[Senate Hearing 114-659]
[From the U.S. Government Publishing Office]



 
TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2017

                              ----------                              


                        THURSDAY, MARCH 10, 2016

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:30 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Susan M. Collins (chairman) 
presiding.
    Present: Senators Collins, Boozman, Capito, Daines, Reed, 
Murray, Schatz, and Murphy.

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                        Office of the Secretary

STATEMENT OF HON. JULIAN CASTRO, SECRETARY


             opening statement of senator susan m. collins


    Senator Collins. The subcommittee will come to order.
    Today we welcome both Secretary Castro, who will testify on 
the President's fiscal year 2017 budget request for the 
Department of Housing and Urban Development (HUD), as well as 
Inspector General Montoya, who will discuss not only his 
office's budget request but also the oversight and other work 
the Office of Inspector General (OIG) has conducted at HUD. I 
look forward to hearing from both of you.
    I am pleased to be joined today by our ranking member, 
Senator Jack Reed, a fellow New Englander, as we begin our 
subcommittee's work on the fiscal year 2017 appropriation. When 
offsetting receipts from the Federal Housing Administration 
(FHA) and Ginnie Mae are excluded, the President's request is 
nearly $49 billion, an increase of nearly $2 billion and 4 
percent above the fiscal year 2016 enacted level. It's 
important for us to remember that this request does not exist 
in a vacuum. It must be considered in the broader context of an 
unsustainable $19 trillion debt.
    The budget cap for non-defense discretionary spending 
government-wide is essentially the same for fiscal year 2017 as 
it was for 2016. This subcommittee in particular has to cope 
with the central truths about HUD's budget that are present 
every year.
    The cost of simply renewing existing rental assistance, 
which consumes 84 percent of HUD's overall budget, will 
increase, and, as FHA returns to its countercyclical role, 
offsetting receipts will decline.
    In addition to the constraint of needing an additional $1.4 
billion just to renew existing rental assistance, the 
subcommittee again must deal with the uncertainty of how much 
on offsetting receipts will be credited from FHA's mortgage 
insurance premiums.
    The Office of Management and Budget's (OMB's) score of 
receipts is $2.8 billion above fiscal year 2016. Good news to 
be sure, however, we must keep in mind that the Congressional 
Budget Office's (CBO's) baseline score for fiscal year 2017 is 
more than $400 million below current levels and $2.7 billion 
below the OMB's assumptions, an enormous discrepancy. Until the 
CBO finishes scoring the President's budget, prudence dictates 
that we assume the lower level as we review HUD's request.
    In an environment where the top line remains flat, the 
increase of 4 percent over current levels proposed in the 
President's budget would be extremely challenging.
    Yet rather than submit a budget request that seeks to bend 
the cost curve of rental assistance without doing so on the 
backs of low-income families and seniors, the Administration 
proposes new spending of $750 million above what is needed to 
maintain existing rental assistance, plus an additional $11.3 
billion in new mandatory spending that lacks an offset and, 
frankly, is simply a gimmick to evade the current budget 
agreement.
    Yet despite all of the additional spending requested, the 
Administration inexplicably once again proposes a $200 million 
cut to the Community Development Block Grant (CDBG) program.
    Well, just this week, mayors and other community officials 
were in town, and I can tell you that one of their top 
priorities is the CDBG program, because it remains one of the 
most adaptable and welcomed community and economic development 
and job creation programs, because it can be tailored to meet 
the unique need in each State.
    In addition to my concerns regarding the proposed funding 
levels, I believe that it is critical that HUD continue to 
invest in the effective oversight of the management and 
physical condition of its assisted housing stock. It must 
provide technical assistance where needed, and it must take 
action implementing sanctions where appropriate.
    Neither residents nor taxpayers are well served when poor 
conditions are allowed to continue. I am troubled to read about 
egregious examples of poor housing quality in States such as 
Tennessee and Florida, and I'm aware of similar problems in my 
home State of Maine.
    But I am even more troubled to learn that some of these 
properties initially received passing inspection scores from 
HUD before public outcry compelled a second look. It is 
inexcusable that vulnerable residents are ever placed into 
substandard housing with serious violations, but it is doubly 
offensive when the taxpayers are subsidizing these unfit units.
    This is the final budget request of this Administration, 
and is a good opportunity to reflect not only on the 
disappointments or shortcomings but also on what we have been 
able to accomplish working together. I am particularly proud of 
what we have been able to do to reduce the number of people who 
are homeless.
    Since 2010, investments made by this Committee have led to 
a 36-percent reduction in the number of homeless veterans, 
chronic homelessness has declined by 22 percent, and homeless 
families by 19 percent.
    While we cannot yet point to meaningful reductions in youth 
homelessness, I believe that the targeted funding we just 
approved in December will bear fruit. We can point to improved 
communication among Federal agencies and targeted funding to 
better assess the number and needs of homeless youth as well as 
the effectiveness of current programs targeted to these 
vulnerable people.
    Improved coordination among agencies and at the local 
level, especially in the context of coordination with the child 
welfare system, is still needed, and that's why I've joined 
several of my Senate colleagues in leading the effort to 
reauthorize the Runaway and Homeless Youth and Trafficking 
Prevention Act, as well as to introduce the Family Unification, 
Preservation, and Modernization Act.
    I will continue to work with Senator Reed and others on 
this subcommittee to ensure that we respond to the housing 
needs of these vulnerable children and teenagers.
    Finally, Senator Reed and I will be introducing a bill this 
afternoon to reform the Housing Opportunities for Persons with 
AIDS Program so that the formula no longer counts deceased 
individuals.
    And yes, you did hear me correctly. The current formula 
actually counts people who are no longer living. Currently, 55 
percent of the HIV and AIDS cases used in the formula represent 
people who have passed on. A formula change is very much needed 
to ensure that the scarce resources available are directed to 
communities most in need of assistance today.
    [The statement follows:]
             Prepared Statement of Senator Susan M. Collins
    The subcommittee will come to order. Today we welcome both 
Secretary Castro, who will testify on the President's fiscal year 2017 
budget request for the Department of Housing and Urban Development, as 
well as Inspector General Montoya who will discuss not only his 
office's budget request but also the oversight and other work the OIG 
conducted at HUD. I look forward to hearing from each of you.
    I am pleased to be joined today by our Ranking Member, Senator Jack 
Reed, as we begin the subcommittee's work on the fiscal year 2017 
appropriation for the Department of Housing and Urban Development. When 
offsetting receipts from F.H.A. and Ginnie Mae are excluded, the 
President's request is $49 billion, an increase of nearly $2 billion 
and 4 percent above the fiscal year 2016 enacted level. This request 
does not exist in a vacuum and must be considered in the broader 
context of an unsustainable $19 trillion debt.
    The budget cap for non-defense discretionary spending government-
wide is essentially the same as fiscal year 2016. This subcommittee, in 
particular, has to cope with the central truths about HUD's budget that 
are present every year: the cost of renewing existing rental 
assistance, which consumes 84 percent of HUD's overall budget, will 
increase, and as F.H.A. returns to its countercyclical role, offsetting 
receipts will decline.
    In addition to the constraint of needing an additional $1.4 billion 
just to renew existing rental assistance, the subcommittee again must 
deal with the uncertainty of how much offsetting receipts will be 
credited from F.H.A.'s mortgage insurance premiums. OMB's score of 
receipts is $2.8 billion above fiscal year 2016. Good news to be sure, 
however, we must keep in mind that CBO's baseline score for fiscal year 
2017 is more than $400 million below current levels and $2.7 billion 
below the OMB's assumption, an enormous discrepancy. Until CBO finishes 
scoring the President's budget, prudence dictates that we assume the 
lower level as we review HUD's request.
    In an environment when the top line remains flat, the increase of 4 
percent over current levels proposed in the President's budget would be 
extremely challenging. Yet rather than submit a budget request that 
seeks to bend the cost curve of rental assistance without doing so on 
the backs of low-income families and seniors, the Administration 
proposes new spending of $750 million above what is needed to maintain 
existing rental assistance, plus an additional $11.3 billion in new 
mandatory spending that lacks an offset and is simply a gimmick 
intended to evade the current budget agreement.
    Yet, despite all of the additional spending requested, the 
Administration once again proposes a $200 million cut to the Community 
Development Block Grant program. The CDBG program remains one of the 
most adaptable and welcomed community and economic development and job 
creation programs that can be tailored to meet unique needs within each 
State.
    In addition to my concerns regarding the proposed funding levels, I 
believe it is critical that HUD continue to invest in the effective 
oversight of the management and physical condition of its assisted 
housing stock. It must provide technical assistance when needed, and it 
must take action implementing sanctions when appropriate.
    Neither residents nor taxpayers are well served when poor 
conditions are allowed to continue. I am troubled to read about 
egregious examples of poor housing quality in places such as Tennessee 
and Florida and am aware of similar problems in my home State of Maine. 
But I am even more troubled to learn that some of these properties 
initially received passing inspection scores from HUD before public 
outcry compelled a second look. It is inexcusable that residents are 
ever placed into substandard housing with serious violations, but it is 
doubly offensive when the taxpayers are subsidizing these unfit units.
    This is the final budget request of this Administration and is a 
good opportunity to reflect not only on the shortcomings but also on 
what we have accomplished together. I am particularly proud of what we 
have been able to achieve in reducing the number of people who are 
homeless. Since 2010, investments made by this Committee have led to a 
36 percent reduction in the number of homeless veterans; chronic 
homelessness has declined by 22 percent; and homeless families by 19 
percent.
    While we cannot yet point to meaningful reductions in youth 
homelessness, I believe the targeted funding we just approved in 
December will bear fruit. We can point to improved communication among 
Federal agencies and targeted funding to better assess the number and 
needs of homeless youth as well as the effectiveness of current 
programs targeted to these vulnerable young people. Improved 
coordination among agencies and at the local level, especially in the 
context of coordination with the child welfare system, is still needed. 
That is why I joined my Senate colleagues to lead the effort to 
reauthorize the Runaway and Homeless Youth and Trafficking Prevention 
Act, as well as to introduce The Family Unification, Preservation, and 
Modernization Act of 2015. I will continue to work to ensure that this 
Subcommittee responds to the housing needs of these children and 
teenagers.
    Finally, Senator Reed and I will be introducing a bill this 
afternoon to reform the Housing Opportunities for Persons with AIDS 
program, otherwise known as HOPWA, so that the formula no longer counts 
deceased individuals. Currently, 55 percent of the HIV and AIDS cases 
used in the formula represents deceased individuals. A formula change 
is very much needed to ensure the scarce resources available are 
directed to communities most in need of assistance today.
    Mr. Secretary, I hope you will commit to working with us on this 
important bill, and I look forward to hearing from you and Inspector 
General Montoya. I now turn to Senator Reed for his opening statement.
    Senator Collins. Mr. Secretary, I look forward to working 
with you on this important bill, and to hearing from you and 
the inspector general. It now gives me great pleasure to turn 
to the ranking member, Senator Reed, for his opening statement.

                     STATEMENT OF SENATOR JACK REED

    Senator Reed. Thank you very much, Madam Chairman. It has 
been a pleasure working with you as the ranking member and in 
so many other ways.
    And we've worked together for many years, even before our 
assignment together on this subcommittee, and I'm pleased and 
delighted that today we're joining to introduce the Housing for 
Persons with AIDS Program. As you pointed out, the formula must 
be corrected, and your leadership is going to make that change 
effective.
    We've also worked for many years together on lead-based 
paint in our housing stock, and that's another critical issue 
that effects our constituents, not just ours, but across the 
Nation. And Mr. Secretary, I know you share many of our 
concerns, and we look forward to working with you on these 
issues and many others.
    Welcome to the subcommittee. Thank you for your years of 
service. And you have shown a great deal of leadership 
advocating for families in need and the importance of ending 
homelessness. Thank you for that.
    Let me also welcome David Montoya, who will be joining us 
for the second panel. David, you have served as HUD's inspector 
general since 2011. You bring a great wealth of knowledge in 
HUD's financial management performance, and we look forward to 
your testimony.
    Today, as the chairman pointed out, we are here to discuss 
the fiscal year 2017 budget request for the Department of 
Housing and Urban Development. The Administration's 
discretionary budget request for HUD is $49 billion, nearly $2 
billion more than fiscal year 2016. But this increase in 
spending is based on very optimistic Federal Housing 
Administration receipts, as the chairman pointed out.
    As you are aware, these receipts are fundamental to HUD's 
budget request, and changes to these receipt levels in a year 
of tight budget constraints can mean the difference between 
maintaining current programs and literally cutting services.
    I am concerned that the request assumes $2.3 billion more 
in FHA receipts than in 2016, however, as again, the chairman 
intimated, CBO indicates that we could be looking at $400 
million less in receipts than in 2016, leaving your budget 
request with a $2.7 billion gap.
    As we all know too well, just last year we were faced with 
another threat of cuts to every budget through sequestration. 
We avoided that through great leadership, and particularly, 
Senator Collins and others.
    But we have a responsibility to not only maintain our 
rental assistance programs, our home programs, but as you 
suggested, budget to expand programs that are necessary to the 
quality of life for many, many Americans.
    Your proposal purports to do both, maintain our equities 
with respect to rental housing and other programs that are 
existing and also to provide enhanced choices, particularly for 
low-income Americans, in their housing. But if we're faced with 
cuts to the FHA receipts and do not have an increase in 
budgetary resources, it'll be very challenging to meet these 
dual objectives.
    I support many of the proposals which you're advancing 
today. They include more than $40 billion to maintain HUD's 
rental assistance program to continue the support for nearly 
500 million households, it's absolutely essential; combined 
$112 million in new vouchers and rapid re-housing assistance 
for families with children, again, a very critical program; $15 
million to assist families who want to move to high opportunity 
areas, this is an issue that I think is one we have to address; 
and $200 million to revitalize HUD-assisted housing through the 
Choice Neighborhoods initiative.
    This program has been very effective in my home State 
you've been kind to visit, both in Woonsocket, Rhode Island, 
and Olneyville, a part of Providence. You want to address in 
the budget homelessness, and this is one of the areas where 
Senator Collins has taken a tremendous leadership role, 
increasing the Continuum of Care Program by $414 million, as 
you want to do in your budget.
    These projects, all of them, are extremely important, and 
we want to work with you to find a way to get them done. And 
while the request includes new targeted investment in 
homelessness on the discretionary side, it also assumes 
significant investment on the mandatory side.
    Nearly $11 billion in mandatory budget authority is 
requested over 10 years to end homelessness with children by, 
we hope, 2020. And while this mandatory request to fulfill the 
Administration's homeless goals is unlikely to be enacted given 
the present climate, I applaud the vision.
    But I'm concerned that these broad investments do not 
include funding for a program that has proved essential, that's 
the HUD-Veterans Affairs Supportive Housing (HUD-VASH) 
vouchers.
    Mr. Secretary, there are still veterans experiencing 
homelessness in this country, and I'd like to understand why 
the Administration did not include HUD-VASH in its request for 
the second year in a row.
    Overall, what we have in front of us today is a budget 
request that emphasizes housing choice and opportunity for the 
many American families that struggle to meet their day to day 
needs. Our elderly, our disabled, working poor, they all 
deserve a fair chance at affordable and decent housing.
    There are more than 400 parents and children in Rhode 
Island who remain homeless and deserve a place to call home. 
Our veterans also, as I point out, have fought to protect this 
country, they, too, deserve this opportunity. We're obligated 
to figure out the best and most cost-effective ways to address 
these needs, and Mr. Secretary, that is why you're here today 
to explain the budget and to work with us going forward so that 
we can achieve these objectives.
    And thank you, again, Madam Chairman.
    Senator Collins. Thank you very much, Senator Reed.
    I want to give, since we don't have a huge number of 
members with us today, I want to just check to see if either 
Senator Daines or Senator Boozman have any opening comments, or 
whether you're content to wait. Thank you.
    Secretary Castro, the floor is yours.

                SUMMARY STATEMENT OF HON. JULIAN CASTRO

    Secretary Castro. Thank you very much, Chairman Collins, to 
Ranking Member Reed, and the members of the subcommittee. It 
really is an honor to appear before you today to discuss with 
you HUD's proposed budget for fiscal year 2017.
    The President understands that expanding access to quality 
and affordable housing will put more Americans on a path to 
prosperity, and our budget honors his commitment to promote 
inclusive opportunity for all Americans.
    This proposal comes at a time of great momentum for our 
Nation's economy. Over the past 6 years, businesses have added 
14.3 million new jobs, the longest streak of private sector job 
growth on record. And now, our challenge is to provide every 
person with the chance to share in this promise. And at HUD, 
that starts with helping more folks to secure a safe and 
affordable place to call home.
    Today, a quarter of American renters spend more than half 
of their incomes on housing. And too many families are forced 
to cut back on food, on health care, and other basic 
necessities just to put a roof over their heads. That's why the 
President's budget proposes to increase HUD's funding to $48.9 
billion, $1.9 billion over the enacted level for fiscal year 
2016.
    As you noted, Chairman, between 84 and 85 percent of our 
budget would go solely toward renewing rental assistance for 
nearly 5.5 million households. But we've also taken strong 
steps that maximize our remaining resources to achieve bold 
goals, such as ending homelessness in America. We've made great 
strides in the 6 years since President Obama introduced his 
Opening Doors initiative, and the best example of this, a 36-
percent decline in veteran homelessness between 2010 and 2015.
    I want to thank you, Chairman, and Ranking Member, and all 
of the members of this committee for your continued support of 
HUD-VASH. The success proves that, by working together, we can 
fully fulfill the President's vision, and we can help the next 
generation to escape the cycle of homelessness.
    HUD's Family Options Study shows that rapid rehousing and 
housing choice vouchers are the most effective solutions for 
families with children experiencing homelessness, so we've 
asked for a historic $11 billion investment in mandatory 
spending over the next 10 years that will use these tools to 
assist approximately 550,000 families.
    HUD is also committed to empowering Americans through 
housing mobility. We've requested $20.9 billion for our housing 
choice voucher program, an increase of $1.2 billion from the 
enacted level for fiscal year 2016. This would provide 2.2 
million families with the chance to move into neighborhoods 
with better schools, safer streets, and more jobs, and to stay 
there for the long term.
    But HUD's mission extends beyond housing mobility. Too many 
communities remain segregated by race and by income, and too 
many Americans see their futures limited by the ZIP Code where 
they were born. So HUD's proposed budget makes vital 
investments in underserved communities.
    It contains $200 million for Choice Neighborhoods, which 
helps transform areas of concentrated poverty by creating 
quality mixed income housing, improving public safety, and 
sparking growth for local small businesses. And $50 million is 
requested for our rental assistance demonstration program to 
help make crucial repairs in 25,000 units of HUD-assisted 
housing.
    We're also taking decisive action to protect children from 
the dangers of lead-based paint. We've requested $110 million 
for our Office of Lead Hazard Control and Healthy Homes and 
$2.07 billion for public housing administrative fees, which can 
be used by PHAs to, among other things, increase inspections 
and ensure property owners control lead hazards. And we're 
improving our policies to mirror the CDC's lead safety 
guidelines.
    Finally, the President knows that many Native communities 
face significant barriers to opportunity, so this budget asks 
for $780 million to improve housing and development on Native 
American lands, including $20 million for youth programs like 
community centers and Head Start facilities. And we continue 
our commitment to providing safe, affordable homes through our 
Native Hawaiian Housing Block Grant Program.
    The President's budget advances a fundamental belief, that 
all Americans deserve a fair shot at achieving their dreams. I 
look forward to working with this committee to fulfill this 
mission and to use housing as a powerful platform to spark 
greater opportunity for the American people. Thank you.
    [The statement follows:]
                Prepared Statement of Hon. Julian Castro
    Thank you, Chairman Collins and Ranking Member Reed, for this 
opportunity to discuss how HUD's fiscal year 2017 budget proposal 
follows the roadmap the President has laid out for jumpstarting our 
economy through educating, innovating, and building. This Budget 
targets our investments to the families and geographies that need them 
the most, and puts more Americans back to work.
    HUD's Budget is an essential component of the President's vision of 
investing in the things we need to grow our economy, create jobs, 
increase skills training and improve education, while continuing long 
term deficit reduction. Our request maintains assistance to low-income 
families currently served by HUD programs, expands assistance to 
targeted vulnerable populations, including the homeless and Native 
Americans, and revitalizes neighborhoods with distressed HUD-assisted 
housing and concentrated poverty. HUD's work is critical to the 
Administration's efforts to strengthen communities, bolster the 
economy, and improve the quality of life of the American people.
    Overall, the President's Budget provides $48.9 billion for HUD 
programs, an increase of $1.9 billion above the 2016 enacted level. 
This spending is offset by projected receipts of $10.9 billion. 
Increases are provided to protect vulnerable families, make significant 
progress toward the goal of ending homelessness, and support community-
centered investments, including funding to revitalize neighborhoods 
with distressed HUD-assisted housing and concentrated poverty. This 
budget is built on rigorous research and evidence of what works, 
providing flexibility and investing in strategies that have been proven 
to pay dividends for families and communities.
                    the fiscal year 2017 hud budget
    Provides Opportunities for America's Most Distressed Neighborhoods 
to Revitalize and Increase Economic Growth.--The Budget provides $200 
million for Choice Neighborhoods to continue to transform neighborhoods 
of concentrated poverty into opportunity-rich, mixed-income 
neighborhoods. This funding level will be used to revitalize HUD-
assisted housing and surrounding neighborhoods through partnerships 
between local governments, housing authorities, nonprofits, and for-
profit developers. Preference for these funds will be given to 
designated Promise Zones--high-poverty communities where the Federal 
Government is working with local leadership to invest and engage more 
intensely to create jobs, leverage private investment, increase 
economic activity, reduce violence and expand educational 
opportunities. To further support Promise Zones, the Budget includes 
companion investments of $128 million in the Department of Education's 
Promise Neighborhoods program and $24 million in the Department of 
Justice's Byrne Criminal Justice Innovation Grants program, as well as 
tax incentives to promote investment, jobs and economic growth.
    The Budget proposes $300 million in mandatory funds for a new Local 
Housing Policy Grants program. This program will provide grants to 
localities and regional coalitions to support new policies, programs or 
regulatory initiatives that create a more elastic and diverse housing 
supply, and in turn, increase economic growth, access to jobs and 
improve housing affordability. These funds will support a range of 
transformative activities in communities across the Nation that reduce 
barriers to housing development, increase housing supply elasticity and 
affordability, and demonstrate strong connections between housing, 
transportation, and workforce planning.
    Supports Strategic Infrastructure Planning and Investments To Help 
Make America a Magnet for Jobs.--HUD is committed to ensuring that its 
core community and housing development work contributes to more and 
better transportation choices; promotes equitable, affordable housing; 
helps communities address the lingering neighborhood impacts of the 
foreclosure crisis; and aligns Federal policies and funding to remove 
barriers to local collaboration. The Budget provides $2.8 billion for 
the Community Development Block Grant (CDBG) formula program, and 
proposes reforms to better target CDBG investments to address local 
community development goals. The budget also provides $950 million for 
the HOME Investment Partnerships Program to help State and local 
governments increase the supply of affordable housing and expand 
homeownership opportunities for low-income families.
    Protects the Vulnerable Recipients of HUD Rental Assistance and 
Makes Progress on the Federal Strategic Plan to End Homelessness.--The 
Budget includes $20.9 billion for the Housing Choice Voucher program to 
help about 2.2 million low-income families afford decent housing in 
neighborhoods of their choice. This funding level supports all existing 
vouchers and adds 10,000 new vouchers to the program, targeted to 
families with children experiencing homelessness. The Budget also 
includes $10.8 billion for the Project-Based Rental Assistance program 
to maintain affordable rental housing for 1.2 million families, and 
provides $6.4 billion in operating and capital subsidies to preserve 
affordable public housing for an additional 1.1 million families.
    The Budget provides $2.7 billion for Homeless Assistance Grants, 
$414 million above the 2016 enacted level. The increased funding will 
enable HUD to maintain existing projects, fund the increased 
competitive renewal demand for Continuums of Care in fiscal year 2016, 
and create 25,500 beds of permanent supportive housing for chronically 
homeless persons to reach the goal of ending chronic homelessness in 
2017. In addition, the Budget includes 8,000 rapid rehousing 
interventions for households with children, which will support the goal 
of ending child, family and youth homelessness by 2020, and $25 million 
in new projects targeted to homeless youth.
    In addition to the targeted requests for homeless families with 
children above, the Budget requests $11 billion in mandatory funds for 
vouchers and rapid rehousing to end family homelessness. Approximately 
550,000 families will be supported over 10 years to stabilize their 
housing and assist them to become more self-sufficient. This proposal 
is based on rigorous research and will give families the right support 
at the right time to promote better outcomes.
    Improves Mobility Through the Housing Choice Voucher Program.--The 
Budget provides $2.1 billion in Public Housing Authority (PHAs) 
administrative fees using a new evidence-based formula that not only 
more accurately reflects the actual cost of running the program, but 
ensures that PHAs have sufficient resources to provide low-income 
families greater access to opportunity areas. In addition, the Budget 
requests $15 million for a new mobility counseling demonstration that 
is designed to help HUD-assisted families move and stay in higher-
opportunity neighborhoods. A portion of the funding will also support 
an evaluation to measure the impact of the counseling pilot to further 
inform the policy process and design.
    Puts HUD-Subsidized Public and Assisted Housing on a Financially 
Sustainable Path.--Public housing authorities (PHAs) house over three 
million families. To bring our rental housing system into the 21st 
century and continue to address the $26 billion in public housing 
capital needs, the Budget includes proposals that would facilitate the 
conversion and preservation of additional Public Housing and other HUD-
assisted properties under the Rental Assistance Demonstration (RAD). At 
the same time, the Budget provides $50 million for a targeted expansion 
of RAD to Public Housing properties in high-poverty neighborhoods and 
requests authority to convert Section 202 Housing for the Elderly 
Project Rental Assistance Contract properties to Section 8 platforms.
    Improves the Way Federal Dollars are Spent.--The Administration 
supports legislation to modernize the Housing for Persons With AIDS 
(HOPWA) program to better reflect the current case concentration and 
understanding of HIV/AIDS and ensure that funds are directed in a more 
equitable and effective manner. The Budget's $335 million investment in 
HOPWA, in combination with the proposed modernization, will assist 
local communities in keeping individuals with HIV/AIDS housed, making 
it easier for them to stay connected to treatment, and therefore 
improving health outcomes for this vulnerable population.
    The Budget also provides $35 million for the evidence-based Jobs-
Plus program, a proven model for increasing public housing residents' 
employment and earnings. Through Jobs-Plus, public housing residents 
will receive on-site employment and training services, financial 
incentives that encourage work and ``neighbor-to-neighbor'' 
information-sharing about job openings, training, and other employment-
related opportunities.
    Invests in Research and Support to Make HUD and its Grantees More 
Effective.--The American economy of the future requires a Federal 
Government that is efficient, streamlined, and transparent. This Budget 
once again calls for the flexible use of resources through HUD's Office 
of Policy Development and Research, which the Department will use to 
invest in technical assistance to build local capacity to safeguard and 
effectively invest taxpayer dollars; conduct innovative research; and 
evaluate program initiatives and demonstration programs so we can fund 
what works and stop funding what doesn't.
    The Budget also continues to invest in focused upgrades to the IT 
infrastructure to improve service delivery and to better track and 
monitor our programs.
    Consistent with the previous 3 years, HUD's fiscal year 2017 Budget 
is structured around the five overarching goals the Department adopted 
in its new Strategic Plan 2014-2018. These goals reflect the 
Department's--and my--commitment to `moving the needle' on some of the 
most fundamental challenges facing America. Indeed, every month, I hold 
HUDStat meetings on one or more of these goals, to assess progress and 
troubleshoot problems in order to: 1) ensure that HUD is as streamlined 
and effective as possible in the way that we administer our own 
programs and partner with other Federal agencies; and 2) hold our 
grantees accountable for their expenditure of taxpayers' hard-earned 
dollars.
 goal 1: strengthen the nation's housing market to bolster the economy 
                         and protect consumers
    This Administration entered office confronting the worst economic 
crisis since the Great Depression. And while the largest factors 
contributing to this crisis were market driven, the American people 
have turned to Congress and the administration for leadership and 
action in righting our Nation's housing market. HUD remains firmly 
committed to working together with communities and individuals to cope 
with these unprecedented challenges. This Budget drives economic growth 
by increasing access to credit and strengthening the FHA.
    In fiscal year 2017, HUD is requesting $400 billion in loan 
guarantee authority for the Mutual Mortgage Insurance Fund, and $30 
billion in loan guarantee authority for the General and Special Risk 
Insurance Fund. The need for FHA is clear as it stepped up in recent 
years to address the unprecedented challenges wrought by the housing 
crisis, playing an important countercyclical role that has offered 
stability and liquidity throughout the recession. While a recovery of 
the housing market is currently underway, FHA continues to act as a 
crucial stabilizing element in the market, and to assure ongoing access 
to credit for qualified first-time, low-wealth or otherwise underserved 
borrowers.
    The Budget also includes a request for the FHA Administrative Fee 
that will assist FHA in performing critical Quality Assurance work by 
funding important Information Technology investments as well as 
administrative investments to maintain FHA as an effective partner with 
borrowers and lenders. This modest fee on lenders will be applied only 
prospectively, and these funds will make it possible for FHA to 
continue to increase access, helping to place homeownership within the 
reach of more Americans.
       goal 2: meet the need for quality, affordable rental homes
    In an era when more than one-third of all American families rent 
their homes and over 7.7 million unassisted families with very low 
incomes spend more than 50 percent of their income on rent and/or live 
in substandard housing, it remains more important than ever to provide 
a sufficient supply of affordable rental homes for low-income 
families--particularly since, in many communities affordable rental 
housing does not exist without public support. HUD's 2017 Budget 
maintains HUD's core commitments to providing rental assistance to some 
our country's most vulnerable households as well as distributing 
housing, infrastructure, and economic development funding to States and 
communities to address their unique needs. Overall, 85 percent of HUD's 
total 2017 budget authority requested goes toward renewing rental 
assistance for current residents of HUD-subsidized housing, including 
public housing and HUD grants to homeless assistance programs, and to 
some limited, strategic expansion of rental assistance to specific 
vulnerable households.
    HUD's core rental assistance programs serve some of the most 
economically vulnerable families in the country. In these programs, 
including Housing Choice Vouchers, Public Housing and Project Based 
Rental Assistance (PBRA): almost 75 percent of families are extremely 
low-income (below 30 percent of area median income) and an additional 
20 percent are very low-income (below 50 percent of area median 
income). Although worst case housing needs decreased to 7.7 million in 
2013 from the record high of 8.5 million in 2011, these needs are still 
a national problem. Housing needs have expanded dramatically during the 
past decade and were exacerbated by the economic recession and 
associated collapse of the housing market, which reduced homeownership 
through foreclosures and increased demand for renting.''
Preserving Affordable Housing Opportunities in HUD's Largest Programs
    This Budget provides $20.9 billion for HUD's Housing Choice 
Vouchers program, which is the Nation's largest and preeminent rental 
assistance program for low-income families. For over 35 years it has 
served as a cost-effective means for delivering safe and affordable 
housing in the private market. This 2017 funding level is expected to 
assist approximately 2.2 million families and support new incremental 
vouchers for areas of high need, for targeted populations. This Budget 
adds voucher leasing opportunities through funding for approximately 
10,000 new units of housing for homeless families with children.
    The Budget also provides a total of $6.4 billion to operate public 
housing and modernize its aging physical assets through the Public 
Housing Operating ($4.6 billion) and Capital ($1.9 billion) funds, a 
critical investment that will help over 1.1 million extremely low- to 
low-income households obtain or retain housing. Similarly, through a 
$10.8 billion request in funding for the PBRA program, the Department 
will provide rental assistance funding to privately-owned multifamily 
rental housing projects to serve over 1.2 million families nationwide.
Rebuilding our Nation's Affordable Housing Stock
    Over the last 75 years, the Federal Government has invested 
billions of dollars in the development and maintenance of public and 
multifamily housing, which serve as crucial resources for some of our 
country's most vulnerable families. Despite this sizable Federal 
investment and the great demand for deeply affordable rental housing, 
we continue to see a decline in the number of available affordable 
housing units. Unlike other forms of assisted housing that serve very 
similar populations, the public housing stock is nearly fully reliant 
on Federal appropriations from the Capital Fund to make capital 
repairs. Funding and regulatory constraints have impaired the ability 
for these local and State entities to keep up with needed life-cycle 
improvements. The most recent capital needs study of the public housing 
stock, completed in 2010, estimated the backlog of unmet need at 
approximately $26 billion, or $23,365 per unit. Funding for the Capital 
Fund has been insufficient to meaningfully reduce public housing's 
backlog of repair and replacement needs or even meet the estimated $3 
billion in annual accrual needs. Under the strain of this backlog, and 
without financing tools commonly available to other forms of affordable 
housing, the public housing inventory has lost an average of 10,000 
units annually through demolitions and dispositions.
  --Rental Assistance Demonstration. To help address the backlog of 
        unmet capital needs and to preserve this critical source of 
        affordable housing, HUD is continuing to implement the Rental 
        Assistance Demonstration (RAD), a program which enables PHAs to 
        convert public housing to the Section 8 platform. In addition 
        to the public housing stock, the RAD program targets certain 
        ``at-risk'' HUD legacy programs. Prior to RAD, units assisted 
        under Section 8 Moderate Rehabilitation (MR) and Section 8 
        Moderate Rehabilitation Single-Room Occupancy (MR SRO) were 
        limited to short-term renewals and constrained rent levels that 
        inhibit the recapitalization of the properties, and units 
        assisted under Rent Supplement (RS) and Rental Assistance 
        Program (RAP) had no ability to retain long-term project-based 
        assistance beyond the current contract term. As a result, as 
        their contracts expired, these projects would no longer be 
        available as affordable housing assets.

