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



 
                    AFFORDABLE HOUSING PRESERVATION

                       AND PROTECTION OF TENANTS

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


                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 19, 2008

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-122




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York         MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois          PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York         EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina       FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York           RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             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 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
BILL FOSTER, Illinois                KENNY MARCHANT, Texas
ANDRE CARSON, Indiana                THADDEUS G. McCOTTER, Michigan
JACKIE SPEIER, California            KEVIN McCARTHY, California
DON CAZAYOUX, Louisiana              DEAN HELLER, Nevada
TRAVIS CHILDERS, Mississippi

        Jeanne M. Roslanowick, Staff Director and Chief Counsel



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 19, 2008................................................     1
Appendix:
    June 19, 2008................................................    43

                               WITNESSES
                        Thursday, June 19, 2008

Bodaken, Michael, President, National Housing Trust..............    25
Burns, Laura, President, Signal Group/Eagle Point Properties.....    27
Donovan, Shaun, Commissioner, City of New York Department of 
  Housing Preservation and Development...........................    10
Garvin, John L., Deputy Assistant Secretary for Multi-Family 
  Housing Programs, and Senior Advisor to the Federal Housing 
  Commissioner, U.S. Department of Housing and Urban Development.     8
Joseph, Reverend Laverne R., President and Chief Executive 
  Officer, Retirement Housing Foundation, on behalf of Stewards 
  of Affordable Housing for the Future (SAHF)....................    30
Leung, Ricky, President, Cherry Street Tenant Association........    32
Pagano, J. Kenneth, Secretary, National Affordable Housing 
  Management Association.........................................    34
Poulin, Brian, Partner, Evergreen Partners, LLC..................    36
Seward, Amanda, Counsel, Lincoln Place Tenants Association.......    29
Snuggs, Clarence, Deputy Secretary, Maryland Department of 
  Housing and Community Development..............................    12

                                APPENDIX

Prepared statements:
    Velazquez, Hon. Nydia........................................    44
    Bodaken, Michael.............................................    46
    Burns, Laura.................................................    77
    Donovan, Shaun...............................................    98
    Garvin, John L...............................................   102
    Joseph, Laverne..............................................   106
    Leung, Ricky.................................................   116
    Pagano, J. Kenneth...........................................   126
    Poulin, Brian................................................   145
    Seward, Amanda...............................................   150
    Snuggs, Clarence.............................................   156

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    Written statement of Senator Edward W. Brooke................   161


                    AFFORDABLE HOUSING PRESERVATION



                       AND PROTECTION OF TENANTS

                              ----------                              


                        Thursday, June 19, 2008




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             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Waters, Velazquez, 
Watt, McCarthy, Lynch, Scott, Green, Cleaver, Murphy, Speier; 
Manzullo, Capito, and Neugebauer.
    The Chairman. This hearing of the Committee on Financial 
Services will come to order.
    This is a continuation of an interest I have had for some 
time. When I was chair of the Subcommittee on Manpower and 
Housing, as it was then called--we changed the name--of the 
Committee on Government Operations back in 1983, I began 
hearings on the issues of expiring use, because coming from 
Massachusetts, I had experienced this.
    As a matter of fact, one of the first projects done under 
this program dating back to the 1960's was the Castle Square 
project in the South End of Boston. And when I ran for the 
State legislature in 1972 in downtown Boston, the heart of the 
only reliably Democratic precinct in my business, so I became 
quite attached to it and worked with it. People here who know 
of it, who would said it was an example of the importance of 
this housing, how many?
    In 1972, Boston was going through difficult times, in 
particular, racially. This project, affordable housing, was 
located in the South End, then a poor, working class 
neighborhood on Tremont Street between Arlington and Berkley in 
the South End. And it was a haven, I found, for a number of 
interracial couples, because we were in Boston at the time in a 
period where, frankly, there was a lot of racial tension; and, 
interracial couples, to be honest, could face problems if they 
lived in certain neighborhoods. One or the other partner could 
have encountered some hostility.
    Now, if you were rich enough and you were interracial, you 
could move to a suburb where that was less likely to be a 
problem. But I was struck by the fact that this publicly-aided 
resource became a place where people of limited income and 
interracial couples could live in a kind of social peace. It 
was an example of how the public sector can behave 
appropriately.
    We moved them well beyond that, but it was important at the 
time, and I learned at the time, too, that these were projects 
which were affordable temporarily. But because of decisions 
made years ago--none of us here made them--they could expire. 
Now, here is the problem, and it is an interesting one.
    We now face a serious problem in trying to get affordable 
housing built in addition to the problem of resources. And it 
is what in my judgment is an excessively negative view towards 
people in neighborhoods. There is an unduly critical approach. 
Whenever you talk about building any kind of affordable 
housing, you run into, ``Oh, not near me,'' and, ``It's going 
to ruin my neighborhood.''
    The fact that we have this problem with preservation is one 
example of how inaccurate that perception is, because what we 
are now facing is this: We are talking about preserving in an 
affordable way housing that was built 30 or 40 years ago. I 
know at the time it was built, not today's neighbors--they 
probably weren't around--but people very much like the people 
who today object to the erection of subsidized housing, were 
complaining about this housing saying, ``Don't build this in my 
neighborhood. You're going to deteriorate my neighborhood! I 
don't want those projects in my neighborhood.''
    And what do we have today? The contemporary equivalent of 
the people who objected to the housing in the first place now 
want to buy up the housing and move the poor people out. In 
other words, contrary to this objection that it was going to 
ruin the neighborhood, it is now deemed to be so attractive 
that we have to protect the poor people economically against 
being priced out of this housing by people who objected to its 
construction in the first place on the argument that it was 
going to be a blight.
    I hope people will understand this. I was particularly 
struck by that, and so obviously there was an overwhelming 
logic to this. Indeed, the fact that we still do have this 
problem of where to locate housing, there is an overwhelming 
argument for preserving this housing, because it averts the 
debate about where to put it.
    Preserving existing affordable housing greatly improves our 
ability to get the housing done. It is also almost certainly 
going to be economical. Now, there has been some difference 
here. In the late 1980's, my colleague Joe Kennedy and I, under 
the leadership of one of the great housing advocates in our 
country's history, Henry B. Gonzalez, adopted some legislation 
to try to preserve the affordable housing.
    Let me be clear. I wish they hadn't passed a law that gave 
the owners the right to opt out, but I also wish I could eat 
more and not gain weight. My wishes are often not binding, and 
so, we have to accommodate ourselves to reality. We cannot 
abrogate people's constitutional rights. We can give people 
inducements to keep this housing, and, fortunately, in many 
cases, the people who did this are people who want to do this.
    What we did was to provide the best inducements we could to 
stay in. Now, when party control changed, there was a 
difference in philosophy. And beginning in 1995, the 
legislation that we had in place to preserve the tenancies was 
replaced by legislation to protect the tenants. But as those 
tenants die or move out, the units are lost.
    It is also kind of expensive, and here is my problem: It 
was part of this voucher thing, and I think the voucher program 
is a good one. Enhanced vouchers, of course, are costly, but 
the basic problem is if you have a voucher only program, and it 
is a program where you only have annual vouchers, you are 
adding to the demand for housing in a way that does not help 
the supply. And when that provides some equity, it generates 
upward price pressure.
    I am for the voucher program, but it should be accompanied 
by efforts to deal with the supply as well. We are now going 
back to that, and I hope that we will be able to come up, and I 
know various groups are working on it and I appreciate that. 
But from HUD to the tenant groups to others, we want to 
preserve the housing.
    People may not understand that until it happens, but we saw 
in New York State, in New York City, the outcry when it looked 
like Starrett City might go out of the inventory. And we worked 
together, the House and Senate, and we have language in the 
bill that I hope is going to pass that will preserve Starrett 
City. We have had others come to us, as well.
    Our colleague here on this committee, the gentlewoman from 
Ohio, Ms. Pryce, has sponsored a bill that would protect some 
housing from going out of the inventory in Columbus, work done 
by Ohio State. Mr. Dingell from Michigan, Mr. Markey, we have 
been doing it ad hoc. The time has come to do the best we can 
overall.
    Now, let me just say, and I appreciate the indulgence, I 
invited a witness who couldn't come for health reasons, but let 
me read an excerpt of his statement.
    ``Preservation of affordable housing is an issue we have 
been grappling with for many years. I have been strongly 
committed to the idea, since 1967. In 1977, I was approached by 
a group of tenants from Methunion Manor, a HUD-assisted, 
church-sponsored, nonprofit property located in Boston's South 
End.'' Not the one I talked about, but one I visited last 
Monday--Methunion Manor and the church, it's mainstay.
    ``Methunion Manor was built in 1970 when the South End was 
a low-income neighborhood undergoing urban renewal. Seven years 
later, in part because of the lack of adequate HUD asset 
management tools, the property had fallen into financial 
default and physical distress. At the time, like many urban 
communities in America today, the South End had begun to 
gentrify. The Department of HUD which insured the mortgage was 
about to foreclose on the property.'' By the way, this is in a 
Democratic Administration. This is a nonpartisan issue. He is 
talking about 1977, the Carter Administration.
    ``The tenants believed, and rightly so, that their 
buildings would be sold to the highest bidder without the 
existing, long-term, affordability requirements, and they would 
all be pounced out of their homes. I worked with members of 
this committee to enact a provision, housing and community 
development amendments of 1978, that for the first time 
required HUD to sell properties facing foreclosure to groups 
that would preserve affordable housing, including local 
governments and tenant nonprofit organizations, or nonprofits, 
and provided adequate resources to ensure affordability and 
decent quality. As a result of that legislation, and with HUD's 
subsequent cooperation, Methunion Manor is today a thriving, 
affordable, limited equity cooperative that is only controlled 
by its residents and which continues to contribute to the South 
End's historic diversity.''
    And, it closes with a plea: ``The time to act is now. I 
commend the committee for examining ways to maintain the 
existing supply of affordable rental housing and allow us to 
focus our efforts on preserving units protecting the tenants.''
    And there is a statement submitted by former Senator Edward 
Brooke, who served in the United States Senate for 12 years and 
was, as he indicates here in 1977-78, one of the first to get 
legislation enacted to preserve affordable housing.
    So I want to stress again; this is a bipartisan issue. This 
began with a Republican Senator preserving affordable housing 
from an effort that was going to be undertaken by a Democratic 
Administration; and, what Senator Brooke acted on, and what he 
urged us to do, he was of course also the author of the Brooke 
amendment, which is the basis for limiting the rents that are 
charged in public housing and subsidized housing.
    So I am very much moved. Senator Boucault, when he heard 
about what we were doing and volunteered that he would like to 
be helpful in the effort, hoped to be able to come. For health 
reasons, he wasn't able to come, but he did submit this 
statement, because, as I said, he is really the pioneer in what 
we are trying to do. He was a Republican Senator who was very 
concerned about housing. And I hope we can continue these 
efforts.
    I appreciate the indulgence of my colleagues and I now 
recognize the ranking member of the subcommittee, the 
gentlewoman from West Virginia.
    Mrs. Capito. Thank you, Mr. Chairman, for your leadership 
on this issue and for holding today's hearing on affordable 
housing preservation.
    As we know, since the 1950's, the Federal Government, 
mainly through HUD, has subsidized $1.7 million in rental units 
and over 23,000 privately-owned properties that are generally 
affordable to low-income tenants, those with incomes 80 percent 
or less of an area's median income.
    HUD supported the development of affordable housing by 
offering property owners favorable mortgaging financing, long-
term rental assistance contracts, or both, in exchange for the 
owner's commitment to house low-income tenants for at least 20 
years, and in some cases up to 40 years. In addition, through 
the favorable financing provided through these years, many of 
the properties received long-term rental assistance provided 
under various programs such as Section 8, rent supplements, and 
rental assistant payment programs.
    The properties subsidized under these programs represent a 
significant source of affordable housing across the country. 
Many of the commitment periods will be completed within the 
next several years, and when owners pay off the mortgages, the 
subsidized financing ends and so does the requirement to keep 
these units affordable. Therefore, the end term of the mortgage 
could result in increased rents, a source of great concern to 
all of us.
    One of our responsibilities here today will be to 
understand what happens to all of those tenants, many of them 
elderly, when these mortgages expire or mature. In some cases, 
there are provisions, either through the State or Federal or 
local governments that will assist in finding or preserving 
affordable housing. In other instances, however, there will be 
no assistance, and development owners will be free to charge 
market rates that could be and would be, in a lot of cases, out 
of the tenant's reach.
    Today's hearing will begin to lay the foundation for our 
understanding of this very complex matter. Notwithstanding the 
tenants' concerns, however, I think we should applaud the 
owners of these developments for their participation in these 
affordable housing programs. In a country such as ours, free 
enterprise allows owners of private property to use the 
property as they please. I am hopeful that some of these owners 
will find it fruitful to continue to provide affordable housing 
to low-income tenants.
    How we address their needs as owners will greatly impact 
how we can preserve a very successful private/public 
partnership that leverages private capital to achieve public 
policy goals.
    Mr. Chairman, thank you again for your leadership on this 
issue, and I look forward to hearing today's testimony.
    The Chairman. Are there any further members who wish to 
make opening statements?
    The gentleman from Massachusetts.
    Mr. Lynch. Thank you, Mr. Chairman.
    Mr. Chairman, as you know, I grew up in public housing in 
the Old Colony Housing Project in South Boston, so I have a 
special place in my heart for the families who now rely on 
affordable housing. I appreciate you holding this hearing today 
to try and analyze the impact of the loss of affordable housing 
in our communities.
    I recently, like the chairman, had an opportunity to visit 
one of the affordable housing communities in my district in 
Boston--the Georgetown Homes community--and when visiting 
there, it underscored for me why changes to our housing 
preservation system are so important at this time.
    For more than 35 years, Georgetown Homes has provided 
quality housing to more than 3,500 residents, and nearly 1,000 
affordable apartments, and they currently have a waiting list 
to get in. When I compare the public housing that I lived in to 
Georgetown Homes, it is a vast improvement. However, in the 
next 3 to 5 years, Georgetown Homes will have fulfilled its 
pledge to provide affordable housing for 40 years, and, in the 
absence of changes to the current law, many of the Georgetown 
Homes units will become unaffordable for their current 
residents.
    Georgetown was originally created as two separate 
developments back in the 1960's, and some resident apartments 
receive project-based Section 8 rental assistance, while others 
do not. These two developments that were merged have always 
been maintained by one management, and very well by the way, 
and they were formally, financially merged together under one 
mortgage when the original loan for the development was pre-
paid in 2004.
    But because they were originally purchased in separate 
transactions, when the affordability restrictions for the 
property end in a few years, some residents will be protected 
while others will not. This is just one example, and I'm sure 
this is replicated thousands of times across the country. So I 
appreciate our efforts here to try to come up with legislation 
that will address these situations so that we can proactively 
reassure the tenants that they are not going to be tossed out 
of their homes when these restrictions expire.
    With that, Mr. Chairman, I will yield back.
    The Chairman. If the gentleman would yield, let me just say 
that he raised a very important point.
    I know how seriously he has been working on these issues 
and I will address this to HUD and I did have a conversation, 
in fact, with the new Secretary on the question of Detroit. I 
hope that help is on the way for these projects, and I hope 
that no one wants to be the last person to die in a war. We 
don't want any group of tenants to be the last ones who were 
evicted before help arrived.
    So I am hoping that we can work with HUD to show some 
flexibility and maybe extend this period and there is always 
the option of bill-by-bill. But I think it would probably be 
better if we could get some understanding of how to approach 
these things, and I do expect--and I think there is a lot of 
bipartisan support for this--that we will be able to deal with 
something next year.
    I should add, by the way, that this is not only a city 
problem, but there's a rural preservation piece, which goes 
through the Agriculture Department that the gentleman from 
Tennessee, Mr. Davis, and the gentleman from Kentucky, Mr. 
Davis, have collaborated on and that will be part of it. So we 
will be working to try to avert any irrevocable actions before 
that.
    The gentleman from Texas.
    Mr. Green. Thank you, Mr. Chairman, and I thank you for 
your insightful analysis. I thank the ranking member as well 
for her comments.
    Mr. Chairman, I am concerned about a number of things. The 
Section 8 vouchers are a plus but we do have circumstances 
wherein they don't meet needs. For example in Louisiana, down 
in New Orleans, the Section 8 vouchers were available but there 
were no properties available to use the vouchers such that you 
could have shelter. That caused some consternation.
    I am also concerned about the waiting list. Some of our 
authorities will literally suspend the waiting list, and, when 
this is done, then you have no way of knowing how many people 
are actually in need, because the list has been suspended and 
they suspend it sometimes for long periods of time, such that 
people who actually need housing can't record this in such a 
way that we here will have empirical evidence of what the 
actual need is. That causes me some concern.
    In this country, homelessness is a real problem: 800,000 
people are homeless; and about a quarter of them are veterans. 
In my State alone, we have 16,000 veterans; in my City, 2,400. 
I am concerned that we do have the Section 8 vouchers to help 
people move from the streets of life to shelter as quickly as 
possible, but I do think that the notion of one-for-one 
replacement with the housing stock that we have in certain 
areas is of paramount importance.
    So I come back again to Louisiana and to post-Katrina 
housing wherein we have actually had some units to be raised, 
and we have not had a raising after having had a razing, 
meaning demolition. But we haven't started the construction, 
and I remember the chairwoman of the Housing Subcommittee being 
very vocal about trying to have one-for-one replacement.
    She speaks well for herself, but I do want to join her in 
this notion that one-for-one replacement is of paramount 
importance, especially in an area like New Orleans, Louisiana, 
or Louisiana in general, where people are trying to get back 
home and we are eliminating the housing stock.
    I thank you very much for the time, Mr. Chairman. I will 
have to leave at some point and I apologize for this. But I 
assure you I will be monitoring the witnesses and the 
activities of the committee.
    I yield back.
    The Chairman. Are there any further members who wish to 
make opening statements?
    The gentleman from Missouri.
    Mr. Cleaver. Thank you, Mr. Chairman.
    I only have a short statement. I, like my colleague, grew 
up in public housing, and sometimes experienced some very ugly 
living conditions. But, at least, we had housing. I left the 
office of Mayor of Kansas City in 1999. Shamefully, we have not 
had a single, affordable housing unit come online since 1998--
the largest City in the State of Missouri, and not one unit. I 
speak with the heads of CDCs who are all outraged and at a time 
when the subprime crises is causing all kinds of housing 
problems all over the country, the neediest people in our 
community are experiencing even more trauma, and I am very 
anxious to explore with you ways in which the largest city in 
my congressional district can do something about the 
construction of affordable housing. It is woefully inadequate 
and embarrassing.
    I yield back the balance of my time.
    The Chairman. If there is no further discussion, we will 
hear from our witnesses, and I am pleased that we have a very 
balanced panel.
    First, we have Mr. John Garvin. Let me say that when I 
raised this issue initially with Secretary Jackson some time 
ago, he told me that Mr. Garvin, who was the Deputy Assistant 
Secretary for Multi-Family Housing, would be the responsible 
individual. I have found him to be exactly that, and I 
appreciate the chance to discuss this with him.
    We also have Shaun Donovan, the commissioner of the City of 
New York where we have just, I think, managed to show how this 
can be done with Starrett City.
    And Mr. Clarence Snuggs from the Maryland Department of 
Housing and Community Development, who has worked with us 
before on the questions of foreclosed property. So, I think, 
having the Federal, State, and City is exactly the appropriate 
balance. And let me just say as we go forward, it would be my 
hope that whatever legislation we adopt would offer these 
incentives, not just to the federally-funded programs, but to 
the State programs as well. Tenants are tenants and affordable 
housing is affordable housing, and those States that stepped up 
and tried to do something should, I think, get the cooperation 
and recognition as well.
    Mr. Garvin, we will begin with you.

