[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
                     OVERSIGHT OF THE DEPARTMENT OF 
                     HOUSING AND URBAN DEVELOPMENT 

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         INSURANCE, HOUSING AND
                         COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 28, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-102

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

75-074 PDF                       WASHINGTON : 2012 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
Washington, DC 20402-0001 



                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

           James H. Clinger, Staff Director and Chief Counsel
      Subcommittee on Insurance, Housing and Community Opportunity

                    JUDY BIGGERT, Illinois, Chairman

ROBERT HURT, Virginia, Vice          LUIS V. GUTIERREZ, Illinois, 
    Chairman                             Ranking Member
GARY G. MILLER, California           MAXINE WATERS, California
SHELLEY MOORE CAPITO, West Virginia  NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey            EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina   WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia        MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin             BRAD SHERMAN, California
ROBERT J. DOLD, Illinois             MICHAEL E. CAPUANO, Massachusetts
STEVE STIVERS, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 28, 2012............................................     1
Appendix:
    February 28, 2012............................................    43

                               WITNESSES
                       Tuesday, February 28, 2012

Bostic, Hon. Raphael, Assistant Secretary, Policy Development and 
  Research, U.S. Department of Housing and Urban Development.....    14
Galante, Carol, Acting Federal Housing Administration 
  Commissioner and Assistant Secretary for Housing, U.S. 
  Department of Housing and Urban Development....................     7
Henriquez, Hon. Sandra B., Assistant Secretary, Office of Public 
  and Indian Housing, U.S. Department of Housing and Urban 
  Development....................................................    10
Marquez, Hon. Mercedes M., Assistant Secretary, Community 
  Planning and Development, U.S. Department of Housing and Urban 
  Development....................................................    12
Trasvina, Hon. John, Assistant Secretary, Fair Housing and Equal 
  Opportunity, U.S. Department of Housing and Urban Development..    15

                                APPENDIX

Prepared statements:
    HUD joint statement..........................................    44

              Additional Material Submitted for the Record

Hurt, Hon. Robert:
    Letter from the Housing Coalition on Project-Based Section 8 
      Short Funding, dated February 23, 2012.....................    63
McHenry, Hon. Patrick:
    Article from The Wall Street Journal entitled, ``Squeezed in 
      St. Paul,'' dated February 12, 2012........................    65


                     OVERSIGHT OF THE DEPARTMENT OF
                     HOUSING AND URBAN DEVELOPMENT

                              ----------                              


                       Tuesday, February 28, 2012

             U.S. House of Representatives,
                 Subcommittee on Insurance, Housing
                         and Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:01 a.m., in 
room 2128, Rayburn House Office Building, Hon. Judy Biggert 
[chairwoman of the subcommittee] presiding.
    Members present: Representatives Biggert, Hurt, Miller of 
California, Capito, Garrett, McHenry, Westmoreland, Dold, 
Stivers; Gutierrez, Waters, Velazquez, Watt, Sherman, and 
Capuano.
    Also present: Representatives Neugebauer and Green.
    Mrs. Capito [presiding]. This hearing of the Subcommittee 
on Insurance, Housing and Community Opportunity will come to 
order.
    I want to welcome the witnesses and welcome the Members. 
And without objection, all Members' opening statements will be 
made a part of the record.
    Subcommittee chairs and Minority and Ranking Minority 
Members will be recognized for 5 minutes each. All other 
Members will be recognized for 3 minutes each. And we are going 
to alternate between the Majority and the Minority.
    So without objection, I am going to give my opening 
statement.
    Again, I would like to thank the witnesses and the members 
of the subcommittee for joining us this morning. Over the past 
year, the Insurance, Housing and Community Opportunity 
Subcommittee, under the leadership of Chairwoman Biggert, has 
worked diligently to address the problems facing our committee 
and the obstacles preventing a full housing recovery.
    Today's hearing will allow us to review programs within the 
Department of Housing and Urban Development (HUD), as well to 
examine HUD's Fiscal Year 2013 proposed budget.
    In a climate of tighter budgets and limited resources, it 
is essential that we find smarter ways to spend our dollars 
without sacrificing assistance to those in need. Many housing 
programs can benefit from cost savings through reform, by 
eliminating inefficiency and needless requirements.
    As a member of this subcommittee during this Congress and 
the last Congress, we have made headway in dealing with the 
ever-increasing portion that public and assisted housing 
occupies in HUD's budget, by introducing legislation that will 
reduce costs and implement needed improvement.
    I am concerned that without reform, rental assistance will 
continue to grow as a percentage of HUD's budget, and an 
opportunity could be missed.
    Finally, to follow up on a hearing held last year when 
Secretary Donovan sat before the full committee, FHA's Mutual 
Mortgage Insurance Fund still sits at a dangerously low level, 
and seems headed towards insolvency, where it would then be 
forced to draw down from the Treasury.
    To me, this is an intolerable scenario. We have heard about 
the pending issue. Is it coming, will it come, and in what form 
can it come?
    I would like to avoid the final scenario.
    But seeing the budget outlined by the Administration 
further reinforces my concern. Anticipating a $668 million 
bailout says to me that the problem is no longer fixable 
without additional actions to shore up the fund.
    Since that hearing, we have heard that funds from the 
attorneys general's settlement with mortgage servicers, along 
with increased premiums--and I understand premiums were 
increased yesterday--and a better book of business will prevent 
assistance from the Treasury.
    I would like to believe this, but I have heard too many 
times that we have been assured that FHA was in a stable 
position only to find out that is not the case, as we now know.
    I hope our panelists here today can address these concerns. 
And I would like to say that I appreciate the Administration 
moving yesterday to try to mitigate some of these issues and to 
offer solutions as we move forward.
    Again, I would like to thank our witnesses for their time. 
I look forward to their testimony.
    And I would like to yield 5 minutes to the ranking member, 
Mr. Gutierrez.
    Mr. Gutierrez. Thank you, Madam Chairwoman, and thank you 
to all of the witnesses for joining us this morning to discuss 
the oversight of HUD and its budget.
    Today, we are looking into how HUD proposes to meets its 
mission to streamline funding levels and policy constraints 
that create greater efficiencies in this time of fiscal 
constraint.
    I am very pleased that while remaining fiscally 
responsible, the Administration has been able to increase HUD's 
overall budget by $1.4 billion. I am also happy that the Mutual 
Mortgage Insurance, MMI Fund, will not have to draw down an 
emergency authority from the Treasury, as OMB had initially 
anticipated, thanks mostly to the $1 billion from the recent 
mortgage abuse settlement.
    However, I looked through the Administration's proposed 
budget, and there are a few points that do concern me.
    First, I would like to see guarantees that the requested 
capital and operating flexibilities will not lead to public 
housing authorities funding their operating costs at the 
expense of capital improvement. There is currently $3.4 billion 
in capital improvements needs in public housing. And want to be 
sure that these protections are in place so they can meet their 
needs.
    Second, I am also concerned about the proposed short 
funding of 10,600 project-based rental assistance contracts 
which will create uncertainty among providers. We tried this 
once before in Fiscal Year 2007, and it resulted in late 
payments and a funding shortfall that we had to fill in the 
Recovery Act.
    Most concerning, however, is the proposed increase in the 
minimum rent. The budget proposes to increase minimum rent from 
$50 to $75. In multifamily programs, where residents currently 
pay $25, this would be an increase of 200 percent.
    We are talking about a rent increase on about 500,000 
individuals who make $250 or less a month. So that we put it in 
perspective, who is it that is getting the raise--$250 or less. 
And many of them are in the ``or less'' per month.
    Now, $25 to $50 may not sound like much when being 
discussed in terms of government executives or for many Members 
of Congress who make $174,000. If I had to pay another $25, it 
wouldn't mean that much to me.
    We make $725 a day. So, you can imagine--I think I could do 
without $25 to $50 in 1 day out of $725.
    We are talking about people who make $250 or less a month.
    HUD claims that this is an effort to adjust a 1998 minimum 
rent level for inflation to bring the number to around $69. How 
did we get to $75?
    And how was it decided to tack another $6 onto the rent of 
the poorest families?
    HUD has also decided to eliminate the discretion of PHAs as 
to whether going below the minimum rent would be in the best 
interest of their residents. This is particularly important in 
areas where incomes have not increased with inflation, areas 
with high unemployment, for example.
    At the end of the day, I just don't see the logic of 
arbitrarily closing budget holes on the backs of the most 
vulnerable families in our community, that if we fail, day 
after day, to discuss revenue options from America's least 
vulnerable, the people with the highest incomes.
    I thank Madam Chairwoman, and all of the witnesses. And I 
look forward to the discussion that we will have today.
    I yield back the balance of my time.
    Mrs. Capito. Thank you.
    I would like to now recognize the vice chair of the 
subcommittee, Mr. Hurt from Virginia, for 3 minutes.
    Mr. Hurt. Thank you, Madam Chairwoman.
    I want to thank Chairwoman Biggert for holding today's 
hearing and for her commitment to good stewardship of taxpayer 
dollars in the context of housing issues programs.
    The people that I represent in central and south side 
Virginia continue to deliver the urgent message that if we are 
truly serious about revitalizing our economy and preserving 
this great country for our children and grandchildren, we must 
put an end to Washington's out-of-control spending.
    My colleagues and I on the Financial Services Committee 
recognize the need to rein in spending and to make Federal 
programs more efficient and less costly. We have advanced many 
proposals to reform the Federal housing programs and reduce the 
financial risks to which taxpayers are exposed by outsized 
Federal participation in the housing market.
    However, the President's budget proposal does not appear to 
recognize the depth of our fiscal crisis. Instead, this 
proposal is full of more government programs, mandates, and 
spending, at a time when we can least afford it.
    This proposal seeks $1.4 billion in increased spending, or 
3.2 percent in increased spending, compared to the current 
fiscal year.
    With our Nation's debt exceeding $15 trillion, we must 
closely scrutinize Federal programs and policies, and cut 
wasteful spending to force the government to live within its 
means.
    I want to thank Chairwoman Biggert for holding this 
hearing. I want to thank each of the witnesses for being here 
and for helping guide us through this difficult process.
    And I yield back the balance of my time.
    Mrs. Capito. The gentleman yields back.
    My understanding is that Mr. Capuano passes on an opening 
statement, so we will go to Mr. Miller for 3 minutes.
    Mr. Miller of California. Madam Chairwoman, excuse me.
    I am really concerned about the budget proposal we have 
before us today. What we have in front of us really is more of 
the same. Billions have been spent. We must stop the 
overregulation that drives up the cost. And we must stop 
spending. We need a new direction. From the programs that serve 
the lowest income to creating the move up market, what I see is 
inefficiency and regulatory barriers. This must change to get 
our housing market back on track.
    Unfortunately, what has been proposed here is the status 
quo, additional spending of programs that don't work, coupled 
with misguided policies that further disrupt the housing 
market.
    The Section 8 Program is growing so rapidly that HUD's 
other programs are suffering as a result. In 2002, Section 8 
accounted for 46 percent of HUD's annual budget. Now, it 
accounts for over 60 percent.
    It is not feasible for the Federal Government to continue 
to increase funding for the programs without enacting 
meaningful reforms.
    What makes this even worse is that we aren't even seeing 
results from what we have done today. The average length of 
time families spend on the waiting list in subsidized housing 
in the United States is 2 years. In cities like Los Angeles, it 
is actually 10 years.
    How can we justify a situation where one person is given 
unlimited Federal housing assistance while another who might 
have a greater need is on the waiting list and forced to fend 
for themselves for that many years?
    The answer is not to allow the program to continue to grow 
out of control. Rather, we must reform the program so that 
participants can transition into self-sufficiency within a 
reasonable period of time, giving more families the ability to 
benefit from our Nation's temporary helping hand.
    I want to congratulate you on some of the reforms you have 
enacted, though: increasing minimum rents; allowing PHA's 
flexibility when it comes to use of capital and operating 
funds; and changing some Administration rules.
    But this isn't enough.
    This committee recently marked up a Section 8 reform bill. 
The bill included a provision I had in it that allowed the 
Moving to Work (MTW) Program to expand.
    MPW has proven that public housing authorities could help 
more people, improve the quality of the system, and reduce 
costs at the same time. HUD should have embraced this program 
rather than put roadblocks in front of it.
    For far too long, we have accepted the notion that a 
compassionate housing system is defined by how many dollars we 
spend, rather than the way the money is actually used. At this 
time of considerable budget constraint, it makes sense to give 
PHAs flexibility that helps them improve the quality and 
effectiveness of their programs without increasing costs.
    I have also been disturbed by FHA's policy to drive up the 
cost of rental housing. These regulatory barriers do nothing 
but make the next step for individuals to transition out of 
rental assistance even more difficult. By driving up the cost 
of housing, it puts taxpayers at risk.
    To get an FHA construction loan, you have to use a 
prevailing wage that drives up the cost 20 percent to 25 
percent. I don't know who that helps. It doesn't help the 
renter. And it doesn't help the taxpayer because it puts the 
taxpayers more at risk for making higher loans than we need to 
make. It doesn't help taxpayers at all. And it doesn't help the 
housing market to get back on track. All it does is drive up 
the cost of housing.
    On top of this, you proposed an increase of premiums for 
builders, not for safety and soundness, but to claw back 
private capital. Why would you increase the cost if it is 
really not for safety and soundness? To get the housing market 
back on track, capital must come back.
    On condominiums, the next one--for someone who has been a 
renter and wants to become a homeowner, we see regulatory 
barriers that impact the ability to get credit. Specifically, 
the current requirement FHA has recently imposed on condominium 
units has dried up the availability of credit in this sector. 
There are 25,000 condominium projects in the country that used 
to be FHA-approved. Today, there are only 2,100.
    Without this certification, no one can buy a condo unit 
using FHA in these projects. Now, maybe some of these projects 
shouldn't be FHA-certified, but it is good to weed them out if 
they are bad.
    But this significant drop, only 8.4 percent of condos that 
used to be approved by FHA are now approved. Something is wrong 
with this regulation. We need to figure out how to fix it the 
right way. This is a needless drag on the market.
    What we do know is that the regulation is having a dramatic 
impact on the market. The lack of availability of financing is 
driving down the value of condominium units nationwide.
    Those low- and moderate-income individuals in rental 
housing have a hard time moving up to homeownership in a 
condominium because of unnecessary regulatory burdens placed on 
them.
    The FHA Single Family Program has major problems too. For 
the first time in the history of the program, the budget--
    Mr. Gutierrez. The time of the gentleman has expired by a 
minute and seven-eighths seconds--
    Mrs. Capito. The Chair is extending--
    Mr. Miller of California. I don't believe that you are the 
chairman of the subcommittee. And the chairman will notify me, 
Mr. Ranking Member.
    I yield back the balance of my time.
    Mr. Gutierrez. Well, I object.
    Mr. Miller of California. I object to your interrupting me 
when you are not the chairman--
    Mr. Gutierrez. I object--
    Mrs. Capito. I object to this conversation.
    Mr. Gutierrez. Watch the clock. Simply watch the clock.
    Mr. Miller of California. Mind your own business.
    Mrs. Capito. Gentlemen, suspend.
    Mr. Gutierrez. All the gentleman has to do is watch the 
clock.
    Mr. Miller of California. All you have to do is mind your 
own business.
    Mr. Gutierrez. It is my business. I can chair this 
meeting--
    Mrs. Capito. Ms. Velazquez does not have an opening 
statement, correct? Okay. I want to recognize Mr. Westmoreland 
for 2 minutes.
    Mr. Westmoreland. Thank you, Madam Chairwoman.
    As expected in the President's budget released this month, 
FHA will need a taxpayer bailout. Although this may not be 
important to the witnesses testifying today, there is not one 
single Federal housing program yet that has not needed a 
bailout to survive.
    If FHA were a community bank in Georgia, you would have all 
been put down a long time ago. To add insult to injury, the 
President has requested an overall 3.2 percent increase in 
HUD's budget, mostly in the Section 8 and public housing 
budget.
    In fact, 83 percent of HUD's budget goes to paying people's 
rent.
    Unfortunately, HUD says its programs create jobs. But no 
one testifying today can tell me exactly how many people have 
left the Section 8 Program over the last 5 years because they 
got a job and became self-sufficient.
    I urge this committee to find additional savings in these 
programs, as reform proposals continue moving through this 
committee. In the absence of more savings, I urge the committee 
to seriously explore block granting these programs to return 
control of these out-of-control programs to the States where 
they belong.
    I have 45 seconds left, and I will yield those back to the 
chairwoman.
    Mrs. Capito. Thank you. The gentleman yields back.
    Mr. Dold, for 2 minutes.
    Mr. Dold. Thank you, Madam Chairwoman. And I certainly want 
to thank the witnesses for being here today.
    These congressional oversight hearings, I think, are 
absolutely critical to our government system. They help ensure 
that the laws are implemented and executed as Congress 
intended. They also promote government transparency, 
accountability, and efficiency.
    They allow us to have productive discussions about areas of 
concern and also about areas of agreement between Congress and 
the Administration.
    In this case, we see several areas of agreement between the 
Administration and Congress. I can mention only a few of these 
areas of broad bipartisan agreement. But I think it is 
important to highlight them.
    First, we all agree that our most vulnerable and 
disadvantaged citizens should receive government housing 
assistance that is reliable, meaningful, efficient, and 
effective.
    Second, the government assistance should be, whenever 
possible, there to promote independence and self-sufficiency.
    Third, taxpayer liability, risk to potential FHA losses, 
should be carefully monitored, limited, and minimized, which 
includes encouraging private sector capital to become our 
primary source of mortgage financing.
    And finally, HUD, like every other government agency, 
should consistently or constantly improve and streamline its 
operations to prevent fraud, and to contribute to meaningful 
deficit and debt reduction.
    These kinds of objectives have nearly unanimous support in 
both Congress and the Administration. And we should hold each 
other accountable for constantly working towards these 
objectives along with others of bipartisan agreement.
    I have some concerns which I certainly hope will be 
reflected in some questions. And I know we are not going to be 
able to get to all of them in 28 seconds, but I do want to just 
touch on a few.
    First, HUD regulations seem to be unnecessarily damaging to 
the condominium market.
    Second, certain proposed rules would exceed HUD's 
jurisdiction under Federal law by seemingly attempting to 
regulate homeowners insurance which is legally reserved to 
State regulators.
    Third, my concern is whether HUD accurately estimates the 
risk that FHA poses to taxpayers.
    Fourth, my concern relates to HUD's bedbug regulations, 
which seem to require eradication while simultaneously 
prohibiting the necessary steps for eradication.
    And with that, I will yield back.
    Mrs. Capito. The gentleman yields back.
    I believe that concludes our opening statements.
    So without further ado, I would like to introduce our panel 
of witnesses.
    Without objection, your written statements will be made a 
part of the record, and you will each be recognized for a 5-
minute summary of your testimony.
    Our first witness is Mrs. Carol Galante--who is no stranger 
to this committee and subcommittee--the acting Federal Housing 
Administration Commissioner and Assistant Secretary for Housing 
at HUD.
    Welcome. Mrs. Galante?

