[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
                    H.R. 5039, THE SAVING AMERICA'S
                       RURAL HOUSING ACT OF 2006

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 25, 2006

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-86


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
           Subcommittee on Housing and Community Opportunity

                     ROBERT W. NEY, Ohio, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California
    Chairman                         NYDIA M. VELAZQUEZ, New York
RICHARD H. BAKER, Louisiana          JULIA CARSON, Indiana
WALTER B. JONES, Jr., North          BARBARA LEE, California
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
CHRISTOPHER SHAYS, Connecticut       BERNARD SANDERS, Vermont
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
GINNY BROWN-WAITE, Florida           BRAD MILLER, North Carolina
KATHERINE HARRIS, Florida            DAVID SCOTT, Georgia
RICK RENZI, Arizona                  ARTUR DAVIS, Alabama
STEVAN, PEARCE, New Mexico           EMANUEL CLEAVER, Missouri
RANDY NEUGEBAUER, Texas              AL GREEN, Texas
MICHAEL G. FITZPATRICK,              BARNEY FRANK, Massachusetts
    Pennsylvania
GEOFF DAVIS, Kentucky
CAMPBELL, JOHN, California
MICHAEL G. OXLEY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 25, 2006...............................................     1
Appendix:
    April 25, 2006...............................................    39

                               WITNESSES
                        Tuesday, April 25, 2006

Anders, Gideon, Executive Director, National Housing Law Project.    15
Arbury, James N., Senior Vice President of Government Affairs, 
  National Multi Housing Council, and National Apartment 
  Association....................................................    17
Carew, Thomas, Red River Director, Frontier Housing, Inc.........    18
Davis, Russell T., Administrator, USDA Rural Housing and 
  Community Programs.............................................     3
Loza, Moises, Executive Director, Housing Assistance Council.....    20
Rapoza, Robert A., Executive Secretary, National Rural Housing 
  Coalition......................................................    22
Rice, Robert L. Jr., President, Council for Affordable and Rural 
  Housing........................................................    24
Wehrwein, Charles, Senior Vice President, Mercy Housing, Inc.....    25

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    40
    Davis, Hon. Geoff............................................    52
    Waters, Hon. Maxine..........................................    44
    Anders, Gideon...............................................    45
    Arbury, James N..............................................    55
    Carew, Thomas................................................    67
    Davis, Russell T.............................................    73
    Loza, Moises.................................................    81
    Rapoza, Robert A.............................................    89
    Rice, Robert L...............................................    98
    Wehrwein, Charles............................................   106

              Additional Material Submitted for the Record

    Statement of the National Association of Home Builders.......   117
    Letter from the National Association of Realtors.............   121


                    H.R. 5039, THE SAVING AMERICA'S
                       RURAL HOUSING ACT OF 2006

                              ----------                              


                        Tuesday, April 25, 2006

             U.S. House of Representatives,
                        Subcommittee on Housing and
                             Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:04 p.m., in 
room 2128, Rayburn House Office Building, Hon. Geoff Davis 
presiding.
    Present: Representatives Davis of Kentucky, Neugebauer, 
Cleaver, and Waters.
    Mr. Davis of Kentucky. [presiding] This hearing of the 
Subcommittee on Housing and Community Opportunity will come to 
order. The Subcommittee on Housing and Community Opportunity 
meets today for the purpose of hearing testimony on H.R. 5039, 
the Saving America's Rural Housing Act, a bill to improve 
Section 515, Rural Multi-Family Housing Programs, through 
sensible and timely reform measures.
    The Housing Act of 1949 originally authorized the U.S. 
Department of Agriculture to make loans to farmers to improve 
their ability to provide decent living quarters for their 
employees and others. The program has evolved over the years to 
provide affordable housing for the rural community as a general 
population.
    Rural Development, an agency in the U.S. Department of 
Agriculture, released a November 2004 study prepared for USDA 
by a private consulting firm on the Section 515 portfolio. With 
an average property age of 28 years, the study revealed that 
nearly all Section 515 properties included in the study were in 
need of additional funds to cover essential repairs and 
maintenance costs.
    I'd like to briefly share with the committee one of the 
most interesting observations of the study, ``If new funds are 
not invested in these properties, two-thirds of the portfolio 
will only be able to maintain its current status, which keep in 
mind is not good already for the majority properties. If the 
roofs never leak, the paint jobs last forever, the building 
siding is everlasting, no potholes ever develop in the parking 
lot, no one will ever need to replace a furnace or air 
conditioner, no doors will ever rust or rot, and all windows 
will work forever.''
    If you've ever owned a home, you know that these things 
would be ridiculous assumptions on which to base your personal 
budget in an investment in a home or residential property. And 
they certainly aren't assumptions on which I'd like to base 
national policy.
    The fact of the matter is that Section 515 properties need 
help, and they need it now, and they need our help. It will 
only become more expensive to maintain the program as time 
progresses. I've seen firsthand the dilapidated state of the 
Section 515 portfolio while traveling Kentucky's diverse Fourth 
District during my first year as a representative. In the 
Fourth District alone, there are 40 Section 515 properties. 
Many of the properties are in dire need of assistance and 
repair.
    Solutions are needed now to revitalize the program and 
ensure that it's sustainable for the future. These reforms will 
have a direct and positive impact on over 1,000 families in the 
Fourth District of Kentucky and many, many more in rural 
communities across the United States.
    H.R. 5039 will create a revitalization program by offering 
restructuring plans to Section 515 development owners. This 
will preserve ailing Section 515 properties for the future, 
saving the United States taxpayers approximately $2 billion in 
maintenance and rehabilitation costs by addressing the programs 
preventively now.
    Section 502(c) of the Housing Act restricts the rights of 
owners of Section 515 properties to prepay their loan, even 
after they've fulfilled their contractual duty to the USDA. 
H.R. 5039 will nullify the onerous restrictions in Section 
502(c) to allow for prepayment of certain Section 515 loans 
entered into before 1989, thereby alleviating expensive 
litigation against the Rural Housing Service, which has cost 
taxpayers in the United States millions of dollars today.
    Additionally, a voucher program will be created to protect 
tenants who live in the properties subject to prepayment. It's 
estimated that only 10 percent of the current development 
owners would consider prepaying their loans.
    H.R. 5039 will save money on future litigation by 
nullifying the burdensome prepayment restriction and protecting 
tenants, while revitalizing the existing Section 515 portfolio 
to continue the tradition of providing housing assistance to 
our rural families.
    This is proactive legislation that seeks to deal with the 
apparent problems now rather than deal with more expensive 
solutions later. I'd like to thank the Administration, the 
Financial Services Committee, Ranking Member Frank, Chairman 
Ney, and other Members on both sides of the aisle for their 
help in putting together a good piece of legislation that will 
help to solve the problems of prepayment while combatting the 
aging portfolio of Section 515 properties.
    The bill institutes sensible and timely reforms that will 
enable the program to continue providing low income rural 
families with affordable housing.
    Thank you, Chairman Ney, and Ranking Member Waters, for 
holding the hearing today on such an important and relevant 
topic. I also want to thank the witnesses on both of our panels 
for participating, for their graciousness in attending the 
hearing today, and I look forward to hearing your testimony and 
your thoughts on the Section 515 program.
    Without objection, all members' opening statements will be 
made part of the record. Does the gentleman from Texas have an 
opening statement? Then we'll move to introducing the first 
panel, in which we have one witness. I'd like to introduce Mr. 
Russ Davis. He's the Administrator for Rural Development 
Housing and Community Facilities Programs at the Department of 
Agriculture.
    Prior to joining the Department of Agriculture, Mr. Davis 
served as a Senior Policy Adviser with the Department of the 
Treasury, and during the Administration of President George 
Herbert Walker Bush, he served as the Acting Deputy Assistant 
Secretary for Housing Operations at the Department of Housing 
and Urban Development.
    Without objection, your written statement will be made part 
of the record, and you will be recognized for a 5-minute 
summary of your testimony.