  STATEMENT OF JOHN L. GARVIN, DEPUTY ASSISTANT SECRETARY FOR 
   MULTI-FAMILY HOUSING PROGRAMS, AND SENIOR ADVISOR TO THE 
 FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND 
                       URBAN DEVELOPMENT

    Mr. Garvin. Thank you, Chairman Frank, Ranking Member 
Capito, and members of the committee.
    I am very pleased to be here today to talk about the 
Housing Preservation and Tenant Protection Act of 2008. 
Secretary Preston and Commissioner Montgomery both send their 
regards and their thanks for holding this hearing.
    As our policies illustrate, we are very committed to 
preserving safety and affordable housing when feasible; and, I 
have to admit, I haven't read this whole legislation. Even the 
summaries are very long and it's intensive, but I really thank 
you for taking serious recognition of the need for a national, 
affordable housing preservation policy, and I think this moves 
us much closer to that.
    Well, you know, we do not have an official position on this 
legislation yet. I am very, very pleased, and I think it is 
real progress that this bill does propose to give the Secretary 
of HUD the authority to provide enhanced vouchers to eligible 
tenants from 236's and 221(d)(3), below market rate/interest 
rate developments, is an excellent move for tenant protection.
    As I said, this is a powerful step and I really thank you, 
Chairman Frank, and your staff, for taking such an intense 
position on preserving affordable housing. Even before I came 
to HUD, I ran a great organization of tax credit developers and 
syndicators, investors, and property managers. We appreciate 
all of your efforts to preserve and construct new, affordable 
housing.
    As you know, one of our strongest preservation tools at 
HUD, and it has been extremely successful and it even comes the 
closest, I can say at HUD, to being a fine running machine, is 
the Mark-to-Market program, that to date would preserve 200,000 
units and save taxpayers more than $2.1 billion. It is 
definitely our strongest.
    On our project-based, Section 8 portfolio, I am also 
pleased to say that we do have more than a 90 percent retention 
rate, and while a 10 percent loss isn't good, 90 percent 
preservation is really good. As I mentioned earlier, working 
with that multi-family development group, I met with them 
before I decided to come up to HUD and take this job. And I 
said, you know, what is up with HUD and FHA multi-family?
    One of my board members runs a nonprofit in San Antonio, 
and she looked at me and she said, ``FHA is the best game in 
town if you can take the headache out of it.'' And so since I 
have been there, and I'm not promising any miracle, but since I 
have been there, I have really enjoyed working with 
Commissioner Montgomery and my multi-family staff to take some 
of this headache out.
    As you know, most of these maturing mortgages are in need 
of recapitalization well before the maturity date, and a lot of 
them, if not most of them, go for low-income housing tax 
credits to recapitalize and rehabilitate the properties. If 
they do that, that is preservation. HUD has not always had a 
good reputation of mixing low-income housing tax credits with 
preservation deals, so I asked my staff. And it has been 
excellent, that really increases their flexibility. I asked 
them to look at ways, if we could all get together and get with 
the industry, a lot of the folks who were here today, to figure 
out how to make HUD more attractive to owners for refinancing 
deals, so they would come to HUD, and get rid of that headache. 
And we have been doing a lot over the last several months to 
make HUD more attractive.
    Yesterday, the Commissioner signed off on a policy to get 
into clearance, to really streamline the process for using tax 
credits with mainly our 221(d)(4) program. We took a serious 
look at the 100 percent tax credit equity escrow situation, 
which back when I was on the tax credit side was the biggest 
barrier, why none of my members would ever use (d)(4) 
insurance, because no one wanted to put 100 percent of the 
equity up front.
    We took a serious look at that, and I can't make the 
announcement yet, because it is still being cleared, but I 
think you will all be pleased.
    The Chairman. Mr. Garvin, I am going to interrupt you at 
this point because I want to ask you for your help.
    Mr. Garvin. Sure.
    The Chairman. As you may know, Chairman Rangel and I, 
through our staffs, worked hard to do exactly what you are 
talking about, which is to make these more interactive.
    Mr. Garvin. Right.
    The Chairman. Some of that is in the Senate Bill. When we 
get to a final conversation, I think at no cost to anybody we 
have language that if it survives, is going to build on the 
work you do. And I realize you are doing as much as you can 
without a statutory change, and we want to do statutory change 
that is similar.
    So we will look for your help in making sure we maximize 
this.
    Mr. Garvin. Definitely, definitely, and we look forward to 
it.
    But in the new guidance, we took a lot of issues that I 
think the development community will turn back to FHA and we 
will be able to preserve a lot more units than originally 
thought of.
    When I first started in the multi-family side, we were not 
allowing any reduction in the number of units when they would 
refinance it. I know one-for-one replacement is of utmost 
importance, but we were seeing that folks were getting out of 
the affordable business, because we were putting restrictions 
that you had to have. If it was an efficiency, it had to stay 
an efficiency. Well, in a lot of markets, efficiencies were not 
leasing, so we did a conversion. It was a unit conversion 
policy that said you can turn a vacant efficiency into a one 
bedroom. It's a more marketable unit. The developers made it 
again more attractive to refinance these in FHA (d)(4).
    I see my time is almost up. I look forward to questions, 
and thank you again for this opportunity to testify.
    [The prepared statement of Mr. Garvin can be found on page 
102 of the appendix.]
    The Chairman. Thank you, Mr. Garvin, and I think this is an 
ongoing project with a lot of cooperation.
    Mr. Donovan?

