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




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

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 24, 2010

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-116




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

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

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
           Subcommittee on Housing and Community Opportunity

                 MAXINE WATERS, California, Chairwoman

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

                              ----------                              
                                                                   Page
Hearing held on:
    March 24, 2010...............................................     1
Appendix:
    March 24, 2010...............................................    35

                               WITNESSES
                       Wednesday, March 24, 2010

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

                                APPENDIX

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

              Additional Material Submitted for the Record

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


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

                              ----------                              


                       Wednesday, March 24, 2010

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

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

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

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

    Ms. Trevino. Chairwoman Waters, Ranking Member Capito, and 
members of the subcommittee, thank you for the opportunity to 
appear before you to discuss multifamily housing preservation 
in rural America.
    This is a critically important issue, and in broad terms, 
we believe that the strategy outlined in the Rural Housing 
Preservation Act of Title 8 of the proposed legislation is very 
promising.
    I would like to thank all those involved with this 
legislation, both in this session of Congress and in previous 
sessions, for your hard work. I am pleased to testify before 
you today on behalf of Secretary Tom Vilsack, Under Secretary 
Dallas Tonsager, and the USDA Rural Housing Service.
    At the USDA, we advocate a strong national housing policy 
that both supports the American dream of homeownership and 
provides affordable rental opportunities. We are greatly 
encouraged by the committee's focus on legislation that will 
create national housing preservation standards for all 
government agencies that specialize in housing assistance, 
especially in rural America.
    We further believe that your goals and ours are the same in 
both the desire to preserve the Nation's existing stock of 
federally-assisted, affordable multifamily rental housing, and 
the protection from displacement of low-income families, 
especially the elderly and the disabled.
    For 60 years, our rural housing programs have provided 
invaluable support for low- and very low-income families in 
rural areas. In the current economy, the challenges that have 
faced rural communities for decades have grown more acute.
    Recent studies show there are there are 386 persistent 
poverty counties in the United States. Of these 386 counties, 
340, almost 90 percent, are considered rural counties. The same 
study indicates that persistent poverty and the degree of 
rurality are also linked. The poverty rate is the highest in 
the completely rural counties. So not only do rural Americans 
earn less than their urban counterparts, they are also more 
likely to live in poverty.
    Rural development multifamily housing programs were 
established because sufficient access to capital and credit was 
not available to serve the needs of the very low-income renters 
who wish to live and work in rural communities. The need to 
preserve the Nation's existing stock of federally-assisted, 
affordable multifamily rental housing, and the protection from 
displacement of low-income families, especially the elderly and 
disabled tenants in rural America, gave rise to the Multi-
family Preservation and Revitalization Demonstration Program 
that began in 2006.
    MPR is in its fourth year of existence. To date, rural 
development has obligated over 400 MPR revitalization 
transactions for Section 515 properties that will affect close 
to 14,000 tenant households.
    Currently, our MPR program is authorized as a demonstration 
program, with no permanent authority. The lack of permanent 
authorization makes it difficult for the agency to promulgate 
permanent program regulations and to address long-term issues. 
By providing permanent authorization, the legislation would 
dramatically enhance the quality of the multifamily housing 
stock and protect tenants in rural America.
    In rural America, low-income residents continue to be 
underserved, especially given the current economic environment. 
For example, turbulence in the housing credit investment market 
has had some effect on rural deals in the preservation 
pipeline.
