[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
                        RURAL HOUSING IN AMERICA

=======================================================================

                                HEARINGS

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                         JUNE 19, JULY 8, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-41

91-225 PDF

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          CHARLES A. GONZALEZ, Texas
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California                 HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin                KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania      JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona             STEVE ISRAEL, New York
VITO FOSSELLA, New York              MIKE ROSS, Arkansas
GARY G. MILLER, California           CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania        JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia  JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota           ARTUR DAVIS, Alabama
TOM FEENEY, Florida                  RAHM EMANUEL, Illinois
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
TIM MURPHY, Pennsylvania              
GINNY BROWN-WAITE, Florida           BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director

           Subcommittee on Housing and Community Opportunity

                     ROBERT W. NEY, Ohio, Chairman

MARK GREEN, Wisconsin, Vice          MAXINE WATERS, California
    Chairman                         NYDIA M. VELAZQUEZ, New York
DOUG BEREUTER, Nebraska              JULIA CARSON, Indiana
RICHARD H. BAKER, Louisiana          BARBARA LEE, California
PETER T. KING, New York              MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North          BERNARD SANDERS, Vermont
    Carolina                         MELVIN L. WATT, North Carolina
DOUG OSE, California                 WILLIAM LACY CLAY, Missouri
PATRICK J. TOOMEY, Pennsylvania      STEPHEN F. LYNCH, Massachusetts
CHRISTOPHER SHAYS, Connecticut       BRAD MILLER, North Carolina
GARY G. MILLER, California           DAVID SCOTT, Georgia
MELISSA A. HART, Pennsylvania        ARTUR DAVIS, Alabama
PATRICK J. TIBERI, Ohio
KATHERINE HARRIS, Florida
RICK RENZI, Arizona



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearings held on:
    June 19, 2003................................................     1
    July 8, 2003.................................................    43
Appendix:
    June 19, 2003................................................    63
    July 8, 2003.................................................   195

                               WITNESSES

                        Thursday, June 19, 2003

Anders, Gideon, Executive Director, National Housing Law Project, 
  Oakland, CA....................................................    20
Bridges, Betty, President, Council for Affordable and Rural 
  Housing, Washington, DC........................................    22
Fong, Phyllis K., Inspector General, U.S. Department of 
  Agriculture, Washington, DC....................................     6
Griffiths, Patty, Housing Director, Community Action Commission 
  of Fayette County, Ohio appearing on behalf of the Housing 
  Assistance Council.............................................    24
Jones, Jack, Vice President, Chase Manhattan Mortgage Corporation 
  Deerfield Beach, Florida on behalf of the Mortgage Bankers 
  Association of America.........................................    27
Miller, Madeline, Executive Director, Wil-Low Nonprofit Housing, 
  Inc., Hayneville, AL...........................................    29
Myer, Joe L., Executive Director, National Council on Agriculture 
  Life and Labor Research, Inc., Dover, DE, Executive Committee 
  Member, National Rural Housing Coalition.......................    31
Rayburn, James R., Jackson, MI, First Vice President, National 
  Association of Homebuilders....................................    32
Shear, William B., Acting Director, Financial Markets and 
  Community Investments, U.S. General Accounting Office, 
  Washington, DC.................................................     8

                                APPENDIX

Prepared statements:
    Ney, Hon. Robert W...........................................    64
    Anders, Gideon...............................................    66
    Bridges, Betty...............................................    76
    Fong, Phyllis K..............................................    85
    Griffiths, Patty.............................................   104
    Jones, Jack..................................................   112
    Miller, Madeline.............................................   119
    Myer, Joe L..................................................   126
    Rayburn, James R.............................................   134
    Shear, William B.............................................   142

              Additional Material Submitted for the Record

Bridges, Betty:
    Written response to questions from Hon. Barney Frank.........   157
    Position Paper by the Council for Affordable and Rural 
      Housing on the Aging Section 515 Rural Housing Portfolio...   159
Miller, Madeline:
    Written response to questions from Hon. Barney Frank.........   194

                                WITNESS

                         Tuesday, July 8, 2003

Dorr, Thomas C., Under Secretary for Rural Development, U.S. 
  Department of Agriculture, Washington, DC......................    45

                                APPENDIX

Prepared statements:
    Dorr, Thomas C...............................................   196

              Additional Material Submitted for the Record

Dorr, Thomas C.:
    Written response to follow up questions......................   206


                        RURAL HOUSING IN AMERICA

                              ----------                              

                        Thursday, June 19, 2003

                  House of Representatives,
 Subcommittee on Housing and Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2:45 p.m., in 
Room 2128, Rayburn House Office Building, Hon. Robert Ney 
[chairman of the subcommittee] presiding.
    Present: Representatives Ney, Tiberi, Renzi, Castle, 
Waters, Lee, Scott, and Davis.
    Mr. Renzi. [Presiding.] The Subcommittee on Housing will 
come to order. I would like to read an opening statement.
    Today, the subcommittee meets to discuss the importance of 
rural housing in America. I am pleased to announce that this is 
theubcommittee's first hearing on the subject in over a decade.
    Our goal is to review these programs and look at the ways 
to increase the proficiency and cost effectiveness. Rural areas 
are often plagued by poverty, high numbers of substandard 
homes, affordable housing shortages, costly development and 
inadequate access to mortgage loans.
    The Rural Housing Service funds its programs through an 
insurance fund which provides direct loans, guaranteed loans 
and grants to help families obtain and maintain affordable 
housing in rural areas. Today, it is estimated that rural 
housing programs help finance new or improved housing for 
65,000 moderate low-and very low-income families each year.
    However, questions have arisen in recent years about the 
effectiveness of rural economic development policies and 
creating new opportunities for rural residents, as agriculture 
and other resource-based economic sectors decline in their 
overall importance to most rural economies. A wide ranging set 
of often overlapping programs target rural areas and their 
special needs.
    But according to some critics, there remains little overall 
coordination of these various programs to produce a coherent 
rural policy. Over 88 programs administered by 16 different 
federal agencies target rural economic development.
    The U.S. Department of Agriculture administers the greatest 
number of rural development programs and has the highest 
average of program funds going directly to rural counties--
approximately 50 percent. On a personal note, I was raised in 
southern Arizona and grew to understand that a safe and secure 
home is the foundation for the family unit.
    My belief in the importance of home ownership remains 
steadfast. It is of great importance to apply these fundamental 
values and rural experiences to help communities develop new 
economic vehicles that will enable them to grow and prosper.
    I look forward to hearing from all of our witnesses today 
to discuss the various ways I which home ownership can be 
strengthened for our rural communities and contribute to the 
overall quality of life for rural families.
    At this moment, I would like to recognize Ms. Waters from 
the great State of California.
    Ms. Waters. Thank you very much. I know that Chairman Ney 
is tied up in a meeting and could not be here. But I am 
delighted that you are chairing this meeting. And I thank Mr. 
Ney for calling this hearing on an issue that really needs to 
be discussed and is central to the need for more affordable 
housing in our country.
    Usually, when we discuss poor people, the focus is on urban 
centers. However, there are poor people in rural America across 
this country who need our assistance to help improve the 
quality of their life.
    The U.S. Department of Agriculture's rural development 
mission is to administer programs that are designed to meet the 
diverse needs of rural communities. The three principal program 
areas are Single Family Housing, multifamily housing and 
Community Facility programs.
    According to an American housing survey, with the 
assistance of the Housing Assistance Council, of the 200 
poorest counties in America, all but 11 are non-metropolitan. 
There are 363 rural counties where the poverty rate has 
exceeded 20 percent.
    Since these figures started being collected in 1960, Title 
5 of the Housing Act of 1949 authorized the Farmer's Home 
Administration to grant mortgages for the purchase or repair of 
rural single family houses. Second, it authorized financial 
assistance in rural areas to farmers, owners, developers and 
facilities, ensuring to them various loans and financial 
assistance for low rent housing for farm workers.
    One of the primary issues that needs to be addressed is the 
rental housing program. Section 515 of the Rural Housing 
Program provides direct loans to non-profit and for-profit 
developers for multifamily housing for very low-and low-to 
moderate-income families, elderly persons and persons with 
disabilities. It is important that when RHS approves an owner, 
who agrees not to displace residents from a development, that 
if an owner decides to convert the property to condominiums or 
luxury apartments, that residents are protected.
    That is why in 1987, the Emergency Low-Income Housing 
Preservation Act of 1987 was enacted after a number of owners 
of developments that were financed before 1979 were prepaying 
their loans and displacing elderly and other households from 
their homes. The RHS rental housing portfolio contains 450,000 
rented apartments and Section 515 developments. The average 
annual tenant income is about $8,000, which is equal to only 30 
percent of the nation's rural median household income.
    The General Accounting Office indicates that 100,000 
families could be displaced if the Section 515 portfolio is 
deregulated. These families have limited means and will not be 
able to afford market rate rentals.
    There are over 90,000 Section 515 households who do not 
receive rental assistance. I will be interested in hearing 
suggestions on ways to improve the program to ensure that the 
people who need it most will be served.
    Thank you very much. And I yield back the balance of my 
time.
    Mr. Renzi. I want to thank the gentlelady from California 
and ranking minority member, a true advocate for the families 
of limited means, a true fighter.
    I want to recognize my neighbor over in the Cannon 
Building, who has taken the time to teach me a lot as it 
relates to housing issues, the gentleman from Georgia, 
Congressman Scott.
    Mr. Scott. Thank you very much, Mr. Renzi. I appreciate 
your warm and kind remarks.
    My distinguished colleague from Arizona, I certainly 
appreciate your chairing this committee. I want to thank 
Chairman Ney and Ranking Member Waters for holding this 
important hearing today as well on this important subject of 
rural housing in America, especially given that it has been 
about 10 years since this committee has had a full hearing on 
this important subject, as Mr. Renzi pointed out.
    My district is very diverse. I represent urban, suburban 
and rural areas to the south and east and north of Atlanta, 
Georgia. The challenges of increasing home ownership and 
providing decent quality homes is different for each of these 
areas.
    And from time to time, Congress should ask if a particular 
policy is working and if it can be improved. I look forward to 
the testimony from our distinguished panel of witnesses about 
the effectiveness of rural housing programs. And I certainly 
want to thank you for taking the time to come up to Congress to 
share with us your expertise and thoughts.
    And I also want to mention an issue regarding manufactured 
housing, which is a large part of housing in rural America. I 
certainly hope that the industry and Fannie Mae can work out an 
assessment on available 30-year mortgages.
    I do not think that rural Americans, especially the 
elderly, should be penalized for the past unscrupulous loan 
practices. There are some very serious questions I think we 
certainly need to take a look at and hopefully, we will get to 
today.
    For example, how would the hypothetical block granting of 
Section 8 programs, which are under attack now, affect rural 
housing authorities? I think that is very important for us to 
take a look at, as we look at this issue of moving Section 8 
block granting it to the states, which we hope we have 
effectively stopped. But I think that question needs to be 
answered.
    Would this put a strain on other rural housing programs, 
for example? Also, I understand that the Farm Credit 
Administration provides rural housing loans.
    I think we need to examine the question as to: do you find 
that the Farm Credit Administration programs compete with other 
Federal programs? And do you believe that requiring a high down 
payment for manufactured housing mortgages will put a strain on 
rural housing opportunities?
    Some very serious questions. This is very timely. And I 
certainly appreciate the chairman and Ranking Member Waters for 
doing it and Mr. Renzi, for you doing a fine job of hosting 
this for us. Thank you very much.
    Mr. Renzi. I thank the gentleman. And his expertise is well 
noted. And I am sure the questions you will see today contain a 
lot of deep substance.
    I will now recognize the gentlelady from California, Ms. 
Lee.
    Ms. Lee. Thank you very much. And I wanted to also thank 
the chair, in his absence, and to our chair here today and to 
our ranking member for this hearing and to the panelists who 
have come to present this testimony.
    You know, oftentimes, we from urban centers--I am from 
Oakland, California--forget really that California actually has 
many, many rural communities. And that we sometimes forget also 
that in these rural communities, there are deplorable 
conditions, poor infrastructure. Many of the homes are 
unaffordable.
    And so I think that it is a very important hearing today. 
And it is important for myself, being from an urban community, 
to really understand and learn and be reminded that what 
affects urban housing issues--in terms of affordability, in 
terms of home ownership, in terms of infrastructure, in terms 
of safety--also affects our rural communities. And we should 
have a comprehensive strategy in terms of providing for decent 
and affordable housing for everyone.
    And that should be part of our domestic agenda. And it 
should be a priority.
    So I just want to thank you again, Mr. Chairman, for this 
hearing and look forward to the testimony.
    Mr. Renzi. Thank the gentlelady from California for her 
insights.
    Move now to the gentleman from Alabama, the former 
prosecutor, Mr. Davis.
    Mr. Davis. Thank you, Mr. Renzi, Mr. Acting Chairman, as it 
were.
    Let me welcome the members of both panels here today. And 
let me certainly thank, in his absence, Chairman Ney for 
calling this hearing.
    I noted as I was watching the television feed of this in my 
office, that Mr. Renzi opened by saying that this is the first 
rural housing hearing in 10 years. I am very much struck by 
that. I am very much struck by that.
    When Michael Harrington wrote in 1965 about the other 
America, he was talking about portions of our country that have 
been extraordinarily isolated. And he was talking about people 
whose needs sometimes get lost in this otherwise wonderful 
process of ours.
    And as we think about if Michael Harrington were to write 
that book today or if another Michael Harrington were to write 
that book today about the other America, I think he would be 
talking in very large measure about people who are living in 
rural America. My 7th District of Alabama happens to contain 
five of the poorest counties of the United States, according to 
the U.S. Census Bureau. And all five of those counties are 
extraordinarily rural.
    And as we talk about moving this economy forward, I think a 
large part of that conversation has to involve connecting and 
closing the gap between rural America and suburban and urban 
America. So I am happy that we have this hearing. And I am 
happy that it gives us a chance to talk about this pressing 
issue.
    I will make one other point. When the administration's 
budget was announced several months ago, a lot of us on this 
side of the aisle had sticker shock.
    Normally, sticker shock is because things are higher than 
we expect them to be. Our sticker shock was based on the fact 
that the commitment was much less than we thought it would be.
    And as someone who represents a rural district and as 
someone who represents a district that is very much dependent 
on rural housing initiatives, two things caught my eye. The 
administration proposed to eliminate the RHED program, the 
rural housing part of HUD, and the USDA's Rural Community 
Development Institute, two programs that coincidentally--or 
maybe not so coincidentally--happen to be the only rural 
capacity building programs that really exist.
    A budget says something about our priorities. A budget says 
something about what we value and what we think is important.
    And what troubles so many of us on this side of the aisle 
and some like-minded folks on the other side of the aisle is 
that in so many areas but particularly when it comes to rural 
America, we are walking away from a very important commitment 
that we have made. So to the extent that this hearing gives us 
a chance to shine some light on that, to the extent that this 
hearing gives us a chance to hear some perspective on a 
forgotten part of America, then I very much welcome this 
process and yield back the balance of my time.
    Mr. Renzi?
    Mr. Renzi. I thank the gentleman for pointing out the 
contentious issues that were surrounding at least the original 
blueprint of that budget. And I agree with him.
    I thank the gentleman from Alabama. We will move to our 
first witnesses. Two witnesses today on our first panel. Our 
first is Ms. Phyllis Fong, who was sworn in as Inspector 
General for the United States Department of Agriculture in 
December of 2002.
    She is responsible for conducting and supervising audits 
and evaluations, as well as investigations and law enforcement 
efforts relating to the USDA's programs and operations. Prior 
to her appointment at the USDA, Ms. Fong had been an Inspector 
General for the U.S. Small Business Administration. She is a 
career member of the Senior Executive Service.
    Welcome, Ms. Fong.
    Our second panelist and witness today is Mr. Bill Shear. 
And he is the Acting Director for Financial Markets and 
Community Investments at the U.S. General Accounting Office.
    He has directed studies and is addressing federal oversight 
of government sponsored enterprises, including current 
evaluations of empowerment zones, securitization of community 
development lending and Federal Home Loan Bank System's 
financial activities. Prior to joining GAO, Mr. Shear was a 
senior economist at Freddie Mac, where he analyzed home 
ownership decisions and HUD's geographic purchase goals for 
Fannie Mae and Freddie Mac.
    Welcome, Mr. Shear.
    I would remind the witnesses that your written statements 
will be included in the record. We ask that your oral testimony 
be limited to five minutes. We will begin with Ms. Fong. Ms. 
Fong?

     STATEMENT OF PHYLLIS K. FONG, INSPECTOR GENERAL, U.S. 
           DEPARTMENT OF AGRICULTURE, WASHINGTON, DC

    Ms. Fong. Thank you, Mr. Chairman and members of the 
subcommittee. I am pleased to be here today to provide 
testimony about the Office of Inspector General's work at 
USDA's rural housing programs. With me today are Bob Young, 
Deputy Assistant IG for Audit, and John Novak, Acting Assitant 
IG for Investigations, who will help me respond to your 
questions.
    I would like to summarize the highlights of my testimony 
for you at this time.
    As you know, the Rural Housing Service within USDA has 
three primary programs: Single Family Housing, multifamily 
housing and Community Facility programs. OIG oversight of these 
programs has focused on a number of different areas over the 
past decade.
    During the 1990's, we conducted audit work in the RHS 
program of multifamily housing and single family housing. Over 
the past several years, our audits have focused on more 
specific and narrowly targeted issues, most often in response 
to congressional and other requests.
    Two of these audits have led us to identify areas where we 
need to provide broader audit coverage. These would include 
insurance coverage in multifamily housing projects and the 
issue of eligibility for rental assistance. In addition to our 
formal audit work, our desk officers continually assess program 
activities. Our investigation side of the house receives and 
pursues allegations of fraud in RHS programs.
    Based on our work in these areas, we have identified six 
major challenges for RHS management. These challenges include: 
portfolio management; unallowable and excessive expenses 
charged to RRH projects; RRH projects leaving the program; 
rental assistance; allocation of funds to rural areas; and 
performance measures.
    My prepared statement discusses all six of these challenges 
in some detail. So today, I would just like to focus on the two 
most significant issues, in our view. And those two issues are 
unallowable and excessive expenses and performance measures.
    RRH programs can be vulnerable to fraud and abuse because 
of the large cashflows involved. We have worked with RHS to 
address these problems and to stop those who abuse the program 
from participating in the program.
    In 1999, we issued a comprehensive report on program fraud 
and threats to tenant health and safety, which described the 
results of a nationwide review of these issues. Financial 
records that we reviewed revealed over $4.2 million in misused 
funds at apartment complexes, operated by 18 owners and 
apartment managers.
    We identified 145 complexes that showed serious physical 
deterioration. Problems included leaky roofs, worn exterior 
siding, unsafe balconies and similar kinds of problems.
    In response to these issues, RHS has been working with the 
owners and management agents to resolve these health and safety 
issues. We have found, through our audit and investigative 
work, that there are several kinds of common schemes used by 
owners and management agencies to improperly withdraw funds 
from complex accounts.
    One such scheme involves double charging apartment 
complexes for management-related expenses. Another scheme 
involves the owner or management agent charging complexes for 
personal expenses.
    A third type of scheme involves unallowable charges made by 
identity-of-interest companies. These in particular are very 
complex schemes. And they result from program vulnerabilities, 
which raise a lot of concerns.
    RHS, in response to these issues, has developed some 
proposed program regulations to address these problems. Our 
assessment of the regulations as they are currently drafted has 
concluded that the proposal has satisfactorily addressed 4 of 
our 19 audit recommendations. We believe that additional work 
needs to be done on the remaining 15 recommendations.
    On the investigative side of the house, we have run a 
significant number of investigations of multifamily housing 
programs, which have led to 25 convictions and $8 million in 
recoveries. And in the single family housing program, we have 
had 30 convictions and $2.3 million in investigative 
recoveries. So we do continue to see a large number of 
investigative allegations and referrals coming to our office.
    Next, I would like to address the issue of performance 
measures. As you know, managers need accurate performance data 
to assess how effective their programs are in accomplishing 
their mission.
    We did a review in 2001 to evaluate RD's performance data 
and results. And we found that in many cases the data that were 
included in RD's report were inaccurate or unsupported. And as 
a result, we found that the report was of little utility.
    We believe these problems are caused primarily by RD's lack 
of guidelines for collecting, validating and reporting its 
performance results and documenting its data collection. We 
also found, in some cases, that the items being measured were 
not directly related to the program mission and that in other 
cases, the performance measures were not supported.
    You may wonder: why is this important? Well, we reported an 
example of the consequences of inaccurate data in this program.
    In 2001, we did an audit of the Rural Housing Service and 
found that RHS reported it had built over 6,500 units, when in 
fact it had built only 222. As a result of this inaccuracy in 
data and reporting, $122 million out of the total $153 million 
allotted to the program was not used for program purposes. Had 
RHS had accurate data, perhaps this money could have been 
directed to program purposes.
    We also believe that it is important for the program to 
develop internal controls that are accurate and that help the 
program to manage its program. We did a report in 2002 that 
reported on some vulnerabilities in the material weakness 
process within RD.
    So in conclusion, we believe that RHS faces a number of 
management challenges in its efforts to deliver safe and 
affordable rural housing programs. RHS itself has acknowledged 
these challenges. And we are working with them to develop an 
audit program for next year that will help them to address 
these issues.
    Thank you.
    [The prepared statement of Phyllis K. Fong can be found on 
page 85 in the appendix.]
    Mr. Renzi. Ms. Fong, thank you so much for your insights 
and your statement.
    Mr. William Shear?

