[Senate Hearing 110-1002]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 110-1002
 
                    NOMINATION OF STEVEN C. PRESTON

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


                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   ON

                             NOMINATION OF:

 Steven C. Preston, of Illinois, to be Secretary of the Department of 
                     Housing and Urban Development

                               __________

                         THURSDAY, MAY 22, 2008

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate /
                            senate05sh.html



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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
THOMAS R. CARPER, Delaware           CHUCK HAGEL, Nebraska
ROBERT MENENDEZ, New Jersey          JIM BUNNING, Kentucky
DANIEL K. AKAKA, Hawaii              MIKE CRAPO, Idaho
SHERROD BROWN, Ohio                  ELIZABETH DOLE, North Carolina
ROBERT P. CASEY, Pennsylvania        MEL MARTINEZ, Florida
JON TESTER, Montana                  BOB CORKER, Tennessee

                      Shawn Maher, Staff Director
        William D. Duhnke, Republican Staff Director and Counsel

                      Amy S. Friend, Chief Counsel

                    Mark Osterle, Republican Counsel

                       Dawn Ratliff, Chief Clerk
                      Shelvin Simmons, IT Director
                          Jim Crowell, Editor


                            C O N T E N T S

                              ----------                              

                         THURSDAY, MAY 22, 2008

                                                                   Page

Opening statement of Chairman Dodd...............................     1

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     5
    Senator Casey................................................     5
    Senator Allard...............................................     5
    Senator Dole.................................................     7

                               WITNESSES

Steven C. Preston, of Illinois, to be Secretary of the Department 
  of Housing and Urban Development...............................     8
    Prepared statement...........................................    32
    Response to written questions of:
        Senator Dodd.............................................    36
        Senator Dole.............................................    39
        Senator Tester...........................................    39


                  NOMINATION OF STEVEN C. PRESTON, OF 
                   ILLINOIS, TO BE SECRETARY OF THE 
                    DEPARTMENT OF HOUSING AND URBAN 
                              DEVELOPMENT

                              ----------                              


                         THURSDAY, MAY 22, 2008

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:09 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Christopher J. Dodd (Chairman 
of the Committee) presiding.

       OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Chairman Dodd. The Committee will come to order. I 
apologize to you all for being a couple minutes late starting 
this morning. Let me welcome all of you here to the Committee 
hearing as we consider the nomination of Steven Preston to be 
the Secretary of the U.S. Department of Housing and Urban 
Development.
    The Committee will come to order this morning, and today we 
are going to hold this hearing. Steven Preston has been 
nominated by the President to be the Secretary of this very 
important Department. It is always important, but at these 
times even more important, I would make the case, because of 
the obvious housing crisis we are facing in our country, and 
this Department plays a very important and critical role in all 
of that.
    Mr. Preston currently serves as the Administrator of the 
Small Business Administration, where for the past 2 years he 
has focused on a number of challenges, including reforming the 
Disaster Loan Program and increasing employee morale. These 
efforts will serve him well if he is confirmed, as there are 
serious challenges facing the Department of Housing and Urban 
Development. And we talked about that in my office a few days 
ago, Mr. Preston, as you will recall.
    Before I talk about those challenges, I want to 
acknowledge, as I expressed to Mr. Preston, some concerns that 
the nominee does not have a strong background in housing or 
housing finance--by his own admission, in fact. He has other 
talents and abilities he brings to this nomination. And while 
you possess certain other skills of great importance, I do 
believe that a working knowledge and background in housing is 
valuable, especially for the Secretary of HUD, a position of 
incredible importance even in normal times. But, unfortunately, 
we are not in normal times at all. We are in the midst of the 
largest housing crisis our country has experienced in at least 
75 years, possibly ever, given the global implications of this 
housing crisis. When Northern Rock, a bank in Great Britain, 
fails because of subprime mortgages, you get an idea of how 
widespread this domestic problem has become even beyond our own 
shores.
    Millions of families, of course, here at home are facing 
the prospects of losing their homes and their dreams. Millions 
more are experiencing significant home price depreciation, 
putting them in the position of owing more on their mortgages 
than, of course, their homes are worth. Homeowners are seeing 
the wealth that they have built in their homes over years 
evaporate literally within days.
    According to Martin Feldstein, the Chairman of President 
Reagan's Council of Economic Advisers, every 10-percent fall in 
home prices causes household wealth in our country to decline 
by $2 trillion and household spending to fall by $100 billion. 
So if home prices drop 10 to 15 percent, as they are expected 
to--and some even go beyond that. We have had the Shiller 
Index--Mr. Shiller has indicated he thought it may get as high 
as 30 percent, which would equal the decline between 1929 and 
1935, which was a 30-percent decline in housing values. But in 
a speech that Dr. Shiller gave at Yale University a few days 
ago--best known as the Shiller Index, by the way, in real 
estate, highly regarded--he is suggesting that number may equal 
that of the Depression at 30 percent. So you do your own math 
on Martin Feldstein's projections of what a 10-percent decline 
in value does to household wealth. So we could be looking at 
household spending will fall somewhere between $100 to $150 
billion, and household wealth could fall anywhere between $2 to 
$3 trillion this year alone.
    Now, this problem in the housing market is obviously having 
a contagion effect throughout the economy. A HUD Secretary is 
urgently needed at this time, one who understands the magnitude 
of these problems and one who can effectively act to solve 
them. A HUD Secretary who will take strong and decisive action 
to help strengthen the housing market and assist families 
facing the loss of their homes and the wealth that they have 
worked hard to buildup over the years.
    As I said, I do have some concerns about Mr. Preston's lack 
of experience in this area. However, meeting with him 
personally and speaking with Senator Kerry of Massachusetts, 
who chairs the Small Business Committee, he speaks very highly 
of Steven Preston, and the members of that Committee, and the 
job you have done at SBA. I am very hopeful that you will have 
what it takes to begin to address the major challenges of HUD 
and the larger housing market.
    I want to touch on a few of those challenges, if I can, 
that you are going to face if confirmed, that we face if you 
are confirmed, and these are areas that demand, I think, your 
immediate attention.
    First, we need a HUD Secretary who will restore confidence 
in the Department. And I do not want to dwell on that. I think 
all of us here on the Committee appreciate what has been going 
on over there over the last while, and, again, I do not want to 
get into the weeds on this issue, but suffice it to say the 
Department could use a lift, and they are looking for someone 
to come on in and give them that lift. These are hard-working 
people. Many of them have dedicated their entire lives, their 
professional lives, to this Department. And they play a very 
critical role, and they want to know that the work they are 
doing is appreciated for the value that they give to it.
    There are investigations into a number of allegations of 
impropriety at the highest levels. This is not only 
demoralizing the staff, but it has cast a rather large shadow 
over the entire agency, and we want to see that stopped, if I 
can.
    HUD plays a very critical role in assisting families and 
communities around the country. Millions of families are in 
stable housing and in safe neighborhoods, and homeownership is 
a reality for millions more of Americans because of HUD. It is 
unacceptable for HUD to be undermined by unethical actions of 
senior HUD officials. And while Secretary Jackson is gone, the 
problems he helped to create appear to remain. Just this 
weekend, the Washington Post contained rather alarming details 
about millions of dollars worth of contracts being given to a 
handful of firms despite staff objections. This trend and 
others at HUD are very disturbing and indicate that taxpayer 
dollars are being improperly used at the Department. We have an 
obligation to ensure that taxpayer funds are wisely and 
properly used and that contracts for Federal funds are being 
fairly awarded.
    If confirmed, Mr. Preston, you will only be in office a 
short time, unless, of course--well, who knows what may happen 
here?
    [Laughter.]
    Chairman Dodd. In fact, you are from Illinois. I fully 
expected Barack Obama to be here to introduce you this morning 
as your Senator. He is busy.
    Senator Shelby. He is busy.
    Chairman Dodd. He is busy this morning in Florida. But I 
urge that your first order of business be to begin to clean up 
and restore the confidence in HUD among employees. I have been 
on this Committee 27 years, and I have worked with various 
Secretaries over the years. We have a former Secretary as a 
Member of our Committee, in fact--Mel Martinez. And there are 
some great people here. In fact, the overwhelming majority are 
fantastic people who are doing just a remarkable job, and they 
deserve to have a Secretary who is worthy of the effort they 
make every single day.
    Second, we need a strong voice for helping families facing 
foreclosure. And, again, Senator Shelby and I and Members of 
this Committee--and I commend my colleagues once again and 
thank them immensely this past week for doing what no one 
thought we could do, and that is, come together as Democrats 
and Republicans and address the major economic crisis in our 
country in a comprehensive and thoughtful manner. But, 
obviously, we need an agency out here that is going to be a 
partner in all of this to help us work our way through all of 
this. Passing bills is nice, but a lot more needs to be done to 
make this work.
    Earlier this week, as I mentioned, with a vote of 19-2, we 
established a mechanism through the FHA which would allow 
families to stay in their homes--at least many, we hope. This 
is a reasonable and meaningful proposal that will help halt the 
downward spiral of home prices and foreclosures. Unfortunately, 
we have not yet secured the administration's support for this. 
I hope that you will view this proposal with a fresh set of 
eyes and are able to bring a strong and effective voice within 
the administration for this and other sensible solutions to the 
mortgage crisis.
    Third, we need a strong Secretary who will fight for HUD 
initiatives. The administration's budgets over the past 7 years 
have undermined critical housing and community development 
commitments to many working Americans. And while we talk about 
the mortgage crisis, these days there is a second, a silent 
crisis, if you will, facing low-income Americans. They struggle 
every day to afford rising rents while also putting food on the 
table and paying for needed medical and child care. HUD efforts 
to address this crisis, such as public housing, housing 
vouchers, and project-based rental assistance, ensure that 
millions of Americans, including many children, seniors, and 
people with disabilities, are able to live in stable and safe 
housing.
    The cuts contained in the budgets have led to significant 
shortfalls in each of these programs. Public housing operations 
are only funded at 80 percent of need, and there is a $2.8 
billion shortfall in project-based rental assistance. Low-
income families deserve better, and we need a Secretary who 
will work to fully fund critical housing and community 
development initiatives.
    Mr. Preston, if confirmed, you will only have a few short 
months to take a troubled agency that has sorely lacked in 
leadership and make it more effective, a tool for meeting the 
critical housing needs of our Nation. I look forward to hearing 
from you today and working with you in these coming weeks and 
months to see what we can do to get this on track. Maybe the 
great legacy you could leave, in fact, would be to turn this 
over to a new administration coming in with an agency that is 
ready to take up the work that you have created and started 
here and carry it forward. That would be a remarkable 
contribution in many ways.
    Again, you come highly recommended, I must tell you. For a 
fellow who came to town without people knowing much about you, 
you have scored some very significant points with the people 
who have worked with you, and I admire you for that. So I thank 
you.
    Very briefly, I would just say Mr. Preston, prior to 
becoming the Administrator of SBA, was the chief financial 
officer at ServiceMaster Company, headquartered in Illinois. He 
joined ServiceMaster in 1997. It is a large company that 
provides home maintenance services around the country through 
such names as TruGreen-ChemLawn, Terminix, and Merry Maids. 
Before ServiceMaster, Mr. Preston served as senior vice 
president and corporate treasurer of First Data Corporation. 
From 1985 to 1993, he was an investment banker at Lehman 
Brothers. He has a BA from Northwestern University and an MBA 
from the University of Chicago. So you have a busy background.
    Let me turn to Senator Shelby and then any other Members 
who want to make some opening comments, and then we will hear 
from you.

