[Senate Hearing 112-]
[From the U.S. Government Publishing Office]



 
TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2013

                              ----------                              


                        THURSDAY, MARCH 1, 2012

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:33 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray and Collins.

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                        Office of the Secretary

STATEMENT OF HON. SHAUN DONOVAN, SECRETARY


               opening statement of senator patty murray


    Senator Murray. Mr. Secretary, welcome back to our 
subcommittee, as we are here today to talk about fiscal year 
2013 budget requests for the Department of Housing and Urban 
Development (HUD).
    As we begin our work on next year's budget, there are 
encouraging signs that our economy is moving now in the right 
direction. Although we aren't moving quickly enough for 
families that continue to struggle, and we certainly have a 
long way to go, the private sector has now been adding jobs for 
almost 2 years, businesses are growing, and confidence is up. 
We seem to have stepped back, finally, from the precipice, 
which, of course, is very good news for the housing market, 
which depends on a strong and stable economy to recover and 
thrive.
    But despite the positive signs, we still face significant 
challenges. Over 22 percent of homeowners are underwater.
    The recent settlement that was announced among the five 
largest banks, the States, and the Federal Government is an 
important step. It holds banks accountable and provides relief 
to homeowners. But the settlement also paves the way for banks 
to proceed with foreclosures that have been stalled in the 
pipeline.
    While it is important to reduce the excess inventory of 
distressed housing, increased sales of these properties at 
reduced prices may further depress home values.
    Climbing back from the housing crash will not be easy, and 
I am interested in hearing your views on how we can increase 
the stability of the market.
    The depressed housing market has also taken its toll on the 
Federal Housing Administration (FHA). This is made clear in the 
President's budget. The budget indicates that, for the first 
time, FHA may require Federal funding to cover its losses. I 
have long been concerned about the solvency of FHA's Mutual 
Mortgage Insurance (MMI) Fund, and I applaud the efforts of the 
Administration to strengthen FHA's risk controls.
    But many of the financial problems facing FHA are related 
to older books of business insured at the height of the housing 
boom. So while these changes to strengthen the program are 
important and long overdue, it will also be important to 
recover or prevent expected losses from older loans.
    I am pleased that the recent mortgage settlement includes 
money for FHA. And other settlements, most notably Bank of 
America, will also provide money to cover losses related to 
improper mortgage originations.
    These settlements should help avoid the need for taxpayer 
funding, and I hope you will continue to look for opportunities 
to recoup losses from fraudulent or poorly underwritten loans.
    Additional changes to FHA premiums contained in the budget, 
as well as those announced on Monday, represent your continued 
efforts to improve the solvency of the MMI Fund and protect the 
taxpayer from having to cover its losses.
    Beyond FHA, today we will also examine other aspects of the 
Administration's request, which is $44.8 billion in gross 
resources to support HUD's programs. While this represents an 
increase of over 3 percent, it is largely a current services 
budget as a result of the numerous offsets included in the 
fiscal year 2012 bill.
    As the Secretary's testimony notes, 83 percent of HUD's 
budget is dedicated to providing housing to the Nation's most 
vulnerable, and these programs require annual adjustments. As 
we continue to live under the caps of the Budget Control Act, 
this presents us with very difficult choices.
    Last year, Senator Collins and I worked very hard to 
protect HUD's core rental assistance programs. But doing so 
meant difficult cuts to programs like the Community Development 
Block Grant (CDBG), HOME, and Housing for the Elderly. The cuts 
to CDBG that began in fiscal year 2011 are being widely felt 
today. Cities and towns are cutting services to vulnerable 
citizens, laying off workers, or delaying critical investments 
in their communities.
    This year's budget faces many of the same challenges we 
struggled with last year. How do you craft a budget that 
protects low-income residents who rely on HUD assistance to 
keep a roof over their heads, makes the economic development in 
affordable investments that strengthen our communities, and 
gives HUD the tools it needs to effectively manage its 
programs?
    While the Administration's fiscal year 2013 budget tries to 
address these goals by balancing priorities, I am concerned 
about some of the proposals. The proposed budget for Project-
Based Rental Assistance will manage within the requested level 
by intentionally not funding contracts for a full 12 months. I 
have seen this policy before. And while this may be manageable 
in the short run, I'm concerned we won't have the resources 
when the bill eventually becomes due.
    In the Tenant-Based Rental Assistance account, I'm also 
concerned that the funding level requested to renew vouchers is 
effectively flat, despite anticipated inflation and the need to 
renew vouchers for the first time. The budget also relies on 
savings from a number of policy changes which are not without 
controversy.
    So as we make the difficult choices in this budget, I want 
to be sure we are making decisions with an understanding of 
their consequences and an eye toward the future.
    Despite my concerns, there are some bright spots in this 
budget. The request, again, seeks $75 million for new HUD-
Veterans Affairs Supportive Housing (HUD-VASH) vouchers, which 
have really helped to reduce homelessness among our veterans by 
12 percent between 2010 and 2011.
    The Administration has worked hard to develop a plan to 
finally end homelessness, and I'm very glad the request for 
homeless programs reflects a continued commitment to that plan.
    At a time when resources are scarce, oversight of HUD's 
programs becomes even more important. I look forward to 
continuing to work with the Department and my colleagues to 
find additional ways to improve HUD's programs.
    I also want to acknowledge today HUD's new inspector 
general, Mr. Montoya, who is with us today. I welcome his 
vision for HUD's Office of Inspector General, and look forward 
to working with him to protect taxpayer dollars and improve the 
efficiency of HUD's programs.
    The fiscal year 2013 budget, once again, requires difficult 
choices to be made. As I work with my colleagues, Senator 
Collins and those on this subcommittee, to put together this 
bill, I will be mindful of the millions of Americans who rely 
on HUD's programs for a place to sleep each night.


                           prepared statement


    Mr. Secretary, I look forward to our discussion today and 
working with you as we develop this 2013 budget. And I 
appreciate everyone accommodating us in moving this hearing up.
    [The statement follows:]
               Prepared Statement of Senator Patty Murray
    Mr. Secretary, I want to welcome you back to the subcommittee today 
as we discuss the fiscal year 2013 budget request for the Department of 
Housing and Urban Development (HUD).
    As we begin our work on next year's budget, there are encouraging 
signs that our economy is moving in the right direction. Although we 
aren't moving quickly enough for families that continue to struggle--
and we certainly have a long way to go.
    The private sector has been adding jobs for almost 2 years. 
Businesses are growing, confidence is up, and we seem to have stepped 
back from the precipice. Which, of course, is very good news for the 
housing market--which depends on a strong and stable economy to recover 
and thrive.
                       housing market challenges
    But despite the positive signs, we still face significant 
challenges. Over 22 percent of homeowners are underwater. The recent 
settlement announced among the five largest banks, the States, and the 
Federal Government is an important step. It holds banks accountable and 
provides relief to homeowners.
    But the settlement also paves the way for banks to proceed with 
foreclosures that have been stalled in the pipeline. While it is 
important to reduce the excess inventory of distressed housing, 
increased sales of these properties at reduced prices may further 
depress home values. Climbing back from the housing crash will not be 
easy, and I am interested in hearing your views on how we increase the 
stability of the market.
                              fha solvency
    The depressed housing market has also taken its toll on the Federal 
Housing Administration (FHA); this is made clear in the President's 
budget. The budget indicates that for the first time, FHA may require 
Federal funding to cover its losses.
    I have long been concerned about the solvency of FHA's Mutual 
Mortgage Insurance Fund. I applaud the efforts of this administration 
to strengthen FHA's risk controls.
    But many of the financial problems facing FHA are related to older 
books of business insured at the height of the housing boom.
    So while these changes to strengthen the program are important--and 
long overdue--it will also be important to recover or prevent expected 
losses from older loans.
    I am pleased that the recent mortgage settlement includes money for 
FHA. And other settlements, most notably with Bank of America will also 
provide money to cover losses related to improper mortgage 
originations.
    These settlements should help avoid the need for taxpayer funding. 
And I hope you will continue to look for opportunities to recoup losses 
from fraudulent or poorly underwritten loans.
    Additional changes to FHA premiums contained in the budget, as well 
as those announced on Monday, represent your continued efforts to 
improve the solvency of the MMI Fund and protect the taxpayer from 
having to cover its losses.
                     hud's fiscal year 2013 budget
    Beyond FHA, today we will also examine other aspects of the 
administration's request, which is $44.8 billion in gross resources to 
support HUD's programs.
    While this represents an increase of over 3 percent, it is largely 
a current services budget as a result of the numerous offsets included 
in the fiscal year 2012 bill. As the Secretary's testimony notes, 83 
percent of HUD's budget is dedicated to providing housing to the 
Nation's most vulnerable.
    These programs require annual adjustments. As we continue to live 
under the caps of the Budget Control Act, this presents us with very 
difficult choices. Last year, Senator Collins and I worked very hard to 
protect HUD's core rental assistance programs. But doing so meant 
difficult cuts to programs like Community Development Block Grant 
(CDBG), HOME, and Housing for the Elderly.
    The cuts to CDBG that began in fiscal year 2011 are being widely 
felt today. Cities and towns are cutting services to vulnerable 
citizens, laying off workers, or delaying critical investments in their 
communities.
    This year's budget faces many of the same challenges that we 
struggled with last year. How do you craft a budget that:
  --Protects low-income residents who rely on HUD assistance to keep a 
        roof over their heads;
  --Makes the economic development and affordable housing investments 
        that strengthen our communities; and
  --Gives HUD the tools it needs to effectively manage its programs?
                        budget proposal concerns
    While the administration's fiscal year 2013 budget tries to address 
these goals by balancing priorities, I am concerned about some of its 
proposals.
    The proposed budget for Project-Based Rental Assistance will manage 
within the requested level by intentionally not funding contracts for a 
full 12 months. I have seen this policy before. And while this may be 
manageable in the short-run, I am concerned that we won't have the 
resources when the bill eventually comes due.
    In the Tenant-Based Rental Assistance account, I am also concerned 
that the funding level requested to renew vouchers is effectively 
flat--despite anticipated inflation and the need to renew vouchers for 
the first time.
    The budget also relies on savings from a number of policy changes, 
which are not without controversy. So as we make the difficult choices 
in the budget, I want to be sure that we are making decisions with an 
understanding of their consequences and an eye toward the future.
                           budget highlights
    Despite my concerns, there are some bright spots in the budget. The 
request again seeks $75 million for new HUD-VASH vouchers, which have 
helped to reduce homelessness among veterans by 12 percent between 2010 
and 2011.
    The administration has worked hard to develop a plan to finally end 
homelessness. And I am very glad that the request for homeless programs 
reflects a continued commitment to that plan.
                             hud oversight
    At a time when resources are scarce, oversight of HUD's programs 
becomes even more important. I look forward to continuing to work with 
the Department and my colleagues to find additional ways to improve 
HUD's programs.
    I would like to acknowledge HUD's new inspector general, Mr. 
Montoya, who is with us today. I welcome his vision for HUD's Office of 
Inspector General and I look forward to working with him to protect 
taxpayer dollars and improve the efficacy of HUD's programs.
                                closing
    The fiscal year 2013 budget once again requires difficult choices 
to be made.
    As I work together with Senator Collins and my colleagues on the 
subcommittee to put together this bill, I will be mindful of the 
millions of Americans who rely on HUD's programs for a place to sleep 
each night.
    Mr. Secretary, I look forward to our discussion today and working 
with you as we develop the fiscal year 2013 budget.
    With that I will turn it over to my partner in these efforts, 
Senator Collins.

    Senator Murray. And Senator Collins, thank you for 
accommodating us as well.
    As all of you know, we have a vote in about an hour and 20 
minutes, and I know Senator Collins and I both need to be on 
the floor then.
    So with that, let me turn it over to my colleague, Senator 
Collins. Thank you for being here today.

                 STATEMENT OF SENATOR SUSAN M. COLLINS

    Senator Collins. Thank you very much, Chairman Murray.
    First, let me say how much I enjoyed working with you last 
year as we crafted this important appropriations bill. We did 
so in a truly bipartisan fashion. We share a lot of the same 
priorities.
    And it was also a great pleasure to work with Secretary 
Donovan, and I appreciate his being here today as we discuss 
how to meet the housing and economic development needs of 
families and communities across our Nation.
    As we begin to construct the fiscal year 2013 budget, we 
are mindful that we are once again operating under very 
difficult fiscal constraints. That is even more challenging 
when one considers that more than 80 cents out of every $1 of 
the budget request is required just to continue serving those 
who currently rely on HUD for just housing support.
    Addressing the ongoing challenge of homelessness remains a 
top priority of mine. Chairman Murray and I continue to share 
this commitment, particularly for our Nation's veterans. And we 
worked very hard last year to preserve funding for the HUD-VASH 
program.
    One out of every six men and women in homeless shelters are 
veterans, and unfortunately, veterans are 50 percent more 
likely to fall into homelessness compared to other Americans. 
So I am pleased that the budget request continues funding for 
the HUD-VASH program at $75 million. This level of funding 
should help us serve an additional 10,000 veterans who would 
otherwise likely be homeless.
    Veterans' homelessness fell by nearly 12 percent in the 
year 2010, demonstrating that these programs work. I've also 
always supported funding for the homeless assistance grants 
programs to prevent and end homelessness. The budget proposes 
$2.2 billion for this program. That's an increase of 
approximately $330 million over the previous fiscal year.
    It is, however, important that we focus on what works. And 
one of the models that I've seen work in the State of Maine is 
the Housing First model for aiding those who are homeless.
    We need better data to ensure the effectiveness of all 
housing programs. This particular model is proving its 
effectiveness in my home State of Maine through the Florence 
House, a comprehensive center for homeless women in Portland.
    In addition to programs that effectively serve the 
homeless, HUD, of course, provides support for affordable 
rental housing. The budget proposes more than $19 billion for 
the Tenant-Based Rental Assistance program, of which $1.6 
billion is available for administrative costs. That's an 
increase in direct response to the fact that some public 
housing agencies (PHAs) are having a difficult time 
administering their voucher programs and have actually turned 
back vouchers as a result, and that is very troubling.
    We don't want to overpay them for their administrative 
expenses, but they need to have sufficient expenses to 
efficiently and effectively run the program.
    Another important issue that I'd like to address is HUD's 
oversight of the Maine State Housing Authority Section 8 
Voucher Program. A series of recent newspaper stories revealed 
troubling cases of code violations and other poor conditions in 
Oxford County, Maine. In fact, the local fire chief was so 
upset that he wrote a letter to my office, asking for my help.
    HUD has an obligation to oversee the use of Federal funds 
of public housing agencies nationwide and to ensure that these 
funds are not supporting substandard properties.
    I just want to share, briefly, with my colleagues and the 
people from HUD here, and the inspector general, one of the 
particular units, one of the apartments that was cited in this 
newspaper series. HUD was actually paying $600 a month in 
Federal subsidies for an apartment that had septic backups in 
the kitchen sink, a damaged fire escape, and bat and rodent 
infestation. Totally unacceptable.
    It's bad enough that taxpayers were charged for substandard 
units, but it's appalling that residents were forced to live in 
such horrible conditions. The welfare and safety of tenants 
must be safeguarded, and federally subsidized properties must 
represent fair value to both the tenant and the taxpayer alike.
    I have requested the inspector general to audit HUD's 
oversight of the unit inspections and the Maine State Housing 
Authority's administration of the program. It is clearly 
critical that federally subsidized properties comply with all 
health, safety, and quality standards.
    And I want to commend the Secretary for taking my concerns 
very seriously and for asking the Maine State Housing Authority 
for a corrective action plan.
    And I'm also very pleased that the inspector general has 
stepped in and is investigating this problem.
    I, too, want to echo Senator Murray's concerns about the 
Federal Housing Administration, which plays such a critical 
role in affordable home ownership. The decline in the housing 
market over the past several years has had a tremendous impact 
on families and communities throughout the Nation as well as 
our economy as a whole.
    While I understand that HUD has taken a number of steps to 
increase capital reserves, it remains troubling that the 
capital reserve ratio remains below the congressionally 
mandated level of 2 percent. I'm optimistic that we'll hear 
some good news as a result of the settlements, but that still 
is of concern.
    I also want to discuss in the question period with the 
Secretary what can be done to ensure the greater use of wood 
pellet heating systems in Maine that have not qualified for 
assistance under the FHA program. And those are increasingly 
popular. They are an alternative to fossil fuels. Maine is very 
heavily dependent on home heating oil, the price of which has 
spiked.
    Finally, the level funding for the Community Development 
Block Grant program, proposed at about $3 billion, is 
disappointing. This popular program supports the economic 
growth strategies of communities nationwide, and enables key 
investments in their long-term economic growth. It is programs 
like CDBG that help to build a foundation for future 
prosperity.
    These are just some of the issues before our subcommittee.

                           PREPARED STATEMENT

    And again, Madam Chairman, I look forward to working very 
closely with you again this year.
    [The statement follows:]
             Prepared Statement of Senator Susan M. Collins
    Thank you, Chairman Murray. I am delighted to join you once again 
as we start the fiscal year 2013 appropriations process and consider 
the Department of Housing and Urban Development's (HUD's) budget 
request.
    Mr. Secretary, it is nice to see you again. I look forward to 
working with you to meet the housing and economic development needs of 
families and communities throughout the Nation.
    As we begin to construct the fiscal year 2013 budget, we will 
continue to face difficult decisions given the fiscal constraints we 
remain under. This is even more challenging when more than 80 cents out 
of every $1 of the fiscal year 2013 request is required just to 
continue serving those who currently rely on HUD for housing support.
    Addressing the ongoing challenge of homelessness remains a top 
priority of mine. Chairman Murray and I continue to share this 
commitment, particularly for our Nation's veterans. One out of every 
six men and women in homeless shelters are veterans, and unfortunately, 
veterans are 50 percent more likely to fall into homelessness compared 
to other Americans.
    I am pleased the budget continues funding for HUD's Veterans 
Affairs Supportive Housing (HUD-VASH) Program at $75 million. This 
level of funding will serve an additional 10,000 veterans, who would 
otherwise be homeless were it not for HUD-VASH. Veterans' homelessness 
fell by nearly 12 percent in 2010, demonstrating that programs like 
HUD-VASH work.
    I have always supported funding for the Homeless Assistance Grants 
program to prevent and end homelessness. The budget proposes $2.2 
billion for this program, $330 million more than fiscal year 2012.
    We need to focus, however, on what works such as the Housing First 
model for aiding those who are homeless. We need better data to ensure 
the effectiveness of all housing programs. This model is proving its 
effectiveness in my home State of Maine through Florence House, a 
comprehensive center for homeless women in Portland.
    In addition to programs that effectively serve the homeless, HUD 
also provides support for affordable rental housing. The budget 
proposes more than $19 billion for the Tenant-Based Rental Assistance 
program, of which $1.6 billion is available for administrative costs. 
This represents a $225 million increase in administrative funding from 
fiscal year 2012. It is my understanding that some public housing 
agencies are having a difficult time administering their voucher 
programs, including HUD-VASH, this fiscal year.
    Another important issue I would like to address is HUD's oversight 
of the Maine State Housing Authority's Section 8 voucher program. A 
series of recent newspaper articles revealed troubling cases of code 
violations and other poor conditions in Oxford County, Maine. HUD has 
an obligation to oversee the use of Federal funds at public housing 
agencies nationwide and to ensure these funds do not support 
substandard properties.
    One of the units cited, for which HUD was paying $600 in Federal 
subsidies, had septic backups in the kitchen sink, a damaged fire 
escape, and bat and rodent infestation. It is bad enough that taxpayers 
were charged for substandard units, but it ,is appalling that residents 
were forced to live in such horrible conditions. The welfare and safety 
of tenants must be safeguarded, and federally subsidized properties 
must represent fair value to the tenant and the taxpayer alike.
    I requested that the Inspector General audit HUD's oversight of 
unit inspections and the MSHA's administration of its program. It is 
critical that federally subsidized properties comply with all health, 
safety, and quality standards.
    In addition to supporting affordable rental housing, HUD plays a 
critical role in affordable home ownership through the Federal Housing 
Administration. The decline in the housing market over the past several 
years has had a tremendous impact on families and communities 
throughout the Nation, from the huge number of foreclosures to the 
substantial decline in home values.
    While I understand HUD has taken a number of steps to increase 
capital reserves, it is troubling that the capital reserve ratio remain 
s below the congressionally mandated level of 2 percent. In questions I 
also want to discuss how HUD regulations can encourage the great use of 
wood pellet heat in FHA-assisted homes.
    Finally, the level funding for the Community Development Block 
Grant (CDBG) program, proposed at $2.95 billion, is disappointing. This 
popular program supports the economic growth strategies of communities 
nationwide and enables key investments in their long-term economic 
growth. It is programs like CDBG that help to build a foundation for 
future prosperity.
    These are just some of the issues we are confronted with on our 
subcommittee this year. Chairman Murray, I look forward to working with 
you as we consider HUD's fiscal year 2013 budget request.