   STATEMENT OF WILLIAM B. SHEAR, ACTING DIRECTOR, FINANCIAL 
   MARKETS AND COMMUNITY INVESTMENT, U.S. GAO, WASHINGTON, DC

    Mr. Shear. Mr. Chairman, members of the committee, I am 
pleased to be here this afternoon to discuss opportunities GAO 
has identified to improve management at the Rural Housing 
Service. My testimony today is based on two reports addressed 
to this committee: first, our September 2000 report on rural 
housing options; and second, our May 2002 report on multifamily 
project prepayment and rehabilitation issues.
    To summarize, we have found that while the Rural Housing 
Service has helped many rural Americans achieve home ownership 
and has improved the Rural Rental Housing stock, it has been 
slow to adapt to changes in the rural housing environment. 
Also, the Service has failed to adopt the tools that could help 
it manage its housing portfolio more efficiently.
    In particular, our work on rural housing options focused on 
the dramatic changes in the rural housing environment since 
rural housing programs were first created. These changes raise 
questions as to why the separately operated rural housing 
programs are still the best way to ensure the availability of 
decent, affordable rural housing.
    Overlap in the products and services offered by the Rural 
Housing Service, HUD and other agencies has created 
opportunities for merging programs for sharing the best 
features of each program. For example, the Service's single 
family loan guarantee program plans to introduce its automated 
underwriting capabilities through technology that FHA has 
already developed and has agreed to share with the Rural 
Housing Service.
    Also, even without merging programs or sharing the best 
features of the programs of others, the Rural Housing Service 
could increase its productivity and lower its overall costs by 
centralizing its rural delivery structure. Here I will note 
that a number of states, including the State of Ohio, have made 
steps to consolidate the number of district offices within 
their states.
    In addition, servicing of single family loans is now 
conducted centrally at the St. Louis Servicing Center. However, 
for the most part, the Service's delivery structure remains 
largely decentralized.
    In addition, shifts in program funds, such as those from 
direct loan programs to loan guarantee programs, have 
contributed to challenges posed by the decentralized rural 
delivery structure.
    I will now turn to our work on multifamily issues. Here we 
found that the Rural Housing Service does not have a mechanism 
to prioritize the long-term rehabilitation needs of its 
multifamily housing portfolio.
    As a result, the Service cannot be sure it is spending 
limited rehabilitation funds as effectively as possible. It 
also cannot tell Congress how much funding it will need in the 
future.
    How they deal with the long-term needs of an aging 
multifamily portfolio is the overriding issue for the Section 
515 multifamily properties. About 70 percent of the portfolio 
is more than 15 years old and in need of repair.
    The Service's state level personnel annually inspect the 
exterior condition of each property and conduct more detailed 
inspections every 3 years. However, the inspection process is 
not designed to determine and quantify the long-term 
rehabilitation needs of the individual properties.
    To better ensure that limited funds are being spent as cost 
effectively as possible, we recommended that USDA undertake a 
comprehensive assessment of the Section 515 portfolio's long-
term capital and rehabilitation needs. It is our understanding 
that, in response, the Service plans to develop an inspection 
and rehabilitation protocol by February 2004. The protocol will 
be based on an evaluation of a sample of properties.
    Mr. Chairman, that concludes my oral statement. I would be 
happy to answer any questions.
    [The prepared statement of William B. Shear can be found on 
page 142 in the appendix.]
    Mr. Renzi. Thank you, Mr. Shear. Both your statements are 
absolutely eye opening. And I am sure we have got many 
questions here.
    Let me, for those who might be wondering, make sure we get 
into the record today that Under Secretary Dorr of the USDA 
will be attending a second day of hearings that we will be 
conducting on the subject matter in July, in case we are 
wondering about that.
    Before we move on to questions, I recognize Chairman Ney is 
here in the room. And so we were going to finish up some 
questions. And then we will turn it back over to the real 
chairman, okay?
    Let me recognize the gentleman from Alabama, Mr. Davis.
    Mr. Davis. Thank you, Mr. Renzi. Let me, if I can, pick up 
on something that both of you alluded to in your written 
statements.
    One of the anomalies that is striking to some of us is that 
the actual rate of home ownership is frankly very high in rural 
America. I think it is around 76 percent.
    At the same time that it is very high, there is significant 
problem with the quality of housing stock. And because of the 
problem with the quality of housing stock, often the homes that 
people own are not typically leverageable as collateral. And 
they cannot be used in the kinds of wealth creating manner that 
homes are used by some people who own homes.
    Can both of you address that particular problem and what 
RHS can do to get a better handle on that issue? Because the 
problem strikes me as not necessarily the conventional one of 
increasing and promoting a higher rate of home ownership, as 
opposed to rental status, but making better use of the home 
ownership rate that we have got in rural America.
    Mr. Shear. I will go first on that. Many of the problems of 
inadequate ability to use home ownership as a vehicle to gain 
wealth for those who are near the bottom, low-income people, is 
a very large challenge. Much of it has to do with market forces 
that, to a large degree, the Rural Housing Service does not 
have that much control over.
    Nonetheless, the Rural Housing Service does deal with a 
number of partners to try to encourage community development in 
rural areas, dealing with a number of programs such as self-
help housing and other programs. It might be that some of those 
programs may offer the best hope in terms of making sure that 
those low-income rural residents who are homeowners have the 
ability, through the community development in the communities 
that they live in and through self-help programs, in terms of 
using sweat equity and other means to try to develop more 
equity in their homes.
    Mr. Davis. Ms. Fong, do you have a different perspective or 
an answer on that?
    Ms. Fong. Based on my understanding of the work that our 
office has done, we have not done much in that area. And so I 
do not have any basis to give you an assessment at this time.
    Mr. Davis. Let me turn to a slightly broader question that 
both of you touched on in your written testimony as well, and 
it is the utility of Rural Housing Services existing as a 
separate entity or the feasibility of integrating the entity 
into HUD. As you know from the conversations we have had about 
Section 8 and conversations we have had about a variety of 
programs, there is kind of a wholesale consideration and 
evaluation going on in this House of what the relative role 
ought to be between, say, the states and particular programs, 
the Federal government and particular programs and the whole 
structure and contours of a lot of these programs.
    I want both of you to talk a little bit about the arguments 
for keeping RHS separate from HUD. And I will kind of give you 
the backdrop for these questions.
    When we had the Secretary of HUD here several months ago to 
talk about housing, he was not--you know, one of the things 
that he said that kind of caught my attention and probably the 
attention of a lot of people in the room, was when I asked him 
about several rural housing programs that were being eliminated 
or cut, after struggling with the answers, he finally stated, 
you know, ``I do not know a lot about rural housing.''
    I am not sure that is the ideal perspective I would want a 
HUD secretary to have. And in light of that, what is going to 
be the future of RHS if it is put in a different home, if it is 
put under HUD?
    Do both of you have confidence that the program is going to 
be administered in the way that we want, given HUD's relative 
unfamiliarity with RHS and the principles behind it?
    Mr. Shear. Since it was one of the reports which I 
summarized in my written statement that addresses the issue of 
options, I would address it in this way. The areas where it 
seems to make the most sense to us to have a seperate service, 
where the Rural Housing Service really plays a unique role and 
has expertise and experience, is in dealing with many of the 
poorest rural areas in America--Appalachia, Mississippi Delta, 
Colonias and Indian trust lands. I am sure I could include the 
areas that you alluded to in your opening remarks, as far as 
some of the districts in the State of Alabama.
    I think that if the programs of the Rural Housing Service 
that are targeted particularly to those areas would move to 
another agency, being it HUD or some other way consolidated 
with the programs of another agency, that the challenges would 
be pretty enormous. And that is where we say, in terms of the 
options, that would be the hardest area.
    It is in the areas where we start seeing where the Rural 
Housing Service is providing housing assistance that is not 
largely distinguishable, in terms of the areas it is serving, 
when it starts getting into urban sprawl, into more suburban 
areas and things like that, where it is harder for us to say: 
why would you want a separate structure?
    Mr. Davis. So if you will just yield me an additional 30 
seconds or so, Mr. Chairman, the perspective that you are 
expressing is that for the really acute rural housing 
problems--because we know in this country, rural has different 
meanings. There is the rural that I have got in my district, 
which is very poor. And there is the rural that lies outside 
the suburbs that can be very wealthy.
    For acutely impoverished areas, your perspective is that 
RHS has a unique, distinct function that it can serve and that 
that mission may not be performed as effectively or as well if 
it is absorbed within HUD.
    Mr. Shear. We would have more concerns about the ability to 
integrate the programs that reach into the most acutely poor 
areas in terms of those parts of the Rural Housing Service.
    Mr. Davis. Ms. Fong, can you give a very, very brief answer 
to that same question?
    Ms. Fong. We have not specifically addressed that issue. It 
really is more within GAO's purview to look at those kinds of 
cross-cutting Government issues.
    I would draw your attention to this: I think that Mr. Shear 
is absolutely right in identifying the issue of how do you 
define rural area versus urban area bedroom sprawl? I think 
that is an issue area for the policy makers to decide how do we 
define these programs? And I do not have a solution.
    Mr. Davis. Thank you, Mr. Chairman.
    Mr. Renzi. Thank you, Mr. Davis.
    I would like to recognize the gentlelady from the Golden 
Bear State of California, Ms. Waters.
    Ms. Waters. Thank you very much. I am sorry I had to leave 
the room for a moment for an urgent call. But I was very 
interested in what the Inspector General was describing as the 
audit and investigative work that has been done.
    What bothers me about the potential risk of a program like 
this is mismanagement. But oftentimes, that mismanagement is 
because we have not done enough in training and assisted those 
who are involved with the program enough so that they can avoid 
some of these management mistakes.
    The business of these managers who have secondary 
businesses, for example, who may have an electricity shop or a 
plumbing shop. And they turn out to be the same ones to supply 
the services, et cetera. It seems to me that that kind of stuff 
could be easily managed and dealt with.
    Certainly, it should be disclosed. But you know, these 
individuals should be vetted. They should be screened in some 
way, so as to know who they are and to avoid backing into those 
kinds of situations.
    Oftentimes, poor people are put at risk because the 
oversight and the training and the technical assistance that is 
needed to manage these programs is not built into the program. 
So what can you tell us about your recommendations? And what 
can you tell us about the severity of some of the things that 
you discovered or the lack of severity of some of the problems 
that you discovered?
    Ms. Fong. Well, I think you have put your finger on it, 
that in the area of overcharging, excessive charging to the 
Rural Rental Housing program, there are an awful lot of 
allegations of fraud and mismanagement. Much of it is due to 
activities by so-called identity-of-interest companies, where 
the project manager has a friend or a relative on the outside. 
They manage to equity-skim the project's accounts.
    We are very concerned about that. We have made a number of 
recommendations to address that.
    RHS is in the process of developing some regulations in 
response to our recommendations. Our current assessment is that 
we need to continue to work with RHS to tighten up those 
regulations because there should be a way to go after this.
    I also believe that in FY 2000, the Congress enacted some 
legislation that would have tightened up some of these 
restrictions, addressed some of these issues, and provided the 
Secretary with some authority to impose civil penalties. Once 
that program takes off and is implemented, that should help to 
address some of these issues.
    Ms. Waters. Okay. Let me raise a question about the 
apartments that roll off the program with prepayment. That is a 
problem, particularly when we have a housing market such as we 
have now, where the demand is so great.
    And if, in fact, the rising costs of maintaining those 
units is such that the owners, I guess, would be better off by 
prepaying them and getting out altogether, then I could 
understand why they would do that. What incentives do we offer 
to keep them in the program?
    Ms. Fong. That is one of the challenges that we have 
identified. Under the current situation, as the projects 
mature, it is frequently in the project owner's interest to 
prepay for a lot of reasons.
    And so as a result of that, there is an incentive payment 
that is being offered by RHS to project owners to enable them 
to stay in the program and to make it financially feasible for 
them to stay in the program. The payments would be equal to the 
equity value in the property at the time the prepayment is 
planned.
    Now we have not looked at how that program is being 
implemented. We would certainly want to look at that program or 
at least keep an eye on it, to make sure that these payments 
are being made appropriately and that, in fact, the project 
owners continue to be eligible to maintain the properties to 
provide safe and decent housing.
    Ms. Waters. Can they borrow money for the upkeep of these 
apartments at a very low or no interest rate?
    Ms. Fong. Yes.
    Ms. Waters. How low?
    Ms. Fong. I understand it is 1 percent.
    Ms. Waters. Cannot get much lower than that. Thank you very 
much.
    Mr. Renzi. Thank you, Ms. Waters.
    Recognize the gentlelady from California, Ms. Lee.
    Ms. Lee. Thank you very much. Let me just ask you, Mr. 
Shear--and I think Mr. Davis referred to it also with regard to 
home ownership rate is higher in rural communities. What is it? 
You say it is 76 percent, which is very high.
    But I am wondering, given that percentage and yet given the 
rates of poverty, one is--well, what is first of all the 
minority home ownership rate in rural America, in terms of the 
Latino and the African-American community? Do you have that 
broken down?
    Mr. Shear. I do not have it broken down here. We can 
provide a statement for the record on it.
    Ms. Lee. Yeah, I would be very interested to see that.
    Mr. Shear. It is definitely, when you go into the poorest 
areas of America, the rural home ownership rate is much lower 
than 76 percent. Among African-American and Hispanic 
communities, it is much lower. And we can provide those 
statistics for the record. I just do not have them right here.
    Mr. Davis. Ms. Lee, if you would yield for one second? I 
think it is 61 percent among minorities.
    Ms. Lee. Sixty-one percent? That is African-American and 
Latino? Okay. Thank you very much.
    Let me also ask, did you find and are you finding, in terms 
of the housing stock, that rural America significantly needs 
more housing stock? Or is it rehabilitation only that is a 
strategy that makes sense?
    Mr. Shear. For the record, according to the 2001 American 
Housing Survey, the homeownership rates for African-Americans 
and Hispanics in non-metropolitan areas was 61 and 59 percent, 
respectively. With respect to your broader question, I cannot 
answer directly what Congress's priorities should be in terms 
of spending and supporting the overall quality of the rural 
housing stock.
    With respect to the major multifamily program for the Rural 
Housing Service, which is the 515 program, what we observe here 
is that a very high percentage of the projects are around 20 
years old. They are aging. They are in need of repair.
    Many of them, the use restrictions due to the original rent 
support contracts when those projects were built, are coming 
due. So our focus, in terms of one of the reports that I 
discussed, was in terms of the 515 stock and the need to assess 
and to prioritize the financial and the structural condition of 
that stock, in order to be able to prioritize where the Rural 
Housing Service could direct incentive payments and other 
resources to try to deal with the problem of keeping quality 
units in this 515 stock.
    Ms. Lee. Do we need more quality units in rural America?
    Mr. Shear. Based on our work, I would say we certainly find 
evidence, as others that you will hear during the second panel, 
of certain housing needs. There are housing needs in rural and 
urban areas.
    But certainly, in rural areas, there are many housing 
needs. We feel that, in terms of our analysis, we are trying to 
provide information and analysis that will help the Congress 
deal with basically how can we manage better, how can we take 
actions to have resources go further. What are our options in 
terms of policies?
    But I think the ultimate question--how much should be spent 
on the various activities, the various needs that this body 
faces--that is really your leadership.
    Ms. Lee. Right. But in terms of a policy option, I mean, a 
policy option is increasing the affordable housing stock. I 
mean, we do have a bill, the National Affordable Housing Trust 
Fund. It increases housing stock, urban and rural America.
    Would that be a recommendation from you to support, given 
what you have learned or what you know about rural America?
    Mr. Shear. In that we have not analyzed the particular 
program or other programs developed in terms of trying to 
strengthen the quality of rural housing, I am not in a position 
to really recommend that initiative versus others.
    Ms. Lee. But as a policy option, do we need to increase 
then just the stock of affordable housing in rural America? I 
know we do in urban America. I am trying to learn more about 
rural America.
    Mr. Shear. There certainly are very pressing housing needs 
in rural areas. And certainly, there are very pressing housing 
needs, particularly in areas where our work on the Rural 
Housing Service have really concentrated, to a great degree, on 
the poorest rural areas in America. And certainly, you have 
some very pressing housing needs.
    What I am saying here is that there are some value 
judgments involved here in terms of where priorities are. But 
you can certainly find many rural areas where you have housing 
conditions that are much further from providing adequate, safe 
and sanitary housing, compared with many of our urban areas. 
There are certainly a lot of pressing needs in rural areas.
    Ms. Lee. Okay, Mr. Chairman. So you are not prepared to 
say, as a policy option, we need to increase the stock of 
affordable housing as part of your recommendation.
    Mr. Shear. Basically, I think that that is the point where 
I just say there are some very pressing needs. But we have not 
assessed specific proposals. And some of those involve value 
judgments where we say that we go so far. But then you as a 
body, in terms of Congress, have to consider what other 
priorities----
    Ms. Lee. Okay, thank you very much.
    Ms. Waters. Will the gentlewoman yield?
    Ms. Lee. Sure.
    Ms. Waters. Thank you. This line of questioning by my 
colleague from California is extremely interesting and 
important because we are still seeing on television and in 
magazines dilapidated dwellings that are falling down in rural 
America. We are still seeing places without indoor plumbing. 
And it was just a few years ago that we had Sugar Ditch down in 
Mississippi, where people had cardboard serving as siding for 
their homes.
    Now what do you know about this? Have you been into any of 
these areas? And if you have, why are you not sitting there 
just jumping up and down about the living conditions in some of 
these communities?
    Mr. Shear. In terms of the poorest areas, I would like to 
introduce Andy Finkel, if he could come up to the table, he has 
been the assistant director who has led our work on rural 
housing. He certainly has visited many of the areas in the 
poorest rural areas of America. And I think that he could give 
a better answer than I could.
    Ms. Waters. Okay. All right. Okay.
    Mr. Renzi. Mr. Finkel, you will state your full name please 
for the record?
    Mr. Finkel. Andrew Finkel.
    Mr. Renzi. Thank you. Proceed.
    Mr. Finkel. There are two pictures on the highlights page 
of our report. They are before and after pictures, actually. 
One is a shotgun house that a gentleman lived in for 46 years 
in northern Mississippi.
    And the next picture is the house that he moved into with a 
Rural Housing Service direct 502 loan, leveraged with Federal 
Home Loan Bank, state and local money.
    It is in a historically African-American neighborhood that 
they wanted to convert in northern Mississippi. And it took a 
lot of work with a lot of leveraging.
    But there were about a half dozen new houses like that 
built in the development. People moved into a nice 
neighborhood. We also saw was that in the immediate 
neighborhood around it people were fixing up their houses.
    To follow up on you point about people living in cardboard, 
we also visited the colonias on the border in Texas. And that 
is where we saw entire neighborhoods of homes without water, 
without electricity, without sewers.
    Mr. Renzi. Thank you.
    Ms. Waters. Just one more and I will not take much longer.
    Mr. Renzi. Yes, ma'am.
    Ms. Waters. Is there an assessment of this kind of housing 
in rural America? Where can we find the status and condition 
and a real report on the housing needs of rural America? Where 
is that information deposited?
    Mr. Finkel. There is a report that comes out on the status 
of rural american housing, I think it is the Housing Assistance 
Council that puts it out.
    Ms. Waters. It describes these shotgun and cardboard----
    Mr. Finkel. Exactly.
    Ms. Waters.----and dirt floors and tin roofs. Where can we 
get that information?
    Mr. Renzi. Maybe you can provide it to the gentlelady, 
please?
    Mr. Finkel. Yes, we will provide it for the record.
    Ms. Waters. Okay. Thank you very much.
    Mr. Renzi. Thank you, Ms. Waters.
    Let me finish because I want to make sure the chairman is 
able to get in here and get the next panel going. I was really 
taken, Ms. Fong, by the inaccuracy of the data that you all 
found out through the audit. I think your statement said that 
in one instance, RHS reported that they had built over 6,500 
units--page 15--and in fact it had built only 222.
    This kind of an injustice, I mean, that kind of a severity 
of disparity of numbers in their audit almost rises or does 
rise to the verge of investigation type of injustices. So I am 
going to ask, first of all, that lack of management with the 
inability to access the proper data, what is your 
recommendation, first of all, to attack that specific issue?
    Ms. Fong. I think that RHS has to take a number of steps to 
deal with this. You are absolutely right. Until we can be sure 
that the data on program performance is accurate, it is very 
difficult to assess how well the program is performing. And I 
think that cuts across every area of the program.
    We have suggested to them that they look at their data 
collection instruments, the way that they report the data, 
their computer systems. There are a number of things that need 
to be addressed, as well as the very basic issue of how do we--
or how does RHS--define success in its program?
    What is the performance measure for success? And how do we 
measure that?
    And so there needs to be some very clear thinking about 
this from step one all the way through the end.
    Mr. Renzi. And general counsel reminds me, RHS is in a 
position now where the accuracy, from this point forward, will 
be there for us. Or what is the status?
    Ms. Fong. I believe this is a multiyear process. I do not 
know what the status is.
    Mr. Renzi. We are not there yet. Okay. We are not there 
yet.
    I want to follow up on a line of questioning with Mr. 
Davis. My district is 58,000 square miles, larger than the 
State of Pennsylvania, including the largest Native American 
Indian population in America. We lost several babies last year 
with a late snowfall because I have got Native Americans living 
in tin shacks, just similar to what Ms. Waters described. We 
have got frostbite conditions on babies' toes going on.
    In addition, I have got a situation where I go all the way 
down to the border of Mexico, where some of the conditions, 
dirt floors are common. So true poverty is still in the land of 
milk and honey here in America.
    And so I want to ask and go back along Mr. Davis' line of 
questioning. When you target severe rural areas, those with the 
most needy of areas, what program specifically is it that we 
can turn to, to help in the most needy and the most critical 
areas where we have these kind of effects?
    Mr. Shear. It would be the historic traditional programs of 
the Rural Housing Service. It would be the 502 single family 
program direct lending. It would be the 515 program in terms of 
direct lending for multifamily properties. It would be the 
Section 521 rental assistance.
    Mr. Renzi. Okay. I am with you. You have got a list of 
programs, okay?
    Mr. Shear. I would say those programs, the distinguishing 
feature of those programs is that they are very deep subsidy 
programs that are a fairly high cost per recipient. They do 
bring housing assistance to the poorest.
    Mr. Renzi. High cost to the recipient in what area? Down 
payments or where?
    Mr. Shear. High cost in terms of the Federal government's 
role, in terms of the budgetary impact of those programs are 
high.
    Mr. Renzi. Oh, okay.
    Mr. Shear. Yet they are programs that are targeted for the 
very poor.
    Mr. Renzi. And the poor's access to those programs is?
    Mr. Shear. I am sorry, what?
    Mr. Renzi. The access to those programs, the ability to get 
all that money out. If it is such a high-cost program, are we 
using it 100 percent?
    Mr. Shear. In terms of whether we are using it 100 percent, 
we have initiated some work which is looking at rental 
assistance payments and looking at the obligations that are 
made from that program. And we are looking at questions of what 
is happening to unliquidated balances and things of that 
nature.
    So there is a question of whether all the resources that 
Congress is providing is going to those uses.
    Mr. Renzi. Okay, well, unliquidated--that went over my 
head. Okay? And I realize I am a snot-nosed freshman, but we 
need to be sure that we are directing the assets, directing 
these high-cost monies right down at the level.
    Let me give you a little softball question here and we are 
going to finish up. The future of where we are going, as far as 
the research, the auditing, the development, where do you see 
us going as far as the review and oversight? And we will just 
finish with that.
    I apologize, Mr. Davis, we are going to get to the next 
panel.
    Mr. Shear. In terms of that, we serve the Congress and, as 
you know, the majority of our work is dictated by requests from 
committees. If I was going to point out areas you might want us 
to look at--and I think, Mr. Renzi, I think that is your 
question--we would look at, as far as a relatively new program, 
the Section 538 loan guarantee program for multifamily housing.
    I would look at the whole question, as the Service has 
shifted from more direct programs to guarantee programs, of the 
issues of what types of internal controls, what types of lender 
oversight when you use private sector lenders, are necessary. 
And I would also say that the self-help programs certainly look 
like they are having some very positive benefits in some areas. 
But we know there is variation. And there is a question of: are 
there any best practices that could be captured?
    Mr. Renzi. Thank you. We are now just scratching the 
surface obviously of an issue that we have grabbed on to, where 
many injustices exist. I look forward to Chairman Ney's 
leadership on this issue and his commitment to future hearings 
on this, as we begin to delve deeper.
    The chair notes that some members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses and to replace their responses in the record.
    I want to thank my colleagues for their questions and their 
insights. And thank both witnesses--all three witnesses. Thank 
you.
    Mr. Shear. Thank you very much.
    Ms. Fong. Thank you very much.
    Chairman Ney. [Presiding.] I want to thank Panel Two. To 
begin the introductions, we will defer to Congresswoman Barbara 
Lee to introduce Gideon Anders.
    Ms. Lee. Thank you, Mr. Chairman. Let me just say how 
delighted I am that one of our panelists here is actually from 
my district and is a real expert and an individual committed to 
the issues with regard to affordable housing, both in urban and 
especially in rural communities.
    Mr. Anders--Gideon Anders--is the executive director of the 
National Housing Law Project, which of course is headquartered 
in Oakland, California. Mr. Anders and the National Housing Law 
Project are the leading housing rights and justice organization 
for low-income individuals across the country.
    The National Housing Law Project's mission is to advance 
housing justice, increase and preserve the supply of housing, 
improve housing conditions, expand and enforce low-income 
tenants and homeowners' rights and challenge the ongoing 
housing discrimination that many people encounter in both urban 
and rural areas.
    I have had the opportunity to work with Mr. Anders and the 
National Housing Law Project on issues ranging from the need 
for a national housing trust fund to defending the rights of 
tenants under the current HUD ``One Strike'' policy. Mr. Anders 
certainly believes that housing should be a basic human right.
    And I am delighted that he is here to bring his wisdom and 
his knowledge and his insight to this subcommittee. And I just 
want to thank all of the panelists for being here today. And I 
want to thank our chairman and our ranking member for allowing 
us the opportunity to listen to someone who is such a leader in 
rural housing from Oakland, California, Mr. Gideon Anders.
    Thank you very much, Mr. Chairman. And I yield the balance 
of my time.
    Chairman Ney. I want to thank the gentlelady and the 
witness. And also we will call upon Mr. Castle, who will 
introduce Mr. Myer.
    Mr. Castle. Well, thank you, Mr. Chairman. I do want to 
introduce Joe Myer, who I have worked with for a number of 
years now. I see on this resume he came to Delaware in 1976. 
And we worked together on a lot of projects.
    He is the executive director of a Dover, Delaware--which is 
a small town which is the capital of Delaware with a rural area 
around it--based housing group called NCALL, which stands for 
the National Council on Agricultural Life and Labor Research 
Fund. He went to Elizabethtown College and then has a masters 
from Delaware State University.
    As I indicated, I have toured a number of sites with Joe. I 
have also talked to Joe on a number of occasions.
    He serves many different populations--the elderly, our 
migrant workers, seasonal farm workers--in all of our counties 
in Delaware. He has a very successful partnership with the U.S. 
Department of Agriculture to implement rural housing programs.
    He has been an active participant in many other rural 
housing organizations, including being the founding President 
of the Delaware Housing Coalition, chair of the Delaware Rural 
Housing Consortium and Past President of the National Rural 
Housing Coalition. He frankly has just been as involved with 
this subject as anybody possibly can be.
    I cannot imagine a better person to talk to us today about 
this. He has volunteered his time to come up and share with us. 
And we appreciate his being here.
    I may not be here because I have a conference call I have 
to do at 4:00. but I really appreciate Joe being here, as well 
as, by the way, all the other witnesses who, based on their 
resumes, seemed extremely qualified as well. And I yield back, 
Mr. Chairman.
    Chairman Ney. I want to thank you. And we will move to Mr. 
Davis to introduce Madeline Miller.
    Mr. Davis. Thank you, Mr. Chairman. Let me thank you for 
having this hearing today as well. I have the pleasure of 
introducing the lady who is third from the right, Madeline 
Miller. Ms. Miller, you are actually not technically in my 
district. But you are close enough. I am going to claim you for 
purposes of today anyway.
    Ms. Miller is a graduate of my mother's school, Alabama 
State University, and was born and raised in Pine Hill, 
Alabama. And she is here today because she is the executive 
director of Wil-Low Non-Profit Housing, a non-profit housing 
entity that serves Lowndes County and the county that is in my 
district, Wilcox County.
    It has done extraordinarily important work in terms of 
providing technical assistance to low-income and moderate-
income families, to enable them in everything from housing 
reconstruction, to financing, to the purchase of a home. And it 
is particularly appropriate that you are here, Ms. Miller, 
because as you heard from listening to the last panel, we have 
an interesting phenomenon in America, that we have high 
ownership, high home ownership in rural America.
    But the quality of the homes is not what it should be. And 
your program has taken a very significant role in the Black 
Belt of Alabama, in rural Alabama, in trying to get a handle on 
that particular problem, so that we do not have a situation or 
a scenario in which people are technically homeowners but are 
living in conditions that are still offensive to so many of us 
in this room.
    Your organization has taken the lead in trying to do better 
in that area. And I want to thank you for being here today.
    Chairman Ney. I want to thank the members for introducing 
and welcome the panelists. And I will introduce Betty Bridges.
    Betty is President of the Council for Affordable Rural 
Housing, which represents the interests of over 300 members 
that include for-profit and non-profit entities, as well as 
local housing authorities and financial institutions. Ms. 
Bridges was an official with the Farmers Home Administration in 
her home State of North Carolina for nearly 30 years.
    Patty Griffiths is speaking today on behalf of the Housing 
Assistance Council, a national non-profit group working to 
create more affordable housing throughout rural America. She is 
the housing director of the Community Action Commission of 
Fayette County, a non-profit organization located in Washington 
Court House, Ohio.
    I share Ross County, a neighboring county, with Congressman 
Hobson. And I got a glowing recommendation on you for a half-
hour today. I thought it would let you know that. So 
Congressman Hobson says, ``hello.''
    And also, Jack Jones is Vice President in charge of the 
Rural Housing Channel for Chase Manhattan Mortgage Corporation, 
Deerfield Beach, Florida. He is speaking today on behalf of the 
Mortgage Bankers Association of America, which represents 2,600 
companies involved in the real estate finance industry.
    James Rayburn is a homebuilder and developer from Jackson, 
Mississippi. He has built more than 3,000 homes and is a noted 
expert in creating public-private partnerships to build 
affordable housing. This year, he is serving as the First Vice 
President of the National Association of Homebuilders.
    And welcome to the committee. We will start with Mr. 
Anders.

