[Congressional Record Volume 142, Number 117 (Friday, August 2, 1996)]
[Senate]
[Pages S9595-S9604]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MACK (for himself, Mr. Bond, Mr. D'Amato, and Mr. 
        Bennett):
  S. 2042. A bill to reform the multifamily rental assisted housing 
programs of the Federal Government, maintain the affordability and 
availability of low-income housing, and for other purposes; to the 
Committee on Banking, Housing, and Urban Affairs.


 the multifamily assisted housing reform and affordability act of 1996

  Mr. MACK. Mr. President, I am pleased to introduce, on behalf of 
Senator D'Amato, Bond, and Bennett, the Multifamily Assisted Housing 
Reform and Affordability Act of 1996. This bill is a serious effort to 
reform the Nation's assisted and insured multifamily housing portfolio 
in a responsible manner that balances both fiscal and public policy 
goals. This legislation will save scarce Federal subsidy dollars while 
maintaining the affordability and availability of decent and safe 
rental housing.
  About 20 years ago, the Federal Government encouraged private 
developers to construct affordable rental housing by providing mortgage 
insurance through the Federal Housing Administration [FHA] and rental 
assistance through the Department of Housing and Urban Development's 
[HUD] project-based Section 8 programs. In addition, tax incentives for 
the development of low-income housing were provided through the tax 
code until 1986.
  The combination of these financial incentives resulted in the 
creation of thousands of decent, safe, and affordable housing 
properties but, at a great cost to the American taxpayer. Flaws in the 
Section 8 rental assistance program allowed owners to receive more 
Federal dollars in rental subsidy than was necessary to maintain 
properties as decent and affordable rental housing. A recent HUD study 
found that almost two-thirds of assisted properties have contract rents 
greater than comparable market rents. Like the severely distressed 
public housing stock, some of these Section 8 projects have become 
targets and havens for crime and drug activities. Thus, in some cases, 
taxpayers are paying costly subsidies for inferior housing. We believe 
that a policy that pays excessive rental subsidies for housing is not 
fair to the American taxpayer, and it cannot be sustained in the 
current budget environment.
  It is critical that this legislation be enacted this year because in 
the next several years, a majority of the Section 8 contracts on the 
8,500 FHA-insured properties will expire. If contracts continue to be 
renewed at existing levels, the cost of renewing these contracts will 
grow from $1.2 billion in fiscal year 1997 to almost $4 billion in 
fiscal year 2000 and $8 billion 10 years from now. However, if these 
project-based assistance contracts are not renewed most of the FHA-
insured mortgages--with an unpaid principal balance of $18 billion--
will default and result in claims on the FHA insurance funds. This 
could lead to more severe actions such as foreclosure, which will 
adversely affect residents and communities.
  Like public housing, federally assisted and insured housing provides 
critical housing to almost 1.6 million American families. There are 
other similarities to public housing. For one, the average annual 
income of residents that reside in project-based housing is less than 
$7,000. A significant percentage of residents are elderly or persons 
with disabilities. Many of these developments are located in rural 
areas where no other rental housing exists. some of these properties 
serve as ``anchors'' of neighborhoods where the economic stability of 
the neighborhoods is dependent upon the viability of these properties.
  Unfortunately for residents and communities, HUD does not have the 
ability to administer and oversee its portfolio of multifamily housing 
properties. The General Accounting Office and the HUD Office of 
Inspector General [IG] have found that even though HUD has various 
enforcement tools to ensure that properties are properly maintained, 
poor management information systems and ineffective oversight of 
properties have impeded HUD's ability to identify problems and pursue 
enforcement actions in a timely fashion. HUD is further hampered by the 
lack of adequate staffing and inadequately trained staff. For example, 
the IG found that the average workload for a HUD loan servicer ranged 
from 28 projects per servicer to 105 projects per servicer. In 
comparison, State housing finance agencies averaged 12 to 16 projects 
per servicer.
  The Multifamily Assisted Housing Reform and Affordability Act 
addresses these issues through a new comprehensive structure that 
provides a wide variety of tools to address the spiraling costs of 
Section 8 assistance without harming residents or communities. The bill 
will reduce the long-term ongoing costs of Federal subsidies by 
restructuring the underlying debt insured by FHA. This restructuring 
process will reduce the subsidy needs and costs of the properties and 
minimizes adverse tax consequences to good owners.
  In recognition of HUD's inability to manage and service its housing 
inventory, this legislation would transfer the functions and 
responsibilities to capable State and local housing agencies who would 
act as participating administrative entities in managing this program. 
Incentives would be provided to these entities to ensure that the 
American taxpayer is paying the least amount of money to provide 
decent, safe, and affordable housing. Any amount of incentives provided 
to State and local entities would only be used for low-income housing 
purposes.
  Horror stories of owners that have clearly violated housing quality 
standards would no longer be tolerated. Our bill screens out bad owners 
and managers and nonviable projects from the inventory and provides 
tougher and more effective enforcement tools that will minimize fraud 
and abuse of FHA insurance and assisted housing programs.

  Lastly, our bill provides tools to recapitalize the assisted stock 
that suffer from deferred maintenance and empowers residents by 
providing for meaningful community and resident input into the process. 
Residents would also be empowered through opportunities to purchase 
properties.
  Mr. President, I would like to reemphasize that it is critical that 
we address this issue this year. Delays will only harm the assisted 
housing stock, its residents and communities, and the financial 
stability of the FHA insurance funds. Further, HUD only has limited 
statutory authority to renew these contracts. In most cases, it cannot 
and does not have the capability to deal with this housing portfolio 
under current law.
  This legislation will protect the Federal Government's investment in 
assisted housing and ensure that participating administrative entities 
are held accountable for their activities. It is also our goal that 
this process will ensure the long-term viability of these projects with 
minimal Federal involvement. It is a real effort to reduce the costs of 
the Federal Government while recognizing the needs of low-income 
families and communities throughout the Nation.
  Mr. President, I ask unanimous consent that a summary and the text of 
the bill be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 2042

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

[[Page S9596]]

       

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the 
     ``Multifamily Assisted Housing Reform and Affordability Act 
     of 1996''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.

     TITLE I--FHA-INSURED MULTIFAMILY HOUSING MORTGAGE AND HOUSING 
                        ASSISTANCE RESTRUCTURING

Sec. 101. Findings and purposes.
Sec. 102. Definitions.
Sec. 103. Authority of participating administrative entities.
Sec. 104. Mortgage restructuring and rental assistance sufficiency 
              plan.
Sec. 105. Section 8 renewals and long-term affordability commitment by 
              owner of project.
Sec. 106. Prohibition on restructuring.
Sec. 107. Restructuring tools.
Sec. 108. Shared savings incentive.
Sec. 109. Management standards.
Sec. 110. Monitoring of compliance.
Sec. 111. Review.
Sec. 112. GAO audit and review.
Sec. 113. Regulations.
Sec. 114. Technical and conforming amendments.
Sec. 115. Termination of authority.

                    TITLE II--ENFORCEMENT PROVISIONS

Sec. 201. Implementation.

         Subtitle A--FHA Single Family and Multifamily Housing

Sec. 211. Authorization to immediately suspend mortgagees.
Sec. 212. Extension of equity skimming to other single family and 
              multifamily housing programs.
Sec. 213. Civil money penalties against mortgagees, lenders, and other 
              participants in FHA programs.

                      Subtitle B--FHA Multifamily

Sec. 220. Civil money penalties against general partners, officers, 
              directors, and certain managing agents of multifamily 
              projects.
Sec. 221. Civil money penalties for noncompliance with section 8 HAP 
              contracts.
Sec. 222. Extension of double damages remedy.
Sec. 223. Obstruction of Federal audits.
     TITLE I--FHA-INSURED MULTIFAMILY HOUSING MORTGAGE AND HOUSING 
                        ASSISTANCE RESTRUCTURING

     SEC. 101. FINDINGS AND PURPOSES.

       (a) Findings.--The Congress finds that--
       (1) there exists throughout the Nation a need for decent, 
     safe, and affordable housing;
       (2) as of the date of enactment of this Act, it is 
     estimated that--
       (A) the insured multifamily housing portfolio of the 
     Federal Housing Administration consists of 14,000 rental 
     properties, with an aggregate unpaid principal mortgage 
     balance of $38,000,000,000; and
       (B) approximately 10,000 of these properties contain 
     housing units that are assisted with project-based rental 
     assistance under section 8 of the United States Housing Act 
     of 1937;
       (3) FHA-insured multifamily rental properties are a major 
     Federal investment, providing affordable rental housing to an 
     estimated 2,000,000 low- and very low-income families;
       (4) approximately 1,600,000 of these families live in 
     dwelling units that are assisted with project-based rental 
     assistance under section 8 of the United States Housing Act 
     of 1937;
       (5) a substantial number of housing units receiving 
     project-based assistance have rents that are higher than the 
     rents of comparable, unassisted rental units in the same 
     housing rental market;
       (6) many of the contracts for project-based assistance will 
     expire during the several years following the date of 
     enactment of this Act;
       (7) it is estimated that--
       (A) if no changes in the terms and conditions of the 
     contracts for project-based assistance are made before fiscal 
     year 2000, the cost of renewing all expiring rental 
     assistance contracts under section 8 of the United States 
     Housing Act of 1937 for both project-based and tenant-based 
     rental assistance will increase from approximately 
     $4,000,000,000 in fiscal year 1997 to over $17,000,000,000 by 
     fiscal year 2000 and some $23,000,000,000 in fiscal year 
     2006;
       (B) of those renewal amounts, the cost of renewing project-
     based assistance will increase from $1,200,000,000 in fiscal 
     year 1997 to almost $8,000,000,000 by fiscal year 2006; and
       (C) without changes in the manner in which project-based 
     rental assistance is provided, renewals of expiring contracts 
     for project-based rental assistance will require an 
     increasingly larger portion of the discretionary budget 
     authority of the Department of Housing and Urban Development 
     in each subsequent fiscal year for the foreseeable future;
       (8) absent new budget authority for the renewal of expiring 
     rental contracts for project-based assistance, many of the 
     FHA-insured multifamily housing projects that are assisted 
     with project-based assistance will likely default on their 
     FHA-insured mortgage payments, resulting in substantial 
     claims to the FHA General Insurance Fund and Special Risk 
     Insurance Funds;
       (9) more than 15 percent of federally assisted multifamily 
     housing projects are physically or financially distressed, 
     including a number which suffer from mismanagement;
       (10) due to Federal budget constraints, the downsizing of 
     the Department of Housing and Urban Development, and 
     diminished administrative capacity, the Department lacks the 
     ability to ensure the continued economic and physical well-
     being of the stock of federally insured and assisted 
     multifamily housing projects; and
       (11) the economic, physical, and management problems facing 
     the stock of federally insured and assisted multifamily 
     housing projects will be best served by reforms that--
       (A) reduce the cost of Federal rental assistance, including 
     project-based assistance, to these projects by reducing the 
     debt service and operating costs of these projects while 
     retaining the low-income affordability and availability of 
     this housing;
       (B) address physical and economic distress of this housing 
     and the failure of some project managers and owners of 
     projects to comply with management and ownership rules and 
     requirements; and
       (C) transfer and share many of the loan and contract 
     administration functions and responsibilities of the 
     Secretary with capable State, local, and other entities.
       (b) Purposes.--The purposes of this title are--
       (1) to preserve low-income rental housing affordability and 
     availability while reducing the long-term costs of project-
     based assistance;
       (2) to reform the design and operation of Federal rental 
     housing assistance programs, administered by the Secretary, 
     to promote greater multifamily housing project operating and 
     cost efficiencies;
       (3) to encourage owners of eligible multifamily housing 
     projects to restructure their FHA-insured mortgages and 
     project-based assistance contracts in a manner which is 
     consistent with this title before the year in which the 
     contract expires;
       (4) to streamline and improve federally insured and 
     assisted multifamily housing project oversight and 
     administration;
       (5) to resolve the problems affecting financially and 
     physically troubled federally insured and assisted 
     multifamily housing projects through cooperation with 
     residents, owners, State and local governments, and other 
     interested entities and individuals; and
       (6) to grant additional enforcement tools to use against 
     those who violate agreements and program requirements, in 
     order to ensure that the public interest is safeguarded and 
     that Federal multifamily housing programs serve their 
     intended purposes.

