[Senate Hearing 111-773]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-773

 
     LEGISLATIVE PROPOSALS IN THE DEPARTMENT OF HOUSING AND URBAN 
                             DEVELOPMENT'S 
                    FISCAL YEAR 2011 BUDGET REQUEST

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                                   ON

DISCUSSING LEGISLATIVE PROPOSALS IN THE DEPARTMENT OF HOUSING AND URBAN 
                      DEVELOPMENT'S FY 2011 BUDGET

                               __________

                             APRIL 15, 2010

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html



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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman

TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 KAY BAILEY HUTCHISON, Texas
MARK R. WARNER, Virginia             JUDD GREGG, New Hampshire
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado

                    Edward Silverman, Staff Director

        William D. Duhnke, Republican Staff Director and Counsel

                 Beth Cooper, Professional Staff Member

               Jonathan Miller, Professional Staff Member

                  Devin Hartley, Legislative Assistant

                  Drew Colbert, Legislative Assistant

            Chad Davis, Republican Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                     Levon Bagramian, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                        THURSDAY, APRIL 15, 2010

                                                                   Page

Opening statement of Chairman Dodd...............................     1

Opening statements, comments, or prepared statement of:
    Senator Shelby...............................................     4

                               WITNESSES

Shaun Donovan, Secretary, Department of Housing and Urban 
  Development....................................................     5
    Prepared statement...........................................    32
    Response to written questions of:
        Chaiman Dodd.............................................    48
        Senator Shelby...........................................    50
        Senator Schumer..........................................    51
        Senator Menendez.........................................    54
        Senator Bennet...........................................    54
        Senator Crapo............................................    60
        Senator Corker...........................................    61

              Additional Material Supplied for the Record

Prepared statement of Marty Shuravloff, Chairman, National 
  American Indian Housing Council................................    66
Letter from the National Association of Housing and Redevelopment 
  Officials......................................................    71

                                 (iii)


     LEGISLATIVE PROPOSALS IN THE DEPARTMENT OF HOUSING AND URBAN 
                 DEVELOPMENT'S FISCAL YEAR 2011 BUDGET 
                                REQUEST

                              ----------                              


                        THURSDAY, APRIL 15, 2010

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee convened at 9:39 a.m. in room 538, Dirksen 
Senate Office Building, Christopher J. Dodd, Chairman of the 
Committee, presiding.

       OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Chairman Dodd. The Committee will come to order this 
morning, and let me welcome all of you who are gathered here in 
our hearing room this morning, my colleagues who are here, as 
well, and, of course, to welcome the Secretary of Housing. We 
are going to have a hearing this morning on legislative 
proposals in the Department of Housing and Urban Development 
for their 2011 budget request, and we are delighted, Mr. 
Secretary, to have you with us once again in the Committee 
hearing.
    I am going to take a couple of minutes with some opening 
comments. I will turn to my friend and colleague from Alabama, 
Senator Shelby. There are not a lot of us here, so Jack and 
Jim, if either of you want to make a couple of opening 
comments, I would be glad to entertain those, as well, before 
we hear from the Secretary if you so desire.
    Let me first of all begin by thanking the Secretary for 
being with us again today. I have had the pleasure of traveling 
with him in my own State, as I am confident some of you have, 
as well, meeting with housing authorities and some of the 
families and community leaders on the front lines of the 
foreclosure crisis that we have been dealing with over the last 
38 or 39 months that I have been Chair of this Committee.
    I know the Secretary is passionate about creating 
affordable housing and economic opportunity for all Americans 
and I am looking forward to this discussion about legislative 
proposals in the HUD budget request. Secretary Donovan brings 
us this budget and these legislative priorities at a time of 
great need, as we all know, for American families and the local 
governments they rely on for basic services across our country.
    The March 2010 unemployment rate stood, as we all know, 
just shy of 10 percent, 9.7 percent, an improvement over 
previous months, but still way too high, as all of us would 
acknowledge. Unemployment, of course, puts a severe strain on 
families' ability to afford housing. And sadly, recent HUD data 
indicates a troubling increase in family homelessness. Homeless 
service organizations in my State alone, and I am sure in 
States around the country, report that shelters are full, way 
beyond their capacity today, tragically.
    In Connecticut, organizations coordinating the Homeless 
Prevention and Rapid Rehousing funding provided by the Recovery 
Act tell me they are overwhelmed with requests for assistance. 
With 48 of the 50 States facing budget shortfalls and local 
governments struggling in the face of declining revenue, there 
simply aren't resources available at those levels to address 
the problem properly.
    And that is why HUD's work is so important. For far too 
many American families, these Federal programs alone will make 
the difference between hope and homelessness, between 
prosperity and poverty.
    The Transforming Rental Assistance, TRA as it is called, 
proposal is an effort to streamline HUD's rental assistance 
programs, preserve affordable housing, and provide more choices 
for families receiving assistance. In the initial stage, as I 
understand it, this proposal would convert 300,000 units of 
public and assisted housing to Rental Assistance Contracts 
better positioned to leverage private funding. I know that this 
proposal is still under development, but I hope you can update 
us on its progress.
    And let me just add here, if I can, editorially, I want to 
commend you, Mr. Secretary. You know, one of the things we 
don't get enough of in this town is creative and imaginative 
thinking, how to address issues. I was going over last evening 
very late the estimated cost of just maintenance of public 
housing, and the number you hear is $20 billion, but many tell 
me that number is way below what it actually may be when you 
consider the units around the country. We need to be more 
creative. We are never going to have an appropriation year--
unfortunately, I might add, others may disagree with this--to 
have a maintenance of the kind of dollars we need to put that 
housing stock in better shape.
    So being creative about how you do this, convert this in a 
way that gives some leverage and some opportunity for equity to 
move into this thing, I commend you for. I think it is the kind 
of an idea, as you develop this, and working with all of us up 
here, you might develop some very broad bipartisan support for 
what you are achieving. And I know there are groups out there 
that are anxious about what you are suggesting. I commend you 
for it. I think it is terrific we have got someone in this job 
who is trying to figure out ways creatively to sort of get this 
stuff in a better position than it is in. Others may want to 
comment on this, but I just have a lot of high regard for what 
you are suggesting. As I say, I know it is in development. We 
look forward to hearing from you today about it.
    I am also very excited to know more about your Choice 
Neighborhoods Initiative, which would expand HOPE VI public 
housing revitalization efforts to a more comprehensive approach 
that also includes assisted housing and critical community 
facilities. Meanwhile, the Catalytic Investment Grants will 
provide competitive funds to communities embarking on economic 
development projects.
    The Secretary's budget also proposes recapitalizing the FHA 
Mutual Mortgage Insurance Fund. FHA is playing an important 
role in our housing market during this downturn and I am 
interested in the Secretary's thoughts on how we can strengthen 
not just the program's fiscal health, but its risk management 
and enforcement tools to protect consumers going forward.
    I would also like to hear more about the recently announced 
changes to programs like the HOME Affordable Mortgage Program 
and the FHA that helps out underwater borrowers.
    Finally, I would like to offer a few thoughts, if I can, on 
some of the numbers that accompany the legislative proposals in 
the HUD budget. First of all, Mr. Secretary, on behalf of the 
families helped by these programs, I want to thank you and your 
office and your staff for the efforts to maintain funding 
levels in the Section 8 tenement-based voucher and project-
based assistance programs as well as the Public Housing 
Operating Fund. In addition, I welcome the Administration's 
support for $1 billion to capitalize the Housing Trust Fund to 
create and preserve affordable housing for the lowest-income 
families in our country. I strongly support this funding and 
want to work with you and the Administration to see to it we 
get it done before this Congress adjourns.
    And it wouldn't be a Banking Committee hearing if I didn't 
mention my excitement, as well, regarding the Sustainable 
Communities Initiative, closely aligned with the legislation I 
have offered, the Livable Communities Act. This important 
initiative, which helps communities develop integrated 
transportation and development plans, would greatly benefit 
from the $150 million requested in the HUD budget.
    However, I am concerned about some of the proposed cuts, 
and I would be remiss if I didn't mention them to you, as well, 
especially in the 202 and 811 housing programs for seniors and 
persons with disabilities, particularly in light of our recent 
hearing that demonstrated tremendous needs for such housing. I 
have similar concerns about proposed cuts in the Public Housing 
Capital Fund, Native American Housing Block Grants, and the 
HOME funds, each of which help preserve or create affordable 
housing in our communities.
    Obviously, there is an awful lot to talk about with all of 
these initiatives, but again, we are, I think, truly fortunate 
to have you in the job that you are in. I know Jack Reed is 
probably going to want to talk about the flood issues, but we 
weren't hit as hard in Connecticut, although parts of my State 
were, and I will leave that to him. But there were some hard-
hit communities in our States in the Northeast--Massachusetts 
and Rhode Island particularly--and we want to raise some issues 
with you there, as well. But nonetheless, you should know we 
have had some cooperation from your office on looking at our 
issues in these States and it will be important to us, as well.
    With that, Senator Shelby.

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman. Good morning, Mr. 
Secretary.
    Secretary Donovan. Good morning.
    Senator Shelby. While our hearing today is intended to 
cover the HUD budget for the next fiscal year, I would like to 
begin by highlighting the fact that the budget does not--does 
not, Mr. Secretary, as you know--address the future of the 
GSEs, Fannie Mae and Freddie Mac. For over a year and a half 
now, the Federal Government has been running Fannie Mae and 
Freddie Mac in conservatorship. Together, they represent 
combined books of business of nearly $5.5 trillion and own 
mortgage investments of nearly $1.5 trillion. The taxpayer 
exposure to these entities is massive, as you well know.
    While these entities were at the center of the facility 
crisis, they were not included in the Administration's 
financial regulatory reform proposal presented to the Congress 
last fall. We were told then that we could expect it to be 
submitted with the President's budget around February of this 
year. I don't believe that happened.
    Shortly after the budget submission arrived, Secretary 
Geithner indicated that there would not be any proposals coming 
prior to 2011. In fact, just yesterday, the Administration 
finally asked for public comment on the issue. And while this 
is a much needed step in this process, I believe it should have 
occurred at least a year ago. The GSE question, Mr. Secretary, 
as you well know, is simply too important to be treated as an 
afterthought.
    Secretary Donovan, I also look forward to hearing your 
thoughts regarding the status of the FHA Fund and your 
legislative proposals to address its financial stability. The 
FHA capital ratio has fallen to a record low of 53 percent, 
barely covering a slip in the negative territory. You have 
taken steps to address this situation, and I appreciate that, 
and it is important for you to discuss, I think, how you 
arrived at those measures, and perhaps most importantly, for 
you to describe what dangers you see for the future of the fund 
if no action is taken.
    I look forward to your testimony today.
    Chairman Dodd. Thank you very much, Senator.
    Do any of my colleagues want to make any comments here at 
all? None at all?
    Mr. Secretary, the floor is yours. We are anxious to hear 
your thoughts. You are our only witness today, but we would ask 
you not to go on too long. There is a lot of ground to cover. 
All your materials and things that will be important for the 
record will, of course, without objection be included in the 
record, as it will be for all of my colleagues, any thoughts, 
comments, materials, whatever.
    Senator Shelby. Mr. Chairman?
    Chairman Dodd. Certainly.
    Senator Shelby. I have got to go to an appropriations 
hearing to deal with the FBI in a few minutes and I wondered if 
I could ask that my questions of the Secretary be included in 
the record.
    Chairman Dodd. Absolutely.
    Senator Shelby. Thank you.
    Chairman Dodd. Absolutely.
    Welcome.