   STATEMENT OF GIDEON ANDERS, EXECUTIVE DIRECTOR, NATIONAL 
                HOUSING LAW PROJECT, OAKLAND, CA

    Mr. Anders. Thank you, Chairman Ney. I appreciate you 
inviting us to testify today. And also to Congressman Lee, I 
want to really thank you for the fine introduction, which saved 
me about 30 seconds in my delivery today.
    Thank you very much. It is a pleasure.
    We have restricted our testimony today to the prepayment 
issues with respect to the Rural Housing Service. We are 
concerned about several trends that we are seeing with respect 
to its administration of the Emergency Low-Income Housing 
Program or ELIHPA preservation program.
    In our view, the agency is not enforcing ELIHPA, and not 
preserving units that can and should be preserved. And it is 
failing to protect residents against displacement.
    Before we address our concerns, let me just briefly 
reaffirm our fundamental belief that there is an absolute and 
continuing need to maintain an effective Rural Rental Housing 
preservation program that protects residents against 
displacement and protects and ensures that there is adequate 
housing in rural areas.
    Frequently, Section 515 developments are the only available 
affordable rental housing in a community that is decent, safe 
and sanitary. The conversion of that housing deprives 
communities of a critical housing source and forces elderly, 
disabled and working households to relocate other communities 
that are tens of miles away from their current homes, jobs and 
families.
    We have four concerns with RHS' administration of the Rural 
Preservation Program. The first of these is that RHS does not 
have sufficient funding to operate an effective preservation 
program.
    RHS has represented to this and other congressional 
committees that it has sufficient funds to meet existing 
preservation needs. That is not true.
    For at least the past 9 years, RHS has not had sufficient 
money to fund equity loan commitments that it has made to 
owners who have agreed to remain in the Section 515 program if 
they were provided an equity loan.
    In the recent Federal Register, publication of proposed 
regulations seeking to alter the preservation program, the 
agency acknowledges that it does not have sufficient funds to 
meet all the equity funds that it has agreed to fund and claims 
to have unfounded agreements that were entered into as early as 
1996.
    What is troubling about this picture is that it is a self-
created problem. The RHS Section 515 appropriations do not 
specify how much money RHS should be using for preservation, 
for maintenance or new construction. Those decisions are made 
administratively by the agency after it receives the 
appropriations.
    We believe that the funding issue will become more 
significant over the next several years and that inadequate 
preservation funding may cripple the program. We urge that the 
committee to really look closely, as a result, at the needs of 
the agency in terms of preservation.
    The second concern that we have is that RHS is not 
preserving all the developments that it can. It has created 
several loopholes by which owners can and will circumvent the 
prepayment and preservation process.
    The most glaring example is RHS' unwillingness to extend 
use restrictions through the acceleration and foreclosure 
process. RHS takes the position that an owner who pays the 
balance due on a loan in response to an acceleration of the 
promissory note is not prepaying the loan and is free to use 
the property as it chooses after the loan is paid.
    RHS is also using the acceleration process to avoid dealing 
with troubled projects. It routinely forecloses on properties 
that it feels it cannot handle and then leaves it up to the 
private market to determine what should happen to them.
    We do not believe that RHS' position is justified.
    The third issue is RHS does not affirmatively enforce 
obligations to rent units to low-income residents. In a 
Missouri case in which we are involved, the PHA--the Public 
Housing Authority--is trying to prepay and demolish a 50-unit 
development some 19 years after it secured the RHS 40-year 
loan.
    When the authority began to systematically relocate 
residents and leave the units vacant, RHS did nothing. Even 
after the housing authority initiated a lawsuit challenging 
RHS' authority to enforce the Emergency Low-Income Housing 
Preservation Act, RHA did not take any action to force the 
housing authority to rent up the facility by completing it. As 
a consequence, 48 units of affordable housing have been 
standing empty for nearly 4 years.
    The fourth issue that we are concerned about relates to 
RHS' capacity to coordinate and control lawsuits in which 
owners are challenging the validity of ELIHPA prepayment 
restrictions or seeking damages for their imposition. 
Currently, there appears to be no concerted effort on the part 
of RHS or its counsel to ensure that ELIHPA, a federal law, is 
properly enforced. Basic arguments, such as the supremacy of 
federal laws over state laws, are not being advanced. And cases 
are being settled instead of appealed because certain legal 
arguments have not been made in the federal district courts 
where these cases are first heard.
    Moreover, RHS, or at least its counsel, appear intent on 
settling cases even before the agency's liability has been 
established. Potentially, these settlements may cost the 
government hundreds of millions of dollars that could have been 
better spent on preserving the housing in the first place.
    Ironically, in one case, the RHS settled instead of 
appealing an adverse decision. The residents have gone on to 
appeal the decision and have sought and secured a stay of the 
district court decision and sought and secured an injunction 
against the owners selling the development or terminating the 
tenants' RHS rights. It is indeed ironic that residents of a 
development and not RHS are appealing this case.
    Before I close my testimony, Mr. Chairman, I would like to 
just point out a couple of issues with respect to the new 
regulations that RHS has recently proposed and which is one of 
the questions which the subcommittee has asked questions about.
    The first provision that we are concerned about deals with 
RHS' proposal to finance future Section 515 developments with 
loans that are amortized over a 50-year term but which become 
due at the end of 30 years. In other words, the proposal would 
finance Section 515 loans over 50 years, but create a balloon 
payment at the end of 30.
    In our view, this proposal violates ELIHPA. And we urge the 
sub-committee to direct RHS not to implement that provision 
and, if necessary, prohibit it from doing so.
    The other provision which we have concern about is one that 
we referenced earlier, which proposes to allow an owner to 
terminate its equity loan agreements if RHS does not fund the 
agreement within 15 months of the time that it was entered 
into. In our view, as long as RHS, and not Congress, determines 
the amount of funding that is made available for preservation, 
the choice of whether to fund incentive agreements lies with 
the agency and no one else. It must not, therefore, be allowed 
to make incentive offers to owners that it later chooses not to 
honor.
    Thank you.
    [The prepared statement of Gideon Anders can be found on 
page 66 in the appendix.]
    Chairman Ney. Thank you.
    Next witness?

