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

                      H.R. 4868, THE HOUSING PRESERVATION
                       AND TENANT PROTECTION ACT OF 2010

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

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                       HOUSING AND COMMUNITY OPPORTUNITY

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 24, 2010

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 111-116

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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:
        March 24, 2010...............................................     1
    Appendix:
        March 24, 2010...............................................    35

                                   WITNESSES
                           Wednesday, March 24, 2010

    Caruso, George, Executive Vice President, Edgewood Management
      Corporation, on behalf of the National Affordable Housing
      Management Association (NAHMA).................................    17
    Galante, Carol, Deputy Assistant Secretary for Multifamily
      Housing, U.S. Department of Housing and Urban Development......     5
    Halliday, Toby, Vice President for Public Policy, National
      Housing Trust, on behalf of the National Preservation Working
      Group..........................................................    18
    James, Raymond K., Partner, Coan and Lyons, on behalf of the
      National Leased Housing Association (NLHA).....................    23
    Leung, Ricky, Vice President/East, National Alliance of HUD
      Tenants (NAHT), and President of the Cherry Street Tenants
      Association....................................................    20
    Norris, Michelle, Senior Vice President, Acquisitions and
      Development, National Church Residences (NCR), on behalf of the
      American Association of Homes and Services for the Aging
      (AAHSA)........................................................    21
    Shumaker, William C., President of the Board, the Council for
      Affordable and Rural Housing (CARH), and Vice President of the
      Provident Companies............................................    24
    Trevino, Tammye, Administrator, Rural Housing Service, U.S.
      Department of Agriculture......................................     7

                                    APPENDIX

    Prepared statements:
        Caruso, George...............................................    36
        Galante, Carol...............................................    46
        Halliday, Toby...............................................    50
        James, Raymond K.............................................    58
        Leung, Ricky.................................................    65
        Norris, Michelle.............................................    81
        Shumaker, William C..........................................   101
        Trevino, Tammye..............................................   111

                  Additional Material Submitted for the Record

    Waters, Hon. Maxine:
        Written statement of Moises Loza, Executive Director, Housing
          Assistance Council.........................................   121
        Written statement of James R. Grow and Gideon Anders, the
          National Housing Law Project...............................   124
        Written statement of the National Rural Housing Coalition....   139
        Written statement of Stewards of Affordable Housing for the
          Future.....................................................   141
    Green, Hon. Al:
        Letter to Secretary Shaun Donovan, U.S. Department of Housing
          and Urban Development, dated November 19, 2009.............   148
        Letter to Chairman Barney Frank and Chairwoman Maxine Waters,
          dated February 22, 2010....................................   150

                      H.R. 4868, THE HOUSING PRESERVATION
                       AND TENANT PROTECTION ACT OF 2010

                                  ----------

                           Wednesday, March 24, 2010

                 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 10:12 a.m., in
    room 2128, Rayburn House Office Building, Hon. Maxine Waters
    [chairwoman of the subcommittee] presiding.
        Members present: Representatives Waters, Velazquez,
    Cleaver, Green, Ellison, Donnelly, Driehaus, Himes, Maffei;
    Capito, Biggert, and Jenkins.
        Mr. Cleaver. [presiding] Let me first of all apologize for
    the late start. The Chair should be here shortly. Chairwoman
    Waters will join this important subcommittee hearing today on
    H.R. 4868, the Housing Preservation and Tenant Protection Act
    of 2010.
        I would like to express appreciation to the chairwoman of
    this committee, Maxine Waters, and the ranking member, Ms.
    Capito. And I think this is a very important meeting.
        While the Financial Services Committee has held a number of
    hearings in recent years addressing threats to the Nation's
    affordable housing inventory, this hearing will focus on the
    policy provisions contained in the legislation, including the
    impact of the loss of affordable housing properties on
    residents, efforts by the Federal Government and nongovernment
    organizations to recapitalize and preserve the affordable or
    federally- and State-assisted properties, and the cost of
    preserving affordable housing units compared to building or
    acquiring new units.
        Our chairman, Barney Frank, introduced H.R. 4868 on March
    17, 2010. This bill, as the chairman explains it, is intended
    to preserve the Nation's existing stock of federally- and
    State-assisted affordable housing, multifamily rental units in
    both urban and rural communities, and to protect low-income
    tenants, many of whom are elderly and disabled, from being
    displaced by higher rents caused by conversion to market rate
    housing.
        I am delighted that the Chair has called this hearing, and
    also delighted to see that HUD is representated here today by
    Ms. Galante. Now, we will have an opening statement from the
    ranking member, Ms. Capito.
        Mrs. Capito. Thank you, Mr. Chairman. And I thank
    Chairwoman Waters for holding this hearing today on the
    legislation introduced by Chairman Frank, H.R. 4868, which is
    designed to address the preservation of the existing affordable
    housing stock.
        Since the 1960's, the Federal Government has supported the
    production of privately-owned properties that are affordable to
    low- and moderate-income families, those with incomes 80
    percent or less of the area median income.
        HUD has historically supported the building and maintaining
    of affordable housing by offering property owners affordable--
    or, excuse me, favorable mortgage financing, long-term rental
    assistance contracts, or both, in exchange for owners'
    commitments to house low-income tenants for at least 20 years,
    and in some cases up to 40 years.
        The worry has always been that as these contracts expire or
    reach maturity, current owners will choose to convert the
    properties to market rate, which will translate into
    significant loss of existing affordable housing stock. Congress
    has grappled with how best to achieve the goal of preservation.
        I think it is important to highlight the important role
    that the private sector has played in the availability of
    affordable housing. Over the years, the creation and
    preservation of affordable housing has been a collaborative
    public/private partnership.
        While the Federal Government has played a key role in the
    availability of affordable housing for low- and moderate-income
    families, it would not have been possible without private
    sector participants. And in that regard, both for-profit and
    nonprofit entities have been important participants in efforts
    to preserve affordable housing.
        For this reason, I think it is imperative that any
    legislation designed to preserve the assisted housing inventory
    must recognize the complexity of preservation transactions, and
    it must incentivize rather than penalize those who participate.
        Unfortunately, I share many of the concerns that will be
    raised today by some of our witnesses, and that are outlined in
    the letter that I am going to ask to submit with unanimous
    consent dated March 23rd and signed by many of the private
    sector participants who construct and preserve affordable
    housing.
        I am concerned that some of the provisions included in H.R.
    4868 may discourage future private sector participation in
    Federal housing programs, and ultimately limit the availability
    of affordable housing. One of the more problematic provisions
    in H.R. 4868 is Section 107, which creates a Federal right of
    refusal, which is seen by some as an abrogation of housing
    assistant contracts or mortgage agreements.
        In addition, many of the provisions included in this bill,
    such as increased enhanced vouchers and project-based vouchers,
    and a requirement that HUD convert rental assistance payments
    to Section 8 project-based vouchers, and the grant and loan
    sections in Section 102, carry significant costs. At this time
    of significant budget deficits, I am just not sure where we
    will find the funds to pay for these new and costly provisions.
        I want to take this opportunity to welcome our witnesses on
    both panels, and to again commend my colleagues for their work
    and commitment to preserving affordable, decent housing for
    low- and middle-income families.
        Thank you. And I do ask unanimous consent to submit this
    letter for the record.
        Mr. Cleaver. Without objection, it is so ordered.
        We now recognize the gentleman from New York, Mr. Maffei.
        Mr. Maffei. Thank you, Mr. Chairman. I just have one
    comment. I am very grateful to you and to Chairwoman Waters and
    to Ms. Capito for having this hearing, and to all the witnesses
    for being here.
        In terms of protecting our housing stock, I would like, if
    possible, for the witnesses to address at some point, both the
    first and second panels, issues of urban planning and sprawl.
        And one of the concerns in my area of the country, in
    upstate New York, is as some of the housing stock gets moved,
    some of it--the owners may want to graduate from affordable
    housing, etc.
        And new affordable housing tends to get built in the
    suburbs, putting more of a strain on our infrastructure. And
    though in the short run, it might be better--you just want to
    get more housing for people--in the long run, it ends up
    hurting our overall urban structure, our school districts,
    etc., and putting more strain on our infrastructure.
        So I would be very pleased if the witnesses could address
    that at some point that they feel it is appropriate. I thank
    the Chair. And I yield back.
        Mr. Cleaver. Thank you.
        The Chair recognizes Ms. Biggert.
        Mrs. Biggert. Thank you, Mr. Chairman. I would like to
    thank Chairwoman Waters for holding this important hearing. And
    I would also like to thank Chairman Frank for including in H.R.
    4868 the language that I worked on with Mr. Maloney of Florida
    during the 110th Congress to streamline and simplify the
    development of affordable housing for our seniors.
        During the last Congress, I co-sponsored H.R. 2930, Section
    202, Supportive Housing for the Elderly Act of 2007, which the
    House passed by voice vote on December 5, 2007. Like H.R. 2930,
    Title 7 of the bill under discussion today provides the
    necessary flexibility to the Section 202 program so that local
    community groups can best serve the needs of our seniors.
        It also proposes changes to the program to enable better
    use of mixed financing--tax credits, grants, and loans--to
    preserve and build housing for seniors. And finally, it expands
    refinancing opportunities.
        Mr. Mike Frigo, the vice president of Mayslake Village,
    which is located in my district, testified in September 2007
    about the benefits these reforms could provide to helping
    Mayslake rehabilitate around 100 apartments that were no longer
    rentable to seniors. He also testified that H.R. 2930 included
    reforms that would provide refinancing and rehabilitation
    opportunities so that the 100 empty units could again be rented
    for another 40 years.
        In addition, Mr. Frigo said that rehabilitating this
    Mayslake building would cost $10 million to rehabilitate,
    versus $15 million to build a new facility, a cost savings of
    $5 million.
        I also support Title 7 of H.R. 4868, as well as other
    incentive-based approaches to rehabilitating and preserving
    existing housing stock for another 40 years, as Mike Frigo
    mentioned.
        However, I have great concerns about the provisions in this
    bill that would discourage private sector, nonprofit, as well
    as for-profit individuals and organizations from utilizing the
    Federal housing programs, and therefore dramatically reducing
    their participation in making available units of rental housing
    to low-income individuals and families.
        I am particularly concerned with sections of the bill, for
    example, Section 107 and 108. As with the Section 202 program,
    we have learned that encouraging owners to preserve units is a
    common-sense and cost-effective approach to maintaining housing
    for low-income people.
        It is important that these programs continue to provide
    incentives, not mandates, so that there is voluntary and
    greater participation. I was encouraged by statements issued by
    Chairman Frank in his March 18th press release that: ``We are
    committed to working with current owners of these affordable
    housing units.''
        So I look forward to improving this legislation with
    Chairwoman Waters, Chairman Frank, and Ranking Member Capito.
    And with that, I would yield back the balance of my time.
        Chairwoman Waters. Mr. Green, do you have an opening
    statement?
        Mr. Green. Yes, I do, Madam Chairwoman. Thank you, Madam
    Chairwoman, and I thank the witnesses as well.
        I would also like to thank the chairman of the full--
        Chairwoman Waters. I don't think your microphone is on.
        Mr. Green. Musical chairs early in the morning can be fun.
        Reclaiming my time, I would also like to thank Chairman
    Frank, especially Chairman Frank and Chairwoman Waters, for the
    letter that we sent to HUD addressing a concern with reference
    to affordable housing.
        And I would like to make this letter a part of the record.
    The letter made an inquiry with reference to what the
    intentions of HUD were in terms of helping us with the first
    right of purchase and third party beneficiary status. I would
    like to make it, without objection, a part of the record, Madam
    Chairwoman.
        Chairwoman Waters. Without objection, it is so ordered.
        Mr. Green. Also, I would like to thank Chairman Gutierrez
    and the many persons who sponsored a letter or were signatories
    to it that went to Chairman Frank and Chairwoman Waters. And
    this letter addressed and outlined the concerns associated,
    again, with these two key pieces of concern, first right of
    purchase and third party beneficiary status.
        I would like to make this a part of the record, without
    objection, as well.
        Chairwoman Waters. Without objection, it is so ordered.
        Mr. Green. Thank you. The concern that I would like to call
    to the attention of the committee is one that relates to the
    affordable housing stock that is being depleted by virtue of
    properties that came online and are not deteriorating, or
    properties that may be sold because they are no longer under
    contract with owners who purchased them such that they could
    become a part of the affordable housing stock.
        These properties are important to us, especially at this
    time when we have this housing crisis in the country. And what
    we have attempted to do in the legislation is propose that
    there be an opportunity for the tenants to purchase the
    property, a first right of purchase, which does not mean that
    the owner has an absolute obligation to sell to tenants.
        It does mean that the owner would go out and seek an
    opportunity to have a buyer purchase at market rate, and then,
    upon finding this buyer, could give the tenants--by and through
    HUD, I might add--the opportunity to purchase. HUD would have
    the opportunity to actually make the purchase, but could assign
    this to the tenants.
        We believe that this would allow these apartments, these
    units, these multifamily dwellings, to stay within the
    affordable housing stock, given that it costs much more to
    produce new stock at this time, and given that for every unit
    that we construct, it appears that we may be losing two units;
    which means that if construction alone is utilized, we will not
    maintain the stock at its current rate.
        Before my time expires, I would just like to make one final
    comment, which is that we have a third party beneficiary status
    with HUD such that these tenants would have the opportunity to
    take some of their concerns to HUD. And if the concerns are not
    addressed, then the tenants could literally litigate
    themselves, which would relieve HUD of some of its
    responsibilities and actually be of help to HUD.
        I will say more about these things at a later time. I thank
    you for your leniency, Madam Chairwoman, and I yield back the
    time that I do not have.
        Chairwoman Waters. Thank you very much.
        At this time, I would like to welcome our distinguished
    first panel. Our first witness will be Ms. Carol Galante,
    Deputy Assistant Secretary for Multifamily Housing, U.S.
    Department of Housing and Urban Development. Our second witness
    will be Ms. Tammye Trevino, Administrator, Rural Housing
    Service, U.S. Department of Agriculture.
        Ms. Galante?

