[Senate Hearing 113-175]
[From the U.S. Government Publishing Office]


                                                     S. Hrg. 113-175

 
   HOUSING FINANCE REFORM: ESSENTIAL ELEMENTS TO PROVIDE AFFORDABLE 

                              OPTIONS FOR

                                HOUSING
=======================================================================



                                HEARING

                               before the

                              COMMITTEE ON

                   BANKING,HOUSING,AND URBAN AFFAIRS

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

   EXAMINING RECOMMENDATIONS TO PROVIDE AFFORDABLE OPTIONS FOR HOME 
 OWNERSHIP AND RENTAL HOUSING, AFFORDABLE MORTGAGE CREDIT IN RURAL AND 
 UNDERSERVED COMMUNITIES, AND SOLUTIONS TO ADDRESSING THE COST BURDENS 
                          FACING MANY RENTERS

                               __________

                            NOVEMBER 7, 2013

                               __________

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


                 Available at: http: //www.fdsys.gov /





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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                  Laura Swanson, Deputy Staff Director

              Erin Barry Fuher, Professional Staff Member

                 Beth Cooper, Professional Staff Member

                  Kari Johnson, Legislative Assistant

                  Greg Dean, Republican Chief Counsel

                    Jared Sawyer, Republican Counsel

            Chad Davis, Republican Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                      Kelly Wismer, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                       THURSDAY, NOVEMBER 7, 2013

                                                                   Page

Opening statement of Chairman Johnson............................     1

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

                               WITNESSES

Hilary O. Shelton, Washington Bureau Director and Senior Vice 
  President for Policy and Advocacy, NAACP.......................     4
    Prepared statement...........................................    31
    Responses to written questions of:
        Senator Warren...........................................    76
Rick Judson, Chairman, National Association of Home Builders.....     6
    Prepared statement...........................................    34
Sheila Crowley, President and CEO, National Low Income Housing 
  Coalition......................................................     7
    Prepared statement...........................................    49
    Responses to written questions of:
        Senator Heitkamp.........................................    76
Douglas Holtz-Eakin, President, American Action Forum............     9
    Prepared statement...........................................    54
    Responses to written questions of:
        Senator Coburn...........................................    77
Ethan Handelman, Vice President for Policy and Advocacy, National 
  Housing Conference.............................................    10
    Prepared statement...........................................    61
    Responses to written questions of:
        Senator Reed.............................................    79
        Senator Warren...........................................    79

                                 (iii)


   HOUSING FINANCE REFORM: ESSENTIAL ELEMENTS TO PROVIDE AFFORDABLE 

                          OPTIONS FOR HOUSING

                              ----------                              


                       THURSDAY, NOVEMBER 7, 2013

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:04 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Tim Johnson, Chairman of the 
Committee, presiding.

           OPENING STATEMENT OF CHAIRMAN TIM JOHNSON

    Chairman Johnson. I call this hearing to order.
    Today with the help of our witnesses, the Committee will 
examine the importance of affordability in the housing finance 
system for both homeowners and renters. It is imperative that 
any new system meets the housing needs for all Americans, and 
this morning, we will explore the well-functioning elements of 
the current system that should be maintained to provide 
renters, low- and moderate-income families, and those who live 
in rural areas affordable options for housing.
    Currently, Fannie Mae and Freddie Mac support affordable 
financing for multifamily lending and, prior to being placed in 
conservatorship, were authorized to provide funding for the 
Housing Trust Fund and Capital Magnet Fund to further target 
support for affordable housing to those families that need it 
most.
    In addition, Fannie Mae and Freddie Mac's mission is to 
ensure a liquid market and stable access to mortgage credit in 
all communities, including rural and underserved markets. This 
mission cannot be scrapped in a new system.
    As we consider winding down Fannie Mae and Freddie Mac and 
transitioning to a new structure, we must consider what worked 
and what did not work in the old system, and how the roles 
currently filled by the GSEs will be replaced in a new system.
    While those who are opposed to the GSE's affordable housing 
goals often link the goals--last increased for the single-
family market by the Bush administration in 2004--to the 
problems experienced in the housing market, even Dr. Holtz-
Eakin's dissenting view in the Financial Crisis Inquiry 
Commission report found that the problems were complicated 
rather than solely focused on the GSEs.
    And research conducted by the St. Louis Federal Reserve 
Bank determined that the affordable housing goals were not the 
cause of this subprime mortgage boom.
    According to a recent report by the Harvard Joint Center 
for Housing Studies, home ownership is at its lowest level 
since 1976 for those ages 25 to 54. The statistics are equally 
troubling for affordable rental properties. As the home 
ownership rate decreased during the crisis, the demand for the 
rental stock exceeded the supply and the number of rent-
burdened families increased as the supply of vacant rental 
housing declined to the lowest percentage since 2001.
    Without a new system that includes a duty to serve all 
areas of the country, I am concerned that these levels could 
fall further and at the expense of rural and traditionally 
underserved markets like those in my home State.
    I look forward to hearing our witnesses' recommendations to 
maintain and increase access to housing options that are 
affordable, and to ensure that all communities are served by 
any new secondary market structure.
    Now I turn to Senator Crapo for his opening statement.

                STATEMENT OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you, Mr. Chairman.
    Today we continue our important work examining essential 
elements of the housing finance system. I want to thank our 
witnesses for appearing today to present your thoughts on this 
important topic. For millions of Americans across the country, 
home ownership provides a source of security and a sign of 
responsibility.
    There are undeniable benefits derived from home ownership 
for both the families who buy and the broader community as long 
as the purchase of that home is achieved through responsible, 
sustainable means. Five years after the financial crisis, 
affordability is still a major concern for prospective 
homeowners. As we address this important issue, we must not 
return to the flawed politics of the past.
    Several prominent economists have criticized the affordable 
housing policies of the 1990s and the early 2000s as a 
significant contributor to the financial crisis. They argue 
mandatory affordable housing goals forced Fannie Mae and 
Freddie Mac to lower underwriting standards, reach into the 
subprime market, and ultimately take on more unsustainable 
risk.
    During the height of the housing bubble, Fannie and Freddie 
began acting like highly leveraged hedge funds, purchasing as 
investments nearly 40 percent of the private label subprime 
securities. These combined actions harmed borrowers, 
homeowners, and taxpayers through the creation of unsustainable 
mortgages.
    S.1217 aims to strike a delicate balance between making 
homes more affordable and protecting the American taxpayer. In 
exchange for a repeal of the flawed affordable housing goals 
the Government-sponsored enterprises were previously required 
to meet, the new framework would provide funding to expand 
access to affordable home ownership and rental housing.
    Funds would be allocated to two existing programs, the 
National Housing Trust Fund and the Capital Magnet Fund. These 
funds would provide grants and other aid for States, housing 
entities, and other nonprofits to ensure broad access to 
affordable housing options.
    I have heard a lot of positive feedback about the benefits 
of localized affordable housing policy and how it can provide 
more flexibility for tailored approaches. However, this new 
model still raises many questions. First, how would these funds 
interact with the myriad of other Federal affordable housing 
options already offered through HUD, Federal home loan banks, 
the USDA, and certain tax incentives?
    According to a recent Government Accountability Office 
report, Federal housing assistance is fragmented across 20 
different entities administering 160 programs, receiving tens 
of billions of dollars each year in Federal funding. The GAO 
report recommends several actions that can be taken to 
eliminate duplication and increase efficiency among these 
programs.
    Second, is the five to ten basis point charge on guaranteed 
securities envisioned in S.1217 appropriate to capitalize these 
funds? Using today's secondary market size, many estimate that 
these funds would receive $2.5 billion to $5 billion per year 
in funding. To put that in perspective, the allocation to these 
funds would be roughly 10 percent the size of HUD's fiscal year 
2012 budget.
    How do we make sure that the funds are accountable and 
transparent to the American taxpayers and Congress? As we 
debate ways to increase affordability, it is imperative that we 
strive to make our policies responsible, accountable, and 
efficient.
    We have an opportunity to achieve much needed reform in our 
housing finance system. In doing so, we must find a way to 
promote responsible housing policies without placing the 
American taxpayer at risk. The American taxpayer cannot be 
exposed to another GSE-like bailout as a result of deeply 
flawed policies.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Crapo.
    Are there any other Members who would like to give a brief 
opening statement? If not, I would like to remind my colleagues 
that the record will be open for the next 7 days for additional 
statements and other materials. Before we begin, I would like 
to introduce our witnesses that are here with us today.
    First, Mr. Hilary O. Shelton is the Washington Bureau 
Director and Senior Vice President for Policy and Advocacy at 
NAACP. Mr. Rick Judson is the current Chairman of the National 
Association of Home Builders, as well as a home builder from 
North Carolina. Dr. Sheila Crowley is the President and CEO of 
the National Low Income Housing Coalition.
    Dr. Douglas Holtz-Eakin is the President of the American 
Action Forum. And finally, we have Mr. Ethan Handelman, Vice 
President for Policy and Advocacy at the National Housing 
Conference. We welcome all of you here today and thank you for 
your time.
    Mr. Shelton, you may proceed with your testimony.

STATEMENT OF HILARY O. SHELTON, WASHINGTON BUREAU DIRECTOR AND 
      SENIOR VICE PRESIDENT FOR POLICY AND ADVOCACY, NAACP

    Mr. Shelton. Thank you very much and good morning. Good 
morning, Senators Crapo, Johnson, esteemed members of this 
panel. My name is Hilary Shelton. I am Director of the NAACP's 
Washington Bureau, the legislative and public policy arm of our 
Nation's oldest and largest grassroots-based civil rights 
organization.
    Owning a home remains the American dream. For many, it 
represents a degree of financial success as well as an 
opportunity to build and retain wealth. Our Nation, our 
communities, and our people all benefit from safe, affordable, 
secure housing, whether it be through home ownership or rental 
housing.
    Furthermore, it has been established that housing markets 
currently generate more than $10 trillion per year in domestic 
economic activity. Yet, the communities served and represented 
by the NAACP have long been underserved by the housing market. 
We were, for decades, targeted by predatory lenders and, as a 
result, have been denied the opportunity to build wealth 
through housing.
    Furthermore, many of our communities, in fact, a 
disproportionate number of communities of color continue to 
suffer from the foreclosure prices and continue to be neglected 
by too many mainstream financial institutions.
    As Congress considers and debates the future of the housing 
market and the role to be played by the Federal Government, I 
cannot stress enough how important it is that any future 
housing finance system must affirmatively establish pathways to 
sustainable and affordable home ownership for a wide range of 
qualified buyers.
    We must also make sure that any genuine reform of the 
secondary market will assure an adequate supply of safe and 
affordable rental homes. A 2008 burst of the housing bubble had 
repercussions which are still being felt today, especially in 
communities of color across the United States. An estimated 4.5 
million homes have been foreclosed upon since the crisis began, 
and many more are still at risk of foreclosure.
    Due largely to the targeted predatory lenders which have 
been going on for years in the communities of color, the rate 
of foreclosures is currently twice as high for borrowers of 
color when compared to white borrowers. In addition to the 
households actually facing prospects of foreclosure, the crisis 
has also impacted homeowners who live in neighborhoods with 
high levels of foreclosures, and again, racial and ethnic 
minority communities are disproportionately affected.
    One study estimated that racial and ethnic minority 
neighborhoods will lose $1 trillion in home equity because of 
the impact that homes going through foreclosure process has had 
on overall neighborhood property values, fully half of all 
overall national total.
    In my written testimony, I cite several studies which 
demonstrate that although mortgages made to low-income and 
racial and ethnic minority Americans were disproportionately 
predatory subprime loans, neither the borrowers nor the 
affordable housing goals, which many claim led to the--been 
extended the loans in the first place were not at fault for the 
2008 housing crisis.
    Nor was the housing crisis caused by compliance with the 
Community Reinvestment Act, as some of have tried to claim. In 
fact, studies show that loans made to low wealth homeowners as 
part of the banks' efforts to meet their CRA obligations have 
actually performed better than the rest of the subprime market.
    Rather, the source of too many of our economic woes was the 
desire of Fannie Mae and Freddie Mac to make money for their 
private stakeholders and the willingness of the private label 
market to accommodate their desires.
    Chairman Johnson, Members of the Committee, I do not need 
to tell you that the Americans' housing market is incredibly 
complicated and complex. Its needs and fortunes vary from 
region to region, income to income, and year to year. Nobody, 
including me, has all the answers of reform under the current 
system.
    Yet, I do know that if we take steps to reform the housing 
market, we must do all that we can to ensure that every 
American has access to safe, affordable, sustainable housing. 
For low-income Americans, this means that we must ensure that 
there is an adequate stock of safe and affordable rental units 
throughout the country, and for qualified middle income 
Americans, this means that we must make sure that sustainable, 
affordable mortgages are available.
    And the housing finance system must affirmatively establish 
affordable, sustainable pathways to home ownership for all 
qualified buyers. Ensuring that all Americans have access to 
fair and sustainable credit opportunities is crucial to a 
sustained economic recovery. The Federal Government is 
obligated to promote nondiscrimination, residential 
integration, and equal access to the benefits of decent and 
safe housing and ownership opportunities.
    Therefore, any reform of the secondary market must require 
all lenders and scrutinizers receiving a guarantee of any kind 
to affirmatively market or offer credit in the manner that 
promotes equal opportunity in all neighborhoods.
    Furthermore, without a duty to serve all communities, as is 
indicated by the Community Reinvestment Act, private capital 
will gravitate to the elite home buyers, those with traditional 
borrowing profiles, while middle class and first time home 
buyers, as well as purchasers of color, will be left without. 
This will result in the exacerbation of an unsustainable 
housing finance market in which qualified, but lower wealth and 
lower income buyers, especially minorities, will be 
underserved.
    Sadly, this trend is already evident. The private market 
overwhelming caters to traditional borrowers in well-served 
locations, a fact that harms both borrowers and minority 
communities and whole housing sectors.
    Let me wrap up by saying that the NAACP does not agree with 
any provisions in legislation proposed by--some of the 
provisions, not every provision, in legislation proposed by 
Senators Corker and Warner, especially provisions which would 
negatively and disproportionately affect racial and ethnic 
minorities, including the mandated 5-percent downpayment, and 
we will be quick to point out areas in which the proposed 
legislation is lacking.
    We do congratulate them for moving the debate forward, 
however. Likewise, we are strongly encouraged by these hearings 
being held by Chairman Johnson and Ranking Member Crapo 
intended to look into the necessary elements of GSE reform. 
Members of this esteemed panel, I look forward to your 
questions and the ensuing debate regarding GSE reform, and to 
working with you to ensure that any reform will benefit all 
home buyers, renters, and our Nation as a whole.
    I thank you very much for holding this hearing and look 
forward to your questions.
    Chairman Johnson. Thank you. Mr. Judson, you may proceed.

  STATEMENT OF RICK JUDSON, CHAIRMAN, NATIONAL ASSOCIATION OF 
                         HOME BUILDERS

    Mr. Judson. Chairman Johnson, Ranking Member Crapo, and 
Members of the Committee, thank you for the opportunity to 
testify today. My name is Rick Judson. I am a builder/developer 
from Charlotte, North Carolina, and the Chairman of the Board 
of the National Association of Home Builders.
    NAHB believes that an effective housing finance system must 
address liquidity as well as affordability. It is essential 
that the housing credit is consistently available on affordable 
terms regardless of domestic and international economic and 
financial conditions.
    The U.S. housing finance system must be multifaceted, 
including private, Federal, and State sources of housing 
capital. To achieve this, it is important to reform and 
restructure the conventional mortgage market, but also to 
improve other parts of the housing finance system, including 
reform of the appraisal process.
    We urge Congress to move comprehensive housing finance 
reform legislation that contains elements that contribute to 
affordability and availability of safe and soundly underwritten 
loans. Most importantly, to maintain affordable mortgage 
credit, NAHB believes strongly that a Federal backstop is 
needed to ensure the continued availability of mortgage credit, 
specifically, 30-year fixed-rate mortgages and reliable 
mortgage financing for multifamily rental housing.
    The key to the sustainability of the 30-year fixed-rate 
mortgage is securitization outlet, because originators simply 
do not have the sufficient capacity to hold for such long-term 
assets. There are serious doubts as to whether a private 
housing finance system would be capable of supporting this type 
of product without some sort of Government guarantee.
    At a minimum, the cost and terms of a 30-year fixed-rate 
mortgage would be significantly less favorable in a totally 
private system and fewer families would be eligible for such 
mortgages. NAHB believes that S.1217, the Housing Finance 
Reform and Taxpayer Protection Act introduced by Senators 
Corker and Warner, represents an important bipartisan step in 
the debate on housing.
    NAHB believes that the--in particular, we support 
modifications to the Corker-Warner bill that would make the 
National Housing Trust Fund accessible. The future housing 
finance system must be viewed as more than a private 
conventional market. The array of Federal and State government 
programs that have been developed over the years are still 
essential elements of an affordable housing option.
    FHA single family mortgage programs are unique and a vital 
component of the housing finance system. FHA is critical to 
providing home ownership opportunities, especially for first 
time home buyers, minorities, and those with limited 
downpayment capabilities. Similarly, FHA has historically 
played an important role in financing multifamily rental 
housing.
    For our Nation's rural areas, programs operated by the 
USDA's Rural Housing Service have played an important role in 
providing mortgage credit in underserved areas. The VA Home 
Loan Guarantee Program is an integral component of housing 
finance for our Nation's service members, providing an 
outstanding example of how low to no downpayment programs can 
perform even in a difficult economic environment if they are 
properly underwritten.
    Finally, builders continue to have a very difficult time 
accessing production credit from the traditional financial 
institutions. NAHB greatly appreciates the efforts of Senators 
Menendez and Isakson for introducing legislation, S.1002, that 
addresses several regulatory barriers currently inhibiting 
access to construction credit.
    We hope this Committee will consider this legislation and 
other regulatory barriers to both construction and the broader, 
small business credit. NAHB looks forward to working with the 
Chairman and Ranking Member, and all Members of the Committee, 
to achieve comprehensive housing reform finance that maintains 
a proper level of Federal support necessary to provide the 
much-needed, long-term stability for this critical section of 
our economy.
    Thank you for the opportunity to testify today.
    Chairman Johnson. Thank you. Dr. Crowley, you may proceed.

 STATEMENT OF SHEILA CROWLEY, PRESIDENT AND CEO, NATIONAL LOW 
                    INCOME HOUSING COALITION

    Ms. Crowley. Chairman Johnson and Ranking Member Crapo and 
Members of the Committee, thank you so much for inviting me to 
testify today.
    This Committee's extensive work that you are engaged in 
housing finance reform is focused on how mortgage financing 
should be structured and what role the Federal Government 
should play. The reason that the Federal Government should be 
involved at all is to make sure that the housing sector works 
for everyone, not just for the most fortunate.
    I am here today to ask that you make sure that the least 
fortunate are included in your legislation, people for whom the 
housing market does not work at all and who cannot be reached 
through the existing low-income housing programs because the 
need far exceeds the resources.
    To do so, I ask that you protect and fund the National 
Housing Trust Fund. We have led the National Housing Trust Fund 
campaign since the year 2000. This includes some 7,000 
organizations in every Congressional district across the 
country. We celebrated when the Trust Fund was created in 2008 
in the Housing and Economic Recovery Act, HERA.
    We are very grateful to Senator Reed for his authorship of 
the Housing Trust Fund provisions in HERA, and to Senators 
Shelby, Crapo, Corker, Johnson, Schumer, Menendez, Brown, 
Tester, and Warner for supporting the Housing Trust Fund in 
2008. We are also grateful to Senators Corker and Warner and 
the other cosponsors for including the Housing Trust Fund in 
S.1217.
    All housing markets are local, but there is no community in 
our country that has a sufficient supply of decent rental homes 
that are affordable to extremely low-income families. In South 
Dakota, that is $18,784 a year. In Idaho, it is $16,932 a year, 
or less. These are people who labor in the low wage workforce 
and people who are elderly and disabled with incomes primarily 
from SSI.
    There are 10.1 million extremely low-income renter 
households in the United States and only 5.5 million units 
renting at prices they can afford. It is the only income group 
for whom there is a shortage of homes. Nationwide, there are 
just 30 homes that are available and affordable for every 100 
extremely low-income renter households.
    And moreover, the shortage gets worse every year. HUD 
reports that the number of worst case housing needs increased 
by 43 percent between 2007 and 2011. That is why 6,500 people 
showed up last week when the East Providence Housing Authority, 
which only administers 330 vouchers and has none to give out 
right now, opened up its voucher waiting list to people who 
came the night before to camp out to be able to just put their 
names on a list.
    These are data about families who have to choose between 
food or heat, coats or medicine, and get behind on their rent 
and lose their homes anyway. They move in with others or they 
sleep in cars. Next time you are at home ask a local principal 
about how many homeless children there are in their schools. We 
have 1.1 million homeless children enrolled in public schools 
in the United States now.
    And though we have made progress in reducing the number of 
veterans and people with chronic illnesses who are homeless, 
there has been an explosion in the number of homeless families 
with children. There are over 20,000 homeless children in New 
York City alone.
    The purpose of the National Housing Trust Fund is to end 
this housing shortage. The market will not do it on its own. 
The cost of building and operating rental housing is more than 
poor families can afford to pay in rent.
    There would be no need for the National Housing Trust 
Fund--and let me be clear about this--if existing Federal 
housing programs were sufficiently funded and properly 
structured. But there is no existing Federal housing program 
that produces rental homes targeted specifically for extremely 
low-income households, and more critical, current programs are 
grossly underfunded.
    HUD rent assistance only reaches 25 percent of the eligible 
population. All the HUD programs that serve low income people 
are part of domestic discretionary spending and are subject to 
sequestration. We estimate that 185,000 vouchers will be lost 
by the end of next year under sequestration. Given the 
constraints on appropriations today, it is inconceivable that 
the existing HUD programs will ever be enough.
    We estimate that it would cost $30 billion a year for 10 
years, that is $300 billion, to close this gap. That is why we 
need a National Housing Trust Fund, to produce, preserve, 
rehabilitate, and operate rental homes that these families can 
afford. It is modeled after housing trust funds created at the 
State and local level over the past 30 years. Those that are 
the most successful have robust, dedicated sources of funding.
    The National Housing Trust Fund is supposed to be funded 
with a dedicated source of funding, and as you know, the 
initial source provided in HERA was an assessment on Fannie and 
Freddie. The statute also says that the Trust Fund can be 
funded by any other amounts that Congress may direct toward it.
    Fannie and Freddie were taken into conservatorship soon 
after HERA was enacted. The conservator suspended their 
obligation. The story is well-known. We think that now that 
Fannie and Freddie are profitable again, that the suspension 
should be lifted. Given the current dire circumstances of so 
many poor Americans, it would be a Godsend if the conservator 
agreed with us, but unfortunately, he does not.
    Our specific requests related to the Housing Trust Fund in 
your bill are detailed in my written testimony and my letter to 
you of October 11. The essence is that we ask that you preserve 
the Housing Trust Fund as enacted in HERA with the sole purpose 
of expanding rental housing that is affordable for extremely 
low-income households, and to maximize the funding provided to 
it through the dedicated sources of revenue that you are 
creating in this bill.
    Thank you so much.
    Chairman Johnson. Thank you. Dr. Holtz-Eakin, you may 
proceed.

 STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION 
                             FORUM

    Mr. Holtz-Eakin. Thank you, Mr. Chairman, Ranking Member 
Crapo, and Members of the Committee for the privilege of 
testifying today. I have a written testimony for the record and 
I will just make three brief points at this juncture.
    First, in my view, housing finance reform is long overdue 
and I applaud the Committee for taking up the legislation that 
you are working on, and I encourage you to continue to try to 
push it across the finish line. That is something the Nation 
needs.
    Second, in doing so, I think it is important not to 
replicate the affordable housing goals that were in the housing 
GSEs, and I want to thank the Chairman for noting my dissent in 
the Financial Crisis Inquiry Commission. I am now assured that 
the readership has reached one.
    [Laughter.]
    Mr. Holtz-Eakin. But as you pointed out, I have never felt 
those affordable housing goals were central to the crisis that 
we experienced. It is a very complicated set of causes of that 
crisis. But they did not work either. They were poorly 
targeted. They tended to lag the market. And in my view, they 
also suffered from being off-budget and not subject to the 
appropriate scrutiny by the Congress.
    And that brings me to my main point, which is that I do not 
think you will find any great disagreement about the need to 
help low-income Americans have adequate shelter. That is a 
laudable and important policy goal that the Committee should 
pursue. And as my written testimony makes clear, and the GAO 
report lays out, we have an enormous array of on-budget 
appropriated programs which are intended to meet that need.
    We have scrutinized tax expenditures which are run through 
the Finance Committee and are part of the budgetary process. I 
do not think it is appropriate to create a new program which is 
outside of the budget process, which does not require the 
Congress to annually look at the effectiveness of the program, 
to balance the tradeoffs between this policy objective and the 
others that you will face. They are unquestionably real and 
difficult.
    And that in going forward with assistance to low-income 
shelter, the starting point ought to be to take the programs 
that exist and make them work better, target them more 
effectively, and if more resources are needed, put them in 
through the budget process, not through something which is a 
fee outside the budget process that does not enter into the 
regulatory tradeoffs that you face.
    So I thank you for the chance to be here today and I look 
forward to answering your questions.
    Chairman Johnson. Thank you. Mr. Handelman, you may 
proceed.