    Conversion to Section 8 rental assistance, as permitted under RAD, 
        is essential to preserving these scarce affordable housing 
        assets and protecting the investment of taxpayer dollars these 
        programs represent. Long-term Section 8 rental assistance 
        allows for State and local entities to leverage sources of 
        private and public capital to rehabilitate their properties. 
        While the Department expects and continues to process Public 
        Housing conversions of assistance without additional subsidy, 
        HUD requests $50 million in 2017 for the incremental subsidy 
        costs of converting assistance under RAD for properties that 
        cannot feasibly convert to Section 8 at existing funding 
        levels. This funding would also support a requested expansion 
        of the RAD authority to include Section 202 Housing for the 
        Elderly Project Rental Assistance Contracts (PRACs). Overall, 
        the requested funding will be targeted to: 1) Public Housing 
        properties located in high-poverty neighborhoods, including 
        designated Promise Zones, and in areas where the Administration 
        is supporting comprehensive revitalization efforts as well as 
        transfer of assistance to high opportunity locations where 
        there is a limited supply of affordable housing, and 2) Section 
        202 PRACs with significant recapitalization needs, including 
        those properties with service coordinators for frail and 
        elderly residents. The Department estimates that the $50 
        million in incremental subsidies will support the conversion 
        and redevelopment of approximately 25,000 Public Housing and 
        Section 202 PRACs, while helping to increase private investment 
        in the targeted projects.

    In addition to the funding request, the proposed legislative 
        changes to RAD are designed to allow for maximum participation 
        by those PHAs and private owners whose current funding levels 
        are sufficient for conversion. This includes, for example, 
        elimination of the 185,000 unit cap, which will allow for a 
        greater portion of the Public Housing stock that can convert at 
        no cost to the Federal Government to participate in the 
        demonstration.
    goal 3: use housing as a platform for improving quality of life
    Stable housing provides an ideal platform for delivering a wide 
variety of health and social services to improve economic, health, and 
broad-based societal outcomes. For some, housing alone is sufficient to 
ensure healthy outcomes, while others require housing with supportive 
services to assist with activities of daily living or longterm self-
sufficiency, as well as proximity to crucial services. HUD's fiscal 
year 2017 Budget acknowledges this reality by making critical 
investments in housing and supportive services, and partnering with 
other Federal agencies to maximize resources and best practices. 
Moreover, these investments will save money in the long term, by 
avoiding overuse of expensive emergency and institutional 
interventions.
Preventing and Ending Homelessness
    Nowhere is the relationship between housing and supportive services 
clearer than in the successful efforts in communities around the 
country to address homelessness, which have led to a 36 percent 
reduction in veterans' homelessness and a 22 percent reduction in 
chronic homelessness, and a 19 percent in family homelessness since 
2010. Additionally, this work has yielded a substantial body of 
research, which demonstrates that providing permanent supportive 
housing to chronically homeless individuals and families not only ends 
their homelessness, but also yields substantial cost saving in public 
health, criminal justice, and other systems. This year's Budget once 
again invests in this critical effort, by providing $2.7 billion in 
Homeless Assistance Grants. This funding level will support competitive 
programs that annually serve over 800,000 homeless families and 
individuals, and create 25,500 beds of permanent supportive housing for 
chronically homeless persons to reach the goal of ending chronic 
homelessness in 2017. The Budget also includes 8,000 rapid rehousing 
interventions for households with children. In addition, the Budget 
includes $88 million for housing vouchers for homeless families with 
children and also proposes another $11 billion in new mandatory 
spending to reach and maintain the goal of ending family homelessness 
by 2020.
Leveraging Capital Resources and Serving our Most Vulnerable
    This Budget provides a total of $659 million for the Housing for 
the Elderly and Housing for Persons with Disabilities programs. Doing 
more with less, the Budget proposes reforms to the Housing for the 
Elderly program to target resources to help those most in need, reduce 
the up-front cost of new awards, and better connect residents with the 
supportive services they need to age in place and live independently.
    Historically, HUD has provided both capital advances and operating 
subsidies to non-profit sponsors to construct and manage multifamily 
housing for low-income people with disabilities. In an effort to 
maximize the creation of new affordable units in a time of funding 
restraints, in fiscal year 2012 HUD began providing operating 
assistance to State housing agencies that formed partnerships with 
State healthcare agencies for service provision to low-income persons 
with disabilities. These funds are used to set aside supportive units 
for this target population in affordable housing complexes whose 
capital costs are funded through Low-Income Housing Tax Credits, HOME 
funds, or other sources. Investing Section 811 funds under this 
authority allows HUD to rely on the expertise of the State housing 
agencies to administer the award and on the State healthcare agency to 
identify the most critical population to be served and guarantee the 
delivery of appropriate services. In fiscal year 2014, HUD requested, 
and received, similar authority for the Section 202 program. Drawing on 
lessons learned from implementation in the Section 811 program, HUD 
will take advantage of efficiencies inherent in these same agencies' 
oversight responsibilities for tax credits, HOME funds or similar 
housing funding.
       goal 4: build strong, resilient and inclusive communities
    No longer can the American economy tolerate the marginalization 
from the labor force of significant numbers of people because of 
individualized or systemic discrimination, or because they live in 
isolated neighborhoods of concentrated poverty. An American economy 
built to last requires an increased supply of affordable rental homes 
in safe, mixed-income communities that provide access to jobs, good 
schools, transportation, high-quality services, and, most importantly, 
economic self-sufficiency. As such, HUD's fiscal year 2017 Budget puts 
communities in a position to plan for the future and draws fully upon 
their resources, most importantly their people.
    Each year HUD dedicates approximately 16 percent of its funds to 
the capital costs of housing and economic development projects 
throughout the country. Through this investment, HUD and its partners 
are able to provide better opportunities for people living in 
neighborhoods of concentrated poverty and segregation, offer choices 
that help families live closer to jobs and schools, and support locally 
driven solutions to overarching economic development challenges. HUD's 
capital grants--including the Public Housing Capital Fund, Choice 
Neighborhoods, CDBG, and HOME--are focused on assisting areas of great 
need, including communities with high unemployment.
Preserving HUD's Major Block Grant Programs for Community Development 
        and Housing
    Through both formula and competitive grants, HUD has partnered with 
local organizations and State and local governments to fund innovative 
solutions to community development challenges. Underpinning these 
partnerships is the fundamental philosophy that local decision-makers 
are best poised to drive a cohesive development strategy. In 2017, HUD 
is requesting a total of $2.9 billion in funding for the Community 
Development Fund to support economic development initiatives and 
projects that demonstrate the ability to connect private sector growth 
to some of our country's most distressed citizens and communities, and 
$950 million for the HOME program.
    The Budget requests $2.8 billion for the Community Development 
Block Grant (CDBG), which remains the largest and most adaptable 
community and economic development program in the Federal portfolio for 
meeting the unique needs of States and local governments. Since its 
inception in 1974, CDBG has invested in economic development at the 
local level, investing in infrastructure, providing essential public 
services and housing rehabilitation, and creating jobs primarily for 
low-and moderate-income families. Altogether, CDBG funding annually 
reaches an estimated 7,000 local governments across the country, in 
communities of all shapes and sizes. However, to ensure that CDBG funds 
effectively provide targeted benefits to these communities, especially 
to low- and moderate-income populations, HUD proposes a suite of 
reforms to strengthen the program; help grantees target funding to 
areas of greatest need; enhance program accountability; synchronize 
critical program cycles with the consolidated plan; and reduce the 
number of small grantees while providing more options for regional 
coordination, administration and planning.
    Often, CDBG dollars alone are insufficient to complete crucial 
economic development projects that communities desperately need. In 
those instances, HUD offers another potent public investment tool in 
the form of the Section 108 Loan Guarantee program. Section 108 allows 
States and local governments to leverage their CDBG grants and other 
local funds into federally guaranteed loans in order to pursue large-
scale physical and economic investment projects that can revitalize 
entire neighborhoods or provide affordable housing to low- and 
moderate-income persons. In 2017, HUD is requesting Section 108 loan 
guarantee authority of $300 million, and the continuation of a fee-
based structure will eliminate the need for budget authority to cover 
the program's credit subsidy.
    In addition, the HOME program is proposed at $950 million and the 
Budget proposes legislative changes to better target the assistance 
provided with this funding. HOME is the primary Federal tool of State 
and local governments for the production of affordable rental and for-
sale housing for low-income families. In the past 21 years, HOME has 
completed 1.22 million affordable units. The Budget also proposes 
statutory changes that would eliminate the 24-month commitment 
requirement, eliminate the 15 percent Community Housing Development 
Organization (CHDO) set-aside, establish a single qualification 
threshold, revise ``grandfathering'' provisions so that HOME 
participating jurisdictions that fall below the threshold three out of 
the 5 years would be ineligible for direct grants, and provide for 
reallocation of recaptured CHDO technical assistance funds.
    Notably in 2017, CDBG and HOME are part of the proposed Upward 
Mobility Project, a new initiative to allow States, localities or 
consortia of the two to blend their CDBG and HOME allocations with 
funding from the Department of Health and Human Services' Social 
Services Block Grant and Community Services Block Grant in a flexible 
way to achieve local goals. Communities would design Upward Mobility 
Projects around achieving a specific outcome--like increasing families' 
earnings, improving children's outcomes, expanding employment 
opportunities, or increasing housing stability--then employ the most 
promising evidence-based methods to achieve that goal. To support the 
Upward Mobility Projects, Federal agencies will partner with applicants 
to blend the identified funds and provide the appropriate waivers 
needed for required flexibilities, including but not limited to 
aligning household eligibility criteria, aligning and streamlining 
reporting requirements, and coordinating and sustaining service 
delivery.
    In addition, the new Local Housing Policy Grants program would 
complement and leverage communities' CDBG and HOME activities by 
providing a total of $300 million in mandatory funding for competitive 
grants to increase economic growth, access to jobs and improve housing 
affordability by supporting new policies, programs or regulatory 
initiatives to create a more elastic and diverse housing supply. To 
that end, the funding would allow localities to make investments in 
areas like infrastructure expansion or improvement, housing market 
evaluations, code writing or design assistance, and stakeholder 
outreach and education.
Assisting Native Americans
    Through innovative programming, HUD has found new ways to partner 
with American Indian and Alaska Native tribal governments to help these 
communities craft and implement sustainable, locally-driven solutions 
to economic development challenges. HUD recognizes the right of Indian 
self-determination and tribal self-governance, and has fostered 
partnerships that allow tribal recipients the flexibility to design and 
implement appropriate, place-based housing programs according to local 
needs and customs. In most of these communities, housing and 
infrastructure needs are severe and widespread, disconnected from 
transportation networks and isolated from key community assets 
including jobs, schools and healthcare facilities. In fiscal year 2017, 
HUD is requesting a total of $786 million to fund programs that will 
directly support housing and economic development in American Indian, 
Alaskan Native, and Native Hawaiian communities nationwide, including:
  --$700 million for the Indian Housing Block Grant (IHBG) program, 
        which is the single largest source of Federal funding for 
        housing on Indian tribal lands today.
  --$80 million for Indian Community Development Block Grants, a 
        flexible source of grant funds for federally-recognized tribes 
        or eligible Indian entities, requested within the Community 
        Development Fund. Of this funding, $20 million is set aside for 
        projects to improve outcomes for Native Youth, such as the 
        development, rehabilitation or acquisition of community centers 
        and health clinics.
  --$5.5 million for the Indian Housing Loan Guarantee Fund, which 
        provides loan guarantees to increase the availability of 
        mortgage lending on Indian reservations and other Indian areas.
  --Increases the set-aside for colonias investment in communities 
        along the U.S.-Mexico border from 10 percent to 15 percent, to 
        address problems with lack of infrastructure, including 
        adequate water, sewer facilities and decent housing.
    In addition, up to $5 million in funding requested for Jobs-Plus 
would be used to implement a demonstration of the successful Jobs-Plus 
model in Indian Country.
Transforming Neighborhoods of Poverty
    The President has made it clear that we cannot create an economy 
built from the middle class out if: a fifth of America's children live 
in poverty, at a cost of $500 billion per year--fully 4 percent of 
GDP--due to reduced skills development and economic productivity, 
increased later life crime, and poor health; a growing population lives 
with the problems of concentrated neighborhood poverty--high 
unemployment rates, rampant crime, health disparities, inadequate early 
care and education, struggling schools, and disinvestment--all of which 
isolate them from the global economy.
    That's why HUD's fiscal year 2017 Budget provides $200 million for 
Choice Neighborhoods to continue transformative investments in high-
poverty neighborhoods where distressed HUD-assisted public and 
privately owned housing is located. Choice Neighborhoods--along with 
RAD--is an essential element of the President's Promise Zones 
initiative, which is designed to support revitalization in some of 
America's highest-poverty communities by creating jobs, attracting 
private investment, increasing economic activity, expanding educational 
opportunity, and reducing violent crime.
    The President announced the first five Promise Zones in January 
2014 and will designate an additional 15 Zones by the end of calendar 
year 2016. Communities compete to earn a Promise Zone designation by 
identifying a set of positive outcomes, developing a strategy, 
encouraging private investment and realigning Federal, State, and local 
resources to support achievement of those outcomes. The Promise Zone 
designation process ensures rural and Native American representation. 
Promise Zones will receive tax incentives, if approved by Congress, to 
stimulate hiring and business investment along with intensive Federal 
support and technical assistance aimed at breaking down regulatory 
barriers and using Federal funds available to them at the local level 
more effectively. Applicants from Promise Zones will also receive 
points for competitive Federal grants that will increase the odds of 
qualifying for support and assistance to help them achieve their goals.
    Promise Zones are aligning the work of multiple Federal programs in 
communities that have both substantial needs and a strong plan to 
address them. The Promise Zones initiative builds on the lessons 
learned from existing place-based programs like the Department of 
Education's Promise Neighborhoods and the Department of Justice's Byrne 
Criminal Justice Innovation program, both of which receive substantial 
increases in the Budget. Other Federal agencies that will be aligning 
their work with that of local Promise Zone partners include the 
Departments of Commerce, Health and Human Services, and Agriculture.
    The Choice Neighborhoods initiative is a central element of the 
Administration's inter-agency, place-based strategy to support local 
communities in developing the tools they need to revitalize 
neighborhoods of concentrated poverty into neighborhoods of 
opportunity. The Department's administration of the first rounds of 
funding for Choice Neighborhoods grants exemplify how our practices 
generate effective partnerships with local housing and community 
development efforts. In the past, many Federal grant programs followed 
a rigid, top-down, `one-size fits all' approach that dictated what 
local policymakers could and could not do rather than listening to them 
and providing the tools they needed to meet local needs. Having served 
in local government myself, I am committed to a collaborative approach 
responsive to local needs--and believe the results thus far demonstrate 
that we are making good on that commitment.
Ensuring Inclusive Housing Nationwide
    An inclusive community is one in which all people--regardless of 
race, ethnicity, religion, sex, disability, or familial status--have 
equal access to housing and economic opportunities. Throughout its 
portfolio of programs, HUD is committed to maintaining that inclusivity 
and providing accountability in housing and lending practices 
nationwide. Through inclusive development, education, enforcement of 
fair housing laws, expanded training and language assistance, HUD will 
affirmatively further fair housing and the ideals of an open society.
    The Fair Housing Initiatives Program (FHIP) is critical to building 
and sustaining inclusive communities. FHIP is the only grant program 
within the Federal Government whose primary purpose is to support 
private efforts to educate the public about fair housing rights and 
conduct private enforcement of the Fair Housing Act. In fiscal year 
2017, HUD is requesting $46 million in FHIP funds, representing the 
Department's strong commitment to fair housing. The requested amount 
will continue funding to support fair housing enforcement by all 
statutorily eligible private fair housing organizations. In addition, 
it will fund fair housing education at the local, regional and national 
levels.
    The Fair Housing Assistance Program (FHAP) is a critical component 
of HUD's effort to ensure the public's right to housing free from 
discrimination. FHAP multiplies HUD's enforcement capabilities, 
allowing the Department to protect fair housing rights in an efficient 
and effective manner. In fact, FHAP agencies investigate the majority 
of housing discrimination complaints filed in the United States. In 
fiscal year 2017, the Budget provides $21.9 million in FHAP grants to 
nearly 90 government agencies to enforce laws that prohibit housing 
discrimination that have been reviewed and deemed substantially 
equivalent to Federal law.
Ensuring that an Economy Built from the Middle Class Out Includes 
        Opportunities for Rural Americans
    The Administration has placed a significant emphasis on ensuring 
that America's rural communities are competitive in the global 
economy--particularly given the reality that rural communities 
generally have less access to public transportation, along with higher 
poverty rates and inadequate housing. HUD serves families in small 
towns and rural communities through almost every major program it 
funds.
    As the single largest sources of funding for housing on Indian 
tribal lands today, HUD initiatives in Indian country continue to have 
some of the Department's most successful track records. Programs like 
Indian Housing Block Grants, Indian Housing Loan Guarantees, and Indian 
Community Development Block Grants support development in remote areas 
where safe, affordable housing is desperately needed. HUD recognizes 
the right of Indian self-determination and tribal self-governance by 
allowing the recipients the flexibility to design and implement 
appropriate, place-based housing programs according to local needs and 
customs. Taken together, in fiscal year 2017 HUD is requesting $786 
million to fund programs that will support housing and development in 
American Indian, Alaska Native, and Native Hawaiian communities.
    In addition, HUD and the Departments of Treasury and Agriculture 
meet regularly through the interagency Rental Housing Policy Working 
Group to better align and coordinate affordable rental housing 
programs. For homeowners, the FHA helps first-time homebuyers and other 
qualified families all over the country purchase their own homes. HUD 
has also entered into a Memorandum of Understanding with the Department 
of Treasury's Community Development Financial Institutions Fund and the 
Department Agriculture--Rural Development, to expand the capacity of 
organizations providing loans and investment capital in underserved 
rural regions. The initiative, which is being piloted in colonias along 
the U.S.-Mexico border, will improve the delivery of funding from 
Federal agencies and private sources supporting small business, 
affordable housing and community facilities.
                goal 5: achieving operational excellence
    A 21st century American economy that is a magnet for jobs and 
equips its residents with the skills they need for those jobs demands a 
government that's leaner, smarter, and more transparent. The current 
economic and housing crisis; the structural affordability challenges 
facing low-income homeowners and renters; and the new, multidimensional 
challenges facing our urban, suburban, and rural communities all 
require an agency in which the fundamentals matter and the basics 
function. As such, HUD remains committed to transforming the way it 
does business. This transformation is more crucial now than perhaps 
ever before--HUD remains at the forefront of the Federal response to 
the national mortgage crisis, economic recovery, Hurricane Sandy 
recovery, and the structural gap between household incomes and national 
housing prices--roles that require an agency that is nimble and market-
savvy, with the capacity and expertise necessary to galvanize HUD's 
vast network of partners. HUD's 2016 Budget reflects these critical 
roles, by investing in transformation, research, and development that 
will be implemented strategically.
Investing In Our Staff
    HUD's greatest resource is its dedicated staff. When employees 
attain skills and are motivated to use those skills to help their 
organization reach goals, the capacity of the organization grows and 
employees in the organization grow as well; which is why HUD is 
creating training and leadership development opportunities for 
employees at all levels. Over time, the rules and regulations that 
develop within an organization become hurdles instead of the helpful 
pathways they were intended to be. HUD is in the process of simplifying 
and combining programs, streamlining regulations, and eliminating rules 
and constraints. In addition, the Department is in the middle of a 
major reform of its information technology, human resources, 
procurement, and other internal support functions to give more 
authority to managers and provide better service to HUD customers.
    In 2016, HUD is requesting $1.365 billion in salaries and expenses, 
in addition to $23 million for Ginnie Mae and $129 million for HUD's 
Office of Inspector General (OIG). The HUD request includes several 
initiatives to streamline the HUD organization, consolidate functions 
for increased efficiency, and increase training for our staff. HUD is 
making specific investments of more staff to manage major rental 
assistance programs, increasing our ability to enforce new fair housing 
rules and provide more oversight to our community grant programs. The 
Department will continue to improve operations and create a dynamic 
organization capable of addressing some of our Nation's most difficult 
challenges.
Carrying Out Critical Program Demonstrations and Research
    HUD's ongoing transformation is a multiyear effort that can only be 
achieved through the relentless focus of agency leadership, full 
transparency and accountability for real results, and sustained and 
flexible budget resources. The Department has taken an enterprise-wide 
approach to both technical assistance and research that has bolstered 
these efforts and increased the efficiency and effectiveness of the 
Department's programs. Further, this shared approach has provided a 
mechanism for innovative, cross-cutting technical assistance that goes 
beyond program compliance to improve grantee capacity, performance and 
outcomes.
    While the Department's transformation is a crucial long-term 
commitment, HUD continues to prioritize these efforts in a responsible 
manner that ensures HUD's constituent services don't suffer at the 
hands of internal transformation. This year's Budget proposes to again 
fund research and demonstrations by transfers from program accounts. In 
fiscal year 2017, HUD's request includes transfer authority of up to 
$120 million into the Office of Policy Development and Research, up to 
$35 million of which will be for research, evaluations and program 
demonstrations, and at least $85 million of which will be for cross-
cutting technical assistance, including place-based technical 
assistance. This includes training, education, support and advice to 
help community development corporations and community housing 
redevelopment organizations carry out community development and provide 
affordable housing activities for low- and moderate-income persons, as 
previously funded through the Self-Help and Assisted Homeownership 
Opportunity Program (SHOP) account. This modified approach will enable 
HUD to better integrate technical assistance and capacity building.
Upgrading the Department's Information Technology Infrastructure
    In 2017, HUD is requesting $286 million for the Information 
Technology Fund. HUD will continue development efforts and will focus 
on delivery of discrete capabilities in our FHA and voucher management 
systems, as well as exploring consolidation of several grant management 
applications. In fiscal years 2015 and 2016, HUD deployed three 
successful releases of the New Core project, which transitioned key 
administrative and financial management functions to the Treasury 
Department in the largest financial management shared service 
arrangement established to date. HUD also implemented an enterprise-
wide financial system that allows the Department to resolve material 
weakness and audit findings though a consolidated shared services 
infrastructure platform. These changes are allowing HUD to deliver 
services and manage these multi-billion dollar programs faster, more 
accurately and using better information for analysis.
                               conclusion
    Chairman Collins, this Budget reflects the Administration's 
recognition of the critical role the housing sector must play to ensure 
that America becomes a magnet for jobs that strengthen the Nation's 
middle class, including providing economic opportunity for all 
Americans, whatever their circumstances. Equally important, it 
expresses the confidence of the President in the capacity of HUD to 
meet a high standard of performance.
    It's about making hard choices to reduce the deficit--and putting 
in place much-needed reforms to hold ourselves to a high standard of 
performance. But most of all, it's about the results we deliver for the 
vulnerable people and places who depend on us most.

