[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                     RURAL HOUSING PROGRAMS: REVIEW 

                     OF FISCAL YEAR 2008 BUDGET AND 

                   PENDING RURAL HOUSING LEGISLATION 

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 8, 2007

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-27


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York         DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York         PETER T. KING, New York
MELVIN L. WATT, North Carolina       EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York           FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana                RON PAUL, Texas
BRAD SHERMAN, California             PAUL E. GILLMOR, Ohio
GREGORY W. MEEKS, New York           STEVEN C. LaTOURETTE, Ohio
DENNIS MOORE, Kansas                 DONALD A. MANZULLO, Illinois
MICHAEL E. CAPUANO, Massachusetts    WALTER B. JONES, Jr., North 
RUBEN HINOJOSA, Texas                    Carolina
WM. LACY CLAY, Missouri              JUDY BIGGERT, Illinois
CAROLYN McCARTHY, New York           CHRISTOPHER SHAYS, Connecticut
JOE BACA, California                 GARY G. MILLER, California
STEPHEN F. LYNCH, Massachusetts      SHELLEY MOORE CAPITO, West 
BRAD MILLER, North Carolina              Virginia
DAVID SCOTT, Georgia                 TOM FEENEY, Florida
AL GREEN, Texas                      JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri            SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois            GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin,               J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee             JIM GERLACH, Pennsylvania
ALBIO SIRES, New Jersey              STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota             TOM PRICE, Georgia
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio              JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida               KENNY MARCHANT, Texas
JIM MARSHALL, Georgia                THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
           Subcommittee on Housing and Community Opportunity

                 MAXINE WATERS, California, Chairwoman

NYDIA M. VELAZQUEZ, New York         JUDY BIGGERT, Illinois
JULIA CARSON, Indiana                STEVAN PEARCE, New Mexico
STEPHEN F. LYNCH, Massachusetts      PETER T. KING, New York
EMANUEL CLEAVER, Missouri            PAUL E. GILLMOR, Ohio
AL GREEN, Texas                      CHRISTOPHER SHAYS, Connecticut
WM. LACY CLAY, Missouri              GARY G. MILLER, California
CAROLYN B. MALONEY, New York         SHELLEY MOORE CAPITO, West 
GWEN MOORE, Wisconsin,                   Virginia
ALBIO SIRES, New Jersey              SCOTT GARRETT, New Jersey
KEITH ELLISON, Minnesota             RANDY NEUGEBAUER, Texas
CHARLES A. WILSON, Ohio              GEOFF DAVIS, Kentucky
CHRISTOPHER S. MURPHY, Connecticut   JOHN CAMPBELL, California
JOE DONNELLY, Indiana                THADDEUS G. McCOTTER, Michigan
BARNEY FRANK, Massachusetts



















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 8, 2007..................................................     1
Appendix:
    May 8, 2007..................................................    31

                               WITNESSES
                          Tuesday, May 8, 2007

Anders, Gideon, Executive Director, National Housing Law Project.    25
Carew, Thomas A., Director of Design and Community, Frontier 
  Housing, Inc...................................................    27
Carey, Peter, Executive Director, Self-Help Enterprises, on 
  behalf of the National Rural Housing Coalition.................    23
Davis, Russell T., Administrator of the Rural Housing Service, 
  U.S. Department of Agriculture.................................     7
Loza, Moises, Executive Director, Housing Assistance Council.....    28
Patenaude, Hon. Pamela Hughes, Assistant Secretary for Community 
  Planning and Development, U.S. Department of Housing and Urban 
  Development....................................................     6
Rice, Robert L., Jr., President, Council for Affordable and Rural 
  Housing........................................................    29

                                APPENDIX

Prepared statements:
    Anders, Gideon...............................................    32
    Carew, Thomas A..............................................    44
    Carey, Peter.................................................    56
    Davis, Russell T.............................................    64
    Loza, Moises.................................................    72
    Patenaude, Hon. Pamela Hughes................................    80
    Rice, Robert L., Jr..........................................    84

              Additional Material Submitted for the Record

Hinojosa, Hon. Ruben:
    Written responses to questions submitted to Russell T. Davis.    89
    Written responses to questions submitted to Moises Loza......    91
    Written responses to questions submitted to Hon. Pamela 
      Hughes Patenaude...........................................    93
    Letter to the House Appropriations Committee signed by 
      Members of Congress, requesting funding levels for fiscal 
      year 2008..................................................    95
Neugebauer, Hon. Randy:
    Additional information requested from Hon. Pamela Hughes 
      Patenaude..................................................   100


