[Senate Hearing 108-573]
[From the U.S. Government Publishing Office]
S. Hrg. 108-573
EXPANDING HOMEOWNERSHIP OPPORTUNITIES
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
ON
INCREASING MINORITY HOMEOWNERSHIP, AND EXPANDING HOMEOWNERSHIP TO ALL
WHO WISH TO ATTAIN IT
__________
JUNE 12, 2003
__________
Printed for the use of the Committee on Banking, Housing, and Urban
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
ROBERT F. BENNETT, Utah PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky EVAN BAYH, Indiana
MIKE CRAPO, Idaho ZELL MILLER, Georgia
JOHN E. SUNUNU, New Hampshire THOMAS R. CARPER, Delaware
ELIZABETH DOLE, North Carolina DEBBIE STABENOW, Michigan
LINCOLN D. CHAFEE, Rhode Island JON S. CORZINE, New Jersey
Kathleen L. Casey, Staff Director and Counsel
Steven B. Harris, Democratic Staff Director and Chief Counsel
Sherry Little, Legislative Assistant
Mark Calabria, Economist
Jennifer Fogel-Bublick, Counsel
Jonathan Miller, Professional Staff
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
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THURSDAY, JUNE 12, 2003
Page
Opening comments of Chairman Shelby.............................. 1
Opening statements, comments, or prepared statements of:
Senator Reed................................................. 4
Prepared statement....................................... 40
Senator Allard............................................... 5
Senator Stabenow............................................. 6
Prepared statement....................................... 40
Senator Dole................................................. 7
Prepared statement....................................... 42
Senator Sarbanes............................................. 7
Senator Hagel................................................ 9
Prepared statement....................................... 42
Senator Corzine.............................................. 9
Prepared statement....................................... 43
WITNESSES
Katherine Harris, A United States Representative in Congress from
the State of Florida 1
Mel Martinez, Secretary, United States Department of Housing and
Urban Development.............................................. 10
Prepared statement........................................... 43
Response to written questions of:
Senator Shelby........................................... 66
Senator Chaffee.......................................... 67
Senator Reed............................................. 69
Terri Y. Montague, President and Chief Operating Officer, The
Enterprise Foundation.......................................... 26
Prepared statement........................................... 45
Response to written questions of:
Senator Shelby........................................... 75
Senator Sarbanes......................................... 80
Senator Reed............................................. 84
Cathy Whatley, President, The National Association of Realtors... 28
Prepared statement........................................... 50
Response to written questions of:
Senator Shelby........................................... 86
Senator Sarbanes......................................... 88
Thomas L. Jones, Vice President, Habitat for Humanity
International.................................................. 29
Prepared statement........................................... 55
James R. Rayburn, First Vice President, The National Association
of Home Builders............................................... 32
Prepared statement........................................... 59
(iii)
EXPANDING HOMEOWNERSHIP OPPORTUNITIES
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THURSDAY, JUNE 12, 2003
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:05 a.m. in
room SD-538 of the Dirksen Senate Office Building, Senator
Richard C. Shelby (Chairman of the Committee) presiding.
OPENING COMMENTS OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The hearing will come to order.
We have Congresswoman Katherine Harris from Florida here,
who will introduce Secretary Martinez. I thought we would do
this because she has something going on in the House, Mr.
Secretary, if you do not mind, and then we will make our
opening statements after Congresswoman Harris.
Representative Harris.
STATEMENT OF KATHERINE HARRIS
A U.S. REPRESENTATIVE IN CONGRESS
FROM THE STATE OF FLORIDA
Representative Harris. Thank you, Mr. Chairman. It is an
honor to be here today, and especially to appear before the
Committee to address the moral imperative of our great Nation.
Across America, families and individuals are confined to
deplorable conditions in substandard public housing. In a
Nation that enjoys a level of wealth and material comfort
unprecedented in human history, this state of affairs is
intolerable.
President Bush has articulated a bold new plan that attacks
this problem by creating 5.5 million new minority homeowners by
the end of the decade. Studies show that the average net worth
of low-income persons, which is $900 when they rent, skyrockets
to over $70,000 when they own their own home. The fulfillment
of this vision will add $256 billion to the American economy.
In fact, just last year, the economic activity associated with
homeownership amounted to $80 billion.
I was honored to introduce a bill that helps implement the
President's plan. I have sponsored H.R. 1276, the American
Dream Downpayment Act, which is on its way to the House floor
after passing the full Financial Services Committee this month.
I have repeatedly heard from housing advocates that a great
number of low-income Americans could meet a monthly mortgage
payment, but they cannot surmount the initial obstacle of that
downpayment and closing costs. These circumstances have created
a steep entry fee that we have the power to abolish. The
American Dream Downpayment Act will help tens of thousands of
low-income Americans attain the dignity, stability, and
economic empowerment of homeownership.
But I have the opportunity this morning to recognize
Congressman Mike Rogers from Illinois for his extraordinary
leadership on the issue. He sponsored similar legislation in
the House last year, obtaining $75 million in funding for this
fiscal year, although the actual bill did not reach the floor.
I also want to thank Senator Wayne Allard for his sponsorship
of the companion bill in the Senate, Senate bill 811, as well
as the House Financial Services Committee Chair Mike Oxley and
Housing Subcommittee Chairman Bob Ney for their steadfast
support of this legislation. Further, I wish to commend
Congressman Artur Davis from Alabama for his passionate
commitment to this issue. His bipartisan leadership reminds us
all of what can be accomplished if we work together to make a
difference.
Yet today, I have the distinct honor and privilege to
introduce the very embodiment of this American dream. As a
fellow Floridian, I can attest to the pride Mel Martinez has
brought to our State due to his outstanding performance as
President Bush's Secretary of Housing and Urban Development.
Having confirmed his appointment, you well know that Secretary
Martinez compiled an outstanding record as Chairman of the
Government of Orange County from his election in 1998 until his
selection in 2001 as the first Cuban American to serve in the
President's Cabinet.
Many of you may not have heard the amazing story that
underlies all of these achievements. Mel Martinez was born in
Sagua la Grande, Cuba. As a teenager, he fled the tyranny of
Castro's Cuba as a part of Operation Pedro Pan, a Catholic
humanitarian effort that eventually brought 14,000 children
safely to the United States.
Mel Martinez came to this country alone, knowing very
little English. As a result of an unparalleled drive,
perseverance, and vision, he soared upon the wings of his new-
found freedom. Upon his graduation from the Florida State
University College of Law, he became an eminent attorney,
community activist, and leader in Orlando. As our Nation's top
housing official, Secretary Martinez has reenergized HUD as a
powerful force for the extension of quality affordable housing
to every American.
He has restored public confidence by making ethics,
accountability, and program effectiveness his top priorities.
Moreover, he has forcefully and effectively implemented the
Bush Administration's compassionate conservative agenda through
initiatives that spur community development, increase minority
homeownership, and galvanize our Nation's armies of compassion.
I wish to thank Secretary Martinez and his staff for their
guidance and support during this legislative process. I wish I
could stay for the duration, but we have a markup. And, again,
Mr. Chairman, and the balance of the Senators on this
Committee, thank you so very much for inviting me and for
conducting this hearing.
Chairman Shelby. Thank you, Representative Harris.
In March of this year, the Committee heard Secretary
Martinez offer the Administration's budget proposal on housing
for fiscal year 2004. An important part of this proposal is the
Administration's goal of increasing minority homeownership by
5.5 million households by the end of the decade. I fully share
this goal.
Homeownership is an important tool in lifting low-income
and minority families out of poverty. Providing homeownership
opportunities for low-income families not only provides them
with an opportunity for wealth building, it also increases
community pride and has a stabilizing effect on children.
Today, 68 percent of American families own their home. They
have achieved a piece of the American dream. I will note that
even more impressive is the fact that 74 percent of the people
in my State of Alabama own their home. This is an amazing
achievement considering that in 1940, my State, Mr. Secretary,
my State of Alabama had a homeownership rate of 33.6 percent,
less than half of today's. I am very proud of that.
Mr. Secretary, you might want to take a close look at what
we have done there, not just what I have done but what others
have done way before I came along.
Despite the incredible gains that have been made,
homeownership still remains very much out of reach for many.
Only 42 percent of families headed by persons 35 years or
younger own their own home, while homeownership of persons 65
years or older is over 80 percent.
Homeownership rates also differ significantly by race and
income. For white households, the national homeownership rate
is 75 percent, while for African American households it is 47.7
percent. A greater gap is found across incomes. If a family's
income is at or above the median, the rate of homeownership is
83.3 percent, Mr. Secretary, as you know. For families earning
less than the median income, the rate of homeownership is 51.3
percent.
One of the many obstacles to achieving homeownership is
coming up with the downpayment. A 1999 Census Bureau report
finds that for almost a third of renter families that could not
afford to purchase a home, their only obstacle was lacking the
up-front cash necessary for a downpayment.
The President has proposed one solution to the obstacle,
the ``American Dream Downpayment,'' which authorizes $200
million in grant assistance to families wanting to own a home.
Senator Allard, my colleague, has taken the leadership of
introducing this proposal in the Senate.
Saving for a downpayment is not the only obstacle families
face in achieving homeownership. Other families lack access to
affordable credit or even lack an understanding about the
mortgage and home buying process.
These are just a few of the issues, Mr. Secretary, I hope
we will be able to cover today. I encourage our witnesses to
offer their perspectives on how we, as a country, can expand
the homeownership opportunities to all who wish to attain it.
Our first witness is Secretary Martinez. After we hear from
Secretary Martinez, we will hear from several of the
Administration's partners in expanding homeownership. This
second panel includes Mr. Bobby Rayburn, First Vice President
of the National Association of Home Builders; Ms. Cathy
Whatley, President of the National Association of Realtors; Mr.
Tom Jones, Managing Director for Habitat for Humanity's
Washington DC office; and Ms. Terri Montague, President and
Chief Operating Officer for the Enterprise Foundation.''
Mr. Secretary, we welcome you again to the Committee. We
look forward to your remarks. Your written statement will be
made part of the record in its entirety.
Senator Reed.
STATEMENT OF SENATOR JACK REED
Senator Reed. Well, thank you very much, Mr. Chairman, and
we are pleased to see Secretary Martinez here today, as always.
This is a very appropriate moment to talk about
homeownership. June is Home Ownership Month. We are pleased
that we have made progress over the last several years, and the
work that continues is one that I think is very important.
This program the President proposed is a very useful one, a
helpful one, but I do not think it alone will deal with the
issue of affordability and homeownership. The average price of
a home in the United States during the first quarter of 2003
increased 6.48 percent from the previous year, so we are seeing
increased prices. In my State of Rhode Island, home prices have
shot up 15 percent over last year. We are seeing, in fact, that
of the many homes for sale around, only 216 are classified as
affordable given the standard measure of affordability, and
that is that a family making $47,000 could afford to buy that
home.
Indeed, as a result of these market pressures, our
homeownership numbers have fallen to 59.6 percent, much less
than the national average. So there are many issues that have
to be addressed. This is a useful approach, but not the
exclusive and sole approach.
There are several areas which I would like to comment on
that raise concerns with respect to the current proposal. One
of the real problems is even if you have access to a
downpayment, you have to have an affordable home to buy. And as
I pointed out, in Rhode Island there are only 216 out of the
thousands that are on the market. So, we need also to think
about production.
The second point I would raise is that this is only one
rung on the ladder of homeownership. It is an important rung,
but if we do not have access to good, affordable public
housing--and I notice Congresswoman Harris pointed out
substandard public housing--that is a first-order
responsibility. And if we do not do that, then I think we won't
have the ability to put people in decent housing until they can
afford to buy a home.
Section 8 vouchers, preserving existing affordable housing,
stabilizing distressed neighborhoods--all of these must be
addressed as well as providing downpayments for homeownership.
And, finally, I am concerned about the generality of the
Administration's proposal. There is no formula for providing
this downpayment assistance, and, in fact, I think under some
present programs, like the HOME Program, States have the
flexibility to use the money for downpayment assistance. So I
wonder why we would embark on a new program when, in fact, the
States have the authority already to do that, and they can use
their judgment and their local perspective to make sure that
the money is being spent well and wisely.
But anything that can be used to help people get in homes
is commendable, and I hope working through the process we can
address some of these concerns.
Again, I thank the Secretary for being here today.
Chairman Shelby. Senator Allard.
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. First off, Mr. Chairman, I would like to
thank you for convening today's hearing. I think it is very
timely considering that June is Home Ownership Month.
I believe that housing and, in particular, homeownership is
one of the most important areas of our jurisdiction. All those
stories like weapons of mass destruction in Iraq and monkeypox
outbreaks in America might grab the headlines. Housing is
actually the bigger story and, I might add, successful story.
Sixty-eight percent of Americans own their own home. This is a
record-high level. However, we have significant room for
improvement. Although 75 percent of whites own their own home,
only 48 percent of minorities live in an owned home. I strongly
believe that this homeownership gap should be eliminated, and I
want to commend both President Bush and Secretary Martinez for
their efforts to do just that.
I am pleased to work with them to expand homeownership
opportunities by introducing the American Dream Downpayment
Act. This bill will dedicate $200 million to downpayment
assistance through HUD's HOME Program. Because the downpayment
is one of the biggest obstacles to homeownership, this bill
will allow 40,000 families each year to become new homeowners.
This program is structured with a great deal of flexibility to
allow it to complement existing homeownership programs.
I would agree with my colleague from Rhode Island that we
have to be concerned about the rising costs of homes, but this
is not something that is the sole responsibility of the Federal
Government. The local governments have a big stake in this, and
the State government has a big stake in this. The nice thing
about this particular piece of legislation is that it is not
intrusive into those areas, but it is a supportive effort in
order to help get more people into homeownership, particularly
minorities.
I am hopeful that the Committee will be able to quickly
report out the American Dream Downpayment Act. That would be
one of the most fitting ways possible for us to mark National
Home Ownership Month.
I also would like to welcome our witnesses today. They have
all done a great deal of work on homeownership. I am eager to
hear their comments about what else can be done.
I will conclude by welcoming Secretary Martinez back to the
Banking Committee. I would just note an addendum at this point
that I have received the Government Results and Procedures Act
report on my desk. This is something I request every time a
witness from HUD testifies. I am in the process of going
through that, and I appreciate HUD's response and yours, Mr.
Secretary, to my request in that regard.
I appreciate your efforts to promote homeownership, and I
look forward to working with you to help make the American
dream a reality for more families.
Chairman Shelby. Senator Stabenow.
STATEMENT OF SENATOR DEBBIE STABENOW
Senator Stabenow. Thank you, Mr. Chairman. Good morning. It
is good to have you back with us, Mr. Secretary. And thank you,
Mr. Chairman, for holding this very important hearing.
I do have a full statement I would like to put in the
record.
Chairman Shelby. It will be made part of the record,
without
objection.
Senator Stabenow. Thank you. And I do have some comments I
would like to make.
I appreciate your efforts on homeownership. There are a
number of challenges, as we all know, in the housing sector
today that require our attention and our leadership both on the
demand side of housing as well as the supply side. And as we
are talking about specific bills, I wanted to make sure to
bring to your attention this morning--hopefully you are aware
of legislation that I have teamed up with Senator Gordon Smith
to introduce, two different bills--one addressing supply side,
one the demand side--on homeownership that we are looking
forward to working with you on and would certainly welcome your
support of as well that builds on the efforts that you are
working on.
We have introduced what we call the First-Time Homebuyer's
Tax Credit, which is S. 1175. Our bill authorizes a one-time
tax credit of up to $3,000 for an individual or $6,000 for a
married couple. It is similar to the existing mortgage interest
tax deduction in that it creates an incentive for people to buy
a home. It is available to those in the 25 percent tax bracket
or less.
What makes it different and unique and what we are excited
about is that normally, as we know, tax credits are an after-
the-fact benefit, and for young families, for individuals that
are struggling to put together that downpayment and the closing
costs that are associated with it, it can be oftentimes an
insurmountable barrier on the front end to come up with the
dollars to do that. And so Senator Smith and I have designed a
tax credit that would actually be available at closing. There
would be a mechanism to have that available as cash at the
closing and would be redeemed by the lender.
So it is a different approach. We are excited about it. We
have received a lot of support from a variety of places. We
really appreciate the National Association of Home Builders as
well as Habitat for Humanity, who are here today, who have
offered their support for this proposal. And they have joined a
long list of groups including the Mortgage Bankers Association
of America, the American Bankers Association, American
Community Bankers, Fannie Mae, Freddie Mac, National
Association of Affordable Housing Lenders, and the National
Council of La Raza, who have offered their support to the
concept of a transferable tax credit.
So, Mr. Secretary, I would like very much to work with you
on this concept, and also indicate that Senator Smith has
introduced another bill that I am cosponsoring with him to spur
the revitalization of neighborhoods through a development tax
credit, which is the only side of that. I know that Senators
Santorum and Kerry, among others, have been strong proponents
of this concept, and I am glad that the Administration supports
it as well in order to eliminate the economic mismatch between
current market prices and the costs of rehabilitation in our
blighted communities, and certainly this is true in many
communities in Michigan as well as all across the country.
And so we have, again, a tax credit that would address
those who invest in restoring homes and then returning them to
private homeownership so that we can together rebuild
communities.
I would mention only one other issue that I continue to
work on, and I know other colleagues do as well, and we have
had hearings in the past before this Committee, and that is the
question of predatory lending. As we have seen an explosion in
refinancing and certainly efforts to create more homeownership,
we want to make sure that we are not continuing to see an
explosion in predatory lending as well. And there are important
ways that we need to work together to address that, and I look
forward to doing that with you as well.
So thank you, Mr. Chairman, and to the Secretary, we would
like very much to work with you on these two bills that Senator
Smith and I have introduced that we believe are positive steps
as we look at the whole issue of homeownership and how we can
support families to be able to get into that first home.
Chairman Shelby. Thank you.
Senator Dole.
COMMENT OF SENATOR ELIZABETH DOLE
Senator Dole. Mr. Chairman, in the interest of time, I will
submit my opening statement for the record.
Chairman Shelby. Without objection.
Senator Dole. Welcome, Mr. Secretary.
Secretary Martinez. Thank you, Senator.
Chairman Shelby. Senator Sarbanes.
STATEMENT OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Despite Senator Dole's striking example,
I am not going to follow it.
[Laughter.]
Senator Sarbanes. With all due respect to my colleagues.
Mr. Secretary, we are pleased to have you here again, and I
want to thank the Chairman for scheduling this hearing.
We talk a lot about homeownership, and I think there is a
danger that it may become a cliche, and I want to spend just a
moment reminding us why we put so much effort into achieving
this very important goal.
Homeownership is an asset-building engine for families and
neighborhoods, indeed for society as a whole. When a family
buys a home, they are buying more than brick and mortar. They
are really buying into the neighborhood. With each homeowner,
we create another anchor in a community, another advocate for
better schools, safer streets, small business development.
Common sense tells us and the evidence actually confirms that
homeowners are more engaged citizens and more active in their
communities.
Expanding homeownership, particularly in struggling areas,
will help replace the vicious cycle of decline that we see in
some neighborhoods with a virtuous cycle of wealth accumulation
and economic growth. Once you own a home, you are able to build
equity--equity which can be used to send your children to
college, finance your retirement, and serve as a needed reserve
to protect against emergencies.
Increasing homeownership, and especial minority
homeownership, has long been a national goal. In fact, the
Joint Center for Housing Studies at Harvard points out that the
1990's was a period of significant growth in minority
homeownership and in mortgage lending to minorities.
Unfortunately, over the last few years, we have seen that
progress level off as the economy has cooled down.
There are a number of proposals that have been made in
hopes of reigniting the progress that we have seen. Senator
Stabenow alluded to efforts that she has undertaken along with
Senator Smith. The Administration itself has come forward with
proposals which we will be hearing about very shortly.
As we discuss ways to encourage new homeownership, though,
I want to just raise a couple of concerns.
One, we need to keep in mind the importance of protecting
existing homeowners. Today, delinquency and foreclosure rates
are higher than they have been in many years despite an
extremely favorable interest rate environment. We are
confronted with predatory lenders stripping equity and driving
owners into foreclosure. We see many homebuyers paying
significant amounts in extra costs in the form of yield spread
premiums. In some neighborhoods, we see high concentrations of
foreclosed FHA homes, which attract unscrupulous investors and
brokers, and they become a tool for neighborhood disinvestment
and decay. And it is especially painful to watch this because
FHA has traditionally been and, in fact, continues to be one of
the main tools for first-time families to achieve the dream of
homeownership. A foreclosed home, particularly if it sits
around boarded up, becomes a magnet for crime and drugs.
The wealth of groups like Habit, The Enterprise Foundation,
LISC, and many others help create over years of work can be
lost in just a few months if their effort is surrounded by this
panoply of predatory practices. That is why pre- and post-
purchase homeownership counseling, improved protections against
predatory practices, foreclosure prevention activities, home
repair and improvement programs, and others must be considered
as an integral part of any homeownership strategy, and I urge
the Department to broaden that focus.
Finally, Mr. Secretary, I want to note that while striving
toward homeownership, we cannot really achieve it for
everybody. I mean, people face in many instances a financial
situation that at least currently places it beyond their reach.
So affordable rental housing is an important step on this path
toward the ultimate goal. We can do all the downpayment
assistance we want to do, but, you know, we are still going to
have the negative effects on a neighborhood if you have a
deteriorating public housing project, with all that that
implies. And obviously, therefore, we are concerned about the
cut in public housing capital funds that have been reflected in
the budgets.
The proposal to eliminate the HOPE VI Program, which has
actually been a crucial tool in transforming neighborhoods of
despair into vital mixed-income communities, that program has
worked extremely well in some communities, not so well in
others, and it seems to me the focus of attention should be on
what needs to be done to make it work well in those places that
have not had such a successful performance rather than zero it
out. And I am hopeful that Congress will sustain that program
and that the Administration, that you and your Department will
then be able to continue to have this important tool for
upgrading our neighborhoods.
It is a tremendous challenge, and we know you are facing
it, and we are facing it, and we look forward to working with
you in this respect.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Hagel.
COMMENT OF SENATOR CHUCK HAGEL
Senator Hagel. Mr. Chairman, thank you. Secretary Martinez,
welcome.
I have a statement, Mr. Chairman, that I would ask to be--
--
Chairman Shelby. It will be made part of the record,
without
objection.
Senator Hagel. Thank you. I look forward to your testimony
and that of the second panel.
Thank you
Secretary Martinez. Thank you, Senator.
Chairman Shelby. Senator Corzine.
STATEMENT OF SENATOR JON S. CORZINE
Senator Corzine. Thank you, Mr. Chairman. And, Mr.
Secretary, welcome. I do have a full statement I will put in
the record.
Chairman Shelby. Without objection, it is so ordered.
Senator Corzine. I do want to make the point, reiterate a
few of the points that Senator Sarbanes commented on. I am very
much in agreement with the concept of expanding homeownership
through aid to people for downpayments. I think the idea of the
HOME Program, the concept of the program, is terrific.
Unfortunately, many times what we see in New Jersey, it has
actually been diverted to other areas, even in rental issues,
and maybe appropriately. But given the needs of the community,
we need to really get focused programs, in my view, toward
actually expanding the housing stock.
In that vein, I am very concerned--and I will be a lot more
long-winded in my formal statement--about the HOPE VI Program,
which is basically being wound down under the Administration
policies. And I do not understand it. The HOPE VI Program has
funded the creation of more than 21,000 units of homes owned by
individuals, at least 3,000 of those people that came out of
public housing. It is a program that worked. You know, it is
doing what it is that we are all about. So I have a particular
frustration that I think is reflective of what I hear in my
community and State and what I hear around the country, when we
are trying to expand homeownership, why that is not the case.
There are other elements with regard to assisted living and
Section 8 programs that I am concerned about. I think probably
others have mentioned the public housing capital fund. All of
this that increases housing stock ultimately gets at the
ability to, I think, provide for low-income homeownership.
There are lots of root causes of this, but I in many ways
think we are taking a step back, particularly in the context of
this HOPE VI issue, which is one that I hope the Administration
will review and reconsider.
I do want to acknowledge that I know the Secretary is
interested in this, and I believe that quite sincerely. But I
think we need to review some of the things that we are pulling
back from that have shown great success and move forward.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you.
Mr. Secretary, you proceed as you wish. As I said, your
written statement will be made part of the record.
STATEMENT OF MEL MARTINEZ
SECRETARY
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Secretary Martinez. Thank you. I will just make some brief
opening comments, and thank you very much for holding this
hearing. I am delighted that we are doing it in Home Ownership
Month. I think that the benefits of homeownership, which have
been so appropriately highlighted by many Members of the
Committee, are on the record. I do believe that as we look to
the future, while the housing picture is a complex one, today,
properly so, I think focusing on homeownership is an
appropriate and a good thing to do.
In 2001 alone, Americans took $80 billion out of the equity
they had accumulated in their homes to make investments in
education, consumer goods, and new businesses, and there is no
question that homeownership helps families to lift themselves
into a better quality of and a more secure future.
But the benefits of building a Nation of homeowners extend
well beyond the individual families and also into their
communities. As Senator Sarbanes pointed out about the many
good things that flow to a community as a result of encouraging
homeownership, also we know it has a powerful impact in the
economy. This past economic slowdown which we have seen has
been essentially kept from going deeper and has essentially
been brought back as a result of a very strong housing sector.
And I am very pleased at gatherings of my colleagues when the
economy is discussed, and we can talk about the strength of the
housing market and all that it has done.
The Administration wants every family to benefit from our
emphasis on homeownership. However, because they face special
obstacles on the road to owning their own homes, we are
specifically reaching out to minority communities. The minority
homeownership gap, Mr. Chairman, you pointed out during your
comments
exists. We want to see what we can do to contract it and to
reduce it, while at the same time improving the lives of so
many more families.
The barriers that we have found include the inability to
come up with enough cash for a downpayment, a lack of credit
history or a blemished credit record, discrimination, and the
unfamiliar terms and unreliable information that are often part
of the homebuying process.
President Bush and I consider removing these barriers and
eliminating the homeownership gap to be a top priority for HUD
and one that is fundamental to our mission as the Nation's
housing agency.
The President launched America's Homeownership Challenge
last June and announced his goal of boosting minority
homeownership by 5.5 million families by the end of the decade.
In response, HUD created the Blueprint for the American Dream
Partnership. Each partner has made specific commitments that
will help us reach our goal of dramatically boosting
homeownership.
One way we are clearing away the barriers to homeownership
is by offering new tools and new resources to the homeowners of
tomorrow.
For example, the American Dream Downpayment Initiative will
help make homeownership a reality for 40,000 families. The
initiative, which is currently moving through the Congress--and
I am
so pleased that Congresswoman Harris was here today. She has
introduced it in the House, Senator Allard in the Senate. We
believe this is a proposal that will make a real difference in
people's lives.
We have proposed increasing funding for our housing
education program to $45 million, which would allow HUD to
counsel 250,000 first-time homebuying families to avoid some of
the very problems Senator Sarbanes alluded to in predatory
lending and the like.
The Administration is also boosting funding for the HOME
Investment Partnerships Program by $113 million, a total of
$2.2 billion in fiscal year 2004. Both HOME and the Community
Development Block Grant programs are popular, successful, and
locally driven initiatives that communities can tap into to
create affordable homes for low-income families.
Our proposals also include a $1.7 billion Single-Family
Affordable Housing Tax Credit to encourage developers and
nonprofit
organizations to produce affordable homes. The tax credit will
make some 100,000 homes available for purchase in low-income
neighborhoods.
During the 2000 campaign, the President announced a plan to
give another 2 million low-income Americans the opportunity to
move into their own homes with help from HUD's Section 8
Housing Choice Voucher Program. We currently allow local
housing officials to offer future homebuyers the option of
applying their vouchers toward a home mortgage. Our fiscal year
2004 budget proposal would expand the program by allowing
families to also put their vouchers toward a home downpayment.
These initiatives, Mr. Chairman, reflect just part of what
has grown into an Administration-wide commitment to making
homeownership an affordable option for every family that seeks
it. With our assistance, and the support of the Congress, low-
income families across the country who at one time never
considered homeownership an option are becoming homeowners
today, and will do so into the future.
Thank you for holding this hearing, and I look forward to
answering the Committee's questions.
Chairman Shelby. Thank you, Mr. Secretary.
Mr. Secretary, mentioned briefly in HUD's budget proposal
was the creation of a FHA subprime mortgage product. Could you
share with the Committee what is the status of that proposal
and when Congress will see more details?
Secretary Martinez. Yes, sir. That proposal is still
working its way through. We are looking forward to launching it
because we think it will be yet another vehicle to allow for
the subprime market to also participate in the FHA program.
I am making sure with Mr. Weicker, our Housing
Commissioner, that that is the case.
Chairman Shelby. Sure.
Secretary Martinez. But we are looking forward to bringing
that to you for consideration.
Chairman Shelby. Will it be a few months?
Secretary Martinez. It will be very quickly. We are looking
at weeks rather than months.
Chairman Shelby. Mr. Secretary, I believe that the Bush
Administration's goal of 5\1/2\ million additional minority
homeowners is commendable. We have talked about that before.
What would be in the increase in minority homeownership at the
end of 10 years, at the end of this decade if this goal is not
set? That is, what is the baseline we are starting from? What
is the baseline?
Secretary Martinez. The disparity that exists today is only
going to be exacerbated if we see the demographic patterns
continue because you see most homeowners today, 70 percent, are
white majority Americans. As inheritance and things of that
nature take place, the disparity could grow even wider. I
believe that it is essential that we encourage these efforts to
try to close that gap. While knowing that we may slightly close
it or at least keep it from widening, all of our efforts really
cannot combat what are long-term established demographic
trends.
So, I am not wedded to a number. What I am wedded to is the
effort. We are doing all that we can, not only with the things
that we are asking the Congress's help in and the things that
we can do as Government, but also partnering with the private
sector, with the realtors, with the homebuilders, the mortgage
bankers and all that are involved in the home buying and
financing process, to ensure they pay special care to improving
the numbers of minority homebuyers get a shot at being a
homeowner. We need to combat issues like predatory lending. We
need to make sure that we have a process that is also fair and
equitable and allows families a shot at the American dream.
As we do that, Senator, the value in it is that we are
going to be able to lift so many families to self-sustaining
status and not really a dependent status which too often is the
case.
Chairman Shelby. Which is a commendable goal.
Could you describe for the Committee how you see the
American Dream Downpayment working in practice?
