[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

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             July 15, 2009

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-59





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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
           Subcommittee on Housing and Community Opportunity

                 MAXINE WATERS, California, Chairwoman

NYDIA M. VELAZQUEZ, New York         SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
EMANUEL CLEAVER, Missouri            THADDEUS G. McCOTTER, Michigan
AL GREEN, Texas                      JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              GARY G. MILLER, California
KEITH ELLISON, Minnesota             RANDY NEUGEBAUER, Texas
JOE DONNELLY, Indiana                WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
PAUL E. KANJORSKI, Pennsylvania      ADAM PUTNAM, Florida
LUIS V. GUTIERREZ, Illinois          KENNY MARCHANT, Texas
STEVE DRIEHAUS, Ohio                 LYNN JENKINS, Kansas
MARY JO KILROY, Ohio                 CHRISTOPHER LEE, New York
JIM HIMES, Connecticut
DAN MAFFEI, New York


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 15, 2009................................................     1
Appendix:
    July 15, 2009................................................    23

                               WITNESSES
                        Wednesday, July 15, 2009

Alitz, Katie, Vice President, The Council for Affordable and 
  Rural Housing..................................................    18
Halliday, Toby, Vice President for Public Policy, National 
  Housing Trust, on behalf of The National Preservation Working 
  Group..........................................................    10
Isbitz, Allan, President, National Leased Housing Association 
  (NLHA).........................................................    13
Leung, Ricky, Treasurer, National Alliance of HUD Tenants........    15
Mehreteab, Ghebre Selassie, Chief Executive Officer, The National 
  Housing Partnership Foundation.................................    12
Metherell, Sarah, Vice President, Institute for Responsible 
  Housing Preservation...........................................    21
Myer, Joe, Board Member, National Rural Housing Coalition........    16
O'Donnell, Vincent F., President, Citizens' Housing and Planning 
  Association....................................................    19
Trevino, Tammye, Administrator, Rural Housing Service (RHS), U.S. 
  Department of Agriculture (USDA)...............................     5

                                APPENDIX

Prepared statements:
    Alitz, Katie.................................................    24
    Halliday, Toby...............................................    29
    Isbitz, Allan................................................    40
    Leung, Ricky.................................................    45
    Mehreteab, Ghebre Selassie...................................    58
    Metherell, Sarah.............................................    63
    Myer, Joe....................................................    69
    O'Donnell, Vincent F.........................................    76
    Trevino, Tammye..............................................    85

              Additional Material Submitted for the Record

Waters, Hon. Maxine:
    Written statement of the American Association of Homes and 
      Services for the Aging (AAHSA).............................    93
    Written statement of the Housing Assistance Council (HAC)....    99
    Letter from the Institute of Real Estate Management, the 
      National Affordable Housing Management Association, the 
      National Apartment Association, the National Association of 
      Home Builders, and the National Multi Housing Council, 
      dated July 14, 2009........................................   104
    Written statement of the National Affordable Housing 
      Management Association (NAHMA).............................   107
    Written statement of the National Low Income Housing 
      Coalition..................................................   125


