[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]







                           HUD ACCOUNTABILITY

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





                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 13, 2016

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-98





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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                            C O N T E N T S

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                                                                   Page
Hearing held on:
    July 13, 2016................................................     1
Appendix:
    July 13, 2016................................................    59

                               WITNESSES
                        Wednesday, July 13, 2016

Castro, Hon. Julian, Secretary, U.S. Department of Housing and 
  Urban Development..............................................     5

                                APPENDIX

Prepared statements:
    Castro, Hon. Julian..........................................    60

              Additional Material Submitted for the Record

Vargas, Hon. Juan:
    Written statement of the National Fair Housing Alliance......    64
    Written statement of the National Association of REALTORS...    68
    Written statement of Laurie Goodman, Urban Institute.........    70
    Written statement of the Leadership Conference on Civil and 
      Human Rights...............................................    74

 
                           HUD ACCOUNTABILITY

                              ----------                              


                        Wednesday, July 13, 2016

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:06 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Royce, 
Garrett, Neugebauer, Posey, Fitzpatrick, Luetkemeyer, Huizenga, 
Duffy, Hurt, Mulvaney, Hultgren, Ross, Pittenger, Barr, 
Rothfus, Messer, Schweikert, Guinta, Tipton, Williams, 
Poliquin, Love, Hill, Emmer; Waters, Maloney, Velazquez, 
Sherman, Meeks, Capuano, Hinojosa, Clay, Lynch, Scott, Green, 
Cleaver, Ellison, Perlmutter, Himes, Sewell, Foster, Kildee, 
Murphy, Delaney, Sinema, Beatty, Heck, and Vargas.
    Chairman Hensarling. The Financial Services Committee will 
come to order. Without objection, the Chair is authorized to 
declare a recess of the committee at any time.
    Today's hearing is entitled, ``HUD Accountability.''
    I now recognize myself for 3 minutes to give an opening 
statement.
    There has probably been no greater public policy mistake in 
housing than Washington trying to put people into homes they 
cannot afford to keep. It was clearly the number one reason our 
Nation suffered the second worst financial crisis in our 
history.
    Not 3 weeks ago HUD announced, after secret deliberations, 
that it again wants to double down on these failed policies and 
breach its fiduciary duty to hardworking taxpayers while doing 
so. Specifically, HUD has now announced what it describes as 
the ``most significant changes ever to the Distressed Asset 
Stabilization Program, known as DASP.''
    DASP, as most committee members know, is a program that 
allows a pool of delinquent mortgages headed for foreclosure to 
be sold competitively on the open market. This is done in order 
to minimize losses to the FHA's Mutual Mortgage Insurance Fund, 
or MMIF.
    Bidders are encouraged to work with borrowers to help bring 
the loan out of default. This is a challenge since the average 
loan in the pool has been in default for almost 2\1/2\ years 
and has already been subject to numerous foreclosure mitigation 
measures.
    After no notice, no public comment period, no public 
debate, and no transparency, HUD announced it will no longer 
maximize taxpayer recovery by selling these mortgages through 
an open and competitive bidding process. Instead, it will offer 
lower-price, ``preferential bidding options'' to ``nonprofits 
and local governments,'' or, more accurately, as many of us 
believe, to special interest groups and known political allies.
    Additionally, as part of HUD's 11 specific changes to DASP, 
private purchasers will now be punished if they get stuck with 
a vacant property, thus assuring a decrease in private sector 
bidding. As a result, taxpayer recoveries through the DASP will 
be reduced, further exacerbating the financial stress placed on 
the FHA, which, lest we forget, recently required a $1.7 
billion taxpayer bailout.
    What we are witnessing is nothing less than the gradual 
transformation of FHA from a mutual insurance program designed 
to help low-income, moderate-income, and first-time homebuyers, 
into a social program designed to help special interest groups.
    Why has all of this happened? Well, we had a recent report 
on April 12th. Politico published a story entitled, 
``Progressive Groups Target Julian Castro.'' It stated in part, 
``A coalition of progressive groups are launching a preemptive 
strike against Castro aimed at disqualifying him from 
consideration to be Hillary Clinton's running mate, attacking 
Castro on the relatively obscure issue of his handling of 
mortgage sales.''
    Just a few weeks later a story appeared in the very same 
publication entitled, ``Veepstakes: Julian Castro Moves to 
Shore Up a Political Weakness.'' The story goes on to say, 
``Julian Castro's HUD announced significant changes Thursday to 
a Federal program that sold delinquent mortgages to private 
investors--a move that mollified progressive critics who 
threatened to undermine his Vice Presidential prospects.''
    Mr. Secretary, these are clearly disturbing reports, to say 
the least, and I hope and trust you will address them in your 
statement today.
    To conclude, it is surely worth repeating that there is no 
better foreclosure mitigation program than a job with growing 
wages and a bright future. Also, a bankrupt FHA and a bankrupt 
America can help no one stay in their home, much less afford 
them an opportunity to buy one in the first place. This attack 
on FHA's insurance fund must be stopped.
    I now yield 5 minutes to the ranking member for an opening 
statement.
    Ms. Waters. Thank you very much, Mr. Chairman.
    And thank you, Secretary Castro, for joining us today 
despite being called by the Majority on such short notice and 
in such an unprecedented and discourteous way.
    With this hearing, committee Republicans are hijacking a 
very important topic in order to launch attacks on the 
Secretary and the Department rather than substantively examine 
the issues impacting working people in this country.
    Through the Distressed Asset Stabilization Program, or 
DASP, the Federal Housing Administration sells the mortgages of 
underwater borrowers to private enterprises and nonprofits as a 
way to both help low-income borrowers struggling to pay their 
mortgage and minimize losses to the Mutual Mortgage Insurance 
Fund. Now, 98 percent of the loans sold so far have been 
auctioned off to firms like private equity funds; the rest have 
been sold to qualifying nonprofits with substantial experience 
in community development.
    The Administration, recognizing that this situation may not 
represent the best solution for borrowers, has proposed some 
modest changes to help ensure that individuals are better 
protected when their loans are sold and to help level the 
playing field when community-based organizations want to place 
bids. Apparently my Republican colleagues don't like it when 
the Administration looks to support consumers.
    In fact, it seems as if the Republicans would like the FHA 
to act like the same private mortgage companies that cratered 
the economy and focused exclusively on the bottom line. But we 
know that is not how DASP or FHA was designed.
    The FHA has an obligation to the borrowers it serves, and 
that includes helping them stay in their homes. Nonprofit 
organizations are often best positioned to help borrowers do 
just that, but so far they have been kept on the sidelines of 
the DASP program. Instead, loans have consistently been sold to 
big business, even when news reports have indicated they are 
doing a poor job of providing loan modifications to borrowers.
    Further, the majority of loans sold through DASP are 
attached to properties in communities particularly hard-hit by 
the housing crisis or that are home to racial and ethnic groups 
that have lost a disproportionate share of wealth throughout 
the foreclosure crisis. So we must be mindful of neighborhood 
stabilization because the outcomes for these loans could make a 
significant difference in the pace of recovery for these 
vulnerable communities.
    That is why many stakeholders and Members of Congress, 
including several here on this committee, have been requesting 
changes to DASP that would increase nonprofit participation and 
help protect borrowers.
    I would like to point out that we do not yet know the full 
scope of the changes proposed by HUD, since we all only have a 
preview of the changes to come in the next sale of loans. But 
from what we do know, the changes planned are sensible and 
incremental.
    So at best this hearing is premature and at worst it is an 
attempt by Republicans to simply score political points for 
attacking the Obama Administration while protecting the 
interests of the one percent.
    I would also like to point out the urgency with which the 
Majority responded to the possibility that private investors 
might lose out on a small share of loans. This is our last week 
in session, and we are rushing to hold hearings on how to 
maximize Wall Street profits at the expense of struggling 
homeowners.
    Is this your poverty agenda, Mr. Chairman? Because we have 
not held a single hearing this Congress on issues that actually 
warrant our urgent attention such as the crisis of 
homelessness, or communities that are still struggling to 
recover from the Great Recession, or on discrimination 
occurring at private banks.
    What is more, Republicans continue to burden agencies with 
never-ending document requests and abusing their unilateral 
self-granted subpoena power. Make no mistake: This is not only 
an effort to impair HUD and other agencies from doing their 
jobs, but also to distract the American public from the real 
policy issues these agencies are working to address today.
    So, Mr. Chairman, I mentioned whether or not this is your 
poverty program because the Republican Caucus and the 
leadership have made a big issue out of having a poverty 
agenda. They have held a town hall; they have gone on national 
press. And I just want to know, is this your idea of a poverty 
program?
    Chairman Hensarling. The time of the gentlelady has 
expired.
    Ms. Waters. I yield back the balance of my time.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Missouri, Mr. Luetkemeyer, chairman of our Housing and 
Insurance Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    And welcome, Mr. Secretary.
    Mr. Secretary, we have talked candidly about the many 
programs at your Department that don't work and are in 
desperate need of reform. This committee's intent in passing 
H.R. 3700 was to help you transform some of those programs, and 
while I appreciate your continued strong support on H.R. 3700, 
I fear that you are now presently focusing your time fixing a 
program that isn't broken.
    The Distressed Asset Stabilization Program is working, by 
your own admission. I think even your own statement today will 
say that. Since 2013 alone, FHA has sold more than 9,200 
nonperforming loans. Your own estimates show DASP net 
recoveries over that period of $2.2 billion, or about $2,400 
per unit, over what would have been collected without the 
program.
    The change your Department recently announced will pose a 
threat not just to American taxpayers but to first-time and 
low-income borrowers who depend on a strong FHA and Mutual 
Mortgage Insurance Fund. That is the same fund that taxpayers 
bailed out just a few years ago and it has only recently inched 
above the statutory capital ratio, while reserves are still 
well below the recommended level.
    Your changes undercut a competitive private market that has 
served homebuyers and the taxpayers and the public well. All of 
this is in direct contravention to the mission of DASP.
    According to your Department, the program is ``one of a 
suite of position programs that aids in fulfilling the 
Secretary's fiduciary responsibility to ensure that the MMIF 
remains financially sound.'' With these changes you are, in my 
opinion, picking winners and losers and are turning an 
insurance program into a social welfare program. In doing so, 
you are endangering those families whom we are statutorily 
required to help.
    We are left to wonder why these changes have been made and 
what policy analysis has shown that keeping people in homes 
they can't afford at the expense of other homeowners is a good 
idea.
    Mr. Secretary, we look forward to a better understanding of 
your decision-making process, and I thank you for appearing 
today.
    Mr. Chairman, with that, I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    Today, we welcome the testimony of the Honorable Julian 
Castro, Secretary of the U.S. Department of Housing and Urban 
Development. Secretary Castro has previously testified before 
our committee so I believe he needs no further introduction.
    Mr. Secretary, without objection, your written statement 
will be made a part of the record.
    And Mr. Secretary, you are now recognized for 5 minutes to 
give an oral presentation of your testimony. Thank you.

   STATEMENT OF THE HONORABLE JULIAN CASTRO, SECRETARY, U.S. 
       DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD)