   STATEMENT OF RUSSELL T. DAVIS, ADMINISTRATOR, USDA RURAL 
                 HOUSING AND COMMUNITY PROGRAMS

    Mr. Davis. Thank you very much, Mr. Chairman and members of 
the subcommittee. I thank you for the opportunity to present 
this Administration's initial comments on H.R. 5039, the Saving 
America's Rural Housing Act of 2006.
    Let me begin by acknowledging and thanking the sponsors and 
co-sponsors of H.R. 5039 for their leadership on this important 
issue. Mr. Chairman, we appreciate the fact that you personally 
have been interested in this bill, as well as Chairman Ney, and 
Ranking Member Frank. The quality of thought and effort are 
evident throughout. We also thank everyone involved with this 
legislation for their work and the experience they have brought 
to this process.
    There is an urgent need to address long-term physical and 
economic needs in the rural rental housing portfolio. There are 
over 17,000 properties in this portfolio. Our studies have 
shown that the two biggest threats to it are prepayment, 
expected to affect 10 percent of the portfolio, and more 
importantly, the potential loss of properties due to physical 
deterioration and economic obsolescence. This bill will address 
both problems. I'm grateful that we are stepping up to that 
challenge.
    The Administration supports the basic strategy outlined by 
this legislation and believes it will work. In fact, I'm 
pleased to report to the committee that the two new housing 
mechanisms in this bill, rural vouchers and debt restructuring, 
are already being tested on a demonstration basis with 
promising results.
    First, and thanks to your assistance, Mr. Chairman, USDA 
issued its first rural housing vouchers last month. A property 
in southern Georgia had left the program after meeting all of 
the prepayment requirements. The residents would have faced 
eviction within 30 days, but Under Secretary Thomas C. Dorr, of 
the USDA, personally went to Georgia to give the affected 
families housing vouchers that allowed them to remain in their 
homes.
    On the debt restructuring side, and also thanks to your 
assistance, Mr. Chairman, USDA has begun a test demonstration 
of the types of multi-family restructurings envisioned in H.R. 
5039. Within the last 30 days, owners of approximately 4,000 
properties have applied to undergo debt restructuring. This 
shows that there is demand for the transactions authorized by 
H.R. 5039. The 4,000 applications total almost 25 percent of 
the entire Section 515 portfolio. But without the authorization 
provided by H.R. 5039, only a handful of these can undergo a 
restructuring that will keep them affordable.
    The Administration's own revitalization proposal was 
circulated on the Hill in August of 2005. The President's 
fiscal year 2007 budget supports this proposal by requesting 
$74 million for vouchers and debt restructuring. The 
Administration's proposal and H.R. 5039 are generally quite 
similar. We support the bill, with certain clarifications, and 
look forward to working with the subcommittee to address these 
issues.
    One item of concern is that H.R. 5039 would set a maximum 
tenant contribution of 30 percent for restructured properties. 
This has been called the overburden provision, as it aims to 
protect tenants who pay over 30 percent of their incomes toward 
rent.
    Our concern with this provision in H.R. 5039, as written, 
is that it may have unintended consequences. If the maximum 
rent provisions remain in H.R. 5039, at a minimum, we strongly 
recommend that certain controls be put in place that would 
still protect the currently overburdened. Such provisions could 
include:
    First, allowing restructurings where additional rental 
assistance funds are required only for residents in units who 
are overburdened at the time of restructuring, in other words, 
taking a snapshot of the property at that time. This would 
protect the currently overburdened, yet not expose the 
properties in the program to high, open-ended costs if the 
overburdened leave the properties.
    Second, we would suggest limiting the potential 
beneficiaries to tenants or applicants who don't already have 
HUD assistance. About a fifth of our units already have Section 
8 tenant assistance. We believe that the Section 515 program 
will, in the long run, be on a stronger footing by preserving 
multiple sources of tenant assistance.
    The Administration applauds Members of Congress for taking 
this very important first step. We remain committed to 
protecting tenants and retaining as many properties as we can 
in the Section 515 program. USDA Rural Development looks 
forward to working expeditiously with Congress on this 
important legislation.
    Thank you very much.
    [The prepared statement of Mr. Davis can be found on page 
73 of the appendix.]
    Mr. Davis of Kentucky. Thank you, Mr. Davis. This is an 
issue in the rural counties and transitional counties in my 
home district. We have great personal interest in creating 
longer-term, affordable housing opportunities increasing that 
outreach, but also making sure that we have good stewardship of 
the process.
    So one question I'd like to start with is, do you feel that 
the program that we presented in this legislation gives you all 
the restructuring tools that you need?
    Mr. Davis. Yes, Mr. Chairman. We believe that this is an 
adequate set. There are approximately 10 different tools 
enumerated in the legislation, and this gives us what we call a 
tool box that we can choose the least expensive and most 
effective financial tool in any given situation.
    Mr. Davis of Kentucky. One related thing which is of some 
concern to me, just in general, dealing with many Federal 
agencies, some of the process tools or systemic tools, software 
in particular, methods of processing information and 
maintaining accountability are, let's say, somewhat less 
efficient than we find in the commercial sector, because of the 
goal to keep costs under control and more money adding value 
directly.
    Could you comment a little bit on the steps that you're 
going to take to make sure that taxpayer dollars are not paid 
away in overhead in this program but that we can direct more to 
the front lines?
    Mr. Davis. Yes, Mr. Chairman, that's a very good issue. We 
have been looking very closely at the logistics of what it will 
take to process up to 10,000 properties for restructuring, and 
what it really comes down to is that we have to use automation 
and standardization to get large numbers through on time.
    We have prepared standard documents over the past year, and 
in fact we've closed a number of properties already under our 
current authorities, so that we have standard documents and we 
are not handcrafting property by property. We're going to have 
to do these wholesale, not retail.
    The second thing we are doing is automating the process. 
We're linking the documents together so that, again, we are not 
reinventing the wheel on every property. I would point out that 
we took in 4,000 property applications for the restructuring in 
30 days, and we did it all on the Web in an automated fashion, 
and are scoring them automatically. So automation and 
standardization are really going to be critical to keeping the 
cost of these transactions down.
    Mr. Davis of Kentucky. As the legislation moves forward, 
I'd personally like to see some of the tools that you're using. 
Hopefully they can be adopted in some of our other agencies, as 
well, to speed processing and to reduce cost.
    Before deferring to other members for some questions, I do 
want to have you discuss one practical application, a pilot 
project you alluded to in your testimony in Hinesville, 
Georgia. There was a pilot program with the use of vouchers for 
folks who were caught in the prepayment situation.
    And one of the, I guess, some would call it six degrees of 
separation, but it's apparently a very small world 
circumstance. Many of the soldiers that you mentioned in that, 
whether you realize it or not, were from the 2nd Brigade Combat 
Team, the 3rd Infantry Division, who had just come back from 
Iraq at the first of the year, and they were commanded by a 
close friend of mine from college.
    So, I'd like you to maybe bring the human side of this and 
how this--the pilot process steps were implemented by the 
Secretary down there personally, but also if you might comment 
as well on maybe some things that you saw in the process that 
could be improved or changed to make it even more effective 
when we get to an actual rollout.
    Mr. Davis. Sure, and I thank you for the opportunity, Mr. 
Chairman. The voucher program is designed to protect tenants 
when there is a prepayment of the loan. When the loan is 
prepaid, the rental assistance terminates, the property leaves 
the program, and the tenants are effectively on their own. We 
do not have a conversion voucher program like HUD does, and 
that is one of the things that H.R. 5039 is addressing.
    On a pilot basis, we were given a small amount of money 
this year to experiment with a voucher program. In order to 
implement it quickly, without going through the entire 
regulation process, we worked with HUD on an interagency 
agreement to essentially use their regulations. In the second 
week of February, we received notice that a property in 
Hinesville, Georgia--which is, I believe, where Fort Stewart 
is--had given notice that they would be prepaying in about 10 
days. And in fact, they did prepay their loan. And the 
residents had 30 days to leave the property or face a doubling 
of their rents. The area is growing very quickly, and the 
housing markets are very, very tight. And we have heard that 
housing markets were affected up to 100 miles in each 
direction. So the tenants did not have very many options.
    The Under Secretary was able to go down there and was able 
to hand out vouchers to the tenants. They had gotten notice 
within 2 weeks of their rent increase notices, so they were 
allowed--they were permitted to stay in their properties, and 
the rent increase was effectively picked up by the vouchers. 
This actually was a cost-effective way for us to protect the 
tenants, so we are pleased with the low cost of it, but also 
the flexibility. Normally, we would only use vouchers if there 
were no other way to protect the tenants, such as finding 
vacant units in other properties of ours or finding other 
housing subsidies. This is one of those cases where all of the 
other possibilities we had were not available, and so the 
vouchers were available just in time. And we thank the 
committee for their help on this.
    The woman who received voucher number one was a 
servicewoman, and there were quite a few servicepeople in this 
apartment complex.
    Mr. Davis of Kentucky. One more question that comes to mind 
just listening to you describe that story, particularly as 
we're dealing with prepayment situations, one thing that I 
would not want to see happen, and that I know many of the panel 
members would feel the same way, is that there be no means for 
a precipitous eviction, particularly in a situation like that.
    Do you foresee any controls from a regulatory perspective? 
You know, I'm very troubled hearing that soldiers coming back 
from serving their country would be faced with what might be 
greed-motivated eviction on the part of a civilian property 
owner there. But what can--what would you recommend or see as 
steps to take to prevent such a thing from happening in the 
future?
    Mr. Davis. Well, we believe that the more notice, the 
better. And there is some discussion, and you will hear from 
the panel coming later; there is some discussion about the 
timing of the notice period, and this is something we'd like to 
work with the committee on.
    There are two competing forces. The owners, the financiers, 
and the government want as much notice as possible, because 
they need to get other financing lined up or buyers, etc. 
Whereas the longer the tenant notice you have, the tenants live 
under a cloud longer, and they become understandably concerned. 
There can be a lot of anxiety.
    I see what happens when these notices go up in the 
washroom, and we want to minimize any period of anxiety. That's 
why we really like having the voucher option so that we can 
say, don't worry about this. You will be taken care of. And 
that's the most important thing. So having a voucher is number 
one.
    And number two is having a good marketing effort around a 
reasonable notice period so that the tenant anxiety is 
minimized.
    Mr. Davis of Kentucky. Okay. Thank you. The gentleman from 
Missouri, Mr. Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman and Mr. Davis, thank 
you for being here today. With what we have all seen in the 
Gulf Coast region, I'm wondering what the demand is in that 
area. We're talking about properties before 1995. How many 
properties were damaged or destroyed in Hurricanes Katrina and 
Rita? Do you have any idea?
    Mr. Davis. The numbers I have seen from FEMA, the single 
family homes, about 120,000 or so in Louisiana, and I believe 
80,000 in Mississippi. That's my recollection from their 
documents, and I'll get you the right number.
    Mr. Cleaver. No, I'm talking about the 515 program.
    Mr. Davis. Oh, in the 515 program. We have 13 properties 
that had significant to total damage. One property was just 
absolutely destroyed, and we have provided rehabilitation funds 
for those, and the people who were living in those were able to 
take their subsidies to other properties.
    So, because they were located in rural areas, we were set 
back farther from the urban areas on the coast. And so our 
multi-family properties did not bear the brunt of it.
    Mr. Cleaver. That's good. However, I understand that this 
program was $20 million or the money that--there's no money in 
this proposed budget for 515?
    Mr. Davis. The 515 budget money is spread over a number of 
accounts. We have $74 million for Section 515 properties. It's 
a new budget item so it doesn't often get noticed, but it's 
called revitalization. It is to cover this bill, and it's $74 
million for repair, rehabilitation, and vouchers.
    We get more leverage off of that $74 million because of the 
credit and loan provisions in this bill, which allows that 
funding to go a lot farther. We are essentially using this 
function for rehabilitation and reconstruction, rather than new 
construction at the moment.
    Mr. Cleaver. Okay. Thank you. You're right. It doesn't get 
noticed. The final question, Mr. Chairman, which do you prefer, 
the 30- or the 90-day notice? Can you say?
    Mr. Davis. Personally, I would rather address this in the 
discussion with the committee and the industry groups and the 
public.
    I'm not saying that there's anything secret here, but I'd 
prefer a longer notice period for the owners but a shorter one 
for the tenants. And somewhere, and I don't mean to evade the 
issue, we believe that 90 days is a sufficient period to find 
buyers or financing when that's necessary.
    Mr. Cleaver. Why?
    Mr. Davis. I'm sorry. I don't understand. Your question 
is--
    Mr. Davis of Kentucky. Would the gentleman yield for just 1 
second?
    Mr. Cleaver. Yes.
    Mr. Davis of Kentucky. I think that what Congressman 
Cleaver is asking, probably the same question that I'm asking, 
if I might clarify it. It seems a little paradoxical--would you 
explain why we want the longer notice for the property owner 
and a shorter notice for the tenants. If you could clarify what 
that means in the practical application.
    Mr. Davis. Oh, I'm sorry. I did not mean a shorter notice 
period for tenants. Everybody would get the same notice period, 
but we want to inform the tenants almost immediately to make 
clear to the tenants that a lot of what is going on will not 
affect them. They will have vouchers or we will have some way 
to protect their rent. It's a matter of keeping the anxiety 
level down.
    Mr. Cleaver. I understand the answer. I disagree with it, 
but I understand your answer.
    Mr. Davis. Okay.
    Mr. Davis of Kentucky. The gentleman from Texas is 
recognized for 5 minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman. I want to start a 
little bit different line of questioning. Mr. Davis, talk to me 
a little bit about the voucher program. Is that a temporary 
voucher until they can make transition housing, or if that goes 
to a market-based project they can stay there and continue to 
get voucher rental assistance for what period of time?
    Mr. Davis. Sure. The voucher program that the 
Administration had proposed, and is mirrored here, is a tenant-
based portable voucher, meaning that they can use it in the 
property they are originally in, or they can take it to another 
property, theoretically anywhere in the country, but the rent 
is limited to where they started out.
    It is a 1-year term currently in our demonstration program, 
but it has a renewal that would be subject to appropriations. 
This would be like our rental assistance currently when the 
term ends; it is subject to appropriations to renew that rental 
assistance, and we would be renewing these vouchers under this 
bill the same way.
    Mr. Neugebauer. Because Secretary Jackson comes over a 
number of times a month, and he says over and over and over 
again, that this voucher program is squeezing the life out of 
the housing program in this country. What kind of things do we 
look for--in other words, if you go--let's say that you go to a 
voucher program, how are you going to handle the competition 
between the funds for building new housing in rural America and 
offering the voucher assistance at the same time out of the 
same budget?
    Mr. Davis. Well, that's a good question. It is obviously 
subject to appropriations as is new construction, and there is 
always tension in a tight budget atmosphere. We have always 
placed the highest priority on renewing current assistance and 
protecting tenants who are currently there. That is throughout 
this bill our number one principle--protecting the current 
tenants in their markets or in their properties.
    The prepayment vouchers in this proposal are to cover a 
portion of the portfolio that is expected to prepay, which is 
about 10 percent of the portfolio. It is a small part of a much 
larger problem, which is keeping as many properties in the 
program as possible. We are not looking to voucher out the 515 
program at all. This is just a small component.
    Mr. Neugebauer. And talk to me a little bit about--I think 
you said you expect about 10 percent prepayment if this 
legislation is passed. How will that impact the program? I 
