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



 
TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2010

                              ----------                              


                        THURSDAY, JUNE 11, 2009

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:30 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray, Bond and Lautenberg.

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                        Office of the Secretary

STATEMENT OF HON. SHAUN DONOVAN, SECRETARY


               opening statement of senator patty murray


    Senator Murray. Good morning. This subcommittee will come 
to order.
    Today, this subcommittee will hear testimony from Secretary 
Donovan on the Presidents fiscal year 2010 budget request for 
the Department of Housing and Urban Development, and I want to 
welcome the Secretary back to our subcommittee today.
    HUD's many programs provide the resources and support to 
help hard-working families achieve home ownership, maintain 
safe and affordable housing, and access to services that they 
need.
    Today, as our Nation deals with the housing crisis and an 
economic recession, this discussion takes on an added 
importance. Foreclosures remain at record levels, fully 32 
percent higher than this time last year. Meanwhile, 
unemployment is approaching 10 percent, its highest rate in 26 
years. As we continue to work through this economic crisis, we 
can expect increasing demand on HUD's housing and community 
development programs.
    So I am pleased that the starting point for this discussion 
is a budget that proposes substantial investments and 
innovative approaches that will move our Nation's housing 
policy forward. The budget proposes resources totaling over $46 
billion, a 10 percent increase over the level of funding 
provided in the fiscal year 2009 omnibus appropriations bill.
    For the first time, since the subcommittee assumed 
oversight of HUD, we are not starting from the position of 
having to beat back proposals that would drastically cut 
elderly and disabled housing, community development block 
grants, and other key programs, and that is a welcome relief.
    However, as Congress and the administration work to address 
the housing crisis and turn this economy around, we need to do 
more than maintain the status quo. HUD must demonstrate 
leadership in developing solutions to stem the current 
foreclosure crisis, strengthen the safety net for vulnerable 
families who are hit by this recession, and preventing future 
housing disasters. I am pleased that to date, Mr. Secretary, 
you have shown the kind of leadership that this Department 
really needs.
    In February, Congress moved swiftly to pass the American 
Recovery and Reinvestment Act which provided the investment 
that was necessary to help get our economy moving again. Just a 
week after that bill was signed into law, Secretary Donovan 
worked to ensure that HUD allocated nearly $10 billion, or 75 
percent of the funding it received under the act. So I want to 
applaud your efforts and the staff at HUD for working to 
allocate that funding so quickly.
    These dollars are making a difference in my State. In 
Yakima, Washington, funds appropriated for the public housing 
capital fund are being put to use to rehabilitate housing and 
are generating much needed job opportunities. In Spokane, 
millions in funding has gone to eliminate dangerous lead-based 
paint from low-income homes and protect young children from 
lead poisoning. And I know that over the summer, as Recovery 
Act spending is accelerated, we are going to see further 
investments in providing safe and affordable housing throughout 
the country.
    But despite the positive signs that Recovery Act 
investments are paying off, there is still significant work to 
do. As the Secretary well knows, problems in the housing market 
persist. In Pierce and Clark Counties in my home State, homes 
continue to remain on the market for 12 to 14 months. So it is 
really critical not just for the families facing foreclosure, 
but to communities across the country that we find new ways to 
boost the housing market.
    To date, the HOPE for Homeowners program that was designed 
to help families in danger of foreclosure has failed to make 
the progress that we need. While originally projected to help 
over 400,000 families, it has served fewer than 1,000 due to 
investors' reluctance to participate. Recently Congress passed 
legislation aimed at giving HUD additional tools to make its 
program more effective. So I look forward to hearing from the 
Secretary today how these programs can better assist our 
families.
    While I believe that the FHA has a critical role to play in 
providing affordable housing options for our hard-working 
families, I remain focused on ensuring the solvency of the 
Mutual Mortgage Insurance Fund and protecting the interests of 
our taxpayers. Mr. Secretary, you were here earlier this year 
and we had a good discussion on the FHA, but that was before we 
had the President's budget. I am pleased that the FHA's regular 
sale and refinance program, the lion's share of the MMI Fund 
portfolio, does not require a positive credit subsidy. The 
fund's reverse mortgage, or HECM program, requires an 
appropriation of nearly $800 million. So today, I want to 
continue the important discussion about what the appropriate 
role for the FHA to play is as we navigate this housing crisis.
    As I mentioned, the President's budget includes important 
increases. The funding levels requested for section 8 tenant-
based and project-based rental assistance programs represent a 
total increase of nearly $3 billion over the levels provided in 
the 2009 omnibus bill. These funding levels demonstrate a real 
commitment to the more than 3 million elderly, disabled, and 
low-income tenants these programs serve, and that is a 
commitment I share.
    In addition to increases in important programs, such as the 
$550 million increase to the Community Development Block 
program and an increase of over $115 million for homeless 
assistance grants, the budget also proposes several new 
initiatives. They include the Sustainable Communities 
Initiative, which is a joint effort with the Department of 
Transportation to facilitate integrated housing and 
transportation planning, and the Choice Neighborhoods 
Initiative, the Department's vision for broadening and 
expanding HOPE VI program in integrating schools in a 
neighborhood revitalization effort.
    I do have some questions about the details of those 
programs, but I want to commend the Department's efforts to 
propose bold and ambitious ideas for rebuilding our communities 
in the Nation.
    Finally, I will have some questions for you, Mr. Secretary, 
on your efforts to remake HUD into an effective 21st century 
agency through the transformation initiative. When we first 
met, we talked about the leadership necessary to improve and 
strengthen HUD and its programs. So I support your efforts to 
improve the Department's operations. But I am concerned about 
the lack of detail in this particular proposal, as well as its 
potential cost during the first year. So I look forward to 
having a productive conversation about ways that we can achieve 
our shared goal of creating a stronger and more efficient HUD 
while maintaining this subcommittee's oversight role.
    As I said before, in this recession, HUD is at the center 
of the storm. With foreclosure rates skyrocketing and 
affordable housing options increasingly scarce and the dream of 
home ownership at risk for our working families, the budget 
decisions and leadership at HUD are going to make or break it 
for those most affected by this recession. That is why today's 
hearing and discussion and working in partnership to promote 
responsible and sustaining housing policies is so critical.
    So with that, I will turn it over to my ranking member, 
Senator Bond, who has been a great partner in working with me 
on these critical issues.


            OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND


    Senator Bond. Thank you very much, Madam Chair, and thank 
you. It is a real pleasure to work with you and to work with 
the Secretary.
    We welcome you, Mr. Secretary, for appearing again. We have 
had very many constructive discussions, which I appreciate, and 
certainly no one can deny that the Secretary is passionate 
about housing and community development and is working hard to 
make the Department, as you indicated, a very tough but 
necessary task.
    The Secretary has also been a key player for the 
administration on tackling the ongoing mortgage crisis. With 
your knowledge, skills, and experience in the private and 
public sectors, it is important to get you out in the lead on 
this issue.
    I understand that one of the steps you have taken to 
address future housing crises is rebalancing Federal housing 
policy to place greater focus on affordable rental housing. As 
you know from New York City, there is a severe lack of decent 
affordable rental housing in our Nation, and unfortunately, the 
Government's housing policy over the past two administrations 
failed to correct the problem and ultimately contributed to the 
subprime crisis by pushing home ownership on people who could 
not afford the burdens of home ownership, thus making the 
American dream the American nightmare and causing a nightmare 
in our financial system. Affordable rental housing was short-
changed. That was a mistake and we appreciate your efforts to 
correct the course.
    The Federal Government has taken some extraordinary steps 
to address the mortgage crisis and the credit crisis through 
the Federal Reserve, Treasury, FDIC, and HUD. Despite these 
efforts, Americans across the Nation and in my State of 
Missouri continue to struggle to make their mortgage payments. 
Housing prices continue to fall. Foreclosures remain unabated. 
The rate of foreclosures has gone down, but it has come down 
from a totally unacceptable rate to a very unacceptable rate. 
With the country shedding hundreds of thousands of jobs every 
month, the mortgage crisis has spread from subprime to prime or 
traditional mortgages, hurting our economic recovery.
    Recent data that I have seen indicates that prime mortgage 
foreclosures are accelerating and rising in States where 
unemployment is growing. We know that housing started the 
economic crisis, which in turn resulted in massive job losses. 
It now appears that job losses are contributing to the troubles 
in the housing sector. I guess economists call this a negative 
feedback loop. Whatever it is, it is very, very unfortunate.
    Adding to the problem, rising mortgage interest rates 
threaten foreclosure mitigation efforts, and our economy has 
many homeowners unable to refinance their loans into ones with 
payments they can afford. In other words, we are definitely not 
out of the woods yet.
    I raised with Treasury Secretary Geithner 2 days ago some 
of the positive economic signs may be misleading, and I am 
concerned that we may be seeing what they call on Wall Street a 
dead cat bounce.
    These challenges factor into my view that health insolvency 
of the Federal Housing Administration, or FHA, remains at high 
risk. You and I have discussed this concern many times, 
including back in early April with the hearing on the FHA's 
role. Nevertheless, I think it is important to repeat, 
reemphasize, and discuss these concerns.
    Specifically, FHA has been exhibiting troubling signs as 
default rates have risen to the highest rates in several years. 
Capital reserves have substantially declined, and the 
foreclosures have accelerated. Perhaps the most visible and 
troubling sign is the significant increase in foreclosures 
since we know the Government is not a good landlord. When the 
Government takes over properties, it typically leads to the 
instability of communities and neighboring homes. Sadly, there 
have already been reports of rising FHA defaults and 
foreclosures in areas already victimized by subprime lending, 
which are making problems much worse for the families and for 
the entire communities in which they live.
    Further, FHA remains vulnerable to fraud. It has been a 
long-term problem. It has been well documented by the HUD 
Inspector General. It has been a great area of concern to this 
subcommittee. Senator Murray and I have worried about it, and 
when Senator Mikulski and I had this portfolio, we worried 
about it. This is not a new worry, but it is one which is, I 
think, rising to the top.
    You inherited the FHA problems, and to your credit, you 
have acknowledged them and taken steps to address them. But 
despite your best efforts, I fear the agency may be swimming 
upstream as fraudulent activity in the mortgage industry is on 
the rise. We are hearing more about loan originators who have 
caused problems in the subprime area migrating to FHA as 
business continues to expand. Regrettably Congress and the 
White House have placed more demands on the agency that is 
already understaffed, does not have the proper information 
technology, the skills or proper controls in place.
    That is why I continue to believe that FHA is a powder keg, 
and a mixture of ongoing and troubling problems in the housing 
market, FHA's internal problems, rising fraudulent activity, 
and increasing political demands is an explosive combination. 
If changes do not occur, the FHA powder keg could explode, 
causing even more harm to taxpayers, communities, the economy, 
and homeowners. In the current tenuous economic environment, 
that is a huge risk to be taking.
    A few other areas of strong interest to me, as you may 
know, I am a longtime champion of HOPE VI, and I appreciate 
your acknowledgement in your testimony. I am very interested in 
working with you and my colleagues like Senator Murray, as well 
as Senator Mikulski, on the program's future.
    You have proposed to expand HOPE VI beyond public housing 
through a new Choice Neighborhoods initiative. Since HOPE VI 
got its start in St. Louis a number of years ago, we have seen 
the program revitalize communities and families from the worst 
public housing projects. Communities that were once a magnet 
for crime and poverty are now catalysts for development. 
Senators Murray, Mikulski, and I look forward to more 
discussions with you and your staff on developing this 
proposal. It is critical we continue to work on innovative 
initiatives to tackle the cycle of poverty and distress that 
afflict too many communities.
    On homelessness, I thank you for backing the permanent 
supportive housing approach that was included in the recently 
enacted HEARTH Act. The permanent supportive housing approach, 
which has been initiated through this subcommittee on 
appropriations, has been embraced by providers, local community 
leaders, and government officials as they have seen 
homelessness reduced. I have seen it in Missouri, and I believe 
the number is reflected across the Nation. These positive 
results clearly demonstrate that the tragedy of homelessness is 
no longer a hopeless situation when strong local coordination 
and permanent supportive housing is utilized.
    Finally, investing in rural communities also is important 
to me. I continue to hear from many constituents who believe 
that rural areas are not receiving as much attention and 
resources as urban areas. Urban areas do not have a monopoly on 
economic development and housing needs. That is why a number of 
years ago, I created the Rural Housing and Economic Development 
program. I am pleased the administration is not eliminating 
this program but is aiming to augment its capacity to assist 
rural needs through a new Rural Innovation Fund. I look forward 
to working with you and learning more about the Rural 
Innovation Fund.
    I thank you, Mr. Secretary, for your hard work and 
willingness to work with this subcommittee. We want you to 
succeed and we look forward to continuing to work with you on a 
challenge that is a significant one, but one we cannot afford 
to lose.
    Thank you, Madam Chair.
    Senator Murray. Thank you very much, Senator.
    Senator Lautenberg.


                STATEMENT OF SENATOR FRANK R. LAUTENBERG


    Senator Lautenberg. Thanks, Madam Chairman.
    Welcome, Secretary Donovan. We are seeing each other, as 
you are with other members, on a more frequent basis. That 
tells you something about the view that we all have on what 
kind of housing availability there is in the country. When we 
look at it, in these days of job dislocation, the pain is felt 
even worse regarding housing availability. You have got a big 
job and I know that you are working hard at it. Unfortunately, 
there is a lot of competition for funding, and this is one 
place that really deserves as much as we can do.
    Unemployment in New Jersey and across the country has hit 
record levels. Families are finding it increasingly harder to 
pay their bills, save for the future and afford their homes. 
Instead of realizing the American dream of home ownership, more 
than 60,000 households in New Jersey could see their homes 
taken away this year.
    In these difficult times, the Department of Housing and 
Urban Development has a more important job than ever, has a 
larger influence, I think on our living standard than it has in 
decades. President Obama and the Secretary deserve praise for 
acting quickly on these issues.
    The economic recovery law, for example, included a 
temporary increase in the Federal Housing Administration's 
maximum loan limit in high cost metropolitan areas to help more 
home buyers access FHA loans. The residents of 12 of our 21 
counties in New Jersey are benefitting from this change.
    But we have more work to do to help both homeowners and 
renters to be able to keep a safe and affordable place to call 
home. Many homeowners, as we already heard about here, owe more 
on their mortgages than the home is worth, and they need help 
at refinancing, gaining equity in their home, to get their debt 
under control. And many renters cannot find a place where they 
can afford the monthly bill.
    In addition, we need to make sure that our Nation's public 
housing authorities have the funds necessary with which to 
operate and the resources to keep their properties safe. Public 
housing is home to more than 1.3 million low-income families 
nationwide. More than 50 percent of these households are headed 
by seniors or people with disabilities. New Jersey alone has 
more than 47,000 public housing units, and while the HUD budget 
request shows a commitment to helping all Americans find and 
stay in quality homes, it also cuts some critical programs, 
particularly in the area of affordable housing.
    So, Mr. Secretary, we look forward to hearing from you and 
working with you to try and solve these problems that are so 
deeply ingrained into the structure. But we have got to find a 
way out. Thank you.
    Thank you, Madam Chairman.
    Senator Murray. Thank you very much, Senator.
    Mr. Secretary, we will turn to you for your opening 
remarks.


