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



 
   TARGETING FEDERAL AID TO NEIGHBORHOODS DISTRESSED BY THE SUBPRIME 
                            MORTGAGE CRISIS

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

                             JOINT HEARING

                               before the

                    SUBCOMMITTEE ON DOMESTIC POLICY

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                                and the

                      SUBCOMMITTEE ON HOUSING AND
                         COMMUNITY OPPORTUNITY

                                 of the

                    COMMITTEE ON FINANCIAL SERVICES
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 22, 2008

                               __________

              Committee on Oversight and Government Reform

                           Serial No. 110-118

                    Committee on Financial Services

                           Serial No. 110-115

                               __________

   Printed for the use of the Committees on Oversight and Government 
                     Reform and Financial Services


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform



                   U.S. GOVERNMENT PRINTING OFFICE
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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York             TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania      DAN BURTON, Indiana
CAROLYN B. MALONEY, New York         CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri              CHRIS CANNON, Utah
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York              DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky            KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa                LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of   PATRICK T. McHENRY, North Carolina
    Columbia                         VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota            BRIAN P. BILBRAY, California
JIM COOPER, Tennessee                BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland           JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
------ ------

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
               Lawrence Halloran, Minority Staff Director

                    Subcommittee on Domestic Policy

                   DENNIS J. KUCINICH, Ohio, Chairman
ELIJAH E. CUMMINGS, Maryland         DARRELL E. ISSA, California
DIANE E. WATSON, California          DAN BURTON, Indiana
CHRISTOPHER S. MURPHY, Connecticut   CHRISTOPHER SHAYS, Connecticut
DANNY K. DAVIS, Illinois             JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
BRIAN HIGGINS, New York              CHRIS CANNON, Utah
BRUCE L. BRALEY, Iowa                BRIAN P. BILBRAY, California
------ ------
                    Jaron R. Bourke, Staff Director
                 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 A. WILSON, Ohio              JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
BILL FOSTER, Illinois                THADDEUS G. McCOTTER, Michigan
ANDRE CARSON, Indiana                KEVIN McCARTHY, California
JACKIE SPEIER, California            DEAN HELLER, Nevada
DON CAZAYOUX, Louisiana
TRAVIS CHILDERS, Mississippi

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

                 MAXINE WATERS, California, Chairwoman

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

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 22, 2008...................................     1
Statement of:
    Alexander, Frank S., professor of law, Emory University 
      School of Law; Todd M. Richardson, Director, Program 
      Evaluation Division, Office of Policy Development and 
      Research, U.S. Department of Housing and Urban Development; 
      G. Thomas Kingsley, senior researcher, Housing and Urban 
      Policy and Governance Issues, the Urban Institute; and 
      Christopher Walker, Local Initiatives Support Corp.........    14
        Alexander, Frank S.......................................    14
        Kingsley, G. Thomas......................................    57
        Richardson, Todd M.......................................    25
        Walker, Christopher......................................    64
Letters, statements, etc., submitted for the record by:
    Alexander, Frank S., professor of law, Emory University 
      School of Law, prepared statement of.......................    16
    Davis, Hon. Tom, a Representative in Congress from the State 
      of Virginia, prepared statement of.........................    93
    Kingsley, G. Thomas, senior researcher, Housing and Urban 
      Policy and Governance Issues, the Urban Institute, prepared 
      statement of...............................................    59
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio, prepared statement of...................     4
    Richardson, Todd M., Director, Program Evaluation Division, 
      Office of Policy Development and Research, U.S. Department 
      of Housing and Urban Development, prepared statement of....    27
    Walker, Christopher, Local Initiatives Support Corp., 
      prepared statement of......................................    67

   TARGETING FEDERAL AID TO NEIGHBORHOODS DISTRESSED BY THE SUBPRIME 
                            MORTGAGE CRISIS

                              ----------                              


                         THURSDAY, MAY 22, 2008

        House of Representatives, Subcommittee on Domestic 
            Policy, Committee on Oversight and Government 
            Reform, joint with the Subcommittee on Housing 
            and Community Opportunity, Committee on 
            Financial Services,
                                                    Washington, DC.
    The subcommittees met, pursuant to notice, at 2:15 p.m., in 
room 2154, Rayburn House Office Building, Hon. Dennis J. 
Kucinich (chairman of the Subcommittee on Domestic Policy) 
presiding.
    Present from the Subcommittee on Domestic Policy: 
Representatives Kucinich and Issa.
    Present from the Subcommittee on Housing and Community 
Development: Representative Waters, Lynch, Green, and Cleaver.
    Also present: Representative Turner.
    Staff present from the Subcommittee on Domestic Policy: 
Jaron R. Bourke, staff director; Jean Gosa, clerk; Charisma 
Williams, staff assistant; Leneal Scott, information systems 
manager; John Cuaderes and Larry Brady, minority senior 
investigators and policy advisors; and Benjamin Chance, 
minority professional staff member.
    Mr. Kucinich. In the interest of time and out of respect to 
for our panelists, we are going to start. The committee will 
come to order.
    This is a joint hearing of the Domestic Policy Subcommittee 
of the Oversight and Government Reform Committee and the 
Housing and Community Opportunity Subcommittee of the Financial 
Services Committee. The title of today's hearing is, 
``Targeting Federal Aid to Neighborhoods Distressed by the 
Subprime Mortgage Crisis.''
    In addition to being joined by more of our colleagues, we 
are joined today by a distinguished group of panelists who will 
be able to provide this subcommittee with information that we 
think will be helpful in helping to shape Federal policy with 
respect to the effects of the subprime mortgage crisis.
    Today's joint hearing concerns the availability of relevant 
data and how best to use those data to target Federal funds to 
neighborhoods distressed by the default of millions of subprime 
mortgages.
    Now, without objection, the Chair and the ranking minority 
member will have 5 minutes to make opening statements, followed 
by opening statements not to exceed 3 minutes by any other 
Member who seeks recognition. And without objection, Members 
and witnesses may have 5 legislative days to submit a written 
statement or extraneous materials for the record.
    Yesterday, the Domestic Policy Subcommittee heard testimony 
about a largely unrecognized, deeply suffering, and totally 
blameless victim of the subprime mortgage meltdown and 
foreclosure crisis: neighborhoods.
    While awareness has grown that the default of millions of 
subprime loans has been a genuine tragedy for individual 
borrowers and a significant cost to lenders, we have learned 
that not all foreclosures pose a lethal threat to 
neighborhoods. Some foreclosed properties have new buyers, and 
when they do, the property tends to be maintained and the 
neighborhood preserved. But many foreclosures do not attract 
new owners. Instead, they become vacant and are often neglected 
by the lenders. When this happens, surrounding neighborhoods 
and local municipalities suffer significant consequences.
    Those effects include falling property values of 
surrounding houses, loss of equity held by neighbors in those 
houses, loss of rental units for renters, loss of sales to 
neighborhood merchants, rise in crime, rise in costs for public 
services like municipal costs for police and fire, due to 
vandalism and arson in particular, increased demolition and 
building inspection costs, increased legal expenses, increased 
demand on city social services and a direct loss of property 
tax revenues.
    The costs imposed on neighboring property owners, renters, 
taxpayers, by vacant and abandoned houses stemming from the 
collapse of millions of subprime mortgages will tally into the 
many billions of dollars. These significant costs are signs of 
failure in the market. Their long-term consequences will be 
severe in some regions; and without Federal intervention, the 
future for many individuals and neighborhoods is bleak.
    This Congress has taken a significant step to help the 
neighbors deal with the problems they are now facing. Two weeks 
ago, the House passed H.R. 5818, the Neighborhood Stabilization 
Act of 2008. This bill creates a new Federal program to address 
the effects on neighborhoods caused by the foreclosure crisis. 
The bill authorizes $15 billion in grants and loans to be spent 
by localities on a variety of strategies, including vacant 
property acquisition, building rehabilitation and demolition. 
Nevertheless, the President has promised a veto. And as I said 
yesterday, I can't understand that, and I hope that today's and 
yesterday's hearings will do something to change his mind; for 
if we can't help the totally innocent--and the neighbors of 
vacant properties are innocent victims of the foreclosure 
crisis--then whom should we help?
    Today this committee will be pleased to be joined by 
Chairwoman Maxine Waters who is the primary author of 5818. And 
when she arrives I will provide her with a suitable 
introduction.
    In this joint hearing, we will be receiving testimony from 
experts on the question of how we can optimize the targeting of 
Federal aid to distressed neighborhoods to deal with the 
problem of rising rates of vacant and abandoned buildings that 
are caused by the subprime mortgage meltdown. This hearing will 
concern the various kinds of data that should be utilized to 
target new Federal funds, a discussion of the limitations of 
available data, opinion to which data are most appropriate, and 
how they may be best used, and thoughts about what an optimal 
formula might look like.
    We have some of the Nation's leading analysts here to help 
our subcommittees and committees achieve the purposes of the 
Neighborhood Stabilization Act. They have all done a lot of 
work to prepare for this hearing and I want to say how grateful 
we are for your presence.
    At this point, I will recognize the distinguished ranking 
member of our Subcommittee on Domestic Policy and Oversight, 
and that is the gentleman from California, Mr. Issa.
    Thank you for the ongoing partnership that you've shown in 
this endeavor and I am grateful for your statement.
    [The prepared statement of Hon. Dennis J. Kucinich 
follows:]

