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U.S. House of Representatives,
Subcommittee on Housing and
Community Opportunity,
Committee on Banking and Financial Services,
Washington, DC.

    The subcommittee met, pursuant to notice, at 9:30 a.m., in room 2128, Rayburn House Office Building, Hon. Rick Lazio, [chairman of the subcommittee], presiding.

    Present: Chairman Lazio; Representatives Fox, Frank, Kennedy, Bereuter, Kelly, Metcalf, and Weygand.

    Also present: Representatives Campbell and Vento.

    Chairman LAZIO. This hearing shall come to order.

    Good morning. I was noting on the walk over here that it seems about three degrees warmer outside than the surface of Venus. So we are trying desperately not to melt as we deal with some of the legislative business today.

    I want to welcome all of you to this hearing on H.R. 3899, The American Home Ownership Act of 1998. I want to thank all of the witnesses for their participation this morning.
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    For most Americans, the greatest financial investment we make in our lives is the purchase of a home. Home ownership is the key to strong community neighborhoods and to strong families. With this legislation we can give more families the opportunity to make the American dream of owning their own home a reality.

    According to news reports, the Nation's home ownership rate is at an all time high of 66 percent. Some are being left behind, however. These statistics mean that we are making headway in the area of providing decent, safe, affordable housing for all Americans, but we are not quite there yet. The American dream is still a distant one for far too many of our citizens.

    This legislation, therefore, is geared to increasing home ownership opportunities for all Americans. H.R. 3899 contains provisions affecting a wide range of existing programs involving housing production, federally assisted low-income housing, manufactured housing, and home ownership on Native American lands.

    We see three steps to achieving our goals. First, to promote the ability of the private sector to produce affordable housing without excessive Government regulations. Second, to provide more flexibility for more creative use of Federal and local resources in order to facilitate the availability of capital for home ownership and housing production.

    In a new sense, we are increasingly looking to leverage the opportunities for the Federal Government and partnerships. And lastly, we need to make needed changes to existing home ownership programs so as to ensure that they work as they should and increase the opportunities within those programs.
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    Our first step is to work to reduce the cost of housing production. According to recent estimates, unnecessary governmental regulation adds 20 to 35 percent—that's thousands of dollars—to the cost of a new home. We must eliminate the excessive regulation that often stifles our efforts to produce affordable housing.

    I am pleased to join with my good friends and colleagues, Tom Campbell, Jack Metcalf and Jon Fox, to incorporate legislation Mr. Campbell, who has joined us here today, had previously introduced to reduce barriers to affordable housing. Our bill requires all Federal agencies to include a housing impact analysis with any proposed regulations to certify such regulations have no significant negative impact on the availability of affordable housing; in other words, to make sure that what we do is rational and protective of the American dream of home ownership.

    Local non-profits and community development groups are given the opportunity to offer alternatives if it is found that the rule would have a harmful effect on affordable housing. I am delighted to see Don Martin, President of the National Association of Homebuilders, here to comment on the need for such action by Congress.

    The second step is to provide flexibility for more creative use of the Federal and local resources in home ownership efforts. This bill provides increased flexibility to State and local governments to leverage Federal housing funds, provided through the HOME Program, to attain higher levels of home ownership in their areas through local home ownership initiative. And this is something that we're finding out is a recipe for success. Ensuring that the Federal dollars partner up with local dollars so we get more bang for the buck, we are able to produce more housing, we can do more with a stronger effort.
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    This legislation would create a HOME Loan Guarantee program to allow communities to tap into future HOME grants for future housing development. The Act also provides grant authority to certain designated areas where large scale development projects are designed to reclaim distressed neighborhoods by creating home ownership opportunities for low- and moderate-income families. And again, in this light, this is about the reality that in many areas of the country in-fill housing, one house at a time, is not the answer to redeveloping an area. It takes a more significant effort, involving many lots and many houses.

    Flexibility is also granted in defining metropolitan areas to allow greater home ownership opportunities for suburbs affected by the high home prices of nearby cities, and my friend Bob McMillan will understand that. The Neighborhood Reinvestment Corporation has been invaluable in helping us to draft this bill, and I am glad to have George Knight, its Executive Director, here to shed some light on these provisions.

    In addition to providing more flexibility so localities can be creative, we must also ensure that existing programs designed to help individuals buy homes also protect the home buyer, and we need to look to existing programs to increase the possibilities for home ownership within these programs.

    This is the third step in the process we have charted. As an example, this bill contains provision for requiring pre-purchase inspections of FHA-insured properties, and that's the acknowledgement of testimony that we've heard before this subcommittee previously. My colleagues from Chicago know firsthand from their own constituents that this is an extremely important matter, and I am glad to welcome Norris Boston, a homeowner, to testify as to the dire need for such a measure.
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    Part of our efforts must also include helping those who are already home buyers and homeowners to stay homeowners. H.R. 3899, the bill before us, would preserve and protect opportunities for senior citizens to remain in their own homes, near their families and friends, by making FHA-insured reverse mortgage programs permanent. A reverse mortgage oftentimes is the only tool available for ''house-rich'' or ''cash-poor'' seniors to remain in their homes. Such reverse mortgages provide extra income for living and medical expenses or for crucial home repairs.