                    STATEMENT OF HON. SHAUN DONOVAN


    Secretary Donovan. Thank you very much, Chairwoman Murray, 
Ranking Member Bond, and members of the subcommittee. Thank you 
for this opportunity to discuss the U.S. Department of Housing 
and Urban Development's 2010 budget proposal.
    I want to thank the subcommittee for its work as a champion 
for HUD's budget this past decade, including its recent 
extraordinary work securing almost $14 billion for housing and 
urban development programs as part of the Recovery Act. As you 
so kindly recognized, Senator Murray, we are moving very 
quickly to get this money out, and I appreciate your 
recognition of that. These funds are already at work helping 
families find and remain in affordable housing, putting people 
to work in green jobs, and stabilizing neighborhoods.
    The 2010 budget we have provided for your consideration 
will move us forward. With your support, what we have proposed 
would ensure mortgages for up to 2.25 million families with the 
Federal Housing Administration; provide housing counseling to 
571,000 households; fund rental assistance for over 4.5 million 
households; expand the supply of housing affordable to low-
income families by 306,000 units; and increase the capacity to 
serve homeless individuals by almost 15 percent.
    As you know, the Obama administration has already begun to 
comprehensively address the housing and economic crises, and 
this budget would advance that effort further. Already on loan 
modifications, which you have mentioned this morning, and in 
our efforts to stem the foreclosure crisis, extensive efforts 
have begun to take hold. Almost 80 percent of all loans in the 
country are now covered by our modification and refinancing 
plan, Making Home Affordable, and just last week 30,000 
modification offers were given to homeowners around the 
country, bringing the total to over 150,000 modification offers 
thus far. However, we do have, as you recognized, further work 
to do around modifications and stemming the foreclosure crisis, 
and I look forward to working with the committee to make sure 
that we do that.
    This budget requests the authority to complement those 
efforts so that FHA and Ginnie Mae can match their expanded 
roles, requesting loan guarantee levels of $400 billion for FHA 
and $500 billion for Ginnie Mae. In 2010, HUD is projecting 
that FHA will generate nearly $1 billion more income than will 
be paid out in losses over the life of the loans. That is, we 
project our 2010 business to be in the black.
    We must also have better informed housing consumers, and 
this budget requests $100 million for HUD's housing counseling 
program, a $35 million increase over 2009.
    Senator Murray, building off your leadership, HUD is 
requesting funding to better protect consumers and taxpayers 
against those who would seek to commit mortgage fraud. This 
budget has over $37 million to combat mortgage fraud and 
predatory practices, including improving FHA's data systems, as 
Senator Bond talked about; quickly and effectively implementing 
the new Secure and Fair Enforcement Mortgage Licensing Act, and 
enhanced Real Estate Settlement Procedures Act requirements; 
and increased funding for the Fair Housing Initiatives Program 
and Fair Housing Assistance Program.
    The second objective of the 2010 budget is to restore a 
balanced housing policy. This budget proposal returns the 
Federal Government to its leadership role as a catalyst for 
expanding the availability of decent and affordable rental 
housing, as you, Senator Bond, mentioned. The President is 
proposing several key initiatives, including $1 billion to 
capitalize the national Housing Trust Fund; full funding of the 
public housing operating fund; 12 months of funding for 
project-based, rental assistance; a $117 million increase in 
funding for homeless programs; and $1.8 billion increase in 
calendar year funding for the voucher program that will 
preserve affordable housing for more than 2 million households 
and give HUD and housing authorities new tools to more 
effectively allocate budget authority in order to serve the 
maximum number of households with the funding provided.
    The third objective of the 2010 budget is to invest in 
urban and rural communities. This involves full funding for 
CDBG at $4.45 billion, a $550 million increase over 2009; 
creation of two new competitive programs, the University 
Community Fund and the Rural Innovation Fund; and creating a 
$250 million Choice Neighborhoods program, as you have 
discussed.
    Choice Neighborhoods builds on the vision of Senators 
Mikulski and Bond when HOPE VI was created 15 years ago, and 
our experience with what has been most successful in that 
program. As Senator Mikulski noted with the introduction of a 
bill to reauthorize HOPE VI, ``Where HOPE VI has been most 
successful, it has transformed communities and transformed the 
lives of people living in public housing.'' Choice 
Neighborhoods expands on the best practices of HOPE VI to 
encompass not just public housing, but also privately owned 
assisted housing and the surrounding neighborhoods of extreme 
poverty. Choice Neighborhoods will create viable neighborhoods 
with decent and affordable housing, improved access to jobs, 
better schools, and increased public transportation 
opportunities.
    The fourth objective is to drive energy efficient housing 
and sustainable, inclusive growth. The proposed $150 million 
Sustainable Communities Initiative is intended to catalyze a 
linkage between housing and transportation planning and support 
development of new land use and zoning plans. Through the FHA, 
the proposed $100 million Energy Innovation Fund would support 
several pilot efforts in innovative communities to identify new 
approaches for financing energy improvements in new and 
existing housing.
    Led by Deputy Secretary Ron Sims, we are proposing the new 
Office of Sustainable Housing and Communities that will expand 
our relationships with our Federal, State, and local partners 
and coordinate HUD's programs to catalyze both sustainable 
planning and greater energy efficiency.
    The final objective of the budget is to transform the way 
HUD does business. We need better data and research about our 
existing programs and the housing market in general. We need to 
be forward-thinking and use demonstrations to test ideas on how 
to transform our existing programs so that they serve more 
people with the same or less money. We need the flexibility to 
target technical assistance where it is needed most, and we 
must transform HUD's data systems, procurement, and hiring 
practices to match our housing and community development 
challenges going forward.
    In sum, HUD's budget request is intended to result in 
better programs that serve more people with fewer resources. In 
particular, we propose a transformation initiative that would 
permit HUD to set aside up to 1 percent of its total funding to 
be used for four activities: next-generation technology; 
demonstrations; research; and technical assistance. As 
proposed, no more than 50 percent and no less than 10 percent 
would be spent on each activity.
    I truly appreciate the time of the committee and look 
forward to your questions. Thank you.
    [The statement follows:]

                Prepared Statement of Hon. Shaun Donovan

    Chairwoman Murray, Ranking Member Bond, and members of the 
subcommittee, thank you for the opportunity to appear before you today 
to discuss the U.S. Department of Housing and Urban Development's (HUD) 
2010 budget proposal.
    I want to thank the subcommittee for its work as a champion for 
HUD's budget this past decade, including its recent extraordinary work 
securing over $13 billion for housing and urban development programs as 
part of the Recovery Act. Those funds are helping families remain in 
affordable housing, putting people to work in green jobs, and 
stabilizing neighborhoods.
    HUD's 2010 budget proposal responds to the current crisis in our 
housing markets, addresses the continuing affordable housing needs for 
millions of families, and reestablishes HUD's partnerships with 
struggling cities, counties, and States. But it goes beyond that, it is 
a forward thinking budget with new ideas for driving energy efficient 
housing, sustainable, inclusive growth, and revitalization of 
neighborhoods of extreme poverty. This budget also asks the Congress to 
invest systematically and predictably in the full-scale transformation 
of the Department through targeted investment in activities and reforms 
funded by the proposed Transformation Initiative.
    The 2010 budget we have provided for your consideration will move 
us forward. With your support, what we have proposed would:
  --Insure mortgages for 2.24 million families with the Federal Housing 
        Administration;
  --Provide housing counseling to 571,000 households;
  --Fund rental assistance for over 4.5 million households;
  --Expand the supply of housing affordable to low-income families by 
        306,000 units; and
  --Increase the capacity to serve homeless individuals by almost 15 
        percent.
    How can we achieve these goals?
    As you know we have already begun to address the housing and 
economic crises. The Making Home Affordable Program and Congress' 
recent passage of the Helping Families Save Their Homes Act are 
critical tools for preventing foreclosure; and as I noted in my 
testimony to this subcommittee on April 2, FHA is playing an important 
role at ensuring that credit remains available to million's of 
households. Its market share has risen from 2 percent in 2006 to 24 
percent at the end of 2008. This 2010 budget requests the authority 
needed so that FHA and GNMA can match their expanded roles. This budget 
asks for loan guarantee levels of $400 billion for FHA and $500 billion 
for GNMA. In 2010, HUD is projecting that FHA will generate nearly a 
billion dollars more income than will be paid out in losses over the 
life of the loans. That is, we project our 2010 business to be in the 
black.
    We also want housing consumers to benefit from their housing 
choices. One lesson from the events in the housing market of the last 
few years is that home buyers and homeowners need education and 
counseling both before and after they get a loan. Most important, when 
borrowers start having a problem paying, they need advocates for their 
interests early on in the process. This budget requests $100 million 
for HUD's housing counseling program, a $35 million increase over 2009.
    Senator Murray, building off of your leadership, HUD is requesting 
funding so that it can use its programs to better protect consumers and 
taxpayers against those who would seek to commit mortgage fraud. This 
budget has over $37 million in initiatives to combat mortgage fraud and 
predatory practices, including:
  --Improving FHAs data systems;
  --Quickly and effectively implementing the new Secure and Fair 
        Enforcement Mortgage Licensing Act (SAFE) and enhanced Real 
        Estate Settlement Procedures Act (RESPA) requirements; and
  --Increased funding for the Fair Housing Initiatives Program (FHIP) 
        and Fair Housing Assistance Program (FHAP).
    The second objective of the 2010 budget is to restore a balanced 
housing policy. This budget proposal returns the Federal Government to 
its leadership role as a catalyst for expanding the availability of 
decent and affordable rental housing. In the first quarter of 2009, 33 
percent of all Americans were renters. Most people in this room have at 
some times in their life been a renter, and 66 percent of households in 
poverty are renters. To again take a leadership role in ensuring 
extremely low and very low-income households have quality affordable 
housing in safe and opportunity rich neighborhoods, the President is 
proposing several key initiatives, including:
  --$1 billion to capitalize the Housing Trust Fund;
  --Full funding of the public housing operating fund;
  --Twelve months of funding for Project Based Rental Assistance;
  --A $117 million increase in funding for homeless programs; and
  --A $1.8 billion increase in calendar year funding for the voucher 
        program that will preserve affordable housing for more than 2 
        million households and give HUD and housing authorities new 
        tools to more efficiently allocate budget authority in order to 
        serve the maximum number of households within the funding 
        provided.
    The third objective of the 2010 budget is to Invest in Urban and 
Rural Communities. This involves:
  --Full funding for CDBG at $4.45 billion, a $550 million increase 
        over 2009, and a legislative proposal to update this enduring 
        and valuable program so that it more efficiently and 
        effectively addresses the community development needs of the 
        21st century, including a provision to hold harmless funding 
        losses that might result due to a formula change;
  --Creation of two new competitive programs, the University Community 
        Fund and the Rural Innovation Fund, that would build around key 
        institutional assets and test new ideas for addressing the 
        problems in distressed neighborhoods and rural communities; and
  --Creating a $250 million Choice Neighborhoods program. Choice 
        Neighborhoods builds on the vision of Senators Mikulski and 
        Bond when HOPE VI was created 15 years ago and our experience 
        with what has been most successful in the program. As Senator 
        Mikulski noted with the introduction of a bill to reauthorize 
        HOPE VI, ``Where HOPE VI has been most successful, it has 
        transformed communities and transformed the lives of people 
        living in public housing.'' Choice Neighborhoods expands on the 
        best practices of HOPE VI to encompass not just public housing, 
        but also privately owned assisted housing and the surrounding 
        neighborhoods of extreme poverty. Choice Neighborhoods will 
        create viable neighborhoods with decent and affordable housing, 
        improved access to jobs, better schools, and increased public 
        transportation opportunities.
    The fourth objective is to Drive Energy Efficient Housing and 
Sustainable, Inclusive Growth. Housing and transportation costs now 
average a combined 60 percent of income for working families in 
metropolitan areas. Residential buildings account for 20 percent of 
carbon emissions and transportation counts for one-third of carbon 
emissions. Designing communities so people have the option to drive 
less, have shorter commutes to work, shopping, and recreation, as well 
as building and retrofitting homes to make them more energy efficient 
is not just good for the environment, it also improves quality of life.
    The proposed $150 million Sustainable Communities Initiative is 
intended to catalyze a linkage between housing and transportation 
planning and support development of new land use and zoning plans that 
think forward to long-term sustainable communities. We are already 
moving forward working with the Department of Transportation and the 
Environmental Protection Agency to develop common principals for 
livable communities. These partnerships are intended to maximize all of 
our resources so the sum of our efforts is truly greater than the 
whole.
    Energy efficient housing is more affordable housing, yet our 
financing tools have thus far largely failed to capture this obvious 
trade-off between housing cost and energy efficiency. The proposed $100 
million Energy Innovation Fund would support several pilot efforts 
within FHA and in a few innovative communities in order to identify 
strategies that can catalyze new approaches for financing energy 
improvements in new and existing housing.
    Led by Deputy Secretary Ron Sims, we are proposing the new Office 
of Sustainable Housing and Communities that will expand our 
relationships with our Federal, State, and local partners and 
coordinate HUD's programs to catalyze both sustainable planning and 
greater energy efficiency.
    The fifth objective of this budget is to Transform the Way HUD Does 
Business. We are asking for flexibility to transform the agency. This 
housing and economic crisis has demonstrated huge weaknesses in our 
Nation's ability to deal with changes in how our housing markets 
operate and how we address the housing needs of our most vulnerable 
citizens.
    We need better data and research about our existing programs and 
the housing market in general; we need to be forward thinking and use 
demonstrations to test ideas on how to transform our existing programs 
so that they serve more people with the same or less money; we need the 
flexibility to target technical assistance; and we must transform HUD's 
data systems, procurement, and hiring practices to match our housing 
and community development challenges going forward. In sum, HUD's 
transformation request is intended to result in better programs that 
serve more people with fewer resources.
    A recent study conducted at the request of Congress by the National 
Academy of Sciences on HUD's research suggested that a dedicated set-
aside of funding was needed to support research and demonstrations at 
HUD. We are requesting that the Congress accept this idea and go one 
step further, and permit HUD to set-aside up to 1 percent of its total 
funding, approximately $434 million, toward transformation. These funds 
would be used for four activities: Next Generation Technology; 
Demonstrations; Research; and Technical Assistance. As proposed, no 
more than 50 percent and no less than 10 percent would be spent on each 
activity.
    The projects to which these funds would be committed will be 
defined through a strategic planning process we are undertaking right 
now, a process we want to engage you in as well. This process asks the 
questions: What should our housing and urban development programs look 
like 6 years from now? How can HUD manage its existing programs today 
more efficiently and effectively?
    While we are beginning this strategic planning process right now 
with a target of October 2009 for a draft strategy, there are some 
projects that clearly need to be done now. Activities we would 
undertake include:
  --Modernizing the FHA data systems to speed up processing and reduce 
        risk;
  --Transforming and integrating the data systems for the Housing 
        Choice Voucher and multifamily assisted housing programs;
  --Designing and developing the IT systems needed for implementation 
        of the HEARTH Act;
  --Providing technical assistance that recognizes that in the real 
        world HUD's programs work together and often have common goals, 
        such as improving energy efficiency, and thus need TA that is 
        cross-program;
  --Providing program specific technical assistance for such programs 
        as CDBG, HOME, homeless programs, Native American Housing 
        programs, HOPE VI as well as new programs such as Choice 
        Neighborhoods and the Rural Innovation Fund;
  --Conducting research that addresses short-term need for information; 
        and
  --Designing and implementing forward-thinking demonstrations that 
        will improve the effectiveness of and reduce costs in existing 
        programs, as well as test next-generation ideas. In 2010, 
        Transformation funds would be used to support the pre-purchase 
        counseling demonstration mandated in HERA. This demonstration 
        would test how effective different types of counseling are at 
        reducing default risk for buyers with low down payments. We 
        would also conduct impact studies of rent-reform that build off 
        ideas initiated but not yet studied as part of the Moving-To-
        Work demonstration. Both of these demonstrations would test 
        ideas that could provide significant cost savings to the 
        Federal Government as well as potential benefits for families.
    We will engage the subcommittee in the development of the plan that 
specifies the research, demonstration, TA, and technology investments. 
HUD is committed to work with the Congress to make grantees more 
accountable for their efficient and effective use of these funds.
    HUD is establishing a new Office of Strategic Planning and 
Management to implement the strategic planning process, wisely allocate 
Transformation Initiative resources, and oversee the overhaul of HUD's 
hiring and procurement systems. The budget also proposes a new Chief 
Operating Officer to guide the internal transformation of HUD's 
operations.
    I truly appreciate the time of the subcommittee and look forward to 
your questions.