  STATEMENT OF SHAUN DONOVAN, COMMISSIONER, CITY OF NEW YORK 
       DEPARTMENT OF HOUSING PRESERVATION AND DEVELOPMENT

    Mr. Donovan. Good morning, Mr. Chairman, Ranking Member 
Capito, and members of the committee. I am Shaun Donovan, 
commissioner of the New York City Department of Housing 
Preservation and Development, the Nation's largest municipal 
housing development agency. And while our mission to promote 
quality housing and viable neighborhoods for New Yorkers has 
not changed over the years, our challenges have changed 
dramatically.
    The crisis of abandonment that plagued many New York 
communities in the 1970's and 1980's was solved by rebuilding 
neighborhoods, driving down crime, and improving schools. But 
today we face the challenge of affordability in those very same 
neighborhoods. There are about 250,000 Federal- and State-
assisted housing units in New York City. The programs that 
finance these units developed decades ago for a different 
housing market all include expiring use restrictions. The units 
represent a safety net of affordable housing for hundreds of 
thousands of New Yorkers, but the City is at risk of losing 
them. Given the strength of the City's housing market as the 
use restrictions expire in some of these developments, owners 
face great temptation to leave the programs and raise rents to 
market levels.
    In other cases, properties face physical deterioration so 
severe that units risk becoming uninhabitable. In both of these 
situations, residents of these units may face displacement, and 
as the chairman said before, we lose those units permanently 
for the affordable housing stock when an owner either opts out 
or fails out of the program.
    Mayor Bloomberg's expanded new Housing Marketplace Plan, 
the largest city affordable housing plan in the Nation's 
history, recognizes the need and the opportunity to focus on 
these units. Out of the 165,000 units that will be created or 
preserved under the plan, 73,000 are preservation and 37,000 
are affordable assisted units with expiring uses and subsidies. 
And HPD has designed a series of initiatives that will allow 
the agency to achieve this goal.
    But New York City and cities like us across the country 
cannot preserve this resource on our own. We need the 
commitment and partnership of the Federal Government. That is 
why I am so pleased to be able to testify on the importance of 
the Housing Preservation and Tenant Protection Act of 2008.
    The committee's bill is a comprehensive set of measures to 
stem the tide of affordable housing loss. We are extremely 
supportive of Congresswoman Velazquez' bill, H.R. 44, and I am 
pleased that it is contained in its entirety in the Housing 
Preservation and Tenant Protection Act of 2008. If enacted, 
this bill would give HUD and local governments new tools and 
the flexibility needed to maintain our stock of affordable 
housing.
    These tools are needed now more than ever. The problems in 
the subprime market have risen to the top of the national 
agenda. Homeowners and neighborhoods are threatened by this 
crisis, and it has highlighted again the importance of having a 
supply of decent and safe rental housing available to moderate- 
and low-income people. There is much in this bill to be 
applauded, but my testimony will focus on those provisions 
which most directly complement the work we are doing in New 
York City.
    On June 2, 2008, Deputy Secretary Bernardi, Senator 
Schumer, Congressman Towns, Congresswoman Velazquez, Governor 
Paterson, and City and State officials announced that a deal 
had been reached with the owners of Starrett City to keep the 
development affordable. Starrett City, a nearly 6,000-unit 
project in East New York, is the largest federally subsidized 
project in the country. The owner's initial attempt to sell the 
development and opt out of the various State and Federal 
subsidies was met with public outcry and ultimately with HUD's 
rejection of the sale.
    The agreement reached with government represents a 
framework for preservation of Starrett to which the buyer of 
the development will have to adhere. And I would just like to 
depart from my testimony for a moment to recognize John Garvin 
and all of the work that he and his staff did to make this 
possible.
    Perhaps the most important part of the agreement is on the 
Federal subsidies there. Converting the Rental Assistance 
Payment contract to a project-based Section 8 contract is a 
lynchpin of preserving affordability at Starrett. We are very 
grateful to the committee for including the Starrett City-
specific legislation in H.R. 3221.
    Passage of the committee's bill before us today would 
extend the possibility to the 470 other developments with these 
type of contracts. There are around 35,000 units nationally 
that are covered by rental assistance payment or rent 
supplement contracts. These subsidies, commonly referred to as 
``RAP and Rent Supp,'' are decades old, antiquated programs. 
Unlike the newer project-based Section 8 program that replaced 
them, ``RAP and Rent Supp'' contracts are not renewable.
    In the next 20 years, all of these contracts will expire, 
and 35,000 units of affordable housing will be lost. The 
committee's bill would rectify this problem by giving owners 
the option to convert their ``RAP and Rent Supp'' contracts to 
project-based Section 8.
    In exchange for a commitment to longer-term affordability, 
the owners get the ability to mark rents to market and the 
option to renew the contract.
    Allowing enhanced vouchers, which are tenant-based in 
nature to be converted to project-based Section 8 at the 
request of an owner is another significant preservation tool 
created by this bill. This is a good example of a low-cost 
means to preserving thousands of units of housing. In New York, 
the cost of an enhanced voucher is more than the cost of 
project basing, so while saving public funds, we could create a 
permanent source of affordable housing.
    HPD is currently negotiating with HUD to purchase a 
portfolio of loans on multi-family properties. The sale would 
allow HPD to buy all the notes on subsidized properties being 
held by HUD in New York City. Instead of waiting for the 
properties to fall into greater disrepair and enter foreclosure 
for an opportunity to purchase them through a right of first 
refusal, this sale will allow HPD to purchase the entire 
portfolio and be proactive in partnership with HUD about the 
property's preservation.
    The New York City note sale is being watched closely by 
other States and cities for possible replication. There are two 
impediments to the sale, both of which your bill addresses, and 
we're grateful to you for including those as well.
    There are many other noteworthy provisions in the bill, but 
in the interest of time, a discussion of them is included in my 
written testimony.
    Thank you for the opportunity to testify before the 
committee today. I look forward to answering any questions you 
may have.
    [The prepared statement of Mr. Donovan can be found on page 
98 of the appendix.]
    The Chairman. Mr. Snuggs?

   STATEMENT OF CLARENCE SNUGGS, DEPUTY SECRETARY, MARYLAND 
        DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT

    Mr. Snuggs. Good morning, Chairman Frank, Ranking Member 
Capito, and distinguished members of the committee. I am 
Clarence Snuggs, deputy secretary of the Maryland Department of 
Housing and Community Development. I want to thank you for 
giving me the opportunity to testify before you on the Housing 
Preservation and Tenant Protection Act of 2008. I also want to 
thank you for your leadership on this issue and your commitment 
to crafting tools to help preserve affordable housing for the 
Nation's low-income families.
    The State of Maryland and DHCD are strongly committed to 
preserving affordable rental housing. Over the past 5 years, 
DHCD has preserved over 4,300 affordable rental units through 
the use of mortgage revenue bonds, low-income housing tax 
credits, State financing, and other resources. We have 
committed $75 million in bond authority for preservation this 
year, and we are currently a finalist for the McArthur 
Foundation funding for both our past and future commitments to 
preservation efforts.
    Additionally, we have re-engineered our State-funded 
lending and insurance products to facilitate preservation. We 
have been proactive in stepping out of the box to preserve 
affordable housing opportunities in Maryland, and we look 
forward to working with the Federal Government to do the same. 
DHCD, in addition to being a cabinet agency, is also the 
State's housing finance agency. We support the language in the 
bill that gives States and State housing finance agencies 
greater control and participation in the preservation process.
    State HFAs are the right place to direct Statewide 
preservation authority. Because we have the favorable track 
record of supporting preservation, we know the variations of 
the State, preservation cannot be a one-size-fits-all approach.
    What we need most from the Federal Government is 
flexibility and timely decisions. Regional and field HUD 
offices where most decisionmaking should occur with the ability 
to delegate decisionmaking to State HFAs. We have an excellent 
working relationship with the Baltimore HUD office and have 
been able to sit down and negotiate the first in the Nation 
inter-creditor agreement designed to streamline the process of 
financing packages that involve both Federal and State 
resources.
    The FHA risk-share program and MOUs for subsidy layering 
requirements are similar examples of coordinated and delegated 
decision-making between HUD and State agencies. These 
agreements have a longstanding history of protecting the 
Federal Government's interests while facilitating timely and 
prudent production and preservation of affordable rental 
housing.
    What's most important is that the bill enabled HUD's field 
offices to defer to HFA's request for changes in existing loan 
terms and rental assisting contracts that are approved by the 
State HFA that is refinancing the project.
    We would also ask that the bill language allow for a 
delegated underwriting and approval of changes in project-based 
rental assistance within some broad parameters. This could be 
developed following the successful FHA risk-share and subsidy 
layering models. There is precedence for this intergovernmental 
partnership. It is efficient and effective government in 
action.
    In that light, we would ask that the legislation include 
provisions that would establish a demonstration program to 
waive the numerous rules and regulations of the preservation 
process. The amount of time it takes to preserve properties is 
one of the biggest obstacles in actually doing deals. We think 
the provision should be modeled along the FHA risk-share model 
that sets basic parameters regarding what protection HUD has to 
have, but gives the field office and State HFAs the ability to 
move more quickly when preservation opportunities arrive.
    We are pleased to see the requirement that HUD and USDA 
Rural Housing Services work together to create a database of 
subsidized properties. What we would like to see is language 
that calls for the coordination of rules and financing between 
HUD and RHS. Therefore, we would also like to see a requirement 
for HUD and RHS to develop an inter-creditor agreement that we 
can all use if the project is funded by both.
    Lastly, while we have some resources to finance 
preservation, we need more. This would include increases and 
caps on MRBs, an increase in the Federal low-income housing tax 
credit, as well as more Federal funding for home program or 
other new sources of funding which can finance the improvements 
and repairs preserved properties often need.
    It would be particularly useful to see provisions that 
would fund a program to provide short-term preservation funding 
to enable quick acquisition of at-risk properties before MRBs 
and tax credits are used as permanent financing options.
    The new resources would also be flexible and be designed to 
work in concert with or in deference to existing programs and 
requirements.
    Thank you again for giving me the opportunity to testify. I 
have submitted more extended remarks for the record, and would 
be happy to take any questions that you may have.
    [The prepared statement of Mr. Snuggs can be found on page 
156 of the appendix.]
    The Chairman. Thank you, Mr. Snuggs.
    Before we get to the questions, several of our colleagues 
have to go to a very important meeting at 11:00, and one of our 
witnesses is here at the invitation of the Chair of the Housing 
Subcommittee, who has been a leader on all these issues, so I 
am now going to defer to her, so she can make the early 
introduction of the witness, which we will all remember when 
the witness testifies.
    Ms. Waters. Thank you very much, Mr. Chairman. Before I 
introduce the witness, let me thank you. This was something 
that you identified early on, when I came onto this 
subcommittee. And it is perhaps one of the most important 
efforts we're going to make to preserve housing. I was very 
pleased to be involved in the hearing up in New York; I think 
that was alluded to today.
    And I thank you also for this hearing today. I have an 
extraordinary witness who will be on the next panel, Ms. Amanda 
Seward.
    She is currently serving as counsel for the Lincoln Place 
Tenants' Association, and as part of the team of attorneys who 
have been representing the tenants and their eviction cases 
brought by the owner of Lincoln Place. She is the author of the 
California State Historic Resource nomination of Lincoln Place, 
which was approved by the State Historic Resources Commission 
in 2005. It was through this nomination that she learned of the 
plight of the tenants.
    She was an elected member of the board of the Marvista 
Community Council Board of Directors, and she is a founding 
member of the Marvista Historical Society, and former chair of 
the Residential Council of the Los Angeles Conservancy's Modern 
Committee. She has been active in the preservation community in 
Los Angeles for 10 years, and is especially focused on the 
preservation of modern architectural housing.
    Ms. Seward received her JD from Georgetown University Law 
Center, and received her BA in philosophy from Spelman College. 
She is a member of the State Bar of California, and the State 
Bar of Georgia.
    And I am sorry that I am going to have to leave early, 
because the story of what these wonderful people have done, 
fighting for preservation, is just absolutely wonderful.
    The Chairman. Well, if the gentlewoman would yield, I 
appreciate that. And it's nice to have a lawyer who works for 
tenants here, because I think some of our colleagues could 
benefit from maybe the de-demonizing of that role, as our 
colleague from North Carolina had been fighting for. We hope 
that people recognize that there are a number of cases where a 
lawyer working with tenants makes a very constructive 
contribution.
    With that, I'm going to begin the questioning, and we have 
a great deal of substantial agreement. One of the things I am 
going to be asking, Mr. Garvin, I anticipate some issues here 
as we go forward with this, with the scoring under the 
Congressional Budget Office. And I think what will be important 
for us to work together is, yes, there will be some initial 
outlays here. But if you look at policy going forward, it seems 
to me that we ought to be able to deduct from those outlays 
what the cost would have been of enhanced vouchers, going 
forward. Because enhanced vouchers are very expensive.
    Now the problem, of course, is that there is no legal 
obligation to provide the enhanced vouchers, so CBO can 
theoretically say, ``Well, you're putting out this money and 
you know next year you could have them all evicted.'' I'm 
hoping we could prevail on CBO to take a more realistic view of 
this, and to look at what the costs would be of preserving 
those tenants, because obviously when you do that, you bring 
down the cost. Would you agree?
    Mr. Garvin. 100 percent, yes, definitely.
    The Chairman. One of the things I think would be helpful 
for HUD to prepare for us would be estimates of what the actual 
cost would be in some of these cases, if we were to continue 
enhanced vouchers, rather than preserve the tenancies. And it 
might not be binding, but it would help me with my colleagues.
    Mr. Donovan, do you--
    Mr. Donovan. I would just want to chime in there for a 
moment, Mr. Chairman. One of the reasons why the effort on 
Starrett City has been successful is we worked very closely 
with HUD and with Senator Schumer to look at the scoring of the 
conversion of the contract at Starrett City. And in fact the 
CBO did recognize that there was zero cost to that, because the 
owners had in fact made it very clear that they were going to 
opt out and there would be enhanced vouchers--
    The Chairman. Well, that's very helpful--
    Mr. Donovan. In fact, the cost of the conversion to 
project-based Section 8, because it's only 60 percent of the 
units and 40 percent of the units will remain below market, the 
cost of the conversion is actually saving the Federal 
Government--
    The Chairman. Well, that's--I'm glad that we have that 
precedent, and that's going to be a very helpful factor for us 
to do this going forward.
    It is also the case--and I know you looked at this, Mr. 
Snuggs, as well--I want to make sure that I'm working with your 
colleagues at the State level that we are not discriminating 
between State and Federal here; and that is something that we 
want to make sure has been totally integrated.
    But let me just ask, do you think you know the answer to 
the question: What are the comparative costs of preserving a 
unit--even without the enhanced voucher situation--but what are 
the comparative costs of preserving a unit versus constructing 
one from scratch?
    Mr. Garvin?
    Mr. Garvin. I really couldn't generalize on the answer, 
because you could go into a building and it could be in pretty 
good condition, and have some rehab and preserve it. You could 
go into a building, not knowing what--
    The Chairman. No, I'm talking in general--suppose we did 
this under the Affordable Housing Trust Fund, or Section 811, 
or building from scratch new units.
    Mr. Garvin. In general, it is obviously cheaper to rehab an 
existing unit. I mean--
    The Chairman. And in some cases, it seems to me we don't 
even have to rehab.
    Mr. Garvin. Right.
    The Chairman. When I talk about preserving, I guess I 
phrase it too ambiguously. I'm not talking about necessarily 
physically preserving it, but legally preserving it in the 
inventory, as opposed to building a new unit.
    Mr. Garvin. Right.
    The Chairman. Mr. Donovan, in New York City what is the 
comparative cost?
    Mr. Donovan. I think Mr. Garvin is correct; it obviously 
depends on the extent of the rehab, but in general what we find 
is that the cost of new construction is roughly twice what it 
costs to preserve in terms of public subsidy that we provide.
    The Chairman. Mr. Snuggs?
    Mr. Snuggs. I would concur, but I would suggest that in 
Maryland, construction of a new unit would run somewhere around 
$150,000 a unit.
    The Chairman. And you could preserve for less.
    I thank you. I have no further questions. Ms. Capito?
    Mrs. Capito. Thank you, Mr. Chairman. I want to thank the 
panel.
    Mr. Garvin, in your statement you mentioned something that 
it's 90 percent of the Section 8 vouchers had been preserved, 
10 percent loss. Can you--
    Mr. Garvin. That's the project-based portfolio, not the 
voucher.
    Mrs. Capito. Okay. What does that result in? Does that 
result in 10 percent fewer tenants or fewer units? Or can you 
expound on what that actually means in terms of folks living 
there?
    Mr. Garvin. Sure. Private owners of those properties that 
receive project-based Section 8 have an affordability period, 
and then they can opt out. And some want to opt out and do. 
Others realize it's a very good business decision to stay with 
a guaranteed cash flow, the renewing project-based Section 8.
    But like Chairman Frank mentioned earlier, some markets 
people really want these properties to make them upscale 
condominiums, and it's very, very hard to preserve them.
    Mrs. Capito. So you're saying in terms of the ones who had 
the expiring tax provisions, 90 percent of those stayed in the 
program; 10 percent left. Is that--
    Mr. Garvin. Yes. I think it's a little higher than 90, but 
my staff wouldn't let me say that. So I think it's a little bit 
higher.
    Mrs. Capito. Okay. Let me ask you, if you're in that 10 
percent where they're going to out to free-market prices, if 
you're a tenant in one of those units or one of those 
buildings, what is the notification requirement? And is there 
any HUD program that comes in and works with folks to try to 
help them find alternative units?
    Mr. Garvin. Yes. I think the notification is either 1 year 
or 9 months; I don't remember. I think it is a year. And then 
it is project-based Section 8, so they do get an enhanced 
voucher to pay a higher level--
    Mrs. Capito. I'm sorry, they get what?
    Mr. Garvin. They will get an enhanced voucher to pay a 
higher level of rent.
    Mrs. Capito. At that same unit?
    Mr. Garvin. Right.
    Mrs. Capito. That same unit. Okay. Thank you.
    The Chairman. Ms. McCarthy?
    Mrs. McCarthy. Thank you, Mr. Chairman. Listening to the 
talk about preserving and everything, as we renovate some of 
them to preserve them, are we doing anything about increasing 
access for handicapped people?
    Mr. Garvin. Well, we have good laws such as 504 
accessibility guidelines that new construction has to deal 
with. And if it's a significant rehab, they have to put 
accessibility into an existing development.
    Mrs. McCarthy. And the other area is foreseeing housing in 
apartments or whatever. Are you bringing them up to grade, you 
know--actually I personally think every apartment that you do 
should already be incorporated for the showers, handles, 
everything--
    Mr. Garvin. Grab bars, yes.
    Mrs. McCarthy. As we look at our senior citizens getting 
older, there is nothing wrong with having handles in the 
bathtub and the shower and things like that for safety--
    Mr. Garvin. Or at least the supports behind the wall, so 
that when they--
    Mrs. McCarthy. Right--
    Mr. Garvin. I remember I worked in Texas at the Housing 
Finance Agency, and we had accessibility features like that 
built into our new construction, that it would be prepared to 
put in accessibility features and doorways and such.
    Mrs. McCarthy. Two of my colleagues unfortunately aren't 
here right now. Mr. Ellison, Mr. Capuano, and myself, have 
introduced legislation, H.R. 5963, which really goes towards 
the protection of the tenants, especially under a foreclosure 
or anything else like that. I don't know if you have had a 
chance to look at it. I hope you have. If you have, could you 
give me some feedback on it?
    Mr. Garvin. I haven't seen it yet, but I will look at it 
and make sure you get my comments.
    Mrs. McCarthy. I appreciate that.
    Going back to my own district, my area--I live on Long 
Island, and the surrounding districts are really high cost. I 
mean apartments are extremely expensive to start with. How will 
the Housing Preservation and Tenant Protection Act of 2008 
address the difficulties in preserving affordable housing in 
areas like the one I represent?
    Mr. Garvin. I think I'll let my friend from New York here 
take that one.
    Mr. Donovan. Well, I think there are a couple of very 
important provisions that are contained in the bill that will 
help that. But just to step back, I think overall one of the 
things that HUD has done very effectively that has kept the 
rate of preservation that you heard about over 90 percent is in 
markets like New York to allow rents to be marked up to market 
under Section 8. In other words, it goes to this very principle 
the chairman was talking about, that if in fact the government 
is going to be required to pay a market rent through a voucher, 
and that it is not going to preserve the housing long term, why 
not look at the opportunity to actually raise the rents to 
market under the project-based program, particularly in areas 
where the housing is hardest to preserve, which is where the 
mark-up to market program has been focused. And that has been 
very, very successful in New York, both within the five 
boroughs, but also in Long Island and other areas in preserving 
existing housing.
    One of the great threats that we face right now is that 
there has not been adequate funding over the last few months to 
renew all the Section 8 contracts for a full year. And it is 
absolutely critical, no matter what we do in this bill, that 
there be the resources to be able to preserve that housing.
    We have about half of all the RAP and Rent Supp units 
nationwide in New York State. And it is absolutely critical in 
order to preserve that housing that we get the ability to 
convert those to project-based Section 8, because right now not 
only do you not have the opportunity to mark those up to 
market, so there's a huge incentive for owners to get out of 
those properties and convert them to market, but in fact you 
can't even renew those contracts. So when they end, there's 
nothing you can do currently to be able to preserve those 
properties.
    So that's one of the very important things specifically for 
Long Island and New York State in general in terms of 
preserving project-based housing.
    Mrs. McCarthy. And I agree with you on that, because I'm 
looking at some of my areas that actually are doing very well 
with Federal help on bringing back their towns and the 
villages. Now we are looking at where the affordable housing 
is, and it is prime location now to build condos and to have 
higher-income families coming into the area. I think we need to 
do what we need to do to preserve the housing, because there is 
no place on Long Island that we can--we can't ship them out to 
Montauk and have them drop off the island.
    [Laughter]
    Mrs. McCarthy. So it's an important issue.
    Mr. Donovan. Congresswoman, you also mentioned 
foreclosures. At the other end of the spectrum--not properties 
that are at risk of converting to market rate, but ones that 
are at risk of deterioration and foreclosure--we have worked 
very cooperatively with HUD and over a dozen properties have 
been preserved through the foreclosure process. One of the 
things the bill would fix--right now it was language in the 
Deficit Reduction Act of 2005, which stops HUD from being able 
to value properties and loans at a proper price.
    Just to give you an example, we have a property in the 
South Bronx that needs a huge amount of rehabilitation. It has 
a negative market value, if you look at it correctly. In fact, 
the current language in the Deficit Reduction Act required HUD, 
when we wanted to buy it under our right of first refusal, to 
value it at close to $7 million. So we would have to take $7 
million of New York City taxpayer money to buy a property that 
