SPEAKERS CONTENTS INSERTS Tables
Page 1 TOP OF DOCDEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND INDEPENDENT AGENCIES APPROPRIATIONS FOR 1999
Wednesday, March 25, 1998.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
HON. ANDREW CUOMO, SECRETARY
SAUL RAMIREZ, ACTING DEPUTY SECRETARY
JON COWAN, CHIEF OF STAFF
JACQUIE LAWING, DEPUTY CHIEF OF STAFF FOR POLICY AND PROGRAMS
HAL DECELL, ASSISTANT SECRETARY FOR CONGRESSIONAL AND INTERGOVERNMENTAL RELATIONS
GAIL LASTER, GENERAL COUNSEL
ROD SOLOMON, SENIOR DIRECTOR FOR POLICY, PROGRAMS AND LEGISLATIVE INITIATIVES, OFFICE OF PUBLIC AND INDIAN HOUSING
JACKIE JOHNSON, DEPUTY ASSISTANT SECRETARY, OFFICE OF NATIVE AMERICAN PROGRAMS
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KEVIN CHAVERS, PRESIDENT, GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
WILLIAM P. APGAR, ASSISTANT SECRETARY-DESIGNATE, POLICY DEVELOPMENT AND RESEARCH
PAUL LEONARD, DEPUTY ASSISTANT SECRETARY FOR POLICY DEVELOPMENT
EVA PLAZA, ASSISTANT SECRETARY FOR FAIR HOUSING AND EQUAL OPPORTUNITY
MARK KINSEY, ACTING DIRECTOR, OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT
DAVID JACOBS, DIRECTOR, OFFICE OF LEAD HAZARD CONTROL
SUSAN GAFFNEY, INSPECTOR GENERAL
RICH KEEVEY, CHIEF FINANCIAL OFFICER
DAVID GIBBONS, DEPARTMENTAL BUDGET OFFICER
WILLIE GILMORE, DEPUTY ASSISTANT SECRETARY FOR RESOURCE MANAGEMENT AND OPERATIONS
CHAIRMAN'S OPENING REMARKS
Mr. LEWIS. The hearing will come to order.
Page 3 PREV PAGE TOP OF DOC Mr. Secretary, let us at the beginning, while we express our appreciation for your being with us, there was a conference that involved a few minor little things called offsets this morning and that has delayed a number of us. It wasn't that Mr. Stokes and I were conspiring against you when we walked in together.
Secretary CUOMO. I never imagined such, Mr. Chairman.
Mr. STOKES. I'm not going to tell if you don't.
Mr. LEWIS. You got it.
Mr. Secretary, first, thank you very much for being with us this morning. These are very difficult times for all of us, and particularly as we look at our efforts to think through where we have been with the Department of Housing and Urban Development and where we should be going. I think we have many levels of exchange as well as questions to ask each other, and this is the beginning point of that for this year, in a formal way, at any rate.
So starting out, HUD has proposed a budget which envisions significant increases in almost every program. The request of $25 billion is contingent upon a number of savings offsets which add up to about $4.6 billion. Many of those offsets require legislation that could be rather controversial.
In addition to that, the request proposes a decrease for the elderly and disabled. This is not unusual. I have yet to see a President who did not propose reductions in programs they obviously know the Congress will increase, so that they could put money in other accounts where they anticipate possible decreases. But, nonetheless, it is a piece of the dance that we are about here.
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It is important that we, as early as possible, start dealing with the real figures. And so in reality the HUD request is closer to $30 billion, which would reflect a $6 billion increase over 1998. No doubt we will be discussing these increases not just in the course of the hearing but, as I have indicated, at other levels of communication as well.
In addition to all this, HUD is undergoing a huge reorganization of its staff and its offices. As you know, Mr. Secretary, in 1995, about the time I was surprised to have this job, Congress was about challenging HUD to reevaluate the way it conducts its business or perhaps to face dissolution.
There were a number of people around this town who for a number of years suggested that perhaps the people we purport to serve out there in the communities might be better off if we didn't have a HUD, setting aside the question of how much of that money we spend on that bureaucracy itself. Major programmatic reforms were enacted through the appropriations process, paving the way for programs to become more flexible and more efficient. We have worked together in connection with many of those things.
As a consequence, you proposed and are now implementing a major reorganization of HUD's huge Federal bureaucracy. Let me say that I feel very strongly about the need for that redirection and reorganization, and I also feel very positively about the Secretary in terms of his commitment to that effort.
These issues have nothing to do with what is the dance on our floor when you are talking about real services for real people who have real needs. And so I am very appreciative of that level of work.
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HUD's mission is to provide as many affordable housing opportunities to people as possible, and to assist communities in creating strong and stable economic bases. These missions can be met only if the Department is administratively and programmatically more efficient.
Your attempt to reorganize HUD, as I have said, is certainly taking us down a pathway that is a new direction. Reorganizations are not easy. They are not simple but not easy, either. They are unsettling for people who work at HUD and for the beneficiaries of HUD's programs.
But, similarly, reorganizing programs and personnel can lead to very positive outcomes, especially when all stakeholders buy into the thought that that change is important. And for HUD, positive outcomes are imperative.
The programs must become more performance-driven rather than process-driven. Grants must be leveraged with more outside funds. Red tape must make way for flexible programs that require accountability, and outdated and ineffective financial systems must be replaced with systems that allow the taxpayer to know where and how their money is being spent.
When these steps are taken, the people who should benefit from HUD's programs will benefit from those programs. A successful reorganization will also lead to increased credibility for HUD to press forward with new policy agendas.
In this regard I am pleased HUD followed the recommendations of this subcommittee to explore the application of advanced building technologies to the construction and rehabilitation of homes. As the country's leading housing agency, HUD should lead the effort to utilize new and advanced technologies in the construction trades.
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During today and tomorrow this subcommittee will consider these topics and a host of others, from the FHA loan limitation debate and the mission of the FHA single-family program, to Section 8 rental programs, its renewal needs and its excesses. Section 8, to say the least, provides a challenge for all of us.
I wanted to mention in a formal way, Mr. Secretary, that there probably has not been a Member of the House who has spent more energy in his career attempting to impact housing programs, and made a commitment to especially home ownership opportunity for the poorest of the poor, than my colleague Louis Stokes. As you know, Congressman Stokes has chosen not to seek reelection, but I wouldn't want his commitment in this subject area to go unnoticed in a formal way.
So with that, Mr. Secretary, it is my privilege to call upon Louis Stokes.
OPENING REMARKS FROM MR. STOKES
Mr. STOKES. Thank you very much, Mr. Chairman, and I very much appreciate your very kind and warm remarks.
Mr. Secretary, I certainly want to join the Chairman in welcoming you before our subcommittee for your second year in a row. Before I make my formal statement, I want to take just a moment to thank you once again for your recent visit to Cleveland, Ohio. It was time we were given a full Empowerment Zone grant from the Department. You and Vice President Al Gore made a great hit in our city, and I want you to know that the citizens of my congressional district are deeply appreciative of the consideration that has been given our city in that respect.
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Secretary CUOMO. Thank you, Congressman. The pleasure was mine.
Mr. STOKES. Mr. Secretary, you are to be commended for the budget you have put forth for fiscal year 1999. While I do not agree with everything in that budget, I do agree with a great many things that it does contain.
The 1999 HUD budget tries to address some of the most serious problems facing urban America, problems such as the urgent need for more affordable housing, the lagging economic growth in many of our central cities, the need to increase home ownership among minorities and women and inner city residents, and the continuing problem of housing discrimination. The steps you propose are modest ones, especially relative to the need, but they do seem to be steps in the right direction and worthy of this subcommittee's serious consideration.
I also think that you are to be commended for your emphasis on improving management at HUD and combatting fraud and abuse in HUD programs. I look forward to hearing more about the status of those efforts and whether they are beginning to show positive results.
Needless to say, this subcommittee will once again be operating under some fairly tight fiscal constraints, but I do hope we will be able to give support to at least some of the initiatives that are being proposed in your new HUD budget. I look forward to your testimony this morning and the opportunity to be able to pose some questions to you relative to various parts of your budget. Again, I welcome you.
Page 8 PREV PAGE TOP OF DOC Secretary CUOMO. Thank you.
Mr. STOKES. Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Stokes.
Mr. Secretary, we are used to having, especially in this room, people come armed with all kinds of support sitting around them at the table. I have noted your pattern in the past and am appreciative of that. I do see an army out in the audience. Just would you all presume that you have been introduced, and in the meantime, Mr. Secretary, your entire statement will be included in the record, and you can proceed as you wish.
SECRETARY CUOMO'S OPENING REMARKS
Secretary CUOMO. Thank you very much. Thank you very much, Mr. Chairman, for the kind remarks, and let me second much of the sentiment in your opening statement. I think your perspective on the Department is exactly right. I would also like to thank the Ranking Member for his good assistance and leadership this past year. He is going to be a tremendous loss to the committee, as the Chairman pointed out, and he is going to be a loss to the Department. His stewardship and friendship has been a valuable asset for all of us at the Department, and I would like to thank him for that.
Mr. STOKES. Thank you very much.
Secretary CUOMO. Mr. Chairman, I would also like to thank the Committee staff who has been excellent to work with over this past year. The progress the Department has made has been due to the good work of this Committee. Any legislative advancements we have made have been done by this Committee, and I can't thank you enough for that.
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As you pointed out, we have the full team here from HUD. We want to make sure that we can answer any questions that you might have, and then some, so we have a very full representation from the Department. I won't go through the whole list, but suffice it to say I am sure during the course of today and tomorrow, you will have a chance to meet most of the senior officials, and I am looking forward to that.
We have a quick presentation that we thought would be helpful to give an overview, a context for where we are with the Department, Mr. Chairman, before we get on with specific questions.
PROGRESS OF HUD REFORMS
In 1997, the mandate was clear, as you pointed out: Fix the Department of Housing and Urban Development. We heard you when you spoke about the management and the deficiencies therein. We heard you specifically, Mr. Chairman, when you said, and I quote, ''It seems to me that HUD is at a crossroads. Either it can continue down the same path, or it can change directions and recreate itself into an effective agency.'' We chose the path that said ''effective agency.''
We had a two-step process, if you will, to simplify our overall strategic goals. Step one was to clean HUD's own house. Before we can go out and build homes, provide homes for other Americans, we had to clean our own house, get our management house in order. Step two was then getting back into the mission of the Department, getting back into the housing business.
Page 10 PREV PAGE TOP OF DOC On step one, we have done an extraordinary amount of work, I think any objective source would say, on the management. The Department today is smaller and better than it was this time last year. The work force is down to about 9,000. We have a phased downsizing plan that can get us to 7,500 or thereabouts in the year 2002. We would need legislative changes to consolidate programs to do that. But we have a HUD today at about 9,000 people that is better and stronger than it has ever been, and a plan to get us to the 7,500.
We have done a tremendous amount on waste, fraud and abuse. We announced about a year ago, Mr. Chairman, what we called the zero tolerance for waste, fraud and abuse campaign. We did that with the Attorney General, and we brought in the FBI under Director Freeh, and set up a special unit. There has been a 325 percent increase in debarments. Debarments are when we find a bad landlord, we have a bad relationship, we are not getting the product that we contracted for. Again, there has been a 325 percent increase in debarments.
And people will tell you that there is a new culture about the Department and a new feeling in the industry, where landlords and owners know that we are going to enforce these contracts. And we believe that they are living up to the contracts in expectation of that enforcement at a higher rate than ever before.
We are about to commence the first national evaluation of our portfolio. We own public housing projects. We have single family, multifamily projects. We have never had before a national inspection and evaluation system. We now will have a system where we will physically inspect all the properties, financially inspect all the properties, and be able to rate our portfolio, rank our portfolio for the first time ever.
Page 11 PREV PAGE TOP OF DOC We are also getting our financial house in order. We had 89 separate financial management systems, which would have been bad enough except the 89 systems didn't talk to each other, so we couldn't come up with a consolidated balance sheet. We are working through the integration of those systems.
We have a new focus on the Department where we say we have two jobs. One is to maintain and restore the public trust, make sure we administer the tax dollar well, and the second is to facilitate community-based redevelopment plans. And we have a new talent, a new expertise we call community builders to do that facilitation, to do that intervention with the community.
And we have had a technology revolution at the Department, using the Internet, using new forms of technology to interface with the customer, kiosks, Internet transmissions so we can inform the customer, the neighborhood resident, of what we are doing without them having to come down to the Department. You have before you some of the samples of the software. In the mapping software, where we have mapped all of the HUD projects across the country in a database, you can see exactly where the taxpayer dollars are going.
That was all step one. That was cleaning up HUD.
BOOZ ALLEN REPORT
The question then became, about January, how do we get a good assessment of where we actually are in this management reform and the management transition? And we had a number of reports out there, some at odds, variance, to be sure. GAO had an opinion, the IG had an opinion, the Department had an opinion. And at that time, we talked about getting an independent, objective, credible evaluation of where we were with the management, the staffing, et cetera.
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I said to this Committee in January that we would go out and contract with Booz Allen, have Booz Allen come in, review everything we were doing, and report back. The report we are proud to issue today, Mr. Chairman, first, we are pleased to have gotten it done because we spoke to the Committee about it, and we are pleased to have gotten it done on a timely basis. We are also pleased with the results of the Booz Allen report, which was very favorable to the status of the reorganization.
The summary quote, if you would, and I quote on page 11 of the report, ''HUD appears to have an excellent vision for the new HUD, and in early 1998 appears to have made significant progress towards achieving the many management reforms that are critical to making the Department function effectively.''
The report goes through the entire reorganization. It talks about the establishment of the enforcement and assessment centers which are at the hub of our evaluation system.
Mr. LEWIS. Mr. Secretary, if I could just interrupt you at that point.
Secretary CUOMO. Yes.
Mr. LEWIS. The report has just come inat least to our office, so we haven't had a chance to really look at it in depth. To say the least, there will be some review between today and tomorrow, but frankly I don't want us to have a 24-hour review that says to us, ''Let's find out where we can criticize or they criticize so we can dwell on that.'' I am not sure that would be constructive. So we may want to find other mechanisms for us, in smaller committee form or whatever, to sit down and discuss that report with you.
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Secretary CUOMO. It would be our pleasure, Mr. Chairman. But you will see, when we do go through the report, it is very comprehensive. It talks about the new centralized functions; the restructuring of the management processes; the retraining of staff which we have made a priority, getting the skills among our work force; development of information and management systems; and the design and establishment of the new internal controls.
The report also speaks about the staffing plan, which is what we had discussed back in January. We were talking about possible locations and there was a discussion of where those locations should be. They basically say that by the current plan, anticipating again the legislative changes that we have discussed, we would have approximately 7,700 employees in the year 2002. We estimated about 7,500 in the year 2002, but there is going to be a lot of changes between now and then.
1999 BUDGET THEMES
That was all step one. Your priority, our priority, making the Department work. And I think the Committee's salutation last year was exactly right: Fix HUD, and then we will talk about doing more and good things that need to be done in the community. We believe, given the progress we have made the first year, we can now start that dialogue about getting back into the business of HUD and getting back into the business of the communities.
There are two themes in this 1999 Budget, which as the Chairman pointed out, is an aggressive budget and a comprehensively aggressive budget.
Page 14 PREV PAGE TOP OF DOC First is housing and homeownership. We want to get back into the housing business. We are essentially out of the housing business as a Nation. We have a chart that is going to point that out, but we are the Department of Housing, one caveat: We don't produce any housing.
The second point is, that runs through the Budget, putting the ''UD'' back in HUD, the urban development. At one time, HUD as very active in economic development. The old UDAG program did phenomenal things in cities and distressed communities all across the country. HUD has lost that capacity over the years, and we think we need it now more than ever, even with this strong economy, making sure we are getting jobs back in cities.
On the first point, Mr. Chairman, on the economic development side, the economy is going very, very well with 15 million new jobs. But if you look at where those jobs are being created, only 13 percent of those jobs are being created in central cities. The overwhelming majority of the jobs are being created in suburban and rural America.
That situation is compounded when you look at the challenges of welfare reform. We have tens of thousands of people coming off welfare in the next few years. Most of those people are in central cities. The question is, where are the jobs going to be for people coming off welfare? Welfare reform was not about kicking people off assistance. It was helping people to independence.
There was a story in the Washington Post and in the New York Times yesterday, that took me aback, that said some of the numbers are starting to say we are not getting people into jobs coming off welfare. Recipients are reaching the sanction, they are reaching the time limit, and they are being kicked off but they are not being put into jobs. When you look at the job disparity between city and suburbs, we are saying we have to start to work with cities to create those jobs back in cities.
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The City of Philadelphia, for example, which has done extraordinary work over these past few years with Mayor Ed Rendell, in the strongest economy in history, the City of Philadelphia still lost 600 jobs over the past 2 years. The City of Philadelphia needs 50,000 jobs for people coming off welfare. It is hard for one to imagine how these numbers are going to add up. Detroit is in the same case. St. Louis is in the same case as well as other cities all across the Nation. That is why we want to get back into the economic development business, Mr. Chairman.
On the housing side the story is even more stark. If you look at what we have done as a Nation, we have produced hundreds of thousands of units every year of affordable housing. In 1978, 300,000 units; 200,000 units; going back as far as they kept numbers, we always produced more units than we lost with the Section 8 program, public housing program, et cetera.
Every year in history, recession, strong economy, forget the politics, Democrat, Republican, as a President and as a Congress, every year we produced more housing until 1996. In 1996, for the first year since they kept numbers, production went to a net negative, and we now actually lose more units of affordable housing every year than we produce. That is going to be our legacy as a housing department. That was in 1996, 1997, 1998.
Maybe you could argue, well, the economy was going so well you didn't have to produce units because the private sector was doing it, and there would be no need for Government to do it if the private sector was. Actually, the reverse is true. The need for affordable housing, as documented by what is called the ''worst case housing needs,'' is 5.3 million families, the highest need since they have been keeping numbers.
Page 16 PREV PAGE TOP OF DOC So the two facts that are coincident, number one, production is at its lowest, and number two, the need is at its highest. That in a nutshell is the story of housing in this Nation, and the story that we want to change in this 1999 Budget.
Homeownershipwe have done extraordinary things in the area of homeownership as a Nation. The homeownership rate is at its highest in history, 66 percent, but still, Mr. Chairman, we have a significant gap in homeownership between cities and suburbs and among different racial groups.
In the suburbs, the homeownership rate is 73 percent; in cities, it is 49 percent. Homeownership among whites is 71 percent; homeownership among households headed by women is 51 percent; households among African Americans is 43 percent; Hispanics, 41 percent. We also have to do something to address those disparities, and that is where the FHA comes in and comes in in a big way.
1999 BUDGET HIGHLIGHTS
To recap the highlights of our budget, on the housing and homeownership side we want to increase the homeless assistance $327 million. The homeless programs are working, Mr. Chairman. Any community across the country will tell you that. We have a new approach, continuum of care. It is about devolution, it is about turning back to the communities. We want to invest in those programs that are working.
For the public housing program we are now at 100 percent of operating expenses in our Budget for the first time in many years. Normally we have given public housing a fraction of what they need to operate. This year we are at the full operating subsidies level.
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We have a proposal to increase the HOME program and create a HOME bank which would allow a local government to leverage up to five times its annual HOME amount. It would get a big boost in money for affordable housing without actually costing us any more money, by allowing the local government to borrow against its future home funds.
We would like to raise the FHA loan limits, as the Committee knows. We think that would be the most dramatic way to help homeownership among cities and minorities and it actually makes the taxpayer money. Our FHA loan limit increase proposal, increases the FHA loan limits, gets more people homes and makes the taxpayer money, so it is a win-win situation in our opinion.
We also seek to increase the fair housing budget. There is still discrimination which is very much alive and well in the housing industry. There is a report in the newspaper today that documents it again in this area. The discrimination has now been institutionalized, and we want to be very aggressive, pursuant to the President's ''one America'' initiative, in rooting it out.
On the urban development side, the economic development side, Mr. Chairman, we are proposing $400 million for the Community Empowerment Fund, which is basically an extension of our EDI program, Economic Development Initiative. That is a program, Mr. Chairman, that helps mayors create jobs, and that is what every mayor wants, especially in light of welfare reform, especially in the way the normal economy is moving and the disparity in urban job creation.
Page 18 PREV PAGE TOP OF DOC We are asking for 50,000 welfare-to-work vouchers. Understanding that we are not going to be able to create all the jobs we need in cities, let's start thinking about mobility strategies where we can take the family on welfare and move them closer to the job. That is what we would do with the welfare-to-work vouchers.
We are proposing an increase of the CDBG program, which is a well-proven institutional strength of the Department.
The budget proposes to double the amount of money for Brownfields from $25 million to $50 million. Last year, the number one priority of the United States Conference of Mayors was to fight brownfields. What is happening in a lot of the cities is you can't redevelop the land because there is a toxic stain, and we need funds to clean it up so we can actually get those new businesses in, and that is the Brownfields initiative. We would double it from $25 million to $50 million, which is still, Mr. Chairman, a drop in the bucket on need. This need would be in the hundreds of millions of dollars.
And for regionalism, we propose $100 million. If there is an overall context that these initiatives are going to have to take place in, it is a regional context. We have been talking about it for years. It is truer now than ever before, but we have never done anything about it. We have never actually made it happen. We have to get the cities and the counties working together. We have to get the metropolitan areas working together.
And we want to start a program in HUD through a set-aside of CDBG, $100 million, where we make awards to those local governments that are working cooperatively. If we have the City of Cleveland and they are doing cooperative planning with the Cuyahoga County and they have a metropolitan plan, let's reward those types of partnerships and relationships. We have to get past those boundaries between cities and counties. We want to do that affirmatively.
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That is our Budget, Mr. Chairman. Two final comments, if I might, on recent developments that the Chairman referred to.
OPPOSITION OF SECTION 8 OFFSET
First on the House action of yesterday, the $1.9 billion, I would like to quote from a letter that Frank Raines has sent to Chairman Bob Livingston, with the Committee's permission:
''The Administration would vigorously oppose an amendment that requires offsets for this emergency legislation. Supporting our troops in the field and providing assistance to victims of natural disasters at home both clearly fall in the category of needs that ought to be met through emergency legislation. Therefore, they clearly deserve to be funded quickly, fully, and without additional offsets.
''Any legislation requiring additional offsets could force unacceptable reductions in important domestic programs. In addition, any amendment that would finance defense requirements with reductions in domestic programs would be a breach of the firewalls, and that would violate both the letter and the spirit of last year's bipartisan agreement.''
Mr. Chairman, when the letter speaks to sacrifice of important domestic programs, the $1.9 billion which has been taken from the Section 8 program, if that is not replaced, 210,000 families could lose Section 8 assistance210,000 families. And these families, Mr. Chairman, as you know well, if they lost that Section 8 assistance, they could literally be homeless.
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So the Administration is fully supportive of the goals of the supplemental, but feels equally strongly that we did not require an offset, the law does not require an offset, and to jeopardize the well-being of 210,000 families as a financial measure we disagree with strongly.
REDUCTION IN SECTION 202 FUNDING
The second point that the Chairman raised which is very well taken, the glaring difference in the HUD Budget between the preliminary impression of this Committee and the Budget we submitted is that our Budget reduced the amount for the senior housing, the 202 program, Mr. Chairman. If there is one difference between us in our approach, that is it, the best I can determine, and I look forward to the discussion of the other differences. But if I had to pick out at this point a glaring difference, I would say it is the 202 program.
The 202 program, interestingly, could be funded by funds that have been identified in a GAO report which has been submitted to the committee this day, where GAO says they have looked at our books and our accounting. As the Chairman knows, we are doing significant management work and reform work and financial work, and as we do more financial work, we are tightening up our books and we are actually freeing up more money.
GAO comes in and says they believe that there is $691 million from what is called the Mod Rehab program that they believe could be available for this year, and that would be in addition to what we have discussed thus far. Mr. Chairman, that $691 million could go to restore the 202 program and then some. So the glaring difference, the 202, might at the end of the day not be that big a difference between the committee's point of view and the HUD budget submitted.
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I also understand, Mr. Chairman, the overall context and the challenge of the $1.9 billion, as well as the overall allocation. But just within the HUD budget sphere, if you will, given what we now know from GAO, we would be able to make that Budget whole. I think that is, while there is a lot between today and final passage, I think it gets us off on a very good footing.
I want to thank the Committee for the time to make that presentation. I want to thank you again for all the great work we have done together over this past year. I look forward to a good discussion on the Budget this year and an even better upcoming year.
Thank you, Mr. Chairman.
[The information follows:]
"The Official Committee record contains additional material here."
USE OF SECTION 8 RESERVES FOR OFFSETS
Mr. LEWIS. Thank you very much, Mr. Secretary.
I appreciate the number of members who are in attendance at this point. It is an indication of the importance the Committee holds the work of the Department.
I was afraid for a moment there that you weren't going to mention the developments of yesterday in your formal statement. On the other hand, I was sure you wouldn't really disappoint me.
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Let me say I want to move quickly from my point of view in terms of time to home ownership and FHA. Before going to that, let me say that the use of excess reserves under Section 8 as an offset is an item that I discussed in public as well as private meeting yesterday, and have some concern about as well.
I am assured that for the remainder of the 1998 fiscal year, that there are reserves that will allow us to go forward with the programming needs as it relates to Section 8. There is not any question that there is a problem that looms further beyond that point.
Of course that is not a new thing to you and I, for it was this committee that began as much as three years ago screaming about the need to pay attention to Section 8. But when you have a convenient pool of money that doesn't appear to be absolutely required at this moment, and you are in the business of having a new experience with offsets, offsets essentially saying that if we are going to commit to spending increases in X or Y category, we are going to say to everybody, where are the monies going to come from, whether it is from the taxpayer or whether it is from other spending reductions or what.
Offsets are the new order, and perhaps not a bad order in the sense that we really do need, as you were talking about cleaning up HUD, we are talking about maybe cleaning up first Congress and then the Federal Government in terms of what we do with people's dollars. So it is a beginning point of a very, very serious reexamination of the way we have been doing business across the government, not just in HUD.
There is no doubt that we have a challenge and a problem with Section 8 that is a huge challenge. We began the fix last year. I personally have a commitment from the leadership at the highest level through the appropriations process that those funds will be available. But the challenge to the rest of Congress to provide other sources of offset, if you will, is going to be a very interesting and serious test indeed.
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INCREASING FHA LOAN LIMIT
Moving from there, however, the justifications submitted by HUD stated a goal of increasing the proportion of units in multifamily rental projects insured by FHA that are affordable to households with incomes below 60 percent of area median income. How? Will this require additional subsidies for financing? If so, where will those subsidies be found?
Secretary CUOMO. Mr. Chairman, if the Committee allows, I would like to ask Richard Keevey to join us at this time. He is the Chief Financial Officer for the Department.
Mr. LEWIS. Mr. Keevey.
A minor little question, Mr. Keevey, how?
Mr. KEEVEY. Good question, Mr. Chairman, could you repeat it, please?
Mr. LEWIS. Yes, I would be happy to. The justification indicates that we want to increase the rental projects insured by FHA for those lower income people. How will we increase and will this require additional subsidies for financing and, if so, where will these subsidies come from?
Mr. KEEVEY. The performance indicator you are referring to deals with increasing the proportion of families living in FHA-insured projects whose income are below 60 percent of area media. As such, the subsidy rate of $81 million requested encompasses the need to increase these rental units.
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Mr. LEWIS. And the $81 million credit subsidy will provide for the expansion that you are talking about?
Mr. KEEVEY. Yes, sir.
Mr. LEWIS. HUD requested an increase in the FHA loan limits to the Fannie Mae and Freddie conforming loan limit. Effectively this request means that FHA single family loan limit will be raised from $170,362 in high cost areas and $86,317 in low cost areas to one nationwide limit of $227,150.
The Administration estimates the proposal will generate approximately $212 million in savings offsets. Concerns have been expressed that increasing the loan limits will give FHA an unfair advantage of the market place and will enable it to compete inappropriately with the private sector. Will increasing the loan limits result in less business for mortgage insurance companies?
Secretary CUOMO. No, it will not, Mr. Chairman. What it will do is it will allow more people to qualify for home ownership. The way FHA works in many ways defies the charge that it could possibly compete with the private sector. If you believe in the market place then let the market place work. FHA charges a higher premium for its mortgage insurance than any private company. If you believe in the market place then why would any one go to FHA and pay a higher premium if they could get a private mortgage?
They would not. That is the concept of the market place and that is why I do not see how the private sector companies can argue that there is a competition because it defies the basic point of the market place.
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What it will do, however, is it will allow people who would not qualify otherwise to get an FHA mortgage and then buy a home. The support for this proposal, Mr. Chairman, is from the groups who would only support a proposal which generated additional home buying, the home builders support the proposal. Why? Because they will build more homes. The mortgage brokers. Why? Because they will make more mortgages.
So, we are trying to increase the net number of people who will be eligible for homeownership and who will buy homes. That is good for the economy, that is good for neighborhoods, that is good for the families who own the homes and it is good for the taxpayers. This is a proposal that makes money for the taxpayers and gets more people homes. So, we consider it a win-win.
GSES CONCERNS OVER FHA LIMIT INCREASE
Mr. LEWIS. Why then, Mr. Secretary, are the Government-sponsored entities, Fannie Mae and Freddie Mac concerned that their business will be adversely impacted by such a proposal?
Secretary CUOMO. Obviously, Mr. Chairman, I would not want to speak for them but if one were to say there is some risk that there might be a
Mr. LEWIS. Just give us a guesstimate.
Secretary CUOMO. Well, if I had to hypothesize, if one were to think that FHA might make a mortgage that would otherwise go to a private company that might concern the GSEs because they do not do the secondary market on FHA loans. Ginnie Mae does the secondary market on FHA loans. The GSEs only do the secondary market on a private loan.
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So, if there was any loss, whatsoever, from FHA to a private company then that could be theoretically a loss to the GSEs. But their position, again, I do not want to speak for them, Mr. Chairman, they are very capable of speaking for themselves, but that would be my guess at the situation.
Mr. LEWIS. Surely Fannie and Freddie differ from the FHA market, different in more ways than that which you outline. As you suggested the market place will work and if it is going to cost more in terms of X or Y to go to an FHA facility then another avenue, the market place would affect that.
Why? How do they differ further than just that which you have outlined?
Secretary CUOMO. FHA charges a higher premium. FHA takes a person with what would be apparently a more risky credit history than a private company would. FHA allows a lower down payment loan. And that is why FHA winds up making home buying possible for people who the private market could not serve.
FHA requires a lower down payment, will work with individuals with somewhat riskier credit history, and is willing to work with the buyer to figure out how to make the finances work and what kind of house they can get into. We have homeownership counseling programs. So, there is a cooperative relationship also.
Page 27 PREV PAGE TOP OF DOC Mr. LEWIS. You know, Mr. Secretary, to take you and I to the edge of the very delicate and difficultFHA charges a higher premium. FHA also pays a higher fee which attracts people who are helping to find loans for people sometimes to the market place in a different way.
Now, this is ancient history and the rules and the process have changed a bit. But I can remember when I personally bought my first house but I had spent a little time in another market place and I considered an FHA loan. I remember they required that we put cement down on the edge of the lawn and there were a lot of costs involved that were beyond that. And I said, I do not want to do all that stuff. So, I went to another market. But if I had been in a little bit of a different category I might not have been able to go to another market.
What role do the fees play to maybe distort the market place and should we be consideringthis is not the policy committeebut should we at least consider those differences that affect especially those low-income people who seeking mortgages?
Secretary CUOMO. Well, the FHA has certain requirements about the construction and safety and soundness of the home which we think are good requirements. They are good for the home buyer to make sure they are getting a quality home, a home that is going to stand the test of time and so that they do not have a problematic situation where they bought a house that is structurally unsafe and they have to pay a mortgage now but the house is uninhabitable.
So, the FHA does have some standards, Mr. Chairman, but I think far and away the standards serve the home buyer well and the nation well by having a quality housing stock out there. And there has been some suggestion that because Ginnie Mae pays a higher fee there may be an incentive for people to ''steer'' towards Ginnie Mae. I do not believe there is any evidence, whatsoever, that would back that up.
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I do not believe that mortgage brokers do that. And, again, I believe in the market place, Mr. Chairman, and I believe in private sector companies and if you had a broker who was steering people to FHA when it was not in their best interest the market place would catch up with that person and the word would get out and that person would no longer be in a position to do business.
So, I believe FHA's strongest argument is actually the market place. You would not go to FHA that charges a higher premium unless you had no other options. A person who would steer against the best interest of their client and customer is a person who is going to be out of business, the market place will make sure of it.
INCREASE IN FHA LIMITS AND MARKET SHARES
Mr. LEWIS. I would like to make one more point before yielding to my colleague. I am taking more time than I should here, but this whole subject area is very important to the decisions we will be making in the months ahead.
Statutorily, lenders who originate an FHA insured mortgage receive 44 of 50 basis points for servicing fees associated with FHA insured origination. The fee exceeds the private sector where the fee is between 20 and 26 basis points depending upon the risks connected with the loan.
How many times have the FHA loan limits increased in the last 10 years and when the limits increased did FHA's market share increase? And, conversely, did the private market share decrease?
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Secretary CUOMO. We will get you the numbers on the market share. I am going to ask Kevin Chavers to join me, Mr. Chairman. But on your point about the Ginnie Mae fee. That references back to the point I was discussing earlier where one of the arguments and opposition is, well, since Ginnie Mae pays a higher fee it may steer people to FHA. That suggests that mortgage brokers are not acting in the best interest of their client. I reject that as a premise, as someone who works with mortgage brokers, we do a lot of work with the industry, I do not believe it. It has not been any experience that I have seen. And there is no evidence that anyone can point to that says that is the case.
Ask anyone who raisesgive me one piece of hard evidence rather than supposition. Again, these are private sector companies that would be raising it. It defies the concept of the market place.
Basically what it is saying is that you have a broker who is steering people to a financial institution which is contrary to their best interests. Well, then if the market place works that will be a person out of business because the word will get out and I do not believe it could be sustained over any period of time. There is no evidence to suggest it whatsoever and, experientially, we have no reason to believe it is true.
But on the specific question about the share of the market, I will ask Mr. Chavers from Ginnie Mae.
Mr. LEWIS. Mr. Chavers.
Page 30 PREV PAGE TOP OF DOC Mr. CHAVERS. Good morning, Mr. Chairman.
I would just like to point out one clarification. The comparison of the role of Fannie and Freddie as compared to that of Ginnie Mae is not completely accurate. Indeed, it is apples and oranges. Ginnie Mae acts as a guarantor of securities, not an issuer and not a purchaser of the loans as Fannie and Freddie does.
As a consequence, the role that Ginnie Mae plays is slightly different and the role that the lender plays is slightly different than that of Fannie and Freddie.
In the Ginnie Mae program the lender takes on the risk of passing through payments to investors whether they receive them from the underlying borrowers or not. As a consequence, there is a slightly lower guarantee fee that we charge or, in the converse, a higher servicing fee to the lender to compensate the lender for that additional risk.
The other additional role that the FHA/Ginnie Mae historic marriage has facilitated, is that of being in all markets at all times, notwithstanding, the prevailing economic conditions around the country. As we would expect, private sector participants make rational economic decisions to leave certain markets during economic downturns.
A prime example would be during the oil patch economic downturn of the early 1980s where private sector mortgage insurers left that market because of the risk involved. FHA and Ginnie Mae remained in those markets to ensure stability in those markets. So, it is a slightly different comparison, Mr. Chairman.
Page 31 PREV PAGE TOP OF DOC Mr. LEWIS. I am still interested in the answer to the question, how many times have FHA loan limits increased in the last 10 years; and when the limits were increased, did FHA's market share increase or decrease relatively?
Secretary CUOMO. Since 1977, Mr. Chairman, the loan limit for FHA has been indexed to the GSEs. The last time the loan limit increased was 1994 where there was an adjustment for the floor and an indexing for the floor.
Going beyond that, I am going to have to get you that information, Mr. Chairman, we do not have it right now. But I think what the Chairman is getting atand I can give you this numbersince 1992, even as the high cost area loan limit increased from 124 to 170, the share of FHA insured mortgages going to low-income borrowers went from 15 percent to 20 percent.
Over the same time period, first-time borrowers accounted for an increasing share of FHA activity going from 65 to 75. So, when the loan limits went up, the low-income percentages of FHA went up as did first-time home buying go up. Between 1992 and 1996, FHA's floor, the lower level, increased from 67 to 78 and its high cost ceiling increased from 124 to 155.
Mr. LEWIS. All right. If you would expand on that for the record, because that is important material to all of us.
[The information follows:]
Page 32 PREV PAGE TOP OF DOC Question. How many times have loan limits increased in the past 10 years? When they did, did FHA's market share increase and did private market share decrease?
Answer. Congress establishes limits on the loan amounts that FHA can insure. The limits include a ''floor,'' the base limit that generally applies across the country; and a ''ceiling,'' or an upper limit for high-cost areas. Between the ceiling and the floor, FHA can set FHA limits for specific areas based on area median home sales prices.
During the 1980s, the floor stood at $67,500, and the ceiling was $124,875. Effective December 1992, Congress raised the high-cost area ceiling to $151,725. In the fall of 1994, Congress indexed the floor to 38 percent of the conforming loan limit, raising the floor to $77,197. In addition, Congress indexed the ceiling to 75 percent of the conforming loan limit, raising the ceiling to $152,362.
In December 1996, the conforming loan limit increased slightly; the FHA floor and ceiling adjusted based on that increase to $81,548 and $160,950 respectively.
Finally, in response to another increase in the conforming loan limit in late 1997, the FHA floor currently stands at $86,317 and the ceiling at $170,362.
As the chart below indicates, there seems to be no consistent correlation between increases in FHA loan limits and increases in FHA's share of the total housing market:
It is interesting to note that since 1992, even as the high-cost ceiling increased from $124,875 to $170,632, the share of FHA-insured mortgages going to low-income borrowers increased from 15.7 percent to 20.1 percent.
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Mr. LEWIS. I note to the Members that we are not obviously the authorizing committee and increasing the loan limits is an authorizing responsibility. I cannot imagine that anybody would suggest that appropriators ought to carry forward that load but strange things happen in this process and, so, I am sure we will be discussing this further.
IMPACT OF SECTION 8 RESCISSION ON FUTURE NEEDS
Mr. STOKES. Thank you, Mr. Chairman.
Let me start with a question relative to the action taken yesterday by the full Appropriation Committee with reference to the Section 8 rescission of $1.9 billion. Granted the rescission of $1.9 billion in the 1998 bill will not create any major problems. But I do not think that is the point we should be looking at.
What I think we need to be looking at is the fact that it is my understanding that the Section 8 program is growing. As a consequence of it, I think we need to look at how much is going to be needed in the program for fiscal year 1999, fiscal year 2000, fiscal year 2001 so that we can measure the impact of the rescission of the $1.9 billion from the Section 8 reserve fund in terms of what is the impact following fiscal year 1998.
And then I think we have to take into consideration also that when we talk about fiscal year 1999, we are talking about roughly 7 months from now when the new year begins, October 1. So, can you discuss it for us from that viewpoint?
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Secretary CUOMO. Congressman, I could not agree more with the thrust of the sentiment that you are raising. I think this is a dangerous, dangerous precedent. It is an apparently easy fund of money but it is a precious fund. And the Ranking Member's point is exactly right. We need $8.9 billion in 1999. We need $13 billion in the year 2000. We need $15 billion in the year 2001. That is just to renew what we have. So, the number is going up.
The $1.9 billion which was taken yesterday represents 370,000 units. And there is no leeway for error here. If you do not renew a Section 8 certificate for a family, chances are better than not that they wind up on the street and there is not a cushion of time, there is not a bank account that they can fall back upon. This is almost a direct causal relationship.
If a certificate is not renewed, a family can become homeless. We are talking about 370,000 families in a problem that has increasing financial need over the next few years, not diminishing.
WHO SECTION 8 SERVES
Mr. STOKES. I think it would be helpful, also, Mr. Secretary, if you would describe to the Subcommittee the type of people who are served under the Section 8 program. Give us some idea of the age range, the income range, whether we are talking about families, children, things of that sort. I think it is important to put into the record who Section 8 serves.
Page 35 PREV PAGE TOP OF DOC Secretary CUOMO. The Ranking Member's point is very well taken. We will put in for the record the exact specifications on who the certificates and vouchers are going to. But, Congressman, as a general rule these are truly the most vulnerable among us. These are senior citizens who rely on those Section 8 programs, literally as a life-line. These are families, young women with children, who are trying to work their way off welfare now with welfare reform. This is the unit they have to keep their family safe.
We are putting pressure on the system by welfare reform to begin, the premise of which is well taken, to get them jobs and independence. But literally they have no resources to fall back on. There is no safety net. This is the safety net we are talking about. And there is nothing beyond this. If they do not have the Section 8 voucher, I do not believe it is an over-dramatization to say that the likely scenario would be homelessness.
[The information follows:]
Question. What are some of the key demographic characteristics of the families served by the Section 8 rental voucher and certificate programs; e.g., age, income, household size?
Answer. Some of the key demographic characteristics of Section 8 families are:
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Average annual household income: $9,100.
Percentage of households under $5,000 annual income: 19%.
Percentage of households with $5,000 to $20,000 annual income: 77%.
Percentage of households with over $20,000 annual income: 4%.
Percentage of households with wages as main source of income: 28%.