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    Mr. Issa. Well, thank you, Mr. Chairman, and thank you for 
holding this important hearing. I might note that yesterday was 
the 1-year anniversary of the two of us being at a field 
hearing in Cleveland, OH at the Federal Building. Little did we 
know in May 2007 how the foreclosure problems, which were then 
an epidemic in Cleveland, would spread beyond Cleveland and the 
Midwest; that, in fact, it would lead to the collapse of some 
of our oldest and theoretically some of our most stable 
financial institutions.
    Yesterday and today we have focused--and today we will 
continue to focus--on the dynamics of this crisis and how it 
affects neighborhoods, and suggestions on how we can help solve 
these. Furthermore, we will look at how each community is 
affected differently. And I think that is probably the most 
important point that all of us on the dais are going to want to 
learn more about, because Mr. Kucinich and I are both native 
Clevelanders, but I now represent San Diego, CA. We couldn't be 
more similar in our background and our families and the ethnic 
neighborhoods that we grew up in. We couldn't be more different 
in the cost of homes, the size of those mortgages, or the 
characteristics that have lead to foreclosure rates in 
Stockton, CA, in Temecula, CA--which I represent--and others, 
being just as catastrophic as they are in Cuyahoga County in 
Cleveland; Orange County, CA; Denver, CO. The list is endless 
and each of these areas has huge differences.
    In short, the foreclosures which were a problem to a few 
cities have now become a problem to us all.
    Mr. Chairman I applaud you on being one of the handful of 
Members who highlighted this problem early on when it was the 
problem of a community that had $100,000 or even $70,000 homes 
being foreclosed on; neighborhoods that had previously been on 
the mend becoming blighted. You were quick to recognize it.
    In fairness to the rest of us, I believe we didn't heed 
your warning soon enough that this was going to spread 
throughout America.
    Mr. Chairman, these 2 days of hearings, however, are as 
important in dealing with where we are today as they are in 
where we will be in the future. I believe that this crisis is a 
crisis that could repeat itself. The fundamental underpinnings 
of how we create financial instruments in America are in doubt.
    Homes, which have always been about a substantial piece of 
capital investment normally, with the exception of special 
government-backed loans, these have been with substantial 
equity placed by the potential homeowner, and, when refinanced, 
they were refinanced only out of surplus equity.
    Today we find that is not the case. But worse than that, 
the financial instruments on which these home loans were based 
in some cases were based on margins as small as 15 percent real 
underlying equity.
    Mr. Chairman, I look forward to the testimony today and to 
our continuing to work, as we have been for more than a year on 
a bipartisan basis, on this important issue, too important to 
have partisan politics get in the way.
    Finally, I also ask unanimous consent that my colleague, 
Mike Turner, the former mayor of Dayton, OH--and himself no 
stranger to the problems that foreclosures in a community can 
cause--would be allowed to sit on this committee today and ask 
questions, as appropriate.
    Mr. Kucinich. So ordered, without objection.
    I want to say that one of the strengths of this 
subcommittee is that we have been able to have Mr. Issa as 
ranking member, because it is not just your experience in 
Cleveland, but the business background that you developed that 
then enables you to bring a perspective here that sometimes we 
don't have, and we need to hear it in order to come up with an 
approach that actually gets to the truth. So I appreciate your 
participation.
    I have the honor, the pleasure, of making an introduction 
for the next speaker. Chairwoman Maxine Waters is the primary 
author of H.R. 5818. She knows that when Wall Street sneezes, 
America's neighborhoods get pneumonia. And Congresswoman Waters 
has used her position as chairwoman of the Housing and 
Community Opportunity Subcommittee to come to the aid of 
America's neighborhoods. Congresswoman Waters has made a 
significant contribution to the future of our communities with 
her work on the bill, and I hope that bill will soon be enacted 
into law.
    In this joint hearing we are pleased to be joined by 
Congresswoman Waters, and the invitation is extended to other 
members of her subcommittee. I thank you so much for being 
here, Congresswoman Waters, and we look forward to your 
statement.
    Ms. Waters. Thank you so much, Mr. Chairman. I appreciate 
the opportunity that you have afforded me to jointly chair this 
hearing today. And I am sorry I was a little late. We were in a 
special task force of the Judiciary Committee where we have the 
executives of the largest oil companies in America testifying 
before us, and it took me a little bit longer to get here, but 
I am delighted to be here.
    You have been holding these hearings for 2 days. This is 
the second day. And I wasn't able to attend yesterday's 
hearing, but I know that the witnesses painted a clear picture 
of the devastating impact of the foreclosure wave on 
neighborhoods, which the hearing title accurately identified as 
the blameless victims of this debacle. Notably, it was clearly 
established that no community or type of housing market is 
immune to the spillover effect of foreclosures.
    Professor Been was able to quantify, in the context of New 
York City, the tremendous effect on neighboring home prices 
that a foreclosure has, as well as highlight another group of 
innocent victims of the foreclosure crisis, perhaps 15,000 
renters facing eviction in the nearly 60 percent of 2007 New 
York City foreclosure filings that involved two to four-family 
or multifamily buildings.
    Meanwhile Professor Betz illustrated the equally damaging 
impact of foreclosures in the very different housing market of 
Memphis, TN, where slowly but inexorably rising foreclosure 
rates have led to foreclosure filings on fully one-quarter of 
Memphis' single-family housing stock since the year 2000.
    In short, yesterday's hearing reaffirmed, by putting into 
the record rigorous research and indisputable data, the clear 
need for Federal intervention to assist States and localities 
in addressing the neighborhood destabilization impacts of the 
foreclosure crisis.
    On May 12th, of course, the House passed a bill I 
introduced that would provide such assistance, H.R. 5818, the 
Neighborhood Stabilization Act, which authorizes HUD to 
administer a $15 billion grant and loan program to State and 
local governments to purchase, rehabilitate, and resell or rent 
foreclosed homes. Through the amendment process, Chairman 
Kucinich was extraordinarily helpful in ensuring that States, 
counties, and cities receiving funding under H.R. 5818 will 
target the funds wisely, bringing to bear the policy knowledge 
he has gained from his work as Chair of the Domestic Policy 
Subcommittee and his hard-earned real-world experience as a 
Member representing the city of Cleveland.
    Chairman Kucinich made sure that in the plans States cities 
and counties submit to HUD, priority is given to low- and 
moderate-income neighborhoods with concentrations of vacancies 
coupled with large increases in the rate of vacancy in the past 
2 years and a higher incidence of subprime loans at risk of 
foreclosure.
    I see today's joint hearing as the logical and necessary 
next step to the work Chairman Kucinich and I did together on 
H.R. 5818 as we, I hope, move forward quickly to conference on 
H.R. 5818 with the Senate counterpart that provides $4 billion 
in CDBG grants for a singular purpose. We need to continue to 
examine the best data and strategies available to States and 
localities to target any resources they receive from Congress 
in such a way that they have the maximum impact.
    I look forward to hearing from today's witnesses about the 
tools at our disposal to do so. I thank you and I yield back.
    Mr. Kucinich. I thank the gentlelady.
    One of the things that Members of Congress--one of the 
strengths Members bring is their experience. Prior to becoming 
a Member of Congress, Councilwoman Waters was well known in 
southern California as an activist and a public servant. And I 
know that you would agree that the lessons that were learned at 
that local level have really prepared us to be able to bring 
some--a new perspective that can help resolve this crisis.
    This also relates to the next person we are about to 
introduce who is a Congressman from Ohio, the former mayor of 
the city of Dayton, who is quite familiar with these issues. 
And I want to thank Mr. Turner for his participation in this 
hearing and we ask that you proceed with your opening 
statement.
    Mr. Turner. Thank you, Mr. Chairman. I was able to 
participate yesterday in the first part of these joint hearings 
that you are having, and I want to thank you for your efforts 
in highlighting this issue.
    As we got to hear yesterday, and as each of us know from 
our experience in working in urban issues, the foreclosure 
crisis for urban America is a crisis of abandoned structures 
and negative impacts to neighborhoods. We see that when a house 
goes into foreclosure, the spiral of a house on its way to 
abandonment, on its way to demolition and neglect, and the scar 
that it makes in the neighbor results in everyone in the 
neighborhood being subject to the catastrophic effects of that 
foreclosure; not just the family that is there, not just our 
financial markets and the loss of capital, but the increase in 
crime, the blighting influence, the reduced property values, 
and the difficulty of those in the neighborhood that see this 
happen. And when it happens in the magnitude we are seeing, 
then the spiral impact on neighborhoods is extraordinary.
    The measures that Congress recently has taken in looking to 
try to help families that are entering the foreclosure process 
and to help neighborhoods and communities to respond to the 
scars of this foreclosure are going to be very important.
    I appreciate your work on this. Cleveland and Dayton are 
not different in what their experience has been, and I am very 
appreciative that we are moving into the issue of looking at 
the problem, but how do we find solutions and how do we look at 
how do we aid communities, how do we look at how do we aid 
families. And that is why I appreciate this hearing, because we 
are going to go into the steps of hearing ways in which we 
might be able to tailor responses to areas to effectively 
address their needs.
    So, Mr. Chairman, I want to thank you and I look forward on 
the testimony.
    Mr. Kucinich. I thank the gentleman. We are pleased to be 
joined by a member of the Subcommittee on Housing and Community 
Opportunity, Congressman Al Green from Texas.
    He brings an important perspective because he represents 
the Houston area, and we are grateful for your presence and you 
may proceed with your opening statement.
    Mr. Green. Thank you, Mr. Chairman. I also thank your 
ranking member for his bipartisan support on these efforts. I 
thank my chairman, Congresswoman Maxine Waters, for her stellar 
efforts to help us with the concerns that have been raised in 
this crisis that we are confronting.
    It is my opinion that we are confronting social issues as a 
result, economic issues as a result of the crisis. But also 
there are quality-of-life issues to be contended with because 
we sleep in houses and live in neighborhoods. Neighborhoods are 
being impacted by what we are doing. Parks will be impacted. 
The quality of life in and around your home may very well be 
impacted.
    And we should not allow ourselves to believe that there are 
subprime neighborhoods, because we have subprime loans in prime 
neighborhoods. And all neighborhoods could very well be at risk 
because the housing market is very much akin to a giant condo. 
And in this giant condo, we all have a stake. And if something 
happens to one unit, it impacts the maintenance fees for 
everyone. And maintenance fees are, of course, taxes. 
Maintenance fees are, of course, services that are rendered 
pursuant to trying to maintain this giant condo.
    So I think we have to see this as something that all of us 
should be concerned with and all of us should try to do what we 
can to make a difference.
    With reference to H.R. 5818, it is a great piece of 
legislation that the chairlady has presented. It provides $7.5 
billion in loans, $7.5 billion in grants. These moneys will be 
utilized to take the properties that people are walking away 
from and put them back into the marketplace, and to help some 
persons, who may very well not have the opportunity to own a 
home, acquire a piece of property. So it has a multifold 
purpose.
    And I am honored to be supportive of my Congresswoman, the 
chairlady of the Housing Subcommittee, and I think she has a 
great piece of legislation.
    And I yield back the balance of my time.
    Mr. Kucinich. I thank the gentleman from Texas.
    If there are no additional opening statements from Members, 
the subcommittee will now receive testimony from the witnesses 
before us today.
    I would like to start by introducing our witnesses. From my 
left to right, Mr. Frank Alexander. Welcome.
    Mr. Alexander is a professor at Emory University School of 
Law and founding director of the Center for the Study of Law 
and Religion. He is also the director of the project of 
affordable housing and community development. His work focuses 
on affordable housing, urban redevelopment, and State and local 
government. Mr. Alexander has published numerous articles in 
his area of specialty and has received more than 20 awards for 
his teaching and public service.
    Next we will hear from Todd Richardson. Mr. Richardson, 
welcome.
    Mr. Richardson is the Director of the Program Evaluation 
Division of the Office of Policy Development and Research, U.S. 
Department of Housing and Urban Development. The Program 
Evaluation Division conducts research, evaluations and 
demonstrations across a wide range of topics. It carries out 
most of the Department's research efforts related to 
homelessness, assisted housing that includes section 8 and 
public housing, fair housing and equal opportunity, crime, 
community economic development empowerment zones, housing 
rehabilitation, home ownership, housing for the elderly. You 
cover a broad area. We are glad that you are here.
    Next is Mr. G. Thomas Kinglsey. Welcome.
    Mr. Kingsley is senior researcher in housing and urban 
policy and governance issues at the Urban Institute. He is the 
author of numerous publications in these fields. He currently 
directs the National Neighborhood Indicators Partnership, an 
initiative to further the development of advanced data systems 
for policy analysis and community building in U.S. cities.
    Finally we will hear from Mr. Christopher Walker. Thank you 
for being here, Mr. Walker. Welcome.
    Mr. Walker is the director of research for the Local 
Initiatives Support Corporation. He is responsible for 
assembling, conducting, sponsoring and disseminating research 
on community development's contributions to the well-being of 
individuals, families and communities.
    He also supports the research activities of the 33 LISC 
field offices throughout the United States. Currently Mr. 
Walker is working on the value of low-income housing tax 
credits to neighborhood stabilization and new ways to measure 
the market potential of low-income urban neighborhoods.
    Now, gentlemen, it is the policy of the Committee on 
Oversight and Government Reform to swear in all witnesses 
before they testify. I would ask that each of you rise and 
raise your right hands.
    [Witnesses sworn.]
    Mr. Kucinich. Let the record reflect that each of the 
witnesses has answered in the affirmative.
    I would ask that each of the witnesses now give a brief 
summary of your testimony. Keep in mind that we ask that the 
summary be kept to 5 minutes in duration. Your complete written 
statement will be included in the hearing record. Members have 
access to these and they become part of our permanent archives. 
They are very important.
    Mr. Alexander, you are going to be our first witness and we 
ask that you proceed.