mean--
    Mr. Davis. The total portfolio is about 17,000 properties, 
so 10 percent is around 1,700 properties, and that's about 
50,000 units. This group is mostly in high cost areas, although 
they can appear anywhere, but we have a lot of properties that 
were in rural areas 30 years ago, and the cities grew. They are 
now in high-cost suburbs. We have properties that are now in 
resort areas or just very nice areas that people are moving to 
and have become high-cost areas. These properties are drawing a 
lot of the resources out of the rest of the portfolio.
    We see the voucher program as solving one part of the 
portfolio's problems.
    Mr. Neugebauer. One of the things--I have a very rural 
district also--and one of the things that mayors and county 
judges call me all the time about is, you know, what can we do 
to get more affordable housing? And I want to compliment--some 
of your folks in Texas have always agreed to go and meet with 
the community leaders on some of the options that are available 
to them.
    As you move forward, do you see this program threatening 
any new build opportunities for the future? Because some 
communities are currently underserved and don't have existing 
housing stock in their community, and so obviously we need to 
make sure we have funds for new program opportunities that 
would be needed.
    Mr. Davis. I thank you for asking about that. We have two 
loan programs for new construction, Section 515 and Section 
538, which is a guaranteed loan program. I'm very reluctant to 
pit them against each other because it does neither program any 
good to have them fighting against each other. I'd prefer to 
view them separately.
    For the 515 portfolio, the best advantage we get for the 
dollar is repair and rehabilitation right now. We can repair a 
unit for, on average, $20,000 a unit, whereas a new unit would 
cost $85,000 and up. So, we see the current role for 515 right 
now as a repair and replacement program. The Section 538 
program has advantages of very high leverage and the ability to 
draw a lot of outside money. We are building 10 times the units 
in the Section 538 program per budget authority dollar as we 
are in 515. They serve the same constituencies in different 
ways. We are interested in looking at the 538 program to see 
how that might be more useful for particularly very, very low 
income people. But we want to build two strong programs. We 
don't want to get the two competing against each other.
    Mr. Neugebauer. My time has expired, Mr. Chairman. Thank 
you.
    Mr. Davis of Kentucky. The gentleman's time has expired. 
Before moving on, I'd like to return to the tenant-property 
owner question here. The economics are, I think, very 
straightforward on using market-based principles to leverage 
the value of the property and maintain a quality living 
environment. And I appreciate those very much. I think it's 
going to be good for the American taxpayer, good for the 
enhancement of our affordable housing program.
    But coming back to the timeframes of notification both of 
prepayment and also tenant notification, what I was wondering 
if you could take a couple of minutes and do before the ranking 
member speaks, is walk through that process from the time a 
decision to prepay under the proposed legislation would work, 
and those notifications, so that we can understand clearly how 
the tenants' rights, if you will, are protected; that they have 
a fair and reasonable time of notification while the owner is 
preparing for his business transaction.
    Mr. Davis. If I could ask just one moment while I turn to 
the right pages here.
    Mr. Davis of Kentucky. That's without objection.
    Mr. Davis. There are several different notice periods, and 
I just want to keep them straight. There is notice to the 
tenants to inform them that a prepayment is occurring. And we 
currently have a process whereby the property owners must 
notify us, but they also notify the tenants, and this is where 
they post the notices in the buildings.
    There is a separate track which is a notice that the owner 
is giving for a possible sale of the property. This is in the 
``Prepayment of Section 515, Multi-Family, Housing Loans Notice 
of Prepayment and Sale'' section of the bill.
    Let me deal with the sale issue first. The owner is not 
permitted to simply prepay. We see here a notification period 
that gives potential buyers of that property who would be 
buying for affordable housing purposes the time to put in a bid 
to buy that property and keep it affordable. Obviously, it 
takes a certain amount of time to find a buyer, and for those 
buyers to make sure they have their financing lined up and so 
forth. And so the 90 days that I have been talking about 
beforehand was this 90 days to provide for a sale.
    There is a second notice, on the next page, the small 
paragraph (i), which is a notification at the same time to the 
tenants that vouchers will be available. What we have found in 
our pilot program so far is that the notifications that had 
been used--I don't want to say they were overly legalistic, but 
they used language that was correct, but had the tendency to 
scare people, frankly.
    We have prepared a series of brochures and essentially a 
marketing program whereby every time we get one of these 
notices, we immediately send our field office staff out to the 
property. They meet with the tenants and take their questions, 
provide answers, and talk them through the process.
    Our concern is not that there be just a legalistic trading 
of notices by certified mail, but that human beings meet and 
sit down in the property and work everybody through the 
process. That is a separate issue from how long should the 
period be. Some people feel that once owners have prepaid, they 
should be able to take their money and go. We think that--I 
think it's either 75 days or 90 days that's in here, is a 
reasonable accommodation for affordability, and we have no 
objection to that time period either.
    Mr. Davis. Okay. I appreciate the clarification. The thing 
I was particularly interested in was the human factor on this 
to make sure that the tenants are treated in a fair and just 
way. You know, in a private commercial setting, the owner would 
have certainly a great freedom contractually to use his 
property as he saw fit. However, the key in respect of property 
rights is the relationship of our taxpayer dollars being 
invested in that, and I want to make sure that they are well 
cared for and taken care of.
    The Ranking Member, Ms. Waters from California, has joined 
us, and without objection, I would like to recognize her to 
make her opening statement.
    Ms. Waters. Thank you very much, Mr. Chairman. I appreciate 
the fact that Chairman Ney and others worked to make sure we 
are holding this hearing so that we could address the problems 
of our rural areas. I'd like to thank all who are here today.
    As many of you know, Mr. Ney and I participated in a 
hearing in my district that focused on the impact of the 
Community Development Block Grant on communities such as the 
ones that I represent in Los Angeles. The reason I'm talking 
about that particular hearing is because we mentioned that just 
as we have problems in urban areas, there are problems in our 
rural communities that are not being addressed. The people who 
live in the rural communities are situated different 
geographically, but they have housing and community development 
problems that must be confronted just like the rest of the 
country.
    One of the most pressing needs recognized by the sponsors 
of the bill is a shortage of quality affordable housing in the 
Nation's rural areas. In many parts of the country, not only is 
there an inadequate supply of affordable housing, but the 
housing is aging. The average age of the Section 515 units is, 
I'm told, 28 years old. In many rural communities, grants are 
known to have traditionally been used to finance single and 
multi-family housing. The Section 515 program has assisted 
approximately 250,000 people, most of whom are poor. What other 
criteria do we need to support a housing program? I believe 
that it is enough that there be just one family, one person in 
need of housing in rural America, there's a real need for 
housing, one that mirrors the housing needs in non-rural areas. 
However, without the reform and revitalization measures 
contained in H.R. 5039, we will not be able to deal with the 
needs of this community. They need repairs. The properties are 
old. Many of the owners are paying off thir properties. Where 
will the tenants go? All of these questions are questions and 
concerns that we all must share.
    Today we have an opportunity to send a message of hope to 
rural America by hearing testimony that will enable us to 
consider the appropriate measures to address the Nation's rural 
housing needs. I am sure that no one thought that we would see 
a proposal that would eliminate Section 515 altogether. If we 
really want to address the housing needs of our rural citizens, 
many of whom again, are poor, disabled, and elderly, we can 
start today by considering how to improve existing program 
efforts to assist them.
    I thank you for the opportunity to share this statement 
with you. It will be submitted for the record. And I look 
forward to hearing the rest of the testimony here today.
    Thank you.
    Mr. Davis of Kentucky. The gentleman from Missouri.
    Mr. Cleaver. Thank you, Mr. Chairman. I've been put back in 
my place since the ranking member has come, so I'm just a 
regular person. I was a big shot for about 30 minutes, and I 
appreciate Ranking Member Waters coming in late. That is my 
first time actually sitting at the big table, and I just 
thought I'd share.
    Let me go a little further, though. I want to revisit the 
question I asked you earlier is that, you know, your answer--
what is the amount of funding in the proposed budget from the 
President this year?
    Mr. Davis. The President has proposed $74 million for the 
Section 515 revitalization program--
    Mr. Cleaver. Okay.
    Mr. Davis. In addition to rental assistance and the 538 
program.
    Mr. Cleaver. Okay. Last year it was $100 million.
    Mr. Davis. Correct.
    Mr. Cleaver. So we've got a 26 percent reduction.
    Mr. Davis. We have a reduction in budget authority but an 
increase in loan authority.
    Mr. Cleaver. You said it's a loan fund?
    Mr. Davis. If I could just expand on budget authority 
versus loan authority. Budget authority supports a certain 
amount of leverage to get a higher amount of loans. For 
example, in the 515 loan program, each budget authority dollar 
can be leveraged basically two to one to get new construction 
loans. So, $50 million of budget authority would produce $100 
million worth of loans. We have a better, much more 
advantageous leverage rate for repairs and revitalization, so 
that $74 million will go much, much farther, into the hundreds 
of millions of dollars in loan authority.
    Mr. Cleaver. Okay. Thank you. I understand. You said the 
$74 million is going to be spread over a number of other line 
items.
    Mr. Davis. It will cover both vouchers and restructurings, 
and those restructurings could take different forms under this 
bill. If this bill is passed, we will have authority to do more 
types of recapitalizations of properties.
    Mr. Cleaver. So let me repeat what I--so the President did 
not zero out the 515 program?
    Mr. Davis. The President has proposed using the money for 
515 revitalization repairs, not direct 515 new construction. 
For new construction, we have increased, and even doubled, our 
request for 538 new construction. Section 538 is multi-family 
guaranteed loans.
    Mr. Cleaver. Okay. You turned a little--you painted in a 
little tiny spot. The President, is the question.
    Mr. Davis. Yes.
    Mr. Cleaver. The President did not zero out new 
construction in the 515 program? It's a question.
    Mr. Davis. There is no request for 515 new construction 
loan money. There is a request for the 515 program. The 
question is often broader than new construction. But, no, there 
is no new construction for the 515 program. That has been moved 
into 538 and with repair of the 515 program.
    Mr. Cleaver. Are you all right with that?
    Mr. Davis. I believe that this is the best use of our tight 
budget resources right now and that this gives us more leverage 
and more outside money. We will produce more housing and 
protect and preserve more housing under this approach. I really 
believe that.
    Mr. Cleaver. I can tell.
    Mr. Davis of Kentucky. The gentlewoman from California.
    Ms. Waters. Yes. I guess there is some confusion about 
income limit. H.R. 5039 and the Administration's proposal 
related to income limits for rural housing tenants are 
inconsistent.
    The bill sets the income limit at 30 percent for both the 
revitalization and the tenant protection voucher programs. The 
Administration does not spell out what it supports with regard 
to income limits, but rather suggests that H.R. 5039 is likely 
to greatly expand the cost of preserving these properties.
    What does this mean? How does it tie to the 30 percent 
income limit in the bill? Are you suggesting that the 30 
percent income limit would prevent preservation of the rural 
housing start? And how did you arrive at this conclusion?
    Mr. Davis. Yes. And thank you, that is an issue that we 
want to make sure is handled correctly, because we are afraid 
that there might be unintended consequences. I'll describe an 
example.
    H.R. 5039 proposes covering what are called the 
overburdened tenants, those paying more than 30 percent of 
their income. And we believe that protecting the overburdened 
tenants is something that is a worthy objective and is 
something that we had proposed in our voucher and prepayment 
policy for last year.
    In fact, the voucher program that we're doing now is 
essentially holding harmless the overburdened in the property. 
So for the first time, they are getting protected against rent 
increases.
    What this bill does is extend that in an open-ended way to 
restructurings also. Our concern is probably best given by an 
example. Say you have an overburdened tenant who is making 
about $10,000 a year. It's not a lot of money, but they will be 
held at 30 percent of their income.
    If that person were to move out and were replaced with a 
person making zero income, then the property would be burdened 
with having to cover not just an overburdened person, but a 
person with no income. That extra cost would either be put on 
the rest of the tenants or put onto the property. It would 
create a burden that wasn't intended when the original plan was 
done.
    We want to be able to work with the committee on language 
to make sure that planning could be done at the beginning, but 
also making sure that we aren't creating a new entitlement 
program, beyond what is just protecting the current 
overburdened. This is something that we think that we can work 
with the committee on language to cover.
    Ms. Waters. Your example is one that helps me to understand 
what you are trying to do. But if someone moves into a unit 
with no income, you're saying there's a need to spread that 
cost in some way among the other tenants. Is there another way 
of dealing with that?
    Mr. Davis. Well, there are generically I guess three ways 
of handling it. Either we could put a new rental assistance 
unit on the property, but that would mean that we would have to 
commit to future years appropriation, which we can't do. Or we 
would have to spread it across the rest of the property and 
raise everybody else's rents to hold that one unit harmless, or 
somehow take it out of the property's financials, which may not 
be available.
    Ms. Waters. Are any of these units marketable?
    Mr. Davis. These are all Section 515 units, so they are 
covered by the 515 basic rent levels. But these are units that 
don't have rental assistance or Section 8 on them. We would 
essentially be creating a new class of subsidy which would 
cover overburdened people. But if that status changes, then it 
changes the financial status of the transaction.
    Mr. Davis of Kentucky. All right. Let me just say that 
perhaps one of the co-authors of H.R. 5039 can talk about what 
their preference is in dealing with this kind of problem. But 
of course, if there are people with no income, we would 
certainly want them to be covered, and we certainly don't want 
existing tenants to be burdened with the cost of covering those 
who have no income.
    Mr. Davis. Yes.
    Ms. Waters. So I don't know whether you work out something 
new, or how you do it. The fact of the matter is that would 
have to be dealt with.
    Mr. Davis. We understand this, and we welcome working with 
the committee on how this can be set up.
    Ms. Waters. Thank you.
    Mr. Davis of Kentucky. I thank the gentlewoman. I 
appreciate you coming, Mr. Davis, to share today. I'm sure 
there will be many other questions that will come up, but in 
the interest of time and in deference to the people who have 
come from rural housing authorities and the operators to share.
    The Chair notes that some members may have additional 
questions for the panel which they may submit in writing. 
Without objection, the hearing record will remain open for 30 
days for members to submit written questions to these witnesses 
and to place their responses in the record.
    Without any objection, thank you for your time. You're 
dismissed, and we'd like to ask the second panel--our second 
panel this afternoon includes Mr. Gideon Anders, executive 
director of the National Housing Law Project; Mr. James N. 
Arbury, senior vice president of government affairs, the 
National Multi Housing Council, also testifying on behalf of 
the National Apartment Association; Mr. Thomas Carew, Red River 
director of Frontier Housing from Kentucky; Mr. Moises Loza, 
executive director of the Housing Assistance Council; Mr. 
Robert Rapoza, executive secretary of the National Rural 
Housing Coalition; Mr. Robert Rice, Jr., president of the 
Council for Affordable and Rural Housing; and Mr. Charles 
Wehrwein, senior vice president of Mercy Housing, Inc.
    Without objection, your written statements will be made 
part of the record. And you will each be recognized for a 5-
minute summary of your testimony.
    Gideon Anders is the executive director of the National 
Housing Law Project in Oakland, California, and this 
organization engages in public policy advocacy and researches 
the impact of housing policy on the poor.
    You are recognized for 5 minutes, Mr. Anders.