                     RURAL HOUSING PROGRAMS: REVIEW

                     OF FISCAL YEAR 2008 BUDGET AND

                   PENDING RURAL HOUSING LEGISLATION

                              ----------                              


                          Tuesday, May 8, 2007

             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 2:15 p.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the subcommittee] presiding.
    Present: Representatives Waters, Cleaver, Green; Biggert, 
Pearce, Gillmor, Neugebauer, and Davis of Kentucky.
    Also present: Representatives Hinojosa and Davis of 
Tennessee.
    Chairwoman Waters. The Subcommittee on Housing and 
Community Opportunity will come to order. Today we are focusing 
on rural housing, and we will review the fiscal year 2008 
budget and pending rural housing legislation. Without 
objection, all members' opening statements will be made a part 
of the record.
    At this time, I would like to introduce our first panel who 
will be testifying before us today. And I would like to say to 
the panel that, without objection, your written statements will 
be made a part of the record. You will be recognized for a 5-
minute summary of your testimony.
    On panel one, we have the Honorable Pamela Patenaude, 
Assistant Secretary for Community Planning and Development, 
U.S. Department of Housing and Urban Development, and we have 
Mr. Russell T. Davis, Administrator for Rural Development 
Housing and Community Facilities Programs, U.S. Department of 
Agriculture.
    Before our witnesses begin, we are going to recognize our 
members. And with that, I would like to recognize the ranking 
member, Mrs. Biggert, for 5 minutes.
    Mrs. Biggert. Thank you, Madam Chairwoman, and thank you 
for holding this hearing today. I am afraid that I am going to 
have to leave, so I am going to yield my time to the gentleman 
from Kentucky, Mr. Davis, for 5 minutes.
    Mr. Davis of Kentucky. Thank you, Ranking Member Biggert, 
and Chairwoman Waters, for holding this timely and important 
hearing today on the rural housing programs.
    As most of you know, last year I introduced H.R. 5039, the 
Saving America's Rural Housing Act, with Chairman Frank and a 
number of my colleagues on both sides of the aisle. The bill 
was voted favorably out of the Financial Services Committee, 
but, unfortunately, didn't make it to the House Floor before 
the 109th Congress ended.
    H.R. 5039 was comprised of two major initiatives aimed at 
the section 515 program. First, the repeal of the 
unconstitutional portions of the Emergency Low Income Housing 
Preservation Act of 1987, or ELIHPA, to allow for pre-payment 
by certain owners, and second, to create a robust preservation 
program for the remaining 515 portfolio.
    This bill struck the right balance in repealing 
unconstitutional and onerous restrictions on some 515 owners, 
and providing tenant protections to ensure no one is unduly 
affected by any owner wishing to pre-pay.
    The pre-payment section is simply a good government 
provision that will save taxpayers money and unnecessary 
litigation costs and damage awards. However, the preservation 
section had the most potential to positively impact the aging 
housing stock of the 515 program.
    According to an independent study, addressing maintenance 
and rehab costs now through financial structuring would save 
taxpayers an estimated $2 billion. Restructuring deals would 
ensure a viable 515 portfolio for the next 20 years.
    I appreciated the constructive input in the past from many 
of today's witnesses when we constructed legislation last year, 
and moved the bill through the hearing and mark-up process. I 
look forward to working with all of you, as we decide how H.R. 
5039 should evolve in the 110th Congress.
    Preservation of our 515 portfolio is critical to 
maintaining an adequate stock of affordable and safe rural 
housing.
    Chairwoman Waters, again, I truly appreciate your interest 
in affordable housing issues, and the initiative in holding 
this hearing today to discuss our pending housing legislation, 
as well as the rural housing budget. These are crucial issues 
to communities in rural areas like Kentucky's fourth district, 
and I admire and share your passion for this issue, and look 
forward to the hearing from today's witnesses. And with that, I 
yield back.
    Chairwoman Waters. Thank you very much. Mr. Green, for 5 
minutes.
    Mr. Green. Thank you, Madam Chairwoman. Let me just simply 
thank you and the ranking member for hosting the meetings. I am 
eager to gain as much intelligence as possible. And in the 
interest of time, I will yield back the balance of my time.
    Chairwoman Waters. Thank you very much. Do we have any 
others--Mr. Pearce?
    Mr. Pearce. Thank you, Madam Chairwoman. And like the 
others, I thank you for holding this hearing. Rural housing 
issues are very critical in the second district of New Mexico. 
We have 70,000 square miles, and the U.S. Census reports that 
between 0 and 14 people live per square mile. Much of it is at 
the zero end.
    New Mexico's small population forces us to face many 
challenges, including the availability of affordable housing 
for many residents. I am pleased that today we may discuss 
several pieces of legislation regarding USDA and HUD rural 
housing programs.
    Last Congress, I was a cosponsor of Representative Geoff 
Davis's bill, the Saving America's Rural Housing Act, which 
created a permanent revitalization program within USDA rural 
development, to allow for new financing of section 515 
properties.
    It is imperative for the future of the section 515 multi-
family housing portfolio, which depends on the preservation of 
existing properties. Preservation of existing section 515 
properties will cost about $25,000 per property, compared to 
around $100,000 for newly constructed property. It's a dramatic 
comparison, and one that means a lot in southern New Mexico.
    I look forward to further consideration of Mr. Davis's 
bill, which will help families have access to affordable rental 
housing, and save taxpayers thousands of dollars. I also look 
forward to your comments regarding a section 502 direct single-
family loan program, and whether shifting this program to the 
self-supporting section 502 guarantee program is viable.
    I understand the Administration is proposing to increase 
the section 502 guarantees from 2 percent to 3 percent, making 
this mortgage product more expensive for low-income and middle-
income rural families. And the median income in New Mexico is 
below the poverty level, so these small increases begin to mean 
a lot.
    I look forward to your comments on whether or not this fee 
could force would-be borrowers into other, more risky products, 
such as subprime loans, which are now a very hot topic before 
this committee. I believe we should be working together to give 
low-income people more opportunities for loans, not reducing 
their choices.
    I am pleased that the Housing Assistance Council (HAC) is 
here today, as it's the only national housing and community 
development intermediary, devoting all of its resources to the 
housing needs of rural America.
    New Mexico is one of HAC's largest volume States, and has 
received over $6.9 million in loans, self-help loans, and 
grants, and capacity grants, to support the work of 32 
organizations.
    Tierra del Sol in Silver City, New Mexico, has received a 
wide range of grants through HAC, helping them to build over 
1,000 single and multi-family affordable homes in southern New 
Mexico.
    I look forward to discussing Mr. Hinojosa's proposal to 
make HAC an authorized program through HUD. This would create 
yet another housing program funded by the Federal Government. 
Therefore, we must proceed cautiously, and ensure that this is 
necessary. HAC has a tremendous track record of success, and I 
fear that turning it into just another government program will 
instill the usual inefficiencies in bureaucracy we historically 
see in government-run programs.
    Again, I thank both the panels and the chairwoman for this 
hearing. I yield back the balance of my time.
    Chairwoman Waters. Thank you very much. Mr. Neugebauer, 
then Mr. Hinojosa for 5 minutes.
    Mr. Neugebauer. I don't have an opening statement.
    Chairwoman Waters. Then Mr. Hinojosa.
    Mr. Hinojosa. Thank you, Chairwoman Waters. I want to 
express my sincere appreciation to you, for holding this 
important and timely hearing on rural housing. I look forward 
to working with you and Ranking Member Biggert on rural housing 
issues today, and throughout the 110th Congress.
    Those of us who live in rural areas have long known that 
rural residents face significant challenges in finding 
available, affordable, and quality housing, but the extent of 
the problem is surprising.
    According to the Economic Research Service, 4 million rural 
families live in housing poverty, 1.7 million of the 25 million 
rural housing units in the United States are considered sub-
standard, and 17 percent of minority renters in rural areas 
live in sub-standard units.
    These figures are compounded by the Administration's budget 
proposal for fiscal year 2008, which zeroes out several 
critical rural housing entities and programs. The budget 
eliminates the section 515 rural rental housing program, which 
benefits very low-income and elderly residents in many of our 
rural communities, and section 502, direct homeownership loan 
program, which is the only Federal program targeting mortgage 
lending opportunities to the low- and very low-income rural 
households.
    The budget also makes sharp reductions in self-help 
housing, and farm worker housing. Additionally, the 
Administration's budget zero funds many other critical rural 
housing entities and programs, including the Housing Assistance 
Council, better known as HAC, and the rural housing and 
economic development program.
    Both of these are funded through HUD. Furthermore, the 
budget reduces the funding for the construction and 
preservation of affordable housing in rural communities.
    So, to address the affordability, availability, and quality 
of rural housing, I co-founded and currently chair the 
Congressional Rural Housing Caucus. It continues to grow in 
numbers. Recently, the caucus collaborated with the National 
Rural Housing Coalition on a breakfast briefing, and is 
coordinating on a briefing by the Council for Affordable and 
Rural Housing on June 11th of this year.
    I look forward to coordinating with other groups on similar 
events. To counter all the Administration's proposals that 
would harm rural America, several other Members of Congress 
joined me in sending a letter to the Appropriations Committee, 
requesting the following funding levels for fiscal year 2008.
    Number one, $1.25 billion for section 502 direct 
homeownership loans; number two, $100 million for section 515 
rental housing loans; number three, $60 million for section 523 
self-help housing; and, number four, the last one, we asked for 
$50 million each for sections 514 and 516, farm labor housing.
    I want to thank you, Chairwoman Waters, for co-signing the 
letter, and for helping to improve housing in rural America. I 
ask unanimous consent that the letter be entered into today's 
hearing record. I have it with me.
    Chairwoman Waters. Without objection, it is so ordered.
    Mr. Hinojosa. May I continue?
    Chairwoman Waters. Yes, you may.
    Mr. Hinojosa. To further improve the rural housing 
situation, I have introduced H.R. 1980, the Housing Assistance 
Council Authorization Act of 2007, and H.R. 1982, the Rural 
Housing and Economic Development Improvement Act of 2007.
    These two bills will help improve rural areas by providing 
them the resources they need to address the problems of 
substandard housing. By authorizing this funding, more American 
families will be able to access decent housing that will 
improve their overall quality of life.
    Specifically, H.R. 1980, the Housing Assistance Council 
Authorization Act of 2007, authorizes $10 million for HAC in 
fiscal year 2008, and $15 million in fiscal years 2009 to 2014. 
These funds will go towards providing technical assistance, as 
well as training and support, to better develop the capacities 
of rural community-based housing development organizations. It 
will supply loans and grants, or other financial assistance to 
these organizations, so that they can widen affordable housing 
options for low- and moderate-income families. The funding will 
also allow HAC to continue to offer financial and other aid to 
its national network.
    Madam Chairwoman, may I ask unanimous consent that two 
other documents be put into the record? One is the letter from 
260 groups in support of funding HAC.
    Chairwoman Waters. Without objection, it is so ordered.
    Mr. Hinojosa. And the last one, I ask unanimous consent 
that the statement of The National Association of Realtors to 
this Subcommittee on Housing and Community Opportunity be 
included in the record.
    Chairwoman Waters. Without objection, it is so ordered.
    Mr. Hinojosa. With that, I yield back.
    Chairwoman Waters. Thank you very much. And just so that 
we're following the rules of the committee, I would ask 
unanimous consent that Mr. Hinojosa be allowed to fully 
participate in this hearing, and to submit all of the letters 
for the record. Hearing no objection, it is so ordered. Thank 
you very much.
    The purpose of today's hearing, rural housing review, 
fiscal year 2008 budget requests, and pending rural housing 
legislation, is to examine the Administration's budget request 
for rural housing programs for fiscal year 2008, and various 
legislative proposals that have been introduced in the 100th 
Congress, such as: H.R. 1980, the Housing Assistance 
Authorization Act of 2009, to provide $10 million in funding 
for fiscal year 2008, and $15 million annually through fiscal 
year 2014 for the Housing Assistance Council; and H.R. 1982, 
the Rural Housing and Economic Development Improvement Act of 
2007, to provide $30 million in funding for fiscal year 2008, 
and $40 million annually, through fiscal year 2014 for 
competitive grants for rural housing and economic development 
programs.
    Both of these programs are viewed as extremely flexible 
tools in the rural communities where they are utilized. This 
hearing is one of the most important hearings that this 
subcommittee will hold, because it provides an opportunity for 
us to address rural housing issues that have been put on hold 
since the 109th Congress.
    As many of you know, the Committee on Financial Services 
passed a rural housing bill--H.R. 5039--last year, but it was 
not considered by the House. We know that there is a shortage 
of affordable housing in the Nation's rural areas. In many 
parts of rural America, not only is there an inadequate supply 
of affordable housing, but the housing is aging; the average 
age of the section 515 units is 28 years old.
    Many rural communities rely on Federal grants and loan 
guarantees to finance single and multi-family housing. However, 
the Administration has proposed to eliminate the section 515 
multi-family direct loan program, and the section 502 single 
family direct loan program, funded at $100 million, and $125 
million, in fiscal year 2007, respectively.
    The section 515 program is best known because it has 
assisted approximately 500,000 people, most of whom are poor. 
In rural America, there is a real need for housing, one that 
mirrors the housing needs elsewhere in the country. One 
important policy issue is the tenant contribution in rural 
areas.
    I support maintaining the tenant rent contribution at 30 
percent of income. This threshold has proven critical to 
sustaining the economic well-being of tenants in our rural 
rental housing programs. In the absence of reform and 
revitalization measures to our rural housing programs, we stand 
to miss a golden opportunity to address rural housing needs. We 
must remain committed to the pressing rural housing needs in 
this Nation, so that the quality of life for Americans living 
in these communities is improved.
    We have an opportunity today to let rural America know that 
there is a legitimate interest in this Congress to address 
their housing needs. I am sure that no one thought that the 
Administration would propose to eliminate the section 515 and 
502 programs, but that is exactly what has been proposed.
    I believe that, if we want to address the housing needs of 
rural Americans, many of whom are disabled and elderly, we can 
start today by determining which programs work. I thank you.
    And with that, we will call on our very first witness whom 
I introduced a moment ago, the Honorable Pamela Patenaude, 
Assistant Secretary for Community Planning and Development, 
U.S. Department of Housing and Urban Development. Thank you.

 STATEMENT OF THE HONORABLE PAMELA HUGHES PATENAUDE, ASSISTANT 
    SECRETARY FOR COMMUNITY PLANNING AND DEVELOPMENT, U.S. 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Ms. Patenaude. Thank you, Chairwoman Waters, and 
distinguished members. On behalf of Secretary Alphonso Jackson, 
I am pleased to appear before your committee today.
    As the Assistant Secretary for HUD's Office of Community 
Planning and Development, I am responsible for the 
administration of the Rural Housing and Economic Development 
Program.
    In 1998, Congress established the office of rural housing 
and economic development at HUD. The program was designed to 
address the problems of rural poverty, inadequate housing, and 
the lack of economic opportunity. Since its inception, the 
rural housing and economic development program has awarded $189 
million in grants that have produced 7,600 new housing units, 
and rehabilitated 12,000 units.
    This program has also created 12,000 new jobs, provided job 
training for 34,000 individuals, and created 2,000 new 
businesses, as well as provided critical financing for 7,000 
existing businesses.
    Specific focus is given to federally recognized Indian 
tribes and seasonal farm workers, as well as certain geographic 
areas, like the Mississippi Delta region, Appalachia's 
distressed counties, and the Colonias, located in the States of 
Arizona, California, New Mexico, and Texas.
    Capacity building and innovative grants are awarded on a 
competitive basis to local rural nonprofits, community 
development corporations, State housing finance agencies, and 
community development organizations. Capacity building grants 
help support and strengthen local nonprofits.
    Innovative housing and economic development grants are 
awarded for strategic and creative ideas, such as energy 
efficient techniques and the straw and adobe house concept, 
which are models for world communities to build upon.
    HUD's Community Development Block Grant Program also meets 
the needs of rural America by providing funding for affordable 
housing, public facilities, and economic development in non-
metropolitan and rural areas. The CDBG program also addresses 
critical housing needs in the Colonias and Appalachian region.
    Another example of HUD helping rural communities is the 
Self-help Homeownership Opportunity Program, commonly referred 
to as SHOP. The SHOP program funds national and regional 
nonprofit organizations, such as Habitat for Humanity 
International, and the Housing Assistance Council, 
organizations that facilitate small, local, sweat equity 
homeownership programs in rural America.
    The President's fiscal year 2008 budget request includes 
$40 million for the SHOP program, a 100 percent increase in 
funding levels over fiscal year 2007.
    I appreciate the opportunity to appear before your 
committee today. HUD continues its commitment to serving our 
Nation's rural communities. I welcome any questions the 
committee may have. Thank you.
    [The prepared statement of Ms. Patenaude can be found on 
page 80 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Mr. Davis.