    Senator Murray. Thank you very much, Senator Collins.
    With that, we'll turn it over to you, Secretary Donovan, 
for your opening statement.

                SUMMARY STATEMENT OF HON. SHAUN DONOVAN

    Secretary Donovan. Thank you, Madam Chair, ranking member, 
for the opportunity to be here today. Today, I would like to 
discuss how HUD's fiscal year 2013 budget proposal is essential 
to creating housing and communities built to last and will 
directly support 700,000 jobs.
    Madam Chair, in developing this proposed budget we followed 
four principles. The first is to continue our support for the 
housing market, while bringing private capital back. The 
critical support FHA provided over the last 3 years has helped 
2.8 million families buy a home and more than 1.7 million 
homeowners refinance into stable, affordable products with 
average monthly savings of more than $125.
    At the same time, we have taken the most significant steps 
in FHA history to reduce risks to the taxpayer and reform FHA's 
mortgage insurance premium structure. With the premium 
increases of 10 basis points recently enacted by Congress, 
coupled with additional premium increases on jumbo loans 
reflected in the budget, FHA projects to add an additional $8.1 
billion in receipts to the capital reserve account in 2013.
    And just this week, we announced a series of additional 
premium changes that will increase receipts to FHA above those 
already in the budget by over $1 billion in fiscal years 2012 
and 2013.
    We have also taken significant steps to increase 
accountability for FHA lenders, and continue to seek expanded 
authority via legislation that will further enable us to 
protect the fund, as will the recent settlement with America's 
five largest servicers, through which FHA will receive 
approximately $900 million to compensate for losses associated 
with loans originated or serviced in violation of FHA 
requirements.
    With FHA's current market share declining since 2009, these 
reforms will further help private capital return, while 
ensuring that FHA remains a vital source of financing for 
underserved borrowers and communities.
    Just as importantly, while HUD's fiscal year 2013 request 
is $44.8 billion in gross budget authority, because of FHA and 
Ginnie Mae receipts, the cost to the taxpayer for this budget 
is only $35.35 billion, fully 7.3 percent below the fiscal year 
2012 enacted level, more than meeting our deficit reduction 
targets while still allowing us to improve oversight of our 
core programs.
    The second principle we used to develop our budget was to 
protect current residents and improve the programs that serve 
them. The 5.4 million families who live in HUD-assisted housing 
earn $10,200 per year, as a median, and more than half are 
elderly or disabled. That's why 83 percent of our budget, as 
you both recognized, keeps these residents in their homes and 
provides basic upkeep to public housing, while also continuing 
to serve our most vulnerable populations through our homeless 
programs.
    As you know, inflation and stagnant incomes put real 
pressure on the cost of these programs each year. This year, we 
redoubled our efforts to minimize and even reverse these 
increases, not just for this year, but in the years to come.
    For instance, we are working with your colleagues to enact 
Section 8 reform legislation that would save $1 billion over 
the next 5 years, while also supporting the ability of public 
housing authorities in small towns and rural areas to better 
serve the working poor.
    The budget also achieves savings in the Project-Based 
Rental Assistance program by improving oversight of market rent 
studies, capping certain annual subsidy increases, and 
offsetting excess reserves.
    Even still, protecting current families required us to make 
choices we would not have made in a different fiscal 
environment. Requesting $8.7 billion for the Project-Based 
Rental Assistance program allows us to serve the same number of 
families, but it required us to provide less than 12 months of 
funding for the majority of contracts.
    In addition, even though the budget maintains hardship 
exemptions, the budget raises minimum rents throughout our core 
rental assistance programs to a uniform $75 per month.
    These very difficult decisions are the kinds of steps we 
were required to take in this difficult budget environment. 
That's why our third principle, continuing investments that 
leverage private dollars and create jobs, is so important. 
Through our Choice Neighborhoods program, we are helping 
communities engage a broad range of public and private partners 
to transform our poorest neighborhoods and ensure our children 
are prepared for the 21st century economy.
    As the President said, if we are going to compete with 
China and India, we can't leave anyone on the sidelines. 
Likewise, our Sustainable Communities grants challenge 
communities to creatively use existing resources that help them 
insource and bring jobs back to our shores.
    In Memphis, which is using HUD's Community Challenge grant 
to more effectively use Federal and State resources in 
neighborhoods surrounding its international airport, FedEx has 
already created over 3,000 jobs, and companies like Electrolux 
and Nucor Steel are poised to create another 1,500.
    At a time when the fiscal environment has required us to 
make tough choices about CDBG and HOME--dollar-for-dollar, the 
most effective job creators in our budget--these grants are 
essential because they leverage the limited resources of core 
programs even more smartly and efficiently.
    Indeed, reducing regulatory burdens and increasing 
efficiency is the fourth and final principle we used to 
formulate this budget. For example, the budget provides 
flexibilities to public housing agencies to better manage in 
this fiscal environment. And to hold our partners accountable 
for the funding they receive, it also continues our 
Transformation Initiative (TI).
    With your help, we are both continuing the next generation 
management system that will improve monitoring and oversight of 
our largest rental assistance programs, and launching a 
crosscutting technical assistance initiative targeted to PHAs 
so they have the capacity to manage their budgets.
    TI research also allows us to propose increased investments 
in programs we know work, like permanent support of housing and 
rapid re-housing that end homelessness and save money. That's 
why, even in this difficult environment, as both of you have 
championed, we proposed additional funding for homeless 
assistance grants and the HUD-VASH program for homeless 
veterans, ensuring we can end chronic and veteran homelessness 
by 2015.
    All told, despite tough choices, this proposed budget 
allows us to serve 27,000 more vulnerable families. It 
recognizes that the recovery of our housing market is essential 
to our broader economic recovery, and it expresses our belief 
that every American should get a fair shot, do their fair 
share, and play by the same rules.

                           PREPARED STATEMENT

    Thank you for having me here today.
    [The statement follows:]
                Prepared Statement of Hon. Shaun Donovan
    Chairman Murray, Ranking Member Collins, and members of the 
subcommittee, thank you for the opportunity to testify today regarding 
the fiscal year 2013 budget for the Department of Housing and Urban 
Development (HUD), Housing and Communities Built to Last.
    I appear before you to discuss this budget in an economic 
environment that is significantly improved from when the President took 
office. An economy that was shrinking is growing again--and instead of 
rapid job loss, more than 3.2 million new private sector jobs have been 
created in the last 22 months, and national unemployment has fallen to 
a near 3-year low. But we know there's still more work to be done to 
ensure that America can create an economy built to last--with good jobs 
that pay well and security for the middle class.
    HUD's fiscal year 2013 budget tackles these challenges head on: By 
helping responsible families at risk of losing their homes; by 
providing quality affordable rental housing to some of our Nation's 
most vulnerable families; by transforming neighborhoods of poverty to 
ensure we are not leaving a whole generation of our children behind in 
our poorest communities; by rebuilding the national resource that is 
our federally assisted public housing stock and ensuring that its 
tenants are part of the mobile, skilled workforce our new global 
economy requires; and by leveraging private sector investments in 
communities to create jobs and generate the economic growth our country 
needs. Indeed, this budget will support hundreds of thousands of jobs 
both directly and indirectly, serving as a powerful engine for job 
creation in the places that need them most.
    Our budget provides $44.8 billion for HUD programs, an increase of 
$1.4 billion, or 3.2 percent, above fiscal year 2012. This program 
funding level (i.e., gross budget authority) is offset by $9.4 billion 
in projected Federal Housing Administration (FHA) and Ginnie Mae 
receipts, leaving net budget authority of $35.4 billion, or 7.3 percent 
below the fiscal year 2012 enacted level of $38.2 billion. The budget 
reflects the reality that we cannot create an economy built to last 
without taking responsibility for our deficit. The caps set by the 
Budget Control Act of 2011 promise over $907 billion in total 
discretionary cuts over the next 10 years, and every department shares 
a responsibility to make tough cuts so there's room for investments to 
speed economic growth. To maintain our commitment to fiscal discipline, 
this budget invests in improving the infrastructure and technological 
systems critical to reforming the Government to be leaner, more 
transparent, and ready for the 21st century. Moreover, by providing a 
menu of key reforms--including to some of our largest rental assistance 
programs--this budget simplifies and aligns policies to be more 
efficient and effective, while saving the taxpayer hundreds of millions 
of dollars. To be clear, not all of the reforms we're proposing are 
easy. Indeed, this budget makes tough choices in order to contribute to 
deficit reduction in a substantial way.
                        responding to the crisis
    Much has happened in the 3 years since HUD submitted its fiscal 
year 2010 budget. Only weeks before the Bush administration and 
Congress had taken dramatic steps to prevent the financial meltdown, 
the Nation was losing 753,000 jobs a month, our economy had shed jobs 
for 22 straight months, house prices had declined for 30 straight 
months, and consumer confidence had fallen to a 40-year low.
    In the face of an economic crisis that experts across the political 
spectrum predicted could turn into the next Great Depression, the Obama 
administration had no choice but to take aggressive steps. The Federal 
Reserve and Treasury helped keep mortgage interest rates at record 
lows. Because low interest rates only matter if there are mortgages 
available at those rates, the administration also provided support for 
Fannie Mae and Freddie Mac, while HUD's Federal Housing Administration 
stepped in to play its critical countercyclical role in helping to 
stabilize the housing market. The administration proposed, and Congress 
enacted, a homebuyer tax credit to spur demand in the devastated 
housing sector. And we took steps to help families keep their homes--
through mortgage modifications and FHA's loss mitigation efforts.
    The results of these extraordinary but necessary actions are clear. 
Since April 2009, more than 5.6 million borrowers have received 
mortgage modifications with affordable monthly payments, nearly 14 
million families have been able to refinance their homes, and 
foreclosures are down by nearly 50 percent.
                   creating an economy built to last
    Now, having prevented our economy from falling into a second Great 
Depression, the administration is focused on ensuring that we create an 
economy built to last, which makes strategic investments in our 
communities but also takes responsibility for our deficit. For HUD, 
that meant using four core principles to develop our budget:
  --Continuing to provide critical support for the housing market while 
        bringing private capital back into the market;
  --Protecting current residents--and improving the programs that serve 
        them;
  --Continuing progress on signature initiatives to provide communities 
        with the tools they need to speed economic growth; and
  --Reducing regulatory burdens and increasing efficiency--including 
        streamlining, simplifying, and reforming current programs.
    As such, the Department's budget for fiscal year 2013 follows the 
roadmap the President has laid out for jumpstarting our economy through 
educating, innovating, and building--by targeting our investments to 
the families and geographies that need them the most, and putting 
American back to work. Specifically, this budget helps:
  --Give Hard-Working, Responsible Americans a Fair Shot.--Not only is 
        there more work to do to ensure that the economic security of 
        middle class Americans does not continue to erode, we have a 
        responsibility to directly address the challenges facing the 
        most vulnerable Americans. This budget does so by serving over 
        5.4 million families--the majority of whom are extremely low 
        income--in our rental assistance programs; and by supporting 
        the Choice Neighborhoods initiative ($150 million), which 
        provides communities with the innovative tools they need to 
        revitalize neighborhoods of concentrated poverty--efforts that 
        helped communities leverage over $1.6 billion of private 
        funding last year alone.
  --Ensure Every American Plays by the Same Rules.--Put simply, we 
        cannot settle for a country where a shrinking number of people 
        do really well, while more Americans barely get by. There are 
        still millions of Americans who have worked hard, acted 
        responsibly, and made their mortgage payments on time--who, 
        because their homes are worth less than they owe on their 
        mortgage, can't take advantage of today's historically low 
        interest rates and are facing real economic insecurity. In 
        addition to steps taken by the administration to combat 
        predatory lending practices (discussed in depth below), this 
        budget provides critical funding for the Housing Counseling 
        program ($55 million), which will directly help over 185,000 of 
        low- to moderate-income families in improving access to quality 
        affordable housing, expanding homeownership opportunities, and 
        preserving homeownership through foreclosure mitigation; as 
        well as providing training to over 4,800 counselors nationwide.
    This budget also recognizes that we can no longer tolerate a 
federally supported rental housing system that is ``separate and 
unequal''--one which expects public housing authorities (PHAs) to house 
over 3 million families, subjecting them to overly burdensome 
regulation while denying them access to private capital available to 
virtually every other form of rental housing. To bring our rental 
housing system into the 21st century and begin addressing the $26 
billion in public housing capital needs, this budget includes proposals 
that would increase PHA flexibility to fund critical supportive 
services for assisted families while also moving them toward mainstream 
real estate financing and management practices through the 
consolidation of outmoded funding streams. At the same time, by 
implementing the second year of our Rental Assistance Demonstration, 
the budget will use existing resources to ensure that up to 60,000 
units funded through our public housing and the so-called ``orphan 
programs'' can leverage debt to access private capital and preserve 
affordable housing.
    Create New Jobs in America To Discourage Outsourcing.--In addition 
to the hundreds of thousands of jobs that this budget creates both 
directly and indirectly, it makes an essential contribution to the 
administration's broader effort to discourage outsourcing and encourage 
insourcing. Specifically, attracting new businesses to our shores 
depends on urban, suburban, and rural areas that feature more housing 
and transportation choices, homes that are near jobs, and 
transportation networks that move goods and people efficiently--which 
is why this budget restores funding for Sustainable Housing and 
Communities ($100 million), which embodies the President's commitment 
to being a new kind of Federal partner to regions, States, and 
localities as they tackle planning and economic development challenges 
for the 21st century.
    Of course, smart planning requires sustained follow-through. That 
is why HUD is committed to ensuring that its core community and housing 
development work contributes to more and better transportation choices; 
promotes equitable, affordable housing; and aligns Federal policies and 
funding to remove barriers to local collaboration. Accordingly, we will 
continue to make critical investments programs such as the Community 
Development Block Grant (CDBG) ($2.95 billion in formula grants) and 
Native American Housing Block Grant ($650 million). In particular, CDBG 
is an important catalyst for economic growth--helping leaders around 
the country bring retail businesses to their communities, forge 
innovative partnerships and rebuild their economies.
    Reform Government So That It's Leaner, Smarter, More Transparent, 
and Ready for the 21st Century.--It is clear that an economy built to 
last requires a Federal Government that is efficient, streamlined, and 
transparent. As such, the budget proposes reforms to HUD rental 
assistance programs that would save over $500 million in fiscal year 
2013 without reducing the number of families served--by streamlining 
programs and reforming policies. Moreover, this budget once again calls 
for the flexible use of resources (estimated $120 million) \1\ through 
the Transformation Initiative, which the Department needs to invest in 
technical assistance to build local capacity to safeguard and 
effectively invest taxpayer dollars; conduct innovative research, 
evaluations of program initiatives and demonstration programs so we can 
fund what works and stop funding what doesn't; and upgrade the IT 
infrastructure that tracks and monitors our programs.
---------------------------------------------------------------------------
    \1\ The total TI transfer authority in fiscal year 2013 is 
approximately $215 million; however, HUD anticipates transferring 
approximately $120 million.
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             moving the needle, making substantial progress
    In short, this budget will achieve substantial results not only for 
vulnerable, low-income Americans but also for hard-hit local and State 
economies across the country. Its carefully targeted investments will 
enable HUD programs to serve millions of families in thousands of 
communities nationwide; to help create an economy built on American 
manufacturing, American energy, skills for American workers, and a 
renewal of American values.
    Consistent with the previous 2 years, HUD's fiscal year 2013 budget 
is structured around the five overarching goals the Department adopted 
in its Strategic Plan 2010-2015. These goals reflect the Department's--
and my--commitment to ``moving the needle'' on some of the most 
fundamental challenges facing America as we create an economy built to 
last. Indeed, every month, I hold HUDStat meetings on one or more of 
these goals, to assess progress and troubleshoot problems in order to: 
(1) Ensure that HUD is as streamlined and effective as possible in the 
way that we administer our own programs and partner with other Federal 
agencies; and (2) hold our grantees accountable for their expenditure 
of taxpayers' hard-earned dollars.

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     holding ourselves accountable: moving the needle on veterans 
                              homelessness
    In a year when we have troops returning from two wars, we cannot 
afford to waste any time in the fight to end veterans homelessness. 
That is why the partnership between HUD and the Department of Veterans 
Affairs (VA) is more important than ever. Over the last 2 years alone, 
HUD and the VA have collaborated through the HUD-VASH program to end 
homelessness for more than 40,000 veterans, far surpassing HUD's High 
Priority Performance Goal of 31,000. Overall, HUD and the VA have 
jointly committed to eliminating veterans homelessness by 2015, a goal 
which can only be achieved through effective collaboration, along with 
a joint focus on data-driven accountability as demonstrated in 
processes like HUDStat. VA Deputy Secretary Scott Gould and key VA 
program staff have become regular participants in HUDStat meetings, 
where together we analyze performance data to understand trends, 
identify best practices, and prioritize the actions needed to 
accelerate progress. Through this collaboration, which extends to staff 
throughout the country, I am proud of the work we have done to keep us 
on track to end veteran's homelessness by 2015. However, as President 
Obama has said, until we reach a day when not a single veteran sleeps 
in our Nation's streets, our work remains unfinished.

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   hud goal 1: strengthen the nation's housing market to bolster the 
                     economy and protect consumers
    This administration entered office confronting the worst economic 
crisis since the Great Depression--as mortgages were sold to people who 
couldn't afford or understand them, while banks packaged them into 
complex securities that they made huge bets on--and bonuses with--other 
people's money. And while the largest factors contributing to this 
crisis were market driven, the American people have turned to Congress 
and the administration for leadership and action in righting our 
Nation's housing market. HUD remains firmly committed to working 
together with communities and individuals to cope with these 
unprecedented challenges.
Responding to the Market Disruption
    The Federal Housing Administration (FHA) and Government National 
Mortgage Association (GNMA) continue to have a significant impact on 
the Nation's economic recovery. The activities of the Federal 
Government are critical to both supporting the housing market in the 
short term and providing access to homeownership opportunities over the 
long term, while minimizing the risk to taxpayers. Over the past 2 
years, HUD has worked with the Department of the Treasury and other 
administration partners to construct a housing finance system that 
relies on an actuarially sound pricing structure, effective lending 
oversight, and adequate organizational capacity to ensure consistent 
access to, and liquidity and stability in, the capital markets.
    In fiscal year 2013, HUD is requesting $400 billion in loan 
guarantee authority for the Mutual Mortgage Insurance Fund, which will 
provide an estimated 0.8 million single-family mortgages (a projected 
$149 billion in loan volume) and $25 billion in loan guarantee 
authority for the General and Special Risk Insurance Fund, which will 
provide an estimated 156,000 units in multifamily housing properties 
and an estimated 80,600 beds in healthcare facilities. The need for 
this investment is clear as FHA has played a critical role in 
stabilizing the Nation's mortgage market. At a time when liquidity and 
access were needed most in the housing market to facilitate the 
recovery of the broader economy, FHA stepped in to ensure that mortgage 
capital continued to flow. However, FHA's expanded role is and should 
be temporary. FHA's loan volume has declined 34 percent from its peak 
in 2009, and its market share is decreasing for the first time since 
2006, thereby laying the ground work for private capital to return to 
the market. FHA is particularly important to borrowers that the 
conventional market does not adequately serve , including qualified 
borrowers who would otherwise be shut out of the mortgage market. Fully 
60 percent of all African American and Hispanic homebuyers using 
mortgages rely upon FHA financing and over 30 percent of all FHA-
insured homebuyers are minorities. Over half of all African Americans 
who purchased a home last year and 45 percent of Hispanics did so with 
FHA financing.
Redoubling Efforts To Keep Homeowners in Their Homes
    While there is work still to be done, HUD is proud of the progress 
this administration has made in tackling ongoing foreclosure 
challenges. Between April 2009 and December 2011, more than 5.6 million 
mortgage modifications were started--including more than 1.7 million 
HAMP trial modification starts and nearly 1.2 million FHA loss 
mitigation and early delinquency interventions. In addition, to date, 
more than 930,000 HAMP trial modifications have resulted in permanent 
modifications--saving these households an estimated $10.5 billion in 
monthly mortgage payments.
    As part of the administration's commitment to help responsible 
homeowners stay in their homes, we have actively sought to use our 
current programs and authorities to make homeownership sustainable for 
millions of American families. Examples of our efforts include:
  --Streamline Refinance.--An option that allows borrowers with FHA-
        insured loans who are current on their mortgage to refinance 
        into a new FHA-insured loan at today's low interest rates 
        without requiring additional underwriting, permitting these 
        borrowers to reduce their mortgage payments. This program 
        benefits current FHA borrowers--particularly those whose loan 
        value may exceed the current value of their home--and by 
        lowering a borrower's payment, also reduces risk to FHA. And, 
        because we see potential for more widespread use of this 
        product, FHA will make changes to the way in which streamline 
        refinance loans are displayed in the Neighborhood Watch Early 
        Warning System (Neighborhood Watch) to reduce lender concern 
        about the potential impact associated with taking 
        responsibility for loans they have not underwritten, making 
        them more willing to offer these loans to borrowers who are 
        current on mortgages already insured by FHA.
  --National First Look Program.--A partnership between HUD, the 
        National Community Stabilization Trust and large financial 
        institutions that offers Neighborhood Stabilization Program 
        grantees an exclusive 12- to 14-day window to evaluate and bid 
        on foreclosed properties.
  --Short Refinance Option.--In 2010, FHA made available an option that 
        offers underwater non-FHA borrowers, who are current on their 
        existing mortgage and whose lenders agree to write off at least 
        10 percent of the unpaid principal balance of the first 
        mortgage, the opportunity to refinance into a new FHA-insured 
        mortgage.
    Finally, as another critical component to the recovery of the 
housing market, the President has also put forward a Homeowner Bill of 
Rights--a single, straightforward set of commonsense rules that 
families can count on when they're shopping for a mortgage, including 
the right to a new, simple, clear form for new buyers that gives people 
confidence when they're making the most important financial decision of 
their lives. And those rights shouldn't end when homeowners get the 
keys to their new home. When Americans lose their job or have a medical 
emergency, they should know that when they call their lender, that call 
will be answered and that their home won't be sold in foreclosure at 
the same time they are filling out paperwork to get help.