    While the vast majority of approved MPR transactions are 
now closed, the recent depletion of investors due to market 
instability has reduced equity that is available to be brought 
into low-income housing tax credit transactions in rural areas.
    Half of all MPR transactions funded include transfers as 
part of the revitalization transaction. This has slowed the 
rate of closing for MPR transactions obligated during Fiscal 
Years 2008 and 2009, that included a transfer dependent on low-
income housing tax credit funding.
    At USDA Rural Housing, we are pleased with five key 
features in your proposed legislation:
    Number one, it provides the agency with a number of 
revitalization tools that provide cost-effective preservation 
options for the existing multifamily housing rental portfolio.
    Number two, it contains enhanced voucher authority that 
will protect tenants and properties that leave the program, as 
well as ensuring long-term affordability for tenants through 
long-term use agreements.
    Number three, it includes RD's farm labor housing programs.
    Number four, it includes provisions for long-term viability 
planning.
    And number five, it introduces the concept of a national 
database that will give us access to the information needed to 
track America's affordable housing. Passage of the bill 
codifies the Demonstration Program and will provide additional 
tools and incentives to our current 515 program.
    In general, we support the principles reflected in the 
bill, and look forward to working with Congress to approve this 
legislation. It is my goal to assist Secretary Vilsack and 
President Obama in working with the committee and our public 
and private partners to spur economic growth and create a 
lasting foundation in the heart of rural America.
    [The prepared statement of Administrator Trevino can be 
found on page 111 of the appendix.]
    Chairwoman Waters. Thank you very much.
    In the interest of time, Ms. Velazquez, who chairs another 
committee, will have to leave. I am going to yield to her to 
begin the questioning. I will recognize you for 5 minutes, Ms. 
Velazquez.
    Ms. Velazquez. Thank you, Madam Chairwoman.
    Ms. Galante, while the market for single-family homes shows 
some signs of stabilizing, many multifamily apartment buildings 
remain at significant risk of default and foreclosure, with 
buildings overleveraged and lacking sufficient rent rolls to 
support operating expenses and maintenance.
    Does HUD have adequate tools to address this problem, since 
FHA and the GSEs currently represent about 90 percent of 
today's multifamily market?
    Ms. Galante. Thank you for that question. You know, 
clearly, in the market today, you are correct that single-
family is stabilizing. I think most economists would say that 
the multifamily sector is behind in terms of that overall 
recovery, and so that there is significant stress in the 
multifamily sector, particularly the private market rate 
market, not so much in the affordable stock.
    So in terms of the FHA multifamily insured loans, we do 
have significant tools to deal with distressed properties. I 
think generally in the marketplace, there is concern that some 
privately financed market rate complexes don't have the similar 
tools to take care of those needs.
    Ms. Velazquez. Well, the reason that I am asking that 
question is that I am concerned about the fate of tenants who 
live in multifamily buildings that are at risk of default or 
foreclosure. We all know the ripple effects of this investment 
in this development can affect entire communities.
    So what are some of the ways that provisions in H.R. 4868 
will help you in addressing this issue?
    Ms. Galante. There is a provision that strengthens HUD's 
ability to deal with its own portfolio of distressed 
properties. There are not provisions in this bill that would 
impact those other private market rate types of properties.
    Ms. Velazquez. And the legislation being discussed today 
attempts to help owners of federally-assisted housing find 
viable, long-term purchasers for their properties through a 
voluntary preservation exchange program, Section 106 of the 
bill.
    Given the voluntary nature of this program, however, do you 
think sufficient numbers of owners will participate in this 
program?
    Ms. Galante. I am quite optimistic that Section 106, the 
voluntary preservation exchange program, will enable a 
significant number of private owners to make the choice to stay 
with the HUD programs. And that in conjunction with some of the 
other streamlining of red tape that we are doing as part of 
this legislation, I think, will be quite successful.
    Ms. Velazquez. Ms. Galante, you know that the bill under 
consideration will establish a right of first refusal. Housing 
advocates, however, believe that the right of first refusal 
provides weaker protections for affordable housing than a first 
right of purchase, which has shown great success in a State 
like Illinois.
    Do you believe that the right of first refusal should be 
strengthened to provide greater protections for tenants?
    Ms. Galante. We have concerns about--and you heard 