     SEC. 102. DEFINITIONS.

       For purposes of this title, the following definitions shall 
     apply:
       (1) Comparable properties.--The term ``comparable 
     properties'' means properties that are--
       (A) similar to the eligible multifamily housing project in 
     neighborhood (including risk of crime), location, access, 
     street appeal, age, property size, apartment mix, physical 
     configuration, property amenities, inapartment rental 
     amenities, and utilities;
       (B) unregulated by contractual encumbrances or local rent-
     control laws; and
       (C) occupied predominantly by renters who receive no rent 
     supplements or rental assistance.
       (2) Eligible multifamily housing project.--The term 
     ``eligible multifamily housing project'' means a property 
     consisting of more than 4 dwelling units--
       (A) with rents which, on an average per unit or per room 
     basis, exceed the fair market rent of the same market area, 
     as determined by the Secretary;
       (B) that is covered in whole or in part by a contract for 
     project-based assistance under--
       (i) the new construction and substantial rehabilitation 
     program under section 8(b)(2) of the United States Housing 
     Act of 1937 (as in effect before October 1, 1983);
       (ii) the property disposition program under section 8(b) of 
     the United States Housing Act of 1937;
       (iii) the moderate rehabilitation program under section 
     8(e)(2) of the United States Housing Act of 1937;
       (iv) the project-based certificate program under section 8 
     of the United States Housing Act of 1937;
       (v) section 23 of the United States Housing Act of 1937 (as 
     in effect before January 1, 1975);
       (vi) the rent supplement program under section 101 of the 
     Housing and Urban Development Act of 1965; or
       (vii) section 8 of the United States Housing Act of 1937, 
     following conversion from assistance under section 101 of the 
     Housing and Urban Development Act of 1965; and
       (C) financed by a mortgage insured under the National 
     Housing Act.
       (3) Expiring contract.--The term ``expiring contract'' 
     means a project-based assistance contract attached to an 
     eligible multifamily housing project which, under the terms 
     of the contract, will expire.
       (4) Expiration date.--The term ``expiration date'' means 
     the date on which an expiring contract expires.
       (5) Fair market rent.--The term ``fair market rent'' means 
     the fair market rental established under section 8(c) of the 
     United States Housing Act of 1937.
       (6) Knowing or knowingly.--The term ``knowing'' or 
     ``knowingly'' means having actual knowledge of or acting with 
     deliberate ignorance or reckless disregard.
       (7) Low-income families.--The term ``low-income families'' 
     has the same meaning as provided under section 3(b)(2) of the 
     United States Housing Act of 1937.

[[Page S9597]]

       (8) Multifamily housing management agreement.--The term 
     ``multifamily housing management agreement'' means the 
     agreement entered into between the Secretary and a 
     participating administrative entity, as provided under 
     section 103 of the title.
       (9) Participating administrative entity.--The term 
     ``participating administrative entity'' means a public 
     agency, including a State housing finance agency or local 
     housing agency, which meets the requirements under section 
     103(b).
       (10) Project-based assistance.--The term ``project-based 
     assistance'' means rental assistance under section 8 of the 
     United States Housing Act of 1937 that is attached to a 
     multifamily housing project.
       (11) Renewal.--The term ``renewal'' means the replacement 
     of an expiring Federal rental contract with a new contract 
     under section 8 of the United States Housing Act of 1937, 
     consistent with the requirements of this title.
       (12) Secretary.--The term ``Secretary'' means the Secretary 
     of Housing and Urban Development.
       (13) State.--The term ``State'' has the same meaning as in 
     section 104 of the Cranston-Gonzalez National Affordable 
     Housing Act.
       (14) Tenant-based assistance.--The term ``tenant-based 
     assistance'' has the same meaning as in section 8(f) of the 
     United States Housing Act of 1937.
       (15) Unit of general local government.--The term ``unit of 
     general local government'' has the same meaning as in section 
     104 of the Cranston-Gonzalez National Affordable Housing Act.
       (16) Very low-income family.--The term ``very low-income 
     family'' has the same meaning as in section 3(b) of the 
     United States Housing Act of 1937.

     SEC. 103. AUTHORITY OF PARTICIPATING ADMINISTRATIVE ENTITIES.

       (a) Participating Administrative Entities.--
       (1) In general.--The Secretary shall enter into multifamily 
     housing management agreements with participating 
     administrative entities for the implementation of mortgage 
     restructuring and rental assistance sufficiency plans to 
     restructure FHA-insured multifamily housing mortgages, in 
     order to--
       (A) reduce the costs of current and expiring contracts for 
     assistance under section 8 of the United States Housing Act 
     of 1937;
       (B) address financially and physically troubled projects; 
     and
       (C) correct management and ownership deficiencies.
       (2) Multifamily housing management agreements.--Each 
     multifamily housing management agreement entered into under 
     this subsection shall--
       (A) be a cooperative agreement to establish the obligations 
     and requirements between the Secretary and the participating 
     administrative entity;
       (B) identify the eligible multifamily housing projects or 
     groups of projects for which the participating administrative 
     entity is responsible for assisting in developing and 
     implementing approved mortgage workout and rental assistance 
     sufficiency plans under section 104;
       (C) require the participating administrative entity to 
     review and certify to the accuracy and completeness of a 
     comprehensive needs assessment submitted by the owner of an 
     eligible multifamily housing project, in accordance with the 
     information and data requirements of section 403 of the 
     Housing and Community Development Act of 1992, including such 
     other data, information, and requirements as the Secretary 
     may require to be included as part of the comprehensive needs 
     assessment;
       (D) identify the responsibilities of both the participating 
     administrative entity and the Secretary in implementing a 
     mortgage restructuring and rental assistance sufficiency 
     plan, including any actions proposed to be taken under 
     section 106 or 107;
       (E) require each mortgage restructuring and rental 
     assistance sufficiency plan prepared in accordance with the 
     requirements of section 104 for each eligible multifamily 
     housing project;
       (F) indemnify the participating administrative entity 
     against lawsuits and penalties for actions taken pursuant to 
     the agreement, excluding actions involving gross negligence 
     or willful misconduct; and
       (G) include compensation for all reasonable expenses 
     incurred by the participating administrative entity necessary 
     to perform its duties under this Act, including such 
     incentives as may be authorized under section 108.
       (b) Selection of Participating Administrative Entity.--
       (1) Selection criteria.--The Secretary shall select a 
     participating administrative entity based on the following 
     criteria--
       (A) is located in the State or local jurisdiction in which 
     the eligible multifamily housing project or projects are 
     located;
       (B) has demonstrated expertise in the development or 
     management of low-income affordable rental housing;
       (C) has a history of stable, financially sound, and 
     responsible administrative performance;
       (D) has demonstrated financial strength in terms of asset 
     quality, capital adequacy, and liquidity; and
       (E) is otherwise qualified, as determined by the Secretary, 
     to carry out the requirements of this title.
       (2) Selection of mortgage risk-sharing entities.--Any State 
     housing finance agency or local housing agency which is 
     designated as a qualified participating entity under section 
     542 of the Housing and Community Development Act of 1992 
     shall automatically qualify as a participating administrative 
     entity under this section.
       (3) Alternative administrators.--With respect to any 
     eligible multifamily housing project that is located in a 
     State or local jurisdiction in which the Secretary determines 
     that a participating administrative entity is not located, is 
     unavailable, or does not qualify, the Secretary shall 
     either--
       (A) carry out the requirements of this title with respect 
     to that eligible multifamily housing project; or
       (B) contract with other qualified entities that meet the 
     requirements of subsection (b), with the exception of 
     subsection (b)(1)(A), the authority to carry out all or a 
     portion of the requirements of this title with respect to 
     that eligible multifamily housing project.
       (4) Preference for state housing finance agencies as 
     participating administrative entities.--For each State in 
     which eligible multifamily housing projects are located, the 
     Secretary shall give preference to the housing finance agency 
     of that State or, if a State housing finance agency is 
     unqualified or has declined to participate, a local housing 
     agency to act as the participating administrative entity for 
     that State or for the jurisdiction in which the agency 
     located.
       (5) State portfolio requirements.--
       (A) In general.--If the housing finance agency of a State 
     is selected as the participating administrative entity, that 
     agency shall be responsible for all eligible multifamily 
     housing projects in that State, except that a local housing 
     agency selected as a participating administrative entity 
     shall be responsible for all eligible multifamily housing 
     projects in the jurisdiction of the agency.
       (B) Delegation.--A participating administrative entity may 
     delegate or transfer responsibilities and functions under 
     this title to one or more interested and qualified public 
     entities.
       (C) Waiver.--A State housing finance agency or local 
     housing agency may request a waiver from the Secretary from 
     the requirements of this paragraph for good cause.

