    [Senate Hearing 113-470]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 113-470

             NOMINATIONS OF: JULIAN CASTRO AND LAURA S. WERTHEIMER

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

                                    HEARING

                                   before the

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

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

                                NOMINATIONS OF:

        Julian Castro, to be Secretary, Department of Housing and Urban
                                  Development

                                   __________

     Laura S. Wertheimer, to be Inspector General, Federal Housing Finance
                                     Agency

                                   __________

                                 JUNE 17, 2014

                                   __________

      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

                  Brian Filipowich, Professional Staff Member

                  Erin Barry Fuher, Professional Staff Member

                     Beth Cooper, Professional Staff Member

                      Greg Dean, Republican Chief Counsel

                Chad Davis, Republican Professional Staff Member

                           Dawn Ratliff, Chief Clerk

                           Taylor Reed, Hearing Clerk

                          Shelvin Simmons, IT Director

                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                             TUESDAY, JUNE 17, 2014

                                                                       Page

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

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

                                   WITNESSES

    John Cornyn, a United States Senator from the State of Texas.....     3

                                    NOMINEES

    Julian Castro, of Texas, to be Secretary, Department of Housing
      and Urban Development..........................................     4
        Prepared statement...........................................    22
        Biographical sketch of nominee...............................    24
        Responses to written questions of:
            Senator Crapo............................................    45
            Senator Hagan............................................    49
            Senator Warren...........................................    50
            Senator Coburn...........................................    51
     Laura S. Wertheimer, of the District of Columbia, to be
      Inspector General, Federal Housing Finance Agency..............     6
        Prepared statement...........................................    34
        Biographical sketch of nominee...............................    35
        Response to written questions of:
            Senator Crapo............................................    54

                                NOMINATIONS OF:

                            JULIAN CASTRO, OF TEXAS,

                                TO BE SECRETARY,

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT;

               LAURA S. WERTHEIMER, OF THE DISTRICT OF COLUMBIA,

                            TO BE INSPECTOR GENERAL,

                         FEDERAL HOUSING FINANCE AGENCY

                                  ----------

                             TUESDAY, JUNE 17, 2014

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

               OPENING STATEMENT OF CHAIRMAN TIM JOHNSON

        Chairman Johnson. I call this hearing to order.
        Today, we consider the nominations of Mayor Julian Castro,
    to be Secretary of the Department of Housing and Urban
    Development, and Ms. Laura Wertheimer, to be Inspector General
    of the Federal Housing Finance Agency.
        As Mayor of San Antonio, Mayor Castro has been on the front
    lines of helping his community reach its housing and economic
    development goals. In his tenure as Mayor, he has focused on
    attracting well-paying jobs and 21st century industries,
    raising the educational attainment, and revitalizing the city's
    urban core. The Department of Housing and Urban Development is
    a critical partner in these efforts nationwide. Mayor Castro
    will bring both direct experience with and appreciation of the
    important role that HUD programs play for families,
    communities, and taxpayers to the role of HUD Secretary.
        Ms. Wertheimer is a partner in the Securities Department of
    Wilmer, Cutler, Pickering, Hale and Dorr. To the position of
    Inspector General, she brings her experience serving on audit
    committees and evaluating procedures and compliance standards
    for financial institutions. It is essential that FHFA have an
    IG providing strong oversight of the FHFA's work relating to
    conservatorship of Fannie Mae and Freddie Mac. The IG also has
    an important role monitoring the FHFA's oversight of the
    Federal Home Loan Banks. Ms. Wertheimer will bring extensive
    experience to the position of Inspector General to ensure that
    FHFA is fulfilling its mandates set forth by Congress.
        I now turn to Ranking Member Crapo for his opening
    statement.

                    STATEMENT OF SENATOR MIKE CRAPO

        Senator Crapo. Thank you, Mr. Chairman.
        Before us today are two nominees to two very important
    positions, Mayor Julian Castro to be Secretary of Housing and
    Urban Development and Ms. Laura Wertheimer to be the Inspector
    General of the Federal Housing Finance Agency. Both positions
    will have strong impact on housing and housing finance in this
    country and I look forward to learning what the nominees will
    bring to each of these issues.
        Mayor Castro, two of the critical issues that this
    Committee has spent extensive time addressing in this Congress
    are among those I want to bring to your attention today, the
    future of housing finance reform and the fiscal solvency of the
    Federal Housing Administration. We need to know what your
    approach will be on both of these issues and whether you will
    be advocating on behalf of them.
        Within the debate of housing finance reform, current HUD
    Secretary Shaun Donovan has worked very actively with this
    Committee to develop and advocate for S. 1217, which recently
    passed this Committee with a bipartisan majority. We must
    continue to move forward on housing finance reform, especially
    as we approach the sixth anniversary of Fannie Mae and Freddie
    Mac being put into conservatorship.
        The Committee has also passed bipartisan legislation to
    address the current capital deficiencies in the FHA's Insurance
    Fund. In this matter, it would be important to hear from Mayor
    Castro that he is 100 percent committed to getting the capital
    levels to their required levels and as soon as possible.
        Ms. Wertheimer faces a different, but equally challenging
    task if she is confirmed to be the Inspector General of the
    FHFA. Fannie Mae and Freddie Mac represent $5 trillion in
    taxpayer exposure. The FHFA not only oversees those companies,
    but is also responsible for regulating the Federal Home Loan
    Banks and the very different business models that they
    represent.
        Further, due to the conservatorship of Fannie Mae and
    Freddie Mac, the Director of FHFA simultaneously acts as
    regulator, executive, and shareholder of those companies. All
    of this means that the FHFA Inspector General has a very unique
    oversight responsibility as compared to an IG who is not
    operating under those circumstances. Ms. Wertheimer has the
    opportunity today to inform us as to how she will handle these
    exceptional challenges.
        I look forward to hearing from each of our nominees on
    these important issues and more.
        Thank you, Mr. Chairman.
        Chairman Johnson. Thank you, Senator Crapo.
        There is an 11 o'clock floor vote scheduled, so to allow
    sufficient time for questions, Senator Crapo and I have agreed
    to limit opening statements to the Chair and the Ranking
    Member. All Senators are welcome to submit an opening statement
    for the record.
        Senator Cornyn will now introduce Mayor Castro. Senator
    Cornyn.

      STATEMENT OF JOHN CORNYN, A UNITED STATES SENATOR FROM THE
                             STATE OF TEXAS

        Senator Cornyn. Thank you, Mr. Chairman and Ranking Member
    Senator Crapo and Members of the Committee.
        I do not often darken the door of the Banking Committee,
    but it is my pleasure to be here with you today to introduce a
    fellow San Antonian and Texan, Mayor Julian Castro. He has told
    me that he is glad to be here and looks forward to your
    questions, but he especially looks forward to being back in San
    Antonio to help celebrate the victory of the San Antonio Spurs,
    which that celebration is still going on and will for a long
    time.
        [Laughter.]
        Senator Cornyn. And, I know he will take the opportunity to
    introduce his wife, Erica, and I understand his brother,
    Joaquin Castro, a member of the U.S. Congress, is en route, and
    I hope he will have an opportunity to do that.
        But, my comments are that Mayor Castro has taken quite a
    road to get to where he is today, one that is uniquely Texan
    and, I would say, uniquely American. I know you will hear more
    about his biography, which is compelling. But, I will point out
    that Julian and his brother were raised by a single mom in San
    Antonio's West Side. Both graduated from Thomas Jefferson High
    School. Then, he went to Stanford and to Harvard Law School,
    quite an impressive accomplishment.
        When he returned to his hometown at age 26, he became the
    youngest member ever to be elected to serve on the San Antonio
    City Council, and then one of the youngest mayors in the
    country. I know many Texans are reassured by Mayor Castro's
    example that the American dream is still very much alive.
        I know, if confirmed, he will have a lot of tough things to
    do. Senator Crapo mentioned some of those. As Members of the
    Committee know, HUD faces a number of challenges. Last year,
    for the first time, the Federal Housing Administration received
    a $1.7 billion infusion of taxpayer cash to cover a shortfall
    in its insurance fund brought about by many of the loans that
    it backed that went South. HUD also continues to struggle with
    its performance and oversight challenges, as identified by the
    Inspector General. And, as we have seen with the recent scandal
    at the Veterans Administration, the American people need
    leaders who will hold folks accountable and restore
    transparency to Government.
        And, while the issue does not fall squarely within HUD's
    jurisdiction, I also look forward to learning more about the
    Mayor's views on the future role of Freddie and Fannie, which I
    believe Senator Crapo alluded to, because we know that Federal
    housing policy is not sustainable.
        Mr. Chairman, after meeting with Mayor Castro, I am
    encouraged that he would employ the same energetic vision that
    has characterized his tenure leading Texas' second largest
    city, and I look forward to hearing how he would approach some
    of the specific challenges I have identified and those that
    will be identified by the Committee.
        And, I want to thank you and the Members of the Committee
    for the opportunity to introduce the Mayor and to address you
    today. Thank you.
        Chairman Johnson. Thank you, Senator Cornyn. Please feel
    free to excuse yourself at your convenience.
        I will now introduce Ms. Wertheimer. In addition to being a
    partner in the Securities Department of Wilmer, Cutler,
    Pickering, Hale and Dorr, Ms. Wertheimer is a member of the
    firm's Securities Litigation and Enforcement Practice Group.
    She has advised clients in securities law enforcement
    investigations, regulatory and criminal nonpublic inquiries,
    and cross-border regulatory proceedings. From 1981 to 1983, she
    was a law clerk for Chief Judge Spottswood Robinson of the U.S.
    Court of Appeals for the D.C. Circuit. She received her B.A.
    from Yale College and a J.D. from Columbia University School of
    Law.
        We will now swear in the nominees. Please rise and raise
    your right hand.
        Do you swear or affirm that the testimony that you are
    about to give is the truth, the whole truth, and nothing but
    the truth, so help you God?
        Mr. Castro. I do.
        Ms. Wertheimer. I do.
        Chairman Johnson. Do you agree to appear and testify before
    any duly constituted Committee of the Senate?
        Mr. Castro. I do.
        Ms. Wertheimer. I will.
        Chairman Johnson. Please be seated.
        Each of your written statements will be made part of the
    record. Before you begin your statement, I invite each of you
    to introduce your family and friends in attendance.
        Mayor Castro, please proceed.