                        HOME PRICE STABILIZATION

    Senator Murray. Thank you very much, Mr. Secretary, and we 
will now move to the questions.
    As I mentioned in my opening statement, HUD's budget 
request comes in the context of a lot of ongoing challenges in 
the housing and in the economic crisis. Increasingly we are 
seeing our home buyers and our lenders turning to FHA in the 
absence of available credit in the private market. You pointed 
out in your testimony that FHA's market share has increased 
dramatically over the last 2 years.
    The President's budget is asking us to increase the FHA 
annual loan volume guarantee limit to $400 billion. That is an 
increase of $85 billion. That request seems to imply that the 
FHA's market share is going to continue to grow in the next 
year. Does that reflect a kind of pessimism that home prices 
and credit markets are going to begin to stabilize in the 
coming fiscal year?
    Secretary Donovan. First of all, I want to be very clear. 
Based on the latest trends that we have seen, where we do see a 
stabilization in housing prices in many markets and in some 
cases increases in volume of sales transactions particularly in 
the hardest hit markets, we do continue to believe that we are 
on track for a return of the housing market to positive growth 
this year and hopefully even by the end of the summer. So it is 
not reflective of pessimism.
    The most specific thing that I think is affecting the 
continued high volume of FHA is the lack of mortgage insurance 
available in the market. That is the primary factor that is 
driving the continued high volume of FHA business. As the 
housing market recovers, we believe that it will take some time 
for mortgage insurers to build back up their financial strength 
and to be able to allow other lenders to fully enter the 
market.
    But I want to be clear. Our interest is not in having FHA 
be the sole or one of the primary sources of financing. Our 
interest is getting this housing market back on track, and we 
welcome and will work with the private sector to get back into 
lending as quickly as possible.
    Senator Murray. Let me ask about the HOPE for Homeowners 
foreclosure prevention initiative. That was originally expected 
to serve about 400,000 families. As I mentioned, there are less 
than 1,000 applications. Congress recently took actions to 
modify that program to make it more effective. With these 
changes, do you think that FHA will now reach its goal of 
assisting 400,000 families?
    Secretary Donovan. Two things I would say about that, 
Senator. First of all, as you rightly recognize, there has been 
almost no use of HOPE for Homeowners, just over 50 loans closed 
at this point in the program. With the recent changes signed by 
the President and passed by Congress, I do believe we will have 
significant improvements in the program. We hope to have the 
revised program up and running in the next couple months, and I 
do think we will see significantly increased volume.
    I think it is unlikely that we reach the 400,000 number, 
and the reason for that is that when the HOPE for Homeowners 
program was created, it was the primary alternative for helping 
families at risk of foreclosure. As I discussed earlier, as you 
know, we have since introduced the Making Home Affordable plan, 
which has reached a scale, as I mentioned in my testimony, of 
over 150,000 modifications just in the first few weeks, and we 
expect it to continue expanding substantially. And so with 
these other alternatives, I think it is unlikely that HOPE for 
Homeowners reaches the 400,000, but obviously, we will keep the 
committee informed as we do begin to see volume pick up once 
the changes are introduced.

                              FHA CONCERNS

    Senator Murray. Okay, I appreciate that.
    I have long raised concerns about the solvency of the FHA's 
MMI Fund and I want to make sure that our Nation's taxpayers 
are not exposed to the elevated risk of re-default of these 
already troubled mortgages. If HOPE for Homeowners or some of 
these other foreclosure prevention activities do succeed in 
bringing more distressed borrowers into the FHA's programs, 
what safeguards are there to ensure that these foreclosure 
prevention measures do not destabilize the FHA?
    Secretary Donovan. So, two things about that. First of all, 
thanks to the Congress and the changes that you have made, we 
have been able to and do project a surplus for the main MMI 
program and for FHA overall in this budget. There are two 
primary things that are driving that that I think are important 
to emphasize.
    Congress' swift action to ban the seller-funded down 
payment program alone, our estimates are, will improve the 
performance of just 2010 loans by $2.5 billion. So that alone 
has been a substantial help to improve the health of the fund.
    Second, what we have also seen is that with the credit 
crisis that has happened in the rest of the market, our average 
credit scores within FHA have gone up by over 50 points over 
the past year. So we are seeing, despite the troubles in the 
market, an improved borrower profile across the board in FHA, a 
substantial, substantial improvement that will help to keep the 
overall fund healthy, we believe, for the 2010 loans.
    Specifically on HOPE for Homeowners, two things I would 
say. One is that there is a clear requirement for HOPE for 
Homeowners. This is one of the reasons why I do not think the 
volume will get to the 400,000. It requires a write-down of the 
principal to a level that is sustainable on today's value, not 
on original value, but on today's value. With hopefully being 
at the trough as the program ramps up, we should see long-term 
housing growth for those that will make those safer loans.
    The other important point is that Congress wisely set aside 
$300 billion at Treasury to fund any losses from the HOPE for 
Homeowners program. So any losses there do not affect the 
broader health of the MMI Fund. They are isolated to this fund 
that has been established at Treasury and should not affect the 
overall----
    Senator Murray. What about the reverse mortgage, HECM 
program, for seniors to reverse mortgage? For the first time, 
the budget is seeking a positive credit subsidy of $798 million 
for that. Does that positive subsidy requirement portion of the 
MMI Fund portfolio raise concerns for you about the overall 
solvency of the MMI Fund?
    Secretary Donovan. It does not on the overall solvency. 
First of all, HECM is a very small--very small--portion of the 
overall set of programs, and even with that cost, our estimate 
is that the loans made in 2010 will show a surplus of almost $1 
billion.
    Specifically on HECM, I would say two things. First is we 
have tried in this budget across the board to be as clear and 
direct and honest as possible about what we see going forward. 
The HECM program is far more sensitive than traditional loan 
products. It is much like an annuity, far more sensitive to 
house values, and long-term house price growth. We have been, I 
think, relatively conservative in the budget in projecting that 
for the HECM program. So that is the first thing.
    The second I would say is we do have options that I would 
be happy to discuss with you as we work through the discussions 
on the budget for changes to the HECM program.
    Senator Murray. So some tools to make sure you have got 
some control on it?
    Secretary Donovan. Yes. We have not chosen to raise 
premiums, given the stress that seniors are under right now, 
but there are premiums, as well as loan-to-value and other 
factors that we can make changes on that would eliminate that 
need for the costs. Those are, obviously, choices about how 
many seniors we want to be able to help versus the cost in the 
program, and I think it is important that we have discussions 
with the committee about that to make decisions.
    Senator Murray. Good. Maybe you can get back to us on that 
after the hearing and we can talk about that. I appreciate it.
    Secretary Donovan. Absolutely.
    Senator Murray. Senator Bond.

                              FHA SOLVENCY

    Senator Bond. Thank you very much, Madam Chair.
    We are trying to get some numbers here, and it looks like 
our 302(b) allocation, which has just come down today, is not 
going to support the HUD request. When you take out the 
renewals, it is about $1.5 billion over the 2009 enacted level. 
So we are going to have to do a lot of work in HUD and 
transportation.
    Speaking of the FHA problems, again, it was called to my 
attention some research done by a New Jersey-based financial 
data firm, SMR, and they gave St. Louis the No. 1 place for FHA 
lending. The dollar volume from 2008 has quadrupled from $719 
million in 2007 to $2.9 billion in 2008, and the analysis is 
they are kind of the last man standing in the subprime space. 
They are refinancing a lot of people who got subprime mortgages 
from private lenders.
    The analyst goes on to say the Federal Government might 
just step back and say what have we gotten ourselves into. Here 
is the point that concerns us. ``Whenever you see a lender 
ramping up as quickly, there are often some mistakes made. When 
you suddenly explode like FHA has, that's something to watch 
for.''
    While you came up with a mildly optimistic $1.7 billion 
revenue generated by FHA on a book of business of $400 billion, 
during our FHA hearing in April, the HUD Inspector General 
responded to one of my questions on the need for taxpayer 
bailout by saying, ``Based on the numbers we're seeing, I think 
it's going in the wrong direction.'' And CBO projects a zero 
credit subsidy rate on FHA programs.
    So we are very much concerned about it, and is there 
anything that you are doing or can do to mitigate the possible 
need for additional funds to compensate for FHA losses? And if 
the economy continues to deteriorate--and I know one of the 
assumptions you built in was low interest rates, but it looks 
like the markets and foreign governments are responding to our 
fiscal policy by driving up interest rates. So we have got 
another collision coming.
    How confident are you that you will not have to raise 
premiums or come to the taxpayer for assistance?
    Secretary Donovan. First of all, Senator Bond, we have done 
fairly extensive analysis of where the fund is today. Current 
projections, not just for 2010, which are contained in the 
budget, but for all FHA's current book of business to look at 
the reserves, and while it is too early to say for sure where 
we will end up in the re-estimate this summer, we think there 
is a better than even chance that we will stay above the 2 
percent reserve threshold in terms of that analysis. So that 
suggests not just for the 2010 business but overall for the 
portfolio that we are more than likely to stay out of a broader 
need for any taxpayer funding.
    Second of all, I do want to emphasize that while I have 
reported on some of the positive trends, you talk, I think 
rightly so, about the need to enhance FHA's fraud detection. 
There is a range of things that we need to do, and I couldn't 
agree with you more on that. And we are moving in that 
direction.
    We have established and sent out SWAT teams to lenders 
where we see early evidence of defaults. We have asked for and 
received, thanks to the Congress, increased authority to go 
after bad apples. One of the problems that we have had is that 
we have been able to debar companies, but principals have been 
able to change their stripes, reestablish themselves in new 
companies, and we did not have the ability to bar them until 
legislation signed by the President just a few weeks ago. We 
are implementing that now.
    And one of the key things that we want to do with this 
transformation initiative, the single biggest usage of funding 
from that in our plans is to enhance FHA's systems. I cannot 
stress enough that a systematic approach to fraud detection is 
absolutely the direction that we need to go. I have detailed in 
my written testimony much more about the kinds of initiatives 
that we would want to pursue with the transformation 
initiative, but that is the single most important that we want 
to pursue.
    Senator Bond. We agree with you on that, and I think I 
mentioned previously the U.S. Attorney for the Eastern District 
of Missouri, who has been aggressively prosecuting these fraud 
cases. There are some bad apples that really need to be put out 
of the business and in my view put out of circulation. That is 
an added problem we do not need.
    Secretary Donovan. If I could just add, thanks to you we 
also, in the bill that I just talked about that gave the FHA 
enhanced capacity, have significantly increased resources not 
just with Ken Donohue, who I have been working very closely 
with at HUD, our Inspector General, but also at the Department 
of Justice, the Federal Trade Commission, increased authorities 
and increased funding to go after exactly this kind of fraud.

                         SELLER SPEC FINANCING

    Senator Bond. Let me move on. You mentioned the importance 
of getting rid of the seller-financed down payment. I have long 
warned about the no-down-payment option. There is another item 
that I have noticed. In Canada, mortgage loans are recourse 
loans, and they have not experienced anything like the same 
type of problem experienced in the United States.
    Going forward, is this something that--it is controversial 
but we see what happens when people can buy a second home on 
spec and walk away from it. Is it worth considering whether we 
need to change the system and make mortgage loans recourse 
loans?
    Secretary Donovan. This is a proposal that I think is worth 
some consideration as part of a much broader look that we are 
going to do at the mortgage market. Obviously, our regulatory 
structures have failed over the last few years to contain this 
kind of lending process.
    I think the concern that I would raise is that at a time 
when the markets are fragile, that a major change like that 
could be----
    Senator Bond. I am not saying right now. We are scratching 
and clawing to get out of this, but going forward--I do not 
always trust regulators to avoid problems. I think that we 
ought to have some standards in place that lessen the number of 
people who can come close to the line. And I believe Canada 
also generally requires a larger down payment, which all goes 
back to the point that you emphasized and I emphasized that we 
need to make good quality, affordable rental housing available 
for people to have a good home until they can afford to buy a 
home and do it without risking their credit or without risking 
the viability of the community.
    Thank you, Madam Chair. I have got a whole lot more to go, 
but I want to hear from Senator Lautenberg.
    Senator Murray. We will come back to you.
    Senator Lautenberg.
    Senator Lautenberg. Yes. Mr. Secretary, would the 
elimination--I think that is a fair representation of the HOPE 
VI program, its principal mission, revitalizing distressed 
public housing with this new Choice Neighborhoods Initiative. 
Now, recent estimates indicate there are still 80,000 
distressed or severely distressed public housing units that 
remain nationwide. Now, if HOPE VI is eliminated, is it 
possible to have enough resources available to revitalize these 
public housing units?
    Secretary Donovan. Senator, I am glad you asked that 
question because I want to be absolutely clear about this. The 
Choice Neighborhoods proposal is in my view, quite frankly, a 
celebration of HOPE VI, and it says it has worked so well that 
we ought to think about expanding that model and making more 
resources available.
    But I want to be very clear as well. What we have proposed, 
I think it is extremely clear to us, would expand resources for 
housing authorities to continue to take on and accelerate the 
efforts to revitalize troubled public housing. And here is why.
    First of all, what we have proposed--this year $120 million 
was provided for HOPE VI. We are proposing $250 million, so a 
significant expansion of resources, first of all.
    But even though we are opening it up to assisted housing, 
we have looked very carefully, and not only is--there is three 
times more public housing that is in troubled condition and 
located in neighborhoods of high poverty than there is assisted 
housing. So the expectation is that the large majority of these 
resources would go to public housing, not to assisted housing.
    The third thing that I would mention is that we are 
proposing to make eligible privately owned housing as well. We 
hear from housing authorities all the time that one of the 
challenges they have is the inability to use HOPE VI to help 
turn around privately owned housing that surrounds public 
housing, whether it has been foreclosed or vacant or abandoned. 
So we think we are actually not only giving housing authorities 
more resources to do HOPE VI redevelopment, but actually 
expanding the kinds of things that they can do as well. So we 
believe strongly that this is, as I said, a celebration of the 
model, not an elimination by any means of the program.

                       NEIGHBORHOOD DETERIORATION

    Senator Lautenberg. We are pleased to see the expanded 
amount of resources available, but that still falls short of 
the need substantially. What do we do to encourage people about 
their living standard that, as you just said, includes 
deterioration in the neighborhoods around these places? How 
many units will still be left in this distressed condition that 
we have to pay attention to?
    Secretary Donovan. Well, I think the good news on that is 
that this proposal comes on the heels of a Recovery Act, thanks 
to you, that made substantial investments in public housing 
stock, $4 billion total of capital funding that I think will go 
a long way to helping to ameliorate that. I do not believe we 
are there yet. There are still significant needs in public 
housing, but I think the combination of the significant 
expansion in Choice Neighborhoods, as well as the $4 billion in 
Recovery Act funding, is a very, very important down payment on 
where we need to go with public housing.
    Senator Lautenberg. We are still not at the goal line, and 
we have to keep working on it.
    Secretary Donovan. I would agree.
    Senator Lautenberg. The economic recovery act raised the 
maximum loan limit for FHA so that potential homeowners in high 
cost-of-living areas like my home State could access FHA loans. 
Do you support extending the increased maximum loan limit when 
it expires at the end of this year?
    Secretary Donovan. I would say, Senator, that it is too 
early, in my mind, to give you a final answer on that. It was 
extended really to make sure that we had expanded capacity not 
just at FHA but also at the GSEs to serve a market, quite 
frankly, that had disappeared when the credit crisis occurred. 
I think we have to look carefully at how far the market is at 
the end of the summer, at the end of the year, before making a 
decision to extend it beyond the 1-year extension that was 
there.
    I do believe, as I said earlier, that FHA's purpose is to 
work in concert with the private market to provide financing 
where it is not available from the private sector, and I think 
we need to look at the loan limits in light of where we are in 
terms of that balance as we get closer to the expiration.

                           HOUSING COUNSELING

    Senator Lautenberg. The prospects realistically are not for 
lower prices. If the economic recovery takes hold, we are going 
to see an increase in prices. We are now seeing an increase in 
interest rates for housing loans.
    So I wanted to discuss the counseling situation. The 
President's budget increased funding for housing counseling by 
$35 million, and this is a substantial increase in funding. The 
demand for housing counseling is also far greater. Is the 
funding request enough to meet the need for housing counseling? 
How many people are we talking too currently, and will we have 
enough money available to increase that availability, because 
that is such an important part of people's emotional and, 
obviously, financial condition.
    Secretary Donovan. What I would say Senator is that while 
it is a substantial increase, it would allow us to serve over 
570,000 households with counseling next year. That alone is not 
enough to deal with the current crisis that we have.
    Importantly, we have two other sources of resources. One is 
from Congress through NeighborWorks, there was an additional 
allocation of, I think, $190 million last summer. That brings 
the total to, I think, around $300 million, which has been an 
enormous help. That is specifically targeted to foreclosure 
prevention. Our counseling money is for broader purposes that 
includes first-time home buyer counseling, post-purchase 
counseling, et cetera. So it is very important to see it in the 
context of the $300 million.
    But even that I think is not going to get us there, and I 
met with NeighborWorks the other day on this. Servicers have 
agreed that counseling is an eligible expense, but we have not 
seen a broad use of that authority to allow reimbursement of 
foreclosure counseling. And I think if we are really going to 
get to the scale we need to on this problem, we need to 
encourage the servicers and work with the servicers to have 
them expand their reimbursement of foreclosure counseling, and 
we are doing that. I met with HOPE NOW just this week to 
encourage them to do that, and they have reengaged with the 
servicers to see if they can get them to more broadly 
reimburse. And I think if we can do that, then we could 
actually get to the scale that we need to really deal with the 
full problem.
    Senator Lautenberg. Thank you, Madam Chair.