      STATEMENT OF CAROL GALANTE, DEPUTY ASSISTANT SECRETARY FOR
       MULTIFAMILY HOUSING, U.S. DEPARTMENT OF HOUSING AND URBAN
                              DEVELOPMENT

        Ms. Galante. Good morning, Chairwoman Waters, Ranking
    Member Capito, and distinguished members of the subcommittee.
    Thank you for the opportunity to testify on behalf of the
    Department today on the Housing Preservation and Tenant
    Protection Act of 2010.
        Chairwoman Waters, I would first like to express my
    gratitude on behalf of the Department for yours and Chairman
    Frank's tireless leadership on the issue of affordable housing
    preservation. With the introduction of this legislation, we
    have the opportunity to move forward together to safeguard
    affordable shelter for our families and neighbors in need, and
    to improve and revitalize multifamily properties that anchor
    our communities. HUD is proud to provide project-based rental
    assistance to more than 1.4 million households throughout the
    country. We value our partnership with private owners of the
    thousands of assisted properties across our portfolio. Through
    these partnerships, we are able to offer safe, decent, and
    affordable shelter.
        However, despite the deduction of so many of our partners,
    these housing resources are at risk. We are deeply concerned
    about ongoing loss of long-term affordability in these
    properties. Today, more than 1,700 properties nationwide are
    financed with HUD direct or insured mortgages that will mature
    within 5 years.
        These properties offer affordable housing to nearly 200,000
    families through an array of HUD rental assistance programs.
    HUD maintains the affordability of these properties through
    recorded use agreements.
        When the mortgages mature or expire, so will the HUD
    affordability use restrictions. Without the presence of such
    restrictions, owners will have more incentives and face more
    market pressure to opt out of Section 8 HAP contracts.
        For those properties with project-based rental assistance,
    current tenants would be protected through the provision of
    enhanced vouchers. Our concern is, of course, for those
    tenants, but also for the long-term affordability of these
    properties. Unless we take action, these affordable units may
    be lost to future generations.
        Built some 30 or 40 years ago, many of these aging
    properties have deferred maintenance or obsolete systems, and
    are in need of refurbishment and significant upgrading. Some
    are at risk of default or foreclosure, casualties of the down
    economy.
        In order to break free of HUD regulatory oversight and/or
    capture equity, some owners continue to opt out of Section 8
    assistance and sell their properties to private entities. Some
    335,000 apartments receive Section 8 assistance that will
    expire within one year unless owners make the choice to renew
    assistance contracts. Owners have opted out of more than 550
    Section 8 contracts in the last 5 years, stripping rental
    assistance from 9,000 units.
        In any scenario, when Section 8 assistance is lost and
    affordability restrictions expire, the loss reverberates across
    communities. As you know, HUD offers no new project-based
    rental assistance to replace such lost Section 8 units,
    although we do protect the assisted tenants.
        That is why HUD supports the fundamental principles of this
    bill. With some refinements, we believe this legislation will
    provide HUD with additional tools to facilitate the
    preservation work that can renew and protect our multifamily
    properties.
        Red tape should never stand in the way of an owner making a
    choice to be a good steward of an affordable property. The
    Department applauds the bill's focus on streamlining regulatory
    requirements. Sections 110, 111, 201, and 204 allow owners to
    use project resources to improve their properties and leverage
    State and local private financing.
        Section 110 gives HUD the authority to assign and forgive
    or defer flexible subsidy loans for preservation, refinances,
    or acquisitions. Section 111 enables owners to tap a residual
    receipts account to fund new capital improvements or facilitate
    preservation purchase.
        Section 204 allows the Department to approve Section 8
    rents at post-rehab levels, which we know from experience can
    be used by owners to refinance properties. Section 201 would
    facilitate the transfer of Section 8 contracts from one
    building to another, protecting rental assistance as properties
    enter into obsolescence.
        And while some of these measures are already under way or
    could be achieved administratively by HUD, the clear direction
    that the bill provides is quite welcome. Together, these
    sections make preservation deals more viable.
        We also support the principle of helping move at-risk
    preservation-worthy properties into the hands of preservation
    purchasers. Section 106 of the bill, the Preservation Exchange
    Program, provides incentives to owners who agree to sell their
    properties to purchasers who will maintain long-term
    affordability. Regulatory waivers, streamlining processing, and
    other project resources can be powerful incentives, and we
    believe many owners will take advantage of this opportunity.
        [The prepared statement of Deputy Assistant Secretary
    Galante can be found on page 46 of the appendix.]
        Chairwoman Waters. Thank you very much.
        I will now call on our second witness, Ms. Tammye Trevino.

