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



 
                      H.R. 647, THE MARK-TO-MARKET

                         EXTENSION ACT OF 2007

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

                                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

                               __________

                            OCTOBER 23, 2007

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-73



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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               THADDEUS G. McCOTTER, Michigan
JIM MARSHALL, Georgia
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:
    October 23, 2007.............................................     1
Appendix:
    October 23, 2007.............................................    25

                               WITNESSES
                       Tuesday, October 23, 2007

Anthony, Amy, President and Executive Director, Preservation of 
  Affordable Housing, Inc........................................    13
Faith, Bill, Executive Director, Coalition on Homelessness and 
  Housing in Ohio................................................    17
Foster, Paula, Vice President Western Region, National Alliance 
  of HUD Tenants.................................................    18
Malynowski, Sheila, President, National Leased Housing 
  Association, and President of Preservation Management, Inc.....    15
Toon, Theodore K., Deputy Assistant Secretary, Office of 
  Affordable Housing Preservation, U.S. Department of Housing and 
  Urban Development..............................................     5

                                APPENDIX

Prepared statements:
    Anthony, Amy.................................................    26
    Faith, Bill..................................................    47
    Foster, Paula................................................    50
    Malynowski, Sheila...........................................    59
    Toon, Theodore K.............................................    66

              Additional Material Submitted for the Record

Waters, Hon. Maxine:
    Letter from the California Housing Partnership Cororation....    70


                      H.R. 647, THE MARK-TO-MARKET



                         EXTENSION ACT OF 2007

                              ----------                              


                       Tuesday, October 23, 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 p.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the subcommittee] presiding.
    Members present: Representatives Waters, Cleaver, Green; 
Capito, and Neugebauer.
    Chairwoman Waters. This hearing of the Subcommittee on 
Housing and Community Opportunity will come to order. Good 
afternoon, ladies and gentlemen.
    I would like to thank Ranking Member Shelley Moore Capito 
and the members of the Subcommittee on Housing and Community 
Opportunity for joining me for today's hearing on H.R. 647, the 
Mark-to-Market Extension Act of 2007.
    I would like to start by noting that, without objection, 
all members' opening statements will be made part of the 
record. I am looking forward to hearing from our two panels of 
witnesses on the mark-to-market mortgage restructuring program.
    As we learned last week in a hearing on project-based 
Section 8 and the importance of timely and sufficient payments 
to participating owners, project-based Section 8 is a critical 
part of the affordable housing continuum. Project-based Section 
8 allows us to meet the affordable housing needs of families in 
urban and rural areas, especially the elderly, persons with 
disabilities, and those who are trying to get back on their 
feet after being homeless.
    Indeed, without this program, many communities would not 
have units targeted to these families. The program helps us to 
keep project-based units in our inventory at a reduced cost to 
the Federal Government, while protecting tenants who would 
otherwise be--without mark-to-market restructuring.
    The mark-to-market program works by allowing the owners of 
project-based Section 8 properties with FHA-insured mortgages 
to mark their rents to market. This means that owners who have 
been charging above-market rents can lower their rents to those 
that are more comparable to rents charged in the local housing 
market.
    In addition to saving valuable Federal resources, the 
program ensures that these properties are more competitive, are 
more financially sound, and better for tenants in the long run. 
Because the mark-to-market program requires owners with 
restructured mortgages to keep their units affordable for low-
income renters for at least 30 years, the program secures 
affordable housing for the long term.
    Through mid-2006, almost 250,000 units and over 3,200 
properties remained affordable as a result of the mark-to-
market program. Given the importance of this program in 
maintaining our affordable housing stock, I was pleased to 
introduce H.R. 647, ``The Mark-to-Market Extension Act of 
2007,'' with Financial Services Committee Chairman Barney Frank 
and Representative Deborah Pryce of Ohio.
    This bill would assist us in our goal of preserving the 1.3 
million project-based Section 8 units currently housing low-
income families. Although the extension of the mark-to-market 
program has already been addressed in H.J. Res. 20, H.R. 647 is 
still needed, because it reforms the program, so that more 
properties can take advantage of its restructuring features.
    First, H.R. 647 would build upon the success of the mark-
to-market program by expanding eligibility to include 
properties with rents that don't exceed the average per-unit 
rent of comparable units in the same area.
    I am aware of concerns that have been raised about this 
provision, especially concerns that allowing properties that do 
not have below-market rents to restructure under mark-to-market 
could impact Section 8 renewal policy. I am interested to hear 
the views of our witnesses on this provision.
    Second, the bill also takes into account the impacts of 
natural disasters on affordable housing. As we saw in the 
aftermath of Hurricane Katrina, thousands of project-based 
units were severely damaged or destroyed. By allowing disaster-
impacted properties eligible for a mark-to-market program to 
set their restructured rents at 100 percent of the fair market 
rent, instead of the usual 90 percent of the fair market rent, 
these properties will be able to recover from the effects of 
disasters.
    Also, since the rent is at 100 percent of fair market rent, 
it remains competitive with other local rents, and accessible 
to lower income families.
    Finally, the bill increases the percentage of mortgages 
that can have exception rents or rents up to 120 percent of the 
fair market rent from 5 percent of all mortgages to 9 percent 
of all mortgages. This change is especially necessary, in light 
of concerns that the department is already within a few hundred 
units of meeting the 5 percent cap, and may actually reach this 
cap before the end of this calendar year.
    During this congressional session, this subcommittee has 
examined the different terms and resources needed at the 
Federal, State, and local level to preserve and expand on our 
supply of affordable housing. We quickly identified the mark-
to-market program as one of these tools, introducing H.R. 647 
earlier on in the 110th Congress. I am pleased to note that the 
Administration also agrees with us on the importance of this 
program, and maintaining our inventory of affordable housing 
units.
    I look forward to hearing the witnesses' views on this very 
important topic, and I would now like to recognize Ranking 
Member Capito for her opening statement.
    Mrs. Capito. I would like to thank Chairwoman Waters for 
holding this hearing, and I would like to express my 
appreciation to the witnesses today for coming to talk about 
the Mark-to-Market Extension Act. I will ask unanimous consent 
to submit my full statement for the record.
    But just briefly, I would like to also take an opportunity 
to thank Chairman Frank and Congresswoman Pryce for all of 
their work on this important program. As you will recall, we 
passed this bill last year, as it was introduced by 
Congresswoman Pryce in the 109th Congress, H.R. 6115, ``The 
Mark-to-Market Extension Act of 2006,'' by a vote of 416 to 1. 
So we might not have too much controversy here, and that is a 
good thing.
    As the chairwoman has said, this mark-to-market program was 
created in 1997 to reduce the cost to the Federal Government of 
renewing Section 8 contracts. An examination of the FHA 
portfolio found that nearly 10,000 properties were also 
receiving Section 8-based rental assistance, and their rents 
were higher than the rents of comparable, unassisted rental 
units in the same area. Also, many of these projects were 
discovered to be financially and physically distressed.
    Under this new program, or extension program, Section 8 
owners are screened to see if their programs are economically 
viable and in good physical condition. If selected, the owners 
work together with participating administrative entities to 
develop a rental assistance program for development. All 
eligible owners are allowed to participate in the mortgage 
restructuring plan. And in exchange for debt restructuring, 
owners must agree to keep the property affordable--which I 
think is the crux of this--for low-income tenants for at least 
30 years.
    This restructuring, when completed, saves the Federal 
Government money by extending affordable housing units for 
future generations. Madam Chairwoman, I appreciate you holding 
this hearing today, and hope that we can expedite consideration 
of H.R. 647, ``The Mark-to-Market Extension Act of 2007,'' to 
ensure that HUD will continue to have the tools necessary to 
not only save Federal dollars, but most importantly, to 
preserve critical affordable housing resources.
    I look forward to the hearing, and I yield back the balance 
of my time.
    Chairwoman Waters. Thank you very much, Ranking Member 
Capito, and I want to thank you for your presence. This is a 
very active subcommittee, and I know it is drawing on a lot of 
your time, but I do appreciate your attendance at each hearing.
    And the same thing is true of Mr. Cleaver, whom I would 
like to recognize for a 3-minute opening statement, for his 
presence always at these committee hearings. Thank you so very 
much, Mr. Cleaver.
    Mr. Cleaver. Thank you, Madam Chairwoman, and Ranking 
Member Capito. This, I believe, is a critically important 
hearing. And it relates to a very valuable proposal, H.R. 647, 
``The Mark-to-Market Extension Act.'' Under your leadership, 
Madam Chairwoman, as well as the chairman of the Financial 
Services Committee, Chairman Barney Frank, previously 
voiceless, disenfranchised poor people in need of affordable 
housing now have champions. And I think that includes our 
ranking member, Ms. Capito.
    And so, today, we will receive some testimony from the 
Administration's housing advocates. And I have to say that last 
week's hearing captured the fact that multi-family owners 
operating on project-based Section 8 contracts have been 
experiencing widespread Section 8 funding shortages.
    And housing--the House Financial Services Committee staff 
indicated that HUD realized that they had a funding problem in 
February of 2007, and yet there were no attempts to address 
this problem at least until August, which has just confused me. 
I cannot understand why there wasn't some urgency to that 
program.
    And the hope is that today, as we get into discussing the 
mark-to-market program, we won't stumble upon any unnecessary 
delays. I am always concerned when it appears as if poor people 
always end up being placed in a position where they are simply 
not that important.
    And so, I appreciate your presence here, and I look forward 
to raising some questions later on during the hearing. Thank 
you, Madam Chairwoman.
    Chairwoman Waters. You are certainly welcome. Also, I would 
like to thank you, Mr. Green. You are always here, and I know 
this is a drain on your time, but I thank you for your 
participation in this.
    Mr. Neugebauer came in? Oh, there you are. Mr. Neugebauer 
before Mr. Green. Thank you for being here. You too, are a 
regular participant in these hearings, and I just want to thank 
you, too, because I know this is a very active subcommittee, 
and it takes a lot of your time. But I thank you for all that 
you have added. And now we will recognize you for an opening 
statement.
    Mr. Neugebauer. Not at this time.
    Chairwoman Waters. Not at this time? All right, thank you. 
We are back to Mr. Green. Thank you very much, Mr. Green, for 
being here. And I recognize you for 3 minutes.
    Mr. Green. Thank you very much for your leadership, Madam 
Chairwoman, and it is an honor to serve with you at the helm. I 
thank the ranking member, as well, for her leadership, and also 
our full committee chair and ranking member.
    I am exceedingly pleased to associate myself with the 
comments of the chairwoman, and I look forward to the mark-up 
of the bill.
    I do have one concern that I will try to address today, to 
the extent that we can, and it has to do with the technical 
assistance for tenant organizations. I understand that OTAG, 
which is the outreach and technical assistance grants, along 
with ITAG, which is the intermediary technical assistance 
grants, there is an effort to replace this with TRIO, the 
tenant resources information outreach program.
    And I am interested in knowing where we are with this. The 
organizations that monitor these activities, the tenant-based 
organizations, and the consumer advocacy groups, are very much 
concerned about the money that is to go toward this technical 
assistance. My understanding is that we are sort of in a hiatus 
right now, and I would like to know how we will extricate 
ourselves from the hiatus.
    So, I thank you for being here, sir, and I thank the 
ranking member, and of course my chairwoman, for having this 
most important hearing. And I yield back.
    Chairwoman Waters. Thank you very much. I would now like to 
introduce our first panel. I would like to ask Mr. Theodore 
Toon to be prepared to share his testimony with us. Mr. Toon is 
the Deputy Assistant Secretary at the Office of Affordable 
Housing Preservation for the United States Department of 
Housing and Urban Development.
    Without objection, your written statement will be made a 
part of the record. And now you will be recognized for a 5-
minute summary of your testimony. Welcome, Mr. Toon.