  STATEMENT OF ETHAN HANDELMAN, VICE PRESIDENT FOR POLICY AND 
             ADVOCACY, NATIONAL HOUSING CONFERENCE

    Mr. Handelman. Thank you very much, Mr. Chairman, Ranking 
Member Crapo, and all the Members of the Committee for bringing 
me here today to testify.
    I particularly appreciate the constructive bipartisan 
manner that the Committee has been pursuing this exercise. It 
is essential to the future of America, and I think your efforts 
will certainly pay off in the system that is created.
    I am particularly glad to see affordable options for 
housing in the title of this hearing because that should be a 
central goal of housing finance reform. The work of rebuilding 
the mortgage finance system cannot only be about making markets 
function well. That has to be part of it, but it must also be 
about shelter.
    As the Federal Government creates new mechanisms for 
housing finance, deploys its full faith and credit, and 
encourages private entities to put capital to work, the social 
purpose of safe, decent, and affordable housing for all in 
America must guide those efforts.
    The new housing finance system you are working hard to 
create must find ways to harness the creativity and energy of 
the private sector to provide homes for people across this 
country, that is in cities, suburbs, and rural areas in houses, 
apartments, in manufactured homes, for old and young, renters 
and owners, singles and families of all backgrounds.
    To accomplish that, the housing system must, by design, 
serve as broadly as possible and then there must be specialized 
mechanisms to fill in the remaining gaps, and those must work 
together. You have heard a lot about the need for affordable 
housing and there is great consensus here. There is more in my 
written testimony about it, but I will not belabor it here.
    What I will suggest, however, is that the urgency of 
mortgage finance reform stems both from the growing housing 
needs of Americans and the need to restore a reliable source of 
mortgage capital in the wake of the financial crisis. And there 
are several parts to that solution.
    The first part of the Federal guarantee. You have heard 
several of my colleagues on the panel talk about that. Second 
is allowing multiple sources of capital, multiple channels, 
including specialized lenders like housing finance agencies, 
credit unions, community banks, and other smaller lenders to 
have access to the most efficient form of mortgage capital.
    Third is safe and sustainable low-downpayment lending. You 
have heard a little bit about that on the panel. I am happy to 
talk more about it, but there are excellent studies that show 
that if properly structured, low-downpayment lending can be 
very safe and very sustainable, prime-like in its 
characteristics, and I would urge you to eliminate the overly 
rigid 5-percent downpayment restriction that is currently hard-
wired into S.1217, and allow more flexibility to do safe and 
sustainable low-downpayment lending, consistent with safe 
underwriting.
    Next is particularly important and, Mr. Chairman, you 
mentioned this in your opening statement, that the market needs 
to serve all qualified borrowers in all areas of the country. 
It is very difficult for either the primary market that 
originates loans or the secondary market that securitizes them 
to cause the other to broaden its parameters for what loans to 
provide because neither can act without the support of the 
other.
    It is only by Government action using strong regulation 
consistent with safe and sound underwriting that we can make 
sure that all parts of the country are served and that the risk 
pooling that occurs through securitization does not just either 
cream the best loans or omit whole sections of the housing 
market from its service.
    Fifth is financing affordable multifamily housing. This is 
a very important source of rental housing. It has already been 
the subject of a previous hearing by this Committee, so I will 
not belabor it here. It is not part of my written testimony. 
But we are recommending that the successful Fannie Mae and 
Freddie Mac multifamily businesses, which have been proven and 
profitable even throughout the crisis, be prepared for eventual 
spin-off and privatization as part of the new mortgage finance 
system.
    The last part is filling in the gaps that the market 
leaves, that even with the best engineering, there will be 
parts of our country that are underserved, and you have heard 
some discussion of those areas.
    The three mechanisms that we recommend for solving that, 
one is the Housing Trust Fund. You have heard an excellent 
presentation about that. Second is the Capital Magnet Fund 
which supports financing for the preservation, rehabilitation, 
or purchase of affordable housing for low-income communities, 
and also community service facilities. It leverages other funds 
at least ten to one and has proven in its single round of 
funding to be extremely effective.
    The third is to create a market access fund which would 
help share the cost with the private sector of finding new ways 
through competitive research and development grants and 
temporary credit enhancement to more efficiently serve unmet 
housing need.
    It is a way to cut through the far too common challenge 
where private sector entities say, Look we do not know how to 
serve certain sections. It is not profitable. And Government or 
advocates say, Well, you ought to, and the private sector says, 
Well, we just told you it is not profitable.
    By helping to share the cost and risk of the research, of 
figuring out how to do it consistent with safe underwriting, 
doing it in sustainable and profitable ways, we can help to 
broaden access. And I think that is why, as we shift to a new 
system, the Market Access Fund is an important complement to 
those efforts.
    I will close with two points. First really just a reference 
to my written testimony that talks about how addressing house 
need early and preventing homelessness, preventing foreclosure, 
preventing displacement and instability really does pay off in 
all sorts of ways that affect both Government revenue and 
economic activity.
    And last, urge you to think holistically about this 
problem, that as you are reengineering the system, as you are 
putting all of the pieces together, recognize how they fit 
together, and that by making the market serve as broadly as is 
possible profitably and then filling in the gaps, we can do a 
better job of making sure that the needs of all in this country 
for safe, decent, and affordable housing are met.
    Thank you very much.
    Chairman Johnson. Thank you. And thank you all for your 
testimony. As we begin questions, I will ask the clerk to put 5 
minutes on the clock for each Member.
    A question for Mr. Judson, Mr. Shelton, and Mr. Handelman. 
Mr. Judson, do you believe that the new system should include a 
requirement to provide broad access to credit for qualified 
single family and multifamily credit in all geographies, 
including rural markets and market conditions?
    Mr. Judson. The simple answer to that--sorry--the simple 
answer to that is yes, it has to be accountable, it has to be 
properly underwritten, which I think you have heard from the 
panel and, as you all well know, is the fundamental element in 
any underwriting process. It has to be properly underwritten.
    We think it can be served, both the rural areas through 
some of the programs that are existing now at USDA. We think 
that the lower income markets can be served, again if they are 
properly underwritten. The key to all of it is have a program 
that is specifically addressing those components of geographic 
area, as well as the socioeconomic areas.
    Chairman Johnson. Mr. Shelton, do you have any additional 
thoughts?
    Mr. Shelton. No, I strongly agree as well. The kind of 
economic support, these outlays, are extremely important as we 
move ahead.
    Chairman Johnson. Mr. Handelman.
    Mr. Handelman. I would agree with my colleagues. The only 
point I would add is that as you think about securitization, it 
is largely an exercise in risk pooling and that without the 
requirement to serve very broadly, you get concentration of 
either very good credit risk or very bad credit risk in pools.
    The very good ones, it is profitable, that gets done. If 
you concentrate the very--the worst credit risk, it does not 
get done and that is where you get underserving. So the 
requirement to serve broadly is part of making sure that the 
efficiency reaches all parts of the country.
    Chairman Johnson. Dr. Crowley, from your area with some of 
the housing challenges faced by families in Indian country, how 
could a housing trust fund assist tribes in creating good 
quality, affordable housing?
    Ms. Crowley. Thank you for that question, Senator Johnson. 
We are very fortunate the National Low Income Housing Coalition 
to have Pinky Clifford on our board who lives on the Pine Ridge 
Reservation, and is a member of the Oglala Sioux tribe. Pinky 
invited me out to Pine Ridge. I spent some days there with her. 
And it was a very eye-opening experience. The conditions, 
housing conditions there are quite extraordinary.
    The Housing Trust Fund is specifically designed to provide 
rental housing for the very poorest people, and as it is 
currently structured, the grants would go to the Governors, and 
any able and willing provider within the State could apply for 
those.
    We would certainly support any provision that you would 
like to offer about having a set-aside for tribes, which we 
think would be an important thing to do as well. I talked to 
Pinky yesterday and she got permission from a woman to tell you 
this story. She has been on the waiting list for housing there 
since 1995.
    She lives in a trailer with no running water. She has an 
outhouse. And that she has been waiting. She has patiently put 
her name on the list, recertified every year, and she is now at 
the top of the list. But there is no housing for her to go to. 
She is still waiting and she said that she hopes that she gets 
a house before she dies.
    So the situation is quite dire and the Trust Fund would be 
very important there.
    Chairman Johnson. I know Pinky well.
    Mr. Judson, this new legislation includes stricter 
underwriting such as a minimum downpayment. What impact would 
that have on the demand for new homes and how would that affect 
current home prices? Alternatively, should the regulator of the 
new system have the flexibility to adjust underwriting 
standards?
    Mr. Judson. Thank you. As mentioned earlier, the 
underwriting standards are the key to the success with this. 
The downpayment is less of a factor. There are certainly 
qualified buyers out there, particularly the entry level or 
first time buyer who cannot accumulate the funds or some of the 
required downpayments that are being proposed, i.e., the 20 
percent.
    Five percent, 3 percent, whatever that number is, is 
supportable, again, if properly underwritten. You can look at 
the VA loans to substantiate that. The effect of having a lower 
downpayment would be that more people will be able to qualify, 
more people, specifically the first time buyer will be able to 
qualify to own their homes and begin that accumulation of their 
net worth and creating the social fabric that goes along with 
that home ownership.
    Chairman Johnson. Senator Crapo.
    Senator Crapo. Thank you, Mr. Chairman.
    Dr. Holtz-Eakin, in my opening statement, I noted that 
using the current funding mechanism in S.1217, the Housing 
Trust Fund and the Capital Magnet Fund would receive an 
estimated total of somewhere between $2.5 to $5 billion based 
on the current secondary market size, and this represents about 
10 percent of HUD's annual budget.
    What kind of safeguards do you think would be appropriate 
to ensure that these funds remain accountable to Congress and 
to the American taxpayer?
    Mr. Holtz-Eakin. Well, I think first and foremost, they 
should go through the appropriations process. I think that the 
notion of creating off-budget entities and dedicated funding 
for them violates the integrity of the Congressional budget 
process.
    These are important policy goals, that is not in dispute, 
but the program should be reviewed on a regular basis to make 
sure that they are meeting their policy objectives. The funding 
for them should be traded off against funding for other 
objectives within the HUD budget, and, you know, the reality is 
many programs that are on the budget now could be improved or 
eliminated and those funds will be freed up for these 
objectives.
    Taking it outside the budget process relieves both the 
scrutiny on the trust fund, but also the scrutiny on the 
programs in the HUD budget, and that is a disservice to the 
taxpayer.
    Senator Crapo. Thank you. And Dr. Crowley, your 
organization has been the leading supporter of the National 
Housing Trust Fund in the United States, I think, and Dr. 
Holtz-Eakin noted that the Appropriations Committees of 
Congress should have a role in these funds, as he has just 
testified.
    If they are going to be funded in the manner as suggested 
in S.1217, do you believe a role for Congressional 
appropriations through committees is appropriate, and perhaps 
through review and approval would be a reasonable method to 
assure accountability in the management of these funds?
    Ms. Crowley. Let me answer that by saying that there is 
nobody in the country who wants there to be more oversight and 
greater accountability in this program than me. We are 
extremely clear that the dollars need to be spent for precisely 
what it is that Congress has intended, and that there have to 
be very strong mechanisms for oversight for how the money is 
used, and how the housing is kept up over the years, and all 
the things that we think are important.
    We have worked too long and too hard to get this done just 
to see any of the money misused or wasted. So we support the 
strongest possible oversight that Congress can conceive of for 
this program.
    Having said that, I have real confidence that the Banking 
Committee can do that, and would encourage you to look at ways 
to expand the oversight that is possible here. We are certainly 
open to talking about anything that you would like to talk 
about. We do not want the funds in any way to be used for other 
purposes. Housing trust funds that have been built across the 
country have been done with dedicated sources of revenue and 
the ones that are most successful have housing-related sources 
of revenue.
    So the housing market produces money in one way and then 
money is directed into the housing trust funds in order to 
solve unmet needs--solve problems. If we thought the 
appropriations process worked, and we do not think it does, and 
if we thought we could get the appropriated funds, as I said in 
my testimony, to solve this problem, then we would not need to 
have this conversation.
    But it has not proved to be the case. And we are losing 
ground in the existing affordable housing programs that we 
have. As the sequestration continues, for the very first time, 
people with vouchers are going to actually lose their homes. 
That has never happened.
    It is time for some creative outside of the box thinking. 
We cannot continue to try to solve this problem in the narrow 
constraints of what we have. And so, having the housing finance 
market, which is making a lot of money, pay some fee to support 
things that the market will not do, we think is highly 
appropriate and we urge you to seize this opportunity.
    Senator Crapo. Thank you, Dr. Crowley. I can assure you you 
are not the only one who thinks the appropriations process 
needs to be fixed. I think we could get some strong bipartisan 
agreement on that today. Thank you very much.
    Chairman Johnson. Senator Reed.
    Senator Reed. Thank you very much, Mr. Chairman.
    As an appropriator, Senator, I concur.
    Senator Crapo. You agree with that?
    Senator Reed. Yes, I concur.
    [Laughter.]
    Senator Reed. Dr. Crowley, there has been discussion of the 
Housing Trust Fund, that it could accumulate to about $2.5 
billion. My best guess of the housing market is about $5.5 
trillion, roughly. So this is a very small fraction of 
resources that is going to a very compelling need, in my view, 
which is housing for low-income.
    Even if we were able to effectively deploy all this money, 
how much of the gap will we fill in terms of affordable housing 
for Americans?
    Ms. Crowley. A small portion of the gap. Our estimate is 
that it is, as I said, if we were to close this gap, we would 
need 30 billion additional dollars for 10 years. So we are not 
getting close to that in this program. But we think that this 
is a way to get started, and certainly it gives hope to people 
out there who are actually trying to do something about 
housing.
    If you go out and talk to people, as you all do, in your 
communities about the work that they do to try to help people 
find housing, there is a real sense of desperation. And I go 
out and I spend time with people and they say, ``I have got so 
many people that I cannot place, I have got so many people that 
we are just spinning our wheels.''
    And what you are offering in the Housing Trust Fund is a 
sense of hope, that we have something that may happen, that we 
may begin to be able to dig ourselves out of this deep hole. So 
that is what we are striving for.
    Senator Reed. The Trust Fund is aiming, as I understand it, 
for individuals and families with incomes below 30 percent----
    Ms. Crowley. Right.
    Senator Reed. ----of the area median income. So 
essentially, these are working families.
    Ms. Crowley. That is right.
    Senator Reed. These are families who are working and they 
make too much, in most cases, to qualify for public housing, 
you know, but they do not make enough to get to be able to 
afford decent rental housing. Is that fair?
    Ms. Crowley. Well, I think that the eligibility for public 
and assisted housing is 30 percent of area median income.
    Senator Reed. So they would qualify, but----
    Ms. Crowley. They would qualify, but it is totally 
insufficient, as I said in my testimony. You know, every time 
there is a waiting list that opens, there are thousands and 
thousands of people who come in. In East Providence this last 
week, our friends at the Rhode Island Coalition for the 
Homeless went and videotaped people in the line to find out 
what their stories were, and the stories are remarkable.
    People who are struggling and all they get to put their 
names on a list. They do not get a voucher, they do not get 
housing. They are just trying to get their names on a list to 
maybe get it someday. So it is people who are working hard, it 
is often people who are working more than one job.
    A story from Sioux Falls is about a woman who has a job in 
a grocery store and she has a second job in order to make ends 
meet. And she is being asked if she would like to be considered 
for a promotion at the grocery store which would require that 
she work more hours there, which would mean she would have to 
give up her second job.
    And she is not sure she can afford that promotion because 
she is not sure that she would be able to afford her home if 
she did not get to a certain wage in that new job. And so, she 
is making extraordinarily complex calculations about how many 
hours she has to work per week at what wage in order just to 
make ends meet.
    Senator Reed. Thank you.
    Mr. Handelman, you mentioned the Capital Magnet Fund. We 
have had one tranche of $80 million in 2010. Can you kind of 
elaborate on how effective it was and how it engaged, perhaps, 
other sources?
    Mr. Handelman. Sure. Thank you for the question, Senator 
Reed.
    The Capital Magnet Fund has been incredibly effective. It 
has required a leverage ratio of ten to one, so a lot of times 
it is used as gap financing or as bridge financing, which can 
be repaid and then reused. Some of the examples I have seen, 
there is a project in Alaska. It was one of the ones I cited in 
my testimony. It is 66 townhome units for folks at 50 percent 
or 60 percent of area median income, funded by Volunteers of 
America through their Capital Magnet Fund grant.
    The leverage on that was exceptional. It is already being 
paid back so it can be then--the money can then be used again 
for gap financing. It integrates well with the Low-income 
Housing Tax Credit and it is very effective at preserving 
Section 8 rental housing. So it works well with some of the 
existing insufficient resources to maintain the investments 
that the Federal Government has already made in affordable 
housing.
    Senator Reed. Thank you. Thank you, Mr. Chairman. Thank 
you.
    Chairman Johnson. Thank you. Senator Corker.
    Senator Corker. Thank you, Mr. Chairman. I want to thank 
you again and Ranking Member Crapo for having these extensive 
hearings to touch on all topics, and I want to thank the 
witnesses for being here today.
    I know, for what it is worth, and especially sitting on 
this side of the dias you might not expect this, but the only 
reason I am in the Senate today probably is because of an 
effort that I started as a civic leader, not as a business, to 
provide the opportunity for all Chattanoogans to have decent, 
fit, and affordable housing. And that effort led to about 
10,000 families in our community having housing that otherwise 
would not.
    So I very much appreciate this panel and appreciate the 
effort to try to solve this problem in an appropriate way. And 
the written testimony today touched on this more than we are 
actually touching on in the oral presentation. I do think that 
we have to figure out a way on the duty to serve that you do 
not end up in a situation where we create a finance system that 
allows wealthy people to have cheaper loans, on one end of the 
spectrum, and on the other end of the spectrum we push the duty 
to serve so much that we end up with predatory lending.
    And so, I know that we probably will not resolve that here 
today in this hearing, but I do welcome you in our offices, I 
know many other people do, too, to try to figure out a way to 
address that issue appropriately, and I think you know we can 
easily around here get things out of balance over time. So I 
invite you to our office, and I know other people here that are 
working on this issue would like to hear some of that same kind 
of input.
    I was really interested in Dr. Crowley and Dr. Holtz-Eakin 
talking about this trust fund. I actually heard some overlap 
and I would like to sort of tease that out a little bit if I 
could. I know that Doug does not like off-balance sheet funding 
and, candidly, a lot of people do not. On the other hand, 
Sheila, if I could, you want to make sure that there is some 
kind of funding stream that is in place.
    I just wonder if the two of you all might talk a little bit 
about how we could accomplish appropriate oversight if there, 
in fact, ends up being--and when we complete this work--a 
dedicated funding stream. Is there a way to have that 
accountability that Doug wants to see, and at the same time, 
have the income stream, Sheila, that you would like to see? And 
I wonder if you all might talk about that a little bit.
    Ms. Crowley. Well, the first thing that comes to mind is 
that what we should look at is what has happened at the State 
and local housing trust funds. And I am not an expert on 
those--we have experts who we work with very closely on that--
to see precisely how they have answered that question. How is 
that State legislatures have answered that question to see what 
their processes are? The States are the laboratories for how we 
figure out new ideas and then we bring them to the Federal 
level.
    So I would be certainly willing to search through and look 
at that and see what that looks like and see what the 
recommendations would be from our friends who have worked on 
those State and local housing trust funds to see precisely what 
the accountability mechanisms are.
    Senator Corker. OK.
    Mr. Holtz-Eakin. So I have several concerns, obviously. The 
first is simply that--you know, Dr. Crowley is a tremendous 
advocate for this cause. It is a legitimate cause and there is 
going to be all sorts of advocacy. If the response of the 
Congress in every instance is to create a special outside-the-
budget funding mechanism, then the admittedly broken 
appropriation and budget process will only be worse.
    It will become a Balkanized, unbalanced set of efforts. And 
I am concerned about that. As the former CBO director in me, I 
am deeply concerned about the quality of the budgetary process 
that we have now. Steps like this go in the wrong direction, in 
my view.
    What could one do? Well, first is----
    Senator Corker. Let me just say this. At the end of the 
day----
    Mr. Holtz-Eakin. It would not just be housing. It would be 
everything.
    Senator Corker. I understand. But we are talking about 
this.
    Mr. Holtz-Eakin. No, no, I hear you.
    Senator Corker. And I do think that--I mean, I think the 
reality of the situation is that a bill that likely passes the 
U.S. Senate--anyway, I do not know what happens on the House 
side--will likely fund the trust fund. I think that is likely 
to occur.
    So my question is, is there a way to have appropriate 
oversight so that you can continue to play a role in 
understanding and making sure that there is accountability that 
ought to take place?
    Mr. Holtz-Eakin. Do not delegate too much authority to an 
independent regulator to set such a fee and fund such a trust 
fund. That should be something that is done within the 
Congress. Make it a mandatory spending program. If you do not 
like the appropriations process, I understand that. Have a 
mandatory spending program which has standard oversight by the 
authorizing committee and bring it through the budget process.
    The key policy error would be to put it outside the regular 
review and budgetary tensions that the Congress faces, and I 
know it is going to get funded. It is a legitimate policy goal. 
There is no dispute about that, I hope. The question is, how do 
you, in this instance and in many others that arise, meet that 
policy goal without completely undercutting the objective of 
good use of the taxpayers' funds.
    Ms. Crowley. My understanding is that it is structured as a 
mandatory fund on the permanent side of the budget and it is 
subject to the oversight of this Committee. Maybe I should just 
talk a minute about how the trust fund actually would work.
    Senator Corker. So the Chairman does not get too mad at me, 
make it a half a minute.
    [Laughter.]
    Ms. Crowley. It is set up, so the regulator does not have a 
lot to say about it. It is set up as a trust fund, as a block 
grant that is housed at HUD, so the money that Congress would 
direct to it would go to HUD. There is a formula that is in the 
HERA that says this is how much money goes to each State. That 
formula has been developed. It is based on need.
    The Governor of each State would decide which agency would 
run it. It would usually be the housing finance agency. So that 
is all done. There is nothing optional there. That is all taken 
care of. And then the Governor has the responsibility to 
develop a plan for how to allocate those funds within the 
confines of what the trust fund is supposed to do, which is 
primarily rental housing for extremely low-income people.
    The Governor can say, I am going to dedicate these dollars 
to funding my plan to end homelessness, which every State has. 
Or the Governor can say, We are going to use these dollars to 
respond to our requirement that we provide community-based 
housing for every disabled person in our State.
    And then there are all sorts of prohibitions, things you 
cannot do with the money that are very clearly laid out in the 
statute. There are all sorts of requirements that if a Governor 
of a State does not spend its money in a certain amount of 
time, that HUD reclaim that money and distribute it to another 
State.
    The statute is full of very strong protections that I think 
are probably quite extraordinary compared to what other 
programs are. And I am happy to come here every month and tell 
you what I know about it.
    Senator Corker. You are talking about the statutes that are 
actually in S.1217?
    Ms. Crowley. S.1217 basically repeats what is in HERA, and 
all those things are in HERA. And so we have been down this 
road. We have thought about this a lot, and so, it does not 
seem to me that there is a lot of questions about 
accountability at this point.
    Senator Corker. I am going to thank you so much. And also, 
I have a hearing starting myself. Thank you so much. I 
appreciate it. Thank you all of you for your testimony.
    Mr. Holtz-Eakin. Mr. Chairman, without penalizing Senator 
Corker, can I add one thing quickly?
    Chairman Johnson. Yes.
    Mr. Holtz-Eakin. A suggestion I would make is do not fund 
it with a G fee, which is what 100 percent gives it this 
dedicated function. Fund it out of general revenues. All the 
fee is going to do is raise mortgage costs, so that goes 
against affordability anyway, and then the program competes on 
a legitimate basis for funding in the policy process.
    Chairman Johnson. OK. Thank you. Point well-taken. Senator 
Tester.
    Senator Tester. Yes, thank you, Mr. Chairman, and I want to 
echo what many have said. Thank you for having this hearing, as 
well as Ranking Member Crapo. I appreciate it. We all know how 
important affordable housing is; that is why we are here today. 
I want to thank our witnesses.
    Unfortunately, I think, over the past several years, we 
have seen many mechanisms to provide more affordable housing, 
many of them get defunded. I want to talk a little bit about 
what we have been talking about and that is the Market Access 
Fund as envisioned in S.1217 that provides dedicated funding to 
the National Housing Trust Fund, as well as the Capital Magnet 
Fund.
    These programs are going to be funded by five to ten basis 
points for folks using--for securities use a common 
securitization platform. To be honest with you, as we hear the 
discussion here today, I think I would like--this would give a 
dedicated stream of funding, and I think that is the real 
advantage. I think when you get into the appropriations 
process, and I like Senator Reed and Senator Johnson, are all 
appropriators and it is not working very well right now. It is 
not working very well at all.
    And so, consequently, it puts at risk that dedicated 
funding stream. Because I think you are both going to agree on 
this, could you tell me how important that dedicated funding 
stream is for affordable housing? If the amount of money has a 
lot of peaks and valleys in it, what does that do to affordable 
housing? Both of you, either one go first, second.
    Mr. Holtz-Eakin. I guess what I would say lovingly to the 
appropriators is that it is time for you to get your act 
together. The solution is not to bypass this. It is time to do 
it right.
    Senator Tester. I understand that. But we are where we are 
for a number of reasons and----
    Mr. Holtz-Eakin. Well, the second point would be, I believe 
it was a mistake to make permanent reforms on temporary current 
conditions. We should design a program that we want in 2013, 
'23, '33. And third, I think dedicated funding is better than 
these cycles up and down.
    Senator Tester. And why?
    Mr. Holtz-Eakin. It allows a planning process. Housing is a 
durable asset and you have to plan. The local planning process 
with the environment regulations and the community planning 
objectives requires lead time and funding security. I mean, all 
those are legitimate parts----
    Senator Tester. Cost effectiveness, would it have any 
impacts on things that we do not like to spend money on like 
admin?
    Mr. Holtz-Eakin. Yes.
    Senator Tester. And those would be negative consequences?
    Mr. Holtz-Eakin. Yes. A clearly planned funding stream is 
superior, there is no doubt about that.
    Senator Tester. Cool. Would you like to comment on that at 
all, Ms. Crowley, Dr. Crowley?
    Ms. Crowley. I just want to be really practical at this 
point.
    Senator Tester. Sure.
    Ms. Crowley. And that the notion that we are creating a 
program to respond to temporary conditions seems pretty 
outrageous. These are not temporary conditions. We have had a 
housing shortage for extremely low-income people for many years 
in this country. It has not always been that case. In 1970, we 
had a small surplus. But we have been consistently losing 
ground in this area. We have had growing homelessness and it is 
unacceptable.
    Senator Tester. From your perspective, does S.1217 address 
the issues you are concerned about?
    Ms. Crowley. S.1217 creates a very good dedicated funding 
stream and we certainly would support that.
    Senator Tester. Do you think that is adequate at five to 
ten basis points?
    Ms. Crowley. No, but we are not asking for more----
    Senator Tester. All right.
    Ms. Crowley. ----at this point. It is not adequate to solve 
the housing problems of the very poor. We would like to see the 
Trust Fund maximized in S.1217. We are concerned about the way 
that the bill is structured, that the funds are jumbled 
together instead of held separate. We would like to see them be 
separate.
    Senator Tester. OK. Mr. Handelman, in your testimony, you 
highlighted some of the ways that the Market Access Fund has 
envisioned S.1217, support innovation, promote home ownership. 
Briefly, could you talk more specifically about the areas where 
there are opportunity for innovation that could lead to home 
ownership?
    Mr. Handelman. Sure. Thank you for the question, Senator. I 
will highlight some examples and then--recognize that the point 
of the Market Access Fund is to do a bunch of experiments, so 
it is not just what I can think up sitting here at this table. 
It is going to be a whole lot of other people, much smarter 
about it than me, coming up with different things to try.
    But some of the examples I highlight in the testimony, one 
is about energy efficiency and underwriting. Right now 
household energy costs in the country are about $230 billion 
annually and they make up 15 percent of the total cost of home 
ownership for average families.
    So if we can find ways to encourage lending that encourages 
energy efficiency, there can be savings throughout and make 
housing more affordable. Thus far, we have not found great ways 
to lend against that efficiency. So this is where research and 
development and testing and process improvement can really make 
a difference.
    Another great example is reserve funds for home ownership 
success. Rather than asking a family to really stretch and put 
all of their savings into a downpayment, if you can take a 
portion of that, separate it into a reserve fund to take care 
of the needs of the home, right, when the roof leaks or the 
boiler breaks, there is some funds to fix it, that could 
actually really improve the success rate of those borrowers and 
be better for the lender, be better for the community, be 
better for the homeowner.
    So these are just examples and there are many more, but 
that is the point of trying to share the cost of R&D.
    Senator Tester. Well, thank you. And I want to thank all 
the folks on the panel. Very quickly, this is not a question, 
this is just, with your indulgence, a thank you. To Mr. Judson, 
I want to take a minute to thank you for your group's impacts 
on the appraisal system.
    It is a broken system in Montana. Your members in the State 
have stepped up in a big, big way, and hopefully, we can 
continue to work with your input on how we can improve that 
appraisal process. With that, thank you all for your testimony. 
I very much appreciate it.
    Chairman Johnson. Senator Johanns.
    Senator Johanns. Let me also say thanks to the panel. If I 
could just comment, a word of thanks to the Chair and the 
Ranking Member. We have been going through a series of hearings 
on 1217. I am one of the cosponsors, truly a bipartisan bill. I 
think these have been excellent. I think the witness panels 
have been good; this is no exception to that and we have 
learned a lot.
    I came to the Senate having done a lot of different things. 
Started out in county government and went to city government to 
then the Governor's office and then came out in the Bush 
administration to head up the USDA. So I have been in 
affordable housing really all of my public life. Here is a 
couple of things that I would offer about 1217, and I think it 
is really important to keep this in mind.
    Number one, I think there is real urgency here. Yes, the 
market is improving and maybe some would think that takes the 
pressure off. It should not take the pressure off. We have got 
to fix this system and we have yet to have a witness come in 
here and say, Do not touch anything, I love the system. We all 
know it is a system waiting for the next crash, to be another 
real calamity.
    The second thing I would say is that the only way this bill 
is going to pass is it has to be bipartisan. You know, if I 
were king for a day, which is not going to happen, I would 
probably write this bill differently. I think we all probably 
would write this bill differently and we would be more 
insistent on, I want it my way and there is no other way, but 
at the end of the day, we are going to have to get Democrats 
and Republicans to sign onto this bill and get it across the 
finish line.
    So I would not argue that this is perfection, but I would 
argue that it is a gigantic step in the right direction in a 
whole bunch of areas. Here is what I am thinking about when I 
think about this bill. On one hand, we have a real estate 
finance system that is really a mess and we have got to fix it 
and I think this bill takes a giant step in that direction.
    On the other hand, everybody here wants to do something 
about housing and affordable housing. I do, my colleagues on 
the other side do. I do not think there is a lack of heart 
here, but I would like your comment. I am going to start, 
Sheila, with you. My experience in affordable housing, and 
Rick, I will ask you to weigh in on this, too.
    My experience in affordable housing is this: It is one of 
the most complicated endeavors you could possibly imagine. When 
we are in session, we have a place out here and the community 
where our place is at has this ongoing discussion about 
affordable housing. And I am thinking, My goodness, this is the 
worst place in the world for affordable housing because it is 
so danged expensive to live here. Land is expensive, 
development costs are expensive. Everything is expensive. How 
do you get affordable housing out of that?
    Well, I think one opportunity with the Trust Fund--and if I 
were the Governor looking at this and it was funded, I would 
bring all my housing people together and I would say, OK, is 
this a program that we can fill some gaps? And maybe this is 
the bridge money that makes the project work that would not 
otherwise work, because at the end of the day, it has got to 
make economic sense or it is not going to come out of the 
ground.
    Am I thinking of all of this in the right way? Sheila and 
then Rick, I would like your thoughts on that.
    Ms. Crowley. Absolutely, Senator. The beauty of the 
structure of the Trust Fund--and we owe this to Senator Reed 
and the folks who worked on this before--is that it is a 
program where the money goes to the Governors who figure out 
how best to use those dollars in the markets in their States. 
Every market is different. Every community is different.
    And you would bring together the experts in the State and 
say, ``How can we deploy these dollars in the best possible way 
to do what we want to do, which is to lower that gap?'' We can 
tell you what the gap is in Nebraska and we want to say that 
after a certain period of time, we will have fewer extremely 
low-income households who do not have affordable housing. And 
we are going to be able to count that and see how we get to 
that.
    And it does include saying, ``Where do we need to put money 
into other deals so that we can have certain units that are 
affordable to people in this income group.'' We would see these 
dollars being coupled with low-income housing tax credits.
    We would see them being coupled with any number of other 
kinds of resources that create new housing or preserve housing, 
but where there is not the money to be able to write it down to 
be affordable for people at that lowest income level, and that 
is the whole idea.
    Senator Johanns. Rick, thoughts?
    Mr. Judson. Yes. Your point is very well taken and I think 
there are two things that jump to my mind, is the incorporation 