      STATEMENT OF CAROL GALANTE, ACTING FEDERAL HOUSING 
    ADMINISTRATION COMMISSIONER AND ASSISTANT SECRETARY FOR 
   HOUSING, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mrs. Galante. Thank you, Chairwoman Capito, and Ranking 
Member Gutierrez, for the opportunity to testify on the 2013 
budget request for HUD's Office of Housing.
    Our office is critical to ensuring more Americans have the 
opportunity to realize or maintain the economic security of the 
middle class. And the work this Administration has done has 
established a strong foundation upon which an economy built to 
last will be constructed.
    Three years ago, with the housing market collapsing and 
private capital in retreat, we took decisive action to address 
the crisis and lay the groundwork for recovery.
    Since the start of this Administration, FHA has helped 
nearly 2.8 million families buy a home, and over 1.7 million 
homeowners refinance into stable, affordable loans.
    And with your help, we have taken the most significant 
steps in FHA's history to reduce risk to the taxpayer and 
reform FHA's practices.
    We have ensured the FHA has the flexibility necessary to 
price its products appropriately for current risks and market 
conditions. And we have transformed FHA's risk management 
system to better align with the needs and realities of the 21st 
Century mortgage market.
    These reforms are responsible for the most profitable books 
of business in FHA's 78-year history.
    Even still, we recognize FHA continues to be strained by 
past loans. That is why we continue to take actions to 
strengthen FHA's MMI Fund.
    Our budget reflects the implementation of the 10 basis 
point annual increase to FHA's single family premiums enacted 
by Congress, as well as an additional 25 basis point annual 
increase on jumbo loans.
    FHA is projected to add $8.1 billion in receipts to the 
Capital Reserve Account in 2013. And just yesterday, we 
announced that FHA will also increase its upfront premium by 75 
basis points. This increase, which will cost borrowers only 
about $5 on average a month, is expected to yield more than $1 
billion in additional receipts to the MMI Fund in this fiscal 
year and next, beyond the receipts anticipated in the 
President's budget.
    The budget also proposes the first premium increase for 
FHA's market rate multifamily and health care programs in 10 
years. These modest increases ensure that premiums charged for 
these products are appropriate.
    While FHA will continue to play an important role in 
supporting the housing recovery in the year ahead, we are 
committed to reducing the government's footprint over time. 
With loan volume already down 34 percent from its peak in 2009, 
and FHA's current market share declining for the first time 
since 2006, we have set the stage for more private capital to 
return while ensuring that FHA remains a vital source of 
financing for underserved borrowers and communities.
    We also continue to take steps to strengthen accountability 
for FHA lenders. We recently issued a final rule detailing the 
process by which FHA will require indemnification for 
improperly originated loans.
    And we continue to seek expanded authority via legislation 
that will further enable us to protect the MMI Fund. Further 
evidence of this Administration's commitment to hold lenders 
accountable can be seen through the recently announced 
settlement with some of America's largest banks, through which 
FHA will receive almost $1 billion in compensation.
    While additional risks remain for FHA as the economy is 
fragile, the recovery is fragile, the significant reforms and 
strong enforcement efforts undertaken are yielding sound and 
profitable business, positioning FHA well for the future.
    Despite FHA's important work throughout the recent crisis, 
there remain sectors of the housing finance market where 
additional liquidity is needed. One of those areas is in small 
building finance for rental homes.
    Nearly a third of the Nation's renters, more than 20 
million households, live in small properties of 5 to 49 units. 
That is why as part of the President's budget, HUD is proposing 
legislative changes to the risk-share program to provide 
qualified entities such as State housing finance agencies, the 
ability to securitize multifamily risk-share loans through 
Ginnie Mae.
    And HUD remains committed to protecting current residents 
and improving the programs that serve them. HUD is requesting a 
total of $736 million to fund two programs that will directly 
support housing and services for very low-income elderly and 
persons with disabilities through the Sections 202 and 811 
Programs.
    New investments will now fully leverage State and local 
affordable housing resources.
    And as we work to achieve savings and to operate 
efficiently and effectively, the Project-Based Rental 
Assistance Program (PBRA) is improving oversight of market rent 
studies, capping certain annual subsidy increases, and 
offsetting excess reserves.
    Even with these savings, protecting current families 
required us to make choices we would not have otherwise made in 
a different fiscal environment. One of these difficult choices 
can be seen in HUD's request of $8.7 billion for the PBRA 
Program.
    As we look to make all of our programs more efficient and 
effective, the FHA transformation initiative will enable us to 
replace outdated systems with modern technology.
    And so, Madam Chairwoman, this budget reflects this 
Administration's belief that the recovery of our housing market 
is essential to the restoration of our economy by targeting 
resources where they are most needed, making tough choices in 
order to do more with less, and ensuring the protection of 
taxpayer interests. HUD's Office of Housing is doing its part 
to create and sustain communities built to last.
    Thank you.
    [HUD's joint prepared statement can be found on page 44 of 
the appendix.]
    Mrs. Capito. Thank you.
    Our next witness is the Honorable Sandra B. Henriquez, 
Assistant Secretary, Office of Public and Indian Housing, U.S. 
Department of Housing and Urban Development.
    Welcome. Thank you.

   STATEMENT OF THE HONORABLE SANDRA B. HENRIQUEZ, ASSISTANT 
SECRETARY, OFFICE OF PUBLIC AND INDIAN HOUSING, U.S. DEPARTMENT 
                OF HOUSING AND URBAN DEVELOPMENT