        STATEMENT OF JULIAN CASTRO, OF TEXAS, TO BE SECRETARY,
              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

        Mr. Castro. Thank you very much, Chairman Johnson and
    Ranking Member Crapo and Members of the Committee for welcoming
    me today. I am very fortunate to be here today with my wife,
    Erica, and I know that my brother, Joaquin, is, I think, on his
    way. You will have to forgive him. He was the second-born twin,
    so sometimes he is late.
        [Laughter.]
        Mr. Castro. I am also very fortunate to be here with some
    of the HUD staff that has helped with briefings and so forth,
    very appreciative of their work. Thank you very much for having
    me, and I look forward to the hearing.
        Chairman Johnson. Please proceed, Mayor Castro.
        Mr. Castro. OK. Thank you, Chairman Johnson, Ranking Member
    Crapo, and Members of the Committee for welcoming me here
    today. I am deeply honored to appear before you as President
    Obama's nominee for Secretary of Housing and Urban Development.
    I want to thank President Obama for his confidence in me.
        Allow me also to thank Senator Cornyn. He is a dedicated
    public servant, a distinguished Senator from Texas who also
    happens to hail from the great city of San Antonio, and I am
    incredibly grateful for his support and his generous
    introduction.
        And, as I mentioned, I want to express my gratitude to my
    family and friends, and especially to my wife, Erica, and to my
    brother, Joaquin, both of whom join me today. Without their
    support, I simply would not be here in front of you.
        Finally, I want to commend this Committee, which has a
    well-earned reputation for working in a bipartisan fashion on
    behalf of the American people. It has been a pleasure to meet
    with you and your staff throughout this process. If confirmed,
    I look forward to our continued engagement to advance issues
    critical to our Nation's future.
        Mr. Chairman, I appear before you today with more than just
    professional experience in dealing with housing and urban
    development. I also bring my own personal experience. I grew up
    on the West Side of San Antonio in a neighborhood of hard-
    working families of very modest means. My father at two
    different times in his life lived in public housing. My mother
    worked for the San Antonio Housing Authority. And, I have seen
    with my own eyes how talented and driven Americans who just
    want a fair shot are weighed down by the conditions in which
    they live, and this simply is not right. All Americans deserve
    the same opportunities that I had, and I have dedicated my
    career to giving back to the country that has given so much to
    me.
        As Mayor, I made it my mission to help create a vibrant,
    economically prosperous urban core that expands housing
    opportunities for all San Antonians. In 2010, we launched the
    Decade of Downtown, an initiative to spark investment in our
    center city and older neighborhoods. This effort has attracted
    $350 million in private sector investment, which will produce
    more than 2,400 housing units by the end of 2014.
        Looking ahead, during my recent visits with Committee
    Members, many of you asked about my priorities, if I am
    confirmed. Allow me to share two of them with you.
        First, I am a strong believer in cross-agency
    collaboration. San Antonio's East Side is the only neighborhood
    in America to receive a Promise Neighborhoods Grant, a Choice
    Neighborhoods Grant, a Byrne Criminal Justice Program Grant,
    and a Promise Zone designation. We accomplished this by getting
    beyond the silos and working across agencies to improve
    housing, educational achievement, and overall quality of life.
    This is the kind of collaborative approach I would like to
    enhance at HUD.
        Second, as a local elected official, I am also keenly aware
    of the value of measuring results. In San Antonio, we initiated
    a process of unprecedented public engagement and accountability
    called SA 2020. Through a series of community meetings,
    residents spoke clearly about what kind of city they want it to
    be in 2020. But, we did not just set a vision. We set precise
    numeric goals for achieving our vision. We promised the
    community that we would come back every year and report back on
    how we were doing, good or bad. With the help of the State
    Demographer, we developed a public report card, available for
    anyone to see on SA2020.org, to give San Antonians a real-time
    snapshot of how we are doing.
        Similarly, I would like HUD to focus on outcomes, not only
    inputs. We should not just track projects and dollars spent. We
    must measure those investments by the impact they make.
    Secretary Donovan has built a strong foundation for this, and,
    if confirmed, I will work hard to make this the norm at HUD.
        HUD's role is one of the most critical in Government
    because it directly impacts American families. From enforcing
    Fair Housing rights to revitalizing distressed areas, from
    assisting veterans in finding permanent housing to helping
    communities rebuild after a natural disaster hits, the
    Department is making an impact in small towns, big cities,
    rural communities, and Tribal communities across the country.
        The 21st century is shaping up to be the Century of Cities,
    and I believe there is a reason for that. In America's local
    communities, partnerships and pragmatism are the key drivers to
    success. That perspective has guided my efforts. If confirmed,
    I look forward to working with you to strengthen opportunity
    for Americans through HUD's efforts.
        Once again, thank you, Chairman Johnson, Ranking Member
    Crapo, and Members of the Committee for your consideration to
    my nomination. It is an honor to appear before you and I look
    forward to answering any questions.
        Chairman Johnson. Thank you.
        Ms. Wertheimer, please proceed.

    STATEMENT OF LAURA S. WERTHEIMER, OF THE DISTRICT OF COLUMBIA,
        TO BE INSPECTOR GENERAL, FEDERAL HOUSING FINANCE AGENCY