 STATEMENT OF SHAUN DONOVAN, SECRETARY, DEPARTMENT OF HOUSING 
                     AND URBAN DEVELOPMENT

    Secretary Donovan. Thank you, Mr. Chairman, Ranking Member 
Shelby, Members of the Committee. Thank you for the opportunity 
to testify regarding the fiscal year 2011 budget for the 
Department of Housing and Urban Development, ``Investing in 
People and Places.''
    I appear before you to discuss this budget and HUD's 
related legislative proposals in a far different environment 
from just 1 year ago. At that time, the economy was 
hemorrhaging over 700,000 jobs each month, housing prices were 
in freefall, and credit was frozen solid. Many respected 
economic observers warned that a second Great Depression was a 
real possibility. Meanwhile, communities across the country, 
from central cities to newly built suburbs to small town rural 
America, struggled to cope with neighborhoods devastated by 
foreclosures, even as soaring jobless rates and an eroding tax 
base crippled their ability to respond.
    One year later, though, while there is still clearly a long 
way to go, the nation's housing market has made significant 
progress toward stability and there are growing reasons for 
optimism about the economy more broadly. Through coordinated 
efforts by Treasury, HUD, and the Federal Reserve, the 
Administration's goal has been to promote stability, both for 
the housing market and homeowners.
    To meet these objectives, the Administration developed a 
comprehensive approach using State and local housing agency 
initiatives, tax credits for homebuyers, Neighborhood 
Stabilization and Community Development programs, mortgage 
modifications and refinancing, as well as support for FHA and 
the broader mortgage market.
    Allow me to briefly explain what halting the slide in home 
prices and the Administration's measures to assist responsible 
homeowners have meant to America's families and communities.
    Homeowner equity started to grow again in the second 
quarter of 2009 and to date has increased by over $1 trillion, 
or $13,000 on average for the nation's nearly 78 million 
homeowners, bolstering seniors' retirement savings, restoring 
an important source of college tuition support, and helping 
entrepreneurs start small businesses. And, of course, the 
economy created 162,000 jobs last month, the best jobs report 
in 3 years.
    The Federal Housing Administration, or FHA, has been 
essential to the improved outlook, in the past year helping 
more than 800,000 homeowners refinance into stable, affordable 
fixed-rate mortgages, protecting an additional half-million 
families from foreclosure through its own foreclosure 
mitigation program, and guaranteeing approximately 30 percent 
of home purchase loan volume and fully half of all loans for 
first-time homebuyers.
    Nonetheless, it must be acknowledged that with FHA's 
temporarily increased role in the housing market comes 
increased risk and responsibility. That is why FHA's fiscal 
year 2011 budget represents a careful, calibrated balancing of 
FHA's three responsibilities. First, providing responsible home 
ownership opportunities; second, supporting the housing market 
during difficult economic times; and third, ensuring the health 
of the MMI Fund.
    FHA recently proposed a series of measures to mitigate risk 
and augment the MMI Fund's capital reserves: First, to increase 
the mortgage insurance premium and recalibrate the relationship 
between the up-front and annual premiums; second, to raise the 
combination of FICO scores and downpayments for new borrowers; 
third, to reduce seller concessions to industry norms; and 
fourth, to implement a series of significant measures aimed at 
increasing lender responsibility and enforcement. We look 
forward to working with this Committee on legislation in this 
area.
    The changes to FHA programs proposed in the budget will 
lead to increased receipts. As you know, the Congressional 
Budget Office recently released its re-estimate of the 
President's 2011 budget, including their view of the impact of 
the foregoing steps. Although the CBO re-estimate included a 
more conservative assessment of how new loans made through 
FHA's MMI Fund would perform in coming years, both CBO and the 
Administration forecast that with our proposed FHA changes, 
such activity will result in net receipts to the government. 
This will help the fund get back on track to be capitalized 
with the statutorily mandated 2 percent of insurance in force.
    With my remaining time, allow me to highlight some key 
legislative initiatives in the budget proposal. The first is 
HUD's multi-year effort called Transforming Rental Assistance, 
or TRA, and I want to thank you, Mr. Chairman, for your 
supportive comments about it in your opening statement. It does 
not take a housing expert to see that HUD's rental assistance 
programs desperately need simplification. HUD currently 
provides rental assistance to more than 4.6 million families 
through more than 13 different programs, each with its own 
rules administered by three different operating divisions.
    In my career both in the public and private sectors, it was 
a constant struggle to integrate HUD's rental assistance 
streams and capital funding resources into the local, State, 
and private sector financing that was necessary to get the job 
done. The status quo for these programs is no longer an option. 
With a public housing program that has unmet capital needs 
upwards of $20 billion, now is the moment to permanently 
reverse the long-term decline in the nation's public housing 
portfolio and address the physical needs of an aging assisted 
stock.
    This initiative is anchored by four guiding principles. 
First, that the complexity of HUD's programs is part of the 
problem and that we must streamline and simplify them so that 
they are governed by a single, integrated, coherent set of 
rules and regulations that better aligns with the requirements 
of other Federal, State, local, and private sector financing 
streams.
    Second, that the key to meeting the long-term capital needs 
of HUD's public and assisted housing lies in shifting from the 
Federal capital and operating subsidy funding structure we have 
today to a Federal operating subsidy that leverages capital 
from private and other sources.
    Third, that bringing market investment to all of our rental 
programs will also bring market discipline that drives 
fundamental reforms. Only when our programs are built, 
financed, and managed like other housing will we be able to 
attract the mix of incomes and uses and stakeholders that we 
need.
    And fourth, we must combine the best features of our 
tenant-based and project-based programs to encourage resident 
choice and mobility. TRA reflects HUD's commitment to 
complementing tenant mobility with the benefits that a 
reliable, property-based, long-term rental assistance subsidy 
can have for neighborhood revitalization efforts and as a 
platform for delivering social services.
    To be clear, this commitment to tenant mobility isn't about 
old ideological debates about place-based versus people-based 
strategies. To help vulnerable families living in neighborhoods 
of concentrated poverty and segregation, we need the best of 
both approaches, complementary rather than oppositional 
strategies that both empower families with a real choice to 
move to other neighborhoods of lower poverty and greater 
opportunity with the supports they need to succeed or to remain 
where they are and benefit from successful revitalization 
efforts.
    Accordingly, in addition to this mobility element of TRA, 
the budget proposal includes significant place-based 
investments. First, we have transmitted to the Committee a 
legislative proposal for Choice Neighborhoods, an initiative 
that seeks to make the redevelopment of distressed public and 
assisted housing the anchor of broader community development 
efforts. Choice Neighborhoods builds and expands on the lessons 
of HOPE VI, not only that investment at scale can affect 
dramatic change at the community level, but also that for an 
investment to be game changing, it must take into account more 
than just distressed public housing and more than housing 
alone. Communities must be able to revitalize a problem project 
that is dragging down a neighborhood without regard to the 
arbitrary distinction of which HUD funding stream happens to 
fund it. Similarly, without provision of the supportive 
services that participating families need to improve their 
lives or ready access to the community assets that help build 
social and human capital, from parks to transit and others, 
comprehensive neighborhood revitalization initiatives are 
doomed.
    Second, in attempting to carry out such comprehensive 
initiatives, communities have long been hampered by the lack of 
a place-based targeted tool for creating jobs, an economic 
development counterpart to HOPE VI, if you will. That is why 
our budget proposes $150 million for a catalytic investment 
fund designed to help distressed communities reorient their 
economies for the 21st century.
    Third, HUD can't afford to make housing investments in 
isolation from community development investments, particularly 
when so many communities are ahead of us in terms of combining 
housing, economic development, and transportation. That is why 
it is so important that we launched our Sustainable Communities 
Initiative in 2010 to support these efforts. Chairman Dodd, I 
know how deeply you understand and are committed to encouraging 
integrated, environmentally sustainable, and socially and 
economically inclusive planning and investments in all of these 
areas. I look forward to working with you on your legislation 
relating to the Department's new Office of Sustainable Housing 
and Communities and a broad range of related issues.
    With that, Mr. Chairman, let me cover one more issue and 
then finish my testimony. As you said at the beginning, we have 
had to make difficult choices in this budget, but I believe 
that we have targeted resources where the Department gets the 
biggest bang for the buck, and nowhere is this more clearly 
reflected than in the area of homelessness. I would like to 
thank Senator Reed and the leadership of this Committee for 
literally years of work to restructure and modernize these 
programs to reflect over two decades of research and on-the-
ground experience.
    As you know, these efforts came to fruition in May of last 
year with enactment of the Homeless Emergency Assistance and 
Rapid Transition to Housing, or HEARTH, Act. Fiscal year 2011 
marks the first year of implementation of the HEART Act, and 
the Department's proposed funding level, an increase of nearly 
$200 million, will enable local homeless assistance planning 
and implementation collaboratives known as continuums of care 
to begin to do so by better addressing the unique dynamics of 
homelessness in rural communities and by implementing evidence-
based practices, such as permanent supportive housing and 
homelessness prevention. We look forward to working with the 
Committee to facilitate smooth implementation of the HEARTH 
Act.
    With that, let me conclude my testimony and I look forward 
to your questions.
    Chairman Dodd. Well, thank you very much, Mr. Secretary.
    Let me express apologies for Senator Shelby. He has a 
hearing with the Director of the FBI in the Appropriations 
Committee at this hour, beginning in 2 minutes, and so he 
apologizes for not staying. He has a series of questions that 
he will submit for the record and I would ask for you to 
respond to them as soon as you have a chance to, as well. We 
thank you for that.
    Chairman Dodd. Let me just begin, if we can, and thank you 
for your testimony. There is a lot of ground to cover. But 
obviously, the issue of foreclosure prevention is still an 
issue. It was the subject of, I think, almost a--well, Jim 
Bunning and Jack Reed were having hearings on it before I 
became Chairman. In 2006, I think, Jim, was when you were 
talking about some of those issues. When I became Chairman in 
January of 2007, they were the first series of hearings we had, 
on the foreclosure issue, and regrettably, it is still with us.
    I would like to commend the Administration. I know you are 
trying very hard on the expansion of the tools to address this 
crisis and I want to delve in a bit deeper, if you can, to 
these issues, if I may. The tail is still wagging the dog, it 
seems to us in many ways, and it seems that the holders of the 
second mortgages, who happen to be the services, as well, in 
many cases, are making the decisions regarding loan 
modifications. And we all knew about that. This wasn't a 
surprise. It was one of the real concerns we had in the various 
legislative proposals, how are we going to get over that hurdle 
of the second mortgage holders in order to protect their 
interest. They are hurting both, of course, we believe, the 
homeowners and the first lien holders by preventing more 
substantial forgiveness. I wonder what we might do about that. 
Have you given some thought to that, to get over that hurdle?
    And second, the new FHA program you announced to help 
underwater borrowers has some real potential to help, but it 
carries with it real risk to the FHA fund. And again, this is 
subject matter others have raised here. I wonder if you might 
address how you protect the fund, which, as you know, is in 
somewhat precarious shape, to put it mildly. Both those 
questions.
    Secretary Donovan. Sir, to begin with your question, the 
first piece around the issue of modifications and the second 
liens, the second liens are a critical issue. Our estimate is 
that about half of troubled borrowers have second liens, and 
for underwater borrowers, the deeper underwater they are, the 
more problem that the second liens are in terms of the extent 
of debt that is on those properties.
    I do think that there are issues around how those second 
liens are being valued and held on the books of many of the 
banks, and that is an issue that I know both here and on the 
House side that there has been discussion of. Obviously, that 
is not something that is within HUD's power or even the 
Administration's power, given the independence of the 
regulatory bodies, to be able to change. However, I do think 
that is a piece of the issue.
    We are attacking the problem, however, with a second lien 
program that went into effect a few weeks ago. All of the major 
banks have agreed to participate, which means that they are 
required when they evaluate--a first lien is evaluated for a 
modification, that the second lien must be modified, as well, 
if it meets the criteria of the program. And so I think that 
will be an important step in helping us. I think that, combined 
with a number of other steps that we have taken, is 
accelerating the pace of modifications.
    There is no doubt the program was slower than we would have 
liked to get started. It took quite some time for the servicers 
to add staff and to tool up for the program. But as we 
announced yesterday, we did 60,000 permanent modifications over 
the last month and have over 100,000 that are completed and 
awaiting signature from the homeowners, which means that we 
have a total of over 330,000 permanent modifications that have 
been completed in terms of processing. So substantial progress 
that we have made.
    And I would add that the pace--there is much confusion 
about this. The number is often quoted of millions and millions 
of homeowners at risk. Those are often delinquent homeowners. 
When we really look at the number of foreclosures that are 
happening, the number of permanent modifications we are doing a 
month now roughly equals the number of foreclosures. So we are 
getting to a significant scale in terms of the program.
    And finally, I would just add, it was clear from the 
beginning of this program--the President said it himself when 
he announced it--we can't stop every foreclosure, nor should 
we. We have a significant number of foreclosures that are 
second homes, investor properties, that are vacant already, and 
so we will--and, frankly, some homeowners who simply cannot 
afford, even with reduced prices and modification, their homes. 
So we believe that we are getting to a scale that this program 
was targeted at. It is not a silver bullet, but that combined 
with the other efforts, we believe, can make a real difference.
    Finally, just on the FHA fund, we did announce a targeted 
effort to expand our refinancing to make sure that underwater 
borrowers could get some assistance, given that is an 
increasing problem leading to foreclosures today. But I want to 
be very clear. This is 100 percent fully underwritten FHA 
loans. We will not be taking onto the FHA Fund any of the 
underwater amounts. We are requiring private write-downs of the 
debt in order to qualify. At least 10 percent of the debt must 
be written off. And FHA will only insure our traditional amount 
under the program.
    And we have also worked with Treasury. They will be 
providing some support from TARP to ensure that a portion of 
the losses on those loans are covered, not by the FHA Fund but 
by TARP. So that will help to ensure that the progress we are 
making on the FHA Fund continues.
    Chairman Dodd. Well, I thank you for that response, and I 
want to commend you again for the efforts being made. It has 
been a long time coming. An awful lot of people suffer terribly 
because we did not have more aggressive action early on where 
this could have made a difference.
    Let me just quickly, and then I will turn to my colleagues. 
I have a number of questions. But the Section 8 Voucher Reform 
Act, I know you are familiar with this. In the coming weeks, I 
am going to reintroduce that Section 8 program. In previous 
Congresses, when you were in a previous position, you actually 
appeared to testify about SEVRA as a witness at the table. Can 
you tell us how this legislation might work? And, again, just 
take a minute or two here to address the value of this 
particular program.
    Secretary Donovan. SEVRA is absolutely critical, and I 
think really there are two things that I would highlight about 
it above the other elements of the bill. There are many things 
in there; I will not touch on all of them. But, first of all, 
one of the things that it does is to streamline and simplify 
the Section 8 voucher program, eliminating some of the 
complexity in income calculations, eliminating some of the 
unnecessary oversight that we have, for example, with senior 
properties or other properties that are in good condition, not 
requiring the same frequency of inspections and focusing our 
enforcement efforts more frequently on those properties that 
truly have physical issues, so a better targeting of our 
resources and a simplification that will allow the program to 
function more effectively and, frankly, allow more private 
owners to participate because it will remove barriers to 
participation.
    The second thing I would highlight is that for too many 
years we have seen changing rules and requirements about the 
funding formula for Section 8, which has led to substantial 
gyrations in the program. Many families have either lost their 
vouchers or have been at risk of losing their vouchers because 
of that. And we need to get to a simple. stable, effective 
funding formula for the voucher program. SEVRA would accomplish 
that, and I think that is an absolutely critical thing going 
forward during a time of real fiscal constraints, as you know.
    Chairman Dodd. And last, I just want to--because I made 
such a point of your transforming the rental assistance 
program--and, again, I think I like this idea so much because 
it gets us away from this notion that we are going to--I think 
politically unrealistically that we are going to provide the 
kind of resources for maintenance in these areas. But the 
program is contingent upon a private sector interest in the 
program to generate the kind of investment necessary to 
preserve public housing. Give us some reason why we ought to 
have some confidence and faith in that, in this idea, because 
obviously that is the critical component, it seems to me.
    Secretary Donovan. Well, I think it clearly is about 
attracting capital, and just to be clear, it is not just 
private capital. There are a whole range of other sources--low-
income housing tax credits or others--which are, frankly, 
almost impossible to use today in concert with public housing. 
And so we want to open it up so that there is a broad range of 
sources that are available.
    The second thing that I would say is that one of the real 
fundamental problems that we have had is that it is very, very 
difficult with public housing not just to integrate a mix of 
incomes, have working families, moderate-income families, even 
market rate units, that could be mixed with those units, which 
I think we have seen through HOPE VI and other efforts is 
enormously effective in creating more sustainable communities. 
But the other problem is if you want to locate a grocery store, 
if you want to locate a whole range of other uses within public 
housing, because it is financed, developed, managed, frankly, 
in a parallel universe from the rest of the way that all other 
real estate is created, managed, financed in this country, it 
is extremely difficult to create the kind of diverse viable 
neighborhoods out of public housing that I think we would all 
want.
    And so really what we are talking about, I think, this has 
happened in every other kind of affordable housing, in tax 
credits and everything else, where you can integrate it 
effectively into a community. What we are talking about is 
bringing public housing and our other legacy programs into the 
21st century, really, and getting them away from this parallel 
universe that they exist in today to create really viable 
neighborhoods in the long term.
    Chairman Dodd. Well, that is great. I am very impressed by 
it.
    Jim?
    Senator Bunning. Thank you, Mr. Chairman. Welcome, 
Secretary Donovan.
    Secretary Donovan. It is good to be with you.
    Senator Bunning. Some disturbing news just was released at 
8:30 this morning that new claims for unemployment went up 
28,000 from last week to 478,000. I know that does not do 
anything but say that, oh, my God, maybe the holidays had 
something to do with it. But the trend has been the other way, 
going down. And I listened to Chairman Bernanke's assessment of 
the economy in the speech he made yesterday, and he was pretty 
optimistic, as optimistic as I have ever seen him, which is not 
very optimistic. He said some things, that we are in a 
sustained recovery, unemployment is going to lag, and all these 
good things that most of us that are sitting around this dais 
understand fairly well.
    My question to you is: If we are going to do a financial 
reform bill and we have got these GSEs, especially these two 
giant GSEs that deal with most of the mortgages that we have in 
this country right now, Fannie and Freddie, I am troubled that 
the Administration has not put any plan or any complete plan to 
deal with them, but for now, in your humble opinion, do you 
have any idea how much it is going to cost the taxpayers in 
respect to Fannie and Freddie in whatever we do?
    Secretary Donovan. What I would say----
    Senator Bunning. I know that is not in your bailiwick, but 
I am asking you as a person who deals with housing.
    Secretary Donovan. Absolutely. Currently, under the 
agreements that were created when Fannie Mae and Freddie Mac 
were taken into conservatorship, as you know, before we came 
into office, about $125 billion has been advanced to the GSEs. 
So it is an enormous sum. And that is why reform of the GSEs is 
so critically important. And I want to be clear. I testified 
yesterday in front of the House. We discussed the four key 
principles and objectives for reform, nine different 
characteristics that we think the future housing finance system 
needs to have, and launched a public comment process, as we had 
mentioned earlier.
    Senator Bunning. Do you actually believe that we can reform 
Fannie and Freddie in their current form?
    Secretary Donovan. I think it is pretty clear that the form 
of not just the GSEs but of the broader housing finance system 
must change. Let me just say one thing, though, and make a 
point.
    One of our concerns, while reform is absolutely essential, 
is that the market is still quite fragile. In fact, in 
Bernanke's testimony, he said that housing was still one of the 
areas of concern.
    Senator Bunning. Yes, he did.
    Secretary Donovan. And to be clear, all of those--the 
losses that I talked about of the GSEs are losses on loans 
that--the terrible loans that they should never have taken on, 
before they were taken into--loans that were made before they 
were taken into conservatorship. So every indication we have is 
that loans they are making today with improved underwriting 
standards are not going to result in losses to the taxpayer.
    Senator Bunning. I have a follow-up then on that because 
you mentioned FHA.
    Secretary Donovan. So let me just--I think the key point is 
that if we do something that is too precipitous with the GSEs 
that causes at this point--because they are critical to our 
stability right now--that causes the market to take another 
downturn, we risk actually increasing the losses to the 
taxpayer. And that is why we believe while reform is absolutely 
essential and we are moving forward on that, we have to be 
careful and deliberative about how we achieve that reform and 
what the transition is because we do not want to increase 
losses to the taxpayer based on creating a double dip in the 
market given how fragile it----
    Senator Bunning. As long as there are GSEs, though, we have 
that risk. As long as there are government-sponsored 
enterprises, we are on the hook.
    Secretary Donovan. I would also point out, though, that we 
believe strongly we want to get the private market to come back 
as quickly as possible. Many of the changes that we are making 
in FHA and otherwise are helping to do that. I would be happy 
to talk about some of the early signs of that. But until the 
private market fully comes back, eliminating the GSEs would 
mean a significant--today eliminating them----
    Senator Bunning. There has got to be a transition time.
    Secretary Donovan. Right.
    Senator Bunning. We all know that. I mean, most of us do, 
anyway. Right now, FHA is the only source of low down payment 
mortgages. It is the only source. In effect, FHA has replaced 
at a smaller scale the subprime mortgage market for home 
purchases and refinances. Does it concern you that the only way 
to prop up the housing market is to put the taxpayer on the 
hook and allow the banks to keep writing mortgages without 
taking any risk?
    Secretary Donovan. Senator, let me just disagree with you 
on a fundamental point that you made. FHA is not making 
subprime loans.
    Senator Bunning. I did not say they were. I said they are 
the only source right now----
    Secretary Donovan. I would not describe any of the loans 
that we are making as subprime.
    Senator Bunning. Then there is not any.
    Secretary Donovan. These are fully underwritten, 30-year 
fixed-rate loans, and to be clear--and I mentioned this in my 
testimony----
    Senator Bunning. At 100 percent of value?
    Secretary Donovan. We do not make a single loan at 100 
percent of value.
    Senator Bunning. I did not think so.
    Secretary Donovan. And, in fact, we have----
    Senator Bunning. But Fannie did, Freddie did.
    Secretary Donovan. And, unfortunately, FHA did through 
seller-funded down payment and other means, which have been 
stopped. In fact, we increased our down payment requirements 
recently, and I think it is critical to say that we are 
strengthening risk management, taking a number of steps, and 
all observers who have looked at this believe--our independent 
actuary, CBO, others--that we will actually return money to the 
taxpayer on loans that we are making today.
    Senator Bunning. You talked about--do you anticipate any 
loss out of the money you are going to get to use from TARP? Or 
is that going to be money that is going to return money to the 
taxpayer? Actually, it does not return money to the taxpayer 
because it is all borrowed. But the fact of the matter is, is 
there any return anticipating on the TARP money you were 
talking about a little before?
    Secretary Donovan. What I can tell you is we do expect some 
losses on these loans, as you would with any kind of lending. 
We have established that funding as a backstop in case the 
losses are higher than we would have otherwise expected.
    Senator Bunning. The last question. Mr. Chairman, I know I 
went over.
    Do you agree that low down payment and no down payment 
loans were a significant contributor to the housing bubble?
    Secretary Donovan. I would agree, yes, they were a 
contributor.
    Senator Bunning. Well, if that is the case, then we have 
got to make sure that we do not do it over again.
    Secretary Donovan. I agree, and that is why we have 
strengthened our requirements and are continuing to do so.
    Senator Bunning. OK. Thank you.
    Chairman Dodd. Thank you very much, Senator.
    Senator Tester, you are next.
    Senator Tester. Well, thank you, Mr. Chairman. Are you 
sure? I think Senator Reed came in ahead of me.
    Chairman Dodd. I am just following----
    Senator Tester. Yes, I know you are, but in a sense of 
fairness--and, Senator Reed, we live on the same floor, and I 
do not want him working me over.
    [Laughter.]
    Chairman Dodd. You are going to do so well here in the 
years ahead. Jack, go ahead.
    Senator Reed. I can just visualize me punching Jon in the 
knee.
    [Laughter.]
    Senator Reed. Thank you very much, Senator Tester.
    Chairman Dodd. Although a guy who is airborne, I would be 
careful on the punches in the knees, though.
    Senator Reed. Thank you, Mr. Secretary, not only for your 
testimony but for your leadership. I also want to thank you and 
your staff for the assistance around the flood that Senator 
Dodd mentioned. Nancy Smith Greer, who is the HUD 
representative, has done a remarkable job.
    Secretary Donovan. She is terrific.
    Senator Reed. She has been on the ground. I am trying to 
keep up with her as she runs around to different communities to 
see what can be done, and we really appreciate the effort. I 
also want to thank you for the assistance you have given to us 
in the new hardest hit fund going to Rhode Island for 
foreclosure. We have 12.7 percent unemployment, and as I said 
in a previous meeting, we have houses that are under water that 
are under water now, and we appreciate what you are doing to 
help us very much.
    In this discussion of the foreclosure issue--and we had a 
very good discussion the other day with Secretary Geithner--I 
think we came down to saying that if we define the problem 
simply as foreclosure, there are certain steps we can take, but 
they will not totally resolve the issues that are affecting 
communities across the country. Another way, and I think maybe 
a more appropriate way, to look at this is not so much just 
foreclosure, but it is housing stabilization or neighborhood 
stabilization.
    Secretary Donovan. Absolutely.
    Senator Reed. And to that effect, we appreciate what you 
are doing in terms of your efforts, but I think we have to do 
more in terms of neighborhood funding. We have several 
programs, one of which Senator Dodd and I--the Neighborhood 
Stabilization Program, et cetera. But just the point I want to 
make because it captures, I think, our discussion, which is 
when it came to the crisis of the lending institutions, we did 
not take an approach and define a problem, well, it is bad, it 
is just bad loans, because we would have stopped with the TARP 
programs. We took the approach that unless we stabilize the 
entire system, put a floor in, and then begin to see them sort 
of work out their problems, we were going to collapse.
    I think in terms of the housing problem, we have taken a 
more narrow focus. It is foreclosure and we are doing our best. 
But, in fact, this is part of the problem, because if we do not 
get stabilization and appreciation--we are starting to see that 
in the housing markets--my constituents, regardless of flood 
waters, are not going to think we are stabilized and we are 
making progress and the economy is co ming back.
    So in that regard, one, I thank you for the efforts you 
have made to date. And I want your comments on the neighborhood 
stabilization fund. Do we need more resources? Do we need to 
even think beyond that fund to go in and--and we talked about, 
you know, purchasing houses that are about to foreclose, wiping 
out the owner, particularly the absentee owner, using community 
organizations to do that, then selling those homes or renting 
them in a way in which the owner can support the mortgage. Do 
we need to do that? I think we do, but let me ask you.
    Secretary Donovan. You raise a very important question, and 
part of this goes back to the FHA, the GSEs that we have talked 
about, keeping interest rates low, a broader range of efforts. 
I will also add counseling as an important piece of an overall 
solution, but absolutely this issue, you know, of foreclosure--
in other words, foreclosure does not just affect the family 
that loses their home. It affects all of their neighbors.
    Senator Reed. Right.
    Secretary Donovan. And their values drop as well. It 
affects renters. It affects a whole range of people. So 
neighborhood stabilization is critical. The $2 billion that you 
put in the Recovery Act was incredibly important in helping to 
really target some of the places that are hardest hit, but as 
you well know, we had over $15 billion of applications for just 
$2 billion. It is a real indication of the scale of the need.
    And so I would absolutely say that there is a need for 
further efforts on that front. We are looking actively at that 
and would love to discuss with you more specific ideas that we 
have around that going forward.
    Senator Reed. I think in some respects--and these are not 
completely identical, but, you know, we faced judgments in 2008 
whether we were going to take an incremental approach or we 
were going to go more than we thought was necessary, with the 
idea we could always pull back. I think in housing we have 
taken, frankly, not just your--in fact, from the beginning, in 
2008, 2007, an incremental step, Hope for Homeowners, hope for 
this, hope for that, and we never decided to use what, you 
know, we might refer to as the shock and awe, like let us go in 
there and really stabilize these neighborhoods, not just urban 
but also rural areas. And I think we have to begin to think 
about that.
    The resource issue is absolutely critical. The only obvious 
place you would begin to think about would be recycling TARP 
funds. That has some challenges. But I think we have to think 
about that. But thank you again.
    I want to also thank you for including within the budget 
the funding for the National Housing Trust Fund. I have worked 
very closely with Senator Dodd and Senator Shelby to get that 
enacted. I think it is a very good program, and we would ask 
you to keep fighting the good fight in the appropriations 
process, and the President, to make sure we get the funding.
    There is one other point I want to commend you about, and 
that is that HUD has imposed a 90-day moratorium on 
foreclosures in Rhode Island because of the flood. Also, we 
understand that GMAC and Wells Fargo have done the same thing. 
But I would urge other financial institutions to do the same 
thing, to give us a chance, give people a chance to get back on 
their feet.
    Finally, I will give you an opportunity to talk about, as 
you have, these issues related to just the difficulty of 
getting banks and services to follow through at these 
foreclosure mitigation initiatives. Are we making progress on 
that front? Is there something that we have to do either with 
carrots or sticks--and maybe we have reached the point of 
sticks because there are some carrots out there--to get 
everyone focused on the criticality of this? Because if they 
are not doing this, then we are at the point where this 
incrementalism will not work.
    Secretary Donovan. Certainly, as I mentioned earlier, I do 
think some of the accounting and valuation issues remain 
significant, and that is--I do not know whether you would call 
it a carrot or a stick, but it certainly could be either. It is 
certainly an issue that is worth discussion again, not in our 
sort of portfolio at HUD or even within the Administration, but 
an important one.
    I do think we are making progress. The numbers indicate 
that we are making progress, the acceleration of permanent 
modifications that I talked about earlier. Part of this, 
frankly, was just adding literally thousands and thousands of 
staff and servicers. But we still are not satisfied at the pace 
we are today. And so what we have done on that front as sticks 
is to implement very specific timelines: here is how long you 
have before you can get back to a homeowner with a clear 
answer.
    And I think another important change that we made recently 
is anyone who signed a contract--and that represents 90 percent 
of the loans being serviced today--you cannot initiate a 
foreclosure until you have evaluated someone for a 
modification, because we heard too many stories of people 
falling through the cracks and they were, you know, in process 
in a modification, and a foreclosure went ahead while they were 
on the verge of getting a modification. That cannot happen 
anymore, so we have just within the last few weeks made clear 
and required all the servicers to do that modification before 
they--or evaluate someone before they move forward with a 
foreclosure.
    Senator Reed. Just finally, all of my colleagues get the 
same complaints that I do, which is, you know, people want to 
do it, they call, and they say, well, call us next week, and 
next week it is another person on the phone, or they are all 
set to go, oh, I am sorry, we must have lost your paperwork, 
you have to apply again. The volume of these complaints 
suggests it is not something being made up, that quality 
control, you know, by supervisors of the people needs to be 
improved. I think there is a lot of checking the boxes going 
on: Yes, we made contact, yes, we made the NPV evaluation, yes, 
yes. But actually sort of getting it done is lagging, and that 
is going to require vigorous oversight by these institutions. 
And, again, if there is something we can do to encourage that, 
please let us know.
    Secretary Donovan. We have begun audits of the servicers to 
make sure that we are getting better quality control along with 
the standards that we have imposed.
    Senator Reed. Thank you.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much.
    Senator Tester.
    Senator Tester. Thank you, Mr. Chairman, and I want to 
thank Secretary Donovan for being here today.
    Secretary Donovan. Good to see you.
    Senator Tester. I appreciate you and I very much appreciate 
the work that you have done. I appreciate you coming to 
Montana--a lot of appreciation here. I appreciate you coming to 
Montana last year and your openness to speak to everybody that 
you visited with in the time that you had there.
    One of the areas that you went to is Northern Cheyenne and 
Indian country. You saw firsthand the challenges there as far 
as housing, and I want to talk about the Indian housing block 
grant program for a bit.
    The Administration--and, quite honestly, I appreciate the 
Administration looking for any areas in which they can save 
money and reduce costs. One of the areas they did that was in 
the Indian housing block grant. It was reduced by $122 million. 
It is at a level--a 15-year low. Nineteen-ninety-six was the 
last time it was that low.
    Can you talk to me about why that was done and how you see 
Indian housing moving forward from your agency's perspective 
into the future?
    Secretary Donovan. Absolutely. As I said earlier, we did 
have some very difficult choices to make in this budget. The 
approach that we took broadly was as a first priority to 
protect all existing units and families, and so whether it was 
existing Section 8 vouchers, project-based Section 8, all of 
those, even which had increasing costs, to make sure those were 
protected before funding capital or other grants that go 
generally to create new units or renovate units. So that was a 
general decision that we made, which led to cuts not just in 
the block grant but also a number of other capital programs as 
well. Again, very difficult choices that we made.
    Specifically on the Indian housing block grant, one of the 
things I was proudest of in the Recovery Act is that we were 
able to get, working with you, half a billion targeted to 
Native American, Native Alaskan, Native Hawaiian housing, and 
at this point that funding, you know, relative to the scale of 
the gap that you talked about, has allowed tribes around the 
country to invest at a scale that they had not been able to 
before.
    At this point that funding is about 28 percent spent, and 
it is available for spending for about another 18 months, 
through September of 2011. So our sense, while it was not the 
choice I would have wanted, is that there are resources 
available, and I want to be very clear on that. One of the 
reasons I say it is some of the tribes have been concerned that 
this indicates a longer-term potential for a reduction in 
level. That was not our expectation. This was not an indication 
from our point of view that this needed less money. In fact, 
the Recovery Act investment indicated the opposite.
    Senator Tester. OK. From an accountability standpoint, not 
only the Recovery Act dollars but as these budget dollars go 
out, is your agency able to do accurate oversight to make sure 
this money is hitting the ground and being spent in the way it 
needs to be spent?
    Secretary Donovan. I get--it would probably be good bedtime 
reading for all of you. I get a regular report from my recovery 
team. I sit down with them on a monthly basis. I go through 
every single program, where it is, the progress we have made, 
weekly updates on spending, and I am happy to say that we were 
able to obligate, to sign contracts on specific projects with 
98 percent of our funding by a year after the signing of the 
bill. Just a few weeks ago, we met our first significant 
deadline for commitment of funds to specific units and 
buildings for the public housing capital fund; 99.9 percent of 
that money met that deadline, and so we are tracking it very, 
very closely.
    Senator Tester. So you are tracking it beyond just the 
expenditure to actually the product hitting the ground and 
being built.
    Secretary Donovan. Absolutely.
    Senator Tester. OK. Good. I want to talk about vouchers for 