   STATEMENTS OF FRANK S. ALEXANDER, PROFESSOR OF LAW, EMORY 
UNIVERSITY SCHOOL OF LAW; TODD M. RICHARDSON, DIRECTOR, PROGRAM 
EVALUATION DIVISION, OFFICE OF POLICY DEVELOPMENT AND RESEARCH, 
  U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; G. THOMAS 
   KINGSLEY, SENIOR RESEARCHER, HOUSING AND URBAN POLICY AND 
GOVERNANCE ISSUES, THE URBAN INSTITUTE; AND CHRISTOPHER WALKER, 
                LOCAL INITIATIVES SUPPORT CORP.

                STATEMENT OF FRANK S. ALEXANDER

    Mr. Alexander. Thank you, very much. Chairman Kucinich, 
Chairwoman Waters, members of the committees, my name is Frank 
Alexander and I am delighted and honored to be here today.
    What I would like to do first is express my deep 
appreciation for your leadership on H.R. 5818. The Congress has 
undertaken in recent months several significant steps to deal 
with our housing crisis. But 5818 addresses something quite 
different from the basic housing stimulus package. Most of the 
housing stimulus package now under consideration in the Senate 
is oriented toward foreclosure prevention, appropriately so, to 
avoid foreclosure whenever possible.
    One of the two things that makes 5818 different is that it 
is not focused on foreclosure prevention. It is focused on real 
estate post-foreclosure. In focusing on this inventory, this 
dramatic rise in all of our neighborhoods, it is also then 
focusing on the rest of us who bear the burdens of this 
property. Whereas many people may debate the moral hazards 
embedded in the housing stimulus package, those moral hazards 
are not present in 5818. We, the neighbors, the communities, 
the cities, the counties, are the victims of this large 
increase in foreclosed, vacant, and abandoned housing.
    Yesterday's testimony focused on the costs to local 
governments, the cost to the neighborhoods of these properties. 
One of your witnesses yesterday was Alan Mallach. In another 
context, he testified that vacant property is not a victimless 
crime. And that is the basic thrust of 5818.
    We heard yesterday that vacant and abandoned properties 
increased property deterioration, resulting in reduced property 
values, reduced property tax revenues, higher police and fire 
costs. As Representative Green alluded to, vacant, abandoned 
properties also destroy the fabric of neighborhoods, they 
destroy the community.
    The very thrust of 5818 is to acknowledge for the first 
time in this country the huge problem being imposed on our 
cities and our communities by the foreclosure crisis. The 
debate for all of us is not the question of the predatory loan 
or how to avoid the foreclosure. Those are relevant to the 
stimulus package.
    The question before us now is how to save our neighborhoods 
from these foreclosures.
    H.R. 5818 allocates $15 billion. It does so using primarily 
three variables. The first variable is the relative percentage 
of foreclosures nationwide over the past 12 months. The second 
variable for allocating the formula is a relative percentage of 
delinquencies on subprime mortgages. And then there is a third 
subvariable: adjusting for median sales price differences 
across the States.
    While I fully support 5818, what it is designed to 
accomplish--and I certainly hope it passes. I would like to 
recommend in response to Representative Waters' intimation that 
there will be continued discussions about this, the possibility 
of further refining the allocation formulas to target them most 
effectively.
    First and foremost, I am concerned that the allocation of 
the $15 billion does not go to the areas of greatest need. It 
allocates the money according to foreclosures, not to where the 
foreclosures are occurring in a concentrated fashion.
    I recommend the addition of a variable for allocating the 
money which would be based upon high concentration of 
foreclosures. This can be done by Census tract, perhaps by 
either by 5-digit or 9-digit zip code. An individual foreclosed 
home may not pose a great deal of burden; multiple foreclosures 
create the problems exponentially.
    The second modification I would recommend is the priority 
of uses of the money. Under the current bill, the money can be 
used to acquire qualified foreclosed housing, but that could 
include occupied housing. For the most part, occupied housing 
does not impose the external cost.
    The final change I would recommend is that the grant funds 
be available for acquisition of the real estate, not just the 
loan funds. I do hope that 5818 becomes the hallmark of 
legislation, not for foreclosure prevention, but for saving our 
cities from the burdens of this foreclosure crisis. Thank you 
very much.
    Mr. Kucinich. Thank you, very much Mr. Alexander.
    [The prepared statement of Mr. Alexander follows:]
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    Mr. Kucinich. Mr. Richardson, you may present.

                STATEMENT OF TODD M. RICHARDSON

    Mr. Richardson. On behalf of HUD Deputy Secretary Roy 
Bernardi, thank you, Chairman Kucinich and Chairwoman Waters, 
for the invitation to appear at this joint hearing. I have 
worked on issues related to allocation formulas at HUD since 
the mid-1990's. My experience with research and development of 
allocation formulas identifies two key ingredients for a 
successful formula: clearly defined goals of the need that 
Congress intends to target and available data that is uniformly 
collected across all potential grantees.
    While there are promising data sets that may be able to 
achieve the congressional goal of targeting neighborhoods with 
increasing vacancy and abandonment, further analysis of the 
data is required to ensure accuracy and targeting funds to all 
communities across the country. This is especially tricky when 
it comes to vacant and abandoned housing because there are many 
causes of vacancy, and in only certain conditions will that 
vacancy translate into a nuisance property or an abandoned 
property.
    Combining information from several public data sets has the 
greatest potential for accurately targeting funds to areas with 
vacant and potentially abandoned properties. To illustrate this 
point, I would like to present the committee with a few maps 
that identify communities with some of the economic and 
structural risk factors that lead to vacancies and potential 
abandonment. I will follow this with a detailed discussion on 
how we can measure changes in vacancy rates at the neighborhood 
level.
    One risk factor for vacancy is declining home price. 
Metropolitan statistical areas [MSAs], with falling home values 
means more property owners will have negative equity in their 
properties, thus increasing the risk of foreclosure. We can use 
data on house price changes in recent years from the OHFEO 
housing price index for metropolitan areas.
    On this map all the MSAs in green have had a fall in value 
since 2005, but those with the darkest green have had the 
sharpest fall. California, Michigan, Florida, northern Ohio, 
Nevada, jump out on this map.
    Now I want to point out that falling home values and 
foreclosures in themselves are only a measure of risk of 
vacancy; many foreclosed properties will never become vacant or 
will only briefly be vacant. The next map, please.
    A second risk factor is local economics and population 
flows. Reduced employment or a decline in number of households 
occurring in an environment where it is difficult to sell a 
home increases the risk for housing vacancy and abandonment. 
The red and the orange on this map show data from the Bureau of 
Labor Statistics on counties with declining labor force 
participation between 2005 and 2007. Rural counties jump out on 
this map as a few urban areas currently in economic distress.
    A third risk factor, which I don't have a map for here 
today, relates to characteristics of the housing stock. 
Examples might include low home values, very high fractions of 
single-family rental stock or existing high-vacancy rates. 
These are indicators of neighborhoods and communities with 
properties that tend to be at the tail end of the filtering 
process, putting them at greater risk for home abandonment.
    Census 2000 and American Community Survey 2006 data can 
provide some of this information.
    Next map, please. A fourth risk factor could be measured at 
the Census tract level for borrowers who have high-cost loans, 
are highly leveraged as measured by a high loan-to-income 
ratio. These households are at risk for foreclosure or 
abandoning their homes.
    Home Mortgage Disclosure Act data from 2004 to 2006 can 
provide this information.
    This map of Cleveland, for example, shows Census tracts 
where the percentage of loans are either high cost or highly 
leveraged. The darker areas have higher rates.
    For communities or neighborhoods identified as having 
structural or economic conditions that might lead to long-term 
vacancy and abandonment, it is possible to track neighborhood 
change in vacancy rates using data provided to HUD by the U.S. 
Postal Service. The USPS provides these data to HUD every 
quarter at the block level, and HUD makes them available at 
Census track level publicly. The USPS data reflects addresses 
that have been vacant and not taking mail for at least 90 days.
    While these data have anomalies, they have useful tools as 
well: this map of Cleveland here, for example, where the orange 
bands show neighborhoods which have had a 3 percentage point 
increase in their vacancy rates between December 2005 and March 
2008. As you can see, many of these overlap where a high 
proportion of higher-risk loans were made.
    Next map. In contrast, while Los Angeles shows some 
concentrations for high-risk loans, it does not also show a big 
jump in rate of vacancy.
    Next map, please. Converting this neighborhood-level data 
into a community-level indicator, this just final map shows 
CDBG entitlement jurisdictions by the percent of Census tract 
within a jurisdiction that has increasing vacancy rates. Dark 
purple indicates a worsening problem. Not surprisingly, 
communities in central California, Nevada, southeast Michigan, 
northern Ohio, Indiana, and Florida jump out on this map as 
having neighbor concentrations of vacant housing.
    In summation, our available public data can first identify 
the communities and neighborhoods that have the factors placing 
them at risk for vacancy and abandonment, and then target the 
neighborhoods actually experiencing increased rates of vacancy. 
Thank you, very much.
    Mr. Kucinich. Thank you.
    [The prepared statement of Mr. Richardson follows:]
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    Mr. Kucinich. Mr. Kingsley, please proceed.