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           funding what works: housing counseling assistance
    In fiscal year 2013, HUD is requesting $55 million in Housing 
Counseling Assistance to improve access to quality affordable housing, 
expand homeownership opportunities, and preserve homeownership, all of 
which are especially critical in today's economic climate. With this 
funding, HUD expects to serve nearly 185,000 low- to moderate-income 
families, as well as provide training to 4,800 counselors nationwide. 
HUD-approved counselors help clients learn about purchasing or 
refinancing a home; rental housing options; reverse mortgages for 
seniors; foreclosure prevention; loss mitigation; preventing evictions 
and homelessness; and moving from homelessness to a more stable housing 
situation. In 2011, HUD-Approved Housing Counseling agencies, with 
grant funds from HUD and other funding sources, assisted over 1.9 
million families, including more than 1 million potential and current 
homeowners with mortgage-related issues.

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Strengthening FHA and Paving the Way for Private Capital To Return
    The books of business in the few years before 2009 have largely 
driven the high number of claims to the Mutual Mortgage Insurance Fund 
(MMI Fund). This was driven by overall economic and unemployment trends 
as well as by the combined effects of poor underwriting, unscrupulous, 
and non-compliant practices on the part of lenders, and a seller-funded 
downpayment assistance program that allowed many borrowers to obtain 
mortgages without a meaningful down payment. As a result, the books of 
business FHA insured prior to the start of this administration have 
severely impacted the health of FHA's MMI Fund. But thanks to our 
efforts, I can say confidently that FHA is moving in another direction, 
and that the long-term outlook for FHA and the MMI Fund are now much 
better than they were in 2009.
    The change in trajectory in the performance of FHA-insured loans is 
no accident. Immediately upon taking office, this administration acted 
quickly and aggressively to protect FHA's MMI Fund and to ensure its 
long-term viability. We have taken more steps since January 2009 to 
eliminate unnecessary credit risk and assure strong premium revenue 
flows in the future than any administration in FHA history. Indeed, the 
gains FHA has experiences since 2009 are the result of a three-part 
strategy: Systematic tightening of risk controls, increased premiums to 
stabilize near-term finances and expanded usage of loss mitigation 
workout assistance to avoid unnecessary claims.
    And, we continue to take steps to further strengthen the Fund. In 
the 2013 budget we announced a 10 bps annual premium increase on all 
FHA insured loans to comply with the requirement passed by Congress 
late last year, as well as an additional 25 bps annual premium increase 
on ``jumbo'' loans making the total increase for these larger loans 35 
bps. And just this week, we announced a series of premium changes that 
will further increase receipts to FHA by over $1 billion in fiscal 
years 2012 and 2013, beyond the receipts already included in the 
President's budget submission. In addition, we have also taken 
significant additional steps to increase accountability for FHA 
lenders. Via a final rule published a few weeks ago, we clarified the 
bases upon which FHA will require indemnification from lenders 
participating in our Lender Insurance program, making clear the rules 
of the road for lenders and giving FHA a solid basis upon which to 
require indemnification by lenders for violations of FHA guidelines. 
And we continue to seek expanded authority via legislation that will 
further enable us to protect the MMI Fund from unnecessary and 
inappropriate losses associated with lenders who violate our 
requirements.
    The next in a series of steps we have pursued to hold lenders 
accountable for their actions are the recently announced settlements 
with some of America's largest lenders. Through these settlements, FHA 
will receive over $900 million compensation for losses associated with 
loans originated outside of FHA requirements, or for which FHA's 
servicing requirements were violated.
    Despite the unprecedented efforts of this administration to alter 
the trajectory of FHA, considerable risks remain. The FHA MMI Fund has 
two components: The Financing Account, which holds enough money to 
accommodate all expected losses on FHA's insured MMI portfolio as of 
the end of the current fiscal year; and the Capital Reserve Account, 
which is required to hold an additional amount equal to 2 percent of 
the insurance in force. Since 2009, the Fund's capital reserve ratio 
has been below that 2-percent level.
    The President's budget always includes estimates regarding the 
status of the Capital Reserve at the end of the current fiscal year. 
This prediction is based on estimates and projections of future 
economic conditions, including house prices and other economic factors 
which may or may not come to pass. In addition, the 2013 budget 
estimate for the FHA Capital Reserve account does not include added 
revenue from the additional premium increases announced this week or 
the proceeds from FHA-approved lenders under the terms of the mortgage 
settlements. With these additional revenues accounted for, the Capital 
Reserve is estimated to have sufficient balances to cover all future 
projected losses without triggering a mandatory appropriation under the 
Federal Credit Reform Act. Moreover, the budget estimates that FHA will 
add an additional $8 billion to the MMI Capital Reserve Account in 
2013, and return to the congressionally mandated capital reserve ratio 
of 2 percent by 2015.
    The 2013 budget also includes premium increases for FHA's General 
Insurance and Special Risk Insurance programs that serve market rate 
multifamily properties and healthcare facilities. These changes are 
intended to ensure that FHA products are priced appropriately to 
compensate for FHA's risk and encourage the return of private capital 
to our mortgage markets. The proposed increases include: 20 basis 
points for all new construction or substantial rehabilitation loans 
including but not limited to section 220, 221(d), section 231, section 
242, and section 232; 15 basis points for permanent loans in section 
223(f); and 5 basis points for section 223(a)(7). Premiums for 
affordable housing projects (such as those with HUD rental subsidies 
and low-income housing tax credits, as well as those insured under FHA 
risk-sharing programs) will not be increased.
    With the proposed premium increases, FHA Multifamily and Healthcare 
loans will be priced more appropriately to crowd back in private 
capital, while at the same time continuing to ensure sufficient levels 
of available capital in these sectors. The increase in premiums also 
reflect new realities--the Multifamily book of business is five times 
greater than it was just 3 years ago, and the risk profile has changed 
dramatically. FHA's portfolio is now more than 50 percent market rate, 
which adds a new component of risk, and a need to take steps to ensure 
the future viability of the portfolio. With interest rates at a record 
low the existing portfolio loans could remain in FHA's portfolio longer 
than the average timeframes and will need to be managed prudently. FHA 
will publish the proposed increased in the Federal Register in the next 
30-60 days and welcomes feedback during the comment period.
     hud goal 2: meet the need for quality, affordable rental homes
    In an era when more than one-third of all American families rent 
their homes and nearly 7 million unassisted families with very low 
incomes spend more than 50 percent of their income on rent, it remains 
more important than ever to provide a sufficient supply of affordable 
rental homes for low-income families--particularly since, in many 
communities, affordable rental housing does not exist without public 
support. HUD's fiscal year 2013 budget maintains HUD's core commitments 
to providing rental assistance to some our country's most vulnerable 
households as well as distributing housing, infrastructure, and 
economic development funding to States and communities to address their 
unique needs. Overall, 83 percent of HUD's total fiscal year 2013 
budget authority requested will provide rental assistance to over 5.4 
million residents of HUD-subsidized housing, including public housing 
and HUD grants to homeless assistance programs.
    And, I am proud to say that, despite an era of challenging budgets, 
we have increased the number of families served through our rental 
assistance programs every year.




    Detailed data shows how vulnerable these families are to the 
economic downturn. In HUD's core rental assistance programs, including 
Tenant-Based Rental Assistance (TBRA), Public Housing, and Project-
Based Rental Assistance (PBRA): 72 percent of families are extremely 
low income (below 30 percent of area median income) and an additional 
20 percent are very low income (below 50 percent of area median 
income). The devastating effect of the tough economic environment on 
the housing circumstances of poor Americans was underscored last year, 
when HUD released its Worst Case Housing Needs study results. HUD 
defines worst case needs as: Renters with very low incomes who do not 
receive Government housing assistance and who either pay more than half 
their income for rent, live in severely inadequate conditions, or both. 
The report showed an increase of 20 percent in worst case needs renters 
between 2007 and 2009. This is the largest increase in worst case 
housing needs over a 2-year period in the quarter-century history of 
the survey, and caps an increase of 42 percent since 2001. The need for 
HUD investments in this area is clear.
Preserving Affordable Housing Opportunities in HUD's Largest Programs
    This budget provides $19.07 billion for HUD's Section 8 TBRA 
program, which is the Nation's largest and preeminent rental assistance 
program for low-income families. For over 35 years it has served as a 
cost-effective means for delivering safe and affordable housing in the 
private market. This 2013 funding level is expected to assist 
approximately 2.2 million families by renewing existing vouchers and 
issuing new incremental vouchers to homeless veterans.
    The budget also provides a total of $6.6 billion to operate public 
housing and modernize its aging physical assets through the Public 
Housing Operating ($4.5 billion) and Capital ($2.07 billion) funds, a 
critical investment that will help 1.1 million extremely low- to low-
income households obtain or retain housing. Similarly, through a $8.7 
billion request in funding for the PBRA program, the Department will 
provide rental assistance funding to privately owned multifamily rental 
housing projects to serve over 1.2 million families nationwide.

    ----------------------------------------------------------------

             tough choices: project-based rental assistance
    In fiscal year 2013, HUD's Project-Based Rental Assistance request 
of $8.7 billion represents a $640 million decrease from the fiscal year 
2012 enacted level. This reduction, generated by providing less than 12 
months of funding upfront on some PBRA contracts that straddle fiscal 
years, will not reduce or delay payments to landlords or impact the 
number of families served by the program. Nonetheless, it is a 
difficult choice, and not one that the administration would choose to 
implement in a less austere fiscal environment.

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Reducing Administrative Burdens and Increasing Efficiency
    This budget recognizes the need to simplify, align, and reform 
programs to reduce administration burdens and increase efficiency 
across programs by:
  --Streamlining the Public Housing Operating and Capital Funds.--To 
        both simplify the program and reduce the administrative burden 
        on State and local public housing authorities, the budget 
        proposes to combine the separate Operating and Capital funds 
        into a single Public Housing subsidy stream. As a first step 
        toward consolidation, the budget provides all PHAs with full 
        flexibility to use their operating and capital funds for any 
        eligible capital or operating expense.
  --Providing Flexibility for PHAs To Improve Supportive Services for 
        Assisted Households.--The budget proposes streamlining and 
        flexibility measures to help PHAs improve supportive services 
        for assisted families. The Family Self-Sufficiency (FSS) 
        program will be consolidated and aligned to enable PHAs to more 
        uniformly serve both TBRA and Public Housing residents. This 
        program, which the budget also expands to residents of PBRA 
        housing, aims to connect residents to resources and services to 
        find and retain jobs that lead to economic independence and 
        self-sufficiency. In addition, the budget authorizes PHAs to 
        use a portion of their Public Housing and Housing Voucher 
        funding to augment case management and supportive services 
        provided through FSS or provide other supportive services to 
        increase opportunities for residents.

    ----------------------------------------------------------------

       tough choices: cost-savings in rental assistance programs
    The budget includes a menu of reforms to HUD rental assistance 
programs that save over $500 million in 2013 without reducing the 
number of families served.
  --In the Project-Based Rental Assistance program, savings are 
        achieved by improving oversight of market rent studies used to 
        set subsidy payment levels, capping annual subsidy increases 
        for certain properties, and using excess reserves to offset HUD 
        payments to landlords.
  --The budget also aligns policy across rental assistance programs and 
        reduces costs by increasing the minimum rent to $75 per month 
        for all HUD-assisted households, which is comparable to the 
        minimum rent enacted in 1998, adjusted for inflation. 
        Recognizing the potential burden that this higher minimum rent 
        may impose, the budget maintains the current exemption for 
        families facing financial hardship.
  --Finally, this budget request reduces costs by simplifying 
        administration of the medical expense deduction, better 
        targeting rental assistance to the working poor in rural areas, 
        and setting Public Housing flat rents closer to market levels.

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Rebuilding Our Nation's Affordable Housing Stock
    Over the last 75 years, the Federal Government has invested 
billions of dollars in the development and maintenance of public and 
multifamily housing, which serve as crucial resources for some of our 
country's most vulnerable families. Despite this sizable Federal 
investment and the great demand for deeply affordable rental housing, 
we continue to see a decline in the number of available affordable 
housing units. Over the last decade, the public housing stock has 
shrunk at a rate of 10,000 units per year, largely due to a growing 
backlog of unmet capital needs, estimated at $26 billion. To address 
these challenges, HUD's 2012 Appropriations Act authorized the Rental 
Assistance Demonstration (RAD) to test new preservation tools for its 
assisted housing stock allowing for Public Housing and Moderate 
Rehabilitation (Mod Rehab) properties to convert to long-term Section 8 
rental assistance contracts (capped at 60,000 units of converted 
assistance); and Rent Supplement (Rent Supp), Rental Assistance Payment 
(RAP), and Mod Rehab properties, upon contract expiration or 
termination, to convert tenant protection vouchers to project-based 
vouchers. Unlike their current forms of assistance, these contracts 
offer a rental subsidy platform that allows PHAs and owners to leverage 
current Federal appropriations with other private and public capital to 
finance much needed rehabilitation and preserve the assets as 
affordable housing.
    RAD is a limited demonstration, which will be evaluated to assess 
the success of these approaches in preserving affordable housing. Since 
HUD will use funding appropriated for existing programs for 
implementation and anticipates strong interest in RAD, the 2013 budget 
includes a request to exempt Mod Rehab from the 60,000 unit cap on 
projects that could convert assistance, at no cost, to long-term 
Section 8 rental assistance contracts. If enacted, the 60,000 unit cap 
would apply to public housing conversions alone, while the number of 
Mod Rehab conversions would not be constrained.

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             funding what works: taking jobs-plus to scale
    The budget provides that up to $50 million of Public Housing 
capital funds may be targeted to Jobs-Plus competitive grants to fund 
scaled-up implementation of the Jobs-Plus model--a successful, 
evidence-based strategy to increase the employment opportunities and 
earnings of public housing residents through a three-tiered program of 
employment services, rent-based work incentives, and community support 
for work. This investment will increase employment opportunities for 
over 30,000 Public Housing residents, by helping them secure and retain 
employment, keep more of the income they earn, and receive the full 
benefit of work incentives such as the Earned Income Tax Credit (EITC). 
A randomized experiment evaluation of the Jobs-Plus model in three 
demographically diverse sites found that, on average, participants had 
an additional $1,300 in earnings every year from 2000 to 2006--and 
these earning increases were durable beyond the period of the 
intervention. Jobs-Plus competitive grants will scale up this proven 
model by targeting resources to high-capacity PHAs and housing 
developments with enough work-eligible residents to achieve economies 
of scale. The grants will prioritize broad and diverse local 
partnerships that cut across sectors, agencies, and funding streams.

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Increasing the Production of Affordable Housing Capital Projects
    In addition to developing tools to address the growing capital 
needs of America's Public Housing stock, HUD is committed to expanding 
the supply of affordable rental homes in safe, mixed-income communities 
that provide access to jobs, good schools, transportation, and, most 
importantly, economic self-sufficiency. Accordingly, in fiscal year 
2013 HUD is working together with its partners to identify ways to make 
the Low Income Housing Tax Credit (LIHTC) program a more flexible and 
nimble tool for the creation and preservation of affordable housing. As 
the primary tool of the Federal Government for developing and 
rehabilitating affordable rental housing, the LIHTC program is 
administered by State agencies with the assistance of guidance from the 
Treasury Department and the Internal Revenue Service, and attract 
capital to low-income rental housing by satisfying some of the Federal 
income tax obligations of investors in certain low-income rental 
properties.
    Since its addition to the tax laws in 1986, the LIHTC program has 
been used to create 1.8 million in affordable rental-housing units 
across the country. Annually, the program supports 95,000 jobs and 
generated $2.7 billion in State, local, and Federal revenues. In fiscal 
year 2013, as part of a broader effort to align Federal rental 
programs, HUD, the Departments of Treasury and Agriculture, the 
Domestic Policy Council (DPC), the Office of Management and Budget 
(OMB), and the National Economic Council (NEC) will continue partnering 
to allow greater flexibility to State and local agencies that 
administer LIHTC programs, as well as to developers and investors, to 
continue to enable the creation of affordable housing in markets where 
it is needed the most. Specifically, the revenue provisions of the 2013 
budget enhance two revenue proposals that were included in the 2012 
budget and introduce two new proposals:
  --An Income Averaging proposal would encourage a greater range of 
        incomes in LIHTC-supported affordable housing by allowing 
        developers to choose an income-limitation requirement that 
        would be satisfied if households in the low-income units have 
        an average income no greater than 60 percent of AMI, with no 
        household above 80 percent AMI. An additional provision would 
        allow certain existing tenants to remain in residence without 
        impairing the developer's entitlement to LIHTCs.
  --In the context of preserving, recapitalizing, and rehabilitating 
        existing federally assisted affordable housing, a Basis Boost 
        proposal would provide a second mechanism for earning ``4 
        percent'' LIHTCs and would give an extra, up-to-30-percent 
        increase in qualified basis for certain projects that receive 
        ``4 percent'' LIHTCs, either because they are at least half 
        financed with tax exempt-bonds or because they employed the new 
        mechanism.
  --A proposal concerning LIHTCs earned by Real Estate Investment 
        Trusts (REITs) is designed to diversify the pool of investors 
        for LIHTCs and to increase the overall demand for LIHTCs. The 
        proposal would allow a REIT that earns LIHTCs to provide a tax 
        benefit to its investors by paying them tax-exempt dividends in 
        an amount almost triple the amount of the REIT's LIHTCs.
  --A Victims of Domestic Violence proposal would bar LIHTC buildings 
        from discriminating against victims of actual or threatened 
        domestic violence and would clarify that occupancy restrictions 
        or preferences for such victims are an allowable exception to 
        the general-public-use requirement.
    Finally, the recent Worst Case Housing Needs report underscores 
what has been the case since well before the recent recession, namely, 
that extremely low-income renters face the most severe housing shortage 
and cost burden of any Americans. In addition to the Worst Case Housing 
Needs report, the most recent data available from the American Housing 
Survey shows that, for renters below 50 percent of area mean income, 
the shortage of affordable and available units increased from 5.2 to 6 
million from 2007 to 2009, with just 39 affordable and available units 
for every 100 renters in 2009, compared to 44 [units] 2 years prior. 
The 2013 budget once again provides $1 billion in mandatory 
appropriations for the Housing Trust Fund (HTF) to address this 
critical shortage of housing where it is most desperately needed. 
Enacted in 2008, the HTF was designed to provide capital resources to 
build and rehabilitate housing to fill this precise--and growing--gap 
in the Nation's rental housing market. The time has come for Congress 
to provide this crucial funding.
hud goal 3: utilize housing as a platform for improving quality of life
    Stable housing provides an ideal platform for delivering a wide 
variety of health and social services to improve economic, health, and 
broad-based societal outcomes. For some, housing alone is sufficient to 
ensure healthy outcomes, while others require housing with supportive 
services to assist with activities of daily living or long-term self-
sufficiency, as well as proximity to crucial services. HUD's fiscal 
year 2013 budget acknowledges this reality by making critical 
investments in housing and supportive services, and partnering with 
other Federal agencies to maximize resources and best practices. 
Moreover, these investments will save money in the long term, by 
avoiding overuse of expensive emergency and institutional 
interventions.
Preventing and Ending Homelessness, Serving Our Nation's Most 
        Vulnerable
    Nowhere is the relationship between housing and supportive services 
clearer than in the successful efforts in communities around the 
country to address homelessness. These efforts have yielded a 
substantial body of research, which demonstrates that providing 
permanent supportive housing to chronically ill, chronically homeless 
individuals and families not only ends their homelessness, but also 
yields substantial cost-saving in public health, criminal justice, and 
other systems. This year's budget once again invests in this critical 
effort, by providing $2.23 billion in Homeless Assistance Grants, 
including competitive programs that annually serve over 800,000 
homeless families and individuals. This includes funding for the 
Emergency Solutions Grants program, which will continue the work of the 
Homelessness Prevention and Rapid Re-Housing Program--funded by the 
Recovery Act--that in the last 3 years alone has helped prevent or end 
homelessness for over 1.2 million people nationwide.
    Moreover, HUD continues to focus on the unique needs of veterans 
through both its targeted homeless programs and its mainstream housing 
programs using successful methods and interventions. Currently, an 
estimated one out of every six men and women in our Nation's homeless 
shelters are veterans, and veterans are 50 percent more likely to fall 
into homelessness compared to other Americans. HUD is committed to 
providing affordable housing units to this unique homeless population, 
and has partnered with the Departments of Health and Human Services 
(HHS) and Veterans Affairs (VA) to develop targeted approaches to serve 
the homeless veteran populations. Accordingly, this budget includes $75 
million for the HUD-VASH program, which combines tenant-based voucher 
assistance with case management and clinical services tailored to 
veterans and their families. This funding will provide 10,000 new 
vouchers to help veterans move from our streets into permanent 
supportive housing, in addition to the nearly 38,000 already allocated 
HUD-VASH vouchers provided in previous appropriations, which have been 
critical to a 12-percent reduction in veterans homelessness, and the 
10,000 vouchers that will be awarded through the fiscal year 2012 
appropriation.