                   LEGISLATIVE OPTIONS FOR PRESERVING


                     FEDERALLY- AND STATE-ASSISTED

                   AFFORDABLE HOUSING AND PREVENTING

                      DISPLACEMENT OF LOW-INCOME,


                     ELDERLY, AND DISABLED TENANTS

                              ----------                              


                        Wednesday, July 15, 2009

             U.S. House of Representatives,
                        Subcommittee on Housing and
                             Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:15 p.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the subcommittee] presiding.
    Members present: Representatives Waters, Cleaver, Green, 
Clay, Ellison; Capito, and Jenkins.
    Also present: Representative Castle.
    Chairwoman Waters. This hearing of the Subcommittee on 
Housing and Community Opportunity will come to order. But 
before we start with any opening statements from our witnesses, 
one of our members wanted very much to be here today to 
introduce someone who is very important to him and his work and 
his community, and I would like to ask the Honorable Michael 
Castle to please go ahead and make your introduction.
    Mr. Castle. Thank you very much, Madam Chairwoman. And let 
me also thank you for this hearing. Although I cannot be here 
for the hearing, I think it is a very important subject, and I 
am glad that you are delving into it.
    I would like to thank you for the opportunity of 
introducing a witness in the next panel, Joe Myer, who serves 
as a board member of the National Rural Housing Coalition and 
the past president of the Coalition. Joe and I have worked 
together for many, many years now.
    In addition to his duties on behalf of the Coalition, Joe 
Myer serves as executive director of NCALL, the National 
Council on Agricultural Life and Labor, which is a nonprofit 
located in my home State of Delaware that specializes in 
affordable housing development, education, and lending. Mr. 
Myer worked in the nonprofit housing development for 37 years. 
He helped found NCALL in 1976 and went on to become NCALL's 
executive director in 1981.
    During this time, NCALL has reached 6,500 first-time home 
buyer mortgage closings in Delaware, has been particularly 
responsive with their foreclosure prevention counseling 
service, and has achieved an exemplary rating as a chartered 
NeighborWorks America organization as a top 10 affordable 
housing producer nationwide within the network.
    NCALL has also provided development assistance for 45 
affordable apartment communities serving rural families, 
elderly, and farm workers throughout the Delmarva Peninsula.
    Mr. Myer is the founding president and current board member 
of the Delaware Housing Coalition. He has received the Housing 
Ambassador Award from Delaware, NADO, the National Association 
of Housing and Community Development Officials, and also served 
on the Governor's Council on Housing as well as the Delaware 
Housing Trust Fund Study Commission.
    Prior to his work with NCALL, Mr. Myer worked for Freedom 
Village, Inc., as a Church of the Brethren volunteer and Delta 
Housing Development Corporation in the Mississippi Delta.
    He received his Bachelor's in business administration from 
Elizabethtown College and his master's degree in business 
administration from Delaware State University.
    Mr. Myer clearly brings a great deal of experience to the 
table, and the committee should look forward to his testimony 
today.
    And if I could ask him just to stand for a moment after all 
that fancy introduction, this is Joe Myer, ladies and 
gentlemen.
    [applause]
    Mr. Castle. I yield back, Madam Chairwoman. Thank you very 
much for the privilege.
    Chairwoman Waters. Thank you very much. And I would like to 
note that without objection, Representative Castle will be 
considered a member of the subcommittee for the duration of the 
hearing even though he cannot stay. Thank you very much.
    Good afternoon ladies and gentlemen. I would like to thank 
our ranking member, Shelley Moore Capito, and the other members 
of the Subcommittee on Housing and Community Opportunity for 
joining me for our second hearing on legislative options for 
preserving federally- and State-assisted affordable housing and 
preventing displacement of low-income, elderly, and disabled 
tenants.
    At our first hearing, we were joined by HUD Secretary Shaun 
Donovan who testified about the need for this legislation and 
its importance in preserving federally-assisted housing and 
protecting the residents of that housing.
    At this hearing, we will hear from Rural Housing Service 
Administrator Tammye Trevino about the preservation issues 
facing rural America. We will also hear from residents of 
assisted housing, housing developers, housing advocates, and 
others.
    From 1995 to 2003, our Nation lost 300,000 subsidized 
affordable apartments through conversion to market-rate housing 
or physical deterioration. Over the next 5 years, contracts on 
more than 900,000 project-based Section 8 units will expire. 
Moreover, the Affordable Housing Incentive Programs, like 
Section 236 and Section 221D, are essentially a thing of the 
past and 200,000 units in these programs are at risk of 
conversion to market rate over the next 10 years.
    Once these units leave the affordable housing stock, they 
are not replaced. In fact, according to the study by the Joint 
Center for Housing Studies, for every new affordable housing 
unit constructed, two affordable units are lost. The loss of 
these units negatively impacts communities and residents, many 
of whom represent our most vulnerable populations. According to 
HUD, 50 percent of people in federally-subsidized housing are 
elderly or disabled. In addition, about 77,000 veterans depend 
on this critical housing resource.
    The Federal Government's continued commitment to the 
preservation of subsidized affordable housing takes on more 
importance in light of the decrease in the number of non-
subsidized affordable units. According to a recent HUD study, 
from 2005 to 2007, the number of units that are affordable to 
households at or below 50 percent of area median income fell by 
7 percent for a loss of over 1.5 million units. During this 
time period, the number of units that are affordable to 
households with incomes of over 100 percent of area median 
income increased by 34 percent.
    Preservation not only makes sense for residents and 
communities, it should also make economic sense for owners and 
developers, because it is significantly more cost-efficient to 
preserve existing housing than to build new housing. It costs 
approximately 40 percent less to preserve an existing unit than 
to construct a new one.
    In addition, it is far more energy-efficient to preserve 
existing housing; renovating an existing building produces less 
construction waste, uses fewer new materials, and requires less 
energy than demolition and new construction.
    The bill before us today would ensure that preservation of 
affordable housing becomes a reality by providing all tenants 
of federally-assisted properties with enhanced vouchers, 
converting rent supplement and rental assistance program 
properties into project base Section 8, providing a first right 
of purchase to tenants of assisted properties, preserving 
State-financed affordable housing, and preserving rural housing 
and housing for the elderly.
    I look forward to hearing from our witnesses on this much-
needed legislation. And now I would like to recognize Ranking 
Member Capito for her opening statement.
    Mrs. Capito. Thank you. I would like to thank the 
chairwoman and thank our witnesses for the hearing today. I 
would like to also welcome Rural Housing Service Administrator 
Trevino. She paid a visit to my office, I certainly appreciate 
that, and I look forward to your first appearance here at the 
subcommittee.
    One area I would like to discuss--and we talked about this 
earlier--is the effect of a recent change to the Section 538 
Program is having on development and rehabilitation of 
affordable multi-family housing in rural communities.
    The stimulus legislation from earlier this year 
fundamentally changed this program in no longer allowing 
developers to use the interest credit subsidy in tandem with 
the loan guarantee. I have significant concerns as this will 
lead to fewer units being developed in rural areas.
    I also have some concerns about changes in this legislation 
for owners of subsidized housing units, which may cause them to 
leave the program after a property sale or mortgage prepayment. 
Private owners of multi-family housing units are essential to 
the supply of affordable housing and legislation should 
encourage their participation in the government program. HUD 
programs to incent owners to maintain affordable housing units 
have preserved over 3,500 projects with about 300,000 units. 
Those programs could be undermined by this legislation because 
it requires a 24-hour--excuse me, a 24-month notice before a 
sale, imposes a formula on the owner for determining the sales 
price, forces the owner to sell properties on less than 
favorable terms, and creates a new private right of action for 
the tenant.
    It is my hope that we can work together on ways to make the 
housing benefits provided by these programs a temporary stop 
for individuals. I think we can all agree that the goal of many 
of these programs is to provide families and individuals with a 
stable home so that they can focus on improving their skills to 
become self-sufficient.
    I know that extensive work has been done on this draft 
legislation, and I look forward to working with the chairwoman 
and the witnesses on many of these provisions.
    I yield back. Thank you.
    Chairwoman Waters. Mr. Cleaver is recognized for 3 minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman. This is a serious 
issue that we absolutely must address, and we must address it 
now. I left office as mayor of Kansas City in 1999. There has 
not been one single unit of affordable housing constructed 
since that time.
    The problem is exacerbated by the fact that we now have 
legions of men and women who have lost houses due to 
foreclosure in the urban core. So as we are thinking about 
affordable housing, I think one of the things that we must 
focus on is preserving the affordable housing units we 
currently have because of the decimation of the urban core. 
These houses need to be in some kind of condition that might be 
attractive to developers or builders.
    I am hopeful that we can reverse this negative trend. And 
it is chilling when I think that we could possibly lose almost 
a million units of affordable housing over the next 5 years. So 
I think a great emphasis, and I hope we can get into this after 
your comments, but a great emphasis needs to be placed, I 
think, on trying to preserve every single affordable unit we 
have presently, particularly in the urban core.
    I look forward to talking with you. I yield back the 
balance of my time, Madam Chairwoman.
    Ms. Waters. Thank you very much. Mr. Green for 3 minutes?
    Mr. Green. Thank you, Madam Chairwoman. And I thank all of 
the witnesses for appearing. I would echo what has been said 
thus far. I am concerned about the possibility of losing 
900,000 units. I am very much concerned that the process of 
construction appears not to be sufficient such that we can 
maintain. Construction alone will probably see us losing 
ground. It is important that we not lose ground, especially in 
areas where we are talking about those who are disabled and 
those who are seniors.
    This country is unlike many other places in the world 
because of the way it treats people in the twilight of life. We 
do not just allow people to live on the streets in the twilight 
of life.
    I look forward to hearing from the witnesses so as to get 
some intelligence in terms of how they perceive we should 
proceed to do what we have always done, not nearly to the 
extent we should have done, but that is to take care of those 
in the twilight of life and are disabled.
    I yield back.
    Ms. Waters. Thank you very much. Our first witness will be 
Ms. Tammye Trevino, Administrator, Rural Housing Service. I 
would like to thank you for appearing before the subcommittee 
today. And without objection, your written statement will be 
made a part of the record. You will now be recognized for a 5-
minute summary of your testimony.

   STATEMENT OF TAMMYE TREVINO, ADMINISTRATOR, RURAL HOUSING 
      SERVICE (RHS), U.S. DEPARTMENT OF AGRICULTURE (USDA)

