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




                        THE FUTURE OF HOUSING IN
                       AMERICA: OVERSIGHT OF THE
                         RURAL HOUSING SERVICE

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         HOUSING AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 19, 2015

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-25
                           
                           
     
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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
                 Subcommittee on Housing and Insurance

                 BLAINE LUETKEMEYER, Missouri, Chairman

LYNN A. WESTMORELAND, Georgia, Vice  EMANUEL CLEAVER, Missouri, Ranking 
    Chairman                             Member
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey            MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            WM. LACY CLAY, Missouri
ROBERT HURT, Virginia                AL GREEN, Texas
STEVE STIVERS, Ohio                  GWEN MOORE, Wisconsin
DENNIS A. ROSS, Florida              KEITH ELLISON, Minnesota
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DANIEL T. KILDEE, Michigan
ROGER WILLIAMS, Texas















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 19, 2015.................................................     1
Appendix:
    May 19, 2015.................................................    39

                               WITNESSES
                         Tuesday, May 19, 2015

Hernandez, Tony, Administrator, Rural Housing Service (RHS), U.S. 
  Department of Agriculture......................................     3
Scire, Mathew, Director, Financial Markets and Community 
  Investment, U.S. Government Accountability Office (GAO)........     5

                                APPENDIX

Prepared statements:
    Hinojosa, Hon. Ruben.........................................    40
    Hernandez, Tony..............................................    44
    Scire, Mathew................................................    52

              Additional Material Submitted for the Record

Waters, Hon. Maxine:
    Written statement of the Housing Assistance Council..........    77
    Written statement of the National Rural Housing Coalition....    82

 
                        THE FUTURE OF HOUSING IN
                       AMERICA: OVERSIGHT OF THE
                         RURAL HOUSING SERVICE

                              ----------                              


                         Tuesday, May 19, 2015

             U.S. House of Representatives,
                            Subcommittee on Housing
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2220, Rayburn House Office Building, Hon. Blaine 
Luetkemeyer [chairman of the subcommittee] presiding.
    Members present: Representatives Luetkemeyer, Pearce, Hurt, 
Stivers, Barr, Rothfus, Williams; Cleaver, Green, Ellison, 
Beatty, and Kildee.
    Ex officio present: Representative Waters.
    Chairman Luetkemeyer. The Subcommittee on Housing and 
Insurance will come to order. Without objection, the Chair is 
authorized to declare a recess of the subcommittee at any time.
    Today's hearing is entitled, ``The Future of Housing in 
America: Oversight of the Rural Housing Service.''
    Before I begin, I would like to thank the witnesses for 
appearing before the subcommittee today. I look forward to your 
testimony.
    I realize that we don't have--there are only two clocks 
here that tell time for the witnesses and/or the rest of the 
members of the subcommittee. We will try and give you a little 
heads-up whenever we get down to the 30-second mark. But as 
everybody knows, you have 5 minutes to ask your questions. And 
at that point, we will try to be a little bit liberal because 
of the lack of clock time to actually know when you are going 
to be gaveled out. But as far as that goes, our witnesses are 
here today and we certainly welcome them.
    I would like to recognize myself for 3 minutes to give an 
opening statement.
    Like many of my colleagues, I represent a rural area. My 
hometown has 336 people. It is a place where it takes several 
jobs to make a living, and where the incredible benefits of 
living in rural America far outweigh the challenges.
    These aren't areas that easily attract major construction 
projects or real estate investors. There is limited housing, 
particularly for those in need of affordable rental housing. 
That is why the mission of the Rural Housing Service (RHS) is 
important. That is also why this subcommittee will dedicate 
time today and in the future to examine the objectives, 
successes, and opportunities for improvement of RHS.
    Last week, I met with a REALTOR from Miller County, 
Missouri. The bulk of her business is with RHS. This isn't a 
REALTOR making a living off of million dollar home sales. This 
is someone who has spent her adult life in my community and has 
focused solely on helping qualified borrowers in Miller County 
get into a home they can afford and have the opportunity to 
live the America Dream.
    It sounds like the process of dealing with RHS can be a big 
nightmare. There is little to no continuity across government 
programs, and there seems to be a significant lack of 
flexibility for RHS customers. Its systems are outdated and 
incredibly inefficient. The real estate agent from Miller 
County tells each of her customers to photocopy and file every 
check sent to RHS because RHS loses, in her experience, an 
average of at least one mortgage check a year per household.
    It is 2015, and we have a program that operates like it is 
1975. A status quo isn't acceptable. Rural Americans deserve 
more. RHS should heed suggestions immediately by GAO and 
increase interagency collaboration and consider consolidation 
where appropriate. It is incumbent upon this committee to 
ensure that RHS is also appropriately managing risk.
    RHS oversees a $120 billion portfolio in direct loans and 
loan guarantees, but doesn't have a chief risk officer or 
modern underwriting systems in place. That is why GAO is 
currently studying the RHS risk management practices in 
addition to specific housing assistance programs and 
duplication of Federal housing programs.
    Today's hearing will allow those concerned with the future 
of housing--members of this committee, and people across rural 
America--to better understand the challenges facing rural 
housing and the opportunities to improve a system plagued with 
inefficiencies. We continue to see throughout the Nation an 
overwhelming need for affordable housing, and we need to ensure 
that RHS is doing everything in its power to fill that need.
    I want to thank the witnesses for appearing today. We look 
forward to your testimony.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentleman from Missouri, my colleague and 
friend, Mr. Cleaver, for 5 minutes for an opening statement.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Housing is always an important discussion for me, for a 
number of reasons. Some of them, maybe the majority of them, 
are from my own personal life experience. I often say to groups 
in both the urban part of my district, Kansas City, Missouri, 
and in the rural parts of my district, the eastern part, that 
there is a symbiotic relationship between urban and rural.
    I actually wish--and this will never happen during my 
lifetime--that all congressional districts could be designed 
where there is an urban and a rural component. Because I think 
we would have far fewer political conflicts. And one of the 
unintended blessings for me when the district lines were 
redrawn is that I was given 3 rural counties, counties that 
were previously represented by Congressman Ike Skelton, who had 
been here 34 years and was born and raised in one of those 
counties, Lafayette County.
    So I am very, very happy whenever we get into these issues. 
I think my district represents a microcosm of the Nation. I 
think everybody is there.
    The RHS program, which is operated by the USDA, provides 
the kinds of housing options that do not exist outside of rural 
America. The 502 Guaranteed Program offers borrowers an 
opportunity for homeownership with no money down. And it keeps 
rural families where they desire to live, in rural America.
    In my own district, 346 loans were administered in Fiscal 
Year 2013. And Missouri ranked as 7th in the Nation in 
administering the Guaranteed Rural Housing Program. The Section 
502 Direct Loan Program is one of only a few programs in the 
Nation which is targeted to low- and very-low-income rural 
families.
    And contrary to what perhaps many urban dwellers believe, 
people in rural areas are in many instances struggling like 
people in the urban core. Given the lack of credit options, the 
unacceptable rates of poverty, and the limited housing choices 
facing many in the rural areas, we must continue to keep the 
USDA housing programs well-funded and productive.
    In fact, I think we need additional funding. And, of 
course, I agree with the Chair that there are some things we 
can do better to streamline the programs that we are operating. 
But I am not so sure that we cannot do both: streamline the 
programs; and make sure that adequate funding is there.
    Finally--and I guess I do need to mention this just because 
it makes me feel good--the central collection and service 
center for this program operates in our State, in St. Louis, 
Missouri. Why did I mention that? Because I can, and because I 
want everybody to know.
    So I want to thank the witnesses. And I am very, very 
interested in having a dialogue with you as we move through 
this hearing.
    Thank you, Mr. Chairman.
    Chairman Luetkemeyer. I thank the gentleman.
    We will now turn to our witnesses. Today, we welcome the 
testimony of Mr. Tony Hernandez, the Administrator of the Rural 
Housing Service at the U.S. Department of Agriculture; and Mr. 
Mathew Scire, the Director of Financial Markets and Community 
Investment at the the U.S. Government Accountability Office.
    Each of you are recognized for 5 minutes to give an oral 
presentation of your testimony. And without objection, each of 
your written statements will be made a part of the record.
    Mr. Hernandez, we will start with you. You are recognized 
for 5 minutes. Welcome.

   STATEMENT OF TONY HERNANDEZ, ADMINISTRATOR, RURAL HOUSING 
         SERVICE (RHS), U.S. DEPARTMENT OF AGRICULTURE

    Mr. Hernandez. Thank you, Mr. Chairman. I am glad to be 
here. Chairman Luetkemeyer, Ranking Member Cleaver, and members 
of the subcommittee, thank you for the opportunity to testify 
regarding the work we do to support rural families and 
communities.
    As Administrator, I have the privilege of managing programs 
that turn dreams of homeownership into reality. We provide 
rental housing that families can afford. And we develop 
facilities like hospitals, fire stations, and schools that are 
essential to a thriving rural America. Our housing programs 
only serve rural families with limited incomes, a segment 
market that private lenders and landlords rarely reach.
    Through mortgage lending and guarantees and rental 
assistance to private property owners, we help sustain and grow 
rural economies. To do this effectively, the majority of our 
staff lives and works in the areas they serve. We are a 
storefront operation.
    Our staff works in America's small rural towns. They focus 
our programs on the specific economic challenges and 
opportunities within their arena. This intimate hands-on 
approach is what makes us unique and effective. We provide the 
support and direct oversight necessary to serve families with 
limited resources.
    We remain committed to continuous enhancements of our 
service to the public through predictability, consistency, 
accuracy, and enhanced communication. These four elements are 
guiding our process improvements at the Rural Housing Service. 
During my tenure, we are embracing innovation improvement 
through automation and streamlining. We are utilizing 
technologies to create efficiencies that benefit rural 
families, our lenders, our staff, and ultimately, the 
taxpayers.
    In April, we modernized the Guarantee Single Family Loan 
Program by implementing a paperless operation. Field offices 
are now able to transact business with approved lenders 
electronically. This has resulted in significant savings of 
paper, postage, and most importantly, time.
    We estimate that more than $4 million nationwide will be 
saved in just 1 year through paperless processing. Similarly, 
we have begun rolling out new assessment and underwriting tools 
in our multi-family program. These will improve our transfer 
process from a willing seller to a willing buyer. It will be 
more transparent and attract more nonprofits to partner with 
us. This will extend the value of the Federal investment to 
over 400,000 rural rental properties.
    Our goal for 2016 is providing more than 170,000 rural 
residents the assistance needed to become homeowners through 25 
billion direct loans and guarantees. Multi-family housing 
programs request just over $1 billion, with the fund--the 
renewals of nearly 250,000 rental assistance agreements and 
support over 5,000 new units.
    Funding alone cannot ensure long-term viability to address 
programmatic challenges. In the multi-family housing program, 
we propose administrative tools that provide management 
flexibility to better administer the program.
    In the Single Family Housing Guarantee Program, we propose 
a user fee to support technology and maintenance costs 
associated with the automation. We also request delegated loan 
approval authority for selected high-performing lenders.
    Although rural America lags in terms of recover from the 
recession, the delinquency in foreclosure rates in our housing 
portfolio remains very low. This is a testament to our prudent 
underwriting and strong loan servicing and our careful 
oversight.
    As of March, the foreclosure rate of the guaranteed loan 
program was 1.5 percent, the lowest it has been in nearly 5 
years. Even in the direct loan portfolio, more than 9 out of 10 
families served succeeded in homeownership. Our success is due 
in part to the strength of our hardworking people in rural 
America.
    I believe, and I am sure that many of you do too, that 
rural Americans deserve an opportunity to own or rent a decent, 
safe, and affordable house. Since the passage of the Housing 
Act of 1949, 3.8 million rural Americans have received housing 
loans and accumulated assets through equity in their homes.
    Our single family housing program fills a gap in the 
private market. We are one of the most critical resources 
available to help smaller, poorer, and more rural communities 
gain access to mortgage credit. There is a strong and 
consistent demand for our programs. We change people's lives 
every day.
    Congress has had the foresight to strategically place 
comprehensive programs for rural America in one agency, USDA. 
We take seriously the charge to help address any challenges 
faced by rural residents in need of safe and affordable 
housing.
    Thank you for the opportunity to serve in this agency that 
uses our programs to support our affordable housing in rural 
America. I am happy to answer your questions at this time.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Hernandez can be found on 
page 44 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Hernandez.
    Mr. Scire, you are now recognized for 5 minutes. Welcome.