    Secretary Castro. Chairman Hensarling, Ranking Member 
Waters, and members of the committee, thank you for allowing me 
this opportunity to discuss an initiative that is making an 
important, positive difference for American homeowners and 
their neighborhoods: HUD's Distressed Asset Stabilization 
Program, also known as DASP.
    I look forward to a good conversation this morning, but 
first I would like to express my condolences to the Members 
whose constituents were most affected by the tragedies our 
Nation endured last week in Baton Rouge, Louisiana; in Falcon 
Heights, Minnesota; and most recently in Dallas, in my home 
State of Texas. The HUD team and I join with you in mourning 
the lives, both civilian and law enforcement, that were lost.
    My colleague, Attorney General Loretta Lynch, recently 
remarked that the response to these tragedies must be ``calm, 
peaceful, collaborative, and determined action,'' and the Obama 
Administration is eager to work with you to help make our 
communities safer for every citizen, including our police 
officers, while also ensuring that every American's civil 
rights are protected.
    We come together this morning to discuss an altogether 
different, yet essential, public mandate: strengthening the 
Nation's housing market in ways that protect homeowners, 
improve neighborhoods, and boost the United States economy.
    Without question, our Nation's housing market has made 
remarkable progress since the Great Recession. Real residential 
investment, which includes new housing construction and home 
improvements, has grown by more than 8 percent for 6 straight 
quarters and continues to far outpace overall GDP growth. Sales 
of existing homes have climbed to their highest level in more 
than 9 years. And homeowners' equity continues to show sharp 
gains and is now nearly $7 trillion higher than when President 
Obama took office.
    And I am proud that HUD has been a part of this turnaround. 
Our agency has taken a number of steps to ensure that the 
housing market remains a bright spot in our economy.
    One important step has been creating DASP. It is 
innovative; it helps homeowners avoid foreclosure, it helps 
preserve strong neighborhoods; and it boosts the health of the 
Mutual Mortgage Insurance Fund.
    Since its launch in 2012, DASP has helped more than 10,000 
families who were on their way to foreclosure remain in their 
homes, and it has also helped another 15,000 homeowners avoid 
foreclosure altogether. That has had a major stabilizing effect 
for some of the communities that were hardest hit by the Great 
Recession, and it is a direct result of our efforts over the 
last 4 years to continually improve DASP's effectiveness.
    Since the Program's launch, HUD has modified DASP many 
times. We have implemented a 12-month moratorium on 
foreclosures, strengthened DASP's neighborhood stabilization 
requirements, and made the Program more transparent and more 
competitive. In fact, no DASP note sale has been the same. All 
of the Program's changes have helped ensure that it continues 
to meet the needs of our growing housing market.
    The same is true of the improvements we announced last 
week, including those aimed at encouraging more nonprofit 
investors to join DASP.
    Some have tried to single out these changes as being 
politically motivated. They were not.
    Many nonprofit groups have decades of experience in 
stabilizing neighborhoods, and HUD wants to put that expertise 
to work on behalf of the homeowners and communities who need it 
most while also maintaining the rigorous standards that have 
made DASP a success for the MMI Fund. And we have been engaging 
nonprofits since 2013.
    All of the program changes we will discuss today were 
designed with input from a broad range of stakeholders. All 
were assessed for how well they would fulfill our goal of 
strengthening neighborhoods. And all have been implemented with 
this committee's counsel in mind, including your direction, 
Chairman Hensarling, that any changes to DASP further protect 
the health of the MMI Fund. I am proud of these changes.
    I am also proud that the FHA has constructed a very sound 
program. In the last fiscal year, DASP recoveries were 16 
percent higher than recoveries on assets conveyed through the 
traditional foreclosure action or real estate owned process. 
And when you consider that DASP has contributed more than $2 
billion to the MMI Fund above what would have otherwise been 
collected, it is clear that this innovative program is a 
significant reason why the Fund's capital reserve ratio is now 
above 2 percent for the first time in 6 years.
    DASP was created during a period of economic turmoil that 
was unprecedented in our lifetimes. Since its launch, the 
Program has helped preserve the dream of homeownership for 
thousands of families who had exhausted every other tool at the 
Federal Housing Administration's disposal, while also 
strengthening neighborhoods all across our Nation and 
protecting taxpayers.
    Ladies and gentlemen, this is a good example of how public-
private partnerships can and should work. Thank you, and I look 
forward to answering any questions you may have.
    [The prepared statement of Secretary Castro can be found on 
page 60 of the appendix.]
    Chairman Hensarling. Thank you, Mr. Secretary.
    The Chair now yields himself 5 minutes for questions.
    Mr. Secretary, as you know, 12 USC 1711 requires the FHA's 
Mutual Mortgage Insurance Fund to maintain a minimum 2 percent 
capital reserve ratio. Correct?
    Secretary Castro. That is true.
    Chairman Hensarling. And isn't it true that for 6 years 
running, including 2 years on your watch, the MMIF illegally 
dropped below its statutory minimum? Do you not acknowledge 
this, Mr. Secretary?
    Secretary Castro. That is not accurate.
    Chairman Hensarling. Well, isn't it true that in September 
2013, due to its deteriorating fiscal condition, the MMIF 
received a $1.7 billion mandatory appropriation? Isn't that 
correct, Mr. Secretary?
    Secretary Castro. Mr. Chairman, I think you said that for 2 
years under my watch, it was underneath 2 percent. That is not 
correct.
    Chairman Hensarling. Okay. Was it ever under its legal 
minimum on your watch?
    Secretary Castro. I testified in early 2015 that within 2 
years from that time we would get back over 2 percent.
    Chairman Hensarling. It is a simple yes-or-no question: Did 
it drop below its legal statutory minimum on your watch?
    Secretary Castro. I guess the simple answer is that we are 
over 2 percent now.
    Chairman Hensarling. I think the simple answer is that you 
are avoiding the question, Mr. Secretary. Did it receive a $1.7 
billion mandatory appropriation in 2013?
    Secretary Castro. In 2013, it did receive a mandatory 
appropriation.
    Chairman Hensarling. Okay. Thank you, Mr. Secretary.
    You may not like the term, but most of us view that as a 
taxpayer bailout. It was the first time in history, if I recall 
correctly, Mr. Secretary.
    And isn't it true that under 12 USC 1708 you have a 
``duty'' to ensure that the Mutual Mortgage Insurance Fund 
remains financially sound? Isn't that correct, Mr. Secretary? 
Do you--
    Secretary Castro. I certainly take that fiduciary duty 
very--
    Chairman Hensarling. Okay, you acknowledge that is written 
into statute. So against the backdrop of an insurance fund that 
was illegally undercapitalized for 6 years that needed an 
almost $2 billion taxpayer bailout, a fund that you legally 
have a fiduciary duty to ensure remains financially sound--and 
this is important because millions rely upon this fund. A 
bankrupt FHA, an insolvent MMIF is helping no one get into a 
home.
    Anyway, against this backdrop you have now announced a new 
policy to give noncompetitive, no-bid, sweetheart deals to so-
called community groups. And I guess, Mr. Secretary, my 
question is, in so doing what internal and external studies did 
HUD consult to ensure that these policies will not adversely 
impact the MMIF? Your testimony says that there are metrics, 
economic analysis, and studies that were used, but can you name 
two of them that you read and consulted and relied upon before 
making this decision?
    Secretary Castro. Thank you. That is a long question, 
Congressman.
    Chairman Hensarling. Well, it is a simple question. Can you 
name me two studies that you relied upon? And if so, will you 
make them available to this committee?
    Secretary Castro. As I stated in my written testimony, Mr. 
Chairman, we have made many changes to the DASP program since 
its inception, and what has happened is that after every note 
sale, our FHA staff has taken input from the investors, from 
stakeholders obviously, folks who have an opinion, including 
Members of Congress.
    Chairman Hensarling. I am just curious, Mr. Secretary--
studies that you specifically relied on, because the buck stops 
with you. Can you name two studies you relied upon? Because it 
seems to be common sense that if you are no longer going to 
allow the highest bidder to buy these properties, by definition 
there has to be an adverse impact on the MMIF, and you are 
saying there is not.
    Secretary Castro. What I am telling you is that, in fact, 
our folks rely on the input of stakeholders; they rely on the 
investors who bid on these properties; and, of course, they 
speak to Members of Congress and they look at different 
analyses--
    Chairman Hensarling. So you heard from the investors who 
have bought these properties. You consulted with them prior to 
making these changes. Is that true?
    Secretary Castro. What was your question?
    Chairman Hensarling. Did you consult with the investors 
prior to making this change?
    Secretary Castro. Absolutely. After the last note sale--and 
this has been an ongoing process--
    Chairman Hensarling. Okay. I have a list of the entire 
historic list of investors. Did you consult with Neuberger 
Berman, Credit Suisse, PIMCO, Bayview, Lone Star, Angelo 
Gordon? Can you tell me which ones?
    Secretary Castro. Our FHA staff--not me personally, our FHA 
staff--has taken input for several years, including after the 
last note sale in the first quarter of Fiscal Year 2016 from an 
entire variety of investors, Members of Congress, and advocacy 
groups in crafting this policy. We also modeled this with the 
Office of Management and Budget, and so--
    Chairman Hensarling. Okay. Did you accept any of their 
feedback, Mr. Secretary?
    Secretary Castro. --this is a very well-thought-out 
policy--
    Chairman Hensarling. Did you accept any of the feedback of 
the investors?
    Secretary Castro. The FHA staff--again, this is done by the 
FHA staff--of course accepts the feedback of investors, of 
Members of Congress--
    Chairman Hensarling. Do you know specifically what feedback 
they did accept?
    Secretary Castro. I think a number of these changes had 
been suggested by different groups, whether it was the National 
Association of REALTORS or others, for several years.
    Chairman Hensarling. Okay. But we would like for you to 
make available to this committee what the input was and what 
you accepted. My time is running out, but--
    Secretary Castro. Actually, Mr. Chairman--
    Chairman Hensarling. --I don't understand how in your 
testimony--
    Secretary Castro. --we have already begun doing that. 
Congressman Duffy made a request for information and we have 
submitted 1,900 documents on very short notice.
    Chairman Hensarling. I know, and--
    Secretary Castro. In fact, 2 business days of notice, and 
we have already given 1,900 documents.
    Chairman Hensarling. Actually, Mr. Secretary, I wrote to 
you in March and told you if you made these changes we would 
have a hearing. You have had several months of notice.
    And I don't understand how you can say in your testimony 
that these changes--``the most important of which is increased 
competition and therefore maximizing recoveries for the Federal 
Government--maximize recoveries for the Federal Government when 
you no longer take the high bidder. You claim this has 
increased competition, but I don't understand how. I don't 
understand it, Mr. Secretary.
    My time has expired.
    The ranking member is now recognized.
    Ms. Waters. Thank you very much.
    Mr. Secretary, I welcome you and I really mean it. 
Obviously you are under attack. You are under attack by the 
chairman of this committee and he won't even allow you to 
answer the questions that he is asking you. And he started out 
on a subject that had nothing to do with what he said he wanted 
to have you before this committee about.
    So let me give you an opportunity to talk about what they 
claim they want to hear about, and that is how the DASP program 
is run, what you have tried to do with it. I yield the balance 
of my time to you to be able to be treated fairly.
    Secretary Castro. Thank you so much, Ranking Member Waters.
    As you know, we do have a fiduciary duty to the MMI Fund. 
That fiduciary duty at FHA also includes the duty to the 
borrowers that we serve through FHA-insured loans.
    The DASP program is an innovative way where there is an 
alignment of interests where, if it is done well, we can 
actually end up keeping more people in their homes, avoiding 
foreclosure, and by doing that, help preserve strong 
neighborhoods--the evidence bears this out--and also help build 
up the Mutual Mortgage Insurance Fund. So we want both of those 
goals to happen.
    And since this program began several years ago, after every 
note sale the FHA staff has met with the investors, and they 
have taken input from Members of Congress, and from different 
advocacy groups. They created what they call a parking lot of 
ideas of proposed changes and then have implemented some of 
those changes over time.
    So that is what we are trying to do. We are trying to make 
sure that more homeowners can stay in their homes--we avoid 
foreclosure, and also that by gaining more revenue through the 
DASP program than we would if we went the traditional route of 
REO, we are actually able to build up the Mutual Mortgage 
Insurance Fund.
    We have been very successful with regard to building up the 
Mutual Mortgage Insurance Fund. In fact, through this DASP 
program we have returned $2.2 billion over and above what we 
would have if we had gone down the traditional REO route. 
However, we feel like there is work to do with regard to making 
sure that we keep more people in their homes.
    Those two things, even though they may seem like they are 
opposed to each other, actually oftentimes those interests are 
aligned. If we can keep more people in their home instead of 
going into the foreclosure process, then those private sector 
investors can actually make more money, a greater profit, and 
families can stay in their homes.
    So just to give you an example of this, of why we began to 
engage nonprofits, we want to make sure that we have 
organizations that are concerned--as concerned as possible 
about keeping folks in their homes and also strengthening 
neighborhoods. As you know, there are nonprofits that are very 
close to the ground, that have a connection to the community, 
that take a particular interest in a note sale in one city, one 
community, and want to do everything they can to preserve 
strong neighborhoods.
    Our preliminary data has shown that at least our biggest 
nonprofit who has been bidding has been 3 times as successful 
at keeping people in their homes as the average private 
investor. So you can see this is why we have an interest in 
this pilot project in expanding the number of nonprofits in 
this program.
    And again, these interests don't diverge. Oftentimes the 
most profitable thing that can happen in this process is for 
somebody to stay in their home instead of going through the 
foreclosure process.
    As I said, we are excited about these changes.
    The last thing I would say is that we should put this into 
some context. Of all of the delinquent properties that are 
disposed of, DASP takes about 20 percent of those. And out of 
106,000 notes that have been sold, 2,000 of those have been 
sold to nonprofits.
    Ms. Waters. My goodness. Mr. Secretary, I am looking up on 
the screen. Are you telling me that an attempt to include 
nonprofits in the opportunity to bid is maybe all that we are 
trying to do? And is it true that 98 percent of the loans 
auctioned through DASP have gone to these private investors, 
the big boys on Wall Street, and only 2 percent have gone to 
the nonprofits?
    Secretary Castro. Yes. About 2,000 loans out of 106,000 
have gone to nonprofits.
    Ms. Waters. And now my Republican friends are crying 
because their friends on Wall Street don't have 100 percent?
    You don't have to answer that. I said it.
    Thank you, and I yield back the balance of my time.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Missouri, Mr. Luetkemeyer, chairman of our Housing and 
Insurance Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Secretary Castro, as you were going through some of your 
explanation to the chairman a minute ago, you made the comment 
that you also consulted with Members of Congress with regards 
to this program. Who were the Members of Congress with whom you 
consulted?
    Secretary Castro. We would be glad to get you a list of 
those, and I imagine that it is probably well included in the 
request that Congressman Duffy has made.
    Mr. Luetkemeyer. Wait a minute. Time out. Now, my 
understanding was that these are Members of Congress whose 
advice you took on how to structure this program. Can you give 
me one name?
    Secretary Castro. Sure. Mr. Capuano, I know--
    Mr. Luetkemeyer. Okay.
    Secretary Castro. --has spoken to our staff and been very 
vocal about this program.
    Mr. Luetkemeyer. Now we know who--
    Secretary Castro. Again, Congressman Luetkemeyer, I don't 
mean to--let me be clear: I am not saying that I have 
personally spoken to each and every one of these Congressional 
Members.
    Mr. Luetkemeyer. I was just wondering--
    Secretary Castro. However, our staff has.
    Mr. Luetkemeyer. I am just trying to figure out who are 
your advisors here from the standpoint that--is anybody on this 
side of the aisle an advisor to you on this?
    Secretary Castro. Frankly, the letter that we got from the 
chairman was very helpful in constructing this program.
    Mr. Luetkemeyer. Okay.
    You also made a comment a minute ago that you have a 
fiduciary responsibility to the borrower. Can you point to the 
law and tell me where you have a fiduciary responsibility to 
the borrower?
    Now, you have a fiduciary responsibility to the taxpayer to 
make sure these loans are administered correctly, to make sure 
the taxpayer's exposure is minimized. But where do you have a 
fiduciary responsibility to the borrower?
    Secretary Castro. I agree with you that we have a fiduciary 
responsibility to the Mutual Mortgage Insurance Fund, and in 
this program we see two goals based on the 1999 Act that 
created Section 601, which spoke about both return to the 
Mutual Mortgage Insurance Fund and also trying to keep 
borrowers in their homes and to promote strong neighborhoods. 
And that was part of the report that came out of the 
legislation that created 601, and so we see this--
    Mr. Luetkemeyer. That is not in the statute.
    Secretary Castro. --as a responsibility that we have to do 
both of these things.
    Mr. Luetkemeyer. Mr. Secretary, that is not in the statute, 
so that is stretching, again, the intent of the law beyond its 
intention.
    We are talking about--I think in your testimony here one of 
my questions that I was coming up with was what do you 
anticipate the percentage of nonprofit participation to be 
after your new rules are promulgated? In your testimony you 
indicate that there is a target of 10 percent. Is that correct?
    Secretary Castro. That is correct.
    Mr. Luetkemeyer. Okay. Why do you believe that you don't 
get 10 percent right now?
    Secretary Castro. That is a great question. There are 
different reasons for that.
    Number one, there aren't that many nonprofits right now 
that have the capacity to bid on a high number of loans. Most 
of the nonprofit bidding has been on a smaller number of loans.
    And so one of the changes that we have made, introducing 
the ability of nonprofits to build in the national pool by what 
we think is an innovative way that won't prejudice the sale 
with respect to for-profits, is to allow them more opportunity 
to bid in the national pool with up to 5 percent of the loans 
in that pool.
    Mr. Luetkemeyer. Okay.
    Secretary Castro. So the answer to your question is that we 
think that this new opportunity is going to allow more 
nonprofits to shape their bids so that they can effectively 
compete in a better way.
    Mr. Luetkemeyer. Mr. Secretary, I really don't care who 
bids on these loans. I really don't. I think if it is for-
profits or nonprofits, as long as you vet them and it is a 
serious investor that can do a good job of working with the 
homeowner and recouping and making this all work, I really 
don't care one way or the other.
    The problem I have, though, is whenever you structure the 
rules so that you wind up with a noncompetitive bidding 
process. I don't understand--we are rigging the system here.
    Secretary Castro. Not at all.
    Mr. Luetkemeyer. And you have in the past here a program 
that works. Your own documents show that you recovered $2.2 
billion more--$24,000 per unit more than what you anticipated 
doing. Have you done any studies to figure out how much less 
you are going to make as a result of noncompetitive bidding?
    Secretary Castro. As I said, there was modeling that was 
done by OMB that found there would be no impact to the fund. In 
fact, just yesterday the Urban Institute, which the chairman 
cites in his letter as an authority, put out a note that said 
they don't believe there is going to be an impact to the fund.
    And so we believe that we can accomplish both of these 
goals: that we can build up the Mutual Mortgage Insurance Fund; 
and keep more people--more families in their homes.
    Mr. Luetkemeyer. Mr. Secretary, I hope you are right. I 
have serious, serious doubts.