Percentage of households with welfare as main source of income: 25%.
Percentage of households where family head/spouse 62/older: 16%.
Percentage of households where head/spouse 62/older or disabled: 34%.
Percentage of households with children under age 18: 66%.
Percentage of households with children and a single parent: 57%.
Average number of people per household: 3.
Page 37 PREV PAGE TOP OF DOC Minority/Ethnicity:
Percentage of Black households: 39%.
Percentage of Hispanic households: 15%.
Percentage of minority households (Black, Hispanic, other): 58%.
Percentage of non-minority households: 42%.
FHA LOAN LIMIT INCREASE
Mr. STOKES. Now, if we can turn, Mr. Secretary, to the FHA program that you just discussed with the Chairman. One of the arguments that I have heard, and perhaps you can answer this, is that when you increase the cap from the current amount of $80,000 to $120,000 or $180,000, that you are taking FHA out of the category it is supposed to serve. That there are no people in the category that they are serving who need mortgages at the higher rate.
I have heard this argument. How do you answer that?
Secretary CUOMO. Well, I do not think it is an either/or Congressman. It is not that because FHA would now be serving a person who might have a somewhat higher income they would not be serving the lower-income. We would continue to serve the very low-income. We would also be serving people who are somewhat higher in income but who still cannot afford a home, which is really the distinguishing characteristic that we are trying to get at here.
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These are people who cannot be served by the private market in buying a home. Again, it is not an either/or. Well, if you went a little higher in the income, then you would not be doing the people at the lower-income. You would do both. Which, by the way, FHA historically always did and that is why it has been financially sound and financially self-sufficient.
If you push the FHA to the very bottom of the income level, only the riskiest of the most risky loans, FHA will not be financially sound in the long-term.
Right now FHA is basically a break-even operation. Because the overall portfolio balances the risk. The lower limits, pushing FHA down to the further end of the spectrum endangers the very security and sanctity of the FHA fund to begin with.
Mr. STOKES. So, is it a safe statement to say that you do not see where raising the FHA loan limit would divert FHA resources away from the agency's primary mission of serving low-and moderate-income home buyers?
Secretary CUOMO. Not in any way.
Mr. STOKES. Now, Mr. Secretary, your budget proposes $25 million for homeownership zones. How does this program work? Tell us what it is intended to accomplish?
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Secretary CUOMO. It would be my pleasure, Congressman, just a further number on the previous question.
Mr. STOKES. Sure.
Secretary CUOMO. The HMDA data, the Home Mortgage Disclosure Act data of 1996 shows 350,000 households, approximately 1 in 8 applicants, were denied credit in the conforming conventional market. These denials limit home buying opportunities for both minorities and white. That is 350,000, and 1 in 8 were denied by the conventional market. That is who we want to get to with this FHA loan limit increasethe 1 in 8 who has been denied by the conventional market.
On the homeownership zone proposal, Congressman, one of the needs we have heard from cities on the housing side of the agenda is the ability to do large-scale homeownership as a community revitalization tool. In other words, not going in and doing one or two homes on a block but going in and doing 75 percent of the block.
There is a theory of community development fostered by the Nehemiah Project that said, sometimes to do community renovation you have to go in with a large enough enterprise that you basically change the dynamic in the community. If you go in and just put a few homes, the community will overwhelm what you are trying to do. You have to go in with enough energy, enough resources, enough scale that you basically create your own dynamic in communitiesone hundred homes, 200 homes, 300 homes, large-scale redevelopment. That is what homeownership zones would do.
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There has been a tremendous interest this past year for every one dollar we put out we had four or five requested and we are looking to further that next year.
HOUSING COUNSELING PROGRAM
Mr. STOKES. Now, you are also requesting an increase from $20 million to $25 million for housing counseling programs. Tell us what sort of counseling does this program provide, whom does it serve and how grant funds are allocated?
Secretary CUOMO. We have two purposes, Congressman. One is to get as many people into homeownership as possible. We think of the housing programs now in a continuummoving people up to homeownership. The highest housing program is home ownership and housing counseling is one of the ways we do that. Talk to people about options and financing and help them find out if they are capable of buying their own home.
The second goal is that people who buy homes, we want to make sure they are capable of staying there. That they have taken into consideration what it is like to make a mortgage payment every month, that they have all their expenses because we do not want people getting into homes only to default.
And those are the two goals, getting people into home ownership but making sure that they are capable of managing the finances of the home ownership. That is what the housing counseling program does. It is basically done by nonprofit groups on the local level. We have some intermediaries who also provide the service.
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CONTINUUM OF CARE SERVICES
Mr. STOKES. Mr. Secretary, when you made your presentation to us this morningand, by the way, it was an excellent presentation.
Secretary CUOMO. Thank you, Congressman.
Mr. STOKES. It was very, very informative.
But I understand that an evaluation of HUD's new continuum of care approach for homeless assistance showed that more people were being assisted as a result.
Is this true? And, if so, tell us how do you do it and what is it about the continuum of care that makes services to the homeless more effective?
Secretary CUOMO. Continuum of care, we started about 4 years ago, Congressman, and at that time we had separate individual homeless programs. And basically what the continuum of care said was, rather than have the Federal Government dictate these categorical programs we will go to the local community and say, you tell us what you need and we will make the Federal funds fit your problem rather than vice versa.
The caveat to the local community was, the performance measure to the local community was, make sure you cooperate and you bring in all the different elements on the community level and the system works. That there is emergency outreach, there is shelter housing, there is then transitional housing and there is then permanent housing. You have to have the entire continuum in place for any of the pieces to work.
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We have had 4 years of experience with it. It has worked very well with local communities. They are excited about it. The competitive nature, I think, increases the level of play across-the-board. We had an evaluation done by Columbia University that came in and said, while we doubled the budget at that time, we were getting about, serving about as many as 14 times as many homeless people for two times the money.
So, it is working from a community level and the academic evaluation we have also suggests that it is working numerically.
EXTENT OF HOMELESSNESS
Mr. STOKES. I think it would be good also as you talk about homelessnessand I know this has been one of your areas of concern for some time even before becoming the Secretary. I do not think everybody in this country understands the extent of homelessness in our country today.
I think it would be helpful if you would, firstly, give us some idea of the extent of homelessness; and then give us some idea as to whether it is increasing or decreasing?
Secretary CUOMO. Congressman, we estimatefirst of all, it is a very hard problem to quantify. It is a very hard problem to define and then to quantify. There have been attempts to count the homeless in the nation and there has been a lot of controversy about those counts. Are they inclusive, are they exclusive?
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Suffice it to say we use an estimate of about 600,000 people homeless at any given time. That number is somewhat deceiving because there is a corollary that says as many as 7 million people may have been homeless over a 5-year period. So, there is a lot of turnover within that 600,000.
It is now a national problem. It is no longer an urban problem. At one time we thought it was a big city problem, it was a New York, Los Angeles, Chicago problem. It is an urban problem, it is a rural problem, it is a suburban problem, it is a growing problem for young families. It is a problem for children who are in hotels and motels.
So, no one is immune. It is nationwide. I would put a caution flag on the use of the numbers, Congressman, but any count says it is significant and we must do something about it.
Mr. STOKES. Thank you, Mr. Secretary.
Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Stokes.
BUDGET OFFSETS NEEDED FOR TROOPS
Page 44 PREV PAGE TOP OF DOC Mr. WALSH. Thank you, Mr. Chairman.
Mr. Secretary, thank you for your testimony. It is good to see you this morning. You raised the issue of the supplemental and, as you know, this subcommittee came up with almost $2 billion in offsets. These offsets include Section 8 reserves. And, as you know and we know, these are reserves; no one will be affected immediately but next year when the contracts come up we will haveand I know the Chairman is committed to this and the Committee and the Congress is committed to thiswe will have to come up with the money to make sure that no one loses their home and we will do that.
But the President has put us in this position. The President of the United States has not been responsible and he has put the Congress in this position. The President knew full well what the cost of having troops in Bosnia for years and years and years has been. Those troops have been there and the President told us he is going to get us out of Bosnia by Christmas. That was at least two, possibly three Christmases ago.
So, the President, by being irresponsible, by not paying for the deployment of those troops has put Congress in this position three years in a row.
Now, we have done, I think, the responsible thing by providing offsets for those expenditures. The offsets have been coming out of the non-deployed troops. We have been taking money out of the non-deployed troops, putting it into the deployed troops in Iraq and Haiti and Bosnia. But that money is gone. We are now in a situation where we are not properly arming, clothing, sheltering our troops who are non-deployed, in addition to those who are deployed.
Page 45 PREV PAGE TOP OF DOC So, we are put in a box. What is development here is a parent-child relationship. The President being the child. The President has all these assets and he moves them around. This President has deployed troops 22 times in his administration, more than all other Presidents since World War II. And he has not paid for them.
He comes to Congress to come up with these emergency supplemental bills. The money from the Section 8 program is paying for the troops in Bosnia, who have been there for years now. And, so, the Congress has got, somebody has got to be responsible in this relationship, so, we come up with the money.
And it puts us between a rock and a hard place. And we do not like to be doing this. We do not like to be taking money from programs that you have described as necessary and we would agree with that. We do not like to have to do this but the President has put us in this position.
The President is putting those people who have Section 8 contracts at risk. I want to make that clear. This is not our choice. This is our responsibility.
Were you suggesting that we should not offset these expenditures for the troops in Bosnia and Iraq?
Secretary CUOMO. Yes, yes. I think, obviously we have a very clear and distinct difference of opinion, Congressman, on what is responsible and what is irresponsible and what the law requires.
Page 46 PREV PAGE TOP OF DOC Mr. WALSH. It is not responsible to offset expenditures forward-deployed troops?
ADMINISTRATION'S POSITION ON OFFSETS FOR SUPPLEMENTAL
Secretary CUOMO. Our position is that the law says this is an emergency legislation. That you do not need an offset for an emergency legislation. And that it is not responsible
Mr. WALSH. Did the President know that those troops were going
Secretary CUOMO [continuing]. In my opinion to put, take 210,000
Mr. STOKES [presiding]. I really think you ought to provide the Secretary the courtesy of replying to your questions before you interrupt him. I think out of fairness he is entitled to that.
Mr. WALSH. Well, I just want to get a point clarified.
Mr. STOKES. You have done that several times. Well, but let him answer your question. I think out of fairness he is entitled to that.
Secretary CUOMO. Thank you, Congressman.
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Mr. WALSH. Go ahead.
Secretary CUOMO. Congressman, it is a New York tradition where we do not let the other one finish. [Laughter.]
Mr. WALSH. It is just like home.
Secretary CUOMO. The Administration's position is that this is emergency legislation and it does not require offsets. And the use of the Section 8and the Congressman is rightit is not necessary to use of the Section 8 funds this year this year being 1998.
But next year they are necessary. And $1.9 billion is a large sum and 210,000 families is a large number and the immediacy of a crisis that they would be in if we could not find the $1.9 billion would be very, very real.
And we find that risk irresponsible. And our position is that, yes, legally this is emergency legislation and we did not need offsets.
Mr. WALSH. Well, if we do not offset those expenditures, those predictable expenditures, then they go on the credit card just like they have in the past. If we do not offset them it means we do not pay for them. If we do not pay for them we borrow the money. If we borrow the money we put it into the national debt. If we put it into the national debt we pay interest on that money and sooner or later you are going to pay five times as much for those expenditures as you are now.
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So, what we have been forced to do by the President's irresponsible action is we have been forced to raid the Section 8 housing funds. And now we are putting Americans, people who need housing the most, at risk. I just want to draw the point that it is the President'sit is a direct result of the President's lack of responsibility in putting these troops forward and not funding them that we are forced into this position.
Secretary CUOMO. Congressman, obviously we have a distinct difference of opinion. You say this was predictable. Part of the supplemental goes to fund natural disasters. Was it predictable that El Niño would have a storm in California, would drop rain and hail in parts of the country? I would not consider El Niño predictable.
And, hence, it is an emergency piece of legislation; and hence, it does not require offsets; and hence, you did not have to put 210,000 families at risk of being homeless to the tune of $1.9 billion. But, obviously, we have a difference of opinion.
Mr. WALSH. Clearly. And Chairman Lewis, I am sure, knows this better than anyone, El Niño is not predictable. Although California was making plans to deal with El Niño before it came, to their credit.
But fully better than two-thirds of these expenses are military costs to support troops who have been in the field for years. And to not fund them is irresponsible.
And when we are put into this position to offset or not offset and we decide to offset we are also affecting the future for those kids, those kids that you spoke about with concern, we are concerned too. Because if we do not pay for this they are going to.
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So, Mr. Chairman, I believe I made my point. At least I feel I did. [Laughter.]
I will hold my specific questions until later and give everybody else an opportunity to comment.
Mr. LEWIS. Thank you, Mr. Walsh.
Mr. Stokes might suggest that I left the room on purpose, far be it from me to
Secretary CUOMO. That was a conspiracy from this morning, Mr. Chairman.
EFFECT OF RESCISSION ON SECTION 8 RECIPIENTS
Mr. LEWIS. Mrs. Meek.
Mrs. MEEK. Thank you, Mr. Chairman.
Page 50 PREV PAGE TOP OF DOC Welcome, Mr. Secretary
Secretary CUOMO. Thank you.
Mrs. MEEK [continuing]. And members of your staff who are here. It is very difficult for me to sit here and try and make a comparative analysis among two different kinds of situations. I cannot politicize this situation. If you were to go home with me every weekend you could see the results of what HUD is doing in our communities and why those people need housing and why the poor and the disadvantaged and the disabled and the homeless need it.
And they do not know what an offset is. And if they knew about it, there is no way that they could respond to it.
Now, I have been around a long time and I am hearing these arguments that it is the President's fault, and really I do not care who is the President of the United States, I do not really care. But what I do care about is that we have homeless people, we have poor people, we have people who have no place to live living on the bridges, living any place they can find to live.
I cannot come here to Washington and tell you that I am going to vote for a budget offset from the military. You can look at me and tell that I am a hawk. I was around during World War II. I voted for every military bill that we have had. Any one of my members can tell you. I think I am one of the few so-called liberals who did so, if I can ever be labeled as anything.
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All I can say is I voted for every military bill since I have been here because I think we need military preparedness and no one has ever asked me to offset it with anything. And I voted also for the emergency bills that came up. We do not even know when they are coming up. We do not know when a hurricane will strike, we do not know when there is going to be a tornado. If you go to Central Florida with me and see how those poor people living, not enough money to live in a house, but living in a prefabricated house, Mr. Secretary, living in mobile homes, and how their homes have been devastated.
Government has something to do there and I cannot offset it. I cannot find an offset for it. I am interested in those people getting back in their homes.
I am interested in Government helping to make them whole. So, it is very hard for me to sit here and say to you that I can in any way make some kind of justification for our removing monies from Section 8 housing. We have people who, if they tried to get some place to rent without some kind of a government subsidy, could not. Even with a voucher they cannot find anything because people do not want to be bothered with them, Mr. Secretary.
That is why I am glad to see that you are doing some community outreachI guess you call them community builders.
Secretary CUOMO. Yes.
Mrs. MEEK. You have a fancy name for them. But they have got to get out there and get their hands, their feet dirty and their hands wet because that is who you are dealing with. And I am so glad. I meet every other week with my housing people, those who live in public housing. It is not like living in a condo, it is quite different and those who live in the Section 8, it is quite different.
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So, I am here to say to Congress, look, you got to be responsible for these people. I do not want to hear arguments about the military because I am with them all the way. But I want you to know that those offsets are not required at this point. Offsets are not required for an emergency and we know it. These people up here at the dais have been here in Congress longer than I have. So, they know offsets are not required.
So, all of this, as I see it, is completely political snookering. We are saying to the American public, we have got to snooker you into thinking that we have got to be responsible for these military changes in Bosnia. The people of Bosnia need some help. Any humanitarian will know that they need it. And if you have ever been there and if you have ever seen it on TV you will know that they need help.
So, I do not want to hear anything about Bosnia or Somalia. I could go on and on and on with all kind of acronyms and all kind of countries; the bottom line is that those were emergency situations, this is an emergency situation.
So, it is hard for me, even though Mr. Stokes has tried to train me to be nice, I cannot. I have to say
Mrs. MEEK [continuing]. We have got to face these situations. And we have got to assist HUD in trying to renew itself. I am so glad to hear everything you have given us here, trying to read it all at one time. I see some good stuff here. I know we cannot fund it every way you want it; it will not be funded that way.
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But I came to appeal for those little people who are not here, who do not understand what an offset is and who will never understand it, and say, let us look at some of these needs that have been validated. You go out there and you can see them, you do not have to go very far to see them what HUD is doing.
I am glad HUD is getting into this business, getting really down to assessing some things, getting really down to cutting out some of these abuses. The people who are abusing this system are not these poor people who are living under bridges.
I have heard so many Presidents, I have read so many budgets, I have heard so many requests, always the first people you look at are those poor people living under bridges, and those who live in public housing.
So, I am appealing to this committee and to you, that those are the people that you have got to look out for now. And I am glad to see that you are trying to help the poor-middle income people. Some of them are medically poor as well as poor from other reasons even though they may be making a good salary.
So, my message is that I am distressed by the fact that we are thinking about trying to offset the needs of the poorest and the most stressed people in this country with the military's needs. We cannot do that. I mean morally we cannot do it. And certainly we do not need to do it as far as our budget and this committee is concerned.
I have lots of questions and I have taken all my five minutes talking but I had to do it. And, Mr. Chairman, when I come back around, I will ask my questions.
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If I do not, I will put them in the record.
SECTION 8 CRISIS
Mr. LEWIS. Mrs. Meek, I have always known that you would ask your questions one way or another and you certainly are welcome to the record or otherwise.
Mr. Secretary, before I pass the time off elsewhere, I think I would like to repeat this, however. The section 8 crisis was a crisis looking for somewhere to happen that nobody would focus upon until this Subcommittee asked GAO to do an evaluation of that circumstance and help us with the reserves question.
At the same time, this Secretary was looking at the same thing. Now, the crisis came to reality in the mind's eye of our Committee as some of that information came forward only last year, even though we have been talking about for a number of years.
These reserves do provide some convenience for some but there is not any doubt that the challenge between now and the beginning of the next fiscal year is very real and we are going to all have to meet that together and I have commitments that we will be meeting it with help from other levels.
Having said that, please, let me call on Mr. Frelinghuysen, who has been more than patient.
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UNUSED SECTION 8 FUNDING FOR ELDERLY; DISABLED
Mr. FRELINGHUYSEN. I thank you, Mr. Chairman.
Mr. Secretary, good morning. I hope that you are aware that as we meet this morning there is approximately $90 million in Section 8 certificate and voucher funding for people with disabilities sitting unused at your agency.
As you may know if your staff briefed you properly, I asked some of the very questions that last year that I am going to be asking you this morning.
This Committee, largely due to the leadership of Mr. Lewis and Mr. Stokes and Members but specifically, yours truly, added these dollars to HUD's fiscal year 1997 Budget, 1998 Budget to, among other things, replace the loss of HUD public and assisted housing that has been designated as elderly only. While these dollars sit at HUD, people with mental retardation, mental illness and other disabilities sit at home in our home States on large waiting lists with their parents, in some cases or in institutions waiting for some place to live.
I want to ask you, Mr. Secretary, why these Section 8 funds have been held hostage at HUD? Who is responsible for holding up the expenditure of these funds and what specific plans do you have for assuring that these funds are made available to people with disabilities immediately?
Secretary CUOMO. Congressman, I cannot give you a full retrospective at this point on the history of the program. I can get you that information if you would like.
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But at this point the way the funds are made available, as the Congressman knows, is through a NOFA, Notice of Funding Availability. The NOFA for these funds will go out in the next 6 or 7 weeks. That will then make the funds available. Groups can then apply for them.
Last year, as the Congressman knows, we accelerated the use of the funds with your help. We added a provision in the Act which allows housing authorities to use the funds generally for disabled households if the resources would otherwise go unused.
So, the NOFA will go out in the next 6 or 7 weeks and at that point the funds will be applied for and we are going to expedite the disbursing of those funds.
Mr. FRELINGHUYSEN. Why has it been slow? You are about to send out a notification for possible use for the funds, but why has it been so slow? I do not understand it.
Secretary CUOMO. Congressman, I do not
Mr. FRELINGHUYSEN. We have raised the expectations. We obviously do not like the idea that we would pit the elderly against those with disabilities, in some cases, elderly people are disabled. But this committee placed a great emphasis no expediting these type of expenditures because there are in each of our States and members on this panel here today as well as others know that there is an incredible waiting list problems. Somebody has been screwing up the works and ought to be held responsible.
Page 57 PREV PAGE TOP OF DOC I would like to know who has been messing up this program and whether you will give us your firm commitment that these dollars are going to be out on the street.
Secretary CUOMO. Congressman, you have the firm commitment and I do not think it was a question of a personal act or lack of commitment to this approach. This was a very delicate issuethe ''income mixing'' between senior citizens and the disabled. It was a policy that said we should put both together in one building, senior citizens and people who are disabled. That was a very well-intentioned policy at the time. In practice, it did not work as well as we had hoped.
The disabled definition, as the Congressman knows, includes people who have substance abuse problems, mental health problems et cetera.
DELAY IN ISSUANCE OF NOFA
Mr. FRELINGHUYSEN. You know, we can talk about that but in reality there may be a few bad actors that have drug and alcohol related issues but there is a huge constituency out there that you and I know coming from the New York/New Jersey Metropolitan area, that are outstanding citizens who want to live independently with dignity and I think somebody should have worked out this situation long before now.
The problem is now that I think only $2.5 million of the money has been spent out of $90 million and from the Committee's perspective and knowing this committee this will not happen, when you unexpended funds it is difficult for me as a member of Congress or, for that matter, groups that are active, the ARCs, the National Alliance for the Mentally Ill, for them to advocate for more money in this budget cycle if the Department has not gotten the $90 million out there.
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Secretary CUOMO. We have a different impression, Congressman, and I will get it justified. I am not under the impression that there was any delay in the NOFA for these funds beyond the normal process. The Department, as you know, goes through an annual process where were put out a notice and then there is a competition and we make a selection and we disburse the funds. And actually the notice is going out earlier this year than last year.
Mr. FRELINGHUYSEN. Well, it did not make any difference to send the notice out last year because it was so damn complicated nobody could apply and benefit from the utilization of the funds.
Secretary CUOMO. Okay. But then we have different issues, Congressman. I thought your point was the timing and on the timing of it this year is going to be faster than last year. On the complication that may very well be. That may be a different issue. But I thought you were inquiring about the timing.
Mr. FRELINGHUYSEN. Timing in life is everything. And we have raised expectations since this committee said this is an important constituency. It should not be lumped in with the elderly. There may be a few people, as I said a few minutes ago
Secretary CUOMO. Right.
Mr. FRELINGHUYSEN [continuing]. Who might prevent an easy resolution but it really goes to the credibility of your Department that we cannot get this program moving. And that is one of the reasons that I asked, and through the good works of Chairman Lewis, that the GAO follow-up on your testimony last year and my request last year to find out and what, let me ask you what have you learned from the GAO study relative to issues relative to housing for people with disabilities?
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Secretary CUOMO. We do not have the final
Mr. FRELINGHUYSEN. One of the things that GAO was going to identify working with you is what are the barriers out there in current Federal policy that are preventing disabled people from getting these types of benefits to which they are very much entitled?
Secretary CUOMO. I do not believe we have the final report from the GAO at this time, Congressman. As soon as we do, it will be our pleasure to review it and then I will get back to you.
But let me say this: I share your concern. This is a very needy population. These funds are just a drop in the bucket compared to what they need. The Department will do everything it can to expedite the funds. We want to get them out, and we want to get them out quickly.
Obviously, we also want to get them out right. We do not want to move the money so quickly that we do it irresponsibly and then we have another problem on the back end, questions about who actually got the funds and what safeguards did we have in place, et cetera. So
Mr. LEWIS. Mr. Secretary, I wonder if I could justI hate to do this. Mr. Frelinghuysenwe are not the policy committeebut he is a very, very solid conscientious Member who has done some homework here and I can understand responses last year but the problem persists.
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Now, it is very clear, Mr. Secretary, that your staff at least has had a chance to respond with a draft. And you know you never get the final report until later. And what he is really asking is what have we begun to learn at least about the problem that seems to be worse now than
Mr. FRELINGHUYSEN. And it is germane since the motto of your presentation is you are making the Department work.
Secretary CUOMO. Yes. No, I understand your point, Congressman, I do not see how that is justified with the facts that the NOFA is going to go out faster this year than it went out last year.
Mr. FRELINGHUYSEN. But, in reality, it was so damn complicated that nobody was eligible for the money. Tell me if that is not true? It was so complicated that potential applicants could not qualify.
Secretary CUOMO. Yes. I had not heard that, Congressman, but if you believe that is the case I do not question your facts.
LOSS OF HUD-ASSISTED ELDERLY HOUSING
Mr. FRELINGHUYSEN. Well, let me follow-upI think my five minutes is almost upbut I want to follow-up on my previous question by asking why HUD has not made more of an effort to measure the loss of privately-owned HUD-assisted housing occurring because of the implementation of the elderly-only housing? In many communities in New Jersey and other States these properties were the only affordable housing units for people with disabilities in those communities.
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I understand that in some States, like Massachusetts, the disability community estimates that 60 percent of the units previously available to people with disabilities are now restricted to elderly households. Could you tell us, this committee, today how many units of assisted housing have been lost for people with disabilities?
Secretary CUOMO. I do not know, Congressman, and I do not know that we do not capture that data but I will find out and I will report back to you, personally. And if we do not capture the data, we will.
[The information follows:]
Offset folios 91 to 93 insert here
Mr. FRELINGHUYSEN. All right. I have further questions in this line but I think my time is up.
Thank you, Mr. Chairman.
Secretary CUOMO. Thank you, Congressman.
Mr. LEWIS. Mr. Secretary, I do not normally do this but I have a good deal of respect for the work that you are attempting to do. I feel that somebody in the backdrop back thereI know there is some sensitivity about certain kinds of housing. That there are issues here that border right onto lines that almost become political. But this is a legitimate area of concern.
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Secretary CUOMO. Sure.
Mr. LEWIS. And this member, obviously, was going to ask these questions. Somebody did not help us very much in connection with that and I do not want him just raising hell in my committee next year.
Secretary CUOMO. Mr. Chairman, I will make it a point to get the information, I will get back to the Congressman forthwith.
Mr. LEWIS. I just do not want him to take on like my friend, Mrs. Meek. [Laughter.]
Secretary CUOMO. Neither do I, Mr. Chairman. [Laughter.]
Mr. LEWIS. I mean she is tough.
OFFSETS IN SUPPLEMENTAL BILL
Mr. PRICE. Thank you, Mr. Chairman.
Mr. Secretary, I would like to add my welcome to you and your colleagues to the Subcommittee.
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Secretary CUOMO. Thank you, sir.
Mr. PRICE. I think I should say a few words about this emergency spending issue that we have been discussing back and forth. I will not try to match Mrs. Meek's rhetorical fire power or, for that matter, Mr. Walsh's, but I think it needs to be said that if a Member wants to indict the Administration for some kind of irresponsibility in this matter, then that indictment would apply equally to President's Reagan and Bush and to Congresses in recent years. It is not a new thing to fund natural disasters or overseas military operations on an emergency basis. That has been standard practice for many years.
I do not believe any of us would want to deny that in the past this emergency designation has been abused. Sometimes it has been used too loosely to justify mid-session expenditures.
But this bill, this supplemental appropriations bill that we were debating in the Full Committee yesterday is tightly drawn. And it has, of course, been a matter of public knowledge that it was only at the last minute under severe political pressure within the Republican conference that this list of offsets was devised.
This is not something that the majority was planning on all through this process. This list of offsets was cooked up at the last minute, a set of domestic offsets for mainly military spending, and was put out under some well-publicized pressures within the Republican conference. And it is quite a list, this list of offsets. It hits the programs which this committee oversees especially hard.
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The National Service, Americorps program, already modestly funded. In my State, I certainly can testify that this has been an important program for young people and for the communities they serve, gravely threatened by this proposed offset. And then even more, the damage threatened to Section 8, to housing, as has been well documented, here this morning.
Now, the supplemental bill does retain the emergency designation, despite the offsets, and that the reason for that became quite clear in our discussion in Full Committee yesterday. The reason was that the majority wants to breach the firewalls between the defense and domestic spending and that can only be done technically if the emergency designation is retained. But that is a precedent I believe that defenders of the military budget, as well as defenders of these domestic programs may well come to regret.
The raiding of Section 8 housing, of National Service, of education and other programs in order to fund this emergency spending is a gross breach of the firewalls concept and I would say most dangerous in terms of the precedent that it would set.
I do not know if you have further comments that you would like to make on this but I think it needs to be said that this emergency approach is not something that is new or unique with this administration and it is also true that up until a very few days ago there was a bipartisan plan on its way to approval to fund this disaster relief and the military operations on an emergency basis.
Secretary CUOMO. Congressman, if I might at the risk of energizing Congresswoman Meek again, I could not agree more with what the Congressman is saying. I think the administration's position is clear. This is emergency legislation and that is why it does not require offset.
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To use domestic programs to fund this breaches the firewall and it would also breach the letter, if not the spirit, of last year's balanced budget agreement. I do believe I heard from Congressman Walsh what I would consider agreement in terms of the Section 8 funds, which is at this point the Section 8 funds are not needed today at this moment but they will be next year. And we have to make sure that we have them restored next year. That we have that $1.9 billion back because nobody wants to jeopardize those 210,000 families.
My added point isand this is what I was trying to express to the Chairman earlierthat $1.9 billion should not come out of HUD's hide. This is one of the best HUD budgets in 10 years. We did our homework last year. We are now getting back into the business that we are supposed to be in. The nation will be getting back into the housing business with this HUD Budget. It is inexcusable that since 1996 we have abandoned the housing business. We are asking for 100,000 new vouchers, only 100,000 new vouchers to get us at least back into the housing business.
If anyone thinks that $1.9 billion would then be restored through the HUD Budget, I think that would be dangerous and unfair. The $1.9 billion has to be apart and aside from any discussion about the HUD Budget. I am even more enthused by GAO today saying, there is $691 million more in HUD's Budget. Which means, Congressman, we could have the entire HUD Budget that we have discussed: the Administration's proposals and then restore the 202 cuts from the GAO and have the entire HUD Budget in place. And this $1.9 billion has to be separate and aside, it should not come out of Section 8 or any other program.
Mr. LEWIS. Does this mean the Secretary is suggesting we are going to get an authorizing bill this year?
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Secretary CUOMO. The Secretary would not make any representation or suggestion, Mr. Chairman, as to authorizing bills.
COMBINING HOME/SECTION 202/811 PROGRAMS
Mr. PRICE. Thank you, Mr. Secretary.
I want to pick up on an issue relevant to Mr. Frelinghuysen's discussion, although not the same thing. It has to do with the telescoping of the Section 202 and 811 programs into the HOME program and trying to explore with you the implications of that.
As you may recall, we had a long discussion last year about the virtues of the HOME program and fortunately this subcommittee and the Congress were able to increase the HOME budget. I am a strong believer in that program. I know it is probably the most flexible kind of support we can provide for affordable housing, it leverages all kinds of private sector money and nonprofits with a minimum of regulation and red tape. I just think it is one of the most efficient ways of promoting affordable housing that we have, this HOME program.
In my district, alone, 1,000 homes and apartments valued at nearly $60 million have been produced using HOME funds by just one agency, the North Carolina Housing and Finance Agency. So, I am a big believer in HOME.
I do want to ask you, though, what the rationale is and what the implications are of lumping together the Section 202 elderly housing program and the Section 811 housing for disabilities program into HOME. If you could just walk us through how this funding is going to work, will the final combined HOME Budget be more or less than the currently separated budgets? My reading indicates that it will not be.
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You are proposing something like $333 million for elderly and disabled activities combined. Whereas the current budget for 202 is $645 million; the current, budget for 811 is $194 million.
So, what are these activities going to look like and what assurance can we have that the focus we now have on housing for the disabled and for the elderly will be retained under this new arrangement?
Secretary CUOMO. Congressman, when the Department had to put together the Budget, obviously, we had to make many tough choices and these were all very tough choices. The choice between the 202 program and the HOME program and economic development and having to choose one over the other leaves no good solution.
What our Budget suggested was rolling the 202 program into the HOME program and supplementing it with vouchers. It had two principles which it was advocating.
Number one, combining all the resources into the HOME program so that the local governments would have more flexibility and authority, devolution, to use a word. Put all the affordable housing funds in one program and then say to the governor and to the mayor, here they all are, you can plan the use, you can allocate accordingly, senior housing, et cetera.
That was first of all; and, second of all, it was the increased use of vouchers for senior citizens which, as the Congressman knows, is a more cost-effective way of providing units.
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FUNDING FOR SECTION 8 VOUCHERS FOR ELDERLY
Mr. PRICE. And where does that appear in the Budget now? Is that an increase in or a designation of a certain number of Section 8 vouchers?
Secretary CUOMO. Yes. There were two components. We have the roll-up of the Section 202 and 811 programs into the HOME program and additional units under a set-aside under Section 8 vouchers.
In our proposed budget we would produce 8,839 Section 8 vouchers and, construct 1,500 units for a total of 10,000 units. Under the current budget, we only produced 6,000 units under the 202 program. So, actually the number of units for seniors would go up, when you count the vouchers, and the cost would come down. The trade-off is that you are not constructing units the way you do under 202; you are just renting units under Section 8. And that is the trade-off.
Mr. PRICE. An acceptable trade-off in your view?
Secretary CUOMO. Again, these are all difficult choices, congressman. The GAO testimony is actually interesting to me because it might moot, if the Committee deems it, the choice. If the GAO is right and we believe that it is right, that there is $691 million in the HUD Budget, the committee's desire to restore the 202 funding could be done from that $691 million that GAO identified.
Page 69 PREV PAGE TOP OF DOC Mr. PRICE. What about Section 811 and disabled housing? Do you, is your reasoning similar in that case?
Secretary CUOMO. Same basic reasoning, Congressman. And, again, the $691 million that GAO identified is more than enough to restore the 202 and 811 and then some. The restoration is about $580 million give or take, so, therefore, the 691 is more than enough.
Mr. PRICE. GAO has identified this funding. Can you clarify how that, what implication that has for our current deliberations?
Secretary CUOMO. Well, as you heard in the opening presentation, we have been doing a lot of management work, a lot of financial reform work and as we are tightening up our financial systems and structures, we are actually ''finding funds'' that we either could use for other purposes or that we may not need.
GAO says there is a minimum of $691 million in what is called our Mod Rehab accounts that they believe is available for use. And that is over and above the Budget that we submitted. The Budget that we submitted did not fully cover the 202 program. The Committee could use the $691 million to make up the shortfall in the 202 program.
GAO, by the way, also refers to an additional $500 million that we have not even discussed, over and above the $691 million.
Mr. PRICE. But you are suggesting that you would have no objection to those funds being applied to continuing the 202 and the 811 programs at something close to their present level?
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Secretary CUOMO. Congressman, when we submitted the budget we did not have the $691 million available to us. So, we stand by the budget we submitted. There may be funds that are on the table that were not there when we submitted the budget.
Mr. PRICE. Thank you.
Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Price.
FHIP FUNDING AND PROPERTY INSURANCE
Mr. KNOLLENBERG. Thank you, Mr. Chairman.
Welcome, Mr. Secretary. Thank you for your testimony.
Incidentally just one comment about increasing the loan limit. I find that some of my friends are for increasing it, some are against it and some are in the middle. So, if I am to be with my friends, I am going to have a problem, I think, but we will get to that.
I want to discuss the FHIP, FHAP situation, the Fair Housing Initiatives Program and the Fair Housing Assistance Program which, as you well know, are two different things.
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And it is no secret that I have been critical of the way it has been handled and one of the reasons I have some criticism is the fact we believe we observed the statute most literally by saying that the statute does prohibit discrimination in the sale, rental and financing of housing and yet, the statute makes no reference at all to the business of insurance.
So, in the 1998 bill there was report language that was added which says, with respect to appropriations for enforcement the Fair Housing Act under the Fair Housing Initiatives Program, the FHIP portion, not the FHAP, these funds should be used only to address such forms of discrimination in the sale, rental and financing of housing as they are explicitly identified and specifically described in Title VIII.
Now, this language was included in, as I say, the 1998 appropriations bill and the statement clearly indicates that we intended that FHIP funding not be used for activities relating to the enforcement of the Fair Housing Act against insurers. Was that your understanding of that statement?
Secretary CUOMO. Congressman, this is Assistant Secretary Eva Plaza who has joined us at the table. This is an issue that the Assistant Secretary has been working on and with your permission I would ask her to respond.
Mr. KNOLLENBERG. Okay.
Ms. PLAZA. Thank you. Good afternoon.
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Congressman, we heard you loud and clear, first of all, and we believe that we have adhered to your concerns with respect to funding of property insurance discrimination in the FHIP program. There is certain case law that controls and the case law that we follow is that basically all discrimination would be funded under a FHIP program, any activities involving any kind of discrimination.
Mr. KNOLLENBERG. Well, I understand that but in terms of gathering what it is that you are saying I know that in a letter we received on one date, this is not the first year we have done this; we have done it for a couple of different yearsthe letter of response that we got from you folks. I think that was signed by a Mr. DeCell, III, that person is in the room, I take it?
And I think both of these letters were, in fact, signed by Mr. De Cell. What I am concerned about
Secretary CUOMO. He changed his name.
Mr. KNOLLENBERG. One letter says in 1997, it is clearly stated that HUD'sthis is the response that we receivedthat HUD's notification of funding ability would state, and I quote, ''activities relating to application of the Fair Housing Act to property insurance will not be funded under any of the three initiatives.''
Now, subsequent to that and about two months later we received a letter saying that FHIP funds would not be used for narrowly focused enforcement activities. These two statements appear to be inconsistent. One says, we are not going to do it. The other says, well, we will only do it for narrowly focused activities.
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And apparently again, there is report language and I side with Mr. Frelinghuysen who brought up the fact that some report language that was in the bill was not necessarily adhered to in his case. And I see a pattern perhaps here that it is also in this case.
So, I am wondering is that HUD's view? What is HUD's view; and, if not, why did HUD agree or ignore, rather, our intent in this case?
Ms. PLAZA. Well, yes, Mr. Congressman. First of all, let me just be very clear about where we are now. And from my understanding, where we have always been and that is that FHIP grants that focus on a single issue, such as property insurance will not be funded. In the past that was the case.
The kinds of grants that we will fund in this year and future years will be broad-based grants, requests for money from these nonprofit organizations to cover all kinds of housing discrimination.
We will not be funding any grants that only target insurance companies.
Secretary CUOMO. Which I took it, Congressman, was the point last year, that we had been funding grantees who were focusing exclusively on the insurance industry. And what the Assistant Secretary is saying is we changed that policy. We only fund groups that have a broader agenda. However, the courts have said that in insurance is one of the activities covered under the fair housing, so you cannot disregard what the courts say, but we are not funding specifically on that purpose.
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FHAP FUNDING FOR STATES INVOLVEMENT
Mr. KNOLLENBERG. The question I have is, there is the other agency, the FHAP agency is out there. That program is available to bring about a devolution, if you will, to the States to take care of some of these matters. But we do not see that money increasing into that. We see it increasing rather into the FHIP program. I wonder why are we not doing more to bring about some State involvement? The program is there.
Secretary CUOMO. Well, Congressman, I agree. And we are actually doing both in this Budget. We are trying to bring more States in and we would increase the FHAP budget, we would also increase the FHIP, pardon the acronyms, but this budget would do both.
They both play a very important role but I would agree with the Congressman, the more devolution the more States we can get in to take responsibility, the better.
Mr. KNOLLENBERG. Well, as you know, Mr. Secretary, the States have, all 50 States and the District of Columbia do have in force the kind of housing laws that could be utilized and FHAPI hate to use that as well, but that is itthe FHAP should be, I think, given greater emphasis and wherever possible allow the States to play a role in those things.
So, I appreciate what you saying. It just seems to me that those two statements from the individual over a time frame of 60 days, one was very focused on a specific, what you will not do and then we come back with a statement that seems to modify that somewhat.
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You can go to the letter, itself, and I can refer to verse and scripture, whatever you need, but we will be looking forward tobecause on the Senate side, Senator Bond and I are both going to our respective floors and made the complaint about this.
And so it is in the record there as well. So, we would like to see some movement in the direction of a consistency that we can rely upon. And I do appreciate your responding.
I also want to thank all of you, Mr. Secretary, and others and the Deputy Secretary for coming today.
You do have a difficult program to administer and I do not deny that at all. But we want to just help you follow the line of our direction and that is why the report language, if it is not going to be adhered to, we would like to know why. That is the question we are asking.
Secretary CUOMO. Thank you, Congressman. We will and we are. On the specific question about the FHAPs, we propose $8 million more on the FHAP program. We would then be under contract with about 30 States which would increase the number of States that we have. So, I could not agree more and we will follow the report language and we will get back to you with a more specific report on the issues that we discussed today.
Page 76 PREV PAGE TOP OF DOC Mr. LEWIS. Thank you, Mr. Knollenberg.
Ms. KAPTUR. Thank you, Mr. Chairman, very much.
Welcome, Mr. Secretary. Good to have you before our subcommittee.
Secretary CUOMO. Thanks. Good to be here, Congresswoman.
