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

                    H.R. 3755--ZERO DOWNPAYMENT ACT OF 2004
    =======================================================================

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                       HOUSING AND COMMUNITY OPPORTUNITY

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED EIGHTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 24, 2004

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 108-74

                            U.S. GOVERNMENT PRINTING OFFICE

    95-010                            WASHINGTON : 2004
    _____________________________________________________________________
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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          MICHAEL E. CAPUANO, Massachusetts
        Carolina                         HAROLD E. FORD, Jr., Tennessee
    DOUG OSE, California                 RUBEN HINOJOSA, Texas
    JUDY BIGGERT, Illinois               KEN LUCAS, Kentucky
    MARK GREEN, Wisconsin                JOSEPH CROWLEY, New York
    PATRICK J. TOOMEY, Pennsylvania      WM. LACY CLAY, Missouri
    CHRISTOPHER SHAYS, Connecticut       STEVE ISRAEL, New York
    JOHN B. SHADEGG, Arizona             MIKE ROSS, Arkansas
    VITO FOSSELLA, New York              CAROLYN McCARTHY, New York
    GARY G. MILLER, California           JOE BACA, California
    MELISSA A. HART, Pennsylvania        JIM MATHESON, Utah
    SHELLEY MOORE CAPITO, West Virginia  STEPHEN F. LYNCH, Massachusetts
    PATRICK J. TIBERI, Ohio              BRAD MILLER, North Carolina
    MARK R. KENNEDY, Minnesota           RAHM EMANUEL, Illinois
    TOM FEENEY, Florida                  DAVID SCOTT, Georgia
    JEB HENSARLING, Texas                ARTUR DAVIS, Alabama
    SCOTT GARRETT, New Jersey            CHRIS BELL, Texas
    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                 WM. 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
    Hearing held on:
        March 24, 2004...............................................     1
    Appendix:
        March 24, 2004...............................................    55

                                   WITNESSES
                           Wednesday, March 24, 2004

    Ashburn, Ann, President and Chief Executive Officer, AmeriDream,
      Inc., Gaithersburg, MD.........................................    47
    Crowley, Sheila, President National Low Income Housing Coalition.    23
    Dolben, Deane, President, The Dolben Company, Burlington, MA, on
      behalf of the National Multi-Housing Council and National
      Apartment Association..........................................    38
    Egan, Conrad, President and CEO, National Housing Conference.....    40
    Finnegan, Thomas J. III, President, Huntington Mortgage Group,
      Columbus, OH...................................................    27
    Henry, Warren L. Sr., Vice-Chair, Housing Authority of Fulton
      County, Atlanta, GA............................................    25
    Petrie, Michael F., President, P/R Mortgage & Investment
      Corporation, Indianapolis, IN, on behalf of the Mortgage
      Bankers Association............................................    29
    Petrou, Basil N., Managing Partner, Federal Financial Analytics,
      Inc............................................................    41
    Rayburn, James R., President, National Association of Home
      Builders.......................................................    30
    Syphax, Scott, President & Chief Executive Officer, Nehemiah
      Corporation of America, Sacramento, CA.........................    43
    Weicher, Hon. John C., Assistant Secretary for Housing-Federal
      Housing Commissioner, U.S. Department of Housing and Urban
      Development....................................................     1
    Witcher, Jerome, Real Estate Agent, Art Lee Realtors, Columbus,
      OH.............................................................    45

                                    APPENDIX

    Prepared statements:
        Ney, Hon. Robert W...........................................    56
        Oxley, Hon. Michael G........................................    58
        Clay, Hon. Wm. Lacy..........................................    59
        Lee, Hon. Barbara............................................    60
        Sanders, Hon. Bernard........................................    63
        Tiberi, Hon. Patrick J.......................................    67
        Ashburn, Ann.................................................    68
        Crowley, Sheila..............................................    73
        Dolben, Deane................................................    84
        Egan, Conrad.................................................    89
        Finnegan, Thomas J. III......................................    92
        Henry, Warren L. Sr..........................................    98
        Petrie, Michael F............................................   102
        Petrou, Basil N..............................................   108
        Rayburn, James R.............................................   116
        Syphax, Scott................................................   125
        Weicher, Hon. John C.........................................   129
        Witcher, Jerome..............................................   133

                  Additional Material Submitted for the Record

    The American Society of Home Inspectors, Inc., prepared statement   135
    National Association of Housing Cooperatives, prepared statement.   138
    National Association of Realtors, prepared statement.............   141

                    H.R. 3755--ZERO DOWNPAYMENT ACT OF 2004

                                  ----------

                           Wednesday, March 24, 2004

                 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 10:03 a.m. in
    Room 2128, Rayburn House Office Building, Hon. Robert Ney,
    [chairman of the subcommittee] presiding.
        Present: Representatives Ney, G. Miller, Hart, Tiberi,
    Renzi, Waters, Carson, Lee, Sanders, Watt, Clay, B. Miller,
    Scott, and Davis.
        Chairman Ney. We will go ahead and come to order. And
    members will be coming in, the Subcommittee on Housing and
    Community Opportunity. And today is, I think, a very, very
    important hearing.
        And we will start today with the Honorable John Weicher,
    Assistant Secretary for Housing-Federal Housing Commissioner,
    U.S. Department of Housing and Urban Development.
        Thank you.

    STATEMENT OF THE HONORABLE JOHN C. WEICHER, ASSISTANT SECRETARY
     FOR HOUSING-FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF
                     HOUSING AND URBAN DEVELOPMENT