    Competition is what drives those numbers. It is what has 
given you the ability to recoup the dollars that it takes to 
get your capital reserve up, and now you are doing the very 
thing, in my mind, that is going to undercut the program and 
hurt its viability and in the long run hurt your ability to 
increase your capital ratio.
    I yield back. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver, ranking member of our Housing and Insurance 
Subcommittee.
    Mr. Cleaver. Thank you, Mr. Chairman.
    First of all, Mr. Secretary, let me express my gratitude 
for your opening comments. Like you, Mr. Capuano and I were 
mayors. I had about 1,000 police officers in Kansas City during 
my term as mayor, and it is amazing that these police officers 
put themselves out every day. They are up at night so we can 
sleep in peace.
    And so I appreciate that as well as the fact that we have 
to do something about the lack of a relationship between 
minority communities and police. It is in the best interest of 
our country. And if we can eliminate the enemies within, we 
will frustrate the enemies without. So thank you for that 
sensitivity.
    And having some experience with the Urban Corps, being 
mayor of Kansas City--and you have been there a number of 
times--we have 1,000 vacant properties in a 150-block area. One 
thousand. The reason is many of those homes were foreclosed and 
ultimately when they sat there a while we had to demolish them. 
So we have these vacant properties, which is a sore on the 
urban landscape.
    Had we been able to get those homes in the hands of a CDC 
or some kind of not-for-profit we could--number one--we might 
have been able to save the family; and number two, we could 
have saved the home before it deteriorated to the point where 
now the rehab cost exceeds the cost of the property in that 
location. So my appreciation is the fact that this program is 
trying to prevent those things from happening that I guess 
anybody in here who represents an urban core can see every 
single day. So I appreciate that.
    Now, the other thing, any time I see an article about HUD I 
read it, obviously for a lot of reasons. And the articles that 
the chairman mentioned, I never saw a quote from you in those 
articles.
    Did you secretly go and ask for an article to be written? 
Or did you send some minions to ask for an article? You can 
answer. I know--
    Secretary Castro. Of course we cannot control the way that 
these things are covered. We are focused on good policy--good, 
sound policy.
    Mr. Cleaver. I want to associate myself with my friend from 
Missouri who said I don't care who gets the purchases. I agree. 
I am not sure that is anything we ought to focus on as long as 
it is done fairly and in harmony with the laws and the rules 
and regulations.
    And in your 2016 progress report it is noted that for-
profits purchased 98 percent of the loans through the auctions. 
And so even with the target at 10 percent, the vast majority of 
the loans still went to the for-profits.
    So even with this goal, what is the likelihood, based on 
past history, that all of a sudden the nonprofits are going to 
take over this program?
    Secretary Castro. It is still a real challenge for most 
nonprofits to be able to take on these notes. And that is part 
of the reason that the sales to nonprofits have been modest. 
And I have heard the frustration from different groups, from 
Congressman Capuano and others. And we have said that part of 
the challenge is capacity, but we are willing to do what we can 
in a sound way, a reasonable way, protecting the fund, make 
smart program improvements that allow nonprofits to 
competitively bid.
    It has to be said that they are not getting a discount; 
they have to meet the reserve price. So we believe that we can 
make important changes that allow them to competitively bid 
without sacrificing the stability of the Mutual Mortgage 
Insurance Fund.
    Mr. Cleaver. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, chairman of our Capital Markets Subcommittee.
    Mr. Garrett. Thank you, Mr. Chairman.
    When you were here before this committee for the very first 
time, I think you were very new on the job, and I know you were 
asked a lot of questions, and a lot of specific questions, and 
at that hearing, being new on the job, you didn't have specific 
answers to those specific questions. Now it has been some time 
and I guess we are still looking for specific answers, which 
apparently an hour into this hearing we are still not getting.
    The chairman asked a simple question, I thought--actually 
it was going to be my first question. In your testimony you 
refer to an abundance of literature on auctions modifications 
and the effects, and so on and so forth, and he said, can you 
name two out of the abundance of them that you cite? And your 
answer was no, you cannot name two studies that you--
    Secretary Castro. Actually, I didn't--that was not my 
answer. That was not my answer, Congressman Garrett.
    He asked specifically which specific studies did we rely 
on. I am not here to warrant every specific study that our FHA 
staff relied on.
    I could speak for myself. I have looked at studies, for 
instance, from the Urban Institute, from the Center for 
American Progress. Obviously, I have had the opportunity to 
review the chairman's letter.
    Mr. Garrett. So those are a couple of studies. And did you 
rely upon the Urban Institute study for this?
    Secretary Castro. I don't micromanage these individual 
programs.
    Mr. Garrett. This is a significant--
    Secretary Castro. I try not to. So I want to be very 
careful that I think that the appropriate level of--
    Mr. Garrett. I get that.
    Secretary Castro. --understanding is what the FHA staff who 
recommended this policy came up with. So--
    Mr. Garrett. So the basic question--
    Secretary Castro. --do I believe that they relied on a 
whole number of stakeholders? Yes, I do. I know, for instance--
the National Association of REALTORS--
    Mr. Garrett. I only have--
    Secretary Castro. --put forth a letter--
    Mr. Garrett. --3 minutes left. So you have not been able to 
indicate to us the specific studies that you read and that you 
relied upon. You are relying upon your staff. Okay.
    Secondly, the--
    Secretary Castro. No, I said that I have read the Urban 
Institute study. I have read the--
    Mr. Garrett. Let's stop there. When did the Urban Institute 
study come out?
    Secretary Castro. I believe the Urban Institute study came 
out earlier in 2016.
    Mr. Garrett. And so is that a study that you relied upon?
    You're not sure?
    So in that study, as far as I know and what the reference 
that we have seen to it is, that study did not say that there 
will be additional revenue flooding to the program, to the 
mortgage fund, did it?
    No, it did not.
    Secretary Castro. The study, in fact, suggested some of the 
changes that are being made in this round of improvements.
    Mr. Garrett. Specifically, the study--
    Secretary Castro. I will give you a specific example if you 
want. If you want specifics, it--we are implementing what is 
called a no-walkaway provision. It is something that was 
mentioned in the Urban Institute study.
    Since you want specifics, I just wanted to give you a 
specific answer--
    Mr. Garrett. I want a specific answer to the question. The 
study did not say that by going to a no-bid process, you would 
actually maintain or increase the funds that flow to the 
mortgage fund, did it?
    Secretary Castro. We are not going to a no-bid process.
    Mr. Garrett. The program that you have under DASP where you 
are going to allow for a minimum bid effectively allows them to 
bid at a price that is minimum when there are no other 
bidders--
    Secretary Castro. I think you are misunderstanding our 
approach. We are requiring bids. They are not getting a special 
discount. They have to meet the reserve price.
    Mr. Garrett. But you do a--
    Secretary Castro. Just so that we can characterize it 
correctly, it is not the way that you are laying it out.
    Mr. Garrett. Doesn't it defy logic to say that if you are 
going to have less revenue coming into the fund that you are 
going to be able to meet the fiduciary responsibility to the 
fund?
    Now, let's just do a side note there. Mr. Luetkemeyer makes 
that point: You do have a fiduciary responsibility to make sure 
that the fund is sound, correct?
    Secretary Castro. Oh, I absolutely do, sure.
    Mr. Garrett. Right. And you do have a responsibility to 
make sure that it is able to meet its obligation, correct?
    Secretary Castro. I do.
    Mr. Garrett. And right now the HUD has--back in 2013 there 
was a $1.7 billion taxpayer bailout to HUD. Is there any plan 
in place to actually pay that back to the taxpayers?
    Secretary Castro. Congressman, why are we talking about 
2013? In 2016--
    Mr. Garrett. Right. Because--
    Secretary Castro. --it is over 2 percent for the first time 
in 6 years.
    Mr. Garrett. The reason I am asking about 2013 is because 
that has not been paid back. That was 3 years ago. Do you have 
a plan to pay that back, and how does that plan coincide with 
this DASP modification, which does not allow for the same 
amount of revenue or increased revenue coming into HUD?
    Secretary Castro. As I mentioned earlier, folks who have 
looked at this in OMB, the folks who looked at this from the 
Urban Institute--in fact, they put out a note yesterday; that 
was the authority that was cited in the letter--have said that 
there is not going to be a negative impact--
    Mr. Garrett. But you did not rely upon that note yesterday. 
This program has been in place for some period of time.
    My time has expired.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, ranking member of our Capital Markets Subcommittee.
    Mrs. Maloney. Thank you, Mr. Chairman.
    And thank you for being here, Secretary Castro, and for 
your leadership and your words in Dallas.
    I also want to thank you for being responsive to the 
concerns that many of us on the Democratic side raised about 
the Distressed Asset Stabilization Program. Along with many 
Democrats, I signed a letter which was led by one of our 
colleagues, Mr. Capuano, and in that letter we requested 
changes to the program that would produce better outcomes for 
both borrowers and the local communities. And the changes that 
HUD announced last month were certainly responsive to those 
concerns, so I want to thank you for the steps that you have 
already taken in response to Mr. Capuano's letter.
    My first question is about how HUD pools distressed loans 
in this program. As you noted in your testimony, when HUD sells 
pools of distressed mortgages they either sell national pools 
or neighborhoods stabilization outcome, or NSO, pools. But 
there is a critical difference because buyers of NSO pools are 
required to achieve more borrower and neighborhood-friendly 
outcomes for at least 50 percent of the loans.
    So my question is, how does HUD decide which loans will go 
into the NSO pools and which ones will go into the national 
pools? And when HUD puts together pools of loans that are for 
nonprofits only, how do they decide which of these loans go 
into those pools?
    Secretary Castro. Thanks a lot for the questions, 
Congresswoman.
    You are right, there are different types of pools, the 
largest being the national pool. There have also been 
neighborhood stabilization outcome (NSO) pools, and then these 
very small nonprofit pools.
    Just to give you a sense of the scale here, there have only 
been, in terms of the nonprofit-only not sales bidding within 
nonprofits only, 164 loans out of 106,721 loans sold, and about 
1,850 NSO loans that have gone to nonprofits. So I want to give 
folks a sense of the scale. That is out of 106,000.
    Your question was how do we decide which--basically which 
notes go into which type of pool. Mostly that has been done 
with a concern, first, for geography. Second, more of the notes 
that go into NSO pools and the nonprofit pools are notes where 
we don't have a vacant home, where we have families who are 
still living there, because that is the point is that these 
nonprofits can be more successful at keeping a family in their 
home.
    And also, geography, that we want to pool these loans, for 
instance in a City like Detroit or another community, where you 
can all get them together, and if you can keep those folks in 
their homes and achieve other outcomes you can actually end up 
promoting strong neighborhoods. Those are some of the factors 
that go into making that determination.
    Mrs. Maloney. One of the rationales for the DASP program is 
that HUD can't pursue some of the borrower-friendly resolutions 
that private sector investors can pursue, and therefore we need 
to sell these distressed loans to private sectors in order to 
access these borrower-friendlier outcomes. My question is 
basically, why?
    Can you please explain why we need to sell these mortgages 
to private investors in order to pursue borrower-friendly 
resolutions? Why can't HUD pursue these borrower-friendly 
resolutions themselves?
    If there are better ways of resolving distressed loans then 
why do you have to sell to the private sector? Why can't you 
let not-for-profits or HUD be the ones that pursue these better 
outcomes?
    Secretary Castro. Yes, so this was a question that we got 
from, of course, the advocacy groups on the left that to look 
at some of it would rather that we scrap the program.
    Here is why we believe the program has real merit, real 
value: because if it is done right there is actually, as the 
Urban Institute has said, an alignment of interests that if 
they do their modeling correctly these investors actually have 
an economic incentive, a profit motive to keep families in 
their home so that we can keep--because--basically because 
keeping them in their home is more profitable than going 
through the lengthy foreclosure process. That is the 
fundamental idea behind the win-win and the dual goals of this 
program.
    Now, I will say that there are individual instances where 
that doesn't work as well as it should. We think nonprofits can 
step in in some of those instances.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, chairman of our Financial Institutions 
Subcommittee.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for being here.
    As I listened to your testimony and the dialogues we have 
been having here, I think I hear a recurring theme, which is 
that your staff recommended this, your staff supported this. 
And certainly in any kind of chain of command you have staff to 
make recommendations to you.
    But in fact, I guess you are a staff member for the 
President of the United States. He has appointed you to be in a 
very important position because part of your oversight 
responsibility is that you are overseeing the largest mortgage 
insurance fund in the world, and that is a pretty big 
responsibility. And certainly you want to get staff to do that.
    I guess the question I have is, when I cast a vote up here 
and my constituents back home say, ``I don't like the way you 
voted,'' they don't find me telling them, ``Well, that was my 
staff's recommendation,'' to be very comforting because, Mr. 
Secretary, quite honestly, the buck stops with you. Now, you 
may have people advising you, and again, you are in a very 
important position.
    And so I guess the question that I have is when you are 
looking at an insurance fund you are making--and you talked 
about under your watch it is now 2 percent and you--looking 
actuarially at what the sustainability of the fund. Did you 
look at any models that would say that if we make these policy 
changes that we know what the impact is? Because you--in your 
written statement you say it is going to--you feel like it is a 
positive for the fund to make these changes.
    So I assume, then, that you looked at a model that somebody 
provided you which showed you that things get better. Is that 
correct?
    Secretary Castro. Yes.
    Mr. Neugebauer. Can you furnish--
    Secretary Castro. Yes, so what I got was I got an 
assessment based on the work of FHA and OMB to model this to 
ensure--
    Mr. Neugebauer. Yes. You got an assessment, but what I am 
looking for is as the CEO of HUD, what kind of concrete 
documents--what models did you personally look at to say, I 
think that is--
    Secretary Castro. Yes. So I have had the opportunity to 
look at the difference in the rate of return, some of the 
figures that I have talked about today, an assessment from OMB 
and FHA about whether this would impact the fund. And based on 
that, if you are asking me personally, why do I have confidence 
in this decision, it is because I have had the opportunity to 
digest that and also get the recommendation from my staff.
    Mr. Neugebauer. Mr. Secretary, have you ever been to a 
property that would--these--that note is subject for sale?
    Secretary Castro. That was part of DASP?
    Mr. Neugebauer. Yes.
    Secretary Castro. Not that I am aware of, no.
    Mr. Neugebauer. Yes. So that is another recurring problem 
here. We have had other appointees and people come in here and 
talk about making major policy changes--for example, one of 
those was small-dollar short-term loans--and I asked that 
particular individual if they had ever actually been into a 
payday lending facility and visited with the customers. They 
had not done that.
    What you are saying is you have not been to properties that 
might be subject to DASP, and I am puzzled--
    Secretary Castro. Well, that is a different question.
    Mr. Neugebauer. I am puzzled--
    Secretary Castro. Have I been to a property that might be 
subject to DASP or that was in the DASP process? I don't think 
that I have been to one that was actively in the DASP process. 
Congressman, I have been to a lot of distressed neighborhoods, 
both as HUD Secretary and as mayor of San Antonio and in my 
life.
    And so I am quite confident that I have been to 
neighborhoods where we have distressed assets. But have I been 
to one that was actively in DASP at that time? I don't believe 
so.
    Mr. Neugebauer. I think another piece of that, the reason I 
wanted to see that model, is because one of the changes that 
you are proposing is that you make a longer waiting period for 
the purchaser of that note to be able to dispose of or 
foreclose on that property, so we have properties that already 
been, as the chairman said, 2\1/2\ years in delinquency, and 
now we are going to add another year.
    And the reason I wanted you to answer the question if you 
had been to one of those properties is because when you let a 
property sit in that condition for 2\1/2\ or 3\1/2\ years, you 
are on a very steep depreciation curve, which means that your 
realization of proceeds for that particular loan, whether you 
sell it or sell the property, diminishes pretty rapidly.
    And so I am very--as someone who has been in the real 
estate business for a long time, I would like to see how you 
make that business--
    Secretary Castro. Yes. With your experience then you would 
know that because of this alignment of interests and the way 
that the program actually works--and this was also in the Urban 
Institute note from yesterday, Mr. Chairman--when in 2015 we 
expanded the moratorium on foreclosure from 6 months to a year, 
that is not likely going to have an impact on a vast majority 
of properties that actually end up either in a modification or 
short sale or something other than strict foreclosure. It will 
impact some properties--
    Mr. Neugebauer. It is going to affect the bid that I--
    Secretary Castro. --however--
    Mr. Neugebauer. If I have to wait a year as opposed to 6 
months it is going to affect the bid that I am willing to pay 
for that note.
    Secretary Castro. But you are also pointing to why we need 
these nonprofits to do a better job of keeping people in their 
homes.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman.
    How are you doing, Mr. Secretary? It's nice to talk to you 
again.
    Secretary Castro. It's good to see you.
    Mr. Capuano. Mr. Secretary, just to clear up the first item 
that was brought up, the MMIF fund that went below 2 percent, I 
want to be clear that it is my understanding that the reason 
you were required to ask for an appropriation is because the 
law requires you to do so, number one. Number two, did any of 
that money ever get spent?
    Secretary Castro. It did not.
    Mr. Capuano. Not one penny got spent. So there was no 
bailout of the fund, no bailout of FHA, no bailout of HUD, no 
bailout at all by taxpayer funds. I just want to be clear about 
that.
    Secretary Castro. That is correct.
    Mr. Capuano. That is what I thought.
    After today's hearing, you have a while longer here. I kind 
of want to start off by asking, do you see why you shouldn't do 
anything halfway? When you do it halfway you are going to get 
kicked by them anyway, so why don't you just do what we want 
you to do?
    No matter what you do, you can't satisfy them. Two percent. 
``Oh, my God, 2 percent. That is terrible. You are ruining the 
entire world.''
    And for us, ``Oh, 2 percent. Thanks. Like it. Better than 
nothing, but we want more.''
    Why do we want more? I want more because the greatest study 
of mankind I have ever read is the Bible, and it says, ``Do 
unto others as you would have them do unto you.'' That is all I 
want HUD to do: treat these neighborhoods as you would want 
your neighborhoods to be treated.
    Have you ever shopped at Costco or BJ's or Walmart? When 
you go in and you see 1,000 rolls of toilet paper for five 
bucks, you buy it. If you bought each of those rolls 
individually, wouldn't it cost you more?
    Secretary Castro. Sure.
    Mr. Capuano. So people will pay more for an individual 
disaggregated item than they will for a big huge chunk of the 
same items. That is what I want HUD to do.
    Before your time they sold 17,000 single-family homes to 
Lone Star Fund. One batch of properties, one hedge fund--
17,000.
    You could have gotten more money had you broken them up and 
sold them individually either to the neighbors or to the local 