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  increasing efficiencies: modernizing the housing opportunities for 
                   persons with aids (hopwa) program
    The budget proposes to update the HOPWA program to better reflect 
the current understanding of HIV/AIDS and ensure that funds are 
directed in a more equitable and effective manner. This modernization 
includes a new formula that will distribute HOPWA funds based on the 
current population of HIV-positive individuals, fair market rents, and 
poverty rates in order to target funds to areas with the most need. It 
also makes the program more flexible, giving local communities more 
options to provide timely, and cost-effective interventions. The 
budget's $330 million investment in HOPWA, in combination with the 
proposed modernization, will assist local communities in keeping 
individuals with HIV/AIDS housed, making it easier for them to stay in 
therapy, and therefore improving health outcomes for this vulnerable 
population.

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Investing in Leveraging and Serving Our Most Vulnerable
    This budget provides a total of $625 million for the Housing for 
the Elderly and Housing for Persons with Disabilities programs, which 
includes $154 million to support 5,300 additional supportive housing 
units. Doing more with less, the budget proposes reforms to the Housing 
for the Elderly program to target resources to help those most in need, 
reduce the up-front cost of new awards, and better connect residents 
with the supportive services they need to age in place and live 
independently.
    Historically, HUD has provided both capital advances and operating 
subsidies to nonprofit sponsors to construct and manage multifamily 
housing for low-income people with disabilities. In an effort to 
maximize the creation of new affordable units in a time of funding 
restraints, in fiscal year 2012, HUD began providing operating 
assistance to State housing agencies that formed partnerships with 
State healthcare agencies for service provision to low-income persons 
with disabilities. These funds are used to set aside supportive units 
for this target population in affordable housing complexes whose 
capital costs are funded through Low Income Housing Tax Credits, HOME 
funds, or other sources. Investing Section 811 funds under this 
authority allows HUD to rely on the expertise of the State housing 
agencies to administer the award and on the State healthcare agency to 
identify the most critical population to be served and guarantee the 
delivery of appropriate services. In fiscal year 2013, HUD is 
requesting similar authority for the Section 202 program. Drawing on 
lessons learned from implementation in the Section 811 program, HUD 
will take advantage of efficiencies inherent in these same agencies' 
oversight responsibilities for tax credits, HOME funds or similar 
housing funding. Assuming requested statutory language is enacted, up 
to 3,450 units could be made available with support from this project 
rental assistance.
     hud goal 4: build inclusive sustainable communities free from 
                             discrimination
    No longer can the American economy tolerate the marginalization 
from the labor force of significant numbers of people because of 
individualized or systemic discrimination, or because they live in 
isolated neighborhoods of concentrated poverty. An American economy 
built to last requires an increased supply of affordable rental homes 
in safe, mixed-income communities that provide access to jobs, good 
schools, transportation, high-quality services, and most importantly, 
economic self-sufficiency. As such, HUD's fiscal year 2013 budget puts 
communities in a position to plan for the future and draw fully upon 
their resources, most importantly, their people.
    Each year HUD dedicates approximately 15-20 percent of its funds to 
the capital costs of housing and economic development projects 
throughout the country. Through this investment, HUD and its partners 
are able to provide better opportunities for people living in 
neighborhoods of concentrated poverty and segregation, and offer 
choices that help families live closer to jobs and schools. Programs 
such as the Community Development Block Grant (CDBG), and Choice 
Neighborhoods are targeted to areas of need, to provide locally driven 
solutions to overarching economic development challenges. As with HUD's 
rental assistance programs, HUD's capital grants--including the Public 
Housing Capital Fund, Choice Neighborhoods, CDBG, and HOME--tend to 
assist areas of great need, including communities with high 
unemployment.
Preserving HUD's Major Block Grant Programs for Community Development 
        and Housing
    The budget demonstrates the administration's continued commitment 
in a constrained fiscal climate to support municipalities and States as 
they navigate through a challenging fiscal climate. By maintaining the 
fiscal year 2012 CDBG formula funding level of $2.95 billion, CDBG will 
allow over 1,100 State and local governments to improve living 
conditions in low- and moderate-income neighborhoods across the 
country. As the Federal Government's primary community development 
program, CDBG serves as the backbone of State and local community and 
economic development efforts. In fiscal year 2011 alone, local 
governments used CDBG funding to directly create and retain 21,482 
jobs, not including any indirect effect on additional jobs. Moreover, 
in fiscal year 2011 CDBG assisted 96,615 households to maintain or gain 
access to safe, decent, and affordable housing; provide public service 
activities to 10.1 million people; and benefit approximately 4.1 
million persons through public improvement investments. CDBG funding is 
increasingly one of the few resources available at the local level to 
support housing rehabilitation, public improvements, and economic 
development assistance--despite growing needs, local governments have 
often had no choice but eliminate some of these activities from their 
own budgets.

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              tough choices: home investment partnerships
    The HOME Investment Partnerships program is the principal tool for 
the production of affordable housing for low- and extremely low-income 
families by State and local governments. It is also the critical gap 
financing for LIHTC projects--it has created over 1 million units and 
an additional 250,000 households have been assisted with temporary 
rental assistance since the program's inception. The program leverages 
$4 in other public and private funds for every HOME dollar invested, 
totaling more than $88 billion over the life of the program.
    The fiscal year 2013 HOME request reflects the difficult choices 
HUD was faced with, in order to make real progress in reducing the 
national deficit and contribute to creating an economy built to last. 
American families are tightening their belts--and we need to do the 
same. In addition, the fiscal year 2013 budget includes two proposed 
HOME authorizing requests: To Permit recaptured Community Housing 
Development Organizations set-aside funds to be reallocated by formula 
as HOME funds; and to facilitate the removal of dangerous tenants from 
HOME properties. We look forward to working together on these 
proposals.

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Transforming Neighborhoods of Poverty
    The President has made it clear that we cannot create an economy 
built to last if: A fifth of America's children live in poverty, at a 
cost of $500 billion per year--fully 4 percent of GDP--due to reduced 
skills development and economic productivity, increased later life 
crime, and poor health; a growing population lives with the problems of 
concentrated neighborhood poverty--high unemployment rates, rampant 
crime, health disparities, inadequate early care and education, 
struggling schools, and disinvestment--all of which isolate them from 
the global economy.
    That's why HUD's fiscal year 2013 budget provides $150 million for 
the Choice Neighborhoods Initiative to continue transformative 
investments in high-poverty neighborhoods where distressed HUD-assisted 
public and privately owned housing is located. This will reach four to 
six neighborhoods with implementation grants that primarily fund the 
preservation, rehabilitation and transformation of HUD-assisted public 
and privately owned multifamily housing, and will also engage local 
governments, nonprofits, and for-profit developers in partnerships to 
improve the economic conditions in their surrounding communities. 
Moreover, the leveraging power that these grants have is real--to date, 
the five Choice Neighborhoods implementation grantees have leveraged a 
combined $1.6 billion in private funds--over 13 times their total grant 
award amount.
    The Choice Neighborhoods initiative is a central element of the 
administration's inter-agency, place-based strategy to support local 
communities in developing the tools they need to revitalize 
neighborhoods of concentrated poverty into neighborhoods of 
opportunity. The Department's administration of the first rounds of 
funding for Choice Neighborhoods grants exemplify how our practices 
generate effective partnerships with local housing and community 
development efforts. In the past, many Federal grant programs followed 
a rigid, top-down, ``one-size fits all'' approach that dictated what 
local policymakers could and could not do rather than listening to them 
and providing the tools they needed to meet local needs. Having served 
in local government myself, I am committed to a collaborative approach 
responsive to local needs--and believe the results thus far demonstrate 
that we are making good on that commitment.
Supporting Sustainable Communities and Innovative Infrastructure 
        Planning
    Creating an economy built to last requires creating jobs here in 
America to discourage outsourcing and encourage insourcing. But 
attracting new businesses to our shores depends on urban, suburban, and 
rural areas that feature more housing and transportation choices, homes 
that are near jobs, transportation networks that move goods and people 
efficiently, all while lowering the cost and health burdens on 
families, businesses, and the taxpayer. Unfortunately, today, 
congestion on our roads is costing us five times as much wasted fuel 
and time as it did 25 years ago, and Americans spend 52 cents of every 
$1 they earn on housing and transportation combined.
    With these realities in mind, the fiscal year 2013 budget supports 
the multi-agency Partnership for Sustainable Communities, an 
administration initiative that integrates resources and expertise from 
HUD, the Department of Transportation, and the Environmental Protection 
Agency. In particular, the budget restores $100 million for the 
Sustainable Communities Initiative, which creates incentives for 
communities to develop comprehensive housing and transportation plans 
to achieve sustainable development, reduce energy consumption and 
greenhouse gas emissions, and increase affordable housing near public 
transit. This includes $46 million to fund about 20 additional regional 
planning grants to help enable communities to align public and private 
investments in housing, transportation, and infrastructure to 
strategically integrate goals for mobility, regional housing choices 
and economic development. In addition, $46 million will be invested in 
neighborhoods and communities to update building codes, zoning, and 
local planning efforts as complementary strategies to the regional 
grants.
    We know how important these planning tools are to regional 
economies--particularly those which rely on integrated supply chains 
that cross national borders and are essential to meeting the 
President's charge to double U.S. exports over the next 5 years. These 
investments will also leverage and increase the ripple effects of other 
administration proposals to overhaul America's deteriorating 
infrastructure, including the Infrastructure Bank, as well as Project 
Rebuild and other elements of the American Jobs Act, as we leverage 
increased residential and commercial construction around transit and 
other infrastructure investments.

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  funding what works: the leveraging power of sustainable communities 
                                funding
    In fiscal year 2010, Austin, Texas, was provided a $3.7 million 
Regional Planning grant through the Sustainable Communities program. 
With this funding, the city is helping link its long-term regional 
transportation plan to 37 mixed-income communities near transit and job 
centers. This grant will help 3,000 small, family-run businesses expand 
or open a second location, provided that each of these businesses hires 
at least one new worker who has been unemployed for a year or more. 
This work is expected to create more than 7,000 permanent jobs and save 
the taxpayer $1.25 billion through better connected housing and 
businesses, more people employed and fewer people dependent on 
Government services.

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Ensuring Inclusivity in Housing Nationwide
    An inclusive community is one in which all people--regardless of 
race, ethnicity, religion, sex, disability, or familial status--have 
equal access to housing and economic opportunities. Throughout its 
portfolio of programs, HUD is committed to maintaining that inclusivity 
and providing accountability in housing and lending practices 
nationwide. Through inclusive development, education, enforcement of 
fair housing laws, expanded training and language assistance, HUD will 
affirmatively further fair housing and the ideals of an open society.
    The Fair Housing Initiatives Program (FHIP) is critical to building 
and sustaining inclusive communities. FHIP is the only grant program 
within the Federal Government whose primary purpose supports private 
efforts to educate the public about fair housing rights and conducts 
private enforcement of the Fair Housing Act. In fiscal year 2013, HUD 
is requesting approximately $41 million in FHIP funds, representing the 
Department's commitment to fair housing, including $28 million to 
support the efforts of private fair housing organizations that conduct 
private enforcement of the Fair Housing Act. The Private Enforcement 
Initiative (PEI) grantees investigate and test housing providers 
alleged to have engaged in discrimination. The requested amount will 
continue funding to support fair housing enforcement by all statutorily 
eligible private fair housing organizations. In addition, it will fund 
fair housing education at the local, regional, and national levels.
    The Fair Housing Assistance Program (FHAP) is a critical component 
of HUD's effort to ensure the public's right to housing free from 
discrimination. FHAP multiplies HUD's enforcement capabilities, 
allowing the Department to protect fair housing rights in an efficient 
and effective manner. In fact, FHAP agencies investigate the majority 
of housing discrimination complaints filed in the United States. FHAP 
provides funding for 98 Government agencies, including 37 States, 60 
localities, and the District of Columbia, to enforce laws that prohibit 
housing discrimination that have been reviewed and deemed substantially 
equivalent to Federal law. In fiscal year 2013, HUD is requesting 
approximately $25 million in FHAP funds.
Ensuring That an Economy Built To Last Includes Opportunities for Rural 
        Americans
    The administration has placed a significant emphasis on ensuring 
that America's rural communities are competitive in the global 
economy--particularly given the reality that rural communities 
generally have less access to public transportation, along with higher 
poverty rates and inadequate housing. Each year, HUD invests billions 
of dollars in rural communities through its core rental assistance 
programs and block grants. The Community Development Block Grant (CDBG) 
program allocates funds to States, which provides approximately $692 
million to rural areas, supporting over 25,000 jobs both directly and 
indirectly, providing needed infrastructure, economic development, and 
affordable housing. Because small towns and rural areas often lack the 
basic modern infrastructure that citizens in larger communities can 
take for granted, States annually spend over 55 percent of their CDBG 
funds on basic public improvements such as water and sewer lines, paved 
streets, and fire stations. HUD also funds over $300 million in rural 
areas for affordable housing and homeownership programs through its 
HOME Investment Partnerships program, directly and indirectly 
supporting over 5,360 jobs.
    In addition, HUD and the Department of Agriculture meet regularly 
through an interagency rental housing policy group to better align and 
coordinate the affordable rental housing programs each operates. 
Altogether, over 800,000 families in rural communities are directly 
assisted through the Housing Choice Voucher, Public Housing, and 
Multifamily programs, with another 450,000 assisted through USDA. For 
homeowners, HUD's Federal Housing Administration (FHA) helps first-time 
homebuyers and other qualified families all over the country purchase 
their own home. More than 1.5 million of the homes currently insured by 
the FHA are in rural areas, and approximately $545 million in current 
FHA loans are to rural healthcare facilities designated as ``critical 
access hospitals.'' In addition to these critical investments, targeted 
rural investments in HUD's 2013 budget include:
  --$5 million in Rural Housing Stability Assistance Program (RHSP), as 
        authorized in the Homeless Emergency Assistance and Rapid 
        Transition to Housing Act (HEARTH Act), designed to assist 
        individuals and families who are homeless, in imminent danger 
        of losing housing, or in the worst housing situations in rural 
        communities. In addition to this focused RHSP initiative, rural 
        communities will continue to have access to HUD's targeted 
        homeless assistance, through the Continuum of Care competition 
        grant, the Emergency Solutions Grant (ESG) program, and the 
        Homelessness Prevention and Rapid Re-Housing Program (HPRP). 
        Rural areas have increasingly gained access to HUD's 
        competitive homeless assistance grants, primarily through the 
        creation of Balance of State and Statewide Continuums of Care, 
        with funds allocated directly to the State. In 2010, the 
        Continuum of Care competition included a selection priority for 
        new projects proposing to serve 100 percent rural areas. 
        Organizations in 69 rural communities submitted applications 
        for 108 new projects, requesting $19 million. HUD will apply 
        the rural selection priority to new projects in the 2011 
        Continuum of Care competition as well.
  --$731 million to fund programs that will support housing and 
        development initiatives in American Indian, Alaska Native, and 
        Native Hawaiian communities. As the single largest sources of 
        funding for housing Indian tribal lands today, programs like 
        Indian Housing Block Grants, Indian Home Loan Guarantees, and 
        Indian Community Development Block Grants support development 
        in remote areas where safe, decent, affordable housing is 
        desperately needed by providing funds to over 550 tribes across 
        the country. HUD also directly supports housing and economic 
        development initiatives in remote areas of Hawaii, through the 
        Native Hawaiian Housing Block Grant Program and Native Hawaiian 
        Loan Guarantee Program.
            hud goal 5: transform the way hud does business
    An economy built requires a Government that's leaner, smarter, more 
transparent, and ready for the 21st century. The current economic and 
housing crisis; the structural affordability challenges facing low-
income homeowners and renters; and the new, multidimensional challenges 
facing our urban, suburban, and rural communities all require an agency 
in which the fundamentals matter and the basics function. As such, HUD 
remains committed to transforming the way it does business. This 
transformation is more crucial now than perhaps ever before--HUD 
remains at the forefront of the Federal response to the national 
mortgage crisis, the economic recovery, and the structural gap between 
household incomes and national housing prices--roles that require an 
agency that is nimble and market-savvy, with the capacity and expertise 
necessary to galvanize HUD's vast network of partners. HUD's 2013 
budget reflects these critical roles, by investing in transformation, 
research, and development that will be implemented persistently over 
time. The Transformation Initiative
    Thanks to congressional support for the Transformation Initiative 
(TI), past fiscal year appropriations are today funding a wide range of 
groundbreaking projects, including:
  --Innovative, ``silo-breaking'' OneCPD technical assistance in 
        communities across the country that replaces a fragmented 
        broken system with one that addresses the holistic and cross-
        cutting needs of our grantees, recognizing that these extend 
        beyond the rules and regulations of any single funding stream;
  --Major evaluations and demonstration programs to examine the 
        outcomes of key administration initiatives like the Rental 
        Assistance Demonstration and Choice Neighborhoods, the cost to 
        local public housing authorities of administering the Housing 
        Choice Voucher program, different approaches to rent reform in 
        our largest programs, the housing needs of Native American and 
        Hawaiian communities, and the impact of housing and services 
        interventions on homeless families;
  --Replacement of 30-year-old technology and information management 
        practices to reduce risks, and implement higher performing, and 
        cost-effective business solutions to more effectively 
        administer the Department's rental housing assistance programs.
    The 2013 budget request once again includes transfer authority (up 
to 0.5 percent at the Secretary's discretion, totaling up to $215 
million) to support ongoing improvements of program effectiveness and 
efficiency and to help the Department respond and adapt more 
effectively to its rapidly changing operating environment.\2\ TI is a 
multiyear effort that can only be achieved through the relentless focus 
of agency leadership, full transparency and accountability for real 
results, and sustained and flexible budget resources. Since TI was 
first enacted in 2010, it has bolstered the long-neglected areas of IT 
modernization, research and evaluation, and program demonstrations 
crucial for increasing the efficiency and effectiveness of the 
Department's programs, and remains the primary source of funding for 
this transformation. Further, TI has provided a mechanism for 
innovative, crosscutting technical assistance that goes beyond program 
compliance to improve grantee capacity, performance, and outcomes. 
Finally, recent crises with natural disasters, the housing market, and 
deep fiscal distress among State and local partners have highlighted 
the need for HUD to be more nimble, creative, and collaborative. 
Setting aside a portion of HUD's program accounts through TI to better 
understand and enhance program results reflects recognition that 
planning for continuous improvement and innovation, investing in tools 
and capacity, and assessing results are equally integral for the 
operation of programs with accountability to the public interest.
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    \2\ HUD estimates that it will transfer approximately $120 million 
into TI in fiscal year 2013.
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Research and Evaluations
    As an integral component of strengthening HUD's capabilities for 
evaluating and improving program effectiveness and efficiency, TI 
provides a predictable stream of funding for high-quality research and 
evaluation of HUD's programs on an on-going, rotating basis to inform 
sound policymaking. HUD anticipates allocating 10-20 percent of TI 
transfers to Research and Evaluations in 2013. Expected projects 
include: A process evaluation of the evidence-based Jobs-Plus pilot, 
seeking to understand the effects of larger scale implementation; 
energy efficiency and utility costs analysis for PHAs and residents of 
public housing; biennial research NOFAs for Sustainable Communities 
Research Grants to inform local governments in preparing and planning 
for disasters; and a long-overdue follow-up to a 1995 HOME 
Affordability Study to assess affordability over time based on 
differing levels of subsidy.
Program Demonstrations
    Program Demonstrations test new options for HUD programs that can 
make them more efficient and effective and establish sound evidence of 
whether and how these options could better achieve HUD's mission. Since 
the 1990s, HUD has done relatively few research demonstrations, largely 
due to budget constraints. Those few demonstrations, however, have been 
HUD's most important and informative research on real program impacts. 
In 2013, HUD expects Project Demonstrations to include research on the 
Rental Assistance Demonstration (RAD), which allows a trial conversion 
of public housing and certain multifamily properties to long-term 
project-based contracts.
Technical Assistance
    Technical assistance (TA) can be seen as a ``force multiplier''--
making program dollars go further and helping communities do more with 
limited Federal and local resources. TA under the Transformation 
Initiative (TI-TA) allows HUD to combine assistance for different 
programs as appropriate, and provide customized help on the issues any 
particular grantee confronts.
    In 2013, HUD will utilize TI-TA for activities such as: Assessments 
and targeted interventions for PHAs; helping local government 
comprehensively assess market trends and implement housing and 
community and economic development programs through OneCPD; and 
targeting underlying, long-term problems like deficits and poor bond 
ratings through the National Resource Network. Flexible, cross-program 
technical assistance could also help grantees and clients adapt to new 
HUD policies, programs, and management approaches, and develop core 
skills and critical competencies required to effectively deliver HUD's 
programs.
Information Technology
    The budget proposes to again use TI funds for Information 
Technology in 2013, to reduce risks, implement higher performing 
standards, and cost-effective business solutions.
    IT transformation efforts to date have helped HUD evolve its 
understanding of opportunities to leverage the foundational toolsets 
being implemented under the FHA Transformation, the Next Generation 
Management project or NGMS (formerly known as NGVMS), and related 
infrastructure modernization projects. These opportunities include ways 
to further reduce the Government's risk in the marketplace, improve 
services to meet the needs of our citizens and employees and reduce 
annual operations costs. For example, recent efforts to define 
opportunities to reduce cost by consolidating back office business and 
administrative services are expected to lead to the need for capital 
investment to transition more of HUD's services from legacy platforms 
to shared enterprise services. HUD plans to use TI transfer authority 
in 2013 to make capital investments in IT to drive these service 
delivery improvements and further cost reduction efforts.
                               conclusion
    Madam Chairman, this budget reflects the administration's 
recognition of the critical role the housing sector must play to ensure 
every American gets a fair shot, everyone does their fair share, and 
everyone plays by the same rules. Equally important, it expresses the 
confidence of the President in the capacity of HUD to meet a high 
standard of performance.
    Given the economic moment we are in, HUD's 2013 budget proposal 
isn't about spending more in America's communities--it's about 
investing smarter and more effectively.
    It's about making hard choices to reduce the deficit--and putting 
in place much-needed reforms to hold ourselves to a high standard of 
performance. But most of all, it's about the results we deliver for the 
vulnerable people and places who depend on us most.
    I believe that this budget will contribute substantially to 
economic recovery, to creating pathways to opportunity, and to an 
America built to last. Thank you.