just a second, and I want to approach it, as I do just about 
everything that I do in the U.S. Senate, from a rural 
perspective. In a lot of the areas--well, let me ask you this: 
Is moving to the vouchers going to save money or is it more for 
integrating communities?
    Secretary Donovan. Let me just be very clear. We are not--
there are tenant-based vouchers and there are also project-
based contracts. We are not proposing to move all of this 
housing to vouchers. What we are proposing to do is move it to 
project-based contracts that would allow it to raise other 
funds. So it is not going to be a shift toward a voucher, and I 
say this because I know in rural areas from my own work, from 
discussing this with you, that vouchers can be more difficult 
to use in rural areas.
    So if there is a specific building with a contract in that 
community, we would continue that contract, but in a way that 
would allow that building to raise other funds and perhaps 
integrate other kinds of units with it going forward.
    Senator Tester. OK, good. So in Montana, we have got a 2-
year backlog on vouchers. How is this program going to impact 
that 2-year backlog? Positively? Negatively? And ultimately how 
is it going to impact the housing for those folks that are in 
that situation?
    Secretary Donovan. In total, this would in the short run 
keep the same number of units available in Montana. My hope 
would be in the long run that it would actually preserve more 
units and keep more units available. So we are working on some 
specific issues on prioritization of vouchers for families that 
want to move and how we do that so that we are fair in terms of 
those who are on the waiting list. But, fundamentally, the most 
important thing is are there more vouchers, and I want to be 
clear. We have proposed in the budget the highest level of 
funding for vouchers in the history of the program that would 
include most likely, our sense is, about 30,000 new vouchers 
nationally that we would be able to fund. So this does help 
significantly with the waiting list, the budget more broadly, 
in Montana.
    Senator Tester. OK, good. And in places where there are not 
the rental units available, which happens in many, many areas, 
and in a rural State like Montana, it will not have impact on 
the existing public housing that is there.
    Secretary Donovan. That is right. It will have a positive 
impact, I think, in terms of that, but it will not convert that 
to vouchers.
    Senator Tester. OK. All right. The last thing is that you 
continue to have a standing invitation in August. I have a seat 
available for you to my left in the combine if you want to come 
out.
    [Laughter.]
    Secretary Donovan. Thank you. I appreciate it, Senator.
    Senator Tester. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you.
    Senator Bayh.
    Senator Bayh. I think Senator Menendez was here before me.
    Chairman Dodd. Oh, were you here before? I apologize.
    Senator Menendez. Thank you.
    Chairman Dodd. I am sorry. I didn't recognize when you came 
in. I screwed up twice now this morning on that.
    Senator Bayh. He was either here before me or my staff 
threw me under the bus.
    [Laughter.]
    Chairman Dodd. No----
    Senator Bayh. And no one would ever do that.
    Chairman Dodd. No, no. I am not going there.
    [Laughter.]
    Senator Menendez. I was here before, but I am getting so 
thin, the Chairman missed me.
    [Laughter.]
    Senator Menendez. Mr. Secretary, thank you for coming today 
and for your service.
    I want to talk about housing for persons with disabilities. 
The Chairman and myself, we had a hearing here about this 
issue. One of his colleagues from Connecticut came and talked 
about it, a pretty dramatic need. And your budget allocates 
just $90 million to housing for persons with disability. That 
is a decrease of 70 percent from the 2010 appropriations, which 
were $300 million.
    So it just seems to me that the cut strikes me as very bad, 
particularly for the most vulnerable people in our society who 
already should be at the top of the list in terms of who should 
have access to housing. They already face enormous challenges. 
We have 1.3 million low-income disabled households that have to 
spend more than half of their limited income on rent, and so 
the cut is, at the end of the day--I don't quite understand how 
you justify it.
    Now, I know you will probably tell me that the programs 
weren't working. The problem is that a cut isn't a reform. It 
is a cut. If you reform the program and you use the money under 
a new reformed program, that is different. But a cut is a cut 
and I don't know how that necessarily moves to reform.
    Secretary Donovan. So thank you for the question. This was 
one of the, probably the most difficult choice that we made in 
the budget, and ultimately, as I said earlier, we decided to 
focus resources on existing units and there were cuts on 
capital in many different areas. We made a commitment to renew 
every one of the existing 811 units that are there, the 
disabled units. But there is no doubt that this will have a 
negative impact.
    Two things I would say about it. First of all, if you look 
broadly at the budget and affordable housing, the vast majority 
of housing for people with disabilities is not produced by this 
program. The tax credit produces more than ten times the number 
of units for people with disabilities. The number of vouchers, 
public housing units that serve people with disabilities vastly 
outweigh the number of units that are produced by 811--not to 
say that those units aren't important, but I want to be clear 
that we will still produce and provide a substantial amount of 
housing for people with disabilities.
    The second thing I would say is that given the difficulties 
with the program, the period of time and the complexity of 
producing those units today, we have gotten to the point--and I 
have this experience directly myself prior to coming to HUD of 
trying to produce these units--the complexity of them, the low 
level of funding per unit in the program requires raising all 
kinds of other capital, tax credits, a range of other things, 
and yet the rules are still set up as if the program was a 100 
percent funding program.
    We felt that given all of those difficulties and 
complexities, as hard a choice as it was, that not continuing 
to fund the units under the way the program currently operates 
was the decision that we would go forward with in the budget. I 
recognize that that is hard, but I do want to make clear that 
we are committed to funding the program when we can get reforms 
that actually will make it as effective as possible.
    Senator Menendez. Well, we have a difference of opinion in 
terms of reform and then having the resources. Once you cut the 
resources, reform doesn't really ultimately solve the problem 
because then you don't have the resources to implement that 
reform. And even leaving $90 million in the Section is--at the 
end of the day, I don't know what the purpose is if you don't 
believe the program is worthy of spending any money based upon 
the way it operates.
    I heard what you had to say as it relates to other programs 
that we have ultimately provided housing for people with 
disabilities; but clearly, this one, which was focused on the 
question of providing housing for people with disabilities, is 
a driver. The other ones produce some housing for people with 
disabilities, but are not dedicated to that, right?
    Secretary Donovan. In fact, much of the housing, whether it 
is tax credits or others, there are lots and lots of projects 
that are dedicated to people with disabilities, as well. So 
those aren't just mixed projects that happen to go to people 
with disabilities. There are many, many units that are 
targeted----
    Senator Menendez. Can you provide to me and the Committee, 
under all of your other existing projects, what it is that gets 
produced for people with disabilities against what it is that 
you have overall produced for different forms of housing----
    Secretary Donovan. Yes.
    Senator Menendez.----so that we can make a determination. 
You know, Senator Johanns and I, working with the Chairman, 
have developed legislation to reform 811 and to leverage other 
affordable housing resources, streamline the application 
process, accelerate development, build additional units with 
the same appropriation. Have you looked at that? Is that 
something that----
    Secretary Donovan. We have and we think that legislation, 
as well as companion legislation in the House, is a good start 
toward that. We have had some discussions with the Committee as 
well as on the House side about suggested changes that we would 
have and we hope that we could get that legislation passed as 
quickly as possible.
    Senator Menendez. With reference to housing for the 
elderly, you also have a large cut, a decrease of 67 percent. 
There are now an estimated ten seniors for every Section 202 
unit that becomes available. What is the story there?
    Secretary Donovan. The 202 program and the 811 program 
operate very similarly and have the same fundamental issues. 
And so, again, we looked at, broadly, the number of units that 
are produced, how quickly and effectively additional capital 
for 202 or 811 would produce units relative to the other 
programs, and decided--again, in a year of very difficult 
choices--that it made sense to try to make the program work 
more effectively before investing further capital in those----
    Senator Menendez. I am just trying to understand how 60, 70 
percent cuts mean more housing for people who are disabled and 
elderly. I just don't get it. It doesn't add up for me as 
simple math, but then again, that wasn't my strongest forte.
    Secretary Donovan. As you just suggested, let us get you 
the numbers of what, whether it is increased funding in 
vouchers, in these range of other--the new tax credits that 
will be funded, how all of those produce units.
    Let me be clear. I am not arguing that this is a good thing 
for seniors or people with disabilities. These were difficult 
choices. Had we not had the budget pressure that we had, I 
would have made different choices. But this was a 
prioritization that we needed to do given the broader fiscal 
circumstances, and we felt given the way that the program is 
currently operated in this kind of budget pressure--and I want 
to be very clear again that this does not mean long-term we are 
not committed to 202 or the 811 program that can produce units 
in an effective manner.
    Senator Menendez. Let me ask you finally, if I may, Mr. 
Chairman----
    Chairman Dodd. OK.
    Senator Menendez. I heard you respond to the foreclosure 
modification issues. I look at the numbers, 168,000 homeowners 
who have received final 5-year loan modifications under the 
Administration's plan. It is a tiny fraction of 6 million 
people who are more than 60 days late on their loans. You know, 
we have gone through various iterations. What makes us believe 
that--what have we learned to try to do this better and provide 
a greater solution at the end of the day, understanding not 
everybody is going to be able to be saved? I fully understand 
that. But 168,000 out of 6 million? I don't know that that is 
success.
    Secretary Donovan. So before you arrived, we talked about 
some of these numbers more specifically. We did release new 
numbers yesterday, an increase of over 60,000 permanent 
modifications last month. So the pace of permanent 
modifications has accelerated. An additional more than 100,000 
that have been completed and are only awaiting signature from 
the homeowner. So in total there you have got over 330,000, and 
so we are making substantial progress.
    But just to be clear, and this often, I think, the numbers 
in terms of delinquent loans compared to modifications, the 
vast majority of those loans that are delinquent will not end 
up going to foreclosure. Right now, the pace of our permanent 
modifications is almost equal to the number of actual 
foreclosures that are happening each month.
    So I do believe we are having an impact on the problem at a 
significant scale. Did it take us too long to get there? Yes. 
Are there further changes that we continue to make and to push? 
Yes. Has the problem changed and we need new tools? That is why 
we announced some changes a few weeks ago.
    But this is an enormously difficult problem. Many of these 
homeowners, had we acted earlier, I think, and begun to get 
these systems in place years ago, we would have been able to 
reach more of them earlier. But we still will not, even with 
our programs, not be able to reach everyone. There are some 
folks who simply cannot afford the homes they are in even with 
lower prices and a modification. And we have many of these 
homes are investor owners or second homes or others, and we 
would be happy to share the details. A large fraction of those 
are not eligible for the program for reasons that we decided.
    So in total, our estimate is that of the roughly 5.4 
million people that we would expect over the 3 years to be at 
real risk of foreclosure, not the 6 million today, but over 
time, we are--our program is targeted to reach about 2 million 
of those that are eligible, that are owner occupants, that have 
modestly priced homes, that aren't the other ones that would be 
excluded. So we are reaching a very large fraction with the 
more than 1.1 million modifications we have done to date, trial 
modifications. We are reaching a very large portion of that 
overall----
    Chairman Dodd. Thank you, Mr. Secretary. Thank you.
    I apologize to my colleagues. When we started the hearing, 
I had two colleagues here, so I was rather liberal in my time. 
The good news is, everyone is showing up, so I apologize to 
those. I didn't set a time on myself or anyone else, for that 
matter. So to Evan, to you, and to Jeff, who just arrived, and 
Bob coming in the door, I apologize to you in a sense in that I 
was guilty of it myself. And again, we have had great 
participation and good questions, so we will try and just be--
we have got a couple more members to go.
    Bob, you are up next.
    Senator Corker. I will be far more brief, and thank you, 
Mr. Chairman.
    Chairman Dodd. Again, I apologize.
    Senator Corker. Mr. Secretary, and by the way, I enjoyed 
hearing the long questions, so no offense taken there, I hope.
    Mr. Secretary, I first of all want to thank you for doing 
what you do. I think you are one of those folks that we are 
lucky to have in Committee and I thank you for your service.
    Secretary Donovan. Thank you, Senator.
    Senator Corker. I appreciate the way you have reached out 
to people on both sides of the aisle to try to build 
relationships and cause us to understand where you are going.
    As it relates to the mortgage modification piece, to be 
candid, I have always thought it was kind of a Keystone Cop 
effort, that we would never catch up, and the only thing that 
really would make this all work out would be the economy coming 
back and employment coming back and, as you mentioned earlier, 
home values coming back. We probably wasted a lot of money and 
have certainly gone through a lot of effort, and I know some of 
it has borne fruit. Most of it has not. So I am certainly not 
going to weigh in on that. Hopefully, this effort will end soon 
and employment will be back and home values will be back up and 
people will have jobs, and that is the only real solution to 
the problem that we have.
    So what I would like to move to is this. I am not going to 
talk about the budget. I thank you for coming in. You and I had 
a conversation several weeks ago, and this does tie into the 
foreclosure issue, regarding underwriting. I asked you some 
questions. What should we, what should all of us be looking at 
as it relates to underwriting for residential mortgages? I 
mean, at the end of the day, we have got a big bill, 1,336 
pages, that I think a lot of smart people have put effort out 
to create. Hopefully, it is going to be changed to where we end 
up with a bipartisan bill. I think there is a desire by many 
for that to occur.
    But the thing that we really don't address in that bill 
adequately yet, even though I think everybody is still noodling 
at it and trying to figure out the best way to do it, we don't 
address the core issue of the fact that there were a lot of 
loans written for people that should never have been written, 
that they never could have paid back, that the loan-to-value 
ratios were way out of whack from the very beginning, and if we 
don't get at that core issue in this legislation somehow, if we 
don't get at that, we really haven't accomplished much. I mean, 
we have had a lot of fancy discussions, but we aren't getting 
at the core issue.
    I wonder if you could help. I asked you before. I know you 
have been very busy, but since I now have you as a public 
witness, help us understand--we talked some, and I know that 
Chairman Dodd is trying to get at it through risk retention. I 
think the way we are approaching it right now doesn't work. I 
think it shuts down the securitization markets, personally. 
That is not, I think, what our goal is. I think our goal is to 
make credit available. And I know we are in discussions maybe 
to try to resolve that, but what is the best way for us as 
policymakers to ensure that people are actually putting money 
down on their homes, that a loan-to-value ratio is not 100-to-
100, OK, and yet at the same time, I came from a world 
civically where I wanted people to own homes. I think your 
efforts at HUD are valiant and I understand the mission.
    How do we deal with that in the appropriate way without 
being overly prescriptive? I think it is an essential piece in 
this legislation that we have not yet debated. We keep talking 
about consumer. We keep talking about derivatives. We keep 
talking about resolutions. This is a pretty core issue that I 
don't think we have addressed. I think it is an issue that is 
pretty complex and I would love for you to tell us right now 
how to solve it.
    Secretary Donovan. How long have you got? No. It is, as 
always, Senator, an incisive question about a key issue. All 
kidding aside, I don't think I can do justice to it just here. 
What I would suggest, and you and I talked recently about the 
risk retention issue, I have gone back with my colleagues at 
HUD and at Treasury and what we would like to do is come back 
and sit down with you perhaps in more detail about your 
question on that and talk through.
    Because I do think while you raise, I think, an important 
point about capital requirements, what the impacts of that are 
going to be, having real skin in the game, whether it be some 
capital, whether it be ensuring that brokers or others making 
these loans have incentives that are aligned with the 
homeowner, et cetera, all of those, I think, are very important 
points.
    I do think that there is--consumer protection is a piece of 
this, because at some level, having real requirements about--
and limits about the types of products that can be available 
that are damaging, all of those are important, in addition to 
the issue about more specific underwriting.
    What I would say is my concern about this in terms of 
setting sort of across-the-board standards is that when you 
start to dig into loan performance--this is true for FHA as for 
any other kind of loan--as you start to get beyond the sort of 
initial frame of just downpayment, just a FICO score or range 
of other criteria, the truth is that loans that can be risky 
for a risky borrower might not be risky for a different kind of 
borrower. So I think we have to have a fairly nuanced set of 
ways that it can be underwritten, and setting it too clearly or 
specifically in legislation in a way that wouldn't allow some 
flexibility, I think can be problematic.
    I know that is a very general----
    Senator Corker. It is, and I know we are out of time and I 
certainly want to be courteous to our other members. Let me 
just say this. I don't know when you are coming to see me, but 
my understanding is Chairman Dodd is getting ready to introduce 
a bill on the floor. And coming to see me after that does no 
good.
    If the Secretary of HUD cannot tell us--the Secretary of 
HUD, Housing and Urban Development, cannot tell us what he 
thinks is appropriate as it relates to underwriting, and what 
we are doing, let us face it, I mean, we are talking all around 
the issue, but what we are not talking about is skin in the 
game from homeowners. It is semi-important. We want to pass the 
buck. We want to get a piece of hide of Wall Street because 
that is a popular thing to say today and do. We want to get a 
piece of hide of this. We want to get a piece of it. But the 
one thing we are not talking about is how do we ensure that 
homeowners have some skin in the game. It is a pretty important 
concept.
    I don't want to be overly strong with you, but if you are 
waiting to come see me in 3 weeks, that doesn't do any good. So 
I would hope that since this is a very central issue to the 
debate that we are having that we could see each other this 
week or early next week, because we have got to develop 
legislative language.
    Chairman Dodd may not agree and Members of the Committee 
may not agree, but I think for a smart guy like you who is in 
charge of housing--you know, you are the Housing Czar, as they 
say--for a smart guy like you to tell us what you think ought 
to happen there is pretty important. And I have tremendous 
respect for you, but I hope we don't filibuster beyond this and 
miss an opportunity to deal with this core issue which is very 
important as it relates to financial regulation.
    So I thank you very, very much for your service. Please 
come see me.
    Secretary Donovan. I will, and let me just emphasize, I 
think you are absolutely right, and perhaps I wasn't as clear 
as I should be. We have changed the standards at FHA. We do 
have clear standards----
    Senator Corker. That is what----
    Secretary Donovan.----downpayment and a range of other 
things. My only concern is that doing it in this forum in a 
quick answer, it is going to be hard to get to the--do justice 
to the question.
    Senator Corker. We met three or 4 weeks ago, and again, I 
know you are busy, but let us talk in the next few days.
    Secretary Donovan. Yes.
    Senator Corker. Thank you.
    Chairman Dodd. Thank you, Secretary.
    Let me just editorially say on this, we do actually address 
the issue, now not to the satisfaction of my friend from 
Tennessee, but by requiring skin in the game early on, they 
then have a vested interest in seeing underwriting standards. I 
think you did address the question, and that is there is some 
danger in applying rigid standards, underwriting standards, in 
a piece of legislation such as we are contemplating here 
considering the variations that exist.
    Now, clearly, with CRA, FHA, again, you are dealing with 
certain constituencies. Underwriting standards are critical and 
they have proven to be so. But I want to be careful about 
having sort of a one-size-fits-all approach to that as we look 
forward. We have got to be careful about that. But I think you 
do need to have risk, skin in the game, what we didn't have. Of 
course, brokers and lending institutions were securitizing and 
moving on, being paid, had nothing left in the game and cared 
little or nothing about underwriting standards because they 
were being compensated very quickly and therefore had no 
interest in insisting that that borrower meet certain 
standards. If they had skin in the game, I think you are going 
to find a heightened degree of interest in what that borrower 
is going to be capable of paying. So we addressed the issue to 
some degree.
    Anyway, Senator Bayh?
    Senator Bayh. Thank you, Mr. Chairman.
    Mr. Secretary, let me echo what my colleague from Tennessee 
said with regard to my gratitude for your service to the 
public. I think you know I hold you in high regard and you are 
one of the exemplary people who have devoted your life to 
helping others. With that by way of background, I hope you will 
take everything I am about to say in context.
    As you know, there is an issue with regard to the city of 
Gary, Indiana, that I am not terribly happy about. And as I 
have told you more than a year ago, I was assured by a high-
ranking official in the White House that there would be funds 
for the Neighborhood Stabilization Program through the stimulus 
bill to help tear down blighted areas in Gary. It is terrible. 
These are people without means. The city is struggling. I mean, 
these aren't rich people. They are not contributors. They are 
folks who need a helping hand to make a go of it.
    As I think you know, there were no funds, zero, for the 
city of Gary in the second wave of the Neighborhood 
Stabilization Program that came out of the stimulus, isn't that 
correct?
    Secretary Donovan. That is correct.
    Senator Bayh. They got zero. Why was that?
    Secretary Donovan. We ran a competition for that $2 
million--$2 billion. We had $15 billion worth of applications--
--
    Senator Bayh. Why weren't they----
    Secretary Donovan.----and their application fell short.
    Senator Bayh. Why weren't they deserving? This is your 
opportunity to tell the people of Gary why they weren't good 
enough.
    Secretary Donovan. We evaluated the application and felt 
that, frankly, they did not have the capacity necessary to be 
able to--for us to be assured that they could quickly and 
effectively bring those houses down and accomplish the other 
things in their application.
    Senator Bayh. What do you mean by capacity?
    Secretary Donovan. The strength in the government agencies 
or partners working with them that would be able to quickly and 
effectively bring down those homes. And that is why, as you 
know, we have worked with them. We have reallocated $2 million 
out of existing funding that they had to begin demolishing 
homes with partners that we felt had capacity. Homes have, in 
fact, begun to come down in Gary as a result of your efforts 
and your focus on this----
    Senator Bayh. How many?
    Secretary Donovan. At this point, I don't have the precise 
numbers in front of me. My guess would be it would be in the 
range of a dozen, but the funding that we have provided----
    Senator Bayh. There are thousands of blighted homes in 
Gary.
    Secretary Donovan. The funding that we have been able to 
reprogram would be able to get to the scale of hundreds of 
homes.
    Senator Bayh. Two-million dollars?
    Secretary Donovan. That is right.
    Senator Bayh. So by lack of capacity--we may as well use 
plain English--you don't think the city is competent to 
administer those funds effectively. Is that your opinion?
    Secretary Donovan. What I said was, in a very difficult 
competition, $15 billion of applications, we thought that 
others had higher capacity to be able to implement the program.
    Senator Bayh. Twenty-eight other States received funding 
and the District of Columbia. Three-hundred-and-sixty-five 
million dollars went to national not-for-profit organizations. 
Why were the national organizations given priority over the 20-
some States that received zero?
    Secretary Donovan. We had a number of States that got 
direct funding. We chose the applications that we thought were 
strongest based on the criteria of the competition.
    Senator Bayh. So there were that many other places in the 
country that are more hard-pressed and more deserving than 
Gary, including these not-for-profit organizations were more 
deserving of these funds than Gary, Indiana?
    Secretary Donovan. Again, I agree with you that the need is 
substantial in Gary. That is why we have worked hard to try to 
reprogram funds. We talked earlier about the need for more 
Neighborhood Stabilization funding that would allow cities like 
Gary and others to be able to move forward with these types of 
activities. But again, in a very competitive situation, we did 
not think that their application was as strong as the other 
ones that were funded.
    Senator Bayh. Well, I am not accustomed to being promised 
things by high-ranking officials that then are not fulfilled 
and won't allow that situation to happen again. I don't lay 
this at your doorstep. I am not referring to you. As a matter 
of fact, I think you have been put in a somewhat difficult 
situation by all of this. But $2 million isn't going to be 
enough to solve the problem in Gary, Indiana. It is just not. 
And they feel like they have been let down by this 
Administration and I feel like they have been let down by this 
Administration. Again, not you. But something has to be done 
about this.
    I guess I will just put it this way. I am contacted all the 
time by people from the Administration, including in this 
instance I am referring to, to ask for my help on things. Some 
of these decisions are tough calls. There are factors on either 
side. I am just not going to take those phone calls anymore. I 
am going to have them call the Department until there is some 
momentum here for the city of Gary, Indiana.
    Again, I know your heart is in the right place. This is not 
you, OK. I want to make that absolutely clear. I think you are 
doing an exemplary job. But these are thousands of hard-pressed 
people who really aren't getting the helping hand they deserve, 
and I can't go home and explain to them how there were 28 other 
States that were more deserving, national not-for-profit 
organizations that were more deserving, when you walk down the 
streets of Gary, Indiana and see the blight that exists there. 
Two million dollars isn't going to get the job done. They have 
a right to feel like they have been hung out to dry. And I 
think by the word ``capacity,'' we talked about providing them 
some funds so they could build capacity.
    Secretary Donovan. And we have done that.
    Senator Bayh. Well, if they are now capable, are we going 
to get more than the $2 million?
    Secretary Donovan. I would be happy to talk with you about 
other ways that we could increase the help that they would get 
for demolishing properties.
    Senator Bayh. OK. Well, I will just take--the Chairman has 
left, but I am just not accustomed--and it is not you, but I am 
not accustomed to being lied to. It is not going to happen 
again. So when I get these calls, I am going to redirect them 
to the Department. These people deserve the kind of help that I 
was led to believe they were going to get. It is not your 
fault. I think you are a devoted public servant and an 
exemplary public servant and the country is fortunate to have 
you. But there is a disconnect here and we just need to address 
it.
    I think we have got a meeting coming up a week from 
tomorrow. At least, I am told that is on my schedule. I hope 
after my questioning we will still have a meeting and maybe we 
can identify some ways we could make progress. But I just 
needed to get on the record how strongly I feel about this, and 
you can understand that I feel pretty let down. We need to find 
a way, even if we have to--let us help the people. Let us 
figure out a way to do it, even if we have got to think 
creatively about how to get that done in ways that you have 
confidence in, the Department has confidence in. As I have said 
repeatedly, all I care about is that the blight comes down and 
the people get helped. How we do that, I could care less.
    So hopefully we can get a little more momentum going here, 
and again, I think you have been put in a bad spot, but it is 
something we have got to address. So I appreciate your 
tolerance here today. I will look forward to seeing you next 
week.
    Secretary Donovan. OK.
    Senator Tester. [Presiding.] Senator Merkley.
    Senator Merkley. Thank you very much, Mr. Chair.
    First, I would like to echo the concerns that Senator 
Menendez put forward. There are so many groups across the 
country that have been working on projects in the pipeline on 
both senior housing and housing for the disabled and the 
compete cutoff of funding for new construction projects leaves 
a tremendous number of projects hanging. It is just something 
for us to wrestle with, because it would be a shame to waste 
pre-development efforts in our nation in that fashion.
    But I want to turn--because most of the other questions I 
had about the budget have been asked, so I want to turn back to 
the foreclosure issue, which I know that I raise quite often 
because it remains a concern. And I appreciate all the efforts 
that you have been making to improve the HAMP program, but 
there is an inherent challenge in HAMP and that is that it 
requires negotiations between first and second lien holders, 
between services who don't own the mortgages, between trusts 
that own the mortgages but don't really have people 
administering them because it is a corporate entity, if you 
will, to hold the mortgages, and then, of course, the bond 
holders who have claims against the cash-flow of those pools of 
mortgages. It is complex and it is messy.
    Yesterday, a real estate attorney told me he spent 6 months 
calling every day on behalf of his sister to try to work out 
one modification, and he said, how do people without either the 
time and ability to make those phone calls every day, without 
the expertise I have as a real estate attorney, how does anyone 
ever get through this?
    I know that you see this from the numbers that are 
completed, and it looks like it is improving, but please listen 
to the comments that come from every single one of us and our 
constituents that it is so difficult. So many people give up 
after their files are lost, time and time again, and that 
hasn't been resolved. So many give up after transfer to yet a 
new person who knows nothing about the issue and doesn't have 
that single point of contact. And there is only so much one can 
do within that complex legal structure to make it work better.
    So I have been urging, and I know others have been urging, 
for the Department to look at other approaches, other ways of 
getting to address the foreclosure problem. You have seen the 
maps with some inner cities covered with red dots of 
foreclosures in process, where entire communities are being 
blighted by this. And for each one of those dots, it is a 
family that probably won't recover financially until their kids 
are up and out of school, and that maybe their kids don't go to 
college or don't have certain opportunities as they grow up, a 
family that if they have one other disaster befall them may be 
just a stroke away from homelessness. It is a tremendous 
problem.
    There are ideas that have been put forward. One of the 
ideas that I have put forward has been to give families the 
ability to buy back their home at foreclosure auction where 
there is a market price set, with a lot of details, and your 
team has looked at those details. I want to keep pressing that 
conversation because I keep hearing, it makes sense, but we are 
working on HAMP modifications, or so forth. This would be based 
on the ability for a family to pay, taking into context the 
fact that anyone who has gone through foreclosure isn't going 
to have standard FICO scores that one would look for, but we 
can address that through FHA. And isn't it better for a family 
to be able to stay in their house and re-own it on a standard 
30-year amortizing mortgage. Their house would no longer be 
underwater. There are issues that have been raised about 
adverse consequences and motivations, but those are solved by 
using the HAMP program as a filter. There are things that we 
can do in that regard.
    Also, there is more we can do in regard to having 
facilitated short sales, and this is the type of structure 
where you say to a bank, look, you will get--there will be a 
third-party appraiser to establish the market value of this 
house. You will get 95 percent of the value of that third-party 
appraisal. They take a loss in the short term, but probably 
less than they have already marked that mortgage down on their 
books, so their capital standing actually improves, and the 
whole risk that goes with losing 50 percent of the value 
through a future foreclosure is lost. These type of sales could 
be greatly facilitated by the weighing in of the 
Administration. It can be changed when there is a second.
    I know the Administration has come forward with a new plan 
that involves within HAMP negotiating between the first and the 
second holders, but that sort of negotiation is inherently 
complex and messy in a system just not set up--again, who 
really owns that second mortgage? Who are the bond holders on 
the pool of second mortgages? And you have got the first 
mortgage. You have got the complexity of both put together. How 
many deals are really going to get worked out in that context?
    So my plea is that much more creative, energetic, robust 
thinking go into trying to address this foreclosure issue. It 
will haunt our families and it will haunt our communities and 
there really are other ways that could be pursued if the 
Administration takes a robust attitude toward this.
    Secretary Donovan. I think there are lots of pieces to what 
you have described and I would hope that we could continue the 
conversation more, but let me just try to focus on it. I think 
you are absolutely right that the complexity of the existing 
structures is a big part of the problem, the conflicts between 
the first and the second, et cetera.
    The issue is--for the case that you described, it is far 
more beneficial to that family to be able to keep them in the 
home to begin with than to have them go through the 
foreclosure, and I think given the current ability we have to 
bring down their payment, reduce principal now with our 
increased emphasis, the likelihood that a family does not 
qualify for a modification but could successfully afford--leave 
aside get financing, but afford that home at the end of the 
process when a net present value test has already been done 
that would allow them to be eligible for a modification, I 
think my sense is that that group is likely to be relatively 
small.
    And so I think the question is, how many people would we be 
able to help with an approach like that? How many would we be 
able to reach, because I----
    Senator Merkley. Keep in mind, the net present value test 
is a test for a bank to decide if it is in their best interest, 
not if it is in the family's best interest.
    Secretary Donovan. But it does look at the value of the 
home, and so that is the key variable. So if the ability to pay 
is higher than the value of the home sold on the market, and 
they don't qualify under that test, it is extremely unlikely 
that they would be able to pay for the value of the home at the 
back end of the process.
    Remember, the costs of foreclosure are already sunk costs 
at that point. In other words, the bank would have spent the 
money to go through the foreclosure and then would be expecting 
to get the full market value of the property, and that is the 
value that we use in the net present value test, as well as 
including a discount for some of the foreclosure costs. We 
should discuss this----
    Senator Merkley. Let me give you a real example, the types 
of examples that we hear.
    Secretary Donovan. Yes.
    Senator Merkley. You have somebody with an exploding 
interest rate. It has gone from 5 percent to 9.5 percent. Maybe 
the home is now worth $200,000. They have a mortgage for 
$250,000. There is a huge difference in the monthly payments 
between $300,000 at 9.5 percent and $250,000 at 5.5 percent--an 
enormous difference. And then turn around and the house is 
auctioned off and an investor buys it at a fraction of the 
price and the family goes, boy, if we could only have bought 
that house. But it at least gives you an additional tool in the 
toolbox.
    I mean, how many of those families, how many of those red 
dots that are in foreclosure right now, when those houses are 
sold to investors are going to say, you know what? If we had 
been offered a 5.5 percent loan at that rate, we would have 
been able to buy that house. That is every one of those 
families who you would be helping.
    But it is this resistance to considering other tools, just 
the resistance I am hearing from you right here, right now, 
that could help families, the type of family stories we are 
seeing that I am trying to ask you and the Administration to 
say, well, you know what? That is an additional approach that 
could be helpful. Let us pursue it. Let us take it and see what 
we could do with it, because we had enormously generous, 
creative thinking about how to save large financial 
institutions. We need equally aggressive approaches to 
addressing the success of our families.
    Secretary Donovan. Senator, I don't want to give you the 
impression that I am dismissing it, by any means. I am trying 
to understand how likely it would be that a family would be 
able to purchase a home having not been able to successfully 
make a modification work, particularly when we are able to 
bring down the interest rate substantially. I understand the 9 
percent point. We would be able to bring it much lower.
    But again, let me follow up with you. There is, I hope you 
would agree, been a real attempt as you have seen over the last 
few weeks and months to continue focusing on this, to introduce 
new tools like the refinance option that we introduced, the 
Neighborhood Stabilization option, other things that we have 
been doing, more counseling funding, a broad range of things.
    I understand it is frustrating and that we certainly have 
not been able to make the progress that you would like or that 
we would like in terms of the pace that we have been able to 
implement these. But I do want to make sure I understand the 
reasons behind why you think this could be successful----
    Senator Merkley. Absolutely----
    Secretary Donovan.----so that we can arrive at a decision 
about it and a program that would be effective.
    Senator Merkley. We have talked to your team members, laid 
out a lot of details, a fairly comprehensive type of approach, 
and we keep hearing, makes sense. I need for the Secretary of 
Housing to say, I am going to get engaged on other strategies 
to assist families in foreclosure.
    The modifications of HAMP are appreciated, but the HAMP 
process is inherently complex and messy. It only works for a 
family if it is the best option for a bank--not if it is the 
best option for the family, but if it is the best option for 
the bank. We need to look at this through the lens and success 
of our families. That is my emphasis. Thank you.
    Secretary Donovan. Thanks.
    Senator Tester. Thank you, Senator Merkley.
    I want to thank you for being here today, Secretary 
Donovan. Thank you for your leadership in the Department.
    This meeting is adjourned.
    Secretary Donovan. Thank you, Senator.
    [Whereupon, at 11:20 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]

