[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                      SUSTAINABLE HOUSING FINANCE:

                        THE GOVERNMENT'S ROLE IN

                      MULTIFAMILY AND HEALTH CARE

                     FACILITIES MORTGAGE INSURANCE

                         AND REVERSE MORTGAGES
=======================================================================


                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                         HOUSING AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 16, 2013

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-21




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia                BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                 Subcommittee on Housing and Insurance

                   RANDY NEUGEBAUER, Texas, Chairman

BLAINE LUETKEMEYER, Missouri, Vice   MICHAEL E. CAPUANO, Massachusetts, 
    Chairman                             Ranking Member
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
GARY G. MILLER, California           EMANUEL CLEAVER, Missouri
SHELLEY MOORE CAPITO, West Virginia  WM. LACY CLAY, Missouri
SCOTT GARRETT, New Jersey            BRAD SHERMAN, California
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
SEAN P. DUFFY, Wisconsin             CAROLYN McCARTHY, New York
ROBERT HURT, Virginia                KYRSTEN SINEMA, Arizona
STEVE STIVERS, Ohio                  JOYCE BEATTY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 16, 2013.................................................     1
Appendix:
    May 16, 2013.................................................    33

                               WITNESSES
                         Thursday, May 16, 2013

Coulter, Charles, Deputy Assistant Secretary for Single Family 
  Housing, Federal Housing Administration, U.S. Department of 
  Housing and Urban Development..................................     6
Head, Marie, Deputy Assistant Secretary for Multifamily Housing, 
  Federal Housing Administration, U.S. Department of Housing and 
  Urban Development..............................................     7
Miller, Roger, Deputy Assistant Secretary for Healthcare 
  Programs, Federal Housing Administration, U.S. Department of 
  Housing and Urban Development..................................     9

                                APPENDIX

Prepared statements:
    Neugebauer, Hon. Randy.......................................    34
    Coulter, Charles.............................................    36
    Head, Marie..................................................    36
    Miller, Roger................................................    36

              Additional Material Submitted for the Record

Capuano, Hon. Michael:
    Letter to Roger E. Miller, HUD Deputy Assistant Secretary for 
      Healthcare Programs, from Baptist Hospitals of Southeast 
      Texas, dated May 15, 2013..................................    49
    Letter from Guadalupe Regional Medical Center, dated May 15, 
      2013.......................................................    50
    Letter to Roger E. Miller, HUD Deputy Assistant Secretary for 
      Healthcare Programs, from Hillcrest Baptist Medical Center, 
      dated April 24, 2013.......................................    51
    Letter to Hon. Barbara Mikulski, Hon. Richard Shelby, Hon. 
      Harold Rogers, and Hon. Nita Lowey from various housing 
      groups, dated March 6, 2013................................    53
    Written statement of the National Council of State Housing 
      Agencies...................................................    55
    Article from The Times-Picayune entitled, ``New hospital for 
      eastern New Orleans receives needed federal mortgage 
      insurance,'' dated October 1, 2012.........................    60
HUD:
    Written responses to questions for the record from 
      Representatives Heck and Fitzpatrick.......................    62
    Written responses to questions for the record from 
      Representative Stivers.....................................    65


                      SUSTAINABLE HOUSING FINANCE:

                        THE GOVERNMENT'S ROLE IN

                      MULTIFAMILY AND HEALTH CARE

                     FACILITIES MORTGAGE INSURANCE


                         AND REVERSE MORTGAGES

                              ----------                              


                         Thursday, May 16, 2013

             U.S. House of Representatives,
                            Subcommittee on Housing
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:55 p.m., in 
room 2128, Rayburn House Office Building, Hon. Randy Neugebauer 
[chairman of the subcommittee] presiding.
    Members present: Representatives Neugebauer, Luetkemeyer, 
Royce, Garrett; Capuano, Cleaver, Clay, Sherman, Himes, Sinema, 
and Beatty.
    Also present: Representatives Fitzpatrick, Heck, and 
Ellison.
    Chairman Neugebauer. The committee is called to order.
    This Subcommittee on Housing and Insurance hearing is 
entitled, ``Sustainable Housing Finance: The Government's Role 
in Multifamily and Health Care Facilities Mortgage Insurance 
and Reverse Mortgages.''
    We will have opening statements, with a limit of 10 minutes 
per side.
    There may be Members in attendance today who are not 
assigned to the Housing and Insurance Subcommittee, but without 
objection, we will let those Members participate in the 
hearing, as well.
    I ask unanimous consent that the members of the Financial 
Services Committee who are not members of the subcommittee, who 
have joined us today, will be entitled to participate in the 
hearing.
    I will now give my opening statement.
    We have had a number of hearings on FHA, and this is one 
that will focus on an area of FHA that quite honestly doesn't 
get a lot of attention. But if you are going to look to 
Congress doing its job, we have two responsibilities. And one 
of those is oversight. So, we are going to hear somewhat of a 
report from the people who head up those various programs, 
about the steps of that program. But also, as we are possibly 
looking at some FHA reform, I think it is important for our 
Members to understand all of the aspects of FHA.
    I think one of the things that we have found consensus on, 
on both sides of the aisle, is that FHA has played an important 
role in housing over a number of years.
    I think there has also been some consensus that maybe there 
has been some mission creep at FHA, and that they possibly have 
moved outside of their historical mission.
    One of the troubling things, though, that we have learned 
is that FHA is having a little bit of a solvency issue, and 
that they have basically a negative net worth. That then puts 
the taxpayers at risk. And one of the things that we want to 
focus on today is what should be the core mission of FHA, and 
have a better understanding of some of these other businesses.
    One of those businesses is the reverse mortgage program. 
And basically, that program is troubling to me, because it now 
has a negative economic value of about $2.8 billion, a capital 
ratio of negative 3.6 percent, and it comprises 7 percent of 
the single family guaranteed program, but it is 17 percent of 
the MMI--its fund losses.
    Secretary Donovan, in fact, was quoted the other day as 
saying that, of the $943 billion that the Administration thinks 
they are going to have to tap the Treasury for, a good deal of 
that can be attributed to the Home Equity Conversion Mortgage 
(HECM) portfolio.
    I think one of the troubling things about HECM borrowers, 
or reverse mortgage borrowers is they aren't really required to 
meet any income or credit qualification, and these lax 
underwriting standards have resulted in higher default rates, 
many times, leaving many of these seniors in financial 
hardship. And so, we want to hear more about that.
    The FHA Multifamily Program--I think a lot of people don't 
realize, some do, that FHA has a multifamily program. I have a 
couple of questions about that. One concerns the transparency 
of the Multifamily Home Program--FHA does not disclose or 
publish any delinquency rates or financial data. Nor is the 
Multifamily Program required to have a minimum capital reserve 
ratio.
    And again, we have to remember what the core business of 
FHA is. They are a mortgage insurance company. And so, they are 
insuring mortgages on single family houses. They are insuring 
mortgages on multifamily projects, but wherein for the single 
family, they are required to keep a certain amount of reserve, 
on the multifamily, they are not required to keep that reserve. 
Nor are they really reporting the results of that program.
    And so, we want to talk a little about prioritization, 
transparency.
    The other piece that I do want to talk about is the 
prioritization piece. And one of the things that we know is 
that FHA is approaching their commitment authority for Fiscal 
Year 2013.
    But we understand that the agency also has continued to 
refinance existing developments that are financed outside of 
FHA, which could be at the expense of FHA taking on new 
projects. And so, we want to have a little bit more discussion 
about that.
    And then finally, the hospital program, in which FHA is 
basically guaranteeing the debt of a number of the hospitals 
around the country and exhausting large amounts of their 
multifamily commitment authority on these large hospital 
projects. And what we are learning is that there is not very 
many transactions in this area, but that the transaction 
amounts can be rather large. And I think that the question I 
have is, should that be a mission of FHA, and if there are so 
few transactions it appears to me that private financing for 
these projects must be fairly available and maybe that might be 
one of the things that we might want to look at is whether FHA 
should continue funding--or guaranteeing hospital loans in the 
future.
    So I look forward to the panel. I think we have a great 
panel, composed of people who are very knowledgeable on these 
various programs.
    And with that, I will now yield to my good friend, Mr. 
Capuano, the ranking member of the subcommittee, for such time 
as he may consume.
    Mr. Capuano. Thank you, Mr. Chairman.
    And I want to thank the panelists for being here and for 
your enlightened testimony. I have already read most of it, and 
actually understood a fair amount of what I read, surprisingly.
    But today, we are trying to figure out what to do with the 
housing market and how to deal with it.
    Obviously, we all agree that we have some issues with it, 
though obviously, there may be some differences on the extent 
of those problems and what to do about them. For instance, a 
couple of years ago, everybody was lamenting Fannie Mae and 
Freddie Mac, yet at the moment nobody acknowledges the fact 
that they have already paid over $65 billion in dividends; that 
is 35 percent of what they borrowed. And we are anticipating 
another $66 billion being paid by the end of the second 
quarter.
    That is going to be over 70 percent of what they repaid. 
Yet, because of a law that makes no sense to me, we are not 
allowed to use that to offset their principal. So they are 
going to pay us these dividends and still owe us the full 
amount of money.
    And even when it comes to the FHA, as we delve into this 
more--I am no different than anybody else; I learn as we go. 
And I will tell you that it comes as a little bit of a surprise 
to me to find out, not too long ago, but after we got involved 
with this oversight, that the HECM program is really what 
drives the MMI fund into a problem, and that the non-HECM 
aspect of the MMI fund are actually in reasonable shape and 
getting better by the day.
    That doesn't mean that we don't have to deal with it. I 
totally agree with the chairman that we still have an 
obligation to make sure that we don't get into these problems 
again, to the best of our ability, and that they do perform 
their mission and so we can move forward and continue to build 
the middle class and maintain the middle class we have.
    But at the same time, I also think that what has happened 
over the last several years and what is happening now and the 
rebound in some of these things that we need to be a little bit 
careful about how much we tinker with this. We should do 
something. We absolutely have some certain things that I think 
we can agree on relatively quickly. But whatever it is we do, I 
think, for me, I am not interested in killing the golden goose 
that has produced such stable homeownership across the country 
for so many middle-income people, including myself.
    So with that, I just put that caveat out there. I don't 
think there is disagreement on that. But nonetheless, I think 
it is important to state that with all the issues that we do 
know that are there, we still have to be careful in fixing it 
to make sure that we don't over-fix it or over-tighten so that 
there is no housing market going forward.
    With that, I yield back.
    Chairman Neugebauer. I thank the gentleman.
    And now, Mr. Fitzpatrick is recognized for 1 minute.
    Mr. Fitzpatrick. Thank you, Mr. Chairman, for allowing me a 
moment here in your hearing.
    I believe that the Home Equity Conversion Mortgage program, 
when used properly, can be very useful as a tool for our 
Nation's seniors, giving them access to capital in their 
retirement to help improve or maintain their quality of life.
    Of course, we are all concerned with the health of FHA and 
the need to reform the system in order to ensure its 
sustainability.
    The legislation that I am working on with the gentleman 
from Washington, Mr. Heck, will give HUD the tools it needs to 
provide timely and appropriate reforms to the HECM program to 
ensure that reverse mortgages are still an option for older 
Americans. So I thank you for the opportunity to participate, 
and I look forward to the testimony of the witnesses.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentleman from Missouri, Mr. Clay, is 
recognized for 2 minutes.
    Mr. Clay. Thank you, Mr. Chairman. Thank you for conducting 
this hearing.
    And I am really interested in the testimony of the 
witnesses. However, I do want to bring to the attention of the 
witnesses and the committee that recently Secretary Donovan 
announced consolidation and closures of HUD offices around the 
country in the area of multifamily housing. However, there was 
no discussion with the stakeholders in the regions that are 
being affected by the closures. In fact, many Members of 
Congress were not informed until the announcement by your 
agency, blindsiding them as to how this decision was being 
made.
    This brings us to the main problem we are having with these 
closures. How did you come to make these decisions? What 
criteria did you use to develop the list of closures? What plan 
do you have to replace the services that these offices that are 
currently providing?
    The notice in the Federal Register relating to the current 
multifamily transformation initiative made sweeping claims 
about improving efficiency and improving the service provided 
to HUD's customers, a HUD regional system and keeping the other 
40 offices as satellites so that you can remain in the 
communities you serve. And I need to know why that wouldn't 
work.
    Over the last 2 years, you have rolled out extensive 
training for all multifamily housing staff under the names 
Sustaining Our Investments and Breaking Ground. Now under this 
plan, you are expecting that nearly 400 of those trainees will 
not be working for the agency by 2016.
    Aside from the fact that the investment in these employees 
will be lost, I am concerned about how much you spent on 
consultants, training costs, travel costs, and work hours that 
were lost for the weeks of training, and what the taxpayers got 
for their money.
    I see my time is up, Mr. Chairman, but I am sure when we 
get to the round of questioning, we will be able to discuss 
that.
    I yield back.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentlewoman from Ohio, Mrs. Beatty, is 
recognized for 2 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and Ranking Member 
Capuano.
    And I thank the witnesses for being here today.
    Today, we look to determine what role the government should 
play in the multifamily, healthcare, and reverse mortgage 
markets. Throughout these hearings, though, there seems to be a 
consistent and recurrent theme that the government is somehow 
crowding out the private market for capital.
    With respect to FHA's multifamily housing, it was the 
strong performance in this portfolio that has historically 
generated offsetting receipts for the Treasury and which 
prompted the request for additional commitment authority. And 
the GSEs that purchased and guaranteed multifamily mortgage 
loans have driven the market for affordable and specialized 
multifamily projects.
    Similarly, with regard to healthcare programs, the 
government ensures and the securitizers lower the cost of 
building and rehabilitating nursing homes, assisted living 
facilities, and hospitals, which in turn reduces the overall 
cost of healthcare.
    We have seen the government's share of the market decline 
in an inversely proportional manner that is that of private 
capital. The one area where I do have concern is the Home 
Equity Conversion Mortgage, or the reverse mortgage program. So 
I look forward to discussing ways to improve the reverse 
mortgage program to develop risk-based pricing methods which 
take into account the possibility of broad property value 
decline.
    Thank you, and I yield back.
    Chairman Neugebauer. I thank the gentlewoman.
    We will now hear from our witnesses. With us today are: 
Charles Coulter, Deputy Assistant Secretary for Single Family 
Housing at the U.S. Department of Housing and Urban 
Development; Marie Head, Deputy Assistant Secretary for 
Multifamily Housing, U.S. Department of Housing and Urban 
Development; and Roger Miller, Deputy Assistant Secretary for 
Healthcare Programs, U.S. Department of Housing and Urban 
Development.
    Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony. And without objection, 
each of your written statements will be made a part of the 
record.
    Mr. Coulter, you are recognized for 5 minutes.