community development people or anybody else. That is just 
general knowledge. That is all I want you to do.
    Yes, it is more paperwork for your people. We get that. But 
you would make more money, and they would be happy. Actually, 
they wouldn't be happy. They should be happy, but they won't be 
happy no matter what you do.
    And we would be happy because we are servicing our 
communities.
    I want you to act like Costco. Do what they do. Actually, 
do the opposite of what they do. Break it down. Sell it 
individually.
    Time is always short on these things.
    I do want to talk about one item. Former mayor, HUD 
Secretary, I am sure, like you, in my neighborhoods where I 
come from, there are a lot of people having immigration 
situations one way or the other from all over the world. I am 
constantly working on helping people become U.S. citizens and 
moving here.
    I have never worked on having a U.S.-born person renounce 
his or her citizenship. Have you ever helped anybody renounce 
their citizenship?
    Secretary Castro. I have not.
    Mr. Capuano. Have you ever heard of anybody renouncing 
their citizenship?
    Secretary Castro. No.
    Mr. Capuano. I haven't. I have never known anybody who 
renounced their citizenship.
    Yet, you know who did? The guy who runs Lone Star. He has 
made billions on the DASP program. Billions.
    He just bought a $38 million condo in my district. I can 
see his condo. Yet, he renounced his U.S. citizenship. He was 
born here. And yet we reward him. I think that is a little 
``bass ackwards.''
    Again, I want to appreciate what you have done. Not 
criticizing, but my job is to push for more. And when you push 
for more we will be satisfied. And if you took this and got rid 
of it, you would get rid of the--they are not going to like 
what you do.
    That is what I don't understand about the Administration. 
You think that when you do the right thing somebody on that 
side would say, ``Good job.'' That isn't going to happen. Not 
today, not next week.
    So therefore, do the right thing. Help our communities keep 
themselves whole by allowing these homes to be bought by people 
who care and know the individuals who live them and the 
individuals where they live.
    Thank you, Mr. Secretary.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, chairman of our Oversight and Investigations 
Subcommittee.
    Mr. Duffy. Thank you, Mr. Chairman.
    And welcome, Mr. Castro.
    I wasn't going to go here, but just after Mr. Capuano's 
questions, did Lone Star violate the rules of FHA?
    Secretary Castro. Not that I know of, Chairman Duffy.
    Mr. Duffy. They did nothing wrong, correct? They did 
nothing wrong. They played by your rules and someone made some 
money, and maybe now the plan is that Mr. Capuano doesn't like 
that so we want nonprofits maybe to--
    Mr. Capuano. No, I like it and I am happy--
    Mr. Duffy. No, no, no, no. This is my time.
    Mr. Capuano. --if the gentleman would yield.
    Chairman Hensarling. The time belongs to the gentleman from 
Wisconsin.
    Mr. Capuano. If the gentleman would yield, I would like to 
ask him a question.
    Ms. Waters. Point of order.
    Chairman Hensarling. The time of the gentleman from 
Massachusetts is out of order.
    The gentlelady will state her point.
    Ms. Waters. The point of order is that he referred to the 
gentleman and he referred to him incorrectly. The gentleman 
should have an opportunity to defend himself.
    Chairman Hensarling. It is not a point of order. It is not 
a proper point of order.
    Ms. Waters. Well, I am making it one.
    Chairman Hensarling. The time belongs to the gentleman from 
Wisconsin.
    Mr. Capuano. --Sean.
    Mr. Duffy. Thank you, Mr. Chairman.
    Mr. Castro, I want to go to, again, your studies. You have 
had some questions on this, but your studies that you have 
done, if any, that analyze how these changes that are being 
made to the operation of DASP, how that will impact the fund 
and/or taxpayers. Have you done any studies at HUD?
    Secretary Castro. We have done analyses--
    Mr. Duffy. Analyses, meaning studies?
    Secretary Castro. Well, analyses--when you say ``studies,'' 
do you mean longitudinal studies? Do you mean--
    Mr. Duffy. What I mean is, have you studied the impact that 
this is going to have on the fund?
    Secretary Castro. We absolutely have studied the--
    Mr. Duffy. And it is not going to have a negative impact on 
the fund? Is that your conclusion?
    Secretary Castro. We believe that it is not going to have a 
negative impact, that in fact it can have a positive impact.
    Mr. Duffy. So explain that to me because if we--you set a 
reserve, and traditionally we have profits and not-for-profits 
come in and bid on that reserve. If you exclude some of the 
for-profits in the bidding, you potentially won't get the 
highest price. So how can't that in the end impact the fund?
    Secretary Castro. Number one, there are going to be more 
bidders now.
    Mr. Duffy. How so?
    Secretary Castro. Secondly--
    Mr. Duffy. How so?
    Secretary Castro. Because we believe that by introducing 
more of these nonprofits into the bidding process in a way that 
does not interrupt the bidding of private sector investors that 
we are actually ultimately going to get a better outcome--
    Mr. Duffy. So are these--
    Secretary Castro. --for the fund.
    Mr. Duffy. --are these nonprofits right now precluded from 
bidding?
    Secretary Castro. Right now--remember that there are these 
three different pools.
    Mr. Duffy. Right.
    Secretary Castro. There is national, there is NSO, and 
there has been the very small nonprofit-only that has only had 
164 loans out of 106,000.
    Mr. Duffy. But these nonprofits aren't precluded from 
stepping in and bidding right now, correct? If you--
    Secretary Castro. They have not been bidding on the 
national pools.
    Mr. Duffy. So--
    Secretary Castro. So they are bidding on up to 5 percent of 
the national pools.
    Mr. Duffy. But they are not precluded, right? They might 
not be bidding, but they are not precluded.
    Secretary Castro. They will not be any longer, no.
    Mr. Duffy. So you want to have nonprofits bid and you want 
to open it up to more nonprofits, great. But also open it up to 
for-profits so you can actually get the best price for the 
asset, right?
    Secretary Castro. We believe that we are going to get a 
very good price. We believe that because we are requiring that 
they at least meet the reserve, and if you have competitive 
bidding among the nonprofits that it is not going to hurt the 
fund in any way.
    Mr. Duffy. You are concerned about destabilizing 
neighborhoods, is that right? If these loans are going to--
    Secretary Castro. Yes, I want to promote strong 
neighborhoods.
    Mr. Duffy. And if this goes wrong you could destabilize 
neighborhoods. Is that correct? Is there a risk of that?
    Secretary Castro. If the program goes wrong?
    Mr. Duffy. Yes. If your concern is if we have a lot of 
foreclosures in a certain area, that could destabilize a 
neighborhood, and that is why you want to have nonprofits step 
in and make sure that you keep that neighborhood strong. Is 
that right? Is that the theory behind this?
    Secretary Castro. That is one of the reasons. Also, as I 
said, because if you take the example of our largest nonprofit 
bidder, it is almost 3 times as successful in actually keeping 
families in their homes.
    Mr. Duffy. So isn't it fair to say that the work of HUD, 
the work of FHA of putting people in homes that they cannot 
afford, is destabilizing neighborhoods? It is--
    Secretary Castro. Not at all. I--
    Mr. Duffy. --your work at FHA, or your predecessor's, that 
are putting people in homes--
    Secretary Castro. I would just disagree with that point.
    Mr. Duffy. --that they can't afford, and how you are going 
to step around the backside and say, ``We have made mistakes. 
We now have to try to keep them in their home so we don't 
destabilize the neighborhood.''
    My question for you is, have you changed your underwriting 
standards so you are now not going to put people in homes they 
can't afford?
    Secretary Castro. Yes, Congressman, I would just say I 
disagree with you on the characterization of the program. These 
are folks who--
    Mr. Duffy. You can't have it both ways, though.
    Secretary Castro. --like many Americans, have been 
struggling as homeowners, and we believe that we can both 
protect the Mutual Mortgage Insurance Fund and build it up--and 
we have--and also try and keep more families in their homes.
    Mr. Duffy. But--
    Secretary Castro. In other words, it is not just about the 
numbers on paper. This is about the people in those homes.
    Mr. Duffy. I want to keep people in their homes too. I 
agree with you.
    But look at--the process that you go through of the 29 
months, you have informal forbearance, formal forbearance, 
special forbearance, loan modification.
    Loan modification: one is balanced reamortization, one is 
interest rate change loan modification, which is a loan term 
extended, you have the HAMP program. There are seven things 
that you go through trying to keep people in their home over 29 
months, and eventually if they can't stay in their home why are 
we prolonging the process? What are you going to do but give 
their home to them for free?
    Secretary Castro. We owe it to the American people, to 
American families, to make every effort--
    Mr. Duffy. I agree. And you have 29 months and 7 steps. If 
they can't do it there--
    Chairman Hensarling. The time--
    Mr. Duffy. --let's end the process.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Hinojosa.
    Mr. Hinojosa. Thank you, Chairman Hensarling and Ranking 
Member Waters, for holding this important hearing.
    I also thank and welcome Secretary Castro for joining us 
this morning.
    Mr. Secretary, while I am pleased that you are here to 
testify on this important matter of HUD's Distressed Asset 
Stabilization Program, I am disappointed by the lack of respect 
shown to you by a few Members of the Majority. In my view, this 
is neither regular order nor is it the proper way in which we 
should treat a Cabinet Secretary or conduct the work of this 
committee.
    It seems to me that the Distressed Asset Stabilization 
Program, DASP, is a program with much potential to help 
struggling homeowners to stay in their homes. The program's 
primary goals include stabilizing neighborhoods hard hit by the 
2008 deep recession and fostering community revitalization. 
Unfortunately, the results of the program and whether 
homeowners are ultimately benefitting from DASP are not clearly 
known.
    Mr. Secretary, concerns have been raised that the proposed 
changes to the program will have a negative impact on the 
bottom line of the Mutual Mortgage Insurance Fund and to the 
taxpayers. To be clear, I want to know, will nonprofits be 
given a preferential price? Isn't it true that nonprofits have 
to meet the reserve price, which is the market price?
    Secretary Castro. You are correct, Congressman. As I 
mentioned a little bit earlier, we are requiring that these 
nonprofits actually meet the reserve price, and so they are not 
getting a discount. I know that this has been one of the 
changes that has been suggested by others.
    We are taking, I think, a constructive approach to making 
changes to the DASP program, and so we are requiring that they 
meet that reserve price. We believe that provides protection so 
that the goal of keeping families in their homes can be better 
achieved through engaging these nonprofits. But at the same 
time we continue to build up the health of the Mutual Mortgage 
Insurance Fund, and you have a win-win on those dual goals that 
I have talked about.
    So, of course we very much are engaging these nonprofits, 
but also requiring that they meet that reserve price.
    Mr. Hinojosa. HUD's intent is going to be, as it progresses 
and succeeds, to help a lot of entities that benefit by those 
folks being in those homes and paying property taxes to the 
school district, to the community colleges, to the health 
districts, to many, many groups that give services to the 
cities, communities, and regions. So how will the proposed 
changes affect the bottom line of the Mutual Mortgage Insurance 
Fund?
    Secretary Castro. We believe that it is not going to have 
an impact on--these changes will not have a negative impact on 
the Mutual Mortgage Insurance Fund. Over the life of DASP it 
has contributed $2.2 billion more to the Mutual Mortgage 
Insurance Fund than the MMIF would have gotten through the 
traditional real estate owned process.
    So we believe that we have hit the right policy balance 
here of helping more families stay in their homes but also 
ensuring that we continue to do right by the Mutual Mortgage 
Insurance Fund, and that is what we are aiming for.
    Mr. Hinojosa. Thank you for answering my question and 
getting it into the record.
    Isn't it true that hedge funds get a 50 percent discount at 
auction?
    Secretary Castro. That they get 50--
    Mr. Hinojosa. Yes.
    Secretary Castro. It is true that bidders end up paying 
less than the--what is the--called the UPB, the unpaid 
principal balance, that all bidders, whether they are 
nonprofits or they are private sector hedge funds or others 
entities--yes, they end up bidding less than 100 percent of the 
unpaid principal balance, sure.
    Mr. Hinojosa. Thank you.
    I am, however, encouraged by your Department's recent 
announcement of some forthcoming changes to the program. In 
particular, I applaud the policy changes making principal 
forgiveness the primary option that investors must consider, 
including payment shock stipulations and making room for proven 
and mission-driven nonprofits to be able to bid on those loans. 
I look forward to learning more about these changes and to 
working with you to better improve the program.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from South Carolina, 
Mr. Mulvaney, for 5 minutes.
    Mr. Mulvaney. I thank the chairman.
    Mr. Castro, I have a couple of different questions on a 
couple of different topics.
    You received a letter on May 12, 2016, from a variety of 
groups--I won't read all of them: The Daily Cause; Democracy 
for America; MoveOn.org; The Other 98%; Action; Working 
Families Party--encouraging you to make essentially the same 
changes that you made about 3 weeks later. Is it your 
testimony, sir, that this letter had no influence whatsoever on 
your decision to change the DASP program?
    Secretary Castro. It is my testimony that that letter, like 
other letters that we have received, like the studies that I 
read from the Urban Institute and looked at from the Center for 
American Progress, the conversations I had from time to time 
with my staff and with Members of Congress, that all of that, 
both in my decision-making and in the FHA staff's decision-
making, has gone into formulating these changes.
    Mr. Mulvaney. Fair enough. And I guess it would be the same 
answer, then, for your meeting with Senator Elizabeth Warren, 
the letter you got from 45 U.S. Congress Members, which I 
assume were Members of the other party. It would be the same 
answer for that question, right?
    Secretary Castro. That all of the input has been taken into 
account.
    Mr. Mulvaney. Okay.
    Now, I want to talk about the process, because that is what 
I really don't understand, because you are using a word in a 
way that I don't understand in the English language, which is 
you are using the word ``bid'' in a way that I guess I don't 
understand. I thought a bidding process was where a bunch of us 
would bid on something and then, using that bid process, the 
highest bidder, the most qualified bidder, whatever, you would 
use that to sort of make a determination as to who wins.
    That is not how you guys are working it on this new 
program, right? You are somehow taking a piece of the pie and 
setting a reserve price and then sort of steering that to 
nonprofits.
    I have a couple of questions. How do you set the reserve 
price?
    Secretary Castro. Yes, so FHA sets that reserve price based 
on the unpaid principal balance. It doesn't change the way that 
it sets that reserve price across these different pools. Again, 
I want to stress--
    Mr. Mulvaney. Do you publish the reserve price?
    Secretary Castro. Excuse me?
    Mr. Mulvaney. If I am bidding, if I am MoveOn.org and I 
want to bid on this do I know what the reserve price is before 
I bid?
    Secretary Castro. No, I don't believe they do.
    Mr. Mulvaney. What steps do you take to make sure the 
reserve price doesn't leak out of your office to these various 
groups?
    Secretary Castro. The steps that we usually take, the FHA 
staff is very careful to ensure that--
    Mr. Mulvaney. Would it be a crime for a member of your 
organization to leak that information out?
    Secretary Castro. Not at all.
    Mr. Mulvaney. Why not?
    Secretary Castro. Are you suggesting that a member of the 
organization is leaking something out?
    Mr. Mulvaney. I am asking if you think it is a crime if 
that would happen?
    Secretary Castro. We have no evidence of that, no. I have 
confidence in the FHA--
    Mr. Mulvaney. Have you examined whether or not that is 
happening?
    Secretary Castro. We have never received, as far as I know, 
any kind of complaint that that has ever happened.
    Mr. Mulvaney. Do you think that if you didn't set the 
reserve price and you just opened up the bidding to everybody, 
that the amount that you would receive on the highest bid would 
be higher than the bid that ultimately is awarded to the not-
for-profit groups?
    Secretary Castro. Congressman, I am not going to go on 
hypotheticals. All I know is the policy changes that we are 
putting in place, there is a reserve price. Whether they are 
nonprofit or they are a for-profit investor, they have to meet 
that reserve price.
    Again, when we operationalize these programs we want to 
make changes--
    Mr. Mulvaney. Have you ever sold a loan or a package of 
loans in the DASP program--
    Secretary Castro. --that can actually be put into effect 
and meet those new goals.
    Mr. Mulvaney. Have you ever sold a program to a not-for-
profit group for less than you could have sold it to a private 
entity for profit?
    Secretary Castro. Have we ever sold a loan to a nonprofit--
    Mr. Mulvaney. A package of loans to a nonprofit for less 
than you could have sold that same package on the open market.
    Secretary Castro. We probably have, yes.
    Mr. Mulvaney. When you did that, did you take any steps to 
make sure that the nonprofit was restricted on reselling that 
package on the open market?
    Secretary Castro. These nonprofits are doing this for the 
very fact that they want to keep families in their homes and 
promote strong neighborhoods--
    Mr. Mulvaney. But you also agree with me that they have the 
ability to resell those on the market at a profit.
    Secretary Castro. Actually, as part of the NSO pools they--
there are certain requirements that they have to meet in terms 
of outcomes for these properties. So again, this program is 
very well constructed to make sure that we meet both of those 
goals.
    Mr. Mulvaney. And if they have met all those--if they met 
all those requirements they could resell those loans on the 
open market, couldn't they?
    Secretary Castro. No, that is not what is happening. I am--
    Mr. Mulvaney. Do you restrict them legally from reselling 
the loans?
    Secretary Castro. I just mentioned that the point both for 
NSO pools and now for national pools when nonprofits bid is 
community redevelopment and keeping families in their homes.
    Mr. Mulvaney. And as long as they met those requirements 
they can resell the loans, can't they?
    Secretary Castro. We have not seen that that has been an 
issue.
    Mr. Mulvaney. Do you prevent them from doing that legally?
    Secretary Castro. I would be glad to follow up with you on 
the instances if or when that has occurred.
    Mr. Mulvaney. Do you know whether or not you do this or 
not?
    Secretary Castro. I am not going to guess at that now.
    Mr. Mulvaney. So you don't know.
    Secretary Castro. Like I said, I would love to follow up 
with you on it.
    Mr. Mulvaney. All right. I think that is all I have.
    Thank you very much, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks.
    Mr. Meeks. Thank you, Mr. Chairman.
    I want to join some of my colleagues on this side in 
apologizing to you, Mr. Secretary, for what could have been an 
important hearing, but the way my colleagues on the other side 
are acting, it is really not an important hearing. But maybe it 
is because it is revealing to the American people who really 
wants to keep them in their homes, who really wants to make 
sure that families stay together, who really wants to keep 
communities together, and who, no matter what or how 
unscrupulous they may be for the opportunity to gain an extra 
dollar, don't care about the middle class, don't care about the 
hardworking person, don't care about someone who is trying to 
have and live the American Dream.
    So maybe it is an important hearing because the distinction 
between the two is becoming clear. I know these hearings should 
be about real policy issues and not about politics, but 
apparently what I am hearing--and you are subject to it--you 
are just hearing the differences, where one side cares about 
people and the other side just cares about money.
    But in your policy, Mr. Secretary, you are still making 
sure that you are maintaining the integrity of the dollar for 
the American taxpayer. You are not losing or throwing away 
money, but you are putting a process in because what do we 
know? We know that during the financial crises in a district 
like mine, that I am very thankful that you had the opportunity 
to visit not too long ago, where you had neighborhoods like St. 
Albans, Queens, and South Jamaica, et cetera, who were directly 
impacted because of the foreclosure crises.
    And I read the National Fair Housing Alliance. Many of 
these communities--these folks who, some women to them, who 
just wanted a dollar--these communities were targeted--
