[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE FEDERAL HOUSING
ADMINISTRATION'S MULTIFAMILY
INSURANCE PROGRAMS
=======================================================================
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
__________
JUNE 7, 2012
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-134
U.S. GOVERNMENT PRINTING OFFICE
76-105 WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, gpo@custhelp.com.
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:
June 7, 2012................................................. 1
Appendix:
June 7, 2012................................................. 41
WITNESSES
Thursday, June 7, 2012
Bodaken, Michael, President, National Housing Trust.............. 5
Crowley, Sheila, Ph.D., President, National Low Income Housing
Coalition...................................................... 7
Head, Marie D., Deputy Assistant Secretary, Multifamily Housing
Programs, Office of Housing, U.S. Department of Housing and
Urban Development.............................................. 3
Kenney, Mary, Executive Director, Illinois Housing Development
Authority, on behalf of the National Council of State Housing
Agencies....................................................... 9
Lopez, Rodrigo, President and Chief Executive Officer,
AmeriSphere, on behalf of the Mortgage Bankers Association..... 10
Mostyn, Richard, Vice Chairman and Chief Operating Officer, The
Bozzuto Group, on behalf of the National Multi Housing Council
and the National Apartment Association......................... 12
Nielsen, Robert F., Immediate Past Chairman of the Board,
National Association of Home Builders.......................... 14
Pagliari, Joseph L., Jr., Clinical Professor of Real Estate, the
University of Chicago Booth School of Business................. 15
Schiff, Peter D., Chief Executive Officer and Chief Global
Strategist, Euro Pacific Capital............................... 17
APPENDIX
Prepared statements:
Hurt, Hon. Robert............................................ 42
Bodaken, Michael............................................. 43
Crowley, Sheila.............................................. 172
Head, Marie D................................................ 183
Kenney, Mary................................................. 193
Lopez, Rodrigo............................................... 199
Mostyn, Richard.............................................. 208
Nielsen, Robert F............................................ 223
Pagliari, Joseph L., Jr...................................... 235
Schiff, Peter D.............................................. 247
Additional Material Submitted for the Record
Biggert, Hon. Judy:
Written statement of Highland Commercial Mortgage............ 254
Letter from the National Association of Affordable Housing
Lenders (NAAHL)............................................ 258
OVERSIGHT OF THE FEDERAL HOUSING
ADMINISTRATION'S MULTIFAMILY
INSURANCE PROGRAMS
----------
Thursday, June 7, 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 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. Judy Biggert
[chairwoman of the subcommittee] presiding.
Members present: Representatives Biggert, Hurt, McHenry,
Dold, Stivers; Gutierrez, Waters, Cleaver, and Sherman.
Also present: Representatives Grimm and Green.
Chairwoman Biggert. Good morning. I would like to welcome
everyone to today's hearing entitled, ``Oversight of the FHA's
Multifamily Insurance Programs.'' During the 112th Congress,
the subcommittee has reviewed the role of the Federal Housing
Administration, or FHA, in today's mortgage finance market,
particularly with regard to single family housing.
We have also examined ways to reduce the government's role
and increase private sector participation in mortgage finance.
Today, we will continue our work, but with a closer examination
of the FHA's multifamily housing programs.
Multifamily mortgage insurance can reduce the cost of
capital available to fund the construction, rehabilitation, and
purchase of multifamily buildings, thereby increasing the
supply and, at times, the affordability of rental housing.
Since the 2008 crisis, FHA's annual insurance commitments
have nearly quadrupled. Today's hearing will examine reasons
for the increased volume of FHA multifamily programs, the
solvency of these programs, and finally, a few FHA and Ginnie
Mae multifamily housing related proposals.
In the midst of continued real estate market challenges, it
is important that we continue to explore ways to reform Federal
housing programs, protect taxpayers, encourage private sector
financing without a government guarantee, and ensure that
sufficient financing is available to meet market demand.
So, I look forward to an informative discussion, and I
welcome our witnesses.
At this time, I recognize the gentleman from Illinois for 2
minutes, after he takes my place here.
Unfortunately, I have several things going on, but I will
be back.
Mr. Dold [presiding]. I want to thank the chairwoman for
yielding.
I certainly want to thank all of you for taking the time to
be here. It is certainly a unique opportunity. I think I can
take even more than my 2 minutes if I need to. I don't think I
am going to have any objection.
So I do want to thank all of you for taking the time to be
with us here today. And certainly, we will have other Members
come in and join us, as my good friend from New York has just
arrived.
I am certainly happy to see that Illinois is so well-
represented on this distinguished panel. Certainly, Professor
Pagliari, thank you so much for being here, from the University
of Chicago. Although I attended Northwestern at Kellogg, please
don't hold that against me.
We also have Mary Kenney, the executive director of the
Illinois Housing Development Authority. And she and her entire
staff do a fantastic job for the people of Illinois.
Under Director Kenney's leadership, we have a very well-
operated and self-supporting State housing and finance agency
that should serve as a model for other State housing financing
agencies.
So I thank both of you and all of our witnesses for sharing
your time and testimony and experience with us here today.
I think all of us here today share a common objective: to
create conditions for a stronger, more sustainable, and more
effective mortgage finance system. This means protecting
taxpayers from future bailouts and seemingly unlimited
liability exposure, encouraging the private sector to become
the primary vehicle for mortgage financing, and otherwise
effectively restoring long-term stability to the real estate
sector.
Certainly, the FHA multifamily portfolio raises some
concerns that we should all examine carefully. But as we
consider the FHA's role in the multifamily market, we should
also examine the successful programs that have been supported
by both Republicans and Democrats alike.
For example, the Low Income Housing Tax Credit Program has
been called the most successful affordable housing program
since its inception in 1986, and has a default rate below 1
percent. Credits are distributed by State housing agencies to
competing private sector developers and investors, so we have
market-driven incentives and enforcement mechanisms that help
ensure continued housing affordability at a much lower cost
than that of the direct government participation.
So with multifamily housing demand continuing to grow, I
hope that we can move forward with proposals that ensure
affordable housing units, incorporate free market principles,
lay the foundation, increase private sector participation, and
significantly diminish taxpayer risk.
I look forward to hearing from each and every one of you.
And thank you again.
And at this time, I would like to yield 2 minutes to the
gentleman from New York, Mr. Grimm.
Mr. Grimm. Thank you, Mr. Chairman. That sounds pretty
good, ``Chairman Dold.''
In all sincerity, I want to thank this distinguished panel
for being here today. We had to add a table, because there are
quite a few people here.
Don't be discouraged by the lack of Members. This is an
extremely important issue, because anything right now dealing
with housing is going to be of the utmost importance.
I have said many, many times that if we don't get housing
moving again, the overall economy is not going to get moving
again. And this is an integral part and a big piece of that
puzzle. But more importantly, I think that some of the issues
before us on multifamily housing are a great place to find true
bipartisan efforts.
I think that there is a lot of commonality on both sides
where we can come together to find common ground. And that is
greatly needed right now. I think that segues into the need for
multifamily housing that is growing and is going to continue to
grow.
So it is something that we have had to focus on. It is
something that we should be focusing on together, not using it
as a political wedge, but rather as a common ground to bring
the parties together. And that is why I am here today.
I look forward to hearing your testimony. I know that some
of the issues we are going to discuss today are extremely
important to my constituents in Staten Island and Brooklyn. And
I am very eager to hear the testimony.
So with that, I will yield back. Thank you again.
Mr. Dold. At this time, we will introduce the panel. With
us today, we have: Ms. Marie Head, Deputy Assistant Secretary,
Multifamily Housing Programs, in the Office of Housing at HUD;
Mr. Michael Bodaken, president of the National Housing Trust;
Ms. Sheila Crowley, president of the National Low Income
Housing Coalition; Ms. Mary Kenney, executive director of the
Illinois Housing Development Authority, on behalf of the
National Council of State Housing Agencies; Mr. Rodrigo Lopez,
president and chief executive officer of AmeriSphere, on behalf
of the Mortgage Bankers Association; Mr. Richard Mostyn, vice
chairman and chief operating officer of the Bozzuto Group, on
behalf of the National Multi Housing Council and the National
Apartment Association; Mr. Robert Nielsen, immediate past
chairman of the board of the National Association of Home
Builders; Mr. Joseph Pagliari, clinical professor of real
estate at the University of Chicago Booth School of Business;
and Mr. Peter Schiff, chief executive officer and chief global
strategist of Euro Pacific Capital.
Welcome to you all. Without objection, your written
statements will be made a part of the record, and you will each
be recognized for 5 minutes for a summary of your testimony.
We will begin with Ms. Head.
STATEMENT OF MARIE D. HEAD, DEPUTY ASSISTANT SECRETARY,
MULTIFAMILY HOUSING PROGRAMS, OFFICE OF HOUSING, U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Ms. Head. Good morning. Chairwoman Biggert, Ranking Member
Gutierrez, and members of the subcommittee, thank you for the
opportunity to testify today regarding the FHA's multifamily
housing programs. When this Administration took office, the
economy was on the brink. The Nation was losing over 750,000
jobs a month. Our economy had shed jobs for 22 straight months.
And consumer confidence had fallen to a 40-year low.
In the face of this turmoil, this Administration took
dramatic steps to prevent a complete financial meltdown in the
housing market. And as a result of those steps, today an
economy that was shrinking is growing again, and we continue
our efforts to speed that growth, as we fight back from the
worst economic crisis since the Great Depression.
The housing market in particular has suffered through this
crisis, requiring swift and aggressive response. And while
Secretary Donovan and others have testified many times
concerning steps taken in the single family market, no less
important is the role that this Administration, and
particularly the FHA, has played in providing critical
liquidity in the multifamily mortgage market.
For example, responding to the collapse of the Low Income
Housing Tax Credit Program, this Administration implemented the
Tax Credit Assistance Program and the Tax Credit Exchange
Program.
Together, these two programs jump-started construction on
126,000 homes, adding needed supply as low-income renters,
including many foreclosed homeowners, were struggling to access
affordable housing.
The Treasury Department's New Issue Bond Program is another
example of decisive action by the Administration. The liquidity
this program provided to State housing finance agencies allowed
them to issue new housing bonds to fund affordable housing
construction.
And of course, FHA has been critically important in
ensuring the continued availability of mortgage credit for the
multifamily properties. Over the last 3 years, FHA has seen a
substantial increase in demand. Endorsements for FHA
multifamily insurance rose from $2.3 billion in Fiscal Year
2008 to $12.4 billion in Fiscal Year 2011.
FHA's multifamily programs have helped fill the gaps left
with the shrinkage of the conventional financing forces. And
while the market continues to improve, we expect high volume
for FHA insurance activity for the remainder of Fiscal Year
2012, into Fiscal Year 2013.
While FHA has stepped up to the plate during this time of
market constriction, we have also focused on improving our risk
management capabilities and processes. The steps we have taken
to date include: strengthening FHA's lender approval and
capital requirements; strengthening underwriting and credit
evaluation requirements; implementing a loan committee approval
structure to better analyze credit risk; and creating a more
efficient loan review process through our Breaking Ground
Initiative.
In just 7 months, through Breaking Ground, we have reduced
the number of applications in our processing pipeline. The
number of applications that sat for more than 90 days decreased
from 191 to 50. In addition, the Department will shortly embark
on a similar initiative called Sustaining Our Investment, to
make our asset management processes and policies more efficient
and effective, as we focus on a portfolio that is increasingly
market rate, as opposed to traditional assistance.
Given the unprecedented increase in the number and dollar
volume of loans insured through FHA programs, the Department
has proposed premium increases for FHA's general insurance and
special risk insurance funds. This is the first multifamily
mortgage insurance premium increase in 10 years.
This increase reflects new realities within the portfolio,
and will ensure that FHA products are priced appropriately to
compensate for FHA's risk. And yet, even with this proposed MIP
increase, FHA multifamily loans are still priced substantially
below other capital sources, by estimate per program type of 75
to 200 basis points.
The proposed change in MIP is a step towards not only
managing our risk, but encouraging the return of private
capital. It is important to note that premiums for affordable
housing loans, such as those with rental subsidies and low
income housing tax credits, will not be increased.
Also, to further the Department's mission to preserve
affordable housing, HUD has launched a tax credit pilot program
to make it easier to use these credits. We are also seeking
legislation to lend to small multifamily properties, with two
legislative changes.
In conclusion, Chairwoman Biggert, while FHA must remain a
key source of safe mortgage financing, we recognize the risk
and mission must be balanced. We continue to work hard to
ensure the availability of financing for safe, decent, and
affordable housing, contributing to creating an America built
to last.
Thank you for the opportunity to testify. I would be
pleased to answer any questions the members of the subcommittee
may have.
[The prepared statement of Deputy Assistant Secretary Head
can be found on page 183 of the appendix.]
Mr. Dold. Thank you, Ms. Head.
Mr. Bodaken?
STATEMENT OF MICHAEL BODAKEN, PRESIDENT, NATIONAL HOUSING TRUST
Mr. Bodaken. Good morning, Chairman Dold, Ranking Member
Gutierrez, members of the subcommittee, and Representative
Grimm. I am Michael Bodaken, head of the National Housing
Trust.
Through our work in real estate development and affordable
housing, we help save and improve 21,000 affordable apartments
throughout the United States, in 41 States, helping to leverage
over $1 billion in private investment.
The majority of these apartments are HUD-subsidized or have
uninsured mortgages. We regularly engage with HUD, FHA, the
GSEs, and the Federal Home Loan Banks through our work.
Time does not permit me to detail all of my written
testimony. The focus of my statement today relates to the
following four issues.
Number one, the role of FHA in preserving project-based
Section 8 housing. Historically, FHA has been pivotal in the
development of HUD-insured Section 8 housing. Fully 40 percent
of the Section 8 portfolio is FHA-insured, constituting almost
$14 billion in FHA loans.