 STATEMENT OF CHARLES COULTER, DEPUTY ASSISTANT SECRETARY FOR 
  SINGLE FAMILY HOUSING, FEDERAL HOUSING ADMINISTRATION, U.S. 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Coulter. Thank you.
    Thank you for the opportunity to testify on FHA's Home 
Equity Conversion Mortgage or HECM program.
    HECM is a government-insured reverse mortgage which enables 
seniors ages 62 and older to convert a portion of the equity in 
their homes into cash, allowing them to age in place. The 
proceeds of a HECM loan can address a variety of financial 
needs faced by seniors, including healthcare costs, other 
unexpected expenses or to augment monthly income.
    HUD has endorsed nearly 778,000 HECM loans since the 
creation of the program, including 54,000 in Fiscal Year 2012.
    The HECM program has a variety of consumer protections, 
including mandatory counseling for borrowers, a guarantee of 
timely cash advances, caps on fees, anti-churning disclosures 
to ensure that refinancing is not solely for the benefit of 
lenders, and a prohibition on cross-selling HECMs and annuities 
by anyone who participates in HECM origination or counseling.
    The mandatory counseling requirement is perhaps the most 
important consumer protection feature. It ensures that 
borrowers understand a reverse mortgage and allows them to make 
informed choices about their financial future. Beginning in 
2009, FHA made a number of improvements which have reduced risk 
both to the fund and to homeowners. We lowered the maximum 
principal limit twice--once in 2009, and again in 2010--
reducing the amount borrowers can draw against their homes.
    In Fiscal Year 2011, we created the HECM Saver, a lower 
cost option for borrowers willing to accept a smaller equity 
draw upfront as a lower risk complement to the HECM standard 
option.
    In January 2013, we announced a temporary consolidation of 
the fixed-rate standard program into the fixed-rate saver, 
reducing the amount borrowers can draw, further reducing risk.
    Additionally, in January 2011, we issued extensive guidance 
on the handling of property charge-related delinquencies, 
including detailed requirements of notifications to borrowers, 
reporting to HUD, and lost mitigation and counseling options
    Despite all of these efforts, FHA must and will take 
additional action with regard to the HECM program to ensure it 
has a negative credit subsidy going into Fiscal Year 2014.
    The President's Fiscal Year 2014 budget anticipates that 
the MMI fund may experience a $943 million shortfall. The HECM 
program alone has a negative capital position of over $5 
billion in contrast to the forward portfolio which is expected 
to have a positive reserve of $4 billion.
    As you know, any decision to draw from Treasury will depend 
on the actual performance of the entire fund during the 
remainder of this Fiscal Year. We have several legislative 
requests in our Fiscal Year 2014 budget that will allow FHA to: 
increase our ability to develop a strong, consistent, and 
transparent lender enforcement model; improve recoveries on 
defaulted loans; and allow FHA greater ability to respond 
quickly to risks as they emerge.
    One of these requests granting FHA the explicit authority 
to make changes to the HECM program via the Mortgagee Letters 
is crucial. We must make changes swiftly to preserve the 
program, protect consumers, and minimize risk going forward.
    Specifically, we would like to limit the amount of the 
allowable draw, require the establishment of an escrow or set-
aside or mandatory property obligations including taxes and 
insurance in appropriate circumstances, and mandate the use of 
a financial assessment by lenders originating HECM loans.
    HUD is also seeking congressional assistance to clarify the 
rights and responsibility of a nonborrowing spouse of a HECM 
borrower. Absent help from Congress, we will be forced to make 
changes that could cripple the program in order to address 
critical risk management concerns, preventing seniors from 
accessing a tool that allows them to age in place with dignity 
while ensuring their needs are met. In the past 30-plus years, 
nearly three-quarters of a million seniors have done just that.
    These are seniors like Larry and Helen Driscol who, despite 
their best efforts to plan ahead, outlived their retirement 
savings and were facing a health crisis. Twenty years into 
Larry's retirement, they needed help. Despite downsizing to a 
smaller home, their monthly expenses were outpacing their 
income.
    The HECM program gave them a way to keep their home, afford 
Helen's treatment for cancer, and continue to assist their son 
who was disabled, just as it has for hundreds of thousands of 
other seniors.
    The HECM program plays an important role in housing finance 
and ensures that seniors who have worked hard to achieve the 
American dream have options as they live their remaining years 
with dignity and confidence.
    Thank you, and I would be happy to answer any questions you 
may have.
    [The joint prepared statement of Mr. Coulter, Ms. Head, and 
Mr. Miller can be found on page 36 of the appendix.]
    Chairman Neugebauer. Thank you.
    Ms. Head, you are recognized for 5 minutes.