    Ms. Henriquez. Good morning, Chairwoman Capito, Ranking 
Member Gutierrez, and members of the subcommittee.
    I want to thank you for the opportunity to testify before 
you this morning regarding the Fiscal Year 2013 budget for the 
Office of Public and Indian Housing (PIH) at HUD.
    We remain focused on making strategic investments in our 
communities while taking responsibility for our deficits.
    For PIH, that has meant remaining focused on three core 
objectives: one, protecting current residents and improving the 
programs that serve them; two, continuing progress on signature 
initiatives to speed redevelopment and economic growth; and 
three, reducing regulatory burdens and increasing efficiency.
    Our commitment to fiscal discipline means that our 2013 
budget makes extremely tough choices, ones that we would not 
have normally made under different fiscal circumstances.
    For instance, we have proposed an increase in minimum rents 
across our program, a decision that despite the continued 
availability of hardship exemptions was extraordinarily 
difficult to make.
    At a time when more than one-third of all American families 
rent their home, and 7.1 million of these families spend more 
than 50 percent of their income on rent, it remains more 
important than ever to provide a sufficient supply of 
affordable rental homes for low-income families.
    HUD's Fiscal Year 2013 budget maintains HUD's core 
commitments to providing rental assistance to some of our 
country's most vulnerable households. This proposal provides 
$19.07 billion for HUD's Section 8 Tenant-Based Rental 
Assistance Program to assist approximately 2.2 million families 
by renewing existing vouchers and issuing new incremental 
vouchers to homeless veterans and other vulnerable populations.
    The budget also provides a total of $6.59 billion to 
operate public housing and modernize its aging physical assets, 
a critical investment that will help 1.1 million households to 
obtain or retain their housing.
    In addition, $731 million has been requested to support 
housing and development initiatives in Native American, 
Alaskan, and Hawaiian communities, supporting more than 560 
tribes across this country.
    Our 2013 budget provides $150 million for the Choice 
Neighborhoods Initiative to continue transformative investments 
in distressed, high-poverty neighborhoods.
    The five Choice Neighborhood implementation grantees funded 
in 2011 have leveraged a combined $1.6 billion in private 
funds, 13 times their total grant award amount.
    To address a rapidly shrinking public housing portfolio, 
and an estimated $26 billion in capital backlog of unmet needs, 
HUD's 2012 Appropriations Act authorized the rental assistance 
demonstration to test new preservation tools for its public 
housing, Mod Rehab, Rent Supp, and RAP assisted housing stock.
    These strategies offer housing authorities and owners a 
platform to better leverage current Federal appropriations with 
other private and public capital.
    This budget also provides critical flexibilities to local 
housing authorities to deal with the challenging economic 
environments by streamlining public housing operating and 
capital funds. The budget provides that all housing authorities 
have this flexibility to use their operating and capital for 
any eligible capital and operating expense.
    We also propose the consolidation of the Family Self-
Sufficiency Program to enable housing authorities to more 
uniformly serve participants in the voucher and public housing 
programs. The budget authorizes housing authorities to use 
their public housing and voucher funding to augment case 
management and supportive services provided through FSS or 
other programs to increase opportunities for residents.
    Finally, it is clear that an economy built to last requires 
a Federal Government that is efficient, streamlined, and 
transparent. This budget proposal reforms the PIH Program that 
would save $208 million without reducing the number of families 
served.
    I want to express my appreciation for the bipartisan work 
the subcommittee and full committee is engaging in with the 
Department and with stakeholders on the Affordable Housing and 
Self-Sufficiency Improvement Act.
    At this critical moment, it is essential that we 
collaborate to streamline the Department's largest rental 
assistance programs.
    Nowhere is the relationship between housing and supportive 
services clearer than in our efforts to address homelessness, 
especially among our veterans. And that is why we are 
requesting $75 million for 10,000 vouchers for the HUD-VASH 
program.
    Thanks to the congressional support for the transformation 
initiative, past fiscal year appropriations are today funding a 
wide range of groundbreaking projects.
    PIH TI-funded projects include the development of enhanced 
tracking tools to better monitor progress and outcomes for 
troubled PHAs, a financial forecasting simulation tool that 
allows PHAs to adjust financial scenarios to project impact, 
and peer-to-peer analytical tools that compare average revenues 
and expenses of peer PHAs of comparable size and geography.
    Central to this is the development of the next generation 
management system which will improve the way we manage and 
administer all of our programs by streamlining processes and 
improving business performance starting with the voucher 
program.
    Madam Chairwoman, through targeted streamlining and some 
major policy reforms on which we will continue to work with 
this committee, PIH is able to realize cost savings while 
serving the same number of families.
    Thank you.
    [HUD's joint prepared statement can be found on page 44 of 
the appendix.]
    Mrs. Capito. Thank you.
    Our next witness is the Honorable Mercedes M. Marquez, 
Assistant Secretary, Community Planning and Development, U.S. 
Department of Housing and Urban Development. Welcome.

   STATEMENT OF THE HONORABLE MERCEDES M. MARQUEZ, ASSISTANT 
SECRETARY, COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT 
                OF HOUSING AND URBAN DEVELOPMENT

    Ms. Marquez. Thank you very much.
    Chairwoman Capito, Ranking Member Gutierrez, and members of 
the subcommittee, thank you for the opportunity to testify 
today on Community Planning and Development's (CPD's) budget.
    CPD programs are foundation stones for our Nation's 
community development, affordable housing finance, and homeless 
service systems. These programs make it possible for State and 
local governments to leverage other public and private dollars 
to implement large-scale, long-term solutions to pressing 
community challenges.
    For example, HOME leverages $4 of private or other public 
dollars for each own dollar invested. The Fiscal Year 2013 
proposal requests flat funding compared to Fiscal Year 2012 for 
CDBG and HOME formula funds.
    We know that State and local governments are strained in 
addressing job creation, infrastructure, and affordable housing 
needs. And we would not have made this difficult decision under 
different circumstances. We made this choice because we are 
committed to the Administration-wide effort to reduce the 
national deficit.
    In Fiscal Year 2011, over 28,000 Americans found or 
retained permanent jobs that businesses directly supported by 
CDBG and Section 108. CDBG provided public service activities 
to 10.1 million people and benefited approximately 4.1 million 
people through public improvement investments.
    HOME has completed more than 1,040,000 units of affordable 
housing. At the requested level, grantees can produce 43,000 
units of affordable housing and help 10,500 families with 
tenant-based rental assistance.
    CDBG and HOME dollars created jobs in the community, 
multiplying the direct investment.
    At the requested funding levels, these programs would 
create or retain nearly 80,000 jobs. Results show that CDBG 
Recovery Act funds created twice as many jobs per dollar as 
other Recovery Act programs.
    The Project Rebuild request for $15 billion in the 
President's Job Act and Fiscal Year 2013 budget creates jobs 
and mitigates the impacts of the foreclosure crisis by 
providing funds to purchase or rehabilitate foreclosed or 
abandoned properties.
    Project Rebuild innovates based on the success of the 
Neighborhood Stabilization Program, allowing grantees to use up 
to 30 percent for redevelopment of commercial properties. It 
would support more than 190,000 jobs and treat more than 
195,000 properties.
    I especially want to acknowledge and thank Congresswoman 
Waters for her leadership in introducing Project Rebuild 
legislation in the House.
    Our homelessness request reflects a $330 million increase 
compared to Fiscal Year 2012. However, decreases in CDBG and 
HOME create gaps in homeless services at the local level.
    $2.23 billion enables us to implement key components of the 
HEARTH Act, though we will not be fully able to implement all 
of the provisions. The increase reflects the Administration's 
commitment to the Federal Strategic Plan to prevent and end 
homelessness.
    The Homelessness Prevention and Rapid Re-Housing Program 
funded by the Recovery Act and ending in Fiscal Year 2012 has 
helped to prevent or end homelessness for more than 1.2 million 
people nationwide. ESG will absorb the successful prevention 
and rapid rehousing functions in Fiscal Year 2013.
    These strategies are working. Overall, homelessness on a 
single night across all categories has declined by 5.3 percent 
since January 2007. And homelessness among veterans has 
declined by nearly 12 percent since January 2010.
    This funding will create 3,450 new units of permanent 
supportive housing and serve over 800,000 homeless families and 
individuals.
    The request for the Housing Opportunities for Persons with 
AIDS Program (HOPWA) is $330 million, $2 million less than 
Fiscal Year 2012.
    The proposed funding will assist local communities in 
continuing housing assistance for 56,400 households with people 
living with HIV or AIDS, supporting the Administration's 
national HIV-AIDS strategy, and maintaining stability and 
improving health outcomes for this vulnerable population.
    We also propose to update the HOPWA formula to reflect the 
current understanding of HIV-AIDS, distributing funds based on 
the current population of HIV-positive individuals, fair market 
rents, and poverty rates to target to the highest need.
    We also request $100 million for Sustainable Housing and 
Communities grants, enabling innovation and challenging 
communities to creatively use existing resources at a time when 
the fiscal environment has required us to flat fund CDBG and 
HOME, dollar for dollar the most effective job creators in our 
budget.
    Sustainable Communities grants are particularly essential 
because they leverage increasingly limited Federal dollars. 
Under our proposal, rural areas would receive nearly $700 
million in CDBG and $300 million in HOME. Together, these funds 
would support nearly 33,000 jobs directly and indirectly in 
rural areas, and provide infrastructure economic development 
and affordable housing.
    The Rural Housing Stability Assistance Program funds a $5 
million program implemented for the first time in Fiscal Year 
2012 which is targeted to rural areas that have minimal Federal 
funds invested for homelessness.
    CPD plays a critical role in helping communities recover, 
creating jobs, and rebuilding our economy.
    Thank you for this opportunity to testify today.
    [HUD's joint prepared statement can be found on page 44 of 
the appendix.]
    Mr. Hurt [presiding]. Thank you, Ms. Marquez.
    Our next witness will be the Honorable Raphael Bostic, 
Assistant Secretary for Policy Development and Research at HUD.
    Thank you, sir. You are recognized for 5 minutes.

STATEMENT OF THE HONORABLE RAPHAEL BOSTIC, ASSISTANT SECRETARY, 
POLICY DEVELOPMENT AND RESEARCH, U.S. DEPARTMENT OF HOUSING AND 
                       URBAN DEVELOPMENT

    Mr. Bostic. Thank you. Chairman Hurt, Ranking Member 
Gutierrez, and members of the subcommittee, good morning, and 
thank you for the opportunity to speak today.
    The Fiscal Year 2013 budget request for Policy Development 
and Research (PD&R) is $52 million. This represents an increase 
over the $46 million that was appropriated in Fiscal Year 2012.
    I also oversee much of the transformation initiative book 
of business. For Fiscal Year 2013, we are requesting a transfer 
authority of up to $215 million. And our request highlights the 
flexible use of an estimated $120 million.
    In my brief remarks, I would like to take a few moments to 
highlight how the proposed Fiscal Year 2013 budget continues 
this Administration's emphasis on delivering effective and 
efficient programs, and promoting evidence-based policy.
    The Fiscal Year 2013 budget request includes important 
investments to ensure that the Department moves ever closer to 
these priority goals.
    One major effort for the Department has been how it 
delivers its technical assistance. The Congress has been 
incredibly supportive of the Department's efforts to better 
leverage this technical assistance dollar.
    A high profile example of this support is for our OneCPD 
Program, which consolidates many program level technical 
assistance programs into a single integrated framework that 
considers the broad needs of a place in developing a technical 
assistance approach tailored to those needs.
    Based on our success with this approach, we again seek 
funds for OneCPD in this budget proposal.
    In addition, we have shaped our request to highlight TA 
needs in three areas: standardized skills training; intensive 
space capacity building; and building capacity for new programs 
and priorities.
    As is clear in this request, important needs exist in all 
of these areas.
    An important effort for the Department has been reform of 
its antiquated information technology infrastructure. That HUDs 
information and data systems have long been in need of an 
overhaul has been noted by many, including the Government 
Accountability Office (GAO).
    HUD has been working with GAO to establish new oversight 
processes for systems development that conform to industry 
standards. And a September 2011 GAO report validated the fact 
that significant progress has been made on this front.
    However, this progress represents only the first few steps 
of what will necessarily be a marathon. HUD must continue to 
make significant investments in IT, and the Fiscal Year 2013 
budget request reflects this reality.
    Turning to evidence-based policy, with the Congress' help, 
this Administration has made significant investment to ensure 
that as much evidence as possible is available to inform the 
decisions that the Department and our partners make regarding 
HUD's programs.
    For example, past year appropriations have provided funds 
to support research designed to provide many insights that can 
help improve HUD's performance in delivering grants and 
services, and ultimately strengthening communities and 
increasing family quality of life.
    This budget request continues in this tradition.
    First, it includes a request to invest in a program, Jobs-
Plus, that has been experimentally demonstrated to produce 
tremendous benefits to those families in the program.
    And what did we learn from this? Those in the program saw 
earnings increase an average of $1,300 per year, providing a 
firm foothold on self-sufficiency in a time when too many 
Americans continue to struggle.
    Investment in a proven program like Jobs-Plus does not just 
make sense; it becomes an imperative.
    The budget also requests funding to complete existing 
ongoing research projects as well as support research on key 
Departmental interests. In the latter category, our request is 
to support evaluations such as the rental assistance 
demonstration.
    Experience has shown that putting a framework for 
evaluation in place at the outset of demonstration results in 
our being able to learn the lessons of those demonstrations in 
a clearer way. These requests are made with that perspective in 
mind.
    We also seek in Fiscal Year 2013 to advance research in 
other topics of interest to the Administration and to Members 
of Congress. These sorts of activities, TA, IT, and research 
and demonstration, are crucial to HUD's stewardship of its 
resources.
    The reality is that no effective organization, and that 
includes private sector organizations, remains a high 
performing unit without: one, monitoring its performance to 
identify successes and areas for potential improvement; two, 
training its staff and affiliated business partners to make 
sure they have the skills to be effective; and three, updating 
and maintaining its technology to make sure that its well-
trained staff can continue the identified successes, and 
implement policies targeted towards improvement.
    Every effective and high-performing operation does these 
things, every one. And if HUD is to become a high performer and 
remain so in its own right, it must as well.
    Thank you for this opportunity to testify before you today.
    [HUD's joint prepared statement can be found on page 44 of 
the appendix.]
    Mr. Hurt. Thank you, Mr. Bostic, for your testimony.
    Our final witness today is the Honorable John Trasvina, 
Assistant Secretary for Fair Housing and Equal Opportunity at 
HUD.
    Thank you, sir, for being here this morning, and we will 
recognize you for 5 minutes for your testimony.

