[Senate Hearing 117-750]
[From the U.S. Government Publishing Office]
S. Hrg. 117-750
EXAMINING THE U.S. DEPARTMENT OF AGRI-
CULTURE'S RURAL HOUSING SERVICE: STAKE-
HOLDER PERSPECTIVES
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HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING, TRANSPORTATION, AND COMMUNITY
DEVELOPMENT
OF THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE U.S. DEPARTMENT OF AGRICULTURE'S RURAL HOUSING SERVICE
FOCUSING ON HOW TO IMPROVE ACCESS TO HOUSING IN RURAL COMMUNITIES
__________
SEPTEMBER 20, 2022
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Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-650 PDF WASHINGTON : 2023
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
______
Subcommittee on Housing, Transportation, and Community Development
TINA SMITH, Minnesota, Chair
MIKE ROUNDS, South Dakota, Ranking Republican Member
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey MIKE CRAPO, Idaho
JON TESTER, Montana BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada CYNTHIA LUMMIS, Wyoming
CHRIS VAN HOLLEN, Maryland JERRY MORAN, Kansas
JON OSSOFF, Georgia KEVIN CRAMER, North Dakota
RAPHAEL WARNOCK, Georgia STEVE DAINES, Montana
Tim Everett, Subcommittee Staff Director
Kathleen Gayle, Republican Subcommittee Staff Director
Adam Schiff, Legislative Assistant
(ii)
C O N T E N T S
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TUESDAY, SEPTEMBER 20, 2022
Page
Opening statement of Chair Smith................................. 1
Prepared statement........................................... 24
Opening statements, comments, or prepared statements of:
Senator Rounds................................................... 2
Prepared statement........................................... 25
WITNESSES
Senator Jeanne Shaheen of New Hampshire.......................... 4
Elizabeth Glidden, Deputy Executive Director, Minnesota Housing
Partnership.................................................... 7
Prepared statement........................................... 25
Responses to written questions of:
Senator Cortez Masto..................................... 41
Marcia Erickson, CEO, GROW South Dakota.......................... 8
Prepared statement........................................... 29
Responses to written questions of:
Senator Cortez Masto..................................... 42
Tonya Plummer, Director, Native American Housing Programs,
Enterprise Community Partners.................................. 10
Prepared statement........................................... 34
Responses to written questions of:
Senator Cortez Masto..................................... 47
David Battany, Executive Vice President, Capital Markets, Guild
Mortgage Company............................................... 11
Prepared statement........................................... 37
Additional Material Supplied for the Record
Letter submitted by National Housing Law Project................. 51
Statement submitted by National Rural Housing Coalition.......... 58
Statement submitted by Housing Assistance Council................ 65
(iii)
EXAMINING THE U.S. DEPARTMENT OF AGRICULTURE'S RURAL HOUSING SERVICE:
STAKEHOLDER PERSPECTIVES
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TUESDAY, SEPTEMBER 20, 2022
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Housing, Transportation, and Community
Development,
Washington, DC.
The Subcommittee met at 2:30 p.m., via Webex and in room
538, Dirksen Senate Office Building, Hon. Tina Smith, Chair of
the Subcommittee, presiding.
OPENING STATEMENT OF CHAIR TINA SMITH
Chair Smith. Good afternoon. I call this Subcommittee to
order.
Good afternoon. Senator Rounds, I want to thank you for
working together with me on today's hearing focusing on what we
can do to improve access to housing in rural communities. I
want to thank Chair Brown for his encouragement and support of
our Subcommittee work, and I want to thank Senator Shaheen from
New Hampshire for joining us today as well.
So small towns and rural places are creative,
entrepreneurial, diverse, and wonderful places to live and to
work and to raise a family. They produce our food and our
energy. They are hubs of manufacturing and small business,
education, health care, arts, and culture. And when I travel to
rural communities in Minnesota, I find hardworking, passionate
people who love their communities and want them to be even
better.
Yet, we know that for many rural communities the shortage
of affordable housing is an enormous impediment to attracting
new business, new residents, and new talent. The reality is if
you do not have a safe, affordable place to live, nothing else
in your life works or in your community, not your job, not your
education, not your health. Housing challenges can be about
families trying to find a place to live for disabled family
members or seniors that are faced with living in overcrowded
conditions. I mean, it could be workers who want to take a job
in a grain elevator or a meat processor or a manufacturing
facility, but the closest home they can find is 40 miles away.
One hiring manager in Minnesota told me that they spend
almost half their time just helping new employees find housing,
and I know that Senator Rounds has heard similar stories in
South Dakota.
And I am grateful to you for the work that we have been
able to do in a bipartisan way on this Subcommittee to look for
solutions to some of these problems.
The U.S. Department of Agriculture's Rural Housing Service,
which Congress created in 1949, plays an important role in
supporting the development of single and multifamily housing in
small towns and rural places across the United States. RHS is a
trusted and well-known partner for rural America, which faces
unique challenges when it comes to developing and financing
housing.
This is our Subcommittee's second hearing focused on rural
housing. In May, we heard from Xochitl Torres Small, who is the
Under Secretary for Rural Development. She runs the Rural
Housing Service, and she shared several ideas for how to
improve Rural Housing Service's administrative systems to keep
housing affordable for residents of Section 515 properties as
those properties--those USDA mortgages for those properties
mature.
Following the hearing, Senator Rounds and I made a public
call for input on RHS programs, and we received nearly two
dozen responses. I appreciate so much the thoughtful comments,
and we learned a lot from them. Nearly all the letters we
received pointed to the importance of fully funding the Rural
Housing Service, and I certainly agree with that. Commenters
also noted the importance of making administrative
improvements, similar to what we heard from Secretary Torres
Small.
We also heard about the need to decouple rental assistance
from Section 515 mortgages. As properties with these mortgages
age and their mortgages mature, many low-income families are at
risk of unaffordable rent increases. Senator Shaheen and I
introduced a bill yesterday to fix this problem, and I
appreciate your partnership on this issue.
In addition, we heard about the unique challenges that
Native communities face in obtaining mortgages, particularly on
trust land. Senator Rounds and I have been working on a bill to
expand an innovative USDA pilot program to address this issue,
and I look forward to hearing more from our witnesses about
that today as well.
Finally, we received some very interesting suggestions for
addressing other issues that exist, including how to update
home repair programs, options to prevent foreclosures, which
can both help keep residents in their homes and save the USDA
money, and opportunities to reduce burdens and bureaucratic red
tape on homeowners and renters, especially very low income
families.
So I look forward to hearing from all of today's witnesses
about these issues and more, and I hope that we can continue
the productive conversations that we have had so far about how
to address the housing challenges facing small towns and rural
places.
Senator Rounds, I recognize you for your opening remarks.
OPENING STATEMENT OF SENATOR MIKE ROUNDS
Senator Rounds. Thank you, Madam Chair. Once again, I want
to thank you for the cooperative effort in which this
Subcommittee has continued to work, and I want to thank our
witnesses, specifically, Ms. Erickson, for joining us virtually
from Sisseton, South Dakota, for offering your stakeholder
feedback on how to improve the Rural Housing Service, or RHS.
In South Dakota, RHS has played a large role in supporting
affordable home ownership and rental housing for lower-income
families. I believe there are a number of ways that we can
streamline and modernize RHS to more effectively serve rural
Americans. Over the last several months, our offices have been
collecting recommendations from stakeholders, like those
testifying today, on ways to achieve this. Their proposals have
included commonsense reforms such as increasing the threshold
for mortgage requirements on 504 loans, requiring USDA to
provide more data transparency along with an annual report on
RHS programs, improving staffing, updating old IT systems, and
more.
Over the last several decades, the number of loans made
through the Section 502 Guaranteed Loan Program has increased
while the number of loans made through the Section 502 Direct
Loan Program has declined. The Direct Loan Program, a more
expensive program that exposes taxpayers to greater risk, was
failing to reach communities, more specifically, members of
tribal communities, in a meaningful way.
In order to better serve Native American communities, USDA
launched a 502 lending pilot program in 2018, where USDA
partnered with Native community development financial
institutions to help Native American families realize that
dream of home ownership. I look forward to hearing Ms. Erickson
discuss the successes of that pilot program in South Dakota.
Although the pilot program was successful, it has not yet been
expanded.
The results of a 2022 National Rural Housing Coalition
survey of organizations working with RHS on administering the
502 direct program demonstrates how broken the program remains.
The survey found that there was a wide variation of house
Section 502 loans that were administered, there was
inconsistent staffing of loan applications, and loan processing
was often delayed, sometimes stretching to 70 days or longer.
That is why as we look to make updates to RHS I think it is
important to include the bill Chairwoman Smith and I have
partnered to expand the 502 lending pilot program. We should be
promoting innovative strategies like this that utilize public
private partnerships to make certain funds reach the
communities that really do need them.
We will also be looking at ways to streamline regulatory
requirements for programs and increase flexibility for the
smallest communities as cumbersome processes have deterred
nonprofits from utilizing programs. In that vein, staffing and
IT upgrades are imperative as we evaluate how to make RHS as
effective as possible. RHS is using software that, in some
cases, is nearly 25 years old. The outdated technology can
delay applications from perspective renters and buyers and
scare away perspective landlords that are interested in
utilizing RHS programs for their properties. As a USDA lender,
I am interested in hearing Mr. Battany's perspective on ways to
upgrade processes.
Thank you again to all of our witnesses for being here
today, and I look forward to the conversation.
Thank you, Madam Chair.
Chair Smith. Thank you, Senator Rounds.
And now I would like to invite Senator Shaheen, who is
visiting our Committee this afternoon, to make a few comments.
Thank you.
STATEMENT OF SENATOR JEANNE SHAHEEN OF NEW HAMPSHIRE
Senator Shaheen. Well, thank you very much, Chair Smith,
Ranking Member Rounds, and Senator Tester, for all of the work
that you have been doing to address rural housing and also for
giving me the opportunity to be here this afternoon to talk
about some of the challenges we are facing with respect to
housing in rural areas in New Hampshire and also the
legislation that Senator Smith already referenced to address
some of those issues.
Right now, New Hampshire, like I am sure many parts of the
country, is in the midst of an affordable housing crisis.
According to the 2022 Residential Rental Cost Survey, which was
conducted in New Hampshire by the New Hampshire Housing Finance
Authority, the vacancy rate for all rentals in New Hampshire is
just 0.5 percent. That is not 5 percent; that is 0.5 percent.
That is compared to a vacancy rate in the Northeast of 4.9
percent and, nationally, of 5.8 percent.
And meanwhile, rents across our State continue to increase
at an alarming rate. The cost for a 2-bedroom unit has
increased almost 26 percent in the past 5 years. Now this is a
statewide crisis, but in some of our rural areas the problem is
even worse. In Grafton County, which is in the western part of
New Hampshire, along the Connecticut River and borders Vermont,
the vacancy rate is just 0.3 percent, and rents have increased
an astonishing 48 percent over the past 5 years.
Now in many of our rural communities, as you all know, USDA
Rural Housing Service Programs remain a critical source of
affordable housing for our lowest-income and most vulnerable
residents. Many of them are elderly or disabled, but some of
these programs are showing signs of strain as they mature.
The Section 515 loan program, which was originally
established almost 60 years ago, is one of those programs that
requires attention today to ensure that it can be successful
into the future. Under current market conditions, in many
communities, when a Section 515 loan matures, there are very
strong incentives for the property owner simply to leave the
program altogether and convert the units to market rate.
In fact, we have had two properties in the Lakes Region of
New Hampshire, which is more in the eastern part of our State,
which were recently saved from this very fate, including one
complex that sits on Lake Winnipesaukee, our State's largest
lake, which could easily have been converted to luxury
apartments which would command very high rents. It was only
through the timely intervention of Lakes Region Community
Developers, which is a mission-driven nonprofit, that this
outcome was avoided and tenants' homes were preserved, but
unfortunately, the residents of many other properties in New
Hampshire and across rural America are not so lucky.
Legislation I introduced last week with Chair Smith, the
Strategy and Investment in Rural Housing Preservation Act, is
designed to address some of these incentives, tilting them back
in favor of preserving vital, affordable rural housing stock
and protecting low-income residents from displacement. To do
so, the bill gives USDA and property owners flexibility to
restructure existing Section 515 loans to ensure that these
properties remain affordable for years to come.
Even where restructuring is not possible, the bill helps
protect residents by allowing rental assistance to be
decoupled, as Senator Smith alluded to earlier, from the
underlying loan but to remain in place at the property or by
allowing the resident to transfer their rental assistance to
another eligible property.
Finally, the bill requires USDA to establish a plan for
preserving affordable rental housing in rural areas, in
consultation with an advisory committee composed of a variety
of interested stakeholders that includes tenants and property
owners.
The affordable housing crisis in our rural communities is
an enormous challenge that no single piece of legislation or
single action is going to be able to solve, but I believe this
legislation, like so many of the other initiatives that this
Subcommittee is working on, is an important step that will help
prevent immediate harm by preserving existing affordable units
as we all consider additional measures to create more
affordable housing in communities where it is needed most.
Thank you again, Chair Smith, Ranking Member Rounds, and
all Members of the Subcommittee, Senator Tester, for letting me
join you today and for the work that you doing, and I stand
ready to be helpful in any way I can as you bring forward
legislation.
Chair Smith. Thank you, Senator Shaheen.
I now want to welcome our witnesses here today, and I will
turn to Senator Rounds to introduce Marcia Erickson from South
Dakota.
Senator Rounds. Thank you, Madam Chair.
It is my pleasure to introduce Marcia Erickson, the CEO of
GROW South Dakota. Marcia has been with GROW South Dakota for
more than 30 years and has served as CEO for 17 years. GROW
South Dakota is a statewide nonprofit organization located in
Sisseton, South Dakota, that provides programs and loan
products to advance housing, community, and economic
development. She is also the President of the Board of
Directors for the National NeighborWorks Association.
Marcia has a broad range of experience in mobilizing and
administering resources from private, State, and Government
funding sources. As a loan packager for the USDA Rural Housing
Development 502 Direct Loan Program, Marcia is well situated to
give useful feedback to the Subcommittee on ways to improve RHS
programs.
Thank you again, Marcia, for joining us virtually and for
being willing to represent the interests of South Dakotans in
Washington.
Chair Smith. Thank you so much, and welcome, Ms. Erickson.
I would turn now to Senator Tester to introduce Tonya
Plummer.
Senator Tester. Yeah, thank you, Chair Smith and Ranking
Member Rounds, for holding this hearing.
And, Senator Rounds, you know that you are number 1 in 17
Select, and if you----
Senator Rounds. I was going to say that, but I did not know
if you wanted me to break that news.
Senator Tester. No. And if you guys wonder what we are
talking about, you need to go to Nats Park, and I will give you
a hint it has to do with good beer and good fun.
I have the distinct pleasure to introduce Tonya Plummer,
who is the Director of Native American Housing Programs at the
Enterprise Community Partners, where she works with folks from
across the country to build capacity and to improve Native
housing. She also serves on the Montana Board of Housing. Tonya
is an enrolled member of the Assiniboine and Sioux and Cree
heritage.
Tonya has previously led a Native CDFI based on Ft. Belknap
Indian Reservation, where she has deep ties. During her time
there, she helped grow the national CDFI network and foster
Montana Native home ownership opportunities.
We are glad to have you here today, Tonya, and we look
forward to this hearing.
Madam Chair.
Chair Smith. Thank you, Senator Tester, and welcome, Ms.
Plummer.
I would like to introduce Elizabeth Glidden, who is the
Deputy Executive Director of the Minnesota Housing Partnership.
As Deputy Executive Director, Elizabeth manages the Minnesota
Housing Partnership policy and program initiatives with a focus
on expanding housing and community development opportunities
for historically underserved communities.
I have to say as a personal note it is wonderful to welcome
Ms. Glidden. She and I have known each other since our days
working together in city government in the city of Minneapolis,
when I was Chief of Staff for the Mayor and she served and was
a leader on the City Council, including on housing issues then.
I would like to welcome David Battany to the Committee, who
is the Executive Vice President for Capital Markets at Guild
Mortgage Company. Mr. Battany has more than 30 years of
leadership experience in single-family lending and is
responsible for all of Guild Mortgage's Government agency
lending, including USDA's Rural Housing Service loans. Mr.
Battany serves as a member of the Mortgage Bankers
Association's Residential Board of Governors and cochairs the
Mortgage Bankers Association's Affordable Homeownership
Advisory Council, and he is cochair of the National Housing
Conference 2022 Black Homeownership Collaborative and is a
board member of Habitat for Humanity.
And I also learned from greeting David that he hails from
far western Colorado, so issues of rural communities are near
and dear to his heart.
With that, I just have a few reminders. This hearing is in
hybrid format. Our Members may be both in person and remote as
well as having witnesses testify, as we do today, both in
person and by video. If there is any technology issues, we will
move to the next witness until it is resolved.
For witnesses, you all have 5 minutes for your opening
statements. Each of you will have a clock in front of you or on
your screen. Your full written statement will also be part of
the record.
For Ms. Erickson, who is joining virtually, you will hear a
bell ring when you have 30 seconds remaining and then again
when your time has expired.
And, Ms. Glidden, I recognize you for your opening
statement.
STATEMENT OF ELIZABETH GLIDDEN, DEPUTY EXECUTIVE DIRECTOR,
MINNESOTA HOUSING PARTNERSHIP
Ms. Glidden. Thank you, Chairwoman Smith and Members of the
Subcommittee. My name is Elizabeth Glidden, and I am the Deputy
Executive Director of the Minnesota Housing Partnership, a
nonprofit organization that advocates for equitable housing
policy, produces data-informed research, and delivers community
development services across the United States. We specialize in
serving rural communities and Native nations, and in the past
year alone we have provided direct technical assistance to 36
rural communities, including 14 Native nations.