of low-income housing tax credits, which are private money, 
which are revenue-neutral to the Government, we will say, but 
provide a service to the community. So it is a win-win 
proposition, to incorporate that right balance between the low-
income housing tax credits and the need for the community for 
affordable housing.
    The other would be zoning issues, which are probably more 
locally driven, which may allow for greater density 
opportunities if there is an affordable housing component 
involved. So the balance--I think we are all talking about the 
balance and the accountability. The economic balance is to 
provide service needed for low-income housing, and yet, to do 
it at the least possible cost to achieve the greatest result.
    I think that is not going to be simply a dole from public 
coffers, but a combination of set-asides, a combination of 
incentives, fees, a number of components that will fuel that 
end result.
    Senator Johanns. Thank you, Mr. Chairman.
    Chairman Johnson. Senator Warner.
    Senator Warner. Thank you, Mr. Chairman. Again, I want to 
thank you and Ranking Member Crapo for continuing to hold these 
hearings.
    I want to start where Senator Johanns left off and thank 
him and the cosponsors of 1217 because you are right. We would 
have written it all differently, but we wrote something that I 
believe actually advances the ball on a lot of fronts, 
including the affordability function, because, you know, one of 
the things is--and I think we kind of went for a long time with 
a system that worked relatively well.
    But when we think back from a policy standpoint, who would 
have ever designed a system where we combined the function of 
private sector money making, a profit-making entity with this 
also quasi-role of an implicit Government. Immediately you have 
got some conflict there. And then on top of that, we layer a 
very, I believe, very important social function on these 
entities. Let us face it, they were damned if they do, damned 
if they do not.
    We have lots and lots of folks on the progressive side who 
said the GSEs never did enough. We have lots of folks on the 
conservative side who feel like those very goals brought about 
the crisis. Now, I reject that notion, but there are people who 
have those strongly held views.
    The idea of saying, first of all, do no harm, so whether it 
is low-income housing credits, whether it is Section 8, whether 
it is all the other pieces that make affordable housing, and 
particularly when you get to multifamily, without those, we 
would have no multifamily at all, and then say, let us 
maintain.
    I again want to thank my Republican colleagues for working 
with this. Let us say, let us make sure we still promote this 
function, but let us charge for it in an appropriate way, let 
us set it off, let us put appropriate oversight, and let us 
take great things like the Housing Trust Fund that has been set 
up.
    It is a great idea, but never had any money. And, you know, 
the dollars are in many, many billions a year that could 
actually help us achieve these goals. And I know, you know, one 
of the concerns--I missed and I apologize. We were at a budget 
conference. You may recall we have had this shut-down problem 
in the past. We are trying to avoid that going forward.
    You know, I know there are questions about, Well, somehow 
if we take this out of the budget process, I would argue that 
if you have got the appropriate oversight, and I am going to 
get to a question here. If you take it out of the budget 
process, but you have the appropriate oversight that has 
representatives from the low-income housing community, from 
home builders, others on this board, and we have got this 
steady flow, do we not actually--and I will even ask Doug to 
comment on this as well--is, do we not actually create a 
countercyclical balance by having this funding source that is 
not subject to the budgetary constraints so that in these 
downturns, this fund that is still going to be stable actually 
could help us achieve our goals?
    So if we could speak to the countercyclical protection 
nature, and love to have anybody on the panel address that. If 
you want to go down the line, that would be fine. Anybody want 
to start? Doug, do you want to start first? Go at it.
    Mr. Holtz-Eakin. I do not, but I will. I do not think there 
is anything about this structure that dominates the ability of 
the U.S. Treasury to borrow against cycles. So there is 
nothing, I think, supremely countercyclical. And indeed, the 
base, which is a securitization of underlying mortgages, has 
been traditionally a very cyclical part of our economy. So I do 
not think its cyclical properties are a virtue, quite frankly.
    Senator Warner. What I am saying, though, is that the 
ability to have a steady stream of income that is not subject 
to the budgetary constraints, I actually believe, helps us in 
that countercyclical. Sheila, if you want to comment?
    Ms. Crowley. Precisely, and that is one of the things that 
is attractive about it from the perspective of people who are 
trying to solve housing problems on the ground, is that it 
would be a predictable stream of funding. Now, it does not mean 
it is going to be the same amount every year and hopefully it 
will, as the housing market is robust, then that money will, in 
fact, increase.
    But it is a predictable stream of funding which they do not 
have now at all through the HUD programs. It is just really 
critical to understand that we have put most of our money in 
the HUD programs to maintain the housing that we have. We put 
very little into doing anything new.
    And the money that we have put into doing anything new, the 
HOME Program, has been slashed dramatically over the past 
couple of budget cycles. So what it is that people can predict, 
that they can rely on. They can rely on the low income housing 
tax credit program, but it is highly competitive. It is not 
deeply targeted. There is a little bit of money for the 
Affordable Housing Program in the Federal Home Loan Banks, but 
that is highly competitive.
    There is just nothing out there and this would be a Godsend 
to people who are trying to solve these problems.
    Senator Warner. I am running out of time, but if anybody 
wants to make a quick comment, if you could include Godsend in 
your comment, that would be helpful as well.
    [Laughter.]
    Mr. Handelman. I will not use the word Godsend, but I will 
add that, you know, I think the countercyclical nature of it 
from an economic standpoint is probably somewhat limited, but 
by creating additional supply of homes affordable to extremely 
low-income folks, it helps to cushion against the impact of 
cycles on those households.
    A lot of what we saw, and this is some of what our Center 
for Housing Policy found, both in renters and homeowners is 
that even as the cost of housing fell somewhat, because housing 
values fell and housing costs fell, incomes fell much worse. So 
that is part of the countercyclical nature of this, too.
    Chairman Johnson. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    I am going to pick up with Senator Warner's note, that a 
lot of people claim that Fannie and Freddie's affordable 
housing goals caused the 2008 crisis, but there is no evidence 
to back that up. In fact, the data studied by the Financial 
Crisis Inquiry Commission and the Federal Reserve show that the 
affordable housing goals had no impact on either the subprime 
loans, the number of the subprime loans, or on the price of 
those loans.
    And, in fact, that the data showed that the underlying 
cause of the crisis was subprime lending in the private label 
market, not with Fannie and Freddie. But that is not to say 
that the affordable housing goals had no impact. They did have 
a powerful impact. They helped millions of families purchase 
homes.
    According to data from Fannie and Freddie, from 2002 to 
2007, between 6 million and 12 million families each year 
benefited from the affordable housing goals. That is millions 
of creditworthy, lower income or rural families that are 
building up savings even today thanks to those goals.
    So before we all conclude that we are throwing out the 
affordable housing goals on the basis of some myth, I think we 
need to look carefully at what we would be giving up. And I 
would like to just get a single statement on the record here, 
if I can. Mr. Shelton, if the affordable housing goals are 
eliminated, what do you estimate would be the impact on home 
ownership rates in minority neighborhoods?
    Mr. Shelton. Well, it would be devastating. Quite frankly, 
we depended on that kind of support for years and years to make 
sure that we have access. You have seen what happened with the 
housing crisis. Over 52 percent of African Americans lost their 
homes.
    They lost all their wealth and everything else that was so 
important to looking at the future and everything that we do 
with our homes, from educating our children to planning for our 
retirement.
    Senator Warren. Thank you. And, Dr. Crowley, could I ask 
you, would eliminate affordable housing goals, could you 
describe the impact on rural communities?
    Ms. Crowley. Well, I think that it would be horrible 
because rural communities are where lenders are not likely to 
go unless there is some encouragement, incentive, requirement 
that they go there. I think that this Committee really needs to 
look at making sure that whatever is passed has something that 
holds the system accountable for getting lending into every 
single geography. We are talking about inner cities, but we are 
also talking about the most remote parts of the country.
    And that is what your job is, is to figure out how to make 
sure that the system is fair and accessible to everybody.
    Senator Warren. So I want to just see if we can then wrap 
this into the next piece of it. I want to say, I commend 
Senators Warner and Corker for the work they have put into 
S.1217 and how you have moved this debate forward. But I am 
concerned about S.1217's elimination of the affordable housing 
goals.
    We have all been talking about the strip of five to ten 
basis points on the Government-backed securities for the 
Housing Trust Fund, and I think the estimate is it would be 
about--produce about $2.5 to about $5 billion annually, is the 
estimate.
    But the question I want to ask, Dr. Crowley, in your views, 
will $5 billion a year substitute for the benefits that the 
affordable housing goals provide for lower-income and rural 
communities?
    Ms. Crowley. No way, no way. Let me just say that the 
affordable housing goals, which are very important, they did 
not reach poor people. And so, the Housing Trust Fund is--the 
reason that we established it is so that we, in fact, have a 
way to come up with a dedicated revenue source to get to rental 
housing for extremely poor people.
    And so, we would like a good portion of that to have the $5 
billion to go to the Housing Trust Fund, which is not going to 
do the kinds of things that we need to do to create access to 
home ownership for middle income families.
    Senator Warren. So the point I just think I wanted to make 
sure that we are clear on, one is not a substitute for the 
other?
    Ms. Crowley. No, no.
    Senator Warren. And we have got to look at both of these 
independently. I see that I am running low on time and the 
Chairman has been so gracious to let me go over so many times. 
I will quit now, but I do have a question for the record about 
duty to serve and how we make sure that that reaches rural 
communities and low-income communities. So I will add that as a 
question. Thank you.
    Chairman Johnson. Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman, and thanks to 
the Ranking Member. I think these are have been extraordinarily 
helpful, especially for some of the newer Members who have not 
been in the trenches for years and years, kind of looking at 
housing struggles, and certainly affordability is one of the 
biggest challenges we have as we look forward.
    Arguably, one of the biggest challenges we have today in 
North Dakota is housing. We have a huge economic boom, and 
which you can all say are you not lucky, but the person who is 
working at the grocery store making $15 an hour who cannot 
afford to live and is living in their car do not feel so lucky.
    And so, one of the questions that I have is how we define 
affordability, and a lot of this is based on national standards 
on, you know, taking a look at what housing costs are. When you 
tell people in Dickinson, North Dakota, half-a-million-dollar 
house does not buy you much, you might all look at me like I am 
crazy, but it is the truth.
    And so, my question is, do you think there is enough 
flexibility in this effort to accommodate for regional 
variances and for, you know, kind of boom times, which really 
have a huge affordability impact on those who are not getting--
opening up their mailbox and getting a $1,000 check every week 
from the oil industry. I would ask anyone on the panel to 
respond.
    Mr. Handelman. Sure. So I will start. I would say one of 
the strengths not just of the trust fund, but the Capital 
Magnet Fund, but of the way affordable housing is, in general, 
delivered is that it is tied to area median income, which is 
imperfect, but pretty good at addressing some of the challenges 
you identified.
    If there is a local boom in income, which then pushes up 
rent and pushes up housing costs, both of those can be 
captured. There is sometimes a lag, right, because Government 
data take awhile to work through the machine. But the way 
different programs are structured, so, for instance, HUD 
Section 8 program is tied to the fair market rent, which is a 
survey everywhere.
    Senator Heitkamp. Right.
    Mr. Handelman. Imperfect, but it gets to some of that 
variation.
    Senator Heitkamp. If I can just interrupt you there?
    Mr. Handelman. Sure.
    Senator Heitkamp. Section 8 has become irrelevant in 
western North Dakota. Those vouchers have been moved east 
because they do not accommodate the increased housing costs. 
Now we are in the third or fourth year of this and they have 
not caught up. And so, not to belabor this point, but this is 
something that I want to kind of lay down the marker on that. 
We need to have more flexibility for other parts of the 
country.
    Dr. Crowley, I really appreciate your response on Native 
American housing, and I want to ask this question and I know 
that it is not necessarily directly related to this bill 
itself. The Income Tax Credit Program, which is a program that 
States have the ability to allocating those resources, have you 
seen those income tax credit programs work effectively in 
Indian country throughout the United States?
    Ms. Crowley. You mean the Low-Income Housing Tax Credit 
Program? My understanding is that it has not reached Indian 
country very well, and part of the problem is that the people 
who live in Indian country are too poor to be able to afford 
the minimum rents that are required in tax credit properties.
    For tax credit properties, the rent is set at a flat amount 
and they are not required to be targeted to the very poorest 
people. So unless you have other subsidies, tax credits are not 
very useful in Indian country.
    Senator Heitkamp. So this very significant program across 
the country is not particularly responsive. The other thing I 
would tell you is that you need someone who wants to use those 
credits, who is willing to come to Indian country and do the 
development, and that has also been a problem.
    Finally, and following up on Senator Warner's line of 
questioning, we have tried to find some kind of actual economic 
verification of the impact of the affordable housing goals, you 
know, actually quantified. Can I just--you do not need to 
respond to this now, but can I ask that, to the extent that you 
have actual data, hard data on the impact as we have discussed 
here, that you could provide it, certainly to my office and 
maybe any other Member who would interested in seeing that?
    Because we are having this discussion about the affordable 
housing goals, and I think it is really important that we 
operate on not emotion, but on fact. And so, I would appreciate 
if you would submit that information for the record and provide 
it to my office.
    Ms. Crowley. OK.
    Senator Heitkamp. Thank you.
    Chairman Johnson. Senator Hagan.
    Senator Hagan. Thank you, Mr. Chairman. Thanks for Senator 
Johnson and Crapo for hosting--holding this today.
    I want to start out by welcoming Rick Judson to the panel. 
Rick is a North Carolinian. He is a home builder who has been 
in the industry building single family, multifamily, commercial 
projects for 30 years, and he is the owner of the Evergreen 
Development Group in Charlotte. So, Mr. Judson, thank you for 
joining us today on the panel.
    I wanted to start off with a question for you. Talking 
about access and affordability of the housing. In your 
testimony, you highlighted the shift that is taking place today 
as children of the baby boom generation are beginning to form 
households. These are the young adults today that were born in 
the 1980s and the 1990s, primarily.
    So can you talk about this demographic shift that is 
playing out, not only in North Carolina, obviously with your 
background, but also how this demographic shift is actually 
impacting access and affordability in the housing market? And 
do you believe that housing finance reform can help alleviate 
some of these affordability concerns for this cohort group of 
the echo boomers?
    Mr. Judson. I will answer that question--thank you--with an 
example, a specific example, and it is typical of what exists 
across the country. I have a project in Charlotte that is an 
infill project, 190-unit townhome project. The profile of the 
buyer is all the same: Young, first-time professional buyers, 
my children, our children, that era.
    The community was selling very robustly until the market 
tanked a few years ago. The same profile buyer is now renting 
in that project. They are afraid to buy. It is not that they 
cannot qualify, it is not that their social fabric has changed. 
Their income is still good. It is the uncertainty of the 
market. Are they concerned about their jobs? Yes. Are they 
concerned about rising interest rates? Yes.
    They are equally concerned about what they have heard for 3 
years about qualifying for a loan. They are of the mentality 
that they have to put down 20 or 25 percent when, in fact, 
there are programs and should be programs that support a 
qualified buyer to purchase a home, that first home.
    The adage in our industry is if you do not buy the first 
home, you will certainly not buy the second or the third. And 
it is that first-time buyer that represents 35, almost 40 
percent, in some cases, of the housing stock in this country, 
which is 17 percent of the GDP.
    So long story short, the financial reform will help the 
market. It will help stabilize the market. It will create 
certainty for the market and it will create a sense of 
confidence in that first-time buyer who is a qualified buyer. 
This is not a no-doc loan or some of the things that got us in 
trouble in the past, but it is a legitimately well underwritten 
product.
    Senator Hagan. Do you see things changing now? Are things 
getting better?
    Mr. Judson. The market is improving because the confidence 
of the general consumer is improving. They are finding there is 
opportunity. There is a supply/demand scenario that is moving 
people off the fences and out of our basements into purchasing 
their own home because they feel better and brighter future 
opportunity as we move through this.
    Senator Hagan. Thank you. Dr. Crowley, in North Carolina 32 
percent of the households, as Mr. Judson was saying, are 
renters, and we have got close to 300 households that have 
extremely low income, meaning a family of four with income less 
than $17,300. So over 75 percent of those families spend more 
income on housing cost than--on housing cost and utilities. 
They spend more than 75 percent of their income on their 
housing and utilities.
    Would you agree that providing a dedicated source of 
funding for the National Housing Trust Fund in GSE reform could 
help to alleviate the affordable housing strains that we are 
seeing, at least in my State in North Carolina, and how exactly 
would the Trust Fund actually accomplish that?
    Ms. Crowley. The answer is yes, and I do agree with that, 
and the specifics is that the Trust Fund is dollars that would 
be distributed to the Governors and the Governor would develop 
a plan for how to use those dollars. There is a great deal of 
flexibility in what they can do with the dollars, except that 
the dollars primarily have to benefit precisely the population 
that you are talking about.
    Ninety percent of the dollars have to be for rental 
housing; at least 75 percent have to benefit extremely low-
income households. But how they do that, if they build new 
housing, if they want to rehabilitate housing, if they want to 
create operating subsidies to go along with Trust Fund-funded 
housing, those are the things that the legislation allows them 
to do in a way that fits local markets.
    Senator Hagan. Thank you, Mr. Chairman.
    Chairman Johnson. Thank you again to all of our witnesses 
for being here with us today. I also want to thank Senator 
Crapo and all of my colleagues for their ongoing commitment to 
examine this topic in detail. This hearing is adjourned.
    [Whereupon, at 11:37 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]
                PREPARED STATEMENT OF HILARY O. SHELTON
  Washington Bureau Director and Senior Vice President for Policy and 
                            Advocacy, NAACP
                            November 7, 2013
    Good morning, Senator Johnson, Senator Crapo, and esteemed members 
of this panel. Founded more than 104 years ago, in February of 1909, 
the National Association for the Advancement of Colored People, the 
NAACP, is our Nation's oldest, largest, and most widely recognized 
grassroots based civil rights organization. We currently have more than 
2,200 membership units across the Nation, with members in every one of 
the 50 States.
    My name is Hilary Shelton, and I am the Director of the NAACP 
Washington Bureau and the Senior Vice President for Policy and 
Advocacy. I have been the Director of the NAACP Washington Bureau, our 
Association's Federal legislative and political advocacy arm, for over 
16 years.
    Owning a home remains the American dream. For many, it represents a 
degree of financial success as well as an opportunity to build and 
retain wealth, which in turn can be passed down to future generations, 
used as collateral for college tuition, or used as a nest egg in one's 
senior years. Our Nation, our communities, and our people, all benefit 
from safe, affordable, secure housing, whether it be through home 
ownership or rental housing. Furthermore, it has been estimated that 
the housing market currently generates more than $10 trillion per year 
in domestic economic activity. Given that our Nation's overall economic 
activity is estimated at roughly $17 trillion, we all have a vested 
interest in a healthy housing market.
    Yet the communities served and represented by the NAACP have long 
been underserved by the housing market; were, for decades targeted by 
predatory lenders; and, as a result have been denied the opportunity to 
build wealth through housing or worse yet have had their wealth 
stripped from them because they, like almost every other person in our 
Nation, were chasing the American dream. Furthermore, many of our 
communities, in fact a disproportionate number of communities of color, 
continue to suffer from the foreclosure crisis and continue to be 
neglected by too many mainstream financial institutions.
    As Congress considers and debates the future of the housing market 
and the role to be played by the Federal Government, I cannot stress 
enough how important it is that any future housing finance system must 
affirmatively establish pathways to sustainable and affordable home 
ownership for a wide range of qualified buyers as well as assure an 
adequate supply of safe and affordable rental homes. It is vital that 
the Federal Government uses its authority and its might to ensure that 
the secondary market serves all borrowers in a fair and equitable 
manner, and that some of the profits from the housing market be 
reinvested in the American people and in our economy through the 
construction, renovation, and preservation of safe and affordable 
rental housing.
The Origins and the Impact of the Housing Crisis on Communities of 
        Color
    The 2008 ``burst'' of the housing bubble had repercussions which 
are still being felt today, especially in communities of color across 
the United States. An estimated 4.5 million homes have been foreclosed 
upon since the crisis began, \1\ and many more are still at risk of 
foreclosure. Due largely to the targeted predatory lending which had 
been going on for years in communities of color, the rate of 
foreclosures is currently twice as high for borrowers of color when 
compared to white borrowers. \2\
---------------------------------------------------------------------------
     \1\ http://www.nasdaq.com/article/1-in-5-predicted-to-default-
cm95228
     \2\ Center for Responsible Lending, ``State of Lending in 
America'', December 2012, available at: http://
www.responsiblelending.org/state-of-lending/reports/3-Mortgages.pdf.
---------------------------------------------------------------------------
    In addition to the households actually facing the prospect of 
foreclosure, the crisis has also impacted homeowners who live in 
neighborhoods with high levels of foreclosures. This so-called 
``spillover'' effect has reduced property values and home equity for 
many homeowners, including a large number of homeowners of color. One 
study estimated that racial and ethnic minority neighborhoods will lose 
$1 trillion in home equity because of the impact that homes going 
through the foreclosure process has on overall neighborhood property 
values, fully half of the overall national total. \3\ Furthermore, too 
many homeowners have found that as a result of unscrupulous loans and 
the ``spillover'' effect their homes are now ``underwater,'' whereby 
they owe more than their home is currently worth.
---------------------------------------------------------------------------
     \3\ Center for Responsible Lending, August, 2013, available at: 
http://www.responsiblelending.org/mortgage-lending/research-analysis/
2013-crl-research-update-foreclosure-spillover-effects-final-aug-19-
docx.pdf.
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    One result of this disproportionate impact of the foreclosure 
crisis on communities of color has been that they have, in recent 
times, suffered a disproportionately extreme loss of wealth. Between 
2007 and 2010, African Americans lost an estimated 31 percent of their 
wealth; Hispanic families lost 44 percent of their wealth; and White 
families lost 11 percent. \4\
---------------------------------------------------------------------------
     \4\ Signe-Mary McKernan, Caroline Ratcliffe, C. Eugene Steuerle, 
and Sisi Zhang, ``Less Than Equal: Racial Disparities in Wealth 
Accumulation'' (Washington, DC: The Urban Institute, 2013).
---------------------------------------------------------------------------
    A study by the Federal Reserve Bank of San Francisco found that 
CRA-eligible loans made in California during the subprime boom were 
half as likely to go into foreclosure as loans made by independent 
mortgage companies (Laderman and Reid, 2008).
    Despite the disproportionately devastating impact the housing burst 
and foreclosure crisis has had on communities of color across the 
United States, there is strong evidence to indicate that we neither 
profited from the calamity nor did we cause it.
    According to the Financial Crisis Inquiry Commission, the crisis 
was triggered by the rapid growth in the origination and securitization 
of subprime loans in the private-label market. \5\ Furthermore, 
according to a careful analysis of the housing crisis released just 
last year by the Federal Reserve Bank of St. Louis, Fannie Mae and 
Freddie Mac's affordable housing goals were not to blame for the rapid 
increase in subprime originations. Although Fannie and Freddie 
purchased securities backed by subprime loans, and some of those 
purchases helped fulfill their affordable housing goals, the study's 
authors found that the housing goals had no impact on either the number 
of subprime loans originated or the price of those loans in the 
private-label market. \6\
---------------------------------------------------------------------------
     \5\ Financial Crisis Inquiry Commission, ``The Final Crisis 
Inquiry Report'', January 2011.
     \6\ Ruben Hernandez-Murillo, Andra C. Ghent, and Michael T. 
Owyang, Federal Reserve Bank of St. Louis, ``Did Affordable Housing 
Goals Contribute to the Subprime Securities Boom?'' (Aug. 2012), at 
http://research.stlouisfed.org/wp/2012/2012-005.pdf.
---------------------------------------------------------------------------
    In short, while the communities served and represented by the NAACP 
have suffered disproportionately from the housing crisis and subsequent 
recession, they were not caused by laudable affordable housing goals. 
Nor was the housing crisis caused by compliance with the Community 
Reinvestment Act, as some have tried to claim. In fact, studies show 
that loans made to low-wealth homebuyers as part of banks' efforts to 
meet their CRA obligations have actually performed better than the rest 
of the subprime market. \7\
---------------------------------------------------------------------------
     \7\ In an analysis of CRA-motivated loans sold to CRL's affiliate 
Self-Help, a community development financial institution (CDFI), Ding, 
Quercia, Ratcliffe, and Li (2008) found that the default risk of these 
loans was much lower than subprime loans made to borrowers with similar 
income and credit risk profiles.
---------------------------------------------------------------------------
    Rather, the source of too many of our economic woes was the desire 
of Fannie and Freddie to make money for their private stakeholders, and 
the willingness of the private-label market to accommodate their 
desires. To quote an esteemed member of this panel, the gracious and 
brilliant Senator from Massachusetts, who happens to be a former 
professor at Harvard specializing in bankruptcy law and who helped 
create the Consumer Financial Protection Bureau, ``Affordable housing 
goals have been scapegoated by those who have been itching to get rid 
of the goals for a long time, but I think it's time to drop that red 
herring.'' \8\ The NAACP could not agree more.
---------------------------------------------------------------------------
     \8\ Senator Elizabeth Warren, Speech Before the Mortgage Bankers 
Association, Washington, DC, October 29, 2013.
---------------------------------------------------------------------------
Necessary Elements of Genuine Reform
    Chairman Johnson, Members of this Committee, I do not need to tell 
you that the American housing market is incredibly complicated and 
complex; its needs and fortunes vary from region to region, income to 
income, and year-to-year. Nobody, including me, has all the answers to 
reforming the current system, ensuring that all the housing needs of 
the American people are met, and reducing if not eliminating the risk 
to tax payers of another bailout and another recession.
    Yet I do know that as we take steps to reform the housing market we 
must do all that we can to ensure that every American has access to 
safe, affordable, sustainable housing. For low income Americans, this 
means that we must ensure that there is an adequate stock of safe and 
affordable rental units throughout the country, and for qualified, 
middle income Americans this means that we must make sure that 
sustainable, affordable mortgages are available.
    Nationwide, there are currently approximately 7.1 million American 
households for whom even a modest rental home is unaffordable and 
unavailable. Families in this situation find themselves making 
impossible choices between food, clothing, medicine, and rent. When 
illness, job loss or other tragedy strikes, they often become homeless. 
The NAACP has long been a strong supporter of the National Housing 
Trust Fund (NHTF) and as such, we are extremely pleased to see the 
current debate focusing on how to best ensure that it is fully and 
adequately funded, not if it should be funded at all.
    In short, a solid stock of safe and affordable rental housing, such 
as that which could be supplied by the NHTF, is sufficiently important 
to the NAACP that we were pleased when the original source of funding 
for the NHTF was a dedicated source of revenue, namely contributions 
from Freddie Mac and Fannie Mae. In these days of sequestration and 
other budgetary cuts, this meant that the NHTF would not be subjected 
to the annual budget process. Furthermore, we felt strongly that the 
NHTF should never compete with existing HUD programs. Yet as history 
has shown us, the GSE funding stream proved to be unstable, and as a 
result, crucial funding for the NHTF has been suspended.
    With this history in mind, and given that at least 90 percent of 
the funds set aside for the NHTF must be used for the production, 
preservation, rehabilitation, or operation of rental housing, and that 
it is intended to help extremely low income and very low income 
households, I will reiterate the NAACP's support for an inclusion of a 
consistent, adequate funding stream for the NHTF in any GSE reform. The 
NAACP is confident that the NHTF, once fully funded, will go a long way 
towards addressing many of our Nation's most urgent housing needs. The 
NAACP is dedicated to working with Members of Congress, the 
Administration, and private nonprofit groups at the local, State, and 
Federal levels to ensure that consistent, adequate funding for the NHTF 
is included in any GSE reform.
    In addition to ensuring adequate, affordable rental stock, the 
future housing finance system must also affirmatively establish 
affordable, sustainable pathways to home ownership for all qualified 
buyers.
    Allow me to back up a little, to the late 1990s and the early 
2000s. As I have previously stated, targeted predatory lending--
offering mortgages to people which were much more expensive than what 
they qualified for and which they could not afford--was rampant in the 
communities of color across the United States. These subprime loans 
were driven by greed, pure and simple, and they played upon the desire 
of people to live in their own homes. These nefarious loans were 
abetted and often encouraged by legal policies and practices such as 
steering and yield spread premiums.
    Every time the NAACP or other, like-minded groups spoke out in 
opposition to these predatory policies and practices we were told that 
making them illegal would be contrary to ``Preserving access to 
credit.'' It took the financial crisis of 2008 to get to the point at 
which our words sank in. In 2010, we were finally able to pass 
legislation, the Dodd/Frank Wall Street Reform bill, to curb many of 
these abuses. The NAACP strongly supported the enactment of Dodd/Frank, 
and we continue to support the strong regulations which are resulting 
from it; regulations which we believe will strengthen the underlying 
market.
    Ensuring that all Americans have access to fair and sustainable 
credit opportunities is crucial to our sustained economic recovery. The 
Federal Government is obligated to promote nondiscrimination, 
residential integration, and equal access to the benefits of decent and 
safe housing and ownership opportunities. Therefore, any reform of the 
secondary market must require all lenders and securitizers receiving a 
Government guarantee of any kind to affirmatively market and offer 
credit in a manner that promotes equal opportunity in all 
neighborhoods.
    The receipt of Federal support, including insurance and guarantees, 
invokes the mandate to affirmatively further the objectives of the Fair 
Housing Act. Therefore, the delivery of Government-supported mortgage 
credit or rental financing cannot be withheld from any geographic 
location or neighborhood. Instead, the delivery infrastructure must 
make deliberate provisions for the flow of credit to all qualified 
borrowers and neighborhoods. Moreover, the infrastructure must include 
a mechanism for monitoring and enforcing compliance, both by the 
Government and the public. Simple, transparent, and timely data must be 
made publicly available to measure the market's progress in providing 
fair, sustainable capital to underserved people and communities.
    Furthermore, without an obligation to serve all markets, 
communities of color in particular will find it extremely difficult to 
access mortgage credit. Without a duty to serve all communities, as is 
dictated by the Community Reinvestment Act, private capital will 
gravitate to the elite homebuyers--those with traditional borrowing 
profiles--while middle class and first time homebuyers, as well as 
purchasers of color--will be left without. This will result in the 
exacerbation of an unsustainable housing finance market in which 
qualified but lower-wealth and lower-income buyers, especially 
minorities, will be underserved. Sadly this trend is already evident; 
the private market overwhelmingly caters to traditional borrowers in 
well-served locations. \9\
---------------------------------------------------------------------------
     \9\ Bhutta, Neil, and Glenn B. Canner. 2013. ``Mortgage Market 
Conditions and Borrower Outcomes: Evidence From the 2012 HMDA Data and 
Matched HMDA-Credit Record Data'', Federal Reserve Bulletin. http://
www.federalreserve.gov/pubs/bulletin/2013/pdf/2012_HMDA.pdf. Accessed 
on October 25, 2013.
---------------------------------------------------------------------------
    This trend does not just harm borrowers in minority communities, 
but rather the whole housing sector. Although African Americans and 
Hispanics are already significant segments of the housing market, they 
are projected to be an even larger portion of the market over the next 
10-20 years. According to the Joint Center for Housing Studies at 
Harvard, minorities will account for 70 percent of net new households 
over this period and 33 percent of all households by 2020. These 
households will be younger than traditional borrowers and will likely 
have lower incomes and less credit history. These new borrowers will 
therefore need access to affordable housing credit. Without affordable 
access to credit for these prospective buyers, there will be a large 
supply of housing stock left unsold, leading to decreasing prices and 
wealth. \10\
---------------------------------------------------------------------------
     \10\ Joint Center for Housing Studies of Harvard University. 2013. 
``The State's of the Nation's Housing'', Harvard University. http://
www.jchs.harvard.edu/sites/jchs.harvard.edu/files/son2013.pdf. Accessed 
on October 25, 2013.
---------------------------------------------------------------------------
    Thus, it behooves all of us to ensure the availability of safe, 
sustainable, credit access and affordability for all homeowners and 
prospective homeowners alike. Reforming our Nation's current housing 
finance system requires a great balance. Reform must facilitate a 
stable, liquid secondary market--accessible to small and large lenders 
alike--which will extend credit and capital on an equitable basis to 
all qualified borrowers and in all communities. While the NAACP does 
not agree with every provision in the legislation proposed by Senators 
Corker and Warner (especially provisions which will negatively and 
disproportionately affect racial and ethnic minorities, including the 
mandated 5 percent downpayment), and we will be quick to point out 
areas in which the proposed legislation is lacking, we do congratulate 
them on moving the debate forward. Likewise, we are strongly encouraged 
by these hearings, being held by Chairman Johnson and Ranking Member 
Crapo, intended to look into necessary elements of GSE reform.
    Members of this esteemed panel, I look forward to your questions, 
to the ensuing debate regarding GSE reform, and to working with you to 
ensure that any reform will benefit all homebuyers, renters, and our 
Nation as a whole. Thank you again for holding this hearing and for 
seeking the perspective of the NAACP.
                                 ______
                                 