STATEMENT OF THE HONORABLE JOHN TRASVINA, ASSISTANT SECRETARY, 
FAIR HOUSING AND EQUAL OPPORTUNITY, U.S. DEPARTMENT OF HOUSING 
                     AND URBAN DEVELOPMENT

    Mr. Trasvina. Thank you, Mr. Chairman, Ranking Member 
Gutierrez, and members of the subcommittee.
    I appreciate the opportunity to discuss with you the 
current and Fiscal Year 2013 priorities of the Office of Fair 
Housing and Equal Opportunity (FHEO) at HUD.
    Forty-four years after this House's passage of the Fair 
Housing Act, the Nation has made substantial progress. But we 
must not be satisfied until housing discrimination is ended in 
America.
    In that regard, we have taken on new challenges since the 
1968 law including gender, disability, and familial status 
discrimination. And most recently, ensuring that HUD housing 
and HUD programs are open to all irrespective of sexual 
orientation, gender identity, and marital status.
    At FHEO, our employees enforce the Federal fair housing law 
and work closely through public sector partners, 97 State and 
local civil rights agencies, the Fair Housing Assistance 
Program (FHAP), and the private sector, including 120 fair 
housing councils, legal aid agencies, and community-based 
organizations in 40 States in the Fair Housing Initiatives 
Program (FHIP).
    In addition to promulgating regulations, issuing guidance, 
investigating cases, overseeing the FHIP and FHAP Programs, and 
ensuring that all communities and housing providers know about 
their rights and responsibilities under the Fair Housing Act 
and related laws, my FHEO staff members review HUD's own 
programs and housing to ensure that we abide by the same civil 
rights requirements and fair housing principles that we expect 
of State and local jurisdictions, and the private market.
    While some discriminatory practices are less blatant and 
prevalent today, housing discrimination remains in America. 
Last year, my FHEO staff filed more Fair Housing Act charges 
than in any year in the past decade, and did this with a staff 
25 percent smaller than it was 10 years ago.
    And I am proud to report that HUD collaborated with the 
Department of Justice, which entered into the largest 
residential fair housing lending settlement ever, providing 
$335 million in relief to African-American and Latino customers 
at CountryWide.
    Our Fiscal Year 2013 budget request seeks continued support 
of $41.1 million for the FHIP partners, and $26.4 million for 
the FHAP partners to further the Department's goal to create 
inclusive and sustainable communities free from discrimination. 
Cases that your constituents bring to FHIP organizations 
benefit from their expertise and screening.
    The cases that FHIPs file with my office are twice as 
likely to result in a charge or settlement as other cases filed 
directly with us.
    Similarly, under FHAP, local and State agencies investigate 
fair housing cases and make determinations when their law is 
substantially equivalent to Federal law. FHAPs investigate 
three-quarters of the cases nationally.
    Without this vigorous State and local partnership, our 
offices would be overwhelmed with cases and would not be able 
to provide timely determinations for complainants or housing 
providers.
    Two other new facets to our Fiscal Year 2013 budget request 
are small, but play an important role in improving the quality 
and availability of our services. We are moving the $1.8 
million request for funding of the National Fair Housing 
Training Academy outside of the FHAP Program in order to expand 
the number of classes and better serve more of our fair housing 
partners.
    In addition, we request $0.5 million to continue the 
Department's limited English proficiency initiative which has 
provided for telephone interpretation, generally, and 
translation of more than 100 vital HUD documents in up to 19 
different languages to better serve housing providers and the 
general public.
    Fair housing testing results show that approximately one in 
five housing transactions still result in less favorable 
treatment for racial or ethnic minorities. We recognize that 
our job requires taking systemic relief beyond one-by-one 
cases, as we have done, for example, on behalf of women denied 
mortgages because they were on maternity leave.
    Finally, HUD has placed a new priority on compliance of 
Section 3 of the HUD Act to ensure that our investments create 
jobs and contracting opportunities for local low-income 
individuals and the companies who hire them. We have quadrupled 
reporting on Section 3 compliance. And are pleased that in the 
last reporting period, almost half of the new jobs created by 
HUD funds went to Section 3 residents, and $0.5 billion went to 
Section 3 contractors.
    We are continuing our support of HUD-funded government 
agencies to increase Section 3's impact by funding locally 
hired Section 3 coordinators, developing a registry for 
businesses in five pilot cities, and developing a new rule, and 
we look forward to working with the committee on further 
action.
    And next week, after a year of development and public 
comment, our Equal Access to Housing Rule will go into effect, 
which means that lesbian, gay, bisexual, and transgender people 
will not be excluded from HUD housing or programs or denied FHA 
back loans because of who they are.
    Thank you for your support of fair housing.
    I am available to answer any of your questions.
    [HUD's joint prepared statement can be found on page 44 of 
the appendix.]
    Mr. Hurt. Thank you, Mr. Trasvina, for your testimony.
    I now recognize myself for 5 minutes as we enter this 
period of questioning.
    This is kind of a tough question, probably, and I would 
like to obviously observe our time limits. So, I am going to 
ask everybody--each one to answer this question.
    My concern is this--as I traveled over the last week across 
the 5th District as a part of our district work week, what I 
heard from folks who are struggling more and more every day 
with gas prices--we have extremely high unemployment in my 
district, in many places it is way more than the national 
average. People look at Washington and they say, ``I have less 
and less money to spend to feed my family and to get to work. 
And why is it that you in Washington can't cut spending just 1 
percent?'' How can we not spend 1 percent less this year than 
we did last year?
    I recognize the important work that you all do. And I also 
understand the fact that the worse off the economy is, the 
greater the need is for the services that you provide, but help 
us with this.
    How do I answer that constituent who asks, ``Why can't you 
spend 1 percent less than you did last year? I am having to 
spend a lot less than I did last year.''
    If I could just go down the line--and I apologize because 
it is probably a complicated question--but if you could try to 
make enough time for everybody to be able to answer that 
question, I will start with you.
    Mrs. Galante?
    Mrs. Galante. Thank you.
    Let me just say, I believe that HUD has cut spending in a 
number of places. I know in the Office of Housing in the 
Project-Based Rental Assistance Program, we are saving $400 
million to $500 million in this budget by different regulations 
that save dollars for the Federal Government. So, there are 
savings.
    The other thing I would say, however, is in some of the 
rental assistance programs, because of the stresses that these 
renters are under, and some of their incomes are going down, 
that may mean that our subsidy amount is going up.
    And so, we are filling a safety net issue for some of these 
renters that makes it difficult to control those kind of 
expenditures.
    Mr. Hurt. Thank you.
    Ms. Henriquez?
    Ms. Henriquez. Thank you. I would echo Mrs. Galante.
    But I would also say that when we as a nation put money 
together so that we don't have homeless individuals and 
families, particularly our veterans and people who serve this 
country, on the street, at risk, in jeopardy, that is dollars 
well-spent.
    And so, we too, in public housing, have saved money, but we 
have also then said we want to make sure that everyone who is 
served now continues to be served. And our programs really rely 
on market forces as well.
    Mr. Hurt. Thank you.
    Ms. Marquez, how do I answer that constituent who asked me 
that question?
    Ms. Marquez. Thank you.
    First, let us clarify the HUD budget as a good response. 
Our budget provides $44.8 billion for HUD programs, an increase 
of $1.4 billion or 3.2 percent above Fiscal Year 2012.
    This program funding level is offset, however, by $9.4 
billion in projected FHA and Ginnie Mae receipts leaving net 
budget authority of $35.4 billion, or a 7.3 percent below the 
Fiscal Year 2012 enacted level of $38.2 billion.
    So, we have cut.
    Speaking for CPD, I can tell you that we have streamlined 
in many areas.
    My colleagues spoke about OneCPD, how long--what we have 
done to streamline all of the ways that we provide technical 
assistance.
    We have also seen a decrease--we took a decrease--requested 
a decrease in S&E as we have come forward to streamline. This 
is a time when we are all making sacrifices, and HUD is fully 
committed to shoulder its share of the burden.
    Mr. Hurt. Thank you.
    Mr. Bostic?
    Mr. Bostic. I would agree with my colleagues.
    And I would also just emphasize that these are incredibly 
difficult times for everyone. The Secretary has given us a 
direct charge to make sure that we scrub every program, 
everything that we do, to make it as efficient and as effective 
as possible.
    I will just highlight a couple of places in terms of 
administrative fees for housing authorities.
    My office is in charge of doing a detailed analysis to find 
out what the best practices are so we can reduce our costs in 
terms of how we operate our programs. Those things happen 
across-the-board. And we are committed to the realities that we 
are going to have to do more with less. And that is the message 
we get.
    Mr. Hurt. Thank you.
    I have about 30 seconds.
    Mr. Trasvina. Mr. Chairman, I would say that we are 
spending less, but also spending better.
    Now, I have been to your district, to the beautiful art 
building downtown, talking to your constituents about Section 
3, making sure that HUD dollars that are going to the community 
aren't just going to the infrastructure, but they are going to 
the people, and being able to provide local programs to hire 
public housing residents, low-income residents, as well as 
contracting opportunities for the companies right in your 
district.
    That extends the impact of HUD dollars.
    Mr. Hurt. Thank you very much.
    It is now my pleasure to recognize the ranking member, Mr. 
Gutierrez, for 5 minutes.
    Mr. Gutierrez. Thank you very much.
    Assistant Secretary Marquez, the Administration has 
proposed a $2 million reduction in funding for housing 
opportunities for persons with AIDS.
    How many fewer people will be served? And has it been 
demonstrated that HIV interventions are less effective when the 
individual does not have stable housing?
    Currently, there are 145,000 households in need that go 
unserved. How will HUD meet this need with a reduction in 
funding?
    Ms. Marquez. Thank you for the question.
    The HOPWA Program this year, I think, comes full circle. We 
are working with the Administration and many other agencies on 
an integrated approach for our first Federal plan on dealing 
with folks and helping them.
    I think--we are not going to serve less. I think what is 
important is where we are focusing.
    Part of what is going on here is that we are asking for a 
change in the formula so that it more specifically focuses on 
where the need is. So, we are updating. We are going to 
continue to focus in on the lowest-income folks.
    In fact, our program very specifically targets those who 
are extremely low income. So, we are taking care to help them 
and to understand that someone who is struggling and moving 
forward with HIV doesn't just need housing; they need all the 
other services that come from an integrated approach.
    Mr. Gutierrez. Yes, and that is why it surprises me that 
given inflation and given the higher cost and the higher 
demand, and the fact that 140,000 people go unserved, that you 
would reduce that part of the budget. Especially when I take 
into consideration your comment about how you have reduced it 7 
percent, taken other incomes that are coming in that at a time 
that we would reduce that.
    So, that is one point.
    Secondly, to Commissioner Galante, HUD has proposed a $10 
million increase in funding for housing counseling. But that 
$55 million is still far below the $87.7 billion for Fiscal 
Year 2010.
    Can you explain to us how--given that you are going to come 
into money, especially $1 billion, that you would spend less 
money on counseling when people will probably need it?
    I guess that is the reason everybody agreed to the $25 
billion because they were screwing people over if they wouldn't 
have agreed to the $25 billion. And some of us even believed 
that the $25 billion really doesn't go far enough.
    So, how is it that you are going to have less money this 
year for housing counseling?
    Mrs. Galante. Thank you for the question.
    Let me just say that we do believe in the importance of 
housing counseling and know that housing counseling has a great 
effect on borrowers and their decision-making, particularly 
through the loss mitigation process.
    We are working hard to ensure that the new Office of 
Housing Counseling, which we are in the process of setting up, 
will be operated efficiently and get the money out quickly to 
the grantees.
    And, the $55 million is in the category of a tough choice. 
We obviously would like to provide even more housing counseling 
dollars.
    However, I would say that we are working with the State 
attorneys general on that settlement agreement. As you mention, 
there are significant dollars in the settlement that can be 
used separately from HUD's housing counseling program to fund 
housing counseling agencies--
    Mr. Gutierrez. I would think that would probably be a wise 
choice of the dollars, given that you are decreasing the amount 
of money that you are targeting to counseling.
    I think counseling, as you and others who have come before 
this community from HUD have testified, is very cost-efficient 
and very important in order to keep people in housing.
    So, I just have a little bit--there is some other stuff 
here, especially given the fact that--the minimum rent. HUD had 
one standard and PHA had another. They were 50. You guys had 
25.
    For 14 years, you guys had 100 percent less minimum rent. 
And now, you are telling everybody there is going to be no 
discretion.
    And I know that a lot of people just tend to think that it 
is not a lot of money, especially if you make, like a 
Congressman, $725 a day. It doesn't seem like a lot of money.
    But for someone who makes less than $250, I would hope that 
you would take a look at that. Otherwise, we are going to 
continue to hear--and you are going to continue to hear from 
people who say, ``There are all these people in the Section 8 
Program, and if they would simply move off the Section 8 
Program so that other people could get on the Section 8 
Program, it would be a great Section 8 Program.''
    That is kind of like saying, there are all these sick 
people, and there is only so much money to cure them. So, let 
us stop curing them. Get those people off who are sick. Let us 
