[Senate Hearing 112-101]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-101


 LEGISLATIVE PROPOSALS IN THE UNITED STATES DEPARTMENT OF HOUSING AND 
              URBAN DEVELOPMENT'S FISCAL YEAR 2012 BUDGET

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

                                HEARING

                               before the

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

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   ON

EXAMINING THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT'S FISCAL YEAR 
                              2012 BUDGET

                               __________

                              MAY 5, 2011

                               __________

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


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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia             MARK KIRK, Illinois
JEFF MERKLEY, Oregon                 JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado          ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina

                     Dwight Fettig, Staff Director

              William D. Duhnke, Republican Staff Director

                       Charles Yi, Chief Counsel

                 Erin Barry, Professional Staff Member

                 Beth Cooper Professional Staff Member

                   Brett Hewitt Legislative Assistant

            Chad Davis, Republican Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                     William Fields, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)












                            C O N T E N T S

                              ----------                              

                         THURSDAY, MAY 5, 2011

                                                                   Page

Opening statement of Chairman Johnson............................     1
    Prepared statement...........................................    18

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     2

                                WITNESS

Shaun Donovan, Secretary, Department of Housing and Urban 
  Development....................................................     3
    Prepared statement...........................................    18
    Responses to written questions of:
        Chairman Johnson.........................................    33
        Senator Schumer..........................................    34
        Senator Akaka............................................    35
        Senator Kohl.............................................    36

                                 (iii)

 
 LEGISLATIVE PROPOSALS IN THE UNITED STATES DEPARTMENT OF HOUSING AND 
              URBAN DEVELOPMENT'S FISCAL YEAR 2012 BUDGET

                              ----------                              


                         THURSDAY, MAY 5, 2011

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:05 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Tim Johnson, Chairman of the 
Committee, presiding.

             OPENING STATEMENT OF CHAIRMAN JOHNSON

    Chairman Johnson. I will now call the Committee to order. I 
am pleased to once again welcome HUD Secretary Shaun Donovan to 
the Committee to discuss the Administration's budget request 
and HUD's legislative agenda.
    Secretary Donovan, you come to us at a challenging time. 
Our families and our State and local government partners 
continue to struggle during this economic downturn. HUD 
administers programs that aim to provide access to quality, 
affordable, and safe housing for homeowners and renters. These 
programs often provide a needed lifeline to our most vulnerable 
citizens, and in today's economy they are more important than 
ever.
    Far too many American families and communities still face 
the threat of foreclosure, and millions more have seen their 
property values fall in a fragile housing market. And although 
it may seem counterintuitive, housing has become less 
affordable for lower-income families even as housing values 
have plummeted. Recent studies by your Department have shown 
dramatic increases in worst-case housing needs among very low 
income earners and even homelessness among families.
    As you know, as you saw during your visit to South Dakota 
last year, many tribal communities continue to struggle with a 
shortage of economic opportunities and a lack of housing 
choices. As their need for affordable housing rises, HUD and 
local providers face increasing difficulties in preserving the 
resources we have due to aging buildings and expiring 
affordability contracts. Meanwhile, States and local 
governments are slashing services and job-creating investments.
    As the country faces these daunting challenges, the Federal 
Government must ensure that we make wise investments and 
preserve important programs that help those most in need, and 
at the same time we must also be mindful of our budget 
constraints and be certain that we get the most value for our 
dollar.
    These times make the effective use of Federal housing and 
community development resources all the more important. As you 
have said, you have made a number of hard choices in your 
fiscal year 2012 budget, cutting funding for several programs 
that you otherwise support in order to meet to these fiscal 
goals. I am concerned, as you may be, that the number of these 
cuts could halt our progress in addressing the needs of 
citizens. But your budget also contains a number of proposals 
intended to increase HUD's effectiveness, including those to 
improve HUD's administration and oversight of $48 billion in 
programs, strengthen the management and financial standing of 
the FHA insurance programs as they provide critical 
countercyclical financing to the housing market, empower 
communities, provide new tools to help create and preserve 
public and assisted housing, and streamline our public housing 
and Section 8 programs to make them more effective for grantees 
and families.
    HUD provides vital resources for millions of Americans who 
struggle to meet one of our most basic needs: a safe place to 
live. As we continue to debate the budget and tackle the 
deficit, we cannot afford to leave Americans out in the cold. I 
look forward to our discussion of your proposals during today's 
hearing.
    I will now turn to Senator Shelby for any opening remarks 
he may have.
    Senator Shelby.

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman.
    Welcome to the Committee again, Secretary Donovan. You have 
a tough job. We all know that.
    Our Nation's debt, as the Chairman has alluded to, is on an 
unsustainable path. We all know this. At the end of 2008, our 
Nation's debt stood at $10 trillion. Today, not even 3 years 
later, that debt is $14.3 trillion. Even worse, CBO estimates 
that our total national debt will be nearly $27.6 trillion by 
2021. Think of that--$27.6 trillion.
    Ironically, the Office of Management and Budget declares on 
its Web page that the President's budget ``puts the Nation on a 
path to live within our means.'' I wish that were true. 
Unfortunately, while the President talks of living within our 
means, his budget produces a different result. The HUD budget 
is a good illustration.
    Secretary Donovan states in his prepared testimony that the 
Administration's budget ``reflects the need to ensure that we 
are taking responsibility for our country's deficits.'' Yet 
HUD's own summary of the budget states that the Department's 
gross spending will increase by $900 million for 2012.
    HUD's net level, as that is called, of spending, however, 
will apparently fall by $1.1 billion. Very interesting. It 
appears that HUD arrives at this figure by offsetting the total 
spending numbers with $6 billion in fees that are to be 
collected by FHA and Ginnie Mae. It was my understanding always 
that these fees were supposed to be used to ensure the safety 
and soundness of these two entities. It appears that they are 
being used to offset the cost of programs elsewhere in the HUD 
budget. I hope I am wrong.
    While this is a new concept in Government accounting--this 
is not a new concept in Government accounting. We are going to 
have to be honest with the American people and with ourselves 
about what we are actually spending if we are serious here in 
the Congress about getting our debt under control. I think we 
must find a way to curtail our spending if we can ever hope to 
restore our Nation's long-term health.
    I look forward to hearing from Secretary Donovan today on 
how HUD can tighten your belt while contributing to essential 
services that we need in the housing area.
    Thank you, Mr. Chairman.
    Chairman Johnson. Secretary Donovan, please proceed.