Secretary Donovan mention this back in June when there was a 
preservation hearing--with the mechanics of whether it is the 
right of first purchase or the existing Section 107 here.
    Both of those provisions, you know, have significant 
challenges in terms of implementation in this private market 
ownership environment that we have. So we think that, you know, 
those could be challenging to implement and to legally mandate.
    Ms. Velazquez. Okay. Thank you. Thank you, Madam 
Chairwoman.
    Chairwoman Waters. Ms. Capito?
    Mrs. Capito. Thank you.
    I want to stay with that topic that we were just talking 
about, Ms. Galante. In terms of--you mentioned Secretary 
Donovan, who was here in June, and his experience in New York 
had solidified his opinion that incentives for preservation 
work much better than perceived mandates. Section 106, the 
preservation exchange, I think, reflects what the Secretary has 
in mind.
    But then Section 107 turns around and includes a Federal 
first right of refusal. Do you think there is any conflict 
between the two, Section 106 and 107, and what would be the 
results of trying to enforce both of those?
    Ms. Galante. Well, my reading of the bill is that if you 
voluntarily agree to participate in Section 106, that while you 
are participating in that, Section 107 would not apply. So in 
that way, I don't think there is a direct conflict. But, you 
know, they are philosophically different approaches.
    Mrs. Capito. Right. And I want to talk again about Section 
107, which provides the right of first refusal, for either HUD 
or an approved assignee to purchase low-income assistance 
properties at the fair market value to prevent those from 
drifting away from the affordable housing stock.
    I am concerned about allowing HUD to purchase these 
properties. I am assuming that--would this be the first time 
that HUD has entered into these kinds of arrangements? Where 
exactly would this money come from? How does HUD decide to 
value the properties? How long does HUD intend to hold the 
investments, and all kinds of questions surrounding that? Could 
you speak about that section a little bit?
    Ms. Galante. Yes. I am not sure I can answer all of those 
questions. I don't know if this is the first time that HUD has 
done this. I am not aware of other circumstances. But I am 
relatively new to the Department, so I can't speak to that.
    I think that the section does provide for HUD to assign its 
rights to another entity. And clearly--
    Mrs. Capito. So that would be after HUD--not after HUD 
purchases, but assigns their right of first refusal to 
somebody?
    Ms. Galante. Correct.
    Mrs. Capito. So who else would that be?
    Ms. Galante. Well, HUD would have to establish a proposed 
panel of bidders, so to speak, or preservation-minded entities 
that would like to purchase these properties. And we would have 
to have some kind of program set up to enable folks to come in 
and step in, essentially, to HUD's shoes in this case unless 
HUD wanted to take on doing that themselves.
    Mrs. Capito. Well, with HUD's--I mean, I just think that 
this is obviously not fully fleshed out, this whole idea of 
right of first refusal. And I think it is something that if it 
is going to entail HUD actually purchasing the properties, or 
managing the properties, or how long are they going to hold the 
investments, it really, I think, puts a--with HUD's reputation 
for technological challenges, I think it will put another 
technological challenge onto an already overburdened staff.
    I would like to ask Administrator Trevino a question. You 
and I talked about this, actually, on the phone. The 502 
single-family loan guarantee program will exhaust its funding 
by the end of April. And we have already heard that lenders are 
already stopping taking applications for this program because 
they are concerned that their funding is not going to be there. 
I have received numerous e-mails from folks who use this 
program and say it is a great program, but are concerned about 
the lack of programs.
    How many American families have used the program so far? 
And how critical is this for rural families? And do you believe 
that--what are you doing to continue the viability of this 
program through the end of this fiscal year?
    Ms. Trevino. Just based on our numbers that we have, we had 
over 85,000 homeowners who went through the guarantee program, 
so it was very highly successful. It was our first program in 
housing that used up all its funding. And that happened 
actually in December.
    So it is a very popular program. We have four major lenders 
that participate in the program, as well as numerous smaller 
ones.
    Mrs. Capito. And what are you doing to see that this can 
continue from the end of April to the end of the fiscal year, 
where we are going to have the shortfall?
    Ms. Trevino. At the current time, there are folks at a lot 
higher level than I am that are weighing the options. There are 
several options. The two more popular ones are fee-based 
options. And that decision will be made at a higher than I, and 
so at some point we hope to have some type of resolution.