get those people off who need an education. Let us get those 
people off.
    So, I just hope that we could do that and look at it that 
way.
    Thank you very much.
    Mr. Hurt. Thank you, Mr. Gutierrez.
    I now recognize the gentlelady from West Virginia, Mrs. 
Capito, for 5 minutes.
    Mrs. Capito. Thank you, Mr. Chairman.
    I want to thank the witnesses as well.
    Mrs. Galante, we have talked a lot about HUD's capital 
ratio, the concerns that we all have on this committee and that 
the Administration has as well.
    The budget, the 2013 budget, shows a potential draw-down of 
the Treasury of $688 million.
    Am I understanding this--so, first of all, my main question 
is, is FHA broke? That is a concern in simple language.
    But is the $688 million that is reflected in the budget, is 
that the hole that is being plugged by the $1 billion servicer 
agreement, and if that is the case, what about next year?
    What are you looking at as you look over the rainbow a 
little bit?
    Mrs. Galante. Thank you for the question.
    This is confusing information. And so just to be clear, FHA 
is not broke.
    The capital reserve is a $688 million would be to 
essentially top off a capital reserve for expected 30 years' 
worth of claims. So, we have currently $33 billion in an 
account for paying claims.
    The budget had projected that in order to meet our full 
obligations over that 30 years, we would need to draw $688 
million to put into the capital reserve account.
    And as a result of the work that we did on the settlement, 
as a result of the premium increases that we talked about and 
announced yesterday, that will more than fill that gap for 
Fiscal Year 2012.
    But also if you look at the budget, the projection for 
where the capital reserve account will be by the end of 2013, 
with all the book of business we are doing throughout 2012 and 
2013, and with all the premium increases baked into the budget 
plus the additional ones, we expect to be at a capital reserve 
of $8 billion by the end of 2013.
    That still isn't up to the 2 percent. But it is significant 
progress.
    Mrs. Capito. So, do you anticipate that 2014 will have 
another shortfall projected? Or can you tell?
    You are saying that--but if you combine the $1 billion 
servicing agreement along with the fee increases, that should 
put you over the hump to then move forward for the next 30 
years after--on a sight unseen of what the future but--
    Mrs. Galante. Yes. So, that is correct--
    Mrs. Capito. Okay--
    Mrs. Galante. Again, I do want to say that we are in a 
dynamic situation and economy here. We do look at these numbers 
on a regular basis. We do the actuarial study where we will 
again look at what the house price projections are, what 
interest rates are.
    And all of those things will factor into our future 
projections of what we need in the capital reserve account.
    Mrs. Capito. So, the most precarious FHA loans are the ones 
that went forward in 2006, 2007, and 2008? What are you finding 
in terms of the default rate? Is it rising? Is it falling? Is 
it steady?
    Mrs. Galante. Our default rate and our delinquency rate on 
the new book of business is--
    Mrs. Capito. New book being after--
    Mrs. Galante. I would say the second half of 2009 forward 
essentially. 2009 was a bit of a transition--
    Mrs. Capito. Right.
    Mrs. Galante. --year. So, the second half of 2009 and 2010, 
2011, and 2012 have very low early payment default rates 
compared to previous years where I think it was 0.37 percent in 
2011 compared to 2.5 percent in early payment default in those 
other years that we talked about.
    And delinquency rates--seriously delinquent loans again 
even if the--with the same seasoning effect are substantially 
lower for this newer book of business.
    Mrs. Capito. So, I guess--I didn't mean to interrupt, but I 
am kind of running out of time here.
    What I am wondering here is as you look at the current book 
of business from 2006, 2007, 2008, and the first part of 2009, 
are those defaults and delinquencies growing, or are they 
staying steady as to what they were say last year from that 
book of business?
    In other words, are those getting worse as time goes on, or 
are they steadying out?
    Mrs. Galante. We have projected those loss rates and the 
delinquency rates. Part of the issue right now is they have 
been persisting. There are loans that are 90-plus days 
delinquent that haven't gone to foreclosure. They are kind of 
stuck.
    But generally, I would say they are not getting better at 
this point. And we have projected substantial losses from those 
books.
    Mrs. Capito. All right. Thank you.
    Mr. Hurt. The gentlelady from New York, Ms. Velazquez is 
recognized for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Bostic, the agency proposed to combine the public 
housing capital and operating funds into a single funding 
subsidy. And is it possible that this will shift the focus away 
from tenants' needs, and allow housing authorities that are 
facing budgetary constraints throughout the country to divert 
limited resources to overhead and administrative costs?
    How can we ensure that the needs of repairing and tenants 
are addressed?
    Mr. Bostic. I actually think this is a question better 
directed to Secretary Henriquez.
    Ms. Henriquez. Thank you for the question.
    The ability of our requests to have housing authorities 
combine operating and capital so that they can meet for 
eligible expenses on the operating side and the capital side, 
we don't see this as diverting money from the capital.
    Capital needs remain--
    Ms. Velazquez. --the possibility that it could happen.
    Ms. Henriquez. So, I would never say it will never happen. 
But I think we have tools and monitoring and assessments in 
place to prevent that from happening.
    The capital needs are real. And housing authorities' first 
and foremost mission is to make sure that their residents are 
housed appropriately.
    We have created a number of tools, peer-to-peer, 
comparability tools, so that we can go in, we can assess and 
look at how money is being spent, making sure that it is spent 
appropriately and that the unmet capital needs do not continue 
to increase disproportionately to the amount of money 
available.
    I would also say that currently, housing authorities of 250 
units or less already have the ability to merge and use their 
capital and operating together. And what they find when they do 
that is generally a shift to try and amass enough cash so that 
they can do capital work that is significant to enhance their 
properties moving forward.
    We score them. We monitor that on an annual basis as well, 
so we can keep track of how things are going and what those 
portfolios look like, and how those units are being improved.
    Ms. Velazquez. I have no issue with that. I just want to 
make sure that oversight is going to be in place. And that the 
tools that you have will be used to make sure that you monitor 
the situation.
    Ms. Henriquez. We agree with you.
    Ms. Velazquez. Ms. Marquez, in the Fiscal Year 2013 budget, 
Community Development Block Grants will be flat funded at $2.6 
billion. However, this is $300 million less than Fiscal Year 
2011.
    My question is, how will basic services in cities like New 
York be affected by continuing this cut to a program that has 
helped revitalize and empower communities, especially urban 
communities, through job creation, economic development, and 
expansion of homeownership?
    Ms. Marquez. Thank you for the question.
    There is no doubt that local communities are feeling a very 
powerful pushback from the cut in funding. And there is no 
question that HUD was faced with very difficult choices this 
year.
    As your question to Assistant Secretary Henriquez really 
does point out, our focus is first on ensuring appropriately 
safe housing for those for whom we already have this 
responsibility.
    Having said that, for CDBG this year flat funding, what we 
are committed to making sure is that we are providing all the 
help necessary to help local communities make smarter choices, 
streamline when necessary, restructure.
    Assistant Secretary Bostic spoke about OneCPD. We have 
spent the last 2\1/2\ years completely revamping how it is that 
we actually help local communities with professional cutting-
edge consulting and technical assistance.
    So, OneCPD is already fully functional. We are in many 
large and small places helping them take a look at their 
markets.
    But at some point, you are correct that it is not enough 
just to be efficient. They will have to reprioritize. And there 
will be some things that they can't do--
    Ms. Velazquez. So, you agree with me that at a time when 
the economy is still fragile, and we are not creating the jobs 
that we need in order to get the economy to grow, this is not 
the time for this investment in programs that provides jobs, 
that creates jobs, and revitalize our communities?
    Ms. Marquez. I agree with you that had we had any other 
choice to make, we would not be cutting CDBG and the HOME 
Program.
    Ms. Velazquez. Maybe we need to look into closing tax 
loopholes, and that will give us the revenues that we need.
    Thank you, Mr. Chairman.
    Mr. Dold [presiding]. The gentlelady yields back.
    The Chair recognizes the gentleman from California, Mr. 
Miller, for 5 minutes.
    Mr. Miller of California. Thank you, Mr. Chairman.
    I want to thank all of you for your testimony. I know you 
are in a difficult time, and you said difficult times in your 
opening statement. These are tough times for our industry out 
there.
    And I agree. You need to reduce the risk to taxpayers. Mrs. 
Galante, you mentioned that, and I support you in that.
    Fee increases, if they are applied to safety and soundness 
and making sure the FHA is solvent, I think that is a 
reasonable approach. But there are some problems I have with 
the way the system is structured.
    I support Section 8. I think Section 8 needs some reforms, 
but I have always been supportive. So, I am not your opponent 
up here. Don't get me wrong there.
    But people move from Section 8, usually to apartments. They 
move from apartments to condominiums, townhomes, and then move 
to single family homes.
    And the problem I have is the structure that you are 
applying to loans today. Between the GSEs and FHA, you are the 
only group in the market. If it wasn't for you, we would be in 
serious trouble. And if it weren't for the GSEs, there would be 
no money out there available.
    But if you look at the residential marketplace, the 
majority are built under a non-Davis-Bacon period. If you are 
looking at the commercial/industrial, the vast majority are 
built under Davis-Bacon. So we wouldn't be arguing that on 
commercial/industrial.
    But your mandate is that a builder who wants to go out and 
finance a construction project through FHA must build in a 
Davis-Bacon rule. So an apartment complex, let us say if a unit 
costs $60,000 to build, based on what it is costing today, that 
apartment is going to cost $72,000 to $75,000 to build today. 
If you are dealing with a condo that would cost $80,000 under 
non-Davis-Bacon, you are talking about $96,000 to $100,000 to 
build it under Davis-Bacon.
    But when you say we need to reduce the risk to taxpayers by 
the mandate of Davis-Bacon, you are increasing the risk to 
taxpayers. Because if you increase the cost that you are 
financing, if something goes wrong, you are picking up the 
losses.
    So, if we are really trying to help people at the bottom 
end to get out of Section 8, and to help more people, then they 
are going to the next level; by increasing the cost of 
construction, you are increasing the risk. By increasing the 
cost, you are increasing the risk to the taxpayers.
    And that doesn't make any sense to me why we are doing 
that. If forcing privately financed projects to be subject to 
Davis-Bacon is driving up the cost and decreasing 
affordability, why does Davis-Bacon have to apply to FHA?
    Mrs. Galante, maybe you can explain that to me?
    Mrs. Galante. Thank you for the question.
    There is no doubt that in order to have appropriate wages 
paid on construction projects that may cost more--
    Mr. Miller of California. Wait, wait, let us stop right 
there.
    If the vast majority of residential projects, and it is 
without a doubt the vast majority of them, what you write, are 
non-Davis-Bacon. That is a fact.
    The vast majority of commercial/industrials are Davis-
Bacon. I won't argue that.
    I am not against you. That is not what I am saying. But 
your mandate increases costs, increases the loan amounts, and 
thereby if something goes wrong, increases the risk.
    Your job is to make sure you are accountable to the 
taxpayer to be able to serve the most people you can serve out 
there, and decrease the risk, decrease the cost, and make sure 
the FHA is solvent.
    But what you are doing is counter to solvency. So, I don't 
want to get into your argument. Your job is not to determine 
what the construction industry does. That is the construction 
industry's job.
    Your job is to make sure you write safe and sound loans.
    How can you justify increasing the costs, thereby 
increasing the risk, when if you are going to conventional 
lenders, they don't do that? But there are no conventional 
lenders out there today in the marketplace--that is my 
question.
    I am not trying to be mean. I am just--that is not your 
concern. Your concern is making the safest loans you can make. 
Is that not true?
    Mrs. Galante. Absolutely--
    Mr. Miller of California. And making sure that FHA is 
solvent. Is that not true?
    Mrs. Galante. Absolutely.
    Mr. Miller of California. Then, please address that. That 
is my question--
    Mrs. Galante. Let me just say, the developments are 
underwritten based on their--not just their construction costs, 
but also their economic value based on their rent. So, we are 
looking at an appropriate value for that property based on 
appraisal, based on underwriting techniques. So, we are taking 
that into consideration when we are insuring these loans.
    Mr. Miller of California. Okay. But the other side is if 
you do build a unit under conventional financing, 3 years later 
you can finance it through FHA.
    And there is no doubt there is a benefit to the FHA loan 
guarantee. You will get a better rate, because the lender knows 
there is a guarantee at the end.
    So, if it is good 3 years later, why isn't it good from the 
onset, when you could reduce costs and provide more 
affordability?
    Mrs. Galante. Again, I need to say that this is a 
longstanding important policy of the FHA to encourage this kind 
of--
    Mr. Miller of California. And I think that is good. But 
some policies have gone wrong.
    You coming back to Congress and saying that your default 
rate has reduced your reserves to the level they are at, means 
something needs to change. And I would strongly encourage you 
to look at this and look to Move to Work.
    And I am out of time.
    I yield back. Thank you very much.
    Mr. Dold. The gentleman yields back.
    The Chair recognizes the gentleman from Texas, Mr. Green, 
for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    And thank you for allowing me to be a part of the 
subcommittee.
    I also thank the witnesses for appearing today.
    Ms. Marquez, I would like to thank you especially, because 
I am most appreciative for the hands-on approach that you have 
taken to resolving some of the concerns that we have.