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

    Mr. Anders. Thank you, Mr. Davis. I just want to point out 
that I have worked on rural housing preservation issues for 28 
years, and that the primary principle that guides our 
preservation work is the need to protect federally assisted 
residents against displacement from their homes.
    I would like to quickly and straightforwardly address one 
of the questions you have had about the displacement of 
residents.
    Our primary concern with H.R. 5039, Mr. Chairman, is the 
fact that it, in fact, would potentially displace 110,000 
people, of which 50 percent are elderly and 10 percent are 
people with disabilities. We are extremely concerned about 
that. It puts the residents at the pleasure of the 
Congressional budget process, and at the pleasure of the 
Administration not potentially asking for sufficient funds to 
protect against displacement. We do not believe that should be 
happening.
    In 2003, Chairman Ney introduced a bill that made the 
existence of the vouchers conditioned upon the availability of 
funding and essentially conditioned the right to prepay upon 
the availability of funding for the voucher program. We think 
that is a critical element.
    If that does not happen in this bill, we are going to have 
a situation where legislation allows owners to prepay their 
loans, and displace potentially up to 110,000 people because we 
did not have a voucher program in place, or because the 
Administration misconstrued or miscalculated the number of 
units that owners are actually going to be prepaying.
    We are also concerned, Mr. Chairman, that the 90-day period 
that is in the bill, which allows residents to move and, 
potentially, allows people to structure deals whereby the 
projects are sold to nonprofit and public institutions, is 
simply inadequate.
    Mr. Chuck Wehrwein will be talking about this later, but I 
do not know of a single institution that can take a 
multimillion dollar project and find the financing in 90 days 
to transfer that project from one entity to another and to 
retain the affordable nature of that project. It simply isn't 
possible. We need a longer period of time to make those deals 
work.
    More specifically, Mr. Chairman, I've got issues with 
respect to the voucher program as it is being proposed. First 
of all, there is an intent in the program to create a right for 
the residents to remain in their units. Essentially the voucher 
is to cover the cost of the unit after it is converted to 
market rate. Unfortunately, the way the bill is drafted, that 
is not happening. The bill, as it is currently drafted, 
essentially precludes owners from discriminating against 
voucher holders, by virtue of the fact that they are voucher 
holders. It does not give residents a right to stay in the 
unit.
    So, that means that if a landlord doesn't like the resident 
with a voucher, he or she can force the resident to move to 
another place, and they are going to have to move out of the 
unit in which they are currently residing.
    Again, 50 percent of the people who are living in these 
projects are elderly people. They are people over 62 years of 
age. Their income is somewhere between $8,000 and $10,000 a 
year. They are simply not going to have another place to which 
they can move very readily.
    The other problem with a voucher, as it is currently set 
up, is that it is based upon the market rate of the unit in 
which the current resident is living. Unfortunately, that may 
not work if there is no affordable, decent housing in that same 
community. If the voucher holder is required to move to another 
community where the rents are higher, they are not going to be 
able to move and use that voucher to move to other communities. 
And they are not going to be able to use that voucher to buy a 
home, as is contemplated in H.R. 5039.
    We are very concerned that many of the issues that this 
committee and Congress has previously dealt with, with respect 
to the HUD programs, are simply left out of H.R. 5039. 
Residents are not given the right to remain in the units. The 
vouchers are not set at the same income level. It does not 
protect residents against hardships. In the HUD Section 8 
voucher program, if a family's income is reduced by more than 
15 percent, there is a possibility for the voucher subsidy to 
be increased. There is no comparable provision in the current 
bill.
    The bill does not address the need for subsidy increases in 
rent and utility cost increases as they come downline. In the 
HUD Section 8 program, when owners seek to opt out of the 
program, they have to give a 1-year notice. We are here 
offering a 90-day notice.
    The program does not have a viable mechanism for 
transferring any of the units to the nonprofit and public 
sector. There is a prohibition upon the owner from actually 
doing a deal within 75 days. There is no requirement that the 
owner negotiate with anyone in good faith or that, in fact, 
anybody be given priority.
    There is no funding for new construction. As I think has 
been pointed out by the Congressman from Missouri, the 
Administration is asking for zero money for section 515 
housing. It is unfortunate; that means that there is not going 
to be any financing, in fact, to transfer these units within 
the 515 program.
    [The prepared statement of Mr. Anders can be found on page 
45 of the appendix.]
    Mr. Davis of Kentucky. I appreciate your comments, Mr. 
Anders. Your time has expired. And I would like to come back 
and revisit that specifically when we get the questions and 
talk in a little bit more detail about this.
    Mr. Anders. Sure.
    Mr. Davis of Kentucky. Thank you very much. Were we to have 
a smaller witness panel, we could continue indefinitely, but we 
don't want the lateness of the hour to keep everybody.
    Next is Mr. Jim Arbury of the National Multi Housing 
Council. The members of the Washington, D.C.-based council are 
active in all aspects of the rental housing business and share 
an interest in legislative and regulatory issues affecting the 
apartment industry, as well as promoting apartment living.
    Mr. Arbury, you are recognized for 5 minutes.

    STATEMENT OF JAMES N. ARBURY, SENIOR VICE PRESIDENT OF 
    GOVERNMENT AFFAIRS, NATIONAL MULTI HOUSING COUNCIL, AND 
                 NATIONAL APARTMENT ASSOCIATION

    Mr. Arbury. Thank you, Congressman Davis, and Congressman 
Cleaver.
    I'm Jim Arbury and I am the senior vice president of 
government affairs for the National Multi Housing Council/ 
National Apartment Association Joint Legislative Committee. Our 
members own or manage more than 6 million apartments around the 
country and we have over 50,000 members.
    I am pleased to address the views and opinions of our 
membership on H.R. 5039. We have a variety of members who are 
involved in this program in one form or another. Apartment 
owners and managers are committed to providing safe, decent, 
affordable rental housing in both urban and rural areas.
    We advocate a stronger, more responsive rural housing 
service preservation program. But we must be fair to both 
residents and owners of this critical housing stock in order to 
preserve it. It has been mentioned that a lot of the stock is 
older and in need of repair. The committee is meeting today to 
see what kind of legislation is needed to preserve the nearly 
15,000 properties and 460,000 units in the Rural Housing 
Service program.
    In Missouri, there are 858 of these properties with over 
19,000 units. And in Kentucky, there are 456 properties with 
12,280 units. If you look at this type of property, it's 30 or 
40 units on average. It's not a big apartment property. These 
types of properties are very difficult to pencil out in terms 
of economic viability. And that's why I think there is great 
stress in the program at the moment.
    H.R. 5039 can potentially help preserve as much of this 
housing as decent and affordable, but it is much easier to say 
the words ``decent, affordable housing'' than it is to actually 
put it into practice, as we've seen, because of all the 
financial stress.
    And the other problem is that our national housing policy 
is far too unbalanced in favor of single family home ownership. 
The imbalance makes it very difficult to find the resources to 
build and maintain decent affordable rental housing for lower 
income Americans.
    Raising the home ownership rate through a variety of 
programs such as zero down and interest-only loans will not 
solve our Nation's affordable housing problem, and the 
resulting foreclosures will make it worse. In fact, 
foreclosures this quarter versus the same quarter a year ago 
are up 77 percent.
    Tightening the screws on the Section 8 program and 
mismanaging the housing crisis caused by last year's hurricanes 
will only make matters worse in the future with respect to the 
supply of affordable rental housing. For long term viability, 
the debt needs to be restructured in the 515 program and a 
dependable flow of income established.
    Since it appears that between 7,900 and maybe almost 12,000 
of the properties need to be restructured, we have some 
question whether the Rural Housing Administration is equipped 
to do this. We urge you to carefully examine the large task at 
hand to make sure that any legislation can be implemented 
properly.
    On the income side, rental assistance continues to be a 
growing problem because of uncontrollable expenses, such as 
energy, utility costs, property taxes, other local taxes and 
fees, and insurance. It's tough for a property owner to assume 
that there will be any type of viable subsidized voucher system 
in view of recent events with Section 8, and with the FEMA 
hurricane voucher system.
    So, it's hard for a property owner to figure out what kind 
of vouchers will still be in place 5- 10 years from now.
    We do have concerns about the wording in the bill on the 
90-day notification period. When an owner seeks to prepay a 515 
loan or sell the property, we would urge that the notification 
period begin when the owner notifies residents and the RHS of 
its intent to prepay or sell.
    Finally, we are concerned about the sale restrictions and 
prohibitions on the sale of the property. These clearly need to 
be debated and resolved as you move forward with this 
legislation.
    We are here today as an advocate for a stronger, more 
responsive Rural Housing Service preservation assistance 
program that offers a balanced approach, and which is fair to 
the residents and owner-managers of rural multifamily rental 
housing.
    I thank you, and I would be happy to answer any questions.
    [The prepared statement of Mr. Arbury can be found on page 
55 of the appendix.]
    Mr. Davis of Kentucky. Thank you, Mr. Arbury.
    Mr. Tom Carew, director of the Red River, Kentucky Office 
of Frontier Housing. Frontier Housing focuses on expanding 
affordable housing opportunities for low-income rural families. 
And we are grateful to have someone from the great Commonwealth 
of Kentucky here.
    Mr. Carew, you are recognized for 5 minutes.

    STATEMENT OF THOMAS CAREW, RED RIVER DIRECTOR, FRONTIER 
                         HOUSING, INC.