 STATEMENT OF BETTY BRIDGES, PRESIDENT, COUNCIL FOR AFFORDABLE 
               AND RURAL HOUSING, WASHINGTON, DC

    Ms. Bridges. Mr. Chairman and committee members, can you 
hear me?
    Chairman Ney. There you go.
    Ms. Bridges. I am very pleased to represent the Council for 
Affordable and Rural Housing, CARH. My personal experience, as 
was stated by the chairman, I was a former Farmers Home 
Administration official for almost 30 years and a private 
developer of affordable housing for 10 years.
    I will address the questions that were supplied by the 
committed and several additional points that we at CARH believe 
are vitally important to the future of rural housing.
    I have submitted separate written remarks. But I will 
summarize those.
    CARH members generally have a productive working 
relationship with RHS, the agency. But we experience a high 
degree of frustration at the lack of resources and the 
consistency from state to state. The agency is not fully able 
to meet its intended purpose and goals because it is organized 
in a manner that inhibits the sharing of information and 
training, thereby greatly adding to transaction cost and 
preventing many meritorious transactions.
    It is not adequately funded to either expand or maintain 
its housing stock and is unable to effectively coordinate with 
existing resources from other agencies. And its programs are 
subject to artificial statutory restrictions that limit 
development and preservation.
    All of these points are addressed in CARH's March 2003 
position paper on the aging portfolio. And I respectfully 
request permission to have this inserted in the hearing record.
    Chairman Ney. Without objection.
    [The following information can be found on page 159 in the 
appendix.]
    Ms. Bridges. The rural housing finance market is 
experiencing a paradox in that tools and resources for 
financing affordable rural housing have become increasingly 
complex and sensitive to the national financial markets. Yet, 
at the same time, local market conditions remain local and 
isolated with dispersed housing and employment patterns.
    This affects both home ownership and rental housing 
patterns, which are both vitally important to meet rural 
housing needs. While home ownership is the American dream, 
rental housing is absolutely necessary for elderly and low-
income Americans, which is the agency's client base.
    In the 515 program, the average tenant income is about 
$8,100 a year. Nearly 60 percent of the households are elderly 
or disabled. We understand that there are various discussions 
and contracts between HUD and USDA about home ownership 
programs. However, we believe that S. 198 and H.R. 1913 have 
the greatest likelihood of achieving real progress on this 
point.
    We understand that HUD instituted a Rural Housing Office 
several years ago. But we have not seen any material 
coordination in the field among multifamily or the voucher 
programs.
    We understand that there are various changes at the agency, 
such as their recently proposed 3560 regulation, which is an 
important step in streamlining and modernizing the regulations.
    Still, 3560 does not address certain basic problems with 
the program; namely, that the agency has an extremely onerous 
process for transferring properties within the 515 system and 
an even more difficult system for prepaying and refinancing 
outside the system. The result is what one industry commentator 
calls a toll road with no exits.
    We appreciate, Mr. Chairman, that you proposed an amendment 
last year to H.R. 3995 to restore contractual prepayment rights 
to owners of 515 properties, just like they were restored for 
owners of HUD properties. Prepayment restrictions that violate 
contract provisions are being successfully challenged in court.
    The Supreme Court's unanimous decision on a case last year 
characterized the statute restricting prepayment rights as a 
repudiation of the contract and is dishonoring an obligation. 
At CARH, we share the committee's interest in the 521 rental 
assistance--RA--perhaps the largest budget item for the agency. 
That program generally works well. But there is not enough 
funding.
    The RA program really can only be analyzed in conjunction 
with the 515 program. Since RA cannot exist without a 
corresponding 515 loans, 515 loans are serviced on a budget-
based method so that State office rural development staff 
scrutinize operating expenses. In many places, this has 
resulted in significantly below market rents that do not pay 
for ongoing maintenance costs.
    We also note that other programmatic alternatives exist. 
The 538 program is an excellent idea. But the 538 statute makes 
implementation with other programs difficult.
    The agency staff has been excited about the 538 closings to 
date. While we support that enthusiasm, we have to note that 
only a handful of the 538 closings have been made and are well 
below industry expectations.
    The 538 program must be revised on a statutory level so 
that it is consistent with current commercial standards. And we 
urge further hearings on this point.
    We appreciate the hard work and the good intentions of this 
committee, as well as RHS and RD staffs. We have identified 
many areas where we feel that we can work together to make 
progress.
    Some of these points require a further federal financial 
commitment. But others only require structural changes to make 
transfers, prepayments and preservation easier.
    And we urge the committee to consider these changes. I have 
spent my entire career working in this industry. And I hope 
that you will think of me and my organization, CARH, as a 
valuable resource.
    Thank you.
    [The prepared statement of Betty Bridges can be found on 
page 76 in the appendix.]
    Chairman Ney. Thank you.
    Ms. Griffiths?

   STATEMENT OF PATTY GRIFFITHS, HOUSING DIRECTOR, COMMUNITY 
ACTION COMMISSION OF FAYETTE COUNTY, OHIO, APPEARING ON BEHALF 
               OF THE HOUSING ASSISTANCE COUNCIL

    Ms. Griffiths. Thank you for the opportunity to submit 
testimony.
    Chairman Ney. Excuse me. I think you need to move it 
closer.
    Ms. Griffiths. Is that better? Okay. Thank you for the 
opportunity for me to submit testimony on rural housing today 
to your subcommittee. And thank you, Chairman Ney, for 
convening this very important hearing.
    My name is Patty Griffiths. I am the housing director for 
the Community Action Commission of Fayette County, known as 
CAC. We are a non-profit organization located in Washington 
Court House, Ohio.
    I also am speaking today on behalf of the Housing 
Assistance Council, a national Non-profit group working to 
create more affordable housing throughout rural America. 
Established in 1971, HAC provides financing, information and 
other services to non-profit, for-profit, public and other 
providers of rural housing.
    Our written testimony includes detailed responses to the 
questions posed by your subcommittee. But in this brief oral 
presentation, I wanted to focus broadly on needs and on what we 
are doing in Ohio with USDA Rural House Service programs.
    First of all, housing and poverty. Most housing policy is 
focused on urban concerns, which are of course substantial and 
deserve attention. But needs are often just as great in rural 
America.
    HAC's research shows that of the 200 poorest counties in 
the nation, all but 11 are non-metropolitan. There are 363 
rural counties where the poverty rate has exceeded 20 percent 
since those figures were first collected in 1960.
    In housing for most of the 20th century, substandard 
quality was the primary rural problem. While quality is still a 
problem today, sharply higher housing costs have made 
affordability, rather than poor conditions, the major problem 
in rural housing, especially for low-income people.
    Among the 23 million non-metro households, approximately 
five million, or 22 percent, pay more than 30 percent of their 
monthly incomes for housing costs and are considered cost 
burdened. Of these non-metro cost burdened households, more 
than two million pay more than half their incomes toward 
housing costs.
    We see these conditions also in rural Ohio. The average 
person in a big city may not think of Ohio as a rural state.
    But in fact, Ohio has the fourth largest rural population 
among the 50 states, with over 2.1 million people. Of our 
640,000 occupied rural housing units in Ohio, over 20 percent 
are occupied by families that are cost burdened.
    Now I would like to turn and speak briefly about our work 
in Ohio. Community Action, our agency, was founded in 1965. And 
we have been involved in housing for many years.
    We have done home weatherizations since 1967. We have 
developed and managed housing for the elderly, for disabled and 
homeless.
    We provide housing counseling. We have developed several 
rental projects using the Low-Income Housing Tax Credit.
    And we have used the major programs of the USDA Rural 
Housing Service, including Sections 502, 504 and 515. We also 
use some HUD programs.
    But since 1995, our agency has helped over 100 low-income 
families become homeowners through USDA's self-help housing 
program. Right now, we are the only USDA self-help housing 
builder in Ohio, although we are currently hoping to expand 
into Ross County and into Clinton County.
    Under this unique program, which is sometimes called a hand 
up, not a hand out, we organize groups of eight to 10 families. 
We help them qualify for USDA Section 502 single-family 
mortgages. We work with them as they put over 1,000 hours--that 
is per household--of sweat equity into the building of their 
own homes and their neighborhoods. No one moves into their 
homes until all the homes in the group are completed.
    A skilled construction supervisor from our staff works 
alongside these families. And they do 65 percent of the labor.
    Now these families do not just paint the walls; they 
actually build the walls. They put up the shingles. They put up 
the siding. They hang drywall. And they hang cabinets.
    In our self-help work, we also have benefited greatly from 
the Housing Assistance Council's HUD-funded Self-Help 
Homeownership Opportunity Program, which we refer to as the 
SHOP program. We have received $850,000 in SHOP funds from HAC 
and $800,000 in other HAC loans.
    The SHOP funding helps CAC buy the land and put in the 
infrastructure for our self-help homes. HAC and CAC want to 
thank this subcommittee for having created the SHOP program in 
1996. I think our agency probably would have been out of the 
self-help business had it not been for the SHOP program.
    The commission has also used the USDA Section 504 home 
repair program. We have developed and now own and manage a 24-
unit USDA Section 515 rural rental apartment project.
    Overall, we have had excellent success with the USDA rural 
housing programs. All of these Rural Housing Service resources 
have been vital to our ability to meet the needs in Fayette 
County, Ohio.
    Perhaps the best way for me to illustrate our work has been 
its impact on the clients that we work with. I would like to 
tell--and end--with a brief story about one of our clients, 
Julie Allen.
    She was a single pregnant mother who became homeless after 
leaving a domestic violence situation back in 1996. Our agency 
first housed Julie and her children in our homeless shelter.
    We then helped her through supportive housing. And then she 
became involved in our USDA self-help housing program. And she 
built her own home in one of our first sweat equity 
subdivisions in Bloomingburg, Ohio.
    Today, Julie is a homeowner. She has an excellent job. Her 
children are thriving.
    Last December, she was a featured speaker before 800 people 
at the opening session of HAC's National Rural Housing 
Conference, speaking about how self-help housing had changed 
her life. I might add, she got a standing ovation at that 
conference.
    HAC and CAC considered asking Julie to be speaking up here 
instead of me today, so you could hear from a person who is 
really receiving these services. But she is getting married 
Saturday and could not make it.
    When I consider Julie Allen and her life, I can think of no 
better reason to support, continue and expand the USDA Rural 
Housing Service programs. Yes, they may need some changes and 
improvements. They definitely need more funding. But they 
really have had an enormous impact on the lives of millions of 
rural people.
    Thank you very much.
    [The prepared statement of Patty Griffiths can be found on 
page 104 in the appendix.]
    Chairman Ney. I want to thank the witness for her 
testimony.
    And next, Mr. Jones?

   STATEMENT OF JACK JONES, VICE PRESIDENT, CHASE MANHATTAN 
  MORTGAGE CORPORATION, DEERFIELD BEACH, FL, ON BEHALF OF THE 
            MORTGAGE BANKERS ASSOCIATION OF AMERICA

    Mr. Jones. Good afternoon. And thank you, Mr. Chairman, for 
holding this hearing and inviting the Mortgage Bankers 
Association of America to state its views on the U.S. 
Department of Agriculture's Rural Housing Service programs.
    My name is Jack Jones. And I am the Vice President in 
charge of the Rural Housing Channel for Chase Manhattan 
Mortgage Corporation in Deerfield Beach, Florida. I am 
particularly pleased to be here today representing MBA on an 
issue to which I have devoted the last 11 years of my 
professional career--providing homeownership opportunities for 
rural families.
    MBA and Chase are strong supporters of the Rural Housing 
Service's mission to foster home ownership opportunities across 
rural America. Chase is the largest originator in the Rural 
Housing Service's Section 502 Guaranteed Single Family Housing 
Loan program, commonly called the GRH Program.
    In many rural communities, the Section 502 direct and 
guarantee programs are the only home ownership options 
available to low-and moderate-income families. Last year, Chase 
loaned just over $900 million, which provided 11,000 rural 
families the opportunity to become homeowners.
    Chase does this in partnership with over 2,500 community 
banks, mortgage bankers and mortgage brokers in all 50 states.
    Unfortunately, rural areas traditionally have lacked the 
financial resources for home financing. For this reason, the 
RHS programs are vital to increase the availability of safe, 
decent and affordable housing for low-and moderate-income rural 
home buyers and renters.
    RHS provides this important function for both single family 
and multifamily housing. In addition to the GRH program, RHS 
also offers the Section 538 program, which guarantees loans to 
developers of multifamily housing to build and/or renovate safe 
and decent rental units affordable to very low-, low-and 
moderate-income families.
    Both of these programs provide private capital, guaranteed 
by public funds, to promote adequate access to home financing 
capital for rural communities.
    MBA would like to recognize the good work that this 
administration, under the guidance of RHS Administrator Arthur 
Garcia, has undertaken in the last 2 years, making significant 
improvements to a program that was at risk of being neglected.
    MBA urges these favorable changes be built upon through the 
following initiatives: first, guidelines under the GRH program 
should be amended to allow the financing of the guarantee fee 
on top of the appraised value of the property. Second, the 
population limits under the GRH program should be raised.
    Third, the income limits should be raised for the GRH 
program and targeted in high-cost areas. Fourth, thermal 
standards on existing housing stock should be eliminated from 
the GRH program.
    And fifth, clarification of Ginnie Mae authority on Section 
538 loans guaranteed by RHS is needed.
    MBA urges these changes for the following reasons: a key 
feature of the GRH program is the ability of the purchaser to 
borrow up to 100 percent of a property's appraised value. This 
feature allows the borrower to purchase a home with no down 
payment and finance some portion, if not all, of the costs 
related to closing a mortgage, including the RHS guarantee fee. 
The current law, however, limits the loan amount to the 
appraised value.
    MBA urges the financing of the guarantee fee on top of the 
appraisal for purchases. This change would mean a greater 
number of rural families would be able to overcome the down 
payment and closing cost obstacle to home ownership. This is 
especially true for first-time and minority homebuyers.
    Use of the GRH program is limited to communities with 
populations of either 10,000 or 20,000, depending on whether or 
not they are contained in an MSA. These definitions were 
created over 30 years ago and need to be updated.
    MBA supports aligning the GRH population requirements with 
other USDA programs or other statutory rule definitions.
    Currently, borrowers applying for the GRH Program are 
limited to a maximum household incomes of 115 percent of the 
area's median income, in all states except Alaska. This 115 
percent limitation in 49 states does not take into account the 
varying levels of housing affordability across the United 
States.
    MBA urges the Secretary of Agriculture be granted 
discretion to raise the family median income limits in areas 
designated as targeted areas and in high-cost areas, allowing 
financing to be extended to families making up to 150 percent 
of the area's median income.
    Unique to the GRH program, existing homes are current 
required to exhibit thermal efficiencies that are contrary to 
the State of the housing stock in rural America. This 
requirement necessitates costly improvements that we believe 
have only nominal economic value. These thermal standards for 
existing homes cannot be found in any other conventional, FHA 
or VA home loan program and is a source of ongoing resistance 
to the use of the GRH program.
    MBA urges Congress to provide strong encouragement to the 
agency to eliminate this burdensome, costly and onerous 
regulation.
    Currently, loans made under RHS Section 538 Rural Rental 
Housing guaranteed program cannot be securitized by the 
Government National Mortgage Association, Ginnie Mae. Ginnie 
Mae's charter allows only the securitization of insured 
multifamily loans, but not guaranteed multifamily loans.
    MBA urges Congress to change the Ginnie Mae charter to 
allow the securitization of these guaranteed loans. This change 
will provide greater liquidity for these loans and ensure that 
rural communities are not disadvantaged due to lack of access 
to capital.
    [The prepared statement of Jack Jones can be found on page 
112 in the appendix.]
    Chairman Ney. I need to interrupt you just to--the time has 
expired, but to also let the panel know what is going on. 
Unfortunately, there is a 15-minute vote in progress, a 10-
minute debate, another 15-minute vote, another 15. It is 
basically 45 to 50 minutes' worth of votes.
    So what I would like to do is to go over, cast a vote. It 
will give a 15-minute window to be able to come back to get 
your testimony in of the three witnesses for the record because 
we would like to do that, to be able to do it.
    And then I do not know if any questions can be--any time 
for questions. But we will be able to at least submit questions 
if the members would like to. So if you could indulge us, we 
will be at recess for about seven minutes.
    Thank you.
    [Recess.]
    Chairman Ney. Sorry for this. It is hard to predict the 
votes. Let us proceed as briefly as possible as we can with the 
remaining witnesses. Thank you.

   STATEMENT OF MADELINE MILLER, EXECUTIVE DIRECTOR, WIL-LOW 
             NONPROFIT HOUSING INC., HAYNEVILLE, AL

    Ms. Miller. Mr. Chairman and ranking members, good 
afternoon. I am Madeline Miller, executive director, Wil-Low 
Non-Profit Housing, which is a non-profit organization 
incorporated in 1971 in Lowndes County, Alabama when it was 
spun off another non-profit organization, Friend, Incorporated.
    Most of our work is conducted in Wilcox and Lowndes 
Counties. The organization was formed by citizens from Lowndes 
and Wilcox Counties who were concerned about the quality of 
their community housing.
    That year, Wil-Low hired its first executive director and 
received its first grant--$38,000 from the Rural Housing 
Alliance.
    The organization's mission then, as it remains today, is to 
provide technical assistance to very low-, low-, and moderate-
income families and farm worker families so they can have the 
opportunity to acquire decent, safe, sanitary and affordable 
housing.
    Wil-Low helps families with new construction, 
rehabilitation of existing owner-occupied dwellings, rental 
housing and housing counseling. Today, Wil-Low still operates 
its housing programs, consisting of new construction, 
rehabilitation of owner-occupied dwellings, the purchase and 
rehabilitation of an existing dwelling, rental units and 
housing counseling.
    To date Wil-Low has constructed over 300 home units through 
both its self-help program and its contractor built home 
program. One hundred percent of the funding for these units was 
provided by Rural Housing, which means the families we work 
with all have incomes at or below 50 percent of the median 
income.
    Rural Housing has made available over $2 million in funds 
that enables families to own their homes. We also have used 
their rehabilitation program, the Rural Housing 533 Housing 
Preservation Grant and its 504 program. A total of over 300 
homes have been rehabilitated.
    But there is a need for additional funds for the Rural 
Housing Service Rehabilitation Program, especially the Loan/
Grant Program, because the numbers of homeowner-occupied 
dwellings that are in need of rehabilitation keeps increasing. 
If these homes are not repaired, family members will be forced 
to move in with relatives or others, creating or increasing 
another problem--overcrowding.
    Wil-Low has successfully trained 50 on-the-job trainees in 
construction. In 1999, our dream became a reality. We broke 
ground to start construction on 20 rental units and a community 
building. Then, in May of 2000, the first resident moved in and 
today the complex is fully occupied.
    The one problem is that we were only able to build 20 
units. And we have over 100 applications from families who are 
still in need of a decent and affordable place to live.
    The total cost of the project was $1,399,239, which 
included the entire infrastructure cost. We also operate a 
housing counseling program.
    But there are many challenges that Wil-Low Non-Profit 
Housing faces. Today, Wil-Low has had to overcome in the past 
and is still faced with today, in an attempt to operate a 
successful rural housing program: recruiting eligible families; 
resolving credit issues; funds to do site development work for 
subdivision approval; sufficient funds to leverage other money; 
locating suitable building sites; infrastructure; acquiring gap 
financing; understaffing; overcoming NIMBY-ism; improving the 
quality of housing; and increasing outreach services to migrant 
and seasonal farm workers.
    To help alleviate some of the substandard housing units and 
overcrowded living conditions, Wil-Low has the following goals 
outlined: single family house purchase of a 10-acre tract of 
land in Wilcox County, Alabama; construct 18 single-family 
units; also, multifamily units, 20; and also to rehabilitate 50 
units; a housing counseling program to counsel approximately 
300 and this would include predatory lending.
    To sum this up, the only way that Wil-Low can achieve these 
goals and its overall goal of providing decent housing in rural 
Alabama is to coordinate our effort with those of other groups 
and organizations, such as Rural Housing. Also, for a rural 
housing program to be successful, we must continue to make our 
communities aware of the programs and services offered by Wil-
Low.
    Because our communities are changing, part of that 
awareness involves providing outreach services to migrant and 
seasonal farm worker families. To be a rural housing non-profit 
requires more than building or rehabilitating units, it also 
requires providing a whole host of services from jobs to 
counseling.
    Thank you for allowing me the opportunity to speak on 
behalf of Wil-Low Non-Profit Housing Corporation and other non-
profit organizations that are struggling to survive in order to 
continue providing the housing-related activities that are 
needed in order to improve the living conditions of residents 
in this county and in America.
    Thank you.
    [The prepared statement of Madeline Miller can be found on 
page 119 in the appendix.]
    Chairman Ney. Thank you.
    Mr. Myer? I should also note that if any witnesses have 
transportation problems or difficulties and unfortunately need 
to leave because of these votes, the members will be able to 
put questions to you in writing. We do appreciate your time 
today on the Hill. And I am sorry again for the unknown factor 
of the votes.
    Mr. Myer?