   STATEMENT OF RUSSELL T. DAVIS, ADMINISTRATOR OF THE RURAL 
        HOUSING SERVICE, U.S. DEPARTMENT OF AGRICULTURE

    Mr. Davis. Thank you, Chairwoman Waters, and Congressman 
Davis. Thank you for this opportunity to present the 
Administration's 2008 budget. I would like to make some general 
comments about the context for this budget, and also say a few 
words about the multi-family housing revitalization 
legislation, which is something that we care very much about. I 
have submitted written remarks for the record.
    This budget for 2008 is a very important one. We have three 
very important stories that run throughout this budget. The 
first one is that this is the year which we have been preparing 
for, for 5 or 6 years. This is the year that the large rental 
assistance contracts start coming due, the long-term contracts 
that have been building up over the last couple of years. I am 
happy to say that we are funding every single contract for 
renewal, and every single one of those will be funded at their 
full levels.
    The second big story in this budget is that we have 
pressures because of a flat discretionary budget environment 
that is forcing us to look at how we can provide the most 
housing.
    It happens that we have multiple programs that can 
accomplish the same things. Where we have three or four 
programs that can do the same thing, we want to concentrate our 
resources where they can produce the most housing, and produce 
the most housing across the income spectrum, from very low-
income to low-income, and throughout the different types of 
rural America. We have high-cost areas, low-cost areas, etc.
    The third thing that you will see in our budget is that we 
have a number of new programs that are addressing the problems 
for the future.
    A lot of our housing programs were built in the 1930's and 
1940's, and address problems that are secondary to other 
problems in housing people in America today. And I think that 
this is really an exciting area where we can house a lot more 
people for less commitment of Federal resources.
    Finally, on the multi-family legislation, I will say that 
the Administration is pleased to be supporting the multi-family 
revitalization legislation that we have proposed last year, and 
look forward to working with this committee and with Congress 
to build a bill that can address the needs of our multi-family 
portfolio.
    With that, I look forward to discussing these issues with 
you. Thank you.
    [The prepared statement of Mr. Davis can be found on page 
64 of the appendix.]
    Chairwoman Waters. Thank you very much. At this time, I 
would like to open this panel to questions, and I will give to 
myself 5 minutes.
    My first question is concerning the section 502 program, 
which is the USDA's main housing loan program, and is designed 
to help low-income persons purchase homes in rural areas of the 
country. Funds also can be used to build, repair, or renovate a 
home, including providing water and sewage facilities. The 
program provides fixed interest mortgage financing to low-
income families who are unable to obtain credit in the private 
market.
    As you know, there is a shortage of affordable housing for 
home-ownership opportunities in rural areas, and minorities are 
less likely to own their homes than others.
    Why did the Administration propose to eliminate the section 
502 direct loan program, while embracing the goal of increased 
homeownership opportunities for all Americans? Does the section 
502 direct loan program provide homeownership opportunities for 
persons living in rural America? And what is the demographic 
make-up of the loan pool?
    I have some more questions about 502, but let me--who would 
like to take that?
    Mr. Davis. I would like to--
    Chairwoman Waters. Okay, Mr. Davis.
    Mr. Davis.--take that. And this was the hardest decision 
that we had to make in our budget--how to address the pressure 
that is being put on the single family programs by the multi-
family programs.
    And, I would go back to the fact that we faced what we have 
been working toward and building toward for a number of years; 
that is an increase in our rental assistance needs. This is 
USDA's version of section 8.
    We faced an increase of $230 million above the previous 
year. That $230 million extra put pressure on programs 
throughout the Department of Agriculture, and forced us to look 
at our programs and say, ``Are there other ways we could help 
the same people do the same things, accomplish the same 
objectives, but allow those resources to be used to protect our 
most vulnerable?'' And that is our number one--
    Chairwoman Waters. If I may, for a moment?
    Mr. Davis. Yes.
    Chairwoman Waters. We understand the money constraints. But 
when you have this kind of a need, why don't you ask for more 
money, and just talk about the crisis that available, that is 
going on in rural America? Why didn't you ask for an increase?
    Mr. Davis. Our first priority was meeting the needs of 
those rental--
    Chairwoman Waters. I know what your priorities are, but--
    Mr. Davis. And--
    Chairwoman Waters.--in the supplemental, you have lots of 
Agriculture money for a lot of other things. Why didn't you get 
some of that money?
    Mr. Davis. Well--
    Chairwoman Waters. Money for rural housing.
    Mr. Davis. Well, we have limited resources for 
discretionary programs. And if we can accomplish the same thing 
with the programs--and let me address how we're doing that with 
502.
    Section 502 has two ways of providing mortgages for home 
buyers, direct loans and guaranteed loans.
    Chairwoman Waters. What about the loan guarantee program?
    Mr. Davis. Yes. The guaranteed loan program has been a 
success. And, by the way, we really support both programs. We 
believe that the guaranteed program is at a point where it can 
start shouldering more of the burden for very low-income 
borrowers, and we would like to grow that area.
    A lot of it comes down to numbers. I know it's dry, to talk 
about numbers. But in the guaranteed program, we can make 40 
loans for every 1 loan we make in the direct program. It is a 
matter of where can we provide the most funding for rural 
America, where can we provide the most funding for new home 
buyers.
    Already these programs overlap quite a bit. We see that 
about half of the direct program is going to people making more 
than very low-incomes, and a large portion of the guaranteed 
programs is going to people making very low-incomes and low-
incomes, so there is a lot of overlap.
    What we have proposed in the budget is to pick up the very 
low-income in the guaranteed program. We increased the 
guaranteed program by $1.7 billion in mortgages. And to the 
extent we wanted to pick up the lower--the very lowest incomes 
that had been done in the direct program, we are proposing a 
subsidized guaranteed loan program. It would essentially use 
the guaranteed platform, which has much better leverage and 
more efficiency, and provide the subsidies necessary to pick up 
the very low-incomes that were in the direct program.
    Chairwoman Waters. Thank you very much. Mr. Davis? Five 
minutes.
    Mr. Davis of Kentucky. Thank you, Madam Chairwoman. One of 
the things I think that's very important to note is, 
oftentimes, urban poverty housing issues are much easier to 
see, because it's massed together. We drive through the parts 
of Appalachia, eastern Kentucky, parts of my district, where 
organizations like Frontier Housing do such an incredibly good 
job with both taxpayer dollars and private funds, that poverty 
is very rarely seen by the folks traveling through the areas.
    And I would like to take a few minutes to talk with you 
both about some issues, first with Mr. Davis. You know, last 
year, we--Chairman Frank and I--introduced H.R. 5039. And one 
of the things I would like you to do is describe for the 
committee for a moment how the courts have ruled on restrictive 
515 pre-payment provisions, and the current status.
    And corollary with that, would you make any changes to 
ELIHPA, the ELIHPA repeal section of H.R. 5039, to ensure it 
alleviated this problem?
    Mr. Davis. Okay. I have to be careful about what I say 
about ongoing litigation. We have experienced two set-backs in 
the courts over the last 2 years--the Franconia decision and 
the Kimberly decision--which made it clear that the owners have 
an argument to make, regarding their ability to pre-pay the 
loan.
    Our concern, at this point, is protecting the tenants. And 
that is why the legislation provides for vouchers to protect 
the tenants. I am pleased to say that program is up and 
running, and for the last year, we have been protecting every 
tenant facing a pre-payment in their property.
    The revitalization legislation that you have proposed also 
protects the properties by offering a rehabilitation deal for 
the owners to stay in the program for another 20 years, and 
preserve the--
    Mr. Davis of Kentucky. Would you--just for the record, 
would you say where that $2 billion in litigation cost comes 
from?
    Mr. Davis. Well, the precedent set by the early court 
cases, the Franconia case, established a certain dollar figure 
for the losses. If we can shorten the formula, instead of 
paying for the next 50 years' worth of damages, essentially cut 
the damages off now, that reduces the cost of any damages to 
the owners and allows them to get on with life. It's simply a 
matter of chopping off a big part of the formula.
    Mr. Davis of Kentucky. I think both the chairman and I 
could find many places to invest $2 billion that wasn't being 
paid to trial lawyers in affordable housing.
    You know, just speaking of the vouchers--I know this was an 
issue that we all talked on both sides of the aisle, working 
through some solutions last year, but how was the prototype 
program worked out, with the initial funding that you were able 
to secure?
    Mr. Davis. This has been just an absolute success story. I 
would like to thank the committee, and Congressman Frank, who 
had worked with the appropriators, to make sure that we could 
test this with demo programs in a small way in the fiscal year 
2007 budget in two areas: the vouchers and the rehabilitations.
    On the voucher side, we were able to create a voucher 
program. Within 3 months of the signing of the appropriations 
bill, we handed out the first vouchers to a property in 
Georgia. We have now given out over 1,000 vouchers over the 
past year, protecting tenants in 35 States whose properties 
have been pre-paid and taken out of the program. That is an 
unqualified success. We are very proud of it, and we thank you 
for your help on that.
    The second thing--and it's great to be able to say that a 
bill is doing things even before it's been passed--the 
restructuring we tried in a demo program also. We went out with 
a notice of funds availability last April for 100 properties. 
We received 4,000 properties' applications. It's a very popular 
program for the tenants, who look forward to 20 years of 
stability, and knowing that their properties are going to be 
rehabilitated.
    Because we had so many properties, we were able to, 
essentially, run an auction, and say, ``We will take properties 
who are putting up the most outside cash.'' So we were able to 
draw cash into the properties, thousands of dollars a unit, to 
rehabilitate these properties. It's been a great success, all 
the way around. We look forward to expanding that with a 
permanent authorizing bill.
    Mr. Davis of Kentucky. I am sure we will discuss that more. 
Just one quick question for Secretary Patenaude. Regarding the 
repeated Administration budget proposals, basically HUD wants 
to consolidate the program into CDBG.
    My one concern of HUD's dominance with urban programs, I 
want to make sure that rural programs don't get left behind, or 
take a back seat. And I was wondering how you were going to 
take into account these differences for our rural communities.
    Ms. Patenaude. Thank you, Congressman Davis. Madam 
Chairwoman, if could just ask your permission to submit my 
written testimony for the committee's record?