        Ms. Wertheimer. Chairman Johnson, Ranking Member Crapo,
    Members of the Committee, thank you very much for the
    opportunity to appear before you today.
        I am honored to be President Obama's nominee for Inspector
    General of the Federal Housing Finance Agency, and before I
    begin, I would like to introduce my family who has accompanied
    here today, my husband, Andy Pincus, our daughter, Kate Pincus,
    my steadfast mother, Sidelle Wertheimer, my in-laws, Walter and
    Ann Pincus. And, with that, let me get to the meat of what I
    would like to say in my statement.
        The FHFA plays a crucial role in our financial system as
    the safety and soundness regulator of Fannie Mae, Freddie Mac,
    and the 12 Regional Federal Home Loan Banks to ensure they
    operate in a safe and sound measure [sic] and serve as a
    reliable source of liquidity and funding for housing. And, as
    Senator Crapo mentioned, since September 2008, almost 6 years
    now, the agency has acted as conservator for Fannie Mae and
    Freddie Mac to protect and conserve the assets and property of
    those enterprises and protect the taxpayers' investment, which
    is currently $187.5 billion. Currently, Fannie Mae and Freddie
    Mac guarantee more than $5 trillion in mortgages in this
    country, three out of every four.
        Congress mandated strong, independent oversight of agency
    programs and operations by the FHFA OIG to safeguard taxpayer
    dollars. To carry out this oversight, the OIG conducts and
    coordinates audits and evaluations of agency activities and
    investigations of the agency and its regulated entities.
        Much of my professional career has focused on leading
    investigations into alleged wrongdoing and counseling clients
    on improvements to internal controls and processes to prevent
    and detect violations of law. I have deep experience running
    independent investigations for audit committees and committees
    of independent directors of public companies. These
    investigations have looked into a wide range of areas:
    financial statement reporting and disclosure errors; alleged
    accounting irregularities; misconduct by corporate officers and
    employees; possible improper payments to foreign government
    officials; whistleblower claims; and other significant issues
    identified by a host of stakeholders.
        In each of these investigations, we followed the facts
    wherever they led, without fear or favor. We developed remedial
    measures tailored to the facts found. We monitored
    implementation of that remediation. A number of these
    investigations, led to dismissal or resignation of high-level
    company employees and adoption of significant new policies and
    internal controls.
        If confirmed as FHFA Inspector General, I will exercise my
    duties aggressively, independently, and fearlessly. I have a
    deep appreciation of the critical importance of conducting
    rigorous, fair, and thorough audits, evaluations, and
    investigations, of communicating the results to stakeholders
    clearly, and holding individuals accountable for their actions.
    I pledge to be responsive to this Committee and to Congress as
    a whole, and to develop a good working relationship with the
    FHFA Director.
        After more than 30 years in the private sector, I am
    honored to have this opportunity for public service. My father
    was a first-generation immigrant who came to this country with
    his parents in 1938. They escaped with the clothes on their
    backs and they spoke only German.
        My grandparents had to reinvent themselves in this strange
    new environment. My grandmother found work as a domestic house
    cleaner, and my grandfather was employed to scrub out cocoa
    barrels on the New York docks. Together, they earned enough to
    rent an apartment in Kew Gardens, a community populated with
    German and Austrian refugees. My father enrolled in New York
    City Public Schools, learned to speak unaccented English, and
    graduated as valedictorian of his high school class. America
    has given so much to me and to my family. I am eager to give
    something back to America.
        Thank you and the Committee for your consideration of my
    nomination. I look forward to answering your questions.
        Chairman Johnson. Thank you for your testimony.
        If any Members have written questions for the record for
    the nominees, I ask that you please submit them by noon this
    Friday, June 20. I also ask that the nominees respond to the
    written questions quickly so that we can move the nominations
    forward.
        We will now begin asking questions of our witnesses. Will
    the Clerk please put 5 minutes on the clock for each Member.
        Mayor Castro, in your opening statement, you mentioned some
    of your priorities, if confirmed. Would your priorities also
    include working to address the vast housing needs in Indian
    Country and engage in consultation with Tribes?
        Mr. Castro. Thank you very much for the question, Chairman
    Johnson, and I appreciate your very strong advocacy for our
    Tribal communities. Absolutely, I am committed to ensuring that
    we work closely with our Tribal communities. I look forward to,
    at HUD, being focused on that.
        I fully understand--and that in--my experience is as a big
    city mayor. However, that as part of HUD's mission, we do not
    just serve big cities or urban areas. We also serve rural
    communities, small towns, and our Tribal communities. I look
    forward, if I am confirmed, to working with you and with your
    staff and other Committee Members as the NAHASDA
    reauthorization, perhaps, moves forward, and on issues related
    to our Nation's Tribal communities.
        Chairman Johnson. I have been handed a note that
    Representative Joaquin Castro is here.
        Mayor Castro, a 2012 HUD IG report found that San Antonio
    had not administered a 2008 Neighborhood Stabilization Program
    Grant in accordance with program rules. Can you tell me what
    happened with that grant and how the city addressed this issue
    and what your involvement was as Mayor?
        Mr. Castro. Yes. Thank you very much for the question,
    Chairman Johnson. The HUD IG did issue preliminary findings
    with respect to the Neighborhood Stabilization Program and the
    city of San Antonio. After consulting with city of San Antonio
    staff, the city of San Antonio staff provided back-up
    documentation to clarify those preliminary findings. At the end
    of the day, about $125,000 was paid back with non-Federal
    funds, city of San Antonio funds, as soon as the Council and I
    learned about that issue. We were supportive of corrective
    measures that were put in place. There was an NSP checklist,
    for instance, that was created. Compliance was strengthened.
    Personnel were removed who had had authority over that program.
    And, I look forward, if I am confirmed, to ensuring that we are
    vigilant with our grantees with the NSP program and other
    programs, as well.
        Chairman Johnson. Ms. Wertheimer, we have discussed the
    steps you plan to take, if confirmed, to address potential
    conflicts of interest relating to your past work on behalf of
    clients as well as potential conflicts with respect to your
    husband's work. Can you please describe these steps to the
    Committee?
        Ms. Wertheimer. Absolutely. Thank you, Senator. When the
    President--when I was advised the President sought to nominate
    me, I appreciated the need to get ahead of potential conflicts
    of interest, and so I spoke at length with the designated
    Ethics Officer of the Federal Housing Finance Agency and
    explained my strong interest in avoiding either actual or
    perceived conflicts of interest, or even the appearance of a
    conflict.
        And so to that end, the designated Ethics Officer of the
    agency, in consultation with the Office of Government Ethics
    and I, agreed that I would recuse myself entirely from any
    matter in which my law firm, Wilmer, Cutler, Pickering, Hale
    and Dorr, appears before the agency or before the FHFA OIG, so,
    not just limited to OIG matters, and that I would also recuse
    myself from matters in which my husband's law firm, Mayer,
    Brown and Platt, appeared before the FHFA or the FHFA OIG, so
    that there was no appearance issue with respect to my husband's
    law firm.
        In addition, I agreed to refrain, or to recuse myself
    entirely from any matter in which clients of mine with whom I
    had worked on matters, if they were represented by another law
    firm, for example, if they were to appear before the FHFA or
    FHFA OIG, even on matters unrelated to matters I had advised
    them on, that I would recuse myself for a period of, I believe
    it is 2 years.
        And, last, there are several items in our portfolio that,
    because of potential appearance of impropriety issues, we
    agreed to divest within 60 days of my nomination--of my
    appointment, if that is to occur.
        Chairman Johnson. Senator Crapo.
        Senator Crapo. Thank you, Mr. Chairman.
        Mayor Castro, the FHA Insurance Fund has been
    undercapitalized since 2009. At the end of fiscal year 2013,
    FHA announced that it would need $1.7 billion from Treasury to
    cover an increase in anticipated costs of loan guarantees. This
    marked the first time that the FHA needed funds from Treasury
    to cover an increase in expected future losses in its single-
    family mortgage program.
        Last year, this Committee moved legislation, the FHA
    Solvency Act, with strong bipartisan support, to get the FHA
    back on stable financial footing. If confirmed, will you commit
    to help us move this piece of legislation and to move the FHA
    toward solvency?
        Mr. Castro. Thank you very much for the question, Ranking
    Member Crapo, and I want to commend you and the Committee for,
    as you said, very strong bipartisan work on the FHA Solvency
    Act. I am committed to helping to ensure that, if I am
    confirmed, that the FHA is on a good track and to support
    legislative efforts to that effect. It is my understanding that
    the independent actuary has said, at least for fiscal year
    2015, that the FHA is on a stronger track, that it will not
    need another draw. But, I, if I am confirmed at HUD, I look
    forward to working with you and to the Committee to support
    legislative efforts, as well.
        Senator Crapo. Thank you very much, and that is good news
    to hear.
        Will you assure us that the FHA will not do anything to
    reduce its incoming capital before it has met its statutory
    obligations?
        Mr. Castro. Thank you for the question. Of course, I am
    hesitant to commit to things specifically, not having been at
    HUD and seen all of the details. However, I will say that I
    share with you a commitment to ensuring that the FHA has a
    positive capital reserve ratio, that it is on the right track,
    and that it does not need another mandatory appropriation.
        Senator Crapo. Well, I thank you for your attention to
    that.
        Second, to change issues quickly, as we did when we met
    privately, I want to discuss with you the housing finance
    reform legislation that this Committee has put forward.
    Secretary Donovan has worked very closely with this Committee
    in helping to develop this legislation and negotiating and
    advocating for its passage. If confirmed, will you commit to
    helping the Committee to move this important piece of
    legislation so that we can get our financial housing market
    back on track for long-term stability?
        Mr. Castro. Senator, you and Chairman Johnson, Committee
    Members, are to be commended for the work that you have done on
    this issue, and I share your goals of ensuring that we have a
    housing finance system that both protects the taxpayers in a
    stronger way than we have had in place and also balances access
    to credit for folks of modest means who are creditworthy. And,
    so, I look forward, if I am confirmed, to being an active
    participant as the Committee and as the Senate continues to
    work on this issue, this legislation. Absolutely.
        Senator Crapo. Thank you. Do you believe there are any
    negative consequences to our inaction on reforming Fannie and
    Freddie and resolving the conservatorship, and if so, what are
    they?
        Mr. Castro. Well, I do believe that the status quo is not
    in the best interest of Americans. I believe that if we can
    resolve these issues that I know the Committee is still very
    much discussing, even though this has made it out of Committee,
    that it would be preferable for the taxpayers not to be in the
    position of first loss and that the current conservatorship of
    Fannie and Freddie is not sustainable for the long term. I know
    that there is litigation already that has arisen, for instance,
    out of this, and so there have been some negative consequences.
        I will say, finally, that I know it is a balancing act,
    that there are concerns in terms of access to credit. And,
    having represented San Antonio and seen these issues on the
    ground level, I can understand those concerns, and if I am
    confirmed, I would look forward to being an active participant
    in trying to come to a resolution on that.
        Senator Crapo. Thank you.
        Ms. Wertheimer, I am about out of time, and so I am going
    to have to submit most of my questions to you, and some
    additional ones to Mayor Castro in writing after the hearing,
    but one quick question to you that I do want to ask is another
    unique situation for the FHFA IG is the fact that the Treasury
    Department is a party a preferred stock purchase agreement
    which set the conservatorship terms for funding and repayment
    for Fannie and Freddie. How do you envision the FHFA IG
    interacting with Treasury or the Treasury IG to ensure adequate
    oversight given this unique situation?
        Ms. Wertheimer. Senator Crapo, my--the predecessor in this
    position, Mr. Linick, devoted a significant effort to
    developing collaborative working relationships with IGs in
    other agencies, including the Treasury Department, and the IGs,
    through cross-agency work, worked extremely effectively in
    oversight responsibilities where there was shared oversight.
    And, I would envision continuing that cross-agency
    collaboration with IGs in Treasury as well as with IGs in other
    agencies and with U.S. Attorneys across the country. That is
    the way we are going to get this job done, because there is
    cross-agency responsibility for enforcement of the laws.
        Senator Crapo. Thank you.
        Chairman Johnson. Senator Reed.
        Senator Reed. Well, thank you very much, Mr. Chairman, and
    welcome, Mayor Castro and Ms. Wertheimer.
        Mayor, can you share or elaborate on your vision of housing
    and urban development, particularly based on your experience as
    Mayor of San Antonio.
        Mr. Castro. Thank you for that question, Senator Reed.
    Well, as a local elected official, of course, my viewpoint on
    this was from the other end----
        Senator Reed. Mm-hmm.
        Mr. Castro.----working at the ground level, and what I have
    found absolutely essential to ensuring that folks have good
    opportunity by what HUD does is to work across agencies. That
    is what we did in San Antonio. Very early on in my tenure, we
    got together our Housing Authority with our Transit Agency, one
    of our urban core school districts, one of our universities,
    the United Way, to figure out how we could make better use of
    resources and understanding from being at that local level that
    housing is an important component of overall quality of life
    and providing opportunity, but it is not the only component.
    When we tackle these issues in a more holistic way, along with
    education, along with transit, I believe it has a bigger
    impact, and I will be looking for opportunities to do that.
        Second, one of my significant take-aways from my experience
    in San Antonio as it relates to housing is that we need to
    measure the outcomes. We set a goal early on, for instance, in
    San Antonio, of trying to create 5,000 housing units in our
    downtown by the year 2020, and later, we increased that to
    7,500. It has been my professional experience that when you set
    a goal and when you are measuring results, you are much more
    likely to stay on track to try and achieve that.
        And then, finally, I see out there the urgency for more
    affordable housing opportunities in our urban community in San
    Antonio, but throughout the Nation, and I would work very hard,
    if I am confirmed, to do what we can to create those
    opportunities.
        Senator Reed. Well, thank you, Mayor.
        Shifting to another issue that is going to be vitally
    important, and that is the Administration's commitment to end
    veterans' homelessness by 2015, and we are close in some parts
    of the country. In Rhode Island, we think we have approximately
    97 homeless veterans at this time. We want it to be zero. But,
    can you tell us, what are your plans to help States,
    particularly Rhode Island, to reach this goal of no veterans'
    homelessness?
        Mr. Castro. And, I commend you for the work that you and
    Members of the Committee have done. This, I believe, is a real
    bright spot for your work, for the Administration's work, and
    for the work of Secretary Donovan, and a very laudable goal, to
    effectively eliminate veterans' homelessness by the end of
    2015. One of the primary ways that we have supported that--that
    HUD has supported that is through the VASH Program vouchers in
    close collaboration with the VA to help ensure that homeless
    veterans have the opportunity to get housing in local
    communities.
        And, if I am confirmed, I look forward to bringing a ton of
    energy to be supportive of that and to meet that goal. I know
    how important this is that we make right by our veterans, and
    HUD, if I am confirmed, will be a key, key driver of that.
        Senator Reed. Well, thank you very much, Mayor.
        Ms. Wertheimer, you have an incredible record and your
    career has been distinguished by great intelligence, great
    integrity. And, I was impressed with your response to Senator
    Johnson's, the Chairman's question about maintaining the
    appearance as well as the reality of independence. And, all I
    want to say is that this is going to be a continuous effort on
    your part, because, as you pointed out so succinctly, you know,
    many times, you will have firms that you have worked with on
    the other side of the table, clients on the other side of the
    table. But, I just want to, again, emphasize the notion of not
    just the reality, because I have no doubt you are going to be
    scrupulous in your conduct, but the perception that there are
    conflicts. And, let me just reinforce that point again, if I
    may.
        Ms. Wertheimer. Thank you, Senator. I agree with you. I
    think an independent IG is only as credible as the, not only
    the actual independence, but the perceived independence. So, it
    is critical to me that this office, if I am confirmed, maintain
    both actual and avoid any appearance of lack of independence.
        Senator Reed. Thank you very much. Thank you, Mr. Chairman.
        Chairman Johnson. Senator Shelby.
        Senator Shelby. Thank you, Mr. Chairman.
        Mayor Castro, for years, I believe the problems of the FHFA
    have been well known by this Committee and probably a lot of
    other people. During the housing boom, the FHA, unwisely, I
    believe, guaranteed a lot of risky mortgages with low
    downpayments to borrowers. They were not the only ones. These