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

    Secretary Donovan. Thank you, Chairman Johnson, Ranking 
Member Shelby, and Members of the Committee, for the 
opportunity and for your partnership, which I was reminded of 
again this past weekend as I joined other members of President 
Obama's Cabinet to tour the devastation wrought by the recent 
tornadoes. As I prepare to return to the region next week, I 
want to assure you, Senator Shelby, and the four other Members 
of the Committee from affected States that I will do everything 
in my power as HUD Secretary to ensure this Administration 
makes the lives of displaced families whole again.
    Today I come before the Committee to discuss the 
investments HUD's fiscal year 2021 budget proposal calls for to 
help America win the future by out-educating, out-innovating, 
and out-building our competitors. I will also highlight the 
steps our proposal takes to improve how we operate HUD's 
programs and the tough choices it makes to ensure we take 
responsibility for our deficits.
    Obviously, our fiscal year 2012 proposal was developed 
before the continuing resolution for this fiscal year was 
passed by Congress and signed into law by President Obama. 
Although the cuts in this agreement were necessary to ensure we 
live within our means and keep the Government running, the 
President noted that the CR contained real cuts that will have 
real impact on services and people who rely on them. Indeed, I 
believe the President's 2012 budget strikes an appropriate 
balance between the need to reduce spending and preserve 
critical services for Americans.
    Mr. Chairman, in developing our 2012 proposal, we followed 
three principles to help us strike this balance.
    The first is to continue our support for the housing market 
while bringing private capital back. Two years ago, with the 
housing market collapsing and private capital in retreat, the 
Administration had no choice but to take action. The critical 
support FHA provided has helped over 2 million families buy 
homes since that time, and nearly 1.5 million homeowners 
refinanced into stable, affordable products with average 
monthly savings exceeding $100.
    And while FHA and Ginnie Mae will continue supporting the 
housing recovery in the year ahead, we also must help private 
capital return to the market. This is a process that HUD began 
many months ago, and I want to thank Congress for passing 
legislation in the last session to reform FHA's mortgage 
insurance premium structure. With this authority, FHA increased 
premiums by 25 basis points last month. Because of these 
reforms and others, FHA is projected to generate $9.8 billion 
in receipts for the taxpayer in fiscal year 2011.
    Indeed, the reforms that are generating these receipts 
today have set the stage for more private capital that will 
return in the years to come while ensure that FHA remains a 
vital source of financing for underserved borrowers and 
communities. And while HUD's fiscal year 2012 request is $47.8 
billion in gross budget authority, because of FHA and Ginnie 
Mae receipts, the cost to the taxpayer for this budget is only 
$41.7 billion. This is consistent with the President's proposal 
to bring nonsecurity discretionary spending to the lowest share 
of the economy since President Eisenhower.
    The second principle we used to develop our budget was to 
protect current residents and improve the programs that serve 
them. While the median income of American households today is 
over $50,000, for households who live in HUD assisted housing 
it is $10,200 per year, and more than half are elderly or 
disabled. At the same time, having seen from 2007 to 2009 the 
largest increase in the history of HUD's Worst Case Housing 
Needs survey, it is clear that the recession hit these families 
hard. That is why 80 percent of our proposed budget 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.
    Because the cost of serving the same families grows each 
year, protecting existing families in our programs required us 
to make tough choices with the remaining 20 percent of the 
budget, including the decision to reduce funding from 2010 
levels for the community development block grant, HOME 
Investment Partnerships, and new construction for HUD-supported 
housing programs for the elderly and disabled. I saw for myself 
as a local housing official the difference these funds can 
make, supporting senior housing, Boys and Girls Clubs, YMCAs, 
and other providers of critical community services. These cuts 
are significant, but with American families tightening their 
belts, we need to do the same.
    I would note that this budget provides $88 million for the 
Housing Counseling Program, which was eliminated in the 
continuing resolution. This cut was particularly painful to 
responsible homeowners in neighborhoods around the country 
struggling to keep their homes, and restoring it reflects the 
President's call to make tough cuts to reduce our deficit 
without sacrificing the core investments we need to grow our 
economy.
    At the same time, this budget makes a strong commitment to 
doing more of what works and to stop doing what does not. By 
including provisions of the Section 8 Voucher Reform Act in the 
budget, we will simplify and streamline the voucher program and 
save $1 billion for the taxpayer over the next 5 years while 
supporting the ability of public housing authorities in small 
towns and rural areas to better serve the working poor.
    Indeed, thanks to Senator Reed's and the Committee's 
leadership passing the HEARTH Act, the budget funds a new rural 
housing stability program that reflects the unique and growing 
needs in those communities. This budget also holds our partners 
accountable for the funding they have received from HUD. To 
fully fund the Public Housing Operating Fund, we require public 
housing authorities with excess reserves to contribute $1 
billion. These resources were set aside so that our PHAs could 
continue operating during a rainy day, and I think we would all 
agree that rainy day is here.
    These efforts point to a commitment expressed through our 
Transformation Initiative to improving HUD's programs. TI funds 
are replacing data systems in our largest program, Housing 
Choice Vouchers, that date from the early 1990s, so we can hold 
PHAs accountable for managing to their budgets, just like 
families and businesses are doing across the country. The 
flexibility TI provides has also allowed us for the first time 
to offer technical assistance across all our community planning 
and development programs and launch a new initiative to improve 
the financial management and accountability of troubled housing 
authorities. And by support research evaluation and program 
demonstrations, TI improves HUD's own accountability by 
identifying what we do well and what we need to do better. 
These needed reforms allow us to propose increased investment 
in programs we know work, like the HUD-VASH program for 
homeless veterans. This effort is built on a solid body of 
evidence that permanent support of housing both ends 
homelessness and saves money for the taxpayer by putting an end 
to the revolving door of emergency rooms, shelters, and jails.
    As such, this budget would increase funding for homeless 
programs by more than 25 percent over 2011 to keep the 
President's commitment to opening doors, the first Federal 
strategic plan to end homelessness, which the Administration 
unveiled last June to end chronic and veteran homelessness by 
2015 and homelessness among families and children by 2020.
    Our third and final principle for developing this budget is 
to continue critical initiatives that have been part of our 
budget for the last 2 years, but in this fiscal climate to 
propose no new initiatives. The President has made clear that 
winning the future depends on America winning the race to 
educate our children, but that is not possible if we are 
leaving a whole generation of children behind in our poorest 
neighborhoods. That is why I would like to thank Senator 
Menendez for working with us on the Choice Neighborhoods 
Initiative, which was funded in the CR, and we again propose 
funding in fiscal year 2012. Choice Neighborhoods will allow 
communities to use the mixed use, mixed finance tools pioneered 
by Secretaries Jack Kemp and Henry Cisneros with the HOPE IV 
program to transform all federally assisted housing in a 
neighborhood.
    Similarly, ensuring that America out-builds our competitors 
requires us to protect and preserve public housing for the 
future. Right now we are losing 10,000 units from our public 
housing stock every year. At the same time there are billions 
of dollars of private capital sitting on the sidelines that 
could be put to work--that could put tens of thousands of 
construction workers to work rebuilding this housing. That is 
why, Mr. Chairman, we have proposed a $200 million 
demonstration to preserve up to 255,000 public housing units 
using long-term project-based rental assistance contracts.
    As we have seen in the Section 8 program and the low-income 
housing tax credit, opening up these properties to private 
capital not only brings new funding to affordable housing, but 
also a new sense of discipline that extends from the way these 
properties are financed to the way they are managed.
    Last, Chairman Johnson, American businesses large and small 
cannot out-innovate their competitors when their workers spend 
52 cents of every dollar they earn on housing and 
transportation combined, and moving products on our roads costs 
5 times as much wasted fuel and time as it did 25 years ago. 
That is why we request another $150 million for our 
Sustainability Communities Initiative, building on funding 
provided in 2010 and 2011.
    Instead of Federal one-size-fits-all rules that tell 
communities what to do, this initiative is helping regions and 
communities develop comprehensive housing and transportation 
plans that create jobs and economic growth. With help from a 
$3.7 million grant from HUD, Austin, Texas, estimates it will 
create more than 7,000 permanent jobs, generating an additional 
$1.1 billion of economic growth over the next 5 years and 
saving the taxpayer $1.25 billion.
    The potential of these innovations explain why the 
extraordinary demand for our grant program was not just coming 
from our largest metro areas. Indeed, over half of our regional 
grants were awarded to rural regions and small towns. And so, 
Mr. Chairman, HUD's fiscal year 2012 budget proposal is not 
just about spending less; it is also about investing smarter 
and more effectively. It is about out-educating, out-building, 
and out-innovating our competitors. It is 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 is about the results we deliver for the 
people and places who depend on us most.
    For HUD, winning the future starts at home, and with this 
budget I respectfully submit of targeted investments and tough 
choices, we aim to prove it. Thank you.
    Chairman Johnson. Thank you, Mr. Secretary.
    Would the clerk place 5 minutes on the clock?
    As I mentioned earlier, you visited South Dakota with me 
and saw firsthand the housing challenges facing Indian country. 
I appreciate your visit and your focus on these needs.
    I would like to ask you about the speed of HUD's Indian 
Housing Block Grant distribution. HUD issued an interim fiscal 
year 2011 funding notice to tribes on January 27, 2011. At 
present, many of our tribes have not received the full fiscal 
year 2011 funding. Some tribes have halted housing development 
and others have started to eliminate staff.
    What is the Department doing to speed up the distribution 
process to ensure tribes will receive their full allocation of 
fiscal year 2011 IHBG program funding at the earliest possible 
moment?
    Secretary Donovan. Senator, obviously the delay in 
approving a 2011 budget about half of the way into the fiscal 
year has had significant impacts not only on tribes but on 
recipients of HUD funding across all of our programs. We have 
moved, now that the 2011 budget is in place, to accelerate the 
way that we are rewarding that funding. In fact, one of the 
things that we have learned with new processes we have put in 
place under the Recovery Act, where we are 5 months ahead of 
targets that we set for distributing the money, as you know, 
tribes across the country have used that money effectively and 
quite quickly relative to grants in the past. We have taken the 
team that developed all of the implementation around the 
Recovery Act and assigned them to accelerate our regular 
funding and NOFA processes.
    And so we expect to be able to distribute much more quickly 
this year the Native American Block Grants, and we would be 
happy to sit down with you and your staff to give you details 
of exactly when we expect that to happen based on the last few 
weeks of work that we have done since the budget was resolved.
    Chairman Johnson. Good. Mr. Secretary, your request 
includes $88 million for HUD's Housing Counseling Program. As 
you know, this program was not funded in fiscal year 2011. Is 
HUD's Housing Counseling Program still an important use of 
Federal dollars?
    Secretary Donovan. Absolutely, and I mentioned this 
specifically in my testimony. What we have seen is that housing 
counseling has always had a benefit to homeowners, but 
particularly through this crisis that we have seen, the 
importance of housing counseling has increased substantially. 
The Urban Institute recently did a study that showed that 
homeowners that are in difficult times with their mortgages are 
70 percent less likely to be foreclosed on if they receive 
counseling. We have also seen from other studies that 
homeowners who purchase homes with counseling are more likely 
to be successful in being able to stay in those homes.
    So this is an investment, given the impact that the housing 
crisis had on the economy more broadly, given the number of 
families still struggling to make their payments with 
unemployment, we think this is absolutely the wrong time to 
eliminate funding for housing counseling.
    I would also note some have said, well, there is a program 
for NeighborWorks in the budget as well that continued to get 
funding in 2011. I think the key point here is that that only 
meets a portion of the needs out there. For example, beyond 
just the families who are struggling to pay their mortgages, 
seniors who are interested in using our reverse mortgage 
program are required to have counseling. That counseling was 
paid for through HUD's appropriation. There is no other source 
of funding. And now that expense will fall on seniors.
    So we expect that as of October 1 with this cut that there 
are many agencies around the country that will not be able to 
provide funding, that there are approximately 70,000 homeowners 
who we will not be able to reach without the funding in 2011 
that we were hoping for. And so it is absolutely critical that 
in 2012 we restart this funding.
    Chairman Johnson. While there has been a justifiable focus 
on the growth of FHA's single-family loan volume, it is often 
overlooked that FHA's multifamily loan volume has quintupled in 
recent years. Mr. Secretary, can you describe some of the 
actions you are taking to ensure the ongoing integrity of the 
multifamily programs? Also, what does the growth in FHA's 
volume say to you about the multifamily housing access to 
capital?
    Secretary Donovan. I appreciate your asking this question 
because it is often overlooked, given the crisis that we had in 
single-family, how important the FHA programs have been to the 
continuation of the multifamily market, and you are exactly 
right in terms of the increases that we have seen in our FHA 
multifamily programs.
    We have applied many of the same tools in the multifamily 
programs that we have on the single-family program. The fact 
that we appointed FHA's first ever chief risk officer created a 
whole set of tools to track and monitor the defaults in the FHA 
portfolio, the delinquencies, and have as a result of that made 
a number of changes in the underwriting criteria for these 
programs, changing many, many components of the underwriting 
terms such as the loan-to-value ratios and a range of other 
things that have improved the performance of these programs.
    What I would note, however, is that unlike on the single-
family side, multifamily programs have performed relatively 
well through the crisis. At the GSEs, the multifamily programs 
did not contribute to their collapse, and we continue to see 
even through our most recent numbers the multifamily programs 
at HUD being profitable. While they are much smaller and do not 
contribute nearly as much as the single-family side to the $9.8 
billion in receipts we expect, net receipts we expect this 
year, they have continued to be profitable, and they are a 
critical source. As we have seen rents rise, vacancy rates 
decline in the rental stock, it is absolutely critical we 
continue to have a source of financing available as we work our 
way through this crisis.
    Chairman Johnson. Senator Shelby.
    Senator Shelby. Thank you, Mr. Chairman.
    Secretary Donovan, I like--and we have had these 
conversations, some of it, before, getting the private access 
and private capital, because there is a lot more out there.
    Secretary Donovan. Yes.
    Senator Shelby. And any time we can access capital by 
putting prime in the pump, putting some money in and, say, 
accessing two-thirds more or something like that, I think we 
are making big progress. I think you do, too. Would you expand 
just a little bit on what you were talking about, the program 
of getting into the private capital and how you are doing this? 
I guess in many ways, but----
    Secretary Donovan. Absolutely. I think public housing is 
the single most important example of this. Public housing is 
the only form of affordable housing in the entire country today 
that has these very difficult barriers to accessing private 
capital. It is really only in the HOPE VI program and very 
limited other examples--Choice Neighborhoods--where public 
housing is able to access low-income housing tax credits, other 
private capital, and other public capital, as well. And the 
result of that, as I said in my testimony, is not just that we 
are losing 10,000 units of public housing a year, but what we 
also see is that, too often, public housing is cutoff from the 
neighborhoods that surround it and cutoff from opportunity.
    Just to give you an example from my prior life, we tried to 
bring grocery stores into public housing. We tried to bring new 
development onto public housing land, mixed-income housing, 
senior housing that would help those who had raised their kids 
in public housing and now needed more support in smaller units, 
and it was like banging our heads against the wall too often, 
frankly, Senator, to try to bring those tools to public 
housing.
    And so it is time that the Federal Government got out of 
the way and allowed many of the entrepreneurs in local 
communities who have, despite some of these restrictions, done 
some very creative things, to let them do that. That is why we 
have a proposal, a demonstration in our budget that would allow 
over 250,000 units through some fairly simple legislative 
changes to change the way that that land is owned, to allow the 
deeds of trust to change, and to change the way we fund public 
housing.
    Right now, we supply capital funding and operating funding 
and we are really the only source of funding that can support 
those units. By changing it to an operating subsidy, very 
similar to the way Section 8 works, project-based Section 8 
with all other owners, we would allow public housing 
authorities to be able to access all of these other sources of 
capital. We estimate there is $25 billion of private capital 
sitting on the sidelines that could create hundreds of 
thousands of jobs in construction starting today if we could 
unlock that capital.
    Senator Shelby. Do you need statutory changes there?
    Secretary Donovan. We have very limited authority to do 
this and we are expanding ways that we can do this with 
existing authority, but it----
    Senator Shelby. Will you give that to this Committee?
    Secretary Donovan. Absolutely. But we are proposing in the 
budget a demonstration which would be legislative----
    Senator Shelby. OK.
    Secretary Donovan. ----that would increase by roughly ten 
times the number of units that we could reach.
    Senator Shelby. Would you crystalize that and get it to the 
Committee, if you have not already, and get it at least to me 
and the Chairman----
    Secretary Donovan. Absolutely.
    Senator Shelby. Would you do that?
    Secretary Donovan. Happy to do that.
    Senator Shelby. I want to get into something else, if I 
could. Cost savings is what we are talking about, trying to do 
more. According to the Cato Institute, the amount of money we 
currently spend on subsidizing affordable housing is enough to 
pay 100 percent of the rent for every family in this country 
earning less than $22,000 a year. Clearly, some changes could 
be made to ensure that we are helping the greatest--I think 
that is your goal--the greatest number of needy families in the 
most efficient, cost saving manner possible. What steps has HUD 
taken in this area, to reduce the cost while increasing the 
efficiency of its housing programs? That is a tough job to 
turn.
    Secretary Donovan. Very important, but, look, this is--as a 
former customer of HUD's, if I could put it that way----
    Senator Shelby. OK.
    Secretary Donovan. ----I have seen that we have too many 
programs with conflicting rules. There are too many places 
where we require housing authorities or owners to comply with 
or use systems or other things that, frankly, are not 
efficient. And so I would really point to two things that are 
critical.
    One is we have proposed and have worked with this Committee 
on a bill we call SEVRA, the Section 8 Voucher Reform Act. And 
just to give you one specific example, we have, as I said in my 
testimony, over half of our residents are elderly or people 
with disabilities. They tend to be on fixed incomes. Eighty-
eight percent of them have exactly the same income year after 
year, and yet we require recertification of 100 percent of our 
residents each year. SEVRA would allow us on a risk basis to 
say, well, these are residents who are much more likely to have 
an income change. We should target them for annual 
recertification. But others--seniors, for example--we know it 
is much less likely. So if we go to every 2 years--we have done 
the analysis--the impact of that is a savings of a couple 
hundred million dollars alone in 1 year.
    Senator Shelby. That makes sense.
    Secretary Donovan. So SEVRA, if we could get it passed, 
either part of the budget process or separately, in a separate 
bill, and I am hopeful that we could, that is a billion dollars 
in savings over 5 years, simply by making it easier for folks 
to run our programs. And it would also in rural areas help us 
serve more families, working poor families.
    Senator Shelby. Who would be against that improvement? Do 
you know who----
    Secretary Donovan. Well, we came very close to getting it 
done at the end of last year and there seemed to be very broad 
support----
    Senator Shelby. OK.
    Secretary Donovan. ----for the provision. There was some 
argument about, I think, very minor provisions in it, but I 
would be hopeful we could get that done.
    Senator Shelby. Yes.
    Secretary Donovan. A second example I would use, we asked 
for and got flexibility from the Appropriations Committee to 
invest more in what we call our Transformation Initiative. It 
is investing in the systems, antifraud systems, fraud detection 
systems in public housing that will also allow us to save 
significant dollars, I think, as well.
    Senator Shelby. That is good. One more question. One of the 
criticisms of our current housing finance system is that it 
encourages borrowing and accumulation of debt rather than the 
building of equity. I know that is what we need, is equity. 
Some scholars have proposed that a better way to encourage 
responsible home ownership is for the Federal Government to 
stop subsidizing mortgage rates and instead help potential 
homeowners build their finances for a down payment. I do not 
know exactly how that would work, if it did. What is your view 
of shifting subsidies away from encouraging borrowing and 
toward programs that help them build equity in their homes? I 
would have to see the mechanics myself, but that is the 
concept.
    Secretary Donovan. I think it is clear from the crisis that 
we have been through, and we made this very clear in our white 
paper that we did with Treasury on housing finance reform, that 
we have spent too much money subsidizing what often did not get 
to borrowers even because what we did was to have an indirect--
an implicit rather than explicit guarantee and did not have a 
system with Fannie and Freddie that made sure that those 
benefits made it to the taxpayer. And we support limiting the 
