[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                   LEGISLATIVE OPTIONS FOR PRESERVING

                FEDERALLY- AND STATE-ASSISTED AFFORDABLE

                 HOUSING AND PREVENTING DISPLACEMENT OF

               LOW-INCOME, ELDERLY, AND DISABLED TENANTS

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



                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 25, 2009

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-51


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

        Jeanne M. Roslanowick, Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 25, 2009................................................     1
Appendix:
    June 25, 2009................................................    33

                               WITNESSES
                        Thursday, June 25, 2009

Donovan, Hon. Shaun, Secretary, U.S. Department of Housing and 
  Urban Development..............................................     5

                                APPENDIX

Prepared statements:
    Waters, Hon. Maxine..........................................    34
    Carson, Hon. Andre...........................................    36
    Donovan, Hon. Shaun..........................................    38



                        LEGISLATIVE OPTIONS FOR

                       PRESERVING FEDERALLY- AND

                       STATE-ASSISTED AFFORDABLE

                         HOUSING AND PREVENTING

                      DISPLACEMENT OF LOW-INCOME,

                     ELDERLY, AND DISABLED TENANTS


                              ----------                              


                        Thursday, June 25, 2009

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Waters, Moore of 
Kansas, McCarthy of New York, Baca, Scott, Green, Cleaver, 
Ellison, Donnelly, Carson, Driehaus, Himes; Castle, Biggert, 
Miller of California, Capito, Neugebauer, McCotter, Posey, 
Jenkins, and Paulsen.
    The Chairman. The hearing will come to order.
    We have before us again the Secretary of the Department of 
Housing and Urban Development, Shaun Donovan. And we are here 
on a very important issue: preservation.
    Forty years ago and more, the Federal Government began, I 
guess back in the 1960's--the first project I was aware of was 
built in Boston in 1965, the Castle Square project.
    By the way, I do want to make a note as to the Castle 
Square project. It was a 221(d)(3), later replaced by 236. It 
was affordable housing, subsidized housing for lower-income 
people, and in the middle of it is a public housing unit. It is 
family, limited-income, low-income housing, with public housing 
in the middle.
    We often hear the argument that housing like that pikes a 
neighborhood. I invite people to Boston. No, not my district, 
Mr. Capuano's district. He will welcome you. Go to the 
intersection of Tremont and Arlington Streets, right where 
there is an entrance to the Massachusetts Turnpike. On the 
southwest corner, you will see the Castle Square project, a 
project more than 40 years old for low-income people, one of 
the first racially integrated, the beginning of the south end 
of Boston, with a public housing project in the middle.
    To the argument that this pikes neighborhoods, then walk 
across Tremont Street. Now, admittedly, Tremont Street is a 
wide street; it has a divider in the middle. But it is still 
only one street. On the northwest corner--this is the southwest 
corner--sits a building known as L'Atelier--L, apostrophe, A-T-
E-L-I-E-R, for our very good stenographer. It is as expensive 
as any housing in the State of Massachusetts. It is a luxurious 
building with concierge service that I think costs more per 
month than the rent for one of the buildings across the street.
    People who tell me that affordable housing pikes the 
neighborhood, I need them to go and see an affordable housing 
project literally across the street from some of the most 
expensive housing in Massachusetts. And when you are among the 
most expensive housing in Massachusetts, you are right up there 
with the rest of the country.
    We built these units years ago. They were built with a 
proviso that allowed the owners who got no-interest loans in 
most cases from the Federal Government--first, 1 percent, I 
think, and then no-interest loans--after 40 years to terminate 
the restrictions and to make them market-rate.
    Now, at the time, it may have been thought that, well, 
nobody is going to want to live in these poor people's houses. 
But it is another refutation of the argument that this sort of 
housing pikes neighborhoods. Many of the kind of people in the 
socioeconomic category who objected when this housing was first 
built near them, their descendants now want to move in. It 
turned out to be quite desirable, in many parts of the country, 
with a new move towards living in the cities.
    We, thus, have the problem that market-rate forces threaten 
to take away these units. Now, we have had a policy under the 
previous Administration, the previous Congress, of providing 
vouchers--``enhanced vouchers,'' they were called, because the 
rents at market would go up--to keep the current tenants in the 
building, but when those tenants died or moved, we lost the 
unit. That has led to a diminution in the number of units set 
aside for affordable housing.
    We cannot compel people who have a contractual right to 
withdraw from this program not to withdraw; they have that 
contractual right. But most of the people, virtually all of 
them who built that housing were people who believed in this 
sort of housing. People who bought it from others were people 
who believed in this sort of housing. With the appropriate set 
of incentives, we can keep almost all of these units in the 
affordable inventory.
    And, while the Section 8 Voucher Program is a good one, 
when the Federal Government simply adds to the demand for 
housing with annual vouchers and does nothing to increase the 
supply, good conservative economics tell us we force up prices. 
So an annual voucher program should be part of an overall 
program that includes units. We hope, through the Low-Income 
Housing Trust Fund, to be able to build some more units, but, 
at the very least, we can prevent the loss of those we have.
    So we are working on legislation--and, by the way, this is 
both an urban and a rural matter. There is housing built in 
rural areas, and members should remember that we have 
jurisdiction in this committee over the Rural Housing Service 
at the Agriculture Department, which has been very well run. 
And the Administrator, Mr. Davis, in the previous 
Administration, was very cooperative. We have had a lot of good 
work there. A former member of this committee, Geoff Davis from 
Kentucky, a Republican, and Lincoln Davis from Tennessee, a 
Democrat, both former Members, worked hard to preserve it.
    It is our intention to bring forward legislation that will 
do everything we can legally to preserve these units. It is, by 
far, the least expensive way to have a unit. It avoids the 
problem of where do you locate it, since they are already 
located. And it avoids the disruption; we have these 
communities that are now here.
    So that is the goal of today's hearing, to focus on this 
legislation, which I hope we will be passing through. And our 
goal is--and it is very appropriate to have the Secretary here 
because he did so much work in the jurisdiction where they 
supplemented the Federal efforts. My own State did; many other 
States did.
    We believe that the legislation should apply not simply to 
those that were federally funded but to any such program. 
Whether it was federally, State, or locally funded, we believe 
that advancing the funds and creating a legal framework where 
we can preserve these units is the best thing we can do to keep 
the affordable housing inventory from shrinking even as we go 
forward in trying to build it.
    So today's hearing is very much on this piece of 
legislation.
    The gentlewoman from West Virginia.
    Mrs. Capito. Thank you, Mr. Chairman.
    And I would like to thank the Secretary for returning 
before our committee.
    I think we all share the Secretary's desire not only to 
promote homeownership but also to ensure that Americans have 
access to affordable rental housing.
    This legislation before us today includes many sections 
that I strongly support. Title 8 of the draft legislation is 
especially important to my home State of West Virginia, as it 
makes important improvements to affordable housing in rural 
communities. As the chairman mentioned, our colleagues, 
Representative Davis of Tennessee and Representative Davis of 
Kentucky, are to be commended for their efforts on this 
legislation.
    I am also pleased that the section of this legislation 
modernizing the Section 202 program providing affordable 
housing for the elderly includes important language that I was 
able to include in our last Congress. This section addresses a 
problem facing smaller, rural States in that currently their 
allocation of 202 units is split between metropolitan and non-
metropolitan areas, often leaving the States not being able to 
develop their full allocation because a developer cannot afford 
or they cannot find a developer to build with the small non-
metropolitan allocation. The new language in this legislation 
will provide smaller States with the critical flexibility that 
we ask for, so that we can use those allocations as they are 
most needed.
    While I do support these sections of the bill, I do have 
some significant reservations about their inclusion in the 
larger package. Both the rural and senior housing sections have 
broad, bipartisan support and, I believe, should be moved 
separately, to enhance the possibility that they will be 
accepted by both the House and the Senate.
    The majority of this legislation addresses preservation of 
affordable housing in urban areas. It is much more complex and 
contains some controversy. This may discourage, I believe, some 
future private sector participation in Federal housing programs 
and ultimately limit the availability of affordable housing. I 
think the legislation does carry a significant cost, and there 
are some new sections that could open up some extensive 
litigation areas.
    I know that extensive work has been done on this draft 
legislation. I commend the chairman for this, and I look 
forward to working with him and the Secretary on many of these 
provisions.
    I yield back.
    The Chairman. The gentleman from Texas, Mr. Green, is 
recognized for 3 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    And I thank the Secretary for appearing today. It is good 
to see you again, Mr. Secretary.
    Mr. Chairman, my intelligence indicates to me that more 
than 900,000 Section 8 units will expire over the next 5 years. 
These units are of critical importance. At a time when we have 
high foreclosure rates, at a time when we have tight lending 
policies, at a time when it is difficult for persons to 
maintain homes and we may have more persons who are going to 
need affordable housing, I think it is exceedingly important 
that we maintain these 900,000 units.
    The empirical evidence seems to indicate that there is a 
dire need for much more affordable housing in this country. So 
I look forward to hearing from the Secretary in terms of how we 
will maintain and also move forward with the acquisition of 
additional affordable units.
    I would also mention that, in my City, we have many persons 
who find themselves living at a place called ``home'' that is 
beneath an overpass or that is an abandoned piece of property. 
The numbers are very difficult to get a handle on, but I 
contend that if we have one, we have too many. Too many people 
are finding themselves calling ``home'' under bridges.
    I think that we must do what we can to make sure that we 
continue to separate the United States of America from many 
other places in the world where we just allow people to suffer 
in the streets of life when we can provide opportunities for 
them. I think we have a duty to do this.
    And I am looking forward to hearing the testimony. I thank 
you for being here, Mr. Secretary.
    And thank you, Mr. Chairman. I will yield back the balance 
of my time.
    The Chairman. Are there any further requests for opening 
statements?
    If not, we will now go to Secretary Donovan, whose presence 
we once again appreciate.
    Mr. Secretary?