  STATEMENT OF MATHEW SCIRE, DIRECTOR, FINANCIAL MARKETS AND 
  COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 
                             (GAO)

    Mr. Scire. Chairman Luetkemeyer, Ranking Member Cleaver, 
and members of the subcommittee, thank you for the opportunity 
to be here today to discuss our work involving the Rural 
Housing Service.
    My statement focuses on issues involving program overlap, 
improper rental assistance payments, and management of the Farm 
Labor Housing Program, as well as preliminary observations from 
ongoing work, assessing risk management in RHS's Single Family 
Loan Guarantee Program.
    In response to a statutory mandate, GAO has identified 
Federal programs or activities that are fragmented, 
overlapping, or duplicative. In our 2012 report, we included an 
analysis of housing programs and activities and reiterated a 
recommendation that Congress require USDA and HUD to examine 
the benefits and costs of merging these programs that serve 
similar markets and provide similar products.
    Later in 2012, we identified opportunities to build on 
existing coordination efforts among the various agencies. For 
example, we recommended those efforts be expanded to include 
evaluating specific opportunities for consolidation that would 
require statutory change. Such an evaluation would be an 
important step in enhancing the efficiency and effectiveness of 
Federal support for housing.
    Nonetheless, we recognize that consolidating programs carry 
certain implications for users, existing programs, personnel, 
portfolios, and associated information systems; thus, any 
evaluations would involve complex analyses, trade-offs, and 
difficult policy decisions.
    Meanwhile, RHS needs to continue focusing on improving the 
management of its ongoing programs. In this regard, I can 
report that it has taken some important steps to address 
recommendations in our recent studies of rental assistance and 
farm labor housing.
    With regard to the latter, RHS has improved the specificity 
of compliance review information it maintains in information 
systems. It has established deadlines for spending obligated 
funds. And it has sought authority to use the HHS new hires 
database to verify tenant income.
    But it has not completed action on other important 
recommendations. For example, it could do more to use existing 
data to target assistance to areas of greatest need. It could 
better ensure that requirements for tenant eligibility are met 
across the Farm Labor Housing portfolio. And it could complete 
its efforts to establish the use of civil money penalties to 
better enforce program regulations.
    In the area of rental assistance payments, RHS has sought 
authority to use the new hires database and taken other steps, 
but could do more to implement our recommendations. For 
example, it should seek OMB review of its move to a $100 
threshold for considering a payment to be improper. It could 
also seek authority for using SSA benefits information.
    Finally, we are currently looking at the management of the 
RHS loan guarantee program for single family loans for the 
subcommittee. Though this work is still under way, there are a 
few preliminary observations which I would like to highlight 
today.
    It is important to know that RHS has in place policies and 
practices and key risk management functions, including 
underwriting, loan approval, and lender oversight. Also, RHS is 
taking steps to improve its risk management practices. For 
example, it is developing an econometric model for estimating 
program costs and is considering the appointment of a chief 
risk officer.
    Nonetheless, there are some areas we are exploring where 
there may be more RHS can do to manage risk, for example, by 
better defining key benchmarks, establishing procedures for its 
credit policy committee, and documenting lines of authority and 
communication across its risk management structure.
    As we complete our work, we will consider the need for 
recommendations addressing these and other issues. Looking 
forward, we are glad to help the subcommittee in its oversight 
of these important housing programs.
    This concludes my opening remarks. Thank you again for the 
opportunity to speak today. And I would be glad to answer any 
questions you may have.
    [The prepared statement of Mr. Scire can be found on page 
52 of the appendix.]
    Chairman Luetkemeyer. Thank you, gentlemen. I will now 
recognize myself for 5 minutes for questions. Let me start with 
Mr. Hernandez.
    Mr. Hernandez, Mr. Scire has indicated--and we have 
discussed a little bit ourselves--that with regard to some of 
the duplicative overlapping with other agencies, one of the 
problems with that is the cost to continue to have those 
programs be available and then overlap and what have you.
    So with HUD having such a large portfolio and overlapping 
in so many of the areas--I think the data from Mr. Scire's 
testimony showed that in 2009, 74 percent of HUD borrowers also 
met the same eligibility for the RHS Single Family Guarantee 
Program. If that is the case, make the case for why we need to 
continue with RHS?
    Mr. Hernandez. Great question, Mr. Chairman.
    What is nice about USDA and Rural Development is that our 
focus is just on rural folks. We only deal with people in rural 
America. And as you know, in rural America the salaries and the 
wages are much less. We have programs that are designed just 
for folks in rural America if they can qualify.
    Chairman Luetkemeyer. Okay. Let me interrupt there. I 
understand that part. Why is HUD encroaching on your area? 
Should we back them off?
    Mr. Hernandez. I have an answer for you, sir. Let me get 
there.
    Chairman Luetkemeyer. Okay. I would love to hear it.
    Mr. Hernandez. Okay. What we are trying to do is make sure 
we have a product that provides the right type of product for 
our folks. Our folks' incomes are about $29,000 for the direct 
program, and about $50,000 for the guarantee. At the same time, 
these individuals or families cannot afford a downpayment, and 
FHA requires a 3.5 percent downpayment. They also have an up-
front MIP cost, which makes it unaffordable for a lot of the 
customers in rural America.
    And that is why Congress created us. They are trying to 
say, do you have a product that really meets the needs of rural 
America? Ours does. Ours is zero percent down, with no closing 
costs.
    We actually have our lenders in the guarantee program 
certify that borrowers cannot get conventional lending. Some of 
our folks qualify for FHA, and we tell them they should go to 
FHA. But if you don't have a downpayment or can't afford a 
mortgage insurance premium (MIP) as high as FHA requires, that 
is why Congress created us, to have a product that meets their 
needs.
    So we both provide loans, but we have different customers. 
Our customers are those who cannot afford a downpayment or an 
MIP.
    Chairman Luetkemeyer. My point though, Mr. Hernandez, was 
that 2009 data show that 74 percent of HUD borrowers also met 
your eligibility requirements.
    Mr. Scire, can you give me an explanation of that comment?
    Mr. Scire. What we did was look at program data from both 
RHS and FHA, including income for the borrowers and where the 
property is located. And that is what that number represents; 
it is the percentage of FHA borrowers who were in RHS-
eligible--actually, the most rural RHS-eligible areas, and 
borrowers who also met the RHS income test.
    Chairman Luetkemeyer. Okay. So Mr. Hernandez says there is 
a niche for RHS. Would you agree with that, then?
    Mr. Scire. I think that is uncertain. And I have not seen 
any data that would demonstrate what proportion of RHS 
borrowers would be unable to obtain an FHA-insured mortgage, 
for example.
    So within the guaranteed program, it is less and less 
obvious with time that what RHS is offering is unique. The 3.5 
percent downpayment is certainly something that distinguishes 
the RHS-guaranteed product from the FHA. And if I am a rural 
resident with lower income, I might want to go with the RHS 
product. But that doesn't mean that I couldn't get another 
product with a little downpayment.
    Chairman Luetkemeyer. Okay. I only have a minute left. So 
let me switch gears a little bit to the risk management portion 
of this.
    Mr. Scire, you indicate that there are some problems there 
but the agency is making some progress. Can you elaborate just 
a little bit?
    Mr. Scire. There are some things that we--of course, our 
work is still ongoing. But the first thing we wanted to look at 
was to see what sort of policies and practices they have in 
place. And they do meet a lot of what you would expect for a 
credit program.
    Chairman Luetkemeyer. Well, if we have a 1.5 percent past 
due ratio--I believe that is what Mr. Hernandez testified--do 
we have a problem?
    Mr. Scire. I would look very carefully at those estimates. 
I don't know whether that is an indicator of strength in the 
program--
    Chairman Luetkemeyer. Let me take a timeout here. Mr. 
Hernandez, what is your loss ratio?
    Mr. Hernandez. We have for historic losses 2.2 percent--
    Chairman Luetkemeyer. 2.2 percent.
    Mr. Hernandez. --Mr. Chairman. What I am trying to say is 
that not only do we offer a product that meets the needs, it 
also doesn't cost the government or the taxpayers anything.
    Chairman Luetkemeyer. Okay. Just a second. My time is 
almost up here.
    Mr. Scire. That is less certain.
    Chairman Luetkemeyer. Is that an acceptable level?
    Mr. Scire. I think that the long-term costs of the program 
are uncertain.
    Chairman Luetkemeyer. Okay. My time has expired. Thank you 
very much.
    I now yield 5 minutes to the distinguished--Mr. Kildee 
first? Okay. We will go with Mr. Kildee, the distinguished 
gentleman from Michigan, for 5 minutes.
    Mr. Kildee. I started to get a little worried when you 
began to excise the distinguished part when you discovered it 
was going to be me.
    Chairman Luetkemeyer. You would be surprised what I can 
determine from behind.
    Mr. Kildee. First of all, thank you both for being here. 
And I do have a couple of questions for each of you.
    I want to start with Mr. Hernandez and ask you a bit more 
about how your agency works with partners on the ground. I 
think obviously the importance of the program speaks for 
itself. And I want to get into some of the details in terms of 
some of the analysis that has been done.
    But I wonder if you could talk to us about how your agency 
collaborates with other stakeholders and industry partners on 
the ground to maximize the resources that you have?
    Mr. Hernandez. Great. Thank you very much. It is a great 
question. In order for us to be successful, we have to have key 
partners and stakeholders. We work a lot with nonprofits. We 
require homebuyer education as part of it. That is why we use 
metrics to measure the success of the program. It is not just 
making a loan that is effective. It is how do you keep people 
in the home.
    And the way we do is we work with packagers or nonprofits 
to do homebuyer education. That is a growing need. In order to 
have successful programs, you have to have the right partners.
    When Congress reduced our budget level, we lost about 20 
percent of our staff. Which means the staff we had to go out 
and find customers were lost. Also, the staff who actually do 
the loans directly were lost.
    So the good apart from that was that we had an opportunity 
to look at how we do business better. And so that is where we 
spent so much time doing what we call ``business process 
improvement''--trying to find better ways to do that.
    One of the things that came out is, how do we work with 
partners? And how do we work with nonprofits, so they can help 
us find additional customers so we can close loans? We call 
those packagers. We have a new rule coming out right now that 
will allow us to actually compensate nonprofits so they help us 
do the work. So we have a two-pronged strategy of trying to 
find the customers. We do it, they do it. We don't have enough 
staff. So really, it requires us to have strategic 
partnerships.
    And with that, that is how we get better loan performance. 
It is kind of nice. Our performance right now with the Single 
Family Direct is 2 to 3 percent. That is very, very good 
performance. That is first-year delinquencies, sir. That means 
we are picking the right folks in the first year and they do 
not lose their homes, 9 out of 10 people. These folks make 
$29,000, sometimes a family of 3 or 4 makes $29,000.
    And with the partnership that we have, we are actually 
keeping them in the homes. With the guarantee program, we have 
the lowest--as of March, we had the lowest delinquency rates of 
1.56 percent. It is the lowest in our history, very, very good 
performance, which contributes to the success of our program. 
Not only are we managing the program well, it is also not 
costing us.
    We are very fortunate in the guarantee program with our 
partners as well, it is real truth-in-lenders and nonprofits, 
they are helping us find ways to get more homeownership. So we 
are trying to find strategic partnerships, sir. That is what we 
do.
    Mr. Kildee. Thank you again, Mr. Hernandez.
    Mr. Scire, I wonder if I could just get you to comment a 
little bit further on the questions about performance? You 
indicated that it was unclear to you what their performance was 
on the direct loan, or on the guaranteed program. Could you 
expand on that? Because I am a little bit confused about what 
data you might be looking at and--
    Mr. Scire. The question was whether it was good or bad. And 
so, I would want to compare that with some other cohort to tell 
you whether or not it is relatively good or bad, so--
    Mr. Kildee. But how would it compare to--if, in fact one of 
the potential recommendations would be to merge this program 