                  PREPARED STATEMENT OF SHAUN DONOVAN
         Secretary, Department of Housing and Urban Development
                             April 15, 2010

    Mr. Chairman, Ranking Member Shelby, and Members of the Committee, 
thank you for the opportunity to testify today regarding the fiscal 
year 2011 Budget for the Department of Housing and Urban Development, 
``Investing in People and Places.''
A Changing Environment
    I appear before you to discuss this Budget and HUD's related 
legislative proposals in a far different environment from that faced by 
the Nation and the Department just 1 year ago. At that time, the 
economy was hemorrhaging over 700,000 jobs each month, housing prices 
were in free fall, residential investment had dropped over forty 
percent in just eighteen months, and credit was frozen nearly solid. 
Many respected economic observers warned that a second Great Depression 
was a real possibility, sparked of course by a crisis in the housing 
market. Meanwhile, communities across the country-from central cities 
to newly built suburbs to small town rural America-struggled to cope 
with neighborhoods devastated by foreclosure, even as their soaring 
jobless rates and eroding tax base crippled their ability to respond.
    One year later, though there is clearly a long way to go, it is 
clear that the nation's housing market has made significant progress 
toward stability, and there are growing reasons for optimism about the 
economy more broadly.
    Through coordinated efforts by Treasury, HUD, and the Federal 
Reserve, the Administration's goal has been to promote stability for 
both the housing market and homeowners. To meet these objectives, the 
Administration has developed a comprehensive approach using state and 
local housing agency initiatives, tax credits for homebuyers, 
neighborhood stabilization and community development programs, mortgage 
modifications and refinancing, and support for Fannie Mae and Freddie 
Mac. The Administration's efforts for homeowners have focused on giving 
responsible households an opportunity to remain in their homes when 
possible while they get back on their feet, or relocate to a more 
sustainable living situation.
    This comprehensive, multi-faceted strategy has had a real impact on 
the market. As measured by the widely referenced FHFA index, home 
prices have been rising more or less steadily since last April. As 
recently as January of 2009 house prices had been projected to decline 
by as much as 5 percent in 2009 by leading major macroeconomic 
forecasters.
    More importantly, allow me to briefly explain what halting the 
slide in home prices and the Administration's measures to assist 
responsible homeowners have meant to middle-class families.
    First, money in families' pockets. Mortgage rates which have been 
near historic lows over the past 10 months have spurred a refinancing 
boom that has helped nearly 4 million borrowers save an average of 
$1,500 per year--pumping $7 billion annually into local economies and 
businesses, generating additional revenues for our nation's communities 
and benefiting our economy more broadly.
    Second, security. As a result of stabilizing home prices and lower 
financing costs, home equity had increased by over $900 billion over 
the first three quarters of 2009--more than $13,000 on average for the 
nation's 78 million homeowners.
    Third, increasing confidence about the future. Homeowner equity is 
key to consumer confidence and to bringing new borrowers back into the 
market. This dynamic has helped the economy to grow at the fastest rate 
in 6 years, and, in March, to create 162,000 jobs the largest job 
growth figures in 3 years.
    The Federal Housing Administration (FHA) has been essential to this 
improved outlook--in the past 16 months helping more than 1.1 million 
homeowners refinance into stable, affordable fixed-rate mortgages, 
assisting more than half million families to avoid foreclosure, 
guaranteeing approximately 30 percent of home purchase loan volume, and 
approximately one-third of all loans for first-time homebuyers. In 
addition, last month, the Administration announced important changes to 
both FHA and HAMP aimed at increasing the focus of our foreclosure 
mitigation efforts on homeowners who are under water and those who are 
facing challenges meeting their mortgage payments because of 
unemployment.
    Of course, just as this crisis has touched different communities in 
different ways, so, too, have they rebounded at different paces. As a 
result, some regions continue to face difficulty, even as others are 
moving toward recovery. That is one reason why the President recently 
announced $2.1 billion in funding to help families in 10 states that 
have suffered an average home price drop of over 20 percent from the 
peak--including an innovation fund that will expand the capacity of 
housing finance and similar agencies in the areas hardest-hit in the 
wake of the housing crisis.
    These announcements continue the Administration's response to 
assist homeowners and stabilize neighborhoods, including through the 
nearly $2 billion that HUD has obligated under the Neighborhood 
Stabilization Program to address the problem of blighted neighborhoods, 
targeting hard-hit communities across the country and including major 
awards in Ohio, Illinois, New Jersey, Pennsylvania and other areas that 
have been deeply affected by the current housing problems. The 
Administration continues to explore and refine ways to assist 
homeowners and stabilize neighborhoods struggling with foreclosures.
    HUD has also played a key role in implementing the American 
Recovery and Reinvestment Act (ARRA), which, according to the 
nonpartisan Congressional Budget Office is already responsible for 
putting as many as 2.4 million Americans back to work and has put the 
Nation on track toward a full economic recovery. And, I am appreciative 
of the support for our efforts in this area that Congress and the 
Members of this Committee have shown.
    HUD has now obligated 98 percent of the $13.6 billion in ARRA funds 
stewarded by the Department--and disbursed $3.7 billion. I would note 
that a portion of HUD's ARRA funding is fully paid out, or expended, 
only when construction or other work is complete--just as when 
individual homeowners complete payment after they have work done on 
their homes. Therefore, some of HUD's obligated, but not yet expended, 
funds are already generating jobs in the hard hit sectors of housing 
renovation and construction for the purposes of modernizing and 
``greening'' public and assisted housing, reviving stalled low-income 
housing tax credit projects, and stabilizing neighborhoods devastated 
by foreclosures. Additional HUD-administered ARRA funds are providing 
temporary assistance to families experiencing or at risk of 
homelessness in these difficult economic times.
    While the economy has a long way to go to reach full recovery, and 
the promising indicators emerging steadily are not being experienced by 
all regions or communities equally, it is clear that we have pulled 
back from the economic abyss above which the Nation stood a year ago.
Roadmap to Transformation
    HUD's fiscal year 2010 Budget, then, reflected a singular economic 
moment. During the last Administration, the Department's annual budget 
submissions chronically underfunded core programs, and many observers 
came to regard the agency as slow moving, bureaucratic, and 
unresponsive to the needs of its partners and customers. HUD's fiscal 
year 2010 budget request, $43.72 billion (net of receipts generated by 
FHA and the Government National Mortgage Association, or ``Ginnie 
Mae'') was a 7 percent increase over the fiscal year 2009 enacted level 
of $40.72 billion and sent the clear message that HUD's programs 
merited funding at levels sufficient to address the housing and 
community development needs of the economic crisis. It also reflected 
this Administration's belief that HUD could transform itself into the 
more nimble, results-driven organization required by its increased 
importance.
    In response to HUD's fiscal year 2010 budget proposal, Roadmap to 
Transformation, Congress--with important support from this Committee--
provided a vote of confidence for which I want to express my deepest 
appreciation. The fiscal year 2010 appropriations legislation provided 
HUD programs $43.58 billion (net of receipts), funding needed to 
stabilize the Department's programs across-the-board. Critically, the 
Budget also targeted $258.8 million to the Department's proposed 
Transformation Initiative, the cornerstone of the agency's efforts to 
change the way HUD does business. For the first time, HUD has the 
flexibility to make strategic, cross-cutting investments in research 
and evaluation, major demonstration programs, technical assistance and 
capacity building, and next generation technology investments to bring 
the agency fully into the 21st century.
Investing In People and Places
    As a result of all this work--by Congress, HUD and across the 
Administration--we no longer confront an economy or a Department in 
extreme crisis. Still, much work remains, in much changed fiscal 
circumstances. Now that the economic crisis has begun to recede, 
President Obama has committed to reducing the Federal deficit, 
including a 3-year freeze on domestic discretionary spending. HUD's 
fiscal year 2011 budget reflects that fiscal discipline. Net of $6.9 
billion in projected FHA and Ginnie Mae receipts credited to HUD's 
appropriations accounts, this Budget proposes overall funding of $41.6 
billion, 5 percent below fiscal year 2010. Not including FHA and Ginnie 
Mae receipts, the budget proposal is $1.6 billion above the 2010 
funding levels. These figures meant that we had difficult choices to 
make--and we chose to prioritize core rental and community development 
programs, fully funding Section 8 tenant-based and project-based rental 
assistance, the public housing Operating Fund, and CDBG.
    At the same time, the Budget cuts funding for a number of programs, 
including the public housing capital fund, HOME Investment 
Partnerships, Native American Housing Block Grants (NAHBG), the 202 
Supportive Housing Program for the Elderly, and the Section 811 
Supportive Housing Program for Persons with Disabilities. In some 
instances, these are programs that received substantial ARRA funding 
(e.g., public housing capital and NAHBG), reducing the need for funds 
in fiscal year 2011. In the case of reductions to new capital grants--
in public housing, Section 202, and 811--the Department is recognizing 
that HUD's partners must increasingly access other private and public 
sources of capital as HUD and the Federal Government are facing severe 
resource constraints. During this fiscal year, we will take 
administrative steps and work with this Committee on legislative 
reforms needed to modernize the 202 and 811 programs. Simultaneously, 
the Department has made the difficult decision to target HUD's housing 
investments to their most crucial and catalytic uses, primarily rental 
and operating assistance that best enable those partners to leverage 
additional resources.
    As such, we believe this is a bold budget, with carefully targeted 
investments that will enable HUD programs to: house over 2.4 million 
families in public and assisted housing (over 58 percent elderly or 
disabled); provide tenant based vouchers to more than 2.1 million 
households (over 47 percent elderly or disabled), an increase of more 
than 100,000 over 2009; more than double the annual rate at which HUD 
assistance creates new permanent supportive housing for the homeless; 
and create and retain over 112,000 jobs through HUD's housing and 
economic development investments in communities across the country. In 
total, by the end of fiscal year 2011, HUD expects its rental 
assistance programs to reach nearly 5.5 million households, over 
200,000 more than at the end of fiscal year 2009.
    And in terms of reform, this Budget proposes fundamental change 
beyond the Department's fiscal year 2010 proposal. A year ago, urgent 
circumstances called for HUD's programs to be taken largely ``as is'' 
in order to pump desperately needed assistance into the economy in time 
to make a critical difference. With the infusion of ARRA and fiscal 
year 2010 funding having stabilized HUD's programs, the time has come 
to begin transforming them--to make HUD's housing and community 
development programs, and the administrative infrastructure that 
oversees them, more streamlined, efficient, and accountable.
    This Budget is a major step in that direction. Specifically, it 
seeks to achieve five overarching goals, drawn from an extensive 
strategic planning process that engaged over 1,500 internal and 
external stakeholders in defining the Department's transformation 
priorities and strategies.

Goal 1: Strengthen the Nation's Housing Market to Bolster the Economy 
        and Protect Consumers
    With housing still representing the largest asset for most American 
households, it is essential that home prices continue to stabilize in 
order to restore the confidence of American consumers. Americans held 
roughly $6.2 trillion in home equity in the third quarter of 2009, up 
from its lowest point of $5.3 trillion in the first quarter of 2009. 
The central role of housing in the U.S. economy demands that Federal 
agencies involved in housing policymaking rethink and restructure 
programs and policies to support housing as a stable component of the 
economy, and not as a vehicle for over-exuberant and risky investing.
    With that in mind, the fiscal year 2011 Budget represents a 
careful, calibrated balancing of FHA's three key responsibilities: 
providing homeownership opportunities to responsible borrowers, 
supporting the housing market during difficult economic times and 
ensuring the health of the Mutual Mortgage Insurance (MMI) fund.
    FHA provides mortgage insurance to help lenders reduce their 
exposure to risk of default. This assistance allows lenders to make 
capital available to many borrowers who would otherwise have no access 
to the safe, affordable financing needed to purchase a home. As access 
to private capital has contracted in these difficult economic times, 
borrowers and lenders have flocked to FHA and the ready access it 
provides to the secondary market through securitization by Ginnie 
Mae.FHA insures approximately thirty percent of all home purchase loans 
today and nearly half of those for first-time homebuyers. The increased 
presence of FHA--and other institutions like Fannie Mae and Freddie 
Mac--in the housing market, has helped support liquidity in the 
purchase market, helping us ride through these difficult times until 
private capital returns to its natural levels.
    Not only is FHA ensuring the availability of financing for 
responsible first time home purchasers, it is also helping elderly 
homeowners borrow money against the equity of their homes through the 
Home Equity Conversion Mortgage (HECM). This program has grown steadily 
in recent years, to a volume of $30.2 billion in fiscal year 2009.
    FHA is also providing several outlets of relief for homeowners in 
distress. First, and perhaps most significantly, it is helping 
homeowners refinance from unsustainable mortgages into 30 year, fixed-
rate FHA-insured loans at today's much lower rates. On March 26th, as 
part of the Administration's continued efforts to assist homeowners to 
avoid foreclosure, HUD announced adjustments to the FHA program that 
will allow lenders to provide additional refinancing options to those 
borrowers who owe more on their home than it is worth, in conjunction 
with a mandatory principal write down by their lender or mortgage 
investor. These adjustments will provide more opportunities for 
qualifying mortgage loans to be responsibly restructured and refinanced 
into FHA loans as long as the borrower is current on the mortgage and 
the lender reduces the amount owed on the original loan by at least 10 
percent. We have also expanded the FHA loan modification program, known 
as FHA HAMP, to provide incentives for servicers to modify loans 
insured by the FHA. With the issuance of new rules on March 26 
(Supplemental Directive 10-03), TARP-funded incentives will be 
available to borrowers and servicers whose loans are modified under the 
FHA-HAMP guidelines, corresponding to the pay-for-success HAMP 
incentive structure.
    And finally, FHA is playing an important role in protecting 
homeowners and helping prospective homeowners make informed decisions. 
It is providing counseling to homeowners to help them avoid falling 
into unsustainable loans. And it is fighting mortgage fraud vigorously 
on all fronts, having suspended seven lenders, including Taylor, Bean 
and Whitaker, and withdrawn FHA-approval for over 300 others since last 
summer.
    To support these important efforts, the Budget includes $88 million 
for the Housing Counseling Assistance program, which is the only 
dedicated source of Federal funding for the full spectrum of housing 
counseling services. With these funds we also plan to continue our work 
to expand the number of languages in which counseling is available. In 
addition, the budget continues FHA's Mortgage Fraud initiative ($20 
million) launched in fiscal year 2010 as well as implementation of 
sweeping reforms to the Real Estate Settlement and Procedures Act 
(RESPA) beginning in January 2010 and the Secure and Fair Enforcement 
(SAFE) for Mortgage Licensing Act beginning in June 2010.
    With this Budget, HUD is projecting that FHA will continue to play 
a prominent role in the mortgage market in fiscal year 2011. 
Accordingly, it requests a combined mortgage insurance commitment 
limitation of $420 billion in fiscal year 2011 for new FHA loan 
commitments for the Mutual Mortgage Insurance (MMI) and General and 
Special Risk Insurance (GI/SRI) funds. The proposed total includes $400 
billion under the MMI Fund, which supports insurance of single family 
forward home mortgages and reverse mortgages under HECM; and $20 
billion under the GI/SRI Fund, which supports multifamily rental and an 
assortment of special purpose insurance programs for hospitals, nursing 
homes, and Title I lending. The budget requests a direct loan 
limitation of $50 million for the MMI fund and $20 million for the GI/
SRI fund to facilitate the sale of HUD-owned properties acquired 
through insurance claims to or for use by low- and moderate-income 
families.
    With FHA's temporarily increased role, however, comes increased 
risk and responsibility. That is why FHA has rolled out a series of 
measures over the last year to strengthen its risk and operational 
management. It has hired its first chief risk officer in its 75-year 
history and created an entire risk management organization and 
reporting structure, tightened its credit standards significantly and, 
as I mentioned, expanded its capacity to rein in or shut down lenders 
who commit fraud or abuse.
    On January 20th of this year, FHA Commissioner Stevens proposed 
taking the following steps to mitigate risk and augment the MMI Fund's 
capital reserves: increase the mortgage insurance premium (MIP); update 
the combination of FICO scores and down payments for new borrowers; 
reduce seller concessions to industry norms; and implement a series of 
significant measures aimed at increasing lender responsibility and 
enforcement. And to strengthen its operational capacity, FHA has begun 
implementing a plan to significantly upgrade its technology 
infrastructure and increase its personnel, to ensure that both are in 
keeping with the growth of its portfolio and the increase in 
responsibility.
    These changes merit additional explanation, as they not only put 
FHA on firmer footing and increase reserves, but also generate 
additional revenues in fiscal year 2011 to contribute to deficit 
reduction. First, insurance revenues from single family loan guarantees 
will grow by increasing the upfront premium to 225 basis points across 
all FHA forward product types (purchase, conventional to FHA 
refinances, and FHA to FHA refinances). The upfront premium increase 
was implemented by mortgagee letter issued on January 21, 2010 and will 
apply to all applications received on or after April 5, 2010.
    Second, FHA is also proposing a ``two-step'' FICO floor for FHA 
purchase borrowers, which would reduce both the claim rate on new 
insurance as well as the loss rate experienced on the claims incurred. 
Purchase borrowers with FICO scores of 580 and above would be required 
to make a minimum 3.5 percent down payment; and those with FICO scores 
between 500-579 would be required to make a minimum down payment of 10 
percent. Applicants below 500 would be ineligible for insurance. These 
changes are being proposed after an exhaustive review of FHA's actual 
claim performance data, which demonstrates that loan performance is 
best predicted by a combination of credit score and downpayment--simply 
raising one element without recognizing the impact of the layering of 
risk factors is not sufficient. We are considering how these changes 
might be applied to refinancing borrowers as well. FHA is proposing to 
publish the two-step FICO proposal in the Federal Register in short 
order with implementation later in 2010. In combination, these 
reforms--which are already permitted under current law--can be expected 
to produce $4.2 billion in offsetting receipts in fiscal year 2011.
    In addition, as noted in the proposed budget, while HUD is moving 
to increase the upfront premium to 225 basis points we are ultimately 
planning to reduce that premium to 100 basis points, offset by a 
proposed increase in the annual premium to 85 basis points for loans 
with loan-to-value ratios (LTV) up to and including 95 percent and to 
90 basis points for LTVs above 95 percent. These changes to the annual 
premium will require legislative authority, and we are looking forward 
to working with this authorizing committee as part of that effort. This 
new premium structure more in line with GSE and private mortgage 
insurers' pricing, which facilitates the return of private capital to 
the mortgage market. Indeed, if these changes are adopted during the 
current fiscal year, the estimated value to the MMI fund would be $300 
million in additional funds each month, providing better underwriting 
for FHA loans and helping to replenish capital reserves.
    If implemented, in combination with the two-step FICO floor, this 
change in the premium structure is projected to result in the $5.8 
billion in offsetting FHA receipts for fiscal year 2011 that is 
reflected in the Budget Appendix. In sum, FHA has taken the kinds of 
steps necessary to make sure that it will remain strong and healthy 
enough to continue to fulfill its mission of serving the underserved 
and playing a vital counter-cyclical role in the housing market.

Goal 2: Meet the Need for Quality Affordable Rental Homes
    Several recent national indicators have pointed to increasing 
stress in the U.S. rental housing market. Vacancy rates are on the rise 
as a result of the dampened demand and additional supply repurposed 
from the ownership market. Spreads between asking rents and effective 
rents are widening. Asking rents are now $65 higher than effective 
rents (6.6 percent of the effective rent)--the largest gap over the 
past 4 years. While some new renters have been the beneficiaries of 
this softness, drawing concessions from distressed property owners, the 
budgets of many more low-income renters have been strained as household 
incomes fall, due to unemployment and lost hours worked.
    Loss of income stemming from the recession is likely offsetting 
affordability gains from declining rents. Vacancies in the lower end of 
the market remain considerably lower than market levels overall, and 
the number of cost burdened low-income renters is on the rise. Based on 
estimates from the 2008 American Community Survey, 8.7 million renter 
households paid 50 percent or more of their income on housing, up from 
8.3 million renter households in 2007. These figures do not include the 
over 664,000 people who experience homelessness on any given night.
    As HUD Secretary, as well as the current Chair of the Interagency 
Council on Homelessness under President Obama, I am committed to making 
real progress in reducing these tragic figures. To do so requires 
substantial investment even in this difficult fiscal year. For this 
reason, the Budget provides $1 billion for capitalization of the 
National Housing Trust Fund, to increase development of housing 
affordable to the nation's lowest income families. I look forward to 
working with the Members of this Committee to secure the funds.
    In addition, HUD's rental assistance and operating subsidy programs 
have never been more needed, nor has the imperative to operate them 
efficiently been clearer. This budget takes three critical steps to 
meet this challenge.

