[Congressional Record Volume 147, Number 113 (Tuesday, September 4, 2001)]
[Senate]
[Pages S9065-S9066]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  MARK TO MARKET EXTENSION ACT OF 2001

  Mr. SARBANES. Madam President, on August 1, 2001, the Committee on 
Banking, Housing and Urban Affairs took up the Mark-to-Market Extension 
Act of 2001.
  I introduced the Mark-to-Market Extension Act of 2001 along with 
Senators Reed and Allard, the chair and ranking member of the Housing 
and Transportation Subcommittee. The bill passed the committee by a 21-
0 vote with an amendment offered by Senator Allard. The amendment would 
require the GAO, through a series of reports, to update Congress on the 
performance of the mark-to-market program.
  The bill makes some modest changes in the program, which was 
originally passed in 1997 on a bipartisan basis. The changes 
incorporate almost all of the suggestions made by HUD's Office of 
Multifamily Housing Assistance Restructuring (OHMAR) as well as a 
number provided by other stakeholders at our June 19 hearing, including 
the General Accounting Office (GAO). The GAO's thorough review of the 
program has proven invaluable, and we will look to them to continue to 
work with us to keep things on track.
  As my colleagues know, we passed the original Multifamily Assisted 
Housing Reform and Affordability Act of 1997 (MAHRAA) in order to bring 
down the rising costs of project-based section 8 rental assistance 
contracts. In many markets these section 8 contract rents were higher 
than the real market rent in the neighborhood in which the project was 
located. In order to save money on these contracts, the committee and 
the Congress chose to reset those contract rents at the lower market 
levels.
  However, in many cases, these new, lower rents were inadequate to pay 
the federally insured mortgages. So the committee also created a number 
of tools that allow the mortgages to be restructured proportionately. 
The restructuring process includes a thorough review of the physical 
condition of the building, provides that it be adequately rehabilitated 
and that adequate reserves be built in as part of the building's new 
underwriting. This is important because, as part of the deal, the owner 
makes a long-term commitment to continue to serve low income families.
  After getting off to a slow start, the GAO and most other 
stakeholders agree that the program has finally gotten moving, and a 
much larger number

[[Page S9066]]

of deals are being restructured. HUD reports that the program has saved 
the federal government about $500 million on a present value basis to 
date.
  The legislation we have before us includes a series of purposes 
designed to reiterate Congress' emphasis on adequate rehabilitation and 
reserves in order to meet ongoing affordability commitments. Similarly, 
we want to make sure that expenses are properly calculated, so that 
rents and mortgages can be set correctly. This is included in the bill 
because of concerns raised by a number of stakeholders, including both 
residents and owners, that these important goals have been 
shortchanged. We chose not to burden the program with an overly 
prescriptive set of directives regarding these matters. Nonetheless, we 
expect HUD and the Office to bear these purposes very much in mind as 
they administer the program.
  The bill reauthorizes grants to tenant and non-profit groups to help 
residents participate in the Mark-to-Market process. It calls for 
independent rent calculations to determine whether a property should go 
through the restructuring process, a simple rent reduction, or a 
straightforward contract renewal. This independent assessment will be 
used to set rents for vouchers, should the owner choose to opt out of 
the program. Owners will continue to have the right to appeal the rent 
set by the independent review. The bill also expands the flexibility of 
the Department to approve market rent exceptions where necessary.
  The bill gives the Secretary flexibility to reduce the 25 percent 
owner rehabilitation contribution for the cost of significant additions 
to a project that are required by HUD. This was done in response to a 
reasonable equity argument made by the owners.
  Finally, in consultation with HUD and a number of owners, we include 
changes that will expedite refinancing of the old mortgages and 
lengthen the term of the new first mortgages. We also make adjustments 
that will allow the size of the second mortgages to be larger, thereby 
reducing the potential for cancellation of indebtedness income rulings 
by the IRS with their attendant tax penalties. Taken together, these 
changes will allow the underwriting to provide for more rehabilitation, 
reduce the amount of claims taken against the FHA fund, and increase 
the collection of the second mortgages, thereby saving the taxpayer 
additional funds on top of the rent savings.
  We take HUD's suggestion and put the Director of OMHAR under the 
authority of the FHA Commissioner, as did the House Financial Services 
Committee. We keep the provision in current law that establishes higher 
compensation for OMHAR employees because we want to retain the highly 
skilled staff. A significant part of the reason we are moving this 
legislation so expeditiously is that we want to signal that staff that 
it is our intention to keep them on board and on the job.
  The legislation extends the life of both the program and the Office 
for 5 years. I understand that HUD requested a 3 year extension only. 
However, data from the GAO indicates that there will still be a 
significant, if declining, stream of expiring contracts after the third 
year of the reauthorization. Frankly, I see no reason to revisit this 
issue a third time. I would strongly prefer to make sure this is the 
last time we have to act on this issue. Of course, as we move forward, 
I would expect to continue to discuss these and other matters, both 
with the administration and with the House.
  In closing, this legislation has broad bipartisan support. My 
colleagues and I tried to be responsive to the administration and other 
stakeholders, while ensuring that we maintain a highly skilled staff at 
the Department. I am hopeful that we can move this legislation quickly 
through the process.

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