    STATEMENT OF MARIE HEAD, DEPUTY ASSISTANT SECRETARY FOR 
   MULTIFAMILY HOUSING, FEDERAL HOUSING ADMINISTRATION, U.S. 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Ms. Head. Thank you.
    Chairman Neugebauer, Ranking Member Capuano, and members of 
the subcommittee, thank you for the opportunity to speak today.
    FHA insurance has long assisted the Nation in meeting the 
need for safe, decent, and affordable housing by providing 
mortgage insurance for private financing of multifamily rental 
housing.
    More than one-third of American families rent their home 
and over 8.5 million unassisted families with very low incomes 
spend more than 50 percent of their income on rent.
    FHA's ability to play a critical countercyclical role in 
the multifamily housing market during the financial crisis 
ensured access to credit when conventional financing retreated 
from the market.
    FHA's programs also create employment opportunities in a 
variety of fields. In Fiscal Year 2012 alone, multifamily 
programs directly or indirectly created about 54,000 jobs 
across the Nation.
    That countercyclical role, combined with historically low 
interest rates, led to an unprecedented increase in demand for 
FHA multifamily mortgage insurance. Our production increased 
more than sixfold, rising from $2.3 billion in Fiscal Year 
2008, to over $14 billion in Fiscal Year 2012. A significant 
share of the demand for FHA insurance reflects the increased 
demand for rental housing during the period.
    At the same time FHA has been supporting our economic 
recovery, we recognize that private capital must return to the 
market, and we have already taken a number of actions to 
encourage it to do so.
    The Mortgage Bankers Association estimates that while the 
number of FHA-insured initial endorsements is up overall, its 
share of the market is down to 17 percent from its record high 
of 22 percent in Fiscal Year 2010.
    This is in part because we implemented the first changes to 
the underwriting criteria for market rate products in over 40 
years, we increased premiums for the first time in 10 years, we 
established a large loan policy with increased underwriting 
requirements, and implemented a concentrated risk underwriting 
policy to strengthen underwriting requirements for borrowers 
with larger portfolio risk.
    These risk management efforts ensure the solvency of the 
General Insurance and Special Risk Insurance (GI/SRI) fund and 
have resulted in a decrease in our default rate to less than 
one-quarter of a percent, down from \1/2\ percent in 2009. And, 
as I promised this committee last year, our GI/SRI claim rates 
are now available publicly on our Web site for the first time.
    FHA multifamily programs continue to play an important role 
in our fragile but growing recovery. That is why an additional 
$5 billion in commitment authority for the GI/SRI fund in 
Fiscal Year 2013 is critical.
    This additional commitment authority comes at no cost to 
the taxpayers while facilitating the construction of over 
15,000 new rental and healthcare units, 40 percent of which 
will be affordable. It could lead to the creation of nearly 
22,000 jobs and return an additional $200 million in receipts 
to the Treasury.
    Without this additional commitment authority, we will be 
forced to shut down the multifamily and healthcare programs in 
mid-August, delaying shovel-ready projects vital to the 
economic recovery in communities across the country and 
hindering our Super Storm Sandy recovery efforts.
    Finally, FHA multifamily continues to focus on business re-
engineering efforts that update our operating model for a 21st 
Century. Last month, we announced a transformation that 
includes restructuring headquarters, consolidating our field 
presence, and several other major operating improvements.
    In headquarters, we will reduce the number of business 
lines from 6 to 4. In the field, 17 hubs that manage 50 offices 
will be consolidated into 5 hubs that manage 5 satellite 
offices. This transformation centers on a plan to nationally 
balance work loads, implement additional risk-based processing 
standards for underwriting and managing assets, enabling more 
efficient business management, and providing consistent and 
timely delivery of our programs to our customers.
    Once fully implemented, the transformation has the 
potential to save an estimated $40 million to $48 million 
annually.
    In conclusion, Mr. Chairman, FHA serves as an important 
complement to private mortgage financing while delivering on 
our mission to provide safe, decent, and affordable housing and 
contributing to a positive fiscal environment that shapes the 
future of rental housing.
    Thank you for the opportunity to speak today, and I would 
be pleased to answer any questions.
    [The joint prepared statement of Mr. Coulter, Ms. Head, and 
Mr. Miller can be found on page 36 of the appendix.]
    Chairman Neugebauer. Well-timed, right on the money, 5 
minutes.
    Ms. Head. Thank you.
    Chairman Neugebauer. Mr. Miller, you are recognized for 5 
minutes.
    We will see how you do. No pressure. No pressure.
    [laughter]