was actually worth less than zero because of the rehabilitation 
you had to put in. With the change in language that is in the 
bill, we could value that property correctly; we could buy it 
for a dollar, put our own resources in, and fix it up, just as 
we have been doing. And that is something that is affecting 
cities all over the country. Nobody has been able to use this 
right of first refusal--in Syracuse and a whole range of other 
places around the country--since this language was put in 
place. This bill would rectify that problem.
    Mr. Garvin. And that is important. We have not done one 
since this legislation took effect. And it baffles the cities 
when they want to preserve units, and we say, ``You have to 
spend $12 million for a property that's not worth anything.'' 
Can I say that?
    The Chairman. Try to address that going forward.
    The gentleman from Connecticut?
    The Chairman. Oh, I'm sorry. I didn't see that the 
gentleman from Texas has joined us. A distinguished housing 
advocate here, the gentleman from Texas.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    I appreciate the chairman bringing this bill up before this 
hearing today. You know, we talk a lot about it as we have 
hearings. We have hearings on this existing program, and one of 
the things this bill does is it tries to make an existing 
program somewhat better and more flexible.
    I think the question I want to ask the panel this morning 
is if you had a clean piece of paper today and, you know, you 
didn't have the confines of the existing programs and all of 
those, what would the new program--what would the program 
moving forward--what would that program look like? Because we 
have projects. We have vouchers. We have tax credits. We have 
all of these different scenarios out there and we are always 
trying to fit them together. And the question I have with a lot 
of Federal programs, I think we keep trying to fix something. 
And some of these programs are over 40 years old.
    The question I have is, if we started over, what works 
best?
    Mr. Garvin. I have to be a little careful here, and this is 
just my opinion, but I have to tell you, I have been at HUD for 
2\1/2\ years and Shaun knows, because he was there before me. I 
guess legislation changed every year between the 1970's and the 
1990's, that changed each existing program, so someone will 
come in with a refinance. And, it will be like, no. They have, 
you know, gas, electric, utility or something, so it operates 
this way. Or, they have five windows extra, so it operates 
another. There's no deal.
    There is no one deal that is ever alike. So I think 
streamlining; I think the low-income housing tax credit program 
has been just such a huge success, because it basically stays 
the same--mixed tax credits with some rental assistance and 
it's much cleaner and easier to do.
    Mr. Neugebauer. Mr. Donovan?
    Mr. Donovan. I would agree that I think the tax credit has 
become a very, very effective model. And I do believe that the 
work that Chairman Frank and Chairman Rangel are doing together 
to try to integrate those programs better is extremely 
important. We waste, frankly, way too much public funding in 
hiring lawyers and hiring consultants, and hiring a whole range 
of folks just to make programs work together, and, so 
simplification, to make the existing programs work, I think is 
very, very important.
    Beyond that, what I would say is what we have learned in 
New York City is that mixed income housing works best. And we 
have been able to find ways to do that, but I think there are 
ways to make the tax credit program, and also in particular to 
use vouchers more creatively, project-basing them as a 
percentage of units within developments. That can be extremely 
effective.
    What is interesting is that most of the affordable housing 
we produce in New York today, and we are doing a lot of it, is 
absolutely invisible to most people. Just as Chairman Frank was 
saying earlier, housing that was fought against 20 years ago is 
now highly valued in the neighborhoods. This isn't being fought 
against, because people don't differentiate it at all from 
unsubsidized housing in the neighborhood because of the mix of 
folks who are there. And that has allowed us to really be 
successful in a way that I think with some changes to the tax 
credit program, and in addition to some changes in the voucher 
program, we would have the right combination going forward.
    Mr. Neugebauer. Mr. Snuggs?
    Mr. Snuggs. It's difficult to go back to that white piece 
of paper, which I guess is the ultimate in simplicity. But I 
mention in my testimony that we work well with the local HUD 
office in Baltimore, and I think out of that we have been able 
to get additional flexibility, a desire to get the decisions 
quicker. And I think having the authority at the local level to 
work with the State as we work with our developers, I think 
that is critical. And that is what I would suggest.
    Mr. Neugebauer. You know, one of the things I heard some of 
you saying is that some of these projects, over 20, 30, or 40 
years, you know, the neighborhoods have changed. The dynamics 
of the community have changed; and, I appreciate the fact that 
Mr. Garvin said that he had been working with the developers 
themselves. And, I assume, Mr. Donovan, you have been doing the 
same as this partnership that the mayor is putting together, 
you know, offering some kind of innovative thoughts of 
mitigation.
    In other words, one of the things we know is that as Mr. 
Donovan says, having these huge concentrations of low-income 
housing, we found that that was not necessarily a good thing. 
And so having mixed projects and being able to refine the 
financing and in using some of the tax credit programs to help 
facilitate that, even to the point where if that developer can 
go buy an additional piece of property and be able to change 
the dynamics of the one that's currently under the Federal 
program, but being able to move some of that to another 
location, possibly makes sense.
    And I think that's where I said I don't want to throw the 
baby and the bathwater out, but what I do know is that a lot of 
those programs that we've had had some constraints on them that 
are causing the development community, for example, just to 
say, you know, I'm not going to fool with that. And certainly 
the streamlining is one of them, and I don't know if it is 
still as large as it used to be.
    Back over 30 years ago, I used to work for a developer that 
put together some Federal projects, and the soft costs were so 
much higher doing one of those types of developments than a 
normal development that the lawyer fees and the consulting 
fees, I mean, it was astronomical. That takes away a lot of the 
feasibility for a lot of those deals.
    Mr. Donovan. I just mentioned there is one provision in the 
bill which I think could be very helpful and exactly the kind 
of flexibility that you are talking about. I think, currently, 
HUD has just current-year, legislative approval to move Section 
8 contracts from existing properties to new properties. As you 
said, there are places where the building is so deteriorated 
that preservation may not make sense, or that it is so 
concentrated or there are other features and general 
preservation is the right strategy.
    But that doesn't mean that in 100 percent of the cases it 
is, and it would give HUD permanently the ability to move 
Section 8 contracts to new developments where that makes sense. 
It is a great outcome, because it preserves affordable housing. 
Right now, we are losing those units. But it also recognizes 
that a one-size-fits-all strategy doesn't work for every city 
or state.
    The Chairman. Well, if the gentleman would yield, I would 
add, first of all, in terms of areas where it doesn't make 
sense, and let's be honest, there are probably some cases where 
the increase in property values is such, and there may not be a 
lot of those, that the amount of money it would take to keep 
that one in the affordable inventory isn't worth it, and that 
you would be better off given that we have limited resources.
    So some have deteriorated so much, and there may be a few 
cases where it is just better to take that money and be able to 
use it elsewhere. The other thing I would say is from the 
standpoint of that flexibility, I have been told by every 
developer--the nonprofits, the religious groups, the for-
profits--that harmonizing the HUD appropriations programs and 
the low-income, tax credit program with zero appropriation 
increase is one of the best things we can do.
    And that is one of the things that is in our legislation. 
The staff, bipartisan, worked this out. Our staff on a 
bipartisan basis worked with the Ways and Means staff on a 
bipartisan basis. It wasn't fully in the Senate bill. I think 
it was more of an oversight than anything else, but that's 
another very important piece that we can do to get that full 
integration.
    Let me just say to my colleagues--I don't think it is a big 
secret--we have a lighter than usual attendance, because many 
of our colleagues who have a great interest in this who are 
members of the Congressional Black Caucus, had another 
engagement, namely a meeting with Senator Obama. So I think 
people will think that their absence from this meeting might be 
understandable. It shows no lack of interest in this subject.
    The gentlewoman from California.
    Ms. Speier. Thank you, Mr. Chairman.
    Mr. Donovan, in your prepared testimony, you referenced 
that oftentimes the rehabilitation costs for HUD properties are 
as much as $100,000 per unit, which is a lot of money. Now, in 
certain areas, in high-cost areas, you are probably better off 
rehabilitating those properties, but in lower-cost areas, I 
would think $100,000 would be a windfall to those who are 
somehow rehabilitating those properties.
    Do you happen to know whether this figure is flat-rate or 
is this a figure that varies from area to area?
    Mr. Donovan. It absolutely varies from area to area. When I 
heard my colleagues say that they could construct a new unit 
for $150,000, I almost fell off my chair. We are at least 
double that in the five boroughs, simply because of the 
constraints on space, the cost of moving materials, labor, and 
a whole range of things.
    So, $100,000 would be a very high number. That would be at 
the top end of the spectrum. We have HUD properties that we 
preserve where we only need to put in $10,000 or $20,000 a 
unit; and, absolutely, I think that top figure, New York City, 
San Francisco, there are few of the highest cost areas where 
$100,000 would be at the top end. But in most other places it 
would be significantly lower than that, simply because of the 
cost of materials and labor and other things are lower.
    Ms. Speier. Because the market changes so radically from 
period to period, and many of these programs have been on the 
books for 10, 20, 30, or 40 years, I wonder if you know of any 
provisions that really should just be terminated, that no 
longer fit the bill, that may in fact be boondoggles, that we 
should just strip out of the existing programs? And maybe this 
is a question to both Mr. Garvin and to Mr. Donovan.
    Mr. Donovan. I was going to say that I think one of the 
things that has been very refreshing to us in the world trying 
to preserve these properties is to see HUD over the last few 
years really try to simplify some of the programs and 
streamline some of those requirements. I think with Mark to 
Market, for example, distribution restrictions and certain 
things that are really, I think, frankly, anachronistic at this 
point in terms of the way these deals get done today that can 
really help create incentives for owners to stay in, while, you 
know, actually benefiting residents, because the programs do 
remain.
    I think one of the provisions I would very much point to is 
that there are programs like ``Rent Supp'' and ``RAP'' that are 
out there today, where compared to the project-based, Section 8 
program, which has well over a million units, there are 35,000 
units in RAP and Rent Supp. There are other lingering programs 
that are older, and what we are recommending and is included in 
the bill is to simply take those programs and roll them into 
the current programs.
    Whenever you can have one program instead of three or five 
or seven programs, it is going to make administration much 
simpler and preserve units in the long run. So I think in 
particular this RAP and Rent Supp conversion is a very good 
example of where we can just say, ``You know what? It is just 
not worth retaining those whole programs. Let's just put it 
into project-based Section 8 program that is working well today 
to preserve property.''
    Ms. Speier. So, are there any other programs that aren't 
working that should be addressed?
    Mr. Garvin. I will take that one.
    Ms. Speier. All right.
    Mr. Garvin. There are definitely programs that have the 
issues, and that is why, as Chairman Frank hit it on the head 
earlier, the more flexible HUD can be working with folks with 
low-income housing tax credits or tax exempt bond financing, 
making us not such an obstacle. And I'm very impressed with 
staff, like Shaun was saying, over the last year or so, that 
they have opened up and want to be a partner, less a harsh 
regulator.
    But they want to get the deal done and make it efficient, 
and I think that is going to be with using other programs, is 
going to be the best change for production and preservation.
    Ms. Speier. One final question, Mr. Chairman.
    The foreclosure scenario that is alive and well in our 
communities across the country could avail HUD and local 
housing programs of opportunities to pick up properties. And I 
am curious whether or not you are nimble enough, whether or not 
we have created the opportunity for you to take advantage of 
those opportunities. And, if we haven't, what can we do quickly 
to address that?
    Mr. Garvin. I think what we are doing now, which is the 
most responsible thing, and I didn't expect a single-family 
question, but is we have come up with FHA secure, which is our 
refinance mortgage insurance product, and our volume has 
tripled since October. So I think presenting foreclosure is the 
most important thing, and the HOPE Now Alliance has done a 
phenomenal job too working out something to prevent 
foreclosures.
    The Chairman. If the gentleman would yield, I would say in 
the bill, actually, that our colleague from California carried 
on to the Floor and then to the Senate, we have two versions of 
funding to go the cities, precisely to buy-up foreclosed 
property, somewhat contrary. The Senate wanted to put this in a 
package, and it may go into a later package, but we have been 
trying. Both the House and the Senate provided additional 
funding to the cities for exactly that purpose.
    Mr. Garvin. And it is a double-edged sword, because in one 
way, knowing that there is going to be a possibility for cities 
and States to purchase foreclosed homes might make the lenders 
less interested in trying to work-out the loan and take it 
right down. So it is a double-edged sword.
    The Chairman. What we did in our bill, to respond to that, 
was to limit it to property that has already been foreclosed; 
there is enough of that out there that we could use.
    Mr. Donovan. I would also just add, I think there is a 
model out there that the single family side of HUD has put 
together that can show how this is done well: the ACA program 
or asset control area. We are, like many localities around the 
country, buying foreclosed FHA homes for 50 cents on the dollar 
or less; and, we are able to take those, add in local funds, 
renovate them, and sell them affordably.
    I completely agree that keeping folks in their homes is 
absolutely the first option, but not everybody will be able to, 
and it is very important. The funding that Chairman Frank 
talked about is absolutely critical. What's interesting in New 
York City, we found we had a rash of tax foreclosures on 
properties. My agency owned more than 100,000 units in 1980 
around New York City.
    We put billions of dollars of City capital into renovating 
those buildings and working with the private sector either as 
homeownership or as rental housing. Studies have found that the 
increase in property taxes the City collected from the 
surrounding properties was larger than the billions of dollars 
we spent in City capital to renovate those properties. The 
billions of dollars may seem like a lot of money in the Federal 
bill, but in fact the ripple effects of that investment can 
more than pay back the government. It's a good investment in 
stopping the decline of nearby properties and resulting 
property tax declines for states and localities and the Federal 
Government.
    Ms. Speier. My question was about foreclosures on apartment 
buildings and whether or not we have the means to move quickly 
into the purchase of those in a foreclosed setting.
    Mr. Garvin. We do auctions and such.
    The Chairman. Pull the microphone closer to you. Just pull 
it close. It won't hurt.
    Mr. Garvin. This is about as close as I can do it.
    Ms. Speier. He doesn't want to kiss it.
    Mr. Garvin. Right, right, right. We will do auctions 
relatively quick. And multi-family is nowhere near as bad as 
single family. I mean, there is very, very little foreclosure 
relative to single family.
    Ms. Speier. Thank you.
    Mr. Donovan. I would definitely compliment HUD, too, in the 
work that they have done. As I mentioned earlier, we have had 
more than a dozen properties in foreclosure that we have 
bought. This provision in the bill that we are discussing today 
would be critical in terms of allowing HUD to value those 
properties correctly. But, also, this loan sale that we are 
working on, I think, is a preventive measure to stop properties 
from getting to foreclosure in the first place.
    If we can take control of those loans, invest local assets, 
and work to bring in new owners, hopefully those properties 
will never get to foreclosure in the first place, and we save 
public dollars. We save an enormous amount of heartache and 
terrible conditions for residents. I think it's a great model 
and HUD is being innovative in terms of looking to that as a 
new model for being able to deal with the next generation of 
foreclosed properties.
    The Chairman. We have some votes.
    So I thank this panel, and we appreciate this.
    Let me introduce the next panel now, and then we are going 
to take a break. We have four votes, I'm told, which should 
take about 40 to 45 minutes. There is nothing we can do about 
it. If people want to get a cup of coffee or an early lunch or 
something, you can do that. We will be resuming in about 40 to 
45 minutes, and we will start as soon as we can.
    I am going to introduce the panel now and that will save us 
time later: Mr. Michael Bodaken, president of the National 
Housing Trust; Laura Burns, president of Signal Group/Eagle 
Point Properties; Amanda Seward, previously introduced by our 
colleague, Ms. Waters; Laverne Joseph, president and chief 
executive officer of the Retirement Housing Foundation; Ricky 
Leung, president of the Cherry Street Tenant Association; J. 
Kenneth Pagano, secretary of the National Affordable Housing 
Management Association; and Brian Poulin, a partner with 
Evergreen Partners.
    We will be in recess. We may have some more of our members 
when we come back, and as soon as we come back, we will 
continue.
    [Recess]
    The Chairman. I regret the fact that this took as long as 
it did, but we will now presume. Unfortunately, the votes also 
interrupted a meeting that the Congressional Black Caucus was 
having with Senator Obama. There are members who very much 
regret not being here, but they will be reading your testimony 
and benefitting from what you say.
    We will begin with Michael Bodaken, the president of the 
National Housing Trust.