    I especially thank you for working with our Houston Housing 
Authority. It means a lot that you have embraced it the way you 
have. So, thank you very much.
    Mr. Trasvina, I want to thank you for the report that you 
have given concerning the language translations. I think it is 
important.
    In my district, the ballot is printed in four languages: 
English; Spanish; Vietnamese; and Chinese. And it is printed in 
these languages for citizens so that they can make intelligent 
choices when they are voting.
    And it seems appropriate that people who need counseling, 
people who may be at risk of losing a home. would have an 
opportunity to make some intelligent choices by having language 
that they can understand.
    So, I thank you for your report.
    I would like to move on to something that is somewhat 
rhetorical. It may not require a response. But we have a lot of 
people approach us with questions.
    And I rarely have people approach me and say, ``Why are you 
spending so much money on poor people?'' As a matter of fact, I 
have never had anybody approach me about overspending on poor 
people.
    I have never had anybody approach me about families making 
$250 a month, which is about $3,000 a year. With this increase, 
they will be paying a third of their income, $75, a third of 
their income, 30 percent of their income toward their rent.
    But these are people who legitimately are making $250 a 
month. And it is hard for some, I think, to understand that 
there are people who actually have families and are making $250 
a month.
    We live in a world here that doesn't allow us to always go 
into areas where there are people who really do make $250 a 
month--a lot less, to be quite candid, for some others. And 
they really do need help.
    This country is not ultimately going to be measured by how 
many millionaires we lend money to. My suspicion is that when 
people look back through the vista of time, the question will 
be, how did you treat people who were living in the streets of 
life, as opposed to people living in the suites of life?
    So, doing things to help poor people has never really been 
a question that I have had a lot of people ask me.
    Here is what I have had people broach with me. People ask 
me, ``Why is it that people who make over $1 million a year get 
all of the breaks?'' This is what I hear.
    Now, we know that they don't get all of the breaks. But 
people want to know why is it that people who make over $1 
million a year can't pay a little bit more when they have had a 
reduction in the rate that they pay, why can't they pay a 
little bit more on what they make over $1 million a year?
    Some things bear repeating.
    We are not talking about what they make up to $1 million. 
But let us talk about what they make over $1 million a year.
    Why is it that people who make over $1 million, who have a 
tax rate that is lower than their secretaries and other persons 
who work with them, why is it that you can't raise their rate 
so that they can pay a little more, given that they at one time 
paid this little more that we are talking about, and the 
country did quite well?
    This is the kind of thing that people approach me with. And 
quite frankly, I don't expect any of you to answer the 
question. I just want to put things in a different perspective, 
so that we can understand that this is about this country, not 
just about poor people getting all of the breaks.
    There are poor people who need these services that are 
being provided. And this is what separates America from the 
rest of the world to a certain extent.
    There are some other countries that do well. But we treat 
people who are not in the best of circumstances with a degree 
of dignity and respect. And I respect what you are trying to 
accomplish with this budget.
    I thank you for the time, Mr. Chairman, and I thank the 
witnesses for appearing. I yield back.
    Mr. Dold. The gentleman yields back.
    The Chair recognizes himself, at this point in time, for 5 
minutes.
    And I certainly want to thank the witnesses again for 
taking time to join us today, and for the work that you are 
doing.
    Last October, the Washington Post published an article 
detailing some of HUD's condominium regulations and the damage 
that they were inflicting on the condominium owners, sellers, 
buyers, and association members.
    These regulations included prohibiting condominium 
purchases in a property with more than 25 percent of commercial 
space, even though HUD seems to also be promoting a town center 
model.
    HUD also prohibits condominium purchases if more than 15 
percent of the association dues are delinquent for 30 days, 
regardless of the association's financial health, and even 
though bank-owned units always get paid off when the unit is 
sold.
    And many State laws prevent the association collection 
actions until dues are 90 days delinquent.
    HUD also requires that 50 percent of the units on a 
property be owner-occupied. And this ratio includes bank-owned 
properties. This policy makes it very difficult to reach. The 
ratio is those who can't sell quickly are forced to also rent 
out their units.
    Finally, association board members are subject to severe 
personal liability if they make any mistakes in the time-
consuming, expensive, and complicated certification process, 
which generally means that they won't even attempt to certify 
their units.
    Meanwhile, my understanding is that FHA's condominium 
portfolio is performing better than the single family home 
portfolio. And condominiums are frequently the most affordable 
option for first-time homebuyers.
    So, what is the purpose of these seemingly severe and 
counterproductive restrictions?
    Is there anyone reviewing the sensibility and efficacy of 
these condominium regulations?
    Mrs. Galante, we will start with you.
    Mrs. Galante. Yes, thank you very much for the question.
    And let me just start by saying that there is no reason you 
would know. I actually was involved in building and managing 
and financing condominiums in California for a number of years. 
So, I do understand the importance of condominiums to first-
time homebuyers and to the market in general.
    And I would say that there was a group of proposed rules on 
condominiums that were consolidated and proposed. Since I have 
come in, I am looking at a number of these issues very closely.
    We will be issuing a proposed regulation that will be able 
to get public comment on. In the meantime, we had put out this 
mortgagee letter that had some of the restrictions and issues 
that you raise.
    And again, I will just commit to you here without going 
through every one of them, some of these, I think, we can make 
some adjustments in. There are others that, frankly, we do have 
to walk an important line here in terms of ensuring that the 
condominiums in which there are FHA-insured loans are stable 
operating concerns, because there obviously is a concern about 
the risk of that for the FHA fund.
    Mr. Dold. Okay, good. I am delighted to hear that.
    My next question relates to the Fair Housing Discriminatory 
Effects Standard, a proposed rule issued for comment last 
November 16th.
    As I understand the proposed rule, HUD takes the position 
that the Fair Housing Act provides for the liability based only 
on discriminatory effects without requiring any finding of 
actual discrimination.
    And in the preamble, HUD provides examples of housing 
policies or practices that may have a disparate impact. One of 
these examples is: ``the provision and pricing of homeowners 
insurance.''
    At the same time, though, the McCarran-Ferguson Act of 1945 
clearly gives State regulators jurisdiction to regulate 
homeowners' policies. Which includes: the provision and pricing 
of homeowners insurance.''
    So, it seems that HUD's recent proposed disparate impact 
rule regarding homeowners, and more specifically homeowners 
insurance, conflicts very directly with well-established 
Federal law leaving such regulations to the States.
    This leads to my questions, which I will kind of make into 
a three-part question.
    First, what is HUD's intent in issuing the proposed rule? 
And what objectives does HUD intend to accomplish with it?
    Second, does HUD's intent interfere with the way the State-
regulated insurers underwrite homeowners insurance?
    And third, in its final rule shouldn't HUD clarify that HUD 
is not exceeding its legal jurisdiction, and is not infringing 
on other State regulator jurisdiction by clearly stating that 
this rule doesn't apply to State-regulated insurance products 
such as homeowners insurance?
    Mr. Trasvina. Mr. Chairman, this rule is--the disparate 
impact rule that, as you know, was promulgated in November of 
last year is intended to clarify the coverage of actions taken 
of policies and practices taken that have a disparate impact on 
the protected classes and under the Fair Housing Act.
    This essentially makes clear what every circuit court of 
appeals that has reviewed the coverage of disparate impact has 
already declared, which is that disparate impact standard is 
covered under the Fair Housing Act.
    It also establishes what the real requirements of a 
complaint must show, and what a defendant can show as a 
defense, as these cases are going before the courts.
    On the issue of insurance, insurance has always been 
covered under the Fair Housing Act, and in your part of the 
country in Illinois, in the 7th Curcuit, Judge Easterbrook made 
it clear that the Fair Housing Act covered insurance issues.
    So, we do not see it as going into a new area or an 
extension of the current parameters of the Fair Housing Act.
    Mr. Dold. We might have a little bit of a disagreement on 
that, but my time has expired.
    The Chair recognizes the gentleman from North Carolina, Mr. 
McHenry.
    Mr. McHenry. Thank you, Mr. Chairman.
    And to follow up on the chairman's question, Assistant 
Secretary Trasvina, has the Supreme Court ruled on disparate 
impact?
    Mr. Trasvina. All of the circuit courts have ruled.
    Mr. McHenry. So, the answer is no?
    Mr. Trasvina. The answer is no.
    Mr. McHenry. Okay. Are you familiar with the City of St. 
Paul's decision to withdraw their petition for review from the 
Supreme Court?
    Mr. Trasvina. Yes.
    Mr. McHenry. The Magner v. Gallagher case.
    Mr. Trasvina. Yes.
    Mr. McHenry. Did you have any interaction with or 
consultation with the City of St. Paul in that process?
    Mr. Trasvina. No.
    Mr. McHenry. Has anyone at HUD had conversations in that 
regard with the City of St. Paul?
    Mr. Trasvina. I am not aware of any conversations with the 
City of St. Paul on that matter. We have worked with the City 
of St. Paul on a number of matters related to fair housing.
    In fact, we are about to add them to our Fair Housing 
Assistance Program because they have a substantial equivalent 
for a housing law.
    Mr. McHenry. Have you had any conversations with former 
Vice President Mondale who apparently, according to press 
reports, did connect and reach out to the City of St. Paul and 
request that they withdraw their petition to the Supreme Court?
    Mr. Trasvina. I would love to have talked to Vice President 
Mondale, but no, I have not.
    Mr. McHenry. Okay, all right, good answer. That is good.
    But do you--apparently the City of St. Paul believed that 
they would have won the case at the Supreme Court level, and 
that was regarding the disparate impact analysis rule within 
HUD.
    Do you agree?
    Mr. Trasvina. I take the mayor of St. Paul--whom I have 
been in press conferences with--at his word and his attorney's 
word that the issue for them was not to narrow the Fair Housing 
Act. They were dealing with a situation that his predecessors 
had brought up in previous years to deal with conditions of 
rental housing in St. Paul.
    So, I don't think their intent was to narrow the Fair 
Housing Act. They were going to take this matter to court. And 
it will be decided there.
    Mr. McHenry. Okay. Are you aware of HUD, DOJ, or any other 
Federal entity providing advice or influence to the City of St. 
Paul on this matter?
    Mr. Trasvina. I am not aware of any advice or influences 
being given.
    Mr. McHenry. Do you have any concerns in terms of your 
regulatory movement within your oversight about codifying the 
disparate impact analysis and what the legal ramifications 
would be and the uncertainty that it would create?
    Mr. Trasvina. No, in fact quite the opposite, Congressman.
    Having a regulation will clarify, again as I said, what the 
10 circuit courts have already ruled. They will give due notice 
to complainants and to respondents what--how we will examine 
Fair Housing Act disparate impact matters under the Fair 
Housing Act. And it will give them due notice as to what kind 
of evidence they need to provide and what kind of defenses they 
have available.
    Mr. McHenry. Okay.
    Mr. Trasvina. It will bring clarity rather than bring 
confusion.
    Mr. McHenry. So, do you believe that use of the disparate 
impact claim under the Fair Housing Act has solid legal ground?
    Mr. Trasvina. As I said, it has been upheld by virtually 
every circuit court that has reviewed it, yes.
    Mr. McHenry. Okay. Mr. Chairman, if you wanted to continue 
your line of questioning on that, I would be happy to yield 
back to you.
    Mr. Dold. I thank the gentleman, but I am good at this 
point.
    Mr. McHenry. Okay. Thank you for answering these questions.
    And with that, I would like to ask unanimous consent to 
submit for the record a Wall Street Journal piece from February 
12, 2012, entitled, ``Squeezed in St. Paul,'' that details that 
under pressure from the Obama Administration, the City pulled 
their Supreme Court case, the Magner v. Gallagher case, on the 
disparate impact claim.
    Mr. Dold. Without objection, it is so ordered.
    Mr. McHenry. Thank you.
    And with that, I yield back the balance of my time.
    Mr. Dold. The gentleman yields back.
    The Chair recognizes the gentleman from Georgia, Mr. 
Westmoreland, for 5 minutes.
    Mr. Westmoreland. Thank you, Mr. Chairman.
    I just want to ask my friend from Texas one quick question 
about clarification. When you said people make $250 a month, 
are you talking about from wages?
    Mr. Green. Speaking of the persons who are impacted with 
the $75 and their families, they are making $250 per month. Or 
that is what they have as an income.
    Mr. Westmoreland. But you used the word ``make.'' Is that 
from wages or is that just from income?
    Mr. Green. Quite candidly, I don't have the information as 
to how they make the money. I can draw some assumptions, but I 
don't have actual evidence of how they make it.
    Mr. Westmoreland. Thank you, sir.
    Mr. Green. Thank you.
    Mr. Westmoreland. I was reading the testimony, and I know 
that you all did a combined testimony.
    On page three, it talks about the hundreds of thousands of 
jobs that this budget creates. How did you come up with the 
numer of jobs? And do you have an exact figure? Hundreds of 
thousands of jobs is a lot of jobs. And I was just wondering if 
any of you has an answer as to exactly how many jobs it was and 
how you came up with the estimate.
    Mr. Bostic. I would be happy to speak to that--
    Mr. Westmoreland. Yes, sir--
    Mr. Bostic. --and I thank you for the question.
    I can't tell you an exact number today, but I can get that 
information for you.
    My staff has--
    Mr. Westmoreland. What do you think? Is it 100,000, 
200,000, 300,000, 400,000?