STATEMENT OF JOE L. MYER, EXECUTIVE DIRECTOR, NATIONAL COUNCIL 
    ON AGRICULTURE LIFE AND LABOR RESEARCH, INC., DOVER, DE

    Mr. Myer. Mr. Chairman, my name is Joe Myer. I am executive 
director of NCALL Research, a non-profit rural housing 
technical assistance provider based in the great State of 
Delaware, represented by Congressman and former Governor Mike 
Castle.
    I am also President--Past President and current Executive 
Committee Member of the National Rural Housing Coalition. And 
RHC is a national organization that advocates on rural housing 
policies and programs. And we appreciate the opportunity to 
testify today.
    Regarding need, the 2002 Millennial Housing Commission 
Report states that rural communities were bypassed and left 
behind in the economic good times and now face rates of 
poverty, substandard housing, unemployment and rent burdens 
similar to the nation's big cities.
    There are 7.8 million of non-metro population that is poor. 
One-quarter face cost overburden. And 1.6 million housing units 
are substandard.
    USDA's research shows 4 million or 17 percent of non-metro 
households experience housing poverty. Renters in rural areas 
are the worst housed with 33 percent cost burdened, one million 
suffering from multiple housing problems and paying exorbitant 
portions of income for housing.
    In Delaware, our rural counties and small towns have higher 
rates of poverty and substandard housing than the State 
national average. Poultry processing has fostered a dramatic 
increase in the Hispanic population in some of our smaller 
communities, like Georgetown, whose population increased from 
two percent Hispanic in 1990 to 32 percent in the 2000 census. 
This increase unfortunately took place without any appreciable 
increase in housing stock.
    I must indicate the importance of the rural housing 
programs. It is the only option for decent, affordable housing 
for many rural families.
    If we look at Section 502, single family direct, at least 
40 percent of these loans go to families below 50 percent of 
median. It has very attractive rates. It is an excellent 
program.
    Average income of households assisted is $18,500. The 
current loan level will provide financing for about 15,000 
units. There is an unprecedented demand for Section 502, which 
totals several billion dollars.
    We are very pleased with the 2004 budget request of $1.366 
billion. We think it is a bargain to the government because 
each housing unit costs $10,000 a unit to the government.
    Self-help housing has been discussed by Patty. Families 
trade labor and determination for housing resources. They 
recruit groups through non-profit organizations of six to eight 
families who apply for 502 loans. The families receive home 
ownership counseling, construction training. And they work 
together to build their homes and neighborhoods, much like the 
church and barn raisings of the past.
    The family labor saves an average of more than $15,000 over 
the cost of a similar cost. That is an average. Sweat equity 
provides the opportunity for home ownership, while saving the 
government millions in reduced mortgage costs. Self-help 
families arguably are the lowest income mortgage borrowers with 
the best payment record.
    Section 515, rental housing program, seemingly forgotten in 
many ways. A portfolio of 450,000 apartments with only a 1.6 
percent delinquency rate, an average tenant income of $7,900 
and more than half the tenants elderly or disabled.
    [The prepared statement of Joe L. Myer can be found on page 
126 in the appendix.]
    Chairman Ney. I am sorry to interrupt. I am watching the 
clock ticking. If we could move on to Mr. Rayburn, just to get 
a few minutes in. And then if we have it, we can come back, if 
you do not mind.

    STATEMENT OF JAMES R. RAYBURN, JACKSON, MI, FIRST VICE 
        PRESIDENT, NATIONAL ASSOCIATION OF HOMEBUILDERS

    Mr. Rayburn. Thank you, Mr. Chairman. My name is Bobby 
Rayburn. And I am a homebuilder from Jackson, Mississippi. I am 
the First Vice President also of the National Association of 
HomeBuilders. And I am pleased to represent the views of some 
211,000 members.
    NAHB and its members place a high priority on providing 
safe, affordable, high quality housing for rural Americans. 
While progress has been made in improving housing in rural 
America, considerable unmet needs remain, particularly for 
very-low and low-income rural households.
    Specifically, there is a significant need for new 
production of affordable housing units. And existing rental 
stock is aging and requires extensive rehabilitation. And 
access to competitively priced credit for potential home 
buyers, as well as builders, remains a problem in many rural 
areas.
    Remedies are urgently needed. While there are many possible 
approaches to meeting the need for the production of new units 
and preservation of the existing housing stock, there are two 
common elements that are crucial to success: more resources 
must be committed and a range of interests beyond the 
Department of Agriculture must join in the effort.
    Some success in providing affordable home ownership and 
rental housing opportunities has been achieved through the Home 
Investment Partnership Program and the Community Development 
Block Grant programs in States were efforts have been given in 
sufficient priority. NAHB strongly supports both of these 
programs, which distribute HUD funds to States and local 
jurisdictions through block grants. And we believe additional 
appropriations would be available and effective in addressing 
unmet housing needs in rural areas.
    Other federal efforts to address rural housing needs are 
currently undertaken through the Department of Agriculture's 
Rural Housing Service. I understand that we are before the 
authorizing and not the appropriations committee.
    But RHS programs have been severely hampered by inadequate 
funding, with the appropriation shortfalls most severe in 
Section 515, direct loan program for multifamily housing. The 
administration's fiscal year 2004 budget proposal includes no 
money for Section 515, new multifamily production projects.
    Currently, there are no alternatives to the Section 515 for 
producing housing affordable for very low-income households in 
rural areas. So the absence of a new production money is a 
major setback.
    The problems at RHS go beyond inadequate funding, however. 
Inconsistencies in how the projects are monitored occur from 
state to state. Management fees have wide variations. And it 
seems to be difficult to remove bad property managers and 
owners.
    Chairman Ney. If I could interrupt. I am going to need to 
leave to make the--I missed the one vote because I needed to 
stay here. And I am going to make the final passage. And then I 
will be--anybody who has to leave, please feel free. I will 
also be more than happy to come back and listen to the last 
testimony, if you would like.
    Mr. Rayburn. Yes, sir.
    Chairman Ney. I will do that. And if I can cast the final 
passage vote, I will return.
    Anybody who would like to stay. If you cannot stay, we 
fully understand that. I will return. The committee will be in 
recess.
    [Recess.]
    Chairman Ney. If I could keep this up for a couple of 
weeks, I might be able to get back into my suit I wore to my 
homecoming senior year.
    [Laughter.]
    So I want to thank you for that in the House. And we will 
continue. How about we continue with the last witness and then 
we will go back to Mr. Myer.
    Mr. Rayburn. Thank you, Mr. Chairman. I will just continue 
where I left off, if that is all right.
    In addition to RHS staff can present roadblocks to 
potential purchasers of existing properties who plan to improve 
the properties. This is the result of slow decision making and 
requirements that add unnecessary cost.
    RHS needs a viable management and preservation strategy, 
which must include the ability to respond more decisively and 
effectively. NAHB understands that some of these issues are 
addressed in RHS' recently proposed regulatory changes to its 
multifamily programs, which are intended to streamline and 
consolidate 13 regulations into one, as well as address 
concerns raised by the Office of the Inspector General.
    NAHB supports such efforts and encourages RHS to move 
towards simplifying its regulations in as much as possible, as 
well as strengthening its ability to address the portfolio 
responsibilities. Even with more funding, RHS cannot do the job 
alone. Addressing rural housing needs is far too important to 
be left exclusively to one small sub-cabinet agency.
    Limited coordination of partnerships efforts are underway 
to improve rural home ownership opportunities. Such initiatives 
should be greatly expanded and extended to the production of 
affordable rental housing.
    The housing GSEs--Fannie Mae, Freddie Mac and the Federal 
Home Loan Banks--State housing finance agencies, the farm 
credit system and HUD all have responsibilities and resources 
to take a far more aggressive role in addressing the housing 
problems of the nation's rural communities. Fannie Mae and 
Freddie Mac are required by law to meet annual housing goals 
established by HUD.
    Several upward provisions in these goals had little, if 
any, impact to improving the availability of housing credit in 
rural areas. In the 2000 revision of the goals, the underserved 
areas goal was increased from 24 to 31 percent. But there was 
only a limited increase in the role of Fannie Mae and Freddie 
Mac in rural housing finance.
    During development of the 2000 rule, NAHB commented that 
HUD should encourage increased participation in rural areas by 
Fannie Mae and Freddie Mac through the use of bonus points or 
double credit for purchases of loans in rural areas. HUD did 
not include this recommendation in the final rule. But we plan 
to revisit this issue during the revision to the goals in 2004.
    In conclusion, Mr. Chairman, NAHB thanks you for bringing 
this to attention and supporting the cause of rural housing. 
NAHB stands ready to work with this committee, RHS, HUD, the 
GSEs and all other supporters of rural housing to improve the 
programs and to develop creative solutions to maximize the use 
of scarce resources in addressing these critical housing needs.
    Thank you, Mr. Chairman.
    [The prepared statement of James R. Rayburn can be found on 
page 134 in the appendix.]
    Chairman Ney. Thank you.
    Mr. Myer?
    Mr. Myer. And I will just continue on as well. In Delaware, 
the 515 program is the rental backbone of our communities, 
providing a great community asset. Waiting lists are long. 
Recently, more than 200 applicants showed up to rent a 24-unit 
Acorn Acres complex in Georgetown, Delaware. That gives you an 
idea of the need.
    The President's budget cuts 515 to $71 million, the first 
time in more than 30 years that the Federal government will not 
provide any new rental units for rural America.
    Prepayment of Section 515 properties is a threat to two-
thirds of the portfolio over the next 7 years because it 
results in displacement of tenants and loss of low-income 
housing stock. Owners' incentives and resources to preserve 
this stock are important.
    In 1994, Section 515 was funded at $540 million. It has 
been cut an unconscionable 73 percent and not replaced with 
anything. This is a great program that seems to be biting the 
dust.
    514/516 farm labor housing is the only program that serves 
our nation's migrant and seasonal farm workers. The last 
national study done indicated there was a shortage of 800,000 
units for farm workers.
    Fifty-two percent of farm workers live below poverty. 
Seventy-five percent of all migrant farm workers live in 
poverty. Yet, few farm workers can qualify for normal 
subsidized housing.
    Current funding totals $37 million, which provides 700 
units of housing. We are appreciative of the $37 million. But 
it is far less than what is needed.
    We ask for your support of the Rural Rental Housing Act of 
2003. This creates a new Federal program to alleviate cost 
burdened substandard conditions. It would create a $250 million 
rental development fund, administered by USDA.
    Money would be allocated to States based on need for the 
purposes of acquisition, rehabilitation and construction of 
low-income rental housing. Federal funding will be matched, 
dollar for dollar, by participants. USDA will make funding 
available to entities with a record of accomplishment in 
housing development.
    And finally, the act will be administered at state levels 
most familiar with local needs. This new resource, if enacted, 
could finance up to 5,000 rental units a year.
    We also encourage the refunding of Rural Community 
Development Initiative, RCDI, to support the rural non-profit 
delivery system. There was more than $80 million in 
applications for the $6 million that was available in 2000.
    This is a valuable program. And it is also at risk in the 
Federal budget.
    Mr. Chairman, thank you for this opportunity.
    Chairman Ney. I want to thank you. And thank all the panel.
    I have a question for Mr. Jones. As I understand it, the 
Appropriations Committee last year inserted a provision for no-
year funding. That is for the Section 502 guarantee program.
    And my understanding is the intent of this provision was by 
making this change, it would provide stability in the budget 
process for consumers, the bankers and realtors who participate 
in the program. The continuous operation of the program without 
delay or interruption of the funding also was a factor.
    There was a concern by the Appropriations Committee when 
the administration lowered the fee for the new guaranteed 
loans. And the refinancing of existing loans, there would be an 
additional cost to that program.
    The Appropriations Committee rescinded approximately $11 
million from one account and transferred the funds to the 
Section 502 guarantee program to make up for the anticipated 
additional costs. And that would be so that the program funds 
would not be depleted before the end of the fiscal year.
    So is the current level of funding for this fiscal year 
sufficient for the demand? The President's proposed fiscal year 
2004 budget requests a program level of $2.8 billion for this 
program. So do you believe that the level of funding is 
adequate and will be sufficient for the demand?
    Mr. Jones. My belief is that that level of funding will 
indeed be insufficient.
    Chairman Ney. Please pull the microphone. Thank you.
    Mr. Jones. With the decrease in the guarantee fee and other 
initiatives from the agency, we have seen tremendous momentum 
build for the Guaranteed Rural Housing Program. As a result, we 
will more than likely exceed the $2.75 billion this year, which 
is unfortunate because for the first time, we do have the 
opportunity for the no-year funds provision but will actually 
not have any funds carried forward.
    We have yet to ever experience a 12-month program. 
Typically, the private sector knows as we begin each fiscal 
year----
    Chairman Ney. I am sorry. You have never experienced a 12-
month program?
    Mr. Jones. Because funds come to us typically very late in 
October or early November, either through the CR process or at 
the time the actual appropriations bill is funded.
    Chairman Ney. So because they are late, you cannot then 
gear up?
    Mr. Jones. We never have a full year to actually see what 
we can do with 12 consecutive months of consistent funding. I 
believe this year we are going to exhaust the allocation, the 
$2.75 billion the agency has, which really means we will not 
have funds carry into the next fiscal year. And I believe the 
proposed fiscal year 2004 will be insufficient.
    Chairman Ney. The gentlelady from California?
    Ms. Waters. Mr. Chairman, I would like to thank all of the 
panelists for the time that you have spent here this afternoon 
to share this very, very valuable information with us. I think 
I am coming to some conclusions about rural housing needs. And 
I sincerely believe that there needs to be a lot more advocacy 
here by members of Congress who represent all of these areas 
that perhaps we are not hearing enough from.
    Obviously, there is a need for more money. I think this 
multiple family units and all of the issues with I guess the 
515 program, we really do need to take a very deep and serious 
look at, to see what we can do. As one urban legislator, I am 
absolutely committed to the proposition that the urban and 
rural legislators should work together for rural housing and 
for urban housing.
    I think that we could do a better job combining our efforts 
to make sure that we have adequate housing and housing 
resources in certainly the rural community.
    I guess I have a lot of questions. I am going to hold them 
in reserve because I am going to review all of the testimony 
and interact with my chairman on it and other members of this 
committee.
    But let me just raise this question of, I guess, Mr. Myer. 
I know that we have laws that allow for migrant farm workers to 
work, I guess, in this country. Maybe for particular seasons or 
a designated period of time, I do not know.
    But do we coordinate the laws that encourage migrant farm 
workers to come and work with the housing resources that should 
be available to them if they are here working? Is there any 
coordination between that?
    Mr. Myer. Well, I think there is some coordination. There 
is always room for more coordination.
    But the fact is that local farm workers, their only access 
to housing is this 514/516 program. And then migrant farm 
workers that migrate to a certain area to support agriculture, 
their only option appears to be the 514/516 program. It is the 
only program that is dedicated to serving farm workers.
    And again, there is an 800,000 unit need for farm workers. 
I am not fully sure that I answered your question.
    Ms. Waters. Well, that gives me some idea. If the need is 
800,000, then it appears that what we are doing is we have laws 
that allow for migrant workers, but we do not match the 
resources for housing with the number of migrant workers who 
are performing the services.
    Mr. Myer. The program is funded at $37 million, which 
provides about 700 units a year.
    Ms. Waters. Okay. That is helpful. Thank you very much, Mr. 
Chairman.
    Chairman Ney. Another question I had--and anyone that would 
like to, please feel free to answer this. And then we will go 
to Mr. Davis for a question.
    What are your general impressions and overview of the Rural 
Housing Service and whether the agency within the U.S. 
Department of Agriculture is meeting its intended purpose and 
goals? Any reflection on RHS?
    Feel free to speak out or raise your hand or whatever you 
would like to do.
    Mr. Anders. If we have an hour, sure.
    Chairman Ney. I have got some time, maybe not an hour, but 
close to it.
    Mr. Anders. I mean, in many ways, the agency is doing an 
excellent job. I mean, the agency has been around since 1949. 
Actually in some respects it has been around longer than that. 
And it has been doing a very credible job in certain areas of 
doing single family homes and doing multifamily housing and in 
doing some of the rehab loans, what you are talking about the 
502, the 504 and the 515 programs, as well as the Farm Labor 
Housing Program.
    The problem has been in the last 10 years that the agency 
has suffered substantial cuts in funding. And they have had to 
consolidate their staff.
    Some of the support and infrastructure which needs to be 
dealt with, in terms of longevity of some of the housing 
programs, particularly the Rural Rental Housing Program, which 
we heard about earlier, there are some significant issues in 
terms of maintenance of the portfolio. The agency is short on 
staff to deal with it.
    And so it is a cost issue. But I think that, by and large, 
the agency is doing a very good job and is meeting its 
purposes.
    Chairman Ney. Are RHS--we are going to hear from them July 
8th. But I just thought I would get anybody's observation.
    Ms. Bridges. Even with the problems that were cited by the 
investigative panel earlier, the RHS is absolutely the best 
delivery vehicle for affordable housing in the rural areas. We 
have no other vehicle to deliver it. The tax credit program, as 
good as it is, is not sufficient in the rural areas to meet the 
needs of the very low-income people.
    The biggest problem that we have had in the past few years 
is the lack of funding. At the time that we were having $500 
million to $900 million allocation, we were doing great. And 
these problems that are addressed are a minor amount of 
problems. They are not large.
    We have many, many, many other owners and managers that are 
doing an excellent job and serving thousands and thousands of 
families. So I strongly encourage the committee to look at the 
funding that could be possibly available and maybe another way 
of delivering the program. There are ways.
    As the previous witness said, I will not repeat him, but 
they have lost some of their staff because of funding cuts. 
However, we do not need to be micromanaged in the field. We do 
not need that.
    There are a lot of honest developers and managers out there 
that would do a good job if we had the funds available.
    Chairman Ney. Thank you.
    Mr. Jones?
    Mr. Jones. I would echo the sentiments of my colleagues. I 
believe this agency has done a very effective job. Most 
recently, I would note that this administration has been 
willing to listen to the private sector and the needs of the 
private sector to really promote this program.
    Without question, the GRH borrower is best served by this 
loan. It provides 100 percent financing, meaning no cash 
contribution from the applicant. And because of their low-and 
moderate-income status, no mortgage insurance.
    But the program is only going to work if we can get the 
private sector interest in delivering it. And I was very much 
moved by Congresswoman Waters' comments regarding 
affordability.
    Let's face it. This administration just cut the guarantee 
fee, making it affordable.
    The agency is focusing now, as part of a greater concern, 
on addressing minority home ownership rates, which consistently 
lag behind white homeowners in rural America. The things that 
we talked about today--financing of the guarantee fee--allows 
the applicant to take full advantage of the appraisal, to 
finance all the closing costs without wasting one dime on the 
guarantee fee, which is typically put on the loan amount with 
HUD, VA and even in the refinance program.
    All of these things are going to knock down the barriers of 
affordable home ownership, which I believe are everyone's 
objectives today.
    Chairman Ney. Do I read you correctly then, you are not 
saying it is as much money as it is private sector involvement?
    Mr. Jones. Certainly, for the guaranteed program, the 
private sector is critical. The private sector is actually 
originating, processing and servicing these loans, in lieu of 
RHS staff. And whatever we can do to induce the private sector 
to contribute its efforts to gear up to deliver this program is 
going to get us the most home ownership opportunities for these 
applicants that simply make too much money and cannot be served 
by the direct or other RHS loan programs, but do not have any 
other options.
    Chairman Ney. Thank you.
    Mr. Rayburn, did you?
    Mr. Rayburn. Mr. Chairman, I would like to remind this 
committee that in addition to being a builder and very involved 
with the National Association of Homebuilders, that I am from 
Mississippi. And several of the questions that were directed to 
certain earlier panel members about places in Mississippi.
    I know very well where those places are. I know very well 
where cardboard shacks were in many cases because our company 
has helped to solve some of those problems.
    Are there a lot of them still out there? There surely are.
    We could not solve those problems with Rural Housing 
Service dollars and staff. We had to go elsewhere in order to 
do that. Because part of Rural Housing Service is doing a very 
good job. The better job is done on the single family side, 
probably for the most part around the country.
    On the multifamily side, it is not. They need to come into 
this century and use good, sound business practices.
    We probably do not have the time. But if you would like to, 
I would be glad to provide in written comments a couple of 
specific instances whereby our company was going to bring in 
outside, fresh, new, non-federal dollars into a couple of 515 
developments, multifamily rental developments.
    And because of the cumbersome, outdated requirements that 
the staff was putting on us, we were not able to do that, even 
though we had a half a million dollars funded from the Federal 
Home Loan Bank AHP program in the form of a grant. We were told 
that was fine on the front end.
    On the back end, they came up with another $300,000 that 
needed to be done to the development. So the project is still 
in its deplorable condition today, with sewer running on the 
ground, with cabinet doors nailed shut that will not work 
because the management company was getting exorbitant 
management fees. And things like that needs to be stopped.
    Chairman Ney. We would like, if you could, to give us 
detail after this----
    Mr. Rayburn. Be glad to, surely.
    Chairman Ney.----on at least the two and anything else you 
would have.
    Mr. Davis?
    Mr. Davis. Thank you, Mr. Chairman. Let me thank the panel 
and chair for their patience. I know it is late in the day.
    Let me give you all a number--let me give the panel a 
number--that puts some of this in a great deal of perspective 
from my standpoint. The 1994 fiscal year, the combination of 
Section 502 loans and Section 515 loans was $530 million or so. 
Actually, I think it was around $663 million total subsidy cost 
spent on rural housing programs in fiscal year 1994.
    Less than $200 million in subsidy on Section 502 and 
Section 515 in the current fiscal year. That is a drop from 
$660 million down to $200 million.
    Now I am not much of a math major. But that is certainly a 
significant drop.
    Has the housing crisis in rural America abated over the 
last 10 years? Has it somehow gotten better than it was in 
1994? Does anyone think that the housing crisis is somehow less 
acute now than it was in 1994?
    Mr. Rayburn. If I could answer, no.
    Mr. Davis. In fact, it is worse in a lot of ways.
    Mr. Rayburn. It is worse. It is worse in so many cases 
because of the lack of infrastructure in so many communities, 
the lack of infrastructure that has to be gone in and put the 
streets, the water, the sewer in to so many different areas, 
causing additional increases in prices, tied back to that 
homeowner that you are trying to serve, and many times in the 
low-and very low-income category.
    Mr. Davis. So we are making less of an investment to 
address a problem that is becoming more acute? Is that right? 
All of you are nodding your heads.
    Ms. Miller?
    Mr. Rayburn. Yes, sir.
    Ms. Miller. Yes, that is right, Congressman Davis, because 
take for example in Wilcox County, when it comes to sewage, 
infrastructure system, then you only have just two towns that 
have actually a sewer system. You have Camden and Pine Hill.
    But then if you look at the other area, there is a great 
need in the whole country for housing. And now that most of 
those counties, if the land does not perk, then you have to go 
into expensive, what you call, a raised bed septic tank. And 
that can cost anywhere from $6,000 to $10,000.
    And that fee would have to be added into the cost of the 
family loan because they are not able to make a down payment. 
And well, most of the families--but you are familiar with that. 
I do not have to go into detail on that, how they can qualify.
    Mr. Davis. Let me give you all another statistic that my 
colleagues from California alluded to earlier. We talked about 
what is a very real paradox, the fact that a large percentage 
of people in rural America own their homes, but the homes that 
they own are absolutely substandard.
    They are houses, really, and not homes, to be very blunt 
about it. Another statistic, doing some quick math here, 31 
percent of the housing units surveyed for the American Housing 
Survey in rural America, 31 percent of those occupied rental 
units were substandard in some way, ranging from inadequate 
heating to inadequate physical infrastructure, to water 
leakage; 31 percent of them had some very particular problem.
    So once again, I think we ought to recognize that when we 
are talking about people having a high rate of what we would 
call home ownership--again, they are not living in homes. They 
are living in physical structures called ``houses'' that are 
not in the condition that they need to be to raise a family. Do 
a lot of you agree that is a regular problem?
    Let me direct another question to all of you. We have heard 
a lot of talk in all of these hearings about the Federal 
government taking less of a role, whether it is as a function 
of devolving responsibilities on the states or devolving them 
on the private sector.
    Let me ask some of you to comment on what you think the 
government can be doing right now that it is not doing. What 
can the government do if we, for whatever reason, end up with 
an administration one of these days that is committed to 
addressing these issues and wants to be proactive? What can the 
government do now that it is not doing?
    Yes, ma'am?
    Ms. Miller. I think one thing that the government can do is 
make more funding available and can lessen some of the 
regulations when it comes to the rural because the regulation 
is steep. And then the money is not there for the rural to pay.
    The housing standards are very high. Just to give you an 
example, if a qualifying applicant lives on a rural gravel 
road, they must include in their loan adequate funds to 
construct a concrete driveway to the gravel road. These rules 
apply to qualifying applicants' whether they own a car or not.
    This could add between $2,000 to $3,000 to an applicant 
loan amount, so there is a number of rules in the regulations 
that can be minimized, depending on each individual situation, 
and the applicant still could get a well constructed, quality 
built dwelling.
    So there is a lot of things the regulations can be 
minimized, but still remain at a good standard home can be 
built.
    Mr. Davis. And do all of you agree that we cannot address 
the housing problem, particularly in rural America, without a 
sustained focus on job training, without a sustained focus on 
economic development? It is impossible to get a handle on the 
housing issue without looking at all the problems that 
accompany the issue.
    Do all of you agree with that?
    Ms. Miller. I agree with that.
    Mr. Davis. All right. Thank you, Mr. Chairman.
    Chairman Ney. I want to thank you. And I appreciate the 
panelists for your testimony on this important issue.
    I just want to echo some comments made earlier. And I come 
from obviously a very rural Appalachian area. And I think that 
in Congress, we have a large, great, diverse country. And we 
have to be sensitive to the concerns of urban centers, which 
are different, and the concerns of rural, take care of 
everybody we can in the sense of listening to individuals and 
also to try to get affordable and available housing, no matter 
what size of a city or a town.
    I do think that we can focus more here in Congress-that is 
what we are trying to do--on rural. I am not sure that it has 
been focused enough on.
    I have also told all the advocacy groups to speak up a 
little bit more or scream a little bit more or come around the 
halls. And that is no reflection on anybody here. I am just 
saying, I have told everybody, let's energize this issue and 
get it going a bit.
    I give you a lot of credit for working out in the trenches 
to make sure people have some support and some help. And with 
that--did you have--and with that, I want to thank the 
panelists.
    The chair notes some members may have additional questions 
for the panel, which they may wish to submit in writing. 
Without objection, the hearing record will remain open for 30 
days for members to submit written questions to these questions 
and to place their response in the record. I want to thank the 
members of the committee and the panelists.
    The committee is adjourned.
    [Whereupon, at 5:36 p.m., the subcommittee was adjourned.]