Secretary Martinez. This is a program that would be
implemented through the Home Program. The Home Program already
is a very successful program administered by the States and
other funding jurisdictions. What we find in it is that it has
a lot of local flexibility in focusing it on down payment
assistance, and there have been some who have suggested that
perhaps it should be unfettered use of this money to the
locals. The fact is that we know the down payment is one of the
key barriers to homeownership for minorities and families that
are poor. So if we find that in this environment of low
interest rates that sometimes a mortgage payment can be less
than the actual rent a family would pay, that if we can just
jump start a family with the assistance and the down payment
and the front-end cost, that we can launch a family into
homeownership and be successful homeowners. We are coupling
that of course with the homeownership education part of it.
Chairman Shelby. Mr. Secretary, will the nonprofit groups
select families to be assisted or will local and State
governments, or will it be a combination?
Secretary Martinez. It will be a combination of the two
working together. The HOME program already utilizes a vast
array of community organizations. They will continue to do
that. The American Dream Downpayment uses the established order
of what is out there today, working very successfully, just
giving them one additional tool.
Chairman Shelby. How is the level of assistance determined?
Is there a formula for that?
Secretary Martinez. There would be, in other words, how the
money is distributed will be by a formula, but how the local
assistance is provided will be done by the local entities by
the participating jurisdictions. The formula is based on need,
for the local entities it will be based on need as demonstrated
by census data and others, but it will also be done by
performance, prior down payment assistance programs, and other
incentives that already have been provided to minority
homeowners by their participating
jurisdiction.
Chairman Shelby. Thank you, Mr. Secretary. I will come back
in another round.
Senator Reed.
Senator Reed. Thank you very much, Mr. Chairman. Thank you
again, Mr. Secretary, for coming by.
First, no one here is going to argue against helping people
get into homes. I mean that is a fundamental goal that we all
have. I find it interesting thought that the mechanism you are
choosing has run into some criticism. Yesterday the Committee
received a letter from the National Council of State Housing
Agencies, and as you know, this is an agency that represents,
or the organization represents those State housing officials
who seem to be closer, who are closer to the issue. They say in
their letter in opposition to the proposal, that the down
payment initiative would force States and localities to use a
portion of their HOME fund for Federally mandated down payment
activities rather than their own identified needs and
priorities. It ignores the fact that down payment assistance is
already a HOME eligible activity. In fact, the letter went on
to note that about 40 percent of the units assisted through
HOME have been homeownership units, and according to HUD data
collected by minority staff, 45 percent of all HOME funds
already go to homeownership activities, approximately 11
percent are used on down payment assistance already, and
indeed, following on Senator Sarbanes' comment about it today,
we have to keep people in the homes that already own them,
because of adverse conditions. At least in the HOME program
they have the flexibility for counseling and other activities.
They may not be able to provide mortgage payments, but they
certainly can counsel.
I think this raises an obvious question of why is this not
just additional funding for HOME under the same rules, same
formula, same guidance, same flexibility to the States?
Secretary Martinez. Normally it would continue to provide
all of the funding that HOME has received in the past. We have
boosted it this year, as I pointed out in my testimony, by 5
percent. But what we felt was important was to make an added
commitment with new money, new dollars, dedicated solely to the
purpose of down payment assistance. The fact of the matter is
that down payment assistance is an eligible activity under
HOME. Not all jurisdictions utilize it. We just thought that to
give a boost to the HOME program by adding money to the
program, putting in additional resources, and focusing them on
down payment because the statistics show, the data shows that
it is so crucial to homeownership to provide down payment, that
we thought this was a good way to do it and a good way to focus
on the importance of down payment by providing additional
funding.
I would think that argument made would have more merit if,
in fact, we were reducing the funding of the HOME program in
order to segregate some funds for this purpose, but when the
funding is not only at current levels, but being increased
substantially in a difficult budget year, and then on top of
that add new funding, I just think that frankly it is just not
a complaint that I find well founded.
Senator Reed. Well, it is certainly a complaint of
interested parties and dedicated parties, who spend a great
deal of their time trying to put people in homes, as you do.
Also, I note in the legislation that you will not use the
HOME formula, that you delegated the responsibility to
establish a formula, which is different than the HOME program,
where I believe there is a legislatively mandated formula. How
are you going to distribute this money, Mr. Secretary?
Secretary Martinez. Senator, let me find my answer on the
formula here. It is back to what I mentioned earlier. It is
going to be based on need and performance. In other words, the
formula will look to the need in the area, which is the
traditional HOME formula, but in addition to that, it will look
to performance. For instance, if a jurisdiction already has
been engaged in a HOME program, where they have devoted some of
their HOME dollars to down payment assistance, we will then
take that into account, and it will be of additional assistance
in providing additional funding to that jurisdiction. In other
words, those who already are engaged in down payment assistance
programs will have an opportunity to get specific funding based
on the fact that they have already been engaged in this and
found it to be useful for them.
Senator Reed. Like everything here, there is a contrary
argument. That is that you could use the funds to encourage
people to do things they are not doing.
I think this formula issue is one that we should address.
Although we all trust your judgment, I think it would be better
to have something more specific in terms of your intentions.
Let me just turn to a final point, and that is, you said--
and this is encouraging--40,000 families will be able to access
a home, which we are all in favor of. But just to put it in
context, I am told by staff there are 1.3 million families in
public housing. There are about 1.9 million families using
Section 8 vouchers. As I said, and I think it is a concern
echoed by others, the relatively flatline funding for Section 8
vouchers cuts in public health operating expenses and capital
improvements. In terms of the need, in terms of the number of
people we have to serve, it seems that we have to do more there
just as well as we are trying to do something for these 40,000
families. There are close to 3 million families that depend
upon us for Section 8 vouchers and for public housing, and the
budget is cutting those programs.
Secretary Martinez. It is not Section 8 though.
Senator Reed. Level funding.
Secretary Martinez. Thank you.
Senator Reed. Thank you, Mr. Chairman.
Chairman Shelby. Senator Allard.
Senator Allard. Mr. Chairman, I would like to lay it out
here very simply. It has been alluded to in our comments that
there are many barriers to homeownership, but the most
significant barrier, in my view, is coming up with a down
payment.
You said that in some cases the payment for a home might be
less than the rent, and with changing interest rates I can see
how that can be the case. I have seen it in the past that when
interest rates were higher, rent and downpayments usually run
about the same. This downpayment barrier is affecting
responsible families. They just need to get over that hump in
order to own their own home. I think that is very important. I
would like to hear from you what you feel are the social and
economic benefits that accrue to a family or individuals who
end up owning their own home in this investment?
Secretary Martinez. Senator, the benefits are broad and
many. I think that there are social benefits, things that one
would expect or perhaps not expect, but it shows that children
that live in homes that are owned by their parents perform
better in standardized testing, for instance, in schools, which
is an indication of better school performance that might have
to do with the stability they feel or the fact that they may be
going to the same school for a number of years.
But I think to me, in addition to the very obvious social
benefits, I think the thing that I would find the most
encouraging is the economic opportunity it gives a family in
creating equity. I think it takes a family out of the second-
class citizenship that poverty so often inflicts upon people,
and it gives them a chance to be in control of their own
financial lives, and as such, to really rise in the way that
America has for so many others provided that kind of
opportunity. So, I think it is not only a social benefit, but I
think very, very importantly, it is also the economic benefit
that it provides for self-sustainability to a family.
Senator Allard. Mr. Chairman, I would also like to point
out to the Committee that you have a lot of practical
experience in housing programs, and I think you are very much
aware, from your own personal experience, in the challenges,
particularly at the local level. I personally strongly believe
in incentives rather than mandates. I cannot help but think
that maybe you share that concern because you have been so
active in local housing, dealing with people on a one-on-one
basis.
I want to inquire a bit further on what my colleague was
concerned about. The American Dream Downpayment formula is
structured to consider jurisdictions past homeownership
activities.
Secretary Martinez. Right.
Senator Allard. Why do you believe it is important to
reward those areas that have demonstrated a commitment to
promoting homeownership?
Secretary Martinez. One of the things that I think we need
to look at is that the participating jurisdictions had already
engaged in good, successful, active homeownership programs.
Those should be encouraged. In fact, I know that there are
those who may not be doing it as well, and they should also be
encouraged. I think the fact that the opportunity is there for
increased funding should also be an encouragement, even to
those that are not doing it. But the fact is that as well at
the communities that are already engaged in very proactive
efforts to provide homeownership, that those communities should
be rewarded for their past efforts and what they have been
doing successfully. I think too often, frankly, programs that
can be very successful, like HOPE VI which has been mentioned
here today, too often get bogged down by jurisdictions that are
recipients of funds that do not handle them well, and that can
be in any number of areas. The beauty of the HOME program is
that it is so flexible to localities, so I think that formula,
providing that kind of boost to the people who are engaged in
active homeownership programs is a positive thing.
Senator Allard. It should be an incentive for those
jurisdictions that are not doing such a good job to do a better
job.
Secretary Martinez. Exactly.
Senator Allard. As part of your blueprint for the American
Dream to expand homeownership, you reached out to a large
number of trade associations, private organizations, nonprofits
and others. Could you briefly describe the role of these
partners in the initiative to create new minority homeowners?
Secretary Martinez. Senator, we have an acknowledgement
that all that can be done in this area cannot be done by the
hand of Government, that we really have to engage the private
sector, the people who are in the business, and ask of them an
equal commitment. So mortgage bankers, secondary mortgage
marketers, people in the real estate and other industry have
all come forward to try to do what they could to make an
additional commitment of lending in minority areas, to make an
additional commitment of reaching out through their marketing
programs to people in minority communities.
In addition to that, we have found very willing partners
and very positive partners in professional associations of
minorities who are in the real estate business, and they are
undertaking now a more aggressive approach of homeownership
education. This is good for business. This is good for what
they do. But at the same time it can have an impact of reaching
into communities that too often, frankly, have just not had the
vision that homeownership can also be for them. And this is one
of the things that I insist on, is that we should not look at
any America and suggest to them that homeownership just is not
for them, that they are not ready for it or they are not
capable of it. I think homeownership is a dream that should be
available to every American.
Senator Allard. Mr. Chairman, my time has expired.
Chairman Shelby. Thank you.
Senator Corzine.
Senator Corzine. Thank you, Mr. Chairman.
I want to go back to--I guess I will premise it with the
same thing as my colleague from Rhode Island, we all want to
encourage homeownership. That is a positive value that I think
is widely understood and accepted by all. Do you disagree with
the statistics, with the factual understanding that the HOPE VI
Program has actually broadly been a part of expanding
homeownership and transitioning individuals and families from
public housing to private homeownership?
Secretary Martinez. I do not think of HOPE VI as a
homeownership program. I think of it as an urban revitalization
program which includes homeownership as a component of it. But,
yes, it is an important effort to improve not only
homeownership numbers, particularly people who have lived in
public housing, but also in addition to that, of urban
revitalization of improving communities as a result of
transforming areas that have been too often blighted into what
can be more vibrant neighborhoods.
Senator Corzine. But am I mistaken, in 21,000 units of
homeownership that flowed out of HOPE VI?
Secretary Martinez. No, I am not disputing the number, no,
but I think far more than that though. I mean it is not just
homeownership. Many units have returned as rental units, but
that is still a good thing.
Senator Corzine. And actually changes the shape of a
marketplace, the availability, the revitalization of the whole
neighborhood actually puts more housing stock onto the market.
Secretary Martinez. Right. One of the issues, Senator, that
we are looking at. In fact, today, a group is convening at HUD
for the second time to discuss what the future of the HOPE VI
Program should be, and one of the issues that we need to
address is whether all of those 21,000 homeowners are coming
out of the ranks of those who used to previously reside in
public housing, or are they others who are now availing
themselves of this opportunity, while at the same time those
who resided in public housing are somehow displaced. So
providing continuity of opportunity for people who are
residents of public housing has not been a perfect solution
coming out of the existing HOPE VI.
Senator Corzine. Perfect should not be the enemy of the
good. And if you check around the country, which--I happen to
have a strong sense of desire to see changing of neighborhoods
as well as homeownership, these holistic programs have a very
meaningful impact. I would continue to want to encourage the
Administration yourself to review some of the thoughts about
this particular program, which among almost all seem to be
moving in the right direction on both urban renewal, urban
redevelopment, and moving to the objective of homeownership in
many, many instances.
Secretary Martinez. Senator, just so you know, we have a
very active group looking at the HOPE VI, what the future of it
should hold. Senator Mikulski was eager in suggesting that this
be done, and she and others have made suggestions of this
bipartisan group to come together, people in the academic
world, people with practical experience, so that we can take a
good look at what the past successes of HOPE VI have been,
where we have fallen short of the mark, and how as we look to
the future of an urban revitalization program like this, where
it should go and how it should be done.
Senator Corzine. I would encourage you to keep our office
posted as it goes along, and if there are ways that we can be
helpful, there are a number of demonstration issues that have
been very successful in New Jersey, and I think both under
Republican and Democratic Administrations, there has been broad
support within the community on the direction that this was
taking.
Secretary Martinez. We will do so, sir.
Senator Corzine. Several recent studies dealing with the
question of affordable housing have looked at FHA multifamily
mortgage insurance rates, and we continue to have--well, we
increased the threshold on loan limits 2 years ago, and I was
happy to be a part of that. We continue to have this one-size-
fits-all, and in some of our high-cost areas we are still
dealing with thresholds that actually are keeping people from
having access at getting into the mortgage market, and clearly
in the Newark, New York, Boston market, this continues to be a
problem. Have you looked at--are we thinking about ways that we
can recognize the reality of what costs are in different
marketplaces?
Secretary Martinez. Yes, sir. FHA has committed and at the
present is undertaking a study of high-cost areas and how those
are impacted, and how the FHA program can more effectively work
in those high-cost markets. So we are in the process of that
study. We will be glad to keep you advised as we go forward on
it, and then that should lead us to maybe some policy changes
once we know what the data shows.
Senator Corzine. Good. I think this is a practical area
where we can actually be working to recognize the reality of
the marketplace in different areas.
Secretary Martinez. Which can only inure to the benefit of
increasing the availability of affordable housing, and that is
part of our goal.
Senator Corzine. I would like to work with you on that.
Secretary Martinez. Thank you.
Chairman Shelby. Senator Dole.
Senator Dole. Mr. Secretary, HUD is completing the
rulemaking for the $75 million in the 2003 appropriations bill
for down payment assistance. Could you tell us when we might
expect to see that rule published in the Federal Register, and
will this rule govern how future monies will be distributed?
Secretary Martinez. Senator, this is currently at the
Office of Management and Budget for their review. We have
concluded our work at HUD, and sent it over to them for their
approval and review. It is in that process right now. I am not
going to try to forecast for you how long that might take, but
we do anticipate that it be--you being a former Cabinet member,
understand the interplay between OMB and Cabinet offices.
Senator Dole. I certainly do.
Secretary Martinez. But in any event, I believe that in the
near future we will have the publication of the rule, and then
that should guide our steps as we go forward with this
particular portion of the American Dream Downpayment plan.
Senator Dole. Good. The current period of low interest
rates has helped efforts to get more first-time homebuyers into
homes. What type of mortgage do most of these families get
these days, fixed rates, adjustable rates, the hybrid? Could
you give us an idea of how that is working, and do you foresee
any challenges to these new homeowners should mortgage rates
increase in the future?
Secretary Martinez. I am going to seek a little help on
that in terms of the statistical data.
Senator Dole. Okay.
Secretary Martinez. Because of the low rates right now,
most families are getting the fixed rate loans. The adjustable
rates seem to be more favored in times of more volatility or
higher interest rates. So right now fixed rates seem to
prevail. Typically a 30-year fixed rate mortgages is what most
families seem to be attaining.
Senator Dole. Okay. One of the real barriers certainly to
homeownership has been a lack of understanding and information
about the home buying process, and there are a variety of down
payment assistance programs available to first-time homeowners.
How do the potential homeowners and the lenders find out about
the variety of opportunities here, and do lenders provide
information about these programs to their clients?
Secretary Martinez. That is part of our partnership with
the private sector. We are increasingly seeing more and more
lenders that are aggressively going into communities to explain
the services that they have available, the variety of
opportunities that are available for home financing. But in
addition to that, by continuing to increase the funding, which
we have done now 3 years in a row, to this year's level of $45
million, we are also providing local community organizations
with the grant money to conduct outreach and education programs
in the communities where they work so that we can ensure that
more and more homebuyers are well informed as they go into the
process.
Senator Dole. And with regard to HUD Section 8 Housing
Choice Voucher Program, can you tell us what results you have
seen from this in the 2 years?
Secretary Martinez. We are delighted with the results that
have been forthcoming on that program. More and more families
that are Section 8 recipients are choosing to go forward and
obtain a home through their options that are provided for them
in the Section 8 voucher program. We are continuing to
encourage all providers of Section 8, which now are an
increasing number that are doing this, to do that for their
people, to try to provide for them the option to purchase a
home through their Section 8 voucher.
The success has been very, very positive. We continue to
encourage more participating jurisdictions to avail themselves
of the
opportunity.
Senator Dole. Thank you, Mr. Chairman.
Chairman Shelby. Senator Hagel.
Senator Hagel. Thank you, Mr. Chairman.
Mr. Secretary, in light of the recent Freddie Mac problems,
a report is out today. I noted yesterday some speculation that
these problems could result in higher mortgage rates, and the
consequences flowing from that. Home prices might be affected.
Could you give us your analysis of that report, speculation or
any other observation that you might want to offer regarding
what happened to Freddie Mac?
Secretary Martinez. I think first of all, Senator, we are
concerned about the situation and we are closely monitoring it.
I do not believe that I have seen or heard enough at this point
for me to be able to make any comments about the future,
although I have spoken with Mr. Falcon, who is the Director of
OFHEO, and he has assured me as to the financial soundness of
the company, that there is no problem there or no risk there.
But let me also clarify for the record that with respect to
the safety and soundness of these GSE's, that by statute, this
is the responsibility of OFHEO, which is an independent
organization and out of HUD's control. I frankly find that the
issues that this situation raises are probably, as they relate
to safety and soundness of the enterprises, better addressed by
OFHEO and not by the HUD Secretary.
Senator Hagel. I agree with that, but you certainly have a
stake in all of this, and your analysis is important, which I
appreciate.
Secretary Martinez. As I say, we are closely monitoring it,
and we are hoping that this situation will not aggravate itself
and are certainly not anticipating that it will have an impact
upon the mortgage market as we see it today.
Senator Hagel. You mentioned GSE's in general. As your
agency is dealing with all the dynamics of housing, and
financing is certainly part of that, in your opinion, have the
GSE's stayed within the boundaries of their original charters,
their intentions--are they relevant today? It is a different
world, different dynamics, Freddie Mac, Fannie Mae--across the
board.
Secretary Martinez. As it relates to their housing goals
and their mission oversight, that is something that falls
within the purview of HUD, and we do exercise that oversight
responsibility.
I think the GSE's have been a tremendous impetus to
maintaining the sufficient supply of money in the mortgage
markets to allow for a very healthy mortgage market environment
which allows us to be talking about homeownership like we are
today.
So, I think they have been a very important component in
terms of the mix that they have provided. I think they are the
envy of many other countries. As I meet with other foreign
leaders, they are keenly interested as they discuss housing
issues in their countries in how the secondary mortgage market
has worked in America and the benefits that it has brought.
I also think, without commenting on the whole complex issue
that they represent, they have provided a very, very positive
element toward the availability of inexpensive mortgage money
to the American consumer.
Senator Hagel. Thank you.
The Federal Housing Administration of course has played a
historic role in creating homeownership opportunities over the
years. There might be some sense that its role is diminishing.
What is your take on that? I have read reports on that. Is it
relevant? Is it more important, less important, today?
Secretary Martinez. I think FHA continues to be a very
important tool, particularly as we are talking about reaching
into poverty communities and allowing them to taste the dream
of homeownership. I think that the FHA programs are extremely
busy and well utilized, and we find that increasingly, the
availability of FHA mortgages is sought out, particularly in
the multifamily housing.
So, I think that while it can always be further modernized,
it can always be improved--and I am pushing hard for us to do
all that we can in terms of modernizing and bringing it up-to-
date. We have done a number of things in that during the time
that this Administration has been in office--I do believe that
it is not only relevant but a very important component of what
the housing sector should be in the future.
Senator Hagel. Thank you.
Do we have a vote, Mr. Chairman?
Chairman Shelby. We are going to have a vote in
approximately 5 minutes, yes.
Senator Hagel. Well, I will withdraw. You probably have
some other issues you want to cover.
Mr. Secretary, thank you.
Secretary Martinez. Thank you, sir.
Chairman Shelby. Mr. Secretary, I have a number of
questions that I would like to submit to you for the record,
and I know you will be prompt in getting the answers back to
the Committee.
Secretary Martinez. Yes, sir.
Chairman Shelby. Senator Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman.
Mr. Secretary, we have had a number of discussions both at
Committee hearings and also in meetings about the misuse of
yield spread premiums, and you yourself have testified about
the fact that consumers pay an estimated $7.5 billion in excess
yield spread premiums. This is really the borrowers' money, but
it does not end up to the borrowers' advantage.
In October 2001, HUD put out a policy statement that was
seen by many as undercutting the effective ability of borrowers
to seek redress for excessive yield spread premiums, but you
indicated at the time that you were going to take action to
address the issue. You recognized the issue, and you have
proposed a very comprehensive RESPA regulation which would, at
least in terms of disclosure--although I am concerned about
enforcement--address the yield spread premium problem, and a
number of us have applauded you for this effort.
But that is a complicated regulation, that RESPA
regulation. It affects a lot of issues other than the yield
spread premium issue. And there is talk that nothing is going
to be done on the regulation for a while and so forth.
The question I want to put is what about acting more
quickly on the narrow question of giving consumers the full
benefit of yield spread premiums--the industry has actually
testified that they should be the full beneficiaries--without
tying that action to the more complex questions of
comprehensive RESPA reforms?
Secretary Martinez. Would you suggest doing that through
rulemaking, or are you suggesting some other mechanism for
doing so?
Senator Sarbanes. Well, we would have to look at that. The
policy statement in October of 2001 said the courts should
examine yield spread premiums on a case-by-case basis. This
effectively undermined the ability to bring class action suits.
Each borrower loses maybe $1,000, $2,000, $3,000 on a yield
spread premium. That is not enough to warrant a case-by-case
action, and if you preclude the class actions, you do not have
much incentive for the participants in the market to drop this
practice.
One would be to open again the possibility of class action
suits; another would be to move ahead with the yield spread
premium part of your proposal.
Secretary Martinez. Senator, I think the premise of the
question is that the whole issue of RESPA may not move forward,
and I do not think that is the right premise--it is not the
right premise.
Senator Sarbanes. Well, all right. I do not particularly
want to go to that premise, but there are press reports that it
may be under consideration for another year.
Secretary Martinez. Let me say this, Senator. I consider
the yield spread premium to be an integral part of why we are
doing RESPA reform. I think it is a broker issue, broker fees,
and yield spread premium is a very important thing to be
addressed, and I will take your suggestion under consideration
if there is a vehicle by which that issue alone could be
addressed in a more timely fashion. If the other issues are to
be delayed, which is not clear at this point, anyway, maybe
that should be looked at.
I am concerned about yield spread premium. As I said, it is
one of the reasons why I thought it was important to address
the whole issue of the Real Estate Settlements and Procedures
Act, and I agree with the Senator that all too often there is
tremendous abuse in this area and is something that should be
addressed.
So if you have any--other than to assure you that I am
interested in moving the entire process forward, I will be
happy to visit with you and hear whatever suggestions you might
have.
Senator Sarbanes. I want to touch one final thing, Mr.
Chairman, if I could very quickly.
Chairman Shelby. Go ahead, Senator.
Senator Sarbanes. We are continuing to have a problem with
HUD in obtaining data and information. I have raised this issue
in the past. HUD required all PHA's to submit up-to-date data
on their voucher utilization rates and costs by April 9. We
asked HUD for the submitted data as soon as possible. We need
it to properly analyze the budget appropriations for Section 8
vouchers and the proposal to block-grant the voucher program
and other proposals that are in to improve the voucher program,
and we were told by HUD that the data would be forwarded to us
as soon as HUD compiled the information.
Secretary Martinez. Senator, may I just reply to that? I am
not certain that I have the up-to-date information on that. I
do believe that there has been some delay in obtaining from the
participating PHA's all the data, but as soon as we receive it,
we have to turn it around and understand it and compile it and
then offer it to you.
If there is some issue there that I am not aware of, we
would be happy to look into it.
Senator Sarbanes. Well, the issue very simply put is that
we understand that HUD has provided the data to other Members
of the Senate while continuing to tell us that the data was not
yet available. We did finally get it this Tuesday, but only
after repeated requests and only after confronting HUD staff--
and I appreciate this has not reached your level, but you know,
you have that sign on your desk that says ``The Buck Stops
Here.''
Secretary Martinez. I understand, sir.
Senator Sarbanes. We finally got it, but only after
repeated requests and after confronting them with the knowledge
that we knew that other Senate staff had received this
information. So, I hope you will take that back to the
Department with you.
Secretary Martinez. I appreciate you bringing it to my
attention, and I will do that. Senator, I apologize if that
occurred, and I will look into it and try to do better in the
future.
Senator Sarbanes. All right. Thank you very much--well, it
is not you; it is the people below you who have to do better.
Secretary Martinez. I understand--you are right about the
sign on the desk, though.
[Laughter.]
Chairman Shelby. Senator Carper.
Senator Carper. When I became Governor, I got rid of that
sign on my desk.
Secretary Martinez. Did you?
[Laughter.]
Senator Carper. You may want to consider the same.
I just want to reiterate a couple of points that have
already been made, I think by Senator Reed, before I got here.
Governors and mayors are especially mindful of the need for
flexibility with funds that they receive, particularly from the
Federal Government. And one of the concerns that I think
Senator Reed raised is at its heart a flexibility issue. As I
understand it, the $200 million that you are proposing to take
and create the American Dream Downpayment Fund is actually
money that is coming from--well, where does that money come
from?
Secretary Martinez. That is new money, Senator. That is not
in any way impacting already existing funds that the HOME
Program receives. So all the funding that the HOME Program
currently receives will continue to flow in the same way as
before. In addition to that, this year, we have a 5 percent
increase to the HOME Program, which is very vital to creating
more affordable housing.
We are creating a new program which is the American Dream
Downpayment, and we are funding it with new dollars which are
not funded or coming from any other source that currently is
receiving it. So while coming from local government, I do agree
with your appreciation for local flexibility. What we are doing
with this is not only providing all the local flexibility that
HOME Program already provides, but also adding a new thing
where we are highlighting what we believe to be the remarkable
importance of downpayment assistance toward helping families
become homeowners.
Senator Carper. OK, good. That is an important
clarification, and I thank you for it.
What does the Administration propose with respect to the
HOPE VI Program?
Secretary Martinez. Senator, the HOPE VI Program was a 10-
year program, and it had a beginning and an end, and this was
the last year of the current authorization. In addition to
having been very successful, we have also seen that much of the
money that was appropriated and has been awarded to different
communities remains yet to be utilized by many communities. And
also, over time, we have heard things like displacement issues,
about what happens to people who are in public housing and now
have to move out, and where do they go, and what are their
chances of coming back to the new development--things of that
nature. And we thought it was, after a 10-year experience,
largely positive, and it was a good time to take a good look at
the program, continue to fund, obviously--all the awarded
communities will continue to receive the funding for the
projects that they have been awarded--but before awarding new
projects beyond the current and the next year's budget program,
that we should take a good look at where the program was and
how we might improve it.
We have convened a group of people with suggestions from
Members of Congress on both sides of the aisle to provide some
insights and some inputs. Some people have been involved with
the program from the inception. Others have been involved in
the participation in the program now, and----
Senator Carper. Fine, fine. I appreciate that. Roughly what
is the level of funding for HOPE this year; do you recall?
Secretary Martinez. In this upcoming budget year?
Senator Carper. No--in this current fiscal year.
Secretary Martinez. Five hundred seventy-four million.
Senator Carper. Five hundred seventy-four million. And for
next year, what are you proposing?
Secretary Martinez. We are not proposing any funding for
that at all.
Senator Carper. So it would be zero?
Secretary Martinez. That is correct.
Senator Carper. OK, thank you. And one of the add-ons or
additions to your proposal for next fiscal year is for this
$200 million American Dream Downpayment Fund?
Secretary Martinez. Correct.
Senator Carper. All right. Let me just reiterate another
point that Senator Sarbanes has made. In the briefing materials
that have been provided to me--I am just going to read them, if
I could, and then ask you to respond--``The Administration put
out a policy statement in October of 2001 that undermined the
ability of consumers to protect themselves against the yield
spread premiums that lenders pay brokers to steer borrowers to
higher-rate loans. HUD's own data say borrowers pay $7.5
billion more in yield spread premiums than they should. This
problem hits minorities especially hard. Secretary Martinez has
reiterated this point himself at a number of hearings, yet HUD
has still not done anything to address this problem.''
And the assertion here--the bottom line--is that ``HUD
could solve this problem immediately without resolving all the
other issues involved in RESPA.''
My hope is that we move forward on RESPA as well, and
again, the assertion that has been made here, the one that
Senator Sarbanes raised, is in addition to moving forward with
respect to RESPA, why can't we do something on this without
legislation.
Secretary Martinez. Senator----
Senator Carper. Excuse me. I just want to let you know that
at least two Senators are concerned about this----
Secretary Martinez. I hear you.
Senator Carper. --and want you to look hard at it.
Secretary Martinez. And let me say that I would translate
that into a call for us to continue forward with reform of
RESPA, which I appreciate, and I look forward to working with
all who are interested in the subject to move it ahead.
Senator Carper. But there are two tracks we can go here.
One is the regulatory, and one is the legislative. I think we
should do both, and I would ask that you and your people
consider that.
Secretary Martinez. I have no problem with any potential
legislative fixes that could be obtained that would take care
of the yield spread premium problem. I think there are serious
problems that have to be addressed.
Senator Carper. Thank you.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Reed, do you have a quick
question?
Senator Reed. If I may make two quick points, Mr. Chairman.
First, with respect to the formula gain, Mr. Secretary, the
presumption that I think you are operating on is that every
area of the country has an equal opportunity to engage in a
homeownership program. But I think it is very difficult for a
place like New York City, Long Island, Rhode Island, Boston,
Los Angeles, and Atlanta metro area to do those things. So if
you are rewarding for past performance, you might miss out on
the opportunity to help these communities. And I think the
biggest difference, obviously, is between the price of homes in
some of these areas versus other parts of the country where you
can assemble a lot and build a home rather inexpensively and
put somebody in that home.
So that is one point. The second point is that over and
over again, we have made the point that the biggest hurdle to
homeownership is the downpayment. Well, I think the biggest
hurdle physically is income. You can go out and win the lottery
and you will have $20,000, which will cover the closing cost
for lots of home, but if you do not make $70,000 or $80,000 a
year, you are not going to be put in a home.