with other existing programs, wouldn't it make sense before 
coming to that conclusion to compare the performance of this 
program--
    Mr. Scire. Absolutely.
    Mr. Kildee. --to the program with which you might merge it?
    Mr. Scire. Absolutely. When we talk about opportunities for 
consolidation and coordination, we are not necessarily assuming 
that the best practices are at FHA. Some of the better 
practices might be at the Rural Housing Service. But then, why 
wouldn't FHA take advantage of those?
    But to get back to the question about comparative 
performance, the analysis has not been done yet that would hold 
constant some of the factors that could explain the loan 
performance you are seeing with RHS versus FHA. And that is one 
of the areas where we think actually some of the benchmarking 
RHS does can be improved. Because it is important to control, 
for example, when the loan was made, where it was made, and 
some other borrower characteristics. That might explain more of 
the differences you are seeing in loan performance than the 
operation of the RHS program.
    Mr. Kildee. Okay. One of the things--and this relates to 
not just this program, but others--that I would really 
encourage anyone who is analyzing these programs to look at, 
and this is very rarely attempted, is to try to measure the 
positive externalities, even considering the risk and potential 
default. But to measure the positive externalities of 
homeownership programs on housing and neighborhoods that have 
nothing to do with the programs directly, but actually receive 
pretty big benefits in terms of equity preservation and 
stability in these communities.
    We talk about all sorts of ways of measuring these 
programs. And especially in the rural environment, supporting 
homeownership has value that goes well beyond the recipient of 
the support that got them into a home in the first place in 
terms of maintaining some degree of stability in the market. I 
know that is difficult to do, but I would certainly encourage 
you to do that.
    And I wonder, Mr. Hernandez, if you could comment quickly 
on the loan origination process and how you think that works 
and results in positive outcomes for you?
    Mr. Hernandez. Yes, sir. What is nice about the direct 
program is we have storefront operations. So folks can either 
come directly to us in each of our offices in the rural areas, 
or importantly, right now we are working with our partners to 
create what we call ``electronic submission by nonprofits'' so 
they can help us submit loan applications.
    We still underwrite them, we still make the decision. But 
with the delinquency in industry standard, anything below 5 
percent is very good in performance. We are at 2.3 percent. We 
are doing very well. And the guarantee, our lenders do it. We 
try to monitor our lenders. And we have the lowest first-year 
delinquency of 1.5 percent. It is very, very good, and we are 
going to try to get more of those lenders.
    Mr. Kildee. Thank you very much. Mr. Chairman, thank you 
for the additional time.
    Chairman Luetkemeyer. And with that, we go to the gentleman 
from Virginia, Mr. Hurt.
    Mr. Hurt. Thank you, Mr. Chairman. I want to thank the 
Chair for holding this hearing.
    I come from a rural district, Virginia's fifth district, 
and it geographically largest district in the State of 
Virginia. So we know rural, and we also believe that a huge 
part of what we need to be doing here in Washington is adopting 
policies that give greater access to capital all across 
Virginia, all across rural Virgnia. Because obviously, the 
people you serve need better jobs, need better income. And that 
is obviously a part of what I think the focus on our committee 
should be. And I think it is.
    I guess my question is, building on the chairman's 
questions about sort of the differences between now--I guess 
this agency was created back in the 1940s--and then. And then 
also, the difference between what your agency does in the 
context of HUD and VA programs.
    I guess my question is, it sounds like you are supportive 
of the idea of consolidation and trying to streamline things. 
But from my understanding, the Administration began this or 
indicated that it was interested in a single family housing 
task force back in 2011. And I guess my question is, what is 
the progress, Mr. Hernandez, of this consolidation review?
    And why on earth is it taking so long to develop some clear 
understanding of where we can streamline these programs and 
make them serve the taxpayers, as well as the target of the 
benefit. Once you answer, I would like to get Mr. Scire's 
comments as well.
    Mr. Hernandez. Sure. Great. Thank you, Congressman. What is 
really nice about our program is we are in--as stated before, 
we are for rural folks only. What we are interested in doing is 
trying to create the products and programs and process that 
focus on delivering a better service to customers. We 
participate with the Joint Federal Housing Subcommittee looking 
for ways to streamline and align to a similar process if there 
is opportunity. But because we have different missions--HUD is 
urban, that is why they call them ``Housing and Urban 
Development.'' We are focused just on rural America.
    And as you know, representing a rural district, rural is 
different than urban. You have to find different ways to 
provide service to folks because they live so far away. So how 
do we find an outreach model with partners to provide service?
    Mr. Hurt. Do you support the idea that the Administration 
sort of led the way in 2011 in terms of consolidating and 
making these programs more efficient between the agencies?
    Mr. Hernandez. What we support right now, sir, is providing 
better service to our customers. And right now, consolidation--
    Mr. Hurt. That doesn't sound like consolidation.
    Mr. Hernandez. No. Not necessarily, sir. Sometimes you look 
at, how do you do better alignment. Some people have better 
core expertise. Ours, we probably have the best guarantee 
product in the country right now, better than anybody else. We 
have some best practices that maybe some other agencies should 
come to us.
    But what we are trying to do is, how do we make a better 
program and reach out to customers better, are we doing a great 
job? And that is why we need your help. We have come forward 
this year to help address this.
    Let me give you an example. One of our biggest barriers, 
the difference between when we were created and now, is we do 
everything manually. Mr. Chairman, you had a great example. We 
are on manual process. Manual process, sir. Now, I have been in 
the housing industry for over 30 years. You cannot be making 
copies of checks and sending them out.
    We just came to the 21st Century on December 1st. We now 
have an electronic system for all of our guarantee programs. We 
save $5 million a year. We save time. We can give a response 
now in 48 hours. We couldn't do that back in 1930. The rest of 
the industry was there. We are there now. It actually saves 
money.
    What is great about our program is it does not cost the 
taxpayer any dollars. It pays for itself. We have a zero 
subsidy program, sir. What a wonderful program to create 
opportunities, open doors, have strategic partnership, and it 
doesn't cost the taxpayer any money--
    Mr. Hurt. That is what they said about Fannie Mae and 
Freddie Mac.
    Mr. Hernandez. I don't know about--
    Mr. Hurt. Until it cost us $200 billion.
    Mr. Scire. I see the light is turning yellow. If I could?
    Mr. Hurt. Mr. Scire, please.
    Mr. Scire. There is a lot there. The task force is limited. 
It is not really looking at statutory changes that might be 
needed for doing further consolidation. So we think its charge 
could be expanded.
    But I think what you heard just now is part of the 
dilemma--this notion that HUD is ``urban.'' HUD does far more 
in rural areas than does RHS. So HUD would deny the notion that 
they are solely focused on urban areas.
    And the idea that there is a zero cost to this program 
remains to be seen. I would point out that there is a big 
difference here between the FHA and the USDA program, which is 
that FHA is required to maintain a reserve. So actually, it is 
more likely to have a zero cost than the Rural Housing Service.
    But the first step in any of this process is to admit there 
is a possible problem here. And so I think it would be 
important for USDA and HUD to open up to the notion that there 
is overlap. And I look forward to them entertaining that idea.
    Mr. Hurt. Thank you. My time has expired.
    Chairman Luetkemeyer. Thank you. With that, we will go to 
the ranking member, the gentleman from Missouri, Mr. Cleaver, 
for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Mr. Scire, even if some shoes are cute but too small, won't 
they hurt?
    Mr. Scire. Naturally.
    Mr. Cleaver. Yes. And more is not always better, do you 
agree?
    Mr. Scire. Not always, no.
    Mr. Cleaver. Yes, yes. The point here is HUD operates more 
programs in the rural areas than the housing program that 
operates in Mr. Hernandez's department.
    Mr. Scire. Yes. I am limiting my remarks there to the 502 
Guarantee Program.
    Mr. Cleaver. Okay. Same thing, 502, 504, 514, 516 programs. 
They have a potpourri of programs. I think the Housing Act was 
passed in 1937. HUD was created in 1965--1965, Lyndon Johnson's 
Great Society; am I correct?
    Mr. Scire. Yes.
    Mr. Cleaver. Do you agree then that HUD almost 
automatically leans urban?
    Mr. Scire. No, I don't. I think that HUD would disagree 
with that assertion also. They see themselves as serving the 
entire country. So that is a distinction I think between the 
Rural Housing Service and HUD, that the Rural Housing Service 
is limited to the ``rural areas.'' In fact, much of the 
Nation--
    Mr. Cleaver. I would disagree with the Secretary, or you 
for that matter, that HUD does not lean urban. And I can give 
you some examples. A quick one would be--
    Mr. Scire. I am not sure what ``lean urban'' means 
actually.
    Mr. Cleaver. Lean means that--
    Mr. Scire. What we base it on is where they are. And 
actually, the work that they do and the products they offer are 
all across the country. And they are not as concentrated in 
rural areas, but they actually serve more borrowers in the 
single family guarantee space than does RHS.
    Mr. Cleaver. HUD has limited experience in administering 
programs that are designed exclusively for rural areas.
    Mr. Scire. No, that is not correct. HUD actually does have 
programs that are designed for rural areas.
    Mr. Cleaver. And as I say, they have limited experience.
    Mr. Scire. Okay.
    Mr. Cleaver. If I didn't say ``limited experience,'' I 
apologize. But I meant limited experience. Do you agree with 
that?
    Mr. Scire. It is not the largest part of their portfolio, 
programs targeted to rural areas, but they do have some 
programs that are targeted to rural areas.
    Mr. Cleaver. But limited experience in working in the 502 
program?
    Mr. Scire. They don't work in the 502 program at all.
    Mr. Cleaver. So they have no experience?
    Mr. Scire. I am not sure what you are asking about, 
operating in the 502 program. They do operate a single family 
loan guarantee program which is very similar to the 502 
Guaranteed Loan Program.
    Mr. Cleaver. Yes. One of the things that makes Washington 
operate with an odor is that some people automatically on one 
side--that we are supposed to say everything that HUD is doing 
is great, and the other side is saying HUD is not supposed to 
be great. And I think that is why we don't make the kind of 
progress we need.
    I think that the chairman is right. And I think we need to 
look at these programs. But what I would also like to make sure 
we understand and acknowledge is that what HUD does is 
dramatically different than what is done in rural areas. And it 
was intended to be that way. As Mr. Hernandez said, they are 
the United States Department of Housing and Urban Development. 
And they lean urban. HUD leans urban.
    Why do we say urban America? CDBG grants, for example, in 
our State, the people who get the annual allocation are in: 
Kansas City, the largest city; Saint Louis, the second largest 
city; Springfield, the third largest city; and Independence, 
the fourth largest city.
    If you live in rural America, the money goes to the State, 
and you have to compete with other small communities to get 
CDBG dollars or 108 loan moneys. So we lean urban with HUD--
    Mr. Scire. I just don't agree with the concept of leaning 
urban. And I don't think that HUD would agree with that. But 
clearly, HUD does operate in the same markets that USDA 
operates in terms of single family loan guarantees.
    Mr. Cleaver. If a HUD Secretary believes that, he or she 
should go.
    Thank you, Mr. Chairman.
    Chairman Luetkemeyer. Thank you, Mr. Cleaver.
    I now recognize the gentleman from New Mexico, Mr. Pearce, 
for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman. I appreciate you 
having this hearing. We share the concern of Mr. Cleaver there, 
that if we are going to do something, we remember the rural 
areas. Mr. Hurt mentioned that he represents the largest rural 
district in Virginia. My district is almost twice the size of 
all the State of Virginia. I represent more dirt than anybody 
here. And so I just want to keep you aware that we watch for 
the rural piece of this.
    Mr. Hernandez, you had mentioned that quite possibly there 
are some best practices in your agency which other agencies 
should come and take from you. Could you give me two or three 
of those?
    Mr. Hernandez. One of those, sir, is how we do our 
guarantee program. We never own the property. What we do is we 
provide through our lenders guaranteed lending; we guarantee 90 
percent of the loans, and they provide the loans. If a loan 
should go bad--