Therefore, we find it totally short-sighted and a risk to
the American taxpayer that the Administration has proposed
short-funding Section 8 contracts. Underfunding or short-
funding these contracts would expose FHA to significant
exposure. As the HUD Inspector General himself has said, owners
must be assured a reliable, predictable funding from the
Government in the Section 8 Program.
Short-funding puts FHA at risk. It should not be a mystery
to this committee as to what impact it has on your particular
districts: in Mrs. Biggert's district, there are $25 million of
FHA-insured contracts; in Ms. Waters' district, there are $17
million of FHA-insured contracts; in Mr. Dold's district, there
are $34 million of FHA-insured contracts; in Mr. Stiver's
district, there are $50 million of FHA-insured contracts; and
in Mr. Hurt's district, there are $5 million of FHA-insured
contracts.
So the connection between the short-funding of Section 8
and FHA cannot be ignored by the committee.
Number two, FHA market share. The committee is interested
in knowing whether the private sector could assume some of the
risk that FHA is now taking in multifamily lending.
And the answer is yes, so long as the market is healthy. As
shown in a chart on page six of my testimony, when the housing
market was healthy, approximately $100 billion of FHA lending
occurred in 2006. Of this, almost 60 percent was done by the
private market, meaning commercial banks, mortgage-backed
securities, banks, lenders, depository institutions, and so on.
In 2007, that increased to 63 percent of all multifamily
originations.
But what occurred in 2008 and 2009 is instructive for this
committee. By 2008 and 2009, the CMBS market had virtually gone
away, and the insurance and depository institutions only
constituted 3 percent of the total market. So there is no
question that there needs to be a strong, functioning FHA for
both good times and bad. There is no question that the private
market will be here while the market is healthy.
But if and when a downturn occurs, you need a strong FHA to
be there to provide liquidity to the market, as it did, and Ms.
Head explained, in 2008 and 2009. That explains the increase in
FHA insurance. Without it, we would not have been able to do
the kind of work that we did in those years.
Time does not permit me to talk about the reforms of FHA
programs, but let me first say, in both Democrat and Republican
Administrations, there has been an issue with respect to the
timing of FHA loans, and trying to do that work with low income
housing tax credits.
There is a lot of bureaucracy, cumbersome, with FHA loans,
sometimes duplication. And I applaud the Administration for
trying to address with their Super F Program. That program is
targeted to tax credit properties, targeted to those same
Section 8 properties I just mentioned, and has a lot of
potential.
Right now, the pilot does not have any use or deployment in
the south or midwest. And we would encourage the Administration
to expand that pilot.
Finally, you have asked us to talk about H.R. 4253, which
was sponsored by Representative Paulsen and Representative
Grimm. It was introduced to enable owners of rental properties,
Low Income Housing Preservation and Resident Homeownership Act
(LIHPRHA) properties to access the excess project funds and
refinance their properties.
We strongly support this goal. However, we are concerned
that the legislation, as filed, may enable owners to strip a
property of its equity, improve refinancing, and not act to
ensure long-term feasibility. We know that is not the authors'
intent. We intend to work with the committee and the sponsors
of this legislation to make changes to the bill so that we can
achieve our common goals.
We are confident we can get there. Thank you for your time.
[The prepared statement of Mr. Bodaken can be found on page
43 of the appendix.]
Mr. Dold. Thank you, Mr. Bodaken.
Ms. Crowley, you are recognized for 5 minutes.
STATEMENT OF SHEILA CROWLEY, PH.D., PRESIDENT, NATIONAL LOW
INCOME HOUSING COALITION
Ms. Crowley. Good morning, Chairman Dold, and members of
the subcommittee. I am pleased to have the opportunity to
testify today about the Federal Government's role in rental
housing.
I am Sheila Crowley, the president of the National Low
Income Housing Coalition. And because we focus on housing for
the lowest-income households in our country, we have a key
interest in the health of the rental housing market.
Nationwide, 35 percent of all households are renters, but
renters comprise 53 percent of low-income households, 60
percent of very low-income households, and 67 percent of
extremely low-income households.
Almost everybody will be renters at some point in their
lives. Young people, single people, and people with
disabilities are more likely to rent than own. Renters have
more flexibility to move to new job opportunities.
And while renters may face annual rent increases, their
costs are predictable and they do not incur sudden large home
repairs, which makes rental housing more suitable for many
seniors on fixed incomes.
But the rental housing market is most important for the
low-income families and individuals who make up 41 percent of
all the households in the United States. Federal housing
policy, however, has long favored single family homeownership
over rental housing, with most of the Federal housing programs
and the subsidies going towards homeownership.
The FHA mortgage insurance programs are just one case in
point. FHA's current portfolio consists of 4.8 single family
homes and just 13,000 multifamily properties.
The number of renters in the United States is on the rise
in the aftermath of the 2007/2008 housing crisis. Vacancy rates
are falling and rents are rising. Rents were up in 63 of 64
metro areas recently examined, with west coast markets
increasing by as much as 12 percent.
The United States has had a shortage of affordable housing
for the lowest-income households since the 1970s. And the
``Great Recession'' has only made it worse. In the United
States, there are 9.8 million extremely low-income renter
households, up from 9.6 million in 2009, while the number of
rental housing units they can afford fell from 5.9 million in
2009 to 5.5 million in 2010.
Thus, for every 100 extremely low-income renter households,
there are only 30 rental units that they can afford and that
are available to them. So consequently, over two-thirds of
these households have to spend over half of their income on
rental housing.
And while the shortage is less in the very low-income
category, the shortage literally disappears for households with
incomes between 50 and 80 percent of--income.
For every 100 low-income households, there are 98
affordable and available units. And in 42 States, there is
indeed a surplus of rental housing at that level.
So where the most need is at the lowest level. The shortage
of rental housing for very low- and extremely low-income
households is both a housing problem and an income problem. The
growth of income inequality in the United States means that
there are simply more lower-income people in the market for
low-cost rental housing.
Income supports such as housing vouchers increase access to
existing housing for low-income people lucky enough to get a
voucher. But in many households, families are not able to find
single housing that they can afford, or landlords do not accept
vouchers.
Increasing the supply of rental housing that is affordable
to extremely low-income households must be part of a solution.
But there is no evidence that the private market is willing to
invest in this housing on its own, despite the huge demand.
The main engine of affordable rental housing production and
preservation today is the loan from housing tax credits, but
affordability for the lowest-income households can only be
achieved by coupling tax credits with vouchers or other
subsidies.
The other Federal program that supports Federal low housing
production is HOME, but only 38 percent of HOME dollars have
been used for rental housing. Filling this gap is why Congress
enacted the National Housing Trust Fund in 2008. At least 90
percent of the funds must be used for rental housing, and at
least 75 percent of the funds must benefit extremely low-income
households.
With sufficient funding, the National Housing Trust Fund
would achieve our national goal of ending homelessness in the
United States. In an era of severe housing restraint, the
conventional wisdom is that we can't afford the National
Housing Trust Fund. We disagree.
Funding for the Housing Trust Fund will not only be good
for the millions of families who need affordable rental homes;
it will create many jobs in hard-hit construction trades.
There are several proposals for funding the National
Housing Trust Fund. I want to close by telling you that we
believe that the Housing Trust Fund can and should be funded in
a manner that is both budget-neutral, and would rebalance
Federal housing policy to place more emphasis on rental
housing.
The campaign supports a modest reform to the mortgage
interest deduction that would provide tax benefits to a much
greater number of low- and moderate-income homeowners and would
produce enough savings to fund the National Housing Trust Fund.
The mortgage interest deduction is under scrutiny today due
to its large size, $100 billion, and its role in over-
subsidizing homeownership by the Federal Government. We don't
support eliminating it, but modest, carefully phased-in reform
would make Federal housing policy much fairer and more
efficient.
The challenge would be to ensure that savings achieved from
reform, that is sure to happen, will be used in recalibrating
the Nation's longstanding housing need.
Thank you.
[The prepared statement of Dr. Crowley can be found on page
172 of the appendix.]
Mr. Dold. Thank you, Ms. Crowley.
Ms. Kenney, you are recognized for 5 minutes.
STATEMENT OF MARY KENNEY, EXECUTIVE DIRECTOR, ILLINOIS HOUSING
DEVELOPMENT AUTHORITY, ON BEHALF OF THE NATIONAL COUNCIL OF
STATE HOUSING AGENCIES
Ms. Kenney. Good morning, Chairman Dold, and members of the
subcommittee. I appreciate the opportunity to testify today in
support of simple, sensible steps that would have a big impact
by helping FHA and State housing finance agencies, or HFAs,
address our Nation's growing affordable rental housing need.
As set forth in my written statement, the need for
affordable rental housing in our country has never been
greater. The Administration's Fiscal Year 2013 budget contains
a proposal that would allow Ginnie Mae to securitize FHA-
insured multifamily loans under the FHA/HFA risk-sharing
programs.
This proposal would allow States to better address this
need within their communities at no cost to the Federal
Government. And I highly recommend that the Congress allow
Ginnie Mae to securitize FHA-insured multifamily loans under
this program.
As you may recall, the full Financial Services Committee
included this authority in the Housing Preservation and Tenant
Protection Act, which it reported in 2010. In addition, HUD,
FHA, Ginnie Mae, and various affordable housing industry groups
all support this proposal.
I am testifying on behalf of the National Council of State
Housing Agencies (NCSHA). NCSHA is a national, nonprofit,
nonpartisan association that represents States' HFA interests
before Congress and the Administration.
State HFAs are widely known for their safe and sound first-
time home buyer lending programs, and have provided a reliable
source of affordable mortgage money for working families over
many decades in both strong and weak economies.
We also provide low-cost multifamily financing to
facilitate the development of affordable rental homes.
Established in 1992, the risk-sharing program has been very
successful, with 26 State HFAs financing nearly 1,000 loans,
totaling more than $5 billion in principal, and supporting more
than 100,000 affordable rental homes.
This activity has generated jobs, increased tax revenue,
and promoted economic growth. In Illinois, IHDA has financed 56
such properties, providing more than 5,800 affordable homes,
and creating an estimated 8,500 jobs Statewide. IHDA's
investment in these projects totals $411 million and has
leveraged an additional--I am sorry, $370 million.
And significantly, the loan default rate in this portfolio
has been very low; only 1 of the 56 loans has defaulted.
By allowing Ginnie Mae to securitize loans under this
program, Congress would increase the supply of affordable
multifamily rental opportunities while reducing FHA's workload
and risk; achieve greater affordability within FHA-insured
rental housing; and better utilize the well-established State-
based HFA delivery system, allowing States to better address
local needs, all while generating revenue for the Federal
Government.
The FHA/HFA risk-sharing program increases efficiency by
delegating processing, underwriting, and servicing to State
HFAs. This reduces the workload on HUD staff and speeds up loan
processing.
Moreover, unlike other FHA products, HFAs share in the risk
of default, lowering the exposure of FHA. In addition, it is
estimated that permitting Ginnie Mae to securitize risk-sharing
loans could reduce the cost of financing rental housing
developments by as much as 200 basis points, or 2 percent.
This rate reduction would lower debt service payments by
the owner and reduce the need for and cost of other Federal
housing subsidies.
Finally, unlike virtually all other FHA multi-loan
insurance programs, developments financed under the risk-
sharing program must meet the same income targeting and rent
restrictions as the housing credit and housing bond programs,
providing real affordable housing to the communities they
serve.
Best of all, all of these benefits can be achieved at no
cost to the Federal Government. Because the loan default rates
in this program are very low, insurance premium revenue has
exceeded total claims, generating net revenue for the Federal
Government over the 20 years that this program has been in
existence.
In fact, the Congressional Budget Office estimates that
implementing this proposal would result in $20 million in
mandatory savings over 10 years to the Federal Government.
In conclusion, the FHA/HFA risk-sharing program has been
very successful. Given the program's proven track record,
allowing Ginnie Mae to securitize risk-sharing loans is a
sensible step that would help the States meet our Nation's
affordable housing challenges with minimal risk and no
additional cost to the Federal Government.
Thank you for the opportunity to testify today.
[The prepared statement of Ms. Kenney can be found on page
193 of the appendix.]
Mr. Dold. Thank you, Ms. Kenney.
Mr. Lopez, you are recognized for 5 minutes.
STATEMENT OF RODRIGO LOPEZ, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERISPHERE, ON BEHALF OF THE MORTGAGE BANKERS
ASSOCIATION
Mr. Lopez. Good morning. My name is Rodrigo Lopez and I am
president and CEO of AmeriSphere Family Finance, headquartered
in Omaha, Nebraska. We are a top 25 FHA multifamily and health
care lender, with more than $200 million in FHA production last
year. I am here this morning representing the Mortgage Bankers
Association (MBA).
The recent crisis put a spotlight on the importance of
rental housing and FHA's critical countercyclical role. One in
every three American households lives in rental housing. And
over the course of a lifetime, most Americans will rent at one
time or another.
During the recession, FHA significantly increased its
presence in the multifamily rental market as other market
participants pulled back. We are seeing that private capital is
steadily reentering the markets, which is a very positive sign
for our economy.
FHA, however, remains critical in many markets and for many
types of properties, particularly older ones, affordable
properties that investors are less willing to finance.
I want to acknowledge the strong leadership at HUD under
Secretary Donovan, acting FHA Commissioner Galante, and newly
appointed Deputy Assistant Secretary Marie Head, who is with us
today. These three individuals bring extensive knowledge and
experience in multifamily finance to FHA that is refreshing and
welcome.