                       HOMEOWNER BUYER TAX CREDIT

    Senator Murray. Thank you.
    Mr. Secretary, HUD recently clarified that participants in 
the FHA program can use the $8,000 first-time home buyer tax 
credit to defray closing costs or to increase their down 
payment. That, we know, is going to enable more families to 
afford housing and provide an important jolt to the housing 
market.
    Some people have proposed allowing the tax credit to be 
used to defray closing costs for non-FHA products. Do you think 
that monetizing the homeowner buyer tax credit can be effective 
in helping to stimulate demand beyond the FHA products?
    Secretary Donovan. What I would say on that, Senator, is I 
think it would have some incremental benefit. I think it is 
unlikely to have as much benefit as what we have done with FHA. 
The reason for that, quite simply, is that today because of the 
lack of mortgage insurance, as I talked about earlier, or the 
limited availability of mortgage insurance, the down payment 
requirements are quite large, and an $8,000 credit in that case 
will have a harder time overcoming the barriers for first-time 
buyers with the size of the down payment that they need in 
general in programs.
    That is why we focused in our guidance on FHA lenders where 
we have a lower down payment requirement, as well as on State 
housing finance agencies that I think have been some of the 
most creative lenders to first-time buyers. And that is where 
we do see a lot of the activity.
    Having said that, I also think it is important to recognize 
we did try to balance very carefully that we do not get back to 
the point of having zero down payment loans. So our guidance is 
unless you have an approved down payment assistance program 
through a government entity or a NeighborWorks, you need to 
have that 3.5 percent down payment even for the FHA loan. So we 
really tried to make sure we are balancing the health of the 
fund with the need to stimulate the market. I think we have got 
that balance right.
    Again, I think there could be some incremental benefit to 
expanding it more broadly. There are private lenders that are 
looking at that, but I just do not think it is going to have as 
much boost as the FHA because of the down payment requirements.

                           SECTION 8 FUNDING

    Senator Murray. Section 8 tenant-based rental, a critical 
tool for a lot of our families today. At a time when this 
economic recession is really hitting a lot of people especially 
hard, I think that program is even more important than ever. In 
order to continue this program, the President's budget included 
$17.8 billion in total resources for the tenant-based rental 
assistance. That is an increase of $1.8 billion over 2009.
    Are you confident that the amount of funding is sufficient 
to fund all of the existing section 8 vouchers?
    Secretary Donovan. Based on our latest information, we are 
confident. In fact, we based those estimates on the end of 
December very latest leasing. And one of the reasons there is 
such a significant increase is that we did see housing 
authorities really increase their leasing late in the year, 
which I think is a positive thing in terms of helping more 
families in the economic crisis, and that led us to really 
think that it was important to request a significant increase.
    The other thing that is contributing to that is not just 
vouchers that were outstanding at the end of December, but also 
the significant number of vouchers that will be expiring for 
the first time, whether they are tenant protection or 
incremental vouchers that the committee has provided. I think 
it is, obviously, critically important as VASH vouchers and 
other vouchers start to expire that we ensure we have adequate 
resources for those.
    We have preliminary information from March 31, which shows 
roughly level leasing from December. So we continue to believe 
that that significantly increased number should be adequate for 
next year.
    The only other thing I would just mention--I do have some 
concerns given the ramp-up in leasing that we saw late in the 
year, that we may have some housing authorities that will have 
difficulties this year during 2009 with the allocation. So I 
want to make sure that our staffs are in contact about that to 
make sure that we give you the latest information of what we 
are hearing from housing authorities so that we are dealing 
with the issues in 2009 and the ramifications it might have on 
the 2010 budget.

                         VOUCHER SUSTAINABILITY

    Senator Murray. Congress has struggled for a long time to 
balance the need to serve as many families as possible with the 
need to ensure that we are managing the growth in this 
program's cost. We have taken several steps to provide 
stability and consistency of the section 8 program over the 
last few years, and we have seen an increase in utilization by 
PHAs. It is good. More families are being served, but we have 
to balance that with the costs in the future.
    Can you describe for us what your long-term plan is for 
ensuring that we are increasing vouchers at a level that we can 
sustain in future years?
    Secretary Donovan. Well, first of all, to be very frank, 
one of the problems here is that you have not been able to get 
good information from HUD, and we have not had the systems in 
place to be able to give you that information. One of the key 
investments that we propose to make with the transformation 
initiative in the budget is to build a system that can 
accurately provide you data on the budget costs.
    We spent a lot of time. I probably personally spent 8 or 10 
hours with budget staff as we developed this estimate, and I 
believe we finally have good information for you this year. But 
we need to go farther to have not just information that we are 
getting today from March 31 leasing but have real-time leasing 
information from around the country to be able to make sure 
that we get the best information and can respond quickly to 
trends that we are seeing to keep program costs under control. 
So that is the first thing.
    Second of all, there are many things about the voucher 
program that require work by housing authorities--having run 
the fourth largest voucher program in the country, I know this 
very personally--that frankly are not necessary. And I think 
the Section 8 Voucher Reform Act and other efforts to simplify 
the program will go a long way. Things like seniors on fixed 
incomes, not having to recertify them on such a regular basis 
because we know that it is predictable, and focusing our 
efforts on families that need to be recertified more often, a 
whole range of other simplification of rent rules and income 
rules and a whole range of things that could make the program 
more cost-effective. That is the second thing.
    Finally, I think one of the critical things is getting a 
stable, predictable funding formula. We have attempted in this 
budget proposal to make some of the fundamental changes that we 
believe would make sense, provide the flexibility around unit 
caps and other things that will allow housing authorities to 
plan better and therefore be able to move their programs in the 
right direction to stay within their budget caps.
    So there is a range of things that are critical in doing 
that. There is no one magic bullet there, but I believe with 
those set of things, that we can get to a point where we can 
keep voucher costs under control, we can serve more families 
with less money, and get you the information that you need to 
make decisions.
    Senator Murray. All of those are important. We all want to 
see the increased utilization. We want families to have this. 
What we do not want people to have is the promise of vouchers 
for a budget that in the future we cannot sustain, and we are 
sitting at a town hall meeting and people are screaming that 
their vouchers have been taken away. So we want to work with 
you on this balance as we work through this.
    Secretary Donovan. Absolutely.
    Senator Murray. Senator Bond.

                        MORTGAGE INTEREST RATES

    Senator Bond. Thank you, Madam Chair.
    We were talking about simplifying the process, cutting the 
red tape, and getting us better information. I can only say 
amen and thank you. It is a long time coming, and we are 
looking forward to it.
    I meant to touch briefly on concerns I have. In the Making 
Homes Affordable initiative, the administration projected it 
would benefit 7 million to 9 million homeowners. Unfortunately, 
the reach in benefit was linked to mortgage interest rates, and 
with them hovering now around 5.5 percent and potentially going 
higher, what impact do you see that having on the goal?
    Secretary Donovan. Well, I think there are two different 
issues there. One is around refinancings. Making Homes 
Affordable projected 4 million to 5 million homeowners that we 
would be able to help through refinancing for underwater 
homeowners. For the vast majority of those, one-half a point or 
one-tenth of a point change in interest rates is not going to 
significantly affect the benefits of the program because those 
are families that are, in general, at much higher interest 
rates. But I do think it will have some marginal affect on the 
number of folks that can benefit from that.
    On the modifications, however, we still have the ability 
under the program through modification to get an interest rate 
down to as low as 1 percent, and that is independent of where 
interest rates are today. So I do not think it will have a 
significant impact on the modification portion of the program, 
and in fact, I quoted that we had offered 30,000 modifications 
last week. We expected to help between 3 million and 4 million 
homeowners with the modification plan over 3 years. So if you 
do the math, 30,000 in a week actually get us in that range 
over 3 years. So we are starting to get to the kind of volume 
that could get us to the scale, and I do not think on the 
modifications in particular that interest rates will have a 
significant effect.
    Senator Bond. But I think, obviously, that is optimistic 
that you will be able to continue. On the modifications, while 
it is not in the budget, if you are lending out money at 1 
percent and the Federal Government is borrowing everything that 
is going out the door now, there is a hidden subsidy that, 
fortunately, is not charged against our budget, and I guess we 
should not raise it here. But it is going to go on the debt of 
the Federal Government balance sheet.
    Secretary Donovan. Most of the cost is actually absorbed by 
lenders because we require them to take more than 50 percent of 
the losses through the program. As you have said when we were 
talking before, they should because the alternative for them is 
foreclosure where there are significant losses.
    Senator Bond. On these, are you giving them a soft second, 
a second lien on the home so if it is sold for more than the 
reduced rate, the lenders--to the extent that we are 
subsidizing them, they ought to get some. Will there be a soft 
second on the assumption that maybe the home prices will rise 
again and they will be sold at higher than their reduced loan 
rates?
    Secretary Donovan. On the modifications, in fact, the loan 
stays intact. So the full amount of the loan is there. So if 
there is an increase--one more thing I would just say about the 
cost of this. We are paying for our share of the program 
through TARP funds. So we have already set aside $50 billion in 
TARP funds, and that will not require new appropriations. So 
that is already built into the cost of TARP. It does not have, 
whether on FHA or any other Government program, an impact.

                           BUYERS TAX CREDIT

    Senator Bond. Well, I am pleased to hear that because I 
have been wondering. After we agreed to the TARP program to buy 
troubled assets, I have seen us buying a lot of troubled banks, 
troubled auto companies, and if you are finally buying down 
some troubled assets, it is about time. We kept wondering where 
it was coming from, and that was the whole reason to support it 
in the first place. I have been extremely disappointed that 
since we enacted it last year and this year, we have not been 
using it for the purpose that it is being used.
    Another question may be before us. As part of the stimulus 
act, Congress provided an $8,000 tax credit for first-time home 
buyers. There is a new proposal that would increase that to a 
higher level at $15,000. There was a proposal to limit that to 
buying homes out of foreclosure. What is your sense on the 
impact this could have and whether that would help stop the 
decline in home prices?
    Secretary Donovan. Two things I would say. Obviously, 
increasing the amount of the credit would bring more buyers in 
but, obviously, at a cost. So Congress has got to weigh whether 
that cost is affordable and whether it can be absorbed, given 
all the other expenses.
    The other piece of this that has been discussed is 
extending it not just to first-time home buyers but beyond that 
to any home buyer. I think the issue there is that while that 
could have some incremental benefit, when you have an existing 
home buyer who is buying a new home; you are selling a home and 
buying a home. So it does not have the same kind of positive 
impact on the market that a first-time home buyer getting into 
the market from renting in the first case to absorb the 
overhang of----
    Senator Bond. Well, I agree with that. But is there any 
wisdom in limiting it to foreclosed homes to try to save 
communities?
    Secretary Donovan. It is an interesting idea. I had not 
thought about that before. We, obviously, have significant 
resources from the Recovery Act through the Neighborhood 
Stabilization Program from last summer that is doing exactly 
that and trying to concentrate on neighborhoods with lots of 
foreclosures. I think there is more we can do with our own 
foreclosure----
    Senator Bond. The city council members, the mayors are 
saying what am I going to do with this community that has got 
20 percent foreclosed? The retail businesses are shutting down. 
That is causing further collapse, and they are seeing their 
communities absolutely deteriorate.
    Secretary Donovan. We should follow up because we are 
releasing today the competition for $2 billion in Neighborhood 
Stabilization funding that was in the recovery bill. We have 
already provided Missouri significant funding from the $4 
billion that was allocated last summer. But this is an 
opportunity--this additional $2 billion--to really take those 
efforts to the next level in St. Louis and a range of other 
places. So we ought to follow up and make sure you have all the 
information.
    Senator Bond. Yes. Could we get information on that, 
because it is not just limited to the major cities?
    Secretary Donovan. Not at all.
    Senator Bond. There are suburbs and rural areas.
    Secretary Donovan. In fact, one of the things we really 
want to encourage in the competition is that jurisdictions work 
together across regional lines, including suburbs, rural areas. 
So we are very interested in doing that.

                        HOMELESS VETERANS' NEEDS

    Senator Bond. I am going to impose on the chair's time for 
just one question we are both interested in. The President's 
budget does not include additional HUD-VASH vouchers while the 
President said he wants to have homelessness among veterans--
and Senator Murray and I are very interested in homeless 
veterans. How are you going to address the needs of homeless 
veterans, especially those with disability? What are your plans 
there?
    Secretary Donovan. I am very glad you asked this question 
because I want to make sure I am very clear that I and the 
President strongly support the VASH program and are working 
hard to make it as effective as possible. Of the 10,000 
vouchers that were allocated in 2008, 79 percent of those have 
been issued. Over 40 percent of them are already leased. We had 
some early start-up issues which basically the Veterans 
Administration had to get case managers up and working before 
we could get the vouchers issued. So now that those case 
managers are in place, we have begun moving quickly to get the 
vouchers out, and obviously, there is an additional 10,000 that 
were allocated that we will be competing very shortly.
    I would say a couple things about why we have not included 
them in the budget proposal.
    First of all, as I mentioned earlier, we were quite 
concerned that given the leasing level in the overall program, 
that we would need significant increased dollars. I think it is 
an important conversation with the committee to understand what 
is available for incremental vouchers versus supporting 
vouchers that are already there. We, obviously, want to have 
that conversation.
    Also, I do have some concern that if we have multiple kinds 
of vouchers within the program that we may create 
administrative complexity for housing authorities. I think the 
ideal situation from my point of view is that an experiment, a 
model like VASH over 2 years that we can learn the best lessons 
and then we could get housing authorities not just using VASH 
vouchers, but using any of their vouchers to effectively serve 
veterans. So I think the opportunity for us is to think of VASH 
as a good model that can then be expanded to the entire voucher 
program in a way that is as flexible as possible for housing 
authorities in implementing it.
    Having said that, we are very hard at work with the VA, in 
doing that, we are issuing joint guidance with them. We are 
actually holding a conference with them, our first conference 
on HUD-VASH to make sure that implementation moves smoothly, 
and I have been working closely with General Shinseki, now 
Secretary Shinseki to make sure that it moves swiftly. I would 
be happy to provide more details on it, but I do think it is a 
very important conversation about what we do in the 2010 budget 
that I look forward to.
    Senator Bond. Thank you, Mr. Secretary.

               COSTS RELATED TO TRANSFORMATION INITIATIVE

    Senator Murray. Mr. Secretary, you mentioned getting 
information more timely and accurate. That is a goal that I 
obviously share. It is refreshing to hear that from you.
    But I do need to signal to you some major challenges with 
the transformation initiative proposal that you put forth. 
Under this proposal, you would have the authority to transfer 
up to 1 percent from all of HUD's programs to that initiative, 
with a total cost that could reach $434 million. Given the 
magnitude of that, this subcommittee needs more precise 
information about what you would fund and at what cost before 
granting HUD that kind of flexibility.
    Your testimony this morning does outline some of the 
priorities. Can you provide any more information to us about 
how much you expect these initiatives to cost in fiscal year 
2010, and will that $434 million be necessary this year?
    Secretary Donovan. We do have more detail about those 
initiatives, obviously, much more than is in my testimony. I 
think we have started to provide some information to your 
staff. I would be happy to provide more detail on that.
    As I mentioned earlier, the single largest and most 
important initiative is the FHA modernization. Our sense is 
that the full cost of that, not the 1-year cost, but the full 
cost of that, is in the range of $110 million to $130 million.
    Senator Murray. Is this the next-gen technology?
    Secretary Donovan. This is specific next-generation 
technology for FHA. So that is one piece of the technology.
    Senator Murray. Do you know how much that will cost?
    Secretary Donovan. Total cost, between $110 million and 
$130 million.
    The other I think most important system investment that we 
would want to make is for a new voucher system, as I mentioned. 
The total cost--again not a 1-year cost, but the total cost of 
that--our estimate is that is roughly $90 million to $110 
million. Again, that is over multiple years.
    Senator Murray. This year?
    Secretary Donovan. That is over multiple years. These are 
estimates for 5-year total costs for those systems.
    Senator Murray. What we need to see for our oversight and 
for our appropriations mark this year is what those initiatives 
are going to cost this year, and what you are going to be 
transferring this year for those programs.
    Secretary Donovan. Absolutely.
    If I could just make a comment about that, I clearly 
recognize that we are asking for a flexibility that is quite 
different.