    Mr. Pearce. I am just asking for the program, not the full 
explanation on it.
    Mr. Hernandez. It would be the guarantee programs, sir.
    Mr. Pearce. Okay. Any other ones, sir?
    Mr. Hernandez. The other would be how we work with our 
packagers, how we provide--
    Mr. Pearce. Okay. In your testimony, on page two, you talk 
about Rita Fincher of Park Hills, Missouri. Do you ever track 
how much you invest in--and I appreciate the story you are 
telling here of helping someone out of homelessness--any of 
those projects? For instance, what was the total expenditure on 
that one, since you mentioned it in your testimony?
    Mr. Hernandez. I don't remember the exact dollars. But we 
do track it by--
    Mr. Pearce. Just roughly how much?
    Mr. Hernandez. Depends on--up to $20,000.
    Mr. Pearce. Up to $20,000. Okay. And for that, what did you 
actually do?
    Mr. Hernandez. Sometimes, we do safety.
    Mr. Pearce. On this case. You brought it up in your 
testimony. So what were you actually doing?
    Mr. Hernandez. We were actually trying to repair the roof, 
do some safety. Bathrooms, safety. Most of the time--
    Mr. Pearce. Okay. But you are saying in here that you got 
her out of homelessness. So what did you actually do? It sounds 
like you did more than safety. I am just trying to let you tell 
your story here.
    Mr. Hernandez. Sure. We helped move her into a house that 
she could own long-term. So she actually became a homebuyer, is 
what we are trying to get to.
    Mr. Pearce. Okay. By giving her cash assistance?
    Mr. Hernandez. Homebuyer education with our partner. 
Getting her to find a house that she could afford, helping her 
with jobs in the area so that she then qualifies for a house, 
and then getting her in a house. And what is nice about the 
program, sir, is if she has difficulty making the payments, we 
work with her to make sure she stays and is successful.
    Mr. Pearce. Okay. And also in your answer to one of my 
questions, you mentioned that your agency is constantly looking 
for ways to streamline. Could you give me a couple of those 
ways?
    Mr. Hernandez. Perfect, sir. What I had proposed is 
actually what we call ``delegated underwriting.'' Right now, we 
review every loan manually, one at a time. That is not where 
the industry is. What we are trying to do is just give 
delegated authority to the top-performing lenders. That will 
streamline the process, the decision much faster.
    The second part of that is having a way to generate dollars 
to improve technology. So we have a proposal that asks for up 
to a $50 flat fee per loan closed only. That is for automation. 
Another example would be, we are working with reducing our time 
for loss mitigation. It used to take us 230 days to assign a 
loan, sir. We do it in our processing less than 19 days.
    So with all the investment in technology, business 
improvement, retraining of staff, we are providing better 
service every day.
    Mr. Pearce. Okay. Just to put it in context, you mention in 
your statement that in 2014 you helped 146,300 families, and 
870 built their own homes. And keep in mind there are 46 
million people on food stamps. So I don't know exactly how many 
of those are in the rural areas. But in my rural area, our 
average income is about $30,000, $31,000, $32,000. So we have a 
lot of need there.
    And so when I sit here and I see that our kind of bragging 
point is that we helped 146,000 people, that feels like a small 
number, sitting up here listening. I don't mean to diminish it, 
but just so that you would understand.
    Now, the GAO had suggested in 2010 or 2012 different 
changes. Have you all looked at those? And what have you done?
    Mr. Hernandez. Yes, sir. As a matter of fact, as Mr. Scire 
has indicated, we are making significant progress in a lot of 
the areas that we have identified. We are both aligning with 
HUD in the places where it is appropriate. We are also building 
on our best practices in different places. So we are making 
progress.
    Mr. Pearce. Have you thought about converting your 521 
program to just a voucher program?
    Mr. Hernandez. We looked at that. And the reason--the way 
we are created, our focus is on rental assistance, sir. We 
provide a subsidy to a project. We are not like HUD. HUD has 
something called a Section 8. It costs more to do that. We are 
looking for a way that is more streamlined and effective. And 
we believe our rental assistance is the best way to go, sir.
    Mr. Pearce. Thank you, Mr. Chairman. I yield back.
    Chairman Luetkemeyer. Thank you. With that, we go to the 
gentlelady from Ohio, Mrs. Beatty, for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and Ranking Member 
Cleaver. I am still trying to figure out if my cute shoes today 
hurt or if they are comfortable. But thank you for that.
    But thank you, Mr. Cleaver.
    I am from Ohio. And my Third Congressional District does 
not have a lot of rural. But in the great State of Ohio, maybe 
my colleague Mr. Stivers and others have more of that rural.
    But I come with some 20 years of experience, housing 
experience. More specifically, you mentioned Section 8 with 
public housing, working with Section 8. So I am not quite as 
familiar with some of the intimate details with rural housing, 
but some of the information that I received talks about how in 
rural housing, you can give direct funds to someone to buy a 
home.
    That would be somewhat unheard of or a disclaimer in public 
housing. If someone gave you a loan, then you wouldn't be able 
to qualify and you wouldn't be able to get it unless you are 
part of the self-sufficiency move out. So I see them as quite 
different.
    So I guess my question to you is, given the current 
existing shortage of the number of available and affordable 
rental units in both rural housing and HUD or urban housing 
supply, and the longstanding underfunding of Federal affordable 
housing programs, could you describe to me any concerns you 
would have with consolidating rural housing and HUD programs, 
as some had suggested?
    Mr. Hernandez. Sure. There are concerns when you look at 
consolidation. What you are looking for is, what is the best 
way to meet the customer's need? What we have found is that 
rental assistance and counseling is very good. About 30 years 
ago, they had a strategic decision they made. They said, we are 
going to invest in rental assistance. We have 14,000 
properties, 400,000 families, whose incomes are between $10,000 
and $12,000; 60 percent of those folks are elderly and disabled 
and live in rural America. They want to stay there.
    So we, with your help, created a policy and a program 
called Rental Assistance. And that program works very well. The 
challenge we have is those properties are coming to maturity 
right now. We have 11,576 properties whose contract with us and 
through Congress is coming to an end. That means the subsidy, 
which is 30 percent of their income that they pay for rent, 
will go away unless Congress decides to help us find a way to 
address this challenge.
    So we have folks who potentially could be homeless. We are 
looking for the opportunity today to recommit to providing 
affordable housing and rental housing in rural America. To do 
that, we have to address our maturing mortgages problem and 
challenge that we have.
    To do that, we use rental assistance. Now, the reason 
rental assistance is a great tool is because it is not a 
Section 8 product. It stays with the building. So we reinvest 
in that building, we modernize that building. We have the 
private sector providing the services. We are a guarantee. We 
provide a loan. So the private sector is providing the service. 
It is a partnership that Congress created here for us to 
provide service to them. And that is what we do today.
    So those owners today, we are working with them to preserve 
as many of those properties as possible. And to do that, we 
have to find ways to reduce the cost.
    Mrs. Beatty. Are you familiar--on the HUD side, we had 
something like that, and it was called ``Project Base.'' And it 
was a 20-year program that was developed. And then in more 
recent years, unlike what you just described, the Federal 
Government took away project base. It was even with the homes.
    So, for example, if I owned several homes, then the public 
housing authority through HUD would give me the money to fix it 
up and I got it. Now, it is a lot different in terms of that. 
If a tenant does something to your home, you are responsible 
for fixing it up and there are no dollars for renovating. So 
there is a difference.
    When you are in urban areas--it is always quite interesting 
to me. And I don't know if either one of you gentlemen can help 
me out. But if we are talking about rural and we are talking 
about farmers, it is a subsidy. And when we are talking about 
rural and we are talking about housing, it doesn't have the 
negative connotation that as soon as we go to urban, people 
make it like they are getting a handout or that they are 
getting welfare.
    But you make it sound so eloquent. And oftentimes in this 
same committee when we are talking about urban or inner city, 
it just seems like a more negative connotation to lifestyles 
and individuals. So I would be interested in your comments on 
that.
    Mr. Scire. In the single family arena, one might ask the 
question, why isn't it that a lower-income household who wants 
to buy a home in an urban area shouldn't have access to the no-
downpayment mortgage that the Rural Housing Service offers, for 
example.
    In the multi-family arena, I think the programs are--there 
are a lot of similarities, but they are not quite as similar as 
in the single family arena. And here, RHS can offer a 1 percent 
loan for a builder to construct a building and have rental 
assistance with it too. So it really makes that property 
possible.
    I am not so sure you could find those same kinds of 
provisions in an urban area.
    Mrs. Beatty. Thank you.
    Chairman Luetkemeyer. Thank you.
    With that, we go to the gentleman from Texas, Mr. Williams, 
for 5 minutes.
    Mr. Williams. Thank you, Mr. Chairman. And thanks to both 
of the witnesses for being here. We appreciate it.
    Mr. Hernandez. Sure.
    Mr. Williams. This committee, as you probably know, spends 
a lot of time discussing taxpayer risk. Whether that is Fannie 
Mae, Freddie Mac, or rural housing programs, Congress has the 
responsibility at the end the day to make sure that taxpayer 
risk is minimized or eliminated.
    In addition, making sure programs are run efficiently and 
reach those who most need them is something that I hear from my 
constituents back in Texas quite a bit.
    So my first question to you, Administrator Hernandez, is 
the Rural Housing Service currently has a portfolio of $120 
billion, and a 2012 GAO report entitled, ``Housing Assistance, 
Opportunities Exist to Increase Collaboration and Consideration 
Consolidation,'' found that FHA, for example, served a 
significantly larger number of rural communities than the RHS, 
as we talked about this morning. Yet, RHS has a much larger 
workforce serving a smaller population.
    So my first question would be, can you tell me how many 
Federal employees work for RHS?
    Mr. Hernandez. Sure. We have about 1,500.
    Mr. Williams. Say it again?
    Mr. Hernandez. RHS: I have 100 in D.C., and I have 500 in 
St. Louis. That is what I have. Now, we have other staff within 
rural development, sir. The way it works, rural development is 
more than just RHS. Rural development includes utilities, 
broadband, and small business. My RHS, I only have a total of 
600 employees for RHS nationwide.
    Mr. Williams. Okay. Second, please help me understand how 
this workforce will change over the next decade, especially as 
Federal budgets get smaller and smaller?
    Mr. Hernandez. What is nice about our programs is we do 
rural development. We do community development that includes 
more than just housing. As you know, we have, I think, over 11 
different offices in Texas. We are a storefront operation, sir. 
So we are different than any other Federal agency. People can 
come to us to ask.
    And the way we are getting better, sir, is we are 
automating and streamlining the process. That is what makes our 
programs more effective and more efficient. So what we are 
trying to do is find ways to build on the success that we have 
had in the past.
    Mr. Williams. But how are you going to change? You are 
going to have to change because budgets are going to get 
smaller.
    Mr. Hernandez. Right. And the way we have been changing is 
doing business process improvement, sir. In most every program 
we have we are trying to find a way with less staff, how do you 
do it better? That requires partnership and commitment with 
Congress and us to provide appropriate dollars for automation. 
Because we can't be everywhere. But our customers should be 
able to come to us either through a portal and find a way to 
find service that way.
    So we are looking for your help to do that, both on the 
single family side and the multi-family side.
    Mr. Williams. Sometimes, like the private sector, you have 
to do more with less and give good service.
    Mr. Hernandez. We have been very good at doing more with 
less. We have lost close to 20 percent of our staff in the last 
4 years, sir, and we are producing more with less staff. We can 
do even more with your help as you help us support a number of 
our proposals that provide more integrity, more streamlining, 
and more effectiveness to the program. But that requires an 
investment and a continued support for affordable housing.
    Mr. Williams. Next question: I know we talked today about 
how there are more than 330,000 units maturing by the year 
2024.
    Mr. Hernandez. Yes; 11,576, sir.
    Mr. Williams. I'm sorry?
    Mr. Hernandez. 11,576 properties.
    Mr. Williams. By 2024?
    Mr. Hernandez. Yes, sir.