While the multifamily programs have been providing critical
liquidity to the market, they also continue to have low
delinquency rates and show a positive cash flow. In fact, MBA
commissioned its own study last year that FHA multifamily and
health care loans originated between 1992 and 2010 have
generated positive net cash flows of $927 million.
This period covers years with strong economic growth, and
the more recent recession. And HUD's new tighter underwriting
standards should further improve loan performance going
forward.
MBA commissioned this study because good data on the
financial viability of the multifamily programs is not readily
available at HUD. While there is extensive data available on
the income and expenses of the GI/SRI Fund, it is difficult to
create an accurate picture of the overall health of multifamily
programs because the fund contains a substantial number of
single family loans.
Congress should require HUD to separate the multifamily
loans from the single family loans in the GI/SRI Fund, in order
to provide policymakers with a better understanding of the
financial performance of multifamily programs.
Another critical component for achieving and sustaining the
housing market's long-term vigor is ensuring that FHA has the
resources it needs to operate effectively. Since 2008, HUD's
multifamily staffing levels have dropped significantly. At the
same time, loan volume has increased more than threefold.
Technology planning has also suffered. And the multifamily
programs still operate without the ability to submit
applications electronically.
HUD has tried to improve its processes, but there is still
a lot of room for improvement. MBA has recommended a more
streamlined approach to HUD's review of applications. And FHA
is moving in that direction with a pilot program for properties
with low income housing tax credits.
We would recommend nationwide expansion of the pilot
program as quickly as possible.
Finally, I want to touch on the proposed increase of
mortgage insurance premiums for multifamily programs. The
strong performance of these programs and recent tightening of
underwriting standards all seem to run counter to the proposed
increase.
MBA believes any MIP increase has to be supported by
careful actuarial analysis. Unfortunately, as I noted earlier,
appealing this--because the Administration's budget does not
account for multifamily programs separately.
MBA also believes that mortgage insurance premiums should
be used only to manage risk associated with these programs, and
not for any unrelated budgetary reason. Currently, the excess
income generated by these programs is returned to the Treasury,
rather than used to improve the programs or set aside in a
reserve fund.
Mr. Chairman, thank you for your focus on this vital
segment of our Nation's real estate market. The Mortgage
Bankers Association stands ready to work with you on
strengthening FHA and its multifamily programs.
Thank you.
[The prepared statement of Mr. Lopez can be found on page
199 of the appendix.]
Mr. Dold. Thank you, Mr. Lopez, for your testimony.
Mr. Mostyn for 5 minutes?
STATEMENT OF RICHARD MOSTYN, VICE CHAIRMAN AND CHIEF OPERATING
OFFICER, THE BOZZUTO GROUP, ON BEHALF OF THE NATIONAL MULTI
HOUSING COUNCIL AND THE NATIONAL APARTMENT ASSOCIATION
Mr. Mostyn. Good morning, Chairman Dold.
On behalf of this Nation's 17 million households who call
an apartment their home, the National Multi Housing Council
(NMHC) and the National Apartment Association (NAA) would like
to thank you for the opportunity to testify today on the
Federal Housing Administration's role in multifamily mortgage
markets.
NMHC and NAA represent the Nation's leading multifamily
renting housing firms, including owners, developers, property
managers, and financiers.
My name is Rick Mostyn, and I serve as the vice chairman
and chief operating officer of the Bozzuto Group, a firm
actively engaged in the development, instruction, management,
and ownership of the apartment community.
Our firm is familiar with and a borrower of construction
and mortgage capital through the FHA multifamily loan guarantee
program.
As detailed in my written testimony, the Nation is
experiencing a fundamental shift in its housing dynamics. In
this decade alone, renters could make up half of all new
households, for a total of more than seven million new renter
households.
Although an estimated 300,000 units must be built annually
to meet expected demand, ground was broken on just 167,000
apartments last year. FHA has been a cornerstone for
construction and permanent financing and refinancing for
apartments for over 50 years, and needs to remain a viable
market participant to meet future housing needs.
FHA has provided a predictable and quantifiable source of
project debt for developers and owners of rental housing, and
provided a renewable source of liquidity for multifamily
housing through Ginnie Mae securitization.
This is particularly important as developers must invest as
much as $2 million or more in development costs for a project
prior to the closing of an FHA loan. In normal economic times,
FHA plays a limited role, due to the availability of
alternative financing, offering construction financing to
developers as well as loans to borrowers who lack access to
bank and other private construction capital sources.
During the economic crisis, however, the demand for FHA
financing surged from $2 billion to $10 billion annually. HUD
anticipates that this demand will remain high for the next
several years.
This escalation in demand, coupled with new processing
procedures, has subjected FHA borrowers to processing times
that can exceed 18 months, a dramatic departure from industry
standards and prior FHA performance.
NMHC and NAA strongly support FHA's efforts to introduce
sound credit and underwriting policies. But there are areas in
which processing improvements can be achieved.
We would like to commend HUD for its demonstrated
willingness to work with stakeholders in this regard. We remain
committed to working with FHA on outstanding issues associated
with maximizing the industry's access to FHA credit, improving
the application process, and addressing credit risk, which is
in the mutual interest of the industry and the taxpayer.
Additionally, we view HUD's December 2011 announcement that
it will impose more stringent requirements on those seeking so-
called large loans of over $40 million is counter to HUD's
stated goal of improving housing in our cities, where the cost
of development is substantially higher than in the suburbs.
Furthermore, FHA has not presented evidence that the credit
issues specific to larger loans exist that would justify the
proposed program changes.
Finally, some have suggested that FHA could replace the
role GSEs currently play in the multifamily market. NMHC and
NAA strongly oppose such efforts. Because FHA serves a
fundamentally different market segment than the GSEs, such a
move would exacerbate liquidity issues facing the multifamily
industry and could reduce the availability of workforce
housing.
The fact is that fully 90 percent of the apartment units
financed by Fannie Mae and Freddie Mac--over the past 15 years,
more than 10 million units were affordable to families at or
below the median income for their community.
NMHC and NAA are working on a framework for spinning out
Fannie and Freddie's multifamily businesses, which have
generated $7 billion in net revenues to the taxpayer during the
conservatorship, as rechartered, stand-alone entities. The plan
also calls for the retention of a Federal credit guarantee that
would be tied to the security, not the entity, a necessary
provision to attract global investors.
In addition, the proposal would fully compensate and
protect the government for its guarantee and empower a strong
regulator to oversee the new entities, and would address the
multifamily sector's capital concerns by ensuring that
liquidity remains available in all markets.
Thank you again for the opportunity to testify this
morning.
[The prepared statement of Mr. Mostyn can be found on page
208 of the appendix.]
Mr. Dold. Mr. Mostyn, thank you so much.
Mr. Nielsen is recognized for 5 minutes.
STATEMENT OF ROBERT F. NIELSEN, IMMEDIATE PAST CHAIRMAN OF THE
BOARD, NATIONAL ASSOCIATION OF HOME BUILDERS
Mr. Nielsen. Chairman Dold, Representative Waters, and
members of the subcommittee, I am pleased to appear before you
today on behalf of the National Association of Home Builders
(NAHB).
My name is Bob Nielsen. I am a multifamily builder from
Reno, Nevada. And I am the immediate past chairman of the board
of the National Association of Home Builders.
Of importance to NAHB's multifamily members are the Section
221(d)(4) and 223(f) programs. In addition to providing
mortgage insurance for market rate apartments, the programs are
often used in tandem with the low income housing tax credit
program to provide affordable rental housing.
FHA historically has played an important part in the
financing of multifamily rental housing. As the current
economic conditions worsened, the traditional sources of
funding withdrew from the market, leaving FHA and the GSEs as
the largest source of financing.
FHA stepped up to the plate. Its issuance of firm
commitments, including health care, grew from just over $2
billion in Fiscal Year 2008 to $13 billion in Fiscal Year 2011.
To ensure that the multifamily portfolio remains safe and
sound, HUD turned its attention to implementing new risk
management protocols.
We commend HUD for working with NHB and the other
multifamily stakeholders as these new policies were
implemented. Although much has been accomplished, we remain
concerned that loan processing times continue to lag, and
staffing levels are not adequate for the volume of work.
We fear that this could further hinder the flow of needed
credit. Of key importance to NAHB is the Administration's
Fiscal Year 2013 budget proposal to increase the multifamily
mortgage insurance premium (MIP).
NAHB is opposed to the increase. We do not believe that HUD
has provided compelling justification for them. The purpose of
the MIP is not to increase receipts to the Treasury, nor is it
to adjust pricing of credit risk relative to current private
marketplaces. Historically, HUD has not raised the MIP to
generate revenue beyond that needed to cover expected credit
losses and associated program costs.
Currently, the MIP is set at a level where the programs
will break even, providing only a minimal amount of excess
income. The proposed increases will not provide a buffer
against future FHA losses, because there is no segregated fund
and excess income is simply returned to the Treasury each year.
Increases will only add to a property owner's costs, thus
raising rents and discouraging the production of rental
housing. Further, these increases will hurt market rate rental
properties in the secondary market where credit is limited,
because private capital currently is focusing lending
activities in the strongest markets and for well-capitalized,
large developers.
HUD does not differentiate among markets in setting MIPs.
Thus, the increases will penalize the borrowers who need HUD
financing the most. Related to this, health of the GI and the
SRI fund and whether minimum capital standards are needed; NAHB
does not believe it is appropriate to apply the concept of
capital ratios, as used in the MMIF to the GI or the SRI fund.
The nature of the multifamily portfolio is significantly
different from the single family portfolio, insured under the
MMIF.
Also of concern is the Administration's proposal to short-
fund Section 8 project-based rental assistance contracts. NAHB
does not believe this is a true cost-saving measure, and will
only exacerbate the problem for the next fiscal year, causing
uncertainty among those who have contracts with HUD.
On the legislative front, NAHB is supportive of HUD's
proposals for small multifamily financing, as they would expand
the availability of financing for small multifamily rental
properties and provide a secondary market outlet for loans on
properties between 5 and 50 units.
Further, NAHB would like to express its support for H.R.
4253. In essence, the bill simply accelerates the owners'
access to their own funds, without threatening the fiscal or
financial well-being of the property.
In conclusion, as the future of the Nation's housing
finance system remains in flux, the future of FHA multifamily
mortgage insurance programs must be a part of the discussion.
NAHB believes that the needs of the moderate- and middle-income
renters must not be neglected.
FHA has an important role to play in serving a range of
rental housing needs. Its mission must remain broad to ensure
that access to credit is available in all geographic areas of
the country, and that both affordable and market rate rental
housing is produced.
Thank you again for the opportunity to speak.
[The prepared statement of Mr. Nielsen can be found on page
223 of the appendix.]
Mr. Dold. Thank you, Mr. Nielsen.
Mr. Pagliari for 5 minutes?
STATEMENT OF JOSEPH L. PAGLIARI, JR., CLINICAL PROFESSOR OF
REAL ESTATE, THE UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS
Mr. Pagliari. Thank you for inviting me to testify today.
My name is Joe Pagliari and I am a clinical professor of real
estate at the University of Chicago. However, the viewpoints
expressed in this testimony are my own.
In this regard, my testimony will focus on three major
areas. One, pricing structure. As a starting point, consider
that private market commercial mortgage lenders charge
increasingly higher interest rates as the project's loan ratio
increases, representing the lender's compensation for the
increasing probability and severity of a borrower default.
Now it is also the case that the lender's estimates of
default additionally vary with the lender's perception of
assets and borrower quality. A simple comparison is illustrated
in exhibit one of my written testimony, where the lender
charges the lower-quality asset/borrower a higher interest rate
across all loan-to-value ratios.
In contrast, the FHA lending programs do not vary the
interest rate either by the leverage ratio or by borrower asset
quality. The result of these two very different set of
practices create two main effects: adverse selection; and
excessive leverage.
To appreciate these effects, consider exhibit two. Consider
the rate setting possibilities shown in exhibit two at the
maximum FHA leverage ratio of approximately 85 percent. In all
instances in which FHA is originating loan volume, FHA
underprices the likelihood and severity of borrower defaults,
and in so doing disproportionately attracts lower-quality
assets/borrowers.
Exhibit two also suggests that--borrowers may be persuaded
to utilize more leverage in their capital structure. In turn,
the increased leverage increases the probability and severity
of borrowers' potential defaults.
Two, costs; forgoing notions of adverse selection and
excessive leverage beg the question as to whether or not the
private sector does a better job of pricing default risk and of
underwriting the asset/borrower than is found with the FHA
experience.
This is an empirical question, but I have not been privy to
such data with regard to the FHA experience. If such an
analysis were to take place, it should cover a sufficient
length of time. It should incorporate the incremental costs of
FHA to originate and monitor the loans, and should be careful
to control for various effects, for example the vintage year,
that may help explain differential performance.
Additionally, risk may be changing. Over the last 30 years,
the multifamily market has been the commercial property type
that has generally displayed the best risk/return
characteristics. Consider exhibit three.
However, there are two potential reasons to be concerned
that the past may not be perfect prologue for the future.
Declining capitalization rates; over much of the last decade,
capitalization rates have been lower and declining more steeply
for multifamily properties. See exhibit four.
The implication for declining capitalization rates is that
future returns may be lower. NIMBY versus YIMBY; for some time
I have contended that apartment investors and lenders had
benefited from the reluctance of many suburban municipalities
to encourage multifamily development.
The euphemism for this type of behavior, ``NIMBY, or not in
my backyard.'' However, in many urban markets, municipal
authorities are increasingly in favor of multifamily
development. NIMBY in reverse, ``YIMBY, or yes in my
backyard.''
While these attributes may be laudable goals from the
municipality's perspective, these increasingly pro-development
attitudes of urban officials may pave the way for lower
apartment returns as well as greater volatility in these
returns.
