[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
_____________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800
Fax: (202) 512-2250  Mail: Stop SSOP, Washington, DC  20402-0001













                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 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