       STATEMENT OF TAMMYE TREVINO, ADMINISTRATOR, RURAL HOUSING
                SERVICE, U.S. DEPARTMENT OF AGRICULTURE

        Ms. Trevino. Chairwoman Waters, Ranking Member Capito, and
    members of the subcommittee, thank you for the opportunity to
    appear before you to discuss multifamily housing preservation
    in rural America.
        This is a critically important issue, and in broad terms,
    we believe that the strategy outlined in the Rural Housing
    Preservation Act of Title 8 of the proposed legislation is very
    promising.
        I would like to thank all those involved with this
    legislation, both in this session of Congress and in previous
    sessions, for your hard work. I am pleased to testify before
    you today on behalf of Secretary Tom Vilsack, Under Secretary
    Dallas Tonsager, and the USDA Rural Housing Service.
        At the 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 America.
        We further believe that your goals and ours are the same in
    both the desire to preserve the Nation's existing stock of
    federally-assisted, affordable multifamily rental housing, and
    the protection from displacement of low-income families,
    especially the elderly and the disabled.
        For 60 years, our rural housing programs have provided
    invaluable support for low- and very low-income families in
    rural areas. In the current economy, the challenges that have
    faced rural communities for decades have grown more acute.
        Recent studies show there are there are 386 persistent
    poverty counties in the United States. Of these 386 counties,
    340, almost 90 percent, are considered rural counties. The same
    study indicates that persistent poverty and the degree of
    rurality are also linked. The poverty rate is the highest in
    the completely rural counties. So not only do rural Americans
    earn less than their urban counterparts, they are also more
    likely to live in poverty.
        Rural development multifamily housing programs were
    established because sufficient access to capital and credit was
    not available to serve the needs of the very low-income renters
    who wish to live and work in rural communities. The need to
    preserve the Nation's existing stock of federally-assisted,
    affordable multifamily rental housing, and the protection from
    displacement of low-income families, especially the elderly and
    disabled tenants in rural America, gave rise to the Multi-
    family Preservation and Revitalization Demonstration Program
    that began in 2006.
        MPR is in its fourth year of existence. To date, rural
    development has obligated over 400 MPR revitalization
    transactions for Section 515 properties that will affect close
    to 14,000 tenant households.
        Currently, our MPR program is authorized as a demonstration
    program, with no permanent authority. The lack of permanent
    authorization makes it difficult for the agency to promulgate
    permanent program regulations and to address long-term issues.
    By providing permanent authorization, the legislation would
    dramatically enhance the quality of the multifamily housing
    stock and protect tenants in rural America.
        In rural America, low-income residents continue to be
    underserved, especially given the current economic environment.
    For example, turbulence in the housing credit investment market
    has had some effect on rural deals in the preservation
    pipeline.
        While the vast majority of approved MPR transactions are
    now closed, the recent depletion of investors due to market
    instability has reduced equity that is available to be brought
    into low-income housing tax credit transactions in rural areas.
        Half of all MPR transactions funded include transfers as
    part of the revitalization transaction. This has slowed the
    rate of closing for MPR transactions obligated during Fiscal
    Years 2008 and 2009, that included a transfer dependent on low-
    income housing tax credit funding.
        At USDA Rural Housing, we are pleased with five key
    features in your proposed legislation:
        Number one, it provides the agency with a number of
    revitalization tools that provide cost-effective preservation
    options for the existing multifamily housing rental portfolio.
        Number two, it contains enhanced voucher authority that
    will protect tenants and properties that leave the program, as
    well as ensuring long-term affordability for tenants through
    long-term use agreements.
        Number three, it includes RD's farm labor housing programs.
        Number four, it includes provisions for long-term viability
    planning.
        And number five, it introduces the concept of a national
    database that will give us access to the information needed to
    track America's affordable housing. Passage of the bill
    codifies the Demonstration Program and will provide additional
    tools and incentives to our current 515 program.
        In general, we support the principles reflected in the
    bill, and look forward to working with Congress to approve this
    legislation. It is my goal to assist Secretary Vilsack and
    President Obama in working with the committee and our public
    and private partners to spur economic growth and create a
    lasting foundation in the heart of rural America.
        [The prepared statement of Administrator Trevino can be
    found on page 111 of the appendix.]
        Chairwoman Waters. Thank you very much.
        In the interest of time, Ms. Velazquez, who chairs another
    committee, will have to leave. I am going to yield to her to
    begin the questioning. I will recognize you for 5 minutes, Ms.
    Velazquez.
        Ms. Velazquez. Thank you, Madam Chairwoman.
        Ms. Galante, while the market for single-family homes shows
    some signs of stabilizing, many multifamily apartment buildings
    remain at significant risk of default and foreclosure, with
    buildings overleveraged and lacking sufficient rent rolls to
    support operating expenses and maintenance.
        Does HUD have adequate tools to address this problem, since
    FHA and the GSEs currently represent about 90 percent of
    today's multifamily market?
        Ms. Galante. Thank you for that question. You know,
    clearly, in the market today, you are correct that single-
    family is stabilizing. I think most economists would say that
    the multifamily sector is behind in terms of that overall
    recovery, and so that there is significant stress in the
    multifamily sector, particularly the private market rate
    market, not so much in the affordable stock.
        So in terms of the FHA multifamily insured loans, we do
    have significant tools to deal with distressed properties. I
    think generally in the marketplace, there is concern that some
    privately financed market rate complexes don't have the similar
    tools to take care of those needs.
        Ms. Velazquez. Well, the reason that I am asking that
    question is that I am concerned about the fate of tenants who
    live in multifamily buildings that are at risk of default or
    foreclosure. We all know the ripple effects of this investment
    in this development can affect entire communities.
        So what are some of the ways that provisions in H.R. 4868
    will help you in addressing this issue?
        Ms. Galante. There is a provision that strengthens HUD's
    ability to deal with its own portfolio of distressed
    properties. There are not provisions in this bill that would
    impact those other private market rate types of properties.
        Ms. Velazquez. And the legislation being discussed today
    attempts to help owners of federally-assisted housing find
    viable, long-term purchasers for their properties through a
    voluntary preservation exchange program, Section 106 of the
    bill.
        Given the voluntary nature of this program, however, do you
    think sufficient numbers of owners will participate in this
    program?
        Ms. Galante. I am quite optimistic that Section 106, the
    voluntary preservation exchange program, will enable a
    significant number of private owners to make the choice to stay
    with the HUD programs. And that in conjunction with some of the
    other streamlining of red tape that we are doing as part of
    this legislation, I think, will be quite successful.
        Ms. Velazquez. Ms. Galante, you know that the bill under
    consideration will establish a right of first refusal. Housing
    advocates, however, believe that the right of first refusal
    provides weaker protections for affordable housing than a first
    right of purchase, which has shown great success in a State
    like Illinois.
        Do you believe that the right of first refusal should be
    strengthened to provide greater protections for tenants?
        Ms. Galante. We have concerns about--and you heard
    Secretary Donovan mention this back in June when there was a
    preservation hearing--with the mechanics of whether it is the
    right of first purchase or the existing Section 107 here.
        Both of those provisions, you know, have significant
    challenges in terms of implementation in this private market
    ownership environment that we have. So we think that, you know,
    those could be challenging to implement and to legally mandate.
        Ms. Velazquez. Okay. Thank you. Thank you, Madam
    Chairwoman.
        Chairwoman Waters. Ms. Capito?
        Mrs. Capito. Thank you.
        I want to stay with that topic that we were just talking
    about, Ms. Galante. In terms of--you mentioned Secretary
    Donovan, who was here in June, and his experience in New York
    had solidified his opinion that incentives for preservation
    work much better than perceived mandates. Section 106, the
    preservation exchange, I think, reflects what the Secretary has
    in mind.
        But then Section 107 turns around and includes a Federal
    first right of refusal. Do you think there is any conflict
    between the two, Section 106 and 107, and what would be the
    results of trying to enforce both of those?
        Ms. Galante. Well, my reading of the bill is that if you
    voluntarily agree to participate in Section 106, that while you
    are participating in that, Section 107 would not apply. So in
    that way, I don't think there is a direct conflict. But, you
    know, they are philosophically different approaches.
        Mrs. Capito. Right. And I want to talk again about Section
    107, which provides the right of first refusal, for either HUD
    or an approved assignee to purchase low-income assistance
    properties at the fair market value to prevent those from
    drifting away from the affordable housing stock.
        I am concerned about allowing HUD to purchase these
    properties. I am assuming that--would this be the first time
    that HUD has entered into these kinds of arrangements? Where
    exactly would this money come from? How does HUD decide to
    value the properties? How long does HUD intend to hold the
    investments, and all kinds of questions surrounding that? Could
    you speak about that section a little bit?
        Ms. Galante. Yes. I am not sure I can answer all of those
    questions. I don't know if this is the first time that HUD has
    done this. I am not aware of other circumstances. But I am
    relatively new to the Department, so I can't speak to that.
        I think that the section does provide for HUD to assign its
    rights to another entity. And clearly--
        Mrs. Capito. So that would be after HUD--not after HUD
    purchases, but assigns their right of first refusal to
    somebody?
        Ms. Galante. Correct.
        Mrs. Capito. So who else would that be?
        Ms. Galante. Well, HUD would have to establish a proposed
    panel of bidders, so to speak, or preservation-minded entities
    that would like to purchase these properties. And we would have
    to have some kind of program set up to enable folks to come in
    and step in, essentially, to HUD's shoes in this case unless
    HUD wanted to take on doing that themselves.
        Mrs. Capito. Well, with HUD's--I mean, I just think that
    this is obviously not fully fleshed out, this whole idea of
    right of first refusal. And I think it is something that if it
    is going to entail HUD actually purchasing the properties, or
    managing the properties, or how long are they going to hold the
    investments, it really, I think, puts a--with HUD's reputation
    for technological challenges, I think it will put another
    technological challenge onto an already overburdened staff.
        I would like to ask Administrator Trevino a question. You
    and I talked about this, actually, on the phone. The 502
    single-family loan guarantee program will exhaust its funding
    by the end of April. And we have already heard that lenders are
    already stopping taking applications for this program because
    they are concerned that their funding is not going to be there.
    I have received numerous e-mails from folks who use this
    program and say it is a great program, but are concerned about
    the lack of programs.
        How many American families have used the program so far?
    And how critical is this for rural families? And do you believe
    that--what are you doing to continue the viability of this
    program through the end of this fiscal year?
        Ms. Trevino. Just based on our numbers that we have, we had
    over 85,000 homeowners who went through the guarantee program,
    so it was very highly successful. It was our first program in
    housing that used up all its funding. And that happened
    actually in December.
        So it is a very popular program. We have four major lenders
    that participate in the program, as well as numerous smaller
    ones.
        Mrs. Capito. And what are you doing to see that this can
    continue from the end of April to the end of the fiscal year,
    where we are going to have the shortfall?
        Ms. Trevino. At the current time, there are folks at a lot
    higher level than I am that are weighing the options. There are
    several options. The two more popular ones are fee-based
    options. And that decision will be made at a higher than I, and
    so at some point we hope to have some type of resolution.
        Mrs. Capito. All right. Well, I am very interested in the
    results of this, as I expressed to you on the phone the other
    day, and would love to participate in trying to help find a
    solution to this program.
        Ms. Trevino. Thank you. I appreciate that.
        Mrs. Capito. Thank you.
        Chairwoman Waters. Thank you very much. I will recognize
    myself for 5 minutes.
        As you can see, there is a lot of interest in the Section
    107 Federal first right of refusal. As you know, some of us are
    interested in the opportunity for tenants to own property if
    the opportunity presents itself. And it seems a little bit
    confusing.
        It talks about the owner being able to accept an offer, and
    then HUD comes in behind the acceptance of the offer and