So what does the housing affordable crisis look like for
rural communities? Rural residents have fewer housing options
and are more likely to live in substandard housing than their
urban peers due to older housing stock and less compliance and
enforcement of codes. In Minnesota, 41 percent of rural renters
are cost burdened, meaning they are paying more than 30 percent
of their income for housing.
To serve the housing affordability needs of rural
residents, Minnesota has been an early and enthusiastic adopter
of USDA's Section 515 program. In Minnesota, Section 515 homes
make up almost 20 percent of all subsidized housing units in
rural areas of Minnesota. That percentage is much higher in
some areas of the State, where 515 units can make up more than
45 percent of available affordable homes. This means that a
Section 515 property may provide the only affordable housing
option within a community or for many miles around.
The average income of Minnesota's Section 515 residents
utilizing rental assistance is less than $12,000. This means
that these very deeply affordable properties are critical in
rural communities.
A long-time concern has been mortgage maturations of 515
properties as we still do not have a preservation or
replacement strategy for these rural homes. The peak of
mortgage maturations for Section 515 properties in the Midwest
States is 2030, about 10 years before the peak occurs in other
areas of the United States, and according to the Housing
Assistance Council Minnesota actually leads the Nation in the
number of properties that are exiting the 515 program. In the
past 5 years, about 1,100 units, representing more than a tenth
of all 515 properties in Minnesota, have exited. In addition to
mortgage maturations, the reasons for these exits include
owners prepaying their mortgages, owners selling outside of the
USDA transfer process to avoid it, and deteriorating property
conditions.
As 515 properties often are coupled with Section 521 rental
assistance, this helps ensure that these homes are affordable
to our lowest-income rural residents. And as was mentioned in
other opening comments, under current law, when a USDA mortgage
is paid off, the 515 or the 514 or 516 property loses its 521
rental assistance, which can result in displacement, housing
instability, and loss of community for those residents, but
also, a property may face negative financial consequences from
the loss of rental assistance.
Decoupling the mortgage from rental assistance can support
continued housing stability for rural residents by allowing the
rental assistance to continue at a property that no longer as a
qualifying mortgage. And in States like Minnesota, with
increasing mortgage maturations and other exits, this is an
option that needs serious consideration.
We agree with our colleagues at the National Rural Housing
Coalition and the Housing Assistance Council that decoupling
should be paired with increased funding for USDA's Rural
Housing Service programs, such as the Multifamily Preservation
and Revitalization Program, and that implementation conditions
must be included with any program change. We support the
conditions that are set forth in the Shaheen-Smith bill as
providing appropriate conditions for decoupling among other
supports for rural housing.
In addition, I would like to mention that we have policy
recommendations that included funding necessary for
preservation and program operations for USDA's programs, that
transfers to mission-focused nonprofits must continue to be
incentivized, including with technical assistance, and that 521
rental assistance provided in the American Rescue Plan should
receive serious consideration for extension.
Thank you so much to the Subcommittee for allowing me time
to speak. I look forward to any comments and questions.
Chair Smith. Thank you very much.
We will now turn to Ms. Erickson, who is joining us
virtually, for your testimony.
STATEMENT OF MARCIA ERICKSON, CEO, GROW SOUTH DAKOTA
Ms. Erickson. Thank you, Chairwoman Smith, Ranking Member
Rounds, and Members of the Subcommittee. As the CEO of GROW
South Dakota, the housing programs offered by USDA have been
extremely important to the work that we do and the communities
that we serve. The perspectives that I share with the Committee
today are both some of those benefits and some of the
challenges of these programs.
The 502 Direct Loan Program is a great resource and an
option for affordable housing. This program assists low-income
applicants to obtain housing by providing payment assistance.
However, the length of time for approval on the 502 direct home
loans can be discouraging to homebuyers. A shortened
application process, staffing levels sufficient to address the
need, and upgraded technology for loan processing would greatly
improve the 502 Direct Loan Program.
The Native American Rural Homeownership Improvement Act,
introduced by Senator Smith and Senator Rounds, expands an
existing USDA 502 Direct Loan Relending Program to partner with
Native Community Development Financial Institutions. These
Native CDFIs work daily in their communities and have the
background and the experience that is needed to close those
first mortgage loans for Native home borrowers. This is a prime
example of a program that works. It should be replicated, and
it should be permanently authorized. GROW South Dakota supports
this bipartisan legislation.
In many of our rural communities, the Section 515
multifamily program does provide the only decent and affordable
rental housing in the community. Over the last few years, with
the transition to a more regional approach for the USDA
offices, the response times have become delayed. The servicing
agents are overloaded and unable to respond in a timely manner.
We support increased staffing resources to enhance the
efficiency and the effectiveness of the 515 multifamily
program.
The USDA 504 program provides direct loans and grants to
low-income applicants to repair their homes. GROW South Dakota
supports increasing the total funds that can be awarded to
households, expand the eligibility to grant recipients, and
raise the average median income limits. With broader
eligibility and higher awards per household, rural residents
will have better access to funds needed to repair their
substandard homes.
The Rural Community Development Initiative helps nonprofits
to further their community development work. GROW South Dakota
recommends an amendment to the grant scoring on the median
household income for the communities where the recipients are
physically located. Many times, recipients are physically
located in an area where the median household income levels are
higher than what is allowed for the maximum scoring, but yet,
they are serving communities that are less than 70 percent of
the State and national median income. This regulation change
would better reach all low-income communities. We also support
increased funding for the RCDI.
In another area, mortgage lending on tribal trust land is a
challenge, in part, caused by the delays in processing of title
and mortgage-related documents by the Department of Interior
Bureau of Indian Affairs. The BIA must review and process the
mortgage before it can be finalized. The consequences of these
delays have resulted in financial institutions exiting this
market, loss of capital flowing into tribal communities, and
tribal populations not being able to access affordable mortgage
products.
The Tribal Trust Land Homeownership Act is important for
Native Americans to have access to home and business loans.
Thank you, Senators Smith, Rounds, Tester, and Thune for
introducing this very important legislation.
In closing, I applaud the efforts being made by Congress to
increase the resources to USDA RHS and to ensure that programs
are structured so that recipients can use them flexibly to meet
our local needs. Thank you for working to create solutions in a
bipartisan manner and for your time today. I look forward to
answering any questions you may have.
Chair Smith. Thank you very much.
I will now invite Ms. Plummer to provide your opening
remarks.
STATEMENT OF TONYA PLUMMER, DIRECTOR, NATIVE AMERICAN HOUSING
PROGRAMS, ENTERPRISE COMMUNITY PARTNERS
Ms. Plummer. Thank you, Chair Smith, Ranking Member Rounds,
and Members of the Committee. Thank you for the opportunity to
share perspectives on USDA's Rural Housing Services with you
today, and thank you, Senator Tester, for the introduction.
My name is Tonya Plummer. I am the Director of Native
American Housing Programs for Enterprise Community Partners,
where we work to make home and community a place of pride,
power, and belonging for tribes all across the country.
My career has focused on housing and home ownership because
I have experienced in a deeply personal way its role in
providing stability, security, and the ability to rise above
circumstances. My grandmother was born in a teepee on the banks
of Enemy Swim in Sisseton, South Dakota. My grandfather was
born in a tent on the Missouri River just outside the Ft.
Belknap Reservation of Montana. Neither ever owned a home.
From them came my father, born on the Ft. Belknap
Reservation, who built his home on trust lands over several
years, with cash, going years without running water until he
could afford that amenity.
I was 20 years old when NAHASDA was first authorized, and 2
years later I became the first homeowner in my family. I
purchased my first home in Montana with a USDA rural housing
loan. I have spent my career helping others create a home and
in bringing this experience to elevate opportunities for
tribes. I am severely disheartened at the lack of products and
resources for Indian Country.
In advance of my recommendations, I do want to acknowledge
the recent positive outreach and efforts of USDA Rural Housing
staff to tackle the tough issues for mortgage banking, mortgage
lending in Indian Country and to be present and available
thought partners.
I also want to acknowledge the complexities of applying
broad changes to all rural and tribal areas, where the markets,
courts, rates of growth, and ecosystems of support are unique
and varied. It is critically important to be cognizant of this
in drafting legislation and careful of unintended consequences.
We are very pleased to see the Committee's interest in
supporting USDA's Rural Housing Service. Our submitted written
testimony is much more robust, and in it we offer specific
solutions and recommendations toward progress. But to summarize
today's focus, we will touch on three proposed areas of reform
needed to improve the accessibility and effectiveness of RHS
programs, including:
Number one, increased rural housing resources and
technology. RHS programs are extremely valuable but
underutilized due to limited staff and technology, and that
disparity negatively impacts rural and Native Americans who
rely on them as some of the best and only products designed for
rural and Native needs. We encourage creative solutions such as
the national expansion of the Section 502 direct relending
pilot, so successful in South Dakota--a few of my partners are
here behind me supporting--that leans into Native CDFIs as
natural partners in the deployment of USDA funds and also the
renewal of appropriations to Section 525 Technical and
Supervisory Assistance, or TSA, grants.
Number two, the USDA Section 502 subsidy recapture is
damaging in Native communities and should never be expected on
tribal trust lands. Tribal members on trust lands already come
to the closing table with less equity because their land is
given no value, and the application of a subsidy recapture
assures that they will never build it at a rate comparable to
nontribal members on fee-simple lands, where a buy-sell market
exists. Recently, in one tribal community, a father with a 502
direct loan passed away, and in order to keep the family housed
in the home they had to come up with $22,000 of subsidy
recapture.
However, broadly removing the recapture in communities
where value appreciation is seen and a shared equity model
makes sense, could harm the USDA budget formulas and
potentially decrease dollars available for Section 502 lending.
A nuanced approach, we feel, is needed and the subsidy
recapture should be treated one way on tribal land, one way in
appreciating markets, and another way in depreciating markets.
The proposed application, number three, of Federal
foreclosure proceedings currently available to HUD but not to
USDA on Section 515 multifamily preservation products is to be
addressed. While we appreciate the need to streamline recovery
and especially to ensure long-term affordability, we recognize
the tribal courts and jurisdictions are sovereign and that
tribal sovereignty must be recognized. There is a fear and
frustration around the way these proceedings play out on tribal
lands, and we encourage further, deeper consultation with
NAIHC, with the policy committees of the native coalitions in
Minnesota, South Dakota, and Montana, and others to determine
viable solutions to expedite the process while respecting
tribal sovereignty.
In conclusion, I thank you for inviting me to share my
experiences and perspectives today. On behalf of Enterprise
Community Partners, I would like to thank the Committee,
especially Chair Smith and Ranking Member Rounds, for their
leadership on rural and tribal housing issues, as well as the
bipartisan cooperation on issues that affect so many Americans
in every corner of our country. We look forward to continuing
in partnership with you.
Chair Smith. Thank you so much for your testimony.
I now turn to Mr. Battany.
STATEMENT OF DAVID BATTANY, EXECUTIVE VICE PRESIDENT, CAPITAL
MARKETS, GUILD MORTGAGE COMPANY
Mr. Battany. Chair Smith, Ranking Member Rounds, Senator
Tester, thank you for the privilege to testify on behalf of the
Mortgage Bankers Association.
Lenders are indispensable partners to USDA's Rural Housing
Service as we are both the providers and the servicers of these
loans. These programs are worthy of our Nation's commitment to
them.
In 2021, there were 114,000 mortgage loans backed by USDA.
This represented less than half of 1 percent of all total loan
volume. The average loan size was $180,000. The total amount of
Section 502 guaranteed loans obligated for Minnesota was $448
million and $170 million for South Dakota. It is imperative to
be mindful of this small market share and smaller loan size
when discussing proposals that might further restrict lending
or impose additional costs on service delivery.
The focus of my testimony is the opportunity to build on
recent progress that RHS lending can better serve consumers and
industry participants alike. We can advance this objective by
addressing three areas: better workflow, better technology, and
if these two areas are achieved, better loan products.
I would like to start my discussion on better workflow by
commending RHS on its recently proposed rule to implement a
provision of HOTMA enacted in 2016 to enable the Secretary to
delegate approval authority to preferred lenders. Lack of any
delegation authority is a major barrier and has kept RHS out of
alignment with FHA and VA lending. In some cases, response
times from RHS to approve a loan can take up to 10 days, and
this may result in some borrowers delaying or losing their
closing date. For financing multifamily properties, delays can
be a deal killer. Building for rural workforce housing require
a combination of debt, tax credits, and equity financing that
must come together quickly or they will be applied to other
deals. USDA should proceed with updates that provide full
delegation to all approved lenders to be responsive to their
customers' needs for both residential and multifamily lending.
The technology backbone of RHS operations is widely
acknowledged as outdated. It is less advanced than those used
by several other Government housing agencies, Fannie Mae and
Freddie Mac, and lenders. USDA should have the budget to ensure
RHS can keep pace with changes in the market, evolving data
security threats, and changes in the ways which mortgage loans
are originated and serviced.
The technology focus for RHS is centered on its Guaranteed
Underwriting System (GUS). Further work is needed to ensure the
system fully supports RHS borrowers and lenders. For example,
RHS imposes limits on the number of runs a lender can make for
each borrower, making it difficult for a lender to perform pre
qualifications. RHS offerings need to be more attractive for
loan officers working on the ground with consumers. When a
problem occurs with a system, it often requires substantial
manual intervention.
RHS should also update its interfaces for the remittance of
annual fees. Today, servicers must manually review and submit
payments, which is cumbersome and outdated.
Once capacity is improved, various RHS loan parameters
should be reviewed to ensure they do not restrict access to
credit or responsible use of RHS offerings. The RHS debt to
income limits, for example, are far more stringent than those
associated with other types of Government lending. RHS
requirements related to borrower reserves, borrower deposits,
existing trade lines, qualifying income, and tax transcript
history would benefit from sensible updates as well. Congress
and USDA could examine limits in the program's population size
and geographic parameters.
Finally, RHS can expand pilot projects and finance a
broader variety of housing types to match GSE standards,
including manufactured housing and accessory dwelling unit. RHS
financing will increase affordable housing options in rural
areas. The Subcommittee should review the lien payment required
under the Direct Loan Program and work to ensure that Federal
funds are provided in a timely manner to serve borrowers
throughout the entire year.
Once again, on behalf of all MBA members, I appreciate the
opportunity to testify, and I also deeply appreciate the USDA's
ongoing engagement with lenders and other stakeholders. I look
forward to your questions.
Chair Smith. Thank you so much.
We are now going to turn to Members of the Committee for
questions. Each Member has 5 minutes, and I am going to defer
to Senator Tester.
Senator Tester. Well, thank you, Madam Chair, and I want to
thank all the folks who have testified today. I appreciate your
testimony.
Several of you mentioned that the USDA RHS programs were
valuable but they are underutilized because of limited staff
and technology. That disparity negatively impacts rural and
Native communities who rely on this program's resources as some
of the best and some of the only products designed for rural
and Native needs.
So I will ask you, Tonya, and anybody else can jump in
after Tonya is done: Are there creative solutions to explore
here, and other than more staff, more technology, which is
huge, are there any other changes to the programs that you see
obvious?
Ms. Plummer. Thank you for the question, Senator. Two
creative ways that we saw to expand the staffing shortages that
are at USDA--I think portions of USDA staff in South Dakota are
functioning at 25 percent of what they were 5 years ago, but
that was really fixed by the----
Senator Tester. Say that again. Did you say that the
staffing today is 25 percent of what it was 5 years ago?
Ms. Plummer. Correct.
Senator Tester. OK. So why is that?
Ms. Plummer. I believe it is because of an underfunding of
the USDA Rural Housing programs.
Senator Tester. OK.
Ms. Plummer. And that is a much layered issue to----
Senator Tester. No, no, no. I just wondered if that is a
choice that Congress made or if it is a choice the Agency made.
It would be interesting to find that out. Keep going. Thanks
for pointing that out.
Ms. Plummer. We have experienced the same issues in
Montana. I think we have partners at the table in Montana who
very much want to come alongside and do better and just do not
have the staff. So as an executive director of a CDFI, to run
deals and scenarios, all I could get was an e-mail of the
handbook. Not for lack of desire or want, it is just nobody has
done those programs, nobody knows how to do them in Indian
Country, and there is nobody to really figure out how to
facilitate it.
So we would really encourage leaning into the national
expansion of Senate Bill 2092 because the Native CDFIs on the
ground are networked through the Native CDFI network. They are
networked through strong and growing coalitions in South
Dakota, Montana, New Mexico, Minnesota. There is strength in
those numbers there. They have peer-to-peer learning models
where they can lean into each other for best practices,
especially when it comes to using outdated technology like the
GUS system. That is a beast to work with, and as an underwriter
I struggled with that system as well.
Senator Tester. OK. Anybody else like to respond to that
question? Go ahead.
Ms. Glidden. Thank you, Senator. Minnesota Housing
Partnership is one of a small number of organizations that has
provided technical assistance through the Multifamily
Preservation Technical Assistance Program, and while I do not
think that that is a full solution to the depth of issues with
staffing and technology, it is a very important program not
only for 515s but for others as well. So permanently
authorizing the MFTA program and increasing those resources
could be important.
A second issue I wanted to mention was simplifying
processes. In the 515 area, I would recommend simplifying the
transfer process by instituting a two-step transfer, and I can
go into that more if desired.