                       FUNDING FOR VASH VOUCHERS

    Senator Collins. Thank you very much, Mr. Secretary. I want 
to pick up where the ranking member, Senator Reed, left off, 
the issue of the budget containing no new money for VASH 
vouchers which go to our homeless veterans. The same was the 
case in last year's budget, and we remedied that by putting in 
funding for the VASH program.
    As I indicated in my statement, we have made some 
significant progress, in large measure due to the VASH program 
as well as additional programs for homelessness prevention 
among our veterans in reducing the number of veterans who are 
homeless.
    It's down by 36 percent by 2010. But I very much remember 
the Administration having a goal of ending homelessness among 
our veterans by the end of last year, and clearly, that didn't 
happen. We're not even close to that, even though we're 
continuing to make progress, and there are some cities around 
the country that have achieved that goal.
    So my first question is, why is the Administration 
proposing to zero out the VASH account in terms of new 
vouchers? And related to that, has the Administration changed 
its mind about reaching the goal of no homeless veterans?
    Secretary Castro. I definitely appreciate the opportunity 
to answer that question. Let me answer your second question 
first. The Administration is firmly committed to effectively 
ending veteran homelessness, and so that goal remains.
    I want to commend you and the committee again, Chairman 
Collins, for the investment that you all have made over the 
years in HUD-VASH. It has been, I think, absolutely key to the 
36-percent reduction that we've seen. You're right that we did 
not request additional or new HUD-VASH vouchers, because we 
believe that the resources are there for HUD-VASH for who it 
includes to serve.
    We think that the communities are making tremendous 
progress with those HUD-VASH vouchers. Last year, the committee 
did grant us additional HUD-VASH vouchers, and we are utilizing 
those, and we're going to utilize them in effective ways.
    But through the combination of agencies that dedicate 
resources to homeless veterans and other mainstream resources 
at HUD, we believe that we can continue to drive down the 
number of homeless veterans.
    I would also note, and I know that we had this conversation 
last year, that there are some veterans who did not fit into 
the HUD-VASH program, were not able to be served by the HUD-
VASH program, that we believe that, through use of mainstream 
resources, that we can serve. One good example that I cited 
last year was veterans that were other than honorably 
discharged because of the don't ask, don't tell policy.
    And so we think that we have the HUD-VASH vouchers that we 
need, and I commend the committee for the investment that it's 
made, and we can combine that with other mainstream resources 
and vouchers to get to functional zero on veteran homelessness.

            PHYSICAL INSPECTIONS OF HUD ASSISTED PROPERTIES

    Senator Collins. Mr. Secretary, as I mentioned in my 
opening statement, I'm deeply troubled by reports of deplorable 
living conditions in subsidized properties in Memphis, 
Tennessee, and Jacksonville, Florida. Last month, a judge in 
Cincinnati placed five HUD-assisted properties in judicial 
receivership after the city sued the owners regarding more than 
1,800 health and safety violations.
    The scale and the longevity of these problems highlight 
systemic concerns about the effectiveness of HUD's oversight, 
and those concerns are underscored by the fact that contractors 
hired by HUD to inspect the Florida property gave it a passing 
score just weeks before the city inspectors found hundreds of 
code violations, and indeed, the press mentions toilets leaking 
into bathtubs, roaches, raw sewage backing up into a bathtub, 
water leaking into apartments, trash, debris, sick children, a 
really appalling circumstance, which I know must trouble you 
gravely as well.
    So what's wrong with HUD's system for inspection that 
properties could receive passing grades from HUD and then be 
cited by local inspectors with literally hundreds of serious 
code violations?
    Secretary Castro. Yes, let me just begin by saying that, of 
course, I share your deep concern with the specific instances 
that you've cited that were mentioned in Florida and Tennessee 
and one in Maine recently.
    And number one, I think that the vast majority of 
properties out there are being inspected and inspected well. 
And when there are issues, they're responded to in a 
responsible way by owners.
    But there are instances that I don't think anybody can be 
proud of and that HUD is committed to improving our processes 
to better respond in a shorter timeframe to ensure that 
residents are not living in the kind of conditions that we've 
seen described in media reports and that we have received 
internal reports about.
    So you asked what are we doing to improve this process. We 
have created an internal working group to look at our 
inspections process, to understand how we can strengthen it, to 
make sure that we're getting to properties like those troubled 
assets that have been noted in a quicker time, that we're 
ensuring compliance by the owners more quickly, and ultimately 
providing a better quality of life to residents.
    Another component of this is making sure that residents get 
tenant protection vouchers more quickly so that they have a 
choice and, for the long-term, working with Congress to ensure 
that we can strengthen our enforcement capabilities.
    So for instance, our fiscal year 2017 budget requests 
authority for HUD to issue double damages to owners that 
violate their Section 8 contract with HUD, a penalty that's 
less burdensome on tenants than abatement, and the same 
enforcement capabilities for the 202 project rental assistance 
contract properties for the elderly and disabled as for other 
Section 8 project based rental assistance properties.
    So we want to make sure that we have all the tools that we 
can to effectively enforce, and that includes improving our own 
processes and working with Congress where we need that help.
    Senator Collins. Thank you.
    Senator Reed.

                 FEDERAL PROGRAMS FOR HOMELESS VETERANS

    Senator Reed. Well, thank you very much, Madam Chairman.
    Again, Mr. Secretary, Senator Collins and I share this 
concern about the HUD-VASH vouchers, the fact that progress has 
been made, but there's no request this year for additional 
vouchers, even though roughly 48,000 veterans are still in the 
United States looking for homes.
    Are there any other Federal partnerships or programs in 
place to provide housing and service to these veterans who are 
experiencing homelessness that could sort of soften the blow, 
if you will, or help you?
    Secretary Castro. Well, there absolutely are, Ranking 
Member Reed, both within HUD and also in other agencies. And 
the U.S. Interagency Council on Homelessness (USICH) has been 
fantastic at coordinating the focus on veterans, but just to 
give you a good example of that, the VA is continuing to fully 
fund the Supportive Services for Veteran Families, or SFVS, at 
$300 million. They've committed to fully staffing all of the 
homelessness programs under their auspices. The Department of 
Labor has its Homeless Veterans Reintegration Program.
    And we found that one of the most effective ways of driving 
down veteran homelessness, in addition to HUD-VASH, was to use 
mainstream resources, the prioritization of mainstream 
resources that go into the hands of veterans. And we are 
absolutely committed to continuing to do that.

                   UPDATING STANDARDS FOR LEAD PAINT

    Senator Reed. Thank you, Mr. Secretary. There's another 
area that the chairman and I share, and that is the lead 
exposure. And we've all been galvanized by the incident in 
Flint from water pipes, but roughly 70 percent of exposure 
comes from lead paint, which is ubiquitous. It's all over the 
place, particularly in older neighborhoods like Bangor and 
Portland and Providence.
    And as you mentioned in your testimony, the CDC recently 
has strengthened the lead standard, because they found that 
minute quantities of lead are toxic, very toxic to children, 
and cause long-term damage. And you suggested that HUD is going 
to modify your stand to reflect this. Can you give us an idea 
when that will happen?
    Secretary Castro. Yes. Well, we just submitted, on March 8, 
the proposed new rule to the OMB, and so this will go through 
the rulemaking process. One of the components of this is to 
bring our standard in conformity with the CDC standard.
    I will note that, since 2013, we actually have strongly 
recommended that our grantees conform to that standard, but I 
also understand that strongly encouraging is not the same thing 
as requiring, so it will require that. It will also make more 
robust responsibilities that folks who come into knowledge 
about elevated blood levels in children have in terms of 
notification.
    I also applaud--I know Senator Durbin is working on and 
other have proposed a lead-based paint legislation. We look 
forward to doing what we can with this new rule and also 
working with Congress to improve enforcement and inspections 
and so forth.

                         LEAD PAINT INSPECTIONS

    Senator Reed. And you've sort of led me to my next 
question, which is the issue of inspection. The chairman 
pointed out the broad based issues in terms of how do these 
properties slip through. When it comes to lead, information we 
have is it's sort of a variable standard, and it's not 
consistently enforced. And as you increase and strengthen the 
regulation, you literally will have more units that fall 
outside the standard.
    Can you talk about how you're going to ensure that there's 
a consistent standard for lead inspections, it's enforced 
consistently, particularly in an additional group of units?
    And the other issue I would just point out, and you 
suggested, too, is many times the only way you find out about 
this, not by a proactive inspection, but the child shows up in 
an emergency room, they draw blood, and they found they've been 
exposed, and then suddenly, they go to the unit and start 
inspecting and saying, ``Boy, this is terrible.'' I think we've 
both like to see that reversed. Your comments?
    Secretary Castro. I believe we're in agreement here, and 
we're committed on our end actually to working toward a common 
inspection standard, and we're committed basically to improving 
this process fully within what is in our authority, including 
on the inspection standard.
    You're correct that right now, based on whether it's 
multifamily housing or Section 8 housing, there are different 
categories of requirements and inspection standards, and we 
would like to work to bring those into harmony. And some of 
that, we can do on our own. Other pieces of that, we're 
definitely going to need congressional help.
    I met with Senator Durbin just a couple of days ago on this 
issue, and so look forward to working on it.
    Senator Reed. Thank you.
    Senator Collins.
    Senator Collins. Thank you very much, Senator Reed.
    Senator Schatz.

                   HOUSING VOUCHERS FOR THE HOMELESS

    Senator Schatz. Thank you, Chairwoman Collins and Ranking 
Member Reed. And I want to thank Secretary Castro for the help 
that HUD has provided to Hawaii. And I had the opportunity 
yesterday to meet with Jennifer Ho and talk about our 
partnership with the PHAs and service providers in the State, 
and I just wanted to say thank you to you and your excellent 
staff.
    And I also want to request that you stay engaged and make 
sure that, as we transition to a new administration, that we 
retain the commitment at the career professional level to 
maintain continuity. Whatever happens in city, State, and 
Federal administrations, this is a partnership that I think has 
to continue.
    With respect to homelessness, I support the request for 
additional housing vouchers, but I want to understand how these 
vouchers are going to be allocated if funded.
    And specifically, I want to make sure that places like 
Hawaii, that have the need certainly to justify more resources 
but are smaller than some of the big urban areas with needs 
that could frankly swallow up whatever else we're able to 
appropriate, how do we make sure these dollars are spent 
throughout the country wherever there are needs, including 
Hawaii, but also other rural areas?
    Secretary Castro. And thank you, Senator, for your 
engagement with our staff. I know you and I have had the 
opportunity to sit down and speak to these issues, and I know 
how engaged you are on this and what a pressing challenge it is 
in Hawaii. I also just recently met, visited with the governor, 
and have, on a couple of occasions, visited with Mayor Caldwell 
of Honolulu.
    Your question relates to essentially making sure that 
communities like those in Hawaii get their fair share, I 
imagine, of resources. And I want to assure you that, as we 
allocate these vouchers, that we do so in a way that ensures 
that it's not just the biggest of cities or the usual suspects, 
so to speak, that get these resources.
    They're allocated, in fact, based on relative need, and 
that need it not determined just based on population, but 
instead, it considers other factors, such as the rate of 
homelessness in the area, availability of existing resources, 
the geographic concentration, housing market conditions, and 
other pertinent factors.
    And so it is a multidimensional analysis that goes into the 
allocation of these vouchers. I'm very well aware of the 
challenge there in Honolulu particularly and on the West Coast 
more broadly.
    I had a chance to sit down with several mayors in a West 
Coast mayor's summit to tackle some of these issues of growing 
street homelessness, unsheltered homelessness, and we look 
forward to continuing to work with you and the folks in Hawaii 
on this challenge.
    Senator Schatz. Thank you. And thanks to Senator Reed and 
Chairwoman Collins' leadership.

                      NATIONAL HOUSING TRUST FUND

    As you know, 2016 will be the first year that the States 
receive an allocation from the National Housing Trust Fund to 
focus on creating affordable housing options for people earning 
30 percent of area median income (AMI). When do you expect to 
be able to push these dollars out?
    Secretary Castro. Yes, we expect that the first allocations 
of the Housing Trust Fund, the HTF, will be made this summer.
    There's a timeline here that will kick off basically in 
April, where States will have to submit to us a State 
allocation plan, and then we'll have 45 days to respond to 
that. So we think that the timeline, we're confident that the 
timeline now for the States that most timely submit their plan 
is going to be in the summer.
    And we look forward to that, because, as you mentioned, 
this HTF is important, because it's serving extremely low-
income individuals which suffer from the biggest gap in 
affordability for housing that is out there. So it's a unique 
tool that we can use to fill that gap.

                     FAIR MARKET RENT CALCULATIONS

    Senator Schatz. Thank you. And in my limited time left, I'd 
like to just flag an issue for you, which I'm sure you're aware 
of, but especially in the State of Hawaii, this fair market 
rent (FMR), the level that is set in terms of FMR, is just 
totally unrealistic.
    For instance, on Kauai, HUD set FMR for a two bedroom unit 
at $1,238. It's actually $1,800 throughout the island of Kauai. 
And so that's too big of a delta for people living on fixed 
income. It's too big of a delta in a place where we pay three 
to four times the national average in terms of electricity.
    And so we're going to need your help to kind of remedy 
this, first of all in terms of the way you set FMR, but second 
of all, then you ask the county to conduct a study at its own 
expense, $50,000 or so, and then I think that, you know, at 
both of those steps, we're not doing this right. Thank you.
    Secretary Castro. Thank you.
    Senator Collins. Thank you very much, Senator.
    Senator Daines.
    Senator Daines. Thank you, Madam Chair. Secretary Castro, 
welcome to the committee.
    I grew up in the housing business. My dad's a home builder, 
so I spent most of my summers working on construction crews 
there putting myself through college. And this is such an 
important issue for me personally, certainly housing, 
difference between a house and a home, right, such an important 
part of America, the American dream and so forth.
    But this hearing does come in the wake of a long trail of 
instances, established a pattern within HUD of waste and abuse 
of taxpayer funds. I want to probe that a bit here with you, if 
I could, Secretary Castro.
    Certainly, the mission of HUD is very laudable. The fact 
is, is repeatedly misallocated resources, that are meant to 
really help low-income households in the ordinary course of 
operations, and I'm concerned about accountability.

                HIGH INCOME HOUSEHOLDS IN PUBLIC HOUSING

    You've seen the July 21, 2015 inspector general report, 
which revealed that HUD provided housing assistance to over 
25,000 households that exceeded the income limit, some earning 
incomes over $90,000. These misallocated funds total over $100 
million.
    At the same time, there were 600,000 low-income families 
were left waiting in public housing backlog. Let me put that in 
perspective. That's more families than in my entire State. 
These numbers aren't small.
    The first question is, does HUD accept the responsibility 
for the over $100 million that OIG estimated was misallocated 
away from low-income households?
    Secretary Castro. Thank you for bringing this up, Senator. 
We share the concern here, of course. And the report from the 
inspector general did identify those 25,000 units out of about 
1.1 million units.
    We share the concern. We agree with the inspector general 
that, particularly in these egregious cases, some of which were 
pointed out in that report, these egregious cases of over-
income tenants that they ought not to be living in public 
housing. So we, in short order, sent out a letter to public 
housing authorities strongly encouraging them to address these 
cases.
    We also have put out an advanced notice of proposed 
rulemaking that would actually allow us to change the way that 
we handle these cases.
    Senator Daines. Yes, Secretary Castro, on that point, and I 
appreciate that rulemaking, that was result of what was 
required and prompted by the fiscal year 2016 appropriations 
bill.
    Secretary Castro. Well, I think it's consistent with what 
the direction that HUD wants to go in as well. It's also true, 
though, that this issue has come up before. It came up a few 
years ago and was in the hands of Congress. And I think what it 
boils down to is that there needs to be some nuance in how this 
is approached.
    For instance, if somebody is, you know, literally making 
$20 more than the income cutoff, are we going to summarily put 
them on the street because they're $20 off? It requires, I 
think, a recognition that we do want folks who live in public 
housing to work and try and earn more income, so that they can 
better themselves and become upwardly mobile.
    I think the challenge is, how much of a grace period do we 
give folks, recognized that we want them to be able to be more 
self-sufficient.
    Senator Daines. Yes, and I'd agree that the $20 probably 
gives us less heartburn than those who were found making in 
excess of $90,000 a year, which I think is a real concern.
    Secretary Castro. I agree. Yes, I agree.

      OFFICE OF INSPECTOR GENERAL--SEMI-ANNUAL REPORT TO CONGRESS

    Senator Daines. I want to pivot over and talk a bit now 
about another issue which the HUD inspector general semi-annual 
report to Congress published just this last September, 
September 30, 2015. The audit results revealed $1.9 billion, 
with a B, of funds that could have been put to better use, 
according to the report, and $2.1 billion in questioned costs. 
And again, I'm quoting the inspector general. I believe 
Congress must ensure that HUD is a good steward of taxpayer 
funding, and I'm sure you'd agree with that.
    My question is, the inspector general just published its 
report here end of last fiscal, what can we expect the next 
semi-annual report that will be issued March 31, which is 
coming up here in a few weeks? What number can we expect to 
come out of that report, and what's your goal?
    Secretary Castro. Well, our goal is that all funds are used 
exactly as they should be and that we improve our performance 
on this score. And so let me assure you that--and I know that 
the inspector general is going to testify in just a little 
while----
    Senator Daines. Well, let me say this. I spent 28 years in 
business. I understand aspirational targets, and certainly, we 
should aspiring to zero. But there's an old saying, at least 
coming from business, if you aim at nothing, you'll hit it.
    I mean, is there a goal set here? If the inspector general 
said there's $1.9 billion of funds that could be put to better 
use and $2.1 billion questioned costs, did anybody sit down and 
say, okay, we're not going to get that overnight, we better set 
a target here, try to hit here in the next report?
    Secretary Castro. Yes, the way that we approach that is to 
work with the inspector general and say these are the 
recommendations that the inspector general made so that we can 
cut down on those instances, and our goal is to implement those 
recommendations. And so across the board----
    Senator Daines. Well, let me say, a goal of implementing is 
an activity. I'm looking for the results. What result do you 
expect we'll see here? The activity produces--ultimately, it's 
a mean to an end. What's the end going to be do you think?
    Secretary Castro. So I'd be glad to follow up with you on 
the ones that can implemented within this fiscal year, because 
you asked about the fiscal year, and so it depends on which 
ones can be implemented during the fiscal year and what their 
budgetary impact would be.
    Senator Daines. That would be helpful, because I think it's 
important that we all hold ourselves accountable with something 
that's quantitative. And so this will be a mid-fiscal report, 
then I'd like to see a glide path March 16--or excuse me, March 
31 will be a number followed by a September 30 number here as 
we're trying to make that number lower.
    It's not going to get to zero, I think we all agree. We'd 
like to see it at zero. I think it's important we have some 
glide path metrics here, so we can make sure we're making 
progress here, reduce the waste and abuse of the program.
    Thank you, Secretary Castro.
    Secretary Castro. Thank you.
    Senator Collins. Thank you, Senator Daines. I want you to 
know that one reason I'm inviting the inspector general to 
testify both at both HUD and Transportation at our hearings is 
precisely because of the issues you've just raised, so that we 
can make sure we hear from the inspector generals on the areas 
that deserve our further attention as well as the Secretary's. 
So thank you for raising that issue.
    Senator Murphy.
    Senator Murphy. Thank you, Madam Chairman. Good afternoon, 
Mr. Secretary. Good to see you again. Thank you very much for 
your visit to Connecticut about a month ago. You were very 
generous to spend a day with us, and we're busy at work on many 
of the initiatives that you helped us launch and accentuate 
while you were there.

                      CHURCH STREET SOUTH PROJECT

    I wanted to cover two topics with you this morning, one 
related to your visit, talk a little bit about HUD's work with 
the city of New Haven to address the Church Street South 
project that you remarked on when you were there, and second, 
talk a little bit about the 811 Supportive Housing program 
moving forward.
    But first, I think this is your last appearance before the 
Appropriations Committee. I just want to thank you personally 
for your work, for your focus on many of our shared priorities, 
and we really have noticed how attentive and the Administration 
has been to many members of this committee. So I thank you for 
that.
    So maybe I'll start with our situation in New Haven. You 
know the details. This is a HUD-funded project, Church Street 
South, that is really in absolutely decrepit condition, to the 
point where we've had to move many of the residents out. Black 
mold, bedbugs, really bad crumbling lead infrastructure are the 
main causes.
    And I guess my question to you is two-fold. I just want to 
get your continued assurance that HUD is going to continue to 
work with us, not just to move the residents out of that 
facility but to then rebuild that affordable housing capacity, 
but second, what we've learned is that the Real Estate 
Assessment Center (REAC) doesn't really look at some of the 
conditions that were the root cause of the problem in Church 
Street South. So for instance, black mold, bedbugs, and lead 
don't seem to be part of that assessment.
    And so I know you've got a short amount of time left 
between now and the end of the President's term, but are you 
thinking about ways to make these REAC assessments maybe mirror 
some of the real threats that a lot of families are dealing 
with, mold and bedbugs at the top of the list, which are 
becoming, you know, real epidemic problems in places like 
Connecticut?
    So one, do we have your continued commitment to help solve 
this particular problem? And then is there a reform of REAC 
that you'll be working on?
    Secretary Castro. Yes, and let me just briefly say thank 
you, and I enjoyed the visit to Connecticut and having the 
opportunity to hear some of the concerns of folks throughout 
the State. And of course, we have been working on Church 
Street. We'll look forward to making sure that those residents 
have what they need in terms of tenant protection vouchers.

                        REAC INSPECTION PROCESS

    To answer your question just directly, the answer is that 
we do need to improve our REAC inspections process. And I 
believe we can make some of those improvements internally, on 
others that we may need legislative help.
    You brought up mold, for instance. It's my understanding 
that one of the challenges that we have is that right now, the 
detection of mold does not trigger a negation or subtraction of 
points to the degree that it probably should and that we need 
to adjust the scoring system there, and that in this case and 
in some other cases that we've seen, that that would help us be 
able to get to intervention or enforcement quicker.
    So we would like to work with you. You absolutely do have 
my commitment to continue to work with you, both in ways that 
that can be improved, that that process can be improved, and 
that we ensure we're taking care of those residents.

                     SECTION 811 SUPPORTIVE HOUSING

    Senator Murphy. I appreciate both of those commitments.
    In the time that I have remaining, just wanted to talk to 
you about the Section 811 Supportive Housing program, what a 
tremendous success that program has been over the course of the 
last 3 years. We were building about 500 new units out of 811 
with Federal dollars when I came to Congress, in part because 
of legislation that I helped write, where now, over the last 3 
years, we built 7,500 units with Federal dollars, great credit 
to the folks who have administered the changes that the law 
included in your Department.
    But this year's budget, I think, flat funds 811. After 2 
years of requests of about $25 million in increases, there's 
not any new money in 811 this year. I just wanted to sort of 
ask you about the decision to flat fund 811 and ask you to give 
an update on the continued reforms that are really leveraging 
massive private sector and State level and local level dollars.
    Big success story, but I don't want our successes to abate 
and us to maybe think that we don't need to allocate as much 
Federal money because of our success in getting other partners 
to put money into these projects.
    Secretary Castro. And certainly, we're proud of those 
partnerships, and as you know, in 2012 and 2014, we completed 
two NOFA competitions that resulted in the award of $218 
million to 28 States and the District of Columbia.
    You're right that we did request last year, I believe, 
funds for 700 new units. That request is not in the budget. I 
do put this into the category of very tough choices that we 
made in this budget, but that's not because we're not committed 
to the 811 program. We see the value of it. We see the housing 
opportunity that it is creating out there for a needy 
population and look forward to continuing to work with you on 
it.
    Senator Murphy. States like ours are just in tremendous 
budget crunches, in part because, when you don't properly house 
these individuals, the cost of inappropriate care, where it--be 
in emergency rooms or prisons, gets passed largely down to 
State governments.
    And so, coming from a State that has pretty regular budget 
deficits these days, this small investment that we make at the 
Federal level saves an awful lot of money to the taxpayer at 
the State level.
    I know I'm preaching to the converted here, and I thank you 
for your commitment to the 811 program. Thank you, Madam Chair.
    Senator Collins. Thank you. Senator Murray, welcome back to 
your old subcommittee.
    Senator Murray. Great to be here. Thank you for the great 
job that you're doing, both of you. I really appreciate it.