                     FLEXIBILITY AND ACCOUNTABILITY

    Senator Murray. No. We always get asked for flexibility, 
but then we lose sort of where that has gone.
    Secretary Donovan. I think we have absolutely got to 
provide complete accountability to you to make sure, if we were 
to move forward in this direction, that we are giving you a 
plan that we are regularly reporting to you. I recognize that 
that is a significant request.
    My concern and one of the things that led to this proposal 
is that I see, for example, a dramatic change in the housing 
market where FHA does not have the ability to respond with new 
fraud systems. There is a fraud system we simply could not buy 
this year until the 2009 allocation came out that would have 
allowed us to get started earlier. And there are unforeseen 
things that happen because FHA is a market-oriented program.
    So I would love to have more conversation with your staff 
about it. What we are trying to figure out is how we can give 
you the accountability that you absolutely should have while 
also having the ability to respond quickly to changes and to be 
more--another example I would give you.
    We have many, many different technical assistance 
categories in our budget that come just on a program basis, but 
when I go out into neighborhoods, I hear, well, you have got 
this Neighborhood Stabilization funding, but you have also got 
your own FHA foreclosures and we cannot get technical 
assistance in making those work together. So one of the things 
we are proposing here is to have more flexibility to be able to 
move technical assistance dollars across the agency so that we 
are combining and bringing together our programs with technical 
assistance that actually makes the most possible impact in 
neighborhoods rather than just focusing on one program or just 
focusing on another program.
    So there is a range of places where I think flexibility can 
help. If we can figure out a way that you get exactly what you 
need in terms of----
    Senator Murray. Well as you know, our role is oversight, 
and we are always asked for flexibility, and then we get yelled 
at for funds that were misused. So we need to come to an 
agreement. What I would like to do is have your folks sit down 
with our staffs on both sides of the aisle and walk through how 
much you are asking for this year and where that flexibility is 
and how you intend to use it and what the benefits are because 
without understanding that, it is very hard for this 
subcommittee to trust what happens, even though I have a great 
deal of respect for you. It is just a history of this 
subcommittee that we have seen before.
    Secretary Donovan. Rightly so.
    Senator Murray. So we need to know what the specific 
amounts for this year, as we are allocating for a yearlong 
appropriation bill, what the benefits are, and what kind of 
flexibility you are asking for.
    Secretary Donovan. Absolutely.
    Senator Murray. Senator Bond?
    Senator Bond. Thank you, Madam Chair.
    I was sitting here making notes to myself as you went 
along. I could not agree more with the chair that with 
flexibility must come accountability. You tell us you are going 
to take care of the VASH without having earmarks in it. Good 
luck. That would be ideal. We will be watching and we want to 
see how it works. I really think that better information is key 
to that. I understand that the red tape and the hassle very 
often really mess things up. So if you can do that that would 
be fine.
    On homeless, we want to see the idea of supportive housing 
really which this subcommittee has pushed for a long time. It 
is now in the law. It is critical. Some time ago, I helped 
reactivate the Interagency Council on Homelessness because we 
saw a lack of coordination. Are you getting that coordination? 
Do we need to give it a kick with legislative language on the 
interagency council? We have got to have all of the agencies 
working together on this supportive housing.
    Secretary Donovan. Senator, I could not agree more. An 
update on that, we are interviewing candidates for that, to run 
the interagency council. We have convened the first meeting in 
the next 2 weeks with Secretary Shinseki. He is actually the 
acting chair, and I will become the next chair for it. And our 
initial focus in the first meeting will be on VASH and veterans 
issues. I could not agree more that that is a critical place to 
move forward our efforts.
    Senator Bond. And it is not just for veterans. It is across 
the whole area of homelessness.
    Secretary Donovan. I would also add one of the most 
important things you did, I think, in the Recovery Act was the 
prevention resources, the $1.5 billion, that has really allowed 
us to take our efforts to the next step in preventing 
homelessness, and in particular, one of the barriers we have 
had with VASH has been--whether it is a security deposit--there 
are very small hurdles that, when you add up, can stand in the 
way of a veteran being rehoused. This prevention money has been 
very helpful, and we are using it in concert with VASH to make 
it even more effective. So I thank you for that.

                       MORTGAGE LENDER REGULATION

    Senator Bond. Well, I have got some rather open-ended 
questions I will submit for the record, and you can, at your 
convenience, reflect on the future of GSEs, the rural 
innovation funds.
    I want to ask a specific question. Mortgage issues I hope 
will be considered as a part of regulatory reform. Last year, I 
introduced legislation proposed by the Treasury for a mortgage 
origination commission because what we saw in our State was 
that the bricks lenders were pointing their fingers at the 
clicks lenders, the people who issued loans out of savings and 
loans and banks, at regulators. They did not always do a good 
job, but the people who were sending in the super-sweet, no-
down-payment, low teaser rate loans over the Internet and the 
fax--I have tried to be on a Do Not Fax List. I have got all 
kinds of blocking devices on my e-mail, and they come in. 
Somebody has got to regulate them.
    Do you see a mortgage origination commission establishing a 
State structure or some overall structure for regulating 
everybody who is lending so we know who they are and what they 
are doing?
    Secretary Donovan. I think you have put your finger on one 
of the fundamental problems with our current regulatory system. 
We have different regimes for different kinds of institutions, 
and the vast majority of these subprime loans came from non-
bank institutions that sort of fell through the cracks. So that 
is absolutely a central piece of what we want to address with 
our regulatory reform efforts. We expect very shortly to have a 
full set of principles, including around mortgage originations 
that would include clear consistency across the bricks and the 
clicks, as you said. I could not agree more.
    Senator Bond. That is critical from what we have seen. From 
my own personal experience, I could have signed up for so many 
1 percent no-down-payment loans if I had just responded. 
Fortunately, I passed up the opportunity.
    Low-income housing tax credit, we have heard that HUD may 
be making changes that could affect eligibility of LIHTC 
disaster credit projects especially in rural areas and/or for 
our preservation deals for the LIHTC equity gap. Can you look 
into this with Secretary Geithner to make sure we are providing 
reasonable roles for disaster credit projects? There are 
questions about it. We have tried to help the low-income 
housing tax credit issuers like our MHTC in Missouri, and there 
seem to be more glitches than progress.
    Secretary Donovan. I would love to hear more about the 
specific issues.
    There are two different resources that were in the recovery 
bill for tax credits. There was HUD's tax credit assistance 
program and then Treasury has a trade-in provision. We looked 
very carefully at whether the legislation allowed us to trade 
in disaster credits, and Treasury's lawyers do not believe that 
we have the authority to trade in the disaster credits.
    But we took a step, which hopefully is very important. I 
was in Iowa yesterday and heard that it is being very 
effective. What we allowed was that if even $1 of regular 
credits goes into a disaster assisted project, that that is 
enough to allow our tax credit assistance program, which is 
over $2 billion, to flow to that project. We have heard very 
positive feedback from the housing authorities on that 
decision, which we made just recently. But if there are 
additional things that we need to do, my staff is actively 
engaged with Treasury on this issue and I would love to hear 
more details about what the problem is they are facing.
    Senator Bond. The chair and I have worked on that in the 
past. We think it is very important. That is one area where we 
can get housing started, get jobs, and deal with the housing 
problems that we have.
    Again, I will submit for the record and your consideration 
questions on how you are going to eliminate and consolidate 27 
programs in the budget. I have a great interest in early 
childhood development, and I would like to know how you are 
assuring that in the assisted housing and in the public housing 
there are programs available for these children and families in 
those assisted and public housing to get the kind of early 
childhood assistance that makes the parents better teachers of 
their children and enables a better development for a free 
formal education development of these children.
    With that, Madam Chair, I have covered the things that we 
need to cover publicly and we will await the responses from the 
Secretary on the submitted questions.

                    HOMELESS CHILDREN HOUSING ISSUES

    Senator Murray. Thank you very much, Senator Bond.
    I just have one more comment. President Obama signed the 
HEARTH Act, homeless reauthorization bill, into law. That 
legislation requires HUD to develop rules and regulations 
related to the treatment of homeless children. This is an issue 
very close to me, and is near and dear to my heart. So as you 
move forward with implementing that law, I just wanted to urge 
you to work very closely with the Department of Education and 
Secretary Duncan to make sure that we do get poorly housed and 
homeless kids into housing and help them get the services they 
need. I think this is a really important area of coordination. 
So I am looking forward to hearing that you will work with him 
and that we can hear more about this.
    Secretary Donovan. I am very glad you mentioned it. It is a 
very, very important issue, and I appreciate your leadership on 
this. I have already begun meeting with Secretary Duncan and 
his team on it. There were $75 million, as you know, in the 
recovery bill at the Department of Education that we believe 
can very effectively work with the $1.5 billion in prevention 
funding that we have. We are in the process of drafting joint 
guidance to go out to our entire continuum of cares and to 
schools around the country to make sure that that gets 
implemented in an integrated way, and I would be happy to share 
that with your staff as it is being developed.
    Senator Murray. Okay, very good. Just because a child does 
not have an address does not mean they should not get an 
education.
    Senator Bond. And a shameless plug. Senator Murray and I 
are sponsoring an Education Begins at Home Act to promote home 
visitation and the Ready to Learn Act. So we have got different 
hats on there, but we will be watching.
    Secretary Donovan. There is nothing shameless in that plug. 
That is a very important plug. Thanks.
    Senator Murray. Thank you, Senator Bond.

                     ADDITIONAL COMMITTEE QUESTIONS

    With that, the record for this hearing will remain open for 
1 week so Senators can submit any questions for the record.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

           Questions Submitted by Senator Barbara A. Mikulski

                                HOPE VI

    Question. HOPE VI successfully revitalized many of the most 
severely distressed public housing projects. However, there is still a 
lot of work left to be done. HUD's own numbers show that there are 
169,498 Public Housing units that show signs of being severely 
distressed.
    Expanding Choice Neighborhoods to address problems with assisted-
housing as well as public housing may make sense, but we can't lose 
sight of HOPE VI's original goal. Also, Public Housing Authorities 
across the country have to be made confident that the goal of Choice 
Neighborhoods isn't to push them to the side of the community 
revitalization process, but to offer them additional resources and 
tools.
    What are your plans to make sure that the goals of HOPE VI are 
accomplished and that revitalizing the country's most distressed public 
housing continues to be a top priority for HUD?
    Answer. The Department recognizes that a significant number of 
public housing units remain to be redeveloped and this will continue to 
be addressed in Choice Neighborhoods. Preliminary proxy indicators for 
Choice Neighborhoods show candidate public housing units at a three 
times greater rate when compared to candidate assisted housing units. 
For example, using a REAC score of less than 80 in census tracks of 40 
percent poverty or higher, the eligible units would be 241,997 of 
public housing and 83,184 of project-based voucher. It is our 
expectation that under Choice Neighborhoods, housing authorities will 
continue to submit applications for the development of public housing, 
perhaps in partnership with the local jurisdiction or with a private 
owner of a distressed assisted housing project. The Department's goal 
is to have as the lead applicant, the agency or organization most able 
to ensure the success of the project.
    In addition, the Department has provided housing authorities with 
other avenues with which to redevelop public housing through the use of 
Capital Funds, mixed finance development and the Capital Fund Financing 
Program. Also, housing authorities have increased their development 
capacity and ability to work with private developers to secure tax 
credits and other funding that will help them redevelop distressed 
public housing units.
    The Department has and will continue to work with housing 
authorities that have existing HOPE VI grants to ensure that these 
grants are completed as expeditiously as possible. Another HOPE VI 
competition will be conducted and additional grants made under the 
fiscal year 2009 HOPE VI appropriation. As of March 31, 2009:
  --One hundred and two of 246 grants have completed 100 percent of 
        their housing construction;
  --A total of $5,183,300,118 HOPE VI funds expended out of 
        $6,014,958,067 awarded;
  --The initial goal under HOPE VI was to redevelop the most severely 
        distressed (identified as 86,000 units). This goal has been 
        exceeded. While more needs to be done, this is impressive 
        progress.

               CHOICE NEIGHBORHOODS/PROMISE NEIGHBORHOODS

    Question. When I introduced language to re-authorize HOPE VI, I 
formed a task force of experts to help figure out what lessons we could 
learn from the program's early years. The first and most important 
recommendation they made was that schools had to be front and center in 
any redevelopment effort. This is a recommendation I agreed with whole 
heartedly, and wrote into the HOPE re-authorization bill I introduced 
last year.
    I know that you share my belief that creating strong communities 
requires strong schools, and I know that is why the administration has 
said it envisions complimenting Choice Neighborhoods with Promise 
Neighborhoods, a program in the Department of Education.
    Can you provide some additional details on how the two programs 
will interact? Why in your opinion is it so important for communities 
to tackle education and housing transformation at the same time? Will 
other strategies and approaches to education improvement be considered 
in addition to Promise Neighborhoods? Choice Neighborhood grants are 
anticipated to provide about $25-$35 million in funding. I know that 
the President has requested $10 million for Promise Neighborhoods 
planning grants this year. In future years, how much funding do you 
expect individual Promise Neighborhood grants to receive?
    Can you provide some additional details on how the two programs 
will interact?
    Answer. We expect there to be numerous linkages between the two 
programs. The Department is already in consultation with the Department 
of Education, in order to coordinate both of our efforts--along with 
other critical Federal agencies and offices, including the Departments 
of Health and Human Services, Justice, and the Environmental Protection 
Agency. We are providing information to the Department of Education on 
our existing HOPE VI PHA partners and sites to help them identify 
potential opportunities for the first round of Promise Neighborhoods 
planning grants.
    The two programs will both employ a similar approach in many 
respects. Grantees will form partnerships among local agencies and 
private partners bringing together a variety of critical assets and 
services. Choice Neighborhoods grants will require local partnerships 
to include not only housing providers but city agencies across program 
boundaries, local service providers and local businesses and non-
profits to find solutions for affordable housing, employment, 
education, safety, transportation and other key issues. It is thus 
likely that both the Choice Neighborhoods and Promise Neighborhood 
local partnerships will include similar local collaborations.
    Question. Why in your opinion is it so important for communities to 
tackle education and housing transformation at the same time?
    Answer. The Department recognizes the importance of your approach 
in incorporating critical educational components in your proposed HOPE 
VI reauthorization bill in the last Congress. Decent, safe and 
affordable housing is linked with neighborhood and community. Where a 
family lives dramatically affects their life opportunities. 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.
    Thus, the goal of Choice Neighborhoods is to promote neighborhoods 
that are safe, free from crime and with access to good educational 
opportunities as well as community facilities, institutions and 
services. Education is at the center of Choice Neighborhoods. Local 
partnerships will be required to include an education component to 
cover a gamut of possible local approaches for early childhood 
initiatives, health education, resources for parents, school 
improvements and other education-related services.
    Question. Will other strategies and approaches to education 
improvement be considered in addition to Promise Neighborhoods?
    Answer. Yes other strategies and approaches to education 
improvement will be considered. For example, local collaborations to 
include education components will be included in all Choice 
Neighborhoods grants. Other strategies include providing after school 
programs, childcare and supportive services for residents. These could 
include early childhood initiatives, health education, resources for 
parents, school improvements and other education related services.
    Just as we are encouraging the Department of Education to focus 
Promise Neighborhoods on neighborhoods that have already moved forward 
with HOPE VI, a community that has already initiated or succeeded in 
efforts to improve the educational opportunities for children in a 
proposed Choice Neighborhood would be well positioned in their 
applications for Choice Neighborhoods.
    Question. In future years, how much funding do you expect 
individual Promise Neighborhood grants to receive?
    Answer. The Department of Education's fiscal year 2010 budget 
request includes $10 million for Promise Neighborhoods for 1 year 
planning grants. Each of these would be eligible for implementation 
grants in later years upon successfully developing comprehensive plans 
to meet established needs of children and youth in identified high 
poverty communities. The size of future budget requests is yet to be 
determined and is dependent on a number of factors, including the 
lessons learned from the initial planning grants, analysis of 
municipal, social and economic need, and the overall Federal budget 
environment. That said, the administration is deeply committed to this 
program approach and the overall request will be significant.

                          CHOICE NEIGHBORHOODS

    Question. Choice Neighborhoods would expand eligible grantees to 
include non-profit and for-profit developers. These developers will 
naturally have different goals than Public Housing Authorities.
    In some cases this may be good, especially if it leads to creative 
solutions to community problems. However, I know you agree that Choice 
Neighborhoods can't be a privatized HOPE VI. Both for the sake of the 
residents and the community, we need to make sure that whoever receives 
Choice Neighborhood funding is focused on the best way to revitalize 
neighborhoods not increase their organization's bottom line.
    If we expand eligible grantees to include non-profit and for-profit 
entities, how do we make sure that Choice Neighborhood grantees put 
communities and residents above profits or prestige?
    Answer. The Department does not envision Choice Neighborhoods as a 
privatized HOPE VI. As a result of the strong leverage and match 
requirements that the Department envisions will be part of Choice 
Neighborhoods, non-profit and for-profit developers will likely partner 
with the local jurisdiction and/or housing authority. Without strong 
local support, we do not believe a Choice Neighborhoods application 
from a for-profit or non-profit developer will be successful at 
securing significant funding on its own. A successful application will 
require evidence of active resident and community participation prior 
to the application submission. Post award, the provision of supportive 
services to all residents affected by the Choice Neighborhoods plan 
will be essential. These activities will not be able to take place 
without the strong support of the public housing authority and/or local 
government working closely with for-profit and non-profit developers. 
As with HOPE VI, the most successful developments will be mixed-
finance, mixed-income developments with a strong private sector 
component (in the lending, as a tax investor, often as the owner and 
manager). Choice Neighborhoods will require even a broader 
participation in the public-private partnership (wrapping in for 
example the local government, the county social services, other Federal 
agencies). It is possible that a non-profit developer or private owner 
is the lead applicant, but in all cases there will be significant 
public sector involvement.