  STATEMENT OF THEODORE K. TOON, DEPUTY ASSISTANT SECRETARY, 
 OFFICE OF AFFORDABLE HOUSING PRESERVATION, U.S. DEPARTMENT OF 
                 HOUSING AND URBAN DEVELOPMENT

    Mr. Toon. Thank you, Chairwoman Waters, Ranking Member 
Capito, and all the members of the subcommittee, for inviting 
me here today to testify on ``The Mark-to-Market Extension 
Act.''
    The preservation of affordable housing continues to be a 
top priority for Secretary Jackson, Commissioner Montgomery, 
and the Department of Housing and Urban Development.
    The mark-to-market program was originally created by 
Congress in 1997. It was extended in 2001, and again in 2007, 
now through 2011. HUD contracts with private owners of rental 
properties to ensure units for occupancy by low-income 
residents. When those contracts expire and are renewed, if the 
contract rents are above comparable market rents, mark-to-
market reduces those rents to market levels in the renewal of 
the contract. By bringing Section 8 rents into line with the 
market, HUD controls Section 8 costs, and maximizes the number 
of families that can be assisted through these housing 
programs. The bill that you have introduced proposes 
modifications to the mark-to-market program.
    Over the past 9 years, HUD has successfully balanced the 
dual mark-to-market goals of reducing the Section 8 subsidy 
costs while preserving much-needed affordable housing. Today, 
we have preserved 2,300 properties around the country with over 
200,000 affordable housing units. And in doing so, we have 
promoted the long-term physical and financial viability of 
these properties. The program has generated savings totaling 
over $2.1 billion to HUD and the American taxpayer.
    Not all the property can or will be preserved. While 
preservation is a primary goal of the program, Congress has 
made it clear that prudent use of limited resources is equally 
important. HUD has taken this charge seriously. There have 
been, and will continue to be, properties that simply cannot be 
responsibly preserved. These projects may be too expensive, 
functionally obsolete, or may be located in markets with ready 
availability of replacement housing.
    In other situations, properties that the Department 
believes should go through restructuring cannot enjoy those 
benefits because the owner refuses to accept the terms and 
restructure. In these cases, HUD makes the determination that 
the project is infeasible. These are difficult decisions for us 
to make, and they are made in consultation with our local field 
office, the residents, and the community.
    These properties are closely monitored to allow for early 
intervention, in the event that they begin to fail. And they 
retain their eligibility to come back in for a restructuring, 
and many, in fact, do so.
    By preserving affordable housing in all 50 States and the 
District of Columbia, including long-term use agreements 
through which the properties are preserved as affordable for at 
least 30 years, we have provided stability for many low-income 
families, and for their communities. This is a win-win 
situation.
    Beyond those properties that are currently assisted through 
mark-to-market are other preservation needs. And that brings us 
to the discussion before us today, which is the modification of 
the mark-to-market legislation. While the Administration has 
not taken a formal position on H.R. 647, and is still analyzing 
the budgetary impacts, I can discuss the likely programmatic 
impact of these legislative proposals.
    The first is exception rents. For projects that cannot be 
preserved at market rents, but provide desperately needed 
housing, Congress provided authority to use above-market, or 
exception rents. The estimated need for this authority was 
based on projections made 10 years ago, and that has served us 
well until now.
    While HUD has exercised prudent discretion in using this 
authority, only in the cases where it is absolutely necessary, 
we are today within a couple of hundred units--not buildings, 
but a few hundred apartment units--of that cap, and we expect 
to hit it before the end of the year. The proposal to increase 
that cap from 5 percent to 9 percent of the portfolio would, by 
our projections, allow HUD to continue to use this authority 
through the sunset of the program in 2011.
    The second modification deals with at-market or below-
market properties. Extending mark-to-market eligibility to 
these projects, at the owner's option, will make eligible 
approximately 1,500 properties over the next 4 years. And the 
profile of these projects illustrates the need for a 
restructuring in many cases. Over half of the projects have at 
least one trouble indicator, either in physical condition or 
financial health. And these are the best statistical predictive 
measures of a future default.
    By requiring that the cost of such a restructure be less 
than the cost of a default on the property, the proposed 
language would charge my office with ensuring that we continue 
to exercise fiduciary responsibility in implementing these 
preservation efforts.
    The third provision would allow HUD to utilize the 
restructure tools of mark-to-market toward the repair or 
rebuilding of properties that are damaged or destroyed in 
presidentially-declared disaster areas.
    The final modification extends the period of eligibility 
for nonprofit purchasers requesting debt relief to 5 years. To 
date, we have completed 57 such transactions, with debt relief 
totaling over $85 million. Today, nearly three-quarters of our 
closed portfolio is now beyond the reach of this type of 
transfer. The proposed change would make over 1,000 properties 
eligible for acquisition by nonprofit owners.
    In conclusion, on behalf of Commissioner Montgomery, I want 
to thank you for affording us the opportunity to testify today 
on this legislation. Congress's intent in creating and twice 
extending the mark-to-market program was to preserve housing 
and save money. The program has been successfully implemented, 
resulting in the restructuring of over 200,000 affordable 
housing units around the country, improving the lives of tens 
of thousands of the low-income families who call these units 
home.
    Thank you, and I stand prepared to answer any questions you 
may have.
    [The prepared statement of Mr. Toon can be found on page 66 
of the appendix.]
    Chairwoman Waters. Thank you very much for your testimony, 
and I will recognize myself for 5 minutes. First, I would like 
to share with you my general thinking about this mark-to-
market, and about the subcommittee hearing that we had last 
week, relative to the late payments of the project-based 
housing assistance payments.
    This committee is concerned about the fact that we have 
lost Section 8 project-based units over the last several years. 
Someone gave me a figure of about 300,000; that is a lot of 
units. We don't want to lose any more, and we don't want to 
squeeze the owners.
    Their payments are late. We discovered how you do it, and 
that you are basing the payments on the fiscal year, rather 
than the full year, and you are making owners wait not only for 
those 3 months that are not calculated for the full year, but 
in addition to that, you have technology problems that cause 
late payments. And this makes it very difficult in trying to 
maintain those units.
    So, on the one hand, you cannot talk about repair and 
keeping the units in proper condition, when the payments are 
not getting to the owners on time for them to make those 
investments in the units, and they are not being paid the 
proper amounts.
    I am not interested in mark-to-market driving down the 
rents. We are interested in better market rents. And we would 
hope that we don't get a lot of complaints from our owners, 
that: First, they are being unfairly negotiated with; second, 
their payments are not being made in a timely way again; and 
third, they're not being negotiated with in a way that would 
help them to restructure their debt, so they can continue to 
provide these units.
    We wish to have a happy scenario, where we will learn that 
you have not only helped to realign these rents so that they 
are truly market, whether they were above or below, that the 
owners are getting paid on time, that we're not losing 
properties, and that the monies are timely in such a way that 
they can invest in the rehabilitation and the upkeep of these 
properties. We don't want to keep fighting with HUD about all 
of this.