   STATEMENT OF ROGER MILLER, DEPUTY ASSISTANT SECRETARY FOR 
   HEALTHCARE PROGRAMS, FEDERAL HOUSING ADMINISTRATION, U.S. 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Miller. Thank you, Chairman Neugebauer, and Ranking 
Member Capuano.
    I appreciate the opportunity to testify today on the 
importance of FHA's healthcare programs, how they support FHA's 
mission by helping communities obtain and maintain access to 
modern medical facilities by ensuring those facilities get 
necessary capital financing to continue to serve vulnerable 
populations and generate an average of $87 million in receipts 
to the Treasury each year.
    FHA's Office of Healthcare Programs facilitates the 
construction and refinancing of healthcare facilities through 
private commercial lenders by providing mortgage insurance, not 
direct loans or grants by helping private lenders serve a 
broader swathe of the market.
    Heatlhcare facilities are built, modernized or refinanced 
increasing access to care particularly in rural or distressed 
areas, decreasing overall healthcare cost, and filling a need 
not met by the private market in loan.
    Using the GI/SRI commitment authority, the Section 232 
program provides mortgage insurance for residential care 
facilities like nursing homes, assisted living facilities, and 
board and care homes, while the Section 242 program provides 
insurance for hospitals. Due to the economic crisis, access to 
healthcare financing facilitated by commercial bond insurers 
decline, healthcare insurance providers left the market and the 
number of facilities seeking FHA insurance grew.
    Today, our market share is approximately 8 percent for 
hospitals and 12 percent for residential care. In Fiscal Year 
2012 alone, FHA insurance programs supported the construction, 
improvements, substantial rehabilitation or refinancing of 791 
healthcare facilities with more than 91,000 beds. But rather 
than displacing the private market, we encourage it.
    Our hospital program frequently produces graduates: 
facilities that due to the benefit of FHA-insured financing are 
able to develop operational efficiencies, and improve their own 
financial performance enough to seek financing in the private 
market.
    One recent graduate, Hillcrest Baptist Medical Center in 
Waco, Texas, provided critical care to dozens of the injured 
following the tragic explosion at a fertilizer plant in West, 
Texas. Hillcrest asserts that they would not have been able to 
construct the badly needed replacement hospital that served as 
the lead trauma facility during the emergency, nor enter into a 
new partnership that improved the financial standing without 
the 242 program.
    To continue to minimize any risk, we are constantly 
improving our portfolio process to ensure the strength and 
long-term stability of the GI/SRI fund. We encourage and engage 
in proactive asset management to give properties the support 
they need before they get in trouble. And, in addition to 
reviews done by the program office, loans over a certain 
threshold are also reviewed by FHA's Office of Risk Management 
to ensure that all risk factors are properly identified.
    LEAN business process reengineering has also played an 
integral part in streamlining our business operations, despite 
increased volume. We have completed and revamped our Section 
232 documents, adding specificity and HUD additional rights and 
risk management capabilities.
    Through our work, the office has maintained claim rates of 
less than 1 percent across our portfolios in Fiscal Year 2012, 
and we are on track to do the same in 2013.
    This careful stewardship has also allowed our Sections 232 
and 242 programs to return $0.75 billion in receipts to the 
U.S. Treasury since 2000.
    As part of our efforts to strengthen whole communities by 
addressing specialized financing needs, we are seeking 
Congress' help to permit critical access hospitals to become 
eligible for FHA insurance again.
    Mr. Chairman, by continuing to offer mortgage insurance for 
vital healthcare facilities, the Federal Government encourages 
private lending, promotes economic growth, and better enables 
underserved communities to meet medical needs.
    Thank you, and I look forward to your questions.
    [The joint prepared statement of Mr. Coulter, Ms. Head, and 
Mr. Miller can be found on page 36 of the appendix.]
    Chairman Neugebauer. Thank you, Mr. Miller.
    Now, each Member will have 5 minutes for questions, and I 
will first recognize myself for 5 minutes.
    Mr. Coulter, let's kind of review the stats a little bit--
$2.8 billion negative economic value in the HECM program. Is 
that correct?
    Mr. Coulter. Actually, the President's budget updated that 
number to roughly $5 billion.
    Chairman Neugebauer. So it is $5 billion negative?
    Mr. Coulter. That is correct at this point in time.
    Chairman Neugebauer. Whoops. So the capital ratio, roughly 
what is the negative percentage on it now that it is--if $2.8 
billion was 3.6 percent, that is probably going to bump it up 
to 7-something percent, right? Just calculate.
    Mr. Coulter. Yes. It would bump it up. That is correct.
    Chairman Neugebauer. I will give you a little credit here. 
I will round it off at 7 percent, and I think it is going to be 
a little higher than that.
    So the HECM portfolio is only 7 percent of the MMI fund, 
but it is representing almost 17 percent--and it looks like 
that number will be higher--of the fund's losses.
    And, as you recall, Secretary Donovan requested $943 
billion lifeline from taxpayers into his budget, and alluded to 
a lot of that had to do with the HECM program--580,000 reverse 
mortgages originated through HUD, and 54,000 of those are in 
default. So, nearly one in 10 of those loans are in default, 
and we have kind of gotten those seniors in a rough spot.
    And so we have a program that is supposed to be tailored to 
help seniors, but what we have is a program that not only puts 
the taxpayers kind of at risk, but we also have a program here 
that has probably put some of our seniors in not very good 
financial shape.
    Here is the question I have, we have seen a huge--the 
private sector has pretty much abandoned the reverse mortgage 
business. I don't think currently today, there are any private 
companies making any reverse mortgage loans. I think that some 
of them used to, but they have gotten out of that business.
    So that has left FHA with 100 percent of the reverse 
mortgage business.
    The question I have is, are there other financial products 
that can do similar things to what you have outlined the 
benefits to seniors, of providing them the ability to use the 
equity in their home?
    I guess the first question is, if everybody else has gotten 
out of the reverse mortgage business, why are we still in the 
reverse mortgage business?
    Mr. Coulter. You are absolutely correct to focus on the 
financial performance of these products, first of all. And we 
take the financial performance of this program and our overall 
portfolio very seriously.
    I will say that the Treasury draw amount or potential is 
$943 million, not billion. So--
    Chairman Neugebauer. I apologize.
    Mr. Coulter. --but that is not to say that it is not 
material.
    In terms of your question about why should we stay in this 
program, FHA was set up by Congress to meet the affordable 
financing needs of underserved markets.
    If you think about seniors today, the baby boom generation 
is aging. Those seniors are not going to have the benefits that 
our parents did of defined pension plans, reasonably healthy 
401(k) plans, and they are going to be heavily reliant on their 
home equity. This program allows them to responsibly tap into 
that home equity.
    Now, a kind of clear follow-up from your perspective would 
be, well, can we do it financially responsibly on a go-forward 
basis and can we address the fact that there are 10 percent of 
these loans that are in tax and insurance default?
    The answer is yes. And that is one of the reasons that we 
have asked Congress for support to make changes to this program 
that will get it structurally back on the right track.
    Chairman Neugebauer. I think that one of the questions I 
have is that I think FHA is trying to be in two businesses here 
where, one, they are trying to be in the mortgage insurance 
business, but two, they are also now in the annuity business.
    And I question whether FHA has the expertise within the 
organization, because I guarantee that if you make me a reverse 
mortgage at 63 years of age, and nobody has to pay that back 
until they die, I am married to a woman whose parents and 
grandparents lived a very, very long time, and you would have 
to advance me a very small amount of money for the government 
to come out.
    Otherwise, what is going to end up happening is that at 
some point in time, that loan is going to be underwater, and 
somebody is going to have to pick up the tab. And we know who 
picks up that tab.
    So, I hear your reforms and I think the Mortgagee Letter is 
something that is being considered to give you that authority.
    But I think the overriding question is I think we have to 
have a lot further discussion about whether this is a program 
that: one, we should be doing; and two, if we are getting 1 in 
10 seniors in trouble financially with this program, then we 
are not doing what we should be doing.
    My time has expired.
    I now recognize Mr. Cleaver, the gentleman from Missouri, 
for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    I want to be parochial, first, to talk about the HUD 
reorganization. And Kansas City, Missouri, is a regional--
actually, you moved your office over in Kansas. But it is a 
regional center. And so, we have not been impacted by the 
reorganization, as I currently look at what has been done.
    But in making the decision, was there any kind of community 
participation--for example, with CBDG, there is a community 
hearing requirement. You have--you are supposed to. I know some 
people--some examples, some communities that didn't do it.
    But so what happened when you made decisions to close 
certain HUD offices?
    Ms. Head. Thank you for that question. There are two pieces 
of the reorganization at HUD. One of the pieces is to close 
small, sub-State offices. And in those offices, there is no 
program management of the different FHA programs and so there 
also are other offices in the State that can serve the same 
function for program delivery.
    So that is one piece of this.
    Then, there is the multifamily consolidation piece. And in 
the multifamily consolidation piece, we are not closing 
offices. We are consolidating our multifamily functions into 
the 10 offices that we--that I mentioned in my opening 
statement.
    So in 40 or better years, the multifamily operating model 
has not been refined. This is our attempt to make sure that we 
are providing efficient program delivery to our customers in a 
manner that is not a risk to the taxpayers.
    Mr. Cleaver. Yes, I--
    Ms. Head. So part of--I am sorry, I will answer your 
question.
    Mr. Cleaver. No.
    Ms. Head. We did look at a number of things when choosing 
the offices that would be in the remaining 10 offices, 
including how we would continue to provide the market 
information that was needed in the different markets.
    So under the restructuring of multifamily, we will have 
dedicated teams in the other offices that will function to 
provide the services in the States that you are talking about.
    Mr. Cleaver. I actually believe that HUD and all the 
Federal agencies at this austere time should make decisions 
such as those that you made. My question is not about making 
efficient moves. But I know there are communities--there are 
Members, for example, who sent questions because there were 
offices closed in their communities, without any prior 
information-sharing with the community.
    So with the closings, I think you did the right thing. I am 
conveying to you the concern of some of my colleagues.
    Because I want to move to the reverse mortgage issue, and 
with reverse mortgages, there are a lot of benefits, but there 
are some burdens as well.
    Is the HUD interest rate lower than the conventional 
interest rate? On these reverse mortgages, sometimes the 
interest rates can be very high. So where do we come in?
    Mr. Coulter. The interest rate on these loans is a function 
of where the ultimate security trades.
    We put out principal limit factor tables that currently 
come down to 5 percent, and we are planning on publishing 
principal limit factor tables that come down to interest rates 
below that.
    Typically the interest rate, the fixed rate of interest on 
these loans is generally in the 4 percent range.
    Mr. Cleaver. You said 3 percent to 4 percent?
    Mr. Coulter. Four percent or higher.
    Mr. Cleaver. Oh, okay.
    I yield back, Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman.
    And now, the vice chairman of the subcommittee, Mr. 
Luetkemeyer, is recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Ms. Head, with regards to multifamily housing, it seems 
that they are competing quite heavily for the available credit 
authority in the GI/SRI fund. In fact, there is a concern you 
may run short before the end of the current Fiscal Year. It is 
my understanding that the Department has been focused on 
refinancing existing multifamily insured loans in the existing 
portfolio, and even refinancing existing developments that are 
outside of FHA.
    I started out with a preface for my questions, but I have 
several of them with regards to, don't you think that your 
mission would be better fulfilled if you used the commitment 
authority to actually loan to multifamily housing in the 
underserved areas?
    Ms. Head. Thank you for that question.