targeted--for what they knew to be unsustainable subprime loans 
and subsequently experienced high levels of foreclosure so that 
they could make a profit, for they knew that these homes would 
go into foreclosure.
    As a result, the remaining homeowners in these communities 
have suffered tremendous loss of wealth. By one estimate, 
homeowners particularly in communities of color lost $1.1 
trillion in wealth. So not just--we are talking about a whole 
host of people who have lost wealth at the expense of a few 
people who take away their citizenship or denounce their 
citizenship to the United States after making trillions of 
dollars.
    Half of all the wealth lost was as a result of foreclosure 
crises. The impact of this loss will be long-lasting, affecting 
not only the current generation of homeowners of color but also 
future generations. It is critical that we do all we can to 
prevent avoidable foreclosures and minimize the downward drag 
they exert on communities of color and the economy overall. 
This is from the National Fair Housing Alliance.
    So what you are trying to do is critical to the basic 
values of being an American--that American Dream, that 
homeownership--and trying to make sure that we have just a 
small part, from what I am hearing--a small part where you have 
someone who will make sure that there is fiscal stability and 
economic opportunity for someone to own the home but not 
someone whose first and only motivation is how much money can I 
make, like these articles we have read recently where these 
private equity firms--they don't care about the individual. 
None of that is considered.
    When I think about myself, my parents, if it wasn't for 
someone who wanted to go out of the way to make sure that they 
were able to buy a home in the first place, they would have 
never had one. But someone went out of their way to try to make 
sure that the principal, the money, and that is it. But money 
and people, making sure that they had the ability to stay in 
their home.
    That is what these nonprofits will do. They will go out of 
their way to give them the aid that they need to have and not 
be there just for the greed of making an extra dollar.
    So I compliment you with reference to this program. You 
have to try to figure it out. You are starting small, but if 
you see success--I think I heard Mr. Capuano said if you see 
success, do it. And do it despite those who would criticize 
you. Do it because it is the right thing to do.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Posey, for 5 minutes.
    Mr. Posey. Thank you very much, Mr. Chairman.
    Secretary Castro, I am having a hard time understanding 
how, when, and why HUD decided to make the changes in the 
Distressed Asset Stabilization Program we have been referring 
to as DASP, so let me just reiterate a timeline here.
    In April you gave an interview to the New Yorker where you 
defended the program. This is a copy of the article. The 
headline reads, ``Secretary Castro Pushes Back Against Liberal 
Critics.'' Your defense of the program was in response to a 
campaign activist who wanted to use the DASP program to sell 
troubled loans to community groups rather than private actors 
like banks.
    So here you are in April--late April, actually--giving a 
pretty spirited defense of the program that you had put in 
place, which I guess was pretty well received at that time, 
pretty much respected. And then in June, HUD and FHA announced 
the most significant improvements to date to the DASP program--
now again, the most significant improvements to date.
    So in 2 short months, which is often considered overnight 
in government bureaucracy terms, we go from defending a program 
to making sweeping changes. And that is an unusually quick 
turnaround, I think we would both admit.
    And so I think it raises a lot of questions and concerns, 
chief among them how you can reassure taxpayers that HUD and 
FHA have put in sufficient time and effort and analysis to 
protect them when these significant changes were seemingly 
developed in as little as 2 months. And we are just talking 
about assuring taxpayers that they will be protected.
    Secretary Castro. So what was your question, Congressman?
    Mr. Posey. No, actually it is a pretty simple one. 
Comparatively speaking, I thought this would be like giving you 
a break, actually.
    Secretary Castro. Well, yes, so you mentioned an April 
interview. I gave several interviews or commented on this not 
just to the New Yorker but I think to MSNBC and a couple of 
other outlets. And I think what you are doing is comparing 
apples and oranges.
    I pushed back against the idea that somehow we should just 
scrap this program. And the responsibility that I have is a 
fiduciary responsibility. I also have the responsibility, as 
someone who is proud of being liberal, but to operationalize 
programs in a way that meets those responsibilities and 
ultimately serves homeowners and also does what it should for 
the fund.
    So at no time did I ever say that, well, no improvements 
will ever be made to the program. In fact, the FHA staff began 
working on improvements as soon as the program came into being 
several years ago. And specifically, for this next note sale 
they started working on changes after the last note sale in the 
first quarter of Fiscal Year 2016.
    So quite apart from that characterization of my comments, 
it has been the case that we have been making improvements the 
whole way through, and I never said that we wouldn't make 
further improvements in the future.
    At the same time, where I push back is the idea that the 
program doesn't have any value or that we can't keep families 
in their homes. I believe that the program can work, that we 
can do the right thing, and the challenge for people in my 
position is to operationalize these programs effectively, and I 
believe that is what we are doing.
    Mr. Posey. I guess the next question would be, if the 
contention is that HUD was contemplating changes to the program 
before the interview in April, why weren't they mentioned, and 
wouldn't it be a little bit of relevant information that would 
be known?
    Secretary Castro. Because I take very seriously our 
obligation, our responsibility not to go and speak at length 
about changes that are still within the process of being 
formulated. In fact, I did not share with any of the advocates 
or other outside groups any of the specific policy changes that 
we would be making in this round.
    There is a process that FHA goes through to get input and 
then also to contact Members of Congress and let them know what 
we are thinking about doing before we announce it. We did that 
in this case. We reached out, including to Chairman Hensarling.
    I take that very seriously, so I am not going to go out and 
speak in detail about things that we are doing when it is not 
the right time.
    Mr. Posey. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. Mr. Secretary, we heard from one of the other 
questioners pointing out that you get letters from MoveOn.org 
and one signed by 45 Members of Congress, and you indicated 
that you give that due consideration in making your decisions. 
When you get letters from Republican Members of Congress, when 
you hear their comments in this room, do you give that all due 
consideration to the extent those comments are insightful and 
factor those into your decisions?
    Secretary Castro. Of course we do.
    Mr. Sherman. Thank you, for the record.
    The PACE program is a good program in that it finances 
improvements of homes that save energy. But it can create a 
cloud on title and the whole mortgage process.
    I am told to expect a new announcement about the PACE 
initiative, and I wonder whether prior to making that 
announcement your Department will be looking at the budgetary 
implications and the potential impact on the Mutual Mortgage 
Insurance Fund. So are you going to be looking at those things 
before an announcement on PACE?
    Secretary Castro. We certainly will. Before we implement a 
PACE program, of course we would and have gone through 
significant analysis. We continue to formulate the best 
approach on PACE, but we look forward to following up with you 
and any other member of the committee who wants our thinking on 
that.
    Mr. Sherman. I will bring to your and your staff's 
attention an exchange of letters I had with Richard Cordray to 
make sure that when consumers sign up for these loans that they 
are fully aware of the situation and the effect it can have if 
they go to refinance. And I also will bring to your attention a 
bill which has passed several committees and one house of the 
State legislature in California--a bill so good that I 
testified in favor of it in Sacramento--that is designed to 
make sure that homebuyers are aware of the implications.
    I would like to more on to this Distressed Asset 
Stabilization Program. I ask unanimous consent to put in the 
record a letter to you from the National Association of 
REALTORS.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Sherman. And I want to assure the committee that I have 
checked with Bernie. NAR is not a socialist organization. But 
they do point out that they urge the FHA to make investors work 
toward outcomes that will keep owner occupants in their homes 
and keep homeownership functioning in high-foreclosure 
neighborhoods. And I want to commend you for the decisions you 
make that achieve those objectives.
    The letter also points out that forcing borrowers to sell 
their home in online auctions may not be in the best interest 
either of those selling the home or buying the home, 
particularly when both parties may not be all that familiar 
with the process. It is one thing if you buy and sell homes by 
the hundreds because you are a hedge fund manager, and I hope 
that you will take a look at that.
    Finally, we are talking about recovery rates. Are you 
concerned that the HUD recovery rate from this program selling 
loans sometimes for less than their unpaid principal balance--
does this pose any threat to the MMI Fund?
    Secretary Castro. It does not. Whether we go the REO route, 
or short sale route, third party sale route, or DASP, each of 
those includes a recovery rate that is less than 100 percent of 
the unpaid principal balance. So we want to design the program 
in a way that, again, meets those dual goals: keeping families 
in their homes; but also protecting the Mutual Mortgage 
Insurance Fund. We can do both of those things.
    Mr. Sherman. And I believe the fund has reached its 
mandated capitalization requirement early, so it is not like 
this fund is being depleted in a way that calls it into 
question. Do I have that correct?
    Secretary Castro. That is true. We are at 2.07 as our 
capital reserve ratio.
    Mr. Sherman. I yield back 14 seconds.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from California, Mr. 
Royce, chairman of the House Foreign Affairs Committee.
    Mr. Royce. Thank you, Mr. Chairman.
    Secretary Castro, it is good to see you. Thanks for being 
with us today.
    I am going to pick up on the question that my colleague 
from California, Mr. Sherman, raised earlier on this PACE 
program. In August 2015 Principal Deputy Assistant Secretary Ed 
Golding, whom I see is with us today, announced anticipated 
guidance on FHA-insured financing for properties with these 
qualifying PACE loans. And as you know, the use of PACE super-
liens has grown more in California than anywhere else, and I 
think it does pose additional risks for homebuyers and lenders 
who already face some significant hurdles.
    And if I could just ask you two questions on this, when is 
the Department's actual guidance on PACE loans coming? And will 
implementation be made through a HUD mortgagee letter or via a 
public notice-and-comment rulemaking?
    Secretary Castro. Yes. Thanks a lot for the question, and 
it was good to connect with you recently, Mr. Chairman.
    We are excited about the potential for a PACE program. We 
believe that it can be a good way of encouraging folks to adopt 
energy-efficiency improvements to their homes. We know that 
there are several States that have been leaders in this, 
including your State of California. We also know that there are 
different ways to approach this, and so this has been part of 
the gestational period, if you will, for this PACE guidance.
    We anticipate very likely in the next several weeks that we 
will offer that.
    Mr. Royce. Okay.
    Secretary Castro. And I believe it is a mortgagee letter, 
but Ed can check me on that.
    Mr. Royce. Okay.
    Secretary Castro. But that is something that we are 
currently working on.
    Let me just say that you alluded to this with respect to 
the example of California, that that is still being discussed, 
whether it is a mortgagee letter or public notice and comment.
    Mr. Royce. Okay, well--
    Secretary Castro. With respect to California, there is a 
California approach; there are also States that take a 
different approach. And so part of getting to this guidance has 
been looking at a way that we can work with the States to 
empower them to pursue PACE, and also, again, protect the 
integrity of the Mutual Mortgage Insurance Fund.
    Mr. Royce. But it is create a cloud on title in the 
interim, so thank you.
    Moving over to the focus of the hearing, I do have a 
question on DASP. FHA Acting Commissioner Carol Galante said in 
2012 that an important objective of DASP is to save 
considerable money for the FHA's insurance fund. And I think 
you agree with that assertion.
    Twice in your written testimony you mention how the 
proposed changes to the program are going to maximize return--
or recoveries to the Federal Government, and I am having a 
tough time understanding how this is possible. If the nonprofit 
DASP buyers are able to purchase loans at reserve prices that 
are lower than what would be hit under the current open bidding 
process, aren't returns going to be lower logically?
    Secretary Castro. I don't believe that is necessarily true. 
Also, I would point out--and this is something that I did not 
point out earlier--that assumes that the notes that these 
nonprofits are taking on would have been taken on by these 
private sector investors in a national pool. That is not 
necessarily the case. So we believe and OMB believes that it 
won't have a detrimental impact on the fund.
    Mr. Royce. Let me ask you one last question, then. How are 
you going to gauge success?
    Because if the relative rate of return, as compared to the 
traditional REO process, dips below the current 16 percent, is 
that then a setback? Or if it dips below 10, at that point do 
you have quantitative goals? At that point do you say, ``Well, 
it used to be 16, and if the goal is to save considerable money 
for the FHA's insurance fund then we should go back to the old 
policy?''
    My question is just to get to the objective of trying to 
set a standard here that will allow us to measure this.
    Secretary Castro. Yes. I--
    Mr. Royce. Will you go back and look at the rate--
    Secretary Castro. I think that you put your finger on 
something that is a factor that we will look at as we evaluate 
how we meet both of these goals of building up the Mutual 
Mortgage Insurance Fund and then also keeping more families in 
their homes.
    Mr. Royce. Right. But--
    Secretary Castro. So yes, we will look at that.
    Mr. Royce. But the relative rate of return is going to go 
down or it is going to stay the same or it is going to go up, 
and logically, if part of the mission is saving considerable 
money, that has to be put into the equation--
    Secretary Castro. Sure.
    Mr. Royce. --to balance the scale here.
    Secretary Castro. However, I think you would agree with me 
that if that rate of return were to go down there could be 
several reasons for that. And so we need to identify the reason 
for that--
    Mr. Royce. Right, because you could isolate these cases--
    Secretary Castro. Yes, but it may or may not be the fact 
that--
    Mr. Royce. --open bidding.
    Secretary Castro. --you have more nonprofits bidding.
    Mr. Royce. Right. Mr. Secretary, thank you. My time has 
expired.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Clay.
    Mr. Clay. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for attending today's 
hearing. I know that you are a busy person and you probably 
have better things to do than to be harangued by some of us in 
here.
    Let me ask about--countless reports identify the State of 
Missouri as one of the hardest hit by the foreclosure crisis. 
My hometown of St. Louis is a classic example of what is going 
on. In St. Louis you can see firsthand that predatory lending 
practices disproportionately harmed communities of color and 
that the housing market's so-called recovery has not led to 
anything close to a recovery in our communities.
    One of the reasons why that is true is because the 
investors who purchase foreclosed properties in communities of 
color often fail to maintain those properties, leading to 
blight and tearing down the property values of every other 
nearby homeowner in the process. Until now, there has been no 
specific requirement in the DASP program that prevents 
investors from harming already distressed communities by 
failing to maintain or walking away from the properties they 
purchased from the FHA.
    How do the series of changes to the DASP program that you 
recently announced address these issues?
    Secretary Castro. Thank you very much for this question and 
this concern that you are articulating about walking away--
folks who hold these notes and these properties walking away 
and basically leaving the neighborhood to pick up the tab, with 
everything that is involved in the neighborhood blight that 
occurs. There is one study from Harvard that showed that when 
you have that kind of situation, there is between a $2,000 to 
$20,000 impact on the homes in the surrounding area.
    So one of the changes is what we call a no-walkaway 
provision, which says that when an investor gets ahold of one 
of these properties, they can't just walk away. They cannot 
dump the property. One of the things that they can do is they 
could look for a nonprofit that is willing to take it on and 
then to do something productive with the property.
    But all of this is aimed at ensuring that we promote strong 
neighborhoods because it is one of these two goals that we have 
for this DASP program. To the extent that we can implement this 
no-walkaway provision, I think that, whether it is in St. Louis 
or many other communities, we are going to have stronger 
neighborhoods.
    Mr. Clay. And when you think about the investors, wouldn't 
it make good business sense to want to see those property 
values go up instead of allowing them to decline and allowing 
those neighborhoods to deteriorate?
    Secretary Castro. And this is the idea behind the program, 
that there should be an economic incentive there. And in most 
cases--I think in the majority of cases that is true and it 
does work the way that it should. In other words, it works 
better than if we had just gone into the foreclosure process.
    But sometimes it doesn't work the way that it is supposed 
to, and this no-walkaway provision is meant as an extra layer 
of protection for those neighborhoods so that we can have more 
families that stay in those homes, or if we do have vacant 
properties something productive can be done with them that will 
help lift up the value of other people's homes.
    Mr. Clay. Right. I certainly support that approach and will 
be with you wholeheartedly.
    Thank you very much, and I yield back the balance of my 
time.
    Mr. Garrett [presiding]. The gentleman yields back.
    Mr. Hultgren is now recognized for 5 minutes.
    Mr. Hultgren. Thank you, Mr. Chairman.
    And thank you, Secretary Castro, for being here today. I 
appreciate it.
    I wanted to get a better sense of HUD's rulemaking agenda 
coming up for the rest of the year. You have been an outspoken 
advocate of the Fair Housing Act. I wonder, in the remainder of 
this year do you anticipate that HUD will issue any additional 
Fair Housing Act rules or guidance or clarification? And if so, 
can you tell us regarding which issues?
    Secretary Castro. Yes. Thanks a lot for the question.
    You are correct, I am a strong supporter of ensuring that 
we have robust enforcement of the Fair Housing Act. I was 
pleased to see the Supreme Court case last year, Inclusive 
Communities, that allow the disparate impact standard in Fair 
Housing Act cases.
    We rolled out the AFFH rule, affirmative furthering fair 
housing, which I see as unfinished business from the 1968 Fair 
Housing Act.
    You asked about guidance or other rules. So we have worked 
on, and I anticipate that we will continue to work on, for 
instance, guidance around reentry. We have let housing 
providers know that they should generally avoid blanket 
restrictions on someone--anyone who has any kind of criminal 
record, any kind of conviction. That is not to say that they 
can't consider that in whether they offer a housing opportunity 
to someone, but that they need to take a more tailored approach 
which takes into account the link between that restriction and 
community safety.
    Mr. Hultgren. Let me jump in here. So it sounds like there 
is going to be pretty active rulemaking coming up in the next 
couple of months before the end of this Administration.
    Let me shift a little bit because the time goes by so fast. 
As you have already testified, you are familiar with Section 
202 of the National Housing Act of 1934. Isn't that correct?
    Secretary Castro. Yes.
    Mr. Hultgren. You said yes.
    Secretary Castro. Yes. I have not memorized it verbatim, 
but sure--
    Mr. Hultgren. No, but you are familiar with it and you 
testified earlier that you were. Under the heading, ``Fiduciary 
Responsibility,'' Section 202 of the National Housing Act 
clearly states that the HUD Secretary ``has a responsibility to 
ensure that the Mutual Mortgage Insurance Fund remains 
financially sound.''
    Do you believe that unilaterally approving changes to the 