risk to taxpayers in the future system.
    We do think there is a role through FHA for a targeted 
guarantee. We have a number of proposals of other ways a 
guarantee might be used to ensure in a crisis that we have 
adequate financing and that rates remain stable and affordable. 
But I do think that there is more we could do to shift funding 
toward building equity.
    One proposal that we have, and I know Senator Reed has been 
a champion of this, is that rather than having the mixed 
incentives of goals, which did not accomplish what they were 
intended to do under Fannie and Freddie in too many cases, we 
have an explicit funding source that would supply down payment 
assistance and support to rental housing through a dedicated 
stream of financing. The trust fund, National Housing Trust 
Fund, was one way to do that under the prior system. We think 
there needs to be some much more explicit targeted source of 
support that does not mix incentives the way that the goals did 
in the prior system.
    Senator Shelby. Thank you, Mr. Chairman.
    Chairman Johnson. Senator Reed.
    Senator Reed. Thank you very much, Mr. Chairman, and thank 
you, Mr. Secretary, for your great leadership.
    Secretary Donovan. Thank you.
    Senator Reed. Let me ask you about the Family Self-
Sufficiency Program. That is something I note that you have 
included in your budget. It is something that my local housing 
advocates think is very, very strong. I know you have one of 
the great advantages in this job of having been, as you 
describe it, both a consumer of HUD services, now a provider of 
HUD services, so you can comment on many perspectives. We are 
working on a proposal, together with your colleagues, to help 
improve this program. If you might comment on the proposal and 
your views of where we should go.
    Secretary Donovan. Yes. Senator, I want to congratulate you 
on the proposal. I am a big fan of FSS, or Family Self-
Sufficiency, and the reason is it is just a smart approach. Too 
often, we focus on the short-term and do not think about how 
our programs can help support self-sufficiency and reach the 
ultimate goal of families who can work getting jobs, becoming 
independent, and graduating from the programs, if you will, and 
making space for those that are on the waiting lists elsewhere. 
It just makes sense for everyone to do more of that.
    The problems, as you have identified, with FSS are that 
right now, it works in our public housing program. It works in 
our voucher program. But those programs are completely 
separate. And we think it makes perfect sense--and this goes to 
Senator Shelby's point--to combine these programs, reduce the 
cost of them, and be able to expand the number of families that 
it reaches. We also think it is a terrific idea to have this 
reach our multifamily program, as well. Right now, residents of 
project-based Section 8 are not eligible to participate in FSS, 
and so we think it makes perfect sense to do this.
    We also think, and this is one of the things that our 
Transformation Initiative is funding, as well, that we have 
very good anecdotal evidence and some limited studies of the 
success of FSS. We actually in New York City invested 
substantially. We raised a lot of private foundation money to 
expand our FSS program, but also to study it more closely, and 
we think that if we did more work, which we are proposing to do 
through our Transformation Initiative, to look at in detail the 
impacts with greater studies, we could actually demonstrate 
that this program pays for itself and that we ought to be doing 
much more of it, expanding it substantially. So I think the 
proposal is absolutely going in the right direction.
    Senator Reed. Thank you, Mr. Secretary, and I think also, 
too, your emphasis on analyzing and ensuring that these are 
funds that the cost-benefit makes sense, that we are investing 
but we are also getting much, much more in return. I think that 
is a key part of what we want to do.
    Secretary Donovan. Yes.
    Senator Reed. Let me turn my attention, and again commend 
you for your increase in the proposed budget for homeless 
assistance programs. We have had some success in Rhode Island 
and throughout the country in terms of getting people off the 
streets, literally, and into some type of structure, some type 
of facility. But would you take a moment, just from your 
perspective, why is it still important to invest in these 
homeless programs.
    Secretary Donovan. Well, to go back to the point you just 
made, we have demonstrated that it is more expensive for 
somebody to live on the street, particularly a chronically 
homeless person, than it is to house them. It is as simple as 
that. And this recognition, I think, is growing broadly. Your 
leadership in the bipartisan passage of the HEARTH Act showed 
that there is a growing recognition that investing in our 
homeless programs not only saves lives, it saves money. The 
fact that in as difficult a budget environment as we have that 
there was an increase in our homeless programs in the 2011 CR 
and that we are proposing difficult cuts in many programs but a 
significant increase in our homeless programs in 2012 
demonstrates that we really have shown that these programs 
work.
    Now, the issue I would point to, with the 2011 funding, 
there was a small increase. That will not allow us to implement 
the HEARTH Act fully. We will implement one portion of it, but 
just to give you an example, there was a very important new 
rural homelessness program that was created in the HEARTH Act. 
There is not adequate funding to fund that in 2011. And so 
making sure that after all of the work that was done, almost a 
decade of work, as you know very directly, to create the HEARTH 
Act, it is critical that we find ways to ensure that we can 
fund the pieces of it because it makes so much sense. It 
consolidates many of the programs, streamlines them. It will 
lower administrative costs for HUD, but also help tens of 
thousands of families.
    And I would just last say, as you know, with veterans in 
this country 50 percent more likely to be homeless than average 
Americans, the commitment the President made to ending 
veterans' homelessness by 2015, we think, is absolutely 
critical, and the VASH vouchers are an important part of that, 
as well.
    Senator Reed. I think you are absolutely right. One of the 
examples that helped prompt me to work on this effort was the 
testimony that Senator Burr and I took at a hearing of a North 
Carolina housing advocate describing how two or three veterans 
were living basically behind a bicycle rack in Durham or one of 
the communities--one of the rural communities--again, that is 
where the university is, also, but it is not a big metropolis. 
It is a place where this program could be effective and should 
be effective. We cannot lose sight of the rural homelessness. I 
think that is important.
    Let me turn to another topic, and that is Chairman Johnson, 
Senator Shelby, and I all worked on legislation that ultimately 
produced--one aspect of it was the National Housing Trust Fund. 
We originally thought we were going to fund it with the 
proceeds of the GSEs. That is not an option at this moment. So 
we are working to try to tap into some of the profits that have 
been generated through the warrants that, again, working 
together on this Committee, we insisted be part of the 
legislation which supported the banks over the last several 
years. And we have actually recouped about $9 billion in pure 
profit. In addition to the preferred dividends that we are 
paying when we sold the warrants, we picked up $9 billion, just 
as, I think, they would have done if they were lending the 
money to us. That is one source. But to the larger issue of why 
it is important to get this National Housing Trust Fund off the 
ground, from your perspective.
    Secretary Donovan. At a time--and I think many people miss 
this. As we have seen the housing crisis develop, in many 
communities, we have excess units, vacant units, over-building 
in some areas. At the same time, throughout the entire crisis, 
for low- and moderate-income renters, their burden increased. 
Rents went up at the low end of the scale. Between 2007 and 
2009, we saw a 20 percent increase, in just 2 years, in worst-
case housing needs, the biggest increase we had recorded in the 
history of the survey.
    And so there is no question that while the trust fund was 
critical before this housing crisis hit, it is absolutely 
essential now, given what we have seen. And so that is why, 
again, in a very difficult budget, the President proposed a 
billion dollars to initially capitalize the trust fund, and in 
the long term, we believe, as I said earlier, that one critical 
part of housing finance reform is that we find a long-term 
source.
    We set up a trust fund locally. Thousands of communities 
have done this around the country, and the key there is that by 
having a dedicated stream of funding that is not dependent on 
appropriations, as the original trust fund would have been, it 
ensures a consistent source of that funding that can really be 
generated year after year.
    Senator Reed. Well, thank you, Mr. Secretary. And again, 
let me just say, our experience in Rhode Island is that in 
these low to moderate rentals, the price over the last several 
years has gone up 45 percent. So one of the terrible ironies 
over the last few years is in the worst housing collapse, where 
residential home prices were falling, rental property prices, 
because people need some places to have going up, and this 
Housing Trust Fund would provide affordable rental housing and 
do it in a consistent way, as you pointed out. I think it is 
absolutely important.
    Just a final question. This goes to the issue which has 
been plaguing all of us for 2-plus years now, and that is the 
foreclosures, the failure to take effective comprehensive 
action. I am encouraged that servicing guidelines have been 
released, updated, that some steps have been taken, that the 
servicers have invested more resources into doing this. But 
what is still absolutely difficult to explain and for the 
average person not just frustrating, but almost on the verge of 
being deliberately provocative and disruptive of their whole 
lives, is this dual tracking of foreclosure modification.
    And I would point out that the South Carolina Supreme Court 
just ruled a few days ago, suspended all foreclosures in South 
Carolina for the reason of this dual tracking, and that has 
been done, I am told, also by New York and Connecticut. So this 
is not a localized problem and it is not one of these classic 
problems of, well, it is a blue problem, red problem, et 
cetera. When you have got the eminent justices of the South 
Carolina court saying this is so offensive to the basic legal 
rights and rights of our citizens that we are going to order 
banks not to foreclose until they have cleaned this up, we have 
got to do something nationally.
    Secretary Donovan. Yes.
    Senator Reed. And I must, because I was frustrated by the 
settlement agreed to by the Federal banking regulators. I know 
you were participating in those discussions. So in this whole 
topic of foreclosure, the dual tracking, the modification, I 
would just like your comments and your opinions of what we can 
do.
    Secretary Donovan. Yes. Let me start by saying, broadly, we 
take a broad set of steps on this that have made a difference. 
The fact is that the number of people entering foreclosure 
today is down about 40 percent from where it was a year ago. We 
think that there would have been probably twice as many 
foreclosures, actual foreclosures over the last 2 years if we 
had not acted in the way that we did.
    But I will also be honest that we have been frustrated, 
too, in terms of those steps not going as far as we had 
expected or would have liked, and part of the reason for that 
has been the difficulties in the servicers actually 
implementing and being able to help folks that by all means in 
the programs should have been helped.
    And so just specifically on the settlement that you 
described, we have been and continue to coordinate with the 
regulators. To be clear, their decision requires plans from the 
individual institutions within 60 days. There is nothing in 
those requirements that conflicts with the ongoing discussions 
that we are having with the banks. And specifically on this 
issue of dual tracking and other servicing standards, we are 
very much agreed that there need to be stronger consistent 
standards, including on dual track.
    And there really, if I may, there are dual tracks that we 
are pursuing on that in the short term, through the settlement 
for the institutions that would be participating there, to make 
sure that they fix those processes. But in the long term, as we 
said in our housing finance reform proposal, having clear, 
consistent servicing standards that cover everyone who is 
servicing mortgages is absolutely critical, and that is 
something that we have begun the work on longer term, 
establishing principles around that and then beginning to work 
out the details of that.
    I would just say, it is in everyone's interest to do this. 
There are homeowners and communities that have suffered. There 
are financial institutions that have suffered because they have 
not taken common sense steps where it makes sense and it is in 
everyone's financial interest to reduce balances to modify 
loans. That has not happened because of all the conflicting and 
confusing morass of issues around the way that particularly 
these securitized loans have been serviced. And so clear 
standards about pooling and servicing agreements and all of the 
other steps here will benefit everyone if we can get there.
    Senator Reed. Thank you, Mr. Chairman. Thank you, 
Secretary.
    Chairman Johnson. Senator Merkley.
    Senator Merkley. Thank you very much, Mr. Chair, and thank 
you, Mr. Secretary, for your testimony today.
    I certainly echo the thoughts of my colleague from Rhode 
Island that it has been extremely disappointing to see how 
incredibly slow the action has been to address even these 
fundamental issues of process, the single point of contact, the 
dual track, and this recent settlement was basically along the 
lines of continuing to cheerlead and say, this is the right 
thing to do, please, please, please do it, as opposed to 
anything that actually takes us down the path. We have been 
cheerleading for a year and a half and seeing virtually no 
results on the ground. People coming in the door today to my 
office are not telling a different story than they had a year 
ago in terms of the complete insanity of reaching a different 
person every time they make contact, still having their files 
lost repeatedly, so on and so forth. For a long time, we have 
been hearing results are around the corner. We have not seen 
them.
    I want to turn to the issue of the qualified residential 
mortgage process and the proposed 20 percent down payment 
requirement. There is a lot of concern in the housing world 
that this will create a two-tiered system. I suspect you could 
survey my entire community of working class families where I 
live or any similar communities around the country and you 
would be hard pressed to find a single family that bought their 
first house with a 20 percent down payment, unless they 
happened to inherit money or won the lottery or something of 
that nature. It would be one out of 100, at best.
    Do you have any sense right now what the point spread is on 
the difference between, other things equal, between somebody 
putting down 5 percent and putting down 20 percent?
    Secretary Donovan. I am sorry. The point spread, you mean--
--
    Senator Merkley. In terms of the APR of a 30-year 
amortizing mortgage.
    Secretary Donovan. Well, given that FHA continues to 
operate and provide low-cost financing for low down payments, 
we continue to be able to have a relatively affordable low down 
payment option available. But I think outside of FHA, that 
spread has been pretty substantial. I have not looked at it in 
the last day or two, but it has widened dramatically as we have 
come through the crisis, and I think it would be in excess of a 
point, my expectation would be.
    Senator Merkley. You know, I have had a lot of 
conversations with people on the ground who have worked with 
families, and I am adding to that my own experience working 
through Habitat for Humanity and then developing affordable 
housing. And the collective impression is that a small down 
payment rarely drove the risk of foreclosure, and for a couple 
of reasons. One is simply that--and I am talking about the pre-
2003 mortgage market, before the Fed's failure to regulate the 
predatory teaser rate mortgages, the doubling of interest rate, 
the exploding interest rate mortgages. Before that set the 
foundation for this entire meltdown, there was fairly steady 
appreciation in housing prices. And folks who were renting, if 
they could come up with a down payment, in a few years they had 
some significant equity, and they found themselves far better 
off in terms of stability and financial foundation than those 
who continued to rent. And they had huge incentives to hold 
onto their house as a point of great pride and stability for 
their family and the primary wealth-building aspect of their 
life.
    Things become quite different when you introduce the 
predatory mortgages and the balloon in housing values that was 
driven by the teaser rate mortgages.
    But take that away because we are not going back down the 
path. We have now, thankfully, outlawed the undocumented loans. 
We have outlawed the prepayment penalties. We have outlawed the 
steering payments that drove the originators to steer people 
into those subprimes, all that. So we are trying to reclaim the 
standard amortizing mortgage as the wealth-building instrument 
that it has been since it was invented following the Great 
Depression.
    So there is tremendous concern about the possibility of the 
QRM and a 20-percent down payment requirement driving a two-
tiered market to the disadvantage and unreasonable disadvantage 
of folks who are in no position to provide a 20-percent down 
payment.
    I just thought I was try to get your thoughts on that.
    Secretary Donovan. It is a very important question, and in 
my mind I think it is important to state up front there is no 
question that down payment is one piece of what helps predict 
the performance of loans and the risk. And we certainly saw 
through the crisis, as I think you acknowledged, that we went 
too far. We have seen in the FHA portfolio, whether it is 
seller-funded down payments or other loans that were 
effectively 100 percent LTV that their performance was 
significantly worse, even controlling for other factors.
    But I think the issue here is both the one you raise, which 
I think is very important, which is access. We have to balance 
thinking about the importance of making sure a range of middle-
class families, low-income families continue--if they can 
afford to be homeowners and they are prepared to be homeowners, 
that they continue to have access, because down payment is the 
single most important barrier. We need to balance that against 
safety and soundness.
    But I think the other point that I would make is that we 
should not lose sight of the fact that down payment is only one 
element of evaluating risk, and what really got us into trouble 
was the layering of risk between down payment and a whole range 
of other factors. And so when we put out the proposed QRM 
rule--and I would emphasize it is proposed. We have made no 
final decisions. We are very interested in comments. We did put 
in the preamble an alternative to the 20 percent that was at 10 
percent that is really inviting comment of exactly the kind 
that you are making, of what should that balance be and what 
other factors should we take into account. Should mortgage 
insurance or other types of risk retention be able to 
compensate for that? How exactly do we make these pieces work? 
Because it is not as simple as saying we really should just 
look at loan to value and ignore the other components of the 
layering of risk.
    Senator Merkley. Yes. Everything I have seen shows a very 
small discrepancy before we allowed the predatory mortgages in 
2003, and within the fully amortizing world, certainly 
amounting to less than a basis point. And I want to reemphasize 
this point of taking the wrong lesson out of this crisis. The 
lesson was you do not allow kickbacks to loan originators. You 
do not allow undocumented loans. You do not allow teaser rates 
with huge prepayment penalties to lock people into them. 
Because in that setting you will drive a balloon, and when that 
balloon breaks, it will matter how much down payment you have. 
So there needs to be some skin in the game, but putting a very 
large premium on it would be a misreading of the experience 
that we have had over the last 20 years in mortgages. So I just 
want to emphasize that thought.
    There was just a study that came out because of the new 
census of northeast Portland, which was a poor area of 
Portland, an area I used to work in, and where there was 
massive out-migration of impoverished families. And the main 
finding was that it was the failure of the city to work--and I 
say the city because it was kind of related to city policy, but 
it reverberates in the broader housing world--to try to tackle 
the down payment problem.
    While I was working there, we created an organization 
called Project Downpayment specifically to try to tackle this, 
but raising the money to assist in that was very slow and very 
difficult and few families were stabilized. But those who were 
stabilized, their homes went from, say, $60,000 to now 
$360,000. You know, they have enormous equity because they 
became homeowners and they got to participate in the American 
dream, and in a way that you can never get to through renting. 
I am substantially over my time, so I will just say I would 
love to follow up on the SHOP program, the Self-Help 
Opportunity Program. It has been moved in your budget into the 
home line, and it is not clear what that means for its future. 
And I think it has been a substantial factor in encouraging the 
type of fundamentally fair sweat equity strategies that have 
empowered a tremendous number of families that would never have 
otherwise been homeowners.
    Chairman Johnson. Thank you, Senator Merkley.
    Thank you, Mr. Secretary, for your testimony. I look 
forward to working with you and the Committee to ensure that 
HUD programs can effectively meet the needs of our families and 
communities.
    This hearing is adjourned.
    [Whereupon, at 11:06 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN TIM JOHNSON
    I am pleased to once again welcome HUD Secretary Shaun Donovan to 
the Committee to discuss the Administration's budget request and HUD's 
legislative agenda. Secretary Donovan, you come to us at a challenging 
time. Our families and our State and local government partners continue 
to struggle during this economic downturn.
    HUD administers programs that aim to provide access to quality, 
affordable, and safe housing for homeowners and renters. These programs 
often provide a needed lifeline to our most vulnerable citizens, and in 
today's economy they are more important than ever.
    Far too many American families and communities still face the 
threat of foreclosure, and millions more have seen their property 
values fall in a fragile housing market.
    And, although it may seem counterintuitive, housing has become less 
affordable for lower-income families even as housing values have 
plummeted. Recent studies by your Department have shown dramatic 
increases in ``worst-case'' housing needs among very-low income renters 
and even homelessness among families. As you saw during your visit to 
South Dakota last year, many tribal communities continue to struggle 
with a shortage of economic opportunities and a lack of housing 
choices.
    As our need for affordable housing rises, HUD and local providers 
face increasing difficulties in preserving the resources we have, due 
to aging buildings and expiring affordability contracts.
    Meanwhile, States and local governments are slashing services and 
job-creating investments.
    As the country faces these daunting challenges, the Federal 
Government must ensure that we make wise investments and preserve 
important programs that help those most in need.
    At the same time we must also be mindful of our budget constraints 
and be certain that we get the most value for our dollar. These times 
make the effective use of Federal housing and community development 
resources all the more important.
    As you have said, you have made a number of hard choices in your 
FY2012 budget, cutting funding for several programs that you otherwise 
support in order to meet fiscal goals. I am concerned--as you may be--
that a number of these cuts could halt our progress in addressing the 
needs of vulnerable citizens.
    But your budget also contains a number of proposals intended to 
increase HUD's effectiveness, including those to:

    improve HUD's administration and oversight of $48 billion 
        in programs;

    strengthen the management and financial standing of the FHA 
        insurance programs as they provide critical countercyclical 
        financing to the housing market;

    empower communities;

    provide new tools to help create and preserve public and 
        assisted housing; and

    streamline our public housing and Section 8 programs to 
        make them more effective for grantees and families.

    HUD provides vital resources for millions of Americans who struggle 
to meet one of our most basic needs--a safe place to live. As we 
continue to debate the budget and tackle the deficit, we cannot afford 
to leave Americans out in the cold. I look forward to our discussion of 
your proposals during today's hearing.
                                 ______
                                 
                  PREPARED STATEMENT OF SHAUN DONOVAN
         Secretary, Department of Housing and Urban Development
                              May 5, 2011
    Chairman Johnson, Ranking Member Shelby, and Members of the 
Committee, thank you for the opportunity to testify today regarding the 
fiscal year 2012 Budget for the Department of Housing and Urban 
Development, Creating Strong, Sustainable, Inclusive Communities and 
Quality Affordable Homes.
    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 a million private sector jobs were created in 
the last year. But we know there's still more work to be done to ensure 
that America and its workers can compete and win in the 21st century. 
And we have to take responsibility for our deficit, by investing in 
what makes America stronger and cutting what doesn't, and in some cases 
making reductions in programs that have been successful.
    HUD's Fiscal Year 2012 budget tackles these challenges head on: by 
helping responsible families at risk of losing their homes and by 
providing quality affordable rental housing; 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 we need to out-innovate, out-educate, and out-build 
the rest of the world.
    This budget also reflects the need to ensure that we are taking 
responsibility for our country's deficits. As a down payment toward 
reducing the deficit, the President has proposed a freeze on 
nonsecurity discretionary spending for the next 5 years, cutting the 
deficit by $400 billion over 10 years and bringing this spending to the 
lowest share of the economy since President Eisenhower. Every 
department shares a responsibility to make tough cuts so there's room 
for investments to speed economic growth. HUD's fiscal year 2012 budget 
includes $47.8 billion in gross budget authority, offset by $6 billion 
in projected FHA and Ginnie Mae receipts credited to HUD's 
appropriations accounts, leaving net budget authority of $41.7 billion, 
or 2.8 percent below the fiscal year 2010 actual level of $42.9 
billion. \1\ To maintain this commitment to fiscal discipline, we have 
protected existing residents and made the difficult choice to reduce 
funding for new units and projects, including cuts to the Community 
Development Block Grant, HOME Investment Partnerships, and new 
construction components of the Supportive Housing Programs for the 
Elderly (Section 202) and Disabled (Section 811).
---------------------------------------------------------------------------
     \1\ Such an estimate is not yet available for comparison to the 
fiscal year 2011 budget just enacted. Receipts will be reestimated at 
the close of the fiscal year.
---------------------------------------------------------------------------
    And because winning the future also means reforming Government so 
it's leaner, more transparent, and ready for the 21st century, we are 
also reforming the administrative infrastructure that oversees those 
programs. The Budget includes key provisions from the Section 8 Voucher 
Reform Act (SEVRA) legislative proposal that will simplify and 
rationalize the rent setting provisions of our three largest rental 
assistance program. The budget requests for Housing Choice Vouchers, 
Project-Based Rental Assistance, and Public Housing reflects a savings 
of about $150 million in the first full year and would yield over $1 
billion in savings over the next half decade. Additionally, the 
Transformation Initiative--important funding and programmatic 
flexibility Congress provided in 2010 and 2011--will enable the 
Department to offer cutting edge technical assistance that improves the 
management and accountability of local partners, and conduct the kinds 
of research and demonstrations that ensure that we are funding what 
works and identifying what doesn't and what we need to do better.
Responding to the Crisis
    Much has happened in the 2 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 and house prices had declined for 30 straight 
months.
    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 step in aggressively. 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 critical 
support for Fannie Mae and Freddie Mac, while HUD's Federal Housing 
Administration (FHA) 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 of 2009, record low mortgage rates have helped nearly 10 
million homeowners to refinance, resulting in more than $18.8 billion 
in total borrower savings. More than 4.5 million modification 
arrangements were started between April 2009 and the end of March 
2011--including more than 1.5 million HAMP trial modification starts, 
more than 808,000 FHA loss mitigation and early delinquency 
interventions, and nearly 2.2 million proprietary modifications under 
HOPE Now. While some homeowners may have received help from more than 
one program, the number of agreements offered was more than double the 
number of foreclosure completions for the same period (1.9 million).
    The private sector has now created jobs for 13 straight months.
    HUD's careful and effective stewardship of $13.61 billion in 
American Recovery and Reinvestment Act (ARRA) funding has been 
essential to economic recovery. To date, HUD has obligated 99.6 percent 
of its ARRA grant and loan funds and expended over 63.5 percent of this 
funding--more than 5 months ahead of the aggressive timelines the 
Administration set down and to which the Vice President has held every 
Department accountable. These funds have led to the development and 
renovation of over 400,000 homes (Public Housing Capital Fund, Native 
American Housing Block Grant, Tax Credit Assistance Program, Community 
Development Block Grant, Lead Hazard Reduction, and Healthy Homes 
grants). Through homelessness prevention assistance (Homelessness 
Prevention and Rapid Re-Housing Program/HPRP), local partners have 
prevented or ended homelessness for more than 900,000 people. Lastly, 
through the Lead Hazard Reduction and the Healthy Homes programs, over 
3,800 children have been protected from lead paint-based hazards and 
other home health and safety risks. As a result of these activities, in 
the third quarter of calendar year 2010 alone, HUD ARRA recipients 
reported over 31,000 jobs saved or created.
Winning the Future
    Now, having prevented our economy from falling into a second Great 
Depression, the Administration is focused on ensuring that America wins 
the future by making strategic investments in our communities, and also 
taking responsibility for our deficit For HUD, that meant using three 
core principles to develop our budget:

  1.  Continuing to provide critical support for the housing market 
        while bringing private capital back into the market;

  2.  Protecting current residents--and improving the programs that 
        serve them; and

  3.  Investing in initiatives that are critical to winning the future.

    As such, the Department's budget for fiscal year 2012 follows the 
roadmap the President has laid out for keeping America at the forefront 
of the rapidly changing global economy. Specifically, this budget helps 
America:
    Out-Educate. America cannot out-educate the rest of the world if a 
lack of quality, affordable housing prevents Americans from accessing 
good schools in safe neighborhoods, or if homelessness threatens the 
schooling of a young child. That is why the budget continues to support 
the Choice Neighborhoods initiative (which links HUD's investments in 
housing to education funding provided through the Department of 
Education's Promise Neighborhoods initiative), and proposes to target 
housing vouchers--coupled with educational and other supportive 
services--to homeless and at-risk families with school age children.
    Out-Innovate. A clean energy economy is vital for America to 
compete in the new century. Through the Recovery Act's dramatic 
investments to green America's housing stock, HUD will improve the 
efficiency of 245,000 HUD-assisted affordable homes, provide 
comprehensive energy retrofits that will reduce energy costs by as much 
as 40 percent in an additional 35,000 public housing units, and 
complete green retrofits of 19,000 units of privately owned, federally 
assisted multifamily housing. The funding in this budget will continue 
to improve energy efficiency and save money for the taxpayer by 
allowing us to track and monitor energy use in our portfolio while we 
work more closely with the private sector to scale up energy retrofits 
that pay for themselves through loan products like the FHA PowerSaver 
and expanded FHA risk sharing. In addition, we will continue to partner 
with the Department of Energy to leverage weatherization assistance 
funds for many of these properties.
    Out-Build. The President's focus on repairing our existing 
infrastructure and building new ways to move people, goods, and 
information will not only put people to work now, but also spur 
investments that build a stronger economy. Building on the successful 
Partnership for Sustainable Communities with the Department of 
Transportation and the Environmental Protection Agency, HUD's budget 
includes $150 million to create incentives for communities to develop 
comprehensive housing and transportation plans that aim to help regions 
and communities approach their infrastructure investments in a smarter 
and more strategic way and reduce the combined cost of housing and 
transportation for families. Just as we cannot compete in the new 
economy if we fail to rebuild our highways and transit systems, nor can 
we ignore the importance of affordable housing in communities. For this 
reason, the budget proposes a $200 million rental assistance 
demonstration to rehabilitate--cost-effectively--some of our most 
valuable affordable housing assets: America's federally subsidized 
affordable housing stock. We estimate that this proposal will leverage 
$7 billion in private debt and equity capital and, in the process, 
support significant job creation in communities across the country.
    Reform Government So That It's Leaner, Smarter, More Transparent, 
and Ready for the 21st Century. President Obama said in his State of 
the Union address that removing overlapping and contradictory rules and 
regulations is essential to generating economic growth. That's why we 
continue to make it our focus to improve and simplify the way HUD works 
with other agencies. The level of interagency cooperation with both our 
Federal and nonfederal partners is unprecedented--from the Sustainable 
Communities Partnership (discussed above) to initiatives targeting 
housing and services to the homeless (with the Department of Health and 
Human Services and the Department of Education) to a multi-agency 
economic development initiative that includes participation from HHS, 
HUD, the Economic Development Administration in the Department of 
Commerce, the Departments of Education, Energy, and Transportation, 
among others. That Department with support from HUD and other partner 
agencies is committed to removing barriers to local innovation at the 
Federal level. Through our Transformation Initiative, HUD can continue 
to deliver the kind of cutting edge technical assistance and research 
that our local stakeholders are seeking to innovate and grow their 
economies and is critical to improving the management and 
accountability of HUD's local partners. Indeed, this improved 
partnership with local stakeholders also means holding them accountable 
for their use of Federal resources. As noted, the Transformation 
Initiative is already supporting research and demonstrations that will 
allow the Department to closely monitor local strategies for expending 
taxpayers' money. And through the newly instituted HUDStat internal 
reporting system (discussed further below), the Department is holding 
itself accountable for the funds it invests.
Meeting Our Responsibilities
    The need for HUD's investments is clear. The devastating effect 
that the economic downturn has had on the housing circumstances of poor 
Americans was underscored in early February, 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 in the 
quarter-century history of the survey, and caps an increase of 42 
percent since 2001. These numbers show the scale of the challenge 
inherited by the Obama administration, with a historic increase in need 
during the 2 years before we took office. Indeed, the critical housing 
assistance offered by HUD through the Recovery Act is a key part of 
HUD's response to this challenge.
    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: house almost 2.5 million families in public and 
assisted housing (over 60 percent elderly and/or disabled); provide 
tenant-based vouchers to more than 2.2 million households (over 45 
percent elderly and/or disabled), an increase of over 86,000 from 2010; 
and nearly double the annual rate at which HUD assistance creates new 
permanent supportive housing for the homeless.
    As in fiscal year 2011, HUD's fiscal year 2012 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 try to win the future. 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.
Goal 1: Strengthen the Nation's Housing Market To Bolster the Economy 
        and Protect Consumers
    We project that FHA will continue to support the housing market, 
insuring $218 billion in mortgage borrowing in 2012. These guarantees 
will support new home purchases and refinanced mortgages that 
significantly reduce borrower payments. Over the last 2 years, FHA has 
helped over 2 million families buy a home--80 percent of whom were 
first-time buyers. FHA also has helped nearly 1.5 million existing 
homeowners refinance into stable, affordable products, with average 
monthly savings exceeding $100. FHA financing was used by 31 percent of 
all homebuyers, insuring, along with the VA and Federal farm programs, 
81 percent of all loans to African Americans and 73 percent to 
Hispanics in 2011. But FHA is also a vital resource for homeowners 
facing foreclosure. FHA's loss mitigation program minimizes the risk 
that financially struggling borrowers go into foreclosure. Since the 
start of the mortgage crisis, as mentioned above, these FHA efforts 
have assisted more than 650,000 homeowners.
Paving the Way for Private Capital To Return
    It is critical, however, that we pave the way toward a robust 
private mortgage market. This was a central goal of the 
Administration's recently released report on Reforming America's 
Housing Finance Market, which proposed to wind down Fannie Mae and 
Freddie Mac, fix fundamental flaws in the mortgage markets, better 
target the Government's support for affordable housing, and provide 
choices for longer-term reforms.
    Taking steps to bring private capital back is a process that HUD 
began many months ago--and I want to thank you for passing legislation 
in the last Congress to provide more flexibility to FHA's mortgage 
insurance premium structure. With this authority, FHA announced a 
premium increase of 25 basis points in February.
    Indeed, FHA has already taken significant steps to facilitate the 
return of private capital, making the most sweeping combination of 
reforms to credit policy, risk management, lender enforcement, and 
consumer protection in FHA history. These reforms have strengthened its 
financial condition and minimized risk to taxpayers, while allowing FHA 
to continue fulfilling our mission of providing responsible access to 
home ownership for first-time homebuyers and in underserved markets.
    FHA implemented a ``two-step'' credit score policy for FHA purchase 
borrowers. Purchase borrowers with credit scores below 580 are now 
required to contribute a minimum down payment of 10 percent. Only those 
with stronger credit scores are eligible for FHA-insured mortgages with 
the minimum 3.5 percent down payment.
    The goal of these reforms is to balance the need to provide access 
to our mortgage markets with the need to protect taxpayers from 
financial risk. That's also why in October of 2009, we hired the first 
Chief Risk Officer in the organization's 75 year history--and last 
July, FHA received Congressional approval to formally establish this 
position and create a permanent risk management office within FHA, for 
which the Risk Officer position is now designated as a Deputy Assistant 
Secretary. Robert Ryan, the current holder of that position, is also 
currently serving as acting FHA Commissioner. With this new office and 
additional staffing, FHA is expanding its capacity to assess financial 
and operational risk, perform more sophisticated data analysis, and 
respond to market developments.
    Further, FHA has strengthened credit and risk controls--toughening 
requirements on FHA's Streamlined Refinance program, making several 
improvements to the appraisal process and to condominium policies, and 
implementing the two-step credit score policy discussed above. We are 
very grateful for the support that Congress has provided with our 
efforts to reduce fraud and risk. Through the $20 million Combating 
Mortgage Fraud funds that Congress granted HUD in FY2010, we have 
already begun to implement several risk management and systems 
modernization reforms to incorporate modern risk and fraud tools and 
counterparty data consolidation.
    Additionally, FHA introduced policy changes and improved lender 
oversight and enforcement to increase the quality of FHA insured loans. 
In April 2010, we published a rule eliminating FHA approval for loan 
correspondents and increasing net worth requirements for lenders, 
thereby strengthening FHA's counterparty risk management capabilities.
    As a result of these actions, FHA finds itself in a stronger 
position today. In particular:

    The quality of loans made in 2009 and 2010--the years FHA 
        has done the most significant volume--is much improved. FY2010 
        is the highest quality FHA book-of-business on record.

    Credit score distribution continues to be significantly 
        improved. The average credit score on current insurance 
        endorsements has risen to nearly 700. And for the second 
        straight quarter, average credit scores are equal across 
        refinance and purchase books of business.

    Loan performance, as measured by early period delinquency 
        and seasonally adjusted serious delinquency rates, continues to 
        show significant improvement. \2\
---------------------------------------------------------------------------
     \2\ HUD's Annual Report to Congress Regarding the Financial Status 
of the FHA Mutual Mortgage Insurance Fund FY2010 can be found at http:/
/www.hud.gov/offices/hsg/rmra/oe/rpts/actr/2010actr_subltr.pdf. 

    The Department is equally focused on assisting consumers throughout 
the homeownership process, from increasing their knowledge of the 
mortgage products they are considering to protecting them from fraud in 
any phase of that process. Accordingly, the budget also includes $168 
million for housing and homeowner counseling through HUD and the 
Neighborhood Reinvestment Corporation (NeighborWorks). Over 4 million 
households have benefited from housing counseling since April 2009.
Goal 2: Meet the Need for Quality, Affordable Rental Homes
    With more than one-third of all American families renting their 
homes, it remains more important than ever to provide a sufficient 
supply of affordable rental homes for low-income families.
Why HUD Investments Are Vital
    While the median income of American families today is over $60,000, 
families who live in HUD-assisted housing have a median income of 
$10,200 per year--and more than half are elderly or disabled. The 
extraordinary vulnerability of residents in HUD-assisted programs is 
why we have chosen to protect the funding that houses these families. 
Indeed, fully 80 percent of our proposed budget keeps current residents 
in their homes and provides basic upkeep to public housing while also 
continuing to serve our most vulnerable populations through our 
homeless programs.
    HUD's 2012 budget requests $19.2 billion for the Housing Choice 
Voucher program to help more than 2 million extremely low-to low-income 
families with rental assistance live in decent, safe housing in 
neighborhoods of their choice. The budget funds all existing mainstream 
vouchers and provides new vouchers targeted to homeless veterans, 
families, and the chronically homeless. The Administration remains 
committed to working with the Congress to improve the management and 
budgeting for the Housing Choice Voucher program, including reducing 
inefficiencies, and reallocating Public Housing Authority voucher 
reserves based on need and performance.