   STATEMENT OF THE HONORABLE SHAUN DONOVAN, SECRETARY, U.S. 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Secretary Donovan. Thank you, Chairman Frank, Ranking 
Member Bachus, and Ranking Member Capito for your attention to 
these very, very important issues.
    And Chairman Frank, I want to say, in particular, I have 
been to that intersection that you talked about on Tremont 
Street. And I was surprised, myself, to learn that it was 
affordable housing when I first saw it because it has been so 
well-maintained, it has been so successful.
    The Chairman. You know, it is 44 years old.
    Secretary Donovan. I would also venture to say that, given 
your encyclopedic knowledge of these programs, it is quite 
possible that you have visited every street corner where 
assisted housing exists in this country today. And I want to 
acknowledge--
    The Chairman. I was going to say, Mr. Secretary, that I 
hope that you were properly respectful of that development 
since, at 45 years old, I believe it is your elder.
    Secretary Donovan. As usual, you are correct.
    I do want to acknowledge that you have been a champion and 
advocate of preservation of HUD-assisted housing for a very 
long time. And I won't put you on the spot about your age here 
in this hearing, but, without your efforts--
    The Chairman. I am 1 week younger than the Speaker. So push 
it if you want to.
    Secretary Donovan. But, without your efforts, many more 
families would be without affordable shelter.
    I am looking forward to working with you and the committee 
to further the preservation agenda and I would also like to 
welcome the chairwoman here, as well, Congresswoman Waters. It 
is good to see you, as well, and for your tireless advocacy on 
these issues, as well.
    This is an important hearing. Today, HUD provides rental 
assistance for over 1.4 million assisted units across the 
country. And this stock is a critical resource for countless 
families serving the low- and very-low-income families who 
otherwise would not have access to decent, safe, affordable 
housing.
    We know from experience that preserving affordable housing 
is essential. If the current economic crisis has taught us 
anything, it is that it is long past time that we have a 
balanced, comprehensive national housing policy, one that 
supports homeownership but also provides affordable rental 
opportunities and ensures nobody falls through the cracks.
    Today, there are less than three units available for every 
four low-income households and only half the number of units 
needed for families in extreme poverty. As we watch the number 
of homeless families with children begin to rise, we remember 
that a significant factor contributing to the resurgence of 
homelessness in the early 1980's was the failure to preserve 
hundreds of thousands of units from an earlier generation of 
affordable housing. And so we can't afford not to take on this 
challenge.
    And Congress and HUD, together, are already doing just 
that. This Administration, thanks to congressional support, is 
committed to fully funding project-based Section 8 contracts 
for 12 months through the Recovery Act, as well as full funding 
in HUD's 2010 budget.
    Our budget also requests a higher level of Federal funding 
for housing vouchers, the most direct means to meeting the 
affordable challenge facing very-low-income renters and the 
most efficient means of addressing the increase in homelessness 
I just referred to.
    While we have made progress, more action is needed, which 
is why I am pleased to inform the committee that HUD supports 
the fundamental principles of the draft bill. The bill tackles 
a detailed list of actions that could be taken on this front. 
And this legislation provides us with the foundation to move 
forward in a comprehensive and strategic manner.
    We must still evaluate its costs and implications, but 
allow me to highlight three important themes embraced in this 
bill that will be critical in guiding us forward.
    First, HUD needs to be a leader and a partner in preserving 
critical housing resources. Too often, HUD's policies and 
practices get in the way of preservation efforts instead of 
supporting them. That is going to change. Going forward, we are 
adopting a problem-solving ethos and collaborative working 
relationship with our partners, including owners, residents, 
and local government.
    I recognize that historically this may not always have been 
the case. The draft bill highlights the kind of practices that 
we can consider changing that will demonstrate this new 
partnership. For example, when a property is undertaking 
substantial capital improvements, we can agree to establish the 
after-rehab Section 8 rents up front before the rehabilitation 
begins. That means that owners, lenders, and their financial 
partners would have the certainty and confidence they need to 
undertake this new investment and benefit tenants immediately.
    Likewise, we can look at agreeing to enter into longer-term 
Section 8 contracts, subject, of course, to annual 
appropriations and structured to provide HUD with the 
flexibility to cancel contracts with owners of nonperforming 
properties. This would boost tax credit investor confidence by 
demonstrating our intent to be a long-term partner in the 
project. This type of action is particularly important at this 
time when investors are in short supply.
    These two examples, among many from the legislation, can be 
done administratively. We will continue to identify all of the 
elements in the bill which we might be able to tackle 
administratively and quickly. And, again, we want to be a 
leader and a partner in this crucial preservation effort.
    The second point I want to talk about is information, which 
is absolutely critical to this effort. We applaud the concept 
of a national database that will give us access to the 
information that we need regarding America's affordable housing 
stock, including how much is HUD-assisted, what developments 
have multiple financing sources, and when mortgages are 
maturing in order for us to better predict our voucher 
commitments.
    Mr. Chairman, I am a numbers guy. I am serious about 
evidence-based decisionmaking. A comprehensive database would 
help us do a far better job of preserving as many units as 
possible for the least amount of money.
    This leads me to the final point. One size does not fit all 
in approaching the challenge of preserving affordable housing. 
Ranking Member Capito has already talked about the differences 
facing rural areas and urban areas. And the data and analysis 
we do on the portfolio of properties will lead us to tailor our 
efforts to specific problems.
    For instance, what is needed for a deeply troubled property 
in a challenged neighborhood may be very different from what is 
needed for a well-maintained property in a strong housing 
market at the end of its mortgage term. A flexible menu of 
solutions will be required, and it must be based on solid data 
and analysis.
    We want to work with you to ensure that we have the needed 
flexibility in this legislation. One concept that we are very 
interested in pursuing is linking the preservation of existing 
affordable housing developments with broader initiatives that 
benefit communities. We want to look at prioritizing the 
preservation of developments that are integral to 
sustainability, such as those adjacent to significant 
transportation options or with great access to job 
opportunities.
    My staff, led by my new Deputy Assistant Secretary, Carol 
Galante, has been working diligently over the past several 
weeks gathering together owners, tenants, and nonprofit leaders 
to listen to their thoughts, ideas, and suggestions regarding 
preservation. Congressional staff has been attending these 
sessions. And, together, we have been working to better 
understand the challenges we face and how to craft more 
workable solutions.
    As these conversations progress, there may be further 
ideas, like the link to sustainability I cited earlier, that we 
may wish to have considered. These conversations are an 
important part of our efforts to work with you, as you further 
refine this bill.
    We know how important affordable housing preservation is to 
the long-term success of our communities, and we recognize that 
hard choices will need to be made to get the most out of our 
resources and make a difference for millions of families. We 
will need to look at the costs and work with you to prioritize 
what is essential and what is most cost-effective. But with a 
new set of priorities, a new commitment to collaboration and 
accountability, and a new way of doing business here at HUD, I 
am convinced we can and we will.
    Thank you.
    [The prepared statement of Secretary Donovan can be found 
on page 38 of the appendix.]
    The Chairman. Thank you, Mr. Secretary.
    One point I made mention of before and I would want to make 
it explicit, and I hope we are in agreement on this, is that we 
are out there to preserve units rather than to vindicate 
Federal programs. So I would hope we could get agreement that, 
whatever tools we offer, whether they are financial or 
whatever, that we don't discriminate between State and Federal. 
Particularly a number of jurisdictions--New York City, where 
you were; Massachusetts, really under the aegis originally of a 
former Member of this body, Joe Moakley, who began as a State 
Senator in Massachusetts a very extensive program, in 
coordination with Mike Dukakis, to do housing.
    So would you agree that we could try to make this fully 
available so that, to the extent that States--it is not 
coercive--to the extent that States, in the case of New York 
City, wanted to take advantage of this, that we could 
accommodate that?
    Secretary Donovan. I think it is very important.
    I also think it is important, as you talked about earlier, 
that we ensure that there are Federal resources available, that 
we are also encouraging States and cities to bring their own 
resources to the table for these efforts, as well. So the 
Federal Government needs to do its part, but I also think it is 
important that State and local governments do their part, as 
well.
    The Chairman. That I agree with.
    Part of this--now, this is not our jurisdiction, it may be 
somewhat controversial, maybe you can't do it--but I am told by 
many of the owners who have the right to say no to this--we 
cannot coerce anybody--that exit tax relief is an important 
part of this.
    Now, I know there is some resistance. Basically, what we 
are talking about with exit tax relief is forgiving some taxes 
that may be due for owners who agree to do this. I know it is 
interjurisdictional. We don't have the jurisdiction; Ways and 
Means does.
    But I don't know if you have any thoughts on this. Do you 
want to just go back and talk to your colleagues at Treasury 
and elsewhere? We are going to need some guidance, and then, if 
we decide to do it, some cooperation on the question of exit 
tax relief.
    I don't know if you have any particular thoughts on that.
    Secretary Donovan. I do think it is an important question. 
And I have seen very directly from my own experience in the 
private sector, as well as in the public sector, that the 
legacy of the accelerated depreciation that was available for 
these properties has left significant, what we call negative 
capital accounts that stand in the way of, often, preservation 
moving forward.
    And there has been significant discussion, Senator Schumer 
and others have drafted bills and introduced bills that would 
try to target this assistance to properties where they would be 
preserved long-term.
    The Chairman. One of the things that we might do, the 
arcana of CBO may not be within our jurisdiction, but OMB you 
do work with. I would hope that we would, as we cost out exit 
tax relief, compare it to what the cost of building a new unit 
would be. I think that would clearly help us.
    So we are talking about whether or not we have this unit, 
and it would seem to me that the cost of exit tax relief, even 
with everything else, almost certainly is going to be less in 
many parts of the country, maybe everywhere, than building new 
units. So I would hope that we could do that kind of 
accounting.
    Secretary Donovan. I would also just mention that enhanced 
vouchers are obviously a cost of that inversion, as well.
    The Chairman. Yes, that is exactly right, because if you go 
out a few years, enhanced vouchers--in fact, one of the 
arguments that has been made--and we have debated the voucher 
program--by some who are critical of it pointed out the 
increase in the voucher program, people said, ``Well, look at 
what a bigger percentage of HUD's budget the voucher program 
is.'' Well, that probably is because people cut the rest of it. 