    Senator Murray. Thank you very much, Mr. Secretary. Let me 
begin by asking you about the status of the FHA's Mutual 
Mortgage Insurance Fund. Given the seriousness of this housing 
crisis, it's not surprising that FHA has sustained significant 
losses, and the capital reserve account has served its purpose 
by covering those unexpected losses.
    But I was concerned when the President's budget stated that 
$688 million would be needed to cover FHA losses in fiscal year 
2012. Both the recent settlements and announced premium 
increases are expected to improve the MMI Fund financial 
position, but I wanted you to update us this morning on the 
financial condition of the MMI Fund, of the FHA's MMI Fund.

                     MUTUAL MORTGAGE INSURANCE FUND

    Secretary Donovan. As you correctly stated, the information 
that was in the budget was outdated on the day it was 
published. And in fact, we were waiting to make final decisions 
about premium increases until we knew the outcome of the 
settlement. I wish that had been resolved before the budget was 
finalized, but it wasn't. And that's the reason for what was 
shown in the budget.
    Having said that, with the $900 million that I described 
that is the result of our work to recover for bad loans in the 
FHA program that are in the settlements, and in addition, the 
premium increases that we have announced this week, we do 
expect that the fund will remain positive this year.
    In addition, because of those steps that we have taken, the 
fund will be in a stronger position when the next actuarial 
study is done in the fall. That's the most comprehensive look, 
looking forward. And we do expect that these changes that we 
have made will put us in a significantly better position come 
fall.
    But again, we have to be vigilant. And we will take 
additional steps, if necessary. The single-most important 
determinant of the health of the fund is where house prices go 
this year and beyond. And so we will continue to be vigilant 
and watch carefully to make sure, if we have additional steps 
that we need to take, that we can work with the subcommittee to 
take those.
    Senator Murray. So what are the risks and opportunities 
that we need to look at? The housing prices this year. What 
other things?
    Secretary Donovan. Specifically for the re-estimate this 
year, the only things that will affect that number are the 
premium increases, and so implementing those very quickly is 
critical, and the levels of loan volume that we have this year. 
Our estimates are that it would take loan volumes that are more 
than 20 percent below our expectations to threaten the fund 
through the re-estimate this year.
    More importantly, for next year, as we go to do the new 
actuarial study, the single-most important factor is house 
prices. Our estimates last year showed that it would take 
greater than a 4-percent reduction in house prices this year. 
Our base case predicted a 1-percent increase. It would take 
more than a 4-percent reduction in house prices this year to 
push the fund negative.
    That was before the premium increases that we have 
implemented. So in fact, our estimate now is that it would take 
a much larger decline in house prices, much larger than that 4 
percent, to put the fund in a negative position for the re-
estimate next year.
    Senator Murray. Okay, and you decided to increase the 
upfront and the annual premium. Can you tell me how that will 
affect worthy borrowers who are trying to access credit?
    Secretary Donovan. As you know, Congress made the decision 
to include a 10-basis-point increase in our single-family 
programs as part of the bill that extended the payroll tax 
deduction. In addition, we included a 75-basis-point increase 
in the upfront premium. The 10 basis points equates, for the 
average loan, to about $9 a month for a borrower, and the 
upfront premium increase is about $5 a month for the typical 
borrower.
    The only places where those increases are significantly 
larger is for jumbo loans, those over $625,000, where we 
thought it was prudent to include a larger increase. And so for 
those borrowers, because the average size of the loan is much 
larger and because the increase is more, the increases would be 
significantly larger.

                        SETTLEMENTS WITH LENDERS

    Senator Murray. Okay, thank you. The joint Federal-State 
servicing settlement and the settlement with Bank of America 
represent not only a significant monetary award, but they also 
really send a message to FHA program participants that there 
are serious consequences to not following the rules.
    Just last week, settlements with two additional lenders 
were announced. And since most of the losses to the MMI Fund 
stem from loans insured prior to the reforms you implemented in 
2009, it's really important to pursue opportunities to prevent 
or recover losses from those books of business.
    Are there additional measures that FHA can take to improve 
the outlook for riskier loans that it already has on its books?

             FEDERAL HOUSING ADMINISTRATION INDEMNIFICATION

    Secretary Donovan. There are.
    First of all, let me just compliment David Montoya, our 
inspector general, and his team for their remarkable work to 
lead to both the servicing settlement and these additional 
settlements. They partnered very, very closely with us and the 
Department of Justice to allow us to make those recoveries, not 
just in the servicing settlement, but from Bank of America, 
Citibank, and Flagstar. So those are very important steps, and 
I just want to compliment him and his team.
    The additional steps that we could take--there are a number 
of them that require legislative change. I'm happy to say we're 
working closely with your colleagues on the authorizing side as 
well as Members of the House on the authorizing committee.
    There is a bill in the House that includes a number of the 
steps that would allow us to step up our enforcement. And those 
build on the recent regulation on indemnification that we put 
out, which will allow us to further hold lenders accountable 
for those prior loans that didn't meet FHA standards.
    Senator Murray. Okay. We all think the FHA's current 
outsized role in the market is unsustainable. There's no one 
who doesn't think differently. But it still remains difficult 
for qualified Americans to get a mortgage today. And the 
market's recovery, as we all know, is still very fragile.
    If FHA steps too quickly, it could have some serious 
consequences, not only for our overall economy, as we all know, 
but for the solvency of the MMI Fund. And I wanted to ask you 
how you balance the continued need for FHA to help provide 
access to credit with making room for private capital to return 
to the market.
    Secretary Donovan. Senator, you've asked the $64 trillion 
question. This is what keeps me up at night, and this is 
exactly the key question that we have to balance.
    And frankly, it is not just helping the broader market 
recover, but if we were to take steps to increase our premiums 
too quickly, to take steps that would hurt the market recovery, 
we actually hurt the FHA fund and taxpayers, because our old 
investments, that trillion-dollar portfolio, will perform much 
worse.
    And so in the steps that we have taken--and you asked 
exactly the right question, ``What's the effect for the average 
homeowner?''--we felt that $14 a month, on average, was 
acceptable, particularly given that we have record low interest 
rates today.
    We honestly feel that the biggest barrier holding back 
lending--and I agree with you, too many qualified borrowers 
aren't able to get lending today----
    Senator Murray. Yes.
    Secretary Donovan. It isn't the pricing that's the biggest 
barrier. It would be if we went too quickly on raising our 
premiums. The biggest challenge is the uncertainty that's out 
there in terms of how we will enforce our rules. So we have to 
make clearer what the rules will be.
    That's why our indemnification rule clarifying it is 
important. It is why we think the Federal Housing Finance 
Agency needs to put out a clear policy on buybacks that will 
allow Fannie and Freddie lenders to know what to expect. And it 
is why the servicing settlement was important as well. It 
created a single, clear, strong set of servicing standards and 
clarified foreclosure processes around the country so that that 
market can move forward with greater certainty.
    And again, it is always hard to get that balance perfectly. 
I wouldn't say we are ever done. I sleep on this every night. 
But it is a critically important balance, and I just thank you 
and the ranking member for your understanding of that balance.
    Senator Murray. Okay, very good. I appreciate that. Thank 
you.

             PROJECT-BASED RENTAL ASSISTANCE SHORT FUNDING

    Senator Collins.
    Senator Collins. Thank you, Madam Chairman.
    I want to go back to an issue that Senator Murray touched 
on in her opening statement.
    I am concerned by the Administration's proposal to fund 
thousands of Project-Based Rental Assistance contracts for less 
than 12 months. The reason I'm concerned is that short-funding 
these contracts may create a perverse incentive for landlords 
not to invest in maintenance, to cut expenses, to the detriment 
of some of our most vulnerable households, because of the risk 
of whether or not the full appropriations for the remainder of 
the year is ever going to come through.
    I'm also troubled that some owners may decide to leave the 
program altogether rather than take that risk. I know this had 
to be a difficult decision, and it clearly was budget-driven. 
But how is HUD going to mitigate these risks to the program and 
to the residents?
    Secretary Donovan. Senator, first of all, let me say thank 
you for recognizing this issue. This was one of the most 
difficult decisions we made in our budget. Personally, for me, 
having run the multifamily programs my first time at HUD, it 
was particularly difficult, because I know the impacts.
    What I would say is, there are two real risks here. One is 
an operational risk that we will not be able to mechanically 
get the contracts funded with the short-funding. That happened 
in the past when these contracts were short-funded. And I can 
assure you that I and my team have worked very hard to make 
sure that the operational processes are improved. And in fact, 
over the last 4 years, we haven't had those same kind of issues 
that might spring up with the short-funding.
    We also, operationally, have taken a lot of steps to make 
sure we have processes in place to monitor the physical 
condition of the units. So I appreciate your concern about 
whether this will lead to decreased maintenance. We have new 
risk ranking and reporting that we do on these units. We have 
quality control around our Real Estate Assessment Center (REAC) 
process that we have stepped up. Those are all things that are 
critical to make sure that the kind of effects that you talk 
about don't happen.
    The other risk is an uncertainty around funding, and you 
mentioned that as well. And that's one where, frankly, because 
there is private capital that supports these units, it is 
critical that we not create too much uncertainty around these 
programs. And I do think that is one of the risks here.
    I think what is very important is that we work together to 
make very clear, as Congress has always done, that the funding 
is available for these units. We signed 20-year contracts 
knowing that they're dependent on appropriations each year. And 
the market has been confident that that funding will be there. 
And we want to make clear despite this short-funding that we 
will do everything on our side, and I know that you will as 
well to continue this funding and make sure that it is 
available in subsequent years.

                       SUBSTANDARD UNITS IN MAINE

    Senator Collins. Let me now turn to the issue that I 
mentioned in my opening statement about the poor living 
conditions in some of the HUD-subsidized units in Maine. I'm 
troubled by this not only because taxpayers shouldn't be paying 
for poorly maintained units, but because the health and the 
safety of the people living there is clearly at risk. So 
something went dramatically wrong with the oversight and 
inspection process.
    I was also troubled when we learned of the outright fraud 
in some of the public housing agencies last year. I believe the 
one in Philadelphia, in particular, was found to have fraud.
    So what investments is HUD making in this budget to ensure 
that you have quality controls, internal controls, effective 
audits, a very close relationship with the IG to ensure that we 
are not wasting taxpayer dollars on substandard units that are 
unsafe for the tenants, or on outright fraud where people are 
stealing money that belongs to the taxpayers and is not 
benefiting those who need it most?
    Secretary Donovan. First, Senator, let me just thank you 
for your directness and your focus on these problems--both you 
and Senator Murray.
    Where there are issues, where we have made mistakes, and 
this was clearly--there were mistakes made on these units. 
You've been direct and held us accountable to correct those.
    And I hope you'll agree that when we discovered these 
problems, we worked very closely with you, with David Montoya, 
and I want to really recognize him and his team. We are taking 
steps specifically in Maine that I think will lead to better 
management going forward.
    The contracts with the inspectors, the companies that were 
doing the inspections, have been rescinded. Those are being 
brought back in-house to improve the inspections there. And we 
have a very specific plan that we are monitoring for correction 
of other quality control and things within the main housing 
authority to make sure those are better.
    But I think there are lessons, and you rightly point to 
this. What lessons can we learn more broadly for the work that 
we are doing across the country? And there are really three 
things there.
    One is, we have to make better use of our existing 
resources, staff, and our partnerships with the IG to improve 
oversight. We have, in our budget, proposed shifting public 
housing staff into field offices to increase direct oversight.
    We have also made sure that we are utilizing our 
enforcement center, which previously didn't work as closely 
with public housing authorities. Just in 2011, and so far in 
2012, we have used the enforcement center to review 140 public 
housing agencies across the country. And so that is a better 
use of existing resources.
    The second, we have to do better in coordinating our 
inspection systems. To date, we have one inspection system 
using REAC for our project-based units in public housing. We 
have a separate system for voucher units. What we have started 
now is a pilot to use our REAC inspections for quality control 
and oversight, where they will go behind local inspectors and 
make sure that the results that they're getting are, in fact, 
accurate.
    And that's something that we plan to expand and 
potentially, in the future, to merge those two systems, so we 
have a single set of strong standards for inspections across 
all our programs.
    The third thing is, with your help, the investments we are 
making in information technology. Our Next Generation 
Management System for our voucher program will allow us to do 
things--just to give you one example, right now, we don't have 
the ability to look at the photographs that are taken on those 
inspections. There's nothing that replaces actually seeing, 
with your own eyes, what happens. And this system will allow us 
to download and view anywhere in the country the digital 
photographs that are taken on the inspections that local 
inspectors are doing.
    And that's just one example, but there's a whole series of 
things in that Next Generation Management System. That's been 
one of the two biggest priorities you've had, and you've held 
us accountable to invest in those through our information 
technology. We couldn't agree more that that's a critical step 
we have to take in investing.
    Senator Collins. Thank you. I do want to salute you and the 
inspector general for your responsiveness to the problems in 
Maine and across the country. It is amazing that you don't 
download the photographs. I could lend you my BlackBerry.
    If even I can do that, it's clearly a feasible step that 
should be taken.
    Just one very quick point: Another thing I think the 
Department really needs to look at is, if you have bad actors 
out there, you do have available to you suspension and 
debarment tools, where you can prohibit an individual or even 
an agency from being involved in your programs for a period of 
time. I would encourage you to make more use of those tools in 
egregious cases. Thank you.
    Secretary Donovan. Thank you.
    Senator Murray. Thank you. What's the timeline on being 
able to download those pictures? Do you have a----
    Secretary Donovan. So we have--and we'll follow up with 
detailed information on all the different steps. Those first 
pieces of the Next Generation Management System are going into 
place this year. I think it is within a few months that we'll 
have the photographic capability that I talked about.

                       SECTION 8 VOUCHER FUNDING

    Senator Murray. Sometimes when people know they are going 
to be accountable in bigger ways, it makes a huge difference, 
so I appreciate that.
    And I echo Senator Collins' concerns about short-funding on 
the project-based contracts, so we'll be following that very 
closely from our end.
    You mentioned in your opening remarks that the programs 
that directly support the mission of providing housing to low-
income Americans, most of them who are elderly or disabled, is 
about 83 percent of HUD's budget. When we have continued 
difficult, challenging, constrained resources I know that those 
programs place a lot of pressure on HUD's budget.
    The largest of those is the Tenant-Based Rental Assistance 
program, which, of course, funds the Section 8 vouchers that 
are used by residents to find housing in the private market.
    In this year's budget, the level of funding that is 
requested to renew those existing vouchers is essentially flat. 
While the budget does assume savings associated with 
programmatic changes, it doesn't appear to be sufficient to 
cover the costs of inflation and renewing incremental vouchers 
for the first time. I wanted to ask you how you expect PHAs to 
maintain their existing voucher portfolios without those 
adjustments.
    Secretary Donovan. So two things I would say about this, 
Madam Chair. First of all, and I think you all have been very 
focused on this for a number of years, is how do we balance 
making sure we protect every family with sort of bending the 
cost curve, if you will, of the renewals on these programs. And 
we, through the budget this year, are proposing a whole series 
of steps that would allow us to serve the same number of people 
and keep the costs relatively flat. Some of those are choices I 
think that we could all agree are ones that are common sense 
and easy. Some of those are tougher decisions, and we'll 
obviously need to discuss with the subcommittee and get your 
views and input on whether some of those make sense.
    Specifically in the tenant-based program, there are over 
$200 million of savings that we are proposing to achieve. The 
single-biggest is to change our income targeting in rural 
communities to make sure that more of the working poor can be 
eligible for vouchers. It is part of the old Section 8 Voucher 
Reform Act that we are hopeful will pass in the House in the 
coming weeks and that we would be able to implement. I think 
there's broad support for those.
    But we also have made proposed changes in the medical 
expense deductions as well as the minimum rents that would 
allow us to serve the same number of people.
    So to be very clear, we are maintaining our commitment to 
serving all families there. But it did require taking a number 
of steps to try to lower costs next year to keep those flat and 
to allow us to have lower renewal costs in the out-years.
    The other thing I would just say, briefly, is that an 
important piece here, as you both recognize, is what it takes 
to manage these programs. And we have been very concerned that 
we had two housing authorities, Milwaukee and Akron, that 
actually turned back HUD-VASH vouchers. I have never seen that 
before. Can you imagine the idea of housing authorities saying 
we can't serve any more homeless veterans?
    And just in January alone, we had 13 different housing 
authorities that made the decision to turn back their broader 
voucher programs.