    Mrs. Capito. All right. Well, I am very interested in the 
results of this, as I expressed to you on the phone the other 
day, and would love to participate in trying to help find a 
solution to this program.
    Ms. Trevino. Thank you. I appreciate that.
    Mrs. Capito. Thank you.
    Chairwoman Waters. Thank you very much. I will recognize 
myself for 5 minutes.
    As you can see, there is a lot of interest in the Section 
107 Federal first right of refusal. As you know, some of us are 
interested in the opportunity for tenants to own property if 
the opportunity presents itself. And it seems a little bit 
confusing.
    It talks about the owner being able to accept an offer, and 
then HUD comes in behind the acceptance of the offer and 
matches that offer. And then I guess it would have the first 
right of purchase.
    Is that your understanding?
    Ms. Galante. Actually, my understanding is there is a two-
part test under 107. And the first is that the one notifies of 
their intent to opt out of the program. And I think there is a 
90-day period where HUD has the ability to raise their hand and 
say, we want to purchase the property or assign our ability to 
purchase the property.
    And if at that point HUD does not do that, then the private 
owner is free to go out and make a purchase arrangement with a 
private owner. And then HUD can come back in under certain 
circumstances to essentially match that private offer.
    Chairwoman Waters. So it is not your understanding that the 
owner would, a year ahead of time, notify that they would like 
to sell the property, and then go out to the market and get a 
fair market value appraisal, and then HUD would have the 
opportunity to match that fair market available or value? So do 
they notify a year ahead of time?
    Ms. Galante. Yes, they do.
    Chairwoman Waters. And then do they place the property on 
the market and accept an offer? That is what is kind of 
confusing me. Normally, when you think of an acceptance of an 
offer, it seems that you have something that is legally binding 
that you have to honor in some way.
    But this appears that after the acceptance of the offer, 
HUD can then come in and either match that offer or maybe over-
match the offer and have the first right.
    Ms. Galante. That is correct. That is the right of first 
refusal portion of Section 107. My understanding, and maybe I 
read it incorrectly, but my understanding is that prior to that 
right of first refusal, there is this 90-day period where HUD 
could say they wanted to actually purchase it before the owner 
goes out and gets a third party offer.
    Chairwoman Waters. All right. Ms. Galante, you didn't 
mention Section 303, which would confer third party beneficiary 
status on residents. What is the Department's position on this 
provision?
    Ms. Galante. This is a relatively new provision of the 
bill, and we haven't taken a formal position on that.
    Chairwoman Waters. Thank you.
    I will then call on Mr. Cleaver.
    Mr. Cleaver. Thank you, Madam Chairwoman. I just have one 
question for this panel.
    In going over the background information for this 
legislation that our Chair has introduced, I find that 193,000 
subsidized rental units will move into market rate over the 
next 10 years.
    So my question and concern--well, the point of the question 
is to determine how much of an emergency this bill is for now, 
when you consider we have walked almost to the precipice 
economically in the country. And if we are talking about 
193,000 in 10 years, how many can we estimate falling over in 
2010/2011? With less money moving around in the economy, the 
renters and the owners are probably in a less favorable 
situation to recapitalize some of the units.
    So do you have any idea or estimate on how many will move 
to market rate this year or next year?
    Ms. Galante. I don't have the exact figures. I think the 
place where we are in the economy today has two situations 
affecting these properties. On the one hand, I believe some 
properties are less likely to opt out of their Section 8 
contracts because their properties might be less valuable in 
the market rate rent situation.
    On the other hand, there are property owners who, because 
they are reaching a certain--there is a peak of properties 
reaching maturity and expiring use, that if they don't pull the 
trigger today, they are not--they have an opportunity to pull 
the trigger today and get out of the program.
    And so those properties are significantly at risk. And 
particularly those with maturing mortgages aren't really 
protected under current regulations. And so I think there is a 
significant risk in the next 5 years for these properties.
    Mr. Cleaver. Ms. Trevino, do you have any comments?
    Ms. Trevino. Well, we have currently about 100 properties 
that have left our portfolio. That is about 2,700 units that we 
have lost in the last--based on either transferring out or no 
longer decent.
    Mr. Cleaver. Yes. The point was how much of an emergency do 
we have? Is there something we need to do? I am willing to vote 
for it to be done yesterday, and I am getting a sense of the 