    mortgages have resulted in billions of dollars of losses to the
    taxpayer.
        In the interests of a stable and a fortified housing
    market, could you speak to your perspective, if you have one
    yet, of the reserve ratio of the Mutual Mortgage Insurance
    Fund, what it should be, and what about the minimum downpayment
    levels. Do you have a perspective on that?
        Mr. Castro. Thank you very much for the question, Senator,
    and I want to commend you for your work over the years on this
    issue. Of course, the health of the FHA has been the subject, I
    know, of tremendous scrutiny and debate. I believe that there
    can be action taken to ensure that the FHA stays on a positive
    track.
        Senator Shelby. Mm-hmm.
        Mr. Castro. My understanding, my preliminary understanding
    is that it is on a much more positive track now than it had
    been. Of course, the Reverse Mortgage Program and also some
    loans from the 2007 to 2009 time period were problematic. As
    you have mentioned and other Committee Members have mentioned,
    this was an unprecedented event, for it to need a mandatory
    appropriation. So, I believe that as we move forward, that
    there is reason to believe--to have more confidence in the FHA.
    I am also aware, on the other end, that the credit quality of
    borrowers for the FHA is stronger than it ever has been, with a
    FICO score of just under 700.
        And, so, my perspective, whether it relates to the
    requirements for downpayments or other measures, is that we
    achieve this balance to stay within the mission of the FHA, the
    historic mission, to ensure that first-time home buyers, that
    folks of modest means who are creditworthy, that they have the
    opportunity to reach the American dream of home ownership, but
    at the same time, that we have policies in place that ensure
    that what happened a couple years ago does not happen again.
        Senator Shelby. I want to get into the Section 8 area. In
    fiscal year 2014, which we are in now, funding for the Section
    8 programs total nearly $29.1 billion of the $45.47 billion in
    outlays for the Department of Housing and Urban Development. I
    believe that is about 64 percent. That is a heavy outlay. Could
    you talk about what, if any plans you have thought about as
    policy to try to rein in spending for this program. We know
    this is an important program for a lot of people, but I also
    serve on the Appropriations Committee. We have to deal with
    real numbers, too.
        Mr. Castro. Well, thank you very much for that question. I
    am fully aware that, as you say, the Section 8 program does
    consume a tremendous amount of HUD's overall budget and that
    rents rise every year, and so we face that continuing
    challenge. I look forward to delving into more of the details
    to look at what ways we can achieve some efficiencies and,
    hopefully, streamline. I know that under Secretary Donovan's
    leadership, HUD has looked at ways that it can be more nimble
    and achieve cost savings. And, if I am confirmed, Senator, I
    would look forward to visiting with you about this issue.
        Senator Shelby. In the years leading up to the financial
    crisis, FHA's mortgage insurance market share went from less
    than 5 percent to more than 30 percent in 2008. Those were the
    boom years. It continues to hover, I believe, at levels around
    20 percent. What do you think of--have you thought about the
    area of expanding the Private Mortgage Insurance sector and
    ultimately moving toward a fully private sector mortgage
    insurance market, or is that too far out for you?
        Mr. Castro. Thank you for the question, Senator. Well, I
    believe that the FHA does have an important role to play. Of
    course, it played a countercyclical role during this downturn,
    and as you mentioned, what we have seen is that as the housing
    market has gotten stronger and we see more private capital in
    the market, we have seen that market share go down.
        Senator Shelby. OK.
        Mr. Castro. And, so, I believe that there is a strong role
    for the FHA, and if I am confirmed, I look forward to visiting
    with you and the Committee as we set that.
        Senator Shelby. Ms. Wertheimer, my time is running short--
    it is out, I guess--but, I would like to ask you one or two
    questions.
        Chairman Johnson. Uh----
        Senator Shelby. What is your view of the level of
    independence needed between the IG and the Director of the FHFA
    and his senior staff, and how important is it for the Inspector
    General, which you have been nominated for, to not only have
    adequate resources--you have got to have those--but also
    unfettered access to all of FHFA's records and data?
        Chairman Johnson. We will take this question, and then we
    will move to Senator Menendez.
        Senator Shelby. Go ahead. You can answer the question.
        Ms. Wertheimer. Thank you, Senator. I think independence is
    at the core of the IG mission. The--and, I have deep experience
    leading independent investigations. I value the importance of a
    working relationship with the FHFA Director, to report to him
    on what has been found in a collegial manner. But, it is not a
    collaborative relationship because the IG reports not only to
    the Director, but to Congress, and, therefore, in terms of
    reporting, what the IG has found, either in its evaluations or
    its audits or its investigations, will be communicated
    respectfully, but there will not be a collaboration on the
    reporting--on how to formulate a report.
        With respect to access, access is at the core of how the IG
    can fulfill its mission. If there is not unfettered access to
    the materials, the output will not be worth anything.
        Chairman Johnson. Senator Menendez.
        Senator Menendez. Thank you, Mr. Chairman.
        Mayor Castro, I must tell you, there are not too many
    Castros I like----
        [Laughter.]
        Senator Menendez.----but, I do like you and the
    Congressman, so I look forward to working with you as the----
        Mr. Castro. Thank you.
        Senator Menendez.----Subcommittee Chair on Housing.
        You know, as you and I had an opportunity to discuss, New
    Jersey faced the worst natural disaster in its history and
    thousands of lives were affected, and many are still affected.
    If confirmed, you would have an important role of administering
    and overseeing approximately $15 billion in Community
    Development Block Grant Disaster Relief funding that was
    appropriated by the Sandy Emergency Relief Act, which I fought
    to pass. I am glad to see that we have deviated from an
    original attempt to spend $2 billion of that money on a
    National Resiliency Competition. It is now to about a billion,
    and New Jersey is going to be eligible for that competition,
    which, originally, we were told we were not. So, we are moving
    in the right direction.
        But, there is a lot still to be done. Many people are
    hurting in our State and in the region. So, I would like to
    invite you to join me on a tour of New Jersey to see both the
    work that has been done, but more importantly, see the work
    that has not been done and that is left still to achieve a full
    recovery and rebuild stronger. So, could I get your commitment
    as you move upon confirmation to visit with us in New Jersey,
    especially as the National Resiliency Competition is going to
    take place, to inform you of what the challenges we have.
        Mr. Castro. Thank you very much for that question, Senator
    Menendez. I enjoyed our visit yesterday and want to commend
    you, as well, for your very strong and effective advocacy for
    folks who have been impacted by Superstorm Sandy. Of course, I
    would appreciate the opportunity to understand these issues
    even better by visiting New Jersey.
        Senator Menendez. Now, the State has some very well
    publicized issues with administering CDBG grants in this
    context, particularly with contractors and the approval
    process. As HUD awaits New Jersey's amended plan for the third
    tranche of funding, will you commit to working with me and the
    State to ensure proper contracting procedures are put into
    place and that the housing application process is as efficient
    as possible. All of these funds do nothing if, at the end of
    the day, it does not make its way to affected people.
        Mr. Castro. I agree with you, and as a local official, of
    course, this has been my concern, ensuring that wherever
    resources come from, whether local, State, or Federal, that the
    rubber hits the road and that the lives that are meant to be
    impacted positively are impacted. If confirmed, I certainly
    will work with you to ensure that we do our best job on our--
    that HUD does its best job on its end to ensure success.
        Senator Menendez. You know, the Subcommittee held a hearing
    on the Section 8 Rental Assistance Voucher reform, and it is an
    issue of priority for our affordable housing advocates, public
    housing authorities, affordable housing developers. According
    to the National Low Income Housing Coalition, for example, in
    my State of New Jersey alone, we have a shortfall of more than
    200,000 units affordable and available for our most vulnerable,
    extremely low-income households. And, nationally, the shortfall
    is greater than seven million. So, voucher reform, while some
    elements of this have been done by the Congress, there is still
    much work left to be done. Do you consider Section 8 Voucher
    reform legislation to be a priority, and will you work with us
    to help move the remaining elements of reform?
        Mr. Castro. I appreciate the question. I certainly do
    understand the importance of looking at reform, and as was
    mentioned earlier, the significance of this as a line item in
    HUD's budget. Of course, I look forward to getting more up to
    speed on all the details of what is being proposed. However, if
    I am confirmed, I certainly will work with you and Members of
    the Subcommittee and this Committee to do what we can.
        Senator Menendez. I appreciate that. For me, it may be a
    line item, but this is about millions of people's lives.
        Mr. Castro. Certainly.
        Senator Menendez. And, so, I may see it a little different
    than some of my colleagues, at the end of the day. From whence
    I came from and who I represent, I do not look simply at line
    items. I look at the lives that are affected. And, I hope that
    when you become HUD Secretary, you are going to look at the
    lives that are affected, not simply the line items----
        Mr. Castro. Of course, Senator, I certainly will. I have
    done that throughout my time in public service, and as a local
    official have been primarily concerned with how the residents
    of my community are impacted by the actions that we take in
    public service. So, I recognize that, overall, we want people
    to have good housing opportunities, and if I am confirmed, look
    forward to working with you on that.
        Senator Menendez. I am sure you will. I just sometimes need
    to be the countervailing force here on some other----
        Chairman Johnson. Senator Corker.
        Senator Corker. Thank you, Mr. Chairman, and I thank both
    of you for your willingness to serve in this capacity. Mr.
    Chairman, I am going to help get you back on schedule here and
    be very brief.
        To the Mayor, I know that as a former mayor, there is no
    job that is more gratifying, personally, than being the mayor
    of a city. As we change jobs, sometimes we have impact in
    different ways that maybe are not quite as up close and
    personal, but this certainly is a very important role. And,
    part of what you will be doing, and you have discussed this
    with Members as you have answered questions, you will be
    involved in what happens with Freddie and Fannie. I mean, it
    ultimately affects FHA. Obviously, people seek your guidance.
        I know we had a conversation about this, and I am going to
    ask most of my questions in writing so we can move along with
    this hearing, but it is my understanding that you do believe
    that the duopolistic nature of the way things are today with
    two enterprises basically being it relative to the secondary
    market, that you believe that that has no place in the American
    society and you would work with us to end that type of
    arrangement. I know that you were a little vague on support of
    the bill, and you should be at this point, but relative to that
    one point, it is my understanding you agree with that 100
    percent.
        Mr. Castro. Senator, thank you for the question and for the
    visit that we had. I absolutely believe that there are better
    alternatives than what we have in place with this duopoly, with
    the conservatorship. I agree with you on that point. And, I
    know, of course, as with any legislation, that the devil is in
    the details and finding that common ground. If I am confirmed,
    I look forward to being an active participant in that.
        Senator Corker. Well, to both of you, we will have some
    QFRs, and, Mr. Mayor, subject to those coming in appropriately,
    I look forward to supporting you in this nomination. I thank
    you both for your willingness to serve, and Mr. Chairman, I
    will turn over the rest of my time----
        Chairman Johnson. Thank you
        Senator Corker.----and hopefully get some points for this.
    Thank you.
        [Laughter.]
        Chairman Johnson. Senator Brown.
        Senator Brown. You get points from Senator Tester for that,
    since he can now ask questions.
        [Laughter.]
        Senator Brown. Thank you, Mr. Chairman.
        Ms. Wertheimer, thank you for joining us, and Mayor Castro,
    nice to see you.
        Two local concerns I want to raise, just not as a question,
    but to thank you for the discussion we had and what HUD has
    been doing and what I assume from our conversation we will
    continue. One involves the City Gospel Mission in Cincinnati,
    which we discussed, a religiously affiliated men's homeless
    shelter operating on HUD land. HUD has--the work that City
    Gospel has done to provide emergency housing in a way that
    meets HUD's Fair Housing expectations, obviously, are
    important. I think we are close, but we are not there yet. But,
    they serve an absolute critical need for homeless men in
    Cincinnati without restricting access to service or employment
    and I appreciate the work that you have done there and thanks
    for your interest in moving that along.
        Second was the issue of streamlining multi-family
    operations. I understand 50 offices will be consolidated into
    just 12. As of 2016, there will no longer be any multi-family
    operations in many States, including Ohio, the seventh-biggest
    State in the country. I support efforts to make HUD more
    efficient. I share the concerns of Ohio's community leaders,
    though, that eliminating on-the-ground supervision could lower
    the quality of multi-family residences and reduce compliance.
        Secretary Donovan was highly engaged. We had perhaps three,
    maybe four conversations about it. My staff and his staff
    worked assiduously on it. Since the plan was announced, your
    predecessor committed to ensure the transition does not
    negatively impact the millions of families it employs who are
    affected by these local multi-family offices. So, taking care
    of the service they provide and the workers that are employed
    there, and I appreciate your commitment on that.
        Now, let me ask one question. A year ago, HUD proposed
    updates on a rule to ensure that recipients of HUD funds are
    living up to their commitment to affirmatively further Fair
    Housing goals. But, 9 months after comments were received, HUD
    still has not received the proposed data tools that would be
    included for public feedback, nor has it finalized the much-
    needed changes it proposed last July. Just tell me, if you
    would, tell the Committee what steps that you will take to make
    sure that State and local recipients of HUD funds engage in
    meaningful discussions about providing equal housing
    opportunities for people in our country.
        Mr. Castro. Thank you very much for the question, Senator
    Brown, and for the visit that we had the other day. I, of
    course, have not been part of the rulemaking process before
    now. However, with regard to affirmatively furthering Fair
    Housing, I do believe it is important that there be that kind
    of guidance and comments from local authorities. I know that
    the San Antonio Housing Authority, for instance, provided
    comments. And, so, what I can commit to right now, whether it
    is this issue or another rule that is on the table, is that we
    will diligently proceed and take in the comments and consider
    them, and more generally, that I consider this something of
    importance for our local housing authorities.
        Senator Brown. OK. Thank you. Thank you, Mr. Chairman.
        Chairman Johnson. Thank you. Seth tells me that we will
    wait until ten after eleven. I apologize for this, but if you
    could abbreviate your questions slightly. Senator Toomey.
        Senator Toomey. Thank you, Mr. Chairman, and I will try to
    abbreviate my question.
        Thank you, Ms. Wertheimer and Mayor Castro. Good to see you
    both, and I appreciate the discussion we had in my office,
    Mayor Castro, but I do need to follow up on one of the topics
    we discussed.
        Many Members of this Committee have already alluded to the
    ongoing work to reform housing finance. And, while we have a
    range of opinions about how best to do that, I believe there is
    a unanimous agreement on this Committee that, however we do it,
    it has got to involve bringing private capital into financing
    residential mortgages.
        At the same time that we are having this discussion, as you
    know, there is a movement underway to attempt, by certain
    communities, to attempt to use eminent domain as an argument to
    justify confiscating mortgages from private lenders at a
    discount, some who knows what discount to what they are
    actually worth.
        First of all, I think it is a blatant violation of contract
    sanctity if they go ahead and do this. It is a taking of
    private property for private gain, which I think our
    Constitution clearly forbids. And, it cannot but have a
    devastating impact on the ability to attract private capital,
    if private lenders know that they run this risk.
        So, my question is, as HUD Secretary, will you take active
    steps to deter this kind of activity, and specifically, would
    you forbid the FHA from participating in the refinancing of
    mortgages that were confiscated using eminent domain?
        Mr. Castro. Yes. Thank you very much, Senator, for the
    question and for our conversation the other day. As I mentioned
    the other day in our conversation, this particular device that
    I know a handful of cities have employed was an issue of first
    impression for me. This is not something that the city of San
    Antonio has tried. I understand, in fact, that it has not been
    put into effect actually in any city and that there is
    litigation surrounding it.
        I can understand why communities with a whole bunch of
    folks who are underwater might think of this method. However, I
    do see your point on why it causes concern among mortgage
    lenders. And, at this time, I would say that, if I am
    confirmed, I would look forward to visiting with you and with
    Committee Members on what HUD's programmatic response ought to
    be.
        Senator Toomey. Well, I mean, I appreciate the ongoing
