[Senate Hearing 112-672]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 112-672


 LEGISLATIVE PROPOSALS IN THE UNITED STATES DEPARTMENT OF HOUSING AND 
                   URBAN DEVELOPMENT'S FY2013 BUDGET

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

                                HEARING

                               before the

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

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   ON

 EXAMINING THE LEGISLATIVE PROPOSALS IN THE DEPARTMENT OF HOUSING AND 
                   URBAN DEVELOPMENT'S FY2013 BUDGET

                               __________

                             APRIL 26, 2012

                               __________

  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
                     Laura Swanson, Policy Director
                 Erin Barry, Professional Staff Member
                 Beth Cooper, Professional Staff Member
                       Andrew Green, Senior Staff
                 Andrew Olmem, Republican Chief Counsel
            Dana Wade, Republican Professional Staff Member
            Chad Davis, Republican Professional Staff Member
                       Dawn Ratliff, Chief Clerk
                      Anu Kasarabada, Deputy Clerk
                     Riker Vermilye, Hearing Clerk
                      Shelvin Simmons, IT Director
                          Jim Crowell, Editor

                                  (ii)










                            C O N T E N T S

                              ----------                              

                        THURSDAY, APRIL 26, 2012

                                                                   Page

Opening statement of Chairman Johnson............................     1
    Prepared statement...........................................    19

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     2
    Senator Menendez
        Prepared statement.......................................    19

                                WITNESS

Shaun Donovan, Secretary, Department of Housing and Urban 
  Development....................................................     3
    Prepared statement...........................................    20

              Additional Material Supplied for the Record

Written statement submitted by Cheryl A. Causley, Chairwoman, 
  National American Indian Housing Council.......................    36
Letter submitted by the National Low Income Housing Coalition....    40

                                 (iii)

 
 LEGISLATIVE PROPOSALS IN THE UNITED STATES DEPARTMENT OF HOUSING AND 
                   URBAN DEVELOPMENT'S FY2013 BUDGET

                              ----------                              


                        THURSDAY, APRIL 26, 2012

                                       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 TIM JOHNSON

    Chairman Johnson. I call this hearing 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, while we have 
seen economic improvement since your last appearance, too many 
of our families and our State and local government partners 
continue to struggle.
    HUD studies have shown troubled increases in both worst 
case housing needs and family homelessness during this economic 
downturn. As our need for affordable housing has risen, HUD and 
local providers face increasing difficulties in preserving the 
resources we have to aging buildings and expiring affordability 
contracts.
    Meanwhile, State and local governments are cutting services 
and job creating investments. 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 as we discussed with you a few weeks ago, 
more needs to be done to remove barriers to the recovery of the 
housing market and the broader economy.
    Although we are focusing on the legislative proposals and 
HUD's budget request today, we plan to have you back to 
continue that housing market discussion in the next several 
weeks. As the country faces these challenges, the Federal 
Government must ensure that we make wise investments and 
preserve our important programs that help those most in need.
    At the same time, we must be mindful of our budget 
constraints and assure that we get the most value for our 
dollar. I understand that you have made a number of hard 
choices in your FY2013 budget, cutting or freezing the funding 
for several programs that you otherwise support in order to 
meet physical goals.
    But your budget also contains a number of proposals 
intended to increase HUD's effectiveness. These include 
proposals to streamline our public housing and Section 8 
programs to make them more effective for families and local 
administrators, help create and preserve public-assisted 
housing, and empower local communities as they plan for their 
futures.
    In addition, you have also focused on strengthening the 
management and financial standing of the FHA insurance 
programs. While FHA is providing critical countercyclical 
financing to the housing market, it is burdened by the legacy 
of loans made prior to 2009. It needs careful management.
    Although we have recently heard some dismiss the importance 
of HUD's existence, the Department administers programs aimed 
to provide access to quality, affordable, and safe housing for 
homeowners and renters. These programs have provided a lifeline 
to millions of the most vulnerable Americans. They have also 
bolstered the American housing market as it threatened to grind 
to a halt. In today's economy, they are more important than 
ever.
    I look forward to hearing more about 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. Welcome, Secretary Donovan. You 
have been a pretty regular up here. We appreciate you. Today we 
meet to discuss the Department of Housing and Urban 
Development's fiscal year 2013 budget. And although HUD's $45 
billion budget is just one slice of the Federal Government's 
overall budget, the skyrocketing Federal debt means every 
department needs to practice fiscal discipline.
    Last year, the Federal deficit, as you probably realize, 
reached $1.3 trillion. That is the third year in a row of 
deficits of over $1 trillion. Unheard of in the United States 
of America. These deficits have put the Federal debt at nearly 
$11 trillion, or about 70 percent of GDP, its highest level 
since World War II.
    I believe we cannot continue to ignore our mounting fiscal 
problems. Instead, we must begin to address the issue by 
enacting budgets that curb the cultural spending in Washington 
and institute fiscal reforms. During this Administration, HUD 
has focused on achieving short-term goals, I believe, without 
adequately considering the long-term cost.
    Most importantly, the Department has not taken sufficient 
action, I believe, to address the growing risk to the budget 
and taxpayers presented by the Federal Housing Administration. 
Over the past 3 years, FHA's portfolio has expanded from $500 
billion to $1.3 trillion. It now insures more than 20 percent 
of all new mortgages.
    And while some of this expansion was an appropriate 
response to the housing crisis, FHA's growth has not been 
managed wisely, I believe. First, even though the 
Administration's public position calls for reducing conforming 
loan limits, the President signed legislation to allow FHA to 
continue to insure mortgages of up to nearly $730,000.
    Prior to 2008, FHA could insure mortgages only up to 
$417,000. This means that FHA is now helping homeowners 
purchase million-dollar homes. FHA, I believe, should be 
focused on helping first-time and moderate income home buyers, 
not millionaires.
    Second, FHA insurance premiums are insufficient to cover 
losses and buildup needed capital reserves. According to FHA's 
own reporting, over the past year, FHA insurance premiums 
covered less than 80 percent of its $9.4 billion in net default 
losses, and as a result of insufficient premiums, the 
President's 2013 budget estimates that FHA would have needed a 
bailout to the tune of $688 million if FHA had not received 
funds from the mortgage servicing settlement.
    Even more troubling is the fact that the HUD budget has 
historically underestimated the cost of FHA loans. And because 
its estimates of FHA loan performance are not adjusted for 
market risk, the budget does not reflect the true cost of 
guaranteeing loans during weaker economic cycles.
    The Congressional Budget Office has said that by not 
incorporating a market risk premium, the HUD budget 
underestimated the cost of FHA single family loan program in 
2012 by $8 billion, Mr. Secretary. Furthermore, Wharton 
Professor Joseph Gyourko has argued that FHA's accounting also 
greatly underestimates default risk and loan losses. After 
factoring in the huge growth of FHA's portfolio, he predicts 
that FHA will ultimately need a bailout of $50 billion to $100 
billion.
    It is clear that FHA needs to be reformed to prevent 
another taxpayer bailout. I would hope that we could all agree 
that the first place to start is by ensuring that FHA is 
properly accounting for the risk, Mr. Secretary, that it 
assumes. I also hope that we could enact broader reforms, 
working with you, before the problems of the FHA grow larger 
and become more expensive to fix.
    This Committee, I believe, made a serious mistake by not 
reforming the GSEs when we had the chance. That mistake has 
cost the taxpayers nearly $200 billion and counting. I hope the 
Committee will not make the same mistake with FHA. Thank you, 
Mr. Chairman.
    Chairman Johnson. Thank you, Senator Shelby. I want to 
remind my colleagues that the record will be open for the next 
7 days for opening statements and any other materials you would 
like to submit. Before I introduce Secretary Donovan, I would 
like to note that I will have to step out to attend an 
Appropriations Committee mark-up at 10:30.
    Senator Shelby. We both will.
    Chairman Johnson. Right. And Senator Merkley has agreed to 
chair the Committee in my stead.
    Now I would like to briefly introduce the Secretary. 
Secretary Shaun Donovan is the 15th Secretary at the Department 
of Housing and Urban Development. Secretary Donovan has served 
in this capacity since January 2009. Secretary Donovan, you may 
proceed.