    Mr. Carew. Thank you, Mr. Chairman. Frontier Housing is a 
non-profit corporation providing housing solutions for low 
income Kentuckians since 1974. We serve an area of nine 
counties in northeastern, Appalachian Kentucky. Five of these 
counties, unfortunately, are listed in the top 100 poorest 
counties in the United States. This area includes two 
Congressional Districts, the fourth, Mr. Davis', and the fifth. 
Poverty rates range from a high of 45.4 percent to a low of 
19.4 percent in the nine counties.
    House Resolution 5039 addresses certain issues affecting 
the 515 Rural Rental Program of the United States Department of 
Agriculture's Rural Housing Service, formerly known as the 
Farmer's Home Administration. The 515 program has financed 
approximately 12,000 units in Kentucky and approximately 450 
projects.
    Many of these units are in our service area, and they 
provide decent housing for the poorest of the poor. H.R. 5039 
addresses the issue of an owner's right to prepay the Rural 
Housing Service on developments financed prior to December 15th 
of 1989.
    Secondly, the bill puts forth a program that would enhance 
the revitalization of the majority of Section 515 developments 
on a voluntary basis.
    We applaud the provisions of the bill, which create 
financing mechanisms which will enable the revitalization of 
many units in the 515 stock.
    In my previous position at the Commonwealth of Kentucky's 
Housing Finance Agency, Kentucky Housing Corporation, we found 
it very difficult to assist a developer wishing to revitalize a 
515 project. The existing RHS regulations essentially 
prohibited other financial partners from participating in a 
financial restructuring and an injection of new capital to 
rehabilitate an older project.
    This bill includes provisions for the following financial 
enhancements: reduction and elimination of interest on the 
loan; partial or full deferral of payments; forgiveness of 
loans; subordination of loans; reamortization; and grants.
    In return for the government's new investment, the owners 
would agree to new property use restrictions for a period of 
not less than 20 years. These financial enhancements will 
enable other partners, such as housing finance agencies, to 
participate in the revitalization of a project, thus making 
better housing available for very low income Kentuckians.
    The bill also addresses the prepayment of projects financed 
prior to December 15, 1989. Recent settlements in the U.S. 
Court of Claims in favor of project owners have raised the 
concern of many as to the cost of keeping the pre-1989 units in 
the Section 515 program.
    As many of you know, the RHS, over the past 12 or so years, 
has drastically reduced the funds available to construct new 
515 projects to the point where there is little to no new 
construction. In fact, there haven't been any new 515's in 
Kentucky for several years now.
    This raises the concern that if we are to lose the 
thousands of affordable units across America, how will they be 
replaced? Does it make sense to give up the units we have now 
for an investment we made years ago, and pay today's prices to 
replace the units?
    The cost to replace these units surely will cost more than 
to keep them in the program. What funding is on the horizon to 
replace these units at affordable rents? Generally speaking, 
the tools we have today, tax credits, HOME, the affordable 
housing program of the Federal Home Loan banks, State trust 
funds and other State funds, will not begin to be able to 
replace the affordable units we might lose in the 515 program. 
No other national program--not the 538 program--can match the 
50-year, 1 percent interest rate, the lowest rate the 515 
program could go. We are not replacing this new construction 
program with anything that matches it. The 538 is a rental 
guarantee program, so I can go to a bank and get a loan at 
market rate, but I can't get it at 1 percent on a 50-year term. 
So, the two really are apples and oranges.
    The bill does provide a mechanism for housing vouchers for 
tenants who would be displaced. There are some technical 
corrections that should be made in the bill to clarify when a 
tenant is able to receive a voucher. Tenants should be eligible 
if they are residents on the date the owner notifies the tenant 
of their intention to prepay.
    There are some budgetary questions related to the vouchers. 
How long will the vouchers last? These questions should be 
addressed before the bill is finalized.
    I want to raise the issue of should the number of units 
coming offline, as a result of prepayment, be tied to the 
number of vouchers in the budget? If we lose 1,000 units due to 
prepayment, should we have 1,000 vouchers available? I think 
that is a real concern of many of us.
    Finally, I want to remind us why the 515 program was 
created. It was created to provide safe, decent housing for the 
poorest rural Americans. If we are unable to preserve the units 
we have, then we should look at a mechanism to replace the 
units we lose. This bill provides some excellent tools to 
revitalize those units which remain in the program, and 
provides a prepayment mechanism for those developers looking to 
leave the program.
    I would respectfully challenge the committee to create a 
new program or adequately fund the Section 515 program, to 
finance the construction of replacement units.
    Mr. Chairman, members of the committee, I thank you for 
this opportunity to be here. I applaud your work on behalf of 
the poorest of the poor, both in Kentucky and in America.
    [The prepared statement of Mr. Carew can be found on page 
67 of the appendix.]
    Mr. Davis of Kentucky. Thank you, Mr. Carew.
    Moises Loza is the executive director of the Housing 
Assistance Council. The council is headquartered in Washington, 
D.C. It assists with the development of both single- and multi-
family affordable housing rural communities.
    Mr. Loza, you are recognized for 5 minutes for your opening 
statement.

     STATEMENT OF MOISES LOZA, EXECUTIVE DIRECTOR, HOUSING 
                       ASSISTANCE COUNCIL

    Mr. Loza. Thank you, Mr. Davis and Mr. Cleaver.
    The Housing Assistance Council is a national nonprofit 
corporation dedicated to improving housing conditions for 
rural, low income Americans. I would like to express our 
appreciation for all of the work that has gone into developing 
this particular bill.
    The Housing Assistance Council views the Saving America's 
Rural Housing Act of 2006 as a step toward resolving serious 
issues regarding the availability of decent, affordable rental 
housing for low income rural Americans.
    The nearly 5 million rural households, about a quarter of 
the total, who rent their homes are some of the worst housing 
problems in the United States. Housing costs are their most 
significant problem. Rural renters are twice as likely as 
owners to live in physically substandard housing. Approximately 
12 percent of non-metro renters live in either moderately or 
severely inadequate housing. For minorities, the rate rises to 
18 percent.
    The Department of Agriculture's rural development 515 Rural 
Rental Housing Program, particularly when coupled with the 
Section 521 Rental Assistance Program, provides decent, 
affordable homes for rural renters.
    The average income for a Section 515 household is $9,785. 
For those receiving Section 521, the average is $7,836. The 
majority of Section 515 tenants are elderly or disabled, and 94 
percent of them have very low incomes. That is, they earn about 
half of the median income in their area.
    Our primary concern is ensuring the availability of decent, 
affordable rental homes for current and future tenants. If 
ELIPHA is to be repealed for pre-1989 properties, we believe 
that tenants will be best protected by permitting payment if 
vouchers are available or if sufficient, decent available 
rental housing in the market is affordable to Section 515 
tenants.
    HAC supports the inclusion of vouchers in this bill. First, 
vouchers should be available to tenants who live in the 
property on the date the owners give notice to the tenants, not 
only to those who live there on the date of prepayment, as is 
proposed in the bill. This change would enable tenants to 
explore alternative housing, and to take advantage of available 
opportunities before prepayment occurs.
    The bill seems to require prepaying property owners to 
accept vouchers as they are under HUD's market program. HAC 
supports this intent. Provisions that vouchers may be used, may 
be provided imply an option rather than a requirement. To 
indicate clearly that USDA tenants have the same rights as HUD 
tenants, this bill could use the same language as HUD's Section 
8.
    Because USDA vouchers could become costly if tenants move 
from relatively inexpensive small towns to pricey cities, 
unrestricted portability may not be the best choice for the 
USDA voucher program.
    We would like to suggest, however, that the bill make an 
exception to the value limit for elderly and disabled tenants, 
who move to expensive areas to be close to family members, 
essential services, or other support systems.
    The bill tries to create two rights of first refusal, an 
idea that we support. The language should be clarified and 
funding be provided to assist entities exercising these rights.
    The bill provides that for the first 75 days after 
notifying USDA that it wants to prepay, an owner could sell 
only to a purchaser who would accept 20-year use restrictions. 
The owner, however, is not required to bargain. We recommend 
revising the bill's language to establish a clear right of 
first refusal for a purchaser that would accept a 20-year use 
restriction.
    The bill also attempts to provide a right of first refusal 
for tenants in the revitalization context. It would give an 
owner the option to offer the property to the tenants for 
purchase as a cooperative or condominium in conjunction with 
revitalization. Again, we recommend establishing a clear right 
of first refusal.
    Finally, Housing Assistance Council observes that rural 
America needs not only preservation of existing decent, 
affordable rental housing units, but also production of new 
units.
    USDA's budget proposal for 2007 proposes to finance 
construction of new rural rental units through the Section 538 
rental guaranteed loan program. Section 538, however, serves a 
higher income population than Section 515.
    Rent subsidies also cannot end rural America's rental 
housing problems. Often rural areas do not have enough decent, 
affordable rental units available. HAC encourages the 
subcommittee to support increased annual appropriations for the 
Section 515 program and/or the creation of a new rural rental 
production program.
    Thank you.
    [The prepared statement of Mr. Loza can be found on page 81 
of the appendix.]
    Mr. Davis of Kentucky. Thank you, Mr. Loza.
    Bob Rapoza is president of Rapoza Associates, located in 
Washington, D.C. His firm specializes in providing legislative 
analysis related to the development of low income housing needs 
for rural areas, as well as other issues facing rural 
communities.
    Mr. Rapoza is testifying today on behalf of the National 
Rural Housing Coalition, and is recognized for 5 minutes for a 
summary of his opening statement.

 STATEMENT OF ROBERT A. RAPOZA, EXECUTIVE SECRETARY, NATIONAL 
                    RURAL HOUSING COALITION

    Mr. Rapoza. Thank you, Mr. Chairman. I am Bob Rapoza, and I 
am representing the National Rural Housing Coalition, a 
national membership organization that advocates for improved 
Federal housing and community development policies.
    We would like to thank you and the committee today for 
sponsoring H.R. 5039, and for focusing attention on the 
importance of preserving Section 515 housing.
    We thank the Section 515 effort is a great success. Over 
500,000 families across the country with low incomes, most of 
whom are senior citizens or disabled, have decent, affordable 
housing because of Section 515. In most rural areas, the 515 
development is the only affordable housing in town.
    As the chart included in our statement shows, there has 
been a substantial fall-off in Section 515 funding. This has 
had two regrettable results. The first result is that there's 
very little new construction under 515. The second result is 
that the financing incentives for long term use for Section 515 
has fallen from about $25,000,000 to less than $5,000,000 in 
fiscal year 2006.
    To be clear, as summarized here, the present budget does 
not request funding for Section 515. Not a penny. Yet 515, at 
the moment, is the only Federal authorized funding source to 
revitalize and to restructure 515 developments.
    Because of this funding shortfall, Section 515 developments 
have been under funded, and the project owners have had limited 
access to incentives for long term use and for subsequent 
financing to revitalize and restore their projects. These 
incentives were first authorized by the Congress in 1987, after 
a rash of prepayments and displacements of the families who 
were living in 515 developments who did not have access to help 
to gain affordable housing nor did they have access to 
subsidies for that housing.
    In 2004, the Agriculture Department released an important 
study of the 515 portfolio. They found that 10 percent of the 
portfolio was in so-called ``hot markets'' where the 
developments could be converted to some other use, including 
market-rate housing, but that the balance of the portfolios was 
located in communities where prepayment didn't seem to be a 
very good option for the project, and the best use of the 
project was for low income housing.
    In these cases, there was a need for additional funding to 
ensure the adequate operation of the projects. The average age 
of a 515 development is 26 years, and the report projected the 
cost to renovate and/or restore the 515 portfolio at $2.6 
billion over a 20-year period.
    H.R. 5039 addresses these findings by permitting the 
prepayment of certain 515 developments by establishing a 
voucher program for those displaced and a restructuring fund to 
revitalize the developments.
    This legislation is a significant improvement over some of 
the drafts we have seen over the last 6 months. The legislation 
does limit the number of developments eligible for prepayment. 
It establishes a minimum use restriction for structured 
developments, such that a favorable rent structure for those 
developments with a stay in place voucher.
    In addition, we appreciate the provisions on the right of 
first refusal and tenant notification, and would like to work 
with the committee to improve these provisions. In addition to 
that, we also recommend that when the bill is marked up, that 
the committee include a dollar authorization for vouchers and 
restructuring aid.
    Our basic concern is with the overall framework of the 
legislation. If this bill becomes law, it is possible that low 
income families will be displaced without other affordable 
housing options and without vouchers.
    It is true that vouchers and affordable housing could be 
available in which a prepaid 515 is located, but it is also 
true that it could not be.
    In the 2006 appropriations bill, Congress provided $16 
million for vouchers and $9 million for restructuring 
demonstration program. The Agriculture Department has already 
put some of those vouchers to use, and the NOFA on 
restructuring aid was issued last months.
    We urge the Congress to take a careful look at the 
experience in the field with these funds. We know a good deal 
about the Section 515 portfolio, but what we don't know is how 
the owners, the tenants, and the rural housing markets will 
react to these resources. It could be, as some have contended, 
that restructuring funding will reduce the incentive to prepay 
loans, and we can preserve more of the 515 portfolio. We think 
it would be useful to see how the demonstration works before 
final action on this legislation.
    [The prepared statement of Mr. Rapoza can be found on page 
89 of the appendix.]
    Mr. Davis of Kentucky. Thank you, Mr. Rapoza. Your time has 
expired, and we will continue with this discussion in a moment.
    Next is Mr. Bob Rice, president of Crest Management Real 
Estate Company, based in Frankenmuth, Michigan, specializing in 
management of affordable multifamily housing.
    Mr. Rice is testifying today as the president of the 
Council for Affordable and Rural Housing, and is recognized for 
5 minutes for a summary of his statement.