STATEMENT OF MICHAEL BODAKEN, PRESIDENT, NATIONAL HOUSING TRUST

    Mr. Bodaken. Chairman Frank, Ranking Member Bachus, thank 
you for inviting me to testify today. My name is Michael 
Bodaken and I am president of the National Housing Trust.
    Since 1986, the Trust has been dedicated exclusively to the 
preservation and improvement of existing affordable subsidized 
housing. The Trust acts on a fundamental belief, preserving 
existing affordable rental housing is an essential first step 
in solving our Nation's housing dilemma. Our public policy 
advocacy is informed by our direct experience in the field.
    The Trust has helped preserve and improve more than 22,000 
affordable rental units in 41 States and the District of 
Columbia.
    Today, I also testify on behalf of the National 
Preservation Working Group, a coalition of 24 organizations 
dedicated to preservation of our Nation's rental housing stock.
    Let me begin by thanking you for this draft comprehensive 
legislation. Federally subsidized housing is an essential 
housing resource in nearly ever community in the United States 
of America.
    Our analysis demonstrates that in this committee alone, 
over 190,000 federally subsidized housing units are located, 
and will expire over the next decade. We have a committee 
district by district list located in Attachment A to our 
testimony.
    Mr. Chairman, our Nation is currently undergoing a massive 
foreclosure crisis in the single family housing stock. A clear 
implication of those foreclosures is that many will result in 
families shifting from home ownership to rental housing. We 
will need that rental housing stock as a backstop to the 
situation that we are in today.
    Funded by the MacArthur Foundation, the Joint Center at 
Harvard just published a study which indicated that as 
displaced owners are forced into the rental market, a growing 
number of renters are competing for a limited supply of 
affordable housing.
    By addressing this challenge, it begins with preserving 
rental housing and preserving rental housing will be much 
helped by the legislation drafted by this committee.
    At one time, we had a one-size-fits-all Federal housing 
program. That is certainly no longer the case. Over the past 
decade, State and local governments have increasingly devoted 
scarce resources, including low-income housing tax credits and 
an array of other resources to save tens of thousands of 
Section 8 units throughout the Nation.
    These decisions to emphasize preservation are particularly 
sensible because preserving an existing home is significantly 
less expensive than constructing new affordable housing.
    The Trust recently concluded that it cost approximately 40 
percent less to preserve a multi-family rental unit than to 
preserve one in the same community. In more expensive 
communities, the cost of building new affordable housing is 
almost double that of preserving affordable housing in the same 
neighborhood.
    However, in order for federally assisted housing to stand 
the test of time, the Federal Government must act as a fair and 
consistent partner by honoring its commitments.
    The stock of privately owned affordable housing is the 
result of a successful 4-decade partnership between the Federal 
partnership and the private sector. However, last summer, many 
owners went month after month while their Section 8 payments 
were either delayed or paid very, very late and often in not 
the amounts that were required. For the tenants and owners, 
this is unacceptable.
    The first principle of preservation is for the Federal 
Government to provide prompt reliable funding for existing 
housing assistance contracts. Without full appropriations to 
fund existing contracts, your efforts to preserve affordability 
faces a daunting challenge.
    Mr. Chairman, I brought with me a Tzedakah box today that I 
received this morning from a Jewish organization, and as you 
know, every Friday night, we give to some charity by depositing 
a gift into the Tzedakah box. We provide a little bit of money 
to remind ourselves of the responsibility we owe the world.
    There are many of us out there who are accepting our 
responsibility to preserve and improve affordable rental 
housing. We are observing our obligation. We ask the Federal 
Government to satisfy its obligation halfway, and if we do 
that, we can save a lot of this housing.
    We believe the principles form an useful framework for 
thinking about policy change that can and will improve the 
number and quality of preservation transactions.
    We have three principles that we would urge you to consider 
in your legislation. Number one, to encourage and support 
responsible long-term ownership of affordable rental housing. 
Number two, to encourage and streamline sales and transfers of 
at-risk housing, to qualify preservation owners, and number 
three, to provide appropriate support to existing residents of 
affordable rental housing who seek to remain in their homes.
    We have many more detailed recommendations, many of which 
are included in the draft legislation. The Preservation Working 
Group's recommendations are included in Attachment B.
    I cannot thank you enough, Mr. Chairman, and the entire 
committee, for putting this legislation in place at this 
particular time.
    [The prepared statement of Mr. Bodaken can be found on page 
46 of the appendix.]
    The Chairman. Thank you. For the benefit of the reporter, I 
think the common spelling of ``Tzedakah'' is T-z-e-d-a-k-a-h.
    Mr. Bodaken. Well spelled.
    The Chairman. Thank you. I think that is the commonly 
accepted translation from the Hebrew.
    Next we have Laura Burns, president of the Signal Group/
Eagle Point Place Properties.
    By the way, we have been joined by the leaders of the Small 
Business Committee, who were elsewhere because the Small 
Business Committee was working on other things. Small 
businesspeople would actually be involved in some of these 
units, so we have the gentleman from Illinois, Mr. Manzullo, 
and the gentlewoman from New York, Ms. Velazquez, whose 
sponsorship of one of the major bills was already commented on 
very favorably by Mr. Donovan.
    Ms. Burns?

 STATEMENT OF LAURA BURNS, PRESIDENT, SIGNAL GROUP/EAGLE POINT 
                           PROPERTIES

    Ms. Burns. Mr. Chairman, members of the committee, my name 
is Laura Burns and I am the president and CEO of the Eagle 
Point Companies and a board member of the National Leased 
Housing Association.
    My affordable housing experience began in the public sector 
in 1985 at the Boston Redevelopment Authority and later as a 
consultant and a developer.
    My company is dedicated to the preservation of affordable 
housing stock, and over the last 6 years, we have acquired and/
or rehabilitated 23 properties and 5,300 apartments in six 
States and Washington, D.C., which will remain affordable for 
the next 30 years.
    NLHA has been working with the committee staff to create 
workable legislation to facilitate the preservation of the 
existing housing stock. However, I would like to spend my time 
today sharing several experiences that highlight particular 
barriers to my company's ability to complete preservation 
transactions.
    Eagle Point has enjoyed some very successful and satisfying 
experiences in coordinating the complex world of State agency 
programs, the low-income housing tax credit program, and HUD.
    In 2004, my company acquired a property known as Delsea 
Village Apartments in Millville, New Jersey. This 100-unit 
family property originally built in 1971 under the HUD Section 
236 program also had a Section 8 project-based assistance 
contract. The property had been well cared for by the prior 
owner, but as with any property that is 30-plus years old, 
certain systems needed to be replaced and all of the apartments 
were dated and tired, leading to a declining quality of life 
for the residents.
    We gathered the financial commitments necessary to acquire 
and renovate the property, and gained approvals for tax-exempt 
bond financing, low-income housing tax credits, New Jersey low-
interest loans, and other State agency assistance.
    We provided HUD with an independent study showing the 
expected market rents after our planned $20,000 per unit 
renovation.
    As a Section 236 project, HUD guidance allows a budget 
based rent increase up to the as improved market rents. HUD 
allows that budget to include the new debt service and the cost 
structure after the renovation. HUD approved the rent increase 
and the use of the 236 IRP subsidy and that project was 
successfully acquired and renovations began in April 2004.
    In order to arrive at Delsea Village, our residents and 
their visitors must drive straight through another HUD-assisted 
complex known as Delsea Gardens. Although the names and dates 
of construction are similar, the prior owners were different, 
and Delsea Gardens was in much worse condition.
    Instead of mowing the grounds, the owner had decided to 
simply pave the front yards, and the exterior of the buildings, 
the play areas, and the manager's office all reflected minimal 
maintenance.
    Delsea Gardens also has 100 units and has project-based 
Section 8 assistance, so it seemed to us a natural and obvious 
decision to acquire and renovate Delsea Gardens.
    We negotiated a purchase and sale agreement, obtained the 
same set of subsidies from the State of New Jersey, and looked 
forward to the day our residents at Delsea Village would drive 
through an improved neighborhood property, and we looked 
forward to the day that both properties would have the same 
level of services and improvements so that no child would wish 
he or she lived next door at the nicer property.
    However, Delsea Gardens was constructed and financed under 
a different HUD program, and HUD does not allow rents to be set 
at the ``as improved'' market rent, only at the current 
inferior condition.
    Furthermore, HUD rules limit this project to a budget based 
review using old debt service and the old cost structure. This, 
of course, would not have allowed enough funds to improve the 
property.
    Therefore, the approved subsidy was returned to New Jersey, 
the seller terminated the purchase contract, and shortly after, 
the property was sold to an owner who continues to operate it 
at the current level. The pictures that you see before you were 
taken last week.
    HUD established this rule which differentiates outcomes for 
different properties without the direction of Congress. The 
proposed draft legislation before you would correct this 
inconsistency and allow a property that is to undergo 
rehabilitation to request a rent increase based on a budget 
with increased debt service and the new cost structure.
    We have been attempting to preserve another property for 
almost 5 years. We had our first meeting with HUD 4 years ago 
to discuss the need to renovate a 118-unit elderly project in 
Connecticut, which happens to be owned by a nonprofit 
organization.
    For these last 4 years, we have waited for HUD's policy 
decision and direction relative to whether the seller may 
accept some or all of the sales proceeds. Five-and-a-half years 
from now, this seller, a rotary business group, has the 
unilateral right to sell the property at market rates, 
terminate the Section 8 contract, and accept all of the sales 
proceeds.
    This seller has been patient in working with us and has 
agreed to defer over $1.5 million in value. The residents have 
had no choice but to be patient as they enter their fourth 
summer without renovations and they might expect continued 
plumbing problems, broken elevators, and deteriorating windows.
    We think that we are finally close to getting an approval 
with HUD, but a different seller might have decided to walk 
away from this preservation transaction and instead just simply 
waited another 5 years and accepted significantly increased 
financial benefits.
    Again, this unwritten policy to limit sales proceeds to 
nonprofits has been HUD's misinterpretation of current law and 
results in properties that would otherwise have been renovated 
and preserved today, instead to be put at risk of loss in the 
future.
    This draft legislation would address the issue so that more 
properties will be preserved and renovated when the need is 
there and a preservation buyer is willing and able to purchase 
the property.
    Thank you for the time. I am happy to answer any questions.
    [The prepared statement of Ms. Burns can be found on page 
77 of the appendix.]
    The Chairman. Ms. Seward?

  STATEMENT OF AMANDA SEWARD, COUNSEL, LINCOLN PLACE TENANTS 
                          ASSOCIATION

    Ms. Seward. On behalf of the tenants of Lincoln Place 
Apartments in Venice, California, I am pleased to be here. We 
applaud you for recognizing this critical issue.
    The tenants of Lincoln Place have been victimized by the 
failure to protect the government's investment in affordable 
and workforce rental housing, and their story will hopefully 
lend support to the position of HUD tenants speaking before you 
today.
    Lincoln Place is not currently a HUD property, but because 
of rent control and long-term tenancies at a 795 unit, it 
provided much of the affordable housing available in Venice. 
The property's subsequent sale to investment speculators and 
the forced eviction of the tenants tell of the horror 
communities face when we do not take steps to protect our 
investment in low- to moderate-income housing.
    Lincoln Place was financed under Section 608 of Title VI of 
the National Housing Act of 1934. It was an aggressive program 
enacted by Congress which was designed to stimulate investment 
in low- and moderate-income rental housing, during a period in 
which private enterprise was reluctant to invest in such 
housing.
    Lincoln Place was the largest 608 development in 
California. It was a particularly successful development due to 
the progressive design ideas of the multi-cultural team that 
created it. The team included a Jewish developer, an African-
American architect, and an Asian-American draftsman, all 
working in an unusual combination in post-World War II 
California.
    Their goal was to create luxury on a budget. Their effort 
in 1949 was designated a historic resource in 2005. Lincoln 
Place is a wonderful example of how architecture and site 
planning can be a successful social took in creating ideal 
communities.
    The tenants varied ethnically and in age. There was 
economic diversity including Section 8 households, teachers, 
postal workers, architects, designers, and lawyers.
    It flourished under the ownership of the original developer 
until the 1980's when it was first sold. In 2003, AIMCO, a 
REIT, and one of the largest owners of HUD-subsidized housing 
in the country, purchased the property and shortly thereafter, 
eviction proceedings began.
    On December 6, 2005, the Sheriff's Department locked out 52 
households, including 21 children. It was the largest lockout 
in a single day in Los Angeles' history. These tenants were not 
evicted because they did not pay their rent. They were evicted 
because they were not paying enough rent.
    Some of these tenants have still not found housing. Some 
have had to move out-of-State. Families report that their 
children still suffer nightmares. Some have moved to areas in 
Los Angeles where their children often hear gunfire at night.
    After the 2005 lockout, many of the remaining tenants who 
because of age and disability were entitled to a longer notice 
period, now felt they had no choice but to move, but they did 
not give up hope, and their struggle has not been in vain.
    The California Court of Appeals recently ruled the 
evictions were unlawful. Negotiations are now underway to find 
a friendly buyer who will reinstate the tenancies of those who 
were evicted and rehabilitate the property.
    The City is now posed to enforce habitability standards. 
While we are hopeful about the future, the fight has been long 
and it is not over yet.
    The success of our efforts to save Lincoln Place is due to 
an unique set of circumstances that cannot be easily replicated 
across the Nation. It took a group of tenants who loved their 
community so much they simply refused to move. They risked 
their credit standing. They organized community meetings, 
established a tent city, they pursued the court system, and an 
activist community supported them when it was not fashionable 
to do so. A team of lawyers worked on a pro bono basis or at 
reduced fees to defend their rights. Some politicians lent 
their support including, notably, a member of this committee, 
Congresswoman Maxine Waters.
    The personal sacrifice made by so many people has been 
extraordinary, but it should not have been this hard and it 
should not have taken this long.
    You have the opportunity to give tenants the tools they 
need to save their homes. In my view, the most important 
protection is the national right to purchase and the definition 
of a ``nonprofit'' should be broad enough to cover tenant based 
cooperatives and land trusts.
    Other important provisions include the tenant empowerment 
measures, particularly those which provide that tenants are 
third party beneficiaries under HUD contracts so that they can 
require enforcement.
    Legal fees should be awardable to prevailing parties in the 
HUD contracts in order to encourage legal support for efforts 
to enforce legitimate tenant rights.
    Thank you for holding this hearing and allowing us to 
participate. We would be happy to answer any questions that you 
may have. Thank you.
    [The prepared statement of Ms. Seward can be found on page 
150 of the appendix.]
    The Chairman. Mr. Joseph?