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman. I just want to 
add, too--I was reading his resume. It is very impressive. Also 
he was a Phi Beta Kappa at Northwestern. That is in there, too. 
We do not have them everywhere.
    Thank you, Mr. Chairman, for calling today's hearing on the 
nomination of Mr. Steven Preston to serve as Secretary of the 
Department of Housing and Urban Development.
    As Senator Dodd has, and I will, too, I want to welcome you 
and your family to the Committee. In addition, I would also 
like to recognize your service as the Administrator of the 
Small Business Administration. Everybody that I have talked 
with about this said you have brought leadership and integrity 
there, which is very important. That is what we want you to do 
at HUD.
    When Mr. Preston arrived at the SBA, it was an agency, as 
we all know, in desperate need of reform and strong management. 
As Administrator, Mr. Preston played a key role in reforming 
the SBA and improving its Disaster Loan Program. With this 
experience and your work experience and your background, I am 
hopeful that you will be able to address some of HUD's 
longstanding deficiencies and some of the current problems in 
our Nation's mortgage market.
    I am specifically concerned with the financial health of 
the Federal Housing Administration. This Committee has already 
passed, as Senator Dodd mentioned, FHA modernization 
legislation, which I believe will help strengthen the program, 
but I also believe your immediate attention as HUD Secretary is 
necessary as well.
    Unfortunately, the FHA is not HUD's only troubled program. 
Rather than mention every troubled program now, I will touch 
upon a few in my questions.
    Once again, we welcome you. I believe you could be the 
linchpin, assuming we pass our legislation and get it through 
the Senate and get it to the President's desk and he signs it, 
in dealing with a lot of this mortgage mess that we have on our 
hands.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you.
    Any other Members want to be heard? Bob.

              STATEMENT OF SENATOR ROBERT P. CASEY

    Senator Casey. I will save my time for questions, but I do 
want to welcome Mr. Preston. We had a good meeting in our 
office a couple weeks ago. I am grateful for your presence here 
and your willingness to serve.
    Chairman Dodd. Yes.

               STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. Thank you, Mr. Chairman. I do have a 
statement I would like to make.
    I want to thank you and Ranking Member Shelby for holding 
this hearing in a timely manner. I am pleased that we are 
moving promptly to fill the secretarial vacancy at the 
Department of Housing and Urban Development.
    I recently had the opportunity to sit down with Mr. 
Preston, and one of the first things I asked him was why on 
Earth would he want a crazy job like this. Heading up HUD would 
be a challenging job even in the best of times. However, that 
challenge has increased exponentially with the turmoil in our 
housing market. And I was impressed by his enthusiasm for the 
challenge before him.
    Some have questioned Mr. Preston's credentials to lead HUD, 
given his lack of housing experience. I believe this argument 
is a red herring. Mr. Preston brings managerial, financial, and 
capital markets experience to the table, and I can think of 
nothing HUD needs more.
    At its core, HUD is about money and business. Compassion of 
housing causes alone does little to cause HUD programs to 
necessarily serve more people or to serve them better. Rather, 
a managerial and financial perspective with a focus on outcomes 
will yield a better Department.
    Mr. Preston's experience as Administrator of the Small 
Business Administration clearly shows that he is focused on 
results. During his time in SBA, he has made significant 
reforms at a troubled agency. That experience is directly 
applicable to HUD.
    Over recent years, including under the leadership of former 
Secretary, now Senator, Martinez and former Secretary Jackson, 
HUD has made some major strides in reform. Make no mistake, 
though. By its very name, HUD will always be susceptible to 
fraud, waste, and abuse. The Department needs a strong leader 
like Mr. Preston who can ensure that the positive changes 
continue at HUD. He has a demonstrated history of the kind of 
leadership HUD needs to continue its progress.
    I am hopeful that we will be able to move Mr. Preston's 
nomination quickly and get him confirmed. I would, though, like 
to bring up a serious concern. When Mr. Preston takes over as 
Secretary, he will be faced with a seriously reduced core of 
principal staff. The Department currently has three Assistant 
Secretary vacancies and also a vacancy at Ginnie Mae, and I 
think this is unacceptable.
    I am sure there will be plenty of criticism of the 
Department today and its inaction on various matters, but this 
Committee, I think, must share the blame. We have failed to 
even have a hearing on these key HUD nominees. To be effective, 
HUD needs staff. These are not recent nominees either. These 
nominations have been languishing for months, including one 
from last fall. It is especially puzzling to me that we keep 
shifting more and more responsibility to FHA, including new 
authority under modernization, increased loan limits, and the 
Hope for Homeowners bill we reported just last week. Yet we 
have failed to provide a President for Ginnie Mae. The success 
of FHA is very closely linked to Ginnie Mae, yet we are failing 
to provide the leadership we need during this critical time. 
This Committee must move to provide a President for Ginnie Mae 
if we are serious about the ability of FHA and HUD to function 
during these troubled times.
    I believe that if we genuinely care about having an 
effective Department of Housing and Urban Development and 
allowing Mr. Preston to have the tools to be effective, we will 
get all the HUD nominees confirmed in the very near future, not 
just the Secretary.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator.
    Yes, Senator Dole.

              STATEMENT OF SENATOR ELIZABETH DOLE

    Senator Dole. Mr. Chairman, Ranking Member Shelby, thank 
you for holding this hearing on the nomination of Steven 
Preston to be the next Secretary of Housing and Urban 
Development. In light of the current housing market conditions, 
obviously, as we all know, the importance of capable leadership 
at HUD is critical.
    I am a member of the Armed Services Committee. General 
Petraeus and General Odierno are testifying at this moment, so 
I am going to have to leave very shortly. But I also serve as a 
member of the Committee on Small Business and Entrepreneurship, 
and so I just want to underscore what has already been said. 
From my experience on that panel, I would say that Mr. Preston 
has done a very commendable job as Administrator of the Small 
Business Administration, and I look forward to working with 
you, Administrator Preston, as the next HUD Secretary.
    Right now this Committee is working on a number of issues 
that will affect offices within HUD, as we all know. Most 
recently, we were able to work in a bipartisan manner on the 
regulatory overhaul of the GSEs, and this is an issue that I 
have been concerned about since my first day here and certainly 
have sponsored legislation throughout that period of time. 
Along with some of my colleagues, we have been really pushing 
hard for improved oversight for a first-class regulator, and I 
think it is critical to the long-term stability of the housing 
and credit markets. And I look forward to this legislation 
being considered on the Senate floor.
    Another issue of importance, of course, is the 
modernization of FHA. The Banking Committee originally approved 
the legislation last September, and it was agreed to by the 
full Senate in December. Included in this measure and agreed to 
by unanimous consent on the Senate floor is a 1-year moratorium 
on credit score risk-based pricing to help ensure that minority 
and first-time homeowners can access FHA products and not be 
unnecessarily priced out of the housing market. I hope that we 
can get the FHA modernization act to the President in the very 
near future.
    Mr. Chairman, I will submit my full statement for the 
record as well as I have questions that I would like to have 
Mr. Preston answer.
    Thank you very much.
    Chairman Dodd. Thank you very much, Senator.
    Mr. Preston, before we ask you to make any comments, is 
this your staff right behind you there off your right shoulder?
    Mr. Preston. This is my home base staff.
    Chairman Dodd. Would you like to introduce the home base 
staff?
    Mr. Preston. Actually, I would like to introduce my wife, 
Molly, and three of my five children. I have Anna, Madeleine, 
and Gibson. We thought if we had all five, you might question 
both my judgment and my planning skills.
    Chairman Dodd. No, no.
    [Laughter.]
    Chairman Dodd. I am one of six.
    Mr. Preston. Oh, you are? OK. Well, we also did not want 
you to feel outnumbered.
    Chairman Dodd. That is good.
    Mr. Preston. Thank you.
    Chairman Dodd. All right. Let me ask you to stand, if you 
will, and take an oath. I would ask you to raise your right 
hand, if you would. Do you swear or affirm that the testimony 
you are about to give is the truth, the whole truth, and 
nothing but the truth, so help you God?
    Mr. Preston. I do.
    Chairman Dodd. And do you agree to appear and testify 
before any duly constituted Committee of the U.S. Senate?
    Mr. Preston. Yes, I do.
    Chairman Dodd. Again, let me congratulate you, Mr. Preston, 
on the President's nomination, and let me underscore something 
Senator Casey said. We also admire the fact you are willing to 
serve. We do not recognize that enough, people who are willing 
to step up and take on tough jobs as worthwhile.
    Let me say to Senator Allard as well, my plan is to have a 
rather large hearing with a lot of these nominees right after 
the Memorial Day break. Some of the Senator's criticism is 
absolutely appropriate. In other cases, it is not. I would say 
the reason is we have been tied up with a lot of things, but my 
intention is to get to as many of these as we can.
    Yes, sir.
    Senator Shelby. Mr. Chairman, just one word, and I 
mentioned it to you privately, and you know it very well. We 
have a real housing crisis here. We need a HUD Secretary, and I 
think the sooner we can get him confirmed and get him over 
there, I believe that he could help implement a lot of the 
stuff that we are hoping to get done, passed here in the next 
few weeks.
    Chairman Dodd. Well, that would be my hope as well.
    Mr. Preston, welcome. The floor is yours.