So when you are the last man standing, you are a larger 
percentage of the group than before. But it is also the case 
that enhanced vouchers are enhanced, so they cost more money, 
when over time, you would reduce that rate if you had the unit.
    The only thing you said that made me sit up a little bit 
was when you talked about prioritizing these. I would hope that 
our goal would be to protect any that people want to protect, 
you know. And I would hope that we would not be running out of 
resources.
    So when you say prioritize, maybe those are the ones you 
deal with first. It may be those are the ones--I guess, to some 
extent, you prioritize because the ones that are in the 
lousiest areas are the ones least likely to go out of the 
inventory and go to market.
    But would I be correct in saying that our goal is, in fact, 
to preserve every one that is physically still appropriate and 
that people are ready to work with us on?
    Secretary Donovan. Yes, look, I do think--I want to be 
clear about that statement. First of all, there are situations 
where a property is in poor enough condition that it is located 
somewhere where it would be better to think about--similar to 
what has happened on the HOPE VI side--more fundamental 
redevelopment rather than preserving property as it is.
    So I think there are difficult choices that sometimes need 
to be made. That is why we have a proposal in our budget that 
would expand on the work that HOPE VI has done successfully. We 
have begun discussions with your staff on this to expand to 
assisted properties, as well.
    But, from my own experience--and the first time I was at 
HUD, we created a program called Mark-Up-To-Market. And what we 
found as we looked at the data is that the properties that we 
were losing, not surprisingly, were the properties that were in 
locations where rents were the highest and where oftentimes the 
schools were the strongest, the job opportunities were the 
best--
    The Chairman. In other words, there would be two 
categories. One is the projects that are just physically not 
appropriate to keep going. And we would redo them, I would 
hope, and maybe more than hope, as we get to this legislation, 
with the support of, I know, my colleague from California, that 
there will be a pretty heavy burden of proof on people who 
didn't want to do a one-for-one replacement of units. And we 
will be talking about that.
    But then, also, yes, there are units that are in no danger 
of wealthier people moving in because they don't want to live 
there. I mean, let's be honest. So, yes, in those cases, the 
best economic deal for the owner may be to continue in the 
program. Because, if I am correct, when there is a 40-year opt-
out, does anything prevent the owner from continuing if he or 
she wants to continue?
    Secretary Donovan. There are cases where a mortgage matures 
and there is assistance that is attached to the mortgage that 
then expires. So we would need to come to the table with the 
resources to be able--
    The Chairman. Exactly. In those areas where the mortgage 
has expired but there is no great demand to displace people, 
then we might very well be willing to consider some 5- or 10-
year extension of assistance.
    Secretary Donovan. Mr. Chairman, I might also add another 
example of prioritization, and this, again, is from my own 
experience. There was a wrenching--early in my first time at 
HUD--decision to be made about a property in Iowa, where it was 
in poor condition and the standard procedure would have been to 
provide vouchers there, but it was in a rural area, it was an 
absolutely critical resource, and, frankly, a voucher would 
have meant that seniors would have had to move probably 50 
miles away--
    The Chairman. Because there was nowhere else to live, yes.
    Secretary Donovan. --to be able to find an alternative.
    And so, that is a case where prioritization of preservation 
made sense because of the specifics of that situation in a 
rural area.
    The Chairman. I appreciate that. I am going to turn it over 
to the gentlewoman from West Virginia, and she correctly 
pointed out the differences in urban and rural areas. And that 
is a very important point. Vouchers in some of those rural 
areas where the only multifamily housing or the only 
appropriate housing for a limited-income renter is there, that 
puts a higher priority on that preservation, because a voucher 
might just be useless.
    The gentlewoman from West Virginia?
    Mrs. Capito. Thank you, Mr. Chairman.
    And I want to thank the Secretary, in his opening 
statements, for recognizing, and in his comments, the need for 
the flexibility. Because I think that was the aim in my 
previous aim for the elderly, to give the flexibility in the 
rural areas. And the example that you cited in Iowa happens all 
across America. I am sure you are well aware of that.
    This kind of bleeds in, my question, one of my questions, 
into part of what you were talking about with the chairman. 
During several of our previous hearings in the 110th Congress, 
witnesses testified, owners of affordable housing, that they 
are sort of frustrated with HUD's inability to promulgate 
meaningful regulations and inconsistently applied regulations; 
and, in some cases, those who are choosing to opt out of the 
program at their mortgage maturity date, due to basically HUD 
fatigue.
    And I wanted to know, what steps does the Department intend 
to take--and you sort of mentioned a few of these--to give 
these owners and their financial partners the certainty and the 
confidence that they can move forward and see improvements in 
these areas where they found deficiencies?
    Secretary Donovan. Well, first of all, I want to 
acknowledge that I think that is an extremely important point 
and that, having worked at HUD for many years, the issue of HUD 
fatigue, not for me personally but--
    Mrs. Capito. I hope not.
    Secretary Donovan. --for owners, is a real issue.
    I think, first of all, I would say that we have made 
significant progress in the first few months with the single 
most difficult issue over the last few years, which has been 
the problem of very short-term, often 3-month contract 
extensions that have driven owners, frankly, crazy, and has led 
to a significant increase at least to threats to opt out and to 
the kind of HUD fatigue that you are talking about. So that is 
one example.
    I talked about a couple other examples in my testimony 
where what owners need from HUD is a reliable, predictable 
partner. So part of this is making sure, whether it is when 
they are going to do a renovation, that we can in advance of 
that beginning say, ``Well, if you do these certain kinds of 
work on your property, this is the rent that we would be 
willing to offer you,'' so that they can understand whether the 
transaction will work or not before they embark on the long 
process of renovation. That is one example, the ability for 
longer-term contracts.
    And, frankly, a broader kind of flexibility and 
deregulatory approach that I think is very important. This is 
something that I worked on earlier in my time at HUD, for 
example, with Mark-Up-To-Market. We often have restrictions on 
profits or very onerous regulatory restrictions that, frankly, 
I think are no longer appropriate given the advances that we 
have made in the way that our subsidy programs work.
    So I think there is a broader agenda that we have begun to 
take on, but that this bill would help to further in many ways, 
and that there are also many things we can do administratively, 
as well.
    Mrs. Capito. Okay.
    I wanted to touch on another topic. You mentioned in your 
comments that you reached the critical decision--or will be 
reaching the critical decision with some of these properties--
of whether it is better to move forward with preservation or 
whether it is better to demolish and start over or look at 
other options because of the age of the property.
    And my understanding, in this bill there is no green 
element or green building--we just went through Mr. 
Perlmutter's bill; we had a couple of hearings on that. And I 
think this is a philosophy that is going to become a larger 
part of our building, both public and private.
    What kind of vision do you have for that in housing 
preservation? Is it something you have thought of, or are there 
discussions going forward?
    Secretary Donovan. I am very glad you raised that point 
because I think it is important.
    First of all, we have an enormous opportunity, with the 
recovery bill, to green this stock very broadly. There was $250 
million available in the recovery bill for the assisted housing 
stock. We already have 400 applications for that $250 million, 
so we are vastly oversubscribed for the funding that we have.
    We have taken steps, working with the Department of Energy, 
to allow multifamily properties across the country to be 
automatically eligible for weatherization funds. Previously, 
you literally had to go tenant by tenant to qualify buildings 
even though the Federal Government already knows the incomes of 
those tenants through whether it is the Section 8 Program or--
so I signed an MOU with Secretary Chu to make all of those 
properties automatically eligible. And there is $5 billion of 
weatherization funds. We have been working with States to make 
sure that money can be available to green this stock.
    Fundamentally, the principle here is that this is an 
enormous opportunity, as we preserve properties, when 
renovation gets done, not just to improve the living conditions 
of those residents but to save taxpayers and residents money by 
doing the commonsense things that will pay for themselves 
through lower utility bills over time.
    So we have done an extensive amount of outreach and effort. 
And I think that is exactly the kind of thing, as I talked 
about further refinements to the bill and the conversations we 
are now having with congressional staff, this is a perfect 
opportunity to think about this bill as an opportunity for that 
kind of that work.
    Including, not just at the building level, but also from 
the community level. As I said, to look to prioritize 
properties that are already sustainable in the sense that they 
have low transportation costs, they are accessible to transit, 
or in rural areas to other kinds of options for seniors, etc., 
that would allow them to have a better quality of life and 
lower expenses on transportation.
    Mrs. Capito. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    The Chairman. The gentlewoman from California?
    Ms. Waters. Thank you very much, Mr. Chairman.
    Mr. Secretary, it is good to see you again. I appreciate 
all of the work that you are doing, And I appreciate your 
challenges. But we are very inspired by your energy and your 
concern and your experience.
    I have two things I would like to just mention before I ask 
the question that I prepared for you.
    One is that we have been working all evening to try and get 
$50 million to $100 million for retrofitting for public housing 
in the American Clean Energy and Security Act. And as I talked 
with my staff, in addition to this and the work we are doing 
with Mr. Perlmutter for a grant program, we think perhaps you 
ought to have your own green bill. So I would like to talk with 
you and, of course, our chairman about that at some point.
    The other thing is I am really concerned about these 
housing authorities that are running out of Section 8 money. We 
have been visited by people from New Jersey, and I think the 
latest one was Oregon, where the vouchers are no good. I am 
worried about people becoming homeless.
    Are you aware of this, and what are you doing about it?
    Secretary Donovan. I am glad you raised that, Madam 
Chairwoman. This is an issue that we are looking at carefully. 
My Assistant Secretary for Public Housing just joined us this 
week on the job. This is the first thing I put on her agenda to 
look at. We are just getting fuller first-quarter data from 
across the country, from every one of our housing authorities. 
And we are looking at this issue today.
    What we have seen, from the preliminary analysis of that, 
is that voucher utilization stayed roughly constant in the 
first quarter. So it doesn't appear that there has been a 
significant decline over the first few months of the year. But 
we have heard the same concerns that you have in particular 
areas.
    We do have some funding that is available for emergency 
situations that we can look at. But I also want to make sure 
that we can come back to you and report that we have adequate 
funding overall for the year and that we can take care of these 
situations. And I would expect within the next couple of weeks 
to be able to report back to you on that.
    Ms. Waters. Thank you very much.
    And congratulations on Ms. Mercedes Marquez. You stole her 