        Mr. Weicher. Thank you, Mr. Chairman and distinguished
    members of the subcommittee. And thank you for the opportunity
    to testify today regarding the Administration's zero
    downpayment initiative.
        This major new mortgage insurance product is specifically
    designed to help first-time home buyers purchase a home.
        I also want to thank Congressman Tiberi for introducing
    H.R. 3755, the Zero Downpayment Act of 2004, and the 30
    members, both Democrats and Republicans, who have co-sponsored
    this important bipartisan legislation.
        Under this new program, FHA will insure 100 percent of the
    cost to acquire the home for first-time home buyers. We would
    allow them to finance the full purchase price, as well as all
    of the closing costs. Potential home buyers would not have to
    make the minimum down payment of 3 percent that is required in
    our regular Home Mortgage Insurance Program, Section 203(b).
        Studies have consistently shown that the single biggest
    obstacle to homeownership for most families is the inability to
    come up with enough cash to meet downpayment and closing costs.
    Many potential home buyers pay the equivalent of a monthly
    mortgage in rent, but are unable to save toward a downpayment
    on a home. Minority families in particular are burdened by high
    downpayment requirements.
        This Administration is committed to helping all Americans
    address this barrier to home ownership, including minority
    families who have been shut out of home ownership opportunities
    in the past. We are proud of this effort, and we are proud of
    the results.
        In the fourth quarter of last year, the homeownership rate
    stood at an all-time record of 68.6 percent, and minority
    homeownership also set records. For the first time ever, over
    half of all minority families are now homeowners, with a record
    rate of 50.6 percent in the fourth quarter of last year.
        This is a good record, and we want to improve on it. There
    remains a significant home ownership gap between non-Hispanic
    whites and minority families.
        In June, 2002, President Bush announced the blueprint for
    the American Dream Partnership to create 5.5 million new
    minority homeowners by the end of this decade. Some of the
    participants in the partnership are here to testify today on
    this legislation.
        The Zero Downpayment Program would move the nation
    significantly closer toward this goal.
        We project that the new zero downpayment program would
    serve about 150,000 new home buyers in the first year alone. It
    would be structured to assist those credit-worthy but cash-poor
    working individuals and families who have been excluded from
    purchasing their first home.
        We have designed this program to minimize defaults, and to
    protect the Mutual Mortgage Insurance Fund. FHA has made
    conservative financial assumptions regarding the program. In
    order to cover the costs of the program, families who qualify
    for the zero downpayment program would be charged a higher
    insurance premium on their home loan.
        There would be no net cost to the MMI fund. The President's
    budget projects that the additional $19 billion in mortgage
    commitments will generate revenue of about $184 million in the
    first year. Borrowers would be held to the same underwriting
    guidelines as those who apply for FHA standard 3-percent
    downpayment mortgage. They must meet the same payment income
    and debt-to-income ratios, and the same credit standards.
        We propose to add two additional requirements to help
    families become, and remain, homeowners.
        First, our new FHA total mortgage scorecard must be used to
    evaluate the overall creditworthiness of borrowers. The total
    scorecard allows FHA lenders to better predict which borrowers
    are good risks, and which are bad risks. This will help lenders
    and help FHA determine which families are most likely to remain
    homeowners after they buy their home.
        Also, it will require any home buyer to have homeownership
    counselling. And as we discussed at your hearing last week, Mr.
    Chairman, housing counselling can be very effective in reducing
    mortgage delinquency.
        Over the last three years funds for housing counselling
    have doubled, from $20 million to $40 million. The
    Administration has requested increases, and Congress has
    appropriated the money.
        The proposed fiscal year 2005 HUD budget proposes a further
    increase, to $45 million. We estimate that about half of this
    $5 million increase will be spent on counselling in conjunction
    with the zero downpayment mortgage.
        The Administration and the Department are firmly committed
    to helping more American families achieve the dream of
    homeownership. We believe that the Zero Downpayment Mortgage
    will be a financially sound and effective means to help them.
        That concludes my statement, Mr. Chairman. I want to thank
    you again for the opportunity to meet with you today to discuss
    this exciting new initiative.
        [The prepared statement of Hon. John C. Weicher can be
    found on page 129 in the appendix.]
        Chairman Ney. I want to thank you gentlemen. I would note
    we are going a little bit irregular here, but I wanted to get
    your testimony in because we have another panel.
        Also, as far as statements, we will entertain some. And
    then as members come in, we would not do that except for the
    ranking Member. But we entertain as we speak, and for the
    members present, I am going to be brief and ask, without
    objection, the rest of mine be submitted for the record.
        I just want to say that this bill by Congressman Tiberi and
    Congressman David Scott I think is extremely important, and it
    reflects the legislative proposal by the Bush Administration
    that they have got into their fiscal year 2005 budget for HUD.
    And this, of course, as you said, would eliminate the
    downpayment in some cases.
        I think the downpayment is a very difficult thing for many
    people to, as we know, to get. They can pay the payment, they
    can watch their budget, they can work a second job, and they
    have got their part of the American dream. But they might have
    to wait eight, nine, 10 years to get that. And that is why I
    think this bill by Congressman Tiberi is one of the most
    important bills. I credit Congressman Tiberi for pushing this
    bill and being out front on it, and Congressman Scott, also.
        And I would note with the racial divide in homeownership,
    it remains wide. It is 75.5 percent of white households owning
    their own home, compared with 49.4 percent of African-American
    households, and 47.7 percent of Hispanic households. I know we
    can do a lot better. I think this bill will also help with that
    important issue.
        With that, the gentleman from Vermont, do you have a
    statement?
        Mr. Sanders. Thank you, Mr. Chairman, and I am delighted
    that our guest is here with us today.
        This is an important hearing, and I appreciate you holding
    it. Making homeownership available to more people certainly is
    a goal that we all share. And the idea of having people not
    having to make any initial downpayments is a step in the right
    direction.
        But I think there is a lot more to be done in addressing
    what, to my mind, is one of the major crises facing our
    country. And that is the fact that millions and millions of
    Americans today are paying a very substantial part of their
    income for housing.
        Not only do we have a major homeless problem in America, a
    growing problem, but we should recognize that there are
    millions of Americans today who are paying 40, 50, or 60
    percent of their incomes in housing. That is unacceptable.
        And while this particular piece of legislation addresses
    some problems, it certainly does not go anywhere near as far as
    it has to go in addressing the major housing crises facing our
    country.
        Mr. Chairman, I am also delighted that you have invited, as
    a member of one of the panels, Sheila Crowley, who is the
    President of the National Low-Income Housing Coalition. That
    coalition, to my mind, has done an extraordinarily good job in
    raising consciousness on the housing crisis in bringing not
    only low-income and working people into this issue, but many
    business people as well. And I look forward to hearing what Ms.
    Crowley has to say.
        Mr. Chairman, owning your own home is the American dream.
    But having a bank foreclose on your home because you did not
    have enough money to make your monthly mortgage payments could
    quickly turn the American dream into a nightmare. And I think
    our guest understands that foreclosure today is at an all-time
    high, and is one of the major problems facing homeowners,
    especially lower-income homeowners, in this country.
        Mr. Chairman, Ms. Lee and I, and some 211 Members of the
    United States Congress, in a very strong tripartisan effort,
    have introduced the National Affordable Housing Trust Fund.
    That is H.R. 1102. And that legislation would provide the
    resources necessary for states and localities to produce,
    rehabilitate, and preserve at least 1.5 million affordable
    housing rental units in the next decade, targeted to those
    families most in need.
        It is the legislation which in fact would go a long way to
    solve the real housing crisis in this country.
        In addition to that, and importantly, given the job
    situation in this country, that particular legislation, because
    we would invest substantial sums of money in the construction
    of affordable housing, would put an estimated 1.8 million
    people to work.
        Mr. Chairman, let me end by simply asking you if you would
    allow those of us, the 211 Members of the House who are on this
    legislation, to have a hearing on this important bill. I would
    be very appreciative. Is that something you think we could do?
        [The prepared statement of Hon. Bernard Sanders can be
    found on page 63 in the appendix.]
        Chairman Ney. The time of the gentleman has expired. I will
    take it under advisement. I will take a look at it. I cannot
    make a decision on the spot.
        I am going to try to hold to the time very strictly, for a
    couple reasons. We have three panels. And so as I call the
    time, both sides, I just want to hold to it strictly.
        Mr. Tiberi.
        Mr. Tiberi. Thank you, Mr. Chairman. I appreciate the
    opportunity to talk a little bit about the Zero Downpayment
    Bill which I recently introduced with 32 other individuals who
    are co-sponsoring the bill, including Congressman Scott.
        But I am going to ask if I can submit my comments for the
    record, but just say, as a former realtor, I have personally
    witnessed what homeownership can do to a person, to a family.
    Homeownership has the incredible ability to not only build
    wealth for a family, but have a positive impact on a
    neighborhood.
        And I look forward to working with not just this
    Subcommittee, but the full Committee in the Congress and the
    folks at HUD. Commissioner, I look forward to working with you.
    I hope my experience in working with you on this is better than
    our previous experience. I will leave it at that.
        But I would like, Mr. Chairman, to submit my comments for
    the record, because I know the Commissioner's time is
    important, as are the members of the panels that we are going
    to be hearing from.
        Chairman Ney. Without objection.
        [The prepared statement of Hon. Patrick J. Tiberi can be
    found on page 67 in the appendix.]
        Chairman Ney. The gentlelady from California.
        Ms. Lee. Thank you, Mr. Chairman. I, too, would like to
    submit my statement for the record. And I just want to say to
    you, this is a very interesting approach to solving a chronic
    affordable housing problem in this country, specifically when
    you look at the homeownership rates in terms of ethnic
    minorities. You see about 75 percent for white households, 49
    percent for African-American households, and about 47 percent
    for Latino households. So hopefully this bill will just begin a
    process of trying to close those disparities.
        Thank you. And I would like to, again, submit my statement.
        Chairman Ney. Thank you, gentlelady. Without objection, we
    will enter it for the record.
        [The prepared statement of Hon. Barbara Lee can be found on
    page 60 in the appendix.]
        Chairman Ney. Mr. Miller?
        Mr. Miller. Thank you very much, Mr. Chairman.
        Secretary Weicher, I would like to applaud you on RESPA.
    That is something that we started working with Secretary
    Martinez, when he first took over. We thought we were going in
    the right direction, and I don't know what happened. But I want
    to applaud you on what you have done on drawing that. And
    hopefully we can work together to resolve this. This is a
    critical link in the homeownership process, and I think we need
    to do everything we can to make sure that the final product
    overhauls the process without really confusing home buyers. But
    I wanted to applaud you for doing that.
        The last few times we have talked, it was the only time we
    ever had a disagreement, HUD and I, on an issue, so that was a
    problem for us.
        But there is a huge housing crisis in affordability in this
    nation. I have been in the building industry for over 30 years,
    and was a real estate broker in the past. And in California we
    have about a 56.9 percent homeownership rate, which is about 10
    percent under the nation. The median home price in California
    is about $35,000 higher than the second- and third-place
    portions of this nation, and it is really a huge problem.
        And if you look at most people who have to put 20 percent
    down in California, that is $75,000. Less than 5 percent of
    this nation can afford that on their capital, other than what
    they have invested in real estate. And this is really a
    critical issue. And the zero downpayment assistance hearing I
    think is very important.
        A good friend of mine, Frank Williams, he is the Director
    of the Building Industry Association of--he started a group
    called Heart, which is a non-profit. He started it in 1995. And
    in 1998 they started the zero downpayment assistance, where
    they would give virtually grants to people coming in. It was
    done without any assistance from the federal government at all.
    And they put about 40,000 families in homes, with zero
    downpayment, where they would have the private sector pick up
    the downpayment for them. And it was started with just a couple
    developers that invested some money. They give a grant to this
    Heart Foundation, and they have built that, through loans and
    such, where they are helping a tremendous amount of people who
    have never owned a home before.
        They have taken quite a few mothers who were on welfare,
    didn't have jobs, and they have hired them. They are working in
    their office now, and have put them in homes. And there is a
    lot to be done in this nation to get people in homes.
        This is a great start. This is just a beginning. I mean,
    yes, we have to look at entry level, but we have to look at
    where do they go past that. And we have done nothing to
    encourage affordable housing, anything other than just a
    Section 8. And if you don't have affordable move-up from
    Section 8, you don't have adequate Section 8 as we know.
        So I am not going to protract this. I look forward to this.
    I know later this year we are going to try to be working with
    Mr. Frank on FHA, dealing with a loan limit, so we must
    increase there because it is just not kept up. You can't even
    get an FHA loan in California because of the limits that we
    have. We have to do something about that.
        But I thank you for today, and thank you for your
    testimony.
        Chairman Ney. Well, thank you. Mr. Scott.
        Mr. Scott. Yes, thank you very much, Mr. Chairman. And I
    appreciate this opportunity. This is an important piece of
    legislation, for there is nothing more important and vital to a
    person than to be able to purchase a home. It enriches their
    lives and begins them on the path of very good significant
    wealth-building.
        I want to thank Chairman Ney and Ranking Member Waters for
    holding this hearing today on House Resolution 3755, the Zero
    Downpayment Act. And I am very, very proud to join with
    Congressman Tiberi to introduce this legislation, which would
    eliminate the downpayment requirement for families and
    individuals who buy homes with FHA-insured mortgages.
        This legislation, as you may recall, follows the Committee
    passage of the American Dream Downpayment Act last year, which
    I was also a co-sponsor of.
        It is very important, I just want to highlight just a
    couple of points, why this program is so important. This new
    Zero Downpayment Program will be available to first-time home
    buyers seeking loans insured by the Federal Housing
    Administration. It will make homeownership possible for those
    who meet FHA underwriting requirements, and who could easily
    afford a monthly payment, but because of their circumstances,
    have simply not had the opportunity to save for a downpayment.
        FHA loans typically require a minimum downpayment of 3
    percent. Families who qualify for zero downpayment mortgages
    will be charged a modestly higher insurance premium on their
    home loan.
        For example, on a $100,000 mortgage, a zero downpayment
    borrower will pay approximately $50 a month more than a regular
    FHA borrower. The higher premium will completely cover the
    costs of the program, meaning there is no additional cost to
    the taxpayer.
        Now, while downpayment assistance is an important tool to
    help increase homeownership, we must also provide home
    counselling programs. And I am sure that our first panelist, of
    course, the Honorable John C. Weicher, Assistant Secretary of
    Housing-Federal Housing Commissioner of the United States
    Department of Housing Development, knows the importance of
    housing counselling. We talked with him last week on a hearing
    on our other bill.
        Last week this Committee discussed that bill. House
    Resolution 3938, which was introduced by Chairman Ney,
    Representative Velasquez, and myself. This legislation will
    create a new homeowner counselling office within HUD. It would
    create a nationwide toll-free number to receive consumer
    complaints regarding predatory lending, and refer victims to
    consumer protection agencies, provide for a multi-media
    outreach program to vulnerable populations, and provide grants
    to community counselling organizations.
        I mention that because this Zero Downpayment Program is
    wonderful. And it is very important that we put folks in their
    homes. But if we do not provide that counselling, if we do not
    provide a way for them to make sure they can keep the home,
    that they have the necessary information and counselling
    information to help, it is much like giving a man a rope on
    which he can either pull himself up, or he can hang himself.
        So I want to make sure that as we move forward with the
    zero downpayment, to know that it is equally important to make
    sure, as we help to get people out on this first step, that we
    understand the importance of providing them with housing
    counselling as we move along.
        And African-American families and other minority families
    in particular are burdened by high-downpayment requirements.
        Chairman Ney. Time has expired.
        Mr. Scott. Homeownership, of course, is a major step, as I
    said, in wealth accumulation and movement up the economic
    ladder. And it is very important, this is a very important
    step. I am very, very excited and energized on our move on
    this.
        Thank you, Mr. Chairman, for allowing me to make that
    statement.
        Chairman Ney. Thank you. Gentlelady from California, our
    Ranking Member.
        Ms. Waters. Thank you very much, Mr. Chairman and members.
    I thank you for scheduling this hearing to consider the many
    important issues raised by H.R. 3755, the Zero Downpayment Act
    of 2004, introduced by Congressman Pat Tiberi and Congressman
    Scott.
        This bill would eliminate the downpayment requirement for
    families and individuals who buy homes with FHA-insured
    mortgages.
        While the homeownership rate has risen, the racial divide
    in homeownership remains wide, with 75.5 percent of white
    households owning their own home, compared to 49.4 percent of
    African-American households, and 47.7 percent of Hispanic
    households.
        During the past part of 2003, presently section 203(b)(9)
    of the National Housing Act requires that each FHA borrower to
    make a cash downpayment of at least 3 percent of the cost of
    the home. While H.R. 3755 does not explicitly waive this 3-
    percent minimum cash downpayment requirement, it is clear that
    it is the sponsor's intent.
        Currently, depending upon the state in which they reside,
    FHA borrowers may borrow from 97.15--15 percent, that is--up to
    a ceiling of 99.25 percent of appraised value. H.R. 3755 is
    intended to let a borrower put zero cash down, and borrow
    around 104.5 percent to 105 percent of the value, depending on
    the closing costs.
        H.R. 3755 is identical in language to the legislative
    proposal submitted in the Administration's funding year 2005
    budget. The bill authorizes HUD to insure mortgages for one-
    family residences that are loan-to-value in excess of 100
    percent of appraised value by specifically allowing a loan
    equal to the sum of the home's appraised value, the up-front
    FHA premium, and all approved closing costs.
        The Administration projects that this loan product will
    create 150,000 home buyers in the first year alone. OMB
    projects that the proposal will make money for the government;
    that is, it will have a negative cash subsidy.
        FHA borrowers pay both an up-front premium and an annual
    fee on single-family loans. The Administration's budget
    proposal assumes increased revenue from charging a higher
    premium to those potential borrowers who utilize the zero
    downpayment option.
        According to the budget proposal, those higher premiums
    would be sufficient to cover any anticipated losses expected by
    FHA's mortgage insurance funds. Although H.R. 3755 does not
    include any language addressing the fees to be charged for this
    new loan product, HUD has indicated publicly that it plans to
    charge an up-front premium of 2.5, 25 percent, and that is
    versus the current 1.5 charge for all FHA loans, plus an annual
    fee of .75 percent for the first five years of the loan, versus
    what is now .5 percent charge for all FHA loans.
        The bill also authorizes the HUD secretary to establish any
    additional requirements as may be necessary or appropriate,
    including requirements regarding mortgage and/or property
    eligibility.
        If this bill is enacted, HUD has indicated an intention to
    use this authority to establish several additional requirements
    through administrative regulation. For example, while the bill
    itself does not require it, a January 19, 2004 HUD press
    release on the Zero Downpayment Proposal states that HUD would
    also require families to undergo pre-purchase housing
    counselling.
        The questions included in our invitation to today's
    witnesses cover many of the issues that I hope will be
    addressed today. I would like to raise a few more policy
    questions.
        I hope that our witnesses will discuss whether they believe
    this product should be limited to those who lack the resources
    to come up with the current downpayment requirement, or whether
    it also should be available to those who can come up with the
    downpayment, but prefer not to do so.
        Simply put, is some kind of certification of financial
    necessity an appropriate condition for access to this product?
    If not, why not?
        Secondly, will this product expose the mortgage insurance
    fund to unreasonable risk? Given that FHA delinquency and
    foreclosure rates have risen steadily in recent years, and that
    FHA past-due rate, as of the third quarter of 2003, is now
    12.13 percent, don't we need to proceed cautiously in this
    area? What role, if any, do downpayment requirements play today
    in avoiding defaults of foreclosures?
        While it is the subject of considerable controversy, a
    recent audit by the HUD Inspector General also suggested that
    mortgages made through gift assistance programs carry default
    rates far above average. How do gift assistance programs fit
    into the equation?
        Finally, there are several technical issues that require
    clarification, such as whether the bill should be limited to
    first-time home buyers. And if not, whether refinancing should
    be covered.
        Mr. Chairman, above all else, as we consider this bill and
    other potential legislation before our subcommittee, we need to
    ensure that we pursue a balanced agenda that makes fair and
    affordable housing opportunities to all of our people, whether
    they are renters or owners. H.R. 3755 raises important
    questions, but it is only one piece of a far larger puzzle.
        I look forward to our witnesses. And I thank you again for
    scheduling this hearing.
        Chairman Ney. Well, thank you, gentlelady. We will move on
    to questions. The witness, Mr. Weicher, has testified.
        The one question I have is, what is the relevance of
    downpayments in truly assessing the creditworthiness of a
    person? How relevant do you think they are?
        Mr. Weicher. Mr. Chairman, we certainly know that
    downpayment initial loan to value is an important aspect of
    risk. And as you all have mentioned, we have, in our basic
    203(b) program, a statutory requirement of a 3-percent
    downpayment.
        But we also know that there are other factors which are
    more important. In particular, credit history, credit
    experience. That is the most important predictor of the ability
    of a family to maintain a home once they have moved into it.
    And we are requiring, in our proposal, that all mortgage
    applications for the program would be risk-assessed by our new
    total scorecard, which is the best indicator we have found,
    best predictor of whether a borrower will default on the
    mortgage or not.
        And in addition, we are requiring counselling for any
    borrower who participates in the program. And we know that
    families who receive counselling are better able to stay in
    their home. Pre-purchase counselling, our default rates on
    families with pre-purchase counselling are lower, significantly
    lower, than the default rates for families who do not.
        So while LTV is important, there are other factors that are
    important, too. And we are taking them all into account as we
    make this proposal to you.
        Chairman Ney. Do you think underwriting is relaxed when no
    downpayment is required?
        Mr. Weicher. It is not our intention to relax our
    underwriting criteria at all, in the Zero Downpayment Program,
    Mr. Chairman. We will use the same underwriting standards, the
    same payment-to-income and debt-to-income ratios, the same
    credit history standards. And we add the additional
    requirements of counselling and the Total Scorecard.
        We have no intention to relax our underwriting standards in
    this program.
        Chairman Ney. Does the bill cover condominiums and
    cooperatives?
        Mr. Weicher. No, Mr. Chairman, it does not. Condominiums
    and cooperatives are insured under a different insurance fund,
    the GSRI fund, General and Special Risk Insurance fund. As
    such, their premiums are established on a different basis than
    we establish the premiums for single-family home purchases. And
    we believe it is appropriate to start with single-family homes
    in this program in the MMI fund. And if it is successful, then
    we would certainly look to extend it to condominiums and
    cooperatives.
        Chairman Ney. The reason I ask that question, I wanted to
    follow up with one last one, but, in rural areas in particular
    you don't have a lot of condominiums, obviously. It is not that
    popular. You have spatterings. In the urban centers you will
    have condominiums.
        And I just wondered, is there receptivity from HUD to
    consider condominiums, to include them? And also, let us go a
    step further. If there is a rental unit in the situation, and
    somebody could actually come in, buy with no downpayment, and
    they have got a rental unit, like two or three units. And so
    they almost become their own entrepreneur. Would you take a
    look at that, be willing to? Or is there a problem with that?
        Mr. Weicher. Well, with respect to your first point on
    condominiums and cooperatives, we would be willing to look at
    that. It would require a different scoring, because it is in a
    different insurance fund and has a different premium structure.
        With respect to allowing zero down for families that are
    buying two- to four-unit properties and planning to live in one
    and rent out the others, we have limited, in our suggestion,
    the bill to single-family homes. We certainly don't object to
    people buying two- to four-unit properties and becoming
    landlords, as you indicated. That is one way to build wealth.
    We do think that one ought to have some equity to take on a
    bigger project than owning your own home. We would think that
    looking at two to fours would be something we would do I think
    farther down the road.
        Chairman Ney. My time is running out, and I haven't talked
    to the gentleman from Columbus, Ohio, Mr. Tiberi. But I just
    think personally we have got to be open-minded in the sense
    that if you have a low-income person, and they don't have a
    downpayment, but they have that rental stream in there, you are
    almost creating, I don't want to say wealth, but you are almost
    creating an instant type of infusion of money into their
    checking account to help them pay for something.
        It is almost like if you are on a low income, you have to
    take this step first, and you have to have a downpayment, and
    then you have to get your own unit, and then you can go on to
    something that has a rental attached. I just think personally
    we ought to keep an open mind to that type of thing.
        The gentlelady?
        Ms. Waters. Mr. Chairman, I want to question how you set
    the criteria for other persons who would be requesting no
    downpayment. I recognize that you would be looking at the
    credit history, the same way that you would do in a regular
    lending situation.
        But given that there is no money on the front end, and I
    like that, does that mean now that it is going to be a little
    bit more difficult? Are you going to look a little bit closer?
    And who is eligible? Exactly who is eligible for this, and how
    do you review this person's ability to pay their mortgage?
        Mr. Weicher. Ms. Waters, the people that we expect to be
    helping would be typically young families, people with good
    jobs, people who have not built up the cash, the assets to put
    down the normal downpayment and closing costs.
        Ms. Waters. Excuse me if I interrupt you. Young families
    with good jobs. Define that a little bit better for me.
        Mr. Weicher. Well, I think steady jobs, jobs where the
    income from the job will cover the mortgage payment that is
    necessary to support homeownership. Families with stable jobs,
    but families who have not yet built up the equity to become
    homeowners. We expect to enable families. Some families will
    become homeowners sooner, and other families will become
    homeowners who would perhaps never become homeowners at all.
        We establish our criteria in terms of income and credit
    history, and we look at the debt that the family currently is
    supporting. And we require counselling for any family buying a
    home in the Zero Down Program. And we assess the
    creditworthiness of the borrower through our new mortgage
    Scorecard, the Total Mortgage Scorecard, which becomes part of
    a lender's automated underwriting system, and is the best
    predictor we have seen of the ability of a family to support a
    home.
        We can distinguish who is a good risk for us, and who is
    not as good a risk for us, better with that than we have ever
    been able to do before. And so we can reach a little farther
    down in the risk spectrum than we have been able to do.
        Ms. Waters. One of the problems we have had with predatory
    lending is, we have racial minorities who compare equally with
    whites in terms of income and what appears the ability to pay.
    And they are driven into sub-prime lending, while their
    counterparts, who are non-minority, are not. How do we avoid
    that kind of thing with giving consideration to who gets the no
    downpayment opportunity?
        Mr. Weicher. Well, I think you will hear from a number of
    representatives of industry groups who are certainly not
    predatory lenders about their interest in marketing this
    program to potential home buyers. I think you will hear that
    they see this as a way of reaching people that they are not now
    able to reach.
        I might say also that we have a second proposal, which is
    not directly the subject of this hearing, a legislative
    proposal called Payment Incentives Program, which is intended
    to reach families who would be in the sub-prime market, or in
    some cases who are in the sub-prime market, and enable them to
    access FHA as home buyers or as refinancers. And in that we are
    reaching down into the sub-prime market and helping families
    finance or refinance into FHA with the lower rates that FHA
    provides, compared to the sub-prime market.
        Ms. Waters. Thank you.
        Chairman Ney. Thank you. And I am going to ask also, Mr.
    Tiberi, Chair to the subcommittee, I have to go to
    Transportation. We have a markup. If I don't get to that
    markup, Columbus, Ohio may also lose some money somewhere, and
    LA, and other parts of the country. So, thank you.
        Mr. Tiberi. Commissioner, Ms. Waters mentioned the all-time
    high of 12-percent default coming in the end of last quarter of
    2003. How do you explain the default at 12 percent? And do you
    have concerns about this bill maybe contributing to what some
    opponents might say is an even higher default rate?