                        RURAL HOUSING IN AMERICA

                              ----------                              


                         Tuesday, July 8, 2003

             U.S. House of Representatives,
                        Subcommittee on Housing and
                             Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 10:07 a.m., in 
Room 2127, Rayburn House Office Building, Hon. Robert W. Ney 
[chairman of the subcommittee] presiding.
    Present: Representatives Ney, Bereuter, Renzi, Waters, and 
Davis.
    Also Present: Representative Frank.
    Chairman Ney. Today's subcommittee holds its second hearing 
to discuss the importance of rural housing in America. Two 
weeks ago we heard from multiple witnesses, including the 
Department of Agriculture's Inspector General and the General 
Accounting Office, concerning the Rural Housing Program, RHS. 
My goal is to continue to review Rural Development's programs 
to look into ways to increase their proficiency and cost 
effectiveness. I have said this to quite a few groups involved 
with rural housing: I think we need to energize it and get the 
tone level up and get people involved, and we need to do it in 
urban areas, we need to do it in general housing, minority 
housing. There is a lot of work that we need to work together 
on.
    From our previous hearing it was evident that RHS faces a 
number of management challenges to carry out its mission. It is 
critical that USDA's Rural Development programs have access to 
accurate, relevant performance data and measures to assess 
program efficiency and effectiveness. Without timely and 
precise information, Rural Development will be unable to 
determine how well it is accomplishing its mission of 
delivering safe and affordable rural housing programs.
    However, questions have risen in recent years about the 
effectiveness of rural economic development policies in 
creating new opportunities for rural residents as agriculture 
and other resource-based economic sectors decline in overall 
importance to most rural communities. A wide-ranging set of 
often overlapping programs target rural areas and their special 
needs, but according to some critics there remains little 
overall coordination of these various programs to produce a 
coherent rural policy. Over 88 programs administered by 16 
different Federal agencies target rural economic development. 
The U.S. Department of Agriculture administers the greatest 
number of Rural Development programs and has the highest 
average of program funds going directly to rural counties. That 
is approximately 50 percent.
    I look forward to hearing from our sole witness today, 
Under Secretary Dorr. We appreciate you coming to the Hill to 
discuss the various ways in which home ownership can strengthen 
our rural communities and contribute to the overall quality of 
life for rural families. So thank you for appearing before the 
subcommittee this morning. We look forward to working with you.
    I do want to mention, too, in closing my statement that 
things have changed in the rural areas and so we have to adapt 
with that change. I was recently in Los Angeles. And I mean, I 
have been in the Congress 9 years. I have dealt with housing in 
the State legislature. But until you go out and you actually 
hear some of the things--I mean, there are some amazing 
challenges in the urban centers, absolutely amazing, and in 
rural, too. So there is a lot of work to be done, but we do 
appreciate you coming to the Hill.
    Chairman Ney. I now recognize the gentlewoman from 
California.
    Ms. Waters. Thank you very much, Mr. Chairman. I am just 
anxious to hear from our witness today. We have received quite 
a bit of information about Rural Housing Services and we want 
to know more about their preservation of multifamily housing 
efforts. I am a little bit concerned about the Inspector 
General's report. I am anxious to hear about the management of 
the 521 Rental Assistance program. If we have unspent money 
there, why do we have it when we know that the needs are so 
great?
    I come from an urban community and I, of course, I have 
spent all of my time, most of my time dealing with the housing 
crisis as it impacts Los Angeles and urban areas. But I have 
come to understand that we need to do a lot more to ensure that 
we have adequate housing in rural communities. And if we have 
some administration problems or oversight or management 
problems, we need to get on with straightening those problems 
out so that we can provide more housing assistance in the rural 
community.
    So with that, I am anxious to hear from you today and thank 
you for coming.
    Chairman Ney. I want to thank the gentlelady for her 
statement. And the gentleman from Arizona. I thought I was 
rural, but I am New York and Los Angeles compared to some parts 
of your district. We appreciate you also chairing this for us 
the previous time.
    Mr. Renzi. Thank you, Mr. Chairman. I am grateful. I am 
especially grateful for the fact that here we are again, in 
just less than 2 weeks, in the second in a series of rural 
housing hearings. And I represent about 58 percent of the land 
mass of the State of Arizona, and in particular I represent 
probably the fifth poorest county in America and one of the 
poorest regions, the sovereign State of the Navaho Nation, 
which parts of it compare to a Third World country.
    In addition, I am privileged to represent some of the 
barrio regions, poor Hispanic regions of Casa Grande, Arizona. 
So I deal in particular with needs of the families, the basic 
necessities of life where we have many of our rural homes that 
are during the wintertime--even though Arizona is warm most of 
the time during the wintertime--we have had some tough 
situations where our children have been frostbitten, 
particularly this year I think. I have complained in the past, 
some of the tragedies that our children have gone through.
    So I am very interested in particular in the housing 
program as it relates to the 523, the Mutual Self-Help program. 
I look forward to your testimony also, Mr. Dorr. Thank you for 
coming today.
    Thank you, Mr. Chairman.
    Chairman Ney. I want to thank both of our members.
    Mr. Dorr, welcome.