    Ms. Trevino. Thank you, Chairwoman Waters, Ranking Member 
Capito, and members of the subcommittee. Thank you for the 
opportunity to appear before you to discuss multi-family 
housing preservation in rural America.
    I would like to thank all those involved with this 
legislation, both in this session of Congress and in previous 
years, for their hard work.
    I am pleased to testify before you today and I look forward 
to working with you and the committee to further the 
preservation agenda.
    At USDA, we advocate a strong national housing policy that 
both supports the American dream of homeownership and provides 
affordable rental opportunities. We are greatly encouraged by 
the committee's focus on legislation that will create national 
housing preservation standards for all government agencies that 
specialize in housing assistance, especially in rural 
communities.
    During this recess and the foreclosure crisis, RHS-assisted 
multi-family housing facilities have served as a critical 
resource for some of our most vulnerable rural residents who 
would otherwise lack proper housing alternatives.
    Unfortunately, the foreclosure rates of our RHS-assisted 
multi-family properties have remained variably unchanged when 
compared to rates of previous years. As multi-family housing 
facilities age and deteriorate, it is vital that we work 
together everyday in every way to preserve these units for the 
most vulnerable in our communities.
    The benefits of focusing on preserving the existing housing 
portfolio rather than on building additional units are clear: 
It is less expensive, roughly a third to a quarter of the cost 
of new construction. It can be accomplished faster with the 
site and acquisition issues already resolved. It presents many 
opportunities to upgrade energy conservation systems and it 
minimizes the NIMBY effect since most communities welcome an 
upgrade to existing rental properties in their neighborhoods.
    We are still studying the proposed legislation and may have 
questions regarding the implementation of certain aspects. 
However, the legislation appears to give the Agency a number of 
revitalization tools that would provide cost-effective 
preservation options for the existing multi-family rental 
housing portfolio.
    We look forward to working with the committee to ensure 
that these tools provide the best possible mechanisms to 
support the revitalization efforts. Currently, our 
revitalization program is authorized only as a demonstration 
program, not in permanent authorization legislation. This makes 
it difficult for the Agency to promulgate permanent program 
regulations and to address long-term issues, including the 
length of vouchers.
    Further, we must determine the resources needed to 
accomplish the goals we established, and we will develop those 
estimates during the budget formulation process. But, 
specifically, we need to examine what types and amounts of 
resources will be needed to work with a larger portfolio level 
of transactions to assure quality assurance, and to provide for 
consistent processing throughout the country.
    The proposed legislation contains voucher authority that 
will provide protection for tenants against rent increases or 
relocation as a result of prepayment or foreclosure, as does 
the current Rule Development Demonstration Voucher Program.
    The early results of a restructuring demonstration are 
extremely encouraging. When the initial application window 
closed on April 17, 2006, approximately 4,000 Section 515 
property owners applied for debt restructuring. This represents 
25 percent of the total portfolio. In the 3 full years of 
implementation as a demonstration program, USDA has obligated 
over 300 transactions that will improve the housing conditions 
of 10,000 tenants. These results indicate a tremendous interest 
among the ownership community in seeking a resolution to the 
revitalization challenge. Our goal is to reach 1,000 
preservation transactions processed each year.
    Madam Chairwoman, I was born, raised, and have lived most 
of my life in rural communities. For 25 years, I worked and 
advocated for the development of rural communities. I 
understand the challenges that rural communities face. I know 
the struggles that many families in rural America see everyday. 
I feel thrilled and humbled by the opportunity that I have been 
given by President Obama to provide housing development on a 
national level. And I am committed to helping the President and 
this committee and our private and public partners, along with 
Secretary Vilsack in creating a lasting foundation in rural 
housing in the heart of rural America everyday in every way.
    Thank you for allowing me to address the committee. I am 
available to answer your questions now or at any time in the 
future.
    [The prepared statement of Ms. Trevino can be found on page 
85 of the appendix.]
    Chairwoman Waters. Thank you very, very much. We are very 
appreciative for your presence today. I would like to begin by 
trying to get a little bit better understanding of the ability 
to assist those residents who are in units that are at risk of 
a conversion to market rate. USDA's 2004 report entitled, ``The 
Comprehensive Property Assessment Portfolio, An Analysis of 
Rule Rental Housing'' said that 10 percent of rural housing 
units are at risk of conversion to market rate. In what ways 
will this bill ensure that those units remain as affordable 
housing?
    Ms. Trevino. It will provide us with the funding that is 
necessary to do the Section 515 Program and to do preservation 
of a portion of that 10 percent. As I said, our goal, in order 
to meet the need that is spelled out in that CPA report, I 
believe that we should be doing about 1,000 transactions on a 
yearly basis.
    Chairwoman Waters. All right. Let me just raise one more 
question with you about Section 515 that you just alluded to, 
the Rural Loan Guarantee Program. One of the criticisms of the 
Section 515 Rural Loan Guarantee Program is that most of the 
loans have been provided to for-profit developments, not to 
nonprofit developers. In what ways will this bill increase the 
participation of nonprofit rural housing developers in this 
program?
    Ms. Trevino. I do not see that the bill distinguishes 
between private development and nonprofit development. That may 
be an issue that you may want to take up. I know that some 
nonprofit developers have problems with initial advance costs 
to try to do a deal but in terms of this legislation, I do not 
believe there is a factor, at least for the rule development 
portion. I may be wrong.
    Chairwoman Waters. All right, thank you very much.
    Mrs. Capito. Yes, thank you for your testimony. I would 
like to ask just a couple of questions. I am going to go right 
to the Section 538 question, since I raised that in my opening 
statement. Do you have a comment about the inability of the 
developers to use the interest credit subsidy in tandem with 
the loan guarantee, and what kind of impact do you think that 
this has had on these developers in the 538 program?
    Ms. Trevino. I have seen 538 developments with and without 
interest credit that work. We do not know what the implications 
are going to be. Certainly, the interest credit subsidy has 
been a very popular option in allowing these deals to go 
forward.
    So in terms of the impact and what it is going to do, I 
think it is a little early to find out. We know that 
statutorily it has been left out through the appropriations, 
and so we are not sure what is going to happen. I believe that 
it is a good tool, but obviously we are going to implement 
whatever is in the appropriations bill.
    Mrs. Capito. Well, you know that I am interested in 
restating that as an incentive to developers to create housing. 
I would like to ask what is the breakdown, you said you have 
seen in the 538 program, there are those who have used the 
interest credit subsidy and those who have not, do you have any 
idea how that breaks down percentage wise?
    Ms. Trevino. No, I don't. I could not give you those 
numbers. I am speaking from experience--
    Mrs. Capito. Right.
    Ms. Trevino. --just in Texas.
    Mrs. Capito. Right. In your statement and in your letters 