 STATEMENT OF REVEREND LAVERNE R. JOSEPH, PRESIDENT AND CHIEF 
EXECUTIVE OFFICER, RETIREMENT HOUSING FOUNDATION, ON BEHALF OF 
      STEWARDS OF AFFORDABLE HOUSING FOR THE FUTURE (SAHF)

    Mr. Joseph. Chairman Frank, and members of the committee, 
thank you for the opportunity to testify this morning on one of 
the most critical issues in affordable housing. I have 
submitted my written comments for the record.
    My name is Laverne Joseph, and I am president and CEO of 
the Retirement Housing Foundation headquartered in Long Beach, 
California. RHF owns and operates about 15,000 affordable 
rental homes, assisted living units, and nursing beds in 24 
States.
    I am testifying today on behalf of Stewards of Affordable 
Housing for the Future, known as SAHF.
    RHF and SAHF together provide affordable housing to more 
than 100,000 persons in 48 States, the District of Columbia, 
Puerto Rico, and the Virgin Islands. RHF is also an active 
member of the American Association of Homes and Services for 
the Aging and a member of AAHSA's affordable housing finance 
committee, and SAHF and AAHSA collaborate on policy issues that 
affect low-income seniors.
    The need for affordable housing in our society is a very 
pressing issue and yet we are losing, as you know, much of what 
we have. The first order of business is to keep affordable 
housing that we have already built at great expense to the 
taxpayer.
    Your letter of invitation lays out many of the discouraging 
statistics. I am not going to repeat them. I would only add 
that the loss of project-based Section 8 housing is 
particularly damaging since tax credit housing without Section 
8 cannot serve the very poor.
    Moreover as a rule, preservation is cheaper, faster, and 
greener than new construction. The importance of preservation 
is underlined by the decision of the John D. and Catherine T. 
MacArthur Foundation to invest $150 million in an initiative 
entitled, ``Window of Opportunity, Preserving Affordable 
Housing.''
    MacArthur is making a difference by: One, strengthening the 
nonprofit sector; two, supporting the policy analysis; three, 
researching the impact of affordable housing on residents and 
communities; and four, stimulating the preservation work of 
State and local government.
    Any legislation to preserve affordable housing inventory 
will be complicated because as we have heard here today, all of 
the programs are very complex.
    This morning, I would like to briefly emphasize just four 
themes. First, Congress should extend the availability of 
tenant protection vouchers to residents in a much wider range 
of properties. When despite all efforts, a federally assisted 
or insured property is lost to affordability, we have a moral 
obligation to give the residents access to affordable housing, 
and current law falls well short of meeting this obligation.
    Secondly, we need long-term project-based assistance. For 
example, with RHF, we have had direct experience when the need 
for 20-year project-based assistance to preserve affordable 
housing in tight markets made it possible for us to buy and 
preserve 10 properties with nearly 1,600 apartments. Without 
passage of preservation legislation, we would be blocked from 
acquiring the rest of this inventory. We look forward to its 
passage.
    When older Section 202 properties without Section 8 are 
refinanced or their mortgages mature, they should also be 
eligible for project-based rental assistance or they will 
continue to deteriorate in weak markets or be converted to 
expensive rentals or condos in strong markets.
    Legislation should permit the use of project-based 
assistance in place of enhanced vouchers and the conversion of 
Rent Supp and RAP contracts to Section 8.
    Third, Congress should recognize the key role played by 
social enterprises like SAHF members in preserving affordable 
housing. We operate efficiently at a scale to serve nonprofit 
missions. We have invested heavily in professional staff and 
technology and in training, and yet HUD sometimes continues to 
treat us as if we were captive organizations without a need for 
capital to deal with problem properties and to grow our 
missions.
    Where a for-profit owner could not make distribution of 
funds to investors for personal use, a nonprofit subsidiary is 
barred from donating funds to its nonprofit parent corporation 
to expand the mission. Legislation should remove these 
restrictions so that the distribution of cash flow can make it 
possible to re-use these proceeds from recapitalization.
    Finally, we must secure long-term preservation. In the 
1960's and 1970's when America first began to attract 
developers to affordable housing, Congress offered a big upside 
on eventual conversion of the housing to market rate in order 
to attract the necessary capital.
    Today, we are often forced to use scarce tax credit 
resources to buy out huge appreciation. Now, there is a mature 
industry, both nonprofit and for-profit, interested in owning 
affordable housing and there is no need for windfall rewards to 
attract investors.
    To conserve tomorrow's resources, SAHF suggests that 
Congress create a new category, preservation owner. In return 
for preservation incentives, these owners would be required to 
keep properties affordable for at least 40 years, assuming 
continued availability of rental assistance.
    Thank you for inviting me to testify today. Thank you for 
the work that you have done on affordable housing for more than 
2 decades, and we look forward to continuing to work with you 
and the committee and its staff on this very critical 
preservation initiative.
    [The prepared statement of Reverend Joseph can be found on 
page 106 of the appendix.]
    The Chairman. Mr. Leung?

   STATEMENT OF RICKY LEUNG, PRESIDENT, CHERRY STREET TENANT 
                          ASSOCIATION

    Mr. Leung. Good afternoon to you all. Thank you, Chairman 
Frank. My name is Ricky Leung. I am a tenant leader of the 
Lower East Side of Manhattan, New York City, and also a board 
member of the National Alliance of HUD Tenants, a national 
tenant union representing families living in privately owned 
HUD-assisted multi-family housing.
    Since the Title VI preservation program ended in 1996, our 
Nation has lost at least 360,000 units of affordable low-income 
housing. We commend you and Chairwoman Waters for including the 
first right of purchase in the draft preservation bill to stop 
this loss.
    We also thank my own Representative, Congresswoman Nydia 
Velazquez, for filing H.R. 44, now Title IV in the bill. Title 
IV comes back full circle to center Ed Brooke's original vision 
for preserving HUD's troubled housing in 1978. For 30 years, I 
have lived at Cherry Street Apartments in a Section 8 unit with 
my parents, a secure home for our family. We would not survive 
long in the overheated Manhattan market.
    The 488 families at Cherry Street are the diverse working 
and middle class, a microcosm of the City and the Nation.
    In 2003, our project-based Section 8 contract was set to 
expire. We were fearful what would happen given the super hot 
real estate market in Manhattan. Our tenant association 
persuaded the owner to renew, but he did so for only 5 years. 
In August 2008, he will decide again what to do.
    Passage of a first right of purchase will at least give our 
tenant association and the City a fighting chance to save our 
homes. By itself, a first right of purchase would not add to 
Federal costs. It would simply allow a city or a nonprofit to 
purchase an at-risk property using existing programs like Mark 
Up to Market.
    There is ample precedence besides Title VI. For 20 years, 
Congress has provided a Federal right of purchase for rural 
housing, and several States have adopted similar laws.
    The need for this measure is urgent in New York City. We 
are losing affordable housing to real estate speculators at an 
alarming rate. Since 2001, over 32,000 units have already been 
lost and the rate has spiked dramatically.
    A national first right of purchase will help save 20,000 
more apartments at immediate risk. In the wake of 9/11, the 
loss of 54,000 affordable apartments in New York City is a 
tragedy which we can neither bear nor ignore.
    Behind this crisis is a surge of global predatory investors 
taking advantage of the declining dollar and the de-regulation 
of HUD housing since 1996. Just three investors have recently 
converted 13,000 subsidized apartments in New York City alone. 
In Harlem, one investor flipped the sales price of 400 units 
from $300 million to $1 billion in just 2 years.
    Radical de-regulation has failed in the mortgage industry 
and the subsidized multi-family industry alike. We have lost 
too many affordable homes and communities. It is time to push 
back with judicious moderate regulation to save affordable 
rental housing, as the committee has recommended for the single 
family stock.
    Congress dismantled Title VI in 1996 due to concerns about 
excessive costs. Under Title VI, residents and HUD negotiated 
major repairs, permanent affordability, and transfers to 
nonprofits and tenant organizations.
    Today, the enhanced voucher or Mark Up to Market options 
available to owners are just as costly as Title VI, but with 
none of these benefits.
    As long as owners like mine have an unrestricted choice to 
opt out, they can extort ever increasing subsidy payments from 
HUD. Taxpayer-financed windfall profits is the alternative of 
losing affordable housing. It is unacceptable.
    A first right of purchase will save money in the long run 
by moving housing from the speculative spiral owner windfalls 
and guarantee benefits for investment of any Federal funds.
    The Section 8 funding shortfall reinforces these opt out 
trends and makes the loss of HUD housing a nationwide crisis. 
As many as 500,000 units could be at risk due to funding 
uncertainty.
    NAHT also supports tenant empowerment provisions in the 
bill. These no cost measures will allow tenants to join HUD as 
partners to improve and save our homes.
    Tenants have the greatest stake and the firsthand knowledge 
to make sure that public subsidies are used well. Owners and 
agents who provide quality housing should welcome us as 
partners in this mission.
    We urge the committee to retain and strengthen these tenant 
empowerment provisions and the first right of purchase. When 
Senator Ed Brooke initiated principles for preserving at-risk 
HUD housing in 1977, the year I was born, he understood that a 
combination of judicious regulation, tenant protection, and 
empowerment was essential to save our homes.
    We commend the committee leadership for crafting a bill 
which reaffirms these principles and addresses the new 
challenges we face today.
    To conclude, in the three main languages that are spoken in 
my community, I would like to say in Spanish, ``gracias.'' In 
my native tongue, Chinese, ``siur siur,'' and in English, 
``thank you.'' Thank you very much.
    [The prepared statement of Mr. Leung can be found on page 
116 of the appendix.]
    The Chairman. Mr. Pagano?

STATEMENT OF J. KENNETH PAGANO, SECRETARY, NATIONAL AFFORDABLE 
                 HOUSING MANAGEMENT ASSOCIATION

    Mr. Pagano. Thank you, Chairman Frank, for holding this 
important hearing to examine preservation of affordable rental 
housing. My name is Ken Pagano. I am honored to be here today 
to speak on behalf of the National Affordable Housing 
Management Association.
    I am currently serving as secretary of NAHMA, chairman of 
the regulatory committee, and vice chairman of the tax credit 
committee. I am also president and CEO of Essex Plaza 
Management and president of NAHMA's Regional Chapter, JAHMA.
    Chairman Frank, I would like to begin by commending your 
leadership on this issue. Preventing the loss of affordable 
rental houses is an important public policy goal and you have 
made a considerable effort to make preservation a national 
priority.
    Preservation is the heart of what NAHMA members do. Our 
organization represents managing agents and owners in both the 
for-profit and nonprofit community who participate in Federal 
rental assistance programs.
    My written statement has been submitted for the record. The 
testimony I offer today will summarize the major obstacles to 
preservation and NAHMA's recommendations for overcoming these 
challenges.
    The most common factors working against preservation, NAHMA 
members report, are market forces, undependable project-based 
Section 8 funding, poor experiences with HUD as a business 
partner, and concerns about long-term sustainability of 
projects, insufficient operating costs adjustment factors, and 
overall complexity of preservation transactions.
    It was very nice to hear HUD say this morning that they 
have worked out all their problems. They seem to be relying on 
figures and statistics that were before the debacle last summer 
when many operators were faced with 3 or 4 months of no 
subsidy.
    The number of property owners that are going to be opting 
out this year remains to be seen. We received a lot of 
indication from our members that, in fact, they will be opting 
out because they are receiving pressure from limited partners. 
Limited partners are looking at no return, a risky project that 
is not receiving its regular funding, and no rental adjustments 
to make corrections either in the Mark to Market program 
underwriting or to make up for operating costs that are 
unforeseeable.
    Many municipalities, as they have been cut back over the 
years by State aid, have resorted to different methods of 
passing expenses off to property owners. They are requiring 
costly security measures. They are requiring trash pick up on 
the unit owner as opposed to being done by the municipality. 
They have also sold off water and sewer formerly municipal held 
to private vendors who are now raising rates which are 
unaccountable for.
    There is no way under the current system of HUD for us to 
adjust for those increases. Many of the projects that went 
through the Mark to Market process have in fact been operating 
at a deficit and the investors are getting nervous.
    The program is at a crossroads, based on last summer's 
debacle. Restoring confidence in the guarantee of timely full 
funded project-based Section 8 payments is a cornerstone of 
preservation.
    To achieve this, NAHMA recommends full funding 12 month HAP 
contracts in Fiscal Year 2009, ensuring HAP payments are not 
interrupted due to insufficient funds or administrative 
problems, addressing regulatory issues that affect timeliness 
of HAP payments, and swift approval of Representative Maxine 
Waters' Mark to Market Extension and Enhancement Act, H.R. 
3965, which includes a section requiring HUD to pay interest on 
late HAP payments to owners.
    It is getting more difficult for managing agents to 
convince owners to stay in the program. My owners, especially 
the limited partners, are looking at a situation where their 
costs are increasing, returns are diminishing, and the 
uncertainty of HAP funding is putting the project at risk for 
default on the mortgages.
    NAHMA recommends creating incentives which encourage 
voluntary transfer preservation. Congress should quickly pass 
H.R. 1491 which would provide tax relief to owners whose buyers 
preserve the affordability.
    We also believe a grant program which provides gap 
financing to qualified preservation entities, whether for-
profit or nonprofit, would facilitate more successful 
preservation.
    A successful preserved property should be physically and 
financially sustainable for 20 to 30 years. Properties will 
have to be recapitalized. Many owners have used the Mark to 
Market program but the assumptions used to underwrite these 
properties have been obsolete due to skyrocketing utility 
costs.
    NAHMA presented a proposal for HUD to recognize cost 
increases. HUD has been sitting on that proposal now for over a 
year-and-a-half, and they have made no comment on it.
    We would like to thank you for allowing NAHMA here to 
testify and I would be happy to answer any questions you have.
    [The prepared statement of Mr. Pagano can be found on page 
126 of the appendix.]
    The Chairman. Mr. Poulin?