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

    Mr. Donovan. Thank you, Chairman Johnson and Ranking Member 
Shelby for this opportunity. It is good to be back with you 
again today. I would like to discuss how HUD's fiscal year 2013 
budget proposal is essential to creating housing in communities 
built to last and will support 700,000 jobs.
    Mr. Chairman, in developing this proposed budget, we 
followed four principles. The first is to continue our support 
for the housing market while bringing private capital back. The 
critical support FHA provided the last 3 years has helped 
nearly 2.8 million families buy a home, and more than 1.7 
million homeowners refinance into stable, affordable products, 
with average monthly savings of more than $125.
    At the same time, we have taken the most significant steps 
in FHA history to reduce risk to the taxpayer and reform FHA's 
mortgage insurance premium structure. With the premium 
increases of 10 basis points recently enacted by Congress, 
coupled with additional premium increases on jumbo loans 
reflected in the budget, FHA projects to add an additional $8.1 
billion in receipts to the capital reserve account in 2013.
    And last month, we announced a series of premium changes 
that will increase receipts to FHA above those already in the 
budget by $1.48 billion in fiscal years 2012 and 2013. We have 
also taken significant steps to increase accountability for FHA 
lenders and continue to seek expanded authority via legislation 
that will further enable us to protect the fund, as will the 
recent settlement with some of America's largest banks through 
which FHA will receive approximately $900 million to compensate 
for losses associated with loans originated or serviced in 
violation of FHA requirements.
    With FHA's market share declining since 2009, these reforms 
will further help private capital return while ensuring that 
FHA remains a vital source of financing for underserved 
borrowers. Overall, the HUD budget submitted in February 
requested $44.8 billion in gross budget authority. This program 
funding level was offset by $9.4 billion in projected FHA and 
Ginnie Mae receipts at the time the budget was submitted, 
leaving net budget authority of $35.4 billion, or 7.3 percent 
below the fiscal year 2012 enacted level of $38.2 billion.
    However, because of the premium increases I just mentioned, 
the Administration now projects that the cost for this budget 
is offset by an additional $894 million, more than meeting our 
deficit reduction targets while still allowing us to improve 
oversight of our programs.
    As you know, the Congressional Budget Office provided the 
Congress with its own scoring of our receipts, which was $1.7 
billion higher than the President's submission. This higher 
total governed the recent mark-up of the fiscal year 2013 HUD 
budget bill by the Appropriations Committee.
    And while this higher level of offsetting receipts enabled 
the Subcommittee to provide increased budget authority to HUD, 
the bill passed by the full Committee continues to reflect the 
principles we followed in formulating the President's budget 
submission, the second of which was to protect current 
residents and improve programs that serve them.
    The 5.4 million families who live in HUD-assisted housing 
earn $10,200 per year, on average, and more than half are 
elderly or disabled. That is why 83 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.
    As you know, inflation and stagnant incomes put real 
pressure on the cost of these programs each year. This year we 
redoubled our efforts to minimize and even reverse these 
increases not just for this year, but in the years to come. For 
instance, we are working to enact Section 8 reform legislation 
that would save $1 billion over the next 5 years, while also 
reducing regulatory burden on both PHAs and private owners who 
receive project-based rental assistance, supporting the ability 
of PHAs in small towns and rural areas to better serve the 
working poor, and improving the successful Family Self-
Sufficiency program.
    We have been working closely with your counterparts in the 
House on the Affordable Housing and Self-Sufficiency 
Improvement Act, and expect that a bill will move to the House 
floor in the near future. I urge this Committee to take up this 
legislation and I am committed to providing any support you 
need to move a bill this year.
    The budget also achieves additional savings in the Project-
Based Rental Assistance program by improving oversight of 
market rent studies, capping certain annual subsidy increases, 
and offsetting excess reserves.
    I should note that should Congress fail to come to an 
agreement within the framework of the Budget Control Act, the 
sequestration that would result, by design bad policy, could 
well mean that many families now receiving HUD rental 
assistance would be put out on the street and undo virtually 
all the progress we have made toward ending homelessness.
    Further, struggling homeowners across the country would not 
get the housing counseling needed to help them stay in their 
homes, and communities of all sizes would lose funds they count 
on to build infrastructure and create jobs. Already, protecting 
current families required us to make choices we would not have 
made in a different environment, and I would urge Congress to 
pass the kind of balanced deficit reduction the President has 
proposed to avoid putting a greater share of this burden on our 
poorest families.
    Indeed, the need to stretch Federal dollars even further 
reminds us why our third principle, continuing investments that 
leverage private dollars and create jobs, is so important. 
Through our Choice Neighborhoods program we are helping 
communities engage a broad range of public and private partners 
to transform our poorest neighborhoods and ensure our children 
are prepared for the 21st century economy.
    And I want to thank Senator Menendez for chairing a hearing 
on Choice Neighborhoods last month and look forward to working 
with the Committee on moving authorizing legislation for the 
program in the coming months. Likewise, our Sustainable 
Communities Grants challenge communities to creatively use 
existing resources that help them in-source and bring jobs back 
to our shores.
    Earlier this month, I saw for myself how Memphis is using 
HUD's Community Challenge Grant to more effectively invest 
Federal and State resources in neighborhoods surrounding its 
international airport, not only helping FedEx create over 3,000 
new jobs in Memphis, but also aligning regional housing, 
transportation, and economic development strategies to ensure 
this growth benefit neighboring Arkansas and Mississippi.
    Interstate planning is particularly critical to smaller 
places. Nebraska and Iowa, Idaho and Wyoming, and South 
Dakota's Pine Ridge Indian Reservation are but a few examples 
of rural and tribal economies using regional planning grants, 
which I would note flow not through their States, but directly 
to them.
    At a time when this environment has required us to make 
tough choices about CDBG and HOME, dollar-for-dollar the most 
effective job creators in our budget, these grants leverage the 
limited resources of core programs smarter and more 
efficiently. Indeed, reducing regulatory burdens and increasing 
efficiency is the fourth principle we used to formulate this 
budget.
    For example, the budget provides key flexibilities to PHA 
such as combining their public housing operating and capital 
fund allocations to better manage in this fiscal environment. 
It also continues critical transformation initiative research 
and demonstration programs, which allow us to propose increased 
investments in programs we know work like permanent support of 
housing and rapid rehousing that end homelessness and save 
money.
    That is why even in this difficult environment, we propose 
additional funding for homeless assistance grants and the HUD-
VASH program for homeless veterans, ensuring we can end chronic 
and veteran homelessness by 2015.
    All told, despite tough choices, this proposed budget 
allows us to serve 27,000 more vulnerable families. It 
recognizes that the recovery of our housing market is essential 
to our economic recovery and it expresses our belief that every 
American should get a fair shot, do their fair share, and play 
by the same rules. Thank you.
    Chairman Johnson. Thank you, Secretary Donovan, for your 
testimony. As we begin questions, I will ask the clerk to put 5 
minutes on the clock for each Member.
    Secretary Donovan, in your testimony, you touched on some 
of the steps you had taken to increase the solvency of the 
FHA's MMI Fund. We also discussed the status of FHA at your 
last hearing with you. Could you update us on the actions you 
have taken and the status of your implementation? Are there 
additional authorities you need to ensure the solvency of the 
fund and enhance your oversight of FHA lending?
    Mr. Donovan. Thank you, Mr. Chairman. The most critical 
steps we have taken recently include the settlement that I 
mentioned, which was the result of years of extensive 
investigations we did of servicing and origination practices, 
and also the premium increases that I mentioned. Already going 
into effect are not only the 10 basis point increase, but 
larger increases on jumbo loans.
    As the Ranking Member mentioned, we did support bringing 
our loan limits down to a lower level. We were discouraged that 
that did not happen last fall. And so, one of the steps that we 
took, which will speed the transition of private capital coming 
back to larger loans, was to implement larger increases for 
those larger balance loans. Those are all critical steps.
    But there are additional particularly enforcement steps 
that we would like to work with this Committee on to get past 
as quickly as possible. Currently, we do not have the authority 
that we need to disqualify lenders on a national basis, and to 
take additional steps that strengthen our ability to hold 
lenders accountable for poor originations that do not meet our 
standards under FHA rules.
    That is legislation that we have come close to passing in 
the past working with the Committee, and I believe this year is 
an important year to finally get across the finish line with 
that legislation.
    Chairman Johnson. In light of the need for Senator Shelby 
and I to excuse ourselves, I yield to Senator Shelby.
    Senator Shelby. Mr. Chairman, thank you. The Secretary, I 
think, understands that we both serve on the Appropriations 
Committee and we have a full mark-up. If HUD's budget was 
there, he would understand it more, would you not?
    Mr. Donovan. Absolutely.
    Senator Shelby. Mr. Secretary, it has now been over a year 
since you and Secretary Geithner submitted your white paper on 
housing finance reform. At that time, Secretary Geithner stated 
that the Administration would work with Congress to develop 
housing finance legislation and that, quote, would like to try 
and do that within the next 2 years.
    Recent press accounts have suggested that the 
Administration may--may is the magic word in it--may be sending 
a legislative proposal to Congress in the next few weeks. One, 
has the Administration prepared a legislative proposal, as has 
been reported in various media outlets, and if so, when do you 
expect the legislative proposal, if you have prepared it, would 
be sent to Congress? This is May 1st coming up.
    Mr. Donovan. First of all, Senator----
    Senator Shelby. A fair question.
    Mr. Donovan. Absolutely. And this is one of the most 
critical areas, as you rightly pointed out, for us to move on. 
We have made significant steps toward bringing private capital 
back that were part of that white paper, that are within our 
own authority, and I think that is a critical point----
    Senator Shelby. That is very important.
    Mr. Donovan. ----both on the loan limits for Fannie Mae and 
Freddie Mac, as well as the premium increases that have 
happened both at FHA. We are also looking at additional ways, 
without legislation, to bring private capital back through 
putting private capital ahead of the GSEs.
    We have continued to work on refining potential proposals 
for the GSEs. We have been encouraged to see legislative 
proposals, some of them bipartisan, in both the House and the 
Senate. We do not at this point have a specific time table, nor 
legislation completed to submit to Congress. We are hopeful 
that there will be bipartisan action as soon as possible on 
that. But we do not have a specific proposal that we expect to 
be providing in the next few weeks.
    Senator Shelby. Can we expect, if you are able to do it--we 
know this is a very complicated problem and a big ticket item--
to work with the Congress to let us know, both sides of the 
aisle, what is going on here? Because it is going to take both, 
a bipartisan effort to do this.
    Mr. Donovan. I completely agree and I would be--I am 
hopeful, as I said earlier, that there is beginning to emerge 
more of a bipartisan consensus around potential options. That 
was the reason we put out the white paper last year and 
specified three potential options to try to narrow that 
discussion and lay out the cost and benefits of the various 
options.
    And it is something that we would be happy to continue to 
work with you and to sit down, even tomorrow, and continue that 
discussion.
    Senator Shelby. Do you believe that the private market for 
secondary--you know, for securitized loans is beginning to show 
a little life?
    Mr. Donovan. There has been increased activity, 
particularly on the commercial and the multifamily side, as 
well as some----
    Senator Shelby. That is why there have been very few 
foreclosures, is it not?
    Mr. Donovan. Fewer foreclosures, absolutely. At the single 
family side, we have seen some increased activity, but I think 
what is going to be critical is defining, under the qualified 
mortgage and the qualified residential mortgage rules in the 
near future, the standards that will help to support a further 
development of the securitization market.
    Senator Shelby. I think you are right on that. HUD's HOME 
program, if I can get in that for a minute, there have been 
serious lapses in HUD's oversight in the HOME program, which is 
the largest affordable housing block program. HOME has been 
cited numerous times by both the Washington Post as well as the 
HUD Inspector General for failing to ensure that projects that 
get funds are completed in a timely manner.
    Recently HUD has made some rule changes to the program to 
try to fix its oversight gaps. Could you explain, just for a 
minute, the new rules and how you believe that would improve 
HUD's oversight of HOME, and when will Congress be able to see 
updated data on the HOME program to determine the impact of 
these new rules? We all agree that things needed to change 
there, you, too.
    Mr. Donovan. Absolutely. And, in fact, we worked with the 
Appropriations Committee, as you know, to include in the budget 
last year a number of changes. Those are part of what is 
included in the rule that has been proposed. We are reviewing 
comments and we expect to finalize that rule this summer.
    I think three of the key areas that we make those 
improvements, one is our data systems and we have already begun 
improving the data collection. A second is improving 
underwriting so that we know that these projects are viable 
going forward. And then the third is to make sure that grantees 
are better tracking, through flags and other automatic 
cancellation, of projects that are not moving forward on a 
timely basis.
    Senator Shelby. Secretary Donovan, in your written 
testimony, I believe you stated that HUD, the HUD budget will, 
quote, your words, contribute to deficit reduction in a 
substantial way. We hope so. HUD's budget--the budget actually 
increases spending by $1.4 billion, though. HUD's budget shows 
that some of the increased spending will be offset by FHA 
premiums.
    This accounting makes HUD's budget request appear smaller 
than it could be in reality, and since FHA premiums cannot be 
used to both fund new spending and increase FHA's capital 
reserve, is this double counting or is this a budget thing? 
What is this? How do you explain this?
    Mr. Donovan. Well----
    Senator Shelby. I am talking to you up here now also as an 
appropriator, I guess, although we are not in the 
Appropriations Committee.
    Mr. Donovan. I completely understand. I think the most 
important point here, and you pointed this out in your own 
opening statement, in past years, there have been concerns 
about our modeling and whether we are accurately reflecting the 
cost. I was very encouraged that this year for the first time 
in recent years CBO actually scored our receipts at a higher 
level than in the President's budget, reflecting the fact that 
I think they believe that if anything we are underestimating 
the strength of the loans that we will make next year.
    And we are only following budget requirements in terms of 
the way that we state the offsets for those. There is no 
question that there will be billions of dollars, a greater 
return to the taxpayer next year, and therefore, the net cost 
of our budget is, in fact, significantly lower.
    But I would also point out that we are making serious 
strides in lowering the cost of our core programs. We were able 
to propose a net decrease actually in our tenant base or 
voucher program this year.
    Senator Shelby. How did you do that?
    Mr. Donovan. A lot of that comes from the legislation that 
we are hopeful will get passed this year that the House is now 
considering, and it is one of our top priorities. At a time 
when there is too much discussion of a lack of bipartisanship, 
this is a bipartisan effort that I think could get done in this 
Committee this year and I hope that we will be able to 
accomplish that before the budget is passed.
    Senator Shelby. Thank you. Thank you, Mr. Chairman.
    Mr. Donovan. Thank you.
    Chairman Johnson. Secretary Donovan, you have highlighted 
the potential negative effects of lower funding levels for 
basic Section 8 voucher administration. I am also concerned 
that PHAs may be forced to lay off workers and cut back 
services leading to increased waiting times for voucher 
recipients and less efficient use of HUD funds.
    These budget pressures can be especially severe in States 
like South Dakota with smaller agencies covering large areas. 
Given the existing budget constraints, what can be done to 
streamline some of the voucher program's administrative 
functions? Could proposals that have been discussed in the 
Section 8 voucher reform discussion help relieve budget 
pressures at local agencies and improve the program?
    Mr. Donovan. The answer to that is absolutely yes, and that 
is exactly why we are pursuing this legislation. First of all, 
I am very concerned about the level of administrative funding 
for PHAs. We have seen really what has been unheard of. More 
than ten agencies around the country have actually refused, 
have turned back to us vouchers that help homeless veterans 
find housing. We have more than a dozen agencies that have 
turned back their entire voucher programs just in the first few 
months of this year because of the substantial cuts that we 
took last year in the administrative funding.
    So we have proposed more than $200 million in increases for 
administrative fees for PHAs, and we simply do not think we can 
take further risks with homeless veterans or others who benefit 
from these programs. Specifically, what this legislation that 
you mentioned gives us the potential to do are many common 
sense steps that will improve administration, but also lower 
the cost of these programs.
    Just take one example. We have more than 50 percent of 
those who are in our core programs, vouchers, public housing, 
project-based Section 8, who are elderly or disabled, and 
generally, their incomes are very, very stable from disability 
payments, Social Security, and so it does not make sense that 
we have to decertify them every single year. This bill would 
allow us to do it every 3 years rather than every year for 
folks who are on fixed incomes. That is just one example.
    It would streamline where units are in good condition our 
ability to inspect them every other year as opposed to every 
year. So it is really a risk-based monitoring standard. Those 
are just a few examples of things that would lower costs and 
improve the efficiency of the programs.
    Chairman Johnson. Secretary Donovan, as I discussed with 
Assistant Secretary Enriquez during our recent hearing on the 
housing needs consultations, I was pleased that HUD has revised 
its tribal consultation process for the needs assessment. 
Meaningful tribal consultation is a key to ensuring a sound 
assessment. Can you provide me with an update on the status of 
this consultation process?
    Mr. Donovan. Absolutely. First of all, we are about to hold 
the last of a series, more than a half-dozen sections on the 
negotiated rulemaking that is required. That has been an 
important step forward, and I hope you have heard, as I have, 
from the tribes that that has significantly improved the 
consultation and that has gone well.
    In addition to that, we have embarked on a comprehensive, 
the first in more than a decade, of the needs, housing needs of 
Indian Country. And we began that with a series of--a number 
of--I believe it is four or five consultation sessions to 
establish the outline for that study, and it was part of the 
implementation of our consultation policy that you asked about.
    So those are two important examples, I think, of the way 
that we are implementing that consultation policy that we 
arrived at.
    Chairman Johnson. Senator Merkley, are you prepared to take 
over?
    Senator Merkley. You bet.
    Chairman Johnson. Excuse me, Secretary Donovan.
    Mr. Donovan. Thank you.
    Senator Merkley [presiding]. Thank you very much, Mr. 
Secretary, and I appreciate all of the great work you are doing 
on such an important area as housing. It is housing that 
brought us into this recession, and certainly, depending on how 
we manage it, it is either going to lengthen the time that we 
are in the economic ditch or it is going to help us find a path 
forward.
    I thought I would focus on some detail questions related to 
the nitty-gritty of housing support, starting with the HUD 
proposal to recapture the residual receipts accounts of certain 
multifamily properties to backstop rent assistance funding. In 
a number of cases, nonprofits have been using these funds to 
pay for services for tenants. The transition to that funding 
will create some dislocation, that possibility. And any 
insights or thoughts about that issue?
    Mr. Donovan. Yes. First of all, I would just say, as an 
overview, that we made some decisions in this budget that we 
certainly would not have made in more normal times, and this 
was a very difficult decision in terms of what to do with those 
receipts. Generally speaking, the understanding has always been 
under these contracts that those receipts could be recaptured 
by HUD, and we have allowed consistently the ability to use 
those receipts.
    So I think we would be looking in a targeted way where they 
are critical for providing services, where they are critical 
for providing those other needs, that we would have some 
flexibility on being able to use those. We are really talking 
about excess accounts, and there are significant amounts. We 
just felt that at a time when we are making very difficult 
choices about rent levels and other things, that we could not 
let these accounts sit idle, to the extent they were sitting 
idle, and there are millions of dollars that are, that we ought 
to look at these.
    It is consistent with what we have done with housing 
authorities to recapture excess balances there and we felt that 
it was only fair that we look across the board in doing that.
    Senator Merkley. Thank you. And I realize there are many 
decisions that are being driven by trying to find--squeeze 
efficiencies, if you will. I believe one of those is to go from 
annual inspection of housing units to biennial or biannual 
inspections, and there have been some cases where units have 
not been maintained as well as we would have hoped. Is this a 
concept that has been test-piloted or is there any particular 
concern about property quality being lost in the process?
    Mr. Donovan. Two things I would say about that. First, this 
