[Congressional Record (Bound Edition), Volume 147 (2001), Part 11]
[Senate]
[Pages 15347-15348]
[From the U.S. Government Publishing Office, www.gpo.gov]




                    MARK TO MARKET EXTENSION OF 2001

  Mr. SARBANES. Madam President, today the Committee on Banking Housing 
and Urban Affairs took up ``The Mark-to-Market Extension Act of 2001,'' 
which I have introduced with Senators Reed and Allard, the Chair and 
Ranking Members 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

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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 thoroughly 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 longterm 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 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 
design 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 
expected 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 calculation 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. 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 Commission, 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 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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