you mentioned, I got the sense that you envisioned some changes 
of some of the provisions of the bill that might be more 
helpful to you in your revitalization and in our revitalization 
efforts. Can you say what types of changes you would make to 
this bill and are there provisions that would make your job 
harder or easier? And what specific additional tools would be 
helpful to you to further the goal of affordable rural housing 
preservation?
    Ms. Trevino. Currently, I would like to address one 
particular program and that is the Section 514 and 516 that 
provides for farm labor housing. We believe that portion of the 
portfolio in rural developments is an important component. I 
would be very interested in working with the committee to try 
to determine the types of resources that would be needed to 
address that need.
    Mrs. Capito. Other than that, you do not see any real 
stumbling blocks in this bill to move forward with your 
programs, to simplify them, to keep the public/private 
partnerships active and to reach the ultimate goal, which is 
preserving not only housing units but also the upgrade of a lot 
of the housing units?
    Ms. Trevino. I believe that we are going to have a few 
concerns when it comes to how we implement the voucher, but, 
again, we are willing to work with whatever the committee 
proposes and try to figure out what the best mechanisms are in 
terms of what is available under tools in the bill.
    Mrs. Capito. Okay, and can you tell me what the physical 
state of the existing 515 portfolio is? I am curious to know 
how many of those units are in need of repair? How do they 
break out? I know you cannot give me an exact number, but how 
many of those are in need of repair percentage wise so I can 
get a perspective on that?
    Ms. Trevino. I can only tell you that the CPA report stated 
that about 80 percent would need rehabilitation in the next 6 
to 7 years.
    Mrs. Capito. That is a large percent.
    Ms. Trevino. It is.
    Mrs. Capito. Yes.
    Ms. Trevino. A huge portion.
    Mrs. Capito. Thank you.
    Ms. Trevino. Thank you.
    Chairwoman Waters. Mr. Cleaver?
    Mr. Cleaver. Thank you, Madam Chairwoman. The 515 program, 
can you help me understand if a tenant moves out, that unit is 
no longer eligible for the 515 program?
    Ms. Trevino. The 515 program is more project based, and so 
we determine ahead of time, based on the rental assistance that 
we give that project, how many of those are going to be set 
aside for the very low income. So it really does not have to do 
with the tenant.
    Mr. Cleaver. Okay. The demonstration program seems to be 
very successful. I think you mentioned 90 percent of the 
tenants choose to remain?
    Ms. Trevino. Yes, 90 percent of the tenants have chosen to 
remain.
    Mr. Cleaver. Do you think that is due to the way the 
program is now working or due to the economic situation in the 
country right now?
    Ms. Trevino. In rural America, I would--it is my opinion 
that we do not have the housing stock many times that you find 
in an urban community, so many times, there are not better 
alternatives for the families. I believe that is one reason 
that number is high.
    Mr. Cleaver. I am curious about what if we compared it with 
Section 8 or even 202, two programs, in terms of--well, maybe 
not 202 but certainly Section 8, to draw a comparison to see 
what the percentage would be of individuals who would choose to 
remain. This just seems enormously high, which is good in a 
way.
    Ms. Trevino. I would not know what those percentages are, 
but again the population in both the city, in the urban and the 
rural areas, is pretty much the same. So in rural communities 
we have the issue of the housing stock, but you also have the 
issue that 60 percent of this population is an elderly 
population. As you know, elderly people are creatures of habit; 
they do not want to move. They do not like change and so that 
may be part of what contributes to that number.
    Mr. Cleaver. All right, thank you. I yield back the balance 
of my time, Madam Chairwoman.
    Chairwoman Waters. Thank you very much. Mr. Green?
    Mr. Green. Thank you, Madam Chairwoman. And, again, I thank 
the witness. Ma'am, public housing has been successful to the 
extent that it has in my opinion because we have tried to have 
a collaborative effort. We have tried to inculcate the NGOs 
into the process. We have tried to access our intelligence from 
a variety of sources and sometimes the pipeline to HUD 
hopefully would go through the NGOs. Can you tell me, as we are 
now looking at the various changes that we are making, how you 
plan to have input from NGOs in this process?
    Ms. Trevino. Okay, we work very closely with our partners. 
In rural America, there are a lot of nonprofit providers. We 
are willing to listen to their ideas and try to determine the 
best ways to implement these programs. So I do not know how it 
has been done in previous Administrations, but I can tell you 
that we do have a goal within our Administration, within Rural 
Housing, to continue that very important work.
    Mr. Green. Thank you. This is very encouraging. Let me just 
go a step further, however, and indicate that much time and 
energy is necessary from persons who are familiar with 
communities to acquire the intelligence that you need. It is 
beneficial to have a means by which NGOs can have the assets, 
the resources necessary to acquire this intelligence. Funding 
for NGOs, in my opinion, is quite beneficial to HUD in 
acquiring intelligence. We have from time to time provided 
funding for NGOs. Chairwoman Waters had a piece of legislation 
that we amended, H.R. 3965, this was the Mark-to-Market 
Extension and Enhancement Act of 2007. And with assistance we 
were able to--her assistance, we were able to add $10 million 
in grants to tenant groups and not-for-profits. Are you 
predisposed to continuing this type of relationship so that we 
can have NGOs that are not only willing but also able to 
perform the function?
    Ms. Trevino. Yes, sir, I believe that we are. And, in fact, 
across the country we have rural development offices, about 400 
in the field, so that is quite a longer reach than perhaps HUD 
in a rural area. So we are very amenable to working and trying 
to see what--how our local offices can integrate with what the 
NGOs are doing.
    Mr. Green. Thank you very much. Madam Chairwoman, I will 
yield back the balance of my time.
    Chairwoman Waters. There are no more questions. The Chair 
notes that some members may have additional questions for this 
witness, which they may wish to submit in writing. Without 
objection, the hearing record will remain open for 30 days for 
members to submit written questions to this witness and to 
place her responses in the record.
    This panel is now dismissed. Thank you very much for 
coming.
    Ms. Trevino. Thank you.
    Chairwoman Waters. I would like to welcome our second 
panel. And I am going to announce each of you, but prior to 
speaking, I would like you to give me your name, because I am 
sure I am not going to pronounce some of these names correctly.
    Our first witness will be Mr. Toby Halliday, vice president 
for public policy, National Housing Trust, on behalf of the 
National Preservation Working Group.
    Our second witness will be Mr. Ghebre Selassie Mehreteab, 
executive officer, The National Housing Partnership Foundation.
    Our third witness will be Mr. Allan Isbitz, president, 
National Leased Housing Association.
    Our fourth witness will be Mr. Ricky Leung, treasurer, 
National Alliances of HUD Tenants.
    And, of course, you heard the introduction of our fifth 
witness by Mr. Castle, Mr. Joe Myer, board member, National 
Rural Housing Coalition.
    Our sixth witness will be Ms. Katie Alitz, vice president, 
The Council of Affordable and Rural Housing.
    Then we will have Mr. Vincent O'Donnell, president, 
Citizens' Housing and Planning Association.
    And our final witness will be Ms. Sarah Metherell, vice 
president, Institute for Responsible Housing Preservation.
    Thank you again for appearing before the subcommittee 
today. And without objection, your written statements will be 
made a part of the record. You will now be recognized for a 5-
minute summary of your testimony.
    Okay, Mr. Halliday?