    Increases investment in core rental assistance and 
        operating subsidy programs 

    This Budget invests over $2.2 billion more than in fiscal year 2010 
to meet the funding needs of the Tenant-based Rental Assistance (TBRA) 
program, the Project-based Rental Assistance (PBRA) program, and the 
public housing Operating Fund.
Tenant-based Rental Assistance
    The Section 8 TBRA or Housing Choice Voucher (HCV) program is a 
cost-effective means for delivering decent, safe, and sanitary housing 
to low-income families in the private market, providing assistance so 
that participants are able to find and lease privately owned housing. 
In fiscal year 2009, HUD assisted over 2 million families with this 
program; and, in fiscal year 2010, we plan to assist over 76,000 more 
families through new incremental vouchers.
    This Budget continues HUD's bedrock commitment to its largest 
program. The calendar year request for 2011 is $19.6 billion, a $1.4 
billion increase over the 2010 Consolidated Appropriations Act and an 
amount estimated to assist 2.2 million households. This represents an 
increase of 34,466 families from fiscal year 2010 projections and 
112,304 more than at the end of fiscal year 2009.
    Of the $19.6 billion request, $17.3 billion will cover the renewal 
of expiring annual contribution contracts (ACC) in calendar year 2011; 
with $1.8 billion for Administrative Fees; $125 million for Tenant 
Protection vouchers; $60 million to support Family Self-Sufficiency 
(FSS) activities; and up to $66 million for disaster vouchers for 
families affected by Hurricanes Ike and Gustav. In addition, this 
Budget requests $85 million for incremental vouchers to help homeless 
individuals, at-risk families with children, and families with special 
needs stabilize their housing situation and improve their health 
status, as well as $114 million for the shift of the renewal of 
mainstream vouchers from the Section 811 account to the TBRA account.
    Through this Budget, the Department reaffirms its commitment to 
improving the Section 8 program by designing a comprehensive 
development strategy to improve HUD Information Technology systems to 
better manage and administer the Voucher program; implementing an 
improved Section 8 Management Assessment Program (SEMAP) that will 
ensure strengthened oversight, quality control, and performance metrics 
for the voucher program; continuing the study to develop a formula to 
allocate administrative fees based on the cost of an efficiently 
managed PHA operating the voucher program; developing a study to 
evaluate current Housing Quality Standards and improve the unit 
inspection process; and eliminating unnecessary caps on the number of 
families that each PHA may serve.

Project-based Rental Assistance (PBRA)
    PBRA assists more than 1.3 million low- and very low-income 
households in obtaining decent, safe, and sanitary housing in private 
accommodations. This critical program serves families, elderly 
households, disabled households, and provides transitional housing for 
the homeless. Through PBRA funding, HUD renews contracts with owners of 
multifamily rental housing--contracts that make up the difference 
between what a household can afford and the approved rent for an 
adequate housing unit in a multifamily development.
    HUD is requesting a total of $9.382 billion to meet PBRA program 
needs. This includes $8.982 billion to be available in fiscal year 2011 
(in addition to the $394 million previously appropriated) and $400 
million to be available in fiscal year 2012. For fiscal year 2011, HUD 
estimates a need of $8.954 billion of new Budget Authority for contract 
renewals and amendments. The need for Section 8 Amendment funds results 
from insufficient funds provided for long-term project-based contracts 
funded primarily in the 1970s and 1980s, when long-term contracts (up 
to 40 years) made estimating funding needs problematic, leading to 
frequent underfunding. The current practice of renewing expiring 
contracts for a 1-year term helps to ensure that the problem of 
inadequate funded contracts is not repeated. However, some older long-
term contracts have not reached their termination dates and, therefore, 
have not yet not entered the 1-year renewal cycle and must be provided 
amendment funds for the projects to remain financially viable. The 
Department estimates that total Section 8 Amendment needs in 2011 will 
be $662 million. The Budget request continues the Department's 
commitment to provide full 1-year funding for contract renewals and 
amendments.

Public Housing Operating Fund
    The public housing Operating Fund provides operating subsidy 
payments to over 3,100 public housing authorities (PHAs) which serve 
1.2 million households in public housing. The fiscal year 2011 Budget 
requests $4.8 billion, which will fully fund the Operating Fund. Full 
funding is essential to the proper operation of public housing, 
provision of quality housing services to residents, and effective use 
of Capital Fund resources.

    Begins to streamline the Department's rental assistance 
        programs 

    It does not take a housing expert to see that HUD's rental 
assistance programs desperately need simplification. HUD currently 
provides deep rental assistance to more than 4.6 million households 
through thirteen different programs, each with its own rules, 
administered by three operating divisions with separate field staff. 
Too often over time, additional programs designed to meet the needs of 
vulnerable populations were added without enough thought to the 
disjointed system that would result. This unwieldy structure ill serves 
the Department, our government and private sector partners, and-most 
importantly the people who live in HUD-supported housing.
    In my last job, as Commissioner of the New York City Department of 
Housing Preservation and Development, I personally experienced the 
challenges of working with HUD rental assistance to preserve and 
develop affordable housing at a large scale. While implementing the 
City's 165,000 unit New Housing Marketplace plan, it was a constant 
struggle to integrate HUD's rental assistance streams, and capital 
funding resources for that matter, into the local, state, and private 
sector housing financing that was absolutely necessary to leverage to 
get the job done.
    But I was willing to deal with the transaction costs of engaging 
with HUD's less-than-ideally aligned subsidy programs for a simple 
reason: the engine that drives capital investment at the scale needed, 
in a mixed-finance environment, is typically a reliable, long-term, 
market-based, stream of Federal rental assistance. Historically, no 
other mechanism--and no other source of government funding--has ever 
proven as powerful at unlocking a broad range of public and private 
resources to meet the capital needs of affordable housing. While highly 
imperfect, HUD's rental assistance programs are irreplaceable.
    This said, tolerating the inefficiencies of the status quo is no 
longer an option. The capital needs of our Nation's affordable, 
federally assisted housing stock are too substantial and too urgent. 
The Public Housing program in particular has long wrestled with an old 
physical stock and a backlog of unmet capital needs that may exceed $20 
billion.\1\ To be sure, nearly two decades of concentrated efforts to 
demolish and redevelop the most distressed public housing projects, 
through HOPE VI and other initiatives, has paid off. The stock is in 
better shape overall than it has been in some time,\2\ and the $4 
billion in ARRA funds targeted to public housing capital improvements 
are further stabilizing the portfolio. But this very progress has 
created a unique--but time limited--opportunity to permanently reverse 
the long-term decline in the Nation's public housing portfolio and 
address the physical needs of an aging assisted housing stock.
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    \1\ HUD is currently conducting a definitive Capital Needs study of 
the public housing portfolio.
    \2\ Preserving Safe, High Quality Public Housing Should Be a 
Priority of Federal Housing Policy, Barbara Sard and Will Fischer, 
October 8, 2008 (noting that ``ninety percent of developments meet or 
exceed housing quality standards, although most developments are more 
than 30 years old, and many will need rehabilitation.'').
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    My many years of experience in dealing with affordable housing on a 
large scale-both in New York and overseeing HUD's multifamily assisted 
housing programs during the 1990s--have drilled home two key lessons. 
First, it is far more costly to build new units than to preserve 
existing affordable housing. And, second, an affordable housing project 
can limp along for some time with piecemeal, ad hoc strategies to 
address its accumulating capital backlog, but eventually the building 
will reach a ``tipping point'' where its deterioration becomes rapid, 
irreversible and expensive. This moment in time calls for a timely, 
crucial Federal investment to leverage other resources to the task of 
maintaining the number of safe, decent public and assisted housing 
units available to our nation's poor families-an objective that at some 
point, soon, will cost the taxpayer substantially more to achieve by 
other means.
    Nor can we afford to sustain the disconnect between HUD's largest 
rental and operating assistance programs, given the disproportionate 
impact of the recession on the recipients of HUD assistance and the 
communities where much of HUD's public and assisted housing stock 
remains. More than ever, communities of concentrated poverty need their 
public and assisted housing stock--even the most distressed projects 
that are the targets of our proposed Choice Neighborhoods initiative--
to serve as anchors of broader neighborhood revitalization efforts. 
Simultaneously, in this challenging economy, tenants of HUD-subsidized 
projects also need the option to pursue opportunities for their 
families in other neighborhoods and communities as and when they arise, 
without losing the subsidy that is so crucial to maintaining their 
housing stability. Today, we lack the seamless connection that should 
exist between HUD's largest project-based assistance programs--PBRA and 
public housing-and the Housing Choice Voucher program, which leaves 
tenants of PBRA and public housing with limited ability to move to 
greater opportunity.
    To address these issues and move HUD's rental housing programs into 
the housing market mainstream, HUD proposes to launch an ambitious, 
multi-year effort called the Transforming Rental Assistance (TRA) 
initiative.
    This initiative is anchored by four guiding principles:

    First, that the complexity of HUD's programs is part of the 
problem--and we must streamline and simplify our programs so that they 
are less costly to operate and easier to use at the local level. 
Ultimately, TRA is intended to move properties assisted under these 
various programs toward a more unified funding approach, governed by an 
integrated, coherent set of rules and regulations that better aligns 
with the requirements of other of Federal, state, local and private 
sector financing streams.
    Second, that the key to meeting the long-term capital needs of 
HUD's public and assisted housing lies in shifting from the Federal 
capital and operating subsidy funding structure we have today--which 
exists in a parallel universe to the rest of the housing finance 
world--to a Federal operating subsidy that leverages capital from other 
sources.
    Third, that bringing market investment to all of our rental 
programs will also bring market discipline that drives fundamental 
reforms. Only when our programs are truly open to private capital will 
we be able to attract the mix of incomes and uses and stakeholders 
necessary to create the sustainable, vibrant communities we need.
    And fourth, that we must combine the best features of our tenant-
based and project-based programs to encourage resident choice and 
mobility. TRA reflects HUD's commitment to complementing tenant 
mobility with the benefits that a reliable, property-based, long term 
rental assistance subsidy can have for neighborhood revitalization 
efforts and as a platform for delivering social services. And in a 
world where the old city/suburb stereotypes are breaking down, and our 
metropolitan areas are emerging as engines of innovation and economic 
growth, we have to ensure our rental assistance programs keep up.
    Under the 2011 budget, the first phase of TRA will provide $350 
million to preserve approximately 300,000 units of public and assisted 
housing, increase administrative efficiency at all levels of program 
operations, leverage private capital, and enhance housing choice for 
residents. With this request, we expect to leverage over $7.5 billion 
in other public and private sector capital investment. PHAs and private 
owners will be offered the option of converting to long-term, market-
based, property-based rental assistance contracts that include a 
resident mobility feature, which we are working to define in close 
collaboration with current residents, property owners, local 
governments and a wide variety of other stakeholders.
    Most of the fiscal year 2011 downpayment on TRA, up to $290 
million, will be used to fill the gap between the funds otherwise 
available for the selected properties--in most cases the public housing 
Operating Fund subsidy--and the first-year cost of the new contracts. 
As noted above, a reliable funding stream will help place participating 
properties on a sustainable footing from both a physical and a 
financial standpoint, enabling owners to leverage private financing to 
address immediate and long-term capital needs, and freeing them from 
the need for annual capital subsidies.
    Under this voluntary initiative, HUD will prioritize for conversion 
public housing and assisted multifamily properties owned by PHAs. 
Notably, in this regard, TRA delivers on the promise of over a decade's 
worth of movement in the field of public housing toward the private 
sector real-estate model known as ``asset-management,'' by finally 
providing public housing authorities with the resources to successfully 
implement this model in the projects they will continue to own. Three 
types of privately owned HUD-assisted properties will also be eligible 
for conversion in this first phase: Section 8 Moderate Rehabilitation 
contracts administered by PHAs, and properties assisted under the Rent 
Supplement or Rental Assistance Programs. With this step, we can 
eliminate three smaller legacy programs that have become ``orphans'' as 
new housing programs have evolved. This consolidation will preserve 
these properties for residents, improve property management, and 
streamline HUD oversight to save the taxpayer money.
    Much of the remaining funding, up to $50 million, will be used to 
promote mobility by targeting resources to encourage landlords in a 
broad range of communities to participate in the housing voucher 
program and to provide additional services to expand families' housing 
choices. A portion of these funds also may be used to offset the costs 
of combining HCV administrative functions in regions or areas where 
locally designed plans propose to increase efficiency and effectiveness 
as part of this conversion process.
    By late April, the Administration plans to transmit to this 
Committee proposed legislation to authorize the TRA initiative and the 
long-term property-based rental assistance contracts and resident 
choice policies that are its cornerstone. Enactment of a number of the 
provisions in the Section 8 Voucher Reform Act is also an integral part 
of the Transforming Rental Assistance initiative. The Administration 
looks forward to working with Congress to finalize this vital 
legislation.
    Without Congress' work on HOPE VI and the Quality Housing and Work 
Responsibility Act, this opportunity would never have arisen. This 
year, we can together begin to put both public and assisted housing on 
firm financial footing for decades to come, and start to meld HUD's 
disparate rental assistance and capital programs into a truly 
integrated Federal housing finance system. I hope that you will help 
HUD make this breakthrough by enacting these key pieces of legislation.

    Increases investment in proven and restructured HUD 
        homeless assistance programs

    The budget also proposes to increase funding for HUD's highly 
effective Homeless Assistance Grants by nearly $200 million fiscal year 
2010, to $2.055 billion in fiscal year 2011. I would like to thank 
Senator Reed and the leadership of this Committee for literally years 
of work to restructure and modernize these programs to reflect over two 
decades of research and on-the-ground experience combating 
homelessness. As you know, these efforts came to fruition in May of 
last year, with enactment of the Homeless Emergency Assistance and 
Rapid Transition to Housing, or ``HEARTH'' Act.
    Fiscal year 2011 marks the first year of implementation of the 
HEARTH Act, and the Department's proposed funding level will enable 
local homeless assistance planning and implementation collaboratives--
known as Continuums of Care--to do so by better addressing the unique 
dynamics of homelessness in rural communities, improving performance-
management and outcome focus within local homeless assistance systems, 
and implementing evidence-based practices such as permanent supportive 
housing and homelessness prevention. The Department looks forward to 
working with you to making minor adjustments to HEARTH to facilitate 
this implementation process in light of some practical obstacles our 
Special Needs Assistance Programs and Services office is confronting.
    With respect to homelessness prevention, I would call to the 
Committee's attention the recent publication of a significant study by 
HUD's Office of Policy Development and Research entitled ``Costs 
Associated With First-Time Homelessness for Families and Individuals.'' 
This examination of the costs incurred within homeless and mainstream 
service delivery systems in six communities as diverse as upstate South 
Carolina to large cities like Houston and Washington, D.C. provides 
compelling support for continuing to apply the old adage ``an ounce of 
prevention is worth a pound of cure'' in the context of homelessness--
which ARRA did by providing $1.5 billion in Homeless Prevention and 
Rapid Re-housing Program (HPRP) grants and the HEARTH Act continued 
through the permanent authorization of a similar prevention program.
    We have long known that chronic homelessness generated such 
substantial costs within homeless and mainstream systems that evidence-
based interventions to end chronic homelessness, such as permanent 
supportive housing, generate savings across systems nearly equal to 
their costs (efficiently capturing these savings across executive 
branch and legislative `silos' at various levels of government is, of 
course, an ongoing challenge). This is why recent Federal efforts have 
focused on ``moving the needle'' on chronic homelessness, with the 
result that chronic homelessness dropped 30 percent in the 4 years from 
2005 through 2008, certainly one of the greatest social welfare policy 
achievements of the past decade. It is now increasingly clear that even 
first time homelessness incurs substantial costs, and that the best way 
to avoid these costly interactions is to keep vulnerable households 
from becoming homeless in the first place.
    In sum, the Department's fiscal year 2011 Homeless Assistance 
Grants funding request reflects the paradigm shift this Committee 
helped to produce within the nation's homeless system, through the 
HEARTH Act, and will allow the Administration to continue making 
progress in ending chronic homelessness and meet the growing need among 
homeless families during this economic downturn. Finally, as the 
current Chair of the Interagency Council on Homelessness, I look 
forward to submitting to Congress next month, and working with you to 
implement, the 5-year Federal strategy to address homeless mandated by 
the HEARTH Act.

Goal 3: Utilize Housing as a Platform for Improving Quality of Life
    A growing body of evidence points to the role housing plays as an 
essential platform for human and community development. Stable housing 
is the foundation upon which all else in a family's or individual's 
life is built--absent a safe, affordable place to live, it is next to 
impossible to achieve good health, positive educational outcomes, or 
reach one's full economic potential. Indeed, for many persons with 
disabilities living in poverty, lack of stable housing as discussed 
above, leads to costly cycling through crisis-driven systems like 
emergency rooms, psychiatric hospitals, detox centers, and even jails. 
By the same token, stable housing provides an ideal launching pad for 
the delivery of healthcare and other social services focused on 
improving life outcomes for individuals and families. As noted above, a 
substantial level of research has established, for example, that 
providing permanent supportive housing to chronically ill, chronically 
homeless individuals and families not only ends their homelessness, but 
also yields substantial cost savings in public health, criminal 
justice, and other systems-often nearly enough to fully offset the cost 
of providing the permanent housing and supportive services. More 
recently, scholars have focused on housing stability as an important 
ingredient for children's success in school--unsurprisingly, when 
children are not forced to move from place to place and school-to-
school, they are more likely to succeed academically.
    Capitalizing on these insights, HUD is launching efforts to connect 
housing to services that improve the quality of life for people and 
communities. The fiscal year 2011 budget proposes the following 
important initiatives:

    Connects formerly homeless tenants of HUD-housing to 
        mainstream supportive services programs

    The Department requests $85 million for incremental voucher 
assistance for the new Housing and Services for Homeless Persons 
Demonstration to support groundbreaking collaborations with the 
Department of Health and Human Services (HHS) and the Department of 
Education. This demonstration is premised on the Administration's firm 
belief that targeted programs alone cannot end homelessness. Mainstream 
housing, health, and human service programs will have to be more fully 
engaged to prevent future homelessness and significantly reduce the 
number of families and individuals who are currently homeless. Two 
separate initiatives will be funded in an effort to demonstrate how 
mainstream programs can be aligned to significantly impact 
homelessness.
    One initiative will focus on individuals with special needs who are 
homeless or at risk of homelessness. This initiative is designed to 
model ways that resources across HUD and HHS can be brought to bear to 
address the housing and service needs of this vulnerable population. 
Recently released data shows that over 42 percent of the homeless 
population living in shelters has a disabling condition. The 
demonstration would combine Housing Choice Vouchers with health, 
behavioral health and other support services to move and maintain up to 
4,000 chronically homeless individuals with mental and substance use 
disorders into permanent supportive housing.
    Vouchers will be targeted to single, childless adults who are 
homeless and who are already enrolled in Medicaid through coverage 
expansion under state Medicaid waivers or state only initiatives. In 
addition, HHS is seeking $16 million in its fiscal year 2011 budget 
request to provide wraparound funding through grants administered by 
the Substance Abuse and Mental Health Services Administration to 
promote housing stability and improvements in health outcomes for this 
population. HUD and HHS will jointly design the competitive process and 
conduct an evaluation to determine: (1) the cost savings in the 
healthcare and housing systems of the proposed approach, (2) the 
efficacy of replication, and (3) the appropriate cost-sharing among 
Federal agencies for underwriting services that increase housing 
stability and improve health and other outcomes.
    Another initiative will establish a mechanism for HUD, HHS and 
Department of Education programs to be more fully engaged in 
stabilizing homeless families, ultimately resulting in reducing the 
costs associated with poor school performance and poverty. This 
initiative strategically targets these resources to: (1) identify 
families who are homeless or at risk of homelessness, (2) intervene 
with the appropriate array of housing assistance, income supports, and 
services to ensure that the family does not fall into the shelter 
system or onto the street (or if already homeless that the family is 
stably housed and does not return to homelessness), and (3) provide the 
tools necessary to assist the family to build on its resources to 
escape poverty and reach its highest possible level of economic 
security and self-sufficiency.
    HUD will make available a minimum of 6,000 Housing Choice Vouchers 
on a competitive basis and jointly design the competitive process with 
HHS and the Department of Education. Winning proposals will have to 
show that the new vouchers are being targeted to communities with high 
concentrations of homeless families. With guidance from HHS, states 
will need to demonstrate how they will integrate HUD housing assistance 
with other supports--including TANF--these families will need to 
stabilize their housing situation, foster healthy child development, 
and prepare for, find, and retain employment. HHS will provide guidance 
to state TANF agencies and other relevant programs to explain this 
initiative and their role in both the application for the vouchers and 
the implementation of the program. DoE will assist with identifying at-
risk families with children through their network of school-based 
homelessness liaisons, and providing basic academic and related 
supports for the children. Locally, applicants will need to show that 
they have designed a well-coordinated and collaborative program with 
the TANF agency, the local public schools, and other community partners 
(e.g., Head Start, child welfare, substance abuse treatment, etc.).
    Collectively, these initiatives represent an unprecedented, ``silo-
busting'' alignment of Federal resources to address the needs of some 
of the country's most vulnerable individuals and families. At the same 
time, we believe they will save the taxpayer significantly in the long 
run. This innovative approach will also involve some collaboration 
across subcommittee jurisdictional lines, and we look forward to 
working with the members of this panel in determining how best to 
facilitate that joint action.

    Modernizes the 202 and 811 Supportive Housing Programs for 
        the Elderly and Disabled

    As the Department begins the process of restructuring its rental 
assistance programs, it must also ensure that its programs providing 
capital grants and rental assistance that are sized to the actual costs 
to operate a project (`budget-based' or `operating cost-based') are 
well designed for the world of housing finance in the 21st century. 
Beyond public and assisted housing--the focus of the TRA initiative--
the most prominent examples of such funding streams are the Section 202 
and 811 programs, which couple housing and services for the nation's 
poor elderly and disabled, respectively.
    Although they have provided critical housing for thousands of 
residents, these programs are in need of modernization. Project 
sponsors no longer receive enough funding per grant for the 202 and 811 
programs to be a ``one-stop shop'' to capitalize and sustain a project, 
yet they are subject to a level of bureaucratic oversight that suggests 
they are. This regulatory structure also makes it difficult for project 
sponsors to work with other financing streams, such as low income 
housing tax credits, even as the average grant size requires accessing 
other capital sources. As a result, project development is slowed and, 
coupled with outdated geographic allocation formulae, limited resources 
are spread too thin to reach scale at either the project or national 
programmatic levels. In 2009, the 202 program produced only 3,049 units 
with an average project size of 44 units and the 811 program produced 
only 661 units with an average project size of 10 units.
    Approximately 10 times as many units are produced under the Low 
Income Housing Tax Credit program. And under the status quo, the total 
annual production of units will continue to decrease as the cost of 
supporting existing 811/202 properties consumes more and more of the 
overall funding allocation. This threatens to make the programs 
increasingly marginal for the nation's elderly and disabled.
    Accordingly, HUD requests a suspension of funding for Section 202 
and 811 Capital Advance Grants in fiscal year 2011 in order to redesign 
the programs to better target their resources to meet the current 
housing and supportive service needs of frail elderly and disabled very 
low-income households. The redesigned programs will maximize HUD's 
financial contribution through enhanced leveraging requirements and 
will also encourage or require partnerships with HHS and other services 
funding streams to create housing that, while not medically licensed, 
still effectively meets the needs of very low-income elderly and 
disabled populations unable to live fully independently. The program 
reforms for both 202 and 811 will include the following: 1) new 
requirements to establish demand to ensure meaningful impact of dollars 
awarded; 2) raised threshold for sponsor eligibility to ensure the 
award of funds only to organizations with unique competency to achieve 
the program goals; 3) streamlined processing to speed development 
timeframes; 4) broader benefits of program dollars achieved by 
facilitating supportive services provided by Medicaid/Medicare Waiver 
programs such as the Program of All-inclusive Care for the Elderly 
(PACE) model services to 202 project residents, 5) encouraging better 
leveraging of other sources of funding, such as low income housing tax 
credits, and 6) integrating 811 programs within larger mixed-finance, 
mixed-use projects.

Goal 4: Build Inclusive and Sustainable Communities Free from 
        Discrimination
    The Department's approach to this objective is informed by the 
Obama Administration's landmark, Federal Government-wide review of 
``place-based'' policies for the first time in over three decades.
    Place is already at the center of every decision HUD makes. HUD's 
programs today reach nearly every neighborhood in America--58,000 out 
of the approximately 66,000 census tracts in the U.S. have one or more 
unit of HUD assisted housing. But we have taken this opportunity to 
renew our focus on place, with the result that the proposed fiscal year 
2011 Budget allows HUD to better nurture sustainable, inclusive 
neighborhoods and communities across America's urban, suburban, and 
rural landscape.
    One aspect of HUD's refined place-based approach involves making 
communities sustainable for the long-term. Sustainability includes 
improving building level energy efficiency, cutting carbon emissions 
through transit-oriented development, and taking advantage of other 
locational efficiencies. But sustainability also means creating 
``geographies of opportunity,'' places that effectively connect people 
to jobs, quality public schools, and other amenities. Today, too many 
HUD-assisted families are stuck in neighborhoods of concentrated 
poverty and segregation, where one's zip code predicts poor 
educational, employment, and even health outcomes. These neighborhoods 
are not sustainable in their present state.
    This Budget lays the groundwork for advancing sustainable and 
inclusive growth patterns at the metropolitan level, communities of 
choice at the neighborhood scale, and energy efficiency at the building 
scale. Specifically, the fiscal year 2011 Budget calls for the 
following series of programs and funding levels.

