[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.
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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.
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\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.]