allows but does not require that inspections go to biannual, 
and what we are trying to achieve is really more of a risk-
based approach. We have units that are in very good condition 
where it does not make sense to do an annual inspection. On the 
other hand, there will be some where there will need to be 
annual or even more frequent inspections. So what we are trying 
to move to is rather than a one-size-fits-all policy to more of 
a risk-based.
    The other thing I would say, though, is we are concerned 
that we have operated for too long at HUD with different 
systems for inspections, and in particular, we use housing 
quality standards for vouchers. We use a different system 
through our REAC process for our public housing and our 
project-based Section 8, and we think there are significant 
improvements that we can make to the housing quality standards 
by incorporating what we do on the REAC side.
    So we are looking at effectively combining, in some ways, 
those different standards, and also through technology, 
stepping up the oversight that we do. Using our REAC 
inspectors, we have a protocol that we are putting in place 
right now--the pilot has been successful--to go back and do re-
inspections, quality control, if you will, of inspections by 
housing authorities that I think will go a long way to making 
sure we do not have problems in the way the inspections are 
working and making sure that the units are in good condition.
    So those, along with the technology solutions, we will be 
able, for the first time next year, to look at digital 
pictures, for example, through our systems from any of those 
inspections. So there is a whole range of things like that that 
will be able to improve the system, even as we go to this more 
risk-based approach.
    Senator Merkley. Thank you. It sounds like you have thought 
it through very thoroughly. I will ask one more question and 
then turn this over to my colleague, Senator Menendez. I 
believe that you have proposed rent assistance contracts for 
less than a full year and I am not sure of the details of that, 
but I think it is a budgetary maneuver that reduces costs in 
the short term, but, of course, does not reduce real cost.
    There is some concern that because it introduces more 
uncertainty for the owners of the properties that we will lose 
some good property owners out of the program. I just raise that 
for you to have a chance to share your insights on it.
    Mr. Donovan. This was one of the most difficult decisions 
that we made in the budget. I was encouraged to see, because of 
the changes we have made in FHA and the improved modeling and 
other steps that we have taken, that CBO scored the receipts 
for FHA at almost $1.8 billion more than we did in the 
President's budget.
    As a result, in the Senate appropriations bill that was 
completed last week, they actually were able to reverse that 
short funding, which we thought was an important step given the 
additional receipts that were there.
    So even though this is something we did propose in the 
budget, something that, frankly, we think we could implement 
without interruptions in funding, it would introduce some 
uncertainty, as you have described, and to the extent that we 
are able to find additional receipts that could fund this, as 
the Senate Appropriations Committee has done, we think that 
would be an important step forward.
    Senator Merkley. Thank you. My colleague, Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. Mr. Secretary, 
thank you for you coming before the Committee, and most 
importantly, for your service to our country. I appreciate the 
work you have been doing.
    Mr. Donovan. Thank you.
    Senator Menendez. I just want to visit--it was not what I 
originally intended to pursue as a line of questions, but just 
since we are establishing a record here, is it not true that 
the higher loan limits are paid for by virtue of the extra 
amounts we created in the fees?
    Mr. Donovan. Well, first of all, they represent a very 
small share of our overall business. Our evidence is that they 
actually perform somewhat better than smaller loans, so we do 
not think they introduce a substantial risk to the taxpayer. 
And as you said correctly, the increased fees that we 
implemented in our budget do ensure that they are fully--more 
than fully paid for.
    And so, in that sense, this is not a question of taxpayer 
risk. It is really a question of how we want to look--the 
finance market of the future to look and do we want to try to 
encourage private capital to come back into that space for 
larger loans. But you are absolutely correct.
    Senator Menendez. We rarely get 60 votes around here these 
days, and at a time in which that is a rarity, that is exactly 
what we achieved in the Senate on preserving the higher loan 
limits at a particularly still challenging time for the housing 
market. So I think it made a lot of sense. And it is 
interesting to know, while FHA has challenges, compared to the 
GSEs, it has definitely had better underwriting because it has 
not had the need at this point for a bailout. So it is 
fundamentally different.
    Let me ask you, have you had a chance, or your staff been 
able to take a look at the Menendez-Boxer discussion draft that 
we held a Housing Subcommittee on yesterday, which was a very 
positive one? Which is, of course, the whole question of 
increasing refinancing opportunities for responsible 
homeowners. And if so, do you have any initial comments on it?
    Mr. Donovan. First of all, I would just say thank you for 
your leadership on this. In my statement--you may have missed 
it--we did recognize you. I recognized you for your leadership 
on this, and this is one of the most important things I think 
we can do in the short term to help the housing market 
strengthen and recover, and that is recognized by economists 
across a broad spectrum of positions.
    We were particularly encouraged in the way that the bill 
focuses on expanding the success of HARP. The early results 
from the changes that we made without legislation are that we 
are seeing big jumps in refinancing, particularly in States 
that have the most underwater borrowers. In Florida, for 
example, we have seen almost a 50 percent increase in 
refinancing the last few months. In Nevada, 70 percent.
    But what is so important about your bill is that we have 
over 10 million homeowners, the vast majority of them that are 
above water, and yet, have had barriers to refinancing. And 
what your bill, most importantly, I think, achieves is to 
expand the impact that we are having for the most underwater 
borrowers to those that are above water but have other 
challenges, other barriers that are stopping them from 
refinancing.
    So we think it is a critically important bill. We think the 
level of detail, the range of things that you have attacked, 
barriers that you have attacked there is a very, very strong 
piece of legislation and we look forward to working with you to 
get it passed as quickly as possible.
    Senator Menendez. Well, thank you, and we will look forward 
to working with you as well, the refining it. HUD continues to 
promote mixed use properties and high density as good choices 
for communities, which I support. Yet, the FHA's condo rules 
prohibit the purchase of a condominium and a property with more 
than 25 percent of commercial space.
    Can you give me a sense of what is the purpose of the 
restriction, and does it not run contrary to the new town 
center model that, you know, we seem to be promoting, that HUD 
seems to be promoting, that certainly among other elements, 
livable communities seem to be--the whole focus seems to be in 
a direction that would create those opportunities, and yet, 
this seems to work counter to that view.
    Mr. Donovan. This is a very important point that you raise. 
We have traditionally, because FHA is a residential insurer, 
and frankly, our capacity to look at it and understand 
commercial property has been limited, we have tended to limit 
the amount of commercial income. And that is not just on the 
condo side. It is also on the rental side.
    We have begun a review of these policies for exactly the 
reasons that you point out, because we want to make sure that 
we are encouraging mixed use development, but also, frankly, 
that we are protecting taxpayers and that we have the capacity 
to review, and also to make sure that the long-term success of 
those condos is assured.
    This is an area that we have been reviewing our policies. 
We are in the process of both rewriting rules, making 
regulatory changes on condominiums, but also expect to issue a 
mortgagee letter before completing that rulemaking that would 
make some changes, and this is an area that we are looking at 
based on your input and concern about this.
    Senator Menendez. Great. Finally, if I may, Mr. Chairman? I 
thank you for that response and I think we are moving there in 
the right direction. I think that while obviously it is about, 
you know, residences that we can find the right mix at the end 
of the day that still meets those missions and gives us an 
element of Choice Neighborhoods along the way.
    I am very concerned about the affordability in housing, 
particularly in States like New Jersey, that have long had high 
housing costs, and was disappointed to see that the facts show 
a severe shortage of affordable housing. And, you know, HUD 
recently found 7.1 million very low income renter households, 
had worst case housing needs in 2009, a 20 percent increase 
from 2007, the largest 2-year increase in the last 25 years.
    Among low, very low income renters, only 60 affordable 
units are available for every 100 renters. And there is a whole 
host of statistics. Given all of the challenges and the 
affordability of housing right now, is this not exactly the 
wrong time to enact the severe cuts to HUD's budget that the 
House, I see, is proposing? Would that not have even 
exacerbated the set of circumstances?
    Mr. Donovan. There is no question, Senator, that we have 
already had to make difficult decisions these last few years 
about HUD's budget. We have made it an absolute priority and we 
have successfully protected not only every existing resident, 
but increased the number of families that we can serve.
    We are concerned enough about the potential for the 
sequestration, which is an average of an 8 percent reduction 
going into effect if we do not get a common sense resolution of 
our budget. The Ryan budget would go far beyond that and 
require more than a 20 percent cut, on average, across domestic 
discretionary programs.
    What we are talking about here is potentially, when you 
look at 5.4 million families that we help at HUD, you are 
looking at the potential for more than a million families to be 
at risk of homelessness, to lose their assistance, were those 
cuts to go into effect. So you are looking at reversing all of 
the progress that we have made on veterans' homelessness and a 
range of other areas and seeing increased homelessness instead 
that would add to the challenges that you described.
    So we are very, very concerned, and the President, as you 
know, has called for a balanced approach where there is shared 
sacrifice, not sacrificed by those that are the most vulnerable 
paid for by reductions in taxes and increased benefits to those 
who least need them.
    Senator Menendez. Well, that is not acceptable. It is 
unacceptable at any given time. It is certainly unacceptable in 
these times. Mr. Chairman, I would like to have what would have 
been my opening statement in the record. It includes a whole 
list of efforts we have made with Senate appropriators signed 
by dozens of my colleagues expressing priorities for programs 
at HUD that deserve funding, and that a good share of my 
colleagues have joined. So if we could include that in the 
record, I would appreciate it.
    Senator Merkley. Absolutely, without objection.
    Senator Menendez. Thank you, Mr. Secretary, for your 
service.
    Mr. Donovan. Thank you, Senator.
    Senator Merkley. Thank you very much and I appreciate the 
response, Mr. Secretary, to the work that Senator Menendez and 
Senator Boxer are doing to try to make the HARP program work 
for effectively.
    I think from the viewpoint of many of us who serve on this 
Committee, it has been very frustrating to see a very slow 
process with additional hurdles left in place for loans that 
are already guaranteed by the U.S. Government for families that 
would benefit enormously from these lower interest loans and 
the series of provisions that Senator Menendez and Senator 
Boxer put forward I wholeheartedly support. Thank you for your 
good work in that area.
    I wanted to turn the conversation a bit because that whole 
effort involves Fannie, Freddie loans. But we have a lot of 
loans in America that are not owned by Fannie and Freddie. And 
so, for those families who are underwater, it is a whole more 
limited set of options without the additional reforms to HARP.
    And it is a bit of a lottery. Folks come in to talk to our 
case workers and say, I am underwater by this amount. Is there 
anything I can do? And the first question is, Well, let us look 
and see if your loan happens to be a Fannie or Freddie loan, 
because if it is, there is this possibility. FHA loan, there is 
this possibility. If not, then you are probably out of luck.
    Any thoughts on how we can more aggressively assist 
families who are current on their loans, they have made their 
payments through these three to 4 years of difficult recession 
circumstances, they would benefit enormously from lower 
interest rates, but because they are underwater, the system 
does not work for them?
    Mr. Donovan. Senator, it is a terrific question and it is 
one of the most important things that we can do in the short 
term to help improve not only the housing market, but the 
economy more broadly. The average family can benefit by 
typically $2,500 to $3,000 a year through refinancing.
    A few things I would say. I do think it is critical, and we 
have been working closely with you and your team, that we use 
this opportunity also to help families get back above water, 
and for the average family, if they shorten the term of their 
loan and take some of those savings and plow them back into 
principal reduction, a large majority of families could get 
back above water in just a few years. And that is an area where 
I think--as you know, you have been a leader on this issue. 
That is an important opportunity.
    And then outside of Fannie and Freddie loans, we took 
important steps that will go into effect on June 11th that will 
dramatically cut the fees for FHA borrowers that are underwater 
an average of about $1,000 a year in lower fees.
    But finally, and most importantly, there are 3 million 
families that are in the situation that you described, paying 
their loans, could benefit substantially from refinancing, but 
because they have private label security loans or loans that 
are in the portfolios of the banks, they are stopped from 
refinancing.
    We took a first step on that through the recent settlement 
that we arrived at, which will require the five largest lenders 
to begin to refinance some of those borrowers, but we ought to 
make it universal. The President called for this in his State 
of the Union address and we have been working closely with some 
of your colleagues.
    I would be hopeful that in the next few weeks, we will see 
a bill introduced, as a complement to the bill that Senator 
Menendez has introduced with Senator Boxer, that would allow a 
refinancing for those borrowers as well along the lines that 
the President proposed in his State of the Union address. That 
is a critical next step that we could take on this.
    Senator Merkley. Thank you and I appreciate the dialog with 
the Administration on this challenge. We are probably about 
halfway through the foreclosure crisis, so there is still a lot 
of families, a lot of time in which changes now could be of 
enormous help in the next several years.
    One of the things that I have puzzled over is that if you 
pencil out a fund based on a spread between the cost of funds 
and, say, 5 percent mortgages, throw in some risk transfer fees 
and some personal insurance fees and do a detailed spreadsheet 
as I and my team have done, with the kind of center of the road 
assumptions, the fund is solvent in terms of being able to 
refinance these mortgages.
    But the challenge is that the source of funds has to be 2 
percent funds to have a 3 percent spread to a 5 percent 
mortgage on the collateralized portion of the loan package. And 
that only happens with a Federal guarantee and that requires 
legislation and it requires bipartisan collaboration that we 
have yet to develop, but I think we need to keep working on.
    Just as I look at your budget, I am looking at the $400 
billion in loan guarantee authority for the Mutual Mortgage 
Insurance Fund. The similar concept of the Federal guarantee 
would give us that ability to access the low interest funds 
available in the market today to create this kind of solvency 
for a fund that would serve the private label security's 
refinancing and be able to cut through the complexity of 
voluntary programs, if you will, where the current mortgage 
holder has all the leverage and the family does not.
    So I look forward to continuing to work with you on that.
    Mr. Donovan. Completely agree, Senator, and I do think you 
are absolutely right, that the path to do this does require 
legislation, is to use a Federal guarantee like FHA to be able 
to do that. But there are also ways that we can ensure that 
that cost is minimized. One of the important steps that we 
could take, which would also achieve principal reduction, would 
be to require that whoever holds that mortgage takes some 
amount of write-down before that loan is transferred and 
refinanced onto the books.
    The truth is, that is money they are not going to recover 
at any point now given the likely default rates on those loans, 
and it is something that would provide the ability for that 
homeowner to get back above water more quickly. So we think 
that there are sort of design parameters in the way that this 
could be put together that both help the homeowner, limit the 
cost to the taxpayer, and ensure a faster recovery of the 
housing market.
    Senator Merkley. Yes. And you used the term write-down and 
I used the term risk transfer fee, which are essentially the 
same concept; that is, if I own a portfolio of loans and I know 
that there is a good chance a bunch of them will go under and 
they are uncollateralized or partially uncollateralized, then 
at a certain write-down, I am happy to get back a substantial 
percentage on those loans, rather than bear the risk of much 
higher losses in the existing marketplace.
    And I think there is some substantial potential of finding 
that sweet spot that is a reasonable deal in that regard. You 
mentioned earlier the accelerated or compressed timeline for 
mortgage, and this is something we have been working on with 
the Administration in terms of people being able to refinance, 
say, into a 15-year loan, keep much the similar levels of 
payments, and thereby get out from being underwater much more 
quickly than they would under a 30-year loan.
    There is kind of two different models here, and I am just 
wondering if you have done any modeling of the impact? Because 
under that model, because people get out from being underwater 
much more quickly, you reduce the foreclosure risk in that 
sense of families, when they are out from underwater, will be 
able to refinance. They see a vision to where they will finally 
have equity in their houses and that keeps them in the house.
    The alternative is to have the longer period of loans and 
use the subsidy to reduce the interest rates, and by reducing 
the monthly payments, you now create less risk of financial 
default and less risk of strategic default because you narrow 
the gap with rental payments. So you have a different set of 
incentives that reduce the foreclosure risk.
    And I am just wondering if there has been any sort of an 
internal analysis comparing those two strategies as to their 
effectiveness in addressing foreclosure risk.
    Mr. Donovan. We have done a fair amount of analysis on 
this. The truth is that because the historical data on what the 
likely default rates are when someone is deeply underwater is 
limited. You have to go back a long way, as you know, to find a 
comparable crisis that we have been through.
    There is a lot of debate about what the likely default 
rates are and how much of that is derived from payment 
reduction versus principal reduction. And so, we have done a 
lot of modeling about that. Our best answer on this is, first 
of all, principal reduction matters and it is something, as you 
know, that we have done a lot of work on through the 
settlement, through our changes to HAMP to try to encourage.
    But we think that the best way to do this is to provide 
incentives for principal reduction. We think most people are 
likely to make a choice that is a shorter term choice and to 
choose payment reduction rather than principal reduction even 
if principal reduction might have some advantages for them over 
the longer term, because it is just harder to know when you are 
going to have a medical emergency, when you are going to need 
to repair that roof, whatever, and that is where the principal 
reduction shocks are so important.
    So our view is, leave it up to the consumer. Let them 
choose, but provide some incentives for how they balance that, 
because frankly, it is going to be different in different 
cases, and the best outcome is to leave choice to have both, 
but to provide some incentives. Fannie Mae and Freddie Mac are 
already doing that by reducing the fees for refinancing if you 
choose to shorten the term.
    We think, as we have been discussing with you, there are 
other ways to do that that can increase that incentive and tip 
the balance more toward that long-term view of principal 
reduction which we think is important.
    Senator Merkley. Thank you very much. I am just going to 
check with staff to see if any other Members are on the verge 
of arriving. No? I am always heartened by your testimony and 
your comprehensive understanding of the housing issues we are 
facing, which in this world of enormous complexity, is 
essential.
    And so, thank you. Thank you for your testimony. Thank you 
for your thoughtful work on finding a path forward that will 
empower families through affordable, quality housing, and 
empower families through restoring the path of home ownership 
as a part of the American dream. Thank you.
    Mr. Donovan. Thank you, Senator. Thank you for your 
leadership and partnership on so many of these issues. It is a 
pleasure to work with you.
    Senator Merkley. The Committee stands adjourned.
    [Whereupon, at 11:08 a.m., the hearing was adjourned.]
    [Prepared statements and additional material 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, while we have seen economic improvement since 
your last appearance, too many of our families and our State and local 
government partners continue to struggle. HUD studies have shown 
troubling increases in both ``worst case'' housing needs and family 
homelessness during this economic downturn.
    As our need for affordable housing has risen, HUD and local 
providers face increasing difficulties in preserving the resources we 
have, due to aging buildings and expiring affordability contracts.
    Meanwhile, State and local governments are cutting services and 
job-creating investments.
    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 as we discussed with you a few weeks ago, more needs to be done 
to remove barriers to the recovery of the housing market and the 
broader economy. Although we are focusing on the legislative proposals 
in HUD's budget request today, we plan to have you back to continue 
that housing market discussion in the next several weeks.
    As the country faces these 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 be mindful of 
our budget constraints and ensure that we get the most value for our 
dollar.
    I understand that you have made a number of hard choices in your 
FY2013 budget, cutting or freezing funding for several programs that 
you otherwise support in order to meet fiscal goals.
    But your budget also contains a number of proposals intended to 
increase HUD's effectiveness. These include proposals to:

    streamline our public housing and Section 8 programs to 
        make them more effective for families and local administrators,

    help create and preserve public and assisted housing, and

    empower local communities as they plan for their futures.

    In addition, you have also focused on strengthening the management 
and financial standing of the FHA insurance programs. While FHA is 
providing critical countercyclical financing to the housing market, it 
is burdened by the legacy of loans made prior to 2009 and needs careful 
management.
    Although we have recently heard some dismiss the importance of 
HUD's existence, the Department administers programs that aim to 
provide access to quality, affordable, and safe housing for homeowners 
and renters. These programs have provided a lifeline to millions of the 
most vulnerable Americans. They have also bolstered the American 
housing market as it threatened to grind to a halt. In today's economy 
they are more important than ever.
                                 ______
                                 
             PREPARED STATEMENT OF SENATOR ROBERT MENENDEZ
    Mr. Chairman, thank you for holding this important hearing, and Mr. 
Secretary, thank you for appearing today and I look forward to your 
testimony. As Housing Subcommittee Chairman, I hear on an almost daily 
basis about the challenges that HUD faces. On top of the preexisting 
challenge of housing affordability across the Nation, especially in 
high cost States like New Jersey, we now have both foreclosures and a 
housing market that is just beginning to recover. Under these 
challenging circumstances, I appreciate HUD's work to develop a budget 
to address the Nation's housing needs and improve our economy recovery.
    I have personally written four letters to Senate appropriators 
signed by dozens of my colleagues expressing my priorities for programs 
at HUD that deserve funding and I have signed onto many more. These 
include housing counseling, which in my view is critical to stopping 
further foreclosures and providing struggling families with the peace 
of mind that they have someone to guide them through their options. It 
also includes Sustainable Communities grants, a letter I led with 
Senator Landrieu that got a quarter of all Senators on it, which urges 
funding for locally and regionally driven planning, which is key to 
economic development, smart growth, and creating jobs. It includes the 
Choice Neighborhoods Initiative, authorizing legislation for which I 
have introduced in the Senate, that will provide grants to transform 
blighted neighborhoods and build upon the successes of HOPE VI while 
ushering in a new and more comprehensive model of community 
development. And it includes fully funding Project Based Section 8 
contracts in an area where I think short-funding them would be a 
mistake that would push costs into future years.
    On perhaps the most important housing issue of our time, 
foreclosures, I hope that we can work together to keep people in their 
homes, to provide good options for those people we can't keep in their 
homes, and to convert the vacant and foreclosed properties that are 
blighting our neighborhoods into viable affordable rentals or new 
homeownership opportunities. I have also been working on a bill with 
Senator Boxer that we plan to introduce next month to help homeowners 
with GSE loans to refinance more easily by removing barriers that are 
preventing them from taking advantage of historically low interest 
rates. Middle class families could save significant amounts of money 
every month, helping the economic recovery and reducing foreclosures, 
if we can make these important changes. With that, I look forward to 
your testimony.
                                 ______
                                 
                  PREPARED STATEMENT OF SHAUN DONOVAN
         Secretary, Department of Housing and Urban Development
                             April 26, 2012
    Chairman Johnson, Ranking Member Shelby, and Members of the 
Committee, thank you for the opportunity to testify today regarding the 
fiscal year 2013 Budget for the Department of Housing and Urban 
Development, Housing and Communities Built to Last.
    I appear before you to discuss this Budget in an economic 
environment that is significantly improved from when the President took 
office. An economy that was shrinking is growing again--and instead of 
rapid job loss, more than 3.2 million new private sector jobs have been 
created in the last 22 months, and national unemployment has fallen to 
a near 3-year low. But we know there's still more work to be done to 
ensure that America can create an economy built to last--with good jobs 
that pay well and security for the middle class.
    HUD's Fiscal Year 2013 Budget tackles these challenges head on: by 
helping responsible families at risk of losing their homes; by 
providing quality affordable rental housing to some of our Nation's 
most vulnerable families; by transforming neighborhoods of poverty to 
ensure we are not leaving a whole generation of our children behind in 
our poorest communities; by rebuilding the national resource that is 
our federally assisted public housing stock and ensuring that its 
tenants are part of the mobile, skilled workforce our new global 
economy requires; and by leveraging private sector investments in 
communities to create jobs and generate the economic growth our country 
needs. Indeed, this Budget will support hundreds of thousands of jobs 
both directly and indirectly, serving as a powerful engine for job 
creation in the places that need them most.
    Our Budget provides $44.8 billion for HUD programs, an increase of 
$1.4 billion, or 3.2 percent, above fiscal year 2012. This program 
funding level (i.e., gross budget authority) is offset by $9.4 billion 
in projected FHA and Ginnie Mae receipts, leaving net budget authority 
of $35.4 billion, or 7.3 percent below the fiscal year 2012 enacted 
level of $38.2 billion. The Budget reflects the reality that we cannot 
create an economy built to last without taking responsibility for our 
deficit. The caps set by the Budget Control Act of 2011 promise over 
$907 billion in total discretionary cuts over the next 10 years, and 
every department shares a responsibility to make tough cuts so there's 
room for investments to speed economic growth. To maintain our 
commitment to fiscal discipline, this Budget invests in improving the 
infrastructure and technological systems critical to reforming the 
Government to be leaner, more transparent, and ready for the 21st 
century. Moreover, by providing a menu of key reforms--including to 
some of our largest rental assistance programs--this Budget simplifies 
and aligns policies to be more efficient and effective, while saving 
the taxpayer hundreds of millions of dollars. To be clear, not all of 
the reforms we are proposing are easy. Indeed, this Budget makes tough 
choices in order to contribute to deficit reduction in a substantial 
way.
    Of course, as several Members of this Committee who also serve on 
the Appropriations Committee are well aware, last week the 
Appropriations Committee approved its version of the FY2013 
Transportation-HUD funding bill. And, just as we had to make many tough 
decisions in developing our budget, so the Members of the 
Appropriations Committee had to make many of the same kinds of 
calculations in drafting and approving their FY2013 T-HUD legislation. 
The passage of that bill is an important step in the 2013 funding 
process, but there is still a long way to go. HUD is in the process of 
reviewing the bill, but from an overall perspective, I am very 
appreciative of the Committee's work under extremely tight fiscal 
constraints to fund a wide range of key priorities, and I look forward 
to continued discussions about funding levels with the Members of both 
the Appropriations Committee and this Committee.
Responding to the Crisis
    Much has happened in the 3 years since HUD submitted its fiscal 
year 2010 Budget. Only weeks before the Bush Administration and 
Congress had taken dramatic steps to prevent the financial meltdown, 
the Nation was losing 753,000 jobs a month, our economy had shed jobs 
for 22 straight months, house prices had declined for 30 straight 
months, and consumer confidence had fallen to a 40-year low.
    In the face of an economic crisis that experts across the political 
spectrum predicted could turn into the next Great Depression, the Obama 
administration had no choice but to take aggressive steps. The Federal 
Reserve and Treasury helped keep mortgage interest rates at record 
lows. To provide access to these low interest rates, the Administration 
supported Fannie Mae and Freddie Mac, while HUD's Federal Housing 
Administration (FHA) stepped in to play a critical 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, more than 5.6 million borrowers have received 
mortgage modifications with affordable monthly payments, nearly 14 
million families have been able to refinance their homes, and 
foreclosures are down by nearly 50 percent.
    Earlier this month, the U.S. District Court for the District of 
Columbia approved the settlement that the Justice Department had 
reached with the Nation's largest mortgage servicers over mortgage loan 
servicing and foreclosure abuses. This historic settlement, negotiated 
with the Obama administration and a bipartisan coalition of attorneys 
general from 49 States, provides at least $25 billion on behalf of 
American homeowners.
    The product of 16 months of intensive negotiations between the five 
banks and an unprecedented coalition of State attorneys general and 
Federal agencies, including the Departments of Justice, Treasury, and 
HUD, that crossed partisan lines, the settlement helps families keep 
their homes and reduces the shadow inventory by providing relief to 
homeowners, in part by forcing banks to reduce the principal balance on 
many loans, refinancing loans for ``underwater'' borrowers. In addition 
the settlement will pay billions of dollars to States to help stabilize 
communities and cover the costs associated with the foreclosure crisis 
and consumers who have been foreclosed upon.
Creating an Economy Built to Last
    Now, having prevented our economy from falling into a second Great 
Depression, the Administration is focused on ensuring that we create an 
economy built to last, which makes strategic investments in our 
communities but also takes responsibility for our deficit. For HUD, 
that meant using four core principles to develop our budget:

  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;

  3.  Continuing progress on signature initiatives to provide 
        communities with the tools they need to speed economic growth; 
        and

  4.  Reducing regulatory burdens and increasing efficiency--including 
        streamlining, simplifying, and reforming current programs.

    As such, the Department's Budget for fiscal year 2013 follows the 
roadmap the President has laid out for jumpstarting our economy through 
educating, innovating, and building--by targeting our investments to 
the families and geographies that need them the most, and putting 
American back to work. Specifically, this Budget helps:
    Give Hard-Working, Responsible Americans a Fair Shot. Not only is 
there more work to do to ensure that the economic security of middle 
class Americans does not continue to erode, we have a responsibility to 
directly address the challenges facing the most vulnerable Americans. 
This Budget does so by serving over 5.4 million families--the majority 
of whom are extremely low-income--in our rental assistance programs; 
and by supporting the Choice Neighborhoods initiative, which provides 
communities with the innovative tools they need to revitalize 
neighborhoods of concentrated poverty--efforts that helped communities 
leverage over $1.6 billion of private funding last year alone.
    Ensure Every American Plays by the Same Rules. Put simply, we 
cannot settle for a country where a shrinking number of people do 
really well, while more Americans barely get by. There are still 
millions of Americans who have worked hard, acted responsibly, and made 
their mortgage payments on time--who, because their homes are worth 
less than they owe on their mortgage, can't take advantage of today's 
historically low interest rates and are facing real economic 
insecurity. In addition to steps taken by the Administration to combat 
predatory lending practices (discussed in depth below), this budget 
provides critical funding for the Housing Counseling program ($55 
million), which will directly help over 185,000 low-to-moderate-income 
families in improving access to quality affordable housing, expanding 
home ownership opportunities, and preserving homeownership through 
foreclosure mitigation; as well as providing training to over 4,800 
counselors nationwide.
    This Budget also recognizes that we can no longer tolerate a 
federally supported rental housing system that is ``separate and 
unequal''--one which expects public housing authorities (PHAs) to house 
over 3 million families, subjecting them to overly burdensome 
regulation while denying them access to private capital available to 
virtually every other form of rental housing. To bring our rental 
housing system into the 21st century and begin addressing the $26 
billion in public housing capital needs, this Budget includes proposals 
that would increase PHA flexibility to fund critical supportive 
services for assisted families while also moving them toward mainstream 
real estate financing and management practices through the 
consolidation of outmoded funding streams. At the same time, by 
implementing the second year of our Rental Assistance Demonstration, 
the Budget will use existing resources to ensure that up to 60,000 
units funded through our public housing and the so-called ``orphan 
programs'' can leverage debt to access private capital and preserve 
affordable housing.
    Create New Jobs in America To Discourage Outsourcing. In addition 
to the hundreds of thousands of jobs that this budget creates both 
directly and indirectly, it makes an essential contribution to the 
Administration's broader effort to discourage outsourcing and encourage 
``insourcing.'' Specifically, attracting new businesses to our shores 
depends on urban, suburban and rural areas that feature more housing 
and transportation choices, homes that are near jobs, and 
transportation networks that move goods and people efficiently--which 
is why this budget restores funding for Sustainable Housing and 
Communities, which embodies the President's commitment to being a new 
kind of Federal partner to regions, States, and localities as they 
tackle planning and economic development challenges for the 21st 
century.
    Of course, smart planning requires sustained follow-through. That 
is why HUD is committed to ensuring that its core community and housing 
development work contributes to more and better transportation choices; 
promotes equitable, affordable housing; and aligns Federal policies and 
funding to remove barriers to local collaboration. Accordingly, we will 
continue to make critical investments in programs such as the Community 
Development Block Grant and Native American Housing Block Grant. In 
particular, CDBG is an important catalyst for economic growth--helping 
leaders around the country bring retail businesses to their 
communities, forge innovative partnerships and rebuild their economies.
    Reform Government So That It's Leaner, Smarter, More Transparent, 
and Ready for the 21st Century. It is clear that an economy built to 
last requires a Federal Government that is efficient, streamlined, and 
transparent. As such, the Budget proposes reforms to HUD rental 
assistance programs that would save over $500 million in fiscal year 
2013 without reducing the number of families served--by streamlining 
programs and reforming policies. Moreover, this Budget once again calls 
for the flexible use of resources through the Transformation 
Initiative, which the Department needs to invest in technical 
assistance to build local capacity to safeguard and effectively invest 
taxpayer dollars; conduct innovative research, evaluations of program 
initiatives and demonstration programs so we can fund what works and 
stop funding what doesn't; and upgrade the IT infrastructure that 
tracks and monitors our programs.
Moving the Needle, Making Substantial Progress
    In short, this Budget will achieve substantial results not only for 
vulnerable, low-income Americans but also for hard-hit local and State 
economies across the country. Its carefully targeted investments will 
enable HUD programs to serve millions of families in thousands of 
communities nationwide; to help create an economy built on American 
manufacturing, American energy, skills for American workers, and a 
renewal of American values.
    Consistent with the previous 2 years, HUD's fiscal year 2013 Budget 
is structured around the five overarching goals the Department adopted 
in its Strategic Plan 2010-2015. These goals reflect the Department's--
and my--commitment to ``moving the needle'' on some of the most 
fundamental challenges facing America as we create an economy built to 
last. Indeed, every month, I hold HUDStat meetings on one or more of 
these goals, to assess progress and troubleshoot problems in order to: 
(1) ensure that HUD is as streamlined and effective as possible in the 
way that we administer our own programs and partner with other Federal 
agencies; and (2) hold our grantees accountable for their expenditure 
of taxpayers' hard-earned dollars.
Goal 1: Strengthen the Nation's Housing Market To Bolster the Economy 
        and Protect Consumers
    This Administration entered office confronting the worst economic 
crisis since the Great Depression--as mortgages were sold to people who 
couldn't afford or understand them, while banks packaged them into 
complex securities that they made huge bets on--and bonuses with--other 
people's money. And while the largest factors contributing to this 
crisis were market driven, the American people have turned to Congress 
and the Administration for leadership and action in righting our 
Nation's housing market. HUD remains firmly committed to working 
together with communities and individuals to cope with these 
unprecedented challenges.
Responding to the Market Disruption
    HUD remains firmly committed to working together with communities 
and individuals to cope with these unprecedented challenges. The 
Federal Housing Administration (FHA) and Government National Mortgage 
Association (GNMA) continue to have a significant impact on the 
Nation's economic recovery. The activities of the Federal Government 
are critical to both supporting the housing market in the short term 
and providing access to home ownership opportunities over the long 
term, while minimizing the risk to taxpayers. FHA has stepped up to 
face these unprecedented challenges, playing an important 
countercyclical role in the housing market today.
    In Fiscal year 2013, HUD is requesting $400 billion in loan 
guarantee authority for the Mutual Mortgage Insurance Fund, which will 
provide an estimated 0.8 million single-family mortgages (at a 
projected $149 billion in loan volume) and $25 billion in loan 
guarantee authority for the General and Special Risk Insurance Fund, 
which will provide an estimated 156,000 units in multifamily housing 
properties and an estimated 80,600 beds in healthcare facilities. The 
need for this investment is clear as FHA has played a critical role in 
stabilizing the Nation's mortgage market. At a time when liquidity and 
access were needed most in the housing market to facilitate the 
recovery of the broader economy, FHA stepped in to ensure that mortgage 
capital continued to flow. However, FHA's expanded role is and should 
be temporary. FHA's loan volume has declined 34 percent from its peak 
in 2009, and its market share is decreasing for the first time since 
2006, reflecting private capital's return to the market. FHA is 
particularly important to borrowers that the conventional market does 
not adequately serve, including qualified borrowers who would otherwise 
be shut out of the mortgage market. Fully 60 percent of all African 
American and Hispanic homebuyers using mortgages rely upon FHA 
financing and over 30 percent of all FHA-insured homebuyers are 
minorities. Over half of all African Americans who purchased a home 
last year and 45 percent of Hispanics did so with FHA financing.
Redoubling Efforts To Keep Homeowners in Their Homes
    While there is work still to be done, HUD is proud of the progress 
this Administration has made in tackling ongoing foreclosure 
challenges. Between April 2009 and December 2011, more than 5.6 million 
mortgage modifications were started--including more than 1.7 million 
HAMP trial modification starts and nearly 1.2 million FHA loss 
mitigation and early delinquency interventions. In addition, to date, 
more than 930,000 HAMP trial modifications have resulted in permanent 
modifications--saving these households an estimated $10.5 billion in 
monthly mortgage payments.
    As part of the Administration's commitment to help responsible 
homeowners stay in their homes, we have actively sought to use our 
current programs and authorities to make home ownership sustainable for 
millions of American families. Examples of our efforts include:

    Streamline Refinance--An option that allows borrowers with 
        FHA-insured loans who are current on their mortgage to 
        refinance into a new FHA-insured loan at today's low interest 
        rates without requiring additional underwriting, permitting 
        these borrowers to reduce their mortgage payments. This program 
        benefits current FHA borrowers--particularly those whose loan 
        value may exceed the current value of their home--and by 
        lowering a borrower's payment, also reduces risk to FHA. 
        Effective on June 11, 2012, borrowers whose FHA insured loans 
        were endorsed for insurance before June 1, 2009, will be able 
        to refinance their current FHA insured mortgage at an annual 
        mortgage insurance premium (MIP) of 0.55 percent and an upfront 
        MIP of 0.01 percent. This will allow these borrowers to benefit 
        from today's lower interest rates and lower their monthly 
        payments. And, because we see potential for more widespread use 
        of this product, FHA is making changes to the way in which 
        streamline refinance loans are displayed in the Neighborhood 
        Watch Early Warning System (Neighborhood Watch) to reduce 
        lender concern about the potential impact associated with 
        taking responsibility for loans they have not underwritten, 
        making them more willing to offer these loans to borrowers who 
        are current on mortgages already insured by FHA.

    National First Look Program--A partnership between HUD, the 
        National Community Stabilization Trust and large financial 
        institutions that offers Neighborhood Stabilization Program 
        grantees an exclusive 12-14 day window to evaluate and bid on 
        foreclosed properties.

    Short Refinance Option--In 2010, FHA made available an 
        option that offers underwater non-FHA borrowers, who are 
        current on their existing mortgage and whose lenders agree to 
        write off at least 10 percent of the unpaid principal balance 
        of the first mortgage, the opportunity to refinance into a new 
        FHA-insured mortgage.

    Finally, as another critical component to the recovery of the 
housing market, the President has also put forward a homeowners Bill of 
Rights--a single, straightforward set of commonsense rules that 
families can count on when they are shopping for a mortgage, including 
the right to a new, simple, clear form for new buyers that gives people 
confidence when they are making the most important financial decision 
of their lives. And those rights shouldn't end when homeowners get the 
keys to their new home. When Americans lose their job or have a medical 
emergency, they should know that when they call their lender, that call 
will be answered and that their home won't be sold in foreclosure at 
the same time they are filling out paperwork to get help.
Strengthening FHA and Paving the Way for Private Capital To Return
    The books of business in the few years before 2009 have largely 
driven the high number of claims to the Mutual Mortgage Insurance Fund 
(MMI Fund). This was a result of overall economic and unemployment 
trends as well as by the combined effects of poor underwriting, 
unscrupulous and noncompliant practices on the part of lenders, and a 
seller-funded downpayment assistance program that allowed many 
borrowers to obtain mortgages without a meaningful downpayment. As a 
result, the books of business FHA insured prior to the start of this 
Administration have severely impacted the health of FHA's MMI Fund. 
But, while there is still a great deal of work to do, because of our 
efforts I believe that FHA continues to move in a more positive 
direction, and that the long term outlooks for FHA and the MMI Fund are 
better than they were in 2009.
    The change in trajectory in the performance of FHA-insured loans is 
no accident. Immediately upon taking office, this Administration acted 
quickly and aggressively to protect FHA's MMI Fund and to ensure its 
long term viability. We have taken more steps since January 2009 to 
eliminate unnecessary credit risk and assure strong premium revenue 
flows in the future than any Administration in FHA history. Indeed, 
FHA's gains since 2009 are the result of a three-part strategy: 
systematic tightening of risk controls, increased premiums to stabilize 
near-term finances and expanded usage of loss mitigation workout 
assistance to avoid unnecessary claims.
    And, we continue to take steps to further strengthen the Fund. In 
the 2013 Budget we announced a 10 bps annual premium increase on all 
FHA insured loans to comply with the requirement passed by Congress 
late last year, as well as an additional 25 bps annual premium increase 
on ``jumbo'' loans making the total increase for these larger loans 35 
bps. And recently, we announced a series of premium changes that will 
further increase receipts to FHA by $1,480 million in fiscal years 2012 
and 2013, beyond the receipts already included in the President's 
budget submission. In addition, we have also taken significant 
additional steps to increase accountability for FHA lenders. Via a 
final rule published recently, we clarified the bases upon which FHA 
will require indemnification from lenders participating in our Lender 
Insurance program, making clear the rules of the road for lenders and 
giving FHA a solid basis upon which to require indemnification by 
lenders for violations of FHA guidelines. And we continue to seek 
expanded authority via legislation that will further enable us to 
protect the MMI Fund from unnecessary and inappropriate losses 
associated with lenders who violate our requirements.
    The next in a series of steps we have pursued to hold lenders 
accountable for their actions are the recently announced settlements 
with some of America's largest lenders. Through these settlements, FHA 
will receive over $900 million compensation for losses associated with 
loans originated outside of FHA requirements, or for which FHA's 
servicing requirements were violated.
    Despite the unprecedented efforts of this Administration to alter 
the trajectory of FHA, considerable risks remain. The FHA MMI Fund has 
two components: the Financing Account, which holds enough money to 
accommodate all expected losses on FHA's insured MMI portfolio; and the 
Capital Reserve Account, which is required to hold an additional amount 
equal to 2 percent of the insurance in force. Since 2009, the Fund's 
capital reserve ratio has been below that 2 percent level.
    The President's Budget always includes estimates regarding the 
status of the Capital Reserve at the end of the current fiscal year. 
This prediction is based on estimates and projections of future 
economic conditions, including house prices and other economic factors 
which may or may not come to pass. The 2013 Budget estimate for the FHA 
Capital Reserve account did not include added revenue from the recently 
announced additional premium increases or the proceeds from FHA-
approved lenders under the terms of the mortgage settlements. With 
these additional revenues accounted for, the Capital Reserve is 
estimated to have sufficient balances to cover all estimated losses 
without triggering a mandatory appropriation under the Federal Credit 
Reform Act. Moreover, the Budget estimates that FHA will add an 
additional $8 billion to the MMI Capital Reserve Account in 2013, and 
return to the congressionally mandated capital reserve ratio of 2 
percent by 2015.
    The 2013 Budget also includes premium increases for FHA's General 
Insurance and Special Risk Insurance programs that serve market rate 
multifamily properties and healthcare facilities. These changes are 
intended to ensure that FHA products are priced appropriately to 
compensate for FHA's risk and encourage the return of private capital 
to our mortgage markets. The proposed increases range from 5 basis 
points for 223(a)(7) refinancing to 20 basis points for 221(d)(4) new 
construction or rehabilitation activity. Premiums for affordable 
housing projects (such as those with HUD rental subsidies and low 
income housing tax credits, as well as those insured under FHA risk-
sharing programs) will not be increased.
    With the proposed premium increases, FHA Multifamily and Healthcare 
loans will be priced more appropriately to facilitate the return of 
private capital, while at the same time continuing to ensure sufficient 
levels of available capital in these sectors. The increase in premiums 
also reflect new realities--the Multifamily annual book of business is 
five times greater than it was just 3 years ago, and the risk profile 
has changed dramatically. FHA's multifamily apartment portfolio is now 
more than 50 percent market rate, which adds a new component of risk, 
and a need to take steps to ensure the future viability of the 
portfolio. With interest rates at a record low the existing portfolio 
loans could remain in FHA's portfolio longer than the average time 
frames and will need to be managed prudently. On April 10, FHA 
published the proposed increased in the Federal Register for a 30-day 
comment period.
Goal 2: Meet the Need for Quality, Affordable Rental Homes
    In an era when more than one-third of all American families rent 
their homes and nearly 7 million unassisted families with very low 
incomes spend more than 50 percent of their income on rent, it remains 
more important than ever to provide a sufficient supply of affordable 
rental homes for low-income families--particularly since, in many 
communities affordable rental housing does not exist without public 
support. HUD's fiscal year 2013 Budget maintains HUD's core commitments 
to providing rental assistance to some our country's most vulnerable 
households as well as distributing housing, infrastructure, and 
economic development funding to States and communities to address their 
unique needs. Overall, 83 percent of HUD's total FY2013 budget 
authority requested will provide rental assistance to over 5.4 million 
residents of HUD-subsidized housing, including public housing and HUD 
grants to homeless assistance programs. And, I am proud to say that, 
despite an era of challenging budgets, we have increased the number of 
families served through our rental assistance programs every year.