    Our bill requires that HUD prohibit financial entities from charging seniors exorbitant fees when obtaining reverse mortgages. I can think of few things that are lower than ripping off seniors who desperately need access to that money in their home. I am glad to have Ruth Blacker of the AARP here to comment on how these and all other provisions of this bill affect our Nation's senior citizens.

    More and more families are living in manufactured homes than ever before. Many of today's manufactured homes are multi-sectioned with vaulted ceilings and state-of-the-art appliances. It's not what we think of as the old tuna can. They're also very affordable for more than 18 million Americans—$40,000 to $70,000 for a new, multi-sectioned manufactured home. This bill would promote the quality, safety and affordability of manufactured homes by ensuring uniform standards and codes for construction across the country.

    The legislation improves the Federal management of the program by establishing a Consensus Committee of consumers, industry experts, and Government officials to participate and advise HUD on regulation enforcement. I am pleased to join with my colleagues Bob Ney, Ken Calvert, and David McIntosh and others to include legislation we previously introduced to reform and modernize the Federal manufactured housing program. I am delighted to have a representative from the industry, Mr. Hussey, as well as a representative of the consumer, Mr. Emerick, to speak on these provisions.
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    Our legislation would create more opportunities for low-income Americans so that they can achieve the dream of home ownership. This bill will allow families receiving rental voucher assistance under the Section 8 program to use those funds to help buy their own home.

    We are finding now that, because of the balanced budget and lower interest rates, that actually folks can use a rental voucher and get into their own home and build up equity and have home ownership for the same costs that we are now using the subsidized rents on. Residents and public housing authorities are authorized to use funds normally used to pay rent for either down payment assistance or toward mortgage payments.

    This bill contains important provisions to assist self-help housing providers, such as Habitat for Humanity, in achieving their goals of helping our poor citizens move into their own homes, and also contains provisions to help enhance the work of housing partnerships.

    And again, I recall in the house that Congress built many of us participated in a bipartisan fashion, one of the great comments made by the individual who was moving into her own home, she said, ''I thought I'd have to rent forever. I thought I'd never get ahead, and what a joy it is to actually be able to call this place my own.''

    I am glad to note that two of my friends in the housing area, Bob McMillan of the Long Island Housing Partnership and Thomas Jones of Habitat for Humanity, are here to testify on this legislation.
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    Finally, I want to thank my colleague, Mr. Redmond of New Mexico, for working with me to include in this bill a provision establishing an Indian Lands Status Commission. This is also consistent with the great work that my friend Mr. Belard has been doing.

    For those who may not know, receipt of a certificate from the Bureau of Indian Affairs is a prerequisite to any sales transaction on Indian lands. The current procedure is overly burdensome and presents a regulatory barrier to increasing home ownership on Indian lands. This Commission will develop recommended approaches to improving how the Bureau of Indian Affairs conducts title reviews in connection with the sale of Indian lands, and will provide Congress with methods to address these concerns.

    Through the dedication and hard work of public-private partnerships, communities and individuals, we will accomplish our aim of solidifying a strong foundation for sustaining home ownership into the 21st century. I would ask each of each to think about how important owning our own home is to every American. How else can we directly make a positive change in the lives of all American families and communities than by providing their access to safe, clean, and affordable housing?

    This is a wonderful opportunity for us to seize the high ground and make some changes that will actually increase the reach of home ownership for Americans who don't have that as an opportunity right now.

    And so I am delighted to have the panelists here. I look forward to your testimony.
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    [The prepared statement of Hon. Rick Lazio can be found on page 50 in the appendix.]

    Now, I'd like to acknowledge and recognize the gentleman from Massachusetts.

    Mr. KENNEDY. Thank you. Mr. Chairman, first of all I'd like to compliment the Housing Subcommittee and you in particular for holding a hearing on the important issue of home ownership and your legislation. H.R. 3899 includes a number of sound, relatively noncontroversial provisions which we ought to move forward on. These include the reauthorization of the neighborhood reinvestment corporation, making a national association of housing partnerships available for NTVI funding, HUD's proposal to allow communities to borrow against future HOME funds, an increase in lending authority for FHA's adjustable rate mortgages, and permanent authority for FHA home equity conversion mortgages.

    The legislation also ventures into issues dealing with the FHA program. For example, it includes a mandatory consumer right of recision, the latest to a home inspection for all FHA loans, which I support. This provision addresses some of the concerns raised by the subcommittee about the use of FHA to finance homes with serious physical defects which creates problems for both the home buyer and the FHA fund.