                              HOMELESSNESS

    Mr. Secretary, good to see you again. Let me start with an 
increasingly urgent issue in my State, that's homelessness, 
which I know is a struggle for many States, but it's gotten so 
bad now that the mayor of Seattle and the King County executive 
have both declared states of emergency. And I believe this 
issue really demands a coordinated and robust response from 
local, State, and, of course, the Federal Government.
    The numbers actually really tell the story here. In the 
early hours of January 29, hundreds of volunteers walked 
through Seattle and King County neighborhoods, as they do 
everywhere, to count the number of people sleeping outside in 
doorways, cars, beneath overpasses, or just on the ground.
    The preliminary results show a 19-percent increase in the 
number of unsheltered men, women, and children, and some parts 
of our county experienced increases of over 50 percent over 
last year, and that's, of course, on top of double digit 
increases the year before.
    These are really heartbreaking situations for everyone, 
especially tragic when more and more children are involved. But 
it's not just happening in our most populated areas. It's 
happening in our suburbs, it's happening in smaller cities, 
Longview and Vancouver in my State, where families are actually 
being priced out of their homes.
    And I really think it's important that the Federal 
Government does all it can to help provide the resources in 
coordination with State and local authorities. I was really 
encouraged to see the President's commitment to addressing this 
crisis reflected in your Department's budget request with 
targeted investments in rapid rehousing, permanent supportive 
housing, and new vouchers.
    Many organizations in my State, from our housing 
authorities to groups like Seattle's Downtown Emergency Service 
Center, are really providing some excellent examples of how 
these investments can change lives for the better.
    I wanted you to talk for a few minutes about HUD's strategy 
for addressing homelessness. And is there sufficient 
coordination between the different levels of government here?
    Secretary Castro. Thank you, Senator Murray, for your 
leadership. I know that you and I have had a chance to speak on 
some of these issues, as well as Moving to Work (MTW), which I 
know is important to you.
    Senator Murray. Right. Which thank you very much for your 
staff for working on that.
    Secretary Castro. So we have had a lot of success over the 
last several years in reducing not just veteran homelessness 
but family homelessness, chronic homelessness. But it's also 
true that in the last year to 18 months, we've seen a spike in 
unsheltered homelessness in some communities, and particularly 
along the West Coast.
    A few months ago in Portland, I joined the mayors of 
Seattle, Portland, San Francisco, and Los Angeles at this West 
Coast mayor's summit to address these very issues.
    And so, number one, I want to assure you that our staff is 
working hand in hand with the Seattle mayor to see how we can 
provide technical assistance. We spoke at that meeting about 
waivers that might be offered to ensure that they could be as 
effective as possible with their resources. We spoke about the 
need for continuing to invest in housing first, because that is 
the most effective way to end homelessness, but recognizing 
that we need a successful street strategy as well for the 
unsheltered population.
    And we see a similar thing in Los Angeles, that it's not 
just on skid row, it's out there in the suburbs and the other 
parts of LA that people don't normally think of as having 
homeless people.
    So that's why I'm very proud of the proposal that's in this 
budget, both on the mandatory side and on the discretionary 
side, and particularly with regard to the population that we're 
talking about, the rapid rehousing intervention as well as the 
25,500 units of permanent supportive housing to deal with 
chronic homelessness, these are the, I think, strategic 
investments that we can make to deal with the challenge.
    Senator Murray. And I want to thank our chair, Senator 
Collins, and our ranking member, Senator Reed, for the 
commitment they have continually shown to make sure that no 
family who relies on a voucher to stay in a safe home loses 
that support. Even when this subcommittee had a really tough 
allocation last year, you made a commitment to that, and I 
really appreciate it.

                            LOCAL RENT COSTS

    I'm going to work to continue to protect those existing 
vouchers and, of course, work for more. But a major challenge 
for HUD is proper allocation of the resources it has given for 
the voucher program. This is a really difficult task, given the 
complexity of local housing trends across the country, and I 
really do want to applaud you and your Department for working 
hard to continue to refine the formula used to accurately 
capture local rent inflation.
    Seattle and King County in particular have experienced huge 
year-over-year rent increases that couldn't have been 
predicted. When HUD last fully revised its inflation formula, 
it was back in 2012. I was glad to hear that, when this year's 
inflation factor was announced recently, HUD was better able to 
capture that drastic increase.
    But this is an issue that requires continued analysis, and 
I just want to ask for your commitment to continue to examine 
that renewal funding inflation factor, to make sure it's 
working for what we need to today.
    Secretary Castro. We absolutely will. And, you know, we 
were pleased to work in forecasting as we set those levels, and 
I think that's important, particularly for communities like 
Seattle, which ranks at the top in terms of the increase in 
rent. So we absolutely can make that commitment.

                             MOVING TO WORK

    Senator Murray. Okay. And I did want to thank you, again, 
for your staff's hard work on the Moving to Work. It was really 
essential. And separately, if you can give us an update on how 
that's working, I'd appreciate it.
    And I just wanted to mention to you, we have a vacancy in 
our regional HUD administrator office, and I've heard from many 
that the acting regional administrator, Donna Batch, has been 
just providing excellent reliable leadership, and I hope we can 
get that filled soon.
    Secretary Castro. I'm glad to hear that. Thank you.
    Senator Murray. Great. Thank you.
    Senator Collins. Thank you, Senator. We will do one more 
round of questions for the Secretary before we turn to the 
inspector general. I know he's very much looking forward to 
another round of questions, and I didn't want to disappoint him 
in any way.

                   COMMUNITY DEVELOPMENT BLOCK GRANTS

    Mr. Secretary, I mentioned how disappointed I am that the 
budget, once again, proposes a $200 million reduction, that's 
nearly 7 percent, in the Community Development Block Grant 
program. Last year, the justification was that there were going 
to be legislative changes submitted to the Congress that would 
somehow justify the funding cut. We never received those 
legislative proposals.
    Once again, in this year's budget request, the same funding 
reduction exists and the same promise of a legislative proposal 
that would justify the funding reduction is made. What are 
those legislative reforms, and when will we receive them?
    Secretary Castro. Yes, thank you very much for the 
question. And I will say that I am a big fan of CDBG. As a 
former mayor, that was my favorite program.
    Senator Collins. You're a mayor, right.
    Secretary Castro. And I know how flexible it is. The mayors 
were in town last week, and of course, every time I see them, 
they mention how much they appreciate CDBG. So I am very much 
aware of how important this program, this particular program, 
is to America's local communities, and we do want to preserve 
it.
    We do intend--we would like to submit legislation to create 
more flexibility and also to help communities maximize the 
resources that they have now. One example of that was for 
smaller communities, allowing them to share in terms of 
overhead cost or pool their overhead costs, their 
administrative costs, so that they can use more of that money 
in an impactful way.
    Something else that we're proposing here is this upward 
mobility initiative, and that's an initiative that would allow 
10 communities, in a demonstration way, to pool their Community 
Development Block Grant, their home money, their Social Service 
Block Grant, and Community Service Block Grant funds between 
HUD and the Department of Health and Human Services (HHS), pool 
those together and get a bigger bang for their buck on local 
projects. We think that that's one way of making that money go 
further, by enhancing flexibility.
    The other part of it, I would say, just candidly, chairman, 
is, you know, that we do see this extreme challenge with the 
housing need. And right now, our best estimate is that 25 
percent of CDBG is actually used directly on housing.
    And so what we have are--it's a great program, and I know 
that it's not only meant for housing, that it's meant for other 
infrastructure investments in local communities, and I know 
when I was mayor, we used it for that as well.
    But in these difficult choices that we're making in the 
budget, also, we've chosen to focus a little bit more on, okay, 
how can we get that direct housing money to communities, and 
that's another reason.
    Senator Collins. Well, we look forward to getting the 
specifics. I'm glad that you talked with your fellow mayors, 
and that they reminded you of the value of this program. It's 
been absolutely critical as the lynchpin of many economic 
development projects in my State, whether it's revitalizing 
downtowns or cleaning up waterfront areas. And it has produced 
investment, jobs, and better housing as well.

                       YOUTH EXITING FOSTER CARE

    As you know, based on your visit to Maine, and I very much 
appreciated that visit where we went to the New Beginnings 
Youth Homeless Shelter in Lewiston, the issue of reducing the 
homelessness among our youth is one that is a passion of mine. 
And last year, Senator Reed and I worked very closely together 
to provide some new funding, despite the budget constraints.
    But one area where there's clearly a breakdown among the 
supporting agencies at all levels of government is in the 
context of youth who are aging out of the foster care program. 
Youth that are exiting foster care are at a significantly 
higher risk of falling into homelessness, yet HUD's budget 
materials are silent, not only on coordination with the child 
welfare system, but also on how to better leverage these 
significant funding resources.
    What is HUD doing to better coordinate with State and local 
facilities to help those young people who may, in some States, 
still be in high school, and yet are aging out of the foster 
care program and literally have nowhere to go?
    Secretary Castro. Yes, thank you so much for that question. 
Number one, we do coordinate with child welfare agencies. And 
you're right that this is a particular challenge for young 
people who are aging out of that foster care system. And so we 
believe that, and we have proposed that, we be able to extend 
the time that a person can avail himself or herself of that 
voucher from 18 months to 5 years, and that that is just so 
important to ensure stability in the person's life.
    In the demonstration project that we've undertaken, we've 
combined it with family self-sufficiency. So we believe that 
the combination of these two, going up to 5 years and 
participation in the family self-sufficiency program, will set 
that young person on a more stable course to be able to, you 
know, get a job, be gainfully employed, provide for themselves, 
and become self-sufficient, because you're correct that all of 
the data shows that this is a particularly vulnerable 
population.
    And we would be glad to follow up with you. If there are 
other ways that you think we ought to be working with child 
welfare agencies, we're glad to do it.
    Senator Collins. Thank you very much.
    Senator Reed.

           UNITED STATES INTERAGENCY COUNCIL ON HOMELESSNESS

    Senator Reed. Well, thank you, Madam Chairman, again.
    One of the issues that's come up persistently is most of 
these programs, if not all of them, require interagency 
coordination. And when you responded to my question about VASH, 
you mentioned the Interagency Council on Homelessness, and that 
was formed in the 80s. It's scheduled to expire in October 
2017. Actually, about ten times, it's been scheduled to expire. 
But it raises the issue of how you're going to do the 
coordination with veterans, for example, with the Department of 
Veterans Affairs (VA), with Department of Defense.
    When it comes to the youth homelessness program, which 
Senator Collins led on, really, that's going to--engagement 
with Department of Education, engagement with local education 
authorities, Department of Labor. Will the demise or the 
projected demise of this Interagency Council impede your 
efforts in any way, or how are you going to plan to compensate 
for this?
    Secretary Castro. Yes, and I'm glad to get to address this, 
Senator. USICH has just been tremendously important to 
achieving the reductions in homelessness that we have seen 
across the board. And the best example of that has been on 
veteran homelessness.
    USICH coordinates the activities, as you know, of 19 
different Federal agencies. Earlier in my remarks I mentioned, 
in responding to a question about HUD-VASH, about SSVF, about 
the Department of Labor's programs. Of course, there's HHS and 
so forth.
    USICH has very effectively taken those different pieces and 
helped the agencies break through silos to work together 
effectively to reduce veteran homelessness. And it's doing the 
same thing this year on youth homelessness and other types of 
homelessness.
    So I just want to note that I strongly support the 
President's call for extending the agency's authorization, at 
least until 2020. I believe that we would not nearly be where 
we are on veteran homelessness had it not been for the 
leadership at USICH. We just can't accomplish it in the same 
way without that coordination.

                           YOUTH HOMELESSNESS

    Senator Reed. Let me focus more specifically on youth 
homelessness. Again, last year, the subcommittee included $33 
million for demonstration to test and target intervention for 
youth. You're requesting this year $25 million for a continuing 
care project that targeted youth. Does this $25 million build 
on, complement? How is it related to the existing $33 million 
program?
    Secretary Castro. Yes, the way we see it--of course, what 
we see out there is tremendous need. And so we were very, very 
pleased with the $33 million that was dedicated last year. 
We're in the process of making that real for communities out 
there, and we look forward to a competitive process and then an 
implementation where communities across the United States, who 
are being innovative and creative, will be able to drive down 
their numbers of youth homelessness.
    This $25 million request is meant to build on that, to 
further drive down those numbers on youth homelessness. And we 
think that the experience that we've had working in a cross-
agency way on veteran homelessness will be very helpful as we 
address youth homelessness and family homelessness as well.
    Senator Reed. And you're confident that you can get the 
grants out under the existing $33 million in such a way that 
they're ready to accommodate additional grants under your 
proposal this year?
    Secretary Castro. I am confident.
    Senator Reed. Because one thing, frankly, we don't want to 
be in a situation where you're still really honestly trying to 
work out a grant program, and then you ask for sort of an 
additional add-on, but that, I think has----
    Secretary Castro. Yes, I know, and I should have been more 
precise, perhaps, to say that I am confident in that, that we 
have a very dedicated team, and that we would ensure that 
that's done so that these two can work together.