STATEMENT OF STEVEN C. PRESTON, SECRETARY-DESIGNATE, DEPARTMENT 
                     OF HOUSING AND URBAN 
                          DEVELOPMENT

    Mr. Preston. All right. Thank you, Chairman Dodd, Ranking 
Member Shelby, other Members of the Committee. It is really an 
honor to be here to discuss my nomination to be the next 
Secretary of Housing and Urban Development.
    I would also like to thank you for the speed with which you 
have held this hearing, and I also want to tell you how 
grateful I am for the time that each one of you gave me in 
preparation for today, to give me your views, your 
recommendations. I appreciate your candor in all cases. And let 
me just say that if I am confirmed, I absolutely intend to keep 
the lines of communication and consultation open and to work as 
a partner with all of you here on the Committee on the issues 
that are so important to us that we face today.
    A number of you have mentioned and I think we all 
understand how critical leadership is in a time of great need--
especially when bold measures are required--and I also think we 
all understand how important management depth is in leading 
large organizations.
    As many of you know, I have spent 24 years in the private 
sector in financial and operational leadership positions in 
organizations as large as 75,000 people.
    Most recently, my team at the SBA and I have spent 2 years 
reforming and revitalizing a Federal agency that has faced many 
challenges in its ability to serve America's entrepreneurs and 
disaster victims.
    I am not going to get into a lot of detail on disaster 
issues. I thank a number of you for having acknowledged those. 
It is in my written testimony.
    But we have also made many other changes throughout the 
agency. We call it our Reform Agenda, and that agenda is 
designed to improve the service that we give to Americans while 
at the same time streamlining operations and increasing the 
transparency. And these changes are helping small businesses 
get capital, they are helping them get training, they are 
helping them get access to Federal contracts because of the 
value that we are providing.
    Something else I would like to mention, we have focused 
very heavily on providing our employees with better training 
and tools, and also a better work environment at the SBA. When 
I came into the SBA, employee morale was rated 30th out of 30 
among Federal agencies. One year later, our survey showed very 
strong improvements in virtually every category, with the most 
dramatic gains in areas that relate to leadership effectiveness 
as well as workforce effectiveness--things like training and 
people's ability to perform their jobs effectively.
    I would like to also take a second to link my background 
more specifically with the needs at HUD. As we consider the 
issues that the country is facing today, the head of the 
Housing and Urban Development Department will need to be able 
to address uncommon challenges, like a turbulent housing market 
and its impact on the economy; the related issues that we see 
in our financial institutions as well as our capital markets; 
and the very specific issues that individuals face who are 
going through these challenges, whether it be with the initial 
contract they have in a mortgage or the refinancing, which many 
of the proposals will require; in addition to the issues facing 
specific communities with public housing, the ongoing 
challenges of homelessness, and agency management needs, which 
many of you have referenced.
    I have spent most of my career in the private sector in 
financial and operational leadership positions. My background 
has given me the tools and the hands-on experience to handle 
the broad spectrum of very complex issues that I think the next 
HUD Secretary will face.
    As SBA Administrator, I have also overseen loan programs 
very similar to some of the programs run by HUD. Much like HUD, 
our lending programs reach people that are underserved by the 
traditional markets. In fact, SBA loans are five times more 
likely to go to minority-owned businesses than conventional 
loan, and about a third of our loans are in distressed rural 
and urban areas of our country.
    Another important goal of SBA is to expand homeownership 
much--or, excuse me, business ownership, much as HUD's goal is 
to support homeownership. And we obviously are a critical 
source of economic support in communities suffering from a 
disaster, much as HUD.
    At SBA, we have also focused very heavily on initiatives 
aimed at underserved rural and urban markets. And as a result, 
we have designed more relevant products, we have expanded our 
outreach, we have focused our goals on how to support those 
businesses in underserved communities. Energizing 
entrepreneurship helps those communities by bringing lasting 
and sustainable economic activity that creates jobs and 
generates investment in those communities across our country 
that need it the most.
    Earlier this year, SBA launched its Emerging 200 initiative 
to identify high-potential, inner-city growth companies and 
provide them with the training and the resources to reach their 
full potential.
    In addition, the agency established a pilot with Operation 
HOPE, Inc. in Harlem to provide training and business 
education, and we hope to expand that pilot to other cities. We 
are also partnering with the Initiative for a Competitive Inner 
City to help bring venture capital dollars to inner-city 
businesses. And I am very proud to say that we received the 
2008 National Inner City Economic Award at SBA for our 
dedication to promoting free, competitive enterprise, 
especially in the inner city.
    However, on a more personal note, you know, I am here 
because the issues at HUD matter to me. I left the private 
sector. I came to Washington because I wanted to use my 
experience to make a different kind of contribution in life. 
Certainly the SBA experience has allowed me to do that. I 
believe deeply that individuals are better off and communities 
are more stable when people own their own business or own their 
own home or have a nest egg. And to me also this is the route 
of sustainable progress against poverty, and I think it is at 
the heart of true compassion.
    I also believe that for those who cannot afford a home, 
having decent, safe, and affordable housing is a basis for 
stability in so many other areas of their lives. I have come to 
realize that while, you know, I have talked a lot about 
business and metrics and operations, that stuff might sound 
dry, but it is actually another central part of true 
compassion. As you think about a lot of the initiatives that we 
are talking about, the effective implemention of those 
initiatives in a way that touches people's lives effectively is 
part of making them successful.
    So, you know, when people use Government programs, they 
often do so because other help is not available, and often it 
is when they are stressed, often it is when they are upset, and 
often it is during a time of great need. And I think that the 
most compassionate response at that moment is service that is 
caring, that is efficient and professional. And the recipients 
of Government services, especially those in need, deserve that, 
and that is certainly part of my vision for Government service.
    So I thank you once again for having me here. I think my 
record shows a deep commitment to the needs of hard-working 
Americans as well as institutions like HUD and SBA that can 
improve their lives. I believe I have a proven history of 
successful change management at large, complex organizations. 
And I also have a track record of working with urban 
communities to improve their economic conditions and the 
quality of life in them.
    I also believe my record indicates a commitment to 
transparency, to accountability, to bipartisan cooperation, and 
if confirmed, I look very much forward to working with you on 
the Committee and elsewhere in Congress to continue the efforts 
to resolve the Nation's housing crisis, to support people in 
their time of need, and ensure we have a Department of Housing 
and Urban Development that serves the country effectively at 
this crucial time.
    So thank you, and I look forward to any questions you might 
have.
    Chairman Dodd. Thank you very much, and I am going to 
advise the clerk to put these clocks on at about 6 minutes, 7 
minutes, so we do not run over. And we will give everyone a 
chance here to get a couple of good rounds in here, if we can, 
before wrapping up.
    Let me pick up on the point that Senator Shelby made in his 
opening statement, and obviously we have got work to be done 
yet here. We have got to get through the full Senate with our 
bill. We have got to work out differences with the House.
    Let us just fast forward, if we can here, and if things 
move as we hope they do, I know the two of us would love to be 
able to put a bill on the President's desk by the July 4th 
break, if we could. There is an urgent need out there and we 
want to----
    Senator Shelby. We are going to work together.
    Chairman Dodd [continuing]. Respond to--yes, it is our goal 
to get there.
    What is going to be very important, what Senator Shelby 
raised with you, Mr. Preston, is the importance of the role 
that the Secretary at HUD will play. Because this is going to 
be--this will work if FHA helps make it work. We can write the 
law, but at the end of the day if we have an agency that is 
reluctant or not as enthusiastic about the idea, about trying 
to keep people in their homes and do so in a way that is fair 
and equitable, setting standards in here that will make it--
some of the moral hazard issues that others have raised.
    So it is really going to be very determinative in the end. 
We can do a great job writing a bill, but if we do not have an 
administrator and an agency committed to it, then all of that 
work could basically go for little or naught.
    And so my question for you is I would like your commitment 
this morning that you will do--first of all, I would like to 
get your comments on it. I do not know what your general 
thoughts are about this. There has been resistance to the idea 
of this--having a writedown of these mortgages, these 
adjustable rate mortgages, to the point where people can afford 
them and requiring the lender obviously to take a haircut. The 
borrower pays insurance, among other things. And we are trying 
to balance--this ought not to be an easy ride for anybody but 
we do not want to make it so difficult that people walk away, 
either.
    So I wonder if you have had a chance to take kind of a look 
at this broadly, what your own reactions are to it, and what 
commitments you will give us here that if we get this done as 
we hope to in the coming few weeks that we will be looking at 
an administrator that is prepared to make this work?
    Mr. Preston. Well, first of all, I appreciate all of the 
work that you have done very quickly on a lot of these policy 
initiatives because obviously we are facing a very urgent 
situation in the country.
    You know, Senator, I come into this with a very open mind 
and I think I have the tools to evaluate a lot of the policies 
that you are looking at. I think the President is asking me to 
take this job because he wants somebody to come in who will be 
a good advisor and a good partner to Congress, as well as an 
important voice in the Administration. And I intend to serve 
both of those, to fulfill both of those roles.
    And certainly, you can expect that if I am confirmed, I am 
going to be at the table working collaboratively with you all. 
You can also expect that if you have a bill that is passed and 
the President signs into law, you will have my full effort in 
implementing an operational solution at the other end that 
serves those people who need that help.
    My view is once that lands on our desk, we have got a job 
to do. And our job is to make it happen and make it happen 
effectively for Americans who need that help.
    Chairman Dodd. Well, it is--I am going to suggest to you 
that you might want to get some rest over the Memorial Day 
break, because this is going to require a lot of hard work. Mr. 
Montgomery is sitting a few seats behind you here in this 
hearing room today, and he has been before the Committee 
already. And he is going to be getting an expanded mission, we 
hope, fairly quickly and we are going to need some people to 
roll up their sleeves and go to work on this.
    You were at Lehman Brothers before. This is not an issue or 
area you are unfamiliar with, generally speaking, here. Do you 
have any thoughts you want to share with the Committee about 
the general direction we are heading with all of this?
    Mr. Preston. Well, I think--I think we have some very 
complex issues. And this whole set of challenges we have is 
complex. I mean, it sits in the complexity of the contract that 
sits with the borrower. It sits in the decisionmaking process 
of the financial institution. It sits in a public market that 
was absorbing stuff that they probably should not have. And it 
also sits in the follow-on effects of the housing market 
decline.
    So I think it is a very broad, very complex issue. I do 
appreciate the fact that the work that you all are doing is 
focused on helping individuals who want to stay in their homes 
and who want to be committed to paying their bills. And I think 
we all want people to be able to retain their home to the 
extent that they can afford it and they desire that. And I 
really appreciate that aspect of what you all are working on.
    And I also appreciate the fact that you are working toward 
a solution with the GSEs that both considers their mission and 
their need to be financially viable, because they have very 
significant importance to enabling working class and middle 
class Americans get mortgages and they have a mammoth impact on 
our capital markets, multi-trillion organizations. So we need 
financial stability over there.
    And I think we have to bridge those two missions, which can 
be in tension at times.
    Chairman Dodd. And that is what our goal is and I think we 
have come close, we hope, to achieving that with our 
legislation.
    Let me jump, if I can, to the affordable housing issue. 
Jack Reed of Rhode Island has been a champion on our Committee 
of the affordable housing issues. In fact, as part of this 