I just think that is a point to grasp, because one of the
reasons over the last decade that I think we have seen some
progress in minority homeownership is because we have seen
increases in minority income. And unless we maintain and
sustain those increases, a lot of what you are doing, admirable
though it is, will not be able to achieve the goal.
Secretary Martinez. I think that is an excellent point.
Senator Reed. Thank you, Mr. Chairman.
Chairman Shelby. Mr. Secretary, we appreciate your
appearance today and appreciate your candor with us, and we are
going to continue to work with you.
Secretary Martinez. It is good to be with you, sir. Thank
you very much.
Chairman Shelby. We have a vote pending, and we are going
to introduce the second panel if we can.
The second panel consists of Ms. Terri Montague, President
and Chief Operating Officer at The Enterprise Foundation; Ms.
Kathy Whatley, President, National Association of Realtors;
Thomas Jones, Vice President, Habitat for Humanity
International, and Mr. Bobby Rayburn, First Vice President,
National Association of Home Builders.
We appreciate the second panel's patience this morning. You
are going to have to be a little more patient, because we have
a vote on the floor, but we wanted to introduce you and get you
seated, and we are going to go vote and come back, so be at
ease.
The Committee will be in recess until we get back.
[Recess.]
Chairman Shelby. The Committee will come to order.
All of your written statements will be made part of the
record without objection.
Ms. Montague, we will start with you. If you will briefly
sum up--you can tell how dragged out we are today--your
pertinent testimony.
STATEMENT OF TERRI Y. MONTAGUE
PRESIDENT AND CHIEF OPERATING OFFICER
THE ENTERPRISE FOUNDATION
Ms. Montague. Thank you, Senator Shelby, for inviting me.
Just a brief bit of background. Enterprise is a national
nonprofit organization that supports community-based
revitalization, and we are currently investing in excess of
half a billion dollars a year to support a wide range of
community renewal initiatives.
We commend President Bush and Secretary Martinez for their
continued commitment to increasing low-income and minority
homeownership.
Very briefly, I would like to emphasize how homeownership
is helping to stabilize and strengthen low-income communities.
I will use one real-life example that is very familiar to
Senator Sarbanes. It is in the Sandtown-Winchester neighborhood
in West Baltimore.
Enterprise and local residences have been working for a
decade to help restore health and vitality to this historic
African American community. Sandtown had fallen on hard times
when Enterprise and our partners committed to a holistic
revitalization effort about a decade ago.
The good news is that 10 years later, Sandtown is now
starting to turn around, as evidenced by homeownership rates
that have more than doubled during the 1990's, median incomes
that have risen 22 percent on an inflation-adjusted basis,
unemployment and vacancy rates that have fallen by one-third,
crime rates that are significantly lower, and student
achievement and test scores that are substantially higher.
After decades of disinvestment and decay, hope--and new
investment--is returning to Sandtown. This is true largely due
to large-scale development of affordable for-sale housing.
Enterprise has developed nearly 400 for-sale homes in the area,
with another 200 more in the pipeline. We have also provided
financing to help Habitat for Humanity build another 200 homes
in Sandtown. Virtually all of these homes are being provided to
working African American families. And, to be sure, Sandtown
still faces many daunting challenges, but its progress and its
momentum are undeniable.
We have learned three important lessons in Sandtown that
apply to our and others' community revitalization experience
across the country. The first is that there is not nearly
enough affordable for-sale housing. Harvard's Joint Center for
Housing found that the number of for-sale homes affordable to
low-income people in this Nation dropped by half a million
between 1997 and 1999.
Enterprise's experience is that the shortfall is especially
acute in predominantly low-income and minority communities.
Even though, as we see in Sandtown, many current and potential
residents are ready and willing to purchase in those areas. A
major reason for the homeownership supply shortage in many low-
income neighborhoods is that it costs much more to build the
homes than the homes can sell for in those areas. For this
reason, grassroots groups need desperately to have many more
resources to help bridge this gap.
We are encouraged by the proposed homeownership tax credit
and feel that that would be such a resource. The credit would
help meet one of the major barriers to expanding minority and
low-income homeownership while creating jobs and stabilizing
neighborhood revitalization.
We urge the Committee Members who have not already done so
to cosponsor the bipartisan Senate bill to enact the credit, S.
875. We thank Senator Reed and the Committee Members who
supported his efforts to protect the rental housing tax credit
from harm in the recent tax bill.
In addition, we are urging Congress to continue to fully
fund and strongly support effective programs for spurring
affordable homeownership development and community-based
groups. The HOME Program that has already been referenced, the
CDFI fund, and the Section 4 Program, are three important
examples.
The second homeownership lesson that we have learned in
Sandtown is that acquiring abandoned buildings for
redevelopment is enormously difficult. Sometimes it is local
policies that are often the strongest impediment. But the
Federal Government can help grassroots groups gain control of
vacant buildings as well.
One example is the Federal Housing Administration's Asset
Control Area Initiative, which allows for local governments and
qualified community-based groups to acquire vacant government-
owned homes for rehabilitation and resale to buyers in very
distressed
communities.
We and others have been working with HUD to ensure that the
ACA Initiative operates in a timely and flexible manner. We
have been making good, if sometimes slow, progress in this
regard.
The third and final lesson that Sandtown offers for today's
hearing is that homeownership alone is not enough--it is not
enough for families, for neighborhoods, or for a Federal
housing policy that truly spans the full spectrum of housing
needs.
For families, homeownership will only be beneficial if they
can stay in their homes. Pre- and post-purchase counseling and
fair loan terms are critical to sustain homeownership. For a
community, homeownership only contributes to true
revitalization if homeownership can build wealth. That usually
requires additional investment in the neighborhood.
For Federal housing policy, homeownership only makes sense
as one option for solving housing problems. Public housing,
rental assistance, and new rental apartments are all as
essential to a holistic housing policy.
Many families will need supports for these types of housing
before they can become homeowners. We urge the Federal
Government and this Committee to help sustain and expand these
forms of support. From Enterprise's point of view, it is time
we broadened our idea of the American dream to include every
decent, affordable home whether it is rental or whether it is
for sale, and to dedicate sufficient resources to make that
dream a reality for more American families.
Thank you for the opportunity to testify.
Chairman Shelby. Thank you very much.
Ms. Whatley.
STATEMENT OF CATHY WHATLEY
PRESIDENT, THE NATIONAL ASSOCIATION OF REALTORS
Ms. Whatley. Thank you, Mr. Chairman, Senator Sarbanes.
As the 2003 President of the National Association of
Realtors, representing more than 900,000 members, it really is
an honor and a privilege to be able to testify today.
Realtors strongly believe in the fundamental benefits of
homeownership. Homeownership gives families a sense of
belonging, an emotional connection to the community. It
instills pride and a sense of purpose. It helps build a
stronger social fabric. It sustains vibrant neighborhoods, and
it contributes to economic growth.
NAR supports strong national housing policies that expand
affordable housing for all Americans. We stand ready to
continue to work with Congress and specifically
with you and your Committee Members to enact favorable policies
that benefit our Nation.
We support a number of legislative and regulatory proposals
including, first, Senate Bill 811, The American Dream
Downpayment Act, which would help close the gap between income
and housing affordability by providing downpayment assistance
to 40,000 first-time home buyers every year. As has been
mentioned here today, securing a downpayment remains one of the
biggest obstacles to homeownership.
We support Senate bill 875, the Renewing the Dream Tax
Credit Act, which would provide a significant tax credit for
developers and investors to construct or renovate homes in
distressed neighborhoods for low- and moderate-income families
to purchase. Approximately 50,000 homes would be generated each
year, and while this bill is not under your Committee's
jurisdiction, it is our hope that you will support it.
Also, we support an FHA sub-prime mortgage product, which
was proposed in the President's fiscal year 2004 budget. After
24 months of on-time payments, the premiums on this new product
for borrowers with poor credit would be reduced. We also
believe that providing an FHA alternative would protect home
buyers who are customarily at risk for predatory lending. It
would also make homeownership available to an estimated 62,000
credit-impaired home buyers in the first year alone.
Furthermore, we support congressional hearings to review
insurance scores that are keeping an increasing number of
consumers from becoming home buyers. Amending Section 214 of
the National Housing Act to add more States to the list of
high-cost areas has been mentioned here.
We support a technical correction to the new FHA Hybrid
Adjustable Rate Mortgage Program, and preservation of the FHA
203(k) Rehabilitation Program.
In conclusion, Mr. Chairman, we strongly believe that
homeownership is the cornerstone of our democratic system of
government; it continues to be a strong personal and social
priority in this country, and it is a huge economic force as
well, driving and leading the Nation's economic activity.
We appreciate the opportunity to share our viewpoints.
Going forward, we stand ready to work with you to fashion
legislation that will enable more Americans to stake their
claim in the American dream.
Thank you.
Chairman Shelby. Thank you.
Mr. Jones.
STATEMENT OF THOMAS L. JONES
VICE PRESIDENT
HABITAT FOR HUMANITY INTERNATIONAL
Mr. Jones. Mr. Chairman, Ranking Member Sarbanes, very much
appreciated staff, colleagues and friends--Habitat volunteers
all, thank you for the opportunity to represent Habitat for
Humanity to share some of our convictions about expanding
homeownership opportunities.
Habitat for Humanity's basic premise is that every human
being should have the opportunity to have a decent place to
live, if possible by experiencing the dream of homeownership.
Habitat for Humanity cares for those at every place along the
whole spectrum of need, and there is a spectrum, from those who
are homeless on the street to those who are living in short-
term shelters to transitional housing to various types of
rental housing. But for most, the ultimate still is to own your
own home.
Habitat for Humanity's niche is for homeownership for low-
income and minority persons who perhaps in no other way could
ever own their own homes. But we believe in practice that the
public, the private, the nonprofit, the faith-based, organized
labor--all the sectors--all need to support and respect those
who focus on every part of the whole spectrum. We all need to
be in all of it together.
But in that context, Habitat for Humanity's goal is to
bring us all together, to be certain that that commitment to
homeownership includes all persons regardless of economic
standing or race or culture or national background or religion
or political beliefs--that all should have the opportunity to
live the American dream of homeownership.
At the time of the purchase of their homes, 100 percent of
Habitat for Humanity homeowner partners are at or below 50
percent of median income. And I cannot overemphasize the
importance of targeting for low-income persons in Federal
legislation for decent housing.
We in Habitat for Humanity are so thankful that during this
National Homeownership Month, all of us in this room and other
housing leaders across the country are committed to leading to
narrow the gap for homeownership between minorities and others.
After 27 years and 50,000 houses built in the United States (of
the 150,000 houses built worldwide), the regular criteria for
choosing Habitat homeowner partners has resulted in 100 percent
of these partners being low-income at the time of their
purchase; with 71.8 percent of these being minority
homeowners--Hispanic, African American, Native American, or
Asian.
Mr. Chairman, Senators, thank you for your support of this
mission by which, through homeownership, wonderful life-
changing results are being achieved by low-income families,
with marvelous results of improved education of children and
youth, economic asset-building and equity-building of families,
better health, improved communities--growing citizens in so
many ways. And now, across the country, through enhanced human
dignity, increased self-worth, new hope for the future is
resulting in these homeowners gathering together to build their
own communities and do community development on their own.
We are appreciative of your support and we ask for your
increased support of programs such as SHOP (Self-Help
Homeownership Opportunity Program) and Capacity-Building for
Habitat for Humanity. Habitat is one of the four organizations,
including Enterprise and LISC, who are eligible for Section 4
funding.
We encourage you to support the single-family homeownership
tax credit now before you, and we strongly urge that you
include in that legislation modest set-asides to assure level
playing fields for nonprofits.
No words can say it adequately, but our hearts can feel it
when we are relating together to these homeowners. So before I
quit, I need to express genuine, heartfelt thanks to you for
the program we inaugurated last week called ``Congress Building
America,'' in which most of you participated and which you
unanimously approved with your Senate Concurrent Resolution
Number 43. By your expressed participation in that, you have
said that ``we are going to show America in these years
ahead.'' And we appreciate our colleagues here, the Home
Builders and the Realtors, who are two of the 13 CBA National
Underwriters from the private sector for this important
program; and we are grateful for HUD Secretary Martinez, who
has led the way in developing ``Congress Building America''
from the first discussion of it.
We will, we hope, in the remainder of this session, and in
the 109th Session of Congress, continue to be together, not in
hearing rooms like this, but on Habitat for Humanity building
sites, as together we build with a cross-section of Americans
and with Habitat for Humanity homeowner-partner families.
Mr. Chairman, if I may, I would like to conclude with a
brief story that happened this week in your home State in the
City of Anniston. This week, the Jimmy Carter Work Project is
in Anniston with about 4,000 volunteers, ``blitz-building.''
They are going to blitz-build over 100 houses in Anniston and
two other communities in Georgia. Anniston is the first city to
make a commitment to the 21st Century Challenge. They have said
that by the year 2013, a date certain, we will eliminate
substandard housing from our community. And the first houses
toward that are being built this week in the blitz-build in
Anniston.
A family named Washburn gave 80 acres of land to develop a
new community. One hundred of those houses will be Habitat
houses, including parks and the like. Thirty-five of those
houses are being blitz-built this week. And believe it or not,
on Monday morning at 5:30, I had Bobby Rayburn's predecessor,
Kent Conine, this year's President of the National Association
of Home Builders on site at 5:30 in the morning! We started
building with President and Mrs. Carter and the other 4,000
volunteers.
We were on Building House 15 with the Carters. On House 14
was Millard Fuller, one of your law school classmates, Mr.
Chairman, at the University of Alabama Law School. At about
noon, Millard got called out--we had a lot of media there--to
do an interview with CBS radio. Near the end of the interview,
the reporter asked, ``Who is the homeowner on the house you are
building?''
Millard replied, ``It is a wonderful woman named Charlene
Kincaid and her two sons, Donarius, 17, and Darryl, 13.''
The reporter asked, ``Do you think I could talk to them?''
and Millard said, ``I will ask them. We let them decide.'' They
were glad to do it.
Charlene Kincaid told how she and her two teenage sons had
never had a home. They were living in one, single room--two
teenage sons and a mother, no privacy, cramped space--and now
they will have their own home. She told what that meant.
The reporter asked the 13-year-old, ``Do you know where
your room is?'' We were on the deck of that house. He said,
``This is my room. I have never had a room of my own. And this
is the closet. I have never had a closet of my own.''
And then, the reporter said, ``Mrs. Kincaid, have you
decided how you are going to decorate the inside of your
house?''
She said, ``No. I am very carefully considering that,
because I want to do it right, because you see, this is going
to be my home for the rest of my life.''
There are so many Charlene's and Dinarius' and Darryl's out
there, deserving homes for the rest of their lives. That is
why, all together, we have just got to expand homeownership
opportunities.
Thank you.
Chairman Shelby. Thank you.
Mr. Rayburn.
STATEMENT OF JAMES R. (BOBBY) RAYBURN
FIRST VICE PRESIDENT
NATIONAL ASSOCIATION OF HOME BUILDERS
Mr. Rayburn. Good morning. My name is Bobby Rayburn, and I
am a builder from Jackson, Mississippi. I am also the First
Vice President of the National Association of Home Builders. I
am proud today to present the views of our 211,000 members.
Thank you, Mr. Chairman and other Members of this
Committee, for having this hearing on expanding homeownership
during National Homeownership Month. Housing affordability and
extending homeownership opportunities to all who desire to own
their home are important to the mission and agenda of NAHB.
These are also priorities of my own home building business.
My written statement reflects the numerous initiatives
taken by NAHB at the local, State, and Federal levels to expand
homeownership opportunities. This morning, I will confine my
remarks to our Federal legislative priorities.
Barriers to homeownership manifest themselves in two
primary ways. First is the difficulty faced by the potential
home buyers in raising the cash necessary to make a downpayment
and cover the closing costs. The second impediment to
homeownership is the oftentimes cumbersome and duplicative
regulations at all levels of government that inflate land,
construction, and ultimately, housing prices.
The initiatives we focus on today alleviate these barriers.
At the top of our legislative agenda are two very similar
bills--S. 198 and S. 875. Both bills create a tax credit for
the development and rehabilitation of housing in difficult-to-
develop areas for low- to moderate-income families. I am
pleased to thank so many Members of the Committee for your
support and cosponsorship.
Both bills reflect and complement the Administration's
proposal to expand homeownership opportunities for minority
populations. This legislation uses the Tax Code to bridge the
gap between construction costs in underserved areas and the
market price so as to make the home more affordable to those
families with incomes at or below 80 percent of the median.
Not only would this homeownership tax credit close the gap
between homeownership rates among these distinct population
segments--it would also revitalize communities. Existing
buildings in distressed areas frequently are not renovated
because the costs involved are so excessive that they cannot be
sold at an affordable price.
This credit would also give a positive economic impact by
resulting in the production of 50,000 homes per year and
creating 120,000 jobs annually.
A complementary bill just introduced by Senator Stabenow
would facilitate homeownership for the first-time home buyers
by producing a source of assistance for up-front home-buying
costs. The bill creates a refundable tax credit of $3,000 for
singles and $6,000 for married couples. The credit could be
assigned during the purchase negotiations to cover the
purchase, financing, and closing costs incurred by the buyer.
We also support Senator Allard in his efforts to move the
American Dream Downpayment Assistance Act. This bill provides
$200 million to assist lower-income families in achieving
homeownership. This legislation targets funding under the Home
Investment Partnerships Program to provide State and local
governments with resources for programs to provide critical
downpayment and closing cost assistance.
We do believe, however, that the HOME Program is a highly
successful program and a vitally important source of gap
financing in supporting affordable housing production in
conjunction with the low-income housing tax credit, tax-exempt
bond financing, and other affordable housing programs. Our
strong preference would be that additional funds be allocated
to support the American Dream Downpayment Assistance Act.
Finally, in the context of FHA modernization, one area
where FHA can add significant value is through the insurance of
single-family construction loans. Most builders, particularly
smaller companies, which account for three-quarters of annual
new home production in this country, must rely exclusively on
insured depository institutions for construction credit. There
is no secondary market to attract new lenders and investors to
the market. The development of a secondary market would lower
the cost of construction credit, help attract more capital to
underserved areas, and help home builders avoid the type of
severe credit crunch experienced in the early 1990's.
The availability of FHA insurance for new home construction
loans would help create such secondary market outlets by
opening up the Ginnie Mae Mortgage Securities Program to
single-family construction loans. This is already in place on
the multifamily side of FHA's and Ginnie Mae's business. NAHB
feels that an FHA-insured home construction loan program would
improve competition in the housing production loan market by
attracting new lenders such as mortgage banking companies.
Mr. Chairman, that concludes my statement, and we applaud
the Committee for its leadership on these issues and look
forward to working with you and the rest of the Committee as
these ideas and proposals go forward to help promote additional
homeownership in this country.
Chairman Shelby. We thank all of you for your testimony.
Senator Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman. I am
going to have to excuse myself, and I appreciate you letting me
go first to ask just a couple of questions.
First of all, I want to say to all four witnesses that
these are enormously helpful statements that you have
submitted. I have looked through them--I have not studied them
yet--but I have looked through them, and obviously, a great
deal of effort went into preparing them, and they are very
comprehensive and obviously very thoughtful, and we very much
appreciate that contribution to the deliberations of the
Committee.
I want to say to Mr. Jones that first of all, I was very
pleased to hear about what is being done in Anniston; it is
pretty exciting, and you can take a lot of pride in that.
Chairman Shelby. It sure is; my home State.
Senator Sarbanes. Mr. Jones, two very able employees of
this Committee left the Committee's employ to go to graduate
school, and now they are working at Habitat for Humanity. So
the first question I want to put to you is when are you going
to stop stealing our employees.
[Laughter.]
Mr. Jones. I just want to express appreciation for the good
training you gave them, for the fact that they have seen the
light.
Senator Sarbanes. You got yourself two terrific people.
Mr. Jones. We do--Amy Randel and Christen Wiggins.
Senator Sarbanes. Yes, they are terrific people.
Ms. Whatley, it is nice to have you back. You have been
before the Committee before, and you always do a very good job,
and I am pleased to welcome you.
I just want to touch very quickly on the insurance and
credit scoring. Ken Harney, a national syndicated real estate
columnist, wrote a column about this. I understand that
insurance companies are increasingly using FICA and other
credit scores to determine the availability and price of
homeowner's insurance even though no causal connection between
credit scores and claims has been demonstrated. Some States
have limited or prohibited--Maryland has prohibited--``the use
of credit scores in the pricing of insurance.''
I also understand that insurance companies are using
another private database known as CLUE, which apparently
results in certain homes getting electronically stigmatized so
the current owner may not be able to buy any insurance, nor
could a new buyer, regardless of his or her credit or insurance
history, get insurance on the particular property.
How serious a problem is this?
Ms. Whatley. We have seen and heard a lot of anecdotal
stories from the field. I can tell you that personally, 2 days
ago, I got a notice from my insurance company that all of my
rental properties are not going to be renewed, although I have
filed no claims.
So there are real issues out there in the marketplace. And
we understand that insurance companies have to deal with some
of their own circumstances that they have found themselves in.
But the National Association of Independent Insurance Agents
and Brokers actually did and released a survey that said that
more than 2.5 million households lost their homeowner's
coverage in the last 24 months, and that more than half of
those were households in the South; that about 73 percent of
those were able to find other coverage, but that is 27 percent
who were not able to find other coverage, and that 73 percent
found increasing prices.
Part of the challenge in the homeowner market is that if
you have filed any type of previous claim, especially if it was
a water-related claim, many insurance companies are not wishing
to issue new coverage because of their potential exposure and
risk, and that is a challenge even for homeowners who may have
called and just asked, inquiring about deductibles. For
instance, if I had a water leak and I wanted to call my
insurance company and ask what was my deductible--I am trying
to determine whether I want to fix it myself or whether the
claim is significant enough that I want to file with the
insurance company--some companies, even by just making that
call, are logging me in as a claim, even though--it is called a
``zero dollar claim.'' But the insurance company then has that
information that they are reviewing and calculating that my
home may be a potential risk down the road, so I am not even
getting the benefit of having been a good citizen and not
having caused any type of financial hardship for the insurance
company.
So there are a lot of things stemming around insurance that
are causing challenges in the affordability and the
availability side. State legislatures have to look at some of
those issues because insurance is State regulated, but there
are some things that may have some focus within your purview,
and we would ask you to be aware that there are real concerns
out in the marketplace.
Senator Sarbanes. That is very helpful.
My time is up. Ms. Montague, I just want to thank you for
your strong testimony on Sandtown-Winchester. I know that
neighborhood well, and I know the work that Enterprise has done
there.
Actually, maybe all of the panel members could submit for
the record their view of the role that HOPE VI places in
revitalizing neighborhoods and how important you regard that
program as being, because we obviously have an issue here
because, regrettably, it is not in the President's budget
submission.
Mr. Rayburn, I found your testimony very interesting, and
we are going to submit a couple of questions to you for the
record.
Mr. Rayburn. Good. And we would be glad to respond on the
HOPE VI question also.
Senator Sarbanes. Yes, we would very much like that. The
Home Builders to their credit have always taken a keen interest
in these issues, and we appreciate that very much.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Carper.
Senator Carper. Thank you, Mr. Chairman.
I want to follow up, Ms. Montague, on your comment that
Senator Sarbanes just mentioned with respect to the Sandtown-
Winchester neighborhood. I understand that some new rules that
HUD has proposed for this program may be overly restrictive and
might diminish the impact that you could otherwise have through
these kinds of initiatives.
Do I have that right? If not, correct me, and if so, please
explain in a little more detail how the proposed rules would
affect this kind of initiative.
Ms. Montague. Yes. I believe you are referring to the Asset
Control Area Initiative.
Senator Carper. That is right.
Ms. Montague. I appreciate the question. Just by way of a
little bit of background, the Asset Control Area Initiative is
an important FHA program that effectively enables local
governments and qualified community-based organizations to take
abandoned Federally owned properties off the government's
hands, rehab and resell those properties to low-income
residents.
The program was initially implemented on a pilot basis in
16 jurisdictions by the prior Administration. In 2002, as the
program was just getting under way, HUD suspended it after the
inspector general found that there were some concerns about
lack of management controls and potentially some administrative
irregularities.
The program is just in the process right now of restarting,
and we are optimistic that they will be back in business very
soon. In the meantime, there have been some very active
conversations with HUD about two areas of concern. One area, as
you noted, has to do with HUD's narrow interpretation of the
flexible statute that created the program. We and other ACA
participants have been disappointed that HUD has to date not
allowed us to sell homes for full market value. Another
restriction is that we have been restricted in our ability to
sell properties at 110% of eligible expenses on a portfolio
versus an individual property basis. And finally, we are eager
to see HUD view more favorably our recommendation that we are
able to convert a limited portion of the multiunit properties
into rental housing as opposed to simply reserving them for
for-sale housing to investors.
So those are the three prongs. They affect different
geographies in different ways, but in total, those are the
concerns that are being raised by the 16 participants.
Senator Carper. Thank you for each of those three prongs.
I am going to telegraph not my next pitch but the one
coming right after this. I am going to ask each of our
panelists to be thinking about this, and then I will come back
and ask the question. We have just heard, and I believe you
were here when Secretary Martinez presented and defended the
Administration's proposals to increase homeownership, some of
which I think have great merit, some of which I think may be
more suspect. And the question I am going to ask you before you
leave and before I leave is: Of the Administration's proposals
to foster greater homeownership, what do you think is a really
terrific idea? And the second half of the question is: Of the
Administration's proposals, which do you think represents a
place that we do not want to go?
I will give you those two thoughts, and while you are
thinking about that, Mr. Rayburn, I have a different question
for you. On page 10 of your testimony, you discuss the work
that Home Builders are doing with local governments to
encourage, I think, some innovative development around transit
facilities.
I just want to ask you if you could describe some of those
activities and maybe your goals in that regard. We have just
seen an interesting partnership, Mr. Chairman, of Fannie Mae
with some of our local lending institutions, where we actually
offer some people help on more affordable loans, help on
interest rates, help on closing costs, as I recall, for people
who are purchasing a home that is closer to a transit facility
or to a place where they can catch a bus or take a train.
Just take a minute and tell us a little bit about what you
all are doing in this area if you would.
Mr. Rayburn. Those are partnerships, Senator, that we have
with our local Home Builders Associations, and they are doing a
number of different types of various programs, as I understand,
and they are working very well. But in an effort to continue to
focus in a local area--and all of our members are locally
based--they know best what the exact need is in the area.
Senator Carper. I am just pleased to hear that you have
taken some interest in this issue----
Mr. Rayburn. Yes.
Senator Carper. --and I just want you to know that some
others are as well. And I like to say that the States are
laboratories of democracy, and we are trying to provide one up
in Delaware.
Mr. Rayburn. And we agree also.
Senator Carper. All right. Back to the rest of the panel.
What do you really like about the President's--I guess they are
the President's proposals--those presented by the Secretary,
and then maybe an area that you think we ought not go?
Ms. Montague. The really great idea is the homeownership
tax credit because it is going to create another investment
vehicle and foster a true ownership stake in these communities
and draw additional investment and resources into underserved
markets.
The not-so-great idea, and in fact downright bad idea, from
our perspective is the elimination of HOPE VI. In order to
revitalize these communities, it is vitally important to bring
mixed-income investment, and to revitalize what is often the
blight in these kinds of neighborhoods--the public housing
stock.
Senator Carper. Thank you very much.
Ms. Whatley, how are you doing?
Ms. Whatley. I am doing great.
Senator Carper. It is nice to see you again. You are a
regular here, aren't you? We are going to have to start paying
her to show up, Mr. Chairman.
[Laughter.]
Ms. Whatley. It is a privilege to be here.
I think several things are great ideas--certainly the
American Dream Downpayment Act. Downpayment assistance is a
critical component for people to be able to get into housing.
Second, I would echo Ms. Montague's tax credit proposal. It
is absolutely essential that we begin to drive some directive
to providing the actual housing abilities themselves. Housing
prices themselves cannot sustain without some incentives
provided to developers and investors. That is a must.
Third, I think that HUD's FHA sub-prime mortgage product is
a good idea, because that can help to begin to shape an
environment in which predatory lending can begin to diminish as
there are reasonable alternative products for those who have to
be in the sub-prime market, and there is an incentive there for
them to be able to pay on time and to have reduction in
programs.
I cannot say that I see any downright bad. I can only say
that we should go anywhere and everywhere, as far as we can,
with anything that promotes homeownership and rental programs.
So as far as you can expand it and as many things as you can
commit to, it is time for housing to get its stake, real stake,
in the pie, and I would ask you to expand it.
Senator Carper. Thank you, ma'am.
Mr. Jones.
Mr. Jones. We are very much appreciative of this whole
homeownership, particularly narrowing the gap between
minorities and low-income persons and others. That is really
the business that Habitat for Humanity is in, and this is a
great help in terms of making it a matter of conscience across
our whole country that this is the right thing to do. We may
debate on some of the ``hows'' but it is the right thing to do.
We are also very appreciative of the tax credit for
homeownership legislation possibilities. We think this has huge
potential. We do think it is important that there be a modest
set-aside for nonprofits, for reasons that we can get into if
we need to.
I guess I would reiterate what Terri said in terms of HOPE
VI. In various places, that has been very helpful in terms of
community development aspects of Habitat for Humanity
development.
Senator Carper. Thanks.
Mr. Jones, I would be remiss if I did not just add that I
have been mentoring the same young man for 6 years. Darryl
Burton is his name. He is one of five boys raised by a single
mom who 5 or 6 years ago was on welfare and now works and
supports the family. Her oldest son just graduated from high
school last weekend. They are going to move into a Habitat for
Humanity house this summer. It is the first home they will have
ever owned, so it is a source of great pride and joy for them
and for us.
Mr. Jones. That is great.
Senator Carper. Mr. Rayburn, you get the last word.
Mr. Rayburn. We are thrilled about the homeownership tax
credit. We think that will go a very long way in helping a lot
of very deserving families in this country while at the same
time producing new construction. The production program is
always welcome amongst NAHB's membership.
As far as the American Dream Downpayment Program, we are
not exactly super-thrilled with that program because we believe
that those dollars could probably be better used in some other
way. Also, we believe that additional dollars should be
allocated to the program, instead of coming from home.
We have concerns with the proposal of block-granting the
Section 8 Program. We would also like swifter progress, if
possible, by HUD on the multifamily high-cost area proposal
that you are looking at.
Senator Carper. Thanks very much.
Mr. Chairman, you have been generous with the time. Thanks.
Chairman Shelby. Thank you.