    Mr. Williams. Potentially.
    Mr. Hernandez. Sure.
    Mr. Williams. Owners of these units must decide to move out 
of this program?
    Mr. Hernandez. That is correct.
    Mr. Williams. So my question is, if fewer and fewer people 
are in the program but the need is still there, who fills the 
void? Can the private sector--you talked a little bit about the 
private sector. I am a private sector guy. I believe the 
private sector can do almost everything. Okay?
    Can the private sector come in and offer a viable option 
for affordable rural housing, if you come to Congress and ask 
for help with some ideas?
    Mr. Hernandez. Great question. The reason Congress--
    Mr. Williams. That is why I asked it.
    Mr. Hernandez. It is a great question, sir. The reason the 
private sector does not provide it, sir, is we are in a market 
that the private sector does not serve. It is riskier to lend 
in rural America. It is riskier for developers to be in rural 
America. It is hard to get workers in rural America.
    And that is where Congress says, we have a good idea. Where 
it says, we are going to provide a guarantee to reduce the 
risk, and encourage the private sector. What is nice about our 
programs is that it is the private sector that is operating the 
buildings, not the government. It is the private sector.
    So in partnership with the private sector, we are providing 
a service that would not be provided unless we had a 
partnership. So sir, we are building on your success on how to 
partner with the private sector. And we are doing it through 
guarantees, low-interest loans, and incentives to bring the 
private sector to provide a service that would not be there 
unless the government and the private sector partnered 
together.
    Mr. Williams. That is good. Don't give up on the private 
sector.
    My next question is to you, Director Scire. As we heard in 
your testimony this morning, housing assistance programs are 
fragmented across multiple Federal agencies, some 116 in total. 
In 2011, this Administration announced it was going to begin to 
examine consolidating homeownership loan programs.
    So my question is, in your opinion, would reducing the 
number of housing assistance programs hurt Americans living in 
rural areas, or potentially help them by offering more 
efficiently run programs?
    Mr. Scire. It has the potential to streamline the 
operations of these programs. I think that it is also important 
that you carefully look at whatever change you might decide 
upon so that it wouldn't have a detrimental effect on those 
with the greatest need.
    So I don't think that necessarily reducing the number of 
programs somehow must have a negative effect on those who are 
served.
    Mr. Williams. So it could potentially be a positive thing?
    Mr. Scire. It all depends on how this is designed. But 
again, I think the first step is recognizing that there is some 
overlap here and there are some opportunities. And that is why 
we recommended that these task forces be expanded to include 
looking at those things requiring statutory change.
    Mr. Williams. Thank you. I yield back.
    Chairman Luetkemeyer. Thank you. With that, we go to the 
gentleman from Pennsylvania, Mr. Rothfus, for 5 minutes.
    Mr. Rothfus. Thank you, Mr. Chairman.
    This is a great discussion. And I appreciate the witnesses 
being here this morning. As I look at some of the challenges 
our Nation is facing over the coming years, the need to adopt 
some efficiencies within our government agencies, much like we 
have been seeing happening in the private sector as companies 
in the private sector find redundancies and decide to put 
certain offices together and save on some overhead and a lot of 
further collaboration.
    As the ranking member mentioned, he would like to see a lot 
of districts have a combination of both the urban and the 
rural. That pretty much describes my district. I go right down 
to the City line in Pittsburgh, and then I stretch out to the 
Ohio border and all the way east to Johnstown, covering about 
120 miles of southwestern Pennsylvania. So we have many of 
these issues, both from an urban perspective and from a rural 
perspective.
    Mr. Hernandez, I understand that HUD and VA and USDA and 
Treasury all agreed to work toward meeting some GAO 
recommendations and report on ways to consolidate potentially 
duplicative housing programs. Have the agencies gotten together 
to discuss the GAO recommendations?
    Mr. Hernandez. Yes, sir. As a matter of fact, we meet 
monthly, looking for opportunities to align together to save 
money, and streamline process. An example of that, we are 
working with the VA right now. Since they have more 
foreclosures--they have about 1,000 per month. We have only 
have 1,657 for the whole year. That is all we have. The VA has 
close to 1,000 every month.
    Our core experience is not in doing REO property. That is 
not what we are good at. We are good at doing loans. And so we 
are trying to partner with people who have some other core 
expertise. We are working with VA right now to see if maybe 
they can be the guys who work with us in our REO and our direct 
program, rather than us trying to recreate a new wheel.
    Mr. Rothfus. Have the agencies developed a list of 
objectives on where they might be able to--
    Mr. Hernandez. I think what we identified--we identify the 
opportunities, rather than objectives; where can we find 
opportunities to work together? And they are in a number of 
areas: REO; appraisal; standard evaluating servicing practices; 
doing inspections of properties on the multi-family side.
    We have identified opportunities. An example of where we 
have gotten together and learned together is how we do a best 
practice in using a handheld device to inspect multi-family 
properties. It came out of working together. Somebody else does 
it, and we say, how do we build on that? So we are now coming 
out with our new handheld devices to inspect multi-family 
properties. Because we don't have enough people anymore. It 
takes a while to drive in Texas to go find those places.
    Mr. Rothfus. Mr. Scire, would you agree with Mr. 
Hernandez's description?
    Mr. Scire. I agree that those task forces have focused more 
on how to improve processes. And I think that over time, that 
will result in benefits as a consequence. But they are not 
focusing on opportunities for consolidation.
    I think what will happen over time is that as these 
programs become more and more alike, because of this alignment 
of processes and so forth, it will make the transition a little 
easier. But I really--they are not focusing--the part of the 
charter is not to focus on these opportunities that would 
require statutory changes.
    Mr. Rothfus. Mr. Scire, you talked a little bit about 
improper rental assistance payments at RHS in your testimony. 
Could you talk a bit about what leads to improper payments 
going out the door?
    Mr. Scire. There could be a lot of reasons. Some are 
because of processing, that a payment is made that is 
incorrect. But the focus typically is more on the calculation 
of what the payment should be. And there it is important to 
understand and verify the tenant's income. Because the payments 
on rental assistance, for example, are based in part on the 
tenant's income.
    Mr. Rothfus. Can RHS do anything to recoup the improper 
payments that have gone out?
    Mr. Scire. There is more that it can do. And it has begun 
exploring hiring a contractor to go after some of these 
improper payments. It is a real challenge. Because each payment 
may not be that great, but there may be lots of them.
    Mr. Rothfus. Let me ask a final question for Mr. Hernandez. 
Again, as we look at those challenges over the next 5 to 10 
years, and ways to have government be more efficient and 
accountable, if we ever found the office of RHS somehow under 
the same agency of HUD, are there things that folks at RHS 
could be teaching HUD?
    Mr. Hernandez. There are best practices in every agency. 
One of the opportunities we have is trying to find a way to 
address this cost or improper payments. One of our proposals 
that we have is to ask for what we call the ``new hires 
database.'' We do not have statutory authority to do that. We 
have been trying to get statutory authority for years and 
years. We have come and asked Congress, please give us the 
authority to improve the integrity of the program. And so far, 
we haven't been successful in getting that passed.
    Mr. Rothfus. But the concept is there are similar 
operations going on in the housing space and to have the cross 
utilization and collaboration that may be there, I think could 
lead to more effective government.
    Mr. Hernandez. Effective government is great and we all 
want that. But to do that, sometimes we have to partner 
together. And sometimes, the answer is not obvious. 
Consolidation doesn't mean it is right. It is one of the 
options that people look at. The focus is on the customer.
    Mr. Rothfus. There is a lot of consolidation happening in 
the private sector. Because, again, there is a discipline of 
the market where folks in the private sector have to try to 
make ends meet with what they have.
    Mr. Hernandez. Sir, we have consolidation that happens in 
RHS every year. As budgets are reduced, our same staff do this, 
work for multiple programs. It is really important that you 
understand that my staff who do RHS also do utilities, also do 
community facilities, also do small business. We have 
consolidated to provide services to our customers.
    Mr. Rothfus. I yield back.
    Chairman Luetkemeyer. Thank you. I now recognize the 
ranking member of the full Financial Services Committee, Ms. 
Waters from California, for 5 minutes.
    Ms. Waters. Thank you very much. I wanted very much to come 
in and participate in this hearing, because we have been 
talking about the problems of rural housing for a long time. 
But I am dumbfounded as I watch what we do in this committee. 
And I don't understand why particularly those representatives 
who have rural areas in their district don't understand how 
they can do more to help their rural communities.
    I am not going to talk a lot about consolidation, because I 
don't think that should even be considered. As we look at the 
needs of rural housing, I think we should be talking about how 
do we not complicate their problems by consolidating in HUD 
with anything else.
    I can recall that we did a bipartisan effort when we talked 
about an exception to the QM rule for the banks that dealt with 
rural housing and providing those mortgages. And while some of 
us had been against balloon payments for years because we 
thought that disadvantaged homeowners--you made us understand 
why this was important to rural communities. We get that.
    And one of the reasons I wanted very much to be able to 
support that is because I am amazed at what a lack of 
reputation rural communities have, not only in housing, but in 
health care services, or you name it. If it wasn't for urban 
legislators who fight for money and don't mind being called 
tax-and-spend liberals, the rural communities wouldn't get 
anything because rural representatives don't fight for them 
enough.
    And I am against complicating their needs by talking about 
throwing them into HUD that does not have enough money to do 
anything. As a matter of fact, HUD has millions of people on 
waiting lists across the country. And so to talk about 
supporting RHS just doesn't make good sense.
    So I want to just say to Mr. Hernandez and Mr. Scire, 
first, do you understand how consolidation is going to make it 
better for rural housing? Are you able to articulate that 
somehow consolidation is going to do what we have not done all 
these years for rural housing? If so, tell us right now.
    Mr. Hernandez. Madam Congresswoman, we are committed to 
trying to find the best delivery process we have. We believe 
the programs in USDA focused on rural Americans as the best way 
to provide services. Our focus is only on those folks who have 
limited income in rural America. Only in rural America.
    Congress will change the definition of rural America. We 
will do whatever Congress wants to do on that definition. But 
we are focused, laser focused on how to improve people's lives.
    And as you know, housing is a conduit to family, neighbor, 
and community. That is why we put so much focus on it. So with 
Congress' help, we are improving our processes, automating our 
processes. We have legislative proposals that will fix and 
streamline things, but we need support from Congress to do 
that. And one happens to be--
    Ms. Waters. So how does consolidation help you?
    Mr. Hernandez. I don't think consolidation is going to help 
us solve--
    Ms. Waters. That is all I want to hear.
    Sir, how does consolidation help?
    Mr. Scire. Well, consolidation would make this delivery 
system more efficient.
    Ms. Waters. You have not said anything.
    Mr. Scire. And so--
    Ms. Waters. Tell me what you mean.
    Mr. Scire. --for USDA, I think that how you consolidate 
makes a big difference as to whether it could help or hurt. And 
so there is a way to do this where it can actually have USDA 
provide greater focus on where the greatest need is.
    Ms. Waters. Okay. You are in front of a committee now of 
people who care about these issues. Tell us how you do that?
    Mr. Scire. We haven't done the analysis to tell you exactly 
how to do it.
    Ms. Waters. Of course you haven't.
    Mr. Scire. But I can easily imagine where you would have--
    Ms. Waters. No, no, no. No imagination today. Facts.
    Mr. Scire. --where you would want USDA to focus--
    Ms. Waters. I can imagine a lot of things.
    Mr. Scire. --its direct guarantee program--
    Ms. Waters. Just one moment.
    Mr. Scire. --as it is, the guarantee program is--
    Ms. Waters. How does consolidation help rural housing? 