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    Detailed data shows how vulnerable these families are to the 
economic downturn. In HUD's core rental assistance programs, including 
TBRA, Public Housing and PBRA: 72 percent of families are extremely 
low-income (below 30 percent of area median income) and an additional 
20 percent are very low-income (below 50 percent of area median 
income). The devastating effect of the tough economic environment on 
the housing circumstances of poor Americans was underscored last year, 
when HUD released its Worst Case Housing Needs study results. HUD 
defines ``worst case needs'' as: renters with very low incomes who do 
not receive Government housing assistance and who either pay more than 
half their income for rent, live in severely inadequate conditions, or 
both. The report showed an increase of 20 percent in worst case needs 
renters between 2007 and 2009. This is the largest increase in worst 
case housing needs over a 2-year period in the quarter-century history 
of the survey, and caps an increase of 42 percent since 2001. The need 
for HUD investments in this area is clear.
Preserving Affordable Housing Opportunities in HUD's Largest Programs
    This budget proposed a total of $19.07 billion for HUD's Section 8 
Tenant-Based Rental Assistance (TBRA) program, which is the Nation's 
largest and preeminent rental assistance program for low-income 
families. For over 35 years it has served as a cost-effective means for 
delivering safe and affordable housing in the private market. The 
proposed 2013 funding level is expected to assist approximately 2.2 
million families by renewing existing vouchers and issuing new 
incremental vouchers to homeless veterans.
    The Budget also provides a total of $6.6 billion to operate public 
housing and modernize its aging physical assets through the Public 
Housing Operating ($4.5 billion) and Capital ($2.07 billion) funds, a 
critical investment that will help 1.1 million extremely low- to low-
income households obtain or retain housing. Similarly, through a $8.7 
billion request in funding for the Project Based Rental Assistance 
(PBRA) program, the Department will provide rental assistance funding 
to privately owned multifamily rental housing projects to serve over 
1.2 million families nationwide. This PBRA request represents a $640 
million decrease from the FY2012 enacted level, which is generated by 
providing less than 12 months of funding upfront on some PBRA 
contracts, and is not projected to reduce or delay payments to 
landlords or impact the number of families served by the program. 
Nonetheless, this was a difficult choice, and not one that the 
Administration would choose to implement in a less austere fiscal 
environment, and I would note that the Appropriations Committee has 
chosen to increase the budget request for this program by more than $1 
billion.
Reducing Administrative Burdens and Increasing Efficiency
    The Budget recognizes the need to simplify, align, and reform 
programs to reduce administrative burdens and increase efficiency 
across programs. It also includes a menu of reforms to HUD rental 
assistance programs that save over $500 million in 2013 without 
reducing the number of families served:
            Streamlining the Public Housing Operating and Capital Funds
    To both simplify the program and reduce the administrative burden 
on State and local public housing authorities, the Budget proposes to 
combine the separate Operating and Capital funds into a single Public 
Housing subsidy stream. As a first step toward consolidation, the 
Budget provides all PHAs with full flexibility to use their operating 
and capital funds for any eligible capital or operating expense.
            Providing Flexibility for PHAs To Improve Supportive 
                    Services for Assisted Households
    The Budget proposes streamlining and flexibility measures to help 
PHAs improve supportive services for assisted families. The Family 
Self-Sufficiency (FSS) program will be consolidated and aligned to 
enable PHAs to more uniformly serve both TBRA and Public Housing 
residents. This program, which the Budget also expands to residents of 
PBRA housing, aims to connect residents to resources and services to 
find and retain jobs that lead to economic independence and self-
sufficiency. In addition, the Budget authorizes PHAs to use a portion 
of their Public Housing and Housing Voucher funding to augment case 
management and supportive services provided through FSS or provide 
other supportive services to increase opportunities for residents.
            Aligning Minimum Rent Policy Across Programs
    The Budget aligns policy across rental assistance programs and 
proposes to reduce costs by increasing the minimum rent to $75 per 
month for all HUD-assisted households, which is comparable to the 
minimum rent enacted in 1998, adjusted for inflation. This was a 
difficult choice, and one we would not have made under other budgetary 
circumstances. Recognizing the potential burden that this higher 
minimum rent may impose, the Budget proposes to maintain the current 
exemption for families facing financial hardship, and we are exploring 
ways of strengthening those provisions. In addition, the House 
Financial Services Committee is currently considering legislation that 
would make changes in existing requirements relating to both the 
hardship exemptions and the overall minimum rent requirements. We are 
reviewing those proposals, and we look forward to discussing that set 
of issues with the Members of this Committee should the Committee 
consider similar legislation.
            Saving Costs in Project Based Rental Assistance
    Within the PBRA program, cost savings measures include: improving 
the oversight of market rent studies used to set subsidy payment 
levels, capping annual subsidy increases for certain properties, and 
using excess reserves to offset HUD payments to landlords.
            Simplifying, Aligning, and Reducing Administrative Burdens
    This Budget request reduces costs by simplifying administration of 
the medical expense deduction, better targeting rental assistance to 
the working poor in rural areas, setting Public Housing flat rents 
closer to market levels, and changes mandatory PHA inspections of units 
from annually to every 2 years.
    Many of these provisions are part of the Affordable Housing and 
Self-Sufficiency Improvement Act of 2012, which is under consideration 
by the House Financial Services Committee. The Department looks forward 
to working with the Banking Committee on this proposed legislation.
Rebuilding Our Nation's Affordable Housing Stock
    Over the last 75 years, the Federal Government has invested 
billions of dollars in the development and maintenance of public and 
multifamily housing, which serve as crucial resources for some of our 
country's most vulnerable families. Despite this sizable Federal 
investment and the great demand for deeply affordable rental housing, 
we continue to see a decline in the number of available affordable 
housing units. Over the last decade, the public housing stock has 
shrunk at a rate of 10,000 units per year, largely due to a growing 
backlog of unmet capital needs, estimated at $26 billion. To address 
these challenges, HUD's 2012 Appropriations Act authorized the ``Rental 
Assistance Demonstration'' (RAD) to test new preservation tools for its 
assisted housing stock allowing for Public Housing and Moderate 
Rehabilitation (Mod Rehab) properties to convert to long-term Section 8 
rental assistance contracts (capped at 60,000 units of converted 
assistance); and Rent Supplement (Rent Supp), Rental Assistance Payment 
(RAP), and Mod Rehab properties, upon contract expiration or 
termination, to convert tenant protection vouchers to project-based 
vouchers. Unlike their current forms of assistance, these contracts 
offer a rental subsidy platform that allows PHAs and owners to leverage 
current Federal appropriations with other private and public capital to 
finance much needed rehabilitation and preserve the assets as 
affordable housing. A notice partially implementing RAD and seeking 
public comment was published in the Federal Register on March 9th.
    RAD is a limited demonstration, which will be evaluated to assess 
the success of these approaches in preserving affordable housing. Since 
HUD will use funding appropriated for existing programs for 
implementation and anticipates strong interest in RAD, the 2013 Budget 
includes a request to exempt Mod Rehab from the 60,000 unit cap on 
projects that could convert assistance, at no cost, to long-term 
Section 8 rental assistance contracts. If enacted, the 60,000 unit cap 
would apply to public housing conversions alone, while the number of 
Mod Rehab conversions would not be constrained.
Funding What Works: Jobs-Plus
    The Budget expands the Jobs-Plus demonstration to provide public 
housing residents with job search assistance and employment related 
services:
    In FY2013, HUD is proposing that up to $50 million of Public 
Housing capital funds may be targeted to Jobs-Plus competitive grants 
to fund scaled-up implementation of the Jobs-Plus model--a successful, 
evidence-based strategy to increase the employment opportunities and 
earnings of public housing residents through a three-tiered program of 
employment services, rent-based work incentives, and community support 
for work. This investment will increase employment opportunities for 
over 30,000 Public Housing residents, by helping them secure and retain 
employment, keep more of the income they earn, and receive the full 
benefit of work incentives such as the Earned Income Tax Credit (EITC). 
A randomized experiment evaluation of the Jobs-Plus model in three 
demographically diverse sites found that, on average, participants had 
an additional $1,300 in earnings every year from 2000 to 2006--and 
these earning increases were durable beyond the period of the 
intervention. Jobs-Plus competitive grants will scale up this proven 
model by targeting resources to high-capacity PHAs and housing 
developments with enough work-eligible residents to achieve economies 
of scale. The grants will prioritize broad and diverse local 
partnerships that cut across sectors, agencies, and funding streams.
Increasing the Production of Affordable Housing Capital Projects
    In addition to developing tools to address the growing capital 
needs of America's Public Housing stock, HUD is committed to expanding 
the supply of affordable rental homes in safe, mixed-income communities 
that provide access to jobs, good schools, transportation, and, most 
importantly, economic self-sufficiency. Accordingly, in February 2012, 
FHA announced a pilot program to accelerate processing of LIHTC deals. 
And, in fiscal year 2013 HUD is working together with its partners to 
identify ways to make the Low Income Housing Tax Credit (LIHTC) program 
a more flexible and nimble tool for the creation and preservation of 
affordable housing. As the primary tool of the Federal Government for 
developing and rehabilitating affordable rental housing, the LIHTC 
program is administered by State agencies with the assistance and 
guidance from the Treasury Department and the Internal Revenue Service. 
The program attracts capital to low-income rental housing by satisfying 
some of the Federal income tax obligations of investors in certain low-
income rental properties.
    Since its addition to the tax laws in 1986, the LIHTC program has 
been used to create 1.8 million in affordable rental-housing units 
across the country. Annually, the program supports 95,000 jobs and has 
generated $2.7 billion in State, local, and Federal revenues. In fiscal 
year 2013, as part of a broader effort to align Federal rental 
programs, HUD, the Departments of Treasury and Agriculture, the 
Domestic Policy Council (DPC), the Office of Management and Budget 
(OMB), and the National Economic Council (NEC) will continue partnering 
to allow greater flexibility to State and local agencies that 
administer LIHTC programs, as well as to developers and investors, to 
continue to enable the creation of affordable housing in markets where 
it is needed the most. Specifically, the revenue provisions of the 2013 
Budget enhance two revenue proposals that were included in the 2012 
Budget and introduce two new proposals:
    An Income Averaging proposal would encourage a greater range of 
incomes in LIHTC-supported affordable housing by allowing developers to 
choose an income-limitation requirement that would be satisfied if 
households in the low-income units have an average income no greater 
than 60 percent of AMI, with no household above 80 percent AMI. An 
additional provision would allow certain existing tenants to remain in 
residence without impairing the developer's entitlement to LIHTCs.
    In the context of preserving, recapitalizing, and rehabilitating 
existing federally assisted affordable housing, a Basis Boost proposal 
would provide a second mechanism for earning ``4 percent'' LIHTCs and 
would give an extra, up-to-30-percent increase in qualified basis for 
certain projects that receive ``4 percent'' LIHTCs, either because they 
are at least half financed with tax exempt-bonds or because they 
employed the new mechanism.
    A proposal concerning LIHTCs earned by Real Estate Investment 
Trusts (REITs) is designed to diversify the pool of investors for 
LIHTCs and to increase the overall demand for LIHTCs. The proposal 
would allow a REIT that earns LIHTCs to provide a tax benefit to its 
investors by paying them tax-exempt dividends in an amount almost 
triple the amount of the REIT's LIHTCs.
    A Victims of Domestic Violence proposal would bar LIHTC buildings 
from discriminating against victims of actual or threatened domestic 
violence and would clarify that occupancy restrictions or preferences 
for such victims are an allowable exception to the general-public-use 
requirement.
    Finally, the recent Worst Case Housing Needs report underscores 
what has been the case since well before the recent recession, namely, 
that extremely low-income renters face the most severe housing shortage 
and cost burden of any Americans. In addition to the Worst Case Housing 
Needs report, the most recent data available from the American Housing 
Survey shows that, for renters below 50 percent of area mean income, 
the shortage of affordable and available units increased from 5.2 to 6 
million from 2007 to 2009, with just 39 affordable and available units 
for every 100 renters in 2009, compared to 44 two years prior. The 2013 
Budget once again provides $1 billion in mandatory appropriations for 
the Housing Trust Fund (HTF) to address this critical shortage of 
housing where it is most desperately needed. Enacted in 2008, the HTF 
was designed to provide capital resources to build and rehabilitate 
housing to fill this precise--and growing--gap in the Nation's rental 
housing market. The time has come for Congress to provide this crucial 
funding.
Goal 3: Utilize Housing as a Platform for Improving Quality of Life
    Stable housing provides an ideal platform for delivering a wide 
variety of health and social services to improve economic, health, and 
broad-based societal outcomes. For some, housing alone is sufficient to 
ensure healthy outcomes, while others require housing with supportive 
services to assist with activities of daily living or long-term self-
sufficiency, as well as proximity to crucial services. HUD's fiscal 
year 2013 Budget acknowledges this reality by making critical 
investments in housing and supportive services, and partnering with 
other Federal agencies to maximize resources and best practices. 
Moreover, these investments will save money in the long term, by 
avoiding overuse of expensive emergency and institutional 
interventions.
Preventing and Ending Homelessness, Serving Our Nation's Most 
        Vulnerable
    Nowhere is the relationship between housing and supportive services 
clearer than in the successful efforts in communities around the 
country to address homelessness. These efforts have yielded a 
substantial body of research, which demonstrates that providing 
permanent supportive housing to chronically ill, chronically homeless 
individuals and families not only ends their homelessness, but also 
yields substantial cost saving in public health, criminal justice, and 
other systems. This year's Budget once again invests in this critical 
effort, by calling for $2.23 billion in Homeless Assistance Grants, 
including competitive programs that annually serve over 800,000 
homeless families and individuals. This includes funding for the 
Emergency Solutions Grants program, which will continue the work of the 
Homelessness Prevention and Rapid Re-Housing Program--funded by the 
Recovery Act--that in the last 3 years alone has helped prevent or end 
homelessness for over 1.2 million people nationwide.
    Moreover, HUD continues to focus on the unique needs of veterans 
through both its targeted homeless programs and its mainstream housing 
programs using successful methods and interventions. Currently, an 
estimated one out of every six men and women in our Nation's homeless 
shelters are veterans, and veterans are 50 percent more likely to fall 
into homelessness compared to other Americans. HUD is committed to 
providing affordable housing units to this unique homeless population, 
and has partnered with the Departments of Health and Human Services 
(HHS) and Veterans Affairs (VA) to develop targeted approaches to serve 
the homeless veteran populations. Accordingly, this Budget includes $75 
million for the HUD-VASH program, which combines tenant-based voucher 
assistance with case management and clinical services tailored to 
veterans and their families. This funding will provide 10,000 new 
vouchers to help veterans move from our streets into permanent 
supportive housing, in addition to the nearly 38,000 already allocated 
HUD-VASH vouchers provided in previous appropriations, which have been 
critical to a 12 percent reduction in veterans homelessness, and the 
10,000 vouchers that will be awarded through the FY2012 appropriation.
Increasing Efficiencies
    The Budget modernizes the Housing Opportunities for Persons with 
AIDS (HOPWA) Program to better reflect the current understanding of 
HIV/AIDS and ensure that funds are directed in a more equitable and 
effective manner, including:

    A new formula that will distribute HOPWA funds based on the 
        current population of HIV-positive individuals, fair market 
        rents, and poverty rates in order to target funds to areas with 
        the most need.

    The Budget also makes the HOPWA program more flexible, 
        giving local communities more options to provide timely and 
        cost-effective interventions. The Budget's $330 million 
        investment in HOPWA, in combination with the proposed 
        modernization, will assist local communities in keeping 
        individuals with HIV/AIDS housed, making it easier for them to 
        stay in therapy, and therefore improving health outcomes for 
        this vulnerable population.
Investing in Leveraging and Serving Our Most Vulnerable
    This budget proposed a total of $625 million for the Housing for 
the Elderly and Housing for Persons with Disabilities programs, which 
includes $154 million to support 5,300 additional supportive housing 
units. Doing more with less, the Budget proposes reforms to the Housing 
for the Elderly program to target resources to help those most in need, 
reduce the up-front cost of new awards, and better connect residents 
with the supportive services they need to age in place and live 
independently.
    Historically, HUD has provided both capital advances and operating 
subsidies to nonprofit sponsors to construct and manage multifamily 
housing for low-income people with disabilities. In an effort to 
maximize the creation of new affordable units in a time of funding 
restraints, in fiscal year 2012 HUD began providing operating 
assistance to State housing agencies that formed partnerships with 
State health care agencies for service provision to low-income persons 
with disabilities. These funds are used to set aside supportive units 
for this target population in affordable housing complexes whose 
capital costs are funded through Low-Income Housing Tax Credits, HOME 
funds, or other sources. Investing Section 811 funds under this 
authority allows HUD to rely on the expertise of the State housing 
agencies to administer the award and on the State health care agency to 
identify the most critical population to be served and guarantee the 
delivery of appropriate services. In fiscal year 2013, HUD is 
requesting similar authority for the Section 202 program. Drawing on 
lessons learned from implementation in the Section 811 program, HUD 
will take advantage of efficiencies inherent in these same agencies' 
oversight responsibilities for tax credits, HOME funds or similar 
housing funding. Assuming requested statutory language is enacted, up 
to 3,450 units could be made available with support from this project 
rental assistance.
Goal 4: Build Inclusive Sustainable Communities Free From 
        Discrimination
    No longer can the American economy tolerate the marginalization 
from the labor force of significant numbers of people because of 
individualized or systemic discrimination, or because they live in 
isolated neighborhoods of concentrated poverty. An American economy 
built to last requires an increased supply of affordable rental homes 
in safe, mixed-income communities that provide access to jobs, good 
schools, transportation, high-quality services, and, most importantly, 
economic self-sufficiency. As such, HUD's fiscal year 2013 Budget puts 
communities in a position to plan for the future and draw fully upon 
their resources, most importantly their people.
    Each year HUD dedicates approximately 15-20 percent of its funds to 
the capital costs of housing and economic development projects 
throughout the country. Through this investment, HUD and its partners 
are able to provide better opportunities for people living in 
neighborhoods of concentrated poverty and segregation, and offer 
choices that help families live closer to jobs and schools. Programs 
such as the Community Development Block Grant (CDBG), and Choice 
Neighborhoods are targeted to areas of need, to provide locally driven 
solutions to overarching economic development challenges. As with HUD's 
rental assistance programs, HUD's capital grants--including the Public 
Housing Capital Fund, Choice Neighborhoods, CDBG, and HOME--tend to 
assist areas of great need, including communities with high 
unemployment.
Preserving HUD's Major Block Grant Programs for Community Development 
        and Housing
    The Budget demonstrates the Administration's continued commitment 
in a constrained fiscal climate to support municipalities and States as 
they navigate through a challenging fiscal climate. Maintaining the 
fiscal year 2012 CDBG formula funding level of $2.95 billion, would 
allow over 1,100 State and local governments to improve living 
conditions in low- and moderate-income neighborhoods across the 
country. As the Federal Government's primary community development 
program, CDBG serves as the backbone of State and local community and 
economic development efforts. In fiscal year 2011 alone, local 
governments used CDBG funding to directly create and retain 21,482 
jobs, not including any indirect effect on additional jobs. Moreover, 
in fiscal year 2011 CDBG assisted 96,615 households to maintain or gain 
access to safe, affordable housing; provided public service activities 
to 10.1 million people; and benefited approximately 4.1 million persons 
through public improvement investments. CDBG funding is increasingly 
one of the few resources available at the local level to support 
housing rehabilitation, public improvements and economic development--
despite growing needs, local governments have often had no choice but 
to eliminate some of these activities from their own budgets.
    The Budget also reflects the difficult choices HUD was faced with, 
in order to make real progress in reducing the national deficit and 
contribute to creating an economy built to last, by maintaining the 
fiscal year 2012 HOME funding level of $1 billion--over $600 million 
lower than the fiscal year 2011 funding level. The HOME Investment 
Partnerships program is the principal tool for the production of 
affordable housing for low- and extremely low income families by State 
and local governments. It is also the critical gap financing for LIHTC 
projects--it has created over one million units and an additional 
250,000 households have been assisted with temporary rental assistance 
since the program's inception. The program leverages $4 in other public 
and private funds for every HOME dollar invested, totaling more than 
$88 billion over the life of the program.
Increasing Efficiencies and Undertaking Critical Reforms
    The Budget includes two proposed changes to the HOME Investment 
Partnerships, including:

    Permitting recaptured Community Housing Development 
        Organizations set-aside funds to be reallocated by formula as 
        HOME funds.