    So, the requested commitment authority will enable us to 
continue to play the role that you are referring to in the 
much-needed underserved markets. Part of the commitment--
    Mr. Luetkemeyer. Forgive me for interrupting, but are you 
going to change the way that you are doing it?
    Ms. Head. The way that we are--
    Mr. Luetkemeyer. This was one of my later questions, but 
since you brought it up already, my question right now is, when 
you are already close to the limit and you are refinancing 
things that are outside--you are refinancing stuff within FHA 
and you are refinancing stuff that is outside of FHA, instead 
of new stuff, what is going to change?
    Ms. Head. The commitment authority is needed to continue to 
refinance our existing portfolio. Fifty percent of our 
pipeline--I am sorry, sir. Am I not understanding your 
question?
    Mr. Luetkemeyer. Okay. You are also refinancing stuff 
outside of FHA. You are doing Fannie and Freddie stuff. So--
    Ms. Head. No sir, I don't believe we are doing Fannie and 
Freddie stuff. And I can tell you the differences between the 
Fannie and the Freddie markets that we do. So, FHA does not 
offer the same programs as the GSEs. While there are some 
similarities between the FHA and the GSEs--
    Mr. Luetkemeyer. You are not refinancing any other loans 
other than FHA loans?
    Ms. Head. Of the GSEs?
    Mr. Luetkemeyer. Yes.
    Ms. Head. We are refinancing some of those loans that come 
to us for FHA insurance.
    Mr. Luetkemeyer. What percentage of your loans are?
    Ms. Head. Are Fannie and Freddie? I do not have that 
information.
    Mr. Luetkemeyer. Can you get that information to us?
    Ms. Head. I am happy to get you that information.
    Mr. Luetkemeyer. Okay. Now, with regards to the new 
commitment that you are wanting, how much of that is going to 
be for refinancing outside FHA?
    Ms. Head. About 40 percent is our existing portfolio that 
we are refinancing this year, both in healthcare and in 
multifamily. Then, there is about 25 percent that are new 
construction loans. So that would leave probably another 25 
percent to 30 percent that are not in our portfolio.
    But we provide--those loans that come to us in other 
underserved markets are not necessarily in the GSEs' 
portfolios.
    Mr. Luetkemeyer. Okay. Why are we refinancing existing 
loans?
    Ms. Head. Because there is a need in the marketplace for 
us--
    Mr. Luetkemeyer. You are refinancing due to rate? Are you 
refinancing due to--they purchase a different residence and you 
are refinancing it to a different residence? Or are you taking 
the same house and just refinancing the loan to add more money 
to it?
    Ms. Head. Let me clarify. Multifamily is the finance of the 
apartment complexes, the healthcare facilities, and the 
hospitals. That those fall under the GI/SRI funds. So, we are 
not refinancing folks' homes that are--
    Mr. Luetkemeyer. I am using ``home'' as a form of 
multifamily housing unit--
    Ms. Head. No, that is okay--
    Mr. Luetkemeyer. --instead of all by itself. So, you are 
refinancing the entity. Okay?
    Ms. Head. We are refinancing the multifamily properties in 
order to provide more affordable rental housing for the 
marketplace in many underserved communities.
    Mr. Luetkemeyer. Are they rehabbing them? Or why are you 
doing that?
    Ms. Head. Many of them are being rehabbed.
    Mr. Luetkemeyer. Or is it due to rate?
    Ms. Head. Pardon me?
    Mr. Luetkemeyer. Is it due to rate? Have you got a better 
rate now than what they are financed at previously?
    Ms. Head. The FHA mortgage insurance does provide a lower 
rate for these entities, which, again, makes them affordable in 
the marketplace in many tertiary markets.
    Mr. Luetkemeyer. Okay. What are the standards you have when 
you take into consideration refinancing a loan?
    Ms. Head. What are our standards?
    Mr. Luetkemeyer. Yes.
    Ms. Head. We have a set of underwriting guidelines that we 
use in order to underwrite those loans. Are you asking me for 
the specific criteria for those loans?
    Mr. Luetkemeyer. Yes.
    Ms. Head. They range from 70 percent of value, which is 
comparable to the--some of what the GSEs do--to 85 percent of 
loan-to-value.
    Mr. Luetkemeyer. Okay. What are the criteria? Are they 
geographic, population, political considerations?
    Ms. Head. They are not political considerations, no, sir. 
We are providing the need to finance in underserved market 
areas more than anything else, and providing affordable housing 
in those--
    Mr. Luetkemeyer. Urban versus rural--does it make a 
difference?
    Ms. Head. I am sorry. I am--
    Mr. Luetkemeyer. Is it urban versus rural? Is that a 
criteria?
    Ms. Head. We serve underserved markets both in rural areas 
and in tertiary markets and in some urban areas.
    Mr. Luetkemeyer. Can you give me a percentage of where you 
go with urban versus rural? It is 80 percent urban, 20 percent 
rural?
    Ms. Head. I would have to get those statistics for you.
    Mr. Luetkemeyer. All right. Thank you very much. My time is 
up.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentlewoman from Ohio, Mrs. Beatty, is 
recognized for 5 minutes.
    Mrs. Beatty. Thank you so much, Mr. Chairman, and Mr. 
Ranking Member.
    Mr. Coulter, let me ask you this question: Is there a way 
in which private capital can be brought into the reverse 
mortgage market in any substantial volume?
    Mr. Coulter. The chairman mentioned earlier that private 
capital has exited this market and he was absolutely correct. 
If you go back to 2006, 2007 when the market was heating up, 
you did see some private capital start to enter this 
marketplace, in particular in the jumbo and super-jumbo space. 
So, there is interest from private capital, but until you get 
to a house price path that is strong and stable, you are not 
going to see any new interest.
    Mrs. Beatty. And let me ask you, what could HUD, or what is 
HUD able to do to improve its reverse mortgage program without 
congressional action? And what, if any, congressional action is 
sought?
    Mr. Coulter. Without congressional action, we can change 
the mortgage insurance premiums, which we have done. In 2010, 
we increased them by 75 basis points. Or we can reduce the 
principal limit factors. And we did that twice, once in 2009, 
and once in 2010, with the introduction of the Saver program, 
which basically reduces the amount of the principal limit 
factor and reduces the amount of the up-front mortgage 
insurance premium charged for it. So that was done in 2010.
    And we did it again at the beginning of this year as a 
result of the actuarial results. We effectively collapsed the 
fixed-rate standard and fixed-rate Saver programs to mitigate 
the risk on the fixed-rate side of the portfolio.
    So we can--the answer to your question of what we can do is 
deal with principal limit factors and deal with mortgage 
insurance premiums. We have asked for your support, because we 
believe that we want to make structural changes to this program 
that ensure it is viable for the long term. Those changes 
include capping the amount of the up-front draw. They include 
instituting a financial assessment, and I know there was a note 
made earlier that we don't do a financial assessment today. 
That is correct and we believe we should.
    And the third thing we would like to do is have an escrow 
account and/or set-aside to deal with the tax and insurance 
defaults. And the one thing that I would note here on the tax 
and insurance default, again the chairman mentioned a 10 
percent default rate. That is absolutely the correct number, 
but the median amount outstanding on those defaults is $3,000. 
So we are not dealing with a huge dollar-amount on those types 
of defaults, and we do believe that an escrow account or a set-
aside can materially cure that issue.
    The last thing that we would like to do, and we would like 
your support on, is to deal with the issue of nonborrowing 
spouses. Again, it is important to build this program on an 
actuarily sound basis. We need to know who the youngest of the 
mortgagors will be that we have to underwrite the property 
against or underwrite the mortgage against. And we want to make 
sure that issue is crystal clear on a prospective basis.
    Mrs. Beatty. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Chairman Neugebauer. I thank the gentlewoman.
    And now the gentleman from Missouri, Mr. Clay, is 
recognized for 5 minutes.
    Mr. Clay. Thank you so much.
    And I will direct my questions to Ms. Head. By your own 
estimates, Ms. Head, you are expecting to lose nearly 400 
people who feel they have no choice but to leave HUD due to 
this forced relocation program. Most of your anticipated 
savings are as a result of the reduction in staff.
    If that is the primary goal, why did the agency choose not 
to conduct a reduction in force (RIF?) Don't veterans and high 
performers have more protections in a RIF than in the process 
you have chosen?
    Ms. Head. Thank you for the question, Congressman.
    In our decisions to make this--we were trying our best to 
make sure that any employee who wanted to remain with 
Multifamily would have the opportunity to remain with 
Multifamily. The reduction in force process that is throughout 
the Federal Government can have what we considered more 
devastating effects on our employees.
    So we have offered every--are committed to every 
Multifamily employee having an opportunity in the new structure 
through relocation to other offices and also opportunities to 
move into additional jobs.
    Mr. Clay. Okay. Do those opportunities include retraining 
or some kind of association with local community colleges to--
so that they can do some kind of cross-transfer at HUD?
    Ms. Head. Yes, sir. One of the things that we are looking 
at and committed to is making sure that employees are getting 
trained. So we have in our estimates for the--for this 
restructuring, training benefits for all employees.
    To your question about opportunities across the 
organization, we are also committed to looking at how we could 
manage that so that, it needs to be understood that we are not 
closing Multifamily offices. The offices that will remain have 
other program areas. And we are looking at how we can make sure 
that employees have opportunities within those other areas if 
they want to stay in their geographic location.
    Mr. Clay. I guess I am looking for the least disruptive way 
to consolidate these offices and to give those employees who 
you have trained over the years the option of staying in those 
communities where they have a home and a family.
    Have you taken that into consideration?
    Ms. Head. Yes, sir. As I said, we are looking at 
opportunities for employees, because there are--will still be 
HUD offices in those geographic locations. There will be 
opportunities within those offices for the staff.
    Mr. Clay. Okay. Now, I understand that you are allowing 
multifamily employees in the Seattle office to slide into newly 
created positions in the Office of Healthcare Programs, Mr. 
Miller's division.
    Why are you not providing then, equal opportunity to 
multifamily housing employees around the country and especially 
in offices where the Office of Healthcare Programs has a 
significant presence, like Saint Louis, Jacksonville, 
Milwaukee, and Los Angeles?
    Ms. Head. When the LEAN program, which is in the Office of 
Healthcare, was created, I believe in 2008--when the 
consolidation on the healthcare programs happened--the Seattle 
hub was instrumental in implementing that program. And as part 
of that implementation, the Office of Healthcare Programs now 
is understaffed. And we believe that with an opportunity to 
make sure that the expertise was--and the resources were used, 
as part of the restructuring.
    Mr. Clay. Can you do those in those other four cities?
    Ms. Head. That would be more difficult to do in those other 
cities, because those folks have not been involved in the 
healthcare programs in the past.
    Mr. Clay. So, what is the--
    Ms. Head. Also, as Mr. Miller has staffing needs, he will 
post jobs, possibly in some of those locations, where people 
would have the opportunities to apply for them.
    Mr. Clay. What is going to happen to the majority of my 
constituents in Saint Louis when you close that office?
    Ms. Head. This is a Multifamily consolidation. And in other 
offices where there will be a Multifamily presence, there will 
be dedicated teams that will support your State.
    Mr. Clay. I am going to be following you closely, and 
hopefully, we will be able to resolve this.
    Ms. Head. I am happy to answer any questions for you, sir.
    Mr. Clay. It is always a pleasure.
    I yield back.
    Ms. Head. Thank you.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentleman from Washington, Mr. Heck, is 
recognized for 5 minutes.
    Mr. Heck. Thank you.
    First, I would like to thank the chairman and the ranking 
member for the courtesy of allowing me to participate today. 
Thank you very much.
    Mr. Coulter, these are HECM questions.
    I think you are probably familiar with the relatively brief 
text that Mr. Fitzpatrick and I have been developing with 
respect to granting you additional authority. And my question 
is, you have already enumerated several changes you would like 
to make.
    Does this language of the proposed legislation give you 
what you need to address this problem?
    Mr. Coulter. Yes, sir. We appreciate your efforts. And we 
do believe that it gives us the flexibility we need to make the 
changes that I noted earlier.
    Mr. Heck. And in that regard, you are confident that you 
could significantly reduce the number of seniors who are being 
materially affected in a negative way, as well as enhancing the 
portfolio's assets?
