more well managed in the last 10 years, particularly in the last 5 years, and due to residents being on boards of commissions. But the PHA plan is too much for smaller housing agencies, and they spend too many of the resources in putting those things together, giving it to HUD, HUD's simply approving it and filing it away. Mr. Green. Do you have other ideas for easing the paperwork and regulatory burdens that you might want to share? Mr. Marchman. I think there are probably four or five crucial areas that smaller public housing agencies could submit to HUD that would suffice for the 18 they currently submit. I think they can be submitted either over the web or paper into the local offices; and they will simply cover the areas of operation, management, relationships with residents of the community, exactly what you plan to do with the funds that you are receiving from the Federal Government. Not much more needs to happen, but it has to have the involvement of everybody, specifically residents who sit on the board. Mr. Green. I would invite you to supply some written information to us on that. That would be very useful as we go about this process. Thank you. Thank you, Madam Chairwoman. Chairwoman Roukema. Thank you, Mr. Green. Congresswoman Velazquez. Ms. Velazquez. Thank you, Madam Chairwoman. Ms. Hamilton Brown, I agree with the concerns voiced in your testimony regarding the project-based private debt financing strategies. Specifically, I am concerned about the potential to cause long-term problems through the gradual phasing out of publicly assisted rental housing. You mentioned the need to ensure the preservation of these units for low-income families. Would you please expand upon this, and also what strategy would you advocate? Do you believe it is possible to maintain this housing while leveraging private funds? Ms. Brown. My concern as the provisions are laid out in the bill that it would give HUD a lot of authority to waive the use restrictions. So while we believe that we should be able to use capital funds to leverage private dollars to expand the amount of financing and development, more production, my concern is, in the case of foreclosure, if the authority goes to HUD that we could lose public housing units to the market and that the housing authorities, whether directly or through partnerships, should have more control in developing that financing structure. The other concern that I have is that this is too strict, and it sort of implies that all markets are the same and that I think we need to learn more how financial markets across the whole country, not just in certain tight real estate markets, will respond to that and that additional study needs to be looked at in other ways to generate private dollars. However, the point is that, as a tool, we need to provide leveraging. We certainly know that Federal funds by themselves won't do it, but the security measures and the structure need more work. Ms. Velazquez. Thank you. I was happy to hear you address the issue of PHAs getting back into the housing production business. I believe that, at the very least, we need to create an exemption from the prohibition on public housing production for high-performing authorities in tight markets. Would you support such a proposal, and what effect do you believe such a proposal would have on housing affordability in these markets? Ms. Brown. Absolutely, I would support it. In fact, in Cleveland, though it's not with public housing moneys, we have received upgrade grants for foreclosed properties in the past, and we are using those in a partnership with a local non-profit to produce more affordable housing units. In effect, the housing authority is creating product that the market will not create. So I think it will enhance our ability to serve more low-income families in those markets. Ms. Velazquez. Thank you. Ms. Dowling, the house voucher right to remain language is of particular interest for me. In fact, the language, as it currently exists, was an initial draft of a bill that I intended to introduce. However, the language was not quite as tightly drafted as I would like. We have held off. For this reason, I appreciate your concern about the drafting of the language as it exists in the bill. How specifically would you want to see it altered? Ms. Dowling. Can I give you that more in writing? Because we did sit down and come up with a proposal and I wouldn't want to not give you all that we have right now. We do have it in writing. Ms. Velazquez. So I will work with you and my staff. Thank you, Chairwoman. Ms. Dowling. Thank you. Chairwoman Roukema. Yes. I hear your concern about that, and certainly my intention is to go into this in more depth. Certainly your goal is a proper one, and we should be able to work this out, but we don't have all answers here. So, Ms. Dowling, we New Jersey people should be able to resolve this problem. I should acknowledge the fact that both Ms. Dowling and Ms. Frasier are from New Jersey, and we appreciate their leadership. Ms. Velazquez. So we should work with the Low Income Coalition on the language. Thank you. Chairwoman Roukema. Yes. Thank you. Mr. Ney, Congressman. Mr. Ney. Thank you, Madam Chairwoman. By the way, I want to welcome all the panelists, especially those of you from Ohio. HOPE VI was enacted to provide relief to severely distressed public housing authorities where developments were beyond repair, and the hope was that new development funds could be used to revitalize community neighborhoods. We all know that purpose. Do you think it has met its objectives? Also, how do we address displacement where public housing money is used to redevelop, that maybe less than 50 percent of the tenants would return? Anybody on the panel? I was just curious what you think. Ms. Brown. I will start. Yes, I think HOPE VI is showing that it is successful. There is just not enough funds to address all the severely distressed properties, as I noted in my testimony. The age of our housing, too. While we have received three grants and we have completed some components and are under construction with others so it is very fluid, the three grants don't begin to really address all of our needs. Cleveland is a little different in that, for the grants we have received, we are replacing almost all of the housing. The only areas we haven't is where we had efficiencies or one bedrooms where we already have that kind of inventory, but the real need for us are the three and larger bedrooms, and we have replaced them maybe not always on site, but using other land in the community. Working with the city, we have replaced it with off-site development. So that's not exactly our condition. Mr. Ney. The same within my area in eastern Ohio, we haven't had a particular problem. Is there anybody on the panel who has had a similar situation? Ms. Dowling. Yes. Telissa from New Jersey. With the HOPE VI, one of the major problems is finding out exactly what do you mean by severely distressed. Because now you have housing authorities that are allowing the property to really become terrible in order to qualify for the HOPE VI funding, and that is not the intent of what HOPE VI was supposed to be about. Also, under the HOPE VI, the problems that we are having, the housing authorities even adhering to the Uniform Relocation Act, as far as helping the residents that are being relocated pending the new apartments that are coming, find decent and affordable, safe housing, they are giving them the vouchers that are not being able to be utilized and are just throwing them over to the voucher program and saying, do what you got to do until we are able to build something. But, in the meantime, they are building it, and they are building it not for that resident in mind. Because that could be an extremely low-income resident, but now they are building mixed-income residences where that extremely low-income resident cannot return with HOPE VI the way it is now. We understand intent, and that is why we also have something in writing to submit to the panel in reference to strengthening the HOPE VI program to really make it more effective for everyone and not just displace poor people and put mixed-income people in there. I know they have a problem finding rent, also, but I can give you an example in the State of New Jersey that we have an executive director of a housing authority making $90,000 and living in public housing. That is a problem. That is a problem. Mr. Ney. I would agree with that. If I have the time left, one quick question. There has been some concern that the Section 8 contract renewal situation will eat up the HUD budget. I just wondered, and if I run out of time, any creative ideas you can submit. I know you can tell Congress the answer is to put some more money in, but maybe there are some things we are missing. In Ohio, we try to do some housing trust programs and come up with creative ways, and I am sure there are examples around the country, but we are missing something as a Federal Government. So if you have any ideas--I don't want to take the chairperson's time, but I would appreciate it. Chairwoman Roukema. You have one more minute. Go ahead. Ms. Frasier. One of the biggest problems I am finding, at least even in New Jersey with the HOPE VI program in Atlantic City itself, is that they are building these houses under HOPE VI, but they are not all designated for public housing residents. So now you have got 600 units you are building, and you are displacing 214 people, but they are not all coming back. You have not built anything to put them into, so where are they going? It is easy to say we will give them vouchers, but if you know the area of Atlantic City, affordable housing with vouchers is not always possible, and everyone cannot just relocate. Ms. Dowling. I am sorry. I will give you that in writing in reference to how to make the Section 8 work better. Mr. Ney. I would appreciate it, and also if there are any stats that you could give the Chair. Ms. Dowling. Yes, we do. Mr. Ney. Also, if anybody has done post interviews, where these individuals have gone to that they could not get back into the system. Ms. Dowling. Oh, yes. Mr. Ney. Thank you. Chairwoman Roukema. Congresswoman Jones, I believe you were the next to arrive. Mrs. Jones. Thank you, Madam Chairwoman. In your absence, we all complimented you on hosting this series and bringing us an opportunity to address this. Ms. Hamilton Brown, in your written testimony at the last page you said that, despite the important role of public housing and serving the neediest families, there is also a statutory bar to the development of incremental or replacement public housing. Can you speak to that issue briefly for me, please? Ms. Brown. Right. This is the requirement or the inability to do one-for-one replacement housing, and it is really lack of funding. As the two persons speaking before me are saying, there really is a need to replace public housing as you are doing HOPE VI to return residents to their home. And without having adequate funds or tools to leverage more dollars, maintain the units as public housing, we really are not creating more housing. We are just shuffling, I imagine, and putting people in other places. So not every property maybe requires one for one. So you have to find what is the appropriate mix for the locality. As I answered before, we don't have a strong demand for efficiency so as we demolish any of our units that were of that size, we don't replace them. But for the larger bedrooms, three and more, there is absolutely a need to replace each unit in the market, at least in our area, as you well know. Mrs. Jones. Talk to us about some of those programs that you worked on with the City of Cleveland and other private ownership as some innovative ways to replace some of the housing that is lost as a result of the inability to replace units. Ms. Brown. In Cleveland, we use block grant dollars as well as home dollars for housing production, affordable housing, whether it is in a housing trust fund that is locally established to provide gap financing with developers as well as non-profits. In effect, this past year was the first time the public housing authority has received a grant of moneys from the City of Cleveland. We are using home dollars with one, our Carver Park HOPE VI to help us meet the need for the number of units that we want to replace. We are also using moneys through the city's empowerment zone to help make housing more affordable in our mixed-income development. So those are the ways that our city is using moneys for affordable housing. Mrs. Jones. Let me ask you one additional question or a couple until my time runs out. In H.R. 3995, as proposed, I believe it allows for only 2 years of assistance for families. Can you tell me, based on your experience, whether a 2-year period of time is a sufficient time for families to be able to--rental assistance dollars, are they able to adjust? What have you found to be the appropriate period of time for them? Ms. Brown. Related to? I am sorry. Mrs. Jones. That is a good question. I don't know all the background on it, but---- Chairwoman Roukema. Excuse me. I am wondering what the 2- year period is that you are referencing. Mrs. Jones. I am using a question that somebody wrote for me, and I don't know. So I am going to withdraw that question and go on to something else. Chairwoman Roukema. All right. Withdraw it, and then if you review it and if you want to come back later. Mrs. Jones. I appreciate it. Can you tell me what are the dangers of basing rent calculations on the average median income versus utilizing the now standard fair market rent equivalent? Can you help me with that? Ms. Brown. By using the SMR we believe we will be able to provide more choice, housing options to families and to also move people out of areas of concentrated poverty and that they will have more choice in the rental market. Mrs. Jones. Are you, as a housing authority, able to do mixed-income housing under the current standards that are set forth, regulations set forth by HUD? Ms. Brown. Actually, using the capital fund, you are able to do mixed-income financing. Perhaps there needs to be greater rules that HUD should put forward, regulations to really describe the range, but housing authorities are able to do that now. I believe Atlanta is one of those that has been very successful at using public funds for mixed-income financing. Mrs. Jones. I want to thank you again, Madam Chairwoman. I am in the midst of a staff retreat, so I am going to try to do some strategic planning myself. I thank you all for coming and please excuse me. Chairwoman Roukema. Thank you. Congressman Miller. Mr. Miller. It is so nice you have you here, Ms. Chairwoman. I am sorry that train wasn't on time. Chairwoman Roukema. I am glad I wasn't on the other one that crashed. Mr. Miller. I know the one in my district has a lot of people hurt. Ms. Brown, thank you for elaborating on that. Your statutory bar--I had no idea what type of housing you were talking on this. It was my question, so I am glad you did respond to that. Mrs. Dowling, I always looked at homeownership as a way for individuals to create wealth and stability within communities, especially in volatile housing markets where home values increase rapidly. Why don't you think Section 8 vouchers should be used for down payment assistance in those areas? Ms. Dowling. We didn't say it should not be used. It should be used, but not 5 percent. Two percent. Because then you are giving the housing authority the opportunity to say we are going to use the whole 5 percent toward a down payment for homeownership, so that cuts out the security deposit, cuts out even helping to utilize the voucher activities. We don't totally disagree. Mr. Miller. You don't oppose that. Ms. Dowling. No. We just said not the whole 5 percent unless you are going to give me strong language that clearly states that the housing authority cannot use the whole 5 percent. Because that is a substantial amount of money when you start looking at the budget. I am telling you it will be as true as this table that the housing authority will take that money and just use it for pushing the homeownership program, and then we are going to lose out on getting those vouchers utilized in the first place. Mr. Miller. Because I look at it as, if you can get people into housing, in a few years they won't need Section 8 vouchers. They will have equity built up. I think that is a great opportunity for us, but we have neglected that for years not taking advantage of that opportunity. Ms. Dowling. But even in my written testimony you will see we want to tie the self-sufficiency program into the homeownership program, and that is exactly what we are doing at the New Jersey Department of Community Affairs. Those residents are moving through from the self-sufficiency program and actually own homes. Mr. Miller. Mr. Marchman, I don't think you were asked the question, but you support a third-party public housing assessment. What type of issues should be a prototype examination on that, and what kind of local or regional issues should be factored into that assessment, do you believe? Mr. Marchman. Yes, I do agree there needs to be a third- party assessment system. We have been through two or three at HUD, and it simply has not been able to characterize or to take a snapshot of a well-run housing authority. Like any industry, I believe a third-party assessment would be a good thing. I think it should look at areas with respect to how well the management is run, the physical condition of the building; and, because public housing agencies throughout the country are in different climates, they are in different locales, that has to be a part of it. I think once you begin to independently assess public housing authorities, they will continue to improve, knowing that those standards are fair standards in which they can manage toward. Mr. Miller. There is one project that I applaud an Orange County developer for processing. He is building about a $400,000 home community, but he is also mixing in low-income apartments into that process, which to me is the direction of the future, to be able to create neighborhoods, that you don't focus just totally on people from one income level which, as you know, in Government housing has caused problems sometimes, but to integrate people in different income levels. But the problem that he faced was he had to go through about 30 agencies just to get that low-income project approved and get it through HUD and everything. What would you recommend that we do to avoid that in the future to encourage individuals who want to do this, who are trying to provide housing for those in need, yet the bureaucracy and the red tape they are going through is just overriding sometimes? Mr. Marchman. Having been a former municipal employee working for a mayor, I know how difficult that could be. I would simply suggest usually developers are profit motivated, although they may have very good intentions. Perhaps we could look at extension of tax credit programs to give them an incentive and to give the city the incentive in order to support such a thing. I would support any developer who was looking at mixed-income, mixed-financed housing as the goal. It is certainly the goal of a HOPE VI program. There is no reason why it couldn't be the goal of a city or town. But they need ways to get around the multilayers of approvals that you need and, sometimes, as you know, heavy resistance. I have known developers who are looking to do exactly this, but some segments of the community say we just don't want that low of an income here. But I think there have been some examples, and I am sure people here can tell you of mixed- income housing under the HOPE VI programs and others that have worked and perhaps they can share that with you. Mr. Miller. In this particular case the developer had the zoning. He could have taken and built apartments that would have rented for considerable money that he decided to use them for. But just the process of going through the HUD process for low-income--I mean, he had 30 agencies he had to deal with, and it was just a bureaucratic nightmare, based on the testimony I have heard him give to individuals, which would put other individuals in a situation where they might not want to go through the hassle to try to help people really in need. That is scary, and I think we need to address that. I yield back. Chairwoman Roukema. Thank you, Congressman Miller. I might observe, having been on this subcommittee for a long time and gone through a few secretaries of Housing and Urban Development, I think it might be well for us to readdress that question to Secretary Martinez--I think we need some direction from the HUD Secretary--and put ourselves together with him to make that a primary goal of these programs. So we have had him before this subcommittee, but I think, following the numbers of panels we have had, including this one, I think we will have to take that issue up with Secretary Martinez again. With that, Ms. Carson, Congresswoman Carson. Ms. Carson. I will be very brief. I want to first thank you, Madam Chairwoman, for convening this matter here regarding the dearth of housing available to low-income Americans. You are to be highly commended for that, and I appreciate it very much. I don't know if the panel will be able to respond. I am from Indianapolis, Indiana; and we have a major HOPE VI program. Unfortunately, in my district, my district has the highest rate of home foreclosures anywhere in the Nation; and I am trying to figure out what happened. You know, we pushed homeownership. Then we got over a thousand people right now that are in a foreclosure situation within my congressional district, and it is not considered a poor district, a lot of low-income housing and stuff like that. That is my one question, to see if you have any idea what perpetuates these loss of homes once you move these families into a housing environment. Number two, a very delicate, delicate question. We are doing a lot of revitalization, historic preservation, that kind of thing in my district; and I sort of work with the neighborhood to say it is OK for low-income people to move in, relax, it is really OK. We closed down a mental facility in Indiana. A major mental health facility was shut down. Those people were supposed to go to group homes, but instead they got Section 8 vouchers. And I guess that is not your first time at the rodeo. You have heard that before. And we are just having all kinds of problems. When you try to get the mix and then you have people that truly need mental health services who are out with Section 8 vouchers, living next door to somebody that has got a $400,000 residence, what do you do about that? Then the mix of elderly with people of those circumstances, people who have drug addictions. We have had major senior citizen housing complexes that were integrated with Section 8 vouchers. Of course, poor people aren't all---- Ms. Dowling. First of all, with reference to your foreclosures on the housing, that is done because there is no follow-up. What we do at the New Jersey Department of Community Affairs, the residents go through an extensive training so that, when they do purchase their homes, they are just not left out there to not understand what that private market is all about and if there is a lot of foreclosures going on there is no follow-up. That is where social services--where we were encouraged, even through the HUD training that we got as residents, to form partnerships within the communities, even though we might not be receiving Section 8, because we are homeowners. We forged partnerships with the social services in the neighborhood, local non-profits that specialize in following through and helping people build skills that they will need to live in the private sector. Maybe that is something that might need to be done there or something that could correct that problem. But also what we did with a lot of the mental housing we have had closed, we are now pushing for supportive housing like Ms. Brown was talking about. We took the vouchers and allowed private developers to develop and bring in social services and build in supportive housing, but there are components within the voucher program that allows for the housing to be taken care of. But through the partnership the social services actually come in and give the medication when they need to follow through. Are they keeping their apartment the way they are supposed to be? So that you can actually go into affluent communities and you would never know that there was a house full of mentally ill people there. That is what we did in New Jersey. Ms. Carson. What happens when you are in a city in a State that is in a financial crisis, where they are having to cut back on major social services and supportive service for people who are in need of services? Ms. Dowling. But there is other funding, like Ms. Brown had mentioned. There is also funding like CBG moneys. We are also looking into--I am sure you could elaborate more than I could. Ms. Brown. Right. I would add that, in Cleveland, we have a group of social service providers. We call it the Gateway Group, and we issue our vouchers for special need population working with this group of providers. They work with the County Board of Mental Health, which is funded through the State. They also get moneys from local foundations as well as using the city's block grant or home dollars. I imagine there are other Federal funds also that go through some of these social service providers. On the point of foreclosures that you were mentioning, when I worked with the City of Cleveland we used private investment by negotiating with bankers, our entire community, using the Community Reinvestment Act to get lenders to commit moneys for education, buyer education, counseling as well as foreclosure prevention counseling. So I think that is a way to get additional moneys into your community, hopefully working with your local banks. Because foreclosures are not good for their business, either. Ms. Carson. I think we have a lot of predatory lending that goes on that is subprime. Ms. Brown. So we have to do things to get the other lenders to do counseling. What we are finding when I was working with for sale housing predominantly is that it would take a while to get buyers ready for ownership. It can't always happen immediately. So that kind of education is really what must be stressed. Chairwoman Roukema. I am going to close this line of questioning at this point in time, but it is an excellent line of questioning. I would ask that each member of the panel here please submit your own observations on that question of predatory lending, because it is an