from us in Los Angeles, but that is all right. It was a good 
steal. And not only can she help Los Angeles, she can help 
everybody in the country.
    Secretary Donovan. Well, she has made it through the 
committee. I am hopeful that she will be on the job shortly if 
the Senate does vote to confirm her.
    Ms. Waters. Thank you very much.
    Now, as I see it, in your written testimony, you did not 
address the issue of national right of first purchase. Section 
103 of the draft being prepared by the committee includes 
language that would provide opportunities for owners of 
affordable housing to sell the property to nonprofits who would 
commit to affordability. Such a provision would have been 
helpful to tenants who were fighting for the preservation of 
Starrett City, where I first met you, when I had the hearing up 
there.
    What is HUD's position on the right of first purchase?
    Secretary Donovan. I want to say two things about this.
    I have--and it is interesting you mentioned Starrett City. 
We had a very extensive process in New York City, when I was 
there, to attempt to establish a right of first purchase. And I 
think it is instructive for what is in this bill.
    First of all, the legal issues around this are very 
complex. There are both constitutional issues and often State-
level issues in terms of modification or contravening existing 
contracts. And I think it is very, very important that, as this 
bill is considered, those issues be looked into very carefully.
    What happened in New York was that, frankly, my agency and 
I personally warned the city council that we thought the 
direction that we were going would have serious legal issues. 
And, in fact, they passed the bill, and there was a lawsuit, 
and there were 2 years of confusion that followed and, frankly, 
disruption in preservation, followed by a court decision that 
struck down the original bill.
    And so I think it is very important that the committee look 
seriously at the legal issues surrounding this type of 
provision. So that is the first thing.
    The second thing I would say is that, from my experience, 
having completed more than a dozen tenant-sponsored purchases 
of these kinds of properties in New York and being a strong 
supporter of tenant involvement, is that, frankly, I don't feel 
that this is the most important tool in terms of allowing 
tenants to be successful in ensuring their properties are 
preserved.
    From my experience, even where there is a right of 
purchase, the most significant barriers to successful 
preservation are information, which I think this bill would go 
a long way to providing. I think that is an important thing, 
making sure residents have information and are armed with 
knowing what is going on through early notices.
    Second of all, that oftentimes technical assistance in 
understanding the financial challenges; and then, third, the 
funding resources to be actually able to preserve a property 
are the critical ingredients.
    And I think those carrots, if you will, are the more 
important place to focus rather than the sticks. Because I 
think I do have concerns, as I said originally, that there are 
some significant legal issues with this that could end up, 
frankly, standing in the way of preservation if it is not 
crafted very, very carefully.
    Ms. Waters. Thank you very much. And being that 
preservation is a top priority of the chairman, I think we 
would benefit from his experience and help in getting it done 
and doing it right.
    Thank you very much.
    The Chairman. I completely agree.
    The gentleman from Texas, Mr. Neugebauer?
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Mr. Secretary, congratulations. And I am down here at the 
end.
    You know, one of the things--I like some of the things you 
are saying, and one of the things that I hear you say is you 
are a numbers man, and I am too. I am in business, so you have 
to be a numbers person if you are going to survive. But 
sometimes people just look at a certain set of numbers and 
don't look at the big picture.
    And I think, in this preservation issue, we have to be very 
careful about that, because sometimes somebody says, well, we 
can rehab these units for ``X'' and then--opposed to, you know, 
if we build new units or have other options that we look at. In 
many cases, for example, that may not be the most cost-
effective option, because, in some cases, the condition of that 
property, while you may rehab it some, it may continue to be 
outdated as far as from a maintenance and energy efficiency 
standpoint and those kinds of things.
    But one of the things we experienced--we went down to New 
Orleans, for example. And we talk about tenant involvement, and 
we talk about looking at the numbers to rehab. And one of the 
things we found was that we went down there to a unit that had 
been rehabbed and an extraordinary amount of money was spent on 
that property but, in the end, nobody wanted to live there. And 
they spent money on a monthly basis maintaining those units, to 
keep them fresh. They had to run air conditioners to keep out 
mildew. And the opposition to that was that the tenants group 
were given a voice there, and they said, ``No, we want to keep 
what we have, so we want you to rehab this unit.''
    The alternative was there were people who were willing to 
come in and do a mixed-use project there, blending low-income, 
and moderate-income, but people resisted that.
    So I think what we have to be very careful here, as we go 
down the road, I hear people who want to move to tenant-owned 
and nonprofit-owned, but, quite honestly, we are dealing with 
limited resources at the Federal level. Now, we need 
everybody's capital at the table. In many cases, as you know, 
some of the nonprofits don't have a lot of capital, and so that 
puts a lot more pressure on the Federal Government to provide 
more of the assistance. In Texas, for example, we have done a 
lot of tax credit projects there, and they have worked out very 
effectively.
    So what I would hope is that, as we move down the road--and 
if you are, indeed, a numbers person--that, when you begin to 
look at that, we look at all of the conditions affecting 
housing. I have been in the housing business for nearly 40 
years, and cost is just one of the variables. We have to look 
at all of the variables.
    But this concern I have is, if we start sending a signal 
that, one, we are going to mitigate the rights of owners, they 
are not going to want to continue in these types of projects. 
And, two, we are going to send the signal to people thinking 
about being our partners in the private sector, ``You have to 
beware because your rights get mitigated.''
    Can you kind of help me with your philosophy on that?
    Secretary Donovan. Well, having worked, as I said earlier, 
in the private sector, as well as a lender, also a developer, 
as well as in the public sector, I do think it is important, 
first of all, to recognize that we have made enormous progress 
in our housing policy by developing strong public-private 
partnerships.
    And I do feel strongly that there is a balance that needs 
to be struck between incentives--we talked earlier about, sort 
of, the heavy hand of regulation that HUD has often had and 
that we need to look at ways to make dealing with HUD and 
participating in these programs simpler and more like the 
private sector.
    Having said that, I would also add that I do think, in 
general, having looked pretty carefully at the numbers, that--
and I acknowledged earlier that there are cases where 
preservation doesn't make sense because of the extent of the 
rehab costs or other situations--in general, preservation is a 
more cost-effective approach, when you consider all the long-
term costs, than losing that housing as affordable housing and 
having no other alternatives, particularly because, for this 
stock that we are talking about, enhanced vouchers are the 
alternative, and they can often be significantly more expensive 
than the property as it is today.
    So while I agree with you that we need to look at the cases 
very specifically, broadly speaking, preservation has shown to 
be a more cost-effective approach than either the enhanced 
vouchers or the new construction.
    Mr. Neugebauer. One of the questions that is a follow-up to 
that, sometimes, though, those locations are not conducive for 
just whatever reason: the neighborhood has changed, the 
demographics have changed. And there seems to be this 
resistance that, if we have to build better housing in a 
different location, that somehow we are harming the residents 
there.
    You know, I think at some point in time we have to say, you 
know, well, sometimes it is time to move on, and that 
strangling us to a specific location sometimes is not in the 
best interest. And so I think the question is, would you be 
willing to, at some point in time, say, you know, it is just in 
our best interest here to move on?
    Secretary Donovan. Well, in fact, in our budget proposal 
this year, we have proposed that this form of housing that we 
are talking about, assisted housing, be eligible for the kind 
of assistance that HOPE VI has provided to redevelop in 
situations where creating mixed-income and, frankly, paying 
attention to broader issues around school reform, making sure 
that we have what I would call a sustainable community there, 
is very important.
    So I would agree that there are absolutely situations where 
assisted housing needs more than just, you know, a $20,000 
renovation to be long-term successful.
    Ms. Waters. [presiding] Mr. Watt?
    Mr. Watt. Thank you, Madam Chairwoman.
    And welcome, Mr. Secretary.
    I am about to violate a cardinal rule that I have, which is 
asking a question about something that I haven't fully 
researched myself and fully understand. But we have you here as 
a captive audience, and I just got the letter from my local 
Winston-Salem Housing Authority describing a problem that they 
are having. I haven't had a chance to really digest it, but I 
am hoping that you can help me solve the problem, if not today, 
at least allow me to describe it as best I can.
    The summary I have just is an e-mail from one of my staff 
people who is working on this. It says, ``Based on the Winston-
Salem Housing Authority's current housing assistant payment 
expenses to landlords and the enormous reduction in calendar 
year 2009 housing assistance payment funding, as evidenced in 
the funding letter from HUD, we anticipate having a $3.5 
million shortfall by December 31, 2009. We are taking all 
appropriate measures to reduce our spending, but most will not 
result in an immediate reduction. Therefore, we anticipate 
being out of funds by August or having to terminate 1,000 to 
1,200 low-income voucher participants in August for the rest of 
the year.''
    As I understand it, this came about as a result of the way 
expenses were being reported. HUD divided the reporting fields 
into two separate ways of reporting, and some housing 
authorities that tried to adopt this new process of reporting 
overstated in one category and understated in another category. 
The total amount would have been the same as if they had 
reported them all together. But then HUD decided it would use 
only one of the categories, the one that they understated, to 
base their numbers on.
    Now, I may be off in the way I have described this, so let 
me shut up, and maybe you can help me understand what the 
problem is and whether there is some way that we may be able to 
fix this so that we don't--I mean, the bottom line is we can't 
afford to have a bunch of people not have vouchers, especially 
in Winston-Salem, North Carolina, which has been hit very hard 
by the loss of banking and the loss of textiles and has a 
severe spike in unemployment and has increased demand for these 
vouchers.
    Secretary Donovan. Yes. First of all, I would say, my staff 
is here. I would love to get the letter and the information 
from you immediately after the hearing so that we could look at 
the details of that.
    What I can say broadly is that--and we talked a little bit 
about this earlier with the chairwoman. We have a couple issues 
that happened this year in the omnibus appropriations bill for 
the voucher program.
    First of all, there was a $750 million rescission taken 
from the reserve balances of housing authorities around the 
country. Those reserves had sort of acted as a buffer against 
the kind of situations that you are talking about.
    Second of all, because the bill was passed so far into the 
fiscal year, it has allowed housing authorities very little 
planning time compared to a typical year to be able to manage 
to their budgets.
    So I do have a particular concern. And, as I mentioned 
earlier, as my new Assistant Secretary for Public Housing 