    Supports and improves the Federal Government's premier 
        community development program

    The economic downturn and foreclosure crisis have significantly 
depleted resources in state and local governments while increasing 
demand for services. Revenue declines often turn quickly into layoffs 
and cuts in services for the poor. Meanwhile, community development 
investments have a heightened role in economic redevelopment and 
stabilization for neighborhoods and regions across the country. During 
these difficult economic times, it is critical that the Administration 
support and enhance community development programs, and partner with 
grantees in developing strategies to increase economic vitality, build 
capacity, and build sustainable communities and neighborhoods of 
opportunity. Since 1974, the Community Development Block Grant (CDBG) 
program has provided formula grants to cities and states to catalyze 
economic opportunity and create suitable living environments through an 
extensive array of community development activities.
    The fiscal year 2011 Budget proposes a total of $4.380 billion for 
the Community Development Fund, which includes:

    $3.99 billion for CDBG formula distribution, to meet the 
        President's campaign promise to fully fund CDBG. 
        Simultaneously, the Department proposes a number of 
        improvements to the CDBG program, including revamping the 
        consolidated plans developed by state and local governments, 
        greater accountability, and better performance metrics.

    $150 million in funding for the second year of the 
        Sustainable Communities Initiative. The initiative has four 
        components in 2011, described below. HUD looks forward to 
        working with the Committee and in particular the Chairman, who 
        has played an important leadership role on this set of issues, 
        to refine these proposals.

      1.  Sustainable Communities Planning Grants administered by HUD 
        in collaboration with the Department of Transportation (DOT) 
        and the Environmental Protection Agency (EPA). These grants 
        will catalyze the next generation of integrated metropolitan 
        transportation, housing, land use and energy planning using the 
        most sophisticated data, analytics and geographic information 
        systems. Better coordination of transportation, infrastructure 
        and housing investments will result in more sustainable 
        development patterns, more affordable communities, reduced 
        greenhouse gas emissions, and more transit-accessible housing 
        choices for residents and firms.

      2.  Sustainable Communities Challenge Grants to help localities 
        implement Sustainable Communities Plans they will develop. 
        These investments would provide a local complement to the 
        regional planning initiative, enabling local and multi-
        jurisdictional partnerships to put in place the policies, 
        codes, tools and critical capital investments to achieve 
        sustainable development patterns.

      3.  The creation and implementation of a capacity-building 
        program and tools clearinghouse, complementing DOT and EPA 
        activities, designed to support both Sustainable Communities 
        grantees and other communities interested in becoming more 
        sustainable.

      4.  A joint HUD-DOT-EPA research effort designed to advance 
        transportation and housing linkages at every level our agencies 
        work on.

    $150 million for the Catalytic Investment Competition 
        Grants program to create jobs by providing economic development 
        and gap financing to implement targeted economic investment for 
        neighborhood and community revitalization. For too long, 
        communities have lacked the kind of place-based, targeted, 
        `game-changing' Federal capital investment program in the 
        community and economic development arena that HOPE VI has 
        proven to be with respect to severely distressed public 
        housing. The Catalytic Investment Competition would rectify 
        that imbalance by providing `gap financing' for innovative, 
        high impact economic development projects at scale that create 
        jobs. The program will create a competitive funding stream that 
        is responsive to changes in market conditions, leverages other 
        neighborhood revitalization resources (including formula CDBG 
        funds), and ultimately increases the economic competitiveness 
        of distressed communities and neighborhoods.

     Under this proposal, my office would be permitted to consider how 
        much and to what extent projects complement and leverage other 
        community development and revitalization activities such as the 
        Choice Neighborhoods Initiative, Promise Neighborhoods, HOPE 
        VI, Sustainable Communities, or other place-based investments 
        in targeted neighborhoods to improve economic viability, extend 
        neighborhood transformation efforts, and foster viable and 
        sustainable communities. Applicants must develop a plan that 
        includes measurable outcomes for job creation and economic 
        activity, exhibit capacity to implement the plan, and 
        demonstrate approval for the plan from the local jurisdiction. 
        Applicants will be required to leverage other appropriate 
        Federal resources, including but not limited to, Community 
        Development Block Grant formula funding and Section 108 Loan 
        Guarantees. This will support HUD's effort to partner with 
        grantees to more effectively target community development 
        investments toward neighborhoods with greatest need, 
        disinvestment, or potential for growth.

    Enhances and broadens capacity building for our partners 

    The fiscal 2011 Budget provides $60 million for a revamped Capacity 
Building program. HUD must embrace a 21st century vision for supporting 
the affordable housing and community development sector and will 
reframe the Section 4 program, including renaming the program 
``Capacity Building'', in order to reflect that vision. The objective 
is to expand HUD's funding capabilities, and encourage open competition 
through mainstream and consistent program funding for these activities.
    Working with cities and states to readily understand how to meet 
the needs of their communities, leverage private and other kinds of 
resources, and align existing programs is fundamental to building 
resilience in tough economic times. Increasing capacity at the local 
level is critical as jurisdictions partner with the Administration in 
implementing key initiatives such as Choice Neighborhoods, Sustainable 
Communities, and the Catalytic Competition and work to restore the 
economic vitality of their communities. This enhanced program will 
include local governments as technical assistance service recipients.

    Takes Choice Neighborhoods to scale 

    The Administration has also proposed authorizing legislation for 
Choice Neighborhoods, funded at $65 million in fiscal year 2010 on a 
demonstration basis, and at $250 million in the 2011 Budget. I am 
appreciative that Congress was willing to fund Choice Neighborhoods on 
a demonstration basis in fiscal year 2010, and HUD is now requesting 
that the program be expanded to a level where its impact can be 
significantly broader.
    This initiative will transform distressed neighborhoods where 
public and assisted projects are concentrated into functioning, 
sustainable mixed-income neighborhoods by linking housing improvements 
with appropriate services, schools, public assets, transportation, and 
access to jobs. A strong emphasis will be placed on local community 
planning for school and educational improvements including early 
childhood initiatives. Choice Neighborhood grants would buildupon the 
successes of public housing transformation under HOPE VI to provide 
support for the preservation and rehabilitation of public and HUD-
assisted housing, within the context of a broader approach to 
concentrated poverty. In addition to public housing authorities, the 
initiative will involve local governments, non profits and for profit 
developers in undertaking comprehensive local planning with input from 
the residents and the community.
    Additionally, HUD is placing a strong emphasis on coordination with 
other Federal agencies, with the expected result that Federal 
investments in education, employment, income support, and social 
services will be better aligned in targeted neighborhoods. To date, the 
Departments of Education, Justice and HHS are working with HUD to 
coordinate investments in neighborhoods of concentrated poverty, 
including those targeted by Choice Neighborhoods. We have forwarded our 
legislative proposal to this Committee and its House counterpart and 
look forward to working with you to enact it.

    Protects consumers from discrimination in the housing 
        market and affirmatively furthers the goals of the Fair Housing 
        Act

    The Budget proposes $61.1 million in support of the fair housing 
activities of HUD partners. Some sources estimate that more than 4 
million acts of housing discrimination occur each year. To meaningfully 
address that level of discrimination, the Department, in addition to 
directing its own fair housing enforcement and education efforts, must 
engage outside partners. Therefore, this budget funds state and local 
government agencies to supplement HUD's enforcement role through the 
Fair Housing Assistance Program (FHAP) and provides funding also to 
nonprofit fair housing organizations that provide direct, community-
based assistance to victims of discrimination through the Fair Housing 
Initiatives Program (FHIP). The entities participating in the two 
programs both help individuals seek redress for discrimination they 
have suffered and help eliminate more wide-scale systemic practices of 
discrimination in housing, lending, and other housing-related services. 
This Budget provides $28.5 million to state and local agencies in the 
FHAP and $32.6 million to fair housing organizations through the FHIP.
    This budget does not continue a $10 million initiative within the 
FHIP program, funded in fiscal year 2010, specifically directed at 
mortgage lending discrimination. However, fair housing funding, 
generally, and FHIP funding, in particular, remain substantially higher 
than in fiscal year 2009. Overall, the $61.1 million requested this 
year for fair housing activities overall represents a 12 percent 
increase over fiscal year 2009's enacted level of $53.5 million, and 
the $32.6 million requested for FHIP, in particular, is fully 18 
percent above the $27.5 million in FY2009.
    Since its passage in 1968, the Fair Housing Act has mandated that 
HUD shall ``affirmatively further fair housing'' in the operation of 
its programs. This requires that HUD and recipients of HUD funds not 
only prohibit and refrain from discrimination in the operation of HUD 
programs but also take pro-active steps to overcome effects of past 
discrimination and eliminate unnecessary barriers that deny some 
populations equal housing opportunities. To assist recipients in 
meeting these obligations, the Department is revising its regulations 
to clearly enumerate the specific activities one must undertake to 
``affirmatively further fair housing'' and the consequences for failure 
to comply. To support this effort, $2 million of the FHIP budget will 
support a pilot program whereby fair housing organizations help HUD-
funded jurisdictions comply with these regulations.
    Finally, I want to emphasize that as HUD works through the Choice 
Neighborhoods initiative and across all of its programs to revitalize 
neighborhoods, and to enable families to choose to move to other 
neighborhoods with lower poverty and greater economic opportunity, HUD 
will strive to ensure that newly revitalized neighborhoods remain 
affordable, inclusive places for low-income people to live.

Goal 5: Transform the Way HUD Does Business
    In light of recent natural disasters and the housing and economic 
crises, last year HUD saw a pressing need for adaptability and change. 
To become an innovative agency with the capacity to move beyond legacy 
programs, shape new markets and methods in the production and 
preservation of affordable housing, green the nation's housing stock, 
and promote sustainable development in communities across America, the 
Department had to remake itself.
    To accelerate the Department's transformation, the fiscal year 2011 
Budget makes the following vital reforms.

    Develops a basic data infrastructure and delivers on 
        Presidential research and evaluation priorities 

    HUD requests $87 million for the Office of Policy Development and 
Research, an increase of $39 million from FY 2010, to continue the 
transformation of PD&R into the nation's leading housing research 
organization. The role of housing in starting the economic crisis, and 
the importance of housing issues to the nation's economy, shows the 
urgent need for this research. These funds would be used for three 
critical activities:

    Basic Data Infrastructure. Continue the investment made in fiscal 
year 2010 to support the collection and dissemination of the core data 
needed to support effective decisionmaking about housing. HUD's request 
for this purpose is $55 million, which is $7 million more than the 
fiscal year 2010 appropriated level of $48 million. This will be used 
to conduct housing surveys--including full funding for the American 
Housing Survey--support enhanced research dissemination and 
clearinghouse activities, and underwrite a Young Scholars research 
program. Presidential Research and Development Initiative. As part of 
the Administration's Research and Development initiative that is tied 
to the President's national goals of energy, health and sustainability, 
the Department proposes to administer $25 million for research on the 
linkages between the built environment and health, hazard risk 
reduction and resilience, and the development of innovative building 
technologies and building processes.
    Presidential Evaluation Initiative. Also for fiscal year 2011, the 
President is proposing to fund rigorous evaluations of critical 
programs to inform future policy discussions. The $7 million proposed 
will supplement funding from the Transformation Initiative set-aside to 
support rigorous evaluations of the Family Self-Sufficiency Program, 
potential Rent Reform strategies, and the Choice Neighborhoods program.

    Maintains the Department's existing technology 
        infrastructure

    HUD requests $315 million for the Working Capital Fund, to cover 
the steady state operations, corrective maintenance of HUD's existing 
technology systems, and the re-competition of HUD's infrastructure 
support contract. As with fiscal year 2010, this does not include the 
``next generation technology'' development that would be funded through 
the Transformation Initiative, as described below. The bulk of the 
fiscal year 2011 request ($243.5 million) would be in the form of a 
direct appropriation. In addition, HUD seeks a $71.5 million transfer 
from FHA to pay for its share of infrastructure costs and system 
maintenance.

    Provides flexibility and resources needed to fuel agency 
        transformation 

    As in fiscal year 2010, the Department again seeks the authority to 
set-aside up to 1 percent of HUD's total budget for an agency wide 
Transformation Initiative.
    HUD's FY 2010 Transformation Initiative was intended to indeed be 
transformational. The resources it provides are allowing us to take 
long-overdue steps to upgrade and modernize our department and allow it 
to function as a 21st century organization. As one example, it is 
helping us replace computer programs written in COBOL in the 1980s with 
those written in the flexible and powerful languages of 2010. In 
addition, HUD has not conducted a major demonstration since the 1990s, 
when the Moving to Opportunity study was conducted. This demonstration 
is still yielding important evidence on how mobility and rental 
assistance interact that guides policy. And local government capacity 
to effectively use Federal resources varies widely and leaves some 
communities at risk of always lagging the pack.
    Further, even in the instance that efforts such as technical 
assistance were adequately funded, they were funded in silos--making 
cross-cutting initiatives that achieve the biggest bang for the buck 
next to impossible.
    The TI approach we propose--allowing for the flexibility to take up 
to 1 percent of our budget and devoting it to four key areas--is 
similar to the approach applied by many cutting-edge institutions. This 
recognizes not only the need to have funding targeted to overhead--but 
the ability to respond to changing circumstances that may require 
overhead to consume an increased share of the budget, a change in the 
mix of activities funded and cross-cutting initiatives.
    The flexibility inherent in this TI structure allows for the more 
nimble, responsive agency required in a long budget process where 
individual research ideas or investment proposals made in January might 
have been usurped by developments through the course of the year. A 
good example would be the $50 million in Neighborhood Stabilization 
technical assistance HUD made available to communities through ARRA. 
Full funding of the Transformation Initiative will enable HUD to take 
such an approach to scale and continue the delivery of a new level of 
technical assistance and capacity building to Federal funding 
recipients, recognizing that human capital, technical competence and 
institutional support are critical for the success of HUD's partner 
organizations.
    And while we appreciate that fact that Congress did recognize this 
reality in funding this effort for FY 2010 at $258 million, which has 
begun an important process of increasing investment and bridging silos, 
we renew our request for authority to use up to 1 percent. I would note 
that this past year we received 110 groundbreaking research, 
information technology and technical assistance proposals internally--
but we were only able to fund a little over half of these requests. 
Further, of the demonstrations and IT projects that were funded in 
2009, many were multi-year projects that we have had to plan and 
operate, in all but the most urgent circumstances, with single-year 
funding.
    Salaries and Expenses Central Fund: Building on the principle of 
the Transformation Initiative, the Budget requests the creation of a 
Salaries and Expenses Central Fund, funded through a 1-percent transfer 
from each of HUD's salaries and expenses accounts. The Fund will 
provide targeted, temporary infusions of resources to any of HUD's 
program offices in order to increase our responsiveness to 
unanticipated crises and new challenges through the hiring of staff 
with appropriate expertise. One example of how this type of funding 
might be used would be in the instance of a national disaster--in 
response to which HUD would be expected to play a key role. Another 
would be FHA, which inside of 3 years has temporarily expanded from 
insuring 2 percent of the market to, as mentioned previously, 
approximately a third.
Conclusion
    In sum, this Budget continues the transformation begun with the 
2010 Budget. With the housing market showing signs of stabilization, 
our economy beginning to recover and the need for fiscal discipline 
crystal clear, now is the moment to reorient HUD for the challenges of 
the 21st century--retooling its programs and initiatives so it can 
better fulfill its mission to serve American households and communities 
more effectively and more efficiently over decades to come. I am proud 
of the progress we have begun to make in these areas with the support 
of Congress, and I look forward to our continued progress through the 
proposals outlined in the fiscal year 2011 Budget. Thank you again for 
the opportunity to appear before you to discuss HUD's proposed budget. 
And with that, Mr. Chairman, I would be glad to answer any questions.

   RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN DODD FROM SHAUN 
                            DONOVAN

Q.1. In Connecticut, in addition to cities like Hartford and 
New Haven, we have many small towns.
    It seems clear that promoting transit-oriented development 
can benefit large suburban communities and cities, but how can 
this sustainable communities agenda benefit small towns, such 
as Torrington, CT, as well as rural communities?

A.1. Our Sustainable Communities Initiative is designed to 
assist both metropolitan and rural communities to address the 
challenges that of population growth or decline, land use, 
housing, transportation and other critical environmental 
issues. Rural communities face special challenges. Past 
transportation policies resulted in Main Streets in many rural 
communities being bypassed by the interstate highway system, 
contributing to the decline of once-vibrant business center. 
Closer in, many rural communities are struggling with the loss 
of farm land and open space as a result of our current 
dispersed patterns of development. Transportation costs are 
often significantly higher for residents of rural communities, 
especially with longer commutes to employment centers, and 
housing choices tend to be more limited in these areas.
    For that reason, we have specifically targeted rural 
communities and small towns in our proposed initiatives. In 
2000, over 50 percent of all people living in what the Census 
Bureau defines as ``rural areas''--places with relatively low 
population density--actually lived within the boundaries of 
metropolitan areas. That percentage was up from 40 percent in 
1980. These communities will benefit from sustainable planning 
grants that will be made available to up to 20 metropolitan 
areas. One outcome of these grants will, we hope, be the 
preservation of open space and farmland in rural areas, as well 
as increased transportation and housing choices that benefit 
these outlying communities. Better coordination of housing and 
transportation will lead to policies and programs that protect 
and safeguard open space and agricultural land in rural areas.
    We also propose to provide planning grants to rural areas 
outside metropolitan areas: up to 10 grants will be 
specifically set aside for these areas. In addition, we have 
proposed a $25 million Rural Innovation Fund that will focus on 
high poverty distressed rural areas that have a good chance of 
revitalization given their location. The Rural Innovation Fund 
will encourage communities to employ a more integrated approach 
dedicated to addressing the problem of concentrated rural 
housing distress and community poverty. Similar to the Choice 
Neighborhoods Initiative, the Fund will specifically target 
areas of high economic distress that demonstrate the potential 
of revitalization given their location.
    These commitments are contained in the sixth--and perhaps 
the most important--of the six ``Livability Principles'' that 
we announced in June, along with DOT and EPA. This principle 
specifically addresses the value we attach to rural 
communities:

    Value communities and neighborhoods: Enhance the 
        unique characteristics of all communities by investing 
        in healthy, safe and walkable neighborhoods--rural, 
        urban suburban.

The bottom line, we believe, is that we are developing new, 
unprecedented approaches to incentivize the use of Federal 
funds toward investments in existing infrastructure and 
existing communities that will benefit rural as well as urban 
communities.

Housing Affordability

Q.2. In the recent housing crisis, foreclosure rates on homes 
near transit have been lower when compared to homes not near 
transit, and housing prices near transit have remained 
relatively stable. This suggests that the affordability of 
housing is not just about housing cost, but about the combined 
cost of housing and transportation.
    What can the Federal Government do to help consumers get 
the housing and transportation cost information they need to 
make informed housing choices?

A.2. There is increasing evidence that high transportation 
costs, while not a cause, may be a contributing factor to high 
foreclosure rates in outlying communities. In my testimony 
before this Committee I reaffirmed my commitment to redefining 
our definitions of affordability to address high transportation 
costs. We are looking closely at a variety of models, such as 
the Housing and Transportation Index, developed by the Center 
for Neighborhood Technology, in partnership with the Brookings 
Institution, the Urban Land Institute and others, as well as 
other models, that can provide consumers with the ``true'' cost 
of housing--including transportation costs--when they make 
critical choices when buying or renting a home. A simple 
measure of the ``location efficiency'' of a home, which would 
provide consumers an indication of the cost of transportation 
associated with particular locations will go a long way to 
helping them make informed decisions. It can also help lenders 
incorporate location efficiency in their mortgage underwriting 
decisions. The HUD-DOT-EPA Interagency working group is also 
looking at the policy implications applications for this tool.
    I am committed to working with DOT and EPA to develop a 
transportation ``index'' for homes, just as I have committed to 
a standard energy ``label'' for homes that can provide a simple 
measure of energy efficiency, and for the same reason: to 
provide consumers with better information about the costs 
associated with their homes--both transportation and energy 
costs--and to provide lenders with a tool that will enable them 
to address these costs (and perhaps provide attractive 
financing) when underwriting mortgages.
    We will need to research and then implement ways to provide 
this kind of information to all stakeholders, including 
consumers, planners, and local officials, financial services 
institutions and other officials. We will need to work with the 
real estate industry and lending community to identify the best 
strategies for getting this information to consumers in the 
most useful way.
    We also will need to close data gaps that will strengthen 
these tools, by collecting additional data through the American 
Housing Survey, and forming an exploratory partnership with the 
Census Bureau and Bureau of Labor Statistics to improve the 
data we collect on housing and transportation costs associated 
with locations. Current sample sizes appear to be too small to 
gather data below the metropolitan level, and we don't have a 
good way to distinguishing between households with different 
numbers of cars.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM SHAUN 
                            DONOVAN

Q.1. Secretary Donovan, many of the goals set forth by the 
Sustainable Communities Initiative would seem to further 
priorities that would result from decisions traditionally made 
by state and local officials, such as the type of zoning and 
city planning required for many of these high density projects. 
While some communities will certainly wish to pursue these 
designs, other may not believe this would be in their best 
interests. What safeguards will be put in place within HUD to 
ensure the continued independence of local officials in the 
design of their communities? If state and local officials do 
not pursue the initiatives and priorities of this office, will 
there be any negative consequences as it relates to other 
Federal programs or funding?

A.1. HUD does not intend to mandate new zoning or city planning 
requirements. HUD is ensuring the continued independence of 
local officials by encouraging innovative local and regional 
plans to guide local and regional decisions. The design and 
implementation of these plans will occur in the context of that 
community's preferences or priorities. In addition, communities 
have the choice to seek funding under HUD's proposed 
Sustainable Communities programs. Applying will be purely 
voluntary, and compliance with program requirements will be 
dependent on whether or not the community seeks funding to 
support their own innovative planning projects.
    More broadly, as a former city housing commissioner, I am 
all too aware of the need to preserve local prerogatives when 
it comes to land use and zoning, and other planning decisions. 
We do not intend to pre-empt this local role. Nor will there be 
negative consequences for those who do not pursue the 
initiatives and priorities of the office.

Q.2. Secretary Donovan, one of the factors cited as a reason 
for the Federal Government to take action in promoting housing, 
which offers the convenience of the option to walk for many 
goods and services, is an identified pent-up demand for these 
types of communities. Given this, and given the goal of 
including affordable housing within these developments, how 
does HUD plan to ensure that affordable housing goals do not 
crowd out other Americans who are seeking to reside in these 
communities? Additionally, how do the costs of providing 
affordable housing within these settings compare with the cost 
of providing affordable housing in other types of communities 
within the same metro areas?

A.2. Some of the earliest developments featuring transit 
oriented development (e.g., Fruitvale, CA, Lake-Pulaski, 
Chicago) were initiated by nonprofits interested in providing 
affordable housing. A key reason for these developments is the 
understanding that access to transit is essential for low and 
moderate income people to reach employment and shopping. 
However, anecdotal evidence suggests that just the opposite is 
happening. Upper income housing is crowding out affordable 
housing in transit oriented development sites. There are a 
number of reasons but the cost of land and site development 
around transit sites appears to be chief among them. Transit 
oriented development is perceived by the market as being 
amenity rich and, therefore, desirable as a place to live.
    In fostering transit oriented development, we see the issue 
not as one where middle and upper income families would be 
unable to live in the developments, but one where low and 
moderate income families could not afford the cost of housing 
in such developments. Costs for land acquisition, potential 
brownfields remediation, provision of parks and open space, and 
community outreach, that are part of transit oriented 
development can be prohibitive for an affordable housing 
developer. We also have anecdotal evidence that existing 
affordable housing in a transit oriented development area 
becomes attractive and the prices for acquisition and/or rent 
escalate beyond the ability of low- and moderate-income 
families to pay. We are looking for a situation where all 
income groups can benefit from transit oriented development, 
and no group is disadvantaged as a result of the development

Q.3. Secretary Donovan, obviously the needs and capabilities of 
rural communities are going to differ greatly from the needs 
and capabilities of more urban areas. If a larger mixed use 
development may not be economically viable in a smaller, more 
rural community, how will HUD ensure that these communities 
will be able to participate in the Sustainable Communities 
Initiative if they wish to do so?

A.3. Addressing the needs and concerns of rural communities is 
a critical element of our Sustainable Communities Initiative. 
Larger mixed use developments are clearly viable only with 
sufficient population, services and amenities that are 
typically associated with urban areas. Since more than half of 
residents living in what the Census Bureau defines as rural 
communities also live within metro area boundaries, these 
developments mean less demand for greenfield sites--open space 
and agricultural land--that in turn will benefit these rural 
areas. In addition, HUD has proposed setting aside a portion of 
the regional planning grants requested in our fiscal year 10 
budget for rural communities, to address the unique challenges 
and solutions to housing and transportation issues and land use 
in these communities.
    Please refer to our response provided to Senator Dodd in 
Question #1 for further discussion of how we intend to address 
the needs of rural communities.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR SCHUMER FROM SHAUN 
                            DONOVAN

Q.1. Secretary Donovan, as you know well from your time as 
Commissioner of the Department of Housing Preservation and 
Development in New York City, urban areas face particular 
challenges in trying to make their existing housing stock, and 
especially their affordable housing, more green.
    What plans does HUD have to try and incentivize owners of 
affordable housing to undertake these green efforts in existing 
projects?