    Chairwoman Waters. Absolutely.
    Ms. Patenaude. Thank you.
    Chairwoman Waters. Without objection.
    Ms. Patenaude. Congressman Davis, the CDBG program, as you 
know, funds entitlements in the State program, and a 
significant amount of CDBG dollars that are allocated to the 
States are spent in rural communities. We feel that is the most 
effective way to reach those in the rural communities.
    The home program and the SHOP program also work towards 
housing and economic development in those communities.
    Mr. Davis of Kentucky. Okay, thank you. I yield back, Madam 
Chairwoman.
    Chairwoman Waters. Thank you very much. Mr. Cleaver, for 5 
minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman. I appreciate this 
committee hearing.
    I would like to try to get some clarification, and I also 
realize that, you know, you may have some reluctance to want to 
do this, and so I don't want to--I mean, I would like to get an 
answer, but I would understand if you would say, ``I would 
prefer not to answer that.''
    The RH budget has been reduced by almost $200 million. 
That's a one-third cut in the entire RH budget over the last 6 
years. And my concern is that the cuts end up doing more damage 
to the very poor, because of the direct loan programs. And is 
there a strategy at play in the Department that I'm just unable 
to see, or that I need some clarity on, that would explain how 
we can do this, make these cuts, and it ends up hurting the 
least of these?
    Mr. Davis. I thank you for your concern, and I, too, wish 
there was enough discretionary money to handle all of our 
problems in rural America. I have visited 45 States in the last 
2 years. I see what the problems are in rural America, and I 
would like to help.
    And to that end, in an era where we have limited money, I 
would like to see the most housing and the most families 
helped, per given dollar.
    I would say one thing, however, that our budget is not 
proposing a cut. What the difference is, that I believe you 
were referring to, is the difference between the actual 
spending in 2007, and the budget for--
    Mr. Cleaver. Yes.
    Mr. Davis. The President's budget that I have to work with 
is actually increasing from 2007 to 2008 by a small amount. It 
is--
    Mr. Cleaver. Well, let me--can I--
    Mr. Davis. It's a matter of actual versus budget. I'm 
sorry, go ahead.
    Mr. Cleaver. I'm trying to see this increase you're talking 
about. And I have it here, and I'm trying to--I don't see the 
increase. I mean, what--
    Mr. Davis. The--
    Mr. Cleaver. Let me--here is what I see. I see that the 
program that was designed to save the poorest of our citizens 
in the rural areas, the direct loan program being cut, and the 
program designed to help moderate-income rural people, which 
would be the guaranteed loan program, increases. So, the poor 
get less, and the moderate-income rural residents get more.
    Mr. Davis. Okay--
    Mr. Cleaver. And then, I--so you're saying that there is no 
cut, but that you're actually getting more money on--
    Mr. Davis. I was just making the point that, from budget to 
budget, the money that I have to work with is not being cut by 
$200 million.
    But I do want to say that there is an increase in the 
rental assistance program that puts pressure on everything 
else. Rental assistance helps the poorest of the poor. Our 
rental assistance residents make an average of $8,000 a year. 
They are 60 percent elderly, 30 percent severely disabled. 
That's our very high-needs population. And the increase that we 
are absorbing this year covers 63,000 families. This would fill 
RFK Stadium almost twice, when you add the children and others. 
This is our high-needs population and that's who we were 
focusing on.
    To keep helping the same number of families in the single 
family programs, we had to get more efficient with the dollars 
that we were given. And, we are looking to pick up more of the 
very low-income borrowing in our guaranteed program, teaching 
the private sector lenders to make lower income loans.
    Mr. Cleaver. So, you are satisfied that the request was 
sufficient, the budget request was sufficient?
    Mr. Davis. Well, we stand by our budget, but our budget is 
based on the overall availability of funds in the government.
    Mr. Cleaver. I know. Okay. The relevant word is 
``sufficient.'' Was the request sufficient--
    Mr. Davis. All of our programs are discretionary, and we 
recognize that there is need in rural America, and we would 
like to meet as much of that need as possible with the 
resources we can, and that means doing more with what we have. 
That's why we are focusing more on our most efficient programs.
    Mr. Cleaver. Okay. Thank you, Madam Chairwoman.
    Chairwoman Waters. Thank you very much. Mr. Neugebauer?
    Mr. Neugebauer. Thank you, Madam Chairwoman. Ms. Patenaude, 
you were talking about the shift from--to the CDBG program. And 
in recent years we have been able to have some very successful 
programs in the urban areas using Community Development Block 
Grant money.
    But can you point to where you have done this in the rural 
areas, and how much money actually is getting to our rural 
communities? Because in my district, I don't know that they're 
getting that money.
    Ms. Patenaude. Thank you, Congressman. Approximately $1.1 
billion is allocated to the State CDBG program. And I do have 
an example here in the State of Texas. If I may, Congressman, 
use your State as an example, $73 million was allocated to the 
State CDBG program, $53 million out of the $73 million was 
allocated to towns with less than 25,000 in population. And of 
that, $48 million was allocated to towns with less than 10,000 
in population.
    So, over the years, there has been over $110 billion 
allocated in CDBG, and the States determine where to allocate 
the dollars, so that's local decisionmaking.
    Mr. Neugebauer. And I am a great proponent of local 
decision-making. What I am hearing from some of those 
communities, though, is that, for example, a little suburb next 
to Fort Worth or Dallas or Houston may have a small 
population--5,000, 8,000, 10,000 people--but it may be right 
next to 3.4 million people, and the center, the distribution of 
some of those funds has tended to be more in smaller 
communities adjacent to major metropolitan areas.
    Would you have any information for me, to give me a 
breakdown of, for example, counties in my district that--and 
how much money, the CDBG money, that they have actually 
received?
    Ms. Patenaude. Yes. May I ask your permission to submit 
that to you in writing?
    Mr. Neugebauer. Absolutely.
    Ms. Patenaude. We do have that information.
    Mr. Neugebauer. That would be good, because I think that 
is--I mean, we hear that, and that is a very impressive 
statistic, out of $73 million, you know, 53 million went to 
rural areas, but, you know, sometimes it's--definitions of 
what's rural are different, particularly when these small 
communities that are surrounding these major metropolitan 
areas.
    And so, in those areas, quite honestly, while I certainly 
don't want to diminish their need, are important. But I'm not 
hearing that the money is, you know, getting out into a more 
evenly distributed basis. So I would like to see that.
    Mr. Davis, you're going to--I understand the Administration 
is proposing this subsidized loan guarantee hybrid product that 
will kind of just strike a balance between direct and 
guaranteed section 502 loans. When should we see some language 
on how we can help you accomplish that provision?
    Mr. Davis. We will have a proposal up within a very few 
weeks here, although I will say it's fairly simple. We just 
need authority to add subsidies to our guaranteed loan program.
    There are basically two ways we can do that. We can either 
buy down the interest rate, which we already did in a 
demonstration program in the 1990's, so we've been through 
this, and know what the issues are, or we can buy down the 
principal amount, and that has a different dynamic in that we 
can actually help different types of borrowers in high-cost 
areas.
    One of the shortcomings of the 502 direct program is that 
it doesn't work well in high-cost areas, such as California, or 
near metropolitan areas. We would like to be able to experiment 
with guaranteed structures that would be more useful in those 
types of areas.
    Don't get me wrong, we love the 502 direct program, but we 
believe that we can produce a better version, and we would like 
to work with the committee on understanding what the issues 
are, and how we can do that.
    Mr. Neugebauer. Would that, the hybrid products, be an 
option? Or how would you determine--if you're going to make it 
a program that fits, you know--and one thing we know, the 
Federal Government cannot make a program that fits all. So, how 
do you build the flexibility into that?
    Mr. Davis. Well, that's a very good question, because, 
actually, we have that same issue right now. When somebody 
walks into one of our offices and says, ``I would like a home 
loan,'' we show them the direct loans and the guaranteed loans.
    About a quarter of the people who start out going down the 
direct path end up going into the guaranteed loan program. They 
realize there may be advantages or disadvantages--for one 
thing, the direct program has a recapture provision. When they 
sell the house, we take up to half of the equity to repay the 
subsidies. And the borrowers will say, ``Well, no, I would 
maybe go for this.'' There is a shorter line with a guaranteed 
program, a private sector lender can move things very quickly, 
whereas you may have to wait for funds in the direct program.
    There are all kinds of decisions that are being made right 
now between the two programs. What we would like is to let the 
potential home buyer make their decision about what is the best 
structure for them, and we believe that will lead to market 
forces creating more efficiencies and producing more housing 
for the same amount of money.
    Mr. Neugebauer. Thank you. My time is expired.
    Chairwoman Waters. Thank you. Mr. Hinojosa?
    Mr. Hinojosa. Mr. Green.
    Chairwoman Waters. Oh, I'm sorry, Mr. Green.
    Mr. Green. Thank you, Madam Chairwoman, and I thank you and 
the ranking member for hosting these most important hearings.
    Mr. Davis, let's start with an indication that 19 percent 
of all rural children are poor. Is this a factoid?
    Mr. Davis. I'm not aware of the exact statistic.
    Mr. Green. Okay. That's what my intelligence reveals. And 
given that we now have CDBG monies being used by cities, and 
cities are saying they're not getting enough, and we are now 
going to eliminate certain rural programs and continue to have 
the cities compete for the CDBG dollars, as well as the rural 
areas, are we expanding the amount of money that will go into 
CDBG?
    Ms. Patenaude. Thank you, Congressman Green. In our fiscal 
year 2008 budget, there is a reduction in the CDBG program. 
And, historically, 70 percent of the dollars go to the 
entitlements, 30 percent to the States.
    Mr. Green. So, if we are cutting back on CDBG, eliminating 
programs in rural areas, it is fair to conclude that rural and 
urban areas will be competing for less money.
    Ms. Patenaude. The fiscal year 2008 budget also includes 
the reform package, and we are hopeful that, by targeting 
resources--
    Mr. Green. Sometimes, when people finish, I don't know 
whether they have said yes or no. I don't mean to be disruptive 
and interruptive, but can you say yes or no?
    Ms. Patenaude. Fewer dollars are being allocated, or 
fewer--
    Mr. Green. Am I to take that as a yes?
    Ms. Patenaude. Fewer dollars for the CDBG program would--
    Mr. Green. Am I to take that as a yes?
    Ms. Patenaude. Yes.
    Mr. Green. Okay. Now, if this is the case, Mr. Davis, if 
you had more money, could you use it in a judicious and prudent 
fashion?
    Mr. Davis. Yes.
    [Laughter]
    Mr. Green. If we allocated more money, would it create a 
bad day for you, or would this make your day a little better?