    So, can you tell me, what problems do you anticipate? What 
problems have you run into before? Have you had owners who say 
that you're not calculating the market rents properly? Do you 
have owners who say that they're in locations where there are 
not a lot of units available, and that they are doing 
everything that they can to provide you with these units, and 
they should not have to--they should be over the market rates? 
Tell me what kind of problems you encounter.
    Mr. Toon. Sure. We have certainly heard, in various cases 
from owners, all of the concerns that you have raised. I think 
it is important to point out that the restructuring process is 
a transparent process.
    So, at every step of the process where we are collecting 
physical data--we go out and do a physical inspection of the 
property--that information is shared with the owners and the 
residents, so that we can fully understand the physical needs. 
On the financial side, we send out an independent appraiser to 
do an appraisal of the market, and determine what the market 
rents are. Again, that is transparent, and that is shared with 
the owner.
    So, if they have concerns about the comparable properties 
that have been selected, or adjustments that have been made, 
there is an opportunity for them to have that conversation 
prior--
    Chairwoman Waters. Let me just interrupt you for a moment. 
Are the appraisers from the local area, or do they come from 
Washington?
    Mr. Toon. The appraisers are from the local area. We have a 
network of appraisers across the country that are utilized, 
private appraisers.
    Chairwoman Waters. But the network represents the 
appraisers who work in that area?
    Mr. Toon. Yes.
    Chairwoman Waters. And I would like the members of this 
committee to see a list of those appraisers, and I would like 
it made available for every member of this committee, so they 
can understand who the appraisers are, so that when we get our 
complaints, we are going to have the tools by which to raise 
the question. So we would like that information. Thank you. Go 
ahead.
    Mr. Toon. Certainly. In addition to that, once all of that 
information is loaded into the final restructuring plan that is 
presented, the owner has two levels of appeal that are 
available to them.
    Now, we go through two levels of approval within our office 
to review all of the rent comparability information, etc. When 
that is offered to the owner, they have two opportunities to 
appeal that. So, if they disagree with our determination of 
rents, and they have more current, or different, or better 
information that they can provide, that is considered by our 
appeal committee. And there are two levels, as I mentioned, of 
appeal. So there are opportunities for the owner to have those 
conversations, and--
    Chairwoman Waters. And they're advised of the appeals 
process? It is very well set-out, and given to them?
    Mr. Toon. It is very well set-out. They are notified in 
writing, as well as--
    Chairwoman Waters. I would like this committee to have a 
copy of the information that you supply to the owners about 
their ability to appeal, also.
    Mr. Toon. Absolutely. And I think that the other questions 
that you have raised, or the other issues as potential problems 
that you have raised, I think, similarly, throughout the course 
of the restructuring, it is not done in a black box, it is done 
very transparently, with the input from the owners, with two 
tenant meetings, so we are hearing, sometimes independent, 
opinions from the residents about what is going on at the 
property, or what the physical needs are of the property. So we 
are getting input from a variety of sources, prior to putting 
our--
    Chairwoman Waters. I hate to keep interrupting you, but I 
am trying to make use of our time today. You have not been 
finding the tenants to be organized and to be effective. And 
so, I don't expect a lot of participation, unless they have the 
technical assistance by which to do this.
    So, are you committed to funding the tenant organizations, 
so that they can be involved in this kind of discussion?
    Mr. Toon. We are. In the last fiscal year, in 2007, 
Commissioner Montgomery charged my office with creating a new 
program, a new grant program, to replace the ITAG/OTAG program. 
We met with stakeholders, we developed and drafted that program 
to be a grant program in 2007.
    The legislation says the Secretary shall spend up to $10 
million on this program. And, because of that, we came to 
Congress to ask for the approval to use that funding, and 
requested, in our operating plan to Congress, $10 million in 
fiscal year 2007. That--
    Chairwoman Waters. I'm sorry. You didn't need a special 
allocation. This is $10 million that comes from your budget 
that you just have to do. You just have to spend it, is that 
right?
    Mr. Toon. It could either be a special allocation, or it 
could come from our budget, in which case--
    Chairwoman Waters. You have the discretionary money to do 
it?
    Mr. Toon. I don't believe so. I believe that we need to 
request specific permission in our operating plan to use funds 
from any source to fund the program--
    Chairwoman Waters. Okay, all right.
    Mr. Toon. --2007.
    Chairwoman Waters. Okay.
    Mr. Toon. That was not granted.
    Chairwoman Waters. Okay.
    Mr. Toon. Permission was not granted. We will again request 
that in 2008, and are prepared to fully implement that program 
in--
    Chairwoman Waters. Let me try and understand correctly. You 
have already designed the new program.
    Mr. Toon. That is--
    Chairwoman Waters. For 2007?
    Mr. Toon. Correct.
    Chairwoman Waters. But it is not to be implemented until 
2008?
    Mr. Toon. Well, again, we requested the funding in 2007. 
But that was not approved. So we--
    Chairwoman Waters. Okay.
    Mr. Toon. --could not implement--
    Chairwoman Waters. So you need approval of funding. The 
same reorganized program you were requesting for 2008?
    Mr. Toon. Correct.
    Chairwoman Waters. And our committee does have a copy of 
your new program?
    Mr. Toon. Pardon?
    Chairwoman Waters. Make sure that our committee has a copy 
of what you are--what you have organized, and what you are 
recommending for the new program for involvement by the 
tenants, okay?
    Mr. Toon. Yes.
    Chairwoman Waters. All right. I am sorry to keep 
interrupting, but this is the only way I can get the 
information quickly.
    Mr. Toon. Absolutely--
    Chairwoman Waters. Please continue.
    Mr. Toon. I think I was finished.
    Chairwoman Waters. All right. Thank you very much. Ms. 
Capito, for questions?
    Mrs. Capito. I will ask one question. On the disaster 
relief provisions of H.R. 647, is this considered an expansion 
of the original mission of the mark-to-market program that was 
enacted in the late 1990's?
    And, as I understand, for disaster-related units, the mark-
to-market can be applied, regardless of the costing, or the 
more expensive, or the most damage, or--how is that going to 
work? And is that going to be able to--I mean, that--of course, 
we are very keen and very well aware of the issues of 
Hurricanes Katrina and Rita and Wilma, but will this be going 
forward? And can you just enlighten me a little bit on the 
disaster relief area?
    Mr. Toon. Sure. The rent levels that would be determined, 
as I read the language, would be based upon the fair market 
rents prior to the disaster hitting, largely because one of the 
great challenges that we have certainly found in the Gulf 
region is that, for a very long time afterwards, establishing 
what a market rent is can be exceedingly difficult.
    All of the properties that we would be approaching through 
this program--and our estimate is anywhere from 10 to 15, on 
average, if you sort of look at a 10-year history of disasters 
that have hit--those would all be subject to the exception rent 
cap. So, again, any very expensive restructurings would be 
subject to the cap that we have been discussing here today.
    I think the advantage of applying--
    Mrs. Capito. That would--the new cap, or the 9 percent?
    Mr. Toon. The new percent--the new 9 percent, cap, correct.
    I think that the advantage to using this authority for 
these properties is that one of the great challenges is that 
being able to have the contract vehicles and the network of 
professionals to get people on the ground immediately to do 
assessments--and even if you can rebuild the property, it may 