 STATEMENT OF TOBY HALLIDAY, VICE PRESIDENT FOR PUBLIC POLICY, 
NATIONAL HOUSING TRUST, ON BEHALF OF THE NATIONAL PRESERVATION 
                         WORKING GROUP

    Mr. Halliday. Thank you very much, Chairwoman Waters, 
Ranking Member Capito, and members of the subcommittee. My name 
is Toby Halliday, and I am the vice president for public policy 
of the National Housing Trust. Thank you for inviting me to 
testify today in support of this important draft legislation.
    Over the past decade, the National Housing Trust has helped 
save and improve more than 20,000 apartments in over 40 States. 
The vast majority of these apartments have HUD-subsidized 
mortgages or project-based rental assistance contracts.
    Today, I am also testifying on behalf of the National 
Preservation Working Group, a coalition of 25 national 
nonprofit organizations supporting affordable rental housing. 
The members of the Preservation Working Group strongly support 
a balanced housing policy that includes the option of quality 
affordable rental housing and endorses this proposed 
legislation to protect low-income urban, suburban, rural, and 
elderly households whose homes are at risk of loss or 
conversion.
    Due to the recession that now grips our economy, and the 
mortgage crisis that precipitated it, the need for this 
legislation is greater than ever. Continuing home foreclosures 
will shift many families from homeownership to rental in a 
market where there is already a shortage of affordable rental 
housing for the poorest households. Many of the affected 
families will experience sharp declines in household assets and 
credit scores, but the increased demand for rental housing at 
the lowest end of the market is actually leading to higher 
rents and tighter credit screening in some markets despite 
falling incomes and rising unemployment.
    At the same time, many cash-strapped States and local 
governments are reducing assistance to needy families. All of 
this leads to a heightened risk of homelessness. Addressing 
this challenge begins with preserving existing affordable 
rental housing.
    Federally-subsidized housing serves nearly every community 
in the Nation. The Trust's analysis has identified nearly 
170,000 units of federally-assisted apartments with contracts 
that expire over the next decade located in the districts of 
members of this committee, as shown in Attachment A of my 
testimony.
    At the heart of this legislation are new tools to protect 
residents and preserve affordability when apartments are 
refinanced or re-capitalized or when the underlying HUD-
subsidized mortgages mature. Unlike other assisted properties, 
there are currently no provisions to preserve the affordability 
of these units or to protect residents when thousands of these 
mortgages expire over the next several years.
    The current draft includes important provisions that would, 
at the owner's discretion, provide rental assistance for 
affected apartments, both for the HUD-assisted and the rural 
development Section 515 properties. Improving preservation 
tools makes the rehabilitation of these properties easier to 
finance, leading to the creation of needed construction jobs.
    There will be debate over the proposal to allow new 
purchasers to preserve the affordability of federally-assisted 
properties when current owners no longer wish to operate them 
as affordable rental housing. So long as existing owners are 
provided market values for their properties, we believe that 
new ownership dedicated to long-term affordability will help 
ensure affordable rental housing at a time when so many 
families are homeless or at risk of homelessness.
    There will also be debate over the provision to allow 
residents to escrow their rents when properties are in 
disrepair. All tenants must still pay their full rent but funds 
will go into an escrow account or be used for HUD-approved 
repairs when the Secretary determines serious violations of 
housing quality standards or housing program requirements. The 
only parties who have something to fear from this provision are 
owners with serious property violations, which impacts not only 
residents but the entire community surrounding these 
properties.
    We note that many Members of Congress recently expressed 
their strong view that recipients of housing assistance should 
be American citizens. This is already the law of the land and 
residents are currently required to certify their compliance 
with this requirement. But such new requirements will have a 
huge impact on many U.S. citizens who do not have birth 
certificates or passports in their possession, who are 
disproportionately senior citizens, African Americans, rural 
residents, or lacking a high school diploma. In California, for 
example, obtaining a birth certificate can take 10 to 12 weeks 
and cost $5 to $23 in different jurisdictions. A passport can 
take several additional weeks and cost up to $100.
    Finally, I would like to express our support for the titles 
for Section 202 elderly housing and for Section 515 rural 
housing administered by the Department of Agriculture. These 
proposed changes will provide important new tools to protect 
vital affordable rental housing for seniors and in rural 
States, especially in high-cost areas.
    Again, thank you for the opportunity to comment on this 
draft affordable rental housing legislation. The National 
Housing Trust and the Preservation Working Group are looking 
forward to the formal introduction and enactment of this 
legislation.
    [The prepared statement of Mr. Halliday can be found on 
page 29 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Mr. Mehreteab.

    STATEMENT OF GHEBRE SELASSIE MEHRETEAB, CHIEF EXECUTIVE 
      OFFICER, THE NATIONAL HOUSING PARTNERSHIP FOUNDATION

    Mr. Mehreteab. Chairwoman Waters, Ranking Member Capito, 
Congressman Cleaver, Congressman Green, and Congressman 
Ellison, I thank for you for the opportunity to testify this 
afternoon on one of the most crucial issues: the preservation 
and creation of affordable housing, especially in urban areas.
    My name is Ghebre Selassie Mehreteab, but I am mostly known 
as Gabe. I am the chief executive officer of the NHP 
Foundation, a nonprofit housing organization headquartered in 
New York City.
    At the outset, I want to state that the NHP Foundation is 
in full support of the bill. Thank you, committee members.
    In 1989, the National Housing Partnership was chartered by 
Congress as a private corporation to create and preserve 
affordable housing. The National Housing Partnership created 
the NHP Foundation as a national nonprofit organization to 
address America's affordable housing crisis. Our strategy was 
to combine the discipline of the private real estate sector 
with a charitable mission.
    Since 1994, the NHP Foundation has preserved or converted 
from market rate to affordable 46 properties, totaling 
approximately 10,000 units in 14 States. Recently, the NHP 
Foundation, which was created by the corporation that was 
chartered by Congress, has developed a 5-year strategy plan for 
the creation or preservation of an additional 5,000 to 10,000 
affordable housing units, again mostly to be located in urban 
areas.
    As you are fully aware, the need for affordable housing in 
our society is a pressing one. Yet, as the committee members 
noted, we are losing much of our affordable housing daily. 
Against this trend, we must preserve the affordable housing 
that has already been built at great expense to the taxpayer. 
However, for preservation efforts to be successful, the 
nonprofit organization must raise financing from the public 
sector, obtain investment of private capital from banks and 
other financial institutions, and secure grants and loans from 
the philanthropy community.
    One, this bill will provide new tools, reform existing 
programs and create incentives for financing affordable 
housing. For example, specifically, the bill will assist large-
scale nonprofit organizations in preserving the existing stock 
of affordable housing. Two, it will attract private capital 
from banks and other institutions. And, three, leverage the 
initiative of philanthropic organizations.
    As you know, the NHP Foundation and other nonprofit owners 
rely on private lenders and investors to create and preserve 
affordable housing. For example, over the last few years, the 
NHP Foundation has partnered with Bank of America's Community 
Development Group in obtaining debt and tax credit equity 
financing. However, the glue that binds the public sector with 
the private capital is philanthropic grants. Many nonprofits 
have received funding from the Ford Foundation, the McArthur 
Foundation, Prudential Social Investments, and other 
philanthropic sources for our preservation work.
    In conclusion, the NHP Foundation looks forward to 
continuing to work with the committee and its staff on those 
preservation issues.
    Thank you again for inviting me to testify today.
    [The prepared statement of Mr. Mehreteab can be found on 
page 58 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Our next witness will be Mr. Allan Isbitz.

 STATEMENT OF ALLAN ISBITZ, PRESIDENT, NATIONAL LEASED HOUSING 
                       ASSOCIATION (NLHA)