    Mr. Davis. We are advocates for rural America, and we will 
take all the money that we can get.
    Mr. Green. And then, the final question along this line of 
questioning is why won't you ask for more money, given that you 
would use it in a judicious and prudent fashion, given that you 
are advocates for rural citizens, given that 19 percent of 
these citizens are children, and given that CDBG monies are now 
smaller, the amount is smaller, less, and you've got urban and 
rural areas competing for dollars when the coffer is 
diminishing. Why won't you ask for more money?
    Mr. Davis. We are asking for as much money as we can get, 
given the budget constraints that we live under. We have many 
different programs that have needs. In Rural Development alone, 
we have water and sewer projects which benefit rural areas, we 
have electrification, and we have business development. We have 
over 40 programs in Rural Development, and we--
    Mr. Green. Mr. Davis, one final comment on this, and then I 
will go on. Mr. Davis--
    Mr. Davis of Kentucky. Would the gentleman yield for just 
one second, just to clarify?
    Mr. Davis. I--
    Mr. Green. The gentleman will gladly yield to the ranking 
member, yes, sir.
    Mr. Davis of Kentucky. Perhaps a way to clarify the answer 
on this question would be--to Congressman Green, ``Did you get 
less than what you originally asked for when the budget numbers 
were being worked out by those in the higher pay grades in 
rural development, or in the Ag Department?''
    Mr. Davis. I think there might be a misapprehension about 
how the process works. While I may say--
    Mr. Davis of Kentucky. Normally I always ask for more than 
I get.
    Mr. Davis. Yes, thank you.
    Mr. Davis of Kentucky. So I will give you a face-saving--
    Mr. Davis. Well--
    Mr. Davis of Kentucky. I yield back.
    Mr. Davis. If I could just describe the process--there is 
not only, ``Here is what the need is in rural America,'' but, 
within the budget discussions, we are told, ``Here is how much 
money we have. How can you''--
    Mr. Green. Let me do this. I greatly appreciate the 
assistance, but I try to narrow my questions down to yes or no. 
So, would you answer ``yes'' or ``no?'' Did you ask for, at 
some point, more than you are currently calling to our 
attention? Could you give a yes or no answer to that. That 
would help me, immensely.
    Mr. Davis. Yes, and I have to live within a process--
    Mr. Green. So you did request--let me just focus on the yes 
part of it. The rest I can deal with at a later time. Your 
answer is yes, you did ask for more, but apparently, you did 
not receive the answer that you sought. Is this true?
    Mr. Davis. Well, I think that pretty much--
    Mr. Green. Sometimes I don't know whether people have said 
yes or no when they finish. Could you say yes or no, please, 
sir?
    Mr. Davis. Could you repeat the question?
    Mr. Green. Yes, sir. Did you, at some point, request more, 
receive less, and you're bringing the less to us today?
    Mr. Davis. Yes, I did, with probably every other government 
agency, receive the same answer, which is, ``We have a 
constraint to live within.''
    Mr. Green. I understand. And is it possible for us to 
become privy to the original request that you made, because it 
might help us to help you?
    Mr. Davis. That's an internal discussion, and there were a 
number of--
    Mr. Green. I yield back. Thank you, Madam Chairwoman.
    Chairwoman Waters. Thank you very much. Mr. Hinojosa?
    Mr. Hinojosa. Thank you, Madam Chairwoman. My first 
question is to Mr. Davis.
    Russell, isn't the proposed budget a vast retreat from 57 
years of commitment to housing the rural poor?
    Mr. Davis. Not at all. We view this as a step forward from 
the way things have been going. The trend, which has been that 
programs designed for problems of the 1930's and 1940's have 
been getting less and less traction. And I would like to 
address that.
    Our goal is to house more people. Our budget proposal in 
single family, for example, projects that we will be housing 
several thousand more people in 2008 than 2007, in spite of 
house price increases. We do that by using the budget dollars 
that we're given in the most efficient way possible.
    But if you are a person trying to buy a home for the first 
time in America, the interest rate is less and less likely to 
be the barrier. The 502 direct program is an interest rate buy-
down program, but it has little applicability to what we see as 
the real troubles, which are families who have credit troubles, 
health care payments, who have seasonal jobs and economic 
volatility in their local towns.
    We are trying to develop a flexible single family loan 
program that can meet those needs, and that can teach the 
private sector to meet those needs, so that we aren't just 
doing a few very highly subsidized loans for a few lucky 
recipients. We want to change the culture of borrowing, and 
show the private sector that these can be good loans, and that 
these can be good borrowers.
    We want to do tens of thousands more loans. We are not 
looking to retreat at all. We are very proud of our programs, 
sir.
    Mr. Hinojosa. I just can't seem to buy in to your long 
explanation, because you said you stand by your budget. You 
pointed out that not having--you pointed out that you didn't 
have as much discretionary money to help those low-income rural 
families. And as Congressman Green pointed out a moment ago, 
you all aren't coming up here fighting for increases in money. 
It seems like you just take the orders from somebody much 
higher than you, and just go and make all these cuts, including 
the CDBG, because the Administration has made such big, big 
percentage cuts on CDBG.
    So, I have a very difficult time with both of the 
representatives of HUD who come speak to us not actually 
wanting to fight for an increase in appropriations.
    Mr. Davis. I appreciate that. I will say that our concern 
is with the budget here, and a budget is an exercise in meeting 
and getting as much as you can out of limited resources. The 
enumeration of what the needs are in rural America is a 
different exercise, and we're very aware of the needs.
    If I could just give you an example that I think is 
illuminating, we have whole States that are taking 20 to 30 
times more applicants for single-family mortgages than we can 
make, and it's not funding, it's that we have 1 person who 
qualifies out of 30 people who apply. The problems that we are 
facing are not the problems the direct program was designed to 
address.
    So, we are trying to develop a budget--and we think it can 
actually be done fairly efficiently--that meets those needs.
    Mr. Hinojosa. Well, let me just tell you. I have 90 
communities in my 15th Congressional District down in Texas; at 
least 80 percent are rural communities.
    And in going out there and listening to what was happening, 
they wanted me, as a Member of Congress, to explain to them how 
why all these cuts were being made, no help was being offered. 
And yet, we were making these $1.5 trillion tax cuts, which 
would benefit the richest in America. How could we explain 
that?
    And the truth is, I blamed it on the Republican 
Administration, and rightfully so, because we do not have the 
amount of money that is necessary to help the housing needs of 
those out there in rural America.
    I wish I could have a little bit more time, so I will ask 
this one quick question. I understand that many minority 
families served by section 502 come into the program through 
self-help housing. The budget proposes to cut self-help by 75 
percent. So how does the Administration propose to increase 
homeownership, when self-help technical assistance grants are 
being cut?
    Mr. Davis. I thank you for that. And I would like to say 
that the self-help program, section 523 technical assistance 
grants, and the loans that go with it, is one of our great 
success stories.
    Over the last 5 years, we have taken a program that had 
fewer applicants than there was money, to where there are now 
more applicants--we have built an industry. The number of 
grantees has grown from--
    Mr. Hinojosa. My time has run out. But just know that you 
have fallen from the five-star program that you used to run to 
a program that barely has 1 star. Thank you. I yield back.
    Chairwoman Waters. Mr. Lincoln Davis?
    Mr. Davis of Tennessee. Madam Chairwoman, thanks very much 
for allowing me to participate in the hearing today. It's been 
a wonderful opportunity to serve on the Financial Services 
Committee. And when I notice the engagement that we have on 
issues that impact all Americans, and certainly rural America, 
I am pleased that I was allowed and asked to serve on this 
committee. It is good to be here today at this hearing, and I 
thank you for letting me participate.
    I have had a very good life; it has been a wonderfully 
blessed life. I represent the fourth most rural congressional 
district in America, population-wise. I have the third highest 
number of blue collar workers, which means, generally, lower 
wage earners.
    I went to college at Tennessee Tech, a university, one of 
the State colleges. It was close enough to home that I could 
either walk or hitchhike in 1962, and finish in 1966. I chose 
my degree--I really prepared myself to be an electrical 
engineer, because I really felt, when we first got electricity 
in our homes in the mid-1950's, that it was one of the most 
marvelous inventions of mankind, because lighting up the wick 
on a kerosene lamp was something that would light up the room, 
but not completely, and then we got electricity, where you just 
pulled the switch.
    I realized that there was a great future in that, so I 
decided that I might want to become an engineer, and I studied 
the courses in high school to do that. But I changed my mind 
when I became involved in vocational agriculture with Future 
Farmers of America, and I majored in agriculture at Tennessee 
Tech. I wanted to be a solar scientist, and I served for a 
while as that.
    But I noticed within USDA, there was a group called the 
Farmers Home Administration, and I saw in the mid-1960's the 
hurt in rural America, where I lived in Appalachia, and the 
Cumberland Mountains, and I transferred from the soil 
conservation and went to work with Farmers Home, where I worked 
for several years.
    When I moved to Pickett County, in Byrdstown, Tennessee, I 
had to literally work with the public health department to 
establish some type of a code dealing with how you would 
install a subsurface facility, other than a 50-gallon barrel 
and run it down the streams.
    From my experience working with rural America, and serving 
rural America today, and from my experience with Farmers Home, 
to see, for the first time, a bathroom going into someone's 
home, and then to see a new home built--and one of those years 
that I was there, as county supervisor, where I appraised, as 
well as made loans, well over 100 loans in the county that had 
less than 4,000 population in the entire county.
    So, I saw the positive benefits of the 502 interest credit, 
down to as low as 1 percent. And when you travel my district 
today, you can pick out those thousands of 24x40, 26x42 homes--
that may still be occupied by a son or a daughter, or a 
grandson or a granddaughter--that were built in the mid-1960's 
through the early 1980's.
    Then I saw a serious flip at USDA during the Clinton 
Administration, under the auspices of then-Vice President Gore, 
who did considerable downsizing.
    Now, what I see in the area that I represent--and I'm not 
critical of modular housing, because I think that there is a 
place for housing with modular homes--but today, unfortunately, 
because of the lack in rural areas--and the banks will tell you 
this is not the case, but I know better--but due to the lack of 
funding in rural areas, the ability of a young couple today to 
be able to access affordable housing is almost non-existent in 
small counties in rural Appalachia, and in the district that I 
represent.
    And as a result of that, we have denied them an opportunity 