                STATEMENT OF G. THOMAS KINGSLEY

    Mr. Kingsley. Thank you, Chairman Kucinich, Chairwoman 
Waters and members of the subcommittees. I am honored to come 
before you today to testify on an issue that is critical to the 
future of our metropolitan regions.
    My name is Tom Kingsley. I am a researcher at the Urban 
Institute where changing conditions in urban neighborhoods is 
the focus of our research.
    Our experience certainly confirms that neighborhoods with 
high concentrations of foreclosures and increasing vacancy 
rates are likely to generate substantial unanticipated costs 
for resident families and jurisdictions. Any formula 
distributing resources to help cover those costs must be 
carefully constructed if it is to be equitable.
    In my written testimony, I introduced and support six 
points related to that goal: The first is that neighborhood-
level spillover costs are likely to depend on how heavily the 
problem is concentrated as opposed to being spread out evenly 
across the neighborhoods in any jurisdiction. Preliminary 
research at the Urban Institute corroborates the view that such 
concentration is much higher in some metropolitan areas than 
others. This implies that a formula distributing funds simply 
in proportion to the total number of loans or foreclosures in a 
jurisdiction is not likely to be equitable.
    Second, much of the research on this crisis so far has used 
the subprime percentage of all loans as the measure of 
incidence. That measure is actually not very good for this 
purpose, since it might give a very high score to neighborhoods 
that only have a very few loans. Better measures of 
concentration are those that calculate the numbers, loans, 
foreclosures, and vacancies per1,000 units in the housing 
stock.
    My third point relates to the criteria for selecting data 
sets for this purpose. I believe they should do four things: 
one, provide indicators that closely approximate Congress' 
selected basis for targeting; two, be reliably developed and 
frequently updated by Federal agencies; three, provide data 
collected under rigorously enforced uniform standards 
nationwide; and four, be collected so that information can be 
made available for small geographic areas like Census tracts.
    My next point is that of the data sets that meet these 
requirements, the two probably best-suited to address this 
subcommittee's purposes are the Home Mortgage Disclosure Act, 
HMDA, data set on mortgage originations and the U.S. Postal 
Service data set on vacant properties.
    However, in developing a formula, further research using 
these data sets is needed to gain a better understanding of, 
one, the relationship between subprime loan concentrations 
under various neighborhood conditions and the probability of 
foreclosure; two, the relationship in time between foreclosures 
and vacancy rates, and three, how the risk of foreclosures and 
their effects in a given type of neighborhood are likely to 
vary in different metropolitan market contexts, most 
importantly the variations between comparatively strong versus 
comparatively weak housing markets.
    My fifth point is to recognize that over the past few 
years, the quality and accessibility of HMDA, USPS and other 
relevant data sets have markedly improved. We are in a very 
different position than we were a decade ago when the U.S. 
Census was about all that was available as a reliable basis for 
funding formulas.
    I think congratulations are due in particular to the 
Federal Reserve System's FFIEC for their work with HMDA, and 
HUD, for its work with the USPS.
    My final point is that whatever happens to the allocation 
formula, good work with data at the local level is going to be 
essential to support the design and monitoring of effective 
programs to address neighborhood spillover effects.
    At the Urban Institute, as noted, we coordinate the 
National Neighborhood Indicators Partnership, a network of data 
intermediaries in 30 cities, many of whom are already working 
on this issue. Two of our partners from Memphis and New York 
City provided testimony to you yesterday.
    I hope these subcommittees will encourage support for the 
work of local groups like these, since their ability to shed 
light on the pattern and magnitude of impacts in their own 
areas is going to be critical to the development of really 
cost-effective local solutions.
    Thank you. I look forward to responding to your questions.
    Mr. Kucinich. Thank you, Mr. Kingsley.
    [The prepared statement of Mr. Kingsley follows:]
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    Mr. Kucinich. Mr. Walker, please proceed.