Distressed Asset Stabilization Program that compromise the 
ability of taxpayers to get more of their money returned is a 
breach of your Section 202 fiduciary responsibility?
    Secretary Castro. I would just challenge the premise of 
that question. These are not detrimental changes to the fund, 
and so I disagree with the characterization of it as somehow 
detrimental to the fund.
    I believe, in fact, that we are fully carrying out our 
fiduciary duty both to the fund and also the goal of this 
program of trying to keep more homeowners from foreclosure.
    Mr. Hultgren. Since its inception, pools of FHA-insured 
loans in default have been sold through the Distressed Asset 
Stabilization Program in a competitive manner. The significant 
changes you have unilaterally made, such as providing 
preferential treatment for select groups, I believe compromises 
the ability of taxpayers to get more of their money returned. 
This also means that my constituents in Illinois will be hit 
with higher mortgage insurance premiums when they go to 
purchase a home.
    How are nonprofit organizations that are mentioned in 
section five of HUD's press release but described with no 
detail qualified as eligible organizations? Did you have a list 
of organizations in mind when declaring a preferential bidding 
option pilot?
    Secretary Castro. Again, Congressman, of course I disagree 
with this characterization of preferential bidding. They have 
to meet the reserve price.
    However, we have had several nonprofits that have bid. I 
would be glad to get you a list. I believe that the largest 
nonprofit--
    Mr. Hultgren. That would be great if you could get us a 
list.
    Secretary Castro. --nonprofit bidder has been Mercy 
Housing.
    Mr. Hultgren. Okay. If you can get us a list of all of the 
organizations that you had in mind ahead of time.
    The Government Accountability Office has reported that FHA 
was not always following industry best practices when disposing 
of real estate owned properties, which contributed to the 
agency earning lower returns on such dispositions compared to 
the housing GSEs and other parties. What steps is FHA taking to 
ensure that its distressed loan sales are following industry 
best practices for such sales?
    Secretary Castro. Thank you for the question.
    We do take seriously that report from GAO. We strive to 
follow the recommendations, whether it is from GAO or a report 
from the inspector general at HUD.
    We believe that a good example of this are the changes that 
we have made to DASP and that the proof is in the pudding--the 
fact that in the last fiscal year alone that we got a 16 
percent return that was higher through DASP than we would have 
through the traditional REO process. Even within that REO 
process, though, we look at the policy and our procedures to 
ensure that we are returning as much as we can to the MMI Fund. 
And I think good evidence is that for the first time in 6 years 
the fund is actually above the 2 percent required capital 
reserve ratio.
    Mr. Hultgren. Let me ask you this really quick, with 20 
seconds remaining: GAO's work on real estate owned property has 
also indicated that FHA was not always analyzing the best 
approaches for disposition activities. What steps has FHA taken 
to ensure that the MMIF and taxpayers are receiving the best 
returns through the use of loan sales as compared to the other 
disposition methods?
    Secretary Castro. FHA has reviewed its internal approach to 
REO, as it has to the other types of sales, with an eye toward 
ensuring that we protect the integrity of the fund. And I'd be 
glad to follow up with you on more--
    Mr. Hultgren. That would be great.
    My time has expired. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, ranking member of our Oversight and Investigations 
Subcommittee.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the ranking member, as well.
    And I thank the Secretary for appearing today.
    Mr. Secretary, I have a basic premise that I think can add 
some sense of understanding to the rationale that you are 
putting forth, and it is that we sleep in houses, generally 
speaking, but we live in our neighborhoods. And what you are 
attempting to do is save neighborhoods--and you will save homes 
as well, but save neighborhoods.
    Like Mr. Cleaver, I have seen areas of this country where 
neighborhoods are lost--completely lost--because the 
traditional foreclosure process literally obliterated 
neighborhoods. I applaud you for your efforts to save these 
neighborhoods because when you save the neighborhoods, you save 
the schools, you save a tax base.
    Many communities in cities that I shall not announce 
because I would prefer that my colleagues address the concerns 
of their communities--but many cities have neighborhoods that 
are just completely, completely obliterated. So thank you for 
what you are attempting to do.
    Mr. Cleaver and I are sitting here and I could continue to 
hear him say 2 percent, and I agree with him. This is 2 percent 
of the loans thus far, and this program is still in its 
infancy. Is that a fair statement? Is it still in its infancy?
    Secretary Castro. These changes are new. We have been 
dealing with nonprofits since 2013, and so it is fairly new, 
sure.
    Mr. Green. And thus far, give us your rendition of how well 
you are doing with the program, if you would, please.
    Secretary Castro. I think, again, through the lens of 
trying to meet these two goals we are doing well--very well on 
returning more revenue to the fund, the MMI Fund--$2.2 billion 
more through DASP than we would have through our traditional 
real estate owned process, so we are pleased with that. 
However, we think that we can do more work on the other goal of 
ensuring that more homeowners actually stay in their homes and 
avoid foreclosure.
    So far about 10,000 folks have been able to modify and stay 
in their home and 25,000 have avoided foreclosure. And that has 
a good impact on the neighborhoods that you are talking about. 
It helps promote strong neighborhoods.
    We want to increase those numbers, and what we see is that 
these nonprofits--our largest nonprofit, for instance, has 
about 3 times the success rate at actually keeping families in 
their home. So what we are saying is that in balancing these 
two goals it is worth expanding the footprint of nonprofits in 
DASP and that we can accomplish both of these things.
    Mr. Green. Thank you.
    I just want to mention one piece of legislation and then I 
want to deal with your reputation.
    The piece of legislation is H.R. 125, which deals with in-
person servicing. This piece of legislation would allow us to 
have more in-person servicing. I think it is a great piece of 
legislation. We have found that in-person contact, face-to-face 
contact, which is required, can make a difference in terms of 
how people respond to efforts to help them mitigate.
    Now, let's look at your reputation for just a moment. You 
inherited a house on fire, to a certain extent. You were the 
fireman who came it to put out the fire.
    You didn't start the fire. The fire started with these 
exotic products and some other things that were going on in the 
economy.
    And I find it unfair to somehow accuse you of not putting 
the fire out quickly enough that Members of Congress started. 
This fire was started when we allowed certain things to happen, 
and you came in and you have done a stellar job putting that 
fire out.
    So address this question of your allowing the fund to dip 
below the 2 percent level, if you would, with the time that I 
have left.
    Secretary Castro. Number one, to FHA's credit, it was never 
part of the problematic types of loans that were part of the 
housing crisis--the NINJA loans, the no-doc loans. It has 
always had strong underwriting, and it even made improvements, 
though, after the 2007-2008 timeframe.
    You are right, when I got to FHA we were underneath the 2 
percent. When I testified here in early 2015 I said that we 
would get there within 2 years. We got there within a year.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Mr. Castro, good afternoon.
    Mr. Castro, just for clarification, it was brought up by 
the other side that--making references to the Bible and that we 
should be doing this because the Bible tells us to. I have been 
involved in issues related to poverty for about 40 years and 
have read extensively through the scripture, and there are 
about 400 passages that relate to helping the poor in the 
Bible, but none of them relate at all to the government's role 
in helping the poor. It is an individual thing.
    We have evolved in that, of course, since the war on 
poverty began in 1965 with President Johnson, and no doubt I am 
sure his intentions were there to do something good, but we 
have spent approximately $20 trillion since that time and that 
poverty needle hasn't moved in a significant way. And I think 
the frustration you would hear from the American people that I 
am with is the enormous amount of resources that have, frankly, 
in many ways had an adverse effect, and the feelings that you 
are sensing today come in that context.
    There has been some communication, and in some measure we 
have--you have been denigrated by the questioning. Do you feel 
that way, by our side today? Have the questions been too hard 
for you?
    Secretary Castro. What is that?
    Mr. Pittenger. Some of the Members have said that we didn't 
treat you with adequate respect and you have felt some measure 
denigrated.
    Secretary Castro. No, no, no. Of course, I sometimes feel 
envious of my brother for getting to be a Congressman, but that 
is about it.
    Mr. Pittenger. I will say to you that the concern we have 
in representing the taxpayers in this country is that they get 
the full measure of return for the investments they make. The 
American people are generous people. We are the most generous 
country in the entire world through nonprofits and through what 
we distribute around the world. And I think the concern that 
the overlay here with housing is found when we see that there 
is data showing that there are people making $100,000 or more 
who live in public housing.
    I was involved, Mr. Secretary, back in the mid-1990s--we 
had a pastor in Charlotte named Charles Mack, a wonderful 
African-American man, and he would charge hell with a water 
gun. He would go into these housing complexes and rescue these 
kids. And he came to me one day and said, ``You know, Robert, I 
really would appreciate your help. I would like to build a 
place--have a place where I could bring these kids and have 
afterschool programs, an activity center.''
    And I had heard that there was a fund up here and so I 
said--and some friends, we came to Washington and we came up 
here 4 times. It was called the Hope Fund in the mid-1990s, and 
we requested $1,200,000. We got the city council's approval and 
the heads of major companies there, and at the end of the day, 
after about 8 months we came back with $22 million. Only in 
Washington could that happen. They ended up razing the previous 
housing and building a new one.
    I think that is the spirit of concern. When we see how you 
have made rule changes that don't allow for as much 
accountability, don't allow for competitive bidding out, it 
clearly is going to raise real concerns. And we feel that we 
are not being faithful as stewards of the dollars that the 
American people invest in us.
    And I think to me it is somewhat disingenuous to challenge 
that. What we are looking for is an open, honest conversation.
    We have about 80 poverty programs that are funded to the 
extent of nearly $1 trillion a year, and no one can say that 
they are a great success. We have an extraordinary amount of 
dependency now that we didn't have 40 years ago, and I think I 
really want you to appreciate that context.
    And so when you make these kinds of decisions you have to 
look at the backdrop. Are we willing to have an honest 
conversation about poverty, about housing, things that we can 
really do prudently to give greater accountability instead of 
unilaterally making some policy decisions that you know are 
going to stir the fire? And we need that kind of support.
    Secretary Castro. If I might, just a couple of points. 
Thank you for your comment.
    Number one is that there is a negative subsidy on the FHA 
of almost 4 percent. In other words, we make money for the 
taxpayers. So it is important to note that. This is a money-
making operation for the taxpayers.
    Mr. Pittenger. I can tell you, Mr. Secretary, with all due 
respect, it is called OPM--other people's money. That is what 
is concerned is you are operating with somebody else's money 
and we don't see the sense of accountability for--
    Secretary Castro. Oh, we certainly do. There is a lot of 
accountability.
    Mr. Pittenger. My time has expired.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez.
    Ms. Velazquez. Thank you very much.
    And, Secretary Castro, thank you for the work you do.
    Secretary Castro. How could I mistake that voice, 
Congresswoman Velazquez?
    Ms. Velazquez. I am sorry I wasn't here to listen to your 
testimony, but I was on the Senate side. It is not often that 
we cross to the other side, but I am sitting as a conferee on 
the National Defense Authorization Act.
    So I just want to take this opportunity to congratulate you 
and thank you for the work you do, especially for those among 
us that are most vulnerable in our country.
    Last month New York City announced a breakthrough 
collaborative purchase of FHA distressed loans for the explicit 
purpose of homeownership retention and affordable housing 
preservation. It seems that local governments can play a strong 
role in stabilizing their neighborhoods through access to DASP 
and through partnerships.
    Can you elaborate on how the recent DASP changes can give 
local government tools to strengthen their communities?
    Secretary Castro. Yes. Thank you very much, Congresswoman 
Velazquez, and thank you for your leadership, as well, on these 
issues of community revitalization.
    I spoke earlier of the different pools that exist. We also 
have what are called direct sales, and direct sales are 
basically sales of these properties in localized areas to local 
governments or entities affiliated with the local government. 
And the entire point there is community reinvestment--to 
stabilize neighborhoods, to make sure that a local government 
entity that has the best interests of those homeowners and the 
taxpayers in mind can get to work at lifting up those 
neighborhoods and keeping people in their homes.
    So as part of these changes we are enhancing that program 
and we are also going to enhance our outreach to do more of 
these direct sales. Frankly, sometimes there is a challenge in 
getting communities interested in taking on these properties 
because servicing is a challenging business and it is not 
something that a lot of local governments are used to doing.
    But New York City is one good example of a community that 
has expressed interest in this, and we look forward to working 
with more communities to make those kinds of direct sales.
    Ms. Velazquez. Yes. And I know that the office of the mayor 
has expressed interest in purchasing additional delinquent 
loans from the government through the DASP program. Is HUD 
currently working with the City of New York to purchase 
additional loans from the government?
    Secretary Castro. We are working with the City of New York, 
and we hope that is fruitful, constructive work that will do 
good for the homeowners in the neighborhoods there.
    Ms. Velazquez. And as part of the recent DASP enhancements, 
principal forgiveness is the first option investors must 
consider offering to borrowers when evaluating them for a 
modification. What steps will HUD take to ensure that a private 
investor is doing all he can to work with a borrower to forgive 
their mortgage principal?
    Secretary Castro. Yes, so as part of these changes what we 
are doing is strongly encouraging these--whether it is private 
or it is nonprofit that takes ahold of one of these notes, for 
them to offer principal forgiveness as a first option. This is 
significant.
    This is also something that FHFA announced a few months 
ago, but we are strongly encouraging this. They said that they 
would like these note-holders to consider it.
    We believe that the practical effect of this can be that 
more homeowners, more families actually get to stay in their 
homes because of that principal forgiveness being the first 
step in the new waterfall that is in place--the loss mitigation 
waterfall. We are excited about that. We are going to monitor 
how well that works.
    Ms. Velazquez. Okay.
    Secretary Castro. And as we have done after every note 
sale, we are going to look at how we can make further 
improvements in the future.
    Ms. Velazquez. So my understanding is that you announced 
that you will be improving notification to borrowers that their 
loan can be sold. Can you explain to us what is the process in 
which HUD is notifying the borrowers?
    Secretary Castro. I didn't quite catch your question.
    Ms. Velazquez. As part of a recent enhancement that you 
announced, it--that you announced that it will be improving its 
notification to borrowers that their loan can be sold. By what 
process is HUD intending to notify borrowers that their loan 
can be sold?
    Secretary Castro. So there is a letter that goes out when a 
borrower is 120 days delinquent, and what we decided to do and 
have proposed in these changes essentially is beefing up that 
letter, strengthening that letter to notify them of this.
    Ms. Velazquez. Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr.
    Mr. Barr. Secretary Castro, welcome back to the committee.
    Secretary Castro. It's good to be here.
    Mr. Barr. Sir, would you agree that the underlying cause of 
the financial crisis was millions of Americans in homes with 
mortgages that they couldn't afford to repay?
    Secretary Castro. I would say that was one factor, sure.
    Mr. Barr. It was at the core of the crisis, though, right?
    Secretary Castro. That was one factor, sure.
    Mr. Barr. Yes. Okay.
    I want you to walk through with me the FHA anti-foreclosure 
waterfall. Before lenders can assign a distressed mortgage to 
the DASP program, which is the subject of this hearing, the 
Distressed Asset Stabilization Program, lenders must follow a 
series of requirements, and I would refer you to the chart that 
is on the screen here.
    So first, lenders must go through informal forbearance, 
correct? Is that--
    Secretary Castro. Yes. You have it--
    Mr. Barr. First, the lender must go through informal 
forbearance, then formal forbearance, special forbearance, loan 
modification, a series of different loan modifications, and 
then HAMP, before assigning the asset for sale through the DASP 
program. Is that an accurate reflection of the process?
    Secretary Castro. It is accurate to say that we have a loss 
mitigation waterfall, that there is an obligation on the part 
of the lender to go through that waterfall, and also, to 
address your second question, that before any note can go into 
a DASP sale that the lender warrants that they have completed 
that waterfall. That is correct.
    Mr. Barr. Right. And as you see on the right-hand side, the 
average length of delinquent pre-DASP is 29 months, so it is a 
pretty long process after default before foreclosure--
    Secretary Castro. It is about 27 months now, but yes, in 
that ballpark, sure.
    Mr. Barr. But in summary, it is a pretty prolonged, 
protracted, extensive process to do anything possible to avoid 
foreclosure, including at the very end of the process assigning 
these distressed mortgages for sale through the DASP program. 
And the point I guess I am getting at is, you know a lot of 
people in Washington--politicians and bureaucrats in agencies--
wring their hands about putting borrowers in debt traps, and it 
looks to me like with this lengthy process that we are putting 
people in a debt trap.
    At what point does HUD--at what point does FHA recognize 
that these people might actually be in a home that they cannot 
afford?
    Secretary Castro. Thanks for that question.
    Number one, you are right that we go through this loss 
mitigation waterfall. That is a traditional part of FHA.
    You are also right that there is a commitment to try and 
keep American families in their homes and that DASP represents 
about 20 percent of the way that we dispose of properties.
    I think what you are missing is--and this is the converse 
of I think where the advocacy groups are coming from--that you 
are also not going to get the payoff of DASP if you don't go 
that--
    Mr. Barr. Let's talk about those advocacy groups. And if 
you could put up another slide here, a website. Are you 
familiar with this website, sir, the 
dontsellourhomestowallstreet.org website?
    Secretary Castro. I have not been on that website, no.
    Mr. Barr. Have you heard of this website before today, 
before seeing it right here?
    Secretary Castro. Have I heard of the website?
    Mr. Barr. Have you heard of the website?
    Secretary Castro. Sure, sure.
    Mr. Barr. Who first notified you of this website and who is 
the sponsor of this site?
    Secretary Castro. I have no idea who the sponsor is. I 
think that I first saw it on Twitter.
    Mr. Barr. Have you ever met with any of the sponsors or 
individuals who are behind this website?
    Secretary Castro. I don't know who is behind the website so 
I don't know whether I have ever interacted with them. I am not 
clear on who put that website--
    Mr. Barr. Scroll down, if you would, to the very bottom. It 
is very critical of you, and if you can go up a little bit 
further you will see there that it refers to you as a rising 
star. Many people think of you as a rising star, but they are 
very upset that you are not including nonprofits in the DASP 
program sufficiently, and it says that you have been criticized 
by Elizabeth Warren and Congressman Grijalva and others.
    So my question is, did this website influence your decision 
to make changes to the DASP program?