   STATEMENT OF ROBERT L. RICE, JR., PRESIDENT, COUNCIL FOR 
                  AFFORDABLE AND RURAL HOUSING

    Mr. Rice. Thank you. I am Robert Rice, president of Crest 
Realty, located in Frankenmuth, Michigan. I have been involved 
with the management of affordable rural housing for 30 years. I 
currently am a hands-on manager of 27 Section 515 properties, 
which amount to about 450 units.
    I am appearing here in my capacity as president of the 
Council for Affordable and Rural Housing. We call it ``CARH.''
    CARH is a national organization based in Alexandria, 
Virginia. It's comprised of for-profit and nonprofit 
developers, managers, owners, syndicators, public agencies, and 
others interested and involved in providing affordable housing 
to low income families in rural areas.
    On behalf of our members, I thank you, Mr. Chairman, for 
asking CARH to testify today on H.R. 5039, ``Saving America's 
Rural Housing Act of 2006.''
    The major Federal program to subsidize rental housing over 
the last 40 years has been the Section 515 program. Over the 
years, the Rental Housing Service has tried to balance the need 
for adequate rents to support a project with the reality that 
the 515 subsidy is too shallow to serve the lowest income 
ranges.
    Although rental assistance, where it is available, is very 
helpful, RHS has attempted to stretch limited budget resources 
for that program by keeping rents lower than prudent for the 
long term viability of the projects. Rents and rental 
assistance system-wide have been held down too far for too 
long, creating a crisis in resources.
    I have an example of two projects that I manage which are 
30 miles apart from each other. Project A is a 515 loan with 
Section 8 subsidy. Project B has a 515 loan with Rural Housing 
Service rental assistance. The rents for the two projects--
Project A's rent is $100 a month more because when I go in for 
my budgets, I am not held down on the HUD ones, because they 
are not spending their own subsidy.
    We think that has caused a problem and it makes it so there 
is not enough money to do a lot of the things that we would 
like to do with the project, maintenance-wise.
    Coupled with the fact that owners, by and large, have not 
been allowed out of the program to recapitalize, a situation 
has been created that we refer to as a ``toll road with no 
exit.''
    Two years ago, RHS conducted a comprehensive review of the 
condition of the 515 housing stock, and found that to correct 
the imbalance between income and expenses for many projects, 
there is a need to reduce debt service and to facilitate the 
injection of new capital equity into the projects. Such a 
revitalization of the portfolio will involve budget authority 
for the reduction, elimination or deferral of debt service on a 
515 loan and for grants in some cases. To process efficiently a 
large volume of projects, I strongly believe that RHS should 
use the services of private entities and State and local 
agencies to develop project financial plans, particularly those 
entities that gained experience by participating in HUD's mark-
to-market restructuring program, and we are pleased that H.R. 
5039 authorizes the use of outside contractors.
    As within the legislation, there are provisions in the bill 
which raise some concerns within the industries. The bill 
proposes a maximum rent for all tenants in revitalized projects 
of 30 percent of adjusted income. We don't believe that this 
would work unless there is a subsidy involved as well, for the 
reasons that have pretty much already been raised here.
    We are pleased that the committee is receptive to ending 
prepayment restrictions for owners; however, the new statutory 
prepayment framework in H.R. 5039 raises some concerns, which 
we discussed in our written testimony.
    We would appreciate the opportunity to work with the 
committee to resolve any of the issues we have placed in our 
written testimony so that new uncertainties and legal disputes 
are not created, and that the bill carries out the stated 
purpose of H.R. 5039, which is ``to avoid further costly 
litigation.''
    With respect to tenant protection, we would only note that 
the legislation should be clearer as to whether the amount of 
assistance remains fixed at the year one level or rises as 
comparable market and project rents rise. We support the latter 
as providing a better measure of protection.
    Overall, we feel H.R. 5039 is promising legislation, and we 
thank the Administration, the bill sponsors and this 
subcommittee for moving forward the important rural housing 
issue. Thank you again for this opportunity to testify and I 
will be happy to answer any questions.
    [The prepared statement of Mr. Rice can be found on page 98 
of the appendix.]
    Mr. Davis of Kentucky. Thank you, Mr. Rice.
    Chuck Wehrwein is senior vice president of strategic 
development of relationships for Mercy Housing. This 
organization is headquartered in Denver, Colorado. It uses 
public/private partnerships to develop housing in communities 
for low income and underserved families.
    You are recognized for 5 minutes for a summary of your 
opening statement.

  STATEMENT OF CHARLES WEHRWEIN, SENIOR VICE PRESIDENT, MERCY 
                         HOUSING, INC.