     SEC. 104. MORTGAGE RESTRUCTURING AND RENTAL ASSISTANCE 
                   SUFFICIENCY PLAN.

       (a) In General.--
       (1) Development of procedures and requirements.--The 
     Secretary shall develop procedures and requirements for the 
     submission of a mortgage restructuring and rental assistance 
     sufficiency plan for each eligible multifamily housing 
     project with an expiring contract.
       (2) Terms and conditions.--Each mortgage restructuring and 
     rental assistance sufficiency plan submitted under this 
     subsection shall be developed at the initiative of an owner 
     of an eligible multifamily housing project with a 
     participating administrative entity, under such terms and 
     conditions as the Secretary shall require.
       (3) Consolidation.--Mortgage restructuring and rental 
     assistance sufficiency plans submitted under this subsection 
     may be consolidated as part of an overall strategy for more 
     than one property.
       (b) Notice Requirements.--
       (1) Establishment.--
       (A) In general.--The Secretary shall establish notice 
     procedures and hearing requirements for tenants and owners 
     concerning the dates for the expiration of project-based 
     assistance contracts for any eligible multifamily housing 
     project.
       (B) 12-month notice.--Under the hearing requirements 
     established under this paragraph, the owner shall provide 12 
     months notice in writing before the expiration of the initial 
     project-based assistance contract to tenants of any eligible 
     multifamily housing project.
       (2) Extension of contract term.--Subject to agreement by a 
     project owner, the Secretary may extend the term of any 
     expiring contract or provide a section 8 contract with rent 
     levels set in accordance with subsection (f)(2) for a period 
     sufficient to facilitate the implementation of a mortgage 
     restructuring and rental assistance sufficiency plan, as 
     determined by the Secretary.
       (c) Tenant Rent Protection.--If the owner of a project with 
     an expiring Federal rental assistance contract does not agree 
     to extend the contract, the Secretary shall make tenant-based 
     assistance available to tenants residing in units assisted 
     under the expiring contract at the time of expiration.
       (d) Mortgage Restructuring and Rental Assistance 
     Sufficiency Plan.--Each mortgage restructuring and rental 
     assistance sufficiency plan shall--
       (1) except as otherwise provided, restructure the project-
     based assistance rents for the eligible multifamily housing 
     property in a manner consistent with subsection (e);
       (2) require the owner or purchaser of an eligible 
     multifamily mortgage housing project with an expiring 
     contract to submit to the participating administrative entity 
     a comprehensive housing needs assessment, in accordance with 
     the information and data requirements of section 403 of the 
     Housing and Community Development Act of 1992, including such 
     other data, information, and requirements as the Secretary 
     may require to be included as part of the comprehensive needs 
     assessment;
       (3) require the owner or purchaser of the project to 
     provide or contract for competent management of the project;

[[Page S9598]]

       (4) require the owner or purchaser of the project to take 
     such actions as may be necessary to rehabilitate, maintain 
     adequate reserves, and to maintain the project in decent and 
     safe condition, based on housing quality standards 
     established by--
       (A) the Secretary; or
       (B) local housing codes or codes adopted by public housing 
     agencies that--
       (i) meet or exceed housing quality standards established by 
     the Secretary; and
       (ii) do not severely restrict housing choice;
       (5) require the owner or purchaser of the project to 
     maintain affordability and use restrictions for 20 years, as 
     the participating administrative entity determines to be 
     appropriate, which restrictions shall be consistent with the 
     long-term physical and financial viability character of the 
     project as affordable housing;
       (6) meet subsidy layering requirements under guidelines 
     established by the Secretary; and
       (7) require the owner or purchaser of the project to meet 
     such other requirements as the Secretary determines to be 
     appropriate.
       (e) Tenant and Community Participation and Capacity 
     Building.--
       (1) Procedures.--
       (A) In general.--The Secretary shall establish procedures 
     to provide an opportunity for tenants of the project and 
     other affected parties, including local government and the 
     community in which the project is located, to participate 
     effectively in the restructuring process established by this 
     title.
       (B) Criteria.--These procedures shall include--
       (i) the rights to timely and adequate written notice of the 
     proposed decisions of the owner or the Secretary or 
     participating administrative entity;
       (ii) timely access to all relevant information (except for 
     information determined to be proprietary under standards 
     established by the Secretary);
       (iii) an adequate period to analyze this information and 
     provide comments to the Secretary or participating 
     administrative entity (which comments shall be taken into 
     consideration by the Administrator); and
       (iv) if requested, a meeting with a representative of the 
     Administrator and other affected parties.
       (2) Procedures required.--The procedures established under 
     paragraph (1) shall permit tenant, local government, and 
     community participation in at least the following decisions 
     or plans specified in this title:
       (A) The Multifamily Housing Management Agreement.
       (B) Any proposed expiration of the section 8 contract.
       (C) The project's eligibility for restructuring pursuant to 
     section 106 and the mortgage restructuring and rental 
     assistance sufficiency plan pursuant to section 104.
       (D) Physical inspections.
       (E) Capital needs and management assessments, whether 
     before or after restructuring.
       (F) Any proposed transfer of the project.
       (3) Funding.--
       (A) In general.--The Secretary may provide not more than 
     $10,000,000 annually in funding to tenant groups, nonprofit 
     organizations, and public entities for building the capacity 
     of tenant organizations, for technical assistance in 
     furthering any of the purposes of this title (including 
     transfer of developments to new owners) and for tenant 
     services, from those amounts made available under 
     appropriations Acts for implementing this title.
       (B) Allocation.--The Secretary may allocate any funds made 
     available under subparagraph (A) through existing technical 
     assistance programs and procedures developed pursuant to any 
     other Federal law, including the Low-Income Housing 
     Preservation and Resident Homeownership Act of 1990 and the 
     Multifamily Property Disposition Reform Act of 1994.
       (C) Prohibition.--None of the funds made available under 
     subparagraph (A) may be used directly or indirectly to pay 
     for any personal service, advertisement, telegram, telephone, 
     letter, printed or written matter, or other device, intended 
     or designed to influence in any manner a Member of Congress, 
     to favor or oppose, by vote or otherwise, any legislation or 
     appropriation by the Congress, whether before or after the 
     introduction of any bill or resolution proposing such 
     legislation or appropriation.
       (f) Rent Levels.--
       (1) In general.--Except as provided in paragraph (2), each 
     mortgage restructuring and rental assistance sufficiency plan 
     pursuant to the terms, conditions, and requirements of this 
     title shall establish for units assisted with project-based 
     assistance in eligible multifamily housing projects adjusted 
     rent levels that--
       (A) are equivalent to rents derived from comparable 
     properties, if--
       (i) the participating administrative entity makes the rent 
     determination not later than 60 days after the owner submits 
     a mortgage restructuring and rental assistance sufficiency 
     plan; and
       (ii) the market rent determination is based on not less 
     than 2 comparable properties; or
       (B) if those rents cannot be determined, are equal to 90 
     percent of the fair market rents for the relevant market 
     area.
       (2) Exceptions.--
       (A) In general.--A contract under this section may include 
     rent levels that exceed the rent level described in paragraph 
     (1) at rent levels that do not exceed 120 percent of the 
     local fair market rent if the participating administrative 
     entity--
       (i) determines, that the housing needs of the tenants and 
     the community cannot be adequately addressed through 
     implementation of the rent limitation required to be 
     established through a mortgage restructuring and rental 
     assistance sufficiency plan under paragraph (1); and
       (ii) follows the procedures under paragraph (3).
       (B) Exception rents.--In any fiscal year, a participating 
     administrative entity may approve exception rents on not more 
     than 20 percent of all units in the geographic jurisdiction 
     of the entity with expiring contracts in that fiscal year, 
     except that the Secretary may waive this ceiling upon a 
     finding of special need in the geographic area served by the 
     participating administrative entity.
       (3) Rent levels for exception projects.--For purposes of 
     this section, a project eligible for an exception rent shall 
     receive a rent calculation on the actual and projected costs 
     of operating the project, at a level that provides income 
     sufficient to support a budget-based rent that consists of--
       (A) the debt service of the project;
       (B) the operating expenses of the project, as determined by 
     the participating administrative entity, including--
       (i) contributions to adequate reserves;
       (ii) the costs of maintenance and necessary rehabilitation; 
     and
       (iii) other eligible costs permitted under section 8 of the 
     United States Housing Act of 1937;
       (C) an adequate allowance for potential operating losses 
     due to vacancies and failure to collect rents, as determined 
     by the participating administrative entity;
       (D) an allowance for a reasonable rate of return to the 
     owner or purchaser of the project, as determined by the 
     participating administrative entity, which shall not exceed 7 
     percent of the return on equity; and
       (E) other expenses determined by the participating 
     administrative entity to be necessary for the operation of 
     the project.
       (g) Exemptions From Restructuring.--Subject to section 106, 
     the Secretary shall renew project-based assistance contracts 
     at existing rents if--
       (1) the project was financed through obligations such that 
     the implementation of a mortgage restructuring and rental 
     assistance plan under this section is inconsistent with 
     applicable law or agreements governing such financing;
       (2) in the determination of the Secretary or the 
     participating administrative entity, the refinancing would 
     not result in significant savings to the Secretary; or
       (3) the project has an expiring contract under section 8 of 
     the United States Housing Act of 1937 but does not qualify as 
     an eligible multifamily project pursuant to section 102(6) of 
     this title.

     SEC. 105. SECTION 8 RENEWALS AND LONG-TERM AFFORDABILITY 
                   COMMITMENT BY OWNER OF PROJECT.

       (a) Section 8 Renewals of Restructured Projects.--Subject 
     to the availability of amounts provided in advance in 
     appropriations Acts, the Secretary shall enter into contracts 
     with participating administrative entities pursuant to which 
     the participating administrative entity shall offer to renew 
     or extend an expiring section 8 contract on an eligible 
     multifamily project, and the owner of the project shall 
     accept the offer, provided the initial renewal is in 
     accordance with the terms and conditions specified in the 
     mortgage restructuring and rental sufficiency plan.
       (b) Required Commitment.--After the initial renewal of a 
     section 8 contract pursuant to this section, the owner shall 
     accept each offer made pursuant to subsection (a) to renew 
     the contract, for a period of 20 years from the date of the 
     initial renewal, if the offer to renew is on terms and 
     conditions specified in the mortgage restoration and rental 
     sufficiency plan.

     SEC. 106. PROHIBITION ON RESTRUCTURING.