FURTHERING JOB CREATION EFFORTS
Ms. KAPTUR. Mr. Secretary, thank you for your testimony, which I was not present to personally hear but have read it. I had a conflicting meeting this morning. I have several questions that I will submit for the record, but some I will ask you directly, and they are rather practically oriented. On pages four through seven of your testimony, you talk a lot about jobs and community empowerment. And recently I have been talking with several of the members of Congress, such as Congresswoman Millender-McDonald of California and Congressman Joe Serrano of New York, about some of the unemployment issues facing residents of their district, many of whom live in public housing, and what the possibilities would be of our creating several demonstration efforts across the country, centered in these public housing developments, that would focus on job development for those residents using Federal procurement as a linchpin.
For example, DOD acquisitions might become the basis for a sewing cooperative in Los Angeles or computer board manufacturing might make sense in New York City. I am wondering if we might use your convening authority and some of your staff to meet with a delegation of members who represent districts that are extremely low-income, to take a look at the array of resources beyond your department that could have a bearing on creating some job opportunities on-site, not just moving people to suburbs as your testimony does talk about, and I support that. But many of these individuals are locked into their residential areas in many ways, so it is going to be hard for them to find work without first having an opportunity to learn a skill that can then be used to launch into something else. Would you be open to that?
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Secretary CUOMO. Oh, it would be our pleasure, Congresswoman. And just to clarify, in the opening presentation, we talked precisely about the point that the congresswoman makes. I see HUD's mission today, in this environment with our challenges, more or as much on the urban development side, the UD in HUD, as the H. We need urban development and jobs as much as we need housing, especially with the pressure put on us from welfare reform.
And we suggest two tracks, the 50,000 welfare-to-work vouchers which say a lot of the jobs are being created in the suburbs, let us figure out how to get a person closer to the job and use a Section 8 voucher to do thatthat is track A. But track B is create the jobs in the cities. That is our EDI, Economic Development Initiative/Community Empowerment Fund proposal, $400 million which is in the budget which will not create the kinds of jobs we need, the number of jobs we need in cities.
Congressman Stokes pointed out that even though this is one of the most aggressive HUD budgets in a decade, it is still a relatively modest step compared to the scale that we need to accomplish. But we have the Community Empowerment Fund, $400 million to do that type of work. This would fund economic development activities, job creation activities, micro-enterprise, credit unions, community development banks, joint venture funds. So that is our Community Empowerment Fund proposal.
On the specific point the Congresswoman raises about the procurement, it would be my pleasure to convene that exercise. We have the Community Empowerment Board, headed by the Vice President, who has been involved in this issue. But that would be a good forum to discuss the use of Federal procurement and how we link that to job development in central cities.
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Ms. KAPTUR. Yes. I appreciate your openness on that. So many of our industriesfor example, in New York, as you know well, the apparel industry has moved offshore. And I can tell you, as a female shopper in this country, the price of clothing really has not gone down and I would love to start some sewing cooperatives around this country. And I think people like Kathy Lee Gifford would want to hire some of these good workers. [Laughter.]
DEINSTITUTIONALIZATION OF MENTALLY ILL
And we would like to find a way to do that. So, Mr. Secretary, you can do important things in your work and we look forward to helping you on that
Secretary CUOMO. Thank you.
Ms. KAPTUR. Secondly, in the area of homelessness, I am very supportive of your efforts and you really have done an enormous amount in this area. Again I am wondering if you would be willing to use your convening authority across agencies for the following. I have long been concerned about the deinstitutionalization of patients from mental hospitalsthat dates back several decades nowand that the major houser of homeless, mentally-ill people are now our prisons and our jails across this country. There was a big article recently in the New York Times, in fact, about that.
We know that at least 40 to 50 percent of homeless individuals in this country are veterans, most of whom are mentally ill with often complications of drug and alcohol addiction. This is a very serious problem and we are losing people every day across this Nation. Now, I know HUD has in the past had some emphasis on homes for the mentally ill and so forth, but it is extremely complex to deal with this population. Again I am wondering, would you be willing to serve as the convener between the Department of Justice and those that run the prisons, our Veterans Department, which has some incredible psychiatric counseling programs for our veterans, trying to reach out to the homeless across America, the Department of Health and Human Services and NIMH, all of whom have a piece of this but generally do not work together? I would very much like to see some type of interagency initiative here and guidance for the country in this area. And so much of the homelessness problem is really a problem of the mentally ill.
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Mr. LEWIS. Ms. Kaptur, would you yield?
Ms. KAPTUR. Yes, Mr. Chairman.
Mr. LEWIS. I am sorry to do this to the Secretary or to my members, but I was going to close today with this very, very point. And your suggestion of convening authority is a very imaginative application of responsibility. I am not sure, Mr. Secretary, whether we have talked about this. I know I did with the previous secretary, a good deal.
When I was a greenhorn in the state legislature, we passed a bill that eliminated, essentially, or made it much more difficult for people to be in institutions such as mental institutions. The theory being that we put people there and threw the key away and the problem disappeared. Thus we were going to have them out of institutions, back in the communities where there were clinics. The institutions all but closed down. The local clinics were never fully realized and the problem did not disappear. It became, starting in California, replicated across the country, State after State deinstitutionalized and left these people in the streets. And these people are often emotionally disturbed, alcohol and drug abuse is prevalent today. So what could be Housing and Urban Development responsibilities and problems are probably a problem of decisions that we have made that we have never been willing to reexamine, and what better place for the persons worried about the homeless most to exercise such authority as well as responsibility. I thank the Gentlelady.
Ms. KAPTUR. Mr. Chairman, I am, as usual, very admiring of your interests and your leadership in this area. And I guess I personally will feel like a failure as a Member of Congress if, by the time I leave, I do not really make a difference in my own way. I am trying to get those who have the power to make a difference to address this issue. If I have a hero beyond those in this room on this issue, it would have to be Dr. Fuller Torrey, who is based at St. Elizabeth's Hospital here in Washington and has written books such as Nowhere To Go and who has been trying to get changes on the medical, the housing, as well as the justice front, for many, many years. And with the Chairman's interest and support, and I know the members of this subcommittee and certainly my own, I would hope that we could shape a better future for many of these people who, in many ways, do not have the ability to cry out to us because of their own medical situations
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Secretary CUOMO. Well, Congresswoman and Mr. Chairman, I could not agree more with the point that you have raised. This homeless term really has become a catch-all for a lot of sins and a lot of problems that we are trying to deal with. We had that great notion of deinstitutionalization, which was the right idea, which said get them out of institutions and into community-based residences. One caveat, we never built the community-based residences. So they came out of institutions and now they are on the street, and we thought that we solved the problem when we deinstitutionalized.
So now we had to recognize it as a different problem. It came to be called the problem of the homeless. And there is a serious need for community-based mental health under the homeless caption, as well as other needs. You have a need for substance abuse facilities in this Nation. We only provide a fraction of the necessary substance abuse facilities. You have a need for domestic violence training. My home State, the State of New York, the number one cause of homelessness is domestic violence. But we now call all of those issues homelessness. Mental health, we call it homelessness; substance abuse, we call it homelessness; mental illness, chemical addiction, we call it homelessness; domestic violence, we call it homelessness, which, I think, is okay as long as we understand the different subpopulations and the different needs. But then we also have to understand the scale we are going to have to bring that to.
We are asking for a $327 million increase, which is a baby step in the direction that we have to go. It would bring the Budget to the highest level ever, but it would only start to bring us to the type of scale. The good news is with this continuum of care and the work we have done the past 4 years, we have identified the need, we have identified the groups and the expertise. We know how to do this now. We know how to provide community-based mental health. We just need to do more of it.
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Ms. KAPTUR. Mr. Secretary, I want to say that some of the money we need is being misspent or not wisely spent through the Bureau of Prisons in housing people who are mentally ill. Within the VA, for example, an individual patient in Cook County, Illinois will be readmitted to a hospital there 17 times in the last 10 years. We are misspending money all the time, and one of the reasons for the request to have an interagency discussion of this is I think some of these dollars could be more carefully applied and better used to deal with the reality of that person trying to live. Housing people in prisons is very expensive, and treating people in these hospitals is very expensive.
COLLEGE OF EXPERTS AND COMMUNITY BUILDERS
Actually, housing them with proper psychiatric follow-up is much cheaper. So perhaps starting in small ways, we could really create a change. I appreciate your ear on that. The third question for this round deals with a question I had asked last year. And now you have Father Hacala on your staff over there at HUD and I commend you for that.
We had talked beforeand even when Secretary Cisneros was in placeabout creating some type of learning network across the country to teach personnel working with community development corporations how to run them, how to manage housing projects, how to deal with essentially not-for-profit development and sometimes for-profit management. The training site could be modeled on the New Communities Corporation in Newark, New Jersey.
I have talked with Congressman Payne of Newark on this, and he is very open to this. We would very much like to host such a discussion, working with you and with Father Hacala, up at New Communities some time this spring. And I am wondering if within HUD there has been any discussion since last year about how to make it easier for personnel who generally are younger or transitioning from another occupation into one of these development organizations, to get them up to speed and to see what is possible to do faster. Have you been able to achieve any success on that?
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Secretary CUOMO. Congresswoman, we were so excited by your idea, that we actually appropriated itpardon the punand it is now a HUD idea, you see.
We are doing it on two levels. Number one, we have established something we call the College of Experts, where we have contracted with some of the most creative not-for-profits, community-based corporations across the country, and we pay them, in essence, to train other CDCs, et cetera.
One of the senses I quickly got as Secretary was everybody is reinventing the wheel, and we are not sharing the knowledge that we are gathering effectively enough. The New Communities is such an example.
So we have a College of Experts with technical assistance money. We will actually fund the best to teach the rest.
We are then doing something else, which I mentioned in the presentation, which very much builds on the same point. Monseigneur Baroni would have been excited by it. Something called the Community Builders, which does two things. HUD needs new expertise and new infusion of talent. We have not had a significant infusion of new talent in HUD in over 10 years, and I think the entire organization has paid a price for that.
We want to hire 230 new hires who know the state of the art in community development. The state of the art in economic development. The state of the art in housing programs, and how to use the low-income housing tax credit, and mortgage revenue bonds, and how to set up a community development bank. 230 new hires. Again, net, we are downsizing, but within that, 230 new hires. We will have them at HUD. We will only ask them to give us 2 years; an option up to 4 years. We will train them in the HUD programs, and then they can go back into the community and we will hire a new class.
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So there will be rotation, there will be a turnover, and people who are in not-for-profit CDCs can come into HUD for 2 years, bring their expertise, understand how HUD works, how the Federal Government works, and then return back to the community.
So there can be a training, there can be a synergy among the groups, and HUD, raise the training across the board. So it is something we are excited about.
Ms. KAPTUR. Well, I am just very excited at that kind of follow-through and you certainly have this Member's support, and to the extent that we can be kept informed of your progress, we will try to be helpful. I thank you very much and will suspend during this round.
Secretary CUOMO. Thank you very much.
Mr. WALSH [presiding]. I thank the Gentlelady for her questions.
We will now go to the gentleman from Ohio, Mr. Hobson.
Mr. HOBSON. Thank you, Mr. Chairman.
Mr. WALSH. If I could just explain. As soon as Mr. Hobson completes his questions, that will complete this round, and then we will reconvene at 2:00 p.m.
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Mr. HOBSON. Mr. Secretary, I have about four areas that I would like to discuss with you and I have a submission at the end that I would like to submit for the record, and hope you will read some time, from Mr. Greenspan.
I first would like to thank the Inspector General, Susan Gaffney, for her timely response to requests I made concerning the audit of the Springfield Metropolitan Housing Authority. It has been very helpful to the community. It is nice to see an agency react, and I think as a result of this we will have a more effective agency for the community, which I think is important.
In 1997, Congress wrote letters to HUD asking for clarity on the treatment of real estate settlement procedures, RESPA, and payments made by lenders to mortgage brokers. On October 16th, 1997, HUD issued a proposed rule that did not clarify the legality of such fees.
Why was this clarification omitted from the proposed RESPA broker rule, especially since the intent of the rule making was to give brokers and lenders a break from class action law suits?
Why did HUD require lenders and brokers to disclose lender-paid fees in the final 1992 RESPA rule, without offering assurances that such payments were legal under RESPA?
And finally, does HUD intend to clarify that lender-paid mortgage broker fees are not illegal per se?
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Secretary CUOMO. Congressman, I have asked Gail Laster, who is the General Counsel for the Department to join us. Just so I understand the question. Are we referring to the yields spread premiums?
Mr. HOBSON. Yes.
Secretary CUOMO. The HUD rule that we put out, Congressman, basically provides a safe harbor, if you will. It says there should be disclosure. From the consumer point of view, we want total disclosure as to what the relationship is between the broker and the consumer. There can be a number of relationships, but the consumer should know what the relationship is. Is the broker working for the consumer? Is the broker working for himself or herself? Is the broker working for a bank?
Everyone, all the parties should have that clarity going into the relationship, and we say that there can be a number of relationships, but let us understand what it is. And then the rule says if there is clarity, and if you say I am not representing you, the buyer, but I am just trying to make the best fee I can for myself, that that disclosure provides, in essence, a safe harbor.
But let me ask the General Counsel to comment on your question.
Ms. LASTER. Yes. Good morning.
Mr. HOBSON. Good morning.
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Ms. LASTER. I would just say, Congressman, that, first of all, it is a proposed rule. It was proposed in October 1997. It has not gone to final. There was a 60 day notice and comment period, and we have received some 9,000 comments.
Mr. HOBSON. I understand that.
Ms. LASTER. So we are reading through them, but we have yet to do a final rule.
Mr. HOBSON. Okay. Well, you have got another one. 9001. Okay? [Laughter.]
All right. This is a different subject, so you do not have to worry.
Ms. LASTER. Thank you.
FHA LOAN LIMITUNDERWRITING CRITERIA
Mr. HOBSON. Can you tell me, Mr. Secretary, under the change to theand I am taking a position on thislike everybody else, we have friends on all sides of this issue, on increasing the loan rate, or the loan amount.
What would be the income level of a person who gets a $227,150 mortgage under your current underwriting criteria?
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Secretary CUOMO. I will get you that information, Congressman.
[The information follows:]
Question. (Hobson) What is the income level of an individual who would qualify for a $227,000 home loan?
Answer. Under the FHA's flexible payment-to-income ratio of 31 percent for new homes, a purchasing household would need to earn between approximately $68,000 and approximately $88,000 depending on interest rates, to qualify for a home loan of $227,000. Under more restrictive private mortgage insurance guidelines including a 31 percent payment-to-income ratio, the purchasing household would have to earn between approximately $75,000 and approximately $97,000, depending on interest rates.
However, if the FHA loan limits are raised to the conforming loan limit, FHA anticipates the average new loan amount will be $142,000. HUD anticipates that very few new loans will be for more than $200,000, and FHA will continue to serve only borrowers who are not well served by the private mortgage insurance industry. Other borrowers who have stronger applications and who therefore have the option of obtaining a home loan from the PMIs, which generally offer mortgage insurance at a lower price than FHA, will continue to choose PMIs over FHA.
Mr. HOBSON. I think it is around, in the 80-some-thousand dollar range, which is one of the problems that a lot of people have, and where I live, that is not a low-income person.
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Secretary CUOMO. Yes.
Mr. HOBSON. In my district.
Secretary CUOMO. I understand that we have friends on both sides of this issue. We all do. But let us make sure we understand the facts, because the $227,000 is very misleading, Congressman. We are trying to do two
Mr. HOBSON. That would be the nationwide limit, right?
Secretary CUOMO. Well, yes; but we are trying to do two things with this proposal. Number one, raise the loan limits. Number two, come up with what we call a uniform income level. Right now, we have 250 different income limits for FHA depending on where you live.
It makes the program very cumbersome to deal with from a mortgage broker point of view, and from a lender point of view.
If you are in Springfield it may be one rate; if you are in Chicago it is another rate; if you are in Syracuse it is a third rate.
It would be much easier if it were one rate across the country, just from an operational point of view. We then picked the highest possible rate across the country as the level, which is $227,000. It does not mean you would use that level in practice across the country. The level in two-thirds of the Nation is $86,000 per year right now. $86,000.
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Mr. HOBSON. I know because I fought to move some of mine up in some of my areas.
Secretary CUOMO. Okay.
Mr. HOBSON. So I have been on both sides of this thing.
Secretary CUOMO. All right. So two-thirds of the Nation is $86,000. What is called the high-cost areas are now $170,000 and the $170,000 are really the areas that would go to the $227,000. In practice, where the level is now, $86,000, you would not start to make $227,000 loans. If anywhere, it would be in the high-cost areas where the cost is now 170, and it would go to $227,000.
RESOURCES FOR FY 2000FINANCIAL SYSTEMS
Mr. HOBSON. Thank you. The other, just comment thatand I do not want to get into a prolonged discussion on thisis that while some people think that you would have better loans at that higher level and may reduce your overall default, it may go up, too, because there is some history in those larger loans, if they are not underwritten appropriately, even in the private sector the default rates are up. But I do not want to get into that.
I do not really want to get into that discussion here, now. I want to talk about two other things.
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First of all, I am going to ask my year 2000 question in case I run out of time.
This year, I have asked every agency that appears before the Subcommittee about the 2000 computer software problem.
Does your agency anticipate a computer problem with the year 2000? If so, what are you doing to address the potential problem, and do you have adequate budgetary resources to correct any problem that you anticipate?
We do not want people coming back here, later, saying, ''Oh, nobody ever asked us about this, we did not anticipate this, and we need more money to do this job.''
Secretary CUOMO. I will ask, Congressman, the CFO who has been overseeing the project, to give you an update, but my impression is yes, there is a problem, B, we are on top of it, and we are handling it, and we believe we will be able to address it before it becomes imminent.
But Rich, is that a fair assessment?
Mr. KEEVEY. Congressman, I think that is a correct assessment. We have sufficient resources, and this year we are spending approximately $18.5 million for year 2000. We divided up the systems into those that are most critical, that we need to get done no matter what, and those systems that can
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Mr. HOBSON. Just remember, we are asking you now, and some of us are going to be here later when this comes around, because I have been dealing with FHA in my private business sector for over 30 some years, as some of you know, going way back, and there are lots of old systems and stuff that we did not think about back in those days.
Mr. KEEVEY. That is right, and it is just not a problem internal to HUD. We have to implement a lot of interfaces out there, for example, in the FHA community people send us data, we have to make sure that their systems are conforming with our systems.
We have a lot of oversight going on in this area from GAO, from OMB. We have tried to set up milestones as to where we hit certain systems at a certain time. We are scheduled to get everything done no later than July of this year and then December 1998 we will have everything even verified, and then we will have a year remaining to double and triple check it.
Mr. HOBSON. And then we will find the real problem.
Mr. KEEVEY. Yes. In my world, the
Mr. HOBSON. Well, at least you will try to minimize whatever we run into and I appreciate that. But I am just asking everybody that because this could be a major problem, especially in an agency like yours.
Page 92 PREV PAGE TOP OF DOC This is a long statement but I want to get it in the record right now.
Last summer, the Agency announced a reform plan to consolidate recordkeeping and program activities, and focus more on assessing housing stock and controlling fraud and abuse.
Several months later, the HUD Inspector General issued a report raising serious questions about whether the plan will be effective, or even, say, the Government agencyby the way, she did not ask me to ask you this question so do not worry about it.
Several of the IG's findings are in my mind and disturbing, especially the claim that the target reduction in workforce was selected without analyzing the impact of the workload or mission of the Department.
COST BENEFIT ANALYSIS FOR STAFF REDUCTION
How did the Agency select its target workforce reduction number? What will the impact of such a reduction be on the Agency?
Do you anticipate that by offering buy-outs you will lose quality senior staff with significant expertise?
How will HUD deal with such losses? Also the IG report asserted that HUD did not perform a cross-benefit analysis of the reform proposal to determine if money would be saved or if new additional spending will be required for contractors.
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I do not know if this is a true statement or not. Did the Department neglect to conduct a cost-benefit analysis? And frankly, it seems to me this would be important part of any reform plan, if one has not been done.
Secretary CUOMO. Yes. Congressman, we reviewed the Inspector General's report. We took some points, incorporated them, and we left others behind, and I said to the Committee at that time, that there were a number of different opinions on the reform plan, and keep in mind the context.
This is a very ambitious reform plan. This committee made clear, as did the authorizing committees last year, that HUD needed significant reform, and we came up with a very ambitious plan.
The IG had one opinion, the GAO had one opinion, the Department had a third opinion, and basically the discussion with the Committee was which is the right opinion. I said at that time let us go get an independent qualified evaluator, and we went to Booz-Allen to come up with the report. That is the report that I released today, when we began this hearing, Congressman, and the report is quite extensive.
But I think it is fair to say that the report says the overall track of the reform is right, we have made good progress on it, and speaks specifically to the staffing which it says on our current track, we would need about 7,700. We had estimated about 7,500.
So we feel that the report speaks volumes about the intelligence of the reform measures that we have undertaken.
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We did do a cost-benefit analysis. That was published in the Federal Register, and I believe the report also refers to that.
And if I might, Congressman, quickly, on the FHA because I do not want to belabor the point, but just to respond directly.
The FHA proposal scores savings as OMB believes, about $227 million. On your point about the higher-end loans being riskier or loans or not, obviously we believe they are not riskier loans because we believe we make money on them. 227. CBO recently scored the same premise at $212 million.
So HUD's number is $227 million, CBO's is $212 million, and in this game that is very, very close, and when CBO believes that and is in accordance with OMB
Mr. HOBSON. It is a strange world.
Secretary CUOMO. It is a strange world, but this time the strangeness works to our advantage, so we will take it this time.
GREENSPAN COMMENTS ON OFFSETS AND CAPS
Mr. HOBSON. I understand. And I do not want to get into a political discussion that we are having about off-sets again, but I do want to submit to you, I am going to give you a copy of it. I sit on another committee, I sit on the Budget Committee, and I am going to submit it for the record, Alan Greenspan's comments about not doing off-sets and the importance of the caps. I do not want to get into the rhetoric again on it, but I would hope, as I said to the Secretary of Defense, that you will read it because it is very important as we go through this whole discussion. Thank you very much.
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Secretary CUOMO. Thank you very much, Congressman.
Mr. WALSH. Mr. Hobson, thank you for your questions.
Mr. Secretary, that ends this round of questioning. Thank you for the thoughtfulness and thoroughness of your responses, and we look forward to seeing you at 2:00 o'clock.
Secretary CUOMO. Thank you.
FHA DEFAULT RATE
Mr. LEWIS. Mrs. Meek, do you mind if we start? Mr. Stokes is spending time at several committees, and I know he would forgive us.
So, Mr. Secretary, welcome back. I am sorry for the delay. You never can tell about these important votes.
Mr. Secretary, I am going to go back to FHA, again, for I want to dwell on that just a little while.
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Many are concerned that increasing FHA's loan limits will increase the delinquency rates of FHA-insured loans, thus, adversely impacting the safety and soundness of the Fund. In connection with that, I have noted that the counseling efforts that are part of your programming bode pretty well, in terms of the impact they can have and what happens with the marketplace out there.
I know that the Department does not do the counseling relative to FHA facilities that are funded by way of FHA, but their default rates are troublesome, to say the least. So I am interested in some reaction or interaction about that.
Secretary CUOMO. Mr. Chairman, the FHA default rate is higher than the conventional default rate.
Mr. LEWIS. How much?
Secretary CUOMO. It is close to double, I believe, but that is somewhat misleading because the FHA, by definition, takes a higher risk on the loana riskier loan. FHA makes a loan that the private market would not make. That is, basically, the function of FHA.
In the reciprocal, we charge a higher premium because we are taking a risk that the private market does not make, but that is the essence of the FHA. Now, on this loan limit proposal, it is the interchange that we had with Mr. Hobson. What is interesting here is, both OMB and CBO say we make money on the higher loan limits. We would not make money on the higher loan limits if there was a higher default. OMB scores it $227 million. CBO scores it $212 million. So they are both saying there will be less defaults, we will make more money on the higher loan limits.
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Mr. LEWIS. I enjoyed your response, but my question really went to that portion of the portfolio that does have higher default rates and what we could do about improving those circumstances, and that was why I addressed the counseling question. The counseling is done by way of those who are delivering FHA loans.
That, obviously, is a little different than what appears to be a pretty good program internally. So that is kind of what I wanted to just have you think about out loud.
Secretary CUOMO. Our goal is to get the default rate lower and still serve the people we want to serve. Mr. Chairman, we could easily make the default rate lower, just do not make as risky, as aggressive a loan.
Within our mandate, we want to bring the default rate down. That is housing counseling. That is making sure the people we put into homes are prepared to be in those homes; that they have gone through the financial planning, and the financial training, they know what the costs are going to be, they have worked with a counselor who has gone through their finances and assured that they can enforce it.
That is what our efforts are about.
Mr. LEWIS. That is what your counseling is about.
Page 98 PREV PAGE TOP OF DOC Secretary CUOMO. Yes.
Mr. LEWIS. I am not sure that is what FHA counseling is about.
Secretary CUOMO. Well, in 1996let me give you what the experience has been from Fannie Mae and MGIC, et cetera. In 1996, HUD, Fannie Mae, MGIC, and other private and nonprofit organizations created the American Home Education and Counseling Institute, which is training and counseling providers so we can have a national network of these types of counselors. But that is the service that FHA is looking to bring to bear.
Mr. LEWIS. Let me just inject this thought. We can decrease the requirements on the part of people who want to buy, by way of FHA, if they are willing to go through some counseling.
Secretary CUOMO. Yes.
Mr. LEWIS. The question is whether those counseling processes are of the quality of the kind that we have in your internal programs, and it is that sort of examination, have somebody help us with that to see if we can improve what they are doing by way of having them learn more about what you are doing.
Secretary CUOMO. You are saying, Mr. Chairman, that the internal HUD programs may not be as good as
Mr. LEWIS. They are better thanit appears they may be. In other words, the counseling provided, et cetera, has a different quality and mix. I do not have expertise here either, but that is what I am hearing, and so let us have somebody examine it and let us talk about it, and we can affect what they do qualitywise, et cetera.
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Secretary CUOMO. Okay. We have the appropriate people here now, Mr. Chairman, if you would like to get the sense.
Bill, would you like to or
Mr. LEWIS. Identify yourself for the record.
Mr. APGAR. Bill Apgar.
Secretary CUOMO. He is pending Senate confirmation, Mr. Chairman, so he is not so eager to identify himself, you see. [Laughter.]
But it is too late, Bill.
Mr. LEWIS. I am asking you as a private citizen. [Laughter.]
Mr. APGAR. As a private citizen, last fall when I was at Harvard we did an extensive evaluation of home buyer counseling, and there are a lot of good programs out there. Neighborhood Works, run by the National Revitalization Corporation is one of the most excellent ones and a lot of people are getting together, as the Secretary suggested, HUD, Fannie, MGIC to try to put some focus to these counseling programs.
Too many times a group will come forth and say we have counseled a borrower, stamp them approve, and nothing real has happened. For these programs to work, they have to have significant counseling, standardized curriculum, something that will really help the household do it.
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Mr. LEWIS. When you eventually are confirmed, maybe from the outside you might bring into the Agency that there are some ideas relative to the counseling that work within the Agency, and by other groups like Neighborhood Reinvestment, and maybe if we encouraged FHA, like mortgage bankers, to adopt we might havethe synergism sometimes has an effect and all kinds of contributions can be made.
Mr. APGAR. For sure. FHA requires counseling for borrowers that get this reduction in mortgage premium.
Mr. LEWIS. Correct.
Mr. APGAR. And most of those counseling programs are through the programs like the Fannie Mae program, and so we insist on good quality counseling, and that should be the industrywide standard. I agree.
Mr. LEWIS. If you could bring even to those very fine programs some of the ideas from places like Neighborhood Reinvestment, that might even help more.
Mr. APGAR. Right. Good.
Mr. LEWIS. Thank you.
Page 101 PREV PAGE TOP OF DOC I have some questions about foreclosure rates, et cetera. We actually know some of that. If you could just supplement the record and make sure that we are in sync regarding that information, I would appreciate it.
Secretary CUOMO. It would be a pleasure, Mr. Chairman.
Mr. LEWIS. Can you tell me what happens in the neighborhoods where a significant number of HUD properties have fallen into foreclosure.
Secretary CUOMO. We are trying to do two things with the FHA simultaneously; one is increase the loan limits to get us a broader market share and to serve more people who need homes.
The second is to improve the overall operations of FHA, and we have made quite a bit of progress this past year. The first automated underwriting system in the history of FHA is one of the moves in that way.
One of the areas that we have to focus on is what we call the disposition of real estate owned; that often, after a period of time from which a person defaults on the loan and FHA disposes of the property is too long, Mr. Chairman. The property falls into a state of disrepair and often jeopardizes that community.
Mr. LEWIS. I would kind of like to probe that a bit; the length of time and some of that. So go ahead.
Page 102 PREV PAGE TOP OF DOC Secretary CUOMO. I am then going to ask Bill Apgar to join us again, as a private citizen, of course.
Mr. LEWIS. Of course.
Secretary CUOMO. Because he has the rates.
But we are literally, as we speak, preparing a rule that will be out in the next couple of weeks that will revolutionize the real estate owned disposition process. Right now a house falls into disrepair, and we internally each local office, 81 local offices, contracts for the disposition of that piece of property. We will contact a local broker, we go through the sealed bid process, which in the industry is arcane, if I may say.
We are going to revolutionize the whole process, put it out for national bidessentially privatize it. We will look for a private company to come in and do that real estate disposition for us, which will reduce the amount of time from foreclosure to resale, and then we will not have that type of problem that we have in San Bernardino, for example.
Mr. LEWIS. Right.
Secretary CUOMO. Where they say the property languishes for too long and falls into a state of disrepair.
Mr. LEWIS. Well, it sure seems to me that we need to rethink that process because it is apparent to anyone that would look that it does not work, and the ill service does a lot more than just leave the property in disrepair and HUD with a bag of worms. It leaves people without housing that otherwise could work very well in the marketplace.
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So, really, rethinking our preconceived notions about that whole subject area the Committee would like to help and participate in.
Secretary CUOMO. Mr. Chairman, it would be our pleasure, if I might. We are going to put out this notice and, basically, what we are going to say to private-sector companies is you tell us the best way that we can do this. We have about 60,000 properties per year that are in this process, and we are going to ask for all sorts of creative private-sector ideas, and then we will pick the best one.
It would be our pleasure to work with the Committee in that process.
Mr. LEWIS. Thank you.
SECTION 202/811 HOME MERGER
Mrs. MEEK. Thank you, Mr. Chairman.
Mr. Secretary, if you remember, last year the administration cut 202 significantly and, of course, I was unhappy then and I am not happy now. I am dismayed by the fact that you are crushing 202 and 811 housing into the HOME program. I just do not understand why the Administration, yourself included, wants to go that route.
Page 104 PREV PAGE TOP OF DOC In my opinion, 202 is one of the best programs, one of the most proven programs that HUD has ever had. It is cost-efficient, it is well maintained, it has a very good image throughout the country, and it brings in services so that the elderly can stay out of nursing homes.
You have talked a lot here today about continuum of care. There is no better continuum of care than you would find with the 202 program because it does take care of the low-income elderly, and certainly I am a strong proponent of that.
Your proposal, which you explained to us this morning, for $109 million for new development is an 83 percent cut from the $645 million that you proposed for fiscal year 1998. It is misleading for you to say in your proposal that you are actually increasing the units by more than 10,000. But $109 million will not buy 10,000 units. It will only buy, according to our estimates, about 1,500 units. Even if my math is incorrect, it will not buy 10,000 units. That is an 83 percent cut.
So you are talking aboutand you spoke about this before, Mr. Secretary$50 million for vouchers, but that is in existing housing. That is not on new housing. That is existing, which makes it even more difficult. These are two different things that we are talking about here, two different dimensions.
I hope that we can continue to keep 202 and the elderly housing, 811, as well. The Chairman and this Committee knows that I have pushed very hard for those programs, and Mr. Frelinghuysen has also. We have a very strong sensitivity toward 202 because of what it has done in terms of the continuum of care.
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I would like to share with you the story of a woman who is in my district. She lives now in a 202 housing unit. But before she got there, she was living in a small rental apartment and, of course, she was told that she would have to move. Now, this is one of those kind of stories, Mr. Secretary, where you can put a name or face on the problems that we are talking about.
She lives in Robert Sharp Towers, and it is a Section 202 facility that is in my district, the 17th Congressional District, and it is sponsored by the National Council of Senior Citizens, just like the Mildred and Claude Pepper Towers. That is sponsored by the National Council of Senior Citizens.
Betty is 72 years old. Once she had a fairly good career. She was a dental health hygienist, a technician, and she has been on the waiting list for about three years for a Robert Sharp Towers home. It was a very good day for Betty when she was told she finally made it to the top of the waiting list and she had just until the end of that month to stay in the apartment where she was.
Her income, Mr. Secretary, was just $473 a month on Social Security. She was barely making it because her rent in this little studio apartment was $400 a month, so you can see she was not making much. She had very little furniture. Her apartment was very sparsely furnished with things people had given her or whatever she could get there.
She was lonely and isolated where she was. When she found that the rent was going up, which can go up any time it wants to, she knew she had to get out. She has no family, and that is typical, particularly in Miami because a lot of young people leave their parents there and go on about their business. But she has no family.
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She was widowed for a few years after she was married. There were no children. There is no one to care for Betty. But the people there at the Robert Sharp Towers have pretty much given her things to try to take care of her and donated items to her.
Most of the people at Robert Sharp Towers, Mr. Secretary, have never received any public assistance. They have never been on welfare. They have never received anything. They have pretty much worked their way through, but now they are old, and they find themselves without enough income to live out their final years, and many of them spent their whole lifetime savings, perhaps, taking care of their husbands before their husbands died.
Betty's story is a long one, Mr. Secretary. She has osteoporosis, and she is not in good shape. Now that she is in Robert Sharp Towers, her income and her rent are manageable. But if she were to have to go back to one of those little studio apartments where her Social Security would be so near her rent, it would be very, very difficult.
You know what else happened, sir? Robert Sharp Towers has a service coordinator, which you talked about in one of your other presentations to this Committee. That service coordinator looks out for her.
We talk about the coordination of resources. Well, that coordinator helps her out. Also, HRS looks out for her. She has a case manager which comes in from the State of Florida from the Department of Children and Family Services. They are looking out for her. She gets her food stamps. It is a long story, but this is just an example of the collaboration of services that one can get when you are in 202 housing.
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She can see the doctor regularly. She does not have to worry because they have mobile units that travel back and forth to these senior citizens housing.
What will happen to the other Betty'snot this one, but there are many more Betty's in the 17th Congressional Districtwith this 83 percent cut that you have capsulized-that is the only word I havein funding here? And that is something that is bothering me. We had to fight last year for this kind of money, and this year you came and you put it all together.
I want to tell you something, with senior housing, I do not trust a block grant. I do not trust county government. I do not trust words of good intent. Because if we did not get some kind of earmark or something from the Federal Government, some of these elderly people would not be served. They cannot go down and talk before the County Commission. They do not have anyone to go down and advocate for them.
So I just want to know, what is your rationale? I have heard you talk about it in numbers, but I want to put a face on it to show you really cut. That was no small cut.
RATIONALE FOR HOME/SECTION 202/811 MERGER
Secretary CUOMO. Congresswoman, I hear exactly what you are saying, and the rationale was this: We wanted to do a couple of things in this Budget, and we faced all tough choices.
Page 108 PREV PAGE TOP OF DOC No. 1, we wanted to get back into the housing business. We are the Department of Housing, except, as I said this morning, we do not build housing. As a nation, we provide less affordable housing than at any time since we began keeping numbers, so we wanted more vouchers100,000 more vouchers.
We wanted to have an urban development tool to create jobs because people are coming off welfare, except the problem is there are no jobs for the people coming off welfare. We wanted to do that.
We wanted to do more for the homeless, as we discussed this morning. It is a program that is working. It is a need that is growing.
With the 202 program, we then had the idea to put it together with the HOME program and use vouchers and actually produce more units, more living opportunities, using the vouchers.
But as I said this morning, the Chairman is in a different position than I was. The Committee is in a different position than I was because you do not have to make that tough a choice.
GAO, since the Budget we put in, says that there is $691 million more in the Budget. So you are looking at a much different circumstance than we were looking at when we put together the budget, and you do not have to make the choices that we made because there is $691 million more.
Page 109 PREV PAGE TOP OF DOC What I was saying this morning is the $691 million more than makes up for the cut in the 202 program. So within that HUD Budget you can do everything we talked about in our proposal, plus fully fund the 202 program, plus have money left over at the end of the day.
Mrs. MEEK. Now, you are putting yourself in my place.
Secretary CUOMO. Your place happens to be better than the place I am in, Congresswoman.
Mrs. MEEK. Yes, but you have pushed it on us. You have done what you have to do. We will do what we have to do later. I was trying to see the rationale for you doing what you have already done.
Secretary CUOMO. But when we did it, we did not have the $691 million that GAO has identified since that time.
Mrs. MEEK. But that is funny money, Mr. Secretary. I will keep moving on. But it sounds like funny money to me. But not being an expert in budgetary matters, it sounds like funny money. You just found out about that; is that correct?
Secretary CUOMO. No. The GAO came in, did an audit. We are doing significant work on our financial systems, and as we are doing more work, and we are making more reforms, we are freeing up funds. We are identifying other uses of funds, and the GAO, which is a very conservative, as you know, the arbiter and auditor of our finances, came in and has identified an additional $691 million that would be available.
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We concur with what the GAO found, and we identified that ourselves working with the GAO. But that is significantly different than when we put the budget together.
Mrs. MEEK. Right. I will close that particular question by going back to putting a face on this problem.
Where Betty lives now there are 270 people waiting on the waiting list, and I am sure most of them will die before they get to the point where she is. It is a problem, not only in Miami-Dade County, but throughout the nation.
FHA LOAN LIMITEFFECT ON MMI FUND
My second question has to do with FHA loan limit. The Chairman asked the first part of the question. My question is would you make some remarks on the financial impact of increasing the FHA loan limit and how it would affect the Mutual Mortgage Insurance Fund.
Secretary CUOMO. The loan limit, which we began to discuss this morning just to give it a perspective, the average FHA loan, if the loan limits were increased the way we propose, the average FHA loan would go from $85,000 to $89,000. That would be the average loan, $85,000 to $89,000. It would go up 4.2 percent.
The average FHA home-buyer income would go from $40,000 to $42,000. So it is not like we are talking about giving loans to people making $80,000 a year. The average income would go from $40,000 to $42,000 per year.
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FHA's total volume of business is anticipated to increase by about 6.8 percent from 850,000 loans to 908,000. So we are talking about 58,000 additional loans on a base of 850,000.
FHA LOAN LIMITNATIONAL LEVEL
Mrs. MEEK. One more question. Why did you streamline it so that all of the loans are based on a national level? You limited the whole nation to a single level. What is the rationale?
Secretary CUOMO. The thought there, Congresswoman, was the people we do business with, the lenders, the brokers, find it an operational burden to have so many different loan limits. We might have one limit in Miami, another limit in Dade County, another limit in the county next to Dade.
What the brokers are saying is FHA is too tough to do business with. Can you not have one loan limit? For an operational ease, we came up with that one loan limit and, also, because we want to make the FHA more user friendly, so we can do more business.
Mrs. MEEK. My last question of this round is CDBG is running amok in some places. It is an excellent program. I want to know how does HUD monitor that program, if it does. It has become a relief act in some places for the mayors and the politicians, and they are using it for any number of things, when you designed it for low income and people to make jobs creation.
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So I would like to know if HUD is able to, in some way, give some credibility to this program on accounting level.
Secretary CUOMO. We do, Congresswoman. The CDBG program started in 1974. It has been supported by both Republican and Democratic administrations since then. It really is, I think, to this day, the model which most of us would hold out. It devolves to the local community the actual decision making, but it has Federal goals and regulations. They cannot just use CDBG on anything they want. It is a block grant. That does not make it a blank check. It has to go to either people of low- or moderate-income, or to clear slum or blight. So there are very real Federal regulations and requirements.
If you suspect that a local government is not using it in accordance with those laws, we routinely monitor this, but if we hear that there is any possible misuse of the funds, we will get on it right away.
Mrs. MEEK. I will give you an example. I do not think it is misuse or abuse, but my local government will not allow any of the small business people in my district to use 108s or any of those other HUD funds, but they can bail out Pan Am with something like $5 million. Before I could turn around and look, Pan Am had gone belly-up.
Yet the small business people in my district cannot get 108s because there are guidelines, but no one is watching and they are allowing local government to use CDBG monies for more than distressed communities.
Page 113 PREV PAGE TOP OF DOC Secretary CUOMO. What we found, Congresswoman, is that it is often that the locality does not know how to use the money as opposed to they are not willing to use the money.
If we can help get the county some technical assistance, get some experts down there who know how to set up small business loan pools, it would be our pleasure to do that.
Mrs. MEEK. They know, Mr. Secretary. It is just that there is no one saying, look, this is not a worthwhile use of the monies. They know, but they know it is money that they can draw down from HUD and use it to build big skyscrapers and rescue airlines when they have poor people who do not have housing and who do not have jobs.
Thank you, Mr. Secretary.
Secretary CUOMO. Thank you very much, Congresswoman.