                STATEMENT OF CHRISTOPHER WALKER

    Mr. Walker. Thank you, Chairman Kucinich and other members 
of the subcommittees, for the opportunity to present the 
results of our work. My name is Chris Walker and I am director 
of research and assessment for the Local Initiative Research 
Corp. My organization is one of the Nation's leading nonprofit 
investors in low- and moderate-income communities. We strongly 
support H.R. 5818.
    Part of my job is to provide research support to our 30 
local offices throughout the country. In the past few months, 
my colleagues and I have worked extensively with several 
sources of mortgage loan performance data to identify 
neighborhood concentrations of foreclosed loans and real 
estate-owned properties. Our local staff uses this information 
to help move resources to areas of greatest need.
    Naturally we have learned a few things about the strengths 
and weaknesses of these data, so at the urging of the 
subcommittee staff we turned our attention to how these data 
could be used to help direct aid to areas with concentrations 
of vacancies due to foreclosure. We found that although there 
remains work to be done, we are able to do a pretty good job in 
identifying neighborhoods where foreclosures are prevalent and 
where vacancies have increased.
    We have made what I believe is a promising start in 
pinpointing places where foreclosures and vacancies appear to 
be related to one another. These, of course, are the places 
where aid would be directed.
    Let me briefly walk through the sequence of analyses we 
carried out, summarize our conclusions at each stage, and then 
point out some of the challenges that remain.
    First we examined the patterns of loan foreclosures and 
bank-owned real estate across all zip codes in the 20 largest 
States. These data came from two proprietary sources. First 
American Loan Performance, whose data were tabulated and 
supplied by the Federal Reserve and McDash Analytics, whose 
data service we subscribe to.
    Our analyses show that these sources are in basic 
agreement. They generally identify the same neighborhoods as 
places where concentrated foreclosures have occurred. This is 
no surprise since they come from more or less the same source, 
the largest loan securitizers in the United States.
    Now it is well known that these data are incomplete. The 
loan performance data, for example, is also covered by 50 
percent of the subprime market. We worry that this incomplete 
coverage might distort our view of where foreclosures take 
place. To find out whether this was so, we checked these data 
against Home Mortgage Disclosure Act data on so-called high-
cost loans, including those that are subprime. Originators of 
the great majority of mortgage loans are obliged to report this 
information each year, so the coverage of the market is 
superior to that of our proprietary sources.
    Our analysis shows remarkable agreement among these 
sources, at least in the 20 States we studied. This is 
important for two reasons. It means the data on loan 
performance obtained from securitizers appear not to displace 
fatal geographic biases. It also means that the use of the 
widely available HMDA data as a substitute for proprietary data 
should yield good results.
    Second, we examined a pattern in housing vacancy across all 
Census tracts in the United States, using data from the U.S. 
Postal Service. The availability of these data to researchers 
like me is an extremely valuable service that HUD provides. To 
make these data ready for analysis, we had to make sense of 
some of the anomalies that Mr. Richardson described earlier. We 
had to try to understand the ebb and flow of both occupancies 
and vacancies captured by the data, and I assure you that was 
not an easy task.
    On that standard, we got the data to behave reasonably 
well; at least well enough to allow a test of its probable 
value.
    Third and finally, we returned to our three sources of 
mortgage data and examined their relationship to the vacancy 
data, which of course was our primary goal. Frankly, our 
initial results weren't that good, producing relationships that 
were significant in statistical terms, but weren't much better 
than random. We made good progress, though, by developing 
neighborhood classifications that take account of typical 
housing patterns. It is not uncommon, for example, for the 
numbers of occupied units and vacancies to rise simultaneously. 
In growth areas, construction of new units creates new 
addresses. And as people move in, the number of occupied 
addresses goes up. At the same time, the number of vacant 
addresses can increase, too, as other new units await their 
first occupants.
    This helps explain why we found that in some neighborhoods, 
an increase in subprime lending and resulting foreclosures was 
associated with an increase in the number of occupied units and 
an increase in vacancies at the same time, as developers sold 
units to those who bought with subprime loans.
    In other neighborhoods, we saw a decline in occupied 
addresses and an increase in vacant ones as foreclosures 
emptied out units. This is the pattern we expect to find in 
many inner city areas where homeowners purchased existing homes 
with subprime loans.
    For example, the first map I show you depicts the location 
of high-cost mortgage loans made to investors and single-family 
housing in the Detroit metropolitan area. The red and orange 
areas are the zip codes with the highest numbers of these loans 
relative to other areas of Michigan. The hatched areas are 
places where the numbers of occupied addresses went down and 
the numbers of vacancies increased. As you can see, there is a 
pretty good correspondence between the two, although it is not 
perfect. There are some red areas that don't have vacancy 
increases. There are green and yellow areas that do. We 
obtained slightly better results in northeastern Ohio as 
depicted in map 2.
    So I think we made a considerable amount of progress in a 
short period of time, establishing the value of available 
mortgage loan data for geographic targeting uses and developing 
some of the classifications we need to make so that the Postal 
Service data becomes useful for our purpose.
    In my view, there are three basic tasks remaining which I 
believe can be completed over the next several months. First, 
we need to expand our analysis of mortgage loan performance 
pattern to all 50 States and improve our models so we can 
predict the location of mortgage payment problems pretty well 
in every State.
    Second, we need to do a better job in accounting for the 
factors that produce housing vacancies. We know that all 
subprime foreclosures don't result in vacant units. We know 
that all vacant units don't come from foreclosures. Various 
factors affect the conversion rate from foreclosure to vacancy.
    Third and finally, we need to continue developing better 
classifications of communities according to their occupancy and 
vacancy trends. We can then overlay our foreclosure data to 
arrive at a workable targeting approach. The maps I showed you 
illustrated how this would work. So, in sum, I believe we made 
great progress in a short period of time toward an effective 
approach to identifying areas of foreclosure-driven vacancy.
    I look forward to working further with my colleagues on the 
panel on this important task. Thank you for inviting me to 
speak today, and I will be happy to answer any questions you 
may have.
    Mr. Kucinich. And thank you, Mr. Walker, for your 
testimony.
    [The prepared statement of Mr. Walker follows:]
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    Mr. Kucinich. We are going to move now to questions from 
members of the two subcommittees. I am going to begin by asking 
my colleague, the chairwoman, to begin with the questioning. 
And the Chair recognizes Ms. Waters for 5 minutes.
    Ms. Waters. Thank you, very much. Mr. Chairman, let me 
thank you again for holding this hearing and our presenters who 
are here today who are sharing very valuable information with 
us.
    As I have looked at the subprime meltdown and the 
foreclosure mess, I have gleaned from all of the information 
that has been afforded to us and many of the visits that I have 
had in some of these cities, that the conclusions that you are 
arriving at Mr. Walker, are basically what I think I am seeing 
out there in terms of the--and I appreciate the fact that 
Chairman Kucinich is helping us to understand how to best use 
these resources.
    When we talk about $15 billion it sounds like an a lot of 
money, but it is not; $7.5 for grants, $7.5 in loans. When I 
contrast that to the meeting that I just left where one company 
had $40 billion in profits and five had $123 billion in 
profits, this is very little in terms of what we should be 
doing to stabilize these neighborhoods. And everything that you 
have testified to just rings absolutely true.
    But I am concerned about something, Professor Alexander. I 
want so very, very much for many of our areas, particularly in 
our urban areas, that have been devastated for a long period of 
time where you have huge blocks of properties, land, closed 
factories, etc., that have been sitting there for a long time. 
And then on top of that, for those homes that have kind of 
remained there, they have fallen into the foreclosure mess.
    And now you have an opportunity for the city to take a look 
at what they can do to revitalize these neighborhoods, 
utilizing some of the abandoned properties from these 
factories, like in Saint Louis. I was there. And of course all 
of you know about the projects in Saint Louis and all of that 
acreage right in the middle of the city that has been abandoned 
over 20, 30 years now. We saw two such areas.
    So as I understand it, you recommend that land bank and 
demolition be eligible use for Federal assistance to help State 
and local governments address the foreclosed and abandoned 
property issue.
    I think that may be legitimate, but I worry. In Saint 
Louis, it appears that as they approached, before the 
foreclosure crisis, this land banking not doing anything with 
foreclosed properties or abandoned properties for a long period 
of time, with an idea that they would land bank and be able to 
plan and develop communities where they find a lot of 
displacement; people who, you know, were displaced. Nobody 
knows where they are. And in many of these areas, homelessness 
certainly increased.
    And this land banking, the way that they have done it is 
they have allowed some of the properties to just deteriorate in 
an effort to, you know, come up with this ideal situation that 
they are going to develop someday. And so land banking has been 
going on for a long period of time. Properties have been vacant 
that nothing has been done with.
    So how do we avoid the kind of displacement? And how do we 
avoid these long-range plans for development, with the idea 
that you don't put any money in now because you want to 
dismantle all this stuff so that you can come up with these 
ideal communities? How do we deal with all of that? Why should 
we use this money for land banking and demolition if in fact we 
are not going to realize some relatively quick turnaround in 
development and stabilization?
    Mr. Alexander. You raise a number of excellent questions, 
Chairwoman Waters. Your points about the Saint Louis LBA the 
land bank there are quite accurate. It had the same number of 
properties in its inventory 15 years after it began as it did 
the day it began.
    In contrast, we heard testimony yesterday from Treasurer 
Daniel Kildee of Flint, MI, Genesee County. They have acquired 
12 percent of the digests of the city of Flint, but they have 
also put more homes into occupied housing than anyone, any 
other entity in Flint or in Genesee County.
    I wish there were a guarantee that we could come up with 
that an LBA or a city government would also always use it in 
the most productive fashion. I am not aware of any such 
guarantee. But 5818 itself embodies a number of critical points 
that will keep that from being a ikelihood.
    First, it is time-limited. It is sunset. It is designed as 
an emergency aid. This is not an ongoing program. This is one 
designed to get the excess inventory and put it back into 
productive use very quickly.
    The demolition feature that you have in the bill does 
permit the demolition of things that are not cost-efficient to 
rehab. I agree with the purposes in the bill, that rehab is the 
first priority. Demo and demo costs should occur only when 
necessary to stabilize the neighborhood.
    So I think you have the features in 5818 that can allow our 
local governments to preserve our neighborhoods. It is not 
going to cure all the problems. In a very weak market where the 
population continues to flee, this and this alone will not be 
enough. But it is an absolutely vital stage for saving those 
cities and neighborhoods that are going to have a tough time 
surviving in the face of 30 and 40 percent foreclosure rates.
    Ms. Waters. Thank you very much. Let me just ask our 
presenter from LISC.
    Mr. Walker, do you envision that LISC would be interested 
in some of this rehabilitation work, because like Mr. Alexander 
has said, that may be the highest priority, rather than 
establishing, demolishing too much and, you know, trying to 
stabilize it. It appears that rehabilitation certainly has 
great possibilities. Has LISC been involved in rehab rather 
than new development? Would LISC be interested in this kind of 
thing? Is this the kind of thing that would make good sense for 
you?
    Mr. Walker. Chairwoman Waters, we at LISC pride ourselves 
in supporting community-based solutions to the problems of 
neighborhoods. In some communities new construction is the 
right solution. In other communities rehabilitation is more 
appropriate. Sometimes even within the same city, different 
neighborhoods require different solutions. So that is one of 
the primary reasons why we support community-based 
organizations that have attachments in the community already 
and are able to make those decisions for themselves. So either 
way our partners choose, we are prepared with the kinds of 
investments, including the kinds of investments which would go 
in tandem with the resources made available from 5818, to 
support those decisions.
    Mr. Waters. Thank you very much.
    And to Mr. Kingsley, you have been involved, the Urban 
Institute has been involved in an awful lot of research, it 
appears. And how can our agencies of government be of more 
support to you in the work that you are doing? Is there 
something that we could be doing over in HUD that would be more 
helpful, or over in the congressional side of government, 
Office of Research, etc? Because it is very important that we 
know where to best spend money and where it will be most 
helpful and where it would stabilize neighborhoods the best. 
What do you need? Perhaps money.
    Mr. Kingsley. Well, Chairwoman Waters, I think you have 
touched on a lot of things that could possibly be helpful. I 
think the testimony you have heard today suggests that there is 