                          ADMINISTRATIVE FEES

    Senator Murray. Because of the costs associated with doing 
them?
    Secretary Donovan. Because they were concerned about the 
inability to fund those.
    Last year's budget made the very difficult decision to fund 
the administrative fees at just over 70 percent in terms of the 
overall need. We are proposing a significant increase there to 
get above 80 percent. But we still think, even with the 
difficult choices that we are making, that there's still some 
risk that housing authorities wouldn't have enough.
    So particularly that line item of admin fees is a critical 
piece that I think we'll need to discuss and work on this year 
in the budget.
    Senator Murray. Okay. Let me ask you about that because 
your request does prioritize funding for Section 8 
administrative fees, which have been cut significantly in 
recent years. Administrative fees aren't exactly an exciting 
part of the budget, but they do fund the basic operations.
    I know you struggled with a lot of difficult choices as you 
put this together, but can you explain why you prioritized 
funding for administrative fees over other needs?
    Secretary Donovan. Clearly, the concerns we had that I just 
mentioned about the number of housing authorities that have 
made the decision not to serve additional veterans, the number 
of housing authorities--that just in January alone have 
determined that they did not want to continue with their 
voucher programs--were critical in terms of that decision.
    And let me give you the precise numbers of what has been 
happening to administrative fees and what we are proposing.
    First of all, in 2012, it was a 74-percent proration that 
we estimated for the budget. For 2013, what we are proposing is 
an 81-percent proration. Just to give you an example of where 
those fees were previously, it was a 90-percent proration in 
2010. So even our 81 percent represents a reduction if you go 
back a few years.
    And that leads to some of the concerns I mentioned, that 
even at 81 percent, we were balancing difficult decisions. I do 
have some concerns that it won't be enough for some housing 
authorities.
    But I would also point out that it represents a significant 
increase in absolute dollars from where we were last year. And 
I'm just looking here for the exact number of what that is to 
make sure. Let me get that to you in a moment.
    But there's an exact number in terms of the increase that 
we are proposing this year in the budget.
    Senator Murray. Okay. I have a couple more questions, but 
let me turn it over to Senator Collins.

                       WOOD PELLET BOILER SYSTEMS

    Senator Collins. Thank you, Madam Chairman.
    I am just going to ask one more question, because I have 
been called to the Senate floor, and submit the rest for the 
record.
    But this one, too, is one that I referred to in my opening 
statement and is extremely important to the State of Maine. 
Maine is the most heavily dependent of any State in the Nation 
on home heating oil. And when you see the spikes in oil prices 
that we've seen this year, and the cutbacks in the Low Income 
Heating Assistance Program, it is causing tremendous hardship 
for so many of our families in Maine.
    It is also very difficult because Maine has the oldest 
housing stock in the Nation, and thus, there are a lot of homes 
that are poorly insulated that would benefit from 
weatherization projects. That's something we ought to invest 
more in as well.
    The large swings in oil have caused many of our residents 
to look to alternatives. The wood pellet boiler industry is 
growing rapidly in Maine. It has the potential to help out 
these families, to allow them to convert from oil, but also to 
create thousands of new jobs in our State.
    Wood pellet manufacturing, boiler technology, and pellet 
delivery systems have progressed dramatically since the days 
when you had to scoop pellets from small bags into a small 
stove every couple of hours. Now the industry has developed 
boilers that don't even require any human intervention during 
the day. There are automatic feeds of pellets.
    HUD has been slow to consider wood pellet boiler systems as 
an acceptable conventional primary heating source. The reason 
this is important is that for the purposes of qualifying for 
FHA programs, you have to have a conventional primary heating 
source.
    I wondered if you could tell me if HUD is looking to 
include these new wood pellet boilers as a conventional heating 
source, which would help more families in Maine have the 
confidence that they could convert to wood without losing their 
eligibility for FHA and other Federal housing programs.
    Secretary Donovan. Senator, first of all, let me thank you 
for raising this issue and putting it on our radar screen, so 
to speak, at HUD. Just as we talked about with your BlackBerry 
a moment ago, I think we could all recognize there are moments 
where the Federal Government and government, in general, can be 
a little bit behind the cutting edge in terms of new 
technologies.
    And I'm happy to report not just that we are looking at 
this, but just yesterday we updated our frequently asked 
questions on our Web site to tell all of our lenders that wood 
pellet stoves are an acceptable heating system for homes under 
our insurance programs. As long as they meet the qualifications 
that any heating system has to meet, it's an acceptable 
technology. We are in the process of updating our handbooks to 
reflect exactly that.
    So not only are we considering it, but we have actually 
considered it and made the decision that you were absolutely 
right and that we should include these in our program. So thank 
you for bringing it to our attention.
    Senator Collins. That's absolutely great news. Again, I 
thank you so much for your willingness to look at that.
    The technology has changed so dramatically, and that's 
going to be great news to a lot of homeowners in Maine. Thank 
you very much.
    Secretary Donovan. Thank you. I'll be coming to borrow your 
BlackBerry later.
    Senator Collins. Any time.
    Senator Murray. Thank you very much, Senator Collins.
    Mr. Secretary, your budget assumes savings associated with 
programmatic changes to the HUD rental assistance accounts, 
including tenant-based and project-based Section 8. You talked 
about this a minute ago, but many of those cost-saving 
measurements require legislative changes, which would involve 
rulemakings.
    What will happen to your savings estimates if all of the 
proposed reforms are not enacted, or they are enacted late in 
this fiscal year and you still need to go through the 
rulemaking process?
    Secretary Donovan. First of all, Senator, just to get back 
on the specific number I was looking for before, the increase 
that we are proposing on admin fees is $225 million this year. 
So it is a substantial increase, and one we thought, even in a 
tough environment, was absolutely critical. And as I said, we 
think it is the minimum necessary to try to get more confidence 
that housing authorities will actually be able to administer 
the programs.
    Specifically, on your question about legislative authority, 
I'm happy to say that, with your urging, we are working very 
closely with your colleagues in the House on the authorizing 
committee and in the Senate here, and I am optimistic about 
getting that legislation passed.
    The large majority of those changes would not require 
extensive rulemaking. There are very few that would require 
rulemaking. They're really around the old Rent Sup and 
Relocation and Acquisition Policies programs, but the large 
majority of them we could implement through notice. So if we do 
get the legislation passed, we could implement them quickly, 
and be prepared for 2013 to be able to implement them and get 
the savings that we're projecting.
    Obviously, if the legislation doesn't pass, that would stop 
us from being able to achieve some, but not all, of the 
savings. We do have a share that we could achieve without 
legislation. And I'd be happy to follow up with a specific 
analysis that shows you precisely which we could do on a 
regulatory basis. Of the $920 million that we are proposing 
over the major programs, a significant share of it we could do 
without any legislative change.
    Senator Murray. Okay. If we can see that, that would be 
extremely helpful.
    Secretary Donovan. Yes.

                         MINIMUM RENT INCREASE

    Senator Murray. But even if HUD was able to achieve these 
changes at the beginning of this fiscal year, we have heard 
concerns that some of these proposals may harm owners and 
tenants alike. Specifically, some are worried about your 
proposal for owners to spend down their property reserves that 
would jeopardize maintenance and rehabilitation projects.
    And I am also really concerned that raising minimum rents 
and increasing medical deduction for tenants could put a real 
burden on some of these tenants in these still tough economic 
times. Can you please talk a little bit about the impact you 
might see there?
    Secretary Donovan. I'd be happy to. And again, let me 
recognize at the outset, these are not decisions we would make 
in anything but very difficult fiscal times, making very 
difficult choices. And along with the Project-Based Rental 
Assistance decision--the short-funding we talked about 
earlier--this minimum rent increase was, I think, the single 
most difficult decision in the budget.
    And I think what's critical is that we need to clarify and 
make sure there's a very strong exception policy for anyone 
where hardship of that increased rent would result. We are 
expecting to do that. We are already working on clarifying and 
strengthening that policy. But there's no question that the 
impact of this will have some real consequences for families 
that are struggling.
    We have analyzed fully in which programs what percentage of 
families would be affected by this, the average rent increases 
that would come out of this. The impact of the minimum rent is 
about $150 million itself, across all the programs. And we'd be 
happy to share with you the specific impact that it has for the 
various tenant-based, project-based, 202/811, all the various 
programs, impacts those would have.

                        RAPID RE-HOUSING PROGRAM

    Senator Murray. Okay, I would really appreciate that.
    Finally, let me just talk about homelessness funding. I 
want to acknowledge your leadership in really developing a 
homelessness plan and fostering coordination across 
departments. It's so important, and I think we are making 
progress there.
    I did want to ask you about the Homelessness Prevention and 
Rapid Re-Housing Program (HPRP), which was funded in the 
Recovery Act and designed to really help homeless families. But 
funding for that program ends this year. The Emergency 
Solutions Grant program allows communities to continue these 
efforts, but on a much smaller scale.
    Can you talk a little bit about what the outcomes have been 
for HPRP?
    Secretary Donovan. Absolutely. I am so glad you asked about 
it.
    And let me just say, first of all, while you asked about 
the HPRP program, without your leadership, we would never have 
made the progress that we made on reducing veterans 
homelessness. In just 1 year, to have 12 percent fewer homeless 
veterans----
    Senator Murray. Amazing.
    Secretary Donovan [continuing]. Eighteen percent fewer 
sleeping on the streets; that is a huge accomplishment. And 
your personal leadership around HUD-VASH has made a huge 
difference.
    Senator Murray. I think the cross-agency coordination on 
that has been really----
    Secretary Donovan. A huge difference.
    So we are concerned about the ending of HPRP, and we're 
concerned because it has been so effective. We thought, 
originally, it would reach about 500,000 people. It's already 
reached more than 1.2 million and still counting.
    And one of the best things about it, 75 percent of the 
folks it has reached are homeless families, who have often been 
the hardest to reach.
    And why have we been able to reach more families? Because 
what we have realized through doing this, what the data has 
shown us, is that for far less money than we expected, we've 
been able to stabilize or rapidly re-house families. It might 
be 1 month's rent, it might be a security deposit, it might be 
just a couple months of utility bills, but that's allowed us to 
serve far more people.
    And really, I think the most exciting thing about it is, 
it's started to reorient many local responses to homelessness, 
where for the first time they see that rapid re-housing in 
particular is a very beneficial step. It can be particularly 
effective with a small amount of money.

                       EMERGENCY SOLUTIONS GRANT

    Our hope is that by continuing to invest in it through the 
Emergency Solutions Grant (ESG), and I think one of the reasons 
that we proposed a $330 million increase this year for our 
homeless assistance grant account is that we have to continue 
to invest in ESG. We have to grow the investment there. But it 
is never going to be as much as we had in HPRP.
    The hope is--and we are starting to see this in some areas, 
and Washington has been a leader in this, of shifting 
resources, taking them out of, for example, shelters. Shifting 
them from Medicaid funding that's going to emergency rooms and 
putting them into rapid re-housing is lowering costs overall.
    So what we are hoping we see is, with our continued 
increased investment in ESG, along with local investments that 
complement it, that we will continue to see a focused 
investment. We are nervous about that. We are pushing on it. I 
know you've been supporting it.
    But it is something that I saw locally in New York, our 
prevention efforts, our rapid re-housing efforts. It was 
something we were willing to shift our funding into, and that's 
something we want to encourage at the local level.
    Senator Murray. Okay. And I'll be following that very 
closely. So anything you can show us on that, that helps paint 
that picture, I'd really, really appreciate it.
    But again, I appreciate the tremendous work of you and your 
entire staff on an issue that has been at the forefront of our 
Nation. Although sometimes nobody really pays attention to the 
programs, they really are essential in getting us back on 
track. And you've done a great job, and I truly appreciate it.
    Secretary Donovan. Thank you. Thank you for your leadership 
and partnership.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. Thank you so much for your accommodation 
today. And we are going to leave the hearing record open for 
anyone who would like to ask additional questions.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
              Questions Submitted by Senator Patty Murray
     information technology modernization-fha modernization project
    Question. Reliable Data is critical to effective oversight. Time 
and again the lack of good data has hindered HUD and the committee's 
work. You recognize the challenges with HUD's systems and the 
limitations they place on effective program management. To your credit, 
you have requested significant funding to update HUD's IT systems. The 
two biggest IT projects underway are FHA Modernization and the Next 
Generation Voucher Management System, which have been priorities for 
this committee.
    While new technology has the potential to transform departmental 
operations, modernization is a big undertaking for HUD. In response, 
HUD is also changing the way it manages its IT systems. This involves a 
change in culture, which is never easy. What is the current status of 
your IT modernization efforts and these specific projects? Given the 
significant changes needed in process, skills, and personnel, how will 
you ensure that these projects stay on track and on budget?
    Answer. The goal of the FHA Modernization project is to provide 
business process improvements and technological tools that will address 
longstanding constraints that have been impediments to effective risk 
management in our underwriting policies and practices; more robust 
fraud monitoring and detection; counterparty management, and portfolio 
analysis. The scope of the project includes incorporating a 
decommission plan for each legacy system targeted for replacement. 
Benefits of the FHA Modernization capital investment are being realized 
today.
    The cornerstone of the FHA Modernization effort is the acquisition 
of what is branded as ``the Federal Financial Services Platform.'' This 
investment is a configuration of commercial-off-the-shelf products 
which aligns FHA with products and services used by our industry 
partners. Moreover, the investment aligns and establishes the baseline 
for HUD's new and future enterprise architecture. This platform can 
ultimately be extended and provides the capability and capacity to 
replace the Unisys and IBM mainframe systems at some logical point in 
the future. Eighty percent of the initial planned environments are 
built out on the Oracle Exalogic platform; 100 percent by August 31, 
2012. A requisition for additional Oracle Exalogic hardware/software is 
in the procurement pipeline. This additional capacity positions us to 
accept requirements from other offices in the Department (e.g., Public 
and Indian Housing (PIH), Next Generation Management System (NGMS) 
projects); accordingly, this achieves true enterprise capability and 
demonstrates scalability.
    Another element of FHA Modernization is the Lender Electronic 
Assessment Portal (LEAP) application which consists of four modules 
(i.e., Approval, Recertification, Monitoring and Enforcement) that are 
in various stages of development and production. Today LEAP automates 
what largely has been a manual and paper intensive process. The LEAP 
application wholly aimed at improved counterparty (i.e., lender) 
management, addresses vestiges of risk and fraud at the front end (or 
origination) of the loan rather than relying on antiquated process 
during the post-endorsement process. The Approval module went live in 
April 2012 and is successfully processing a steady volume of requests. 
The Recertification generation I module is slated for operational 
capability in the second quarter of fiscal year 2013 with design and 
development of the other modules in ensuing months; LEAP is projected 
to achieve full operational capability in the first quarter of fiscal 
year 2014. Consistent with addressing significant constraints on risk 
and fraud detection, the Loan Review System (LRS), Portfolio Evaluation 
Tool (PET), and Automated Underwriting System capabilities are slated 
to achieve operational capability in early fiscal year 2014. This 
complementary set of tools and capabilities effectively provide 
decision support (and analytics) at every step in the process of the 
loan lifecycle, from origination through post-endorsement technical 
review.
    Over the past 2 years, FHA has improved its project management 
capacity. The FHA Modernization project is staffed with a cadre of 
experienced and certified IT project managers, who are working 
exclusively on FHA initiatives. HUD continues to invest in project 
management training and makes this training available annually as part 
of its HUD Virtual University Curriculum. Over the past 2 years, FHA 
has actively incorporated HUD's Project Planning and Management (PPM) 
framework to increase the occurrences of successful project 
implementation. Information on the number (and types) of certified 
project managers is readily available. The PPM approach provides a 
process-centric methodological framework that is central to eliminating 
waste, reducing variation and ensuring projects maintain time, scope, 
cost, and quality congruence. The FHA Modernization effort has 
tremendous reach to effect sustained productive outcomes and eliminate 
constraints in the areas previously mentioned (e.g., counterparty 
management, portfolio analysis, etc.), the current culture and business 
practices will be modified to take full advantage of improved workflow 
processes, customer relationship management and improved data outputs. 
As new systems are brought online, staff will be trained. Training 
modules and on-demand refresher courses will be developed for ongoing 
capacity building. Hiring managers will seek to hire technology savvy 
candidates to maximize the capacity of FHA staff at headquarters and in 
the field.
    NGMS is being engineered to serve as HUD's enterprise solutions for 
the Rental Housing Assistance (RHA) line of business (LOB). Currently, 
HUD provides rental housing assistance to more than 4.4 million 
households through at least 13 different programs, each with different 
rules administered by the Offices of Public and Indian Housing, 
Housing, Multifamily Housing and Community Planning and Development.
    Currently, RHA operations relies on manual manipulation of data 
using Microsoft Excel and Microsoft Access, which are time-consuming, 
costly, inefficient, and prone to human errors. Despite these 
limitations, HUD continues to rely on these tools to execute critical 
functions that support HUD's mission. With the investment in NGMS, as 
an enterprise solution for the RHA LOB, HUD strives to improve 
operating and administrative efficiencies in providing needed services 
to its constituents.
    During the past years, with the help of contractors, HUD conducted 
searches for an automated enterprise solution to satisfy requirements 
of RHA LOB. This was very challenging because of inherent business and 
organizational complexities.
    The NGMS program previously focused efforts on the development of 
the Next Generation Voucher Management System (NGVMS). Since then, the 
program has been re-focused to include needed functionality to support 
HUD's RHA LOB. NGMS now focuses on:
  --The activities necessary to develop, test, and implement Oracle 
        Enterprise solutions as the standard technology and platform 
        for NGMS; and
  --Planning a new path forward for NGMS.
    HUD has taken several positive steps to ensure the success of the 
NGMS program, including:
  --Establishing a cross-organization Executive Steering Committee that 
        provides program oversight and ensuring appropriate 
        representation from the IT and business communities;
  --Establishing a technology training program for HUD personnel;
  --Working with the Chief Procurement Officer to enforce contract 
        administration;
  --Hiring a new overall program manager who reports directly to the 
        General Deputy Assistant Secretary;
  --Establishing a Program Management Office (PMO);
  --Supporting the PMO's efforts to improve program performance;
  --Implementing active oversight of the program;
  --Establishing a NGMS system change control process; and
  --Establishing an Executive Steering Committee (ESC).
    Going forward the overall program manager (PM) will be held 
accountable for the following:
  --Earned value management;
  --Performance reporting;
  --Status reports;
  --Risk tracking and mitigation;
  --Issue tracking;
  --Stakeholder reporting;
  --Working with HUD's Chief Information Officer and IT vendors to make 
        sure business and functional requirements are properly 
        developed, tested, and implemented; and
  --Working with HUD's Chief Information Officer and oversee 
        Independent Verification and Validation (IV&V) of developed 
        NGMS modules.
    The NGMS program has clearly learned important lessons from the 
previous challenging efforts. With the formal establishment of the PMO, 
the NGMS program, with direct oversight from the Deputy Secretary, 
structured development and execution efforts will allow the program to 
produce expected results and to avoid repeating past missteps.
    Leveraging the Chief Technology Officer's knowledge and past 
experiences and the Federal Housing Administration's experiences, HUD 
chose Oracle Corporation technologies as the technology platform of 
choice for NGMS.
    In conjunction with the Chief Procurement Officer and the Chief 
Information Officer, the NGMS PMO is in the process of executing the 
following tasks:
  --Issuing task order for Requirement Definition for RHA LOB--August 
        2012;
  --Defining business priority for the RHA LOB--August 2012;
  --Developing NGMS program project plan--August 2012;
  --Exploring the use of other agency's Governmentwide Acquisition 
        Contract for architect, design, engineering and 
        implementation--Ongoing;
  --Issuing task order for PMO support--August 2012;
  --Issuing task order for Independent Verification and Validation--
        September 2012;
  --Developing training strategies for HUD technical employees--August 
        2012; and
  --Updating business plan and Alternative of Analysis--August 2012.
    Once completely implemented, NGMS will have included modules that 
will satisfy business requirements from offices across HUD. While all 
required NGMS modules are being finalized, the following modules are 
being considered as NGMS priorities and will be included in Phase I 
development:
  --Budget forecasting and formulation;
  --Cash management;
  --Customer relationship management;
  --Portfolio management; and
  --New robust RHA data architecture.
                  information technology modernization
    Question. When do you think that we will begin to see the results 
of these efforts?
    Answer. Benefits of the FHA Modernization capital investment are 
being realized today. Acquisition of the Federal Financial Services 
Platform (using Oracle Exalogic hardware, featuring the integrated 
Fusion Middleware software stack) is the cornerstone IT investment. 
This platform ultimately has enterprise extensibility and provides the 
capability and capacity to replace the less agile Unisys and IBM 
mainframe systems at some logical point in the future. Eighty percent 
of the initial planned environments have been on the Oracle Exalogic 
platform; 100 percent will be built by August 31, 2012. A requisition 
for additional Oracle Exalogic hardware/software is in the procurement 
pipeline. This additional capacity positions us to accept requirements 
from other Offices in the Department (e.g., Public and Indian Housing 
(PIH), Next Generation Management System (NGMS) projects), and Policy 
Development and Research. Accordingly, this achieves true enterprise 
capability and demonstrates scalability. The Lender Electronic 
Assessment Portal (LEAP) application consists of four modules (i.e., 
Approval, Recertification, Monitoring, and Enforcement) that are in 
various stages of development and production. Today, LEAP automates 
what largely has been a manual and paper- intensive process. The LEAP 
application wholly aimed at improved counterparty (i.e., lender) 
management, addresses vestiges of risk and fraud at the front end (or 
origination) of the loan rather than relying on the current antiquated 
reviews at the post-endorsement process. The Approval module went live 
in April 2012 and is successfully processing a continuous volume of 
lender requests. The Recertification Generation I module is slated for 
operational capability in the second quarter of fiscal year 2013, with 
design and development of the other modules in ensuing months, LEAP is 
projected to achieve full operational capability in the first quarter 
of fiscal year 2014. In April 2012, FHA staff was given real-time 
online access to access to borrower and collateral risk analytical 
tools that have improved the capacity of FHA to capture data that is 
currently not collected in existing systems. These data profiles help 
to identify emerging fraudulent trends and practices. Consistent with 
addressing significant constraints risk and fraud detection, the Loan 
Review System (LRS), Portfolio Evaluation Tool (PET), and Automated 
Underwriting System capabilities are slated to achieve operational 
capability in the first quarter of fiscal year 2014. This complimentary 
set of tools and capabilities effectively provide decision support (and 
analytics) and every step in the process from loan origination through 
post-endorsement technical review.
              meeting the housing needs of women veterans
    Question. In recent years, homelessness among women veterans has 
increased significantly, posing challenges for the VA. For example, 
many of the programs that traditionally serve homeless veterans aren't 
open to families, posing a barrier to homeless women veterans who have 
children. HUD-VASH has been one tool that has been successful in 
housing veterans with families, but we need to do more to make sure the 
needs of women veterans are met.
    GAO recently released a report that I requested on meeting the 
housing needs of women veterans. It recommends that both HUD and VA 
improve data collection. What steps is HUD taking to obtain better data 
on homeless women veterans and how are you coordinating these efforts 
with the VA?
    Answer. Beginning in 2013, HUD will begin to identify women 
veterans as an individual element in its annual sheltered Point-in-Time 
(PIT) count and biennial unsheltered PIT count of persons experiencing 
homelessness. These PIT counts are administered by HUD's homeless 
providers and reported to HUD through our annual Continuum of Care 
grant competition.
    HUD's coordination efforts with the VA include frequent meetings 
with senior leadership and staff of both agencies under our ``Solving 
Homelessness as One'' initiative and conducting ``Housing First Boot 
Camps'' with HUD-VASH communities to increase the coordination and 
performance of participating Public Housing Agencies and VA Medical 
Centers. The Department is also planning another HUD-VASH Webinar in 
September 2012, part of HUD's ``Ready, Set, Go'' training and education 
series. This joint Webinar will focus on increasing the participation 
of local Continuum of Care systems in the planning and implementation 
of the HUD-VASH program.
    Female veterans and veterans with families are a particular focus 
of the Veterans Homeless Prevention Demonstration Program. HUD is 
currently administering this $10 million demonstration program at five 
sites, in collaboration with the Department of Veterans Affairs and the 
Department of Labor. This program is designed to explore ways HUD can 
offer early intervention homelessness prevention for veterans. Through 
this program, HUD is gathering data on veterans, including female 
veterans, who are assisted. There will also be an evaluation of the 
demonstration which will examine the effectiveness of efforts to assist 
female veterans in preventing homelessness.
                                 ______
                                 