important issue, and we haven't really gone into it in any depth. But we would appreciate your experience and your understanding, if indeed the predatory lending is a problem. Mr. Baker. Mr. Baker. Thank you, Madam Chairwoman. I appreciate very much your calling this hearing on this important subject. I am going to move through a couple of points rather quickly, because I have one thing I want to focus on with a little more time. Mr. Dekker, I want to express my appreciation to you for appearing here and also bringing to light the analysis of the distribution of the funds. I quote from the statement, ``of the $4 billion already invested through fiscal year 2000 in HOPE VI, nearly half has been awarded to 13 large housing authorities.'' Looking at the appropriations reports through 2001, that figure moves to an excess of $4.8 billion--in congressionally accurate terms, we would say almost $5 billion has been allocated through 2001, almost half of which has gone to 13 particular authorities around the country, which is not distressing in itself, unless, of course, you are not one of the 13. Ms. Brown, I noticed in your statement ``I endorse,'' and I'm skipping a little language, ``creating a two-track system for HOPE VI. One track continues to provide grants to the most severely distressed and a second track that would focus on smaller redevelopment projects that require smaller grant amounts. Such a system would provide housing authorities of all sizes with greater access to funds.'' I wanted to get that statement emphasized on the record because, as I understand it, the top tier of housing authorities now compete in the first grant of money. If you are unsuccessful in pot one, you then move into pot two with all of the smaller authorities and compete a second time, I think a point worth making at this hearing. Ms. Frasier, I have read part of your statement which was not part of your oral remarks. For a number of reasons, your organization believes that HOPE VI has hurt more than helped low-income residents living in public housing. ``one of our primary concerns about HOPE VI is the lack of comprehensive and objective information revealing how the program is actually performing. HUD has published glossy, colored publications full of pictures that examine select HOPE VI sites and select elements of HOPE VI within those sites. However, the public has yet to see any broad data on how the program is truly operating.'' . Which leads to me to my next point, Madam Chairwoman. Mr. Marchman, you were HUD's Assistant Secretary of Public and Indian Housing under Secretary Cisneros for some time, is that correct? Mr. Marchman. That is correct. Mr. Baker. In that capacity, you engaged in a discussion with the Housing Authority of New Orleans, Tulane University, and HUD for the purpose of creating a cooperative endeavor agreement, which you served on the board of the commissioners to which Mr. Ron Mason, the executive monitor, reported. Subsequent to that and subsequent to your departure--I want to make the record clear that there was some controversy with regard to the PHMAP score for the HUD office using a particular type of factors to certify that HANO had, in fact, reached a satisfactory non-troubled score of 60. Madam Chairwoman, in 1995, HANO, by objective measure, had a PHMAP score of 28.7. Somehow, magically, without a coat of paint or structural modifications, it reached a PHMAP score of 85.1. Subsequent to that period of time, Mr. Marchman, I understand that you have been engaged at least at some point by Mitchell & Titus to do additional consulting work to HANO or to HUD on the HANO project. I am not clear exactly how that works. My point is to establish you have ongoing and intimate knowledge of HANO's unfortunate circumstance. You may not recall that, since 1992 through the year 2000, public funds amounting to $800 million have been spent at the Housing Authority of New Orleans. I can absolutely tell you from personal observation the conditions are at least as bad if not worse than they were before we spent the first nickel. Tell me it is working. Mr. Marchman. Well, as you know, I have been out of HUD now for 4 years. Let me say I think there are several issues with respect to the Housing Authority of New Orleans. Yes, it was among the worst-run housing authorities in the country for a long, long time; and there are a lot of folks who had something to do with that, among them city administration, management of the housing authority, private managers of the housing authority and the Department itself. It seems as if in some cases people treated HANO differently, and standards were not adhered to. That is very clear. Two issues with respects to HANO. The management of the housing authority, I would submit, has improved in the last 4 to 5 years. There is no question about that. Their ability to attract good individuals to work at that housing authority is still limited, and I understand the Department is working on that as well. In terms of the buildings themselves, for many reasons, none of which I do know, the redevelopment of the desired property, the redevelopment of other properties has been unusually slow, but I understand things are moving. I understand that HUD has acknowledged some of that. But even though they are---- Mr. Baker. If I may interrupt, because I know the Chairlady's time is limited to have another panel, I want to point out that things are moving. They are knocking buildings down. We are not necessarily replacing it with new housing. I am not convinced that the poor who are now without housing are being afforded any more opportunity today after spending $800 million of taxpayer money. I am very concerned about the independent certification of those PHMAP scores, which look, from the outside, look to have been manipulated for some reason. We don't have time here today to get the full advantage of your knowledge. I am not in any way asserting that you had involvement in any of this. I am simply trying to pursue someone who is knowledgeable in the matter to get the benefit of his thinking. At some appropriate time, Madam Chairwoman, I would like to follow through on this, because it is an enormously significant problem that has no positive resolution in over a decade of my work in this area. Mr. Marchman. I would be absolutely pleased and look forward to the opportunity of sitting down with you and your staff to review the long and sometimes painful history of the Housing Authority of New Orleans. There are many, many factors that should be discussed and looked at and perhaps---- Chairwoman Roukema. That is what I was going to recommend. How it applies now to a reform in this legislation. Mr. Baker. I really appreciate the Chairlady's interest in this matter, and I appreciate your courtesy. Mr. Marchman. I am deeply, deeply interested in the improvement of the New Orleans Housing Authority. Chairwoman Roukema. Mr. Dekker, of course you are not New Orleans, you are Louisiana, but I don't think we have any time for you to go into this now. Do you want to take---- Mr. Dekker. We are the Albany to their New York City. Chairwoman Roukema. I see. All right. But you don't have anything to contribute at this point in time to that particular subject? Mr. Dekker. No, I don't. Chairwoman Roukema. Congressman Grucci. Mr. Grucci. Madam Chairwoman, I have no questions at this time, but I do have an opening statement that I would ask be made part of the record. [The prepared statement of Hon. Felix J. Grucci Jr. can be found on page 288 in the appendix.] Chairwoman Roukema. Thank you. That will be included. Chairwoman Roukema. I do thank the panel. You have been very helpful and very constructive. Again, not only those items that you have publicly offered to submit information to for the permanent record, but if there is been anything else that has been covered here and not completely covered in terms of the responses, please, we welcome your written responses. We will add to them to the record, and every Member of the subcommittee will be--that information will be shared with them, and we will take it under consideration as we move down this legislative track. Thank you very much. The second panel will move forward, please. Hopefully, we will get the second panel before the Members leave. We had such a wonderful turnout of Members with interest. Let's keep this moving. We welcome our second panel here today, and I must ask unanimous consent to, under the subcommittee's rules, insert into the record the written statements from the National Association of Realtors, who did not have anyone on the panel today, and the National Association of Housing and Redevelopment Officials. [The information can be found on page 305 in the appendix.] Chairwoman Roukema. With that having been said, let me introduce people in the order in which we have them appearing and giving testimony: Mr. Thomas Slemmer, President and CEO of the National Church Residences in Columbus, Ohio; and I believe Congressman Tiberi would like to present an introduction since he is very familiar with the work you are doing. Mr. Tiberi. Mr. Tiberi. Thank you, Madam Chairwoman. It is an honor for me to introduce a man from Columbus, Ohio, where I hail from, Thomas Slemmer, who is President and CEO of National Church Residences, which is located in Columbus, Ohio. National Church Residences was founded in 1961 as one of the country's leading non-profit organizations specializing in the development, construction and management of over 14,000 units of affordable designed to service the elderly, the low- income families and persons with disabilities through Federal and State grants, loans and tax credit programs. Mr. Slemmer serves on the Board of Directors of the American Association of Homes and Services for the Aging. He is past chairman of the Elderly Housing Task Force, the Long-Range Committees on Aging, the House Committee and the Ad Hoc Committee on Aging in Washington, DC., here. Mr. Slemmer has served as Vice President of the Board of Directors for the Ohio Association of Philanthropic Homes and Housing for the Aging. He is a former Director of the Board of Directors for the Ohio Capital Corporation and is currently on the board of the National Affordable Housing Trust. He has testified before the House and Senate Appropriations Committees on senior housing needs in 1990, 1996, 2000, and July of 2001. In 1994, Mr. Slemmer received the Commissioner's Award for the U.S. Department of Housing and Urban Development and the Excellence in Housing Award from the Ohio Association of Philanthropic Homes and Housing for the Aging. In 1995, he received the Distinguished Service Award from the American Association of Homes and Services for the Aging. Madam Chairwoman, I had the opportunity to visit the headquarters in Columbus, and it is an organization that is doing some outstanding things in housing, and I am pleased, Tom, that you are here today. Welcome. Chairwoman Roukema. I thank the Congressman. Mr. Slemmer, we are anxious to hear your testimony. STATEMENT OF THOMAS SLEMMER, PRESIDENT AND CEO, NATIONAL CHURCH RESIDENCES, COLUMBUS, OHIO, ON BEHALF OF AMERICAN ASSOCIATION OF HOMES AND SERVICES FOR THE AGING Mr. Slemmer. Thank you very much. Congresswoman Roukema, Members of the subcommittee, we are pleased to be presenting a unique perspective we think to your subcommittee today, and that is the perspective of affordable senior housing. I am pleased here to be representing the American Association of Homes and Service for the Aging 5,600 providers and not-for-profit services, and lots of those are providing low-income housing to the elderly. I also would like to commend you, Chairwoman Roukema, and Members of your subcommittee for introducing H.R. 3995. I am particularly pleased, since I was here last summer to help you with some of the hearings you had last summer to identify some key issues, and one of those key issues that we are grateful is included in this bill is your recommendation under Title III to address modernization needs for older federally assisted elderly housing. We are pleased that is in there, and we urge your continued attention to what we think is a critical problem facing affordable senior housing. You have identified in the preamble to this proposed legislation that a growing number of seniors are suffering from worst-case housing needs; and I think, in the interest of time, I want to talk quickly about some of what we see as critical issues facing affordable senior housing. Chairwoman Roukema, we operate a facility in West Orange, New Jersey--I see that is your birthplace--called Wood Valley Manor. Just to give you an idea of the crying demand for this kind of housing, that facility was built 5 years ago, 57 apartments. Forty-five of the original residents are still there. We have shut off, with the permission of HUD, the waiting list. As 95 people are on the waiting list to get in there, we are not accepting any more. That is about two-and-a- half people turning over a year; and, as you can see, it is a 40-year wait to get into that facility. There is a crying need for that kind of housing, and the situation is getting worse. That is because the production of affordable senior housing is not keeping pace with the loss of it, and the loss of affordable senior housing is primarily coming from existing housing facilities opting out to market rate housing and to other housing really becoming functionally obsolete because of lack of funds for modernization. We believe that the most critical need that faces us in terms of senior housing is to halt and replace those units that are opting out. Now the National Housing Trust developed this list of 150,000 units of federally assisted housing. This is a loss over the last 5 years. That is more than we are creating. In my testimony last summer I talked about some of the strong cooperation, relationships we developed with the local communities, trying to preserve senior housing like in Pacifica, California; Manhattan, Kansas. But, unfortunately, over the last 6 months since I spoke with you last, I had my eyes opened to some really serious problems, especially as it relates to the 236 portfolio that is housing lots of elders in this country. In northeastern Ohio--and I can't tell you the exact project because of a confidentiality agreement--there is a 200- unit 236 project that has been serving as affordable senior housing for the last 20 years. That project is now offered for sale. The selling price is less than half of what it would cost to develop that project new. Those 200 units are about the same amount as the entire allocation for the State of Ohio under the 202 program. Those units are going to be lost and sold to market rate housing unless somebody can step in and figure out how to buy those. There is a building side by side that was already sold and was opted out of the program. You ask, how can that happen? We are concerned that it is not even on anyone's radar screen, because the residents in that building will get enhanced vouchers. They will be able to stay there during their lifetime but, as they leave, market- rate folks will be replacing those people in that housing. The problem is the preservation effort cannot keep pace with the kind of the market factors facing this 236 portfolio. We are, frankly, concerned at AAHSA that we are going to lose every single affordable senior housing project that is in one of the better market areas, and I call your attention to that. We think that is the most serious problem facing us. We have made some suggestions, and we would love to have a dialogue with your subcommittee on how we can address this very serious problem. One of the recommendations we have made as a kind of focal point is to develop an Office of Preservation at the Department of Housing and Urban Development. They still have lots of tools available to help with this process. They have HUD insurance, they have various programs that can help streamline the process of acquiring these, and we urge you to gives some thought to leadership at the national level to focus on this preservation effort. We have covered lots of other points in your H.R. 3995 proposed legislation. One of the best ideas that you have is social service coordination. We urge you expand that to the 811 program and also to not-for-profit sponsored tax credit projects. We think that is the best idea that Congress has had in a long time, and we thank you for that, and we thank you for allowing us to testify. We think there are serious problems happening with affordable senior housing. Thank you. [The prepared statement of Thomas Slemmer can be found on page 400 in the appendix.] Chairwoman Roukema. Thank you, Mr. Slemmer. I should have notified each member of the panel that you do have in front of you, if you can see it, the timer that will turn yellow to alert you that your time is running out and red when your time is out. So just be aware of that. We won't go into the West Orange deal, but I am sure-- although I haven't been in West Orange for many years, my classmates were mayors and councilmen, and my uncle was the leading councilman. I would like to think that my uncle was the one that got that West Orange housing initiated. I am going to look at that. I wouldn't be surprised if he did. Now we have Andrew Sperling. Mr. Sperling and I have dealt together on other issues. The issue that he is bringing up today relating to housing is with affordable housing for the severely mentally ill. Mr. Sperling is the Deputy Executive Director of the National Alliance for the Mentally Ill, an organization which is very meritorious and which I take great pride in working with them and following their leadership. Mr. Sperling. STATEMENT OF ANDREW SPERLING, DEPUTY EXECUTIVE DIRECTOR, NATIONAL ALLIANCE FOR THE MENTALLY ILL, ARLINGTON, VIRGINIA, AND THE CONSORTIUM FOR CITIZENS WITH DISABILITIES HOUSING TASK FORCE Mr. Sperling. Thank you, Madam Chairwoman. I am here representing NAMI, the National Alliance for the Mentally Ill, and also the Consortium for Citizens with Disabilities, the Consortium for Citizens with Disabilities Housing Task Force, which is made up of major national disability organizations including United Cerebral Association, Paralyzed Veterans of America, the Arc, Easter Seals and NAMI as well. Before moving into the body of my testimony, I would be remiss if I did not note, Madam Chairwoman, the other priorities we work on, and I want to, from NAMI's perspective, congratulate and thank you for your years of leadership in the House in ending insurance discrimination against people with mental illness and their families, and pledge NAMI's support to get your parity legislation through Congress this year and to the President's desk. Let me talk about the housing needs of people with disabilities before I jump into some suggestions and comments on H.R. 3995. HUD's most recent worst case housing needs report in 1999 reported that 1.3 million adults with disabilities receiving SSI had worst case housing needs. CCD believes that this estimate is very low because it, in fact, does not count individuals with severe disabilities, non-elderly adults with severe disabilities who are residing in institutions, be they nursing homes or psychiatric hospitals or institutions for people with mental retardation. And we believe that estimate is actually much higher. Last year, we at CCD published data comparing SSI income levels to fair market rents and found people with severe disabilities are 18 percent of median income and that people with disabilities on SSI needed to pay on average the national level 98 percent of their SSI benefits to rent even a modest one-bedroom apartment leaving, in many cases, less than $10 or $15 a month to pay for food, transportation, telephone, rent, and so forth. And in 2000 there was not a single housing market in the country where a person with a severe disability on Supplemental Security Income, SSI, could afford to rent an efficiency or a one- bedroom apartment. This is obviously an affordability crisis. There are also some other issues that affect this, the first being the impact of some changes that Congress made a decade ago to allow private owners of assisted housing and public housing authorities to restrict occupancy on the basis to elderly only. This has had a tremendous impact in terms of people with disabilities getting access to affordable housing in the community. Number two, the Section 811 program was almost double what it was a decade ago. It has crept back up again, but there is a growing burden on the Section 811 program to handle more and more things, a new tenant-based program, tenant-based rental assistance program that was authorized a decade ago, the growing burden of renewals for that tenant-based rental assistance program within Section 811, creating a growing burden. Number three, we see the lack of programs such as HOME and CDBG, the mainstream programs within HUD providing assistance to people with severe disabilities. This is largely because many jurisdictions find it very, very hard to do an operating subsidy when they do production in HOME or CDBG in order to reach people below 20 percent of median income. And, finally, we also see discrimination. It still exists out there. There is the Fair Housing Act, Section 504, the Rehab Act, and the ADA that are designed to serve as civil rights protections that are designed to end discrimination. But unfortunately we see discrimination that still exists in the marketplace and, in fact, lack of adherence to the accessibility guidelines for people with severe disabilities in programs such as CDBG and HOME and the low income housing tax credit. Let me turn now briefly and talk about some of the really important provisions that CCD believes would be a major step forward in H.R. 3995, the first being the homeless programs, the reauthorization there. My colleague, Ms. Friar, is going to talk in more detail about that, but we would note the programs that are emphasized on the homeless programs in H.R. 3995 are a major step forward for people with disabilities, given their disproportionate representation among the chronically homeless population. CCD strongly supports the 30 percent permanent housing set- aside and the shift of the Shelter Plus Care and SHP renewals to the housing certificate fund. We support the new production program. CCD also supports the Low Income Housing Coalition, National Low Income Housing Coalitions, national housing trust initiatives as well as H.R. 2349, Mr. Sanders' legislation. We support the thrifty voucher program and the voucher success fund. We believe those are major steps forward. And with the thrifty voucher program, we urge the subcommittee to consider allowing site-based waiting lists for those developments built with thrifty vouchers. Finally, on Section 811, I know my time is running out, there is a full recitation of our recommendations on Section 811, including our testimony that we urge the subcommittee to take a look at. But the program really needs to be streamlined and simplified to make it much easier for non-profit disability organizations to operate and do production under Section 811. Thank you very much, Madam Chairwoman. [The prepared statement of Andrew Sperling can be found on page 340 in the appendix.] Chairwoman Roukema. I thank you. Ms. Friar, is that the way you pronounce it? Thank you, Ms. Friar. I believe Ms. Velazquez would like the opportunity to introduce her. Ms. Velazquez. Thank you, Madam Chairwoman. It gives me great pleasure to introduce a friend from New York City, Ms. Maureen Friar. Ms. Friar earned her BA at Brown University and a Master's in Public Policy at the University of California at Berkeley. Since 1993, she has served as Executive Director of the Supportive Housing Network of New York, a coalition of not- for-profit agencies that develop and manage affordable housing with on-site supporting services with low-income and formerly homeless single adults. Over the past 9 years she has led the growth of the coalition from a membership of 40 agencies, managing 4,000 units of housing, to over 150 agencies operating over 18,000 units of housing statewide. In 1998, the network launched the New York City Housing Network, now a prominent voice in the city, advocating for the housing needs of persons living with HIV, AIDS. She continues to lead the network at the forefront of the Blueprint to End Homelessness in New York City initiative. She is a member of the National Advisory Group for the National Alliance to End Homelessness. Ms. Friar, thank you for your outstanding work in our fight to end homelessness in New York City. Welcome. STATEMENT OF MAUREEN FRIAR, EXECUTIVE DIRECTOR, SUPPORTIVE HOUSING NETWORK OF NEW YORK, AND ADVISORY COMMITTEE MEMBER OF THE NATIONAL ALLIANCE TO END HOMELESSNESS, WASHINGTON, DC. Ms. Friar. Madam Chairwoman and Members of the subcommittee, I am honored that you have invited me as a representative of the National Alliance to End Homelessness to testify today, and I would like to thank my friend, Congresswoman Velazquez, for your leadership on behalf of New Yorkers, especially low income and homeless New Yorkers with acute housing needs. The Supportive Housing Network represents 150 non-profit agencies that have developed permanent housing with on-site services for over 18,000 low income and formerly homeless individuals and families in New York State. The National Alliance to End Homelessness is committed to ending homelessness, a goal that we are all convinced is well within our reach as a Nation. Today, speaking about H.R. 3995, the Housing Affordability Act for America of 2002 includes several items that are critical to the goal of ending homelessness. To end homelessness, several important steps have to be taken. One is to prevent people from becoming homeless. H.R. 3995 begins to address this by targeting flexible housing resources to people with extremely low incomes below 30 percent of the area median income. This is especially important, considering that the amount of housing affordable to low income households has been steadily declining for several decades. In New York City, 27 percent of households pay over 50 percent of their income in rent, and we have over 200,000 households on the waiting list for public housing and subsidized Section 8. So the need is critical. Indeed, homelessness also requires that we open the back door out of homelessness by providing the housing and supportive services needed for families and individuals to move into permanent and stable homes. The dimensions of the homeless problem are sizable. In New York City alone, each night we have over 33,000 men, women, and children sleeping in our shelter system, which is the largest census since 1987, with homeless