that over 60 years ago we decided should be afforded to every 
American who lives in this country. If they want to achieve 
something in life, there is an option for you.
    I notice here that this Administration has proposed zeroing 
the 515 program, which is multi-family housing; it provides 
housing for elderly and the handicapped, in multi-units all 
across this country in rural America. I notice that 502, the 
single family direct loan program, has been zeroed out. I just 
can't imagine anyone who is a champion for rural America, and 
who works with at least the parts of those agencies that meant 
so much to rural America, could sit there and say, ``Mr. 
President,'' or, ``Mr. Whomever, this just isn't right.''
    So, what my hope is, is that you and others will champion 
what I believe is a dire need in rural America for at least an 
avenue to access funding for that 24x40 homes that so many 
people have moved into. I can remember a young high school girl 
that I spoke to when I was--is my time up?
    Chairwoman Waters. Yes.
    Mr. Davis of Tennessee. I remember speaking to a high 
school, and talking to these young children about what was 
available for them in that county. And this young girl said, 
``You mean my mama doesn't get a house?'' They lived in a 
small, substandard house, with what we would call tar paper on 
the outside of it.
    And she had a great deal of pride, because she was 
academically inclined, and later went on to college. And I went 
through the process there. She brought her mom and dad in, and 
helped walk them through the process of getting a house.
    For the first time in their life, they had a bathroom, 
running water, and were able to live out the rest of their 
lives in a good house. She, then, went on to college, and now 
has a a pretty prominent position in one of the major companies 
in Tennessee.
    We helped a lot of people in those days. I am seeing now an 
Administration, and champions like you of this Agency--and I 
don't mean to be harsh--not fighting for those people. And it 
really bothers me.
    Chairwoman Waters. Mr. Davis, if you like, you may respond.
    Mr. Davis. I would like to respond, both on the rental side 
and 502. I appreciate your history and experience, and I thank 
you.
    We are really proud of that history. I wish we could go 
back to the day when we could build 1,000 section 515 
properties in a year. Multi-family was a real production 
machine then. But it was also before the 1986 Tax Act, when 
much of that housing benefitted from tax benefits we don't have 
today. That is outside money gone. It was before the Credit 
Reform Act of 1992.
    If you look at the big drops in production, it came with 
those two Acts, because they effectively put the cost on 
budget. And right now, it costs us $100,000 a unit to build a 
515 property. I can rehab 5 units at $20,000 each, for the same 
amount of money. Or, we could house 25 people with vouchers. We 
have to make choices about where we put our money, and how we 
help the most families. And so, on the rental side, we believe 
that we have--
    Mr. Davis of Tennessee. And I hate to interrupt you, but 
you are saying if you're zeroing out 515, you don't have the 25 
per unit that you can rehab, if you're zeroing out in the--
    Mr. Davis. We have moved the money down to section 538, and 
to our revitalization programs and elsewhere, the idea being 
that 515 had simply become too expensive--
    Mr. Davis of Tennessee. Then--I'm sorry. Are you increasing 
538 by the $100 million, or are you just--
    Mr. Davis. We're increasing 538 by more than the number of 
units than we would have increased in 515, far more.
    Chairwoman Waters. Thank you very much. First of all, I 
need unanimous consent to have Mr. Lincoln Davis's 
participation in the committee today. Without objection, it is 
so ordered.
    [Laughter]
    Chairwoman Waters. And, also, unanimous consent to extend 
to Mr. Davis, on behalf of our ranking member, an additional 5 
minutes, relative to the CDBG program.
    Mr. Davis of Kentucky. I thank you, Chairwoman Waters. Just 
one question of clarification to Secretary Patenaude. I noted 
Mr. Davis and I have had discussions about best practices. I 
have had these discussions with Secretary Jackson, as well, at 
various times.
    And consolidating and streamlining processes to get a 
better return on investments and reduce overhead is a good 
thing to do, on the one hand. But the question that I have, and 
I think some other members on the panel have, as well, 
regarding the segmenting of those monies, if money were to be 
moved, for example, out of the program which is specifically 
earmarked, or designated, to meet rural housing needs, and were 
moved into CDBG, would that money be set aside, segmented, or 
earmarked specifically to be only used for granting in rural 
housing programs, or would it be--just go into the pool, and 
then the rural communities have to compete with the larger 
communities?
    The reason I'm asking is we have a rather gross difference 
between the amount of CDBG money that goes into our rural 
communities versus our urban areas. And I am a big CDBG fan, in 
terms of how it has helped our communities, but definitely 
there is a disparity of some magnitude.
    Ms. Patenaude. Thank you, Congressman. In the CDBG program, 
the dollars are allocated based on a formula. And we are 
requesting that Congress consider a formula revision with our 
CDBG reform package.
    The Administration does not support earmarks, and the 
funding for rural housing--
    Mr. Davis of Kentucky. Just as a point of clarification, I 
am not speaking of a legislative appropriation as an earmark--
that was probably a poor choice of words, in the current 
political climate--but money that would only be used for the 
task at hand here today. Go ahead.
    Ms. Patenaude. If the appropriation was increased, it would 
still have to be allocated, based on the formula.
    Chairwoman Waters. That's not the question.
    Mr. Davis of Kentucky. Yes, the question is would that--if 
that money were brought into CDBG, would that be protected, so 
that it could only be used for rural housing?
    Ms. Patenaude. If I may consult with the Director of CDBG?
    Congressman, if I could just re-state, maybe I wasn't 
clear. The CDBG program, all the dollars are allocated based on 
a formula. So if the money--if CDBG was increased by the $16.8 
million, it would have to go into the pot, and then it would be 
distributed, based on the formula. And it's a 70/30 split, 70 
percent goes to entitlement communities, 30 percent to States.
    So, without language in the appropriation, it would not, 
perhaps--
    Mr. Davis of Kentucky. So, for example, if it came--let's 
take Kentucky, for example, and some of our areas, and let's 
say that there is a change in administration at the--both at 
the Federal and at the State level, and perhaps there is more 
of an urban-centered focus than a rural focus on balancing 
that.
    So, hypothetically, if it went in there, it could be 
allocated to whatever--it wouldn't necessarily maintain that 
same ration on the funding, correct?
    Ms. Patenaude. The CDBG formula reform that we're 
proposing, it still is about a 70/30 split, and the States can 
determine how to spend their State allocation.
    Mr. Davis of Kentucky. Okay. And of that 70/30, I guess 
what I am coming back to is--maybe I should steal a line from 
Mr. Green for a moment, just for clarification on a yes or a 
no.
    I will yield to the gentleman, if he would like to take 
over this line of questioning for me, since he did it with much 
more eloquence than I am, at the moment.
    Perhaps, I guess, the question again is you say it's 
allocated by formula. Well, we all, not working in the Agency, 
I guess the formula of yes or no would be most appreciated.
    If you could just simply say that the money is, in fact, 
protected, that if we put--another organization's rural housing 
money were to be brought over into CDBG, and dropped in there, 
that that, in fact, could be protected, and would go only to 
rural housing, or it just goes for all of the competitors for 
those grants.
    Ms. Patenaude. The short answer is no. But if there was--
    Mr. Davis of Kentucky. Thank you.
    Ms. Patenaude.--specific language in the appropriations, 
that would be a possibility. But we would consider that an 
earmark.
    Mr. Davis of Kentucky. I yield to the chairwoman.
    Chairwoman Waters. Thank you very much. I think what the 
gentleman is saying is that if, in fact, funding for rural 
housing is thrown into--from HUD--is thrown into CDBG, that 
they would have to compete with the cities and everybody else, 
to try and get that money directed to housing, for rural 
housing.
    And that's what he was trying to ask you, and I think you 
attempted to answer that by saying unless there was some kind 
of special language, that that, perhaps, could not happen.
    But let me just say this, as I thank you for having been 
here. One of the things that we're going to say in this message 
that needs to go back is that urban and rural Members of 
Congress are going to team up. We, in the urban areas, 
understand what a housing crisis is, and many of the rural 
areas in America are worse off than some of the urban areas.
    We're going to team up, and we're going to get our CDBG 
money. We don't intend for it to be cut. And we don't intend 
for the rural housing to have to compete for their money in 
CDBG.
    So, we really do thank you for being here today, and I 
think it helps for me to give this message, because everyone 
should be alerted to that. We appreciate whatever you can do, 
as advocates for the poor, for housing, for rural housing. But 
we are determined that we are going to do what's right, and 
what's fair. Thank you for being here today.
    Ms. Patenaude. Thank you.
    Chairwoman Waters. Thank you. Okay, let me just say that 
the Chair notes that some members may have additional questions 
for this panel, which they may wish to submit in writing. 
Without objection, the hearing record will remain open for 30 
days, for members to submit written questions to these 
witnesses, and to place their responses in the record.
    Thank you, and we will call on our second panel. Okay, 
let's see. Mr. Davis, you have someone you would like to 
introduce on the second panel? Which Davis, Mr. Lincoln Davis? 
Mr. Davis? Thank you. Would you like to introduce one of our 
panelists?
    Mr. Davis of Kentucky. Yes, Madam Chairwoman.
    Chairwoman Waters. Okay.
    Mr. Davis of Kentucky. I just wanted to take one moment. 
It's always great when we can have somebody from back home who 
is in town to testify, especially when it's for a good cause, 
and a good reason.
    Frontier Housing is one of the organizations in the United 
States that makes a great difference in providing affordable 
housing, creative public/private partnerships, a great 
stewardship of money, and I think, most of all, at the end of 
the day, does two things that's both compassionate and 
conservative. It gives people opportunity and hope to have a 
dramatic change in their quality of life, while at the same 
time provides them a connection into a community, and to move, 
in many cases, folks into value-adding positions, becoming 
taxpayers, and really advancing our interests.
    And I just want to recognize Dr. Tom Carew, who is the 
director of design and community at Frontier Housing, and we 
are grateful to have you with us today.
    Chairwoman Waters. Thank you very much. Also serving on the 
panel today we have: Mr. Gideon Anders, executive director, 
National Housing Law Project; Mr. Moises Loza, executive 
director, Housing Assistance Council; Mr. Robert Rice, Jr., 
Council for Affordable and Rural Housing; and the Honorable 
Peter Carey, executive director, Self-Help Enterprises.
    I understand, Mr. Carey, you have to leave pretty soon, so 
we are going to call on you first. And let me just say that, 
without objection, your written statements will be made a part 
of the record. You will each be recognized for a 5-minute 
summary of your testimony.
    With that, I will call on Mr. Peter Carey.