Mr. LEWIS. Thank you, Mrs. Meek.
Mr. FRELINGHUYSEN. Thank you, Mr. Chairman.
Mr. Secretary, the individual on your right I would like to recognize, Rich Keevey, came out of New Jersey a number of years ago. You have got somebody who is highly competent, who worked with me when I was a State legislator. I am glad you have brought him aboard as your chief financial officer.
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Secretary CUOMO. And we are also going to put him in charge of the NOFA for the 811 program, I want you to know.
Mr. FRELINGHUYSEN. I am very happy to hear that. [Laughter.] This is my time. Thank you, Mr. Keevey. [Laughter.]
SECTION 202/811HOME PROGRAMS AND NON-PROFITS
Somebody stopped me in the hall during the break, and they said why are you just concentrating on issues that affect the disabled. I think I can say on behalf of everybody here present we are keenly interested in the overall HUD Budget, whether it has to do with FHA or community development block grants, HOPWA money, AIDS residential money, Brownfields.
But I do have a keen interest, and I want to follow-up on some more questions that relate to concerns of people with disabilities.
Mr. Secretary, both Mr. Price and Ms. Meek have made reference to your collapsing the Section 811 program into the HOME program and increasing the portion of the program that is directed towards tenant-based rental assistance from 25 percent to 50 percent.
Is it the Department's view that congressional authorization is needed to make those types of fundamental changes?
Secretary CUOMO. Yes.
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Mr. FRELINGHUYSEN. Do you, at some point, plan to submit a specific legislative proposal to Congress?
Secretary CUOMO. Both the movement of the 202 and 811 programs into the HOME program, and what we call the HOME Bank program, which would allow a locality to leverage up to five times its Home Grant, would need authorizing legislation.
Mr. FRELINGHUYSEN. So you are in the process of promoting
Secretary CUOMO. Yes, sir, Congressman.
Mr. FRELINGHUYSEN. One of the things, and this has been referenced before indirectly by Ms. Kaptur, to a certain extent, who put forward the idea that there should be sort of a giant convening of interested parties. I got the impression from her remarks that these would be largely governmental entities that should be working together rather than at cross purposes.
One of the things that makes Section 202 and 811 programs so successful is the role played by nonprofits. I get the impression, through this sort of reorganization of collapsing Section 811 into the HOME program and so forth, that you, in some ways, may be eliminating the important role that community-based nonprofits for advocates for the aging and those with disabilities have played in both those programs.
Page 116 PREV PAGE TOP OF DOC Would you address that issue for a moment? I think it is all great to get ahold of the mayors and have them be active, but some of the people who really know these issues are people that I am sure that you have worked with. I would like some reassurance that these types of advocacy groups are, in fact, within your family.
Secretary CUOMO. Congressman, very much so. As a matter of fact, the thrust of the Department happens to be opposite your suggestion.
We are looking to work more and more with not-for-profits and community-based corporations. I come from a not-for-profit background. We set up the Center for Community and Nonprofit Partnerships, which is a special Center, which is what Congresswoman Kaptur was referring toFather Joseph Hacala runs itjust to reach out to not-for-profits and bring them into the Department. We are seeking to develop more collaborations than ever before.
Not-for-profits and community-based corporations are an extraordinarily effective service delivery mechanism, and we want to do more and not less with them.
SECTION 202/811 NOFA
Mr. FRELINGHUYSEN. I appreciate that reassurance.
The Housing and Community Development Act of 1992, as you are aware, allows for public housing authorities to designate housing. Since that year, fewer than 100 public housing authorities have received approval to designate housing. Can you explain what criteria HUD uses to determine which public housing authorities receive approval.
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Secretary CUOMO. Yes, I can, Congressman. If I could just clarify the discussion we had on your concern this morning, on which we did not have all of the information at that time. During the break we went back and, as best I can determine in the relatively short period of time I had to look at it, the thrust of your comments was correct, Congressman.
We did put out a NOFA last year that was a fairly complex NOFANotice of Funding Availability. It was trying to track the law at that time. Due to the good efforts of your office, we have made that law simpler, but the NOFA that went out last year was a complicated NOFA. It dealt with both public housing and assisted housing, but it was connected to the designated, this was problemmatic especially for assisted housing, and we just did not get enough responses for the funding. Period.
Mr. FRELINGHUYSEN. I do not get that impression. I certainly got the impression that it was so complicated that some people resigned themselves to their fate and did not apply.
I think the question which we look at here is that we are going to be moving ahead with trying to get these funds out into the community, and I would like to sort of re-ask one of the questions I asked this morning: What is the likelihood of getting the 1997 and 1998 dollars out there to those who need it so we can address some of these waiting issues?
Secretary CUOMO. Yes. I had said this morning 6 to 7 weeks. We can do it within 4 weeks. This will be a much simplified NOFA. It will be a general use NOFA for disabled individuals or disabled families. So we think we will get a faster and broader response.
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Mr. FRELINGHUYSEN. And to my question that you held in abeyance, can you explain what the criteria HUD uses to determine which public housing authorities receive approval? Because I am surprised how few public housing authorities have actually designated housing. I just wonder what your perspective was.
Secretary CUOMO. The numbers that we have, Congressman, are in 1997 there were 43 plans approved, which designated 9,300 units.
Mr. FRELINGHUYSEN. Could you give us an idea as to what are
Secretary CUOMO. The criteria of those designations?
Mr. FRELINGHUYSEN. Yes.
Secretary CUOMO. I cannot
Mr. FRELINGHUYSEN. And, more importantly, how it breaks out in terms of elderly and those slots that are available for people with disabilities.
Secretary CUOMO. Let me ask Rod Solomon to join us, if I can, Congressman.
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Mr. SOLOMON. Good afternoon, Congressman.
Mr. FRELINGHUYSEN. Good afternoon.
The criteria are set in the designation statute. They require the housing authorities to look at housing needs and goals, other resources in the community and various other matters of that kind. The plan requirements were simplified substantially by HUD, after concerns were raised of the nature that you are raising now, about a year ago. The numbers, although still relatively small, did go up from 17
Mr. FRELINGHUYSEN. You are talking about those for the disabled.
Mr. SOLOMON. The designation approvals went up from 17 plans approved in 1996 to 43 in 1997. So there was an increase there.
Mr. FRELINGHUYSEN. I love to see plans increased, but what about the
Mr. SOLOMON. Approvals, this is.
Mr. FRELINGHUYSEN. Yes, approvals, and how do they relate to designated or disabled. I understand that with the New York Housing Authority that they have restricted almost 10,000 units for elderly-only tenants.
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Mr. SOLOMON. Congressman, it is true that most of the approvals have been for units designated for the elderly. I think that the legislation which you sponsored, that we have been talking about to provide certificates and vouchers in connection with the disabled, is going to be the major additional resource.
Mr. FRELINGHUYSEN. Legislation is one thing, and what is good about it is that the Secretary has made a personal commitment to see what we can do to get a higher degree of enlightenment, not forgetting, of course, that home rule is important. But I do think we need to make a case for more access and less restrictions.
Thank you, Mr. Chairman. Thank you both.
Mr. SOLOMON. Thank you, Congressman.
Mr. LEWIS. Thank you, Mr. Frelinghuysen.
GSE LENDING FOR MINORITIES
Mr. STOKES. Thank you, Mr. Chairman.
Mr. Secretary, I want to go back for a moment to the FHA cap discussion that we had this morning. I have got a couple of concerns here because, as was stated by the Chairman this morning, this is a matter that logically belongs before the authorizing committee and this is a matter with the Appropriations Committee taking it up.
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I think we have to delve pretty deeply into it if we are to know what exactly to do.
One of my concerns is I have been given a paper that I understand was given from Fannie Mae, which they tell me this: ''Fannie Mae's commitment to affordable housing and minority home ownership.''
Obviously, minority home ownership is an area in which I am vitally concerned. Let me read some factual data here to you, and then I will ask you to comment.
It says, ''FHA's single-family mortgage insurance program was created to encourage lenders to make Government-backed loans to borrowers who need FHA's lower down payment requirements and less stringent underwriting standards to get into a home. While FHA plays a valuable role in reaching borrowers, including minority and other underserved borrowers who cannot obtain mortgage financing through the private market, the numbers show that the conventional market reaches more minority borrowers than does FHA.
''1996, the most recent year for which we have FHA data, Fannie Mae, working with banks, thrifts, mortgage companies, and credit unions provided $25.8 billion in housing finance to help over 267,000 minority families, including over 62,000 African American families, achieve home ownership.
''This $25.8 billion exceeded FHA's 1996 service to minorities by more than $3.6 billion. The combined efforts of Fannie Mae and Freddie Mac further demonstrate the private market success in serving minorities.
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''Fannie Mae and Freddie Mac have helped more minority families achieve homeownership than FHA. Fannie Mae and Freddie Mac in 1996 together financed over 412,000 homes for minority families, compared to almost 280,000 by FHA. These 412,000 homes include 101,602 homes for African Americans, compared to 105,246 by FHA; 149,170 homes for Hispanic Americans compared to FHA's 149,795; 111,094 homes for Asian American families compared to 19,351 by FHA; and 50,497 homes for Native Americans, Alaskan Natives and other minorities compared to 5,417 for FHA.''
They then say, ''The same is true at or below the FHA loan limits. Fannie Mae and Freddie Mac in 1996 financed homes for an estimated 303,000 minority borrowers compared to 279,809 homes financed by FHA.''
Then they have a note at the bottom that says, ''The Fannie Mae and Freddie Mac lending data noted here comes directly from reports each corporation files annually with the Department of Housing and Urban Development, pursuant to P.L. 102550.''
Along with it is a lot of other data that has been sent to my office, including a Columbus Dispatch editorial, which I will just quote one statement from. It says, ''Housing and Urban Development Secretary Andrew Cuomo and a coalition of mortgage bankers, builders, and real estate agents want to raise the ceiling on federally insured home loans to $227,150.'' And then it goes on, and on, and on.
Now, I pose this question because if the members of this subcommittee are to try and do what is right here, it is very important that we have the factual data upon which to operate, and I am particularly concerned about this type of data relative to minority homeowners, and I want your comments.
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Secretary CUOMO. I am very happy that the Congressman raised the issue because I think it is right that we have all of the information on the table. And, frankly, the more information we have on the table, in my opinion, the more powerful the argument to raise the FHA loan limits.
This discussion, and let us be frank, if we might, this discussion is not about whether or not the GSEs or the private companies are making good-faith efforts to do good things for minority borrowers. There are many good programs, outreach programs, fairs, pamphlets that are going out saying we should help minority home ownership. The undeniable fact is that there is a tremendous gap between urban home ownership and suburban home ownership, white home ownership, and black home ownership, white home ownership and Hispanic home ownership, as well as the other sub-groups of minorities.
That is a fact. Seventy-two percent home ownership among whites and 46 percent among African Americans, 44 percent among Hispanics. That gap is too large. Frankly, it is not an excuse to say, Well, a lot of people are having a lot of fairs and running a lot of programs to try to do a lot of good things. Great. No one is saying that they are not making good efforts, but the result is what we question. We have more to do.
FHA is a vehicle to do it. It is a vehicle that can provide more savings to the taxpayer, can strengthen communities, put more people in homes. Why not, when you have that disparity, you have that gap, why would you not want to address it? The denial rate in the private market for African Americans is twice what it is for whites, twice. That is the fact. Why would you not address it?
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The Washington Post today, front page, has a story that says a fair housing group did a survey. Forty percent of the lenders discriminate against African Americans. You have a tool called the FHA that can make a difference. Why would you not?
There are many private groups doing good work to try to make a difference, yes. Have they made enough of a difference? No. Can we do more? Yes. Is FHA an answer? Yes.
That is what I would say to that, Congressman. I would also ask private citizen Apgar on the specific numbers if he might have a comment, if it is okay with the Congressman.
Mr. STOKES. Certainly. I would be delighted to hear from you, sir.
Mr. APGAR. Thank you. Apgar, from New Jersey, Mr. Frelinghuysen. [Laughter.]
But we have looked at the data on the GSE lending as well, and when you have studied GSE lending patterns compared to FHA lending patterns, you reaffirm the fact that, essentially, the private market activities is serving separate markets than the type of activity that the FHA is involved with.
The numbers that were cited in the information that you had is similar to information that we received from Fannie Mae and Freddie Mac, and when you take that public data, which they reference, and you tabulate it, you realize that, of course, the bulk of minority lending that is cited in there is to African American households or Hispanic households who are capable of making 20 percent down payment loans or higher. These are particularly not high-risk loans. They are good loans. They are loans that ought to be made. They are easily made by the private sector and Fannie and Freddie are doing a good job of it.
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Fifty-eight point six percent of all of the loans that are cited in that document you read are by folks who make more than 20 percent down payment or higher.
In contrast, the vast majority of FHA loans are low down payment loans. Almost two-thirds of FHA loans are to households who make down payments of 5 percent or less. Only 2 percent of the loans by GSEs are made to households who can make down payments of 5 percent. Only 8 percent of the loans made by private mortgage insurers are in that low down payment variety.
So the GSEs are doing a good job at solving the problem for folks who have significant down payment to make. FHA stands ready to make loans to folks who have limited down payment capacity.
Secretary CUOMO. Congressman, we are not talking, if I might, about rich African Americans, rich Hispanics, et cetera. There is no question but that the private market is serving them.
We are talking about getting to people who cannot be served by the private market because their credit history may be somewhat checkered. Just so you know, 42 percent of all African Americans who buy a home buy it through the FHA. Forty-two percent, which, to me, is an outstanding figure.
Mr. STOKES. Yes, but that is why I cite these other figures. That being true that they service the lower income, why would you not have a higher minority ownership rate?
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How can they cite that they give more loans to minorities than FHA does under these circumstances?
Mr. APGAR. Well, in the low down payment category that I was speaking of, FHA in 1996 made 134,000 low down payment loans5 percent or less down payment. The GSEs both made 11,000 low down payment loans. So we dominate in the low down payment area.
Why the homeownership disparity persists is, in part, because lenders have been slow to come to recognize the power of the minority market. FHA has significantly increased its minority lending and has led the way.
GSEs are following and, in fact, there has been some progress in improving access to capital in minority communities broadly defined. But there is a lot of work left to be done to close that gap. There is still significant discrimination in the markets. There are still many people who, but for a credit problem or the inability of getting a down payment, could become homeowners if they could get that loan. FHA stands ready to make those loans.
Secretary CUOMO. But, Congressman, there is no doubt that on the lower income, on the minority side, FHA by far, is the primary lender. 141,000 compared to 11,000 for both GSEs.
FNMA POSITION ON FHA LOAN LIMIT INCREASE
Mr. STOKES. One further question to clear up some confusion. Has Fannie Mae always taken this particular position relative to an increase in the FHA maximum or have they had a different opinion?
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Secretary CUOMO. Well, I believe, Congressman, when the Chairman was mentioning about the difference between the authorizing committee and the Appropriating Committee, I believe in 1992 and 1994 this Committee adjusted, actually, the loan limits. I am not sureI do not want to speak for the GSE positionbut I believe that they had a different position than they do this year in either 1992 or 1994.
Mr. STOKES. Do you know what that position was?
Secretary CUOMO. I do not know, Congressman, but I can find out what their position was or we can contact them to get it from them.
PUBLIC HOUSING CAPITAL FUND
Mr. STOKES. I would appreciate it if you would expand upon that in the record for us.
[The information follows:]
"The Official Committee record contains additional material here."
Mr. STOKES. Let me move quickly, then, to another area that we have not talked very much about. It is an area that I have spent a great deal of time on over the years because I have a very special interest in it, as you know, public housing.
A study was done for HUD several years ago that suggested about $4.5 billion per year would be needed in public housing capital assistance to deal with normal wear and tear and eliminate the backlog of substandard public housing within a decade.
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Your budget requests only $2.5 billion for the Public Housing Capital Fund. Do you have an estimate of the backlog of capital needs in public housing?
Secretary CUOMO. Congressman, it is a 2 percent increase. Again, there were many good programs, many needs here, and we were trying to do the best we can with the limited resources that we had.
I do not have, as we sit here, a catalogue on the backlog of capital repair needs, but I can get one.
Mr. STOKES. I guess my concern is, with only a 2 percent increase, and I understand you say that you are trying to do the best you can to budget, but at the same time I have to look at what your 2 percent increase will do in terms of the backlog.
Tell us what is the backlog. Do you have that information?
Secretary CUOMO. I am getting that number right now, Congressman. But, also, when you talk about the resources to needs, we have 5.3 million families in this country who are quote/unquote part of the ''worst case housing needs.'' We are only proposing 100,000 new vouchers against a 5.3 million base. You have waiting lists across this country that are closed; that if they were opened, you would have year-long waiting lists.
So the mismatch between resources and need in this area is astonishing. The backlog is about $20 billion. Twenty billion dollars is the estimated backlog, and we have a study underway now.
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Mr. STOKES. At the rate we are talking about here, a 2 percent increase, we are talking about being well into the next century before anything can be done in this area.
Secretary CUOMO. Yes. The short answer is, yes, Congressman. Again, we have the HOPE VI program, which is a program that meets the same basic need and, in general, again, the resources-to-need in any of these programs is only a drop in the bucket.
Mr. STOKES. I would be delighted to yield my colleague.
Mrs. MEEK. Is it not true, Mr. StokesI know I have heard itthat HUD is no longer in the business of public housing?
Mr. STOKES. Yes. I think it goes without saying that when the Secretary addressed his presentation this morning he indicated that he wanted to put HUD back into housing. I think we know that we have undergone a number of years where the intent was to take Government out of housing and particularly public housing, there being very little base for people here who are urging public housing.
So I think your point is well taken.
Mrs. MEEK. Thank you.
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Mr. STOKES. What about troubled housing authorities, Mr. Secretary? Can you tell us roughly how many housing authorities are currently on your troubled list?
Secretary CUOMO. There are about 56 out of 3,400, Congressman.
Mr. STOKES. Is that number now going up or down?
Secretary CUOMO. It has been relatively stable. It is down somewhat.
Mr. STOKES. Let me ask you about the public housingthe Chairman has very gently nudged me that I have exceeded my time, and I will at this time
Mr. LEWIS. No, you can just go right ahead with that. That is all right.
DRUG ELIMINATION GRANTS
Mr. STOKES. Just one little question then, Mr. Chairman. Thank you.
I understand that HUD has not yet awarded a substantial part of the Public Housing Drug Elimination Program funds that were appropriated for fiscal year 1997, apparently, because HUD's evaluators did not find enough applications worthy of funding. This is surprising, in view of the great need for efforts to prevent and combat drug abuse.
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How much, Mr. Secretary, of your fiscal year 1997 appropriation for Public Housing Drug Elimination has not been awarded?
Secretary CUOMO. Congressman, when we had the competition we did not get enough what we believed were suitable applications for the funding. The actual numbers, where there were 889 applicants for $278 million, only 533 applications were competitive enough to award for $200 million. The remaining amount will be awarded this fiscal year. The NOFA will go out in the next several weeks.
Mr. STOKES. Give us just some idea what type of shortcomings were found in the applications for funding.
FNMA POSITION ON PRIOR FHA LIMIT INCREASES
Secretary CUOMO. I would ask Rod Solomon if he could give us that information.
While Rod is coming up, Congressman, your specific question is what was the position of Fannie Mae and Freddie Mac in the past. We have a letter from Fannie Mae in 1992, which suggests when the Appropriations Committee raised the loan limits that Fannie Mae was supportive of them. But I will let the letter speak for itself and will give the Congressman a copy of this letter.
Mr. STOKES. I ask to make it part of the record.
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[The information follows:]
"The Official Committee record contains additional material here."
DRUG ELIMINATION GRANTS NOFA
Mr. SOLOMON. Yes, Congressman. The NOFA for fiscal year 1997 asks for more specifics about exactly what is going to be done with this money, what other community organizations are involved, what kinds of funds would be leveraged, what goals will be met, expenditure of past year funds, et cetera.
I think if you desire more details than that, we should get you more details for the record.
Mr. STOKES. If you would put that in the record for me, I would appreciate it.
[The information follows:]
"The Official Committee record contains additional material here."
Mr. SOLOMON. Thank you.
Mr. STOKES. Thank you very much.
Thank you, Mr. Chairman.
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Mr. LEWIS. Before you leave, it is my understanding that a major element in all of this is that there is a requirement that there be a law enforcement element in a facility where funds are going to be received and that a lot of public housing authorities were not responsive in connection with that.
I can understand that need but, nonetheless, to have this gap, there is maybe $300 to $350 million sitting in the pipe there and God knows there is a problem out there that the public is concerned about.
Secretary CUOMO. It is not necessary, Mr. Chairman, that the funds have to go to a law enforcement community. There could be so-called hard or soft costs. The program could be law enforcement, hard costs, lighting, fencing, et cetera, or it could be a social service program, training program, alternative program if it has a drug elimination purpose.
Mr. STOKES. That is what I was trying to get at; what type of shortcomings were found in the funding applications that created this type of an excess amount of money.
Mr. LEWIS. Let us get pretty specific for the record. I think all of the members would be very interested in this, for image and reality is pretty close here. The image is that we have got a drug problem and there is need for elimination on these. At the same time
Page 134 PREV PAGE TOP OF DOC Mr. STOKES. Particularly in public housing. That is correct.
Mr. LEWIS. That is right.
Mr. STOKES. They have a problem with drugs.
Mr. SOLOMON. We certainly understand the urgency of getting this money out. There was far more demand than the money available. Again, it is a significant, but relatively small amount that is held over. We want to be sure, for instance, that if we are funding law enforcement activities they augment what the community is supposed to do anyway and not replace it. We will get you more information for the record.
Mr. LEWIS. If I could supplement, just for a moment.
Could you be, just off the top, very specific. How much was appropriated for this?
Mr. SOLOMON. $290 million.
Mr. LEWIS. And how much was expended?
Mr. SOLOMON. $200 million for public housing. There was also money awarded, I believe, in assisted housing. It is not all for public housing.
Secretary CUOMO. Mr. Chairman, we are going to contact the person who ran the competition last year, and
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Mr. LEWIS. I understand. I understand there is $300-plus in the pot that is still sitting there. So that says to me there is a big, not hole, but a hole somewhere.
Mr. SOLOMON. Mr. Chairman, there was a substantial amount that shows on your books as carried over, but that was awarded just at the beginning of the fiscal year, last calendar year.
Mr. LEWIS. All right. We will clarify that then and be talking with you.
Mr. STOKES. Thank you, Mr. Chairman.
Mr. LEWIS. Mr. Knollenberg.
Mr. KNOLLENBERG. Mr. Chairman, thank you.
Just a quick question starting off, and then I will get into another a little more detailed.
Regarding the increase in loan limits, I know that the fastest growing type of housing, apparently, is manufactured housing. They tell me over a third of all homes, since 1990and I am not sure if that was a 1990 censusbut it continues to climb and over a third of single family units were manufactured housing.
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Is there anything that you are doing to promote manufactured housing as a part of your home ownership goals?
Secretary CUOMO. Yes, we are quite a bit, Congressman.
First, I think it is one of the most exciting potentials for affordable housing. The state of the art has changed dramatically when it comes to manufactured housing. What were trailer homes a decade ago now you can go into a manufactured housing unit, and I defy you to tell that it was a manufactured housing unit rather than stick construction on site.
We have been working closely with the industry. They had a couple of concerns about the way HUD was running the program. They had some questions about the contractors that we were using to administer the program, and they wanted to go through a full renewed competition on the contract, and we are about to do that.
We have also told them we would like to work with them, just use of the bully pulpit, if you will, getting the word out about manufactured housing, and the advances that have been made. It is no longer the quote/unquote ''mobile homes'' of 10 years ago.
We have had quite a few efforts the past few months, something called the PATH Initiative, Partners in the Advancement of Technology and Housing. We are bringing them in as part of that. So we have a good relationship, and we are looking forward to doing more.
Mr. KNOLLENBERG. Do you intend to increase the limits? Are you recommending that those limits be increased for manufactured housing as well?
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Secretary CUOMO. Which limits are those, Congressman?
Mr. KNOLLENBERG. For the manufactured housing or is that a part of the greater whole?
Secretary CUOMO. It would be the same limit. It is part of the FHA program.
CURRENT HUD FTES
Mr. KNOLLENBERG. The next question has to do with some numbers that you have laid out in your written testimony on page 2, at the bottom of the page, in case that is available to somebody, but I am having a hard time following these numbers, in particular, when I compare that to the actual production sheet that I have as well, which is Exhibit 5. It looks like this. I can get the exact reference.
But you state, and I am just trying to clarify these numbers, and I will get to my point in a moment. You say that HUD's work force is now approximately 9,000 down from 10,500. That was at the end of 1996. I do not have the 1996 numbers. I do have 1997 numbers here if they are right.
To date, HUD has posted and filled 1,100 positions for your new organizational structure, while executing 1,000 buy-outs. When I add all of those up and do the subtraction, I still wind up with 10,600 people. Tell me where I am wrong.
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Now, if you look at this what is called ''The Budget Justification Manual,'' it states that the actual number today is more like 10,117. That was 1997. In 1998 it is going to be 9,900. So the numbersI am just trying to get to some accuracy in reflection here because it appears as though, in your written testimony, the numbers do not agree, and they do not agree with each other in that particular paragraph.
Secretary CUOMO. Let me ask Mr. Keevey to respond, if I might.
Mr. KEEVEY. Let me give you the specific numbers based upon the most accurate information we have. I think you may be looking at some budget documents that were based upon projections in the Budget, and we have done a lot of downsizing since that time.
Mr. KNOLLENBERG. If that will take a lot of time
Mr. KEEVEY. No, it will take just one second.
As of September 1996, the end of fiscal year 1996, we had 10,643. As of September 1997, the end of fiscal year 1997, we had 9,639. Today, we have 9,001. So there has been a significant reduction, about 1,600. There was about 1,000 buy-outs during the last few months.
Secretary CUOMO. Excuse me one second. Congressman, I think the confusion is the 1,100 could be read to be new hires, an additional 1,100, where it says posted 1,100, but they were filled from within the work force.
Page 139 PREV PAGE TOP OF DOC Mr. KNOLLENBERG. Okay. That was not clear at all here.
Secretary CUOMO. Yes. I just saw that.
Mr. KNOLLENBERG. Let me get to the specific question. I appreciate that information.
Relative to the buy-outs, you say there is 1,000 buy-outs. My question is about those specific buy-outs. No. 1, the nature of them, was it a cash buy-out, plus education benefits, plus health benefits, plus relocation benefits, anything else?
Secretary CUOMO. Congressman, the buyer package that was offered last year that I believe had a maximum cash grant of up to $25,000 it depended on the length of service, but it was a one-time cash payment up to $25,000, depending on the length of service.
Mr. KNOLLENBERG. No other benefits extended?
Secretary CUOMO. No, sir.
Mr. KEEVEY. If the individual was retirement eligible, then, of course, he would have the normal retirement package, but there is no relocation proviso.
Page 140 PREV PAGE TOP OF DOC Mr. KNOLLENBERG. With respect to anybody that has been rehired, could any of those new hires, those rehires, possibly have come from the ranks of those that were given a bonus?
Mr. KEEVEY. No.
Secretary CUOMO. Absolutely not.
Mr. KEEVEY. Correct.
Mr. KNOLLENBERG. The reason I am asking is we have had some occasion to see evidence of that, not with HUD, but in some other agencies. So I am asking the question for a reason.
Relative to the question that was just raised by the Ranking Member and the Chairman and a discussion that took place here, when it comes to these dollars.
I saw something in the paper USA Today, and you may want to discount this or comment on it, and it was just one of those breezy kind of articles that was talking about the new program, the Urban Peace Corps.
I do not want to challenge my good friend Mr. Walsh here because he was not in the Urban Peace Corps, but he was in the Peace Corps, and I just want to get to the basis of one comment that was made in that article about it would not cost any more money to provide the funding for some 250 people. I suspect that it would have to come from within because it is not new money.
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Secretary CUOMO. That is exactly right.
Mr. KNOLLENBERG. Is this one of those places where the money is in the pipeline and you would be transferring people out of the existing HUD structure into this new proposal?
Secretary CUOMO. No, no. These are 230 people who will be hired from the outside.
Mr. KNOLLENBERG. Not from the inside.
Secretary CUOMO. Not from the inside.
Mr. KNOLLENBERG. How is it not going to cost more money?
Secretary CUOMO. Net, when you add in those 230 people, we are still downsizing.
Mr. KNOLLENBERG. So you are reflecting that against the backdrop of the larger number then, the total number.
Secretary CUOMO. Yes, sir.
Mr. KEEVEY. This does not cost us any additional money then is presently in our current budget. But, because of the significant downsizing we achieved, we have sufficient dollars to
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Mr. KNOLLENBERG. If we did not fund this program, then you would have that much more money. Am I to believe that?
Mr. KEEVEY. That is theoretically correct, but part of the overall restructuring was to provide for this downsizing and, at the same time, add back key areas where improvements were needed.
Mr. KNOLLENBERG. Was the restructuring architecture along the line of including the Urban Peace Corps concept?
Secretary CUOMO. Oh, yes.
Mr. KNOLLENBERG. That is written in.
Secretary CUOMO. Oh, yes, Congressman. To bring the Department down the way we are bringing it, and I heard the Committee last year when they said they wanted to see a smaller HUD, but to bring the number down the way we are bringing it down, we have to do a few things. We need more training of the existing staff. We needed some new hires to bring in expertise from the outside. We had to consolidate several functions. We have to consolidate programs to get down to the 7,500.
So this was one of the management changes we had to make to facilitate the downsizing.
Page 143 PREV PAGE TOP OF DOC Mr. KNOLLENBERG. The other thing I noted, and I do not know how this is accomplished, but you are also going to, via your union agreement, have a deferral, no layoff before the Year 2002. That is all going to be accomplished with these same numbers? No layoffs whatsoever.
Mr. KEEVEY. That is the plan.
Secretary CUOMO. Yes, sir.
Mr. KNOLLENBERG. I guess what I would like to have, and you can submit this in writing, I will just request it, is the number of buy-outs since 1996, the number of people in those buy-outs, and the specificsyou have already indicated thatbut, specifically, if there was anything at all in addition to a cash grant, anything whatsoever, we would like to have that for the record.
[The information follows:]
Question. Provide the number of buyouts since 1996 and whether HUD provided anything in addition to cash payments. (Knollenberg)
Answer. The number of buyouts since 1996 is 1,001. In addition to paying out buyout payments, HUD has paid the annual leave lump sum leave payments to the departing employees. HUD has also paid the additional 15 percent contribution to the Civil Service Retirement and Disability Fund for each buyout paid to an employee covered by the Civil Service and Federal Employees Retirement Systems. The amount of this contribution is based on the employee's final basic pay.
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Secretary CUOMO. Fine.
Mr. KNOLLENBERG. Thank you very much.
Secretary CUOMO. Thank you.
Mr. KNOLLENBERG. Mr. Chairman, thank you.
TRAINING FOR STAFF
Mr. LEWIS. Thank you, Mr. Knollenberg.
Before I move on, you are in line, but in reacting to Mr. Knollenberg's area of questioning, you and I have had an opportunity to talk just briefly about the rush of new personnel and how we get good people to do ''X'' and ''Y.''
I am not sure how to say this gently. People like the Neighborhood Reinvestment Corporation take people with certain levels of experience and do a fabulous job of training them to do another job in the same field, develop another expertise, but without necessarily creating a great deal of overhead, whether it be rental space or tuition or otherwise. Do you hear what I am saying?
I am very concerned about making sure that we have thought through how one might organize.
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You come from a not-for-profit background, and there are people with talent and expertise in not-for-profit environments who might be able to do training. I am not looking for conclusions here, but this has just come into my mind's eye, and I have heard some suggestions as to what we might be thinking about that might be of concern to the broader community beyond this Committee.
Secretary CUOMO. Mr. Chairman, I agree with the thrust of the point. It is a challenge that we are working on at the Department now.
We need a new infusion of talent in the Department. We are downsizing and, plus, we have not brought in that new talent in over a decade. The entire industry has changed in that time. It is not easy to attract that kind of talent to Government service, unfortunately, especially to attract it to the Department of Housing and Urban Development.
So the training package for new people who are coming in, new hires, as well as the training package for the existing work force is very important. We are experimenting with a lot of different ways to get that done economically, but also as an attractive asset to attract people to the Department.
Mr. LEWIS. I agree with that. In another totally different circumstance, we have been talking with people who have expertise in software engineering. We have a problem when they come out of school, and they start at $45,000, and 30 days later somebody hires them away or 90 days later at a 30 percent increase, and then they turn over again. So training is terrific, but you have got to be careful about the premium you pay and how long you keep them.
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Secretary CUOMO. Actually, the Community Builders Program that we touched on this morning, Mr. Chairman, was announced a couple of weeks ago. We have an advisory board put together, academic universities, not-for-profit organizations, on just how to do this. We are going to be asking people for a 2-year commitment.
It is likened somewhat to the Peace Corps. We will invest in you, but you have to give us 2 years. We then have an option for another 2 years on mutual satisfaction.
Mr. LEWIS. I am sure we will have a chance to talk about this in some depth.
Secretary CUOMO. Yes, I would welcome it.
Mr. LEWIS. Sorry. Mr. Price?
Mr. PRICE. That is all right, Mr. Chairman. Thank you.
Mr. Secretary, I would like to spend a couple of minutes talking about an initiative that was in last year's appropriations bill and ask you for a status report.
After extensive discussions with affordable housing organizations, your staff, the authorizing committee, Chairman Lewis, Mr. Stokes, and Subcommittee staff, we drafted a secondary market demonstration project funded with $10 million in HOME funds, and this program was ultimately accepted by the Senate and included in the final legislation.
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This program would allow three organizations, which you would select, with experience in managing loan portfolios to purchase from banks portfolios of loans made to low-wealth borrowers.
These are the types of loans that do not conform to the Fannie Mae standards and, therefore, typically, cannot be sold on the standard secondary market.
The funds appropriated will be used as capital reserves and will leverage the purchase of $100 million in loans.
The second and equally important component of this program is the data tracking element. One of the requirements of receiving funding is the ability to track the performance of the loans in the portfolio. The ultimate goal is to obtain sufficient data to convince the conventional secondary market of the viability of purchasing loans that the market now considers too risky.
We are confident that this will work out. Anecdotal evidence suggests that low-wealth borrowers who oftentimes are the first to purchase a home in their family are actually more diligent at repaying the loan because of their pride of ownership.
So I hope this program will provide the hard data to back up that assertion. I believe it will.
I am proud to note that just the creation of this program has begun discussions in the private sector of trying this type of program nationwide.
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So, Mr. Secretary, I would like, today, for you to tell me how things are progressing with the implementation of this program. I know you need some time to figure out the best way to run it, but I am interested in your time table; who is in charge of making the program happen within the Department; are you planning to put out a request for comments in the near future; and at what point do you think you will be ready to receive applications?
Secretary CUOMO. Congressman, first, we are very excited about this concept, by and large, and we would like to take the opportunity to commend you for your leadership in this area.
If we could develop a secondary market in this arena, it could have a profound impact on the way we provide affordable housing in this nation. This is very creative. It is unorthodox, obviously, which is one of the things that makes it as intelligent as it is.
We are in the process of putting together a Notice of Funding Availability. We should have that out in about 5 or 6 weeks. It will be created, as the Congressman suggests, as if we are looking to get a group who can help us develop and sell actually on the secondary market, but simultaneously put together the data so we could attract the private market to this secondary market stimulation.
We also have a proposal, which we call the HOME Bank, which allows a local jurisdiction to take a loan of up to five times its HOME funds. We have spoken about the HOME program at length.
Page 149 PREV PAGE TOP OF DOC But the HOME Bank would allow a local jurisdiction to take a loan up to five times its HOME allocation, come up with a large sum of resources to do large-scale development, and then they could repay it from the HOME program.
It would be the counterpart to the 108 loan program with CDBG, which is working very well, and we are exploring both the HOME Bank and your secondary demonstration project together.
But the short answer is 4 to 6 weeks we will have a notice out the door.
Mr. PRICE. A Notice of Funding, and then what happens after that?
Secretary CUOMO. Then we will have a certain amount of timeabout 60 daysfor a group to respond. We will then go through a selection. We will then be in business.
Mr. PRICE. So we should be in business with the three grantees designated by early fall?
Secretary CUOMO. Yes, we should be.
Mr. PRICE. Good. Well, I appreciate your responsiveness and the way you have moved to put this together. I look forward to being apprised of the status of the project and how it develops.
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Let me now turn to a question regarding occupancy standards for apartments.
In 1988, Congress outlawed discrimination based on family status, and over the last ten years HUD has been trying to interpret exactly how that applies to rental property owner and how many people should be allowed in a single unit.
In 1991, an internal memo, the so-called Keating memorandum, indicated that two persons per bedroom was a reasonable guideline for regional councils to follownot a hard-and-fast rule, but a rule of thumb.
In 1995, the Department created a formula based on square footage in determining how many people could inhabit a particular apartment, and that formula was later abandoned, I understand, because it produced results that sometimes allowed eight to ten people in a two-bedroom apartment.
Since that policy was revoked, there has been little in the way of guidance beyond this 1991 internal memorandum to help apartment owners determine what is and what is not discrimination when it comes to renting to families and, as you probably know, there have been some reports of inconsistent guidance coming from HUD field offices.
I wonder if you could tell the Subcommittee where this issue stands at the Department now. Are there proposed regulations in the works and can rental apartment owners expect to have clear guidance from HUD on this issue?
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I want to stress that I am not advocating any particular solution to this problem, but I am concerned that rental apartment owners are faced with considerable uncertainty and may, in fact, be open to lawsuits because the Department's interpretation of the law is not sufficiently clear.
Secretary CUOMO. Congressman, my understanding of this issue is that, when there was the so-called Keating memorandum, there was clarity. The Department then at one point undertook to go through the rulemaking process and change the Keating memoranda. That then created an instability and an uncertainty.
The Department abandoned that effort, went back to the Keating memoranda, and we lost some people in the shuffle. They did not know if we were going through a rulemaking, if we were going back to the memoranda. We have since made it clear, and we are still in the process of making it clear, that we do not have any intention at this time to do any rulemaking. We will stay with the memoranda. If there is any uncertainty, it is that we have not fully communicated that.
But where we are now is we would stay with the memoranda, communicate that clearly, and see if that does not provide the clarity that the industry is looking for.
Our initial impression is that is what they want.
Mr. PRICE. Now, the Keating memorandum invokes a two-person-per-bedroom standard, but indicates some flexibility. How much uncertainty does that point of reference leave?
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Secretary CUOMO. Well, it is hard, Congressman, to come up with a hard-and-fast formula. Period. I think everybody understands that.
So I think the two-person-per-bedroom with some reasonable flexibility, taking into consideration the specific circumstances and configuration of a living unit, is the best closure we are going to come up with.
When we tried to come up with a more definitive formula, the square footage formula, that did not work well. I was not the Secretary at the time. I was the Assistant Secretary in Community Planning and Development, but I heard it through the walls that it did not go well.
So I do not know that where we are now is not the best place we can be.
Mr. PRICE. Do you think there is anything to these accusations of inconsistent guidance coming from your field offices? Is that a problem that you think can be corrected?
Secretary CUOMO. Yes, I do, Congressman, because I believe what happened is we lost them in the shuffle between going to new rulemaking and abandoning the memoranda, and then going back to the memoranda. So we just have to communicate where we are.
Mr. PRICE. Let me just ask you, as you prepare for the completion of the record after this hearing, that if there is a very clear statement of your intent and the content, the requirements of that memorandum that you intend to abide by, that if you could enter a formal statement of that in the record I think that would be helpful to have that in black and white.
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Secretary CUOMO. It would be our pleasure, Congressman.
[The information follows:]
The Fair Housing Act prohibits discrimination against families with children but permits ''reasonable'' restrictions on the number of persons who can occupy a housing unit. HUD has no rule interpreting ''reasonable restriction.'' Instead, the Department follows a 1991 memorandum issued by former General Counsel Frank Keating (known as the ''Keating Memorandum'').
The Keating Memorandum, dated March 20, 1991, states that 2 persons per bedroom will be presumed reasonable, but requires consideration of a variety of circumstances, including size and configuration of the unit and age of the children in making a determination that a two-persons-per-bedroom policy is reasonable under the Act.
In addition, the Keating Memorandum states that:
''If a dwelling is governed by State or local governmental occupancy requirements, and the housing provider's occupancy policies reflect those requirements, HUD would consider the governmental requirements as a special circumstance tending to indicate that the housing provider's occupancy policies are reasonable.''
On April 26, 1996, Congress included the following provision directing use of the March 20, 1991, Keating Memorandum in HUD's fiscal year 1996 appropriations bill (P.L. 104134, 110 Stat. 3121).
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''Sec. 224. None of the funds provided in this Act many [sic] be used to take any enforcement action with respect to a complaint of discrimination under the Fair Housing Act (42 U.S.C. 3601, et seq.) on the basis of familial status and which involves an occupancy standard established by the housing provider except to the extent that it is found that there has been discrimination in contravention of the standards provided in the March 20, 1991, Memorandum from the General Counsel of the Department of Housing and Urban Development to all Regional Counsel or until such time that HUD issues a final rule in accordance with section 552 of title 5, United States Code.
While subsequent appropriations bills contained no such restriction, the Department continues to adhere to the Keating Memorandum in considering occupancy cases.