        Mr. Weicher. Mr. Chairman, the 12-percent figure is
    actually the mortgage bankers' reported overall delinquency
    rate; not defaults, but 30-day delinquencies, 60-day
    delinquencies, and 90-day delinquencies and longer. And
    defaults start at 90 days' delinquencies, certainly for FHA
    they do.
        Our 90-day delinquency rate, our default rate, if you will,
    is under 3 percent. The measure we use is our claim rate,
    foreclosures and claims. And when a lender forecloses on an FHA
    mortgage, we pay a claim, and the family loses the home. That
    rate, our claim rate, is running at 1.5 percent. And I might
    say that the rates peaked, all of those rates peaked in fiscal
    year 2003, and in the first part of fiscal year 2004. The year
    to date, all of those rates are down. Our claims are down
    slightly from where they were in 2003, our defaults are down
    from where they were in 2003. And this is what we expect.
        Claims, foreclosures are a lagging economic indicator. The
    economy turns up before the claim rate, the FHA claim rate, the
    foreclosure rate hits its peak, because families try to hang
    onto their home as long as they can, and they hang on during
    the downside of the cycle, but some of them are just unable to
    keep it up in the early stages of the recovery.
        So we see, in 2004, a normal pattern of improving defaults,
    improving foreclosures, improving claims, and we expect that to
    continue.
        Mr. Tiberi. How do the FHA rates compare with the
    conventional market rates?
        Mr. Weicher. Our rates are higher than the conventional
    market because we are there to take risks that the conventional
    market is not able to take. We have, of course, the full faith
    and credit of the Government of the United States behind FHA.
    We have it, we exist in order to help people who the
    conventional market cannot help because the risk is too great.
    We can do that. And we can do it, and we do it, without losing
    money.
        Mr. Tiberi. On the same subject, is the Department
    proposing any revisions of the Loss Mitigation Program as part
    of this effort?
        Mr. Weicher. Mr. Chairman, I am very happy to say that we
    have sent to you, to the Congress, for the 15-day review period
    a new proposed rule to establish treble damages for lenders who
    fail to engage in loss mitigation.
        We think this will certainly get the attention of the small
    number of lenders who, in our experience, are not actively
    pursuing loss mitigation as much as other lenders are, and we
    think this will help.
        But overall, we track the loss mitigation activities of all
    of our lenders. We have 25,000 lenders, and we have the data on
    the loss mitigation that each of those 25,000 is undertaking.
    And we track both whether they are engaging in loss mitigation
    and what the outcome is of loss mitigation.
        Our outcome on loss mitigation is very successful. Over
    half of the families who participate in loss mitigation have
    cured their default, are current on their mortgage within a
    year after they have gone into default and started loss
    mitigation. And we have never seen anything as successful as
    that.
        Mr. Tiberi. That is great. The mortgages in this area are
    understandably a bit more risky than the FHA standard 203
    product. How will your Total Scorecard assess the risks with
    this new program?
        Mr. Weicher. Well, the Total Scorecard takes into account a
    number of pieces of information about the loan, and about the
    borrower, and provides a judgment of whether the loan meets our
    standards automatically or should be referred for manual
    underwriting. The specific how is complicated, because it is a
    mathematical algorithm which produces the results.
        But we will require it to be used for every family who is
    participating in this program. And we know, from a lot of
    research that we did as we were developing the Scorecard, that
    this does a better job of predicting risk than anything we have
    seen, anything of ours or anything that we have seen from
    anyone else.
        At the high-risk end of our market, if I can put it this
    way, we can do a better job of distinguishing who is a good
    high risk and who is a bad high risk. And we can provide loans
    to families who we otherwise would not be able to provide it
    to. We think that will fit with Zero Down very, very nicely.
        Mr. Tiberi. Just a quick follow-up, and then I am going to
    turn it over to Ms. Lee. On that particular subject, what
    factors do you weigh most heavily?
        Mr. Weicher. We look at the terms of the loan. We look at
    the borrower's credit history. We look at the borrower's income
    and obligations against the income. There are half a dozen
    factors which we look at that fit into the Scorecard.
        Mr. Tiberi. Thank you. Ms. Lee.
        Ms. Lee. Thank you very much, Mr. Chairman. First let me
    just say this is, as I said earlier, a very interesting
    proposal, and I really do applaud HUD for attempting a program
    to target low- and moderate-income families with the Zero
    Downpayment incentive, really.
        But it does take a risk. Much like the affordable housing
    programs presented and performed by Fannie May and Freddie Mac
    take on actually the same target families. So that is why I
    think that the HUD mission of creating affordable housing is so
    important, and must stay in HUD.
        A couple things I would like to just ask you with regard to
    the counseling aspect of that. I am not sure, you said earlier
    that in the bill, or at least in the implementation of the
    program, you are going to require counseling. But I am not sure
    that that requirement, as the bill is written, is in that.
        And I would just like to ask you, Mr. Weicher, if you are
    familiar with the language in the bill that backs up what you
    said with regard to requiring the counseling for this new
    program.
        Mr. Weicher. Ms. Lee, the counseling requirement is in the
    Administration's proposal, and we are certainly prepared to
    work with you all to establish the counseling requirement in
    the legislation. It is certainly our intention.
        We believe, we know that counseling is important to enable
    borrowers to stay in their home, to buy the right home and stay
    in the home. And we included that requirement in our proposal.
    And we included it in our analysis of how the program would
    work.
        Mr. Tiberi. Good, okay. So Mr. Chairman, I would like to
    work on an amendment to this legislation that would put it, at
    least write it into the law. Because I think it is very
    important for you to have those tools, whatever you have, to
    ensure that you are covered on that front.
        Secondly, let me ask you how this whole issue with regard
    to predatory lending works with regard to this new program.
        Now, I understand that you will only allow lenders to
    participate in an FHA program if the loan is at a certain
    interest rate. But in a refinance position, how do you prevent
    an individual, a family, from being, say, targeted by predatory
    lenders who have received this downpayment assistance under
    this new effort? Is there any provision that says that we will
    not allow predatory lenders to participate in this no
    downpayment assistance program?
        Mr. Weicher. What we have is, we have the requirements that
    we have built into the program, which we think will discourage
    predatory lending. I think this relates to your previous
    question about counseling.
        The counseling requirement we believe will help borrowers
    know a predatory loan when they see one. And we also think that
    the Scorecard will identify whether a family is qualified for
    that loan.
        Beyond that, what we have been doing consistently is
    attacking predatory lending practices through FHA rule-making.
    We and FHA and this Administration have issued literally half a
    dozen final rules combating predatory lending, preventing
    flipping, preventing the sale of a property by anyone other
    than the owner of record, establishing qualifications for
    appraisers. And you can't really have a really predatory loan
    in many cases without an appraiser being involved in it.
    Qualifications for home inspectors.
        We think that we are attacking predatory lending across the
    board. And when we find predatory lenders, we sanction them,
    and we get them out of our program. I preside over the
    Mortgagee Review Board in the Department, which is six of the
    senior policy officials in the Department. And every two months
    we meet and discuss cases which our staff have developed about
    particular lenders who are abusing FHA's programs. And we
    sanction them, and we throw them out of the program, and we
    assess civil money penalties. And we certainly intend to do
    that here.
        Ms. Lee. So you think existing law then covers this new
    program?
        Mr. Weicher. We think it does. And we certainly intend to
    monitor it very closely, and we intend to monitor our lenders,
    some of whom are sitting behind me, very closely as this
    program unfolds.
        If I may say, the first time I came to HUD, Ms. Lee, which
    is literally 31 years ago, I came in the aftermath of a scandal
    where a homeownership assistance program was being abused by
    some builders and some lenders. And I was part of the group
    that cleaned up afterwards. And I am very cognizant of the
    importance of running this program for the benefit of the
    people that we are all here to help.
        Mr. Tiberi. The gentlelady's time has expired.
        Ms. Hart?
        Ms. Hart. Thank you, Mr. Chairman. You actually began to
    ask a question that I would like to have a more comprehensive
    answer to, if we can get it.
        Secretary Weicher, you started to talk about the criteria
    regarding the way an applicant is approved. And in your
    testimony you mentioned this FHA total technology open to
    approve lenders that you use as a Scorecard?
        Mr. Weicher. Yes.
        Ms. Hart. And you say that there are half a dozen criteria,
    but obviously they are ones that we typically would expect.
        Is there anything that is unique to this Scorecard that is
    different than a normal credit check that would be done for an
    applicant?
        Mr. Weicher. Well, we look at more than a credit check. We
    look at credit scores, we look at things like FICO scores. We
    look at the borrower's position. We look at the reserves that
    the borrower has. We look at the debt/income ratios and
    payment/income ratios. We look at the terms of the loan, as
    well. We are looking both at the borrower and at the purchase,
    at the loan, and seeing that they fit together.
        You could be a borrower with a very good credit score and
    all the other criteria, and be in a loan which you could not
    afford. We meld them together in looking at whether this
    borrower is a good risk in this loan. And we know that it
    works. There was a lot of research done on this, in this
    Administration and in the previous Administration, before we
    put Total in place last year.
        Ms. Hart. Can you elaborate on the kind of success it has
    had? Like why has it eliminated more people? Or what has it
    done to show you that it is successful?
        Mr. Weicher. On the one hand, it has identified some
    borrowers to whom we should not be making loans that we
    otherwise would have. And on the other hand, it has identified
    borrowers who we do make loans to, who we should make loans to,
    who we would otherwise have not done.
        It doesn't cut in one direction or the other. It allows
    finer distinctions as to degrees of risk, and it works both
    ways.
        Ms. Hart. Then would you say that the Zero Downpayment
    Program is something that would benefit----
        Mr. Weicher. Yes. And that is why we are requiring lenders
    to use the Total Scorecard in underwriting borrowers for this
    program.
        Ms. Hart. Are the lenders that you have discussed this with
    really excited about seeing something that can actually reduce
    their risk, as well? Is that what you think?
        Mr. Weicher. Yes. I think you will certainly hear from
    them, but we have certainly heard from major lending
    organizations and individual lenders, that they think this is a
    very good idea.
        I announced this on behalf of the Administration at the
    National Association of Home Builders convention around the
    time the President's budget was announced. And there was
    substantial enthusiasm there.
        I have spoken at the mortgage bankers' meetings, heard
    enthusiasm there, as well. And I have stressed that we are
    going to be monitoring performance under this program
    carefully, and I haven't heard anybody object.
        Ms. Hart. Okay, thank you. I yield back.
        Mr. Tiberi. Mr. Scott from Georgia.
        Mr. Scott. Thank you very much, Mr. Chairman.
        Mr. Weicher, how significant is the impact of home buyer
    education to the success of being a homeowner, in your opinion?
        Mr. Weicher. Mr. Scott, let me first say that we appreciate
    your co-sponsorship of the Zero Downpayment Act.
        Mr. Scott. Thank you.
        Mr. Weicher. And I want to say we appreciate the bipartisan
    support that we have had, the 32 Members, I believe, from both
    sides of the aisle who have supported this legislation.
        Answering your question directly, we think counseling is
    important, and that is why we are requiring it. We know that
    the families who have counseling in FHA have a better
    experience than the families who do not. And we know from
    studies which Freddie Mac has done and which analysts at a
    number of universities have done, including the Ohio State
    University, that counseling works. And we stress it.
        And as you know, of course, we have increased the funding
    for counseling in this Administration. We and the Congress,
    working together, have doubled the funding for counseling in
    this Administration. And we are asking you all for an
    additional increase, an increase of $5 million this year, half
    of which we anticipate will go to supporting counseling in the
    Zero Downpayment Program.
        Mr. Scott. This is an extraordinary program. I do believe
    that we could very well create six million new homeowners by
    2010, most of whom I believe could very well be minorities and
    African-Americans. This is an excellent opportunity to close
    this gap.
        But there is a risk. There is a considerable risk. You have
    had a program, a gifting procedure, non-profit groups who,
    through gifts, have been able to provide downpayments. And you
    did a study, your Inspector General. And it determined that
    there was tremendous downward pressure on foreclosures and
    defaults, and the risks were up.
        That could very well be exacerbated and increased when we
    move to Zero Downpayment, the potential for risk on foreclosure
    goes up. Counseling is extraordinarily important in this
    regard.
        Last week, before our Committee, we had a bill which my
    hope is that this Zero Downpayment legislation proves even more
    so, and your comments a few minutes ago, the need for housing
    counseling.
        However, when the question was put to you concerning
    getting additional help, if I am not mistaken, and hopefully
    you might correct that at this point, you left me with the
    impression that you might not be in favor of this office. You
    might not be in favor of this help. You might not be in favor
    of the toll-free number. You might not be in favor of these
    additional resources that Chairman Ney's housing counseling
    bill would offer.
        I certainly hope that you would take this opportunity to
    say that that is not so.
        Mr. Weicher. Let me comment on several points that you make
    there.
        We certainly support housing counseling, and I hope I made
    that clear last week and this week both. We believe that the
    program we are operating in the Office of Housing is a very
    successful program. That program represents more than two-
    thirds of the housing counseling grant programs of the
    Department. There are only two others, and both are much
    smaller and are targeted to specific populations for specific
    purposes.
        Our program has a toll-free number which we believe works
    well. Since the program does work well, we don't see an
    advantage to a restructuring of the offices that provide, that
    manage those programs.
        That being said, let me say that with you, we very much
    believe that what we are doing with Zero Down, what we want to
    do with Zero Down, what you all want to do with Zero Down is a
    very important way to promote homeownership for all Americans.
        We think, as you may know, 40 percent of FHA's first-time
    home buyers are members of minority groups. And we think with
    Zero Down that proportion will be higher. I certainly hope you
    are right that we can reach six million by the end of the
    decade.
        We are on track to meet and exceed the goal that the
    President announced a year and a half ago of five and a half
    million additional minority home buyers by the end of the
    decade. And this is going to be one important way of doing
    that.
        Mr. Tiberi. The gentleman's time has expired.
        Mr. Scott. May I--just one final point?
        Mr. Tiberi. One quick question.
        Mr. Scott. One quick point is that one of the reasons why
    this program and this Zero Downpayment Program will work is
    because of increased emphasis on financial literacy and
    homeowner counseling.
        I think you and I are certainly on the same path. However,
    if we do not make some alterations, say for instance within the
    toll-free number, to have, as I said before, a human being on
    the other end, and to be able to have the website, and be able
    to have these other things that are components, I think you
    will agree that our chances for success of this program goes
    down.
        My point is this. That one of the beauties of this program
    is the safeguards that are in it. One, limiting the program to
    potential borrowers who have been screened through the
    automated underwriting, and the use of credit scores. The
    increased borrower premium, which we are putting more
    responsibility on them.
        But the most important is that it will require the
    financial counseling. And if we do not have a two-way street,
    you can't counsel.
        So I do want to take this as another opportunity to allow
    you to work with us as we move our financial literacy and home
    counseling bill forward, to have an expanded open mind to
    understand that the success of the Zero Downpayment Program
    that you are embracing and I am embracing needs an additional
    infusion of housing counseling to be successful, that is
    tailored to this day and time to the very lower income and
    minority groups that you are trying to reach.
        Mr. Tiberi. Mr. Davis.
        Mr. Davis. Mr. Weicher, let me return to the area of
    questioning raised by Ms. Lee from California before she left.
        She had asked, I think, about why this particular bill
    doesn't contain anti-predatory provisions, why it doesn't
    contain specific stipulations or restrictions that would
    prevent entities that engage in predatory lending practices
    from participating or benefiting from this program. And I think
    that your answer was that HUD is already a very vigilant
    advocate against predatory lending, so it would somehow be
    redundant to include those provisions in this bill.
        Our colleague and Ranking Member, Mr. Frank, is sometimes
    fond of pointing out that this is not exactly an institution
    noted for its aversion for redundancy.
        Let me give you another crack at answering that question.
    Do you object to, or would you object to an amendment that
    included anti-predatory provisions in this bill?
        Mr. Weicher. I think the question would turn on what kind
    of provisions you all think would be appropriate.
        Mr. Davis. Give us a little bit of guidance.
        Mr. Weicher. Well, let me say, we have gone after predatory
    lending, and we continue to go after predatory lending----
        Mr. Davis. Well, when I say give us some guidance, give
    us----
        Mr. Weicher. I know. In all of our programs. I don't really
    see what we would add here in this program that we are not
    doing across the board in our current programs.
        I would need to sit down and talk with you and work with
    you to see if there are specific changes that would be
    appropriate for this program beyond it. But because we are
    vigilant in combating predatory lending, and we work at it
    hard, we don't make a particular distinction in this program.
        Mr. Davis. What are the three most significant things that
    you think HUD is doing right now to combat predatory lending?
    Don't give me a sermon on it, but just give me one, two, three.
        Mr. Weicher. The anti-flipping rule, which says that we
    won't insure a mortgage if it has been sold twice in 90 days.
        Mr. Davis. All right, so anti-flipping is one.
        Mr. Weicher. That is one. We prohibit the sale by anyone
    other than the owner of record. We will not insure a mortgage
    if you are selling a home that is owned by Mr. Scott.government
        Mr. Davis. That is number two.
        Mr. Weicher. Number three is we have established tighter
    qualifications for appraisers to qualify for the FHA appraiser
    right. That is three.
        Mr. Davis. That is number three. Would you object to
    including those three provisions in this bill?
        Mr. Weicher. I do not think they would be necessary in this
    bill, but we can talk about that.
        Mr. Davis. Would they be hurtful?
        Mr. Weicher. They would be putting in statute provisions
    which are regulatory, and provisions which are easier to
    improve by regulation than they are by statute. I think we
    would want to sit down and look at specifics with you.
        Mr. Davis. Well, one of the reasons we enact statutes
    around here is because we are trying to codify certain things
    that right now don't have the force of being law. And I think
    all of us on this Committee would certainly share your
    commitment and your attachment to these issues. And just to
    speak for one Member, I would encourage you to look favorably
    on an amendment to incorporate the things you described.
        And let me come at this in a little bit of a different way.
    I understand that HUD has touted its success in combating
    predatory lending. Let me try to go a little bit empirical
    instead of anecdotal about it.
        Over the last three years, can you give me some estimate to
    the degree to which predatory lending has declined, let us say
    beginning in 2001 with the beginning of the Bush
    Administration, to today, 2004, three years into the
    Administration? Can you give me some kind of an empirical
    assessment of what the extent of predatory lending would have
    been in the industry three years ago, and what improvements
    have been made in the last three years?
        Mr. Weicher. I think we would need to take it, if you will
    permit me, provision by provision, regulation by regulation.
        Predatory flipping was a particular problem in the
    Baltimore area at the beginning of this Administration. Our
    work on predatory lending, specific work with folks in
    Baltimore, and our new regulation have cut flipping down in
    Baltimore very sharply. I would have to give you the numbers
    for the record, but have cut it down very sharply.
        Mr. Davis. Well, let me ask this question to save time,
    because the clock is running on us.
        Mr. Weicher. Sure.
        Mr. Davis. Can you get for this Committee in writing a
    statistical analysis, nationwide, the degree to which predatory
    lending has lessened, and how the Administration's programs
    have helped reduce predatory lending in the last three years?
    Is that data that you think can be obtained and provided to us?
        Mr. Weicher. We can give you some data, Mr. Davis. We will
    give you what we can.
        Mr. Davis. And if I can just sum up this way, Mr. Weicher.
    The frustration I think some of us have on this side of the
    aisle is we understand the Administration's commitment, and we
    understand the statement that progress has been made, but I
    think some of us want to see what that means when you say that
    progress has been made. Because if we are going to take the
    position that we don't need additional statutory protections
    because the regulations are working, I would like to see what
    working means. I would like to see what empirically that means.
        I think other people on this side of the aisle would
    probably share that.
        Thank you, Mr. Tiberi.
        Mr. Tiberi. Thank you, Mr. Davis. Mr. Clay.
        Mr. Clay. Thank you, Mr. Chairman, for this hearing, and I
    thank Mr. Weicher for being here.
        Mr. Weicher, sometimes in our homeownership initiative we
    find that first-time home buyers have accumulated some savings.
    Under this bill, could this savings be applied to keep some of
    the costs down for first-time home buyers? Instead of them
    getting negative equity, couldn't they get positive equity
    under this bill?
        Mr. Weicher. Yes, Mr. Clay. If you have some savings to
    begin with, then you can certainly apply those savings to the
    downpayment and the closing costs. And if you have enough, you
    can certainly move into our regular program, and the insurance
    premium will be lower.
        If you are talking in terms of having some assets, some
    savings, but you don't apply them to the downpayment, then we
    do take into account, in the total Scorecard, the resources
    that the family has, the reserves that the family has which can
    be used for housing or other purposes down the road.
        Mr. Clay. Which may push them into a better program, as far
    as----
        Mr. Weicher. Right, sure.
        Mr. Clay.--interest rates and what-have-you, and insurance
    premiums.
        Well, perhaps we should build a sliding scale into this
    bill. What do you think about that?
        Mr. Weicher. Well, I think that we would prefer to see the
    Zero Downpayment Program enacted. That would enable families to
    participate with something more than zero down if they chose
    to.
        I think it would start to get very complicated to start
    modifying the premium structure, to make that kind of fine
    gradation on the premium structure, and still make sure of what
    the consequences are for FHA and for the home buyer.
        Mr. Clay. Well, you know, I guess I am thinking a little
    pessimistically. What if somebody qualifies under this program,
    and then within the first six months they lose their job and
    have to sell their home? They may end up owing money. And I
    guess I am kind of trying to preclude all of that from
    happening, and to at least leave somebody with something. I
    guess that is the way I am looking at it and approaching it.
        Mr. Weicher. Well, that is a reasonable concern. And we
    certainly try, in all of our programs, as do other lenders, to
    make sure that the people who are borrowing money from us are
    good risks to make the payments and maintain the home.
        And we all also know that some of the people to whom we
    loan money or whose mortgage we insure will not make it. And we
    have thought long and hard about that in developing this
    proposal. And we do take into account the buyer's overall
    financial resources in this program, and in any of our
    programs, as we consider whether or not they should qualify for
    it. And we expect the counselors will be looking at that, as
    well.
        Mr. Clay. Thank you for that. Do you support a national
    affordable housing trust fund to put more affordable housing
    online?
        Mr. Weicher. Mr. Clay, the proposals that I have seen would
    use the reserves of the FHA MMI fund to support a national
    housing trust. And those are the reserves we have to pay the
    claims and to cover the losses that we have on those families
    that do default on their mortgages, and that do lose their
    homes.
        And those resources, we have a statutory mandate to have an
    adequate capital reserve in the program. We are in excess of
    that mandate as established by the Grant and Gonzalez National
    Affordable Housing Act in 1990.
        But I don't see the social benefit of taking money that is
    intended to serve moderate-income, lower-income, middle-income
    first-time home buyers, and using it for low-income and
    moderate-income renters.
        And I might say also that the FHA reserves, if spent for
    any purpose, including a national housing trust fund, do score
    as federal outlays. That sometimes gets lost in some of the
    discussions I have heard about the national housing trust.
        Mr. Clay. Although the cap is at a surplus, you don't
    necessarily favor using that.
        Mr. Weicher. No, I do not. The last time I was at HUD in
    the Administration of the first President Bush with Secretary
    Kemp, we had to put the FHA MMI program on an actuarially-sound
    basis, because the fund was very close to being insolvent, and
    was not run, in the opinion of the outside auditors, on a sound
    basis.
        We, working with the Members of Congress at that time,
    working with such folks at Senator Sarbanes, who is still here,
    and Mr. Frank, we put a lot of effort into working out a
    balance between continuing to serve the people that we were all
    trying to serve, and making sure that the taxpayers were not
    put at risk. And I would like not to run that risk.
        Mr. Clay. Thank you for your answer. Thank you, Mr.
    Chairman.
        Mr. Tiberi. Thank you. Mr. Secretary, thank you for
    spending an hour and 15 minutes with us today. I look forward
    to working with you and officials at HUD on this proposal, and
    hopefully we can get something done for folks who would like to
    get into a house and can't at this point in time.
        Mr. Weicher. Thank you, Mr. Tiberi. Thank you and Mr. Scott
    for your introducing and supporting this legislation.
        Mr. Tiberi. Thank you. I will ask now that the second panel
    be seated. In the interim, I am going to submit for the record
    a letter from the National Association of Realtors, without
    objection.
        [The following information can be found on page 141 in the
    appendix.]
        Mr. Tiberi. Okay, thank you all. I am going to have a
    couple folks introduce a couple individuals. And I am going to
    start by introducing Ms. Carson from Indiana, who is in the
    middle of a markup, and I will allow her to introduce her
    guest.
        Ms. Carson. Thank you very much, Mr. Chairman. And thank
    you very much to the esteemed panelists for being here today.
        Unfortunately, I am not going to be able to hear all of
    your testimony, because I am in a markup in Transportation. But
    I assure you that I will refer to the record in terms of your
    invaluable input that you will leave for the edification of
    this Committee.
        During the interim, I want to welcome my constituent here,
    Mr. Michael Petrie, who is President of the PR Mortgage and
    Investment Corporation of Indianapolis, and he is also Chairman
    of the Greensfort Township State Bank in Spartasburg, Indiana.
    And he is also Chairman-elect of the Mortgage Bankers'
    Association. Welcome.
        Mr. Petrie began his mortgage banking career in 1980 at
    Merchant's Mortgage Corporation, as a commercial loan
    originator, and rose to the position of Executive Vice
    President in charge of the Commercial Real Estate Division.
    Petrie co-founded P/RMIC in August of 1990, which specializes
    in multi-family and health care financing through programs
    provided by FHA, DNMA, RHS, and Freddie Mac.
        Mr. Petrie currently serves as a member of the MBA Board of
    Directors, the Commercial Real Estate Multi-Family Finance
    Board of Governors, where he serves as Chairman of the
    Residential Board of Governors Resbag.
        He has previously chaired the MBA Board of Directors
    Technology steering, legislation, and MARPAC committees. He is
    currently a member of all these other wonderful things that I
    won't belabor at this particular time.
        Mr. Petrie received his Bachelor's in business
    administration, with a concentration in finance, and his MBA
    from our prestigious Indiana University. And it is certainly a
    joy to have you here, Mr. Petrie. Thank you so much for coming,
    as well as the rest of you, also, individuals. Thank you.
        Mr. Tiberi. Thank you, Ms. Carson. I am going to ask Mr.
    Scott to introduce a constituent of his from Georgia.
        Mr. Scott. I certainly will. Thank you very much, Mr.
    Chairman.
        We are delighted to have with us Pastor Warren L. Henry,
    Sr. He is the senior Pastor of the Kingdom of God Evangelistic
    Church Ministry, which is located in my district in Georgia, in
    College Park, Georgia.
        Pastor Henry also serves as the Vice Chairman of the
    Housing Authority of Fulton County, which is located in the
    Atlanta metropolitan area.
        Pastor Henry is also a chaplain for the Fulton County
    Sheriff's Department, performs invocation activities for the
    Fulton County Board of Commissioners.
        Pastor Henry is also very active in the community as a
    social activist. He chairs the faith-based organization that
    has been connected with the Housing Authority of Fulton
    County's Red Oak Renaissance Hope Six Project. He has also been
    active in community activities connected with the redevelopment
    of Red Oak, Roosevelt Highway, Ben Hill Road, and Washington
    Road, outstanding communities in my district located in South
    Fulton County.
        He also has several ministries which his church has focused
    on, in housing, child care, community and economic development
    activities.
        We are delighted to have this distinguished Pastor and
    leader of our community, Reverend Warren L. Henry. We look
    forward to your testimony.
        Mr. Tiberi. Thank you. I will speak loudly. Can everyone
    hear okay?
        Sheila Crowley is the President and CEO of the National Low
    Income Housing Coalition. Warren L. Henry, Sr., Vice-Chair of
    the Housing Authority of Fulton County in Atlanta Georgia.
    Thomas J. Finnegan, III, President of the Huntington Mortgage
    Group in Columbus, Ohio. Michael F. Petrie, President, P/R
    Mortgage and Investment Corporation, on behalf of the Mortgage
    Bankers Association and James R. Rayburn, President of the
    National Association of Home Builders.