   STATEMENT OF PETER CAREY, EXECUTIVE DIRECTOR OF SELF-HELP 
 ENTERPRISES, ON BEHALF OF THE NATIONAL RURAL HOUSING COALITION

    Mr. Carey. Thank you, Chairwoman Waters, and members of the 
committee. It is an honor to be here. My name is Peter Carey, 
and I am executive director of Self-Help Enterprises. I am here 
today as a board member and past president of the National 
Rural Housing Coalition, NRHC, a national membership 
organization that advocates for Federal policies which improve 
housing in rural America. Thank you for this opportunity.
    As a long-time member of NRHC, Self-Help Enterprises is a 
non-profit housing and community development organization 
located in California's San Joaquin Valley. Home to as many as 
half of California's farm workers, the valley is characterized 
by the same problems facing much of rural America: low incomes; 
high poverty rates; substandard housing; and unsafe drinking 
water.
    In the past 42 years, Self-Help Enterprises has built 
thousands of affordable homes for farm workers and other low-
income households, and brought safe drinking water to 10,000 
households. These achievements are mirrored in the work of NRHC 
members across the country in rural America.
    While these efforts tap local initiative and resources, in 
the majority of cases it's the U.S. Department of Agriculture 
which supplies the critically needed and locally responsive 
funding that makes these achievements possible.
    America's rural communities continue to suffer with 
elevated poverty rates and substandard housing. Rural 
households are poor, on average, when compared to urban 
households, and they pay more of their income for housing. 
Congress and the Administration have already made substantial 
cuts in rural development spending, reducing Federal spending 
for rural housing and community development programs by more 
than 20 percent in the last 6 years.
    Now, this Administration's fiscal year 2008 budget takes 
square aim at the programs that are so critical to the future 
of rural America. It proposes to replace the current effective 
mix of housing loans, grants, and related assistance with 
guaranteed loans, which do not hit the same target. This 
configuration will devastate our efforts, and those of other 
organizations across the country to improve rural housing.
    The President's budget proposes the elimination of section 
515, the fourth consecutive year that USDA has not requested 
funds. NRHC supports section 515 at a level of at least $100 
million.
    The budget slashes farm labor housing loans and grants 
authorized under sections 514 and 516, the only two Federal 
housing programs directed towards farm workers. The NRHC 
supports funding each of these two, 514 and 516, for at least 
$50 million.
    The fiscal year 2008 budget eliminates the section 502 
direct program in favor of guaranteed loans for homeownership. 
There is substantial evidence that this approach will not 
provide the assistance for low and very low-income homeowners, 
who are now helped by the direct program. The average annual 
income of borrowers under 502 direct is $18,500. The average 
annual income of guaranteed loans is $40,000. NRHC proposes 
funding for section 502 at $1.2 billion.
    One of the most successful rural housing programs is mutual 
self-help housing program, which combines the section 502 
direct with the section 503--523 technical assistance funding. 
This proposal in the budget proposes a reduction of 70 percent 
in the self-help housing program. Self-help housing makes homes 
affordable, by enabling homeowners to join together, pool their 
labor, and build homes for themselves and their neighbors, 
together.
    The grant funds are used to assist in applying for 502 
direct loans, provide pre-purchase homeownership education, and 
most importantly, to supervise the construction of homes. The 
average number of homes built in recent years is approximately 
1,500 a year. Driven by a desire for homeownership, these 
families perform 65 percent of the construction labor, working 
evenings and weekends, through winter cold and summer heat. 
These home builders know what it takes to make a home in a way 
that no home buyer ever can, and they understand what sweat 
equity means.
    And it works, despite the fact that self-help families have 
lower incomes than others receiving section 502 loans. Default 
and delinquency rates for these families are lower. And some 68 
percent of the participants in self-help housing are minority 
households. This success in serving minority households led 
USDA to commit to a doubling of self-help housing as one of the 
elements of its five-star commitment to increasing 
homeownership. Paradoxically, this budget proposes a 70 percent 
reduction, a strange reaction to success.
    The proven success of the self-help model, and the momentum 
built in recent years, made it difficult for RHS to keep track 
of the funding. Only $34 million is available to refund grants 
expiring in 2007, and there is a need for $60 million. NRHC is 
supporting a funding level of $60 million for fiscal year 2008.
    We acknowledge the leadership role that Congressman 
Hinojosa, Chairwoman Waters, Chairman Frank, and other in the 
Financial Services Committee have taken in opposing these 
budget cuts. These programs have a proven track record of 
success.
    I would like to mention that we also support two bills 
introduced by Congressman Hinojosa: H.R. 1982, the Rural 
Housing Economic Development Improvement Act of 2007; and H.R. 
1980, the Housing Assistance Council Act of 2007. These 
represent significant and important resources to rural America, 
and I appreciate his support.
    Thank you for the opportunity to be here today.
    [The prepared statement of Mr. Carey can be found on page 
56 of the appendix.]
    Chairwoman Waters. Thank you very much for your testimony.
    Next, I am going to call on Mr. Gideon Anders, from the 
National Housing Law Project.

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

    Mr. Anders. Thank you, Chairwoman Waters, and members of 
the committee, for inviting me to testify. I am Gideon Anders, 
executive director of the National Housing Law Project, the 39-
year-old nonprofit corporation that seeks to advance housing 
justice for low-income persons by, among other things, 
preserving and increasing the supply of decent and affordable 
housing.
    We testified before this committee last year on H.R. 5039, 
and we appreciate the opportunity to testify again. Our 
testimony today focuses primarily on the preservation of rural 
housing service, rural rental housing stock, and the protection 
of residents of that housing. Our views and comments are shaped 
by the fact that the section 515 housing stock effectively 
serves the neediest rural households, including seniors, 
persons with disabilities, and persons of color.
    Frequently, the section 515 stock is the only available 
affordable rental housing that is decent, safe, and sanitary. 
As we testified last year, the National Housing Law Project 
strenuously opposes the Administration's efforts to lift the 
ELIHPA pre-payment restrictions, because it would allow the 
conversion of section 515 housing units in communities that 
have the greatest need for such housing, and will cause a 
displacement of at least 73,000 persons, and will have a severe 
and adverse impact on minority housing opportunities.
    Rural communities in which real estate prices and rents 
have escalated simply do not have other decent, safe, and 
affordable housing. California, my home State, and yours, 
Congresswoman Waters, is a good example. We and other housing 
advocates in the State expect that, typically, or that, 
practically, the entire 18,000 units of section 515 housing 
stock in the State will be pre-paid, if the pre-payment 
restrictions are lifted.
    While the impact of lifting the pre-payment restrictions 
may be the greatest in California, we believe that other 
States, such as North Carolina, Florida, and Georgia, to name a 
few, will also be adversely impacted.
    If I may digress for a minute, let me just point out--and 
this is to point out that not a single court in the 20 years 
that the legislation has been in effect, not a single court, 
has held the ELIHPA pre-payment restrictions unconstitutional. 
In fact, the case that Russ Davis earlier mentioned, Kimberly 
v. the United States, has, in fact, been restricted by the 
ninth circuit last November in a case that we are involved with 
out of Oregon.
    So, the calamities that are being threatened are really 
not, in fact, turning out to be true. Moreover, what is very 
important, the Administration is about to settle a large damage 
case brought by the owners of the RHS 515 housing stock. What 
the Administration is not telling you is that, in fact, by 
settling this litigation, it is also preserving the units. 
Every owner who is getting damages out of that litigation is 
committed to remaining in the program for an additional 20 
years. So the damages are, in fact, preserving those units, and 
it is not simply money that is going down the drain to pay the 
owners for the preservation.
    Let me go on for a minute to deal with the voucher program. 
The demonstration voucher program, in some respects, has not 
worked. And the way the Administration is, in fact, promoting 
the program, it is because it has been cutting the cost of the 
voucher program at every opportunity that it can. It is not 
operating like the HUD-enhanced voucher program, the vouchers 
are not remaining in the communities in which the residents--in 
which the housing is being pre-paid.
    The residents of the 515 stock are not being given a clear 
right to remain in their homes with vouchers, and there are 
other shortcomings in the voucher programs. They should be 
fully portable; they are not currently fully portable. The 
voucher must be adjusted annually, to accommodate rent and 
utility cost increases imposed by utilities companies, and the 
residents should be eligible for vouchers no later than the 
date that their landlord refuses incentives to remain in the 
program, and at least 90 days before the scheduled pre-payment 
date.
    We also ask that the committee consider including in the 
preservation legislation something to deal with RHS troubled 
projects. The Agency currently has no mechanism for dealing 
with troubled projects, other than foreclosing on them, and 
seeing that the residents are displaced. They are not even 
eligible for vouchers.
    We support a strong program for revitalization and 
restructuring, and believe that it is critical to ensuring the 
section 515 housing stock will continue to serve the needs of 
long-term housing and communities in the future.
    However, we are concerned whether the Agency has a capacity 
to run a restructuring program, whether it has the staffing. 
Moreover, we are concerned that, in many respects, the proposal 
of the restructuring and the revitalization program are simply 
too expensive. There are ways in which the costs of that 
program can and should be reduced. Similarly, we urge the 
maintenance of the 30 percent of income requirement with 
respect to rents in the projects.
    If I may conclude, I want to simply endorse Congressman 
Hinojosa's bill--H.R. 1980--which supports the funding for the 
Housing Assistance Council, and I also endorse the continued 
funding of the Rural Housing Economic Development Program.
    And I think, if I may later on discuss the RHS budget, 
frankly, I think in many respect it is a disaster. It does not 
take into consideration a lot of historical programs that have 
been in effect, in which this Administration is trying to 
replicate, even though they have not worked in the past.
    [The prepared statement of Mr. Anders can be found on page 
32 of the appendix.]
    Chairwoman Waters. Thank you very much. I am going to call 
on the other members of this panel. There are three votes that 
are being called on the House Floor. If you can summarize your 
testimony, we may have time for a question or so, if you can do 
it quickly. And that way, we won't have to ask the members to 
come back, because 9 times out of 10, they won't get back here 
after those votes.
    So, let me quickly go to Mr. Tom Carew.