Mr. PRICE. Thank you. Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Price.
FHA FORECLOSED PROPERTIES
Mr. WALSH. Thank you, Mr. Chairman.
I would like to ask some questions, again, on the FHA loan program and the expansion thereof, and I would like to associate myself with the remarks of Congressman Stokes as regards FHA.
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Apparently, there will not be any authorization for this, so we will be dealing with it; is that fair to say, Mr. Chairman?
Mr. LEWIS. I think, perhaps, we will be authorizing an entire housing program or portfolio, if there is to be a housing program and portfolio. [Laughter.]
Mr. WALSH. So I need to learn a little bit more about this issue.
I refer to an article in my hometown paper, the Syracuse Post Standard. It headlined, ''FHA Loan Program too Lax SUN Says.'' Sun is Syracuse United Neighbors. I believe they are an affiliate of the National People's Action, who have been critical of this. I will just read a couple of paragraphs.
It says, ''When Clare McGrath looks out the window of her West Lafayette home in Syracuse, she is frustrated by the number of vacant, boarded-up homes. We are tired of it. We want something done. We are worried about kids getting in and setting fire. That is something that could wipe out the whole block.''
And then further on, another SUN organizer says, ''We see a vast number of defaults on FHA loans in low-income neighborhoods,'' said Phil Prean, SUN organizer, ''And we see a vast increase in FHA mortgage-insured houses changing hands, one, two, three times. The end result is we have vacant houses which equate to crime and vandalism.''
Page 156 PREV PAGE TOP OF DOC Obviously, that is anecdotal. But we do have, I represent Syracuse, certain neighborhoods have a relatively high number of abandoned houses and a relatively high number of those are FHA mortgage foreclosures.
In light of that, some of the opponents of the expansionists have said that one of the reasons that you are expanding the program is to get more solid investors into the program and, ultimately, broaden the program into the suburbs as opposed to the inner city.
Would you comment on that?
Secretary CUOMO. Two different points, Congressman. First, do we want to raise the loan limits to strengthen the FHA Fund, make taxpayersthe proposals call for about $227 million? Yes. Stronger FHA Fund. That is a side benefit.
The primary benefit is more people buy homes, who now cannot buy homes. One in eight people are turned away from the conventional market. Higher denial rate for minorities, higher denial rate for people in cities. FHA can serve them. That's the primary goal.
Is there a secondary benefit that says the FHA Fund will be stronger, and the taxpayers will make $227 million? Yes. I think that is a good thing, not a bad thing.
The second point is, and this is anecdotal, but you will hear this, there are run down homes in neighborhoods, yes. Some of them are owned by FHA, yes. It takes too long for FHA to dispose of a piece of property. Yes.
Page 157 PREV PAGE TOP OF DOC Unrelated to the loan limits. The point is, FHA is not doing the best job it can in moving the real estate owned. Once a person defaults on a mortgage, we get back the property in foreclosure. It then has to be resold.
We have to do a better job on that. Forget the loan limits. With or without the loan limits, we have to do a better job on that.
And we will announce, literally, in the next couple of weeks, an entire overhaul of that, where we want to privatize that function. The way we now do it is archaic.
First of all, we do it ourself, out of 81 offices. We got through the sealed bid mechanism, where we basically auction off the homes. We're dealing with thousands of different brokerage companies across the country.
The state of the art has progressed well beyond where we are. We do not have any business, in my opinion, being in the real estate disposition business. Let us contract it out, let us bring in some national companies, or maybe do it on a regional basis, and move that real estate faster.
You will always have defaults. Any bank, lending institution will have defaults. The question is how well you handle them, and how quickly you move them. And that's where we have to do a better job.
Let alone the loan limits. But one should not preclude the other either.
Page 158 PREV PAGE TOP OF DOC Mr. WALSH. If you took the advice of some of these neighborhood organizations, they would suggest that some of these homes should not have been sold in the condition that they were sold in in the first instance, that the FHA should have done a better job with the prospective buyer, of doing inspections of these homes.
Some of them, people who have never bought a home before, go in and they see this place, and they fall in love with it. Then they do not know the problems. They do not see that the furnace is broken, that the foundation is saturated with water, that the roof is leaking, that the windows in many cases are not insulated and need to be, and that sort of thing.
Is there anything that HUD can do to insure that the prospective buyer is aware, and that these inspections are done?
Secretary CUOMO. Congressman, it is caveat emptor, let the buyer beware. We cannot immunize buyers against basically making a bad deal. But we can do better than we are now doing.
Housing counseling has been very helpful in this. We were discussing it before. Where you offer counseling services to prospective buyers, and one of the functions is this is how you should check out a home.
We also allow people up to $200 to do an inspection on a home, and we plan to be more vigilant in advocating the need for an inspection.
So we can do better. I am not saying we can make sure everybody buys a good home, but we can do better than we are now doing.
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FHA FUND VS. PRIVATE SECTOR COMPETITION
Mr. WALSH. There was also criticism from the other side that says that by expanding the program, government will be competing more with the private sector, and having an unfair competitive advantage. How do you respond to that?
Secretary CUOMO. Again, Congressman, I do not see that argument. We are seeking to serve a market that is now unserved.
Everybody will agree that there is a great disparity in home ownership between suburban/urban and whites and minorities; that there is a refusal rate of people who go to the private market and the private market says we cannot do business with you. About one in eight.
We want to give a mortgage to that one out of eight, and that is where we are going. And the concept of competition with the private marketI mentioned this this morning and I will mention it againif they believe in the market place, FHA cannot be a competitor, because FHA charges a higher premium.
Why would you go to FHA which charges a higher premium if you had a lower cost private market alternative? It defies the concept of the market place. So literally the private sector company would have to be arguing that the private sector does not work, that the market place does not work.
For some irrational reason, people are going to FHA, they are paying this higher premium, they are dealing with these longer time limits, even though they could have gone to a private company and gotten better service for less. Why? Why?
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There is no logical response, especially for a private sector company that is making this great principled argument about government competing with the private sector.
Mr. WALSH. I do not disagree with you. I just thought you would like the opportunity to explain. [Laughter.]
Secretary CUOMO. I do. We all enjoy life through different mechanisms, and I enjoy this. Thank you.
Mr. LEWIS. Would the gentleman yield just for a moment?
Mr. WALSH. I would be happy to yield.
Mr. LEWIS. Just to have a little more excitement, part of the discussion relative to competition is that there are those in the market place who believe that people who are not just very low-income people, people at a moderate level, who may choose not to make a more sizable down payment, save for another 6 months or a year, and have a more sizable down payment, will use FHA instead, and thus a distortion of the competition and the market place.
Secretary CUOMO. I have not seen numbers on that, Mr. Chairman, that they may prefer to make a lower down payment
Mr. LEWIS. Like my dad says, first house, young kid, as little down as possible. Keep it for 30 years, use the equity to move up. That was a classic pattern of old. But if you are looking at the market place, if you are making loans that involve 20 percent or otherwise, some would suggest the competition could be adjusted, changed, stilted, if a person of moderate income would go to FHA instead because they want to make a lower down payment instead of exercising their capability to save the money and make a larger down payment.
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And that might affect loss ratios and otherwise.
Mr. APGAR. But, again, the way the mortgage insurance premiums are structured, you would pay more money total to make a low down payment loan. Obviously if you can make a 20 percent down payment or larger, then you do not need to have any mortgage insurance at all. You are free of that.
And as your mortgage down payment goes down, you need to pay higher and higher mortgage insurance, and that offsets whatever advantage there would be of making low down payment loans.
So there are strong economic incentives for people to not buy the house outright, but certainly to make a larger down payment than would be typical of the FHA borrowers, if they have the economic means to do so.
Mr. LEWIS. Yes, but the standard wisdom was a low down payment, sure, you got an extra premium because of insurance, et cetera. But you turn the place in three years, in a growth market, and take the equity and run, do something else.
I can understand that discussion in the market place. I would just like to know whether you can address the specifics of that really happening.
Mr. APGAR. Okay. My guess is during the go-go days of the 1980s when people anticipated house appreciation was strong, there might have been added incentive to have highly leveraged acquisition.
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But now when most expectations are that house prices at best would keep up with inflation, maybe outdo it a little bit, the advantage of having highly leveraged purchases is substantially eroded.
And so then the value of having that low down payment mortgage is just not as great as it might have been, say, in California, where you could have rapid increases in house prices as the common expectation.
Mr. WALSH. I now refer to an article that was in the Washington Post, Federal Page, February 18th, which statesand this, again, is getting back to the expansion of FHA.
INCREASE IN FHA DEFAULTS
In 1997, the number of failed FHA mortgages rose sharply, by almost 17 percent. Someone could argue that the reason you are expanding to higher incomes and larger mortgages is to mask that failure in the existing program.
Secretary CUOMO. Two points to that, Congressman. First, there was an increase in the default rate for two basic reasons. One, which is the economy in California, with all due respect, Mr. Chairman, was problematic, and we had a higher claim rate in California.
And the FHA takes a different stance than many private sector companies do. When a city or region gets into trouble, a lot of the private sector companies just pull out, and they actually make it worse for that region. This happened in Houston, et cetera, when oil was a problem. The private guys pull out, make a bad situation worse. FHA, stays in. So we have a higher default rate in California because of a problematic economy, and we had a problem with a product called ARMs, adjustable rate mortgages, which we believe we have since corrected.
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But this ARM product that we offered that had an adjustable rate, when the higher rate kicked in, we had a higher default rate. And we believe the ARM problem is corrected.
But I want to put this in context. Overall, the health of the FHA Fund is very, very strong. We just had a Price Waterhouse audit of the FHA, and they were very confident of the strength of the FHA Fund. So, while there was an increase this year, that increase has to be within the perspective and the overall numbers on FHA are all good, and we can give you the Price Waterhouse study that will speak to that.
Mr. WALSH. What do you anticipate your failed mortgage rate would be for 1998?
Secretary CUOMO. I am going to ask Bill to get that number. I believe the projection for 1998 is down. Just further on the Price Waterhouse study, they report that the FHA capital ratio actually increased from 2.5 in 1996 to 2.8 in 1997. Both figures far surpassed the 2.0 percent targeted by Congress for the year 2000.
So we were supposed to be at 2.0 in 2000. We were at 2.5. We went up to 2.8. So the Fund is getting stronger, and we are ahead of targets.
Mr. APGAR. If I could just add, what is important to FHA, of course, is how many mortgages claimthat is, make a claim against the FHA Fund. Many mortgages may be in default, i.e., 90 days in arrears, but most defaulted mortgages eventually cure, meaning they work it out and get back to where they are back on a payment schedule.
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Again, in 1997, 70,000 loans claimed. That was, in fact, up from 1996, but just recognize that 1996 was the all time lowor ten year low in terms of number of claims. So, 1997, even though it was up compared to 1996, was still the best claim rate in over, third best claim rate in over ten years.
Early indications are in 1998 that claims rates are starting to come down. At least that is the experience in the first quarter of the year. Again, the reasons are we are starting to improve the experience with the ARMs portion of the portfolio. The California economy is beginning to recover, and in particular home prices in California are going back up.
So the interest of the home buyer, who having difficulty to walk away from their obligations, is limited, because in fact now there is more equity behind the homes. And so we believe that those two factors will lead to improvement in the overall claims experience in the years ahead.
Mr. WALSH. Very good. Thank you, Mr. Chairman. Thank you, Mr. Secretary.
Secretary CUOMO. Thank you, Congressman.
Mr. LEWIS. Thank you, Mr. Walsh. Ms. Kaptur.
Ms. KAPTUR. Thank you, Mr. Chairman.
Page 165 PREV PAGE TOP OF DOC Well, Mr. Secretary, I hope you had a good lunch. You have been up there a long time.
Secretary CUOMO. Very nice, thank you.
Ms. KAPTUR. I wanted to ask you, last year we provided the Department with about $654 million for new development in the Section 202 program for the elderly and the disabled, and I am curious as to whether all of that money has now been committed.
And I am interested in knowing how many groups, applicants applied, and then how many were funded? What percent? If you could give me a sense of that, please.
Secretary CUOMO. The 202 funds, and we will check for the specific numbers, Congresswoman, but the 202 funds, we put out a NOFA last year, we made the selections. There were 405 applications, 155 selections, 17,000 units requested, 6,000 actually funded.
There were approximately three applicants for every one awardee.
Ms. KAPTUR. Three applicants for every awardee. I was interested in this because is it your sense that there is a waiting list for individuals to move into projects that are sponsored by 202 around the country?
Page 166 PREV PAGE TOP OF DOC Secretary CUOMO. Yes. In any of the programs that we run, we always get a multiple of applications for the number of awards. For example, a three to one ration in 202. For every one winner, there are three applicants.
That happens to be, actually, a very low ratio. You take the Economic Development funds, we often have seven, eight, ten applications for every one granted. Homeless funds, also. Very high demand on the Homeless funds.
So the three to one is a relatively low ratio for the Department.
Mrs. MEEK. Would the gentlelady yield?
Ms. KAPTUR. I will be happy to yield to the gentlewoman.
HOME/SECTION 202811 MERGER
Mrs. MEEK. A recent GAO study on housing for the elderly found that for 1992 to 1995 the Section 202 program funded 1,400 elderly housing projects, while HOME funded only 30. And I said that to back up the other information I am going on now, that the Secretary has proposed capsuling 202 into HOME.
But their productivity of homes for seniors would not be as high.
Ms. KAPTUR. Well, I was going to ask the Secretary, in your history in the housing area, I mean, the 202 program obviously is one that has received pretty high marks among housers in terms of its ability to both result in real new units, as well as management over the long term.
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Would you not agree it has been one of the better managed programs that has been sponsored through Federal auspices over the years?
Secretary CUOMO. Yes. And, Congresswoman, I do not want to argue against the 202 program. As I said in response to Congresswoman Meek's question, we had tough choices. We did not have enough money to make all the priorities we would have wanted.
There is no doubt that if we had more funding, that we would have fully funded the 202 program. There is also no doubt that there is a different budget situation today than there was when we put together the budget.
But our choice was this: if you want to provide units more economically, it is less expensive to provide units through vouchers than through construction. 202 is a construction program. And it is a very fine program, but it is expensive to construct the units.
It is less expensive to provide the housing through a voucher. So our proposal said, roll 202 into HOME. Let the construction be done in HOME, and provide vouchers for the seniors, rather than the new construction.
Ms. KAPTUR. Mr. Secretary, I wanted to ask you, with the proposal you have submitted to us, was that the same as the proposal that HUD initially submitted to OMB when you made your original budget request?
Secretary CUOMO. Congresswoman, we consider the discussions between the Department and OMB squabbles that we keep within the family, so we will just speak to the Budget that
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Mr. LEWIS. I beg your pardon, Mr. Secretary? [Laughter.]
Secretary CUOMO. We will just say that that is the Budget from the Administration.
Ms. KAPTUR. You obviously are aware that 202 does result in the construction of new units as opposed to putting vouchers out there for existing units. So this is a part of the budget that I have a particular problem with, knowing what has happened in my own community, particularly management over the long term.
Mr. Frelinghuysen talked about good balance between those who have governing positions in public offices, and working with non-governmental groups, and I think some of the church related sponsorships in these 202's are fantastic, as well as in our nursing homes.
And one of my concerns in this regard, I think I read somewhere in the testimony where it said that you were going to turn the oversight of this to State and local governments. Did I read that correctly?
Frankly, that bothers me when I think about, especially since our local government cannot even get the restaurants inspected. Actually, every city has problemsin that regard. And trust the States on nursing homes?
Secretary CUOMO. The proposal was, Congresswoman, that we would put it into the HOME program. The HOME program is then administered by the State or the city, depending on the area. And just as they now administer the HOME program, which is regarded as a highly successful program, they would be doing senior citizen housing within that program.
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Mr. LEWIS. Excuse me, gentlelady. One might put a question like you are asking in terms of who would you like to have your mother's rest home inspected by.
Ms. KAPTUR. Yes, having been through many of these facilities.
Mr. LEWIS. If you would like me just tag on there for a moment.
Ms. KAPTUR. Go ahead, Mr. Chairman.
Mr. LEWIS. Mr. Secretary, earlier when Ms. Kaptur asked that question about what the Department proposed and what OMB disposed and then proposed, I must be straight with you, that other agencieswe have 22 agencies and commissions before us.
The question that she poses has been asked many times by different members in different ways. I have never heard that response before.
Secretary CUOMO. What have you heard, Mr. Chairman?
Mr. LEWIS. They have responded rather directly and said, no, or yes or otherwise. Maybe we will think about this over night and have her ask it again.
Secretary CUOMO. Okay.
Ms. KAPTUR. You know, when something is not broken, you do not try to fix it in some way that you have not thought out well. Before we tinker around within the 202 program and try to do something else with it, both on the management side and the number of units and so forth, I think this Committee really has to deliberate, Mr. Secretary.
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I think you want to deliver good housing to seniors. I have not noticed that there are fewer senior citizens coming of age in our country. In fact, the last time I looked there were more of them edging up, and they are going to live longer.
So I would guess that the numbers on the waiting lists are going to get longer in this program.
Secretary CUOMO. Yes. Congresswoman, if I could, I understand the need for the 202 housing, but if you were to put it on a scale, and balance itif you wanted to do just number of units versus need, if you put the 202 on one side, and the tough choice between construction and vouchers, and on the other side you put 5.3 million families, of which our proposal only suggests 100,000 new vouchers, against 5.3 million, no construction.
One hundred thousand vouchers against the base of 5.3 million. That is our total proposal. I would be curious as to hear which way you think the scale tips.
Ms. KAPTUR. In terms of whether
Secretary CUOMO. Resources versus need. Because that is the decision we were making. Our budgetwe were only asking for 100,000 new vouchers, against a need of 5.3 million worst case housing needs.
We have $400 million in economic development, when you have cities who do not have a tenth of the jobs they need for people coming off welfare.
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We only put in $327 million more for homeless, which we discussed this morning. That is mentally ill, that is domestic violence, that is substance abuse. And the cost of the 202 program is about $580 million, more than the homeless increase.
And our proposal actually gets more units using vouchers than you are going to get through 202 construction. So my only point is that these are all very touch choices, but they are not black and white choices either.
Ms. KAPTUR. You do not get additional housing units out of it in the country.
Secretary CUOMO. You do not get additional new construction units, but you are not getting any additional new construction units for the 5.3 million people.
Ms. KAPTUR. I would not disagree with you at all there.
Secretary CUOMO. Okay.
CREDIT AND FINANCIAL SERVICES FOR PUBLIC HOUSING
Ms. KAPTUR. I will ask that question again tomorrow, Mr. Chairman. I wanted to ask you, last year I had inquired about HUD's role in providing credit and financial services for public housing facilities in disadvantaged neighborhoods.
Page 172 PREV PAGE TOP OF DOC And I am curious as to whether HUD, over this past year, has made any efforts in that regard. In fact, I think I asked Secretary Cisneros this same question. And whether or not there are, especially in view of welfare reform, affirmative efforts being made in conjunction with the National Credit Union Administration, and others to get terminals in these sites, and to provide credit counseling, et cetera, for families.
Because I would just remind the Committee and the Secretary, that there was a time when if you tried to save money, under the old welfare system, you were discouraged from doing that.
And I remember when I first arrived in Congress, I had this bright idea of trying to create homeowners out of people who had been renters. And I said, great, we will put it on a sliding scale. For every dollar somebody saves who is on welfare in public housing, we will match it by three, and we will do a sliding scale, we will do a second mortgage.
They said, well, you cannot do that, because people in public housing are not allowed to save money. This is the craziest system I ever heard of. How are you ever going to get people out?
Secretary CUOMO. Yes.
Ms. KAPTUR. And so my question really is to what extent has anyone at HUD, especially the Credit Union people who are used to doing a lot of consumer counseling, making those services available. Have you got any star places in the country one can look to that have really put terminals in all of their facilities?
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Secretary CUOMO. Congresswoman, in general, the entire Department has moved more towards the economic development side. In the presentation I did this morning, I said we want to stress the UD in HUD, the urban development. Given the way the economy is going, and the demands from welfare reform.
We have the EDI proposal, Economic Development Initiative proposal, which is relatively new for the Department. We are seeking $400 million more there. We have redone the CDBG program, so it is more easily used as an economic development program.
And we have the EDSS, Economic Development and Social Services program under Public Housing, which does economic development in public housing. Credit unions, micro-enterprise loans, community development banks, cooperative forms of financial management are all eligible under any of those programs.
We have not pushed credit unions, per se. We have done a lot of work with community development banks as a general frameworkmicro-enterprise under their Grameen type programs within that rubric, but no work that I am aware of with credit unions per se. But it is eligible under any of them.
Ms. KAPTUR. I am a big credit union supporter, and I have lectured others, as they are forced to listen to me during their testimony on this subject. And I tried to convince the Clinton administration of this a long time ago before they came out with that CDFI proposal.
Page 174 PREV PAGE TOP OF DOC But I think credit unions are the best community development financial institution we have in the country, with a very long history and track record. And lots of volunteer effort, lots of free counseling to those who would want to move into this.
And if you take any community, and I like to use Monsignor Linder up there in Newark, because I have just been so impressed with the credit union that was chartered up there, which is a community development credit union, within that area, even putting a terminal in the local supermarket, and that whole area had been redlined for years.
But you start putting these terminals in the seniors buildings, 202 projects, the supermarket where the local people shop and so forthall of a sudden, you are capturing every welfare dollar, every veterans' dollar, every subsidy dollar that goes back to work, in those communities for small loans, for college loans, whatever and ultimately for mortgage loans.
And I would also point out to the Secretary that I have heard, although I cannot verify this, that in some places in the country where this has been tried, if you have an individual who sits on a local housing board who may work for a bank in the private sector, they do not recuse themselves from votes when the local authority tries to initiate a credit counseling service, or a local credit union.
And I just think the Secretary would be well advised by this member to look into this, and to make sure that credit is captured on behalf of those who need to pull themselves up the ladder of economic opportunity.
Page 175 PREV PAGE TOP OF DOC And I think HUD can really encourage its developments around the country to be engaged in this, and there are a few examples that I know exist where this is happening.
Secretary CUOMO. Congresswoman, I agree with you on the concept of the credit union, because it meets both needs that we are trying to accomplish. Number one, it brings economics into that neighborhood. Very often you cannot find a bank, or any financial institution in the entire neighborhood. People have to go to these check cashing places, and pay exorbitant fees.
So it brings in an economic system. And it also brings a community development system. The credit union, by definition, creates community. There is a mutuality, which is the same thing the Grameen Bank actually gets to.
It is interesting, the parallel. Grameen Bank just said we are going to be co-signatories, as the fundamental premise, and we are now boundwe are inter-connected, we are inter-related, we are inter-dependent through a financial mechanism. That is what a credit union does.
But we will do more work on it over this coming year, and I will report back to the Congresswoman as she sees fit. But I agree with the overall concept and the thrust.
Ms. KAPTUR. Within the Credit Union Administration, the Chairman and others here helped us to create this special Community Development Credit Union Revolving Loan Fund, where the interest nowit's over $6 million, which is not a lot, but it does a lot of goodand technical assistance can come off the interest from that.
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That can have an impact in a number of these neighborhoods. So it is a very specialized type of credit union within the broader array of credit unions that exist.
Mr. Chairman, is my time up?
Mr. LEWIS. I believe we were going to try to let the Secretary out sometime near 4:00 o'clock, and we had a vote at the end of the lunch period. But we probably should wait until tomorrow and not do too much more.
I want to do one more thing before we leave. In the meantime let me say to the gentlelady that I have enjoyed these very provocative questions, and I hope that we might revisit this before we have the CDFI hearing next year, and maybe you would remind me of this discussion.
Ms. KAPTUR. Thank you, Mr. Chairman.
DECREASE IN IG FUNDING REQUEST
Mr. LEWIS. Thank you.
Mr. Secretary, what I would like to do now, if you will stay where you are, but perhaps make room, I would like to have the IG come up for just a moment.
Mr. Secretary, so that you will know, the Members on both sides of the aisle were loaded with questions today, and I noted them writing additional questions as we went forward with the discussion. Tomorrow should be very interesting.
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But moving right along, Ms. Gaffney, I appreciate a little time here. The Administration's request for salaries and expenses for the Inspector General's Office was not increased for inflation as were the other salary and expense accounts.
Furthermore, the Inspector General is mandated by Congress, which provides $10 million in fiscal year 1998 to carry out the Urban Fraud Initiative. Consequently, the request results in an actual decrease.
Is the decrease in funding for the Inspector General's Office due to decreased duties or responsibilities?
Ms. GAFFNEY. Absolutely not. There is, to my knowledge, no basis whatever for that decrease. A decision was simply made to do that.
Mr. LEWIS. All right.
Ms. GAFFNEY. Unrelated to workload.
URBAN FRAUD INITIATIVE
Mr. LEWIS. There are areas of special interest that the Committee has provided for the Inspector General over time here. Would you take a moment and indicate to us what plans does the IG's Office have for the Urban Fraud Initiative?
Page 178 PREV PAGE TOP OF DOC Ms. GAFFNEY. We have selected three locations. The idea, which was really an idea that you helped us come to, is to go into targeted locations and instead of looking at samples, cases, look broadly at all HUD funding and activities in the location over a period of time, to look for pervasive fraud schemes.
Mr. LEWIS. Ms. Gaffney, I would prefer that we not discuss where those locations are at this moment.
Ms. GAFFNEY. Okay. We have selected the locations.
Mr. LEWIS. I know that. I would prefer that we not have that location at this session. I think there are some other things we need to talk about.
But in the meantime, please proceed.
Ms. GAFFNEY. We have selected the locations. We will next week be selecting the team leaders and the deputy team leaders. We have announcements out for the next layer of staffing. We have acquired space in the three locations for the teams.
I expect that the teams will be up and running early this summer. We have also embarked, as part of that initiative, on a major computer endeavor, which for the first time will truly enable us to use analytic techniques to identify fraud and to track people through various schemes and through locations.
We, just yesterday, got a series of bids for people who will help us construct requirements for that system, and I think we will have issued an award, hopefully, for the construction of that system by the end of this fiscal year.
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OPERATION SAFE HOME
Mr. LEWIS. What are the results of Operation Safe Home?
Ms. GAFFNEY. The results of Operation Safe Home are, let's see. There are two major parts of Operation Safe Home. The first is fighting violent crime in public housing. And the second is trying to combat equity skimming in multi-family insured housing.
In the area of violent crime, we have now been engagedthe HUDOIG agentsin more than 300 task forces with Federal, State and local law enforcement targeting public and assisted housing.
Those task forces have made more than 14,000 arrests. This is, I must tell you, Mr. Chairman, a huge success story. We are a little office, but the Federal Government was ignoring crime and drugs in public housing. They did not even recognize it for what it was, and we have been able to change that focus.
The FBI, the DEA, the Marshals, the Secret Service, they know what we are, they know we have to protect this investment. It is really paying off. I am tremendously proud.
The second part is equity skimming in insured public housing. There we are going after owners and management agents who siphon off funds from the project illegally instead of putting the money back in the projects. Projects deteriorate.
Page 180 PREV PAGE TOP OF DOC Physically, crime moves in. We have targeted some of the biggest people in the industry, and as part of this process we have to date recovered more than $70 million. But the important thing is it is a consistent message.
We are going after this. We are going after it, and the industry is very upset with us. They now are doing training sessions in how to fight the HUD OIG.
Mr. LEWIS. Well, I just say I was going to ask you the question of the number of dollars. And I would hope that the Members would focus on this piece of our overall hearing and testimony today.
Mr. Stokes, we are about to close down the hearing for today. We have extended the Secretary's time longer than I expected. But we asked the IG to come up in order to talk about a few areas, including the Urban Fraud Initiative, as well as Operation Safe Home.
And that testimony kind of becomes the tip of the iceberg, at least of my interest. So I do not know if you have additional questions for the IG, or whether you want to extend this at another time. But it is a very interesting and apparently productive subject here.
Mr. STOKES. Not at this time, Mr. Chairman. I do not have any questions.
Mr. LEWIS. I notice that you stayed around all day today and that you will probably be around tomorrow as well.
Page 181 PREV PAGE TOP OF DOC Ms. GAFFNEY. I certainly will be.
AFFIRMATIVE ACTION AT HUD
Mr. LEWIS. So we may further discuss this privately and get back with you.
Mr. Secretary, we are going to be back at 10:00 o'clock in the morning.
I did want to add just one additional question. I did not save this until Mr. Stokes came in the room, because I did not know he was coming back. But I would like to end the session by asking you this question.
I have gone through your portfolio of personnel, et cetera, and I do not see the kind of data I was looking for relative to the status of HUD's condition as it relates to a broad topic that one might describe as affirmative action.
But I would nonetheless like to know what you can tell me here, and maybe add for the record, relative to HUD's employment base, as it relates to people who are employed of minority background, African-American, Asian, Hispanic, women.
I look at the audience, and it is interesting, it is hard for me to recognize all my Hispanic friends.
Secretary CUOMO. Well, Mr. Chairman, we are very proud of the record we have. I will get you the numbers on both career and political. But I happened to be with the Hispanic Caucus last week, so I recall the numbers off the top of my head.
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We had one of the highest levels of Hispanic appointments among the political officials, which are the ones directly within my control, of any Federal Department. Actually, number one or number two, of any Federal Department in number of hires among Hispanic people.
So we were very proud of that. But I will come tomorrow morning at 10 o'clock with the numbers on the career staff by those breakouts, if it pleases the chairman.
Mr. LEWIS. I would be interested in that. That would be a good way to start our hearing, and I would be especially interested in what you would describe for us, whatever level you want to describe it at, but I think you will get the drift.
I would be interested in those break outs specifically as they relate to executive level staff.
Secretary CUOMO. Executive and by office, so we can see exactly who is where.
Mr. LEWIS. That would be very helpful.
Mr. STOKES. Mr. Chairman, I would just like to applaud you for the leadership you have given in this particular area.
I think it is so important, coming from the Chairman of this Committee, but not just for this agency, but for every agency coming before us, to show a concern as has been evidenced by numerous hearings.
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And so I look forward to tomorrow morning, Mr. Chairman.
Mr. LEWIS. It should be known in the record, Mr. Stokes, that you have not made an impression on me, but Jaythat is, his bridehas had a big impact on me. [Laughter.]
Mr. LEWIS. Anyway, it has been a very worthwhile day, and we appreciate you all being with us for this extended period of time. And for now we are adjourned until tomorrow morning at 10:00 a.m. here, in this room.
Secretary CUOMO. Thank you.
Thursday, March 26, 1998.
STAFF DIVERSITY AT HUD
Mr. LEWIS [presiding]. The meeting will come to order.
Good morning, Mr. Secretary.
Secretary CUOMO. Good morning, Mr. Chairman.
Mr. LEWIS. I anticipate, Mr. Secretary, that members will begin to arrive here shortly, and when there are more members here, we may recess the committee for a very short period of time to have a private conversation.
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But in the meantime, yesterday, as we left each other, among other things, there was on the table a prospect of discussing diversity in the Department and what has been not only the policy, but the development over time in the Department. So why don't we begin there?
And, Mr. Stokes, if you'll share this time with mewe're anxious to hear the Secretary.
Mr. STOKES. I'll be glad to, Mr. Chairman.
Secretary CUOMO. Well, thank you very much, Mr. Chairman. It's a pleasure to be here again, Ranking Member.
The diversity story at the Department is a story that we are very proud of. There are a number of ways that we can compare the information. But three quick comparisons: If you look at HUD versus the overall civilian labor force, HUD is about 40 percent male, where the civilian labor force is about 54 percent male. HUD is about 33 percent African American, where the civilian labor force is about 10 percent African American. HUD is about 6.5 percent Hispanic employees; the civilian labor force is about 8 percent. On the PAS's, which are the senior political appointees, presidential appointees, about 50 percent are Caucasian, about 25 percent African American, about 25 percent are Hispanic.
And if you look at how HUD compares to the other Cabinet departments, HUD is actually second among all the Cabinet departments in political appointees among African Americans. We're third among all Cabinet departments in total number of Hispanic appointees, and third in total number of female appointees.
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Compared to other Cabinet departments, we are about 48 percent women; other Cabinet departments are about 45 percent women. We're about 20 percent African American; other Cabinet departments are about 13 percent African American. We're about 11 percent Hispanic, whereas the other Cabinet departments are about 7 percent.
Mr. Chairman, if you compare us to the civilian workforce, we do exceptionally well. If you compare us to the other Cabinet departments, we do exceptionally well. And when you look at the senior political appointees of the Clinton administration, we do even better.
We obviously have these numbers for you, Mr. Chairman, and other cuts of them, if you would desire.
Mr. LEWIS. We would appreciate having those in the record.
[The information follows:]
"The Official Committee record contains additional material here."
Mr. LEWIS. Mr. Stokes.
Mr. STOKES. Thank you, Mr. Chairman. Just a couple of questions of the Secretary.
Can I have those figures again on women?
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Secretary CUOMO. Women, we are third among the major Cabinet departments, 15 major Cabinet departments, we're third in the total number of women. This is by percentage. Some Cabinet departments are bigger than HUD, not necessarily better, but bigger. We're third in the number of women by percentage. We are 48 percent female, whereas the other Cabinet departments have an overall of 45 percent.
Mr. STOKES. And in terms of the women, do you have a breakdown in terms of African American women, Hispanic women, et cetera?
Secretary CUOMO. I do not have that. I do not have that here, Congressman, but I can get that for you. Women, HUD versus the civilian labor force, is about 59 percent versus 45 percent.
Mr. STOKES. All right, would you get those figures for us for the record
Secretary CUOMO. Yes, sir.
Mr. STOKES [continuing]. And that breakdown?
[The information is on pages 131132.]
Mr. STOKES. Now what about SES positions? You didn't mention those. Do you have SES categories?
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Secretary CUOMO. We have SES career and noncareer. We have both.
Mr. STOKES. All right.
Secretary CUOMO. SES executive, noncareer, 48 percent, male; 51 percent, women; 22 percent, African American; 7 percent, Hispanic.
Mr. STOKES. On the 51 percent women there, do you have a breakdown there of
Secretary CUOMO. Of what, Congressman?
Mr. STOKES. African American women, Caucasian women
Secretary CUOMO. I do not have
Mr. STOKES [continuing]. Hispanic women?
Secretary CUOMO. I do not, but I can get that for you.
Mr. STOKES. All right.
[The information is on pages 131132.]
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Mr. STOKES. Now you said SES noncareer?
Secretary CUOMO. SES noncareer, are the numbers I just gave you, sir.
Mr. STOKES. All right, now is there another category of SES?
Secretary CUOMO. There's SES career appointees.
Mr. STOKES. All right, can we have those?
Secretary CUOMO. That is 31 percent, female; 28 percent, African American; 4 percent, Hispanic. And these are rounded-off numbers that I'm giving you, obviously, Congressman.
Mr. STOKES. And I suppose there also you do not have a breakdown in terms of the female
Secretary CUOMO. Not with me, but I will get it for you, sir.
[The information is on pages 131132.]
AFFECT OF DOWNSIZING ON MINORITIES
Page 189 PREV PAGE TOP OF DOC Mr. STOKES. In terms of your reductions of the agency, which are being done by all the agencies, of course, one of the problems that comes up with reference to minorities is oftentimes they are the last hired, and therefore, when reductions come along, they're the first to have to go out on the reduction aspect of an agency. Are you finding that to be a problem at your agency?
Secretary CUOMO. We are not finding, Congressman, any disproportionate impact on any racial group from the downsizing. Now our downsizing has been through buyouts. We have not laid off anyone; we don't plan to lay off anyone. So these are people who opted to leave because the buyout was an incentive. But we don't have any evidence whatsoever of any racial disparity of people who are taking the buyout. But, again, we're not laying off anyone. So it's not a case of first in, last out.
Mr. STOKES. Okay. Thank you very much, Mr. Secretary. Thank you, Mr. Chairman. I appreciate your inquiry into this area.
Mr. LEWIS. Thank you, Mr. Stokes.
Let me say, first, Mr. Secretary, that I appreciate the response, but I also am very appreciative of the pattern of the Department. I have for some time been working in my own caucus. We have Democrat and Republican caucuses during the year, and within my own I've been on the forefront of attempting across the country to get our people to stimulate and give support to women running for Congress to change the pattern of the Republican conference. If you look at the whole Congress, I must say, in terms of these issues, we don't compare with a lot of the work that's being done in our departments and otherwise, but that's almost ''a smiling aside,'' if you will. But in the meantime, it's a very important item and issue. The Department is to be congratulated the effort that's been made over some time.
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Mr. Stokes had been a leader in terms of at least discussing these matters on the public record. While he is leaving us this year, I don't think there's any chance the issue will go away insofar as this committee is concerned anyway. So I appreciate very much your response.
Secretary CUOMO. Mr. Chairman, I appreciate that, and it's a story that we're proud to tell. As I mentioned, we are No. 1, No. 2, and No. 3 in number of Blacks, Hispanics, and women among all the Cabinet departments. So I'm very proud of that fact.
And I thank this Committee for its leadership, and you personally, Mr. Chairman. Last time we were in this room you raised the same issue. That helped raise the awareness of it in the Department. You also at that time, Mr. Chairman, as I'm sure you'll recall, looked around the room when you were talking about the Native American programs, and at that time you remarked that you did not see a Native American at the Department of Housing and Urban Development. I would also point out, Mr. Chairman, if you looked around the room at the HUD staff this time, it would be different. We have Jackie Johnson, who now runs the Indian programs, and we thank you for bringing that to our attention.
Mr. LEWIS. You had her come visit me. [Laughter.]
Secretary CUOMO. That was a coincidence, Mr. Chairman. [Laughter.]
MINORITIES IN KEY IG POSITIONS
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Mr. STOKES. May I raise one further question, Mr. Chairman?
Mr. LEWIS. Sure. Sure, Mr. Stokes.
Mr. STOKES. I've been given a copy of a letter that was sent from Congress Elijah Cummings of Maryland to Congresswoman Maxine Waters, chairperson of the Congressional Black Caucus, in which he raises a question about the lack of minorities in key positions at HUD, and specifically, within the Office of the Inspector General. He says, ''Housing trade press have noted that several talented African Americans were passed over for positions at HUD, and the HUD staff have been frustrated by what appears to be a pattern of discrimination in hiring and promotions.''
Can you respond to this with reference to the Inspector General's Office?
Secretary CUOMO. I do not, Congressman, have numbers here office by office. I don't know if the Inspector General has
Mr. STOKES. Can the Inspector General give us some information on that? Ms. Gaffney.
Ms. GAFFNEY. Mr. Stokes, I don't have the statistics with me, but I have just reviewed our affirmative action report for 1997 and our plans for 1998. My recollection is, with respect to the civilian labor force, in the past year manifest imbalances that were eliminated in terms of representation of Hispanics and African Americans. We no longer have those imbalances. The remaining areas where we are below the civilian labor force percentages are, as I remember, Asian and Indian males and females. Overall, our percentage of women is 55, and all I can tell you is, with respect to Hispanics and African Americans, we are above the civilian labor force. But it was only in 1997 that we made those gains.
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Mr. STOKES. 1997? I appreciate what you're saying to us, and I know that you'll provide us with an accurate breakdown for the record.
[The information in on pages 137147.]
Mr. STOKES. But let me just ask you this: At the top level of your Department, does that African American population there extend up to the top ranks in your office?
Ms. GAFFNEY. We havelet me include me and the SES contingent
Mr. LEWIS. You can't include you, no.
Ms. GAFFNEY. I cannot include me? [Laughter.]
Mr. LEWIS. No, you certainly can.
Ms. GAFFNEY. Let me just talk about the SES. I'm sorry, I'm going to have to count them up in my head. We have one African American male; two white females, and four white males.
Page 193 PREV PAGE TOP OF DOC Mr. STOKES. That's at the top level of your Department, did you say? All right. Well, if you'll provide us the breakdown for the record, I'd appreciate it.
Ms. GAFFNEY. We surely will.
Mr. STOKES. And I'd like to yield at this time, Mr. Chairman, to Ms. Meek.
Mrs. MEEK of Florida. Thank you, Mr. Stokes.
Inspector General, I, too, have received some very negative reports regarding your office relative to your not having Blacks in the top management positions. The concerns I have are specifically centered upon African Americans and the fact that many of your investigations so far, which you are allowed to arbitrarily select as the Inspector General, were targeted toward cities where Black mayors were over those cities. Now whether or not that has any pattern or notI did want to bring that to your attention. The fact is that I'm continually receiving this criticism of the office in terms of your relationship with African Americans, particularly in top management positions in your office, and it is something that as a member of this subcommittee I will continually have interest and concern in, whether it's African Americans or not. But at this point it happens to be African Americans who feel that they have been unfairly treated in many instances in terms of promotions and in terms of hiring in your office. I didn't get those criticisms of any other office in HUD.
Ms. GAFFNEY. Mrs. Meek, I would just say to you that when I went to the HUD Office of Inspector General, diversity was a major emphasis and has continued to be a major emphasis. Our office, I think the whole makeup of the Office of Inspector General has changed dramatically in the last four years, but I will tell you this: In all honesty, there is a great deal of pent-up anger. There were people who worked in that office for 10 or 20 years under circumstances that were not good, and that anger does not go away easily. I promise you I am doing what I can do.
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Mr. LEWIS. I think the point that you're making is very important. We'll be discussing some of this in another venue in a few moments, but
Mrs. MEEK of Florida. I thank the gentleman for yielding.