                                 ______
                                 
            Questions Submitted by Senator Patrick J. Leahy

                 HELPING FAMILIES SAVE THEIR HOMES ACT

    Question. The President recently signed the Helping Families Save 
Their Homes Act into law. Included in this law was a modification to 
the Neighborhood Stabilization Program that provides flexibility in how 
States receiving the all State minimum can spend their funds. The 
Congressional intent behind this provision was to allow States to use 
funds in areas where they might have a high number of foreclosures but 
not necessarily a high percentage of foreclosures, and to have these 
expenditures count towards requirements on spending in targeted 
communities. When does the Department plan to issue guidance to States 
on this provision and will it follow the Congressional intent behind 
it?
    Answer. The Department has developed and is in the process of 
clearing a notice that will implement this provision. The notice will 
follow the intent of the provision to provide flexibility to States 
that received the minimum Neighborhood Stabilization Program (NSP) 
allocation of $19,600,000. The notice will set forth simple criteria 
for affected States to: (1) demonstrate they have addressed areas of 
greatest need; (2) identify other areas of identified need; and (3) 
allocate NSP funds to those areas consistent with those needs.

                         GREEN RETROFIT PROGRAM

    Question. The Department recently issued guidance on how to apply 
for the Green Retrofit Program for Multifamily Housing funding that was 
included in the American Recovery and Reinvestment Act. One of the 
criteria used to determine eligibility for the program is the number of 
units located at a project. Unfortunately in a rural State like 
Vermont, the number of units required at some projects, such as section 
202, immediately eliminates a majority of the projects in the State 
from being eligible. What assurances can you provide the subcommittee 
that the Department will show a commitment to assist communities in 
rural areas, as well those in urban areas?
    Answer. Under the Green Retrofit Program for Multifamily Housing, 
the minimum number of units located in a project is used as an 
eligibility requirement for two primary reasons: (1) to meet the 
objectives of the Recovery Act to spend the funding for this program 
quickly and efficiently, which supports larger projects, and (2) there 
is limited set-aside funding to pay for due diligence data collection, 
underwriting analysis and other functions necessary to make the grants 
of loans under this program, and the per unit cost of these analyses 
increases as properties get smaller; a detailed calculation to fully 
utilize but not exceed the set-aside resulted in the final unit numbers 
reflected in the Notice.

                             BOND ISSUANCE

    Question. Last month HUD's Senior Advisor for Mortgage Finance 
testified before the House Financial Services Committee that the 
administration is developing a plan to help State Housing Finance 
Agencies address their bond issuance and variable rate debt liquidity 
challenges. Almost a month has passed since this commitment was made 
and a plan has still yet to be released. When can Congress expect to 
get more details from the administration about this proposal?
    Answer. The administration has made considerable progress 
developing the plan, but some legal issues relating to Treasury's use 
of the limited authorities granted under HERA remain to be resolved. 
Work continues with a sense of urgency, but staff resources are 
strained due to the many issues Treasury has had, and continues to 
address. We cannot give a precise date at this time but we are 
committed to providing a viable appropriate plan and maintaining our 
communication with the Congress.

                        MORTGAGE SERVICES ISSUES

    Question. A number of my colleagues and I recently wrote to you 
regarding the poor responsiveness of mortgage servicers to our 
constituents who are attempting to modify their mortgages. Could you 
update the subcommittee on what steps are you able to take to address 
the concerns raised by our constituents who have been unable to access 
answers or adequate help from servicers? Additionally, could you 
provide for the subcommittee statistics on the numbers customers that 
have utilized HUD-certified counseling agencies and have successfully 
avoided foreclosure through the Hope for Homeowners and Making Home 
Affordable programs?
    Answer. HUD recognizes that more needs to be done to improve the 
responsiveness and accountability of servicers participating in the 
program so that additional homeowners facing, or at risk of, 
foreclosure are contacted and assisted in a timely manner and has 
played a lead role in pressing the servicers to do more.
    Secretary Donovan along with Treasury Secretary Geithner sent a 
strong letter to the CEOs of all participating servicers on July 9, 
calling upon them to devote more resources to the program. We have 
requested that servicers add more staff than previously planned, expand 
call center capacities, provide a process for borrowers to escalate 
servicer performance and decisions, bolster training of 
representatives, enhance on-line offerings, and send additional 
mailings to potentially eligible borrowers. The joint letter to 
participating servicers also requested that the CEOs designate a senior 
liaison, authorized to make decisions on behalf of the CEO, to work 
directly with us on all aspects of MHA and attend a program 
implementation meeting with senior HUD and Treasury officials on July 
28, 2009. At that meeting, the administration asked servicers to 
substantially expend servicer capacity, help promote transparency and 
accountability at both the program and borrower level, and improve 
borrower outreach and the overall borrower experience. Servicers in 
attendance committed to significantly increase the rate at which they 
are performing loan modifications and to reach a goal of half a million 
modifications begun by November 1. We are on track to meet that goal. 
After that meeting, the weekly rate of trial modification starts 
increased by nearly 50 percent, from 22,000 to more than 30,000 on 
average and a number of concrete steps have been taken or planned by 
the administration.
    Moreover, servicers participating in HAMP are now being held to 
higher performance measurements. Servicer-specific performance details 
were first published on August 4 and will be made publicly available on 
a monthly basis. These performance metrics are likely to include such 
measures as average borrower wait time in response to inquiries and 
response time for completed applications. So far, the servicer-specific 
data shows a wide range in terms of the performance of the various 
companies that are participating in the program, and the expectation is 
that, with the performance records now public, the servicers will be 
more motivated to increase their efforts and raise the number of 
borrowers they are assisting.
    In addition, Freddie Mac has been assigned the role of giving a 
``second look'' at the servicers' performance, as a further way of 
measuring success, by reviewing applications to make sure that eligible 
homeowners are not being denied. The ``second look'' program is also 
examining servicer non-performing loan (NPL) portfolios to identify 
eligible borrowers that should have been solicited for a modification, 
but were not. We are working to establish specific operational metrics 
to measure the performance of each.
    The administration is devoting significant resources to helping as 
many borrowers as possible submit all required documentation and 
successfully convert their trial modifications to final modifications. 
We are establishing denial codes that will require servicers to report 
the reason for modification denials, both to Treasury and to borrowers. 
The administration is also working with servicers and Fannie Mae to 
streamline application documents and develop web tools, which can serve 
as a centralized point for modification applications, and for borrowers 
to check the status of their applications. In addition, we are 
exploring a variety of mechanisms to further encourage and enable 
servicers to leverage their relationships with nonprofits and other 
entities to help expedite the processing and approval of modification 
applications. HUD and Treasury are working to establish guidelines for 
servicers entering relationships with trusted advisors who would guide 
borrowers through the application process, help them prepare complete 
application packages, and troubleshoot if the borrower appears to have 
been improperly deemed ineligible for the program.
    HUD has worked with an interagency team to establish a call center 
for borrowers to reach HUD approved housing counselors, so that 
borrowers are able to receive direct information and assistance in 
applying for the HAMP program. The administration is continuing to 
build capabilities of the HOPE hotline to escalate borrower complaints, 
and link borrowers to HUD approved housing counselors.
    Lastly, HAMP's design provides servicers with strong incentives to 
make contact with distressed borrowers. The contracts signed by 
servicers to participate in the HAMP requires servicers to use 
reasonable efforts to contact borrowers facing foreclosure to determine 
their eligibility for the HAMP, including in-person contact at the 
servicer's discretion and require the servicers to screen all borrowers 
for eligibility for a HAMP modification before proceeding to a 
foreclosure sale. We are working to ensure to servicers follow the 
requirements of the program.
    Through 3 quarters fiscal year 2009, agencies participating in 
HUD's Housing Counseling Program report 894,533 households receiving 
default counseling. By comparison, after 3 quarters fiscal year 2008, 
399,066 households had received default counseling.
    Of that total for 3 quarters fiscal year 2009, results are known 
for 398,087 households. The balance continue to receive counseling, 
withdrew, or no outcome is yet known. The following results have been 
reported:
  --Brought mortgage current--34,908 (9 percent)
  --Refinanced--10,640 (3 percent)
  --Mortgage modified--105,001 (26 percent)
  --Second mortgage--10,311 (3 percent)
  --Forbearance agreement/repayment plan--59,770 (15 percent)
  --Deed in lieu--2,982 (1 percent)
  --Sold property, alternative solution--6,865 (2 percent)
  --Pre-foreclosure sale--21,955 (6 percent)
  --Mortgage foreclosed--12,777 (3 percent)
  --Counseled and referred to emergency assistance--70,458 (18 percent)
  --Partial claim loan from FHA lender--2,072 (1 percent)
  --Bankruptcy--29,540 (7 percent)
  --Debt management plan--13,764 (3 percent)
  --Counseled and referred for legal assistance--17,044 (4 percent)
  --Total with results: 398,087

                                 ______
                                 
              Questions Submitted by Senator Arlen Specter

                              SECTION 108

    Question. The President's fiscal year 2010 budget request proposes 
to eliminate the section 108 Loan Guarantee Program. I am aware that 
this program has been successfully utilized in my home State of 
Pennsylvania. According to the Department of Housing and Urban 
Development's (HUD) Web site on the section 108 program:

    ``This makes (section 108) one of the most potent and important 
public investment tools that HUD offers to local governments . . . Such 
public investment is often needed to inspire private economic activity, 
providing the initial resources or simply the confidence that private 
firms and individuals may need to invest in distressed areas.''

    Could you please comment on why HUD decided to eliminate this 
important program? And if it is eliminated, will any of its activities 
be assumed by other HUD programs? If so, please explain.
    Answer. The Department has not requested budget authority to cover 
the credit subsidy cost for the section 108 program. However, the 
Department has proposed that section 108(m) be amended to allow HUD to 
charge borrowers a fee in an amount sufficient to reduce the program's 
credit subsidy cost to $0. If such legislative change is made, States 
and localities will still be able to receive loan guarantees under 
section 108 upon payment of the loan guarantee fee. However, if the 
legislative change is not made and no credit subsidy is appropriated, 
HUD would be unable to guarantee loans made to States and localities. 
In such case, States and localities will be able to use their CDBG 
funds for activities that are currently eligible under section 108 but 
they will not be able to leverage their programs up to five times as is 
now possible by using section 108.

                    FISCAL YEAR 2010 BUDGET REQUEST

    Question. The President's fiscal year 2010 budget request for the 
Department of Housing and Urban Development (HUD) proposes $46.388 
billion, an increase of $4.511 billion (10.8 percent) over comparable 
fiscal year 2009 levels. The American Recovery and Reinvestment Act 
(2009 stimulus) provided an additional $13.61 billion in funding for 
HUD projects and programs. Based on these increases, it is unlikely 
that HUD will be able to perpetually receive funding of this magnitude, 
year after year. What is your plan to scale back HUD programs and 
projects when stimulus funds eventually run out?
    Answer. The stimulus funding of $13.6 billion provided under the 
American Recovery and Revitalization Act when added to the fiscal year 
2009 regular appropriation totals $55.6 billion. In essence, the 
Department has already addressed the post-ARRA trajectory of our budget 
by requesting a net discretionary total of $46.3 billion in fiscal year 
2010 which is $9.3 billion below the combined regular appropriations 
and ARRA funding provided in fiscal year 2009.
    As you know, the fiscal year 2011 executive budget process is in 
its early stages and the Congress has not yet taken final action on our 
fiscal year 2010 request. The fiscal year 2011 departmental budget 
deliberations will address across the board Government guidance 
provided by the President through the Office of Management and Budget 
and will of course be cognizant of the need to reduce the deficit and 
carefully prioritize all spending requests. The Department will 
prioritize requests while addressing national needs and program 
effectiveness and we will provide detailed support for all of our 
budget requests. The Department will ultimately work in partnership 
with the Congress to determine the fiscal year 2011 budget as well as 
the direction of housing and community development policies as we look 
forward to the future.

                 AMERICAN RECOVERY AND REINVESTMENT ACT

    Question. The American Recovery and Reinvestment Act (2009 
stimulus) provided $13.61 billion for HUD projects and programs. And to 
date, approximately $10 billion in funds have been awarded and/or 
announced. However, it is my understanding that less than $1 billion of 
these funds have actually been spent. When do you anticipate the 
remaining funds will be awarded or spent? And is there anything that 
you can do to speed up HUD's recovery plan?
    Answer. The American Recovery and Reinvestment Act of 2009 provided 
$13.625 billion to HUD. As of September 11, 2009, $9.82 billion has 
been obligated and $1.46 billion has been outlayed. Of the $9.82 
billion in obligations, approximately $5.4 billion is formula and block 
grant funds. Some discretionary grants funds have not been obligated 
due to ongoing program competitions.
    HUD remains committed to obligating and expending Recovery Act 
funding in a timely manner in compliance with applicable laws and 
regulations. The Department is proceeding according to its ARRA 
spending plans. Weekly financial and program activity updates are 
posted at HUD's Financial and Activity Reports on the Recovery.gov Web 
site at: http://www.recovery.gov/?q=content/agency-
summary&agency_code=86.

                      PUBLIC HOUSING CAPITAL FUND

    Question. The President's fiscal year 2010 budget request for the 
Public Housing Capital Fund is $2.24 billion, which is $206 million 
less than the fiscal year 2009 level. It is my understanding that HUD's 
justification for this reduction in funding is based on the $4 billion 
appropriated for the Capital Fund in the American Recovery and 
Reinvestment Act (2009 stimulus). Therefore, notwithstanding this $206 
million decrease in funding for fiscal year 2010, do you still feel 
that the HUD will be able to adequately reduce the substantial backlog 
of public housing capital improvement needs and continue to modernize 
public housing developments by utilizing stimulus funds?
    Answer. The fiscal year 2010 budget request in addition to the 
funds provided in the American Recovery and Reinvestment Act of 2009 
(Recovery Act) will assist PHAs in reducing their backlog of capital 
needs.
    To date HUD has obligated $3 billion by formula and the remaining 
$1 billion is being awarded competitively, and will be obligated by the 
statutory deadline of September 30, 2009. The economic impact from this 
stimulus funding will help meet a significant portion of the capital 
improvement needs at public housing developments.
    The overall level of funding requested in fiscal year 2010 would 
provide resources to address the estimated $2 billion annual capital 
accrual needs of the public housing inventory, resulting from the 1998 
modernization needs study conducted by the Department. Since that time, 
the backlog of capital needs for public housing has been reduced 
through demolitions of more than 190,000 units of the most distressed 
public housing stock as well as modernization and redevelopment of 
thousands of units. In fiscal year 2007, 85.7 percent of public housing 
units met HUD's physical standards, as opposed to 82 percent in 2001. 
The fiscal year 2010 operating subsidy budget request will reduce the 
need for PHA's to transfer capital funds modernization funds to 
subsidize public housing operations.
    As part of the fiscal year 2010 budget, the Department has proposed 
an examination of a project based voucher model that could possibly 
provide more opportunity for innovation and private investment. Lastly, 
the Department is in the process of conducting a new capital needs 
study to obtain a current estimate of the public housing backlog.