STATEMENT OF THOMAS C. DORR, UNDER SECRETARY, RURAL DEVELOPMENT

    Mr. Dorr. Thank you, Mr. Chairman, members of the 
committee. I do appreciate the opportunity to come before this 
committee to share with you an update of USDA Rural Development 
and its related programs. I look forward to answering the 
questions from your July 1 correspondence both in today's 
testimony and by follow-up written response.
    Rural Development in my view is the venture capitalist for 
rural America. It is with this vision in mind that we carry out 
our mission of, first, increasing economic opportunity and, 
secondly, improving the quality of life for all rural residents 
through programs that are administered by the Rural Housing 
Service, the Rural business Cooperative Service, and the Rural 
Utility Service.
    The Rural Housing Service serves as a foundation for 
helping rural families build wealth through home ownership and 
by providing safe, decent, and affordable rental housing. 
Working with oversight agencies we are implementing a number of 
improvements to build a stronger housing program. I appreciate 
the opportunity to share a few of those with you today.
    Last month we celebrated National Homeownership Month by 
hosting the first housing summit at the Press Club here in 
Washington. Rural Housing Services has undertaken a major 
consolidation of 13 Rural Development regulations, which was 
published in the Federal Register on June 2nd of 2003. The goal 
of this proposed rule is to make the multifamily housing 
programs more customer friendly, streamline the process, reduce 
cost to the taxpayers and increase the Agency's level of 
customer service.
    The Rural Housing Service Section 515 Program, used in 
conjunction with the Section 521 Rental Assistance Program, 
provides a source of funding for the construction, repair and 
rehabilitation of affordable housing to families who need it 
most. The section 515 program helps to avert homelessness and 
operates with an extremely low delinquency rate of 1.7 percent.
    With regard to the 514/516 Farm Labor Housing Programs, the 
Agency has committed a total of $46 million to fund 27 
proposals in fiscal year 2003 and we will produce 925 units. Of 
these units, 696 are off-farm which receive nearly 100 percent 
rental assistance.
    The Multifamily Guaranteed Loan Program, which is known as 
Section 538, serves moderate-income families that typically do 
not qualify for very low-income rental housing, but still they 
cannot afford the expense of home ownership. It should be noted 
that 80 percent of the Section 538 projects contain tax 
credits, which means that the housing serves people making less 
than 60 percent of the area's median income.
    A proposed rule was published on June 10th to allow the 
Rural Housing Service to buy back guaranteed loans from the 
investor as well as to reduce the minimum level of 
rehabilitation work from $15,000 per unit to $6,500 per unit on 
loans for acquisition and rehabilitation. In March of this 
year, we began the formation of a multifamily housing advisory 
group to oversee completion of a comprehensive assessment of 
our multifamily housing portfolio. The study will provide data 
and analysis for evaluation of the entire portfolio.
    Prepayments continue to challenge Rural Housing's ability 
to retain needed affordable housing in rural America. Over 64 
percent of our borrowers are eligible to prepay their loans 
because of expiring use restrictions. We continue to look for 
creative solutions to address limitations that have resulted in 
litigation from borrowers who wish to exit the program. The 
capital assessment will assist us in determining the likelihood 
of a property to be prepaid based on market data analysis.
    Rural Development has also taken significant steps toward 
automating its multifamily portfolio information as well as 
modernizing the forecasting of rental assistance usage.
    Rural Housing Service has formed a working group to seek 
improvements to the rental assistance forecasting process. We 
plan to implement this improved process by November 1st of this 
year. Rural Development continues to work closely with GAO and 
other oversight agencies to improve program delivery. Many of 
the issues raised in oversight reviews will be addressed 
through issuance of the final rule 3560 and the implementation 
of the rental assistance forecasting tool.
    I want to make this point: Rural Development is uniquely 
qualified to meet the housing needs of rural America through 
our network of nearly 800 field offices across the United 
States and by incorporating cross-cutting programs offered by 
the Rural Housing Service, the Rural Utility Service, as well 
as the Rural Business Service. It is our intent to make 
significant progress on the administration and servicing of 
multifamily housing programs, thus enabling us to run a strong, 
viable housing program.
    With your continued support, Rural Housing Service looks 
forward to working with Congress to provide decent, affordable 
housing to low- and moderate-income rural Americans.
    Mr. Chairman, this now concludes my oral testimony. We 
would like to submit a lengthier testimony for the record. I 
look forward to answering any questions you or the committee 
may have.
    Chairman Ney. Without objection, the complete written 
statement will be submitted for the record.
    [The prepared statement of Thomas C. Dorr can be found on 
page 196 in the appendix.]
    Chairman Ney. I would also note that, as usual procedure, 
members may have certain questions and we will keep the record 
open for 30 days for members to ask questions to be submitted 
in writing and also returned by the witness. I will have some 
questions that we will submit for the record to you.
    I wanted to ask about--there was just two areas it has 
shown, I think it was 1981, which would have been 3 years after 
the program began--trying to remember which program it was--but 
one of the programs that began in 1981, and it showed that 
really the portfolio wasn't being assessed correctly way back 
at that time, rental assistance. And so it was kind of getting 
off to a nonaccurate, calculated start 3 years after its 
inception. Do you have any comments on that, on that program?
    Mr. Dorr. We have two major issues that we have to deal 
with in this multifamily housing Program. One of them is the 
rental assistance issue, and the other is what we generically 
term our ``capital needs assessment,'' which essentially is to 
determine the housing stock that we have available, and, in the 
rental programs, where it is needed, the quality of it, and 
whether or not there are things we can and should do to make 
sure they are properly placed.
    On the rental assistance side of the issue, my 
understanding is that in 1982, up and through 1982, new 
construction rental assistance projects were automatically 
authorized a 20-year rental assistance contract. There was a 
formula developed determining how many of the units in a 
project would qualify for rental assistance. There was a 
commitment made for rental assistance for up to 20 years. On 
renewed projects, the contracts were 5 years. It has taken some 
time to essentially try to ascertain what has gone on in that, 
but the short of it is that after a fair amount of digging--
which let me make one other very quick point--when I was 
appointed last August, the No. 1 priority on my list was to get 
a handle on these multifamily programs. So we have been working 
aggressively, trying to answer these questions since last 
September. But the bottom line is that we determined that there 
was a large amount of unliquidated obligated rental assistance 
to a number of projects.
    I will give you an example. On March 15th of this year, if 
my memory serves me correctly, we still had approximately 111 
months of unliquidated rental assistance on contracts that were 
written in 1978 for 20 years. Five-year contracts that were 
written in 1999, also that would expire September 30th of this 
year, on March 15th still had 21 months of unliquidated rental 
assistance. What I determined was that our systems were not 
fully automated and our algorithms and calculations to 
determine how much rental assistance should be obligated to 
these projects, quite frankly, weren't as accurate as they 
should be. We have determined as a result, that we have $700-
plus million of obligated unliquidated rental assistance, of 
which about 500 million plus is tied to these 20-year-old plus 
contracts. We are in the process now of trying to ascertain a 
fix to that because there are contracts which these are tied 
to, and there is a lot of difficulty to rework those contracts 
to fix the issue.
    Chairman Ney. Thank you. The gentlelady from California.
    Ms. Waters. I will yield to the gentleman from Alabama so 
that he will have more time to deal with the rural housing 
concerns in his area.
    Mr. Davis. Thank you, Ms. Waters. Thank you for yielding.
    Mr. Dorr, let me thank you for being here today. Let me, if 
I can, turn to something that you said was I believe your 
priority of the section 515 multifamily housing units. As I 
understand the section 515 units, their primary purpose I 
suppose is to rehabilitate and to renovate a lot of the housing 
stock that exists right now in rural housing areas. Is that 
essentially correct?
    Mr. Dorr. The 515 program essentially was a construction 
program, started out years ago. And we built affordable housing 
for low income households, or those that had diminished 
resources in rural America, frequently dealing with single 
family parents or the elderly, or young couples who quite 
frankly didn't have the resources either.
    Over the years that program has grown, and projects were 
built. And to that were tied rental assistance contracts. 
Rental assistance contracts have become quite onerous and they 
have become a large portion of our budget. At this point, 
although I think we are this year building something in the 
neighborhood of $24 or $25 million worth of new 515 projects in 
the 2004 budget, we are simply focusing on trying to spend 
funds for rehabilitation and repair so that we can maintain and 
keep these projects in the program.
    Mr. Davis. Let me tell you one thing that I have noticed 
regarding the funding for the program. Obviously I am not going 
to try to compare the current budget climate with 1994, but 
there have been some significant decreases over a period of 
time. For example, in fiscal year 1994 there was a 540 million 
appropriation under this program. It is down to 115 million in 
the last fiscal year. I think there is a marginal increase to 
116.5 or something for the current fiscal year.
    I understand a lot of the conceptual problems that you have 
outlined regarding the way this program functions; but as a 
general rule, would you agree that the mission of this program 
has been compromised by some of the funding cutbacks over the 
last 10 years; it would be easier to do your job if you had 
more money instead of less money?
    Mr. Dorr. It is always easier to run any household or any 
program if have you more money than less money. I think one of 
the dilemmas with this program was that rental assistance grew 
so expansively that people were, generally speaking, looking to 
the source of resources to keep the new construction side going 
as well.
    My feeling is that we are on the threshold of determining a 
better tool to project rental assistance that should mitigate 
some of this growth in rental assistance requirements. That 
leaves everyone involved some flexibility to determine how they 
wish to handle the new construction or the rehabilitation 
preservation issues.
    This administration is very committed to the preservation 
of this housing stock in rural America. We understand the 
critical need for it. And so I would not suggest that we 
couldn't use more money, but I would also suggest that we are 
getting a handle on certain management issues that may make 
things more clear when we get finished.
    Mr. Davis. Let me ask you a fairly basic question. What do 
you consider the main thrust of section 515 to be right now? If 
you had to delineate what are the one or two most important 
goals, what would they be? Give me some indication consistent 
with that of exactly how this appropriation of 116 million is 
going to be apportioned between those goals.
    Mr. Dorr. Number one, we are very sensitive to the needs of 
those who need housing in rural America. Number two, we are 
very focused on stewardship and management issues. As a result, 
we hope to be able to develop the kind of efficiencies and 
administrative efforts that make the program viable, strengthen 
it, and keep it doing what it is supposed to be doing over a 
long period of time. I don't see that that would change.
    Mr. Davis. How much input--and my time is about to run out, 
but let me ask you one final question. One of the criticisms 
that I often hear of this program, a lot of the other various 
rural housing programs around the country, is that there is not 
a lot of effort to integrate the opinion or to solicit inputs 
from a lot of the people who do local housing work on the 
ground, people who are connected with various housing advocacy 
organizations, people who run the various public housing units 
in a lot of rural areas.
    Can you talk with me about whether you think that is a 
problem--if the Chair would indulge me enough to finish my 
question and you can answer it--can you tell me if you would 
agree that that is a problem, not getting adequate input from 
people on the ground, and what your Department is doing to 
address that concern?
    Mr. Dorr. Well, that is a great segue. I just happened to 
be in your district last week. I was at EPS with Ralph Paige 
down at the Federation of Southern Co-ops facility. We went 
over to one of our projects, Windy Hills.
    Mr. Davis. You didn't give me a call. I am disappointed.
    Mr. Dorr. This was an effort that Reverend Paige and I put 
together over a period of months. It was not designed to be 
anything other than to get-to-know-one-another and look at the 
issues. I am from a rural area. Until 2 years ago I spent all 
my life in rural Iowa in a small town of 1,200 people. I know 
what housing is all about in these rural areas. I have had some 
direct involvement with my own with folks in my local 
community. I was very impressed with Windy Hills. There is no 
question that they could always use more resources, but in the 
case of Windy Hills and a number of others, we are spending a 
lot of time putting together task forces of State directors, 
multifamily directors, to get direct input from them on how 
better to handle and manage these programs in ways that make 
them not only effective but sensitive to the families and the 
folks that live in these communities.
    I don't know what it has been like in the past. My sense is 
that there were probably some management issues that should and 
could have been dealt with. But I can truthfully say that our 
team under Mr. Garcia and the folks at Rural Housing and the 
folks at USDA Rural Development are very, very interested in 
making sure these programs work and work effectively.
    At our Rural Housing Summit we inked an MOU with HUD to 
specifically work with the four corners area of the Colonias to 
make sure we collaborate effectively in areas where we have 
programs that overlap or we know of folks that have other 
needs. It is a long-winded answer and I apologize, but we are 
in fact very serious about getting on-ground input and doing it 
on a regular basis.
    Mr. Davis. Thank you, Mr. Chairman.
    Chairman Ney. Thank you. Mr. Renzi.
    Mr. Renzi. Thank you, Mr. Chairman.
    Mr. Dorr, thank you for your testimony. I was real 
fortunate, I grew up in southern Arizona, along the Mexican 
border. Came from a family where we were taught ``never rent,'' 
whether we had the money or not. I didn't come from the lap of 
luxury, but we were taught not to rent. Do whatever you can to 
buy a house, hang on to the house even if you are house poor, 
borrow from the equity in the house, and then eventually use 
that equity either to have your own business or whatever to 
prosper and grow a family. I got a family of 12 children so I 
needed to borrow a lot of equity in order to pay grocery bills.
    But I want to segue into Congressman Davis's thoughts. That 
mentality that I was taught at a young age in my family and 
that economic model of owning a home, having an appraiser come 
out and appraise the home, borrowing against the equity, trying 
to move myself up, is that the kind of model you are seeing? I 
know you have been around and seen a lot in your travels. Is 
that same mentality shared particularly in the regions that we 
are talking about?
    GAO came out and said that Mississippi Delta, Appalachia, 
the Colonias on the Mexican border, and Native American trust 
lands--I have got two of the four in the worst rural and most 
severe rural housing quality programs in our country, those 
four regions. I know Congressman Davis shares one of those 
regions, too. So could you tell me, that mindset that I just 
described with you, are you seeing that around the country?
    Mr. Dorr. Well, that is an interesting question. And I 
think generally speaking, yes, there is a mindset that home 
ownership and equity in a home goes a long way toward building 
communities, building and securing strong families and strong 
family relationships.
    I will tell you my experience with the minority community 
coming from Iowa was fairly minimal until I got in this 
position. And I think the one thing that I have observed is 
that the minority community, generally speaking, probably have 
been disadvantaged because of a lot of historical reasons. You 
know, I have some observations on that, but I think it is an 
issue that needs to be resolved. I think we need to be more 
aggressive in making sure that minorities have the same 
opportunities of home ownership and equity building, just like 
those of us that had the opportunity to do it.
    The Section 523 Self-Help Program is one of the most 
interesting and effective programs we have. And we are doing 
everything we can to run that program long and hard; because 
through grant programs working with nonprofits, it enables 
young couples, single parents, families and singles, to 
actually expend sweat equity and ultimately move into their own 
home and move into it with an equity position. I concur with 
your observation.
    Mr. Renzi. When you look at some of the travels that you 
have had in the South, in particular what kind of impediments 
are you seeing when we talk--I think you have got some good 
research as far as the appraisals. I grew up in a small 
community, I played football with the local boy who is the 
appraiser. I know he is going to come over and give me a fair 
shake on my appraisal. If I can get him in a headlock, I will 
get a couple more bucks out of him. What are you seeing 
particularly in the South on that?
    Mr. Dorr. Let me go back to my visit last week with Mr. 
Paige. At the Federation of Southern Co-ops they are running a 
number of informational and training programs that will result 
in the development of new business opportunities. A number of 
credit union initiatives are underway, a lot of training and 
people development as well. Much to my surprise, when they were 
talking about their credit union initiative, I think in the 
neighborhood of 20 credit unions that he put together, they had 
slightly more than $20 million in assets. As they were going 
around the table discussing their various programs, one of the 
things that came up was that issue. So I looked at them and 
said, ``Explain something to me. How many dollars do you think 
are under pillows or buried in backyards; that is, aren't in 
banks or credit unions?'' Ralph looked at me and smiled and 
said, ``There is a lot.''
    So then it moved on down the table to another young woman 
who was running a land development program. She talked about 
the inability to aggregate quantities of agricultural real 
estate, which essentially was impeding their ability to have an 
asset base to grow.
    I finally looked at them and I said, ``If I am hearing what 
I think you are telling me, answer this question. How many 
black surveyors are there? How many black title companies, 
black-owned title companies are there out here?'' The gentleman 
down the table looked at me and said, ``I can't find any.'' He 
said, ``I have looked in North Carolina, South Carolina, 
Arkansas, Alabama, Mississippi,'' I don't know if he mentioned 
Louisiana, ``I can't find a black-owned surveying company.''
    Mr. Renzi. No African American surveyors, no African 
American appraisers; am I right? So if you are African American 
in the South and you do have the ability to own a home, and 
then you are trying to borrow against that, your ability to 
possibly--or your worry, I am sure, of trying to get a fair 
shake on the appraisal--I mean, you got to be--.
    Mr. Dorr. The ability to secure the property, to get a fair 
title, to get an appraisal, all of those issues are mitigated. 
As a matter of fact, I suggested to Ralph we need to sit down 
and work out a training program just in that exact area. Quite 
frankly, folks have to have trust in the people that they are 
dealing with and they have to have trust that the property is 
properly titled. That would go a long way toward mitigating a 
number of these home ownership issues.
    Ms. Waters. Would the gentleman yield?
    Mr. Renzi. Yes, ma'am.
    Ms. Waters. Where did you get your information that leads 
you to conclude that minorities don't aspire to home ownership 
in the same way as whites?
    Mr. Dorr. If I gave that impression, it was wrong. I think 
they absolutely aspire to it.
    Ms. Waters. I am sorry. What did you say?
    Mr. Dorr. What I intended to say was that their ability to 
think they can aspire to it, based on their experience, is 
probably diminished relative to whites or to the majority race, 
simply because of the experiences that they have had, as we 
have discussed concerning their lack of trust in the system 
that will enable them to acquire homes and property.
    Ms. Waters. Well, I am not sure what you are trying to say, 
but let me just give you a bit of my experience with the desire 
for home ownership, the desire for land ownership, and the 
desire for farmland ownership, all of those issues. You are 
from USDA. As you know, it was just less than 2 years ago that 
there was a class action lawsuit brought by African American 
farmers because of the discrimination in the Department of 
Agriculture. And that has been the most horrendous experience 
that I have ever had in trying to straighten out a problem of 
unfairness. And we still have farmers, for example, who are 
struggling with the way that they have been treated by USDA and 
the Department of Justice.
    I point that out to you because if what you are trying to 
say--and I think as you explained it a little bit better, what 
you may be trying to say is because of lack of opportunity, 
because of discrimination, because of redlining, all of these 
issues that some of us have been fighting for years, it has 
limited the ability of minorities to be able to own homes and 
property and farms in the way that they should have been able 
to had there not been the kind of discrimination that is 
documented through the actions like the class action lawsuit.
    And let me say this to you: Even today as we sit here and 
we talk about the Mississippi delta, it is shameful what still 
happens in the Mississippi delta. There are still shacks 
without running water, without partitions. Why do we continue 
to have those kinds of situations? Given what I am looking at 
now, all these programs and all the opportunities that we are 
supposed to have, why do we still have such substandard housing 
in places like the Mississippi delta?
    Mr. Dorr. Well, I think you have framed my observations 
very well. It is a limited ability due to discrimination and 
due to the lack of capability relative to the system giving 
them the opportunity that everyone else has. So you are right. 
You are absolutely correct.
    Now, in defense of USDA--and I am not defending their past 
actions and a number of the issues that have been clearly 
outlined--but I would draw your attention to what I think is a 
stellar example of positive action that we have just completed 
at USDA's Rural Development. I don't know if you are familiar 
with a community called Bay View, Virginia. Bay View, Virginia 
is on the eastern shore of Virginia, just across the Chesapeake 
Bay Bridge from Norfolk. Last week, Deputy Secretary Mosley 
attended an open house there. Bay View is a minority community 
that had ramshackle houses with no running water and no sewer 
system. The water systems that they had were next to septic 
tanks. This occurred before I got there. But somehow residents 
connected with the folks at Rural Development.
    Within Rural Development we have three agencies: Rural 
Utility Service, Rural Housing Service, and Rural Business 
Service. The first entity that they engaged was Rural Utility 
Service. We have subsequently been involved and drilled wells, 
put in water and waste systems, so that they have water, waste, 
and livable conditions. Then last week our Rural Housing 
Service completed the opening of 35 brand new multifamily 
housing units in that community, and there are now on the 
drawing board a number of single family housing units. That is 
all tied to a farming operation of which I quite frankly don't 
know all the details.
    So we are mitigating these issues where we have the 
resources, where we have the opportunity, and where we can 
engineer things of this sort to happen.
    Ms. Waters. Well, I appreciate your example. And I would 
hope that under your watch you will expand that.
    I don't have a rural community, but I go to Selma and down 
through Alabama every year as we commemorate the March across 
the Edmonds Pettis Bridge. I am still appalled at some of what 
I see. I go down in the delta with Benny Thompson who invites 
us down from time to time for various reasons. I am still 
appalled at what I see. I listen to my chairman of this 
committee talk about communities that don't have water. And I 
am still appalled at some of what is happening in Appalachia. 
So we got a lot of work to do.
    And while I appreciate what you are telling me, some of the 
images of rural housing, the lack of rural housing, still 
appear on television from time to time as stories come out in 
various ways, and the camera is panning shacks where people are 
sitting on broken-down porches and the mention of no running 
water, et cetera.
    So it seems to me that there is a lot of support in this 