Mr. LEWIS. I appreciate it.
Ms. Meek, I think it's important to say this: I've only had this job for three years, but I served with Mr. Stokes for a number of years, and we have been discussing this subject area for a long time. We've neverthis is the first time I've ever heard us discuss specifically the IG, but I think it's healthy that we're doing this, and we should be doing it for all of our agencies. But, in the meantime, I don't know the history of the preceding four years, and we need to know more about that. So I appreciate your at least raising that specter. We'll try to make some evaluation independently as well.
Mr. STOKES. If I might, Mr. Chairman, I might say to the Inspector General, Ms. Meek and I may want to meet with you regarding some of these matters that are being brought to our attention.
Ms. GAFFNEY. I would be delighted, truly.
Mr. STOKES. Okay.
Ms. GAFFNEY. And I will provide you all the background I can. Truly, I would appreciate your help.
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Offset folios 259 to 269 insert here
Mr. STOKES. Sure. Well, then, we'll certainly look forward to a chance to meet with you.
Secretary CUOMO. And, Congresswoman, I promise you an office-by-office breakdown, because it's important for the Department overall to have the right representation, I want to make sure it is in every office, and we'll be working on that also. We will not tolerate any office at HUD where there is not affirmative action and people of all racial makeups moving up.
Mr. STOKES. Chairman, this has been a good discussion in this area.
Mr. LEWIS. I think it has been. Thank you.
Mr. STOKES. I appreciate your indulgence on it.
Mr. LEWIS. Yes. Now I'm going tonot all the members are here that I'd like. Some may very well come in here shortly, and if so, I'll have them for a very short time, but it's unusual, and I hope that all in the audience will bear with us. I'm going to recess the committee for a few minutes and ask the members to go with me to a meeting room across the hall, so we can have a discussion.
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Mr. WALSH [presiding]. All right, we'll re-begin the hearing, and the chairman should be back presently.
We'll go now to questions from the gentleman from Wisconsin, Mr. Neumann.
HOMEOWNERSHIP GOALS FOR FHA FUND
Mr. NEUMANN. Thank you, Mr. Acting Chairman.
There's two areas that I'd like to address this morning, if we could, and I know there was some discussion on it yesterday. I saw it both on CSPAN and I've read your testimony regarding it. If I could start with the FHA loan limit discussion
Secretary CUOMO. Please.
Mr. NEUMANN. I recently read an articleI had it faxed to me from the magazine, and in the article they quoted you as saying something to the effect that only 5 percent of new homes are financed with FHA-insured mortgages, and that you're expecting the new loan ceiling to qualify 3 million new homeowners over the next five years. They go on to say that you plan to restore FHA to its ''former glory.'' The agency accounted for 24 percent of home mortgage volume in 1970, down from 45 percent in the nineteen forties. But rising home values eventually outpaced the FHA loan limits, and by 1996 your market share dropped to 10 percent.
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Would you explain to the committee, first off, if this is being reported accurately, and this was in the Professional Builder magazine. I did see the article myself. What are your thoughts in terms of what portion of the total number of home loans FHA should be involved in and what's your goal as you look forward?
Secretary CUOMO. Yes, it's my pleasure, Congressman. The article, the way you paraphrase it, is, by and large, accurate. Somewhat misleading might be the phrase that you used, ''return FHA to its former glory.''
Mr. NEUMANN. No, it's in the article. I didn't
Secretary CUOMO. No, I understand that. If ''former glory'' is interpreted to mean FHA should be 40 percent of the market, obviously, I didn't mean that. FHA was about 40 percent of the market at one time. Given the sophistication we have as a finance industry now, you don't need an FHA at 40 percent of the market, but you do need the FHA to do the job that you need done. And the job of FHA is to help people who the private market is not serving.
We had a discussion yesterday. It is inarguable but that there is a disparity in homeownership rate between city and suburb, between Black and White, Hispanic/White, et cetera. That disparity is unacceptable, in our opinion. We want more homeownership for the Nation. We want more people in homes, we want to use FHA as a vehicle to get to that population that the private market does not serve.
Our loan limit proposal targets that areapeople who could buy a home who are unserved by the private market, who could be in a home because of FHA. One out of eight people right now is turned down by the private market, who we believe could be qualified. That's where we want to use FHA
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Mr. NEUMANN. So your intent, then, would be to go from 10 percent of market share to 22 percent of market share, give or take? Let's see, one-eighth is
Secretary CUOMO. No, not even close to it.
Mr. NEUMANN. Twelve plus 10 would be
Secretary CUOMO. Our basis now is about 850,000 loans, give or take, per year. This proposal the way it's scored by both CBO and OMB would only increase about 50,000 loans per year. So it is not, as a volume of business, it's not overwhelming.
FHA LOAN LIMIT INCREASE
Mr. NEUMANN. Is your proposal to raiseto have one constant rate nationwide of $227,150?
Secretary CUOMO. That is the proposal, yes. Misleading, if I might, Congressman, in it sounds like we're saying in the two-thirds of the Nation where the limit is now $86,000 we would begin making loans at the value of $227,000. Obviously, that's not what we're talking about. The $227,000, the single limit, is an operational issue. The optics on it are very bad. It makes it sound like we're going from $86,000 to $227,000, which is not the case.
Mr. NEUMANN. Let meand express this for members that are here alsoexpress my grave concern with this proposal, in spite of the fact that it's supported by two organizations that I'm very closely affiliated with because it's my business backgroundthat's realtors and homebuilders. The concept of the government, through FHA, stepping back in and being more involved in the industry I was in and intend to go back to at some point in the future is a very troublesome concept to me.
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Private mortgage insurance in the private sector is doing a great job of providing low downpayment loan opportunities for many, many, many people in the private sector. I have a grave concern any time we expand a government program that would replace private sector industry that now exists through competition. My fear in this proposaland, again, in spite of what I have heard from both homebuilders and realtors, two groups that I am very familiar withmy underlying fear is that, as the government steps back in and starts providing these loans that would have otherwise been provided from the private mortgage insurance. I know you say your intent is that's not where they're going to come from, but the facts are a certain portion of what you're talking about are going to come from mortgages that would otherwise be provided through private mortgage insurance.
When I was in the building industry, private mortgage insurance was the key to providing opportunities for our homeowners to buy our homes. That was the key. It was not FHA. It was not the government. It was private mortgage insurance that allowed our low downpayment people to buy one of our homes. A huge portion of my businesswe were building about 120 homes a yearneeded private mortgage insurance. And my fearand to the members who do not come from the housing industrymy fear with what they're suggesting we do here is that the negative impact on private mortgage insurance is going to have more of a negative impact on homeownership in this country than the positive impact that you're setting out to do. It's a classic case of where the government sets out to do something that on the surface sounds good, proper, and a great objective, but the outcome of what they do is that it shuts down a private sector portion of the market that is absolutely instrumental in the survival of real estate.
So I would just express to you my grave concerns in this area, and my concern that what you do is going to, in fact, impact private industry through the private mortgage insurance companies. It seems to me that when I go back to practice homebuilding again, which I intend to do perhaps as soon as next year, and if not, somewhere down the linewhatever the people decidebut when I go back into that private sector industry, I know I can survive without you. I also know I cannot survive without private mortgage insurance, and I would encourage your agency to take a second look at this proposal and see if you can't come up with something that is not going to impact the private mortgage insurance companies as much as what you're suggesting.
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And if I could throw out a suggestion that came from one of the folks that was in my office yesterdayit was a realtor. That realtor lives in the corner of three counties. So he's working in three counties in Wisconsin, has three different loan rateswhich is very difficult to deal with.
The suggestion came that perhaps what we could set the loan rate per State, but at different levels. So don't go nationwide with the $227,000/$150,000 number, but perhaps to do something in between here. That way the State of Wisconsin all gets one number at something that's reasonable for the State of Wisconsin.
NUMBER OF FHA LOAN LIMITS
Secretary CUOMO. Well, Congressman, two quick points, if I might: No. 1, on the loan, single loan, limit, we now have 250 loan limits nationwide.
Mr. NEUMANN. Right.
Secretary CUOMO. It's very difficult to administer. All the realtors will tell you
Mr. NEUMANN. Right.
Secretary CUOMO [continuing]. That it makes FHA much less competitive in the marketplace because it's too cumbersome to deal with.
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Our goal would be a single loan limit like the GSE's have. That's the standard in the trade. Our goal is, obviously, the optimum, and I could see someone saying that at least 50 limits would be better than 250 limits.
I am at a loss, though, Congressman, why you conclude that the PMI's would be hurt by the FHA loan limit increase. Our premise, as you stated correctly, is that these are people who the PMI's would not serve.
Mr. NEUMANN. My point is that as you increase that loan amount, you are going to start picking up people who builders like myself would have figured out how to serve them through the private sector. If we get into a $200,000 price range in the State of Wisconsin and you bring me a buyer that only has 3 percent down, by the time I've got that buyer's home built I would have figured out how to have that buyer at 5 percent, and we would have gotten them into a loan that would have qualified under private mortgage insurance. This is the real world.
And when we were doing this, we figured out how to get them so they did qualify for private mortgage insurance. By opening this door that you're now proposing here, we wouldn't do that. We'd put them in an FHA loan.
My point is, the outcome there is a loss of a mortgage that would have been handled in the private sector, and the new mortgage that is now held in the public sector. That's where I'm coming from on this.
Page 202 PREV PAGE TOP OF DOC Secretary CUOMO. I understand, but how about the reciprocal, Congressman, which is there are people now who can't get a mortgage
Mr. NEUMANN. Right.
Secretary CUOMO [continuing]. Who could get a mortgage with FHA.
RESPAREVISED FORM 971
Mr. NEUMANN. And to the extent that we're talking about some of the innercity areas, where I have heard from homebuilders that these limits do not work for them, I support your efforts in those areas. I hate to see us jumping from $86,000 to $227,000 in the State of Wisconsin. I guess that's what I'm expressing. I would certainly appreciate you taking a look at it and considering a state-by-state level.
I have a second area, if I could bounce into it fairly quickly, and it also relates to business experience that I come from. When we were building homes, one thing that we found to be to our buyers' advantage would be for a mortgage broker to actually come to our place of business and provide our buyers with the service of doing the loan application onsite. So we would literally be in a model home; the mortgage banker or mortgage broker could come right to the home, do the application, provide the service to the client that the client didn't have to come back during a working day and go to a bank. So they were providing this service.
What I'm understanding is that RESPA prohibits referral fees for these mortgages, which I understand, but it does allow for payment of services actually performed. Now the mortgage broker that came to our homes and took the loan applications onsite on a Sunday, so my buyers didn't have to take off of work to go to the bank on a Monday, did provide a service for our buyers.
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My question is, I understand that there is a form policy statement 971 that's been drafted by your agency that recognizes the services of a mortgage bankerbroker, ratherI'm sorry, a mortgage broker, that recognizes these services as a service as opposed to a referral fee. What's happening out there in the real world right now is there are lawsuits being brought against mortgage brokers, trying to get back the broker fees. The debate is whether it's a referral fee or a fee for a service provided. Again, coming from the industrythis is where I live and where I'm eventually going back tothis is clearly a service, in my opinion, and I'd just appreciate your comment on policy statement 971.
Secretary CUOMO. Well, Congressman, in general, I believe we come from the same philosophical point of view. If the broker is performing a service, they show up on a Sunday and they have a meeting with clients, they left their home, they left their family, that's a service; they should be compensated for that service. We're trying to draw the distinction between a referral fee, which is where they're not providing any servicethis is just a referral of businessversus fair compensation for a service rendered.
We just put forth a mortgage broker rule for comment. We have 9,000 comments in the Department, and we are now in the process of going through these comments. They raise many of the points that you just raised, Congressman, and we'll be continuing to review them over the next several weeks. Hopefully, in a month or so, we will be at a point where we can have discussionsit would be my pleasure to have the discussions with you, if you're interestedon exactly these types of issues and start to draw our conclusions.
Mr. NEUMANN. Okay, I'd sure appreciate it if you could keep us posted. It would be nice, Mr. Chairman, if we could reach some sort of a solution to this particular problem before we mark up our appropriations bill this year so that we could possibly address the problem otherwise in the bill.
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Mr. LEWIS [presiding]. Let me say that I think it's very helpful to the Committee. Frankly, I would have guessed, Mr. Neumann, that you might have been coming down on a different position on this issue. The dialog that you've carried forward here was very helpful. This latter point, no question the Committee will be discussing it further before we get through the process. In the meantime, I think we probably ought to move on, but I would welcome additional questions regarding this because of your very special background and appreciate your participating.
Mr. NEUMANN. Thank you, Mr. Chairman.
SECTION 8 CERTIFICATES
Mr. LEWIS. Mr. Stokes.
Mr. STOKES. Thank you, Mr. Chairman.
Mr. Secretary, how effective are section 8 certificates involved in meeting housing needs? In particular, do you find that some people are unable to use their certificates because they cannot find landlords who will accept them? And tell us, do you have any data regarding what percentage of certificates and vouchers are turned back unused because the recipient could not find a place to use them?
Secretary CUOMO. As a general rule, Congressman, the section 8 vouchers work well. They allow mobility. They allow people to move where they would like. Especially now with the pressures of welfare reform, we think mobility is very important. And by and large, they work, and in most markets they work.
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If you take New York City out of the equation, they're successful in about 87 percent of the cases where people go to use vouchers. New York City happens to be an anomaly nationwide in that the success rate for vouchers tends to be much lower. It's only about 62 percent of the time. But even when you factor in New York, it works well about 80 percent of the time. And in the program, Congressman, there is a caveat that says, if we believe the voucher isn't working, because the payment on the voucher is too low, we can raise that payment, and we have done that in some cases; San Francisco is a notable one.
But, by and large, it works well. It's not perfect by any stretch of the imagination, but the numbers would say it's a success.
Mr. STOKES. Recent VA/HUD appropriation bills have contained a provision which required a three-month delay between the time a section 8 voucher or certificate is turned in and the time it's reissued to a new family. What has been the impact of this 3-month delay? Can you tell us, does it reduce the number of families you can assist and lengthen waiting lines? And do you favor continuing this policy?
Secretary CUOMO. The 3-month delay, Congressman, is basically a budgetary device. It saves us three months' worth of funding, obviously. It, at the same time, has a very real cost, which is fewer families are getting housing. This harkens back to the discussion of yesterday, where we're the Department of Housing except we, as a Nation, have gone out of the housing business. We're not producing more housing, not in section 8, not in public housing. Our affirmative step into housing this year is only 100,000 vouchers against a base of 5.3 million. So, when you add the delay on top of it, it makes a bad situation worse. We estimate that it stops about 40,000 families from getting the assistance they need, and we're against it.
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Mr. STOKES. So, tell us, what do you do when you find a section 8 housing project in poor physical or financial condition or find an owner who's been abusing the program? Are there actions HUD can and does take, short of terminating section 8 housing assistance and giving vouchers to the residents? And tell us, what efforts does HUD make to prevent the displacement of residents in these situations?
Secretary CUOMO. As the Congressman knows, we're commencing a nationwide evaluation system of our entire portfolio, which we don't have currently. It will be a physical assessment, combined with a financial assessment. We'll then rate and rank the entire portfolio. When there is a problem with a project, we step in. If people are living in poor conditions, we step in. If there's a possibility of fraud or waste on the project, we step in. The last thing we want is to have to, what's called, voucher-out the project, where we give people vouchers and we have them move out. That is the last thing we want to do. We don't want to lose any housing stock, if possible. We're not building any; we don't want to lose any.
At the same time, we're not going to be held hostage by the owners to that possibility. At one time the owners knew how desperate we were for housing stock, and that we didn't want to lose it. So they would be recalcitrant in improving the stock. So we won't be held hostage. We want the buildings fixed. We want a fair deal for the taxpayer. But we want to save those units whenever possible.
SECTION 8 VOUCHERS FOR WELFARE TO WORK
Mr. STOKES. Let me ask you this: In my community, as well as around the country, people are beginning to try to evaluate how welfare-to-work is working. You mentioned in your presentation yesterday some things about welfare-to-work, but, in particular, you're proposing that 50,000 new section 8 vouchers be provided specifically to help people make the transition from welfare-to-work. Tell us the rationale for this proposal. How would the vouchers be allocated? Would there be any mechanisms for coordination between this housing program and other welfare-to-work efforts in various communities?
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Secretary CUOMO. Congressman, a couple of quick points, if I might: No. 1, welfare reform is the right philosophy; it's the right goal, I'm sure we all agree at this point. I have a personal anxiety level about how well it can work. It is a grand experiment, but with tremendous consequences on both sides.
There was an article recently in The Washington Post and The New York Times that suggested that people aren't necessarily moving off welfare into jobs; they're just running up against a time limit, and they're getting sanctioned from the welfare system. That's not what welfare reform is supposed to be about. We're supposed to be getting people into jobs.
One of the problems is the mismatch between the number of jobs and where they are created. People coming off welfare tend to be in the central citiesCleveland. The jobs being created that are accessible to the person coming off welfare tend to be in the outer suburbCuyahoga. The question is, how do you get a person from the city of Cleveland to Cuyahoga? We're working on a number of strategies, transportation strategies. Secretary Slater, has a significant amount of money, about $600 million, for reverse commutes.
One of the goals would be, one of the avenues would be to use vouchers, section 8 vouchers, that could possibly move people closer to the job. That's what the 50,000 welfare-to-work vouchers are. We would run them through a competition. Housing authorities would be the expected applicant, and we'd say to the housing authority, ''You tell us how you're going to use these vouchers to get people in jobs and how you would use these vouchers in concert with the other measures, reverse commute, training programs, et cetera.''
Page 208 PREV PAGE TOP OF DOC Mr. STOKES. Thank you very much, Mr. Secretary. Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Stokes.
PHA ENTREPRENEURIAL INCOME
Mr. FRELINGHUYSEN. Thank you, Mr. Chairman.
Mr. Secretary, good morning.
Secretary CUOMO. Good morning, Congressman.
Mr. FRELINGHUYSEN. Many of us are visited in Washington by our public housing authorities, and a group from New Jersey was down last week, and some of the questions relate to concerns that they've raised with me, and I suspect raised with other Members of Congress.
The Department has recently notified all public housing agencies that they will be not allowed to retain income that they've generated from entrepreneurial activities. Could you comment on that issue? I see it that some of those public housing authorities, most of the ones I represent, are pretty well run. They have a good record, good track record, and many of them make a plea with me that there are certain things that the Department's doing relative to entrepreneurial activities that are fairly discouraging. And I just wondered if you could talk about the issue of whether well-run public housing authorities that are seeking non-Federal revenue sources to strengthen their operationwhether your Department is doing anything to discourage them?
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Secretary CUOMO. Congressman, first, your general point is well taken. Most housing authorities are well-run in this Nation. Public housing really has gotten a bad reputation, and it's an unfair one. Of 3,400 housing authorities, only 56 are ''troubled.'' Fifty-six of 3,400 is a pretty good success rate, I think, in any business, private sector or government. So public housing overall is a success. This is an issue that we're working through right now. We're going to have to come up with a better answer over the next few months. We're going to have to publish a regulation on the matter. I don't have personal familiarity with it, but we don't want to discourage entrepreneurial activity. If we can encourage the entrepreneurial activity of the public housing authority and let them keep a portion of the resources, that would be my inclination.
RENTAL INCOME INCREASE
Mr. FRELINGHUYSEN. I would encourage you to do that, if that's reasonable. I understand a lot of these things are tied up with what are called PFS calculations, Performance Funding System calculations. Goodness knows, we don't need to hear what all goes into that this morning, but I would certainly ask that you look into it, and you've given us indication that you will.
Secondly, will HUD analyze the effect of their requirement that local public housing authorities automatically increase their anticipated rental income by 3 percent each year, what's defined as rental income? I hear an echo in the rear of the room which sounds fairly positive
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Secretary CUOMO. That nameless voice, yes.
Mr. FRELINGHUYSEN. Yes, thank you.
Secretary CUOMO. The answer is, yes. We're not quite sure who said it, Congressman, but the answer is yes. [Laughter.]
Mr. KEEVEY. It's built into the existing formula, that we would increase it by that amount.
Mr. FRELINGHUYSEN. Yes. Thank you, Mr. Keevey. Thank you, Mr. Secretary.
Secretary CUOMO. Thank you, Congressman.
PUBLIC HOUSING MANAGEMENT ASSESSMENT PROGRAM
Mr. FRELINGHUYSEN. Thirdly, will HUD's new proposed Public Housing Management Assessment Programhow will HUD's new proposed Public Housing Management Assessment Program affect the Nation's public housing authorities? Will it have the effect of creating more troubled housing authorities at a time when HUD's administrative capacity is being reduced by your acknowledged staff reductions?
Page 211 PREV PAGE TOP OF DOC Secretary CUOMO. No, Congressman. The point about the assessment is twofold: (A) As I said at the beginning of this dialog, the story of public housing in this Nation is a success story, an overwhelming success story. We need a better way to separate the high-performers from the low-performers. We want to deregulate the high-performers. If a housing authority is doing well, God bless them. Give them the funds; let them run it. If a housing authority is troubled, and is not using the funds well, we want to know. We want to know early in the process, and in and do something about it. We need an assessment system to do that.
Our current assessment system really doesn't do it. As a matter of fact, our current assessment system doesn't even have a physical inspection of the inventory. So we have a proposed assessment system that makes what is, in our opinion, an intelligent delineation of the portfolio. High-performers would get more deregulation; poorer-performers we would step in faster.
The last thing we want are more housing authorities for HUD to be running. HUD cannot run them, not just with our current staffing or our proposed staffing. We shouldn't be in the business today of running troubled housing authorities. It is not a good answer that a local housing authority failed, and HUD is going to step in and run it. It is the exact opposite direction that we should be going. So, if anything, I want to move away from that.
Mr. FRELINGHUYSEN. And, lastly in this line of questioning is: Has HUD undertaken any survey to determine the actual percentage of residents having incomes at the proposed income targeting levels of 30, 50, 60, and 80 percent?
Page 212 PREV PAGE TOP OF DOC Secretary CUOMO. We have that data available. If the Congressman would like a copy of it, I can get it to you.
Mr. FRELINGHUYSEN. I'd like that very much.
[The information follows:]
Impacts of Selected Policy Proposals on Revenues of Public Housing Authorities
[All impacts are in millions of current dollars]
Mr. FRELINGHUYSEN. Thank you very much, Mr. Secretary, Mr Chairman.
Secretary CUOMO. It's a pleasure.
Mr. LEWIS. Thank you, Mr. Frelinghuysen.
I might mention that it is not logical for us to presume we can run housing authorities that have failed across the country. At the same time, to have mechanisms in place to help people better model those programs and figure out how we find the Gilmores of the world and train them, et ceteraall of that is a piece of the discussion that needs to go forward.
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REVIEW OF FHA LOAN LIMIT INCREASE BY NATIONAL PEOPLE'S ACTION COMMITTEE
Ms. KAPTUR. Thank you, Mr. Chairman.
Mr. Secretary, welcome back.
Secretary CUOMO. Hi.
Ms. KAPTUR. I know I'm probably the only one that hasn't asked about the FHA loan limit question, and I intend to do that now. [Laughter.]
Before I served on this committee, I happened to chair the VA Housing Subcommittee and learned a great deal in that, and did some fairly controversial things, such as institute an indemnification fee for the first time on the insurance side, where the lending institution had to assume greater risk. At one point in the history of the VA, when they had a very troubled portfolio, that was not the case, and the defaults were significant. It has made substantial difference, saving hundreds of millions of dollars to the taxpayers at this point.
I just wanted to say that both you and I believe very much in a public role in promoting housing construction in this country, and also mortgage insurance. Obviously, we've reached different conclusions about the wisdom of raising the FHA loan limit, and I just wanted to place that on the record, and to say that I think it is very importantI don't trust the private sector quite as much as Mr. Neumann does, having served here long enough to have weathered the savings and loans crisis, when the institutions got in trouble and then they ran to the taxpayers for help; having weathered the Mexican financial crisis, when the speculators got in trouble and they ran to the taxpayers for help, and now facing the Asian financial crisis, and watching some of our biggest institutions run to the government for help, and also watching the major financial institutions of this countrylending and insuranceredline neighborhoods across this country, moving deposits elsewhere, and disinvesting major segments of this economy.
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Now having said all that, I view the government's role as encouraging responsibility among our private sector partners, and therefore, I would humbly suggest that, whatever is done with FHA, encourage that responsibility, including risk-sharing, as a way of helping FHA deal with defaults.
I also learned from that VA experience that the highest defaults were not in the mid- or lower-range loan levels, but rather at the highest loan levels. So I am concerned that by raising the limit we will merely encourage a lack of responsible lending and insuring by the private sector, and more problems for FHA down the road.
I will submit to your attention the letter that was sent to me by one of my heroines, Gail Cincotta of Chicago, that I've known for over 25 years now. I respect her. I tried to get her to come to Washington at one point, but she's chosen to stay in the neighborhoods of this country. I think National People's Action has put forward a very responsible proposal to try to deal with FHA's financial difficulties. I am sure that people in the Department have reviewed it, but I think it's more realistic in terms of helping FHA meet its financial difficulties and dig its way out.
I'm wondering if the Secretary has considered the recommendations of National People's Action. And I know not everyone in the organization dresses every day like we do, but I think their experience is very real. They do not support the raising of the loan limit, and knowing the Secretary's commitment to neighborhood development, does it trouble you at all that you have come forward with this particular proposal in view of the fact that many of the organizations that support you and your efforts do not agree with your conclusion on raising the loan limit?
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Secretary CUOMO. Congresswoman, I have the highest respect for Gail Cincotta. I disagree with her on this, and I think if we were to take a poll of where community groups were on this proposal, I think you would find more are supporting the loan limit proposal than are not supporting it.
Gail Cincotta had two points, basically, in her letter to me, if my recollection serves me. One is, yes, we have to serve more low-income minorities better, but rather than raise the FHA loan limits, the way to do that would be to raise the GSE's affordable housing goals. HUD regulates the GSE's and we set a number that the GSE's must subscribe to in a threshold of minority and urban loans. Gail's point was we should just raise the number of loans that they must do, and that's the way to handle this problem.
The argument against using FHA said that FHA now has some operational problems in the disposal of real estate, basically. I agree with Ms. Cincotta on that, but I think the solution is to remedy the operational problems, which you have to do in any event. We'd have to remedy those operational problems if we raise the loan limit or we don't raise the loan limit. As a matter of fact, we are remedying those operational problems. We are going to revolutionize the way we dispose of real estate. We're going to privatize the entire process. We're doing that in a number of weeks anyway. To stop progress because we haven't taken care of the operational problem I don't think makes sense. To then go to the GSE's, FANNIE and FREDDIE, and try to raise their affordable housing goal as a way to serve this need, if we think there's been a lot of dialogue around this issue, I promise you there will be more dialogue about raising their affordable housing goals. If this loan limit doesn't work, it might be something that we have to turn to, but I think the fastest and best way to do it is with an FHA loan limit increase.
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Ms. KAPTUR. How are you going to institute market regimen as you raise that loan limit, knowing that the greatest default is at the highest end of the borrowing scale?
Secretary CUOMO. Congresswoman, I just have a factual disagreement with you on that. All the definitive sources that we can find, all the evidence would suggest the exact opposite. Price Waterhouse, who is our auditor for FHA, says there are lower defaults on the higher loans. The OMB and CBO scored this proposal to make money. They couldn't be scoring it to make money if they thought you were going to have more defaults. They're actually concluding the opposite. This is a money-maker, this batch of loans. So CBO, OMB, and Price Waterhouse, who are auditors, conclude the opposite.
Ms. KAPTUR. I'd like to see over what period of time they're making those adjustments because our facts are completely different, and I can tell you
Secretary CUOMO. It would be my pleasure, Congresswoman.
Ms. KAPTUR [continuing]. From the VA experience, it is exactly the opposite.
May I ask you also, what additional risk are you asking the private sector to assume in your proposal on the insuring side? Are you not going to give them 100 percent guarantee?
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Secretary CUOMO. We would. This is a 100 percent guarantee program.
Ms. KAPTUR. Well, Mr. Secretary, I
Secretary CUOMO. It operates a little differently than the VA
Ms. KAPTUR [continuing]. Have to tell you I really do think that alone should give us pause for thought. I would take a look at the way thatover what period of time OMB, knowing OMB, looks at where money is being brought into the government versus where it's being taken out, and what time horizon they're looking at. I would be very willing to share information with you and your associates, based on our experience with the VA, but I am very concerned that we're on different song sheets here.
I encourage you, with FREDDIE and FANNIE, to get them to meet their public obligations, but I have a serious concernand one of the issues in Ms. Cincotta's letter deals with management and helping people work out of their impending default situations. I think that is a very worthy set of recommendations. It's recommendation No. 2 in their paper, and I would really look forward to further conversations. I don't want to hold Mr. Price up here for his questions. We will have more on this later.
"The Official Committee record contains additional material here."
Mr. LEWIS. Well, thank you for your input, and I must say, Mr. Secretary, you can see that the questions run across the committee relative to a broad spectrum. So the discussion will be a lively one as we go forward.
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COMMUNITY CENTERS OUTREACH PROGRAM
Mr. PRICE. Thank you, Mr. Chairman.
Mr. Secretary, I know we have very limited time here. I want to comment quickly on the Community Outreach Partnership Centers Program, and then ask you a follow-up question on the regulation of mortgage broker fees.
I do want to note, though, that although at this time of year, in particular, it's hard to get the University of North Carolina at Chapel Hill and Duke University to work together, we've managed itor you've managed itwith this $400,000 grant from the Community Outreach Partnership Centers Program. These universities are going to be working together in West Durham assisting public housing residents with supportive services; for example, the transportation and child care costs associated with job training. They're also going to be establishing an innovative neighborhood construction company to train and employ neighborhood residents, and also to improve the area.
So we're enthused about this program, and what I'm going to ask you to submit for the record is just an indication of your aspirations for this program, what your preliminary assessment would be of the successes and shortcomings, and also some indication of what additional funding would allow you to do in terms of reaching out to more communities. But we do appreciate the work that you've done in launching that and our opportunity to participate in it in North Carolina.
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Secretary CUOMO. It would be our pleasure, Congressman. It's a program we're very excited about, and we've had good success, and I'll get that to the Congressman.
Mr. PRICE. Good.
[The information follows:]
COMMUNITY OUTREACH PARTNERSHIP CENTERS
Provide an Assessment of successes and problems; aspirations for the program; how additional funding would be used.
In the first 14 years of the Community Outreach Partnership Centers program (COPC), 61 colleges and universities have received grants to undertake a wide range of outreach and technical assistance including: helping to create and nurture small businesses; working with junior high school students on drug prevention programs; and providing design services for housing developments. These activities have proven that colleges and universities are important players in solving local problems.
The problem has also successfully tapped previously untapped sources of funds to address these problems. The $30 million in appropriated funds has brought in over $35 million in non-Federal funds.
Page 220 PREV PAGE TOP OF DOC Most importantly, the participating colleges and universities have made commitments to continuing to work with neighborhoods they are assisting long after their grants are over. Thus, COPC is just the beginning of the relationship with local communities.
While HUD's budget request for FY 1999 for the program is $7.5 million, the demand for the program is much larger than this amount. Each year, approximately 110 applications are received, with only about 15 funded. Many superb applicants have to be turned away. If more money were available for the program, it would certainly be put to good use.
Mr. PRICE. I was one of those, following up now on your discussion with Mr. Neumann, I was one of those who joined a few thousand others in sending comments regarding HUD's proposed regulations on the disclosure of mortgage broker fees under RESPA. My letter's dated December 15, and I hope, amid those thousands, it will receive some attention. [Laughter.]
Secretary CUOMO. I'm sending a copy over to the Committee of all the 9,000 comments. [Laughter.]
Mr. PRICE. In that letter I acknowledged that the current disclosure forms leave something to be desired. I think everyone agrees on that. They, for example, don't clarify that brokers can receive fees from lenders.
I also indicated that, once the full disclosure of fee information is made available to a borrower, it is going to remain incumbent on the borrower to comparison-shop, and that the bottom-line test for a disclosure form ought to be whether it provides clear information to facilitate comparison-shopping.
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Last year a Federal Reserve survey of borrowers indicated that borrowers generally have three bottom-line concerns: What's the interest rate? What will my monthly payment be? And how much am I going to need to pay at closing? Regardless of whatever the role of a mortgage broker might be in a particular transaction, those bottom-line numbers are what is required.
Now you were saying to Mr. Neumann that you're now going through these thousands of comments. What is the next step, though? That was not entirely clear to me. Are you considering publishing a revised proposed rule before going to the final rule stage?
And let me just ask you the second question; you can respond all at once. In light of the comments you received, and the Federal Reserve survey, are you considering simplifying the proposed disclosure form in a way so that it clearly states the established interest rate, the monthly payment, the closing cost, which, after all, is what comparison-shopping basically requires?
Secretary CUOMO. The short answer is, yes, Congressman, that's what we're trying to get to in the form, plus one other fact, which is: Who the broker represents. I've gotten all sorts of horror stories at the Department. People go to a mortgage broker. They think the mortgage broker is working for them. Why? Because they analogize the mortgage broker to a real estate broker, and they think the mortgage broker is working for them. The mortgage broker comes back and he says, ''I got you this mortgage. It's at 7 percent. This is the downpayment.'' They assume that that's the best mortgage the broker could get for them. It then turns out that that wasn't the best mortgage they could get at all. The broker is actually working for a mortgage company and is trying to sell their product, which would be fine. Our only point is, let the buyer, let the consumer know who the mortgage broker represents. If the mortgage broker represents the consumer, fine. If the broker represents the company, fine. If the broker represents himself or herself, fine, but just let there be disclosure on that fact, as well as the others you mentioned. That's what we're trying to get at.
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And we agree with you that the consumer will shop, which, by the way, is the very logic we use to support the FHA loan limits. FHA charges a higher fee. If the buyer shops and they have an alternative in the private market, they will not go to FHA. If the marketplace works, they'll only go to FHA when they have no other recourse. And that's the answer to Mr. Neumann's question. If you believe in the private market, give the buyer the information; let the buyer shop. If they can go to a PMI, Magic from Wisconsin, they will. If they can't go to the private company, then they go to FHA because FHA charges the higher fee.
Mr. PRICE. Where are we with this rulemaking on the mortgage broker fee matter? Are we looking perhaps at a revised proposed rule that will be available for comment?
Secretary CUOMO. That is one of the options that we're looking at, Congressman.
Mr. PRICE. But you've not yet determined whether that will be the option
Secretary CUOMO. We have not yet. We want to finish going through all 9,000 comments. We're going to send the copies over to the committee for their response, and then we'll make a decision.
Mr. PRICE. All right. I know we're out of time. Thank you, Mr. Chairman.
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Mr. LEWIS. Mr. Secretary, please, you've been very professionally gentle in your reaction to today's unusual schedule, but, as you know, this is the time when the Supplemental Bill is being refined. Our meeting earlier was very unusual. I can't remember the committee ever doing this beforeleaving at 11:30 when you expect to be here at least at noon. It's because we're having what I call a sparrow's meeting; the Speaker calls them cardinal's meetings. [Laughter.]
We may possibly be discussing affairs that relate to the interests of all in this room, and I think I probably ought to be there. But, in the meantime, with your leave, we're going to recess the Committee and come back to this room at 1:30. Thank you.
Secretary CUOMO. We're at your disposal, Mr. Chairman. Thank you.
Mr. LEWIS. Well, the meeting will come back to order.
Mr. Secretary, patience one more time.
Secretary CUOMO. It's a pleasure.
Mr. LEWIS. We appreciate it.
Page 224 PREV PAGE TOP OF DOC Our membership will come along. We had a series of votes on the floor, and as you know, sometimes there's controversy about these matters, but I also have talked a little with Mr. Stokes about proceeding on items like this.
One of the good parts of all of today's schedule is that we have actually, beyond solving some problems, we probably have saved you a lot of pain because many, many of the questions we were going to ask are going to be on the record or for the record now rather than on the record.
Secretary CUOMO. We appreciate that, Mr. Chairman. [Laughter.]
EXPANSION OF TENANT-BASED SECTION 8 PROGRAM
Mr. LEWIS. So let me begin. HUD is requesting $585 million in budget authority to support a total of 103 incremental vouchers. HUD is proposing to add 50,000 vouchers to help families make the transition from welfare to work, 34,000 vouchers for homeless individuals or families, 10,600 for various uses, such as witness relocation and the settlement of litigation, and 8,800 vouchers for the elderly and disabled. What is the long-term budget impact of expanding the tenant-based section 8 program?
Secretary CUOMO. Mr. Chairman, throughout the presentation and the questionings, we have been going back to the 5.3 million families on the worst-case needs, and the 100,000 vouchers that would start to get us back on the positive side of the ledger. Again, what is most striking to me is that we don't build housing in this Nation. The vouchers would get us on the positive side of the ledger for the first time since 1996, which was a deviation in history. The $585 million would be this year; the outyear costs would go into the overall renewal base. It would be, in 1999, $16.1 million and, in 2000, $16.2 million.
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Mr. LEWIS. Okay. And what strategy has HUD developed to administer the new vouchers requested for welfare-to-work and the elderly?
Secretary CUOMO. Welfare-to-work would be done through a competition, where we'd go to the housing authorities. We'd ask for the best plans across the Nation which put all these different welfare-to-work pieces together, and come up with a comprehensive strategy, and then we'd award funding to the housing authorities.
Mr. LEWIS. And further, has HUD obtained input from the Department of Health and Human Services about the needs of the population that would be targeted to receive HUD's welfare-to-work vouchers and how these needs have been traditionally addressed?
Secretary CUOMO. Yes, Mr. Chairman, we're working with HHS and the Department of Transportation to come up with a comprehensive package on the Federal side, and we will then be encouraging. Indeed, the winners of the vouchers would be those local housing authorities that came up with comprehensive strategies on the community level.
EXCESS BUDGETARY AUTHORITY IN SECTION 8 PROJECT-BASED PROGRAMS
Mr. LEWIS. Okay. The administration has requested $10.8 billion for renewals of section 8 rental assistance, $1.3 billion for section 8 amendments, $60.3 million to support 10,655 new section 8 incremental units, $373 million for multi-family enforcement and to fund 32,000 units for tenant protection activities, and $20 million for regional opportunity counseling. The total request is decreased by $3.6 billion of excess section 8 reserves which are not being used for families currently receiving section 8 assistance.
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Further, HUD has devoted 2 years and a substantial amount of its financial staff time to identifying and quantifying the excess budgetary authority in its section 8 tenant-based and moderate rehabilitation programs. This effort was fruitful, allowing HUD to reduce its request for new budget authority.
Are there similar amounts of excess budget authority in section 8 project-based programs?
Secretary CUOMO. Not that we have identified at this time, Mr. Chairman. GAO is coming in over the next couple of months. We'll be working with them to go through those accounts on another scrub, but there is not any additional savings beyond which we've identified to the committee at this time.
Mr. KEEVEY. That's correct. If you may recall reading the GAO report, they make reference to their ongoing review. They make reference to additional monies in the HUD Budget, but in general that is in an account that is short in the long-run, budget authority versus outlay commitments. So we would expect that same analysis to support that current position. But as the Secretary said, that probably won't be done until the middle of August.
Mr. LEWIS. Okay. For many years HUD allowed housing authorities to use their excess reserve funds to augment the number of certificates and vouchers contained in a PHA's HAP contract. As a result, many PHA's have over-leased a significant number of units. How many units have been over-leased and what is the cost of fully funding those units?
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Secretary CUOMO. Mr. Chairman, I thank you for asking that question. We discussed this on the Senate side, and there was a misimpression of the facts that I would appreciate the opportunity to clarify.
First, the term ''over-leasing'' is wrongly applied to this situation. Over-leasing suggests that they leased over the amount they were allowed to lease, which is not the case. The policy of the Department for many years was that housing authorities got a number, a dollar number, not a unit number, a dollar number, and then they could lease as many units as they could up to that dollar number, including their reserve account within that dollar number.
In 1996, we began all the work on the reserve account. We then changed the policy. We said, you can no longer use your reserve account to lease against.
Mr. LEWIS. And you did that when?
Secretary CUOMO. In 1996, 1997. We have grandfathered in those units that were leased because that was the policy up until that point, but we have stopped it. The total number of units involved is about 52,000.
Mr. LEWIS. And do we know what the cost is?
Mr. KEEVEY. Approximately $295 million.
Mr. LEWIS. Okay. What is HUD's policy for dealing withwell, you've answered that question really. Will there be instances where families who are depending upon this kind of assistance that really was a reflection of this extension will have assistance cut off?
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Secretary CUOMO. No. We could have taken another policy route, Mr. Chairman, which is to say, any of those units leased against the reserves we need back. That would have displaced families, and that caused housing authorities and many people great concern. Our policy was we would grandfather them in.
But, again, this was not over-leasing. That is a misnomer. This was leasing as allowed by the Department, the law, and everybody was aware of this situation for years.
Mr. LEWIS. Okay, well, separating out the semantics of what one's interpretation of over-leasing might be versus others' interpretation, what is inappropriate about that policy, and how many units have been what some have described to be over-leasing?
Secretary CUOMO. There are 52,000 units on a base of 1.4 million units. That's a total universe52,000 on 1.4 million. The 52,000 are units leased against the reserve accounts, which was the policy, which is no longer the policy, but which are grandfathered in.