fact that the losses are occurring right now.
    Ms. Trevino. It is about the same. We lose about a hundred. 
Our portfolio, about 10 percent of our total portfolio, is in 
the worst condition.
    Mr. Cleaver. How are we going to handle the fact real 
estate values have dropped about 36 percent since the beginning 
of the great recession? Are we going to have problems with 
property owners who, when they began participating in this 
program, had one value on their property, and now it is 36 
percent lower?
    Do you have any idea how we would be able to handle that, 
and whether property owners are going to be willing? My 
assumption is that the cost is going to be significantly less 
today than it would have been if we had tried to do this 2 
years ago.
    We have a bridge in my district that came in when the city 
first sent out a request for bids at $25,000 to rebuild it. 
When we receive the money through the TIGER grant, the new bid 
is $10,000. So people are moving to a new economy that we have 
unwittingly created. Do you think we will have problems?
    Ms. Galante. If I could just say, again, it cuts both ways. 
In this situation, owners whose properties are less valuable in 
the private market with market rate rents because of the drop 
in values may be more likely continue to opt in to project-
based Section 8 because that is a more secure situation.
    On the other hand, if they are under economic distress with 
other properties that they own, even though they may be getting 
less value for the property than they would have 2 years ago, 
they may be motivated to take out equity now for other reasons 
and figure it is going to be a while before the market comes 
back, and they have an opportunity now and they are going to 
take it.
    So it is a complicated situation and I think it is partly a 
microeconomic valuation at different parts of the country.
    Mr. Cleaver. Thank you.
    Chairwoman Waters. Thank you very much.
    Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Madam Chairwoman.
    Let me go first to the letter that I referenced earlier to 
Secretary Donovan, which is signed by Chairman Frank, 
Chairwoman Waters, and myself. A slight modification in my 
earlier statement because this letter actually deals with an 
amendment that I had to H.R. 3965, the Mark-to-Market Extension 
and Enhancement Act of 2007. It would reactivate Section 514 of 
the grant program, which accords about $10 million to tenant 
groups for training and technical assistance, the purpose of 
which would be to improve and preserve properties.
    My understanding is that there is now a proposal to develop 
language that has not been shared to date, and HUD would do 
this. Ms. Galante, can you briefly, as tersely as possible, 
share with me how your language would be better than the 
language that is currently proposed in Section 514?
    Ms. Galante. Certainly. In concept, we are very supportive 
of Section 514 and tenant outreach and education. We have 
developed a draft program on which we are having conversations 
with tenant organizations. It is not final. We want to get 
input to make sure that it is going to work. We are calling it 
the Tenant Resource Network, or TRN.
    And, fundamentally, it is a very solid program. I think the 
one difference between where this program is going and the 
language in the legislation is the language in the legislation 
requires there to be a national MOU with the corporation that 
runs Vista.
    And in our program, we are allowing grants to go to 
resident organizations, and they can use those grants as 
matching funds to receive local Vista volunteers.
    Mr. Green. Because I have one other question and time is of 
the essence--
    Ms. Galante. Yes.
    Mr. Green. --may I make a request that, if it does not 
breach some protocol or ethics, that my office be involved with 
you as you are developing this? Given that I have demonstrated 
an interest in this--
    Ms. Galante. Certainly.
    Mr. Green. --prior to this moment in time. And I will have 
someone visit with you afterwards.
    Ms. Galante. Great.
    Mr. Green. Now, let's move to the next letter, and talk 
about the first right of purchase versus the first right of 
refusal.
    Do you agree that a right to purchase is a stronger right 
than a right to refuse?
    Ms. Galante. Yes.
    Mr. Green. And as such, it appears that the right to 
refuse, while it can be of benefit, the right to purchase would 
put a tenant organization--or HUD, if indeed HUD chose to make 
the purchase, and I am not sure that would be the case--but it 
would put you in better standing in terms of moving forward.
    Would you agree with this?
    Ms. Galante. I would say this; I think Section 107 is 
relatively new. I have read through it a number of times. It is 
complex. Again, my reading of it was that even though it is 
called a right of first refusal, that there is a kind of 
initial stage which is more like a right--it is not a right to 
purchase, but it is more like a right to offer that kind of 
takes care of both of those situations.
    That is my reading of it, and I could be wrong.