started this week, this is the very first issue I asked her to 
take a look at, to make sure we understand exactly where the 
numbers are.
    We do have some funds that housing authorities could come 
in and apply for. We are also looking at whether there are 
other measures we might take for specific housing authorities 
that are in the kind of situations that you are talking about. 
So we should follow up and look at that.
    I would agree, we don't want to lose anywhere in the 
country 1,000 or 1,200 vouchers.
    Mr. Watt. I am told that this may be a problem that 
transcends just Winston-Salem. And, unfortunately, I was trying 
to read and understand it. I heard you talking about this with 
Chairwoman Waters, but I didn't realize that you were talking 
about the exact same issue that I was trying to read rapidly 
and understand.
    So, if I can just have your commitment to try to work with 
us to solve this problem, that would be wonderful.
    Secretary Donovan. Absolutely.
    Mr. Watt. Thank you, Madam Chairwoman.
    Ms. Waters. Thank you very much.
    Mr. Castle?
    Mr. Castle. Thank you, Madam Chairwoman.
    This question is going to be very general, I am sure, Mr. 
Secretary, but can you tell us how today's economy is impacting 
all these programs that you are dealing with?
    And by that I assume that the demand for this housing has 
increased as a result of the economic problems that we have. I 
assume that the cities and the States who have helped support 
some of these programs are probably not contributing as they 
have before. And I am not sure what is happening with respect 
to the conversion to private sales and that kind of thing.
    But I would have to assume that if the economy was as it 
was 2 years ago, things would be different than they are today. 
And I wonder if you can give us any input on that from your 
point of view.
    Secretary Donovan. I would say two things.
    First of all, the importance of this housing has been 
magnified by the current economic crisis. In general, assisted 
housing serves not just low-income but extremely-low-income 
families. On average, we are talking about incomes below the 
poverty line, in most cases, for residents of assisted housing 
where there is deeper subsidy, like project-based Section 8. We 
are also talking about housing in the case of many of the 
mortgage programs, where it makes housing available to families 
who are in the range of up to 80 percent of median income. So 
it is both extremely-low-income as well as low- and to some 
degree, moderate-income families who have been affected, 
obviously, or have these units available, and the economic 
crisis has hit those families particularly hard.
    The other thing I think that would maybe be a less obvious 
impact but that also makes this bill particularly important at 
this moment is that what we had seen over the last few years 
was an asset bubble not just in single-family housing, not just 
in a whole set of other kinds of investments, but in this kind 
of stock as well. Particularly in certain markets, the prices 
paid per unit for these types of properties increased 
dramatically, and there were many owners looking to the 
opportunity to convert these properties to condominiums, to a 
range of other types of options.
    The credit crisis has had the effect of driving down the 
prices for these kind of properties. And I think if--I am an 
optimist, myself; I try to look at the opportunities we have in 
a crisis like this--I think if the committee can move quickly 
and we can put in place some of the tools that are in this 
bill, I think there is an opportunity at a very low cost to the 
taxpayer to preserve long-term these kind of assets for 
affordable housing in a targeted way.
    So I think that there is, right now, a good opportunity 
where good, long-term preservation owners could come in and be 
able to purchase these properties at prices that are very cost-
effective, particularly compared to where they were a couple of 
years ago, and get a lot of preservation done in the next few 
years. That was certainly the strategy we were taking when I 
left my local job, and I think it is something that at the 
Federal level is an important lesson, as well.
    Mr. Castle. So, along the same lines, with the budget 
situation that we have today--and I understand the Recovery Act 
stimulus type dollars have gone into all this--but what other 
sources are available to help with the expiring mortgages and 
the potential loss of affordable housing units? And, again, are 
cities and States of any help in all this to what you are 
doing?
    Secretary Donovan. Well, there has really been a growing 
awareness over the last decade of the importance of 
preservation of this stock. And today, low-income housing tax 
credits, which was mentioned earlier, are generally thought of 
as a new production tool. Today, roughly 50 percent of the 
units that are funded by tax credits are preservation units, 
rather than new construction.
    So there has been a growing set of resources dedicated by 
State governments. A majority of States now have preservation 
set-asides in their tax credit allocation plans. And there are 
lots of other local resources that are available.
    The only other thing I would say is that I think if we get 
the right kind of work done around energy efficiency, there is 
an enormous opportunity to get private capital moving into 
these properties, because ultimately what we have is long-term 
savings. If you add, say, $5,000 to the scope of work for an 
apartment that does a set of low-cost, smart, energy-efficiency 
items, you can save far more than $5,000 over time from those 
renovations.
    The problem is, how do you convert that funding into 
capital today? And private mortgage financing, often with FHA 
insurance or other tools, can be a great way to try to get 
private capital in to help to drive this preservation, rather 
than using subsidy dollars.
    Mr. Castle. Thank you.
    The Chairman. Mrs. McCarthy?
    Mrs. McCarthy of New York. Thank you, Madam Chairwoman.
    And thank you, Secretary. There are two questions that I 
want to ask.
    One has to do with reverse mortgages, especially in this 
economical time. A lot of my elderly residents are thinking 
about doing this because they have lost their money, whatever 
money they had, obviously, in their savings accounts and 
retirement plans. Right now, reverse mortgages are extremely 
expensive, and the value of the house, obviously, has gone 
down.
    The second question would be mixed housing. You know, going 
way back, probably in the 1950's, there was a lot more mixed 
housing. We had higher-, middle- and lower-income families who 
were living in the same apartment units in some communities. We 
are seeing that, for Long Island, especially, where there is a 
shortage of even rentals, it is extremely hard, but we are 
seeing also that certain projects are going in, as far as for 
retirement for wealthy seniors. They are beautiful condos, but 
I, myself, wouldn't even have been able to afford to go into 
this.
    What are we going to do as far as spurring mixed housing, 
where you have the lower-income, middle-income, and higher-
income working together, which I personally feel is very good 
for the lower-income families? They get good housing. The other 
incomes from the other two groups can help subsidize those in 
that housing. And I was just wondering if there was anything in 
the plan on that.
    Just going back, because I left this bit out, are we going 
to have regulations on the reverse mortgages to allow for a lot 
of reverse mortgages? And if you could explain the program a 
little bit better.
    Secretary Donovan. FHA, which is part of HUD, is the single 
most important source of mortgage insurance for the reverse 
mortgage program. And in our budget next year, we have actually 
requested an appropriation to allow us to continue to make 
reverse mortgages available at a significant scale without any 
changes in premiums or other loan terms.
    And there has been some discussion with the appropriations 
committees about whether we should make some changes to the 
program that would eliminate that need for appropriations. Our 
initial concern was exactly as you say, that during these 
difficult times the reverse mortgage has become an even more 
important tool for seniors to be able to continue to meet needs 
for medical expenses and other key needs that they have. And so 
our choice in our budget was to keep the fees and the terms of 
the mortgage the same, rather than making them more onerous, in 
order to be able to maintain the program next year because we 
are the single most important source.
    The other thing I think is important to mention is that 
there have been some concerns recently about fraud within the 
reverse mortgage program. That has generally been around the 
non-FHA forms of reverse mortgages. But it is something that we 
are taking very seriously and looking to increase funding next 
year for our fraud efforts so that we can ensure that seniors 
are safe when they get these kind of mortgages.
    Mrs. McCarthy of New York. I would like to work with on you 
that because I think the issues of fraud, especially for the 
seniors, is extremely important and if there is anything we can 
do here, I would like to work with on you that legislation.
    Secretary Donovan. Absolutely.
    Mrs. McCarthy of New York. Mixed housing.
    Secretary Donovan. Yes. So, from my experience as a local 
housing official, while there are certain things that we can do 
at the Federal level, much of the issue has been local 
regulatory barriers that stand in the way of producing that 
kind of housing, zoning codes, a range of other things. And I 
think it is very important that the Federal Government is never 
going to take over that function, nor should we. Those are 
local decisions.
    What we can do, however, is support local decisionmaking 
that would create incentives and opportunity for the kind of 
mixed housing that you talked about. This was something that I 
worked on very closely at the local level, where we created, 
for example, inclusionary zoning, that would give bonuses in 
density for development that included a mix of housing.
    Another example is we provided reductions in property tax 
rates for properties that included a mix of different rental 
levels within those properties. So the issue has been often 
that not only has HUD not supported the kind of information and 
best practices around what is being done nationally, but in 
fact many of our regulations and other things have stood in the 
way of that kind of development, whether it be our 
environmental restrictions or other things that can be overly 
restrictive.
    So I think there is a lot that we can do, and we have a 
proposal in our 2010 budget, the Sustainable Communities 
Initiative, that would go to support those kind of efforts.
    The Chairman. The gentleman from Florida, Mr. Posey.
    Mr. Posey. Thank you very much, Mr. Chairman. I have three 
or four questions, friendly questions. And I appreciate the 
greatest possible economy of words so we can work through all 
four of them.
    When the housing bubble burst, how did the lower demand for 
property not in your affordable housing segment affect the 
supply? Your supply?
    Secretary Donovan. There are different situations in 
different markets, but in general it increased the demand for 
the kind of housing that we are talking about. A little known 
fact is that 40 percent of those displaced by foreclosures in 
the country, about 40 percent--we don't have precise numbers--
are renters. And so there was a significant increase, both in 
renters looking for units, as well as former homeowners looking 
for rental units, particularly at the affordable levels that 
this stock provides.
    Mr. Posey. Good explanation. Did many people move up when 
the thing burst and there became some short sales? You know, 
maybe some bargains on the market? Were people able to take 
advantage of that?
    Secretary Donovan. What this has provided is an 
opportunity, particularly for first-time home buyers, to be 
able to purchase a home. In fact, the recent numbers are that 
roughly half of all purchasers have been first-time purchasers. 
They have been assisted by the $8,000 tax credit that was in 
the recovery bill and that we have assisted as well by 
providing FHA lending guidance to all of our lenders of how 
they can monetize that tax credit in the purchase of a home by 
a first-time buyer. So that has been an important, that sort of 
getting into the market as a first-time buyer is an important 
part of stimulating demand again.
    Mr. Posey. And you think that component was successful?
    Secretary Donovan. I think it has been successful, yes.
    Mr. Posey. You played a key role in implementing the Multi-