                    FAMILY SELF-SUFFICIENCY PROGRAM

    Senator Reed. Let me ask a final question about the family 
self-sufficiency program. In 2015, we gave the Department 
authority to expand the program to project-based Section 8 
households, and since then, you have started to pilot this at 
several sites. Can you give us the status of the pilot and when 
you think you'll be prepared to issue guidance so that all 
project-based property owners can apply or have access to it?
    Secretary Castro. Yes, you know, we do believe that it 
makes sense for PBRA, or project-based rental assistance, to be 
able to participate in family self-sufficiency (FSS). And so 
right now, to give you an update, we're finalizing the 
implementing notice for FSS in multifamily properties. And 
we're looking forward to getting stakeholder feedback, and 
we're going to post the draft notice to the HUD Web site by 
March 15 to see comments from stakeholders.
    Senator Reed. Thank you. Thank you, Madam Chairman.
    Senator Collins. Thank you very much, Mr. Secretary. I know 
that many of the members as well as Senator Reed and I have 
additional questions, but we will submit them to you for the 
record, and we will keep that record open until Friday, March 
18.
    Senator Collins. We will now go to our second witness, 
Inspector General Montoya.
    Secretary Castro. Thank you all very much.
    Senator Collins. Thank you very much, Mr. Secretary. Mr. 
Inspector General, please proceed.
STATEMENT OF HON. DAVID A. MONTOYA, INSPECTOR GENERAL, 
            DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
    Mr. Montoya. Chairman Collins, Ranking Member Reed, and 
members of the subcommittee, thank you for the opportunity to 
discuss the Office of Inspector General fiscal 2017 budget 
request, the Department's top management and performance 
challenges, and our oversight of HUD's programs and operations.
    I'm pleased to highlight the results from fiscal year 2015 
semiannual reports to the Congress and how our budget request 
supports and advances our efforts.
    In 2015, our audits and other reviews resulted in nearly $2 
billion in recommendations that funds be put to better use, 
over $2 billion in questioned costs, and nearly $500 million in 
collections. Our investigative efforts also led to nearly $670 
million in restitution, judgments, recoveries, and receivables. 
When you add in our civil recoveries and receivables, our total 
results are close to $6 billion.
    According to an April 2015 report by Brookings, my office 
ranked third of all Office of Inspectors General for a high 
return on investment, meaning that for every dollar my office 
spent, we brought in approximately $30 in savings or recovered 
funds between 2010 and 2014. Our overall return on investment 
for fiscal year 2015 is over 46-to-1.
    Our request of $129 million in fiscal year 2017 includes 
additional funds to hire specialized skills and resources to 
fund cost of living adjustments, increased benefit costs, and 
within grade increases. Our request is a modest one that will 
assist us not only to continue but to enhance our efforts and 
oversight of two very large financial institutions which are 
vital to the U.S. economy.
    We will continue to build on the successes of the last 
number of years and ensure our work provides the means to keep 
the Secretary and the Congress fully and currently informed 
about the Department's problems and deficiencies while also 
highlighting best practices. I note that we have seen efforts 
by the Department to address their challenges.
    Our mission is to also promote economy efficiency and 
effectiveness in the Department's programs and operations. In 
doing so, we have determined that achieving HUD's mission 
continues to be an ambitious challenge for its limited staff, 
given its diverse programs, the thousands of intermediaries 
assisting the Department, and the millions of beneficiaries of 
its housing and development programs.
    Proposed and new program changes have introduced new risks, 
oversight, and enforcement challenges. For example, the 
national credit and financial crisis continues to have a 
profound impact on departmental operations. HUD is an important 
component of the Nation's housing industry, and in that, FHA-
insured mortgages financed approximately one-fourth of all home 
purchases in the United States. FHA's portfolio now exceeds $1 
trillion.
    Over the past 5 years, Ginnie Mae has seen its outstanding 
mortgage-backed securities increase by more than 50 percent and 
has experienced its fastest growth in the last 6 years. As of 
August 2015, Ginnie Mae's mortgage-backed securities portfolio 
exceeded $1.6 trillion and is estimated to reach the $2 
trillion mark in a little over a year.
    We remain concerned that increases in demand on the FHA 
program are having collateral implications on the integrity of 
Ginnie Mae's mortgage-backed securities program, including the 
potential for increases in fraud.
    Finally, in October 2016, my office reported on nine 
management and performance challenges facing HUD in 2016 and 
beyond. Our work has noted that these challenges are so 
interrelated and interconnected that one impacts another to 
such a degree that, in many cases, the Department will not be 
able to remedy one without first correcting another. This 
becomes a taxing challenge to determine which needs to come 
first or whether several need to be accomplished 
simultaneously.
    A common thread underlying many of these management and 
performance challenges is the lack of a cohesive department-
wide approach to enforcement, risk management, monitoring, and 
following through on our findings.
    While HUD is starting to make some changes in certain 
programs to correct this, we will continue to stress a 
department-wide risk monitoring approach that is data driven 
and supports taking appropriate actions when warranted.
    I want to acknowledge that I have regular meetings with 
Secretary Castro and Deputy Secretary Coloretti on HUD's 
management and performance challenges, and their continued 
interest and focus is paramount to ensuring HUD can address and 
correct these longstanding issues.
    My office is strongly committed to working with the 
Department and the Congress to ensure that these important 
programs operate efficiently and effectively as intended for 
the benefit of those most in need now and into the future.
    Again, thank you for the opportunity. I'm looking forward 
to the questions that you may have of me.
    [The statement follows:]
              Prepared Statement of Hon. David A. Montoya
    Chairman Collins, Ranking Member Reed, and Members of the 
Subcommittee, I am David Montoya, Inspector General of the U.S. 
Department of Housing and Urban Development (HUD). Thank you for the 
opportunity to discuss the Office of Inspector General's (OIG) fiscal 
year 2017 budget request. The committee also asked that I address the 
Department's top management and performance challenges and my Office's 
oversight of HUD's programs and operations.
    The Department's primary mission is to create strong, sustainable, 
inclusive communities and quality, affordable homes for all. HUD seeks 
to accomplish this mission through a wide variety of housing and 
community development grant, subsidy, and loan programs. Additionally, 
HUD assists families in obtaining housing by providing Federal Housing 
Administration (FHA) mortgage insurance for single-family and 
multifamily properties. It relies upon many partners for the 
performance and integrity of a large number of diverse programs. Among 
these partners are cities that manage HUD's Community Development Block 
Grant funds, public housing agencies that manage assisted housing 
funds, HUD-approved lenders that originate and service FHA-insured 
loans, Government National Mortgage Association (Ginnie Mae) mortgage-
backed security issuers that provide mortgage capital, and other 
Federal agencies with which HUD coordinates to accomplish its goals. 
HUD also has responsibility for administering disaster assistance 
programs which has evolved substantially over the years. It also has 
assumed a prominent role in administering new mortgage assistance and 
grant programs in response to the Nation's financial crisis, to 
increases in foreclosures, and to declining home values.
    I want to acknowledge that I have continuing open dialogues with 
Secretary Castro and Deputy Secretary Coloretti on the management and 
performance challenges that the Department faces and on the work my 
office does to bring these matters to their attention. I meet regularly 
with them and their key staff on areas of concern.
    I am pleased to highlight the results from our last two Semiannual 
Reports to the Congress which showcase key results for fiscal year 
2015. The Inspector General Act requires each inspector general to 
report on its results every 6 months. My office is charged with 
eliminating and preventing fraud, waste, abuse and mismanagement in HUD 
programs and operations, and the audits, evaluations and investigations 
conducted by my office have had a significant impact on safeguarding 
Federal funds. My office takes the approach that early detection and 
prevention are key to ensuring taxpayer funds are not lost. During the 
last two 6-month cycles, we issued 148 audits and other reviews, which 
resulted in nearly $2.0 billion in recommendations that funds be put to 
better use, over $2.1 billion in questioned costs, and nearly $500 
million in collections from audits. Our investigations led to nearly 
$670 million in restitution, judgments, recoveries and receivables. Our 
audits, evaluations and investigations assist HUD in identifying 
program vulnerabilities and the rest of my testimony will focus on the 
management and performance challenges faced by HUD as well as the OIG's 
budget request for the upcoming fiscal year 2017.
                                overview
    The mission of the Office of Inspector General is not only to 
prevent and detect fraud, waste, and abuse in the programs and 
operations of the Department but to promote economy, efficiency and 
effectiveness as well. We accomplish this by conducting independent 
audits, evaluations, and investigations. The work performed by our 
auditors, evaluators, and investigators provides the means to keep the 
Secretary and the Congress fully and currently informed about the 
Department's problems and deficiencies while also highlighting best 
practices. After identifying problems and deficiencies, we make 
recommendations to improve operations and follow-up with departmental 
officials on corrective actions. We are committed to reducing fraud at 
the outset or at least halting it at the earliest opportunity. 
Protecting taxpayer dollars is one of the Inspector General's highest 
priorities in order to account for money going to the right place, 
doing what it was supposed to do, and having the results it was 
intended to have. We actively pursue financial and other fraud schemes 
in all of HUD's programs that can have a significant economic impact 
often at the expense of the American taxpayer.
                        fiscal year 2017 request
    OIG requests $129 million and 655 Full Time Equivalents (FTE) in 
fiscal year 2017. This includes additional funds for the cost of new 
hires and resources to fund cost-of-living adjustments, promotions, 
increased benefit costs, and within grade increases. Despite some 
struggles to replace lost staff previously due in part to budget 
interruptions, in fiscal year 2015 the OIG was able to make gains in 
total FTE as part of the overall goal of building the organization back 
to pre-sequestration levels. The OIG is continuing to build on this 
success into fiscal year 2016. Utilizing this active workforce 
management should allow the OIG to maintain a staffing base that is 
moving closer to historical norms and what is needed based on workload 
facing the organization. Twelve new FTEs are requested for fiscal year 
2017 representing a small increase over fiscal year 2016. Approximately 
seven FTE will operate within the Office of Audit, where the skill sets 
needed will mostly concentrate on the increased workload as a result of 
bringing the HUD consolidated financial statement audits in-house which 
requires highly specialized skills in Federal financial auditing, 
actuarial modeling, and information technology (IT) skills. The 
remaining five new FTEs will bolster the Office of Evaluations 
multidisciplinary teams that work on overseeing, testing, and improving 
the information security systems and protocols in place within HUD, 
which require highly technical skills in IT security and penetration 
testing, especially in light of breaches to Federal IT systems.
                         oig program divisions
Office of Audit
    The Office of Audit (OA) is responsible for conducting audits to 
identify, evaluate, and report on the Department's activities and 
programs so corrective actions can be taken and future problems can be 
prevented. Auditors assigned to headquarters and to seven regional 
offices initiate audits based on information obtained from program 
officials, program research, complaints, congressional requests, and 
risk assessments.
    OA provides oversight across a wide array of responsibilities. The 
funding requested for the mission of OA allows the organization to 
expand and concentrate its expert oversight in several areas:
  --Financial audits consisting of the HUD Consolidated Financial 
        Statement including the audit of FHA ($1.2 trillion mortgage 
        insurance program) and Ginnie Mae ($1.6 trillion in mortgage-
        backed securities) which determine whether financial statements 
        are fairly presented, internal controls are adequate, and 
        regulations have been followed. Because of the critical impact 
        these agencies have had to the financial stability of the 
        national economy particularly during the last downturn, the OIG 
        began performing FHA's and Ginnie Mae's financial audits in-
        house in fiscal year 2014. This was done to ensure the highest 
        level of accuracy and due diligence.
  --Information system audits determine, among other things, the 
        adequacy of general and application controls, and whether 
        security over information resources is adequate, and in 
        compliance with system development requirements. Ensuring 
        taxpayer and HUD client information is stored with the 
        guarantee that it will be safe and private is something system 
        audits seeks to scrutinize and work to correct when 
        vulnerabilities are found. In addition, OA has been involved 
        with assessing new information system deployments within HUD, 
        an especially large task with HUD's transition to a shared 
        services system with the Department of Treasury.
  --The Joint Civil Fraud Division is a multidiscipline team that 
        audits and reviews, working with investigators, attorneys, and 
        other support staff, any suspected financial fraud against HUD 
        and makes referrals for civil actions and administrative 
        sanctions. This group provides case support to the Department 
        of Justice, Civil Division; United States Attorney's Offices 
        nationwide; and HUD's Office of General Counsel to investigate 
        and bring civil fraud cases. As a result, since this initiative 
        began, the Government has reached civil settlements regarding 
        FHA deficient loan underwriting totaling $3.5 billion for 
        alleged violations of the False Claims Act; the Financial 
        Institutions Reform, Recovery, and Enforcement Act; and the 
        Program Fraud Civil Remedies Act. Nearly $2.4 billion of the 
        $3.5 billion in settlements is of direct benefit to the FHA 
        insurance fund and I am proud that the HUD OIG staff from 
        different components played a prominent role in these efforts.
    Moreover, the OA has been incredibly successful in rooting out and 
exposing waste, fraud, abuse of taxpayer funds. In fiscal year 2015, 
the HUD-wide impact of the audit findings and reports totaled $4.1 
billion. This amount compared with the OIG's appropriated dollars means 
that for every appropriated dollar received, $36 are returned to 
taxpayers or reallocated to other valued mission objectives. When 
combined with other OIG units (investigations, evaluations, and other 
support divisions) the overall return on investment rises to even more 
returned per dollar spent.
Office of Evaluation
    The Office of Evaluation (OE) provides a flexible and effective 
mechanism for oversight and review of HUD's operations, programs and 
policies by using a multidisciplinary staff and multiple methods for 
gathering and analyzing data. OE is comprised of integrative teams, 
concentrating on areas of risk and multiple methods for analyzing data 
providing a flexible and effective process to produce impartial and 
reliable results. In an effort to concentrate resources where they can 
be most effective, and where the greatest institutional risk is 
present, several priorities have been identified:
  --HUD maintains a tremendous amount of data in many diverse systems 
        and databases. The ability for OE to leverage the information 
        from those systems into products that can be used to identify 
        fraud and wasteful tendencies before they occur, or early on so 
        that they do not have the chance to grow into a larger problem, 
        is a central goal and tenet of the OE mission. Using the data 
        available to recognize patterns from historical events and to 
        learn how those patterns can be used to prevent future 
        incidents is a powerful tool that OE is trying to enhance in 
        strength and deploy in larger scale. In addition to directly 
        identifying weaknesses in the administration of HUD funds and 
        programs, the task of improving data analysis and predictive 
        analytics will provide OIG with the best information when 
        communicating with constituents, directing enforcement 
        strategies, and allocating limited resources.
  --Cybersecurity and insuring the protection of IT systems has become 
        a mission of the utmost importance for the Federal Government 
        as a whole. HUD is at a critical crossroads with the aging of 
        the Department's IT infrastructure and the need to modernize 
        these systems. In this environment, the opportunities for 
        assessing cybersecurity are heightened. In addition many HUD 
        systems are supported by outside vendors. While this model of 
        IT acquisition and maintenance is sometimes necessary, it also 
        creates additional IT security vulnerabilities or risk. OE 
        contributes to the OIG's IT security mission by conducting 
        necessary oversight and by monitoring these systems.
  --OE is responsible for conducting the Federal Information Security 
        Modernization Act of 2014 (FISMA) reviews and other IT 
        operational evaluations. One of the best tools that the OIG has 
        to measure this security effectiveness is technical testing to 
        include ``penetration testing.'' Penetration testing can be 
        conducted in different ways and on multiple levels to 
        technically test mandated IT security controls. Recently we 
        conducted testing which greatly assisted in finding 
        vulnerabilities within the HUD network and provided the OIG 
        with additional key information and recommendations for FISMA 
        reporting. Into the future, follow-up technical testing will be 
        required by the OIG to validate corrective action of previously 
        found vulnerabilities are being implemented by HUD, to assess 
        other areas of the HUD network, FISMA assessment topics, or any 
        future Federal cybersecurity guidance.
    The Office of Evaluation is maturing and becoming fully staffed and 
operational with the heightened mission; the key to completing this 
process is ensuring the timely and consistent availability of budgetary 
resources and critical technical skills.
Office of Investigation
    The Office of Investigation (OI) is responsible for the development 
and implementation of the OIG's investigative activities and is 
comprised of criminal investigators, investigative analysts, and 
administrative personnel. OI initiates and conducts criminal, civil and 
administrative investigations of possible violations of laws and 
regulations relating to the administration of HUD programs and HUD-
funded activities as well as employee misconduct.
  --The Office of Investigation has recently produced significant 
        criminal and civil findings relating to HUD program fraud, 
        including participation in large-scale settlements that have 
        returned money to the FHA fund. OI has made it a priority to 
        root out fraud involving the origination of FHA mortgages, 
        multifamily equity skimming schemes at housing developments 
        receiving HUD subsidized rental assistance for tenants, and at 
        nursing homes. These efforts have produced noteworthy results 
        in the past and this trend is expected to continue into the 
        future. The OIG is a full-time participant in the Department of 
        Justice's Financial Fraud Enforcement Task Force where the 
        Inspector General is the Co-Chair of the Mortgage Fraud Working 
        Group. This focus on finding and identifying fraudulent 
        activity will continue to protect taxpayers from those who look 
        to defraud the government, negatively impact the financial 
        health of our economy, and undermine the true mission of HUD 
        programs.
  --OI also works to reduce fraud, waste, and abuse in the Public and 
        Indian Housing arena, with a focus on Public Housing 
        Authorities (PHAs). Ensuring that public housing dollars are 
        being administered properly and utilized by the intended 
        recipients is a challenge the Office of Investigation 
        emphasizes every day. This work with the PHAs takes on many 
        different forms: identifying public corruption, management and 
        administration deficiencies, contract fraud, embezzlement, 
        bribery, and rental assistance fraud. The fight against 
        corruption also takes place in the management of Community, 
        Planning and Development grant programs.
  --OI continues to dedicate time and resources to the work in 
        communities affected by previous disasters, such as the Gulf 
        Coast area after Hurricane Katrina and, more recently, 
        Hurricane Sandy. Designated disaster sites are provided large 
        amounts of grant and emergency funding in the wake of these 
        disasters. OI conducts investigations of fraud and abuse of 
        disaster recovery funds efforts, assists to ensure that these 
        resources are utilized properly, and leads the effort to 
        prevent disaster fraud schemes. It also provides training to 
        those entities tasked at the State and local level on how to 
        detect and deter fraud and abuse.
    Over the last 4 years the Office of Investigation has produced over 
$4.3 billion in criminal judgments and nearly $2.2 billion in 
recoveries. The reach of this office is extended by resources that keep 
investigators in the field working with the tools they need to root out 
the waste, fraud, and abuse they are tasked with exposing.
              hud's performance and management challenges
    Achieving HUD's mission continues to be an ambitious challenge for 
its limited staff given the agency's diverse programs, the thousands of 
intermediaries assisting the Department, and the millions of 
beneficiaries of its housing and development programs. The national 
credit and financial crisis continues to have a profound impact on 
departmental operations. Proposed and new program changes have 
introduced new risks, oversight and enforcement challenges. HUD is an 
important spoke to the Nation's housing industry in that FHA-insured 
mortgages finance approximately one-fourth of all home purchases in the 
United States and in that it has stepped in to bolster the marketplace 
during economic challenges.
    In October 2016, OIG reported on nine key management and 
performance challenges facing HUD for fiscal year 2016 and beyond. They 
are so interrelated and interconnected that our reviews suggest one 
impacts another to such a degree that, in many cases, the Department 
will not be able remedy one without first correcting another. This 
becomes a taxing challenge to determine which needs to come first or 
whether several be accomplished simultaneously. These challenges are in 
the following areas:
    1. Human capital management,
    2. Financial management governance of HUD,
    3. Financial management systems,
    4. Information security,
    5. Single-family programs,
    6. Public and assisted housing program administration,
    7. Administering programs directed toward victims of natural 
disasters,
    8. Office of Community Planning and Development programs, and
    9.  Compliance with the Improper Payments Elimination and Recovery 
Act of 2010.
    Since our October 2016 report, my office has completed an 
additional evaluation relating to HUD's acquisition management and its 
efforts to address long-standing concerns in this area. I have added a 
discussion to summarize the results of that review.
Human Capital Management and Financial Management Governance
    For many years HUD has struggled and been challenged to effectively 
manage its limited staff to accomplish its primary mission. HUD 
continues to lack a valid basis for assessing its human resource needs 
and allocating staff within program offices. Several studies have been 
completed in recent years by the Office of Personnel Management and the 
Government Accountability Office that point to a lack of human capital 
accountability and insufficient strategic management of human capital 
as pervasive problems at HUD. To some extent, these human capital 
challenges have contributed to HUD's inability to maintain an effective 
financial management governance structure which we have been reporting 
for the past 3 years as part of our annual audits of HUD's financial 
statements.
    In our most recent report on HUD's fiscal year 2015 financial 
statements, we continued to report that HUD's financial management 
governance remained ineffective. While HUD and its components took 
steps to address some of the weaknesses in its financial management 
governance structure and internal controls over financial reporting, 
deficiencies continued to exist. Specifically, HUD needs to recruit and 
hire a Chief Financial Officer and Deputy Chief Financial Officer (CFO) 
with the requisite accounting and technical financial management skills 
to provide stronger direction to program office accounting so as to 
improve financial management and governance issues throughout the 
Department and specifically at Ginnie Mae. Additionally, HUD needs to 
be more consistent in its control and monitoring activities, including 
front-end risk assessments, management control reviews and 
reconciliation activities.
    These conditions stemmed from the lack of a senior management 
council which limits the CFO's ability to stress the importance of 
financial management and to facilitate internal control over financial 
reporting throughout HUD. Additionally, as we have reported in prior 
year audits, HUD did not have reliable financial information for 
reporting and has been slow in replacing its outdated legacy financial 
systems. Weaknesses in program and component internal control that 
impacted financial reporting were caused in part by a lack of financial 
management governance processes. Entity-level controls could improve 
HUD's governance and enable the prevention, detection, and mitigation 
of significant program and component-level internal control weaknesses. 
As a result, there were multiple deficiencies in HUD's internal 
controls over financial reporting, resulting in misstatements on the 
financial statements and noncompliance with laws and regulations.
    A 2015 report from the National Academy of Public Administration 
(NAPA) also recognized the need for an internal management council to 
strengthen HUD's financial governance structure and enhance its 
monitoring of financial activity and controls. Such a council would:
  --Assess and monitor deficiencies in internal control resulting from 
        HUD's assessment process.
  --Advise the HUD Secretary of the status of corrections to existing 
        material weaknesses.
  --Inform the Secretary of any new material weaknesses that may need 
        to be reported to the President and Congress through the annual 
        financial report.
    We believe that these are critical steps towards establishing 
effective internal controls. In addition to its concerns and 
recommendations regarding HUD's impending transition to a shared 
service provider for financial management functions, NAPA found that 
HUD should strengthen its finance workforce. As we have previously 
reported, HUD's ability to monitor and perform routine financial 
management activities has been hampered by both turnover and reductions 
in staff. Between 2009 and 2014, there was a 40 percent turnover in CFO 
staff and an 11 percent reduction in full-time permanent CFO employees. 
Between 2014 and 2015 there was a 15 percent turnover and a 9 percent 
reduction in full-time employees. The turnover and reductions have 
placed additional burdens on CFO staff and limited its ability to 
perform its duties in a timely and efficient manner.
    In addition to issues at the Departmental level, we have identified 
significant financial governance issues within Ginnie Mae. In fiscal 
year 2015, Ginnie Mae failed to maintain a governance framework to 
ensure the reliability and integrity of Ginnie Mae's financial and 
accounting information. This failure in governance was the underlying 
cause of the problems cited in the Ginnie Mae financial statement audit 
report. Specifically, Ginnie Mae failed to adequately:
  --Identify, analyze, and respond to changes in the control 
        environment and risk associated with the acquisition of a 
        multi-billion-dollar servicing portfolio.
  --Establish accounting policies, procedures, and systems to manage 
        and control the loan accounting and processing of the 
        activities related to its defaulted issuers' portfolio.
  --Oversee the implementation of the budgetary accounting module in 
        its financial system to ensure accurate reporting of budgetary 
        activity.
    This condition occurred because of finance staff turnover and 
insufficient internal controls to manage the risks associated with 
business decisions and changes in its business environment. 
Additionally, Ginnie Mae's executive leadership failed to backfill a 
number of critical financial management positions, including the deputy 
chief financial officer, controller, and the economic modeling 
director, all of which have significant financial reporting roles. 
These positions had been vacant for an extended period, and Ginnie Mae 
relied heavily on contractors to compensate for finance staffing 
deficiencies. As a result, serious financial reporting deficiencies 
occurred at Ginnie Mae, the most recent of which required $1.9 billion 
of restatement adjustments to HUD's fiscal year 2014 consolidated 
financial statements. Compounding the problem was Ginnie Mae's late 
notification, inadequate communication, and lack of transparency, 
resulting in difficulties for HUD's CFO to preparing consolidated 
financial statements within the required timeframes and ultimately 
inhibiting our ability to validate the accuracy of the accounting 
adjustments. Time will tell whether a recent leadership change within 
Ginnie Mae will ameliorate some of these conditions.
    Ginnie Mae's management of risks associated with (1) handling 
complex and changing financial management operations without the 
appropriate accounting policies and procedures in place and (2) 
monitoring the work performed by third-party service providers on 
Ginnie Mae's multi-billion-dollar servicing portfolio have challenged 
Ginnie Mae's inadequate financial management staff. These governance 
weaknesses contributed to Ginnie Mae's inability to produce auditable 
financial statements.
Financial Management Systems
    Annually since 1991, OIG has reported on the lack of an integrated 
financial management system, including the need to enhance FHA's 
management controls over its portfolio of integrated insurance and 
financial systems. HUD has been working to replace its current core 
financial management system since fiscal year 2003. The previous 
project, the HUD Integrated Financial Management Improvement Project 
(HIFMIP), was based on plans to implement a solution that replaced two 
of the applications currently used for core processing. In March 2012, 
work on HIFMIP was stopped and the project was later canceled. This 
previous attempt to use a commercial shared service provider to start a 
new financial management system failed after more than $35 million was 
spent. Our review of the project determined that OCFO did not properly 
plan and manage its implementation of the project.
    In the fall of 2012, the New Core Project was created to move HUD 
to a new core financial system that would be maintained by a shared 
service provider, the U.S. Department of the Treasury's Bureau of 
Fiscal Services (BFS). We have completed two audits of HUD's 
implementation of the New Core Project. In the first audit, published 
in June 2015, we found that weaknesses in the planned implementation of 
release 3 of phase 1 in the New Core Project were not adequately 
addressed. We determined that HUD did not follow its own agency 
policies and procedures, the policies established for the New Core 
Project, or best practices. HUD will become the first cabinet-level 
agency to use a Federal shared service provider. The transfer of its 
financial management to a shared service provider has been widely 
publicized. If HUD is not successful in this implementation, it could 
reflect negatively on OMB's mandate to use Federal shared service 
providers. The weaknesses identified in this report relate to 
requirements and schedule and risk management. These areas are 
significant to the project plan, and the effectiveness with which HUD 
manages them is critical to the project's success.
    Our second review, published in September 2015, found that HUD's 
implementation of release 1 of phase 1 was not completely successful. 
Due to missed requirements and ineffective controls, interface 
processing of travel and relocation transactions resulted in inaccurate 
financial data in HUD's general ledger and BFS' financial system. As a 
result, processing continued for more than 6 months with unresolved 
errors, leaving HUD's general ledger and BFS' financial system with 
inaccurate financial data and discrepancies in the balances between 
HUD's general ledger and Treasury's Government Wide Accounting System. 
We concluded that the implementation of release 1 confirmed the 
concerns we cited in our initial review. Although HUD had taken action 
to mitigate some of the problems that occurred with release 1 and 
address some of the issues we highlighted, we are concerned that HUD 
could be moving too fast with its implementation plans and may repeat 
these weaknesses.
    We are also concerned about the current state of FHA's IT systems 
and the lack of systems capabilities and automation to respond to 
changes in business processes and the IT operating environment. In 
August 2009, FHA completed the Information Technology Strategy and 
Improvement Plan to address these challenges, which identified FHA's 
priorities for IT transformation. The plan identified 25 initiatives to 
address specific FHA lines of business needs. Initiatives were 
prioritized with the top five related to FHA's Single-family program. 
The FHA transformation initiative was intended to improve the 
Department's management of its mortgage insurance programs through the 
development and implementation of a modern financial services IT 
environment. The modern environment was expected to improve loan 
endorsement processes, collateral risk capabilities, and fraud 
prevention. However, to date, few initiatives have been completed 
because of a lack of funding. The transformation team is in operations 
and maintenance mode for the few initiatives that have been 
implemented, and has limited capability to advance with the project due 
to the continued lack of funding.
    Overall, funding constraints diminished HUD's ability to complete 
the new application systems and phase out and deactivate the outdated 
systems. Some progress has been made by creating new systems with 
modernized capabilities that replaced manual processes. However, many 
legacy systems remain in use. Another concern is the ability to 
maintain the antiquated infrastructure on which some of the HUD and FHA 
applications reside. As workloads continue to gain complexity, it 
becomes more difficult to maintain these legacy systems, which are 15 
to 30 years old, and ensure that they can support the current market 
conditions and volume of activity. The use of aging systems has 
resulted in poor performance and high maintenance costs. As part of our 
annual review of information systems controls in support of the 
financial statements audit, we continue to report weaknesses in 
internal controls and security regarding HUD's general data processing 
operations and specific applications. The effect of these weaknesses is 
that the completeness, accuracy, and security of HUD information is at 
risk of unauthorized access and modification.
Information Systems Security Controls
    HUD information systems have extensive amounts of sensitive data, 
with thousands of entities in the private sector and program officials 
directly accessing and using HUD applications daily. However, HUD has 
not adequately planned for its future IT and IT security needs. The 
primary HUD infrastructure services contract is in a period of 
transition and the agency has been forced to issue short-term sole-
source contracts with the previous vendors to ensure continuation of 
service. Further, a significant number of critical HUD applications are 
legacy systems that are increasingly difficult to maintain and present 
security risks that HUD will be challenged to mitigate without 
modernization. Legacy systems are difficult or unable to migrate to 
cloud technology, further complicating the agency's long-term efforts 
to modernize and secure its systems and data while creating 
efficiencies and cost savings.
    HUD has taken some initial steps to address these long-term 
challenges. The agency has finally filled and stabilized several key 
positions including the Chief Information Officer, Chief Information 
Security Officer, Chief Technology Officer, and Enterprise Architect. 
Strategic longterm planning documents have been developed, including an 
Enterprise Architect Roadmap aimed in part at guiding modernization 
efforts, and a Cybersecurity Framework to address IT security program 
deficiencies and prioritize initiatives to correct deficiencies. 
Notable change and implementation from these initiatives is not 
anticipated to be realized until later this year. Further, successful 
implementation of these plans will be directly dependent upon the 
agency's ability to obtain adequate resources including technical 
expertise. In the process of outsourcing infrastructure and application 
maintenance and support, HUD has divested itself of much of its 
technical expertise and continues to face significant staffing 
challenges. For example, an organizational chart provided to OIG during 
its fiscal year 2015 FISMA assessment reflected that 17 of the 35 key 
managerial/supervisory positions stationed at headquarters were either 
vacant (13) or filled by temporary ``acting'' personnel (4) during 
fiscal year 2015. This presents significant challenges to HUD's ability 
to conduct technical security reviews of its infrastructure (e.g., 
penetration testing, network assessments) or adequately oversee the 
technical security provided by vendors.
    Meanwhile, our annual evaluation of HUD's IT security program, as 
mandated by Federal Information Security Management Act (FISMA), has 
revealed continued and extensive noncompliance with Federal IT 
guidance. As depicted in OIG's fiscal year 2015 FISMA report, HUD has 
extensive deficiencies in five of the ten program areas which OIG 
reports to OMB. HUD is showing progress in remediating these 
deficiencies; examples include significant upgrades in its security 
awareness training program, account access management, and issuance of 
proper guidance for managing Plans of Action and Milestones (POA&Ms). 
However, the agency has not adequately addressed many long-standing 
security weaknesses identified in prior OIG evaluations.
Procurement and Contract Management
    In prior years, we have reported on various concerns relating to 
HUD's procurement and contract management including HUD's information 
technology infrastructure contracts and HUD's transition to the third 
generation of its management and marketing contracts that are used to 
manage and dispose of its extensive inventory of foreclosed Single-
family properties. HUD continues to be challenged by its over-reliance 
on contractors in general and its ability to allocate sufficient 
resources to adequately oversee its contractor work force.
    HUD has developed several acquisition improvement initiatives to 
address the long-standing concerns in this area. We recently completed 
an evaluation to assess the status of these efforts and whether 
practices used by other agencies would enhance the quality and 
effectiveness of HUD acquisitions.\1\ HUD had made progress in several 
areas, including revising and updating its procurement handbook and 
redesigning its web site. However, some initiatives had not been fully 
implemented or completed on schedule. HUD officials said that 
additional resources would be needed to effectively implement ongoing 
and planned improvement efforts. HUD had not developed a sound, 
cohesive strategy to address its improvement initiatives, and program 
offices did not all agree on resource requirements and respective 
responsibilities for their acquisitions staff.
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    \1\ Evaluation Report 2015-OE-0004, Comprehensive Strategy Needed 
To Address HUD Acquisition Challenges, February 2, 2016.
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    Some of HUD's improvement initiatives did not follow successful 
program management practices or meet the U.S. Government Accountability 
Office's criteria for achieving an efficient, effective, and 
accountable acquisition function. We identified several successful 
practices of other Federal agencies that would improve HUD's 
acquisition function by using measurable objectives and goals, building 
partnerships, engaging stakeholders, managing change, streamlining 
functions, and training staff.
    HUD procurement officials and the program offices did not always 
collaborate or communicate effectively and did not agree on the best 
way to address acquisition problems. HUD had also not maintained cost 
and performance metrics to determine where inefficiencies existed. 
Program offices continued to experience challenges, and some sought 
alternatives in shared services arrangements with Federal agencies to 
accomplish their acquisition objectives because the Department could 
not do it for them. HUD leadership needs to address these issues, or 
its acquisition function will remain at risk.
Single-Family Programs
    FHA's Single-family mortgage insurance programs enable millions of 
first-time borrowers and minority, low-income, elderly, or other 
underserved households to benefit from home ownership. HUD manages a 
sizable portfolio of Single-family insured mortgages exceeding $1.2 
trillion. Effective management of this portfolio represents a 
continuing challenge for the Department.
    For the 6 years following the financial crisis of 2008, the FHA 
fund had failed to meet its legislatively mandated 2 percent capital 
ratio. From a low following the financial crisis, the fund has shown 
gradual improvement and, at the end of fiscal year 2015, the capital 
ratio stood at 2.07 percent. Much of this success is heavily dependent 
on a strong Home Equity Conversion Mortgage insurance program (HECM), a 
program we have reported on several times. The HECM program is 
sensitive to a number of factors that can influence its financial 
stability which then, in turn, can have a significant impact on the 
achievement of an adequate capital ratio as mandated by statute. While 
barely above the mandated level, this improvement is a positive 
development and occurred a year earlier than predicted at the end of 
2014. Restoring the fund's reserves and finances has been a priority 
for HUD, and it has increased premiums, reduced the amount of equity 
that may be withdrawn on reverse mortgages, and taken other steps to 
restore the financial health of the fund.
    It is incumbent upon the Department to make every effort to prevent 
or mitigate fraud, waste, and abuse in FHA loan programs. OIG continues 
to take steps to help preserve the FHA insurance fund and improve FHA 
loan underwriting by partnering with the Department, the U.S. 
Department of Justice, and multiple U.S. Attorney's offices nationwide 
in a number of FHA lender civil investigations. In some instances, 
these investigations involve not only the loan underwriting of FHA 
loans but also the underwriting of conventional loans and government-
insured loans related to Federal programs other than FHA. For those 
investigations that involved OIG's assistance on the FHA-related part 
of the cases, the Government has reached overall civil settlements 
yielding nearly $13.2 billion in damages and penalties in the last 4 
fiscal years.
    For the FHA-insured loans, results in the last 4 fiscal years have 
shown that a high percentage of loans reviewed should not have been 
insured because of significant deficiencies in the underwriting. As a 
result and as pointed out in the beginning of the testimony, the 
Government has reached civil settlements regarding FHA loan 
underwriting totaling $3.5 billion for alleged violations of the False 
Claims Act; the Financial Institutions Reform, Recovery, and 
Enforcement Act; and Program Fraud Civil Remedies Act. Nearly $2.4 
billion of the $3.5 billion is of direct benefit to the FHA insurance 
fund. Ongoing investigations are expected to lead to additional 
settlements that will further strengthen the health of the fund.
    In spite of these positive steps, we remain concerned about HUD's 
resolve to take the necessary actions going forward to protect the 
fund. HUD is often hesitant to take strong enforcement actions against 
lenders because of its competing mandate to continue FHA's role in 
restoring the housing market and ensure the availability of mortgage 
credit and continued lender participation in the FHA program. For 
example, FHA has been slow to start a rigorous and timely claims review 
process. OIG has repeatedly noted in past audits and other types of 
lender underwriting reviews HUD's financial exposure when paying claims 
on loans that were not qualified for insurance, most recently last 
year. Adding to this concern, HUD increased its financial exposure by 
not recovering indemnification losses.
    The Reverse Mortgage Stabilization Act of 2013 gave FHA the tools 
to improve the fiscal safety and soundness of the HECM program in a 
timelier manner. Despite the ability to quickly make needed changes as 
appropriate to the program, FHA faces challenges in ensuring that 
homeowners comply with the principal occupancy requirements (though not 
all dual HECM's are considered improper). For example, borrowers are 
not required to repay the loan as long as they continue to occupy the 
insured property as its principal residence. To date, OIG has completed 
four audits on the HECM program and compliance with principal occupancy 
requirements. Our initial audit identified borrowers with more than one 
HECM loan despite the principal occupancy requirement. Borrowers were 
able to obtain more than one HECM loan because of a lack of controls in 
place to identify this noncompliance. The Department has been receptive 
to our findings and has implemented controls to address this problem.
    Departmental clearance is a necessary and important process to 
ensure requisite agreement by applicable HUD leadership on the subject 
matter and content of a directive or policy change. This action 
requires a review by HUD offices that have expertise, policy or legal, 
with the subject matter of the change and that there is no conflict 
with other HUD or administration policies.
    At a time when FHA is working to restore confidence in the housing 
market, OIG has concerns that when the Department is making program, 
policy or procedural changes, it is (1) not identifying the significant 
changes in its notice, (2) not following the formal clearance process 
and instead opting for a more informal method, or (3) avoiding the 
process altogether and making changes unilaterally. For example, in May 
2015, HUD issued a notice in the Federal Register seeking OMB approval 
for information collection. However, OIG believes that the notice did 
not adequately describe the changes to be made. The Notice proposed to 
make changes to the loan-level certifications that lenders must make to 
obtain insurance from FHA. As a result, the certification process 