    matches that offer. And then I guess it would have the first
    right of purchase.
        Is that your understanding?
        Ms. Galante. Actually, my understanding is there is a two-
    part test under 107. And the first is that the one notifies of
    their intent to opt out of the program. And I think there is a
    90-day period where HUD has the ability to raise their hand and
    say, we want to purchase the property or assign our ability to
    purchase the property.
        And if at that point HUD does not do that, then the private
    owner is free to go out and make a purchase arrangement with a
    private owner. And then HUD can come back in under certain
    circumstances to essentially match that private offer.
        Chairwoman Waters. So it is not your understanding that the
    owner would, a year ahead of time, notify that they would like
    to sell the property, and then go out to the market and get a
    fair market value appraisal, and then HUD would have the
    opportunity to match that fair market available or value? So do
    they notify a year ahead of time?
        Ms. Galante. Yes, they do.
        Chairwoman Waters. And then do they place the property on
    the market and accept an offer? That is what is kind of
    confusing me. Normally, when you think of an acceptance of an
    offer, it seems that you have something that is legally binding
    that you have to honor in some way.
        But this appears that after the acceptance of the offer,
    HUD can then come in and either match that offer or maybe over-
    match the offer and have the first right.
        Ms. Galante. That is correct. That is the right of first
    refusal portion of Section 107. My understanding, and maybe I
    read it incorrectly, but my understanding is that prior to that
    right of first refusal, there is this 90-day period where HUD
    could say they wanted to actually purchase it before the owner
    goes out and gets a third party offer.
        Chairwoman Waters. All right. Ms. Galante, you didn't
    mention Section 303, which would confer third party beneficiary
    status on residents. What is the Department's position on this
    provision?
        Ms. Galante. This is a relatively new provision of the
    bill, and we haven't taken a formal position on that.
        Chairwoman Waters. Thank you.
        I will then call on Mr. Cleaver.
        Mr. Cleaver. Thank you, Madam Chairwoman. I just have one
    question for this panel.
        In going over the background information for this
    legislation that our Chair has introduced, I find that 193,000
    subsidized rental units will move into market rate over the
    next 10 years.
        So my question and concern--well, the point of the question
    is to determine how much of an emergency this bill is for now,
    when you consider we have walked almost to the precipice
    economically in the country. And if we are talking about
    193,000 in 10 years, how many can we estimate falling over in
    2010/2011? With less money moving around in the economy, the
    renters and the owners are probably in a less favorable
    situation to recapitalize some of the units.
        So do you have any idea or estimate on how many will move
    to market rate this year or next year?
        Ms. Galante. I don't have the exact figures. I think the
    place where we are in the economy today has two situations
    affecting these properties. On the one hand, I believe some
    properties are less likely to opt out of their Section 8
    contracts because their properties might be less valuable in
    the market rate rent situation.
        On the other hand, there are property owners who, because
    they are reaching a certain--there is a peak of properties
    reaching maturity and expiring use, that if they don't pull the
    trigger today, they are not--they have an opportunity to pull
    the trigger today and get out of the program.
        And so those properties are significantly at risk. And
    particularly those with maturing mortgages aren't really
    protected under current regulations. And so I think there is a
    significant risk in the next 5 years for these properties.
        Mr. Cleaver. Ms. Trevino, do you have any comments?
        Ms. Trevino. Well, we have currently about 100 properties
    that have left our portfolio. That is about 2,700 units that we
    have lost in the last--based on either transferring out or no
    longer decent.
        Mr. Cleaver. Yes. The point was how much of an emergency do
    we have? Is there something we need to do? I am willing to vote
    for it to be done yesterday, and I am getting a sense of the
    fact that the losses are occurring right now.
        Ms. Trevino. It is about the same. We lose about a hundred.
    Our portfolio, about 10 percent of our total portfolio, is in
    the worst condition.
        Mr. Cleaver. How are we going to handle the fact real
    estate values have dropped about 36 percent since the beginning
    of the great recession? Are we going to have problems with
    property owners who, when they began participating in this
    program, had one value on their property, and now it is 36
    percent lower?
        Do you have any idea how we would be able to handle that,
    and whether property owners are going to be willing? My
    assumption is that the cost is going to be significantly less
    today than it would have been if we had tried to do this 2
    years ago.
        We have a bridge in my district that came in when the city
    first sent out a request for bids at $25,000 to rebuild it.
    When we receive the money through the TIGER grant, the new bid
    is $10,000. So people are moving to a new economy that we have
    unwittingly created. Do you think we will have problems?
        Ms. Galante. If I could just say, again, it cuts both ways.
    In this situation, owners whose properties are less valuable in
    the private market with market rate rents because of the drop
    in values may be more likely continue to opt in to project-
    based Section 8 because that is a more secure situation.
        On the other hand, if they are under economic distress with
    other properties that they own, even though they may be getting
    less value for the property than they would have 2 years ago,
    they may be motivated to take out equity now for other reasons
    and figure it is going to be a while before the market comes
    back, and they have an opportunity now and they are going to
    take it.
        So it is a complicated situation and I think it is partly a
    microeconomic valuation at different parts of the country.
        Mr. Cleaver. Thank you.
        Chairwoman Waters. Thank you very much.
        Mr. Green, for 5 minutes.
        Mr. Green. Thank you, Madam Chairwoman.
        Let me go first to the letter that I referenced earlier to
    Secretary Donovan, which is signed by Chairman Frank,
    Chairwoman Waters, and myself. A slight modification in my
    earlier statement because this letter actually deals with an
    amendment that I had to H.R. 3965, the Mark-to-Market Extension
    and Enhancement Act of 2007. It would reactivate Section 514 of
    the grant program, which accords about $10 million to tenant
    groups for training and technical assistance, the purpose of
    which would be to improve and preserve properties.
        My understanding is that there is now a proposal to develop
    language that has not been shared to date, and HUD would do
    this. Ms. Galante, can you briefly, as tersely as possible,
    share with me how your language would be better than the
    language that is currently proposed in Section 514?
        Ms. Galante. Certainly. In concept, we are very supportive
    of Section 514 and tenant outreach and education. We have
    developed a draft program on which we are having conversations
    with tenant organizations. It is not final. We want to get
    input to make sure that it is going to work. We are calling it
    the Tenant Resource Network, or TRN.
        And, fundamentally, it is a very solid program. I think the
    one difference between where this program is going and the
    language in the legislation is the language in the legislation
    requires there to be a national MOU with the corporation that
    runs Vista.
        And in our program, we are allowing grants to go to
    resident organizations, and they can use those grants as
    matching funds to receive local Vista volunteers.
        Mr. Green. Because I have one other question and time is of
    the essence--
        Ms. Galante. Yes.
        Mr. Green. --may I make a request that, if it does not
    breach some protocol or ethics, that my office be involved with
    you as you are developing this? Given that I have demonstrated
    an interest in this--
        Ms. Galante. Certainly.
        Mr. Green. --prior to this moment in time. And I will have
    someone visit with you afterwards.
        Ms. Galante. Great.
        Mr. Green. Now, let's move to the next letter, and talk
    about the first right of purchase versus the first right of
    refusal.
        Do you agree that a right to purchase is a stronger right
    than a right to refuse?
        Ms. Galante. Yes.
        Mr. Green. And as such, it appears that the right to
    refuse, while it can be of benefit, the right to purchase would
    put a tenant organization--or HUD, if indeed HUD chose to make
    the purchase, and I am not sure that would be the case--but it
    would put you in better standing in terms of moving forward.
        Would you agree with this?
        Ms. Galante. I would say this; I think Section 107 is
    relatively new. I have read through it a number of times. It is
    complex. Again, my reading of it was that even though it is
    called a right of first refusal, that there is a kind of
    initial stage which is more like a right--it is not a right to
    purchase, but it is more like a right to offer that kind of
    takes care of both of those situations.
        That is my reading of it, and I could be wrong.
        Mr. Green. So currently, you are supportive of 107 as
    structured?
        Ms. Galante. Well, again, we have concerns about the
    mechanics of 107 as expressed by the Secretary back in June on
    the right of first purchase, the Section 106, which is the
    preservation/exchange voluntary program we think has more
    flexibility in terms of how it gets implemented.
        Mr. Green. Have you looked at the rural development program
    and the mandatory purchase rights contained therein?
        Ms. Galante. I have not.
        Mr. Green. Would you be amenable to our working with you--
    and I would, of course, work with the Chair as well, if the
    Chair permits--on language for 107?
        Ms. Galante. Certainly.
        Mr. Green. And of course, the Chair has proposed language,
    which means that I would obviously talk to the Chair before
    encroaching in this area. But it is something of concern
    because one of the best ways for tenants to maintain affordable
    housing is to have a stake in it beyond being a renter.
        And if they can have the opportunity to be a part of a
    purchase program, which I think can be replicated quite
    efficiently across the country, I think that it will bode well
    for tenants in the future. It would be a new paradigm, or a
    paradigm that would expand. I think it has been before, but if
    we could expand a paradigm.
        So thank you very much, and I yield back.
        Chairwoman Waters. Thank you very much.
        Mr. Ellison, for 5 minutes.
        Mr. Ellison. Thank you, Madam Chairwoman, and thank you for
    holding this very important hearing. I just want to point out a
    quick fact before I get to my question. My home district of
    Minneapolis is poised to lose over 5,000 apartments with
    Federal project-based contracts by 2019. And the loss of these
    assisted housing units could not come at a more difficult time
    for the residents of Minneapolis. Nearly 60 percent of the
    foreclosed homes in our City were occupied by tenants. This
    means that the housing insecure face even fewer options. And so
    I would just put that out there for you. And maybe I will just
    ask you a general question.
        How serious is this problem around the rest of the country?
        Ms. Galante. I certainly can say that I think Minneapolis
    is not the only location. I think it is a universal problem
    across the country, wherever there are these types of rental
    assistance programs. Hot markets are more vulnerable than
    weaker market locations in terms of market rate rents. But, it
    is a serious problem.
        Mr. Ellison. Ms. Trevino, let me ask you this question. In
    your testimony, you noted that of the 10,000 rural development
    vouchers that are offered to tenants, only about a third of
    them actually use them.
        Why do you think so few tenants use the voucher program,
    and would it--could we redistribute them without doing any
    damage to our rural tenant program? Because that is something I
    would never want to do. In Minnesota, we have a very nice
    balance between rural, suburban, and urban.
        But if they are not using them, couldn't they be
    redirected?
        Ms. Trevino. I think that the way you have proposed them in
    the bill with the three different vouchers, I don't think we
    are going to have a problem using them up in that scenario.
    Right now, we run one voucher program, and this bill proposes
    three. So I don't think that will be an issue if this bill goes
    forward.
        Mr. Ellison. Okay. Well, thank you for your questions. I
    yield back.
        Chairwoman Waters. Thank you very much. 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. This panel is now dismissed, and I
    would like to welcome our second panel. Thank you very much.
        Good morning. I am pleased to welcome our distinguished
    second panel.
        Our first witness will be Mr. George Caruso, executive vice
    president, Edgewood Management Corporation, on behalf of the
    National Affordable Housing Management Association.
        Our second witness will be Mr. Toby Halliday, vice
    president for public policy, National Housing Trust, on behalf
    of the National Preservation Working Group.
        Our third witness will be Mr. Ricky Leung, treasurer,
    National Alliance of HUD Tenants, and president of the Cherry
    Street Tenants Association.
        Our fourth witness will be Ms. Michelle Norris, senior vice
    president, acquisitions and development, National Church
    Residences, on behalf of the American Association of Homes and
    Services for the Aging.
        Our fifth witness will be Mr. Raymond K. James, partner,
    Coan & Lyons, on behalf of the National Leased Housing
    Association.
        And our final witness will be Mr. William Shumaker,
    president of the board, the Council for Affordable and Rural
    Housing, and vice president of the Provident Companies.
        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. And we will start with our first
    witness, Mr. George Caruso.