Family Assisted Housing Reform and Affordability Act, MAHRA, 
and provided for the renewal of project-based Section 8 
contracts at market rents with the goal to preserve the Section 
8 portfolio. Do you know, or can you provide an estimate of how 
many units have been converted to market since the 
implementation?
    Secretary Donovan. How many have been converted to market?
    Mr. Posey. Yes.
    Secretary Donovan. I don't--what I can tell you is that 
since the implementation of that program, we have seen a 
significant decline in the number of properties that have gone 
to market. It is down from, and I have the exact numbers here 
somewhere, from about 200 properties in the year 2000 to, I 
think, less than 50 in the most recent year.
    I also think one thing that is very important in this 
discussion about the cost effectiveness of preservation, the 
Mark-to-Market Program, while preserving tens of thousands of 
units of housing long term, has also saved billions of dollars 
in reductions in costs in the Section 8, Project-Based Section 
8 Program. So I think it is an important example of the way 
smart preservation can both preserve affordable housing and 
save taxpayer dollars at the same time.
    Mr. Posey. Good explanation. Thank you.
    Part of the bill when it talks about limitations to I guess 
the new financing, it says that the Secretary may exercise the 
authority to treat projects as eligible multi-family housing 
projects pursuant to the subsection only to the extent that the 
number of units in such projects do not exceed 10 percent of 
all units for which mortgage restructuring pursuant to section 
517 is completed. I wonder if you could explain that. It is on 
page 109 of the proposed bill. Explain that for us a little 
bit, and maybe help us understand the 10 percent as a good 
value.
    Secretary Donovan. So in the Mark-to-Market Program, there 
are certain properties in particular markets where the typical 
rent limits have been difficult to achieve, and that can be for 
a number of reasons; it happens to be on a street or in a 
particular condition that is just different from the overall 
neighborhood. It may be that it is a particularly important 
senior housing resource that has a set of services or other 
amenities available that is very different from surrounding 
properties.
    I have seen this, one of the very early Section 8 
properties I worked on was in Dodge City, Kansas, and was the 
most important senior housing resource in all of Dodge City. 
And so those exception rents are necessary in those kind of 
cases where you have an unusual property that doesn't meet the 
typical rules. And that, the limitation that is in the 
legislation has restricted in some cases being able to preserve 
those kind of properties without more exception rents.
    The Chairman. Mr. Secretary, we are going to get you out of 
Dodge, but you will still be in Kansas. The gentleman from 
Kansas, Mr. Moore.
    Mr. Moore of Kansas. Mr. Secretary, as we consider the 
draft legislation from Chairman Frank, I appreciate the point 
that if the government does not preserve and improve affordable 
housing that have been produced through successful public-
private partnerships, we stand to lose billions of taxpayer 
dollars from our prior investments.
    On that point, Mr. Secretary, how would Chairman Franks' 
draft legislation protect prior taxpayer investments in 
affordable housing?
    Secretary Donovan. I think it goes a long way to helping us 
with increased authority and flexibility to do that. In 
general, and I talked about this briefly earlier, in general, 
the costs of preserving these properties relative to the cost 
of enhanced vouchers, the cost of replacement housing, has 
typically been less than half when you compare it to the loss 
of these properties and Mark-Up-To-Market or whatever other 
alternatives there are. So, in general, it is an important 
component.
    And I just want to mention specifically, I found the 
numbers I was looking for earlier, and this is an example to go 
to your point. With the Mark-to-Market Program and other 
efforts, decoupling and other things that have been put in 
place, the number of opt-outs has decreased from 288 properties 
in 2000 down to 44 in 2008. And so I think that does 
demonstrate that it can be cost-effective to preserve 
properties relative to the alternatives.
    Mr. Moore of Kansas. Thank you, sir. As the Oversight and 
Investigation Subcommittee Chair, I am looking for potential 
areas of waste, fraud, and abuse. Just last week, our 
subcommittee heard testimony from HUD's Inspector General to 
hear his thoughts on how we can strengthen oversight of FHA and 
HUD programs.
    With regard to waste, fraud, and abuse, Mr. Secretary, do 
you agree the draft legislation proposed by Chairman Frank does 
protect and guard against potential misuse of taxpayer dollars?
    Secretary Donovan. I do. I think there are a number of 
provisions that are important. And overall, I think we have 
made some strides, but there is farther that we can go. Over 
the last few years, there has been an increase in the use of 
automated systems. I know this from my own work at the local 
level, to really look at tenant income levels and a range of 
other things in a more automated way, which both reduces the 
costs of the program, but also allows us to ensure that truly 
low-income people who need this resource are being benefited. 
And that has led to a real reduction in the overpayments that 
we do on the behalf of the Federal Government in these 
programs. And I think this bill would allow us to go farther in 
some of those efforts.
    Mr. Moore of Kansas. Thank you, Mr. Secretary. Mr. 
Chairman, I yield back.
    The Chairman. The gentleman from California, Mr. Miller.
    Mr. Miller of California. Thank you, Mr. Chairman.
    You talked about the pressure on the rental market. And a 
lot of that is due to banks having to foreclose on properties, 
people are being put out, some of those properties were used 
for rental properties. In my area of southern California, 
probably about 76 percent of the homes on the market are 
distressed properties, in L.A. County about 58 percent. I think 
Orange County is 45 percent.
    And the chairman has been working really well with me on a 
bill I introduced, H.R. 2529, that allows banks, when they 
foreclose on these properties, to lease them for up to 5 years, 
and that resolves many of the problems banks have today. They 
are forcing properties on the marketplace, thereby driving the 
value of homes down farther, distressing neighborhoods. And 
plus, the mark-to-market situation these banks are placed in, 
they have no choice but to do this and regulators are forcing 
them basically to do this. If we can accomplish this, it then 
takes a nonperforming asset on the part of a bank, it is a 
performing asset on the rental market. Plus I think it will 
relieve a lot of pressure that we are facing on the rental 
market. And the chairman has agreed to put this on the Consent 
Calendar, to go right to the Floor.
    Our side is reviewing it now and I hope we can enact this 
rapidly, and I think that will relieve a lot of this pressure 
we are facing on the marketplace.
    But last time we were here, I was teasing a little bit and 
we were joking back and forth, but I talked to you about 
downpayment assistance, seller funded. And you said that you 
believe that downpayment assistance is an effective tool if it 
is done right. I have introduced a bill with my colleagues, Al 
Green and Maxine Waters, and we have all been very patient 
working on this for quite a few years, trying to resolve this, 
dealing with equity, dealing with the fact that the appraisals 
have to be done properly and that there is equity in the unit 
once people buy it. And you said you would review that.
    Have you had an opportunity to do that?
    Secretary Donovan. We have begun reviewing it. We have been 
in touch with Congressman Green's office.
    Mr. Miller of California. Good. I am glad that he has been 
bugging you on this.
    Secretary Donovan. I am hopeful that my FHA Commissioner 
will be in place shortly. Looking at the time, there was a 
10:30 vote in the committee and I am hopeful that he will be in 
place. What I have communicated to Congressman Green's staff is 
what I would like to do is, as soon as my FHA Commissioner is 
on board, to then set up a meeting with your offices to be able 
to discuss the legislation. I want to make sure that I have 
real leadership in place around FHA to be able to look at the 
bill and make sure that we can get back to you.
    Mr. Miller of California. Well, my friends Mr. Green and 
Ms. Waters and I, we have tried real hard to make sure that DP 
is a gift, not a loan, defining that within the bill, that it 
creates immediate equity, which I know was a concern on your 
part before, that it ensures that it is a true gift in the 
bill, and the civil monetary penalties would go against any 
appraiser who inflated it in any fashion, because that was a 
concern of ours, too.
    And you were right in bringing that issue up because that 
was a huge concern for us that the question of equity was 
resolved. The question of stability and safety and soundness 
were dealt with in this.
    But I think the thing we are looking at is DPA is a private 
sector program. It doesn't cost the taxpayers anything, which 
is good. The bill, the language, deals with higher underwriting 
standards, which I know was a concern for you that we made sure 
the standards were appropriate, that language was in there that 
it was an absolute gift, could never be repaid in the bill. And 
the DPA basically, anybody who participated had to have 
homeowner counseling. And we have dealt with all of that.
    But I think there is a situation in the marketplace today, 
as you are aware, that people have lost homes. People would 
like to buy homes. We have done a lot to the tax codes that 
help people with downpayment. But there is another option here 
that is available to people. And I think that we need to look 
at that opportunity. I think we need to, and hopefully we have 
done this in legislation the way we have drafted the bill, to 
provide safety and soundness, that you can look at this program 
and say it is a good, viable program. There is a way to enforce 
it. There is a way to make sure that the appraisals are done 
properly.
    And one thing that I have a problem with, we have done 
recently in HVCC that I think you are aware of, we have taken 
the right away from a mortgage broker or a Realtor to do an 
appraisal on a piece of property, and thereby placed that 
opportunity with many different lenders and see who can provide 
the homeowner the best opportunity and the best deal. And we 
are seeing in the press reports recently a problem associated 
with this, especially when you are just allowing the bank to do 
an appraisal. Many times in this distressed marketplace, you 
will have an appraisal that is done by an outside appraiser who 
does not understand the marketplace in and of itself, and they 
are basing appraisals on distressed properties.
    Have you looked into that in any fashion?
    Secretary Donovan. We have heard this concern in a number 
of places. We have, frankly, limited control over the broader 
appraisal industry, but we have been looking at it relative to 
FHA.
    Mr. Miller of California. But we have limited the overall 
appraisal industry and made it specific to just a lender. And 
lenders, I am not saying lenders are bad, but many times a 
lender will use an appraiser that is not associated with a 
given area; it is just a group that they use. And my concern is 
that we are coming up with appraisals that are not valid based 
on a given justified area and we are coming up with an 
appraisal that takes into consideration too many of these 
properties that are just distressed.
    Secretary Donovan. I do think that certainly is an issue 
that we are aware of. The broader issue, as we have seen it, is 
the number of distressed properties that are coming on the 
market driving those appraisals down. And I do I think there 
were recent numbers just released on existing home sales. And 
the numbers were actually relatively positive compared to what 
we have seen in prior life. Specifically, distressed sales 
dropped from about half of sales to roughly one-third. So 
hopefully that can help to deal with some of the appraisal 
problems.
    Mr. Miller of California. Thank you.
    The Chairman. The gentleman from Georgia.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Secretary, welcome. I would like to try to get three 
questions in, if I may. The first one is this. We have an 
abundance of seniors and other people with disabilities who are 
finding it more difficult to find adequate housing.
    Mr. Secretary, we have another group coming on us with a 