     STATEMENT OF SHEILA CROWLEY, MSW, PH.D., PRESIDENT, NATIONAL
                      LOW INCOME HOUSING COALITION

        Ms. Crowley. Thank you, Mr. Tiberi. And I appreciate the
    invitation to testify today.
        This hearing on H.R. 3755, the Zero Downpayment Act of
    2004, provides a good opportunity to begin a discussion about
    the core assumptions surrounding the Bush and Clinton
    Administrations' policy of expanding homeownership in the
    United States.
        Homeownership is highly valued in our culture, and
    expanding access to homeownership for members of racial
    minorities who have historically been excluded from doing so is
    fair and just.
        The policy seems to be working. The rate of homeownership
    in the United States is higher than it has ever been, and the
    resources that the federal government expends to underwrite
    homeownership are immense. And they range from the combined
    value of the mortgage interest tax deduction, the real estate
    tax deduction, and reduced taxes on capital gains, which
    equalled $109.3 billion in 2003. All the way to the fact that
    we even use Section 8 vouchers for homeownership now. And last
    year Congress created the American Dream Downpayment Program.
        An FHA zero downpayment mortgage insurance product would
    add one more tool to the considerable two blocks that Congress
    has filled over the years to build homeownership.
        The main question seems to be whether or not potential
    homeowners should be able to obtain mortgages without putting
    any money down. Conventional wisdom is that they should not. A
    downpayment has traditionally been used to signal a borrower's
    commitment to the loan and ability to save enough funds in
    reserve to make payments on the loan, even if income is
    reduced.
        The lack of a downpayment has traditionally been used to
    prevent borrowers from obtaining a home mortgage, and therefore
    limiting access to homeownership only to people who already
    have developed a nest egg or who have family members who will
    give them a loan or give them the money. Many of us bought our
    first homes that way.
        Breaking down this barrier to homeownership is the
    objective of most homeowner assistance programs today, and I
    think there is no functional difference between a zero
    downpayment loan and a loan made possible because of a
    downpayment assistance grant to the borrower.
        The more important question is whether or not homeownership
    is the best form of housing tenure for all the families who are
    targeted by these programs. The idealization of homeownership
    with promises of wealth accumulation can push people into
    taking out mortgages before they are ready or they are able.
        The financial and emotional damage to a family from failure
    at homeownership is catastrophic. All the counseling--and
    counseling is extremely important--but all the counseling in
    the world doesn't manufacture income where it doesn't exist.
    Anyone whose income is anything short of reasonably permanent
    should be counseled to approach homeownership with caution, not
    enticed into taking a risk.
        There are 55 million low-income people in the United States
    today who live in homes they cannot afford, and almost half, 48
    percent of them, live in homes that are owned by the families
    that live there.
        The problem with this legislation is not what it does, but
    how far off the mark it is in addressing the most serious
    housing problem; that is, the shortage of rental housing stock
    that is affordable and available to the lowest-income families.
    And while the federal government is directing hundreds of
    billions of dollars into homeownership, the lack of basic
    rental housing causes millions of Americans to live
    precariously close to the edge of homelessness.
        Twenty-nine million low-income people in the United States
    live in rental housing they can't afford. Ten million of them
    live in renter households that have incomes at 30 percent of
    the area median income or less; that is about $19,000 a year in
    Columbus. And they pay more than half of their household income
    for their housing.
        Moreover, during the nineties, when we had the most
    expansive economy imaginable, analysis of rental housing cost
    changes in the last decade show slight improvements for all
    income groups but the very lowest. The shortage of rental
    housing units affordable for families with incomes of 30
    percent of the area median income or less actually grew by 15
    percent in the last decade.
        In 2000, for every 100 renter households in the United
    States with incomes less than 30 percent of the area median,
    there were only 43 affordable and available rental housing
    units. In Ohio the number is 53 affordable and available rental
    housing units for every 100. In California it is 22.
        What does it matter that low-income renters can't afford
    basic housing? Besides the obvious negative social consequences
    for the families, it is the renters who become homeowners. And
    renters who are unable to find and maintain stable rental
    housing that they can afford will never be in a position to
    become homeowners. If for no other reason than to expand the
    pool of potential homeowners, it is good public policy to
    invest in rental housing that the lowest-income families can
    afford.
        Once again, I urge this Committee to take up H.R. 1102, the
    National Affordable Housing Trust Fund Act, which will create
    capital grants to go to states and localities to distribute,
    through competition, to capable developers to build and operate
    affordable housing for extremely low-income renters.
        This is the missing tool in the affordable housing toolbox
    today.
        The premise of H.R. 3755 and all other federal housing
    programs is that the affordable housing problem in the United
    States will not be solved by the market and economic growth
    alone, and public intervention is required. H.R. 3755 is simply
    not enough.
        Thank you.
        [The prepared statement of Sheila Crowley can be found on
    page 73 in the appendix.]
        Mr. Tiberi. Thank you, Ms. Crowley. Pastor Henry.

      STATEMENT OF PASTOR WARREN L. HENRY, VICE-CHAIRMAN, HOUSING
              AUTHORITY OF FULTON COUNTY, ATLANTA, GEORGIA

        Mr. Henry. Good morning, and thank you, Mr. Chairman and
    Ranking Members for holding this hearing and inviting me to
    speak on behalf of our Fulton County Housing Authority, based
    in Atlanta, Georgia, on H.R. 3755, the Zero Downpayment Act of
    2004, introduced by Representative Patrick Tiberi, and co-
    sponsored by our esteemed Georgia Congressman David Scott.
        I do feel that our housing authority is uniquely qualified
    to speak on this piece of legislation. Our housing authority
    was one of the first public housing authorities in the state of
    Georgia to utilize the Section 8 Housing Homeownership Voucher
    Program to give our residents the opportunity to move from
    dependency to self-sufficiency through homeownership.
        However, the hurdle of bringing together the downpayment
    required to access this opportunity has often been challenging.
        Fulton County has been at the forefront of trying to find
    creative ways to address this issue. FHA programs have been
    used by our housing authority residents to gain access to
    homeownership opportunities. In fact, we believe the FHA
    programs are one of the best and cost-effective approaches to
    expanding lending opportunities to low- and moderate-income
    families, first-time home buyers, and minorities.
        In 2002 more than one-third of the FHA origination loans in
    recent years were made to minority householders, compared to
    just 18 percent of conventional loans.
        Additionally, more than half of FHA loans approved in 2002
    went to households earning less than $50,000, compared with 27
    percent of conventional loans in that same span of time.
        H.R. 3755 provisions which would allow for FHA to provide
    approved zero downpayment mortgages for first-time home buyers
    would allow FHA to maximize its fullest potential in assessing
    historically undeserved minority and economically-challenged
    communities. This would be achieved by using this new financing
    tool to help create and promote sustainable communities.
        Additionally, the obvious financial and social benefits
    with homeownership are self-evident. Homeowners can build the
    equity and potential capital liquidity that is the essence of
    full inclusion within our economic and social system.
        Obviously the acquisition of a home is an important
    responsibility that must be engaged with reverence and
    commitment. As such, we believe it is extremely important that
    anyone seeking to access FHA funding through this initiative
    should have the opportunity to seek housing counseling, where
    appropriate.
        Additionally, potential beneficiaries of this program
    should have the ability to access FHA, HUD, or other counseling
    programs, services, before during and through the loan approval
    process.
        H.R. 3755 is also important because it allows FHA to
    operate with the same efficiencies, objectives, and resources
    that will allow it to maximize its fundamental mission:
    providing housing resources to all Americans.
        Additionally, programs such as the Zero Downpayment Act of
    2004 have the ability to be revenue-generating. This is
    achieved through the eventual Federal Mortgage Insurance
    Premium revenues, that will be charged to the home buyers and/
    or property owners, that go directly to the Federal Treasury.
        As a member of the faith-based community and as a member of
    the Housing Authority of Fulton County Board of Commissioners,
    I know first-hand the transforming impact homeownership can
    bring to both individuals and to a community.
        Fulton County is blessed to have a number of areas where
    homeownership opportunities are expanding. However, in order
    for our county to truly fulfill its promises, as indicated in
    the HUD comprehensive planning document, which makes affordable
    housing the number-two priority of the county government, we
    will need to have the tools available to maximize the
    opportunity to expand housing options and choices for our
    residents.
        We believe, we truly believe the provisions contained in
    H.R. 3755 have the potential to take us a long way in achieving
    this goal, by allowing FHA to broaden its lending powers to
    more individuals desirous of homeownership.
        Consequently, we believe H.R. 3755 is a bill that takes FHA
    in the right direction. FHA has done a great deal of good work,
    but its principle mission to expand homeownership opportunities
    for all Americans has yet to be fulfilled.
        We believe the goals and objectives contained in H.R. 3755
    is an important step in this process, and would like for the
    Committee to give due consideration to this important
    legislation.
        On behalf of the Board of Commissioners of the Housing
    Authority of Fulton County and its Executive Director, Ms.
    Betty A. Davis, thank you again for the opportunity to testify
    today. We look forward to working with you to expand the
    opportunities of homeownership to as many deserving Americans
    as possible.
        Thank you again for this opportunity to speak with you this
    morning.
        [The prepared statement of Warren L. Henry Sr. can be found
    on page 98 in the appendix.]
        Mr. Tiberi. Thank you, Reverend Henry. I would like to
    introduce again my constituent, who used to be a Pennsylvanian,
    and their loss is our gain. Mr. Finnegan.