                Questions Submitted by Senator Herb Kohl
               changes in medical deduction for section 8
    Question. One of the proposed section 8 savings measures included 
in the 2013 budget is a provision which will increase the threshold for 
the unreimbursed medical deduction from 3 percent of a senior's income 
to 10 percent of a senior's income. As chairman of the Aging Committee, 
I am concerned that this policy will have a disproportionate impact on 
seniors with low incomes and high unreimbursed medical expenses, 
causing untenable rent increases. Not only do these seniors face paying 
for medical expenses that are currently reimbursed, but they will also 
be faced with a substantial monthly rent increase. I am concerned that 
vulnerable seniors will be forced to choose between paying their rent 
and buying food, or taking their medications or obtaining needed 
medical procedures if the co-payment is too high. What do you estimate 
the savings to be from this new requirement?
    Answer. The figure of $165 million is the amount of the medical 
deduction savings.
    Question. Will HUD provide a hardship exemption for poor seniors 
where this change in the medical deduction creates a rent increase that 
is too onerous?
    Answer. The President's budget does not contemplate a hardship 
exemption. Such an exemption would result in substantial administrative 
burden for PHAs and owners, and the reduction of administrative burden 
was an important goal of the proposal. The current deduction does not 
assist the lowest income seniors, who are eligible for Medicaid and 
therefore receive no additional subsidy under this provision. The 
proposal would align HUD assistance policy with the Internal Revenue 
Code, which allows for deductions for healthcare costs above 10 percent 
of income but not below that level.
                           rental assistance
    Question. While I appreciate HUD's intent to stretch section 202 
dollars further and the request funding for new development under the 
section 202 program, I have a number of concerns and questions about 
the proposals as described in the budget.
    While I support the idea of mixed-income developments, I am 
concerned that the administration's proposal for rental assistance may 
be a mix that is infeasible. Rents will simply have to be too high in 
the non-202 units to cover the cost of debt service. Has HUD done any 
analysis of the amount of operating costs and/or debt service the 
requested PRAC amounts will support?
    Answer. Section 202 currently only provides on-going subsidy 
sufficient to cover a project's operating costs absent debt service. 
However, the Low Income Housing Tax Credit program produces 
approximately 100,000 affordable units each year. Of these, HUD 
estimates approximately 40 percent are set aside for elderly only 
affordable housing. The large majority of these elderly affordable tax 
credit projects are financed with permanent debt from the properties' 
net operating income (tax credit restricted rents less operating 
expenses). Non-section 202 tax credit rents are almost always in excess 
of operating expenses and therefore sufficient to leverage debt 
financing. HUD is currently assessing allowing section 202 rents to 
include debt service as an eligible expense (as it currently does under 
the section 8 program), such contracts would be capped at fair market 
rents which in almost all jurisdictions are greater than tax credit-
restricted rents.
    Question. Do you have any intention of requesting a change in 
authority so that the Project Rental Assistance or operating assistance 
that you are requesting (without capital advances) can cover debt 
service?
    Answer. Under existing statutory authority, HUD determines eligible 
costs allowed under section 202 Project Rental Assistance contracts. 
However, debt service is not currently an allowable expense under 
existing administrative rule making, as codified under 24 CFR part 891. 
HUD is assessing the possibility of providing some limited regulatory 
relief along those lines.
                         section 202 prac units
    Question. A necessary part of successful models of ``aging in 
place'' is the role of service coordinator. I am concerned that 
projects with a limited number of 202 PRAC units are unable to pay for 
the cost of the required service coordinator. To date, few tax credit 
or privately financed senior housing developments have been able to 
afford a service coordinator. The service coordinator should available 
to help the entire senior resident population, not only for the PRAC-
assisted units. Can you comment on how you intend service coordinators 
to be supported?
    Answer. Tax credit or privately financed senior housing typically 
serves a more affluent, younger, and healthier elderly population than 
the section 202 program. These households typically have less service 
needs and/or have additional resources to directly access services on 
their own. However, having a service coordinator in place to serve this 
population is important, particular as those households age in place. 
For the last 10 years, the section 202 program has accommodated mixed-
finance projects that include some units financed with tax credits and 
other sources and some units that were financed with section 202 PRAC 
assistance. Going forward, similar to what HUD has historically allowed 
under the mixed-finance program, the section 202 units could cover the 
costs of a part-time service coordinator. Compensation for a full-time 
service coordinator could be provided either by including a service 
coordinator line-item as an operating expense on the non-202 units or 
by relying on funding from local area Agencies on Aging or other local/
philanthropic sources.
                                 ______
                                 
            Questions Submitted by Senator Patrick J. Leahy
  impact of cuts to the community development block grant program and 
          home investment partnerships program on rural areas
    Question. Mr. Secretary, on that topic, two of the most effective 
programs Vermont and rural States around the country have come to rely 
upon have been the Community Development Block Grant (CDBG) Program and 
the HOME Investment Partnerships Program. The CDBG Program is one of 
the most effective Federal programs to revitalize communities with 
proven results. CDBG helps to fund homeownership assistance, housing 
rehabilitation, economic development projects and improvements to 
public services while creating jobs, efforts I know the Department 
supports. However, the communities that rely on this funding to serve 
their most vulnerable residents, principally low- and moderate-income 
persons, have been negatively impacted by recent cuts to the program 
totaling 28 percent in the last 2 years alone. The CDBG formula 
allocation has been cut by over $1 billion since 2000 and the level 
funding request would keep this allocation at its lowest funding level 
since 1992. These cuts have left State CDBG programs oversubscribed. 
During Vermont's most recent grant round, nearly three out of four 
projects submitted were denied funding. This directly translated to 
Vermont creating one quarter the number of requested affordable housing 
units; this translated to the inability of Vermont to create three out 
of four proposed new jobs; and it left millions of dollars in State, 
local, and private dollars usually leveraged by the CDBG program on the 
table.
    The HOME program serves as the largest Federal block grant program 
to State and local governments designed exclusively to produce 
affordable housing for low-income families. Since Congress created the 
program it has been the cornerstone in the United States' affordable 
housing finance system. HOME provides a flexible resource to meet the 
communities' highest priority affordable housing needs. At a time when 
States continue to face significant affordable housing shortages, the 
program has helped produce more than 1 million affordable homes 
nationally and helps approximately 143,000 families secure affordable 
housing each year. Funding for the HOME program has also successfully 
leveraged more than $88 billion of public and private funds for 
affordable housing.
    Despite recent criticisms of the program, the vast majority of HOME 
projects are completed successfully, on time and with surprising 
success given the impact of the current housing and economic crisis. 
The HOME program has continued to provide much needed funds to local 
communities for tenant-based rental assistance, rehabilitation of 
affordable rental and ownership housing, and construction of affordable 
housing. Additionally, the HOME program provides down-payment 
assistance to help creditworthy families become homeowners, and housing 
vouchers to low-income families and those on the brink of homelessness. 
HOME funds often assist seniors, persons with disabilities, and the 
homeless in ways which directly respond to local priorities and needs. 
As the need for affordable housing continues to grow, for many States 
and local governments HOME is the only reliable funding for affordable 
and special needs housing development available. Despite the growing 
need for HOME funds this program faced a 38-percent cut in last year's 
funding bill.
    Mr. Secretary, in your testimony you pointed to the Department's 
support of the Community Development Block Grant Program and HOME 
Investments Partnership Program as the primary assistance the 
administration provides to rural communities. When I look at the 
overall budget request, one that sustains significant cuts, I see a 
shift of priorities that heavily favors urban communities over rural 
ones. I am concerned about what this level of funding would mean for 
these programs, and particularly concerned about what they mean to 
rural America. Do you feel the funding request for CDBG and HOME 
adequately addresses the housing needs of rural communities given the 
current oversubscription of the programs?
    Answer. HUD recognizes that the economic downturn has dramatically 
impacted rural communities across the country, and the Department 
remains committed to continuing its investment in rural America. The 
administration was required to make very difficult decisions during the 
fiscal year 2013 budget development process, and HUD supports the 
requested level of funding for CDBG and HOME given the current fiscal 
situation. The requested levels should not disproportionately impact 
rural communities. Both the CDBG and HOME programs are formula 
programs. Consequently, the proportion in distribution of funding 
between urban and rural areas will remain the same.
    The CDBG request will provide more than $880 million for the State 
CDBG program in fiscal year 2013. While HUD acknowledges the requested 
funding level is the same as the request for fiscal year 2012 and 
results in a $116 million decrease for States below the fiscal year 
2011 appropriated level, it is important to remember that grantees have 
a great deal of discretion regarding the development of programs that 
best meet the needs of their communities. Grantees may have to rethink 
how they prioritize CDBG funding to have the greatest positive impact, 
and HUD will continue providing the resources and technical assistance 
necessary to assist grantees in achieving the highest level of 
performance and positive outcomes from CDBG allocations.
    The HOME request will provide more than $400 million for State HOME 
participating jurisdictions in fiscal year 2013. While HUD acknowledges 
the requested funding level is the same as the fiscal year 2012 
appropriation and results in level funding for States and is also 38 
percent below the fiscal year 2011 appropriated level, it is important 
to remember that, like CDBG, State-participating jurisdictions have a 
great deal of discretion regarding the location of HOME projects that 
best meet the needs of their rural communities. Just as in CDBG, 
participating jurisdictions may have to rethink how they prioritize 
HOME project funding and HUD will continue to provide the resources and 
technical assistance necessary to assist them.
                     impact of cuts on rural areas
    Question. What steps is the Department taking to ensure budget cuts 
do not disproportionately impact rural communities?
    Answer. The administration was required to make difficult decisions 
during the fiscal year 2013 budget process. Despite the subsequent 
reductions in funding requests for some of HUD's programs, these 
reductions should not disproportionately impact rural communities. Both 
the Community Development Block Grant and the HOME Investment 
Partnerships programs are formula programs. Consequently, the 
proportion in distribution of funding between urban and rural areas 
will remain the same, though the actual dollars allocated will be 
reduced as a result of smaller appropriations.
    The Department recognizes the importance of the CDBG program for 
rural areas and works with grantees to help them carry out successful 
programs while adhering to the requirements of the Housing and 
Community Development Act of 1974, as amended. From CDBG program 
inception to 1981, HUD administered a small cities CDBG program, 
awarding 20 percent of formula funds on a competitive basis. In 1981, 
Congress formally established the State CDBG program. This statutory 
change required 70 percent of CDBG funds allocated by formula go to 
entitlement jurisdictions, and the other 30 percent go to non-entitled 
communities (small cities, small towns, and rural areas). This 
provision, referred to as the 70/30 split, remains in place to date.
    By statute, 40 percent of the annual appropriation for HOME is 
allocated directly to States. In 24 CFR 92.201, the HOME program 
regulation requires that ``Each State participating jurisdiction is 
responsible for distributing HOME funds throughout the State according 
to the State's assessment of the geographical distribution of the 
housing needs within the State, as identified in the State's approved 
consolidated plan. The State must distribute HOME funds to rural areas 
in amounts that take into account the non-metropolitan share of the 
State's total population and objective measures of rural housing need, 
such as poverty and substandard housing, as set forth in the State's 
approved consolidated plan. To the extent the need is within the 
boundaries of a participating unit of general local government, the 
State and the unit of general local government shall coordinate 
activities to address that need.''
    Both of these block grant programs leave the distribution of the 
grant funds for small cities and rural areas to the individual States. 
Statutorily, each State has a broad discretion on how to prioritize the 
use of these funds. HUD continues to offer support to States, small 
cities, and rural areas that will help them discover areas with the 
highest level of need.
                         proposed rule for home
    Question. Mr. Secretary, I commended the Department's efforts to 
improve the monitoring of the HOME program following last year's 
criticism highlighting some unfortunate delays and mismanagement in an 
otherwise successful and cost-effective program. I am, however, 
concerned about the Department's proposed regulation to address these 
criticisms. The proposed HOME Program rules appear to have a 
disproportionate impact on rural HOME programs despite the fact that 
rural communities have dependably ranked as some of the most efficient 
and effective recipients of HOME program funding. I know my home State 
of Vermont has been awarded two HOME Program Doorknocker Awards and has 
consistently been ranked first among State-participating jurisdictions 
over the past 6 years based on their administration of the HOME 
program. And yet, the proposed regulation would make it difficult, and 
in some cases impossible, for rural communities to continue to use HOME 
funding.
    Of particular concern is the change in how Community Housing 
Development Organizations (CHDOs) are required to demonstrate capacity. 
The proposed rule would require CHDOs to have paid staff with 
development experience and will not allow them to rely on consultants 
to demonstrate capacity. This requirement will undoubtedly negatively 
impact small rural CHDOs who rely on small staffs and often 
partnerships with groups in the community with housing development 
experience.
    Additionally, the proposed changes to the set aside requirement 
changes the definition of ``sponsor'' in a way that would require the 
CHDO to be the sole general partner in a limited housing partnership. 
In Vermont this would be a significant problem as our CHDOs often are 
partners with Housing Vermont, a Statewide nonprofit syndication and 
development company.
    While I understand the intent of the proposed rule, I worry that 
the rule contains changes could have unintended consequences which 
could prove to be costly, duplicative or time-consuming especially for 
participating jurisdictions and States in rural areas with limited 
staff and resources.
    In preparing the proposed regulation how did the Department take 
into consideration the often unique circumstances facing rural 
communities using HOME funds and what steps were taken to ensure that 
this regulation would not negatively impact small rural communities?
    Answer. In preparation for the publication of the Proposed HOME 
Rule, the Office of Affordable Housing conducted ``Listening Sessions'' 
with both Statewide and local stakeholders. At the stakeholder meeting 
held with State agencies on January 14, 2010, HUD asked ``Do rural 
Participating Jurisdictions (PJs) have any particular comments or 
concerns about the administration of the HOME program?'' Several States 
provided input on the challenges experienced by CHDOs and expressed 
concern about the lack of capable CHDOs in rural areas. Many States 
expressed the opinion that most CHDOs could not be expected to 
undertake complex housing development due to their lack of capacity. 
Several suggestions addressed ways to provide CHDOs with more funding 
for operating costs (e.g., salaries for experienced staff), including 
monitoring fees, and different structures for developer fees. To 
mitigate some of those concerns, the Department has also made clear in 
the proposed rule that project-related soft costs can be paid for with 
HOME funds (e.g., underwriting, market analysis).
    In summary, with respect to the performance of CHDOs, and in 
particular, the performance of CHDOs in rural areas, the Department 
received input prior to rulemaking and public comments on the proposed 
rule regarding proposed changes to definitions and requirements related 
to CHDOs. HUD acknowledges the concerns raised by commenters, 
particularly regarding the effects of some of the provisions on rural 
areas. HUD has carefully considered these comments in drafting the 
final rule. The Department will provide technical assistance to PJs and 
CHDOs to help them meet the new requirements.
    Question. Will you commit to working with me and my staff to ensure 
that when a final rule is published by HUD later this year that 
accommodations for small, rural States and CHDOs are made?
    Answer. The Department has given careful consideration to the 
comments it received on the proposed rule, including comments regarding 
the effect of proposed changes on rural areas. The Department is 
confident that many CHDOs in rural areas will be able to increase their 
capacity in order to be in compliance with the Final Rule. The 
Department will offer several different types of technical assistance 
and examples of best practices that will assist States with rural areas 
and CHDOs in rural areas to modify their programs and build capacity in 
order to meet the new requirements of the HOME Final Rule. The new 
OneCPD Resource Exchange, https://www.onecpd.info/, will also provide a 
forum for CHDOs and States to engage in peer-to-peer assistance.
                                 ______
                                 