    At the same time H.R. 3899 also contains some potential troublesome provisions. Title I would hamstring Federal regulations by requiring an affordable housing impact analysis for all Federal regulations. At a time when HUD is trying to downsize its staff, it's a mistake to impose new bureaucratic requirements on it. Moreover, people knowledgeable about the real barriers to affordable housing know that it's not the Federal Government, but localities which impose such barriers through the ''not-in-my-backyard'' approach to dealing with the poor.
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    The manufacturers' housing title is also troublesome. It is nothing more than a stop to the industry. HUD has issued a detailed letter outlining specific problems that they have with this title. It's reasonable to update our manufactured housing standards, but Title VII potentially lowers safety standards and gives the industry too big a role in such revision. We should tread carefully in this area.

    Some proposals in H.R. 3899 would increase income ceilings in the home and CDBG programs should be revisited. Finally, I am concerned that we are doing nothing to address the problems of discrimination and the lack of mortgage opportunities for minorities, which has led to a minority home ownership rate that trails our national average by some 20 percent. It's true that Title VI includes HUD initiatives like the Home Ownership Zones and the Expanded Housing Counseling, yet the current spending bill on the House floor undercuts these proposals by zeroing out funding for the Home Ownership Zone and cuts funding for the Housing Counseling Staff in half.

    Moreover, just this week in the Senate we will see amendments to gut the Community Reinvestment Act during the considerations of the credit union bill. I would hope that if we move forward on this bill, we can find ways to improve our enforcement of the Fair Housing Act and find ways to prod conventional lenders to make more loans to the minority communities and look for other proposals to increase home ownership rates amongst minorities.

    So, I congratulate the Chairman for holding this hearing and look forward to the testimony of the witnesses. Mr. Chairman, I also apologize, but I have a conflict this morning on an important veterans issue that I also have to be jumping around between. So, I won't be able to stay for the whole hearing, but anyway, thanks very much.
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    Chairman LAZIO. I thank the gentleman.

    I would also would make unanimous consent and request Mr. Campbell, who is not a Member of the subcommittee, but a Member of the full panel and is largely responsible for large sections of this bill and his work, has joined us, and I would ask that he be permitted to not just make an opening statement, but participate as a subcommittee Member. Without objection, that is so ordered.

    Now I am going to turn to Mr. Bereuter.

    Mr. BEREUTER. Thank you very much, Chairman Lazio, and I commend you for holding these hearings. I think it's a very important effort. I look forward to the testimony of two distinguished panels, and I thank them for their time.

    Just three brief comments: You mentioned briefly the interest of our colleagues in New Mexico, Mr. Redmond. In the certification receipt from the BIA, this has not been handled well. They should have been able to handle it administratively, but if necessary, as we are doing here, we are going to direct how this should work. This will make the Section 184 program for Indian housing work much better.

    It's an initiative that I had the help and cooperation of many of my colleagues on both sides of the aisle. I appreciate the fact that you've included in Title VII a part which will streamline the process for Section 184 housing on Indian reservations.

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    I also want to commend the Section 205 of Title II, which excludes from the application of the FHA Section 203(b), maximum dollar limitation, the 502 Single Family Home Loan Guarantee Program. I think it's been successful. This will help further.

    Finally, in Title VII, which the gentleman from Massachusetts referenced, although not in the section, I think the Consensus Committee of companies involved in manufactured housing is a very good step forward, and I appreciate your effort there and hope we'll have some comment from the panelists on manufactured housing as well.

    I thank you, and I give back the balance of my time.

    Chairman LAZIO. I thank the gentleman. The gentlelady from New York.

    Mrs. KELLY. I thank you, Chairman Lazio, for holding this hearing today and for your staff's receptiveness to my suggestions when we wrote H.R. 3899, the American Home Ownership Act of 1998.

    Today we have a carefully crafted piece of legislation before us. We take important steps to address the very real problem of the lack of availability and of affordability of housing in America. The American dream of home ownership is one that we should do everything in our power to make a reality for every level of our society. Its homeowners are the true cornerstone of any community.

    When a family buys their own home, we have an immediate change for the better in any community. That home becomes their piece of America, and they have a genuine vested interest in ensuring their community is strong, safe and clean. It is this pride of ownership that will improve the property and encourage neighbors to work together to maintain and improve community property.
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    We take important steps in H.R. 3899 to ensure that the homes that are available are good, strong homes that are both safe and clean. We do this through home inspection requirements; by additional flexibility granted by the Federal agencies, and we promote the quality and safety and availability of affordable manufactured housing by the establishment of practical, uniform, performance-based Federal construction standards.

    We reauthorize and improve the HOME Investment Partnership programs and the Neighborhood Reinvestment Corporation, these are only a few of the many positive steps that we make in H.R. 3899. As a Member of Congress who has actually worked with a hammer and nails in pre-congressional life, I know that these steps will make an important difference for the better.