children the largest growing population. Roughly 80 percent of people who become homeless enter this homeless system and exit it again relatively quickly. They have a crisis that affects their housing and they typically address their immediate problem. And despite the shortage of affordable housing for people, they find housing. Of the over 5300 families in our shelters each night, half would leave tomorrow if we had affordable housing for them to go into. What we should be doing is have a homeless system that facilitates the move to housing and making the homeless episode as brief and least traumatic as possible. When services are needed they should be delivered while the family or individual is in stable permanent housing. We should try to decrease the amount of time that families, especially children, are in transition in shelters. While the majority of homeless people do not need specialized housing, about 20 percent have more significant barriers to ending their homelessness. They have one or more chronic disabilities, including mental illness or substance abuse, and live in shelters and on the streets, and the episodes of homelessness can last months or years. Many are also veterans. We would think that sheltering would not cost as much as housing homeless people, but that is not the case. Homelessness costs us tremendously. A recent groundbreaking study by the University of Pennsylvania, which was vast and released last year, they looked at the 4,000 people who had been placed in supportive housing in New York, homeless people with chronic and persistent mental illness, and looked at how much they cost us 2 years before they entered housing and 2 years after. And the average cost to taxpayers is $40,000 per individual per year. And this is so expensive because these individuals use high cost public services such as emergency and psychiatric hospitals, veterans services and shelters, and they are just cycling through and costing us a lot. But we have a solution and that solution is supportive housing. Supportive housing combines permanent stable housing with on-site services. What we like about the bill is that 30 percent of the funds provided under HUD's homeless assistance grants will be used for permanent housing which will get localities focused on the permanent housing as opposed to the transitional and emergency care. Also that the Shelter Plus Care and Supportive Housing Program, permanent housing renewals will go through the housing certificate fund. This will free up money for new supportive housing. And in New York we would use up all our McKinney funding just for renewals if we were not able to shift those renewals to a different fund. I know my time is running out. The answer to homelessness is not just HUD, but we feel very strongly that HUD's leadership and HUD money should be focused on housing. And the more that is done federally with the legislation to get localities to do that, to focus on the permanent housing that then often leverages the HUD money--the rental subsidies will leverage other investment, corporate equity investment as well as State investment into more housing. So it is really the best use of HUD money. And I commend this subcommittee for caring about homeless people and the affordable housing needs of New Yorkers and the rest of the Nation, and would be glad to work with you in any way possible to make our goal of ending homelessness a reality. Thank you. [The prepared statement of Maureen Friar can be found on page 336 in the appendix.] Chairwoman Roukema. Thank you for your attention to time and for your specific contribution to this discussion. Our next panelist--I do not know whether we arranged it this way that we have so many from New Jersey or we are just outstanding leaders in the country, but I do want to welcome Roy Ziegler. He was a Director of the State of New Jersey Section 8 Housing Program for I think almost 20 years; isn't that correct? And now you are currently President of Assisted Housing Services and work with a consulting company in New Hope, Pennsylvania. So we are happy to have you here for all your practical experience and insights, and we look forward to working with you. STATEMENT OF ROY ZIEGLER, FORMER DIRECTOR, NEW JERSEY DEPARTMENT OF COMMUNITY AFFAIRS, SECTION 8, ON BEHALF OF NATIONAL LEASED HOUSING ASSOCIATION, WASHINGTON, DC. Mr. Ziegler. Good afternoon, Chairwoman Roukema and distinguished Members of the subcommittee. I have to say that I was on an earlier train than you were and I guess we are both lucky today. I want to thank you for the opportunity to speak today on behalf of the National Leased Housing Association. Over the years, the housing voucher program has made remarkable improvements because of the consolidation of regulations and elimination of certain barriers to landlord participation as well as giving us flexibility to help families become self- sufficient and even become homeowners with the housing vouchers. Your bill will go a long way toward leveling the playing field and we support it, because the housing vouchers really need the additional flexibility that your bill provides. PHAs and administering agencies around the country and many communities are faced with rising rents and tight rental markets, and this rising rental rate in many of these areas has far outpaced the housing voucher of fair market rents. Often there are more vouchers in the community than there are landlords willing to accept the voucher. So you find that the public housing agencies are sending out like three or four or more vouchers for every slot they have available because so many families are unsuccessful and cannot use their vouchers in their communities. This is really frustrating for families who have waited a long time for their voucher and see it just go up in smoke. And it increases the agency's work load. It costs more money when you have to spend more time getting more vouchers out on the street. HUD has already taken an important step in the direction in resolving this issue by giving 50th percentile rents in many communities across the country. And we are requesting that Congress urge HUD to expand that 50th percentile fair market rent to all the communities in all the markets in the United States. Congress can also take steps to improve the family's ability to use vouchers. For example, housing authorities can set their payment standard. The payment standard determines how much a family gets for a subsidy. PHAs can set that standard between 90 and 110 percent of the fair market rent to address the immediate needs of their area. And this is without HUD approval. We are supporting the ability for public housing agencies to raise that from 90 to 120 percent rather than 90 to 110 percent. This will give us a dramatic increase in the rents that we need to address the actual market in our areas. Fair market rents are not fair unless they compete with market, at least the average rents for the community. Now it is our understanding that the initial draft of H.R. 3995 did not have this provision included and we are asking that it be restored by the subcommittee. Now in regard to the 40 percent cap, the amount that a participant pays in Section 8 is limited by the 40 percent cap, that is the family cannot pay more than 40 percent of its adjusted income for rent. We have supported this in the past, but our PHAs have told us that there are many circumstances where a higher rent is sensible. Just as an example, an elderly person who has lost a spouse immediately becomes, because of the decrease in income for that household, becomes eligible for a voucher. Here is a family who has been living in this unit for many years. The spouse who is alone faces the fact that she is going to have to pay 43 percent of her income for rent. The program only allows 40 percent. That elderly person would have to leave that housing that she has been in for many years because she is 3 percent over the 40 percent of adjusted income. And if she loses the voucher, she is probably going to pay 60 to 70 percent of her income for rent. So we are asking that the PHAs are given this opportunity to give a waiver to that 40 percent to adjust to situations like this. Section 402 of the bill would do that. And we are asking that this cap be available to PHAs as another tool in their arsenal to help families stay in place, not just elderly, but families who are in place who lose it because of that 40 percent threshold. And with regard to administrative costs, the current fee for administering the program is often inadequate to allow effective tenant counseling, landlord outreach and addressing special populations like the homeless we just heard about it. And this often contributes to the success rate being very low for voucher usage. We applaud this subcommittee recognizing this problem by allowing the PHAs to tap unused budget authority to use for services to help families find decent housing and provide mobility services for families looking for housing. NLHA also supports the bill's revision to provide incentive fees for high performing agencies. But there is one other area we would like you to look at and that is the fact at one time there were preliminary fees for housing agencies getting new vouchers. Doing tenant briefings, finding apartments, negotiating with landlords and trying to get housing for families is very difficult. It takes 4 to 6 months in some cases, but there are no fees for the program until you actually lease somebody up. So we are asking that the provision be allowed to restore the preliminary fees so that housing agencies get the ball rolling and get families into housing faster. With regard to enhanced vouchers, we approve all of the things that you have said and we are very happy that you have addressed the issues with regard to the enhanced vouchers. We ask that you look at the HQS requirements for inspections. If there is an inspection done within 12 months, we would like to see that the HQS be unnecessary for that particular year. And we also support the Section 505. We have keen interest in 505 which would give an asset-based approach to public housing, and we will send you our comments later. Just one other thing. We oppose the thrifty vouchers. We think there is a very difficult problem with administering the thrifty voucher program and we have sent you an awful lot of information about how we feel--about how our members feel, that thrifty vouchers are perhaps unnecessary. [The prepared statement of Roy Ziegler can be found on page 418 in the appendix.] Chairwoman Roukema. We will look at that material that you are advancing to us. Now, our final panelist is Mr. Gary Eisenman, who brings a distinct contribution here to the panel. He is Executive Vice President of Related Capital Company, a financier of real estate properties, as I understand it, so you are representing the private sector here today. However, your background gives you extensive experience as General Deputy, as Assistant Secretary for Housing, and Deputy Federal Housing Commissioner for HUD and the FHA, so that you come with Government experience as well as experience in the private sector. We welcome you here today, Mr. Eisenman. STATEMENT OF GARY EISENMAN, EXECUTIVE VICE PRESIDENT, RELATED CAPITAL COMPANY, ON BEHALF OF THE NATIONAL MULTI-HOUSING COUNCIL, WASHINGTON, DC. Mr. Eisenman. Chairwoman Roukema and distinguished Members of the Housing and Community Opportunity Subcommittee. My name is Gary Eisenman and I am executive vice-president of Related Capital Company, a developer, manager and financier of real estate properties that oversee over 1100 properties in 47 States in the United States. I am speaking on behalf of National Multi-Housing Council, a trade association representing the Nation's larger and most prominent apartment firms. NMHC operates a joint legislative program with the National Apartment Association, a trade group representing over 30,000 apartment executives and professionals. It is my pleasure to testify on behalf of both organizations. I have been asked to speak today about the Section 8 housing choice voucher program. NMHC and NAA commend you, Chairwoman Roukema, for your leadership and we thank the Members of the subcommittee for their valuable work in addressing the important issue of affordable housing in America today. We too believe that it is critical to meet the housing needs of low and moderate income families. We also believe the Section 8 program can be one of the most effective means of doing so. However, the program's potential has been constrained and its success should be greater. We support the provisions of H.R. 3995 aimed at improving the voucher program. However, even with those important reforms, the proposed legislation falls short of increasing supply of housing which voucher holders may choose by broadening market accessibility. Without a sufficient supply of housing, voucher holders do not have choice, which is precisely what the Section 8 program aims to accomplish. We believe that the chief reason for the lack of housing available to voucher holders is the program's burdensome structure and administration which discourages private owner participation and makes it difficult for voucher holders to compete with unsubsidized residents for vacant apartments. NMHC and NAA support greater owner participation, which should not be at the expense of the property owners. Rather, the program should be as similar as possible to providing housing to market rate residents. Therefore, it is essential that the subcommittee's efforts to improve the Section 8 program support broader owner participation. To increase owner participation, the program must be more transparent to the market. And what we mean by transparency is that we need to minimize the differences between a holder of a voucher and a non-voucher-holding market rate tenant who approaches an owner for a vacant unit. We recommend the following toward that goal. Owners should be able to turn vacant and subsidized units over within a reasonable time that is comparable to the time period required to turn over market rate units. Owners should expect timely rent payments for subsidized residents and they should have the right to expect timely compensation if those payments are delayed. All residents, including voucher holders, should be held accountable to common standards and laws established by States and localities. In addition, the program should only include Federal laws that are applicable to both voucher and non-voucher residents. I will now discuss some specific proposals along those lines. First, improve the housing quality standards unit inspection process. Currently, before a apartment is eligible to lease to a Section 8 voucher holder, the administering PHA must inspect that unit for compliance with HUD-prescribed housing quality standards. And we agree voucher holders should reside in decent, safe, and sanitary environments, but we also believe that this can be achieved without conducting lengthy individual unit inspections. Unit-by-unit inspections delay resident occupancy even if the PHA conducts its inspection within the required timeframes, and some apartment owners report delays of 30 days or longer. Given that the professional apartment industry relies on seamless turnover to meet its overhead costs, the financial implications of such delays to owners are significant. We propose speeding up the move-in process by allowing PHAs to conduct individual unit inspections within 30 days after the resident moves in and payment commences. We also suggest that PHAs advise voucher holders they should not accept a apartment in significant disrepair and they should report those apartments to the PHA. Second, we need to improve the subsidy payment system. Just as owners would not accept a late payment from a market rate tenant, they should not be forced to accept late payments from voucher holding tenants. Requiring all PHAs to make automated electronic fund transfers would assure that the timely payment of the subsidies would be made. HUD has made great improvements to the financial management systems of its other housing programs, including the HOME program. It should do the same for Section 8. Third, increase the payment standard. And I am not going to reiterate what my colleague Mr. Ziegler said, but we support those positions on 40 to 50 and greater latitude to go from 120 percent of FMR to 150 percent of FMR. Finally, we support amending the lease addendum. HUD's standard lease addendum is many times incompatible with State and local landlord tenant laws and disregards industrywide model lease language developed by NAA. This inconsistency causes difficulties for owners who must comply with one set of lease requirements for voucher holders and another for non- voucher holding residents. This creates a disincentive to accept someone who is coming with a voucher. In summary, we support the Section 8 program and wish to engage more fully in it. However, such participation is not economically maximized without reforming the program to reduce the significant costs and burdens it imposes on apartment owners. I thank you for the opportunity to testify on behalf of the National Multi-Housing Council and the National Apartment Association and wish to offer our assistance as the subcommittee continues its important work. [The prepared statement of Gary Eisenman can be found on page 330 in the appendix.] Chairwoman Roukema. I thank you very much. Before I call on Mr. Grucci, I am going to just ask the panel here, you have heard me make reference before the previous panel and I would like to offer you all the opportunity not here now, but in written form, to submit to me and the subcommittee your recommendations as to how we can reduce the bureaucracy and the overwhelming HUD dictatorship here. By the way, I do not mean that in a negative way. I just want to be constructive as to how we all work together to improve HUD and get more housing for people and we cannot possibly afford all this unless we are able to improve the delivery system and the HUD responsibility and that regulatory relief that we need from HUD, while not opening up loopholes for corruption, and so forth. So I would like to have on the basis of your experience on this panel your recommendations on how HUD should be reforming its procedures here in order to get more housing at less cost. If you would do that. Mr. Grucci. Mr. Grucci. Thank you, Madam Chairwoman. I do not have any questions of this panel at this time. Thank you. Chairwoman Roukema. All right, thank you very much. Ms. Velazquez. Ms. Velazquez. Thank you, Madam Chairwoman. Mr. Ziegler, I was interested in the part of your testimony which addressed the proposal to add flexibility to the 40 percent rent cap by permitting that the 40 percent cap be based on gross income versus adjusted income. It seems that you have conflicting feelings about this proposal. And while I support the idea you put forward of increased flexibility in helping tenants remain in their homes, I am forced to wonder if this could open the door to further price gouging by unscrupulous landlords. Do you believe there is cause for legitimate concern. Mr. Ziegler. I think it is important that we look at what we are proposing is in-place tenants. These are families or elderly folks who have been in place sometimes for 20 or 30 years and have been paying rent all along and they lose somebody in the household who was an income earner, wage earner, and no longer have that income available to them. Here they are living in the same apartment with the same rent with much less income. What we are asking for is some flexibility so if we have that additional 40 percent beyond the adjusted to the gross that perhaps that particular elderly person could stay in place and avoid being displaced. When you are displaced you are out in the community where there is no cheap housing available, in the first place. Ms. Velazquez. Ms. Friar, would you please discuss what use your organization has made of rental subsidies in providing permanent housing options for the homeless. How do you think we could better target these funds to address the needs of the communities targeted by programs such as Shelter Plus Care? Ms. Friar. Both programs have been critical to developing supportive housing in New York because it provides the operating funding to manage the buildings. It provides the rental subsidies so that the tenants will only pay a third of their income in rent, but managing the buildings, operating the buildings is more than that, and that difference is the Shelter Plus Care. With that funding, there has been investment made by both the city and State toward capital to renovate these buildings, to purchase and renovate old hotels as well as do new construction. And there has also been a tremendous amount of corporate equity investment through the low income tax credits, historic tax credits program. And, because there is the rental voucher, the funds are guaranteed over a period of time so that other investment is leveraged. And so it then makes what our priorities in terms of spending money is not just on the emergency needs constantly sheltering people, but we have places where they can go and it is actually most cost- effective to have them in the permanent housing than in our shelter system. Ms. Velazquez. Mr. Slemmer, when this subcommittee last took up the issue of senior housing, I put forth a proposal to ensure that any application for 202 funding that did not meet HUD's debt line due to the fault of a third party would not be deemed ineligible. Would you please discuss what sort of impact this will have on groups facing difficulties getting the required paperwork out of local bureaucracies? Would you support inclusion of such language? Mr. Slemmer. For sponsors that did not submit what? Ms. Velazquez. When a community group submits an application for 202 housing and they did not meet HUD's debt line, not because of their own fault, fault of their own, but because of the third party. Like in New York, if a community- based organization is going to build in a vacant lot and they need to get site control and they have everything in place, but they do not have that letter coming from the locality, we should not penalize that organization from getting the application approved. Mr. Slemmer. I am not familiar with your recommendation, but it is certainly true that in areas like New York and California where there are terrific amounts of land use restrictions and regulations, it does take longer to put together an application. The 202 program gives you 60 days to get together an application with site control. So I think it is a good idea. I think some areas you have to have more time available to get through the land use process. I think it is a good idea. Ms. Velazquez. Thank you, Madam Chairwoman. Chairwoman Roukema. Yes. Congresswoman Carson, no questions? Ms. Carson. No questions. Chairwoman Roukema. Congresswoman Schakowsky. Ms. Schakowsky. Thank you very much, Madam Chairwoman, and I really appreciate this day of witnesses. Just been an excellent, excellent panel and I thank you very much for that. I also wanted to run by a proposal. I am sure a lot of units that you had on that list are in my district, senior housing that is operating out--and a lot of seniors in crisis right now. When the apartments go--stay as rental apartments and the enhanced voucher does allow people to stay there. But if it goes condo, then whatever voucher loses its enhanced status and therefore there is absolutely no way that they can stay in the community. And what I would like to suggest is that residents of units in that situation would be able to--that the vouchers would be able to maintain their enhanced status in order for them to seek housing within the same community. And I wanted to just run that by any of you that would like to comment on it. Maybe Mr. Slemmer. Mr. Slemmer. I had forgotten about the condo situation. What we are seeing mostly is the senior housing in more affluent areas. Great locations are being lost forever simply because they have more value because there are higher rents in the market situation. But the concern I have about the enhanced voucher is that it is designed to help the existing residents. But what it does is it takes the pressure off the problem. And so I think we are going to wake up 5 years from now and have lost a lot of senior housing that might have been kept if the community had known about the problem. In other words, if a building is going to opt out and the community knows about it, sometimes they will go to great extremes trying to figure out a way to preserve that housing. It kind of maxs the problem or inoculates the situation. That is the only concern I have about enhanced vouchers. I think it is quietly creating a problem for us down the road because it is making the problem less visible and taking it off of peoples' radar screens. Ms. Schakowsky. I hear you, but at the same time I think those people--in our situation, it is a lot of condo conversions and then there is just nowhere to go with that. Anybody else want to comment on the use of enhanced vouchers beyond just in place, but in the community? Mr. Eisenman. One thing you might need to consider when you are doing that is when you have the enhanced voucher, it is enhanced to the property that has been opted out so that the measuring stick is the market for the units that are in that property. If you are going to make those vouchers enhanced on a portable basis, you are going to need to define the limits of the market that it will be enhanced within, because then you are getting into, well, what properties are you saying are comparable and what is the absolute high range that you would take that enhancement to? Because when you are doing it in place, you have that limit built in by the limits of the property that is being opted out. Ms. Schakowsky. That is an important consideration. Thank you for that. Mr. Eisenman. One thing I might offer that you consider similarly in the markup to market program in the project-based Section 8 program, you have a limit at 150 percent of FMR capping the markup to market, which can be liberated when there are certain criteria such as concentration of elderly and valuable resource for the community, local government involvement. Those are the criteria in the statute that allow you to exceed the 150 percent FMR cap, but it is an act of discretion that allows that. Mr. Ziegler. One other thing you may want to do is research the statute in New Jersey, which helps essentially after the fact of enhanced vouchers being created that there is a very aggressive stance with regard to the State that the owner of the property may be required to market the unit that