    Mr. Isbitz. Chairwoman Waters, Ranking Member Capito, and 
members of the subcommittee, thank you for your invitation to 
speak today and for the opportunity to address some of the 
issues of importance to our affordable housing constituency.
    My name is Allan Isbitz. I am chief financial officer and 
vice president of real estate development for Jewish Community 
Housing for the Elderly, a nonprofit that owns and operates 
over 1,000 apartments for low-income seniors in the Boston 
area.
    I am here today as president of the National Leased Housing 
Association. NLHA is pleased to present our concerns related to 
the preservation of federally-assisted affordable housing. NLHA 
represents a broad cross-section of people and organizations 
that provide or administer Section 8 and tax credit housing for 
over 3 million families and elderly.
    We appreciate and applaud the efforts of the committee to 
produce this important bill.
    I would like to spend a few minutes sharing with you to 
illustrate my experience with a preservation transaction where 
HUD guidance was confusing and inconsistent and unnecessarily 
impeded our ability to achieve important preservation 
objectives. This is about a refinancing transaction we 
undertook 3 years ago that involved preservation and 
improvement of a 33-year-old project with a Section 236 
mortgage that provides 254 apartments for low-income seniors.
    We had three objectives in this transaction: first, to make 
the necessary capital improvements to the building; second, to 
build a new community center so we can meet the need for 
essential support services for our senior residents that would 
allow them to continue to live there in spite of increasing 
frailty as they grow older; and third, to use some of the sales 
proceeds to help finance a new 150-unit Section 202 mixed-
income development for seniors on land in Framingham, 
Massachusetts, that we owned and had zoned for that purpose.
    To achieve these objectives, we successfully sought and 
received tax-exempt bond financing that generated over $10 
million in tax credit equity and supplemented the proceeds of a 
new HUD-insured loan used to cover building improvements. We 
believed the $10 million of private investor equity could be 
used under existing HUD guidelines to support the construction 
of the Resident Services Community Center and the financing of 
the new construction project.
    As an added bonus, the availability of private investor 
equity allowed us to set rents below market and save HUD almost 
$5 million in Section 8 subsidies over the term of the HUD-
insured mortgage. We believed this to be a real win/win 
situation for us and for HUD, and the HUD field office showed 
strong support for the project.
    However, HUD central had to approve the prepayment of the 
mortgage, and they refused to do so claiming that the 
proceeds--the sale proceeds we were realizing were too high. 
HUD then required us to sign an agreement as a condition of 
proceeding with the refinancing that restricted almost $3 
million of these proceeds to fund future rent increases instead 
of using the Section 8 subsidy contract that existed for this 
purpose.
    HUD's position was incomprehensible because private tax 
credit equity, not HUD rental subsidy, supported the sale 
proceeds we wanted to use for the Resident Services Community 
Center and for a new affordable housing development.
    There is no basis in law or in regulation for HUD's 
actions. Its actions were inconsistent and amounted to treating 
nonprofit owners differently than for-profit owners in similar 
prepayment circumstances when HUD's written guidance on this 
subject states just the opposite. In the face of adverse market 
conditions today, we have requested HUD to reconsider its 
position on the use of sale proceeds for our new construction 
project. The project is currently shovel ready and will produce 
$25 million worth of construction activity, plus 259 
construction jobs for the Massachusetts economy, but has been 
delayed for about a year now.
    This situation demonstrates that producing tax-credit 
financed housing involves market risk for nonprofit and for-
profit developers alike. So it is particularly important that 
both nonprofits and for-profits be given access to the same 
financial tools, such as sale proceeds, that they need to 
negotiate with their partners in the marketplace.
    HUD's action in the recent years regarding sale proceeds 
remain an issue for nonprofits so it is important that Congress 
clarify this matter. The current draft includes language that 
attempts to address the problem, but it is not retroactive and 
therefore does not provide a remedy for nonprofits that have 
already been denied access to their rightful sale proceeds, 
which are necessary to meet their current needs. We prefer the 
language that was included in Section 401 of H.R. 2930 that 
passed the House last year and request that it be substituted 
for Section 503 of the current draft.
    I thank you again for this opportunity to let you know of 
our need for improvements in Federal preservation programs. I 
might add that we believe that Secretary Donovan and his new 
team share many of these concerns, and we look forward to 
working with the new HUD administration in this regard.
    Thank you.
    [The prepared statement of Mr. Isbitz can be found on page 
40 of the appendix.]
    Mr. Cleaver. [presiding] Mr. Leung, you are next. Did I 
mispronounce your name?

 STATEMENT OF RICKY LEUNG, TREASURER, NATIONAL ALLIANCE OF HUD 
                            TENANTS

    Mr. Leung. Thank you, Chairwoman Waters. Thank you, Mr. 
Cleaver. My name is Ricky Leung. I am the treasurer for the 
National Alliance of HUD Tenants, a national tenant union, the 
one and only in the Nation, for privately-owned HUD-assisted 
multi-family housing.
    Since the Title 6 Preservation Program ended in 1996, our 
Nation has lost at least 360,000 units of affordable low-income 
housing. We commend you and Chairman Frank for including the 
first right of purchase in the draft preservation bill to stop 
this loss. We also thank my own representative, Nydia 
Velazquez, for filing H.R. 44, now Title 4 in the bill, to 
address the related loss of 120,000 units of HUD's housing 
stock and for her leadership in addressing the new crisis of 
private equity.
    For 30 years, I have lived in Cherry Street Apartments in a 
Section 8 unit with my parents, a secure home for our family. 
We would not survive long in the overheated Manhattan market. 
The 488 families at Cherry Street are a diverse mix of working 
and middle class, a microcosm of the City and the Nation.
    In 2003, our project-based Section 8 contract was set to 
expire in the super hot real estate market in Manhattan. Our 
tenant association persuaded the owner to renew, but he did so 
for only 5 years. After I testified a little over a year ago in 
front of the full committee, our building was bought by a 
predatory investor for $177 million, more than $360,000 per 
unit. And our Section 8 contract was renewed for 5 more years.
    Just 3 years from now, the new owner will again decide what 
to do. Passage of first right of purchase would at least give 
our tenant association and the City a fighting chance to save 
our homes. By itself, a first right purchase would not add to 
Federal costs. It would simply allow a city or nonprofit to 
purchase an at-risk property using existing programs like 
markup-to-market. There is ample precedent besides Title 6, for 
20 years, Congress has provided a Federal right of purchase for 
rural housing and several States have adopted similar laws.
    The need for this measure is urgent in New York City. We 
are losing affordable housing to speculators at an alarming 
rate. Since the 1990's, more than 32,000 low-cost apartments 
have already been lost, and the rate has spiked dramatically. A 
national first right of purchase will help save 22,000 more 
apartments like Cherry Street that are at immediate risk.
    In the wake of 9/11, the loss of 54,000 affordable 
apartments in New York City is a tragedy which we can neither 
bear nor ignore.
    Nationwide, tenants are also challenged by the end of 
regulation in 260,000 apartments reaching an end of the 40-year 
HUD-subsidized mortgages. The number of expiring mortgages 
properties will skyrocket by more than 600 percent between now 
and 2012 according to the GAO. Whatever the source of risk, the 
first right of purchase is needed to ensure that owners use 
voluntary incentives in the draft bill to save our homes.
    Congress dismantled Title 6 in 1996 due to concerns about 
excessive costs. Under Title 6, residents and HUD negotiated 
major repairs, permanent affordability, and transfers to 
nonprofit and tenant organizations. Today, the enhanced 
vouchers are mark-up-to-market options available to owners are 
just as costly as the Title 6, but with none of these benefits.
    A first right of purchase will save money in the long run 
by removing subsidized housing from the speculated market, 
lessen owner windfalls, and guarantee benefits from the 
investment from any Federal funds.
    Three weeks ago, Secretary Donovan mentioned the State 
court decision that struck down a right of purchase law adopted 
by the City of New York. I was involved in the effort to pass 
this law to help save my home. The court struck down the City 
law solely due to State and Federal preemption concerns, not 
constitutional questions addressed in our written testimony. In 
fact, the courts acknowledged the serious rental housing 
crisis, and they urge action by other levels of government.
    We urge the committee to honor the plea of the New York 
tenants, echoed by the State courts, to adopt a right of 
purchase at the Federal level. Obviously, preemption is not an 
issue if Congress acts.
    The National Alliance of HUD Tenants also supports the 
tenant empowerment provision in the bill. These no-cost 
measures will allow tenants to join as HUD partners to improve 
and save our homes.
    To conclude my testimony today, just like concluding my 
testimony last year, I would like to pay tribute to the three 
main languages spoken in my community. I would like to say to 
everyone in this room in English: Thank you very, very much. 
And in Spanish, especially to my Congresswoman, Nydia 
Velazquez, Muchas Gracias. And in my native language, Chinese: 
Xie, xie doh je.
    [The prepared statement of Mr. Leung can be found on page 
45 of the appendix.]
    Mr. Cleaver. Thank you.
    Mr. Myer?