still be overburdened with its debt. So, the debt restructuring 
authority, to be able to restructure the debt at the same time 
that we are repairing or rebuilding, and establishing this for 
the long term, gives us the opportunity, also, to set out the 
30-year use agreements for affordability.
    Mrs. Capito. I yield back.
    Chairwoman Waters. Thank you very much. Mr. Cleaver?
    Mr. Cleaver. Thank you, Madam Chairwoman. I have a number 
of questions, but we have been called to vote. So it is 
probably--did they tell you last week what a nice time we had 
here, and did anybody--
    Mr. Toon. I heard something about that, yes.
    Mr. Cleaver. Yes? Okay. It's so refreshing, that an 
answer--one question.
    What happens if--or are you concerned about what happens if 
the highest income tenants legally possible, in order to 
mitigate the missed or reduced assistance payments?
    Mr. Toon. I'm not sure that I understand the question, sir.
    Mr. Cleaver. Don't you think that there may be some owners 
who would select the highest income tenants they can legally 
select, in order to mitigate the impact of the missed or 
reduced assistance payments?
    Mr. Toon. Well, I think the reduced assistance payments--I 
think it's important to know that, in the course of the 
restructuring, all of the debt of the property is sized to be 
serviceable by those reduced rents.
    So, in most cases, in fact, the income produced by the 
property after a restructuring is greater than it was before. 
So, we do a top-down analysis, where we start with what are the 
market rents, the fair market rents, or the market rents, the 
true market rents, what are the operating expenses of the 
property, what is the serviceable debt load, and we back into 
that debt load.
    So, at the time that we're reducing the rents, we're also 
reducing the debt to be serviceable by those reduced rents. So, 
hopefully we are not creating that sort of incentive.
    Mr. Cleaver. Okay. I yield back the balance of my time, in 
order to give my colleague a chance before we go vote.
    Chairwoman Waters. Thank you very much. Mr. Green?
    Mr. Green. Thank you, Madam Chairwoman. Sir, you indicated 
that the appropriators did not appropriate for the Section 514 
program, the technical assistance programs, is that correct?
    Mr. Toon. That is correct.
    Mr. Green. And you, of course, were authorized, but you did 
not have appropriations. And what was the rationale for not 
appropriating, please, as tersely as you can give it?
    Mr. Toon. I do not know. The answer is simply that it was 
not approved, as I understand it.
    Mr. Green. Okay. Could it be that the appropriators were 
concerned about the money being extracted from the project-
based program, and not having enough money to complete that 
program?
    Mr. Toon. That is entirely possible.
    Mr. Green. Is it true that HUD could ask for the separate 
assistance for the technical program, and not tamper with the 
project-based program, and could have done that in Fiscal Year 
2007?
    Mr. Toon. As a separate appropriation?
    Mr. Green. Yes.
    Mr. Toon. I suppose that is possible.
    Mr. Green. Did you spend any of this technical assistance 
money? Did you have money set aside for fiscal year 2006?
    Mr. Toon. No, we did not.
    Mr. Green. What about 2005?
    Mr. Toon. No, we did not.
    Mr. Green. What about 2004?
    Mr. Toon. No.
    Mr. Green. What about 2003?
    Mr. Toon. No.
    Mr. Green. 2002?
    Mr. Toon. No, sir.
    Mr. Green. 2001?
    Mr. Toon. No. I believe 2000 was the last year.
    Mr. Green. So, we have gone these many years without the 
technical assistance program that was authorized. And all of 
these years, it was not because of the appropriators, because 
it was just in 2007, I believe, that you decided that you were 
going to ask the appropriators, as you were going to combine 
OTAG and ITAG into TRIO.
    Why wasn't the money spent in all of these other years that 
we appropriated, we authorized?
    Mr. Toon. You will recall that the ITAG/OTAG program ran 
into a number of challenges and problems. Congress asked the 
Inspector General's office to do a full audit of all grantees 
in the program, and found that the program fell short of its 
original goals.
    There were a number of audit findings that we spent a 
couple of years resolving, and we were also continuing to 
administer the remaining grants. In fact, we continue to 
administer, I believe, three grants that are remaining from 
that original program, and funds that were appropriated in 
2000.
    In fiscal year 2007, again, Commissioner Montgomery asked 
that we put a replacement program in place. That was the 
Commissioner's first year in his position, and he asked us to 
take that responsibility--
    Mr. Green. If I may, let me just share this, as I have to 
leave.
    Mr. Toon. Sure.
    Mr. Green. I want to commend Commissioner Montgomery. I 
have a lot of respect for him, and a great appreciation for 
what he does. My disappointment is in allowing all of this time 
to pass before we continue what I believe is a good program.
    And let's just use this as an extreme example. We may have 
some problems with some things that are happening at HUD, but 
we don't freeze HUD and cease to do the things that have been 
authorized. And to freeze this program, as it was done, I think 
has done a disservice to the tenants, the people who could 
benefit from it. And I would yield back, as we have to go vote.
    Chairwoman Waters. Thank you very much. Mr. Toon, I want to 
thank you for coming. We are going to break now, and go to a 
vote on the Floor.
    I would like the record to reflect that we made a request 
of you for the list of appraisers that are broken down by the 
districts that are represented by all the members of this 
committee, so that we can see who these appraisers are. We want 
a copy of your tenant program, so that we can understand how 
you formulated that.
    And also, another request. I would like the total list of 
all of the project-based Section 8 participating owners for 
each of the members of this committee made available to us 
also. I understand there was a technological problem, but that 
does not prevent me from wanting you to straighten it out, so 
that if you know who you pay, you know who they are. And we 
want a list of all of them for each of the members of this 
committee.
    Mr. Toon. Of all Section 8, or those that are participating 
in mark-to-market, specifically?
    Chairwoman Waters. Participating in the Section 8, the 
project-based Section 8 mark-to-market program that you are 
going to restructure.
    Mr. Toon. Sure.
    Chairwoman Waters. Okay?
    Mr. Toon. Very good.
    Chairwoman Waters. Thank you very much.
    Mr. Toon. Thank you.
    Chairwoman Waters. And, members of the second panel, we 
will be right back after we take the votes. Thank you. The 
committee is in recess.
    [Recess]
    Chairwoman Waters. While our members are rejoining us, I 
would like to note that some members may have additional 
questions for the last panel, which they may wish to submit in 
writing. So, without objection, the hearing record will remain 
open for 30 days for members to submit written questions to our 
witness, and to place their responses in the record.
    This panel that we just heard from that basically had our--
Mr. Toon, the Deputy Assistant Secretary of the Office of 
Affordable Housing.
    We are going to move on to introduce the witnesses of our 
second panel. I know that Mr. Frank wanted to introduce Ms. 
Anthony, but he is not present yet, so I am going to proceed.
    Our first witness will be Ms. Amy Anthony, who is the 
president and executive director of Preservation of Affordable 
Housing, Incorporated. Our second witness will be Ms. Sheila 
Malynowski, president of the National Leased Housing 
Association, and president of Preservation Management, 
Incorporated.
    And I know that Ms. Pryce was interested in recognizing and 
introducing Mr. Faith. She is not here, so I will proceed with 
the introduction of our third witness, Mr. Bill Faith, who is 
executive director of the Coalition on Homelessness and Housing 
in Ohio.
    And our fourth witness will be Ms. Paula Foster, vice 
president of the western region of the National Alliance of HUD 
Tenants.
    Without objection, your written statements will be made 
part of the record. You will now be recognized for a 5-minute 
summary of your testimony. We will just start with our first 
witness, Ms. Anthony.