Three, the benefits; of course the cost of the FHA
multifamily lending program ought to be weighed against the
benefits. As illustrated in exhibit six, an increase in the
marginal supply of apartments produces lower rents and expands
the number of rental choices.
However, this analysis ignores other effects which may
mitigate the benefits identified above. Among those effects is
that the surplus illustrated in exhibit six may be shared with
sellers.
In the case of apartment development, the developer is able
to pay more for the land or the to-be-demolished building
because the credit subsidies implicit in the FHA lending
programs permit the developer to pay more for the to-be-
developed property than would otherwise be the case.
Another potential effect is the adverse impact on home
prices attributable to the increased supply of multifamily
properties. Because the homeownership and rental markets are
interconnected, there is a substitution effect. For example, a
decrease in the rental rates of apartment properties leads to a
fall in the value of owner-occupied homes.
The effect ought to be considered in light of other
governmental efforts currently designed to stabilize and
enhance home values.
Thank you.
[The prepared statement of Professor Pagliari can be found
on page 235 of the appendix.]
Chairwoman Biggert. Thank you very much.
I now recognize Mr. Schiff for 5 minutes.
STATEMENT OF PETER D. SCHIFF, CHIEF EXECUTIVE OFFICER AND CHIEF
GLOBAL STRATEGIST, EURO PACIFIC CAPITAL
Mr. Schiff. My name is Peter Schiff and I am the CEO of
Euro Pacific Capital, although I am better known as having been
one of the few voices who very publicly and accurately forecast
the financial crisis of 2008, the housing bubble that preceded
it, and the ``Great Recession'' that followed.
Among my many forecasts was that Fannie Mae and Freddie
Mac, the two Government-Sponsored Enterprises at the heart of
the housing bubble, would in fact go bankrupt. And I also
forecast that Congress would make the mistake of bailing them
out.
I bring this up now in the hopes that what I have to say,
these warnings will not fall on deaf ears. Although judging by
how few Congressmen have shown, unfortunately, not too many are
listening. In fact, this very hearing proves that Congress
still doesn't understand the problem or its culpability in
creating it.
I am not saying the Congress acted alone in inflating a
housing bubble. It had a lot of help from the Federal Reserve.
They supplied most of the air. And that is probably the subject
of another hearing.
But we cannot underestimate the role that this body played
in enabling millions of Americans to buy houses they could not
afford based on government-guaranteed mortgages. These are
loans that never would have been made but for those guarantees.
And ironically, it was not even the home buyers who
benefited from the subsidies. It was the housing industry. It
was the sellers and the home builders. They got to sell the
overpriced homes. REALTORS earned commissions on them. Bankers
received fees on them.
And it is no coincidence that the same lobbyists who
benefit at the taxpayers' and the economy's expense are back
again looking for more. And while I am here, I don't represent
any industry.
See, I represent the American taxpayer who is on the hook
for all this. Right, I don't want to pay for this. Contrary to
what has been said, these loan guarantees do not come without
costs.
Look at how much the defaults cost the taxpayers already on
Fannie Mae and Freddie Mac. And we haven't even seen the final
price tag. If you guys want to guarantee mortgages, do it with
your money. Don't do it with mine.
But the actual price is just the tip of the iceberg on
costs. When Congress diverts our resources to the housing
market, it diverts them away from other sectors of the economy,
sectors where the free market would have otherwise put those
resources.
And so, the economy suffers. Americans have to live and
work in an economy that is far less productive as a result of
congressional meddling. Rather than figuring out ways to expand
government's involvement and compound the damage, let us
actually undo it.
How about talking about ways of getting the government out
of the housing market, out of the mortgage finance market? We
are broke. Maybe you haven't noticed this as you are paying
taxpayer money.
How about just shutting down the Department of Housing? It
is a waste of money. Why don't we get rid of the FHA, get rid
of Fannie and Freddie? They have done enough damage already. We
can't afford to perpetuate these problems.
We need to get the government out so that we can bring the
free market in. Unfortunately, the financial crisis, the
economic collapse, has only just started, right? We have seen
the overture. The opera is about to play out.
Rather than sitting around and trying to figure out how we
can pour more gasoline on this fire, I am here to talk to you
about ways of putting it out. If we really want to talk
economics and not politics, and not try to find ways to make
all these lobbyists happy, right, and try to get reelected, let
us actually do something for the American public, for the
taxpayers of this country who pay all your salaries.
I am happy to sit here as long as you want and answer all
the questions you have on exactly what we need to do to turn
this economy around, to turn the housing market around.
And you might not like what I have to say. But what I have
to say is correct and it is going to work.
Thank you for inviting me here to speak to you.
[The prepared statement of Mr. Schiff can be found on page
247 of the appendix.]
Chairwoman Biggert. We are now going to recognize each of
the Members for 5 minutes to ask questions in the order of the
opening statements. And I will start with myself.
I will begin with Mr. Pagliari. On page two of your
testimony, you note that the private market multifamily
mortgages attempt to price the probability of default by
varying the interest rates depending on several loan quality
measures that the FHA does not measure. What are those
measures? And how do they lead to adverse selection and
excessive leverage?
Mr. Pagliari. In the private market, lenders are concerned
about things like loan-to-value ratios, debt coverage ratios,
the quality of the assets, and the quality of the borrowers.
And that is not to say that FHA and HUD don't consider those
things.
It is to say, on the other hand, that in the private
market, those factors are priced, which means, as one example,
as you increase the leverage ratio, the interest rate charged
by the lender increases as a form of compensation for taking on
additional potential defaults.
In the FHA/HUD lending practices, essentially the interest
rate is fixed or constant irrespective of the leverage ratio
and/or asset/borrower quality. Around the edges, there are some
changes made with regard to reserves and escrow requirements.
But in my view, they are not terribly substantive.
Chairwoman Biggert. Does this make any difference as far as
single family? Is it different than what you would do with
single family mortgages?
Mr. Pagliari. Before the government guarantee programs that
others have mentioned in the single family market, it used to
be the case that private--excuse me, that single family home
borrowers who had less than a 20 percent downpayment had to
look for private mortgage insurance.
And that was a way to make more costly putting down less
money. That has largely gone away with regard to governmental
lending programs designed for the single family market.
The only other point I would like to make is that what
happens in the rental market does affect the single family home
market. So to the extent that we increase supply of rental
properties, we probably decrease the value of homes.
Chairwoman Biggert. Thank you.
Ms. Head, for single family programs, the FHA publishes a
quarterly report to Congress that shows serious delinquency
rate by quarter for years in the past. Multifamily delinquency
rates for all major investor groups, including banks and
commercial mortgage-backed securities, like insurance companies
and the GSEs, are publicly available. Does FHA multifamily
publish or publicly release historical delinquency rates and
claim rates?
Ms. Head. Thank you for that question, Chairwoman Biggert.
Let me assure you that we are committed to transparency in
publishing our data.
We post information regarding the FHA insurance program,
including our multifamily program, in the FHA Reading Room on
our Web site. With respect to multifamily specifically, we have
been refining our internal processes in all aspects of the
portfolio for the last 2 years.
And we are happy to discuss if there are any other ways
that we can provide data or information to you that you might
need about our program.
Chairwoman Biggert. So the answer is no, you don't publish
those?
Ms. Head. We do publish some information on our Web site.
Chairwoman Biggert. But not the delinquency rates and the
claim rates?
Ms. Head. No, ma'am, we have not published those.
Chairwoman Biggert. Could you provide those to us?
Ms. Head. Yes, we could provide them.
Chairwoman Biggert. Would you please--because it seems like
it kind of suggests a lack of transparency and ability for the
public and the Congress to assess whether the multifamily
programs are being operated in a safe and prudent manner.
Ms. Head. Chairwoman Biggert, may I also state that we have
had some IT challenges with our reporting system. We thank you
for the Transformation Initiative to allow us to do a better
job of that. That has been one of our challenges.
Chairwoman Biggert. Okay. Thank you.
I don't know whether to go to Mr. Schiff or not. But I
guess I will go.
You believe that FHA should leave the multifamily mortgage
market all together?
Mr. Schiff. It should leave the single family market as
well.
Chairwoman Biggert. We are focusing on the multifamily.
Mr. Schiff. You have to learn from your mistakes, so that
you don't repeat them. But I think it is ironic.
One of the reasons why maybe the multifamily market might
be devoid of credit is because too much of it has been diverted
by government to single family. In fact, I mentioned in my
statement that the subsidies didn't help the home buyers. They
helped the home sellers.
Because what happened was, once Americans could get cheap
money based on Federal loan guarantees, they simply used that
cheap money to bid up home prices. And so, they just paid more
for houses that, absent those subsidies, they might have bought
for a lot less money. And we wouldn't have that bubble.
The government needs to recognize that the market knows
more than Congress. Let the free market allocate--
Chairwoman Biggert. All right, so let me ask you this: Do
you believe that private funders would come into the market
without FHA support?
Mr. Schiff. Absolutely. But if you get the government out
of housing completely, not just FHA but Fannie and Freddie, and
let interest rates rise to an appropriate level, let people buy
houses they can actually afford, based on their
creditworthiness--don't put taxpayers on the hook. Don't try to
get people to buy houses when they would be better off renting.
Look at all the renters that Congress put into homes they
couldn't afford.
Chairwoman Biggert. Let me ask another question. Do private
funders engage in affordable housing?
Mr. Schiff. Sure they do, if there is a market for
affordable housing.
Chairwoman Biggert. Give me an example.
Mr. Schiff. You have to get the government out to have a
free market. But capitalists are always looking to sell things
to lower-income people. You can make a lot of money.
There are a lot more low-income people than rich people.
And you can make a lot of volume. One of the richest men in the
country was Sam Walton. He made money selling things to low-
income people.
If there is a demand for low-income housing, and if
Congress stays out of the way, profit-seeking private
entrepreneurs will satisfy that demand. The problem is you have
all these private businesses looking to government, because
they don't want to deal with a competitive marketplace.
Chairwoman Biggert. All right, my time has expired.
The gentleman from Missouri, Mr. Cleaver, is recognized for
5 minutes.
Mr. Cleaver. I am going to resist my temptation.
Mr. Schiff. Oh, don't do that on my account.
Mr. Cleaver. I wasn't talking to you.
Mr. Schiff. Forgive my presumptuousness.
Mr. Cleaver. Ms. Crowley, are you familiar with the new
term that seems to be used more and more--maybe it is a new
term altogether--``rentership?'' Since the economic crisis, it
seems that we have moved from homeownership to rentership.
And I mention that because we are now reaching a period
where many people cannot find affordable rental housing. How
could capitalization of the Affordable Housing Trust Fund help
households affected by the housing crisis? And what would you
recommend to us?
Ms. Crowley. Thank you for your question, Mr. Cleaver. On
the issue about rentership versus homeownership, I think that
in any healthy housing market, there has to be a range of
housing choices for the people who live in that community or
that society, and that renting is an important and appropriate
choice for many people.
The notion that we are moving from being a homeownership
society to a renter society doesn't really ring true, because
we edged up in homeownership, up to 67, 68 percent, but the
ratio of homeowners to renters has remained pretty much steady
for a very long time.
On the question of the Housing Trust Fund, as I said in my
testimony, there is ample evidence from lots of different
places, including our analysis, that where we have the most
serious housing shortage--and it is a shortage; it is not just
a lack of choice--is for households at the lowest income
levels.
And that is, in HUD terms, the 30 percent--income or
extremely low income. That is where there is the most need. And
that is where the serious resources are going at this point.
And we think it is perfectly reasonable to say that there
are lots of resources going into subsidizing housing for
higher-income homeowners that could be better spent if we were
to figure out how to fund the Housing Trust Fund and get more
housing built for the lowest-income people.
The benefits would be across-the-board. The number of
people who would be able to afford rental housing and not pay
excessive percentages of their income for rent would grow
considerably.
They would have more money to be able to spend in the
economy. They would have money, God forbid, to save for
retirement or for the potential of buying a house. It is just
really foolhardy for us not to pay close attention to this
problem.
Mr. Cleaver. Thank you.
Ms. Kenney, would the securitization of FHA and HFA risk-
sharing loans actually cost taxpayers?
Ms. Kenney. Thank you, Representative, for your question.
Actually no, it would come at no cost. And this is a program
that has existed for 20 years. So it has a proven track record
of working, in addition to having no cost to the Federal
Government.
It would reduce the workload at FHA, which has had some
backlogs in applications in terms of processing. And also,
States would actually share in the risk of insurance that is
provided for FHA.
Currently, all FHA loan products can be wrapped with this
Ginnie Mae wrap and take advantage of that lower interest rate.
And this program is excluded from that possibility.
So I just think it would be a very prudent way that the
Congress could help States like mine that participate in that
program to provide more affordable rental housing at a time
when the country truly needs it.
Mr. Cleaver. Without putting the taxpayers at risk.
Ms. Kenney. Correct.
Mr. Schiff. That is not true.
Mr. Cleaver. I yield back the balance of my time.
Mr. Schiff. There is tremendous cost here. Can I address
this? There is tremendous cost to the taxpayer. That is why
everybody is here. It is not because there is no benefit.
Mr. Cleaver. Sir?
Chairwoman Biggert. Time has expired.
Mr. Schiff. Can I address that?
Chairwoman Biggert. The gentleman from Virginia, Mr. Hurt,
is recognized for 5 minutes.
Mr. Hurt. Thank you, Madam Chairwoman. I wanted to talk a
little bit about the proposed increase in mortgage insurance
premiums. There has been some criticism that really the purpose
of this is to just cover FHA shortfalls, and it is not
rationally related to any purpose or any long-term
sustainability of what you all are trying to do.
Could you talk a little bit about that?
Ms. Head. Yes, sir. I am happy to talk about that.