    discussion and the visiting, but I really think Senators ought
    to know what your views are about using eminent domain to
    confiscate mortgages and would you intend to allow the FHA to
    participate in that.
        Mr. Castro. Thank you, Senator. I can certainly see your
    concern, and as I said, it is not something that the city of
    San Antonio, or under my leadership, we ever proposed or drew
    up. I would like, however, if I am confirmed, the opportunity
    to get a little bit more detail on the issue, understand it a
    little bit better, and then take that up with you and Members
    of the Committee.
        Senator Toomey. So, I see I am not going to get an answer
    to my question, Mr. Chairman, and I will yield the balance of
    my time.
        Chairman Johnson. Senator Tester.
        Senator Tester. It is good to have you here, Mayor, along
    with your wife and your brother. I appreciate you being willing
    to serve.
        You had talked in an earlier question about taxpayers
    should not be in first position of loss with Fannie Mae and
    Freddie Mac. Do not let me put words in your mouth, but that is
    what I heard. Do you believe that the taxpayers can be
    protected without reform of Fannie Mae and Freddie Mac?
        Mr. Castro. Thank you, Senator, for the question. I believe
    that reform would be preferable to what we have in place now if
    the Nation were to experience another downturn, another housing
    crisis as we just experienced, and for that reason, I commend
    the Committee for working toward a housing finance model that
    takes the taxpayers out of their position of first loss and
    puts the private sector in that position.
        I fully understand, though, as well, the concerns of folks
    with regard to the other part of the balance, which is access
    to credit, and that we have had a housing finance system in
    place that seeks to ensure opportunity for Americans of modest
    means who are creditworthy borrowers. So, I can understand the
    very real concerns.
        If I am confirmed, I would look forward to, hopefully,
    bringing some fresh energy to this and to working with Members
    of the Committee who are willing to work to find a resolution.
    So, just to answer your question, I do not believe that the
    taxpayers are nearly as protected as they could be under this
    different model and that is a positive of the legislation.
        Senator Tester. OK. Do you think that access to credit
    versus taxpayer protection, do you believe we can have both?
        Mr. Castro. I absolutely believe that we can have both, and
    I know and I commend the Members of this Committee for working
    toward those dual goals. And, if I am confirmed, I look forward
    to working with you to achieve both of those goals that I
    believe need to be a part of any legislation.
        Senator Tester. Housing conditions in Indian Country are in
    terrible shape. We visited about it when we were in my office.
    And, I appreciate the work that HUD has done in Indian Country.
    There is some word that the agency might be looking at
    different data sources and could potentially change the funding
    for Tribes that would have a negative effect on the Tribes in
    Montana. Could you give me assurances that any new formula that
    the agency would use in the future to allocate Tribal housing
    funds would not unduly disrupt the ongoing Tribal housing
    programs?
        Mr. Castro. Thank you for that, and I want to commend you
    for the strong advocacy that you have shown in our
    conversations, and more generally, with respect to Tribal
    communities. I absolutely would agree with you that what we
    want to do is provide through our actions more--or, HUD wants
    to provide more housing opportunities and not less, and so what
    we--what HUD would seek to do, if I am confirmed, is to work
    with our Tribal communities, as we traditionally do, and also
    with you, Senator, and with the Committee to achieve a good
    balance.
        Senator Tester. I look forward to that.
        Ms. Wertheimer, could you talk about what exactly would be
    required of the Federal Government if additional assistance
    were required and what obligations the enterprises would have
    to the taxpayers.
        Ms. Wertheimer. You mean, were the enterprises to----
        Senator Tester. That is correct.
        Ms. Wertheimer.----operate at a loss----
        Senator Tester. That is correct.
        Ms. Wertheimer.----and then need to draw down?
        Senator Tester. Yes.
        Ms. Wertheimer. The formula for when additional monies can
    be accessed has been set in the agreements that are in place. I
    think the taxpayers are already invested to the tune of a
    hundred-and----
        Senator Tester. Eighty-seven.
        Ms. Wertheimer.----87.5 billion, and additional draws would
    further increase the risk to those taxpayers. It seems to me
    that the mission of the Inspector General's office----
        Senator Tester. Yes.
        Ms. Wertheimer.----which is independent, rigorous, thorough
    oversight, does not change, because the fact that the
    taxpayers' burden is increased heightens, if you will, the
    mission of the OIG, but does not change what it will do in
    terms of its audits, evaluations, and investigations.
        Senator Tester. Thank you. Thank you, Mr. Chairman.
        Chairman Johnson. Senator Warner, we have a couple minutes.
        Senator Warner. I will be very--as brief as I can be,
    because I want to make sure Senator Warren gets her two cents
    in.
        Thank you both for your willingness to serve.
        Ms. Wertheimer, I am going to ask you a written question
    about the recent OIG, FHFA OIG report on the common
    securitization platform and how we move forward on that.
        Mayor Castro, great to see you. I enjoyed our visit. I
    simply want to--I know you are going to get up to speed on GSE
    reform. I would commend you, under Secretary Miller's recent
    comments pointing out that the current profitability of the
    GSEs is unsustainable, that they, with their shrinkage
    requirement of 15 percent of their portfolio on a regular
    basis, the small amount of profits they are making is
    disappearing. It would take 20 years to recapitalize them. We
    would still have the same debate--are they going to be for-
    profit, not-for-profit?
        We have discussed the current status quo, which has,
    particularly access to credit to African Americans, Latinos at
    an all-time low.
        And, the question that Senator Tester asked about--and was
    directed toward Ms. Wertheimer--the recent stress test shows a
    potential vulnerability of up to $190 billion of additional.
    Now, we do need to make sure credit locks and others, and
    Senator Warren, in particular, and others have been working on
    how we improve this legislation.
        So, I would simply ask, again, maybe for the fourth or
    fifth time, my hope is you will be confirmed, that you will get
    up to speed very, very quickly, and that GSE reform will be
    first out of the box on your list of priorities. Do you want to
    add a quick comment to that so we can move to Senator Warren?
        Mr. Castro. Thank you, Senator, for the comments, and as I
    mentioned, if I am confirmed, I do look forward to working with
    you and with the Committee to hopefully bringing some fresh
    energy to this and to helping to move a housing finance model
    that I think works for Americans.
        Senator Warner. And, I will just simply add, there are
    improvements on the legislation that Senator Warren and others
    of ours have been working on. But, I would commend the urgency
    of Under Secretary Miller's comments about how vulnerable
    taxpayers are, as well as some of the just awful access to
    credit for low-income people at this moment in time.
        Thank you, Mr. Chairman.
        Chairman Johnson. Senator Warren.
        Senator Warren. Thank you very much, Mr. Chairman, and
    thank you, Senator Warner, for your speed.
        Thank you both for being here, for your willingness to
    serve. I am going to submit questions for the record, but I do
    want to make a point. You have been asked about GSE reform
    repeatedly because it is so important, important to our
    economy. We have talked about different problems we face right
    now. I would emphasize the problem of access, that many people
    are being cut out of the housing market. You know, in 2001,
    before the housing bubble, when Fannie and Freddie were
    operating normally, the average credit score for a borrower
    receiving a Fannie- or Freddie-backed purchase money loan was
    711. By 2013, the average credit score had jumped to 756. So,
    in the wake of the financial crisis of 2008, more American
    families are struggling with damaged credit, but Fannie and
    Freddie have raised standards by nearly 50 points. Keep in mind
    that nearly 50 million Americans lie between those two points
    on the credit score continuum. The story is much worse for
    African American families, for Hispanic families. We have got
    to change what is happening with Fannie and Freddie. We have
    got to make reforms, and a large part of that is because of
    access. Any kind of reforms we do have got to be reforms that
    make mortgages accessible to middle-class families, that make
    mortgages accessible to families that are trying to build the
    American dream for themselves.
        So, I will stop there and submit the questions around that
    for the record.
        Thank you, Mr. Chairman.
        Chairman Johnson. I thank all the nominees for your
    testimony and for your willingness to serve our Nation.
        I will remind Members to submit questions for the record by
    noon this Friday, June 20. Nominees, please submit your answers
    to the written questions as soon as possible so that we can
    move your nominations forward in a timely manner.
        This hearing is adjourned.
        [Whereupon, at 11:13 a.m., the hearing was adjourned.]
        [Prepared statements, biographical sketches of nominees,
    and responses to written questions supplied for the record
    follow:]
                      PREPARED STATEMENT OF JULIAN CASTRO
          To Be Secretary, Department of Housing and Urban Development
                                 June 17, 2014
         Thank you Chairman Johnson, Ranking Member Crapo and Members of
    the Committee for welcoming me today. I am deeply honored to appear
    before you as President Obama's nominee for Secretary of the Department
    of Housing and Urban Development. I want to thank President Obama for
    his confidence in me.
        Allow me to also thank Senator Cornyn. He is a dedicated public
    servant, who also happens to hail from the great city of San Antonio,
    and I am incredibly grateful for his support and his generous
    introduction.
        I want to express my deep gratitude to my family and friends,
    especially my wife, Erica, and my brother, Congressman Joaquin Castro,
    both of whom have joined me. Without their support, I simply would not
    be here today.
        Finally, I want to commend this Committee, which has a well-earned
    reputation for working in a bipartisan fashion on behalf of the
    American people. It has been a pleasure to meet with you and your staff
    throughout this process. If confirmed, I look forward to our continued
    engagement to advance issues critical to our Nation's future.
        Mr. Chairman, I appear before you today with more than just
    professional experience in dealing with housing and urban development.
    I also bring my own personal experience. I grew up on the West Side of
    San Antonio in a neighborhood of hardworking families of very modest
    means. My father--at two different times in his life--lived in public
    housing. My mother worked for the San Antonio Housing Authority.
        I've seen with my own eyes how talented and driven Americans who
    just want a fair shot are weighed down by the conditions in which they
    live, and this simply isn't right. All Americans deserve the same
    opportunities that I had, and I've dedicated my career to giving back
    to the country that has given so much to me.
        As Mayor, I made it my mission to help create a vibrant,
    economically prosperous urban core that expands housing opportunities
    for all San Antonians. In 2010, we launched the ``Decade of Downtown'',
    an initiative to spark investment in our center city and older
    neighborhoods. This effort has attracted $350 million in private sector
    investment, which will produce more than 2400 housing units by the end
    of 2014.
        Looking ahead, during my recent visits with Committee Members, many
    of you asked about my priorities if I am confirmed. Allow me to share
    two of them with you. First, I am a strong believer in cross-agency
    collaboration. San Antonio's East Side is the only neighborhood in
    America to receive a Promise Neighborhoods grant, a Choice
    Neighborhoods grant, a Byrne Criminal Justice Program grant and a
    Promise Zone designation. We accomplished this by getting beyond silos
    and working across agencies to improve housing, educational achievement
    and overall quality of life. This is the kind of collaborative approach
    I would like to enhance at HUD.
        Second, as a local elected official, I am also keenly aware of the
    value of measuring results. In San Antonio, we initiated a process of
    unprecedented public engagement and accountability called SA2020.
    Through a series of community meetings, residents spoke clearly about
    what kind of city they wanted to be in 2020. But we didn't just set a
    vision. We set precise, numeric goals for achieving our vision. We
    promised the community that we would come back every year and report
    back on how we were doing: good or bad. With the help of the State
    demographer, we developed a public report card, available for anyone to
    see on SA2020.org, to give San Antonians a real-time snapshot of how
    we're doing.
        Similarly, I would like HUD to focus on outcomes, not only inputs.
    We shouldn't just track projects and dollars spent. We must measure
    those investments by the impact they make. Secretary Donovan has built
    a strong foundation for this and, if confirmed, I will work hard to
    make this the norm at HUD.
        HUD's role is one of the most critical in Government because it
    directly impacts American families. From enforcing fair housing rights
    to revitalizing distressed areas--from assisting veterans in finding
    permanent housing to helping communities rebuild after a natural
    disaster hits--the Department is making an impact in small towns, big
    cities, rural communities and tribal communities across the country.
        The 21st century is shaping up to be the century of cities. And I
    believe there's a reason for that: In America's local communities,
    partnerships and pragmatism are the key drivers to success. That
    perspective has guided my efforts. If confirmed, I look forward to
    working with you to strengthen opportunity for Americans through HUD's
    efforts.
        Once again, thank you Chairman Johnson, Ranking Member Crapo and
    Members of the Committee for your consideration of my nomination. It is
    an honor to appear before you. I would be happy to answer your
    questions.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                   PREPARED STATEMENT OF LAURA S. WERTHEIMER
            To Be Inspector General, Federal Housing Finance Agency
                                 June 17, 2014
        Chairman Johnson, Ranking Member Crapo and Members of the
    Committee, thank you for this opportunity to appear before you today. I
    am honored to be President Obama's nominee for Inspector General of the
    Federal Housing Finance Agency (``FHFA''). The FHFA plays a critical
    role in our financial system as the safety and soundness regulator of
    the Federal National Mortgage Association (``Fannie Mae''), the Federal
    Home Loan Mortgage Corporation (``Freddie Mac''), and the Federal Home
    Loan Bank System, comprised of 12 regional Federal Home Loan Banks
    (``FHLBanks''). Since September 2008, Fannie Mae and Freddie Mac have
    been in conservatorship under FHFA, because of concern that their
    deteriorating financial condition threatened the stability of the
    financial markets. Fannie Mae and Freddie Mac currently own or
    guarantee $5 trillion in mortgages, three out of every four mortgages
    in this country.
        The FHFA Inspector General's mission is to promote the economy,
    efficiency, and effectiveness of FHFA's programs and operations. To
    carry out this mission, OIG conducts and coordinates audits and
    evaluations of FHFA's activities, which includes FHFA's regulation of
    Fannie Mae, Freddie Mac, and the FHLBanks and its conservatorships of
    Fannie Mae and Freddie Mac, and investigations involving FHFA, Fannie
    Mae, Freddie Mac, and the FHLBanks. Strong independent oversight of
    FHFA programs and operations is critical to safeguard taxpayer dollars
    and ensure that FHFA programs and the FHFA's conservatorships of Fannie
    Mae and Freddie Mac are conducted in accordance with the laws enacted
    by Congress.
        Much of my professional career has focused on leading
    investigations into alleged wrongdoing and counseling clients on
    improvements to internal controls and processes to prevent and detect
    violations of governing laws and regulations. I have significant
    experience running independent investigations for audit committees and
    committees of independent directors of public companies looking into
    financial statement reporting and disclosure errors, alleged accounting
    irregularities, misconduct by corporate officers and employees,
    possible improper payments to foreign government officials,
    whistleblower claims, and other significant issues identified by
    internal or external auditors. These investigations followed the facts
    wherever they led, without fear or favor; developed remedial measures
    tailored to the facts found; and monitored implementation of that
    remediation.
        If confirmed as the FHFA Inspector General, I will exercise my
    duties aggressively and independently. I have a deep appreciation of
    the critical importance of conducting rigorous, fair and thorough
    audits, evaluations and investigations, communicating the results to
    stakeholders clearly and holding individuals and entities accountable
    for their actions. I pledge to be responsive to this Committee and to
    Congress as a whole and will work to develop a good working
    relationship with the FHFA Director.
        After more than 30 years in the private sector, I am honored to
    have an opportunity for public service. My father was a first
    generation immigrant who came to this country with his parents in 1938,
    escaping with the clothes on their backs and speaking only German. My
    grandparents had to reinvent themselves in a strange, new environment:
    my grandmother found work as a domestic house cleaner and my
    grandfather was employed to scrub out cocoa barrels on the New York
    docks. Together, they earned enough to rent an apartment in Kew
    Gardens, a community populated with German and Austrian refugees. My
    father enrolled in New York City public schools, learned to speak
    unaccented English, and graduated as valedictorian of his high school
    class.
        America has given much to me and to my family. I am eager to give
    something back to America.
        Thank you and the Committee for your consideration of my
    nomination. I look forward to answering your questions.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM JULIAN
                                 CASTRO