    The Budget also provides $9.4 billion for Project-Based Rental 
Assistance to preserve approximately 1.3 million affordable units 
through increased funding for contracts with private owners of 
multifamily properties. This critical investment will help extremely 
low-to low-income households to obtain or retain decent, safe, and 
sanitary housing. Similarly, in combination with full funding of the 
Public Housing Operating Fund, \3\ the $2.4 billion requested for the 
Capital Fund will help to preserve the over 1 million units within that 
program's portfolio.
---------------------------------------------------------------------------
     \3\ $1 billion of the amount needed to fully fund the Operating 
Fund at $4.962 billion represents excess reserves held by PHAs, which 
have grown substantially over the past several years. The Department 
will ensure that PHAs have sufficient remaining reserves to stay on 
sound financial footing.


Out-Building Our Competitors: Rebuilding Our Nation's Affordable 
        Housing Stock
    The preservation of critically needed ``hard units'' of rental 
housing in this country is among our top priorities, particularly as 
the number of renter households with severe affordability issues has 
increased significantly in recent years. Our preservation agenda 
includes regulatory and administrative changes to make it easier for 
owners to preserve HUD-assisted housing as well as creating tools that 
will put the Department's stock of affordable housing on sound 
financial and regulatory footing for the long-term. To this end, the 
Budget includes $200 million for a demonstration and rigorous 
evaluation of the conversion of up to 255,000 public housing units to 
some form of long-term project-based rental assistance contracts that 
will enable PHAs to leverage private debt and equity capital to make 
repairs. Through similar conversions, the demonstration will preserve 
7,600 privately owned, HUD-assisted units in so-called ``orphan'' 
programs at risk of leaving the affordable housing stock. This funding 
request will allow us, working with key stakeholders, to develop new 
preservation tools to help ensure that we protect our affordable rental 
housing stock.
    The President's Budget also includes two revenue proposals to 
reform the Low Income Housing Tax Credit (LIHTC) that will complement 
the Department's overall preservation agenda:

    Replace the current cap on household income at 60 percent 
        of area median income with the option that properties serve 
        households whose average income is no greater than 60 percent 
        of AMI and with no individual household above 80 percent of 
        AMI. These changes to the low-income occupancy threshold 
        requirements will accomplish three things: (i) allow greater 
        income-mixing at the project level, creating opportunities for 
        workforce housing; (ii) help align LIHTC with HUD's and USDA's 
        affordable housing programs (which define low-income at 80 
        percent of area median income); and (iii) lead to the creation 
        of more units targeted to the lowest income households. \4\
---------------------------------------------------------------------------
     \4\ It is important to note that this income averaging proposal 
would increase our ability to preserve HUD-assisted properties. 69,224 
households living in public housing and 23,271 households in 
multifamily housing have incomes above 60 percent of AMI. This proposal 
allows these units to be counted in basis, increasing the equity 
flowing to these projects for preservation.

    Make the 4 percent credit a more viable source of funding 
        for the preservation of the Federal affordable housing stock by 
        allowing allocating agencies to give a limited number of 
        qualifying properties a 30 percent basis boost in the context 
        of preserving, recapitalizing, and rehabilitating existing 
        affordable housing, including housing targeted by our rental 
        assistance demonstration as well as other programs. This means 
        that a greater amount of equity could be raised per credit even 
        at the higher yields required by investors for 4 percent 
        investments, which in turn will generate more interest in LIHTC 
---------------------------------------------------------------------------
        preservation deals within the investor and developer community.

    Finally, the Budget once again calls for funding of the National 
Housing Trust Fund (NHTF) at $1 billion. The recent Worst Case Housing 
Needs report underscores the reality that, since well before the recent 
recession, extremely low income renters (those whose household incomes 
are below 30 percent of median) face the most severe housing shortage 
and cost burden of any Americans. In addition, the report shows that 
for renters below 30 percent of area median income, the shortage of 
affordable and available units increased from 5.2 million to 6.4 
million from 2007 to 2009, with just 36 affordable and available units 
per 100 extremely low income renters in 2009, down from 44 units just 2 
years prior. Enacted in 2008, the NHTF 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 Administration 
wants to work with Congress to provide this crucial funding.
Goal 3: Utilize Housing as a Platform for Improving Quality of Life
    HUD, as well as State and local policy makers and our private 
sector partners recognize that stable, affordable housing provides an 
ideal, cost-effective place to deliver healthcare and other social 
services focused on improving life outcomes for individuals and 
families.
Out-Innovating: Solving Homelessness, Saving the Taxpayer Money
    Nowhere is this 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, we have made a specific effort to assist homeless 
veterans. As our young men and women return from Afghanistan and Iraq, 
they deserve to be treated with dignity and honor. Yet our Nation's 
Veterans are 50 percent more likely than the average American to become 
homeless. More than 11,000 service members returning from those wars 
have already been forced to live on the streets or in homeless 
shelters. And more Vietnam-era Veterans remain homeless today than 
troops who died during the war itself.
    Nowhere is our obligation to our citizens, and to those who have 
defended our Nation, more important, more visible, or more urgently 
necessary than in our commitment to end homelessness.


    As the outgoing Chair of the U.S. Interagency Council on 
Homelessness, I am pleased that this Budget provides over $2.5 billion 
to make progress toward the ambitious goals of Opening Doors: the 
Federal Strategic Plan to Prevent and End Homelessness, which was 
released by the Administration in June 2010. Opening Doors establishes 
a 5-year timeline for ending chronic and veteran homelessness and 
commits to ending family and youth homelessness over a decade. This 
budget will enable our stakeholders to make substantial progress on 
these ambitious timelines. It includes:

    Over $2.3 billion for Homeless Assistance Grants to 
        maintain existing units and expand prevention, rapid rehousing, 
        and permanent supportive housing;

    $145 million in new housing vouchers and related 
        administrative fees for over 19,000 homeless veterans and other 
        homeless individuals and families who receive education, health 
        care, and other services through the Departments of Education 
        (DoE), Health and Human Services (HHS), and Veterans Affairs 
        (VA).

    $50 million to test new incentives--including service 
        coordinators and special payments--to encourage housing 
        authorities and private landlords to serve more homeless 
        persons.

    These funding increases will enable HUD to assist approximately 
78,000 additional homeless individuals and families.
    The Budget also provides a total of $953 million for the Housing 
for the Elderly (Section 202) and Housing for Persons with Disabilities 
Programs (Section 811). This not only preserves assistance in all 
existing units, but also includes $499 million for new construction to 
respond to the overwhelming demand among low-income elderly, including 
frail elderly, and disabled individuals for affordable housing that 
allows them to continue living independently in the community. The 
Administration remains committed to further updating and reforming 
these crucial programs, building on a foundation that was provided by 
two bipartisan bills passed in the 111th Congress. Those bills offered 
key steps forward--for Section 811, authorizing HUD to provide 
operating-assistance-only funding through States which demonstrated an 
integrated health care and housing approach to serving disabled 
households and for Section 202, authorizing key preservation tools 
including new Section 8 contracts to maintain long-term affordability 
on aging properties. In 2012, the Administration will have in place the 
framework to ensure that these programs better leverage other housing 
and health care resources, afford streamlined processing to improve 
timeframes, and are targeted to elderly and disabled individuals who 
can best benefit from affordable housing.
Goal 4: Build Inclusive Sustainable Communities Free From 
        Discrimination
    Each year HUD dedicates approximately a quarter of its funds to the 
capital costs of housing and economic development projects throughout 
the country, which become even more critical for communities hardest 
hit by our country's economic downturn. As with HUD's rental assistance 
programs, HUD's capital grants--including the Public Housing Capital 
Fund, HOPE VI capital grants, 202 capital advances, 811 capital 
advances, CDBG, HOME, HOPWA, and ESG--tend to assist areas of great 
need. For example, 61 percent of HUD capital dollars are invested in 
cities and counties with an unemployment rate greater than the national 
average. Indeed, the average HUD capital dollar is dedicated to a city 
or county with an unemployment rate of 10.5 percent, nearly one full 
percentage point above the national unemployment rate.
    Through these grants, 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. These priorities reflect a core belief: 
when you choose a home--you also choose transportation to work, schools 
for your children, and public safety. You choose a community--and the 
amenities available in that community. Programs such as the Community 
Development Block Grant (CDBG), the Rural Innovation Fund, and Choice 
Neighborhoods are targeted to areas of need, to provide locally driven 
solutions to overarching economic development challenges.
Strategic Investments in America's Economic Future: The Community 
        Development Block Grant (CDBG)
    The Budget proposes a funding level of $3.691 billion, an increase 
of 10.6 percent relative to fiscal year 2011 funding, but 7.5 percent 
below fiscal year 2010. This funding level acknowledges two realities. 
The first is the need to take responsibility for our deficit, even if 
it means reducing support for important programs such as CDBG. Second, 
it demonstrates the Administration's continued commitment to assisting 
local governments and States in improving 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 FY2010, CDBG was estimated to reach more than 
7,250 local governments through various components of the CDBG 
Programs--the Entitlement Communities Program, the Urban County 
Program, the State Program, and the Insular Area Program. In FY2010, 
CDBG investments directly created 19,293 jobs, not including any 
indirect effect on additional jobs.




    More than 109,000 households received some form of housing 
rehabilitation assistance. More than 10 million people benefited from 
CDBG-funded public service activities and more than 4 million benefited 
from CDBG-financed public improvements.
    State and local governments are facing unprecedented budget 
shortfalls and fiscal constraints. These constraints make CDBG funding 
more essential than ever for local communities; 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.
Innovative Community Development: Sustainable Communities
    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 dollar they 
earn on housing and transportation combined.
    Communities from Dallas to Salt Lake City have demonstrated that by 
better linking housing, transportation, and economic development, 
parents can spend less time driving and more time with their children; 
more families can live in safe, stable communities near good schools 
and jobs; more kids can be healthy and fit; and more businesses have 
access to the capital and talent they need to grow and prosper. Indeed, 
communities that have planned for growth by linking these together have 
a built-in competitive edge when it comes to attracting the jobs and 
private investment they need to win the future.
    Regions across the country understand this, which is why this 
budget continues one of the most groundbreaking cross-agency 
collaborations in recent history: the Partnership for Sustainable 
Communities, which includes HUD, DOT, and EPA.
    When the Obama administration announced the availability of 
regional and local planning grants for sustainable communities, demand 
was extremely high, as we received applications from all 50 States and 
two territories--from central cities to rural areas, small towns, and 
tribal governments. Over half of HUD's Sustainable Communities Regional 
Planning Grants were awarded to regions with populations less than 
500,000 and rural places with fewer than 200,000 people. And of the 62 
planning grants awarded jointly by HUD and the Department of 
Transportation almost 30 percent went to rural communities.
    At a time when every dollar the Federal Government invests in 
jumpstarting the economy is critical, the Partnership helps ensure that 
all agencies are coordinating efforts and targeting resources more 
strategically. Reflecting this new collaboration, the initial round of 
grants was judged by a multidisciplinary review team, drawn from eight 
Federal agencies and from partners in philanthropy. We have heard 
clearly from local businesses and elected officials that the joint 
grants supported by the Partnership are helping them achieve their own 
local visions: working across their own jurisdictional lines to 
coordinate land use, housing, and transportation investments on 
regional and community levels; creating more sustainable development 
patterns that reduce the crushing financial housing and transportation 
cost burden too many working families face today; and putting in place 
an infrastructure that will make them competitive in the global, 21st 
century economy.
    HUD's 2012 budget requests $150 million to create incentives for 
more communities to develop comprehensive housing and transportation 
plans that result in jobs, economic growth, easier commutes, and more 
efficient transport of goods. Up to $5 million will be used to develop 
more sophisticated data tools to help owners and operators identify and 
implement energy efficiency measures that can lower the cost of 
heating, cooling, and lighting in their HUD-assisted properties.