  STATEMENT OF AMY ANTHONY, PRESIDENT AND EXECUTIVE DIRECTOR, 
            PRESERVATION OF AFFORDABLE HOUSING, INC.

    Ms. Anthony. Good afternoon, and thank you for having us 
come together today. My name is Amy Anthony, and I am president 
of Preservation of Affordable Housing, Inc., or POAH. My 
organization, which is based in Boston, is a national 
nonprofit, which is focused, exactly as our name says, on the 
preservation of affordable housing, specifically privately 
owned housing with deep public subsidy to make rents affordable 
to those on the lowest rung of income.
    POAH has been in existence for just over 6 years, and 
currently owns and manages around 4,600 units, rental homes, in 
8 States and the District of Columbia. The more than 10,000 
residents who live in POAH-owned homes typically earn between 
30 and 50 percent of area median. Generally, they are low-waged 
workers and their children, seniors on fixed incomes, or the 
disabled.
    POAH is also a founding member of Stewards of Affordable 
Housing for the Future, or SAHF, an organization representing 
seven of the largest national nonprofit owners of affordable 
rental housing. Drawing on the practical experience of its 
members, SAHF has developed a set of policy proposals to 
preserve properties within the HUD inventory. I speak to you 
today on behalf of my SAHF colleagues, as well.
    I thought that, as I talked about--I think the importance 
of preservation is well understood by this committee. We all 
know that preservation is responsible. It is good stewardship, 
it is environmentally friendly. It wastes less, it conserves 
more. Preservation recognizes that properties should not be--
are a resource that shouldn't be thrown away thoughtlessly. And 
billions of Federal dollars have been invested already in these 
homes, and it is important for us to take care of them for the 
future.
    Today, though, we are here to talk about, particularly, the 
mark-to-market program. I want to support its extension, 
generally, and talk specifically about some methods of 
improving this important and forward-looking program.
    POAH has purchased 15 mark-to-market properties in 3 States 
and the District of Columbia. Collectively, these transactions 
have preserved and physically restored 1,900 rental homes 
across the country. We found that the underwriting for mark-to-
market transactions is sound, and that the refinanced 
properties are, therefore, better positioned to survive 
fluctuations in operating expenses, such as utility and 
insurance costs.
    I thought I would give a profile of one of the properties 
that we restructured, under the program, to give a sense of it. 
The Hawthorne Properties in Independence, Missouri, is 745 
units of family housing in Independence, Missouri. This was 
restructured, using the mark-to-market program. We not only 
were able to physically renovate the property, which was tired 
and very much in need of renovation, but we were also able to 
construct a 2,500 square foot community building on this large 
public-assisted housing site, to serve the residents. There had 
been no community space at all, prior to that time.
    That community center is now a thriving center with a day 
care center, with a Boys and Girls Club, with a very active 
computer program for residents. And it was able to be done 
through the combination of the use of State-allocated resources 
and the mark-to-market program. And we have seen in many of our 
transactions where that joint effort of State resources and the 
Federal resources in mark-to-market can come together in very 
positive ways to make revitalization possible.
    While mark-to-market is important for its results--and that 
is just one of the properties that we have taken through the 
program--it is also, I believe, important as a prototype of 
what HUD can achieve. The mark-to-market program, in my mind, 
is central to the good news from HUD. Mark-to-market is deal-
oriented. It aims for a bottom line outcome which benefits the 
agency, the new owner, the residents, and the community.
    Mark-to-market deals have a give and take calculus which 
mirrors that in the broader real estate marketplace. This is 
important, because staff are not paralyzed by precedent. The 
program was created with the benefit of advice from the private 
market, and from a panel of real-world practitioners.
    Mark-to-market is further bolstered, I think, by the use of 
PAEs, participating administrative entities, which investigate 
deals, and offer a timely resolution that is grounded in what 
is on the ground.
    I think the staff has also been flexible and original and 
efficient, and we have found them to be responsive, as we have 
tried to get deals saved.
    There are a couple of things that I think are critical to 
adding to the program. HUD's primary goal should be 
preservation, not improving its own balance sheet. To that end, 
Congress indicated that the secondary debt after a mark-to-
market transaction could be either forgiven or assigned to 
nonprofit purchasers. HUD--we believe that HUD should not 
demand repayment of a portion of secondary debt from these 
nonprofit purchasers when State and local dollars have to be 
used to give that HUD debt back. We believe HUD's efforts are 
contrary to moving the program forward, and we would like to 
have that clear in the future.
    [The prepared statement of Ms. Anthony can be found on page 
26 of the appendix.]
    Chairwoman Waters. Thank you very much. We are going to be 
a little bit strict about our timing, in that we have members 
who must be out of here by a certain time. Thank you.
    Ms. Malynowski?