    Q.1. Secretary Donovan has been a strong vocal proponent of the
    housing finance reform bill S. 1217 that passed this Committee
    last month. He worked closely with the White House and the
    Committee in negotiating this legislation and advocating for
    its passage. He has previously stated that ``The proposed
    Johnson-Crapo bill provides the best chance to overhaul the
    mortgage finance system this decade.'' Do you agree and if
    confirmed, will you commit to helping the Committee to move S.
    1217 so that we can get our financial housing market on a track
    for long-term stability?

    A.1. While I am not familiar with the details of Treasury's
    analysis, as I emphasized at my hearing, leaving the
    Government-Sponsored Enterprises (GSEs) in conservatorship
    indefinitely is not an acceptable option. In my view, ending
    taxpayer bailouts, preserving the 30-year mortgage and
    improving access to responsible, creditworthy borrowers is an
    essential part of comprehensive housing reform and, if
    confirmed, I will work with the Committee on S. 1217 to achieve
    these goals.

    Q.2. Treasury Under Secretary Mary Miller recent stated,
    ``(e)ven if truly rehabilitating the GSEs were possible,
    recapitalizing them adequately would take at least 20 years.
    During these 20 years, the taxpayer would remain at risk of
    having to bailout the GSEs during another downturn. We would
    also be signing up for another 20 years of underserving
    responsible credit-worthy Americans seeking to buy a home.'' Do
    you agree with this statement?

    A.2. Yes, I reiterate the commitment I made before the
    Committee on June 17, 2014, regarding my unwavering support for
    moving forward with this legislation. I believe that
    comprehensive housing finance reform is one of the last
    remaining pieces of work to do to respond to the financial
    crisis and prevent it from happening again. President Obama
    believes that we cannot afford to turn back to a housing
    finance system where the private sector wins during good times,
    but leaves the taxpayers on the hook during bad times.
    Comprehensive housing reform will strengthen the economy and
    help create a safer and sounder housing finance sector. As I
    stated at the hearing, I strongly share the Committee's goals
    of ensuring that we have a housing finance system that both
    protects the taxpayers in a stronger way than we have had in
    the past, and also balances access to credit for folks of
    modest means who are credit-worthy. If confirmed, I look
    forward to being an active participant as the Committee and the
    Senate continue to work on this bi-partisan legislation.

    Q.3.a. The FHA Insurance fund has been undercapitalized since
    2009. At the end of FY2013, FHA announced that it would need
    $1.7 billion from Treasury to cover an increase in anticipated
    costs of loan guarantees. This marked the first time that FHA
    needed funds from Treasury to cover an increase in expected
    future losses in its single-family mortgage program. Last year,
    the Committee moved legislation--the FHA Solvency Act, with
    strong bipartisan support, to get FHA back on stable financial
    footing to ensure that FHA is there for future generations.
    During your confirmation hearing you stated that you were
    committed to ensuring that FHA maintain a positive capital
    reserve ratio. Do you commit to achieving and maintaining that
    ratio as required by law?

    A.3.a. If confirmed, I commit to continuing and building upon
    the appropriate and balanced measures taken to date to improve
    the health of the FHA's Mutual Mortgage Insurance Fund. I
    understand that in its most recent report the independent
    actuary predicted that the Fund would reach the statutory 2
    percent capital reserve ratio in 2016. While I understand that
    these projections are subject to economic assumptions and
    models which may vary from year to year, I do also believe FHA
    is on the right track to meet that statutory mandate in the
    near term particularly based on the $15 billion dollar
    improvement reported in the most recent independent actuary
    report.

    Q.3.b. Are there any instances in which you believe it would be
    acceptable to lower incoming revenues while in violation of
    Federal law as it pertains to required level of capital for
    FHA?

    A.3.b. The FHA, in playing both a countercyclical role in the
    housing market and also serving as a resource for underserved,
    low wealth and creditworthy borrowers, must always balance it
    mission with its fiduciary and legal responsibilities. I
    understand that while the Fund is on the right track there are
    still risks in the outstanding portfolio that must be actively
    managed. As evidenced by the $15 billion improvement in the
    health of the Fund as of its most recent annual report, the FHA
    has worked hard over the last few years to establish a premium
    structure that appropriately accounts for risk and encourages
    access to mortgage credit for responsible, creditworthy
    borrowers and encourages the return of private capital.
        While the FHA has raised premiums 6 times since 2009, it
    has also taken other aggressive steps to strengthen the credit
    quality of new loans, now insuring the strongest loans in the
    organization's 80 year history. In addition, FHA has instituted
    policies to reduce losses and improve recoveries on claims paid
    from the Fund.
        If confirmed, I look forward to continuing to explore other
    mechanisms to continue these positive measures, balancing risk
    to the Fund with preserving access to mortgage credit. FHA
    recently announced a number of measures intended to mitigate
    risk of incoming loans while providing opportunities for
    housing finance to creditworthy borrowers who are not otherwise
    being served in today's tight market environment. I would
    review those programs to assure that they adequately protect
    the Fund and keep it on track for maintaining its positive
    capital trajectory. Furthermore, if confirmed, I would ensure
    FHA continues to monitor economic conditions, access to credit,
    and the financial health of the Fund on an on-going basis,
    taking appropriate actions as needed.

    Q.4. The Department and the FHA program have consistently
    projected overly optimistic forecasts for the solvency of the
    MMIF, while the actual condition of the fund has worsened. Just
    recently the FHA has proposed a new pilot program to reduce
    premiums for home buyers. How do you intend to balance credit
    access and affordability with accurate pricing and protecting
    the American taxpayer?

    A.4. FHA is taking action on a number of policy changes aimed
    at improving access to credit but these are not being taken at
    the expense of the insurance fund. As I understand, policies
    such as those outlined in the Blueprint for Access will
    continue to protect the Fund, even as they enhance access.
        Thus, factoring in the substantial changes FHA has made in
    terms of credit, pricing and loss mitigation policies, I
    believe FHA should continue to assess ways that it can
    diligently protect the Fund while facilitating access to
    affordable mortgage products for underserved borrowers and
    communities seeking a pathway to the middle class.