Congress for rural housing. And I don't know what is going on 
with all of the programs, which I am going to try and pay a lot 
more attention to. But I think that those images that we 
constantly see, and I have been seeing practically all my life, 
we are just a few years beyond Sugar Ditch in Mississippi, 
these have to be gotten rid of.
    This administration can't afford to talk about housing in 
Afghanistan and Iraq until it gets something done in 
Mississippi and Alabama and Appalachia. So I am one person that 
is going to be pretty persistent in trying to pursue the 
opportunities for the rural poor, because I am not simply 
concerned about the urban poor, I am concerned about the rural 
poor as well.
    Chairman Ney. Thank the gentlelady. Mr. Renzi.
    Mr. Renzi. Reclaiming my time, I wanted to--.
    Chairman Ney. Your time has expired, therefore--.
    Mr. Renzi. I want to thank you. I think you did an 
excellent job of calling out some of the impediments that you 
observed during your trip to the South.
    Do you see within the community, within the leaders that 
you met down there, the ability for the African American 
community to now put in place in their training programs new 
programs that will bring about more appraisers, more land 
surveyors, so that won't be an impediment, is I think what you 
described?
    Mr. Dorr. It clearly now on the table of issues that we 
need to address through the number of programs that we are 
involved in. I would intend to do that. I frankly am appalled 
by the fact that there aren't black appraisers, surveyors, 
abstract companies, et cetera. Maybe there are someplace; we 
just haven't found them.
    Mr. Renzi. I am sure with Congressman Davis's knowledge of 
this now, he will also be a leader on it.
    If I could move real quick, I think we will do a second 
round of questioning, to the Mutual Self-Help Housing Program. 
In southern Arizona along the border, we have got a great 
amount of labor. We have got a lot of Hispanics who have been 
involved in the construction industry. We have the Navaho, the 
Apache, the Hopi, all of which I represent and am fortunate to 
represent. Represent the largest Native American Indian 
population in America. So we have plenty of labor, plenty of 
people out of work.
    We have plenty of timber, if it is not burning in our 
forests out there. And I like this idea of being able to take 
the labor that we have available, take the materials, the 
building materials that we have available, these natural 
resources, and being able to use this 523 Mutual Self-Help 
Program.
    And I would like you to just expand in the remaining time 
that I have on the 523 program and in particular the amount of 
money that is available that was used--that is not used. And I 
will finish with that question. Thank you, sir.
    Mr. Dorr. In our Self-Help 523 Program, we have an 
appropriation of $35 million. That is budget authority that is 
used to make grants to nonprofits or other housing assistance 
councils or authorities that are collaborators who work with 
Rural Development to bring together, usually in tranches of 8 
or maybe 16 potential homeowners, provide them guidance, 
construction oversight and assistance in building, through the 
use of sweat equity, their own homes. This is a marvelous 
program because it uses local supplies, and local labor.
    When we get all done, these young people have homes of 
their own with equity usually when they walk in the door. It is 
a program that we intend to push and push aggressively, because 
it doesn't use a lot of government resources.
    Mr. Renzi. How much left over from the 35 million?
    Mr. Dorr. Last year I believe we had 16 million left over. 
There is a reason for that, quite frankly.
    Mr. Davis. If I could ask a quick question--will you permit 
a second round of questions?
    Chairman Ney. We will go to Mr. Bereuter and then start a 
second round.
    Mr. Bereuter. Thank you, Mr. Chairman. Mr. Dorr, welcome to 
the subcommittee.
    Mr. Dorr. Thank you.
    Mr. Bereuter. With the help of my colleagues, I am the 
person that took the initiative in developing the 502 program 
and the 538 Guaranteed Loan Programs authorized initially. So I 
am very interested in these two programs and their successor 
programs.
    I would like to go to the 538 Multifamily Loan Guarantee 
Program first. I understand that a rule was published on June 
10th which would hopefully make two changes to improve the 
program's secondary market participation. But mortgage bankers 
came before this subcommittee lately--let's see, I think I 
actually have the date--and they suggested that we need 
statutory language to make it clear that Ginnie Mae could 
ensure--could securitize loans under the 538 program.
    I checked with a Nebraska USDA rural office in my home 
State and found that there were none of the 538 properties in 
Nebraska involving the Ginnie Mae program. I did make an 
inquiry of your Agency with respect to the 502 Single Family 
Loan Guarantee Program. I understand that your response was 
that the 502 program can be securitized under Ginnie Mae.
    Do you have any feelings about whether or not this 
subcommittee should advance legislation which would make Ginnie 
Mae an eligible securitizer for the 538 Multifamily Loan 
Guarantee Program?
    Mr. Dorr. We are in the process of working to get Ginnie 
Mae as a securitized underwriter of this 538 program. If it 
takes statutory language, that is something that we would 
obviously have to run by our counsel, et cetera, to determine 
where we are at on that. But anything that would make the 
program more liquid and more effective would make sense.
    Mr. Bereuter. I think that is one of the problems now. I am 
inclined to introduce legislation to make it clear that they 
have the authority to proceed in that area.
    Can you give me some idea as to whether or not the 
appropriations in recent years have been sufficient to meet the 
demand for the 538 program?
    Mr. Dorr. Well, in a cursory overview, it appears that it 
has up to this point. It is because of the lack of liquidity 
and some of the underwriting issues that I think it has been 
slower to take off than perhaps one would have hoped. By the 
same token, we are in the process right now, among other 
things, of engaging a couple of folks with very, very 
substantial background in the multifamily area; It is my hope 
they will help us understand better how to operate this program 
in a way that makes it function as it was designed by the 
statute.
    Mr. Bereuter. Without the ability to securitize loans, it 
has been very difficult. We have had to be very innovative in 
the few projects we have made work in Nebraska. The 502 
program, do you have any idea how many families have been 
provided housing either by purchasing an existing home or 
building a new home, or a 502 program nationwide?
    Mr. Dorr. Last year we were able to work with right at 
44,000 homeowners.
    Mr. Bereuter. Got any overall figures since the first pilot 
program in 1991?
    Mr. Dorr. Yeah, I do. It is quite substantial.
    Mr. Bereuter. I think it has been substantial. I think it 
has a successful program.
    Mr. Dorr. I believe to date the 502 guarenteed program has 
assisted over 260,000 rural families with homeownership.
    Mr. Bereuter. Most of that I think is in the guaranteed 
program.
    Mr. Dorr. Actually, the majority of our portfolio is still 
in the direct, although the guaranteed portfolio is growing 
rather substantially.
    Mr. Bereuter. I see. All right. The difference, it seems to 
me, as to whether low- and low/moderate-income people take 
advantage of this program oftentimes comes down to whether or 
not there is an aggressive local banker that works the program. 
I want to congratulate you on keeping the program simple to use 
at this point. In fact, most bankers and other financial 
institutions cannot believe how easy it is compared to some of 
the loan guarantee programs related to agriculture. So they are 
reluctant to even look at it. When they do, they can really 
make a go, make it work. Some of the smaller banks are some of 
the most successful in using it. That has been my experience at 
least.
    Now, in fiscal year 2003, I think the ceiling was set at 
4.528 billion. And because of the low default rate, the low 
administrative cost, you were able to operate, I gather, 
meeting demand with only 32.6 million budget authority. The 
current administration request for fiscal year 2004 is down 
dramatically, only 2.5 billion, but the budget authority level 
is suggested at 39 million there. Why was it so low in fiscal 
year 03 compared to 04? Has there been a recalculation of risk? 
Or what is the difference, if you can help me with that 
question?
    Mr. Dorr. Are you talk talking about the direct or--.
    Mr. Bereuter. Talking about the loan guarantee program.
    Mr. Dorr. The loan guarantee program. I don't have a 
precise answer on that for you. We requested a 32 percent 
increase in our direct 502 program appropriations. I can get 
you an answer on what caused the guaranteed program BA 
requirement to change in 2004.
    Mr. Bereuter. If you have a budget authority level of 39 
million, will you be able to meet the demand for the 502 Loan 
Guarantee Program for fiscal year 04?
    Mr. Dorr. It may be difficult, but I think we will.
    Mr. Bereuter. Very difficult. Were you able to meet this 
thus far in 2003? Do you expect to be able to meet it in 2003?
    Mr. Dorr. Yes, we hope to. It is going to be tight. We were 
able to move 11 million of carryover from the Section 523 
Program into our direct program with the appropriation last 
February. That gave us an additional 900 million in single 
family guaranteed authority, gave us about over 10,000 homes. 
So that is clearly what kept us running.
    Mr. Bereuter. Why do we use the direct program when we have 
such a larger payoff, so to speak, from the loan guarantee 
program? Why does there continue to be the demand on the direct 
program when we can leverage so dramatically the Federal funds 
involved by the loan guarantee program?
    Mr. Dorr. Essentially the direct program addresses the 
needs of a tranche, of lower income families which we think 
merit an opportunity to acquire a home. If we can do that, we 
think that is worthwhile.
    Mr. Bereuter. So these would be people largely below 50 
percent of the average income level in the region?
    Mr. Dorr. Yes.
    Mr. Bereuter. Whereas we designed the loan guarantee 
program for 85 percent.
    Mr. Dorr. 80 percent of average median income.
    Mr. Bereuter. Sixty, I should say.
    Mr. Dorr. I am sorry; it is up to 115 percent of median 
income.
    Mr. Bereuter. We had 100 at one time, and it was moved to 
115 as I recall. The multifamily housing Program, the 538 
program, the budget includes $100 million--excuse me--proposes 
to build 2,700 units. Without some changes, some changes coming 
through the rules changes, perhaps by getting Ginnie Mae 
authorization you will be able perhaps to build more. Will you 
be able to come up to the 2,700-unit level for the next fiscal 
year? Do you have any thoughts about that?
    Mr. Dorr. There has been some misunderstanding in terms of 
the funds obligated and ultimately used in this program over 
the last several years. I think the key to it is what you 
identified early on, and that is the ability to securitize and 
make these projects liquid. If we can resolve that issue, we 
could use these funds in their entirety. But the speed of the 
resolution of that issue I think will drive it.
    Mr. Bereuter. Just for your information, Mr. Dorr, I go to 
the Appropriations subcommittee each year and ask for more 
funds for the loan guarantee programs, the 538 and 5902 
program. And while the staff there probably understands this 
program rather well, I find that members are intrigued to learn 
about the program, even though it has been ongoing for a number 
of years, and about its potential and about its growth in 
number of houses that are being made available to low- and 
moderate-income Americans.
    So I encourage you to have even more contact within your 
Agency with the appropriators in both houses on this issue and 
give them some of the charts that I have provided from your 
Agency to them this time to show them the growth in the 
programs. That is my suggestion to you. Thank you very much for 
your response.
    Chairman Ney. Thank you. Mr. Davis.
    Mr. Davis. Thank you, Mr. Chairman.
    Let me try to globalize this discussion a little bit, Mr. 
Dorr. One of the things that is evident to me, if I can follow 
up on my colleague from Nebraska's observations, is not just 
that few Members of Congress are relatively acquainted with the 
various 528s, 538s, whatever the various numbers are. Much more 
importantly in my experience, a very, very thin fraction of the 
people that these programs are meant to serve know anything 
about them.
    That I think is a very significant gap that speaks to some 
extent to Ms. Waters' questions earlier about why, despite the 
existence of all of these programs, despite the funding for all 
of these programs, which at one point was at a fairly 
respectable level though it is not now, there has still been 
this persistent housing crisis that is concentrated in parts of 
the country, the areas Mr. Renzi represents and the Mississippi 
Delta, Alabama Black Belt area. Do you agree that that's a 
significant problem, making the potential clientele for these 
programs aware of them and what, if anything, is USDA doing to 
aggressively go, not just to the Ralph Paiges of the world, but 
to the people who are living in these counties in addition to 
Mr. Page, the people who actually are going to benefit from 
these programs? What is being done to go into the local 
communities to make people aware of these various benefits? 
Because I'd make an observation to you. My colleague from 
Nebraska mentioned the necessity of the banks implementing a 
lot of these programs, the guaranteed loan programs. I will 
represent to you that in major parts of the area that you 
represented last week, there is a very small banking presence. 
I think in the whole of Sumter County, there may be all of 
about two banks, maybe really one bank that is really 
capitalized in a significant degree. You can go through major 
portions of my district that you represented last week, and you 
don't run into any banking presence, and maybe even more 
pernicious than that, when you run into banks, when the people 
in those communities run into banks, the banks are not a 
friendly face to them. The banks are the people who keep them 
from getting loans in their perspectives. The banks are the 
people who are not friendly to them when they come in needing 
money to get some new agricultural equipment. The banks do not 
have a great reputation in lot of these communities. So given 
the fact that the banks are not going to be the best purveyor 
of information, what do you suggest, I mean, what do you 
suggest to get these programs into the heart of the people who 
would benefit from them?
    Mr. Dorr. That is a tough question. People have looked at 
it for a long time. Naively, perhaps, I would make a couple of 
observations.
    First of all, these credit unions, between them had I think 
$20 or $22 million. You could convert that $20 or $22 million 
into black-owned banks that would have an asset base of a 
billion dollars. With proper security and the types of 
securitization possibilities, there would be a lending base 
there. We have entered into an MOU with the National 
Association of Credit Unions to try to work more closely with 
them to market our programs, as well as to use their ability to 
help provide home ownership loans and that sort of thing.
    When you are dealing with a credit union with a million 
dollars and a lot of volunteer staff, the sale of a home loan 
into a secondary market involves complex and sometimes more 
involved issues than the staffs sometimes have.
    We, at Rural Development, have to do a better job of 
marketing. Statutorily there are some limitations in our 
ability to go out and quote/unquote market government services. 
But I think a more effective marketing effort must be made. We 
are in the process of taking a very close look at what we can 
do within the framework of our authority to make sure that we 
are doing a better job.
    We have also initiated, a year ago, something called the 
Five-Star Initiative, which is part of a Rural Development 
effort in conjunction with a Credit Education Program through 
the FDIC. Our Five-Star Initiative essentially amounts to an 
enhanced marketing strategy to bring minority homeownership 
more front and center in ways that involve marketing, 
education, and an aggressive attempt to increase minority 
homeownership within our programs by 10 percent in the near 
future.
    We are doing a number of things. There are a lot of issues 
that have to be dealt with. Are they all right? Are they all 
the most effective? I am not sure that I know, but we are 
sensitive.
    Mr. Davis. Let me just close on this observation that 
follows up on Mr. Renzi's observations earlier about the 
absence of minority participation in a lot of aspects of the 
rural housing market. One thing that is always striking to me, 
Mr. Dorr, that if you look at the largest banks in my district, 
and we have a number, and if you look at the next tier of banks 
in my district, we have a number of those, to my knowledge, not 
counting the one or two minority-owned banks, at the majority-
owned banks in my district, there are about six or seven of 
them, there is a combined total of one African American who 
sits on the board of directors of all six or seven of those 
institutions. I am sure if I am wrong, I will hear about it by 
the end of the day. But I think that that number is about 
right. That is a significant problem that I think all of us, 
certainly on this committee, should recognize. You do not have 
a significant amount of participation by individuals in the 
minority community or a significant amount of participation by 
folks who even have relatives who live in some of these areas, 
frankly, until we get a handle on that phenomenon. Because I 
would describe the phenomenon this way. It is the perspective 
of people whose economic interests are primarily directed 
outside of the community still making the bulk of the economic 
decisions about the distressed communities. That is certainly 
the perception of the people on the ground in these areas. And 
I think until we get a handle on that problem, until we find 
some way to inject more of a feeling of participation because 
whatever the reality, if a given community feels that its needs 
are ignored and neglected, that will certainly weaken their 
ability to take advantage of the programs that do exist.
    So I will close on that note and certainly thank the Chair 
for calling this hearing. And thank Ms. Waters for her 
engagement in this issue. She has been, despite the absence of 
a rural presence in her district, she has been way before I got 
here, a persistent voice on these kinds of issues, and we need 
more urban voices engaging this question. Thank you.
    Mr. Dorr. Thank you.
    Chairman Ney. Thank you. Mr. Renzi.
    Mr. Renzi. Thank you, Mr. Chairman.
    I want to jump on the coattails of my colleague, Mr. Davis. 
In southern Arizona, we have been somewhat successful, not 
great success, but somewhat successful in using the Section 523 
Program. And one of the ways we were able to get the word out 
was the 523 Program. For 60, 65 percent of the labor that you 
put into the home, we were using the Catholic churches, and I 
know your network of African-American churches in the South is 
as strong if not stronger, but the idea that we have got $18 
million left in the 523 Program, a program where you can use 
local materials--and I was a homebuilder before I came here--
use local materials and local labor to build your own home, and 
when you walk into this you have equity, and if we can get the 
local churches to get behind that kind of a program, there is--
I am going to overreach here, but I can't see any reason to 
rent. Why is it that we had $18 million left over? And I know I 
am looking here at underqualified supervision. Is that a State-
licensed GC, or is there a Federal qualification?
    Mr. Dorr. Mr. Garcia says it is a State-licensed--.
    Mr. Renzi. GC?
    Mr. Dorr. Right.
    Mr. Renzi. So it has got to be a GC?
    Mr. Dorr. Right.
    Mr. Renzi. Okay.
    Mr. Dorr. Seventy percent of the folks that go into our 
self-help program are minorities. That is a market tranche that 
we are very heavily engaged with.
    Secondly though, to have the kind of oversight necessary to 
make sure these projects succeed. I mean the worst thing that 
can happen is somebody goes to work for five or six months, in 
addition to maintaining a 45- or 50-hour-a-week job, they spend 
another 30 hours a week building a home, and they have poor 
oversight quality because these folks don't have backgrounds in 
building skills and buying materials and that sort of thing, 
and then to get four or five months into it and have the 
project fail because of some lack of oversight, and we have had 
a couple of those.
    Mr. Renzi. I would--I hope you have failure rates through 
the roof, because you have got $18 million left over, my 
friend. And I know most people out there with good supervision, 
as you know--and I am preaching to the choir here--can put 
together a home. It is not that--I mean if I could do it 
anybody could do it.
    Mr. Dorr. Well, that may or may not be the case, but I 
understand what you are saying. And the simple fact of the 
matter is that what we are not trying to mitigate all failure. 
I understand that. And I have identified a number of 
organizations around the country who can help. I intend to put 
them in touch with some of these folks that I met last week 
that can come in and provide the training and provide the 
support and the background to get these houses up and running.
    That's the kind of marketing we need to be more forceful 
on, and we intend to do that.
    Mr. Renzi. I am with you. There it is, the training aspect 
of it. The idea that maybe to train some of these supervisors 
and get the program out. Again, just real quick and I will wind 
up. The $18 million that we have left over was primarily why?
    Mr. Dorr. Why? Because we just didn't have enough demand 
for it, based on our ability to market the program and to make 
sure that those that were interested in this had the ability to 
make sure these projects would likely succeed.
    Mr. Renzi. Thank you, Mr. Dorr. It was great having you 
today. Appreciate it.
    Mr. Dorr. Thank you.
    Chairman Ney. Thank you. Any other members would like to 
ask a question? Just in kind of a summary, would you like to 
say anything about the vision you have, you know, in a nutshell 
and how you would like to carry it out through some changes you 
need to make?
    Mr. Dorr. Well, if there is a take-away vision of what 
Rural Development and this administration would like to be 
viewed as number one, I want to make it most clear that this 
administration is very sensitive to the housing needs of rural 
Americans. Second, it is in that vein that we are trying to 
administer these programs effectively and to get our hands 
around them in a way that provides the stewardship of the 
resources that we are given in ways to make this program work. 
And thirdly, if we administer and implement these programs 
effectively because of good stewardship, and our sensitivity to 
the needs, I would like the committee to also understand that 
we are going to need some management flexibility relative to 
how we deal with rental assistance, securitization issues, and 
a number of the issues concerning the 523 Program. We do have 
these tools, but we need flexibility in how we implement them. 
If we can do that, then our vision of Rural Development being 
the venture capitalist for rural America with the goals of 
increasing economic opportunities and improving the quality of 
life will, in fact, bear fruit. We are well-positioned to do 
that, and with your help and cooperation, I would like to think 
we can attain those goals.
    Chairman Ney. What I would suggest, as we try to get to 
where we want to be in the vision, if you have the ideas of 
what you need to do legislatively, you know, bring it here to 
the committee, and we can take a look at it and see how we 
could work together if there needs to be legislative changes. I 
know some of it is internal management, some of it is getting 
out the word of what's there, maybe some of the things that are 
there are not working so--but I just think we need to, like I 
said, beef the level up all the way around to get the issue out 
there. And I will still say it, downpayment is a problem. I 
mean when we talk about the housing downpayment as a problem. 
We have talked about it, and people can work and pay that 
monthly payment but the downpayment always tends to be a 
problem.
    Mr. Dorr. Well, thank you; I want to take this opportunity 
to make a point about downpayment. We have a Rural Development 
program, right now, where we have State directors and single-
family employees working with employers who are providing the 
downpayment on 5-year forgivable loans in conjunction with 
Fannie Mae buying the paper and us originating the loan. There 
are many of these opportunities out there. We are trying to 
corral them all, and when we do that, it does make housing much 
more affordable and available in ways that I think would 
satisfy everyone.
    Chairman Ney. It makes a huge difference. We have talked 
about it with the FHA; I have talked to the ranking member. It 
makes a huge difference. If a person sits and it literally 
takes 10 years for the downpayment, I don't note what that 
shows about their credit worthiness in the sense of the child 
was in third grade, now the child is out of high school, they 
could have been in that house to have a better place to study, 
et cetera. I mean, we all know you can't maybe prove all these 
things with calculations, but we know it works. So some way--I 
am glad to hear that is happening.
    Any other way I think we can directly tackle that is going 
to help people. The sooner people get into housing, the better 
off they are going to be, their families and their whole way of 
life.
    I want to thank all the members. If there is no further 
questions that concludes the hearing. Thank you.
    [Whereupon, at 11:17 p.m., the subcommittee was adjourned.]


                            A P P E N D I X

                             June 19, 2003

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                             A P P E N D I X

                               July 8, 2003

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