[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
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                 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.
    [Whereupon, at 5:17 p.m., the hearing was adjourned.]
                            A P P E N D I X










                             April 10, 2002

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                            A P P E N D I X








                             April 23, 2002
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                            A P P E N D I X









                             April 24, 2002
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