became ineffective and allowed loan originators, firms, or principals 
that have been convicted of certain violations to do business with FHA. 
However, this detail was not provided in the notice. Another example is 
FHA's Single-Family Housing Loan Quality Assessment Methodology (Defect 
Taxonomy). The goal of this methodology is to give lenders better 
clarity on the quality assurance reviews of their FHA loans. Although 
HUD stated that the draft Taxonomy documents had been published on 
FHA's Drafting Table web site, FHA did not follow the proper protocol 
for issuing a new directive. These changes fit the description of a 
directive change and should have been announced through the proper 
steps and clearance process as outlined in its own Handbook.
    FHA also remains vulnerable to criminal activity and single-family 
criminal investigations continue to be a priority of my office. We 
recently concluded an investigation of Great Country Mortgage Bankers, 
a former FHA mortgage lender in Miami, FL. The owner of the company was 
sentenced in U.S. District Court to 135 months incarceration and 60 
months supervised release and agreed to forfeit $8 million following 
his conviction of conspiracy to commit wire fraud affecting a financial 
institution. From at least 2006 through September 2008, the owner and 
other conspirators specialized in approving FHA loans primarily for 
buyers of condominiums at complexes where he had an ownership interest. 
As part of the scheme, the conspirators provided false information on 
loan documents to qualify borrowers and in some cases, also paid 
inducements to borrowers to purchase the condominium units. Many of the 
loans defaulted, causing losses to FHA and financial institutions. To 
date, 25 individuals have been charged in this investigation, including 
the owner, 3 partner developers, and 20 former employees of the 
mortgage lender. Of those charged, 14 individuals have pled guilty, and 
1 has signed a plea agreement. Losses to FHA exceeded $64 million. This 
case, and others, highlight why the HUD OIG believes that FHA needs to 
remain diligent in its efforts, including keeping or enhancing 
practices that oversee and monitor abusive or wasteful behavior, aimed 
at those who seek to harm the viability of the program and ultimately 
the public.
    Over the past 5 years, Ginnie Mae has seen its outstanding 
mortgage-backed securities increase by more than 50 percent and has 
experienced its fastest growth in the last 6 years. As of August 2015, 
Ginnie Mae's mortgage-backed securities (MBS) portfolio exceeded $1.6 
trillion and is estimated to reach the $2 trillion mark in a little 
over a year and a half. We remain concerned that increases in demand on 
the FHA program are having collateral implications for the integrity of 
Ginnie Mae's MBS program, including the potential for increases in 
fraud. Ginnie Mae securities are the only mortgage-backed securities to 
carry the full faith and credit guaranty of the United States. If an 
issuer fails to make the required pass-through payment of principal and 
interest to MBS investors, Ginnie Mae is required to assume 
responsibility for it. Typically, Ginnie Mae defaults the issuer and 
assumes control of the issuer's government or agency MBS pools. 
Historically, Ginnie Mae issuer defaults have been infrequent, 
involving small to moderate-size issuers. However, major unanticipated 
issuer defaults beginning in 2009 have led to a multi-billion-dollar 
rise in Ginnie Mae's nationwide mortgage servicing as well as its 
repurchase of billions of dollars in defaulted whole loans to meet its 
guarantee commitments to MBS investors. In the near term, these changes 
have strained both its operating and financial resources.
    Another key challenge facing Ginnie Mae is the risk posed by the 
growing number of Ginnie Mae issuers that are institutions other than 
banks. In June 2011, 7 of the top 10 servicers were banks, but by 
September 2015, only 4 of the top 10 servicers were banks. Ginnie Mae's 
potential for losses occurs when an issuer fails to fulfill its 
responsibilities. With the significant shift of its business going to 
nonbanks, Ginnie Mae can no longer rely on the Office of the 
Comptroller of the Currency and other bank regulators to ensure that 
its servicers can meet their financial obligations. To mitigate the 
risks, Ginnie Mae will need to be more involved with nonbanks to 
adequately monitor them, which would require Ginnie Mae to increase its 
current staffing level and expertise.
    With the approval of OMB and Congress, Ginnie Mae has significantly 
increased its management capacity. The total number of Ginnie Mae full-
time employees increased from 89 in fiscal year 2012 to 130 at the end 
of fiscal year 2015. However, Ginnie Mae continues to rely heavily on 
third-party contractors to perform almost all key operating loan 
servicing, pool processing, and other functions. It is imperative to 
the country's larger financial health that Ginnie Mae be able to 
increase staffing with the needed skills, knowledge, and abilities to 
manage a $1.6 trillion program.
    Ginnie Mae could benefit from an estimated 30 positions with a 
higher salary level than what the general schedule allows in order to 
attract the needed and specialized skill sets to operate in the U.S. 
financial market. HUD's lack of human capital management support and a 
weak procurement process have contributed to Ginnie Mae's inability to 
promptly recruit and hire needed skills as well as hampered its ability 
to operate swiftly and timely in the marketplace.
Public and Assisted Housing Program Administration
    HUD provides housing assistance funds under various grant and 
subsidy programs to public housing agencies (PHA) and multifamily 
project owners. These intermediaries, in turn, provide housing 
assistance to benefit primarily low-income households. The Office of 
Public and Indian Housing (PIH) and the Office of Multifamily Housing 
Programs provide funding for rent subsidies through public housing 
operating subsidies and the tenant-based Section 8 Housing Choice 
Voucher and Section 8 multifamily project-based programs. More than 
4,000 intermediaries provide affordable housing for 1.2 million 
households through the low-rent operating subsidy public housing 
program and for 2.2 million households through the Housing Choice 
Voucher program. Multifamily project owners assist more than 1.5 
million households.
            Housing Choice Voucher Monitoring
    HUD has a challenge in monitoring the Housing Choice Voucher 
program. The program is electronically monitored through PHAs' self-
assessments and other self-reported information collected in PIH's 
systems. Based on recent audits and HUD's on-site confirmatory reviews, 
the self-assessments are not always accurate and the reliability of the 
information contained in PIH systems is questionable. PIH targets PHAs 
for various types of on-site reviews using its Utilization Tool and 
National Risk Assessment Tool. It also states that it will further 
address limitations with the Next Generation Management System, which 
continues to be delayed due to a shortage in IT funding. HUD will 
continue to face challenges in monitoring this program until it has 
fully implemented a reliable, real-time, and all-inclusive monitoring 
tool.
            Central Office Cost Centers
    We are concerned that HUD may not be ensuring that deFederalized 
administrative fees paid to PHAs for their public housing program are 
reasonable. We found that HUD could not adequately support the 
reasonableness of operating fund management, book-keeping, and asset 
management fees and Public Housing Capital Fund management fee limits. 
In addition, HUD lacked adequate justification for allowing PHAs to 
charge an asset management fee, resulting in more than $81 million in 
operating funds being unnecessarily deFederalized annually. Our concern 
continues to be that the fee amounts implemented are not supported and 
may not be reasonable. Excess administrative fees, if deFederalized, 
are not required to be used for the public housing program. Ensuring 
that only the funds that are needed are transferred to the COCC will 
allow more funds to be used directly for the public housing program. 
After input from OMB, HUD and OIG have reached an agreement to 
implement the recommendations as stated in our audit report. HUD has 
agreed to reFederalize the fees and will be reevaluating the fee 
amounts. HUD will need to go through the rulemaking process to fully 
implement the changes, so it may take some time.
            Cash Management Requirements
    In fiscal year 2012, PIH implemented procedures to reduce the 
amount of excess funds accumulating in PHAs' net restricted asset 
accounts in accordance with Treasury's cash management requirements as 
directed by a congressional conference report. By that point, a 
significant amount of reserves had accumulated with the PHAs. As of 
2015, most of the funds had been transitioned back to HUD. However, PIH 
has not transitioned any of the excess funding from its Moving to Work 
(MTW) program PHAs. Through PIH's confirmation process, MTW PHAs 
reported holding $556 million and $514 million, as of September 30, 
2014, and March 31, 2015, respectively. PIH must now validate these 
balances before it transitions the funds back. This process may take 
some time because the composition of these balances is complex and HUD 
was not tracking the funds for these agencies. Until HUD validates and 
collects the funds, MTW PHAs will continue to hold hundreds of millions 
of dollars in excess of their immediate disbursement needs, making the 
funds susceptible to fraud, waste, and abuse. Further, this is a 
continued departure from Treasury's cash management requirements.
    Adding to this challenge, HUD continues to lack an automated 
process to complete the reconciliations required to monitor all of its 
PHAs and to ensure that Federal cash is not maintained in excess of 
immediate need. Reconciliations are prepared manually on unprotected 
Excel spreadsheets for more than 2,200 PHAs receiving approximately $17 
billion annually. This process is time consuming, antiquated and labor 
intensive, and does not allow for accurate financial reporting at the 
transaction level as required by FFMIA. This process also increases the 
risk of error and causes significant delays in the identification and 
offset of excess funding. We recommended that HUD automate this process 
during our 2013 financial statement audit, and the matter has been 
elevated to the Deputy Secretary for a decision.
            Monitoring of Moving to Work Agencies
    HUD's monitoring and oversight of the 39 PHAs participating in the 
MTW demonstration program is particularly challenging. The MTW program 
provides PHAs the opportunity to develop and test innovative, locally-
designed strategies that use Federal dollars more efficiently, help 
residents become self-sufficient, and increase housing choices for low-
income families. However, in the more than 15 years since the 
demonstration program began, HUD has not reported on whether the 
program is meeting its objectives which such a long-standing 
demonstration should assert. This is particularly important as under 
the MTW program participants receive less oversight from the 
Department. HUD has requested and Congress is considering expanding the 
program to include more participants without knowing whether 
participating PHAs are reducing costs to gain increased housing choices 
and incentives for families to work. HUD is experiencing challenges in 
developing program-wide performance indicators that will not inhibit 
the participants' abilities to creatively impact the program. It is 
developing renewal contracts to replace contracts expiring in 2018. HUD 
management developed new metrics to help measure program performance 
and states that the new contracts will allow it to better evaluate each 
PHA's performance. We continue to believe that this is essential before 
new agencies are allowed into the program. Moreover, HUD could benefit 
from a formalized process for terminating participants from the 
demonstration program for failure to comply with their agreement.
            Overincome Families in Public Housing
    HUD's challenge in addressing overincome families living in public 
housing units is exacerbated by public housing agencies' lack of desire 
to address these issues themselves. HUD's December 2004 final rule gave 
public housing authorities discretion to establish and implement 
policies that would require families with incomes above the eligibility 
income limits to find housing in the unassisted market. HUD regulations 
require families to meet eligibility income limits only when they are 
admitted to the public housing program. Neither public law nor 
regulations limit the length of time that families may reside in public 
housing. Our recent audit \2\ showed that as many as 25,226 families, 
whose income exceeded HUD's 2014 eligibility income limits, lived in 
public housing. The PHAs that we contacted during the audit chose not 
to impose limits based on the notice. In response to our audit, PIH 
initially disagreed. After some public discourse, HUD issued a letter 
to PHA executive directors, strongly encouraging them to use the 
discretion available to them to remove extremely overincome families 
from public housing. However, HUD does not have the authority to 
require PHAs to implement limits. Consequently, to comply with our 
recommendation, HUD initiated the rulemaking process through an 
advanced notice of proposed rulemaking. Through this process, HUD will 
collect public comments from stakeholders and determine how to proceed 
with rulemaking. We will be part of this process. Our concern is that a 
nationwide policy may limit flexibility to protect tenants. Until a new 
final rule is established, PIH will need to find a way to encourage PHA 
participation and ensure the effectiveness of its policies.
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    \2\ Audit Report 2015-PH-0002, Overincome Families Resided in 
Public Housing Units, July 21, 2015.
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            Environmental Review Requirements
    In recent reports,\3\ we demonstrated that PIH did not adequately 
implement environmental requirements or provide adequate oversight to 
ensure compliance with these requirements. The Offices of Housing and 
Public Housing did not adequately monitor or provide training to their 
staff, grantees, or responsible entities on how to comply with 
environmental requirements. Also, HUD did not have an adequate 
reporting process for the program areas to ensure that the appropriate 
headquarters programs were informed of field offices' environmental 
concerns. Further, our review of five Office of Public Housing field 
offices found that none of them followed environmental compliance 
requirements. HUD relied heavily on its Office of Environment and 
Energy to ensure compliance with environmental requirements. HUD stated 
that cross-office collaboration should be encouraged as a sensible and 
efficient way to achieve oversight and compliance objectives. While HUD 
shares OIG's concerns regarding responsible entities' compliance with 
environmental requirements and agreed with our recommendations, HUD 
believes that the program offices do not always have the authority to 
impose corrective actions or sanctions. We provided several examples in 
which environmental issues, if not detected, can severely impact the 
residents and communities as well as consume significant resources.
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    \3\ Audit Report 2015-FW-0001, HUD Did Not Adequately Implement or 
Provide Oversight To Ensure Compliance With Environmental Requirements, 
June 16, 2015; Audit Report 2014-FW-0005, Improvements Are Needed Over 
Environmental Reviews of Public Housing and Recovery Act Funds in the 
Detroit Office, September 24, 2014; Audit Report 2014-FW-0004, 
Improvements Are Needed Over Environmental Reviews of Public Housing 
and Recovery Act Funds in the Greensboro Office, July 14, 2014; Audit 
Report 2014-FW-0003, Improvements Are Needed Over Environmental Reviews 
of Public Housing and Recovery Act Funds in the Columbia Office, June 
19, 2014; Audit Report 2014-FW-0002, Improvements Are needed Over 
Environmental Reviews of Public Housing and Recovery Act Funds in the 
Kansas City Office, May 12, 2014; and Audit Report 2014-FW-0001, The 
Boston Office of Public Housing Did Not Provide Adequate Oversight of 
Environmental Reviews of Three Housing Agencies, Including Reviews 
Involving Recovery Act Funds, February 7, 2014.
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    As a result, HUD began providing more training to staff and 
grantees and implemented processes to improve its training program and 
curriculum to better support all program areas. Also, HUD was piloting 
a recently developed electronic data system, HUD's Environmental Review 
Online System (HEROS), which is part of HUD's transformation of IT 
systems. HEROS will convert HUD's paper-based environmental review 
process to a comprehensive online system that shows the user the entire 
environmental process, including compliance with related laws and 
authorities. It will allow HUD to collect data on environmental reviews 
performed by all program areas for compliance. HUD's Office of 
Environment and Energy had also implemented an internal process within 
HEROS to track findings, which will allow the program areas to focus 
training on recurring issues.
    While HUD has made improvements, it faces several challenges, 
including lack of resources, unclear guidance, and a perceived lack of 
authority to impose corrective actions or sanctions on responsible 
entities. Until HUD fully addresses these needed improvements, it faces 
an increased risk of creating a potential human health and safety 
concern as well as possible damage to the environment. For the five 
Office of Public Housing field offices we visited, PHAs spent almost 
$405 million for activities that either did not have required 
environmental reviews or had reviews that were not adequately 
supported.
            Physical Condition of the Housing Choice Voucher Units
    In response to a 2008 audit report,\4\ HUD developed a plan to 
monitor the physical condition of its Housing Choice Voucher program 
units. HUD is testing a system of inspections similar to the model used 
for its public housing units and multifamily projects. However, this 
testing with an initial target completion date of September 30, 2014, 
is taking considerably longer than expected. HUD has performed initial 
inspections of a sample of its voucher units. However, it needs 
resources to continue developing the new protocol and related software 
for its comprehensive monitoring system. Meanwhile, we continue to 
identify PHAs with inspection programs which do not ensure that voucher 
program units comply with standards.
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    \4\ Audit Report 2008-AT-0003, HUD Lacked Adequate Controls Over 
the Physical Condition of Section 8 Voucher Program Housing Stock, May 
14, 2008.
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            OIG's Fraud Prevention Program
    To assist the department in addressing these various issues, my 
office has initiated a fraud prevention program. A key component of 
this is a series of Integrity Bulletins to aid commissioners and public 
housing executives to identify red flags of fraud and mismanagement. 
The series includes topics such as Procurement and Contracting, 
Embezzlement, Charge Cards, Fraud Policy, Hiring, and a Primer for 
Commissioners. These bulletins are available on the OIG public web 
site. To further alert public housing boards and directors of these 
bulletins, a direct emailing went out July 2015 that was signed jointly 
by Principal Deputy Assistant Secretary Lourdes M. Castro Ramirez and 
me. The letter emphasized that public trust and integrity is a 
collective responsibility, and encourages recipients to read and share 
the Integrity Bulletins.
    The fiscal year 2014 appropriation language required HUD to work 
jointly with the OIG ``...to determine the critical skills that PHA 
boards should have to effectively oversee PHA operations, as well as 
the actions HUD will take to ensure that PHAs possess them....'' HUD 
has since developed a web-based training program for boards of 
commissioners. The training, named ``Lead the Way'' includes the basic 
skills and knowledge commissioners need to understand their roles and 
responsibilities. HUD is now in a second phase working with our office 
to update the training to add skills and knowledge for identifying 
risks and responding to them. The training will also cover identifying 
common fraud and mismanagement issues and how to report cases to OIG. 
The target for completion of the training is mid-summer 2016.
    One challenge that has not been resolved is how to get 
commissioners to complete this training. HUD has no authority to 
require completion of the training of the boards (or PHA executive 
staff either). HUD reports that about 500 commissioners have completed 
the training. Industry group training for commissioners appears to have 
the same problem in getting commissioners to attend training with 300 
commissioners being certified by the National Association of Housing 
and Redevelopment Officials, and a similar number being certified 
through the Public Housing Authority Directors Association. All these 
together have trained and certified about 7 percent of commissioners.
    Professional certification for public housing commissioners and 
executive directors exists in a conflicting array of certificates 
offered by public housing industry groups. While these certification 
programs are available, completion of the training is not a requirement 
to serve as a commissioner or executive director.
    We believe it would take congressional action to require boards and 
key executive staff to be certified. A certification body needs to be 
designated, with HUD approval of a curriculum, and timeframes 
established for phasing in the requirement. A requirement would also be 
useful that would establish a deadline for successfully completing the 
training. Certification of executive directors should likewise be 
mandated for at least medium and larger size agencies.
      administering programs directed toward victims of disasters
    The Department faces significant challenges in monitoring disaster 
program funds provided to various States, cities, and local governments 
under its purview. This challenge is particularly pressing for HUD 
because of the limited resources to directly perform oversight, the 
broad nature of HUD projects, the length of time needed to complete 
some of these projects, the ability of the Department to waive certain 
HUD program requirements, and the lack of understanding of disaster 
assistance grants by the recipients. HUD must ensure that the grantees 
complete their projects in a timely manner and that they use the funds 
for intended purposes. Since HUD disaster assistance may fund a variety 
of recovery activities, HUD can help communities and neighborhoods that 
otherwise might not recover due to limited resources. However, 
oversight of these projects is made more difficult due to the diverse 
nature of HUD projects and the fact that some construction projects may 
take between five and 10 years to complete. HUD must be diligent in its 
oversight to ensure that grantees have identified project timelines and 
are keeping up with them. HUD also must ensure that grantee goals are 
being met and that expectations are achieved.
    My office has completed 16 audits and 1 evaluation relating to 
CDBG-DR funding for Hurricane Sandy and other eligible events occurring 
in calendar years 2011, 2012, and 2013. There are a number of other 
audits and evaluations, as well as investigative work, that are 
currently underway. Prior to Hurricane Sandy, HUD-OIG had extensive 
audit and investigative experience with HUD's CDBG-DR program, most 
notably, with grants relating to recovery after Hurricane Katrina and 
the terrorist attacks of September 11, 2001. Over the years, HUD has 
gained more experience and has made progress with assisting communities 
recovering from disasters, but it continues to face the following 
challenges in administering these grants:
  --Ensuring that expenditures are eligible and supported;
  --Approving the program waiver process;
  --Certifying that grantees are following Federal procurement 
        regulations;
  --Conducting consistent and sufficient monitoring efforts on disaster 
        grants;
  --Promoting disaster resiliency within communities trying to recover; 
        and
  --Keeping up with communities in the recovery process.
    I will elaborate on the first two areas above as they represent the 
most serious challenges faced by HUD.
Ensuring That Expenditures Are Eligible and Supported
    In overseeing the CDBG-DR program, HUD must ensure that funds 
disbursed for disaster recovery programs are used for eligible and 
supported items. Our audits relating to Hurricane Sandy funding have 
identified $3.5 million in ineligible costs, $458 million in 
unsupported costs, and $360 million relating to recommendations that 
funds be put to better use. We have highlighted three audit reports 
that demonstrate these challenges for HUD in administering grants made 
under this program:
  --In our review of New York City's Health and Hospitals 
        Corporation,\5\ we determined that City officials disbursed 
        $183 million to the City's subrecipient for unsupported salary 
        and fringe benefits and unreasonable and unnecessary expenses 
        and did not adequately monitor its subrecipient and 
        sufficiently document national objectives. As a result, City 
        officials could not assure HUD that (1) $183 million in CDBG-DR 
        funds was disbursed for eligible, reasonable, and necessary 
        program expenses and (2) going forward the City will have 
        adequate accounting and financial controls in place to ensure 
        the remaining allocation of $40 million will be properly spent 
        for the purposes intended.
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    \5\ Audit Report 2015-NY-1001, The City of New York, NY, Did Not 
Always Disburse Community Development Block Grant Disaster Recovery 
Assistance Funds to Its Subrecipient in Accordance With Federal 
Regulations, November 24, 2014.
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  --In our review of New Jersey's Sandy Integrated Recovery Operations 
        and Management System, we found that the State did not procure 
        services and products for its system in accordance with Federal 
        procurement and cost principle requirements. The State's 
        procurement process was not equivalent to Federal procurement 
        standards. As a result, it disbursed $38.5 million for 
        unsupported costs. It was also planning to disburse another 
        $21.7 million to extend the initial period of the related 
        contract for 3 additional options years including $9.1 million 
        for costs that it had not shown were fair and reasonable.
  --In our review of New York State's buyout program,\6\ we determined 
        that officials did not always administer the program in 
        accordance with program procedures. As a result, officials 
        disbursed $6.6 million for properties that did not conform to 
        published requirements. This amount included $672,000 and 
        $598,300 for ineligible incentives and purchase prices in 
        excess of authorized limits, respectively. In addition, 
        documentation was inadequate to support that $1.7 million was 
        disbursed for eligible purchases and that $8.7 million spent 
        for contracts complied with Federal or State requirements.
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    \6\ Audit Report 2015-NY-1010, New York State Did Not Always 
Administer Its Rising Home Enhanced Buyout Program in Accordance with 
Federal and State Regulations, September 17, 2015.
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  --In our review of the New York Rising Housing Recovery Program,\7\ 
        we found that officials did not establish adequate controls to 
        ensure that CDBG-DR funds were awarded and disbursed for 
        eligible costs. As a result, more than $2.2 million in CDBG-DR 
        funds was disbursed for ineligible costs and $119,124 for 
        unsupported costs. Additionally, the use of a statewide cost 
        figure, by which more than $87.5 million was awarded, was 
        unsupported. Also, State officials needed to ensure that 
        receipts were available to support work completed, or request 
        that more than $241.2 million be repaid.
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    \7\ Audit Report 2015-NY-1011, Program Control Weaknesses Lessened 
Assurance That New York Rising Housing Recovery Program Funds Were 
Always Disbursed for Eligible Costs, September 17, 2015.
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    We attributed these conditions to the grantees' weaknesses in 
maintaining file documentation, unfamiliarity with HUD rules and 
regulations, and failure to follow State and Federal procurement 
regulations.
Approving the Program Waiver Process
    We performed two reviews of the State of Louisiana's Road Home 
Elevation Incentive (RHEI) Program, in 2010 \8\ and a follow-up review 
in 2012.\9\ Based on these reviews, it appears that HUD has established 
a pattern and practice to either waive the program requirements, or 
retroactively approve the State's amended action plan after the fact, 
when deficiencies are identified with this program. The initial 
review's objective was to determine whether homeowners used funds to 
elevate their homes as set out in their grant agreements. The review 
found that 79 percent of the homes we inspected had not been elevated, 
strongly suggesting that the grant program was at risk and could fail 
to achieve its intended goal of reducing homeowner flood risks from 
future hurricanes. Our follow-up review found that as of August 31, 
2012, the State did not have conclusive evidence that approximately 
$698.5 million in CDBG-DR funds provided to 24,000 homeowners had been 
used to elevate homes. As an example of HUD's practice to minimize or 
eliminate original program requirements, HUD approved the State's 
Amendment 60 on July 26, 2013, which retroactively allowed homeowners 
who received a grant under Road Home to prove that they used those 
funds to either elevate or rehabilitate their home, although the grant 
was specifically intended for elevation only. The amendment is contrary 
to the elevation incentive agreement which stated that the funds were 
intended to assist homeowners to only elevate their homes. If the funds 
were not used for this sole purpose, they were to be repaid to the 
State.
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    \8\ Inspections and Evaluations Report IED-09-002, Inspection of 
the State of Louisiana's Road Home Elevation Incentive Program 
Homeowner Compliance, March 2010.
    \9\ Audit Report 2013-IE-0803, Follow-up of the Inspections and 
Evaluations Division on Its Inspection of the State of Louisiana's Road 
Home Elevation Incentive Program Homeowner Compliance (IED-09-002 March 
2010), March 29, 2013.
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    In August 2015, HUD again unilaterally waived the Road Home program 
requirements. Specifically, HUD changed its 2013 documentation 
requirement for rehabilitation expenses to permit an affidavit by the 
homeowner and a ``valuation inspection'' by the State to determine the 
value of home repairs that were previously performed. This waiver of 
requirements was due to the fact that it was still having difficulty 
acquiring documentation from homeowners as proof of repair. This new 
approach does not consider whether recipients previously received 
grants or insurance funds for rehabilitation and could result in a 
duplication of benefits. While Congress provided considerable 
flexibility in the use of CDBG-DR funds, it specifically required HUD 
to establish procedures that prevent duplication of benefits.
    HUD has not properly enforced the intent of the Road Home program, 
instead opting to change the rules ex post facto so that violations can 
potentially be excused. If HUD wishes to implement proper risk 
management in its programs, this most recent action seems to defeat the 
purpose as it announces to all recipients of HUD funds that 
noncompliance may be pardoned because the Department will allow it in 
the end with no consequences for divergent actions.
    HUD's actions, and retreat from its position and the original 
intent of the approved State action plans, diminishes HUD's ability to 
properly administer grant agreements, provide proper oversight and 
enforcement when needed, and lessens the affected homeowners' trust and 
confidence that HUD maintains the highest standards of efficiency and 
fairness in its grant award process.
Government-wide Concerns
    In view of the significance of funding to multiple agencies to 
address Hurricane Sandy, my office is leading a joint cross-cutting 
review with seven other OIGs \10\ to assess participating Federal 
entities' funding, expenditures, and monitoring. Our objective is to 
identify common concerns and make recommendations to improve oversight, 
enhance collaboration, and report on best practices.
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    \10\ In addition to HUD-OIG, OIGs from the following agencies are 
participating: Department of Homeland Security, Department of Health 
and Human Services, Department of Defense, Department of the Interior, 
Department of Transportation, Small Business Administration, and 
Environmental Protection Agency.
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    As noted earlier, Congress imposed time limits with respect to the 
funding it provided to HUD in the Disaster Relief Appropriations Act, 
2013. Funding for other agencies either included varying time limits 
or, in some cases, imposed no time limit and will remain available 
until spent. Based upon our audits of funds relating to prior 
disasters, we believe that imposing statutory deadlines will help to 
ensure that funds are promptly spent. HUD is not alone in facing 
challenges with timely expenditure of funding. A representative from 
the Department of Homeland Security's OIG told us that FEMA disaster 
funds remained unspent for extended periods and FEMA still had unspent 
funding relating to the Northridge earthquake (more than 21 years ago) 
and Hurricane Katrina (more than 10 years ago).
    Funding for oversight activities also varied. Separate funding was 
provided to both HUD and HUD-OIG for oversight. The Department of 
Health and Human Services, which received more than $500 million in 
funding, also received funding for its OIG but not for the agency to 
conduct administrative oversight. OIGs from the Department of the 
Interior, Environmental Protection Agency and the Department of Defense 
did not receive separate funding to provide for oversight of their 
respective agencies' funding that ranged from $577 million to more than 
$5 billion.
    Our collaboration with other OIGs has noted a common concern with 
respect to time limits being placed on oversight funding relating to 
Hurricane Sandy. As is the case with HUD CDBG-DR funds, HUD-OIG's 
funding must be obligated by the end of fiscal year 2017. This presents 
a challenge for HUD-OIG because much of the expenditure activity under 
the CDBG-DR program will occur well after that date, as late as the end 
of fiscal year 2022. In addition, a waiver was obtained that allows the 
Department to extend program funds beyond the original deadline. It is 
unclear from the current statutory language whether HUD-OIG will be 
able to use its Sandy funding beyond the obligation deadline. HUD-OIG 
is planning to seek an opinion on the specific appropriation issue from 
the GAO.
    As of the end of fiscal year 2015, over 70 percent of HUD's 
Hurricane Sandy funding remains unspent and until the bulk of that 
funding is spent, our ability to conduct effective oversight is 
limited. This is a concern with at least two other OIGs who have 
expressed similar concerns with the slow rate at which their respective 
agencies are using their disaster assistance funding. I urge the 
Congress to recognize that oversight activities conducted by the 
various agencies and their OIGs need to occur well beyond the 
obligation deadline and to consider providing relief to the affected 
organizations to extend the date at which these oversight funds will 
expire.
              community planning and development programs
    Due to the use of what the Department calls the FIFO method (first-
in, first-out as an accounting methodology of appropriated funds) \11\ 
for committing and disbursing obligations, HUD's accounting for its 
Community Planning and Development formula grant programs' accounting 
does not comply with accounting standards resulting in material 
misstatement of HUD's financial statements. Since 2013, we have also 
reported that the information system used, the Integrated Disbursement 
Information System (IDIS) Online, a grants management system, was not 
designed to comply with Federal financial management system 
requirements. Further, HUD's plan to eliminate FIFO from IDIS Online 
was applied to fiscal year 2015 and future grants and not to fiscal 
years 2014 and earlier. Moreover, because of funding problems, 
completion of the elimination plan will be delayed until December 2016.
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    \11\ The FIFO method is a way in which CPD disburses its 
obligations to grantees. Disbursements are not matched to the original 
obligation authorizing the disbursement, allowing obligations to be 
liquidated from the oldest available budget fiscal year appropriation 
source. This method allows disbursements to be recorded under 
obligations tied to soon-to-be-canceled appropriations.
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    As a result, budget year grant obligation balances continued to be 
misstated and disbursements made using an incorrect U.S. Standard 
General Ledger (USSGL) attribute resulted in additional misstatements. 
Although FIFO has been removed from fiscal year 2015 and forward 
grants, modifications to IDIS were necessary for the system to comply 
with the Federal Financial Management Improvement Act (FFMIA) and USSGL 
transaction records.
    The inability of IDIS Online to provide an audit trail of all 
financial events affected by the FIFO method made it impossible to 
quantify the financial effects of FIFO on HUD's consolidated financial 
statements. Further, because of the amount and pervasiveness of the 
funds susceptible to the FIFO method and the noncompliant internal 
control structure in IDIS Online, the obligated and unobligated balance 
brought forward and obligated and unobligated balances reported in 
HUD's combined statement of budgetary resources for fiscal year 2015 
and in prior years were materially misstated. The effects of not 
removing the FIFO method retroactively will continue to have 
implications on future years' financial statement audit opinions until 
the impact is assessed to be immaterial.
    HUD's continued inability to provide data to monitor compliance 
with the HOME Investment Partnership Act (HOME statute) requirements 
for committing and spending funds continues to remain a concern until 
appropriate system changes in IDIS Online are implemented and 
regulatory changes are fully implemented. The HOME Investment 
Partnerships Program is the largest Federal block grant to State and 
local governments designed to create affordable housing for low-income 
households. Because HOME is a formula-based grant, funds are awarded to 
the participating jurisdictions noncompetitively on an annual basis.
    In 2009, OIG challenged HUD's cumulative method \12\ for 
determining compliance with section 218(g) of the HOME statute, which 
requires that any uncommitted funds be reallocated or recaptured after 
the expiration of the 24-month commitment deadline. After a continuous 
impasse with HUD, OIG contacted GAO in 2011 and requested a formal 
legal opinion on this matter. In July 2013, GAO issued its legal 
opinion affirming OIG's position and citing HUD for noncompliance. In 
its decision, GAO repeated that the language in the statute was clear 
and that HUD's cumulative method did not comply with the statute. 
Accordingly, GAO told HUD to stop using the cumulative method and 
identify and recapture funds that remain uncommitted after the 
statutory commitment deadline.
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    \12\ HUD implemented a process, called the cumulative method, to 
determine a grantee's compliance with the requirements of section 
218(g) of the Statute and determine the amount to be recaptured and 
reallocated with section 217(d). HUD measured compliance with the 
commitment requirement cumulatively, disregarding the allocation year 
used to make the commitments.
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    The effects of the GAO legal opinion require extensive 
reprogramming and modification to IDIS Online in addition to regulatory 
changes. However, these system and regulatory changes, which are 
already underway, will apply only to new grants awarded going forward 
and will not be changed retrospectively. Therefore, HUD's plan does not 
comply with the GAO legal opinion and allows grantees to spend HOME 
program funding that would normally be recaptured if the 24-month 
commitment timeframe was not met.
    Compliance with GAO's opinion would enable HUD to better monitor 
grantee performance in a more timely, efficient, and transparent way. 
It also would strengthen internal controls, bring HUD into compliance 
with HOME statutory requirements, and accurately and reliably report 
financial transactions.
    On June 16, 2015, we issued a memorandum to HUD regarding potential 
Anti-Deficiency Act (ADA) violations due to the noncompliance issues 
noted above. In the memorandum, we requested that the Chief Financial 
Officer (1) open an investigation and determine the impact of FIFO and 
the cumulative method for commitments for the HOME program on HUD's 
risk of an ADA violation; (2) as part of the violation, obtain a legal 
opinion from GAO and OMB to determine whether maintaining the 
cumulative method for determining compliance with the HOME statute 
results in noncompliance with the Statute and potential ADA violations; 
and (3) if HUD incurred an ADA violation, comply with the reporting 
requirements at 31 U.S.C. (United States Code) 1351 and 1517(b) and OMB 
Circular No. A-11, Preparation, Submission, and Execution of the 
Budget, section 145, (June 21, 2005). We determined that HUD has opened 
an ADA investigation in response to our memorandum.
    We will continue to report that HUD is not in compliance with laws 
and regulations until the cumulative method is no longer used to 
determine whether commitment deadlines required by the HOME Investment 
Partnership Act are met by the grantees.
Subgrantee Monitoring
    In fiscal years 2014 and 2015, at least seven of our audits have 
found that in some instances, little or no monitoring occurred, 
particularly at the subgrantee level. HUD focuses its monitoring 
activities at the grantee level through its field offices. Grantees, in 
turn, are responsible for monitoring their subgrantees. HUD should 
continue to stress the importance of subgrantee monitoring to its 
grantees. OIG has concerns regarding the capacity of subgrantees 
receiving funding from HUD programs, including grantees receiving CDBG 
Disaster Recovery (CDBG-DR) funds. Therefore, audits of grantees and 
their subgrantee activities will continue to be given emphasis this 
fiscal year as this continues to be a challenge for HUD and its 
grantees.
OIG Prevention Activities
    To assist the Department with these and other Community Planning 
and Development Program concerns, we are currently working with HUD 
staff to issue a series of bulletins similar to the topics we have 
issued for public housing but adapting them to Community Planning and 
Development program grantees. The first of the series is scheduled for 
issuance in May. These will also be announced through a joint 
communique, signed by Principal Deputy Assistant Secretary Harriet 
Tregoning and me, to encourage public official to read and share the 
bulletins.
 compliance with the improper payments elimination and recovery act of 
                                  2010
    For the second year in a row, we determined that HUD did not comply 
with the Improper Payments Elimination and Recovery Act of 2010 
(IPERA). Specifically, our fiscal year 2015 audit \13\ found that HUD 
did not adequately report on its supplemental measures and its risk 
assessment did not include a review of all relevant audit reports. 
Additionally, we found that HUD's estimate of improper payments due to 
billing errors was based on out-of-date information, a finding that was 
repeated from the prior-year audit.
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    \13\ Audit Report 2015-FO-0005, Compliance With the Improper 
Payments Elimination and Recovery Act of 2010, issued May 15, 2015.
---------------------------------------------------------------------------
    After exceeding the targeted improper payment rate of 3.8 percent 
in fiscal year 2012, HUD's goal for the targeted improper payment rate 
was increased to 4.2 percent for fiscal year 2013. While HUD met its 
fiscal year 2013 goal with an improper payment rate of 3.2 percent, 
with estimated improper payments of $1.03 billion, it continues to face 
significant challenges to comply with the requirements of IPERA and 
further reduce its improper payments.
    For example, without sufficient funding, it will be difficult for 
HUD to perform the studies needed to update its estimates of improper 
payments due to billing errors. Additionally, there were several 
recommendations from our fiscal year 2014 audit report \14\ without 
agreed-upon management decisions that had to be referred to the Deputy 
Secretary. During fiscal year 2015, HUD increased its efforts to 
address these recommendations, as well as current-year recommendations, 
and develop corrective action plans. HUD needs to continue its efforts 
to address our recommendations and improve its processes for reporting 
on its improper payments to become compliant with IPERA in the future.
---------------------------------------------------------------------------
    \14\ Audit Report 2014-FO-0004, Compliance With the Improper 
Payments Elimination and Recovery Act of 2010, issued April 15, 2014.
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                        departmental enforcement
    A common thread underlying several of the issues discussed earlier 
is the lack of a cohesive departmental approach on monitoring and 
follow-through on findings. In an evaluation we conducted on the 
effectiveness of the Departmental Enforcement Center (DEC), we found 
that the Department does not have an enterprise risk management 
approach to monitoring. Its monitoring is for the most part siloed in 
each program office and the approaches and results differ greatly. 
While there were some successes, there is a much greater task that lies 
ahead. The DEC, working with the Office of Multifamily Housing Programs 
and the Real Estate Assessment Center, improved housing physical 
conditions and financial management of troubled multifamily properties. 
Although some other program offices had taken steps toward risk-based 
enforcement, they had not taken full advantage of the benefits 
demonstrated when programs allow the DEC to assess compliance and 
enforce program requirements. The DEC proved that it can remedy poor 
performance and noncompliance when programs are willing to participate 
in enforcing program requirements.
    The DEC was established in part to overcome a built in conflict of 
roles. The HUD management reform plan stated that program offices had a 
conflicting role in getting funds to and spent by participants versus 
holding them accountable when fraud or mismanagement of the funds 
occurs. However, memoranda of understanding between the DEC and the 
program offices, for the most part, limit the DEC's ability to monitor, 
report, and take action to end noncompliance.
    HUD is starting to make some changes. Recent attention has 
emphasized the point that improvements are necessary for the DEC, REAC 
and Office of Multifamily Housing to effectively oversee its aging 
portfolio. PIH is working with the DEC to identify risk-based triggers 
to target monitoring, and the Chief Financial Officer is leading a 
Departmental task force looking at enterprise risk management. The 
Department should strive for a Department-wide risk monitoring approach 
that is data driven and supports taking actions that will end 
noncompliance or will seek the return of funds or other enforcement 
steps when corrective actions are ignored.
                               conclusion
    The Department's role has greatly increased over the last decade as 
it has had to deal with unanticipated disasters and intervening 
economic crises, in addition to its other missions, that have increased 
its visibility and reaffirmed its vital role in providing services that 
impact the lives of our citizens. My office is strongly committed to 
working with the Department and the Congress to ensure that these 
important programs operate efficiently and effectively and as intended 
for the benefit of the American taxpayers now and into the future.