Senator Tester. OK. I have a question for Mr. Battany. You
talked about RHS's closing response can take up to 10 days.
What is the standard?
Mr. Battany. For most lenders, they are delegated for most
products like FHA, VA, Fannie Mae, and Freddie Mac products. So
the USDA's requirement that they review the loan to make the
conditional commitment is somewhat unique. There are some
private investors that require that, but it is not common for
Fannie Mae, Freddie Mac, FHA, and VA loans.
So the process, depending on weekends and timing and staff
shortages, can be 1 day, 2 days, and sometimes 10 days. So the
problem is if there is ever a Government shutdown or anything
that could delay a human's ability to respond, it does slow the
process down.
Senator Tester. OK. Could you--and I will say this to Tonya
because you brought it up. A thing called a subsidy recapture,
tell me when that is used or why that is used, either one. Or,
you can do it, Mr. Battany. I do not care, just as long as I
get an answer.
Ms. Plummer. The idea is really centered around the concept
of shared equity and sort of increasing the affordability of
the home and the entry point, and so by applying the subsidy
early on in the loan process the rate is drawn down to
somewhere around 1, 2 percent in order to increase the
affordability of the home. But that is not a permanent benefit
because it has to be repaid back in the event that the
homeowner sells the home or passes away, you know, or ends
ownership in their hands.
Senator Tester. I got you.
Ms. Plummer. But I know one of the pilot CDFIs that are
part of the national relending pilot, they do not even use it
because it is just felt as a bitter sting and a bite. It does
not work in those communities. It discourages the resale of
that home.
Senator Tester. Gotcha. OK. Thank you, Madam Chair.
Thank you. Thank you all.
Chair Smith. Thank you, Senator Tester.
Senator Rounds.
Senator Rounds. Thank you, Madam Chair.
First, thank you, all of you, for the information that you
are providing to us, and this has been very helpful already
just in your opening testimonies. As a rural stakeholder who
helps build--or, who helps administer USDA programs, I know
that you have experienced a burdensome process and the lack of
flexibility that comes with that; you have expressed that.
Ms. Erickson, I would like to address this question to you.
How would you like to see USDA increase flexibility for our
smallest communities in South Dakota to promote uptake of the
USDA RHS programs?
Ms. Erickson. There is a variety of things that can be done
to increase flexibility. There are so many intricacies in loan
packaging, for instance, that you mentioned. It is difficult
for the packagers to get to the end product. Small credit
issues, self-employment, and everything like that takes extra
time, but the technology to support that would be one step, as
we have already discussed, and the staffing resources.
Another thing that we are up against a lot of times is just
communication. There has been a lack of responsiveness from the
USDA Loan Servicing Center, which could be improved. We have
shared loans with Rural Development that have been foreclosed
and may sit empty for a length of time before they are made
available for resale, and part of that is due to being able to
effectively communicate with them. I think if those
communication lines were improved, we could be more efficient
and possibly help some of those homebuyers through our HUD
counselors, with financial education and budgeting, or maybe
even provide assistance to help bring their loans current.
There are other flexibility areas like the 504 loan and
grant program. We often refer our seniors to the grant program,
and it can be coupled with a loan. Our seniors that are low
income are very cautious about taking out a loan, and I can
understand that.
When we were doing home improvement on a house, a lady was
making lunch. And I said, oh, how nice. I am sorry to interrupt
your lunch. Do you ever go out for senior meals?
And she said that the senior meals are too expensive.
So when I went back to look at her income, it just was
Social Security income, and she was trying to keep up her house
with Social Security income and pay for her utilities,
medicine, and food. Very, very hard. And they are afraid to
take out that loan portion.
So, increase the grant portion would be one recommendation
that I have, and greater flexibility. Working with both focus
groups and our communities would be a great start also.
Senator Rounds. Thank you.
Mr. Battany, as a USDA lender, you are instrumental in
getting money into the hands of rural Americans, and you have
seen the inefficiencies of RHS firsthand. Could you detail for
the Subcommittee the single most important update you would
like to see?
Mr. Battany. My view is the single most important update
would be to increase funding which would allow RHS to make more
investments in technology. And much of USDA staff perform
functions that are very manual in nature in response to the
inefficiencies in the current system, so the investments in the
technology would free up staff to be more available to provide
better communications and service.
So I would suggest that the investment, or the increased
investment, in RHS funding for the technology would also pay
the dividend of improving communications and helping create
better awareness of the programs and the functions and
requirements of each program to reduce confusion and create
more certainty with mortgage lenders and with consumers.
Senator Rounds. Thank you.
Ms. Plummer, the 502 relending pilot program has been
extremely successful in South Dakota, and you made note of it
earlier. Currently, our Native CDFIs even have waiting lists
for individuals wanting to participate in the program. How
would legislation like the Native American Rural Homeownership
Improvement Act make an impact in States like Montana?
Ms. Plummer. I think between the tribal communities there I
think the pipeline was--I cannot remember how--it is immense,
and I believe there would be immediate access to home ownership
in those tribal communities. We have been working hard to build
a Montana Native Home Ownership Coalition, patterned similarly
after South Dakota, to increase capacity among all those CDFIs,
to have the systems in place, the training in place, to
immediately deploy USDA funds as a part of that pilot if it
were to be passed. So the impact would be very real and
immediate.
Senator Rounds. It is really a matter of the CDFIs actually
understanding how to work in Indian Country and on reservations
and with tribal trust land, isn't it, and it is a matter of
understanding the current regional situation?
Ms. Plummer. They already know their communities. Native
CDFIs are so close to the problem. They are good at building
the social and emotional infrastructure. They are good
counselors. Many times, they understand the complicated land
processes that USDA staff just stumble over and are intimidated
by. And so I think the education is actually the other way
around with USDA staff having a chance to understand how Native
communities think, live, breathe, and how to work within those
land systems.
Senator Rounds. Thank you.
Thank you, Madam Chair.
Chair Smith. Thank you, Senator Rounds.
So in 1963, over 16,000 rural rental properties,
translating to well over half a million affordable units, have
been financed through the Rural Housing Service's 515 program.
And in Minnesota, there are currently about 450 properties, as
I understand it, with Section 515 mortgages. Residents in these
properties are making somewhere in the neighborhood of $17,000
a year, and these households are more likely to be headed by a
woman and more likely to be headed by a person of color.
And we know that even more properties--we are going to see
properties leaving this portfolio soon, a big impact in
Minnesota because we have been a strong adopter in this
program, but all over the country.
So when properties exit the 515 program, they may lose
rental assistance funding, some properties are no longer
required to keep rental assistance affordable, and that means
those residents are kind of, you know, up a tree.
Ms. Glidden, let me just ask you, so what happens to a
tenant if they are living in a property where that mortgage
expires?
Ms. Glidden. So when the mortgage expires, if that property
has 521 rental assistance, then that rental assistance also
goes away from the property. Knowing what happens to the
tenants is something that we have been trying to dig into more
deeply. This is also part of our analysis that looked at what
are other housing--affordable properties in the areas. And what
we find is that there, frankly, are very few, if any,
opportunities in many communities in Minnesota for residents to
stay within community once those rents increase and once the
mortgage expires, and so those residents are left without a
home and without the community.
Chair Smith. Yeah, yeah, they have to leave. Everything is
up in the air. And as we know, there is such a shortage of
affordable housing in rural communities. It is not surprising
that some of those residents end up living in their cars or
living with family. I mean, it is very, very, very disruptive.
So let me just ask all of the panel. As we think about this
large number of 515 properties leaving the program as their
mortgages mature, what are your best recommendations for how we
should be addressing this challenge? I just open that question
up to everybody.
Ms. Glidden. I will maybe start off. So I had talked a
little bit earlier in response to a question about technical
assistance. The reason I mention this is that right now, while
there is a declining interest in 515 properties from private
owners and investors, it is mission-driven owners that are
maintaining strong interest in 515s, community-based owners.
And so we think that we need to do all we can to assist those
mission-based owners, those nonprofits, and housing authorities
in being able to access those properties and maintain them as
affordable. So technical assistance is one way to assist those
very small organizations in being able to understand the 515
transfer process, being able to apply it, being able to manage
through that system.
A second item that I had mentioned was simplifying the
transfer process. Right now, even if you are completely
committed to trying your best, you have no profit motivation to
maintain that property as affordable. The transfer process is a
tremendous process.
And I know that USDA is open to a two-step transfer
process. This would be one idea for streamlining the transfer
process, where you would be able to have a nonprofit owner
close on the property and then have a second step where they
would be able to develop a rehab plan and secure the funding
that is necessary to ensure that property is in the proper
condition----
Chair Smith. Because that is--I am sorry to interrupt, but
that gets at the issue that many of these properties are in
dire need of being refurbished and repaired and improved so
that they are decent places for people to live. Is that
correct?
Ms. Glidden. Absolutely. So many, if not almost all, of
these properties will need rehab, will need that assistance,
which means a need to be able to secure the funding----
Chair Smith. Right.
Ms. Glidden. ----to be able to assist those properties.
Chair Smith. If it was easier to roll over the mortgage for
that property, refinance it in some ways, you could use that as
a source of funding for refurbishing the property?
Ms. Glidden. Yes. But part of another issue is that some of
the resources that we need to continue to assist with these
restructurings, the MPR program, are not funded to a level that
we are able to assist new properties. Right now, they are still
running through a backlog assisting those properties. And so
right in this moment, where we need to be helping and assisting
mission-driven owners to be able to secure ongoing
affordability of properties, we do not have the resources, and
we do not have the policy in place to help that take place.
Chair Smith. Yeah. Thank you very much.
Senator Moran.
Senator Moran. Chairwoman, thank you. Thank you and Senator
Rounds for hosting this hearing, and I thank the panelists for
being here.
I am sure I am stating something that is obvious, but there
is no conversation in a community that does not occur, about
housing, for--maybe takes 2 or 3 minutes before that becomes
the topic of conversation if you are talking to an employer, to
a plant manager, to a chamber of commerce executive, to a
mayor, to a city manager. The conversations in Kansas revolve
around this topic plus childcare.
Let me ask just a few questions first. In today's high
inflation times, do our housing programs take into account
those circumstances, or does it become even more difficult to
solve housing needs with the ever increasing cost of materials
and rent and the cost of construction?
Mr. Battany, I see you were shaking your--nodding your head
with me, so I assume there was an answer there.
Mr. Battany. Yes, the cost of labor and cost of materials
are driving up construction prices. One of the solutions that
is available in the industry, which is not currently used by
USDA and would be one of my recommendations, are manufactured
homes. Fannie Mae and Freddie Mac have rolled out new higher
standards for homes that the trade institutions call them
CrossMods. And these are homes that are 2 to 3 bedrooms, 2
bathrooms, 2,000 square feet, that are built to the same
standards as stick-built, site-built homes.
I have personally toured these homes. These homes are
indistinguishable. If you walk through a home with a building
engineer, you will have a difficult time to know if it was site
built versus factory-built.
The benefit of factory-built is you can build them very
quickly. The homes are built in 10 days in a factory, in a
controlled, indoor environment, and the cost of construction is
anywhere from 20 to 30 percent less due to the efficiencies you
have building onsite and repeating processes.
And in many rural areas, where workforce housing is a
challenge or labor is a challenge, both the cost of labor is a
challenge but also the availability of labor in rural markets,
to have a home built in a factory that can then be transported,
installed in a couple months onsite--typically, the modules are
installed. Then the pitched roofs, garages, and porches are
built and attached onsite.
But these homes, for many workforce and rural residents,
could be a very key part to solve both the lack of housing
units and the cost of construction.
Senator Moran. I thank you for your answer. I was not
certain. Are you saying that there is an impediment toward
programs' financing allowing that type of factory construction?
Mr. Battany. Yes. In today's USDA RHS guidelines, there are
pilot programs in a few States where this can be done, but as a
standard program parameter, only new construction that is being
financed at the time can be built. So existing manufactured
homes are not eligible for the programs, and so if USDA could
align with Fannie Mae and Freddie Mac standards, for example,
that would allow more of this housing to flow to this part of
the market.
Senator Moran. Is there any justification for the position
that Rural Development takes on this topic?
Mr. Battany. I think this is more of a newer item to hit
the market. I do not know there is necessarily a strong
argument against it. Historically, some of the older homes did
not appreciate as well because they were not built to the same
standards, but if they follow Fannie Mae and Freddie Mac
guidelines to the same high standards, then there should not be
any issue with respect to the quality of the homes or their
value as an investment.
Senator Moran. Mr. Battany, you indicated something that
caught my attention, and I heard this yesterday from my own
Rural Development Director, our State director. It was not--
well, I do not want to put words in her mouth, but the emphasis
was on we need money, resources, appropriations for staffing,
which is different than we need another program or we need to
fund programs higher. I heard that from some of the witnesses
today.
But the ability for USDA to meet the demands is lacking
because lack of people, lack of personnel. Is that a common
circumstance, I assume, across the country?
Mr. Battany. Yes, that is a very widespread feedback from
lenders who work with USDA. The teams are wonderful, but they
are just spread thin. And a lot of the things they spend time
on are manual processes that could be eliminated through
technology, and they could better spend their time on being
more responsive on communications, responding to e-mails, being
more available for phone calls and just helping lenders because
every lender who does not get helped is a borrower who is
waiting for an answer. So the improved customer service to
lenders will flow through to borrowers.
Senator Moran. Ms. Plummer, would you tell me something I
probably should already know, but what are the Department of
Interior BIA programs that are particularly valuable in
housing, or does the tribal community rely upon USDA?
Ms. Plummer. Excuse me. I would say the latter. The BIA, I
believe they have the home improvement program. That is not as
broadly used as it could be, and it is largely for restoration.
But in terms of encouraging new development and new
finance, there are no programs offered by the Bureau of Indian
Affairs, and so tribal communities lean into either Section 184
home loans, which historically--it is becoming more and more of
a conforming product and inaccessible for tribal communities. I
believe there are 7 percent of HUD 184 loans that actually are
performed on trust lands, and so there needs to be some work on
that front.
For that reason, more have leaned into USDA and the
programs available there and have been creative about things
like the relending pilot.
Senator Moran. Thank you very much.
Thank you.
Chair Smith. Thank you, Senator Moran.
Senator Daines, you are recognized for 5 minutes.
Senator Daines. Madam Chairman, thank you, as well as to
Ranking Member Rounds, and thanks to all the witnesses here
today. It is great to have a Montanan with us as well, a
special thank you to Ms. Plummer for your willingness to make
the journey here and to testify as well.
I hear consistently from our first responders, our
teachers, other critical workers in Montana that it is almost
impossible to find homes to rent, let alone buy, that are safe
and, of course, affordable. In the past 2 years, construction
times have been protracted by material and worker shortages.
This is the business I grew up in. My mom and dad were in
the homebuilding business in the Gallatin Valley since the
early 1970s. I spent my summers usually working construction
and building houses. So we have watched this for a long time.
In our tribal communities, it is especially true. We may
have as many as 14 people crammed into a single-family home.
The importance of addressing this shortage cannot be
overstated. We are going to have to find solutions to help
Montanans house their families as well as their loved ones.
As we both know, the cost of construction tends to increase
exponentially the further a build site is from materials, from
parts, and from labor sources. I have heard in some tribal
communities the costs are much, much higher on a per-square-
foot basis than in more urban areas. Home builders have
estimated recent lumber price increases alone have added nearly
$20,000 to the price of an average home.
Ms. Plummer, could you comment on how inflation has
affected housing projects in Indian country?
Ms. Plummer. Sure. Thank you for the question, Senator, and
first of all, thank you for recognizing the dire need that we
are experiencing in Indian Country. There is no doubt that
inflation, I think, has a serious impact on the everyday lives
of urban, rural, and Native Americans all over the country.
I believe in tribal communities, especially, it is felt
more broadly on the development side. There are very few homes
that exist to finance already. So concentration on the building
of housing stock is as important as the concentration on
housing finance. That is difficult with the limited--increase
of cost in goods and materials and also with a limited task
force.
So one thing that we have done to help facilitate improving
that is work on building a strong Montana Native Homeownership
Coalition with membership from our Native CDFIs, banks, and
credit unions, our TDHEs, from every tribal nation across the
State to come together around solutions.
We have taken some cues from the South Dakota Native
Homeownership Coalition and their construction internship
program that builds the skills of Native workers in their own
home communities, finds somebody who can sign off on their
journeyman status so that they can retain employment right at
home, and then also partners with the Native CDFI to provide
financial education so that those new workers understand how to
build their business and become self-employed. So we are really
looking heavily at facilitating that across the State of
Montana.
Senator Daines. Ms. Plummer, thanks for your insights.
I want to note that if you look back at last spring, in the
midst of soaring lumber prices and shortages nationwide, lumber
prices rose about 100 percent. They crested in April at 300
percent. We all saw that dynamic.
And by the way, if we look back home in Montana, Ms.
Plummer, during that same period, our lumber production in
Montana actually decreased by 11 percent while costs were
soaring by nearly 300 percent, as our national forests failed
to meet basic timber harvest targets.
I will tell you, as a kid growing up, we had 30 active
sawmills in Montana. Today, we are down to six. We could have
offset some of these market dynamics had we simply been
managing our forests, surrounded by millions of acres of
national forest that get tied up in litigation, and we cannot
get in there and thing them. It helps a lot of great
environmental wins by doing so but, importantly, keeping lumber
prices lower and loggers on the job.
A lot of attention has been given to housing pressure in
urban communities, but often rural areas and Indian Country are
overlooked. Smaller communities have fewer workers. They have
fewer resources to address their housing needs.