       (a) Prohibition on Restructuring.--The Secretary shall not 
     consider any mortgage restructuring and rental assistance 
     sufficiency plan or request for contract renewal if the 
     participating administrative entity determines that--
       (1) the owner or purchaser of the project has engaged in 
     material adverse financial or managerial actions or omissions 
     with regard to this project (or with regard to other similar 
     projects if the Secretary determines that those actions or 
     omissions constitute a pattern of mismanagement that would 
     warrant suspension or debarment by the Secretary), 
     including--
       (A) knowingly and materially violating any Federal, State, 
     or local law or regulation with regard to this project or any 
     other federally assisted project;
       (B) knowingly and materially breaching a contract for 
     assistance under section 8 of the United States Housing Act 
     of 1937;
       (C) knowingly and materially violating any applicable 
     regulatory or other agreement with the Secretary or a 
     participating administrative entity;
       (D) repeatedly failing to make mortgage payments at times 
     when project income was sufficient to maintain and operate 
     the property;
       (E) materially failing to maintain the property according 
     to housing quality standards after receipt of notice and a 
     reasonable opportunity to cure; or
       (F) committing any actions or omissions that would warrant 
     suspension or debarment by the Secretary;
       (2) the owner or purchaser of the property materially 
     failed to follow the procedures

[[Page S9599]]

     and requirements of this title, after receipt of notice and 
     an opportunity to cure; or
       (3) the poor condition of the project cannot be remedied in 
     a cost effective manner, as determined by the participating 
     administrative entity.
       (b) Opportunity To Dispute Findings.--
       (1) In general.--During the 30-day period beginning on the 
     date on which the owner or purchaser of an eligible 
     multifamily housing project receives notice of a rejection 
     under subsection (a) or of a mortgage restructuring and 
     rental assistance sufficiency plan under section 104, the 
     Secretary or participating administrative entity shall 
     provide that owner or purchaser with an opportunity to 
     dispute the basis for the rejection and an opportunity to 
     cure.
       (2) Affirmation, modification, or reversal.--
       (A) In general.--After providing an opportunity to dispute 
     under paragraph (1), the Secretary or the participating 
     administrative entity may affirm, modify, or reverse any 
     rejection under subsection (a) or rejection of a mortgage 
     restructuring and rental assistance sufficiency plan under 
     section 104.
       (B) Reasons for decision.--The Secretary or the 
     participating administrative entity, as applicable, shall 
     identify the reasons for any final decision under this 
     paragraph.
       (C) Review process.--The Secretary shall establish an 
     administrative review process to appeal any final decision 
     under this paragraph.
       (c) Final Determination.--Any final determination under 
     this section shall not be subject to judicial review.
       (d) Displaced Tenants.--Subject to the availability of 
     amounts provided in advance in appropriations Acts, for any 
     low-income tenant that is residing in a project or receiving 
     assistance under section 8 of the United States Housing Act 
     of 1937 at the time of rejection under this section, that 
     tenant shall be provided with tenant-based assistance and 
     reasonable moving expenses, as determined by the Secretary.
       (e) Transfer of Property.--For properties disqualified from 
     the consideration of a mortgage restructuring and rental 
     assistance sufficiency plan under this section because of 
     actions by an owner or purchaser in accordance with paragraph 
     (1) or (2) of subsection (a), the Secretary shall establish 
     procedures to facilitate the voluntary sale or transfer of a 
     property as part of a mortgage restructuring and rental 
     assistance sufficiency plan, with a preference for tenant 
     organizations and tenant-endorsed community-based nonprofit 
     and public agency purchasers meeting such reasonable 
     qualifications as may be established by the Secretary.

     SEC. 107. RESTRUCTURING TOOLS.

       (a) Restructuring Tools.--For purposes of this title, and 
     to the extent these actions are consistent with this section, 
     an approved mortgage restructuring and assistance sufficiency 
     plan may include one or more of the following:
       (1) Full or partial payment of claim.--Making a full 
     payment of claim or partial payment of claim under section 
     541(b) of the National Housing Act.
       (2) Refinancing of debt.--Refinancing of all or part of the 
     debt on a project, if the refinancing would result in 
     significant subsidy savings under section 8 of the United 
     States Housing Act of 1937.
       (3) Mortgage insurance.--Providing FHA multifamily mortgage 
     insurance, reinsurance or other credit enhancement 
     alternatives, including multifamily risk-sharing mortgage 
     programs, as provided under section 542 of the Housing and 
     Community Development Act of 1992. Any limitations on the 
     number of units available for mortgage insurance under 
     section 542 shall not apply to eligible multifamily housing 
     projects. Any credit subsidy costs of providing mortgage 
     insurance shall be paid from the General Insurance Fund and 
     the Special Risk Insurance Fund.
       (4) Credit enhancement.--Any additional State or local 
     mortgage credit enhancements and risk-sharing arrangements 
     may be established with State or local housing finance 
     agencies, the Federal Housing Finance Board, the Federal 
     National Mortgage Association, and the Federal Home Loan 
     Mortgage Corporation, to a modified first mortgage.
       (5) Compensation of third parties.--Entering into 
     agreements, incurring costs, or making payments, as may be 
     reasonably necessary, to compensate the participation of 
     participating administrative entities and other parties in 
     undertaking actions authorized by this title. Upon request, 
     participating administrative entities shall be considered to 
     be contract administrators under section 8 of the United 
     States Housing Act of 1937 for purposes of any contracts 
     entered into as part of an approved mortgage restructuring 
     and rental assistance sufficiency plan.
       (6) Residual receipts.--Applying any acquired residual 
     receipts to maintain the long-term affordability and physical 
     condition of the property. The participating administrative 
     entity may expedite the acquisition of residual receipts by 
     entering into agreements with owners of housing covered by an 
     expiring contract to provide an owner with a share of the 
     receipts, not to exceed 10 percent.
       (7) Rehabilitation needs.--Assisting in addressing the 
     necessary rehabilitation needs of the project, except that 
     assistance under this paragraph shall not exceed the 
     equivalent of $5,000 per unit for those units covered with 
     project-based assistance. Rehabilitation may be paid from the 
     provision of grants from residual receipts or, as provided in 
     appropriations Acts, from budget authority provided for 
     increases in the budget authority for assistance contracts 
     under section 8 of the United States Housing Act of 1937, or 
     through the debt restructuring transaction. Each owner that 
     receives rehabilitation assistance shall contribute not less 
     than 25 percent of the amount of rehabilitation assistance 
     received.
       (8) Mortgage restructuring.--Restructuring mortgages to 
     provide a structured first mortgage to cover rents at levels 
     that are established in section 104(f) and a second mortgage 
     equal to the difference between the restructured first 
     mortgage and the mortgage balance of the eligible multifamily 
     housing project at the time of restructuring. The second 
     mortgage shall bear interest at a rate not to exceed the 
     applicable Federal rate for a term not to exceed 40 years. If 
     the first mortgage remains outstanding, payments of interest 
     and principal on the second mortgage shall be made from all 
     excess project income only after the payment of all 
     reasonable and necessary operating expenses (including 
     deposits in a reserve for replacement), debt service on the 
     first mortgage, and such other expenditures as may be 
     approved by the Secretary. Except as required by the 
     preceding sentence, during the period in which the first 
     mortgage remains outstanding, no payments of interest or 
     principal shall be required on the second mortgage. The 
     second mortgage shall be assumable by any subsequent 
     purchaser of any multifamily housing project, pursuant to 
     guidelines established by the Secretary. The principal and 
     accrued interest due under the second mortgage shall be fully 
     payable upon disposition of the property, unless the mortgage 
     is assumed under the preceding sentence. The owner shall 
     begin repayment of the second mortgage upon full payment of 
     the first mortgage in equal monthly installments in an amount 
     equal to the monthly principal and interest payments formerly 
     paid under the first mortgage. The principal and interest of 
     a second mortgage shall be immediately due and payable upon a 
     finding by the Secretary that an owner has failed to 
     materially comply with this title or any requirements of the 
     United States Housing Act of 1937 as those requirements apply 
     to the applicable project. Any credit subsidy costs of 
     providing a second mortgage shall be paid from the General 
     Insurance Fund and the Special Risk Insurance Fund.
       (b) Role of FNMA and FHLMC.--Section 1335 of the Federal 
     Housing Enterprises Financial Safety and Soundness Act of 
     1992 (12 U.S.C. 4565) is amended--
       (1) in paragraph (3), by striking ``and'' at the end;
       (2) paragraph (4), by striking the period at the end and 
     inserting ``; and'';
       (3) by striking ``To meet'' and inserting the following:
       ``(a) In General.--To meet''; and
       (4) by adding at the end the following:
       ``(5) assist in maintaining the affordability of assisted 
     units in eligible multifamily housing projects with expiring 
     contracts, as defined under the Multifamily Assisted Housing 
     Reform and Affordability Act of 1996.
       ``(b) Affordable Housing Goals.--Actions taken under 
     subsection (a)(5) shall constitute part of the contribution 
     of each entity in meeting their affordable housing goals 
     under sections 1332, 1333, and 1334 for any fiscal year, as 
     determined by the Secretary.''.
       (c) Prohibition on Equity Sharing by the Secretary.--The 
     Secretary is prohibited from participating in any equity 
     agreement or profit-sharing agreement in conjunction with any 
     eligible multifamily housing project.

     SEC. 108. SHARED SAVINGS INCENTIVE.

       (a) In General.--At the time a participating administrative 
     entity is designated, the Secretary shall negotiate an 
     incentive agreement with the participating administrative 
     entity, which agreement may provide such entity with a share 
     of savings from any restructured mortgage and reduced 
     subsidies resulting from actions under section 107. The 
     Secretary shall negotiate with participating administrative 
     entities a savings incentive formula that provides for 
     periodic payments over a 5-year period, which is allocated as 
     incentives to participating administrative entities and to 
     project owners.
       (b) Use of savings.--Notwithstanding any other provision of 
     law, the incentive agreement under subsection (a) shall 
     require any savings provided to a participating 
     administrative entity under that agreement to be used only 
     for providing decent, safe, and affordable housing for very 
     low-income families and persons with a priority for eligible 
     multifamily housing projects; and

     SEC. 109. MANAGEMENT STANDARDS.

       Each participating administrative entity shall establish 
     and implement management standards, including requirements 
     governing conflicts of interest between owners, managers, 
     contractors with an identity of interest, pursuant to 
     guidelines established by the Secretary and consistent with 
     industry standards.

     SEC. 110. MONITORING OF COMPLIANCE.