    Mr. Coulter. I am. I believe that we can put this--with the 
changes that I noted, I believe that we can put this program on 
a positive track, and ensure that it is serving the market 
constructively, serving seniors constructively, and that we can 
get it on sound financial footing.
    Mr. Heck. In addition to the proposed legislation, are 
there any other things that you can do to help spouses better 
understand their circumstance, and borrowers, their 
obligations, as well?
    Mr. Coulter. It is an excellent question, and we clearly 
need to continue to work closely with the industry, with CFPB, 
and with housing counseling.
    We have an office of housing counseling now. We have 
engaged them, and they are very focused on ensuring that as we 
move forward respectively with this program, the counseling 
that is mandatory ensures that the seniors who are taking this 
product know what they are getting themselves into, they know 
exactly what their obligations are, and they recognize that it 
is part of an overall financial planning solution, not just a 
way to tap into the money up front. It is a mechanism that they 
should be using over their life to tap into it when they have 
unexpected financial needs.
    Mr. Heck. And finally, Mr. Coulter, just to be crystal 
clear, can you state unequivocally that if this legislation 
that Mr. Fitzpatrick and I have been proposing were to be 
adopted, that unequivocally, there would be fewer seniors hurt, 
and your portfolio performance would improve?
    Mr. Coulter. I can. I do very firmly believe that with the 
legislation that you are moving forward, we can put--we can 
make changes that are substantive, and as I said earlier, will 
get this program on a track that ensures that fewer seniors are 
negatively impacted. We will get the right seniors into the 
right program. We have a program that effectively serves a 
market that is highly sensitive at that point in their life. 
And we all want to do everything we can to ensure that we give 
that product only where it is appropriate, and only where it 
preserves homeownership in a constructive way.
    So, the answer to your question is yes.
    Mr. Heck. Thank you, Mr. Coulter.
    Mr. Chairman, I ask unanimous consent to submit the series 
of questions from both Mr. Fitzpatrick and myself for the 
agency to respond to.
    Chairman Neugebauer. Without objection, it is so ordered.
    Mr. Heck. I yield back the balance of my time, and thank 
you again, sir.
    Chairman Neugebauer. The Chair recognizes the ranking 
member has asked unanimous consent to enter in the record a 
written statement from the National Council of State Housing 
Agencies.
    Without objection, it is so ordered.
    I now recognize the ranking member, Mr. Capuano, for 5 
minutes.
    Mr. Capuano. Thank you, Mr. Chairman. And I thank the 
witnesses for being here.
    Let me just say to Mr. Miller, I am informed, and I want to 
make sure that I get this right, that the two programs 
together--the multifamily and the healthcare programs, have 
returned $750 million to the Treasury since the year 2000? Is 
that approximately right, do you know?
    Mr. Miller. Thanks for the question.
    Let me just clarify that the Office of Healthcare Programs 
has two other programs. One is the Skilled Nursing Program, and 
the other one is the Hospital Program. It does not have 
multifamily involved with it.
    And, yes, indeed, we have returned $750 million.
    Mr. Capuano. So that amount is just out of the healthcare 
end?
    Mr. Miller. That is correct.
    Mr. Capuano. Okay. Thank you.
    Ms. Head, my understanding is that the Multifamily is in 
reasonably good shape financially, as well. Is that correct?
    Ms. Head. Yes, sir, that is absolutely correct.
    Mr. Capuano. Thank you.
    Mr. Coulter, that leaves the reverse mortgage. I am not 
going to say ``HECM,'' because nobody knows what it means 
except you and us. It is the Reverse Mortgage Program.
    Am I right to understand, based on the numbers, that if the 
Reverse Mortgage Program were not in the MMI fund--it was 
pulled out, like it used to be in a separate fund--it was just 
the single family aspect of the fund, that there would be no 
need to draw on the Treasury this year? Is my math correct 
here?
    Mr. Coulter. That is a correct statement, yes.
    Mr. Capuano. So the biggest problem is the reverse mortgage 
part? I just want to make sure my understanding of the whole 
math thing is correct.
    I have a couple of other questions.
    I know that you have instituted some changes. Have you 
instituted any changes relative to the amount of the lump sum 
that is allowed to be taken out at the beginning? Because as I 
read it--and I have read the information--it seems to me, that 
is probably the biggest problem. And never mind the reduction 
in residential value, because that is across-the-board. But one 
aspect to this is the fact that you give out lump sums at the 
beginning, and people can use the money the way they want, 
within a reasonable period of time. Either people outlive it, 
or they have to spend it on other things. And all of a sudden, 
they are in serious trouble.
    Have you done anything to limit the amount of the lump sums 
up front?
    Mr. Coulter. So, first of all, you are absolutely correct. 
And that is the biggest concern we have, the amount of the up-
front draw. The fact that we have gravitated to a program that 
is predominantly fixed-rate, where borrowers are taking a large 
up-front draw, or basically tapping out the entire line up-
front.
    What we have done is we reduced the principal limit factors 
on the fixed-rate standard, basically collapsing it with the 
fixed-rate saver so that--refuse the amount that they can draw 
up-front. But as I noted earlier, what we want to do is 
restrict the amount that borrowers can take up-front to a 
maximum of some percentage for mandatory obligations. And those 
mandatory obligations would include closing costs on the loan 
and in mortgage liens.
    Mr. Capuano. I want to back up to one of the other things 
that is relative to--I think enters the provision that we roll 
the reverse mortgage fund into the MMI fund. I think that is 
right.
    Knowing what we know now, would you agree that maybe we 
should have the reverse mortgage fund separate from the single 
family house? Again, just--for me--my argument is, I want to 
focus on what the problems are. I don't want to take a program, 
or any program--not just here, but any program that has 
trouble--and mix it in with a program that has significantly 
less trouble, and so we can focus on what the problems are. And 
I think we have spent a fair amount of time looking at the 
entire FHA portfolio, when in truth, the biggest problem is 
simply the reverse mortgage aspect. And I am just curious--one 
of the things I have been thinking about is requiring the 
reverse mortgage coverage to go back into a separate fund.
    Would you think that is something worth pursuing?
    Mr. Coulter. I would say it is something that is definitely 
worth exploring, and we would definitely be interested in 
working with you on that.
    Mr. Capuano. The last aspect--as we go forward, I just want 
to point out two things.
    Number one is, personally, I have some real problems with 
some of the issues we are dealing with regarding surviving 
spouses. People who own their homes--the average person, their 
home--they have no idea the legal way that they own their home, 
whether it is jointly, or as tenants in common. They just sign 
documents. Many of them--the people we are dealing with signed 
them 40 years ago. They don't have a clue how they own the 
home.
    And because somebody needs some money and they do a reverse 
mortgage, I think the worst possible thing that a society can 
do is--for all intents and purposes--put people in a position 
where they have to lose their home--not them--one spouse dies, 
and while they are dealing with the death of their spouse, they 
then have to move out of their home.
    And for me, just--I want to put this on record--I have some 
very serious problems with the way we deal with surviving 
spouses now. And I will have some very serious problems moving 
forward.
    I know it is not really an issue that we should be 
discussing today, but I just want to put that on record. 
Because it permeates the whole program.
    Mr. Coulter. I agree with you. And what we want to do is 
underwrite the loan to the younger of the two spouses to ensure 
that it is actuarially sound against that younger spouse.
    Mr. Capuano. That is all well and good, except age isn't 
always the sole determining factor. Who dies first is a factor, 
but it is not the sole determining factor.
    So I wouldn't care how old the surviving spouse was, even 
if it was the older spouse, it is still a problem.
    People who live in their homes for 40 years under this 
situation should be able to stay in their home until the last 
spouse goes.
    And with the chairman's indulgence, one other aspect. I 
don't have--as I understand it, the people who are actually 
selling these things are not Federal employees. They are 
private companies that do it through the FHA.
    Mr. Coulter. Correct.
    Mr. Capuano. I don't know about anybody else, but I watch 
TV late at night to put me to sleep. It is a great way to go to 
sleep; turn the TV on.
    I go to sleep to the sound of someone trying to sell me a 
reverse mortgage. And the way I count it, I have four very 
well-known actors from four of my favorite shows, one game show 
host from one of my favorite game shows, and one of my favorite 
singers from the 1950s, all of whom are telling me to take out 
a reverse mortgage, and everything is safe.
    I think one of them actually says something like, ``I don't 
know anything about finances, but I played a financial person 
in real life.''
    Is there anything we can do to knock these ads out or at 
least reduce them? These people are not working for free, I 
presume, nor would I expect them to. They are very well-known 
names. I am sure they are fine Americans. And I am sure they 
are getting paid top dollar.
    Maybe if we--I don't know if you have the ability to say to 
the people that you contract with, ``You can't spend that kind 
of money on advertising.'' Is that a possibility?
    Mr. Coulter. I don't believe so. It is a possibility--we do 
work with other regulatory agencies. We have talked to the 
Consumer Financial Protection Bureau (CFPB) about this. So we 
do care about how this program is marketed. We are not doing 
the marketing, obviously. And one of the things that we are 
ensuring is we are coming behind that marketing or whatever 
else is drawing the borrower to the table and ensuring that 
there is good counseling they get--
    Mr. Capuano. It is just when you see some of your favorite 
actors on TV telling you something is safe--I think that raises 
questions. And, personally, I would have some problems renewing 
those contracts with people who won't take your suggestions, if 
not your insistence.
    I appreciate the chairman's indulgence.
    Chairman Neugebauer. And what the ranking member didn't 
know is one of the ideas that I had was actually to bring those 
actors for the second panel.
    [laughter]
    I now yield 5 minutes to the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. Thank you.
    Ms. Head, clearly we need more affordable housing. That 
tends to be multifamily rental housing. You folks stepped up at 
an important time. Where would we have been in 2010 or 2011 if 
you hadn't been there to provide insurance for those building 
multifamily housing?
    How much less would we have built?
    Ms. Head. There would have been a substantial amount of 
building not done. And we created, as I mentioned, during the 
countercyclical market, about 54,000 jobs in the market with 
our new construction loan program.
    Also, we provided the capital for much of the affordable 
housing in the country to be preserved during that time.
    Mr. Sherman. Thank you.
    You are closing a number of offices. We just found out one 
of them is in Los Angeles. How will you be able to serve 
Southern California without a Los Angeles office? And since it 
is my understanding you are going to have an office in every 
State, Southern California is as big as 10 or 15 States put 
together, so how are you going to serve Southern California 
without an L.A. office?
    Ms. Head. We are consolidating Multifamily offices 
throughout the country. And our proposal is that we will have 
offices in 10 States for multifamily.
    In the State of California, the San Francisco office will 
serve the State. And they are already doing much of that out of 
the San Francisco office now.
    In fact, our San Francisco hub director in Multifamily is 
managing the L.A. office.
    Mr. Sherman. Hmmm.
    Ms. Head. The L.A. office itself will remain open, by the 
way.
    Mr. Sherman. So you are not closing the L.A. office; you 
are just running it out of San Francisco.
    Ms. Head. No, sir. The multifamily staff will be 
consolidated into the San Francisco office, but there will be a 
hard presence in the L.A. office.
    Mr. Sherman. Okay.
    I am trying to understand the reverse mortgage. I can 
understand how there would be problems for the consumer--too 
high an interest rate or, as the ranking member points out, a 
situation where you have to leave your home when one of the 
spouses dies, but the other would ordinarily continue.
    What I am trying to understand is why from the lender/
insurer side, there are losses in this area. Who does the FHA 
insure--one of the ways to lose in a reverse mortgage is the 
person lives for a very long time. You have to make monthly 
payments.
    Do you assume the risk or not? Do you insure against the 
risk that somebody will take out a reverse mortgage and live a 
long time?