    Mr. Green. So currently, you are supportive of 107 as 
structured?
    Ms. Galante. Well, again, we have concerns about the 
mechanics of 107 as expressed by the Secretary back in June on 
the right of first purchase, the Section 106, which is the 
preservation/exchange voluntary program we think has more 
flexibility in terms of how it gets implemented.
    Mr. Green. Have you looked at the rural development program 
and the mandatory purchase rights contained therein?
    Ms. Galante. I have not.
    Mr. Green. Would you be amenable to our working with you--
and I would, of course, work with the Chair as well, if the 
Chair permits--on language for 107?
    Ms. Galante. Certainly.
    Mr. Green. And of course, the Chair has proposed language, 
which means that I would obviously talk to the Chair before 
encroaching in this area. But it is something of concern 
because one of the best ways for tenants to maintain affordable 
housing is to have a stake in it beyond being a renter.
    And if they can have the opportunity to be a part of a 
purchase program, which I think can be replicated quite 
efficiently across the country, I think that it will bode well 
for tenants in the future. It would be a new paradigm, or a 
paradigm that would expand. I think it has been before, but if 
we could expand a paradigm.
    So thank you very much, and I yield back.
    Chairwoman Waters. Thank you very much.
    Mr. Ellison, for 5 minutes.
    Mr. Ellison. Thank you, Madam Chairwoman, and thank you for 
holding this very important hearing. I just want to point out a 
quick fact before I get to my question. My home district of 
Minneapolis is poised to lose over 5,000 apartments with 
Federal project-based contracts by 2019. And the loss of these 
assisted housing units could not come at a more difficult time 
for the residents of Minneapolis. Nearly 60 percent of the 
foreclosed homes in our City were occupied by tenants. This 
means that the housing insecure face even fewer options. And so 
I would just put that out there for you. And maybe I will just 
ask you a general question.
    How serious is this problem around the rest of the country?
    Ms. Galante. I certainly can say that I think Minneapolis 
is not the only location. I think it is a universal problem 
across the country, wherever there are these types of rental 
assistance programs. Hot markets are more vulnerable than 
weaker market locations in terms of market rate rents. But, it 
is a serious problem.
    Mr. Ellison. Ms. Trevino, let me ask you this question. In 
your testimony, you noted that of the 10,000 rural development 
vouchers that are offered to tenants, only about a third of 
them actually use them.
    Why do you think so few tenants use the voucher program, 
and would it--could we redistribute them without doing any 
damage to our rural tenant program? Because that is something I 
would never want to do. In Minnesota, we have a very nice 
balance between rural, suburban, and urban.
    But if they are not using them, couldn't they be 
redirected?
    Ms. Trevino. I think that the way you have proposed them in 
the bill with the three different vouchers, I don't think we 
are going to have a problem using them up in that scenario. 
Right now, we run one voucher program, and this bill proposes 
three. So I don't think that will be an issue if this bill goes 
forward.
    Mr. Ellison. Okay. Well, thank you for your questions. I 
yield back.
    Chairwoman Waters. Thank you very much. The Chair notes 
that some members may have additional questions for this panel, 
which they may wish to submit in writing. Without objection, 
the hearing record will remain open for 30 days for members to 
submit written questions to these witnesses and to place their 
responses in the record. This panel is now dismissed, and I 
would like to welcome our second panel. Thank you very much.
    Good morning. I am pleased to welcome our distinguished 
second panel.
    Our first witness will be Mr. George Caruso, executive vice 
president, Edgewood Management Corporation, on behalf of the 
National Affordable Housing Management Association.
    Our second witness will be Mr. Toby Halliday, vice 
president for public policy, National Housing Trust, on behalf 
of the National Preservation Working Group.
    Our third witness will be Mr. Ricky Leung, treasurer, 
National Alliance of HUD Tenants, and president of the Cherry 
Street Tenants Association.
    Our fourth witness will be Ms. Michelle Norris, senior vice 
president, acquisitions and development, National Church 
Residences, on behalf of the American Association of Homes and 
Services for the Aging.
    Our fifth witness will be Mr. Raymond K. James, partner, 
Coan & Lyons, on behalf of the National Leased Housing 
Association.
    And our final witness will be Mr. William Shumaker, 
president of the board, the Council for Affordable and Rural 
Housing, and vice president of the Provident Companies.
    Without objection, your written statements will be made a 
part of the record. You will now be recognized for a 5-minute 
summary of your testimony. And we will start with our first 
witness, Mr. George Caruso.