leaves the enhanced voucher inventory to voucher holders in the community. That might be helpful for you. Ms. Schakowsky. Thank you. Ms. Friar, I wanted to ask you, the Coalition to End Homelessness I understand has put a dollar figure on what it would really cost to effectively address homelessness, if not to end it. And as I recall, it is a pretty modest $1.5 billion. Is there a dollar figure that---- Ms. Friar. Well, I do not know that specifically. We have a whole Housing First campaign going on in New York around affordable housing and investing $1 billion in new affordable housing from homeless to middle income. And that is for New York actually--the capital budget. I think in some ways we see a lot of this, the cost savings experienced when you house someone versus the cost of sheltering them or having them cycle through homelessness and using emergency services virtually pays for the solution itself. One unit of supportive housing, to develop it, operate it and provide the social services is about $17,000 a year. And the cost savings experienced for a person who is housed--I said they cost $40,000 a year, you save in the first year $16,000 in tax dollars because they are using the hospitals less and other services. So it is not so much just pour new money into it, but in a way, I guess it is putting money that is going to result in less use of dollars and other areas. And, unfortunately, this subcommittee goes beyond, you know this, addressing more the housing. Some of this is bringing in service dollars or in coordination, which is why we like the bill--has the interagency council being recommended, because in that way it is bringing in other players who are involved in homelessness. Often the homeless system is taking individuals who are being discharged from the criminal justice system, the mental health system, and so forth, and then we call them homeless, and it is a long road to getting them being housed again, and so the coordination is an important piece also. Ms. Schakowsky. If I could, Madam Chairwoman, say one more--and I realize my time is up. I wanted to respond to a comment that you made. I think we do have the money to do the kinds of things that your bill has suggested, and that when we set priorities in this country, there are the dollars and, as you pointed out, if we take a broader view and not just a narrow budget-by-budget-by-budget view, that in many cases the kinds of good suggestions you are making may really save us money, not just down the road, but in the following year. And so it really is just a question of will and a question of priorities. And I think that it is so important as each of you talk about this crisis that we are facing that it be acknowledged as that and that we have an aggressive can-do attitude about solving these problems that you all have so articulately not only laid out, but the solutions that you have proposed are all very, very doable, and that has to be our attitude, that we can achieve the goals that you have set out for us. So thank you very much. Chairwoman Roukema. Thank you. And I think we have concluded here. But I have one last question. Mr. Eisenman, forgive me if you were explicit on this in your testimony, I know you referenced it and you discussed it, but could you focus just for a minute or two on what more we should be doing with the private sector? Because, as I stressed, you are here not only with your public experience with HUD and FHA, but also as a representative of real estate property interests. How can we improve that partnership, the public-private partnership here, and enhance more private sector involvement? Mr. Eisenman. Well, I will speak particularly with respect to my testimony that this is an important point, because I think that the statistics that we are seeing--and we took a look at some things for this hearing--that the number of available units that are coming vacant, which are at the FMR or below are quite substantial and more than enough to cover the lack of success. There was a recent HUD study that showed that the success rate in voucher use by residents had dropped substantially over the last several years. And so what voucher holders are finding, particularly in high markets, is that they cannot go out and use those vouchers. And part of what we are suggesting here is that this might be a no-cost type of change where a little less regulation and little smarter regulation, using technology as opposed to paper, seamless payment systems, using an inspection process which puts a little less burden on the landlord will encourage more landlords to come into the program and therefore create a greater supply for the holders of the vouchers. Chairwoman Roukema. Is that more expanded and documented in your testimony? Mr. Eisenman. Yes, it is in the written. Chairwoman Roukema. All right. Thank you very much. I will be more than happy to explore that and study it carefully. We thank all of you for your contributions here today, and please continue to work with us as partners. We must find a way of not only improving and making a more efficient delivery of these services, but also expanding in an economic way for the people in this country. Thank you very much. [Whereupon, at 4:40 p.m., the hearing was adjourned.] H.R. 3995--THE HOUSING AFFORDABILITY FOR AMERICA ACT OF 2002 ---------- WEDNESDAY, APRIL 24, 2002 U.S. House of Representatives, Subcommittee on Housing and Community Opportunity, Committee on Financial Services, Washington, DC. The subcommittee met, pursuant to call, at 2:00 p.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding. Present: Chairman Roukema; Representatives Ney, Kelly, Miller, Grucci, Rogers, Tiberi, Frank, Velazquez, Lee, Schakowsky, Capuano, Waters, Sanders, Watt and Israel. Chairwoman Roukema. I am going to call this hearing to order, although it is more than a little embarrassing here. Unfortunately, this hearing is in conflict with legislation that is on the floor from this committee, the CARTA, the Corporate and Auditing Accountability Responsibility and Transparency Act. And many of our Members are over on the floor now as we speak--oh, good, we have one more Member anyway. As we speak, they are currently, as a matter of fact, debating Congressman LaFalce's substitute on the floor as we speak, and we may be interrupted shortly with some roll call votes. But I do want to welcome our panel here today and assure them--and, fortunately, Mr. Frank, our Ranking Democrat is here, and that is a welcome contribution, but I can assure the panel that even though there are few Members here today, there has been an intense interest throughout these hearings. This is the third of three hearings, and there has been an intense interest on the part of our Members, and I can assure you that all of your testimony will be forwarded and presented to each of the Members individually, and I am sure that they will be paying close attention, because we fully expect that this is going to be a priority piece of legislation hopefully before the Congress adjourns this fall. But I welcome Mr. Frank and our other Members here, and I will simply say that for the panelists that--I am sorry, first, of course, we know that all the opening statements will be included in the record, and we will see if there are any opening statements, but that each of the panelists will be introduced, and you should know that you will be limited to 5 minutes, and the little recorder in front of you or clock in front of you will tell you about your time and we'll try to keep you as close to 5 minutes as possible. But I will introduce each one of you individually. But now I ask my colleagues, are there any opening statements? I do not have one. Is there an opening statement? All right. Mr. Frank. [The prepared statement of Hon. Marge Roukema can be found on page 426 in the appendix.] Mr. Frank. Madam Chairwoman, I appreciate the chance to talk with the Administration officials who have responsibility here. I will be interested in their comments on the legislation. I want to use this opportunity, though, to reiterate some questions that I will further elaborate on. First, to Mr. Weicher, I had gotten a letter from the---- Chairwoman Roukema. Excuse me, is this your opening statement? Mr. Frank. Yes. Chairwoman Roukema. This is not the questioning period. All right. Mr. Frank. It is the opening statement in which I will ask some questions. [Laughter.] I may make a statement during the question period. I got a letter from the Massachusetts Legislative Leadership on Housing over the whole question of risk sharing, FHA 202, in which they were not getting from the regional office permission to go forward with risk sharing under 202. Now, your office appeared to have intervened and allowed that to go forward. The law clearly calls for it to be able to happen, and your office did intervene, and one of the projects is going through, but one of the things I hope you will be able to address is giving guidance to all the regional offices on this. Again, Congress spoke very clearly that risk sharing should be allowed with 202, and I would hope that we could get that one cleared up. Second, the Ranking Member of the full committee and I, Mr. LaFalce, sent a letter to the Secretary on March 26, so this is not something that we are complaining about since it is only a few weeks ago, having been accepted as a matter that has already been holding off, and that is the ability of people to benefit from a provision that we had in a previous report from the 105th Congress allowing recaptured interest reduction payment subsidies to be used for rehab grants for properties for deferred maintenance. And those are two very important issues. And I mention these, Madam Chairwoman, in my statement, because my statement is basically to lament a condition over which this panel has no control and that is the absence of money to do new things. You presided over and basically structured a very useful set of hearings last year in which we had virtual unanimity. I think there was literally one witness, whether from the Democratic or Republican side, who didn't agree that we needed a new production program. There is clearly the need for increased production. Now I know you have got legislation which tries to address that need, and we will deal with that in another context. But, part of the problem is of trying to do a new housing production program without money is like making bricks without straw. And many people tried that, and it wasn't much fun. I don't want to have to go through that again. So, I really have to say there is this problem that we have, I think, a budget allocation, thanks to other decisions that were made that leaves us with too little money. But that is why I asked the two questions that I did. Both of those deal with our ability to do the best we can with existing resources and at a time when money is clearly inadequate for the kind of production program we need, that makes it all the more important that whatever we can do we do and without a great deal of delay. So 202 risk sharing, recapture of interest payments under the interest reduction, those are very important programs. And I stressed them in my opening statement, because they are the best we can do in the current context. I would like to change the current context, but as long as we are in that context, we have to focus on those. And so I am hoping that I can talk further with the witnesses about them, and I meant by this, in part, to give them some notice so that when we get to the question period there won't be kind of surprise answers, and maybe there are some of those diligent people who came over with them for the ride sitting behind them who can work on some of these things, and by the time we get to the question period we won't have to have the usual whispered conferences, they will have already written it out. Not that these individuals aren't capable of doing it on their own, but not everybody can remember everything at all times, which is why my chief staff person is sitting behind me, and they all make our conversations more fruitful. Thank you. Chairwoman Roukema. Thank you. Are there any other opening statements? Mr. Grucci. Mr. Grucci. Thank you, Madam Chairwoman. I do have a formal statement that I would like to have entered into the records, but I would just like to make a few brief remarks if I may about the crisis of affordable housing in the district that I represent, which is eastern Long Island, New York, an area that has seen pockets of extraordinary wealth, but more commonly are pockets of middle-class America and pockets of poverty. And what I am very concerned about, with the CDBG block grant reallocation of the formula, is what kind of an effect will it have on my community, and I will certainly be interested in hearing that if it does come up in the testimony here today. Most assuredly, it will come up in the question section. But, I wanted to bring out another point that I think, that I would like the Administration to be considering, as it is helping to forge forward in creating affordable housing. Affordable housing is kind of like art: It is in the eye of the beholder. In a community where you have very high cost of real estate, you have high tax burden on the people, you have high cost of energy, you have high cost of transportation, high cost of living, what is affordable by us, or I should say is what is affordable in other areas of the country is poverty level in certain areas of my district. And I just encourage you all to think about how we can make affordable housing a reality in suburban America. I represent the County of Suffolk where the median income is high, but the cost of living is higher, and therefore the ability to access the affordable housing subsidy programs are out of the reach of the people who earn greater than $30,000 or $40,000 for a family. But in my area, if you earn that kind of money, you are certainly not living in the lap of luxury. You are struggling to get by, you are working two or three jobs in order to be able to put food on the table, and certainly affordable housing, housing of any kind, including rental housing, is just completely out of their reach. I would encourage you to think about that in the crafting of any regulations or policies. I would like you to consider ways to widen that net so we can capture more people who are truly in need of affordable housing. And I thank you, Madam Chairwoman, and I will yield back the remainder of my time, but ask that my official comments be entered into the record. [The prepared statement of Hon. Felix J. Grucci Jr. can be found on page 430 in the appendix.] Chairwoman Roukema. So moved. Are there other opening statements? Yes, Ms. Sanders? Well, I was going in the order in which you came, but all right, if you want to yield to Ms. Schakowsky, fine. It is up to you. Mr. Sanders. Yes. Ms. Schakowsky. I thank the gentleman, and I thank you, Madam Chairwoman, and Ranking Member Frank for convening this hearing. The lack of affordable housing has a tremendous impact on families in my home State of Illinois. One out of five renters in Illinois spends more than 50 percent of their income on rent, and in Chicago we are short over 150,000 units of affordable housing for extremely low-income households. Thirty thousand units of project-based housing are going to be expiring within the next 5 years, many of them in my district, and the problem will grow worse if we don't do something about it now. Low- and moderate-income families face several barriers to finding a safe and affordable place to live. I wanted to emphasize one of those barriers, and that is discrimination. Landlords across the country discriminate against Section 8 holders. Back in my home city of Chicago, the City Council passed ordinance that prohibits landlords from rejecting a tenant based on source of income, yet I have talked to too many tenants who were rejected despite this law. And I am concerned that our efforts to address the affordable housing crisis will be fruitless or at least hampered if we don't address the widespread discrimination in our housing markets. Unfortunately, the Administration wants to provide only $46 million for fair housing enforcement and investigations. Fair housing programs have received flat funding during the past 2 years, which, actually, if you index it for inflation, represents a significant cut, and that is really unacceptable. Our committee needs to this issue. Toward that end, I am going to ask the General Accounting Office to conduct a study to investigate the problem of housing discrimination and HUD's response. I hope that all of my colleagues on this subcommittee, at the very least, will join me in this request, and I hope very much that Chairwoman Roukema will call a hearing to investigate this problem of housing discrimination. Thank you very much, Madam Chairwoman. Chairwoman Roukema. Thank you. Are there other statements, Mr. Miller or Ms. Tiberi? No opening statements? Mr. Miller. I would submit a statement in the record. I prefer to hear the witnesses today. Thank you. [The prepared statement of Hon. Gary G. Miller can be found on page 433 in the appendix.] Chairwoman Roukema. All right. Yes. I think we would all like to get to that, especially with the votes coming up. Yes, Mr. Sanders. Excuse me, Mr. Sanders. Mr. Sanders. Thank you, Madam Chairwoman, and thank you very much for holding this important hearing. And I would like to submit my full statement for the record. And I look forward to dialoging with Mr. Weicher and Mr. McCool later on. As you know, Madam Chairwoman, I have introduced H.R. 2349, which is the National Affordable Housing Trust Fund. Just this morning we had a press conference where over 200 prominent religious leaders signed a letter to the President urging support for this legislation. It currently has 174 co-sponsors, including a number of Republicans. And most interestingly, because of the severity of the housing crisis in this country, over 2,000 national, State and local groups, from business groups to religious groups, to trade unions, to low-income groups are supporting this bill. Others have already talked about, and I don't need to go into great depth, there is, gentlemen, as I hope you know, a severe housing crisis in this country. In the United States of America, children should not be sleeping out on the streets. That is a national disgrace. In the United States of America, millions of working families should not be force to pay 50 or 60 percent of their limited incomes on housing. That is a national disgrace. People are working in my State of Vermont, they are working in California, in the Midwest. They are working incredibly hard, and in many parts of this country, because of the limitation in terms of affordable housing, they are paying a large chunk of their paycheck for rent of for their mortgages. The bottom line is that the housing crisis is not caused, in all due respect, by the Endangered Species Act, it is not caused by overregulation; that may be a problem here or there. It is caused by the fact that the cost of housing for a variety of reasons is high and millions and millions of people are earning inadequate wages. Millions of people are earning below what we consider to be a living wage for the American worker. So you have got a crisis, and there is no other way that that crisis is going to be solved, to my view, unless the Federal Government puts in substantial sums of money. Now, I believe very strongly that we have got to step up to the plate and put in real money, which is what the National Affordable Housing Trust Fund is about. It is my view that given the fact that Congress and the White House are not addressing this crisis, it is appropriate that there be a trust fund. It is appropriate that that money come from the Mutual Mortgage Insurance Fund. Now, I will later on dialogue with you, but I understand that the White House is very concerned that that money now, which would be some $26 billion over a 7-year period, is now being used for deficit reduction, which raises a very fundamental issue. This is an Administration which apparently thinks it is OK to give hundreds of billions of dollars in tax breaks for the richest 1 percent of the population, people who are earning $375,000 a year minimum, but somehow when some of us want to use money which is now going into the general fund to build affordable housing, and by the way, put millions of American workers to work at decent wages, my goodness, we are impacting deficit reduction. Chairwoman Roukema. Mr. Sanders, can you conclude, please? You are well over the 5-minute time limit. Mr. Sanders. I conclude. Thank you. Chairwoman Roukema. Thank you. Mr. Miller, Congressman Miller. Mr. Miller. Thank you, Madam Chairwoman. There are varying opinions. To begin with, nobody at the top levels of the tax bracket gets a cut for another 4 years. So I am tired of listening to the rhetoric on the Minority side about all this money being spent on rich people who did not get a tax cut. Mr. Sanders. Will a friend yield? Mr. Miller. No, I will not yield. You had your time, you had your moment, sir. Endangered Species Act some believe not to be an issue. There was a project in Colton, California that I am just dealing with today that Fish and Wildlife set aside 33,000 acres of habitat for a rat that just wiped out 2,500 units of affordable housing that were approved after a 6-year project and process through the county that was approved 5-0 by the Board of Supervisors. And now, because of Federal law, rats are more important than people. You know, there was a time in this country when we used to swat flies and poison rats. Now we set aside habitat for them on private property, and Government is too stingy to pay the cost of the private land. We want taxpayers who pay for that property to take and foot the bill for habitat for flies, rats, mosquitos, frogs, lizards, snails, everything you can imagine, and I am tired of hearing the rhetoric from socialists about Government not being the problem. If the builders could---- Mr. Sanders. Who is the gentleman referring to? Mr. Miller. I don't think I am speaking to you, and I prefer you hold your speech till you have time, sir. I am tired of individuals talking about Government not being the problem when builders in this country are trying to provide housing for people who need it, yet, because of the red tape and the process they have to go through, it is almost impossible to keep up with the demand, that when you don't meet the demand, as you all know, what happens to the prices? When the demand outproduces the supply, when there are more people wanting to live in a home than we have houses for, prices artificially increase, and that is what is happening in California. And I applaud the Chairwoman, and I applaud the Bush Administration for trying to deal effectively with the housing crisis in this country. But, we are dealing with another issue that I talked about yesterday, and that is Canadian lumber. Forty percent of all the softwood coming into this country that is needed on the West Coast comes from Canada, because of a bunch of wackos who don't want us to cut down any trees in this country, so we can't go out and provide lumber to build houses. We have to buy it from Canada or other countries who are willing to sell it to us. So I am tired of us blaming the private sector for Government interference and Government mandates and Government restrictions when we are the problem for affordable housing, and we would need to resolve it. And I applaud the Chairwoman for making that effort, and I yield back what time I had left. Chairwoman Roukema. Thank you. Thank you. We didn't set the time correctly, but I think you were very mindful of your time limitation. Now, we do have a vote on the floor, but Congresswoman Schakowsky--I am sorry, Velazquez or Schakowsky, who would like to be next, and would you like to take your time now? Yes, yes, Velazquez. Ms. Velazquez. I could do it now. Chairwoman Roukema. Yes. Ms. Velazquez. Well, thank you, Chairwoman. I would like to thank you and Ranking Member Frank for holding this hearing. The home ownership opportunities afforded by the Fair Housing Administration are important cornerstones of our national housing policy. I am eager to hear the testimony of our two panels on the various proposals put forth in this bill. Title II of the Housing Affordability for America Act deals with the FHA authorizing and qualifying a number of very important proposals which have long been advocated by Members from both sides of the aisle. I was glad to see that it included such provisions as downpayment simplification, incentives for teachers and public safety officers to purchase homes and increases in the loan limits for high-cost areas. I strongly support each of these provisions and commend the Chairwoman for including them in this bill. In fact, my concerns with Title II lie not as much with what it includes as with what it excludes. It is a well- established fact that unfortunately a large percentage of FHA loans are targets of predatory lending, yet there is no attempt to take simple steps to ensure this issue is dealt with effectively. Specifically, in my district, this has become an increasing scourge. Twenty years ago, we couldn't get lenders to invest in much of central Brooklyn. Today, the investment exists. But it is frequently in the form of loans that have unfair and unrealistic terms. More alarming still is the growing pattern of foreclosures on FHA-insured properties in this area. Nationwide, default rates on federally insured mortgages are up more than 100 percent in the last decade alone. This year, in the New York region, default rates on these same loans are three times the national average. Of particular concern for me is the fact that three-fourths of the FHA-insured mortgages in this region are located in Brooklyn and Queens and centered in minority communities. From property flipping of FHA-insured homes to inflated appraisal prices on these properties, to the recent 203(k) crisis in New York City, we are seeing a growing number of predatory lending scandals in minority communities. In many of these, HUD and FHA reveal their quiet complicity simply through their lack of aggressive action. One thing that has been consistent among all of these problems has been the realization that when HUD or FHA delegates any obligation imposed upon it to an interested party in a loan, we are asking for trouble. The bill before us today gives us an opportunity to fix some of the problems that have been plaguing our communities, but we need to take additional steps, perhaps aggressively, to stop the growing practice of predatory lending. I look forward to working with Chairwoman and the