bill, we establish in perpetuity an affordable housing trust, 
which we think is going to be very exciting in the years to 
come to address the issues of affordable housing in the 
country.
    There is, according to reports now, there is a $2.8 billion 
shortfall in project-based rental assistance. This helps 1.3 
million low-income families afford stable housing. This is a 
result of HUD, we feel, not being terribly forthcoming with 
Congress about its needs for housing. In fact, it was not until 
after the budget submission that HUD admitted the amount of the 
shortfall. A $2.8 billion shortfall should show up in the 
Administration's budget, we would predict. So I have two 
questions related to this.
    I am concerned about the inaccuracy of information. The one 
thing that we on this Committee will insist upon, all of us 
here, we may not like the numbers we are looking at but we want 
to know what they are. And we may argue about whether or not we 
want to go forward or go backwards, but we need to have 
accurate information. We cannot function otherwise.
    And I know there are a lot of pressures that can come to 
bear on various agencies and departments, but in the past we 
have had some difficulty getting timely and accurate 
information from HUD in areas that this Committee oversees. And 
I would like a commitment from you that we are going to receive 
accurate and timely information from the Department. That 
should never, ever again be an issue. As long as I am in this 
chair, I want to make darn sure we are getting the best 
information, the most accurate information you have.
    If we cannot get that, if we do not have that trust here, 
then it makes it awfully difficult for us to have the kind of 
debate we should have about where we need to move.
    Mr. Preston. Right. Yes, I do not know how accurate the 
information is within HUD right now, or if there are specific 
information challenges. But what I can commit to you is I have 
run the SBA very transparently. I believe every Federal 
organization has an absolute duty to be fully transparent to 
Congress as well as more broadly to the public. And I think my 
background as a chief financial officer has helped me in that 
area at SBA. It has helped me to figure out with my team how to 
pull information out and make it public.
    But the other thing I would highlight, Senator, is I think 
we have had a lot of challenges at the SBA, frankly, that 
nobody knew about until I raised my hand and said look, we have 
got a real problem here. I am not going to hide it, we have got 
to get after it. I have a firm view that if you have got a 
problem in any organization, getting it on the table and 
letting everybody understand it is the most important first 
step to getting a solution in place.
    So I am absolutely committed to transparency. That is how I 
lead, and I certainly think that is the only way you can move 
an organization forward.
    Chairman Dodd. I thank you for that.
    Let me continue along this line. I am also concerned that 
the short-term funding agreements that HUD is signing with 
owners as a result of this shortfall threatens hundreds of 
thousands of affordable housing units. Owners of this critical 
housing are already indicating they cannot continue to operate 
affordable housing without assurances of funding. We have 
called on the Appropriations Committee here to fill this gap, 
and we will continue to push for that.
    I would like your commitment to look into this problem, if 
you are confirmed, and quickly let us know the Department's 
plans to address the shortfall and the loss of housing that may 
result. We need to know what direction you are going to go in. 
May I have that commitment from you?
    Mr. Preston. Absolutely, yes.
    Chairman Dodd. The affordable housing crisis has been 
worsening and I am pleased, as I say, that the bill we passed 
this week, thanks to Jack Reed--and others on the Committee, 
but Jack really has been a champion on this for a long time--
are going to establish that program.
    According to the Joint Center for Housing Studies, between 
2006 and 2007, in just 1 year, the number of severely cost-
burdened households, those who pay more than half of their 
income toward rent, jumped by 1.2 million to a total of 1.7 
million households in this country. That is one in 7 households 
in America. That is a remarkable increase.
    This increase is disturbing and I am concerned that we pay 
far too little attention to this problem. We have talked about 
home ownership, and that is a very legitimate issue. But for an 
awful lot of people--in fact, one of the things we learned is 
we have got a lot of people into home ownership that probably 
should not have been in home ownership. That is one of the 
problems we are looking at.
    But in the alternative, having decent affordable shelter 
rental housing has got to be there. And this is a growing 
problem. So I wonder if you have any initial views on how we 
might meet these critical needs?
    Mr. Preston. This is actually something that a number of 
you have brought up during the pre-confirmation process, and I 
agree with you 100 percent. We cannot focus all of our effort 
on the housing situation because we have millions of people in 
America who rely on HUD and its services to have a safe, 
decent, affordable place to live. So I think that is going to 
be a very important part of my focus, if I am confirmed.
    Chairman Dodd. I appreciate that. We would like to hear 
from you very quickly on this, so thank you.
    Last, and I will stop with this one, I have introduced 
legislation to modernize the Section 8 Housing Voucher Program. 
It is one of the most successful housing assistance tools to 
codify an efficient reasonable housing funding formula. The 
bill would help agencies focus more of their time on helping 
people and less time on administration.
    Again, I do not expect you to comment on the bill that I 
have introduced, but I would like to have you take a look at 
that in the Department, and get back to us as to what your 
thoughts are about it and any suggestions you would have for 
it, so that we might be able to try and move that this year.
    Mr. Preston. I look forward to doing that.
    Chairman Dodd. Let me stop there and turn to Senator 
Shelby.
    Senator Shelby. Thank you, Mr. Chairman.
    Mr. Preston, the majority of HUD's programs consist of 
passing through Federal dollars to State and local Governments. 
The success of these programs, such as CDBG and HOME, depends 
on HUD's ability to serve both as a partner to local 
governments and also to hold local governments accountable for 
results.
    How important do you believe it is to ensure accountability 
on the part of the State and local Governments dealing with our 
programs, in other words our money?
    Mr. Preston. Yes, I think any time you have a grant 
recipient from the Federal Government, it is important to both 
understand how effectively those funds will be used and to look 
at their effectiveness and the accountability of those funds. 
And I know the Community Development Block program is designed 
to provide States or the recipients with a lot of latitude on 
how to use that within their discretion, but certainly within 
guidelines.
    But somehow, I think every dollar that we provide to any 
grant recipient should have an accountability attached to it, 
and that is a very important part of----
    Senator Shelby. You just cannot send the money out there 
and that it is, can you, without some oversight into what they 
are doing with that money?
    Mr. Preston. I would agree with that.
    Senator Shelby. The Katrina CDBG delays, I do not know if 
you are familiar with some of this. SBA's Disaster Loan Program 
has not been the only assistance program facing delays and 
backlogs as a result of Hurricane Katrina.
    For instance, my State of Alabama has yet to award the 
majority of CDBG funds targeted for housing assistance, my own 
State. What role do you believe HUD can play in encouraging 
State and local Governments to expedite the process of awarding 
housing assistance to Katrina victims?
    Mr. Preston. Well, that is a great question, and I know 
from my time down there, Senator, that all of the different 
States who have received this money have taken a somewhat 
different tack, both in terms of who gets the money and how 
they provide it to them.
    Senator Shelby. Sure.
    Mr. Preston. And also, in sort of the process around it. 
And I think--I do not have enough specific insight into HUD's 
oversight of those funds and I would very much look forward to 
working with you and your staff if you have specific ideas or 
specific concerns for us to look into and certainly to 
understand whether you think a higher degree of accountability 
and oversight is required.
    Senator Shelby. We just want the program to work for the 
people it is intended to. And we want to, in these situations 
like Katrina, Mississippi and Louisiana took the bulk of it but 
my State of Alabama took some hit, too, as you well know.
    Mr. Preston. Yes, I do know.
    Senator Shelby. Fraud and lending. On several occasions, 
HUD's Inspector General has raised concerns regarding FHA's 
approach to reducing fraud in its mortgage insurance programs. 
For instance, the Inspector General recently reported that FHA 
does not consistently refer potentially fraudulent loans to the 
Inspector General's office.
    I suspect the SBA's lending program would also be 
susceptible to fraud in the absence of appropriate safeguards. 
What are some of the methods SBA--and you are head of SBA--has 
used to monitor and to eliminate fraud in its lending programs? 
And could you use some of this perhaps in your background to 
help meet that challenge at HUD?
    Mr. Preston. Yes, I certainly think that there are a lot of 
analogies between the two programs and there may be a great 
opportunity to share best practices. I also think that the 
Inspector General has to be a very important partner in 
eliminating fraud, because ultimately they are the ones that 
are charged with actually looking into potential fraud and 
uncovering it.
    So I think one of the most important things was to have an 
effective mechanism at the point where the agency receives an 
application or other documentation from a lender. And often 
there are flags. You see certain types of activities with 
certain lenders which may indicate fraud. You see certain kinds 
of other kinds of red flags, which then you should use to 
support your relationship with the IG so that they come in and 
follow up on it.
    I do not know if I am being clear here. But I think when 
you are dealing with a very large scale, very high volume 
operation like the FHA, it is important to have things that you 
are looking for on a regular basis that automatically would 
lead you to refer to an IG.
    Senator Shelby. Where there is money, a lot of money, there 
is going to be fraud. It is a question of how to deal with it.
    Mr. Preston. Exactly, and where there is a high volume 
there is a consistency of indicators that you can look at.
    Senator Shelby. The Agency Disaster Response Coordination. 
In the aftermath of a disaster, such as Hurricane Katrina that 
I referenced, families receive recovery assistance from a 
variety of sources: SBA, HUD, FEMA, and so forth. How well 
coordinated are agencies such as HUD and SBA in providing 
assistance to families impacted by natural disasters? And do 
you believe that there are ways that maybe something you 
learned at SBA that you can carry over and help improve that 
coordination?
    Mr. Preston. Yes. In some cases it is extremely well 
coordinated. And I think certainly in the last couple of years 
we, in FEMA, for example, have taken a lot of actions to 
coordinate much more effectively. I think when you look at the 
Community Development Block Grant program, they need to 
coordinate with other agencies. And they do need to coordinate 
with SBA, for example, We did it extensively across the Gulf.
    Because every program is a little bit different, it is not 
as cookie cutter as it is, for example, where you have got the 
same type of assistance in every situation. CDBG is a little 
different in every situation.
    So it is really critical right at the front end, when you 
have got a disaster and those funds go to that local area, to 
understand who is getting them, the basis upon which they are 
being conveyed, and how that interaction needs to happen with 
other Federal agencies, and get working groups in place 
immediately, figure out where technology needs to coordinate 
because information has to flow back and forth, and get those 
working groups absolutely linking arms. Because otherwise 
people go in different directions and there is confusion and 
you miss things.
    And that coordination also has to be at the highest level. 
So we have worked through this at SBA very extensively in a 
number of situations. I think there are some models that work 
very well. But the challenge, I think, with Community 
Development Block Grant money is every situation is a little 
bit different and you have to identify those differences right 
away and accommodate them.
    Senator Shelby. With any Federal loan guaranty program, 
FHA, there is the conflict between encouraging lender 
participation and protecting the taxpayers from losses. For 
instance, efforts to reduce fraud or relieve some risk to the 
lender may reduce the incentives for lenders to participate. 
Without these protections, however, there is a greater chance 
for fraud and negligence on the part of the lender.
    Your oversight of the FHA will require writing the right 
balance, and I would like to hear you went about addressing 
these conflicts in SBA's loan programs?
    Mr. Preston. Well, there is a conflict. We face it. And so 
I certainly would not deny that there is.
    First of all, organizationally, we had different leaders, 
one that provides the oversight function and one that provides 
the outreach function. And it is important to keep some 
separation between those two so that you can have independent 
judgment.
    The other thing is I think it is important to have very 
clear triggers in an organization that would say look, if a 
lender gets to this point, either in terms of the quality of 
their portfolio or concerning activities, we are going to begin 
to take a hard look at it. We are going to send somebody in to 