    Q.5. Currently, we are in very tight budgetary times which may
    mean finding ways to save money throughout the Federal
    Government. As such, it is incumbent upon all leaders in
    Government to find ways to reduce spending, especially when
    such reductions are achievable without a reduction in service.
    If confirmed, will you commit to looking at items that will
    reduce fraud, waste and overlapping programs to help reduce the
    Federal deficit?

    A.5. If confirmed, I will commit to exploring ways to reduce
    fraud, waste and inappropriately redundant programs, and am
    dedicated to using the HUDStat process, for example, to examine
    all programs at HUD for consolidation and streamlining
    opportunities while protecting the recipients of HUD funding.
    Every dollar used to support the most vulnerable populations in
    our country needs to be used to its maximum efficiency, and I
    commit to pushing for that efficiency in every program.

    Q.6.a. If confirmed, your leadership of HUD would provide you
    with the opportunity to instill the importance of transparency
    and cooperation with HUD stakeholders as well as Congress. I
    recently asked a previous HUD nominee a series of questions
    related to actions brought by HUD. Specifically, I asked the
    question below and received little by way of an informative
    response.

            In recent years, several Federal regulatory agencies
            have increased significantly the use of ``disparate
            impact'' enforcement actions in their oversight of the
            housing and financial sectors. Disparate impact
            enforcement actions have been brought even in the
            absence of direct discriminatory evidence or
            discriminatory motive. In your opinion, when should
            disparate impact enforcement actions and cases be
            brought when there is no evidence of direct
            discriminatory evidence or discriminatory motive exist?
            Should a Federal agency be required to share any
            economic analysis conducted upon which such action has
            been based? If not, then how should these analyses be
            verified?

    If you are confirmed will you commit to instilling throughout
    all of HUD a culture that fosters more open communication with
    both stakeholders and Congressional oversight?
    A.6.a. Yes. I am committed to open communication with both
    stakeholders and Congress. If confirmed, and in the spirit of
    Executive Orders regarding transparency, I will work to ensure
    that such communication is provided with both Congress and
    stakeholders to the fullest extent consistent with statutes
    that govern HUD's interactions, including the HUD Reform Act
    and Appropriations requirements.

    Q.6.b. What is your response to the questions above that I
    asked of the previous nominee and received little by way of an
    answer?

    A.6.b. Many civil rights statutes allow for proof of
    discrimination without evidence of discriminatory intent. Among
    them are Title VII of the Civil Rights Act of 1964, the Age
    Discrimination in Employment Act, the Equal Credit Opportunity
    Act (ECOA), and the Fair Housing Act. Under such statutes,
    evidence of the impact of the challenged action is required,
    and the defendant has the opportunity to prove that the
    challenged practice was nonetheless justified.
        As you know, the Fair Housing Act's disparate impact
    standard is not new. HUD has been using this method of proving
    discrimination in housing for decades, and it also is widely
    accepted by the other Federal financial regulatory and
    enforcement agencies. In fact, in 1994, eleven such agencies,
    including the Federal Reserve System, the Office of the
    Comptroller of the Currency, the Federal Deposit Insurance
    Corporation, the Department of Treasury, plus HUD and DOJ,
    adopted a Policy Statement on Fair Lending recognizing that
    disparate impact is one of the methods they would use to
    identify lending discrimination under the Fair Housing Act and
    ECOA.
        In the context of any enforcement actions by HUD under the
    Fair Housing Act, the Department explains the bases for its
    finding of reasonable cause to believe discrimination occurred
    (or did not occur) in a formal determination of reasonable
    cause (or no reasonable cause). This is so in all cases,
    including those relying on a discriminatory effects method of
    proof.
        If confirmed, I would continue to rely on this longstanding
    and widely accepted law enforcement method to distinguish
    between unnecessary barriers to equal opportunity in the
    housing market and valid policies and practices that are
    crafted to advance the legitimate interests of housing
    providers, mortgage lenders, and others covered by the Fair
    Housing Act. It is my understanding that few of the
    discrimination claims charged by the Department involve
    disparate impact claims, but regardless of volume, I would
    ensure that the Department enforces this standard, like all
    laws it enforces, in a fair and judicious manner.

    Q.7. HUD has a number of rental programs target acquisition and
    maintenance of the Nation's older, affordable rental stock.
    There have been significant changes to these programs within
    the past 18 months. Part of balancing your duties to protect
    the taxpayer with the programs' goal of providing access to
    individuals and families earning below area median income, is
    ensuring that the financial protections in place appropriate
    match the risk of each program. If you are confirmed, will you
    commit to a review of these programs to ensure that risk
    mitigation is appropriate?

    A.7. If confirmed, I look forward to working with Congress to
    make sure that oversight of these important programs is
    appropriate to the risk of each program. I believe that each
    Federal dollar should be used to its maximum efficiency, and
    this requires careful oversight by both HUD and Congress. I
    look forward to working with Congress, if confirmed, to ensure
    that HUD is striking the correct balance between protecting the
    taxpayer and providing affordable housing for individuals of
    modest means.
                                    ------

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR HAGAN FROM JULIAN
                                 CASTRO

    Q.1. Mr. Castro: over the next few years, North Carolina will
    be providing supportive housing to thousands of non-elderly
    adults with serious mental illness who will have access to new
    services from our State's public mental health system. As part
    of a settlement with the Federal Government, my State has
    agreed to provide thousands of new units of permanent
    supportive housing as an alternative to adult care home
    settings that were deemed to be institutional in nature. I am
    concerned that it may be more difficult for these individuals
    to receive Housing Choice Vouchers from Public Housing Agencies
    (PHAs) because of bureaucratic obstacles to obtaining approval
    from HUD headquarters.
        If confirmed, will you commit to working with this
    Committee and stakeholders (including the disability community)
    to simplify these rules for PHAs and State housing agencies?

    A.1. HUD has worked with other States that are implementing
    settlements with the Federal Government to transition
    individuals with disabilities out of institutional settings and
    into community-based housing. In a number of instances, HUD has
    authorized the use of preferences for this purpose, providing
    such individuals with easier access to Housing Choice Vouchers
    when they are ready to live in community-based housing. If
    confirmed, I would be happy to work with North Carolina in
    obtaining the necessary legal authorizations.

    Q.2.a. It has been brought to my attention that HUD made a
    commitment to the MTW agencies across the country to extend
    their contract agreements for another 10 years. I understand
    that MTW agencies have grown increasingly concerned about the
    expiration of their existing contracts in 2018. While this may
    be several years away, the uncertainty regarding contract
    renewal has begun to impact their ability to enter into long-
    term strategic partnerships and joint funding agreements with
    partners such as mental health systems and school districts. It
    also has an impact on financing arrangements for long-term and
    large-scale redevelopment projects being undertaken by MTW
    agencies. I understand that the commitment to extend the MTW
    contracts was formalized this past March by the Assistant
    Secretary for Public and Indian Housing. Are you aware of the
    MTW contract extension commitment by HUD?

    A.2.a. Yes. As Mayor of San Antonio, I am familiar with how the
    San Antonio Housing Authority (SAHA) has used its flexibilities
    as a Moving to Work (MTW) agency to design and test innovative
    strategies related to rent reform and family self-sufficiency.
    I have seen first-hand what this program can do to address
    local community needs. In preparation for my nomination
    hearing, I was informed by HUD staff of discussions related to
    MTW contract extensions. It is my understanding that, in the
    spring of this year, the Assistant Secretary stated at an
    industry meeting that she would consider granting early
    contract extensions for MTW public housing authorities who met
    certain performance standards. I understand the Department is
    presently reviewing its contract extension options on account
    of MTW contract litigation.

    Q.2.b. If confirmed as HUD Secretary, will you follow up to
    ensure that HUD honors its commitment to these housing
    authorities?

    A.2.b. If confirmed, I am committed to ensuring that HUD meets
    its obligations under the MTW contracts.
                                    ------

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARREN FROM JULIAN
                                 CASTRO

    Q.1. One of HUD's most important responsibilities is helping
    enforce the Fair Housing Act. But HUD's office of Fair Housing
    and Equal Opportunity is severely understaffed. There are
    currently 575 full-time employees in the Office--the fewest
    there have been at any point in the past 25 years. In 2008, the
    bipartisan National Commission on Fair Housing and Equal
    Opportunity, led by former HUD Secretaries Jack Kemp and Henry
    Cisneros, found that the Office needed at least 750 employees
    to operate effectively. That means we have a 30 percent
    shortfall. Other than trying to get additional money from
    Congress, how would you attempt to address this staffing
    shortfall?

    A.1. My understanding is that the Office of Fair Housing and
    Equal Opportunity (FHEO) currently has 533 full-time employees,
    which, as you note is the lowest staffing level for the office
    in 25 years.
        As the agency charged with enforcement of the Fair Housing
    Act for the country, HUD must use its resources to the greatest
    extent possible for this effort and work with Congress to
    support adequate funding to support that effort. To my
    knowledge, FHEO has already taken a number of steps to deal
    with the present staffing constraints, including reducing
    management positions, streamlining its offices, improving
    training and implementing work sharing. In addition, the office
    has modernized some systems to reduce duplication of work.
    However, should HUD receive no additional funds to support fair
    housing, HUD likely will have to make difficult choices about
    Departmental priorities. If confirmed, I am committed to
    continuing this approach in a manner that will allow FHEO to
    pursue its mission to the fullest extent possible.

    Q.2. Tenants in HUD housing can be valuable partners with HUD
    in overseeing the Nation's multi-billion dollar investment in
    low income rental housing. Congress has authorized $10 million
    annually for tenant participation in Section 8 housing since
    2002. Yet out of the $120 million Congress has authorized HUD
    to spend on tenant participation in the last 12 years, HUD has
    spent only $3 million for that purpose. If you are confirmed,
    will you use the funds authorized for tenant participation for
    their specified purpose?

    A.2. I agree that tenants can be valuable partners with HUD in
    managing the Department's investment in affordable rental
    housing. I also understand from HUD staff that while there is
    authorization for a tenant participation program out of the
    Project-Based Section 8 account, no dollars were appropriated
    for this purpose between 2002 and 2011. When the current
    Administration came into office, it evaluated the problems the
    OIG had found with a former program and re-instituted a new
    tenant participation program with accountability measures
    called the Tenant Resources Network and requested and received
    $10 million in 2011 from Congressional Appropriators for the
    program. I also understand that the Department, through the
    Tenant Resource Network and other means does provide funding to
    tenants to participate in their affordable, assisted housing
    communities, advancing the intent of the applicable authorizing
    statute.
        If confirmed as Secretary, I would take steps to ensure
    that all HUD dollars are appropriately and effectively spent in
    order to advance the Department's mission and obligations. In
    the case of tenant involvement, within budget constraints, I
    would utilize existing statutory authority to assist these
    organizations in support of their communities.
                                    ------

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR COBURN FROM JULIAN
                                 CASTRO

    Q.1. In your testimony, you state that cross-agency
    collaboration will be one of your top priorities. In an August
    2012 report, ``Opportunities Exist to Increase Collaboration
    and Consider Consolidation,'' GAO identified 160 Federal
    housing assistance initiatives administered by 20 different
    Federal entities costing about $160 billion in FY2010. 89 of
    these programs are administered by HUD.
        As Secretary, how will eliminating, consolidating, and
    streamlining duplicative or overlapping programs within and
    outside HUD fit into your stated goal to boost cross-agency
    collaboration? Moreover, will you work with Congress to seek
    any necessary legislative authority to eliminate, consolidate,
    or streamline HUD programs?