                   PREPARED STATEMENT OF RICK JUDSON
            Chairman, National Association of Home Builders
                            November 7, 2013
    Chairman Johnson, Ranking Member Crapo, and Members of the 
Committee, I am pleased to appear before you today on behalf of the 
National Association of Home Builders (NAHB) to share our views on 
housing finance reform and the essential elements needed to provide 
affordable options for housing. My name is Rick Judson, and I am a 
builder/developer from Charlotte, North Carolina, and NAHB's 2013 
Chairman of the Board.
    NAHB represents over 140,000 members who are involved in building 
single family and multifamily housing, remodeling, and other aspects of 
residential and light commercial construction. NAHB's members construct 
approximately 80 percent of all new housing in America each year, and 
many of our builders rely on the programs of the Department of Housing 
and Urban Development (HUD), (most involving the Federal Housing 
Administration, FHA) and the U.S. Department of Agriculture's Rural 
Housing Service (RHS) to help provide decent, safe, and affordable 
single family and multifamily housing to many of our fellow citizens.
    We believe that an effective housing finance system must address 
liquidity as well as affordability and that those two elements are very 
closely related. Therefore, while it is important that the system 
provide housing credit at affordable terms as well as address specific 
housing needs, it is also essential that credit is consistently 
available on those terms regardless of domestic and international 
economic and financial conditions.
    NAHB is a strong proponent of housing finance system reform and 
feels significant changes should occur in the conventional mortgage 
market, where Fannie Mae and Freddie Mac currently account for almost 
all activity. NAHB supports steps to increase the role of private 
capital but does not believe the market can rely exclusively on private 
sources. Recent experience demonstrates that private players are 
unwilling or unable to participate in periods of extreme economic and 
financial distress.
    NAHB also believes that the future housing finance system must be 
viewed as more than the private conventional market. The array of 
Federal Government programs that have been developed over the years in 
response to identified needs are essential elements in ensuring that 
there are affordable options for providing housing. Thus, this 
testimony includes NAHB's position on how those programs contribute to 
the national housing finance system.
Demographic and Economic Overview
    The underlying demographics of the U.S. forecast a continuing rise 
in demand for housing over the next two decades. A combination of 
record births and past immigration will produce over four million 
people moving into prime household formation ages every year for at 
least the next 20 years. These young people, primarily the children of 
the baby-boom generation, will form their own households as they age 
into the 25- to 34-year old cohort. These younger households were among 
the hardest hit by the economic recession, reducing household formation 
rates by more than most other age groups.
    While older households have largely recovered from household 
arrangement setbacks, younger households are still struggling to return 
to prerecession headship rates. And despite having lower headship rates 
than older segments of the population, these younger households are 
expected to add 2.4 million units to total housing demand over the next 
10 years. Given their economic vulnerability, affordability will be key 
to recovery for these households.
    Most newly formed households are just beginning their employment 
career and will not have large downpayments or lofty credit scores. 
Current extra tight underwriting standards have made mortgage 
attainment even more difficult for younger families. Student debt 
responsibilities and lower starting salaries and wages compound the 
ability for younger individuals to transition to home ownership without 
access to affordable opportunities.
    In addition to the oncoming demand, NAHB estimates that two million 
households did not form during the recession and represent an 
additional pent up demand that will come to the housing market as the 
economy improves and hiring returns to more normal levels. Many young 
and not so young individuals either did not launch into an independent 
household or returned to live with their parents, relatives or friends 
after losing their job or experiencing a significant reduction in 
income. NAHB expects these individuals to establish their own home and 
be in the market for an apartment or owned home as the economy expands.
    Providing affordable homes will also present a challenge to home 
builders as the cost of ingredients rises. Builders are paying more for 
labor, land, and building materials. As discussed later, builders 
continue to have difficulty accessing production credit from the 
traditional financial institution sources and have turned to 
nontraditional equity and debt sources that cost more.
    Land development for homes ceased to take place during the Great 
Recession and building that capacity and process back up has taken 
time. In many revived and reviving markets, lots for single-family 
homes are very scarce, and prices have been bid up beyond what could be 
supported by current selling prices of completed homes. Construction 
workers found other sources of employment during the building collapse 
and can only be attracted back to home building with higher wages. 
Building material prices are back to or near the levels of 2005 when 
production was at two million homes. Production currently is less than 
one million, but while waiting for the material-producing industries to 
get back to capacity, prices have risen for the major building products 
like lumber, plywood, and drywall.
Current Restrictions and Gaps in the Market
    The ability of the home building industry to meet the demand for 
housing, including addressing affordable housing needs, and contribute 
significantly to the Nation's economic growth is dependent on an 
efficiently operating housing finance system that provides adequate and 
reliable credit to home buyers and home builders at reasonable interest 
rates through all business conditions.
    At present, home buyers and builders continue to confront 
challenging credit conditions weighed down by strict underwriting 
requirements and an uncertain future regulatory environment. For home 
buyers, while mortgage rates have fallen to record lows, access to 
mortgage credit is limited to those with pristine credit histories who 
can qualify for Government-backed programs. Presently, FHA, VA, Fannie 
Mae, and Freddie Mac (the Enterprises) account for more than 90 percent 
of mortgage originations.
Credit Overlays
    Lender overlays in the mortgage credit process have been flagged as 
a major element in the greater difficulty potential home buyers are 
having in obtaining financing as lenders are imposing credit 
underwriting standards that are more restrictive than FHA, VA, Fannie 
Mae and Freddie Mac require. These credit overlays are employed due to 
heightened lender concerns over forced loan buy-backs on mortgages sold 
to Fannie Mae and Freddie Mac and/or greater required indemnifications 
on FHA-insured and VA-guaranteed loans.
    While FHA and the Federal Housing Finance Agency (FHFA), which 
regulates Fannie Mae and Freddie Mac, have announced efforts to 
encourage lenders to refrain from excessive mortgage credit 
requirements, lender concerns about how Federal agencies will implement 
repurchases and indemnifications continue to constrain credit 
availability. This is evidenced by the sharp increase in average credit 
scores for new Enterprise loans from about 720 in 2006 to 760 in 2012. 
For FHA loans, average credit scores have jumped from around 650 in the 
early 2000s to 756 in 2012. According to the 2013 State of the Nation's 
Housing Report, these trends largely reflect the evaporation of loans 
to borrowers with weaker credit histories. ``In 2007, borrowers with 
credit scores below 620 accounted for 45 percent of FHA loans. By the 
end of 2012, that share was under 5 percent.'' \1\ Similar trends are 
evidenced in the share of first-time home buyers which accounted for 28 
percent of home sales in September 2013, well below the historical 
average of about 40 percent.
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     \1\ Joint Center for Housing Studies of Harvard University, 
``State of the Nation's Housing 2013'', p. 19.
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Regulatory Constraints
    The regulatory environment for mortgage lending is undergoing 
significant changes as regulators implement new rules mandated by the 
Dodd-Frank Act. Uncertainty about the eventual regulatory landscape is 
another key factor that has tightened access to mortgage credit. 
Attempts by lawmakers and regulators to prevent a repeat of the housing 
boom/bust and the financial crisis by purging risk from mortgage 
lending has further tightened the credit box.
    NAHB supports steps to ensure that mortgage lending occurs in a 
safe and sound manner, with appropriate underwriting, prudent risk 
management and sound consumer safeguards and disclosure. NAHB believes 
that loans should be carefully underwritten and adequately disclosed. 
NAHB also believes that it is critical that mortgage lending reforms 
are imposed in a manner that causes minimum disruptions to the mortgage 
markets, while ensuring consumer protections.
    The release of the final Ability to Repay (ATR) standard by the 
Consumer Financial Protection Bureau (CFPB), which will take effect on 
January 10, 2014, has alleviated some of the regulatory uncertainty by 
defining new requirements and liabilities on lenders, but will 
undoubtedly create new hurdles for borrowers. The ATR rule establishes 
standards for complying with the ability-to-repay requirement by making 
a ``qualified mortgage'' (QM). The CFPB included a safe harbor in the 
definition of a QM that would provide some assurance to lenders that 
they will not be subject to increased litigation if they use sound 
underwriting criteria. The safe harbor would apply to lower-priced 
loans that are typically made to borrowers who pose fewer risks. 
However, the CFPB also included a ``rebuttable presumption of 
compliance'' for higher-priced loans typically for consumers with 
insufficient or weak credit history. Additionally, the QM includes a 3-
percent cap on points and fees, which is a new calculation that has to 
be incorporated into the mortgage approval process.
    The ATR provides a new framework for all mortgage lending. To the 
extent that lenders will remain cautious during the transition and 
beyond, creditworthy borrowers may not have access to affordable 
mortgage credit, or may be left out of the credit box all together. 
Reports also are surfacing about the challenges that lenders are 
experiencing in preparing their systems for operation under the ATR and 
QM regulations.
    NAHB was pleased in August when the six Federal agencies 
responsible for implementing the credit risk retention requirements 
mandated by the Dodd-Frank Act reissued a proposed rule with a revised 
definition of a ``qualified residential mortgage'' (QRM) that would 
equate with the definition of the QM. Aligning the QRM with the QM has 
many benefits. Establishing one streamlined regulation, instead of 
having two separate sets of underwriting criteria, will alleviate 
confusion in the marketplace and will provide clarity and transparency 
for home buyers, lenders, investors and other housing market 
participants. Additionally, the underwriting criteria and product 
limitations contained in the QM will promote more prudent lending and 
will provide investors with an assurance that the loans are 
sustainable.
    NAHB is supportive of ensuring safe, well documented, and soundly 
underwritten loans without limiting the availability, or increasing the 
costs of credit to borrowers. Aligning QRM with QM levels the playing 
field, promotes liquidity in the mortgage market and allows access to 
credit for a diverse range of home buyers, particularly first-time and 
low- to moderate-income home buyers. If the QRM is too restrictive, 
this important group of home buyers will have to rely on Government 
programs or potentially risky mortgage products for low-downpayment 
options. Encouraging private capital to provide mortgages with 
reasonable terms to a broad range of home buyers is imperative to 
support a sustained housing market recovery.
Commercial Real Estate
    The proposed credit risk retention rule also sets forth the 
underwriting standards for a ``qualified commercial real estate loan'' 
(QCRE), which is presumed to be a low-risk loan. In the revised 
proposed rule, the agencies made modifications to their originally 
proposed criteria.
    NAHB appreciates and supports the agencies proposed modifications. 
However, NAHB remains concerned that the regulators did not make 
distinctions among the different asset types included in CRE loans 
(hotel, retail, multifamily, office, etc.) in setting underwriting 
standards, except for the debt service coverage and amortization period 
of the loan. NAHB believes that it is not appropriate to apply the same 
standards to different classes because there are significant 
differences in property features, lease structures, tenant 
characteristics, etc., that affect how a CRE property is underwritten.
    NAHB believes the QCRE is an important component of the credit risk 
retention requirements and setting an appropriate QCRE standard will be 
key to minimizing the impact on borrower financing costs for 
multifamily borrowers. To the extent that risk retention requirements 
raise multifamily financing costs, there will be an impact on rents. 
Higher rents have an immediate impact on renter households' budgets. 
For aspiring homeowners, higher rents also mean that it will take 
longer to save for a downpayment on a home. In addition, for other 
types of commercial properties, higher rents affect companies' ability 
to grow, and thus negatively impact job creation.
    NAHB is concerned that, if not properly implemented, the credit 
risk retention regulations will further restrain credit to the 
multifamily housing sector. In addition to the adverse impact on 
families seeking affordable rental homes, such disruptions in the 
market have the potential to slow down the job creation and monetary 
contributions to the economy that are currently fueled by multifamily 
construction.
Importance of Federal Government Backstop
    As stated earlier, NAHB's priority in housing finance system reform 
is ensuring liquidity for the housing sector in all markets throughout 
the economic cycle. This is only possible if market participants know 
there is a Federal Government backstop that will maintain stability in 
catastrophic circumstances. While NAHB agrees that the current degree 
of Government intervention is unsustainable, an ongoing, though more 
limited, Government role must be maintained to avoid future 
interruptions in the flow of credit to mortgage borrowers.
    NAHB recommends establishing a new securitization model for single 
family and multifamily mortgages where Fannie Mae and Freddie Mac would 
be transitioned to private housing finance entities that would 
aggregate mortgages into securities for sale to investors worldwide. 
\2\ Private capital from mortgage originators and securities issuers 
would be in the first loss position but the principal and interest for 
investors in the mortgage-backed securities would be guaranteed through 
a privately capitalized, federally backed insurance fund. Only 
mortgages with reasonable and well understood risk characteristics 
would be eligible to serve as collateral for Government-backed mortgage 
securities, and the system would be overseen by a strong and 
independent regulator.
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     \2\ The full details of NAHB's housing finance system 
recommendations are contained in ``A Comprehensive Framework for 
Housing Finance System Reform'', published by NAHB on February 9, 2012.
---------------------------------------------------------------------------
    The new housing finance system envisioned by NAHB is similar to 
that proposed in the Housing Finance Reform and Taxpayer Protection Act 
of 2013 (S.1217, Corker-Warner bill) which NAHB largely supports. In 
contrast, NAHB opposes the House Financial Services Committee-passed 
bill, H.R. 2767, the Protecting American Taxpayers and Homeowners Act 
of 2013 (PATH Act), which removes Government support to the 
conventional mortgage market. While NAHB agrees that private capital 
must be the dominant source of mortgage credit, the future of the 
housing finance system cannot be left entirely to the private sector. 
The historical track record clearly shows that the private sector is 
not capable of providing a consistent and adequate supply of housing 
credit without a Federal backstop.
    NAHB believes Federal support is particularly important in 
continuing the availability of the affordable 30-year fixed-rate 
mortgage (FRM), which has been a staple of the U.S. housing finance 
system since the 1930s. These loans are geared toward affordability; 
30-year terms lock in low monthly payments, allowing households with 
average incomes to comfortably budget for their home loan. Knowing 
their monthly housing costs will remain the same year in and year out 
regardless of whether interest rates rise provides households with a 
sense of financial security and also acts as a hedge against inflation. 
Many young buyers know that as their incomes rise, their housing costs 
will stay constant and become less of a burden, enabling them to 
prepare for other long-term obligations, such as college tuitions and 
retirement savings. In most instances, all of the interest and property 
taxes borrowers pay in a given year can be fully deducted from their 
gross income to reduce taxable income. These deductions can result in 
thousands of dollars of tax savings, especially in the early years of a 
30-year mortgage when interest makes up most of the payment.
    The key to the sustainability of the 30-year FRM is a 
securitization outlet because originators (banks and thrifts) do not 
have the capacity to hold such long-term assets which are funded with 
short-term deposits. Currently, Fannie Mae and Freddie Mac provide the 
securities vehicle along with a Government guarantee for investors. 
There are serious doubts on whether a private housing finance system 
would be capable of supporting this type of product without some 
Government backing. At a minimum, the cost and terms of 30-year FRMs 
would be significantly less favorable under a totally private system.
    A Government role is also essential for multifamily mortgage 
programs which also play a critical role in the overall health of the 
U.S. housing finance system. More than one-third of Americans live in 
rental housing and demand for rental housing in the future is expected 
to increase. As discussed further below, the multifamily sector 
performed much better than the single family housing market during the 
recent downturn. Multifamily loans held or guaranteed by Fannie Mae and 
Freddie Mac have very low default rates and the multifamily segments of 
both Enterprises are profitable. FHA also provides support to the 
multifamily market through the FHA multifamily mortgage insurance 
programs. Private market financing is not readily available for all 
segments of the multifamily market. Thus, there is a need to maintain a 
viable, liquid and efficient secondary market for multifamily rental 
financing where the Federal Government continues to play a role.
Future Cost of Housing Credit
    In a future housing finance system, where several layers of private 
capital stand in front of a Government backstop for catastrophic 
circumstances, the relative cost of housing credit would increase from 
current levels as home buyers ultimately bear the charges needed to 
attract the private capital and cover the cost of the Government 
guarantee. However, NAHB believes that such a system would entail lower 
housing credit costs than one that relied exclusively on private 
players. Also, as mentioned previously, a completely private system 
likely would be subject to inconsistent credit availability.
    With the prospect of higher mortgage borrowing costs, NAHB believes 
it is extremely important to make every effort to ensure that mortgage 
interest rates and fees do not increase more than is absolutely 
necessary to safely sustain the new system. The requirement in S.1217 
(Corker-Warner bill) that first-loss capital providers hold capital of 
10 percent of their risk exposure is excessive and would unnecessarily 
increase mortgage borrowing costs. A capital cushion of 4 to 5 percent 
would have been sufficient for Fannie Mae and Freddie Mac to sustain 
all of their losses during the recent decline in home prices and their 
current, more restrictive, book of business would require only a 2 to 3 
percent capital under such a drop in collateral values. \3\
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     \3\ Laurie S. Goodman and Jun Zhu, ``The GSE Reform Debate: How 
Much Capital Is Enough?'' Urban Institute Housing Policy Center Paper, 
October 23, 2013.
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    Guarantee fees or insurance premiums for the catastrophic 
Government backstop could be subject to similar inflation. It is 
important to base Federal guarantee/insurance charges on the universe 
of mortgage products and underwriting requirements that will be in 
place in the future rather than on products and protocols that are no 
longer in existence. Careful study should be undertaken to determine 
the level of private capital and Federal guarantee/insurance charges 
that are needed for a safe, sound, and sustainable future housing 
finance system.
A Multifaceted Housing Finance System Is Needed
    NAHB believes that the U.S. housing finance system should be 
multifaceted with both competing and complimentary components, 
including private, Federal, and State sources of capital liquidity. To 
ensure all markets are served, broad market participation should be 
encouraged. Barriers to entry to the secondary market should be a low 
as possible while balancing safety to the system. Compliance with 
regulatory requirements should not be more burdensome for smaller 
lenders--recognizing the unique role many small lenders have carved out 
for their communities.
To-Be-Announced (TBA) Market
    The to-be-announced (TBA) market plays a critical role in 
maintaining a liquid secondary market for mortgage-backed securities 
(MBS). Fannie Mae, Freddie Mac, and Ginnie Mae securities make up the 
TBA market, and liquidity in these agency mortgage-backed securities is 
key to an efficient marketplace and affordable interest rates. Agency 
MBS are comprised of relatively homogenous mortgage loans with known 
underwriting criteria and standard documentation.
    This well-defined marketplace supports the necessary fungibility to 
allow investors to buy and sell without the due diligence applied to 
non-TBA market securities and leads to the liquidity that is vital. TBA 
securities allow mortgage originators to lock-in interest rates to 
consumers by using the TBA securities to hedge their exposure to an 
increase or a decrease in interest rates before the mortgage loans 
close.
    Reforms to the secondary market system should take into account the 
potential impact on the securitization of mortgage loans and the 
issuance and trading of MBS to insure the liquidity of the TBA market 
is not negatively affected.
Federal Home Loan Bank System
    The Federal Home Loan Bank System (FHLBank System) is composed of 
12 member-owned regional cooperatives chartered by Congress to provide 
reliable funding for housing and economic development to their members. 
Membership in the FHLBank System includes community banks, thrifts, 
credit unions, insurance companies and Community Development Financial 
Institutions (CDFIs). Each day the Federal Home Loan Banks (FHLBs) lend 
billions of dollars to member institutions through secured loans called 
``advances'' to support the credit and financial needs of their 
members. Combined, the FHLBank System has 7,600 member institutions.
    NAHB believes the Federal Home Loan Banks should continue to exist 
and provide their member institutions access to housing credit and 
liquidity. The FHLBs offered the housing market significant stability 
during the mortgage credit crisis when many banks were unwilling or 
unable to provide mortgage credit. NAHB has advocated for the FHLBs to 
capitalize on their acknowledged solid performance and risk management 
strength and seek to expand their role in housing finance as housing 
finance reform is considered.
    Currently, the FHLBs can purchase mortgage loans from their member 
institutions but have only limited leeway to manage the resulting 
portfolios. NAHB believes the FHLBs would benefit from being allowed to 
aggregate loans from their members for sale to investors. A statutory 
change to allow the FHLBs to issue conventional mortgage-backed 
securities would significantly increase their value to members seeking 
enhanced access to the secondary market. In particular, small lenders 
would benefit from increased options for selling their loans to FHLBs 
rather than selling to large aggregators that may be less responsive 
and more expensive.
    In fact, NAHB was very pleased to see the recent announcement by 
the Federal Home Loan Bank of Chicago that it will begin issuing Ginnie 
Mae securities backed by mortgages originated by its member 
institutions. This is extremely innovative and will provide the access 
to the secondary market that many of its member institutions currently 
lack.
    Reform to the housing finance system must carve out a role for the 
FHLBs. NAHB would support an expanded role as long as any new lines of 
business, new mortgage programs, or statutory changes to the FHLB 
charters are considered carefully in order to avoid unintended 
consequences that might conflict with the FHLBs' existing authorities 
and primary activity of providing advances to members.
    As we think about ensuring affordability in a reformed housing 
finance market, the Federal Home Loan Banks should continue to support 
affordable housing through their Affordable Housing Program (AHP). 
Since 1990, each FHLBank has been required by statute to put aside 10 
percent of its net income each year toward grants for affordable 
housing. The AHP is designed to be local in nature. It is administered 
regionally by each FHLBank through its financial institution members 
and each member's community-based partners to insure the programs are 
designed to meet the specific needs of local neighborhoods.
Access by Community Banks
    While not having the dominant share of mortgage originations, 
community financial institutions originate a significant volume of 
mortgage loans. During the first quarter of 2013, $435 billion of 
mortgages were originated nationwide. Community banks and thrifts with 
less than $10 billion in total assets originated $55 billion of 
residential mortgage loans during the first quarter of 2013. \4\
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     \4\ ABA Federal Home Loan Bank Member Insights, October 10, 2013, 
Vol. 4, No. 1.
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    As the name implies, community banks offer financial services 
designed to meet the specific needs of their unique local markets. They 
are known particularly for serving rural areas and traditionally 
underserved markets. In the current environment of increased regulatory 
compliance requirements, tighter underwriting standards, and overall 
less availability of mortgage credit, it is important to be vigilant 
about the impact of housing finance reform on community banks and the 
mortgage borrowers they serve. Meeting the needs of their communities 
can mean these institutions are not originating standard products that 
can be sold in the secondary markets. This inability or difficulty to 
sell their loans to the secondary market can restrict their primary 
market activity.
    Over the years, community banks have sold their loans to large 
aggregators, including Fannie Mae and Freddie Mac, and have paid higher 
fees based on smaller volumes. In a new housing finance system, access 
and pricing should not be based on the volume of business or size or 
geographic location of the selling institution.
    Recently, community banks have been increasing their secondary 
market activity. Loans delivered to Fannie Mae and Freddie Mac by 
community banks have increased significantly from 2007 to 2012. For 
example, in 2007, only 3.6 percent of loans delivered to Freddie Mac 
came from outside the top 100 lenders. In 2012, this increased to 15.1 
percent of all loans at Freddie Mac. \5\ Access for community banks 
should be a priority when considering housing finance system reform.
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     \5\ Statement of Sandra Thompson, Deputy Director for the Division 
of Housing Mission and Goals, Federal Housing Finance Agency; 
Subcommittee on Securities, Insurance, and Investment, U.S. Senate 
Committee on Banking, Housing, and Urban Affairs, July 23, 2013, pp. 4-
5.
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    The Corker-Warner bill acknowledges the importance of providing 
access to the secondary mortgage market to community banks. As 
proposed, Corker-Warner would create the Federal Mortgage Insurance 
Corporation (FMIC) which would be required to ensure that credit unions 
and community and midsized banks have equal access to the common 
securitization platform. The FMIC is authorized to create the Mutual 
Securitization Company to purchase, pool and securitize loans from 
insured depositories having less than $15 billion in assets or a 
nondepository mortgage originator having a minimum net worth of $2.5 
million. NAHB supports Corker-Warner's provision to create a Mutual 
Securitization Company, which would be an approved issuer. However, as 
an issuer purchasing from small entities, its ability to compete with 
larger issuers should be carefully monitored to ensure a level playing 
field.
Housing Finance Agencies
    NAHB believes State and local housing finance agencies should play 
an expanded role in providing housing funds. These agencies have proved 
critical in helping communities meet the needs of consumers who have 
faced hardships in the face of tight credit conditions.
    State and local housing finance agencies utilize tax-exempt and 
taxable bonds as well as State and Federal resources to offer a range 
of single family and multifamily housing programs. These agencies are 
uniquely positioned to assess community housing needs and should play 
an even more prominent housing finance role through the development of 
new programs for new, for-sale housing and multifamily rental homes. 
This should include partnering with Federal and private providers of 
housing capital.
Single Family Housing
Retain Capacity of FHA To Meet Its Vital Housing Mission
    The FHA single-family mortgage programs are a unique and vital 
component of the housing finance system, providing access to home 
ownership for underserved communities, primarily first-time homebuyers, 
minorities, and those with limited downpayment capabilities. During the 
recent mortgage crisis, FHA demonstrated how invaluable its 
countercyclical role was in providing mortgage market liquidity as 
FHA's share of the market jumped from 3 percent during the housing boom 
to a high of almost 30 percent early in the crisis. Nearly 80 percent 
of FHA's purchase loans have been to first-time home buyers. This 
dramatic shift is evidence that FHA is performing its mission of 
providing the Federal backstop to ensure that every American has access 
to a stable mortgage product. In times of crisis, private sources of 
mortgage credit have demonstrated they are unable or unwilling to meet 
housing capital needs.
    NAHB supports efforts to reform FHA and understands that this is 
not a simple undertaking. However, reform must be approached with 
caution. Since 2010, FHA has implemented a series of policy changes, 
including higher mortgage insurance premiums, tighter underwriting 
requirements, stricter mortgage lender enforcement, and improved risk 
assessment, all intended to strengthen the performance of the Mutual 
Mortgage Insurance Fund (MMIF) and rebuild the capital reserve ratio. 
These changes are the most sweeping combination of reforms to credit 
policy, risk management and lender enforcement in FHA history. Further 
changes to FHA's programs cannot be separated from the larger 
discussion of reforming the complex housing finance system to ensure 
homebuyers have affordable financing solutions.
    NAHB urges Congress to proceed carefully and not significantly 
alter FHA's role of providing affordable single family financing. We 
are concerned that several of the provisions in H.R. 2767 (PATH Act) 
would greatly reduce the scope and reach of FHA's programs. In 
particular, NAHB opposes provisions in the PATH Act that would limit 
FHA's single family programs to first time or low- and moderate-income 
home buyers, increase downpayments, and reduce the minimum FHA mortgage 
limit or floor. These proposals would have a detrimental impact on 
FHA's ability to serve its mission and facilitate the flow of mortgage 
credit to its targeted borrowers.
Provide a Reasonable Menu of Conventional Mortgage Products
    America's future housing finance system must be designed to ensure 
that creditworthy borrowers have access to a reasonable menu of 
conventional mortgage products that are prudently developed and 
appropriately underwritten. While standardized product features and 
underwriting requirements are necessary to ensure liquidity, these 
mortgage products must also have practical flexibilities to meet the 
diverse financial needs of first-time homebuyers, minorities, buyers 
with limited downpayment capabilities, and move-up buyers.
    Research suggests that the greatest obstacle faced by potential 
first-time homebuyers, especially low-income, minority individuals and 
families, is not the ability to make monthly mortgage payments, but 
rather the ability to assemble enough funds to pay the downpayment and 
closing costs. Because of the financial downturn, many more potential 
homebuyers will have the ability-to-repay but will need affordable 
downpayment conventional mortgage products.
Maintain Role of Mortgage Insurance Industry
    Private mortgage Insurance (MI) companies provide a vital component 
of our country's residential mortgage finance system by protecting 
mortgage investors from credit losses. Mortgage insurance also benefits 
home buyers by helping them achieve home ownership earlier with low-
downpayment loans.
    Mortgage investors require healthy counterparty risk mortgage 
insurance partners, and both will need to continue to form strong 
partnerships to serve borrowers with well underwritten, competitively 
priced and flexible MI programs to ensure the availability of 95 
percent loan-to-value (LTV) mortgage products.
    Another benefit to this type of counterparty risk arrangement is 
that the loan is underwritten by both the mortgage investor and the MI 
company. This due diligence helps to ensure the consumer's ability-to-
repay. MI companies are also providers of homeowner assistance programs 
that go well beyond the initial purchase of their home.
Preserve Rural Housing Service and Veteran's Administration (VA) Loan 
        Programs
    The Federal Government historically has played an important role in 
providing mortgage credit to rural areas. The National Housing Act of 
1949 authorized the Farmers Home Administration to issue mortgages for 
the purchase and repair of single family homes in rural areas and to 
provide financing and rental assistance for multifamily rental housing. 
Later legislation moved this function to the Rural Housing Service 
(RHS), which is part of the U.S. Department of Agriculture (USDA).
    Section 502 housing loan guarantee programs provide well 
underwritten loan programs to low- and moderate-income individuals and 
families without having to make a downpayment because they may borrow 
up to 100 percent of the appraised value of the home. Since a common 
barrier to owning a home for many is the lack of funds to make a 
downpayment, this program makes the possibility of owning a home a 
reality for many Americans in rural communities.
    The VA home loan guarantee program is an integral component of 
housing finance and is an outstanding example of a how a low- to no-
downpayment program can perform even in difficult economic markets. The 
VA attributes its track record of success to strong principles of 
underwriting loans and high-touch service for its veterans throughout 
the mortgage process.
Appraisal System Reform
    The current residential appraisal system is impaired due to 
inconsistent and conflicting standards and guidance; inadequate and 
uneven oversight and enforcement; a shortage of qualified and 
experienced residential appraisers; and, the absence of a robust and 
standardized data system. NAHB believes these problems must be 
addressed in order to restore confidence in the residential real estate 
market and to establish a foundation for sustainable growth of the U.S. 
economy. This can only be accomplished through sound valuation 
practices, policy, and procedures that produce more credible valuations 
under all economic circumstances.
    In 2012, NAHB formed an Appraisal Working Group (AWG), consisting 
of home builders and representatives from the financial and appraisal 
sectors, to develop recommendations for comprehensive appraisal reform 
and produced a White Paper with specific recommendations. \6\ In this 
process, there was extensive dialogue with all stakeholders in the 
residential appraisal process. The AWG continues to meet and discuss 
the importance of appraisal reform and below are their key 
recommendations:
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     \6\ ``A Comprehensive Blueprint for Residential Appraisal 
Reform'', National Association of Home Builders, February 2013.