investigate this situation. We are going to put them on a 
shorter leash. We are going to review their portfolio more 
frequently to determine whether or not we need to pull back the 
reins a little bit more.
    So it is important to have triggers that kick in that 
enable the agency to provide greater oversight and then 
determine what the right actions are.
    One thing I would caution against is automatic triggers 
that say that if somebody's portfolio is of X quality, 
immediately we are going to cut them off. Because you do not 
know, they may be in a troubled area of the country. They may 
be in a disaster zone. But you have to have those triggers kick 
in and then people will come in with judgment and analysis and 
then make the decisions based on that.
    Senator Shelby. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you, Senator. Senator Allard.
    Senator Allard. Thank you, Mr. Chairman.
    I would like to hear you comment a little bit about what 
you learned at the Small Business Administration and how you 
might apply some of those lessons to HUD, and talk a little bit 
about what you see are the greatest challenges in HUD and what 
you might see would be the solutions to those challenges?
    Mr. Preston. Well, I have learned a lot at the SBA but let 
me just kind of make a couple of highlights.
    First of all, one of the most exciting things, I think, 
about coming into the SBA was the ability to pull a team 
together and drive lasting, sustainable change in a way that 
changes people's lives in our country in every relevant way. 
And I think we were able to do that through a number of ways.
    First of all, I think we were really able to energize the 
work force, energize the work force by laying out a clear 
vision for where we were heading, by providing them with much 
better training and tools to do their jobs, by communicating 
that mission to them much more effectively, and then holding 
people accountable for results.
    I firmly believe that as a leader, any time you have got a 
big job to do you have got to communicate that to people and 
get them to buy on. And then everything you do needs to support 
that. Major initiatives, what you track, what you talk about, 
how you hold people accountable, how you pay them. And I think 
the systems we put in place at SBA did all of that. And it 
enabled us to do some things, I think, that we are all very 
excited about.
    So as I come into this opportunity at HUD, I think it is 
going to be very important for me to understand what is working 
effectively, what is not, bring the team together to set out 
the path forward. We do not have much time. But I am a firm 
believer you can get a lot done in 8 months, and I certainly 
think we did at the SBA.
    The other thing that I have learned, as sort of a sideline, 
is people want to be led. And when you get out there with a 
vision and give people an opportunity to participate in a 
vision, people rise to the top. And they are part of driving it 
forward. They are part of making it happen. They are part of 
bringing the excitement into the organization.
    And I have to tell you, you know, when I look at what is 
going on, the opportunities in the housing market right now--
and certainly I have had a chance to meet with a number of the 
employees at HUD just learning about it, many of the career 
employees--there are some terrifically talented people there, 
and people that I really look forward to having on a team that 
works very hard over the next 8 months to address a lot of 
these challenges.
    Senator Allard. You come from the Small Business 
Administration. Obviously, you are used to having a focus on 
small business. The SBA's Office of Advocacy has raised 
concerns that HUD's proposed RESPA rule--you are, I think, 
familiar with their proposed RESPA rule?
    Mr. Preston. Yes.
    Senator Allard. Which would perhaps impact small business. 
Are you familiar with those concerns raised by the Office of 
Advocacy? And do you share these concerns?
    Mr. Preston. As I understand it, some of the concerns 
raised by the Office of Advocacy are being dealt with in this 
comment period. I know RESPA, the Agency just announced a 30-
day extension period of the comment period.
    Senator Allard. I appreciate that, yes.
    Mr. Preston. As I understand it, many of the SBA advocacy 
concerns have been addressed in the more recently proposed 
rule.
    But I think more importantly, Senator, you raise a very 
important issue. Any time we look at regulations we have 
intended value that we are trying--intended benefits that we 
are trying to convey. In this case, the intention is to provide 
people with a more transparent, more understandable closing 
process and give them the opportunity to potentially find a 
better closing process or a better deal. While on the other 
side, we are imposing some burdens on the community, the 
business community, to be able to fulfill that.
    And so it is very important for us to balance the value of 
any regulation with the unintended burdens that it can create. 
And I think as we go forward through this comment period, it is 
going to be critical that HUD considers all those issues.
    And certainly, coming from the Small Business 
Administration, oftentimes small businesses are the ones that 
are hit hardest by new regulations.
    Senator Allard. What do you think we need to do to help 
meet consumer needs as they may apply to the various 
participants, both large and small?
    Mr. Preston. I look forward to reading those comments, to 
meeting with the team and reading what came out of the comment 
period. So Senator, I do not know that I have got a detailed 
enough notion to understand exactly what that reform should 
look like.
    But I do think it is important for individuals, when they 
come to a closing process, to understand what they are getting 
to and for there to be clarity in that. And I am hopeful that 
that can be done in a way that is not overly burdensome to the 
industry. Once again, I think that is the balancing act here.
    But I look forward to hearing what many people have 
provided in terms of comments on the regulations so I can get a 
better sense of that.
    Senator Allard. You and I had some discussion about the 
PART program and I just want to commend you for the results 
demonstrated under PART with the Small Business Administration.
    Mr. Preston. Thank you.
    Senator Allard. Can you please discuss your views on the 
PART program? And how can it be helpful to managing and 
budgeting for results, particularly in HUD?
    Mr. Preston. What I appreciate about the PART program and 
other efforts is that it focuses all on the effectiveness of 
our programs. And if our programs are deemed not to be 
effective, it helps us understand where the people who are 
doing the measuring have deemed those not to be effective so 
that we can improve them, reform them, or take whatever 
measures we need to make.
    So certainly, I think PART, as well as other management 
tools, are very important for all of us who have great 
responsibility in the Federal Government to make sure that we 
are operating effectively.
    Senator Allard. Senator Jack Reed and I have been working 
for quite some time on legislation to consolidate HUD's 
homeless program into a flexible, streamlined program. Our 
legislation also takes steps to recognize the important 
distinction between the solutions for homelessness in rural and 
urban areas.
    The Administration has been, I think, very helpful in this 
effort and I would like to commend the staff.
    Do you share our belief that it makes sense for the HUD 
providers, and most importantly those who rely on HUD's 
homeless programs, to consider consolidation in a single, 
flexible program?
    Mr. Preston. I would very much look forward to 
understanding your concerns in that area, Senator. Certainly, 
it has been my experience in my almost 2 years here in the 
Federal Government that many times we have programs that do 
very similar things. But they are done separately. They are 
administered separately, and they can be inefficient.
    And so I would look forward to spending time with you and 
your staff to see if that is the case for the homelessness 
programs we have in place and to determine what the best path 
forward is. But I certainly understand where your concerns are.
    Senator Allard. My time has expired, Mr. Chairman. Thank 
you.
    Chairman Dodd. Thank you very much. Senator Casey.
    Senator Casey. Mr. Chairman, thank you for arranging this 
hearing, and Ranking Member Shelby as well, thank you.
    Sir, I wanted to thank you for the time you spent in our 
office, just as you did with other Members of this Committee. 
Mr. Preston was in our office, and we--I think I mentioned this 
to the Chairman--had a good meeting about Philadelphia, and I 
will get to that in a moment. But I do want to ask you a couple 
of questions, first of all, about standards that apply to the 
appraisal issue and other issues as well.
    It is my understanding that HUD has eliminated the test for 
appraisers, and I just want to get your sense of that. I have 
been deeply concerned about this aspect of the challenge we 
have with housing that we get independent appraisals, that we 
get them done in a very professional way, that people who are 
doing the appraisal work have the kind of skill and background 
and education. I had an amendment on that that was included in 
the legislation we passed Tuesday. Senator Martinez and I 
worked together on appraisal issues generally, and we have been 
working together on that, and I appreciate his work on that as 
a former HUD Secretary as well as now a United States Senator.
    But I wanted to get your sense of that in terms of the 
testing issue and then also with regard to the relaxing of 
repair and inspection requirements, just to get your 
perspective on both those issue.
    Mr. Preston. Well, I think it is important when you are 
lending or guaranteeing money to ensure that you have the right 
standards in place, and there are many people in the process of 
buying a home that are charged with reviewing aspects of that 
transaction and effectively helping the borrower--or the 
lender, rather, make good decisions. So I think it is very 
important that there is integrity in the process and that we 
can rely on information that we get. And certainly if you have 
concerns in that area based on the two that you just mentioned, 
I would love to spend time with you and understand more 
specifically where you think that may be leading to, either a 
lack of quality in the process or financial risk or otherwise.
    Senator Casey. Thank you. I wanted to ask you also about 
the issue of counseling. I have spent and other Senators have 
spent a good deal of time on the issue of making sure that we 
have adequate funding for foreclosure prevention counseling, 
and it has been a concern of many of us. And hundreds of 
millions of dollars now have been committed to that effort in 
the last year. But I wanted to get your sense of, A, the dollar 
amounts that we have in place now, but also the fact that I 
think in 2007, fiscal year 2007, HUD only awarded $41.5 million 
for housing counseling.
    So there are two issues: one is the funding levels, which 
have increased dramatically, and we know that, for example, by 
some estimates--I think it is a Treasury Department estimate--
that people who get counseling, 96 percent do not have a 
problem after that, even in the subprime context, even people 
who are in subprime mortgages, if they got counseling ahead of 
time, by and large, a high percentage of them do not have any 
problems. So the funding is one issue, but the other issue is 
the type of counseling and the work that is done by counselors 
as it pertains to homebuyers, because I think the original 
authorization for counseling goes back to 1968. And, of course, 
the market has changed, the housing market has changed 
dramatically.
    So I want to get your perspective on the funding issue and 
ask you to commit to advocating for funding, but also making 
sure it is spent expeditiously and in a very targeted way; and 
then, second, on the program itself, how we do the counseling.
    Mr. Preston. Well, one of the things, certainly, as you may 
know, we provide training to a million entrepreneurs a year, 
people who come in and want to figure out how to start a 
business or grow a business. When you look at a complex 
financial situation--which for most Americans a mortgage is. I 
mean, I think we think of it as sort of an everyday thing, but, 
you know, I have got an MBA in finance, and I have been in 
finance for 25 years, and I still sometimes have to scratch my 
head when I look at the pile of documents, you know, and walk 
through what I am signing. And we are in a situation where we 
are not only trying to help people buy a first home or enter 
the market. We are in a situation where we have a dramatic need 
for people who need to refinance and get into a different 
situation.
    I have a real concern, as I have read a lot of the industry 
research, that lenders are seeing backlogs. It is difficult for 
them to get through it. And now I do know that HUD has expanded 
funding. I know through the Hope Now Alliance, a lot of lenders 
have expanded funding for it. I think that is an essential 
element. It is hard for me, Senator, to understand if that is 
sufficient just because, you know, I am not in the job and I 
have not been able to work through that with the staff. But I 
certainly would echo the importance of helping people 
understand what they need to do through this process in a way 
that is effective.
    I did not mention this in my testimony, but, you know, as 
we chatted a little earlier, one of the--our primary function 
in a disaster is to provide homeowners with loans--not business 
owners, homeowners. And one of the things we did when we worked 
to repair this big Katrina challenge we had is we gave every 
homeowner in our loan program a case manager. That case manager 
was effectively a counselor.
    Now, people said, you know, how can it be efficient? You 
want to do everything kind of automatically. But the problem 
was people did not understand what they were getting in. They 
were sending us documents that were wrong. We would send them 
something back. We would have four or five communications with 