Since the start of this Administration, we have taken a
number of steps to improve the risk management profile and the
capabilities of the FHA multifamily programs. Those actions
reflect our need to balance our mission along with providing
this broader role in the marketplace.
We provided liquidity to the marketplace during the
recession. And during the time from 2011, the FHA volume
increased by five-fold. Because of this, our risk profile has
changed. And the MIP increase will ensure that the fund is
compensated for the increased risk.
We are trying to make very prudent, business-like decisions
to ensure that we are managing that risk appropriately, while
at the same time trying to bring the private market capital
back into the marketplace.
So we really, really want to encourage this private capital
back into the marketplace.
Mr. Hurt. What other things are you doing to encourage
that, bringing the private capital back into the marketplace?
Ms. Head. Over these last several years, we have
strengthened our underwriting risk, which changes the loan-to-
value ratios of many of our programs. We have also pushed back
on some of the larger loans, as you heard mentioned earlier
here today, so that we can encourage the market to come back
into that place for those types of loans.
I want to be sure that everyone understands that we are not
raising the MIP on any of our affordable housing programs,
because we feel that we need to still be very, very active in
that marketplace.
Mr. Hurt. Okay, thank you.
Mr. Schiff, I am intrigued by some of the things that you
said. Despite all the sound and fury, there are not a lot of
details and proposals in terms of how you get to what you are
talking about.
Obviously, what FHA does is promote liquidity. And as a
consequence of that, I think that if you are talking about
dismantling that, it is going to be very complicated and could
have unbelievable consequences in the process.
What would you propose would be a process for doing it in a
way that would not wreck the economy and needlessly harm
individuals?
Mr. Schiff. It would liberate the economy. Remember, it is
not providing--
Mr. Hurt. But I am talking about specific--
Mr. Schiff. Yes.
Mr. Hurt. --specific steps, not more sound and fury.
Mr. Schiff. Because where does the liquidity come from?
See, it is being redirected. There are plenty of businessmen
who can't borrow for capital investment because somebody else
got a government guaranteed loan.
The ladies spoke about the fact that these loan guarantees
don't cost anything. They cost a tremendous amount of money.
The obvious cost being that, well, what if the loan ends up in
default? The taxpayer is on the hook.
So the government is adding contingency liabilities to its
balance sheet. And again, we are already hopelessly in debt. We
don't want to take on more liabilities.
But I think the greater cost to the economy is that the
other sectors are deprived of that money that went towards
housing, because the government guaranteed that loan and didn't
guarantee something else.
Mr. Hurt. But you would agree--I assume you would agree
that there is a need for a secondary mortgage market in
multifamily housing?
Mr. Schiff. If there is a need for it, the free market will
provide it.
Mr. Hurt. All right, how do you get there?
Mr. Schiff. That is how markets function.
Mr. Hurt. I am asking how you get there?
Mr. Schiff. The government has to get out of the way,
right? Because as long as the government is there distorting
it--look, 90 percent of the mortgages now are now guaranteed by
the government.
Nobody is going to step in. Who can compete with the
Treasury, because the Treasury has the taxpayers behind them?
So there is no private market when the government comes in. It
chases everybody else out.
But you have people here looking for the government to come
in, to provide a guarantee so that loans can be made that the
free market would deny. If the free market wants to deny a
loan, there is a reason for that.
And somebody who is more deserving--we don't need more
houses. We need more factories. We have this huge trade deficit
because too much of our resources are going to the things that
the government wants to promote and not enough things that we
actually need, and that the free market would provide if the
government simply got out of the way.
Because the government doesn't have money. There is no
money for housing. The government has to take money from
someplace else and direct it to housing.
Mr. Hurt. I would suggest, Mr. Schiff--I think what you say
is interesting. There may be some truth to it. But I would
suggest that if you have a proposal--
Mr. Schiff. I have a proposal.
Mr. Hurt. You have talked for 2\1/2\ minutes and we haven't
heard anything.
Mr. Schiff. No. The proposals--
Mr. Hurt. I yield back.
Mr. Schiff. The proposal is free market capitalism. Why is
the government involved? What difference does it make--
Chairwoman Biggert. The gentleman yields back.
Mr. Schiff. --whether somebody rents a house or buys a
house?
Chairwoman Biggert. Mr. Schiff?
Mr. Schiff. Yes.
Chairwoman Biggert. The time has expired.
Mr. Schiff. Unfortunately, you are right.
Chairwoman Biggert. The gentleman from Texas, Mr. Green.
Mr. Green. Thank you, Madam Chairwoman. I thank all of the
witnesses for appearing today. And I would like to, if I may,
engage in a process that will help me to better understand
where you are on some of these issues.
In court, we call this voir dire, or voir dire, depending
on where you are from. It is a French term. And it means to
speak the truth. So please permit me to just ask you to raise
your hand if you agree.
If you agree that there is a need for FHA, would you kindly
extend a hand into the air?
Mr. Schiff. Let the audience--
Mr. Green. Excuse me, Mr. Schiff, if you don't mind, I will
conduct this voir dire. And I will ask that you be kind. We
will get to you in just a moment.
So let the record reflect that all but two hands were
raised.
And I would like to, if I may, ask my builder to have some
comment. Would you give some indication as to why you are of
the opinion that FHA is necessary, please, sir?
Mr. Nielsen. Sure.
Mr. Green. And thank you for appearing.
Mr. Nielsen. Thank you. The home builders believe that
there should be an entire range of housing available to all
citizens of this country at all income levels. The problem with
taking the government out of housing is that you create a
``have and have not'' society.
And we believe that everyone should have the right to the
American dream, which is owning their own home. We believe that
along the way, we are going to have renters. And we need to
have rental housing available to those folks who need to rent.
So it is a stepped process. And we think the full range
needs to be available.
Mr. Green. Permit me to ask Ms. Crowley to respond as well,
if you would?
Ms. Crowley. To the value of the FHA?
Mr. Green. Yes, please.
Ms. Crowley. I think that the important thing about the FHA
is that when there is a crisis, like we had in the Great
Depression, where the FHA was created, and a crisis like we had
more recently, what has happened is that those programs have
been able to come in and keep everything from falling apart.
And I think that is the role of government, is to be there
to make sure that the economy is stabilized when it goes into
these serious fluctuations. So I think the FHA is critical from
that perspective.
I think the FHA programs are also extremely critical in the
preservation and the production of housing, the multifamily
programs' production of housing that is affordable to low-
income people.
Mr. Green. Thank you. Let me intercede, because I do have a
couple of additional people that I have to go to.
Let us go to Mr. Lopez, please. Mr. Lopez, you are here on
behalf of the mortgage bankers. Is that correct?
Mr. Lopez. That is correct.
Mr. Green. Could you kindly give us your rationale for why
we need FHA? And if you can be as terse as possible, I would
greatly appreciate it.
Mr. Lopez. Yes. First of all, the most important role that
FHA plays is the countercyclical. We saw the private sector
exit the market in 2009/2010. If it wasn't for the GSEs and
FHA, we would not have been able to finance multifamily
housing.
Second, you would not have private investors going into
secondary tertiary markets to finance needed workforce housing.
So those two elements make it important for FHA, over the long
term, to be active and be part of the availability of funds for
multifamily rental housing.
Mr. Green. The president of the National Housing Trust
Fund, I hope I am pronouncing your name correctly, Mr. Bodaken.
Thank you. Would you please respond?
Mr. Bodaken. FHA has been critical, in particular in the
financing and preservation of project-based Section 8. They
have $14 billion of financing for project-based Section 8.
Ms. Crowley has made the point that extremely low-income
renters are not served by the private market. Project-based
Section 8--50 percent of the people who live there are elderly
or disabled. They make less than $12,000 annually. The private
markets cannot possibly serve them.
FHA insures $14 billion. Everyone on this committee has
over $10 million or more of FHA-insured commitments on
multifamily housing for Section 8 in their district. And so,
FHA plays a critical role in ensuring their extremely low-
income population can be housed.
Mr. Green. Thank you.
And Madam Chairwoman, if I may just say, those who have
perused history are very much aware of what housing was like
prior to FHA and the GSEs--large downpayments, huge balloons,
only those who had some degree of wealth could afford housing,
in the main.
We did not have the American dream that we have now. And I
would hope that we would not retrogress to the point that we
now have to defend whether or not there should be an FHA. I
think our goal is to improve it and make it a better FHA.
And I yield back.
Chairwoman Biggert. All right, thank you, Mr. Green, for
that. And we are working on a bill, as you know.
The gentleman from Illinois, Mr. Dold, is recognized for 5
minutes.
Mr. Dold. Thank you, Madam Chairwoman.
Professor Pagliari, let me start with you, if I may.
Besides the Low Income Housing Tax Credit, what other policies
should the Federal Government pursue to incentivize greater
private sector development of affordable housing?
Mr. Pagliari. I guess, just to back up one step, there
seems to be a difference of opinion with regard to whether the
marketplace works, whether the market can fill a vacuum. So I
would say in the main, if there is a need that is unmet, the
marketplace will figure out a way to meet that need.
What we haven't talked about much today in terms of the
answer to your question is the voucher program. So rather than
providing financing directly to apartment owners, developers,
another way to think about solving the problem or mitigating
the problem is to provide income assistance to low-income
families.
Thank you.
Mr. Dold. Okay. Director Kenney, let me just turn over to
you, if I may.
Is there a multifamily liquidity or capital problem for
State housing finance agencies? In essence, are State housing
finance agencies able to access capital easily? Or are they
finding themselves locked out of the market?
Ms. Kenney. That is a very good question. HFAs have had to
adapt a great deal. And we have changed our financing
mechanisms largely. We used to really access the bond markets
and avail ourselves of the tax exempt bonds.
I think the liquidity problem on the multifamily side is
the crunch on soft resources that need to be provided to
developers in order to make a project work. And by that, I mean
the Federal HOME Program. In Illinois, we are very blessed to
have a State Affordable Housing Trust Fund.
And because of the economic crisis, those funds have become
stressed. There was a 40 percent reduction in the HOME funds
this year on the Federal level, and the State trust funds
continue to be pressured with the States' budget problems.
So I think the proposal that we have set forth is one good
reason for advancing it is just that. If we lower the interest
rate to the developer and allow him to provide more private
debt onto the project, it will lower the pressure on those soft
resources and allow us to provide more multifamily rental
housing.
So, this is a very cost-effective way to really give State
HFAs a tool to go out there and take some pressure off of those
funds.
Mr. Dold. From your perspective, what do you think the role
of the Federal Government should be in multifamily housing
development?
Ms. Kenney. At the risk of disagreeing with the prior
speaker, I just don't think that this is a role that the
private sector has served traditionally. And they don't serve
it well. We don't have to hearken back too far in our Nation's
history to the tenement housing and things that existed.
So, I don't feel that this is a need that the private
sector has traditionally filled. And I also disagree that the
private sector wasn't the larger part of the problem that was
created in the housing market.
Mr. Dold. Would you also agree, though, if I may, that if
in a situation of default, government would be on the hook?
Ms. Kenney. True. And in this particular program, the State
HFAs actually participate in the risk. So it is an insurance
policy. The premium revenues have exceeded any of the losses in
this program. And there is a--
Mr. Dold. And the default rate, I think, is fairly low.
Ms. Kenney. It is. In Illinois, it is 1.7 percent.
Mr. Dold. Okay. Mr. Lopez, if I can turn to you just for a
second in the minute and 13 seconds that I have left, your
company is among the top 25 FHA lenders and does business, in
essence, all over the country. How has your experience with HFA
been in recent years? And what do you think FHA should be doing
differently?
Mr. Lopez. First of all, FHA has been the source of capital
during times, as I indicated earlier, where other private
sources of capital were not available, along with GSEs. I
believe that they have added a whole array of proven changes to
the underwriting requirements. That, over the long term, is
going to make the portfolio stronger.
This is probably the best time in history to be making the
loans that we are making. The fundamentals for the multifamily
rental market are very strong. I think the changes to the loan
documents that were also implemented, all of those--although
there have been a lot of changes, and perhaps more than we can
adopt over a short period of time, I think what FHA has been
doing is in the right direction.
I do think that we need to streamline the process, so we
can provide the funds to those who need it quicker than what it
is right now.
Mr. Dold. Thank you, Madam Chairwoman. My time has expired.
I yield back.
Chairwoman Biggert. The gentleman's time has expired.
The other gentleman from Illinois, Ranking Member
Gutierrez, is recognized for 5 minutes.
Mr. Gutierrez. Thank you so much. And my apologies. I was
in an Intelligence Committee meeting, and came over here as
quickly as possible. I am very happy. And I thank the
chairwoman for calling this.
As I know we have heard from a number of witnesses, I also
believe that Ginnie Mae's securitization of FHA-endorsed risk-
shared loans would generate revenues and increase liquidity,
reduce financing costs, and make more loans possible.
Implementing the proposal would extend and enhance, in my
opinion, the use of a sound, proven housing program, and the
delivery system to support the development of more affordable
housing rental units.
I have been working on a bill to develop this proposal,
which I think will save the taxpayers money. And I look forward
to working with colleagues on both sides of the aisle in order
to accomplish and introduce such a bill.
I would like to ask Ms. Mary Kenney, what would it mean for
the people of Illinois who are in pretty dire need of
affordable housing if Congress authorizes Ginnie Mae to
securitize FHA/HFA risk-sharing loans, in your opinion?
Ms. Kenney. In my opinion, it would greatly increase my
agency's ability to increase the production of multifamily
rental housing. To date, my agency has been underwriting these
loans since 1994. We have done approximately 5,800 units.
I estimate that it could increase our production by up to
25 percent, having that more attractive interest rate available
in the first position loan.
Mr. Gutierrez. And would it cost taxpayers any more money
in order to do that?