    Facilitating the removal of dangerous tenants from HOME 
        properties.

    HUD issued a proposed rule on December 16, 2011, outlining changes 
to the HOME program to enhance performance and accountability. The 
public comment period closed on February 14, 2012. HUD is currently 
reviewing over 322 comments and expects to issue the final rule this 
summer. Additionally, HUD has undertaken a number of changes to the 
Integrated Disbursement and Information System (IDIS) to enhance 
accountability through exception reporting, system edits, and new 
narrative reporting requirements for certain projects. The first phase 
of improvements will be made by April 30, 2012, including system 
triggers for projects that are significantly delayed, including 
projects with infrequent draws (no draws in 12 months), and projects in 
final draw status for more than 120 days. The second phase of 
improvements will be completed by December 31, 2012.
Transforming Neighborhoods of Poverty
    The President has made it clear that we cannot create an economy 
built to last if: a fifth of America's children live in poverty, at a 
cost of $500 billion per year--fully 4 percent of GDP--due to reduced 
skills development and economic productivity, increased later life 
crime, and poor health; a growing population lives with the problems of 
concentrated neighborhood poverty--high unemployment rates, rampant 
crime, health disparities, inadequate early care and education, 
struggling schools, and disinvestment--all of which isolate them from 
the global economy.
    That's why HUD's fiscal year 2013 Budget recommended $150 million 
for the Choice Neighborhoods Initiative to continue transformative 
investments in high-poverty neighborhoods where distressed HUD-assisted 
public and privately owned housing is located. This will reach four to 
six neighborhoods with implementation grants that primarily fund the 
preservation, rehabilitation and transformation of HUD-assisted public 
and privately owned multifamily housing, and will also engage local 
governments, nonprofits, and for-profit developers in partnerships to 
improve the economic conditions in their surrounding communities. 
Moreover, the leveraging power that these grants have is real--to date, 
the five Choice Neighborhoods implementation grantees have leveraged a 
combined $1.6 billion in private funds--over 13 times their total grant 
award amount.
    The Choice Neighborhoods initiative is a central element of the 
Administration's interagency, place-based strategy to support local 
communities in developing the tools they need to revitalize 
neighborhoods of concentrated poverty into neighborhoods of 
opportunity. The Department's administration of the first rounds of 
funding for Choice Neighborhoods grants exemplify how our practices 
generate effective partnerships with local housing and community 
development efforts. In the past, many Federal grant programs followed 
a rigid, top-down, ``one-size-fits-all'' approach that dictated what 
local 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.
Supporting Sustainable Communities and Innovative Infrastructure 
        Planning
    Creating an economy built to last requires creating jobs here in 
America to discourage outsourcing and encourage ``insourcing.'' But 
attracting new businesses to our shores depends on urban, suburban, and 
rural areas that feature more housing and transportation choices, homes 
that are near jobs, transportation networks that move goods and people 
efficiently, all while lowering the cost and health burdens on 
families, businesses, and the taxpayer. Unfortunately, today, 
congestion on our roads is costing us five times as much wasted fuel 
and time as it did 25 years ago, and Americans spend 52 cents of every 
dollar they earn on housing and transportation combined.
    With these realities in mind, the fiscal year 2013 Budget supports 
the multi-agency Partnership for Sustainable Communities, an 
Administration initiative that integrates resources and expertise from 
HUD, the Department of Transportation, and the Environmental Protection 
Agency. In particular, the Budget restores funding for the Sustainable 
Communities Initiative, which creates incentives for communities to 
develop comprehensive housing and transportation plans to achieve 
sustainable development, reduce energy consumption and greenhouse gas 
emissions, and increase affordable housing near public transit. This 
includes $46 million to fund about 20 additional regional planning 
grants to help enable communities to align public and private 
investments in housing, transportation, and infrastructure to 
strategically integrate goals for mobility, regional housing choices, 
and economic development. In addition, $46 million would be invested in 
neighborhoods and communities to update building codes, zoning, and 
local planning efforts as complementary strategies to the regional 
grants.
    We know how important these planning tools are to regional 
economies--particularly those which rely on integrated supply chains 
that cross national borders and are essential to meeting the 
President's charge to double U.S. exports over the next 5 years. These 
investments will also leverage and increase the ripple effects of other 
Administration proposals to overhaul America's deteriorating 
infrastructure,, including Project Rebuild and other elements of the 
American Jobs Act, as we leverage increased residential and commercial 
construction around transit and other infrastructure investments. I 
would note in this connection that Senator Reed has introduced 
legislation (S. 1126) to formally establish Project Rebuild, and I am 
hopeful that the Committee will give it serious consideration.
An Economy Built to Last: Project Rebuild
    The Budget includes $15 billion in funding for Project Rebuild, as 
initially laid out in the American Jobs Act.
    By expanding on the strong foundation created by the Neighborhood 
Stabilization Program (NSP), Project Rebuild adds eligibility for 
commercial redevelopment to balance the needs for usage of vacant 
commercial structures in neighborhoods; and allows private development 
companies to put their expertise to work. Many NSP grantees have 
demonstrated results, but require additional funding to address 
challenging market conditions. With this critical funding, we can 
continue to put Americans back to work, while also stabilizing the 
housing market for the long term.
Ensuring Inclusivity in Housing Nationwide
    An inclusive community is one in which all people--regardless of 
race, ethnicity, religion, sex, disability, or familial status--have 
equal access to housing and economic opportunities. Throughout its 
portfolio of programs, HUD is committed to maintaining that inclusivity 
and providing accountability in housing and lending practices 
nationwide. Through inclusive development, education, enforcement of 
fair housing laws, expanded training and language assistance, HUD will 
affirmatively further fair housing and the ideals of an open society.
    The Fair Housing Initiatives Program (FHIP) is critical to building 
and sustaining inclusive communities. FHIP is the only grant program 
within the Federal Government whose primary purpose is to support 
private efforts to educate the public about fair housing rights and 
conduct private enforcement of the Fair Housing Act. In Fiscal year 
2013, HUD is requesting approximately $41 million in FHIP funds, 
representing the Department's commitment to fair housing, including $28 
million to support the efforts of private fair housing organizations 
that conduct private enforcement of the Fair Housing Act. The Private 
Enforcement Initiative (PEI) grantees investigate and test housing 
providers alleged to have engaged in discrimination. The requested 
amount will continue funding to support fair housing enforcement by all 
statutorily eligible private fair housing organizations. In addition it 
will fund fair housing education at the local, regional, and national 
levels.
    The Fair Housing Assistance Program (FHAP) is a critical component 
of HUD's effort to ensure the public's right to housing free from 
discrimination. FHAP multiplies HUD's enforcement capabilities, 
allowing the Department to protect fair housing rights in an efficient 
and effective manner. In fact, FHAP agencies investigate the majority 
of housing discrimination complaints filed in the United States. FHAP 
provides funding for 98 Government agencies, including 37 States, 60 
localities, and the District of Columbia, to enforce laws that prohibit 
housing discrimination that have been reviewed and deemed substantially 
equivalent to Federal law. In Fiscal year 2013, HUD is requesting 
approximately $25 million in FHAP funds.
Ensuring That an Economy Built to Last Includes Opportunities for Rural 
        Americans
    The Administration has placed a significant emphasis on ensuring 
that America's rural communities are competitive in the global 
economy--particularly given the reality that rural communities 
generally have less access to public transportation, along with higher 
poverty rates and inadequate housing. Each year, HUD invests billions 
of dollars in rural communities through its core rental assistance 
programs and block grants. The Community Development Block Grant (CDBG) 
program allocates funds to States, which provides approximately $692 
million to rural areas, supporting over 25,000 jobs both directly and 
indirectly, providing needed infrastructure, economic development, and 
affordable housing. Because small towns and rural areas often lack the 
basic modern infrastructure that citizens in larger communities can 
take for granted, States annually spend over 55 percent of their CDBG 
funds on basic public improvements such as water and sewer lines, paved 
streets and fire stations. HUD also funds over $300 million in rural 
areas for affordable housing and homeownership programs through its 
HOME Investment Partnerships program, directly and indirectly 
supporting over 5,360 jobs.
    In addition, HUD and the Department of Agriculture meet regularly 
through an interagency rental housing policy group to better align and 
coordinate the affordable rental housing programs each operates. 
Altogether, over 800,000 families in rural communities are directly 
assisted through the Housing Choice Voucher, Public Housing, and 
Multifamily programs, with another 450,000 assisted through USDA. For 
homeowners, HUD's Federal Housing Administration (FHA) helps first-time 
homebuyers and other qualified families all over the country purchase 
their own home. More than 1.5 million of the homes currently insured by 
the FHA are in rural areas, and approximately $545 million in current 
FHA loans are to rural healthcare facilities designated as ``critical 
access hospitals.'' We thank the appropriations committee, for 
including language in the FY2013 bill, based on legislation introduced 
by Senator Kohl and cosponsored by other Members of this Committee, to 
allow FHA to provide financing for these facilities. In addition to 
these critical investments, targeted rural investments in HUD's 2013 
Budget include:

    $5 million in Rural Housing Stability Assistance Program 
        (RHSP), as authorized in the HEARTH Act, designed to assist 
        individuals and families who are homeless, in imminent danger 
        of losing housing, or in the worst housing situations in rural 
        communities. In addition, rural communities choosing to not 
        apply for RHSP funding will continue to have access to HUD's 
        targeted homeless assistance, through the Continuum of Care 
        competition grant, in addition to the Emergency Solutions Grant 
        (ESG) program, and the Homelessness Prevention and Rapid Re-
        Housing Program (HPRP). Rural areas have increasingly gained 
        access to HUD's competitive homeless assistance grants, 
        primarily through the creation of Balance of State and 
        Statewide Continuums of Care, with funds allocated directly to 
        the State. In 2011, the Continuum of Care competition included 
        a selection priority for new projects proposing to serve 100 
        percent rural areas. HUD recently awarded $15.7 million to 103 
        rural projects through the CoC competition.

    $731 million to fund programs that will support housing and 
        development initiatives in American Indian, Alaska Native, and 
        Native Hawaiian communities. As the single largest sources of 
        funding for housing Indian tribal lands today, programs like 
        Indian Housing Block Grants, Indian Home Loan Guarantees, and 
        Indian Community Development Block Grants support development 
        in remote areas where safe, decent, affordable housing is 
        desperately needed by providing funds to over 550 Tribes across 
        the country. HUD also directly supports housing and economic 
        development initiatives in remote areas of Hawaii, through the 
        Native Hawaiian Housing Block Grant Program and Native Hawaiian 
        Loan Guarantee Program.
Goal 5: Transform the Way HUD Does Business
    An economy built to last requires a Government that's leaner, 
smarter, more transparent, and ready for the 21st century. The current 
economic and housing crisis; the structural affordability challenges 
facing low-income homeowners and renters; and the new, multidimensional 
challenges facing our urban, suburban, and rural communities all 
require an agency in which the fundamentals matter and the basics 
function. As such, HUD remains committed to transforming the way it 
does business. This transformation is more crucial now than perhaps 
ever before--HUD remains at the forefront of the Federal response to 
the national mortgage crisis, the economic recovery, and the structural 
gap between household incomes and national housing prices--roles that 
require an agency that is nimble and market savvy, with the capacity 
and expertise necessary to galvanize HUD's vast network of partners. 
HUD's 2013 Budget reflects these critical roles, by investing in 
transformation, research, and development that will be implemented 
persistently over time.
The Transformation Initiative
    Thanks to Congressional support for TI, past fiscal year 
appropriations are today funding a wide range of groundbreaking 
projects, including:

    Innovative, ``silo-breaking'' One CPD technical assistance 
        in communities across the country that replaces a fragmented 
        broken system with one that addresses the holistic and cross-
        cutting needs of our grantees, recognizing that these extend 
        beyond the rules and regulations of any single funding stream;

    Major evaluations and demonstration programs to examine the 
        outcomes of key Administration initiatives like the Rental 
        Assistance Demonstration and Choice Neighborhoods, the cost to 
        local public housing authorities of administering the Housing 
        Choice Voucher program, different approaches to rent reform in 
        our largest programs, the housing needs of Native American and 
        Hawaiian communities, and the impact of housing and services 
        interventions on homeless families;

    Replacement of 30-year-old technology and information 
        management practices to reduce risks, and implement higher 
        performing, and cost effective business solutions to more 
        effectively administer the Department's rental housing 
        assistance programs.