Out-Educating the Rest of the World: Choice Neighborhoods
    The President has made clear that winning the future depends on 
America winning the race to educate our children. But that's not 
possible if we are leaving a whole generation of children behind in our 
poorest neighborhoods. That is why the budget also brings Federal 
partnerships to connect historically isolated people and neighborhoods 
to local, regional, and national economies by providing a third year of 
funding ($250 million) for another signature element of the 
Administration's place-based approach--the Choice Neighborhoods 
initiative.
    Choice Neighborhoods builds upon the HOPE VI program launched by 
previous HUD Secretaries Jack Kemp and Henry Cisneros and congressional 
champions like Senators Kit Bond and Barbara Mikulski. HOPE VI restored 
the most severely distressed public housing across America and did so 
while leveraging double the Government investment in additional private 
development capital. Choice Neighborhoods will continue transformative 
mixed-finance investments in high-poverty neighborhoods where 
distressed HUD-assisted public and privately owned housing is located. 
It will bring private capital and mixed-use, mixed income tools to 
transform affordable housing in 5 to 7 neighborhoods with grants that 
primarily fund the preservation, rehabilitation, and transformation of 
HUD-assisted public and privately owned multifamily housing. Like HOPE 
VI, it will also engage the private sector and the ``third sector'' of 
nonprofits, philanthropies, and community development corporations who 
have become some of our most sophisticated, affordable housing 
developers and important civic institutions.
    Choice Neighborhoods is a central element of the Administration's 
interagency strategy to provide local communities with the tools they 
need to revitalize neighborhoods of concentrated poverty into 
neighborhoods of opportunity. This strategy requires HUD, the 
Department of Justice, the Department of Education, the Department of 
Health and Human Services, and other agencies to work together, 
coinvesting, and pooling their expertise as part of a focused 
Neighborhood Revitalization Initiative where local actors can 
seamlessly integrate diverse Federal funding streams to tackle complex 
problems. In particular, through partnerships with Education's Promise 
Neighborhoods initiative, Choice Neighborhoods will help ensure that 
the President's commitment to out-educating the rest of the world 
applies to every child in America, regardless of their neighborhood or 
the kind of housing they grow up in.
    The Department's administration of the first rounds of funding for 
Choice Neighborhoods and the Sustainable Communities Regional and 
Community Challenges 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 
policy makers 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.
Ensuring Rural Communities Can Compete in a 21st Century Global Economy
    The Administration has placed a significant emphasis on ensuring 
that America's rural communities are competitive in the 21st century 
economy. Rural communities generally have less access to public 
transportation, along with higher poverty rates and inadequate housing. 
This Administration recognizes that residents of these communities also 
face unique challenges when it comes to accessing health care, grocery 
stores, and adult education opportunities, among others.
    HUD currently invests billions of dollars in rural communities 
through its core rental assistance programs and block grants. The State 
CDBG program uses 30 percent of annual CDBG funding for nonentitlement 
areas across the country. 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. And because rural 
communities need good jobs to sustain themselves, one out of every 
eight State CDBG dollars is spent on economic development. In FY2010, 
State CDBG funds created or retained over 12,000 jobs for lower-income 
rural Americans.
    In addition to the special category of funding we created for small 
towns and rural places in the Sustainability Regional Grant program, 
this budget requests $790 million to fund programs that are 
specifically targeted to housing and economic development activities in 
rural communities including:

    $25 million for the Rural Innovation Fund to support 
        innovative approaches dedicated to addressing the problems of 
        concentrated rural housing distress and community poverty 
        through comprehensive community development, housing, and 
        economic development activities. The fund builds on the Rural 
        Housing and Economic Development program which has built and 
        rehabbed over 17,000 homes, created credit unions and business 
        incubators that have helped more than 2,000 businesses get off 
        the ground, and supported housing counseling and home ownership 
        programs. Over the last decade, this program created 13,000 
        jobs, provided job training to nearly 38,000 people, and 
        leveraged more than three times the quarter-billion dollars HUD 
        has invested in this program in other public and private funds, 
        providing an excellent return for the taxpayer. With the Rural 
        Innovation Fund, we will support these kinds of efforts on the 
        larger scale these challenges require.

    $25 million for the Rural Housing Stability Program to 
        assist homeless persons in rural communities. Since 2010, HUD 
        has provided targeted Homeless Assistance Grants to persons 
        living in small communities through a set-aside. As part of the 
        Homeless Emergency Assistance and Rapid Transition to Housing 
        (HEARTH) Act, the Rural Housing Stability program was 
        specifically authorized in order to provide housing, training, 
        and services for homeless individuals and families, as well as 
        those families at risk of becoming homeless.

    $782 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, HUD initiatives 
        in Indian country continue to have some of the Department's 
        most successful track records. 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. 
        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.
Winning the Future: A Successor to Empowerment Zones
    The Budget also includes a multi-agency initiative, Growth Zones, 
to assist communities in using their funds more effectively to support 
job creation--an improved successor to the Empowerment Zones that 
expire this year. Coupling targeted tax benefits and grant funding, the 
Budget supports the launch of an interagency effort led by the 
Department of Commerce's Economic Development Administration (EDA), and 
supported by HUD and the Department of Agriculture. In addition, the 
Budget also supports another interagency effort with EDA that helps 
communities to better employ the Federal investments they already 
receive (such as CDBG and HOME), promote high-impact strategies, and 
build the local capacity needed to execute those strategies in 
economically distressed areas. This effort will enable these 
communities to create more effective partnerships with businesses and 
nonprofits that will attract critical private investments to promote 
job creation. With leveraged support from HUD, other Federal agencies, 
and the philanthropic community, the Federal Government offers targeted 
EDA funds, technical assistance, and a National Resource Bank--a ``one-
stop-shop'' of experts that communities can draw upon for a full range 
of services, including fiscal reforms, repurposing land use, and 
business cluster and job market analysis.
Inclusive Communities for All
    Finally, a sustainable 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, and participation of historically 
underrepresented populations in HUD policies and planning, HUD will 
affirmatively further fair housing and the ideals of an open society. 
To that end, the Department is requesting $72 million--$11 million more 
than the fiscal year 2011 request--to support the division of Fair 
Housing and Equal Opportunity's administration of the Fair Housing 
Initiative Program (FHIP) and Fair Housing Assistance Program (FHAP).
Goal 5: Transform the Way HUD Does Business
    Winning the future means reforming Government so it's leaner, 
transparent, and ready for the 21st century. While HUD programs make a 
big difference in the lives of ordinary Americans, this Administration 
is also committed to making Government more efficient, more effective, 
and more accountable. Particularly in today's tight fiscal environment, 
the need for responsible budgeting has never been greater--and making 
smart, responsible choices depends on quality information. That is why 
this Budget demonstrates a strong commitment to conducting the research 
and collecting the data we need to understand what works, what doesn't, 
and what we need to do better--so that HUD can better serve the 
American people, better protect the American taxpayer and better 
partner with communities to meet the challenges of the decades ahead.
    The Budget provides up to $120 million for the Transformation 
Initiative (TI) Fund. In fiscal years 2010 and 2011, thanks to the TI 
Fund, HUD began to fundamentally alter how we approached our 
investments in delivering technical and capacity-building assistance, 
conducting research demonstrations, and maintaining and upgrading our 
IT systems so that we can hold ourselves and our local partners 
accountable for the outcomes needed to achieve the Department's 
strategic goals.
More of What Works and Less of What Doesn't: Research and 
        Demonstrations
    A key element of HUD's transformation strategy is to provide a 
predictable stream of funding for high quality research and evaluation 
that can inform sound policymaking. Allocating a small increment of 
program funds to this account will enable HUD to subject programs 
continuously to rigorous evaluation. Absent investment in key 
evaluations, demonstrations, and analysis, HUD's capacity to support 
program refinement, measure progress toward goals and engage in robust 
policy development is extremely limited. This new era of evidence-based 
policymaking demands that HUD build back its internal research capacity 
and work in partnership with the research community to evaluate 
existing programs and design new policy approaches to solving America's 
housing and community development challenges.
    The Research, Evaluation, and Performance Metrics initiative will 
supplement Research and Technology (R&T) appropriations in order to 
provide the Nation's basic infrastructure of housing data. The more 
careful and scientific approach enabled by these additional research 
investments will highlight for policy makers what works and what needs 
reform. Systematic research enables HUD to monitor results and 
undertake timely modifications of programs and policies that fail to 
produce results. A component of this research and evaluation will 
develop the right set of metrics to track program performance between 
evaluations to inform management decision-making. In fiscal year 2010, 
the Department was able to supplement a $48 million R&T appropriation 
with $26 million in Transformation Initiative Research, Evaluation, and 
Program Metrics funds. This funding permits the Department to determine 
how certain program functions ought to cost or ought to operate.
    For example, the current allocation method for Housing Choice 
Voucher (HCV) administrative fees is not based on rigorous and 
objective studies, and may overcompensate some public housing agencies 
(PHAs) while underfunding others. The Department has used TI funds to 
develop a careful examination of the costs of administering the HCV 
program at high-performing and efficient PHAs in a wide variety of 
communities.
    For fiscal year 2012, the Department anticipates approximately $25 
million to be allocated for research projects. HUD's proposed 
transformational approach to research would also inform the decisions 
of a broad network of public and private sector actors. A key feature 
of the new approach is to partner with other Federal agencies, such as 
the Departments of Transportation and Energy, and the Environmental 
Protection Agency, on research topics of mutual interest. HUD will 
again confer with OMB and the appropriate Congressional Appropriations 
and Authorizing committees before finalizing the research agenda for 
funding under the Transformation Initiative. Combined with efforts 
already in progress, HUD expects that this research will both improve 
program effectiveness and generate savings over time.
    An additional strategic thrust of the Transformation Initiative was 
to enable HUD to design and execute a series of major research 
demonstrations. These trials of new program ideas provide a controlled 
mechanism to improve programs and--help State and local governments 
develop more effective strategies for housing and community and 
economic development. Demonstrations are necessary to test innovative 
program approaches to improve the delivery and reduce the cost of 
public services. In short, well-run demonstration programs--such as the 
Jobs Plus, Moving to Opportunity, and Effects of Housing Vouchers on 
Families demonstrations of the early 1990s--enable the Federal 
Government and our local partners to fund what works, and defund what 
does not. However, demonstrations generally require funding over 
several years and often allow waiver of program rules when conducted to 
pilot ideas for existing program changes. Flexible funding may be 
needed to cover design resources, additional program costs, such as 
incentives for participating households, and evaluation of the impacts 
over several years.
    Using funding flexibility granted in fiscal year 2010, HUD launched 
important demonstrations to test policy interventions in the Family 
Self Sufficiency (FSS) program, rent reforms in our major rental 
assistance programs, and the first round of Choice Neighborhoods 
grants, among others. For instance, the FSS program encourages public 
housing tenants to increase earnings by allowing them to set aside the 
rent increases they would otherwise pay to further specific goals, such 
as education and homeownership. TI funds will be used to test whether 
this is a cost-effective approach to increasing self-sufficiency that 
can be taken to scale. HUD anticipates allocating $15 million in fiscal 
year 2012 TI funding to program demonstrations, and, as in fiscal years 
2010 and 2011, HUD will confer with both the House and Senate 
Appropriations committees before finalizing planned demonstrations 
under the Transformation Initiative. These demonstrations will, in 
conjunction with HUD Stat, be critical for informing funding decisions, 
as well as the reengineering and streamlining of business processes and 
procedures in HUD's programs.
21st Century Technology To Protect the Taxpayer's Investment
    Funding for Information Technology (IT) modernization and 
development is not requested under the TI Fund for fiscal year 2012. 
Having assessed the fiscal year 2010 planning and implementation 
efforts, HUD has determined that funding these activities under the 
Working Capital Fund in fiscal year 2012 will allow the Department to 
better align the account structure and decision-making process with 
budget planning and investment life cycle management policies. Within 
the TI Fund, HUD will utilize significant balances from fiscal year 
2010, as well as funds available in fiscal year 2011, to continue the 
execution of priority IT development, modernization, and enhancement 
efforts, including FHA Transformation and the Next Generation Voucher 
Management System.
    The FHA Transformation project involves the development of a modern 
financial services IT environment to better manage and mitigate 
counterparty risk across all of FHA's Insurance Programs. The system 
will minimize the exposure of our Insurance Funds and support the 
restoration of the capital reserve ratio to congressionally mandated 
levels by enabling risk detection, fraud prevention and the capture of 
critical data points at the front-end of the loan life cycle. More 
simply put--FHA Transformation will enable HUD to identify trends, and 
seamlessly take action, before problems occur. This approach will 
protect consumers and the economy by ensuring that safe underwriting 
standards are adhered to, as FHA approaches $1 trillion of Insurance-
in-Force. Importantly, FHA Transformation will also allow HUD to start 
the careful process of migrating relevant portions of our legacy 
applications, most of which were built in a 1970's era programming 
language, to a more cost-effective platform.
    The Next Generation Voucher Management System (NGVMS) performs a 
Department-wide reengineering of the current voucher management 
business models and processes. NGVMS will replace 20-year-old legacy 
systems and Excel-based budget spreadsheets with a solution that 
establishes uniform processes and a standard set of rules and 
regulations that support all of HUD's rental assistance programs. The 
system will support enhanced budget planning and forecasting 
capabilities, improve grantee reporting and data integrity, and ensure 
that programs comply with the requirements of the selected provisions 
from the proposed Section 8 Voucher Reform Act (SEVRA).
    In addition to improving systems that support HUD's programs, the 
agency is also investing in technology to improve HUD's administrative 
processes. For example, the HUD Integrated Acquisition Management 
System (HIAMS) will automate all phases of the acquisition life cycle 
to create greater accountability and transparency, as well as enable 
timely processing of procurement actions. The agency's current process 
is manually intensive and highly susceptible to errors. HIAMS will 
reduce processing inefficiencies, increase visibility into the 
acquisition process, and enable HUD to obtain services faster. The 
system utilizes the most widely adopted Federal acquisition management 
software, a solution that is currently used by more than 80 
organizations across the civilian, intelligence, and defense sectors.
Reforming Government and Improving Accountability With Cutting-Edge 
        Technical Assistance
    The community development field is evolving to a more 
comprehensive, sustainable approach to neighborhoods and cities. As 
noted, HUD has embraced this change with new initiatives like 
Sustainable Housing and Communities, Choice Neighborhoods, and the 
Neighborhood Stabilization Program. In order to realize this expanded 
vision, the Nation needs local practitioners--both local government and 
nonprofit partners--who understand a more comprehensive approach, who 
can use current technology to assess needs and to measure success, and 
who have modern skills to deliver results and save money for the 
taxpayer.
    The Transformation Initiative recognizes that enhanced and focused 
information, and more targeted support for grantees, will result in 
better program administration and more integrated planning and action 
that cross programs and jurisdictions. Effective responses to urban and 
housing challenges increasingly require coordination and awareness of 
diverse areas of knowledge: housing finance as well as land use 
planning; economics as well as energy efficient design; community 
development as well as transportation planning; accessible design as 
well as job creation strategies.
    The Transformation Initiative is helping HUD to develop a new level 
of technical assistance and capacity building to Federal funding 
recipients. Traditionally, HUD has delivered compliance-oriented 
technical assistance, funded through individual program accounts that 
ensure grantees are fully aware of the rules governing HUD's disparate 
programs. HUD's fiscal years 2010 and 2011 budgets proposed rolling 
these accounts into one broad technical assistance effort to be funded 
from global transfers to the TI Fund. Central funding through the 
Transformation Initiative has allowed the Department to develop 
comprehensive technical assistance efforts that focus on skills needed 
to improve program outcomes, rather than merely reinforcing program 
compliance.
    In the 2012 Budget, HUD once again requests discretion to target 
technical assistance funding to those programs that need it most based 
on the capacity of current grantees, new program requirements (e.g., 
the continued implementation of the HEARTH Act, or implementation of 
new programs such as Choice Neighborhoods or Sustainable Housing and 
Communities), broader economic and social imperatives (e.g., a spike in 
homelessness, or the impact of high energy and housing costs on housing 
affordability), or unanticipated crises (e.g., natural disasters). In 
order to ensure that these critical but limited resources are targeted 
appropriately, HUD will continue to evaluate the technical assistance 
needs of its grantee communities in fiscal year 2011 with 
Transformation Initiative funds and build on those findings with funds 
from fiscal year 2012.
    In particular, HUD is involved in the ``Strong Cities, Strong 
Communities'' pilot--involving 12 other agencies including the White 
House--aimed at improving the capacity of local governments in 
chronically distressed cities and developing partnerships to support 
job creation and economic development. Many of the cities that have 
historically driven America's economic growth are now amongst its most 
economically distressed. These cities have struggled to return to a 
place of economic productivity and opportunity after decades of 
industrial decline--a challenge exacerbated by the recent economic 
downturn. This initiative is designed, not to provide additional 
funding, but instead to ensure that communities are using the resources 
already available to them more effectively and efficiently so they can 
compete in the global economy.
    As part of this effort, the Transformation Initiative will support 
the creation of a National Resource Bank (NRB). The Bank is so named 
because it will be a repository of technical assistance for local 
governments across the Nation, but will not provide direct financial 
resources. The NRB will align and aggregate public and private funds to 
provide cities tailored technical support through a ``one-stop-shop'' 
of national experts with wide-ranging skills that are critical for 
economic development. These include fiscal reforms, repurposing land 
use, and business cluster and job market analysis, to name a few. The 
NRB will help lay the foundation for economic recovery and 
transformation in these cities through truly place-based support that 
leverages existing strategic partnerships between local governments, 
Federal regional office staff, and the philanthropic community and 
helps to foster further linkages for the long-term benefit of these 
cities. The local demand for the capacity-building assistance that the 
NRB will provide is broad and sustained. Cities have had few options 
for building organizational capacity since the 1970s, and recent budget 
cuts have created even greater strains on capacity at the same time 
that local challenges are growing more complex. The NRB will play an 
essential role in helping to coordinate and direct Federal technical 
assistance functions at a time of severe local government need.
Conclusion
    Mr. Chairman, this Budget reflects the Obama administration's 
recognition of the critical role the housing sector must play for the 
Nation to out-build, out-educate, and out-innovate our competitors. 
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 FY2012 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 winning the future starts at home--and with this budget 
of targeted investments and tough choices that I respectfully submit, 
we aim to prove it. Thank you.
                                 ______
                                 

       RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN JOHNSON
                       FROM SHAUN DONOVAN

Q.1. Section 8 Voucher Administration Funding. The FY11 
appropriations act includes a significant cut to the 
administrative funding that local agencies use to support the 
voucher program. Although the reduction is less severe than 
proposed by the House in HR 1, I am concerned that essential 
operations will be seriously affected for voucher 
administrators, particularly in a State like mine with smaller 
agencies covering large distances. PHAs may be forced to layoff 
workers and cut back services, leading to increased waiting 
times for voucher recipients and less expeditious use of HUD 
housing voucher funds. The impact of this cut may also be 
greater because it is coming late in the fiscal year.
    When will you tell agencies what their voucher funding will 
be in the remaining months of FY2011?
    What do you think might be the impact of the FY11 
reductions on families, agencies, and the program?
    Given existing constraints, are there proposals that would 
help to streamline some of the voucher program's administrative 
functions, through the Section Eight Voucher Reform Act or 
regulatory means?

A.1. Response not provided.

Q.2. Interagency Partnerships/Incremental Vouchers. One key to 
increasing the effectiveness of our programs is to ensure that 
Federal agencies are not working at cross purposes on common 
goals. Your budget requests $57 million for new vouchers that 
will be used in two new interagency initiatives to improve 
outcomes for homeless children and at-risk individuals. HUD 
will partner with HHS and the Department of Education on these 
initiatives.
    What are you hoping to demonstrate with these initiatives, 
both about services for the homeless and interagency 
coordination?

A.2. Response not provided.

Q.3. Sustainable Communities. Last year I worked with then-
Chairman Dodd to ensure that Tribes and rural communities would 
have access to the funding and technical assistance provided in 
his Livable Communities Act. That bill was closely related to 
the Sustainable Communities program that Congress has funded in 
recent years to help communities coordinate their own 
transportation and housing efforts.
    What kind of interest are you seeing from rural and tribal 
communities in Sustainable Communities efforts?

A.3. Response not provided.

Q.4. FHA. Last week, the American Banker reported that lenders 
were delaying claims on FHA insured loans to avoid incurring 
treble damages and that this pool of claims might threaten the 
MMI fund if they were eventually filed.
    Did the article accurately reflect the situation? Is HUD 
monitoring these potential claims and could they pose a threat 
to the MMI fund?
    With the recent announcement that the Department of Justice 
was suing Deutsche Bank regarding alleged misrepresentations of 
loans to FHA, does FHA have the tools necessary to seek 
remedies from any lender that misleads the FHA?
    Would having that additional authority better protect the 
MMI fund and taxpayers?

A.4. Response not provided.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHUMER
                       FROM SHAUN DONOVAN

Q.1. HUD's FY2012 Budget requests that Congress fund the Public 
Housing Operating Subsidy at $4.962 billion by seeking $3.962 
billion in appropriations and proposes that HUD use an 
additional $1 billion in public housing operating reserves as 
an offset to operating subsidy. While I understand that we are 
working in a difficult fiscal environment, this particular 
proposal has raised an enormous outcry from stakeholders who 
are concerned that this reflects a reversal in HUD's policies 
regarding the use of operating reserves.
    I understand that HUD encourages public housing authorities 
to accumulate operating reserves through responsible asset 
management, rent freezes and the Public Housing Assessment 
System (PHAS) to be available to meet operating or capital 
needs. Is it fair to retroactively recapture funds from housing 
authorities that have been responsible and successful at 
complying with HUD's goals? How does HUD plan to provide future 
incentives to housing authorities for being resourceful and 
their ability to accumulate operating reserves?
    This question is intended for United States Department of 
Housing and Urban Development Secretary Shaun Donovan.

A.1. Response not provided.

Q.2. According to HUD's Congressional Justifications for the 
FY2012 Budget Request, there is a documented $20-$30 billion 
backlog in capital needs for public housing. Do you believe 
that the Federal Government can provide these resources? Is it 
responsible to manage the public housing program by taking away 
$1 billion from properties that have such large unmet needs? In 
what ways does HUD plan to assist public housing authorities 
with large capital needs in order to compensate for a potential 
loss in operating reserves?

A.2. Response not provided.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR AKAKA
                       FROM SHAUN DONOVAN

Q.1. The Housing Counseling Assistance Program was not funded 
as part of the recently enacted Full Year CR. I am very pleased 
to see that housing counseling funding would be restored under 
the Administration's proposal. What impacts have housing 
counseling had on housing outcomes for homeowners and renters? 
How do you measure the effectiveness of housing counseling 
services?

A.1. Response not provided.

Q.2. Housing and transportation are the two highest costs for 
most families. A significant high-speed rail project is 
underway in Hawaii. Transit-oriented development neighborhood 
plans are now being developed. How can HUD assist in ensuring 
the availability of sufficient affordable housing opportunities 
in Hawaii's transit-oriented development districts?

A.2. Response not provided.

Q.3. The Administration's budget does not include additional 
resources for the Native Hawaiian Housing Loan Guarantee 
program in FY2012. This program has consistently received an 
annual appropriation of $1 million, and the budget 
justification contends that the unobligated balance is 
sufficient to program needs in the next fiscal year. What can 
be done to increase participation in the Section 184(a) loan 
guarantee program in the future?

A.3. Response not provided.

Q.4. The Federal Housing Administration's Section 247 mortgage 
insurance program continues to be an invaluable tool for 
increasing homeownership among Native Hawaiian families. The 
unique nature of the Hawaiian Home Lands, which were 
established through the Hawaiian Homes Commission Act of 1921, 
has required a mortgage insurance program distinct from other 
FHA programs. The effective stewardship by the Department of 
Hawaiian Home Lands (DHHL) has kept the default rate on these 
loans very low--the rate currently stands at 4.3 percent. 
Nevertheless, FHA requires that DHHL ``backstop'' the FHA 
General Insurance/Special Risk Insurance fund and make the fund 
whole for any claims paid, despite the fact that FHA alone 
collects the insurance premiums. Please explain the 
justification for this arrangement. Can you provide any 
examples of other programs that are required to backstop FHA in 
this manner?

A.4. Response not provided.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR KOHL
                       FROM SHAUN DONOVAN

Q.1. Responsiveness to Wisconsin's Housing Authorities. 
Secretary Donovan, recently my office has received calls from 
housing authorities and other groups that utilize HUD's 
programs. These groups have contacted my office because of 
HUD's response time on making decisions that significantly 
impact their operations. One group, for example, waited over a 
year to hear back from HUD on a request to transfer Section 8 
vouchers from one property to another. Another group is waiting 
for HUD's approval on a Housing Assistance Payment Contract 
transfer. As you know, these organizations all use mixtures of 
private and public dollars, so when HUD fails to make a timely 
decision, private dollars are at risk.
    Can you explain why it takes HUD so long to respond to 
these requests? Are there additional resources that HUD needs 
in order to be more responsive to these groups?

A.1. Response not provided.

Q.2. Qualified Residential Mortgage Definition. FHA is 
statutorily exempt from the risk retention clause in the Wall 
Street Reform and Consumer Protection Act. Are you concerned 
that if private lenders must require 20 percent down payments 
to avoid risk retention, while FHA can offer mortgages with 
just 3.5 percent down, that FHA could become the only option 
for families with less than 20 percent to put down on a home? 
Do you believe that private market alternatives to Government 
subsidized mortgage insurance should remain in place? What the 
potential impacts to only having Government sponsored mortgage 
insurance for these borrowers, without private sector options?

A.2. Response not provided.
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