    STATEMENT OF GEORGE CARUSO, EXECUTIVE VICE PRESIDENT, EDGEWOOD
     MANAGEMENT CORPORATION, ON BEHALF OF THE NATIONAL AFFORDABLE
                 HOUSING MANAGEMENT ASSOCIATION (NAHMA)

        Mr. Caruso. Good morning, Chairwoman Waters and Ranking
    Member Capito. I am George Caruso, executive vice president of
    Edgewood Management Corporation in Germantown, Maryland. We are
    the ninth largest manager of assisted housing in the Nation. I
    am appearing today for the National Affordable Housing
    Management Association. Thank you for allowing my statement to
    be introduced into the record.
        We are pleased with much of H.R. 4868, the Housing
    Preservation and Tenant Protection Act of 2010. NAHMA has been
    a strong supporter of preservation for some 20 years now. NAHMA
    has had an opportunity to review the bill in detail at our
    winter meetings last week.
        Although our general membership opposes the bill in its
    current form, our opposition is limited to provisions in seven
    sections: Sections 107; 108; 109; 110; 302; 303; and 304. We
    applaud the remaining 60 sections of the bill.
        Indeed, we appreciate that numerous provisions address
    issues that we have been discussing with the committee members
    on both sides of the aisle for a number of years. These issues
    include the long-term physical and financial viability of
    properties, the continued affordability of properties with
    mature mortgages, and finally, protecting tenants from severe
    rent burdens when affordability restrictions expire.
        Allow me to get to the major issues we have. First, Section
    107, the Federal first right of refusal: This provision will,
    in our view, serve to drive potential purchasers and equity
    providers away. There are a variety of problems with this
    provision which include, but are not limited to: undermining
    owner and investor confidence in their agreements with the
    Federal Government; and potentially alienating willing
    purchasers, who must wait through a lengthy process, thereby
    affecting market value. We believe a better and more workable
    approach is suggested in Section 106, the preservation exchange
    program, which NAHMA supports.
        Second, Section 304, the resident access to building
    information: The provisions of this section are overly broad,
    and they will force the release of proprietary information. It
    is useful to observe that the bulk of the information required
    to be released here is submitted to HUD through the most secure
    computer system that HUD has, and it is accessible only on a
    limited basis inside HUD, since they judge the data to be very
    sensitive. The less sensitive building information referenced
    in this section is already publicly available from HUD.
        Third, the Section 110 authority for HUD to assign flex
    subsidy loans: We view this provision, among others, as tilting
    the playing field in preservation to nonprofit organizations.
    NAHMA represents both for-profit and nonprofit owners. Part of
    our policy is that there be no bias between the two types of
    ownership. Both bring substantial advantages to the table. Both
    are required to make preservation work. Preservation tools, we
    believe, should be equally available.
        Our concerns on the remaining sections we object to are
    detailed in our written testimony. Let me move now to a more
    positive note.
        We are particularly pleased to see the provisions in:
    Section 406 addressing correcting harm caused by late subsidy
    payments; Section 501, the extension of the mark-to-market
    program; and Section 508, budget-based rent adjustments.
        Section 406 penalizes HUD for making excessively late
    subsidy payments to owners, and will assure that the properties
    are properly funded going forward. The language in Section 508
    will allow for a re-underwriting of a group of mark-to-market
    properties that were incorrectly underwritten initially, and
    will retain them as viable assisted housing going forward.
    These sections will work to assure that more housing is
    preserved.
        There are many other sections of the bill that we find very
    encouraging. They, too, are detailed in our written materials.
        Madam Chairwoman and Ranking Member Capito, thank you very
    much for allowing us to share our views and concerns with the
    subcommittee. NAHMA remains committed to the essential task of
    preserving the assisted and affordable housing portfolio. We
    remain available to members and staff to answer questions and
    make suggestions to get to a successful conclusion of this
    legislation.
        Thank you very much.
        [The prepared statement of Mr. Caruso can be found on page
    36 of the appendix.]
        Chairwoman Waters. Thank you.
        Our second witness will be Mr. Toby 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, Subcommittee Chairwoman Waters,
    Ranking Member Capito, and members of the subcommittee. My name
    is Toby Halliday, and I am vice president for Federal policy
    for the National Housing Trust. It is my pleasure to testify
    today in support of H.R. 4868, the Housing Preservation and
    Tenant Protection Act of 2010. Today, I am also testifying on
    behalf of the National Preservation Working Group, which is a
    coalition of 36 nonprofit organizations supporting affordable
    rental housing.
        H.R. 4868 safeguards affordable apartments that are home to
    more than one million extremely low-income families, elderly,
    and disabled persons. As foreclosures on homes and apartment
    buildings continue to unfold, a growing number of renters are
    competing for a limited supply of affordable rental housing.
    Many of these families will be seeking apartments at the lower
    end of the scale, where there is already a shortage of
    affordable housing for the poorest households.
        Although market conditions have resulted in lower housing
    costs for many middle-income households, increased demand for
    the most affordable housing is actually leading to higher rents
    and tighter credit screening in some markets.
        Shortages of decent, safe, affordable housing are
    complicated further by ongoing problems in the low-income
    housing tax credit market. Uncertainty among traditional tax
    credit investors about future profitability, together with a
    preference for the simplest and shortest investment options
    available to other investors, has left the tax credit market
    crippled in all but a few markets, dramatically reducing the
    creation of new affordable units from its peak in 2007.
        This legislation includes important new tools to protect
    residents and preserve affordability when assisted housing is
    refinanced, recapitalized, or when the underlying HUD financing
    or RD financing matures. This legislation includes provisions
    that would, at the owner's discretion, provide rental
    assistance for affected apartments both for HUD-assisted and
    rural development 515 properties. Improving preservation tools
    makes the rehabilitation of these properties easier to finance,
    leading to the creation of needed construction jobs.
        The legislation we see today also benefits from extensive
    discussion and revision to accommodate competing interests. For
    example, last summer, several private industry groups raised
    strong objections to four draft provisions. In the bill as it
    currently stands, all four of these provisions have been
    revised or removed entirely, despite the objections of many
    housing advocates.
        The right of first refusal in Section 107 allows
    preservation-oriented buyers to match the offer of any other
    bona fide purchaser of HUD-assisted property. This ensures any
    seller a full and fair sales price, and is modeled on similar
    provisions already in force in many jurisdictions. It is a
    fair, low-cost way to protect the substantial taxpayer
    investment that has already been made in existing affordable
    rental housing.
        H.R. 4868 also retains an important local control provision
    in Section 108 that ensures that State and local preservation
    and tenant protection laws are not preempted by Federal law.
        Section 303 includes a revised provision that allows legal
    action for building violations only when HUD has failed to act
    on a documented deficiency. This protects responsible owners
    while ensuring that residents have some recourse against
    unscrupulous landlords.
        Section 302 permits residents to escrow their rents only
    when the Secretary of HUD determines serious violations of
    housing quality standards or housing program requirements.
        We are interested to learn more about a new proposal to
    create a voluntary program to encourage the transfer of
    assisted rental properties to preservation owners in Section
    106. We believe this could be a useful new preservation tool so
    long as appropriate checks are in place to prevent the
    deterioration of property during negotiation, and to make sure
    that buyers have both the desire and the capacity to support
    long-term affordability.
        Titles 7 and 8 include important provisions needed to
    facilitate repair and preservation of thousands of Section 515
    affordable rural housing units and Section 202 elderly housing
    units.
        We thank Chairman Frank and the 13 co-sponsors for the
    introduction of this legislation, and urge committee action on
    this much-needed legislation. Thank you very much.
        [The prepared statement of Mr. Halliday can be found on
    page 50 of the appendix.]
        Chairwoman Waters. Thank you.
        Next, we will hear from Mr. Ricky Leung.

        STATEMENT OF RICKY LEUNG, VICE PRESIDENT/EAST, NATIONAL
       ALLIANCE OF HUD TENANTS (NAHT), AND PRESIDENT, THE CHERRY
                       STREET TENANTS ASSOCIATION

        Mr. Leung. Good morning, Chairwoman Waters.
        Since the Title 6 preservation program ended in 1996, our
    Nation has lost at least 360,000 units of affordable low-income
    housing. Chairman Frank has filed a very exciting and extremely
    comprehensive bill that will sustain our homes for decades to
    come.
        We also thank my own representative, Congresswoman
    Velazquez, for filing H.R. 44, now Title 4 in the bill, to
    address the related loss of 120,000 units of HUD's troubled
    housing stock, and for her leadership in addressing the new
    crisis of predatory equity.
        The bill includes virtually all the priority items sought
    by the National Alliance of HUD Tenants for many years, most of
    which are consensus items. NAHT supports voluntary incentives
    in the bill to encourage owners to save our homes, including
    the new preservation exchange program. Our written testimony
    suggests ways to strengthen the exchange to better protect
    tenants.
        The bill also substitutes a new first right of refusal
    section for the broader right of first purchase that I
    testified on last summer. We urge the committee to restore the
    broader right of first purchase in committee markup, and we
    want to thank Representative Gutierrez and the 11 other
    committee members for their strong letter in support on this
    issue.
        The first right of refusal in Section 107 would allow HUD
    to step in only where owners are selling to someone who
    proposes to end HUD use agreements. But owners in high-market
    areas are not selling; they are simply converting to market
    rents, while retaining ownership of the buildings.
        Massachusetts recently passed a proposal on which Section
    107 is based. There is not a single current instance of a
    building in that State that would be saved by the first right
    of refusal. Instead, owners have filed opt-out notices to
    either convert to market or leverage higher government
    subsidies to stay in the program.
        By contrast, the broader first right of purchase in last
    summer's bill would allow HUD to buy out owners at fair market
    value in any case where owners attempt to convert to market
    rent, whether or not they are selling. Only this would provide
    the regulatory tools to ensure that voluntary programs work to
    save our homes.
        My own building is an example. The 480 families at Cherry
    Street are diverse working and middle-class, a microcosm of the
    City and the Nation. In 2008, our building was bought by a
    predatory owner, and our Section 8 contract was renewed for 5
    more years. In 2 years, the new owner will decide what to do.
    Only passage of a first right of purchase will give our tenants
    association peace of mind and at least a fighting chance to
    save our homes.
        The need for the measure is urgent, especially in New York
    City. A first right of purchase would help save 20,000 more
    apartments like Cherry Street that are at immediate risk.
    Nationally, as many as 200,000 units are at risk to be saved.
        There is ample precedent for the broader first right of
    purchase. Besides Title 6, Congress has provided a Federal
    right of purchase for rural housing for 20 years, and several
    States have adopted similar laws. As Representative Gutierrez
    pointed out, owners have learned to live with the Illinois law
    and have not challenged it in the courts. We appreciate the
    inclusion of Section 108 in the bill, which would allow States
    to do more to regulate the stock if they choose.
        Last summer, Secretary Donovan raised constitutional
    questions about these regulatory proposals. In response,
    Chairwoman Waters obtained a memo from the Congressional
    Research Service. The CRS memo did not conclude there are
    constitutional barriers to either right to purchase or right of
    first refusal as long as owners are awarded full market
    compensation and there is no delay in implementation. In fact,
    the owner representative who testified in 2008 supported the
    right to purchase if it could meet that test.
        NAHT also strongly supports the tenant empowerment
    provisions in the bill. These no-cost measures would allow
    tenants to join HUD as partners to improve our homes. Some
    owners have objected that giving tenants access to information
    or third party status to enforce HUD contracts would unduly
    burden businesses and violate their rights. But in my State,
    tenants have long been able to access budget and repair
    information without any discernible controversy or harm to
    owners.
        I am testifying today on behalf of residents living in
    multifamily housing who just want to live in a safe and healthy
    home. Two of our board members here, Judy and Lonene, right
    there, please take a snapshot of us. You will see there is a
    diverse ethnicity, age, and profession and culture background
    of residents living in subsidized affordable housing across the
    Nation.
        Let's be real. Only owners and agents who have something to
    hide or slumlords will mostly be objecting to these provisions.
    So as--
        Chairwoman Waters. I'm sorry. We are going to have to move
    on.
        Mr. Leung. Thank you very much.
        [The prepared statement of Mr. Leung can be found on page
    65 of the appendix.]
        Chairwoman Waters. Ms. Norris?