    Mr. Coulter. We do. So we have to insure that the program 
is actuarily sound in terms of longevity. And certainly the 
fact that people are living longer, which is a great thing, 
does add complications to this particular product.
    Specific to your question about how we lose money anytime 
the loan accrues to a balance that exceeds the value of the 
property, that happens a lot more frequently when somebody 
lives for a long time, or when the house price path is 
different than what you expect it to be.
    Mr. Sherman. Okay.
    I have pretty much run out of questions.
    Thank you.
    Chairman Neugebauer. I thank the gentleman.
    I am going to go another round here for those Members who 
are interested. And I will recognize myself for 5 minutes.
    This is going to be kind of a lightning round, so I would 
ask our witnesses to be brief.
    I want to make some clarifications here, because we have 
thrown around a lot of terms, and it is easy sometimes to get 
confused.
    Now, Mr. Coulter, you have testified that you probably 
wouldn't have needed the--nearly a billion dollars had it not 
been for HECM, but I just want to make it clear that you 
testified that the negative economic value of the reverse 
mortgage is $5 billion, but in the annual report, the total 
number of negative economic value is $16.3 billion, so this 
isn't all the reverse mortgage.
    So of the $16.3 billion, $5 billion, so about a third of 
the negative economic value, is attributed to the reverse 
mortgage program.
    I think we just need to make sure we are keeping--
    Mr. Coulter. Just to clarify, Mr. Chairman, the numbers you 
are referencing are from the actuary report, and those numbers 
are the $2.8 billion and the $16 billion that you referenced.
    I am working off of the President's budget numbers, which 
are similar, but slightly different.
    Chairman Neugebauer. Okay.
    Mr. Coulter. Those numbers are $22.4 billion. You take off 
$3.3 billion in capital reserves, that takes you down to about 
$19.1 billion.
    We expect receipts of $18.1 billion during Fiscal Year 
2013, that is how you get to the $1 billion.
    Chairman Neugebauer. Mr. Coulter, I appreciate that. But 
what we do know about the Administration's numbers is that they 
have failed year after year after year actually to meet those 
projections.
    And so, we will go back to the actuarial number, which--
this actually makes this case a little bit different, $2.8 
billion from the report for a total of $16 billion.
    So I think we all agree that the reverse mortgage is a part 
of the problem, but I don't want to mislead anybody that it is 
the only issue here in the fund.
    And, Ms. Head, I wanted to--oh, wait, I want to go back to 
you, Mr. Coulter. And I appreciate the fact that you are 
bringing some positive solutions to stop this bleeding.
    I guess the question is why we waited 5 years to start 
bringing these forward? And I appreciate Mr. Heck and Mr. 
Fitzpatrick's efforts to work on this. But why did we wait for 
5 years to bring these changes?
    Mr. Coulter. We definitely appreciate the work of Congress 
as well. And I would say that we have not waited 5 years.
    If you go back to 2009 and 2010, we reduced the principal 
limit factors twice. In 2010, we raised premiums by over 100 
percent. And we have introduced measures to ensure that the 
HECM program in terms of tax and insurance defaults, which you 
referenced earlier, that there is a program to ensure that 
those are worked out.
    So we have done things for the HECM program very similar to 
what we have done on--
    Chairman Neugebauer. I heard that. But you are just now 
asking for this additional authority. And I guess the question 
is, why didn't we ask for that additional authority in 2009 and 
2010 and 2011, instead of why, here into 2013, we are just now 
asking for that additional authority?
    Mr. Coulter. I would say that we took definitive action in 
the fall when we saw that the negative net economic value of 
the HECM portfolio was going to be significant. We began 
working with the industry. We determined at that point in time 
that the structural changes that we wanted to make could not 
all be done by a Mortgagee Letter; we would have to go through 
rulemaking.
    So we took the steps and we did what we could by Mortgagee 
Letter in January of 2013. The balance either has to be done 
through rulemaking or with your support, through a Mortgagee 
Letter.
    And, Ms. Head, I want to go back to a--you answered a 
question. Somebody asked, ``Is the fund healthy,'' and you 
said, ``Yes.''
    Do you have a financial statement showing that the fund 
balance you have would substantiate that it is healthy, that 
you have documentation to support that this multifamily fund is 
actuarily sound?
    Ms. Head. Yes, sir. And it is the combination--the GSI-FGI-
SRI fund.
    Yes, we can provide you some information--
    Chairman Neugebauer. Does it show a breakout between--I 
would just like to see the breakout of what you--when you tell 
me that this is--
    Ms. Head. The Multifamily piece?
    Chairman Neugebauer. It is trust and verify, and I am to 
the verification standpoint now, so if you could furnish that 
to us.
    Ms. Head. We have the annual financial audits that we can 
share.
    Chairman Neugebauer. Yes.
    Ms. Head. May I also clarify for the gentlemen the 223(f) 
program that he mentioned earlier, our refinance.
    Chairman Neugebauer. We are going to give him additional 
time here in just a minute.
    Ms. Head. Okay. Thank you. I have his statistics.
    Chairman Neugebauer. And so then, Mr. Miller, according to 
HUD, the Section 242 program has a portfolio of $9 billion; and 
what proportion of that $9 billion is concentrated in the State 
of New York?
    Do you know?
    Mr. Miller. Yes I do, 23 percent.
    Chairman Neugebauer. Twenty-three percent.
    I have information here that shows that $5 billion of 
that--so it would be more like 50 percent.
    Could you furnish me information on that?
    Mr. Miller. I would be glad to--
    Chairman Neugebauer. Thank you.
    The other question is that you stated that the 242 program 
provides capital to finance hospitals in underserved private 
capital markets. Is that right?
    Mr. Miller. That is correct.
    Chairman Neugebauer. Yes.
    So are you familiar with the New York Presbyterian Hospital 
in New York City?
    Mr. Miller. Yes, yes I am.
    Chairman Neugebauer. And that is a nationally ranked 
hospital, isn't it?
    Mr. Miller. Yes, it is.
    Chairman Neugebauer. In fact, I think President Clinton 
went there for his heart surgery, is that correct?
    Mr. Miller. Yes, he did.
    Chairman Neugebauer. Would you say that is an underserved 
hospital?
    Mr. Miller. The association that we had with New York 
Presbyterian--actually it was New York Hospital in 1985, so our 
association with them began back then.
    And, at that point, they really weren't--they were 
underserved. They weren't doing very well financially and they 
continued in our program. In 1995, they had another insured 
loan that they took out. And in 1997, there was a merger with 
Presbyterian Hospital.
    So it did become New York Presbyterian Hospital.
    Our association continued with them and they grew and they 
continued to provide even better care as the years went on. 
And--
    Chairman Neugebauer. So the point--I appreciate that 
history, but in 2013, you gave almost $763 million financing 
assistance, which included a $500 million loan modification.
    I guess the question is--to me, that should be a fairly 
financially stable entity and I would not think that it is 
serving an underserved area. And that is quite a bit of 
commitment authority.
    Mr. Miller. Yes. Thank you for that question.
    As I told you, we have an ongoing relationship with them. 
And in 2010, and 2012 by the way, they did refinancing through 
Ginnie Mae, and they got a very good rate through that. So, a 
loan modification in and of itself makes good sense because it, 
as you well know, decreases the interest that they are paying.
    So it made good sense because they are able to pass that 
along to others, including being able to deliver $81 million of 
indigent care in that region.
    Chairman Neugebauer. There are a lot of hospitals providing 
indigent care. I think the question here is--and I think Mr. 
Luetkemeyer is going to pursue that, but we are doing these 
refinancings and everybody is coming to FHA and to Freddie and 
Fannie for lower interest rates because they are doing that, 
basically using the American taxpayers as a backstop or as a 
risk premium--risk enhancement.
    And so, if we are going to use these programs, whether it 
is as a single family program to get people started in the 
housing business, and if we are going to use the FHA for low- 
and moderate-income Multifamily housing, and we are going to 
use the hospital program for underserved areas, to me the 
intent of FHA is kind of the first grade teacher.
    And, so then, at some point in time, you graduate and these 
entities have the ability to provide their own credit 
enhancement in that they have a hospital with a great 
reputation. But for us to come back and start refinancing--of 
course one of the reasons a lot of people are coming to that 
is, one, you have nonrecourse financing, you have longer terms 
than the private market will generally give, and then you put 
the taxpayers' credit enhancement on top of it, so it makes you 
look very lucrative.
    But the question is, when we sit here and look at these 
numbers of negative economic values, it doesn't sound like the 
taxpayers are necessarily getting the right end of that deal.
    So, we have seen some information here that is probably 
going to require some additional information to follow up.
    With that, my time is way beyond extended. So I now yield 
to the ranking member for 5 minutes, or maybe even a little bit 
more.
    Mr. Capuano. Thank you, Mr. Chairman.
    I would just like to submit for the record 4 letters and 
one news article that I don't think I have to read. I am just 
going to--
    Chairman Neugebauer. Without objection, it is so ordered.
    Mr. Capuano. Thank you, Mr. Chairman.
    The only other thing I would like to say is a follow-up 
about your point. There are numbers all over the place, and 
they are all good numbers. I just wanted to say that is part of 
the problem--one of the reasons I want to get--I would like to 
get the reverse mortgages out of the MMI. There are a lot of 
numbers here. They are all big numbers, and they all kind of 
interact. And they are all legitimate.
    But there is one other number as well, which is, Mr. 
Coulter, how much money is currently sitting in the MMI fund as 
of your most recent knowledge?
    Mr. Coulter. Over $30 billion.
    Mr. Capuano. Over $30 billion that is sitting there waiting 
to be--if necessary to be used. And the last I have heard from 
most knowledgeable observers is that money is not--technically 
it is in jeopardy, like technically--theoretically, my guess is 
I am bankrupt because I get mortgages and stuff, and 
theoretically we all are on some levels, but in reality, nobody 
really expects that money to be eaten up this year or even the 
following year.
    I know that I wouldn't even ask you to go on the record on 
that, because that puts you on the record, but that is my 
understanding of it.
    And, with that, Mr. Chairman, again I want to thank you for 
this hearing. I want to thank the panel very much. And I yield 
back the balance of my time.
    Chairman Neugebauer. Thank you.
    I now recognize the last questioner, Mr. Luetkemeyer, for 5 
minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    It is also very instructive and rewarding to know that the 
gentleman from Massachusetts enjoys watching Fox news.
    Ms. Head, do you have some good news for me?
    Ms. Head. I have some statistics for you, sir.
    Mr. Luetkemeyer. Yes ma'am.
    Ms. Head. Five percent to 10 percent of the 223(f) 
program--our refinance program--comes from GSE. So less than 10 
percent comes from GSE.
    Mr. Luetkemeyer. Okay.
    Ms. Head. Our Multifamily portfolio is broken into 25 
percent rural, 50 percent suburban, and 25 percent urban.
    Mr. Luetkemeyer. Okay, very good--
    Ms. Head. The total percentage of the refinance portfolio 
year to date for 2013 is about 40 percent of our business.
    Mr. Luetkemeyer. So, 40 percent is refinance.
    Ms. Head. Yes, sir.
    Mr. Luetkemeyer. Okay, one of the concerns that we have--
and I have another question for Mr. Coulter in a minute, but 
then I didn't get time to develop all of the questions I was 
trying to get to here with regards to the refis and the private 
market and what all is going on there. But at some point when 
you refinance something, these people who you are refinancing 
have to have enough equity in that thing and then go to the 
private market.
    As a result, there have been complaints and considerations 
and some folks are saying that you are crowding out the private 
market, because you are taking some of these loans and you are 
refinancing them and they could go to the private market.
    How do you answer that--
    Ms. Head. So the private market--
    Mr. Luetkemeyer. --question?
    Ms. Head. --does not always go into the same underserved 
areas that we go into. They--
    Mr. Luetkemeyer. Ms. Head, ma'am, I have a banking 
background. I am a former bank regulator. I know all about the 
Community Reinvestment Act (CRA). Don't tell me that they don't 
go into places that are underserved.
    Ms. Head. There are some private mortgage companies that do 
not go into certain areas. And FHA provides the--
    Mr. Luetkemeyer. Are they crowding out all the rest of the 
folks?
    Because how can the other lenders not go into some of these 
other areas that are underserved? That is part of the mandate 