  STATEMENT OF JOE MYER, BOARD MEMBER, NATIONAL RURAL HOUSING 
                           COALITION

    Mr. Myer. Good afternoon, Chairwoman Waters, and Ranking 
Member Capito. My name is Joe Myer. I am the executive director 
of NCALL. We are based in Dover, Delaware. We serve the mid-
Atlantic region. I received a very nice introduction by 
Congressman Mike Castle, and I want to thank him for that 
introduction. As a two term governor, and now Delaware's sole 
Congressman, Mike Castle has been an important friend of 
affordable housing.
    I am also a current board member of the National Rural 
Housing Coalition. NRHC is a national membership organization 
that advocates for Federal policies which improve housing and 
community facilities in rural America. NRHC has stood for the 
principle that all rural residents have a right to a decent 
place to live. We have testified before this committee 
previously, and appreciate the opportunity to testify today on 
rural housing issues and H.R. 2876, the Rural Housing 
Preservation Act of 2009.
    We commend the bipartisan effort of Congressmen Geoff Davis 
and Lincoln Davis.
    It is vital to preserve our current stock of affordable 
rental housing because of lack of decent apartments in rural 
America. A disproportionate share of the Nation's substandard 
housing is located in rural areas. According to the 2000 
census, of 106 million housing units available in the United 
States, 18.7 million units, or about 18 percent, are located in 
non-metro counties. Thirty-five percent of rural renters are 
cost-burdened, paying more than 30 percent of their income for 
housing costs. Almost one million rural rental households 
suffer from multiple housing problems, 60 percent of whom pay 
more than 70 percent of their income for housing. More than 
900,000 renters live in moderately or severely inadequate 
housing, and 1.9 million people are rent overburdened.
    Section 515 of the Housing Act of 1949 is the principal 
source of financing for rental housing in rural areas. Under 
Section 515, nonprofit and for-profit entities can receive one 
percent loans for acquisition, rehabilitation or construction 
of rental housing and related facilities. Most Section 515 
loans have gone to for-profit developers who combine the 
subsidized loan with tax subsidies to finance housing. About 75 
percent of these properties are further subsidized by the RHS 
Section 521 rental assistance program, and the Department of 
Housing and Urban Development Section 8 program, both of which 
provide rent subsidies to ensure that residents pay no more 
than 30 percent of their income towards rent and utilities.
    Section 515 is generally well-managed. The portfolio is 
financially sound. It has a loan delinquency rate of just 1.6 
percent and only 8 properties in inventory at the current time. 
Projects are small, sized to the communities that they serve, 
an average of 28 units.
    So over 400,000 low-income families and elderly households 
live in rental housing financed under Section 515. For many 
rural areas, Section 515 provides the only decent affordable 
rental apartments in the community. Although rents are 
extremely low, averaging a little more than $325 per unit per 
month, the average resident annual income for the properties is 
also low, about $9,200. Twenty percent of the tenants were 
nonetheless rent overburdened and 7 percent paid more than half 
of their income towards rent. This is due to noticeably lower 
incomes in rural areas.
    Over the last several years, the Federal Government has 
virtually stopped financing for new affordable rental units in 
rural America. In 1992, the loan level for Section 515 was $500 
million. By 1998, that number was less than $200 million. And 
for Fiscal Year 2009, the level of Section 515 was $69 million.
    Over the last 40 years, Congress has debated the best, most 
appropriate way to preserve the rights of owners and tenants 
living in Section 515 developments. This issue is important 
because virtually all households living in these apartments are 
low income, many are elderly, and many have disabilities. These 
are people with few other housing options.
    The evolution of the 515 program and prepayment process 
shows how the rural housing services lack of funding for 
incentives and rent subsidy vouchers has hurt both owners and 
tenants.
    We see that the comprehensive property assessment and 
portfolio analysis indicates that there is a long-term need to 
ensure adequate operations and long-term rehabilitation of $2.6 
billion over 20 years.
    In response to the USDA report, Congress provided funds for 
a demonstration aimed at preserving rural rental developments. 
From 2006 to 2009, $100 million was provided in multi-family 
restructurings. RHS provided restructurings financing to 105 
projects. The financing mostly in the form of deferred loans 
preserved 4,500 units. This is an important demonstration and 
really points to what needs to happen in the future.
    The current restructuring program relies heavily on funding 
from other sources, but given the difficult economic climate, 
raising capital from other sources will prove more difficult.
    [The prepared statement of Mr. Myer can be found on page 69 
of the appendix.]
    Mr. Cleaver. Mr. Myer, I hate to cut you off, and I am 
going to have to apologize to all of you. As you probably 
heard, the bell just sounded, which means we have votes. We 
have about 40 minutes of votes. It could be longer if there are 
some parliamentary procedures that we have to deal with. But 
what I would like to do is, if the three of you who have not 
had made presentations would do so, and if you can, I know they 
are already abbreviated, but give us the Reader's Digest 
version. And then we will dismiss the panel because the most 
important part is your testimony anyway. And we will send out a 
memo to all the committee members that if there are questions, 
we will send those questions to you.
    So if we can, let's move with Ms. Alitz.
    Ms. Alitz. ``Alitz.''
    Mr. Cleaver. Ms. Alitz, I'm sorry.

   STATEMENT OF KATIE ALITZ, VICE PRESIDENT, THE COUNCIL FOR 
                  AFFORDABLE AND RURAL HOUSING

    Ms. Alitz. Mr. Cleaver, members of the subcommittee, my 
name is Katie Alitz, and I am the vice president of the Council 
for Affordable and Rural Housing. On behalf of myself and CARH, 
I would like to thank you for the opportunity today to address 
issues related to rural affordable housing, and in particular 
the rural housing legislation under discussion.
    We also very much appreciate this committee's interest and 
focus on rural housing issues. CARH is an association that 
includes for-profit, nonprofit, and public agencies that build, 
own, invest and manage in rural and affordable housing. CAR 
members house hundreds of thousands of low-income elderly and 
disabled residents across rural America.
    CARH strongly supports preservation of affordable rural 
housing, and we think it is critical that the preservation 
efforts include Rural Development's budget being restored. Over 
the previous 12 years, Rural Development's budget has been 
decimated, especially the Section 515 multi-family loan 
program. This has made preservation of rural housing very 
difficult.
    Owners have preserved Section 515 properties over the last 
decade largely by finding other sources of funding, primary 
low-income housing tax credits and also recently Section 538 
guaranteed loans. However, this has never sufficiently closed 
the gap. Because of their small size, rural properties have 
always had difficulty competing for tax credits and finding 
equity providers. Given the recent upheavals in the low-income 
housing tax credit markets, these problems will be further 
exacerbated.
    In addition, the 538 interest credit subsidy was reduced in 
the 2009 budget from $20 million to $8 million and eliminated 
in the 2010 budget. This subsidy is critical to the 
preservation of 515 housing and also for keeping housing 
affordable for low-income residents. Without the subsidy, this 
program will target more middle-income residents.
    We also support Ms. Capito's legislation to restore this 
interest credit subsidy, and we thank you for your support.
    In addition to funding, providing Rural Development with 
certain tools is critical to their preservation efforts. The 
preservation legislation that we are seeing today was 
introduced also in the 109th and 110th Congress. CARH has 
supported this legislation but has concerns about three 
provisions that we believe may impede preservation.
    First, the legislation calls for a 30-year capital needs 
assessment. We think that is too long; the industry standard is 
an average of 15 years. Second, while we have no issue with 
limiting resident rents to 30 percent of their income, we are 
concerned about imposing this limit without including further 
rental subsidies. We think that will take a lot of eligible 
properties off the table. And finally, we are concerned about 
the restrictions on owners who participated in the prepayment 
settlement. There seems to be some barriers to their entry into 
this program.
    Thank you.
    [The prepared statement of Ms. Alitz can be found on page 
24 of the appendix.]
    Mr. Cleaver. Mr. O'Donnell?