Ms. Kenney. No. That is the wonderful thing about this
program, is it has a proven track record of 20 years. And there
has been revenues to--and the CBO estimates that it would
actually save the Federal Government $20 million over the next
10 years.
So it is a net neutral or slight positive.
Mr. Gutierrez. Maybe even positive fiscal--right?
Ms. Kenney. Yes.
Mr. Gutierrez. How about the rents? Would it do anything
for rents?
Ms. Kenney. Actually, unlike a lot of FHA insurance
products, this actually requires the tax credit and tax exempt
bond requirements on rent restrictions and affordability
restrictions. It actually provides more affordable housing than
the standard FHA insurance as well, so it would help us to
reach lower-income people.
Mr. Gutierrez. I look forward to continuing to work with
you on this. I am going to be sharing with Members on both
sides of the aisle, doing exactly that. That is without
spending any money and probably getting a CBO that saves it
saves money, enhancing and expanding affordable housing
opportunities for people without putting any risk, any monetary
risk.
Ms. Kenney. You have been a wonderful advocate for us. And
we appreciate your support.
Mr. Gutierrez. We are going to work on that. And again, I
apologize to all the panelists for being tardy to this hearing.
Chairwoman Biggert. The gentleman yields back.
The gentleman from Ohio, Mr. Stivers, is recognized for 5
minutes.
Mr. Stivers. Thank you, Madam Chairwoman.
I wanted to ask a question. Both Ms. Crowley and Ms. Head
said earlier that the insurance program that FHA's multifamily
housing has does not cost the taxpayers any money. But unlike
the single family housing program, there is no capital
requirement. Single family housing is supposed to keep a 2
percent surplus. The multifamily program does not have a
similar surplus that I know of. Maybe you can inform me and
help me if I am misinformed.
But because of that, isn't it true that if the program
didn't make money, the taxpayers would have to step in and bail
them out?
I will let Ms. Head go first, and then Ms. Crowley.
Ms. Head. Thank you for that question. All of FHA's
programs have a high level of accountability of financial
performance, first to OMB as part of the annual budget review.
Mr. Stivers. No, I understand that. Could you please focus
your comments on capital reserves?
Ms. Head. On the capital--
Mr. Stivers. Thank you, yes.
Ms. Head. Yes. So--
Mr. Stivers. Because I don't have much time. I want to use
it wisely.
Ms. Head. Sure. FHA agrees with a physically conservative
approach to financing its loan guarantee programs. We know that
there have been several discussions and a history about the
capital reserves for multifamily.
Our principal problem with that proposal is that for the
GI/SRI Fund, almost 45 percent of the outstanding insurance for
existing single family loans no longer being underwritten under
the fund, but the new insurance for single family programs are
now under the MMI Fund.
So to comply with the GI/SRI Fund capital requirement, as
it exists, that would mean that FHA would have to further
increase premiums on the currently active multifamily and
health care programs.
Mr. Stivers. Okay, you can stop there.
Ms. Crowley, do you have any comments on that?
Ms. Crowley. I didn't say anything about reserves in my--
Mr. Stivers. You did say that it didn't cost the taxpayers
any money. It is directly related to reserves. And if there are
no reserves--
Ms. Crowley. Ms. Kenney said that.
Mr. Stivers. I'm sorry. I apologize.
Ms. Kenney. So yes, I was referring to the CBO estimate.
Mr. Stivers. I am sorry. I didn't realize it was Ms.
Kenney. I apologize.
Ms. Kenney. Yes--in the FHA risk-share program, and the
historical operation of that program. And it has run at a
surplus.
Mr. Stivers. But if they didn't have a surplus on any given
year, wouldn't it cost taxpayers money, because there is no
capital reserve?
Ms. Kenney. Yes, potentially it could. I think the benefit
of this program that can't be underscored enough is that the
States actually share in the risk with the Federal Government.
Mr. Stivers. And the problem I have is that the government
typically misprices risk. That is what happened in Fannie and
Freddie. That is what happened in FHA's single family program.
That is why the reserves have gone from 2 percent now. They
were 1 percent last year and then--well, the year before last.
And then they lost 0.6 percent last year.
So they are a little over 0.5 percent of reserves now. And
they lost more than that last year. If they continue to lose,
it will be below zero this year. I guess I just think we need
to manage every program as close to the free market as we can.
And so, I just wanted to bring up that issue.
I want to shift a little bit and ask Mr. Lopez, because I
do think the other point here is--and Mr. Schiff brought it up
as well--we need to encourage the private marketplace to do as
much as it can.
And in my home of Columbus, Ohio, my multifamily housing
builders are--people who are building multifamily housing are
finding the only people they can get a loan from right now is
FHA. Mr. Lopez, are there things we could do to encourage
private lenders to put money back in multifamily housing?
Why is it? I know that the crisis caused a lot of people to
pull back from some multifamily commercial lending. Are there
things that we could do that could allow private capital to
compete with FHA? And then I think that would help drive the
government to know what a fair market rate price is.
Mr. Lopez. You are correct. And we are already seeing the
shift. What we saw in 2009 and 2010, when your constituents in
Ohio saw that the only source of loans were the GSEs and FHA,
2009, 2010. Today, that has shifted. And you begin to see life
insurance company, banks, thrifts that have come back into the
market.
Historically, that has been the role that FHA and the GSEs
play. They are countercyclical to the market. So we are seeing
the private market. I think the FHA has done a good job in
increasing the underwriting requirements.
Mr. Stivers. I just have 16 seconds left. And so, I would
like you to comment on the capital piece, because obviously all
of your lenders have to have capital behind them. What do you
think about the fact that FHA's multifamily housing doesn't
have a capital surplus requirement?
Mr. Lopez. There has been a negative credit subsidy. And
you look at the history of delinquencies for the GSEs. And
although we don't have numbers for FHA, we can tell that money
is going to the Treasury. So money is not being lost.
And overall, those portfolios are performing quite well.
Mr. Stivers. My time has expired. I would like to follow up
on that if there is a second round, Madam Chairwoman.
Chairwoman Biggert. Thank you, Mr. Stivers.
I am going to ask a couple more questions, if I may.
Mr. Mostyn, according to your testimony, you support HUD's
proposal to expand taxpayer-backed Ginnie Mae securitization of
loans on buildings to 49 units.
Would this proposal require taxpayers to take more risk
on--
Mr. Mostyn. I don't believe so. I think that the housing
needs in smaller communities are just as important as they are
in the larger communities. And I think that if the underwriting
is solid and is done in a format that we have seen the
improvement through the FHA here recently, I think it should be
a good investment, a good guarantee, if you will, for the FHA
and the government.
Chairwoman Biggert. I guess that is not quite the question
I was trying to get to. If you expand taxpayer-backed Ginnie
Mae securitization of loans, will there be more taxpayer risk?
Mr. Mostyn. Again, I don't believe so. I think that the
asset, if underwritten correctly, which Ginnie Mae's process
would do--
Chairwoman Biggert. All right, then, Ms. Head, currently
the Rural Housing Service, under the U.S. Department of
Agriculture, administers multifamily housing programs to rural
communities nationwide. Are these rural communities also
eligible for multifamily housing programs under FHA?
Ms. Head. The multifamily programs that already exist in
the rural housing, are they eligible for FHA?
Chairwoman Biggert. Yes.
Ms. Head. They are insured by the rural housing programs.
Chairwoman Biggert. Are the communities eligible for FHA?
The Department of Agriculture has the rural housing--
Ms. Head. The USDA 515 Program, is that what you are
referring to for the rural housing?
Chairwoman Biggert. Yes.
Ms. Head. Yes, so the FHA small multifamily risk program
will provide new opportunities for those that are financing
loans in rural communities. So they have their own government,
and outside of the FHA-insured guarantee.
Chairwoman Biggert. But can FHA do it in rural communities
too? There has been this thing about moving the rural housing
around.
Ms. Head. We also are part of a rental policy working group
between agencies that enables us to be consistent between our
programs. So the main objective that we have right now is being
able to provide more financing in the rural communities.
But in answer to your question, yes, we could.
Chairwoman Biggert. Okay, thank you.
Thank you. Mr. Cleaver is recognized.
Mr. Cleaver. Thank you, Madam Chairwoman.
Mr. Schiff, I just have one question. Do you oppose
government-backed flood insurance?
Mr. Schiff. Yes, I do.
Mr. Cleaver. Thank you.
Mr. Schiff. I think it encourages people to build in flood
zones. And therefore, we end up using more money. Your
colleague there, Mr. Green, wanted to know who is in favor of
HUD. And just about everybody here raised their hand because
they directly benefit from HUD.
Sure, a home builder can sell a home at an inflated price
because of the FHA. But there are people on the other side of
these transactions who are losing money. There are plenty of
people who are not at this table who suffer because Congress
decides to subsidize the industries that are representing here.
I was asked, where is my solution. My solution is the free
market.
Mr. Cleaver. What--
Mr. Schiff. That doesn't require government. It requires
abolishing government.
Mr. Cleaver. You are answering your question. I want you to
answer mine.
So with regard to flood insurance, with which this
committee deals--
Mr. Schiff. Yes.
Mr. Cleaver. --should we then use the Federal Government to
force the people out of New Orleans?
Mr. Schiff. The Federal Government shouldn't be forcing
people to do anything. First of all, there is nothing in the
Constitution--
Mr. Cleaver. So they should--
Mr. Schiff. --and you guys all swear an oath to uphold it,
that says that you are supposed to get involved in flood
insurance. But a lot of the flood insurance goes to
millionaires who have beach homes. Let the private sector--
Mr. Cleaver. But I didn't ask you about the millionaires.
Mr. Schiff. But you asked me about flood insurance.
Mr. Cleaver. I asked you about New Orleans.
Mr. Schiff. Yes. I think that New Orleans and the people
down there can take care of New Orleans. It is not up to the
Federal Government to tax people in Maine or New Hampshire or
California to deal with the problems in New Orleans.
Mr. Cleaver. So--
Mr. Schiff. There are State governments. There are city
governments. And there is a free market. If you guys would let
it function, it would work.
Mr. Cleaver. So Louisiana should back State-backed flood
insurance?
Mr. Schiff. No, I think there should be private insurance.
Mr. Cleaver. You just said it was the State's
responsibility.
Mr. Schiff. I don't believe that the States should be doing
that either.
Mr. Cleaver. No, but that is what you said.
Mr. Schiff. Well, I said that there are States. But let the
State make the mistake, and not the Federal Government, because
at least it is just the local taxpayers who will suffer.
But the private sector can supply flood insurance. The
problem is when the government subsidizes it and it is too
cheap, it encourages people to build in flood zones. Absent the
government backing, the insurance would be more expensive, so
fewer people would build in those areas and so we wouldn't be
damaged.
It is called moral hazard. It is unfortunate that
politicians very often overlook the unintended consequences of
their actions. Because what you do alters behavior.
Mr. Cleaver. Okay, so--
Mr. Schiff. And it often makes the very problem worse that
you are trying to solve.
Mr. Cleaver. Okay. So those individuals who lived on the
Gulf Coast, whose homes were not on the beach, but who lost
their properties, including a Member of the United States
Senate and a Member of the House, what did they do wrong?
Mr. Schiff. Remember, people were encouraged to build there
by these subsidies.
Mr. Cleaver. No, no.
Mr. Schiff. And it is not that the free market wouldn't
offer insurance. They would just offer it at a higher price.
Mr. Cleaver. Can you tell me who encouraged Charlie--who
lost his house. We went by. So who encouraged Congressman Gene
Taylor to build--
Mr. Schiff. No, I am saying by offering insurance where the
free market might offer it at a higher rate, you get more
building. Or people might not take adequate precautions.
Mr. Cleaver. I know, but you are answering a question that
I didn't ask.
Mr. Schiff. Well, yes, you did. You asked me about flood
insurance. I am answering your questions.
Mr. Cleaver. Yes, but--
Mr. Schiff. Meanwhile, if I live in Connecticut, why should
I have to pay for somebody's flood insurance down in New
Orleans? Why is it you are just trying to redistribute
everything?
I might have a storm up in Connecticut, but I am not going
to go asking somebody in Louisiana to pay for my damage.
Mr. Cleaver. So the private insurance companies are lining
up to provide insurance to people who live on the Gulf Coast?
Mr. Schiff. Well, no. Why would they? Because they can't
compete with the Federal Government doing it, when the Federal
Government doesn't operate--
Chairwoman Biggert. Mr. Schiff, please. We are here to get
answers to questions. And you are just throwing out more and
more questions. If you have a response and you want to answer
the question--
Mr. Schiff. I am answering your question.
Chairwoman Biggert. And as a matter of fact, it was just
signed into law that beach houses and secondary homes are no
longer receiving a subsidy for flood.
Mr. Schiff. That is a step in the right direction.
Chairwoman Biggert. And we also have a bill that hopefully
will come out this year, that will move the risk to the private
sector. And they will take over this insurance.
But please, the decorum here is not just yelling. And I
like a rant sometimes, but I think we have had enough of them.
Mr. Schiff. Remember, I represent the taxpayers here. And
we are pretty upset at what is going on. So you can hear that.
Chairwoman Biggert. There are a lot of people here who are
upset. We are trying to find the answers, not just hear the
rant.
Mr. Schiff. I have the answers. All you have to do is
listen to them.
[laughter]
Chairwoman Biggert. The time has expired.
Mr. Hurt, do you have a question? No? Okay.
Mr. Sherman has joined us. Mr. Sherman, you are recognized
for 5 minutes.
Mr. Sherman. Yes. Mr. Schiff, we tried your philosophy
until about 100 years ago. Then, there was a huge disaster at
the Mississippi, and the American people thought it was simply
outrageous that the Federal Government didn't help everybody.