A.1. HUD is taking an aggressive role in ``greening'' our own 
housing programs, as well as creating partnerships with other 
agencies that have energy efficiency or green funds that can be 
used for housing. For example, the Department recently executed 
a Memorandum of Understanding with the Department of Energy 
that, once a final rule is published, will make it easier for 
owners of HUD-assisted projects to qualify for DOE's 
weatherization program, by eliminating duplicative income 
verification requirements.
    In privately owned assisted housing, the Department is 
working on regulations to provide incentives to owners that 
``green'' their properties, including increased distributions 
to for-profit owners, allowing distributions to non-profit 
organizations, and increased fees to the property management 
agents for implementing energy improvement plans.
    Under the Recovery Act, the Department also received $250 
million for a green retrofit program for existing HUD-assisted 
projects that provides grants and soft loans to owners to 
complete the necessary ``green'' improvements. This is an 
expansion of the Mark to Market green retrofit program, which 
incentivizes energy efficiency and green by lowering the 
matching contribution required from the owner from the standard 
20 percent to just 3 percent of the cost of rehabilitation. 
This is a strong incentive for owners participating in the Mark 
to Market program to ``go green.''
    The Department's FY 2010 budget request for an Energy 
Innovation Fund includes $25 million to retrofit multifamily 
projects through HUD's existing mortgage insurance programs. 
These funds will reduce or offset mortgage insurance premiums 
and/or reduce application and inspection fees if owners achieve 
greater levels of energy efficiency in their projects.
    Public housing is also getting additional resources to 
green their housing stock. Housing authorities are receiving $4 
billion this year in additional Recovery Act capital funds for 
energy efficiency, green and other upgrades--$3 billion in 
formula grants, and $1 billion in competitive funds. $600 
million has been made available specifically for high-
performing green projects that meet Enterprise Green 
Communities standards, and for other high performing energy 
retrofit projects (i.e., that achieve 30-50 percent in energy 
savings).
    These efforts are just the beginning of a broad-based 
effort that we expect to undertake, under the leadership of 
Deputy Secretary Ron Sims and the new Office of Sustainable 
Housing and Communities, to incentivize energy efficiency in 
the affordable housing sector. With outlays of more than $5 
billion annually, this is an area where there is room for more 
significant savings, both for the owners of public and assisted 
housing, as well as the taxpayer. We expect to undertake an 
extensive review of current incentives (or lack thereof) and to 
strengthen these, as well as to set strong energy efficiency 
performance goals that have been missing from the Department's 
efforts in the past. We will also work closely with national 
intermediaries, such as LISC and Enterprise Community Partners, 
Habitat for Humanity, as well as Housing Finance Agencies and 
others to build energy efficiency and green into affordable 
housing. We will keep the Committee apprised of these proposals 
and initiatives.

Q.2. Each of you have outlined the need for coherent national 
policy, with long-term goals and indicators of success in 
working to develop more sustainable, energy efficient and clean 
communities, that needs to be coordinated across each of your 
agencies.
    As you know, my state has one of the largest urban areas in 
the country, as well as some of the most rural. How are the 
policy initiatives that your respective agencies are 
undertaking going to affect both urban and rural areas? How do 
they fit into the vision of a coherent national policy on 
greening, energy efficiency, and emissions reduction? How can 
Congress help you to achieve this goal?

A.2. Addressing the needs and concerns of rural communities is 
a critical element of our Sustainable Communities Initiative.
    We have specifically included rural communities and small 
towns in our proposed initiatives. First, many of these small 
towns are in metropolitan areas, so they will be covered as 
part of a larger metro area-wide strategy. Second, we will be 
committing a share of our proposed regional planning grant 
funds to rural areas, outside metropolitan areas. They have 
special needs and challenges. That's why we have proposed a $25 
million Rural Innovation Fund that will specifically focus on 
high poverty distressed rural areas that have a good chance of 
revitalization given their location.
    Beyond the specific funds that we hope Congress will 
appropriate for our Sustainable Communities Initiative, the 
Livability Principles that HUD, EPA and DOT adopted in June and 
announced before this Committee are very clear about the 
importance of sustaining rural communities.
    These principles, and the Sustainable Communities 
partnership that we have formed to implement them, represent a 
sea-change for the Federal Government in its interactions with 
local governments, both rural and urban. They are about 
restoring the centrality of place in Federal policies and 
programs, and the need to better coordinate Federal investments 
to support environmentally and economically sustainable visions 
of growth in our urban and rural areas. With 40 percent of 
carbon emissions coming from buildings, and another 23 percent 
from transportation, more attention to compact forms of urban 
development, and sustainable transportation policies, will be 
critical elements of both a national climate change strategy as 
well as national urban policy.
    Fundamentally, we can no longer afford to have housing, 
transportation and environmental policy operate in separate 
silos. The $150 million in planning, research and community 
development initiatives included in our fiscal year 10 budget 
request are intended to support models that can be replicated 
in other parts of the country of joint housing, transportation 
and land use planning. Both the regional metropolitan and rural 
area planning grants ($100 million) and the community challenge 
grants ($40 million) are intended to provide models that can be 
replicated elsewhere. We hope to develop a template that other 
communities can use to show that more coordinated regional and 
local planning will result in better use of housing and 
transportation funds that address location efficiency and land 
use concerns. This will, we hope, translate into expanded 
housing choices near transit, and preservation of existing 
affordable housing near transit.
    Congress can assist us in achieving these goals by 
providing support for our Sustainable Communities Initiative, 
along with complementary proposals from DOT and EPA; by 
supporting improved data collection and research that will 
enable both the Federal Government and local communities to 
better assess and measure the combined costs of housing and 
transportation, and develop indicators of success; by 
incorporating livability principles in reauthorization of our 
nation's transportation programs; and by supporting more 
disclosure of the true costs of location choices, through the 
development of such tools as the Housing and Transportation 
Affordability Index; by enabling HUD to offer enhanced 
underwriting through location, and energy efficient mortgages, 
that recognize the lower costs associated with location and 
energy efficiency; and by enabling HUD and DOT to better 
coordinate their respective planning requirements.
    Please refer to the response provided to Senator Dodd in 
Question #1 for further discussion on rural communities.
                                ------                                


  RESPONSE TO WRITTEN QUESTION OF SENATOR MENENDEZ FROM SHAUN 
                            DONOVAN

Q.1. Let me recognize and applaud the Administration's 
sustainable and livable communities' effort to bring together 
transit, housing, and environmental benefits. Which agency will 
serve as the base for this multi-agency effort? Have you 
thought about coupling HUD and DOT's efforts with additional 
funding from sources such as the Community Development Block 
Grant program?

A.1. With regard to the Sustainable Communities Partnership 
between HUD, EPA and DOT, this is a co-equal partnership with 
no single lead of this multi-agency effort.
    However, with regard to the Sustainable Communities 
Initiative, for which HUD has requested $150 million to provide 
planning grants and innovative challenge grants to local 
communities, HUD will be the lead agency in administering those 
funds, in partnership with DOT and EPA. HUD's new Office of 
Sustainable Housing and Communities will be responsible for 
administering the planning grants, as well research and data 
systems development which are central to the program's mission.
    With regard to coupling additional funding from other 
sources, such as CDBG, we are exploring how we can encourage 
local communities to tap these funds. One way to move in this 
direction is to coordinate HUD's Consolidated Plan, which 
governs the use of CDBG funds, with DOT metropolitan planning 
requirements.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR BENNET FROM SHAUN 
                            DONOVAN

Q.1. A nice, new neighborhood that is far away from good jobs 
and good schools will not be a nice neighborhood for long. How 
can Washington's policy expertise and resources be harnessed 
most effectively with local leaders who understand a local jobs 
market and who know where the good schools are? I'm impressed 
with what I'm seeing from this panel--the Administration 
obviously intends to take an integrated approach. But local 
housing and urban planning experts have the applied knowledge 
of how particular communities work--how transit can interact 
with affordable housing, for instance. In short, how does 
Washington do a better job of helping particular cities 
integrate their planning decisions?

A.1. We share your view that local officials have the best 
knowledge of their communities and are in the best position to 
make these linkages. The Federal Government can support local 
leadership and expertise in several ways:

    By providing support for coordinated planning and 
        investments. Local leaders often do not have the 
        resources to undertake the planning and policy reviews 
        necessary to develop more sustainable regional plans. 
        The purpose of HUD's Sustainable Communities Initiative 
        is to provide funding to these localities for 
        coordinated regional housing and transportation 
        planning. In joint collaboration with DOT, HUD has 
        requested $100 million to enable metropolitan and rural 
        areas to set a vision for growth and then apply Federal 
        transportation, housing, and other investments. Funds 
        would be used to support the development of integrated, 
        state-of-the-art regional development plans that use 
        the latest data and most sophisticated analytic, 
        modeling, and mapping tools available. We have also 
        asked for $40 million in Community Challenge grants to 
        entice metropolitan and local leaders to make market-
        shifting changes in local zoning and land use rules. 
        The grants will also assist states and localities to 
        design and implement a variety of planning reforms at 
        the local and regional levels.

    By removing its own barriers to coordination at the 
        local level. With few exceptions, neither HUD nor DOT 
        examine location efficiency (e.g., the potential 
        location of affordable housing developments near 
        transit) nor encourage smart zoning and planning reform 
        when allocating resources under a broad array of 
        programs.

Federal requirements for transportation and housing planning 
are particularly disconnected. HUD requires states, cities and 
counties, as a condition to receiving formula grants, to 
prepare a 5-year Consolidated Plan, as well as an annual Action 
Plan, estimating housing status and needs. These plans do not 
take land use or transportation into account, and are for 
cities and urban counties (and states), not regions. At the 
same time, DOT requires states and metropolitan areas to 
develop a 20-year Long Range Transportation Plan and a 4-year 
Transportation Improvement Program (TIP). HUD and DOT are 
currently assessing how these disconnected planning processes 
can be better coordinated. Ideally, a single housing-
transportation plan would eliminate any and all duplication.

    By developing information sharing platforms, 
        analytic and mapping tools to facilitate local 
        coordination. HUD has requested $10 million in fiscal 
        year 10 funds to support such activities as the 
        development and dissemination, for example, of the 
        Housing and Transportation Index, which would enable 
        communities to better understand the role that 
        transportation expenditures play in housing choices, 
        and to enable them to plan for more compact, walkable, 
        mixed use development.

    Finally, the Federal Government can incentivize 
        local communities to integrate planning decisions 
        through its various grant programs. HUD and DOT are 
        currently assessing how, for example, which programs 
        might accommodate additional points when scoring 
        competitive grant applications. For example, HUD 
        recently included several points in its $2 billion 
        Neighborhood Stabilization Program competitive grant 
        program (``NSP 2'') for proposals that either had or 
        proposed to increase access to transit. This is an 
        important precedent for other programs. HUD's Section 
        202 Supportive Housing Program for the Elderly also has 
        transportation provisions. But these are the 
        exceptions, not the rule; we will be looking for 
        further opportunities for such incentives through our 
        grant programs.

Q.2. Efforts to support mixed income development fall short 
without good schools. Secretary Donovan, how can you work with 
local education officials to strategically support school 
reform and to construct new schools in locations that 
complement innovative development efforts?

A.2. The link between housing and schools is a priority for 
HUD. Incentivizing communities to include schools in 
neighborhood revitalization plans is the best strategy for HUD 
to strengthen the linkage between housing and education. We 
know we cannot break the cycle of poverty without good schools. 
From another perspective, communities and cities themselves 
cannot attract residents and businesses needed for 
revitalization without good schools.
    These principles were incorporated in the HOPE VI program, 
with significant success, in several locations. In King County, 
Washington state, the King County Housing Authority (KCHA) 
deeded over land, at no cost, to the King County United School 
District so the School District could build a new elementary 
school as part of Greenbridge, the new HOPE VI public and 
affordable housing community. A Boys and Girls Club and a Head 
Start facility were also built on the land donated by KCHA and 
HUD. In addition, KCHA worked with the school district in 
connection with relocation of residents and their school age 
children to allow flexibility and choice in where kids attended 
school. That same model of donated land for public school 
construction, the providing of social services for at-risk 
children, and flexibility and choice in where school kids were 
able to attend school in connection with relocation activities 
was repeated in many HOPE VI developments across the country 
including: Salishan, the HOPE VI development in Tacoma, 
Washington where Lister Elementary School was built; the 
William Wells Brown Elementary School was built and located at 
the heart of the Bluegrass HOPE VI Revitalizationsite, 
Lexington Housing Authority, Lexington, Kentucky; Centennial 
Place Elementary School was built in cooperation with the 
Atlanta Housing Authority's HOPE VI Centennial Place Community; 
Rosa Parks Elementary School was built at Portland Housing 
Authority's New Columbia HOPE VI; High Point Elementary School 
is located directly adjacent to the Seattle Housing Authority 
HOPE VI (and green) community of High Point; and many more 
schools and school support facilities were built as a result of 
HOPE VI development.
    A key HUD FY 2010 budget proposal, Choice Neighborhoods, 
the successor program to HOPE VI, continues this focus on 
schools as a critical element of neighborhood revitalization. 
Choice Neighborhoods will help build neighborhoods that are 
safer, stronger, and have access to good educational 
opportunities as well as community facilities, institutions and 
services. Local partnerships will be required to include an 
education component to cover a gamut of possible local 
approaches for early childhood initiatives, health education, 
and resources for parents, school improvements and other 
education-related services.

Q.3. I am glad you include rural communities in your plans for 
sustainable development. Can you talk specifically about the 
challenges to employing sustainable development initiatives in 
rural areas? Are there opportunities to work with the 
Department of Agriculture on these efforts?

A.3. Addressing the needs and concerns of rural communities is 
a critical element of our Sustainable Communities Initiative. 
There are significant opportunities to partner with the 
Department of Agriculture. Secretary Vilsack and I have 
discussed this partnership, and HUD staff have met with senior 
USDA staff to identify possible linkages, in the area of 
economic development, health, water infrastructure, housing and 
transportation planning and policies. I am hopeful that we can 
formalize this partnership in the near future.
    Please see response to Senator Dodd (Question #1) for a 
further discussion of the challenges that face rural areas in 
developing sustainable communities, and our plans to address 
their needs and concerns.

Q.4. A critical component of effective development is buy-in 
and participation from residents. Will the incentives for 
regional planning include incentives to integrate local 
residents into the planning process?

A.4. Yes. Clearly, for planning to be meaningful and 
sustainable, buy-in from local citizens and stakeholders is 
critical if not decisive for its long-term success. Without 
sufficient participation at every step of the way, plans will 
not reflect local ideas, local interests, or diversity of local 
views, nor are they likely to secure commitments for 
implementation. HUD's Consolidated Plan already has significant 
public participation requirements and we would expect our 
regional planning efforts to have at least that level of public 
participation.
    There are additional ways to secure participation, through 
such tools as the design charrette, which has been used 
successfully by ``New Urbanist'' and other architects, 
designers and planners in engaging local residents and 
stakeholders, as well as other techniques that have been 
successful in enabling local citizens to begin to envision 
alternative futures. In California, the Sustainable Blueprint 
process pioneered in Sacramento involved extensive citizen 
participation, that resulted in developing alternative growth 
scenarios for that region, and the state has subsequently 
adopted this model for transportation planning statewide.

Q.5. As you know, most HOPE VI projects have been successful at 
leveraging public and private resources to displace the 
concentrations of poverty we have seen in our cities. But 
initiatives like HOPE VI, though critically important, can run 
into local trouble when local residents worry that losing 
affordable housing stock will displace people and break apart 
communities. In short, what's good for a community in the long 
run can be terribly disruptive in the short run. What lessons 
have we learned from past setbacks at managing local 
expectations, that we can apply moving forward? How can HOPE VI 
be made to work better at managing local expectations?

A.5. Our experience has shown that it is important to actively 
involve residents and other community stakeholders throughout 
the entire redevelopment process, from early discussions on the 
design plan through occupancy after all units have been 
completed.
    The more each party is aware of the goals and objectives of 
the plan, as well as the obstacles and constraints, the more in 
sync everyone is. This is especially true for the residents. As 
such, the HOPE VI program requires applicants to hold extensive 
planning sessions with affected residents and community 
partners prior to submitting the grant application.
    Applications that commit to continuing outreach and 
involvement are more competitive. Grantees are required to 
begin case management activities with residents within 30 days 
of grant award. Case managers help residents throughout the 
redevelopment process, especially during relocation.

Q.6. The HUD budget proposal for the Sustainable Communities 
Initiative to provide $100 million for Metropolitan Planning 
Organizations and cities or counties that receive CDBG and HOME 
funds to collaborate on regional plans that integrate housing, 
land use, and transportation, and $40 million to provide 
challenge grants for local land use changes that support 
regional objectives.
    I can see the value of these from recent Denver experience. 
For example, the City, MacArthur Foundation, Enterprise 
Communities, Denver Foundation, and local banks have 
capitalized a $15 million 10-year Transit-Oriented Development 
(TOD) Fund, which will provide financing to preserve and create 
affordable housing within \1/2\ mile of rail service and a 
quarter mile of high-frequency bus routes. The fund will target 
existing federally assisted rental properties; existing 
unsubsidized rental properties currently affordable to 
households below 60 percent of area median income; and 
currently vacant or commercial properties with desirable 
locations for new affordable housing. The Fund will enable 
holding properties for up to 5 years, which is considerably 
longer than most similar funds allow, but given the market 
conditions near transit stations, it will provide the maximum 
flexibility to secure long-term subsidies to preserve existing 
rental housing. But at $15 million, it still is underfunded for 
the need and impact.
    Is that the type of programmatic activity you would seek to 
finance under these programs? Can you give specific examples, 
the funding criteria and outcome measures you would expect to 
apply, and how would you operationalize them?

A.6. The Denver investment in land acquisition and housing 
preservation--with support from the MacArthur Foundation and 
others--is exactly the kind of investment that we would hope to 
see result from HUD's Sustainable Communities Initiative 
grants. It's a model of what is needed to preserve existing 
affordable housing, as well as assist communities to address 
the high cost of housing often found near transit to acquire 
land at affordable prices for future development. At this time, 
it is not HUD's intention to directly fund implementation 
grants for specific projects of this kind, but rather to 
provide funding for planning and technical assistance that will 
result in communities directing Federal, state and local 
housing and transportation funds for these kinds of projects.
    Sustainable Communities grants will enable metropolitan 
regions to develop integrated housing, land use, and 
transportation plans, and to use those plans to drive 
decisionmaking with regard to investments in transit, location 
efficient housing, and other sustainable community projects. 
Similarly, Community Challenge grants will enable local 
communities to develop innovative land use, zoning and other 
strategies. HUD's CDBG, HOME, and FHA multi-family housing 
programs, among others, as well as DOT-funded programs, could 
then play a role in funding the specific implementation 
projects that are identified in the initial plans.
    With regard to funding criteria, HUD proposes to give 
preferences to applications that:

    demonstrate capacity for long-term structural 
        collaboration between the disparate housing, 
        transportation and planning agencies;

    engage business, government and civic leaders and 
        the general public in shaping a shared vision;

    demonstrate the intent to use planning to drive 
        both local land use decisions and allocation of Federal 
        resources; and

    go beyond transportation, housing, and land use 
        issues to integrate other key elements of the built 
        environment, including economic clustering, energy 
        usage and environmental impacts.

    how communities have responded to the issue of land 
        acquisition; applicants will be encouraged to include a 
        description of how land is acquired--through various 
        approaches, including CDBG funding--for the purpose of 
        developing and providing housing near transit.

    Outcome measures will include but are not limited to:

    increasing the percentage of very low-income 
        households for which the combined sum of housing and 
        transportation costs falls within affordability 
        thresholds;

    decreasing the mean transit time between rental 
        units affordable to very low-income renters and major 
        employment nodes in each metropolitan area (or similar 
        accessibility metric to be developed);

    reducing vehicle-miles traveled in each 
        metropolitan area; and

    increasing the percentage of households commuting 
        to work by public transit, bicycle, or on foot.

HUD is currently working with DOT and EPA to develop a more 
detailed set of performance measures. We expect to share these 
with the Committee once they are developed. Grantees will be 
expected to track and report on performance indicators as a 
requirement of grant funding.
                                ------                                


   RESPONSE TO WRITTEN QUESTION OF SENATOR CRAPO FROM SHAUN 
                            DONOVAN

Q.1. As you know, there is a Section 8 funding shortfall 
happening to a number of PHA's around the country. The Boise 
City/Ada county Housing authority has notified me that based on 
the funding notice it received in May from HUD, for the period 
retroactive to January 1, 2009, it is approximately $1 million 
short and is preparing to terminate 400-500 families from 
assistance. While I don't have information to indicate the full 
scope of the problem nationwide, it is my understanding that a 
significant number of PHA's are facing similar decisions. While 
some appeal funding has been set aside, considering that 
families receiving assistance are among our most vulnerable, 
and landlords count on rental payments to offset their property 
costs, and communities stand to lose more economic stability in 
an already unstable economic climate, what is the Department 
prepared to do to address a crisis which may greatly exceed the 
funding that has been made available to honor existing 
assistance contracts?

A.1. The Boise/Ada County Housing Authority sent letters to 95 
families the week of June 29, 2009 informing them that after 
July, they would no longer receive vouchers under Section 8. 
However on July 8, 2009, the housing authority rescinded the 
notices.
    Per Federal regulations, housing authorities are required 
to use reserves in the event of a funding shortage. HUD ordered 
the Boise/Ada County Housing Authority to use its 
administrative reserves to help cover the cost of keeping these 
families on assistance, rather than terminating them from the 
program.
    HUD determined that by engaging Boise/Ada County's 
administrative reserves coupled with $187,000 in emergency 
funding, we could gap the shortfall and keep those 95 families 
off the street.
    It is true that Boise/Ada County is not the only Section 8 
housing authority experiencing a shortfall this year. Much of 
our challenge is due to additional leasing by the housing 
authorities in response to increased housing need as well as 
per unit cost expenses that are, in some cases, 25 percent 
higher than historic levels.
    Based on data from the housing authorities themselves, of 
the 2,400 that administer Section 8, less than 10 percent are 
experiencing a shortfall. HUD is aggressively working with each 
of these housing authorities to identify the best possible 
solutions to minimize the impact on families.
    HUD's sole focus and commitment is to ensure that the 
families who are currently being assisted do not face the 
financial burden of termination.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER FROM SHAUN 
                            DONOVAN

Q.1. Due to the challenges in the financial sector, hospitals 
that are looking to expand their facilities or construct new 
facilities that are needed in certain areas are unable to get 
the financing necessary for these projects. Two HUD loan 
programs, Section 232 and Section 242, provide much needed 
assistance to our health care facilities and have played an 
important role in filling the credit void that exists for many 
borrowers.
    Based on your interpretation of eligibility, is it possible 
for psychiatric hospitals to be eligible for either of these 
programs? If so, what are the terms of eligibility? If they are 
not, please offer your comments on the expansion of these 
programs to include these facilities.

A.1. Language in the Section 242 statute rules out the use of 
this section to insure loans to psychiatric hospitals:

        (1) the term ``hospital'' means a facility--

                              *    *    *    *
        (B) not more than 50 per centum of the total patient days of 
        which during any year are customarily assignable to the 
        categories of chronic convalescent and rest, drug and 
        alcoholic, epileptic, mentally deficient, mental, nervous and 
        mental, and tuberculosis, unless the facility is a critical 
        access hospital (as that term is defined in section 
        1861(mm)(1)of the Social Security Act (42 U.S.C. 
        1395x(mm)(1)));

Section 242 has been used to insure loans to acute care 
hospitals that provide psychiatric services along with other 
services, but in these hospitals fewer than 50 percent of the 
patient days are psychiatric. The 50 percent rule does not 
apply for critical access hospitals; however, these are small, 
rural hospitals that principally provide primary hospital 
medical care.

Q.2. We've heard from constituents who were informed by HUD 
that Section 232 mortgage program would soon, if not already, 
stop insuring qualified medical facility loans. If this is the 
case, can you explain HUD's rationale for this decision?

A.2. This is not the case. However, the circumstances of each 
such facility (referred to as ``Special Use Facility'' in HUD 
Handbook 4600.1) vary greatly by geographic location, state 
licensing requirements, available third-party reimbursement, 
level of acute care provided, and many other factors. Depending 
on these factors, a facility project may or may not be covered 
under Section 232. Also, in order to be eligible for mortgage 
insurance under Section 232, the proposed facility must meet 
the statutory definition found in Section 232 (b) of the 
National Housing Act.
    If a facility is determined to be eligible, HUD will 
process an application to the best of its ability. However, 
current capital market realities related to the access to 
capital, combined with improvements HUD has made in processing 
Section 232 applications, have resulted in very high industry 
demand for Section 232 mortgage insurance. Unique applications, 
such as those for a psychiatric or other Special Use Facility, 
necessarily require significantly more underwriting evaluation 
and review than do typical applications for nursing homes or 
assisted living facilities. Under these circumstances, the FHA 
has alerted lenders that the staff available for the Section 
232 program may not be able to provide processing of 
applications for Special Use Facilities as timely as for other 
Section 232 applications.