I just want to comment and say that all of your testimony
has been compelling today--Ms. Montague, Ms. Whatley, Mr.
Jones. We appreciate the good news from Anniston, Alabama. I
like their goal there.
Mr. Jones. If you are going to be in town tomorrow night,
they are going to dedicate 35 houses, and the families will
move in
Saturday.
Chairman Shelby. You called it a ``blitz.''
Mr. Jones. They started Monday morning, and they are going
to move in Saturday.
Chairman Shelby. And Mr. Rayburn, we appreciate your candor
here.
I have a number of questions, and because of time, I would
like to submit them for the record, but I want to ask you this
question. What would you quickly say would be the single
biggest obstacle keeping families from obtaining homeownership
outside of income.
Quickly, Ms. Montague.
Ms. Montague. Downpayment assistance.
Chairman Shelby. Ms. Whatley.
Ms. Whatley. Actually, the availability of affordable homes
in many communities.
Chairman Shelby. She got into that, too; both.
Ms. Whatley. Yes.
Chairman Shelby. Mr. Jones.
Mr. Jones. The availability of land.
Chairman Shelby. So the family that gave the acreage----
Mr. Jones. That is a huge thing.
Chairman Shelby. Mr. Rayburn.
Mr. Rayburn. Credit.
Chairman Shelby. Thank you.
We appreciate what you are doing. We are going to continue
to work with you. We think this hearing today has been
beneficial to us as Members and, we think, to everybody.
Senator Carper. Mr. Chairman.
Chairman Shelby. Yes, sir.
Senator Carper. May I ask our first witnesses to the left--
is it Ms. ``Montag'' or ``Montague''?
Ms. Montague. Montague.
Senator Carper. I apologize. I have been calling you the
wrong name all morning here, so please forgive me.
Thank you, Mr. Chairman.
Chairman Shelby. We thank all of you for participating.
Give my best to Millard.
Thank you. The hearing is adjourned.
[Whereupon, at 12:25 p.m., the hearing was adjourned.]
PREPARED STATEMENT OF SENATOR JACK REED
It is appropriate that we are holding this hearing at the beginning
of June, which has been declared National Homeownership Month.
Homeownership is a cornerstone of the American Dream. It is the chance
to set down roots, build equity, and get involved in a community. I
want to commend Secretary Martinez for continuing the focus we saw
under the Clinton Administration on increasing homeownership
opportunities, particularly for minorities.
However, programs like the proposed American Dream Downpayment Fund
cannot solve our Nation's affordable housing crisis on their own.
Housing is becoming less and less affordable around the country.
According to the latest Housing Price Index (HPI) Report from the
Office of Federal Housing Enterprise (OFHEO), the average price of a
home in the United States during the first quarter of 2003 was 6.48
percent higher than a year ago, almost triple the rate of inflation.
In my own State of Rhode Island, homes appreciated 15.7 percent
this past year--the Nation's fastest rate and more than twice that
national median of 6.89 percent. Only 216 of the single-family homes
currently for sale in the entire State of Rhode Island are considered
affordable by our State Housing Finance Agency, meaning a family
earning $47,280 or 80 percent of our State's Median Family Income can
afford them. This represents only 9 percent of the homes on the market.
Rhode Island's homeownership rate fell for the second year in a row to
just 59.6 percent in 2002. This is 8.3 percent below the national
homeownership rate of 67.9 percent.
As a result, I have several overarching concerns about some of the
homeownership initiatives we will be discussing today.
First, downpayment assistance for low-income families is of
``little assistance'' if they cannot find an affordable home to buy
with it.
Second, downpayment assistance is only one rung of achieving
homeownership. If some of the lower rungs on the ladder to
homeownership are ripped out, such as public housing, Section 8
vouchers, preserving existing affordable housing, stabilizing and
revitalizing distressed neighborhoods, and creating new units of
affordable housing, very few working families are going to be able to
climb up the ladder and achieve the American Dream.
Finally, I am concerned about the vagueness of the Administration's
proposal, in particular, the lack of a transparent formula for
distributing the downpayment assistance and the lack of local
flexibility in determining how the money can be used to expand
homeownership.
Of course, that begs the question of why the $200 million in
downpayment assistance is not just added to the existing HOME formula.
This would allow State and local governments to determine how best to
provide homeownership assistance in their communities.
Needless to say, I look forward to today's testimony and hope it
can clarify some of my concerns.
----------
PREPARED STATEMENT OF SENATOR DEBBIE STABENOW
Thank you, Mr. Chairman. I am glad that you have called this
hearing today on encouraging homeownership. The topic is a priority of
mine and one to which I believe that this Committee, and this Congress,
should be dedicating a greater proportion of time.
Let me begin by welcoming our witnesses today, HUD Secretary
Martinez and the representatives of our second panel. I thank you for
being with us today and I look forward to hearing your comments today.
Mr. Chairman, there are a number of challenges in the housing
sector today that require Federal attention. Both on the demand supply
of housing and on the supply side.
On the demand side, there are still far too many barriers to
homeownership. In particular, one of the biggest barriers to
homeownership is the upfront costs for first time homebuyers trying to
buy a home. According to the Mortgage Bankers Association, typical
total costs for downpayment and closing can approach over $9,000. This
is an impossible amount to save for those who are working hard to make
ends meet.
That is why I recently teamed up with Senator Gordon Smith to
introduce our First-Time Homebuyers' Tax Credit Act, S. 1175. Our bill
authorizes a one-time tax credit of up to $3,000 for individuals and
$6,000 for married couples. This credit is similar to the existing
mortgage interest tax deduction in that it creates incentives for
people to buy a home.
To be eligible for the credit, taxpayers must be first-time
homebuyers who were within the 25 percent tax bracket or lower in the
year before they purchase their home ($68,800 for single filers,
$98,250 for heads of household, $114,550 for joint returns). There is a
dollar-for-dollar phase-out beyond the cap.
Normally, tax credits like this are an after-the-fact benefit. They
do little to get people actually into a home. What is particularly
innovative and beneficial about the tax credit in this bill, however,
is that the taxpayer can either claim the credit in the year after he
or she buys a first home or the taxpayer can transfer the credit
directly to a lender at closing. The transferred credit would go toward
helping with the down payment or closing costs. As mandated in the
bill, the lender would receive the money from the government in a
timely fashion.
What we are proposing, I believe is pretty bold. Senator Smith and
I want to work with our colleagues to send a message to lower and
middle income people all over the country that if you are working hard
to save up enough to get into that first home, the Federal Government
will make a strategic investment in your family--it will offer a hand
up.
This is not unlike what we already do through the mortgage interest
tax deduction for millions of people who are fortunate enough already
to own their own home.
We certainly won't do all the hard work for you. You must be frugal
and save and do most of the work yourself, but we, in Congress,
understand that it is good for America to enhance homeownership.
We also understand that this investment in working families
stimulates the economy. No one can deny that when the First Time
Homebuyers' Tax Credit is enacted and used by millions of people, every
single time the credit is used, it will stimulate the economy.
Why?
Because it means someone bought a house. And that generates
economic activity for multiple small business people--realtors,
lenders, house appraisers, inspectors, title insurers, and so on. And
there is a ripple of economic activity by the new homeowners as they
fix up their new homes and get settled in.
I would like to thank the National Association of Home Builders and
Habitat for Humanity today for the support they have offered to the
legislation. They join a long list of groups including: the Mortgage
Bankers Association of America, the American Bankers Association,
America's Community Bankers, Fannie Mae and Freddie Mac, the National
Association of Affordable Housing Lenders, and the National Council of
La Raza who have all offered their support to this concept of a
transferable tax credit.
Mr Chairman, as you know, it is not enough to address the demand
side of housing. That is why I am also a strong advocate of increasing
the supply of affordable housing. I have teamed up with Senator Smith,
again, this time on a tax credit to spur the revitalization of
neighborhoods through development tax credits. I know that Senators
Santorum and Kerry, among others, have been strong proponents of this
concept and I am glad that the Administration supports this as well. We
must eliminate the economic mismatches between current market prices
and the costs of rehabilitation if we are ever going to see many of our
blighted communities reborn. This is as true in Flint and Detroit as it
is in Philadelphia or Portland.
There is absolutely no reason that this Senate should fail to pass
a development tax credit bill for these challenged neighborhoods. With
bipartisan support in Congress and the backing of the White House, I
want to work with all of my colleagues to see such a bill enacted into
law in the 108th Congress.
Finally, Mr. Chairman, let me just touch briefly on a critical
issue related to homeownership and that is abusive mortgage lending
practices. With the rapid rise in homeownership over recent years and
with record levels of mortgage refinancing--which involve an increasing
number of less creditworthy borrowers entering the market--the problems
with predatory lending have grown explosively. To address this problem,
some have argued that a Federal law is needed. Others would prefer to
let States and localities pass antipredatory lending laws.
At this time, there is not yet consensus in Congress on additional
legislative remedies. While we may differ in our views of appropriate
additional legislative measures to address the problem of predatory
lending, I think one thing that all of us can agree on is a strong
desire to see current laws more effectively enforced. That is why I am
glad that Senator Santorum has joined me in preparing a letter to send
to Senate appropriators calling for a doubling of monies at the Federal
Trade Commission to enforce antipredatory lending laws. I am glad that
the Ranking Member and others have agreed to sign on and I hope still
that other Members of this Committee will decide to join us in sending
this letter next Monday.
As all of us know, the Federal Trade Commission (FTC) is one of the
principal government entities with an enforcement role over predatory
lending. The FTC oversees many relevant laws including the Federal
Trade Commission Act, the Equal Credit Opportunity Act, the Truth in
Lending Act, and the Home Ownership and Equity Protection Act. I
believe that enhanced enforcement would staunch many of these illegal
activities and have a chilling effect on future abusive lending
practices.
Thank you again, Mr. Chairman, for calling this hearing. I
appreciate your leadership on this issue and the leadership of Ranking
Member Sarbanes. I look forward to working with all of my colleagues on
an aggressive housing agenda to keep the housing sector a bright light
in what has been a difficult economy.
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PREPARED STATEMENT OF ELIZABETH DOLE
Thank you Mr. Chairman.
I want to thank you and Ranking Member Sarbanes for agreeing to
hold this hearing on expanding homeownership opportunities. Increasing
homeownership is one of the best ways to help both families and our
economy.
This hearing will highlight many statistics with regard to the
barriers, needs and status of homeownership in America. However, I
believe there is one statistic that truly stands out. Sixty-eight
percent of Americans own their own homes. Among white households about
seventy-four percent own their own homes; however, minority households
average far worse at about forty-seven percent. That is a stunning
difference and highlights where our efforts should be focused.
I cannot say enough good things about the positive results that
homeownership provides for families. Households that own their own
homes have been proven to provide a more stable environment for their
children. These children are more apt to do better in school and to
become more involved in the community. These families are able to build
wealth--many for the first time, thereby helping to secure retirement
needs or pay for higher education. Families who own their own homes are
more likely to spend the money necessary to properly maintain the home.
These positive results have a ripple effect and impact the rest of the
community and the economy.
The President and Secretary Martinez are to be applauded for
recognizing the importance of homeownership and working to reduce the
barriers which have kept many families from realizing this dream. One
such proposal before this Committee is the American Dream Downpayment
Initiative. This proposal focuses on the difficulties families have in
saving enough money for the downpayment on a home. This proposal has my
full support, and I look forward to voting for it in this Committee and
on the Senate floor. It is my hope that we can all work together to
move this important legislation as soon as possible. There are many
other barriers to homeownership and many other problems that families
face after they purchase their first home. I hope to discuss these
issues with our witnesses today, and I look forward to working with you
all to expand homeownership opportunities. Thank you.
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PREPARED STATEMENT OF SENATOR CHUCK HAGEL
Thank you Mr. Chairman for holding this hearing today on the
important and timely issue of Homeownership.
Owning a home is not just the preferred way of life for most
Americans; It is ``the American dream.'' For most Americans, their home
is their largest asset--their primary source of wealth. It provides a
financial cushion to families who can use home equity to invest in
things like education and small business opportunities.
Home ownership is not just good for individuals and families--it is
also good for the community. It stabilizes neighborhoods. It is a
source of pride for the owners, and that translates to community
involvement and a safe place for children.
While a record 68 percent of American families do own their home
today, there are many more who would if it were not for a few barriers
standing in their way. Congress, working with the Administration and
the private sector, must do more to educate people on the home-buying
process, to provide more downpayment and closing cost assistance to
first time homebuyers and to grow home financing options for low and
moderate income Americans.
Last year, Secretary Martinez announced the Blueprint for the
American Dream in response to the President's call to create 5.5
million new minority homeowners by the year 2010. I have joined my
colleagues on this Committee in cosponsoring a number of bills which
would advance several elements of that blueprint.
Senator Dorgan and I have also introduced, along with Senator
Johnson and others, The New Homestead Act, which would help individuals
and families who make a commitment to live and work in rural America to
afford a home in their community. It is by helping families establish
roots in our rural communities that we will enable small town America
to survive. I hope that my colleagues on this Committee will take a
look at that bill and help us in our efforts there.
I look forward to hearing from today's panel about the progress
that has been made on the Blueprint.
Thank you, Mr. Chairman.
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PREPARED STATEMENT OF SENATOR JON S. CORZINE
Thank you, Mr. Chairman. I commend you for holding this hearing
today. I know that we all agree that every American should have access
to the tools they need to become homeowners. Homeownership allows
families to build equity that will help them build the financial
security critical to sending their children to college and achieving a
sound retirement.
As you know, homeownership rates in the United States are at an all
time high of 68 percent. Despite the significant growth in minority
homeownership rates in the 1990's--much of which can be attributed to
public-private incentives--the dream of homeownership remains out of
reach for too many minorities. In addition to rising housing prices
that have quickly outpaced inflation, a lack of wealth and income,
discrimination, and a general lack of affordable units contributes to
this gap.
It is that last point, Mr. Chairman that I would like to emphasize.
We are facing an enormous affordable housing crisis in this country.
This crisis is at the root of so many of the issues this Committee has
held hearings on. It causes homelessness; it forces families to spend
more than 30 percent of their income on housing; and it decreases
access to homeownership. We must do more to address this issue.
Mr. Chairman, we cannot expand access to the American homeownership
dream, as it were, unless we take critical steps to increase the number
of affordable housing units in this country. Earmarking $200 million of
the HOME program to provide downpayment assistance to families wanting
to buy a home will only go so far when there is no affordable home to
buy. As we all know, States can already use their HOME dollars to
provide downpayment assistance and many do. However, many States,
including New Jersey, also use their HOME funds to assist renters who
are unable to afford rental housing and to construct affordable housing
units. Certainly, expanding existing downpayment assistance programs is
a worthy goal that I support; however, we must not do so at the expense
of other critical housing programs.
Mr. Secretary, I have to admit that I am a little confused about
the Administration's priorities. If the President truly wants to expand
homeownership, then why has he proposed eliminating the HOPE VI
Program, a program that has significantly expanded homeownership for
low- and moderate-income families? In addition to revitalizing our
urban communities and improving our Nation's public housing, the HOPE
VI Program has funded the creation of more than 21,000 units of
homeownership. At least 3,000 of these units have been sold to families
that previously lived in public housing. Mr. Secretary, isn't this the
kind of program we should be expanding, not eliminating?
Furthermore, the Administration's proposed cuts to our other vital
public and assisted housing programs, including Section 8, will only
serve to push those families we want to help achieve self-sufficiency
and, hopefully, homeownership further into poverty. Cutting the Public
Housing Capital Fund will only serve to deteriorate existing
properties, and will likely lead to decreased property values and crime
increases. Of course, this Administration has already eliminated the
Public Housing Drug Elimination Program (PHDEP), which public housing
administrators relied upon to address these problems.
Mr. Chairman and Mr. Secretary, all of these issues are
interconnected. While expanding downpayment assistance programs is a
laudable goal, we must do more, and we have to start by protecting our
existing safety net and homeownership programs, not destroying them.
Thank you.
----------
PREPARED STATEMENT OF MEL MARTINEZ
Secretary, U.S. Department of
Housing and Urban Development
Chairman Shelby, Ranking Member Sarbanes and Distinguished Members
of the Committee, I appreciate the Chairman's invitation to appear
before you this morning. The Administration welcomes any opportunity to
meet with the Members and discuss the many ways in which we are working
with the Congress to expand homeownership for America's families.
The fact that June is National Homeownership Month, and a time when
we are taking the homeownership message to communities across the
country, makes the scheduling of this hearing especially appropriate.
President Bush is focused on helping more families discover for
themselves the security and sense of pride that comes with
homeownership. This is a long-time commitment of this President that he
highlighted during the presidential campaign in his ``New Prosperity
Initiative.'' In remarks he gave in Cleveland, Ohio, on April 11 of
2000, then-Governor Bush noted that the concept of ``ownership'' is
central to American life, and that our history has been intertwined
with the expansion of homeownership rights since the Nation's earliest
days.
He pledged that in the spirit of the Homestead Act of 1862, his
Administration would help Americans to own a part of the American
Dream.
The President understands that homeownership is a profound and
life-changing experience.
For the vast majority of families, homeownership serves as an
engine of social mobility and the path to prosperity. Americans see a
home not only as shelter, but also as a safe investment, and one that
can be leveraged to finance family priorities. In 2001, Americans took
$80 billion out of the equity they had accumulated in their homes to
make investments in education, consumer goods, and new businesses.
There is no question that homeownership helps families lift
themselves into a better quality of life and a more secure future.
But the benefits of building a Nation of homeowners extend well
beyond individual families and into their communities. Homeownership
creates stakeholders who tend to be active in charities and churches.
It inspires civic responsibility. It offers children a stable living
environment that influences their personal development in many positive
ways--including improving their performance in school. Studies by
housing experts show a clear link between an increase in homeownership
and a decrease in crime rates.
Of course, homeownership also has a powerful impact on the national
economy. Where many sectors of the economy performed below expectations
over the past 2 years, the housing market has remained extremely
strong. In fact, housing helped to cushion many areas of the country
from recession, as home sales and refinancings pumped hundreds of
billions of dollars into the economy.
But beyond the statistics, increasing homeownership is good public
policy. This Administration wants every family to benefit from our
emphasis on homeownership. This includes reaching out to minorities who
sometimes face special obstacles on the road to owning their own homes.
At the end of last year, the national homeownership rate remained
at record-high levels. The minority homeownership rate reached a record
high as well. But those statistics mask a deep divide--what we call the
``homeownership gap.'' Across the board, minority homeownership is
about 20 percentage points below the rate for the population as a
whole.
Many minority families find the pathway to homeownership blocked by
persistent barriers. These barriers include the inability to come up
with enough cash for a down payment, a lack of credit history, or a
blemished credit record . . . discrimination, and the unfamiliar terms
and unreliable information that are often part of the homebuying
process. Minority families often face discrimination in conjunction
with or in addition to these other barriers.
President Bush and I consider removing these barriers for all
families, including minority families, to be a top priority for HUD,
and one that is fundamental to our mission as the Nation's housing
agency.
The President launched America's Homeownership Challenge last June
and announced his aspirational goal of boosting minority homeownership
by 5.5 million families by the end of the decade. In response, HUD
created the Blueprint for the American Dream Partnership. Each partner
has made specific commitments that will help us reach our goal of
dramatically boosting minority homeownership.
One of the ways we are clearing away the barriers to homeownership
is by offering new tools and resources to the homeowners of tomorrow.
For example, the American Dream Downpayment Initiative will help
make homeownership a reality for 40,000 families. The Initiative is
currently moving through the Congress, and we are working with Members
to get it passed and signed into law. Congress appropriated $75 million
for the American Dream Downpayment Initiative for the current fiscal
year.
We have proposed increasing funding for our housing education
program to $45 million, which would allow HUD to counsel 250,000 first-
time homebuyers next year. Helping families learn about the loan
products and services available to them and how to identify and avoid
unscrupulous lenders is critical to increasing homeownership.
The Administration is boosting funding for the HOME Investment
Partnerships Program by $210 million from the 2003 enacted level, to a
total of $2.2 billion in fiscal year 2004. Both HOME and the Community
Development Block Grant programs are popular, successful, and locally
driven initiatives that communities can tap into to create affordable
homeownership opportunities for low-income families.
We are proposing a new Federal Housing Administration mortgage
insurance product, designed to create homeownership opportunities for
families with poor credit records who are served at a higher cost in
the subprime market or not served at all.
Our proposals also include a $1.7 billion Single-Family Affordable
Housing Tax Credit to encourage developers and nonprofit organizations
to produce affordable homes. The tax credit will make some 100,000
homes available for purchase in low-income neighborhoods.
During the 2000 campaign, the President announced a plan to give
another 2 million low-income Americans the opportunity to move into
their own homes with help from HUD's Section 8 Housing Choice Voucher
Program. We currently allow local housing officials to offer future
homebuyers the option of applying their vouchers toward a home
mortgage; our fiscal year 2004 budget proposal would ``expand the
program'' by allowing families to also put their vouchers toward a home
down payment.
These initiatives reflect just part of what has grown into an
Administration-wide commitment to making homeownership an affordable
option for every family that seeks it. With our assistance, and the
support of the Congress, low-income families across the country who at
one time never considered homeownership an option are becoming
homeowners today.
We are proud of our accomplishments over the past 2 years, but we
do not intend to rest on them. There is much more we plan to do, and by
working closely with you, we will continue to open up our communities
to new opportunities for growth and prosperity, and encourage more
families to seek homeownership and begin traveling the road to
prosperity.
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PREPARED STATEMENT OF TERRI Y. MONTAGUE
President and Chief Operating Officer
The Enterprise Foundation
Thank you, Chairman Shelby, Ranking Member Sarbanes and Committee
Members for this opportunity to share with you The Enterprise
Foundation's views on expanding homeownership for low-income and
minority families.
Enterprise is a national nonprofit organization that puts private
capital to work in low-income communities across the country, primarily
to produce affordable housing for working families. We have invested
nearly $4 billion to produce more than 144,000 affordable homes
nationwide. We are currently investing half-a-billion dollars a year in
the people, community-based groups and bricks and mortar developments
that are revitalizing some of our Nation's most disinvested
neighborhoods. Affordable homeownership is an increasingly important
activity for Enterprise and our local partners.
Before addressing the subject at hand, a word of thanks is in
order. No Federal policy is more effective in producing affordable
rental housing than the Low Income Housing Tax Credit (LIHTC). We thank
Housing Subcommittee Ranking Member Reed for his efforts to ensure that
the recent tax bill did not adversely affect the LIHTC. We are also
grateful to Committee Members, Senators Bayh, Chafee, Corzine, Johnson,
Sarbanes and Stabenow for expressing their strong support for this
critical program during Senate consideration of the bill. We urge all
Senators to ensure that any future tax proposals hold harmless the
LIHTC and other community development tax incentives, such as the New
Markets and Historic Rehabilitation Tax Credits.
We thank the Committee for its interest in the important subject of
affordable homeownership. We commend President Bush and Secretary
Martinez for their commitment to increasing minority homeownership by
5.5 million families by 2010. We are working with the Administration
and many other organizations to help achieve that ambitious goal.
Our testimony addresses four issues: 1) homeownership's importance
in revitalizing low-income communities; 2) the need for more affordable
for-sale housing in those areas; 3) Federal policies to expand low-
income homeownership and community development; and 4) other important
elements of a holistic housing policy. Our experience draws from many
urban areas, but our testimony particularly addresses our experience in
one community: Sandtown-Winchester in Baltimore, Maryland. We also
reference recent research that shows that Sandtown's homeownership
successes and challenges reflect larger trends and lessons.
Homeownership's Importance in Revitalizing Low-Income Communities
We suspect that the Committee will hear a great deal in connection
with this hearing about homeownership's benefits for families, which
can include wealth accumulation, greater stability and increased civic
engagement. These benefits may be especially pronounced for low-income
families. Homeownership also can have important benefits for low-income
communities, especially as part of broader revitalization strategies.
Enterprise's experience in Sandtown-Winchester provides a good
example. Sandtown is a 72 square block community in West Baltimore that
was once one of the most vibrant African American neighborhoods in the
city. By the time Enterprise, the City and Sandtown churches and
residents began a comprehensive community revitalization initiative in
the early 1990's, however, Sandtown had become one of Baltimore's most
troubled neighborhoods. All the indicators of distress--inadequate
housing, widespread blight, high crime, poor schools, rampant
unemployment and drug abuse--were present at alarmingly high levels.
Today, Sandtown is starting to turn around. In the 1990's,
Sandtown's homeownership rate more than doubled and property values
increased dramatically. Median family incomes rose 22 percent, after
accounting for inflation. Unemployment and property vacancies each
declined by one-third. In recent years, crime has decreased
substantially. Elementary school test scores have improved
significantly.
After decades of disinvestment and decay, hope, and new investment,
is coming back to Sandtown. Large-scale development of affordable for-
sale housing is at the heart of Sandtown's recent progress. Enterprise
has developed nearly 400 for-sale homes in the area. Another 200-plus
are in the pipeline. We also have provided
financing to help Habitat for Humanity build another 200 homes in the
neighborhood. Virtually all of these homes have sold to low-income
working African American families.
To be sure, Sandtown still faces many daunting challenges.
Homeownership, incomes, employment and educational attainment levels
are still too low. Crime and addiction are too high. But the progress
and momentum in Sandtown is undeniable and homeownership is a big
reason why. Researchers from the Johns Hopkins University Institute for
Policy Studies concluded:
This analysis suggests that Sandtown-Winchester's increase in
median sales prices between 1990 and 1999 is associated with
its comprehensive approach to neighborhood revitalization, in
general, and its successful physical capital improvements, in
particular. Sandtown's approach centers on public-private-
nonprofit partnerships that incorporate--in order of descending
importance--physical capital, CDC's [community development
corporations], homeownership and social capital. It has
succeeded in physical capital development, and in combining
homeownership initiatives with the development of social
capital through CDC's and other neighborhood-based
organizations.i
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\i\ The Johns Hopkins University Institute for Policy Studies,
Neighborhoods Moving Up: What Baltimore Can Learn From its Own
Improving Neighborhoods, 2001, p. 34.
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Sandtown is far from the only place where housing investment--
homeownership and rental--is helping drive broader neighborhood
improvements. In its year-long, comprehensive analysis of housing
challenges and solutions, the bipartisan Millennial Housing Commission
found:
Both theory and empirical evidence suggest that when several
owners fail to maintain their properties, others nearby follow
suit because their neighbors' inaction undermines property
values. Rundown and abandoned properties can have a contagious
effect that accelerates neighborhood decline.
Replacing or upgrading distressed properties is, therefore, a
precondition for neighborhood revitalization. Public investment
in housing often triggers private investment that ultimately
lifts property values. Although larger economic and social
forces can undermine such efforts, recent comprehensive
community development projects suggest that concentrated public
investment in mixed-income housing can initiate neighborhood
reclamation.ii
---------------------------------------------------------------------------
\ii\ Millennial Housing Commission, Meeting Our Nation's Housing
Challenges, 2002, p. 11.
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The Need for More Affordable For-Sale Housing in Low-Income
Communities
The magnitude and impact of the homeownership development in
Sandtown is especially striking in light of the conditions the
community faced as the revitalization initiative began a decade ago.
The homeownership rate was less than 11 percent and more than 600
vacant homes in various States of distress blighted the neighborhood.
By necessity, large-scale homeownership development was central to the
revitalization strategy from the outset.
Other parts of the country face a supply shortage of decent,
affordable for-sale housing as well. According to Harvard's Joint
Center for Housing Studies and the Brookings Institution:
Many low-income renter households may be in a position to
overcome the wealth and income constraints on buying a home,
but will still be constrained by a lack of adequate housing
units at an appropriate price in a desirable location. Supply
side constraints on homeownership deserve greater attention
from researchers and policymakers.
Affordable homes for ownership are being lost to house price
inflation and vacancies. . . On net there were about a half-
million fewer affordable owner-occupied homes in 1999 than in
1997. The result, based on one set of underwriting assumptions,
is that the share of owner-occupied homes affordable to low-
income households fell from 47 percent to 44 percent of the
stock from 1997 to 1999.
When adjustments for variables that usually affect
homeownership are made, the stock of homes plays a significant
role in determining homeownership for low-income households.
The presence of single-family and new homes contributes to
higher homeownership by low-income households. Yet very few
nonmobile units are being added to the stock at affordable
levels. Policymakers need to recognize the failure of filtering
as a mechanism to expand the supply of affordable
homes.iii
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\iii\ Collins, Crowe and Carliner, ``Supply Side Constraints on
Low-Income Homeownership,'' in Retsinas and Belsky, eds., Low-Income
Homeownership: Examining the Unexamined Goal, 2002, pp. 197-198.
Several years ago, the National Housing Conference's Center for
Housing Policy found that between 1997 and 1998, 200,000 working renter
families in 17 major metropolitan areas could afford to purchase three-
plus-bedroom houses priced between $50,000 and $75,000. But only 30,000
homes in that price range were available in those
locations.iv Just last month, the Center released a new
report on homeownership and rental housing needs in 60 of the Nation's
largest housing markets. The report found that families who depend on a
teacher or police officer's salary are priced out of homeownership in
roughly half those jurisdictions. Families that depend on the salaries
of a janitor or retail sales person cannot reasonably afford the median
priced home in any of those 60 metropolitan areas. (Nurses are shut out
in 57 of the 60 areas.) The report notes that these professions are
often occupied by people entering the workforce for the first time,
perhaps transitioning from welfare, and that they play vital roles in
their communities.v
---------------------------------------------------------------------------
\iv\ National Housing Conference Center for Housing Policy, Housing
America's Working Families, 2000, p. 21.
\v\ National Housing Conference Center for Housing Policy, Paycheck
to Paycheck: Wages and the Cost of Housing in America, 2003, p. 2.
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Enterprise's experience is that the shortfall of for-sale housing
is especially acute in low-income and minority neighborhoods. One of
the biggest barriers to expanding the supply of affordable, for-sale
homes in many of these communities is that it often costs more to build
or rehabilitate housing than market prices will support. This market
failure denies low-income people homeownership opportunity and prevents
low-income neighborhoods from reaping the broader benefits that often
accompany increased homeownership.
As we have seen in Sandtown and elsewhere, the market can work--
low-income people will buy in ``distressed'' communities, to their and
the neighborhoods' benefit--if homes are available. We also see in
Sandtown, as in many other communities, the need for more homeownership
resources. The next major phase of homeownership development has moved
slowly largely due to a lack of resources.
Federal Policies to Expand Low-Income Homeownership and Community
Development
The largest Federal subsidies for homeownership--the Federal income
tax deductions for mortgage interest and property taxes and the capital
gains tax exclusion for home sales--overwhelmingly benefit upper income
homeowners and more affluent communities. In fiscal year 2003, these
provisions cost $110 billion, three-and-a-half times the size of the
entire budget for the Department of Housing and Urban Development
(HUD).