As you know personally, we have some first-rate community
colleges and vocational schools right there in Montana. And,
Ms. Plummer, could you share with us how tribal colleges and 2-
year colleges are critical to developing this pipeline of
skilled workers?
Ms. Plummer. Sure. When we started to look at building a
coalition, one thing that we did across the State was some
asset mapping to determine which communities had a strong
tribal college or community college that we could lean into to
access their trades programs, to look at facilitating that
construction internship program and providing employment for
those folks that graduate right out of the gate. So they are in
every single tribal community across the State of Montana. And
just really we have not figured out a way to make that happen,
but I think there is a lot of potential to make that happen.
Senator Daines. Great. Well, the need is not going away, so
go forth. Thank you, Ms. Plummer.
Chair Smith. Thank you so much, Senator Daines.
I believe a Member or two is interested in doing a second
round of questions, and so we will proceed with that. I have
just one question, and then I believe Senator Moran has a
question, maybe Senator Rounds.
I want to just dive back into this issue that we are
calling decoupling, but it essentially gets at the challenge
that we have when these 515 mortgages mature, they go away, and
there is a tie between the rental assistance that could be
provided to people in that mortgage. So when the mortgage goes
away, the rental assistance goes away. It is sort of like a
double whammy of badness for people that are trying to figure
out how to stay in an affordable home.
Now there is work being done on this. The President's
budget in fiscal '23 suggested that Congress decouple the
rental assistance from the Section 515 loans. Work is happening
on the Senate Ag Appropriations Committee and, of course, the
bill that Senator Shaheen and I are working on as well.
I would just like to turn maybe to Ms. Glidden, and then I
would love to hear anyone else's comments, if you could just
talk about why this decoupling of these two programs would be
beneficial to helping to address one of the challenges we face
in terms of affordable housing in rural communities.
Ms. Glidden. Thank you, Senator Smith. So I might just
start with saying that, you know, we have talked before about
the mortgage goes away and so that is the support to the
property for maintaining the rents as affordable. And then when
the rental assistance goes away, that is both a loss to the
resident, which is the priority, but it also affects the
property's ability to maintain as affordable, which also needs
to be considered when we have so few affordable properties in
many of these rural communities.
So with decoupling, this would allow that rental assistance
product to remain with the unit, and then it would also help
create an opportunity to create conditions that would ensure
that that property remains affordable into the future. And I
will note that that is something that colleagues at other
national organizations have pointed out is very critical to
decoupling, from the National Rural Housing Coalition and
NAIHC, that ensuring that there are some conditions around
decoupling so that property owners then have those requirements
to ensure the property is maintained in safe condition, that
there is a restrictive use agreement. So we want to ensure
those protections stay in place, but it can be a good way to
retain some affordability when otherwise it would be
completely, possibly gone.
Chair Smith. Thank you.
Would anyone else like to comment on that? Yes, Ms.
Plummer.
Ms. Plummer. I will just add my experience is more in
single-family housing development and finance, and so I cannot
speak eloquently to this product. But I do have a codirector,
Robin, who has worked quite often with Elizabeth Glidden on
this, and I have heard her discuss these issues. I believe that
she would support everything that you have said today, and we
would welcome the chance to follow up with questions for the
record and additional commentary after today.
Chair Smith. Thank you very much. I appreciate that, and I
will look forward to--as we continue to work on this and to
fine-tune it, we will be sure to rely on all of your expertise.
Thank you very much.
Senator Moran.
Senator Moran. Chairman, thank you. I just did not want to
be remiss. We have been working, Senator Shaheen and I, in our
appropriations subcommittee in regard to the Department of
Commerce and USTR in regard to trade issues, particularly
tariffs.
And, Mr. Battany, you may be the most appropriate to ask
this question. We have been working--we have been trying to get
the Administration to negotiate a trade agreement with Canada
in regard to lumber, and then we have the lingering issue of
tariffs on steel. Could you comment on the expense or cost
associated with those tariffs and what it means to homebuilding
today?
Mr. Battany. Yes. Unquestionably, those increased costs
have directly and dramatically increased the cost of home
ownerships, and this indirectly also increases rental costs
because with inflation in general materials across the board,
but the specific increases in lumber cost in particular but
also in steel and other costs. Those components, combined with
the higher inflation on the labor costs, have resulted in much
higher cost to construct homes.
It also gives incentives for builders to build more higher
end homes and less entry-level homes. And as costs go up, homes
become more unaffordable. At the same time, interest rates go
up, and homes become more unaffordable. A person who was an
aspiring September 26, 2022, homebuyer now has to become a
renter, and that creates more demand for rental and pushes rent
prices higher.
So the increased cost of lumber trickles down through the
entire ecosystem and impacts both homebuyers and renters in
terms of higher cost of housing.
Senator Moran. Thank you.
Chair Smith. Thank you so much. I believe we have no
further questions from the Members, so I want to thank all of
our witnesses for being here today and for providing testimony.
Before we close, I would like to ask unanimous consent to
enter statements for the record from the National Rural Housing
Coalition, the National Housing Law Project, and the Housing
Assistance Council, without objection. Without objection, so
ordered.
For Senators who wish to submit questions for the record,
those questions are due 1 week from today, which will be
Tuesday, September 27th.
For our witnesses, you will have 45 days to respond to any
questions for the record. Thank you again for that.
Senator Rounds, I think we have lots of very practical,
commonsense ideas for ways that this program can be improved to
work better for rural communities, and I am excited to work
with you on this.
Senator Rounds. Thank you, Madam Chair, and I would just
say to our panelists today, thank you very much for a very
informative question and answer.
Chair Smith. With that, this hearing is adjourned.
[Whereupon, at 3:48 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIR TINA SMITH
Good afternoon. Sen. Rounds, thank you for working together with me
on today's hearing, focusing on what we can do to improve access to
housing in rural communities.
Thank you to Sen. Shaheen for joining us today as well.
Small towns and rural places are creative, entrepreneurial,
diverse, and wonderful places to live, work, and raise a family.
They produce our food and our energy. They're hubs of manufacturing
and small business, education, health care, and arts and culture. And,
when I travel to rural communities in Minnesota, I find hardworking,
passionate people who love their communities and want to make them even
better.
Yet, we know that for many rural communities, the shortage of
affordable housing is an enormous impediment to attracting new
businesses, new residents and new talent.
The reality is, if you don't have a safe, affordable place to live,
nothing else in your life or your community works. Not your job. Not
your education. Not your health.
Housing challenges can be about families trying to find a place to
live for disabled individuals, or seniors living in overcrowded
conditions. It could be workers who want to take a job at a grain
elevator, meat processor or a manufacturing facility but the closest
home they can afford is 40 miles away.
One hiring manager, in Minnesota, told me that they spend almost
half their time helping new employees find housing.
I know Sen. Rounds has heard similar stories in South Dakota. I'm
grateful to Senator Rounds that we have been able to work in a
bipartisan way on this Subcommittee to look for solutions to some of
these challenges.
The U.S. Department of Agriculture's Rural Housing Service (RHS),
which Congress created in 1949, plays an important role in supporting
the development of single- and multi-family housing in small towns and
rural places across the United States. RHS is a trusted and well-known
partner for rural America, which faces unique challenges when it comes
to developing and financing housing.
This is our Subcommittee's second hearing focused on rural housing.
In May, we heard from Xochitl Torres Small, the Under Secretary for
Rural Development. She runs the Rural Housing Service, and she shared
several ideas to improve the Rural Housing Service's administrative
systems and to keep housing affordable for residents of Section 515
properties as those properties' USDA mortgages mature.
Following the hearing, Sen. Rounds and I made a public call for
input on RHS programs, and we received nearly two dozen responses. I
appreciate all of the thoughtful comments, and we learned a lot from
them.
Nearly all of the letters pointed to the importance of fully
funding the Rural Housing Service, and I certainly agree. Commenters
also noted the importance of making administrative improvements,
similar to what we heard from Under Secretary Torres Small.
We also heard about the need to decouple rental assistance from
Section 515 mortgages. As properties with these mortgages age and their
mortgages mature, many low-income families are at risk of unaffordable
rent increases. Sen. Shaheen and I introduced a bill yesterday to fix
this problem, and I appreciate her partnership on this issue.
In addition, we heard about the unique challenges that Native
communities face in obtaining mortgages, particularly on trust land.
Sen. Rounds and I have worked together on a bill to expand an
innovative USDA pilot program to address this issue, and I look forward
to hearing more from out witnesses about that today.
Finally, we received interesting suggestions for addressing other
issues, including:
ways to update the home repair programs,
options to prevent foreclosures, which can both help keep
residents in their homes and may save the USDA money, and
opportunities to reduce burdens and bureaucratic red tape
on homeowners and renters--especially very low-income families.
I look forward to hearing from all of today's witnesses about these
issues and more, and I hope we can continue the productive discussions
we've had so far about addressing the housing challenges facing small
towns and rural places.
______
PREPARED STATEMENT OF SENATOR MIKE ROUNDS
Thank you, Madam Chair and thank you to our witnesses, specifically
Ms. Erickson for joining us virtually from Sisseton, South Dakota, for
offering your stakeholder feedback on how to improve the Rural Housing
Service.
In South Dakota, RHS has played a large role in supporting
affordable home ownership and rental housing for lower income families.
I believe there are a number of ways we can streamline and modernize
RHS to more effectively serve rural Americans. Over the last several
months, our offices have been collecting recommendations from
stakeholders like those testifying today on ways to achieve this. Their
proposals have included commonsense reforms such as increasing the
threshold for mortgage requirements on 504 loans, requiring USDA to
provide more data transparency along with an annual report on RHS
programs, improving staffing, updating old IT systems and more.
Over the last several decades, the number of loans made through the
Section 502 Guaranteed Loan Program has increased while the number of
loans made through the Section 502 Direct Loan program has declined.
The direct loan program, a more expensive program that exposes
taxpayers to greater risk, was failing to reach communities, more
specifically members of tribal communities, in a meaningful way. In
order to better serve Native American communities, USDA launched a 502-
lending pilot program in 2018 where USDA partnered with Native
Community Development Financial Institutions to help Native American
families realize that dream of home ownership. I look forward to
hearing Ms. Erickson discuss the successes of that pilot program in
South Dakota.
Although the pilot program was successful, it has not yet been
expanded. The results of a 2022 National Rural Housing Coalition survey
of organizations working with RHS on administering the 502 Direct
Program demonstrates how broken the program remains. The survey found
that there was a wide variation of how section 502 loans were
administered, there was inconsistent staffing of loan applications and
loan processing was often delayed--sometimes stretching to 70 days or
longer. That's why, as we look to make updates to RHS, I think it
important to include the bill Chairwoman Smith and I have partnered on
to expand the 502-lending pilot program. We should be promoting
innovative strategies like this that utilize public-private
partnerships to make certain funds reach the communities that really
need them. We will also be looking at ways to streamline regulatory
requirements for programs and increase flexibility for the smallest
communities, as cumbersome processes have deterred nonprofits from
utilizing programs.
In that vein, staffing and IT upgrades are imperative as we
evaluate how to make RHS as effective as possible. RHS is using
software that, in some cases, is nearly 25 years old. The outdated
technology can delay applications from prospective renters and buyers
and scare away prospective landlords that are interested in utilizing
RHS programs for their properties. As a USDA lender, I'm interested in
hearing Mr. Battany's perspective on ways to upgrade processes.
Thank you again to all of our witnesses for being here today and I
look forward to the conversation.
______
PREPARED STATEMENT OF ELIZABETH GLIDDEN
Deputy Executive Director, Minnesota Housing Partnership
September 20, 2022
Introduction
Chairwoman Smith and Members of the Subcommittee. Thank you for the
opportunity to testify regarding rural housing issues. My name is
Elizabeth Glidden, and I am the Deputy Executive Director of Minnesota
Housing Partnership or MHP. MHP is a nonprofit organization that
advocates for equitable housing policy, produces data informed research
to inform solutions, and delivers community development services across
the United States.
We specialize in serving rural communities and Native Nations with
programs such as our Housing Institute, Native Community Development
Institute, Emerging Developer Initiative, and Strengthening Rural
Communities. In the past year alone, we have provided direct technical
assistance to 36 rural communities including 14 Native Nations. In
addition, we prioritize rural issues with original research and public
policy solutions, including as a board member of the National Rural
Housing Coalition, an active member of the Rural Preservation Working
Group convened by the Housing Assistance Council, and by convening
community-based rural developers to develop administrative and public
policy recommendations for rural housing programs.
Rural Housing Issues in Minnesota
Rural communities are experiencing a housing affordability crisis.
In Greater Minnesota (the geography outside of the seven-county Twin
Cities metropolitan area), 24 percent of households are cost burdened,
or paying more than 30 percent of their monthly income on housing
costs, a number that increases to 41 percent for rural renter
households. Two-thirds of renter households in Greater Minnesota earn
less than $50,000 a year, which is under 50 percent of the State's area
median income.
In Minnesota, rural residents have fewer housing options and are
more likely to live in substandard housing than their urban peers, due
to older housing stock, and less compliance and enforcement of codes.
More than 40 percent of homes in Greater Minnesota are over 50 years
old, built prior to 1970. New construction permits remain low in many
rural areas, with some communities going years without a new
multifamily housing project.
Importance of 515 properties
Minnesota was an early and enthusiastic adopter of the USDA's
Section 515 program, which provides low interest loans for rental homes
for very low- and low-income households. In return for low-cost
financing, borrowers of Section 515 loans are restricted in the amount
of rent they can charge tenants, with 30-year loans amortized over 50
years. When loans mature, or properties otherwise exit the 515 program,
the owner is no longer required to keep rents affordable to any
particular income, which can result in displacement and housing
insecurity for current residents and a loss of available housing to
future residents.
Section 515 properties make up a substantial portion of the
affordable rental options for Minnesota's rural households, with such
properties located in 82 of Minnesota's 87 counties. Of the total
subsidized housing units in Greater Minnesota, Section 515 homes made
up almost 19 percent of that total in 2020. That percentage is higher
in some areas of Minnesota, as 515 units make up more than 45 percent
of the available affordable homes in multiple counties. A Section 515
property may provide the only affordable housing options within a
community or for miles around.
Minnesota's 515 properties are smaller in size than the U.S.
average, at 21 units compared to 31, indicating that policy solutions
must be flexible to address variations across the country in the 515
portfolio. The Section 515 program is unique in rural communities in
that it provides very deep subsidies, especially when combined with
rental assistance, which is the case for a super majority of units. The
average annual income of Minnesota's Section 515 residents utilizing
rental assistance is less than $12,000. Forty percent of Midwestern 515
properties are designated for seniors, higher than in other areas of
the U.S., although the number of units designated for families
continues to increase. Nationally and in Minnesota, we are not meeting
the market need for homes affordable to extremely low-income residents,
especially in rural communities, so preserving the Section 515 homes we
have is even more critical to the housing stability of lowest income
rural residents.
Section 515 Maturing Mortgages and Property Exits at a Crisis for Rural
Households
The Midwest, and Minnesota, will see much of its Section 515
properties mature out of the program earlier than the U.S. overall. The
peak of mortgage maturation for Section 515 properties in Midwest
States is 2030, about 10 years before the peak of mortgage maturations
for the United States. According to the Housing Assistance Council
(HAC), Minnesota currently leads the Nation in the number of properties
exiting the program. Between 2016 and 2021, over 80 properties, with
1,153 units, exited the 515 program, representing more than one-tenth
of all Section 515 properties in Minnesota. Our loss of affordable
rural homes will continue to accelerate in the coming years.
In addition to mortgage maturation, the decrease in Section 515
housing is impacted by factors such as owners prepaying their
mortgages, owners selling outside of the USDA transfer process to avoid
it, and deteriorating property condition such that rehab may cost more
than property value.
Decouple Rental Assistance From Mortgages, With Conditions
Section 515 rental housing and 514/516 farmworker housing
properties are frequently coupled with Section 521 Rental Assistance,
ensuring these homes are affordable to our lowest income rural
residents. In Minnesota 96 percent of Section 515 properties have at
least one unit with rental assistance; and 68 percent of all units have
rental assistance. Under current law, when a mortgage is paid off a
Section 515 or 514/516 property loses its Section 521 Rental
Assistance. When rental assistance is removed from a property,
residents may face displacement, housing instability, and loss of
community. Also, a property may also face negative financial
consequences from the loss of rental assistance.
Decoupling the mortgage from rental assistance is a policy solution
that can support continued housing stability for rural residents, as
USDA preservation resources are limited, by allowing rental assistance
to continue at a property that no longer has a qualifying mortgage. As
properties in States like Minnesota are currently facing a high number
of mortgage maturations and other exits, this is an option that needs
serious consideration.
We agree with our colleagues at the National Rural Housing
Coalition, Housing Assistance Council, and others that decoupling
should be paired with increased funding for USDA's Rural Housing
Service programs, such as the Multifamily Preservation and
Revitalization Program (MPR) and 515 program, and that implementation
conditions should be included with any program change. We support
provisions in S. 4762 (A bill to establish a permanent rural housing
preservation and revitalization program, and for other purposes) and
H.R. 1728 (Strategy and Investment in Rural Housing Preservation Act),
which would require properties seeking to decouple to:
Sign a restrictive use agreement and multiyear rental
assistance contract, preferably for 20 years
Demonstrate that they have tried to access other
preservation funding before pursuing decoupling as a last
resort
Agree to maintain the housing as decent, safe, and sanitary
and in conformity with provisions established in Title V of the
Housing Act
Funding Necessary for Preservation and Program Operations
Past underinvestment in USDA's Rural Housing programs has increased
the housing challenges faced by rural residents. Due to lack of
resources, USDA has not offered loans for new construction of
multifamily rental housing in over a decade, and there is a backlog of
approximately 200 applications for rental preservation resources, so
that projects in need of these scarce resources must continue to delay
preservation activities if they can't identify alternative sources.