them. That led to frustration. That led to delays. Once we gave 
them a case manager, they could get it right the first time.
    It turned out to be a very efficient thing to do because 15 
minutes on the phone saved everybody a world of hassle, a world 
of time, and, you know, within a month of launching our new re-
engineered process, we were doubling disbursements.
    So having the right kind of up-front support I think is 
very important to helping people through a process that for 
them is very complicated. So I appreciate your concern.
    Senator Casey. And we will talk more about it. I know we do 
not have time to delve deeply into the Philadelphia situation, 
but my understanding is that progress is being made, and that 
is a great development. And we will have more time to explore 
that, but I thank you for your commitment to trying to move 
that forward.
    Mr. Preston. Thank you.
    Senator Casey. In the remaining seconds that I have, I 
wanted to address your family, your wife and your children who 
are here, to thank them, because I know that, for your 
children, when your father makes a commitment to do a job like 
this, you have to help him as well. So we thank you for helping 
him, and thank you also for being so attentive. This is not 
easy for anyone, and we are grateful for the contribution of 
your family to the work that you have to do.
    Thank you very much.
    Chairman Dodd. That is pretty good. You got to stay out of 
school today, too, though, didn't you? You begin to wonder 
which is worse--school or listening to this.
    [Laughter.]
    Chairman Dodd. School is looking pretty good. There is no 
quiz at the end of this for you, though, I should tell you.
    Senator Shelby. Not for them.
    Chairman Dodd. Not for them, no.
    [Laughter.]
    Chairman Dodd. The former Secretary of HUD, our colleague.
    Senator Martinez. Mr. Chairman, thank you very much.
    First of all, welcome. Congratulations and welcome to all 
the members of your family. I cannot help but reminisce to the 
day of my hearing. At the time my youngest was 6 years of age, 
and by the time I had heard from all of the distinguished 
Senators, as they were all telling me how I should run HUD--
which I took to heart, of course, I want you to know.
    [Laughter.]
    Senator Martinez. This went on for a while, and by the time 
I was to introduce my family at the beginning of my statement, 
I turned around to introduce my family, and I noticed my 6-
year-old was gone. So, anyway, I encourage your perseverance, 
and thank you for being here, and I congratulate all of you on 
this important moment in your lives.
    Let me just say that I believe you have a challenge ahead 
in many respects and a short time to accomplish them. But I 
believe it is a terrific place in which to make a difference in 
people's lives. You have a terrific group of people that are 
there ready to help you.
    Mr. Preston. Thank you.
    Senator Martinez. The career staff are terrific. They are 
dedicated. They are committed. Many of them have dedicated 
their entire lives to the mission of HUD and know it well.
    In addition to that, I know behind you are a number of 
political appointees, Schedule C's, that I have had in some 
cases an opportunity to work with. They are also very 
committed, terrific, and dedicated people, and I think you will 
find in them a ready resource to help you meet the challenges 
that you will face.
    One of the things I am proudest of from my time at HUD is 
the initiative to end chronic homelessness. It is a terrific 
initiative, and I think it has had immeasurable success. And I 
guess rather than ask a question, I would ask for you to put 
your caring hands on that program and take a look at how it is 
going. I agree with Senator Allard that streamlining the grant 
process would be a good thing. I thought, frankly, we had 
accomplished some of that, and sometimes accomplishments can be 
elusive in a bureaucracy. So I would encourage that as well. 
This is one of those areas of HUD that is not often talked 
about or looked at, but it is terribly important. That is an 
initiative that I think has had a nationwide impact, and I 
commend it to you.
    Undoubtedly, something that I worked very hard on as well 
was the issue of RESPA, and I was delighted that a rule has 
been forthcoming. In my view, I think that in terms of RESPA, 
transparency for the potential homeowner--I think if we had 
passed the RESPA rule that I proposed, while not everyone would 
have been happy, I think we might have avoided some of the 
problems we have seen in the current housing crisis. But I 
think transparency, less paperwork, the ability for folks to go 
to a transaction which is the most important in their lives and 
actually understand the documents that they are signing and to 
have them be of a number that is reasonable in number so they 
can actually get their arms around it as opposed to just 
signing a stack of meaningless paper because HUD makes you do 
it, I think these would be things that would be helpful. 
Consumer friendliness in that process I think would be also 
great. So I hope when these comments come back, you will look 
at it and not be reticent to move aggressively in the area of 
that.
    I think junk fees need to be also looked at. Folks ought to 
know what they are paying for, and they ought not be paying for 
things that are just there because someone could tack another 
couple hundred dollars onto the deal and no one is really going 
to be the wiser. People ought to get a benefit and a value for 
what they pay for.
    So, in any event, let me stop the lecture and only commend 
to you one other very important program at HUD that I had a 
part in the initial stages of, which is the faith-based 
initiatives. The partnership between the community of faith and 
Government I think, again, has been very successful, and I hope 
you will look at that as something that can be an adjunct and 
an ally in what you do.
    I hope that you will consider me a resource. If I can be of 
help, I am there to help in any way I can, and I look forward 
to you having a very successful tenure.
    We just recently did some very important things in this 
Committee. You are going to have a hand in the implementation 
of those. Have you had an opportunity at all to familiarize 
yourself with the Government-sponsored enterprises and HUD's 
hold in their regulatory scheme?
    Mr. Preston. Broadly, yes.
    Senator Martinez. We enacted some very far-reaching reforms 
in that scheme. Have you had an opportunity to become familiar 
with them at all? And do you have any views on their 
implementation?
    Mr. Preston. Yes, one of the things that I think is very 
important with the GSEs is that we have a--obviously, they were 
created to fulfill a mission, and I think it is important that 
we work with them to ensure that that mission is fulfilled. And 
they obviously have a significant, very significant role in 
getting capital to people who need it and people who might not 
be able to get it if they did not provide the liquidity in the 
capital markets that they provide.
    At the same time, I think we have got--and we chatted about 
this a little earlier--two organizations that are absolutely 
massive in scale and massive in their impact on the financial 
markets and in their potential risk. So I think it is very 
important that we balance those two things. Sometimes they are 
in tension, but I think actually by doing them both right, you 
know, ultimately you get the best of both worlds.
    So I look very much forward to working with you and the 
Members of the Committee to ensure that the path forward for 
the GSEs accomplishes those goals.
    Senator Martinez. Well, the bill still has a path forward 
itself, but assuming that it becomes law in some form similar 
to what we passed here, I think it will be a great step 
forward. And I think the implementation of this, working 
closely with the existing OFHEO, as well as with the Department 
of Treasury, will be very important as you attempt to get your 
arms around a transition to a new regulatory scheme of these 
very, very important institutions.
    The other thing is that we are currently--you know, when I 
was at HUD, we were in the business of putting more people into 
homeownership, particularly minority families, where they were 
underrepresented among homeowners. Tremendous strides were made 
over the last many years, in part by things that the 
administration did, in part by the economy and the nature of 
what interest rates were doing, and the creative financing that 
now has become a problem.
    How do you envision helping families stay in their home--
working, I know, with FHA and Mr. Montgomery and others, but 
how do you intend to approach providing leadership at this very 
crucial moment to not diminish the gains we made in putting 
people into homeownership, particularly in the minority 
communities?
    Mr. Preston. Well, certainly, I would look forward to being 
a good partner with you all as some of these policy initiatives 
are advanced. I think you need a strong partner at the table. I 
intend to be that. I intend to look at the various policy 
solutions that you all are proposing with a fresh mind and to 
be an important player in that process.
    I also think it is important that whatever the path forward 
be, that FHA have, you know, the operational wherewithal to be 
able to handle the increased volume. Their volume has already 
gone up tremendously. Certainly it may go up even more should 
some of these policies be passed. And I think it is going to be 
important for me to engage with the operational team.
    So often I think we have got, you know, great policies and 
great programs, but if we fall down on the operational side, 
ultimately those great ideas do not get conveyed and fulfilled 
at the front end. And I know with the volume increase, in my 
operational background, I am looking forward to being a good 
partner with Commissioner Montgomery and his team. I know they 
have been working very hard on a number of these things 
recently, but in addressing the need there.
    Senator Martinez. I know my time is up, but I want to 
also--the next area I would have talked with you about if I had 
more time is the PHAs, public housing authorities, and they 
continue to have challenges throughout the country. And I know 
that ensuring their integrity and their operation in a way that 
is not only competent but also honest is a huge key to the 
success of the PHAs around the country.
    Anyway, I commend you for your willingness to serve. I 
thank you for that and wish you the very, very best. And know 
that I am here for you at any time.
    Mr. Preston. Thank you.
    Senator Martinez. And you are welcome into the HUD family, 
which is a great group of people.
    Mr. Preston. Well, I want to thank you for the advice you 
have given both here and in our meeting, and I look forward to 
getting more of that, if I am confirmed. And do not be 
surprised if you are on my speed dial. You might regret the 
offer.
    Senator Martinez. I am glad to be a resource any time I 
can. Good luck.
    Mr. Preston. Thank you very much.
    Chairman Dodd. Thank you, Senator.
    Senator Carper.
    Senator Carper. Thank you, Mr. Chairman.
    Mr. Preston, welcome. Good to see you again and to be able 
to welcome your wife. And you said three of your five children 
are here?
    Mr. Preston. Three, yes.
    Senator Carper. That would be a quorum, so we are glad. 
Obviously, I have been watching your son especially as you 
speak. I can barely see his lips move while you speak. He is 
pretty good at--he has the brains in this family, I tell you.
    [Laughter.]
    Senator Carper. No, we are glad you are all here. And to 
your family, especially your wife, thanks so much for your 
willingness to share your husband and, to the children, to 
share your father with our country. It is a critical time and 
an important time, and we are deeply grateful to each of you 
for your sacrifice and for your willingness to miss a day of 
school. I know my boys--my boys are a little bit older than 
you--would not be as well behaved, and they are wonderful boys, 
but they would have appreciated the chance to miss a day of 
school. I know that.
    Senator Martinez has left, but he has offered whatever 
assistance he can to you as you settle into this new position 
for which I think we all believe you will be confirmed. And he 
is quite serious in that offer, a good mentor. He is a good 
colleague for us, but a good mentor for anyone who has been 
nominated and will have a chance to serve as HUD Secretary, and 
I would urge you to take him up on that.
    When you and I met, I indicated that if you are confirmed, 
I suspect that there will be a number of senior positions at 
HUD that may be vacant at this point in time. I am not sure 
that that is the case, but there may be some, and there may be 
some that require Senate confirmation. Have you had a chance to 
look at the landscape and see if that is the case or not?
    Mr. Preston. I think that there are four open positions. I 
believe that there are three nominees right now in place for 
them.
    Senator Carper. All right. So three out of the four, we 
have nominees?
    Mr. Preston. Yes.
    Senator Carper. I will do some checking to see if we 
schedule hearings or see where we are. But I think one of the 
things that we have to do is to move expeditiously to make sure 
you have the team around you. Whether you are HUD Secretary for 
8 months or 8 years, we want to make sure you have the human 
resources and the help to get off to a good start.
    Mr. Preston. Thank you.
    Senator Carper. Let me just ask you, and this question may 
have been asked of you already, but just talk to us a little 
bit about how your experience at SBA--some people had real 
doubts about my ability to be Governor or to be a Senator, and 
I hope I have addressed some of those, at least some of those 
questions that people had of me with my service in those roles. 
But there may have been some people who had misgivings about 
your ability to do well at SBA. You have obviously done very 
well. What were some of the lessons that you learned at SBA in 
your experience there providing leadership and helping to take 
that agency to a higher level? How does that experience inform 
and improve your ability to do well in this role?