    Secretary Castro. It did not.
    Mr. Barr. Okay. What did prompt you to make the changes 
announced on June 30th that would--that set aside preferential 
bidding for nonprofits if it wasn't this website?
    Secretary Castro. Yes, well these changes, as I mentioned 
earlier--many if not all of these changes have been suggested 
by different groups, including the National Association of 
REALTORS, the Urban Institute, Congressmen and Congresswomen, 
Senators. So what prompted the changes is the next note sale 
was coming up.
    Mr. Barr. My time has expired, but I would like to know 
what the criteria is for how you select these nonprofits.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Minnesota, Mr. 
Ellison.
    Mr. Ellison. Secretary Castro, I want to say thank you for 
your service to our country. I think you have been doing a 
great job for our Nation. You did inherit a tough situation, 
and in that time you have been responsive.
    I can tell you that people in Minnesota are grateful for 
your work and we appreciate it every time you come to town. And 
whether they are businesspeople, developers, homeowners, or 
local government, you have built up a lot of good credibility 
with us and we thank you for that.
    I want to tell you that I support the recommendation that 
principal reduction should be an early option, a first option 
for these borrowers. In fact, I have introduced a bill, H.R. 
3159, the Preserving American Homeownership Act, and it would 
require FHA to create a shared appreciation pilot program. This 
program would gradually reduce the principal balance of some 
loans in exchange for a share of the increase in the home's 
value when the home is later sold or refinanced.
    Could you share your ideas with the idea of principal 
forgiveness for investors?
    Secretary Castro. We think that this makes sense. We think 
that--and the Urban Institute note yesterday touched on this 
briefly, as well. We believe that this introduction of a 
requirement that principal forgiveness go to the top of the new 
loss mitigation waterfall, that it makes sense for borrowers, 
that it is going to help keep more families in those homes, and 
that also it can be accomplished without sacrificing a negative 
impact to the Mutual Mortgage Insurance Fund.
    So this is something that--and I believe that report also 
notes this is something that some of these lenders were doing 
already. Some have already been doing it. This is just 
formalizing that.
    So we are going to put this into place; we are going to 
monitor how it works. My hope is that this is going to have a 
real impact on keeping more families in their homes, and it 
will achieve that even as we achieve the other goal of boosting 
the Mutual Mortgage Insurance Fund. We can do both of those 
things.
    Mr. Ellison. Mr. Secretary, but the overall goal of just 
keeping people well-housed, whether they own that home or 
whether they rent, I just want to note that we have about 11 
million families who cannot afford their rent. Families earning 
under $30,000 a year can barely pay for anything else.
    So I just want to say that I think the program you are 
pursuing here, if you look at it as a part of a overall 
strategy to get people in good housing, is well-thought-out.
    Would you care to offer any of your thoughts on the rental 
crisis in our country? How serious is it? What should Congress 
be doing? We like to drill you with what you should be doing.
    Secretary Castro. Well--
    Mr. Ellison. I wonder what you think a responsive Congress 
might be doing.
    Secretary Castro. What we see out there is a rental 
affordability crisis that doesn't just exist in the usual 
suspect cities like Boston, San Francisco, or New York, but in 
towns big and small throughout this country. What we need to 
do, I believe, is to invest more in those things that will spur 
greater production, including enhancing LIHTC, which has been a 
big driver of affordable housing creation.
    We are pleased--
    Mr. Ellison. Just for the folks watching at home, LIHTC 
is--
    Secretary Castro. Low-income housing tax credit.
    Mr. Ellison. Right, right.
    Secretary Castro. We believe that more funding for the HOME 
program, which is in HUD's budget--LIHTC is Treasury, but in 
HUD's budget the HOME program; investing in more Housing Choice 
Vouchers and our traditional tools; lifting the cap on RAD, 
making sure that we have the right tenant protections in place, 
but lifting that cap on RAD; implementing successfully the 
National Housing Trust Fund and amplifying that in the future--
all of these things I believe are things that we should be 
doing, that we ought to be doing more of.
    I applaud folks in this Congress who have taken strong 
steps to encourage Congress to do more. We hope that in the 
budget process that we will see more. There have been some 
bright spots--on youth homelessness, for instance.
    But overall, the amount of resources that we are investing 
is not by any means meeting the demand that is out there.
    Mr. Ellison. On that front, Mr. Secretary, we do put a 
whole lot of money in housing if you include the mortgage 
interest deduction. I wonder what would happen if we looked at 
reconfiguring that.
    Secretary Castro. You have been a real leader on this 
issue, Congressman.
    Mr. Ellison. Thank you, sir.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New Hampshire, 
Mr. Guinta.
    Mr. Guinta. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for being here.
    I have a number of things I want to go over, but the first 
thing I want to ask, because we were both former mayors--when 
you served as a mayor not much was done in private, correct, in 
terms of governing your city?
    Secretary Castro. More specifically, what do you mean by 
that?
    Mr. Guinta. Non-public. Everything was done out in the 
open, in front--
    Secretary Castro. Yes. You have open records laws, FOIA 
laws, and so forth.
    Mr. Guinta. Really the only thing that was done in private 
would be essentially issues relating to personnel matters. Is 
that--
    Secretary Castro. There are a few other exceptions, as you 
know, and that depends on the State, but sure, I--
    Mr. Guinta. --like that, but everything else is public.
    Secretary Castro. --follow the premise of your question.
    Mr. Guinta. Okay. So given that, and given the fact that a 
letter was sent to you from our chairman back in March about 
this particular program, I am concerned with the lack of 
transparency--and you may disagree, but I think Congress has a 
right to know what decisions and what information went into 
your decision about making this change on June 30th.
    So following up on Mr. Barr's question, my question 
relative to that website that he posted is was there any staff 
or any advisor to you in the last 6 months who either verbally 
or in writing mentioned that website to you as you deliberated 
on these changes that you made on June 30th?
    Secretary Castro. Anybody who mentioned--who was an advisor 
or staff member who mentioned that website, no. They did, of 
course, mention that the advocates were making calls for 
changes, sure. But I can't recall anybody ever specifically 
mentioning that website, no.
    Mr. Guinta. So no discussion with any staff member or 
advisor who ever mentioned that website--
    Secretary Castro. Again, there were certainly folks who 
informed me about what the advocates were saying, and I--
    Mr. Guinta. Advocates meaning the advocates of the website?
    Secretary Castro. The advocates who were claiming that the 
DASP program--who were progressive advocates claiming that the 
DASP program was not sufficiently including nonprofits.
    Mr. Guinta. In your opinion, do you think that those people 
were associated with that website?
    Secretary Castro. Oh, I have no doubt that some of them 
were, but I don't know if there is perfect overlap or how 
many--
    Mr. Guinta. There was discussion, then, with your staff 
about that website and the impacts of that website.
    Secretary Castro. No. I never discussed that website with 
folks.
    Mr. Guinta. But you discussed the advocates of that website 
with your staff. Aren't they one and the same?
    Secretary Castro. In general, I discussed that there were 
groups who wanted nonprofits to have a greater role, sure.
    Mr. Guinta. See, this is the frustration with Washington. 
People around the country feel like this is a closed process, 
that things like these changes that were made, which appear to 
some to be like no big contracts, feel like it is government 
that dictates these things, not the general public or the 
regular person.
    Secretary Castro. Not at all.
    Mr. Guinta. You have claimed that you want to help that 
individual individual stay in a home. I don't disagree with 
wanting to try to help somebody. I served on the NeighborWorks 
board in Manchester, New Hampshire. I know you are familiar 
with that organization. They have a similar one in San Antonio.
    But the question I guess I would have is if you are looking 
at a discount ratio for the private sector versus the nonprofit 
sector, what would the difference be? Because there is going to 
be a difference.
    Secretary Castro. Your question is, if we are looking at 
the--you are using the term ``discount rate?''
    Mr. Guinta. Discount rate on the home.
    Secretary Castro. I don't think that is the appropriate 
term to use. Are you saying, for instance, what is our recovery 
rate on the UPB?
    Mr. Guinta. Okay, what is the recovery rate that you expect 
for the nonprofits?
    Secretary Castro. We expect that those recovery rates are 
going to be very similar to each other.
    Mr. Guinta. But not the same. It is going to be less for 
the nonprofits, correct?
    Secretary Castro. I believe in some instances it may be 
more; in some instances it may be less.
    Mr. Guinta. But overall with a nonprofit it is going to be 
less, correct?
    Secretary Castro. We will see.
    Mr. Guinta. In the experience that I had as mayor it was 
always less with a nonprofit. It was never more, compared to 
the private sector.
    Secretary Castro. I think we have a disagreement. Even if 
that is true, what you get is a nonprofit that is 3 times 
better at keeping a family housed, and that is also important.
    Mr. Guinta. What is the cost associated for the nonprofit 
to renovate that home versus the private sector?
    Secretary Castro. That depends on the home and the 
community, the level of disrepair--
    Mr. Guinta. Would you be shocked to know that it is at 
least 30 percent more?
    Secretary Castro. I think that is case-specific.
    Mr. Guinta. It is not case-specific. Across the board it is 
at least 30 percent more.
    Secretary Castro. I would disagree with you on--
    Mr. Guinta. That is the fundamental problem here. When you 
talk about the $2 billion--or the $1.7 billion that you took in 
a bailout, and you said you have received now $2.2 billion--
    Secretary Castro. Congressman, there was no bailout.
    Mr. Guinta. $1.7 billion, the mandatory appropriation, 
right?
    Secretary Castro. That was not a bailout. Sure.
    Mr. Guinta. You call it a mandatory appropriation, but you 
could have returned the money. You decided not to.
    Secretary Castro. Congress calls it a mandatory 
appropriation, I don't.
    Mr. Guinta. Okay, well I call it a bailout. Now that money 
should be returned and you are going to have less money as a 
result of utilizing this nonprofit mandate.
    Secretary Castro. We have been successful with the MMIF 
Fund.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Ohio, Mrs. 
Beatty.
    Mrs. Beatty. Thank you, Mr. Chairman.
    And thank you, Ranking Member Waters.
    I also thank you, Mr. Secretary, for being here.
    I am going to take a different twist on my opening in 
saying I am glad you answered the question yes, that the 
questions weren't too tough for you, and kind of even smiled 
with it, like a sign of, ``that is because I am the Secretary 
and I am ready.'' And that made me feel a lot better because I 
was feeling, like many of my colleagues, that because of some 
of the articles I read--and, Mr. Chairman, I would like to 
enter them into the record--that this really was not about--
    Chairman Hensarling. Without objection, it is so ordered.
    Mrs. Beatty. --thank you--that this was really not about 
you or housing; this was politically motivated.
    Many of the articles that my colleague and the chairman on 
the other side participated in, talked about because your name 
had come up to possibly be considered as a Vice Presidential 
candidate. We have also heard statements here that this was 
such an abrupt change that you made.
    Then I hear my colleague say that almost 6 months ago we 
were talking about these changes because you and many of us 
were talking about how we welcome the idea of having not-for-
profits. We have talked about it in this committee. So it 
wasn't like this was silent and yesterday you announced 
something.
    So I wanted to make sure, Mr. Chairman, that the public 
also heard that. Even while we are sitting here a release just 
came out during this hearing, Mr. Chairman, that you issued.
    And I guess my question to you, Mr. Secretary, is going to 
be hardworking taxpayers--in both of these quoted statements it 
states that we are doing it against the hardworking taxpayer. 
Now, I come out of both worlds: I worked in the private sector; 
and I worked in housing for almost 30-some years as a public 
housing expert, and I was also very active on boards, chairman 
of boards of not-for-profits.
    And so in my opinion--and I want you to address it, being a 
mayor and being who you are--hardworking taxpayers, are not-
for-profit organizers, chairmen of the boards, and the people 
that they give or put in these--are they not hardworking 
taxpayers? I am just stuck that I am hearing that we are doing 
what you are proposing at the--against or in the deficit to 
hardworking taxpayers.
    So can you share, maybe we can all hear it again, about the 
benefits of having not-for-profits who are out there every day 
with the individuals we are talking about? Because we are 
hearing the statistics and the numbers about how many people 
have lost their homes that they were put in. Oftentimes, that 
is because someone didn't do the financial literacy that not-
for-profits do a lot more; somebody didn't do the due diligence 
of explaining to them how they maintain houses.
    And I am saying this as an expert in the field of housing 
of 25 years and relocating people from public housing or those 
who have lost in the private market their house.
    So could you share with us some of the thought process for 
this as it relates to what we are all supposed to be here 
committed to at the end of the day--the changes that help the 
people we serve?
    Secretary Castro. Yes. Thank you for the question.
    Several things: number one, that the MMI Fund is back over 
2 percent. It grew by $19 billion in 1 year, which was the 
fastest growth since 2012. So we are doing--we are meeting our 
fiduciary duty to the MMI Fund, to the taxpayers.
    But secondly, what I disagree with vehemently is that 
somehow the ``taxpayers'' are different from these folks who 
are living in neighborhoods and homes. These are your 
taxpayers. These are taxpayers in every single district that is 
represented by the folks on this committee, and so to say 
somehow that these are two separate people; they are the 
taxpayers.
    And what I resent is that too often, by excluding them from 
the idea that they are taxpayers, they are made to seem to be 
deadbeats. They are not deadbeats. They are hardworking 
Americans who oftentimes have fallen on hard times, and I am 
proud of the work that we are doing to try and keep them in 
their homes.
    Mrs. Beatty. Thank you so much.
    And in my few seconds, Mr. Chairman, let me just say 
someone on the other side talked about the Bible; someone also 
introduced the war on poverty by President Johnson. And what 
was so interesting about that when he did it, it didn't reduce 
poverty but it increased the American housing living standards.
    Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Maine, Mr. 
Poliquin.
    Mr. Poliquin. Thank you, Mr. Chairman. I appreciate it.
    And thank you, Mr. Castro, for being here again. It's good 
to see you again, sir.
    I represent Maine's 2nd District, Mr. Castro, which is the 
most wonderful district and State in the country. And I know 
that you are planning your family vacation to come to Maine, 
and I wanted to let you know I will meet you at the New 
Hampshire border to welcome you and your family.
    Secretary Castro. I should.
    Mr. Poliquin. I appreciate that, and I know you are on your 
way.
    Mr. Castro, we are a very proud and independent people. We 
love our homes. And I am very proud to say that about 70 
percent of Maine families live in their own homes. That is the 
tenth-highest in the country.
    Now, we want everybody to be able to stay in their homes, 
and everybody has a role, Mr. Castro. The workers need good-
paying jobs, so we need to make sure we help our businesses 
grow so they have good-paying jobs by keeping taxes lower and 
energy prices lower, health insurance premiums lower, and all 
the good stuff that you and I both know.
    The regulators have a role. They need to make sure they 
don't put pressure on banks to extend big loans to families 
when they know those families can't afford them.
    Now, the homeowners themselves and the REALTORS who deal 
with them, they have a responsibility to make sure they don't 
take on too much debt they can't afford.
    You have a role, with all due respect, sir. HUD has a role 
to make sure the Mortgage Insurance Fund is healthy. These 
homeowners pay into that Mortgage Insurance Fund, and we need 
to make sure it stays healthy in case there is a problem with 
this market.
    Now, we called you in here because you changed the rules 
without really notifying us. As I understand it, now, going 
forward, HUD is going to set aside a bucket of mortgages and 
they are going to offer them to nonprofit special interest 
groups. And during this bidding process, Mr. Castro, the 
nonprofit special interest groups are going to be able to go 
and take a look at this bucket of mortgages and pick out the 
ones that they think will be the most profitable for them, and 
the rest of the for-profit community will be able to bid on the 
rest.
    Now, you have told us here today that the reason you want 
to set aside up to 10 percent of this mortgage pool for 
nonprofit special interest groups is that you think that they 
can do a better job owning these mortgages and helping families 
stay in their homes. Where is the data?
    Show me the data. We are 20 feet away. Show me the data 
that you have right now, sir, that confirms to you that these 
nonprofits do a better job than the for-profit companies 
keeping peoples in homes.
    Secretary Castro. Thank you for the question. I would be 
glad to get you that data.
    Mr. Poliquin. Good. I am right here. Your staff is right 
here. Do you have the data right now?
    Secretary Castro. They may have it, sure.
    Mr. Poliquin. They may have it.
    Secretary Castro. And if they don't--
    Mr. Poliquin. You are the one who runs the organization.
    Secretary Castro. --we will--we have no problem--
    Mr. Poliquin. Do you have the data confirming the set-aside 
for nonprofit special interest groups does a better job keeping 
folks in their homes?
    Secretary Castro. Yes, so--
    Mr. Poliquin. Do you have that data?
    Secretary Castro. --I do have data--
    Mr. Poliquin. Good.
    Secretary Castro. --and what the data shows is that with 
our largest nonprofit bidder, it has had about 3 times the 
success rate at keeping folks in their homes--
    Mr. Poliquin. In this program or in general? In this 
program--
    Secretary Castro. In this program.
    Mr. Poliquin. In this program. Good.
    Secretary Castro. In the DASP program. That is what we are 
talking about today.
    Mr. Poliquin. If they are doing such a great job, why not--
    Secretary Castro. Compared to--if I could just finish--
    Mr. Poliquin. I am not quite done because I have a minute-
and-a-half, Mr. Castro.
    Secretary Castro. But compared to the average--
    Mr. Poliquin. Why would you set aside only 10 percent if 
they are doing such a--
    Secretary Castro. --for-profit investor.
    Mr. Poliquin. Why would you set aside only 10 percent if 
they are doing such a great job? Why not 20 or 30 percent? Why 
not set aside 30 percent for these special interest groups?
    Secretary Castro. That is a very good question. Let me tell 
you why, and let me go back to something that I said earlier. 
Because we want to take reasonable steps to operationalize 
these programs in ways that can ensure we meet both of those 
goals, because we want to test this out further because we are 
being responsible.
    Mr. Poliquin. No, I have have to step in here, if you don't 
mind, Mr. Castro, and say you want to test this out with 10 
percent set aside for nonprofits. Okay.
    Secretary Castro. No, no, no, no.
    Mr. Poliquin. And if there is a problem--
    Secretary Castro. What we want to test out is just 
mechanically, if I can explain, that we are actually doing the 
pools in a different way now from the way that we were doing 
them earlier.
    Mr. Poliquin. And you are giving preferential treatment to 
some folks in the industry.
    Secretary Castro. We are not.
    Mr. Poliquin. Yes, you are. That is exactly what you are 
doing.
    Let's move on to something else in my last 30 seconds, sir, 
because we can't agree that reduced competition is going to 
result in a better outcome for our families and to make sure 
this insurance fund stays healthy. We don't agree on that, but 
maybe there is something we can agree on.
    In April you folks changed another rule, and it deals with 
manufactured housing. Now in my State of Maine, sir, there are 
64,000 families who live in manufactured, housing, and we are 
very proud of that. That is about one in eight in the State of 
Maine.
    Now, you came out with new rules specifically telling our 