                HIGH INCOME HOUSEHOLDS IN PUBLIC HOUSING

    Senator Collins. Thank you very much. My first question for 
you follows up on the issue that Senator Daines mentioned, and 
that is, in your July 2015 report, you found that more than 
25,000 families with household incomes exceeding HUD's program 
eligibility income limits were receiving public housing rental 
assistance. This is disturbing for many reasons.
    Your estimate was that HUD would pay over $104 million over 
the next year for public housing units occupied by families 
that were over the income limits. That means that there are 
lower income families that aren't receiving assistance, and 
that clearly needs to be remedied.
    I was also concerned that, of those 25,000-plus families, 
that nearly 18,000 of them had exceeded the qualifying amount 
for more than 1 year, so this wasn't a case where there was a 
temporary blip, if you will.
    I'm also not talking about a hard-working individual who 
gets a pay raise at work and thus, is over the limit by a few 
hundred dollars for the year. What you found was that there 
were some individuals who owned assets and properties that were 
worth literally hundreds of thousands of dollars.
    My question is, what has HUD done in response to your 
recommendation for better internal controls, and are you 
satisfied with the progress that HUD is making?
    Mr. Montoya. Yes, ma'am. Thank you for the question. It is 
an important issue, as I said in my opening statement, that we 
address those most in need in our communities.
    I want to make clear that our audit focused on two 
categories of over income. One was those numbers of family 
below a $10,000 mark and then those that were above a $10,000 
mark for a given years. For those over $10,000, I want to note 
that that was 47 percent of that 25,000 number that were over a 
$10,000 amount per year income, and again, over a year. It 
wasn't just a blip on the radar.
    I want to make clear also that these public housing 
authorities, since 2004, have had the authority to remove over 
income, or at least extremely over income families, as we 
noted, and have failed to do so. So while I know HUD took a lot 
of heat for its oversight, and certainly, it has some 
responsibility, proper oversight, I do want to note that 
housing authorities currently have that authority to do this.
    I would recognize that HUD has sent a letter to these 
public housing authority directors, encouraging to follow that 
2004 rule, and I know HUD is working with the Congress to 
implement some new legislation that would make this more 
mandatory.
    The question for me is going to become what is going to be 
defined as extremely or significantly over income, and of 
course, what timeline will HUD put on that, how long do you 
have to be over income. I do want to make clear that we 
certainly recognize that people's incomes will ebb and flow, 
and we were looking for those extreme circumstances.
    Senator Collins. But that's what you found, were some 
extreme circumstances.
    Mr. Montoya. Yes, ma'am.
    Senator Collins. Correct?
    Mr. Montoya. Correct.
    Senator Collins. Because none of us, I don't believe, would 
want to put someone out of public housing because of the ebb 
and flow, as you say, and also, we don't want to discourage 
people from doing better at work.
    Mr. Montoya. Right.
    Senator Collins. But clearly, there were egregious 
examples, as I read your report, that are very troubling, 
because it's taking away from scarce resources. Does HUD have 
the sufficient statutory authority that it needs to require the 
public housing authorities to implement and enforce limits?
    Mr. Montoya. No, ma'am. They currently do not have a 
regulation or a statute that will have them require the housing 
authorities to do this sort of thing, which is what they're 
seeking through Congress now.
    Senator Collins. I know that they're also engaged in a 
notice of proposed rulemaking to try to address this. What was 
HUD's initial reaction to your report?
    Mr. Montoya. Well, unfortunately, what we've seen too often 
with some of my reports is the knee jerk reaction to say the 
inspector general is wrong as opposed to stopping to take a 
look at what it is regarding and having a conversation with us.
    Very shortly after that position was taken by a lower level 
employee, I think the Secretary and the Deputy Secretary very 
quickly turned that around and were very much in agreement with 
what our position was, I think, once they understood what our 
report really was meant, designed to do, and that was identify 
those egregious examples, and of course to assist them to put 
these limited dollars that we're all talking about here to use 
for those that are most in need.
    Senator Collins. Thank you.
    Senator Reed.
    Senator Reed. Well, thank you very much, Madam Chairman. 
And I, too, want to second your point, which is, I think, 
entirely pertinent.
    This is not about a temporary spike in income, up or down. 
This is not about essentially some year where you do well, and 
the next year, you might do much worse. This is consistent and 
substantial.
    Mr. Montoya. We would agree with you, certainly, sir.
    Senator Reed. And thank you. One aspect of this issue is 
you mentioned, you know, that they certainly have the authority 
to remove these people from the property. Do they have the 
authority to raise the rent, so that they capture this extra 
income?
    Mr. Montoya. I believe that's what happened in some of 
these cases, they just allowed them to do the market rent. The 
problem is, when you do that in some of these situations, it 
takes that particular unit away from, you know, somebody who's 
on the waiting list.
    Senator Reed. Indeed. But I just want to be clear that one 
remedy, it's maybe not the best remedy, is that they can, in 
fact, and do, in fact, raise----
    Mr. Montoya. That is my understanding, sir, yes.
    Senator Reed. Right. But again, I think your point's well-
taken. These units are very scare.
    Mr. Montoya. That's correct.
    Senator Reed. And intended for people who otherwise would 
be literally homeless.
    Mr. Montoya. That's correct.
    Senator Reed. There's another aspect of this, too, and I 
think I just want to make sure we cover the whole area, and 
that is we have been very aggressive in pushing family self-
sufficiency programs, job plus programs.
    In your analysis, have you made any correlation between 
these people who are making more money and participating in 
these programs? Because if we move sort of aggressively, and it 
turns out that the message we send is, if you get into a family 
self-sufficiency program to raise your wages or a jobs program, 
you're going to lose your housing, that's not the right message 
either.
    Mr. Montoya. I would agree. And I don't think that we made 
the specific correlation, although we didn't find any of these 
extreme examples of somebody who was in the self-sufficiency 
type of program, and that's how they got to where they were. 
Certainly, that is a consideration.
    But the idea of the self-sufficiency program is, of course, 
you'll, at some point, get to a point where you can move out of 
housing. So at some point, where is that deadline, and what is 
that amount, and I think that's what we're going to be anxious 
to see when----
    Senator Reed. No. I think you have raised some very serious 
issues and very important issues, and the Department must 
respond, and that is your function as the inspector general. So 
thank you for doing your job.
    Mr. Montoya. Yes, sir. Thank you, sir.

               HOUSING INSPECTIONS OF SECTION 8 VOUCHERS

    Senator Reed. One area that has been woven throughout the 
Secretary's testimony, your discussions, has been the 
consistency of inspections of the Section 8 voucher units. Your 
2008 audit suggests that it was wildly inconsistent, etc. What 
progress has HUD made to ensure Section 8 voucher units are in 
compliance with current housing quality standards? That's come 
up repeatedly in both our questioning.
    Mr. Montoya. I tell you, we struggle with that almost in 
every audit we do, finding that these units are just not very 
livable. I think the Secretary addressed that at some point 
these reviews didn't even really include mold or bedbugs. It 
was so lowly ranked in the scheme of things that inspectors 
could've cared less, even if they saw it, quite frankly.
    And I think it boils down to some of these inspections are 
only as good as the inspector. Too often, from our 
investigative side of the house, we've seen unscrupulous 
inspectors who are going to go in, just give it a clean bill of 
health as quickly as they can, so they can make the amount of 
money they've charged to do this inspection and move onto the 
next thing. So we've seen a number of those kinds of issues.
    We've also seen that in the lead-based paint sort of issue 
that you addressed earlier, where, you know, these communities 
and HUD is trying to do the right thing, but you have 
unscrupulous inspectors who will come in just give them a good, 
clean bill of health and move on, having made their income for 
the day.
    So I think HUD is on the right track. We're certainly 
anxious to see them do a little bit more. I think REAC and the 
Department, the real estate section that does these inspections 
has done well. I think, like anything, there's always more room 
for oversight. I would like to see more oversight, though, at 
the local level.

                          LOCAL BUILDING CODES

    Senator Reed. That raises an interesting question, because 
as the Secretary was discussing this issue, it struck me there 
are local building codes, there are local health and safety 
codes, and frankly, those are probably being violated, too, 
which municipality has full authority to go in and order--in 
fact, probably more authority to order correction, to place 
liens on the property, to go in and do the correction itself.
    To what extent are you urging or the Department is 
contemplating a more significant role for local housing 
officials?
    Mr. Montoya. Well, myself and the Principal Deputy 
Assistant at the Office of Public and Indian Housing (PIH), Ms. 
Lourdes Castro, we've joined together to do a number of 
different things, primarily driven on awareness.
    We called them, as we started, fraud awareness bulletins, 
but it's migrated to a joint effort with her office to do more 
of an educational thing, sort of a technical educational thing. 
And of course, what we, as the inspector general, see as 
problems with regards to the inspectors, you know, it's a 
collective responsibility, so we all hold some level of that.
    And you couldn't be more right with regards to the State 
and local ordinances that these inspectors have to live by, and 
often, they're only given a license to perform this if they 
follow State and local regulations. We've seen incidents where 
people are coming in as inspectors, and they're not even 
licensed.
    So what we would look to see to do, and certainly what we 
try to do in our investigations, is when we find that 
unscrupulous licensed individual, we'd like to report them to 
the State and local. They lose their license. They lose their 
livelihood. So just how important is it to you to lie about a 
number of these things?
    So those are the different kinds of enforcement things that 
I think we can all sort of fall in behind.
    Senator Reed. And those could be implemented immediately 
without legislation?
    Mr. Montoya. I certainly think they could. I think 
certainly housing authorities, with advice from us, there's 
nothing wrong with picking up the phone and reaching to your 
local ordinance and saying, I just had Mr. John Doe, an 
inspector come in, and here's what happened, and I hear he's 
licensed by the city or by the State, and we'd like to report 
him.
    Senator Reed. Well, thank you very much, Mr. Montoya.
    Mr. Montoya. Thank you, sir.
    Senator Reed. Thank you.

               COMPLIANCE WITH FHA UNDERWRITING STANDARDS

    Senator Collins. Mr. Inspector General, in your testimony, 
you highlighted the fact that, for the last four fiscal years, 
the results of audits and evaluations of the FHA fund revealed 
a disturbing percentage of loans that were reviewed that should 
not have been insured due to significant deficiencies in 
underwriting.
    What actions do you believe are necessary on the part of 
the Department to ensure that lenders are in compliance with 
FHA's underwriting standards?
    Mr. Montoya. Yes, ma'am. Thank you for the question. It's 
an extremely important question, as we've been struggling with 
this certainly since my tenure.
    We often find that FHA, it struggles with its role to 
enhance and advance the market for home ownership for those low 
to moderate income individuals while at the same time playing 
the enforcement role, and often, those two don't seem to meet.
    So certainly with regards to, I think, stronger enforcement 
on the behalf of FHA is an important issue, we have made 
recommendations for a number of years about these underwriting 
deficiencies and the fact that HUD should actually do more 
random sampling of these loans so that they can determine early 
on whether these loans are going to be viable in the long run 
or not. They're doing a better job at that, certainly not as 
fast as we'd like to see it.
    We also think that, with regards to the claim process, HUD 
doesn't do a very good job often at reviewing these claims to 
ensure that they're not paying claims that are far more than 
they need to be paying. That's another area that impacts the 
fund, certainly with regards to their loss mitigation issues 
and whether, again, these claims should be paid. These are all 
enforcement issues that we think they should be taking a 
serious look at.
    We are certainly doing our part. We are continuously 
finding lenders, and again, unscrupulous people out there who 
are trying to defraud the Department. We just did a large case 
in the Florida area. It amounted to about a $65 million loss to 
the Department. It was a criminal investigation where we 
rounded up probably 25 people, a lot of folks, unfortunately, 
going to jail.
    But there's so many different avenues of that that we're 
certainly trying to do our part to assist the Department in 
that role.
    Senator Collins. Sounds to me like it's fortunate rather 
than unfortunate that they're going to jail, if they're 
defrauding the Department.

                 WASTE, FRAUD AND ABUSE IN HUD PROGRAMS

    My final question to you is, as you survey the landscape of 
programs at the Department, are there any that particularly 
stick out in terms of being particularly vulnerable to waste, 
fraud, and abuse that you would like to bring to our attention.
    Mr. Montoya. I don't know that I would single out any one 
program. I think they are all vulnerable in some way, shape, or 
form. I do want to acknowledge that, not only with PIH, but 
more recently with the Office of Community Planning and 
Development (CPD), we're working at the highest levels to do 
joint things, to go out there and train the communities and 
these professionals who are running these programs to 
understand where the red flags are, to understand where the 
hiccups and the roadblocks might be, so they don't get into 
that trouble.
    Our motto is prevention first, because once we lose those 
funds, then we can't get them back. So we're doing as much as 
we can to assist them. I think if there was a program, albeit 
not a program that it would raise some real concerns, is HUD's 
information technology, because these programs, whether it's 
PIH or CPD, are so heavily wedded to these IT programs, that if 
you have a failure in one particular case, you know, a 
catastrophic failure, there is no other way to get the monies 
out to these individuals who are going to need it.
    And constantly, in our IT security reviews, we are finding 
aging systems that are incapable of really patching from a 
security standpoint. HUD maintains millions of records of 
personally identifiable information that becomes susceptible in 
those kind of arenas. And really, what happens if these systems 
fail, and how do we get this money out to all these communities 
and all these recipients is sort of what's keeping us awake at 
night at this point.
    Senator Collins. Thank you. I think that's a statement you 
could make about every single department in the Federal 
Government.
    Mr. Montoya. It's unfortunate.
    Senator Collins. And it is very worrisome. Thank you very 
much for your testimony. Senator Reed, do you have anything 
further?