    Mr. Preston. Well, I think there are--just let me give you 
sort of a short list of things I would highlight.
    First of all, I think as a leader of any organization, you 
have to be very clear about the mission of the organization, 
where the team is heading, and ensure that people are going 
with you. And there are a number of ways to do that, but that 
was very important for us at the SBA.
    Second, you have to dig deep enough into what is happening 
in the organization to understand what the impediments are to 
getting there. In many cases, you are looking at operational 
processes. In many cases, you may have program impediments. In 
many cases, your employee base may not be trained or have the 
tools to deliver.
    So we focused very heavily on designing very specific 
initiatives that we felt were required to help us reach those 
objectives, No. 1, and we put in place tracking tools, we put 
in place a management structure to manage those initiatives, 
and we held people accountable for them.
    Second, we worked very hard to understand where the 
employee base had needs. We had very significant training 
needs. People were not in the right places, and we were not 
communicating with our people well enough. And to the extent 
that you do those things, the employee base really kind of 
rises to the occasion. I think that has been one of the most 
exciting things for us. And then you have to hold people 
accountable through the process.
    The last thing I would say is it is very important in an 
organization when you are making progress, to celebrate that 
progress, to thank people for the progress, and to engage them 
in that. And so I can get into how we got metrics and how we 
reengineered processes and all kind of the detailed stuff. But 
I think it really hangs on a few principles.
    Senator Carper. Thank you. I do not know if you--you are 
not confirmed, and this may be putting the cart before the 
horse, but if you are--as I said before, I think you will be. 
But if you are, talk to us a little bit about what--since you 
do not have--you may not have but 8 months in this role. Talk 
to us about how--what your first 30 days might focus on, maybe 
your first 60 or 90 days. Just give us an idea what your 
initial priorities have to be.
    Mr. Preston. Well, I think one of the most important things 
for me to do right off the bat is to get in front of the 
employee base. A large employee base needs to know who their 
new leader is, what that person stands for, what that person 
believes in. When I came into the SBA, the first day I walked 
in the door, I cut an employee video that was broadcast 
nationally the next day, and so I would hope to do something 
similar to that at HUD.
    Second, very quickly, what I have found is most of the best 
ideas are already out there somewhere. They are either with 
your employees, they are with the people that care about your 
programs, they are with the people that you serve. So I would 
hope to get out and about and listen very hard to what other 
people think we need to get done.
    And the third thing I would do is I would take all that 
information and would hope to work with the leadership team 
there to kind of begin to lay out the path forward.
    The other thing I would highlight is we have a lot on the 
table, on the legislative agenda right now, and if things move 
quickly with my confirmation, I think I will be coming right 
into the middle of that. I think I need to be a great partner 
for this body. I think I need to be an important voice within 
the administration on the issues we face. And I would look 
forward to being a collaborative, you know, new, fresh partner 
in that process.
    Senator Carper. Good. Let me just mention that--Delaware is 
in Region 3, and the Region 3 offices are up in Philadelphia. 
We have had just quite a positive relationship during my time 
in the Senate with the folks at Region 3, but also a women who 
runs HUD's operation in Delaware, her name is Diane Lello. I 
think it is L-E-L-L-O. But I know at SBA one of the things you 
did is you looked out around the country at some people who 
were doing an especially good job, and you were not shy about 
bringing them into other positions. And you just need to know 
you have got a good operation in Delaware in our part of Region 
3.
    Mr. Preston. That is good news.
    Senator Carper. You may want--feel comfortable relying on 
them.
    The last thing I would ask is--Senator Martinez has offered 
his help. He has already provided some guidance and assistance 
and counsel. What can the rest of us do to help you? We want 
you to be successful. We want HUD to be successful. And, again, 
whether you are there for 8 months or 8 years, what can we do, 
aside maybe from confirming your nomination? Does anything else 
come to mind?
    Mr. Preston. Well, one of the things, I think the most 
important thing is many of you have already begun to share with 
me your recommendations, your concerns, where you see the 
opportunities are. I know that you and your staffs have done a 
lot of work to sort of develop those issues.
    One of the first things I did when I came to the SBA was 
get down to the Gulf because of the disaster loan problems we 
had, and one of the most important conduits of information to 
me in those visits were people's staff. You all get phone calls 
all the time from your constituents. You all are a--you know, 
you all have over the last 2 years for me been an incredibly 
effective conduit of information. And I have really valued my 
relationships with people in the Senate and their staffs 
because frequently you all see things before we see things. And 
so it is really twofold:
    No. 1, when you know something, I want to know, because 
sometimes little problems within individual constituents are 
reflections of much bigger problems, and when we start kind of 
peeling away the paint a little but we find something behind it 
that we can address.
    Second, to the extent that you understand sort of the depth 
of an issue or the challenges that we face, I would love to 
meet with you and your team to get the depth of that insight, 
because I will potentially have a very short tenure. I think it 
is going to be very important for me to hit the ground running 
and figure out really what is at the top of the list for the 
next 8 months and get on the path of making it happen.
    Senator Carper. Good luck. Thanks very much. Again, a real 
pleasure to meet your family.
    Mr. Preston. Thank you.
    Chairman Dodd. Thank you very much, Senator, and I would 
just note to my colleagues, there was a quorum call, but I am 
told there are going to be some votes beginning around 11:30, 
and so I appreciate that, Senator Carper, very much.
    Jack Reed, we have been talking about you in your absence.
    Senator Reed. I am here to restore my reputation.
    [Laughter.]
    Chairman Dodd. You do not have to. It may just go downhill 
with so many glowing things that were said about you.
    Senator Reed. I should rest my case?
    Chairman Dodd. Rest your case.
    Senator Reed. Thank you very much, Mr. Chairman. And 
welcome.
    Mr. Preston. Thank you.
    Senator Reed. We have been over the last few weeks, under 
the leadership of Senator Dodd and Senator Shelby, able to 
accomplish something which we hope will rapidly become law with 
respect to foreclosures, and just to note that house prices 
have fallen 3.1 percent in the last quarter. Sales of existing 
homes fell in 43 States. In California and Nevada, it is an 8-
percent drop, significant, and it is estimated that mortgage 
originations this year will drop 18 percent. This is the crisis 
in the housing market, and you are going to be the principal 
housing official in the Cabinet of the President.
    My general question is I would hope by the time or shortly 
after you take over, you will have new legislation to 
implement, but I would hope that your top priority would be to 
deal with this housing crisis, implementing legislation that is 
passed, giving the FHA--and I see the Commissioner--the power 
and also not just the theoretical power but actually get down 
and start helping people. Is that your intent?
    Mr. Preston. Yes, you know, let me just mention one 
example. We have talked a lot about the disaster program at 
SBA, but when we came into that crisis, we brought the entire 
leadership into a room. We had a 3-day lockdown. We actually 
started it with a video of people telling their stories about 
how tough it was to do business with us. And I was directly 
engaged in mapping out new processes, changing policies, 
dealing with technology issues. I expect to be a very engaged 
leader on the ground with the team as we look at any 
operational issues.
    Senator Reed. I know there are limitations in terms of your 
involvement in current operations, but are you accumulating a 
list of advice that you can implement immediately without new 
legislative authority, you know, feedback from people in the 
field as to how you can make the program better, all these 
programs better?
    Mr. Preston. Yes, that is something I would expect to do 
very shortly. I have asked a number of the people I have met to 
provide me with that list. I have asked them to provide me with 
a list that helps me understand what is an operational solution 
and what is a regulatory solution, and then begin thinking 
about the impact of the recent legislation--the potential 
legislation that we see. And I would expect to expand that very 
shortly after coming into the role.
    Senator Reed. And will you establish at least an objective 
goal of helping so many households, something tangible that you 
can measure and you can encourage your colleagues at HUD to 
strive for?
    Mr. Preston. I think that is an important thing to--I am 
not exactly sure what that goal should look like, Senator. I 
think in any initiative, having very clear goals in place and 
measuring those and looking at them consistently with your 
leadership team is important. I just do not know what the exact 
goal would be specifically. And certainly to the degree that 
you would have advice on that, I would look forward to hearing 
it.
    Senator Reed. I think one of the observations is that there 
are many well-intentioned initiatives, but the endpoint is some 
generic helping people or helping et cetera, et cetera.
    Mr. Preston. Sure.
    Senator Reed. And there is not a specific kind of 
calculation of if we can help 100,000, then we have succeeded; 
if we are only helping 20,000, we have not. So it is hard to 
quantify, but I would suggest that if you drive that analysis 
to measurable points, it would be helpful.
    Let me just turn quickly, because the next major task I 
think you have is really to start--not just assembling but 
working through the budget of HUD for the next fiscal year, and 
there, there are some issues. I will just make the point I 
believe that the efforts with respect to lead prevention, lead 
mitigation have been very important at HUD, but they are 
underfunded. So I hope you would look very closely at that. And 
as some of my colleagues might have mentioned, Senator Allard 
and I have a homelessness bill which we hope is law and we hope 
it gives you additional tools. But that is another area I would 
hope that you would devote yourself to in the next few weeks 
and months in terms of policy and budget priorities. Good luck.
    Mr. Preston. Thank you.
    Senator Reed. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator Reed.
    I just have one additional question I wanted to raise with 
you, and it is one I would like you to get back to the 
Committee about as soon as you can once you are confirmed. 
There have been some articles written about reportedly staff 
concerns were sort of dismissed out of hand regarding 
contracts. You may have seen the article yourself in 
preparation for being here this morning. It provides some 
details about contracts given to companies with ties to HUD 
officials over the objections of HUD staff. And we have heard 
similar allegations in the past and so forth, but apparently 
this seems to be ongoing, at least as I read the article. And 
if it is, obviously you are going to want to get your--find out 
about it very quickly, I would presume.
    Mr. Preston. Yes.
    Chairman Dodd. And this Committee would like to know as 
well what your observations are and whether or not this problem 
is as serious as the articles indicate it may be and what steps 
you are going to take to remediate it as soon as you could.
    Mr. Preston. Certainly.
    Chairman Dodd. So I will not dwell on it. I do not expect 
you necessarily to have detailed knowledge about it today, but 
I would expect you to be able to respond very quickly. And if 
we can, maybe Senator Shelby and I will prepare a letter to ask 
you about it, but I will make--in place of a letter, I am 
asking about it today on the assumption you are going to be 
confirmed, and if you are, we need to find out and get to the 
bottom of it.
    Mr. Preston. Right.
    Chairman Dodd. With that, I appreciate you being here. 
Again, my congratulations to you, and all of us mean this. It 
is not easy to step up and serve in the public eye today in 
these appointed positions. And so I admire anybody who is 
willing to do it, step out of the private sector to come and do 
this.
    Mr. Preston. Thank you.
    Chairman Dodd. And I want to echo the plaudits that have 
been given to your wife and your family as well. It is not easy 
duty, and I am very impressed. I do not know what your other 
two siblings are like, but they must be the raucous ones.
    Mr. Preston. There is a reason they are not here.
    [Laughter.]
    Chairman Dodd. You do not let them out in public, is that 
it? You keep them boxed up at home?
    Well, anyway, we are delighted to have you with us, and we 
will try and move this as quickly as we can, but thank you very 
much for being with us.
    Mr. Preston. Thank you.
    Chairman Dodd. I will leave the record open because there 
are Members who are not here, and we scheduled this fairly 
quickly and had to change the schedule. But Members may have 
some questions, and if they do, we would like you to respond to 
them very quickly.
    Mr. Preston. Thank you. Sure.
    Chairman Dodd. The Committee will stand adjourned.
    [Whereupon, at 11:38 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]
[GRAPHIC] [TIFF OMITTED] 50403A.001