    Of course, H.R. 3899 is not perfect, and we can always polish the rough edges, and that's why I am pleased that we are today joined by our very distinguished panels of witnesses. I look forward to hearing all of your testimony, all of your thoughts and suggestions on H.R. 3899, and I look forward to working with my colleagues on both sides of the aisle to move this important legislation forward.

    Again, I thank you, Chairman Lazio, for holding this hearing.

    Chairman LAZIO. I thank the gentlelady. Now the gentleman from California, Mr. Campbell.

    Mr. CAMPBELL. Mr. Chairman, you're real nice to include me. Thank you. You know, there's only so many slots you can bid on to be on subcommittees. I should have bid on this one. I didn't. I was lowest in seniority then. Nevertheless, you have pity on me and allow me to sit here and join you today. So, I am very, very happy.
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    If I had to do it over again, I would trade that other position to be full-time on this.

    Chairman LAZIO. You've obviously not been through our markups.


    Mr. CAMPBELL. You're right. I guess I should reserve judgment. So, I'll be brief because you've already been generous just to allow me to be here. I am real glad you included my provisions in your bill. I think it's an excellent bill, and it does work together.

    One quick comment, though, prompted by our good friend from Massachusetts: I am sorry he is not here, because I did want to respond to him—and maybe staff could just very politely, with kindness and compassion, join together on this—that Title I does not impose a burden on HUD. He was worried that I'd be hamstringing HUD. But, Section I makes the other agencies that have impact on housing do the analysis, and that's in Section 102(e). So, it isn't a burden on HUD. I wouldn't hamstring them.

    If another Federal agency does something that affects low-income housing; then they have to do the housing impact analysis. That brings them into the process. As for HUD, I would also like my good friend from Massachusetts to know, if he were here—perhaps once again you could relate this to him—that I've worked very closely with HUD, with the new Assistant Secretary, and without being in the position to speak formally for them, I can tell you informally they're very agreeable to what I am proposing.
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    So, thanks if that could be relayed. Mr. Chairman, I yield back my time.

    Chairman LAZIO. I thank the gentleman.

    Well, we are blessed to have an outstanding panel. Actually we are going to have two panels. Panel one is already assembled. Let me, if I can, provide some introductions for the folks that are here before us. We've already had some mention of the panelists on Panel one.

    I am going to provide an introduction and indirectly comment on the panel right now. The first speaker will be Donald Martin. He is the President of the National Association of Home Builders. Throughout his career, Mr. Martin has been active in the association. He was elected an NAHB senior officer in 1995, serving as vice president and treasurer in 1996 and NAHB vice president in 1997. He was recently appointed to serve on Fannie Mae's National Advisory Council.

    George Knight—welcome, George—is the Executive Director of the Neighborhood Reinvestment Corporation, a public non-profit corporation that removes the distressed communities through affiliated, resident-led partnerships known as neighbor works organizations. Mr. Knight worked as a field service officer for Neighborhood Reinvestment from 1976 to 1991 and has served as Executive Director since 1991. He also serves as Chair of the American Homeowner Education Counseling Institute. Welcome.

    Norris Boston is a spokesman for Ripped-Off Home Owners, ROHO, in Chicago, Illinois. Mr. Boston is licensed in residential and commercial real estate and financed his own home with an FHA loan. All members of Mr. Boston's group, which is affiliated with the National Training and Information Center in Chicago, led by Gail Secata, have had bad experiences by buying faulty homes and strongly advocate prepurchase inspection requirements for FHA properties.
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    Ruth Blacker is a member of the National Legislative Council for the American Association of Retired Persons, and I welcome you. Ms. Blacker represents the public policy priorities and perspectives the AARP's members in the southeast region of the country. She also serves on the Alabama State Leadership Council as an AARP vote team member and as a board member of Friends of the Library, where she is active in literacy and reading programs. Wonderful to have you.

    We turn first now—we look forward to your testimony—you are recognized, Mr. Martin, for five minutes.


    Mr. MARTIN. Good morning, Chairman Lazio, Mr. Bereuter, Mrs. Kelly and Mr. Campbell. My name is Donald Martin, and I am the President of the National Association of Home Builders, and thank you for this opportunity to testify today on the American Home Ownership Act of 1998, H.R. 3899.

    During my 30-year career, I have built more than 9,000 homes and was in charge of the building operations for a large national building company in Colorado, New Mexico, Virginia, Maryland, and Arizona; and currently have my own building company in Albuquerque and Santa Fe, New Mexico, where I build single family homes to develop lots for other builders.

    As you know, on March 11, I joined Congressman Tom Campbell and several other Members for a press conference to introduce the Affordable Housing Barrier Removal Act, H.R. 3435. I am pleased there is strong bipartisan support, and there are currently 60 cosponsors of that bill. On May 14, I also joined you, Mr. Chairman, and several Members of the subcommittee for a press conference to introduce H.R. 3899.
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    NAHB supports H.R. 3899 and is eager to participate in the exchange of ideas on this important issue. Home Ownership plays a critical role as a stepping stone to prosperity, and we applaud you, Mr. Chairman, for highlighting greater home ownership opportunities.