There are, however, a few Federal initiatives that expand
homeownership opportunity for low-income people and help strengthen
low-income neighborhoods and the grassroots groups that serve them.
Among the most effective existing programs are the following:
The HUD ``Section 4'' program, which provides operating support and
technical assistance to community-based groups through national
intermediaries that must leverage at least three dollars of private
matching funds for every Federal dollar. Section 4 funds help
grassroots groups hire and retain staff, invest in technology, improve
management and operations, enhance staff expertise and form new
partnerships. Many of the community-based partners Enterprise assists
with Section 4 funds are increasing their homeownership activities as a
result of Section 4 assistance. Enterprise is requesting that Congress
provide $40 million in Section 4 funds for Enterprise and the Local
Initiatives Support Corporation to split equally for fiscal year 2004.
The HOME housing block grant, provides flexible funds to States,
cities and grassroots groups for homeownership development, repair and
downpayment assistance, as well as rental apartment development and
tenant rental help. Nearly 60 percent of HOME funds have been used for
affordable homeownership, assisting more than 418,000 low-income
people.vi Enterprise is recommending that Congress fund HOME
at $2.9 billion for fiscal year 2004. Enterprise supports the
Administration's proposed expansion of the homeownership downpayment
set-aside program. We would note that the set-aside is unnecessary,
since HOME already allows jurisdictions to provide downpayment
assistance. We urge Congress to refrain from enacting any additional
set-asides within HOME and to fund existing set-asides only to the
extent they do not reduce formula funding for the block grant.
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\vi\ HUD website (www.hud.gov), ``HOME Program National Production
Report as of 5/31/03.''
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The Treasury Department's Community Development Financial
Institutions (CDFI) Fund, leverages private sector support for
community-based financial institutions that provide a variety of
affordable homeownership development, financing and counseling
services, as well as rental housing support. The CDFI Fund is placing
priority on expanding homeownership in the current fiscal year.
Enterprise is requesting that Congress provide $80 million for the Fund
for fiscal year 2004.
The Federal Housing Administration's Asset Control Area initiative,
enables local governments and qualified community groups to take
abandoned, foreclosed homes off the Federal Government's hands for
rehabilitation and resale to buyers in distressed areas. The ACA
initiative has the potential to boost low-income and minority
homeownership and help stabilize neighborhoods ravaged by large numbers
of vacant properties. ACA participants in 15 jurisdictions have been
operating under individual agreements with HUD. The Department is
currently negotiating new agreements with participants under more
uniform criteria. In general, those negotiations have been productive.
Enterprise remains concerned about two issues, however: 1) HUD has
been slow in negotiating final agreements, which is threatening the
progress of the private-public partnerships that most ACA participants
had carefully developed under their prior agreements; and 2) the
Department has in some instances applied a narrow interpretation to the
flexible statute that limits the program's potential. We and other ACA
program participants are disappointed that HUD has not to date allowed
ACA participants to sell homes for market value, receive reasonable
compensation for development activities and convert a limited portion
of multiunit properties into rental housing where necessary. We
continue to work with the Department on these issues and will keep the
Committee fully informed. We greatly appreciate the strong support
Senators Sarbanes and Reed have shown for the ACA program.
In addition to these existing initiatives, Enterprise strongly
supports the proposed Homeownership Tax Credit. An unusually broad
coalition of housing organizations supports the proposal (please see
list below). Bipartisan bills have been introduced in the House and
Senate to enact the Credit. The Senate bill, S. 875, is sponsored by
Senators Kerry and Santorum. We thank Committee Members Allard, Bayh,
Crapo, Hagel, Johnson, Sarbanes, Schumer and Stabenow for cosponsoring
this bill. We urge the other Committee Members, and all other Senators,
to join them.
The Credit is designed to address the market failure mentioned
above that shuts out so many low-income families and communities from
homeownership opportunity: the gap between development costs and market
value of affordable, for-sale housing in low-income areas. The proposal
is based on the highly effective Rental Credit (LIHTC) and could do for
homeownership what the Rental Credit has done for affordable apartment
development. The Homeownership Credit has the same sound principles as
the Rental Credit of State administration and flexibility, private
sector competition and oversight and a strong role for community-based
groups. The same highly efficient system of State administrators,
corporate investors and community-based and for-profit developers that
have made the Rental Credit so successful would readily embrace and
effectively utilize the Homeownership Credit.
In addition to expanding homeownership opportunity for low-income
people, the Credit would help stabilize disinvested neighborhoods and
contribute to their revitalization. The Credit recognizes the critical
role homeownership can play in community development by targeting
resources to low-income and economically disadvantaged communities,
including rural and Native American areas. The Credit also would have
significant economic benefits. The 50,000 homes it would produce each
year would generate 122,000 jobs, $4 billion in wages and $2 billion in
Federal, State and local revenue annually. For these reasons, the
Homeownership Credit is just what Sandtown and so many other urban and
rural low-income communities need to help them continue their progress.
Homeownership as Part of a Holistic Housing Policy
We are grateful for this opportunity to share our views on how
homeownership can help revitalize low-income communities. We urge
Congress to support the policies we have mentioned to help achieve that
goal. Our Nation needs more affordable, for-sale housing, especially in
neighborhoods that did not share in the recent national prosperity and
have been hit hardest by the economic slowdown.
As important as homeownership is, it is only one component of a
holistic housing policy that addresses all our housing needs. Public
housing, tenant rental assistance and tools to produce more affordable
rental apartments are equally important, if not more important. Low-
and extremely low-income renters face by far the most acute housing
needs. At current funding levels, the programs that produce rental
apartments these families can afford can barely keep up with the
apartments lost every year to rent increases, abandonment and
deterioration--let alone meet chronic and worsening shortages.
As the LIHTC and HOME programs have shown, rental housing
development can provide similar community revitalization benefits to
homeownership development. Again, Enterprise's Sandtown experience is
instructive: hundreds of new rental apartments have complemented the
homeownership development and contributed as well to the neighborhood's
improvement. Without substantial additional investments in the
surrounding community, including decent, affordable rental housing,
many homebuyers in low-income areas may not benefit from the stability
and wealth building homeownership promises.
Homeownership is not for everyone. Many low-income renters will
remain renters by choice. Others will need to rent for a period of time
to amass savings, repair credit history and learn the responsibilities
of homeownership before they can make their first downpayment. Others
may never be ready or able to become homeowners. A holistic housing
policy--and a compassionate country--cannot afford to ignore the needs
of these families and individuals.
Community Homeownership Credit Coaliton
Coalition Members
America's Community Bankers
Bank of America
CEO's for Cities
Coalition for Indian Housing and Development
Council of Federal Home Loan Banks
Council of State Community Development Agencies
The Enterprise Foundation
Fannie Mae
Federal Home Loan Bank of Pittsburgh
Financial Services Roundtable
Freddie Mac
Habitat for Humanity International
Housing Assistance Council
The Housing Partnership Network
Local Initiatives Support Corporation
Manufactured Housing Institute
McAuley Institute
Mortgage Bankers Association of America
National Association of Affordable Housing Lenders
National Association of Counties
National Association of Home Builders
National Association of Local Housing Finance Agencies
National Association of Real Estate Brokers
National Association of Realtors
National Coalition for Asian Pacific American Community Development
National Cooperative Bank/NCB Development Corporation
National Community Development Association
National Congress for Community Economic Development
National Council of La Raza
National Council of State Housing Agencies
National Hispanic Housing Council
National Housing Conference
National League of Cities
National Neighborhood Housing Network
National Rural Housing Coalition
National Urban League
Neighborhood Reinvestment Corporation
Stand Up for Rural America
United Way of America
U.S. Conference of Mayors
------------
PREPARED STATEMENT OF CATHY WHATLEY
President
The National Association of Realtors
On behalf of more than 900,000 Members of the NATIONAL ASSOCIATION
OF REALTORS', we are pleased to submit this testimony
promoting homeownership and housing opportunities. The NATIONAL
ASSOCIATION OF REALTORS' represents a wide variety of
housing industry professionals committed to developing and preserving
the Nation's housing stock and making it available to the widest range
of potential homebuyers. The Association has a long tradition of
support for innovative and effective Federal housing programs and we
work diligently with the Committee and the Congress to fashion housing
policies that ensure Federal housing programs meet their mission
responsibly and efficiently.
We commend the Committee for its continuing efforts on behalf of
American families who need and desire affordable housing opportunities.
Even today, where we have seen the greatest boom in homeownership
rates, many working families are not able to find decent affordable
housing. This hearing is very timely, as June is National Homeownership
Month, where we recognize the value of having all citizens reach the
American Dream. The NATIONAL ASSOCIATION OF REALTORS' (has
consistently maintained that homeownership serves as a cornerstone of
our democratic system of government and that homeownership continues to
be a strong personal and social priority in the United States. Living
in one's own home is central to the concept that a person has achieved
a measure of security and success in life.
As America's greatest tangible asset, real estate plays a critical
role in our Nation's economy. Home sales and mortgage originations have
set two successive record-breaking years in 2001 and 2002. Directly and
indirectly, the housing sector has been instrumental in keeping the
overall national economy afloat, contributing 68 percent of the U.S.
economic growth in the past 2 years. The construction of new homes,
value added contributions of REALTORS', and mortgage banking
activity all directly add to economic output, job creation, and income
generation. Given the stronger than expected home sales activity so far
this year, we predict that new home sales will set a historic record in
2003.
As you can see, the current system of our real estate market is
making substantial contributions to our Nation's economic well-being.
That is why the National Association of REALTORS' opposes
tampering with our real estate system. Allowing financial holding
companies and subsidiary national banks to engage in real estate
brokerage and management could put the safety and soundness of the U.S.
economy at risk. We oppose such an untested regulation. Serving as the
pillar of our Nation's economy in 2001 and 2002, our current system of
real estate commerce is poised to do so again in 2003.
Achieving the American dream increases financial stability for
American families as well. Homeownership is the primary source of a
household's net worth and the fundamental first step toward
accumulating personal wealth. At the urging of Federal Reserve Chairman
Alan Greenspan, in 2001 NAR examined the wealth effect of housing and
determined that home equity is the largest source of wealth for 3 out 4
homeowners. Additionally, our research determined that gains realized
by homeowners from the sale of their homes average $30,000-$35,000, and
between 76 and 85 percent of those gains are reinvested for the next
home purchase.
As we look forward, change is on the horizon that challenges
Congress, the Administration and the real estate industry to step
forward and collectively produce favorable and responsible public
policies that continue to promote homeownership, provide real estate
investment opportunities and protect the free market system to further
America's growth and prosperity.
For example, our U.S. population will continue to expand, reaching
310 million by 2010 and 340 million by 2020, supporting strong housing
demand. In each year of this new decade, we anticipate between 1.1
million and 2.1 million new households will form. Baby Boomers, born
between 1946 and 1964, will be the prime market for trade-up, upscale
and vacation homes. Their children will be the main source of future
homeownership growth, particularly as they begin looking for starter
homes after 2010. In fact, we expect 7.6 million people between the age
of 25-34, and 6.7 million aged 35-44, will represent the greatest
growth in homeownership through 2010. Because of the expected increases
in population, we believe homeownership will surpass 70 percent by
2010.
But, the biggest source of household growth in this decade will
come from minorities and immigrants. Very simply, minorities will
account for 64 percent of all new households. Between 1993 and 2000,
minorities accounted for 44 percent of homeownership growth while
accounting for 25 percent of all households. Today, an immigrant or a
first-generation American heads one in five U.S. households. By 2020,
the number of minority households will grow to over 41 million. The
creation of these additional households will require more home
construction as well as favorable economic conditions to lure potential
homebuyers. The real estate industry and our Federal policymakers have
a responsibility and obligation to ensure these groups are not ignored
in their quests for housing opportunities.
Chairman Shelby, and Members of the Committee, this is why the
National Association of REALTORS' is committed to ensuring
that our industry is positioned to expand and deliver broader housing
opportunities benefiting all Americans. We have launched a new Housing
Opportunity Program aimed at making a commitment and sharing
responsibility for the health and well-being of our communities
nationwide. Soaring housing values have made the housing sector the
brightest light in a gloomy economy. But, it has also put affordable
housing beyond the reach of millions of American families. Today's
housing costs are dividing America into two Nations, one of ``housing
haves''--families that purchased property before the price explosion
or who can afford high prices--and another of ``housing have nots,''
families who must scale down their expectations and make lifestyle
sacrifices to afford adequate shelter.
Not only is the NATIONAL ASSOCIATION OF REALTORS'
addressing the problem in a comprehensive manner, but I have challenged
each of the REALTORS' organization's 1539 local and State
boards and associations to develop their own affordable housing project
or housing opportunity response. Already, quite a few have taken steps
to make a difference and make the American dream a reality in their
communities. For example, the REALTORS' Association of
Mobile, Alabama requires that all homes for sale in the Mobile area
have listing information available in about 10 different languages.
This assists immigrants and non-English speaking minorities in
purchasing a home. In Maryland, a number of local REALTOR'
associations, including in Anne Arundel County, Howard County, Prince
George's County, and the Greater Baltimore Board of
REALTORS' have partnered with Freddie Mac to develop
CreditSmartsm, a credit education workshop.
REALTOR' instructors teach the course to renters,
homebuyers, students, and others, on how to manage critical money
skills. Obtaining and keeping good credit is an essential step in
buying a home, and this program gets people off on the right foot.
Mr. Chairman, as you know, homeownership rates for minorities lag
far behind that of white families. We applaud the President's
initiative to increase minority homeownership by 5.5 million over the
next 10 years. REALTORS' are doing their part to make this
goal a reality. The National Association of REALTORS' is an
original partner in the White House initiative, and are proud to be a
party of the WOW (With Ownership Wealth) program of the Congressional
Black Caucus Foundation. In addition, our REALTORS' At Home
with Diversity' program provides real estate agents with
training tools which help develop and expand their outreach to growing
minority and immigrant markets, markets in which two thirds of our
Nation's households will come from this decade. To date, we have
certified almost 10,000 REALTORS' in this program, which one
participant described by saying, ``My attitude toward clients from
other cultures has changed dramatically. The best way I know to
describe it is that I lost the `fear' of dealing with other cultures.''
In April, the NAR, along with The National Association of Real
Estate Brokers, the National Association of Hispanic Real Estate
Professionals and the Asian Real Estate Association of America entered
into a historic partnership with HUD to promote fair housing and
increase minority homeownership. This partnership builds upon our work
with the White House and the HOPE Awards, which we jointly sponsor with
these and several other minority real estate organizations.
The HOPE (Home Ownership Participation for Everyone) Awards
recognizes up to seven organizations and individuals who are making
outstanding contributions to increasing minority homeownership. We have
honored two organizations for their work advancing public policies to
promote minority homeownership. In 2002, the Greater Baltimore Board of
Realtors was recognized for its public campaign to educate residents
and policy leaders in Baltimore regarding abusive real estate and
lending practices. This year, the brokerage award went to Emily
Moerdomo Fu of RE/MAX Greater Atlanta International. Minority
homeownership always has been the focus of Emily Fu's company, which
she located in Atlanta's Asian Square Shopping Center, where the Asian
and Hispanic communities come together. Her staff speaks 16 different
languages and comes from 19 different cultural backgrounds. The
brokerage provides a full array of services and since 1990 has helped
thousands of minority families close on their first homes.
We are also working on a number of research products to review
differences in homeowership rates. We have commissioned a study to
evaluate the reasons for the homeownership gap between whites and
minorities. We have completed the first phase of this study and expect
to conclude our research early next year. We welcome the opportunity to
share the results of this report with the Committee at that time.
As part of our commitment to President Bush's Homeownership
Initiative, The NATIONAL ASSOCIATION OF REALTORS' is
convening the National Summit on Housing Opportunities on September 25,
2003 in Washington, DC to build a consensus for action. The Summit will
bring together the country's housing leadership to consider the future
of the Nation's affordable housing opportunities and how to elevate
affordable housing on the national policy agenda. A cross section of
the Nation's foremost housing and community development leaders will
examine the critical questions that will determine the future shape of
the American dream. I would like to invite you Mr. Chairman, and the
Members of this Committee, to join us at this special event.
In addition, we have an ongoing partnership with Habitat for
Humanity. We are a national underwriter of the Congress Building
America program. This program is designed to highlight the importance
of volunteerism, produce new affordable single-family homes, and
strengthen the network for affordable housing support. Also since 2001
we have agreed to build a new Habitat home in each of the cities where
we hold our Annual Convention. We are currently working on a new home,
in San Francisco, the site of our 2003 Annual Convention.
Clearly, those of us involved in the process of helping people
achieve the American dream of homeownership can and must find more ways
to encourage innovation and inspire investment in housing.
REALTORS', particularly, are in a unique position to parlay
the need for affordable housing, both in the rental and homeownership
sectors of the market, into something tangible, concrete and livable.
The NATIONAL ASSOCIATION OF REALTORS' believes now is
the time to address new and innovative approaches to stimulating
homeownership opportunities. Although housing remains strong in our
Nation's economy and has helped to increase our Nation's homeownership
rate to a record 68 percent, many deserving American families continue
to face obstacles in their quest for the American dream of owning a
home.
Consider the following:
One out of every seven American families--13 million
families--has critical housing needs;
More than 7.5 million renters nationwide face critical housing
needs, either living in substandard properties or paying more than
50 percent of their income toward housing;
Six million families--nearly half of those with critical
housing needs--earn at least some, if not all, of their income from
working;
Most of these people earn less than half of the median income
for their area. They do not receive government assistance, and they
pay more than half of their income for housing or live in bad
conditions;
In 24 States, a household with two full-time minimum wage
earners cannot afford a 2-bedroom apartment without spending more
than 30 percent of their income;
Many who lack decent affordable housing are not what most of
us would consider poor. Among those hardest hit are schoolteachers,
police officers and municipal workers;
Our Nation's housing shortage is a major contributor to
sprawl, forcing people to move farther and farther away from the
urban core to find homes they can afford;
Nationwide, the inventory of affordable homes has shrunk to
the lowest level in a decade;
Statistics show that the waiting list for public housing has
grown to approximately 1 million households with wait times as long
as 10 years in some cities, while the average wait for a rental
voucher in some cities is 5 years;
Finally, there are approximately 270,000 households with
disabled Members on waiting lists for Federal housing assistance.
As we seek to address critical challenges affecting housing
affordability, minority homeownership, housing supply and community
revitalization, REALTORS' stand ready to work with Congress
to enact favorable real estate policies that benefit our Nation. To
that end, we offer our support for a number of legislative and
regulatory proposals that serve as a viable solution to the challenge
of increasing homeownership opportunities and we respectfully encourage
Congress to consider these additional initiatives to inspire investment
in housing, share responsibility for our communities and expand housing
opportunities--rental as well as ownership--for all Americans.
Support and Enact S. 811--American Dream Downpayment
With one out of seven families in the Nation facing critical
housing needs and low- and moderate-income working families virtually
shut out of the housing purchase market, the NATIONAL ASSOCIATION OF
REALTORS' commends Senator Wayne Allard (R-CO) for
introducing S. 811, The American Dream Downpayment Act. It will provide
assistance permitting up to 40,000 families a year to buy their first
home. The initiative would provide grants to States and local
governments under the Department of Housing and Urban Development's
HOME Investment Partnership program. Enacted in 1992, the HOME program
has successfully helped expand the supply of decent, affordable housing
for deserving families by providing funds to communities to address
housing shortages and needs.
The NATIONAL ASSOCIATION OF REALTORS' has long
recognized that the initial accumulation of cash remains the most
challenging hurdle for many prospective homebuyers. We wholeheartedly
support legislation that reduces homebuying costs and helps people
achieve the American dream of homeownership. S. 811 is good, sound
legislation that will not only stimulate new housing opportunities but
will also help to sustain the momentum in our Nation's housing boom.
Support and Enact S. 875--Renewing The Dream Tax Credit Act
Although this bill is not under the jurisdiction of this Committee,
we call to your attention S. 875. It provides a new, innovative tool
for increasing the supply of affordable housing. Nearly half of the
Members of this Committee have cosponsored the bill, and Senator
Santorum (R-PA) has joined Senator Kerry (D-MA) as the primary sponsor.
This legislation builds on a framework provided in each Bush
Administration budget since 2001. It provides a substantial tax credit
for developers and investors who construct or rehabilitate housing for
low- and moderate-income families to purchase. The credit is needed
because in lower-income distressed and gentrifying urban neighborhoods
the cost of building and rehabilitating homes far exceeds the prices at
which these homes can be sold to lower income families. Similarly,
older or inner ring suburbs that need revitalization and updating would
qualify for the credit.
The homeownership credit will fill the gap between development
costs and home prices, promoting home purchase and halting further
neighborhood deterioration. In gentrifying neighborhoods the credit can
provide affordability to existing lower-income residents, preventing
displacement. And, in rural communities and on Indian reservations the
credit will attract development investment and enhance housing
capacity.
Several Senators, including most recently Senators Smith (R-OR) and
Stabenow (D-MI), have introduced a variety of tax credits and
incentives directed at buyers. NAR welcomes all ideas and solutions for
increasing homeownership. We note, however, that in today's market, the
most serious affordable housing issue is the intense shortage of entry-
level housing. The marketplace has developed a host of products to
assist prospective purchasers qualify for a mortgage. These products,
combined with enactment of the American Dream Downpayment grants, make
a wide variety of financial support available to buyers. More and more
frequently, however, these individuals who have qualified for different
types of mortgages are simply unable to locate homes that are
affordable, appropriate and accessible to jobs. Accordingly, NAR is
presently focusing its advocacy efforts on increasing that supply of
housing. We are focusing our advocacy efforts on securing the enactment
of S. 875 so that more housing alternatives will be available for
purchase.
FHA Subprime Mortgage Product
The President's fiscal year 2004 Budget request proposed a new FHA
mortgage product. This would be a sub-prime loan to borrowers who have
poor credit. Borrowers would be required to meet debt, income, and
repayment ability standards, but are not required to meet traditional
underwriting standards due to their credit rating. The loans would have
a higher premium, but after 24 months of on-time payments, the premium
would be reduced. HUD estimates that an estimated 62,000 credit-
impaired homebuyers would receive financing in the first year. The
program is also expected to generate $7.5 billion annually in
additional insurance volume for FHA. We support the development of such
a product, which would expand home purchase opportunities for more
borrowers. Homebuyers with impaired credit are customarily at risk for
predatory lending. We believe an FHA loan of this type would protect
these borrowers, and offer them more opportunities for home purchase
without subjecting them to a lifetime of higher premiums. We welcome
the opportunity to work with the Administration and Congress to develop
an FHA subprime loan product.
Property/Casualty Insurance
Property casualty coverage is an underwriting requirement for all
home mortgages. In reaction to rising claims and losses, insurers have
recently taken a number of steps to limit their risk. These steps
include limiting the number of new policies written, increasing
premiums, instituting new policy exclusions for some hazard claims and
tightening their underwriting criteria for both borrowers and
properties. Insurers now use insurance scores and claims databases to
underwrite insurance applications. An insurance score is a credit-based
statistical analysis of a consumer's likelihood of filing an insurance
claim within a given period of time in the future. According to the
insurance industry, studies have shown a correlation between a
consumer's financial history and his/her future insurance loss
potential. Thus, insurance companies believe the use of credit helps to
underwrite an applicant at a cost that reflects their specific risk.
The result of this is that homebuyers with impaired credit could find
themselves in a situation where they can qualify for a loan product,
but not qualify for property casualty insurance, thus rendering them
unable to purchase a home. We encourage Congress to hold hearings on
this important issue to review the implications of insurance scoring on
prospective homebuyers and homeowners.
Amend Section 214 of the National Housing Act
The median price of an existing, single-family detached home in Los
Angeles during 2002 was $290,000. In San Francisco that number is
$530,900. In the New York Metropolitan area the median home price was
$328,000. The current FHA maximum high-cost mortgage insurance limit is
$280,749, meaning that for many working families--teachers, police
officers, firefighters--FHA is not a useful homeownership tool. We
strongly support amending Section 214 of the National Housing Act to
add other States to the list of high cost areas, permitting FHA
mortgage limits to be adjusted up to 150 percent of the statutory
ceiling.
When Congress authorized Section 214 of the National Housing Act,
it did so upon finding that higher costs prevailed in Alaska, Guam,
Hawaii and the Virgin Islands because it was not feasible to construct
dwellings without sacrificing sound standards of construction, design
or livability. As a result, the Secretary of HUD was given authority to
prescribe a higher maximum for the principal obligation of mortgages
insured covering property in these areas. Today, many cities and States
have housing costs that are higher than these designated high cost
areas. We therefore believe it is appropriate for Congress to amend the
list of areas where the maximum mortgage amount may be adjusted upward.
In addition, under the conventional market the secondary market
conforming loan limits have not kept pace in the same high cost areas.
In some jurisdictions, area median home values far outstrip the
conforming loan limit. The economic dynamics that lead to the
designation of the current high costs States and jurisdictions have not
been revised in nearly 30 years. We urge Congress to reexamine the
current system of GSE loan limits, and recognize that Alaska and Hawaii
are not the only areas that require higher loan limits to provide
affordability benefits conferred by the secondary market.
Creation of Hybrid Adjustable Rate Mortgages
The NATIONAL ASSOCIATION OF REALTORS' strongly supports
legislation passed in the 107th Congress creating a series of hybrid
FHA adjustable rate mortgages (ARM's). These new products will help
close the homeownership gap for the majority of first-time, low-income
and minority households who need FHA insurance to qualify for
homeownership. The new ARM products will provide borrowers with the
security of fixed-rate mortgages. By combining elements of a fixed-rate
mortgage and a traditional 1 year ARM, the new products will serve as a
convenient and affordable tool for FHA homebuyers seeking a hedge
against any potential rise in the cost of traditional fixed-rate
mortgages. Additionally, the ARM products will lessen consumer worries
stemming from the initial ``teaser'' rates of traditional ARM's, which
customarily convert to a higher interest rate after the first
adjustment. With a fixed interest rate period of at least 3 years, the
users will experience less ``payment shock'' offering homebuyers the
opportunity to save money during the early years of the mortgage. We
applaud the Administration for acting quickly in developing this new
product.
However, the enacting legislation capped the first interest rate
adjustment for
3/1 and 5/1 hybrid ARM's at 1 percent. A maximum 1 percent increase in
the interest rate at the time of the first rate adjustment for a 5/1
hybrid ARM does not offer sufficient interest rate flexibility for a
lender to offer this type of ARM product at a lower interest rate than
a traditional 30-year fixed rate mortgage. As a result, FHA borrowers
are not afforded the benefit of a hybrid ARM loan that features a
starting interest rate lower than a 30-year fixed rate mortgage. We
hope to work with the Committee and the Administration to develop a
technical correction to make all FHA ARM products a much more
available, affordable alternative for
homebuyers.
Preservation of the 203k Rehabilitation Program
The 203(k) program is the primary Federal Housing Administration
(FHA) program for the rehabilitation and repair of single-family
properties. Section 203(k) loan insurance enables homebuyers and
homeowners to finance both the purchase (or refinance) of a house and
the cost of its rehabilitation through a single mortgage.
NAR supports the current FHA 203(k) program as viable source for
expanding homeownership and revitalizing neighborhoods. The need for
this program to remain as Congress intended is as real today as it was
when the program was created in the 1960's. The lack of affordable
housing and reasonable housing opportunities is still an important
factor in the lives of many people, especially minorities, immigrants,
seniors, the disabled and the homeless. Without affordable and
available housing opportunities, neighborhoods decline, families are
stressed, jobs go unfilled and the quality of life deteriorates for
all. The 203(k) program has allowed many lenders over the years to
partner with State and local housing agencies and nonprofit
organizations to rehabilitate properties and revitalize communities. We
urge the Committee to preserve this important and vital program.
In closing, the NATIONAL ASSOCIATION OF REALTORS'
appreciates the opportunity to share its viewpoints regarding important
legislation before the Committee that promotes the dream of
homeownership through downpayment assistance. We applaud the Committee
for its leadership and commitment in stimulating housing opportunities
nationwide, and we stand ready to work with the Committee in fashioning
legislation that helps deserving American families fulfill their
housing needs.
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PREPARED STATEMENT OF THOMAS L. JONES
Vice President
Habitat for Humanity International
Thank you, Chairman Shelby, Senator Sarbanes and Members of the
Committee for this opportunity to discuss expanding affordable
homeownership in our country. I am Tom Jones, Vice President of Habitat
for Humanity International (HFHI) and Managing Director of its
Washington Office for the past eleven years. The Washington Office is a
branch of the executive offices of Habitat for Humanity International,
located in Americus, Georgia. The Washington Office serves as Habitat
for Humanity International's presence in the Nation's capital. We are
privileged to represent Habitat for Humanity International with
Congress and Administration, professional and industry groups, NGO's,
international groups, embassies, other nonprofits, labor unions,
business corporations, and others.
On behalf of Habitat for Humanity International, I am deeply
grateful for the opportunity to testify before the Committee. The
Members of this Committee continue to demonstrate their commitment to
expanding housing opportunities for all persons by passing meaningful
legislation and by holding hearings, such as this one--during National
Homeownership Month--to highlight affordable homeownership as one of
the single most important tools that a family can use to improve their
quality of life and build wealth.
Just last week, Habitat for Humanity was honored to be joined by
Secretary Martinez and many of you and your colleagues to kick-off
National Homeownership Month by announcing our new, National initiative
designed to offer Members of Congress an opportunity to have hands-on
experiences with families around the country seeking to build their
dreams through the ``self-help'' model of homeownership. The ``Congress
Building America'' program is a partnership between Habitat for
Humanity, HUD, the U.S. Congress, and national corporate and nonprofit
sponsors who will join forces with local Habitat affiliates to
construct hundreds of affordable single-family homes. This initiative--
modeled on the highly successful ``The Houses That Congress Built'' and
``The Houses The Senate Built'' in which many of you recently
participated--is supported by congressional resolutions, already passed
in the Senate and soon to be passed by the House. These resolutions
express the sense of Congress in support of ``Congress Building
America'' and increased access to affordable homeownership
opportunities. Members of Congress are encouraged to participate in
``Congress Building America'' events with Habitat homeowner families
and local Habitat affiliates in their districts or States during the
108th and the 109th sessions of Congress. We are confident that this
partnership with Congress will strengthen the network of housing
supporters, place the issue of affordable housing at the forefront of
the Nation's social agenda, highlight the importance of volunteerism,
and raise public awareness that access to affordable, decent and safe
housing is an opportunity every person and family should have.