    Reform the regulatory framework for real estate valuation 
        to more effectively oversee standards, guidance, and 
---------------------------------------------------------------------------
        enforcement.

    The goal is to better integrate and streamline the jumble of 
existing entities to ensure the valuation of collateral in housing 
finance transactions occurs in a coordinated and effective manner. This 
would contribute to uniform and consistent standards and avoid the 
current multitude of conflicting and confusing requirements. In 
particular, urgent steps should be taken to improve the effectiveness 
and consistency of State appraisal oversight.

    Develop and build a real estate data superhighway with a 
        national real property registry and supporting networks.

    The development of a real estate database would facilitate the safe 
and efficient transfer of real property. The reformed regulatory system 
would be responsible for the establishment of standards for data, 
methodology and practice. Stakeholders would be able to view all 
valuations, and secondary market participants would have access with 
proper rights established. Access rights would be granted to any 
registered purchaser, securitizer, or servicer.

    Establish a single, consistent set of rules and guidelines 
        for appraisers and appraisals and set standards to ensure the 
        engagement of an appraiser who has the training and experience 
        necessary for the assignment.

    The establishment of a single set of rules and appraisal forms 
should be incorporated as a high priority as part of housing finance 
system reform. Currently, Fannie Mae and Freddie Mac impose de facto 
appraisal authority through the guidelines they have established for 
appraisals on the mortgages they purchase and the forms they use to 
collect appraisal information. These Enterprise appraisal rules tend to 
restrict appraisers' ability to pursue approaches that could result in 
more accurate valuation. In addition, confusion arises in how to 
interpret the Enterprise appraisal guidelines in relation to the rules 
established by The Appraisal Foundation (TAF) in the Uniform Standards 
of Professional Appraisal Practice (USPAP) and the appraisal 
regulations of the banking regulators.
    In addition, there have been reports of appraisal problems due to 
appraisers not being familiar with the area in which the subject home 
is located and not having experience in valuing the type of property in 
question. This is a particularly acute issue for builders and 
purchasers of newly constructed homes, which normally require more 
extensive analysis and research. Standards and processes should be 
established to ensure appraisers have the training and experience 
needed to provide an accurate property valuation.

    Develop a workable process for appealing inaccurate or 
        faulty appraisals.

    It is extremely important to establish a timely value appeals 
process that is fair, balanced, and appropriate to allow all parties of 
the transaction to appeal appraisals that do not meet USPAP standards 
or are based on inaccurate data or assumptions.
    Today's residential appraisal system remains in a state of 
uncertainty. The current patchwork system cannot continue indefinitely. 
A key consideration must be to establish stability and restore 
confidence in the system that determines the value of mortgage 
collateral. NAHB remains committed to residential appraisal reform and 
looks forward to working with industry stakeholders to address the 
problems and implement solutions to the current U.S. residential 
appraisal system.
Multifamily Housing
Future Conventional Multifamily Finance System
    NAHB and several of the most prominent trade associations 
representing multifamily developers, owners, property managers, and 
lenders have prepared a set of principles under which we believe the 
future multifamily finance system should be framed. (The set of 
principles accompanies this statement.)
    Key principles include:

    The Nation's multifamily housing finance system should rely 
        primarily on private capital.

    The Federal Government is the only entity that can ensure 
        the availability of liquidity in all market cycles, and the 
        appropriate mechanism to do that is through a catastrophic 
        backstop role.

    The Government guarantee-related market should be subject 
        to strong and independent regulatory oversight and risk-based 
        capital requirements.

    Policy makers should protect and preserve existing 
        resources, as well as support greater transparency, during the 
        transition to an overhauled housing finance system.

    NAHB cautions against overreaching in regard to reforming the 
multifamily finance system. This component of the Nation's housing 
finance system has performed, and continues to perform, very well. NAHB 
does not believe it is necessary to take draconian steps that are not 
needed to ``fix'' an unbroken system. Such steps would include setting 
income or rent restrictions on loans as a condition of access to a 
Federal Government backstop, standardizing products, or requiring only 
one securitization platform. Again, NAHB believes that the critical 
consideration in a new system is broad and continued liquidity during 
all economic cycles and for all geographic areas.
Preserve Successful Infrastructure, Products, Programs From 
        Conventional Market
    As noted earlier, in spite of the crisis affecting single family 
housing, the multifamily sector has performed well. Multifamily loans 
held or guaranteed by Fannie Mae and Freddie Mac have very low default 
rates, and both businesses are profitable. Both of the Enterprises' 
multifamily businesses involve risk-sharing with private capital, and 
both businesses have practiced disciplined underwriting. In addition, 
because of the range of products and business lines employed by the 
Enterprises, a wide range of multifamily rental properties that provide 
housing for very-low to middle income households can be financed in the 
conventional market. NAHB strongly supports retention of the successful 
infrastructure, products and programs that have been built over the 
years by the Enterprises and which are used as the core of most of the 
major financial institutions providing multifamily debt financing.
    NAHB is thus alarmed at recent actions taken by FHFA related to the 
Enterprises' multifamily businesses. In an August 2013 press release, 
FHFA stated it was seeking input on strategies for reducing the 
Enterprises' presence in the multifamily housing finance market in 
2014. FHFA's Strategic Plan for Enterprise Conservatorships, released 
in February 2012, included a goal to contract the Enterprises' presence 
in the market while simplifying and shrinking certain operations. The 
2013 conservatorship Scorecard included reducing their volume of new 
multifamily business by 10 percent relative to 2012. FHFA expects this 
reduction to be achieved this year through a combination of increased 
pricing, more limited product offerings and stronger underwriting 
standards. FHFA stated its intention to continue a path of gradual 
contraction of the multifamily businesses while awaiting a legislative 
resolution to the conservatorships.
    It is disturbing to NAHB that FHFA is taking these steps in the 
absence of direction from Congress. NAHB believes that the FHFA's 
directive to the Enterprises to reduce their multifamily businesses is 
arbitrary and unnecessary. In fact, NAHB strongly believes that it is 
critical that the Enterprises retain their ability to provide broad 
liquidity to the market, which includes having a diversified line of 
products and the ability to address financing for a large range of 
multifamily property types.
    This critical aspect of the Enterprises' mission--to provide 
liquidity during all economic cycles--should not be regulated by the 
conservator; that is the job of Congress. To lose any of the successful 
products or business activities at this point in time--before decisions 
are made by Congress as to the future of the multifamily housing 
finance market--means they may have to be rebuilt at a future point. 
NAHB has urged FHFA not to take unwarranted actions that will result in 
damage to the multifamily market now and in the future, and NAHB urges 
members of Congress to convey the same message to FHFA.
Private Market Participants Are Selective Investors
    It is important to understand that not all private market sources 
of capital for multifamily financing are available for all segments of 
the multifamily market. Each has strength in specific niches and 
markets and thus moves in and out of the market as economic conditions 
and their investment goals change. Life insurance companies typically 
target low-leverage, high-quality deals in the strongest markets 
(usually urban) and typically serve the highest income households. Once 
they meet their own portfolio investment targets, life insurance 
companies retract their lending. Banks do not provide long-term 
financing and are subject to significant restrictions in terms of 
capital requirements. Banks also have significant exposure to 
regulatory pressure that influences their lending decisions, including 
obligations under the Community Reinvestment Act (CRA). While the 
commercial mortgage backed securities (CMBS) market was significant at 
one time, it has not recovered from the financial crisis and is not 
expected to resume its past levels of volume.
    These facts point to the need to maintain a viable, liquid and 
efficient secondary market for multifamily rental financing where the 
Federal Government continues to play a role. In addition, the secondary 
market must be structured to ensure that the appropriate range of 
products is available to provide the capital needed to develop new and 
to preserve existing rental housing, as well as to refinance and 
acquire properties. An adequate flow of capital will ensure that demand 
for rental housing is met and that affordable options are available for 
a range of households and communities.
Legislative Proposals
    NAHB appreciates that S.1217, the Housing Finance Reform and 
Taxpayer Act of 2013, introduced by Senators Corker and Warner, 
recognizes the importance of the Enterprises' multifamily businesses. 
The bill would transfer both multifamily businesses to the newly 
created Federal Mortgage Insurance Corporation (FMIC). However, NAHB 
does not believe it is practical for the regulator to absorb and run 
the multifamily businesses. A more practical option is to transition 
the Enterprises' multifamily businesses to private entities, which 
would then be allowed access to the Federal Government guarantee 
through FMIC.
    The House Financial Services Committee-passed bill, H.R. 2767, the 
Protecting American Taxpayers and Homeowners Act of 2013 (PATH Act), 
does not address the multifamily conventional market at all, which is a 
major omission.
Maintain FHA's Multifamily Capacity
    FHA historically has played an important role in the financing of 
multifamily rental housing, and it was especially important during the 
economic crisis. FHA provides an explicit Federal Government guarantee 
on multifamily loans for which borrowers pay a mortgage insurance 
premium set by HUD. The FHA multifamily loans have performed well with 
low default rates (as published by HUD in May 2013), and the programs 
generate significant revenue to the Federal Government in the form of a 
negative credit subsidy, generating positive cash flow to the U.S. 
Treasury.
    In 2008, FHA endorsed just over $2 billion in multifamily loans 
(excluding health care programs), which grew to $18.3 billion 
(excluding health care programs) in FY2013. This unprecedented increase 
in FHA multifamily loan volume occurred as other private market sources 
of multifamily financing withdrew from the market when economic 
conditions worsened. FHA, along with Fannie Mae and Freddie Mac, became 
the primary sources of multifamily financing as the recession deepened. 
Like in the single family market, the FHA multifamily mortgage 
insurance programs are fulfilling the function and mission for which 
Congress originally intended.
    NAHB has long-supported these programs, notably Section 221(d)(4) 
and Section 223(f), which have enabled the construction of new 
affordable and market rate rental housing units, as well as the 
acquisition, refinance, and rehabilitation of the Nation's existing 
stock of rental housing. Of importance, FHA financing is often used in 
smaller markets where Fannie Mae, Freddie Mac and other market 
participants are less active, and FHA has filled the niche that local 
banks and thrifts have retreated from in recent years.
Risk Management Protocols
    It is important to note that over the last 3 years, HUD has 
instituted new risk management protocols for the FHA multifamily 
mortgage insurance programs. The new protocols tightened underwriting 
requirements, created a national loan review committee, and 
strengthened policies related to large loans, sponsor creditworthiness, 
and experience. There is closer scrutiny on market strength and FHA 
presence than before the economic crisis. In 2012, for the first time 
in 10 years, HUD raised the mortgage insurance premiums (MIPs) for 
programs in the General Insurance/Special Risk Insurance (GI/SRI) fund. 
All of these actions were intended to strengthen risk management 
practices related to the FHA multifamily mortgage insurance programs, 
ensure the health of the GI/SRI fund, and attract high quality 
borrowers, without taking market share from the private sector or 
endangering taxpayers.
    HUD's most recent step towards increasing efficiency and 
standardizing policies across field offices was the announcement of a 
major restructuring of the Office of Multifamily Programs. The 
restructuring in the Office of Multifamily Programs will consolidate 
its program Hubs and field offices and reorganize the offices within 
its headquarters in Washington, DC. The goal of the restructuring is to 
allow more consistent, efficient processing of loans and servicing of 
existing assets.
    NAHB has testified previously that, as important as these steps 
have been towards increasing risk management, the FHA multifamily field 
offices continue to struggle because of inadequate staffing and 
resources. NAHB is supportive of HUD's efforts to address these 
difficult issues, and we urge members of Congress to ensure that the 
department has the resources it needs to safely and properly manage its 
large portfolio and to ensure that the programs remain strong and 
viable.
Commitment Authority
    NAHB recently expressed strong concern to members of Congress that 
the uncertainty related to the availability of commitment authority for 
the FHA multifamily programs creates the potential for major 
disruptions in financing much needed affordable and market-rate rental 
properties, as well as health care facilities, which are also included 
under the GI/SRI fund. FHA exhausted its commitment authority for 
FY2013 in mid-September, which forced borrowers to wait until new 
authority became available before they could be assured of a loan 
commitment. As a result, affordable housing construction and other 
related jobs have been delayed, and in some cases, may not even go 
forward. The Government shutdown only made the situation worse, as the 
queue of loans waiting for commitment authority accumulated rapidly and 
is now in excess of one-half billion dollars.
    NAHB suggests that an area of reform for the FHA multifamily and 
health care insurance programs is to consider giving FHA multiyear 
commitment authority, as is the case with the FHA single family 
programs. Another option would be to devise an automatic trigger of 
additional commitment authority if certain conditions are met to ensure 
the uninterrupted operation of the programs during all economic cycles.
Legislative Proposals--The PATH Act
    NAHB is concerned about proposals to more narrowly limit FHA's 
current mission. The PATH Act would allow FHA to provide mortgage 
insurance for residential properties having five or more dwelling 
units--multifamily rental housing--subject to occupancy and rent 
restrictions applied during the life of the mortgages. The bill 
restricts occupancy to families having incomes no greater than 115 
percent of area median income (AMI). It allows for higher income limits 
(up to 150 percent of AMI) in high cost areas. The bill gives FHA the 
discretion to establish lower occupancy, income and rent restrictions.
    NAHB does not support setting occupancy and rent restrictions based 
on AMI for the FHA multifamily mortgage insurance programs. The Census 
Bureau's 2012 Rental Housing Finance Survey shows that an overwhelming 
majority of tenants in properties with FHA-insured mortgages have 
incomes of 115 percent or less of area median income. However, the FHA 
multifamily mortgage insurance program is also a key source of 
liquidity, so the imposition of income limits would impede that portion 
of FHA's mission, particularly in higher-cost markets.
    The FHA multifamily mortgage insurance programs are subject to 
statutory mortgage loan limits, which effectively serve to focus the 
provision of FHA multifamily mortgage insurance on affordable and 
workforce rental housing. Imposing burdensome provisions that require 
developers, lenders, and property managers to track and document 
incomes and rents on unsubsidized properties is costly and unnecessary, 
given that the proposed targeted population is already being served by 
the programs.
    The PATH Act also requires the Director of FHFA to set capital 
reserve requirements for the GI and SRI funds. The bill does not 
specify target reserve ratios. Currently, there are no statutory 
requirements for capital ratios for either the GI or SRI funds. While 
NAHB understands that members of Congress and the Administration are 
focused on strengthening the risk management practices for both the 
single and multifamily FHA programs, NAHB strongly urges that an in-
depth analysis is conducted to determine any impact on the mortgage 
insurance premiums for the FHA multifamily programs before any reserve 
requirements are considered. NAHB does not believe that it is 
appropriate to use the type of capital reserve ratios used for the MMIF 
for the GI/SRI fund, because the nature of the multifamily portfolio is 
significantly different from the single family portfolio insured under 
the MMIF.
    The implementation of a capital reserve on the GI/SRI funds could 
have significant impacts on MIPs. Higher MIPs will lead to higher costs 
for borrowers and renters who are served by the FHA multifamily 
programs. A key example is the Section 221(d)(4) program where a higher 
MIP will raise the required borrower debt service and/or equity 
contribution, resulting in a lower mortgage amount at a higher rate of 
interest. These higher costs would be passed along in the form of 
higher rents to the low- and moderate income families who reside in 
rental units financed through the program or could result in properties 
not being built or rehabilitated because of the higher equity 
contribution required.
Need To Address Rural and Small Rental Projects
    Over the years, NAHB has discussed with FHA and the Enterprises the 
need to develop more options for small multifamily financing (typically 
defined as 5 to 49 units) and to address credit needs in rural areas. 
According to HUD, almost a third of the Nation's renters, more than 20 
million households, live in small, unsubsidized housing. These 
properties tend to be owned by individuals (mom-and-pop owners), as 
well as small businesses. Rents charged at such properties are 
typically more affordable to low- and moderate-income families.
    Owners of small multifamily properties do not have many options for 
financing acquisitions and/or rehabilitation work. Many lenders view 
such loans as high risk, and the costs of underwriting the loans are 
more expensive for both the lender and borrower. In addition, servicing 
costs for such loans are high, reducing lenders' incentive to make 
them. Small loans are not easily securitized, as it takes too long to 
accumulate the volume needed to issue a security.
    The Enterprises have struggled with this type of loan, and FHA has 
not been successful at developing a viable small loan program. Although 
many local commercial banks are active in lending for small multifamily 
properties, the availability of financing is not very consistent. Large 
banks without a presence in rural areas have no Community Reinvestment 
Act (CRA) incentive to invest in such properties. Some State housing 
finance agencies address this need through set-asides for rural areas, 
where many small multifamily properties are located. A few NAHB members 
have been successful in refinancing a small portfolio of properties 
into one loan, which helps reduce costs.
    HUD is currently exploring an expansion to its FHA risk-sharing 
program that would allow mission-based financial institutions to enter 
into risk-sharing arrangements with FHA to provide acquisition and 
rehabilitation financing for small multifamily properties. HUD is 
seeking a legislative change that would allow Ginnie Mae to securitize 
such loans. NAHB believes there is potential in this effort and has 
participated in several discussions with HUD and other stakeholders. 
NAHB urges Congress consider the legislative changes that are needed to 
develop a viable program.
    As mentioned previously, the Corker-Warner bill acknowledges the 
importance of providing access to the secondary mortgage market to 
community banks. The proposed Federal Mortgage Insurance Corporation 
could provide opportunities for small multifamily lending.
Reform and Adequately Fund HUD's Rental Assistance Programs
    HUD provides rental assistance to over five million households. 
Sixty-five percent of HUD-assisted households are elderly or disabled, 
and HUD-assisted families had an average income of $12,500 in 2012. 
Just one in four families that needs rental assistance is able to 
receive it because there are not enough resources to help everyone. The 
rental assistance programs have been under stress due to rising costs 
and the difficult economy. There are many potential areas for reform, 
yet agreement on how to proceed remains elusive. A major problem is the 
whipsaw of funding levels, which creates great stress on property 
owners, public housing agencies and residents.
Section 8 Housing Choice Voucher Program
    NAHB has long supported the Section 8 Housing Choice Voucher 
program, which provides rental subsidies to approximately two million 
very-low income households who obtain housing in the private rental 
market. The program, which is intended to broaden the range of housing 
choices for families seeking affordable housing, has proven to be 
effective in helping low income families find decent, safe, and 
affordable housing. In addition, the rental vouchers can be leveraged 
to build or rehabilitate additional affordable housing, a necessity in 
today's tight rental markets.
    In recent years, the program has been the subject of policy 
discussions because of its growing costs and strain on the HUD budget. 
Funding levels have fluctuated, causing public housing agencies (PHAs) 
to struggle to maintain assistance to current tenants. A major reform 
bill first introduced in 2004 has been revised and debated without 
moving to passage. The goals of the most current House version, the 
Affordable Housing and Self Sufficiency Improvement Act of 2013 
(AHSSIA), are to reduce taxpayer costs within HUD's rental housing 
programs and facilitate greater private-sector participation in 
affordable housing. Streamlining aspects of the program will reduce 
costs and improve the delivery of services to the households seeking 
affordable housing. Private property owners will be more amenable to 
participating in HUD's affordable housing programs, as well, as the 
administrative burdens are eased and costs to participate are lowered.
    NAHB, along with a large group of industry stakeholders, has 
identified a core set of reforms to the program. Included are reforms 
that would streamline various processes, including: unit inspections; 
rent calculations; income determinations; and tenant screening. Other 
reforms would improve the voucher funding allocations to make them more 
stable and predictable while still permitting appropriators to set 
overall annual funding levels. While some additional improvements could 
be included, NAHB and stakeholders agree that it is important to move 
forward quickly on these consensus reforms.
Section 8 Project Based Rental Assistance Program (PBRA)
    The Section 8 Project Based Rental Assistance Program (PBRA), which 
provides rental subsidies directly to property owners for specific 
properties, is at risk due to inadequate funding while costs are 
rising. The budget sequester that became effective on March 1, 2013, 
resulted in a cut of $470 million for the PBRA program in FY2013. HUD 
had to issue a letter to owners outlining its plans to manage the 
program due to the reduced funding, which included providing less than 
12-months of funding to owners with expiring contracts. The shortfall 
becomes worse in FY2014 when 15,900 contracts (1.1 million units) will 
be up for renewal. HUD acknowledges that all contracts will be have to 
be less than 12-month funding due to an anticipated shortfall of over 
$1 billion.
    The consequences of this funding uncertainty every year are many: 
property owners may stop participating in the program because of the 
uncertainty revolving around appropriations; property owners who 
continue may have to defer needed maintenance or reduce contributions 
to reserves, which means residents may lose good quality housing; 
lenders may be reluctant to provide financing for the rehabilitation of 
these properties because of the uncertain revenue stream. NAHB strongly 
supports adequate and predictable funding for the PBRA program.
USDA Rural Housing Service (RHS) Multifamily Programs
    The USDA administers multifamily housing programs that help finance 
rental housing in rural areas. The Section 515 direct loan program 
provides long-term, low interest loans to nonprofit and for-profit 
developers to support the construction, acquisition and rehabilitation 
of multifamily housing for low- and moderate-income renters. The 
program has financed over 15,500 properties with 443,150 units, with 
the average property consisting of 28 units. The USDA's Section 521 
Rental Assistance (RA) program is project-based and provides rental 
subsidies to properties that were financed through USDA's Section 515 
multifamily direct loan program. The majority of residents living in 
these properties are elderly, and average annual incomes are below 
$11,000.
    Yet this valuable source of affordable rental housing for low-
income rural families is in jeopardy of being lost. Section 515 funding 
has been cut drastically; the Section 521 RA program is experiencing a 
shortfall of funds due to sequestration, causing some property owners 
to have to take drastic steps to find funds to cover the shortfall for 
FY2013. It is very possible another shortfall will occur in FY2014, 
absent Congressional action. Property owners will not be able to 
maintain their properties without the RA funds and may be forced at 
some point to exit the program.
    NAHB believes it is critically important that Congress take action 
to provide the funding needed to preserve this important portfolio of 
rural rental housing and to ensure that residents will continue to have 
affordable, decent and safe housing. However, funding is not the only 
issue; legislative action is needed to authorize a viable preservation 
program for the portfolio, as well as to consider what steps need to be 
taken to ensure the RA program can be sustained over the long term.
National Housing Trust Fund and Other Government Funding Programs
Housing Trust Fund
    S.1217 includes provisions to fund the National Housing Trust Fund 
(HTF) and to make some modifications to its purpose and eligible uses. 
The HTF was first created by the Housing and Economic Recovery Act of 
2008 (HERA) and was to be funded by the Enterprises. However, the 
Enterprises went into conservatorship shortly after passage of HERA, 
and the conservator determined it was not in the interests of safety 
and soundness to allow the Enterprises to transfer funds to the HTF.
    S.1217 imposes fees on single and multifamily securities accessing 
the Federal guarantee through the proposed Federal Mortgage Loan 
Corporation (FMIC), which would be transferred to the HTF. Eligible 
activities would include grants and loans that support sustainable home 
ownership and rental housing for households for a range of households. 
S.1271 also includes a provision to ensure rural areas get 
proportionate shares of money and that States give priority to 
nonentitlement areas (population less than 20,000).
    These provisions are consistent with NAHB's position on the 
purposes and uses of a national housing trust fund. NAHB believes that 
the purposes of a HTF should be broadly defined to include allowing a 
significant spectrum of eligible activities and with income targeting 
requirements that allow grantees and grant recipients to meet the 
fullest range of critical housing needs. It is important that the funds 
also meet the needs in rural and underserved areas. Also, NAHB believes 
that the statutory and regulatory framework of the HFT must allow for 
the effective and efficient use of trust fund monies in conjunction 
with other Federal and State housing programs, particularly the HOME 
Investments Partnership Program and the Low Income Housing Tax Credit 
(LIHTC) program.
    Finally, NAHB strongly believes that eligible recipients must 
include both for-profit and nonprofit developers, and all recipients 
must be able to demonstrate that they have the necessary experience and 
capacity to carry out proposed projects. Adequate standards of 
experience and capacity for grant recipients should be required, along 
with results-focused allocation criteria, to ensure the best possible 
use of these valuable resources.
Role of the Home Investment Partnerships Program and Community 
        Development Block Grants
    NAHB has long supported the HOME Investment Partnerships Program 
and Community Development Block Grant (CDBG) programs. These two 
programs provide invaluable support to cities, counties, and rural 
areas in meeting their affordable housing and community development 
needs. The HOME program has been essential in providing gap financing 
for affordable rental housing financed with Low Income Housing Tax 
Credits, as well as for home ownership for first-time and low-income 
homebuyers. CDGB funds may be used to provide needed infrastructure 
that supports housing, such as sidewalks and streets, but also 
community centers, day care centers, and other important community 
assets.
    Both programs have suffered deep budget cuts. NAHB has consistently 
supported adequate funding for both programs and has also supported 
reforms that would ensure the funds are spent efficiently and 
effectively. NAHB has also supported efforts to streamline the use of 
HOME funds with other Federal housing programs, especially those 
administered by State housing finance agencies (such as the LIHTC) and 
the USDA RHS.
Low Income Housing Tax Credit Program
    The Low Income Housing Tax Credit (LIHTC) is the most successful 
affordable rental housing production program in U.S. history. It was 
created as part of the Tax Reform Act of 1986 as a more effective 
mechanism for producing affordable rental housing. Since its inception, 
the LIHTC has produced and financed more than two million affordable 
apartments. As LIHTC properties must generally remain affordable for 30 
years, they provide long-term rent stability for low-income households 
around the country.
    However, the demand for affordable housing is acute and exceeds the 
availability of financing through the LIHTC program. According to the 
most recently available annual survey released by the National Council 
of State Housing Agencies (NCSHA), State housing finance agencies 
generally receive $2 in requests for every $1 in LIHTCs available. At 
the same time, the supply of private, affordable housing stock is 
rapidly shrinking. Of the 6.2 million vacant or for-rent units with 
rents below $400 in 1999, 11.9 percent were demolished by 2009. Upward 
filtering to higher rent ranges, conversions to seasonal or 
nonresidential use, and temporary removals because of abandonment added 
to the losses. On net, more than 28 percent of the 1999 low-cost stock 
was lost by 2009. \7\
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     \7\ ``America's Rental Housing: Meeting Challenges, Building on 
Opportunities'', Joint Center for Housing Studies of Harvard 
University, 2011. P. 6. http://www.jchs.harvard.edu/publications/
rental/rh11_americas_rental_housing/AmericasRentalHousing-2011.pdf
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    NAHB strongly urges Congress to maintain this critical affordable 
rental housing program.
Importance of a Reliable Supply of Affordable Acquisition, Development, 
        and Construction Credit
    A significant factor in the availability and cost of home ownership 
and rental housing is the cost and availability of the credit required 
to produce such housing. This credit is referred to as land 
acquisition, development, and construction (AD&C) financing. Affordable 
housing needs cannot be met by solely through utilization of the 
existing housing stock. This is particularly true if affordability is 
defined to include the cost of operating a home. Builders of new 
housing are required to meet increasingly stringent energy efficiency 
standards, which make new homes considerably less expensive to live in 
than older existing units. Also, new home construction occurs to 
satisfy consumer demand driven by lifestyle and location preferences 
such as urban living, multigenerational homes, and fifty-plus 
communities. Therefore, significant levels of production of new homes 
will be needed to meet future housing needs in choices.
    Since the affordability of newly constructed homes is affected by 
the availability and cost of AD&C loans, it is important to ensure that 
this form of financing is available at reasonable rates and terms. The 
home building industry is predominantly made up of small businesses 
and, currently, these companies are having difficulty in obtaining AD&C 
loans. These home building companies have traditionally relied on 
community banks for AD&C loans, but those institutions have been under 
severe regulatory pressure to curb their AD&C lending and reduce the 
concentration of such loans in their portfolios.
    NAHB appreciates the efforts of Senator Robert Menendez (D-NJ) and 
Sen. Johnny Isakson (R-GA) for introducing The Home Building Lending 
Improvement Act of 2013 (S.1002) that would address several of these 
regulatory barriers to sound construction lending. NAHB looks forward 
to working with this Committee to advance regulatory reform in this 
area. Going forward, it does not seem likely that community banks will 
again resume the levels of AD&C lending previously undertaken unless 
some form of secondary market outlet is created to allow these 
institutions to sell their AD&C output and obtain liquidity for 
additional lending.
Conclusion
    NAHB thanks the Committee for the opportunity to submit its views 
on essential elements to provide affordable options for housing. 
Whether they rent or own, Americans want to choose where they live and 
the type of home that best meets their needs. Given the significant 
role that housing plays in the economy, we urge Congress to take a 
long-term, holistic approach to housing finance reform. NAHB also urges 
Congress to carefully consider the differences between the single 
family and multifamily market and not apply solutions to one piece of 
the market that are not appropriate for the other. NAHB thanks the 
Committee for its leadership on this important issue, and stands ready 
to work with you to achieve such reforms and provide much-needed 
stability for this critical sector of the economy.
                                 ______
                                 