great deal of disability, what we would call a new disability 
population emerging, and that is our veterans who are coming 
back, especially from the war in Iraq, with the downsizing and 
drawback over there. And these veterans have sustained 
traumatic brain injuries, a new deal, which many health 
professionals are describing as a distinct injury within the 
Iraq war. And as more and more of our troops are coming home 
and trying to acclimate back to their communities, we, as a 
government, must ensure that they have homes to come back to 
and provide that assistance.
    As you remember, in the campaign there was a great deal of 
debate. One of our candidates pointed out we have veterans 
sleeping under the viaducts and all over. Well, I can tell you 
that to a degree, some of that is true. We have to put a new 
focus on helping these troops, understanding the nature of this 
brain trauma and understanding that they are disabled.
    I would like to ask what can we do to ensure that they are 
being taken care of? And what specifically can you do, as 
Secretary of HUD, to make sure they are dealt with?
    Secretary Donovan. Thank you for raising this issue because 
it is an enormously important issue, and it is one that has 
been an important focus in my first few months on the job. 
First of all, one of the most hopeful opportunities that we 
have is that Senator Murray and our Appropriations Committee 
has provided to us now 2 years in a row Section 8 vouchers 
specifically targeted at veterans at risk of homelessness. And 
that program, called VASH, just last week, I believe, we 
allocated an additional 10,000 of those vouchers to communities 
around the country. That is on top of 10,000 we had originally 
allocated the year before, and of which about 71 percent have 
now been authorized for use by veterans around the country. So 
that is one important step.
    We also have a pilot that we have started, and this will be 
an immediate focus. I just became chairman of the Interagency 
Council on Homelessness, and we agreed at our first meeting 
that this would be an area of focus for us to go beyond these 
two initial efforts to help further.
    Mr. Scott. Well, that is excellent, and I just want to 
extend my willingness to work with you. I have set up a hotline 
in my office because we have a serious problem down there to 
work with on you that. And I would certainly like to work with 
you.
    My second question has to do with, I represent 32 cities 
and towns in 7 counties in and around the Atlanta metro area, 
and I continue to hear complaints from the housing authorities 
in many of these towns that I represent that they are having 
difficulty in being reimbursed for the money that they must put 
forward when a recipient uses a Section 8 voucher in their city 
rather than in the city where it was originally issued. They 
tell me that the originating cities are not being forthcoming 
in sending reimbursements.
    Has the Department, has HUD been made aware of this 
problem? And if it has, what steps has HUD taken, or can it 
take to remedy the situation?
    Secretary Donovan. This is the problem that we call 
portability. An important feature of the voucher is to be able 
to follow a job, follow a family, whatever it might be, to be 
able to use that voucher in other jurisdictions, and this has 
been an ongoing problem. There are some changes that we can and 
are making to help this, but the fundamental issue is a funding 
issue and is a legislative issue. And we have been working 
closely with the authorizing committees, including this one, 
around the Section 8 Voucher Reform Act. There was a hearing on 
it the other day, and this is one of the issues that would be 
solved by that bill.
    Mr. Scott. Excellent. Let me see if I can squeeze in my 
last question.
    HOPE VI, the HOPE VI Program is a jewel, especially in the 
Atlanta area. It is a great program, I think you know, run by 
our good friend, Renee Glover. It is very successful and has 
facilitated deconcentration of poverty, it has integrated 
extremely-low-income families into the mainstream. It has 
leveraged tax dollars.
    However, I do understand that this initiative has not been 
without some challenges, and I want to keep it going and let it 
be successful. But it is also important to mention that HOPE VI 
has led to a lot of solutions that are far better than any 
other option available to us and has been immeasurably more 
effective than maintaining the status quo.
    I would like for you to elaborate just briefly on the main 
challenges you see with this program, as well as the concerns 
about the Moving to Work Program.
    Secretary Donovan. Very briefly, I do believe that, in 
general, the HOPE VI Program has been quite successful. There 
are issues that we have seen around replacement housing and 
adequate replacement housing that have been issues in some 
areas, costs of the program in some areas, but broadly 
speaking, it has been a success, so much so that we are 
proposing in our budget to more than double the funding 
available for this kind of comprehensive redevelopment and, as 
I mentioned earlier, to expand the ability to include assisted 
housing as well as public housing in these kinds of efforts. In 
addition to that, to link it up more closely with school reform 
because I think where it hasn't succeeded as well as it should, 
it hasn't been as integrated into other kinds of community 
revitalization such as schools as it should be.
    Mr. Scott. Thank you very much.
    The Chairman. The gentlewoman from Illinois.
    Mrs. Biggert. Thank you, Mr. Chairman.
    Thank you for being here, Mr. Secretary. I just have a 
couple of questions. When we are looking at the aging baby 
boomer population, we worrying, I think, about an affordable 
housing crisis for the elderly. But my concern, I am wondering 
what has happened to the Moving to Work Program? I know that 
the last Administration and some legislation had talked about 
expansion of that program. And I was, the reason I am concerned 
was because one of my housing authority groups was really very 
interested in being a part of that and we can't--there doesn't 
seem to be much data on it. Is that still a viable program that 
is going to be expanded? Or what is the status of it?
    Secretary Donovan. The Moving to Work Program has been an 
issue in terms of potential expansion or changes in the Section 
8 Voucher Reform Act that I just mentioned. In general, what I 
would say is that our sense is that the program has provided 
increased flexibility that has been positive in general. We do 
have concerns, first of all, that there has not been the kind 
of rigorous evaluation of the program that would be most 
helpful in terms of understanding exactly what those benefits 
are.
    This has been a broader issue with HUD frankly, and I am 
very committed to expanding our research and evaluation 
efforts, and I think it is important that the bill, should it 
move forward, includes that.
    The other issue is really around tenant protections and 
ensuring that the kind of innovation and flexibility that is 
provided ensures that we continue to serve the people who need 
it most, and to ensure that they are protected. And, in fact, 
beyond just protected, have the kind of incentives for work and 
other things that are important in terms of self-sufficiency in 
there.
    So I think those are both issues that I have talked about 
previously in testimony and that we are hopeful will be 
included in the Section 8 Voucher Reform Act.
    Mrs. Biggert. Do you think that that would be something 
that would help as far as the affordable housing, if we have 
people moving on then you are going to have the housing stock 
will be available? Do you have any data on that, how many 
people?
    Secretary Donovan. We have limited data available about the 
impacts of the flexibility that has been provided. I do think 
we have seen some examples of innovative approaches in Seattle 
and in King County and other places, but unfortunately, we 
don't have the kind of comprehensive data that we would need to 
be able to say exactly how the program is performing.
    Mrs. Biggert. What are some of the other programs then that 
you see will really address the needs of the elderly 
population?
    Secretary Donovan. A couple of things I would say on that 
front. I believe that we have a real opportunity to provide 
more effective solutions for the aging baby boomer generation 
by allowing them to stay in their homes, rather than have to 
move to more institutional settings that are not only against 
what they would choose, but also, frankly, more expensive for 
the taxpayer in terms of the cost of those options. So we are 
looking at a range of ways within our programs, whether it be 
the 202 program, which is specifically for low-income seniors, 
examining the tax credit programs, our service coordinators. 
There is a range of ways that we could help to provide seniors 
the kind of support that they need where they currently live in 
their communities, rather than forcing them to move to more 
institutional settings, more expensive settings outside of 
their communities.
    Mrs. Biggert. Then just one other question, which really is 
kind of off the topic, but I think that I asked you at the last 
meeting. I just wondered if there has been any progress about 
getting RESPA and TELA together? What is the timetable for 
RESPA and coordinating with TELA for the rulemaking?
    Secretary Donovan. There is a short-term answer to that and 
a long-term answer to that, which Chairman Frank knows very 
well. First of all, we have begun a working group with the 
Federal Reserve to try to better coordinate RESPA and TELA. I 
have spoken with Chairman Bernanke about that, and his staff is 
working actively now with my staff to try to do that.
    In the longer run, we have proposed as part of our 
regulatory reform proposal that we create a single, more 
thoughtful, and effective consumer protection agency, and that 
is something, obviously, Chairman Frank has been working very 
closely on that. Part of the proposal is that both RESPA and 
TELA enforcement would move to that new agency and be enforced 
in a completely integrated way by a single agency, rather than 
in the kind of divided fashion that it is now across multiple 
regulators.
    Mrs. Biggert. This isn't the Consumer Protection Agency 
that we are talking about, or is it?
    Secretary Donovan. Absolutely.
    Mrs. Biggert. All right. Thank you. I yield back.
    The Chairman. I thank the gentlewoman. You know, there are 
conflicts in the government that sometimes are difficult to 
deal with because of jurisdictions, but this committee has 
jurisdiction over both RESPA and TELA, so if we can't get that 
resolved we are culpable, and we are determined to deal with 
that. It is in different subcommittees but it is in the same 
full committee.
    The gentleman from Texas.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Secretary, I was very pleased to hear your comments 
about the veteran population. As you know, we have about 
130,000 to 150,000, depending on who is counting, sleeping on 
the streets of life nightly. About 300,000 will annually find 
themselves in and off the streets of life with a homeless 
problem, homelessness problem.
    We also would like to call to your attention that we have 
passed legislation called the Home for Heroes from this 
committee; we are honored to have the Housing Subcommittee 
Chair be of great assistance with this piece of legislation, as 
well as the Chair. It passed 417-2. And it has gone to the 
Senate. It provides for a holistic approach to dealing with 
homelessness among the veterans. It allows us to have a person 
in HUD, and I am hoping that this will give you the flexibility 
that you seek, a person within HUD whose responsibility it is 
to monitor homelessness among veterans and to report to 
Congress, give us a report as to the status of the progress 
that is being made or the lack thereof.
    The bill also deals with the HUD-VASH program that you 
called to our attention, providing about 20,000 more of these 
vouchers. Hopefully that will give you additional flexibility 
as well.
    Many of the veterans, as you know, are persons who suffer 
from substance abuse. It provides counseling and helps various 
agencies, NGOs that deal with these issues, by giving them 
grants so that they can help us to facilitate moving veterans 
from homelessness to jobs and housing.
    I would like to, if I may, pass on the actual bill to you. 
I am sure you can pull it up quite easily but it is something 
that I would invite you to take a look at because I think it 
goes a long way toward helping us with homelessness among the 
veterans.
    I also would like to mention very briefly to you the seller 
assisted downpayment bill. What we are proposing now is very 