      STATEMENT OF THOMAS J. FINNEGAN, III, PRESIDENT, HUNTINGTON
                             MORTGAGE GROUP

        Mr. Finnegan. Thank you very much, Mr. Chairman. And thanks
    to Chairman Ney and Ranking Member Waters, and the other
    members of the subcommittee, to give me the opportunity to
    testify here this morning in strong support of H.R. 3755, the
    Zero Downpayment Act of 2004.
        And as you just mentioned, I am Tom Finnegan, President of
    Huntington's Mortgage Group. Huntington Bank is a subsidiary of
    Huntington Bank Shares, Inc., which is a $30 billion regional
    bank holding company in Columbus. And through our affiliated
    companies, we have more than 138 years' experience serving the
    financial needs of customers.
        We provide innovative retail and commercial financial
    products and services through more than 300 regional banking
    offices in Indiana, Kentucky, Michigan, Ohio, and West
    Virginia.
        I have been with Huntington for approximately eight years,
    and have over 25 years of experience in the mortgage industry
    and in working with FHA-insured loans.
        In 2003 my company funded $6.1 billion in mortgage loans,
    including $425 million in FHA-insured loans. And we currently
    service approximately $600 million in FHA-insured loans.
        And while of course the mortgage industry has experienced
    an exceptional upturn over the last few years, there are still
    many Americans who have not yet achieved the dream of
    homeownership. H.R. 3755 will significantly enhance the housing
    market by allowing lenders, such as ourselves, to extend
    mortgages to hard-working Americans with good credit who simply
    cannot afford the lump-sum downpayment traditionally required
    with FHA loans.
        At our company, our mortgage specialists, who are the folks
    who are responsible for counseling home buyers each day about
    their financing options, they report that saving for a
    downpayment is the single most common roadblock for first-time
    home buyers. And we find that many of these potential customers
    easily qualify for a mortgage payment that equals what they are
    currently paying in rent. These first-time home buyers have
    long rental histories, have made their payments on time, have
    solid income sources, and they do have the desire to purchase
    now. But they don't have the additional money saved for a
    downpayment.
        For example, if a potential buyer were purchasing a
    $190,000 home in Columbus, Ohio, the buyer's downpayment for an
    FHA loan in today's program would be 3 percent of the purchase
    price, or $5,700. In the event that this family was able to put
    aside $100 a month, it would take over five and a half years
    for them to save the downpayment and achieve their goal. The
    Zero Downpayment Act would allow this family to move into a
    home today. And lenders such as ourselves would embrace the
    program because the FHA would back the Zero Down Program, and
    borrowers would pay a slightly higher insurance premium to
    cover that exposure.
        And as an example for conventional 3-percent-down products
    backed by the FHA, Huntington charges, of course, the initial
    premium of 1.5 percent of the loan amount, or $2,850 on the
    $190,000 home in my example. The Zero Down loans would require
    a premium at 2.25 percent, or $4,275 on that same home, a
    difference of just $1,425. The premium, of course, would be
    added to the principle of the loan, and would be included then
    in the mortgage financing.
        Zero Down borrowers would see an increase from half of 1
    percent to three-quarters of 1 percent in their annual
    insurance premiums for the first five years of the loan. For
    our family purchasing the $190,000 home, this increase in
    monthly payment is under $100 a month.
        The option to pay higher insurance premiums instead of
    paying a large lump-sum downpayment will allow families to
    avoid losing the benefit, the time value of investing today,
    and begin immediately to build wealth and equity in their home.
        In addition, when families are not forced to spend their
    savings balances down to zero, they have the resources to cover
    unexpected emergencies and other expenses that are typically
    associated with homeownership.
        H.R. 3755 contains a number of safeguards to protect both
    borrowers and the housing market. As a lender, managing our
    credit portfolios and mitigating risk determines the success of
    our business, and our support and confidence in the Zero
    Downpayment Act is based on two important factors.
        First, the families that will be served by this program
    will still have to qualify for the financing, and meet at least
    the same credit standards as all Huntington FHA program
    borrowers would need to meet.
        In addition to meeting Huntington's and FHA's underwriting
    requirements, the borrower must be able to easily afford the
    monthly mortgage payment. Certainly underwriting of the Zero
    Down loans either manually or through the FHA's Total
    Scorecard, should focus on the borrower's capacity to make the
    monthly payment, as well as their credit history and their cash
    reserve position.
        As I mentioned previously, by substantially lowering the
    up-front cash required for the downpayment by the borrower, the
    program enhances the individual's ability to conserve cash for
    future needs.
        Second, the Zero Downpayment Act will build upon the track
    record and success of current FHA programs in expanding the
    dream of homeownership to low- and moderate-income families,
    which is a goal of ours, of course, at Huntington.
        As a lender that partners actively with the FHA, we have
    the confidence in FHA's ability to create a program structure
    that will protect and educate consumers, maintain a healthy
    lending environment, and grow the housing market.
        The built-in safeguards afforded by H.R. 3755 are
    preferable, in our opinion, to current market solutions to the
    downpayment roadblock. Like many mortgage loans, the current
    FHA program allows for gift funds to cover the required 3-
    percent downpayment. Many non-profits have recognized this need
    for downpayment assistance, and provide these gifts in
    partnership with home builders and home sellers.
        And we believe that the more direct approach offered by
    H.R. 3755 is preferable. It eliminates the need for additional
    involvement of third parties. It eliminates extra paperwork,
    and allows for the direct negotiation of a sales price with a
    home seller, without regard to the financing method being
    chosen.
        In closing, I reiterate Huntington's strong support for
    H.R. 3755. And we certainly thank Chairman Ney and you,
    Congressman Tiberi, for your leadership on this important
    legislation. By acting quickly, Congress can provide stimulus
    to the housing market, and help working families, particularly
    those in the low- and moderate-income communities, to achieve
    the American dream of homeownership.
        So again, thank you for providing Huntington the
    opportunity to testify today, and I welcome any questions.
        [The prepared statement of Thomas J. Finnegan III can be
    found on page 92 in the appendix.]
        Mr. Tiberi. Thank you. Mr. Petrie.

      STATEMENT OF MICHAEL F. PETRIE, PRESIDENT, P/R MORTGAGE AND
                         INVESTMENT CORPORATION

        Mr. Petrie. Good morning, Mr. Chairman, Chairman Ney,
    Ranking Member Waters, and Members of the Committee.
        Thank you for inviting the Mortgage Bankers Association to
    share its views on H.R. 3755, the Zero Downpayment Act of 2004.
    The Mortgage Bankers Association represents over 2700 members,
    with over 400,000 employees. Our members represent 70 percent
    of the residential mortgage market.
        As you know, the U.S. currently enjoys an all-time-high
    homeownership rate, 68.6 percent. However, MBA would like to
    draw attention to the 31.4 percent of households that do not
    own their own homes. The challenge that keep these families
    from reaping the benefits of homeownership include insufficient
    income poor credit, lack of information, and the problem we are
    addressing here today, the lack of an ability to provide the
    downpayment.
        The gaps in homeownership rates of minority households need
    to be addressed. In the fourth quarter of 2003, while 75.5
    percent of non-Hispanic white households owned their own homes,
    only 49.4 percent of black households and 47.7 percent of
    Hispanic or Latino households owned their own homes.
        MBA believes these minority homeownership gaps are a
    problem, and has provided every Member of the Committee with
    the exact size of the problem in his or her district.
        The downpayment hurdle disproportionately affects minority
    and low- and moderate-income families who may be able to make
    monthly housing payments, but find it difficult to save for the
    downpayment. MBA believes that in order to expand homeownership
    opportunities, we must overcome the downpayment challenge.
        We believe the FHA Zero Downpayment Loan Program can help
    address this specific challenge. In the past the amount of
    downpayment was considered an indicator of credit risk; that
    is, the willingness and ability of a borrower to make monthly
    payments on a mortgage.
        But lenders have learned over time that a borrower's credit
    profile is a much better indicator of the performance of a loan
    than is the amount of a downpayment.
        The national credit information system, preserved under the
    Fair and Accurate Credit Transactions Act of 2003, allows
    lenders to efficiently assess a borrower's credit information,
    and effectively evaluate risk. Automated underwriting systems
    have allowed lenders to accurately gauge multiple risk factors
    with less reliance on benchmarks like downpayments.
        MBA understands that FHA Zero Downpayment loans will be
    required to be underwritten through FHA's automated
    underwriting system, the Total Mortgage Scorecard, which
    specifically takes into account a borrower's credit score and
    cash reserves, among other criteria.
        MBA believes that using the Total Mortgage Scorecard will
    allow FHA to ensure a sound program.
        FHA has been an innovator in the mortgage market. By
    reducing the downpayment from 20 percent to 3 percent today, as
    it will insure mortgages up to 97 percent of the value of a
    property. MBA supports H.R. 3755 as an important, innovative
    next step for FHA to reduce the downpayment challenge. It will
    serve those families who, but for a wealth constraint, would
    otherwise make good borrowers, and will serve these families
    without cost to the taxpayers.
        It is important to note the benefits of FHA's Zero
    Downpayment Program will be realized without any cost to the
    taxpayers.
        Even with the higher default rates FHA is currently
    experiencing due to the recent recession, MBA believes that FHA
    currently has ample resources to cover these expenses. And the
    proposed higher mortgage insurance premium has been calibrated
    to cover any costs associated with the program.
        The fact is, with H.R. 3755, FHA could reach additional
    minority and low- or moderate-income families than it does
    today, and do so in a financially responsible manner.
        MBA applauds Congressman Tiberi for introducing this bill
    and demonstrating his commitment to closing the homeownership
    gap.
        Once again, thank you for allowing MBA to testify today. We
    would be happy to furnish any additional needed information to
    the Committee as it considers this bill.
        Thank you.
        [The prepared statement of Michael F. Petrie can be found
    on page 102 in the appendix.]
        Mr. Tiberi. I am impressed, right under the five minutes.
    That is very good.
        Mr. Rayburn.