         STATEMENT OF MICHELLE NORRIS, SENIOR VICE PRESIDENT,
    ACQUISITIONS AND DEVELOPMENT, NATIONAL CHURCH RESIDENCES (NCR),
    ON BEHALF OF THE AMERICAN ASSOCIATION OF HOMES AND SERVICES FOR
                           THE AGING (AAHSA)

        Ms. Norris. Good morning, Chairwoman Waters, Ranking Member
    Capito, and members of the subcommittee. My name is Michelle
    Norris. I currently serve as senior vice president of
    acquisitions and development at National Church Residences.
        I thank you for the opportunity to speak on behalf of
    AAHSA, a national association that represents not-for-profit
    providers who offer a continuum of care of services--adult day
    services, home health, community services, senior housing,
    assisted living, continuing care communities, and nursing
    homes. AAHSA has State associations in each of your States as
    well.
        NCR has been an active member of AAHSA for the last 30
    years. Our CEO, Tom Slemmer, served as chairman of AAHSA for
    the last 2 years. At NCR, I also have had the opportunity to be
    the past president of NAHMA, another really great organization.
        NCR has the privilege of having a very significant
    affordable senior housing portfolio that has been financed with
    a wide variety of programs and funding sources, including the
    HUD 202 loan program, the HUD 202 PRAC program, the low-income
    housing tax credit program, and others.
        In addition, we have a large health care group in Ohio, so
    we have a really unique perspective on the costs and benefits
    of the various levels of housing and health care when you
    combine the two.
        For most of our 50-year history, our development of
    affordable housing focused on new construction. About 8 years
    ago, our leadership team realized the thing that we now are all
    aware of: Our Nation is losing affordable housing faster than
    we can build it.
        Since 2002, NCR has been proud to say that we have been an
    active participant in preserving over 5,000 units of affordable
    housing with various locations in this country, including:
    Manhattan, Kansas; Detroit, Michigan; St. Louis, Missouri;
    Mount Sterling, Ohio; and Montgomery, West Virginia.
        Therefore, because of our experiences, I want to commend
    your leadership for the efforts of this bill. H.R. 4868 is
    sorely needed if affordable senior housing is to survive in the
    future. I have seen firsthand numerous examples of existing
    senior housing units that were converted to market rate, or
    that became obsolete either financially or physically to the
    point of no return.
        Though time does not permit me to elaborate on many of the
    most significant and positive features of this bill, please let
    me highlight a few.
        Title 7 includes in its entirety Section 202, Supportive
    Housing for the Elderly Reform bill. This section is dedicated
    to the many issues that will improve the existing 202 new
    construction program and will greatly facilitate the efforts to
    preserve and rehab the existing 202 stock.
        Section 101 converts rent sup and RAP contracts into
    Section 8 rental assistance. This is a great example of a
    technical fix that can have an enormous impact on many of the
    most frail seniors living in older HUD buildings.
        Section 104 allows project-based preservation assistance in
    lieu of enhanced vouchers. I know this sounds like a technical
    fix, but it can have a significant impact on leveraging other
    funds necessary to do substantial rehab and to preserve
    communities.
        Section 110 allows HUD to assign existing flex subsidy
    loans as part of a preservation transaction. In North Carolina,
    our own organization essentially had to use HOME monies to pay
    off a flex sub loan instead of diverting the HOME monies to
    substantial rehab.
        Finally, a very important modification under Section 731
    encourages organizations like NCR to create very needed
    affordable assisted living facilities. In 2009, NCR officially
    opened our very first community using a HUD assisted living
    conversion grant. This was the first in the State of Ohio, and
    we were proud to be the first owner.
        This section of the legislation will decrease the cost of
    such facilities by eliminating a mandatory licensure
    requirement. These are just some of the great examples of the
    technical fixes and policy initiatives this bill provides.
        My written testimony describes in more detail these and
    other powerful and important provisions. In spite of the many
    positive provisions, there are several sections that do concern
    us. However, we have conferred with our industry colleagues,
    and I will defer to them to highlight some of those concerns.
        So in conclusion, on behalf of AAHSA and NCR, I commend you
    for the hard work done on this bill. As the legislation moves
    forward, AAHSA and NCR stand ready to provide resources to
    assist in the necessary fine-tuning.
        I thank you for the opportunity to testify on behalf of
    AAHSA.
        [The prepared statement of Ms. Norris can be found on page
    81 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Mr. James, for 5 minutes.

      STATEMENT OF RAYMOND K. JAMES, PARTNER, COAN AND LYONS, ON
        BEHALF OF THE NATIONAL LEASED HOUSING ASSOCIATION (NLHA)

        Mr. James. Thank you, Madam Chairwoman, Ranking Member
    Capito, and members of the subcommittee. I am Raymond K. James
    of the law firm of Coan & Lyons in Washington, D.C., and I am
    testifying on behalf of the National Leased Housing
    Association, which for the past 38 years has represented
    developers, lenders, housing managers, State and local
    agencies, and others interested in assisted housing, with a
    focus on Section 8 and the low-income housing tax credit.
    NLHA's members have provided or administered housing assistance
    for over 3 million families.
        This legislation has many faces. I would like to talk about
    three of them: first, the statutory gaps it fills; second, the
    statutory mistakes it corrects; and third, the new statutory
    provisions that we believe will be mistakes for the future.
        First, the gaps it fills. There are a number of situations
    where project subsidies terminate and the tenants are not
    afforded protection in the form of enhanced vouchers. This
    legislation would correct that.
        These are the programs that people often talk about when
    they say there are 100,000 or so units at risk in the near
    future. These are units that are part of programs with older
    subsidy forms that terminate at certain points and cannot be
    extended, even if the owner wants to extend those subsidies.
    There is nothing that can be done about it under current law.
        Now, this bill does contain something that could be useful
    by allowing owners to convert these older subsidies that cannot
    be extended in their current form, to convert those to Section
    8. And as we know, Section 8 can be extended indefinitely as
    long as there are appropriations.
        Statutory mistakes of the past that are being corrected:
    The Section 8 moderate rehabilitation program has been subject
    to statutory provisions over the last 13 years that have been a
    preservation disaster. The inventory of mod rehab units has
    been reduced from about 100,000 units to approximately 25,000
    units, a reduction of 75 percent.
        This bill attempts to correct that 13-year statutory
    mistake. And it is not the fault of this committee; this
    committee has tried to correct it in the past, but other parts
    of the Congress have prevented that.
        Third, there are some proposed statutory mistakes. I will
    mention two.
        Section 108, which is a wide-open preemption provision that
    turns the supremacy clause of the U.S. constitution on its
    head. It would permit State laws, local laws, to basically
    overturn Federal law in a number of situations. There is no
    need--if there is a problem with a particular Federal law that
    is thwarting a specific State law, the thing to do is to
    address that specific Federal law and not thousands of Federal
    laws, which this provision does. It is totally chaotic and
    would destabilize the program.
        Finally, Section 107. This program 10 years ago, 11 years
    ago, had no stability and predictability. Renewal authorities
    were on a year-to-year basis and the terms were not generous.
    Owners could not mark the rents up to market, so the opt-out
    rate in the early years was quite high.
        Chairman Frank and others, particularly Chairman Frank,
    worked with OMB and the Department to get them to accept a
    markup to market. On a bipartisan basis, a renewal law was
    enacted 10 years ago, and that has formed the basis for giving
    owners predictability, and giving lenders and investors
    predictability and stability.
        We are worried about any provision that would upset that
    long-term stability, and we think the right of first refusal is
    something that owners feel restricts their choice of a buyer
    and the time to sell that will be disadvantageous to them.
        Now, there is more to selling a project than just the
    terms, the sales terms--how much the sale price is, when the
    consummation should take place. Owners want to pick their
    buyers. Sometimes it is difficult to get financing in small
    towns and rural areas, and a larger nonprofit organization that
    is on the approved list may not be able to get the financing.
        So it is very important that buyers feel they have those
    property rights preserved to select the owners and the time of
    their transactions. Thank you.
        [The prepared statement of Mr. James can be found on page
    58 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Mr. Shumaker?