Habitat for Humanity has spent the past twenty-seven years building
affordable homes for homeownership with families who cannot qualify for
mortgages in the conventional market. Home construction is supported by
private donations, government partnerships for seed monies for land and
infrastructure development, volunteer labor and homeowner's ``sweat
equity.'' Habitat homes are sold for no-profit and financed by zero-
interest, long-term mortgages that each family can afford. The average
Habitat house selling price in the United States was $51,219 in 2002.
We have now built nearly 150,000 homes worldwide, and are working to
complete another 50,000 homes by 2005, using 1,671 affiliates in all
fifty States and over 500 international affiliates in 87 countries
worldwide.
Our homeowner families are typically first-time homebuyers who earn
wages below 50 percent of the area median. Just over 71 percent of
Habitat homeowners are minority and almost half are single parents
raising school-aged children. Homeowners contribute 250-500 hours of
their own labor as ``sweat-equity'' in the building of their homes and
other Habitat homes. By partnering with Habitat, families are able to
move from substandard, deteriorating, overcrowded, and unsafe housing,
sometimes even homelessness, into their very own homes which they
purchase with an affordable mortgage and build with their own hands.
The success of Habitat for Humanity in creating homeownership
opportunities for thousands of Americans who would otherwise never have
the chance to own their own home is, in part, due to the generous
support of Congress and the Administration. Since 1996, Congress has
appropriated funding for the Capacity Building for Habitat for Humanity
program, part of the Section 4 Capacity Building funds that benefit
other housing and community development organizations, and the Self-
Help Homeownership Opportunity Program, commonly known as SHOP.
Capacity Building for Community-Based Housing Groups
Capacity Building assistance is the key to increasing the
organizational strength of community-based nonprofits. The Capacity
Building for Habitat for Humanity program, as part of Section 4 funds
which benefit the notable groups of LISC and the Enterprise Foundation,
enables Habitat affiliates to improve communities on an even more
significant scale by jumpstarting house production. Habitat affiliates
essentially operate as local Community Development Corporations, with
their own locally elected board and individual 501-c-3 nonprofit
statuses. Many affiliates have no paid staff and must rely on the good
will and hard work of volunteers. Thus the challenge for Habitat for
Humanity is to provide affiliates with technical assistance, training,
information, and access to new technology.
The Capacity Building for Habitat for Humanity program, in its
sixth year of funding, increases the capacity of our affiliates to
leverage outside funding sources, assists in the development and
implementation of comprehensive training, brings technical assistance
closer to affiliates, and creates new, innovative programs. More
specifically, our Capacity Building funds have been used to:
Provide local volunteers with the skills, training, and
knowledge for developing resources through fundraising and securing
gifts-in-kind from the private sector--including faith-based
organizations, businesses, foundations, civic clubs, labor unions,
individuals, and others;
Foster new local, regional, and State official partnerships
with organizations and groups such as college and university campus
chapters, faith-based groups, civic clubs, prisons, professional
groups, including realtors, bankers, home builders, local
government, and labor unions to enhance the productivity of local
affiliates;
Recruit and train local volunteers in communication skills and
in ways to use media opportunities to raise public awareness to
eliminate substandard housing and to provide opportunities for
every American to achieve the dream of homeownership;
Recruit and provide development opportunities to persons for
local board membership who have the leadership skills and the
diversity needed to pursue the mission of increasing affordable
homeownership at the local level;
Provide funding on a diminishing basis for affiliates to hire
first time staff or staff for new positions that contribute to the
affiliate's growth, so that more people are working at the local
level to make housing happen;
Provide training opportunities via electronic, web-based
communication targeted at securing resources, understanding new
methods of construction, discovering sources for training and
technical advancement, etc;
Focus efforts on the special housing needs and challenges in
rural areas, Native American Indian communities, the Colonias, and
other populations traditionally underserved by current housing
programs and resources.
Within the context of regulations established for Capacity Building
for Habitat for Humanity funds, HFHI also conducts training and
development of affiliates at the local level, working with groups of
30-40 affiliates through its affiliate support system; at the State
level in all fifty States; through its seven regional offices; and
nationally. The program includes conferences, training events,
specialized technical assistance instruction, and provision of
leadership at every possible level. Because many Habitat affiliates are
located in rural locations, a major focus is on the unique rural needs
for training and technical assistance. Likewise, special focus is made
on training and assistance for crucial urban areas where housing needs
are so great and which present unique challenges, calling for
specialized training and technical assistance.
The success of the Capacity Building for Habitat for Humanity
program is measured by the increase in numbers of families housed. In
the first two rounds of the Capacity Building grant program, 118
Habitat affiliates built 3,336 homes over the course of the three-year
grants--52 percent more houses than they built in the 3 years prior to
receiving the grant. In addition, affiliates must match every Capacity
Building dollar with three dollars of private, nongovernmental funds
and increase their building capacity by a minimum of 15 percent. This
requirement has also been far surpassed. It is our hope that Congress
will appropriate $15 million for the Capacity Building for Habitat for
Humanity program, as it is crucial to increasing the building efforts
of our local affiliates.
Self-Help Homeownership Opportunity Program (SHOP)
The Self-Help Homeownership Opportunity Program (SHOP) was created
by Congress in 1996 for the purpose of alleviating one of the largest
obstacles faced by self-help housing developers in the production of
affordable housing--the high cost of acquiring land and developing
infrastructure before house construction even begins. SHOP funds are
used exclusively for this purpose and have proven to be instrumental in
jumpstarting affordable home building programs among self-help housing
developers. The success and impact of the SHOP program is measured by
numbers of homes produced: with the inclusion of the fiscal year 2002
awards, SHOP funds will result in more than 9,000 new Habitat homes,
changing the lives of over 34,000 Americans. This is an extraordinary
accomplishment when one considers that for every $10,000 SHOP grant, on
average, one home must be constructed, requiring additional resources
of 4 to 10 times the amount of the initial investment to be raised in
the private sector.
HUD's SHOP grants are competitively awarded based upon an
organization's experience in managing a sweat-equity program, a
grantee's community needs, the capacity to generate other sources of
funding and the soundness of its program design. Groups compete
annually for SHOP funds, designated solely for expenses related to
acquiring and developing land for building homes that sell at costs
below the prevailing market rates. SHOP funds can be used for land and
infrastructure expenses such as streets, utilities, water and sewer
connections, and for environmental clean up. SHOP families invest 300+
hours in sweat equity--although some families invest hundreds of
additional hours--and must earn below 80 percent of the area median
income.
SHOP funds have been used to support the work of self-help housing
organizations in every State, resulting in the development of thousands
of affordable homes. The labor of volunteers and partner families,
efficient building methods, modest house sizes and a zero- or low-
interest loan makes it affordable for low-income families to purchase a
home of their own.
The SHOP program is an important element of the Administration's
national homeownership strategy, as it not only expands the ranks of
low-income and minority homeowners, it requires the personal
contribution of its recipients, increases volunteerism and community
participation, and efficiently utilizes Federal dollars by requiring
the amount of the initial investment to be significantly leveraged.
Habitat for Humanity, along with the other large user of SHOP
funds--the Housing Assistance Council--believes that SHOP will be even
more effective if the amount of the average award per house is
increased from $10,000 to $15,000 to more accurately reflect the costs
of land and infrastructure development. Nationally, the combined
average of land and infrastructure expenses exceeds $21,000 for homes
built by both Habitat for Humanity and the Housing Assistance Council.
This amount must be raised by affiliates before house construction can
even begin. Both of our organizations strongly believe this change will
make SHOP even more competitive and attractive to affiliates and other
self-help housing groups, who will work even harder to find the
additional private resources necessary to pursue their building
programs.
Single-Family Homeownership Tax Credit
Habitat for Humanity International also strongly supports the
Administration's proposal to increase homeownership and affordable
housing production through a single-family homeownership tax credit,
modeled after the highly successful Low-Income Housing Tax Credit. The
proposed credit of up to 50 percent for the costs of constructing new
homes for homeownership or rehabilitating existing properties for
families in low-income urban and rural neighborhoods will enable our
local affiliates and other housing developers to bridge the gap between
the cost of developing affordable housing and the price that low-income
homebuyers can pay for a home.
The proposed homeownership tax credit legislation will create
incentives for affordable housing development and infuse new resources
into areas where the costs of construction and rehabilitation places
homes beyond the reach of low- and moderate-income families. The
current legislative proposals in Congress are structured to generate
the resources sufficient to cover the gap between the cost of
development and the price at which a home can be sold to an eligible
buyer, resulting in the construction of more affordable housing and the
strengthening of families and the communities in which they live.
Habitat for Humanity International specifically supports two tax
credit bills, S. 875 and H.R. 839, as both provide for a 10 percent set
aside for qualified nonprofits. This provision, also included in last
year's H.R. 5052 and S. 3126, will help ensure that nonprofits, like
HFHI and other community and faith-based organizations, will be
competitive applicants during the credit allocation process. A
nonprofit set-aside--as successfully demonstrated in the current rental
credit and HOME programs--has empowered nonprofit builders, often with
fewer resources and serving lower income families, to be competitive
for tax credits with their for-profit counterparts. Modest set-asides
are established elements in the country's strongest housing programs
for low-income families and encourage a ``level playing field'' for
nonprofits.
This is especially important for many other faith-based and
community organizations who are often deeply rooted in communities and
are particularly committed to providing housing for people with special
needs--including the homeless, elderly and disabled. Many of these
groups have proven track records of successful housing development in
blighted urban and rural areas, often seen as unprofitable ventures for
the for-profit sector. In fact, faith-based and community organizations
are sometimes the only providers of affordable housing in such areas. A
10 percent set-aside will help ensure that the contributions of faith-
based and community organizations in affordable housing production and
related supportive services will continue to enhance the Federal
Government's commitment to provide adequate housing for its citizens.
In conclusion, Habitat for Humanity believes that now more than
ever, during this period in our country when homeownership rates are
the highest in history, that the government should invest its resources
in those segments of our population that have been left behind and left
out of the financial mainstream. This country has the resources to
adequately house the millions of Americans living in overcrowded,
substandard and unaffordable conditions, but no one organization by
itself can eradicate substandard housing. The solution lies in
collaboration, with all sectors of society working together, including
faith-based and community organizations.
I would encourage Congress to strengthen its resolve to protect the
least among us and preserve funding for affordable rental and
homeownership opportunities, education, healthcare and other social
services at precisely the time when it is needed most. Healthy
neighborhoods require HUD's investment in quality housing--rental and
homeownership. Failure to maintain a range of affordable housing
options will create obstacles for families seeking to become homeowners
in the future. As you review the funding proposals for fiscal year04
and other related housing legislation, it our hope that you would
support additional resources to enable low-income families to move from
often overpriced, inadequate rental housing into affordable
homeownership and continue your support of organizations, such as
Habitat for Humanity, that help make the dream of affordable
homeownership a reality for thousands of families each year.
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PREPARED STATEMENT OF JAMES R. RAYBURN
First Vice President
National Association of Home Builders
Introduction
Thank you Mr. Chairman for the opportunity to testify before the
Committee on Banking, Housing and Urban Affairs on homeownership
barriers and solutions. I am Bobby Rayburn, a home builder and
developer from Jackson, Mississippi. My company, Rayburn Associates,
has constructed more than 3,000 single and multifamily homes. Expanding
homeownership opportunities is, and has been, a major focus of my 30
years in home building. I also serve as the 2003 First Vice President
of the 211,000 member National Association of Home Builders (NAHB),
which I am here to represent today. NAHB represents more than 800 State
and local home builders associations across the country, and NAHB
members will build approximately 80 percent of the nearly 1.7 million
new housing units that are projected for construction in 2003.
Homeownership is the preferred housing option for most Americans.
Surveys consistently put the desire to own one's home at the top of the
list of life preferences. The latest figures from the Census Bureau
confirm that many have been able to accomplish that dream: 68 percent
of all households do own their home, up 4 percentage points in the past
10 years.
Americans have many reasons for wanting to become and remain
homeowners. Home equity is a major and, in most cases, singular source
of wealth. According to the latest data from the Federal Reserve, home
owner equity totals $13,889 billion and accounts for 35 percent of
household wealth. As a comparison, household's holding of corporate
equity, for example their investment in the stock market, totals $4,166
billion or 11 percent of their worth. The equity in owned homes serves
as homeowners' savings for college educations for their children,
opening new businesses and retirement. Home equity also provides a
financial cushion and source of funds for large expenditures like home
remodeling, furnishing and landscaping. Over the past year, Freddie Mac
estimates that homeowners extracted $166 billion from their homes when
they refinanced. This additional consumer spending made a substantial
contribution to keeping the economy going and recovering from the 2001
downturn.
Homeownership also has proven positive impacts on the nonfinancial
side of households. Research published in social science and economic
journals show that children raised in owned homes have higher test
scores and remain in school longer. Other studies show that homeowners
are more likely to be active in community affairs, more likely to vote
and more likely to socialize with their neighbors. Neighborhoods of
homeowners provide positive impacts on the neighborhood through higher
maintenance expenditures and lower negative influences.
Building owned homes provides economic stimulus to the communities
where they are located and to the economy as a whole. The typical new
single family home spawns new economic activity in the community beyond
the actual construction. NAHB estimates that the construction impact of
building 100 homes and the attendant ripple effects add $11.6 million
of economic activity, $1.4 million of new tax and fees to local
governments and 250 new jobs. And the ongoing impact from a new
household living and spending in the community adds $2.8 million in
additional income to the area every year, about one-half million
dollars to local government treasuries and 65 jobs.
Barriers to Homeownership
A little less than one-third of all households are renters and many
chose renting because it fits their lifestyle, location preference or
family situation. Many would prefer homeownership, but find barriers
too large to jump. In addition, roughly 1.2 million additional
households are formed every year, and many of these households search
for but are unable to find affordable homeownership opportunities.
Barriers to affordability result from two sources: potential home
buyers have insufficient savings to make a downpayment and cover the
closing costs and/or home prices are too high because of unnecessary
layers of restrictions, requirements, delays and other causes of added
costs without benefit.
On the financial side, many households find the cash needed for a
downpayment and the closing costs significantly exceed their savings.
Even with existing programs sponsored by Federal agencies, FHA, VA and
the RHS, the final downpayment and another 2 to 4 percent of the
mortgage amount, or more, in closing costs is a very large sum for
young families. Programs that reduce upfront costs are the most
critical in getting first-time home buyers into housing. NAHB estimates
that an extra $1,000 in downpayment assistance would allow 230,000
additional renters to buy a home.
On the regulatory barrier side, homes cost more than they should
because local, State and Federal Governments erect obstacles and add
costs that are unnecessary and without sufficient benefit. A large
component of the costs are caused by delays and lengthy processing
times at the local government level. There also are local policy
barriers to affordable housing, including restrictions on multifamily
housing, large-lot zoning, density restrictions, excessive impact fees,
excessive street-width requirements, building moratoria and residential
growth caps, among others.
Federal regulatory actions also add costs without corresponding
benefits. For instance the Environmental Protection Agency recently
reopened the designation of isolated wetlands even though a court
decision provided sufficient definition. The Fish and Wildlife Service
persistently designates very large tracts of land for critical habitat,
which eliminates development from these areas and increases the cost of
the remaining lands. There are many other examples like these where
well-intended efforts to protect the environment or humans have
unintended but significant negative impacts on housing, affordability
and homeownership.
The U.S. Department of Housing and Urban Development (HUD) has
established a new office to serve as a clearing house for efforts to
identify and remove barriers to affordable housing. NAHB looks forward
to working with this new office in this important effort.
Solutions
NAHB Support for the President's ``Blueprint for the American Dream''
NAHB fully supports President Bush and his ``Blueprint for the
American Dream'' initiative to increase homeownership opportunities for
minority families. In support of the President's initiative, NAHB has
committed to promote homeownership education, improve minority access
to credit, and remove barriers to the production of affordable housing.
At the Federal level we are pursuing the enactment of a number of
legislative proposals that will significantly address both the cost and
cash resources barriers to homeownership. These measures include a
homeownership tax credit to support the production of affordable homes
in underserved areas; a refundable first-time home buyers' tax credit
that can help lower upfront cash hurdles; more Federal grants to States
for downpayment assistance for lower-income home buyers; and, several
other initiatives to expand homeownership opportunities. NAHB is also
pursuing changes in Federal regulations that will increase the
incentives of lenders to address homeownership gaps and reduce the
costs of Federal regulations.
The members of the National Association of Home Builders (NAHB) are
committed to removing barriers to homeownership for minority families.
Many of NAHB's State and local affiliates have engaged in initiatives
to promote minority homeownership. NAHB has been working with its
network of State and local affiliates to find markets that could most
benefit from education and outreach initiatives. NAHB is also working
with other Blueprint partners to identify opportunities for cooperative
outreach efforts. NAHB is dedicated to increasing public education
regarding the many existing programs--public and private--that can help
families achieve the dream of homeownership.
NAHB Legislative Priorities
Homeownership Tax Credit
NAHB's top legislative priority in the 108th Congress is the
Homeownership Tax Credit (HOTC). The credit was first proposed by the
Administration and has been included in each of the President's last
three budget proposals. Three bills have been introduced in this
Congress that reflect the Administration's proposal. The bills have
more than 20 sponsors in the Senate and 100 sponsors in the House. The
first bill introduced in the Senate was S. 198, the ``New Homestead
Economic Opportunity Act'' and was sponsored originally by Senators
Gordon Smith (R-OR), Rick Santorum (R-PA) and Debbie Stabenow (D-MI).
The second bill introduced in the Senate was S. 875, the ``Community
Development Homeownership Tax Credit Act'' and was introduced by
Senators John Kerry (D-MA) along with Senator Rick Santorum (R-PA),
Senators Wayne Allard (R-CO), Debbie Stabenow (D-MI), and Paul Sarbanes
(D-MD). The House bill is H.R. 839, the ``Renewing the Dream Tax Credit
Act'' and was originally sponsored by Representatives Rob Portman (R-
OH), Ben Cardin (D-MD) and Henry Bonilla (R-TX).
NAHB is working with nearly 30 national organizations to support
the pending HOTC legislation in the Community Homeownership Credit
Coalition. These groups include nonprofit and for-profit developers,
State allocating agencies and corporate investors. These groups include
the National Council of State Housing Agencies, Fannie May, Freddie
Mac, and the National Realtors' Association.
All three HOTC bills provide a tax credit up to 50 percent of the
construction or rehabilitation costs of building owner occupied homes
in hard-to-develop areas that must be sold to low- and moderate-income
buyers. Although NAHB opposes one provision in two of the bills that
creates a preferential set aside for nonprofit developers, we support
all three bills. We believe that an exceptionally fine HOTC program can
be crafted from the proposals during the legislative process that will
benefit Americans most in need.
The HOTC is needed to improve the quality of life in distressed
neighborhoods through increased homeownership of quality housing.
Existing buildings in distressed areas frequently are not renovated
because the costs exceed the prices at which the housing units can be
sold. Similarly, the costs of new construction may exceed the market
values of the homes. Projects will not be built and neighborhoods will
remain blighted unless the gap between development costs and market
prices can be closed.
The HOTC proposals seek to close the gap in homeownership rates
among Americans. While 82 percent of households earning 100 percent or
more of the national median income now own homes, only 53 percent of
households earning less than the national median are homeowners. The
homeownership rate for families earning 80 percent or less of the
national median is only 40 percent to 45 percent. Homeownership for
whites is 75 percent while the ownership rate for African Americans is
just below 48 percent and 48 percent for Hispanics.
According to the U.S. Census Bureau, there are an estimated 34.2
million renter-households in the United States but only about 3.5
million of them (10 percent) can afford to buy a modestly priced home,
for example a home that is less expensive than 75 percent of owner-
occupied homes in a given area.
The tax loss estimated by adding the HOTC to the Internal Revenue
Code is expected to be $2.5 billion over the first 5 years and $16.1
billion over 10 years. For that tax expenditure the HOTC is expected to
produce 50,000 new and rehabilitated homes annually, $2 billion of
private equity investment, $6 billion in total investment generated,
122,000 jobs, $4 billion in wages, and $2 billion in taxes and fees.
The funding and administration of the HOTC is modeled on the Low
Income Housing Tax Credit (LIHTC) that is used to finance rental
properties. Each year a State is eligible for HOTC's of $1.75 per
capita, or a minimum of $2 million. The State allocates credits to
developers through a competitive allocation process administered by
State agencies. A developer can obtain a HOTC for up to 50 percent of
the development cost of each home. Developers can sell credits to
investors to raise financing for construction or rehabilitation costs.
The tax credit is claimed over 5 years and is not subject to recapture
by the developer or investors, or any other obligation after the home
is sold to an eligible buyer (generally a family with an income that is
80 percent or less than area median gross income).
The structural difference between the LIHTC and the HOTC is that
the HOTC can only be used in distressed areas (location based) while
the LIHTC can be used in all areas (income based) to provide housing.
The location based HOTC is needed to increase homeownership in low- and
moderate-income neighborhoods.
The three pending bills would apply the tax credit to a single-
family home containing one to four housing units, a condominium unit,
stock in a housing cooperative, modular housing, or manufactured
housing. Qualifying residences would be located in a targeted census
tract, in a chronic economic distressed area as defined in section
143( j)(3) of the Internal Revenue Code, a reservation for a Federally
recognized Indian tribe, or in a rural area as defined by section 520
of the Housing Act of 1949. As defined, rural areas mean any open
country, or any place, town, village, or city which is not part of or
associated with an urban area and which (1) has a population not in
excess of 2,500 inhabitants, or (2) has a population in excess of 2,500
but not in excess of 10,000 if it is rural in character, or (3) has a
population in excess of 10,000 but not in excess of 20,000, and (A) is
not contained within a standard metropolitan statistical area, and (B)
has a serious lack of mortgage credit for lower and moderate-income
families, as determined by the Secretary of Agriculture and Secretary
of Housing and Urban Development. The basis of the credit should
include rehabilitation expenditures (excluding land).
NAHB generally favors giving States the maximum possible latitude
in administering the HOTC program. In this regard, NAHB believes that
the program will be more efficiently operated if all developers are
treated equally at the Federal level. The creation of a Federally
required 10 percent set aside for tax-exempt developers in S. 875 and
H.R. 839 is an unnecessary intrusion on the States administrative
authority. States should be allowed to choose to administer a fully
competitive HOTC program in order to build the greatest quantity of
quality housing possible. A statistical analysis by the U.S. General
Accounting Office (GAO) found that there is a better than 85 percent
chance that for-profit developers will build LIHTC rental properties
(the model program for the HOTC) at lower cost than tax-exempt
developers. It should be noted that tax-exempt developers now are
awarded approximately 32 percent of the Low-Income Housing Tax Credit
(LIHTC) awards for rental property developments. As a result they can
be expected to have a very substantial involvement in the HOTC program
without a Federal preference.
NAHB believes that the HOTC is a needed compliment to the LIHTC
program. The LIHTC program serves residents that are at 60 percent or
less of area median income (AMI). The HOTC program would serve
homebuyers at 80 percent or less of AMI. As tenants move up in income
and establish a credit rating, they need the option of moving into
their own homes and start building equity capital for themselves. The
HOTC provides this opportunity.
The complimentary relationship between the two credits is clearly
illustrated in their administration. The two credits have separate
allocation pools for agencies to use in allocating the tax credits to
the two different types of property. State agencies can offer different
rates of return to investors to reflect the structural differences
between the credits. The LIHTC is paid over a 10-year period to
investors. The investors are subject to a recapture of their tax
benefit if property is not used as a low-income rental property during
a 15-year compliance period. The HOTC is paid out over a five-year
period to the developer or investors who own the property prior to its
sale to a qualified buyer. After the sale, only the buyer of a HOTC
home is subject to a possible recapture or loss of tax benefits if the
property is sold or converted to a rental property during the five-year
credit period. As a result of the differences between the credits,
there is more risk associated with investments in the LIHTC than the
HOTC. Rates of return are expected to reflect the risk differences.
None of the nearly 30 national associations supporting the HOTC
legislation in the Homeownership Tax Credit coalition want to advocate
any proposal that would have adverse long-term harm on the LIHTC. It
would be contrary to many of the organizations' fundamental interests
because they are stakeholders in the rental credit program. Coalition
partners who are investors believe that the equity market for housing
is large enough to support efficient tax credits for both rental and
ownership housing. In fact, they issued a public statement to that
effect. For example, the rental credit market remained very strong
during the past 2 years despite declining corporate earnings among many
corporate investors and a 40 percent increase in available credits.
First-Time Homebuyers' Tax Credit
NAHB supports a bill recently introduced by Senators Debbie
Stabenow (D-MI), Gordon Smith (R-OR) and Mark Dayton (R-MN), the
``First-Time Homebuyers' Tax Credit Act of 2003'' (S. 1175) that would
create a first-time homebuyer tax credit for low- and moderate-income
homebuyers. The bill proposes to create a refundable tax credit of
$3,000 for single taxpayers and $6,000 credit for married couples
buying their first home. The credit could be assigned during the
purchase negotiations to cover purchase, financing or closing costs
incurred by the buyer. The credit can only be claimed once and is
subject to an income phase out starting at $67,700 for single
taxpayers, $96,700 for heads of household, and $112,850 for joint
returns, with a dollar-for-dollar phase-out of the tax credit beyond
the cap.
NAHB is one of the original organizations supporting the bill. We
believe the legislation will help mitigate the major hurdles most
American's face when buying their first home--having a sufficient down
payment and covering closing costs. The proposal also compliments the
HOTC program. It has been estimated that the program would help as many
as 17 million people become homeowners over the next 7 years.
Tax Deductibility for Mortgage Insurance Premiums and Guarantee Fees
NAHB supports legislation introduced in the House of
Representatives and the Senate that would make premiums paid for FHA
and private mortgage insurance (PMI), and guarantee fees paid for
Department of Veteran Affairs (VA) and Rural Housing Service loans tax
deductible. The deduction for the fees is phased out for families with
annual incomes greater than $100,000. Lower- and moderate-income
homebuyers are the most frequent users of the insurance. Higher income
families have alternative financing mechanisms that can be used in lieu
of insurance. The deduction would result in an estimated revenue loss
of $228 million over 5 years and $553 million over 10 years.
Senators Gordon Smith (R-OR), Blanche Lincoln (D-AR) and Wayne
Allard (R-CO) introduced S. 846, the ``Mortgage Insurance Fairness
Act''. An untitled bill to provide a tax deduction for mortgage
insurance and other similar expenses (H.R. 1336) was introduced by
Representatives Paul Ryan (R-WI), William Jefferson (D-LA), Clay Shaw
(R-FL), John Lewis (D-GA), Philip English (R-PA), John Tanner (D-TN),
Mark Foley (R-FL), Eric Cantor (R-VA), Bob Ney (R-OH), Mark Green (R-
WI), Robin Hayes (R-NC), George Radanovich (R-CA).
The provisions of S. 846 were added as an amendment to H.R. 2, the
``Jobs and Growth Tax Relief Act of 2003'' in the Senate Finance
Committee mark up of the economic stimulus legislation and was passed
by the full Senate. Unfortunately, the provision was not reported out
of the Conference Committee that resolved the differences between the
House and Senate bills.
Currently, an estimated 7 million-plus homeowners pay premiums on
FHA-insured mortgage loans and another 5.5 million pay private mortgage
insurance premiums. Making mortgage insurance tax deductible would save
FHA and PMI borrowers about $200 a year, while VA borrowers would
receive a one-time benefit of $700. The proposed legislation would
lower the after-tax cost of mortgage borrowing enough to enable 300,000
additional renters to buy a home.
American Dream Downpayment Initiative
NAHB supports the ``American Dream Downpayment Act,'' which was
introduced in the Senate as S. 811 by Senators Wayne Allard (R-CO) and
Jeff Sessions (R-AL). Representative Katherine Harris (R-FL) introduced
a companion bill (H.R. 1276) in the House along with 31 cosponsors. The
bills provide $200 million to assist lower-income families in achieving
homeownership. This legislation targets funding under the HOME
Investment Partnerships Program specifically to lower-income families
seeking to purchase a home. The funds flow through the existing HOME
block grant framework to State and local governments for programs
providing downpayment and closing cost assistance. The program is
expected to assist 40,000 households each year.
While we strongly support the intent of this legislation, NAHB has
concerns with the proposed funding source. We believe that
appropriations for the program should be above and beyond the funding
appropriated for the HOME program, and not a set-aside within HOME's
budget. NAHB is an ardent supporter of the HOME program, which is a
vitally important source of gap financing supporting affordable housing
production in conjunction with the Low-Income Housing Tax Credit
program, tax-exempt bond financing, and other State and Federal
affordable housing programs. In addition, HOME program already funds a
significant portion of homeownership assistance efforts. NAHB has
enthusiastically endorsed proposals to further increase HOME funding in
the fiscal year 2004 budget and feels additional funds, outside of
HOME, should be allocated to support the ``American Dream Downpayment
Act.''
FHA Modernization
Federal Housing Administration's (FHA's) single family insurance
programs are vital to the housing finance system in serving borrowers
and homeownership needs not addressed by the private sector. FHA has
become increasingly less effective and efficient, however, as statutory
and regulatory restrictions, as well as the constraints of the HUD
bureaucracy, have caused FHA to lag behind the pace and standards set
in the conventional housing finance industry. FHA is hamstrung by
substandard operating and information systems and a short-handed and
inexperienced workforce. As a result, FHA is not able to respond
promptly and appropriately to developments in the mortgage marketplace
or to foster innovations in housing finance products and programs.
These problems are most severe in the area of new home production.
To regain its role as an effective and innovative leader in the
affordable housing finance arena, FHA must gain greater autonomy from
bureaucratic and political influences. FHA's mission should continue to
focus on supporting liquidity, innovation and continuity in the housing
finance markets, and on supporting financing needs not adequately
addressed by the private sector, through the provision of mortgage
insurance representing the full faith and credit of the U.S.
government. However, FHA should have the authority, without further
Congressional action, to create or alter specific insurance programs in
order to have the flexibility to react promptly to changes in market
and other conditions. Hiring, salaries, personnel management, and
procurement would be freed from current, confining Federal Government
constraints in order to be more consistent and competitive with the
private sector.
FHA Insurance of Construction Loans
One area where FHA can add significant value is through insurance
of single family construction loans. Most builders, particularly
smaller companies (those building fewer than 500 homes a year), which
account for about three-quarters of annual new home production, must
rely exclusively on insured depository institutions (mostly commercial
banks) for construction credit. There is no secondary market to attract
new lenders and investors to this market. The development of such a
market will lower the cost of construction credit, help attract more
capital to underserved areas and help home builders avoid the type of
severe credit crunch that occurred in the early 1990's. In addition,
the availability of secondary market liquidity support would assist
current market lenders, many of which are restricted by loans-to-one-
borrower limits required by Federal banking statutes.