Recent estimates shared by the USDA identify that $30 billion is needed
over the next 30 years to preserve 80 percent of the existing section
515 portfolio.
We are pleased that the fiscal year 2023 budget includes increases
to many rural housing programs, including increases for 515's and to
the Multifamily Preservation and Revitalization Program (MPR). We
appreciated the Presidents' recommended increase to USDA rural housing
programs, and hope this is the track we take, but more investments will
be needed to preserve rental housing and ensure rental assistance
remains accessible. We need these investments sufficiently to support
healthy rural communities, and preserve valuable USDA financed assets.
We were also pleased that the Inflation Reduction Act included $100
million for USDA Rural Development administrative costs. We urge the
Committee to encourage USDA to allocate a significant share of those
funds for the Rural Housing Service to support its field structure and
upgrade its information technology.
Incentivize Transfers to Mission-Focused Nonprofits
MHP is one of a small number of organizations that have provided
technical assistance pursuant to the Multifamily Preservation Technical
Assistance (MFTA) program. This program provides competitive grants to
eligible organizations to provide technical assistance and other
services to support preservation of affordable homes through the
transfer of Section 515 properties from current owners to nonprofits or
public housing authorities.
Through a 2018 grant, MHP assisted four rural housing and community
development authorities with the RD transfer process, preserving 82
units as affordable properties in Minnesota and Illinois, and helped
515 transfer property owners secure 18\1/2\ million dollars in loans,
low-income housing tax credits, and loan funds from bonds. Through the
term of the grant, MHP worked on preservation strategies for a total
330 Section 515 units. MHP, in partnership with Enterprise Community
Partners, will continue supporting nonprofit transfers with a recent
award of USDA technical assistance grant funds, with MHP serving 12
central region States.
Many of the organizations MHP has supported are very small rural
nonprofits or housing authorities that are new to owning 515
properties, new to working with USDA, new to USDA's complex transfer
process, and some are even new to multifamily development and ownership
generally. While there is declining interest in 515 ownership from
private owners and investors, mission driven owners maintain a strong
interest in the 515 program as one of the few affordable housing
resources available to rural residents. To continue to incentivize
nonprofit transfers we recommend:
Permanently authorize the MFTA program. Today, MFTA is
funded through appropriations, but not authorized.
Authorization will ensure the program remains stably funded and
is permanent part of the preservation tools of Rural Housing
Service.
Simplify the transfer process by instituting a two-step
transfer. This would allow a transfer to a nonprofit owner to
close, with time then allowed to develop a rehab plan and
funding. Today, a buyer must have prior to closing funding for
all capital needs as determined by a Capital Needs Assessment
and any adjusted reserve requirement. This process change would
eliminate a critical administrative barrier to preservation,
one that creates sometimes insurmountable burden to small
community-based nonprofits.
Set aside funding for smaller organizations in the Section
515 and MPR programs.
Extend Section 521 Rental Assistance
The American Rescue Plan Act included $100 million for Section 521
rental assistance for previously unassisted units and households,
allowing the USDA's Rural Housing Service to extend rental assistance
coverage to 27,000 units in 3,700 properties. This funding, which is
set to run out at the end of fiscal year 2022, ensures housing
stability for tens of thousands of rural residents and has helped to
stabilize the longterm preservation needs of the fragile USDA
multifamily portfolio. Removing rental assistance from these units will
create tremendous hardship for the households they support today, as
well as hastening the deterioration of USDA properties--both
circumstances we cannot afford.
Thank you for the opportunity to address the Committee. I look
forward to any comments or questions the Committee may have.
References
MHP's State of the State's Housing 2021, https://mhponline.org/state-
of-the-states-housing-2021/.
515 Properties in Minnesota: Preserving Affordable Rental Properties in
Rural Communities, https://mhponline.org/515-properties-in-
minnesota-preserving-affordable-rental-housing-in-rural-
communities/.
An Update on Maturing Mortgages in USDA's Section 515 Rural Rental
Housing Program (HAC 2022), https://ruralhome.org/update-maturing-
mortgages-usda-section-515-rural-rental-housing-program/.
______
PREPARED STATEMENT OF MARCIA ERICKSON
CEO, GROW South Dakota
September 20, 2022
Introduction
Thank you, Chairwoman Smith, Ranking Member Rounds, and Members of
the Subcommittee. I am Marcia Erickson, Chief Executive Officer for
GROW South Dakota. Thank you for the opportunity to provide testimony
on Examining the U.S. Department of Agriculture's Rural Housing
Service: Stakeholder Perspectives.
I started my career over 30 years ago working at GROW South Dakota
and have been the Chief Executive Officer for more than half of that
time. I carry a Master of Science Degree in Community Economic
Development from Southern New Hampshire University. I am also a
graduate of Achieving Excellence in Community Development from
Harvard's Kennedy School of Government. Some of my current affiliations
are National NeighborWorks Association (NNA) Board President, Rural
Local Initiative Support Corporation (Rural LISC) Rural Advisory
Committee, Small Business Development Center Advisory Board (South
Dakota), South Dakota Community Action Partnership President, and
NeighborWorks America Rural Advisory Committee. Past affiliations
include the Chair of the Federal Home Loan Bank of Des Moines Advisory
Council, Langford Community Foundation Advisory Board Member and
Founder, and Marshall County Healthcare Board Chair.
My testimony draws on these experiences and a diverse set of
programs delivered by GROW South Dakota. GROW South Dakota is a
statewide organization that administers several Federal, State, and
local programs through three separate private nonprofit organizations
under our GROW South Dakota branding umbrella. Our organization assists
South Dakota residents and communities in community, housing, and
economic development. GROW South Dakota has two certified Community
Development Financial Institutions (CDFIs) within our purview. We also
are a designated Community Action Agency, a partner of Rural LISC, and
an exemplary rated member of NeighborWorks America. Together with our
fellow South Dakota NeighborWorks organizations, in 2021 we leveraged
an additional $66 in public and private investment for every $1 of
NeighborWorks America grant funding awarded to organizations in our
State. I share the Subcommittee's perspective that the current state of
the housing programs offered by USDA Rural Housing Services (RHS) is
crucial to rural communities across the country, yet challenges to the
successful implementation of these programs remain.
I have worked with both the National NeighborWorks Association, the
trade association representing NeighborWorks affiliate organizations,
and Rural LISC to survey organizations across the Nation to gather
recommendations on improving USDA RHS programs and operations. These
surveys found that community-based organizations consider RHS resources
vital for their affordable housing and community development work.
Respondents also reported that USDA RHS needs additional staffing and
resources to oversee and administer their programs.
Section 502 Direct Loan Program
The 502 Direct Loan Program is a great option and asset for rural
families to secure an affordable mortgage. This program allows USDA to
provide single-family direct housing loans in rural areas to eligible
low- and very-low-income applicants who are unable to obtain credit
elsewhere. The 502 Direct Loan Program provides decent, safe and
sanitary single-family housing in eligible rural areas by providing
payment assistance to increase an applicant's repayment ability.
Payment assistance is a type of subsidy that reduces mortgage payments,
easing the financial burden on the household. The amount of assistance
is determined by the adjusted family income. Borrowers are required to
repay all or a portion of the payment subsidy received over the life of
the loan when the title to the property transfers or the borrower is no
longer living in the dwelling. \1\
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\1\ U.S. Department of Agriculture Rural Development. Single
Family Housing Direct Home Loans. n.d. 11 September 2022. https://
www.rd.usda.gov/programs-services/single-family-housing-programs/
single-family-housing-direct-home-loans
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GROW South Dakota recommends relaxing or eliminating the repayment
of subsidies under the 502 Direct Loan Program. The subsidy payback at
the end of the amortization can negatively impact the ability of low-
income families to gain generational wealth. According to CNBC, in
2019, homeowners in the U.S. had a median net worth of $255,000, while
renters had a net worth of just $6,300. \2\
---------------------------------------------------------------------------
\2\ CNBC. Here's the average net worth of homeowners and renters.
24 August 2021. 11 September 2022. https://www.cnbc.com/select/average-
net-worth-homeowners-renters
---------------------------------------------------------------------------
The interest rate of the 502 Direct Loan Program can also increase
each year based on household income increases. This can be problematic.
If a low-income homeowner receives a pay increase, their loan payment
becomes higher, making it less advantageous to seek career development
or other job advancement opportunities. We recommend examining both the
subsidy payback and considering adjusting the increments on increases
of income to a higher level.
In addition, the length of time for the direct home loan approval
process can be discouraging to potential low-income homebuyers. A
shortened application process, staffing levels sufficient to address
the need, and improved technology would greatly improve the Section 502
Direct Loan Program and ultimately serve more rural families.
Native American Rural Homeownership Improvement Act
GROW South Dakota appreciates and applauds the leadership of
Senator Rounds and Senator Smith in introducing the Native American
Rural Homeownership Improvement Act (S. 2092). This legislation will
expand an existing USDA 502 Direct Native Relending Program which
allows the USDA to partner with Native CDFIs, informed by a successful
demonstration implemented by two Native CDFIs in South Dakota--Four
Bands Community Fund on the Cheyenne River Indian Reservation and
Mazaska Owecaso Otipi Financial on the Pine Ridge Reservation.
This pilot made Native CDFIs eligible borrowers under the Section
502 Direct Loan Program, allowing these entities to relend to families
for the rehabilitation, construction, and acquisition of affordable
housing on trust land. Native CDFIs throughout the country work daily
in their communities and have the background and experience needed to
close first mortgage loans with Native borrowers. Their administration
of these funds will improve the deployment of the 502 loan funds to
assist a greater number of Native families and households. This is a
prime example of a Federal program that works, should be expanded, and
be permanently authorized. GROW South Dakota supports the passage of
this bipartisan legislation, as well as the inclusion of annual funding
for these purposes beginning in the Fiscal Year 2023 appropriations
bill.
Providing this authority for Native CDFIs to lend Section 502 loan
funds is a similar model to USDA Rural Development's Intermediary
Relending Program (IRP), which has been a successful business lending
program for many years. The IRP program provides loans to local
intermediaries to re-lend to businesses. This is an efficient and
effective method to deliver essential USDA resources to local economies
to create and retain jobs. We believe that delegating more
responsibilities to mission-based lenders such as CDFIs is an important
way for USDA to meet its mission of serving low-income families in
often hard-to-serve small communities.
Finally, the responsiveness of USDA's loan servicing center could
be improved and enhanced. Foreclosed homes by USDA Rural Development
may sit empty for significant lengths of time before they are made
available for resale due to the inability of partners to effectively
communicate with the loan servicing center. If communication lines were
improved, GROW South Dakota could also be more efficient and successful
in helping homeowners with financial education and possibly providing
assistance to bring their loans current.
Section 515 Rural Rental Housing Program
For many rural communities, the Section 515 Rural Rental Housing
Program provides the only decent and affordable rental housing in the
community. This program provides necessary rental housing options for
low-income households. Tenants in Section 515 properties have an annual
average income of only $14,6653, with many units occupied by seniors
and people with disabilities. \3\
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\3\ United States Department of Agriculture Rural Development.
Results of the 2021 Multi-Family Housing Annual Fair Housing Occupancy
Report. 12 May 2022. 18 September 2022. https://www.rd.usda.gov/sites/
default/files/RDUL-MFHreport-0.pdf
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According to Mills Property Management--a property management
contractor with GROW South Dakota--reduced USDA staffing and a
reorganization to more regional offices have lengthened response times
and led to processing delays over the last few years. USDA servicing
agents have become overloaded and unable to respond to questions,
reserve for replacement requests, conduct budget approvals, and
complete other programmatic tasks in a timely manner. \4\ These
communication delays have also contributed to the transfer of unused
Section 521 rental assistance out of the State, hurting small-town
rural properties in our communities as these resources are vital for
preserving property affordability and ensuring tenants are not cost-
burdened. We support increased staffing resources for USDA, additional
Section 521 Rental Assistance funding, and the full renewal of existing
resources, including those provided in the American Rescue Plan.
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\4\ Lamfers, Jessica. Mills Property Management Finance Director
Maureen Nelson. 13 September 2022. Email.
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Many Section 515 multifamily projects are in need of additional
repairs and major renovations due to deferred maintenance. We support
increased resources for the Multifamily Preservation and Revitalization
Program (MPR) since it provides USDA the ability to defer existing
loans and provide ``soft second'' loans and grants.
Projects in rural communities are not only in need of structural
capital needs. Projects that are over 30-40 years old are in
competition with newly constructed units that have amenities such as
dishwashers, in-unit washers/dryers, garages, and updated security
systems. Some of these quality-of-life items require a full renovation
of the USDA Rural Development 515 projects in order to be considered.
When an owner considers additional financing for 515 properties for
substantial renovation in the form of a loan, it is difficult to
finance as the amount of rent allowed is limited. If a loan is approved
with an increase in rent, the USDA Rural Development subsidy typically
will be increased to offset the difference between the tenant's ability
to pay only 30 percent of their income and the higher rent. In essence,
the subsidy may be assisting with making the loan payment. If USDA
provides a loan to the project and also provides an increase in subsidy
due to increased rent, it may be more effective and efficient to
provide the project grant funding.
Appraisals that are necessary when considering USDA Rural
Development or third-party loans are an added expense to the project.
While USDA Rural Development may consider the tax-assessed value of a
property, it can be difficult to approve if the valuation is low. In
rural areas, it is challenging for the property to meet the appraised
value after renovation when taking into consideration the additional
and existing debt of the property. GROW South Dakota would support
creating a capital pool for experienced nonprofits in the lending field
to finance Section 515 projects requiring renovations and to support
the preservation of these properties. Nonprofits have greater
regulatory flexibility with lending requirements and can serve as a
conduit to fill this void. Congress should consider providing
appropriations for the USDA Multifamily Housing Preservation Loan Fund
program, which previously provided support through a delegated lending
structure.
Finally, for 515 projects, USDA Rural Development properties are
difficult to transfer to new ownership due to prepayment debt covenants
on the project. Potential buyers interested in affordable multifamily
housing solutions may be forced to assume USDA Rural Development debt
in order to maintain access to subsidies. GROW South Dakota welcomes
any legislative intervention available to ease the burden from
nonprofits during these difficult transfers. Access to subsidies
continues to be critical for nonprofits like GROW South Dakota to serve
our communities by providing and preserving affordable multifamily
units. Nonprofits that own 515 projects also have limited funding and
revenue to complete the necessary updates for deferred maintenance.
Because of this, these organizations are being forced to sell projects
to private parties who remove the units from the USDA Rural Development
program and increase rents.
504 Single Family Repair Loans and Grants
The staff of GROW South Dakota work daily in our rural communities
and see firsthand the need for home repairs. When driving through a
rural community, it is easy to see the need for shingles and siding
from property to property, but there is also a need for health and
safety issues that may be causing risks inside the home. Further, when
GROW South Dakota has peer-to-peer meetings with groups and
organizations deteriorating housing is always at the forefront of the
discussions. This is clearly displayed in our organization, as GROW
South Dakota has 151 families on our waitlist pending home
improvements, and unfortunately, our funding is limited to address
these needs.
The USDA 504 program provides direct loans and/or grant funds to
very low-income applicants to repair their homes. GROW South Dakota
often refers homeowners to the USDA 504 program. However, many of our
low-income clients looking for home improvement assistance are not
comfortable taking out a loan, even with the very favorable interest
rate. This program would benefit from greater regulatory flexibility
and an increase in the grant funds per household. This grant currently
allows a maximum grant award of $10,000 \5\ for those over 62 and with
very-low income. GROW South Dakota's home improvement project costs
have increased beyond this award ceiling, even for one major
improvement, such as shingling, while many homes need more than one
home repair item completed. GROW South Dakota supports increasing the
total grant funds awarded to households, expanding the eligibility of
grant recipients and the use of funds, and raising Average Median
Income eligibility limits. With rising repair costs, broader
eligibility flexibilities, and higher awards per household, rural
residents will have better access to funds for needed home repairs.
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\5\ USDA Rural Dvelopment. ``Together, America Prospers''. n.d.
Single Family Housing Repair Loans and Grants. 19 September 2022.
https://www.rd.usda.gov/sites/default/files/508-rd-fs-rhs-
sfh504homerepair.pdf
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Housing Preservation Grant (HPG)
The HPG program helps to repair or provide rehabilitation of
housing owned by low-income rural households. The USDA Housing
Preservation Grant (HPG) is both complex and difficult to administer.
Reducing regulatory barriers from the grant application stage to the
assistance provided to low-income families will increase the program's
impact.
During the application stage, GROW South Dakota asks for the public
comment process to be removed from the HPG process. The 15-day comment
period window is often shortened by the notice of available funding
listings being close to the submission date. Although we have not
administered this program for some time, we never received a public
comment as a result of this requirement, and it has only added to our
administrative burden in issuing this program.
The HPG program also requires the State Housing Preservation
Offices (SHPOs) to review and approve preservation activities, such as
replacing windows, while other Federal programs such as the Department
of Energy's Weatherization Assistance Program have negotiated
streamlined processes with little or no consultation with the SHPO to
comply with the National Historic Preservation Act. \6\ USDA Rural
Development would further its impact under HPG by modeling the
Department of Energy's streamlined process for review and approval.