Don't give me your imagination. Give me some facts.
    Mr. Scire. The fact is that if USDA were able to focus more 
on those areas of greatest need, consolidation could actually--
    Ms. Waters. Taking many back my time, Members, there it is. 
Now, for those of you--I don't have any rural areas. But I have 
often thought it is not fair that we don't pay the attention 
that we--I have often wanted us to come together on a good 
approach to dealing with urban and rural and being fair to 
both. And you guys are missing out because you have people with 
imaginations who come in here and tell you they could imagine 
something, rather than facts.
    I yield back the balance of my time.
    Chairman Luetkemeyer. Thank you. With that, we go to the 
gentleman from Kentucky, Mr. Barr, for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman.
    And I can tell you that there is an instance that affects 
my district where I don't have to imagine, where there are 
actual facts that demonstrate the problem of duplication and 
overlap.
    As you know, if Congress had not passed a grandfather 
extension in the 2014 Farm bill, there would have been 921 
communities that would have lost their eligibility for USDA 
rural housing programs, including two in my district: 
Nicholasville, Kentucky; and Georgetown, Kentucky.
    As the dynamics of rural America change, especially in the 
prevalence of rural communities that are near the statistical 
area of a metropolitan area, the problem becomes distinguishing 
between what is rural and what is non-rural. And we have rural 
places that are near urban areas. As a result of those changes, 
and because of the complexity of this distinction between rural 
and non-rural, we had a situation where if Congress had not 
intervened to clarify what these rural places were, these rural 
places would have been excluded from the rural housing programs 
for which Mr. Hernandez is part of the administration.
    So my question would be, what is the recommendation for a 
rural definition that would ensure that rural communities in 
metropolitan statistical areas are not excluded? And wouldn't 
it be more sensible if you had a single agency responsible for 
all low-income housing so that as populations shift and change 
and rural/non-rural boundaries become a little bit more 
difficult to distinguish, wouldn't it make a lot more sense if 
you had a single administration of these programs?
    Mr. Hernandez, as you answer these questions--you and I 
have had this conversation. The Federation of Appalachian 
Housing Enterprises, Inc. (Fahe), in my district, which does 
some good work, it just doesn't make sense that Congress has to 
intervene so that certain rural places have to be eligible for 
one program versus HUD in a nearby urban area.
    Mr. Hernandez. Sure. Mr. Chairman, what is nice about what 
we do is that we have what we call a ``storefront operation'' 
in the private sector, and I have been in the private sector 
many times. I love it. And I love to come back to the 
government because people like the know what is the difference 
between the two.
    Sometimes in government, we like to say everything has to 
be like this, one way. What is nice about the private sector is 
we have different ways to get outcomes. And Congress was very 
smart and they created agencies to provide different services. 
Sometimes overlapping doesn't mean it is bad. They are trying 
to find what is the best way to provide a service.
    In working with Fahe, we are working with them because we 
need to have a partnership that helps us reach out where we 
cannot do anymore. So Congress decided they wanted to have a 
definition for rural in character. Whatever you want it to be, 
we will implement it.
    Mr. Barr. What does RHS do better than FHA?
    Mr. Hernandez. We do lots of things better for all 
industry. Our performance right now on our single-family loans, 
multi-family loans, our performance is very, very good, in some 
cases, better than FHA, and better than VA, depending on the 
type of product.
    But see, you can't compare apples to apples all the time. I 
know everybody wants to. This is loan making. So that is why we 
use metrics like first-year delinquency. Ours is better than--
    Mr. Barr. And speaking of metrics, sir, do you measure how 
many 502 direct and guaranteed loans are converted into self-
sustaining, non-guaranteed, non-USDA loans?
    In other words, you get people into housing with no 
downpayment. Are you measuring how many of those are able to 
refinance later and be self-sufficient, independent of the 
government?
    Mr. Hernandez. We are working with folks. We have a 
graduation program. So if people get a direct loan, that is 
where we are the lender--
    Mr. Barr. I would be interested in those numbers.
    Mr. Hernandez. Sure.
    Mr. Barr. And let me ask the GAO witness here--
    Mr. Hernandez. I will get you some numbers.
    Mr. Barr. Do they provide that data?
    Mr. Scire. We haven't gotten data on that. But we haven't 
asked for it, either.
    Mr. Barr. See, you can measure success in different ways. 
And certainly, one way you measure success is you put a roof 
over someone's head. I think that is one way to measure 
success. Another way to measure success, though, is that if you 
have a no-downpayment loan that is assisted by the government, 
eventually that individual builds up some equity, refinances, 
and becomes independent of the government. Do we measure that?
    Mr. Hernandez. One of the things that we are doing right 
now is we are getting data from RHS that would allow us to do 
an analysis of what explains the loan performance for RHS and 
compare that with FHA so that we can see whether or not its 
processes actually do result in a better outcome.
    Mr. Hernandez. Mr. Chairman--
    Mr. Barr. Yes, sir.
    Mr. Hernandez. --part of what we are trying to do is have 
better technology so that we can analyze our data. That is why 
one of our proposals is asking for a flat fee so we can 
generate the automation and the analysis. We are actually doing 
this analysis right now we call an ``econometric model,'' how 
to better perform our mortgages, how can we slice and dice? To 
do that takes investment.
    Mr. Barr. But I didn't hear the answer to the question. Do 
we measure whether or not the individuals move off of--
    Mr. Hernandez. I don't have the data for you, but I can get 
the data that we do have.
    Mr. Barr. That is important. Because to me, that is 
success. If we are moving people from dependency on the 
government to independent, self-sufficiency, that to me is 
success. That would be a program that I would be interested in 
supporting.
    The other thing I want to mention is rural America has been 
hit hard in terms of credit availability since the passage of 
the Dodd-Frank Act. The American Bankers Association did a 
survey in 2014 which found that two-thirds of private sector 
financial lenders say that they would restrict lending as a 
result of the Qualified Mortgage Rule. Maybe more people are 
dependent on these kinds of programs because we are limiting 
credit availability as a result of the Qualified Mortgage Rule 
in rural places.
    I yield back.
    Chairman Luetkemeyer. Thank you. The gentleman from 
Minnesota, Mr. Ellison, is next for 5 minutes.
    Mr. Ellison. I would like to thank the chairman and the 
ranking member.
    Mr. Hernandez, I am concerned about the lack of affordable 
rental housing for extremely low-income families. The experts 
say that 80 percent of the families earning below about $30,000 
a year pay more than half of their income on housing and 
utilities. And as you pointed out, housing is a platform from 
which family success can take off. And I agree with that.
    And yet, our Congress has been moving backwards. There is a 
shortage of about 7 million affordable rental homes for low-
income families. And the House HUD budget bill wouldn't even 
renew all the vouchers that families are using this year, let 
alone restore any of the 85,000 vouchers lost to sequestration.
    So I have a bill out there. And I would like to talk to you 
a little bit about it. It is called the Common Sense Housing 
Investment Act, H.R. 1662, that would provide an additional $20 
billion a year for affordable rental housing. If my bill were 
to pass, what additional funds for Section 8 housing trust fund 
low-income housing tax credit and public housing, what would 
that mean for rural America? Are you familiar with my bill, by 
the way?
    Mr. Hernandez. I am not, sir.
    Mr. Ellison. Let me just tell you what we would do. We 
would convert the mortgage interest deduction into a mortgage 
interest credit, a 15 percent mortgage interest credit. There 
would be a cap of $500,000 of deductible mortgage interest. 
That is essentially how the bill would work.
    Mr. Hernandez. Great.
    Mr. Ellison. And it would--we would provide about $20 
billion a year for affordable rental housing.
    Let me just make this observation. The United States of 
America spends a whole lot of money on housing. Mostly it is 
for the well-to-do in the mortgage interest and homeownership 
area. We literally subsidize people who don't need it and we 
talk about consolidation for people who do.
    And so I guess if we were to convert mortgage interest 
deduction to a mortgage interest credit, cap it at interest on 
mortgages of $500,000, 15 percent mortgage interest credit, we 
would have extra money to put into housing. We wouldn't be 
subsidizing the incredibly well-to-do anymore. But they still 
would get something out of it because it would be a mortgage 
interest credit.
    How would it help rural housing if we had $20 billion more 
for affordable rental housing?
    Mr. Hernandez. Mr. Ellison, one of the opportunities we 
have is--the rental assistance we provide for rental housing 
needs is so high that our budgets allocation is just minimal. 
We are barely meeting it. So we have lots of folks who are 
rent-burdened, as you have indicated.
    Mr. Ellison. Yes.
    Mr. Hernandez. They are paying more than their income, 
which means they have to make other choices. They cannot save 
for school, they cannot pay for health care, or other things 
like pharmacy or food. So anything that provides the 
opportunity for folks to have more discretionary dollars so 
they can make better choices. So in your bill you may want to 
look at where is the rental assistance part--
    Mr. Ellison. Right.
    Mr. Hernandez. --how do you support rental assistance. 
Because that is a key part for us, is rental assistance. We do 
not do Section 8. We only do rental assistance. And our 
vouchers are different than HUD's, because we believe in a 
different way to provide assistance to folks in a different 
way.
    Mr. Ellison. Right.
    Mr. Hernandez. So without reading your whole bill 
completely, I think it would provide some assistance to us to 
provide more services to folks in rural America who need help.
    Mr. Ellison. Yes. Let me tell you, there are more than, I 
guess--I think you might have pointed out already that loans--
you have loans on more than 11,500 properties representing 
nearly 333,000 units that will mature by the year 2024 that--
and many may be lost and you provide housing to families on 
wait list, assist with the oversubscribed 515 program.
    Mr. Hernandez. That is true.
    Mr. Ellison. Yes.
    Mr. Hernandez. Mr. Ellison, we have approximately 6 million 
units where people are overburdened. And they are paying more 
for their rent than they can afford right now. And they do it 
because they have a nice play to live. That is what we are 
trying to do, is get Congress to recommit to affordable housing 
in rural America.
    Mr. Ellison. One thing about it, I am a rural legislator. 
My family is rural in background. My grandfather comes from a 
farm in Georgia, my mother comes from a farm in Louisiana, and 
I am from Minnesota.
    And I can tell you that if you don't provide some sort of a 
good, solid program in rural America, folks will move to the 
urban area. They leave the housing choice they may want, and it 
just leads to overcrowding in the urban areas. So everyone 
needs to be about health and rural housing so people can be 
supportive.
    So that is one reason why, in keeping with what Ranking 
Member Waters said, we urban Members are--first of all, a lot 
of us are directly connected to rural America. But more than 
that, we want people to be able to live where they want to 
live. You know, some people like hearing the birds sing out 
there in rural America. And that is where their livelihood is. 
So thank you very much, Mr. Hernandez.
    Chairman Luetkemeyer. Thank you. That concludes our first 
round of questioning. I have had a request for a second round. 
I am going to defer my questions to the end.
    And with that, we will go to the ranking member of the 
subcommittee, Mr. Cleaver, for his questions in the second 
round.
    Mr. Cleaver. Thank you, Mr. Chairman. I may not take the 
full 5 minutes.
    I have been on this committee since 2004, and on this 
subcommittee since 2004. And on May 25, 2011, Peter Carey, the 
President/CEO of Self-Help Enterprises, and a board member of 
the Housing Assistance Council, and a board member of the 
National Rural Housing Coalition, in testimony he provided to 
this committee said, ``HUD has limited experience in 
administering programs directed exclusively to rural areas. It 
is likely that rural housing programs would be force-fit--he 
probably knew that somewhere in the future somebody would do 
the shoe analogy--it would be force-fit into the HUD delivery 
system, which would change the ability of those programs to 
reach rural communities. HUD lacks the administrative system to 
deliver effective rural programs. Its programs' consistency and 
interest lie elsewhere.''
    Do either of you disagree with that?
    Mr. Hernandez. I believe that USDA is focused on doing 