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 [GRAPHIC] [TIFF OMITTED] 50403A.004

 RESPONSE TO WRITTEN QUESTIONS OF SENATOR DODD FROM STEVEN C. 
                            PRESTON

Q.1. There have been a number of reports that under your 
leadership, the Small Business Administration would not 
disclose information about the companies awarded small business 
contracts, and that this was done because small business 
contracts were going to large firms. According to the American 
Small Business League, as well as investigations by various 
news outlets, Fortune 500 firms receive billions of dollars in 
small business contracts. In addition, the American Small 
Business League has said that although an annual 
recertification of companies was endorsed by the Inspector 
General at SBA, the Office of Federal Procurement Policy and 
the OMB, you implemented a 5-year recertification process, 
which would allow the government to report awards to large 
companies as small business contracts for 4 additional years. 
Mr. Preston, can you respond to this?

A.1. 

                                 PART A

    During my tenure at SBA there has been a significant 
increase in transparency, accountability, and integrity of data 
in federal contracting well beyond where it has been.
    1. In September 2006, the Office of Management and Budget 
and SBA required agencies to review their 2005 procurement 
data, identify discrepancies, and correct the records, as 
necessary. This process was completed in March of 2007. During 
this clean up process agencies found $4.6 billion dollars that 
were ``miscoded'' as small business. On August 17, 2007, SBA 
re-issued the FY 2005 Small Business Goaling Reports which 
correctly reclassified the $4.6 billion as other than small.
    2. In 2007 OMB began to require that agencies establish 
comprehensive data verification procedures and that they 
certify data accuracy and completeness to the General Services 
Administration each year. The statements of data verification 
and validation must be submitted to OMB.
    3. All contract data is now available to the public at 
www.usaspending.gov.
    4. Last summer, SBA issued the first Small Business 
Procurement Scorecard. The Scorecard is modeled after the one 
used to track the President's Management Agenda. Notably, the 
scorecard includes an element addressing agencies efforts to 
ensure data integrity and is the first time agencies' 
contracting work has been graded publicly.
    5. Also last summer, the federal government changed the 
rules to require companies that become large through merger or 
acquisition to say so officially. Under these rules, the 
contracts they hold can no longer be counted by federal 
agencies as small business contracts.
    What has been happening in federal contracting since the 
mid 1990s is that a large volume of federal contracts awarded 
originally to small companies have been taken over by large 
companies that have purchased or merged with the small 
companies that originally won those contracts.
    The difference between this and the government supposedly 
diverting small business contracts to large companies is 
important. These contracts were awarded to small businesses, 
some of them as set-asides, but most of them in full and open 
competition. About 20 percent were ``set aside'' for small 
businesses, but the rest were won by small companies in full 
and open competition.
    Over time, those small businesses merged with or were 
acquired by large businesses--it's a common business strategy 
for both small companies and large ones. As a result, the 
contracts originally awarded to small businesses are recorded 
in the federal database as being owned by large companies.
    Because of the rules that were in place at the time--under 
my leadership we changed them--the federal agencies that 
awarded those contracts were allowed to continue to count them 
toward their goals as contracts that were awarded to small 
businesses.
    Under the old rules, federal agencies that awarded 
contracts to small businesses, whether it was through set-
asides or full and open competition, were coded as small 
business through the life of the contract, whether the vendors 
remained small, grew to be large, or were acquired by large 
firms.
    This became a problem when the length of contracts 
increased from an average of five years to 20 years and beyond, 
and as acquisition of small firms became a major growth 
strategy for large businesses.
    Therefore, last summer SBA enacted a rule to require 
periodic recertification of small business size standards on 
long-term contracts, and when ownership of any contracts, 
originally awarded to small firms, changes through merger or 
acquisition.
    These regulations prevent agencies from claiming credit 
against small business goals for contracts that were originally 
awarded to small businesses that are no longer held by such 
firms. In turn, this will compel agencies to provide new 
genuine opportunities to small businesses in order to meet 
their goal.
    Under the rule, which took effect July 30, 2007, any small 
business that merges or is acquired must immediately 
``recertify'' its size. If the company is no longer small, the 
contract continues, but the federal government can no longer 
count it as a ``small'' contract. There are no responsible 
parties in the contracting discussion who have recommended 
taking contracts away from large companies which acquired them 
through merger or acquisition.
    The new rules also require that all existing contracts over 
five years duration be modified to require small businesses to 
recertify their size status for acquisitions, mergers requests 
and to recertify their size status prior to an option being 
exercised. All existing contracts of less than five years must 
recertify when their first option is exercised. The vast 
majority of these contracts have one-year options.
    Collectively, these measures will result in improved 
contracting data integrity. It may take time for the full 
benefits of these improvements to show results. But, we believe 
the data has been made substantially more reliable than that of 
prior years, and that with these steps, the quality of data 
will increase measurably each year, well into the future.
    In regards to specific requests for contracting data, SBA 
has worked with the GSA, which controls this information, to 
see it is publicly available.

                                 PART B

    As with any public rule, the recertification rule was 
subjected to public notice and comment. The strong indication 
from the comment period--including substantial congressional 
comment--was that an annual recertification period would 
diminish small business growth and was too expensive and 
onerous for small businesses and federal agencies.
    As mentioned above, the five-year rule applies to companies 
with current federal contracts that grow large over that 
period; for mergers, acquisitions or new contracts, the small 
business certification must occur immediately.

Q.2. In addition, can you tell us whether you released the list 
of actual recipients of federal small business contracts for 
2005 and 2006?

A.2. Federal contracting data is neither managed by nor 
controlled by SBA. The General Services Administration 
maintains the Federal Procurement Data System-Next Generation, 
which is data repository of record. All information in FPDS-NG 
is available to the public.
    SBA has assisted people who desire such information by 
describing it in public forums, providing a link on its web 
site, and in certain cases (as in the case with ASBL) actually 
obtaining that information and providing it to the party.

Q.3. Mr. Preston, last year, the U.S. Women's Chamber of 
Commerce complained that a proposed rule published under your 
leadership would have made it more difficult for women-owned 
businesses to receive contracts. They also put out a statement 
to say they were alarmed by your statements, which they 
believed misrepresented the findings of reports on which the 
proposed rule was based. Mr. Preston, did you follow up with 
the Women's Chamber of Commerce after this dispute, and was the 
proposed rule implemented or were changes made?

A.3. The proposed set aside rule for Women Owned Small 
Businesses (WOSB) in no way restricts federal opportunities 
available to WOSBs, but rather expands them. Today, there is no 
ability for WOSBs to received set-asides. The proposed rule 
would enable WOSBs to benefit from those set asides in four 
industries. In 2006, federal contracts to WOSBs reached a 
record level ($11.6 billion) and achieved record growth ($1.5 
billion) in part due to the efforts of SBA.
    Prior to my arrival at the SBA, the Women's Chamber of 
Commerce initiated a law suit against the SBA which is ongoing. 
At the advice of counsel, we have not deemed it appropriate for 
a direct meeting to take place. SBA has considered testimony by 
the Women's Chamber of Commerce and will consider any response 
they make in the federal rulemaking process.
    I and my team understand the details of the reports very 
thoroughly and I am confident that our statements reflect both 
the factual information and their implications for the rule.
                                ------                                


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR DOLE FROM STEVEN C. 
                            PRESTON

Q.1. Administrator Preston, as you might be aware, HUD has 
proposed revisions to their regulations on the Real Estate 
Settlement Procedures Act (RESPA) by a lengthy proposed rule to 
simplify and clarify the real estate transaction to make it 
more understandable to consumers. The proposal seems to make 
the transaction more complicated, adds additional layers of 
disclosures, and may severely burden small businesses. 
Additionally, this proposal seems like it would transform the 
closer from an independent third party fiduciary to the 
transaction into an agent to the lender. Administrator Preston, 
if you are confirmed as the Secretary of HUD would you look 
into some of the ramification of the proposed RESPA regulations 
and make changes to this regulation if needed?

A.1. Yes. With the extension of the public comment period to 
ninety days, HUD expects to receive a vast amount of public 
comment. If confirmed, I will work with staff to take each 
comment into serious consideration.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR TESTER FROM STEVEN C. 
                            PRESTON

Q.1. As you may know, HUD recently sent letters to tribal 
leaders that provides information about the annual Indian 
Housing Block Grant (IHBG) formula allocation; funds that 
Congress appropriates to address the housing needs of all 562 
tribes nationwide. The March 24, 2008 letter states that HUD 
plans to withhold nearly $20 million of the allocations to pay 
for ``preliminary relief for plaintiffs that have filed suit 
against the Department regarding their Formula Current Assisted 
Stock (FCAS) count''. The letter identifies 17 tribes as 
plaintiffs or potential plaintiffs.
    From this language, it appears that pursuant to the 
decision of Ft. Peck Housing Authority v. HUD, 435 F.Supp. 
2d1125 (D. Colo. 2006), HUD anticipates losing similar cases 
filed by those 17 tribes. I understand the anticipation. 
However, I am concerned that this action effectively punishes 
every tribe in the nation because 17 tribes are seeking to 
uphold their legal rights recognized by the Ft. Peck decision.
    Can you please identify alternative mechanisms to pay for 
the judgments without negatively impacting Indian tribes 
nationwide? Do you agree that use of Indian Housing Block Grant 
dollars is an appropriate way to address this longstanding 
disagreement?

A.1. I am not familiar with all of the details of this 
situation, but if confirmed, I will consult with HUD's Office 
of the General Counsel and report back to you promptly. And if 
confirmed, I look forward to working closely with you and your 
staff to more fully understand this issue, and your concerns.
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