    The 2013 Budget request once again includes transfer authority (up 
to 0.5 percent at the Secretary's discretion) to support ongoing 
improvements of program effectiveness and efficiency and to help the 
Department respond and adapt more effectively to its rapidly changing 
operating environment. \1\ TI is a multiyear effort that can only be 
achieved through the relentless focus of agency leadership, full 
transparency and accountability for real results, and sustained and 
flexible budget resources. Since TI was first enacted in 2010, it has 
bolstered the long-neglected areas of IT modernization, research and 
evaluation, and program demonstrations crucial for increasing the 
efficiency and effectiveness of the Department's programs, and remains 
the primary source of funding for this transformation. Further, TI has 
provided a mechanism for innovative, crosscutting technical assistance 
that goes beyond program compliance to improve grantee capacity, 
performance and outcomes. Finally, recent crises with natural 
disasters, the housing market, and deep fiscal distress among State and 
local partners have highlighted the need for HUD to be more nimble, 
creative and collaborative. Setting aside a portion of HUD's program 
accounts through TI to better understand and enhance program results 
reflects recognition that planning for continuous improvement and 
innovation, investing in tools and capacity, and assessing results are 
equally integral for the operation of programs with accountability to 
the public interest.
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     \1\ In the 2013 Budget, HUD estimates that it will transfer $120 
million to the TI Fund using this transfer authority.
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Research and Evaluations
    As an integral component of strengthening HUD's capabilities for 
evaluating and improving program effectiveness and efficiency, TI 
provides a predictable stream of funding for high quality research and 
evaluation of HUD's programs on an ongoing, rotating basis to inform 
sound policy making. HUD anticipates allocating 10-20 percent of TI 
transfers to Research and Evaluations in 2013. Expected projects 
include: a process evaluation of the evidence-based Jobs-Plus pilot, 
seeking to understand the effects of larger scale implementation; 
energy efficiency and utility costs analysis for PHAs and residents of 
public housing; biennial research NOFAs for Sustainable Communities 
Research Grants to inform local governments in preparing and planning 
for disasters; and a long-overdue follow-up to a 1995 HOME 
Affordability Study to assess affordability over time based on 
differing levels of subsidy.
Program Demonstrations
    Program Demonstrations test new options for HUD programs that can 
make them more efficient and effective and establish sound evidence of 
whether and how these options could better achieve HUD's mission. Since 
the 1990s, HUD has done relatively few research demonstrations, largely 
due to budget constraints. Those few demonstrations, however, have been 
HUD's most important and informative research on real program impacts. 
In 2013, HUD expects Project Demonstrations to include research on the 
Rental Assistance Demonstration (RAD), which allows a trial conversion 
of public housing and certain multifamily properties to long-term 
project-based contracts.
Technical Assistance
    Technical assistance (TA) can be seen as a ``force multiplier''--
making program dollars go further and helping communities do more with 
limited Federal and local resources. TA under the Transformation 
Initiative (TI-TA) allows HUD to combine assistance for different 
programs as appropriate, and provide customized help on the issues any 
particular grantee confronts.
    In 2013, HUD will utilize TI-TA for activities such as: assessments 
and targeted interventions for PHAs; helping local government 
comprehensively assess market trends and implement housing and 
community and economic development programs through OneCPD; and 
targeting underlying, long-term problems like deficits and poor bond 
ratings through the National Resource Network. Flexible, cross-program 
technical assistance could also help grantees and clients adapt to new 
HUD policies, programs, and management approaches, and develop core 
skills and critical competencies required to effectively deliver HUD's 
programs.
Information Technology
    The Budget proposes to again use TI funds for Information 
Technology in 2013, to reduce risks, implement higher performing 
standards, and cost effective business solutions.
    IT transformation efforts to date have helped HUD evolve its 
understanding of opportunities to leverage the foundational toolsets 
being implemented under the FHA Transformation, the Next Generation 
Management project or NGMS (formerly known as NGVMS), and related 
infrastructure modernization projects. These opportunities include ways 
to further reduce the Government's risk in the marketplace, improve 
services to meet the needs of our citizens and employees and reduce 
annual operations costs. For example, recent efforts to define 
opportunities to reduce cost by consolidating back office business and 
administrative services are expected to lead to the need for capital 
investment to transition more of HUD's services from legacy platforms 
to shared enterprise services. HUD plans to use TI transfer authority 
in 2013 to make capital investments in IT to drive these service 
delivery improvements and further cost reduction efforts.
Conclusion
    Chairman Johnson, this Budget reflects the Administration's 
recognition of the critical role the housing sector must play to ensure 
every American gets a fair shot, everyone does their fair share, and 
everyone plays by the same rules. Equally important, it expresses the 
confidence of the President in the capacity of HUD to meet a high 
standard of performance. Given the economic moment we are in, HUD's 
2013 Budget proposal isn't about spending more in America's 
communities--it's about investing smarter and more effectively.
    It's about making hard choices to reduce the deficit--and putting 
in place much-needed reforms to hold ourselves to a high standard of 
performance. But most of all, it's about the results we deliver for the 
vulnerable people and places who depend on us most.
    I believe that this Budget will contribute substantially to 
economic recovery, to creating pathways to opportunity, and to an 
America built to last. Thank you.
              Additional Material Supplied for the Record
WRITTEN STATEMENT SUBMITTED BY CHERYL A. CAUSLEY, CHAIRWOMAN, NATIONAL 
                    AMERICAN INDIAN HOUSING COUNCIL
Introduction
    Dear Chairman Johnson, Ranking Member Shelby, and distinguished 
Members of the Senate Committee on Banking, Housing, and Urban Affairs. 
I am submitting this statement on behalf of the National American 
Indian Housing Council (NAIHC) regarding the Legislative Proposals in 
the Department of Housing and Urban Development's fiscal year (FY) 2013 
Budget. My name is Cheryl A. Causley and I am the Chairwoman of the 
NAIHC, the only national, tribal nonprofit organization solely 
dedicated to advancing housing, physical infrastructure, and economic 
and community development in Native American communities throughout the 
United States. I am also an enrolled member of the Bay Mills Indian 
Community in Brimley, Michigan, and the Executive Director of the Bay 
Mills Indian Housing Authority. I want to thank the Subcommittee for 
the opportunity to submit written testimony for the Committee's 
consideration as it reviews the legislative proposals in the Department 
of Housing and Urban Development's FY2013 Budget.
Background on the National American Indian Housing Council (NAIHC)
    The NAIHC was founded in 1974 and has, for 38 years, served its 
members by providing invaluable training and technical assistance (T/
TA) to all tribes and tribal housing entities; providing information to 
Congress regarding the issues and challenges that tribes face in terms 
of housing, infrastructure, and community and economic development; and 
working with key Federal agencies to address these important and, at 
times, vexing issues, and to help meet the challenges. The membership 
of NAIHC is expansive, comprised of 271 members representing 463 \1\ 
tribes and tribal housing organizations. The primary goal of NAIHC is 
to support Native housing entities in their efforts to provide safe, 
decent, affordable, culturally appropriate housing for Native people.
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     \1\ There are approximately 566 federally recognized Indian tribes 
and Alaska Native villages in the United States, all of which are 
eligible for membership in NAIHC. Other NAIHC members include State-
recognized tribes eligible for housing assistance under the 1937 
Housing Act and subsequently grandfathered in to the Native American 
Housing Assistance and Self-Determination Act of 1996; and the 
Department of Hawaiian Home Lands, the State agency that administers 
the Native Hawaiian Housing Block grant.
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Brief Summary of the Problems Regarding Housing in Indian Country
    While the country has been experiencing an economic downturn that 
many have described as the worst global recession since World War II, 
this economic reality is greatly magnified in Indian communities. The 
national unemployment rate seems to have peaked at an alarming rate of 
nearly 10 percent; however, that rate does not compare to the 
unemployment rates in Indian Country, which average 49 percent. \2\ The 
highest unemployment rates are on the Plains reservations, where the 
average rate is 77 percent. \3\
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     \2\ Bureau of Indian Affairs Labor Force Report (2005).
     \3\ Many of these reservations are in the State of South Dakota, 
which has one of the lowest unemployment rates in the Nation. On some 
SD reservations, the unemployment rate exceeds 80 percent.
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    Because of the remote locations of many reservations, there is a 
lack of basic infrastructure and economic development opportunities are 
difficult to identify and pursue. As a result, the poverty rate in 
Indian country is exceedingly high at 25.3 percent, nearly three times 
the national average. \4\ These employment and economic development 
challenges exacerbate the housing situation in Indian Country. Our 
first Americans face some of the worst housing and living conditions in 
the country and the availability of affordable, adequate, safe housing 
in Indian Country falls far below that of the general U.S. population.
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     \4\ U.S. Census Bureau, American Indian and Alaska Native Heritage 
Month: November 2011. See, http://www.census.gov.

    According to the 2000 U.S. Census, nearly 12 percent of 
        Native American households lack plumbing compared to 1.2 
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        percent of the general U.S. population.

    According to 2002 statistics, 90,000 Indian families were 
        homeless or underhoused.

    On tribal lands, 28 percent of Indian households were found 
        to be overcrowded or to lack adequate plumbing and kitchen 
        facilities. The national average is 5.4 percent when structures 
        that lack heating and electrical equipment are included, 
        roughly 40 percent of reservation housing is considered 
        inadequate, compared to 5.9 percent of national households.

    Seventy percent of the existing housing stock in Indian 
        Country is in need of upgrades and repairs, many of them 
        extensive.

    Less than half of all reservation homes are connected to a 
        sewer system.

    There is an agreement among most members of Congress, HUD, tribal 
leaders, and tribal organizations that there is a severe housing 
shortage in tribal communities; that many homes are, as a result, 
overcrowded; that many of the existing homes are in need of repairs, 
some of them substantial; that many homes lack basic amenities that 
many of us take for granted, such as full kitchens and plumbing; and 
that at least 250,000 new housing units are needed in Indian Country.
    These issues are further complicated by the status of Indian lands, 
which are held in trust or restricted-fee status. As a result, private 
financial institutions will generally not recognize tribal homes as 
collateral to make improvements or for individuals to finance new 
homes. Private investment in the real estate market in Indian Country 
is virtually nonexistent, with tribes almost entirely dependent on the 
Federal Government for financial assistance to meet their growing 
housing needs. The provision of such assistance is consistent with the 
Federal Government's well-established trust responsibility to American 
Indian tribes and Alaska Native villages.
The Native American Housing Assistance and Self-Determination Act
    In 1996, Congress passed the Native American Housing Assistance and 
Self-Determination Act (NAHASDA) to provide Federal statutory authority 
to address the above-mentioned housing disparities in Indian Country. 
NAHASDA is the cornerstone for providing housing assistance to low-
income Native American families on Indian reservations, in Alaska 
Native villages, and on the Native Hawaiian Home Lands.
    The Indian Housing Block Grant (IHBG) is the funding component of 
NAHASDA, and since the passage of NAHASDA in 1996 and its first fiscal 
year of funding in 1998, NAHASDA has been the single largest source of 
funding for Native housing. Administered by the Department of Housing 
and Urban Development (HUD), NAHASDA specifies which activities are 
eligible for funding. \5\ Not only do IHBG funds support new housing 
development, acquisition, rehabilitation, and other housing services 
that are critical for tribal communities, they cover essential planning 
and operating expenses for tribal housing entities. Between 2006 and 
2010, a significant portion of IHBG funds, approximately 24 percent, 
were used for critical planning, administration, and housing management 
and services.
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     \5\ Eligible activities include but are not limited to downpayment 
assistance, property acquisition, new construction, safety programs, 
planning and administration, and housing rehabilitation.
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The President's 2013 Budget Request for the Indian Housing Block Grant
    President Obama released his FY2013 budget request on February 13, 
2012. The PBR established total spending of level of $3.80 trillion, up 
from an estimated $3.79 trillion enacted in FY2012. This spending level 
includes $44.8 billion in budget authority for HUD, a 3.2 percent 
increase above the FY2012 funding level.
    Despite the increase in overall HUD spending, the Administration 
has proposed level funding for the Indian Housing Block Grant (IHBG) at 
$650 million for FY2013. Were the President's budget proposal to be 
accepted, it would mark the third consecutive year that the budget 
would be flat-lined. The budget proposal also includes $60 million for 
the Indian Community Development Block Grant program; the same level of 
funding that was appropriated in FY2012 and, inexplicably, recommends 
that no funding be provided for NAIHC's widely acclaimed training and 
technical assistance (T/TA) program. NAIHC respectfully requests that 
the IHBG be funded at $700 million, which is still far short of the 
estimated need of $875 million needed due to inflation. We also request 
the 2013 ICDBG be set at $100 million for the much-needed housing, 
infrastructure and economic development activities that the ICDBG 
provides, and that the T/TA be funded at no less than $4.8 million.
    The NAIHC is the only national Indian housing organization that 
provides comprehensive training and technical assistance (T/TA) on 
behalf of tribal nations and their housing entities. Because they know 
the value added by NAIHC, the NAIHC membership has voted unanimously 
during each of their annual conventions since 2006, to support a 
resolution that seeks to set aside a portion of their own Indian 
Housing Block Grant funding to support NAIHC's T/TA program. In 
addition, NAIHC members have expressed concerns about the quality of 
training provided by HUD contractors. Again, to ensure high-quality T/
TA, the NAIHC should be funded at not less than $4.8 million.
Other Indian Housing and Related Programs
The Title VI and Section 184 Indian Housing Loan Guarantee Programs
    The President's budget request includes $2 million for the Title VI 
Federal Guarantees for Financing Tribal Housing Activities and $7.0 
million for the Section 184 Indian Housing Loan Guarantee Program. The 
Title VI program is important because it provides a 95 percent loan 
guarantee on loans made by private lenders, which is an incentive for 
lenders to get involved in the development of much-needed housing in 
tribal areas. NAIHC believes that the PBR of $2 for the Title VI 
program is sufficient. NAIHC respectively requests that the funding for 
the Section 184 program be increased from $7 million to the $9 million 
level that Congress appropriated in FY2009.
Indian Community Development Block Grant (ICDBG)
    While appreciated, the President's proposal of $60 million for the 
ICDBG is insufficient to meet the current needs for essential 
infrastructure, including sewer and running water, in Indian Country. 
We request that this program be funded at $100 million.
Native Hawaiian Housing
    Low-income Native Hawaiian families continue to face tremendous 
challenges, similar to those that tribal members face in the rest of 
the United States. The President's funding request of $13 million for 
the Native Hawaiian Housing Block Grant is appreciated; however, NAIHC 
recommends this program be funded at $20 million. And, the budget 
includes $1.0 million to the fund the Section 184A program in Hawaii. 
The 2013 PBR of $1 million should be sufficient to fund this important 
homeownership program.
Training and Technical Assistance and the Proposed Transformation 
        Initiative
    The President's proposed budget eliminates entirely the much-
needed, exceptional T/TA that has been provided by NAIHC since the 
inception of NAHASDA. The provision of T/TA is critical for tribes to 
build their capacity to effectively plan, implement, and manage tribal 
housing programs. Eliminating funding for T/TA would be disastrous for 
tribal housing authorities and would be a huge step in the wrong 
direction. Tribes need more assistance in building capacity, not less.
    Since NAIHC's funding for T/TA was restored in 2007, requests for 
T/TA have steadily grown. The funding that NAIHC is currently receiving 
is insufficient to meet the continuous, growing demand for T/TA. 
Therefore, we are forced to make difficult decisions regarding when, 
where, and how to provide the most effective T/TA possible to our 
membership.
    The budget request proposes an agency-wide Transformation 
Initiative Fund (TIF) with up to 0.5 percent of HUD's total budget, 
which would draw funds away from essential housing programs, including 
$3.3 million from the IHBG account, ``to continue the ongoing 
comprehensive study of housing needs in Indian Country and native 
communities in Alaska and Hawaii.'' While the NAIHC membership believes 
the TI may have merit, we do not believe that transferring nearly $3.3 
million from the IHBG is a wise or even defensible use of IHBG funds.
    More importantly, the $3.3 million affects funding that has 
historically been appropriated to NAIHC for T/TA. As I have previously 
noted, the NAIHC membership has repeatedly taken the position that a 
portion of the IHBG allocation should be provided to NAIHC for T/TA, 
which is a reflection of their confidence in NAIHC and the continuing 
demand for the essential capacity-building services that we provide. We 
request that funding in the amount of $4.8 million for T/TA be included 
in the FY2013 budget.
Conclusion
    NAHASDA was enacted to provide tribes with new and creative tools 
necessary to develop culturally appropriate, safe, decent, affordable 
housing. While we value and appreciate the investment and efforts that 
this Administration and the Congress have made, NAIHC has very specific 
concerns, enumerated above, with the President's proposed budget for 
the Indian housing funding levels and hopes that Congress, with the 
leadership of this important Committee, will work with the NAIHC and 
the Administration to recognize the acute housing and capacity building 
needs that continue to exist in tribal communities.
    Consider these needs against a backdrop that includes the following 
observation from the Government Accountability Office (GAO) in their 
Report 10-326, Native American Housing, issued in February 2010 to this 
very Senate Banking Committee and the House Committee on Financial 
Services:

        NAHASDA's first appropriation in fiscal year 1998 was $592 
        million, and average funding was approximately $633 million 
        between 1998 and 2009. The highest level of funding was $691 
        million in 2002, and the lowest was $577 million in 1999. For 
        fiscal year 2009, the program's appropriation was $621 million. 
        However, when accounting for inflation, constant dollars have 
        generally decreased since the enactment of NAHASDA. The highest 
        level of funding in constant dollars was $779 million in 1998, 
        and the lowest was $621 million in 2009. \6\
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     \6\ See, GAO Report 10-326 at www.gao.gov/products/GAO-10-326.

    I wish to conclude this written testimony by thanking Chairman 
Johnson, Ranking Member Shelby, and all of the Members of the Senate 
Committee on Banking, Housing, and Urban Affairs. The path to a self-
sustaining economy is not achievable without a robust housing sector, 
and tribal housing conditions cannot be improved without adequate 
funding. NAHASDA is about building communities--not just constructing 
houses. I know we can count on you to support our efforts toward self-
sufficiency. Together, we can continue the important work of building 
healthy, vibrant, and robust tribal communities throughout Indian 
Country.



     LETTER SUBMITTED BY THE NATIONAL LOW INCOME HOUSING COALITION



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