  STATEMENT OF SHEILA MALYNOWSKI, PRESIDENT, NATIONAL LEASED 
HOUSING ASSOCIATION, AND PRESIDENT OF PRESERVATION MANAGEMENT, 
                          INCORPORATED

    Ms. Malynowski. Madam Chairwoman, Ranking Member Capito, 
and members of the subcommittee, my name is Sheila Malynowski, 
and I am president of Preservation Management, out of Portland, 
Maine. Our company manages over 6,000 units of assisted housing 
in 11 States. I am appearing before you on behalf of the 
National Leased Housing Association.
    The Multi-Family Assisted Housing Reform and Affordability 
Act--or MAHRA, for short--which was enacted in 1997 and 
substantially amended in 1999, provides a comprehensive 
framework for the renewal of Section 8 project-based contracts. 
Prior to MAHRA, only temporary, stop-gap legislation permitted 
20-year Section 8 new construction and substantial 
rehabilitation contracts to be renewed, as well as 15-year 
moderate rehabilitation contracts to be renewed.
    MAHRA has two main divisions. The first is a temporary 
renewal program that has been extended twice by Congress, most 
recently in the fiscal year 2007 HUD appropriations bill. This 
temporary program applies to a specific class of projects when 
their original Section 8 contracts expire, and provides the 
authority to restructure the debt on Section 8 projects with 
FHA-insured mortgages, and with Section 8 rents in excess of 
market levels. This part of the statute is called the mark-to-
market, or mortgage restructuring program. The authority for 
HUD to restructure mortgages on these properties expires in 
2011.
    The second part of the statute is permanent, in the sense 
that there is no expiration date, and it applies to the renewal 
of all Section 8 contracts that are not eligible for, or in the 
need of mortgage restructuring. This section is referred to as 
the section 524 renewals, and provides the framework for 
renewing the Section 8 contracts.
    In both parts of MAHRA, Section 8 renewal rents are set at 
rents not exceeding market levels, or on a budget basis. In the 
mark-to-market program, or debt restructuring program, a 
reduction in rents is made feasible, in general, by the payment 
by HUD of a non-default insurance claim on the FHA-insured 
mortgage, and the replacement of that mortgage with another 
mortgage with lower debt service requirements.
    In the course of this process, some funds are generated for 
any needed project repairs and necessary replenishment of 
reserves. The amount of the rehabilitation accomplished is 
modest, averaging about $1,800 per unit. An owner's obligation 
to repay the cost to HUD of the mark-to-market is secured by a 
second and sometimes a deferred payment third mortgage on the 
property, with potential repayment from a portion of surplus 
cash income to the project, or refinancing or sales proceeds.
    MAHRA, which reaches its tenth anniversary later this 
month, expresses to us, the users of the Section 8 program, a 
congressional policy to preserve Section 8 projects into the 
indefinite future, and in that way provide stability, and 
therefore predictability, to the renewal and preservation 
process.
    Nevertheless, experience with the renewal program, and 
perhaps changing conditions, may warrant modifications to MAHRA 
such as some of those to the mark-to-market program contained 
in H.R. 647. In addition, and in an exhibit to our testimony, 
we describe additional suggested statutory changes to the mark-
to-market program and to the Section 8 renewal process, in 
general, that will help preserve Section 8 projects for the 
long term.
    With respect to the provisions in H.R. 647, as we 
mentioned, the extension, the main purpose of the bill, has 
already been accomplished. However, there are several other 
provisions in the bill that would benefit the mortgage 
restructuring program, and should be considered.
    We support section five of the bill that would increase the 
5 percent to 9 percent of all restructured units, the number of 
units that can have exception rents in excess of 120 percent of 
the fair market rent for that area. Exception rents are budget-
based. That is, they are the rents needed to operate the 
projects. Such rents are used as part of mortgage restructuring 
when a reduction to debt to zero will not be enough to yield 
economically viable rents at market.
    The 5 percent limit was basically an educated guess when it 
was enacted in 1997, and HUD's experience with that limit 
should be acknowledged.
    This amendment is important to ensuring that properties 
with rents above market that need substantial debt relief can 
continue to provide safe and decent housing for very low-income 
people.
    National Leased Housing strongly supports Section 8 of the 
bill, which extends from 3 years to 5 years after mortgage 
restructuring, and the provisions that the members have 
expressed great concern with include--have expressed concern 
with is section 6, which would move some properties from the 
section 524 renewal universe to the mark-to-market debt 
restructuring. These are Section 8 projects with FHA-insured 
mortgages, but with rents at or below. This is a major 
alteration to the MAHRA, and has the owners concerned with the 
future course of the Section 8 renewal policy.
    NLHA and HUD negotiated changes to HUD's original proposal 
to provide safeguards to the owners, including a requirement 
that owners consent to being put into the debt restructuring. 
However, National Leased Housing members remain concerned about 
some language in H.R. 647.
    I thank you for the opportunity to testify, and I will be 
happy to answer questions.
    [The prepared statement of Ms. Malynowski can be found on 
page 59 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Mr. Faith?

   STATEMENT OF BILL FAITH, EXECUTIVE DIRECTOR, COALITION ON 
                HOMELESSNESS AND HOUSING IN OHIO

    Mr. Faith. Thank you, Chairwoman Waters, for this 
opportunity to be here. I also want to thank you for your 
leadership in bringing this bill forward. It is a critically 
important bill to the State of Ohio. I think that's one of the 
reasons that Deborah Pryce also passed this bill in the last 
Congress, and I want to recognize her efforts, as well.
    Not to beat a dead horse, but I do want to raise the HAP 
contract issue again. I know you did a great job having that 
heard last week, but when I took kind of a survey of what are 
the current issues with this legislation, universally, whether 
they're bankers, syndicators, anybody involved in these deals 
say, ``Make sure they deal with this HAP contract problem.''
    And you have to understand that, in our State, preservation 
of this Section 8 project-based stock is a big deal. We have 
more of this stock than any other State, outside of California 
and New York. We commit some of our tax credits to this, our 
home money. We have a State housing trust fund. We have a 
receivership program. We use loan money to help get these 
projects preserved, many in conjunction with the mark-to-market 
program.
    That involves lots of lenders, investors, syndicators, and 
others, and their confidence is shaken when they're making 30-
year commitments, 20-year commitments, and HUD will only make a 
3-month commitment. So, it was bad enough when it was only a 
year. Now we are down to 3 months.
    I commend you for holding that hearing last week, and we 
need to act promptly, and in conjunction with this legislation, 
to make sure that there is sufficient funding to keep the HAP 
contracts fully funded.
    I also--the committee sent me out some questions in advance 
of the hearing. I actually wanted to respond to a couple of 
those questions. Many of them are addressed in my testimony. 
One of the questions was, how has reorganization used and 
benefitted from mark-to-market?
    We were one of the OTAG organizations. Originally, we were 
a direct recipient of the 514 funding in 2 different rounds. We 
haven't had funding under that program since, I believe, the 
last contract, which was in 2001. But it was a very important 
resource to engage the community and engage the tenants in the 
process of all these mortgage restructures that we have had. 
And we have had 361 properties sent through the mark-to-market 
program, either as light or as full restructures. The vast 
majority of those have been completed. There are still some in 
the pipeline.
    But if this bill were to be passed because it opens up new 
opportunities, there would be another 175 properties in our 
State alone that could be eligible for a mark-to-market 
restructuring.
    I also want to point out that we have--one of the very good 
efforts that this bill could open up is to address better the 
below-market properties. I mean, we looked at that in the State 
of Ohio. Over 9,300 units could be impacted, and the quality of 
that housing could be improved if we included those below-
market properties in the mark-to-market process.
    The other point I would like to make is that, you know, one 
of the questions was how--provide examples of ways in which the 
restructured properties are better off. I think there are three 
tangible benefits from the mark-to-market program.
    One, it affects the health and safety of the properties, 
themselves. I mean, they get rehabbed, they're fixed up, and it 
improves life for the tenants. You know, there are other ways. 
They beef up operating reserves, and they set, as other people 
have said, they set operating costs at a more realistic level.
    But there are other, less tangible ways that it improves, 
because the tenants gain a better understanding--well, provided 
that there is a 514-funded entity working with the tenants--but 
they gain a better understanding of how their properties are 
structured, how they work. The community stakeholders have more 
buy-in, and it also attracts additional State and local dollars 
into preserving this.
    So, in summation, I want to commend you for your leadership 
on this. We are here to fully support this legislation, and I 
appreciate your efforts.
    [The prepared statement of Mr. Faith can be found on page 
47 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Our next witness is Ms. Paula Foster.