    Mr. Bostic. I don't remember the exact numbers. It is 
several hundred thousand. And I can get you an exact number.
    But let me just explain sort of what we do. We have some 
details and physical models that look historically at what has 
happened with certain sorts of activities, and how that is 
translated into job creation. And we have compiled that 
information, crunched some fairly detailed models that my staff 
has taken quite some time to develop. And it offers projections 
and estimates about what certain sorts of activities should 
generate in terms of jobs.
    It also incorporates some of the spillover effect. So as 
you know, when there are jobs that are created, there are other 
support sorts of activities that will emerge to help make sure 
that those jobs are successful.
    So, the model incorporates all of those things. And we 
spend a fair amount of time going back and forth with a number 
of experts both in academia and labor fields and the like, to 
try to validate that.
    Mr. Westmoreland. If you can come up with those numbers, 
like I said, whether it is 100,000, 200,000, 300,000, 400,000, 
I just think it would be interesting to find out how many jobs 
it is, and what creates them within the budget.
    I know from reading some of your biographies that at least 
one person on the panel has had some involvement with the 
Community Reinvestment Act. And a lot of people believe that 
was a leading contributor to the mortgage crisis that we have 
had, was the fact of really some people being able to get loans 
who shouldn't have qualified. And maybe some things have been 
adjusted to do that.
    And on the same page, on page three, when you are talking 
about ensuring every American plays by the same rules, it 
mentions homeownership opportunities. Are we going back to some 
of the Community Reinvestment Act? And are we looking at 
homeownership opportunities by lowering some of the standards 
for getting a home loan?
    Mr. Bostic. That is a multipart question, so, let me speak 
to them in pieces.
    First, to the charge that CRA caused the housing crisis, I 
actually don't think there is very much evidence to support 
that.
    If you look at the source of--to the uncertainty, subprime 
loans, no-doc loans, all the crazy stuff that we have 
acknowledged, much of that was done by institutions, 
particularly in the early years, that were not even covered by 
CRA. So, the rush into that sort of product and the expansion 
of that was unrelated to CRA. And so, I think that the claim 
that CRA caused the crisis is somewhat misplaced.
    The second thing I would say is that it is really important 
to understand that homeownership that doesn't work is a 
disaster. This Administration has been fairly clear from the 
outset of its time here that sustainable homeownership is what 
we are seeking. And that reducing standards just to get people 
into a house, such that homeownership fails 6 months or a year 
from now, is a bad idea.
    We certainly don't want to do that.
    I have a great deal of confidence that we are not going 
there. And we will make sure that when people get to 
homeownership, it is in a way that they can stay there and we 
don't see the disruptions that we have seen in years past.
    Mr. Hurt [presiding]. Thank you, Mr. Bostic.
    Thank you, Mr. Westmoreland.
    Mr. Stivers from Ohio is recognized for 5 minutes.
    Mr. Stivers. Thank you, Mr. Chairman. And I have some 
questions mostly for Mrs. Galante.
    You said earlier, in an answer to Representative Capito, 
that you didn't think FHA was broke. But I am really worried 
about the exposure to the taxpayers. I do have some questions, 
many of which are answered in your testimony. And the first 
couple are pretty simple ``yes or no'' questions.
    FHA is congressionally mandated to maintain a 2 percent 
capital reserve ratio in the Mortgage Insurance Fund. Is that 
correct?
    Mrs. Galante. That is correct.
    Mr. Stivers. And in 2010, that capital ratio was at half of 
1 percent. At the end of last year, there was the GAO report 
that found it at about 0.24 percent or about a quarter of 1 
percent. Is that correct?
    Mrs. Galante. It was actually the independent actuary.
    Mr. Stivers. Oh, I am sorry, the independent actuary--but 
is that about where you would say it is today, at about a 
quarter of 1 percent--0.240, I think, is what I saw.
    Mrs. Galante. That is correct.
    Again, that actuary is done once a year and is based on a 
variety of economic inputs including how much insurance 
enforcement we have. So, it is not possible, like on a monthly 
basis, to--
    Mr. Stivers. I understand.
    So, if that is not broke, I guess, is it not broken until 
it gets to zero? Because we lost half the value of the reserve 
fund last year, and if we lose at the same rate this year, it 
will be at zero or below.
    I understand there is the settlement agreement with the 
servicers. And you are finally raising your insurance rates.
    But what does constitute ``broke'' if that is not 
``broke?''
    Mrs. Galante. Again, to be clear, the capital reserve 
account is--and the 2 percent is for ``Excess reserves beyond 
what the actuary predicts we need for 30 years' worth of 
losses.''
    So, we do have some $30 billion in our account to pay for 
losses.
    I am not saying that it is a good place to be on the edge--
    Mr. Stivers. Right, but it is congressionally mandated. It 
is the law of the land that you have to have 2 percent.
    My next question is--and maybe I am wrong about this--but I 
believe in 2009--and I wasn't here in 2009--Congress gave FHA 
the authority to raise their rates.
    You are finally going to raise your rates by 10 basis 
points this year on basic loans, and an extra--on jumbo loans. 
But the way my math works, you are actually authorized to raise 
your rates by about 30 basis points on all loans this year.
    And if your financial condition is where it is, and you are 
not meeting the 2 percent law that you are required to meet, 
why are you not raising your rates by the maximum allowed under 
law?
    Mrs. Galante. Yes, thank you for the question.
    Let me just say, it was in 2009 when we got additional 
flexibility to raise our premiums. We did not have it before 
then. We have more than doubled our rates since then. What is 
in the latest budget is just the additional amount.
    Mr. Stivers. But you haven't raised it the maximum amount 
every time you can?
    Mrs. Galante. We have not. And let me just explain why we 
have not. Because there is an important tenet here, which is we 
do want to raise the premiums as one place to go in terms of 
ensuring the health of the fund.
    But we are raising premiums on new borrowers to essentially 
deal with problems of the past. And at some point, you get into 
a very difficult situation in terms of the impact of that on 
borrowers and on this market that is in a very fragile 
recovery.
    So in our judgment, we are doing everything we can by 
raising premiums, by going after lenders, and ensuring that we 
are covering dollars that way, by ensuring that our REO process 
is recovering what we should be recovering through that.
    And so, we are using multiple measures, not just premium 
increases, to ensure that we will get the fund back to the 
capital reserve of 2 percent.
    Mr. Stivers. Right. And, there are three parts of the 
mortgage market: Fannie Mae and Freddie Mac; the private 
market; and FHA. Fannie and Freddie have raised their guarantee 
fees (g-fees) already. And you have not actually even kept up 
with the raises in the g-fees that Fannie and Freddie.
    So, doesn't that actually just drive volume to FHA, and 
make FHA potentially even more vulnerable over time because you 
are not raising your rates to an actuarially sound point?
    Mrs. Galante. Again, I would, I guess, need to differ 
somewhat on whether what we are doing is actuarially sound. We 
believe that again--
    Mr. Stivers. Can private mortgage insurance match your 
rates?
    Mrs. Galante. Pardon me?
    Mr. Stivers. Can private mortgage insurance match your 
rates?
    Mrs. Galante. I don't believe they are doing so. But--
    Mr. Stivers. Do you think that they are--are you saying 
that they are doing something that is more than actuarially 
sound then?
    That is what I would use that as a--certainly as a measure 
to say what is actuarially sound is what happens in the private 
marketplace. And government has a really bad history of 
mispricing risk.
    I know my time has expired. But I would ask you to take a 
serious look at that.
    Thank you, Mr. Chairman. Sorry for going over.
    Mr. Hurt. Thank you, Mr. Stivers.
    We now recognize Mr. Neugebauer from Texas for questions 
for 5 minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Secretary Marquez, as you know, our oversight committee had 
some hearings looking into the HOME Program.
    And on November 15th, we sent your office a request for 
some information that we felt would give the committee a lot 
more insight into some of the things that you are doing and the 
agency is doing to make some corrective action for some of what 
we felt were the deficiencies.
    Now, the response that your office gave us back is that if 
we did that, it would cost us $8.4 million to furnish you that 
information. Do you think it would cost $8.4 million to furnish 
that information?
    Ms. Marquez. Congressman, there have been several 
discussions with your staff and HUD over the months since 
November. We have been happy to work with your office and the 
staff of the committee.
    We have provided thousands of pages of documentation on 
time. We have responded to every letter and continue--and I 
understand we now have a meeting scheduled for this Friday to 
continue our discussion.
    Mr. Neugebauer. We thought--
    Ms. Marquez. We put the question to the contractor 
precisely that your office requested. And it was forwarded this 
week. It is in the hundreds of thousands of dollars, not 
millions.
    We corrected that. There was a miscommunication. It is now 
nearly $800,000.
    If you like, if you have other questions of the contractor, 
a contractor that I want to note--a contract that was entered 
into with the prior Administration, we would be happy to bring 
it forward.
    But regardless of the cost issue, we are happy to continue 
to work with your staff. And that is why we have a meeting now, 
several meetings, but one scheduled this Friday to continue.
    And if we can reach an agreement, we would like to.
    Mr. Neugebauer. Yes, I appreciate that.
    I felt like that was very inconsistent. For example, in 
2010, for all freedom of information requests that you had, you 
spent $1.2 million. And then you send me back this letter that 
says it is going to cost $8.4 million to do it.
    Now, maybe you are saying that the contractor is--it is 
$700,000 and some odd.
    This is a credibility problem for government. When the 
taxpayers say, hey, we have Members of Congress trying to do 
their job of doing oversight, asking for information that will 
help us make sure that the checks and balances that the 
founders put in place here. And yet your agencies over there 
are worried about furnishing us information.
    I felt like it was a stonewalling to throw up such a 
ridiculous number of $8.4 million.
    And so, I hope--and what I heard you just say is that you 
understand the importance of oversight. You understand the 
importance of what we are trying to accomplish. And that you 
are going to cooperate with us and make sure that you furnish 
this--what we think was very straightforward.
    We are not trying to create busy work over there. But we 
are trying to do what we are charged to do, and that is to make 
sure that the taxpayers' interests are appropriately 
represented.
    And so, are you all going to cooperate with us?
    Ms. Marquez. One of the things that I appreciate about you, 
Congressman, is that you and I are both straightforward.
    And we, in writing, corrected the estimate. It is now under 
$750,000. We have had several meetings. And I want to, again, 
note that the estimate comes from a contractor that was bid and 
approved by the Bush Administration.
    We are all bound by it. And they have corrected it. We put 
precisely the question you asked. They responded. We have 
provided you with their response.
    If you have any other requests, we have made clear, we are 
happy to forward them. And we have a meeting scheduled this 
Friday to continue this straightforward discussion.
    Mr. Neugebauer. Yes. I appreciate that. And I hope that 
will be a productive meeting because we think that the 
information that we requested is very important.
    We still think that these numbers are way too high. And I 
hope that you are taking action to make sure that: one, you 
furnish the documents; and two, you do it in the most cost-
effective way that you can for the benefit of the taxpayers.
    Ms. Marquez. Our commitment is to continue to work with you 
as we have been--and we provided thousands and thousands of 
pages.
    We continue to be completely transparent. And we look 
forward to the meeting this Friday.
    Mr. Neugebauer. I thank you, and I yield back, Mr. 
Chairman.
    Mr. Hurt. Thank you, Ms. Marquez.
    Thank you, Mr. Neugebauer.
    Our next questioner will be Mr. Sherman from California. 
You are recognized for 5 minutes, sir.
    Mr. Sherman. The initial part of my time will be the very 
best part of that time, because I yield 30 seconds to the 
gentleman from Texas.
    Mr. Green. Thank you.
    One of my colleagues posed a question earlier about the 
$250 and how this is acquired.
    I think it is a fair question. And I would like for someone 
to address the question.
    My assumption is that this is earned income. But if there 
is some other type of income that I am not aware of that we 
recognize as lawful income, I would like to hear someone talk 
about it, please.
    Ms. Henriquez. I will be responsive to your question.
    The $250 or whatever that dollar amount is for a family on 
a monthly basis is tied to either wages or it is lawful income 
through Social Security, TANF, or a variety of incomes, 
depending on the household, its size, the age of the head of 
household, and so on.
    If I might just take a moment, as we have talked about 
minimum rents, I want to make sure that it is very clear that--
    Mr. Green. I have to interrupt because I am on borrowed 
time.
    Ms. Henriquez. All right--
    Mr. Green. This is interest--
    Ms. Henriquez. --thank you.
    Mr. Green. I want to thank you for allowing me to apologize 
to you. I mispronounced your name earlier.
    Thank you, Brad.
    Mr. Sherman. Thank you.
    I have heard concerns about the FHA's policy concerning 
strategic defaults. Under the current FHA policy, homeowners 
who strategically default on their mortgage will not be able to 
obtain another FHA loan for at least 3 years.
    Alternatively, Fannie Mae's policy is to prevent the 
borrower from strategically--who has strategically defaulted 
from obtaining a Fannie Mae-backed mortgage for 7 years.
    I wonder if you can explain, Mrs. Galante, the FHA policy 
of 3 years rather than 7 years?
    And also, clarify whether--if you strategically default on 
an FHA loan, can you get a Fannie Mae loan the next day and 
vice versa?
    Mrs. Galante. Thank you. Let me just be clear about this 
question of a strategic default.
    I think there is a difference between FHA and Fannie and 
Freddie on--if you have gone through a foreclosure, any kind of 
foreclosure, in our world, in the FHA world, there are very 