Q.3.a. We certainly believe that there are still significant 
challenges in the real estate market, and until confidence in 
this market returns, buyers will be sidelined and our economy 
will continue to experience stress. Contributing to the 
uneasiness some buyers feel about conditions in the market are 
certain HUD positions that may have exacerbated the uncertainty 
currently existing in the housing market. One example has been 
HUD's position regarding home service contracts, treating them 
as a settlement service under RESPA.
    What rationale does the Department have for classifying 
these contracts as a settlement service?

A.3.a. Home service contracts, more familiar to the public as 
homeowner warranties, have been expressly and clearly included 
in the definition of ``settlement service'' in HUD's RESPA 
regulations since 1992. Homeowner warranty services are listed 
in the same paragraph that includes the provision of services 
involving hazard, flood, and other casualty insurance. 24 
C.F.R. Sec.  3500.2(11). RESPA establishes requirements 
applicable to such services that are provided in connection 
with a prospective or actual settlement. Inclusion of homeowner 
warranties (or home service contracts) as ``settlement 
services'' means that the disclosure, anti-kickback, and anti-
referral fee requirements in RESPA protect consumers' interests 
in the procurement of these services in connection with a 
covered real estate transaction.

Q.3.b. Why did HUD question the propriety of selling these 
contracts in residential real estate transactions? Does HUD 
believe they afford consumers protection against unexpected 
home repairs?

A.3.b. HUD, in its implementation of RESPA, does not judge the 
utility of a particular service or product that a consumer may 
wish to purchase, nor would it be appropriate to do so here. 
Rather, HUD and RESPA are concerned with protecting consumers 
from unnecessarily high settlement charges, primarily through 
the use of appropriate disclosures that are mandated by RESPA 
and by prohibitions on kickbacks, referral fees, and unearned 
fees for settlement services.
    In the context of homeowner warranties, HUD has previously 
addressed the question about whether real estate agents may be 
paid a fee for placing a home warranty contract with a 
homebuyer. In response to such inquiries, HUD has explained 
that its regulations do not prohibit a person from receiving 
more than one fee in a RESPA-covered real estate transaction. 
However, where a person is receiving an additional fee and is 
in a position to refer settlement service business (as is a 
real estate agent), the additional payment must be for services 
that are actual, necessary, and distinct from the primary 
services provided by that person. 24 C.F.R. Sec. 3500.14(g)(3). 
In addition, the additional fee must not be for nominal 
services. 24 C.F.R. Sec. 3500.14(c). As long as these 
requirements are met, the additional fee is permitted. If the 
additional fee is, in effect, for the referral of the homeowner 
warranty business, however, both the giving and the accepting 
of that payment would be violations of RESPA and HUD's 
regulations.

Q.3.c. Does HUD believe that homes services contracts, 
unrelated to the lawful consummation of a residential real 
estate transaction, should be exempt from RESPA, or should Mr. 
Ceja's letter be rescinded?

A.3.c. As explained, HUD applies the requirements of RESPA and 
its implementing regulations to homeowner warranty contracts in 
the same manner that HUD applies those requirements to services 
involving hazard, flood, and other casualty insurance, as well 
as services involving other types of property-related 
insurance, home inspections, pest inspections, and other 
transaction-related activities. HUD believes that its 
application of those requirements in connection with a 
prospective or actual settlement is consistent with the 
purposes and requirements of RESPA.

Q.4. In urban centers across the country, there are obsolete 
corridors--particularly commercial ones--where the population 
has moved along, but we still have infrastructure in place and 
not being utilized. We see this in places across my own state 
of Tennessee where large retail centers or strip mall type 
areas stand abandoned.
    How do we find ways to create appropriate incentives for 
private sector development in these types of areas that help 
overcome the costs associated with EPA or ADA regulations that 
often point builders in a different direction?

A.4. Many communities around the county confront the challenge 
that Tennessee faces of redeveloping older, commercial centers 
as a result of demographic and economic shifts that have made 
once-vibrant and lively retail centers no longer viable. Tax 
incentives and housing trust funds can promote redevelopment or 
infill development for affordable housing. Many of these cities 
have used Tax Increment Finance (TIF) districts or Business 
Improvement Districts (BIDs) which allow businesses to capture 
the ``added value'' of the improvement, or to set special taxes 
or fees and use the resulting revenue to provide special 
services. Special Improvement Districts (SIDs) are a variation 
on the theme.
    HUD's Regulatory Barriers Clearinghouse identifies examples 
of innovative strategies that cities and counties have adopted 
to revitalize these older communities. The city of Akron has a 
program where it sells vacant lots within the city to 
developers to construct new houses or to homeowners to increase 
the size of their lot. Some communities in the state of 
Michigan are encouraging construction of small live-work units 
to revitalize downtown areas and increase housing 
affordability. An Urban Lank Bank Demonstration Program in 
Dallas, Texas, will promote infill housing development 
throughout the city. Baltimore's Maryland's Project 5000 
promotes rehabilitation and redevelopment by obtaining 
abandoned housing.
    Our FY 10 budget request includes increased funding for the 
Community Development Block Grant program, the HOME program, as 
well as funding for a Choice Neighborhoods Initiative that 
could support revitalization of these older and underutilized 
urban areas. We are strongly committed to new approaches to 
redeveloping these sites, that result in walkable, compact, 
mixed-use communities, where possible with links to transit and 
other transportation choices. Our partnership with the 
Department of Transportation will enable us to coordinate the 
use of transportation and housing funds to support these kinds 
of projects.

Q.5. In the city of Memphis, an estimated 10 percent of the 
residential, buildable lots are vacant and the difficulties in 
land consolidation and the environmental clean-up often 
required is prohibitive for new builds. On the residential side 
of things, do you have any suggestions as to what are the most 
appropriate incentives to encourage development and 
utilization? Should there be any distinction between 
residential areas and commercial areas in your view?

A.5. As noted in our response to Question #4, like Memphis, 
many cities are looking at ways to overcome the barriers to 
infill development, both commercial and residential, by 
utilizing financing tools, such as Tax Increment Financing or 
Business Improvement Districts. However, the time and cost of 
acquiring vacant lots, and the associated clean up costs, 
present significant challenges. Property tax, demolition or 
other liens on these properties, as well as uncertain and in 
some cases unknown title of the properties, often make it 
difficult to assemble these properties in sufficient scale to 
have the needed benefits.
    In our view, what is needed to overcome these barriers are 
strong local tax incentives for preservation or redevelopment 
of existing properties, streamlined permitting and building 
inspection (linked where possible to transit zones and green 
building measures), and additional resources for brownfields 
cleanup and remediation. In New York, for example, the J-51 tax 
abatement on property taxes, properly use, has been a critical 
ingredient for redevelopment.

Q.6. Do you believe that coordination between land use and 
transportation infrastructure use needs to be mandated when 
planning occurs? Far too often such planning happens in a 
vacuum. How can we encourage reinvestment in aging 
infrastructure instead of building new?

A.6. HUD is not proposing to mandate this type of coordination, 
but to encourage and incentivize it. Preference for funding-
assistance applications will be given to those that demonstrate 
capacity for long-term collaboration between housing, 
transportation, and planning agencies.
    The goals adopted by the three-agency partnership include 
supporting existing communities through planning and technical 
assistance grants. The partnership is fully devoted to such 
strategies as mixed-use development and land recycling to 
increase community revitalization, improve the efficiency of 
public works investments, and safeguard rural landscapes.

Q.7. Do you believe that under the Uniform Relocation Act the 
rules and regulations have made the replacement of older multi-
family units prohibitive, even with multiple incentives 
included? Do you believe that such regulations promote an 
acceptance of very substandard housing in certain urban areas?

A.7. Despite the additional requirements placed on federally 
funded projects in order to comply with the Urban Relocation 
Act (URA), these projects continue to produce decent, safe, and 
sanitary units of affordable housing. In 2008, CDBG funds were 
used to rehabilitate 21,418 rental units, and HOME program 
funds were used to complete 23,170 rental units.
    Without the URA protections, a low-income family renting an 
apartment from month to month would most likely get nothing 
except an eviction notice. In enacting the URA, Congress 
recognized that the lack of adequate and affordable rental 
housing for displaced lower income individuals and families 
``presents the most difficult of all relocation problems.'' 
H.R. Rep. 91-1656, at 12 (1970). These are the persons who 
would generally receive nothing from an eminent domain taking.
    Recognizing the hardship that often follows when families 
are uprooted against their will, the URA was based on the 
premise that families forced to move due to federally assisted 
projects should not be left worse off economically than before 
the displacement, and should be able to relocate in a 
comparable dwelling, which is decent, safe, and sanitary.
    At the same time, when faced with time constraints on 
implementing an acquisition, rehabilitation, or construction 
program tied to spending Federal funds in a short amount of 
time, applying full URA requirements may impede moving forward 
quickly because of the sensitive nature of working with people. 
It is time-intensive work which requires the recipient of the 
Federal funds to conduct personal interviews, provide notices, 
and find comparable housing. Some families may not want to be 
relocated and will resist efforts to help them. The elderly can 
be the most vulnerable and most difficult to move especially if 
they have a built-in community, which addresses their needs and 
may not exist in a new location. The possible shortage of 
appropriate decent, safe, and sanitary housing near a family's 
known resources and support systems can also present 
difficulties.
    In addition, the costs for relocating families can add to 
the bottom line cost of a HUD-assisted project (approximately 
$22,000 per household based on 2007 FHWA data), plus higher 
administrative costs. Because relocation payments for low-
income families take into account affordability, the lower the 
income of the household moved, the higher the relocation cost 
largely due to the replacement housing payment covering a 
period of 42 months. However, these relocation expenses are 
eligible project costs that can be paid with HUD grant funds. 
More importantly, the alternative would be for HUD-funded 
programs to eject families from affordable housing (no matter 
how dilapidated) and place them into a better, but unaffordable 
location (or force them onto the streets, thereby increasing 
instances of homelessness).

              Additional Material Supplied for the Record

                 PREPARED STATEMENT OF MARTY SHURAVLOFF
           Chairman, National American Indian Housing Council
                             April 22, 2010

Introduction
    Good afternoon Chairman Dodd, Ranking Member Shelby, and 
distinguished members of the Senate Committee on Banking, Housing, and 
Urban Development. My name is Marty Shuravloff and I am the Chairman of 
the National American Indian Housing Council (NAIHC), the only national 
tribal non-profit organization dedicated solely to advancing housing, 
physical infrastructure, and economic development in tribal communities 
in the United States. I am also an enrolled member of the Leisnoi 
Village, Kodiak Island, Alaska. I want to thank the Committee for the 
opportunity to submit written testimony expressing NAIHC's perspective 
on funding for Indian Housing Programs, particularly the Indian Housing 
Block Grant program, for the Committee's consideration as it reviews 
the fiscal year 2011 legislative requests from the U.S. Department of 
Housing and Urban Development (HUD).
Background on the National American Indian Housing Council (NAIHC)
    The NAIHC was founded in 1974 and has, for 36 years, served its 
members by providing valuable training and technical assistance (T/TA) 
to all tribes and tribal housing entities; providing information to 
Congress regarding the issues and challenges that tribes face in terms 
of housing, infrastructure, and community and economic development; and 
working with key Federal agencies in an attempt to address such issues 
and meet such challenges. The membership of NAIHC is expansive, 
comprised of 271 members representing 463 \1\ tribes and tribal housing 
organizations. The primary goal of NAIHC is to support Native housing 
entities in their efforts to provide safe, quality, affordable, 
culturally relevant housing to Native people.
---------------------------------------------------------------------------
    \1\ There are approximately 561 federally recognized Indian tribes 
and Alaska Native villages in the United States, all of whom are 
eligible for membership in NAIHC. Other NAIHC members include state-
recognized tribes that were deemed eligible for housing assistance 
under the 1937 Act and grandfathered in to the Native American Housing 
Assistance and Self-Determination Act.
---------------------------------------------------------------------------
Brief Summary of the Problems Regarding Housing in Indian Country
    While the country has been experiencing an economic downturn in 
general, this trend is greatly magnified in Indian communities. The 
national unemployment rate has risen and has hopefully passed its peak 
at an alarming rate of nearly 10 percent;\2\ however, that rate does 
not compare to the unemployment rates in Indian Country, which average 
49 percent.\3\ The highest unemployment rates are on the Plains 
reservations, where the average rate is 77 percent.\4\ Because of the 
remote locations of many reservations, there is a lack of basic 
infrastructure and economic development opportunities are difficult to 
identify and pursue. As a result, the poverty rate in Indian Country is 
exceedingly high at 25.3 percent, nearly three times the national 
average.\5\ These employment and economic development challenges 
exacerbate the housing situation in Indian country. Our first Americans 
face some of the worst housing and living conditions in the country and 
the availability of affordable, adequate, safe housing in Indian 
Country falls far below that of the general U.S. population.
---------------------------------------------------------------------------
    \2\ See http://www.bls.gov/news.release/empsit.nr0.htm.
    \3\ Bureau of Indian Affairs Labor Force Report (2005).
    \4\ Many of these reservations are in the state of South Dakota, 
which has one of the lowest unemployment rates in the nation. On some 
SD reservations, the unemployment rate exceeds 80 percent.
    \5\ U.S. Census Bureau, American Indian and Alaska Native Heritage 
Month: November 2008. See http://www.census.gov.

    According to the 2000 U.S. Census, nearly 12 percent of 
        Native American households lack plumbing compared to 1.2 
---------------------------------------------------------------------------
        percent of the general U.S. population.

    According to 2002 statistics, 90,000 Indian families were 
        homeless or under-housed.

    On tribal lands, 28 percent of Indian households were found 
        to be over-crowded or to lack adequate plumbing and kitchen 
        facilities. The national average is 5.4 percent.

    When structures that lack heating and electrical equipment 
        are included, roughly 40 percent of reservation housing is 
        considered inadequate, compared to 5.9 percent of national 
        households.

    Seventy percent of the existing housing stock in Indian 
        Country is in need of upgrades and repairs, many of them 
        extensive.

    Less than half of all reservation homes are connected to a 
        sewer system.

There is already a consensus among many Members of Congress, HUD, 
tribal leaders, and tribal organizations that there is a severe housing 
shortage in tribal communities; that many homes are, as a result, 
overcrowded; that many of the existing homes are in need of repairs, 
some of them substantial; that many homes lack basic amenities that 
many of us take for granted, such as full kitchens and plumbing; and 
that at least 200,000 new housing units are needed in Indian Country.
    These issues are further complicated by Indian land title status. 
Most Indian lands are held in trust or restricted-fee status; 
therefore, private financial institutions will not recognize tribal 
homes as collateral to make improvements or for individuals to finance 
new homes. Private investment in the real estate market in Indian 
Country is virtually non-existent. Tribes are wholly dependent on the 
Federal Government for financial assistance to meet their growing 
housing needs, and the provision of such assistance is consistent with 
the Federal Government's centuries-old trust responsibility to American 
Indian tribes and Alaska Native villages.
The Native American Housing Assistance and Self-Determination Act
    In 1996, Congress passed the Native American Housing Assistance and 
Self-Determination Act (``NAHASDA'') to provide Federal statutory 
authority to address the above-mentioned housing disparities in Indian 
Country. NAHASDA is the cornerstone for providing housing assistance to 
low-income Native American families on Indian reservations, in Alaska 
Native villages, and on Native Hawaiian Home Lands. The Indian Housing 
Block Grant (``IHBG'') is the funding component of NAHASDA. Since the 
passage of NAHASDA in 1996 and its funding and implementation in 1998, 
NAHASDA has been the single largest source of funding for Native 
housing. Administered by the Department of Housing and Urban 
Development (``HUD''), NAHASDA specifies which activities are eligible 
for funding.\6\ Not only do IHBG funds support new housing development, 
acquisition, rehabilitation, and other housing services that are 
critical for tribal communities; they cover essential planning and 
operating expenses for tribal housing programs. Between 2006 and 2009, 
a significant portion of IHBG funds, approximately 24 percent, were 
used for planning, administration, housing management, and services.\7\
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    \6\ Eligible activities include but are not limited to down-payment 
assistance, property acquisition, new construction, safety programs, 
planning and administration, and housing rehabilitation.
    \7\ See Appendix A, attached hereto.
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American Recovery and Reinvestment Act (ARRA) and FY2010 Indian Housing 
        Funds
    NAIHC would like to thank Congress for its increased investment in 
Indian housing in FY2010. AARA provided over $500 million for the IHBG 
program. This additional investment in Indian Country supports hundreds 
of jobs, has allowed some tribes to start on new construction projects, 
and has assisted other tribes in completing essential infrastructure 
for housing projects that they could not have otherwise afforded with 
their IHBG allocations. Tribes have complied with the mandate to 
obligate the funds in an expedient manner, thus helping stimulate 
tribal and the national economies.
    In addition to ARRA funding, Congress appropriated $700 million for 
the IHBG in FY2010, the first significant increase for the program 
since its inception. This positive step reversed a decade of stagnate 
funding levels that neither kept pace with inflation nor addressed the 
acute housing needs in Native communities.

The President's FY2011 Budget Request for the Indian Housing Block 
        Grant
    On February 1, 2010, President Obama submitted to Congress a $3.8 
trillion budget request. It proposes $580 million for the IHBG, which 
is a decrease of $120 million (-17 percent) from the FY2010 funding 
level.\8\ At the same time, HUD's overall budget was reduced by only 5 
percent. Should Congress accept the President's budget proposal, it 
would be the lowest, single-year funding level for the NAHASDA since it 
was enacted in 1996. To put this in proper perspective, funding 
appropriated by Congress in FY1998, 12 years ago, was $20 million more 
than the President's Budget Request for FY2011.
---------------------------------------------------------------------------
    \8\ Part of the rationale for reducing IHBG funding was what may 
appear to be a delay in use of available tribal housing funds. However, 
such apparent delay is an aberration. Since NAHASDA was initially 
funded in FY1998 through FY2009, tribal expenditure rates are 88 
percent. Based on a HUD ARRA spending report dated March 20, 2010, 
tribes are spending HUD and ARRA funds at a rate that at least equals 
and, in some cases, exceeds the national average.
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    While the NAIHC and its members are aware of and appreciate the 
large investments made in Indian housing, we are disappointed that the 
current request fails to continue the positive budget trajectory of 
recent years. Therefore, the NAIHC strongly urges Congress to not only 
appropriate funds above the President's Budget Request, but to fund the 
IHBG at $875 million due to the increasing costs for housing 
development, energy efficiency initiatives, and other inflationary 
factors. Since the President's Budget Request was released, many of our 
members have expressed their deep concerns. They believe, and we agree, 
that this budget impacts not only housing, but also the very hope for 
self-sustaining economies in Indian Country.
    Reduced funding would result in the loss of jobs for our people, 
reversing the positive impact of ARRA; the deterioration of existing 
housing units; and the curtailment of many housing projects that are 
currently under development. Without sufficient funding and proper 
training and technical assistance, progress regarding tribal housing 
will not only cease; years of hard work will be reversed, as tribes 
will lack the funds to maintain and operate existing housing units, 
much less provide new ones. Many tribes are at risk of losing between a 
quarter and a third of their housing budgets if the President's 
Proposed Budget were to take effect, the impact of which would be 
devastating.\9\
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    \9\ See Appendix B, attached hereto.
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Other Indian Housing and Related Programs
The Title VI and Section 184 Indian Housing Loan Guarantee Programs
    The President's proposed budget request includes $2 million for the 
Title VI Loan Guarantee program and $8.25 million for the Section 184 
program. The Title VI program is important because it provides a 95 
percent guarantee on loans made by private lenders, which is an 
incentive for lenders to get involved in the development of much-needed 
housing in tribal areas. Section 184 is specifically geared toward 
facilitating home loans in Indian Country. We request that these 
programs be funded at $2 and $9 million, respectively.

Indian Community Development Block Grant (ICDBG)
    While appreciated, proposed funds of $65 million for the ICDBG are 
insufficient to meet the current needs for essential infrastructure, 
including sewer and running water, in Indian Country. We request that 
this program be funded at $100 million.

Native Hawaiian Housing
    Low-income Native Hawaiian families continue to face tremendous 
challenges, similar to those that tribal members face in the rest of 
the United States. The President's funding request of $10 million for 
the Native Hawaiian Housing Block Grant is appreciated, but the budget 
includes no funding for the Section 184A program in Hawaii. While it 
has taken some time to get this program started-because lenders are not 
familiar with the Section 184A program-providing no funding would be a 
step backward for Native Hawaiian families working toward 
homeownership. We urge Congress to consider this before agreeing to the 
Administration's proposal to eliminate funding for the program.

Training and Technical Assistance (T/TA) and the Proposed 
        Transformation Initiative
    The President's proposed budget eliminates entirely the much-
needed, exceptional T/TA that has been provided by NAIHC since NAHASDA 
was implemented. The provision of T/TA is critical for tribes to build 
their capacity to effectively plan, implement, and manage tribal 
housing programs. Eliminating funding for T/TA would be disastrous for 
tribal housing authorities and would be a huge step in the wrong 
direction. Tribes need more assistance in building capacity, not less. 
Since NAIHC's funding for T/TA was restored in 2007, requests for T/TA 
have steadily grown. The funding that NAIHC is currently receiving is 
insufficient to meet the continuous, growing demand for T/TA. 
Therefore, we are forced to make difficult decisions regarding when, 
where, and how to provide the most effective T/TA possible to our 
membership.
    The budget request proposes an agency-wide Transformation 
Initiative Fund (``TIF'') with up to 1 percent of HUD's total budget, 
which would draw funds away from essential housing programs, including 
$5.8 million from the IHBG account, ``to continue the on-going 
comprehensive study of housing needs in Indian Country and native 
communities in Alaska and Hawaii.'' While the NAIHC membership believes 
the TI may have merit, we do not believe that transferring nearly $6 
million from the IHBG account to conduct a study on housing needs is a 
wise or even defensible use of Federal taxpayer funds. More 
importantly, the $6 million affects funding that has historically been 
appropriated to NAIHC for T/TA. Through resolutions, the NAIHC 
membership has repeatedly taken the position that a portion of the IHBG 
allocation should be provided to NAIHC for T/TA, which is a reflection 
of their confidence in NAIHC and the continuing demand for the 
essential capacity-building services that we provide. We request that 
funding in the amount of $4.8 million for T/TA be included in the 
FY2011 budget.

Conclusion
    NAHASDA was enacted to provide Indian tribes and Native American 
communities with new and creative tools necessary to develop culturally 
relevant, safe, decent, affordable housing. NAIHC has very specific 
concerns, enumerated above, with the President's proposed Indian 
housing funding levels and hopes that Congress, with the leadership of 
this important Committee, will not allow the NAHASDA program to take an 
enormous step backwards and devastate the progress that has been made 
in the past 12 years to improve housing conditions in Indian Country. 
Based on the facts outlined above and the potentially devastating 
impact a dramatic cut to Indian housing funds will unquestionably have 
on Indian country, NAIHC requests funding in the amounts outlined above 
in order to meet the immense needs in Indian country.
    Thank you, Chairman Dodd, Ranking Member Shelby, and the members of 
this Committee for allowing us to express our Fiscal Year 2011 
budgetary priorities and concerns regarding Native American housing 
needs. Your continued support of Native American communities is truly 
appreciated, and the NAIHC is eager to work with you and your 
professional staff on any and all issues pertaining to Indian housing 
programs and living conditions for America's indigenous people.
Appendix A: How NAHASDA Funds Are Being Spent
    The following chart shows how tribes spent NAHASDA funds from 2006-
2009.\10\
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    \10\ See http://hud.gov/offices/cfo/reports/2011/cjs/nahb-
grants2011.pdf.




Appendix B: Specific Examples of Potential Housing Funds Losses:\11\
---------------------------------------------------------------------------
    \11\ These numbers are based on a simulation using the President's 
proposed funding figure of $572 million compared to the FY2010 budget 
without any adjustments. The numbers are a rough estimate and subject 
to change based on a variety of factors, but they do offer a good 
summary of the potential impact of the President's FY2011 budget, if 
passed.

 
----------------------------------------------------------------------------------------------------------------
                                                            Grant Simulation   FY 2010 Housing
                                                                  Using         Funds (Before
                      Tribe and State                          President's     Repayments and     Difference in
                                                             Proposed FY2011        Grant         Grant Amount
                                                                 Budget         Adjustments)
----------------------------------------------------------------------------------------------------------------
Holy Cross Village, Alaska................................          $121,563          $181,111          -$59,548
Organized Village of Kake, Alaska.........................          $227,631          $339,475         -$111,844
Ft. McDowell Reservation, Arizona.........................           $70,326          $104,448          -$34,122
Navajo Nation, Arizona, New Mexico, and Utah..............       $73,402,755       $93,816,159      -$20,413,404
Western Band of the Cherokee Nation, Oklahoma.............       $25,843,314       $31,684,864       -$5,841,550
----------------------------------------------------------------------------------------------------------------

    Not all tribes stand to lose the same percentage of funding under 
the President's proposed budget because of the way the funding formula 
works for the IHBG. For example, the Lumbee tribe of North Carolina 
stands to lose roughly 45 percent of their total housing budget because 
92 percent of it is needs-based.\12\
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    \12\ Per Lumbee tribal member and attorney Edward K. Brooks, 
Patterson Dilthey, Attorneys at Law, Raleigh, NC, 3/22/2010.
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