             Question Submitted by Senator Susan M. Collins
                     duplicative economic programs
    Question. The Government Accountability Office notes in its 2011 
follow up report on duplicative economic development programs that HUD, 
Commerce, SBA, and USDA have made minimal progress collecting data and 
assessing the effectiveness of their overlapping economic development 
programs. Further, HUD is the only agency of the four identified to not 
yet have taken steps to define common outcomes with other Federal 
agencies. I know that building collaborative relationships is an 
important goal of yours. What limits your ability to reach common goals 
and results with other agencies?
    Answer. HUD strongly agrees with the concept of collaboration, and 
it continues to work with other agencies to ensure that its grants are 
effective and useful to the communities they are meant to serve.
    HUD's core community and economic development program, the 
Community Development Block Grant program (CDBG), is distinct from 
programs administered by other agencies in both its objectives and 
design. It has a statutory requirement that grantees expend in excess 
of 70 percent of grant funds on activities that benefit low- and 
moderate-income persons. In addition, the CDBG authorizing language is 
clear that funding priorities and other decisions are to be made at the 
State and local levels; the program provides grantees with a high 
degree of flexibility to respond to local economic conditions with 
priorities tailored to meet those needs. As a result, many of the 
program's intended outcomes are unique from those of other Federal 
economic development programs. This has made it difficult to coordinate 
goals and results with other agencies. However, CDBG has been a major 
factor in allowing these other programs to be effective: Grantees 
regularly leverage CDBG funds with these other Federal grant programs 
and private resources to achieve common goals.
    Despite these differences, HUD, through the Office of Economic 
Development, has initiated collaborative discussions with several 
agencies administering economic development programs. These 
conversations are intended to provide information to HUD grantees to 
assist them in making strategic investments of block grant and 
competitive resources. HUD plans to disseminate information gained 
through these collaborative efforts using the OneCPD Resource Exchange 
Web site, the Department's new online portal designed to share news, 
events, resources, and information on all HUD Community Planning and 
Development programs.
    While, due to differences in program objectives and design, HUD may 
not be able to fully align CDBG with other Federal economic development 
programs, it does strongly believe that collaboration with other 
programs can help make sure that it is effective in building strong 
communities across America.
                                 ______
                                 
                Questions Submitted by Senator Roy Blunt
                             fha's solvency
    Question. As one of the only games in town, the Federal Housing 
Administration (FHA) continues to have a ballooning portfolio, well 
above the intended size. As the Administration's white paper proposes 
various reform options for the Government-sponsored enterprises (GSEs) 
Fannie Mae and Freddie Mac, how can the Department of Housing and Urban 
Development (HUD) ensure that FHA won't become the lender of last 
resort for home loans should the private market move slowly to fill the 
space where the GSE once operated?
    Answer. FHA plays a counter-cyclical role in the housing market, 
experiencing higher volume during times of market constriction and 
lower volumes when there is sufficient access to mortgage capital in 
the conventional market. Regardless of the market environment, FHA 
loans are typically 30-year, fixed-rate products and lenders 
originating these loans must follow FHA guidance in originating and 
servicing these loans. Since 2009, FHA has made significant changes to 
credit policy to ensure that future books of business continue to yield 
positive economic value to the fund. In addition, FHA has adopted a 
number of measures that hold lenders accountable for their actions, 
including, among others, rules that require lenders to indemnify FHA on 
loans found to be materially deficient. FHA is still seeking 
legislative authority to pursue indemnification and other heightened 
enforcement authority with respect to all FHA approved lenders. FHA has 
also enhanced its underwriting guidance and modified its automated 
mortgage scoring system to require more underwriter oversight of 
riskier loan applications. Finally, FHA's loss mitigation strategies, 
already considered among the strongest in the mortgage industry, have 
been further improved to protect both homeowners as well as FHA. Taken 
together, these actions are designed to ensure that creditworthy 
borrowers have a safe and affordable means of obtaining homeownership 
while at the same time encouraging only responsible lending on the part 
of FHA's approved mortgage lenders. As the economy continues to recover 
and FHA's counter-cyclical role becomes less critical, FHA and HUD will 
work with the broader administration and Congress on efforts to ensure 
that FHA's role in the market does recede and a stable, sustainable 
housing market evolves.
    Question. The administration's budget once again requests increases 
in MMI premiums to help strengthen the fund. While I'm encouraged by 
the increase in liquidity to protect against risk to the solvency of 
the fund, I question whether the already bloated portfolio will grow in 
2013 rather than shrink as your budget assumes. What steps are being 
taken to encourage private lenders to originate quality, non-FHA 
insured loans? How can HUD encourage the private market to provide home 
loans for minorities who disproportionately rely on FHA's Government 
guarantee?
    Answer. In February 2012, HUD announced an increase in both FHA 
annual and upfront mortgage insurance premiums, effective in April 
2012. The decision to adjust FHA premiums for the fourth time since 
2009 was made by balancing several factors--FHA's mission of providing 
access to credit for low wealth, creditworthy borrowers, the health of 
the Mutual Mortgage Insurance Fund and FHA's long-term role in the 
Nation's housing finance system. As a result of these premium 
adjustments, FHA has been able to continue to serve its countercyclical 
role in the mortgage market--providing access to credit to creditworthy 
borrowers during this time of market constriction--but has seen overall 
volume decline. According to Amherst Securities' June 14, 2012, Amherst 
Mortgage Insight Report, the composition of FHA loans in Ginnie Mae 
securities has actual declined. This is in large part because these 
pricing changes have made conventional loans more competitive; high 
FICO borrowers who may have chosen to take out an FHA-insured loan 
rather than a loan with private mortgage insurance are now finding the 
costs of private versus federally backed mortgage insurance more 
comparable. However, adjusting premiums is only one lever. Currently, 
FHA is the only federally backed institution able to originate high-
priced loans (loans above $625,500). As a result, borrowers seeking 
these ``jumbo'' loans only have one outlet--FHA. In its housing finance 
reform white paper, the Administration urged Congress to allow the 
higher loan limits to expire. Unfortunately, in November 2011, Congress 
elected to extend these limits for FHA while allowing the GSE loan 
limits to go back to pre-crisis levels. This does create a disincentive 
to originate non-FHA loans in some markets and so we would once again 
urge Congress to allow FHA loan limits to step back to the HERA levels.
                    government-sponsored enterprises
    Question. The future of Fannie Mae and Freddie Mac remain uncertain 
at this point but I am interested in hearing your views. What are your 
views about the future of Fannie and Freddie? If Fannie and/or Freddie 
continue to exist in some form, what are your views on reconciling the 
conflicting goals of private profits and public good? How important are 
the mortgage GSEs to carry out Federal housing policy?
    Answer. The administration is currently working diligently on a 
number of interagency projects set forth in the white paper that was 
published in February 2011, including a detailed exploration of the 
three options for the future of housing finance. Of those three 
options, the third one does provide considerations around maintaining 
some Government presence through a model that would serve as a back-
stop in the form of reinsurance behind significant layers of private 
capital at a guarantor level. Below is greater detail on the strengths 
and weaknesses of this third option. However, to be clear, the 
administration is still working with a number of stakeholders, 
including Members of Congress, to fully explore all three.
    At the same time, the administration is equally engaged on topics 
that directly involve the GSEs, such as the development of national 
servicing standards, a transition plan for the wind down of Fannie Mae 
and Freddie Mac from their current status and reducing the footprint of 
the Federal Housing Administration (FHA). It is important to remember 
that the FHA and GSEs continue to provide an important source of credit 
availability as Government and industry work collectively to reduce the 
barriers of uncertainty that block a robust return of private capital. 
Thus, while the administration supports decreasing the role of FHA, 
Fannie Mae, and Freddie Mac and re-invigorating the private market, we 
also believe that any approach must be measured and comprehensive to 
address the tensions your questions above elicit.
                              homelessness
    Question. In your testimony, you say that HUD and the VA have 
partnered for the past 2 years to make strides in ending veteran 
homelessness by 2015. While I appreciate the ambitious goal and the 
collaboration between these two agencies, how will your fiscal year 
2013 budget address the significant increase in homelessness for 
veterans in Missouri?
    Answer. HUD is aware that the number of homeless veterans in 
Missouri has increased from 529 veterans in 2009 to 853 veterans in 
2011 and is working hard to end veteran homelessness. Despite the 
significant current economic challenges, in the fiscal year 2011 
Continuum of Care competition, Missouri was awarded $27,371,596, an 
increase upon the $27,357,782 awarded in 2010. In 2012, HUD allotted 
100 HUD-VASH vouchers to the State of Missouri, doubling the number of 
HUD-VASH vouchers allotted to Missouri and bringing the total number of 
vouchers to 495 Statewide. HUD will continue to request funding in 
order to address the significant increase in veteran homelessness in 
Missouri and elsewhere.
    HUD is currently administering the $10 million Veterans Homeless 
Prevention Demonstration Program at five sites in collaboration with 
the Departments of Veterans Affairs and Labor. This is a 3-year 
demonstration designed to explore ways HUD can offer early intervention 
homelessness prevention for veterans--primarily veterans returning from 
the wars in Iraq and Afghanistan. While none of the sites for the 
demonstration is in Missouri, the lessons learned will be important in 
addressing the unique needs of these veterans and will support efforts 
to identify, reach, and assist them to regain and maintain housing 
stability. An evaluation of the program will also provide HUD with 
additional information to inform programs addressing means of 
preventing homelessness among veterans in the future. HUD expects to be 
able to provide preliminary results which will guide us in policy 
formation.
    Question. How does your budget ensure that those who have received 
assistance for adequate housing won't become homeless again?
    Answer. Performance metrics codified in the Homeless Emergency 
Assistance and Rapid Transition to Housing Act (HEARTH Act) of 2009 
require communities to be able to track length of homelessness, 
recidivism rates, and the number of persons experiencing homelessness 
for the first time. Under the HEARTH Act, additional funding is 
provided to communities to conduct planning and evaluation, including 
this performance measurement. HUD's fiscal year 2013 budget includes a 
request for the funds needed to continue the transition to the 
McKinney-Vento Homeless Assistance Act, as amended by the HEARTH Act. 
As communities receive the funds necessary to conduct these critical 
evaluations they will be able to better ensure that persons who enter 
the homeless system will be served with the most appropriate 
interventions to stabilize their housing and foster independent living.
    Question. Do you believe that there is enough emphasis placed on 
prevention and homebuyer education to prevent another crisis?
    Answer. In response to the recent economic crisis, the American 
Recovery and Reinvestment Act (ARRA) was enacted, which included the 
funding of the Homelessness Prevention and Rapid Re-housing Program 
(HPRP). Over 75 percent of the assistance provided with the $1.5 
billion allocation was used for homelessness prevention. HUD has used 
the lessons learned from HPRP in its drafting of the interim 
regulations for the Emergency Solutions Grant (ESG) program, a 
McKinney-Vento Homeless Assistance Act program amended by the HEARTH 
Act of 2009. As of fiscal year 2013, HUD will no longer have HPRP funds 
available to continue that program--to offset this loss, HUD is 
emphasizing the funding for the ESG program.
                     rural housing and development
    Question. Investing in rural communities is very important to me 
and my constituents. I realize there are common goals within HUD and 
USDA in this area and am interested in your views on how the two 
overlap in this space. The most recent GAO report acknowledges this 
overlap; however, it remains unclear whether the two agencies will 
continue to maintain similar but separate housing goals. How can HUD 
further protect rural America's needs as funding reaches the States and 
large urban areas?
    Answer. In fiscal year 2013, HUD will continue to fund programs 
that will directly support housing and economic development in rural 
communities. Small towns and rural communities across America are 
facing an acute need for more affordable housing, while also searching 
for sustainable economic development strategies that link rural housing 
to job centers. Recognizing the unique challenges in these 
decentralized areas, HUD continues to tailor its programs to provide 
rural communities with the resources they need to craft innovative 
solutions. While specific appropriations for programs in rural 
communities ended in 2011, HUD has continued to partner with rural 
communities with programs like Community Development Block Grants, HOME 
Investment Partnerships, and the Housing Choice Voucher Program (HCVP). 
It also directly supports homeownership in rural areas through FHA 
insurance for homeowners. HUD's field offices in rural communities 
continue to provide technical assistance resources and to link to other 
HUD programs and other Federal agencies. Moreover, HUD is committed to 
the development of the poorest areas in America, specifically Indian 
Country. Through programs like the Indian Housing Block Grant, HUD 
partners with rural American Indian and Alaska Native tribal 
governments to support efforts to create locally driven solutions to 
economic development challenges. Below, HUD outlines some of the 
current programs rural communities are using to address their housing 
and community development needs.
                   collaborations with other agencies
    HUD meets regularly with other agencies involved in housing through 
an interagency rental housing policy group to better align and 
coordinate the affordable rental housing programs each operates. The 
Rental Policy Working Group, created by the Domestic Policy Council and 
consisting of the Departments of Housing and Urban Development, 
Agriculture, and Treasury, has released proposals that will more 
efficiently align rental programs across Government agencies, including 
inspections, financial reporting, appraisals, energy efficiency 
standards, and fair housing compliance enforcement, among others. This 
working group has increased collaboration between the rural housing 
policies of HUD and USDA.
    One specific way HUD is working with other agencies is an effort to 
improve access to capital from private sources in isolated rural areas. 
The first step in this effort is the Border Community Capital 
Initiative (``Border Initiative'') is the first step in a collaborative 
effort among HUD, the Department of the Treasury's Community 
Development Financial Institutions Fund (CDFI Fund) and the Department 
of Agriculture--Rural Development (USDA-RD). The Initiative's goal is 
to increase access to capital for affordable housing, business lending 
and community facilities in the chronically underserved and 
undercapitalized United States/Mexico border region. Specifically, it 
will provide direct investment and technical assistance to community 
development lending and investing institutions that focus on affordable 
housing, small business and community facilities to benefit the 
residents of colonias. The United States Code defines a colonia as a 
community that (1) is in the State of Arizona, California, New Mexico, 
or Texas; (2) is within 150 miles of the United States-Mexico border, 
except for any metropolitan area exceeding 1 million people; (3) on the 
basis of objective criteria, lacks adequate sewage systems and lacks 
decent, safe, and sanitary housing;
    HUD, USDA-RD and the CDFI Fund have all identified lack of capacity 
among organizations serving the colonias and similar persistent poverty 
communities as a limiting factor in the effectiveness of Federal 
programs. Organizations specializing in affordable housing, small 
business support, and community facilities cannot sustain themselves 
and grow. The Border Initiative focuses on using each agency's 
resources to effectively improve these organizations, empowering them 
to improve colonias communities. Depending upon the programmatic 
lessons of the Border Initiative and availability of resources, the 
agencies hopes to adapt this collaborative approach to improving 
capital access in other rural regions.
                       on-going rural assistance
    Beyond targeted efforts to alleviate housing and development issues 
in rural America, HUD serves families in small towns and rural 
communities through almost every major program it funds. While many 
think of HUD programs as mainly for urban communities, HUD supports 
communities across the country.
  --In 2012, the State Community Development Block Grant (CDBG) program 
        provided approximately $882 million to rural areas, supporting 
        over 25,000 jobs both directly and indirectly, providing needed 
        infrastructure, economic development, and affordable housing. 
        The State of Missouri received over $20 million of CDBG funding 
        for rural areas.
  --HUD also provided almost $400 million in rural areas in 2012 for 
        affordable housing and homeownership programs through its HOME 
        Investment Partnership program, directly and indirectly 
        supporting over 5,360 jobs. The State of Missouri received over 
        $9 million of HOME funding for areas outside of large 
        metropolitan areas.
  --Altogether, over 800,000 families in rural communities are directly 
        assisted through the Housing Choice Voucher Program, Public 
        Housing, and Multifamily programs.
  --For homeowners, HUD's Federal Housing Administration (FHA) helps 
        first-time homebuyers and other qualified families all over the 
        country purchase their own home. More than 1.5 million of the 
        homes currently insured by the FHA are in rural areas, and 
        approximately $545 million in current FHA loans are to rural 
        healthcare facilities designated as ``critical access 
        hospitals.'' HUD recognizes the unique challenges in these 
        rural areas, and continues to develop innovative, community-
        based programming to meet those needs.
                       homeless assistance grants
    According to HUD's most recent Annual Homeless Assessment Report, 
the number of people using homeless shelter in suburban and rural areas 
has increased 57 percent since 2007. Suburban and rural homelessness 
makes up 36.2 percent of the total homeless population in America. The 
reason for this increase is unclear. However, with the Federal 
Government's commitment to the Federal Strategic Plan to End 
Homelessness, it is crucial that the Department confront this growing 
problem.
    On May 20, 2009, President Obama signed the Homeless Emergency 
Assistance and Rapid Transition to Housing (HEARTH) Act, which includes 
the establishment of the Rural Housing Stability Assistance Program 
(RHSP) within HUD's Homeless Assistance Grants program. RHSP is 
designed to assist individuals and families who are homeless, in 
imminent danger of losing housing, or in the worst housing situations 
in rural communities. In 2013, HUD is requesting $5 million for the 
Rural Housing Stability Assistance program. These grant funds will be 
awarded outside of the existing Continuum of Care competition and will 
introduce activities that have not historically been available through 
HUD's homeless assistance programs. For example, if someone's house is 
uninhabitable, RHSP funds can be used to make repairs, preventing that 
individual from becoming homeless.
    In addition to this focused RHSP initiative, rural communities will 
continue to have access to HUD's targeted homeless assistance, through 
the Continuum of Care competition grant and the Emergency Shelter Grant 
(ESG) program. Rural areas have increasingly gained access to HUD's 
competitive homeless assistance grants, primarily through the creation 
of Balance of State and Statewide Continuums of Care, with funds 
allocated directly to the State to assist areas not currently in 
Continuums of Care. In 2012, the State of Missouri received over $2.5 
million to fight homelessness in non-urban areas. In 2011, the 
Continuum of Care competition included a selection priority for new 
projects proposing to serve 100 percent rural areas and an additional 
41 projects in rural areas received funding, resulting in nearly $16 
million for new projects in rural areas.
      american indian, alaska native, and native hawaiian programs
    As the single largest sources of funding for housing on Indian 
tribal lands, HUD initiatives in Indian country continue to provide 
crucial resources to America's poorest communities. Programs like 
Indian Housing Block Grants, Indian Home Loan Guarantees, and Indian 
Community Development Block Grants support development in remote areas 
where safe, affordable housing is desperately needed. HUD also directly 
supports housing and economic development initiatives in remote areas 
of Hawaii, through the Native Hawaiian Housing Block Grant Program and 
Native Hawaiian Loan Guarantee Program. HUD recognizes the right of 
Indian self-determination and tribal self governance by allowing the 
recipients the flexibility to design and implement appropriate, place-
based housing programs according to local needs and customs. All 
together, in fiscal year 2013, HUD is requesting $731 million to fund 
programs that will support housing and development in American Indian, 
Alaska Native, and Native Hawaiian communities, which will directly and 
indirectly support over 14,000 jobs.
                  sustainable housing and communities
    Recognizing the strong demand among communities for help in 
connecting economic development with future infrastructure and housing 
investments, HUD established the Office of Sustainable Housing and 
Communities (OSHC) in 2010. Its mission is to both directly assist 
those communities looking for assistance in planning for sustainable 
growth and to infuse sustainability into HUD policies and programs. HUD 
has found that the demand for planning assistance is strong in rural 
areas as they attempt to plan for a sustainable future. Through 
partnerships with other Federal agencies to align resources and reduce 
barriers, HUD has developed the Sustainable Communities Initiative 
(SCI) to provide incentives to encourage communities of all shapes and 
sizes to use sustainable planning and development strategies. SCI 
funding includes special funding categories for smaller communities. In 
2011, over 40 percent of the OSHC Community Challenge Grants went to 
communities with populations below 50,000. In fiscal year 2013, HUD is 
requesting $100 million in SCI funding within the Community Development 
Fund, of which a portion will once again be designated for small- and 
mid-sized communities.

                          SUBCOMMITTEE RECESS

    Senator Murray. This hearing is recessed until Thursday, 
March 8, at 10 a.m., at which time we will hear testimony from 
the acting FHA Commissioner, Carol Galante, on the Federal 
Housing Administration.
    [Whereupon, at 10:33 a.m., Thursday, March 1, the 
subcommittee was recessed, to reconvene at 10 a.m., Thursday, 
March 8.]
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