    NAHB was delighted to work with you and Congressman Tom Campbell on this legislation, addressing barriers to affordable housing. NAHB is very pleased that H.R. 3899 contains most of the barrier removal provisions that were included in Congressman Campbell's bill. In particular, the barrier removal provisions are intended to raise the level of awareness about how regulation can drive up the cost of housing.

    Addressing this issue is one of our association's top priorities this year. Among the provisions we support are a housing impact analysis, grants for States and localities to develop barrier removal strategies, and a clearinghouse established that HUD act as repository for successful barrier removal strategies.

    The housing impact analysis will require Federal agencies to evaluate any new rule or regulation to determine if it has an impact on the cost of housing. The housing impact analysis is intended to focus the attention of Federal agencies on the question: ''How does this policy affect home prices?''—every time it tries to solve a problem by instituting by a new rule or regulation.

    H.R. 3899 authorizes barrier removal grants to act as incentives for States and localities. In addition, they must demonstrate a good-faith effort in removing barriers when they submit their consolidated plan to HUD for Federal home and CDBG funding. Hopefully, this will bring together all the parties involved in the production of housing and those who regulate them to discuss the barriers and how to remove them. This is really about discussion.
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    NAHB supports the provisions to establish a clearinghouse within HUD to collect and disseminate information on regulatory barriers and the effects on the available of affordable housing. This is important as it provides an additional tool for States and localities to evaluate the successful barrier removal strategies from all parts of the country for their own planning and development purposes.

    One provision in H.R. 3435, which is not included in H.R. 3899, is the conference on barriers to affordable housing. NAHB believes it is important for representatives of public interest groups, State and local governments, Federal agencies, low-income housing advocacy groups, and private individuals involved in the field of housing to have a forum to discuss barrier removal strategies. NAHB would like to see this conference included in H.R. 3899.

    H.R. 3899 also contains some important changes to the Federal Housing Administration Program. As a primary Federal program for affordable home ownership, the FHA Program is a model of success of public and private partnership. We are pleased the bill authorizes the Secretary of HUD to expand the term ''area'' for FHA purposes to contiguous and proximate counties. However, we prefer the less restrictive definition of H.R. 3435.

    The bill increases the cap on the FHA adjustable rate mortgage, commonly known as ARM. This is an important financing tool, more widely available in the conventional market to offer greater home ownership opportunities. That's basically for low-income and minority families. The current 30 percent statutory limit hinders FHA's ability to offer this financing tool.

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    In my written testimony I have also suggested other provisions, some included in H.R. 3435, which makes the FHA Program more efficient for homebuilders and consumers. NAHB also has concerns about the Manufactured Housing Act Provisions included in H.R. 3899. These are outlined further in my written testimony. We make some recommendations for alternative language; however, NAHB is only one of many groups with an interest in this issue.

    Without holding up progress on the bill, we suggest you bring all the interested parties together for further discussion on this title. Mr. Chairman, we are anxious to work with you to make housing a national priority. By acknowledging the existence of regulatory barriers to affordable housing and developing a specific legislative plan of action to alleviate them, more families will be able to achieve the American dream of home ownership.

    The National Association of Home Builders stands ready to be your partner in developing a common sense approach to relieve some excessive regulatory burdens. Thank you, Mr. Chairman. That concludes my oral testimony.

    [The prepared statement of Donald Martin can be found on page 60 in the appendix.]

    Chairman LAZIO. Thank you for that excellent testimony.

    George Knight, welcome, and I now recognize you for your opening statement.

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    Mr. KNIGHT. Thank you, Mr. Chairman. It's a pleasure to be with you and the entire subcommittee, and I deeply appreciate your support of Neighborhood Reinvestment.

    As you know, the mission of Neighborhood Reinvestment and the NeighborWorks network is to revitalize distressed communities, particularly using partnerships between residents, the financial sector, and local governments; and second, to act as a positive force to improve the ability of the community development industry to provide home ownership and revitalization strategies throughout our nation.

    Since its inception in 1978, Neighborhood Reinvestment has sought to do just that. We have replicated neighborhood projects and brought these programs to hundreds of communities across the country.

    The national NeighborWorks network, now 181 members strong, is currently serving 595 communities. Each NeighborWorks organization is a 501(c)(3) led by a local board composed of local residents, members typically of the financial sector and other private sector actors in that community, as well as local and increasingly county and sometimes even State governments and large rural organizations.