       (a) Compliance Agreements.--Pursuant to regulations issued 
     by the Secretary after public notice and comment, each 
     participating administrative entity, through binding 
     contractual agreements with owners and

[[Page S9600]]

     otherwise, shall ensure long-term compliance with the 
     provisions of this title. Each agreements shall, at a 
     minimum, provide for--
       (1) enforcement of the provisions of this title; and
       (2) remedies for the breach of those provisions.
       (b) Periodic Monitoring.--
       (1) In general.--Not less than annually, each participating 
     administrative entity shall review the status of all 
     multifamily housing projects for which a mortgage 
     restructuring and rental assistance sufficiency plan has been 
     implemented.
       (2) Inspections.--Each review under this subsection shall 
     include onsite inspection to determine compliance with 
     housing codes and other requirements as provided in this 
     title and the multifamily housing management agreements.
       (c) Audit by the Secretary.--The Comptroller General of the 
     United States, the Secretary, and the Inspector General of 
     the Department of Housing and Urban Development may conduct 
     an audit at any time of any multifamily housing project for 
     which a mortgage restructuring and rental assistance 
     sufficiency plan has been implemented.

     SEC. 111. REVIEW.

       (a) Annual Review.--In order to ensure compliance with this 
     title, the Secretary shall conduct an annual review and 
     report to the Congress on actions taken under this title and 
     the status of eligible multifamily housing projects.
       (b) Subsidy Layering Review.--The participating 
     administrative entity shall certify, pursuant to guidelines 
     issued by the Secretary, that the requirements of section 
     102(d) of the Department of Housing and Urban Development 
     Reform Act of 1989 are satisfied so that the combination of 
     assistance provided in connection with a property for which a 
     mortgage is to be restructured shall not be any greater than 
     is necessary to provide affordable housing.

     SEC. 112. GAO AUDIT AND REVIEW.

       (a) Initial Audit.--Not later than 18 months after the 
     effective date of interim or final regulations promulgated 
     under this title, the Comptroller General of the United 
     States shall conduct an audit to evaluate a representative 
     sample of all eligible multifamily housing projects and the 
     implementation of all mortgage restructuring and rental 
     assistance sufficiency plans.
       (b) Report.--
       (1) In general.--Not later than 18 months after the audit 
     conducted under subsection (a), the Comptroller General of 
     the United States shall submit to the Congress a report on 
     the status of all eligible multifamily housing projects and 
     the implementation of all mortgage restructuring and rental 
     assistance sufficiency plans.
       (2) Contents.--The report submitted under paragraph (1) 
     shall include--
       (A) a description of the initial audit conducted under 
     subsection (a); and
       (B) recommendations for any legislative action to increase 
     the financial savings to the Federal Government of the 
     restructuring of eligible multifamily housing projects 
     balanced with the continued availability of the maximum 
     number of affordable low-income housing units.

     SEC. 113. REGULATIONS.

       (a) Rulemaking and Implementation.--The Secretary shall 
     issue interim regulations necessary to implement this title 
     not later than the expiration of the 6-month period beginning 
     on the date of enactment of this Act. Not later than 1 year 
     after the date of enactment of this Act, in accordance with 
     the negotiated rulemaking procedures set forth in subchapter 
     III of chapter 5 of title 5, United States Code, the 
     Secretary shall implement final regulations implementing this 
     title.
       (b) Repeal of FHA Multifamily Housing Demonstration 
     Authority.--
       (1) In general.--Beginning upon the expiration of the 6-
     month period beginning on the date of enactment of this Act, 
     the Secretary may not exercise any authority or take any 
     action under section 210 of the Balanced Budget Down Payment 
     Act, II.
       (2) Unused budget authority.--Any unused budget authority 
     under section 210(f) of the Balanced Budget Down Payment Act, 
     II, shall be available for taking actions under the 
     requirements established through regulations issued under 
     subsection (a).

     SEC. 114. TECHNICAL AND CONFORMING AMENDMENTS.

       (a) Calculation of Limit on Project-Based Assistance.--
     Section 8(d) of the United States Housing Act of 1937 (42 
     U.S.C. 1437f(d)) is amended by adding at the end the 
     following new paragraph:
       ``(5) Calculation of limit.--Any contract entered into 
     under section 104 of the Multifamily Assisted Housing Reform 
     and Affordability Act of 1996 shall be excluded in computing 
     the limit on project-based assistance under this 
     subsection.''.
       (b) Partial Payment of Claims on Multifamily Housing 
     Projects.--Section 541 of the National Housing Act (12 U.S.C. 
     1735f-19) is amended--
       (1) in subsection (a), in the subsection heading, by 
     striking ``Authority'' and inserting ``Defaulted Mortgages'';
       (2) by redesignating subsection (b) as subsection (c); and
       (3) by inserting after subsection (a) the following new 
     subsection:
       ``(b) Existing Mortgages.--Notwithstanding any other 
     provision of law, the Secretary, in connection with a 
     mortgage restructuring under section 104 of the Multifamily 
     Assisted Housing Reform and Affordability Act of 1996, may 
     make a one time, nondefault partial payment of the claim 
     under the mortgage insurance contract, which shall include a 
     determination by the Secretary or the participating 
     administrative entity, in accordance with the Multifamily 
     Assisted Housing Reform and Affordability Act of 1996, of the 
     market value of the project and a restructuring of the 
     mortgage, under such terms and conditions as the Secretary 
     may establish.''.

     SEC. 115. TERMINATION OF AUTHORITY.

       (a) In General.--Except as provided in subsection (b), this 
     title is repealed effective October 1, 2001.
       (b) Exception.--The repeal under this section does not 
     apply with respect to projects and programs for which binding 
     commitments have been entered into before October 1, 2001.
                    TITLE II--ENFORCEMENT PROVISIONS

     SEC. 201. IMPLEMENTATION.

       (a) Issuance of Necessary Regulations.--Notwithstanding 
     section 7(o) of the Department of Housing and Urban 
     Development Act or part 10 of title 24, Code of Federal 
     Regulations (as in existence on the date of enactment of this 
     Act), the Secretary shall issue such regulations as the 
     Secretary determines to be necessary to implement this title 
     and the amendments made by this title in accordance with 
     section 552 or 553 of title 5, United States Code, as 
     determined by the Secretary.
       (b) Use of Existing Regulations.--In implementing any 
     provision of this title, the Secretary may, in the discretion 
     of the Secretary, provide for the use of existing regulations 
     to the extent appropriate, without rulemaking.
         Subtitle A--FHA Single Family and Multifamily Housing

     SEC. 211. AUTHORIZATION TO IMMEDIATELY SUSPEND MORTGAGEES.

       Section 202(c)(3)(C) of the National Housing Act (12 U.S.C. 
     1708(c)(3)(C)) is amended by inserting after the first 
     sentence the following new sentence: ``Notwithstanding 
     paragraph (4)(A), a suspension shall be effective upon 
     issuance by the Board if the Board determines that there 
     exists adequate evidence that immediate action is required to 
     protect the financial interests of the Department or the 
     public.''.

     SEC. 212. EXTENSION OF EQUITY SKIMMING TO OTHER SINGLE FAMILY 
                   AND MULTIFAMILY HOUSING PROGRAMS.

       Section 254 of the National Housing Act (12 U.S.C. 1715z-
     19) is amended to read as follows:

     ``SEC. 254. EQUITY SKIMMING PENALTY.

       ``(a) In General.--Whoever, as an owner, agent, or manager, 
     or who is otherwise in custody, control, or possession of a 
     multifamily project or a 1- to 4-family residence that is 
     security for a mortgage note that is described in subsection 
     (b), willfully uses or authorizes the use of any part of the 
     rents, assets, proceeds, income, or other funds derived from 
     property covered by that mortgage note for any purpose other 
     than to meet reasonable and necessary expenses that include 
     expenses approved by the Secretary if such approval is 
     required, in a period during which the mortgage note is in 
     default or the project is in a nonsurplus cash position, as 
     defined by the regulatory agreement covering the property, or 
     the mortgagor has failed to comply with the provisions of 
     such other form of regulatory control imposed by the 
     Secretary, shall be fined not more than $500,000, imprisoned 
     not more than 5 years, or both.
       ``(b) Mortgage Notes Described.--For purposes of subsection 
     (a), a mortgage note is described in this subsection if it--
       ``(1) is insured, acquired, or held by the Secretary 
     pursuant to this Act;
       ``(2) is made pursuant to section 202 of the Housing Act of 
     1959 (including property still subject to section 202 program 
     requirements that existed before the date of enactment of the 
     Cranston-Gonzalez National Affordable Housing Act); or
       ``(3) is insured or held pursuant to section 542 of the 
     Housing and Community Development Act of 1992, but is not 
     reinsured under section 542 of the Housing and Community 
     Development Act of 1992.''.

     SEC. 213. CIVIL MONEY PENALTIES AGAINST MORTGAGEES, LENDERS, 
                   AND OTHER PARTICIPANTS IN FHA PROGRAMS.

       (a) Change to Section Title.--Section 536 of the National 
     Housing Act (12 U.S.C. 1735f-14) is amended by striking the 
     section heading and the section designation and inserting the 
     following:

     ``SEC. 536. CIVIL MONEY PENALTIES AGAINST MORTGAGEES, 
                   LENDERS, AND OTHER PARTICIPANTS IN FHA 
                   PROGRAMS.''.