much unlike what was in place before. It recognizes that 
empirical evidence suggests that those who have FICO scores 
greater than 679 perform at the same level as those persons who 
receive downpayment assistance from relatives or from some 
entity of the government, for example. But it also recognizes 
that those who have FICO scores below 679 may not, and as a 
result there is risk-based pricing for them such that we don't 
end up having to subsidize the program. The program continues 
to pay for itself by virtue of the additional premiums that are 
paid and by virtue of the additional downpayment that is 
required. I think that a close look at this will give you a 
greater opportunity to better understand.
    I am going to ask unanimous consent that I be allowed to 
just pass on to you a summary of what we propose such that when 
we do have this opportunity to visit you will have had an 
opportunity to peruse this summary.
    Mr. Chairman, with your consent and permission, and by 
unanimous consent, I would like to present this to the 
Secretary.
    The Chairman. Without objection, it will be made part of 
the record. As far as presenting it to the Secretary, he is on 
his own. But I can make it part of the record.
    Mr. Green. Thank you. I will make it part of the record, 
and I will pass one on to you.
    Secretary Donovan. Let the record state that I will accept 
the letter.
    Mr. Green. Thank you, Mr. Secretary. And in closing, I do 
have to say this: Chairwoman Waters and Chairman Frank have 
really been a great benefit on these two pieces of legislation. 
This is something that we have been working on for quite a bit 
of time, and I believe that these are pieces of legislation 
that can help us without creating the type of cost that we 
sometimes have to endure when we bring new legislation on-line. 
The Seller Assisted Down Payment Program works.
    Now, finally, I want to share this with you. A friend of 
mine, B.B. King, has a song--and I am speaking now for the 
tenants--titled, ``Everybody Wants to Know Why I Sing the 
Blues.'' And in that song, one verse reads, ``I've laid in a 
ghetto flat, cold and numb, I heard the rats tell the bed bugs 
to give the roaches some.'' And then he goes on to say, ``I 
stood in line down at the County Hall. I heard a man say `We're 
gonna build some new apartments for y'all.' And everybody wanna 
know why I'm singing the blues.''
    Now I mention this to you because many people blame tenants 
for wanting to stay where they are in living conditions that 
are less than acceptable. Well, tenants have had promises made 
that haven't been kept, and tenants have good sense. They know 
that before they agree to have something demolished that they 
can get in the future, they ought to try to hold on to what 
they have now. So many of them are willing to live in 
conditions that are less than what you and I might live in, but 
they do so because they are afraid that if it is demolished 
they won't get something new.
    Example, in New Orleans one-for-one replacement was 
promised. So far that promise has not been kept, and I have 
persons who can validate what I say. So we have tenants in New 
Orleans who were a little bit disenchanted, who didn't want to 
leave what they had, but it was only because they know that 
promises made are not always promises kept. And everybody wants 
to know why they sing the blues. Because we don't always keep 
our promises.
    Thank you.
    Secretary Donovan. Well said.
    The Chairman. The gentleman from Missouri.
    Mr. Cleaver. Mr. Secretary, the Temptations have a song 
called--
    Thank you, Mr. Chairman. Mr. Secretary, thank you for being 
here. And my comments won't be quite as colorful as my long 
time friend, the judge, which also were profound.
    Before I get into the 108 program, I am sorry, the Section 
8 Program, I want to talk about the 108 program, if you could, 
because it could have some impact. I am wondering whether or 
not you and your staff are looking at the 108 loan program, and 
whether or not there is a need for updating it.
    I was the Mayor of Kansas City and we were the first City 
to use the 108 loan program. We built a downtown hotel. And 
things have changed since those days. At first we didn't have 
to use the CDBG fund to guarantee the loan, or the general 
fund, which I guess is happening in a lot of cities. In light 
of what is going on with the banking industry and the fact that 
there are a lot of urban developments that won't get started 
now because of what banks are doing, do you think there is any 
need to take a serious look at updating the 108 loan fund so 
that it is contemporary with the issues we are confronting?
    Secretary Donovan. In fact, I do, and we have a proposal in 
our 2010 Budget that would change the way the 108 program works 
to basically make it self-financing rather than dependent on 
specific appropriations. Our concern has been that the demand 
is often particularly, as you said, with the credit crisis, 
could exceed the availability of those appropriations. And so 
we also think that now we have enough of a track record in the 
lending in the 108 program and a very limited loss rate in that 
program that we could establish, the way we do with many of our 
other loan programs, a credit subsidy rate and have it be self-
financing going forward.
    Mr. Cleaver. Like a revolving loan fund?
    Secretary Donovan. Not necessarily revolving, but that it 
would no longer require the appropriations and the CDBG offsets 
the way it has. So we would be happy to share more information 
with you on that.
    Mr. Cleaver. Yes, I am very much interested in that 
program. I think it was one of the best programs to come along 
from HUD in terms of saving the cities. I am sure there may be 
some who would argue with that, but I have arguments to counter 
it.
    If we can go to the Section 8 Program, we are going to 
lose, in the next few years almost, there is a possibility we 
could lose almost one million 108 certificates or the housing 
that is now currently being available, the contracts will 
expire. I am not sure the exact number, but I think it is near 
close to one million.
    Secretary Donovan. Close to a million, yes.
    Mr. Cleaver. And so we are going, I am assuming that you 
are going, your staff will be directed to begin to work with 
all of the owners to see what can be done to get them to agree 
to another contract.
    But one of the things that I would ask you to consider, and 
if it is not feasible I would like to hear your comments, and 
that is in Kansas City we are doing something called a Green 
Impact Zone. We are doing 150 blocks with a smart grid and the 
whole 9 yards.
    Secretary Donovan. I heard about it.
    Mr. Cleaver. So what I am wondering, we have lost about 
2,000 housing units over the last 10 years. They are gone. The 
City eventually demolished them because they were considered 
dangerous buildings, and so they are gone. And there are also 
many empty properties there. Is it feasible that as we lose 
these or as we have to deal with about a million units needing 
new contracts that we can acquire in the urban cores dangerous 
buildings, do some rehab like we are doing with money from the 
stimulus anyway, and create additional housing with housing 
that would otherwise be demolished? I am concerned about 
sustainability and also recycling.
    Secretary Donovan. In fact, in this bill there are 
provisions that would allow HUD to move existing Section 8 
contracts to other properties. And this is something actually I 
pursued personally at a local level, and I would love to have 
some more discussions with the committee about the flexibility 
that would be needed to do the kind of innovative things that 
you are talking about, to ensure that this can actually work, 
because the current way that this is structured, in current 
law, is fairly cumbersome to use. It has been difficult, given 
all realities of how real estate works, to make that provision 
financial, to move Section 8 units, to be able to preserve 
them, even if it is in a different property. And I think even 
with what is in the bill, some added flexibility to that would 
be useful to make it really effective.
    Mr. Cleaver. I would really like to spend time with--
    The Chairman. Let my invite my colleague to work with the 
staff of the committee and the subcommittee on that and help be 
part of that process and, you know, I am always glad to have 
members who have a particular interest in a particular 
provision. So we would be glad to have you and your staff work 
on that.
    The gentleman from Indiana.
    Mr. Carson. Thank you, Mr. Chairman. I am grateful for your 
advocacy on this issue.
    I have a question, Mr. Secretary. The chairman's inclusion 
of a national preservation database in this bill is essential 
to empowering tenants and advocates. Do you see any advantage 
in expanding the notification requirements in the bill to 
require HUD to proactively reach out to congressional offices, 
local tenant protection groups, legal services, and community 
improvement groups when a multi-family housing property owner 
notifies your Agency that it intends to terminate affordable 
restrictions?
    Secretary Donovan. First of all, I worked on this very 
directly when I was at HUD the first time. I think that that 
notification and providing as much information as possible to 
residents is very, very important. In fact when I was at HUD 
the first time, we increased the amount of disclosure that we 
would do, provided information to residents posted in offices, 
so expanded that. I do believe that is important.
    Two things I would say about that. First of all, and this 
applies to the database as well, there are certain types of 
information that are protected, and we have to be careful, and 
we would like to work with the committee on ensuring that 
protections of competitive information, certain financial 
information that we are clear what legal protections they are. 
Short of those, I think releasing the more information the 
better.
    The second thing I would say is that one risk is that if we 
require so early in the process that there be notifications, 
what can happen is that owners, to preserve their options, will 
make those notifications, and that will have the effect, even 
if there are no specific plans to opt out of the property, to 
cause undue concern and fear on behalf of residents. And so 
there are some provisions, for example, that would require in 
the bill a 2-year notification rather than a 1-year 
notification. I think we need to look carefully and discuss 
what is the most appropriate time for that information. It has 
to be early enough so the tenants can get together if they want 
to purchase the property, if they want to work with a nonprofit 
group or other purchasers, they have time to do that 
effectively to preserve their property. On the other hand, we 
don't want to do it so early so that we are unnecessarily 
frightening residents when in fact the owner may not have any 
concrete plans at that point in terms of what they are doing 
with the property. So there is some balance that we have to 
strike. My belief is to ensure that we are providing the right 
information to residents, but not unduly concerning them, when 
in fact the owners haven't made a decision at that point.
    Mr. Carson. Thank you, Mr. Secretary. I yield back, Mr. 
Chairman.
    The Chairman. I will take advantage of that to say I am 
glad you made that last point because there is balance, and we 
don't want to force premature and maybe unnecessary decisions. 
And I will say this, in an atmosphere in which we have the 
right legislation and in a cooperative Administration, the need 
for that notice may be even less than it was. The notice is 
there and it is very important that in an adversarial 
situation, but in a cooperative situation, we don't have to, I 
think, rely as much on that.
    Mr. Secretary, this has been very useful. It has been a 
wholly constructive exchange of information, which means it 
will attract absolutely no attention in the media, but it will 
advance legislation. And I am confident, listening to people on 
all sides here, that we will have a comprehensive preservation 
bill with your great help ready to go by the end of the year. 
And I will say I have spoken to my colleagues in the Senate. I 
know Senator Reed, Senator Jack Reed, who does housing, and 
others, Senator Schumer, of course, is well aware of the 
importance of this from his own State. So I am pretty 
optimistic we will have a very good piece of legislation 
available for signature before the end of the year.
    The hearing is adjourned.
    [Whereupon, at 11:50 a.m., the hearing was adjourned.]


                            A P P E N D I X



                             June 25, 2009

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