    A.1. If confirmed, I commit to working with Congress very
    closely to achieve any legislative authority needed to
    eliminate, consolidate or streamline HUD programs that have
    been found to be duplicative, where appropriate. I understand
    that HUD has already worked with Congress extensively to
    achieve several streamlining goals in the rental assistance
    portfolio, such as allowing for consolidation of Public Housing
    Authorities and streamlining duplicative reporting
    requirements. In addition, HUD has worked with Congress over
    the past 2 years to consolidate legacy programs like the Rent
    Supplement (Rent Supp) program and the Rental Assistance
    Payment (RAP) program into the Rental Assistance Demonstration.
        I am very committed to cross-agency collaboration, as shown
    in my work as Mayor of San Antonio. In making decisions about
    collaboration and consolidation, I focus on the value and
    impact of each dollar, data that indicate program outcomes, and
    areas for which duplication is occurring and can be eliminated.
    If confirmed, I will work with Congress to continue to
    streamline programs, while always remembering the people on the
    receiving end of the support.

    Q.2. In January 2013, Congress passed a bill to provide $60.4
    billion in emergency disaster aid for the areas devastated by
    Hurricane Sandy. The States of New York and New Jersey plan to
    spend $65 million of the Federal disaster aid on television ads
    promoting local tourism. The States sought and received waivers
    to use the CDBG Disaster Recovery funds to promote local
    tourism. Do you believe television advertisements to promote
    tourism is an appropriate use of Federal disaster relief funds?

    A.2. As mayor of a city with strong economic growth, I know
    well the importance of economic development. Tourism is an
    integral part of San Antonio's economy. Advertising is crucial
    to drawing new and repeat visitors to the area. I agree with
    the position taken by HUD that Federal disaster recovery funds
    that are available for economic revitalization of disaster
    areas may be used to support some tourism activities in
    distressed areas whose local economies were dependent on
    tourism prior to the disaster. This is the position that HUD
    has taken in the past and most recently with respect to
    activities in New York and New Jersey where tourism suffered a
    significant blow as a result of Hurricane Sandy.

    Q.3. FHA currently uses accounting methods prescribed by the
    Federal Credit Reform Act of 1990 (FCRA). Under FCRA, FHA
    calculates the expected future costs and gains of its insurance
    claims, but does not account for variations in market risk.
    According to CBO, ``the single-family mortgage guarantees made
    by FHA between 1992 and 2012 have had a net Federal budgetary
    cost of about $15 billion, according to the most recent
    estimates by FHA. In contrast, FHA's initial estimates of the
    budgetary impact of those guarantees sum to savings of $45
    billion.'' FHA's single-family mortgage guarantee program is
    projected to rise from $150 billion in FY2015 to $250 billion
    in FY2025. CBO estimates that using FCRA accounting the program
    will earn taxpayers $63 billion over the next 10 years. But
    under fair value accounting, the program will actually cost the
    taxpayer $30 billion over the same time period.
        CBO states that ``the fair-value approach offers a more
    comprehensive estimate of Federal costs.'' Do you agree with
    CBO's assessment that Congress should use fair value accounting
    to assess the real costs of FHA's Single Family Mortgage
    Guarantee Program to the taxpayer?

    A.3. As I understand, the Office of Management and Budget
    implements the requirements of the Federal Credit Reform Act of
    1990 to measure the cost of Federal programs. This form of
    accounting for Federal programs is, according to the Analytical
    Perspectives accompanying the President's budget, intended to
    reflect the estimated lifetime costs of loans and loan
    guarantees up front on a net present value basis.
        Fair Value Accounting represents an alternate view for
    measuring Federal credit programs. It requires additional
    assumptions and adds factors that may not be relevant for
    assessing budget affects, thus yielding cost estimates that may
    be unnecessarily inflated relative to real costs.
        If confirmed, I will manage the Department in a way that is
    consistent with the legal and administrative obligations
    applicable to the Department and the Federal Government as a
    whole.

    Q.4. The HUD IG office recently reported that based on an audit
    of 75 local public housing agencies (PHAs), HUD has doled out
    about $225 million in questionable spending at those PHAs since
    2012. David Montoya testified that ``over the course of our
    work, we have seen that PHAs often run with little oversight
    and are, in some instances, prone to ethical lapses that may
    attract media attention.'' Montoya went on to state that the
    boards and commissions tapped to oversee the PHAs ``exercises
    little or no oversight and the members themselves have few or
    no qualifications to effectively discharge their
    responsibilities.''
        Additionally, while PHAs continue to misuse millions in
    taxpayer dollars, many of them have failed to maintain adequate
    living conditions. Instead, some have provided at times
    dangerous housing facilities. Montoya testified that ``time and
    again we see violations of housing quality standards at
    individual PHAs.'' An external audit of the New York City
    Housing Authority found that HUD will potentially pay more than
    $148 million in housing assistance for units that materially do
    not comply with HUD's standards in that single PHA.
        During your hearing, you stated that you will work to find
    savings in the Section 8 housing programs. Finding costs
    savings must begin with knowing where the funds are going in
    the first place. As HUD Secretary, what specific steps will you
    take to implement a robust oversight component into our
    Nation's PHAs to prevent the massive waste and potential fraud
    the HUD OIG has identified? Further, what steps will you take
    to ensure that HUD funding is prioritized to bring up the
    living conditions to meet HUD standards?

    A.4. Improving the living conditions for public housing and
    housing choice voucher families is personal for me.
        I understand that there have been oversight issues in the
    Housing Choice Voucher program because SEMAP, the PHA
    performance evaluation system for the HCV program, is primarily
    based on self-certification. HUD has relied on self-
    certification because the Department has not, and in this
    fiscal environment, will not have the resources necessary to
    conduct reviews of each of the nearly 4,000 PHAs across the
    country. For this reason, the Department has moved to a risk-
    based approach. As it pertains to the HCV program, in FY14, PIH
    launched Quality Assurance inspections of 30,000-40,000 voucher
    units which will be completed by December 30, 2014, and provide
    a first time significant in-depth look at HQS standard
    compliance in our largest PHAs. Technical Assistance and follow
    up quality control will be provided to those PHAs who are not
    ensuring property owners maintain their units at an acceptable
    level.
        As for HUD's overall oversight and monitoring initiatives,
    it is my understanding that over the past 4 years HUD has
    significantly improved oversight and accountability with
    respect to public housing authorities. As the appointing
    official for the Board of Commission of the San Antonio Housing
    Authority, I fully understand the critical role State and local
    governments and the boards we appoint play in providing the
    primary oversight for PHAs.
        While preparing for my nomination hearing, one of the many
    things I learned was that the Department has already
    significantly increased management and ethics training for PHA
    Board of Commissioners. Relatedly, managers are providing
    technical assistance and training to PHAs on internal controls
    and best practices at regional and national conventions of
    industry associations throughout the year. I also understand
    that a new partnership between PIH and the OIG has just been
    formed to provide additional technical assistance to governing
    boards to strengthen oversight efforts. Last, I understand that
    the Department is developing several risk-based, early
    detection tools to more quickly mitigate performance issues.
        These are all strong, initial steps in ongoing efforts to
    prevent waste, fraud and abuse. If I am confirmed, I will
    continue to push for staff specializing in risk mitigation. I
    will also push for additional funding for IT systems to address
    ongoing PHA performance challenges and to improve monitoring
    and oversight of statutory and regulatory requirements.

    Q.5. Under current practice, HUD grants can be used to repay
    HUD loans. The Senate approved an amendment in 2011 that would
    prohibit the use of Federal grants to repay Federal loans. Do
    you believe that entities should be able to receive HUD grants
    to repay HUD loans?

    A.5. I have not studied this issue in depth and would want to
    collect additional information before offering a view. A number
    of factors may be relevant for consideration, including whether
    repayment of the Federal loan with HUD grants helps achieve
    measured long-term savings, permits recapitalization of
    property, keeps costs low in response to changing market
    conditions, and preserves essential affordable housing. As I
    noted during the hearing, I am a firm believer in measuring
    outcomes and, if confirmed, would utilize this approach in
    addressing this very important question.
                                    ------

     RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM LAURA S.
                               WERTHEIMER

    Q.1. The Inspector General of the FHFA is in a rather unique
    situation. The Director of FHFA acts as not only regulator, but
    also executive and shareholder of both Fannie Mae and Freddie
    Mac.
        Because of this unique situation, how do you believe the
    FHFA JG needs to go about providing adequate oversight as
    compared to an JG without that unique circumstance?

    A.1. The Housing and Economic Recovery Act of 2008 (``HERA'')
    imposes a number of duties on the Federal Housing Finance
    Agency (``FHFA'') as the conservator of Fannie Mae and Freddie
    Mac (``the Enterprises''), and as the regulator of the
    Enterprises and the Federal Home Loan Bank System. As
    conservator, FHFA assumes the authority of the management and
    boards of Fannie Mae and Freddie Mac during the period of the
    conservatorship and directs the Enterprises' business
    activities and operations in order to conserve and preserve the
    assets of each company. As regulator, FHFA's mission is to
    ensure through its supervision and examination activities that
    each of the regulated entities is operating in a safe and sound
    manner so they can serve as a reliable source of liquidity and
    funding for housing finance and community investment.
        HERA also amended the Inspector General Act of 1978 to
    establish the Office of Inspector General of the FHFA (``FHFA
    OIG''). That Act empowers Inspectors General, to ``conduct,
    supervise, and coordinate audits and investigations relating to
    the programs and operations'' of the respective agency. Under
    the Inspector General Act, the duties and responsibilities of
    FHFA OIG remain the same, whether FHFA acts as conservator or
    regulator: to promote the economy, efficiency, and
    effectiveness of FHFA's programs and operations through
    independent and rigorous oversight.
        Of course, the existence of the conservatorships means that
    FHFA has a much broader range of responsibilities with respect
    to the Enterprises than just its duties as regulator. FHFA
    OIG's role is correspondingly broader, because it must perform
    appropriate oversight of FHFA's exercise of its conservatorship
    responsibilities. FHFA's conservatorship responsibilities
    encompass the authority of the management and boards of the
    Enterprises, and FHFA OIG therefore must structure its
    oversight program to examine FHFA's exercise of those critical
    responsibilities, which differ significantly from the typical
    Federal financial regulatory programs. My experience in
    conducting independent investigations of alleged wrongdoing and
    compliance with governing laws and regulations on behalf of
    private-sector companies' audit committees will be particularly
    useful in performing this aspect of FHFA OIG's
    responsibilities.
        The critical importance of FHFA OIG's independent oversight
    is underscored by the $187 billion in taxpayer monies that the
    Enterprises have drawn, pursuant to their agreements with the
    Department of the Treasury, and the potential $5 trillion in
    taxpayer exposure from the mortgages owned or guaranteed by the
    Enterprises. If confirmed as Inspector General, I will focus on
    the core mission of the FHFA OIG: to protect the taxpayer with
    independent and thorough audits, evaluations, and
    investigations of FHFA's programs and operations.

    Q.2. Does FHFA's operations as conservator of Fannie and
    Freddie require a different type of oversight than does its
    operations as regulator of the Federal Home Loan Banks, in
    order to assure adequate review of its activities?

    A.2. The FHFA OIG mission remains the same, whether FHFA acts
    as conservator or as regulator: to protect the taxpayer through
    independent and rigorous oversight of FHFA's programs and
    operations--whether as regulator or as conservator. If
    confirmed as FHFA Inspector General, I intend to analyze FHFA's
    functions as conservator and regulator to identify high risk
    areas and target resources for audits, evaluations, and
    investigations accordingly. As discussed in the answer to the
    previous question, the nature of the conservatorship
    responsibilities is different from FHFA's regulatory
    responsibilities and therefore is likely to carry risks that
    differ from FHFA's regulatory responsibilities, and accordingly
    produce a different--and probably more extensive--list of
    activities that should be subject to audits, evaluations, and
    investigations.