     STATEMENT OF WILLIAM C. SHUMAKER, PRESIDENT OF THE BOARD, THE
       COUNCIL FOR AFFORDABLE AND RURAL HOUSING (CARH), AND VICE
                  PRESIDENT OF THE PROVIDENT COMPANIES

        Mr. Shumaker. Madam Chairwoman, Ranking Member Capito, and
    members of the subcommittee, I am Bill Shumaker. I am the
    president of the Council for Affordable and Rural Housing,
    located here in the D.C. area. I am also vice president of the
    Provident Companies, located in Ohio. We own, manage,
    construct, develop, and do everything we can to promote and
    develop affordable housing.
        CARH members house hundreds of thousands of low-income,
    elderly, and disabled residents in rural America. CARH has
    sought to promote the development and preservation of
    affordable rural housing through its 30-year history as the
    association of for-profit, nonprofit, and public agencies that
    build, own, manage, and invest in rural affordable housing.
        We looked at the bill. Most of our comments refer to Title
    8, which is the section on rural housing. One of the most
    important things in our written testimony says neither the
    public nor the private sector can produce affordable rural
    housing independently of the other. It has been and should be a
    partnership.
        The 514 and 515 portfolio consists of 15,977 apartment
    complexes containing over 452,000 units. Our portfolio is
    aging, and we need help. Maintaining the existing housing stock
    is more cost-effective and less expensive than allowing the
    stock to deteriorate and to be replaced with new housing.
        Most important, these housing units constitute a vital
    social resource by providing a decent home in which elderly and
    families can live with dignity. More importantly, also, the
    recession has created turmoil among residents and applicants.
        CARH members report a material change where residents are
    moving to find work or moving into Section 515 properties as a
    last resort after losing jobs. We are greatly concerned that
    some current and former residents are at a tipping point
    towards homelessness.
        We have several issues which we would like to bring forth
    to the committee. And we recently updated our aging portfolio
    bill, and I am going to review some of those quickly.
        First, we believe that the existing portfolio needs $5
    billion, or $1 billion a year for 5 years, to invest in this
    housing stock to rehabilitate it. USDA's funding commitment
    does not adequately reflect the MPR is RD's priority. Indeed,
    USDA should take advantage of credit reform rules, and has not
    done so.
        Most of the 515 mortgages that can be restructured under
    MPR were originated before credit reform. As such, RD should
    not need new budget authority to restructure most loans, but
    USDA has not allowed RD to proceed under existing budget rules.
        The Section 521 rural assistance program is an essential
    component of the Section 515 program. RD provides deep
    subsidies to very low-income residents by paying the difference
    between 30 percent of the residents' income and base rent
    required to operate the property.
        Our members would like to see first in line for RA and
    override the administrator's requirement giving preference to
    the most rent overburden; otherwise, eligible, needy residents
    who have waited for a longer period. Most importantly, there
    needs to be additional RA to remove rent overburden.
        One quick fix to RA to make RA more effective is to provide
    20-year contracts subject to annual appropriations. The Section
    538 program was enacted in 1996, and most recently Congress
    eliminated the interest subsidy for that program. This needs to
    be reinstated. I checked with Ohio. Two years ago, they were
    processing 15 to 20 applications for 538. This year, they are
    processing two.
        A long-neglected tool in Section 515 is the 515(t), where
    Rural Development is authorized to guarantee equity loans to
    provide a fair return and further preservation resources for
    properties that are 20 years or older. This program should be
    funded and implemented. It will provide owners a further
    incentive to remain in the 515 program and provide further
    resources to capitalize the property.
        A modest change in the tax rules must be adopted to
    preserve the stock of Section 515 affordable housing. This
    could be accomplished by waiving the depreciation recapture tax
    liability, where investors sell their properties to new owners
    who agree to invest new capital in the property and to preserve
    the property as affordable housing for another 30 years.
        We need to extend the current LIHTC carryback period from 1
    year to 5 years, and tax credits should be available to S
    corporations, limited liability companies, and closely held C
    corps, to the same degree that tax credits are currently
    available to widely held C corps.
        We ask you to please review our written testimony, and we
    thank you very much.
        [The prepared statement of Mr. Shumaker can be found on
    page 101 of the appendix.]
        Chairwoman Waters. Thank you very much for your testimony,
    all of you. It was tremendously informative. And I would like
    to recognize myself for 5 minutes. I have a few questions.
        My first question is directed to Mr. Caruso. Mr. Caruso, it
    appears that you oppose all of the sections of the bill that
    were requested by tenant groups. However, I have been informed
    that all of the sections that owner groups requested were
    included in the bill.
        Can you explain to me how this bill can protect the tenants
    who live in these properties since you oppose the provisions
    that they believe will do the best job of protecting them?
        Mr. Caruso. Madam Chairwoman, I will try. Let me start with
    Section 107, and then I will move to the other sections.
        There are minor problems in the 300 series sections that we
    think need to be addressed. Section 107--and there has been a
    lot of back and forth this morning on, you know, the right of
    first purchase or an option to purchase a building. In my own
    firm, we have actually done three tenant acquisitions of
    buildings, so I have some considerable experience in this area.
        I think the biggest issue you have with these sections is
    how they will be viewed by the banking and investment
    community. At the end of the day, if you are going to do any
    transaction, you have to go borrow a lot of money to do it
    with. And there has to be confidence on the part of the lenders
    and the other equity providers, and particularly the tax credit
    equity providers, that the transaction can move forward on a
    timely basis, it is properly financed, and it can go.
        The language that exists today with the timeframes in it is
    very long indeed. We just in my firm did an acquisition last
    fall; from the point at which we started looking at the
    documents to the point at which we closed the transaction was
    about 80 days.
        If the timeframes could be tightened up and other issues
    could be addressed, we might be able to look more favorably
    upon those provisions. But one of the biggest problems is in
    fact the timeframe and the fact that you have--in almost all of
    these transactions to preserve housing, we are going to need to
    bring tax credits in, and that is very time-demanding.
        So that is my answer, in part.
        Chairwoman Waters. Thank you.
        Mr. Leung, I am aware that you prefer to see a right of
    first purchase instead of the right of first refusal that is
    currently in the bill. However, if the right of first refusal
    stays in this bill, in what ways can it be improved so that it
    actually results in the preservation of affordable housing
    units?
        Mr. Leung. I am sorry.
        Chairwoman Waters. That is okay. It is all right to say,
    ``I just like first purchase. I prefer the right of first
    purchase. I don't entertain the other at all.'' It is okay.
        Mr. Leung. I do. I am just a regular kind of guy, who got
    the chance to represent the voices of tenants all across the
    Nation. And frankly, this is quite over my head. I have to
    thank everyone all across the Nation and the local
    organizations who help us, working on this issue.
        Chairwoman Waters. Well, you have done a great job
    representing this morning. And I think it is Cherry Street, you
    said, should be very proud of you. So thank you for coming here
    today.
        I think I have one more question for Mr. James. It is my
    understanding that language was added to the bill at the
    suggestion of some to provide safeguards to prevent the release
    of personal and proprietary information.
        Based on your testimony, it appears that there are still
    concerns that this language would lead to such information
    being disclosed, and we would thus welcome the submission of
    specific language to address these concerns.
        How can this section of the bill be improved to address
    your concerns?
        Mr. James. Well, I think there are certain types of
    information that have traditionally been considered
    confidential, such as the financial reports of housing
    projects. And I think that is still required to be disclosed
    publicly in this bill.
        There are a lot of items that are already being disclosed,
    and we have no problem with that. But the very personal items,
    financial items, HUD has traditionally not disclosed those. And
    we would continue to object to a requirement that they be
    disclosed.
        Chairwoman Waters. And you will be specific about what you
    have concerns about?
        Mr. James. Yes. Yes, Madam Chairwoman. We are particularly
    concerned about financial and personal information.
        Chairwoman Waters. Thank you very much.
        Ms. Capito?
        Mrs. Capito. Thank you, Madam Chairwoman.
        I would like to kind of get a little slice of life here
    from maybe Mr. Caruso and Mr. Shumaker because you both manage
    properties and have properties.
        How many units do you have currently, approximately, in
    your portfolio, Mr. Caruso? Is that higher and lower? What is
    the state of disrepair of some of these? Do you move in and out
    of these properties every year?
        Mr. Caruso. Thank you, Ms. Capito. We manage roughly 26,000
    units in about 15 States. The bulk--
        Mrs. Capito. Do you own those units?
        Mr. Caruso. No, ma'am. We--
        Mrs. Capito. So you manage for the property owner?
        Mr. Caruso. We manage for the property owners. Edgewood
    Management does not own any units. I personally have a limited
    partnership interest in certain of our properties, but we do
    not--Edgewood Management does not actually own any of the units
    that we manage.
        Mrs. Capito. Do you own units, Mr. Shumaker, your company?
        Mr. Shumaker. Yes. Our company has 78 apartment complexes--
        Mrs. Capito. Seventy-eight?
        Mr. Shumaker. Seventy-eight apartment complexes, 2,997
    units. We are the general partner in every one of those.
        Mrs. Capito. Okay. So if I had asked you that question 5
    years ago, or last year, how many apartments would you actually
    have had in your portfolio at that point?
        Mr. Shumaker. We would have had the same number.
        Mrs. Capito. The same number. So, what are your long-term
    plans here? Do you plan to move more into this market or--I'm
    trying to get a feel for as people are leaving, we heard on the
    last panel, you know, they are losing thousands of available
    units. Are people moving into this market at the same time, or
    is it just a net loss every year?
        Mr. Shumaker. I think there are some people moving into the
    market. There are people out there who are interested in
    acquiring existing affordable housing and rehabbing it using
    the various resources available.
        Our company built its first apartment complex in 1974. We
    just rehabbed it last year. So our company goal is to rehab our
    existing housing stock with what resources we have available.
    The problem is there are not enough resources available. There
    are not enough tax credits. There are not enough HOME funds.
    There are not enough of these resources for us to rehab all the
    existing apartment complexes we have.
        Mrs. Capito. Would you include in that the low-income
    housing tax credit program that people are not accessing at the
    point?
        Mr. Shumaker. Yes. I think in Ohio, it is a 3 or 4 to 1
    ratio; for every three to four applications they receive, they
    fund one. In Ohio, they do have a provision for Rural
    Development-funded projects that receive some--that can receive
    funding, from priority for tax credits. However, Ohio has over
    400 515 projects. If they rehab 3 or 4 a year, it is going to
    take 100 years.
        Mrs. Capito. Right. Also, you mentioned, I think, in your
    testimony a 5-year plan of, I think it was $5 billion, $1
    billion a year. Was that your testimony?
        Mr. Shumaker. Yes.
        Mrs. Capito. I guess in the bill, there is a--it requires a
    30-year capital needs assessment for eligible properties. I
    guess this is getting to the point that we are talking about.