For you to think that we should allow people to go
uninsured, not subsidize the insurance, and then the United
States Congress is not going to help people who are uninsured
and hit by a disaster--maybe that happens in an Ayn Rand novel,
but it doesn't happen in the United States Congress.
Mr. Schiff. We did try my view for a long time in this
country. We became the wealthiest country the world had ever
known.
Mr. Sherman. Excuse me. We tried your view until about the
19 teens. The country has done, you can say, rather poorly over
the last few years. But we did pretty well in the latter 80
percent of the 20th Century.
Mr. Schiff. Don't take credit for that.
Mr. Sherman. Excuse me, Mr. Schiff.
I will go on to Mr. Lopez. You mentioned that private
capital is starting to come into the multifamily markets. Do
you think, given that, that it is a good time for FHA to be
adding new market rate loans to its portfolio?
Mr. Lopez. Absolutely. This is probably the best time to
make a multifamily loan. First of all, there is no bad time. If
you brilliantly underwrite a loan, there is no bad time to make
a loan.
But the changes that have been implemented, the initiatives
that have been put in place looking at the underwriting and
credit for FHA loans make the loans that are being insured
today the best ever, not only because of the new constraints,
but also because of the fundamentals of the market.
And if you look at the demographics over the next 5 to 10
years, they bode very well for multifamily rental housing. So I
am confident that any loan that we are doing, not only FHA, but
with other sources of capital, will be the best transactions we
put in our portfolios in our lifetime.
Mr. Sherman. Mr. Mostyn, do you have a comment on that?
Mr. Mostyn. I agree with that. A good loan is a good loan.
And if you have good credit policies and underwriting
procedures, I think this is an excellent time in the
multifamily business to be making loans.
Mr. Sherman. Mr. Lopez, you mentioned that the GI/SRI Fund
contains a number of single family loans. I thought we resolved
that problem several years ago when we moved reverse mortgages
and condominium loans over to the MMI Fund. Can you explain why
there would still be a single family loans in the GI/SRI Fund?
Couldn't we make that fund exclusively multifamily
mortgages now?
Mr. Lopez. You are correct. Congress made significant
strides in moving single family loans out of the fund. However,
that was prospective going forward. Loans that were made from
1992 to 2009 remain in the fund.
And those are the ones that give--you cannot get a clear
picture of the performance of multifamily programs because
those loans, those single family loans remain in the fund. If
those were separated, then you can be able--policymakers will
be able to make better decisions based on the performance of
those loans.
But you are correct. The issue was resolved going forward
from 2009. But now, we have to go back and ask HUD to remove
those from 1992 to 2009.
Mr. Sherman. I thank you for your answers.
In reference to Mr. Schiff's philosophy, the fact is if you
go uninsured, you have still insurance, but it is paid for by
the taxpayer. Because as a practical matter--sir, I know you
imagine a world that is different.
I have served here for over 15 years. And if there is an
enormous front-page natural disaster and a homeowner is
uninsured, there will be a special appropriations bill.
And the size of that bill will be less if people are
insured. The Federal Government, in this real world, has a
financial interest in minimizing the uninsured damage of front-
page natural disasters.
With that I yield back.
Mr. Schiff. You realize, though, there are hundreds of
billions of dollars in losses that are waiting for the FHA. The
bailout is going to be enormous. You understand this already,
based on the loans they have already guaranteed.
Mr. Sherman. I will simply say that natural disasters
cannot be prohibited by law. The natural human response to
natural disasters cannot be prohibited by philosophy.
And anything that reduces the uninsured losses of ordinary
homeowners will reduce the cost of the next special
appropriations bill far more effectively than a philosophical
attack on doing a special appropriations bill after a natural
disaster.
I yield back.
Chairwoman Biggert. The gentleman's time has expired.
The gentleman from Ohio?
Mr. Stivers. Thank you, Madam Chairwoman. I would like to
follow up on where I was with Mr. Lopez as we wrapped up and my
time expired.
Obviously, all of the members of the group you represent,
the mortgage bankers, have to capitalize their business. Do you
think it would be a best practice for FHA to have to capitalize
and have some capital requirement, whether it is 2 percent, 1
percent, 0.5 percent, on their multifamily housing portfolio,
just like they do on their single family housing portfolio?
Mr. Lopez. I believe that the mortgage insurance premium is
already taking care of that. As I indicated earlier, we see
that there is a negative subsidy, that revenues are moving from
the insurance fund to the Treasury.
And so clearly, the risk is such that the government is not
losing capital. So there probably would not be a need for that.
Mr. Stivers. Instead of moving to Treasury, wouldn't it
make sense to keep it in FHA as a surplus against losses, so
that you have--
Mr. Lopez. Absolutely. We would--
Mr. Stivers. That is what I am trying to get at.
Mr. Lopez. We would not only support that, but we would
support that surplus going into trying to address the
technology needs of FHA, into training the HUD staff.
That is where those excess funds should go to.
Mr. Stivers. Mr. Pagliari had his hand up. Go ahead, sir.
Mr. Pagliari. If I may?
Mr. Stivers. Yes, sir.
Mr. Pagliari. I think an interesting idea to explore is the
possibility of considering private market reinsurance of FHA's
liability.
Mr. Stivers. And actually, that is my next question. Is
there a PMI, a private mortgage insurance market, in
multifamily? Can anybody speak to that? And if you can, Mr.
Pagliari, that would be great.
Mr. Pagliari. Not that I know of. But what I am asking is
for some thought to be given to the idea of probably increasing
transparency by letting the private market assess these
contingent liabilities that some people believe have a zero
expected value. Others don't.
Let the market decide whether or not the expected value is
correctly set at zero.
Mr. Stivers. And I think that is part of what I am trying
to get at, that the private marketplace prices risk much more
efficiently. That is why it would be great if we could figure
out how to create a PMI market that operates alongside FHA for
multifamily, so you could see where the private market values
the risk and how the government values the risk.
I will go to Mr. Pagliari and Mr. Lopez, and then Mr.
Schiff.
Mr. Pagliari. And if I may, I would just say that this
notion of reinsurance already exists in the private insurance
world, where insurance companies lay off their risk to other
insurers. The idea, in my mind, has a direct analogy to what we
are talking about here.
Thank you.
Mr. Lopez. Although I don't recommend that the FHA do risk
sharing, there are successful risk-sharing programs in the
GSEs, typically Fannie and Freddie. So you can go in that area.
And Ms. Kenney talked about some of that risk-sharing
program.
Mr. Stivers. I will let her go at it. I do want to let Mr.
Schiff talk.
Mr. Schiff. Yes, we can't lose sight of the fact that the
reserves that you are talking about right now for the FHA for
single family are wholly inadequate for the losses that are
going to come.
Remember, right now, we have mortgage rates--
Mr. Stivers. Did you say they are wholly adequate?
Mr. Schiff. Wholly inadequate.
Mr. Stivers. Inadequate.
Mr. Schiff. The losses will be at least 20 or 30 percent,
if not more. Because what is ultimately going to happen, when
interest rates rise, and the housing market has another leg
down and more people lose their jobs, the defaults are going to
go through the roof.
Mr. Stivers. But Mr. Schiff--
Mr. Schiff. These contingency liabilities will be realized.
And they are enormous.
Mr. Stivers. And I am running out of time. So if you could
just--let us philosophically agree that if the government is
going to do this, they should have some type of surplus or some
type--
Mr. Schiff. To the extent that you make the mistake of
doing it, yes, require as big a reserve as possible.
Mr. Stivers. Yes.
Mr. Schiff. But I am sure whatever you require is not going
to be enough. Because as I said, the losses are going to be
enormous.
Mr. Stivers. I understand your philosophy on that. But I am
trying to get at if we are going to do it, how we do it the
best we can.
Ms. Kenney?
Ms. Kenney. I just wanted to note for Members that my
agency actually had a privately insured program that was
similar to the risk-share programs through AMBAC insurance. The
problem they have today is that you have no AAA rated insurance
companies.
And so, to kind of underscore a lot of what a lot of
speakers have been saying is the role of FHA right now is so
critical because there is no private market.
Mr. Stivers. And I recognize that. I am trying to figure
out how we can transition to bring back some private market,
both in lending as well as in the private mortgage insurance.
And I think that is really important, so that the government
has a check and balance to know how to price their product.
Because historically, the government has done not a very good
job at that.
Yes, sir?
Mr. Bodaken. Michael Bodaken. I would just point out that
chart three in my testimony talks about how the role of private
lending has been increasing in a variety of ways. And I think
that one thing to think about is what happens in a crisis and
how would the PMIs deal with that crisis.
I don't disagree that the private market will efficiently
price, at a point in time, as long as the market is healthy.
But remember, the market is not a stasis product. It moves. And
the PMIs--
Mr. Stivers. Dynamic, yes.
Mr. Bodaken. That is my only point, is that I think right
now you won't get that efficient pricing necessarily, until the
market is totally healed.
Mr. Stivers. Thank you. I am out of time.
Thank you for allowing me to ask those follow-up questions,
Madam Chairwoman.
Chairwoman Biggert. Maybe we could consider some sort of
hearing on that, Mr. Stivers.
Ms. Waters, the gentlelady from California, is recognized
for 5 minutes.
Ms. Waters. Thank you very much, Madam Chairwoman.
Ms. Head, as I understand it, FHA's multifamily programs
are designed to promote development of multifamily housing for
both low-income and moderate-income households. Could you
elaborate on this distinction?
Are there any differences in terms of the premiums that FHA
charges lenders between low-income and non-low-income
development?
Ms. Head. Yes, ma'am, there are. We are not proposing an
increase in our premiums for the affordable housing programs.
We are making a clear distinction so that we can separate
ourselves in the market from the affordable standpoint, versus
the market rate standpoint.
Ms. Waters. The financial crisis created a greater demand
for rental housing. Could you talk about how FHA's multifamily
programs have helped to address the housing crisis?
Ms. Head. Yes, ma'am. I am happy to do that.
As we have talked about a lot today, FHA during the crisis
stepped up to the plate. Our volumes increase by 5 times. So it
put a strain on our system.
But in the end, FHA was the agency providing liquidity to
the market. Without us, as others have stated today too, the
affordable housing in the multifamily market, as a total, would
have been in dire risk.
Ms. Waters. Thank you very much.
Ms. Crowley, despite the fact that FHA stepped up to the
plate, and they have done an awful lot to address the need for
rental housing, we still hear from constituents about the lack
of affordable rental housing.
How could capitalization of the Affordable Housing Trust
Fund help households affected by the housing crisis? And what
steps do you recommend that Congress take to capitalize the
trust fund?
Ms. Crowley. Thank you, Ms. Waters. The National Housing
Trust Fund is specifically designed to reach that segment of
the housing market that is not served by programs, and those
are the people who have the worst housing cost burdens and who
have the fewest choices.
As I said in my testimony, there is an acute shortage of
housing for people at the lower income levels, under 30 percent
AMI. The National Housing Trust Fund is intended to fill that
gap. We have three possible vehicles for funding that are under
consideration.
The President has asked for $1 billion in his budget this
year. We urge Congress to figure out how to pay for that, and
get that done in whatever vehicle is appropriate this year, as
a way to get it started.
We also are watching carefully what is happening with GSE
reform. As you know, Fannie and Freddie were to make
contributions to the trust fund until they were taken into
conservatorship. We hope that there will be affordability
requirements in whatever emerges in the decisions about the
future of Federal housing finance.
And then, we have taken the big leap to say it is really
important that we start looking at where all the Federal
housing subsidies go and who is getting them and how do you
make it fairer.
And so, we proposed a very small, very modest reform to the
mortgage interest deduction, where we would lower the cap on
the amount of mortgage that you could get a deduction on, from
on, at this point, $1.1 million, down to $500,000. Only 4
percent of the mortgages in the last 10 years were over
$500,000. So it would have very little effect on the vast
majority of home buyers.
And then we would turn it from a deduction, which is only
available to people who itemize, to a credit, which is
available to all homeowners who have interest. And that would
dramatically expand the number of homeowners with incomes under
$100,000 who would then get a tax benefit.
In the process of doing that, you save a considerable
amount of money that could be redirected into solving unmet
housing needs, specifically those of the poorest people.
Ms. Waters. Thank you very much. One of the things that I
have noted about this panel and this issues is that we have
advocates, we have the business community all coming together
to talk about the need for rental housing. And certainly, the
home builders and the mortgage bankers are business people who
understand process, who understand how to pencil out these
projects and to take the steps necessary to get this rental
housing on the market.
So may I ask the home builders, how important is it for you
that we have FHA, and even a Housing Trust Fund, and other
efforts to create multifamily housing?
Mr. Nielsen. As I said before, I think it is extremely
important that we have FHA, because it is there when private
companies cannot or will not be there, whether it is because of
their corporate mission or because of a recession like we have
gone through today.
So, it is absolutely critical that FHA play the role that
it does.
Ms. Waters. Thank you very much.
Chairwoman Biggert. Thank you. The gentlelady yields back.
I would ask unanimous consent to insert the following
materials into the record: a June 7, 2012, statement from
Highland Commercial Mortgage, Birmingham, Alabama; and a June
5, 2012, statement from the National Association of Affordable
Housing Lenders.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for Members to submit written questions to these
witnesses and to place their responses in the record.
And with that, I would like to thank all of you for being
on this panel. It has been a very interesting and helpful
panel. It has given us a lot to think about. And we really
appreciate that you all have taken the time to be here.
Thank you very much. And with that, this hearing is
adjourned.
[Whereupon, at 12:03 p.m., the hearing was adjourned.]