    STATEMENT OF JAMES R. RAYBURN, PRESIDENT, NATIONAL ASSOCIATION
                            OF HOME BUILDERS

        Mr. Rayburn. Mr. Chairman, Ranking Member Waters, Members
    of the Committee. On behalf of the more than 215,000 members of
    the National Association of Home Builders, thank you for the
    opportunity to testify before you today.
        My name is Bobby Rayburn, and I am the President of NAHB. I
    am a home builder and developer of affordable single-family and
    multi-family housing from Jackson, Mississippi.
        Let me begin by saying that NAHB supports H.R. 3755,
    introduced by Representatives Pat Tiberi and David Scott. This
    legislation continues a long tradition of innovation at FHA by
    addressing a primary obstacle preventing many minority and low-
    and moderate-income families from becoming homeowners. They
    simply do not have the money for a downpayment.
        H.U.D. estimates that 150,000 families would be able to
    achieve homeownership if this proposal is enacted. Furthermore,
    it enables FHA to do so in a prudent manner, without negatively
    impacting the Mutual Mortgage Insurance Fund.
        According to a Census Bureau study, one of the top reasons
    why families and individuals could not afford to purchase a
    home was the inability to come up with the up-front cash needed
    for closing. Recent data from the Federal Reserve indicate 87
    percent of all renters have less than $50,000 in wealth
    available for making a downpayment. For minority renters, that
    figure rises to 94 percent. With so little wealth and absent
    some downpayment assistance, it is difficult for large numbers
    of renters, especially minority renters, to become homeowners.
        Also, many of these families are not served by conventional
    mortgage products. Currently, the chief way to address
    downpayment barriers for FHA borrowers is through downpayment
    assistance programs facilitated by non-profit third parties.
    While these programs have contributed positively to
    homeownership expansion efforts, more options are needed. H.R.
    3755 addresses the downpayment hurdle, while allowing FHA to
    establish mortgage insurance premiums, underwriting and
    counseling requirements targeted to this financing program.
        Since a significant portion of the population is not served
    by existing downpayment assistance options, NAHB believes a
    zero downpayment program will meet these needs, and fits well
    into the mission of FHA.
        I would like to take a moment to expand on why NAHB further
    believes that this program can be carried out in a safe and
    sound manner, without harm to FHA.
        First, the ability to differentiate between high and low
    credit risk borrowers has been enhanced through technological
    improvements in automated underwriting. This allows better
    evaluation of borrowers before bringing them into the program.
        Second, the risk to FHA has been mitigated through risk-
    based pricing, such as proposed by HUD, in the form of higher
    up-front and annual mortgage insurance premiums. HUD estimates
    that this approach results in no net cost to FHA, and increases
    the monthly payment on a $100,000 mortgage by only $50.
        Finally, housing counseling can lower the risk to FHA by
    ensuring that prospective first-time home buyers understand the
    responsibilities of actually being a homeowner. The value of
    these programs is well documented. However, NAHB believes that
    HUD's approach to counseling could be more effective.
        The building industry supports the methodology to
    centralize and streamline and enhance housing counseling
    services at HUD, taken under H.R. 3938, Expanding Housing
    Opportunities Through Education and Counseling Act, introduced
    by Chairman Ney. This proposal provides tools to open doors to
    homeownership, while putting forth the resources to help keep
    home buyers in their homes.
        In an effort to expand homeownership opportunities even
    further, NAHB suggests that H.R. 3755 be amended to include
    condominiums and cooperatives as eligible options. In many
    communities these homeownership alternatives are more within
    the reach of low- and moderate-income families than single-
    family detached homes, and can provide the same wealth-building
    and community development benefits.
        Mr. Chairman, thank you again for the opportunity to share
    our views on the Zero Downpayment Act of 2004. The members of
    NAHB daily work with families who want to achieve the American
    dream and own their own first home. As NAHB's President, I have
    made housing America's working families a priority, and I
    believe that H.R. 3755 will expand the number of those who can
    share in the dream of homeownership, and help address our
    nation's work force housing problem.
        We look forward to working with this Committee, the
    Congress and the Administration on expanding homeownership
    opportunities.
        Thank you.
        [The prepared statement of James R. Rayburn can be found on
    page 116 in the appendix.]
        Mr. Tiberi. Thank you, sir. I want to thank all of you for
    your testimony today, and again reiterate what Chairman Ney
    said at the outset of the hearing. Unfortunately, we are
    competing with a number of Committees that have votes today,
    and that is why only Mr. Scott and I are left. But we will try
    to make up for the lack in numbers here with you today.
        But thank you, your testimony was very, very good.
        Mr. Finnegan, I will begin with you. You and I had an
    opportunity to be at an event together with Chairman Ney in
    Columbus, and also the President of the Columbus Urban League,
    who stated that they have a housing expo every year, minority
    homeownership expo. And they have found consistently, on a
    yearly basis, that the number one roadblock to homeownership is
    coming up with the downpayment. And you stated so as well in
    your written testimony.
        Also in your written testimony, on page three, you stated
    that families served by this program, meaning the Zero
    Downpayment Proposal, will still have to qualify for the
    financing and meet at least the same credit standards as all
    Huntington FHA program borrowers.
        Could you kind of explain to us the underwriting process
    that lenders like Huntington go through? And the differences
    between an FHA mortgage-backed insurance product and a
    conventional one?
        Mr. Finnegan. Well, the FHA underwriting process has
    historically been a manual process, going back in time, where
    the underwriter would take into consideration the traditional
    elements of risk, including a capacity to pay. There are, of
    course, FHA underwriting guidelines that are promulgated that
    underwriters of these products have to follow.
        And the capacity of the person to pay, the reserve position
    that they do have, and their unique circumstances in terms of
    their employment, stability of employment, and so on are
    factored into the underwriting process by the FHA-delegated or
    direct endorsement underwriter.
        And it differs from the conventional underwriting process
    to the extent that the FHA program is, in fact, a program that
    has set out to enable people to reach deeper into the
    population in terms of the ability to own a home, and that is
    factored into the underwriting process in terms of the credit
    background and so on, compared to conventional underwriting
    guidelines.
        The new FHA Total Scorecard will now automate that process
    to a degree. And as has been mentioned a number of times today,
    including in my testimony, Mr. Chairman, the FHA Total
    Scorecard will be a great assist to our FHA underwriters in
    making the determination about creditworthiness of the
    borrowers. So that in this program, where the downpayment is
    being eliminated as part of the process, the Scorecard will
    help us to look at the other factors more carefully, so that
    risk is mitigated, despite the fact that it is a zero down
    program.
        Mr. Tiberi. Are there any products in the private sector or
    in the general market that can meet some of the demand for zero
    downpayment, in your opinion?
        Mr. Finnegan. Mr. Chairman, there are some products like
    that out there. Certainly market forces have been at work. And
    including the FHA program itself has been mentioned there are
    gift programs that are available, where somebody can supply a
    gift to the homeowner, and that can be used in lieu of the
    downpayment.
        During that process, though, other factors are at work.
    That money has to be funded from someplace, and typically there
    is a housing price adjustment that may be necessary in those
    programs in order to allow the funds to be available for the
    non-profit or the gift giver to make the gift.
        And again, we feel that the direct approach offered by H.R.
    3755 is preferable, because it eliminates the additional effort
    associated with trying to negotiate into the sales price of a
    home the fact that there is going to be a gift required. And in
    the bill, the seller of the property will just be allowed to do
    that direct approach.
        There are also conventional programs, zero down.
    Huntington, in its efforts to serve low- and moderate-income
    communities, does have programs that are at or near zero down
    that we do in targeted low- and moderate-income census tracts
    for the benefit of low- and moderate-income buyers in those
    communities as a way for us to reach deeper into those
    communities. And we are perfectly willing to do that in the
    appropriate circumstances.
        But again, an additional tool in the form of the FHA
    program is most welcome by us as a way to expand our resources
    to reach into those communities.
        Mr. Tiberi. Thank you. I just want to take a few extra
    minutes. Mr. Rayburn, if you could answer this question
    quickly.
        You mentioned in your testimony about adding condos and
    cooperatives. Chairman Ney earlier today mentioned that, as
    well. How about two-families, doubles, tri-families, four-
    families, in terms of getting some folks to help you, renters
    helping you meet the mortgage payment? Is that something that
    you think we should look at, as well?
        Mr. Rayburn. While those are always attractive, it just
    brings on additional management skills and the like. But we
    would certainly welcome that as an alternative, yes, sir.
        Mr. Tiberi. And one final question. On Monday your
    organization was at a forum to discuss housing affordability,
    and there was a considerable amount of discussion regarding
    local zoning and government regulation and what that does to
    increased housing costs. As a former realtor, I certainly saw
    how local government and state government can sometimes add to
    the cost of affordable housing.
        Is there anything that Congress can do? What are your
    thoughts?
        Mr. Rayburn. Well, we would certainly welcome that
    opportunity, I can assure you, Mr. Chairman. Because local
    units of government, in some cases state governments, add a lot
    of dollars to all housing, let alone the entry-level and
    affordable housing, both on the ownership side, as well as
    rental.
        Now, when it comes to impact fees, large-lot zoning and the
    like, we would certainly be glad to have our staff sit down
    with you and come up with better ways that the Congress could
    address that. We would be glad to do so.
        Mr. Tiberi. And you would agree that sometimes some of
    those regulations would add a barrier to downpayments?
        Mr. Rayburn. Most often.
        Mr. Tiberi. Thank you. I appreciate that.
        Mr. Scott.
        Mr. Scott. Thank you, Mr. Chairman.
        Let me ask Pastor Henry. I certainly appreciate your
    statement and coming up, we are delighted to have you.
        There are some who are concerned that this no downpayment
    program will have an unintended effect of enticing people into
    homeownership who are simply not ready for this awesome
    responsibility, and feel that it will result in foreclosures,
    and could very well put the FHA insurance fund at risk.
        What is your response to that? And how could that be
    prevented?
        Mr. Henry. Congressman Scott, there are thousands of
    citizens that have a desire to become homeowners, that if we
    just looked at those numbers, we would never be able to
    entertain those who may cause that kind of problem.
        But be that as it may, such as the Housing Authority of
    Fulton County, we have provided what we think is one of the
    best-recognized housing programs, due to the fact that we
    provide counseling. We provide excellent housing counseling
    that will take our residents from their present state of being,
    with their problems with credit, their debt problems, and begin
    to work them through a process to eliminate and remove those
    creative challenges that they have, allowing them to save their
    money and understand the responsibilities of becoming a
    homeowner.
        Since 2002 we have successfully put a number of residents
    into homes. And even at this present time, they have no problem
    paying their mortgage, because we constantly stay with them.
        I think that housing counseling for individuals who have
    the American dream to own a home, that that provision should be
    provided. And this bill certainly will do that.
        But I think the housing counseling, as you reiterated and
    stressed, is a key. And I think again that our housing
    authority is an example of the success, that it does work when
    you first give individuals the sense of having dignity, to own
    a home, and working with them, helping them to believe that
    they can become that homeowner.
        Mr. Scott. Thank you very much.
        Mr. Rayburn, you had mentioned--and incidentally, we
    appreciate the plug you put in for the Ney/Scott Housing
    Counseling Bill.
        Mr. Rayburn. Thank you, sir.
        Mr. Scott. We are eagerly moving ahead for that very
    strongly.
        The safeguards that we have built in here to try to make
    sure that these foreclosures and the risks that we are taking
    is limited, out of the four of them, three are basically policy
    items to do: the credit scores, the automatic underwriting, the
    increasing of the borrower's premiums, and limiting eligibility
    to first term.
        But the other safeguard is the housing counseling and the
    financial literacy. And you pointedly made reference to the
    Ney/Scott bill. How essential do you feel it is that, as we
    move forward with this additional venture, especially when we
    are dealing with persons that have not had a home before, one
    of the requirements is that this be a first homeowner, how
    important do you feel the Ney/Scott bill would be as an adjunct
    to this?
        Mr. Rayburn. Congressman, I believe it is very important.
    As I testified, it is so essential that we help train those
    families and educate those families in the responsibilities and
    opportunities of homeownership.
        As I stated earlier in the very first of my testimony, I am
    an affordable housing builder of both single-family homes for
    owner occupancy, as well as for multi-family rental
    opportunities.
        While the goal is always to move families from those rental
    units to homeownership, and not all of them will make it, but
    even in the rental units what we do is to work with the various
    different agencies that already provide the case management,
    the GED education in so many areas, and on and on and on, to
    help and promote the idea that you, too, can become a
    homeowner.
        And we do not practice what is probably being alluded to in
    some of the written testimony, and maybe some of the oral
    testimony. We don't believe it is the right thing to do to park
    people in a rental unit forever, and not give them an
    opportunity. We believe that it is the right thing to do to
    educate them and help them become a homeowner. Always have the
    goal of homeownership there. But you have to provide the
    education first.
        Mr. Scott. Absolutely. Thank you very much.
        Mr. Tiberi. Mr. Scott, if you could wrap up the question,
    we will give Mr. Sanders an opportunity.
        Mr. Scott. Yes. Ms. Crowley, you mentioned your concern
    about the rental aspect of housing in your statement. But I
    wasn't clear where you came down on this bill.
        Most of your comments were on what you felt was the real
    issue here in affordable housing, as dealing with the
    affordable rental housing. What is your opinion of this
    legislation we have before us, the Zero Downpayment?
        Mr. Tiberi. The gentleman's time has expired. Ms. Crowley,
    go ahead and answer the question.
        Ms. Crowley. We don't have any particular objection to the
    bill. We have some concerns about the lack of specificity
    around some of the requirements in the bill itself. We have
    looked at the bill. We have many members who have weighed in on
    this bill, and there are varying opinions about it.
        As I said, our concern is, as one of our members said to
    me, this is like taking an eyedrop to fill up a bucket. And it
    is a small piece to add to all the larger pieces. But it is
    still off-target.
        And if we really want to do something about expanding
    homeownership in a significant way in this country, and we
    really want to have a healthy, solid housing system, you can't
    neglect rental housing at the cost of homeownership.
        So we think that there needs to be balance. And that is
    what the basis of our statement is from.
        Mr. Tiberi. Mr. Sanders.
        Mr. Sanders. Thank you very much, Mr. Chairman.
        Ms. Crowley, I agree with your assessment of the Zero
    Downpayment concept. I don't think it is a bad idea; I think it
    may help some people.
        The negative of it might simply be that it will deflect
    attention from the real crisis facing this country.
        I know your organization has been working very hard on the
    National Affordable Housing Trust Fund, which now has 211 co-
    sponsors in the House.
        What has amazed me about the work that your organization
    has done in support of this is the number of organizations from
    all walks of life that have jumped in to support the Affordable
    Housing Trust Fund concept.
        How many organizations are there? And why would even many
    business groups show the kind of support that they have?
        Ms. Crowley. The exact number at this point is 4,960-
    something. They come in every day. We are adding elected
    officials. The most recent elected official who came on was the
    Mayor of Dayton, Ohio. So we not only have non-profit and
    faith-based groups, but growing numbers of state and local
    officials who are interested in this.
        And you know, the simple answer to your question about why
    businesses would care about this is that they are in a
    community where there is insufficient housing for everybody
    that they need in their work force, then they have a hard time
    filling out the jobs that they offer. And you can see in any
    community, for any community to be viable there is a range of
    jobs that have to be filled. And if you don't have a range of
    housing that matches the people and the income in those jobs,
    then you have some kind of, there is a mismatch. And you end up
    with people who have serious commutes that inhibit their
    ability to do their job. All those kinds of things.
        So there should be balance in any community between what
    the work force is and what their housing needs are, and we are
    out of balance.
        Mr. Sanders. Let me just pick up on that point. We have
    heard, appropriately enough, the importance of education in
    terms of homeownership, and I think nobody argues with that.
        But in order to have decent housing, you need decent
    income. And the reality is that in America, poverty is growing
    pathetically, in my view. The minimum wage here in Washington
    has not been raised for many years, and people are earning
    $5.15 an hour.
        Now, your organization did a study which talked about
    housing accessibility for lower-income people. If I am out
    working for six, seven bucks an hour, am I able to afford
    decent housing for my kids in many parts of America? Could you
    touch on that?
        Ms. Crowley. You are referring to our study called ``Out of
    Reach,'' where we calculate the housing wage. And that is what
    one must earn per hour, if you work full time, in order to be
    able to afford modest rental housing. And on a national basis,
    that is $15.21 an hour.
        Mr. Sanders. Say that again. You need to earn more than $15
    an hour to be able to, what, rent?
        Ms. Crowley. Yes. To be able to afford basic rental
    housing, meaning that $15 an hour, if you work full time, 40
    hours a week, 52 weeks a year. In order to be able to afford
    basic rental housing, meaning you don't pay more than 30
    percent for your housing, which is the standard of
    affordability.
        Mr. Sanders. And I think there is no argument up here, or I
    would trust down there, that there are tens of millions of
    American workers who do not make that.
        Ms. Crowley. And that is aggregated on a national basis. It
    ranges from about $8 an hour in rural places to the San
    Francisco Bay area, $33 an hour.
        And minimum wage, full-time minimum wage work is $10,700 a
    year. And so in all cases, there is no place where a minimum
    wage worker can afford basic housing.
        So there is a huge gap. And people often think when we are
    talking about extremely low-income people that we are not
    talking about people who are in the work force. And that is
    simply not the case.
        As I said, in Columbus, the extremely low-income level is
    $19,000 a year. Well, you know, there is a big difference
    between minimum wage at $10,700 and $19,000 a year. And those
    are all the people who go to work every day, to do the things
    that are required for the rest of us to do our work every day.
        Mr. Sanders. Right.
        Ms. Crowley. So they are an integral part of our economy
    and our system. They are the people who work in day care
    centers, they are the people who work in nursing homes, who
    serve you your coffee when you go to the coffee shop in the
    morning, a whole range of people.
        Mr. Sanders. Mr. Chairman, I thank you for this hearing. I
    think it has been useful, and I think this legislation is a
    reasonable idea.
        But I don't think there is a lot of disagreement that,
    given the enormity of the housing crisis, that this legislation
    addresses it. I would appeal to you, as I did to Mr. Ney, to
    have a hearing on the National Affordable Housing Trust Fund,
    which has 211 co-sponsors.
        Mr. Tiberi. Thank you.
        Mr. Sanders. Thank you very much.
        Mr. Tiberi. The gentleman's time has expired. I want to
    thank the witnesses of the second panel. Unfortunately, we have
    four votes. So if the third panel can get ready, we will be
    back, at least I will be back, in 30 minutes--I can't speak for
    anybody else--to reconvene the third panel. Thank you for your
    patience.
        And again, thank you, second panel.
        We will officially be recessed for 30 minutes.
        [Recess.]
        Mr. Tiberi. Welcome back. I guess you guys have probably
    been here. Let me apologize again. I am sorry for the--boy, not
    only did it clear out up here, it cleared out over there, as
    well.
        Thank you for your patience. I really appreciate it on this
    very busy day.
        Let me just go ahead and introduce the third panel.
        Deane Dolben is the President of the Dolben Company, Inc.
    He is testifying today on behalf of the National Multi-Housing
    Council and the National Apartment Association. Thank you very
    much for being here.
        Conrad Egan is the Executive Director of the National
    Housing Conference, having previously served as Executive
    Director of the Millennial Housing Commission. Thank you for
    being here, sir.
        Basil Petrou is the Managing Partner of Federal Financial
    Analytics, Inc., providing financial and analytical services on
    legislative and regulatory issues. Thank you for being here.
        Scott Syphax is President and CEO of the Nehemiah
    Corporation of America. The Nehemiah Corporation is one of the
    largest non-profit community development organizations in the
    country. Thank you for being here.
        Let me pass on the next person just for a second, and go to
    the final person.
        Ann Ashburn is the President and CEO of AmeriDream, Inc.
    Ms. Ashburn has also served as the Co-Chairman of the National
    Association of African-Americans in Housing Homeownership Task
    Force. Thank you for being here.
        And finally, a constituent of mine, live and in person from
    Columbus, Ohio. I would like to thank Jerome Witcher, who is a
    realtor for Art Lee Realtors in Columbus, Ohio. Thank you for
    being here today, Mr. Witcher.
        With that, I would like to remind everybody that, without
    objection, your written statements will be made part of the
    record. You will be recognized for a five-minute summary of
    your testimony, and afterwards you will be asked questions by
    Members of the Committee, or at least, me.
        With that, let us begin with Mr. Dolben.

     STATEMENT OF DEANE DOLBEN, PRESIDENT, THE DOLBEN COMPANY, AND
                DIRECTOR, NATIONAL MULTI-HOUSING COUNCIL

        Mr. Dolben. Thank you very much. Chairman Tiberi and
    distinguished members of the subcommittee, my name is Deane
    Dolben. I am President of the Dolben Company, which operates
    approximately 8,000 apartment homes in Massachusetts, Maryland,
    Michigan, New Hampshire, Rhode Island, and Virginia.
        I am also the 2004 President of the National Apartment
    Association, and a Director of the National Multi-Housing
    Council.
        It is my pleasure to testify today on behalf of the NMHC
    and the National Apartment Association. NAA's than 30,000
    members provide rental homes to more than 5 million families
    across America.
        We commend you for your leadership, and we thank the
    members of the subcommittee for your valuable work addressing
    the important issue of housing in America.
        You may wonder why two rental housing organizations are
    testifying on a bill to create zero downpayment mortgages for
    homeownership. Actually, we also support homeownership. In
    fact, many apartment firms sponsor rent-to-own programs.
        But we also believe that there is such a thing as too much
    homeownership. And the time has come to ask whether a
    homeownership above all else, and at any cost policy, is wise.
        Three key facts have been overlooked, as the homeownership
    bandwagon has gained steam.
        First, not everyone has the means to own and maintain a
    house.
        Second, too much homeownership is not good for local
    communities.
        And third, not everyone wants to own a house.
        I know some will assume that we are only concerned about
    our profits. But the impact of this initiative on our profits
    is negligible.
        Harvard University estimates that even if the homeownership
    rate rose by 3 percentage points over the current decade, there
    would still be up to 6 million new renters, more than enough to
    fill the nation's apartments. When it comes to profitability,
    housing is not a zero-sum game.
        However, the federal budget is a zero-sum game. And every
    dollar allocated to homeownership incentives is a dollar taken
    away from other housing programs that can more effectively
    address our most pressing housing needs, such as suburban
    sprawl, urban decline, the affordable housing shortage, and the
    need to house our aging citizens.
        We also risk harming hard-working families when we oversell
    homeownership. Currently, 51 percent of working families with
    critical housing needs are owners, not renters. And the only
    group whose housing conditions worsened between 1999 and 2001
    were low- and moderate-income homeowners.
        FHA foreclosures are already at record levels. In fact, in
    Philadelphia some people are trying to suspend the city's
    foreclosure auctions, because they say that ``this is the worst
    time for foreclosures basically since the Great Depression.''
    And that hundreds of people are losing their homes every week.
        With no cash reserves, a growing number of households are
    one paycheck away from financial disaster. Therefore, at a
    minimum, any new homeownership incentive needs to be supported
    with substantial counseling resources.
        Too much homeownership is also not good for our
    communities. If new owners cannot afford to maintain their
    homes, the value of nearby homes drops. Communities also lose
    much-needed tax revenue, and incur high costs associated with
    vandalism and other social problems when homes are abandoned.
        One research report says that total losses to all
    stakeholders conservatively average $73,300 per foreclosed FHA-
    insured loan, and $26,600 per foreclosed conventional loans.
        Too much homeownership creates other economic costs. One
    study estimates that a Minneapolis/St. Paul region forgoes $265
    million per year in consumer spending and business income
    because it lacks sufficient housing for essential employees.
        This country has a real housing problem it needs to solve,
    but it cannot be solved exclusively on the back of
    homeownership.
        Further, while homeownership can be fantastic,
    unsustainable homeownership does not serve anyone. We need to
    refocus our limited resources on those programs that can serve
    the most families dealing with critical housing needs.
        We urge you to support a housing policy that is balanced,
    encourages production, and reduces overall housing costs.
        Thank you for the opportunity to testify today.
        [The prepared statement of Deane Dolben can be found on
    page 84 in the appendix.]
        Mr. Tiberi. Thank you. Mr. Egan.