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

    Mr. Caruso. Good morning, Chairwoman Waters and Ranking 
Member Capito. I am George Caruso, executive vice president of 
Edgewood Management Corporation in Germantown, Maryland. We are 
the ninth largest manager of assisted housing in the Nation. I 
am appearing today for the National Affordable Housing 
Management Association. Thank you for allowing my statement to 
be introduced into the record.
    We are pleased with much of H.R. 4868, the Housing 
Preservation and Tenant Protection Act of 2010. NAHMA has been 
a strong supporter of preservation for some 20 years now. NAHMA 
has had an opportunity to review the bill in detail at our 
winter meetings last week.
    Although our general membership opposes the bill in its 
current form, our opposition is limited to provisions in seven 
sections: Sections 107; 108; 109; 110; 302; 303; and 304. We 
applaud the remaining 60 sections of the bill.
    Indeed, we appreciate that numerous provisions address 
issues that we have been discussing with the committee members 
on both sides of the aisle for a number of years. These issues 
include the long-term physical and financial viability of 
properties, the continued affordability of properties with 
mature mortgages, and finally, protecting tenants from severe 
rent burdens when affordability restrictions expire.
    Allow me to get to the major issues we have. First, Section 
107, the Federal first right of refusal: This provision will, 
in our view, serve to drive potential purchasers and equity 
providers away. There are a variety of problems with this 
provision which include, but are not limited to: undermining 
owner and investor confidence in their agreements with the 
Federal Government; and potentially alienating willing 
purchasers, who must wait through a lengthy process, thereby 
affecting market value. We believe a better and more workable 
approach is suggested in Section 106, the preservation exchange 
program, which NAHMA supports.
    Second, Section 304, the resident access to building 
information: The provisions of this section are overly broad, 
and they will force the release of proprietary information. It 
is useful to observe that the bulk of the information required 
to be released here is submitted to HUD through the most secure 
computer system that HUD has, and it is accessible only on a 
limited basis inside HUD, since they judge the data to be very 
sensitive. The less sensitive building information referenced 
in this section is already publicly available from HUD.
    Third, the Section 110 authority for HUD to assign flex 
subsidy loans: We view this provision, among others, as tilting 
the playing field in preservation to nonprofit organizations. 
NAHMA represents both for-profit and nonprofit owners. Part of 
our policy is that there be no bias between the two types of 
ownership. Both bring substantial advantages to the table. Both 
are required to make preservation work. Preservation tools, we 
believe, should be equally available.
    Our concerns on the remaining sections we object to are 
detailed in our written testimony. Let me move now to a more 
positive note.
    We are particularly pleased to see the provisions in: 
Section 406 addressing correcting harm caused by late subsidy 
payments; Section 501, the extension of the mark-to-market 
program; and Section 508, budget-based rent adjustments.
    Section 406 penalizes HUD for making excessively late 
subsidy payments to owners, and will assure that the properties 
are properly funded going forward. The language in Section 508 
will allow for a re-underwriting of a group of mark-to-market 
properties that were incorrectly underwritten initially, and 
will retain them as viable assisted housing going forward. 
These sections will work to assure that more housing is 
preserved.
    There are many other sections of the bill that we find very 
encouraging. They, too, are detailed in our written materials.
    Madam Chairwoman and Ranking Member Capito, thank you very 
much for allowing us to share our views and concerns with the 
subcommittee. NAHMA remains committed to the essential task of 
preserving the assisted and affordable housing portfolio. We 
remain available to members and staff to answer questions and 
make suggestions to get to a successful conclusion of this 
legislation.
    Thank you very much.
    [The prepared statement of Mr. Caruso can be found on page 
36 of the appendix.]
    Chairwoman Waters. Thank you.
    Our second witness will be Mr. Toby Halliday.