Availability of FHA insurance for home construction loans would
enhance efforts to find secondary market outlets by opening up the
Ginnie Mae program to issuers using housing production collateral. FHA
has a construction-to-permanent mortgage insurance program, which is
currently inactive. Under this program FHA does not insure the
construction segment of the loan. There is clear precedent for this on
the multifamily side where FHA insures construction loans that convert
to permanent mortgages.
NAHB Regulatory Priorities
Fannie Mae and Freddie Mac Housing Goals
Fannie Mae and Freddie Mac are required by law to meet annual
housing goals established by HUD. The goals compel Fannie and Freddie
to purchase loans on affordable homes, including those in underserved
markets such as high-minority and low-income census tracts. Revisions
to the goals for the years 2004-2006 are currently under review by HUD.
The housing goals track the firms' purchases of mortgages for low-
and moderate-income people (the low/mod goal); loans in underserved
geographically targeted areas (the geographically targeted goal); and,
mortgages for very low-income people and neighborhoods (the special
affordable goal).
The Administration's 2004 budget analysis suggests that HUD may
incorporate new factors into the housing goals to spur increased
minority homeownership rates. Senior HUD officials have requested input
from the housing industry in the development of new housing goals.
NAHB is a strong supporter of the affordable housing goals for
Fannie Mae and Freddie Mac. The goals have encouraged Fannie and
Freddie to reach deeper into the affordable housing market with
tangible benefits. NAHB supported HUD's increase in the goals for the
2001-2003 period, from the original goals put in place in 1995. NAHB
feels that more needs to be done to encourage the GSE's to increase
their activities in some market segments, such as rural areas and
multifamily production.
At the same time, proposed changes to the housing goals should
undergo careful examination. NAHB believes that Fannie Mae and Freddie
Mac were created to serve a broad range of housing needs and we would
not want overly stringent goals to impede that mission. Additionally,
continual increases in the percentage targets will have diminishing
returns and run the risk of adversely impacting other housing programs,
such as FHA's single family program. The Mutual Mortgage Insurance Fund
that backs the FHA program relies on a cross subsidization of loans
within the program for ongoing self-sufficiency. FHA has been
experiencing higher default experience in recent years as Fannie Mae
and Freddie Mac have captured more of the better performing loans in
the first-time home buyer, lower-income part of the market. Excessive
housing goals for Fannie Mae and Freddie Mac would exacerbate this
trend and could have damaging effects on the FHA fund.
Efforts to Remove Homeownership Barriers
NAHB Efforts
NAHB is firmly committed to removing barriers to affordable
housing. NAHB and its more than 800 State and local affiliates have
been active at the Federal, State and local level, working with law
makers to identify policies and bureaucratic hurdles that make it
difficult to build affordable housing or that add to the cost of such
housing.
Representatives of NAHB and its affiliates have met with
legislators and regulators at all levels of government to explain how
these barriers can be removed without compromising the quality of
development. NAHB has also been active in demonstrating the negative
effects of not-in-my-backyard (NIMBY) resistance to infill development,
and in working for Federal and State legislation to encourage cleanup
and redevelopment of brownfield sites.
At the Federal level, NAHB has been one of the strongest proponents
of reform of existing brownfields redevelopment laws that fail to
provide adequate liability protections for private sector firms seeking
to clean and redevelop brownfields sites.
At the State level, NAHB's affiliates have worked with State
legislatures and regulatory agencies to encourage policies that provide
incentives for the production of affordable and eliminate excessive
fees and regulations that drive up the cost of housing and price
hundreds of thousands of families out of home ownership.
NAHB's local affiliates have been working with local elected
officials and planning agencies to revise zoning and development
regulations that discourage innovative land use practices such as
mixed-use developments, cluster developments and higher-density housing
near mass transit facilities.
Partnership Efforts
NAHB is actively working to facilitate affordable housing
partnerships involving our federation of State and local home builders
associations. We have ongoing partnerships in many areas of the
country, including Lincoln, Nebraska; Nashville Tennessee; Albuquerque,
New Mexico; Fresno and Sacramento, California; San Antonio, Texas;
Pittsburgh, Pennsylvania; and, Portland, Oregon.
Our most recent initiative involves a partnership with Nueva
Esperanza, a major Hispanic faith-based community development
corporation, to build affordable housing in several cities across the
United States. The first of these is taking place in Orlando, where
NAHB, Nueva Esperanza and Esperanza USA are working to achieve the
affordable housing production goals of the Hispanic Capacity Project in
Mid-Florida.
Nueva Esperanza and its affiliates have an outstanding record of
developing and operating successful programs addressing a wide range of
needs of Hispanic households. NAHB looks forward to a partnership with
Nueva Esperanza in the home building efforts of the Hispanic Capacity
Project. Through the Orlando Project, the partners hope to develop a
model for community partnerships that can be used to address affordable
housing needs throughout the country.
Within the partnership, NAHB will:
Work through NAHB's federation of more than 800 State and
local home builders associations to identify home builders with
interest and expertise in affordable housing production and
encourage their participation in the Hispanic Capacity Project.
Provide information to NAHB's members on the benefits of
affordable housing partnerships and information and technical
assistance on available financing programs and approaches as well
as on innovations in design and building materials and techniques.
Participate in communication and education efforts with
communities and prospective home buyers.
Assist in identifying and involving financing resources.
Conclusion
Mr. Chairman, thank you for the opportunity to present testimony to
the Committee on the issues of concern to home building industry during
Homeownership Month. We appreciate being able to focus attention on
ways to increase homeownership in the United States. Although the home
building industry has been a key to the national economy, we believe
the proposals we support are needed to bring the benefits of
homeownership to the largest possible segment of the our population.
NAHB looks forward to working with you, as well as the other Members of
Congress and the Administration in making the dream of homeownership
come true for as many people as possible. Thank you again.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY
FROM MEL MARTINEZ
Q.1. The Bush Administration has proposed a single-family tax
credit that would go to builders to help offset the cost of
construction. Senator Stabenow, along with Senator Gordon
Smith, has also introduced a homebuyer tax credit. What do you
see as the relative merits of this proposal as compared with
the Administration's relative merits?
A.1. This question should be referred to the U.S. Department of
the Treasury, as the issue is not directly under HUD's
jurisdiction. The Administration is firmly committed to helping
Americans in economically distressed communities. However,
because there are limits on what the Federal government alone
can accomplish, a more comprehensive approach is necessary.
This approach calls for initiatives to encourage further
involvement by individuals, businesses, and community-based and
faith-based organizations in working to completely eliminate
conditions of economic distress in this country.
Administration tax proposals benefiting low-income
individuals or distressed communities that have already been
enacted include the following: (1) extension of the work
opportunity tax credit through 2003; (2) extension of the
welfare to work credit through 2003; (3) extension of authority
to issue qualified zone academy bonds through 2003; (4)
authorization of tax-exempt private activity bonds to finance
reconstruction in the area surrounding the World Trade Center
in New York City devastated by the September 11, 2001 terrorist
attacks; (5) creation of a new 10 percent income tax bracket;
and (6) doubling of the child tax credit to $1,000.
The President's Budget for fiscal year 2003 contains
additional proposals on both the spending and tax side. The tax
proposals include creation of a new tax credit, similar in
design to the Low-Income Housing Tax Credit, for developers of
affordable single-family housing, and making the brownfields
tax incentive permanent.
Q.2. One of the more innovative approaches to leveraging
existing housing programs in order to increase homeownership is
the use of the Section 8 voucher program for homeownership. How
many families has HUD moved to homeownership under this
program, and does the Administration have any proposals to
increase its effectiveness?
A.2. As of June 2003, over 350 public housing agencies have
implemented the homeownership option in the housing choice
voucher program, and almost 1500 new homeowners are
participating in the program. This represents a significant
increase in activity over the last six months, with the numbers
increasing from 200 PHA's and 600 participants, respectively.
As the program is still in its relative infancy and given the
marked increase in success over the past year, HUD is not
proposing any major changes to the current monthly assistance
option at this time. However, HUD's fiscal year 2004 Budget
Request does provide for the implementation of the voucher
downpayment grant option in order to increase the program's
flexibility to help families achieve the American Dream of
homeownership.
Q.3. It has been a decade since the Kemp Report identified a
variety of regulatory barriers to the construction of
affordable housing. Yet, little progress appears to have been
made since the Kemp Report. How will HUD's new Office of
Regulatory Reform go beyond what was learned in the Kemp
report?
A.3. In attempting to create a new Office of Regulatory Reform,
it became obvious that a more comprehensive approach was to
create a Department-wide Initiative on Affordable Housing. The
Initiative consists of a team of senior officials and dedicated
staff who are knowledgeable in the field of affordable housing
and who represent the various offices within HUD. They are
required to meet on a weekly basis to address the issue of how
best to break down the regulatory barriers at all levels of
Government and to develop plans to educate and work with States
and local governments, as well as other interest groups and
Federal agencies. The Director of the Initiative reports
directly to the Secretary and Chief of Staff. An update to the
Kemp Report is being prepared which will include a number of
goals and recommendations. However, this list may not be all-
inclusive, as the Initiative team will continue to work on
developing new plans and concepts.
As opposed to creating another layer of bureaucracy by
trying to establish an Office of Regulatory Reform, the
Initiative team was able to hit the ground running in creating
a unified and Department-wide effort to breakdown regulatory
barriers to affordable housing. This Initiative will remain a
top priority for Secretary Martinez.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CHAFEE
FROM MEL MARTINEZ
Q.1. While I support efforts to encourage homeownership, I am
very concerned about the shortage of affordable housing. What
steps is HUD taking to encourage the production of affordable
housing units?
A.1. A number of HUD's programs and initiatives help to
annually increase the number of affordable rental housing units
available to low-income families. These programs include
incremental housing vouchers, the HOME Investment Partnerships
program (since 1992, participating jurisdictions have spent
more than 55 percent of their HOME funds on rental housing),
the Supportive Housing for the Elderly (Section 202) program,
the Supportive Housing for the Disabled (Section 811) program,
the HOPWA program, the
Native American Housing Block Grant program, the CDBG program
and FHA multifamily insurance. HUD has consistently over the
years requested funding increases for programs that have been
successful in increasing the supply of affordable housing, and
has targeted millions of dollars in technical assistance,
through programs such as HOME, for training, direct assistance,
and the development of written and web-based products to
increase the capacity of local housing providers to develop
additional affordable housing units.
HUD also works to ensure that the stock of assisted housing
is not diminished as a result of opt outs and prepayments so
that the extent to which these events adversely affect tenants
is minimized.
Finally, HUD plans to continue its on-going efforts to
expand families' access to affordable private-market housing
through activities such as: multifamily mortgage insurance,
research that seeks to reduce the construction and operating
costs of housing, and the maintenance of a regulatory barriers
clearinghouse for sharing information on how to address local
regulatory barriers to the development of affordable housing.
Q.2. Why does the Administration oppose the National Affordable
Housing Trust Fund Act (S. 1248 in the 107th Congress and H.R.
1102 in the 108th Congress), which is intended to create 1.5
million new units of affordable housing over 10 years? What
alternative strategies do you endorse that would generate the
same level of production?
A.2. As you are aware, H.R. 1102, the National Affordable
Housing Trust Fund Act of 2003, was introduced in the House in
March. This Administration is strongly committed to increasing
minority homeownership and opportunities for affordable
housing, however, we do not support the proposal to create a
national Housing Trust Fund. The Home program, which has been
in place since fiscal year 1992, expands the supply of decent,
affordable housing for low- and very low-income families by
providing grants to States and local governments to acquire,
construct or rehabilitate housing. The Administration believes
that the HOME program is the proper tool to increase the
availability of affordable housing.
From fiscal year 1992 through the first quarter of fiscal
year 2003, HOME funds have been committed to produce over
728,000 units; of these, nearly 465,000 units have been
completed. Income targeting of HOME funds substantially exceeds
statutory requirements, reaching those most in need of
affordable housing. Forty-one percent of HOME rental units are
occupied by families who are extremely low-income (i.e.,
families with incomes below 30% of area median income) and
eighty percent of families receiving HOME tenant-based rental
assistance qualify as extremely low-income. In addition, HOME
funds have assisted nearly 275,000 low-income families with
homebuyer assistance. The Administration's 2004 budget request
increases HOME funding by $210 million from the 2003 enacted
level.
HOME is an integral part of financing affordable rental
housing. On average, the HOME program leverages three private
dollars for every dollar of federal investment. State and local
governments also match HOME funds with their resources.
Furthermore, HOME creates no long-term Federal liability and
works with community-based nonprofit and faith-based
organizations.
The Low-Income Housing Tax Credit (LIHTC), which is
administered by the States and is the largest federal
affordable housing production program, also leverages
substantial private investment. The program was expanded in
2001 to give the States over $5 billion in annual authority to
issue tax credits for the acquisition, rehabilitation, or new
construction of rental housing for low-income families.
Currently, over $10 billion in private funds has been invested
in projects resulting in the production of over 800,000 rental-
housing units--roughly 100,000 units each year. The LIHTC is
often used in concert with the HOME program to enable
developers to build more units for those with the lowest
incomes.
The National Affordable Housing Trust Fund legislation
seeks to ``assist the development, rehabilitation, and
preservation of affordable housing'' but would duplicate
activities under existing programs. The HOME and LIHTC programs
currently provide a substantial amount of affordable housing
opportunities.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
FROM MEL MARTINEZ
Downpayment Assistance
Q.1. Many communities, such as ones in my home State of Rhode
Island, have chosen to use their HOME funds to provide gap
financing or assist in the production of affordable housing
instead of downpayment assistance because of greater need for
these HOME program uses. Since communities such as these would
have less ``prior commitment'' to funding downpayment programs
according to your formula and thus be disadvantaged in the
funding formula. How do you expect such communities to be able
to establish new downpayment programs with such a disadvantage?
A.1. A projected 549 of the 602 PJ's having received a HOME
allocation in fiscal year 2003 would receive American Dream
Downpayment Initiative (ADDI) funding at the $200 million
appropriation level using the formula HUD proposes to be used
for the distribution of fiscal year 2003 funds. The need
portion of the formula is the main determinant of funding with
the past commitment component serving largely to redistribute
funds among the funded PJ's. With inclusion of prior commitment
in the formula, the Department believes that an incentive to
fund homebuyer assistance will be created and that funds will
be directed to communities most likely to use them.
At the $200 million funding level, all PJ's, including
those not receiving an allocation of ADDI funds, will be able
to establish a new downpayment assistance program using either
ADDI funds or their regular HOME allocation.
Q.1.a. HUD is in the process of formulating rules for the $75
million allocated for downpayment assistance in the fiscal year
2003 HUD Budget. When will the rules be published in the
Federal Register? How soon after the rules are published will
communities be able to access such funds?
A.1.a. The Department intends to send the rule to OMB.
Following their approval, we would send the rule to Congress.
After the 15-day Congressionally mandated review period, the
Department would plan to publish the rule in the Federal
Register. The rule would be effective 30 days after the
publication date and it is anticipated that funds will be made
available to HOME participating jurisdictions soon thereafter.
Q.1.b. As previously acknowledged, downpayment assistance is a
HOME eligible activity. Which participating jurisdictions
(PJ's) currently have active downpayment assistance programs?
How much of their HOME allocation goes for downpayment
assistance? What is the average downpayment assistance grant
per family? If the American Dream Downpayment Initiative (ADDI)
passes, how many PJ's that have not used their HOME funds for
Downpayment assistance previously do you expect to obtain
funding under the formula as currently proposed?
A.1.b. Five hundred out of the 602 PJ's receiving HOME funds in
fiscal year 2002 have used these funds as part of a local
homebuyer program, and would get credit for past commitment to
``homebuyer activity'' in the ADDI formula. Homebuyer activity
includes new construction, rehabilitation, and ``acquisition
only'' (for example, downpayment assistance, and assistance to
purchase ``standard'' properties requiring no rehabilitation).
Of the 500 PJ's reporting homebuyer activity, 414 have used
HOME funds for ``acquisition only''.
As of May 31, 2003, 189,978 households have been or are in
the process of being assisted with HOME funds to acquire homes
either, through downpayment assistance or assistance to
purchase standard properties. To date, approximately 12 percent
of total HOME allocations have been committed to either
downpayment assistance or the purchase of standard homes. IDIS,
HUD's information and data collection system, is now in the
process of being upgraded to distinguish between these two
categories of ``acquisition only'' assistance. The improved
system is scheduled to be in place by the time fiscal year 2003
ADDI funds are distributed. $7,284 is the average assistance
per homebuyer for ``acquisition only.'' Since ``acquisition
only'' currently includes both downpayment assistance and the
more costly assistance needed to fund the purchase of standard
properties, the per family average for downpayment assistance
only would be lower than $7,284, and we will be able to report
the exact figure once the above mentioned improvements to IDIS
are in place.
At the $200 million funding level, 49 out of the 102 HOME
PJ's that have not used their HOME funds for homebuyer
activities in the past are projected to be funded under ADDI,
based on the formula to be used in the distribution of fiscal
year 2003 ADDI funds.
Affordable Housing Production
Q.1. According to the most recent Housing Price Index (HPI)
Report from the Office of Federal Housing Enterprise Oversight
(OFHEO), the median price of a home in the United States during
the first quarter of 2003 was 6.48 percent higher than a year
ago. In my own State of Rhode Island, homes appreciated 15.7
percent last year--the Nation's fastest rate and more than
twice the national average of 6.89 percent. My State housing
finance agency says that only 216 of the single-family homes
currently for sale in the entire State of Rhode Island are
considered affordable (meaning a family earning or 80 percent
of our State's median family income can afford them). This
represents only 9 percent of the homes on the market. I would
like to note for the record that if you added $200 million to
the existing HOME program, States like Rhode Island could use
the additional money to help build housing and/or provide gap
financing--making many more homes affordable to low-income
families in my State.
Why aren't you just adding $200 million to the existing
HOME formula so that States and local governments can have the
flexibility in deciding how to expand homeownership
opportunities?
A.1. The American Dream Downpayment Initiative (ADDI) is a key
building block in the President's Blueprint for Homeownership
along with the proposal for the homebuyer tax credit and
increased funding for homebuyer counseling. The Department has
proposed an increase of $113 million in the regular HOME
Program. By using the current HOME rules and delivery system,
the Department intends to make the downpayment initiative a
success by focusing attention on this important wealth building
opportunity for low-income families to own their own homes.
Q.2. In 2000, Congress authorized HUD to provide regulatory
barrier removal grants to States, localities and nonprofits to
encourage them to remove impediments to the production of
affordable housing in their communities. When you announced the
creation of the Office of Regulatory Reform, you acknowledged
the fact that regulatory barriers impede the production of
affordable housing, especially for minority families. Why
haven't you requested funding for this useful tool to help
communities to remove barriers to affordable housing?
A.2. After thorough review by our Office of General Counsel,
HUD is unaware of such regulatory barrier removal grants.
However, in attempting to create a new Office of Regulatory
Reform it became obvious that a more comprehensive approach was
to create a Department-wide Initiative on Affordable Housing.
The Initiative consists of a team of senior officials and
dedicated staff who are knowledgeable in the field of
affordable housing and who represent the various offices within
HUD. They are required to meet on a weekly basis to address the
issue of how best to break down the regulatory barriers at all
levels of Government and to develop plans to educate and work
with States and local governments, as well as other interest
groups and Federal agencies. The Director of the Initiative
reports directly to the Secretary and Chief of Staff. An update
to the Kemp Report is being prepared which will include a
number of goals and recommendations. However, this list may not
be all-inclusive, as the Initiative team will continue to work
on developing new plans and concepts.
As opposed to creating another layer of bureaucracy by
trying to establish an Office of Regulatory Reform, the
Initiative team was able to hit the ground running in creating
a unified and Department-wide effort to breakdown regulatory
barriers to affordable housing. This Initiative will remain a
top priority for Secretary Martinez.
Q.3.a. I commend HUD's goal of increasing minority
homeownership nationwide. Among the many barriers to minority
homeownership, discrimination is a significant one. I have seen
from HUD's Housing Discrimination Study 2000 that
discrimination in rental housing continues at an unacceptable
rate. And the Urban Institute study contracted by HUD entitled
``All Other Things Being Equal: A Paired Testing Study of
Mortgage Lending Institutions'' (April 2002) found that
``African American and Hispanic homebuyers in both Los Angeles
and Chicago face a significant risk of unequal treatment when
they visit mainstream mortgage lending institutions to make
preapplication inquiries.'' Housing discrimination in
homeownership is manifested in racial steering, mortgage
lending discrimination, and insurance discrimination,
especially with insurance rates rising.
What steps is HUD taking to address and fight steering,
lending and mortgage insurance discrimination?
A.3.a. President Bush and Secretary Martinez have committed to
increasing minority homeownership by 5.5 million by the end of
the decade, but observe that there are many obstacles to
achieving this goal. Housing discrimination is one of them.
Recent HUD studies show that many minority persons face
discrimination throughout the homebuying process. One study,
revealed the troubling high rate of discrimination by real
estate agents who provide different information to minorities
or discriminate in recommending houses. Then, another study
shows that minorities, once they have selected a home, face
discrimination when inquiring about mortgage loans. We cannot
close the minority homeownership gap without addressing these
problems. The following summarizes some of the efforts the
Department has undertaken to respond to these specific
concerns.
Steering
The Department has awarded $1 million for follow-up
tests of agents and housing providers with significant
patterns of discrimination in HDS 2000. If HUD uncovers
evidence of unlaw-
ful steering or other discrimination, HUD will take
enforcement
action.
The Department is awarding a contract of about
$500,000 to conduct enforcement testing in regions where
our 2000 Housing Discrimination Study (HDS 2000) showed
high levels of rental and sales discrimination. Because the
study showed an increase in discriminatory steering of
African Americans, we will be sure that our testing of
discrimination in home sales emphasizes investigation of
racial steering. If discrimination is found, HUD will
exercise its authority to bring a Secretary-initiated
complaint under the Fair Housing Act.
In April 2003, HUD signed a Memorandum of
Understanding (MOU) with The National Association of
Realtors, The National Association of Real Estate Brokers,
The National Association of Hispanic Real Estate
Professionals, and The National Association of Asian
American Real Estate Professionals. The MOU calls upon all
signatories to educate their members on the importance of
compliance with the Fair Housing Act and its prohibition
against steering.
The HDS 2000 finding that the practice of racial
steering has increased since 1989, coupled with the finding
in HUD's awareness study that nearly half the public is
unaware that such practice is unlawful, has warranted that
HUD's fair housing enforcement program devote more
attention to the problem, in general (in addition to the
specific enforcement contracts identified above).
Lending Discrimination
HUD is examining patterns of prime and subprime
lending and will bring enforcement actions where there is
evidence of redlining or steering to subprime lenders. More
specifically, we are awarding a contract of about $500,000
to identify lenders and mortgage companies that may be
engaged in lending discrimination or predatory lending.
Because of the time and resource-intensive nature of
lending investigations, HUD has acquired WIZ, a computer
software program that can rapidly analyze loan data for
discriminatory patterns. This will decrease the time and
resources necessary to investigate lending discrimination.
HUD's Office of Fair Housing and Equal Opportunity
(FHEO) has developed materials to alert people to the more
common forms of lending discrimination and has posted this
information on its website, www.hud.gov/fairhousing. FHEO
is also creating an office of Outreach and Education wholly
dedicated to educating the public about fair housing and
fair lending rights and remedies.
HUD's $45 million housing counseling grant program for
fiscal year 2004 encourages housing counselors to include a
fair housing component.
Predatory lending poses a significant danger to
minority and women homeowners targeted for equity-stripping
loans. Senior level staff from FHEO regularly provide
public education on this subject. HUD also serves on a
Federal interagency lending taskforce that meets regularly
to discuss methods for combating lending discrimination, in
general, and predatory lending, in particular. Together,
the members of the task force have developed pamphlets to
educate consumers about the dangers of predatory lending,
how to identify a predatory loan, and what to do if they
are victims.
Insurance Discrimination
HUD continues to investigate complaints of
discrimination in the provision of homeowners insurance, as
part of its fair housing enforcement program, and as in
other cases, will issue charges where such practices
violate the Fair Housing Act. In fiscal year 2002, HUD and
its State and local agency partners received 13 complaints
of insurance discrimination. HUD has already received 21
such complaints in fiscal year 2003.
Q.3.b. What steps is HUD taking to identify and eliminate
marketing tactics and schemes in lending (including refinances
and home equity loans) that adversely affect women and
minorities?
A.3.b. Subprime loans play a significant role in today's
mortgage lending market, making homeownership possible for many
families who would otherwise fail to qualify for conventional
loans. However, a subset of subprime lenders, often referred to
as predatory lenders, sometimes target minorities and women for
home equity loans with abusive terms and conditions.
The Department believes that in some instances, predatory
lending may violate the Fair Housing Act, especially if the
primary purpose of the loan is to deprive minorities or women
of housing. Wherever HUD finds a lender has engaged in a
predatory loan practice because of race or sex whether it
involved the making of a primary loan or a refinancing--we will
take enforcement action. We are presently examining patterns of
prime and subprime lending to determine whether any lenders are
engaged in redlining, steering, or discriminatory predatory-
lending practices. In addition, HUD's Office of Policy
Development and Research continues to conduct research to shed
light on the prevalence and practices of subprime lenders and
possible bad actors in that market.
Insurance Discrimination
Q.4.a. Subsection 4 of Section 100.70 ``Other prohibited sale
and rental conduct'' of the regulations for the Fair Housing
Amendments Act of 1988 states that it should be unlawful to
refuse ``to provide municipal services or property or hazard
insurance for dwellings or providing such services or insurance
differently because of race, color, religion, sex, handicap,
familial status or national origin.''
What types of investigations does HUD have underway
regarding sales, lending and insurance discrimination?
A.4.a. Most of HUD's fair housing enforcement activities arise
from complaints individuals file with HUD or the State or local
agencies that administer laws that are substantially equivalent
to the Federal Fair Housing Act. In fiscal year 2002, HUD and
these part-
ners received 491 complaints of sales discrimination, 454
complaints of discriminatory financing, and 13 complaints of
insurance discrimination. Thus far in fiscal year 2003, HUD and
its partners have received 341 complaints of sales
discrimination, 347 complaints of discriminatory financing, and
21 complaints of insurance discrimination.
HUD investigates each of these complaints while
simultaneously attempting to conciliate. If no conciliation
agreement is reached and the investigation finds reasonable
cause to believe a violation has occurred, HUD issues a charge.
The Department also has the authority to conduct Secretary-
initiated investigations. To determine the need for this, HUD
is awarding contracts totaling $1.5 million for enforcement
testing to follow up on the results from research testing in
HDS 2000. We are also in the process of awarding $500,000 for
enforcement and education efforts to address lending
discrimination.
Q.4.b. What type of private enforcement efforts is HUD
supporting or instituting to help potential victims of sales,
lending and insurance discrimination?
A.4.b. Every year HUD awards monies to private fair housing
groups to address the full range of practices prohibited by the
Fair Housing Act, including discrimination in sales, lending
and homeowner's insurance. In fiscal year 2003, HUD provided,
overall, $10.2 million for the Private Enforcement Initiative
(PEI) of the Fair Housing Initiative Program (FHIP). Rather
than provide issue-specific grants, the Department requires the
private, tax-exempt fair housing enforcement organizations that
receive these funds to address the full range of discriminatory
practices that arise in their communities.
Q.4.c. In recent months, many insurance companies have
increased the cost of their homeowner's coverage, especially in
integrated and minority neighborhoods. Some real estate agents
have even complained of a decrease in their client base due to
the rising cost of homeowner's insurance. What efforts is HUD
undertaking to investigate these increases?
A.4.c. The Department has not received any complaints alleging
that insurance companies are raising insurance rates in a
discriminatory manner. The Department stands committed to
investigate any matter that may violate the Fair Housing Act.
We would be interested in any additional information you may
have regarding these rate increases.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY
FROM TERRY MONTAGUE
Q.1. Ms. Montague, you spoke in your testimony of the
importance of HUD's Asset Control Area program. You also
mentioned in your written testimony that the Sandtown community
was initially characterized by 600 vacant homes. I am concerned
that in many instances, vacant homes are already owned by
nonprofits or local governments. We have seen here in
Washington, DC several vacant homes, received by nonprofits
under the Asset Control Area program, simply remain eyesores.
What changes can be made to the Asset Control Areas program to
improve its effectiveness?
A.1. We appreciate this opportunity to update the Committee on
the progress HUD and participants in the Asset Control Area
(ACA) program have made in making it much more accountable and
effective during the past 10 months. The program today is
substantially stronger than when it was initially implemented
by the prior Administration.
The prior Administration executed individual ACA agreements
with varying terms and conditions with each of the 16 initial
participating jurisdictions in the program, rather than
promulgate uniform regulatory guidance. Most initial
participants were making progress under their agreements at the
time HUD temporarily suspended the program in the spring of
2002.
The Department's primary reason for suspending the program
was an audit by its inspector general (IG) that alleged HUD had
inadequate staff capacity and management controls to assure
that the program fulfilled congressional intent.\1\ The audit
also found that some ACA agreements allowed local governments
and/or nonprofits to engage in activities ``contrary to
specific provisions of the Act,'' including buying and selling
homes outside qualified areas; permitting sale of homes to for-
profit developers at discounted prices and allowing sale of
homes to buyers before homes were rehabilitated. Finally, the
audit alleged a group in Washington, DC had violated its
agreement in several areas.
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\1\ HUD Inspector General ``Nationwide Audit, Asset Control Area
Program, Single Family Housing,'' February 25, 2002.
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The audit recommended that, if HUD restarted the program,
the Department should promulgate final regulations; establish
stronger monitoring, oversight, reporting and sanctions; and
require more documentation from ACA participants on how they
would implement their revitalization plans.\2\ In the fall of
2002, after an intensive internal review and consultation with
program participants, HUD invited those entities (except the
one from Washington, DC, which was barred from participating in
any Federal Housing Administration [FHA] program) to apply to
participate in a revised program. HUD reported that it had
``worked aggressively to revise program policy and to
strengthen program controls . . . consistent with prudent
program management.''\3\
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\2\ The audit also recommended that HUD seek a statutory change to
limit the number of homes in an ACA.
\3\ HUD letter to ACA participants, September 13, 2002.
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HUD's revised program guidance provides uniform policies
and procedures for all participants. Current ACA participants
(listed below) are applying under HUD's new guidance to resume
their ACA initiatives, or, in the case of new applicants, start
programs. In order to participate, nonprofit organizations must
certify that they are acting on their own behalf and not under
the control or direction of any party seeking to derive profit
from their ACA
initiatives.