        STATEMENT OF CONRAD EGAN, PRESIDENT AND CHIEF EXECUTIVE
                  OFFICER, NATIONAL HOUSING CONFERENCE

        Mr. Egan. Thank you, Mr. Chairman, for the opportunity to
    appear before you and other members of the subcommittee about
    H.R. 3755, the Zero Downpayment Act of 2004, on behalf of the
    National Housing Conference.
        First of all, let me state very strongly that the
    Conference supports H.R. 3755, but even more strongly with a
    great sense of caution.
        Let me, first of all, tell you why we support 3755. First,
    by reducing the FHA single-family downpayment to zero under
    certain circumstances, more families would be able to purchase
    homes. These families would otherwise be unable to begin to
    accumulate assets and grow wealth through homeownership.
        Secondly, to the extent that homeownership stabilizes and
    improves communities, H.R. 3755 would support those positive
    outcomes.
        Third, when administered in a safe and sound manner, H.R.
    3755 would add value to FHA's book of business and its volume,
    thus increasing its viability.
        And finally, fourth, an FHA Zero Downpayment Program would
    bring FHA's national standardization in underwriting, pricing,
    and practices to a newly-emerging segment of the market.
        However, and here comes the qualifications, NHC's support
    of H.R. 3755 comes with a strong cautionary note. Although we
    applaud HUD's intentions to require pre-purchase counseling, to
    raise the up-front MIP to 2.25 percent, and to maintain high
    credit quality standards, we would further suggest that HUD
    incorporate additional safeguards in its administration of the
    program. Including, first of all, additional post-purchase
    counseling and crisis intervention assistance, paid for by HUD
    funding, and provided by bonafide HUD-approved agencies with
    mandatory referrals of loans more than 30 days delinquent.
        I, too, want to add my support to the Ney/Scott Bill, H.R.
    3938, and would note that it does specifically include post-
    purchase counseling.
        Secondly, without diminishing availability to creditworthy
    borrowers, higher than usual credit standards for both payment
    ratios and FICO scores accompanied by higher than normal
    sampling ratios of lending practices.
        Third, tight appraisal standards.
        Fourth, careful and quick attention to any concentrations
    of defaults and foreclosures that may occur.
        And finally, fifth, effective collaboration with local
    officials, agencies, and organizations to ensure positive
    community outcomes.
        In summary, Mr. Chairman, we would suggest that following
    enactment, this product be treated as a trial program, with
    careful attention to ensuring the ongoing actuarial viability
    of the product, and very close monitoring, possibly by third
    parties, to ensure positive outcomes for borrowers and
    communities.
        Assuming that these safeguards and procedures are
    implemented, NHC would suggest that this product be expanded to
    include condominiums and co-ops.
        In conclusion, Mr. Chairman, let me make a separate, but
    related, point that others have also made here today.
        N.H.C. strongly supports expanding homeownership
    opportunities for more Americans. We are therefore, based upon
    that position, compelled to note that a continuing lack of
    good, affordable rental housing is diminishing that potential
    for a growing number of this nation's families. Many remain
    mired in unstable, costly, inadequate rental housing, without
    the ability to develop good credit histories, and to accomplish
    those resources necessary to achieve homeownership.
        Therefore, Mr. Chairman, NHC strongly urges you and your
    colleagues to also pay priority attention to preserving and
    increasing the supply of good, affordable rental housing in
    this nation.
        Thank you, Mr. Chairman
        [The prepared statement of Conrad Egan can be found on page
    89 in the appendix.]
        Mr. Tiberi. Thank you. Mr. Petrou.

        STATEMENT OF BASIL N. PETROU, MANAGING PARTNER, FEDERAL
                       FINANCIAL ANALYTICS, INC.

        Mr. Petrou. Thank you, Mr. Chairman.
        I am Managing Partner of Federal Financial Analytics, a
    consulting firm that advises financial institutions and trade
    associations on the implications of legislation and regulation
    on the mortgage and housing markets.
        There are a few points I would like to make regarding the
    benefits and risks associated with the new FHA Zero Downpayment
    Program.
        First, I strongly support the Administration's goal of
    increased homeownership, with the focus especially on low-
    income and minority individuals. It is critical that new
    programs to accomplish these goals focus not only on giving
    borrowers a mortgage in the short term, but also on helping
    them keep their homes for the long term.
        Second, zero downpayment loans are viewed by the private
    sector as higher risk, resulting in reliance on careful
    underwriting. FHA entry into these loans must be carefully
    structured to prevent risk to borrowers, communities, and the
    rest of the MMI fund.
        Third, to protect borrowers, communities, and the MMI fund,
    HUD should consider limits beyond those currently proposed for
    the new program. These could include targeting the program to
    low- and moderate-income borrowers, reliance only on proven FHA
    lenders, and increased sampling.
        The borrower's initial downpayment is a major factor in
    limiting first-time homeownership for low- and moderate-income
    buyers, but it is also a proven major risk factor, especially
    during periods of economic stress.
        For the past five years lenders working with private
    mortgage insurance companies, community groups, and government-
    sponsored enterprises, have tailored zero downpayment programs
    to balance the risks and the rewards to homeowners.
        Failure by FHA to tailor underwriting criteria to the
    unique nature of these mortgages could harm those it wants to
    help.
        Once closing cost fees and the FHA's own up-front
    financable insurance premium are added to the loan amount, the
    zero downpayment borrower starts homeownership owing 103
    percent or more of the property's value. In a neighborhood with
    very low or no home price appreciation, this borrower has to
    wait a long time before they can rely on the proceeds from the
    sale of the house to pay off the mortgage.
        For this reason, the new program should be tested to ensure
    that poor loan performance will not put the MMI fund in
    jeopardy, since the cumulative claim rates and loss severity
    rates on foreclosed properties likely will be higher during
    periods of stress for these mortgages than for other FHA loans.
        Certainly higher claim rates and loss rates are the
    experience of the private sector when dealing with very low
    downpayment mortgages, and the same appears to be true for FHA.
        Also, the program should be designed to bring new borrowers
    into the FHA, rather than serve as a means for those borrowers
    who have the wherewithal to make a 3-percent downpayment simply
    to avoid doing so. An FHA fund with a relatively large share of
    zero downpayment borrowers would significantly increase the MMI
    fund's risk exposure during periods of regional house price
    declines.
        Neighborhoods are also at risk from a poorly-planned
    program. The combination of a bad appraisal, economic problems
    for the borrower, and stagnant home values can result in a high
    level of foreclosures in those neighborhoods where these
    mortgages will be concentrated. The result of concentrated
    foreclosures is further downward pressure on home prices that
    escalate the downward spiral for that neighborhood.
        To assure the success of the Zero Downpayment Program, I
    urge that HUD consider applying the following criteria.
        First, HUD should target the program to borrowers with
    incomes below area median income, focusing on borrowers seeking
    properties in low- and moderate-income census tracts, and/or
    setting the area maximum loan amounts for this program below
    the current applicable FHA limits.
        Two, to prevent inappropriate use of this new program, the
    FHA lender should be required to attest that the borrower did
    not have sufficient cash to qualify for another FHA loan.
        Three, during the early years of the program, HUD should
    limit it to those lenders proven to be careful underwriters of
    FHA loans. These lenders are most likely to carefully review
    the quality of the appraisal being given for the property.
        Finally, as part of its quality control process, FHA
    currently reviews 10 percent of the post-endorsement loans in
    its single-family program. Given the significantly higher risk
    associated with zero downpayment loans, the sampling of FHA
    loans within this program should be higher for at least the
    first several years.
        Thank you.
        [The prepared statement of Basil N. Petrou can be found on
    page 108 in the appendix.]
        Mr. Tiberi. Thank you. Mr. Syphax.

     STATEMENT OF SCOTT C. SYPHAX, CHIEF EXECUTIVE OFFICER OF THE
                    NEHEMIAH CORPORATION OF AMERICA

        Mr. Syphax. Thank you, Mr. Chairman. My name is Scott
    Syphax, and I am the President and CEO of the Nehemiah
    Corporation of America.
        It is an honor to be here today to submit testimony to the
    House Community Opportunities Subcommittee regarding H.R. 3755.
    I particularly appreciate the opportunity to provide my
    thoughts on where we can add to the effectiveness of this bill.
        Before I address the legislation specifically, I would like
    to give you a bit of background on the industry we founded and
    my company.
        Nehemiah Corporation is a nationwide, self-supporting,
    faith-based non-profit. We receive no money from local, state,
    or federal government sources.
        We started in 1997 with a goal of providing deserving
    families, seeking to be homeowners, a downpayment. Starting
    with a $5,000 loan from a small Baptist church in Sacramento,
    we piloted the country's first privately-funded downpayment
    assistance program.
        In our seven years we have been able to help over 170,000
    families become homeowners across all 50 states and many U.S.
    territories. We have given away over $675 million in
    downpayment gifts, resulting in over $23 billion in real estate
    sales.
        On a monthly basis, Nehemiah helps more than 3,000 families
    achieve the American dream of homeownership by providing them
    with a downpayment gift. This week alone we have helped so far
    over 600 families achieve that dream. And this is at no
    additional cost or burden to the U.S. taxpayer.
        In fact, according to a soon-to-be-published independent
    study by a well-known Washington, D.C. think tank, our default
    rates are in line with traditional FHA rates.
        In short, ladies and gentlemen, downpayment assistance
    works for buyers, sellers, and America.
        In addition, a recently-completed study by another think
    tank demonstrated that downpayment assistance has also had an
    enormous positive impact not only on the individuals and
    families served, but on entire communities and local
    governments. In towns and cities across this nation a rebirth
    is happening, thanks to downpayment assistance and removing
    downpayment barriers.
        In Columbus, Ohio, for example, Nehemiah recently testified
    before a local city council meeting, in that we were able to
    help over 7,300 families become homeowners since 1998. In that
    process of giving away nearly $35 million in downpayment
    assistance, resulting in the purchase of over $1 billion worth
    of homes, the families that we have served--and this is the
    important part--have seen their equity increase by more than
    $3,100 per family, with a cumulative impact of that equity and
    wealth appreciation of over $23 million.
        This, in turn, has resulted in over $100 million in
    property taxes for the Columbus metropolitan area. In Franklin
    County alone, Nehemiah recipients have contributed $72 million
    in property taxes. With downpayment assistance and the removal
    of downpayment barriers, that benefit is not confined just to
    individuals, but it has spread throughout the community.
        Our industry has grown so quickly because it provides a
    vital role in helping people overcome what I believe to be the
    artificial barrier of homeownership: the downpayment. I have
    long felt, and publicly stated, that the removal of this
    barrier to homeownership for creditworthy applicants should be
    a national priority. And I want to applaud you, Congressman
    Tiberi, and the Bush Administration, for taking such bold
    leadership in addressing this area.
        I can tell you that when Nehemiah started, this was an
    extremely controversial subject, opposed by many.
        Having said that, I do have to share with you a couple of
    concerns about this proposed legislation, in order that we can
    have a dialogue about the potentially unintended negative
    consequences that might impact working-class families unless
    these are fully vetted and addressed.
        In January of this year, when Commissioner Weicher
    announced, as part of HUD's fiscal reauthorization, that FHA
    would eliminate the statutory requirement for the 3 percent
    down, we were elated. We celebrated this announcement, and we
    publicly reached out to offer our support, believing that our
    experience in helping over 170,000 families was the clearest
    validation that the approach that the Administration was taking
    on the subject was indeed valid.
        Mr. Chairman, our primary concern with the current draft of
    3755 is that the burden of coming up with the downpayment, as
    opposed to historic downpayment assistance, is now going to be
    borne by the homeowner. We don't think that that is altogether
    a bad thing, but let me explain the dilemma.
        In using private downpayment assistance and other sorts of
    programs such as ours, the home buyer walks into a minimum of
    3-percent equity into that house from the day that they receive
    their keys.
        In this particular program as it is proposed today, they
    will likely walk in with zero equity, or, as the gentleman who
    spoke before me referenced, potentially negative equity.
        While there is a risk/reward tradeoff that has to take
    place, and that is fine, the beauty of H.R. 3755 is that it
    makes downpayment assistance ubiquitous. Anyone can participate
    in this program, given that they meet the financial wherewithal
    and the other criteria that are being developed by HUD.
        However, our concern is that in the increased fees that
    potentially are put in place to finance the program, that you
    disadvantage the least among us able to pay. That extra $25 to
    $50 a month, while maybe not meaningful to some of us, for
    those that we are all attempting to serve with this legislation
    in the low- and moderate-income categories, that money is very,
    very dear.
        And because of our experience, and the studies that we have
    done in showing that downpayment-assisted families can
    successfully be homeowners, we suggest that it be carefully
    evaluated before any decision is made as to what the increase
    in the MIP that is imposed on this program. We want to ensure
    not only that we get people into the program, but that we
    guarantee their long-term success.
        We are heartened that this tool, that this particular
    product as it is conceived, will, in fact, add another tool to
    the toolbox of homeownership, and move more families into
    homeownership.
        However, we are also committed to ensuring those families
    will be successful using this program.
        To restate in conclusion, Nehemiah believes that this
    legislation is an important step forward for America. And we
    congratulate you, Congressman Tiberi, in taking this
    initiative.
        However, we would like to work with you and the
    Administration in ensuring, one, that no additional monthly
    surcharges that are unnecessary are imposed upon home buyers.
        Two, that there is a limitation and careful analysis to
    ensure that there are not excessive mortgage premium pricing
    actions taking place that are predatory in nature.
        And that three, that there be a sunset on whatever mortgage
    insurance premium uptick there is for these particular
    borrowers.
        With these changes, we believe that H.R. 3755 will be a
    positive step forward in public policy, and help move more
    families into homeownership.
        Thank you for the opportunity to address the Committee.
        [The prepared statement of Scott Syphax can be found on
    page 125 in the appendix.]
        Mr. Tiberi. Thank you for your insights. Mr. Witcher?

       STATEMENT OF JEROME WITCHER, REALTOR, ART LEE REALTY, INC.

        Mr. Witcher. Mr. Chairman, Members of the Committee, thank
    you for allowing me to take a few minutes of your time.
        I think it is a very good idea to offer zero downpayment to
    qualified persons that have a desire to own a home, but do not
    have a downpayment of their own. The passage of this bill will
    allow more potential buyers to acquire their own home. I know
    that with the proper guidelines, this could be a blessing to
    those that wish to purchase a home of their own.
        The downpayment is the biggest hurdle that most people have
    to face when acquiring a property.
        The purchase of homes for families not only improve the
    neighborhoods, but also increase the tax base for the local
    communities, and can have a ripple effect on the whole area.
    And therefore, we should see a decrease in crime, and a rise in
    property values.
        The value of requiring downpayments for potential FHA-
    insured borrowers for the reason, if you have something
    invested in a project, you are less likely to let that property
    go. However, no one can ever be sure, when certain situations
    arise, such as job loss, illness, or divorce.
        There are several programs that are currently out on the
    market today. Most require some type of counseling to the
    potential buyer.
        The lenders do credit reports, background checks, work
    history, et cetera. Some may charge slightly higher fees to
    offset the costs of providing this service, but most home
    buyers are happy to get in without coming up with a
    downpayment. The purchases are still from the buyer's range of
    financing.
        The underwriting of loans for conventional and jumbo
    markets is a difficult one with no downpayment, because of the
    loan size. I think it could be possible, but to me, it requires
    a very strong individual with a lot of reserves.
        The market today finds a good number of higher-priced homes
    in the foreclosure market, whether due to downpayment or other
    unknowns.
        The differences between minority applicants and other
    groups are, most minorities have very few liquid assets
    available for the use of a downpayment. However, just because
    funds for a downpayment are not available does not mean that
    they are not able to repay their mortgage loans.
        Note, this group is one of the fastest-growing segments
    because it includes Latinos, African-Americans, women, and a
    lot of these women are single mothers.
        I would only recommend that FHA not insure a mortgage
    without a downpayment only in cases where the job time is short
    and other negative items may appear.
        However, everyone has had some type of bad experience in
    their life, and to focus just on them is wrong. We should focus
    on what people have done since having these negative
    experiences. There is so much interest in things that have
    happened five to 10 years ago, that it still affects some
    people today.
        The approved loans today look primarily at credit scores
    from computers to see if someone qualifies. And if the computer
    says you did not meet that score, you are automatically
    rejected without any personal touch by another person. They
    flat-out reject you. That keeps a lot of possible buyers out of
    the market, which I think is wrong.
        We need to not just rely on the reports, but to have
    someone review the application--and this is review an
    application if it was rejected--and talk to the buyer to find
    out what they found, and the necessary things that need to be
    done so that we can still keep this person in the loop. It may
    take a little grooming, so to speak, but we can put these
    people there. If not, they kind of go back.
        We need to not only rely on reports, but review the
    application. And that way we can keep people in order to buy a
    house. No, I don't think so, because some people will always
    rent, regardless of their incomes, because they do not want the
    responsibility of taking care of something. And this should not
    effect the rental market.
        I think it may have some effect, but nothing major relating
    to the FHA insurance fund. I think that if the people are
    screened and counseled properly in the beginning, the losses
    that will occur will be minor.
        First of all, the lenders should all come under state rules
    and licenses, and have inspections done by state authorities to
    constantly monitor their business practices.
        The FHA foreclosures in low-income neighborhoods could be
    lessened if the buyers are properly educated about the pitfalls
    about borrowing and repaying of funds. The biggest problem that
    has been happening is that the appraisal of properties have
    been overpriced, and the lenders are giving more than 100
    percent loan to value. For example, 103-percent loan programs
    and higher.
        There have also been higher loan rates for areas of inner-
    city purchases than in other areas. Yes, I think you would find
    some actual buyers willing to purchase some of these units,
    these are multiple units, two to four units, if they were
    available for income property. Like I would buy one, and I
    would rent out the other three units and live in one, and I
    would have equity and income coming in. So I think if that
    program was available, it would be a good deal.
        In summary, I feel that the Zero Downpayment Program would
    be a great shot in the arm to increase homeownership, improve
    neighborhoods, and to help move the economy towards a more
    productive one.
        Thank you.
        [The prepared statement of Jerome Witcher can be found on
    page 133 in the appendix.]
        Mr. Tiberi. Thank you, Mr. Witcher. I appreciate it.
        Ms. Ashburn, last but not least.

        STATEMENT OF ANN ASHBURN, PRESIDENT AND CHIEF EXECUTIVE
                       OFFICER, AMERIDREAM, INC.