  STATEMENT OF BRIAN POULIN, PARTNER, EVERGREEN PARTNERS, LLC

    Mr. Poulin. Mr. Chairman, thank you for inviting me to 
testify on this important topic of affordable housing 
preservation.
    My name is Brian Poulin and I am a partner in Evergreen 
Partners which is based in Portland, Maine. My partners and I 
solely focus on the acquisition, rehab, and preservation of 
federally assisted affordable housing properties. We currently 
own and manage 4,800 affordable units in 11 States.
    I am here today in my capacity as the president of the 
Institute of Responsible Housing Preservation. Members of the 
Institute worked with this committee and HUD in structuring the 
first Section 236, interest reduction payment preservation 
transaction, now known as the IRP de-coupling transaction, back 
in 1998.
    Using that program, more than 750 Section 236 properties, 
approximately 75,000 units, have been substantially rehabbed 
and preserved. HUD recognizes the de-coupling program as one of 
its premiere preservation initiatives.
    That being said, not much has been done to take the lessons 
learned in that program and apply them throughout the HUD 
portfolio.
    There is no question that we need more affordable housing 
and there is no question that we have a lot of expiring units.
    Notwithstanding the benefits of that 236 program, we need 
to take those lessons and actually apply them to the (d)(4)'s, 
the (d)(3)'s, and other programs out there. Many of these 
properties continue to be at risk to convert to market rate 
housing or are in crucial need of updating repairs. These aging 
properties are approaching the end of their use restrictions.
    As we discussed earlier today, it is much less expensive to 
preserve an existing asset than to build a new one. The HUD 
preservation tools used in the 236 program that were critical 
to make that a success included budget based rent increases, 
which includes new debt service.
    Many of the programs today do not allow for using budget-
based rent increases to set rents nor do they allow the use 
from new debt service. It is critical to get lenders and equity 
providers comfortable with any preservation transaction to know 
what the rents are going to be once the renovation is done. 
Many lenders and equity providers are willing to take market 
risk. They are not willing to take HUD risk. We need to know 
what the rents are going to be. Unfortunately, the Section 8 
guidelines do not allow for it.
    The second item that worked in the 236 program was the 
increase of annual distributions for preservation owners, both 
for-profits and nonprofits. Both the Section 236 de-coupling 
and the Section 202 preservation programs permit an owner to 
receive a distribution of 6 percent of new equity, 6 percent of 
the new money they are putting into the transaction. That 
annual distribution is a critical incentive to owners.
    Again, the Section 8 guidelines do not allow for updating 
of the annual distribution and today, in many preservation 
transactions, the new owner must accept the original owner's 
annual distribution limitation.
    HUD has the regulatory authority to make this change but 
has chosen not to do so. This is a no cost item to HUD and to 
the Federal Government. The rents are not set based on an owner 
distribution. They are based on expenses or on market factors. 
This really is not a cost implication to HUD. It basically 
incentivizes wholly to keep people in the affordable program 
versus converting to market where there is no distribution 
limitation whatsoever.
    My partners and I personally have experience with that 
issue and find it difficult to justify the purchase and rehab 
of HUD properties because of that. We have worked through many 
of the program issues and have been successful in some but 
there are others that we have not been successful in pushing 
through the HUD limitation.
    Lastly, there is a rollover of certain HUD debt. Oftentimes 
when properties are being transferred to new ownership, there 
are certain HUD debts, including flex supp loans and Mark to 
Market soft debt that cannot be paid off in full. HUD 
guidelines actually allow for this to be rolled over. However, 
HUD seems to have a policy where they are not allowing it to 
happen, in which case they have an older property with non-
servicing debt where all they needed to do was allow the 
rollover and we would have a long-term preservation transaction 
where the units can be preserved and rehabilitated.
    Mr. Chairman, your draft legislation incorporates many of 
the lessons learned in this 236 de-coupling program and it 
sends a clear message to HUD that preservation should be a 
priority. It is unfortunate that it takes legislation to make 
this happen.
    We applaud a lot of the things you have put in your bill, 
including converting Rent Supp and RAP contracts to Section 8, 
so thank you very much. We are here for questions.
    [The prepared statement of Mr. Poulin can be found on page 
145 of the appendix.]
    The Chairman. Thank you. I do want to note that I am 
pleased at this because it is our practice that the Majority 
selects most of the witnesses. The Minority on the committee is 
always allowed to request at least one. We had Administration 
officials, and I think the degree of unanimity we have had on 
the core here is very encouraging.
    Mr. Joseph, I appreciate your noting that the tax credit 
program alone cannot get the rents affordable enough without 
Section 8, etc. Some people do not understand that. In high-
cost areas with low-income people, you have to put some of 
these programs together to reach the level that you need.
    Mr. Poulin and others have mentioned some things that HUD 
could do. We are going to take another shot at it. We will 
write a letter to HUD. If there are things that are within 
HUD's administrative authority to do, particularly if we can 
say they are not big budget items, get that list to Mr. McCoy. 
We will then, maybe on a bi-partisan basis, write a letter to 
HUD to urge them to do that.
    On the slow pay issue, the half payments and others, you 
know, we did pass a bill in the House that would correct that 
situation. It has been held up in the Senate.
    Let me say with regard to that and some other issues, I 
know you have some very decent people, if people were simply 
interested in maximizing their profit, they would not be in the 
affordable housing business. There are easier ways to make 
money than dealing with the government, with the tenants, etc. 
That does not mean they are ready to throw their money down the 
drain, but I appreciate the fact that we are dealing with 
socially responsible business people.
    I know it is tough. If I can send them a message through 
many of you, it would be to give us a year. They have done good 
work. Depending on what happens in November, we may be in a 
position a year from now where we will have done some of the 
things that they want to do, so if they can hang on for another 
year, help may be on the way.
    The one thing that is somewhat controversial, and there is 
no point in ducking it, one of the issues Mr. Leung mentioned--
the first right of purchase. He represents an organization that 
I have worked with for many years, which does a lot of good 
work in Boston. I have worked with them both on policy advocacy 
and in individual cases.
    I understand that is problematic to some owners. I 
acknowledge the fact that first of all, nothing in that 
requires anyone to sell, if he or she wants to continue to own. 
Secondly, nothing in there I would hope--and I would think we 
were capable of drafting it this way--requires somebody who has 
decided to sell to lose a nickel. That is it should be written 
so that the right of first purchase is only operational with 
someone who will meet any other offer.
    Given that, I understand there are some concerns about it. 
Could people explain to me if we did it right, if we did it in 
a way that did not require the owner who had independently of 
this decided to sell, to lose any of the purchase price, what 
are the problems with it?
    Mr. Pagano?
    Mr. Pagano. There are no problems. The biggest problem now 
is there are several companies that are buying up limited 
partners. They are going out and paying exorbitant prices to 
get their foot in the door. They are then ignoring the long-
term affordability requirements either causing the project to 
default and forcing the general partners to sell.
    I think if we can come up with some exit strategy for the 
existing partners, that the affordability would last longer.
    The Chairman. I appreciate it. That is not in our 
jurisdiction. Affordable housing has no better friend than the 
chairman of the Ways and Means Committee. He is one of the 
fathers of the low-income housing tax credit and a great 
defender, Mr. Rangel. We will work on that. I agree, the exit 
strategy is very important.
    Mr. Pagano. I think a lot more people would stay in the 
program or if the second generation and third generation had an 
exit strategy to get out. Right now, they are driving--you can 
have an appraisal on a property. We have an 110-unit property 
in Jersey City, a senior citizen building. I have an appraisal 
that says the property is worth $4 million.
    The group that came in to buy up some of the limited 
partners has just forced us to put it on the market, and they 
are claiming they can get us $9 million.
    When you are making those types of representations to 
limited partners that they are going to double the money that 
they thought they could get, it is just untenable and it will 
be a problem for any tenants group that wants to go in because 
I cannot make the number work at $9 million.
    The Chairman. I probably know the property.
    Mr. Poulin? Is it possible for us to do a first purchase 
right in a way that would not impinge on the owner's rights?
    Mr. Poulin. I think it is. There is always that tradeoff of 
an owner having fulfilled his obligation to HUD, having kept 
the property affordable, which I am a big proponent of, and 
frankly as I said, that is all we do.
    As long as it is done correctly where the tenant group is 
qualified and can do it--
    The Chairman. You have to be assured they are getting paper 
that is going to be paid. We are not asking people to take--I 
understand we have an obligation, there is almost a burden of 
proof on us to show that it is being done correctly.
    Mr. Poulin. I think so.
    The Chairman. Ms. Burns?
    Ms. Burns. Washington, D.C., as you may know, has a right 
of first refusal legislation in place for the tenants, and we 
have worked on several transactions where, sometimes it is just 
an additional tool such that it may not end up where the 
tenants purchase the property, but the tenants do have a much 
greater say in who the purchaser is; we have joint ventured in 
several cases.
    The Chairman. Let me invite everyone here, and I want to be 
clear, there are very few owners in this program who were not 
somewhat socially motivated, you know, if you just want to make 
the money--I do think the right of first purchase is important. 
I understand constitutionally if for no other reason it has to 
be done in a way that does not deprive the owners of any 
revenue.
    I believe we should be able to come up with a program that 
will not unduly delay, because delay can be a cost, it will not 
put you at risk of taking bad paper, I am encouraged by this. I 
hope we can work that out.
    The gentlewoman from New York.
    Ms. Velazquez. Thank you, Mr. Chairman. I would ask 
unanimous consent for my statement to be entered into the 
record.
    The Chairman. Without question, since it is your bill, your 
statement should be in the record.
    Ms. Velazquez. Mr. Bodaken or any other member of the 
panel, if you wish to comment, in New York, we are seeing a 
number of HUD-subsidized buildings being bought by private 
equity firms and flipped to other buyers soon thereafter. My 
concern is that some of those of those deals are financially 
unsustainable under current operating income.
    I have an example here where a development was sold, almost 
4,000 units of housing was sold for $295 million. Two years 
later, it was sold for $918 million. This definitely poses a 
real threat to current low-income tenants.
    Have you seen this kind of transaction take place elsewhere 
in the country? Can you share your insights from those 
transactions?
    Mr. Bodaken. Congresswoman, I have not seen that magnitude 
of difference, but I think it is not unusual to see, in very 
hot real estate markets, owners buy HUD-subsidized properties 
with the notion of eventually making a significant profit by 
flipping them.
    Just coincidentally, both the right of first purchase and 
some of the other tools that are in the bill that has been 
introduced would very much focus on that particular issue and I 
think it would make it much more difficult for that to take 
place. That is number one.
    Number two, I think it is important that in those 
situations, HUD has the ability, and I am not sure about this 
particular situation, but HUD has the ability certainly as we 
have learned in other situations, to make owners more 
responsible in how they convey their properties, and as you 
know, we worked with Congress and everyone else to try to save 
that property, and I think in those situations, we need to keep 
a very alert eye until this legislation becomes law. We need to 
very much focus on those properties because once lost, they are 
irreplaceable.
    Ms. Velazquez. Definitely. Does anyone else wish to comment 
on that?
    [No response]
    Ms. Velazquez. In your opinion, is it more important to 
focus on preserving buildings that are at risk of losing their 
affordability status or instead to concentrate on programs to 
create new affordable housing options?
    Mr. Poulin?
    Mr. Poulin. The new programs that are out there today do 
not have the ability, as was said earlier, to really help the 
tenants most in need. The tax credit program is wonderful but 
without HUD and Section 8 behind it with the vouchers, it does 
not hit the tenants most in need.
    Project-based Section 8 is only in preservation deals. They 
have not offered project-based Section 8 in years. Preserving 
those transactions both from a cost standpoint and from who you 
are servicing standpoint, I think ought to be the top priority 
of what HUD is doing.
    Ms. Velazquez. Thank you. Thank you, Mr. Chairman.
    The Chairman. I thank the gentlewoman very much.
    Mr. Joseph?
    Mr. Joseph. I was just going to comment on that. I think it 
is both. We need both new construction and we need 
preservation. One of the most successful programs which used to 
produce 20,000 new units a year in the late 1970's and 1980's, 
the HUD 202 program for seniors, is now producing less than 
4,000 units a year, while the age tsunami is sweeping through.
    As Chairman Frank already mentioned, the tax credit program 
is a very important program, but for an elderly woman getting a 
Social Security income, even though the tax credit rent is a 
bargain in that market area, she simply cannot afford it on 
Social Security.
    I think we need both.
    The Chairman. Mr. Bodaken?
    Mr. Bodaken. Very briefly, Congresswoman, I think in an 
unconstrained resource environment, both are essential. We live 
in a constrained resource environment. Unless we are ready and 
able to construct tens of thousands of new affordable units, I 
think the preservation imperative is obvious.
    We know that preservation is about 50 percent less in most 
States and in your City, new construction has doubled the price 
of preservation.
    I think in this environment, both have to be looked at, but 
I think preservation is the essential first step.
    Ms. Velazquez. Thank you.
    The Chairman. I thank the panel. Mr. Leung, I was able to 
help the reporter with ``Tzedakah,'' but with ``thank you'' in 
Chinese, you are going to have to help him. I will not even try 
to pronounce it and get that wrong.
    Thank you. I appreciate this. It has been very useful. 
Again, the members of the Congressional Black Caucus, in 
particular, expressed to me on the Floor that they regret not 
being able to be here, because this is a high priority for many 
of them, but meeting with Senator Obama obviously was also a 
priority.
    The staff has been here. We were listening. I appreciate 
the degree of agreement we have on the goals here. We are in a 
serious drafting phase.
    There is no chance that the bill is going to become law 
before the end of the year, but I think it would be helpful in 
the process if later in July or the first week in August, I 
would hope the House could pass a good version of this. That 
would get us off to a good start.
    I would hope if the House passed it, that would help some 
of you who are fighting the good fight and trying to persuade 
people not to flee the program, not to sell out, but that would 
be a kind of earnest of our good faith. I am not asking them to 
wait indefinitely. If we can get a bill passed this summer, 
that would be a pretty good indication that we may well have 
one into law by the fall of 2009.
    I am hoping that we can work together to try to persuade 
people.
    Thank you very much. This is an enterprise worth a lot of 
our effort.
    [Whereupon, at 1:03 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             June 19, 2008
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