Ranking Member to put an end to these troubling practices. I commend the Administration for its commitment to increasing minority home ownership. However, equally important must be insuring that those who enter the ranks of homeowners have the ability to remain there. I hope that before this bill moves forward, we take a few simple steps to ensure this goal becomes a reality. Thank you. Chairwoman Roukema. Thank you. Now I must apologize to the panelists. You have heard that the lights are on and the 5- minute vote rang. We are having a series of votes on the floor, and Congressman Frank and I agreed that we should adjourn this hearing until the three votes are voted upon. There is a 15- minute vote, a motion to recommit and final passage. So we will adjourn this hearing until those three votes are concluded. And I would simply ask please to have the Members return as soon as possible so that we can give the courtesy to our distinguished panelists here. At that point in time, I think we will have uninterrupted time. Thank you so much. [Recess.] Chairwoman Roukema. Our votes are concluded on the floor so there should be no more interruptions. And I would specifically outline to the panelists the rules of engagement, so to speak. Your written statements will be made a part of the record, your full written statements. But your testimony will have to be limited to 5 minutes. I will recognize each of you individually for your statements, and of course every Member who is here will be able to ask questions, and they will also be limited to 5 minutes for their questioning period. With that, I would like to introduce each of our panelists individually, as you are speaking and testifying. And with that, I will introduce our first panelist, and I hope I am pronouncing his name correctly. Is it Weicher? Mr. Weicher. Yes. Chairwoman Roukema. John Weicher. Mr. Weicher is the-- excuse me, excuse me, you do know, I think I outlined to you earlier the time limit and the timers that are on the desk up there on the table so that you will be alerted to the time constraints. John Weicher is the Assistant Secretary for Housing and the Federal Housing Commissioner at HUD. And we certainly appreciate the fact that he has just recently been appointed, within the past year, by President Bush, and he at that time--prior to this appointment he was director of Urban Policy at the Hudson Institute. I believe, Mr. Weicher, also you held a policy position when Jack Kemp was Secretary, correct? Mr. Weicher. That is correct. I was the Assistant Secretary for Policy Development and Research. Chairwoman Roukema. And with that, I will welcome you here today and look forward to your testimony. STATEMENT OF JOHN C. WEICHER, ASSISTANT SECRETARY FOR HOUSING/ FHA COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Mr. Weicher. Thank you, Chairwoman Roukema. I was the Assistant Secretary for Policy Development and Research with Secretary Kemp. I appreciate the opportunity to testify on behalf of the Department and the Office of Housing concerning the Housing Affordability for America Act of 2002. The bill contains 23 sections on housing programs, which works out to 13 seconds apiece to discuss them. And in your letter of invitation, you also asked me to discuss several specific questions about FHA programs. So I will confine my answers to those questions and comment on just a few of the corresponding sections in the bill. My full statement talks about all of the bill in detail. I'll begin with FHA's basic Section 203(b) Home Mortgage Insurance Program. As you know, the President and the Secretary have made promoting home ownership a cornerstone of domestic policy, especially for minority households. FHA is very much a part of this policy. About 80 percent of our mortgages serve first-time home buyers and about 35 percent serve minority households. The national home ownership rate and the minority home ownership rate both set new records last year. FHA's business this year is running well ahead of expectations. If the second half of the year matches the first, we will need to seek an increase in our $160 billion commitment limitation for the MMI Fund. The fund had a net worth of 3.75 percent at the end of Fiscal Year 2001, and having been personally involved in developing the FHA reform legislation, as was Chairwoman Roukema and Ranking Member Frank 12 years ago, I am very pleased to report this. The bill contains several provisions to improve FHA's ability to operate our single-family programs. Section 221 would make permanent the 1998 Downpayment Simplification Act. Secretary Martinez supported this proposal during his testimony before the Appropriations Subcommittee last month. Similarly, Section 227 should help FHA establish our hybrid ARM Program as the Administration proposed last year. Sections 229 to 231 will help us prevent a recurrence of the 1998/1999 Section 203(k) fraud problem in New York City where a number of unqualified non-profits were persuaded by unscrupulous lenders to buy small, multi-unit buildings in Harlem and Brooklyn, supposedly to rehab them for owner occupancy. This fraud will cost the taxpayer some $268 million. And may I say in response to Ms. Velazquez' opening statement, we did not countenance fraud, we have prosecuted it. Moreover, we have worked closely with the City to develop a plan that will fix that housing, make it livable, and protect the tenants and the neighborhoods in which they live. The committee has asked about our single-family REO activities. Since the introduction of the management and marketing contracts in March of 1999, the Department has greatly improved our disposition process. As of March 2002, the inventory of HUD-owned homes is at its lowest level since 1996, 28,000 homes compared to a March 1999 inventory of 42,000. Moreover, the inventory has been stable during the recession instead of rising, as has been typical in the past. Currently, homes remain in inventory an average of 183 days compared to 221 days for this same period in 1999, and losses per claim have been reduced from 39 cents to 29 cents on the dollar. That loss rate is the lowest in at least 20 years. With this record, we do not think that additional statutory authority for property disposition is required. FHA's basic multifamily insurance program, Section 221(d)(4), has required credit subsidy ever since credit reform was enacted in 1990. Three times in the last 8 years, the program was closed down because the available credit subsidy was exhausted. To end this stop and start cycle and place the program on a breakeven basis, the Department raised the premium from 50 basis points to 80 for Fiscal Year 2002. There were concerns that the program would be hamstrung by this increase. That has not happened. Already in this Fiscal Year, FHA has insured over $1.5 billion worth of (d)(4) projects, more than we did in all of last year. Moreover, with the 25 percent increase in mortgage limits that was proposed by the Secretary and enacted by Congress, we are seeing the first applications in years from several high-cost metropolitan areas, including at least one in New Jersey. In addition, we have conducted the first systematic analysis of the premium and credit subsidy since credit reform was enacted. We concluded that (d)(4) can be operated on a breakeven basis at a much lower premium--57 basis points. The President's budget contains an announcement of this premium reduction, effective in October. We are also reducing either the premium or the credit subsidy for nearly every other multifamily program. Sections 201 and 202 address the question of who should be served by the programs. FHA generally serves moderate-income renters. Most FHA-insured projects are affordable to families in the lower half of the income distribution. And about half are in underserved areas. These are important markets. These families and these communities need FHA. To state our views very briefly, we favor Section 201, indexing the multifamily mortgage limits. We would prefer to wait on Section 202, analyze our experience with the new limits and the future effects of indexing before proceeding with any additional increase. I just want to mention in conclusion that we support the housing impact analysis proposed in Title VIII. This was advocated by President Bush during the campaign 2 years ago. And then thank you for the opportunity to testify, and I will answer any questions. [The prepared statement of John C. Weicher can be found on page 437 in the appendix.] Chairwoman Roukema. Thank you, Secretary Weicher. Our second panelist here today is Mr. Roy Bernardi. Mr. Bernardi currently serves as HUD Assistant Secretary for Community Planning and Development, and with that kind of experience we welcome you here today, but I also understand that you served as Mayor of Syracuse, New York, elected at that time and re-elected, served--you were obviously a very popular elected representative and a Republican at that, as I understand. We are not making this partisan, but for Syracuse it is my understanding that that was a rather renowned tribute to the party. All right. And with that, Mr. Bernardi, we give you your 5 minutes of testimony. STATEMENT OF ROY A. BERNARDI, ASSISTANT SECRETARY, OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Mr. Bernardi. Thank you, Madam Chairwoman, for your efforts, and Minority Member Frank, for all of your efforts to bring the issue of affordable housing this attention through legislation. We thank you for your leadership and your compassion for the less fortunate among us. H.R. 3995 proposes some significant changes to many programs in the Office of CPD. I have addressed these changes fully in my prepared statement, but I would like to summarize for you this afternoon these proposed changes. Starting with the HOME Program, the HOME Program has demonstrated remarkable success in developing affordable housing, particularly in producing rental units to serve extremely low-income families. We believe reforms of this program should build on its notable successes. I can indicate to you that of the number of units that are produced, 41 percent are for extremely low-income individuals, who pay up to 30 percent of median income in rent. We have a concern that the proposed Production and Preservation Program and other significant proposed changes for the HOME Program will have consequences that will not help the worthy objective of H.R. 3995 which is to provide affordable housing for extremely low-income families. Abandoning the FMR standard and adopting the State median income as a floor for determining rents could actually, in many instances, increase rents generally across the country and have unintended consequences. Production results as well as feedback that we received from housing providers indicate the changes made over the 10 years to this program to improve its effectiveness have been largely successful. One hallmark of the HOME Program has been the close and continuing communication between HUD and the recipients of HOME funds and their representatives. Certainly, we are receptive to further improvements and when the report of the Millennial Housing Commission is published next month, HUD will be eager to work with this subcommittee to build on your efforts and those discussed by the Commission to expand affordable housing opportunities under the HOME Program. I would also like to address our Homeless Assistance Program. The McKinney-Vento homeless assistance provisions of the bill are carefully crafted and correctly recognize the important elements of current law that should be retained. Specifically, we support the goal of reauthorization for the support of housing, Shelter Plus Care, Section 8 moderate rehabilitation and the emergency shelter grants. However, the Department will propose the consolidation of these programs into one that is needs-based and performance-driven. We also are pleased with reauthorization of the Interagency Council on the Homeless and the transfer of the Emergency Food and Shelter Program to CPD. In the 2003 budget process, the Department reviewed proposals, now in the bill's language, to transfer the costs of renewing expiring Shelter Plus Care projects and projects funded under the permanent housing component into the Certificate Housing Fund. We believe they would be better addressed as part of a consolidation of homelessness funding. Now, I have comments on the community and development block grants, and the CDBG Program provisions of H.R. 3995. Section 902 on housing counseling programs would require the Secretary to consolidate housing counseling under a single HUD office. The cornerstone of the CDBG Program is local discretion of program design and implementation. We would caution against adopting a one-size-fits-all approach that would take away discretion from the CDBG grantees. We would rather urge support for the Administration's request of $35 million for a new categorical counseling program, nearly doubling the current level of funding and removing the program from the home block grant. Section 905 concerns the funding eligibility for secular activities carried about by religious organizations. HUD strongly supports the involvement of faith-based organizations in our programs. HUD supports Section 906, adding a new eligibility criteria category to the CDBG Program to authorize the construction of tornado or storm-safe shelters in manufactured housing and parks. We do that in public property right now. We support this new eligibility category; however, we do not want to see it as a set-aside. Now, Section 907, CDBG renewal communities. CDBG right now does provide assistance to empowerment zones, and we agree that there should be assistance to renewal communities through the CDBG Program. And HUD also supports reauthorization of the self-help ownership opportunities Program (SHOP). The President's request to triple to $65 million for SHOP in Fiscal Year 2003 reflects its popularity and success in helping low- income families become home owners. I think I am within two seconds of my time being up, so I want to thank you for the opportunity, and I will be happy to answer any questions. [The prepared statement of Roy A. Bernardi can be found on page 447 in the appendix.] Chairwoman Roukema. Thank you. I appreciate your cooperation. Our next panelist is Mr. Michael Liu, Assistant Secretary for Public and Indian Housing at HUD. It is my understanding that you have had considerably experience as a member of the Federal Home Loan Bank of Chicago; is that correct? Mr. Liu. Yes, ma'am. Chairwoman Roukema. But I hope you can help us give us some insights of yours during the time period in which you are serving at HUD on this subject of Section 8 rental housing and assistance for Native American programs at HUD. I thank you. STATEMENT OF MICHAEL LIU, ASSISTANT SECRETARY, OFFICE OF PUBLIC AND INDIAN HOUSING, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Mr. Liu. Thank you, Madam Chairwoman. We appreciate you and your co-sponsors developing and introducing the Housing Affordability for America Act of 2002. The bill contains many proposals that will allow us to do a better job of providing the most effective low-income housing assistance possible with the funds available. With respect to vouchers, Section 401 of the bill proposes a new Thrifty Production Voucher Program. This program is patterned after the current project-based voucher program, but assumes that the capital for production will be found from other programs or sources and provides for reduced subsidy designed to cover only operating costs. HUD generally supports additional tools that may help public housing authorities (PHAs) meet their community's housing needs, and in that context will work with the subcommittee to develop a means of offering vouchers that can be combined easily with capital subsidies. The current proposal, however, seems rather complex and differs from the project-based voucher program in ways that may not be necessary, such as waiting list administration and development of requirements by location, to name just a few. I look forward to further discussions on this matter. The bill also contains several initiatives designed directly or indirectly to increase the successful use of appropriated voucher program funds. HUD supports the increase in allowable rent to 40 percent of gross income, but believes PHAs also need flexibility to address compelling situations. For example, where a family already in the program would like to move into a significantly less expensive unit, they cannot do so because the family still would be paying more rent than the current limit. HUD would consider allowing the use of some program funds to help increase voucher utilization for PHAs that are effectively using their administrative fees solely for the Section 8 Program. However, at the proposed maximum limit of five percent, this could translate into $500 million which may affect the administration of the core program. Any such reauthorization should be substantially narrower and structured to include appropriate oversight. With respect to administrative fees, HUD recommends that it be given broader guidelines, not just to provide a bonus for high performers, but also to restructure the fees to promote performance in general and the accomplishment of specific program priorities, including families' movements to self- sufficiency and home ownership. With respect to public housing, HUD appreciates that Title V contains the Administration's Public Housing Reinvestment Initiative, because that initiative can provide a new and effective means of improving public housing. The Public Housing Reinvestment Initiative provides a means of addressing this problem with the dollars available. The Public Housing Reinvestment Initiative allow PHAs that choose to participate to trade their public housing subsidies for project-based vouchers on a property-by-property basis. PHAs could then borrow money for capital improvements on the same individual property basis now used for Section 8 developments and multifamily housing generally. The bill contains a proposal to suspend the PHA plan requirement for 3 years for the smallest PHAs, up to 100 units. HUD has provided some streamlining of PHA plan requirements for these PHAs, but we need to go further, and we are developing a regulation that we believe will accomplish this. This bill's proposal is certainly along the same lines. The bill would also require HUD to develop and test a third party system for public housing performance evaluations through an outside contractor. This year, HUD has implemented a binding public housing management assessment that contains an independent inspection of physical conditions. However, experience with the Public Housing Assessment System (PHAS), during its extended advisory period raised so many questions regarding the adequacy of its physical inspection and finance components that HUD has substantially simplified and in some respects pared back these components prior to implementation. HUD is committed to working with public housing groups in an effort to revise the system, and this includes research into a third party system that would be accepted as appropriate by all stakeholders and parties concerned. The bill provides for a 2-year reauthorization of HOPE VI and for measures to ensure that a broader group of communities in terms of size and location have a realistic possibility of receiving HOPE VI awards. HUD supports reauthorization and the effort to promote broader program participation. Title VII reauthorizes both the Native American Block Grant Program and its related Loan Guaranty Program, and HUD supports the reauthorization of both of these. I look forward to working closely with the subcommittee as you continue to develop this important legislation. [The prepared statement of Michael Liu can be found on page 453 in the appendix.] Chairwoman Roukema. I thank you very much. Now our final panelist is Mr. Thomas McCool. Mr. McCool is the Managing Director of Financial Markets and Community Investment at the General Accounting Office, which analyzes cost factors in the legislative branch of our Government, and we are happy to have you here today, because you had considerable responsibility and experience in analyzing Federal housing and financial matters and their relationship. With that, Mr. McCool, for you. STATEMENT OF THOMAS J. McCOOL, MANAGING DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GENERAL ACCOUNTING OFFICE Mr. McCool. Thank you, Madam Chairwoman, Members of the subcommittee. We are here today to discuss H.R. 3995, the Housing Affordability for America Act, and in particular we are here to discuss Section 226, which would establish risk-based capital requirements for the Mutual Mortgage Insurance Fund of the Department of Housing and Urban Development's Federal Housing Administration. We first presented the results of our analysis last year and suggested ways to better evaluate the financial health of the fund, so I won't go into details as we presented those last year. I will sort of cut to the chase, as it were. When we did our work last year, we concluded in our report that 2 percent capital ratio appeared sufficient to withstand moderately severe economic downturns that could lead to worse than expected loan performance. Some more severe downturns that we analyzed also did not cause the estimated capital ratio to decline by as much as two percentage points. However, in the three most severe scenarios that we used in that particular analysis, an economic value of 2 percent would not have been adequate. Nonetheless, because of the nature of such analysis, we urge caution in concluding that the estimated value of the fund implies that the fund would necessarily withstand any particular economic scenario under all circumstances. Determining an appropriate capital ratio depends in part on the level of risk Congress wishes the fund to withstand, as well as the composition and performance of the portfolio and the way the fund is managed in the future. We believe that to evaluate the actuarial soundness of the MMI Fund, one or more scenarios that the fund is expected to withstand needs to be specified. As a single, static capital ratio, does not measure actuarial soundness. Once the scenarios are specified, it would be appropriate to calculate the economic value of the fund or the capital ratio under the scenarios. As long as the scenarios result in a positive estimated economic value, the fund could be said to be actuarially sound. However, it might be appropriate to leave a cushion to account for factors not captured by the model, especially those related to managing the fund and the inherent uncertainty attached to any forecast. Our view is that Section 226 of H.R. 3995 will permit FHA to develop capital standards that more adequately reflect the risk the fund faces. By establishing what it calls a minimum risk-based capital ratio based upon economic scenarios that could adversely affect defaults and prepayments, the act would more fully capture the credit risk the fund faces. By establishing a 1 percent minimum basic capital ratio, the act recognizes the unknown risk, such as operational risk, that the fund faces. Overall, Section 226 of H.R. 3995 seeks to provide a method for determining whether the fund has capital adequate to cover its credit risk under defined conditions and provides a cushion to cover continuing operational risk, thus clarifying what is meant by actuarial soundness and helping FHA manage the fund to achieve that goal. Madam Chairwoman, this concludes my statement. We would be pleased to respond to any questions. [The prepared statement of Thomas J. McCool can be found on page 460 in the appendix.] Chairwoman Roukema. I thank you for your testimony. And I have a couple of questions, and they may relate to a number of the testimonies here, but I did note that Mr. Roy Bernardi talked about, and I wasn't quite sure the exact connection that you were making, about the unintended consequences that might be out there in terms of actually raising rents. And I guess you were talking about the HOME Program or what was the connection? Would you amplify that, please, for me? Mr. Bernardi. Right now, rent is determined by either the fair market rent or the median--30 percent or 60 percent of the median income by county. And the proposal, as we read it, indicates that the substitute would be the statewide median income, which would be higher and would make the maximum rents higher for the people that is intended to serve. And I think the chart here gives some examples as to what would occur if the State median income were used as opposed to the present fair market rent. Chairwoman Roukema. Staff is telling me that it was recognized in our preliminary discussion, and this should be something that we will have to go back and look at, but I would appreciate your help in specific terms as to how you think we should be addressing this to correct the legislation. Yes? Mr. Bernardi. We would be more than happy, obviously, to work with your staff. Chairwoman Roukema. Please. Mr. Bernardi. And we know there are areas where there is a production difficulty. And if we can identify those areas, maybe we can work within the fair market rent in those areas and tweaking that, if you will, so that we can have more productivity in the areas that presently don't have as much production. Chairwoman Roukema. Is there any other member of the panel that has had some experience with this or insight, a perspective on it? If you do, please contact us by phone, e- mail or even in written form. But I do have another question, and that is Ms. Velazquez is not here, but she had asked earlier today or in her introductory statement, and I acknowledge that that was an important issue, and I didn't hear, but maybe some of you referenced the predatory lending question. Do any of you have any comments or help or observations to give us about the questions raised regarding predatory lending? Yes, Mr. Weicher? Mr. Weicher. Madam Chairwoman, we have been concerned at HUD about predatory lending in this Administration and the previous Administration. Efforts go back at least to 1997, to my knowledge, to address the concerns. We have done a number of things with respect to FHA programs, and we can really only deal with FHA. But Ms. Velazquez mentioned her concerns about FHA in her district in central Brooklyn. We have issued, this fall, a proposed rule to prevent flipping in FHA programs. If the rule becomes final, you will not be able to obtain insurance on the second transaction involving a home within a 6-month period, unless there is a case to be made that this is a legitimate second transaction. We issued that, I believe, in November. We