already some fairly effective national-level research that is 
supportive of the interests and supportive of helping people to 
do a better job of implementing 5818. I think I would like to 
give stress to finding ways to support local entities more than 
national ones to do good local research. The decisions that get 
made that affect most of what happens in America, and 
especially at this level, are decisions that are made by people 
in communities and localities. And even though I think, as my 
colleagues here have talked about, that there is a pretty good 
basis and a promising basis for doing a national allocation 
formula, I would argue that really making sensible decisions 
about exactly what to do in each of these neighborhoods--in 
some cases, as Mr. Walker said, it is going to be rehab versus 
demolition, but it is also how to efficiently target resources; 
which neighborhoods to go into and how to do that. You want to 
get good people locally who are capable of producing data-
driven decisions. So I think consideration of ways to allow 
some focus to support analytics locally, as well as simply 
bricks and mortar, would not be a bad feature. Thank you.
    Mr. Waters. Thank you very much.
    Mr. Kucinich. I thank the gentlelady for her work on this 
and also for her questioning. The Chair recognizes our ranking 
member, Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman. Mr. Kingsley, I think I 
am going to take the opportunity to sort of followup on my 
colleague's question, recognizing that I have one foot in 
Cleveland, the place of my birth and the home of the Cleveland 
Indians, and then I have this Padres foot in San Diego, so I 
will do the best I can to try to use them both to our 
advantage.
    When you talk about local involvement and so on--this is 
beyond 5818, but in a sense it isn't--how much local equity, 
and what I mean is real money, should cities, counties, and 
States have in this process? How much should the Federal 
Government insist on leveraging of real participation by the--
you know, there is no State in the Union that doesn't have 
money. They all have deficits, but they all have money. How 
much, what is the ratio, you think? Should we be in there with 
$15 billion at 10 percent or at 20 percent? Because if we get 
to 100 percent, $15 billion doesn't go very far. Can you help 
us understand that?
    Mr. Kingsley. I think it is a complicated answer because of 
the variations in both fiscal circumstances that exist around 
the country as well as the variations in the extent of the 
problem at the neighborhood level. So I don't really--I don't 
really have an easy answer. I would certainly endorse the idea 
of some leveraging and some sense of incentives, because if 
local governments have a stake in this process, they are 
obviously going to use money more wisely. And I certainly 
endorse that.
    Mr. Issa. Well, following up on that question, assuming 
that the reason that they wouldn't do more is that they don't 
have more for a moment, and looking at both California with a 
$20 billion deficit and Ohio with about a $20 billion budget, 
OK, so fortunately Ohio has a smaller deficit, but they both 
have downturns right now. If we are to go beyond 100 percent 
funding, would it be better for us to--let's say we take the 
$15 billion--if we in fact, for example, made it $60 billion 
but made $45 billion in the form of loans, recognizing that 
better times are coming, so that they would still have equity 
in it in the form of debt, but it wouldn't simply be it is 
other people's money, go spend it, and if it doesn't work you 
have lost nothing?
    Mr. Kingsley. Again, I think the loan/grant mix combination 
is an awfully difficult thing to settle across the board. But I 
do think that there is clearly a notion related to timing. And 
the principles here ought to be such that they do, I think, 
move in the direction you are talking about.
    I mean, we have a short-term crisis in which the budgets of 
localities are being hurt very badly in the short term. So the 
principle of getting them to pay for everything up front ain't 
going to work. I think we have to inject some money into them. 
But certainly the principle of doing that in ways where, over 
the long term as the economies improve, that they are able to 
participate is good.
    Mr. Issa. Mr. Richardson, sort of as a steward of our 
money, we put it out there, we trust you to be a good steward 
of it; are programs like that historically a more effective way 
to leverage dollars, recognizing that an empty home or a 
foreclosed home in Cleveland, OH or in Temecula, CA represents 
no revenue to the city, or reduced even if it is held by a 
bank, can we expect that program proposals coming from the 
administration would include some sort of leveraging of we 
understand you have reduced revenues, but we would like to 
share in the benefit of us getting those revenues back up by 
loan repayment or some other process in order to make our 15 
billion, as the gentlelady suggested, hopefully a far greater 
number?
    Mr. Richardson. Well, I can't speak to the policy of the 
administration on this specific bill----
    Mr. Issa. But you are the administration sitting here. 
Trust me, feel free. It is the end of an administration. Do 
your best to put your CEO hat on.
    Mr. Richardson. But I can speak to other programs that have 
match requirements.
    Mr. Issa. Thank you.
    Mr. Richardson. And programs like the HOME program, where a 
jurisdiction can be required--jurisdictions are required to 
have a HOME match, but it can be waived if they can show that 
they can't meet that requirement. So as in this case, some 
jurisdictions may be more able to be able to provide assistance 
than others.
    In terms of an allocation formula, another way to handle it 
is--if you are allocating funds--is to target funds in such a 
way that you take into account fiscal capacity so that a 
jurisdiction with higher fiscal capacity, with perhaps equal 
need to another jurisdiction, gets somewhat less funds than a 
jurisdiction with low fiscal capacity.
    Mr. Issa. And if I could, Mr. Chairman, if I could just ask 
one exit question. You know, being from California with our 
$700,000-$800,000 homes in foreclosure in many cases--and these 
are still hardworking people at regular jobs, the homes are 
simply more expensive--we have full confidence that we are 
going to have a snap back and that homes in 10 years will be 
worth dramatically more than they are today, the same homes 
that are empty and in foreclosure.
    Should the Congress be considering schemes--I mean that in 
the good sense--in which we extend what it takes to stabilize 
those markets, get people back into them on some sort of a 
basis they can afford today, but the Federal Government or 
other agencies take equity so that when they snap back we can 
expect a recovery?
    And I would contrast it maybe in a way to what we did for 
Chrysler many years ago. We actually didn't give them a penny. 
We provided loan guarantees which they paid back, with 
interest, when Chrysler was restored. Can we, in a place like 
San Diego or Temecula, CA in my district, use techniques like 
that? Presently I don't know of any, but is that something 
Congress should be trying to make available so we not simply 
throw money at a time in which it is down, and then be 
surprised in which those same homes are now earning people huge 
returns?
    Mr. Richardson. If I could ask Frank to answer that 
question, he seems to have----
    Mr. Issa. You are a natural-born leader. Yes, sir.
    Mr. Alexander. Representative Issa, you have already got it 
in a small form in 5818, where you have the shared depreciation 
concept. Now, I am not aware of that in any other Federal loan 
program, that a loan or grant carries with it a shared 
depreciation for repayment to the Federal Government. So in 
that sense in some jurisdictions, yes, you are going to be 
capturing a portion of the upside, not only for repayment of 
the initial loan but of the appreciated dollar value.
    Now, it is not going to be applicable across the board 
where you are locking it in, where the disposition of the 
property is to lock it into affordable housing. Odds are there 
will not be as much upside appreciation. But that, again, the 
good thing is it allows the local jurisdiction the flexibility 
to do shared depreciation mortgages with a recapture, or to 
focus much more deeply on the extremely low-income rental 
housing.
    Mr. Issa. Thank you, Mr. Chairman. And thank you for 
focusing for so long, for this year and beyond, on this problem 
which we share, although in different ways, between our two 
districts.
    Mr. Kucinich. Thank you very much, Mr. Issa. And I am going 
to exercise my prerogative as Chair, having yielded the time to 
Ms. Waters to begin to ask questions, to ask my questions. And 
I will make it as expeditious as possible so we can get our 
other members of the subcommittee involved here.
    You know, one of the things, I would ask the members of the 
subcommittee, if you take this overlay, the page that has 
northeastern Ohio, I just want to--this is Mr. Walker's work. 
We thank you for that. When you look at this, what we have 
here, the Investor High Cost Loans by ZIP Code, you are really 
talking about the subprime loans. And when you overlay, as you 
have, the increasing vacant and decreasing occupied addresses, 
they fit rather neatly, if you are looking at the city of 
Cleveland, over those areas where they had the subprime loans.
    Now, this subcommittee is looking at, you know, what is the 
most effective way to target any resource that would be 
available. And these maps are very helpful, because what it 
appears is that you have a high number of subprime loans and 
then people are just leaving.
    One of the things that has come up in the work of this 
committee--and I want to just share this with the members of 
the subcommittee that are with us today from Congresswoman 
Waters' subcommittee--if you take the matter that HUD provides, 
which maybe staff could put that up there--go back. Further. 
Take a look over--that's it. Can you enlarge that a little bit? 
A little bit more? If you can enlarge it?
    You look at it, it actually looks like a V, like this. If 
you look at the map, it looks like a V. That V approximates the 
African American community in Cleveland. If you look at this, 
where the concentration is in the red areas, particularly the 
red areas where you have the overlay of increasing vacant and 
decreasing occupied addresses, that also is the African 
American community. When you look at, going back to our map, 
staff, go back to this map, when you look at the overlaid areas 
of red--yes, that's it, try to enlarge that a little bit--for 
those of you who have the map, I just want to point something 
out. When you look at the overlaid areas of red in the 
Cleveland area, and then you look at the other areas to the 
west, that's Lorain, OH, large African American population. You 
look at the areas to the south, the areas of red that have an 
increasing vacant or decreasing occupied addresses, same thing 
with the African American community in Akron, OH.
    When you look east of Cleveland, there is a little fringe 
of red there that is overlaid for increasing vacant and 
decreasing occupied addresses. That is Euclid, OH, a large 
African American population.
    In the work of any of the gentlemen here, have you done any 
research that has looked at data that has identified the racial 
characteristics of the people who have had this avalanche of 
subprime loan defaults? Anybody here done that work? HUD?
    Mr. Richardson. There has been quite a lot of research 
actually on subprime loans and its relationship to the race of 
borrower. And certainly the rate of subprime loans for minority 
borrowers is much, much higher than it is for white borrowers.
    Mr. Kucinich. Has HUD, to your knowledge, ever considered a 
civil rights action? Take this data and wrap it up into a civil 
rights action? Has that ever been talked about?
    Mr. Richardson. HUD has a new division that is looking at 
lending patterns of discrimination. And they are using these 
data to try to identify lenders that look like they do 
activities that may suggest that they are lending money in an 
illegal fashion. But I am not the expert on that.
    Mr. Kucinich. I want this subcommittee--and perhaps we 
could do this in conjunction with Ms. Waters' subcommittee as 
well--to go into this a little bit more in terms of these 
patterns.
    You know, when we had our initial work on this committee we 
identified those vectors that we saw. And what disturbs me is 
this, and I just want to put this card on the table. I was 
mayor of Cleveland over 30 years ago. I was one of the first 
mayors in America to use the Community Reinvestment Act to see 
that there would be investing in the inner city in 
neighborhoods that had not had investments in the neighborhoods 
but had put money in the banks. Banks weren't lending in the 
community. And over the years, banks tried to skirt their 
responsibility to follow the Community Reinvestment Act, and, 
in a sense, render it a nullity.
    Later on, it was very apparent there were wide areas which 
were starved for credit. They came in with these subprime 
products, no documentation loans. People were desperate to have 
a home. Now we can say, you know, well, OK, take some 
responsibility. But you know what? There is an issue of 
financial literacy that enters into this. And you know, it is 
one thing to market a product to people who are aware of 
exactly all the parameters. But when you have the desire for a 
home ownership so powerful where it is the biggest dream in 
people's lives--my parents never owned a home. They were 
renters. But when I had my first home, huge.
    And so we have something that goes much deeper here than 
just--there is a lot of great analysis here, and I appreciate 
it. But there is a human dimension here with part of the ugly 
underside of America's social life tied to the economics that 
this subcommittee is going to continue to explore.
    And I just wanted to know if anybody at HUD was aware of 
that, because I think that we really should be looking at some 
of the civil rights dimensions of this. Because there were 
lending institutions, whether they were regulated or not--
that's something we have to determine, regulated or not--there 
were lending institutions that were out there marketing these 
products, capitalizing on the perhaps lack of savvy 
financially, getting these no-document loans. And now these 
people have lost--and people have lost everything. I am in 
neighborhoods in Cleveland that are falling apart. They are 
just falling apart. And people who are remaining, we have 
talked about them, are having a great deal of difficulty 
holding onto their equity. So let me get my colleague.
    Mr. Issa. I just wanted to remind us both that in the 
hearings a little over a year ago, that was very much what we 
heard was on one hand banks and other institutions had been 
availing themselves of, finally, the requirement that they 