    They use strategies to revitalize the distressed community, principally formed on the extension of conventional credit, mixed with flexible credit from their own revolving loan funds where that is necessary to serve every responsible homeowner or would-be homeowner or would-be operator of decent, affordable rental or mutual housing.
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    They also create by ownership long-term, affordable, housing opportunities, and many use complimentary strategies—anti-crime strategies, commercial redevelopment, Youthworks—to attack other issues in the neighborhood that may be critical to revitalizing it.

    We are of course deeply appreciative of your reauthorization of the corporation. As you know, Neighborhood Reinvestment's fiscal year 1999 budget request contains a particular component for home ownership pilot, and we deeply appreciate the subcommittee recognizing it in the reauthorization.

    Clearly, the NeighborWorks network has had a long track record of using increasing home ownership as a way, a principal way, to revitalizing communities. I want to now comment on a series of the provisions in this Act that go a long way, while each of them might be looked at as small, but a long way in creating local flexibility to achieve just that.

    Turning to Section 503, one of the many ways NeighborWorks organizations provide long-term, affordable housing is through a 501(c)(3) ownership vehicle called Mutual Housing Associations. These associations have now grown in some parts of the country to compose over a thousand units of permanently affordable housing.

    They require no continuing subsidies from anybody. They structured their financing in a way so that they can serve families below 50 percent of the median, below 80 percent of the median, and if families above that want to stay in the unit after their income has risen, they're welcome to stay.
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    They provide a sense of home ownership by allowing families to have lifetime rights to occupancy, provided they continue to meet the rules, to pass onto a family member the succession to the unit, and to have a significant voice in the decisionmaking.

    Section 504 would enable HOME funds to be used with the large availability of conventional credit to create loan pools, stress HOME funds, and serve many, many more low-income families. Finally, Section 402, where you take the implicit power of Section 8(y) to use the Section 8 payments toward a home ownership or a down-payment grant would have enormous impact.

    In Tulsa, for instance, based on the Campaign for Home Ownership, a family of $8,000 would be able to borrow conventionally and purchase a home. In the town of Lincoln, a family of $15,000 to $17,000 would be able to purchase a home based on it. Sadly to say, in your district and Mrs. Kelly's district, where home prices are much higher, it would require other assistance to get families that low to be a homeowner.

    I thank you for your support and look forward to your questions.

    [The prepared statement of George Knight can be found on page 69 in the appendix.]

    Chairman LAZIO. Thank you for your kind testimony and for being with us today.

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    And now, Norris Boston, welcome, and you are now recognized for five minutes.


    Mr. BOSTON. Good morning. Thank you, Mr. Chairman, for the opportunity. Mr. Chairman and Members of the subcommittee, thank you for this opportunity to testify. My name is Norris Boston, and I am a member of the South Austin Community Council Coalition and founding member of ROHO, which stands for Ripped Off Home Owners. ROHO is an organization with nearly 70 members. All members, including myself, have been victimized, victims of abuse and fraud of the FHA Federal Housing Administration Loan Program.

    Many of you have heard the foreclosure numbers of FHA. Nearly 72,000 families lost their FHA-insured homes last year alone. This number, however, doesn't even begin to scratch the surface of the problem. For every one of the 72,000 who has lost their homes, there are about five like myself, families that are holding on by their fingernails to their homes against the odds.

    I would like to tell you today about my own experiences with FHA and convince you that mandatory home inspections on all existing FHA-insured homes is absolutely necessary.

    In 1993 my wife and I saw an ad in the newspaper saying we could buy a house with $1,000 down. We contacted Ace/Easy Life Real Estate to see about buying our own home. Ace/Easy Life said that I had bad credit but not to worry about it. They would take care of it. The house they wanted me to buy was more than I could qualify for. So, they had my mother as cosigner. The down payment was more than I had, so they walked my wife down to the bank, deposited $8,500 in her checking account, and withdrew immediately a cashier's check to them.
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    At that time, I thought they were doing me and my wife a favor in helping us get our home. Now, I know that they committed fraud to get us into this house and didn't care, because they were going to get their money no matter what. The lenders they worked with didn't care, either, because they were 100 percent insured by FHA.

    On December 10, 1993, my house was overappraised and was never inspected. If my house had been inspected, I would not be in the situation I'm in now. My heating system needs to be totally replaced. The cost for actually repairing the whole system would be over $10,000. It was so bad that I was fined by the City of Chicago for a heating violation. I've done what I could so far, trying to hook up the ducts that never were hooked to the furnace, but I can't begin to afford to fix the whole system yet.

    A mandatory inspection would have caught the fact that the furnace did not function properly. The electrical wiring in the house was totally deteriorated. I spent $2,000 to have an electrician rewire the entire basement. A mandatory inspection would have let me know beforehand that my house was a firetrap with dangerous electrical wires.

    The plumbing in the house was installed incorrectly. It's so bad that the plumber told us the entire piping system would have to be replaced to stop the constant leaking. The plumbing leaks so badly that I've had to replace ceilings because of water damage. Again, a mandatory inspection would have warned my wife and I that the entire plumbing system was built to fall apart.