   STATEMENT OF PAULA FOSTER, VICE PRESIDENT WESTERN REGION, 
                NATIONAL ALLIANCE OF HUD TENANTS

    Ms. Foster. Yes. Thank you, Madam Chairwoman, and panel. My 
family and I are one of the many thousands who live and have 
been improved by mark-to-market. I was fortunate to move into 
Ingram Square in San Antonio, Texas, in 1986. After my husband 
and I divorced, and our family found ourselves living in a 
homeless shelter, I eventually found a job and got into Ingram 
Square. I knew it was the right home for us, and I have been 
determined to make it work ever since.
    I work with a nonprofit group home, providing service for 
mentally-disabled adults. At $9 per hour, I don't make enough 
for a market-rate apartment, which would cost at least $775 per 
month in my area. Section 8 allows me to pay much less for 
rent, and still support my family. Without it, we would soon be 
homeless again.
    Although I was lucky to move into Ingram Square, I noticed 
right away there were serious problems. My home was plagued by 
water--roof leaks, porch leaks--and they were falling apart. In 
the playgrounds, there were rusty, rotten metal slides, 
endangering our children. In April 2000, our landlord applied 
mark-to-market to fix up our complex.
    At that time, tenants were not organized, and we were 
fearful to speak up about what we really wanted. This was where 
the Texas Tenants Union came in. The TTU staff flew in from 
Dallas, and went door-to-door to explain the program, and 
encourage us to get involved. The TTU organizers were paid out 
of outreach and training OTAG grant, funded by HUD at the time 
from section 514 of the 1997 Housing Act. TTU helped us get 
what we needed, a repair plan.
    AIMCO began repairs in 2001. Central air conditioning was 
installed in the first year, a real necessity in Texas. And, in 
the meantime, we had to really stay on Ingram's case when they 
dragged their feet and used cheap and shoddy materials and did 
shoddy work. From 2002 to 2004, we were HUD's ears and eyes, to 
make sure HUD got its money's worth. Texas Union worked with us 
the whole time. There were more than 10 trips to San Antonio, 
just to oversee the repairs.
    AIMCO was initially hostile, and tried to make tenants fear 
that we would lose our homes. But with help from TTU, we 
overcame this fear and said, ``This is our home, why shouldn't 
we have some say-so in it?''
    Our homes are better and safer now, thanks to mark-to-
market, but they are better still because of organized tenants' 
involvement, made possible through HUD's OTAG grants and TTU. 
We are not alone. The 32 OTAG groups prepared a report to HUD 
in October 2002, showing how tenants benefit from mark-to-
market across the country. Thanks to HUD, some grants and 
volunteers, I request permission to submit a copy of this 
report today.
    NAHT strong supports H.R. 647, and the reforms requested by 
HUD. There is one important amendment that is required, 
however. We need to get resources out to help tenants 
participate in Section 8 renewal decisions across the board. 
Across America, most HUD tenants remain unorganized and unaware 
of our rights. It is very difficult and rare for tenants to 
organize without some kind of outside assistance, because of 
the fear that they would lose their homes.
    In 1997, Congress recognized this, and created section 514. 
Section 514 requires the Secretary of HUD to make available not 
more than $10 million annually to help tenants get involved. 
Unfortunately, since 2002, HUD has failed to provide any new 
funds for section 514. Worse, in 2002, HUD illegally cut off 
funds and failed to honor contracts with VISTA, a Federal 
agency, and the OTAG grantees in most of the country.
    These two maps show the results. The first, from 2001, 
shows tenant outreach group cities, like Texas, around the 
country which receive either OTAG grants or VISTA volunteers to 
help tenants organize. The second, from 2003, shows the groups 
that remain after HUD's failure to fund section 514, or to 
honor its contracts with these groups. HUD's tenants are 
throughout the country.
    Our written testimony goes into what happened. Tenants in 
Texas and across America are still suffering. The end of OTAG's 
funding has cut the organization's staff down to one outreach 
worker for HUD housing with no funds for travel.
    [The prepared statement of Ms. Foster can be found on page 
50 of the appendix.]
    Chairwoman Waters. Thank you very much. Your full testimony 
will be submitted for the record, and without objection we will 
include in the record the national report that you requested 
permission to have submitted.
    With that, we will move right into our questions. And I 
would like to direct my first question to Ms. Anthony.
    Ms. Anthony, you were trying to explain to us how 
nonprofits should be allowed to eliminate--or to be given 
consideration for not having to repay some money, and I wasn't 
sure what you said. Would you repeat that, please?
    Ms. Anthony. Surely. In the case--Congress indicated in the 
initial legislation that when nonprofits are purchasing these 
properties, the secondary debt that is created in the mark-to-
market process can be forgiven, or assigned to the nonprofit.
    That meant, in the case, for example, of the Hawthornes, 
that we were able, when the State allocated tax credits, to 
increase the proceeds available to renovate the property. The 
recent direction has sought to get repayment of those second 
loans that Congress had said could be forgiven when a nonprofit 
buys a property after the restructuring has occurred.
    We think it is inappropriate for that to happen when State 
resources have been sought, and are being used to improve the 
property, since that amounts to the use of State-allocated 
resources to pay back the Federal Government for something 
which Congress had indicated would be possible to be forgiven 
in the first instance.
    And we think it has a chilling effect on the role of the 
States, in getting involved in these efforts.
    Chairwoman Waters. Oh. Well, I thank you for that. Do you 
have any idea how many nonprofits have attempted to get that 
consideration from HUD, and may have been denied? Is this kind 
of a general problem, in that most people don't get any 
consideration?
    Ms. Anthony. I think that this is a new policy direction 
within the last 6 months or so. I don't know how many have. I 
do know that--I will submit with my testimony the details of 
one of the properties that we have been working to acquire in 
New Hampshire, since this new policy surfaced.
    I think, though, the other statistic that I would mention 
is that when nonprofits buy these mark-to-market properties, 
and take advantage of available State resources, the rehab 
levels for the properties, for the units involved, goes from 
somewhere between $2,000 and $3,000, which is what the office 
states, to around $25,000 worth of rehab. So there is a 
significant increase, when States are involved, in doing the 
kind of repairs that are often required in these cases.
    Chairwoman Waters. That is very interesting. And because of 
the focus on this, I will make an inquiry about nonprofits and 
what they have done in relationship to your description of 
nonprofits, review tax credits, and have State assistance in 
order to do this rehab. That's a good thing to focus us on. 
Thank you very much.
    With that, I will turn to our ranking member, Mrs. Capito.
    Mrs. Capito. Thank you, Madam Chairwoman. I want to thank 
all of you all for your presentations.
    Ms. Foster, first of all, thank you for coming and 
representing the tenant point of view. I really appreciate 
that. I think I might have had somebody from the tenants 
association--National Alliance of HUD Tenants--testify maybe at 
our last hearing or the hearing before.
    I am curious to know about your organization. Are you part 
of a--I know you're the western rep. Are you part of a national 
organization? And do they educate you on what I think are 
extremely complicated--because you have a good grasp of what's 
going on here--extremely complicated financing issues? How have 
you educated yourself, and what do you do, then, once you gain 
this education, to try to help get the other HUD tenants to 
understand what is really going on, and how important these 
issues are?
    Ms. Foster. I try to maintain a close connection with the 