Therefore, we recommend Congress expand resources for HPG since these
activities are needed in our communities while also incorporating
administrative reforms to increase the program's impact.
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\6\ Office of Energy Efficiency & Renewable Energy. Historic
Preservation--Executed Programmatic Agreements. n.d. 18 September 2022.
https://www.energy.gov/eere/wipo/historic-preservation-executed-
programmatic-agreements
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Rural Community Development Initiative
The Rural Community Development Initiative (RCDI) is the only
specific capacity-building program offered through USDA's RD Programs.
This program helps scale the ability of nonprofits to further their
affordable housing and community development work in rural areas. GROW
South Dakota recommends changing the RCDI grant scoring on the median
household income for the communities where the recipients are
physically located. \7\ Many times, local partnering development groups
or recipients are physically located in an area where the median
household income levels are higher than allowed for scoring the maximum
points in the grant application, but they are serving communities that
are less than or equal to 70 percent of the State or national median
household income. This change would allow RCDI resources to better
reach all low-income communities. We also support increased funding for
RCDI.
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\7\ Department of Agriculture. FR Vol. 87. 8 February 2022. 18
September 2022. https://www.govinfo.gov/content/pkg/FR-2022-02-08/pdf/
2022-02624.pdf
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Tribal Trust Land Homeownership Act
The South Dakota Native Homeownership Coalition is a collaborative
group of key agencies dedicated to increasing home ownership
opportunities for Native Americans in the State of South Dakota. GROW
South Dakota has worked closely with the South Dakota Native
Homeownership Coalition since its inception, initially securing and
administering a USDA RCDI grant to help set roots for this successful
coalition. However, home ownership continues to be a major challenge on
trust land.
Mortgage lending on Tribal Trust and Restricted Land is a challenge
to home ownership in part caused by delays in the processing of title
and mortgage-related documents by the Department of Interior Bureau of
Indian Affairs (BIA). The loans involving property on trust land must
be reviewed and processed by the BIA before the mortgage can be
finalized and guaranteed by the relevant Federal agency.
The unintended consequences of these delays have resulted in large
financial institutions exiting this market, loss of capital flowing
into Tribal Communities, Tribal members with homesite leases opting for
higher-cost chattel loans, frustration by lenders needing to refresh
documents due to time delays, and tribal populations not able to access
affordable mortgage products.
To the BIA's credit over the past three years, they have made
mortgages a priority in their title work and have created an Indian
Affairs Mortgage Handbook to standardize mortgage package processing
across their 12 Regions. The Handbook is a step in the right direction
as it provides guidance related to timelines, but more work must be
done to ensure the BIA adheres to its timelines. Given the disparities
in obtaining access to home loans on trust land compared to fee simple,
we support the Tribal Trust Land Homeownership Act (S. 3381). This bill
would codify the mortgage document processing times included in the
Mortgage Handbook, promote better communication between the BIA and the
lending industry, and require the GAO to report on the BIAs efforts at
digitizing documents for the purpose of streamlining and expediting the
completion of mortgage packages for residential mortgages on trust
land.
This legislation is of critical importance as we collectively
strive to provide Native Americans wishing to live on their land the
same access to home loans available to any American citizen purchasing
or renovating their home on fee simple lands. GROW South Dakota
appreciates Senators Thune, Smith, Rounds, and Tester for their
leadership in introducing this legislation to address this need.
Other
As a nonprofit CDFI partnering with USDA Rural Development through
several programs, flexible program design and capital to address a
variety of rural affordable housing and community development remain a
core need. When local leaders have the resources, along with effective
regulations informed by community practitioners, we can make
substantial progress in serving rural households. GROW South Dakota
recognizes that Federal funding needs parameters and grantees require
accountability, yet burdensome regulations often hinder our progress in
delivering critical assistance. I have seen that type of funding, I
have worked with that type of funding, and the cost to administer such
programs sometimes exceeds the value. I applaud the efforts being made
in Congress to increase resources for USDA RHS and to ensure that
programs are structured so that CDFIs and other recipients can use them
flexibly to meet local needs.
Summary
GROW South Dakota's aim is to help find solutions together with our
community members to address the housing problems we face and put
forward comprehensive, implementable solutions using a unified voice.
However, we recognize each community has different needs and
strengths--effective policy does not always mean one-size-fits-all, but
we do know that housing impacts every single community. This is where
we start.
Thank you for working on creating solutions in a bipartisan manner
and for looking to stakeholders like myself and my fellow witnesses to
inform those solutions. I look forward to working with each of you to
promote legislation that will change the future of housing and our
families across the State and the Nation. Thank you for your time and I
look forward to answering any questions you may have.
______
PREPARED STATEMENT OF TONYA PLUMMER
Director, Native American Housing Programs, Enterprise Community
Partners
September 20, 2022
Chair Smith, Ranking Member Rounds, and Members of the Committee,
thank you for the opportunity to share perspectives on the USDA's Rural
Housing Service (RHS) with you today.
My name is Tonya Plummer. I am an enrolled tribal member of
Assiniboine, Sioux and Cree heritage with roots in the Sisseton
Wahpeton Sioux Tribe of South Dakota and the Fort Belknap Indian
Community in Montana. Early in my career I gained several years of
experience in mortgage banking, working all sides of the lending
process, ending as an underwriter, and working deals with USDA loans in
17 Western States with over 70 branch offices. It has been a challenge
and a joy to apply that experience to help create home ownership
opportunities for tribal members living within the bounds of the
reservation on trust lands. I stepped away from mortgage banking to
start and direct a Native CDFI focused on home ownership before coming
to Enterprise Community Partners, where I'm focused on expanding their
work on affordable housing and community development in tribal
communities across the country.
Enterprise is a national nonprofit working to make home and
community places of pride, power and belonging for all. In order to
create that change, we draw on our strength as an end-to-end housing
platform, providing programmatic and advisory services, capital and
community development under one roof. We advocate on a nonpartisan
basis for sound public policy at every level of Government. We develop
and deploy programs and support community organizations on the ground
nationwide, in urban, suburban and rural areas. We invest capital to
build and preserve rental homes, and we own and operate 13,000
apartments and provide resident services for 22,000 people. In short,
our work contributes to thriving, supportive and equitable communities
that prioritize safe, stable, and affordable housing options.
Over the past 40 years, Enterprise has collaborated with thousands
of local partners to build and preserve 873,000 affordable homes,
invested $54 billion across all 50 States and improved millions of
lives. Our strategic priorities are advancing racial equity, building
climate resilience and upward mobility and creating and preserving
housing people can afford.
Enterprise's Tribal Nations and Rural Communities Team has sought
to support safe, decent, and culturally appropriate housing on tribal
lands and rural communities since 1997. Enterprise's commitment to
rural and tribal communities is deep: over the last 20 years Enterprise
has invested more than $990 million in grants, loans and equity, and
developed more than 16,000 affordable homes in rural communities
nationwide. Our team offers technical assistance, trainings, peer
learning sessions, and other capacity building services to expand
access to home ownership opportunities and develop or preserve
affordable rural rental homes.
Much of this work is supported by Federal contracts through HUD's
Rural Housing and Economic Development program, USDA's Rural Community
Development Program and the USDA 515 TA Program, for which we have just
been awarded $1.4 million in contracts.
In advance of my recommendations, I want to acknowledge the recent
positive outreach and efforts of USDA Rural Housing Staff to tackle the
tough issues for mortgage lending in Indian Country and be present and
available thought partners, collaborating with a broader array of
stakeholders towards the goals of removing barriers, making USDA
housing products more attainable, and realizing a greater impact of
these programs on the lives of rural Americans and Native Americans.
I also want to acknowledge the complexities of applying broad
changes to all areas including rural markets as well as the vastly
underdeveloped and underserved tribal trust land areas. Though they
fall under the rural umbrella, the markets, courts and ecosystems of
support are varied, making it difficult to analyze and assess intended
outcomes across the board. It is of critical importance to be cognizant
of this in drafting legislation and careful of unintended consequences.
Enterprise applauds the Committee's interest in and support of the
USDA's RHS. The needs of rural residents are profound across the
country, and these programs are too often overlooked. Seventy percent
of the United States' 473 persistent poverty counties are in rural
areas, predominantly in Indian Country, the Mississippi Delta, the
Colonias, and Appalachia. A 2021 study by Redfin found that single
family homes for sale in rural areas were down 44 percent year over
year--the largest drop in rural inventory since Redfin began tracking.
Because of the unequal distribution of traditional financing for homes,
USDA RHS funding represents one of the only opportunities for home
ownership for many rural Americans. There is also a serious shortage of
affordable rental housing in rural communities, where incomes are often
lower, making it difficult to finance the construction and development
of rental housing, often even more so than in urban and suburban
communities. The Low-Income Housing Tax Credit (Housing Credit), which
is our Nation's most effective tool for the development of affordable
rental housing, is greatly over-subscribed, with developers requested
nearly 2.5 times as many Housing Credits as there was available
authority in 2020. As a result, the vast majority of subsidized rental
housing in rural America relies on USDA RHS Section 515 funding to
bring those small-scale rural rental housing projects to fruition.
Because of the unique and vital role that USDA's Rural Housing Service
plays, it is of utmost importance that it is a fully funded, modern
organization with adequate staffing and streamlined regulations that
respect the unique needs of rural and tribal communities.
Technology and Staffing
For RHS to function at the highest possible level, appropriate
staff coverage and cross training is important. One person cannot be
the only expert in an issue, or the only person able to complete a
process. When staff leave for other jobs, retirement, or temporary
leave, it can create gaps that are open until a new person is hired, or
the person returns from work. For work in tribal communities
specifically, it can be difficult to find a staff person who
understands the specific requirements of working on tribal lands, for
example. It's been said there have been only five Section 502 loans
closed on trust lands in the last year and even fewer USDA Guaranty
loans. Despite a clear desire to do more, the existing State and
program directors simply do not have the experience with the product
nor the staff to provide meaningful assistance beyond a reference to a
chapter of the handbook. The existing barrier to accessing meaning help
deepens the divide, leaving some of the best products designed for
rural America on the shelf and Native lands and homes red-lined because
they are complicated and yet, the staffing weakness did not have to
impact the deployment of loans. In 2018, due to the smart partnerships
in the initial Section 502 Direct relending Pilot, which turned USDA's
two loans to Mazaska and Four Bands into an additional 19 solid
performing mortgage loans that otherwise would not have been achieved.
More broadly, to facilitate meaningful progression toward loan
closings, it would be helpful if multiple staff members were cross
trained and able to help 502 program partners walk though loan
scenarios and interpret the regulations. Overall, staff capacity for
USDA RHS has been a serious challenge. In some areas of South Dakota,
USDA offices are currently functioning with 25 percent of the staff
they had 5 years ago.
This USDA 502 Direct relending pilot is an example of a smart
approach to overcoming staffing shortages, demonstrating that expanding
partnerships with Native CDFI's can alleviate the pressure on highly
limited USDA staff by tapping into the wealth of local expertise and
community knowledge. Enterprise supports efforts to scale up this pilot
program nationally.
Enterprise also recommends reviving appropriations funding for the
Technical Supervisory Assistance Program (TSA grant) as an additional
means of extending USDA RHS outreach and resources to create bridges to
rural and tribal communities and organizations with limited capacity.
We encourage this TSA Program remain broadly and easily accessible in
order to expand outreach and limit bureaucracy for programs that are
already hard to understand and apply for.
In combination, expanding partnerships like the 502 pilot, reviving
the TSA Program, and increasing funding for USDA staff and technology
will go a long way towards adequately meeting the demand of the rural
and tribal markets and achieving the objectives of the Rural Housing
Service.
Subsidy Recapture
The USDA's Section 502 Direct Rural Housing Loan (Section 502),
despite being a very cost-effective way for low-income earners to
achieve home ownership, has its shortcomings. It can be difficult for
loans to be made due to lack of USDA staffing, technology and
consistent funding. Utilizing these loans on tribal land can also be
difficult, a problem that would be remedied by S. 2092, the Native
American Rural Homeownership Improvement Act. Enterprise Community
Partners is grateful to the Members of this Committee who have
supported that bill.
Section 502 can be further complicated by the recapture or balloon
payment that comes at the end of the mortgage term or at time of sale,
and this needs to be addressed. In certain cases, eliminating subsidy
recapture is good and will allow people to better build wealth from
home ownership. However, this is a nuanced issue and not all markets
with 502 housing stock are the same. In addition, eliminating subsidy
recapture altogether will have an impact on the USDA Scorecard and
subsequent budget authority, potentially resulting in the unintended
consequence of significantly decreasing the allocation of Section 502
dollars available.
As a result, Enterprise proposes that subsidy recapture from the
USDA's Section 502 be treated differently in different situations to
allow the program to more appropriately ensure that increasing equity
in homes enables future home ownership. Subsidy recapture should be
treated one way on tribal land, one way in appreciating markets, and
one way in depreciating markets.
Section 502 loans on tribal trust land should never require
repayment, because the land is not given any value in the assessments
and there remains an unproven rate of appreciation but a recognition
that equity built over time is the simply the result of paying down the
loan and not of a paired appreciation in land or market value. Tribal
members in tribal communities, especially those with a large, rural
trust land base, already come to the closing table with less equity and
the application of a subsidy recapture assures they will not build it
at a rate comparable to nontribal members on fee simple lands where a
buy/sell market exists. Recently, in one tribal community, a father
with a 502 Direct loan passed away, and in order to keep the family
housed in the home, they had to come up with $22,000 of subsidy
recapture. The subsidy is not seen as a benefit, and there are South
Dakota Native CDFI re-lenders who do not utilize Section 502 because
the recapture is seen as a burden to carry rather than a means of
affordability and security.
Outside of tribal land, subsidy recapture should more closely
replicate a shared equity model. In some rural places, homes with
Section 502 loans may substantially increase in value between when the
home is purchased and when the owner wishes to sell. In these cases,
the full subsidy recapture represents only a relatively small
percentage of gained equity. The recapture is thus justified and
fulfills the goal of providing money to further subsidize new
homeowners.
However, in no circumstances should repaying a Section 502 subsidy
leave a borrower underwater, or discourage or prevent them from selling
a house that they would otherwise wish to sell. In rural areas with
stagnant or even depreciating housing values, this is too often the
case. Capping subsidy recapture at a certain percentage of gained
equity will prevent this problem. Government support for home
ownership, at its heart, is a question of wealth building. If the home
has not appreciated enough to pay back the subsidy, it would be waived
under this proposal.
Foreclosures of Properties With USDA Loans
Enterprise understands the desire and need to streamline
foreclosure but have concerns as previously expressed about the
foreclosure issue on tribal lands. This is particularly an area where a
nuanced approach is critical. We look forward to continuing to work
with Congress to develop legislation that ensures tribal sovereignty is
respected.
The Multifamily Foreclosure Act of 1981 allows the Secretary of
Housing and Urban Development to conduct nonjudicial foreclosures of
multifamily mortgages held by HUD by designating a foreclosure
commissioner in a State. The foreclosure commissioner may bypass the
court process generally required for a foreclosure, allowing the
property to be sold quickly. Importantly, the Act also requires that
any subsidized rental properties subject to foreclosure retain their
income restrictions, even after they are sold again.
Outside of tribal lands, a similar foreclosure process for RHS
mortgages would be appropriate. Foreclosures on properties with
mortgages held by the USDA currently can take years to complete, and
there is no requirement that affordable properties stay affordable
after foreclosure or subsequent sale. The result is that properties
with delinquent mortgages become vacant, which presents both a public
safety hazard and a lost opportunity for affordable housing in rural
communities. A nonjudicial foreclosure process that is faster to
navigate and requires the preservation of affordability requirements
would allow affordable housing groups to buy these properties, make
necessary renovations and bring them back into use as affordable
housing.
It's extremely difficult to buy a USDA property out of
receivership. There is no inventory of foreclosed buildings with USDA
mortgages, the way there is for HUD. Enterprise is currently receiving
USDA funding through four separate Section 515 Technical Assistance
contracts to work with communities across the country to provide
assistance on transfers, and this work would be greatly benefitted by a
list of properties that are available for purchase and can be retained
as affordable housing in rural communities.
On tribal land, any foreclosure process must respect tribal
sovereignty. When a tribe has foreclosure laws, tribal courts, rather
than State courts, have jurisdiction over foreclosures. These tribal
laws must not be disregarded in changes to foreclosure laws. While we
recognize the need for a streamlined process and affordability measures
on fee simple lands, we move with caution around the unintended
consequence of damaging tribal relationships, setting a wrong precedent
on tribal lands and hindering the furtherance of any USDA financing at
all on tribal lands. We recommend further consultation with National
American Indian Housing Council (NAIHC), NCN and the policy committees
of several State coalitions on this issue.
Ensuring respect for tribal sovereignty and bringing affordable
multifamily housing with delinquent USDA mortgages back into service as
affordable housing quickly do not need to be opposing goals. Enterprise
Community Partners would welcome the opportunity to work with our
partners at NAIHC and the Native Homeownership Coalitions in South
Dakota and Montana to engage further on discussions of foreclosures on
tribal land and reach a solution.
Conclusion
Thank you for inviting me to share my experiences and perspectives
today. On behalf of Enterprise Community Partners, I would like to
thank the Subcommittee, and especially Chair Smith and Ranking Member
Rounds for their leadership on rural and tribal housing issues, as well
as their bipartisan cooperation on issues that affect so many Americans
in every corner of the country. The issues addressed in this testimony
are just the beginning, as rural and tribal affordable housing faces
profound and urgent challenges in alleviating inequality, preserving
scarce units, and ensuring that more can be built. Enterprise looks
forward to continuing our partnership with Congress to provide safe,
stable housing for Native Americans and in rural communities.