    The foundation that my house sits on is beginning to give way. The entire foundation is sinking and needs to be replaced. It would cost $20,000 to replace; $20,000 that I don't have. A mandatory inspection would have told us that the concrete foundation was cracked and sagging.
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    After going through with this nightmare myself, I decided to become a realtor to honestly serve the people in my community. The problem is that I am outnumbered by dishonest realtors and mortgage bankers. There needs to be protections built into this program.

    On behalf of the 72,000 homeowners who lost their homes last year, on behalf of the thousands who are still scraping by, and especially on behalf of the prospective homeowners who are now unprotected from this nightmare, I implore you to pass full inspections of FHA-insured existing homes.

    I would like to thank this subcommittee for having the opportunity to let me share, and I hope this H.R. 3899 bill can be passed so people can stay out of the woods, like myself.

    Thank you.

    [The prepared statement of Norris Boston can be found on page 75 in the appendix.]

    Chairman LAZIO. I thank the gentleman very much for your fine testimony.

    And now, welcome to you, Ms. Blacker, and you are recognized now for five minutes.

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    Ms. BLACKER. Thank you. Mr. Chairman and Members of the Subcommittee on Housing and Community Opportunity, good morning. My name is Ruth Blacker. I live in Gunnersville, Alabama, and I serve as a member of the National Legislative Council of AARP. On behalf of AARP I think Chairman Lazio, Ranking Minority Member Kennedy and the other Members of the subcommittee for inviting us to participate in today's hearing regarding H.R. 3899, the American Home Ownership Act of 1998.

    Before I begin, let me express the Association's appreciation to the Chairman, along with the subcommittee, for your continuing bipartisan support for legislation designed to assist our older citizens and provide them with one of their essential needs, housing. We look forward to a continuing and positive working relationship in pursuit of these shared interests.

    In our invitation to testify on H.R. 3899, we were asked to direct our remarks specifically toward Title II, Section 202, which addresses the federally-insured home equity conversion mortgage, the HECM program. Because of the importance of HECM program and our strong support of it, we welcome the opportunity.

    However, Title VII of H.R. 3899, which pertains to manufactured housing improvement is also of longstanding interest to the Association. Over two million persons, aged 65 and over, live in manufactured houses. In addition, one-third of the purchases of new manufactured homes are people aged 50 and over.
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    In our written testimony and in a letter to Chairman Lazio, dated April 21, 1998, we have addressed a number of serious concerns that the Association has with the bill's manufactured housing provisions.

    Now I want to return to my remarks on the HECM provisions of H.R. 3899. Home equity conversion mortgages, often known as reverse mortgages, are of increasing importance to older Americans as a means of allowing them to remain in their homes and live independently. Through reverse mortgages older persons receive cash advances from a lender on a monthly basis, in a lump sum, or it's a line of credit.

    These resources permit the homeowner to pay for home repairs, basic living expenses and health-related costs. The loan does not have to be repaid until the house is sold or the owner permanently moves away or dies.

    About 45,000 reverse mortgages have been closed in recent years. Most of them through FHA home equity conversion mortgage programs. The Federal HECM program assesses a fee on all borrowers to provide loss protection for both borrowers and lenders. Because of this protection, lenders have been more willing to offer HECM loans to older Americans who need them.

    AARP is thus encouraged by Section 202 of Title II of H.R. 3899, which makes permanent the authorization of the federally-guaranteed HECM program. We support the requirement to disclose to the borrower all costs and fees paid, and the authority of the Secretary of HUD to enact restrictions to ensure that borrowers do not incur excessive costs or fees. We also support the provision in Title II that requires the Secretary to consult with consumer groups to develop effective approaches for educating consumers regarding the Home Equity Conversion Mortgage program.
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    However, AARP strongly urges the subcommittee to strike the limit placed on the amount in federally-insured Home Equity Conversion Mortgages that can be outstanding at any one time. When FHA was permanently authorized, the single family program limits were removed. We believe that setting such a limit on HECM insuring authority could potentially undermine the stability of the program and limit consumer choices to more costly alternatives in future years.

    Mr. Chairman, in conclusion, AARP strongly urges you to consider the suggestions included in our statements, as the subcommittee works to perfect H.R. 3899.

    Thank you again for the opportunity to testify on the American Home Ownership Act of 1998, and we look forward to continuing to work with you and the other Members of the subcommittee on housing issues.

    [The prepared statement of Ruth A. Blacker can be found on page 78 in the appendix.]

    Chairman LAZIO. I thank you, Ms. Blacker, and I want to thank the whole panel for outstanding testimony.

    Other than making unanimous consent requests, as I did with respect to Mr. Campbell or Mr. Vento, who, while he is not a Member of the subcommittee, is very involved in housing issues and has joined us today, my unanimous consent request would be that he would be considered the same as a subcommittee Member, be permitted to ask questions. Without objection, that's so ordered.
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    Let me now recognize myself for some questions, and I'll try and be brief and move along.