received a number of comments, and we are in the process of putting a final rule together. We have established a program that we call Credit Watch where we i dentify the FHA lenders with high early default and early claim rates on the loans that they have originated for FHA. We know that early defaults and early claims within the first year to 2 years in large numbers is evidence that something is fundamentally wrong. Anybody can have a default, a claim or two, and anybody will have claims as time goes on. But a lot of claims right after the loans have been made is a warning sign. We have conducted Credit Watch investigations of lenders on a quarterly basis, those lenders with these high rates. We have sanctioned, removed from our roster, over 100 lenders over the space of 4 years. We have another 100 lenders who have been given warnings that we are particularly concerned about their performance. We are now extending that same approach to appraisers in something that we call Appraiser Watch that the Secretary mentioned, I believe, in his Senate appropriations-- Senate-authorizing testimony last month. Again, this involves looking at the early default and claim rates on loans based on who the appraisers were on the loan. Finally, for loans which are in default, we have established a loss mitigation program. We expect lenders to take any of several steps to try to help families who are delinquent on their loans from going into foreclosure. Our National Loan Servicing Center in Oklahoma City works with lenders all over the country and tracks the performance of the loans by lender to see which lenders have been successful in keeping people in their homes and which have not. Last year, we cut our claims by 10,000 loans at the same time that we increased our loss mitigation activities by 20,000 loans around the country. We are working in a lot of ways to prevent predatory lending and to help people who are the victims of predatory lending. Chairwoman Roukema. Well, we have no more time now, but for you or any other member of the panel, if you have any recommendations as to how the law can be improved to make it more effective in terms of dealing with predatory lending, please forward that to us, and I am sure that there will be others that have questions regarding predatory lending. With that, I will yield to Mr. Frank. Mr. Frank. Let me begin by asking on the two points I raised before, Mr. Weicher, on the availability of risk sharing FHA under 202, have we got a definitive Department policy on that? Mr. Weicher. Yes. The Department is working on specific instructions to our mortgagees for the process of implying that. We expect to have a revised letter out in 60 to 90 days. Mr. Frank. And that will go to the regional offices. Mr. Weicher. That is right. In Massachusetts, I know we have had one project which has been under consideration for 18 months, and we are giving specific instructions regarding that project. Mr. Frank. I appreciate that, but we can tell them that is a harbinger of good news to come. Mr. Weicher. Yes. And we know MHFA has other projects that they want us to move forward. Mr. Frank. Yes. They have changed their name now to Mass Housing. Mr. Weicher. I know, but it is still---- Mr. Frank. Yes, I agree with you. [Laughter.] Now, on the interest reduction payments being made available for maintenance, where are we on that? Mr. Weicher. Well, we have been discussing that with OMB for the last 2 months. Mr. Frank. Ah, the magic words; we know what the problem is. Mr. Weicher. And those discussions are continuing, and we do expect that we will be able to advise you in the not very distant future. Mr. Frank. But this is a congressional mandate. We are not talking about an option here. Mr. Weicher. I understand that. Mr. Frank. I know they do. Does OMB understand it? Mr. Weicher. Yes. I think the Administration understands this, Mr. Frank. Mr. Frank. OK. Mr. Weicher. And if I may say, I think there are some technical issues here, because we are dealing with money which was originally a stream of payments, and the legislation turns it into a capital grant to avoid scoring, and you were talking about that problem in your opening statement. You can't spend the capital grant any faster than you can spend the original payment, and it is complicated. Mr. Frank. Let me just say this, because I think this is important. Again, it is important for us to have maximum flexibility. Is it a possibility that some statutory change is needed or do you think you can work this all out when you say technical problems? Mr. Weicher. I think we will either get the technical problems resolved reasonably quickly or we will tell you we can't. Mr. Frank. In which case, I hope you will do it in time, and I think--you know, I would be prepared to go to our friends, the appropriators, and ask them if they can clean it up there. But this really, obviously, is important to get it forward. I thank you for that. Let me ask now, Mr. Liu, in your comments, you talked about thrifty vouchers. We are agreed in this room most of the time that we need a production program. Thrifty vouchers can't vote. Here is what you said in your written statement about thrifty vouchers: ``The current proposal seems rather complex and differs from the project-based voucher program in ways that may not be necessary. I look forward to further discussions on this matter.'' I guess I would put you leaning against if I was whipping this. So that sounds fairly negative about the thrifty vouchers. What are your problems with them and what could we do to make them less complex and less not necessary? Mr. Liu. Congressman Frank, my comments should not be an indication of a negative stance toward the proposal. It is a tool. Mr. Frank. Well, Mr. Liu, could I ask you a question? Mr. Liu. Yes, sir. Mr. Frank. When you do feel negative, can I see that? That will be great reading. Mr. Liu. Sure, sure. It will be---- Mr. Frank. If these aren't negative, I want to see when you are negative what you say. Mr. Liu. Absolutely, sir. Mr. Frank. No swearing is allowed. Mr. Liu. Absolutely, absolutely, absolutely. No, it should not be viewed as a negative statement. It really is a statement, on its face, that we would like to work with the subcommittee to develop another tool to try and deal with the issue. Mr. Frank. I understand, but you--I mean, did something happen between the time you wrote this and now? You say it doesn't--I shouldn't take it as negative. ``It seems rather complex and differs in ways that may not be necessary.'' There is nothing favorable in here. Oh, and you also say, ``It assumes that capital will be found from other programs and sources and provides for reduced subsidies.'' I mean what is good in here? Mr. Liu. Well, I think the good part is that we are saying that we are willing to work with the subcommittee to make the tool, at least in our view, workable. Mr. Frank. So, what is good in there is that the American Constitution has not been suspended, and you will continue to work with Congress. But I must say this is not a very ringing endorsement of the program. The next question I have has to do with Section 505, and in particular on the public housing. I understand the flexibility, but what bothers me is about every fourth line there is an ability of the Secretary to waive restrictions. And what bothers me is that if you had a Secretary who was not too happy with public housing, you could wind up with a lot fewer units. And the fear that many of us have is that the best units will be put to a use which is good as far as it goes, but if you waive all these use restrictions, then they go out of the stream of being affordable. Some of them could be, and we all know housing developments in public housing that could, in fact, be very desirable. And I am concerned. Do you contemplate--what do we do to prevent under this, if we enact 505, a loss over time of some of the best public housing units on into the future? Mr. Liu. Well, we believe that there is an adequate dynamic at the local levels, in combination with HUD approval, that will prevent an abuse of the situation. On the other hand, if there are specific ideas that your staff or that the subcommittee might have so that we might inject some balance, if there is need for that, we are willing to discuss those. Mr. Frank. Just to finish up, in other words, to quote a phrase, you look forward to further discussions on this matter too. Mr. Liu. That is a nice phrase, sir. Thank you. Mr. Frank. Thank you. Thank you. Chairwoman Roukema. That is the purpose of these hearings, I believe, at least I hope so. I hope so. Yes, Congressman Miller. Mr. Miller. Thank you, Madam Chairwoman. I have a phrase I would like to use. I call it the ``new homeless.'' And it is not people who are unemployed, it is people who, husband and wife, are out there working very hard. One might be a school teacher, one might be a fireman. And there is a lack of affordability for those people too. I mean, I like good examples. I had one of my staffers that happened to put in a bid for a small condo over here in Arlington yesterday. It was an 874 square foot condo for $199,000. So we would consider that a move-up home for people getting out of affordable, low- income house being able to move up. The problem was in 2 days they received 26 bids and that $199,000 listing sold for $260,000, because we are just not providing enough units to meet the demand out there. And I am just firmly convinced if there is no place for people to move up to, there is never going to be affordable housing in this country. Now, in L.A. County, 59 percent of the Section 8 voucher holders have no place to use that voucher because there is no place for them to move because there is no place people can reasonably afford to move up to and buy a home. And in my comments earlier, I got a little excited. I talked about a builder in Colton that because of a ESA, Endangered Species Act, application for a rat on 33,000 acres, it is going to wipe out a 600-acre development that was going to provide 2,500 affordable units that would have been probably from $120,000 to $150,000 price range, the first move up for people from low- income Section 8 affordable housing. The first place they can go to buy a home. And that is what I think is wrong with this Government, and I have a real problem with that. But on your status report of select programs, your note that public housing is ineffective. What could be done from the Federal perspective to create an effective program for Federal housing? That may be a difficult question, and maybe you will require more time than you have. Mr. Liu. Well, specifically, Congressman Miller, we have been spending a lot of time addressing this issue--and I think the comments that you read are really based on a lot of managerial issues that we have within HUD and within Public and Indian Housing. We must do a better job of working with the housing authorities to ensure that there is both timely and effective use of their dollars, both operating and capital fund dollars. We have seen an improvement, but things could certainly be a lot more effective. For instance, in our HOPE VI Program, which comes up for reauthorization this year, we have allocated for the life of the program over $4.3 billion, close to $4.4 billion. Less than $1.6 billion has been actually spent on hard units coming up. Now, there are dollars that are ostensibly obligated, there are dollars which are ostensibly in the pipeline working on very complex financing. When we look at the promises that these types of dollars hold for the program, we have to revisit that as we look at it going forward. And, again, we were heartened to see a comment made in this bill that attempts to address one of the fundamental issues of our program for HOPE VI. Take for example, the housing stock, and is it today the same that we talked about 10 years ago? So it gives you an idea of the type of challenge that we have in getting these dollars out the door and dollars used to benefit the people out there. Mr. Miller. See, a lot of the problem I have is a lot of individuals who care about housing are well-intended. I am not an attorney and I could read all the books associated with law that I could gather. And for me to stand up here and debate trial procedure having never been an attorney would be rather ridiculous. I have spent 30 years in the development industry from when it was a process 30 years ago that was very simplistic and you could rapidly gain permits and approvals to build. And I have many friends that are in that industry, and I talk to them repeatedly about the process they are going through and the difficulties. The 2,500 units I talked about were proposed by personal friends of mine, I know what they have gone through for 5 years. Another issue on the FHA charge that we have borrowers insurance premiums. We are running a surplus on that. We have an excess of funds on that, which some Members believe that money should be taken and used for other programs. To me it means people who are paying that premium to buy homes are being overcharged, and perhaps we need to refund some of that money back to them or drop those rates in the premium so they are not paying more than they should be. Maybe you can address that. Mr. Weicher. Well, Mr. Miller, we certainly think that the FHA funds should be used for FHA purposes. Mr. Miller. Yes. Mr. Weicher. For the purposes of the home buyer. Mr. Miller. Of the fee. Mr. Weicher. The premiums that they are charged a fee for are charges we levy on individuals for their benefit and not charges that we levy to finance other activities. Mr. Miller. But if they are not needed for that, some Members, I have heard, want to use that money for another purpose. Mr. Weicher. Yes. Mr. Miller. Rather than taking that money that belongs to somebody who paid it and giving it back to them, because it is their money, it is not our money, and then going in the future and saying, ``Let us drop that rate to an amount we need.'' Is there something to be done in that line? Mr. Weicher. As I mentioned in my opening statement, the Congress spent a great deal of time 12 years ago establishing a set of premiums and policies for FHA to prevent the fund from going the way of the S&L industry, which there was some concern about in 1989 and 1990. And we have built up the fund to the point where our net worth is higher than the levels that Congress mandated back in 1990. There is a question-- and Mr. McCool's testimony goes into this in some detail-- whether the capital standards that Congress established in 1990 are adequate to protect the fund against serious economic downturns of a kind we have not seen in the last 10 years and more, but of a kind we have seen once or twice in the past. Mr. Miller. So you think they should be applicable to the service they were---- Chairwoman Roukema. Excuse me. We are much over time. Mr. Miller. Thank you, Madam Chairwoman, and I hope Mrs. Kelly will address the issue on appraisals. Chairwoman Roukema. Let Mr. Weicher finish his response to you, and then we will move on. Mr. Weicher. I think that does finish it, Madam Chairwoman. Mr. Miller. Thank you for your graciousness, Madam Chairwoman. Chairwoman Roukema. Thank you. Thank you. I am going to try to go in the order in which people arrived, and I think Mr. Sanders was one of the early arrivals. Mr. Sanders. Thank you, Madam Chairwoman. Let me start off, if I might, with Mr. Weicher. Mr. Weicher, according to Deloitte & Touche, over the next 7 years the FHA Fund balance is projected to grow from over $18 billion in Fiscal Year 2001 to $44 billion in Fiscal Year 2008. If Deloitte & Touche is correct, the FHA surplus will exceed $26 billion over the next 7 years. And I just wanted to ask you, and most of us are not actuaries or accountants here, but in English is that roughly correct, would you agree with that? Mr. Weicher. I would not call it a surplus, Mr. Sanders. It is the net worth of the MMI Fund. It is the---- Mr. Sanders. But is that figure from Deloitte & Touche correct? Mr. Weicher. That is the best estimate that Deloitte---- Mr. Sanders. OK. So we agree on that. Mr. Weicher. We---- Mr. Sanders. Excuse me. I will ask you questions. If I might, sir, OK? You do not call it a surplus but others might. I understand where you are coming from; you have made your point before. It is a fair question as to what we do with that money. Now, the President, as I understand it, and the Administration believe that that money should be used to counter the deficit, that it is a surplus, I call it a surplus, to be used to counter the deficit. Other people have different ideas. But, in fact, what we are looking at is $26 billion more that some people believe that, in fact, we need to protect that fund. It is an honest debate as to what we should do with that money. I understand that there are different points of view on that issue. I would strongly suggest that given an--and I will use the word ``surplus''-- that we have that surplus, that this comes, in fact, from housing transactions. Given the fact that this Administration, and, in fact, previous Administrations, have not adequately dealt with the crisis in affordable housing, given the fact that some are proposing and have supported huge tax breaks for the wealthiest people in this country, I believe that it is appropriate in order to address the housing crisis that I think almost everybody in this room perceives to exist, to put that money into affordable housing. And I would like you to tell me if there is anything extraordinary--you may not agree with it, but there has been some confusion on this issue--if the United States Congress decided, as I hope that they will, and we have 174 co-sponsors on this legislation, to create an affordable housing trust fund using this surplus, dedicating this stream of money for affordable housing if it passed the House of Representatives, if it passed the Senate, if the President signed the bill, am I correct in saying that we would have a National Affordable Housing Trust Fund with that money, sir? Mr. Weicher. I think what you are asking is will the Department of Housing and Urban Development abide by legislation that is passed by the Congress and signed by the President. Mr. Sanders. That is right. And I hope the answer is---- Mr. Weicher. You can hardly expect any of us to say, ``No, we will reject the decisions of the Congress and the Administration that we serve.'' Mr. Sanders. Of course, and I appreciate that answer, and I knew that would be your answer. But I did ask you that because we have heard some discussion in the past from various authorities that suggest that somehow this can't be done. And the answer is if the Congress deems it and the President signs it, that is, in fact, what can be done. And, Madam Chairwoman, let me just suggest that what this issue really comes down to, in one sense it is very complicated and so forth, in the other sense it is really pretty simple. And that is you have a pot of money and honest people have honest differences of opinion what you do with that money. My feeling is that that money should be directed into dealing with the affordable housing crisis, that one of the spin-offs of that will be the creation of large numbers of decent paying jobs and that children will not have to sleep out on the streets of this country, and millions of people will not have to pay 50 or 60 percent of their income in housing. So I would hope that we will use that money for affordable housing, and we look forward to moving that bill forward. Thank you. Chairwoman Roukema. All right. I thank the congressman from Vermont. Now we have Congresswoman Kelly from New York. Mrs. Kelly. Thank you, Madam Chairwoman. Mr. Liu, a little while ago, I went to New Orleans and held an oversight hearing in New Orleans. That was a situation where the New Orleans Housing Authority had over $800,000 available to them. They had knocked down a huge amount of housing and they had not had a HOPE VI grant since 1994. There were people who were displaced, but there was no new housing being built. And yet there was $800,000 available to that housing authority that wasn't being utilized. Now not all of that was HOPE VI money, but I noticed that you have talked just quickly about HOPE VI in your testimony, and, again, Mr. Miller brought up some things. I would like you to address what exactly you are doing, and if you are not able to do that, perhaps you could work with my office. I would like you to address what is happening with the availability of a public housing authority to move money that is available into that HOPE VI rebuild program if they have this need to rebuild housing. In addition to that, that flexibility I hope would happen, but I also am thinking about a timeliness, and you addressed that a bit. Are you thinking about time certain after something is knocked down? And I am not talking about one-for-one replacement, but just simply the fact we are dislocating families, we need to rebuild something, and I, in New Orleans, found it appalling that all that money was there and yet we had people living in such terribly substandard housing. Could you address that for me, please? Mr. Liu. Yes, Congresswoman. You have touched on a subject which is of great concern to the Department, and as we move forward in looking at the issue of reauthorization of HOPE VI, we welcome ideas and suggestions and certainly welcome the chance to work with you and other Members of the subcommittee on that. Project readiness is an issue. For instance, currently under the HOPE VI Program, under the 2001 NOFA, and prior NOFAs, a ``successful housing authority'' need not have put in as part of its application a project schedule. I will repeat that again. You could win a HOPE VI grant and not have a project schedule. And most of our HOPE VI awardees proceeded in that fashion. After they get the award, we would then negotiate or work with them to develop a project schedule. Now sometimes that could take years so that we have projects today 2 or 3 years after the award where the housing authorities don't even have a developer partner. We have situations where grants were made in 1995, and not a dollar has been spent, nor a subsequent revitalization plan, which is also not necessarily required under the current NOFA, is there. So these are issues that we hope to address as we talk about reauthorization, because you are absolutely right, it is a shame to have these dollars available and not used. Mrs. Kelly. I thank you very much, and I know that this subcommittee will work with you on this. One other thing, Mr. Weicher, I heard you mention quickly about going back and looking at what the appraisers have done and so forth. I am very interested in pursuing that a little bit with you simply because appraisal can often not necessarily mean the same thing from one appraiser to the next, and I wish you would elaborate a little bit on what controls you are thinking about with regard to appraisals. Could you do that for me, please? Mr. Weicher. Certainly, Ms. Kelly. In the last 2 years, we have insured 1.8 million loans that have appraisals on them. We are looking at our early default and claim experience on those loans, classified by who the appraiser was on the loan. And we have the name of the individual appraiser, John Weicher, if I were an appraiser. We would have the name of the individual appraiser. We then look at those appraisers whose default rates and claim rates are high compared to the default rates and claim rates of the field office area, which is either a State or part of a State in the larger States, and we look at those who are high relative to the markets in which they are working. Those give us a group of appraisers who are creating risks for the FHA Fund and putting people in houses where they are not able to sustain the mortgage. We then will go in and look at the appraisers on an individual field review basis and see whether this is bad luck, whether this is incompetence, or whether it is something worse. Mrs. Kelly. How long does that process take? Mr. Weicher. Well, in the---- Chairwoman Roukema. Excuse me. I am sorry. I am sorry, but let us conclude this. Give a short answer and conclude, please. Mr. Weicher. In the first 3 months of the year, we have identified 24 appraisers for field office review. Mrs. Kelly. Thank you. Thank you, Madam Chairwoman. Chairwoman Roukema. All right. Thank you. I am sorry. I don't like to be forcing people to comply with the 5-minute rule, but I will tell you it is my opinion that we are going to have conclude this hearing at five o'clock, so that if we are going to get through this next panel, we are going to have to use some discretion here and adhere to the 5-minute rule. Otherwise we will never get through to the second panel. Yes. And with that, Congresswoman Lee. Ms. Lee. Thank you, Madam Chairwoman. Let me just ask Mr. Weicher with regard to the HUD's budget, it is my understanding that it does not include any funding for rehab of federally assisted housing programs. And I wanted to find out if that is so, and if it is, what do you think in terms of your recommendations to address this need? And then also, in your response to our Ranking Member, Congressman Frank, with regard to Section 236, if all of the difficulties and issues are worked out with, is it OMB, would you actually go back to the drawing board and put a request in for those funds for Section 236? Mr. Weicher. The answer to the latter question is, yes, if we can work out the complications with this, then we would expect to have funds which we would be able to make available through the usual process. We would need regulations, and we need a NOFA if these were to be made available competitively, which they probably would be. But the short answer is, yes, we would make those funds available. With respect---- Mr. Frank. Would the gentlewoman yield, because she asked a very good question? Would that have to be reflected in appropriation or have you got sufficient authority to do that now without any further appropriation? Mr. Weicher. It is a question of the timing. The 236, the interest reduction payments have already been scored as a stream of payments over time, and the OMHAR legislation in 1997 established that these funds could continue to be spent but on the same basis. And that, as I think I mentioned, is part of the problem. What was a stream of payments needs to be somehow handled as a capital grant, and if the timing of the outlays changes, the scoring would change, and that is part of the complication. Mr. Frank. But if necessary, you would then request the authority to spend it if that were necessary. Mr. Weicher. Yes. Ms. Lee. OK. Thank you very much, Madam Chairwoman. So