stretch to make loans to underserved communities; but at the 
same time the loan failure rates were high, some of it because 
of the very nature of subprime loans. And so in a sense they 
were not doing a favor to people unless, as you said--and I 
think, Mr. Chairman, you said it very well, that may be a part 
of what this committee has to look into--you have to have that 
sort of financial check-and-balance on first time homeowners, 
people with jobs that are perhaps right on the edge of being 
lost in a downturn. And we saw that a year ago in your 
hearings.
    Mr. Kucinich. Well, the buyer beware and the lender be 
prudent. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. And I thank you for 
your wisdom and the sage advice that you have accorded us.
    Again, I would like to make mention that the bipartisanship 
that we are witnessing is most refreshing. And I am most 
appreciative to be a part of it today and play some small role.
    Before going to the comments that I wanted to make and the 
question that I would like to ask, I think it appropriate to 
say, also as an addendum to what you have said, we have a lot 
of persons who qualify for prime loans and were steered into 
the subprime market.
    Mr. Kucinich. Exactly. If the gentleman would yield, you 
are absolutely 100 percent right.
    Mr. Green. Thank you. And there was also another element of 
this that causes a great degree of consternation, something 
called the yield spread premium [YSP]. The yield spread 
premium, for edification purposes, is a lawful kickback that an 
originator receives if the originator can cause the borrower to 
acquire a loan higher than the one the borrower qualified for. 
Qualify for 5 percent, get the borrower to take out an 8 
percent loan, that originator receives now a lawful return, if 
you will. So as to be kind, that is an emolument that he would 
not ordinarily receive if the person received the 5 percent 
loan. That causes a great degree of consternation as well.
    But I want to compliment the panel. You have done what 
intellectuals should do, and that is cause lay people like me 
to think. You really have. Because you have given me at a level 
of intelligence that I had not considered prior to your 
comments.
    And one of the things that I would like to ask you is are 
you contemplating a bifurcated system, one wherein we acquire a 
certain amount of empirical evidence at the Federal level and 
utilize this evidence to target a local area wherein we require 
some entity to then share with us empirical data that we would 
plug into a formula? Is that the methodology that you 
contemplate, or do you contemplate a holistic approach at this 
level that will direct us specifically to an area that is in 
need?
    And I welcome comments from whomever would like to respond. 
Mr. Kingsley, we will start with you. I recognized you first, 
and then Mr. Alexander.
    Mr. Kingsley. I think that just as most of our comments 
here suggest, that there is promise in using national data to 
develop a formula that you could use to efficiently target 
these resources without having to rely on any specialized local 
or proprietary data sets to do that.
    The remark I made about data is that once the funds are 
allocated, then it really makes sense to support local 
intermediaries to use local data to help in targeting the 
expenditure of those funds and in also devising efficient 
strategies to use those funds.
    So I guess my view was clearly that I think there is 
promise in being able to use national data sets to develop an 
equitable formula for allocating the funds nationally.
    Mr. Green. Thank you. Mr. Alexander, sir. Professor.
    Mr. Alexander. Representative Green, in a sense, 5818 
already has the bifurcated approach. What you are hearing from 
the four of us, and we really are in essence speaking in one 
voice, recommending that the basic allocation formula be 
modified to focus on concentrations of foreclosures and vacant 
and abandoned properties.
    In 5818, as it passed 2 weeks ago, it has a bifurcated 
approach in that the approved plan requires a focus on vacancy 
and likelihood of increased vacancies and higher foreclosures.
    So you have two different levels already present in the 
basic structure of 5818. And I think that has been official. I 
think the basic formula for allocation to the States, qualified 
municipalities, and qualified urban counties can be improved 
upon. But then I would still even place the emphasis that you 
have put in the current bill, which is that the distribution 
must be in response to a plan of the municipality that will 
address the highest-risk neighborhoods, and so it does allow 
local flexibility.
    And following up on Representative Waters' earlier question 
to me, it allows for the local governments to identify their 
action plans in order to receive the money. I think preserving 
that local flexibility is so important.
    Mr. Green. Thank you. As I yield back my time, Mr. 
Chairman, I sincerely thank you for your thought-provoking 
comments that you made, because, again, some things will escape 
one who is not familiar with the regions and the maps. And but 
for your comments, I may not have picked up on this. Thank you.
    Mr. Kucinich. I thank the gentleman. The Chair recognizes 
Congressman Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman. The research you are 
doing, I think, is going to be critically important for many 
mayors. And like the chairman, Mr. Kucinich, I served as mayor 
of Kansas City, MO. And I am always looking, even now, at what 
is happening in the urban core. And the depreciation of 
housing, of the housing stock didn't begin with the subprime 
crisis. It has accelerated because of the subprime crisis and 
added some new dimensions.
    One, and I haven't seen this in the research, maybe you are 
dealing with this, and I guess maybe in a way you have, but 
this is somewhat anecdotal except that I know I can call some 
names of people, insurance companies will not insure a vacant 
piece of property in Missouri more than 60 days. And so even if 
the house had not been just damaged and torn apart, after 60 
days the chances are high that either someone will strip the 
copper out and the kitchen and bathroom furnishings. But in 
many of those houses, the drug industry will move in. And so 
there is a factor with insurance.
    And you know, it didn't occur to me until I saw someone who 
wrote down the value of their home by $50,000 in order to sell 
it--I am sorry, $50,000 loss because they were afraid after 2 
months that, you know, the house was going to be torn up. So 
they just took a big loss. And after seeing that, I realized 
that there is one component that we haven't addressed, and that 
is the whole issue of insurance.
    No one likes to force anybody to do anything, and the 
people who are forced regret it and hate it more. Insurance 
companies. But I think we are going to have another problem 
around the country related to the properties that are taken off 
the insurance rolls, because that is going to really create 
some serious problems.
    And then when you deal with, you know, demolition versus 
rehabilitation in an urban core, I think, Mayor Kucinich, would 
agree you try to rehabilitate? The reason you try to 
rehabilitate is because if you want to look at demolition, you 
go to the urban core and you will see, you know, a house, 
vacant lot, house, two vacant lots, because of demolition. And 
it is difficult to get developers to come in and do an in-fill 
housing development project. And even when they do, it creates 
a problem because the new housing in the older neighborhoods 
generally don't match the majestic old houses, even in the 
urban core. I mean, you know, you will have some cardboard 
housing put up next to housing that was put up 100 years ago, 
but it was really well built.
    Anyway, I am not sure that's much of a question, but I 
would like to get your response to what I have just laid out. 
Any of you. Yes, Mr. Alexander.
    Mr. Alexander. Representative Cleaver, you are absolutely 
right in identifying that as one of the unspoken topics right 
now. As we look at the tremendous growth of REO that lenders 
are now acquiring as a result of these foreclosures. They are 
quickly discovering the insurance costs, or the lack of 
insurance, as it becomes vacant for extended periods of time. 
The good news in that is that the lenders holding this REO are 
going to have to wake up pretty quickly and be willing to 
convey that property to local government entities or to 
nonprofits to then rehab it and put it back into productive 
use.
    I think that one of the challenges you are giving to us, 
which I am delighted to accept, is to start pressing the 
insurance industry and the lenders on their REO policies to 
find out the loss of coverage or how much it is going to cost 
them to continue coverage when they hold property for 6 months 
and a year post-foreclosure.
    Mr. Cleaver. Anyone else?
    One final question, Mr. Chairman, to Mr. Walker. In your 
testimony you suggest that more research is needed before we 
will know exactly how to use the data sets that are available 
to achieve what we have done with 5818. How close are we today 
to having the detailed knowledge of whether vacancies are 
increasing due to the subprime mortgage crisis?
    Mr. Walker. My response, sir, is we are talking a few 
months and not a few years.
    Mr. Cleaver. That is good news. I was trembling over the 
fact--I am accustomed to having witnesses do the Capitol Hill 
dance. And it is just refreshing to hear somebody say it is 
coming.
    Mr. Walker. Well, I am a researcher, so if you ask me a 
question I am always going to tell you that more research is 
needed.
    Mr. Cleaver. Thank you. Thank you, Mr. Chairman.
    Mr. Kucinich. Thank you, Mayor Cleaver. I just would like 
to do just one more brief round of questions here. Before I get 
into this question about the data sets, I just want to point 
something out about what Mr. Cleaver said. I will talk to 
Chairwoman Waters about this. This might be another opportunity 
for our two subcommittees to cooperate. Because when we are 
talking about insurance--and you are the first person that 
mentioned that, and that is really important that it is 
mentioned--you know, we were already grappling years ago with 
the issue of redlining. When you look at this map again, and 
there is red, there is lines across that red. You can almost 
bet insurance companies, which are very savvy about their 
premiums and their investments, are a step ahead of us on this. 
And we should look at the insurance implications. Because if 
people cannot get their property insured, as you point out, 
they are looking at a fire-sale price for their property. And 
when that happens, the surrounding property also begins to 
drop. And businesses in the area will find their rates go up if 
they can get insurance. So we are looking at the beginning of a 
vicious cycle.
    And if we are talking about neighborhood restoration, that 
discussion of insurance has to be part of it. And I appreciate 
you bringing it up.
    I would like to ask all the members of the panel this 
question. The purpose of the aid authorized in H.R. 5818 is to 
help neighborhoods. Now, most of the data sets that you have 
discussed focus at the county or the ZIP Code levels. It is a 
much lower level of resolution than the neighborhoods. Or 
should I say it is a much higher?
    Mr. Walker. Lower.
    Mr. Kucinich. Lower resolution than the neighborhoods. 
Somewhere there has to be a common denominator or a high enough 
level of resolution that you are targeting needs to needy 
neighborhoods, but low enough that it is comparable among 
different data sets. So what is that level of resolution? Is it 
a State or county or Census tract? Would you like to offer your 
opinion on that? I will start with Mr. Alexander.
    Mr. Alexander. For purposes of determining concentration of 
foreclosures I think you must go either with Census tract or 
with ZIP Code, either five or nine-digit ZIP Code, to be able 
to really determine which communities or neighborhoods are the 
hardest hit. I think you can then back into the aggregate 
relative percentages of the concentrated neighborhoods and 
still do State-by-State allocations. But the variable of 
concentration needs to be present.
    Mr. Kucinich. Mr. Walker.
    Mr. Walker. I think one of the beauties of the correlations 
we have established between the foreclosure data from the 
proprietary sources, which is available to us generally at the 
ZIP Code level, and the HMDA data, which is available to us at 
the Census-tract level, is I think we can feel pretty confident 
in using Census tract level data in order to establish the 
kinds of concentrations we have just talked about. The Postal 
Service data is also available to us at the Census tract level.
    And so that gives us the possibility of doing what I think 
is critically important in this regard, to identify the numbers 
of neighborhoods within communities that are subject to and 
cross some threshold of concentrated foreclosure.
    Mr. Kucinich. Mr. Kingsley, you have anything to add there?
    Mr. Kingsley. No, I would endorse that. We do a lot of work 
on neighborhoods around the country. And most people even think 
in terms of really responding to what people think of as a 
neighborhood, the Census tract is about right and the ZIP 
Codeis often too big, too much an amalgam of very different 
circumstances. And I would endorse, I think, what my colleagues 
here have said, we are very fortunate because we have HMDA data 
and the Postal Service data at the Census tract level.
    Mr. Kucinich. Mr. Richardson, would you like to add 
anything there?
    Mr. Richardson. Well, I think as you pointed out when you 
were showing the map of Cleveland, and being able to show the 
pattern here with the map we prepared, this is Census tract 
level data. And it is very--it tells you a much stronger 
picture about what is going on in your community if you can do 
it at the Census tract level.
    Mr. Kucinich. So you would say Census tract data.
    Mr. Richardson. Yes.
    Mr. Kucinich. In your opinion, what makes a good formula 
then? What are the elements of a good formula?
    Mr. Richardson. Elements of a good formula. First off, that 
it has to be well-targeted to the goal that the Congress has 
established. Second, that it has to be fair. Communities with 
similar levels of need need to get similar amounts of money.
    Mr. Kucinich. How do you know if you have a good formula, 
then?
    Mr. Richardson. How do you know if you have a good formula? 
You want to compare it against a variety of--you can establish 
a formula based upon the best data that you have that is 
consistently collected across the country, and then you can 
compare it against other data sets that you might not have for 
every part of the country.
    For example, Tom Kingsley at the Urban Institute, they have 
the NNIP partners for a select number of communities. They have 
more data at the local level than we have nationally. But if 
our stuff matches up well with what they have, that gives us 
some confidence.