        Ms. Ashburn. Thank you, and good morning, Mr. Chairman and
    distinguished members of the subcommittee. Thank you for the
    opportunity to testify today in support of the subcommittee's
    efforts to break down a major barrier to homeownership
    downpayment costs.
        My name is Ann Ashburn, and I am President and CEO of
    AmeriDream, a national non-profit organization committed to
    increasing homeownership opportunities. AmeriDream provides a
    full range of homeownership-related services, including
    downpayment assistance, home buyer education, loss mitigation,
    community redevelopment, charitable contributions, and soon,
    mortgage payment protection.
        Over the last five years AmeriDream's downpayment
    assistance program has helped more than 130,000 low- and
    moderate-income families become homeowners. Given AmeriDream's
    extensive experience in putting real families into real homes,
    and in serving essentially the same clientele that this
    proposal would target, AmeriDream is pleased to offer itself as
    a resource to the subcommittee as it seeks to refine and
    perfect this bill.
        In that spirit, Mr. Chairman, I would like to offer two
    general observations about the bill, and then suggest three
    specific refinements for consideration.
        I would begin with our general observations.
        First, as the subcommittee considers how best to address
    the issue of downpayment costs, we would respectfully encourage
    members to leverage the experience and resources of the
    charitable sector, perhaps by ensuring a federal role for HUD-
    approved providers in a public/private partnership.
        Non-profits like AmeriDream have been meeting the
    downpayment challenge successfully for years. To coin a phrase,
    charitable downpayment providers have been there, and we have
    done that, over 130,000 times at AmeriDream alone, in the past
    five years, all without government funding, taxpayer dollars,
    or additional potential risks to home buyers or the FHA
    insurance fund.
        Second, we would suggest that in considering how best to
    promote homeownership through zero down loans, the subcommittee
    safeguard against potential concerns to home buyers, such as
    higher monthly payments, higher interest rates, and larger
    mortgages. Additionally, the subcommittee should bear in mind
    that homeowners taking on zero down loans would enter
    homeownership with zero, or even negative, equity, a position
    that could make them likely to default on their loans.
        I would note by way of comparison that purchasing a home
    with downpayment gift assistance, whether from government
    programs such as the President's American Dream Downpayment
    Act, from relatives, or from non-profit organizations, it gives
    homeowners lower monthly payments and positive equity in their
    homes.
        In addition to these general observations, AmeriDream would
    also propose three specific refinements.
        First, we believe that the subcommittee should require
    participating borrowers to demonstrate reasonable
    creditworthiness.
        Second, we believe it would be appropriate to require
    participating borrowers to complete a HUD-certified
    homeownership counseling program, a topic we know to be of
    strong interest to this subcommittee.
        Finally, we believe that the subcommittee should require
    use of a HUD-authorized automated underwriting model.
        I elaborate on each of these suggestions in my written
    testimony, and I would be pleased to discuss these
    recommendations in further detail.
        In sum, AmeriDream wholeheartedly supports efforts to
    overcome major barriers to homeownership, and we believe that
    this bill could be made even more effective by fostering a
    public/private partnership, by including minimum credit and
    home buyer education requirements, and by leveraging technology
    to its fullest potential.
        I hope that AmeriDream's experience and longstanding
    commitment to our shared objective of increasing homeownership,
    particularly among home buyers of modest means, has provided
    the subcommittee a useful perspective this morning.
        I would like to conclude with a brief testimonial from Mr.
    Ollie Hunt of Columbus, Ohio, who is one of AmeriDream's home
    buying success stories. ``We wanted to buy a house, but it
    seemed impossible to come up with the money for a downpayment
    and closing costs. Then we learned of the AmeriDream program.
    We are grateful for this program. It made it possible to own
    our own home, and in over two years we have not been late on
    our payment once. We love our home.''
        I applaud your leadership in calling this morning's
    hearing. And Congressman Tiberi, I commend you for introducing
    this important piece of legislation.
        Thank you so very much for this opportunity to testify
    before you today. AmeriDream stands ready to work with the
    subcommittee as it considers this important legislation.
        Thank you.
        [The prepared statement of Ann Ashburn can be found on page
    68 in the appendix.]
        Mr. Tiberi. Thank you. Thank you all, actually, for your
    testimony today, and especially for your patience in waiting
    around for our vote.
        Ms. Ashburn, I am going to start with you. You mentioned in
    your written testimony, and also in your testimony today, about
    a public/private partnership with respect to this issue. How do
    you envision that? Any thoughts off the top of your head on how
    that structure would work?
        Ms. Ashburn. We would like to work with the Committee and
    with HUD to establish guidelines on who would be appropriate
    downpayment gift providers. And some of those details we can go
    into outside of the hearing.
        And we see that, since we have all of this experience,
    Nehemiah included, we have been doing this for a very long
    time. We have gained a lot of experience. With that experience,
    both of us have implemented programs to support these home
    buyers.
        And I will just speak for AmeriDream, and let Scott do
    Nehemiah. But AmeriDream has done home buying education, loss
    mitigation, and soon it will be mortgage payment protection.
        We are five years old, AmeriDream is. We have learned a lot
    in five years, and we have gained a lot of speed in five years,
    to not only do downpayment assistance for 130,000 home buyers,
    but to recognize the additional needs that they need in order
    to be successful. We have added all these supplemental
    programs. So why have you guys waited five years to learn what
    we have already gone through? It has been a lot of pain, it has
    not been easy. And we offer that in a public/private
    partnership.
        Mr. Tiberi. Well, you know, it is amazing. Because I think
    Mr. Syphax mentioned it, it wasn't too long ago, as a realtor,
    that even publicly talking about zero down was something that
    was even rationally thought about.
        Let us talk about Columbus, Ohio. There is no question that
    both of you, Nehemiah and AmeriDream, have provided some
    incredibly valuable resources to people who want to be
    homeowners. There is no questioning that.
        As I mentioned earlier, and you may have heard, Sam
    Gresham, who is the President of the Columbus Urban League, a
    supporter of this legislation who couldn't testify today,
    publicly stated that in Columbus every year, the Urban League
    does minority home expo. And the number one issue that
    participants at the expo say or figure out is, the number one
    barrier for them to become homeowners isn't income. It is not
    qualifying for the monthly payment. It is what Mr. Witcher
    said, is the assets to provide for a downpayment. And they turn
    away hundreds and hundreds of people every year just at the
    expo who don't qualify, or haven't been hooked up, I guess,
    with either Nehemiah or AmeriDream.
        Why is that, do you think, Ms. Ashburn, that there are
    still hundreds, or maybe thousands of people out there that
    aren't being served?
        Ms. Ashburn. I think we have made great efforts over the
    years to reach out to people. And speaking on behalf of
    AmeriDream, it really was no challenge at all. There were
    interested people out there that were already seeking help from
    their lenders. They would find out from their lenders that they
    couldn't qualify because they didn't have the downpayment. And
    the lender would kind of pull us off the shelf and say there is
    hope out there for you, because we have got this program, if
    you can meet all these other qualifications.
        So we experienced that this was the first round of people
    that were already thinking about homeownership, and so they
    were already in the lenders' offices.
        We have recently partnered with a lot of outreach
    organizations into minority communities. As you mentioned, the
    Co-Chair of NOAH, the National Organization of African-
    Americans in Housing, on their round table. We partnered with
    NHREP, the National Hispanic Real Estate Professionals
    Association. Because we recognize that not everybody is
    thinking about homeownership, or people are thinking I know the
    way the process works, and I need a downpayment, and I don't
    have it, so why even bother. I can qualify, I can make the
    payments, I can pay my rent, but why bother? I don't have that
    pot of money.
        So we are working with these other organizations to reach
    out into these communities.
        Mr. Tiberi. Mr. Syphax, do you have any follow-up to that
    from your perspective?
        Mr. Syphax. Well, I think that Ms. Ashburn was very
    eloquent. We have many of those same partnerships.
        All that I would add is that, going back to the initial
    question by your local Urban League leader in Columbus, is that
    the reason that circumstance exists is because there has
    historically been a wealth disparity between ethnicities in
    this country. That wealth disparity has a cumulative effect
    over generations.
        The reason that Nehemiah got started, while most people
    focus on either our homeownership, our faith-based, or our
    community development programs, but really if you get behind
    the essence of why Nehemiah started, it was really about asset
    development and wealth accumulation for low- and moderate-
    income folks. We look at homeownership as a portal that takes
    people through, that gives them life possibilities.
        And what your Urban League leader is dealing with is people
    who don't come from families with enough historical wealth that
    they can transfer that down to their children and
    grandchildren.
        We do work with folks like Urban Leagues and others
    throughout the United States. But in fact, we think that this
    piece of legislation, with a little bit more massaging, is
    really going to start to have an impact that hopefully will
    snowball into that 5.5 million new homeowners. But it is really
    the public policy step of saying it is okay not to have a
    downpayment, and that you are worthy of homeownership.
        Mr. Tiberi. Thank you. Mr. Witcher, you have been a realtor
    for many, many years; a wealth of experience. You made mention
    of the point about the build-up of wealth. How often do you see
    what Ms. Ashburn and Mr. Syphax just described in your daily
    work as a realtor? Can you give us any examples?
        Mr. Witcher. It is every day. Every day you get calls from
    people that are interested in buying a property. I deal with a
    lot of first-time buyers. I deal with everybody, but especially
    I have been in affordable housing for the last 10 years or so
    has been the first-timer. Because those are the ones that are
    struggling to get to that level, that second level.
        Like Scott said, a lot of them, they don't have economic
    wealth. I mean, their family didn't own a home, so they have
    rented all their lives. So there is no economic base.
        So the biggest problem I hear every day is well, you know,
    we got our credit cleaned up, but we don't have the
    downpayment. What can you do? So you try to find sources that
    you can refer them to. And each source has their own particular
    criteria of, you know, you jump through this hurdle here, we
    can help you.
        I have worked with both of these two in the past, and they
    are both good. And we need more like them. If they can improve
    on their programs--and I think the bottom line comes out to
    basically educating the buyer. Letting the buyer know the
    responsibilities of homeownership; that it is not just a place
    to go party and sleep, but it is an investment.
        And if you can build that equity up in that one property,
    those that have the desire can take some equity out and acquire
    an additional property, like income property, and keep it
    going. And then instill it into their children, and their
    friends, their nephews, whatever, the understanding of wealth
    builds wealth.
        And then I think, you know, some of the disparities will
    disappear.
        Mr. Tiberi. Thank you. Mr. Egan, you mentioned that you
    would like to see the Zero Downpayment Program run as a
    demonstration, on a trial basis. Can you demonstrate to us how
    that demonstration should be structured?
        Mr. Egan. Thank you, Mr. Chairman, for the question.
        First of all, I am not suggesting that this particular
    proposal not be enacted until there is a trial program or an
    experimental period.
        What I am saying is that after enactment, in the process of
    administering the program, I think that many of the
    recommendations that others have made here today should become
    a part of HUD's administration of that program. Including
    attention to the qualification standards, I would suggest
    higher qualification standards. As Mr. Petrou has suggested, I
    would suggest higher sampling ratios of lending practices. I
    would suggest probably more-frequent-than-normal monitoring of
    the actuarial effect of this program on HUD's overall insurance
    funds. And then many of the other things that were suggested
    here, about post-purchase counseling, and paying very close
    attention to possible concentrations in defaults and
    foreclosures.
        But I want to make very clear that I am not suggesting that
    in lieu of enactment. I think the program should be enacted. I
    think it should be fully put underway. But subject, during a
    two- to three-year period, to very close scrutiny.
        Mr. Tiberi. I wish you had a vote. Thank you.
        Mr. Petrou, you suggested in the last page of your
    testimony that FHA's post-endorsement review of loans be
    increased. Can you elaborate on how that idea would maybe
    protect FHA and their mortgage insurance?
        Mr. Petrou. On this particular program it should be
    increased from what they do in the normal programs, because of
    the unique nature of the risk in these programs.
        FHA has to make sure that it is getting the kind of product
    that is performing the way it anticipated. Because of the high
    LTVs here, 103, 105 percent and because of FHA's reliance on
    appraisal. Appraisal is much more important when you are
    dealing with a 103-percent initial LTV loan than when you are
    dealing with a 95-percent LTV loan, or an 80-percent LTV loan.
        To the extent that FHA is given an incorrect appraisal,
    that will really put the borrower in a very difficult position.
    Because, it takes years, through amortization of the mortgage,
    to pay that mortgage down to the initial value of the home.
        So if FHA is off on its appraisal, if the house is over-
    appraised, FHA has a problem.
        With sampling, FHA sees the performance of what is going on
    and it sees the performance of what the lenders have been
    doing. FHA can then make adjustments to this program.
        Mr. Tiberi. Thank you. Mr. Dolben, I have been involved in
    the business for almost 20 years, 19 years, the rental or real
    estate business. And I have got to tell you, I have never heard
    someone say what you said. I have never heard it before. Too
    much homeownership could be bad for the community. That is
    shocking to me. I will have to really haze my friend, Steve
    Gladman, over those comments in days and weeks to come.
        Can you expand on that? Because I am absolutely stunned by
    that statement.
        Mr. Dolben. Sure. I think the basic concept is that the
    housing crisis in our country, there isn't one answer for all
    people.
        Mr. Tiberi. Agreed.
        Mr. Dolben. Homeownership isn't necessarily the housing
    answer for all of the people in our country.
        Mr. Tiberi. Agreed.
        Mr. Dolben. We have a housing shortage, and the cost of
    housing makes it difficult for both homeowners and renters to
    afford quality housing. So we believe that resources should be
    allocated and policy created that have a balanced housing
    policy, and make housing more affordable.
        Mr. Tiberi. Let me ask you this question. Would you agree
    with this statement, that anyone who would like to buy a home
    and be a homeowner should have the opportunity to do so?
        Mr. Dolben. The question is whether or not that form of
    housing is the appropriate housing for that person; whether
    they have the financial resources, and whether it makes sense
    for them.
        Mr. Tiberi. If they have the financial resources to make
    the monthly payment and are creditworthy, should they be a
    homeowner?
        Mr. Dolben. We need to have adequate housing that is
    affordable to them. And the question is whether there is
    sufficient housing stock and rental stock that is currently
    affordable to all Americans.
        Mr. Tiberi. Boy, spoken like a true advocate for your
    members.
        Let me tell you, I own rental property, so I understand the
    concern. But I am with Mr. Witcher on this. I have friends who
    wouldn't buy a home if there was a gun put to their head. I
    think there is going to be a rental market regardless of
    whether this bill passes or not.
        But I am passionate about trying to provide opportunities
    for those who really want a piece of the American dream, the
    American dream being becoming a homeowner and having an
    opportunity to build wealth with equity. And that is why I
    think this is so important.
        And I have friends in the rental industry now that jokingly
    say that they might have to throw in a car with the apartment
    lease to rent their apartments. So I understand the concern.
    But again, I don't think that this is about anything that you
    all should really be concerned about, but I understand your
    perspective. And I appreciate your coming today to share that
    perspective.
        Mr. Dolben. Thank you for the opportunity to voice them.
        Mr. Tiberi. Thank you. You guys have been great. Since you
    have been so patient, I am going to break with regular order
    and say if anyone has a suggestion or one more shot at the
    apple here. Do any of you have any? Thank you, Scott.
        Mr. Syphax. It is more of a comment on Mr. Dolben's
    comment.
        Nehemiah owns and operates over 1,800 units of income-
    restricted rental housing throughout the western United States,
    and we consider rental housing to be an extremely important
    component of an overall housing strategy.
        However, I have to tell you, based on our roots, coming
    from a small black Baptist church in Sacramento that serves
    low-income people, that homeownership, as you say, for every
    single person that is otherwise qualified in making that
    opportunity available to them is the thing, first and foremost,
    that will keep people moving into the middle class in this
    country.
        And the historic limits that have been placed on
    homeownership through what we consider to be invalid
    assumptions about you are somehow not worthy of homeownership
    unless you have a downpayment with you, I think really speaks
    against the ideals of this country.
        Homeownership should not be defined by an accident of
    birth, being lucky enough to be born into a family with means.
    It should be available to everyone who demonstrates the
    worthiness, credit-wise and income-wise, to move into that, so
    that they, too, can join the middle class.
        Mr. Tiberi. Boy, I couldn't have said it any better. And I
    am a product of that, being the first in my family to graduate
    from high school. My dad didn't get a credit card until he was
    60, because he didn't really believe in credit. He believed in
    paying cash for everything.
        But home equity for my mom and dad today is their wealth.
    And thank God for that opportunity for them. So amen.
        Mr. Egan. Mr. Chairman, let me build on the comment.
        Mr. Tiberi. Yes, Mr. Egan.
        Mr. Egan. Let me build on the comments that have been made
    most recently, and go back to my statement, where the National
    Housing Conference is trying to make the connection between
    good, affordable, stable rental housing situations, and the
    opportunity, therefore, to grow the credit history, to grow the
    other resources necessary, so that those who choose can then
    move into homeownership.
        Or if they don't, they can stay in a very safe, stable
    environment. And therefore, as my friend Nic Retsinas, who runs
    the Joint Center for Housing Studies at Harvard, often says--
    he, by the way, as you may know, was one of Mr. Weicher's
    predecessors--the best homeownership program for this nation is
    a good, strong, affordable rental program.
        Mr. Tiberi. Well, thank you. Anybody else, before I give
    the order?
        All right. Let me go ahead and, for the record, statements
    for the record, American Society of Home Inspectors, National
    Association of Housing Corporations, National Association of
    Realtors. I will ask for unanimous consent. Hearing no
    objection, so ordered.
        And finally, the Chairman notes that some members may have
    additional questions for this panel and the previous panels,
    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 place their
    responses in the record.
        I look forward to working with you, and I know the Chairman
    does, as well, as does Mr. Scott, to craft a piece of
    legislation that at the end of the day not only can you all
    support, but more importantly that will be good for those who
    want to become homeowners and get part of the American dream.
        So thank you all very much for your time. I really
    appreciate it. And this hearing is adjourned.
        [Whereupon, at 1:40 p.m., the Subcommittee was adjourned.]

                                A P P E N D I X

                                 March 24, 2004