then is it safe---- Chairwoman Roukema. Your time is not yet concluded if you have a follow-up. Ms. Lee. OK. Thank you. Chairwoman Roukema. Brief, brief. Ms. Lee. Very quick. With regard to the proposed rule, with regard to predatory lending, in conjunction with FHA insurance, it would generally prohibit the use of FHA to finance homes that were resold within the 6-month period. And I just wanted to know if you plan on issuing a final rule on this or what is the status of that? Mr. Weicher. Yes. We do plan on issuing a final rule. We are reviewing the comments now, and we expect to have a final rule out this summer. Ms. Lee. This summer. Mr. Weicher. If not sooner. Ms. Lee. OK. Thank you very much, Madam Chairwoman. Chairwoman Roukema. I thank you. And now Congressman Watt. Mr. Watt. Thank you, Madam Chairwoman. Mr. Liu, I confess a little concern about your approach to one or two things that suggest that the subcommittee should be making proposals to HUD. I think maybe we got this backward, and we are trying to write a piece of legislation, and we are having trouble getting input from the Department that we are trying to be responsive to in writing that legislation. We write the legislation over here. And so I want to, first of all, without asking for a response from any of you, just ask you all to please encourage Secretary Martinez to respond to a list of questions that this subcommittee sent to him after he testified on February 13 that have never been responded to. If we don't get the responses to the questions we ask, then we can't be sensitive to the concerns or how you as a--how HUD would like to have this done. So please take that message back to him. I had three questions that I still haven't gotten the answers to. The subcommittee asked a bunch of questions that the subcommittee has not gotten answers to, and it is just very difficult to be responsive to concerns that HUD has. Now I am going to segue into your testimony---- Chairwoman Roukema. Excuse me. Mr. Watt, I just want to concur with you, because I also, as Chairwoman of the subcommittee, have, on two occasions, requested those responses from Mr. Martinez and we haven't gotten them. Mr. Watt. I am aware of that. And Mr. Frank was making the same point here. If this is not your position, then what is your position, and your position seems to be, well, let us have some more discussions, and the problem with that is very soon now we are going to be marking up legislation that really doesn't have your input in the process. And this is the opportunity to give that input. One thing in particular, and this will drive home the point, and Ms. Kelly made it, if you look at page 5 of your testimony, you say about HOPE VI, ``More discussion of concepts ion regard to reauthorization of HOPE VI will be constructive.'' And then you say a report on HOPE VI lessons learned is due to Congress on June 15, 2002. This bill may be gone by June 15, 2002 somewhere else out of this subcommittee, and we have nothing other than, yes, the two things that we do that the Chairman's bill does with regard to HOPE VI you think are good, but we don't know what else you would like to have, other than that you want to have some more discussions about concepts in regard to the reauthorizations which you think would be constructive inputs right now. So having said that, and I don't mean to lecture you on this, but we had a hearing yesterday in this subcommittee about HOPE VI, and we had some people who have actually been out there in the field dealing with HOPE VI and they raised several things. And what I would like to do is get kind of a general response about whether you think these are good ideas. Is this part of the constructive discussion that we are having? You give points now to applicants for HOPE VI funding, and then you rank them according to points. Would you think it would be helpful to have some provision in this legislation which says that HUD would reward an application that has a project schedule already in place, that minimizes displacement or provides for one-for-one replacement of housing--because yesterday our witnesses said that is a serious problem in HOPE VI communities--that addresses the issue of timeliness? What would you think about us writing some criteria into the HOPE VI reauthorization that addressed some of those points that seem to be lacking now? Mr. Liu. First, Congressman, let me say that under the---- Chairwoman Roukema. Excuse me, I want you to note that the time has been concluded, so, Mr. Watt, I am sorry, but given our limited---- Mr. Watt. Are you going to ask him to give us our response 90 days from now? Chairwoman Roukema. No. I am going to ask them that they give the response within a time period of a week or two. Mr. Watt. But Madam Chairwoman, you did take about 45 seconds of my time, so at least give him 45 seconds to---- Chairwoman Roukema. I already gave you 42. Mr. Watt. No, the red light just went on as I got through asking my question. Chairwoman Roukema. All right. We will conclude this, please, and now we will go on to--if you will please get the responses back ASAP, which I think, from our point of view, Mr. Watt's and mine, means within the next 2 weeks. Mr. Frank. Madam Chairwoman, under the category that hope springs eternal, I ask unanimous consent that Members be allowed to ask further questions of HUD in this hearing so we will have a longer list that we are waiting for. Chairwoman Roukema. I am sorry? Mr. Frank. I would ask unanimous consent that Members would be allowed to submit questions in writing. Chairwoman Roukema. Oh, of course. Absolutely, absolutely. You understand that we will each submit questions in writing if we have them. Mr. Watt. But, Madam Chairwoman, I hope that that doesn't mean that I have got to submit my question. Chairwoman Roukema. Oh, no. No, your question is on the line there, but Mr. Frank is talking about additional questions. And with that, we will conclude with Ms. Velasquez. I already did ask your question if you want to have a follow-up on the subject of predatory lending. Ms. Velazquez. I was watching on TV. Chairwoman Roukema. All right. Ms. Velazquez. And I was in a meeting, so please excuse me. But I wasn't satisfied with your response, Secretary Weicher. I just want to say that I do appreciate HUD's recent actions to address the 203(k) crisis in New York City. However, my statement was meant to address the fact that HUD's response to predatory lending, in this case and others, has been reactionary rather than preventative. For this reason, I was happy to see the proposed rule issued by HUD this fall to prohibit the resale of FHA-insured homes within 6 months. I understand we can expect a final rule this summer; is that correct? Mr. Weicher. That is correct. Ms. Velazquez. Furthermore, I think the situations I outlined in my statement highlight the need for this rule and further preventative measures: Steps such as mandatory home buyer counseling for first-time home buyers in high foreclosure neighborhoods or allowing a good-faith challenge to FHA appraisal values. Would you be willing to consider these proposals? Mr. Weicher. Ms. Velasquez, we have requested in the budget a separate categorical counseling program funded at $35 million in place of the $20 million set aside within HOME, which has been the practice in the past. And if Congress approves this, this will be the first free-standing counseling program in HUD in 30 years. We very much hope you will support that. With respect to 203(k), may I say that as soon as Secretary Martinez came in, he was aware of this problem. The loans were originated in 1998 and 1999. They began to default in 2000. I do take exception, if I may, to the suggestion that we have been reacting to this. We have been working very hard for a year with the people in New York to address the problem. We have reached a solution in which we are putting up $268 million of the taxpayers' money for 514 properties in New York, and the City is putting in another $125 million. Ms. Velazquez. Well, what we had in New York was a real mess. Mr. Weicher. It was indeed, and I think we have also been prosecuting. The government of the United States and the government of New York have been prosecuting lenders and other participants there, and we are continuing that as well. Ms. Velazquez. You mentioned in response to Representative Kelly's question that when identifying appraisers and lenders who are less than scrupulous, you compare their foreclosure rates with others in the region. How are you dealing with this in the New York region where the foreclosure rate in last year's--it was three times the national average? Mr. Weicher. The comparison is to other appraisers in the HUD field office area, which is the New York Metropolitan Area in your case, and so we are looking not at the fact that foreclosure rates are three times as high in New York as they may be in the country as a whole, but on whether the foreclosure rate on the loans you have appraised is three times as high as the foreclosure rate in the New York Metropolitan Area. Ms. Velazquez. So it is acceptable that we have more unscrupulous appraisers? Mr. Weicher. I don't think all the foreclosures in New York relate to unscrupulous appraisals or unscrupulous lenders. There was a large volume of adjustable rate loans that were underwritten in 1996 and 1997 under what turned out to be lax ARM's underwriting procedures and which were changed in 1998. But the loans that were underwritten under the earlier procedures are reaching the stage at which they are most likely to default. Mr. Frank. If the gentlewoman would yield, I wonder if Mr. Liu now--we have a couple of minutes left--could respond to Mr. Watt. Mr. Liu. The answer, Congressman Watt, is we would be open to working with you on those concepts, as I mentioned in my answer to the congresswoman. Project readiness and all of the issues that you mentioned are certainly issues that we want to have addressed. Now we can address them---- Mr. Watt. But do you think it is a good idea for us to write it into the statute? Mr. Liu. We think that it can be done in an effective way. We also think that we can implement by rules and regulations to the NOFA under a strict reauthorization. Mr. Watt. But you haven't done that, and HOPE VI has been around for a while. Mr. Liu. The 2002 NOFA is not yet out. Mr. Watt. Is there any way to get a heads up or a preliminary draft of this HOPE VI lessons learned report? Because by June 15 I don't think we are going to be still dealing with this? Mr. Liu. We will do our best to get it done before the deadline. Chairwoman Roukema. I thank Mr. Watt and all our colleagues here. We do appreciate your testimony here, and we will be submitting to you follow-up questions, I am sure, but you will be presenting to us your quick responses. I hope Mr. Watt is accurate in predicting when we are going to have this legislation up. I would like to think we would have it up that soon. But in any case, we are going to try to expedite consideration of this legislation by the House of Representatives. We do thank you for your testimony here today. And with that, we call up the second panel. Mr. Watt. Madam Chairwoman, while they are coming forward, I would just say to you that I wasn't projecting that we would deal with it on the floor, but I think these kinds of considerations really need to be dealt with in the subcommittee and in the full committee. And if we don't get the information we need, it is hard to deal with it. Chairwoman Roukema. I would like to--that is right, in the subcommittee, and then I would like to think that that foundation would be laid so that we could take it up and conclude it on the floor of the House before the Congress goes into election recess. Very good. I am going to give a short introductions so that we will permit more time for you to testify and less time for me to discuss your backgrounds. But each of you are very well-qualified to represent the private sector in terms of how the private sector is relating to Federal legislation. And you have heard the rules. We are going to try to limit you and ourselves each to 5 minutes. And the yellow light goes on, which is the sum up warning light before the red light goes on after 5 minutes. And with that, I will introduce Mr. John Courson, who is president and CEO of Central Pacific Mortgage Company, and he is here today as the Chairman-elect of the Mortgage Bankers Association of America, and we greatly appreciate your being in attendance here today and look forward to working with you as the Chairman of the Mortgage Bankers Association as we move through this process. Mr. Courson. STATEMENT OF JOHN COURSON, PRESIDENT, CENTRAL PACIFIC MORTGAGE COMPANY, ON BEHALF OF THE MORTGAGE BANKERS ASSOCIATION OF AMERICA Mr. Courson. Madam Chairwoman, thank you very much. You obviously have my statement, and so in the interest of time I am going to just summarize, and I would like to talk just briefly about three key principles of FHA, as both a representative of the mortgage lenders, mortgage bankers and a practitioner who makes FHA loans. Really there is three things that guide FHA, in our mind. It needs to be sound, it needs to be consistent, and it needs to be innovative. And as you have heard earlier today, obviously, FHA, 80 percent last year of the first-time home buyers were--80 percent of FHA's business were first-time home buyers, 40 percent were minorities, and 80 percent of the FHA loans that were made were made by members of the Mortgage Bankers Association. In my own company that is a retail mortgage banker with retail branches, over 40 percent of our business was FHA business. And so the idea that FHA needs to be sound, fiscally sound and viable, is key to me personally and to our members to keep it viable to be there in the times that it is needed. Which brings me to talk a little bit about FHA must be consistent. You know, FHA is always and has always been there. It is there for creditworthy borrowers in challenging times when the private industry may exit certain markets. I had the experience, and quite an experience it was in 40 years, of being in Texas in the energy crisis days of the mid-1980s, and we saw private mortgage insurance companies exiting the State, exiting a number of States that had the economic distress that was related to the energy crisis. And as they exited or as they increased their underwriting requirements, who was there for those borrowers? FHA. They were there with a consistent premium, they were there in a counter-cyclicle role to help first-time home buyers and those who needed housing at the time. So the consistency is key in those marketplaces. Having left Texas, I went to California. Maybe it is me, maybe it is not the marketplace. I go to California and we have an economic distress situation in the early nineties. A key part of our business is FHA. The same repeat thing, even in California, a different marketplace than Texas. FHA is consistently there. So we believe that the soundness, the consistency, the level of premium that is counter cyclical to help those borrowers that need the help are key. And, of course, thirdly, FHA must continue to be innovative if it is going to be viable to serve the marketplace, first- time home buyers, minority home buyers that it helps, it has to innovate to give those borrowers the same tools that are available in the conventional marketplace. We applaud H.R. 3995; it has those tools: downpayment simplification. We were in Alaska at the time this program was there in a demonstration program about 5 years ago and substantially saw our ability to qualify people who have the biggest challenge of cash to buy a home in Alaska. We also saw the problem of when that program started to sunset and not being able to help borrowers for a period of 30, 60 days not knowing what their downpayment or cash requirement was going to be. We need to make that permanent. Clearly, the 5/1 hybrid ARMs, which were authorized last year, we need to deal with that issue on one segment of those, the 5/1 ARM, which was treated differently than the 7/1 or the 10/1s and give that tool to these borrowers. And thirdly, of course, the FHA multifamily loan limits, which were also enacted last year, and they need to be put on the same par as the single family. Let us not have to go through every 3 years coming back to get a multifamily loan limit. Let us index it so that it can move as the market moves, just as we do in the single family. Outside of innovation the third thing that I would like to mention very quickly is the Ginnie Mae guaranty fee. Obviously, there was passed in 1998 a 50 percent increase in that fee. Ginnie Mae is a viable program, it is profitable, and if that is not rolled back, somebody is going to have to pay for that, and the fear is that somebody will be the American borrower from FHA. Thank you very much. [The prepared statement of John Courson can be found on page 474 in the appendix.] Chairwoman Roukema. I thank you very much, Mr. Courson. Now, Mr. Martin Edwards, who is a realtor from Memphis, Tennessee, but you are here representing the National Association of Realtors as the new President of the National Association of Realtors? Mr. Edwards. I wouldn't say new, 3 months old, yes. Chairwoman Roukema. No? All right. Mr. Edwards. 2002 president. Thank you, Madam Chairwoman. Chairwoman Roukema. All right. Thank you. Thank you and we appreciate your attendance. STATEMENT OF MARTIN EDWARDS, JR., PRESIDENT, NATIONAL ASSOCIATION OF REALTORS Mr. Edwards. Thank you, Madam Chairwoman, and I will try to be as brief and stay with our time limit. On behalf of more than 800,000 realtors, I want to take this opportunity to thank you and Ranking Member Frank to appear and testify on this bill. We believe it takes a creative approach to reducing barriers to affordable housing while stimulating much needed housing opportunities for American families. As you well know, there is a housing crisis, and I have heard this several times today, in this Nation, and it will not go away. That is why this legislation is both timely and appropriate. It is why the National Association of Realtors has joined in a fight to make affordable housing one of our national priorities. Realtors are in a unique position to champion this cause, because we can make a difference at the local level. We are extremely committed to ensuring that every American has the opportunity to live in a safe, decent and affordable home, because we want to see our communities that we serve survive. Which is why last year the National Association of Realtors began working on a comprehensive housing opportunity of initiatives to identify and find three ways to do things better: One, stimulate affordable housing, which is what we have been talking about, improve access to housing and close the home ownership gap. Through a Presidential Advisory Commission of the National Association of Realtors, we have started working on those in a comprehensive plan. Our focus is geared toward meeting some of the greatest needs and unmet needs of the housing market, keeping in mind minority outreach, rental housing opportunities, immigrants, the disabled, low- and moderate-income citizens and senior housing. While the Nation's home ownership rate is at 68 percent, the highest level ever, the gap between those who can and those who cannot afford decent housing has grown. Going forward, the biggest source of household growth in this decade will come from minorities and immigrants. Minorities will account for 64 percent of all new households. Between 1993 and 2000, minorities accounted for a 44 percent increase in home ownership. By 2010, African Americans will account for 19 percent of home ownership growth; Hispanics, 38 percent of home ownership growth; and non-whites, 37 percent of home ownership growth. This creation of additional housing households will require some more construction, more innovative ideas and favorable economic conditions to move forward. We believe that the real estate industry and the Federal policymakers have responsibility, all of us, and really an obligation to ensure that groups are not ignored in this plight. Again, Madam Chairwoman, I want to commend you and this subcommittee for your outstanding leadership. Specifically, the National Association of Realtors strongly advocates language under Title II of H.R. 3995, Section 8 that seeks to index FHA multifamily home limits and allow maximum high-cost percentage to be increased in high-cost markets. We believe these provisions ensure FHA multifamily loan limits will not be outpaced by inflation or growing construction costs and make multifamily programs more favorable in the Nation's worse-case scenarios. There are other provisions we strongly endorse in H.R. 3995, and they fall under the single-family area. Specifically, we back provisions that would, as John mentioned, make permanent the FHA downpayment plan, simplification calculation plan, reduce FHA downpayments for teachers and public safety officers as well as permit them to purchase HUD-foreclosed homes at a discount in neighborhoods that they work in, eliminate the cap on the FHA 5/1 hybrid adjustable rate mortgages, create a 3-year pilot program for no downpayment FHA loans to qualified public service officers if they buy homes in designated high crime areas. In conclusion, Madam Chairwoman, let me say that real estate has been one of the pillars of American prosperity. It provides the capital that makes it possible for families to build and own their own homes. We discovered much last year when Federal Reserve Chairman Alan Greenspan asked us and urged us to examine the wealth effect of housing. We found that home equity is the largest source of wealth for three out of four homeowners. Housing is also important to our national economy. Its overall share of GDP is 14 percent. Between 15 and 24 cents of every dollar realized in capital gains from home sales goes into goods and services or savings. Plus 40 percent of disposable income is spent in housing-related goods and services. These are all benefits of home ownership that cannot be ignored, and I appreciate the opportunity to visit with you this afternoon. [The prepared statement of Martin Edwards Jr. can be found on page 482 in the appendix.] Chairwoman Roukema. I thank you, Mr. Edwards. Now Kevin Kelly, President of Leon Weiner Associates in Wilmington, Delaware, and he is testifying on behalf of the National Association of Home Builders. Mr. Kelly. STATEMENT OF KEVIN P. KELLY, PRESIDENT, WEINER & ASSOCIATES, WILMINGTON, DEL, ON BEHALF OF THE NATIONAL ASSOCIATION OF HOME BUILDERS Mr. Kelly. Thank you, Madam Chairwoman, for this opportunity to speak to the subcommittee today. I will confine my remarks, per your letter to the association, to Title II of the Housing Affordability for America Act. I am speaking, as you indicated, on behalf of the 205,000 members of the National Association of Home Builders. Specifically, Title II of the bill contains important reforms to both multifamily and single family FHA programs. Together these proposals will increase the availability of affordable housing and expand home ownership and rental housing opportunities across the country. The FHA multifamily mortgage insurance programs are a critical component in addressing the Nation's affordable housing needs. Last year, Congress took the first step in making the FHA multifamily insurance programs more workable in most markets in the country by passing legislation to increase multifamily loan limits by 25 percent. The limits had not been adjusted for 10 years; however, NAHB's analysis indicates that there are high-cost urban centers where these increases simply are inadequate and that costs exceed the current limits. We believe we can and should do more. Two provisions in Title II would make the necessary adjustments so that programs can be fully utilized throughout the country. First, we would strongly support the inclusion of Section 201 of Subtitle A, which would require HUD to index FHA mortgage loan limits each year beginning in 2003. The index is the annual construction cost published by the Bureau of the Census of the Department of Commerce. Indexation will help stabilize the programs, give builders and lenders the confidence that they will be able to use the programs in their communities every year despite increases in construction and land costs. NAHB also strongly supports Section 202 of Subtitle A, which addresses the need for high-cost markets where the base loan limits are still too low. Current law permits the HUD Secretary to increase base limits by up to 110 percent in geographic areas where construction costs are very high and up to 140 percent on individual projects. Section 202 would give the Secretary greater latitude to raise mortgage limits in areas where construction costs are high. It further provides the Secretary of HUD the discretion to increase high-cost factors from 140 to 170 percent on a project-by-project basis. These provisions, allowing for indexation and adjustment upward for high-cost areas, will make the FHA multifamily programs more workable throughout the entire country. On the single family side, NAHB supports the provisions of H.R. 3995 that are aimed at improving the FHA single family mortgage insurance programs by making permanent the simplified downpayment calculations, the revisions to the hybrid ARM as well as the proposal to facilitate to home ownership opportunities for teachers and public safety workers. With regard to what is referred to as the downpayment simplification, this actually offers a simplified method to arrive at a maximum mortgage calculation. The simplified method results in a greater loan to value than currently permitted under current programs and will ultimately expand home ownership opportunities. NAHB also supports Title II, making of a hybrid adjustable rate ARM available at competitive rates and terms for FHA borrowers who otherwise would be unable to obtain funding in the conventional ARM programs. The bill amends current law to shorten the allowable timeframe for the first adjustment of the FHA hybrid adjustable rate mortgage to 3 years from its present 5. In closing, Madam Chairwoman, I would also applaud Chairman Oxley, yourself and Congressman Green for including Title VIII in H.R. 3995. Title VIII, as you are aware, requires the Federal Government to conduct housing impact analyses for any new proposal or final rule if that rule has an economic impact of $100 million or more on housing affordability. This measure will help raise awareness to the extent to which regulatory barriers impede housing. That concludes my remarks, Madam Chairwoman, and we thank you for the opportunity to speak. [The prepared statement