Mr. LEWIS. And you've already spoken to the families in terms of
Secretary CUOMO. Yes.
Mr. LEWIS [continuing]. Being negatively affected. You suggested that families would not be cut off, isn't that correct?
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Secretary CUOMO. Yes, sir.
Mr. LEWIS. There certainly is a limitation that's being placed on families who would have been in that line. At the same time we're talking about requests for new incremental section 8 assistance, and there is some difficulty I'm having there.
Secretary CUOMO. What happened is thisMr. Chairman, I'm stating to you the final position of the Department. There was discussion and an interim position, which was, we want the units back that were leased against the reserve amount. We wanted to take those certificates out of circulation, which would have reduced the number of certificates 52,000. That created somewhat of an uproar. We re-evaluated the policy. Instead of retrieving those 52,000, we grandfathered them in, and now include them in the base.
Mr. LEWIS. Yes. The question is, does that mean that contracts will be amended?
Secretary CUOMO. The contracts would be renewed. I don't believe they would be amended.
Mr. KEEVEY. Ultimately, they would be.
Mr. LEWIS. They would be amended?
Secretary CUOMO. Yes.
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Mr. KEEVEY. Yes.
Mr. LEWIS. Yes, okay.
Secretary CUOMO. I change my opinion. They would be amended. [Laughter.]
SECTION 8 AMENDMENTS
Mr. LEWIS. Okay, I've got you. Yes, I do that from time to time myself, almost every other moment.
Every year the administration requests a substantial amount of funding for section 8 amendments. This year the request is for $1.3 billion. What are section 8 amendments? How is this amount derived? And for how many years do you estimate you will need to make this request? And what will happen if the total amount is not appropriated?
Secretary CUOMO. I'm going to ask Rod Solomon, with the committee's indulgence.
Mr. LEWIS. Mr. Solomon. Is this Rod's issue? Rod, feel comfortable to provide preliminary to your answer, if you'd like, if this is not your area of expertise.
Page 231 PREV PAGE TOP OF DOC Secretary CUOMO. Rod's on the tenant-based side. This is both on the tenant-based side and the project based side, Mr. Chairman. I don't know specifically which portfolio you're referring to. Rod is from Public Housing, so he's on the tenant-based side.
Mr. SOLOMON. Yes, Mr. Chairman. First, I appreciate your saying that. It is actually
Mr. LEWIS. I noticed that we kind of caught you in difficulty a little bit yesterday from time to time. [Laughter.]
Secretary CUOMO. Rod has had a long 2 days, Mr. Chairman. [Laughter.]
Mr. SOLOMON. The section 8 amendment question is essentially project-based for fiscal year 1999. It's really the necessity, especially on some of these longer-term contracts, to make sure there's enough money in the contract to carry out the year-to-year rent increases and obligations that we already have to the owners and the program.
Mr. LEWIS. Well, I was asking beyond the $1.3 billion to be
Mr. KEEVEY. Mr. Chairman
Mr. LEWIS. Yes.
Page 232 PREV PAGE TOP OF DOC Mr. KEEVEY [continuing]. I think I should jump in.
Mr. LEWIS. Okay.
Mr. KEEVEY. I thought your question was going toward the tenant side, but I think the question is why is there additional monies, if you will, in the project-based side of the equation?
Mr. LEWIS. And how's it derived, and for how many years will we expect it?
Mr. KEEVEY. Right. Basically, it goes back to the point I was making earlier in terms of the long-term budgetory projection of dollars needed for the project-based. There is a gap of BA between long-term needs and dollars presently available. What the Department has been doing over the years is incrementally filling that gap, so that there would be sufficient BA in each year. What we've done in this year is asked for some additional dollars, so that we could close that gap sooner.
Mr. LEWIS. And if all of that is not appropriated, that impacts the repetivity of the
Mr. KEEVEY. The long-range integrity of that account, right. I think the gap is somewhere between $24 billion in contract need versus $16 billion in budget authority, but that part of the equation is what the Secretary referred to with regard to GAO reviewing the long-term impact of that account.
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SECTION 8 PROJECT-BASED AMENDMENTS
Mr. LEWIS. Okay. Just a little more on this: According to HUD's budget request, HUD plans to offset its $1.73 billion section 8 project-based, a minimum request, by $463 million, when HUD recaptures unneeded balances that remain on expired housing assistance contracts and uses these amounts to offset current needs for amendment funding for other contracts. However, a November 1997 analysis prepared by HUD shows that estimated recaptures from expiring section 8 project-based contracts will be $1.5 billion instead of $463 million.
Moreover, a more recent analysis that HUD prepared, in response to errors identified by the GAO, indicates that fiscal year 1998 recaptures may be about $2.6 billion. Does HUD plan to reduce its fiscal year 1999 budget request for section 8 project-based amendment funding to reflect the more current, quote, ''recaptured data,'' which can be used to offset amendment needs?
Mr. KEEVEY. That's the same issue that we have been talking about, Mr. Chairman.
Mr. LEWIS. Yes, sir.
Mr. KEEVEY. And further on in the report, you would note that GAO has not made a conclusion yet, because they're looking at preliminary numbers, and even if there were balances, there are still needs in the long-run for this account. We have agreed, together with GAO, that it would be premature to discuss any final conclusion of these
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Mr. LEWIS. Well, certainly, in terms of a dollar amount, but you see the trend at any rate, the pattern, it seems to me, that could give you some idea that there are going to be additional needs, but, on the other hand, our question is, how much do you need to hold in reserve, in view of our overall circumstance?
Secretary CUOMO. That is a good question, Mr. Chairman, if I might. There is no doubt that, long-term, we have a shortfall. The question is, short-term, what are we looking at? And we'll have a number from GAO in June-Julyish.
PROJECT-BASED CONTRACTS ESTIMATE
Mr. LEWIS. Okay. It is suggested by laymen in the business that money is tangible, but in a bill like ours, where HUD accounts are very complex and have difficulty in many forms, there are also other subjects around that are difficult that range from EPA to veterans' medical care. So we have to be concerned about that.
According to HUD, some project-based contracts are overfunded while others do not have sufficient funding to provide assistance payments through the terms of the contracts. What is the Department's current estimate of its net funding needs for all the existing project-based contracts, and how did you make that estimate?
Secretary CUOMO. This is the net number that we're looking at long-term. Long-term we have a shortfall; there's no doubt. It's the same issue, Mr. Chairman. Long-term we have a shortfall. Short term we may have this immediate overage, which is what we're working with GAO to find out.
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Mr. KEEVEY. The dollars are only available for other projects related to that contract.
SECTION 8 INCREMENTAL ASSISTANCE
Mr. LEWIS. Okay. Well, let me close this out quickly. The budget request is $60.3 million for new section 8 incremental assistance. How much of this money is for the family unification program and witness relocation program, portable reimbursements, and the settlement litigation?
Mr. KEEVEY. We don't have an allocation for
Mr. LEWIS. Give us that for the record.
[The information follows:]
Question. Provide the number of new incrementals for the family unification program, witness relocation, portability reimbursement and settlement of litigation. (Lewis)
Answer. The FY 1999 request for family unification, witness relocation, portability reimbursement and settlement of litigation is $60.3 million to support 10,655 units.
Mr. LEWIS. Thank you.
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Mr. STOKES. Oh, he's gone. [Laughter.]
Well, for goodness sakes, hello, Mrs. Meek. How are you?
Mrs. MEEK of Florida. Good, Mr. Chairman.
Mr. LEWIS. Then you're recognized, if you feel good.
Mrs. MEEK of Florida. Good afternoon.
Secretary CUOMO. Good afternoon.
GRANTS FOR FLORIDA
Mrs. MEEK of Florida. Mr. Secretary, I know there's very little input that you and your staff can help with this, but I'd like to report it, in the event there's someone in U.S. HUD who can help my county relative to some of the grants that they applied for, and for which they were turned down. I would like to be able to help them in the future with this kind of thing.
They applied for HOPE VI for $23 million; drug elimination, $2.8 million; safe neighborhoods for $500,000. Then they went on to tell me the impact of the refusal of these grants.
Page 237 PREV PAGE TOP OF DOC What I wish you could do, Mr. Secretary, is to have someone come to see me and help me find out what happened to them with these grants and how I can assist them or what they need in terms of the next application period. Certainly this is an objective process, but the more we know about some of the criteria, I'm sure that we can help in some way with these kinds of things. I don't know what all the details were, but they didthe drug elimination grant would cause them to lose 25 police; the HOPE VI, 700 public housing units. And I have a very good housing authority. Renee Rodriguez is, in my opinionof course, I'm a little biasedone of the best in the country in terms of housing directors. They are suffering because of the loss of these grants. I'd appreciate it if you could help me with that.
Secretary CUOMO. It would be our pleasure, Congresswoman. First, I don't think it's any reflection on the housing authority or the local government. We have, for we are way oversubscribed in the number of applications compared to those we actually fund. We have four, five, six, seven to oneseven applications for every one winner.
But I think the most constructive exercise is to have people go through the application with the housing authority, see what was done well on the application and what was not done well, and how they can improve. So, hopefully, they have better fortunes in the next competition.
Mrs. MEEK of Florida. And one more question: Is there an appeal process in HUD?
Secretary CUOMO. Sure, there's an appeal process.
Page 238 PREV PAGE TOP OF DOCADKER VS. HUD
Mrs. MEEK of Florida. All right, thank you.
My next question is one which may not be relevant to this meeting, but this is perhaps the only time I can really ask this. About 11 years ago in Overtown a lady who was a civic activist by the name of Anne Marie Adkashe was the unofficial mayor of Overtown. Overtown is in the middle of my district and one of the poorest sections. Two of the poorest sections are Overtown and East Little Havana, which is in my district. Well, this one came out of Overtown.
I would like to knowand if you can't discuss it, I can understand that. My notes tell me that this is a pending legal case, but it's been going on for 11 years, which means it's not pending. It's an 11-year-old civil rights case. It's called Adka v. HUD, which African American public housing residents brought against HUD and Dade County alleging that HUD and Dade County segregated the public housing system.
I also understand that a neutral blue ribbon panel with representatives chosen by all parties found that many of HUD's actions contributed to segregation there and recommended a comprehensive remedy to desegregate public housing, but that the proposals that were put together by this blue ribbon panel have not been implemented. The questions they are asking me: Why hasn't HUD settled this case and implemented the recommendations of the blue ribbon panel?
Here's another caveat to that: It says that it looks as if HUD has recently made an offer to the plaintiffs and hopes to resolve the case by settlement. However, HUD's proposal included some elements which would perpetuate segregation. Also, plaintiffs responded positively to the offer within one week of receiving it, and requested only clarification. Although costs are rapidly mounting at the rate of over $300,000 per month, HUD has yet to respond to the plaintiffs. Can you clarify that for me, please?
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Secretary CUOMO. Yes, Congresswoman. It is, as you point out, it is currently the subject of ongoing litigation. So what we can say is limited, but let me say this: Henry Cisneros was very active in settling litigations. His position, which I think was well-taken, was: We don't want to be in the business of defending discriminatory acts, if the housing authority perpetuated them. So he was very active in settling litigation. This is one of the few cases that we were unable to settle over the past 4 or 5 years.
My goal would be to settle this case. We'll work very, very hard to make that possible. There are some glimmers of hope, although this is a very complicated situation, as you can well imagine. But I'm optimistic, cautiously optimistic, that over the next couple of months we'll have a positive outcome.
Mrs. MEEK of Florida. Thank you. Mr. Secretary, I also indicate that I understand that part of this offerand I won't carry this any further, but I want you to know that, according to the information from the people in Overtown, HUD's proposal included some section 8 vouchers for public housing, and that HUD claims that 1,000 to 1,500 vouchers that were previously available for relief of these people are no longer available. I understand that that may be because they may have turned down some earlier settlement offers by HUD.
Well, I heard your answer, Mr. Secretary. I look forward to some more clarification of this, so that I could talk to the residents of HUD. The woman who filed this case is dead now, but there are others who are in this case. I'd like to have it clarified.
Secretary CUOMO. If I may, Congresswoman, again, because of the situation we're in, I don't want to comment on any suggested settlement, but, as the Congresswoman knows, HUD could have very well had section 8 vouchers that we could have used as part of a settlement, had someone accepted the settlement on a timely basis. If the housing authority didn't accept them, they would have lost them at the end of the year.
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HABITAT FOR HUMANITY
Mrs. MEEK of Florida. Thank you. All right. Thank you, Mr. Secretary.
My next question is really a comment. I think that Habitat for Humanity, which this committee and our chairperson worked so assiduously to see was fundedI think it was something like $16.7 million for the Habitat for Humanity Program under the Housing Opportunity Program. Habitat is one of the best connections that HUD has made in terms of viability in the communities.
I'd just like to know; you're requesting $20 million for this in your budget, this time under CDBG, for Habitat for Humanity. I would like to know, what did you do with the $16.7 million that you got last time?
Secretary CUOMO. The Department shares the Congresswoman's support for the Habitat concept. It is an extraordinary example of how we can do this. It is the best of volunteerism, which is pointed to by a lot of our colleagues as the way to go--volunteerism, plus government support. It is a partnership, volunteerism and government. It says that volunteerism, in and of itself, can't do it, but you put volunteerism together with Government resources, and you have a good formula.
This program received about $16 million in funding. We have proposed an increase in funding, and the funds will go for general Habitat purposes, housing construction across the country. There is no single use for the funds.
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Mrs. MEEK of Florida. Have you spent it?
Secretary CUOMO. The drawdownthey've drawn down approximately 50 percent of the funding since 1996, and are now increasing the rate of drawdown.
Mrs. MEEK of Florida. Thank you. That's a very good program.
I'm also concerned about brownfields. That's a program that's almost a secret. It's well-kept in terms of what HUD does in that regard. Last year Congress appropriated $25 million to HUD for brownfields redevelopment, and in your budget you want to double that to $50 million. Can you tell me, tell the Committee, how you've used the $25 million which you were appropriated, and now that you want to double it, how do you intend to use the $50 million? And how did you decided how to distribute these funds?
Secretary CUOMO. First, the subject of brownfieldsand we applaud the Congresswoman's leadership on this issue. Last year the United States Conference of Mayors made brownfields their No. 1 priority, based on the point that we can't redevelop any of these urban areas because there is no new land unless we clean up the sites that exist. EPA had taken the lead in brownfields in what the locality had to do to clean it up, but there weren't any programs or funds to actually get the work done and redevelop it. HUD came in, $25 million last year, because of the Congresswoman's leadership. We want to double that to $50 million this year. The notice of funding on the $25 million is going to go out literally in the next few weeks. It will go out by competition. We're looking for partnershipsEPA, HUD, and Treasury, which has a tax incentive package for investments on brownfields, but these will be cleanup and redevelopment projects.
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Mr. LEWIS. Mrs. Meek.
Mrs. MEEK of Florida. Yes, sir?
HABITAT FOR HUMANITY
Mr. LEWIS. Would you yield just for a moment?
Mrs. MEEK of Florida. Yes, I'll yield to the gentleman.
Mr. LEWIS. Both of us have had great experiences with Habitat, and we know the House that Congress built; they've been agreed on and all that stuff
Mrs. MEEK of Florida. That's right.
Mr. LEWIS. But they also have always operated as an independent-of-government, private organization, and because of a very unusual circumstance in 1995 the authorizing committee and our committee gave them a one-time-only grant
Mrs. MEEK of Florida. Yes.
Mr. LEWIS [continuing]. And then the next year we didn't have any money, and the following year they came back for more. I wonder whether they weren't better off when they weren't looking to us, because they've done so well on their own. So I'm asking myself the question outloud, as I'm asking the SecretaryI mean, you know, once we start feeding just a little bit, suddenly that which was good and private, and where volunteers got in and people raised money, suddenly we've just got another little element out there. Both of us, maybe not formally for this meeting our bill, we ought to be asking ourselves that question: Wouldn't they be better off if they went back to their independence?
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Mrs. MEEK of Florida. Well, I don't think Mr. Fuller would like that so much.
Mr. LEWIS. Well, Mr. Fuller wouldn't, but
Mrs. MEEK of Florida. He's for keeping, you know
Mr. LEWIS. But there are people at very high levels within his organization who say, ''We think we were better off.''
Mrs. MEEK of Florida. I don't know. When I see what they do in some of these communities, I just have to say, Mr. Chairman
Mr. LEWIS. And they've been doing it for years
Mrs. MEEK of Florida. That's right.
Mr. LEWIS [continuing]. Without the money.
Mrs. MEEK of Florida. I think it's somethingI think that kind of partnership should be developed strongly by government. I hate to disagree with you, Mr. Chairman. I was told never to disagree with the chairman.
Mr. LEWIS. I appreciate that. [Laughter.]
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But, you know, you've seen how well some of these programs that we leave alone work.
Mrs. MEEK of Florida. Absolutely, yes, I have.
Secretary CUOMO. Congresswoman, if I may, I was also told never to disagree with the chairman. [Laughter.]
But I would also beg the exception. As a matter of fact, I often wear a HUD and Habitat pin on my lapel as the model of government and volunteerism working together.
Mr. LEWIS. If you had a chance, you'd wear a HUD and Neighborhood Reinvestment pin, too. [Laughter.]
Secretary CUOMO. That's exactly right.
Mrs. MEEK of Florida. That's true.
So, well, the chairman kind of stifled my question. [Laughter.]
So you're still asking for the $50 million, right?
Page 245 PREV PAGE TOP OF DOC Secretary CUOMO. Yes, we are, right.
Mrs. MEEK of Florida. So what are you going to do with it?
Secretary CUOMO. We're going to use $50 million for the redevelopment of the brownfields. This would be the cleanup and reuse. It could be any economic development-related purpose that is creating jobs on that site, sponsored by private companies and the local government.
Mrs. MEEK of Florida. Thank you.
Secretary CUOMO. Thank you, Congresswoman.
Mr. LEWIS. Thank you, Ms. Meek.
Ms. KAPTUR. Thank you, Mr. Chairman.
Mr. Secretary, I have several smaller questions here, although I will have more followup on the FHA program, because I've just gone back to my files in my office
Secretary CUOMO. Please give it to me.
PUBLIC HOUSING GROWN PRODUCE
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Ms. KAPTUR [continuing]. And checking those numbers on default rates at the highest levels, and your dataand I'd like to see what Price Waterhouse did in book its numbers because they truly are out of step with every other piece of information I have over the last 15 years on the performance of these funds, insuring funds.
Last year I inquired about HUD's initiatives to view its properties, especially the public housing-owned developments around the country, as places to begin micro-enterprises, including the production of food through greenhouses and fruits and vegetables. First, for the residents, and then where these developments were located attendant to farmers' markets, to actually get some of the residents, many of whom are women, involved in sales at some of these marketplaces. To your knowledge, has HUD followed up in any way with the U.S. Department of Agriculture or the Food Marketing Institute, and has any progress been made at any of the sites around the country in helping people raise good produce close to home, and perhaps even marketing that in some locations?
Secretary CUOMO. Congresswoman, there are two points. Let me answer the second first. We do not have an example of funding a supermarket or green grocer or agriculture co-op within public housing. We have funded many supermarkets, shopping centers, strip malls, commercial developments in proximity to public housing or in concert with public housing. The activities would be eligible under a number of our programs. CDBG could do it; the EDI program could do it; the EDSS program could do it. But to my knowledge, we have not yet undertaken a specific project within public housing.
FHA LOAN LIMIT INCREASE
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And to quickly jump, Congresswoman, not to use your time, but back to the FHA for one second, just so we're clear, because I want to make sure there's no misunderstandingour point on the FHA loan limits is while the GSE's work very hard, and have many outreach efforts to try to get to this minority disparity, and while they have a very good PR campaign to reach out and fairs and shows and pamphlets, the disparity exists. It is stunning30 points; the homeownership rate for minorities is like 30 points less than whites. Redlining is alive and well. The urban homeownership rate is much, much more lower than the suburban rate. FHA is the vehicle that reaches that gap. We've put up some numbers on a chart.
[The information follows:]
"The Official Committee record contains additional material here."
Secretary CUOMO. Congressman Stokes was making the point that the GSE's do a large number of minorities. The GSE's make a large number of loans to minorities because they make a large number of loans, but the loans they're making are to minorities with higher incomes. When the borrower is financially sound, they make the loan. When you look at the lower income loans, the GSE's only made 142,000 loans below median, which is 5 percent of their portfolio5 percent of their portfolio. FHA, it's 24 percent of the entire portfolio.
Do GSE's make minority loans? Yes, good minority loans to higher-income minorities. When the color is green, they make the loans. The question is, what happens to the below-median minority who are making those loans, and that's where FHA would be targeted.
On the higher defaults, Congresswoman, we just have a factual difference. I'll give you the Price Waterhouse study. I'll give you the CBO scoring. I'll give the OMB scoring. OMB and CBO both agree, OMB scores this at 227; CBO scores it at 212. So they're coming out to, obviously, very close to the same number, and Price Waterhouse; maybe they're all wrong, Congresswoman, but, I'll tell you the truth, I would be surprised.
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Ms. KAPTUR. I sent one of my staff members back to try to pick up some of the GAO studies we had done, and he wasn't able to do it over the lunch hour.
Secretary CUOMO. Okay.
Ms. KAPTUR. But I'd be real curious whether they're looking to the budget in the way that OMB thinks, or if they're really looking at mortgage performance over a 30-year period, because we have a real fundamental disconnect here on the factual basis for raising that limit, and I appreciate your comments there, Mr. Secretary, very, very much.
Secretary CUOMO. Thank you.
Ms. KAPTUR. And we will submit information to you, and I know you will submit information to us.
I mean, fundamentally, what I'm saying is that the people who are in the mid-range of the market, if they're firemen or teachers, they're more likely to pay those mortgages off than people who are highly levered at the upper end of the market, and the losses are greater at the upper end simply because people are more indebted. I mean, that is historic in this country in terms of homeownership and mortgage performance. So I really don't understand where the
Secretary CUOMO. Well, Congresswoman, just to put this in perspective, this $227,000 is a very deceiving number. No one is talking about going to give loans to people who are making $80,000 per year. We believe the average loan will go from a person making $40,000 to $42,000. So we're talking about a household making $42,000 per year. That's the loan we're talking about making. And the Price Waterhouse opinion is not just based on estimates or hypotheticals. It is from the actual review of our data. When they look at our portfolio, the higher loans tend to be performing better.
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So, again, we have a factual disagreement and I would look forward to working with the Congresswoman on it.
Ms. KAPTUR. Thank you. Going back to the
Mr. LEWIS. Ms. Kaptur, before you do that
Ms. KAPTUR. Yes, go ahead.
Mr. LEWIS. Just for the record, at this point, in case we're reviewing it in the context of your discussion, the $40,000 to $42,000 a year is kind of the 80 percent of the median income of this region, which is like $62,000 a year income. But just so all of us do keep it in perspective, the average income of those people who live in Indian housing is like $5,000 per year, and those people who we would categorize among the poorest of the poor have average incomes in public-assisted housing of $7,500 to $10,000 a year. It's really important to know that in terms of these programs, especially when we've got lines of people who are not receiving services who we'd like to serve, the people on that lower income are certainly in the line. I understand about balancing portfolios, and I understand about making sure that FHA is a healthy reserve account, et cetera. But the people we are looking to serve here are covering quite a range, all the way to the point of 80 percent of the median income in this region is pretty high compared to those Indians.
Secretary CUOMO. With the Chairman's indulgence, what is nice about this is it's no cost to us. It's not one at the cost of the other. We're actually doing both. We're actually making more funds. We're actually helping the economy, getting more people in housing.
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Mr. LEWIS. I remember when we've talked in an entirely different environment there was a discussion about, my dad says there ain't no free lunch.
PRODUCE GROWN IN PUBLIC HOUSING
Ms. KAPTUR. Reclaiming my time
I wanted to just go back to the issue of good nutrition for people who reside in many of these developments around the country, and so you know where I'm coming from, Mr. Secretary, as ranking member on the Agriculture Appropriations Subcommittee, I have noted that in traveling around the country the access to good food for people who reside in many, many public housing developments is quite meager, and fundamentally because our major chains have redlined cities, too, and some rural areas. I really do believe on some sites there is the possibility of actually producing food. There are some places in the country that have been greenhouses, where fresh fruits and vegetables are produced. Frankly, even in Chicago, it's amazing to go through some of the public housing developments and see how many people have come up from Mrs. Meek's part of the country
Mrs. MEEK of Florida. They have greens, I know.
Ms. KAPTUR [continuing]. That's rightor the deep South. And I'm not saying HUD should do this, but I think HUD can cooperate with agencies like, departments like the Department of Agriculture, where we have a number of programs. The problem has been that the Department of Agriculture doesn't see public housing developments as possibilities, and the ability for Cornell and for Ohio State or any other land grant institution to make a difference in these developments is vast.
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In some cases where we're working very hard with the Small Business Administration and others to establish micro-enterprise among women, for example, the growth of herbs to be used in New York restaurants by certain developments that would have property that is owned by the authority itself is amazing. It is amazing the money that can be made in providing for foodfirst, for the people that live there, but also developing markets for those goods in those cities and communities.
So the point I want to get across to you isn't that I'm asking that HUD develop supermarkets, although you know where that can happen, I just hope there's a terminal in the supermarket that goes into the credit union account
Across the street in the public housing development. But I do think in the production of food can be done in some places, but I really think it's amazing what I've seen happen in some of the demonstration projects I visited around the country. They have happened by accident, and not because of the sensitivity on the part of HUD, to really help local people. It's a very self-affirming kind of activity as well. With some of our new greenhouse technologies, it's amazing what can be done with hydroponics and all.
So I just pass that out as an idea, as somebody who serves on the Agriculture Appropriations Subcommittee and who has seen the redlining of communities across this country by the retail stores. Some of this you can't do yet, like raise hogs inside public housing developments. We're going to figure out a way to do that, but there is just a heck of a lot that can be done here to provide produce, and it isn't being done in most cases, because USDA doesn't see you. You ought to go have lunch with Dan Glickman.
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Secretary CUOMO. As a matter of fact, Congresswoman, I went with Dan Glickman; he took me on a tour of a farmers' market that he had by the Department of Agriculture in the parking lot of the USDA, and we talked about what we could do together. He informed me that there are a number of public housing authorities that actually are doing food raising gardens. San Francisco, Philadelphia, and New Orleans all have food gardens. So it is an activity that is underway. It's an eligible activity under our programs, and we'll make sure that we get the word out in our material that this is eligible, and see if we can't generate more interest in food production in public housing.
Mr. LEWIS. You'll really have to forgive me; Willy Brown's an old friend of mine; I'd like to check to see what he's growing in those gardens. [Laughter.]
Secretary CUOMO. It's an herb garden, I understand. [Laughter.]
Ms. KAPTUR. It's happening, it's definitely happening in California. I can verify that.
INSURANCE FOR NONPROFIT CDC EMPLOYEES
Mr. Secretary, last year I also inquired about the problem that many employees in not-for-profit community development corporations had with accessing health insurance. The tenure is sometimes even affected by their inability as small enterprises and not-for-profits to ensure their workforce. I'm wondering whether HUD was able in the last year to approach the Department of Health and Human Services to attempt to address this particular situation, perhaps creating an umbrella policy across the United States, to which many of these employees could belong.
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Secretary CUOMO. To the best of my knowledge, Congresswoman, we haven't talked to HHS about that, but we will forthwith about a health insurance umbrella policy that the local CDC's could join into.
Ms. KAPTUR. In every city and many rural areas, there isn't an automatic policy that can be written because they tend to be very small. If you were to lump them together on a national basis, you have a lot of people who need health insurance. It is an insurable group, and I think it would help to retain tenure in many of these organizations across the country.
Secretary CUOMO. I believe the United Way agencies do that, that if you're a United Way not-for-profit, they have an umbrella organization that does the health insurance, but we can explore more and get information to the Congresswoman.
Ms. KAPTUR. All right, I thank you very much for that.
NOT-FOR-PROFIT FAIR HOUSING AGENCIES
Ms. KAPTUR. Let me ask you, on a totally different area, the Fair Housing Act, there's been legislation introduced in this Congress, H.R. 3206, that states that fair housing provisions shall not prevent local control of residential uses. I'm wondering if the Secretary or any of his advisors has an opinion as to how this legislation might affect the efforts of HUD and not-for-profit fair housing agencies to address discrimination.
Page 254 PREV PAGE TOP OF DOC Secretary CUOMO. We have serious questions and problems with the bill, Congresswoman. Fair housing is a priority for this President, this administration, and for our Department, and we think the bill would have serious drawbacks to making the Fair Housing Act work.
Ms. KAPTUR. All right, thank you for that, Mr. Secretary. That's all my questions at this point, and I certainly thank you for your openness. It's fun to have a Secretary of HUD like this, because he's really out there trying and all of his staffI see a lot of younger faces. Even though you said you haven't had any new people in 10 years, there are a lot of young people out there
Secretary CUOMO. Well, they started youngerbut that was a year ago. It's been a long year, Congresswoman. [Laughter.]
TENANT PROTECTION FUNDING
Mr. LEWIS. Thank you, Ms. Kaptur.
Mr. Secretary, the budget requests $373 million for tenant protections which will be used to provide funding for preservation, property distribution, opt-outs, and portfolio re-engineering. As of March 18, $378.3 million of previously appropriated funds were unspent in this account. Why have you requested so much additional funding when there's $378 million available for these purposes, and do you expect to obligate all of these funds during this fiscal year?
Page 255 PREV PAGE TOP OF DOC Secretary CUOMO. I'm going to ask Paul Leonard to respond, Mr. Chairman.
Mr. LEONARD. It is correct that we have in the past estimated what our needs were, assuming that there were not going to be any funds available for the preservation program, and assuming a more timely enactment of our mark-to-market, comprehensive mark-to-market legislation. As you know, last year was the first year that the Congress ultimately provided no additional funding for preservation grants, and the bill that you all passed last year also enacted the mark-to-market legislation. As a result, we have had lower-than-expected demands for the tenant protections that we have provided. However, we have noticed some uptick in the amount of prepayments that have occurred in the preservation inventory, and will be moving forward to implement the mark-to-market legislation for which we feel there will be some sufficient claims on those tenant protection vouchers.
Mr. LEWIS. Thank you. So you do expect that all of these funds would be obligated by the end of this fiscal yearby the fiscal year?
Mr. LEONARD. I'm not sure whether we expect that they will all be obligated by the end of the fiscal year. However
Mr. LEWIS. The total would be in the neighborhood of 760 or so.
Mr. LEONARD. I mean, again, it is my understanding that we are expecting that all of the funds will be claimed and will be needed for the purposes for which they were originally appropriated. If not by the end of the fiscal year, then sometime thereafter.
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Mr. LEWIS. If there is carryover funding, shouldn't it be made available for tenant protections needed in the public housing programs, specifically HOPE VI program, which must set aside annually $90 million for tenant protections?
Mr. LEONARD. Well, I think that that's something that we're willing to take a look at. However, our
Mr. LEWIS. It wasn't a ''yes,'' huh?
Mr. LEONARD. Well, our first and foremost concern is being caught short and not having sufficient tenant protections available for what is a relatively difficult and speculative prediction to make about the level of prepayments and the level of section 8 opt-outs that will occur in the project-based section 8 inventory. So we want to be conservative about what our assumptions are and have tenant protections on hand to protect those tenants before we begin to allocate them for any other purposes.
Mr. LEWIS. Can you tell me how many HOPE VI sites would receive funding with the $90 million and what would be the leveraging impact?
Mr. LEONARD. We estimate that the $90 million would be providing 10,000 certificates, both for replacements under the HOPE VI program, but also for other replacement section 8 assistance for other public housing demolitions that would occur.
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Mr. LEWIS. I really am asking how many HOPE VI sites would receive funding under the $90 million, and what would be the leveraging impact of that $90 million?
Secretary CUOMO. Elinor Bacon, Mr. Chairman, who runs the HOPE VI program for us.
Mr. LEWIS. Ms. Bacon.
Ms. BACON. The maximum grant last year was $35 million and that would make probably three more grants. The leverage this year was 3 to 1.
Mr. LEWIS. You do grow some herbs with HOPE VI, don't you? [Laughter.]
Secretary CUOMO. Not that we admit, Mr. Chairman.
Mr. LEWIS. Mr. Stokes, I've kind of left you hanging several times. Just go right ahead.
COMMUNITY EMPOWERMENT FUND
Page 258 PREV PAGE TOP OF DOC Mr. STOKES. Thank you, Mr. Chairman. I had to run next door to my other hearing.
Mr. Secretary, your budget proposal is $400 million for the new Community Empowerment Fund. Tell us what this new program is and tell us how it differs from your currently existing programs.
Secretary CUOMO. The need in the cities that we're talking about, the communities we're talking about, is job creation, job creation, job creation. Any mayor, any county executive will point out, Congressman, that that's what they need. You put on top of it the needs of welfare reform, some frightening information, in my opinion, these past few days about what's actually happening to the people coming off welfare. It says we need jobs in central cities. We have to do something about the numbers that say most of the new jobs are going out to the suburbs and rural America.
We need an economic development tool to help create jobs in cities. We call it the Community Empowerment Fund, $400 million. It builds on the history of the Department with the old UDAG program, which did great, great things. It also builds on the recent history of the EDI program, Economic Development Initiative Program, which we've had for the past few years and has worked very, very well. It is a grant program that spurs economic development, job creation, and works with the CDBG 108 loan program. We've had extraordinary success with it. We've done several billion dollars in economic development financing without a single default to the Federal Government.
SERVICE COORDINATORS FOR ELDERLY FUNDING REQUEST
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Mr. STOKES. Last year we heard testimony about the importance of service coordinators in housing for the elderly and disabled, about concerns that grants for these service coordinators might not be renewed. In response, the subcommittee specifically earmarked some funds for this purpose.
Have you requested sufficient funds in your fiscal year 1999 Budget for renewal of existing grants for service coordinators for the elderly and disabled?
Secretary CUOMO. I believe we have, Congressman. We have a total of $20 million that has been allocated to services for the elderly and the disabled.
Mr. STOKES. All right. This funding, Mr. Secretary, for service coordinators for the elderly and disabled has been provided as part of a larger program called Economic Development and Social Services. Will housing authorities seeking renewal of the service coordinator grants be required to enter the competition for this larger program or will there be a special mechanism for handling the renewals?
Secretary CUOMO. There will be a set-aside to handle the renewals, Congressman.
HEALTHY HOMES INITIATIVE
Mr. STOKES. Okay. Your request includes $25 million for a Healthy Homes Initiative. I understand this initiative partially involves a program of inspections for lead-based paint hazards and also involves research demonstration and education efforts to help control childhood diseases caused by housing-related factors, such as toxic molds. Of course, this is an area that I've long been interested in and have talked with you on other occasions about.
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Can you tell us more about this initiative, why it's needed, and what it would do?
Secretary CUOMO. Yes. As the Congressman knows, given his long history in this area, the Department is responsible for the lead-based paint disclosure and enforcement of the disclosure. When the program was sent over to the Department, we didn't really have the resources we needed to do the kind of enforcement that I think this Committee would want the Department to be doing around this important issue. The Healthy Homes is really the recognition of the enforcement responsibility we now have by law, and in all due candor to this Committee, we are not fully completing as we speak.
Also, this area has been evolving from a focus just on lead-based paint to other childhood related diseasesasthma, et cetera, the toxic moldswhich tend to be related to the lead-based paint area, and we would evolve likewise at the Department.
Mr. STOKES. You're also asking for funds to continue HUD's existing lead-based paint hazard reduction program at its current level of $60 million. Am I correct that the problem of lead-based paint remains a serious problem in some areas? And if so, can you share with the subcommittee any information you have regarding the continuing prevalence of lead poisoning among children?
Secretary CUOMO. Congressman, I can get you the specifics for the record and the data, but if I could just tell you experientially, while the numbers tend to be going down because, obviously, as time progresses, fewer and fewer units are older; fewer and fewer units have used lead-based paintthe damage that is done when any child is exposed to lead is so severe and so significant that I think the Department should be diligent. That's what the law wanted when it was passed in the first place, and I want to make sure that we're living up to the expectations of the law.
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So I will get the specific data for the record, but it is still a serious problem, even though the overall numbers are going down.
[The information follows:]
"The Official Committee record contains additional material here."
Mr. STOKES. Correct me if I'm wrong, but I understand that HUD's lead-based paint program concentrates on abating lead hazards in privately owned, low-income housing where the owners do not have the resources to do this abatement work without some assistance. Am I correct in that?
Secretary CUOMO. That is correct, sir.
Mr. STOKES. Okay. Do you have any estimate of how many more housing units are in need of this type of assistance?
Secretary CUOMO. I might ask David Jacobs to respond, Congressman. Dave runs the lead-based paint program.
Mr. STOKES. Sure. Mr. Jacobs, we'd be pleased to hear from you.
Mr. JACOBS. Thank you. In 1995, we convened as task force which took a look at that issue, and that task force concluded that there were 64 million houses that have lead-based paint; 20 million houses that have lead-based paint hazards, and of those houses, 3.8 million have children under the age of 6. Of those houses, roughly half a million have inadequate cash flow to privately finance lead hazard control work, and those are the houses that the grant program targets.
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Mr. STOKES. Let me ask you this: What are the consequences if lead-based paint abatement work is not done?
Mr. JACOBS. Well, the likelihood of lead-based paint hazards being present, of course, increases, and therefore, the children who live in those units, as the Secretary mentioned, suffer irreversible and lifelong decrements in learning ability, intelligence, and behavioral difficulties.
FAIR HOUSING PROGRAMS INCREASES
Mr. STOKES. Thank you very much.
I need to get into an area that was touched upon yesterday in some respects, but I think it's important for me to bring my own perspective to this area. Your budget proposes a significant increase in HUD's fair housing grant programs. Tell us the purpose of these increases and to what uses the funds will be put.
Secretary CUOMO. Congressman, the President has made fighting racism a priority for his administration, and I applaud his courage in doing so. He has what's called the One America Initiative, which is a dialog that brings people to a higher and better understanding.
The Department of Housing and Urban Development is a significant part of that One America Program, in that we are the keepers of the Nation's fair housing law. We recently signed an agreement, by the way, with the United States Department of Agriculture, where we're also now doing the fair housing enforcement in rural America for the USDA. These are laws that have been on the books for 30 years. These are laws that are central to our progress in this area. As the President says, we'll never come together unless we can live together. In my opinion, sir, there is still discrimination in the housing market. It is institutionalized. In many ways it's worse than it's ever been; redlining is still alive and well. There is still discrimination with the sale of homes, the financing of homes, the location of homes, and we don't even realize it anymore.
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You can talk to people in the industry who now just assume it is sobecause a person happens to be a certain nationality, they would assumedly want to live in a certain neighborhood and would not want to live in another neighborhood.
One of my personal priorities is enforcing the fair housing laws at HUD. We've been talking around it with this FHA loan limits. The denial rate among mortgages is double for African Americans what it is for whites. That is not a coincidence. It is institutional discrimination, in my opinion. We have the laws; let's enforce the laws.
To do that, we're going to need more funds through what we call the FHIP and the FHAP programs. FHIP agencies are private agencies that do testing, et cetera. It was a FHIP agency that we work with that did a report in this market that said 40 percent of the lenders they tested discriminate against African Americans and Hispanics. We fund those types of tests. We want to do more of them. FHIP is the private fair housing organization. FHAP's are state agencies that do the enforcement within their own states. We also want to do a national audit to find out the kind of discrimination we're talking about and the extent of it.
Mr. STOKES. In that context, Mr. Secretary, so that people understand the full scope of discrimination, in addition to race and sex discrimination, do you find discrimination, say, against people who have disabilities or discrimination against, say, families with children? Are there otherswithin the scope of discrimination, are you finding other examples?
Secretary CUOMO. Certainly, sir. Discrimination among people who are disabled, family discrimination, as you pointed out also, beyond just race and sex, and sexual orientation.
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Mr. STOKES. You mentioned the FHIP program, which makes grants to organizations to promote compliance with fair housing laws. What sorts of organizations receive these grants? For example, do they tend to be national or local organizations, and do they include local government agencies?
Secretary CUOMO. The FHIP tend to be local organizations, Congressman. They'll do testing. They'll do educational campaigns. There will be information campaigns about people's rights. We also fund the FHAP agencies. We now have about 30 State agencies under contract. We have about 50 local agencies under contract. We have about 33 states covered.
Mr. STOKES. What kind of activities are carried out with the Fair Housing Initiative Program, the FHIP grants?
Secretary CUOMO. A case that I referred to yesterday, the Fair Housing Council in Washington, D.C., did testing of lenders who give mortgage loans. Testing can be where they will send in a white person with a balance sheet; they'll send in an African American with the same balance sheet, and they'll see if there's a different result. There is a significant disparity in the denial rate for African Americans, and the FHIP agencies will do that type of testing, can then come back and do educational assistance, et cetera.
DISCRIMINATION IN PROPERTY INSURANCE
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Mr. STOKES. There's been some controversyand I'm sorry that all my colleagues are not here because I know that a couple of my other colleagues have an interest in this areathere's been some controversy surrounding the role of HUD's fair housing programs in preventing discrimination in property insurance. What is the Department's position regarding the application of the Fair Housing Act discrimination in providing insurance?