STATEMENT OF THOMAS A. CAREW, DIRECTOR OF DESIGN AND COMMUNITY, 
                     FRONTIER HOUSING, INC.

    Mr. Carew. Madam Chairwoman, Congressman Davis, and members 
of the committee, thank you for this opportunity.
    Quickly, since we are compressed for time here, I want to 
talk specifically about the 502 direct program. I have 
included, as part of my testimony, some charts. There is an 
excel spreadsheet in there, which clearly indicates that, for 
the area that I work, in northeastern Kentucky--9 counties, 3 
of those counties in the top 100 poorest counties in America, 
there is no way that the guaranteed program can work.
    A family at 50 percent of median in those counties can 
afford $476 a month for housing. In a guaranteed loan, it's 
going to cost them $823 a month, so we're not quite a $400 
difference. We really need the direct program. It works. You 
can see, from another chart in my testimony, listing the amount 
of USDA 502 money that has been spent in 9 counties of my 
service area, how important this program is. You're going to 
take the backbone away of what it is we do, and who it is we 
serve, without 502.
    I also want to support the HAC bill. HAC is crucial to who 
we are, and where we've come from. They have been a key player, 
as one of the national intermediaries, and I hope that you will 
consider funding the HAC bill.
    On the 515 program, there are many provisions of the bill 
that Mr. Davis introduced last year, with Congressman Frank, 
that have a positive approach to restructuring 515. We 
certainly support that side of it. We want to make sure that we 
protect the tenants, and I think that those are the key points.
    [The prepared statement of Mr. Carew can be found on page 
44 of the appendix.]
    Chairwoman Waters. Thank you so very much for summarizing 
your testimony.
    Mr. Loza.

     STATEMENT OF MOISES LOZA, EXECUTIVE DIRECTOR, HOUSING 
                       ASSISTANCE COUNCIL

    Mr. Loza. Thank you, Madam Chairwoman. We are very happy to 
appear before this committee, and we thank you for the 
opportunity. My name is Moises Loza, and I am the executive 
director of the Housing Assistance Council, a national 
nonprofit organization whose mission is to improve housing 
conditions for low-income rural Americans.
    We were established over 35 years ago to provide financing, 
information, and technical services to non-profit, public, 
local governments, and other providers of rural, low-income 
housing.
    Let me begin with a brief overview of the condition of 
housing in rural America. In some respects, the quality and 
condition of rural housing has improved greatly over the last 
few decades. Substandard housing rates have declined 
dramatically since the 1970's, and mortgage credit is more 
readily available.
    Despite these improvements, other housing problems persist. 
There is a growing affordability concern, particularly among 
rural renters. Rural areas are becoming increasingly diverse, 
with immigration and other population shifts, causing us to 
look at how we do rural development differently.
    Currently, less than 16 percent of the rural population are 
minority; however, 37 percent of the cost burdened and 
substandard housing are occupied by minorities. There are 
several rural housing programs that tackle these issues and 
conditions, and the Administration is proposing to either cut 
them or reduce them drastically.
    Other witnesses have talked about the direct 502 program. I 
think what's important to say is that it has made it possible 
for over 2 million low-income and very low-income Americans, 
rural Americans, to become homeowners because of this program. 
Others have also talked about the 523 program. About 68 percent 
of the participants in the self-help housing program are 
minorities. And of the self-help housing participants, their 
default and delinquency rates are lower than the non-self-help 
housing participants. Very, very important information, Madam 
Chairwoman.
    The Administration proposes no funding for section 515. The 
515 program serves families whose incomes average less than 
$10,000 a year; nearly 60 percent of them are elderly or 
disabled, so preservation of this housing stock is very 
important.
    The Housing Assistance Council is collaborating with the 
Council on Affordable and Rural Housing, the National Housing 
Law Project, the National Rural Housing Coalition, and others, 
because we want to devise and find a way to preserve these 515 
units.
    Now, I want to talk briefly about the rural housing and 
economic development program in HUD. Assistant Secretary 
Patenaude, I think, shared with us some of the figures that 
show that this is a program that serves the poorest of the 
poor. Rather than statistics, let me give you three examples of 
how this money is being used.
    The Ogalala Sioux Tribe Partnership for Housing used its 
grants on the Pine Ridge Reservation in Shannon County, Dakota. 
This is one of the poorest counties in the Nation. Its grants 
have been used to provide critically needed housing counseling, 
and to capitalize a loan fund for mortgage financing and 
economic development. The Azteca Community Loan Fund, which 
operates in Hidalgo County, Texas, used its grants to develop 
and deliver financial literacy training, specific to the 
families in Colonias. These are families whose incomes go as 
low as $6,000 a year.
    And with an RHED grant, Kentucky Mountain Housing, which 
serves rural Appalachia, was able to purchase acres of land, a 
truck for hauling materials, and update its training curricula 
and material.
    Chairwoman Waters. I'm sorry, I am going to have to ask you 
to cut it short. I want to hear from Mr. Rice also, who has 
been waiting, before these members leave us.
    Thank you very much, Mr. Loza. We have your examples.
    Mr. Loza. Yes, thank you very much, Madam Chairwoman.
    [The prepared statement of Mr. Loza can be found on page 72 
of the appendix.]
    Chairwoman Waters. Please, Mr. Rice.

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

    Mr. Rice. Thank you, Chairwoman Waters, and members of the 
committee. You have my written statement, so I will be brief 
and just highlight how we feel.
    I am the president of the Council for Affordable Rural 
Housing, and the Council supports H.R. 1980 and 1982, as the 
rest of the panel does. We also would support at least the 
funding that section 515 and section 502 had last year.
    We are very concerned about rental assistance going to one 
year, because we have been told the numbers show that in the 
next couple of years that number, when we're renewing every 
year, will be over $1 billion, and we're not certain where that 
money is going to come from.
    We are in favor of the revitalization bill that was 
proposed last year, and we would certainly be in favor of it 
again. But we feel that all of the apartments, at some time, 
will be able to use this program; that's 17,000 units. And we 
don't think that rural development has the staff to handle 
that, and we would like them to have the ability to 
subcontract, for people to help with that processing.
    We are very happy with the demo program. We think that's 
working very well, and it just shows that the revitalization 
bill would work.
    Also, one other thing that we're concerned about that is 
not actually before this committee, but we think it would help 
preservation a lot, if exit tax relief was passed. Thank you.
    [The prepared statement of Mr. Rice can be found on page 84 
of the appendix.]
    Chairwoman Waters. Thank you so very much for honoring our 
request to be concise with your testimony.
    Mr. Davis--both Mr. Davises--I think there was some 
question about the voucher program. Somebody thought it worked, 
somebody thinks it does not work. Do you have a question about 
the voucher program that you wanted to share? Did you have a 
question about the voucher program?
    Mr. Davis of Kentucky. I think we can pick this up in 
additional correspondence with the agencies.
    Chairwoman Waters. Yes, Mr. Davis?
    Mr. Davis of Tennessee. Each of you who are providing 
advice, counsel, assistance, directing many low-income 
individuals toward affordable housing, without the direct 
lending program, nothing exists, and that has to be fixed.
    Mr. Anders. I fully agree.
    Chairwoman Waters. Well, I would like to thank all of you 
for coming to this hearing, and I am sorry that we had to 
shorten our hearing a bit. But your testimony has been very, 
very important, and I think it's important for me to say to 
you, so that at least you can go home knowing, that there are a 
lot of people here fighting for you on both sides of the aisle. 
We understand exactly what you have said today.
    It's clear to us what the Administration has done. And we 
believe that people in rural America should have the 
opportunity for better housing. And those of us from the urban 
areas are going to fight just as hard for rural America as we 
fight for urban America.
    Thank you all for being here today. This meeting is 
adjourned.
    [Whereupon, at 3:53 p.m., the hearing was adjourned.]


                            A P P E N D I X



                              May 8, 2007

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