A P P E N D I X
June 7, 2012
[GRAPHIC] [TIFF OMITTED] T6105.001
[GRAPHIC] [TIFF OMITTED] T6105.002
[GRAPHIC] [TIFF OMITTED] T6105.003
[GRAPHIC] [TIFF OMITTED] T6105.004
[GRAPHIC] [TIFF OMITTED] T6105.005
[GRAPHIC] [TIFF OMITTED] T6105.006
[GRAPHIC] [TIFF OMITTED] T6105.007
[GRAPHIC] [TIFF OMITTED] T6105.008
[GRAPHIC] [TIFF OMITTED] T6105.009
[GRAPHIC] [TIFF OMITTED] T6105.010
[GRAPHIC] [TIFF OMITTED] T6105.011
[GRAPHIC] [TIFF OMITTED] T6105.012
[GRAPHIC] [TIFF OMITTED] T6105.013
[GRAPHIC] [TIFF OMITTED] T6105.014
[GRAPHIC] [TIFF OMITTED] T6105.015
[GRAPHIC] [TIFF OMITTED] T6105.016
[GRAPHIC] [TIFF OMITTED] T6105.017
[GRAPHIC] [TIFF OMITTED] T6105.018
[GRAPHIC] [TIFF OMITTED] T6105.019
[GRAPHIC] [TIFF OMITTED] T6105.020
[GRAPHIC] [TIFF OMITTED] T6105.021
[GRAPHIC] [TIFF OMITTED] T6105.022
[GRAPHIC] [TIFF OMITTED] T6105.023
[GRAPHIC] [TIFF OMITTED] T6105.024
[GRAPHIC] [TIFF OMITTED] T6105.025
[GRAPHIC] [TIFF OMITTED] T6105.026
[GRAPHIC] [TIFF OMITTED] T6105.027
[GRAPHIC] [TIFF OMITTED] T6105.028
[GRAPHIC] [TIFF OMITTED] T6105.029
[GRAPHIC] [TIFF OMITTED] T6105.030
[GRAPHIC] [TIFF OMITTED] T6105.031
[GRAPHIC] [TIFF OMITTED] T6105.032
[GRAPHIC] [TIFF OMITTED] T6105.033
[GRAPHIC] [TIFF OMITTED] T6105.034
[GRAPHIC] [TIFF OMITTED] T6105.035
[GRAPHIC] [TIFF OMITTED] T6105.036
[GRAPHIC] [TIFF OMITTED] T6105.037
[GRAPHIC] [TIFF OMITTED] T6105.038
[GRAPHIC] [TIFF OMITTED] T6105.039
[GRAPHIC] [TIFF OMITTED] T6105.040
[GRAPHIC] [TIFF OMITTED] T6105.041
[GRAPHIC] [TIFF OMITTED] T6105.042
[GRAPHIC] [TIFF OMITTED] T6105.043
[GRAPHIC] [TIFF OMITTED] T6105.044
[GRAPHIC] [TIFF OMITTED] T6105.045
[GRAPHIC] [TIFF OMITTED] T6105.046
[GRAPHIC] [TIFF OMITTED] T6105.047
[GRAPHIC] [TIFF OMITTED] T6105.048
[GRAPHIC] [TIFF OMITTED] T6105.049
[GRAPHIC] [TIFF OMITTED] T6105.050
[GRAPHIC] [TIFF OMITTED] T6105.051
[GRAPHIC] [TIFF OMITTED] T6105.052
[GRAPHIC] [TIFF OMITTED] T6105.053
[GRAPHIC] [TIFF OMITTED] T6105.054
[GRAPHIC] [TIFF OMITTED] T6105.055
[GRAPHIC] [TIFF OMITTED] T6105.056
[GRAPHIC] [TIFF OMITTED] T6105.057
[GRAPHIC] [TIFF OMITTED] T6105.058
[GRAPHIC] [TIFF OMITTED] T6105.059
[GRAPHIC] [TIFF OMITTED] T6105.060
[GRAPHIC] [TIFF OMITTED] T6105.061
[GRAPHIC] [TIFF OMITTED] T6105.062
[GRAPHIC] [TIFF OMITTED] T6105.063
[GRAPHIC] [TIFF OMITTED] T6105.064
[GRAPHIC] [TIFF OMITTED] T6105.065
[GRAPHIC] [TIFF OMITTED] T6105.066
[GRAPHIC] [TIFF OMITTED] T6105.067
[GRAPHIC] [TIFF OMITTED] T6105.068
[GRAPHIC] [TIFF OMITTED] T6105.069
[GRAPHIC] [TIFF OMITTED] T6105.070
[GRAPHIC] [TIFF OMITTED] T6105.071
[GRAPHIC] [TIFF OMITTED] T6105.072
[GRAPHIC] [TIFF OMITTED] T6105.073
[GRAPHIC] [TIFF OMITTED] T6105.074
[GRAPHIC] [TIFF OMITTED] T6105.075
[GRAPHIC] [TIFF OMITTED] T6105.076
[GRAPHIC] [TIFF OMITTED] T6105.077
[GRAPHIC] [TIFF OMITTED] T6105.078
[GRAPHIC] [TIFF OMITTED] T6105.079
[GRAPHIC] [TIFF OMITTED] T6105.080
[GRAPHIC] [TIFF OMITTED] T6105.081
[GRAPHIC] [TIFF OMITTED] T6105.082
[GRAPHIC] [TIFF OMITTED] T6105.083
[GRAPHIC] [TIFF OMITTED] T6105.084
[GRAPHIC] [TIFF OMITTED] T6105.085
[GRAPHIC] [TIFF OMITTED] T6105.086
[GRAPHIC] [TIFF OMITTED] T6105.087
[GRAPHIC] [TIFF OMITTED] T6105.088
[GRAPHIC] [TIFF OMITTED] T6105.089
[GRAPHIC] [TIFF OMITTED] T6105.090
[GRAPHIC] [TIFF OMITTED] T6105.091
[GRAPHIC] [TIFF OMITTED] T6105.092
[GRAPHIC] [TIFF OMITTED] T6105.093
[GRAPHIC] [TIFF OMITTED] T6105.094
[GRAPHIC] [TIFF OMITTED] T6105.095
[GRAPHIC] [TIFF OMITTED] T6105.096
[GRAPHIC] [TIFF OMITTED] T6105.097
[GRAPHIC] [TIFF OMITTED] T6105.098
[GRAPHIC] [TIFF OMITTED] T6105.099
[GRAPHIC] [TIFF OMITTED] T6105.100
[GRAPHIC] [TIFF OMITTED] T6105.101
[GRAPHIC] [TIFF OMITTED] T6105.102
[GRAPHIC] [TIFF OMITTED] T6105.103
[GRAPHIC] [TIFF OMITTED] T6105.104
[GRAPHIC] [TIFF OMITTED] T6105.105
[GRAPHIC] [TIFF OMITTED] T6105.106
[GRAPHIC] [TIFF OMITTED] T6105.107
[GRAPHIC] [TIFF OMITTED] T6105.108
[GRAPHIC] [TIFF OMITTED] T6105.109
[GRAPHIC] [TIFF OMITTED] T6105.110
[GRAPHIC] [TIFF OMITTED] T6105.111
[GRAPHIC] [TIFF OMITTED] T6105.112
[GRAPHIC] [TIFF OMITTED] T6105.113
[GRAPHIC] [TIFF OMITTED] T6105.114
[GRAPHIC] [TIFF OMITTED] T6105.115
[GRAPHIC] [TIFF OMITTED] T6105.116
[GRAPHIC] [TIFF OMITTED] T6105.117
[GRAPHIC] [TIFF OMITTED] T6105.118
[GRAPHIC] [TIFF OMITTED] T6105.119
[GRAPHIC] [TIFF OMITTED] T6105.120
[GRAPHIC] [TIFF OMITTED] T6105.121
[GRAPHIC] [TIFF OMITTED] T6105.122
[GRAPHIC] [TIFF OMITTED] T6105.123
[GRAPHIC] [TIFF OMITTED] T6105.124
[GRAPHIC] [TIFF OMITTED] T6105.125
[GRAPHIC] [TIFF OMITTED] T6105.126
[GRAPHIC] [TIFF OMITTED] T6105.127
[GRAPHIC] [TIFF OMITTED] T6105.128
[GRAPHIC] [TIFF OMITTED] T6105.129
[GRAPHIC] [TIFF OMITTED] T6105.130
[GRAPHIC] [TIFF OMITTED] T6105.131
[GRAPHIC] [TIFF OMITTED] T6105.132
[GRAPHIC] [TIFF OMITTED] T6105.133
[GRAPHIC] [TIFF OMITTED] T6105.134
[GRAPHIC] [TIFF OMITTED] T6105.135
[GRAPHIC] [TIFF OMITTED] T6105.136
[GRAPHIC] [TIFF OMITTED] T6105.137
[GRAPHIC] [TIFF OMITTED] T6105.138
[GRAPHIC] [TIFF OMITTED] T6105.139
[GRAPHIC] [TIFF OMITTED] T6105.140
[GRAPHIC] [TIFF OMITTED] T6105.141
[GRAPHIC] [TIFF OMITTED] T6105.142
[GRAPHIC] [TIFF OMITTED] T6105.143
[GRAPHIC] [TIFF OMITTED] T6105.144
[GRAPHIC] [TIFF OMITTED] T6105.145
[GRAPHIC] [TIFF OMITTED] T6105.146
[GRAPHIC] [TIFF OMITTED] T6105.147
[GRAPHIC] [TIFF OMITTED] T6105.148
[GRAPHIC] [TIFF OMITTED] T6105.149
[GRAPHIC] [TIFF OMITTED] T6105.150
[GRAPHIC] [TIFF OMITTED] T6105.151
[GRAPHIC] [TIFF OMITTED] T6105.152
[GRAPHIC] [TIFF OMITTED] T6105.153
[GRAPHIC] [TIFF OMITTED] T6105.154
[GRAPHIC] [TIFF OMITTED] T6105.155
[GRAPHIC] [TIFF OMITTED] T6105.156
[GRAPHIC] [TIFF OMITTED] T6105.157
[GRAPHIC] [TIFF OMITTED] T6105.158
[GRAPHIC] [TIFF OMITTED] T6105.159
[GRAPHIC] [TIFF OMITTED] T6105.160
[GRAPHIC] [TIFF OMITTED] T6105.161
[GRAPHIC] [TIFF OMITTED] T6105.162
[GRAPHIC] [TIFF OMITTED] T6105.163
[GRAPHIC] [TIFF OMITTED] T6105.164
[GRAPHIC] [TIFF OMITTED] T6105.165
[GRAPHIC] [TIFF OMITTED] T6105.166
[GRAPHIC] [TIFF OMITTED] T6105.167
[GRAPHIC] [TIFF OMITTED] T6105.168
[GRAPHIC] [TIFF OMITTED] T6105.169
[GRAPHIC] [TIFF OMITTED] T6105.170
[GRAPHIC] [TIFF OMITTED] T6105.171
[GRAPHIC] [TIFF OMITTED] T6105.172
[GRAPHIC] [TIFF OMITTED] T6105.173
[GRAPHIC] [TIFF OMITTED] T6105.174
[GRAPHIC] [TIFF OMITTED] T6105.175
[GRAPHIC] [TIFF OMITTED] T6105.176
[GRAPHIC] [TIFF OMITTED] T6105.177
[GRAPHIC] [TIFF OMITTED] T6105.178
[GRAPHIC] [TIFF OMITTED] T6105.179
[GRAPHIC] [TIFF OMITTED] T6105.180
[GRAPHIC] [TIFF OMITTED] T6105.181
[GRAPHIC] [TIFF OMITTED] T6105.182
[GRAPHIC] [TIFF OMITTED] T6105.183
[GRAPHIC] [TIFF OMITTED] T6105.184
[GRAPHIC] [TIFF OMITTED] T6105.185
[GRAPHIC] [TIFF OMITTED] T6105.186
[GRAPHIC] [TIFF OMITTED] T6105.187
[GRAPHIC] [TIFF OMITTED] T6105.188
[GRAPHIC] [TIFF OMITTED] T6105.189
[GRAPHIC] [TIFF OMITTED] T6105.190
[GRAPHIC] [TIFF OMITTED] T6105.191
[GRAPHIC] [TIFF OMITTED] T6105.192
[GRAPHIC] [TIFF OMITTED] T6105.193
[GRAPHIC] [TIFF OMITTED] T6105.194
[GRAPHIC] [TIFF OMITTED] T6105.195
[GRAPHIC] [TIFF OMITTED] T6105.196
[GRAPHIC] [TIFF OMITTED] T6105.197
[GRAPHIC] [TIFF OMITTED] T6105.198
[GRAPHIC] [TIFF OMITTED] T6105.199
[GRAPHIC] [TIFF OMITTED] T6105.200
[GRAPHIC] [TIFF OMITTED] T6105.201
[GRAPHIC] [TIFF OMITTED] T6105.202
[GRAPHIC] [TIFF OMITTED] T6105.203
[GRAPHIC] [TIFF OMITTED] T6105.204
[GRAPHIC] [TIFF OMITTED] T6105.205
[GRAPHIC] [TIFF OMITTED] T6105.206
[GRAPHIC] [TIFF OMITTED] T6105.207
[GRAPHIC] [TIFF OMITTED] T6105.208
[GRAPHIC] [TIFF OMITTED] T6105.209
[GRAPHIC] [TIFF OMITTED] T6105.210
[GRAPHIC] [TIFF OMITTED] T6105.211
[GRAPHIC] [TIFF OMITTED] T6105.212
[GRAPHIC] [TIFF OMITTED] T6105.213
[GRAPHIC] [TIFF OMITTED] T6105.214
[GRAPHIC] [TIFF OMITTED] T6105.215
[GRAPHIC] [TIFF OMITTED] T6105.216
[GRAPHIC] [TIFF OMITTED] T6105.217
[GRAPHIC] [TIFF OMITTED] T6105.218