[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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56-780 WASHINGTON : 2010
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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
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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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