tenants. Texas Tenant Union has been very instrumental in 
having individuals come up and help us out and maintain. And, 
yes, I do work with NAHT and the Texas Tenant Union out of 
Dallas.
    Mrs. Capito. Are you in a voluntary position, or--
    Ms. Foster. Yes.
    Mrs. Capito. Yes? Okay. That's really all I had. I was just 
curious about it. I thank you for your advocacy. Thank you.
    Chairwoman Waters. And, Mrs. Capito, that is one of the 
reasons that I wanted HUD to submit to us their criteria, their 
design for tenant involvement. I want us to take a look at 
that, and see what they are saying. Thank you very much. Mr. 
Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman. Ms. Malynowski, 
does your company manage any 202 projects?
    Ms. Malynowski. We manage an 811.
    Mr. Cleaver. But no 202's at all?
    Ms. Malynowski. No straight 202's, no.
    Mr. Cleaver. Okay, this is probably a question to ask HUD, 
because I'm trying to figure out why the 202 projects are 
excluded from the mark-to-market.
    Ms. Malynowski. That's a great question.
    Mr. Cleaver. Ms. Anthony?
    Ms. Anthony. I believe the 202 rents have always been set 
on a budget basis, and I think that contributed to why they 
were not included as eligible housing. But HUD may have a 
better answer.
    Mr. Cleaver. Yes, I apologize. It is a question I should 
have asked--because I'm just curious about the 202 project, and 
the fact that they are elderly, I would be really concerned if, 
somehow, their rents are being raised and, even adversely. And 
I apologize, I will follow up with one of my questions. Thank 
you, Madam Chairwoman.
    Chairwoman Waters. Well, you are certainly welcome. Mr. 
Green?
    Mr. Green. Thank you, Madam Chairwoman. Ms. Foster--and to 
everyone, thank you for being here--but, Ms. Foster, I am 
looking at the maps, and my maps are not in color. I believe 
yours are, is that correct?
    Ms. Foster. Yes, sir.
    Mr. Green. They really look nice from here.
    Ms. Foster. May I bring it to you?
    Mr. Green. Notwithstanding the lack of color, the maps 
depict what I think is a very disappointing, disconcerting, 
discombobulating circumstance, because it becomes 
transpicuously, intuitively obvious to the most casual observer 
that something awful has happened.
    Ms. Foster. Yes.
    Mr. Green. The maps are so graphic. I guess my question 
would become, given that there is talk of a new program, in 
your opinion, would the new program suit the needs of the 
tenants?
    Ms. Foster. In its own structure? Yes. If we had a cap on 
it to have--the TRIO grant?
    Mr. Green. Right.
    Ms. Foster. No.
    Mr. Green. Well, what are some of your concerns with the 
new program, as a person who has been involved and engaged?
    Ms. Foster. My concern is how they are structuring this. If 
they put a cap on it, perhaps that could--working closer with 
the ears and eyes of the people, and having the people being a 
lot more involved, too. Because--
    Mr. Green. Well, let me just examine that. You said the 
people involved. Now, the representative from HUD, whom I have 
respect for, indicated that they assembled the 
``stakeholders,'' that was the terminology utilized. Were you a 
part of that stakeholder meeting?
    Ms. Foster. Yes, sir, working with HUD as a stakeholder.
    Mr. Green. Are you aware of any tenant organization that 
was a part of that stakeholder meeting?
    Ms. Foster. No, sir.
    Mr. Green. Were you aware that a stakeholder meeting took 
place?
    Ms. Foster. The second one, yes.
    Mr. Green. Were you aware before the meeting, or after the 
meeting?
    Ms. Foster. After.
    Mr. Green. Would you have participated, if given an 
opportunity to do so?
    Ms. Foster. Yes.
    Mr. Green. Will you kindly explain some of your concerns 
with the program? And I know that my time is running out, so I 
better let you have some time to just tell us why you think 
this program is not going to meet the needs of the tenants.
    Ms. Foster. Well, we urge the subcommittee to include the 
attached amendment, to make sure that funds authorized by 
Congress for tenant outreach are spent as soon as possible. 
Refunding prior grantees with no audit findings and with a new 
inter-agency agreement with VISTA.
    An amendment would also close loopholes in section 514, and 
correct the design flaws in TRIO, to make sure it works in 
compliance with HUD's audit recommendation, rather than the fee 
for activity model proposed by HUD.
    Mr. Green. I am trying to get the horse back in the corral, 
and to close the gate on this. If these changes are made, you 
would want VISTA incorporated into the new program. Is this 
correct?
    Ms. Foster. Yes.
    Mr. Green. And, currently, VISTA, because of some concerns 
that have been raised, is not a part of the program, and in 
fact, has been extricated or expelled, or expunged, or removed 
in some way. Is this correct?
    Ms. Foster. Yes.
    Mr. Green. How--why is VISTA so important to the program, 
as opposed to some other means? Why is VISTA a necessary 
element?
    Ms. Foster. Well, when it comes down to having our 
individuals being empowered, the VISTA workers were very 
instrumental in bringing us together, maintaining, and giving 
us the input that we need, in being able to further ourselves, 
as tenants.
    Mr. Green. So you had a trust level--
    Ms. Foster. Absolutely.
    Mr. Green. --the VISTA workers, and you felt that they were 
dedicated volunteers?
    Ms. Foster. Absolutely.
    Mr. Green. I am so sorry that we don't have the opportunity 
to ask that young man from HUD more questions, but I will tell 
you that I have a lot of sympathy with what you're saying. And 
I am just--I am grappling with how do we put this Humpty Dumpty 
back together, as opposed to create a new Humpty Dumpty. And I 
am not sure I have the answer, but I will continue to grapple 
with it.
    Thank you, Madam Chairwoman, and I yield back.
    Chairwoman Waters. Thank you very much, Mr. Green. And one 
of the reasons I asked HUD to submit to us a copy of the 
recommended new program is I wanted to give us an opportunity 
to take a look at it, and see if we have input and information 
by which we want to offer some changes to it, to make it more 
valuable, more meaningful. So--
    Mr. Green. I am asking for a bit of time. I appreciate that 
greatly, Madam Chairwoman, and I really would like to have that 
opportunity, and perhaps get Ms. Foster to see if she would 
have a chance to peruse it, as well, and give us some 
additional comments.
    Chairwoman Waters. Okay, thank you very much. Yes, Mr. 
Cleaver?
    Mr. Cleaver. And this--there were about 1,600 people--this 
is not germane--1,600 people who were affected by the--in my 
district--by HUD's inability, or refusal to proceed to 
acknowledge that they were out of funds and needed some help.
    Can we get a request that they provide us with the names 
and addresses of people in our prospective congressional 
districts?
    Chairwoman Waters. Yes. In addition to the request that we 
made to him this morning for getting a list of all of the 
project-based Section 8 owners, you are specifically asking 
that we need to know those who have not been paid--
    Mr. Cleaver. Yes.
    Chairwoman Waters. --and who have complaints? Absolutely. 
We will make that formal request, and make sure we get that 
information to you.
    Mr. Cleaver. Thank you.
    Chairwoman Waters. Without objection, it is so ordered. 
Since 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.
    Before dismissing the panel, I would like to say thank you 
very much for coming, for being here. It takes time out of your 
schedules, it takes resources to come here and share with us. 
But it certainly is very helpful to us. We deal with a lot of 
subjects, and we know a little bit about a lot of them, but we 
don't know much about any of them. So the more you help us to 
understand, the better policymakers we can be.
    So we really do appreciate your being here today. Thank 
you. And this panel is now dismissed. However, before we 
adjourn, without objection, the written statement of the 
California Housing Partnership will be made part of the record.
    Now, the hearing is adjourned. Thank you very much.
    [Whereupon, at 3:48 p.m., the hearing was adjourned.]

                            A P P E N D I X



                            October 23, 2007

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