______
PREPARED STATEMENT OF DAVID BATTANY
Executive Vice President, Capital Markets, Guild Mortgage Company
September 20, 2022
Chair Smith, Ranking Member Rounds, and Members of the
Subcommittee, thank you for the opportunity to testify on behalf of the
Mortgage Bankers Association (MBA). \1\ My name is David Battany, and I
am the Executive Vice President for Capital Markets at Guild Mortgage.
Incorporated in 1960, Guild Mortgage was one of the first lenders to
participate in the Rural Housing Service's (RHS) programs and is now
the fourth-largest rural mortgage lender nationwide. At Guild, I lead
the company's efforts in the capital markets and am responsible for
overseeing our work in pricing, hedging, credit policy, and investor
relationships. Guild is a top five rural lender in Nevada, Montana,
North Dakota, and South Carolina and we perform both lending and
servicing throughout the country.
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\1\ The Mortgage Bankers Association (MBA) is the national
association representing the real estate finance industry, an industry
that employs more than 390,000 people in virtually every community in
the country. Headquartered in Washington, DC, the association works to
ensure the continued strength of the Nation's residential and
commercial real estate markets, to expand home ownership, and to extend
access to affordable housing to all Americans. MBA promotes fair and
ethical lending practices and fosters professional excellence among
real estate finance employees through a wide range of educational
programs and a variety of publications. Its membership of more than
2,200 companies includes all elements of real estate finance:
independent mortgage banks, mortgage brokers, commercial banks,
thrifts, REITs, Wall Street conduits, life insurance companies, credit
unions, and others in the mortgage lending field. For additional
information, visit MBA's website: www.mba.org.
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I currently serve as a member of MBA's Residential Board of
Governors and cochair of MBA's Affordable Homeownership Advisory
Council. MBA's policy and advocacy efforts on rural housing matters
have focused on providing education to members and other stakeholders
regarding RHS offerings, promoting system upgrades at RHS, and ensuring
RHS programs operate efficiently for the benefit of borrowers as well
as industry participants. MBA supports ensuring RHS programs are
appropriately targeted, accessible to borrowers, and deliverable for
lenders.
I am also cochair of the Credit and Lending Committee of the
National Housing Conference 2022 Black Homeownership Collaborative and
a board member of Habitat for Humanity. On a personal note, I grew up
in rural Colorado and the values instilled in me there have stayed with
me throughout my career in the mortgage industry.
The Lender's Perspective
I applaud the Subcommittee's oversight of the U.S. Department of
Agriculture's (USDA) Rural Housing Service and your consideration of
the lender perspective of rural home ownership programs. Lenders are
indispensable partners to RHS, as they are both the providers and
servicers of RHS loans. These programs are worthy of our Nation's
commitment to them. RHS loan programs play a vital role in increasing
the availability of mortgage credit for rural Americans.
This hearing comes at a time when there are new challenges to
serving rural homeowners--from helping our employees and customers
recover from the economic impact of COVID-19 to originating a home loan
when the average contract interest rate for 30-year fixed-rate
mortgages with conforming loan balances just rose to 6.01 percent. The
focus of my testimony, however, is the opportunity to build on recent
progress to make RHS lending better serve consumers and industry
participants alike. The Subcommittee can advance this objective by
addressing three areas: better workflow, better technology, and, if
these two areas are achieved, better loan products.
The Rural Mortgage Market
The rural market is constrained by its very nature with limited
housing supply, much of which is aging single-family housing. Rural
residents do, however, have available to them to varying degrees the
same housing finance options available to other borrowers in addition
to RHS programs. These include options offered by Fannie Mae, Freddie
Mac, the Federal Housing Administration (FHA), and the Department of
Veterans Affairs (VA), as well as loans offered without Government
backing. RHS home loans are offered by a wide variety of mortgage
lenders--from independent mortgage banks (who issued 73 percent of such
loans in 2021), to depository institutions, including community banks
and credit unions--throughout the country. Although small relative to
the scale of the multitrillion-dollar mortgage market, RHS loans are
meaningful lifelines to economic security for the individuals they help
and the communities they bolster.
In 2021, the mortgage industry originated $1.8 trillion in new
loans and refinanced $2.5 trillion. In that same year, the total volume
of USDA/Farm Service Agency loans was 114,524 loans. This represented
just 0.49 percent of all loan volume. The total amount of Section 502
Guaranteed Single-Family Housing Loans obligated, for example, was $448
million in Minnesota and $170 million in South Dakota. The average loan
size was approximately $180,000, less than half the national average
for a conventional loan. It is imperative to be mindful of this small
market share and smaller loan size when discussing any potential
reforms and proposals that might further restrict lending or impose
additional costs on service delivery.
Better Workflow
I would like to start by commending RHS on its new proposed rule to
implement a provision of the Housing Opportunity Through Modernization
Act (HOTMA), enacted in 2016, to enable the Secretary of Agriculture to
delegate approval authority to ``Preferred Lenders.'' USDA currently
does not delegate approval authority to lenders in this manner. This is
a major barrier to more robust lender participation and puts RHS out of
alignment with the processes available in FHA and VA lending. The
existing processes require a conditional commitment from USDA staff,
and while such commitments are rarely denied, there are instances in
which delays in receiving such commitments can cause problems for
borrowers and lenders. Market participants have noted that, in some
cases, these delays can extend as long as ten days. In such cases,
borrowers often have missed their closing dates, causing significant
problems with their transactions. USDA should move forward with a more
comprehensive set of process updates that provide full delegation to
approved lenders. This overdue change would accelerate approval
processing timeframes to the benefit of applicants and bring USDA into
closer alignment with FHA and VA practices.
Delays in closing can be a ``deal-killer'' for financing
multifamily properties, as well. Apartments and buildings for workforce
housing require a combination of debt, tax credits, and equity
financing that must come together quickly or they will be applied to
other deals. One MBA member, for example, relayed to me that he was
unable to close apartment projects in Tennessee and Texas because of
months' long delays waiting for a response from RHS.
The RHS staff has shown a commitment to fostering strong
relationships with lenders and servicers throughout the industry.
Improvements could be made, however, in the ability of lenders and
servicers to get timely clarification on program guidelines when
contacting RHS representatives, as well as making policy changes and
guideline updates more readily accessible.
Better Technology
The aging technological infrastructure supporting the backbone of
RHS operations is widely acknowledged as outdated and in need of
substantial upgrades. The systems in place at RHS are less advanced
than those used by several other Government housing agencies, Fannie
Mae and Freddie Mac, or most lenders. Dedicated resources are needed to
ensure RHS can keep pace with changes in the market, evolving data
security threats, and changes in the ways in which mortgage loans are
originated and serviced.
Much of the technology focus for RHS is centered on its Guaranteed
Underwriting System (GUS). The use of an automated underwriting system
decreases time-consuming and expensive manual file reviews, improves
performance monitoring, and reduces program risk, but further work is
needed to ensure this system fully supports RHS borrowers and lenders.
Additional investments in the GUS interfacing with industry loan
origination systems, for example, would make RHS offerings more
attractive for loan officers working ``on the ground'' with consumers.
When problems occur, they often require substantial manual intervention
and data re-entry to support the program's mission. Under the current
design, RHS imposes limits on the number of ``runs'' a lender can make
for each borrower, making it difficult for a lender to perform
prequalifications without exceeding the maximum limit. More broadly,
updated technological infrastructure is needed to ensure the secure
operations of RHS programs.
RHS has begun to assess and collect a $25 per-loan technology fee
from lenders in the Section 502 program. While this funding has already
delivered results, it has increased the cost of each loan and created a
nonappropriated fund that should be reviewed closely. MBA believes that
USDA and Congress should provide sufficient funding for RHS technology
upgrades through the annual appropriations process and ensure adequate
oversight of information technology modernization efforts. RHS should
also update its interfaces for the remittance of annual fees from
lenders for RHS products to create an efficient, automated, and secure
integration between the USDA and servicers' systems. Today, servicers
must manually review and submit payments of annual fees--a process
which is cumbersome and outdated.
I would also encourage USDA to engage in and leverage the Mortgage
Industry Standards Maintenance Organization's (MISMO) industry
standards setting process in support of its modernization initiatives.
Using MISMO standards helps eliminate friction and bifurcation across
the industry by creating consistency in loan data and loan processes.
Better Loan Products
Once the capacity to serve rural borrowers is improved, various RHS
loan parameters could be reviewed to ensure they are not unduly
restricting access to credit or responsible use of RHS offerings. The
RHS debt-to-income limits, for example, are far more stringent than
those associated with other types of Government-backed lending. RHS
requirements related to borrower reserves, borrower deposits, existing
tradelines, qualifying income, and tax transcript history would benefit
from sensible updates, as well. Congress and USDA also should
collaborate to examine existing population limits on RHS loan
eligibility to ensure the program's geographic parameters remain
appropriate.
RHS also could explore options for increasing the availability of
financing for a variety of different types of housing types to match
GSE standards. These options include loans secured by both new and
existing manufactured housing throughout the country, as well as for
accessory dwelling units (ADUs). These housing types have benefited
from advances in technology and design that make them promising
approaches to increase the supply of high-quality, affordable housing
in rural communities.
Although most lending is completed through the guaranteed loan
program, I also would like to bring to your attention concerns
regarding Single-Family Housing Section 502 Direct Loans. Congress
should ensure funds are provided in a timely manner to enable the
program to serve borrowers throughout the entire year. In some
instances, lenders have needed to hold a loan until additional funds
are made available. Further, rural housing loan volume may be impacted
by the ``subsidy recapture'' imposed through the Direct Loan program.
The Government subsidy provided for these loans is subject to repayment
when the property is sold. This creates a disincentive for those
homeowners who are aware of it to sell a home, and for many others, a
very unwelcome surprise if they do sell. An unresolved lien on a
property can delay the loan closing and even stop a sale when a
homeowner cannot repay the subsidy. I would encourage the Subcommittee
to evaluate the utility of this lien repayment requirement, which if
properly addressed could (in a small way) bolster the supply of
affordable rural housing.
Other Rural Lending Issues
MBA commends Chair Smith and Ranking Member Rounds for taking
action to improve and encourage access to quality affordable housing on
trust land through your sponsorship of S. 3381, the Tribal Trust Land
Homeownership Act of 2021. For Department of Housing and Urban
Development (HUD)/Section 184 Native American Loan Guarantees, the
Bureau of Indian Affairs must locate and produce a Title Status Report
that is used in lieu of title insurance in those transactions. These
are all paper files and often are subject to lengthy processing delays.
Your legislation will reduce processing delays, thereby encouraging
more lenders to participate in trust land mortgage lending.
Rural communities face a well-documented shortage of suitable
housing stock and underproduction of homes that meet the needs of the
rural workforce. I would encourage the Subcommittee to advance a
combination of legislation that together opens the aperture for new
housing, such as the bipartisan S. 902, the Housing Supply and
Affordability Act (HSAA), which creates a new Local Housing Policy
Grant (LHPG) program administered by HUD to support local efforts to
expand housing supply. Zoning reforms, combined with diversification of
Federal and State financing for rural housing, such as robust Low- and
Middle-Income Housing Tax Credits and the financing made available in
S. 4445, the Affordable Housing Bond Enhancement Act, will strengthen
the rural housing supply.
Finally, borrowers in rural areas would be well served by greater
access to remote online notarization (RON). As the Federal investment
in broadband access reaches rural communities, they will be able to use
a remote online notary in the loan closing process. Authority to
perform RON, however, currently is limited to 41 States. I would
encourage the Subcommittee Members to support S. 1625, the SECURE
Notarization Act, introduced by Senators Warner (D-VA) and Cramer (R-
ND), to help rural borrowers access a more reliable and timely mortgage
closing process.
Conclusion
Once again, on behalf of all MBA members, I appreciate the
opportunity to comment on the Rural Housing Service's loan programs. I
also deeply appreciate USDA's ongoing engagement with lenders and other
stakeholders to address the three specific topics that I have outlined
today. I look forward to your questions and to working with the
Subcommittee to develop practical solutions to the issues addressed at
this hearing.
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM ELIZABETH GLIDDEN
Q.1. Please describe any community land trusts your
organization has participated in, if any. Are there any lessons
you have learned from community land trusts?
A.1. Through MHP's role as a provider of technical assistance,
we have helped communities explore and implement community land
trusts in rural areas. Currently, MHP is helping West Central
Minnesota Community Action (WCMCA), located in Elbow Lake,
Minnesota, to create a community land trust. WCMCA, which
serves five rural counties next to Minnesota's border with
North and South Dakota, explored a land trust as a solution to
the affordability crisis residents in the region have been
experiencing. With a community land trust, they will be able to
develop homes at a significant cost reduction, thanks to
funding available through the Minnesota Housing Finance
Authority and FHLB. To date, they have closed on two community
land trust homes, confirming that the land trust model works in
very rural areas.
The community land trust model has been popular throughout
Minnesota in helping provide affordable home ownership
opportunities, particularly for underserved and Black,
Indigenous, and households of color. In some cases, such as
Northeast Minnesota which has a strong community land trust
producer (the nonprofit One Roof), there has been significant
interest in community land trusts regionally because of their
ability to increase affordable housing ownership stock and
production. Community land trust have leveraged community
development block grant funds (CDBG) well and have provided
tremendous community benefit with long term affordability, a
benefit that balances the challenge of needing a high upfront
investment.
Q.2. Please describe interactions your organization may have
had with your regional Federal Home Loan Bank. What investments
have FHLBanks made in your organization?
A.2. MHP does not build, own or manage housing. Rather, we
provide technical assistance to rural communities and Native
nations to achieve their community development and housing
objectives; thus, we have not received investments from FHLB in
our organization but have helped other organizations secure
FHLB resources for their housing goals and projects.
MHP has extensive experience assisting many local
governments, housing organizations, and Tribal Nations to
secure and utilize grant funds through the competitive FHLB
Affordable Housing and Community Investment program. These
funds have been instrumental in providing gap funding to
projects that otherwise would not have been able to move
forward due to a lack of non-debt-related upfront construction
and rehab funding.
Projects MHP has helped secure funds for have included
everything from rehabbing a Section 515 project in rural South
Dakota, to leveraging a competitive Indian Housing Block Grant
in the creation of eight units of elder housing on a Minnesota
reservation, to supporting several local governments in
providing additional owner-occupied rehab and downpayment
assistance dollars to low-income households. FHLB funds are
frequently utilized to leverage existing programs or funding
streams, often extending the number of households being served
in a community.
Another valuable program we want to highlight that we have
utilized from FHLB is the Native American Homeownership
Initiative, where eligible enrolled Tribal households may
receive up to $15,000 for downpayment, closing cost,
counseling, and/or rehabilitation assistance through an FHLB
member bank.
Q.3. Will your organization participate with the Federal
Housing Finance Agency review of the Federal Home Loan Banks if
you have suggestions?
A.3. We have not yet participated in this review but will seek
future opportunities to participate in roundtable discussions
and submit comments.
Thank you for this opportunity to provide responses.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM MARCIA ERICKSON
Q.1. Please describe any community land trusts your
organization has participated in, if any. Are there any lessons
you have learned from community land trusts?
A.1. While GROW South Dakota does not personally participate in
community land trusts (CLTs), 21 NeighborWorks America
Organizations have experience operating as a CLT. There are an
estimated 225 CLTs in the United States, overseeing
approximately 12,000 owner-occupied units. \1\ The successes of
these organizations inform the entire NeighborWorks network of
the opportunities that exist to implement and expand
cooperative housing models, in turn creating lasting affordable
housing, promoting neighborhood stabilization, and generating
wealth-building opportunities for low- and moderate-income
families. CLTs provide a unique method of serving the market,
oftentimes operating as an effective and generative community
development anchor. Particularly as inflationary pressures
constrain affordable housing and community development
activities, more municipal, State, and Federal leaders are
recognizing the reliability of CLTs to retain that
affordability and support communities.
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\1\ Thaden, ``The State of Shared-Equity Homeownership''.
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CLTs are effective community development entities that
increase housing affordability to a portion of the housing
market. Traditional CLT models require the buyer to be below 80
percent average median income while having sufficient income to
qualify for a first mortgage and maintain the home. CLTs are a
good alternative to renting for many low- and middle-income
households, especially as this population is feeling the
pressures of rising housing costs. Shared equity housing is the
model implemented by CLTs, empowering residents to own and
build equity on otherwise unaffordable homes while ensuring
that the unit can be sold at an affordable price to the next
owner through resale restrictions tailored to their markets.
This way should the unit appreciate before the time of resale,
the homeowner and the CLT share any increase in the value of
the property. This resale process is managed by the CLT. As the
value of the home grows, so does the built-in subsidy to the
next buyer to keep the unit affordable and keep the CLT
operational. CLTs expand access to home ownership through this
permanent affordability, which can be beneficial particularly
when resources funding a downpayment assistance program may be
limited and competitive. CLTs create permanently affordable
units that build wealth for a legacy of homeowners, which a
mission-driven nonprofit might want to consider in lieu of or
in addition to providing downpayment assistance for only a
single household.