                  PREPARED STATEMENT OF SHEILA CROWLEY
        President and CEO, National Low Income Housing Coalition
                            November 7, 2013
    Chairman Johnson, Ranking Member Crapo, and Members of the 
Committee, thank you for the opportunity to testify today on the issues 
of affordability in housing finance reform and in particular on the 
National Housing Trust Fund.
    I am Sheila Crowley, President of the National Low Income Housing 
Coalition (NLIHC). NLIHC is dedicated solely to achieving socially just 
public policy that assures people with the lowest incomes in the United 
States have affordable and decent homes.
    Our members include nonprofit housing providers, homeless service 
providers, fair housing organizations, State and local housing 
coalitions, public housing agencies, private developers and property 
owners, housing researchers, local and State Government agencies, 
faith-based organizations, residents of public and assisted housing and 
their organizations, and concerned citizens. We do not represent any 
sector of the housing industry. Rather, NLIHC works only on behalf of 
and with low income people who need safe, decent, and affordable homes, 
especially those with the most serious housing problems, including 
people who are homeless. NLIHC is funded entirely with private 
contributions.
    We organize our work in service of three overarching goals for 
Federal housing policy:

    There will be no further loss of federally assisted 
        affordable housing units or Federal resources for affordable 
        housing or access to housing by extremely low income people.

    The Federal Government will increase its investment in 
        housing in order to produce, rehabilitate, and/or subsidize at 
        least 3,500,000 units of housing that are affordable and 
        accessible to the lowest income households in the next 10 
        years.

    Housing stability in the neighborhood of one's choice, 
        which is foundational to good health, employment, educational 
        achievement, and child well-being for people with the lowest 
        incomes, will be the desired outcome of Federal low income 
        housing programs.

    The Committee's work on housing finance reform has largely focused 
on how home mortgage financing should be structured and what role the 
Federal Government should play. These are thorny, complex issues of 
great importance to the American economy and to all facets of the 
housing and lending industry. But the reason that the Federal 
Government should be and is involved in the housing finance system is 
to make sure that the U.S. housing sector works for all people in our 
country, not just for the most fortunate.
    I am here today to ask that you provide for the least fortunate in 
the legislation under consideration, people for whom the housing market 
does not work, people who cannot be reached through existing publicly 
funded low income housing programs because the need far exceeds the 
resources. Specifically, I ask that you protect and fund the National 
Housing Trust Fund in your bipartisan bill.
    Since 2000, NLIHC has led the National Housing Trust Fund campaign, 
a movement of more than 7,000 national, State, and local organizations 
located in every Congressional district. We celebrated when the 
National Housing Trust Fund was created in 2008 as part of the Housing 
and Economic Recovery Act (HERA). We are grateful to Senators Corker 
and Warner and the other cosponsors for including the Housing Trust 
Fund in S.1217, just as we are grateful to Senator Reed for his 
authorship of the Housing Trust Fund provisions in HERA and to Senators 
Shelby, Crapo, Corker, Johnson, Schumer, Menendez, Brown, Tester, and 
Warner for their support of the Housing Trust Fund as part of HERA in 
2008.
    Each of us knows how important home is to us, to every aspect of 
our well-being. We only have to imagine what it would be like to be 
displaced even for a few days to realize how essential our homes are to 
our health and happiness. Imagine what it would be like to be without a 
home, or to be afraid you will lose your home, or to be consigned to a 
home that was cold or dangerous. Then imagine trying to care for your 
children under those circumstances. Imagine being a child growing up 
without a secure and safe home.
    There is a growing body of research that validates what we all 
tacitly understand: home matters to who we are, how we learn, how we 
feel, and how we perceive the world around us. I have a picture in my 
office of a 9-year-old child who, when asked what home means to her 
answers, ``home is important as water and air.''
    If it is the business of this Congress to look out for the well-
being of all your constituents, and I believe it is, then you are 
obligated to do everything within your power to make sure everyone in 
our country has a decent and affordable home in which to grow up, in 
which to raise a family, from which to go out from and return to each 
day, and in which to grow old with dignity.
Why We Need a National Housing Trust Fund
    All housing markets are local, but there is one fact that is true 
in every community in the country. No community has a sufficient supply 
of decent rental homes that are affordable to extremely low income 
families, defined as having incomes at or below 30 percent of the area 
median.
    Thirty-one percent of the households in South Dakota \1\ are 
renters; the average renter in South Dakota has income of $20,176 a 
year. The annual household income needed to afford a modest two-bedroom 
rental home in South Dakota is $26,665. An extremely low income family 
in South Dakota has an annual income of $18,784 or less. \2\
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     \1\ Note: Housing and income data in SD may not reflect the total 
Native American population.
     \2\ Bravve, E., Bolton, M., and Crowley, S. (2013). ``Out of Reach 
2013''. Washington, DC: National Low Income Housing Coalition.
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    In Idaho, 29 percent of all households are renters and the average 
renter earns $21,902 a year. The minimum income needed to afford a 
modest two-bedroom rental is $27,593 a year, but extremely low income 
in Idaho is $16,932 or less. \3\
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     \3\ Ibid.
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    Who has incomes that low? They are service workers--retail clerks, 
day care workers, home health care aides--the people on whom the rest 
of us depend to get our jobs done. They are waitresses, day laborers, 
farm workers, and office cleaners. They are people who are elderly or 
with disabilities, whose income is primarily Supplemental Security 
Income (SSI). The annual income of an SSI recipient in South Dakota is 
$8,556; in Idaho, it is $9,012. South Dakota and Idaho are among the 21 
States that supplement the Federal SSI level. \4\
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     \4\ Cooper, E., O'Hara, A., Singer, N, and Zovistoski, A. (2013). 
``Priced out in 2012''. Boston, MA: Technical Assistance Collaborative, 
Inc.
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    In 2011, there were 10.1 million extremely low-income renter 
households in the United States and only 5.5 million homes renting at 
prices they could can afford. This is the only income group for whom 
there is an absolute shortage of homes. Worse, many of the homes 
renting in the price range that an extremely low-income family could 
afford are in fact occupied by higher-income people. The real shortage 
for this income group is 7.1 million units. Nationwide, there are just 
30 homes that are available and affordable for every 100 extremely low-
income renter households. \5\
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     \5\ National Low Income Housing Coalition. (2013). ``America's 
Affordable Housing Shortage and How To End It''. Housing Spotlight 
3(2). Washington, DC: Author.
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    The most important thing to know about the housing shortage for 
poor Americans is that it gets worse each time it is measured and the 
number has skyrocketed in the Great Recession. HUD reports that the 
number of households with worst case housing needs (households with 
incomes less than 50 percent of the area median and who pay more than 
half of their income for their homes) increased by 43 percent between 
2007 and 2011. \6\
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     \6\ U.S. Department of Housing and Urban Development. (2013). 
``Worst Case Housing Needs 2011: Report to Congress''. Washington, DC: 
Author.
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    These findings are confirmed by everyone who studies the housing 
gap. Other recent analyses that I recommend the Committee review are by 
the Joint Center on Housing Studies of Harvard, \7\ the Bipartisan 
Housing Commission, \8\ and former FHA Commissioner John Weicher. \9\
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     \7\ Joint Center for Housing Studies of Harvard University. 
(2013). ``The State of the Nation's Housing 2013''. Cambridge, MA: 
Author.
     \8\ Bipartisan Housing Commission. (2013). ``Housing America's 
Future: New Directions for National Policy''. Washington, DC: 
Bipartisan Policy Center.
     \9\ Weicher, J. (2012). ``Housing Policy at the Crossroads: The 
Why, How, and Who of Assistance Programs''. Washington, DC: The AEI 
Press.
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    These data tell the story of families in your communities who have 
to choose to pay for food or heat, coats or medicine, and often get 
behind on the rent anyway and lose their homes. Then they have to move 
in with someone else or end up sleeping in their cars. I just heard 
from a service provider in rural Michigan about families living in deer 
blinds. Next time you are home, ask a local principal how many homeless 
children are enrolled in his or her school.
    Homelessness is the most tragic manifestation of this housing 
shortage. In this very dangerous game of musical chairs, the people who 
are most likely to end up with no housing at all are those who are the 
poorest, the most vulnerable, those with the weakest support systems 
and the fewest coping skills. Although, we have made progress in 
reducing the number of veterans and people with chronic illnesses who 
are homeless, there has been an explosion in the number of homeless 
families with children in this recession. There are over 20,000 
homeless children in New York City alone. Surely, we can do better than 
this.
    The people who conceived of and have advocated for the National 
Housing Trust Fund see its purpose as ending this shortage, closing 
this gap. We think this is a proper role for Government. This is a 
shortage of a good that is fundamental to human well-being; housing is 
not an optional expense. It is clear that the market will not fill this 
gap. The cost of building and operating rental housing simply exceeds 
what can be paid in rent by extremely low income households.
    You may and should ask why we need another low income housing 
program. What about all the HUD programs? What about the Low Income 
Housing Tax Credit? The answer is that there would be no need for the 
National Housing Trust Fund if the existing Federal programs were 
differently structured and sufficiently funded. However, no existing 
Federal housing program produces rental homes specifically targeted for 
extremely low income households, precisely the program that is most 
needed.
    More critical, the existing programs are grossly underfunded. HUD 
rent assistance programs only serve 25 percent of eligible households. 
While we have had periods of modest growth in HUD programs in the last 
30 years, more typically, the programs have been held flat or reduced. 
All HUD low income housing programs are part of domestic discretionary 
spending and thus subject to sequestration. Given the incredible 
constraints on appropriations that show no sign of abating, it is 
inconceivable that existing HUD programs will ever be enough.
    We estimate that it would take $30 billion a year for 10 years to 
close the gap. That is why we need the National Housing Trust Fund.
How the National Housing Trust Fund Will Work
    The primary purpose of the National Housing Trust Fund is to 
produce, preserve, rehabilitate, and operate rental homes that 
extremely low income households can afford. At least 90 percent of the 
funds must be used for rental housing and up to 10 percent can be used 
for home ownership activities. At least 75 percent must be used for 
extremely low income households and up to 25 percent can be used for 
households with incomes between 30 percent and 50 percent of the area 
median (very low income).
    The National Housing Trust Fund is modeled after the over 600 
housing trust funds created at the State and local level over the past 
30 years, all of which help to supplement Federal funds for affordable 
housing. By 2013, 47 States and the District of Columbia had at least 
one State housing trust fund, for a total of 57 State housing trust 
funds. Five new trust funds have been established since 2011 in North 
Dakota, Virginia, Alabama, Colorado, and South Dakota.
    Housing trust funds are run by a Government agency guided with 
priorities and programs established in the enabling legislation. Most 
commonly, trust fund resources are used for new construction, 
rehabilitation, preservation of affordable housing, as well as land or 
property acquisition for affordable housing development. Some trust 
funds also focus on the development of housing for individuals with 
special needs, including permanent supportive housing. Other activities 
include providing matching funds for Federal programs, predevelopment 
loans, emergency rental assistance, weatherization, and downpayment 
assistance. Although income targeting varies, many trust funds target 
the lowest income households.
    Housing trust funds receive revenue from a wide range of sources, 
including general funds, but the preferred model is dedicated sources 
of revenue. For example, Nebraska has a documentary stamp tax, New 
Jersey has a realty transfer tax, and Ohio and Oregon have document 
recording fees. The most successful housing trust funds as those with 
robust dedicated revenue sources as they offer a predictable revenue 
stream.
    It is important to note that at their peak in 2011, the combined 
value of State and local housing trust funds was approximately $1 
billion. \10\ They have lost ground since then. It is not realistic to 
think that State and local housing trust funds, even combined with 
other State and locally funded low income housing assistance, can ever 
get to the scale needed to solve the housing shortage.
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     \10\ To learn more about State and local housing trust fund, go to 
http://housingtrustfundproject.org.
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    The National Housing Trust Fund is structured as a block grant that 
is housed at HUD. Funds are to be distributed to the States and 
territories by a formula that is based on need, primarily need for 
rental homes affordable for extremely low income families. The funds 
will go to governors who will designate a State agency to administer 
the program. In most cases, we expect the National Housing Trust Fund 
to be run by State housing finance agencies that now administer the Low 
Income Housing Tax Credit program.
    The State has to design an allocation plan and create performance 
goals. States can choose to use their National Housing Trust Fund 
dollars to address specific goals, such as ending homelessness or 
providing community based housing for all people with disabilities. 
States could use some of their allocation to preserve existing low 
income housing.
    The State can use the funds to develop housing itself or can 
establish a grant making process to allocate the funds to 
subrecipients. The statute requires that a subrecipient has experience 
relevant to the activity it proposes and demonstrates financial 
expertise and experience.
    The State is responsible for assuring that all funds are used 
properly and for assuring that any funds that are not properly used are 
reimbursed. HUD can reduce future grants to States that are not 
reimbursed for improperly used funds.
    Funds cannot be used for advocacy, lobbying, political activities, 
travel, counseling, or preparing of tax returns. The State can use up 
to 10 percent of its allocation to administer the program, but no funds 
can be used for outreach or other administrative activities by the 
State or subrecipients.
    HUD is required to recapture any funds that a State has not 
committed within 2 years and reallocate the funds to other States.
    HUD has developed the regulations for implementation of the 
National Housing Trust Fund. They have been published for public 
comment, comments have been received, and final regulations are 
expected to be ready soon.
How the National Housing Trust Fund Should Be Treated in Housing 
        Finance Reform
    The National Housing Trust Fund has never been funded. It is 
intended to be funded with dedicated sources of revenue, such that it 
is not subject to the vicissitudes of the annual appropriations process 
and does not compete for funding with existing HUD low income housing 
programs. The initial source of funding provided for in HERA was an 
assessment on Fannie Mae and Freddie Mac. The statute also says that 
the National Housing Trust Fund can be funded by ``any amounts as are 
or may be appropriated, transferred, or credited to such Housing Trust 
Fund under any other provisions of law.''
    As you well know, Fannie and Freddie were taken into 
conservatorship soon after HERA was enacted and the conservator 
suspended their obligation to fund the National Housing Trust Fund. 
That suspension continues to this day. Our analysis is that now that 
Fannie and Freddie are again profitable, this suspension should be 
lifted. Given the dire housing circumstances of so many poor Americans, 
it would be a godsend if the conservator agreed with us, but 
unfortunately he does not.
    As you develop your legislation on the next generation of Federal 
housing finance policy, please include the following provisions related 
to the National Housing Trust Fund.

    Preserve the National Housing Trust Fund as enacted in HERA 
        as a stand-alone program housed at HUD that provides grants to 
        States for the core purpose of expanding rental housing that is 
        affordable for extremely low income households. Do not change 
        or add to its purposes or eligible activities unless doing so 
        would strengthen this core purpose. This means the proposed 
        Market Access Fund should be a separate program, not added to 
        the Housing Trust Fund, as is done in S.1217. We also object to 
        the segregation of the rental housing and home ownership 
        activities in the National Housing Trust Fund as is the case in 
        S.1217.

    Preserve the principle established in HERA that the U.S. 
        housing finance system, which benefits from its affiliation 
        with the Federal Government such as the explicit Federal 
        guarantee that you contemplate, should make financial 
        contributions to support housing activities that address 
        housing needs that the market will not, specifically those of 
        the poorest households.

    The financial contributions called for above should come 
        from at least a 10 basis point annual user fee, i.e., a 
        ``strip,'' assessed on all mortgage backed securities (MBS), 
        not just guaranteed securities. This includes both single 
        family and multifamily MBS. Further, we support an additional 
        fee on multifamily MBS for properties with rents geared to 
        households with incomes over 150 percent of the area median.

    Maximize the amount of funding to the National Housing 
        Trust Fund from these financial contributions, recognizing that 
        even a 10 basis point annual user fee on all MBS would not 
        generate sufficient funding to address the shortage of rental 
        housing affordable for extremely low income households. 
        Continue to provide for other funding to go to the National 
        Housing Trust Fund in ``any amounts as are or may be 
        appropriated, transferred, or credited . . . under other 
        provisions of law'' as does HERA.

    Maintain the National Housing Trust Fund as a permanent 
        fund on the mandatory side of the budget. We strongly urge that 
        the Banking Committee retain and, if necessary, strengthen its 
        oversight duties and responsibilities for the National Housing 
        Trust Fund. If the funds generated by the user fee called for 
        above are made available for appropriations, there is no way to 
        assure that all (or any) of the funds would be used for the 
        National Housing Trust Fund or even for low income housing.

    Assure payments are made to the National Housing Trust Fund 
        during the transition period from Fannie Mae and Freddie Mac to 
        the successor entity and immediately upon establishment of the 
        new housing finance system.

    Thank you for the opportunity to testify today. I look forward to 
your questions.
                                 ______
                                 
               PREPARED STATEMENT OF DOUGLAS HOLTZ-EAKIN
                    President, American Action Forum
                            November 7, 2013
    Chairman Johnson, Ranking Member Crapo, and Members of the 
Committee, thank you for the opportunity to appear today. In this 
testimony, I wish to make three basic points:

    The legislation being worked on by this Committee 
        represents a necessary and long-overdue effort to address 
        damaging weaknesses in the U.S. housing finance system. The 
        status quo is unsustainable and undesirable. I applaud the 
        Committee for moving forward;

    While helping low-income households afford necessary 
        shelter should be a policy priority, and such support should be 
        appropriated by Congress and on the budget. Budgetary integrity 
        requires that Congress balance the full range of policy 
        priorities; and

    The affordable housing goals imposed on the housing GSEs 
        were flawed, and should not be repeated.
The Need for Reform
    Housing finance was at the center of the 2008 financial crisis that 
visited substantial economic stress on Americans and spawned dramatic 
Government intervention. Yet, over 5 years later the central actors in 
the crisis and response--Fannie Mae, Freddie Mac, and the Federal 
Housing Administration (FHA)--remain essentially unchanged. While the 
task is politically daunting and mechanically difficult, I applaud the 
Committee's desire to undertake these reforms.
Fannie Mae and Freddie Mac
    Fannie Mae and Freddie Mac need to be wound down and closed as a 
matter of both policy and politics. From a policy perspective, the 
Government-sponsored enterprises were central elements of the 2008 
crisis. First, they were part of the securitization process that 
lowered mortgage credit quality standards. Second, as large financial 
institutions whose failures risked contagion, they were massive and 
multidimensional cases of the too big to fail problem. Policy makers 
were unwilling to let them fail because financial institutions around 
the world bore significant counterparty risk to them through holdings 
of GSE debt, certain funding markets depended on the value of their 
debt, and ongoing mortgage market operation depended on their continued 
existence. They were by far the most expensive institutional failures 
to the taxpayer and are an ongoing cost.
    There is vigorous debate about how big a role these two firms 
played in securitization relative to ``private label'' securitizers. 
There is also vigorous debate about why these two firms got involved in 
this problem. In the end, this debate need not be fully resolved to 
recognize that while Fannie Mae and Freddie Mac did not by themselves 
cause the crisis, they contributed significantly in a number of ways.
    The mortgage securitization process turned mortgages into mortgage-
backed securities through the Government-sponsored enterprises, as well 
as Countrywide and other ``private-label'' competitors. The 
securitization process allows capital to flow from investors to 
homebuyers. Without it, mortgage lending would be limited to banks and 
other portfolio lenders, supported by traditional funding sources such 
as deposits. Securitization allows homeowners access to enormous 
amounts of additional funding and thereby makes home ownership more 
affordable. It also can diversify housing risk among different types of 
lenders. If everything else is working properly, these are good things. 
Everything else was not working properly.
    There were several flaws in the securitization and 
collateralization process that made things worse. Fannie Mae and 
Freddie Mac, as well as Countrywide and other private label 
competitors, all lowered the credit quality standards of the mortgages 
they securitized. A mortgage-backed security was therefore ``worse'' 
during the crisis than in the preceding years because the underlying 
mortgages were generally of poorer quality. This turned a bad mortgage 
into a worse security. Mortgage originators took advantage of these 
lower credit quality securitizations standards and the easy flow of 
credit to relax the underwriting discipline in the loans they issued. 
As long as they could resell a mortgage to the secondary market, they 
didn't care about its quality.
    In addition to feeding poorly originated mortgages into the system, 
Fannie Mae and Freddie Mac proved to be so deeply interconnected with 
the broader financial system that policy makers were forced to step in 
to prevent their failure. In September 2008, the Federal Housing 
Finance Agency (FHFA) put Fannie Mae and Freddie Mac into 
conservatorship. Policy makers in effect promised that ``the line would 
be drawn between debt and equity,'' such that equity holders were wiped 
out but GSE debt would be worth 100 cents on the dollar.
    They made this decision because banking regulators (and others) 
treated Fannie and Freddie debt as equivalent to Treasuries. A bank 
cannot hold all of its assets in debt issued by General Electric or 
AT&T, but can hold it all in Fannie or Freddie debt. The same is true 
for many other investors in the United States and around the world--
they assumed that GSE debt was perfectly safe and so they weighed it 
too heavily in their portfolios. Policy makers were convinced that this 
counterparty risk faced by many financial institutions meant that any 
write-down of GSE debt would trigger a chain of failures through the 
financial system. In addition, GSE debt was used as collateral in 
short-term lending markets, and by extension, their failure would have 
led to a sudden massive contraction of credit beyond what did occur. 
Finally, mortgage markets depended so heavily on the GSEs for 
securitization that policy makers concluded that their sudden failure 
would effectively halt the creation of new mortgages. All three reasons 
led policy makers to conclude that Fannie Mae and Freddie Mac were too 
interconnected with the system to be permitted to fail.
    As a matter of politics, Fannie Mae and Freddie Mac are extremely 
unpopular and the public supports winding them down. (This section 
draws on a poll commissioned by the American Action Forum. \1\) The 
polling shows that a large majority of the voters have a ``hard ID'' of 
Fannie and Freddie. They are viewed favorably by only 20 percent and 
unfavorably by 52 percent.
---------------------------------------------------------------------------
     \1\ American Action Forum, ``AAF Releases New Poll of Public 
Attitudes on Fannie, Freddie Mac, and Housing Reform'', (July 2013); 
http://americanactionforum.org/topic/aaf-releases-new-poll-public-
attitudes-fannie-mae-freddie-mac-and-housing-reform.
---------------------------------------------------------------------------
    This is related to another finding, namely that 52 percent of the 
voters said that their greatest concern is either no accountability of 
banks and Wall Street or that Wall Street banks are so big that if they 
fail the taxpayers will have to bail them out again. By a small margin 
(11 percent) voters are still unfavorable toward the bank bailouts and 
TARP. Likely for this reason, a majority favor (52 percent) phasing out 
both Fannie and Freddie.
    Greater information sharpens these views. When informed that Fannie 
and Freddie played an instrumental role in the housing bubble and 
received nearly $200 billion in a bailout, voters' opposition to Fannie 
Mae and Freddie Mac moves to 59 percent. Additionally, the notion that 
Fannie and Freddie could require more public money in future bailouts 
is unacceptable to a sizable majority of the voters.
Using Housing Reform To Address Affordability
    As the Committee considers housing finance reform, the 
affordability of shelter naturally arises as a policy concern. How 
should this be addressed? First, the affordable housing goals of Fannie 
Mae and Freddie Mac were both unsuccessful and dangerous, and should 
not be repeated. The Housing Finance Reform and Taxpayer Protection Act 
(S.1217), being considered by this Committee, does not authorize HUD to 
set similar goals, but it does aim to preserve them in other ways.
    Affordable Housing Goals. Previously, HUD was the mission regulator 
of the GSEs, setting minimum percentage-of-business housing goals for 
mortgage purchases. The goals were set to support low-income lending 
and lending in underserved geographic regions. Specifically, the GSEs 
had three annual affordable housing goals:

  1.  Low- and Moderate-Income Goal: targets borrowers with income no 
        greater than area median income (AMI)

  2.  Special Affordable Goal: targets very low-income borrowers (less 
        than 60 percent of AMI) and low-income borrowers (less than 80 
        percent of AMI) living in low-income census tracts

  3.  Geographically Targeted or Underserved Areas Goal: targets low-
        income and high-minority neighborhoods

    Overall, Freddie Mac consistently lagged the conventional market in 
funding the three groups targeted by HUD's housing goals. Fannie Mae, 
while performing better than Freddie Mac, performed on average below 
market levels except over the 2001-03 period when it only lagged the 
market in funding underserved area loans.\2\ \3\ Yet despite failing to 
meet their goals, HUD added subgoals and consistently raised the 
purchase percentages of existing goals to ever-higher levels.
---------------------------------------------------------------------------
     \2\ Bunce, Harold L., Office of Policy Development and Research, 
U.S. Department of Housing and Urban Development, ``Working Paper No. 
HF-018. The GSEs' Funding of Affordable Loans: A 2004-2005 Update'', 
(June 2007); http://www.huduser.org/portal/publications/pdf/
workpapr18.pdf.
     \3\ FHFA, ``Mortgage Market Note 10-2--The Housing Goals of Fannie 
Mae and Freddie Mac in the Context of the Mortgage Market: 1996-2009,'' 
(February 2010); http://www.fhfa.gov/webfiles/15419/Housing_Goals_1996-
2009_02-01.pdf.
---------------------------------------------------------------------------
    Though inclusion of affordability goals did not singularly 
undermine the GSEs' profitability or cause their demise, the goals 
complicated their mission, blurring public purpose and pursuit of 
private profits. More importantly, the goals were not successful. 
Evidence shows the other lenders were buying more loans that met the 
goals than the GSEs themselves. Furthermore, if the purpose of the 
goals was to provide shelter, it did not have to take the form of 
owner-occupied homes. If the goal was to promote home ownership, the 
GSEs failed by concentrating more on homebuyers with homes already (not 
first-time homebuyers) and on homeowners refinancing. \4\
---------------------------------------------------------------------------
     \4\ John C. Weicher, ``The Affordable Housing Goals, Home 
Ownership and Risk: Some Lessons From Past Efforts To Regulate the 
GSEs'', Conference on ``The Past, Present, and Future of the GSEs'', 
Federal Reserve Bank of St. Louis, (November 2010); http://
research.stlouisfed.org/conferences/gse/Weicher.pdf.
---------------------------------------------------------------------------
    Funding the National Affordable Housing Trust Fund. Provisions 
under Title IV of the proposed legislation would replace the failed 
affordable housing goals of the GSEs with a user fee of 5-10 basis 
points on FMIC-insured securities to fund the Housing Trust and Capital 
Magnet Funds. Instituting that surcharge presents three main problems:

    The cost of contributions may be passed on to mortgage 
        borrowers, raising the cost of mortgage rates even further than 
        the proposed legislation likely will already. That is, it works 
        against the goal of affordable mortgage finance;

    Fund advocates have an increased incentive to encourage the 
        FMIC to grow beyond its chartered purpose; and

    Revenues from the surcharge and the effectiveness of the 
        ways they are spent will not be subject to the scrutiny and 
        approval inherent in the budget and appropriations process.

    Advocates for a national affordable housing trust fund--e.g., the 
National Low Income Housing Coalition--have stated the importance of 
``[a] dedicated source of funding not subject to the annual 
appropriations process.'' \5\ Why? Despite the woes of the 
congressional budget process, it would fundamentally diminish the 
accountability of the Housing Trust and Capital Magnet Funds to which 
the fee is allocated if they stay outside of the regular appropriations 
process. A fundamental lack of transparency and accountability 
underscored the GSE model and continues to trouble the FHA. It would be 
a core policy error to make a similar mistake in the funding of these 
trusts included in the proposed legislation.
---------------------------------------------------------------------------
     \5\ National Low Income Housing Coalition, ``National Housing 
Trust Fund''; http://nlihc.org/issues/nhtf.
---------------------------------------------------------------------------
    Preserving Support for Small Institutions and Underserved 
Communities. Support for all geographic regions of the country, whether 
an underserved rural or urban community, has been a mainstay of 
bipartisan proposals for housing finance reform. Additionally, equal 
access to the secondary market for institutions of all sizes is 
important to widespread availability of affordable credit.
    S.1217 contains several provisions that aim to preserve support for 
small institutions and underserved communities. First, the legislation 
mandates in Title II that the FMIC ``help ensure all geographic 
locations have access to mortgage credit.'' The FMIC is also charged 
with facilitating securitization for credit unions and community and 
midsize banks. In developing products, structures, contracts, etc., the 
FMIC must take into account how their actions would affect small 
financial institutions, the availability of credit, and equitable 
access to secondary mortgage market financing for lenders of all sizes 
and locations including those in rural communities. The legislation 
also requires fee uniformity for institutions purchasing insurance from 
the FMIC regardless of location or size of the institution. Finally, if 
concerns exist about the viability of those aforementioned duties, 
those concerns must be submitted in a report to Congress.
    Reforming the FHA. Housing finance reform, whether S.1217 or 
another piece of legislation, should consider undertaking needed 
reforms to FHA. While the GSEs supported affordable housing through 
goals sets by HUD, those goals worked to undermine the housing finance 
system. Following the housing bust and entry of the GSEs into 
conservatorship, significant market share shifted to FHA, causing 
unprecedented financial losses for the agency.
    Some of the potential reforms--for example, as embodied in the PATH 
Act--would narrow FHA's mission to support only low-income and first-
time homebuyers. With a mix of income-based borrower requirements and 
revised loan limits, the FHA would more adequately address a 
demonstrated need among low-income communities and first-time 
homebuyers while also enhancing the role of the private market. 
Addressing FHA in conjunction with the wind down of the GSEs is 
preferable because of how easily misaligned prices, limits, and 
standards can shift market share between Government-backed programs. 
S.1376, the FHA Solvency Act of 2013, considered by this Committee, 
does not include similar income-based borrower requirements, 
fundamental changes to the administration of FHA, fair-value and GAAP 
accounting requirements, or tightened loan limits present in the House 
legislation.
    The Dodd-Frank Act and Affordability. Housing finance reform must 
also take into account how Dodd-Frank regulations deeply affect 
affordability. Eligible mortgages under the S.1217 are limited to 
qualified mortgages (QM) as defined by regulators. A recent analysis of 
Home Mortgage Disclosure Act (HMDA) data by economists at the Federal 
Reserve found that 22 percent of borrowers in 2010 had debt-to-income 
ratios above the 43 percent standard set by the QM rule. \6\ Seventy 
percent of borrowers above that threshold had FHA, VA, or RHS insured 
loans. Those borrowers with debt-to-income ratios above 43 percent were 
also most likely to be lower-income, black, or Hispanic-white. This 
exemplifies just how easily regulations enacted from the Dodd-Frank Act 
can severely can impact affordability among lower-income communities 
and communities of color. Under the new regulatory regime, it will be 
either costly or impossible for private capital to back high LTV or 
non-QRM lending to fill the Government's role.
---------------------------------------------------------------------------
     \6\ Neil Bhutta and Glenn B. Canner, Division of Research and 
Statistics, Federal Reserve, ``Mortgage Market Conditions and Borrower 
Outcomes: Evidence From 2012 HMDA Data and Matched HDMA-Credit Record 
Data'', (September 2013); http://www.federalreserve.gov/pubs/bulletin/
2013/pdf/2012_HMDA.pdf.
---------------------------------------------------------------------------
    AAF previously estimated that the bottom line effects of proposed 
Dodd-Frank and Basel III regulations may include 20 percent fewer 
loans, resulting in 600,000 fewer home sales. In turn, the resulting 
tightened lending and reduced sales were estimated to cost up to 
1,010,000 housing starts, 3.9 million fewer jobs, and a loss of 1.1 
percentage points from GDP growth over the next 3 years. \7\ While some 
of those regulations have been revised, the reality of tightened credit 
and its potential effect on the economy remain largely the same.
---------------------------------------------------------------------------
     \7\ Douglas Holtz-Eakin, Cameron Smith and Andrew Winkler, 
``Regulatory Reform and Housing Finance: Putting the `Cost' Back in 
Benefit-Cost'', (October 2012); http://americanactionforum.org/sites/
default/files/Regulation_and_Housing.pdf.
---------------------------------------------------------------------------
    Another study by the National Association of Realtors estimated 
that Dodd-Frank regulations could raise mortgage rates by 75-125 bps 
for non-QRM, high LTV borrowers and Basel III could raise rates by 80 
bps. \8\ These estimates of the effect regulations have on mortgage 
rates are equivalent or higher than the effect economist Mark Zandi 
estimated S.1217 would have on mortgage rates. \9\ To not take into 
account how Dodd-Frank regulations affect affordability in a future 
system would be a mistake.
---------------------------------------------------------------------------
     \8\ National Association of Realtors, ``Recent Lessons for the 
QRM'', (December 2011); http://economistsoutlook.blog.realtor.org/2011/
12/08/recent-lessons-for-the-qrm/.
     \9\ Mark Zandi and Cristian deRitis, ``Evaluating Corker-Warner'', 
(July 2013); http://www.economy.com/mark-zandi/documents/2013-07-08-
Evaluating-Corker-Warner.pdf.
---------------------------------------------------------------------------
Redundant Government Support for Affordable Housing
    The Federal Government provides multiple avenues of support for the 
construction of affordable housing and assistance for low-income 
renters and homebuyers. While the success of these programs can be 
debated, support exists and does so in many forms; primarily the 
Federal Government provides appropriated funding through more than 30 
programs within the Department of Housing and Urban Development (HUD), 
tax credits and deductions for both corporations and individuals, 
housing programs for veterans through the Department of Veterans' 
Affairs (VA), rural housing programs through the Department of 
Agriculture (USDA), the mortgage insurance programs of the Federal 
Housing Administration (FHA), and Government corporation Ginnie Mae. In 
attempting to overhaul the housing finance system, it would be wise to 
address the issue of affordability through the reform or increased 
support of existing programs and not through legislation addressing the 
mechanics of the Government's role in the secondary market.
    Last year the Government Accountability Office (GAO) concluded that 
the Federal Government ``incurred about $170 billion in obligations for 
Federal assistance and estimated forgone tax revenue in fiscal year 
2010.'' \10\ The GAO found housing assistance fragmented across 160 
programs and activities. Table 1, which does not include any tax 
expenditures, provides an example of the number of programs that exist 
across agencies. (Note: housing programs are not limited to those in 
Table 1.)
---------------------------------------------------------------------------
     \10\ Government Accountability Office, ``Housing Assistance: 
Opportunities Exist To Increase Collaboration and Consider 
Consolidation'', (August 2012); http://gao.gov/assets/600/593752.pdf.
---------------------------------------------------------------------------
    According to the Joint Committee on Taxation, tax expenditures 
subsidizing housing, for individuals and corporations, will cost the 
Federal Government $868 billion in foregone taxes from 2012 to 2017 
(see Table 1). While many of these credits, deductions, and exemptions 
favor owner-occupied housing over rental housing, that problem can and 
should be addressed through tax reform.
    The redundancy of Federal support of housing calls into question 
the efficiency and effectiveness of Government efforts to assist low-
income renters and homebuyers and maintain affordability. Tackling 
affordability requires both a dedication to greater job and wage 
growth, as well as a renewed look at what improvements can be made to 
existing Federal housing programs.
    The effects of reform legislation on affordability will ultimately 
depend on the system put in place; whether the new system has many 
players, maintains the flow of mortgage credit and protects taxpayers 
from liabilities is more important than any fund or single program. The 
most important components of housing finance reform are the mechanics 
of a new system and how to transition to it.
    Thank you. I look forward to answering your questions.
    
    
    
    
                 PREPARED STATEMENT OF ETHAN HANDELMAN
  Vice President for Policy and Advocacy, National Housing Conference
                            November 7, 2013
    My name is Ethan Handelman, and I am the Vice President for Policy 
and Advocacy at the National Housing Conference. I am grateful to the 
Committee for inviting me to testify, and I particularly thank the 
Chair, the Ranking Member, and the many other Committee Members who are 
working on housing finance reform in a constructive, bipartisan manner.
    I appreciate your choice of ``affordable options for housing'' in 
the title of this hearing, as that should be a central goal of housing 
finance reform. The work of rebuilding the mortgage finance system 
cannot be only about making markets function--it must be about shelter. 
As the Federal Government creates new mechanisms for housing finance, 
deploys its full faith and credit, and encourages private entities to 
put capital to work, the social purpose of safe, decent, and affordable 
housing for all in America must guide those efforts. The new housing 
finance system you are working hard to create must find ways to harness 
the creativity and energy of the private sector to provide homes for 
people across this country: in cities, suburbs, and rural areas; in 
houses, apartments, and manufactured homes; for old and young, renters 
and owners, singles and families, of all backgrounds. To accomplish 
that, the housing finance system must by design serve as broadly as 
possible, and there must be mechanisms to fill in the remaining gaps.
About the National Housing Conference
    The National Housing Conference (NHC) represents a diverse 
membership of housing stakeholders including tenant advocates, mortgage 
bankers, nonprofit and for-profit home builders, property managers, 
policy practitioners, realtors, equity investors, and more, all of whom 
share a commitment to safe, decent, and affordable housing for all in 
America. We are the Nation's oldest housing advocacy organization, 
dedicated to the affordable housing mission since our founding in 1931. 
As a nonpartisan, 501(c)3 nonprofit, we are an evidenced-based research 
and education resource working to advance housing policy at all levels 
of Government in order to improve housing outcomes for all in this 
country.
The Large and Growing Need for Affordable Housing
    The reform of our Nation's housing finance system occurs in the 
context of a long trend of increasing housing need. For both homeowners 
and renters, the cost of housing outpaces income, often creating a 
severe burden. The annual Housing Landscape publication from NHC's 
Center for Housing Policy documents the prevalence of severe housing 
cost burdens, meaning housing costs in excess of 50 percent of income, 
for working households. More than one in four working renter households 
(26.4 percent) spent more than half of their income on housing costs in 
2011, an increase of more than three percentage points since 2008. 
Despite falling mortgage interest rates and home prices--a period when 
housing affordability for owners should have improved--rates of severe 
housing cost burden remained stable and high for working owners between 
2008 and 2011. Roughly one in five working owners experienced a severe 
housing cost burden during this period. \1\
---------------------------------------------------------------------------
     \1\ Center for Housing Policy, ``Housing Landscape 2013'', May 
2013, available at http://www.nhc.org/media/files/Landscape2013.pdf.
---------------------------------------------------------------------------
    If we look beyond the subset of working households to all housing 
need, the picture is even worse. In 2011, over 40 million households in 
this country were paying more than 30 percent of their income for 
housing, and 20.6 million were paying more than 50 percent. Recent 
increases in cost burdens have been primarily among renters, with those 
of lowest income hit hardest. Yet, only one in four households eligible 
for housing assistance actually receives it. \2\
---------------------------------------------------------------------------
     \2\ Harvard Joint Center for Housing Studies, ``State of the 
Nation's Housing 2013'', p. 5, available at: http://
www.jchs.harvard.edu/research/state_nations_housing.
---------------------------------------------------------------------------
    Looking to the future, we should expect the aging of the population 
and an Echo Boom with an increase in minority households to drive much 
housing need. Aging households will increase demand for modification of 
existing homes, smaller homes with supportive services, and better 
access to transportation. Rental housing demand will rise, driven by 
the more mobile Echo Boom and a larger proportion of minority and low-
wealth household. Demand for starter homes and the need of low-wealth 
households for affordable home mortgages without overly restrictive 
downpayment requirements will directly affect households' ability to 
achieve home ownership. \3\
---------------------------------------------------------------------------
     \3\ ``State of the Nation's Housing'', p. 16. Also, Bipartisan 
Policy Center Housing Commission, ``Demographic Challenges and 
Opportunities for U.S. Housing Markets'', March 2012, available at 
http://bipartisanpolicy.org/sites/default/files/
BPC%20Housing%20Demography.pdf.
---------------------------------------------------------------------------
Serving Housing Needs by Encouraging Private Enterprise
    The urgency of mortgage finance reform stems both from the growing 
housing needs of Americans and the need to restore a reliable source of 
mortgage capital in the wake of the 2008 financial crisis. We are still 
operating with what was thought to be a temporary conservatorship for 
Fannie Mae and Freddie Mac (the Government Sponsored Enterprises, or 
GSEs). Overall, the Federal Government continues to guarantee over 85 
percent of new mortgages. Private capital has yet to return to 
sustainable precrisis levels. Finance for multifamily housing has fared 
somewhat better thanks in large part to the GSE's multifamily 
operations, but overall production of multifamily housing has only just 
returned to historically stable levels, leaving 5 years of pent-up 
demand to make up.
    Mortgage finance reform must address both reliable capital flows 
and household need. A strong Government presence in the secondary 
mortgage market can create the necessary stability and liquidity for 
private enterprise to provide home mortgages and finance rental housing 
effectively--in other words, to make the market function well. But we 
know that private enterprise does not serve all parts of the market 
well. Many rural areas, lower-income households, small rental 
properties, manufactured housing properties, subsidized rental housing, 
communities of color, and neighborhoods hit hard by waves of 
foreclosure lack adequate capital. Government's action must be about 
more than just market functioning. It should aim to unleash the energy 
of private enterprise to serve the shelter needs of all in America.
Enabling Long-Term Financing With a Federal Guarantee
    The critical first part must be a Federal guarantee that is 
explicit, paid-for, and protected by layers of risk-bearing capital. 
The guarantee should be limited to securities, separate from the 
issuing entities or their debt. Absent that guarantee, there simply 
would not be enough private capital to make 30-year fixed-rate 
mortgages widely available. Nor would the To Be Announced (TBA) market 
function, which would make mortgages more expensive and deprive 
homeowners of the ability to lock an interest rate before closing.
    The Federal Housing Administration (FHA), the U.S. Department of 
Agriculture (USDA), and Veterans Affairs (VA), are essential and at 
times play a critical countercyclical role, but they should remain 
focused on specific populations such as veterans, first-time 
homebuyers, and low-wealth households. We cannot rely on them to be the 
sole source for affordable, long-term mortgages.
    Rather, we need to allow multiple, proven capital channels to serve 
housing needs. Ensuring a mechanism by which housing finance agencies, 
credit unions, community banks, and other smaller lenders have access 
to securitization on an equitable footing would provide additional 
means to finance affordable home loans and finance affordable rental 
housing.
Safe and Sustainable Low-Downpayment Lending
    Downpayment has an intuitive appeal from a regulatory standpoint, 
since it is a simple, bright line with a correlation to default rate. 
However, it is only one factor among many in a full underwriting 
analysis, and on its own is neither a necessary nor sufficient 
condition for a good loan. Using downpayment as a minimum threshold, 
moreover, powerfully disadvantages responsible low- and moderate-income 
homebuyers. Eliminating the overly rigid 5-percent downpayment 
requirement currently in S.1217 is an important step toward broadening 
access to the most efficient source of mortgage capital.
    A high downpayment threshold creates a powerful barrier to home 
ownership for low-wealth families, one that is uniquely difficult to 
overcome. A family can improve its credit performance over time or pay 
down nonmortgage debt, but saving up $20,000 or $40,000 (even more in 
high-cost markets) for a downpayment can take decades. Making the 
accumulation of wealth a requirement for access to affordable mortgage 
finance in effect excludes Americans who do not already have individual 
or family wealth. Not only is that fundamentally unfair, but it also 
skews disproportionately against communities of color. \4\
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     \4\ ``Plan B, a Comprehensive Approach To Moving Housing, 
Households, and the Economy Forward''; April 4, 2011, by Lewis Ranieri, 
Ken Rosen, Andrea Lepcio, and Buck Collins. Figure 14 shows that 
minority households in 2007 had median before tax family income of 
about $37,000, compared to about $52,000 for white families. Similarly, 
Figure 15 shows minority family net worth in 2007 of almost $30,000, 
compared to more than $170,000 for white families.
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    We know that well-structured, low-downpayment loans to responsible 
borrowers perform well. The best data on this come from the Center on 
Community Capital, which found that properly structured, low-
downpayment loans performed 3.5 to 3.99 times better than subprime 
loans to comparable borrowers, even during the height of the 
foreclosure crisis. \5\ The well-structured low-downpayment loans 
perform with comparable stability to prime loans. Data illustrate the 
converse, too: in the fourth quarter of 2010, the percent of prime 
fixed rate loans in foreclosure was 2.67 percent, the highest level in 
the history of the Mortgage Bankers Association National Delinquency 
Survey. The rate for prime adjustable rate loans was a whopping 10.22 
percent. \6\ These data underscore that the housing crisis resulted 
from inherently risky mortgage features--exploding ARMs, no-doc loans, 
negative amortization--rather than loans with low downpayments.
---------------------------------------------------------------------------
     \5\ Lei Ding, Roberto G. Quercia, Wei Li, Janneke Ratcliffe, 
``Risky Borrowers or Risky Mortgages: Disaggregating Effects Using 
Property Score Models'', Center for Community Capital Working Paper, 
May 17, 2010. Available at http://www.ccc.unc.edu/documents/
Risky.Disaggreg.5.17.10.pdf.
     \6\ The survey is available at http://www.mortgagebankers.org/
NewsandMedia/PressCenter/75706.htm.
---------------------------------------------------------------------------
    We further know that downpayment assistance programs provided by 
localities and approved nonprofits generate low-risk loans. Indeed, 
buyers with assistance from affordable home ownership programs have 
default rates well below local market averages, even with very low or 
no downpayment from the buyer's own funds. \7\ Home ownership 
assistance programs use public resources efficiently to create long-
term affordable housing, often making the loans safer than some 
unassisted transactions.
---------------------------------------------------------------------------
     \7\ Urban Institute. ``Balancing Affordability and Opportunity: An 
Evaluation of Affordable Home Ownership Programs With Long-Term 
Affordability Controls'', October 26, 2010.
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Serving All Qualified Borrowers
    Discussions of how to get the mortgage finance system to serve all 
qualified borrowers often bog down in circular questions of whether the 
primary or secondary market should lead. The primary market lenders 
originate loans and so are the first gatekeepers of access to credit. 
However, their ability to lend is constrained by the liquidity supplied 
by the secondary market. Without a capital supply, the primary market 
cannot originate large volumes of loans. The secondary market, in 
contrast, focuses on efficiency, using high volumes of homogeneous 
loans to achieve economies of scale and attract capital. Packaging 
easily standardized, lower-risk loans into securities has great 
benefits, but the business is necessarily constrained to work with the 
loans that the primary market originates. It therefore becomes 
difficult for either the primary market or the secondary market to 
cause the other to broaden its parameters for what loans to provide, 
since neither can act without the support of the other.
    Government is uniquely placed to align the primary and secondary 
markets to serve as broadly as possible. A rebuilt housing finance 
system should include a strong regulatory agency with the necessary 
powers to supervise the market. The regulator could implement a 
requirement that secondary market participants who benefit from the 
stability, transparency, and liquidity created by the housing finance 
system serve the entire primary market. To the extent that the primary 
market is serving low-income areas, rural areas, communities of color, 
small rental properties, subsidized rental housing, manufactured 
housing, and other underserved market segments, the secondary market 
should also.
    The Housing and Economic Recovery Act of 2008 (HERA) created a 
framework for measuring the secondary market's performance and 
evaluating it against the primary market. Home Mortgage Disclosure Act 
data provide a useful metric, among others. Similar mechanisms could be 
incorporated into the new legislation the Committee is developing, for 
both single family and multifamily, provided there is a strong 
regulatory agency with the ability to gather market information and 
supervise participants.
Financing Affordable Multifamily Housing
    Renters make up more than one third of the country, and their 
median income is approximately half that of owners. \8\ Demand for 
rental housing is increasing, and multifamily properties are an 
important component of meeting that demand. Ensuring a steady supply of 
capital to multifamily housing, therefore, is a necessary part of 
ensuring that Americans can afford a range of housing options.
---------------------------------------------------------------------------
     \8\ ``State of the Nation's Housing 2013'', p. 22.
---------------------------------------------------------------------------
    The Fannie Mae and Freddie Mac multifamily businesses are critical 
capital sources with a proven track record for the creation and 
preservation of affordable rental housing. The majority of Fannie Mae 
and Freddie Mac's multifamily business finances rental homes for 
families of modest means. In 2012, over 68 percent of units financed by 
Freddie Mac were affordable to households earning less than 80 percent 
of area median income (AMI), and 14 percent were affordable to those 
earning less than 50 percent of AMI. Fannie Mae's performance is 
comparable: 67 percent of the units financed in 2012 were affordable to 
households at 80 percent of AMI and 19 percent were affordable to those 
earning less than 50 percent of AMI. \9\
---------------------------------------------------------------------------
     \9\ Data compiled by the National Housing Trust from public 
sources including Fannie Mae and Freddie Mac quarterly statements and 
the 2012 FHFA Report to Congress.
---------------------------------------------------------------------------
    Production of so much affordable housing is in part due to the 
specialized products that Fannie Mae and Freddie Mac provide. They are 
able to provide longer-term debt than pension funds, banks, or conduit 
lenders typically offer. \10\ Having stable debt service costs is often 
essential to regulated affordable housing properties that must pledge 
long-term use restrictions, and it also critical to allowing properties 
to maintain lower rents even without a formal use restriction. Fannie 
Mae and Freddie Mac have also forged relationships with State housing 
finance agencies, community development financial institutions, and 
others financing affordable housing in ways that private capital 
sources simply will not fill in. A specific example is the advance 
commitments for permanent take-outs of bond-financed properties without 
which many bond-financed affordable housing properties could not come 
about.
---------------------------------------------------------------------------
     \10\ Life companies offer some long-term debt, but they are a very 
small slice of the market and focus on only pristine, A-class 
properties.
---------------------------------------------------------------------------
    The Fannie Mae and Freddie Mac multifamily businesses are proven 
and profitable, and they remained so even during the crisis. Both 
businesses have delinquency rates consistently under 1 percent, 
compared to 12.15 percent delinquency for commercial mortgage backed 
securities (CMBS) in 2010 and 9.65 percent for CMBS in 2012. \11\
---------------------------------------------------------------------------
     \11\ Freddie Mac, ``Report to the Federal Housing Finance Agency: 
Housing Finance Reform in the Multifamily Mortgage Market'', December 
2012, p. 13.
---------------------------------------------------------------------------
    We recommend separating the multifamily businesses now, while still 
in conservatorship, to prepare for eventually privately capitalizing 
them as issuers of FMIC-insured multifamily mortgage-backed securities 
(MBS). FMIC should have a separate Office of Multifamily Finance to 
oversee the spun-off issuers as well as new issuers who are able to 
meet the same criteria for participation. All issuers of insured 
multifamily MBS should be obligated to meet a minimum affordability 
threshold at a portfolio level. More detail on our specific 
recommendations for improving treatment of multifamily appears in the 
proposal developed through the Mortgage Finance Working Group, 
presented in Attachment 1. Principles developed by NHC to guide 
mortgage finance reform for multifamily are presented in Attachment 2.
Filling in the Market's Gaps
    The secondary mortgage market, despite its great efficiency, does 
not serve all those who need housing equally well. We therefore need 
specialized tools to fill in the gaps that are left. As currently 
proposed, S.1217 includes a small fee on MBS to fund three 
complementary mechanisms for improving access and affordability:

    The National Housing Trust Fund (NHTF) directly serves the 
        needs of extremely low-income renters using a combination of 
        capital subsidy to create affordable rental homes and rental 
        subsidy to enable those homes to serve extremely low-income 
        households. Enacted in the Housing and Economic Recovery Act of 
        2008 (HERA), it still requires funding to begin allocating 
        funds to the States for deployment. HUD is a natural fit to 
        implement the NHTF, given its expertise in allocation of block 
        grants and understanding of property finance and rental 
        subsidy.