State how to deal with building a frost-free foundation. I 
would submit to you, Mr. Castro--and I want to work with you on 
this, if I may, Mr. Chairman--that there is nobody in the 
country other than the folks in the State of Maine who know 
more about winter and how to build a frost-free wall.
    I hope we can work such that our State regulators can 
continue to have the flexibility to do what the law says. Will 
you work with me on that, sir?
    Secretary Castro. We look forward to connecting with you on 
it, sure.
    Mr. Poliquin. Thank you, Mr. Castro.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck.
    Mr. Heck. Thank you, Mr. Chairman.
    Mr. Secretary, thank you so much for being here today. 
Thank you for your endurance.
    Secretary Castro. It's good to be here.
    Mr. Heck. I want to take you in a slightly different 
direction and actually ask you to help me solve a great 
mystery, at least to me, in the market rate housing area. And 
my premise is that while the wheelhouse of HUD is in affordable 
housing, we will never be able to deal adequately with that, or 
we will be hugely complicated in our effort to deal adequately 
with that, if market rate housing is not working correctly.
    And I find that there is a great disconnect between supply 
and demand. What do I mean by that? We know that supply is not 
keeping up with demand because home prices are increasing at 
rates significantly greater than the consumer price index.
    We know that, for example, the amount of time on the 
market, what a REALTOR would call the inventory, is way below 
equilibrium in many markets. In the county I live it is less 
than 62 days; in the next county it is less than 60 days. That 
means that there is more demand than supply, and I cannot 
understand why it is supply is not moving faster to keep up 
with demand.
    Now, the way I look at this is that there are three basic 
elements that go into this. There are three basic inputs. If I 
am missing one, correct me. If I don't understand any of this, 
please correct me. I am just looking for some wisdom or insight 
as a housing expert.
    The first is dirt. Do we have enough available land to 
build on?
    We know that can complicate it if there is an excessive 
regulatory environment, but we also know that in Cities like 
Dallas in your home State, which are very pro-development 
zoning areas, or even Seattle, which is generally considered a 
pro-zoning--pro-development zoning construct, that there is a 
considerable problem. It cannot be that there is excessive 
regulation such that dirt is overly constrained.
    There is financing, which is, of course, broken down for 
both the acquisition construction and development side as well 
as the homeowner side.
    And then there is labor. Do we have enough people to pound 
nails to build new homes?
    So there is nothing that we know about the data of these 
three elements that would help me understand why supply is not 
keeping up with demand. So, Mr. Secretary, am I leaving 
something out? Am I not understanding the data? Why isn't it 
the case that we are building more homes faster than we are? 
What am I missing, sir?
    Secretary Castro. I think that, number one, particularly 
coming out of the Great Recession, as we have been, that you 
have a confluence of challenges particularly with the first two 
that you mentioned with respect to land and local regulation, 
but also financing. And we do, as you mentioned, focus 
particularly on affordable housing, and I can tell you that 
with respect to the supply question on affordable housing that 
if I could do one thing it would be to figure out a way to make 
those numbers work in more instances, and that is why I 
mentioned earlier, for instance, expanding the low-income 
housing tax credit.
    The Administration has also been very clear about the need 
for local governments to look at their regulation and to strike 
a good balance between being as friendly to reasonable, good 
development as possible and also protecting their other 
interests.
    In the budget we included a proposal for something called 
local housing incentive policy grants that would basically 
incentivize local governments who do a good job of sparking 
more supply, including for affordable housing, to get some 
Federal investment, to say, ``Hey, you are doing the right 
thing. You should be doing more of that,'' and to set an 
example for other communities.
    And the importance of this cannot be overstated. I read a 
very fascinating article, for instance, a few months ago about 
Toyota's decision to move their North American headquarters to 
the suburbs of Dallas because of the lower housing costs there. 
And so they are doing that, of course. You have a lower housing 
cost there compared to other places.
    However, what is also happening in that North Texas area is 
that it is normalizing, as compared to other markets of that 
size, and you are getting more people in there, and so they are 
facing this question that you have posed of a lack of supply 
both for affordable and for market rate. And I think it is tied 
up into the first two issues that you mentioned.
    We don't have any magic solution to that, but we do think 
that there are smart investments that can be made that will 
spark more supply, and those are some of the things that we 
have suggested, along with the Treasury and in our budget.
    Mr. Heck. Thank you, sir.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for coming in this morning 
and this afternoon.
    You testified about the success of this particular 
nonprofit in this work, and we had asked for data, so I would 
ask--again, I would echo their requests, mindful of the full 
data. Numerators are important; denominators are important; 
percentages, numbers, and qualitative factors, and how this 
particular nonprofit got access to those particular loans. So 
all that information I think would be relevant.
    I lost track of the number of times that you used the word 
``believe.'' ``I believe this is going to work.''
    You testified repeatedly that you believe these programs 
will not have a negative impact on the Mutual Mortgage 
Insurance Fund and, consequently, the taxpayers. At the same 
time, I think you testified that you have sold loans at a lower 
price to a nonprofit than you might have received from a for-
profit, so I would question whether that might be a negative 
impact right there.
    This word ``believe'' is subjective. Can you be more 
definitive? Will this program not hurt the fund?
    Secretary Castro. Yes. I guess one way to say it is that we 
have confidence that it won't. The reason that we can't tell 
you definitively, of course, is because these are new changes, 
and--
    Mr. Rothfus. It is a risk. There is a risk here, isn't it? 
There is a risk that it might not.
    Secretary Castro. There is an inherent risk in that the 
program may start to see, no matter what is done to the program 
or if it is left alone, may start to see a decline in its 
effectiveness compared to REO.
    Mr. Rothfus. But there is a risk, and I remember the former 
Democratic chairman of this committee talking about rolling the 
dice. These programs are putting the taxpayer at risk, and that 
is the issue.
    And let me tie this into something that is going on back 
home, because we have tight budgets, we have scarce resources. 
My district is home to an organization called HEARTH, which 
provides vital transitional housing services to victims of 
domestic violence.
    For more than 20 years women and families in Allegheny 
County fleeing domestic abuse have had a reliable and caring 
place that provided temporary shelter and protection from 
danger. HEARTH has provided hundreds of women of western 
Pennsylvania and their children with a temporary safe space and 
the support needed to transition to permanent housing.
    HEARTH has a compelling mission and it fulfills a priceless 
service for the community. That is why I find it troubling to 
learn that the organization would be cut off from HUD funding 
in the upcoming fiscal year. This funding represents nearly 
half of the group's budget.
    According to the Allegheny County Continuum of Care, HUD is 
deprioritizing transitional housing services for adults. Since 
any application to HUD that includes funding for these services 
will be viewed as less competitive by the agency, Allegheny 
County has decided to decline to ask for funding for HEARTH.
    This puts the entire organization in danger of closing its 
doors to vulnerable women and families in western Pennsylvania. 
I find that unacceptable, and I hope you can provide us with 
some answers.
    Does addressing homelessness caused by flight from domestic 
violence remain a priority for HUD?
    Secretary Castro. It is a stronger priority today than it 
ever has been for HUD. In fact, in the Continuum of Care 
process that you are talking about we specifically put more 
points in for housing service providers that are able to 
address the survivors of domestic violence.
    Let me say that this is an issue that we are hearing from 
transitional housing providers across the country. It is 
accurate to say that HUD is focused more now on permanent 
supportive housing. The reason we are doing that is because 
Congress funded a study called the Family Options Study for HUD 
to do that looked at, studied, analyzed what are the most 
effective housing services that we can provide that have the 
best outcomes.
    What it clearly said was that permanent supportive housing 
gives us the best outcomes for people and the best bang for the 
buck. So we are emphasizing more in this round permanent 
supportive housing. So we have done--
    Mr. Rothfus. But why are persons living in transitional 
housing still counted as homeless? They can provide housing at 
this particular place for up to a year.
    Secretary Castro. I don't think the issue is whether they 
are still counted as homeless. The issue is if we are talking 
about the long-term positive outcome for the person, what is 
the best type of housing for them to get to? And what we have 
found is that it is to get to permanent supported housing right 
away. That is why we are emphasizing this.
    And it is not just our opinion. That is a study that was an 
analysis that was done that was funded called the Family 
Options Study. We are following the data where it has led, and 
this was the first Continuum of Care process where we have 
actually implemented the findings of the Family Options Study.
    I will say, though, Congressman, that we are trying to work 
with communities where we see this drop-off in funding for 
transitional housing to look at if they have other unexpired 
money--home funding or other money that might go to fill that 
gap that they would otherwise lose.
    Mr. Rothfus. But this is how I--
    Secretary Castro. So we are willing to work with them.
    Mr. Rothfus. And this is how I tie this back to the issue 
we are looking at today. There are scarce resources out there, 
and to the extent that we are putting at risk taxpayer dollars 
through your program, that hurts other organizations.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Vargas.
    Mr. Vargas. Thank you, Mr. Chairman. Again, thank you for 
the opportunity to make my comments and ask my questions.
    I also want to thank you, Mr. Secretary, for being here for 
quite some time.
    And I also want to thank you for all the work you have done 
in my district. I appreciate that very much.
    I do want to ask you about some of the changes that you 
have made in the investor pool of DASP. I agree very much that 
we should try to keep families in their homes if they can 
afford it and at the same time protect the taxpayers. I think 
those two goals are very, very important.
    So could you once again try to explain that to me, how that 
makes sense to you and your thinking--your thought process in 
that?
    Secretary Castro. Yes. Just again, we have seen in this 
DASP program that we have been able to keep 10,000 families out 
of--or in their homes and another 15,000 to avoid foreclosure 
through short sale or some other way that they avoid 
foreclosure.
    We believe that DASP has been positive to the Mutual 
Mortgage Insurance Fund. It has produced more than $2 billion 
versus what REO would have produced.
    And then the other goal of trying to keep families in their 
homes, that there is some work we can do. And the evidence we 
have suggests that nonprofits can do a better job of keeping 
families in their homes.
    So these changes are aimed squarely at both of those goals, 
and we are confident that we are going to be able to strike 
that good balance and have a healthy MMI Fund and also keep 
more families in their homes.
    Mr. Vargas. How do you build, then, the capacity in the 
nonprofits then? Because I did look at the numbers. The numbers 
are quite small still for the nonprofits. How do you build that 
capacity then to make sure that more people can stay in their 
homes and afford them?
    Secretary Castro. It is a great question. FHA has reached 
out to nonprofits, has done webinars, has offered technical 
assistance to nonprofits.
    I also do have to say that we have been very responsible in 
making sure that these nonprofits have to qualify to be able to 
bid, just like the investors do. They have a set of 
requirements that they have to go through so that we certify 
that they can bid on these pools.
    So we are doing the responsible thing. We are ensuring that 
we help more families stay in their homes, but we are doing it 
with organizations, with nonprofits that are stable, that do 
have a capacity.
    Probably the biggest challenge is the one that you have put 
your finger on, which is, how do we get more nonprofits that 
have that capacity? Because as I mentioned earlier, this is 
challenging. There are not a lot of nonprofits that do the 
servicing of loans like this, and it is new for them. But we 
want to continue to work with them so that more of them can bid 
on this.
    Mr. Vargas. And when you say, ``work with them,'' how do 
you work with them? Do you give them expertise? Do you allow 
people from your office to sort of teach them this process?
    It is something they haven't been involved in very often, 
although some have previously, to be honest with you. I know in 
California we have had some nonprofits that have done great at 
affordable housing.
    Secretary Castro. We certainly engage in outreach, in 
walking them through the process and explaining the process and 
the requirements. And then, of course, there is a vetting 
process that goes into certifying that they can bid on these 
things.
    And we also are doing that with respect to local 
governments for our direct sales and trying to increase the 
number of direct sales.
    Mr. Vargas. Okay. And I do want to ask you this as a--and I 
think I speak for everyone: Please try to do more for 
veterans--homeless veterans. We still have them out there. In 
San Diego we still have veterans who are homeless.
    I know that you guys have been trying to work very hard on 
this, but it really is a stain on our Nation when you have 
these men and women who go out and literally put their lives on 
the line and then they come back and they live on the street. 
That is a sin that we have to cure.
    Secretary Castro. I very much appreciate that. As you know, 
we are very proud that because of the Mayors Challenge to End 
Veteran Homelessness and the focus of opening doors that under 
the Obama Administration between 2010 and 2015, we saw a 36 
percent reduction in veteran homelessness.
    But we know that 36 percent is not 100 percent, and we want 
to get to 100 percent. So we are going to keep working hard.
    Mr. Vargas. Please get to 100 percent.
    I do want to ask, Mr. Chairman, if I can, unanimous consent 
to enter into the record the following letters and statements 
in support of changes to the DASP program that HUD has recently 
announced: The Urban Institute; the National Fair Housing 
Alliance; the Leadership Conference; and the National 
Association of REALTORS.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Vargas. Thank you, sir. I yield back the balance of my 
time.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, chairman of our Monetary Policy and Trade 
Subcommittee.
    Mr. Huizenga. Thank you, Mr. Chairman.
    And, Secretary Castro, thank you for being here today.
    I want to pursue a couple of different avenues, but first I 
want to ask, do you have a list or database of all the groups 
with whom FHA met with in your decision-making process?
    Secretary Castro. As I mentioned earlier, we would be glad 
to share that.
    Mr. Huizenga. Okay. So you would be doing that. Okay.
    How soon can we get that list?
    Secretary Castro. Congressman, I will ask my staff after 
this hearing how long that will take.
    Mr. Huizenga. You are committing to--
    Secretary Castro. But I don't anticipate--
    Mr. Huizenga. --days not months, correct?
    Secretary Castro. That is right. I don't anticipate that is 
a long timeframe.
    Mr. Huizenga. Okay. And I am glad to hear that you have 
that database and that list.
    Do you have a list or database of all the suggestions that 
you considered and rejected? As you were meeting with these 
groups I am sure they are coming in with their bullet points 
and their lists. Can you provide that database for all the 
suggestions that you received, and then obviously we can see 
what was rejected.
    Secretary Castro. I certainly know that there are a set of 
suggestions of policy changes that FHA has considered, whether 
it was in the last 6 months or for many years. As I mentioned, 
several of these changes have actually been advocated for by 
different organizations and folks for years.
    Mr. Huizenga. So there has to be some sort of list that you 
had then said, ``Okay, this is in and this is out,'' right?
    Secretary Castro. I don't know if I would describe it 
strictly as a list. There are probably documents that reflect 
those different considered changes, sure.
    Mr. Huizenga. Okay. And you are willing to provide that?
    Secretary Castro. We have those. As long as it is something 
that we usually in the course of business would give over, 
sure. I have no problem doing that.
    Mr. Huizenga. Okay. Because I think it is important to 
explore really what were those options, and then what was your 
decision-making process of going through that.
    And I appreciate this attempt, as I would take it, as 
attempt to--for transparency. When you were mayor of San 
Antonio and there were changes happening at a governmental 
level--my father was involved in local politics; he served on 
the city council and as county commissioner, as well, and there 
is a transparency and an openness for a reason.
    There is a reason we have television cameras here today. It 
is to make sure that the folks who put us here hold us 
accountable and, in turn, provide that transparency and that 
ability to understand what is going on.
    And I was glad to hear my colleague from California pursue 
this a little bit. He seemed a little more willing to accept 
your answer than maybe I am.
    My background is in real estate and developing, as well, 
and I am missing the math on how if you are having a certain 
number of your anything--could be any kind of widget, but in 
this case, these very important mortgages that are going on--if 
they are being sold at a reserve price but the market dictated 
that they could have been sold at a higher price, I am confused 
as to how that is bringing more money in, which I think is one 
of the things that you had said, as I had jotted down. I am 
curious if you do assert that it has brought in more money than 
offering--by offering it to these nonprofits at a reserve price 
versus--
    Secretary Castro. Yes. So I have said I think a couple of 
things, number one, that there may be some instances where the 
nonprofit did end up bidding higher than some of the for-
profits did. Secondly, you are making an assumption that the 
loans that the nonprofits go after, which often are specific to 
geography, for instance, would have been picked up or bid on by 
these for-profit investors or how much they would have been bid 
on--how much value they had to these for-profit investors.
    I don't think that we can assume in every case the one-to-
one comparison of this--that a nonprofit would always bid lower 
on that property than a--
    Mr. Huizenga. Sure. But we don't know that if it wasn't 
offered out to the marketplace, correct?
    Secretary Castro. I didn't hear your question.
    Mr. Huizenga. You won't know that. It is impossible to 
prove a false negative. You can't prove something unless you go 
out and test it.
    Secretary Castro. Well--
    Mr. Huizenga. I am curious if you have done an estimate of 
how much return has actually been left on the table by pulling 
off that certain number.
    Secretary Castro. Based on these changes, of course we 
haven't. We haven't yet implemented these in a sale.
    Mr. Huizenga. So, but going into the reserve. I saw earlier 
you had a slide saying 2 percent--only 2 percent, I think, 
were--was the gist I took from that, was going to these 
nonprofits. So I am curious if there is a number of how much 
you think that has been left on the table, returned to the 
taxpayers.
    Secretary Castro. We would be glad to provide what we have 
with respect to the return on nonprofit sales versus investor 
sales, sure.
    Mr. Huizenga. All right. I appreciate that.
    I look forward to having a few documents coming our way, 
and we will follow up in writing, as well.
    So, thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    There are no other Members in the queue. Therefore, I would 
like to thank the witness for his testimony today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record.
    I would ask, Mr. Secretary, that you please respond as 
promptly as you are able.
    Also, without objection, Members will have 5 legislative 
days to submit extraneous materials to the Chair for inclusion 
in the record.
    This hearing stands adjourned.
    [Whereupon, at 1:03 p.m., the hearing was adjourned.]








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