of the Community Reinvestment Act. This is some of the problems 
that some of these institutions have gotten into because they 
have gone into some of these areas--
    Ms. Head. I am--
    Mr. Luetkemeyer. --and been forced to make some of these 
loans.
    Ms. Head. I have also been in the mortgage banking industry 
for many years.
    I started out at FHA 20 years ago and spent 15 years at 
Prudential Financial doing mortgage--
    Mr. Luetkemeyer. You said 50 years?
    No, you said 15.
    [laughter]
    Ms. Head. Fifteen.
    Mr. Luetkemeyer. All right. There we go.
    [laughter]
    Ms. Head. My southern accent--
    Mr. Luetkemeyer. I love your accent by the way, but I--
    Ms. Head. Thank you.
    Mr. Luetkemeyer. You look 29, so I was kind of serious 
about that word.
    Ms. Head. Oh yes, okay.
    So what was the answer you wanted, sir?
    [laughter]
    I did spend 15 years in the mortgage banking business--
    Mr. Luetkemeyer. Okay, very good.
    Ms. Head. --with Prudential, and I do know that, as a 
private mortgage company, there were markets that we did not go 
into. And part of that was because of the underwriting 
structure at FHA that enables us at FHA to serve some of those 
private--underserved areas.
    Mr. Luetkemeyer. I don't want to get into an argument with 
you, but I can tell you that I can list you a half a dozen 
banks right now that are either in my district or just outside 
my district that are being required by the FDIC, the 
Comptroller or whomever--the regulatory authorities--to go into 
underserved areas in order for them to be able to get a new 
branch or a new--or be able to get a consolidation or go 
purchase another bank. That is a requirement they are having to 
do.
    So I have a hard time understanding that. And as a result, 
what you are doing is crowding out the private market from 
being able to go into those places. And that is my point I am 
trying to get to. So perhaps we will agree to disagree for a 
moment.
    Mr. Coulter, I have have a minute-and-a-half left. So, 
another issue that has popped up with regards to--it is a kind 
of a novel idea that some folks have--some groups have had with 
regards to eminent domain. They are asking municipalities in 
some instances to take over residences, then turn around and 
ask other entities to refinance them by lowering the principle 
on it.
    I was aware that this was happening in St. Louis--I see my 
good friends from St. Louis are here--but the local city 
council voted against this, but I am aware that it was already 
in my State. So I am very concerned about this.
    The other day, former Commissioner David Stevens was here. 
He testified that FHA has published a statement that Fannie and 
Freddie will no longer--will not be permitted to repurchase 
loans acquired through eminent domain, and that such a program 
will represent a cost ultimately borne by the taxpayers.
    So by doing that, you, FHA, are going to be the default and 
in fact, in the business plan of the groups that are pushing 
this, they highlight the role of FHA.
    So my question to you is: Does the current leadership of 
FHA share former Commissioner Stevens' view that FHA should not 
be in the business of insuring loans acquired through eminent 
domain?
    Mr. Coulter. The issue of eminent domain--I think the 
Secretary has spoken on this. And he has expressed a high 
degree of concern about it. I wasn't aware of the GSE statement 
in terms of they won't finance properties acquired through 
eminent domain. We will certainly take a look at it and 
consider doing something similar. I am reasonably confident 
that would be supported up through the Secretary.
    Mr. Luetkemeyer. Okay. Are you going to give us a written 
statement, then, with the position on where you are going to 
stand on this?
    Mr. Coulter. Sorry? Ask the question again.
    Mr. Luetkemeyer. Are you--you have deferred my question 
here. I want a yes or no. And if I can't get a yes or no, can 
you get me a written answer to my question?
    Mr. Coulter. I would be happy to give you a written answer, 
yes.
    Mr. Luetkemeyer. Okay. Thank you very much.
    I yield back. Thank you, Mr. Chairman.
    Chairman Neugebauer. I now recognize Mr. Ellison for 5 
minutes.
    Mr. Ellison. Thank you, Mr. Chairman. And I would like to 
thank the ranking member as well, and the panel.
    I am from Minneapolis. I am really, really proud to say 
that our HUD Multifamily program in Minneapolis is a model. And 
I believe when it comes to proactive portfolio management, they 
are really, really doing us all proud. Our interagency 
stabilization group has 25 years of proven success.
    And this collaboration with HUD and partners has preserved, 
built, and managed thousands of desperately needed affordable 
housing units, something that we are really concerned about 
because our vacancy rate in the Twin Cities is down to about 2 
percent and low-income people are being hurt the most by this 
short supply.
    So, I would encourage HUD to be open to suggestions for 
modifications to the transformation plan. And I believe that 
this Congress has ideas that will build on and improve your 
ability to achieve your goals.
    Are you all open to suggestions about the modification to 
the transformation plan?
    Ms. Head. Yes, sir. We are open to having discussions, and 
I understand that Deputy Secretary Jones and I will be meeting 
with you next week to discuss some of this.
    Mr. Ellison. And let me publicly thank you for that. I know 
that there are all kind of pressures and all kind of 
directions, and you have to do what you think you have to do. 
But being able to discuss things openly sometimes leads to a 
better place.
    Ms. Head. Thank you, and we appreciate that.
    Mr. Ellison. Yes. I would also like to just talk to you a 
little bit about affordable housing in general. I mentioned my 
own city, my own State, where the rents have just been jacked 
up for even the most low-income people. It has caused a 
homelessness problem. We have 3,500 kids in Minneapolis who go 
to school every day from a shelter. It is a disgrace, a 
national one.
    I say that to just sort of set the table a little bit. I 
have heard--and I can't verify this; I am hoping you can--that 
only one in four individuals or families who qualify for 
housing assistance actually receive that assistance. Do you all 
have any information on that?
    Ms. Head. We do have some statistics on that we can share 
with you.
    Mr. Ellison. Okay.
    Ms. Head. I am sorry I can't quote them off--
    Mr. Ellison. No, it is okay. But I am interested in hearing 
that. And like I said, in Minneapolis, there are more than 
10,000 people on the waiting list for public housing. They have 
actually closed the list. And so if you are a family in need of 
this service, you can't even put your name on the list because 
the list is closed.
    Not a single family has moved off that list and received 
safe, affordable housing in the past 15 months. And I fear that 
no more will due to the sequester and continued cuts to 
housing.
    Can you share with me just--this is a general question--how 
you all analyze this problem of the availability of affordable 
housing particularly for low-income families? Do you think at 
this time we are in an acute crisis stage?
    I think we are, but what do you think?
    Ms. Head. I would say that it is clear that there are still 
huge demands across the country for affordable housing. I would 
definitely agree with you on that. We do analyze through our 
policy development and research. We do a lot of analysis of 
where those needs are. And part of those statistics are part of 
our underwriting decisions when we are underwriting loans.
    Mr. Ellison. Right.
    Ms. Head. That is how we manage it from the FHA mortgage 
insurance program. And of course, we do know that we have 
waiting lists across the country for our project-based rental 
assistance programs, too, our Section 8 program. So there does 
continue to be a demand for affordable housing.
    I will share with you also that last year we implemented a 
low-income housing tax credit pilot program so that we could 
ensure that FHA was playing in the right market, where we could 
provide additional affordable housing. And those loans are 
being expedited through the process in our organization.
    Mr. Ellison. With the limited time I have, could you just 
elaborate on your thoughts on why it is important for the 
public sector, HUD and others, to be involved in making sure 
that there is housing availability for the low-income?
    Ms. Head. As part of FHA's mission, we are here to provide 
safe, sanitary, affordable rental housing. And in the current 
market crisis that we have been in where many, many folks lost 
their homes, the demand for the rental assistance across the 
country and the rental programs across the country escalated. 
We have been in a position to provide that and we have played 
our countercyclical role in that realm.
    Mr. Ellison. Mr. Chairman, may I ask one last question, 
sir?
    Chairman Neugebauer. Absolutely.
    Mr. Ellison. Thank you.
    Could you please elaborate on the health and educational 
impacts, particularly on kids, when their family's home is 
insecure because of the housing environment that they are in, 
and therefore why your mandate and mission is important?
    Ms. Head. That is a tough question for me to answer.
    Mr. Ellison. Okay.
    Ms. Head. It is. Obviously, many of us would understand 
that when folks are homeless throughout the country, it does 
have emotional impacts and other impacts on the community and 
on the individuals. So, I think all of us realize that.
    Mr. Ellison. Thank you.
    I yield back, Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentleman from California, Mr. Royce, is 
recognized for 5 minutes.
    Mr. Royce. Thank you, Mr. Chairman. I would like to return 
to this eminent domain question, and maybe get a little bit 
more concrete answer from you on that question.
    I originally raised this question with FHA Commissioner 
Dave Stevens. And he, of course, made the point, as has been 
reiterated here, that FHA should be barred from refinancing 
loans acquired through eminent domain. We have a situation in 
California, of course, where a number of municipalities are 
exploring what is likely unconstitutional, and that is the new 
use of eminent domain to seize residential mortgages.
    And the point that I would make to you is that with Fannie 
and Freddie not being in the program, then such a program if it 
is done just by FHA would represent a cost ultimately borne by 
taxpayers, and we would, under that scenario, be leaving the 
FHA open to adverse selection as the only conduit for loans 
seized this way.
    And the other point I would make, and maybe you could 
comment on this, but the group pushing this approach has 
highlighted the role of the FHA in their business plan. So you 
had commented that the Secretary has spoken on this. If the 
Secretary has spoken on it, could you tell us what the 
Secretary expressly said about it?
    Mr. Coulter. To my knowledge, eminent domain has not 
occurred--or no governmental entity has enforced eminent domain 
at this point in time. There is--
    Mr. Royce. Yes, at this point in time, but this is about 
the future.
    Mr. Coulter. And what I am telling you is in terms of what 
FHA will or won't do in the future, I am not going to make 
policy on the fly. I will, however, get back to you in writing 
and--
    Mr. Royce. Okay. Then, let me put it this way. Maybe I can 
be more precise with an exact question that you could answer at 
this time. Does the current leadership of FHA share former 
Commissioner Stevens' view that FHA should not be in the 
business of insuring loans acquired through eminent domain?
    Mr. Coulter. We absolutely share those concerns. And I 
think the Secretary has been clear on that. And I would further 
add that--
    Mr. Royce. You share those concerns. You share that view. 
That was the question. You share the view. As I understand it, 
what you are saying is the FHA should not be in the business of 
insuring loans acquired through eminent domain. You share that 
view. Those were his words, and I was trying to see if those 
are your--
    Mr. Coulter. My words are that we share the concerns about 
a government entity taking properties through eminent domain. 
The policy that you are articulating is a policy that the GSEs 
have out. We have not evaluated that policy to determine what, 
if anything, FHA would do prospectively. It would be highly 
improbable, I believe, for FHA to put itself in a position 
where we would be the only insurer on those types of refinance 
transactions.
    Mr. Royce. Because of the adverse selection problems and 
everything else, I assume. And maybe because of the 
unconstitutionality of it on the face of it. But what do you 
think about the fact that the group pushing this approach has 
highlighted the role of the FHA in their business plan? Could I 
have your commentary?
    Mr. Coulter. I think they are highlighting a principle that 
has not been vetted, endorsed, or reviewed by Single Family 
Housing, FHA, or, I believe, HUD.
    Mr. Royce. My time has expired, Mr. Chairman. Thank you 
very much.
    Chairman Neugebauer. I thank the gentleman.
    And I thank each of the panelists. I think this has been a 
good discussion. I think Members probably have a little better 
understanding of these programs, but I think we also exposed 
that we have some areas to work on.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    And without objection, this hearing is adjourned.
    [Whereupon, at 4:36 p.m., the hearing was adjourned.]


                            A P P E N D I X



                              May 16, 2013


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