rural services. And so what we are trying to do is find ways to 
streamline our processes, improve our focus, and capitalize on 
our storefront operation, which makes it nice. We have offices 
that work directly with Tom Crew in--they are there. So that is 
Tom Fern and the State director. So we have a State director in 
every place. That is a storefront. That is a retail operation.
    Other Federal agencies don't do it. That doesn't mean it is 
wrong. I am just saying we have developed, with Congress' 
input, a way to reach out to customers and solve it. So you may 
not just want a cookie-cutter delivery system. And that is what 
consolidation is about, cookie-cutter, everybody should be the 
same. We have found a way that provides better service, changes 
people's lives, and uses the tools that you have given us.
    And that is why we come back and say we need some 
additional tools. Because we have a delivery system that is 
changing people's lives. We can measure the performance. We can 
measure the success. But to do that, we have to change. We are 
proposing how to change. But to do that, we need your help to 
enhance our delivery system. We are focused in rural America, 
with storefront operations and products that meet the needs of 
those with limited income.
    Remember, these folks are only making $29,000. For rental 
housing, it is $11,000, $12,000. These are limited income folks 
who have smaller choices. And that is why we partner with the 
private sector, to reduce the cost on us. The guaranteed 
program, we have zero cost to the taxpayer. What a great 
program. And we are using the private sector to make it happen. 
We have a specific role.
    So what you have asked us to do is to be creative, be 
strategic, and find ways to partner. And we are doing that, but 
we need your help on some legislative proposals. Our proposals, 
there are about seven of them in there. We would love for you 
to look at it.
    If you only pick two out of the multi-family, the ones we 
would like--they are all important. But if you only pick two, 
we need the partial budget authority. When Congress goes to a 
continued resolution, we don't get dollars. That means we 
actually distribute close to $90 million every month in rental 
subsidy. But if you don't give us the authority to do partial 
year contracts, by law you tell us we have to fund the whole 
year by law. So we are asking for some management flexibility 
to do that. To do that, you have to change the law.
    The other thing we are asking for is access to the new 
hires database. We want the program integrity to be better. You 
tell us you want it to be better. Here is the opportunity. 
Support legislation that allows us the authority to access data 
that is there. It is sitting there. We are just waiting to get 
to it so we can improve the integrity of the program. We need 
your help there.
    On the single-family program, we need help to do delegated 
authority to streamline the process, make it easier for the 
private sector to provide service so we can monitor and provide 
good oversight. We can't do it without you. Oh, we need your 
help and this partnership is so important. This is the great 
time for Congress to recommit for another 30 or 40 years of 
affordable housing in rural America.
    Mr. Cleaver. Good sermon. I mean, I am into sermons.
    Given the current existing shortage and the number of 
available and affordable rental housing units in both RHS and 
HUD and the longstanding underfunding of Federal affordable 
housing programs, what are your concerns if there is some kind 
of a consolidation brought forth?
    Mr. Hernandez. My first concern is who would be hurt, 
rather than served better. So I looked back at my maturing 
properties. I have 11,576--400,000 households. That is a lot of 
people. Consolidation, whatever you call it.
    And I am trying to get us not to think about a solution 
before you define the problem. A lot of times people jump to 
the solution. Apparently, you think consolidation is a 
solution. I am not sure what the problem is yet. To me, the 
problem is, how are we serving customers better?
    So my first concern is, are we going to be better off than 
we were before? And so you have to rely on what is the best 
strategy, what is the outcome we are looking for. I am looking 
for better, safer, and more decent housing in partnership with 
the private sector. We just guarantee loans. We don't manage 
these properties. So who is going to be hurt?
    So, define the problem better. I think Congress has the 
opportunity to help better define what you are trying to 
achieve here. And I want to be a partner to help you define the 
problem so we can collectively find a better solution.
    Mr. Cleaver. Thank you, Mr. Hernandez.
    Chairman Luetkemeyer. With that, we go to the gentleman 
from Kentucky, Mr. Barr, for a final question.
    Mr. Barr. Thank you, Mr. Chairman.
    So back to Mr. Hernandez's testimony about underfunding of 
rural housing. We know the impact of the Budget Control Act and 
sequester. Between 2010 and 2015, the overall USDA budget has 
been cut by about 14 percent. Rural housing loans and grants 
have been cut by $208 million, or about 54 percent, during that 
time period.
    These figures actually though would have been far worse for 
rural housing if Congress had actually enacted the President's 
budget. The President's budget request consistently proposed 
significant cuts that even exceeded the cuts that happened 
during the sequester. In fact, this year President Obama 
proposed an additional $27 million in reductions above and 
beyond what we are already looking at.
    So with our country facing an $18 trillion national debt, I 
certainly agree we have to get our fiscal house in order and we 
have to be fiscally responsible about deploying these taxpayers 
resources. So I am--as a fiscal conservative, I am very 
sensitive to that.
    But my question is, given your testimony here today, why do 
you think the President and his budget people put such a low 
priority on rural housing?
    Mr. Hernandez. Mr. Chairman, we place a high priority on 
housing. As a matter of fact, as I stated before, housing is a 
conduit to family, neighborhood, and community. So Congress 
reduces our budget. Whatever you give us, we would administer. 
Or if you want to give us more dollars, we will administer 
those dollars. And the President is very committed to doing 
affordable lending--
    Mr. Barr. But the President's budget proposes to cut it far 
more than what we have.
    So my question to you is why are your priorities not the 
same as the President's priorities?
    Mr. Hernandez. Our priority is to administer the dollars 
that are given to us. Whatever dollars you give me, I will 
administer, sir.
    Mr. Barr. Let's go back to this duplication issue. Because 
as I pointed out with my question earlier about Georgetown, 
which is a suburb of a metro area, and Nicholasville, which is 
a suburb of a metro area, without congressional intervention, 
they would have been reclassified and would have been 
ineligible for your programs in rural housing. We had to 
intervene because we wanted to keep those communities eligible 
for rural housing. But obviously, because of changes in 
population, you are getting overlap. And I don't think I heard 
your answer to the question.
    If you have one agency, you don't have to have Congress 
doing this song and dance and switching communities back and 
forth between rural and non-rural. You have one administration. 
Isn't that more efficient? Isn't that a better steward of the 
taxpayer resources?
    Mr. Hernandez. No, it is not.
    Mr. Barr. I know you say we don't want a cookie cutter. And 
maybe you are right. Maybe it is your agency that does a better 
job. You talk about how you all are innovative and you are 
doing a better job. And your testimony to me earlier was you 
are doing better than FHA. So maybe it is your model that 
should replace FHA. Is that your testimony?
    Mr. Hernandez. Mr. Chairman, what we are trying to do is we 
have to--don't look at agencies first. What you do is you look 
at customers. What customers are you trying to focus on? What 
we have learned great from the private sector is if you focus 
on the customer first before you reorganize, consolidate, focus 
on the customer. Let me just--Mr. Chairman--our customers are 
different than FHA. We compare to FHA because we don't have any 
other comparison. FHA does a great job. But their are customers 
are different than ours.
    Mr. Barr. Okay. So let's--and my friend, Mr. Cleaver, was 
asking a great line of questioning earlier about HUD and 
whether they serve rural communities or not.
    My question to you is, since it is different and you need 
different models, should HUD and FHA get out of rural lending?
    Mr. Hernandez. Should we get out of it?
    Mr. Barr. Should FHA get out of rural lending?
    Mr. Hernandez. I only talk about USDA because that is what 
I know. You might want to FHA about their programs. We do more 
than housing. We are a community development agency just for 
rural America. So I do jobs, housing, transportation, 
education, health care, and public safety. Does that mean you 
want to consolidate to all one agency, just one? No. What you 
try to do is, who can deliver the service better to the 
customer. That is what the private sector has done so well.
    Mr. Barr. If you can do it better, why is FHA in the rural 
places of America?
    Mr. Hernandez. They offer services to different customers, 
sir. Our customers cannot qualify--
    Mr. Barr. Okay. Mr. Scire, you--
    Mr. Hernandez. Wait. I am not done yet--
    Mr. Scire. They serve the same customers.
    Mr. Hernandez. No. What we are going to talk about--
    Mr. Scire. I think what we haven't seen is--
    Chairman Luetkemeyer. The gentleman from Kentucky controls 
the time.
    Mr. Barr. Sorry. Mr. Scire, I know you wanted to jump in on 
that.
    Mr. Scire. We are hearing a little bit of a fantasy here, 
that there are differences in the customers who are served 
between FHA and the Rural Housing Service in terms of single 
family. What we saw was that the FHA is in rural areas. They 
are serving the same income base.
    What we don't know and what USDA does not know is how many 
of the borrowers it has could qualify for an FHA-insured 
mortgage. So is there really something needed here that they 
are offering--and I am just talking single-family guaranteed 
right now. And RHS can't tell you that statistic because it 
doesn't know.
    And so that is what we are trying to get at here. And I 
agree they should start out with, how can you serve housing 
needs first? But you have to begin at the basis of 
understanding who you are serving. And I think there is a bit 
of a denial going on here as to who RHS is serving.
    The storefront notion, by the way, is a bit of a fantasy, 
as well. Borrowers who are trying to get an RHS-guaranteed loan 
and an FHA-guaranteed loan are going to the same place. They 
are not necessarily going to a USDA office. The direct single 
family is different. The multi-family is different. I don't 
advocate one, and GAO does not have the answer to how to do 
this. We think the agencies should take a serious look at 
opportunities for consolidation. Right now, they are not.
    Mr. Barr. Okay. My time has expired.
    Thank you, Mr. Hernandez. Thank you, Mr. Scire.
    Chairman Luetkemeyer. Okay. Mr. Pearce has a question.
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Cleaver mentioned how long he had been on the 
committee. And I have been here almost the same length of time. 
And Mr. Hernandez, I just had to make the comment that I have 
heard a lot of witnesses, but I think you just outpreached the 
preacher. And we will watch the instant replay to see if you 
actually finished ahead of him. But you gave it a good run.
    My question for you, sir, Mr. Hernandez, is in the whole 
definition of ``rural'' that the Consumer Financial Protection 
Bureau (CFPB) came up with, did they approach you when they had 
that definition? Because my State was severely impacted. We 
have one county that just has one road going north and south 
and it is kind of a square county and the town sits right in 
the middle of it. So you have about 2,500 people or something 
in the town and about 10,000 square miles. And they put them in 
the same category as New York City. And so I thought that maybe 
wasn't slicing the pie quite well enough.
    And so, Mr. Cordray and I dusted it up quite a bit. But did 
they ever approach you?
    Mr. Hernandez. I was not privy to any of those discussions 
on that.
    Mr. Pearce. Did you approach them? In defense of your 
customer base, did you write a letter and say hey, this is 
crazy? That is what I said, but you might say it in better 
terms.
    Mr. Hernandez. What Congress has asked us to do is use a 
number of tools to help you determine rural--
    Mr. Pearce. I guess my question is, did you try to get into 
that discussion? Because it was a fairly significant 
disadvantage into at that rural areas because they got defined 
completely differently.
    When you describe your customer, who is your customer?
    Mr. Hernandez. It depends on the program. The first 
program, if you look at the direct program, those folks are 
only making $29,000 or less. We have a great program--
    Mr. Pearce. I don't need all of the definitions. The 
customer is, in your mind, the one who is receiving help from 
you?
    Mr. Hernandez. Yes.
    Mr. Pearce. Yes.
    Mr. Hernandez. That could be a single family person, it 
could be a multi-family household.
    Mr. Pearce. Yes. But as a person who represents 600,000, 
700,000, which we all do, I would just encourage you to pencil 
in to your definition of customer those people who pay the 
bills.
    Mr. Hernandez. Oh, we do, sir.
    Mr. Pearce. Oh, you do?
    Mr. Hernandez. Sure.
    Mr. Pearce. I haven't detected that in your testimony. I 