    Mr. Kucinich. So if the Neighborhood Stabilization Act is 
going to be effective and equitable, we want to make sure that 
we are targeting at the most discrete level that we can 
possibly do that would hold up for data analysis. Is that what 
you are saying?
    Mr. Richardson. Not speaking specifically to that act. If 
you want to target funds to the needs of vacancy and abandoned 
housing and concentrate on vacant and abandoned housing, that 
is pretty much what you have to do.
    Mr. Kucinich. Mr. Kingsley, would you agree with that?
    Mr. Kingsley. Yeah. I think I would agree with that.
    Mr. Kucinich. Mr. Walker.
    Mr. Walker. Certainly.
    Mr. Kucinich. Mr. Alexander.
    Mr. Alexander. Yes, sir.
    Mr. Kucinich. OK. Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman. You got four yeses. I 
should quit now.
    Mr. Kucinich. That is why I stopped.
    Mr. Issa. The problem is now I am next. You are a hard act 
to follow. Let me followup on that line, though, because I am 
very intrigued by it.
    First of all, I guess it is pretty easy to see from charts 
that we can figure out how many impacted people there are in a 
given ZIP Code.
    But when we are looking at on a local control--Mr. 
Kingsley, I think I want to focus on that--wouldn't it be true 
in some cases, and we will take Cleveland, Cleveland Heights, 
these areas--particularly the east side that I am more familiar 
with--I can think of neighborhoods where three or four streets 
the last time I was there, and I am about to go back and see it 
again, and I understand it is worse, but three or four streets, 
if they were put into an economic redevelopment zone, the 
dollars, many less dollars could dramatically change that 
neighborhood. Now, it might not be as gratifying to the person 
just outside the line, but if a city is trying to take a 
limited amount of dollars and get the maximum bang for the 
buck, it would seem that they would discretely draw, in some 
cases, just a few streets here and a few streets here and a few 
streets here. And although they would not serve everyone, they 
would serve the best interests in reversing a trend.
    I see a lot of heads waving. Did I get a four in a row 
here, too? Does this act empower them to do that, or is that 
one of the areas in which administration may be difficult to 
make sure that a city could make that decision without being 
sued by the person just outside the line?
    Mr. Alexander. The legislation, Representative Issa, allows 
the local government discretion to expend the funds on the 
street level and not the next street. It makes relatively gross 
but pretty targeted allocations to the States and then 
qualifying municipalities and counties, but then leaves the 
municipality or the county with discretion to target the usage 
of those funds in the transitional neighborhoods to stabilize 
them.
    Mr. Issa. I heard that, but I didn't hear the last part, 
without being sued. The question is: Is it challenge-proof? 
Which is always a question for us. I hate to see any of this 
$15 billion eaten up with legal fees.
    Mr. Alexander. Well, as a law professor, nothing is 
challenge-proof.
    Mr. Issa. Move it over to the administration, probably.
    Mr. Alexander. And we recognize the ability of anyone to 
bring a challenge, but it is hard for me to see any 
constitutional or statutory challenge, given the way you have 
drafted this bill.
    Mr. Issa. OK. Mr. Kingsley, you are chomping at the bit, or 
am I good?
    Mr. Kingsley. Yes, I think you are going to get another 
winner here, because I think that is clearly the case, and the 
principles we talked about with using the Census tract data 
even for the national allocation. But I was certainly 
advocating that once the allocations to jurisdictions are made, 
that other data and local knowledge be dominant in deciding 
exactly how to spend those resources in a cost-effective 
manner.
    Mr. Issa. OK. Now I am going to tell my good friend next to 
me that we are going to have to realize that our hearts may 
both be in Cleveland, but our constituencies are in very 
different parts of the country.
    And I have to ask a very difficult question. A postal 
worker making a postal worker salary in Cleveland is, from a 
standpoint of a postal worker in San Diego, rich. He is doing 
great. He has access to $70,000, $80,000, $90,000 homes, 
$150,000 seeming mansions compared to a $400,000 home in 
California. How do we deal--and I am using a postal worker 
because Federal workers tend to be paid substantially similar, 
with very small differences throughout the country--how do we 
make sure that my person with the $400,000 home or $320,000 
threshold for what might be half that cost in Cleveland and 
even less in Mississippi, how do we deal with that fairly so 
that what we consider to be our blighted neighborhoods and our 
problems are treated equally, even though they cost twice as 
much per home to fix? Please, Mr. Richardson.
    Mr. Richardson. Generally speaking, when we look at this 
issue, we do have to take into account that it costs different 
amounts of money to provide services in different parts of the 
country. So you can establish a formula that takes into account 
different costs so it adjusts an allocation up or down based 
upon relative costs.
    Similarly, you can take into account whether a jurisdiction 
has the tax resources or capacity, the fiscal capacity to 
address the problems itself versus another jurisdiction, and 
you can adjust resources up or down in a formula.
    Mr. Issa. We often see that as Mississippi can't afford it, 
but California can.
    Closing on my question, though, if it takes twice as many 
dollars to fix the same 12,000 homes in Temecula as it takes in 
East Cleveland, how am I going to be made whole; or am I going 
to be made whole? In other words, am I, by definition, under 
this act going to get the same amount of dollars for twice the 
dollar problem, and be told California will have to deal with 
the difference whether or not California is richer or the homes 
do cost twice as much?
    And that's what I told my good friend, that we have this 
dichotomy so often that we have to bring out.
    Mr. Richardson. Well, if you are crafting language for a 
formula, the guidance to be provided is to tell us that you--
those of us who might have to develop that--is generally 
speaking, is to say you need to take into account the different 
costs of services.
    Mr. Issa. Thank you. And, Mr. Chairman, we are never apart 
in ideology. We are often, though, in the strange conundrum 
that our homes simply cost different amounts these days.
    Mr. Kucinich. I think that's true. And let it be said that 
being the case, that the home that I live in, which probably 
lost a quarter of its value because of foreclosures in our 
neighborhoods since last October, is like a lot of my 
neighbors; you know, they are just struggling to hold on. And 
the house that I live in is, you know, today probably worth 
$75,000, if I am lucky. And I have had it for 36 years.
    And so, you know, we live with this, you know, wherever we 
are. We are living with this. So I want to recognize Mr. Green 
for a final round of questions.
    Mr. Green. Thank you, Mr. Chairman. And following up on 
what the ranking member has just called to our attention, we 
also have regions that have different economic recovery 
schemes, if you will. In Las Vegas, there may be a dependency 
upon job growth to move them out of the enigmatic situation 
they find themselves in; whereas in another part of the 
country, they can't rely on that circumstance because it 
doesn't exist.
    So I know we have to consider all of these things, and I am 
not sure how the formula will adjust for this, for the 
variations in economic status of various regions of the 
country. Does someone care to give a comment on this?
    Professor Alexander? Of course, you know your name means 
help of human kind.
    Mr. Alexander. You are quite a guy, Representative Green, 
and indeed I view the legal profession as first and foremost a 
service profession. The goal is that the allocation formula 
being based, at least in significant part, upon foreclosures 
will be a rough indicator of economic vitality or weakness 
according to different regions, both at the State level and 
then within the State level. So it is certainly not a perfect 
indication of the different economic strengths or hot market/
weak markets. But by using the three, four, or five variables 
that you have already put in the bill and that we are 
recommending, it allows that the economic data will be 
reflected in those variables: the strength of the community or 
the weakness of the community. That is the goal.
    Mr. Green. Yes, Mr. Richardson.
    Mr. Richardson. I may have a little different opinion than 
Mr. Alexander. I am not sure that foreclosures are exclusively 
a measure of the economic health of an area. And I think that 
if you want to take into account economic health, you need to 
specifically state that in a formula that you want to take into 
account, whether it be job loss or job growth, to make sure 
that is accounted for. Because certainly in a place where you 
have job loss and foreclosures, the risk of the house becoming 
vacant and abandoned is much higher than an area, really, of 
job growth and foreclosures, where that house will probably be 
purchased by someone fairly quickly.
    Mr. Green. Anyone else? Quickly, I will make one additional 
comment and then a question.
    We understand the number of homes that may go into 
foreclosure. We have a lot of empirical evidence on this. But 
do we have any intelligence on the number that may just be 
walked away from? Has anyone been able to come up with a 
prognostication as to how many homes may just be abandoned in 
this process?
    Mr. Alexander. That is why we recommend, Representative 
Green, that we focus on vacancies, which do pick up those who 
simply walk away, or do a deed in lieu of foreclosure, or turn 
the keys in. Foreclosure is a--foreclosure data that we have is 
a very rough proxy. Not all foreclosures yield vacancies; not 
all vacancies yield abandonment. But our measures of 
foreclosures are not of foreclosure sales, the data is of 
foreclosure filings. And that is quite different than the 
number of sales. And it is really between those two that we 
pick up what you are referring to as simply the families that 
turned in the keys and walked away.
    Mr. Green. Anyone else?
    Mr. Walker. Well, we do know where bank-owned properties 
are. And if there is a rough measure of the vulnerability of a 
property to eventual vacancy, I mean that would be it.
    But I would like to second what Mr. Alexander said earlier, 
that the fact that we are focusing on vacancies captures quite 
a lot, if we think of the economic performance of a region 
already. So that is exactly the right thing to do.
    Mr. Richardson. I might add, however, we might be able to 
get--we do have data--the Post Office data tells us how long an 
address has been vacant. So we can know if it has been vacant 6 
months or 12 months, which certainly is a greater predictor of 
abandonment.
    And we may be able to get data from--certainly from FHA, 
but also from Fannie Mae and Freddie Mac, perhaps, on how long 
their real estate-owned properties are sitting vacant. And so 
in areas where you have high lengths of time where a property 
is vacant, that certainly is more suggestive of risk of 
abandonment.
    Mr. Green. Thank you, Mr. Chairman. I yield back.
    Mr. Kucinich. I thank the gentleman from Texas. The Chair 
recognizes Mr. Cleaver for a final round of questions.
    Mr. Cleaver. I don't have any additional questions, Mr. 
Chairman. Thank you.
    Mr. Kucinich. Would you yield, then, to me for a final 
question?
    Mr. Cleaver. I would like to yield a final question to the 
chairman of the subcommittee, Mr. Kucinich.
    Mr. Kucinich. I appreciate it. Thank you.
    Mr. Richardson, as your agency would be tasked with 
implementing H.R. 5818, and in view of the time you and your 
colleagues need to finish your research, would you have any 
suggestions as to how Congress should craft its funding 
allocation if we were to do so?
    Mr. Richardson. My general recommendation with crafting 
language for a formula, I like to look at the language for the 
HOME formula that was passed in the Cranston-Gonzalez National 
Affordable Housing Act of 1991. That language is very specific 
about what goals they wanted the formula to accomplish and the 
types of data that they thought we might be able to use. But it 
didn't--it allowed us the flexibility to actually design the 
formula to reflect what kinds of information we were able to 
gather after the law was passed.
    So I advise you to look at section 217 of 42 U.S.C. 12747. 
It certainly has a pretty model language for a formula that 
gets you what you want, but gives us some flexibility to make 
sure we can accomplish what you want.
    Mr. Kucinich. Any other comments before we move to adjourn 
this?
    I want to thank all of the panelists. Your expertise has 
been quite valuable in getting these two subcommittees the 
opportunity to focus in on what is the appropriate way we 
proceed in the situation we are in. And I want to thank each of 
you for the dedication that you have to this very serious 
question. It is inevitable that when we make these decisions we 
want to make sure that it is grounded in solid research and 
that the research is available as we try to craft the 
appropriate formula. So thank you.
    I am Congressman Dennis Kucinich, chairman of the Domestic 
Policy Subcommittee. This has been a joint hearing of the 
Domestic Policy Subcommittee, which is a subcommittee of 
Oversight and Government Reform, and the Housing and Community 
Opportunity Subcommittee, which is a subcommittee of the 
Financial Services Committee, which is chaired by Congresswoman 
Maxine Waters. I want to thank my colleagues from that 
subcommittee who were here today, and including Mr. Green and 
Mr. Cleaver. Thank you for your presence and your 
participation.
    The title of today's hearing is, ``Targeting Federal Aid to 
Neighborhoods Distressed by the Subprime Mortgage Crisis.'' 
This has been one in a series of hearings which this 
subcommittee has had.
    And I want to thank the minority and the majority staff for 
the work that they have done on this, and Mr. Issa, who has 
been very supportive, as has Mr. Turner, who is a guest member, 
very supportive of this, reached deeply into meeting the 
challenge of this subprime mortgage matter.
    This subcommittee will continue to delve even deeper into 
these issues. And Mr. Cleaver came up with a good suggestion 
today, looking at the insurance angles. And that's something 
that we are going to start looking at immediately.
    So I want to thank the attendance of the witnesses, those 
in the audience, staff. Thank you. And this committee, these 
two subcommittees are adjourned. Thank you.
    [Whereupon, at 4:05 p.m., the subcommittees were 
adjourned.]
    [The prepared statement of Hon. Tom Davis follows:]
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