       (b) Expansion of Persons Eligible for Penalty.--Section 
     536(a) of the National Housing Act (12 U.S.C. 1735f-14(a)) is 
     amended--
       (1) in paragraph (1), by striking the first sentence and 
     inserting the following: ``If a mortgagee approved under the 
     Act, a lender holding a contract of insurance under title I 
     of this Act, or a principal, officer, or employee of such 
     mortgagee or lender, or other person or entity participating 
     in either an insured mortgage or title I loan transaction 
     under this Act or providing assistance to the borrower in 
     connection with any such loan, including sellers of the real 
     estate involved,

[[Page S9601]]

     borrowers, closing agents, title companies, real estate 
     agents, mortgage brokers, appraisers, loan correspondents and 
     dealers, knowingly and materially violates any applicable 
     provision of subsection (b), the Secretary may impose a civil 
     money penalty on the mortgagee or lender, or such other 
     person or entity, in accordance with this section. The 
     penalty under this paragraph shall be in addition to any 
     other available civil remedy or any available criminal 
     penalty, and may be imposed whether or not the Secretary 
     imposes other administrative sanctions.''; and
       (2) in paragraph (2)--
       (A) in the first sentence, by inserting ``or such other 
     person or entity'' after ``lender''; and
       (B) in the second sentence, by striking ``provision'' and 
     inserting ``the provisions''.
       (c) Additional Violations for Mortgagees, Lenders, and 
     Other Participants in FHA Programs.--Section 536(b) of the 
     National Housing Act (12 U.S.C. 1735f-14(b)) is amended--
       (1) by redesignating paragraph (2) as paragraph (3);
       (2) by inserting after paragraph (1) the following new 
     paragraph:
       ``(2) The Secretary may impose a civil money penalty under 
     subsection (a) for any knowing and material violation by a 
     principal, officer, or employee of a mortgagee or lender, or 
     other participants in either an insured mortgage or title I 
     loan transaction under this Act or provision of assistance to 
     the borrower in connection with any such loan, including 
     sellers of the real estate involved, borrowers, closing 
     agents, title companies, real estate agents, mortgage 
     brokers, appraisers, loan correspondents, and dealers for--
       ``(A) submission to the Secretary of information that was 
     false, in connection with any mortgage insured under this 
     Act, or any loan that is covered by a contract of insurance 
     under title I of this Act;
       ``(B) falsely certifying to the Secretary or submitting to 
     the Secretary a false certification by another person or 
     entity; or
       ``(C) failure by a loan correspondent or dealer to submit 
     to the Secretary information which is required by regulations 
     or directives in connection with any loan that is covered by 
     a contract of insurance under title I of this Act.''; and
       (3) in paragraph (3), as redesignated, by striking ``or 
     paragraph (1)(F)'' and inserting ``or (F), or paragraph 
     (2)(A), (B), or (C)''.
       (d) Conforming and Technical Amendments.--Section 536 of 
     the National Housing Act (12 U.S.C. 1735f-14) is amended--
       (1) in subsection (c)(1)(B), by inserting after ``lender'' 
     the following: ``or such other person or entity'';
       (2) in subsection (d)(1)--
       (A) by inserting ``or such other person or entity'' after 
     ``lender''; and
       (B) by striking ``part 25'' and inserting ``parts 24 and 
     25''; and
       (3) in subsection (e), by inserting ``or such other person 
     or entity'' after ``lender'' each place that term appears.
                      Subtitle B--FHA Multifamily

     SEC. 220. CIVIL MONEY PENALTIES AGAINST GENERAL PARTNERS, 
                   OFFICERS, DIRECTORS, AND CERTAIN MANAGING 
                   AGENTS OF MULTIFAMILY PROJECTS.

       (a) Civil Money Penalties Against Multifamily Mortgagors.--
     Section 537 of the National Housing Act (12 U.S.C. 1735f-15) 
     is amended--
       (1) in subsection (b)(1), by striking ``on that mortgagor'' 
     and inserting the following: ``on that mortgagor, on a 
     general partner of a partnership mortgagor, or on any officer 
     or director of a corporate mortgagor'';
       (2) in subsection (c)--
       (A) by striking the subsection heading and inserting the 
     following:
       ``(c) Other Violations.--''; and
       (B) in paragraph (1)--
       (i) by striking ``Violations.--The Secretary may'' and all 
     that follows through the colon and inserting the following:
       ``(A) Liable parties.--The Secretary may also impose a 
     civil money penalty under this section on--
       ``(i) any mortgagor of a property that includes five or 
     more living units and that has a mortgage insured, coinsured, 
     or held pursuant to this Act;
       ``(ii) any general partner of a partnership mortgagor of 
     such property;
       ``(iii) any officer or director of a corporate mortgagor;
       ``(iv) any agent employed to manage the property that has 
     an identity of interest with the mortgagor, with the general 
     partner of a partnership mortgagor, or with any officer or 
     director of a corporate mortgagor of such property; or
       ``(v) any member of a limited liability company that is the 
     mortgagor of such property or is the general partner of a 
     limited partnership mortgagor or is a partner of a general 
     partnership mortgagor.
       ``(B) Violations.--A penalty may be imposed under this 
     section upon any liable party under subparagraph (A) that 
     knowingly and materially takes any of the following 
     actions:'';
       (ii) in subparagraph (B), as designated by clause (i), by 
     redesignating the subparagraph designations (A) through (L) 
     as clauses (i) through (xii), respectively;
       (iii) by adding after clause (xii), as redesignated by 
     clause (ii), the following new clauses:
       ``(xiii) Failure to maintain the premises, accommodations, 
     any living unit in the project, and the grounds and equipment 
     appurtenant thereto in good repair and condition in 
     accordance with regulations and requirements of the 
     Secretary, except that nothing in this clause shall have the 
     effect of altering the provisions of an existing regulatory 
     agreement or federally insured mortgage on the property.
       ``(xiv) Failure, by a mortgagor, a general partner of a 
     partnership mortgagor, or an officer or director of a 
     corporate mortgagor, to provide management for the project 
     that is acceptable to the Secretary pursuant to regulations 
     and requirements of the Secretary.''; and
       (iv) in the last sentence, by deleting ``of such 
     agreement'' and inserting ``of this subsection'';
       (3) in subsection (d)--
       (A) in paragraph (1)(B), by inserting after ``mortgagor'' 
     the following: ``, general partner of a partnership 
     mortgagor, officer or director of a corporate mortgagor, or 
     identity of interest agent employed to manage the property''; 
     and
       (B) by adding at the end the following new paragraph:
       ``(5) Payment of penalty.--No payment of a civil money 
     penalty levied under this section shall be payable out of 
     project income.'';
       (4) in subsection (e)(1), by deleting ``a mortgagor'' and 
     inserting ``an entity or person'';
       (5) in subsection (f), by inserting after ``mortgagor'' 
     each place such term appears the following: ``, general 
     partner of a partnership mortgagor, officer or director of a 
     corporate mortgagor, or identity of interest agent employed 
     to manage the property'';
       (6) by striking the heading of subsection (f) and inserting 
     the following: ``Civil Money Penalties Against Multifamily 
     Mortgagors, General Partners of Partnership Mortgagors, 
     Officers and Directors of Corporate Mortgagors, and Certain 
     Managing Agents''; and
       (7) by adding at the end the following new subsection:
       ``(k) Identity of Interest Managing Agent.--For purposes of 
     this section, the terms `agent employed to manage the 
     property that has an identity of interest' and `identity of 
     interest agent' mean an entity--
       ``(1) that has management responsibility for a project;
       ``(2) in which the ownership entity, including its general 
     partner or partners (if applicable) and its officers or 
     directors (if applicable), has an ownership interest; and
       ``(3) over which the ownership entity exerts effective 
     control.''.
       (b) Implementation.--
       (1) Public comment.--The Secretary shall implement the 
     amendments made by this section by regulation issued after 
     notice and opportunity for public comment. The notice shall 
     seek comments primarily as to the definitions of the terms 
     `ownership interest in' and `effective control', as those 
     terms are used in the definition of the terms `agent employed 
     to manage the property that has an identity of interest' and 
     `identity of interest agent'.
       (2) Timing.--A proposed rule implementing the amendments 
     made by this section shall be published not later than one 
     year after the date of enactment of this Act.
       (c) Applicability of Amendments.--The amendments made by 
     subsection (a) shall apply only with respect to--
       (1) violations that occur on or after the effective date of 
     the final regulations implementing the amendments made by 
     this section; and
       (2) in the case of a continuing violation (as determined by 
     the Secretary of Housing and Urban Development), any portion 
     of a violation that occurs on or after that date.

     SEC. 221. CIVIL MONEY PENALTIES FOR NONCOMPLIANCE WITH 
                   SECTION 8 HAP CONTRACTS.

       (a) Basic Authority.--Title I of the United States Housing 
     Act of 1937 is amended by adding at the end the following new 
     section:

     ``SEC. 27. CIVIL MONEY PENALTIES AGAINST SECTION 8 OWNERS.

       ``(a) In General.--
       ``(1) Effect on other remedies.--The penalties set forth in 
     this section shall be in addition to any other available 
     civil remedy or any available criminal penalty, and may be 
     imposed regardless of whether the Secretary imposes other 
     administrative sanctions.
       ``(2) Failure of secretary.--The Secretary may not impose 
     penalties under this section for a violation, if a material 
     cause of the violation is the failure of the Secretary, an 
     agent of the Secretary, or a public housing agency to comply 
     with an existing agreement.
       ``(b) Violations of Housing Assistance Payment Contracts 
     for Which Penalty May Be Imposed.--
       ``(1) Liable parties.--The Secretary may impose a civil 
     money penalty under this section on--
       ``(A) any owner of a property receiving project-based 
     assistance under section 8;
       ``(B) any general partner of a partnership owner of that 
     property; and
       ``(C) any agent employed to manage the property that has an 
     identity of interest with the owner or the general partner of 
     a partnership owner of the property.
       ``(2) Violations.--A penalty may be imposed under this 
     section for a knowing and material breach of a housing 
     assistance payments contract, including the following--
       ``(A) failure to provide decent, safe, and sanitary housing 
     pursuant to section 8; or
       ``(B) knowing or willful submission of false, fictitious, 
     or fraudulent statements or requests for housing assistance 
     payments to