There are numerous shining examples of CLTs in the
NeighborWorks network, including the country's largest CLT--
Champlain Housing Trust in Burlington, VT, with over 3,100
homes (rental, co-op and home ownership) in its portfolio--
which is known as one of the initial leaders in developing and
perfecting the shared equity home model. Another NeighborWorks
CLT, NeighborWorks Dakota Home Resources, is a fellow South
Dakota NeighborWorks organization and National NeighborWorks
Association member located in Deadwood, SD. NeighborWorks
Dakota Home Resources has 30 properties in Western South Dakota
plus shared ownership on an affordable apartment.
DLT charges a $25 monthly lease payment for use of the lot.
The homeowner receives a 99-year lease with a 99-year extension
option. The homeowner also pays property taxes on both the land
and the home. The CLT pays for the cost of the land and the
homebuyer owns the home and pays the $25 monthly lease payment.
If the lot cost is $55,000, then the homeowner could save $340
per month by using the land trust ($55,000 loan, 30-year term,
7 percent rate = $365.92 - $25 lease = $340.91). These savings
can be the difference between an opportunity to own a home and
build wealth versus renting indefinitely. Particularly when the
Nation is seeing a widening home ownership gap between White
households and non-White households, expanding affordable
options for families to transition away from renting presents
an innovative intervention to address these racial disparities.
Unsurprisingly, a $25 lease payment does not cover total
operating expenses for a CLT, therefore additional financing is
required to handle servicing the land trust. CLTs must layer
other affordable housing and community development subsidies
for successful operations, including Federal programs. Such
resources must be flexibly implementable, allowing CLTs to pull
from various sources to secure sufficient servicing and
operating resources, and close financing gaps to continue to
serve low- and moderate-income households and retain the
affordability of these units. As Congress considers housing and
community development legislation, be that new authorizations
or reforms to key programs such as HOME or CDBG, CLTs must be
included as eligible recipients to continue the success of
these innovative home ownership models. Policymakers must
understand how beneficial CLTs can be to bring a household into
home ownership.
Many lessons can be learned from CLTs and applied to
different markets, geographies, populations, and to address a
variety of community needs. As housing costs rise and the gap
between affordable and market-rate housing widens, a CLT can
preserve a stock of accessible and affordable homes. CLTs can
also be used to issue homeowner education, legal assistance,
and financial literacy. Some are also known to help homeowners
with renovations and repairs, as well as intervene to prevent
foreclosure.
CLTs also revitalize neighborhoods that experience
disinvestment--remote rural areas and urban areas alike. The
service lines of CLTs continue to diversify, meeting the
different needs of different markets. Many CLTs have begun to
acquire land for non-housing purposes to incentivize commercial
investment or ensure community control within a development.
One example of this innovative approach is Beyond Housing in
St. Louis, MO, where their CLT strengthens their local
community not only by providing permanently affordable homes,
but also by issuing economic development and employment
opportunities through constructing and operating a local movie
theater, grocery store, and bank for the St. Louis community.
CLTs can revitalize commercial areas by offering affordable
leases to community services and businesses, all conducted by a
Board of Directors that is made up of members of the community.
These successes fortify the importance of community
participation in neighborhood development, and such engagement
allows for the successful implementation and operation of these
initiatives.
Q.2. Please describe interactions your organization may have
had with your regional Federal Home Loan Bank? What investments
have FHLBanks made in your organization?
A.2. GROW South Dakota has successfully partnered with the
Federal Home Loan Bank Des Moines, IA, for 25 years using the
competitive Affordable Housing Program (AHP). This funding has
helped our organization successfully provide home improvement
measures totaling over $7.37 million and assisting over 1,100
homeowners. We have partnered with two separate financial
institutions that sponsored our projects.
The home improvement grants are directed to low-income
households at 50 percent or below the Area Medium Income and to
special needs households such as seniors and persons with
disabilities. Home improvement grants are provided to
homeowners needing repairs to their homes. Eligible activities
include roofing, siding, plumbing, electrical, weatherization,
HVAC, energy efficiency measures, or health and safety
measures. More than two-thirds of the homes in our service
area--totaling 51 counties of eastern South Dakota--are over 35
years old, and nearly one-third are more than 70 years old.
Home improvements were the highest-rated needs in a recent
community needs assessment conducted by GROW South Dakota. In
the survey, 74 percent of respondents rated home improvement as
a high or moderate need. AHP funds from the Federal Home Loan
Bank allow GROW South Dakota to assist low-income households in
making necessary improvements to their homes to make them
safer, healthier, and more energy efficient.
Our average home improvement costs have increased over our
25-year history with our current average cost per home at
$16,500 for one major home improvement. The demand for housing
improvements is robust based on our current pipeline of
requests for these types of projects. GROW South Dakota
currently has more than 160 requests for home rehabilitation
opportunities.
One example of the increasing need for home repairs is an
individual in northeast South Dakota that recently retired.
Shortly after retiring, she divorced and was living only on
social security. The house she owned needed serious repairs
that were not affordable on her fixed income. Drafty windows
and floors made the home hard to heat, and her bathroom was in
dire need of significant repairs. Her neighbor referred her to
GROW South Dakota for assistance.
Through the FHLB program, her home improved in a short
time. Her bathroom now has a new tub and toilet along with an
exhaust fan. Carbon monoxide detectors were also installed. On
the outside, her house has new siding and eaves. ``My house
looks like a new home. It is so nice and easy to clean, and
there is not cold air leaking anymore,'' she stated. She has
received many compliments about the work that was done, and can
now enjoy retirement without having to worry about repairs.
The AHP is a critical source of funding for low-income
individuals to address unique housing needs. FHLB is a crucial
partner and conduit to positively improve housing conditions
for low-income families in our community.
Q.3. Will your organization participate with the Federal
Housing Finance Agency review of the Federal Home Loan Banks if
you have suggestions?
A.3. GROW South Dakota participated in the Federal Housing
Finance Agency (FHFA) comment period regarding the Federal Home
Loan Bank's (FHLB) role in promoting affordable housing and
community investment through the Affordable Housing Program
(AHP). Our comments were focused on the importance of the AHP
program.
The FHLB AHP has been key to addressing the unique home
improvement needs of rural and financially vulnerable
homeowners through GROW South Dakota's work in eastern South
Dakota. As a result of our partnership with the FHLB Des
Moines, IA, over $7.37 million has been invested in local South
Dakota communities assisting over 1,100 homeowners. Currently,
GROW South Dakota has more than 160 requests on a waiting list
pending home rehabilitation.
By law, each FHLB must establish an AHP and contribute 10
percent of its earnings to its AHP. However, with the dire need
for home preservation due to aging housing stock, more funding
should be allocated to this program beyond the 10 percent
threshold. Continued access to AHP is critical as it is an
invaluable resource to the homeowners that need it most. Home
is the foundation for vulnerable households. The AHP helps low-
income individuals stay in their homes as is demonstrated in
the following life-changing event from a homeowner who did not
have an adequate heating system or plumbing.
GROW South Dakota received a call from a senior resident in
need of assistance with heating her house. When the
weatherization team went to her home, they discovered energy
inefficiencies as well as safety concerns. The heating unit was
not adequately ventilated, which could cause carbon monoxide
poisoning. The windows were leaking, creating drafting in the
house, and there was no insulation in the attic, walls, or
under the floor making the house very cold. Most significantly,
there was no indoor bathroom. The homeowner had been using an
outhouse as a restroom and would go to friends and neighbors
when she needed to shower.
GROW South Dakota insulated the house and provided new
storm windows. Our organization also replaced the old unvented
space heater with a vented space heater and installed an
exhaust fan above the stove. Besides the lifesaving installment
of a new heating unit, the most significant improvement, with
assistance from the FHLB AHP funding, was an addition to the
house. This senior citizen now has an indoor bathroom with a
shower, sink, toilet, and water hookups for a washing machine.
She stated, ``Because of this program, I no longer have to
worry about CO2 poisoning. I have adequate heat and no wind
blowing through the windows and doors. For the first time, I
don't have to walk to the outhouse and worry about falling. I'm
able to take a shower without going to someone else's house. To
say what I have received from the program has been life-
changing would be a complete understatement.''
The FHLB has made a significant difference in GROW South
Dakota's work with home repairs, but there are many more needs
in our communities. We recommend the 10 percent AHP
contribution earnings be increased. This funding helps secure
needed affordable and safe housing while creating and
supporting healthy communities.
GROW South Dakota also participated in a robust listening
session on November 7, 2022, in Pierre, South Dakota, with
Joshua Stallings, Deputy Director, FHFA Division of Bank
Regulation, and Michela Barba, Principal Advisor, FHFA,
present. Our session primarily focused on the unique challenges
of serving Native American and rural communities in South
Dakota.
Key points addressed included the importance of regional
banks with smaller geographies working directly with community
advocates to promote affordable, sustainable, equitable, and
resilient housing and community investment. Smaller geographic
areas for regional banks encourage partner communication and
help address the local housing and community needs that have
the most significant impact in rural and financially vulnerable
areas. This holds true with access to capital for low-cost
mortgages with FHLB being a supplier of funds.
The FHLB is a supplier of lendable funds to financial
institutions of all sizes and many types, including community
banks, credit unions, commercial and savings banks, insurance
companies and community development financial institutions
(CDFI). The steady supply of lendable funds from the FHLB helps
U.S. lenders invest in local needs including housing, jobs and
economic growth. \2\ CDFIs should be reviewed for FHLB
membership and provided with unique collateral opportunities to
inclusively meet the local investment needs. CDFIs with lengthy
histories and solid backgrounds do not increase risk for the
FHLB or weaken the system. GROW South Dakota has two certified
CDFIs under our organizational umbrella with a historic
repayment rate of 98-99 percent between housing and business
loans with a 50-year history in the revolving loan fund
industry.
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\2\ FHLBanks. (2022). Retrieved 2022, from https://fhlbanks.com/.
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Further, CDFIs should be permitted to submit AHP projects
without a bank sponsor. While sponsoring banks can support and
bolster partnerships, this requirement has also halted AHP
projects with Native organizations. Native groups stressed that
it is difficult if not impossible to find a sponsor.
Finally, the AHP application is onerous and cumbersome, and
organizations have had to hire consultants to write the grant
application. It was noted that one group would not apply for
AHP funds due to regulations and difficulty in administering.
This prevents Native communities from benefitting from the
Banks' affordable housing and community development programs.
Our recommendation was to engage an active group of CDFI
organizations and housing advocates to review and analyze the
regulations in a thorough process to determine which items
specifically hinder progress.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM TONYA PLUMMER
Q.1. Is Enterprise tracking American Rescue Plan and CARES
funds supported tribal housing investments? Can you share your
research?
A.1. HUD's Office of Native American Programs (ONAP) has
matched Indian Community Development Block Grant (ICDBG)
recipients with technical assistance providers, who will work
with tribes to complete needs assessment workplans to identify
strategies to spend down their American Rescue Plan Act funds.
Enterprise's Advisors team, which provides technical assistance
and capacity building, is currently working with 27 tribes
across the country. However, Enterprise has not conducted any
comprehensive research on tribal housing investments supported
by funds from the American Rescue Plan Act or the CARES Act,
nor are we aware of any groups conducting such research.
Q.2. Please describe any community land trusts your
organization has participated in, if any. Are there any lessons
you have learned from community land trusts?
A.2. While Enterprise Community Partners has not directly
purchased land from a community land trust for housing
construction, our CDFI, Enterprise Community Loan Fund (ECLF)
has provided loans to land trusts, and Enterprise Community
Partners is actively engaged in policy conversations about
making HOME funds easily usable for community land trusts.
In early 2022, ECLF provided a $3.2 million loan to the Bay
Area Community Land Trust for their purchase of a 13-unit
apartment building on Solano Avenue in North Berkeley. The
funding, combined with $3.9 million from the City of Berkeley,
allowed the purchase of a privately owned building of rental
units that had attempted to evict all its residents in 2019 and
sell the building. The Bay Area Community Land Trust's purchase
will allow the organization to acquire and complete renovations
at the building. The building will have restricted rents and a
portion of units restricted for tenants with incomes under 50
percent and 80 percent area median income.
In New York, since 2017, Enterprise has invested more than
$12 million in grant funds to support 11 Community Land Trusts
across New York State to strengthen their capacity and help
expand their development pipeline. In the last round of grant
support, which ended early this year, the participating
Community Land Trusts acquired nearly 132 properties,
rehabilitated 88, completed 57 new instructions, and demolished
8 structures that will pave the way for new construction. In
Denver, Enterprise Community Partners helped launch the Denver
Regional Transit-Oriented Development (TOD) Fund in 2010. The
TOD Fund supports land banking by providing capital needed to
purchase key properties along current and future transit
corridors for current or future development or preservation of
housing. In 2022, ECLF invested $8.8 million in loans for the
TOD Fund to acquire three properties and finance 462 new units
of housing.
Experience lending to and partnering with community land
trusts has given Enterprise Community Partners a useful
perspective on changes needed to Federal funding to ensure
their usefulness to community land trusts. In coordination with
national and State groups including the Council of State
Community Development Agencies, Grounded Solutions Network, the
National Council of State Housing Agencies and National
NeighborWorks Association, Enterprise Community Partners has
developed a series of recommendations in advance of proposed
HOME rulemaking. The recommendations include several suggested
changes to enable easier use by community land trusts.
First, HUD should treat CLTs like all other entities that
have nonprofit tax status under IRS rules. All CLTs should be
able to access general HOME funding the same way other
nonprofit entities are able to do so. Should the CLT also meet
CHDO requirements, it should be able to access CHDO set-aside
funds. Should the CLT meet the definition of CLT under Part B-
Community Housing Partnership, it should be able to access CHDO
set-aside funds, technical assistance, and capacity building
funds.
Second, HUD should clarify that CLT board composition
requirements meet the CHDO requirements for low-income
representation even if individual members who were low-income
when they joined the board experience economic mobility during
their tenure on the board. In addition, HUD should clarify that
demonstrated capacity and a history of serving the local
community are not required for CLTs per the statute.
Q.3. Please describe interactions your organization may have
had with your regional Federal Home Loan Bank? What investments
have FHLBanks made in your organization?
A.3. Enterprise Community Partners' CDFI, Enterprise Community
Loan Fund (ECLF) has been a member of the Federal Home Loan
Bank of Atlanta since 2015 and has found their membership to be
positive and useful. The FHLBank of Atlanta is willing to lend
expertise, answer questions about their product offerings, and
brainstorm about how they might be of use to ECLF, as well as
provide support on paperwork and applications. This high level
of service is notable because ECLF is one of the smaller
members. ECLF often utilizes advances from the FHLBank Atlanta
because the advances are one of the only sources of 20-year
debt capital available to CDFIs. Prior to ECLF's membership,
the longest-term debt capital they could access was 10 years,
until last year, when 15-year capital became available. These
advances from the CIP also have guaranteed lower interest
rates.
ECLF started applying for funding from FHLBank Atlanta a
few years after becoming a member and has participated in both
the Affordable Housing Program (AHP) and the Community
Investment Program (CIP). On behalf of development partners,
ECLF has applied for AHP grants for 13 projects, for which a
total of $6,167,520 has been awarded. This funding has
supported the development of 13 projects with a total of 924
units with a total development cost of $203,633,549. When ECLF
partners to help a developer access AHP money, they will also
often make a loan to the developer themselves, and the FHLB
Atlanta will frequently subsidize the interest rate on that
loan as well.
The Federal Home Loan Bank of New York has also been a
philanthropic partner for Enterprise, giving a total of $1
million in grants to Enterprise Community Partners over the
past 2 years. In June 2021, FHLBank New York awarded $500,000
to Enterprise's Equitable Path Forward project to allow
Enterprise to provide consulting and advisory services to up to
eight affordable housing developers led by Black, Indigenous,
and People of Color (BIPOC) housing providers. In September
2022, FHLBank New York granted another $150,000 to that
project, along with $350,000 to support Enterprise's Asset
Management University, a statewide initiative that offers
training and learning resources for affordable housing
operators in New York, with the aim of better equipping them to
oversee the financial, physical, and operational health of
their housing portfolios.
Enterprise Community Partners' Mountain, Tribal Nations and
Rural (MTNR) team has recently entered into an agreement with
the Federal Home Loan Bank of Dallas to conduct a basic needs
assessment for tribal communities in New Mexico. This needs
assessment will fulfill FHLBank Dallas' FHFA requirements to
identify opportunities to invest in Native and tribal
communities through the Affordable Housing Program. The team
will draw on existing relationships with tribal housing
providers and advocates in New Mexico to help inform this work.
The MTNR team also frequently encourages technical assistance
recipients to work with their FHLBank and views the FHLBanks as
an important source of gap funding. The MTNR team provides
technical assistance in a variety of forums, including through
the Rural Rental Preservation Academy, Multi-Family Housing
Non-Profit Transfer Technical Assistance Grants through the
USDA Rural Housing Service, and the ElevateNV Affordable
Housing Development Training Series. In each case, the MTNR
team refers recipients to work with their FHLBank to access gap
funding. The Federal Home Loan Bank of San Francisco is also a
sponsor of the ElevateNV series through a grant to the Nevada
Housing Coalition.
Q.4. Will your organization participate with the Federal
Housing Finance Agency review of the Federal Home Loan Banks if
you have suggestions?
A.4. Enterprise Community Partners is monitoring the Federal
Housing Finance Agency's ``FHLBank System at 100'' process but
has not yet participated. Given the success of the programs for
ECLF's loans to affordable housing development, we support the
FHLBanks putting a larger percentage of profits towards their
Affordable Housing Programs, as outlined in your Federal Home
Loan Banks' Mission Implementation Act. If future listening
sessions are announced regarding topics on which Enterprise can
offer unique expertise, we may seek to participate.
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