    The Capital Magnet Fund (CMF) supports financing for the 
        preservation, rehabilitation, or purchase of affordable housing 
        for low-income communities and community service facilities 
        such as day care centers, workforce development centers, and 
        health care clinics. It leverages other funds 10 to 1, and 
        proved extremely effective in its first (and only) round of 
        funding. CMF, also enacted in HERA, is capably managed by the 
        Treasury's CDFI Fund and should continue there.

    The Market Access Fund (MAF) should be created to provide a 
        way for Government to share the risk of new product development 
        and piloting, to help private enterprises develop more 
        effective ways to direct capital to underserved households and 
        communities. Through competitive research and development 
        grants and temporary credit enhancement, MAF would seek to 
        enable the private sector to more efficiently address unmet 
        housing need. MAF would be best administered by FMIC, which 
        would have the necessary expertise and contact with secondary 
        and primary market financing to evaluate product proposals and 
        oversee credit enhancement.

    To enable each of these complementary mechanisms, we therefore 
support the creation and funding of a multipurpose fund that builds on 
Title IV of S.1217 so that the new housing finance system can better 
serve a range of housing needs. We recommend assessing all mortgage 
backed securities (not just guaranteed securities) a 10 basis point 
annual user fee (i.e., a ``strip'') that would be used to support the 
Market Access Fund, the National Housing Trust Fund, and the Capital 
Magnet Fund. We strongly suggest that percentage allocations to the 
three funds provided in Title IV be reconsidered to assure that the 
allocations more closely reflect the needs that each fund addresses.
    All MBS, not just those with a guarantee, should pay the small fee 
to support these programs, for several reasons. Firstly, the entire 
market benefits from the stability and liquidity that the Government 
creates through its guarantee and regulation. The jumbo market, for 
instance, benchmarks to the conventional guaranteed market and is 
modeled on processes developed by Fannie Mae and Freddie Mac. Secondly, 
having a fee on just the guaranteed market would distort incentives, 
unnecessarily steering securitization away from the Government-backed 
channel and as a result requiring a higher fee. Thirdly, creating 
opportunities for wealth-building, stable rental housing, and stronger 
neighborhoods helps ensure more future homebuyers to keep the system 
running.
    Others on the panel have already addressed the NHTF, but additional 
information on the CMF and the MAF may be helpful.
Capital Magnet Fund
    The Capital Magnet Fund was created in HERA to supply capital to 
community development financial institutions (CDFIs) and nonprofit 
housing developers to finance affordable housing and related community 
development activities. \12\ The CMF uniquely combines several features 
to empower nonprofits efficiently:
---------------------------------------------------------------------------
     \12\ This section relies heavily on material produced by the 
Housing Partnership Network and the Opportunity Finance Network.

    Competitive allocation encourages efficiency by applicants 
        and, if iterated in successive funding rounds, should lead to 
---------------------------------------------------------------------------
        increasingly effective uses.

    A leverage requirement of 10:1 requires that grantees raise 
        additional private capital to stretch Government dollars 
        further. Indeed, many grantees in the initial round report 
        higher than required leverage ratios.

    Enterprise-level capital grants helps high-capacity 
        nonprofits increase their scale and magnify their impact. For 
        instance, grant funds deployed as loans can often be recycled 
        as loans are paid off.

    Accountability for performance, monitored by the Treasury 
        Department's CDFI Fund, ensures that program dollars are used 
        well.

    A few examples of CMF awards demonstrate the range and 
effectiveness of the program. Volunteers of America National Services 
used a CMF soft loan to fill the capital gap for Trailside Heights 
Apartments in Anchorage, Alaska, providing 446 affordable townhomes for 
families. Habitat for Humanity International used a CMF grant to create 
a loan fund to help finance affordable homes in California, Florida, 
and Tennessee. The Low Income Investment Fund used CMF dollars as 
credit enhancement for land acquisition funds to create 146 affordable 
apartments for seniors.
    Although the CMF was created in HERA, it was never funded by the 
intended fee on the GSEs. It did, however, receive a single 
appropriation of $80 million in 2010 (far below the originally intended 
funding level). That single initial allocation round received $1 
billion in applications from 230 organizations, of which nearly half 
scored into a highly qualified pool. That level of demand and 
application quality strongly suggests that the CMF could allocate far 
more funds to great effect, particularly as the competitive dynamic 
encourages the applicant pool to grow and improve.
Market Access Fund
    The Market Access Fund (MAF), if created, would enable participants 
in the new housing finance system such as lenders, issuers, and 
guarantors to safely and sustainably serve the broadest possible range 
of creditworthy borrowers and underserved markets. \13\ The MAF would 
accomplish this goal through competitively awarded grants and temporary 
credit enhancements that help the private sector find ways to better 
reach the underserved. Its resources would support a combination of 
product research and development and testing at a scale sufficient to 
enable commercial evaluation of new products and processes. In other 
words, the MAF breaks through the common impasse in which private 
businesses underserve potentially profitable creditworthy borrowers 
because it is challenging to invest in specialized systems and 
products. With the MAF sharing the cost of that initial investment, we 
can identify ways to serve more housing needs in profitable ways.
---------------------------------------------------------------------------
     \13\ This section relies heavily on material produced by the 
Center for American Progress (CAP). The Market Access Fund concept was 
developed by the CAP's Mortgage Finance Working Group, in which NHC 
participates.
---------------------------------------------------------------------------
    Some examples help illustrate areas where the MAF could support 
useful innovation:

    Energy efficiency and underwriting: Household energy costs 
        in this country are about $230 billion annually and make up 15 
        percent of the total cost of home ownership for average 
        families--even more for lower-income families. Research has 
        found a clear association between home energy efficiency and 
        loan performance, but more research is needed to quantify that 
        link and incorporate it into the mortgage qualification 
        process. Lenders in markets with high energy costs could test 
        using energy savings to adjust their loan underwriting, 
        supported by the MAF.

    Reserve funds and home ownership success: To make a 
        downpayment and pay closing costs, low-wealth households often 
        use the bulk of their savings to acquire a home. However, new 
        homeowners with additional liquid reserves have lower default 
        rates. Lenders could experiment with requiring smaller 
        downpayments from borrowers but instead having them contribute 
        to a dedicated reserve fund; this way, they could see if 
        participating borrowers experience lower default rates than 
        similar borrowers who make somewhat higher downpayments but 
        have fewer reserves.

    Affordable housing preservation: Owners of affordable 
        rental properties sometimes need to refinance their loans, but 
        often find it difficult to do so at terms that will enable them 
        to keep rents within reach. As a result, affordable units 
        disappear from the market, yet replacing them is less efficient 
        and more expensive than preserving them. One way to fix this 
        problem is to make financing for affordable housing 
        preservation available on better terms, but experiments in 
        doing so will need to be proven before they will become broadly 
        acceptable. MAF resources could help lenders experiment with 
        new ways to serve this market.

    Not every experiment will work, nor should we expect them all to. 
MAF funding will be by nature temporary, so that successful experiments 
can find a home in the private sector or with specialized lenders and 
failed experiments can end. Putting the MAF in the hands of an agency 
with direct understanding of primary and secondary mortgage markets is 
essential, so that it can measure results accurately and evaluate 
success or failure. In the framework of S.1217, the FMIC is the logical 
fit.
    The MAF is essential to supplement the housing finance system, but 
on its own, it cannot fill the overall need for the mortgage market to 
provide broad access and affordability. It is rather a way to discover 
and test new tools to better fulfill the goals of access and 
affordability.
Addressing Housing Need Early To Avoid Emergency Fixes
    A large body of research documents the benefits of investments in 
affordable housing--from transitional housing for homeless individuals 
and families to rental housing complemented by case management and 
supportive services to programs supporting affordable home ownership 
for low- and moderate-income households. Investments in housing early 
can result in future economic benefits and cost savings.
    Myriad studies document the benefits of stable and affordable 
housing to individual and family well-being, including health, 
educational opportunities, increased income, and wealth building. 
Stable, affordable housing helps children's school performance and 
health, improving outcomes for them and for society. Recent research 
from Children's Health Watch demonstrated that children living in 
overcrowded housing or in families that cannot consistently afford 
their rent are at increased risk of poor educational outcomes, 
developmental delays, and hospitalizations compared with other 
children. \14\ Stable and affordable housing is associated with fewer 
school disruptions, better academic performance, and greater school and 
community involvement by families. \15\ A substantial amount of 
research has been done to demonstrate the link between education 
outcomes and future economic prospects for children. In fact, there is 
little debate about the relationship between academic performance and 
future earnings (positive relationship), future receipt of public 
assistance (negative relationship), and future incarceration (negative 
relationship). As a result, these relationships suggest positive 
impacts on the economy through higher taxes paid on higher wages and 
lower use of publicly funded services. Finally, a study by McKinsey and 
Company Consulting concluded that if the gap in test scores between 
poor and wealthy students could be closed, yearly gross domestic 
product would be trillions of dollars higher, or $3 to $5 billion 
dollars per day higher. \16\
---------------------------------------------------------------------------
     \14\ Children's Health Watch. 2012. ``Stable, Affordable Housing 
Supports Young Children's Health in Philadelphia''. http://
www.childrenshealthwatch.org/upload/resource/12_05_PAhousingbrief.pdf 
accessed 11/4/2013.
     \15\ Brennan, Maya. 2011. ``The Impacts of Affordable Housing on 
Education: A Research Summary''. Washington DC: Center for Housing 
Policy. http://www.nhc.org/media/files/
Insights_HousingAndEducationBrief.pdf. Maya Brennan and Jeffrey Lubell. 
2007. ``Framing the Issues--The Positive Impacts of Affordable Housing 
on Education''. Washington DC: Center for Housing Policy. http://
www.nhc.org/media/documents/FramingIssues_Education1.pdf.
     \16\ Hernandez, Javier C. 2009. ``Study Cites Dire Economic 
Impacts of Poor Schools''. New York Times. http://www.nytimes.com/2009/
04/23/nyregion/23klein.html?_r=0 accessed 11/4/2013.
---------------------------------------------------------------------------
    Housing the homeless is perhaps the clearest example of cost-
effective housing intervention. Several researchers have found that 
there are higher rates of emergency room use and hospitalization for 
mental health and substance abuse problems, and longer in-patient 
hospital stays, for homeless adults compared with other very low-income 
individuals. \17\ A study of supportive housing in New York City found 
that homeless individuals who received supportive housing were less 
likely to be hospitalized or incarcerated than comparable homeless 
individuals who did not receive services. The authors found that the 
costs of the supportive housing were offset by the savings in health 
care, law enforcement, and other service utilization. \18\ Additional 
studies in Seattle, Los Angeles, and Maine reached similar conclusions 
about the cost effectiveness of investing in permanent supportive 
housing, specifically finding that for every dollar invested in 
programs offering long-term housing and services for homeless 
individuals, there is an average saving of two dollars in terms of 
other publicly funded services. \19\ Additional research has shed light 
on the relative costs associated with housing families in temporary 
shelters compared to providing families with rental subsidies. The 
analysis of homeless families in four U.S. jurisdictions found the 
average cost of housing a family in a shelter for 1 year was about four 
times the cost of providing a rental subsidy to that same family, 
suggesting that investment in rental subsidies was a much more cost 
effective way of meeting homeless families' needs. \20\ In short, 
making stable housing available to end and prevent homelessness is cost 
effective.
---------------------------------------------------------------------------
     \17\ Kushel, M.B., Perry, S., Bangsberg, D., Clark, R., and Moss, 
A.R. (2002). ``Emergency Department Use Among the Homeless and 
Marginally Housed: Results From a Community-Based Study''. American 
Journal of Public Health, 92, 778-784. Kuno, E., Rothbard, A.B., 
Averyt, J., and Culhane, D. (2000). ``Homelessness Among Persons With 
Serious Mental Illness in an Enhanced Community-Based Mental Health 
System''. Psychiatric Services, 51, 1012-1016. Salit, S.A., Kuhn, E.M., 
Hartz, A.J., Vu, J.M., and Mosso, A.L. (1998). ``Hospitalization Costs 
Associated With Homelessness in New York City''. The New England 
Journal of Medicine, 338, 1734-1740.
     \18\ Culhane, D.P., Metraux, S., and Hadley, T. (2002). ``Public 
Service Reductions Associated With Placement of Homeless Persons With 
Severe Mental Illness in Supportive Housing''. Housing Policy Debate, 
13, 107-163.
     \19\ Ludwig, Terri. 2013. ``To Curb Medicaid Spending Tomorrow, 
Invest in Housing Today''. http://www.huffingtonpost.com/terri-ludwig/
curb-medicaid-spending_b_4117001.html accessed 11/4/2013.
     \20\ Culhane, D.P., Metraux, S., Park, J.M., Schretzman, M., and 
Ventura, J. (in press). ``Testing a Typology of Family Homelessness 
Based on Patterns of Public Shelter Utilization in Four U.S. 
Jurisdictions: Implications for Policy and Program Planning''. Housing 
Policy Debate.
---------------------------------------------------------------------------
    Housing counseling is a second example of cost-effective 
preventative housing assistance. Studies have found that housing 
counseling can prevent foreclosure in times of distress, reduce family 
housing costs, and reduce the likelihood of mortgage delinquency. \21\ 
A nationwide study of the foreclosure mitigation counseling program 
found that borrowers who had missed a payment on their mortgage were 45 
to 50 percent more likely to get up-to-date on payments if they 
received counseling. The same study found that households who received 
counseling had on average lower monthly payments and were 45 percent 
more likely to sustain their mortgage modifications. \22\ Furthermore, 
most studies of prepurchase counseling find that it reduces mortgage 
delinquency. Making housing counseling an integral part of mortgage 
finance would build on the lessons learned during the foreclosure 
crisis, namely, that housing counseling improves outcomes for 
borrowers, lenders, and neighborhoods alike by helping more families 
sustain home ownership.
---------------------------------------------------------------------------
     \21\ Laura Williams, Center for Housing Policy, ``The Role of 
Housing Counseling in Reducing Mortgage Delinquency and Foreclosure'', 
2011, fact sheet available at http://www.nhc.org/media/files/
Role_of_Housing_Counseling_in_Preventing_Foreclosure.pdf.
     \22\ Neil Mayer, et al. 2010. ``National Foreclosure Mitigation 
Counseling Program Evaluation: Preliminary Analysis of Program 
Effects''. Washington, DC: The Urban Institute.
---------------------------------------------------------------------------
    The foreclosure crisis also provides a cautionary example of the 
costs of failing to act early. Allowing waves of foreclosure to occur, 
particularly concentrated in vulnerable neighborhoods, triggered a 
vicious cycle of disinvestment that has proven expensive and difficult 
to break. \23\ Preventing foreclosures and avoiding long-term vacancy 
by acting earlier would have avoided costly neighborhood rebuilding, 
better maintained home values, and helped families avoid the pain and 
cost of displacement.
---------------------------------------------------------------------------
     \23\ For an overview, see, ``Understand Why Foreclosures Matter'' 
on the Center for Housing Policy's site foreclosure-response.org, at 
http://www.foreclosure-response.org/policy_guide/
why_foreclosures_matter.html.
---------------------------------------------------------------------------
Making Housing Finance About Shelter
    In closing, I urge you again to make shelter an explicit and 
central goal of housing finance reform. Realign the incentives of the 
myriad market participants so that the energy and creativity of the 
private sector makes affordable housing options available broadly, and 
use targeted programs to fill in the gaps for those harder to serve. I 
hope that this bipartisan effort will move our country closer to safe, 
decent, and affordable housing for all in America.
    Thank you again for the opportunity to be here. I am glad to answer 
questions from the Committee.














        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                     FROM HILARY O. SHELTON

Q.1. Fannie Mae and Freddie Mac's duty to serve the entire 
primary market is an important aspect of our current housing 
finance policy. The duty to serve ensures that creditworthy 
people in all parts of the country can get access to mortgages 
with reasonable rates and terms. Without a duty to serve, 
people in rural areas, lower-income neighborhoods, and 
primarily immigrant or minority neighborhoods might find that 
mortgages are no longer readily available.
    S.1217 envisions a secondary market with many issuers of 
Government-guaranteed securities. Unlike Fannie and Freddie, 
which serve the entire Nation, certain issuers in the S.1217 
model may purchase loans only from certain parts of the country 
or may specialize in targeted loan profiles. Assuming there is 
a secondary market with several issuers, do you have views on 
how we could structure and enforce a duty to serve?

A.1. Answer not received in time for publication.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR HEITKAMP
                      FROM SHEILA CROWLEY

Q.1. We have tried to find some kind of actual economic 
verification of the impact of the affordable housing goals, 
quantified. Please provide, to the extent that you have actual 
data, hard data on the impact as we have discussed here.

A.1. Government-Sponsored Enterprise (GSE) activities that meet 
the affordable housing goals criteria support households with 
incomes below 80 percent of the area median income. The 
affordable housing goals were put in place to benefit 
households at 80 percent of area median income (low income) and 
50 percent of area median income (very low income).
    The National Low Income Housing Coalition does not have its 
own data to measure the effectiveness of the GSE affordable 
housing goals, but we have done a modest scan of what data 
others may have in order to respond to this question. While it 
is not possible to discern the precise number of low-income 
households who would been served absent the goals, it is 
generally agreed that the goals have allowed access to 
mortgages and lending in traditionally underserved communities, 
including low-income communities and communities of color.
    Based on the National Community Reinvestment Coalition's 
analysis of Fannie Mae and Freddie Mac's 2012 Annual Housing 
Activity Reports, GSE activity that met the criteria the 
affordable housing goals target amounted to approximately $267 
billion, including $41.4 billion of investment in rental 
multifamily units that met the goals' criteria.
    While the affordable housing goals are important, we must 
note that the goals do not support housing that is affordable 
to extremely low-income households, those with income at or 
below 30 percent of the area median or the poverty level, 
whichever is lower. People with incomes this low generally 
cannot support mortgages and frequently pay more than 
affordable levels of rent. In 2011, 76 percent of extremely 
low-income households spent over half of their income for 
housing, a level considered a severe cost burden. The market 
simply can produce and operate housing that this income group 
can afford, no matter how many goals are set.
    That is the rationale for the National Housing Trust Fund 
(NHTF), which was authorized in 2008 in HERA specifically to 
expand the supply of housing affordable to extremely low-income 
households. We are pleased that the NHTF is included on S.1217, 
the Corker-Warner bill, we object to the addition of other 
activities to it that were not part of HERA. We urge that the 
uses of the NHTF remain as written in HERA and that the funding 
to the NHTF be maximized.
    In 2012, there was a nationwide shortage of 7.1 million 
rental homes that extremely low-income households could afford. 
We estimate that it would take $30 billion a year for 10 years 
to close the gap. The funding provided in S.1217 is a good 
start, but should be increased in further bills developed by 
the Committee.
    In term of the future of the affordable housing goals, 
NLIHC's position is as follows: It is essential that the U.S. 
housing finance system assure access to credit for all 
creditworthy borrowers who want to take out mortgages in order 
to purchase homes in which they will live. The broadest 
possible access to credit must reach inner cities and remote 
rural areas and every geography in between. The U.S housing 
finance system must affirmatively reach out to all segments of 
the home-buying market and those lenders who fail to do so must 
be held accountable.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COBURN
                    FROM DOUGLAS HOLTZ-EAKIN

Q.1. In your testimony, you highlighted the Government 
Accountability Office's finding the Federal Government 
essentially spends $170 billion a year on 160 housing programs, 
including tax expenditures. Ironically, as the Committee 
discusses affordable housing, many of these housing programs 
are subsidizing those with incomes well beyond the typical aim 
of Federal assistance. Please identify the proportion and total 
benefit of the mortgage interest deduction and the capital 
gains exclusion going to households earning over $100,000 per 
year.

A.1. Using figures by the Joint Committee on Taxation, 
approximately 77.3 percent of the total benefit of the mortgage 
interest deduction goes to households earning over $100,000 per 
year. Approximately 75.2 percent of the total benefit of the 
capital gains exclusion goes to households earning over 
$100,000 per year. 76.7 percent of their combined benefit goes 
to households earning over $100,000 per year.

Q.2. Please identify the maximum home value that can be insured 
by the single family loan guarantee programs of the U.S. 
Departments of Agriculture and Housing and Urban Development.

A.2. The USDA's single family loan guarantee program does not 
contain such limits; instead the program is limited to 
applicants with 115 percent of median area income. Loan limits, 
and therefore the maximum home value, are determined by the 
applicant's ability to repay the loan.
    In a high-cost region--the District of Columbia--these loan 
limits apply for FHA:


Q.3. Many of the 160 Federal housing programs could be 
consolidated and better targeted to improve the Federal 
response to our Nation's housing needs. For example, in 2009, 
the Congressional Budget Office identified savings of over $500 
million annually in Community Development Block Grant (CDBG) 
funding by slightly reducing the amount going to communities 
whose median incomes exceed 110 percent of the national median 
income. Would improving the targeting and allocation of 
existing Federal resources enable Congress to address 
affordable housing needs without placing new mandates on the 
private sector or future housing finance system?

A.3. Yes. The GAO report and the CBO report mentioned highlight 
the fragmented and inefficient nature of Federal housing 
assistance. Eliminating waste, consolidating overlapping 
programs, and limiting existing programs to those most in need 
of shelter would help Congress better address affordable 
housing needs. New mandates on the private sector are 
unattractive, especially given uncertainty over the mechanics 
of the future housing finance system, and the general trend 
toward the imposition of new regulatory burdens.

Q.4. Many affordable housing advocates have pointed to the need 
for the Market Access Fund as proposed in S.1217. This policy 
would place a fee--essentially a new tax--on all federally 
guaranteed mortgage-backed securities to the tune of $2.5 
billion-$5 billion annually. Would you agree the economic 
impact of this new tax on guaranteed mortgage-backed securities 
would likely be to increase the cost of home ownership and 
dampen the housing sector overall? Do you foresee any other 
unintended adverse consequences of the tax?

A.4. Yes, this tax on guaranteed MBS would increase the cost of 
home ownership for borrowers, adding to the existing trend of 
rising housing prices and mortgage interest rates. It would 
come on top of the impact of pricing for risk (the guarantee 
fee, which necessarily raises costs for borrowers) and costs 
associated with new regulatory burdens under the Dodd-Frank 
Act. It seems perverse to fund an affordability initiative by 
making housing less affordable.
    Finally, the access to dedicated funds could encourage 
advocates of the Market Access Fund to grow the FMIC to grow 
beyond its chartered purpose.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                      FROM ETHAN HANDELMAN

Q.1. In your testimony, you make the case that ``investments in 
housing early can result in future economic benefits and costs 
savings.'' You seem to be suggesting that funding the Housing 
Trust Fund and the Capital Magnet Fund and addressing known 
rental housing needs prospectively is actually the more cost 
effective and efficient way to go. Could you connect the dots 
for us here? Do we have any evidence that these sorts of 
investments have actually saved money in the past?

A.1. Thank you very much for the question, Senator. As you say, 
addressing known rental housing needs prospectively is less 
costly than providing emergency housing assistance or other 
emergency services. Stable housing, either rental or home 
ownership, also provides long-lasting benefits to the children 
who grow up in it, which provides a net benefit to society.
    To connect the dots, as you put it, let me highlight the 
specific example of programs to end homelessness, which save 
public dollars by reducing demand for emergency services. 
Providing homeless individuals and families with affordable 
rental housing and supportive services reduces the need for 
emergency hospital treatment, temporary shelters, and 
incarceration. The studies cited in my written testimony show 
cost savings of as much as two to one in such diverse locations 
as New York City, Seattle, Los Angeles, and Maine.
    Similar evidence exists for housing counseling services, 
foreclosure prevention, and provision of stable rental housing 
more generally. Children with stable housing are healthier and 
perform better in school, which we know improves their future 
earnings potential with the concomitant benefits to society. As 
I detail in my written testimony, a large body of research 
documents the benefits of investments in affordable housing--
from transitional housing for homeless individuals and families 
to rental housing complemented by case management and 
supportive services to programs supporting affordable home 
ownership for low- and moderate-income households.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                      FROM ETHAN HANDELMAN

Q.1. Fannie Mae and Freddie Mac's duty to serve the entire 
primary market is an important aspect of our current housing 
finance policy. The duty to serve ensures that creditworthy 
people in all parts of the country can get access to mortgages 
with reasonable rates and terms. Without a duty to serve, 
people in rural areas, lower-income neighborhoods, and 
primarily immigrant or minority neighborhoods might find that 
mortgages are no longer readily available.
    S.1217 envisions a secondary market with many issuers of 
Government-guaranteed securities. Unlike Fannie and Freddie, 
which serve the entire Nation, certain issuers in the S.1217 
model may purchase loans only from certain parts of the country 
or may specialize in targeted loan profiles. Assuming there is 
a secondary market with several issuers, do you have views on 
how we could structure and enforce a duty to serve?

A.1. Thank you very much for the question, Senator. The duty to 
serve the entire primary market is indeed an essential part of 
ensuring the availability of safe, decent, and affordable 
housing for all in America. Applying a similar obligation to 
new participants in a multi-issuer system requires careful 
structuring and enforcement.
    First, the duty to serve must be a threshold obligation for 
issuers who wish to purchase the Government guarantee of their 
securities. Simply put, if the Government balance sheet is 
going to be at risk, public benefits should accrue. An 
efficient, stable, liquid secondary mortgage market that serves 
all in America, either through home ownership or rental 
housing, should be a basic premise of the housing finance 
system.
    Fannie Mae and Freddie Mac, if reconfigured to operate in a 
new system, should meet the threshold obligation. So should any 
new issuers who wish to issue Government-guaranteed securities. 
The playing field should be level.
    Second, issuers should be obligated to serve all qualified 
borrowers within their defined area of business, be that a 
geographic region or product type. Initial approval by the 
regulating agency (FMIC, for instance) and ongoing oversight 
are both essential to ensure that issuers do not simply target 
the lowest-risk, highest-return loans, leaving out qualified 
but less attractive loans in areas already underserved by 
capital markets. For the Government backstop to insure the 
housing finance system effectively, the pools of loans must 
include all qualified borrowers.
    For geographically defined areas, issuers should be 
obligated to serve the entire area, such as the entire country, 
a multistate area, or a single large State. Location alone 
should not disqualify a loan to a qualified borrower from being 
part of a security. For issuers defined by product type, the 
regulator should careful scrutinize the proposed product type 
and its expected borrower profile to determine whether it is 
compatible with a duty to serve the entire primary market. The 
regulator should examine both the borrowers expected to be 
served and those who would not be served by a particular 
issuer's proposed scope to ensure that the area defined does 
not leave a subset of the market without access.
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