        What is the real estate industry standard in terms of the
    capital needs assessment? Is 30 years way out there, or is it--
    you are talking 5 years.
        Mr. Shumaker. Yes. Thirty years is quite extensive. We
    propose in our written testimony a 20-year capital needs
    assessment. When we go in and do a capital needs assessment
    with a 515 project, Rural Development is looking at that
    capital needs and assuring that we have all the funds available
    for the next 20 years.
        When you extend that out 30 years, the need to place all
    those funds in a reserve account is tremendous. And the rents
    would skyrocket if we had to go to a 30-year.
        Mrs. Capito. Ms. Norris, did you have something you wanted
    to say in terms of the numbers of units that you are
    experiencing? Are they replacing? Are they--
        Ms. Norris. Sure. Well, to answer the question you asked
    the other gentleman--
        Mrs. Capito. Yes.
        Ms. Norris. --we also have our own portfolio. We have about
    23,000 units in 28 States. So we do have a very interesting
    perspective, as well as the other gentleman, about what your
    ownership interests are. All of our stuff is affordable. Most
    of our stuff is senior, though we do have family and also
    homeless housing.
        The question of whether--we are looking long-term. Our
    priority as an organization is to do affordable housing in the
    manner of which it is available, so whether that be to use a
    tax credit, low-income housing tax credit to build a new
    facility, or to try to use a tax credit to rehab an existing
    202, or to build a new one.
        So we try to do all those. I think you have to work on all
    those fronts because we clearly know that there is more need
    than there is stock. In the 202 program alone, there are
    probably 9 or 10 people for every unit that is out there.
        Mrs. Capito. Okay. Mr. James, could you weigh in on that
    question in terms of whether the amounts in your organization
    are moving up? Down? Are people getting into this market as we
    are losing housing? I understand the rehabbing needs are
    tremendous. I just didn't know if you had a comment to add
    here.
        Mr. James. Yes. Of course, I am a lawyer, so I don't know
    much about what is happening to specific projects. But the
    provisions that are in place in the law now, with a little
    tweaking once in a while, encourage continuation in the
    programs and recapitalization and preservation transactions.
        And the problems we have had in the last 8 years have
    generally been administrative problems with HUD, which is
    adopted policies that made it more difficult--
        Mrs. Capito. Right.
        Mr. James. --to preserve the housing. And now those
    policies are being reviewed at HUD and being modified to help
    the preservation.
        So we have an excellent system in place. The number of opt-
    outs has gone way down. There are always going to be some.
        Mrs. Capito. Right.
        Mr. James. But they have gone way down, and everybody is
    familiar with the current system. And we certainly wouldn't
    want to see that upset.
        Mrs. Capito. I just would like to make one comment
    concerning--I alluded to this in my opening statement. And I
    think we have seen really conflicting opinions on the Section
    107 on the right of first refusal. And I think we really need
    to tread lightly here.
        The one question that I had originally was if HUD gets into
    the business of purchasing these complexes or these--where is
    this money going to come from and how is it going to be
    accounted for? It is just a whole different view. So I am very
    interested to see how we can work out some of the differences
    we have heard today.
        Chairwoman Waters. Thank you.
        Mr. Cleaver?
        Mr. Cleaver. Thank you, Madam Chairwoman.
        Mr. Halliday, I just have one question. Maybe there are two
    inside the one. But HUD apparently, based on your testimony,
    terminates troubled housing or troubled property owners rather
    than suspend.
        And the two questions are, first, is there a policy that
    would require termination at a point when a property is
    determined to be troubled? Or is that a decision left to the
    PHAs as a result of their contract with HUD in the cities?
        And the other is your opinion about whether or not we could
    possibly be losing people who could be actually very good
    property owners for us in the Section 8 program when we just
    cut them off. I mean, a dog generally growls before it bites.
    So maybe we ought to have a growing policy to property owners
    before we completely terminate them.
        Mr. Halliday. Thank you, Congressman. National Housing
    Trust and our affiliate, National Housing Trust Enterprise
    Development Corporation, actually owns and manages our own
    portfolio of affordable rental housing. And we have quite a bit
    of experience with the situations you are describing.
        The question of termination versus suspension, from HUD's
    perspective, in my opinion, is driven by a couple of things.
    First of all, HUD has an obligation to the residents of any
    building that they need to protect them from health and safety
    violations that may put life and safety in danger. So HUD takes
    a pretty strong view that they need to get out of properties
    that they think are being managed so badly that the residents'
    health and safety is at risk. And of course, we would agree
    with that.
        The question is: What do you do before you get to that
    point? And I think it is fair to say that through a period of
    years, the ability of HUD to identify and intervene early in
    situations where properties are not being properly maintained
    is not as robust as it could be or it should be.
        And I know that Deputy Assistant Secretary Galante and
    others at HUD are working on this. They are aware of this. But
    we and other organizations are very interested in working with
    them to come up with a better framework for identifying problem
    properties and intervening in them before they get to this
    point where you simply have to cut off the rental subsidy
    because of a threat to the residents who are there.
        That decision, to answer your other question, is actually
    made by HUD staff. These again--we are talking here about
    privately owned, project-based Section 8 properties. so the
    contracts in those properties are overseen primarily by HUD
    staff in the field, and they are the ones that make those
    decisions.
        Some HUD field staff are much more interested in trying to
    prevent the sort of last-minute, falling-off-the-cliff sorts of
    situations. Others are less aggressive about trying to solve
    the problems before they blow up. But in our minds, we could do
    a lot more to prevent properties from being terminated and
    really becoming drags on the entire community by doing more in
    early intervention.
        Mr. Cleaver. Thank you. That is exactly what I wanted you
    to say for the record. Thank you.
        I yield back the balance of my time.
        Chairwoman Waters. Thank you very much.
        Mr. Green?
        Mr. Green. Thank you. And I want to associate myself with
    the comments of the Chair and Ranking Member Capito. Ms. Capito
    has indicated some concern about Section 107, and I share her
    concerns as well, and want to take us back for just a moment to
    1965, or thereabouts, when we made this commitment try as best
    as we can to help people who were living literally on the
    streets and in places that we found unacceptable.
        Affordable housing was something that we decided was
    appropriate, both economically and morally--morally, I think,
    because we ought to do what we can to help people who are
    homeless, but we also found that we were spending an inordinate
    amount of money on housing helping people, and that it would be
    much better if we developed affordability programs. Hence, we
    have many of the programs we have today.
        And if we don't take on this question that we are grappling
    with right now, we are going back to 1965, and we may get back
    there a lot faster than we like. So I think it is important
    that we do what we can to try to retain the affordable housing
    stock that we have.
        I find myself, Mr.--is it Caruso?
        Mr. Caruso. Yes, sir. It is.
        Mr. Green. Mr. Caruso, I want you to know that I understand
    that owners have rights and needs. And I also understand that
    tenants have rights and needs. It appears that the Chair was--
    and I am talking about Chairman Frank--tried to find that
    balance in Section 107. And you have indicated that with some
    tweaking, you may be able to work with 107.
        Mr. Caruso. Yes, sir.
        Mr. Green. But it appears that he tried to find that
    balance because there are some of us who think that a right to
    purchase would be a cleaner and easier way to do it because you
    have a specific amount of time, perhaps, to exercise your right
    to purchase. You don't do it, then you can move on. And that is
    one way. And then, of course, we have the right of refusal.
        But my point that I would like to make with you is I am
    really sincerely--and I want to make this as clear as I can--I
    am sincerely interested in finding a solution that is
    acceptable to tenants, Mr.--is it Leung? Mr. Leung--and to the
    owners. There may be a solution. And if there is not, then we
    will all stand on our principles and move forward.
        But my question to you is: Are you amenable to visiting
    with me? Five minutes in an open hearing is not nearly enough
    time to understand all of the concerns that the owners have,
    not nearly enough time to understand all of the concerns that
    the tenants have. You need more time to talk to people--
        Mr. Caruso. Yes, sir.
        Mr. Green. --to understand the nuances of the problems
    because one of the things that was called to my attention by
    Mr. Leung is that they are converting these to market and not
    selling them. That brings in another dynamic to have to contend
    with, if we are not having the opportunity to purchase in the
    first place.
        So I think that it would be helpful if I could ask you to
    allow us to set appointments at different times and visit with
    you so that I can get a much deeper understanding of what we
    are trying to accomplish. Is this something you find
    acceptable, sir, Mr. Caruso?
        Mr. Caruso. Absolutely. It happens I live in Fort
    Washington, so the commute is handy. And we at NAHMA and myself
    personally were more than committed to doing that. I think
    there is a middle ground to be found here. Chairman Frank is to
    be commended for the work he has done so far.
        Mr. Green. I absolutely agree with you.
        Mr. Caruso. We have worked with him a lot on it. You know,
    as I sit with owners and we consider--we have in our firm now
    more than 15 properties whose mortgages expire in the next 4
    years. We sit every month and start looking at what we are
    going to do with those properties as they start coming out.
        Mr. Green. Well, we want you to work with us and see if we
    can find a way to keep them in the affordable housing stock.
        Mr. Caruso. It is our commitment to do that, sir.
        Mr. Green. And Mr. Leung, would you be amenable to--if you
    can't meet, perhaps distance may be a problem. Maybe we can
    talk on the phone and I can get a better understanding from you
    of some of the concerns that the tenants have. Having been both
    a tenant and an owner, I understand to some extent where we
    are.
        And finally, I want to make note of this. Mr. Gutierrez,
    who has done an outstanding job chairing the Financial
    Institutions Subcommittee, the letter that we sent dealt with
    the first right of purchase. He is, I believe, the author of
    the letter, but I concur with the language in it.
        He mentions that the Illinois Federally Assisted Housing
    Preservation Act includes a first right of purchase, and it
    seems to be functioning quite well. Mr. Caruso, are you
    familiar with that, this Act that--
        Mr. Caruso. I am only dimly familiar with it. I don't have
    a precise understanding of it. There is similar legislation in
    Massachusetts as well.
        Mr. Green. Okay. Well, what we will do is talk about it
    more when we meet.
        Thank you, Madam Chairwoman.
        Chairwoman Waters. Thank you very much. I thank you all for
    being here today.
        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.
        This panel is dismissed, and I will make certain
    submissions a part of the record before we adjourn. The written
    statements of the following organizations will be made part of
    the record of this hearing: the National Rural Housing
    Coalition; Stewards of Affordable Housing for the Future; the
    National Housing Law Project; and the Housing Assistance
    Council.
        Again, I would like to thank you for your testimony today.
    This panel is adjourned.
        [Whereupon, at 11:59 a.m., the hearing was adjourned.]

                                A P P E N D I X

                                 March 24, 2010

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