Secretary CUOMO. Our position is, Congressman, that insurance has been deemed by the courts to be covered by the Fair Housing Act. As a matter of policy within the Department, we do not seek to fund FHIP grantees who focus on a specific activity, insurance included. We're looking for broader activities to be funding, and we don't seek to fund any group that focuses just on insurance. But it is a covered act under the Fair Housing Act.
Mr. STOKES. All right. And am I correct that the position of the Department is supported by court decisions?
Secretary CUOMO. Yes, sir, you are.
Mr. STOKES. Mr. Secretary, is there reason to believe that discriminatory practices in property insurance have been a serious or a widespread problem?
Secretary CUOMO. There's evidence that would suggest that, sir, yes.
Mr. STOKES. And haven't there been some major insurance discrimination cases and complaints brought recently that have resulted in settlements or compromises, suggesting that there was, indeed, merit to the charges?
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Secretary CUOMO. Congressman, Assistant Secretary Eva Plaza is here, who is the Assistant Secretary for Fair Housing, if I could refer the question to her?
Mr. STOKES. We'd be pleased to hear from her, Mr. Chairman.
Ms. PLAZA. I don't know that I can add much more than what the Secretary has already said, but, in essence, there have been some recent settlements, particularly in this area, with major insurance companies, that have been brought by our FHIP partners here in the local area and throughout the United States. Under the Fair Housing Act, we are required to conciliate cases, and we take every opportunity to conciliate the cases, short of full-fledged trials. So that's what has happened recently with probably the most major insurance companies nationwide.
Mr. STOKES. And you would agree with the Secretary meant that this is a fairly widespread problem?
Ms. PLAZA. All of the evidence that has been brought to my attention since I took this office would bear that out. It is most definitely a problem, and I believe that now, however, insurance companies know that we're looking very, very carefully and very closely at them. And I think that they have taken very strong measures very recently to try to address systems, their internal systems, so that they don't, in fact, unintentionally end up discriminating against people of color, minorities and people of color, people with physical disabilities.
Page 267 PREV PAGE TOP OF DOC Mr. STOKES. Thank you very much. I guess, gracious. [Laughter.]
Ms. PLAZA. De nada.
Mr. STOKES. You've got to teach me some of this stuff. [Laughter.]
It sounds good.
Mr. Chairman, you have been very generous with my time. I have some other questions, but I don't know what you want to do.
Mr. LEWIS. I think I'll proceed a little bit further.
Mr. STOKES. Okay, thank you.
HOPE VI AND HUD REFORM ACT
Mr. LEWIS. Thank you very much.
Mr. Secretary, we've provided $550 million for severely distressed housing, otherwise known as HOPE VI, $457 million for grants, $93 million for tenant protections. How does the HUD Reform Act impede the work that HOPE VI programs are doing?
Secretary CUOMO. How does the HUD Reform Act impede the work?
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Mr. LEWIS. Impede the work that HOPE VI program is doing.
Secretary CUOMO. I don't know that the HUD Reform Act, Mr. Chairman, is any more or less an imposition on the HOPE VI program than it is on any other competitive programs. You know, the HUD Reform Act is very strict and limiting about how the Department can run a competition.
Mr. LEWIS. As you know, we talked earlier about leveraging, and we talked about the value of the flexibility within HOPE VI. So I'm just wondering about that interplay, and that's how I come to the question of, how does the Reform Act perhaps affect that?
Secretary CUOMO. Let me refer to Elinor Bacon, who runs the HOPE VI program, Mr. Chairman.
Mr. LEWIS. Sure, Ms. Bacon.
Ms. BACON. Mr. Chairman, in our experience, how it has affected it is that we are not allowed to look at anything except what is given to us in the application. In other words, we can't, after the application is submitted, go out and discuss the application with the locality or the housing authority. And so we are restricted to what we see in the application.
Mr. LEWIS. All right. I guess this question kind of swirls around maximizing opportunities for flexibility and leveraging, and the like. A further question would be, should there be better coordination between HOPE VI grantees and HUD, and can we expect to see better coordination as we go forward?
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Ms. BACON. Between the grantees and HUD itself?
Mr. LEWIS. The grantees and HUD.
Ms. BACON. I've been actually very pleased with the coordination and cooperation. I'm not quite sure what you're
Mr. LEWIS. I'm thinking about, as we go forward with the reform process, I'm worried about some stilting that might affect, impact that negatively. We're really talking about continuing an excellent environment, if, indeed, there is one.
Secretary CUOMO. What it does not allow, Mr. Chairman, the HUD Reform Act doesn't allow any back-and-forth.
Mr. LEWIS. Right.
Secretary CUOMO. You can't, as Elinor was saying, you can't go to the site; you can't have a dialog; you can't make a counterproposal. You're limited to the face of that application. It's not just HOPE VI, by the way. It's any competition. So if you wanted to go back to the applicant and say, ''I like this. I don't like this. How about you do this,'' you're foreclosed from any of those conversations.
Mr. LEWIS. And would you suggest that we'd be better off if we had more flexibility in terms of going back and forth?
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Secretary CUOMO. I would, Mr. Chairman. I understand the purpose of the HUD Reform Act. It was passed at a time when there was a lot of focus on abuses at the Department, but it is very limiting, and I believe in many cases you get less of a product because of it.
Mr. LEWIS. What do you think?
Ms. BACON. I certainly agree. I think that it would be very useful to be able to go back and forth and really work with the localities in developing their applications.
Mr. LEWIS. Okay. Through legislative changes, the Congress has attempted to create an atmosphere that encourages PHA's to utilize other sources of funding, like tax-exempt bonds, tax credits. Why aren't more PHA's utilizing these resources?
Secretary CUOMO. I believeand I'll refer to Elinor, but I believe, especially in the HOPE VI program, Mr. Chairman, most are merging all the different funds and putting all these different programs together to do one development.
Mr. LEWIS. Would PHA's be very competitive for tax credits, for example?
Ms. BACON. They are extremely competitive, and we've found, for instance, last year, I would say, virtuallyI don't know the exact percentage, but, say, 90 percent of the applications did include tax credits.
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Mr. LEWIS. Where there are limitations, is HUD working to diminish or eliminate
Secretary CUOMO. The limitation really wouldn't be from HUD. The tax credits are administered through the State entities, and they're highly competitive on the State level, but I don't believe it's a HUD goal. The administration has proposed more low-income housing tax credits this year, which could allow public housing authorities or any entity, actually, to use it more next year.
NATIVE AMERICAN PROGRAM
Mr. LEWIS. Okay. Shifting gears a bit, Indian housing, the administration requests $600 million for Native American housing assistance. This level of funding remains equivalent to fiscal year 1998 funding levels. Recently, HUD released the final rule governing the Native American Housing Assistance and Self-Determination Act of 1996, which requires that HUD be better monitors of this program. What sort of mechanisms have been put into place to more effectively monitor the Native American housing programs, including the block grant, section 184 and title 6 loan guarantee programs?
Secretary CUOMO. This is going to be a new experience for us, Mr. Chairman. It's something we're looking forward to. As you know, it totally revamped the way we do business and the programs, and it's been an exciting year to live through. We have Jackie Johnson who's with us now, who's going to be running the program, and I would ask her for her thoughts on your question.
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Ms. JOHNSON. Thank you very much.
Mr. Chairman, I'm really excited about where we're going with the new Native American programs. In particular the negotiated rulemaking helped us work with our clients, our customers, the tribes, to be able to help them understand their responsibilities and the accountability that needs to happen in the program to make it successful. In addition, the Office of Native American Programs, the department which I am currently in charge of, is going through its reorganization to address these issues in the way that we're developing our organization, dealing with public trust, dealing with monitoring and compliance, workload allocation, as well as remote and onsite monitoring issues that are necessary.
The Department, in addition to the IG's report, has gone through negotiated rulemaking and incorporated a number of the recommendations from the IG, and the rest of them are being evaluated for our reorganization.
Mr. LEWIS. In a little more detailedwe touched on it earlier, but what is the average income of a Native American compared to the average income of a public housing resident?
Secretary CUOMO. If we could submit that for the record, Mr. Chairman?
Mr. LEWIS. We kind of used the figures earlier. It's $5,000 average versus $7,500 to $10,000, something like that, but if you could really make sure that I'm correct for the record, it would be
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Ms. JOHNSON. Significantly lower. As you know, many reports have stated that the Native American population is the poorest of the poor in this Nation. In addition to that, the Native American population has a high dependency upon HUD programs, in many of the communities 80 to 90 percent of their communities depend upon HUD programs for their only source of housing.
JOB RATE IN INDIAN COUNTRY
Mr. LEWIS. We only have a few minutes left. I might as well discuss this with Ms. Johnson, but it just raises an interesting point that ought to be laid out there for all of us to think about. Within my own community, not actually my district, but my own community, we have a small, little tribe, delightful friends, only about 100 people, but their gambling programs bring in $100 million a year. I've often wondered, among the States that make up the Indian nations, if there shouldn't be a little equity that relates not to our Federal programs, but rather a different kind of Federal program. Just a thought.
Ms. JOHNSON. I'd love to discuss it with you. [Laughter.]
Mr. LEWIS. Let's see, what is the job rate in Indian country compared to the job rate in other parts of the United States. You thought I was through with you, huh? [Laughter.]
Ms. JOHNSON. Yes, I did. You said you just had a few more minutes.
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Mr. LEWIS. Yes, when the next bells ring, I'll give you a break. Okay?
The job rate in Indian country compared to the job rate across the country?
Ms. JOHNSON. Unemployment is significantly higher. I don't have those ratios, and we'd be glad to give them to you.
Mr. LEWIS. Yes, we need to have those in the record.
[The information follows:]
Question. What is the average income for a Native American living in Indian housing?
Answer. Decennial Census data for 1990 show that in 1989, median annual household income for Native Americans living on reservations was $19,865. For all races, that figure was $30,056. Data obtained from the HUD Multifamily Tenant Characteristics System is consistent, showing that, as of February, 1997, the average annual household income for Indian families in the Mutual Help Homeownership Opportunity Program was $20,012. Factoring out California and Alaska reduces that figure to less than $15,000. According to a recent General Accounting Office report (GAO/RCED9849, ''Native American Housing: Homeownership Opportunities on Trust Land are Limited,'' issued February, 1998), Federal agencies provide nearly all of the housing, both rental and owner-occupied, developed on Indian reservations.
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Question. What is the unemployment rate in Indian country?
Answer. According to the 1990 Decennial Census, the national average unemployment rate for Indian adults living on reservations was 14.9 percent. For all races, the national average was 6.3 percent. Using the same source, the unemployment rate for Native Americans was highest in the Southwest and Great Plains regions with averages in excess of 25 percent.
ECONOMIC OBSTACLES IN INDIAN COUNTRY
Mr. LEWIS. What are the obstacles to community and economic development in Indian country?
Ms. JOHNSON. Lack of the private financing; financial institutions don't have a presence; a lack of economic development which is absolutely critical in looking to some of the initiatives that HUD has. I'm sure that in my new position, we'll be able to look to see how we can partner with some of those initiatives within the Department.
Mr. LEWIS. You know, the Secretary and I have discussed, and he's mentioned several times here today, the Grameen Bank, which is kind of the symbol for a lot of us who would like to roll the drum and say there are different ways. But, seriously, among Indian country there are people who are doing substantially well who could pool together some funding and do some lending, and it wouldn't take very much to create some obvious avenues, if, indeed, there are no lending programs available, et cetera. I mean, infrastructures develop because people want to help those who need it, and those who need it create a demand. Demands take many forms.
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Ms. JOHNSON. If I could, on that note, Mr. Chairman, we've had this discussion
Mr. LEWIS. Yes.
Ms. JOHNSON [continuing]. Previous to this, and I am still just as committed in trying to look for that presence of a financial institution, and the presence of the secondary market within that area. I'm sure the Secretary would appreciate your support in that.
Mr. LEWIS. We'll watch with interest.
I'm going to maybe finish this section just by a couple more questions. What are the obstacles to utilizing the section 184 loan guarantee program, and do some Indian reservations have more obstacles than others?
Ms. JOHNSON. Yes. First of all, it's economics. When there's no economy, there's obviously very few people who can afford a 184 loan program. It reaches, as the FHA program does, a lower market, but when the market's too low to reach, it can't.
The second major obstacle is the timeframe for being able to get a loan processed, and we are trying to develop initiatives with the Bureau of Indian Affairs. Kevin Gover has agreed to work on a pilot program where we might be able to increase the timeframeor decrease the timeframe for BIA's approval of the land trust agreement.
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Mr. LEWIS. If we can have others who may have questions on this subject area supplement for the recordotherwise, I'm going to have Mr. Stokes miss this vote, and there's less time than I thought.
We're in recess.
Mr. LEWIS. We come back to order.
Sir, I think we're going to move right along here. Mr. Secretary, in the next order of discussions I'd like to move to homeless programs. So what is the leveraging ratio for the homeless programs and how much money do HUD's homeless initiatives bring in from outside resources that are dedicated to providing services for homeless families?
Secretary CUOMO. All in all, Mr. Chairman, it's about 2 or 3 to 1 when you count all the other resources that are brought into the programs.
Mr. LEWIS. And can you give me an idea how much money? How many dollars?
Secretary CUOMO. Well, the program itself is in the range of $800 million. So we would leverage about another 1.6.
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Mr. LEWIS. Do you have a system in place that can measure that ratio that you're talking about?
Secretary CUOMO. Yes, we have the specific applications and we know what the programs are and what other funds are going into those programs.
Mr. LEWIS. How do you evaluate the quality of services provided through the continuum of care?
Secretary CUOMO. Well, two ways. First, on the competition, when we decide which ones to select, it is a national competition. The competition is ferocious, and only the best win. Once a program is funded, then we go and we monitor and we follow up and we inspect.
Mr. LEWIS. Does all of that help you know whether the services have changed a homeless person's circumstances longer-term or long-term, permanently?
Secretary CUOMO. We have studies that have been done on this. The continuum of care relies on local governments and State governments to make the actual prioritization and selections. There have been many studies that have tracked homeless families that have come through homeless shelters, transitional housing, and been placed in permanent housing, and that show when you address the underlying problem that prompted the homelessness in the first place, and the person receives the appropriate care, you make a real difference in that person's life.
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Mr. LEWIS. We discussed a good deal of that yesterday, but along those same lines, it's very important that we be dealing with the whole problem and solution to the whole problem, but in connection with some of those significant pieces, are there sufficient affordable homes available to persons once they've taken advantage of the continuum of care?
Secretary CUOMO. No.
Mr. LEWIS. Okay. How many families are repeat users of continuum of care?
Secretary CUOMO. I could get you the number, Mr. Chairman, how many people are within the system for a period of time, repeat users. There are some people who fall in and out of homelessness.
Mr. LEWIS. Yes.
Secretary CUOMO. But, more, there are people who use every stage of the continuumwho come in from the emergency shelter and then our transitional housing, and then are in permanent housing programs.
Mr. LEWIS. I assume that the permanent housing programs save money in the long run, if you could
Page 280 PREV PAGE TOP OF DOC Secretary CUOMO. Yes, sir, it's not even close. One of the reasons we propose 34,000 vouchers for what we call the permanent housing component of the continuum of care is because we now have a real infrastructure of emergency programs and transitional programs. The question is, where is the permanent housing. We talked about the 5.3 million families. We don't want to just put a homeless family on a waiting list for another three years. The 34,000 vouchers could then work with the continuum and get people out of the transitional housing.
SUPPORTIVE SERVICES FOR HOMELESS
Mr. LEWIS. Okay. In fiscal year 1996, about 50 percent of the competitive grant funds HUD provided for homeless was spent on supportive services as opposed to direct housing assistance. What is HUD's rationale for allocating such a large percentage of its competitive grant funds for supportive services?
Secretary CUOMO. We don't allocate. The local government does, and we put the funding where the need is. Your point, Mr. Chairman, if a person is mentally ill, and you're only providing four walls, you're not helping that person. If the local city, the county, says, ''We want to get mental health services to this person and we need a case worker,'' then so be it. And if that turns out to be 50 percent of the funds, then so be it. For us to sit here in Washington and say, well, no more than 30 percent of the money should be used for services, no more than 40 percent should be used for hard costs, those would be arbitrary, in my opinion. That would be top-down. That would be a Federal cookie-cutter. I'd much rather leave it to the local communities.
Page 281 PREV PAGE TOP OF DOC Mr. LEWIS. If there's some validity to that discussion that we had yesterday, the idea that was being presented by Ms. Kaptur that involves using your good offices to bring agencies together, maybe even bring State agencies together, to rethink all this, is an important item worth considering.
Secretary CUOMO. I agree 100 percent. Mr. Chairman, I'd rather do it by collaboration and partnership than by Federal mandate.
Mr. LEWIS. Does HUD coordinate with the Department of Health and Human Services to provide supportive services for the homeless?
Secretary CUOMO. Yes, sir, we do.
Mr. LEWIS. What has been the outcome of it?
Secretary CUOMO. We have the Interagency Council for the Homeless, which is co-chaired by HSS and VA, Veterans' Affairs. HUD serves as the chairperson. We have come up with a number of program linkages where we actually put HUD funds together with HHS funds and we administer them jointly. Also, we've come up with a lot of informational material on how community groups can use programs together.
Mr. LEWIS. The administration has requested $192 million for tenant-based assistance to move persons from homeless facilities to permanent housing. What formal strategy has HUD developed for administering the 34,000 new vouchers for the homeless population requested in Fiscal Year 1999's budget? Does HUD have the resources at the headquarters and field office levels needed to administer these vouchers, and who's eligible to receive the assistance?
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Secretary CUOMO. Yes, sir, these are the 34,000 vouchers, which, as we mentioned before, would be used as the permanent housing takeout on the continuum of care. No homeless system in any community will work unless you have an avenue for permanent housing, and these vouchers would start to do that. We'd administer it through public housing authorities, which is what we now do. We'd have a competition. It would be linked to the continuum of care, but it would go through housing authorities.
Mr. LEWIS. I have some other questions on the subject area for the record, if you would respond to those as well.
Mr. LEWIS. The administration has requested a $21 million increase in funding for HOPWA, and estimates that additional cities will become eligible for the grant based upon the incidence of AIDS in a community. What is the status of the report on the formula requested by this subcommittee in Fiscal Year 1998 for appropriations measure?
Secretary CUOMO. The report has been submitted, Mr. Chairman. The report recommends that there be no change in the current HOPWA formula, but the report is complete and was forwarded to the Committee and the Senate Committee yesterday.
Mr. LEWIS. Yesterday. [Laughter.]
Well, can you tell us
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Secretary CUOMO. Coincidental, Mr. Chairman, I can almost assure you. [Laughter.]
Mr. LEWIS. Better than tomorrow. [Laughter.]
What are the findings that will be contained in this report?
Secretary CUOMO. The report shows that 68 percent of the HOPWA funds are being spent on housing-related services, construction rental assistance, et cetera; 20 percent go to services, supportive services; the remainder are used for activities such as housing counseling and information and administration. We recommend no change in the current HOPWA formula.
Mr. LEWIS. Discuss with us some leveraging. What goes on with leveraging there?
Secretary CUOMO. I don't have the leveraging for the HOPWA program here, but I can find out for the committee.
Mr. LEWIS. Okay, for the record, we'd be interested in taking a look at that.
[The information follows:]
Page 284 PREV PAGE TOP OF DOC HUD's report of March 24, 1998, provided the following information:
Leveraging of Other Resources. HOPWA grantees have generally carried out HOPWA activities with a significant amount of other assistance, including accessing health-care and other supportive services to ensure that clients are in appropriate systems of care. The development and operating costs of housing assistance also generally involves collaboration with other resources and funding sources.
One measure of the amount of other resources that are used in support of HOPWA activities is provided under the criteria for selection of competitive grants. In each of the five national competitions to date. HUD has reviewed the level of commitment of other resources in awarding grants. These resources have included cash funds available to the project from the applicant or proposed sponsors as well as from other State, local and private sources. In addition, other non-cash resources, such as contributions of professional services, volunteer contributions made by individuals (eg. which was valued at $10 per hour of volunteer time, under the FY97 NOFA), and the donations of property and leasehold interests augment HOPWA-funded activities. In FY97, ten percent of the competitive rating points were determined by leveraging and the $19.6 million that was awarded with federal funds was more than matched by documented resources of over $22.8 million.
On a cumulative basis, the five national competitions have been used to select 108 grants, for $84,171,000 in HOPWA funds. These 108 projects documented contributions of $110,423,728 from other sources, including voluntary contributions of donated time and in-kind services from thousands of Americans. These leveraged resources represent 131 percent of the cumulative amount of federal funds awarded under these notices.
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HOPWA formula allocations are part of area consolidated plans that form the basis of new partnerships between HUD and the States and local governments that administer these grants. The activities that are carried out with HOPWA funds are required to be consistent with the area's strategic plan that considers area needs and local resources and the other community development programs that are part of this process. This federal partnership with States and communities can best work to build responsive programs by recognizing unique characteristics, resources, involved citizens, public and private entities, administrative structures and public processes that exist within each area.
Programs that address the needs of persons with HIV/AIDs also involve close collaboration with the programs and planning bodies that administer AIDS-related health-care and services under the Ryan White CARE Act. During the past three years HUD has participated in a variety of interdepartmental and intergovernmental collaborations to maximize the use of HOPWA funds and avoid duplication of activities. HUD helped draft the housing elements of the President's National AID Strategy with several other Federal departments, engaged in a joint evaluation of programs under the Multiple Diagnoses Initiative with HHS, and worked with HHS to develop technical assistance materials for housing and service providers. As noted, HUD initiated a consolidated planning process that requires all communities that receive funds under that process to address the needs related to persons living with HIV and AIDS in connection with other programs and area resources.
REGIONAL CONNECTIONS INITIATIVE
Mr. LEWIS. HUD is proposing to setaside $100 million of its fiscal year 1999 community development block grant to funds for Regional Connections Initiative, RCI. The purpose of RCI would be to stimulate the development of coordinated regional strategies that promote economic empowerment of a region's low- and moderate-income residents. Why is HUD proposing the Regional Connections Initiative in spite of the draft report on regionalism of the National Academy of Public Administration, which does not recommend a significant Federal role at this time to address regional issues?
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Secretary CUOMO. Two things: First, Mr. Chairman, I believe that the regional context is going to be the context in which many of these things are going to work. If we don't get cities to cooperate with the surrounding counties, none of this will work. That's what all the demographic patterns say. That's what the revenue basis says. That's what welfare-to-work is showing us. If we can't draw a larger circle than that tight, initial, concentric circle, none of these efforts will work. We have to expand the context. It has to be a regional context. We've been talking about this for 10 years. It's not making the type of progress that it should. I don't consider this an overly significant Federal role. We're not talking about regional governments; we're not talking about putting funds together and funding regional governments. We're talking about a $100 million program that is part of CDBG
Mr. LEWIS. Is that why it's CDBG rather than a separate funding with a general appropriation
Secretary CUOMO. Yes, sir, it would be $100 million. It would be an award program that goes to jurisdictions that come up with joint plans. We would administer it with the Conference of Mayors, the United States Conference of Mayors, and NACO, National Association of County Officials, through the Sustainable Communities Joint Center. So it wouldn't be a significant burden to HUD, but as a step, major policy step, I think it could do extraordinarily good things.
Mr. LEWIS. Don't most States and cities have organizations like councils of government, regional government organizations, chambers of commerce, and so on? I'm really asking, in view of that mix out there already, why RCI's?
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Secretary CUOMO. I think, Mr. Chairman, there are a number of groups out there that for years that have talked about regionalism, but everything the Federal Government does cuts against regionalism. We talk about cooperation, larger planning areas, and then we fund and require plans on the exact opposite basis. This would be the first time the Federal government starts to put money where its mouth is, and starts to award the regional plans. We can look for those larger contexts.
I also believe that NAPA said, Mr. Chairman, that the Federal government shouldn't have an overly significant role in this. I don't know that they went as far as to say no role whatsoever, but a modest role, and we think this is in keeping with that.
Mr. LEWIS. Issues such as the out-migration of business and residents from cities to suburban areas, uneven development, and other issues related to regional development are problems that have developed over a period of time, and are not likely to be solved easily or quickly. Does HUD envision RCI as a long-term effort to address that kind of issue?
Secretary CUOMO. I see it as a long-term initiative to begin to foster this dialogue and make it real. The concepts are all clear to everyone. You'll have mayors talk about it, county executives talk about it. We are less good in implementing it and actualizing it. What does it actually mean to have a metropolitan plan, and how does a city official actually work with the county official? This would start to get some best-practices, convenings to talk about this subject matter, hail some best-practices that's learned from what Detroit is doing and Louisville is doing. I think it's a very important first step.
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Mr. LEWIS. Well, what kinds of steps within that important first step will you be taking to see that funds will be used to accomplish the program objectives and goals of the RCI?
Secretary CUOMO. We would be working with the Conference of Mayors and NACO. We would put together a list of criteria of what we believe are the best practices, foster that dialogue, and then next year, the following year, after funding, do the first awards program, where we pick out the 10, 15, 20 best regional models in the country, and we give them a dollar award.
Mr. LEWIS. Do you expect them to request funding or appropriations for RCI in future years?
Secretary CUOMO. Yes, I would, and just to show you that this concept, your point about Habitat before, this concept is working now, and there's an energy behind it even without the funding. We're working with the mayors and the county officials, and we're coming together to discuss these types of things. We would like to get some resources to actually make it a reality.
The CDBG program is appropriate, Mr. Chairman, because CDBG is $4.6 billion$4.6 billionand everything it does reinforces the boundaries. We ask a city to give us a consolidated plan all within its boundaries. We ask a county to give us a consolidated plan all within its boundaries. And then our rhetoric says, and, by the way, don't forget, you should be cooperating one with the other. But, meanwhile, $4.6 billion is digging those boundaries deeper into the ground. This would be a $100 million set-aside on that program that starts to award and foster a contrary dialogue.
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Mr. LEWIS. Do you have some expectancy of the size of these grants and what size city would be eligible for such a grant?
Secretary CUOMO. We were initially estimating in the range of $2 million per grant.
Mr. LEWIS. Would rural areas be candidates for these grants?
Secretary CUOMO. Yes, sir.
Mr. LEWIS. What percentage of funding do you think will go to rural areas?
Secretary CUOMO. A minimum of 20 percent.
NAPA REPORT ON REGIONAL STRATEGIES
Mr. LEWIS. What did NAPA suggest in their report about regional strategies?
Secretary CUOMO. I believe, Mr. ChairmanI don't have it in front of methat the NAPA report suggests a modest amount as a Federal effort, and I believe the $100 million on a $4.6 billion program is in keeping with a modest amount.
Page 290 PREV PAGE TOP OF DOC Mr. LEWIS. Mr. Stokes asked some questions in the area of EDI, and he kind of got to the fundamental questions there. I have some questions that I'll use to supplement that, if you'll respond to those for record.
Mr. LEWIS. Let me ask, the President has requested $1.9 billion for the HOME Program, which includes a setaside of $1.4 billion for HOME, $25 million for housing counseling, $109 million for supportive housing for the elderly, $50 million for new section 8 vouchers for the elderly, $174 million for supportive of housing for the disabled. In addition, the administration has requested authority to create a new loan guarantee program that would be limited to loans no more than $100 million.
What is the leveraging ratio of the HOME Program?
Secretary CUOMO. The HOME Program grants leverage approximately $1.80 for every $1 of HOME funds.
Mr. LEWIS. Okay, not quite two. Okay. Is the leveraging based on the use of outside sources of capital?
Secretary CUOMO. Yes, sir.
Mr. LEWIS. What are some of those sources that you'd expect?
Page 291 PREV PAGE TOP OF DOC Secretary CUOMO. Tax credits. The HOME Program is very often used in concert with the low-income housing tax credit program.
Mr. LEWIS. Okay. How many new homeowners have been created with HOME funds? I kind of sense you don't know and
Secretary CUOMO. I want to sayI would rather not venture a guess, Mr. Chairman, and get you the number for the record.
Mr. LEWIS. Why don't we discuss it for the record, because if we don't know or can't figure it out, then maybe that has a point that needs to be discussed.
Secretary CUOMO. The HOME Program, as you know, Mr. Chairman, as a block grant, has a number of uses. They can use it for rental subsidy. They can use it for rehabilitation. They can use it for new home construction.
Five point nine billion dollars in HOME funds have been committed under written agreements. Of this total, $4.7 billion in HOME funds and $8.5 billion in other public and private funds have been committed to projects yielding 279,000 units. Over 166,000 units have been completed, and 36,000 families have received tenant-based rental assistance.
Mr. LEWIS. Okay, so we've got numbers of families, numbers of rental units, et ceteraif you'll make sure that that's clear for the record?
Secretary CUOMO. Yes.
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[The information follows:]
Question. How many new homeowners have been created with HOME funds?
Answer. Since the beginning of the program, 91,126 (as of 9/30/97).
HOME LOAN GUARANTEE FUND
Mr. LEWIS. The President has requested a home loan guarantee program to complement the existing HOME Program. According to HUD, this loan guarantee program will be used primarily to finance large-scale housing development. Commitment authority is limited to $100 million, and credit subsidy needs of $11.1 million. What is the difference between this loan fund and the section 108 loan guarantee fund?
Secretary CUOMO. The same principle, different program. The 108 program works against CDBG, says to a locality: You get your CDBG funds and we'll give you a loan of up to five times your CDBG for CDBG activity. We have done billions of dollars in economic development work under the 108 program, zero Federal defaults, zero claim on the Federal treasury. The HOME Bank Program would be the same counterpart. A local jurisdiction gets an annual HOME allocation, which gives them the ability to have a loan of up to five times that amount, so they could do a large-scale housing project, if they wanted. It would work exactly the same as the 108 program, just a different program.
Page 293 PREV PAGE TOP OF DOC The credit subsidy is $11 million, which is an initial estimate on potential defaults. We've started out relatively small because this is a case of first impression, and we want to see what the actual experience is.
Mr. LEWIS. Well, 108 doesn't work well without enhancements like EDI. We're wondering, can't localities choose to use 108 to do large-scale housing developments?
Secretary CUOMO. You cannotunder the 108 program, you can only do CDBG-eligible activities, which means you couldn't do the type of housing that you can do under the HOME Program.
Mr. LEWIS. Do you believe that the proposed HOME Loan Guarantee Program will be successful without additional credit enhancements?
Secretary CUOMO. I believe, to the extent we are talking about it, yes. When you say, Mr. Chairman, that the 108 program isn't widely used without EDI, you're correct, but it is used to the hundreds of millions of dollars without a cash enhancement. And here we're talking about a relatively modest beginning with the HOME Program.
Mr. LEWIS. Okay.
Secretary CUOMO. Also, just for the Chairman's information, as you know, CDBG does not allow you to build new housing. Therefore, the 108 program does not allow you to build new housing. So if you wanted to build new housing, you would need the HOME Program, and hence, the HOME Bank. You can do rehab under CDBG, but you can't do new construction.
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Mr. LEWIS. Let's see, Mr. Stokes, do you have some additional questions?
Mr. STOKES. I think I just have about one more question and then maybe a comment.
Mr. LEWIS. Okay, just go right ahead. Proceed, and I'll close down here shortly.
Mr. STOKES. Okay. Secretary, concerns have been raised that HUD is increasingly contracting out for services simply because it does not have enough in-house staff to carry out its operations. Further concerns have been raised that this contracting might be done without adequate intention to cost-effectiveness or without analysis whether it would be less expensive to carry out the activity in-house.
For example, a recent report from the HUD Inspector General stated, and I quote, ''Management's contracting environment needs to change to seek ways to emphasize cost-consciousness and to assure the best value for dollars spent. Because HUD managers did not have the staff to complete the product or service in-house, the question, 'what will it cost?' was often not seen as an issue.''
Do you believe there's merit to these concerns?
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Secretary CUOMO. Yes.
Mr. STOKES. And what is HUD doing to make sure that it contracts out only when it is cost-effective to do so and then receives good value for dollars spent?
Secretary CUOMO. Two points, Congressman, if I can: No. 1, we want to contract out when contracting out makes sense. HUD does many tasks which require a high level of expertise that I would, frankly, rather go out and buy rather than try to duplicate in-house. If we have a technical accounting task or physical inspection task, I would rather buy those services outside. A high-technology task where the wisdom in the industry turns over quickly, I would rather contract out for those rather than trying to duplicate that talent inside the Department.
But when you contract out, then you have to make sure the procurement methodology is sound and works well. And the IG's point in the past has been, we don't have the best procurement procedures in place. I agree with the IG on that principle, and we're going through a process of procurement reform now. We've just hired a new procurement officer who shows a lot of promise, and we're excited about that. But it's not an ''either/or.'' We have to be able to contract out. We can't do everything in-house, especially in an environment where we're downsizing, and we shouldn't be doing everything in-house anyway. It's not prudent business.
But when we do contract out, we have to do it well. Just as a point of information, Congressman, our contracting this year is actually less than it was last year. So our contracting has come down this year, not up. Going forward, we do look forward to contracting out significant tasks that were either done in-house or, frankly, never done before, like this evaluation of the portfolio; we just didn't do it. Something called contract administration, where we oversee these financial contracts, we want to contract that out. We're basically not doing it at the level we need to do it now.
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But contract out those tasks that you need to; make sure you have the right procedures in place.
Mr. STOKES. Do you do cost comparison between in-house performance and contracting out before deciding to enter into large new contracts?
Secretary CUOMO. As a general rule, yes.
SECTION 8 PROBLEMS IN CLEVELAND
Mr. STOKES. Mr. Chairman, I think that's exhausted my questions. I do want to take a moment, though, Mr. Secretary, and express my appreciation to you regarding section 8 problems that we're having out in Cleveland. You took time on your recent visit out there to meet with them on one part of it, and you've assigned Harold DeSales and Gloria Cousar to work on the other facet of it. And I want you to know they've done an excellent, very efficient, professional job for us, and we're working on that. It's under control. I just want you to know I appreciate it.
Secretary CUOMO. Thank you very much. It's our pleasure, Mr. Congressman. That's why we're here.
Mr. STOKES. Mr. Chairman, I think we've had good hearings, and
Page 297 PREV PAGE TOP OF DOC Mr. LEWIS. I've been very pleased with the hearings.
I want to cover just a couple of subjects very briefly, and we'll close it down.
Mr. STOKES. Go right ahead. I'm finished.
Mr. LEWIS. During fiscal year 1998, significant legislation was enacted to reduce the cost of renewing section 8 project-based assistance called mark-to-market. Can you give us an idea of what the status of that legislation is? Have we all learned very much from our 1996 demonstration program?
Secretary CUOMO. We learned from the mark-to-market legislation, first, Mr. Chairman, that anything is possible, and the good work of this Committee proved that to all of us. Just getting it passed was truly a remarkable feat, and I believe the HUD history books will show that the main issue that HUD had to face was this mark-to-market problem, and this Committee solved that problem for us, and we'll be eternally grateful for that.
Since then, we are now implementing the legislation. It is not an easy task, but we're moving ahead with it. We have a director for the office who is now being vetted by the White House. We've had focus groups where we've met with over 400 industry group people on how this should be working. We have some experience in the demonstration program. So we are moving ahead. As I said, the caution flag is that this is a very tricky endeavor that we've undertaken together, but we're moving ahead.
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Mr. LEWIS. Well, thank you for that.
FNMA AND FREDDIE MAC
Mr. LEWIS. The Office of Federal Housing Enterprise Oversight is responsible for overseeing the safety and soundness of FANNIE MAE and FREDDIE MAC. When will we be ready to issue the capital standards for FANNIE MAE and FREDDIE MAC?
Secretary CUOMO. I would ask Mark Kinsey, who is the Acting Director, if he would respond, Mr. Chairman.
Mr. LEWIS. Sure.
Mr. KINSEY. Mr. Chairman, our plan is to complete a notice of proposed rulemaking internally for the risk-based capital standard by the end of this fiscal year, and then we would submit that to OMB for interagency clearance. My discussions with OMB suggest that we should be able to get this rule cleared in the 3-month period that they have to clear such rules. After it is cleared by OMB, it comes up to the Hill for a 15-day mandatory review period, and then after that period, it gets published in the Federal Register. We expect probably by the end of January of next year for it to be in the Federal Register.
PARTNERSHIP FOR ADVANCING TECHNOLOGY
Mr. LEWIS. The 1999 budget request requests $50 million for the Office of Policy Development and Research. This request is an increase of $13.5 million. Of the increase, $10 million is proposed for a new initiative called Partnership for Advancing Technology in Housing, or PATH. PATH is designed to improve the technology infrastructure of housing in the United States and to encourage the use of new and advanced technologies in the construction of homes to improve their quality, durability, environmental efficiency, as well as affordability. How will the $10 million be spent this year?
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Mr. APGAR. Thank you. Your question suggests you know a lot about PATH, which you should, since many would say it came of this Committee and your energy that the PATH program was created and assigned to
Mr. LEWIS. With little interest, yes.
Mr. APGAR. Yes. The PATH program is already started, in anticipation of fiscal year 1999 funding. We're using current PD&R funds to begin some initial, modest efforts to bring the PATH partners together. We're working cooperatively with the homebuilding industry, manufactured housing, building material manufacturers, and others that are concerned about the homebuilding industry, to identify a program of research, demonstration, and outreach.
The key elements, as you suggest, are not only to develop new and enhanced technologies, but to make sure that the technologies that exist are being utilized and widely disseminated in the building industry. The focus is on both new construction and new homebuilding, but also bringing these new technologies into the rehabilitation of the existing stock.
With the increase that comes with the fiscal year 1999 funding, we hope to expand this program of outreach, dissemination, of focus on new technological development, and in a more expanded way building on our initial efforts this year.
Secretary CUOMO. There's a lot of excitement, if I may, Mr. Chairman, about this effort. We've had the first several meetings. The Department of Energy is a partner, the President's Advisor on Science and Technology, the industry. I think it can do a lot of good.
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Mr. LEWIS. We've spent a lot of time thinking about a variety and mix of areas potentially impacted by these technologies and the importance they have across the country. Yesterday I spent a lot of time not on housing per se, but what we were able to do or not do with hospitals with hospitals across the country, existing circumstances were there are earthquake safety questions, new hospital construction, where you have all these same elements as well. Across the marketplace we need to be stimulating these opportunities.
I'm interested especially in the place for these technologies in the construction or rehabilitation of low-income housing stock. Could you just comment on that and their applicability to the construction industry as well?
Mr. APGAR. Well, one of the things that our friends in the building industry remind us is, if we're going to get mass utilization of any of these new technologies, it has to work in affordable housing. They have to move the best of technology out of sort of the boutique or showcase homes, which have all the latest technology, and into the mass market.
Through our best-practices program, we hope to identify promising areas where we can provide affordable examples of the new technology and bring it to homes of modest needs. Just early this month I was out in Albuquerque at the invitation of the President of the National Association of Homebuilders and the local homebuilders association out there, where they were producing energy-efficient homes that were recycling a large share of the building materials that were left over on the sitea remarkable achievement in a sustainable development. And these homes were being sold in the price range of from $90,000 to $140,000, affordable to a modest family in the Albuquerque market. So this shows that it can be done. You can get both sustainable housing, energy-efficient housing, and affordable housing, if you put your mind to assembling the right technology and moving into the marketplace.
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Mr. LEWIS. It's my view that there are many places in the United States where alternative buildings make sense, like straw bale, cob, and adobe, et cetera. I presume that you would agree with that, to some extent at least. Do inspection codes around the country make room for alternative building materials?
Mr. APGAR. That's always an obstacle. Whether the new building materials is rediscovering something that's been there forever or some new product, getting it moved into the market can often be a problem for the codes and standards. Actually, New Mexico had some innovative work in trying to get materials like straw bale housing approved by local code inspectors. So, yes, it is a problem, but it is certainly a barrier that we can overcome, if we work with building inspectors and local officials around the country to make it happen.
Mr. LEWIS. Yes, we discussed before, I think, the frustration some of us have had in southern California just getting some architects, as well as builders, to even consider that alternatives relative to their impact on earthquake safety make sense. It's awfully hard to change the way you pound a nail.
Mr. APGAR. Yes. One of the things we're doing on that is, for new technologies, one of the problems is, if there is failure, often the new material will be utilized for many months before the failure is recognized and adjusted. So we're, essentially through the National Association of Homebuilders Research Center, producing a website which will track new product development. People can wire-in or dial-in and talk about any issues relative to the use of that new product. So that builders will be able to make adjustments before the new product generates substantial losses for misapplication.
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Mr. LEWIS. Let's see, I think that really kind of covers my questions, but I do note with interest that Mr. Apgar, upon confirmation, will do his best to keep us on the path. [Laughter.]
Mr. APGAR. Thank you, sir.
Secretary CUOMO. The straight and narrow one, Mr. Chairman. [Laughter.]
Mr. LEWIS. In the meantime, the last couple of days have been extended beyond that which I expected, maybe even that which might be reasonable, but certainly, I think, all of those who have spent most of those two days with us appreciate that these are very difficult times. But the thing that impresses me the most, Mr. Stokes, as well as Mr. Secretary, is that there are an awful lot of people at this table, as well as in a group like this, who are committed to seeing our housing programs work more effectively. If we continue on that path, indeed, I think we can have a big effect upon the availability of housing for all Americans.
So with that, it's been a very excellent meeting, and we appreciate your helping us.
Secretary CUOMO. Our pleasure. Thank you very much, Mr. Chairman. Thank you, Ranking Member.
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