[[Page S9602]]

     the Secretary or to any department or agency of the United 
     States.
       ``(3) Amount of penalty.--The amount of a penalty imposed 
     for a violation under this subsection, as determined by the 
     Secretary, may not exceed $25,000 per violation.
       ``(c) Agency Procedures.--
       ``(1) Establishment.--The Secretary shall issue regulations 
     establishing standards and procedures governing the 
     imposition of civil money penalties under subsection (b). 
     These standards and procedures--
       ``(A) shall provide for the Secretary or other department 
     official to make the determination to impose the penalty;
       ``(B) shall provide for the imposition of a penalty only 
     after the liable party has received notice and the 
     opportunity for a hearing on the record; and
       ``(C) may provide for review by the Secretary of any 
     determination or order, or interlocutory ruling, arising from 
     a hearing and judicial review, as provided under subsection 
     (d).
       ``(2) Final orders.--
       ``(A) In general.--If a hearing is not requested before the 
     expiration of the 15-day period beginning on the date on 
     which the notice of opportunity for hearing is received, the 
     imposition of a penalty under subsection (b) shall constitute 
     a final and unappealable determination.
       ``(B) Effect of review.--If the Secretary reviews the 
     determination or order, the Secretary may affirm, modify, or 
     reverse that determination or order.
       ``(C) Failure to review.--If the Secretary does not review 
     that determination or order before the expiration of the 90-
     day period beginning on the date on which the determination 
     or order is issued, the determination or order shall be 
     final.
       ``(3) Factors in determining amount of penalty.--In 
     determining the amount of a penalty under subsection (b), the 
     Secretary shall take into consideration--
       ``(A) the gravity of the offense;
       ``(B) any history of prior offenses by the violator 
     (including offenses occurring before the enactment of this 
     section);
       ``(C) the ability of the violator to pay the penalty;
       ``(D) any injury to tenants;
       ``(E) any injury to the public;
       ``(F) any benefits received by the violator as a result of 
     the violation;
       ``(G) deterrence of future violations; and
       ``(H) such other factors as the Secretary may establish by 
     regulation.
       ``(4) Payment of penalty.--No payment of a civil money 
     penalty levied under this section shall be payable out of 
     project income.
       ``(d) Judicial Review of Agency Determination.--Judicial 
     review of determinations made under this section shall be 
     carried out in accordance with section 537(e) of the National 
     Housing Act.
       ``(e) Remedies for Noncompliance.--
       ``(1) Judicial intervention.--
       ``(A) In general.--If a person or entity fails to comply 
     with the determination or order of the Secretary imposing a 
     civil money penalty under subsection (b), after the 
     determination or order is no longer subject to review as 
     provided by subsections (c) and (d), the Secretary may 
     request the Attorney General of the United States to bring an 
     action in an appropriate United States district court to 
     obtain a monetary judgment against that person or entity and 
     such other relief as may be available.
       ``(B) Fees and expenses.--Any monetary judgment awarded in 
     an action brought under this paragraph may, in the discretion 
     of the court, include the attorney's fees and other expenses 
     incurred by the United States in connection with the action.
       ``(2) Nonreviewability of determination or order.--In an 
     action under this subsection, the validity and 
     appropriateness of the determination or order of the 
     Secretary imposing the penalty shall not be subject to 
     review.
       ``(f) Settlement by Secretary.--The Secretary may 
     compromise, modify, or remit any civil money penalty which 
     may be, or has been, imposed under this section.
       ``(g) Deposit of Penalties.--
       ``(1) In general.--Notwithstanding any other provision of 
     law, if the mortgage covering the property receiving 
     assistance under section 8 is insured or formerly insured by 
     the Secretary, the Secretary shall apply all civil money 
     penalties collected under this section to the appropriate 
     insurance fund or funds established under this Act, as 
     determined by the Secretary.
       ``(2) Exception.--Notwithstanding any other provision of 
     law, if the mortgage covering the property receiving 
     assistance under section 8 is neither insured nor formerly 
     insured by the Secretary, the Secretary shall make all civil 
     money penalties collected under this section available for 
     use by the appropriate office within the Department for 
     administrative costs related to enforcement of the 
     requirements of the various programs administered by the 
     Secretary.
       ``(h) Definitions.--For the purposes of this section--
       ``(1) the term `agent employed to manage the property that 
     has an identity of interest' means an entity--
       ``(A) that has management responsibility for a project;
       ``(B) in which the ownership entity, including its general 
     partner or partners (if applicable), has an ownership 
     interest; and
       ``(C) over which such ownership entity exerts effective 
     control; and
       ``(2) the term `knowing' means having actual knowledge of 
     or acting with deliberate ignorance of or reckless disregard 
     for the prohibitions under this section.''.
       (b) Applicability.--The amendments made by subsection (a) 
     shall apply only with respect to--
       (1) violations that occur on or after the effective date of 
     final regulations implementing the amendments made by this 
     section; and
       (2) in the case of a continuing violation (as determined by 
     the Secretary of Housing and Urban Development), any portion 
     of a violation that occurs on or after such date.
       (c) Implementation.--
       (1) Regulations.--
       (A) In general.--The Secretary shall implement the 
     amendments made by this section by regulation issued after 
     notice and opportunity for public comment.
       (B) Comments sought.--The notice under subparagraph (A) 
     shall seek comments as to the definitions of the terms 
     ``ownership interest in'' and ``effective control'', as such 
     terms are used in the definition of the term ``agent employed 
     to manage such property that has an identity of interest''.
       (2) Timing.--A proposed rule implementing the amendments 
     made by this section shall be published not later than one 
     year after the date of enactment of this Act.

     SEC. 222. EXTENSION OF DOUBLE DAMAGES REMEDY.

       Section 421 of the Housing and Community Development Act of 
     1987 (12 U.S.C. 1715z-4a) is amended--
       (1) in subsection (a)(1)--
       (A) in the first sentence, by striking ``Act; or (B)'' and 
     inserting the following: ``Act; (B) a regulatory agreement 
     that applies to a multifamily project whose mortgage is 
     insured or held by the Secretary under section 202 of the 
     Housing Act of 1959 (including property subject to section 
     202 of such Act as it existed before enactment of the 
     Cranston-Gonzalez National Affordable Housing Act of 1990); 
     (C) a regulatory agreement or such other form of regulatory 
     control as may be imposed by the Secretary that applies to 
     mortgages insured or held by the Secretary under section 542 
     of the Housing and Community Development Act of 1992, but not 
     reinsured under section 542 of the Housing and Community 
     Development Act of 1992; or (D)''; and
       (B) in the second sentence, by inserting after 
     ``agreement'' the following: ``, or such other form of 
     regulatory control as may be imposed by the Secretary,'';
       (2) in subsection (a)(2), by inserting after ``Act,'' the 
     following: ``under section 202 of the Housing Act of 1959 
     (including section 202 of such Act as it existed before 
     enactment of the Cranston-Gonzalez National Affordable 
     Housing Act of 1990) and under section 542 of the Housing and 
     Community Development Act of 1992,'';
       (3) in subsection (b), by inserting after ``agreement'' the 
     following: ``, or such other form of regulatory control as 
     may be imposed by the Secretary,'';
       (4) in subsection (c)--
       (A) in the first sentence, by inserting after ``agreement'' 
     the following: ``, or such other form of regulatory control 
     as may be imposed by the Secretary,''; and
       (B) in the second sentence, by inserting before the period 
     the following: ``or under the Housing Act of 1959, as 
     appropriate''; and
       (5) in subsection (d), by inserting after ``agreement'' the 
     following: ``, or such other form of regulatory control as 
     may be imposed by the Secretary,''.

     SEC. 223. OBSTRUCTION OF FEDERAL AUDITS.

       Section 1516(a) of title 18, United States Code, is amended 
     by inserting after ``under a contract or subcontract,'' the 
     following: ``or relating to any property that is security for 
     a mortgage note that is insured, guaranteed, acquired, or 
     held by the Secretary of Housing and Urban Development 
     pursuant to any Act administered by the Secretary,''.
                                                                    ____


 Summary of the Multifamily Assisted Housing Reform and Affordability 
                              Act of 1996

       Restructures the oversubsidized portfolio and reduces 
     Section 8 subsidy costs while maintaining the affordable 
     housing stock. Projects with subsidy contract rents above the 
     fair market rent would be restructured in a manner that would 
     reduce the rents by restructuring the underlying debt. Rents 
     would be ``marked'' to comparable market rents where 
     comparable properties exist or at 90 percent of fair market 
     rents (FMR) if comparable properties do not exist.
       In some cases (such as properties that provide special 
     services to elderly and disabled households or because of the 
     local market rent conditions), even if debt is restructured, 
     setting rents at comparable market rent levels of 90 percent 
     of FMR may be inadequate to cover the costs of operation. In 
     these cases, a budget-based process would be used to set 
     rents at the minimum level necessary to support proper 
     operations and maintenance costs.
       Screens out troubled multifamily properties and 
     noncompliant owners. Nonviable housing projects and bad 
     owners would be screened out from the renewal and debt 
     restructuring process. Community and resident involvement 
     would be used in resolving these problems. Potential outcomes 
     could include demolition or change of ownership to other 
     entities including nonprofits. Alternative housing would be 
     provided to affected residents in cases of demolition. 
     Stronger FHA and Section 8 enforcement authorities would also 
     be provided to address troubled

[[Page S9603]]

     properties and bad owners. In addition, stronger enforcement 
     remedies would be an integral part of all restructuring 
     transactions, to ensure that restructured properties would 
     continue to provide high quality affordable housing.
       Recapitalizes the assisted stock that suffer from deferred 
     maintenance. In some cases, recapitalization is needed to 
     address deferred maintenance for properties under portfolio 
     restructuring. Rehabilitation grants or deeper debt 
     writedowns would be used.
       Utilizes capable public entities to restructure portfolio 
     and recognizes HUD's limited capacity. Portfolio 
     restructuring is being undertaken to reform and improve the 
     programs from a financial and operating perspective, but not 
     to abandon the long-term commitment to resident protection 
     and ongoing affordability. As a result, balancing the fiscal 
     goals of reducing costs with the public policy goals of 
     maintaining affordable housing requires an intermediary 
     accountable to the public interest. With HUD's acknowledged 
     lack of capacity to address these issues, public 
     intermediaries that have demonstrated expertise in affordable 
     housing and responsible management would be selected. State 
     housing finance agencies would be given a priority in acting 
     as Participating Administrative Entities (PAE). Incentives 
     would be negotiated with the PAEs to protect the financial 
     interests of the Federal Government.
       Addresses the tax issues facing debt restructuring. Under 
     current tax law, debt restructuring could result in the 
     triggering of a large income tax liability on the owners/
     investors without generating sufficient cash with which the 
     owners/investors could pay the tax. As a result, a tax 
     solution is needed to avoid resistance and delays from owners 
     and investors. Debt restructuring results in an event that 
     reduces the outstanding mortgage that is owed by the owners 
     and investors. This reduction in the mortgage amount will 
     result in a tax liability--referred to as ``cancellation 
     of indebtedness'' or COD. COD is generally treated as 
     ordinary taxable income under the Internal Revenue Code.
       The bill addresses this problem by bifurcating the existing 
     mortgage into two obligations. The first piece would be 
     determined on the amount the mortgage could be supported by 
     the rental income stream. Payment on the second piece would 
     be deferred until the first mortgage is paid off. According 
     to Treasury officials, this practice would not result in an 
     immediate tax liability to owners and investors.
       Provides for resident and community input into the 
     restructuring process. To ensure that portfolio restructuring 
     does not adversely affect the residents or local communities 
     in which the properties are located, communities, residents, 
     and local government officials would be provided an 
     opportunity to comment on the process.
       Strengthens HUD and FHA enforcement authority. This bill 
     contains important provisions that will minimize the 
     incidence of fraud and abuse of federally assisted programs. 
     Such key provisions include (1) expanding HUD's ability to 
     impose sanctions on lenders, (2) expanding equity skimming 
     prohibitions, and (3) broadening the use of civil money 
     penalties.