have been on your side on a lot of stuff today here. But I 
really think that it is a one-dimensional look. And as somebody 
who is just trying to find the best, most effective way to 
govern--
    Mr. Hernandez. Sure.
    Mr. Pearce. --it is not as effective when you sit here and 
say that the recipient is a total consuming view that we have.
    Now, my last question is--and thank you, Mr. Chairman, for 
indulging me through this--are there disadvantages in the 
programs? Have you found harm done in any of the programs where 
you try to help people and instead harm results?
    Mr. Hernandez. Harm?
    Mr. Pearce. Let me help you out. And I will finish up with 
this. Because I really do think it is important for you to 
think about this other thing. And I think it was one of your 
programs. The first year I was in Congress, in 2003, we went 
down to Las Cruces, New Mexico, went about 40 miles south of 
there and gave a check to a woman. And it came from USDA, about 
$4,000. She had the downpayment.
    About 4 years later she came up and said, if it hadn't been 
for you--she said, I had a home before but I was encouraged to 
buy a home that I could never pay for. And I only could do it 
because of the government guarantee, and now I have lost 
everything.
    So just as we are running down that pathway--and I 
appreciate the prose that you use when you talk about your 
programs. But understand that there is a downside to that when 
we are encouraging people to do something they cannot do.
    So I thank you very much, Mr. Chairman, I appreciate the--
    Chairman Luetkemeyer. Thank you. Let me just wrap up here 
with a few comments and a couple of questions.
    Mr. Hernandez, I have heard from a number of people in the 
housing industry who use RHS services. They have concerns, and 
I think it would be beneficial for you to meet with them. Would 
you be willing to do so?
    Mr. Hernandez. I would love to meet our partners and 
stakeholders.
    Chairman Luetkemeyer. Okay. I have some requests, and they 
are kind of concerned that they haven't been able to meet with 
you. So if you would be willing to do that, I would certainly 
pass that on.
    Also, I think to Mr. Barr's line of questioning, I don't 
know that we want to do away with anybody. But I think any time 
you have--and GAO has eloquently talked about this and 
documented it. Any time you have a plethora of different 
programs and policies, some of which--in fact, with HUD they 
don't even know how many they have and what they have--overlap, 
there are bound to be some inadequacies, there are probably 
some holes, and some people are falling through the cracks.
    I don't know why it wouldn't be something we shouldn't 
consider to try to figure out how we can provide a better 
safety net, a better program, whether it is to consolidate, 
whether it is to come up with a whole new group. Our job here 
is to find ways to streamline the process, to find dollars. And 
you have talked about that.
    One of the questions I have is when you talked--somebody 
alluded to it a while ago too, when you talk about the 
employees, if you proportion out the employees versus what HUD 
has, you guys are about double-staffed compared to what they 
are. Are you looking to try and do away with some of these 
employees?
    Mr. Hernandez. We have been--
    Chairman Luetkemeyer. Versus the amount of money that you 
are overseeing. Let me put it that way.
    Mr. Hernandez. We are trying to make sure we have the right 
staff in the right place to provide better service. And that is 
why we focus more on business process we are engineering.
    So we are looking for ways to focus on the real problem, 
which is how do you deliver a service--
    Chairman Luetkemeyer. No, that is not my question. You have 
been very good today with going around the answer that we are 
trying get to and get to your speech.
    My question is, are you looking for ways to trim your 
employee base?
    Mr. Hernandez. Looking for--no, I am not looking for ways 
to trim employees. I am looking for ways to provide better 
service. Where should I have--
    Chairman Luetkemeyer. So you are not looking to provide the 
same service with fewer employees?
    Mr. Hernandez. We do that today, sir.
    Chairman Luetkemeyer. That is the problem. See, that is the 
problem, Mr. Hernandez. You are not listening to us.
    Mr. Hernandez. Okay.
    Chairman Luetkemeyer. We are looking to try to find a way 
to deliver the same product or a better product with the same 
number of people, and then for it to be at less cost. And you 
haven't said--you haven't told us that yet today.
    Mr. Hernandez. Let me share how we are doing that, sir. We 
have asked for automation. We have a number of proposals to 
change the way we do business. A lot of times people say do 
this differently. And I say wait a minute, before you start--
    Chairman Luetkemeyer. You just told me, though, you weren't 
looking to cut people.
    Mr. Hernandez. I am looking at where is--
    Chairman Luetkemeyer. I am looking at ways for people who 
can be innovative and find ways to reduce your staff to be at 
the same levels of FHA. That is our--yes, HUD. That is my 
question. Because--
    Mr. Hernandez. The question I think you are trying to get 
me to answer is how do you best allocate resources and deliver 
goods and services. That is what we are doing. We are 
evaluating business processes--
    Chairman Luetkemeyer. Let me ask Mr. Scire.
    Mr. Scire, do you understand my question? We seem to have--
if you look at the total dollars, $120 billion versus a 
trillion, the number of employees, 600 versus I think it is 
2,400 and something here. It looks like they have about twice 
as many people as they need compared to the number of dollars 
that are invested. Is there something inherent in there that is 
a reason for that?
    Mr. Scire. This is part of the reason why we make a 
recommendation for them to look at opportunities. Because there 
is somewhat of a legacy here, where RHS used to have far more 
of its activity in direct lending, which does require a lot of 
personnel. But they are moving more and more and more toward 
guaranteed lending, just like FHA. You require fewer people to 
do that.
    Chairman Luetkemeyer. Okay. I know that you have a lot of 
recommendations in your report. Mr. Hernandez, have you read 
the reports that--
    Mr. Hernandez. Yes, sir.
    Chairman Luetkemeyer. Are you going to implement some of 
those recommendations?
    Mr. Hernandez. Yes. We are partnering with GAO to make sure 
we identify the right ones to implement. What is nice about his 
report is he talks about how there is overlap, not necessarily 
duplication. So where is the appropriate overlap? Where should 
it be? Just because you have it, doesn't mean it is wrong.
    Chairman Luetkemeyer. Okay. Mr. Scire, are they working 
with you?
    Mr. Scire. Yes, I thought so up until this moment. I think 
that all our recommendations should be implemented, not just 
some. So I--
    Chairman Luetkemeyer. Mr. Scire, as someone who has spent 
some time on the other side as a banker, there are times when 
recommendations don't fly. But quite frankly, I understand your 
point of view.
    But my question basically is to Mr. Hernandez and to you. 
Are you guys working together to try and find some ways to--
    Mr. Scire. Yes, absolutely.
    Chairman Luetkemeyer. --find efficiencies, cut out the 
waste? Because I understand there is always going to be some 
parochial interest here. There is not going to be--
    Mr. Scire. We have the same objective here. And that is how 
to improve the way government works. I think that we are a 
little less parochial, and so we can look across agencies and 
see where there are opportunities. And that is where we think 
that it is time to take a more serious look at those 
possibilities.
    Chairman Luetkemeyer. And I think that is what we are 
trying to do here, to find ways to get rid of the overlap, get 
rid of the waste, and find ways to use the same amount of 
dollars more efficiently and effectively.
    With that, we have been graced with the presence of the 
gentleman from Texas, the distinguished Mr. Green, if you would 
like to ask some questions, or you can make a comment or two, 
sir.
    Mr. Green. Thank you, Mr. Chairman. I think I am making 
history today. I have located myself in a bipartisan position.
    Chairman Luetkemeyer. It graces you. It looks good on you, 
sir.
    Mr. Green. With your consent and permission, may I stay, or 
do I need to go over and find my nameplate across the room? Am 
I okay?
    Chairman Luetkemeyer. No, you are fine. You are the new and 
improved version of Mr. Hurt. How is that?
    Mr. Green. I am very comfortable.
    Chairman Luetkemeyer. Go right ahead.
    Mr. Green. Thank you very much. And I thank the witnesses 
and the ranking member as well, Mr. Chairman. I regret my being 
tardy, but I did have another event that necessitated my 
attention with the Secretary of Labor and it took a little 
longer than we thought it would.
    I am one who probably does not represent what would be 
styled a rural area in the United States of America. Houston, 
Texas, for the most part is what I represent, and a couple of 
other smaller cities. But I am very much concerned about 
people. This is my country. I love my country.
    And I think these programs that we are discussing are 
programs that have been implemented to be of help to people. 
They did not occur haphazardly, capriciously, and arbitrarily. 
They were thoughtful programs and I think that they still have 
some meaningful rewards that we can reap from them.
    But I do understand that we have had some level of improper 
payments with RHS. And my concern has more to do with what 
corrective measures can we take, as opposed to whether we 
should eliminate programs. I have found that acquiring these 
programs is much harder than eliminating them. Once they are 
gone, they are gone forever for the most part. So would you 
kindly give me a response?
    Mr. Hernandez. Sure, Mr. Green. What we are trying to do is 
try to find ways to prevent what we call ``improper payments'' 
first. And that is why one of our proposals is to do what we 
call the new hires database. So we are asking for authority to 
access a database that is operating today. HHS has this 
database. If we can address that, access it, we can make better 
decisions at the property level. It is not us, it is not our 
staff who will do it. It is the private sector property 
managers who use the database to make sure folks are not 
getting into properties for which they are not eligible. So I 
am trying to prevent it on the front end.
    Now, sometimes people get through and are not eligible. We 
find them on the back end. So we are working with some of the 
recommendations that GAO has given us to try to better perform 
on the back end side; putting better regulations, better 
training, looking at the calculations differently and better to 
make sure we identify the problems we find.
    Most of my life, just like yours, we try to prevent 
problems. And so that is why our legislative proposals say, 
would you please give us statutory authority so we can have 
access to the new hires database. That is one of their 
recommendations. We are trying to follow the recommendation. 
For 4 or 5 years, we have been asking for this. And every year 
the report comes back saying that they are still not doing it. 
It is true, because we can't get the legislative authority to 
access the database. We need your help. We want your help so we 
can perform better there.
    So please look at that legislative proposal and see if you 
agree with it this year. We are willing to spend time with you 
to help educate you on how it works. Together, we will show you 
the benefits of that legislative proposal so we can perform 
better on the multi-family side.
    Mr. Green. Have you requested elimination as a solution?
    Mr. Hernandez. I don't understand the question, sir.
    Mr. Green. Elimination of a program.
    Mr. Hernandez. No. What we have asked for is, how we 
improve different programs and streamline the process, partner 
more with different Federal agencies, align more to reduce the 
cost, and use technology in a way that allows us to do more 
with less people.
    Because we have less. We have 20 percent fewer people than 
we had before. So we are doing more with less. But to do that, 
we have to have some technology to replace that.
    Mr. Green. Thank you. And I thank you, Mr. Chairman. I do 
want to simply say this in closing, Mr. Chairman. I don't want 
anyone to assume that I have realigned myself by taking a 
certain seat. I am still the same Al Green who arrived here in 
2005.
    Thank you much.
    Chairman Luetkemeyer. Duly noted, sir.
    With that, we certainly, again, thank the witnesses for 
their testimony today. Again, we are on a fact-finding mission 
here with this committee with regard to what is going on with 
rural housing. Part of the job of Congress is not just to 
legislate, but also to provide oversight.
    And part of that oversight means we are responsible for 
looking into the activities of the different branches of 
government, or in areas where this committee has jurisdiction, 
making sure things are done properly, making sure that the 
Department is being a good steward of the taxpayers' dollars, 
and that the laws and rules are being properly adhered to and 
administered.
    So, again, don't take anything we say out of context. We 
are just trying to do our job. With that, again, thank you for 
being here today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    With that, this hearing is adjourned.
    [Whereupon, at 11:46 a.m., the hearing was adjourned.]

                            A P P E N D I X



                              May 19, 2015
                              
                              
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