                   HUD INFORMATION TECHNOLOGY SYSTEMS

    Senator Reed. I just want to thank you, Madam Chairman, for 
the hearing. And I think the point that the inspector general 
just made about the IT systems, as you point out, could be 
made, many Federal agencies.
    And one of the dilemmas is that I would suspect that their 
system are probably already out of date by many years, and 
there's nothing in this budget really that would be a total 
recapitalization of their IT enterprise so that they'd be ahead 
of the curve.
    Mr. Montoya. That's correct.
    Senator Reed. Yes.
    Mr. Montoya. That's correct. They're basically in operation 
and maintenance mode. There is no advancement of these 
programs.
    Senator Reed. Yes, and again, that's something we could 
sort of find in probably every Federal agency, and that is a 
real, real problem. But I think you focused on something which 
is absolutely critical, so thank you, again.
    Mr. Montoya. Thank you, sir. Thank you, ma'am.
    Senator Collins. Thank you, Senator Reed.
    Thank you very much, Mr. Inspector General, for being here 
with us. As we proceed with putting together this bill and 
getting more input, I'm sure we will have additional questions 
for you as well and hope that you won't hesitate to contact us 
with your recommendations and suggestions.
    We are going to have a real challenge, as we always do, in 
writing this bill, given the fact that 84 to 85 percent of the 
budget is, if you will, spoken for, given that that's necessary 
for the renewal of vital rental assistance, and we need your 
help in finding efficiencies where they may exist.
    So thank you very much for testifying today and for your 
assistance to the committee.
    Mr. Montoya. Thank you.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Collins. The hearing record, as I mentioned, will 
remain open until next Friday, March 18.
    [The following questions were not asked at the hearing, but 
were submitted to the Department subsequent to the hearing:]
            Questions Submitted by Senator Susan M. Collins
                    rental assistance demonstration
    Question. The budget request proposes additional funding and 
authority for the Rental Assistance Demonstration in order to preserve 
affordable housing. However, the Department's implementation of the 
project-based rental assistance option for owners of properties 
eligible under the second component of RAD appears contrary to the goal 
of preservation. By arbitrarily limiting initial rents to 110 percent 
of the Section 8 Fair Market Rent, HUD discourages owners from 
participating in RAD and preserving scarce affordable housing options 
in high cost areas.
    Why hasn't the Department fully utilized the flexibility and 
discretion to establish appropriate rent levels to preserve this 
housing stock that the RAD statute provides?
    Answer. Section 8 (c)(1) of the U.S. Housing Act of 1937 allows the 
Secretary to set rents for new Section 8 contracts up to 120 percent of 
the Fair Market Rent (FMR). For properties assisted under Moderate 
Rehabilitation (Mod Rehab) contracts, HUD permits conversions at 
current contract levels, not to exceed this statutory cap. For 
properties assisted under the Rent Supplement/Rental Assistance Program 
(Rent Supp/RAP) programs, the rationale for limiting rents to 110 
percent of the FMR is as follows:
    First, the vast majority of Rent Supp/RAP projects--103 of 109 
projects that are currently eligible under this conversion option, or 
95 percent--have current rent levels below 110 percent of the FMR. 
Accordingly, a rental price set at 110 percent of the FMR would be a 
significant increase for the majority of our Rent Supp/RAP contracts.
    Second, HUD's decision to set a rent limit of 110 percent of the 
FMR was also informed by the desire to maintain a financially 
consistent conversion option between project-based voucher (PBV) and 
project-based rental assistance (PBRA). PBV rents are statutorily 
limited to 110 percent of the FMR. Further, RAD conversions rely in 
part on transfers from the tenant-based rental assistance (TBRA) 
account to the PBRA account.
    Finally, HUD has the statutory flexibility to allow owners to 
request a waiver of the RAD Implementation Notice (PIH 2012-32 Rev 2) 
to seek an alternative rent limit of up to 120 percent of the FMR. HUD 
is currently entertaining such waivers on a case-by-case basis.
    Question. If an owner of a second component RAD property will get 
an enhanced voucher set at comparable market rent why would they 
participate in a preservation program that arbitrarily limits rents to 
a lower level?
    Answer. Owners may receive an enhanced payment standard from an 
enhanced voucher being issued to a tenant, at the expiration of their 
Rental Supplement or Rental Assistance Payment (RAP) contract or when 
prepayment of an underlying Section 236 mortgage takes place. However, 
not all vouchers triggered through these events will yield an enhanced 
voucher. In order for a voucher to become an enhanced voucher, the 
market rents of the property would need to exceed 110 percent of the 
FMR. Further, since many of these projects are still encumbered by 
236(e)(2) use agreements at the time of their conversion, the rent 
increase is not automatic. Rather, the owner would have to request a 
budget-based rent increase process with HUD or with their State housing 
finance agency. While it is entirely possible that the voucher will 
carry with it an enhanced payment standard, it is not a guarantee.
    Further, the value of a long-term project-based subsidy contract 
cannot be discounted since the tenant-based subsidy is contingent on 
the tenant staying at the property. Many owners are only able to access 
debt and equity financing in conjunction with the execution of a long-
term project-based subsidy contract. Since an enhanced voucher is 
mobile and a tenant can take it with them at any time, the Project-
Based Rental Assistance (PBRA) or project-based voucher (PBV) contract 
that an owner receives as a result of a RAD conversion is the only way 
an owner can receive a long-term subsidy contract in place of the Rent 
Supplement, RAP, or Mod Rehab contract.
    Question. Isn't it better to encourage preservation of these 
affordable housing resources by providing the owner with at least the 
same rent that they would get under another HUD program but which does 
not preserve the property as affordable?
    Answer. As noted above, the rent paid to the owner using an 
enhanced voucher is not guaranteed--neither the rent level itself nor 
the ongoing payment of the rent if the voucher holder chooses to leave 
the property. In contrast, through RAD, the property owners receive a 
multiyear contract with adjustments to contract rents at regular 
intervals to ensure the long-term viability and affordability of the 
property.
                                  fha
    Question. FHAs primary purpose is to act as a countercyclical 
balance during economic downturns, not to compete with the private 
market. Such a role was critical during the recession of 2008 to 
mitigate even further economic uncertainty and the loss of trillions of 
dollars in household wealth. But there comes a time when FHA should 
return to its traditional role. Through fiscal year 2015, FHA accounted 
for 19 percent of the total purchase mortgage market while its 
historical market share averages 13 percent. FHAs current market share 
is artificially maintained in part due to last year's decision to 
reduce single-family mortgage insurance premiums.
    As we begin our work writing the fiscal year 2017 appropriations 
bills, does the Department plan to make further reductions to single-
family mortgage insurance premiums, placing it in further competition 
with the private sector rather than returning to its countercyclical 
role?
    Answer. FHA's mission is to ensure the availability of credit in 
the mortgage market while protecting the health of the Fund. With a 
constantly changing housing market and other economic forces, FHA must 
continually evaluate that balance, and when necessary make appropriate 
changes in pricing.
    In regards to market share, FHA has a mission mandate to improve 
access to credit, not a market share or revenue mandate such as a 
private firm faces. The size and shape of overlap between FHA and 
others will continue to vary with changes in economic conditions, 
industry practices, and public policy objectives. Consequently, the 
Department cannot predict how the market will shift.
                                  gao
    Question. According to GAO's review of the U.S. Government's fiscal 
year 2015 and 2014 consolidated financial statements, HUD was one of 
three agencies to receive a disclaimer on the audit of its financial 
statements. GAO also reported that HUD started fiscal year 2015 with 
eight material weaknesses, adding three new ones, and resolving two, to 
end up at the end of the fiscal year with nine material weaknesses. The 
Inspector General separately audited HUD and in addition to these 
material weaknesses, also identified eight significant deficiencies in 
internal controls, and six instances of noncompliance with applicable 
laws and regulations. According to the audit, these weaknesses were due 
to an inability to establish a compliant control environment, implement 
adequate financial accounting systems, retain key financial management 
staff, and identify appropriate accounting principles and policies.
    What steps has HUD taken to improve on this situation and at least 
end fiscal year 2016 with fewer material weaknesses than it started 
with?
    Answer. Improving HUD's longstanding financial management 
challenges has been a top priority. Between fiscal year 2014 and fiscal 
year 2015, by working closely with OIG, GAO and OMB, HUD has been able 
to drop its number of material weaknesses from 11 to 9 and anticipates 
improving upon those numbers in fiscal year 2016. This effort will not 
and has not been easy, but HUD is changing financial management across 
the Department to address the OIG's findings by investing in its people 
and our systems, re-engineering outdated processes, engaging with 
stakeholders, and implementing a financial shared-service provider.
  --HUD is making progress in establishing a sound, resilient financial 
        governance structure that is flexible enough to adapt to the 
        changing landscape and complex program structure. HUD is 
        tackling challenges by investing in its people and our systems, 
        re-engineering outdated processes, engaging with stakeholders, 
        and leveraging implementation of a financial shared-service 
        provider to improve our financial reporting.
  --Public Housing Authority (PHA) Assets: In 2015, HUD enhanced its 
        capabilities for making timely reclassification of PHA data to 
        address the material weakness regarding non-GAAP accounting for 
        PIH assets and liabilities. We are continuing to make a 
        concerted effort to obtain data from grantees which will allow 
        for validation of the grant accruals and obtain data from PHAs 
        to properly account for advance payments.
  --Office of Community Planning and Development (CPD) Grant Accrual: 
        In 2016, HUD's Office of the Chief Financial Officer and Office 
        of Community Planning and Development made progress in 
        addressing the non-GAAP validation of CPD's grant accruals by 
        initiating a process to obtain data from the grantees, which 
        will allow validation of the accruals.
  --CPD First In-First Out (FIFO) Formula Grant Payment Method and HOME 
        Cumulative Method for Assessing Grantee 24-Month Commitment 
        Requirement: CPD formula grant programs used the FIFO 
        accounting disbursement method for fiscal year 2014 and prior 
        grants; and a cumulative method was used to determine whether 
        HOME grantees met their 24-month commitment requirement. After 
        considerable work with OIG, OMB, and GAO, HUD has changed its 
        accounting to be grant specific instead of FIFO, and is in the 
        process of amending the HOME regulation to change its method 
        for assessing grantee compliance with the HOME commitment 
        requirement from cumulative to fiscal year specific. The grant 
        administration and financial systems have been modified to 
        capture the level of detail to record the financial 
        transactions and allow such grant-specific and fiscal-year 
        specific reporting for disbursements and commitments for grants 
        awarded for fiscal year 2015 and thereafter.
  --Ginnie Mae Financial Statements: Ginnie Mae has also made 
        significant progress on each of the material weaknesses 
        identified by the OIG. Ginnie Mae has been overhauling legacy 
        processes, and has filled three key leadership positions--
        including hiring a CFO, Controller, and a new Accounting Policy 
        and Financial Reporting Advisor. Ginnie Mae continues to invest 
        in accounting for non-pooled loans and properties at the loan 
        level. As with FIFO, this will take time to resolve, but GNMA 
        is making progress.
  --Finally, HUD is revamping the audit coordination and remediation 
        process to more quickly identify, engage, and resolve potential 
        issues and improve timeliness of resolutions, which will help 
        to overcome our material weaknesses. As part of the process, we 
        briefed the Office of the Inspector General on annual financial 
        statement process based on implementation of shared-service 
        provider (Treasury ARC).
                           housing trust fund
    Question. The Housing and Economic Recovery Act of 2008 authorized 
the deposit of receipts from Fannie Mae and Freddie Mac into a new 
Housing Trust Fund in order to finance the development, rehabilitation, 
and preservation of affordable housing for extremely low-income 
residents. Along with the HOME program and the Low-Income Housing Tax 
Credit, the Housing Trust Fund is an important tool in the goal of 
eliminating homelessness and reducing the rent burden on the most 
vulnerable.
    How much funding will be available for the Housing Trust Fund and 
when will HUD release this funding to the States?
    Answer. Collections of assessments from Fannie Mae and Freddie Mac 
in the amount of $186,256,610 were made available for the Housing Trust 
Fund (HTF) in fiscal year 2016. Of this amount, $12,665,449 is 
temporarily unavailable due to the sequestration of 6.8 percent of the 
funds. After adjusting for sequestration, HUD will make $173,591,160 
available to HTF grantees, which HUD expects to announce individual 
allocations to States later this spring and execute this summer/fall.
    Question. Last month your office issued a report on HUD's 
Departmental Enforcement Center (DEC). That report indicates that the 
DEC can improve the physical condition of housing stock and improve the 
financial management of troubled multifamily properties. However the 
report also indicates that the DEC has very limited authority to 
monitor failing participants or require enforcement in any program 
offices, and that in cases where program offices chose to disregard 
DEC's recommended enforcement actions, it could not appeal these 
decisions. The report concludes that HUD should provide the DEC with 
the authority, independence, and resources to address HUD-wide 
enforcement risks. Do you believe that the DEC should be moved out of 
the Office of General Counsel in order to address these concerns?
    Answer. HUD's own management reform plan known as ``HUD 2020'' 
recognized the conflicting role program offices face in getting funds 
to and spent by participants while also holding them accountable. We 
think the Office of General Counsel may have a similar conflict as it 
protects HUD's program clients when the DEC recommends enforcement 
against those clients. The DEC could increase its effectiveness with 
broader enforcement authority that looks at HUD programs from an 
enterprise wide view. Independence for the DEC is also critical, which 
would allow it to take enforcement action when necessary to bring about 
program compliance. While the DEC would likely be effective regardless 
of its organizational placement, placement outside the Office of 
General Counsel may present the best resolution to independence 
concerns that arise when the enforcement program is part of the legal 
team that will defend the Department's position on enforcement.
                                 ______
                                 
          Questions Submitted by Senator Shelley Moore Capito
                   community development block grant
    Question. CDBG provides many benefits, but I'd like to ask about an 
area that seems to be a natural fit under the scope of this program. 
West Virginians are unfortunately well below the national standard for 
broadband adoption.
    Do you feel that CDBG grants could be a means for communities to 
invest in this vital capability in the 21st century?
    Answer. Community Development Block Grant (CDBG) funding can be 
used by grantees in a variety of ways to promote broadband access and 
adoption.
  --Installation of broadband infrastructure in particular 
        neighborhoods or, in some cases, community-wide, can be carried 
        out as an eligible public facility activity.
  --Likewise, installation of broadband infrastructure to schools, 
        libraries, hospitals, and similar community facilities can be 
        eligible as a public facility activity.
  --Installation of wiring in housing to support broadband service can 
        be considered as a housing rehabilitation activity.
  --Educational and training programs with respect to broadband usage 
        could be qualified as eligible public service activities.
    In each case, the activity would need to meet a national objective 
of the CDBG program and usually the national objective will be benefit 
to low- and moderate-income persons. The Department recently posted 
several questions and answers on use of CDBG in support of broadband on 
its website at: https://www.hudexchange.info/resource/4891/cdbg-
broadband-infrastructure-faqs/. Further, HUD is proposing regulatory 
revisions that would require CDBG grantees to consider broadband access 
and adoption issues in preparing consolidated plans governing annual 
funding for the Office of Community Planning and Development's four 
formula funding programs (CDBG, HOME, Emergency Solutions Grants (ESG) 
and Housing Opportunities for Persons With AIDS (HOPWA)).
                              connecthome
    Question. Could you share with us what HUD has learned so far from 
your ConnectHome pilot initiative to accelerate broadband adoption by 
children and families in HUD-assisted housing?
    Answer. HUD's ConnectHome was officially launched less than a year 
ago, in July 2015. A total of 27 Public Housing Authorities and cities 
(a few are city/county consolidated metro governments) and one Tribal 
Nation received the ConnectHome pilot community designation. Almost all 
of the sites are currently working with Internet Service Providers 
(ISP) in their area to connect public housing families with school-age 
children to the Internet.
    We have learned a lot about connectivity among public housing 
residents since this program was launched, including the following:
  --Connecting public housing residents to the Internet requires the 
        involvement of other key stakeholders in addition to the Public 
        Housing Authority, the City and the ISP. To be successful, the 
        collaboration should also include local schools and colleges, 
        digital literacy groups and other organizations that serve 
        young children, as well as foundations, businesses and other 
        private partners.
  --Local staff working on the ConnectHome initiative typically perform 
        many other duties, which makes it difficult to dedicate the 
        time necessary for the initiative to succeed.
  --Once connectivity has been established, a second hurdle exists: 
        securing laptops and computers for the families. While many 
        public housing residents have smartphones that allow them to 
        access the Internet, a significant number of residents may not 
        have access to the Internet through devices such as laptops or 
        computers. For school-aged children, a lack of appropriate 
        hardware and software can pose a critical problem, as it is 
        extremely difficult to complete homework assignments using a 
        smartphone. At least one ConnectHome community has a 
        relationship with its local college that donates used computers 
        to ConnectHome residents. HUD is encouraging PHAs to connect 
        with city governments and local colleges, non-profits, and 
        businesses willing to donate used computers.
    We are also pursuing research in conjunction with the ConnectHome 
initiative that will help to inform both ongoing and future broadband 
connectivity efforts in HUD-assisted housing. HUD's Office of Policy 
Development and Research is currently surveying residents across 
ConnectHome communities to estimate Internet connection rates, as well 
as to assess the types of devices commonly used by these residents to 
access the Internet. This will be HUD's first-ever nationwide look at 
Internet use among residents of public housing. Most research on the 
digital divide defines low income families as having incomes of $25,000 
per year or less, a range which encompasses incomes much higher than 
those of the average family in public housing. The results will be 
released in late spring of this year.
    In addition, HUD plans to conduct a series of focus group 
discussions in several ConnectHome communities with an emphasis on 
understanding whether and how new subscribers experience the benefits 
of Internet connectivity in their homes, as well as what factors are 
keeping families from subscribing and lessons learned from the 
implementation of the ConnectHome initiative. HUD also plans to conduct 
a telephone survey of ConnectHome subscribers with a focus on 
understanding families' digital literacy and training needs.
                                 ______
                                 
              Questions Submitted by Senator Brain Schatz
                            fair market rent
    Question. I have heard from public housing authorities (PHAs) and a 
number of voucher holders on each of Hawaii's four counties who are 
frustrated that fair market rents are unrealistically low. This 
difference makes it hard for a person or a family to use a voucher 
especially in a neighborhood that may be near better schools and 
employment centers. And the only way for a county to meaningfully 
challenge the FMR is to pay for a rent study which can run $50,000.
    I have no doubt that intentions are good and HUD wants a successful 
program but the methodology appears systemically flawed, so what are we 
going to do? We need some combination of a better methodology or more 
administrative fees to PHAs if we expect them to pay for rent studies 
as the way to right size FMRs. I do understand HUD is pursuing the 
Small Area FMR but initial feedback from PHAs in Hawaii is that the 
result of that may not result in more accurate FMRs but will add to the 
administrative costs to administer vouchers across the State.
    Answer. HUD does not believe that the Fair Market Rent (FMR) 
estimation methods are ``systemically flawed.'' While there may be 
certain cases where HUD's FMR estimates are not in line with the local 
rental market, the overwhelming majority are sufficiently accurate to 
use in operating voucher programs. Out of the approximately 2,400 
jurisdictions for which HUD estimates FMRs each year, generally less 
than a dozen areas request, and fewer still conduct, rent surveys 
because they feel the FMRs are not accurate. FMRs are, however, most 
likely to be out-of-line in markets that have had recent spikes in 
demand and where housing supply is slow to respond.
    Hawaii's unique natural beauty creates demand for housing there 
beyond what purely local economic activity can support. This results in 
high, and potentially volatile, rents, and a serious shortage of 
housing affordable to low-income residents. That said, of the PHAs 
operating in Hawaii, only Kauai County appears to be at the limits of 
local flexibility to set payment standards around the fiscal year 2016 
FMRs according to HUD's voucher tenant data. The remaining PHAs should 
explore further use of their payment standard-setting authority before 
conducting a survey. The Kauai County PHA should consult with HUD staff 
to see what options are available, aside from a rent survey, to make 
the voucher program work better there.
    In terms of methodological improvements that might better capture 
recent, large changes in rent, HUD is assessing forecasting approaches 
that might better capture such local variation going forward.
    family unification program-family self sufficiency demonstration
    Question. HUD recently released its FUP-FSS demonstration program 
to better improve system coordination between housing providers and 
child welfare agencies to improve outcomes for at-risk youth. I hope 
this demonstration will increase the utilization of FUP vouchers for 
transition age youth.
    What other recommendations does HUD have to improve utilization of 
these vouchers and ensure that they are effective tools to assist 
transitioning these young people to adulthood?
    Answer. HUD has begun working with the Children's Bureau at the 
U.S. Department of Health and Human Services (HHS) this year to provide 
joint guidance to PHA and Public Child Welfare Agencies (PCWA) on 
strategies for better collaboration in order to help increase referrals 
of youth to Family Unification Program (FUP) and improve coordination 
of housing and supportive services. There are, however, still several 
major barriers to youth accessing and successfully utilizing FUP 
vouchers.
    One of the main barriers is the 18-month time limit on the FUP 
voucher for eligible youth. This time limit is one of the main reasons 
HUD pursued the FUP/FSS Demonstration Project, as well as proposed a 
statutory change in the fiscal year 2017 Budget. The demonstration 
project allows for an extension of voucher assistance for FUP youth 
from 18 months to up to 60 months (or 5 years). The 18-month time limit 
is often too short of an amount of time for youth to obtain stable 
housing and transition to adulthood and self-sufficiency, and the short 
timeframe of the voucher presents significant costs to the PCWA and PHA 
due to the necessarily frequent turnover. HUD continues to support the 
Budget proposal to extend the FUP youth time limit from 18 months to 60 
months.
    Even with extended timeframes, FUP youth will need critical 
supportive services from the PCWA. There is a need for critical new 
investments in PCWA in order to provide supportive services to former 
foster youth transitioning to adulthood. In a 2014 report on FUP for 
youth conducted by HUD, 40 percent of PCWA surveyed reported that 
funding for the supportive services for youth is either somewhat a 
challenge or a major challenge in some cases.
              assisted housing and criminal justice reform
    Question. HUD recently published Notice PIH 2015-19, ``Guidance for 
Public Housing Agencies (PHAs) and Owners of federally-Assisted Housing 
on Excluding the Use of Arrest Records in Housing Decisions'' stating 
arrest records cannot be the basis for denying admission, terminating 
assistance or evicting tenants of federally assisted housing.
    What are the methods HUD will use to determine compliance with this 
guidance, and how will requirements of this guidance take into account 
the balance between access to housing and the safety of all residents?
    Answer. HUD's plans to enforce the guidance are consistent with its 
approach to enforcing other requirements related to admission or 
eviction. HUD Field Offices are preparing to conduct a compliance 
monitoring assessment, during which they will review PHAs' Admissions 
and Continued Occupancy Policies. Field Office staff will monitor 
whether a PHA's policies treat an individual's arrest as a reason to 
deny admission, terminate assistance, or evict that individual. Where 
polices are noncompliant, PHAs will be required to change them. On an 
ongoing basis, HUD Field Offices will monitor compliance via targeted 
reviews, with special emphasis on PHAs who are determined to be at a 
higher risk of non-compliance according to HUD's National Risk 
Assessment Tool (updated quarterly). Further, residents have the option 
of reporting any violation of any guidance and/or regulation in writing 
or by telephone. All complaints are investigated by the Field Office 
and the person is notified of the outcome. Finally, HUD will remind all 
PHAs that they must comply with the published guidance on an annual 
basis.
    PHAs have an obligation to ensure the safety and security of their 
residents. While the guidance makes clear that an individual's arrest 
cannot be used to prove disqualifying criminal activity, it also states 
that a record of an arrest might properly ``trigger'' an inquiry into 
whether a person actually engaged in disqualifying criminal activity. 
As part of such an inquiry, the guidance allows a PHA or owner to 
continue to obtain and review the police report, record of disposition 
of any criminal charges, and other evidence associated with the arrest 
to inform its eligibility determination, and thereby make an informed 
assessment.
    Question. What are the fair housing implications of screening out 
applicants with criminal records?
    Answer. The Fair Housing Act (Act) prohibits both intentional 
housing discrimination and housing practices that have an unjustified 
discriminatory effect because of race, national origin, or other 
protected characteristics. While the Act does not prohibit housing 
providers from appropriately considering criminal history information 
when making housing decisions, selective use of criminal history as a 
pretext for unequal treatment of individuals based on race, national 
origin, or other protected characteristics violates the Act.
    Additionally, criminal history-based restrictions on housing 
opportunities violate the Act if such restrictions have an unjustified 
and disproportionate impact on individuals of one race or national 
origin versus another. Under the standard for proving discriminatory 
effects claims set out in HUD regulations, a criminal history policy 
that causes a disparate impact lacks a legally sufficient 
justification, and therefore violates the Act, if either the housing 
provider cannot prove that the policy is necessary to serve a 
substantial, legitimate, nondiscriminatory interest, or a plaintiff can 
prove that the housing provider's interest could be served by another 
practice that has a less discriminatory effect.
    In the context of criminal history-based housing restrictions, 
whether a particular policy that causes a disparate impact violates the 
Act will generally depend on whether, or to what extent, the policy 
takes into account such factors as the nature of a prior conviction and 
the length of time since the conviction. Discriminatory effects 
liability is always assessed on a case-by-case basis.
    For more information, please consult the Office of General 
Counsel's Guidance on Application of Fair Housing Act Standards to the 
Use of Criminal Records by Providers of Housing and Real Estate-Related 
Transactions, issued on April 4, 2016.
             local housing policy grants-affordable housing
    Question. The lack of housing inventory is a major cause of the 
affordability crisis that cities are currently facing. In Hawaii, one-
third of families pay more than half of their income on rent. While 
housing vouchers are an important tool, they cannot solve this 
challenge alone. Creating more units of housing will reduce the rent 
increases for those in market-rate housing, allow government assistance 
to stretch further, and keep our communities more affordable. HUD's 
budget includes $300 million in mandatory funding to provide localities 
with resources to engage in comprehensive planning to solve this 
systemic problem.
    How would this program would work and how will HUD partner with 
localities to tackle these challenges if these additional funds do not 
materialize?
    Answer. The initiative would fund competitive grants to be awarded 
to localities and regional coalitions of localities that demonstrate an 
ability to execute and carry out policy, program and regulatory 
streamlining initiatives that serve to create a more elastic and 
diverse housing supply. The funding would allow localities to address 
any needs that arise from the new policy, program or regulatory 
initiatives, e.g., infrastructure expansion and/or improvements, as 
well as support market evaluations, code writing assistance, design 
options, stakeholder outreach and education, and implementation. Funds 
would also establish a learning network that would provide ongoing 
capacity building to the organizations and entities, facilitate shared 
learning opportunities among similar cohorts, and share or disseminate 
the results of learning and resulting effective best practices.
    In order to encourage innovation, learn from local experience, and 
better align multiple HUD and other Federal programs and reduce Federal 
barriers, local governments, with support from HUD and other Federal 
agencies would develop plans to realize their own visions for building 
more prosperous, affordable and economically vital regions.
    Without these funds, HUD will look to use a portion of its 
technical assistance (TA) resources to support local efforts to 
increase housing supply, but TA funds are in high demand. HUD would 
also still try to create knowledge sharing among localities that have 
developed innovative, local solutions to housing supply challenges, 
which can be shared and possibly replicated. Unfortunately, these 
alternatives would not completely mitigate the time and cost that many 
localities need in developing and implementing these types of policy 
reforms.
                                 ______
                                 
           Questions Submitted by Senator Christopher Murphy
                                  fha
    Question. After FHA reduced the Mortgage Insurance Premium, the 
agency's total number of loans endorsed increased by 73 percent in the 
third quarter of fiscal year 2015 (April-June) as compared to the year 
before, including a 34 percent increase in purchase-loan endorsements.
    Can you differentiate between FHA's current market share of the 
low- to moderate-income single family borrower cohort as compared to 
Fannie Mae and Freddie Mac?
    Answer. At this time, the Department cannot differentiate between 
FHA's current market share of the low- to moderate-income single-family 
borrower cohort as compared to those of Fannie Mae and Freddie Mac; 
but, FHA can demonstrate that the median FICO score of an FHA borrower, 
even post MIP reduction, is in the 680's and in line with FHA's mission 
to serve low- and moderate-income households. We would note though that 
this median is affected by our countercyclical role in the market--and 
in times of market expansion and contraction, that the median FHA FICO 
score will ebb and flow accordingly as FHA serves the market for credit 
access in underserved households at all income ranges. Generally, as 
private capital comes back to the market--FHA median FICO decreases and 
rises when it leaves the market and more households need FHA insured 
financing.
    Question. Following FHA's Mortgage Insurance Premium reduction last 
year, can you confirm that FHA loans are currently priced appropriately 
for their risk?
    Answer. The estimated fiscal year 2016 and 2017 credit subsidy 
rates for those budget cohorts of -3.70 and -4.42 percent, 
respectively, indicate that FHA single-family forward loans are priced 
appropriately. Negative subsidy estimates mean that the cohorts' 
activity are estimated to result in savings to the government on a net 
present value basis.
    Question. Do you believe that the GSEs are overpricing for their 
risk?
    Answer. The Department is not in a position to evaluate the 
Government Sponsored Enterprises (GSE's) pricing since the GSEs use a 
different methodology, have different risk exposure, and charge 
different fees in their role as guarantors of mortgages on the 
secondary market.

                          SUBCOMMITTEE RECESS

    Senator Collins. The hearing is now adjourned.
    [Whereupon, at 4:04 p.m., Thursday, March 10, the 
subcommittee was recessed, to reconvene at a date and time 
subject to the call of the Chair.]