  Mr. BOND. Mr. President, I stand in strong support of the Multifamily 
Assisted Housing Reform and Affordability Act of 1996. This bill goes a 
long way toward developing a constructive and comprehensive section 8 
mark-to-market contract renewal program for reducing the costs of 
expiring project-based section 8 contracts, limiting the financial 
exposure of the FHA multifamily housing insurance fund for FHA-insured 
section 8 projects, and preserving, to the maximum extent possible, the 
section 8 project-based housing stock for very-low- and low-income 
families.
  I congratulate Senators D'Amato, Mack, and Bennett for their 
contribution and commitment to this comprehensive legislation, as well 
as their commitment to finding a bipartisan approach to the many 
difficult issues associated with the renewal of over subsidized section 
8 project-based contracts. This legislation is a meaningful step in 
developing a reasonable policy toward the concerns raised by these 
expiring section 8 project-based contracts.
  Over the last 25 years, a number of HUD programs were established for 
the construction of affordable, low-income housing by providing FHA 
mortgage insurance while financing the cost of the housing through 
section 8 project-based housing assistance. Currently, there are some 
8,500 projects with almost 1 million units that are both FHA-insured 
and whose debt service is almost totally dependent on rental assistance 
payments made under section 8 project-based contracts. Most of these 
projects serve very-low-income families, with approximately 37 percent 
of the stock serving elderly families.
  The crisis facing this housing stock is that the section 8 project-
based housing assistance was initially budgeted and appropriated 
through 15- and 20-year section 8 project-based contracts that are now 
expiring and for which contract renewal is prohibitively expensive. For 
example, at least 75 percent of this housing stock have rents that 
exceed the fair market rent of the local area.
  Since current law prohibits HUD from renewing these section 8 
contracts at rents above 100 percent of the fair market rent, with some 
exceptions not to exceed 120 percent, in many cases, the failure to 
renew expiring section 8 project-based contracts at existing rents will 
leave owners without the financial ability to pay the mortgage debt on 
these projects. This means that owners likely will default on their 
FHA-insured mortgage liabilities, resulting in FHA mortgage insurance 
claims and foreclosures. HUD would then own and be responsible for 
managing these low-income multifamily housing projects. This bill is 
intended to avoid this potential crisis through a fiscally responsible 
and housing sensitive strategy.

  In addition, the cost of the section 8 contracts on these projects 
reemphasizes the difficult budget and appropriation issues facing the 
Congress. In particular, according to HUD estimates, the cost of all 
section 8 contract renewals, both tenant-based and project-based, will 
require appropriations of about $4.3 billion in fiscal year 1997, $10 
billion in fiscal year 1998, and over $16 billion in fiscal year 2000. 
In addition, the cost of renewing the section 8 project-based contracts 
will grow from $1.2 billion in fiscal year 1997 to almost $4 billion in 
fiscal year 2000, and to some $8 billion in 10 years.
  Since the HUD appropriations account cannot sustain these exploding 
costs, this legislation is intended to be a comprehensive response 
which will reduce the financial cost and exposure to the Federal 
Government and preserve this valuable housing resource. The Senate bill 
would generally preserve this low-income housing by using various tools 
to restructure these multifamily housing mortgages to the market value 
of the housing with resulting reductions in section 8 costs.
  I also am troubled by some of the other section 8 mark-to-market 
proposals being promoted, including the position taken by HUD which, in 
general, opposes preserving this housing as FHA-insured or as assisted 
through section 8 project-based assistance, including the elderly 
assisted housing, in favor of vouchers. This position is very 
questionable, and I emphasize that it is widely opposed by the housing 
industry and tenant groups and advocates.
  I highlight the underlying principles of the bill which would 
authorize the establishing of participating administrative entities 
[PAE's] which would generally be a public agency, with a first 
preference that a PAE be a State housing finance agency or, second, a 
local housing agency. These entities would be contracted by HUD to 
develop work-out plans in conjunction with owners of FHA-insured 
projects with expiring, oversubsidized section 8 contracts. Each PAE 
would develop mortgage restructuring and rental assistance sufficiency 
plans as workout instruments to reduce the section 8 subsidy needs of 
projects through mortgage restructuring.
  The basic tool provided in the draft bill, and the likely key to any 
successful strategy to preserve this housing, is to authorize the 
restructuring of the mortgage debt on these oversubsidized section 8 
multifamily housing projects. In particular, the bill would allow the 
restructuring of these high cost mortgages with a new first mortgage 
reflecting, generally, the market value of a project, and a soft second 
mortgage held by HUD, with interest at the applicable Federal rate, 
covering the remainder of the original mortgage debt and payable upon 
disposition or upon full payment of the first mortgage. This provision 
will reduce the cost of section 8 assistance and minimize any loss to 
the FHA multifamily insurance fund. In addition, this approach ensures 
that there is no taxable event by virtue of the mortgage restructuring.

  I also think it would be beneficial to look at some kind of exit tax 
relief to encourage owners, especially limited partners, to divest 
their interest in these properties, to encourage new investment in and 
revitalization of these properties. Nevertheless, I am convinced that 
the tax committees are unlikely to take up this issue during this

[[Page S9604]]

Congress and that any discussion on tax relief will have to wait for 
another time.
  Finally, I emphasize that it is time to act now. I am currently 
sponsoring a section 8 mark-to-market demonstration to be included in 
the VA-HUD fiscal year 1997 appropriations bill which is similar to the 
Multifamily Assisted Housing Reform and Affordability Act and which 
represents an interim approach to the section 8 mark-to-market contract 
renewal issue. This appropriation language indicates my strong belief 
that we can no longer afford, as a matter of housing policy and fiscal 
responsibility, to renew expiring section 8 project-based contracts at 
the existing, over-market rents. Nevertheless, I strongly prefer that 
section 8 reform legislation be acted on by the authorizing committees 
before the end of the fiscal year, with the full benefit of hearings 
and discussion on these very difficult policy issues.
  I look forward to working with my colleagues on the legislation and 
hope that the Housing Subcommittee and Banking Committee can act in an 
expeditious manner on this measure. I emphasize the need to work 
together and I look forward to moving this legislation through Congress 
and onto the desk of the President.
  Mr. D'AMATO. Mr. President, I rise today to cosponsor the Multifamily 
Assisted Housing Reform and Affordability Act of 1996. I wish to thank 
my colleagues, Senators Connie Mack and Kit Bond, for their outstanding 
efforts in crafting and advancing this vitally important piece of 
legislation to restructure the Department of Housing and Urban 
Development's [HUD] Federal Housing Administration [FHA] insured and 
section 8 assisted multifamily housing portfolio. Also,I would like to 
thank Senator Bennett for his diligence in confronting the complex 
issues surrounding our federal multifamily housing programs.
  Mr. President, this legislation represents a significant step forward 
in addressing the complicated and vexing problem of the rising costs of 
HUD's section 8 assisted housing program. Over the course of the next 
several years, the costs of renewing expiring section 8 contracts at 
their current rent levels will skyrocket from $4.3 billion in fiscal 
year 1997 to $20 billion in fiscal year 2002--a figure which represents 
the entire existing HUD budget. This is the result of the expiration of 
long-term housing assistance contracts which were entered into 15 to 20 
years ago. In addition, many of these contracts support projects with 
rents that are far higher than local market rents. While these rising 
costs are clearly significant and represent a formidable challenge, the 
expiration of these long-term contracts also presents us with an 
opportunity to address the oversubsidized and often inflated costs of 
the section 8 program.
  During the course of the past year, the Banking Committee has held 
hearings and has conducted an ongoing dialogue with residents, lenders, 
servicers, public officials and leading professionals within the 
housing community to find a consensus solution to the problems 
associated with the section 8 program. This legislation represents the 
culmination of that important effort.
  Mr. President, I would like to emphasize the guiding principles of 
this legislation: To contain the growth of the expanding costs of the 
section 8 program; to protect existing tenants; to maintain the 
existing stock of decent, safe and affordable housing for future needs; 
to remove bad owners and managers; to protect the FHA insurance fund 
and minimize the liability of the Federal taxpayer; and to provide for 
local control and flexibility while reducing HUD's administrative 
burden.
  This legislation seeks to: Reduce inflated contract rents to market-
rate and budget-based rent levels; screen out bad owners, replace 
corrupt managers and encourage transfers to resident-supported 
nonprofit corporations; and provide must needed capital and facilitate 
private financing to address backlogged maintenance needs. 
This comprehensive approach will allow us to reduce the costs of the 
section 8 program while protecting the FHA insurance fund and 
minimizing the liability of the federal taxpayer. The outstanding debt 
on the oversubsidized portfolio would be restructured to reflect market 
rent levels. This debt restructuring would include the continuation of 
project-based subsidies as well as FHA multifamily insurance. This bill 
also addresses the significant tax dilemma which would be caused by 
debt restructuring. In order to avoid adverse tax consequences, a 
bifurcation of the mortgage into two separate obligations is proposed.

  The legislation recognizes the lack of capacity at HUD and seeks to 
maximize local control and flexibility in carrying out debt 
restructuring in order to reduce inflated rents. A preference would be 
provided to State and local housing finance agencies to oversee 
mortgage workouts. These public entities are ideally suited for this 
role and are already accountable to the public interest in their own 
jurisdictions. Also, residents of affected properties would be provided 
with input in a communitywide consultation process, and will be 
provided adequate notice, access to information, and an adequate time 
period for analysis and comment.
  In conclusion, let me reiterate my appreciation for my colleagues who 
made tremendous contributions to the effort to stem this impending 
crisis. As chairman of the Subcommittee on Housing Opportunity and 
Community Development, Senator Mack has charted a reasonable and 
rational course for us to follow. He has utilized a fair and bipartisan 
approach in the development of this legislation, and should be 
commended for his efforts. Also, Senator Bond, chairman of the 
Subcommittee on VA-HUD Appropriations and my fellow colleague on the 
Banking Committee, has been very instrumental in moving the process 
forward. Throughout, he has insisted on our continued federal 
commitment to providing affordable housing and the protection of the 
interests of existing low and moderate income tenants.
  I thank all members of the Banking Committee for their tireless 
efforts on behalf of affordable housing and look forward to pursuing 
our bipartisan commitment to resolving the HUD section 8 crisis as 
expeditiously as possible.
                                 ______