                         ENERGY INNOVATION FUND

    Question. The President's fiscal year 2010 budget requests $100 
million for the Energy Innovation Fund, a new program aimed at 
incentivizing energy efficient housing. Can you discuss how this new 
program will be implemented, why retrofitting existing homes have been 
slow to materialize thus far, and how HUD plans on overcoming the 
difficult challenge of promoting ``green construction'' in our Nation?
    Answer. A January 2009 survey by the Yale Project on Climate Change 
and George Mason University's Center for Climate Change Communication 
of 2,164 American adults found that substantial numbers of households 
would like to make energy-saving home improvements, but probably will 
not because in many cases they can't afford to, or because they don't 
know how to \1\--i.e. they lack the resources to finance the 
improvements, and they don't have sufficient information. The study 
notes that ``while many inefficient heating and cooling systems are 
currently installed in American homes, and thus wasting energy and 
money, it will take several decades to turn over this stock, unless 
there are innovative Government programs to accelerate this 
transformation.'' This may require a ``different financial model'' to 
help more households take these actions.
---------------------------------------------------------------------------
    \1\ Yale University, George Mason University, Saving Energy at Home 
and on the Road: A Survey of Americans' Energy Saving Behaviors, 
Intentions, Motivations and Barriers.
---------------------------------------------------------------------------
    The proposed Energy Innovation Fund is designed to expand the 
availability of financing to help catalyze the retrofit/renovation 
market. Barriers to implementing successful finance programs include: 
lack of consumer awareness of the benefits of energy efficiency, 
relatively low energy prices, lack of capital available to fund 
programs, as well as lender or investor disincentives, such as high 
transaction costs for program implementation. Financing energy 
efficiency through the mortgage program presents additional challenges: 
the fact that energy improvements are not fully reflected in home 
appraisals and the difficulty of incorporating the energy audit and 
related technical services in the home buying process.
    Effectively organizing institutions and capital markets to overcome 
these challenges requires a comprehensive approach, that includes 
streamlining existing programs, providing consumers with better 
information, and expanding financial incentives for homeowners or home 
buyers to invest in energy efficiency. In this context, the goal of the 
Energy Innovation Fund is to develop and implement new and innovative 
uses of Federal resources to dramatically increase the scale of private 
sector investment in upgrading the energy efficiency of existing homes.
    HUD's fiscal year 2010 proposal, Energy Innovation Fund envisioned 
(1) $50 million in competitive grant awards to support local energy 
funds, and (2) another $50 million to support expanding FHA Energy 
Efficient Mortgages for single family homes ($25 million), and 
incentivizing energy efficiency through FHA multifamily mortgage 
programs ($25 million).
    Only the second part of HUD's request--$50 million for single 
family and multifamily energy efficient mortgages--was funded by 
Congress. HUD is currently developing a detailed implementation plan 
for these funds.
    HUD is planning to implement the single family Energy Efficient 
Mortgage pilot program in four pilot sites, each served by one of HUD's 
four Homeownership Centers (HOCs) and where HUD's regional office has 
indicated a strong interest in promoting and implementing a pilot 
program in their region.
  --The pilot sites will be selected on the basis of both local 
        interest in, and capacity to implement the pilot program, as 
        well as the potential for leveraging additional State or local 
        funds to write down interest rates or outreach, marketing or 
        program implementation costs.
  --Generally, the funds will be used to provide an incentive for home 
        buyers, averaging $2,000 per home, to include energy efficiency 
        in the mortgage in the form of a reduced Mortgage Insurance 
        Premium (MIP), or by paying for all or some of the cost of an 
        energy audit.
    The multifamily program will provide lower mortgage insurance 
premiums in conjunction with reduced application fees for projects that 
apply for one of several FHA multifamily mortgage insurance programs.

                                HOPE VI

    Question. The President's fiscal year 2010 budget does not provide 
funding for HOPE VI, but instead proposes $250 million for the 
Neighborhood Choice Program to revitalize severely distressed high 
poverty neighborhoods. It is my understanding that this initiative 
extends neighborhood transformation efforts beyond public housing, and 
attempts to link early childhood innovation and school reform with 
housing interventions. Can you please comment on why HUD feels that 
there is a need to broaden this program beyond public housing? And is 
HUD concerned that a larger pool of eligible applicants will decrease 
the funds available to public housing agencies, thereby making it 
increasingly difficult for them to meet the challenges associated with 
severely distressed public housing units?
    Answer. In Choice Neighborhoods, the Department is broadening the 
HOPE VI program to include a broader neighborhood focus that allows for 
redevelopment of a broad range of distressed property. This can include 
distressed public housing, distressed privately owned assisted housing, 
and other distressed properties in the neighborhood, including 
foreclosed properties. Private or HUD-assisted properties across the 
country that are vacant or distressed create a blighting influence on 
the surrounding community. Some HOPE VI sites have already taken this 
broader neighborhood approach and have included the redevelopment of 
foreclosed HUD-assisted property. One example is Wheeler Creek in 
Washington, DC where a foreclosed and vacant FHA high rise was 
demolished and redeveloped in conjunction with the HOPE VI 
revitalization plan. At other HOPE VI sites, such as Coliseum Gardens 
and Mandela Gateway in Oakland, CA the housing authority worked with 
the city of Oakland and private and non-profit developers to buy vacant 
and distressed commercial and residential properties around the public 
housing site and incorporated the additional land into the HOPE VI 
revitalization plan.
    In these difficult economic times neighborhood resurgence is 
fragile. The revitalization gains we have made at many HOPE VI 
locations can be strengthened by further bolstering other surrounding 
properties and deepening community services and anchor institutions.
    With Choice Neighborhoods, local jurisdictions can now choose their 
most pressing priorities. Since there remains a large inventory of 
distressed public housing, we believe that many applications will still 
address those needs in the context of a neighborhood-wide reinvestment 
plan. In addition, HUD has provided additional mechanisms for housing 
authorities to revitalize distressed public housing through the use of 
Capital Funds, the Capital Fund Financing Program, and mixed finance 
development.
    The Department incorporates e4ducational components in the 
initiative because along with decent, safe and affordable housing, good 
schools are necessary to break the cycle of poverty. Community 
revitalization and attracting residents and businesses require good 
schools. The Department is consulting with the Department of Education 
and will coordinate efforts with other critical agencies and offices 
including the Department of Health and Human Services, Justice and the 
Environmental Protection Agency. Local collaborations with an emphasis 
on educational opportunity will be a key component to achieving 
success.
                                 ______
                                 
           Questions Submitted by Senator Christopher S. Bond

                                HOPE VI

    Question. Expanding the benefits of HOPE VI beyond public housing 
has merit and deserves serious consideration. We have had some initial 
discussions about this issue and I want to continue them with you and 
your staff.
    Can you lay out some general principles that should be considered 
for your ``Choice Neighborhoods'' initiative?
    Assuming this initiative is not authorized, are there incremental 
steps that we could take beyond simply extending HOPE VI in its current 
form for 1 year?
    Answer. The general principle underlying the Choice Neighborhoods 
proposal is that targeted revitalization that is concentrated and 
coordinated can break the cycle of concentrated poverty and provide an 
opportunity rich environment so poor families and children can have 
safe neighborhoods, quality education, and access to good jobs.
    To be successful, however, requires several concurrent actions:
  --The Right Location.--The Choice Neighborhood initiative would 
        target neighborhoods with (i) a concentration of poverty, (ii) 
        a concentration of distressed housing whether public, assisted, 
        or privately held, and (iii) the potential for long-term 
        sustainability because of the proximity to community anchors 
        such as educational institutions, employment centers, 
        hospitals, transportation, parks and other community assets 
        that positions the neighborhood as a desirable place to live.
  --Real Educational Opportunity.--Choice Neighborhood applicants will 
        need to demonstrate that their plan includes a linkage to 
        quality education for the children of the current and 
        revitalized neighborhood. This could include a school 
        transformation in the target neighborhood as well as linkage to 
        the Department of Education's Promise Neighborhoods, among 
        others.
  --A Market Driven Strategy That Provides Quality Housing Choices for 
        Current Residents.--Choice Neighborhoods involves ensuring that 
        the existing residents are given adequate services and 
        resources to maximize their success during the revitalization 
        period and that they are afforded the post-revitalization 
        choice of where they think their family will be most happy and 
        successful. It also means that the revitalization strategy 
        should be designed appropriate to the local housing market, 
        which could include both higher or lower density housing on-
        site, off-site development in some markets, project-based 
        assistance, and tenant based assistance.
  --Coordination.--Choice Neighborhood applicants will need to 
        demonstrate significant coordination among local agencies and 
        the marshalling of resources from multiple sources, potentially 
        including support from the Departments of Education, Labor, 
        Transportation, Health and Human Services and the Environmental 
        Protection Agency.
    The Department has taken incremental steps to emphasize these 
principles through the current HOPE VI program, which is reflected in 
the fiscal year 2009 HOPE VI NOFA. However, the current HOPE VI program 
is limited to addressing only distressed public housing in 
neighborhoods which could also benefit from a larger scale neighborhood 
reinvestment strategy.

                        HOMEOWNERSHIP TAX CREDIT

    Question. As part of the stimulus act, the Congress included a new 
$8,000 tax credit for first time homebuyers. This program was created 
by my colleague, Senator Isakson.
    First, what are your views on the program and its impact on 
housing? Has it helped boost housing sales?
    Answer. The program has not been in effect long enough for us to 
evaluate its performance. We have certainly heard anecdotally that it 
is a difficult program for first-time homebuyers to use, because they 
most often need assistance with their downpayment. With the tax credit, 
the homebuyer must execute the sales contract to qualify for the refund 
from the IRS, which only makes sense. However, the refund from IRS 
takes time and most often cannot be processed prior to closing on the 
home financing, so the borrower must first come up with their own 
downpayment funds. To do this, FHA will allow downpayment assistance 
provided by governmental entities, in the form of a loan to the 
borrower.
    Question. Second, do you believe that the credit should be 
extended? Do you believe that a higher level tax credit, such as 
$15,000 as originally proposed by Senator Isakson, would have 
measureable impact on home purchases?
    Answer. As we have mentioned above, the program has not been in 
effect long enough for us to evaluate its performance. Since it is 
still too early for us to have either the experience or data necessary 
to support any change, a higher amount of credit may not be worthwhile. 
Perhaps better results could be achieved with just a different delivery 
mechanism.
    Question. Finally, you recently announced changes that will 
monetize the tax credit so that it can be used as a bridge loan for 
downpayment purposes. Given the history of no downpayment programs, 
such as the seller downpayment program, and FHA's long-standing 
management and oversight problems, I have strong reservations about 
this program.
    Answer. FHA will only permit the governmental entities, which are 
authorized by law to offer downpayment in the form of loans, to offer a 
borrower the ability to borrow funds and repay with the tax credit 
refund from the IRS. FHA will also permit FHA-approved entities to 
offer an FHA borrower an ``advance'' on the tax credit refund to help 
pay for closing costs--but NOT a downpayment--to assist with the 
purchase transaction, but only for a limited fee.
    Question. How are you ensuring that you will not repeat some of the 
pitfalls of the seller downpayment program that caused substantial 
losses to FHA?
    Answer. Because FHA does not permit any entities, except those 
already authorized under the National Housing Act, to provide funds 
towards the downpayment, there is really no comparision to the previous 
seller-funded downpayment assistance arrangements.
    Question. How does the performance of Government downpayment 
programs compare to subprime or the seller downpayment program? How do 
loan programs that provide downpayment assistance in general compare to 
those loan programs that do not provide downpayment assistance?
    Answer. There is really no comparison between the programs, because 
the tax credits cannot be used for the downpayment.

                              HOMELESSNESS

    Question. One of the challenges that communities are having is 
figuring out how to better use HUD's main housing programs to help end 
homelessness.
    How will the Department's proposed ``Transformation'' initiative be 
used to help communities better use all of HUD's resources to help 
prevent and end homelessness?
    Answer. In its homeless programs, HUD has been strongly encouraging 
communities through its Continuum of Care competition to utilize 
mainstream resources to develop comprehensive packages of housing and 
service options to meet the needs of homeless individuals and families. 
Internally, HUD is working through the Transformation Initiative to 
ensure that all programs are better responding to the needs of very low 
income and homeless persons. Transformation Initiative funding will 
provide four key elements--research, technical assistance, 
demonstration funding and IT funding all of which can build on research 
and models that proves what works to reduce homelessness. The 
Department is focused on adding to the effectiveness of our rental 
assistance proposal and understands that they are substantial 
contributions to reducing and preventing homelessness. In addition, HUD 
is developing better ways to ensure that communities receive the 
technical assistance resources needed to serve these populations and 
carry out its vision.

                                  GSES

    Question. The future of Fannie Mae and Freddie Mac remain uncertain 
at this point but I am interested in hearing your views.
    What are your views about the future of Fannie and Freddie? If 
Fannie and/or Freddie continue to exist in some form, what are your 
views on reconciling the conflicting goals of private profits and 
public good? How important are the mortgage GSEs in carrying out 
Federal housing policy?
    Answer. As you know the Department previously had an oversight role 
in terms of the activity of Fannie Mae and Freddie Mac with an emphasis 
on supporting affordable housing but subsequently this year, Congress 
enacted a new oversight organization for these two GSE's. In addition, 
the Department would be only one of a myriad of key actors in the 
administration who would forge policy and legislative recommendations 
in this area. At the present, Fannie Mae and Freddie Mac are crucial 
participants in stabilizing the housing market as well as the macro-
economy. The issues you raise in your question are among the essential 
questions and they have a long history of unresolved debate within the 
Congress and with various administrations, all of which speak to the 
complexity of the issues. These issues will need a great deal more 
research and debate and will need to be further informed by how events 
work out in the near and mid-term as well as by testimony and advice 
yet to be received from experts in the financial and housing fields. 
The administration will partner with the Congress and industry and 
other groups to reach the right policy mix on the future of the housing 
GSE's.

                         RURAL INNOVATION FUND

    Question. As I mentioned in my statement, investing in rural areas 
are very important to me and my constituents.
    Can you elaborate on your thoughts on the new Rural Innovation Fund 
and how it will better meet the needs of rural areas compared to the 
Rural Housing and Economic Development program?
    Do you intend to submit authorizing language for the program?
    Answer. The Rural Innovation Fund (RIF) will use States and 
federally-recognized tribes as laboratories of innovation for 
addressing housing needs in communities with populations less than 
2,500. HUD anticipates that partnerships of States or tribes with local 
governments and non-profit organizations, through a competitive process 
that requires coordinated planning, will be the key to innovation and 
collaborative successes in addressing local housing needs, including 
energy efficiency and other aspects of sustainability.
    Relative to the Rural Housing and Economic Development, RIF would 
be targeted toward areas of concentrated rural housing distress and 
community poverty that have good prospects for sustained viability 
through bold strategies and a one-time Federal investment. RIF will 
enable rural communities to transform in response to ongoing changes in 
the structure of agricultural production, expanding metropolitan 
influences and digital connectivity. The emphasis on State-local 
partnerships and coordinated planning to leverage local assets will be 
key to its success. Through its proposed Transformation Initiative, HUD 
will study the effectiveness of varying RIF-funded strategies to assess 
their success and factors affecting their ability to be replicated in 
other communities.
    HUD will submit authorizing language for the program.

                              REORGANIZING

    Question. Reorganizing and modernizing HUD is long overdue and I 
commend your focus on it.
    Besides funding resources, what else can we do to help you succeed 
while ensuring appropriate controls to avoid some of the abuses of the 
past?
    Do you anticipate that your reorganization of HUD will include 
changing the structure of the organization to break down some of the 
silos that exist between such offices as public housing and community 
development?
    Due to concerns about HUD's approach to staffing, the Congress 
directed the National Academy of Public Administration (NAPA) to 
evaluate HUD's ability to develop appropriate staffing requirements. 
NAPA recommended that HUD adopt a management approach that bases staff 
estimates and allocations on the level of work and the specific 
location where it is to be performed. HUD committed to NAPA's 
recommendation by developing its ``Resource Estimation and Allocation 
Process'' (REAP).
    How will you ensure that HUD staffing levels and allocations match 
program needs so resources are not misallocated as they occurred 
several years ago? Are you implementing the REAP process?
    Answer. Congressional support of HUD's fiscal year 2010 budget--
which proposes to put in place systemic reform and policy innovation, 
as well as new kinds of partnerships and collaboration--is instrumental 
in helping the Department succeed. In particular, congressional 
acceptance conceptually, in addition, of course, to an appropriate 
level of funding, to HUD's Transformation Initiative is essential. The 
Transformation Initiative's comprehensive approach--via research and 
evaluation, major demonstrations, enhanced technical assistance and 
capacity building, and next generation technology investments--in 
addressing operational challenges arising from internal resources and 
structural constraints will help build bridges between the silos that 
exist, often for legitimate reasons, as the Department addresses 
housing and urban development problems facing this Nation. 
Additionally, two major organizational changes--creation of a Chief 
Operating Officer (COO) position and an Office of Strategic Planning 
and Management--are proposed to implement the broad transformation and 
renewal of the Department. The COO, operating within the Office of the 
Deputy Secretary, will ensure strategic and collaborative 
decisionmaking within HUD's operations. The new Office of Strategic 
Planning and Management will reinvigorate the strategic planning 
process, streamline program and support functions, and create ownership 
and accountability for performance across the Department.
    Integral to these efforts is the Resource Estimation and Allocation 
Process (REAP) methodology, which helps the Department estimate its FTE 
needs and their distribution. REAP was implemented in 2000 and 
continues in operation. Initially conducted from June 2000 through 
December 2001, REAP baseline studies covered the entire Department. 
REAP refresher studies began in June 2003 and were completed in 
November 2004. The REAP baseline is updated periodically based on 
changes in organization, operating processes, and legislation/
regulations. REAP's estimates are based on workload requirements and 
REAP is one tool the Department employs to ensure that HUD staffing 
levels and allocations match program needs and resources are not 
misallocated.