STATEMENT OF VINCENT F. O'DONNELL, PRESIDENT, CITIZENS' HOUSING 
                    AND PLANNING ASSOCIATION

    Mr. O'Donnell. Good afternoon. I will try to do the 
standing on one foot version of my written testimony. I want to 
thank Chairwoman Waters and Ranking Member Capito and 
Representative Cleaver and all the members of the subcommittee 
for the opportunity to testify. My name is Vincent O'Donnell. I 
am testifying in favor of this urgent and important 
legislation. I am speaking on behalf of the Citizens' Housing 
and Planning Association in Massachusetts, which was created in 
1967 as an umbrella organization that represents advocates for 
affordable housing for low- and moderate-income people in the 
Commonwealth. It really is a broad umbrella of producers and 
consumers and folks interested in housing policy and has been 
extremely successful.
    In fact, CHAPA's involvement in preservation goes back to 
1978 when we worked to implement new guidance that was created 
for HUD to deal with distressed properties. I think the most 
important thing I want to say today is that the whole concept 
of the preservation of affordable housing really goes back to 
the residents themselves. The preservation issues have always 
been raised by the tenants who live there. Back in 1978, 
residents in a gentrifying neighborhood of Boston living in 
distressed housing went to then-Senator Edward Brooke and got 
some Federal relief that enabled them ultimately to purchase 
that property as a cooperative. And it is still today a 
successful, 100 percent Section 8 cooperative. The issues have 
always been brought forth by the folks who live there.
    Secondly, it is a changing landscape. Back then, the issue 
was HUD foreclosure of distressed housing. Later, the issue 
became the prepayment of subsidized mortgages. After that, it 
was the expiration of Section 8 contracts. We now have new 
emerging issues in what is called the Year 40 problem where, 
after the complete expiration of all obligations, there are no 
current effective ways to make sure that the tenants are 
protected and the housing is preserved.
    So I think it is important to look at this extremely 
complex and comprehensive bill as something which fundamentally 
is addressing those basic goals. And if you look at it that 
way, it is, I think, a terrific piece of work that has 
responded to years of development of ideas by the preservation 
community trying to make this housing safe and affordable for 
the future for the tenants who live there and to contribute 
positively to the neighborhoods where the housing is located.
    Although it deals with many, many things, I just want to 
highlight several things which are very important. First, I 
think it does address the new problems which have arisen at the 
end of 40 years, the extension of authority for tools like 
enhanced vouchers, and conversion of earlier forms of rental 
assistance to Section 8 so that it can more flexibly support 
the redevelopment of the property.
    Second, the right of purchase is an extremely important 
aspect of this legislation. It is also extremely complex. And 
it exemplifies the partnership that affordable private housing 
is based on in this country. We have private owners, private 
financing serving low-income residents. This has to work for 
everybody. And an important tool like this is a very complex 
one. In my written testimony, I have some thoughts about how to 
make that work the best for all stakeholders.
    Third, there are certain State-funded properties that were 
recognized in LIHPRHA, the earlier preservation legislation 
dealing with prepayment as requiring Federal assistance, and 
this bill addresses their needs.
    Fourth, elderly housing is a very important element and the 
preservation of that stock is addressed in a comprehensive way 
in this bill, and I want to speak in favor of that as well.
    And I think I better stop there; the rest of my comments 
are in the written testimony.
    [The prepared statement of Mr. O'Donnell can be found on 
page 76 of the appendix.]
    Mr. Cleaver. Thank you.
    Ms. Metherell?

  STATEMENT OF SARAH METHERELL, VICE PRESIDENT, INSTITUTE FOR 
                RESPONSIBLE HOUSING PRESERVATION

    Ms. Metherell. Good afternoon. First of all, thank you very 
much for inviting me here to testify today. My name is Sarah 
Metherell, and I am with Steadfast Residential located in 
Newport Beach, California. We have acquired, rehabilitated, and 
preserved and now own about 15,000 units of federally-assisted 
low-income housing. These units are mostly in California but 
also in a total of 18 other States.
    I am here today, however, representing in my capacity as 
vice president of the Institute for Responsible Housing 
Preservation, the IRHP. Since 1989, the IRHP has represented 
owners and managers of federally-assisted multi-family 
properties on preservation issues, including advocating for 
legislative and regulatory changes for preservation policies 
and providing educational seminars on preserving affordable 
housing. I would add that the IRHP is primarily a group of for-
profit developers, however we do have a few nonprofit members 
and some State agency members.
    I am going to make this very quick. IRHP is generally in 
favor of the bill. There are a few things I would like to point 
out based on personal experience that I have had in acquiring 
affordable multifamily properties over the last couple of 
years. One is that the Section 236 decoupling program is a 
wonderful program and has been very successful in preserving 
HUD properties. I think if you look at the Section 236 program, 
you see a higher rate of preservation over other HUD programs 
because it is easier to preserve those properties. The primary 
reason is the ability to undertake a budget-based rent 
increase, which includes new debt service, something that is 
not now available for other types of HUD properties. Also, 
there is an increased annual distribution for all preservation 
owners; it applies to both for-profits and nonprofits and it 
costs nothing to HUD. However, these benefits are only 
available on Section 236 decoupling transactions and not on 
other types of HUD transactions, and I am not quite sure why 
but the new bill does change that. And we approve of that.
    Finally, very briefly, I have a lot more in writing here, 
but we also support the rollover of certain HUD debt. And I 
think oftentimes when properties are being transferred to new 
owners, it should have certain HUD debt, including flex sub-
loans and mark to market soft debt cannot be paid off in full--
    Mr. Cleaver. We have 2 minutes.
    Ms. Metherell. All right.
    Mr. Cleaver. No, no, we have 2 minutes.
    Ms. Metherell. You have 2 minutes?
    Mr. Cleaver. To get to the Capitol to vote. Voting will 
close in less than 2 minutes now. I apologize, as I did 
earlier.
    [The prepared statement of Ms. Metherall can be found on 
page 63 of the appendix.]
    Mr. Cleaver. The Chair notes that some members may have 
additional questions for this panel, which they may wish to 
submit in writing. Without objection, the hearing record will 
remain open for 30 days for members to submit written questions 
to these witnesses and to place their responses in the record. 
And before we adjourn, the written statements of the following 
organizations will be made a part of the hearing: The National 
Low-Income Housing Coalition; the American Association of Homes 
and Services for the Aging; the National Affordable Housing 
Manager's Association; the Housing Assistance Council; and a 
statement from the National Apartment Association and others.
    If there are no other questions, we are adjourned.
    [Whereupon, at 3:26 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             July 15, 2009

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