In addition, they must submit extensive organizational
documents (by-laws, articles of incorporation, verification of
tax-exempt status), evidence of approval to participate in FHA
programs and information on their board members and staff.
Nonprofits must prove they have adequate space for employees
and records through photographs and floor plans of their
offices. They also must provide evidence of their
organizational, administrative and financial capacity to carry
out their ACA initiatives, as well as two consecutive years of
development experience. This information must include
audited financial statements, sources and stability of
capitaliza-
tion, information on accounting and banking systems and
internal and external audit and monitoring procedures. And
nonprofits must provide information on any business partners or
consultants involved in their ACA initiative and disclose the
terms of the
relationship.
The revised ACA requirements also require nonprofits to
provide detailed information on their actual ACA initiatives,
including a business plan that provides a comprehensive two-
year neighborhood revitalization strategy describing the
acquisition, management and, rehabilitation of the homes in the
ACA. The business plan must show the geographic area of the
initiative, the targeted buyers and how they will benefit from
the initiative, including through any homeownership counseling.
It must list all properties the nonprofit owns and intends to
purchase, provide a timeline for purchasing, rehabilitating and
selling properties and describe standards for rehabilitation.
Finally, the revised ACA agreement requires ACA
participants to provide certified monthly, quarterly and annual
reports to HUD. The reports list all ACA properties not yet
sold or leased by the purchaser, including the property
address, the transfer date and the status of the repair costs,
with a separate itemization of costs incurred to complete work
in the repair reports, and the marketing status with an
anticipated resale or lease date. The reports also include
information on each property, including the acquisition date
and purchase price; total repair and rehabilitation costs, with
a separate itemization of costs incurred to complete the work
in the repair report; marketing and sales costs; the date the
property was sold to an eligible buyer; whether the buyer is a
police office or teacher; the sales price; and the buyer's
name, family size and income as a percentage of area median.
In addition, purchasers must submit reports to HUD to
ensure consistency with the ACA business plan. Repair reports
must include a ``valuation condition'' form; a list of all
repairs required to fix any deficiencies noted in it;
photographs of all deficiencies in excess of $2,000; and a
certification from the person completing the repair report that
they are either a FHA 203(k) qualified consultant or a property
inspector with similar qualifications.
We support HUD's new safeguards to ensure an efficient,
effective and accountable ACA program. We are recommending two
statutory changes to the program that will ensure it achieves
Congress' intent in creating it. These changes are described in
our answer to Senator Sarbanes' second question.
Asset Control Area (ACA) Program Participants as of
July 10, 2003
Enterprise Home Ownership Partners, Inc. (Los Angeles, CA)
Cleveland Housing Network, Inc. (Cleveland, OH)
Corporation for Independent Living (Hartford/Manchester, CT)
Our City Reading (Reading, PA)
City of Rochester (Rochester, NY)
Hispanic Housing Development Corporation (Chicago, IL)
Neighborhood Housing Services of Chicago (Chicago, IL)
County of San Bernardino (San Bernardino, CA)
Mi Casa (Washington, DC)*
City of Camden (Camden, NJ)*
St. Ambrose Housing Aide Center (Baltimore, MD)*
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* Note: New applicants to the ACA program per HUD's revised program
policy of September 13, 2002.
Q.2. You mentioned your support for the Kerry-Santorum tax
credit proposal. Senator Stabenow, along with Senator Gordon
Smith, have also introduced a homebuyer tax credit. The
Stabenow-Smith tax credit, however, goes directly to the
homebuyer. What do you see as the relative merits of this
proposal as compared to the Kerry-Santorum proposal?
The Kerry-Santorum proposal (S. 875) and the Stabenow-Smith
proposal (S. 1175) are intended to address two totally
different barriers to affordable homeownership.
S. 1175 is designed to provide additional resources to
prospective homebuyers to enable them to pay downpayment and
closing costs associated with buying a home. The subsidy the
tax credit would provide would increase the affordability of
for-sale housing that already exists. Certainly, insufficient
savings for downpayment and closing costs are a significant
barrier to homeownership for many low-income families.
Providing a tax credit to homebuyers to alleviate the
``affordability gap'' may be an effective tool to expand
homeownership opportunity. A similar tax credit to the one in
S. 1175 for people in Washington, DC has had success in
increasing homeownership in the District.
S. 875 would provide additional resources to developers to
enable them to provide new affordable for-sale housing. The
subsidy the tax credit would provide would increase the
availability of for-sale housing where little or no such
housing exists.
As we noted in our written testimony, there is a severe
short-
age of affordable for-sale housing in many communities.
According to Harvard's Joint Center for Housing Studies and the
Brookings Institution:
Many low-income renter households may be in a position
to overcome the wealth and income constraints on buying
a home, but will still be constrained by a lack of
adequate housing units at an appropriate price in a
desirable location. Supply side constraints on
homeownership deserve greater attention from
researchers and policymakers.
Affordable homes for ownership are being lost to house
price inflation and vacancies . . . On net there were
about a half-million fewer affordable owner-occupied
homes in 1999 than in 1997. The result, based on one
set of underwriting assumptions, is that the share of
owner-occupied homes affordable to low-income
households fell from 47 percent to 44 percent of the
stock from 1997 to 1999.
When adjustments for variables that usually affect
homeownership are made, the stock of homes plays a
significant role in determining homeownership for low-
income households. The presence of single-family and
new homes contributes to higher homeownership by low-
income households. Yet very few non-mobile units are
being added to the stock at affordable levels.
Policymakers need to recognize the failure of filtering
as a mechanism to expand the supply of affordable
homes.\4\
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\4\ Collins, Crowe and Carliner, ``Supply Side Constraints on Low-
Income Homeownership,'' in Retsinas and Belsky, eds., Low-Income
Homeownership: Examining the Unexamined Goal, 2002, pp. 197-198.
Several years ago, the National Housing Conference's Center
for Housing Policy found that between 1997 and 1998, 200,000
working renter families in 17 major metropolitan areas could
afford to purchase three-plus-bedroom houses priced between
$50,000 and $75,000. But only 30,000 homes in that price range
were available in those locations.\5\
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\5\ National Housing Conference Center for Housing Policy, Housing
America's Working Families, 2000, p. 21.
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Enterprise's experience is that the shortfall of for-sale
housing is especially acute in low-income and minority
neighborhoods. One of the biggest barriers to expanding the
supply of affordable, for-sale homes in many of these
communities is that it often costs more to build or
rehabilitate housing than market prices will support. This
market failure denies low-income people homeownership
opportunity and prevents low-income neighborhoods from reaping
the broader benefits that often accompany increased
homeownership.
S. 875 would address this market failure by helping close
the gap between development costs and market value of
affordable, for-sale housing in low-income areas. The proposal
is based on the highly effective Rental Credit (LIHTC) and
could do for homeownership what the Rental Credit has done for
affordable apartment development. The Homeownership Credit has
the same sound principles as the Rental Credit of State
administration and flexibility, private sector competition and
oversight and a strong role for community-based groups. The
same highly efficient system of State administrators, corporate
investors and community-based and for-profit developers that
have made the Rental Credit so successful would readily embrace
and effectively utilize the Homeownership Credit.
In addition to expanding homeownership opportunity for low-
income people, the Homeownership Credit would help stabilize
disinvested neighborhoods and contribute to their
revitalization. The Credit recognizes the critical role
homeownership can play in community development by targeting
resources to low-income and economically disadvantaged
communities, including rural and Native American areas. The
Credit also would have significant economic benefits. The
50,000 homes it would produce each year would generate 122,000
jobs, $4 billion in wages and $2 billion in Federal, State and
local revenue annually.
Importantly, S. 875 and H.R. 839 contain a small set-aside
to help ensure community- and faith-based organizations have a
fair chance to participate in the new program. Specifically,
the bills provide that States must award at least 10 percent of
their annual Homeownership Credit allocations to nonprofit
groups.
The nonprofit set-aside would ensure the Homeownership
Credit reaches the neediest people and communities. Faith-based
and community groups are more likely to build housing in areas
of high poverty, unemployment and housing costs. They are much
more likely to develop housing for people with special needs,
such as the homeless.\6\ Even though they provide the hardest
to produce housing, community-based groups are as cost-
effective as for-profit builders doing less difficult
developments. In evaluating performance with the rental housing
credit, the General Accounting Office found ``the difference in
estimated per-unit costs for nonprofit and for-profit
developers was not statistically significant.''\7\
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\6\ See the General Accounting Office report, Tax Credits: Reasons
for Cost Differences in Housing Built by For-Profit and Nonprofit
Developers, October 1999.
\7\ General Accounting Office, pp. 1-2.
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The set-aside also would help assure homeownership in
healthy, holistic communities. Grassroots groups build
communities as well as housing, as part of comprehensive
revitalization efforts. In addition to for-sale homes, they
produce rental apartments, start small businesses and develop
retail centers. They help people get good jobs and move up the
career ladder. They partner with police departments to make
neighborhoods safer. And they provide essential services such
as childcare, mentoring and financial literacy. These
activities help ensure families and communities can fully
benefit from homeownership opportunities.
Nonprofit set-asides are an established element of
successful housing programs. The Rental Credit on which the
Homeownership Credit is based requires States to award at least
10 percent of their annual supply of credits to qualified
nonprofit organizations. The HOME housing block grant requires
States and cities to award at least 15 percent of their annual
grants to housing developed, sponsored or owned by qualified
nonprofit organizations with community development experience
and local accountability.
States still could allocate Homeownership Credits to
grassroots groups without a set-aside and many probably would.
But the set-aside sends a strong signal that all States must
address their most difficult housing needs through the
organizations most committed to solving them with a portion of
limited Federal housing resources every year.
A small set-aside for community- and faith-based groups
does not unfairly disadvantage for-profit developers. In 2001,
States awarded more than two-thirds of their Rental Credits to
for-profit developers. These figures do not include the $137
million in Rental Credits allocated in 2001 to bond-assisted
developments, which are mostly done by for-profit builders.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES
FROM TERRI MONTAGUE
Q.1. I would like to ask each witness to share his or her
general views of the HOPE VI Program. In addition, please
address the impact HOPE VI may have on furthering the goal of
low-income homeownership. Does HOPE VI help in this regard,
either by making new units directly available to low-income
buyers, or by improving the neighborhoods sufficiently to allow
other homeownership efforts to succeed?
A.1. The HOPE VI public housing revitalization program has
enabled local jurisdictions to form private-public partnerships
to turn dysfunctional, detrimental living environments into
healthier communities. As a community revitalization program,
HOPE VI has had significant successes in many areas.
Enterprise strongly opposes the Administration's proposal
to
provide no funding for HOPE VI in its fiscal year 2004 budget
request. We urge Congress to maintain HOPE VI funding at the
fiscal year 2003 level of $574 million in the coming fiscal
year. We have been pleased to work with HUD, Members of
Congress and other program stakeholders to explore potential
improvements to the program.
Congress designed HOPE VI to accomplish several purposes:
1) improve living conditions for public housing residents
through demolition, rehabilitation and replacement of obsolete
public housing; 2) revitalize distressed public housing sites
and surrounding neighborhoods; 3) provide housing that avoids
or decreases concentration of very low-income families; and 4)
build sustainable communities. Homeownership directly
contributes to the last three of those four objectives.
Not surprisingly, homeownership has been an important
element of many HOPE VI communities. According to HUD, HOPE VI
funds appropriated between 1993 and 2001 will support
construction of 15,000 for-sale homes, in addition to 41,500
new public housing apartments. The for-sale housing includes
market rate homes and homes affordable to low-income working
families.
Enterprise has developed for-sale housing as part of two
successful HOPE VI communities:
In Baltimore, MD, the Heritage Crossing development
will bring 185 for-sale homes (plus 75 rental apartments
and a community center) to a site that was once home to one
of the city's most dysfunctional, crime ridden public
housing complexes. Homes at Heritage Crossing have sold for
as low as $81,000 to buyers earning as little as $28,000
and as high as $130,000 to households earning as much as
$70,000. Over 45 percent of the market-rate housing
involves homebuyers coming from outside the city back into
the city. This redevelopment continues Enterprise's ground-
breaking work to revitalize mostly African American
neighborhoods in West Baltimore.
In Washington, DC, the Wheeler Creek development
replaced abandoned, dilapidated public housing and FHA-
insured apartment buildings with 314 new homes, including
104 for-sale homes and 30 ``lease-purchase'' homes that
renters will buy after achieving sufficient savings,
completing homeownership counseling and qualifying for a
mortgage. First mortgages range from $45,000 to $145,000.
Homes have sold to buyers earning between $18,000 and
$150,000. The typical buyer has been a single mother
earning $37,000.
Without HOPE VI, it is highly unlikely that either of these
communities would have benefited from this scale of affordable
homeownership development.
HOPE VI's support for comprehensive community
revitalization is critical to its homeownership successes. By
providing and attracting additional funds for rental housing,
community facilities and supportive services, HOPE VI helps
strengthen neighborhoods. Strong neighborhoods are essential
for families to fully realize homeownership's broader benefits,
especially wealth appreciation.
Recent research has found that HOPE VI developments in
certain neighborhoods have been associated with lower crime
rates and higher incomes, education levels and employment rates
than were the case before redevelopment. HOPE VI also has
spurred increased private investment in these communities.
Significantly, both residential loan rates and single-family
housing values in these HOPE VI neighborhoods have risen more
quickly than in their cities overall. The researchers conclude
that, ``[a]lthough there are many non-HOPE VI factors
contributing to change in these communities, the nature of HOPE
VI development has helped determine the extent and pace of that
change.\8\
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\8\ Zielenbach, The Economic Impact of HOPE VI on Neighborhoods,
Housing Research Foundation, 2002, p. 3.
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For public housing residents HOPE VI's results are more
mixed. The majority of residents live in better housing in
lower poverty neighborhoods as a result of HOPE VI. Many more
are employed now than before redevelopment, although the vast
majority still has very low-incomes. Regrettably, a significant
percentage of former residents still have housing problems or
are simply unaccounted for.\9\ These issues merit Congress'
close attention.
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\9\ See Popkin, et. al, HOPE VI Panel Study: Baseline Report and
HOPE VI Resident Tracking Study, Urban Institute. 2002.
Q.2. Ms. Montague, you raised some concerns in your testimony
about the problems with the new rules for the Asset Control
Area program. Please detail your concerns, and any proposals
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you may have to address the problems you have identified.
A.2. As we stated in our written and oral statement for the
Committee, we generally have been pleased with HUD's
Administration of the ACA program since the Department
restarted it last fall. HUD staff in Washington and the
regional Homeownership Centers generally have been responsive
to specific (mostly technical) concerns we and other ACA
participants have raised regarding the new ACA agreements for
each jurisdiction.
Our most significant continuing concern with HUD is what we
believe is the Department's narrow interpretation and
implementation of the ACA program statute. HUD seems to view
the ACA initiative strictly as an affordable homeownership
program. ACA participants always have viewed the program as one
that should help stabilize struggling communities through
affordable homeownership. The later interpretation is
consistent with the program's statutory purpose, which is: ``.
. .to require the Secretary to carry out a program under which
eligible assets (as such term is defined in paragraph (2))
shall be made available for sale in a manner that promotes the
revitalization, through expanded homeownership opportunities,
of revitalization areas'' [Section 204(h)(1)].
Over the past several years, ACA stakeholders have proposed
to HUD a variety of regulatory provisions that would provide
more flexibility to local governments and community-based
groups to stabilize neighborhoods through homeownership. HUD
has refused to implement most of these proposals. For that
reason, we are seeking two simple statutory changes that would
allow the ACA initiative to meet the statutory purpose Congress
intended with the flexibility Congress provided.
The first change would enable ACA participants to sell
rehabilitated homes for what they are worth. Under current HUD
policy, ACA participants cannot sell rehabilitated homes for
more than 115 percent of total development cost, even if this
amount is below market value. This home sales-price limit is
counterproductive and unnecessary. Selling homes for less than
they are worth, especially in depressed markets, hampers
neighborhood stabilization and may exacerbate market
weaknesses--precisely the problem Congress created the ACA
program to address. HUD's regulatory cap on eligible homebuyer
income (115 percent of area median income) and narrow
definition of allowable development costs (generally,
acquisition price plus construction costs minus any public
subsidy and certain soft costs and professional fees) contains
costs.
The second change would provide ACA participants the
flexibility to convert a limited portion of homes in their
ACA's to rental housing for low-income people. In some ACA
revitalization areas,
two-, three- and four-unit properties constitute a substantial
share of the government-owned vacant homes blighting the
neighborhood. ACA participants are required to acquire and
rehabilitate all ``eligible assets'' in their revitalization
areas. Not all such multiunit properties are feasible for
homeownership, however. Low-income, first-time homeowners may
not be ready to assume the responsibilities and meet the
requirements (significant in some cities) of being a landlord.
Unless ACA participants can convert these properties into
affordable rental apartments for low-income people, which would
have similar stabilizing effects for the neighborhood as
homeownership, the properties will continue to blight the
community. This change is consistent with the ACA statute,
which authorizes the Secretary to modify or waive homeownership
goals in an ACA business plan upon ``a determination by the
Secretary that a good faith effort has been made in complying
with the goals through the homeownership plan and that
exceptional neighborhood conditions prevented attainment of the
goal'' [Section 204 (h)(5)(A)(ii)].
Statutory language to enact these changes is attached.
Recommended ACA Statutory Changes
Amendments to the National Housing Act
Part VIII, Title 11, Section 204 (h)
Sales Price:
as new:
(J) SALES PRICE AFTER REHABILITATION. The average sales
price after rehabilitation of designated properties sold in any
calendar year shall not exceed 115 percent of eligible
development costs as defined by HUD. Purchaser may elect to
sell an individual property for more than 115 percent of
eligible development costs provided that the 115 percent limit
is met for the portfolio of sales reported by purchaser to HUD
in each calendar year.
Multifamily Rental
add to existing: (5)(A)(iii)
The Secretary shall allow the preferred purchaser to
rehabilitate a limited number of eligible assets in the
revitalization area for rental housing for low-income people or
sell such eligible assets for development of rental housing for
low-income people, provided that rehabilitation of such
eligible assets for homeownership is infeasible and
rehabilitation of such eligible assets advances the purpose of
stabilizing the revitalization area.
Q.3. The National Association of Homebuilders in its written
statement argued against the set-aside for ``tax-exempt
developers'' contained in the Homeownership Tax Credit
legislation (S. 875 and H.R. 839). Habitat for Humanity
expressed support for the provision in its statement. What is
Enterprise's view?
A.3. Enterprise strongly supports the small set-aside to ensure
community-based organizations can compete fairly for
homeownership credits in above-referenced bipartisan House and
Senate bills.
As the Committee is aware, community organizations,
including faith-based groups and Habitat affiliates, are the
primary providers of affordable housing in many low-income
urban and rural areas. The homeownership credit, if enacted,
would enable these groups to continue their remarkable
community and family renewal efforts provided grassroots groups
are able to access this promising new tool.
S. 875 and H.R. 839 contain a small set-aside to help
ensure nonprofit organizations have a fair chance to
participate in the new program. Specifically, the bills provide
that States must award at least 10 percent of their annual
homeownership credit allocations to nonprofit groups. We
believe this provision must be part of the legislation to enact
the credit for three simple reasons.
Nonprofit set-asides ensure resources reach the neediest
people and communities. Faith-based and community groups are
more likely to build housing in areas of high poverty,
unemployment and housing costs. They are much more likely to
develop housing for people with special needs, such as the
homeless.\2\ Even though they provide the hardest to produce
housing, community-based groups are as cost-effective as for-
profit builders doing less difficult developments. In
evaluating performance with the rental housing credit, the
General Accounting Office found ``the difference in estimated
per-unit costs for nonprofit and for-profit developers was not
statistically significant.''\3\
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\2\ See the General Accounting Office report, Tax Credits: Reasons
for Cost Differences in Housing Built by For-Profit and Nonprofit
Developers, October 1999.
\3\ General Accounting Office, pp. 1-2.
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Nonprofit set-asides assure healthy, holistic communities.
Grassroots groups build communities as well as housing, as part
of comprehensive revitalization efforts. In addition to for-
sale homes, they produce rental apartments, start small
businesses and develop retail centers. They help people get
good jobs and move up the career ladder. They partner with
police departments to make neighborhoods safer. And they
provide essential services such as childcare, mentoring and
financial literacy. These activities help ensure families and
communities can fully benefit from homeownership opportunities.
Nonprofit set-asides are an established element of
successful housing programs. The rental housing credit (Low-
Income Housing Tax Credit) on which the homeownership credit is
based requires States to award at least 10 percent of their
anilual supply of credits to qualified nonprofit organizations.
The HOME housing block grant requires States and cities to
award at least 15 percent of their annual grants to housing
developed, sponsored or owned by qualified nonprofit
organizations with community development experience and local
accountability.
States still could allocate resources to grassroots groups
without a set-aside and many probably would. But the set-aside
sends a strong signal that all States must address their most
difficult housing needs through the organizations most
committed to solving them with a portion of limited Federal
housing resources every year.
A small set-aside for community- and faith-based groups
does not unfairly disadvantage for-profit developers. In 2001
States awarded more than two-thirds of their rental housing
credits to for-profit developers. These figures do not include
the $137 million in credits allocated in 2001 to bond-assisted
developments, which are mostly done by for-profits.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
FROM TERRI MONTAGUE
Q.1. The Administration has requested no money for HOPE VI in
its fiscal year 2004 Budget request. How will the elimination
of HOPE VI affect the rate of homeownership among minority
families? How will it affect the Enterprise Foundation's
homeownership programs?
A.1. As noted in our response to Senator Sarbanes' first
question, HOPE VI has directly supported 15,000 affordable for-
sale homes. While this number of homes has had little impact on
the national homeownership rate, HOPE VI is an important part
of Federal homeownership policy. First, the families and
communities that benefit from HOPE VI homeownership would
likely not have realized those benefits without the program.
Second, as noted in our response to Senator Sarbanes' question,
HOPE VI development in some areas has been associated with
higher housing values in the surrounding community. Third,
public housing residents and low-income renters in HOPE VI
redevelopments may be able to move into homeownership over time
with sufficient supports, including homeownership counseling,
as in Enterprise's aforementioned Wheeler Creek development.
Eliminating funding for HOPE VI, as the Administration has
proposed, would severely constrain Enterprise's ability to
provide affordable for-sale housing in low-income areas.
For more general comments on HOPE VI, please see our answer
to Senator Sarbanes' first question.
Q.2. The Administration also has proposed converting the
Section 8 tenant-based voucher program into a block grant
called ``Housing Assistance for Needy Families'' (HANF). How
would this HANF proposal affect the rate of homeownership among
minority families, including the use of Section 8 homeownership
vouchers. How will this proposal affect the Enterprise
Foundation's homeownership programs?
A.2. We are very concerned that the Administration's HANIT
proposal would lead to substantially less funding for Section 8
vouchers over time. Funding for Federal block grants has not
kept pace with inflation.\10\ Apartment rents typically rise
much faster than inflation. Less funding from a shrunken block
grant would force local housing authorities to serve fewer
families overall, provide less assistance to the neediest and/
or increase housing cost burdens on voucher recipients. Any of
these outcomes, which could apply to families receiving both
Section 8 rental and homeownership assistance, would impose
severe strain on low-income families' finances.
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\10\ According to the Center on Budget and Policy Priorities,
aggregate funding for 11 major Federal block grants fell 11 percent
after adjusting for inflation over the past decade. Excluding the child
care block grant, for which funding increased substantially under
welfare reform, funding fell 22 percent accounting for inflation. See
Robert Greenstein's remarks at ``Ending the Safety Net as We Know It?''
symposium, June 13, 2003, www.brookings.edu.
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The Administration's HANF proposal also could undermine
innovative uses of Section 8 for affordable homeownership--an
Administration priority. Developers and lenders may be less
likely to participate in a program, or only continue to
participate at a premium, under a block grant with uncertain
funding. We would be particularly concerned about the
proposal's impact on initiatives such as our ``Home of Your
Own/Portland'' partnership with the Federal Home Loan Bank of
Seattle and the Housing Authority of Portland, which will
enable low-income public housing residents to become first-time
homeowners.
In addition, the Senate version of the Administration's
proposal (S. 947) would provide that families currently
receiving Section 8 homeownership assistance would be
guaranteed to continue receiving that same assistance for only
5 years, shorter than the typical mortgage term. Families that
received Section 8 homeownership assistance after enactment of
the block grant would have even less stability under the Senate
bill.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY
FROM CATHY WHATLEY
Q.1. Ms. Whatley, as you are aware, immigrant and first-
generation Americans will make up a significant share of any
growth in minority homeownership. Since a real estate agent is
often a consumer's first contact, could you share with the
Committee some of the things Realtors are doing to make
immigrant families more comfortable with the home buying
process?
A.1. In 1998 NAR created the At Home with Diversity course
which has provided over 10,000 REALTORS' with
strategies, training and tools to reach emerging markets and
expand homeownership. The course is intended to build diversity
awareness and provide the skills, to more effectively
communicate across cultural boundaries. Using the foundation of
fair housing laws, the course helps
REALTORS' develop personal and professional business
strategies to reach out to minorities and immigrants in their
communities. (See attached document.)
The course has two general thrusts. The first is to
heighten the REALTORS' awareness of and sensitivity
to the social and cultural constituencies of local real estate
markets: who is there; what their values, customs, norms, and
real estate needs are; and what they expect from the
REALTORS'.
The second is to provide practical skills and tools to
increase the professional's effectiveness in servicing all
social groups, taking into account their cultural differences.
Specifically, the course provides skills in cross-cultural
communication and strategic business planning that together
embrace the diversity of local real estate markets and bring
real estate professionals and local communities into productive
contact.
NAR issues a diversity certification, ``At Home with
Diversity: One America'' to those licensed real estate
professionals who meet the eligibility requirements and
complete the course. The certification signals to customers
that the real estate professional has been completely trained
on working with diversity in today's real estate markets.
REALTOR' members spend time with minority
customers to familiarize them with the entire real estate
process, to assist them with understanding the loan process and
often times to help connect them with various city or State
programs that offer financial assistance and/or homeownership
counseling. NAR has initiated the translation of many documents
used in the real estate transaction process into foreign
languages to help make them more understandable, especially at
the local level for specific market needs. Also, one of NAR's
public awareness radio ads has been produced in Spanish.
This year, NAR, along with The National Association of Real
Estate Brokers, the National Association of Hispanic Real
Estate Professionals and the Asian Real Estate Association of
America entered into a historic partnership with HUD to promote
fair housing and increase minority homeownership. This
partnership builds upon our work with the White House and the
HOPE Awards, which we jointly sponsor with these and several
other minority real estate organizations.
The HOPE (Home Ownership Participation for Everyone) Awards
recognizes up to seven organizations and individuals who are
making outstanding contributions to increasing minority
homeownership. We have honored organizations for their work
advancing public policies to promote minority homeownership.
For example, this year, the brokerage award went to Emily
Moerdomo Fu of RE/MAX Greater Atlanta International. Minority
homeownership always has been the focus of Emily Fu's company,
which she located in Atlanta's Asian Square Shopping Center,
where the Asian and Hispanic communities come together. Her
staff speaks 16 different languages and comes from 19 different
cultural backgrounds. The brokerage provides a full array of
services and since 1990 has helped thousands of minority
families close on their first homes.
Q.2. An innovative approach to leveraging existing housing
programs in order to increase homeownership is use of the
Section 8 Voucher program for homeownership. I know the
National Association of Realtors continues to be a strong
supporter of this program. Does the National Association of
Realtors have any suggestions for improving the effectiveness
of this program?
A.2. NAR is a strong supporter of the Section 8 homeownership
program. This program allows people who may have thought they
could never achieve homeownership become homeowners. We are
strong advocates of this program, and applaud HUD's initiative
in this area. However, only a small percentage of housing
authorities are offering the program to their residents. We
believe two factors are causing this.
First, housing authorities have limited resources with
which to work. The Section 8 housing voucher program offers no
additional fees to housing authorities despite an additional
workload required to enact the program. While the down payment
program provides a fee, the housing voucher program does not.
We believe that additional responsibilities, administrative and
operational, are required for both of these programs; and
therefore, PHA's should not have to shoulder that burden alone.
Given the positive policy implications of moving these families
to homeownership, we believe PHA's should be compensated for
their participation in either the housing voucher or down
payment programs. In addition, potential housing voucher
participants may need to be counseled through the home buying
process, which is another cost the PHA may have to incur.
The second reason for a lack of usage of the program
relates to a lack of understanding. Many housing authorities
have never dealt with homeownership previously, and there is a
lack of knowledge about the program. NAR has published a
handbook (Section 8 Homeownership: A Guide for
REALTORS'), which has been used by many housing
authorities, local HUD offices, and
REALTOR' associations nationwide. (See attached
document).
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES
FROM CATHY WHATLEY
Q.1. I would like to ask each witness to share his or her
general views of the HOPE VI Program. In addition, please
address the impact HOPE VI may have on furthering the goal of
low-income homeownership. Does HOPE VI help in this regard,
either by making new units directly available to low-income
buyers, or by improving the neighborhoods sufficiently to allow
other homeownership efforts to succeed?
A.1. Neighborhoods are extremely complex environments subject
to a variety of influences so it is rare for one program to
have a disproportionate influence on its future shape and
fortune. However, one such program may be HOPE VI. The program
has helped to transform lives by increasing homeownership
opportunities for low-income families and creating jobs and
entrepreneurial activity in distressed urban and rural areas.
For example, a member of NAR's Housing Opportunity Program
Advisory Board, Vincent White, is involved with a HOPE VI
project called ``The Villages of East Lake'' in Wilmington, DE.
The project is being built on the site of a former low-rise
high-density public housing development called Riverside. The
development consists of 80 public housing rental units, 90
affordable for-sale units and 24 market rate for-sale units.
The development costs $32 million utilizing a number of
Federal, State, and local programs such as FHA guaranteed
mortgages, Federal Home Loan Bank's down payment and settlement
assistance and/or Affordable Housing Program, subsidized
purchase prices, silent second mortgages, State Revenue Bond
Programs and homebuyer education and counseling. It is
estimated that more than 35 former public housing residents and
their families will have a place of there own secured via a
deed within the next 24 months. In addition, they will be
living in Delaware's first designed mixed-income neighborhood,
with no discernible distinction between their home and that of
the fair market value units.
An important component of the HOPE VI Program that has
helped it succeed is the Family Self-Sufficiency Program. This
program provides public housing residents the necessary
training in budgeting, employment training and educational
attainment that allow them to become good candidates for
homeownership. It also mandates post homeownership counseling
for up to 1 year after purchase.