    Mr. Wehrwein. Thank you, Mr. Chairman. As you indicated, I 
am a senior vice president of Mercy Housing and also have held 
posts overseeing multifamily housing at USDA Rural Development 
and at HUD.
    Mercy Housing has direct and significant experience with 
owning, acquiring, and restructuring federally assisted 
properties, working within and using the Mark-to-Market program 
at HUD, using State and market rate tools, and we led one of 
the largest rural portfolio acquisitions by a non-profit.
    I appreciate the opportunity to offer comments today on 
H.R. 5039. Mercy Housing is a non-profit affordable housing 
developer, owner, and manager headquartered in Denver, with 
real estate interests in many other regions throughout the 
Nation. In our 25 year history, we have developed or preserved 
over 18,500 units of affordable housing serving more than 
55,000 low income Americans on any given day.
    We would like to extend our appreciation to the bill's 
sponsors on recognizing the need to respond to the desperate 
preservation needs of the rural portfolio. We would like to 
offer some suggestions based on our experiences in rural and 
urban preservation, about how the existing bill can be improved 
to respond to the existing situation.
    Mercy Housing has recently completed the purchase, and is 
finalizing the rehabilitation of a 30-property, 926 unit rural 
portfolio located throughout Washington State, known as Cobble 
Knoll. The total development cost for the 30 properties will be 
about $42 million, including about $8,000 per unit in initial 
rehab, and $31,000 per unit in acquisition costs.
    Our experiences, in summary, are: a high capacity, not-for-
profit can bring significant benefits to a large scale 
transaction; that restructuring tools made available to the 
Department, such as subordination, new debt, debt restructuring 
and, in limited cases, debt forgiveness, are key to creating 
extended affordable use, as is the ability to reallocate rental 
assistance resources to raise some partially assisted 
properties to fully assisted.
    We have learned that projects with 100 percent rental 
assistance, under either Section 8 or Section 521, are much 
more likely to be successfully preserved and to be economically 
viable going forward.
    We have learned that project based rental assistance is 
critical to achieve effective underwriting from market sector 
lenders, with longer terms providing more comfort and therefore 
more private sector resources to help preserve these valuable 
assets.
    We have learned that partial or no rental assistance, 
especially those in remote or low cost areas, are extremely 
difficult to restructure using housing finance tools available 
today and will likely need debt forgiveness, new or transferred 
rental assistance and/or grants to be viable.
    We have learned that the Rural Development field staff is 
made up of well trained generalists with a strong commitment to 
this housing and to rural communities in general. However, they 
have little experience with modern housing finance tools and 
strategies being used outside of the USDA today. Furthermore, 
the Department lacks expert restructuring agents. And USDA's 
structure and culture is very decentralized, resulting in poor 
sharing of best practices, little capability or willingness of 
the national office to direct strategies based on best 
practices to the entire field, and a maddeningly variable 
application of rules from State to State, and even county to 
county.
    As I noted earlier, Mercy Housing has preserved many other 
affordable homes in addition to the rural acquisition I noted 
earlier. This experience is entirely relevant to the discussion 
today. and I would offer a few comments based on our 
experience.
    One, creating and empowering a central unit to direct the 
implementation of preservation policy at HUD has been a model 
of efficiency and good government that should be copied. These 
tools and their implementation have preserved scores of 
affordable homes and saved the taxpayers money--$1.9 billion at 
least count.
    A final point I would make about the lessons learned from 
other preservation experiences is that not all owners share the 
same goals of meeting property needs, assuring renewed and 
extended affordability and engaging in long term ownership. 
MAHRA specifically recognized the unique role of high capacity 
non-profit owners. Mercy Housing and others like us are in this 
for the long haul and our missions are congruent with the 
government's.
    With the foregoing experience in mind, we offer the 
following suggestions for improving this bill, so that this 
rare opportunity to change rural housing policy is maximized.
    We suggest that we create or contract with a unit of expert 
housing restructuring staff such as exists in HUD's Office of 
Multifamily Housing.
    We suggest that we empower this expert unit to promulgate 
policy, tools and best practices that will be used consistently 
across the country. Furthermore, we ask that for any owner or 
purchaser seeking it, we would require the Secretary to provide 
a formal commitment as part of the long term viability plan. 
Failure to do so would make the current or future owner 
uncertain of the Department's ability and commitment to carry 
through on these commitments and will chill their interest in 
engaging with the Department.
    We suggest that we provide for the ability to accelerate 
the replacement of systems that are due to be exhausted or 
obsolete within the coming years.
    We suggest that the legislation provide the Secretary with 
the authority to split current USDA loans into multiple loans, 
some with fully amortizing terms, others with cash flow only 
terms, so that this debt might be preserved and used for low 
income housing tax credits basis.
    We propose eliminating the 75 percent rule, clarifying the 
30 percent rent rule, and providing that the notice of 
prepayment and sale is certainly way too short at 90 days, and 
should be extended at least to 6 months, both to help the 
tenants in finding replacement housing if needed, and to 
provide more time for interested preservation buyers to become 
aware of and enter into negotiations with the seller.
    We would like to encourage transfers of high capacity not-
for-profits.
    Mr. Chairman, this concludes my testimony. We have more 
detailed information in the written testimony. We stand ready 
to assist the committee and the Administration in any way 
possible.
    [The prepared statement of Mr. Wehrwein can be found on 
page 106 of the appendix.]
    Mr. Davis of Kentucky. Very efficient cue that you picked 
up on there. Thank you very much.
    Just--as we move forward here, without objection, the 
following written statements are going to be admitted for the 
record: statement of the National Association of Home Builders, 
and the letter from the National Association of Realtors.
    I appreciate your comments on best practices. I think there 
is much that we can learn by copying the efficiencies, the 
successes from one another relevant to the different parts of 
the country and our communities uniquely.
    As I listen to your opening statements, and read your 
opening comments for the record, one thing that I noted is that 
there is a wide variety of issues. Very well intended, 
important focus.
    We have the potential on this bill to get very global, very 
quickly, as with all legislation. And one of the things that I 
am reminded of, the old proverb that says, the main thing is to 
keep the main thing the main thing.
    And the one thing I want to clarify, our heart of the 
committee is to work with you closely, in a very focused bill. 
The purpose of the bill is about restructuring and prepayment, 
and not about new construction. I am very sensitive to the 
concerns over this, and our need for expanding housing. Our 
intent is to preserve and expand quality affordable housing in 
the context of this legislation.
    So, with that, I would like to direct my first question to 
Mr. Carew. And you have a unique perspective. In Kentucky, in 
the communities where you are dealing in both my district and 
Congressman Rogers' district, you have seen from your 
perspective the State as well, dealing with urban housing 
issues.
    And one thing I would like to comment on briefly, for the 
record, is how you see affordable housing needs in rural areas, 
different from the urban areas, and why do the rural residents 
who are now ready for home ownership find it more difficult to 
find safe and decent apartment housing in their communities?
    Mr. Carew. Thank you, Congressman. That's a global 
question.
    Mr. Davis of Kentucky. I'm not meaning to engage in 
political hypocrisy, although I am sure that has happened in 
this chamber before. Just from a practical perspective.
    Mr. Carew. From a practical perspective, the main 
differences between rural and urban--and one of them is, to 
this day, in rural Kentucky, we have no enforcement of the 
building code. So, the housing stock that we have was never 
built to a code. So that it's very difficult to find quality 
housing at an affordable in rate.
    I think the other thing we should keep in mind is that in 
eastern Kentucky, Appalachian Kentucky, we have some of the 
poorest counties in America. And we are always limited by 
Federal statutes to serve those below 60 percent of median in a 
rental project.
    So, when I go to Owsley County, the second or third poorest 
county in America, to Booneville, the county seat which is in 
the Fifth District, and I try and make a project work for 
families who are below 60 percent of median in that county, the 
window of opportunity to make that project financially 
successful is very, very small.
    So, it's almost unheard of, although we have one tax credit 
project in Housley County. But tax credits alone don't do the 
trick. And that's where 515 projects, when you go around all 
Kentucky, every small, rural community has a 515 project.
    And so I think it's difficult to do deals in rural America, 
in rural Kentucky, without bring in subsidies to the table. If 
you looked at a line east of I-75 in Kentucky, and counted up 
the tax credit projects, it would be a very small number of 
projects. But if you counted up the 515 projects, basically 
every community has got one.
    I am not sure I am addressing your question. Those are some 
general answers.
    Mr. Davis of Kentucky. I appreciate the perspective. I was 
actually out in Owingsville last night, and talking to a fairly 
large group of folks out there. I mentioned this issue, and the 
interesting thing from the grassroots, getting into all the 
technicalities of the bill. There seemed to be a very positive 
response from folks, this idea of being able to preserve and 
improve the quality of the process. Prepayment is much less an 
issue down there, but preservation is a very critical issue 
from the standpoint of leveraging resources long term.
    Mr. Anders, in your opening statement, and I apologize 
again for us having to move down the line, but to get back to 
your concerns. We take those very seriously.
    You mentioned your opinion that there should be changes to 
the way H.R. 5039 allows tenants to be free from discrimination 
simply because they hold a voucher. Could you please explain 
what recommendations that you would make, or you would have for 
this specific provision?
    Mr. Anders. I think the simplest way is to state, as it 
does in the HUD Section 8 program, that the residents have a 
right to remain in their present home. That right should only 
be subject to good cause eviction.
    Currently, you simply have a provision that states that the 
landlord may not discriminate against voucher holders. If the 
landlord does not like them for any other reason, he or she can 
decide not to rent to a particular household. There is nothing 
that prevents them from otherwise refusing to rent to voucher 
holders, as long as they do not discriminate under the Fair 
Housing Act, and as long as they don't say that I'm not going 
to have any voucher holders in this building. Those are two 
prohibited provisions. The right to remain is in the HUD 
Section 8 program. It's in the enhanced voucher program. It 
gives the residents the right to remain in their homes.
    Mr. Davis of Kentucky. Mr. Rice, would you like to share 
your perspective, maybe, on Mr. Anders' comments?
    Mr. Rice. Sure. The 515 program, as well as HUD programs, 
require us to develop tenant selection criteria that the 
agencies look at, that meets their requirements.
    And we have to stick to those very strictly. I don't see 
where some--certainly, we are not going to have something in 
our policy that says we are not going to rent to somebody 
because they have a voucher. So, I don't believe it would be a 
problem because they wouldn't approve a policy that would allow 
us not to rent to someone for that kind of reason. We have to 
have very good reasons not to rent to tenants, the same way we 
have to have very good reasons to evict a tenant.
    Mr. Davis of Kentucky. I appreciate your perspective. My 
concern is maintaining balance between the right to remain and 
the property rights of the owners, from the perspective of this 
legislation.
    Going back to Mr. Anders, a follow-up. In your testimony, 
you also expressed concern over the fact that tenants will be 
provided a voucher that will assume that a tenant will take 
that voucher to a unit renting roughly the same price as the 
unit that had been prepaid. In essence, the voucher program 
will ensure that tenants are not made worse off by prepayment.
    You suggested that tenants should not necessarily be bound 
by the same formula. Could you comment on the voucher formula, 
keeping in mind that the goal of the voucher program is to 
protect tenants from being disadvantaged by prepayment.
    I would appreciate your insights.
    Mr. Anders. There are three problems. The first problem is 
that the top end of the formula in the voucher program that is 
in H.R. 5039 essentially restricts the rent to fair market 
values of the unit on the date of prepayment.
    If, as is the case that Tom just pointed out in Kentucky, 
you have a tenant who has to move to another community because 
there is no decent, safe, and sanitary housing in the community 
in which the 515 project is located, there is quite a strong 
likelihood that the neighboring community, which does have the 
decent and affordable housing, will have higher rents.
    The voucher program, as it is currently set up, does not 
allow the agency to pay for the higher rent. That means that 
the rent which the tenant is going to be paying is more than 
the tenant can afford and he or she will be overburdened.
    The second problem is at the low end of the voucher 
formula. Here we have a two-fold problem. One arises when you 
have a resident who is already overburdened. If you force that 
resident to another locality you are likely to increase that 
burden if rents are higher in that community. Second, if their 
income goes down, they are going to be evicted, because there 
is no mechanism in the voucher program, as it is presently 
structured, to reduce their rent.
    So, there is a limitation there.
    The third problem is simply affordability. When somebody is 
going to move, particularly an elderly person, the likelihood 
is that they are going to move to a locality where their family 
is already located. That may mean that they are going to move 
across the Nation. They are not simply going to move into the 
next town.
    Elderly people, when they are forced to move, and they see 
it as the last move, want to move to where their family is 
located. And the restrictions on the voucher subsidy in H.R. 
5039 may simply not work in the new community. It's as simple 
as that.
    Mr. Davis of Kentucky. Thank you very much. Would any of 
the other panelists like to comment on the statement? Mr. Loza?
    Mr. Loza. We had noted the problem of the portability of 
the vouchers and we understand the need to keep costs down. 
However, we would agree with Mr. Anders that particularly for 
our elderly or disabled persons, who happen to be displaced 
from 515 projects, we would--we don't know what would happen, 
but we would expect that they would want to go to a place where 
there are support systems, nursing homes, close to family.
    So, at a minimum, we were suggesting that maybe we can make 
an exception for those particular populations.
    Mr. Davis of Kentucky. That is a very good point, 
especially dealing with long term care issues for the elderly.
    Mr. Arbury?
    Mr. Arbury. As I listen, I think we are talking about two 
separate issues. We are talking about elderly people who might 
move out of--as Gideon was talking about, Kentucky, but as I 
understand it, the areas that Mr. Carew was talking about in 
Kentucky are very depressed, and so I can't see where a number 
of those properties are going to be prepaid and somehow, some 
higher market rent is going to occur in those areas.
    Whereas if an elderly person moves across country, that is 
a whole different problem, in terms of where they are going to 
locate, and I thought the whole issue was to preserve, as much 
as possible, the 515 housing that we have today.
    Mr. Davis of Kentucky. I appreciate the insight. And you 
are right. They are two different issues. Mr. Carew and I see 
firsthand the overwhelming number of counties in our district 
are really preservation issues. I have probably three, maybe 
four, counties that are exurbs or maybe becoming exurb areas, 
since a large metropolitan area--northern Kentucky metropolitan 
area, where that growth is taking place, and prepayment could 
potentially become an issue.
    It's a small part of the unit population, but still it's an 
important question to ask, on balancing that out but 
maintaining the focus on presentation.
    And I appreciate what everybody shared. I would like to 
recognize the gentleman from Missouri.
    Mr. Cleaver. Thank you, Chairman Davis. I intend to support 
this bill during the write-up and when it goes to the Floor. I 
think some of you have made some interesting suggestions about 
improvements.