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

    Mr. Halliday. Thank you, Subcommittee Chairwoman Waters, 
Ranking Member Capito, and members of the subcommittee. My name 
is Toby Halliday, and I am vice president for Federal policy 
for the National Housing Trust. It is my pleasure to testify 
today in support of H.R. 4868, the Housing Preservation and 
Tenant Protection Act of 2010. Today, I am also testifying on 
behalf of the National Preservation Working Group, which is a 
coalition of 36 nonprofit organizations supporting affordable 
rental housing.
    H.R. 4868 safeguards affordable apartments that are home to 
more than one million extremely low-income families, elderly, 
and disabled persons. As foreclosures on homes and apartment 
buildings continue to unfold, a growing number of renters are 
competing for a limited supply of affordable rental housing. 
Many of these families will be seeking apartments at the lower 
end of the scale, where there is already a shortage of 
affordable housing for the poorest households.
    Although market conditions have resulted in lower housing 
costs for many middle-income households, increased demand for 
the most affordable housing is actually leading to higher rents 
and tighter credit screening in some markets.
    Shortages of decent, safe, affordable housing are 
complicated further by ongoing problems in the low-income 
housing tax credit market. Uncertainty among traditional tax 
credit investors about future profitability, together with a 
preference for the simplest and shortest investment options 
available to other investors, has left the tax credit market 
crippled in all but a few markets, dramatically reducing the 
creation of new affordable units from its peak in 2007.
    This legislation includes important new tools to protect 
residents and preserve affordability when assisted housing is 
refinanced, recapitalized, or when the underlying HUD financing 
or RD financing matures. This legislation includes provisions 
that would, at the owner's discretion, provide rental 
assistance for affected apartments both for HUD-assisted and 
rural development 515 properties. Improving preservation tools 
makes the rehabilitation of these properties easier to finance, 
leading to the creation of needed construction jobs.
    The legislation we see today also benefits from extensive 
discussion and revision to accommodate competing interests. For 
example, last summer, several private industry groups raised 
strong objections to four draft provisions. In the bill as it 
currently stands, all four of these provisions have been 
revised or removed entirely, despite the objections of many 
housing advocates.
    The right of first refusal in Section 107 allows 
preservation-oriented buyers to match the offer of any other 
bona fide purchaser of HUD-assisted property. This ensures any 
seller a full and fair sales price, and is modeled on similar 
provisions already in force in many jurisdictions. It is a 
fair, low-cost way to protect the substantial taxpayer 
investment that has already been made in existing affordable 
rental housing.
    H.R. 4868 also retains an important local control provision 
in Section 108 that ensures that State and local preservation 
and tenant protection laws are not preempted by Federal law.
    Section 303 includes a revised provision that allows legal 
action for building violations only when HUD has failed to act 
on a documented deficiency. This protects responsible owners 
while ensuring that residents have some recourse against 
unscrupulous landlords.
    Section 302 permits residents to escrow their rents only 
when the Secretary of HUD determines serious violations of 
housing quality standards or housing program requirements.
    We are interested to learn more about a new proposal to 
create a voluntary program to encourage the transfer of 
assisted rental properties to preservation owners in Section 
106. We believe this could be a useful new preservation tool so 
long as appropriate checks are in place to prevent the 
deterioration of property during negotiation, and to make sure 
that buyers have both the desire and the capacity to support 
long-term affordability.
    Titles 7 and 8 include important provisions needed to 
facilitate repair and preservation of thousands of Section 515 
affordable rural housing units and Section 202 elderly housing 
units.
    We thank Chairman Frank and the 13 co-sponsors for the 
introduction of this legislation, and urge committee action on 
this much-needed legislation. Thank you very much.
    [The prepared statement of Mr. Halliday can be found on 
page 50 of the appendix.]
    Chairwoman Waters. Thank you.
    Next, we will hear from Mr. Ricky Leung.

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

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

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

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

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

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

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

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



                            A P P E N D I X



                             March 24, 2010


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