                 ELIMINATING AND CONSOLIDATING PROGRAMS

    Question. The budget request proposes to eliminate or consolidate 
27 HUD programs. First, how much money do these 27 programs represent 
on an annual basis?
    Answer. In its fiscal year 2010 budget request, HUD proposes to 
eliminate or consolidate 27 programs. A list of the programs is copied 
below and was published as appendix B in HUD's 2010 budget overview 
document in May 2009. Fourteen Technical Assistance, Demonstration and 
research programs are proposed to be consolidated in the Transformation 
Initiative. Four university programs are proposed to be consolidated in 
the CDBG University Community Fund. Five line items are eliminated but 
remain an eligible use of funding. Credit subsidy funding for section 
108 is proposed to be eliminated but not loan guarantees. The American 
Dream Downpayment Initiative and Brownfields Economic Development 
Initiative Programs are proposed to be eliminated. The program 
eliminations are not large amounts of funding but this effort 
streamlines and improves the efforts of the Department. The fiscal year 
2009 funding for eliminated programs totals $16 million but this amount 
does not reflect the overall prioritization of resources embedded in 
the total budget request.
    Question. Second, if you are able to accomplish this, how many 
programs will the Department still have on its books?
    Answer. If enacted as requested, HUD will have 27 appropriation 
accounts not including the proposed Transformation Initiative.
    Question. Finally, to what degree are you and others in the 
administration looking across agencies to consolidate or eliminate 
duplicative programs?
    Answer. HUD is actively seeking ways to expand interagency 
cooperation and to more efficiently and effectively provide services to 
the public. For example, HUD is working closely with the Department of 
Veterans Affairs to ensure affordable housing for veterans and is 
developing new efforts in cooperation with the Departments of 
Transportation, Energy and the Environmental Protection Agency to 
promote affordable, livable and sustainable living environments. HUD's 
proposed Sustainable Communities Initiative is an integral part of this 
cooperative effort.

FISCAL YEAR 2010 BUDGET PROGRAM ELIMINATIONS/STREAMLINING/CONSOLIDATIONS
 [HUD's Fiscal Year 2010 Budget Eliminates or Consolidates 27 Programs]
------------------------------------------------------------------------
                  Program                         Reform Step Taken
------------------------------------------------------------------------
American Dream Downpayment Initiative.....  Program eliminated
Section 108...............................  Funding eliminated
Brownfields Economic Development            Funding eliminated
 Initiative.
Tribal Colleges and Universities Program..  Consolidated to University
                                             Community Fund
Historically Black Colleges and             Consolidated to University
 Universities.                               Community Fund
Hispanic Serving Institutions Assisting     Consolidated to University
 Communities.                                Community Fund
Alaska Native and Native Hawaiian Serving   Consolidated to University
 Institutions Assisting Communities.         Community Fund
Public Housing Capital TA.................  Consolidated to
                                             Transformation Initiative
Native American Block Grant TA............  Consolidated to
                                             Transformation Initiative
Native American TA........................  Consolidated to
                                             Transformation Initiative
Native Hawaiian TA........................  Consolidated to
                                             Transformation Initiative
Section 202 TA............................  Consolidated to
                                             Transformation Initiative
CDBG TA...................................  Consolidated to
                                             Transformation Initiative
HOME TA...................................  Consolidated to
                                             Transformation Initiative
HOME/CHDO TA..............................  Consolidated to
                                             Transformation Initiative
HOPWA TA..................................  Consolidated to
                                             Transformation Initiative
Elderly Leverage Financing Demonstration..  Consolidated to
                                             Transformation Initiative
Disabled Leverage Financing Demonstration.  Consolidated to
                                             Transformation Initiative
Nation's Veterans Demonstration...........  Consolidated to
                                             Transformation Initiative
Partnership for the Advancement of          Consolidated to
 Technology in Housing.                      Transformation Initiative
Homeless Assistance Grants--Evaluation of   Consolidated to
 Demonstration Program.                      Transformation Initiative
Homeless Research.........................  Consolidated to
                                             Transformation Initiative
Public Housing Resident Opportunity and     Line item eliminated; now an
 Supportive Serv-  ices.                     eligible use of funds under
                                             another program
Elderly Conversion to Assisted Living/      Line item eliminated; now an
 Emergency Repairs.                          eligible use of funds under
                                             another program
Elderly Housing Planning Grant............  Line item eliminated; now an
                                             eligible use of funds under
                                             another program
FHEO Limited English Proficiency Program..  Line item eliminated; now an
                                             eligible use of funds under
                                             another program
Office of Healthy Homes/Communication and   Line item eliminated; now an
 Outreach to Potential Applicants.           eligible use of funds under
                                             another program
------------------------------------------------------------------------

                      EARLY CHILDHOOD DEVELOPMENT

    Question. Early childhood development has been a strong interest to 
me for several years and I have initiated and supported a number of 
efforts to raise awareness and provide resources for this critical 
need.
    While the Federal Government and others have provided resources to 
help operate early childhood development centers and programs, I have 
heard that there are significant needs for capital funding to help 
build, retrofit, or repair early childhood development centers.
    There is interest among some in Congress to establish a new program 
at HHS to provide capital funding for these centers.
    Is there a need for those families being served by HUD programs for 
capital funding for childhood development centers? How is HUD 
addressing early childhood development needs--both capital and 
operating--for the families it serves in Public and Assisted Housing, 
and projects that serve the homeless?
    Answer. Homeless Assistance Grants.--HUD's homeless programs 
currently allow communities to prioritize projects in their annual 
Continuum of Care applications based on stated needs in the community. 
These needs may include specific projects for childhood development 
centers that serve families who are homeless or may include supportive 
service funds for child care related services as part of a larger 
overall budget for a housing program serving families with children. 
Because HUD's focus has been on the development of housing for homeless 
persons, capital needs for childhood development projects are not 
generally part of a community's application. However, this does not 
mean that the need does not exist in the community or that a source for 
capital funding for these projects would not be beneficial to 
communities. On the contrary, homeless families often report child care 
as a barrier to maintaining affordable housing. Questions regarding 
child care and childhood development are included in the most effective 
assessment tools used by programs that serve homeless families. 
Communities are strongly encouraged to meet local childhood development 
needs by using other mainstream resources available for this purpose to 
assist homeless families.
    CDBG.--Both the construction and operation of childhood development 
centers is an eligible activity under the Community Development Block 
Grant (CDBG) program. Construction can include new facilities as well 
as the rehabilitation of existing structures for use as childhood 
development centers. CDBG funds can also be used to acquire properties 
for such purposes either through purchase or long term lease. In 
addition, operating costs can be paid as an eligible public service 
under CDBG. The following table indicates the CDBG amounts that 
grantees have identified as having been expended for these and related 
purposes for fiscal year 2008. These amounts likely understate CDBG 
contributions to these activities as grantees may identify such costs 
as general public facilities and public service activities or the child 
care component may be part of a community center.

----------------------------------------------------------------------------------------------------------------
                                                                                 Abused and
                                             Child Care       Youth Centers       Neglected        Child Care
               Fiscal Year                   Facilities      and Facilities       Children        Services and
                                            Construction                         Facilities         Operation
----------------------------------------------------------------------------------------------------------------
2008....................................    $12,944,196.69    $12,815,438.05     $1,898,493.86    $20,273,143.06
----------------------------------------------------------------------------------------------------------------

                        SUSTAINABLE COMMUNITIES

    Question. Your Sustainable Communities initiative seeks to link 
housing and transportation by working with the Department of 
Transportation (DOT) and EPA. Can you elaborate on your long-term 
vision for this initiative? How will this be effectively coordinated 
among the agencies?
    What role will the White House play in this initiative? Why is only 
HUD providing money for this initiative? Do you anticipate that the 
other agencies will provide funding?
    Will the other agencies try to link up existing programs to the 
Sustainable Communities initiative? For example, DOT's Transportation, 
Community and System Preservation Program was established several years 
ago to help States and local governments accomplish ``smarter growth,'' 
more compact development.
    Answer. HUD's Long-term Vision.--Our long-term vision is to create 
a new paradigm of coordinated housing and transportation investments in 
local communities, that will lower the combined cost of housing and 
transportation for households and support a wider range of housing 
opportunities near transit. Through the Partnership for Sustainable 
Communities HUD, EPA and DOT have jointly adopted six sustainability 
principles which embody this vision. HUD is committed to mainstreaming 
these principles wherever feasible into the Department's policies and 
programs, through its existing competitive and formula grant programs, 
its mortgage financing programs, as well as through its rental 
assistance programs.
    In addition to these on-going programs, we have proposed several 
place-based initiatives that provide opportunities for making 
communities more sustainable, affordable and livable. These include 
HUD's proposed Transforming Rental Assistance initiative, Choice 
Neighborhoods program. These place-based initiatives will require 
cross-departmental collaboration in order to take advantage of the 
expertise that lies in several program offices and ensure that funds 
from one program are designed to be leveraged by another. Ultimately, 
HUD is seeking to establish new or improve existing programs that 
provide consistent and continuous support at the building, 
neighborhood, community and regional scales.
    Coordination With Other Agencies.--As you know we have created a 
new Partnership for Sustainable communities with DOT and EPA. This has 
been an extraordinarily productive relationship. We have formed a 
collaborative leadership team that meets at least weekly to manage and 
guide the activities of the Partnership and to build a shared 
understanding of the goals of this initiative. The three agencies have 
adopted a joint work plan, and will continue to meet regularly to set 
priorities and coordinate activities. Deputy Secretary Ron Sims has 
also convened regular meetings of senior agency leadership to ensure 
that principals are guiding the partnership.
    We will continue to work in interagency teams to allocate 
discretionary funding for planning grants, technical assistance and 
capital grants (see response to the following question for more on our 
approach to managing funding). We also intend to work together to 
support a shared ``one-stop shop'' to assist State, regional and local 
stakeholders in identifying potential Federal funding sources to plan 
and implement sustainable and livable communities principles.
    Coordination With the White House.--We are working closely with the 
White House Office of Urban Affairs, and other key White House offices, 
including the Council on Environmental Quality, the National Economic 
Council, and the Domestic Policy Council, to ensure that the 
Sustainable Communities Initiative is supportive of and coordinated 
with other administration priorities.
    Funding From Other Agencies.--This is a question best addressed to 
the other agencies, but we are optimistic that HUD funds will be 
matched by DOT and EPA for livability and sustainability initiatives in 
future years.
    Will the other agencies link existing programs to the initiative? 
We're very pleased to see that this is already happening.

                                  HECM

    Question. The administration's request for about $800 million to 
make up for projected shortfalls in the Home Equity Conversion Mortgage 
(HECM) program marks the first time in the program's history that the 
program will need a taxpayer-funded bailout.
    Treasury's Comptroller of the Currency recently warned that tougher 
oversight for the program may be needed and stated in a speech that the 
program had ``some of the same characteristics as the riskiest types of 
subprime mortgages--and that should set off alarm bells.''
    Do you agree with the Comptroller's views?
    What administrative and regulatory steps are you taking or planning 
to take to prevent potential fraud in the HECM program?
    Answer. The Comptroller's concerns are NOT applicable to FHA's 
reverse mortgage program, which is very tightly regulated. The 
Comptroller was expressing concerns about proprietary reverse mortgage 
programs. Furthermore, the FHA HECM program has no characteristics that 
are similar to subprime loans.
    We are discussing a variety of innovative changes to the program--
not based on the Comptroller's comments, per se, but on our own 
experience. For example, we will be proposing that lenders perform a 
financial assessment of all borrowers considering a HECM, to ensure 
that the proceeds from the reverse mortgage are adequate to meet the 
borrower's financial needs, including any routine and recurring 
obligations, such as tax and insurance payments. If the HECM and other 
sources of income are NOT sufficient, the lender and borrower will have 
several options to consider before determining that the HECM may or may 
not meet the consumer's needs. We are also considering some changes to 
the HECM counselor and HECM appraiser selection process, to assure that 
there are no conflicts of interest between or undue influence placed on 
the individuals who serve as meaningful risk controls within the 
origination process.

                                 ______
                                 
              Questions Submitted by Senator Susan Collins

                         TENANT-BASED SECTION 8

    Question. The Tenant-Based section 8 program is an important 
affordable housing program that provides vouchers to low-income 
families, seniors, and disabled individuals, helping them to meet the 
cost of safe, decent housing. Unfortunately, nearly all housing 
agencies across the State of Maine have stopped accepting applicants 
for section 8 vouchers due to extended waitlists, which, on average, 
are experiencing at least a 1 year wait, and in some cases have reached 
a 5 year wait.
    I have consistently supported increased funding for the section 8 
program. We face a renewed sense of urgency to adequately fund this 
program, however, as the housing crisis and economic recession have 
left more and more individuals and families in need of assistance. 
During this critical time in our economy, what steps does the 
administration plan to take to meet the growing need for housing 
assistance?
    Answer. The 2010 budget reflects a commitment to maintain leasing 
levels as of December 2008 by requesting a net increase of $1.2 billion 
above the 2009 enacted amounts. In fiscal year 2009, the Tenant-Based 
section 8 program is about 31 percent of HUD's total Discretionary 
budget authority. The 2010 budget request allows Public Housing 
Authorities (PHAs) to better utilize their funds to serve more families 
by improving the allocation formula to reflect the most current costs 
and by offsetting allocations based on unused balances and reallocating 
funds to PHAs based on need to ensure that families receiving 
assistance are maintained as of December 2008.
    The Department is aware of long waiting lists among PHAs due to a 
decreasing attrition rates among program participants reflecting a weak 
economy which means less families are leaving the program compared to 
prior years. However, with the proposed budget increase in 2010, the 
Department will fund the renewal of about 57,000 incremental vouchers 
provided through various appropriation bills between 2008 and 2009. 
This will allow PHAs to lease additional units through special purpose 
vouchers. The administration intends to renew all special purpose 
vouchers and keep them in use for their original purposes.

                     HOMELESSNESS IN RURAL REGIONS

    Question. The current state of our economy has caused a significant 
increase in the number of people staying in shelters. In 2008, Maine 
experienced a 13 percent increase in the number of shelter beds filled 
per night over the previous year and the numbers continue to rise. With 
section 8 waitlists closed and the housing market in crisis, people are 
left with few options for affordable housing. The unavailability of 
affordable housing is even more concerning in rural areas where there 
are considerably fewer shelters. In these situations, people and 
families often sleep in cars or reside with friends. What efforts does 
this administration plan to take to address the increasing number of 
people staying in shelters? How will the administration meet the needs 
of homeless populations in rural regions?
    Answer. Through implementation of the Homelessness Prevention and 
rapid Re-Housing Program (HPRP) funded as part of the American Recovery 
and Reinvestment Act of 2009 (Recovery Act), HUD is providing an 
unprecedented level of resources to prevent and end homelessness for 
individuals and families in local communities. This 3 year $1.5 billion 
program--allocated to 540 States, cities and counties--allows for two 
new types of interventions: prevention for those who are imminently at 
risk of becoming homeless and rapid re-housing for those already 
experiencing homelessness. Grantees are required to determine, based on 
local needs, how much of their allocation should go to each type of 
intervention and design programs to meet the needs identified. These 
types of interventions are flexible in nature, and will be especially 
important to rural communities where shelter capacity is often low. For 
example, a rural community may use a large proportion of their funds to 
prevent homelessness by providing short- or medium-term rental 
assistance and services to families on the verge of homelessness 
because a head of household has lost his or her job. This will 
alleviate pressure on the shelter system by helping to keep families in 
their homes.
    In the longer term, HUD is also in the process of developing 
regulations based on the new Homeless Emergency Assistance and Rapid 
Transition to Housing (HEARTH) Act, which consolidates and restructures 
HUD's homeless programs. In the new legislation, both prevention and 
rapid re-housing are eligible activities. HUD expects that, as HPRP 
begins to close out to meet the statutory 3 year expenditure deadline, 
the new HEARTH programs will be in place to allow communities to 
continue appropriately scaled versions of the prevention and rapid re-
housing programs started under HPRP. Importantly, the HEARTH Act 
creates a new Rural Housing Stability program. This program will bring 
particular attention and resources to rural areas to prevent and 
confront homelessness. The HEARTH Act homelessness programs will 
provide communities with much-needed flexibility to assist families and 
individuals in a variety of homeless and near-homeless situations.

                          SUBCOMMITTEE RECESS

    Senator Murray. This subcommittee will stand in recess 
until Thursday, June 18, when we will take testimony from 
Secretary LaHood.
    [Whereupon, at 11 a.m., Thursday June 11, the subcommittee 
was recessed, to reconvene subject to the call of the Chair.]