    My concern is still that, the answer of which may have gone 
out of the door a few moments ago, and I'm not sophisticated 
enough to leave it alone. No matter how I look at this, the 515 
program has been zeroed out, and at first I thought, you know, 
it's got to be me, because I asked the question three different 
ways, and I never could get the answer.
    You are involved in these programs every day. I'm just 
curious, before I go any further. Do any of you see that the 
515 program has been zeroed out?
    Mr. Rapoza. Yes.
    Mr. Davis of Kentucky. The Chair recognizes a show of 
hands. That would be--
    [Laughter]
    Mr. Rapoza. Congressman, the budget, if you turn to the 
budget and you turn to the Section 515 line, there's zero 
there.
    Mr. Cleaver. Yes. Yes. And zero means naught?
    Mr. Rapoza. That's right. That's right.
    Mr. Cleaver. Okay. I think we can communicate. I think this 
is going to be good from now on.
    [Laughter]
    Mr. Cleaver. The 515 program is zeroed out, and if we are 
now going to place emphasis on the 538 program, are we making a 
move away from the poorest of the poor?
    Mr. Rapoza. Yes.
    Mr. Cleaver. And accommodating those whose means are much 
greater?
    Mr. Rapoza. Very simply, yes, sir. That's exactly right. 
Yes. The 538, a guarantee is just that. It doesn't provide any 
subsidy at all. To make 538 work for the most part, the 
projects have to be geared toward larger cities, and they have 
to serve families who are wealthier. 515 for the most part 
serves poor communities and poor families. 538 doesn't work for 
poor communities and poor families.
    Mr. Loza. Mr. Cleaver, the markets will vary, depending on 
different parts of the country. And we've asked the Department 
of Agriculture to provide us with the data that allow us to see 
from area to area who is being served. The data is not as good 
as we'd like it. However, from what we have seen, there are 
clearly two different markets. 531 serves a higher income 
market, and 515 serves a lower income market. There's no doubt 
about the data that is available.
    Mr. Cleaver. Mr. Carew?
    Mr. Carew. Mr. Cleaver, we are in the process of developing 
a 538 in Moorehead, Kentucky. But essentially what it means is 
that we have to bring other subsidies to the table, such as 
HOME money, such as State trust fund money, such as the 
affordable housing program of the Federal Home Loan Bank, such 
as tax credits, so that we've got to make up the difference 
between a 1 percent 50-year loan and a 30-year market rate 
loan. That's the simple analysis.
    Mr. Cleaver. Okay. But here's my concern. First of all, I 
think without any new construction, the program is essentially 
dead on the vine, and I'm not sure if there is a suggestion 
here, a subtle suggestion that is not even subtle, that there's 
no need for new construction, which would attract primarily the 
poor. And so we're going to deal with rehabbing, you know, 
existing units, and we're not going to do anything in terms of 
expanding housing opportunities for the poor and rural areas.
    And to go back to Mr. Rapoza, your question--I mean, your 
statement, if you are supporting prepayment, and you are--
    Mr. Rapoza. We don't, actually.
    Mr. Cleaver. So nobody up here is supporting--
    Mr. Rapoza. Well, I think some people do. We don't support 
prepayment without having housing options and subsidies for 
families tied to that prepayment.
    Mr. Cleaver. Okay. Who is supporting prepayment?
    Mr. Arbury. We're not against prepayment as long as you 
have certain restrictions that are put in this bill in terms of 
notification and/or long-term viability plans and other things 
to try to preserve the housing, but we're not against 
prepayment per se.
    Mr. Cleaver. So your support is contingent on the 
notification period?
    Mr. Arbury. Notification, restrictions on the sale, you 
know, if other parties are willing to come forward and finance 
this housing and keep it under a long-term viability plan, I 
think it's 20 years in here, to make sure that it stays as 
rural 515 housing, we're not opposed to that. But we're saying 
if an owner wants to get out and fresh money needs to come into 
the property, why not?
    Mr. Cleaver. Yes, sir.
    Mr. Wehrwein. Congressman, we recognize that there--
litigation that's taken place over many years has not played 
out well in terms of maintaining the inability--or the 
limitations on prepayment. We would, like many of the other 
panelists here, recommend that many of the issues in H.R. 59 be 
addressed in terms of protection of residents, and that 
resources and timeframes and structures be made such that these 
assets have a good chance of being preserved as affordable, as 
opposed to just simply being lost to the affordable housing 
inventory.
    There are many, many buyers who might be interested in 
maintaining these as affordable homes, maybe even within the 
515 program. We would encourage the committee to make changes 
that would encourage owners to sell to those folks and folks to 
buy those units and keep them in the inventory.
    Mr. Anders. Congressman?
    Mr. Cleaver. Yes, sir?
    Mr. Anders. I know that in Kentucky the prepayment issues 
may not be as significant as it is in California. My colleagues 
in California estimate that practically every 515 project in 
that State--and that State is not fully urbanized yet--will be 
lost through prepayment because property values in the State 
have increased. We're effectively going to lose the 515 program 
in the State.
    Let me raise another issue. And I think some of the numbers 
that were bandied around today are interesting. The 
Administration's proposal to revitalize the 515 stock cost of 
about $20,000 a unit. They're saying that it's going to cost 
$80,000 a unit to build a new unit under the section 515 
program.
    If I'm not mistaken, the numbers that Chuck was putting out 
say that it cost them about $40,000 a unit to preserve about 
1,000 units in Washington State, which is not an inexpensive 
State. It seems to me that that's a reasonable and rational way 
of approaching this prepayment problem rather than simply 
taking, you know, approximately 50,000 to 70,000 units of 515 
housing and simply converting them into other uses.
    Mr. Cleaver. Let me share with you my take on this. You do 
it every day. That if we leave 515 essentially and go to 538, 
we are abandoning the rural poor. That's how I see it. And on 
top of that, my concern is that if we allow for repayment--
prepayment, I'm sorry--you're going to end up selling the 
property and making a--you don't want to sell it to lose money. 
I mean, anybody who wants to lose money, raise your hand.
    And so you're going to sell it to make money. Do you 
believe that you owe something because you were able to get 
this at 1 percent, which--1 percent is free? I mean, you did 1 
percent, and then you're going to sell it and make a profit. We 
eliminate housing for the poor. People who are in 538 will get 
a guaranteed loan, but you're not going to get a guaranteed 
loan for property if you are poor, whether you live in a rural 
area or if live in the middle of New York City.
    Yes, sir?
    Mr. Rice. If I could address that, the 1 percent interest 
rate is a benefit to the resident, not to the owner. The 1 
percent interest rate--my rents are based on my costs and my 
loan repayment at 1 percent, and all of my costs and a very 
small return to the owner, which hardly any owners get any 
more. And to say that the 1 percent benefits the owner is not 
true.
    The 1 percent benefits the tenant, because it lowers their 
rent. The market rent rate for a project is based on the note 
rate. The basic rent is based on the payment at 1 percent. And 
so the difference between those two, the interest credit, 
lowers the rent to the tenant. It does not benefit the owner.
    Mr. Cleaver. Yes, but the program was designed to help the 
renter.
    Mr. Rice. Correct.
    Mr. Cleaver. It wasn't designed for the owner.
    Mr. Rice. Okay.
    Mr. Cleaver. The prepayment you are saying is now the time 
for the owner to get his or her due.
    Mr. Rice. It's time for the owner to do what he was 
contractually told he could do--
    Mr. Cleaver. Which was?
    Mr. Rice. The loan agreement states that at any time that 
the owner could obtain sufficient financing outside of the 
government that they were required to prepay, not only that 
they could, but it was a requirement. When we built these 
apartments in the beginning, the first thing they had to do is 
go to a bank and get a letter of denial saying that they would 
not loan us the money to build a project here at these rental 
rates.
    Mr. Cleaver. I can get a letter of denial. That's not--
    Mr. Rice. I didn't say it was hard, okay. So, but it was an 
apartment project that nobody else wanted to build because it 
was an area that couldn't meet market rents. So we went to the 
Rural Development, and we said, we want to use this--take your 
money at 1 percent. And they said, okay, but as soon as you 
could get a bank loan, if your equity was down or your rents 
were high enough you could get a bank loan, you're supposed to 
come in and pay us off.
    None of our owners thought they would be in these projects 
over 7 years. Now, my newest project was built in 1991, and 
none of my owners have gotten out, other than the ones who 
passed away. Now I think they have a right to, if they sell to 
a nonprofit, whatever, they have a right to get out of these 
projects and move on. And I don't think--I don't think it's a 
gift they're getting, this 1 percent and that they owe 
something, no I don't.
    Mr. Cleaver. We disagree. And we probably--there's nothing 
that's going to stop me from disagreeing with you. But if you 
get a 1 percent loan you didn't benefit, I mean, I--you know, I 
just--I cannot accept that. But that's okay.
    Are you familiar with Washington, D.C., property at all?
    Mr. Rice. A little. You mean like rental rates and stuff?
    Mr. Cleaver. Yeah. I mean, you know, if you go not far from 
the Capitol, you'll find properties that were almost falling 
apart--that a few years ago you could have purchased for 
$25,000--are now being sold at $400,000. It's happening all 
around Washington. Are you familiar with the term 
``gentrification?'' Can that happen in a rural area?
    Mr. Rice. Sure.
    Mr. Cleaver. Okay.
    Mr. Rice. I mean, I'm in a number of towns that were rural 
a long time ago that aren't anymore. But I'm in a lot of towns 
that are rural and are going to be rural forever, if they stay 
alive at all.
    Mr. Cleaver. And if--and that will remain rural if people 
can still afford to live there. But if all of these properties 
are sold and we end up with new rural condos, we have 
gentrified even rural areas.
    I guess I'm not comfortable--
    Mr. Davis of Kentucky. If the gentleman would yield for one 
second.
    Mr. Cleaver. Yes, Mr. Chairman.
    Mr. Davis of Kentucky. We're just talking about 10 percent 
of the properties are in question on being sold right now, just 
for my--I do share your concern on this, but just to bring the 
number down to a more practical level. I yield back.
    Mr. Cleaver. Mr. Chairman, thank you for bringing that--I 
think I made my point. I'm very concerned about what's going to 
happen to people who are poor, who cannot get guarantees. And I 
don't know how we address it. It is a concern.
    Mr. Davis of Kentucky. My commitment--I empathize very much 
with those concerns and would like to work with you on ways to 
fund Section 515. It's probably going to need to be in a 
different piece of legislation. Perhaps what Chairman Ney has 
proposed with the affordable housing fund and the GSE reform 
bill, you know, may be one path to address this separate from 
our preservation efforts here, prepayment efforts.
    One thing that I would like to direct a question to Mr. 
Wehrwein from his perspective and the other members of the 
panel join in. And one thing I would like to clarify as well, 
is when we speak of prepayment in our estimation, for example, 
the majority of my district overwhelmingly, the question is 
preservation and not prepayment. And what we want to do is 
improve the quality and hopefully expand that base of 
affordable housing that's out there, and that nobody can prepay 
unless they have fulfilled their 20-year use restriction 
commitments. So there's got to be contractual fulfillment 
before prepayment even becomes an option under any 
circumstance.
    But to Mr. Wehrwein first, how many--approximately how many 
Section 515 developments has your organization or members of 
your organization helped to finance or develop? And out of 
those, if we can just put the follow-on there together, how 
many are at risk of becoming unsuitable for housing and for 
revitalization programs such as the one that we're attempting 
to craft if H.R. 5039 is not enacted?
    Mr. Wehrwein. Mr. Chairman, thank you. We have acquired or 
built about 45 Section 515 deals in our history. I would say 
that most of those are in pretty good shape, mostly because 
we've--30 of them we've recently acquired through this 
transaction that I spoke of in my testimony, and we've brought 
some new resources to bear almost on an exceptional basis to 
try to make those units modern and to sustain their quality.
    And as I indicated, you know, that took about eight to ten 
thousand bucks a unit to accomplish. In some of our other 
projects, we've built new and we've been able to maintain some 
reserves. I would suggest, however, that we have looked at and 
passed on probably another three to four thousand units of 
affordable housing because these tools that are described in 
H.R. 5039 are not in place, and it's not a smooth track to go 
through Rural Development to try to close on these. Again, we 
did this in a rather exceptional way and found that it was 
quite challenging. And there are also specific resources 
available in the State of Washington that happen to make this 
work. We actually--we've looked at Section 538 as a vehicle to 
help acquire and use other soft resources, and it just tends 
not to work and not to be efficient.
    So, if anything, Mr. Chairman, I might suggest that we have 
passed on a number of units because we couldn't make it work.
    Mr. Davis of Kentucky. Okay. Thank you. Would anyone else 
like to make a comment on that from your experience? Yes?
    Mr. Anders. I just want to point out that not all owners of 
515 projects which are in markets that have not appreciated are 
going to stay in and preserve their units.
    I think what we're going to see, and what we have seen in 
the HUD program, is that certain owners who are sitting with 
projects that clearly need revitalization are going to opt for 
revitalization. You're going to see owners of projects who sit 
in markets that have appreciated which are going to prepay, and 
current estimate in 2004 was that 10 percent of stock will 
prepay.
    You're going to find that probably somewhere between 5 to 
15 percent of the other owners are going to sit. They're going 
to sit and look at what happens to market conditions in their 
area in the next 5, 10, or maybe even 15 years, and then decide 
which way they're going to go.
    So, potentially, even though the estimate in 2004 was that 
only 10 percent of the units would prepay, I think the number 
eventually will be substantially higher because certain owners 
are simply going to sit, as they have done in the HUD mark-to-
market program, because they don't know what's going to happen 
in their market. If and when the market improves, they will opt 
out.
    And the translation is that--and the RHS just recently 
released a study that shows that approximately 1.6 persons live 
in a Section 515 household, if we take the conservative 
estimate that 50,000 units are going to be prepayed, which is 
10 percent of the stock, we're talking about 80,000 people 
subject to displacement. And that's not an insignificant 
number.
    Mr. Davis of Kentucky. Anybody else have something they'd 
like to share?
    [No response]
    Mr. Davis of Kentucky. Just as we wrap up, I'd share a 
personal perspective in my interest in working on this bill 
that indirectly brought me into contact with the 515 program. 
We have a rapidly--in fact, one of the fastest growing counties 
in the entire Commonwealth where I live in Boone County, 
Kentucky, but in Covington, Kentucky, Newport, Kentucky or 
urban areas with rapid economic growth, we're seeing a similar 
thing that has happened with Section 8 housing programs and 
with the low income, working class families being driven out of 
the area potentially and having to move down into areas where 
in fact other rapid economic growth is taking place in the next 
few years has a potential to displace them again.
    And what we want to strive for ultimately is a fair and 
compassionate means of providing that affordable housing, but 
at the same time allow the market to work in such a way that 
there's a balance so the property owners have their rights 
protected, that all parties maintain their contractual and 
personal obligations to this.
    I appreciate very much your coming here today. Your written 
testimony is of great value to us. We'd like to continue to 
work closely with you as this bill moves to markup in May. If 
there are places where we can make appropriate adjustments 
dealing with both the prepayment question and dealing with the 
preservation issue, the voucher issue, we consider your 
expertise in the field to be most valuable to us and look 
forward to working with you.
    It's been a pleasure, and I personally want to thank you 
very much. The Chair notes that some of the members of the 
committee may have additional questions for the panel, which 
they may wish to submit in writing. Without objection, the 
hearing record will remain open for 30 days for members to 
submit written questions to these witnesses and to place their 
responses in the record.
    With that, this hearing is adjourned.
    [Whereupon, at 4:07 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                             April 25, 2006


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