of Kevin P. Kelly can be found on page 495 in the appendix.] Chairwoman Roukema. Thank you very much. Everyone is being very considerate of the time constraints here. Mr. Shapoff, Vice President and senior member of the Health Care Group at Goldman, Sachs & Company. And Mr. Shapoff is here today, I guess, representing your company and the Health Care Group at Goldman, Sachs. And giving us some insight with your experience of 13 years in the health care--as a manager in the Health Care Group. Thank you for coming here today, and we are happy to have you. STATEMENT OF EDWARD L. SHAPOFF, VICE PRESIDENT, GOLDMAN, SACHS & COMPANY, ON BEHALF OF THE HEALTHCARE FINANCING STUDY GROUP Mr. Shapoff. Good afternoon, Madam Chairwoman and distinguished Members of the subcommittee. I thank you for the opportunity to testify in support of H.R. 3995. In addition to being a member of Goldman, Sachs, I am also here on behalf of the Healthcare Financing Study Group, an association of national and regional investment bankers and municipal bond insurers. We welcome and appreciate your support and thank you for including in H.R. 3995 legislative provisions which are so important to America's aging and ill populations. Sections 203 through 206 of H.R. 3995 would amend the FHA health care and assisted living programs of the act to modernize and make them more consistent with today's methods of delivering quality affordable health care service to rural and urban American communities, which have been unable to enjoy the benefits of the act in its present form and, importantly, where conventional financing may not be readily available. The Study Group, whose members have worked with FHA programs for three decades, strongly support these amendments. As you know, two sections of the National Housing Act, Section 232, for nursing homes, and Section 242, for hospitals, provide mortgage insurance for health care projects. Enacted over 30 years ago, these two sections have netted hundreds of millions of dollars to the Treasury from FHA fees and mortgage insurance premiums. Furthermore, these programs do not compete with private sector financing but have fostered a sound working relationship between Government and private industry, which has materially reduced the cost of financing, thereby helping to assure repayment of the insured loan and reducing FHA's insurance risk. Debt service savings realized under these programs have also resulted in lower Federal and State Medicare and Medicaid reimbursements. At the same time, FHA insurance is available to fill a void left by the conventional private sector, which traditionally has preferred to lend only to the very best investment grade credits. That is not to say, however, that all health care projects should or do have free entitlement to FHA. Indeed, few high-risk mortgage insurance applications would survive FHA's rigorous underwriting process. Enacted over 30 years ago, Section 232 and 242 have been modified only slightly so that the act does not entirely reflect or accommodate today's methodology and regulation of health care and assisted living delivery. For example, the narrow definition of eligible facilities fails to reflect the continuum of care now commonly provided within an individual facility or in a campus environment for the purpose of operational and cost efficiency and continuity of care. This is a shortcoming that would be corrected by the amendments. Another important element deals with Certificates of Need. Mortgage insurance under the hospital and nursing home programs require receipt of Certificates of Need. In fact, many States have eliminated all or part of their certificate of need programs or the agencies that would, in fact, issue these certificates. Examples of these States are Arizona, California, Colorado, Iowa, Kansas, New Mexico, Oregon, Texas and Wyoming and others. While the act contains alternative requirements for such States, and while well-intended, these alternative requirements have proven unworkable or difficult to implement. This impediment has made it difficult for FHA to diversity its own loan portfolio geographically and made it difficult, if not impossible, for critical-access hospitals and rural hospitals to modernize facilities, which may date back to the mid-1900s. The amendments would solve this problem as well. Without in any way intending to slight or diminish the stature of any portion of the amendments, all of which we support, I would like to summarize the more important accomplishments of the amendments. Mortgage insurance is authorized for integrated service facility projects for the sick, injured, disabled, elderly or infirm or which provide services for the prevention of illness. Such projects may furnish outpatient services, including community health, clinical services and medical practice facilities to serve those people and achieve that purpose through individual facilities, which may incorporate a continuum of care. The alternative Certificate of Need procedures of Section 232 and 242 would be updated to make them more workable and would help to assure that States without CON laws or implementing agencies would not be excluded from the programs. Third, under current law an assisted living facility does no qualify for FHA insurance if it is located in a State or political subdivision which does not issue licenses for such facilities. The amendments authorize FHA to formulate alternative underwriting standards in such cases so that the benefits of mortgage insurance will be available. In conclusion, Madam Chairwoman, this concludes my testimony. I thank you very much for your time. [The prepared statement of Edward L. Shapoff can be found on page 504 in the appendix.] Chairwoman Roukema. I thank you. And now our final panelist is Mr. Lou Cannon. Mr. Cannon is an inspector with the United States Mint Police here in the District of Columbia, but he is here today testifying on behalf of the National Fraternal Order of Police and its more than 300,000 members. We welcome you here today. STATEMENT OF LOUIS P.CANNON, PRESIDENT, DISTRICT OF COLUMBIA STATE LODGE, FRATERNAL ORDER OF POLICE, Mr. Cannon. Thank you. Good afternoon, Madam Chairwoman, Ranking Member Frank. I am an inspector with the United States Mint Police and president of the DC. Lodge of the Fraternal Order of Police. I am here today on behalf of National President Steve Young and the more than 300,000 members of our organization in support of Sections 222 through 224 of H.R. 3995, the ``Housing Affordability for America Act.'' This legislation contains a three-pronged approach to increasing home ownership among our Nation's public safety personnel, and we appreciate the opportunity to appear before you here today. The FOP is no stranger to this issue. Since 1997, our organization has been proud to support and work with HUD on the Officer Next Door Program. In the 106th Congress, the FOP also supported the inclusion of public safety officer home ownership assistance language in the ``American Home Ownership and Economic Opportunity Act of 2000.'' And last year, we joined Representative LaFalce and Leach for the introduction of H.R. 674, the ``H.O.U.S.E. Act.'' As we begin this new millennium, it is more important than ever to find innovative ways to improve the ties between America's law enforcement officers and the communities they serve. Like most Americans, police officers and other public safety employees work hard to realize the dream of owning their own home. But, because these men and women often sacrifice higher-paying jobs in the private sector to serve our communities, it is often difficult to make this dream a reality. And while the high cost of living in many areas does affect officer morale, it also has a noticeable impact on the ability of local governments to recruit and retain public safety personnel and on the ability of the individual officer to make a difference in his or her community. Most officers who have chosen to make a career of law enforcement also become involved in the life of the neighborhoods they serve. The three programs contained in H.R. 3995 are designed to facilitate these goals and activities, and all represent a tremendous tool for local communities to recruit and retain public safety personnel. The first initiative provides for the establishment of reduced downpayment requirements through the National Housing Act for mortgage loans to law enforcement officers and other public safety personnel to purchase homes within the jurisdiction that employs them. This provision will serve to encourage officers to continue to work in their local communities. The second initiative, entitled, the Community Partners Next Door Program, provides discount and downpayment assistance for teachers and public safety officers. Like HUD's Officer Next Door Program, this provision authorizes a 50 percent discount for those law enforcement officers purchasing certain homes designated as eligible assets, and who agree to use the home as their primary residence for at least 3 years. Section 223 further authorizes the sale of these properties to units of local government and non-profit associations who can then resell or transfer that property directly to the officer, again, improving their ability to recruit and retain these vital public servants. The third and final program under this legislation authorizes a 3-year pilot program to assist Federal, State and local public safety officers purchase homes in locally designated high crime areas. Like Section 223, this provision requires officers to agree to use the home as their primary residence for at least 3 years. Eligible law enforcement personnel would then qualify to purchase a home in one of these communities with no downpayment required. Like the other two initiatives, this will not only help law enforcement officers achieve home ownership, but by purchasing homes in troubled neighborhoods, it will also assist communities to begin the process of reclaiming distressed areas from the effects of crime. In light of the positive impact this legislation will have in cities across the Nation, I would also like to point out a provision which the FOP believes should be amended during the future markup of H.R. 3995. Under the definition of ``public safety officer'' found in Section 222, the term is defined as specifically excluding Federal law enforcement officers from participation. Although these officers would qualify for home ownership assistance to purchase property located in high crime areas, they would be ineligible for the other two programs. The current Officer Next Door initiative operated by HUD allows Federal, State and local enforcement officers to participate. Therefore, we request that the definition in Section 222 be amended to ensure that nothing will affect the participation of Federal law enforcement officers in any program authorized by this legislation. All three of these programs contained in the ``Housing Affordability for America Act'' are designed to strengthen local communities and assist public safety officers and their families achieve the dream of home ownership. This legislation builds on the success of the Officer Next Door Program and will enhance our ability to protect our neighborhoods from crime and violence. On behalf of the membership of the Fraternal Order of Police, let me thank you again, Madam Chairwoman, for affording us the opportunity to testify before the subcommittee. I would be pleased to answer any questions you may have at this time. [The prepared statement of Louis P. Cannon can be found on page 515 in the appendix.] Chairwoman Roukema. Thank you very much. I must tell you that I am very glad that my staff was intelligent enough to put Mr. Edward Shapoff here on the panel, because he opened up a component of this discussion that I was not at all aware of. And I am not going to ask you a specific question at this point in time, but I am not quite sure why FHA insurance is needed under those circumstances. But I will go through your testimony, but I do appreciate the fact that they have recognized and you have recognized that there would be a problem here if we weren't to make that connection and understand its relationship, Section 232 and Section 242. All right. So I appreciate your being here today. But that was new information for me, I must tell you. What I am concerned about, and one of the previous panelists, Mr. Bernardi, made the point that there were unintended consequences that some of this legislation was going to add to increase in rents. Now, three of our Members here deal with rental production and home building and so forth. Can you address that? Do you think that this is a potential problem, that it is really going to increase the rents? And at the same time, the contingent question that I have, and that others have said, there really isn't enough incentive here for new housing production. How would you address those two components of the issue? Who would like to be first? Mr. Kelly? Who wants to be first? And keep your responses short, because I would like to hear from all three if they each have a comment to make. Yes? Mr. Kelly. Madam Chairwoman, I am not sure what the previous speaker was alluding to in terms of the issue of the unintended consequences of increasing rents. I mean our position is that the production and the supply of housing will have the reverse effect, be it in the arena of home ownership or rental housing, and that is why we strongly advocate some of the positions taken here in Title II of the legislation. Chairwoman Roukema. Will that provide enough housing production to meet those needs? Mr. Kelly. I am not sure that---- Chairwoman Roukema. Because they are related. I mean they are definitely related. Go ahead. Mr. Kelly. Yes. It is certainly a very positive step forward. On the multifamily side, I think the most significant step taken in the last decade was the increase in the FHA mortgage insurance limits. That program was encountering problems across the country. We view the availability of rental housing as the first step on the ladder to home ownership, and increasing the supply is critical. In addition, where many, many significant shortages occur in major metropolitan areas where the cost is so high to develop housing, we think that giving the Secretary the discretion, first of all, to raise the limits first and, second, to give the Secretary discretion to approve projects up to 170 percent of those mortgage limits is critical to ensure that there is supply in those communities. Chairwoman Roukema. Mr. Courson, what is your perspective as a mortgage banker? What is your perspective on this? Mr. Courson. Well, and I certainly agree with the gentleman. The key is, and obviously being from close to the San Francisco area, as we see in Boston and certainly in areas in New Jersey and the east, the new FHA loan limits are helpful, but not in those marketplaces. We still can't produce enough housing. There are two components here. One is there is the affordability issue, and the affordability index we have all talked about, and the other is the lack of supply. And until you solve both of those, particularly the supply is going to help the affordability issue, we have got to have the affordability and we have got to get the program into those high-cost areas. Chairwoman Roukema. But, you don't have any specific as to how we could improve this bill to deal with that question. Mr. Courson. Well, we actually--I know you had a hearing and we did testify on a production program about 2 weeks ago, I believe. Chairwoman Roukema. Yes, it was. Mr. Courson. And, frankly--and at that time what we said was we think that there needs to be a mixed use program. Certainly, there are programs, and there need to be programs to address those renters and those people who are below the 60 percent of median. But there also needs to be production program there to talk to those folks and provide housing for those who are the 60 to 100 percent of median, and our production program recommendation, as we testified to in the previous hearing, was that there needs to be a mixed use. We have examples of successful mixed use projects, and we would advocate that. Chairwoman Roukema. I am glad you referenced that to me, because that was helpful in that first hearing that we had. Mr. Edwards, do you want to add anything? Mr. Edwards. I don't think I can add anything to what the gentlemen on my right and left said, other than the fact that it is a crucial issue. When you think that there are 7.5 million renters in this country that have a critical housing need and that 7.5 million people pay up to 50 percent of their income toward their housing costs. Not included in your bill, but you are going to have to someday face the issue that you are going to have to renovate and retain existing housing, whether it be rental or home ownership in existing infrastructures. We keep continuing to go out and build new, new, new. America's cities are going to have to retain the existing infrastructure and we are going to have to come up with some solution to retain existing housing where people work, where people live, where people want to go to school and church, and that is the issue that you are really--that is one of the issues you are really talking about. Thank you. Chairwoman Roukema. Thank you. One that we may not be able to deal with completely, but it is important for us to recognize that as a component of this discussion. Mr. Frank? Mr. Frank. This has been very useful, because I think we want to be very clear. Affordability at the low end requires money, and I think this country can afford it. That is a value question. I think one of the things we have learned is prosperity is a very good thing, but it is not equal in its effects on everybody. And in areas, Mr. Courson alluded to that, in the San Francisco Bay area, in the Boston area, New York Metropolitan area, increasingly in some other areas, for many people prosperity was bad news. Law enforcement officers, their incomes have not gone up proportionately with economy so that as the economy, as a whole, prospers and as land values go up in particular areas, people who are not benefiting, they are not only not benefiting they are worse off. The rising tide has swamped their boat, it hasn't lifted it, and the question is do we have the social responsibility in this society to take some small part of that wealth that is created and help out? But the fact is that is no reason not to go forward with the FHA. And the issues of affordability and supply are obviously linked. Yes, for some people there is going to need to be subsidy, but we are also talking about a spectrum. We are talking about a housing market, and supply and demand do function, and at whatever level of income people have, if there is a short supply, we are going to have higher prices. I mean that is one of the most important reasons for a production program, frankly, is in the absence of a production program a very well-intentioned program that does some good from the equity standpoint probably overall exacerbates things in other ways. That is the voucher program. Because if all you have is a voucher program in some areas, you have got a program that adds to the demand for housing in a way that is guaranteed not to increase the supply. Because if you have got annual vouchers, no one can build housing based on a year-by-year voucher. No one would lend to them. No one is going to commit to them. So what you are doing with the vouchers is you are increasing the demand, but in a way that does not increase the supply and the price goes up. Now that has got an equity justification. So it does seem to me we then have a responsibility to couple it with a production program. And the FHA is one production program. FHA is a production program for moderate-income and even upper- income people. And am I correct there are some of you who study this more closely than we do, that, in fact, the more you raise the FHA limits, the more money the FHA Fund makes. Isn't that correct, Mr. Courson? Mr. Courson. Yes, that would be correct. Mr. Frank. Yes. I mean sometimes you have these difficult decisions, but the FHA is priced to make a little bit of a profit, more of a profit than it ought to, in fact. And we have had the testimony, once again, that the FHA Fund is significantly in surplus. It is in surplus beyond what is needed for an economic disaster. And as we have raised the limit on the FHA, what we get is more money. So unlike other situations where you have to choose, raising the FHA limits is very reasonable. So let me ask, to follow up Ms. Roukema's question, should we, in the judgment of particularly the first three of you, raise the FHA limits not just incrementally, but fully to the point where they could be operational, the FHA, in the highest cost housing markets? Let me put it to you this way: Knowing what you know about public policy, can you think of any negative, any downside, to raising the FHA limits so they are fully operational in San Francisco and Boston and Manhattan? Let us start with you, Mr. Courson. Mr. Courson. Well, Congressman, if in fact, and I think the bill is going to address, if we go to 140 percent, which is from the 110---- Mr. Frank. That is not what I asked. What about going above--why 140 percent? Mr. Courson. The question really becomes on the production--for our production program, for example, there was a utilization of dollars that we are talking about in this mixed use project that would be an interest rate subsidy. We use an example in there. So the question becomes then what is the authorizers, the Congress and public policy is how high do you want to authorize that subsidy right now? Mr. Frank. But I am asking you can you see any negative from any important value that we ought to be concerned about if we got to the level that make it usable in Boston, San Francisco and in Manhattan? Mr. Courson. No. As a matter of fact, we recommend really the Secretary has the right to raise those limits to the same as right now they are in Alaska and Hawaii for the single family. So we don't see any negative to that. Mr. Frank. And that would then accommodate the rest of the country if you got to Alaska and Hawaii? Mr. Courson. As far as I am aware. Mr. Frank. All right. Mr. Edwards. Mr. Edwards. I agree. Mr. Frank. Mr. Kelly. Mr. Kelly. I agree. Mr. Frank. Well, I think we ought to--that means that if we just pass the bill, the bill is an improvement, but it is not enough of an improvement, and we shouldn't be--we have allowed people--let me put it this way: We have allowed the general sort of rules that apply to restrain us. In general, the higher you go in eligibility, the more it costs the Government. But the FHA is different. The higher you go in eligibility, the more you help housing get built less expensively than it might otherwise and the Government makes money. So what I am saying is that the bill doesn't go high enough. And you heard what the GAO said, you listened to his testimony, we ought to go up even further. And so I am all for that. One other question now to the inspector. I am all in favor of this, and I voted for it before on the floor, on the question of certain people who have decided to dedicate themselves to public service. I would point out we have a particular problem, because in some cities we have residency requirements, and then the police officers and the fire fighters and the teachers are caught in a bind. They are legally required to live in a city where they can't afford on the salary they are getting paid to buy a house. The one concern I have is, I think it is mentioned somewhere, that there be a 3-year minimum. That seems kind of little to me. If we had a 7-year minimum, would that be a problem? Or maybe you could have less of a minimum if people have emergency situations, but then there ought to be some sort of a recapture. I mean the notion of getting a very significant subsidy, but only living there for 3 years seems to me insufficient. Do you think that would be a problem if we tried to raise it? Mr. Cannon. I think that you might want to go halfway and do about a 5-year mimimum. To be honest with you, if you look at your national averages, most people, after 5 years, start to look at turning over their home and moving up. So I would say 5 years would probably be more---- Mr. Frank. I think that is a reasonable point. All right. Thank you. My time is expired. I thank the witnesses, because I agree with them. Chairwoman Roukema. I thank Mr. Frank. You agree with them. I agree with them in principle as well, but I am not quite sure about the particulars. But I think we see here, both on this panel, the previous panel and certainly with Mr. Frank and I and the questions that have been asked that we have a lot of common understandings and mutual goals here. But we have made it sound a little too simple, I think, right at this point in time to deal with it and how we can correct it. But with the sincerity of purpose that I think we all have, I think we can work with you and with HUD and other consumer groups and housing groups to get a good bill out and really improve not only the production, but the availability of home ownership and we will deal with it and hopefully it will be a great accomplishment in this Congress. Mr. Frank, you want to conclude? Mr. Frank. Well, only just again to say--and it is not really a quip, but it is important--it is not home ownership, it is home, because we do want to--rental housing is every bit as important as home ownership. Chairwoman Roukema. Well, that too. Mr. Frank. And we are talking about people having homes that are decent and affordable. Chairwoman Roukema. That is, of course, also true. But I think it is a combination of things here, and if we can get that question of home ownership more properly addressed and appropriately addressed, maybe we have been putting in our own impediments against it, I don't know. Mr. Frank. Well, again---- Chairwoman Roukema. I don't know. Mr. Frank. I would object. We will lose the consensus if we try to kind of put home ownership ahead of a home, because there are different segments of the population and different needs, and I think, in fact, when we talk about multifamily housing, I think we are talking about residences that people live in. Some will want to own, and if people can own, fine. But I am afraid that we will stint people at the lower end if we focus it only on home ownership. Chairwoman Roukema. all right. We shall deal with this, and I appreciate the panel here because it has been very constructive. And I know that one way or another Mr. Frank and I are going to come to agreement. You just stand by and watch. Thank you very much. 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