strict servicing guidelines that if you have gone all the way 
through foreclosure, you have worked with your lender. You have 
been offered loss mitigation activities. So, we do not believe 
that these are people who are ``strategic defaulters.'' That 
doesn't mean they weren't foreclosed on.
    Mr. Sherman. So, do you treat all defaulters as strategic 
and otherwise the same, because there is no real way to tell 
who is strategic and who is just unable to pay?
    Mrs. Galante. Lenders are required as part of the loss 
mitigation activities to understand the circumstances of the 
individual borrower. So, there is some information there.
    Frankly, we are not collecting, of those who have 
defaulted, all the exact circumstances that got them into the 
foreclosure.
    I would say, I think, as we move forward with housing 
recovery where we want to look at people's ability to get back 
in to the market, looking at some level of consistency between 
the various lender institutions on how they might actually look 
at foreclosure--
    Mr. Sherman. So, you are 3 years. They are 7 years. You are 
looking towards some consistency in the future. But you are not 
there yet.
    Mrs. Galante. I would just say, I don't think we have 
actually started to have that conversation. And where the right 
place to be, I think, is still open to conversation--
    Mr. Sherman. And does the FHA try to distinguish between 
strategic defaults and other defaults, or just to have a 3-year 
rule with regard to defaults?
    Mrs. Galante. The 3-year rule--actually, there is 3 years 
and then there is a test of looking at whether there were 
particular extenuating circumstances.
    That will get looked at. Credit scores will definitely be 
affected when people have been foreclosed on, and so those 
things--
    Mr. Sherman. Okay--
    Mrs. Galante. --will get looked at--
    Mr. Sherman. Let me just--
    Mrs. Galante. --underwriting--
    Mr. Sherman. --squeeze in one thing. I know the question 
has already been asked. But I do want to associate myself with 
the concerns about condominiums.
    Certainly, the FHA rule that if you have 15 percent of the 
units delinquent with the association dues, that is a problem, 
and should be modified with regard to bank-owned units since 
banks typically pay, not monthly, although they should, but 
rather at the time of the sale.
    And also the--it seems to be that the condominiums are 
actually performing better than the single family homes. And I 
hope that FHA would accommodate those who want to buy 
condominiums.
    I yield back.
    Mr. Hurt. Thank you, Mr. Sherman.
    We now recognize the gentlelady from California, Ms. 
Waters, for 5 minutes for questions.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I am pleased that we have this panel before us today.
    I want to address my first question to Mrs. Carol Galante. 
I am very concerned about the Administration's proposal to 
short fund the contracts of project-based Section 8 owners. 
Under this proposal, owners would be funded from the start of 
their contract through the end of the fiscal year, and not 
through the end of their contract as it is counter to practice.
    The Bush Administration tried a similar policy that led to 
late payment to owners, increased costs, errors in forecasting 
expenditures, and at the end of the day still required $2 
billion to pay the back ends of the contracts.
    Also, I am aware that under your proposal in 2014, the 
program will still need the additional $1.1 billion. So, this 
policy doesn't really save any money.
    Given these demonstrated problems with this policy, I would 
like to know why the Administration is proposing it.
    Can you state--go ahead?
    Mrs. Galante. Thank you for the question, Congresswoman.
    Let me say this was one of the more difficult and painful 
decisions that HUD needed to make in looking at how to meet our 
budgetary projections.
    But we did do this in a way that we are not going to have a 
situation where owners are not getting paid during their fiscal 
year of their contract, or where tenants are at risk in any 
way.
    What this policy does is, if you think about it more as a 
just in time funding, the funding will be for the term--for 
some contracts--of the fiscal year. And then a calm at the 
beginning of the next fiscal year when they are due funding, 
that will need to be appropriated from the, in this case, 2014 
budget cycle.
    Ms. Waters. So, are you telling me there will be no late 
payments to owners?
    Mrs. Galante. That is correct during the fiscal year. And I 
will say that the Department in the past couple of years has 
been doing a much, much better job, has better forecasting 
tools. And we will be fully funding during the term of the 
fiscal year.
    And one other thing I would say, when this happened during 
the Bush Administration, one of the things that happened was it 
was--these contracts--this is not transparent to people.
    All of a sudden, it happened over a period of a number of 
years. And all of a sudden, there wasn't enough money to fund 
the contract.
    We are planning for the strategy that we are implementing 
here.
    Ms. Waters. Would you tell me exactly why you have to do 
this?
    Why do you have to do it?
    Mrs. Galante. Again, it is a difficult choice in terms of 
the overall HUD budget, and how we are going to live within the 
overall constraints of the Budget Control Act.
    And this was a choice, as one way to do it, that again did 
not disrupt payments during the fiscal year for owners or for 
tenants' assistance. But again, this was not an easy thing to 
do.
    Ms. Waters. So, you don't save any money doing this?
    Mrs. Galante. We do during the period of the fiscal year 
because the previous practice was if you had a contract that 
crossed fiscal years, that is really what we are talking about, 
we would fund the full 12 months.
    So, out of 2013 appropriated dollars, we would fund 12 
months' worth that would go into the next year for that owner.
    What we are saying now is we are funding essentially by 
fiscal year and just enough into the next fiscal year to keep 
the payments on track until the next appropriation.
    Ms. Waters. So in 2014, you will be asking for the whole 
amount?
    Mrs. Galante. Not necessarily. Again, it depends on how the 
contracts roll, and how many months of funding those contracts 
are going to need during 2014.
    So, again, at some point in time, you will end up with most 
of the contracts that have 12 months within the same fiscal 
year. And at that point in time, you will need enough 
appropriated dollars to fund all those contracts.
    And that is not likely in 2014. But it will happen at some 
point in time.
    Ms. Waters. Thank you very much. We still think it is a 
problem. And we are going to have to take a close look at that.
    Thank you.
    Mrs. Galante. Thank you.
    Mr. Hurt. Thank you, Ms. Waters.
    The next member to have questions will be Mr. Watt from 
North Carolina, for 5 minutes.
    Thank you.
    Mr. Watt. Thank you, and please accept my apologies for not 
being here. I was unfortunately delayed in a markup of bills in 
the Judiciary Committee and couldn't get here. It was certainly 
not a reflection of the importance of what we are talking 
about. But markups do take precedence over hearings most times.
    So, Ms. Henriquez, some of my housing authorities have 
expressed serious concerns about the proposal to draw down 
``excess'' reserves. I have used the word ``excess'' in 
quotations. They don't think they are excess. They got built up 
in a lot of cases by housing authorities being told by prior 
Administrations that they were going to be required to be more 
entrepreneurial.
    And so, they complied with the mantra that they should 
become more entrepreneurial, built up some reserves, and now we 
are back taking those reserves from them when they could have 
used them in prior years to do something else, as opposed to 
building up the reserves, such as maintain their properties or 
serve more people with Section 8 vouchers.
    My line of questioning actually has to do with that. The 
budget is level-funded for Section 8 vouchers. Market rents are 
rising at the rate of about 2 percent per year. And new 
families are coming on to the Section 8 voucher program, which 
means that one could reasonably expect that Section 8 vouchers 
are going to need more money.
    And you propose to cover that by requiring agencies to 
cover part of these costs by spending down these ``excess 
reserves.'' You required housing authorities to draw down $650 
million in excess reserves in 2012. So in light of that, my 
question is, what is HUD's estimate of the amount of excess 
reserves that will be available in 2013? And how much does the 
HUD request assume that agencies will have to draw down to 
cover these costs in 2013?
    Do you think that is a reasonable source to be getting this 
money from if we are going to still expect housing authorities 
to be entrepreneurial or have we given up on that approach?
    Ms. Henriquez. Thank you for the question. We have not 
given up on the entrepreneurial approach for housing 
authorities. But I do want to be clear--
    Mr. Watt. Does that require some reserves--
    Ms. Henriquez. In--
    Mr. Watt. --to be entrepreneurial?
    Ms. Henriquez. It could. But let me explain--
    Mr. Watt. Okay--
    Ms. Henriquez. --further.
    Mr. Watt. I will leave you alone. Go ahead. I asked my 
question, go ahead.
    Ms. Henriquez. Okay. In 2012, the reserve or the allocation 
that we required housing authorities to draw from was from 
their operating reserve, on their public housing operating 
account. And that was $750 million.
    Those reserves have built up to in excess of $3.8 billion. 
We established a floor, a minimum under which we thought 
housing authorities being well-operated should not go below. 
And we worked with the system and looked at the numbers from 
their own audited financials to determine that level.
    In the 2012 budget as well, there is an offset on the net 
restricted assets, which comes from the Section 8 voucher 
program. That amount is set at $650 million. It allows for 
housing authorities to retain about a 7 percent reserve, 7 
percent of their program.
    And I would say that taking this offset in that restricted 
assets from the voucher program is something that has occurred 
in past years primarily in 2007 or 2008 and 2009 as well.
    The Section 8 reserves can only be used for Section 8 
voucher purposes and not anything else.
    We have created a tool for housing authorities to be able 
to use their net restricted assets to try to increase the 
number of vouchers that they put under--so that they are not 
building up ``excess net restricted asset reserves,'' so that 
we can house more people.
    And through the mechanism, using the tool, working with 
housing authorities in the last fiscal last year, we put more 
than 40,000 or 50,000 more households in voucher-assisted units 
across the United States.
    Mr. Watt. Mr. Chairman--
    Mr. Hurt. Without objection, the gentleman will be 
recognized for an additional 2 minutes.
    Mr. Watt. I just wanted Mr. Bostic--I don't even know what 
his testimony was about--but he seemed to have a dog in this 
fight. And I wanted to at least have him have the opportunity 
to respond to this. He seemed to be on the other side just 
judging from his facial expression.
    [laughter]
    Mr. Bostic. People tell me all the time that my facial 
expressions get me in trouble.
    I actually have no dog in this fight.
    Mr. Watt. You have no dog in this fight--
    Mr. Bostic. No.
    Mr. Watt. Okay, I just misread your facial expressions. 
Does anybody else have a dog in the fight, who is contrary to 
Ms. Henriquez?
    Everybody seems content. Just my entrepreneurial housing 
authorities that say they are now are getting whiplash, because 
they built up these reserves under prior Administrations, and 
now the policy seems to have changed about how entrepreneurial 
you should be.
    Ms. Henriquez. The policies have not changed about being 
entrepreneurial. What has changed is we are requiring housing 
authorities to spend the money.
    And for housing authorities in your State and across the 
Nation, when those housing authorities had questions about the 
adjustment allocation, their operating reserves, we actually 
asked them and worked with housing authorities individually--
    Mr. Watt. So, there is some discretion. If I wanted to--if 
they have good reasons to have these reserves, we could talk to 
you about it. That is what you are saying.
    Ms. Henriquez. That is correct, and if they have used them 
appropriately, absolutely.
    Mr. Watt. Okay, I yield back, Mr. Chairman.
    Thank you for the additional--
    Mr. Hurt. The gentleman yields back.
    Thank you, Mr. Watt.
    And I would like to recognize myself for an additional 2 
minutes just to ask a follow-up question for Mr. Bostic about 
the Moving to Work Program.
    It was certainly developed at a time when there was no 
research metric to be able to judge its effectiveness. We have 
heard a lot about effectiveness in trying to make programs more 
effective and how we measure the success of programs during 
this hearing. I think we all recognize there is something we 
need to do.
    But since 1998, HUD has had the opportunity to develop an 
evaluation tool, and has not done so. I am wondering if you 
could speak to that, and tell us what progress you are making 
in developing a research metric.
    Mr. Bostic. Thank you for the question.
    This is a program that is of tremendous interest to all of 
us because it offers--Secretary Henriquez was talking about 
innovation. It is a place where a lot of innovation happens. 
And we need to know sort of which of those innovations actually 
pays off.
    I would say a couple of things. First, in our budget 
request, through the transformation initiative, we make a 
request to do an evaluation of the Moving to Work demonstration 
Program. So, I think we want to do that.
    Working with the Office of Public and Indian Housing, we 
have also instituted a policy change such that new MTW agencies 
commit to work with a local researcher to do an evaluation of 
an ongoing basis about the things that they are doing.
    So, while the older program participants is something of 
water over the dam, if you will, what we are trying to do is 
make a marker right now to say as we move forward, we are going 
to do those evaluations, so that we can learn all that we need 
to about how MTW works and what things work best.
    Mr. Hurt. Thank you, Mr. Bostic.
    At this time, I ask unanimous consent to insert into the 
record a letter from the Housing Coalition on Project-Based 
Section 8 Short Funding dated February 27, 2012.
    Mr. Hurt. Without objection, that letter will be made a 
part of the record.
    Obviously, this hearing is very important. We appreciate 
your participation here today. And thank you for working with 
us as we try to tackle the big challenges that we face in this 
next budget cycle.
    Without objection, the panel is dismissed and the hearing 
is adjourned.
    The Chair notes that some Members may have additional 
questions for the panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for Members to submit written questions to these 
witnesses and to place their responses in the record.
    [Whereupon, at 12:08 p.m., the hearing was adjourned.]



                            A P P E N D I X



                           February 28, 2012

[GRAPHIC(S) NOT AVAILABLE TIFF FORMAT]