    We begin with Mr. Martin. Good to see you again. One of the issues that you have focused on, and I think rightfully so, is the removal to barriers of home ownership. And locally as a matter of fact, I have convened with a number of others a forum in which we can discuss various ways in which we can remove the barriers to home ownerships. Sometimes they're Federal. Sometimes they're State. Sometimes they're local. There are things the private sector can do.

    It's really a collaborative effort in order to focus on these things, and so I appreciate that. In your testimony you had mentioned that you wanted to eliminate unneeded and unnecessary regulations. I think many folks get wary when they hear that. We want to live in safe homes. We want to have respect for our environment, but in your testimony you made the distinction and add that reform—I am going to quote from you here: ''Reform is needed to remove barriers that add to the cost of residential development without relaying any related benefit.''

    Can you help me to understand what you are talking about when you say, ''Removing excessive regulations that don't really give us any substantial benefit''?

    Mr. MARTIN. Yes, sir, Mr. Chairman, I'd be happy to. In fact, I can point out a couple in the State of New York, and I'd be happy to relate those to you. For example, in the State of New York, people are prevented from having mixed use in the same location. So, for example, people can't have a commercial use and a rental use at the same location. Many of us have friends who grew up in a situation where the store was below, and they lived above. I think that's very unnecessary, that really it provides no benefit, but just an unnecessary regulation that can drive up the cost of affordable housing.
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    Another one in your own State is the requirement that there is no frame construction over two stories over masonry. That's not required in other States in the United States, and again is just an example of an unnecessary regulation. It really doesn't accomplish anything of benefit to society.

    Chairman LAZIO. In those two examples you are pointing out local or State mandates that affect the cost of housing. Are there Federal regulations that are imposed that you think right now are excessive and are actually driving up the cost of home ownership that we can address through this legislation?

    Mr. MARTIN. Yes. For example, there are certain requirements by the Corps of Engineers, there are requirements by EPA; there are certain requirements in wetlands; there are certainly OSHA regulations that don't always address a critical need and could be more flexible that do in fact affect the cost of housing very, very dramatically.

    Chairman LAZIO. So, the emphasis again is on removing excessive regulations that don't have any real benefit anymore?

    Mr. MARTIN. That's correct.

    Chairman LAZIO. I thank the gentleman.

    A question for George Knight, and I want to compliment you for your great work. You mentioned in your testimony, George, the advisability, the benefits of home loan pools. Could you explain why that is so important and why you think it's needed?
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    Mr. KNIGHT. Many families who are at the edge of affordability can purchase a home if they have access to capital, to a loan; however, there are certainly concerns among members of the financial lending sector as to whether these families can be sustained in that home. Loan pools are one device that we've used for over 20 years as a way to both mitigate the risk for the conventional capital holder as well as bringing affordability to the home buyer.

    Loan pools come in a bewildering variety of approaches, each of them devised locally, depending upon the risk appetites and the approaches of local lenders and local officials. Loan funds right now, however, the way they are structured technically makes their staying in the loan pool unexpended; that is, unused, very difficult, but the point of a risk reserve, if you were to use HOME funds as a risk reserve, you don't want to use it.

    So, you don't want it to be drawn down, if you will, in the first two years. You want it to be available because the whole point of a risk reserve is to assure someone that the loan is going to perform, and you want the loan to perform, and you're glad that the loan performs, but if the risk reserve goes away, you take away the incentive, the assurance, for the lender to put up the funds.

    So, your provision would really enable HOME funds to support loan pools in this manner. I think the concern historically has been on use of HOME funds, where they are not directly sunk into a house, has been that this is Treasury money that's sitting someplace unused, and that is a concern of course if it were just to sit someplace.

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    However, we feel if it were being used in a leveraged manner, 10-to-1 or better, that would enable you to reach more home owners than if you just took the money and used it as a single grant or an interest write-down.

    Chairman LAZIO. George, is that pie in the sky 10-to-1, or is that realistic?

    Mr. KNIGHT. Oh, it's absolutely realistic. In fact, we have existing loan pools that are greater than that. In fact the Corporation entered into an agreement with both Freddie Mac and Fannie Mae, in which we, our board, elected to coinsure along with MGIC a pot of funds, $20 million in each case, that would be extended under very flexible underwriting criteria; and perhaps my board, because they are financial regulators, were unhappy with the 10-to-1 and we received a 20-to-1 ratio.

    Chairman LAZIO. So, it's possible to make the Federal dollar stretch and work harder and actually provide more home ownership for more folks?

    Mr. KNIGHT. Absolutely. The creativity at the local level is really hard to overstate; if they have the resources and the flexibility to structure arrangements.

    Chairman LAZIO. Let me ask you another question briefly again. It has to do with the use of Section 8 for home ownership, for either a down payment assistance or to help service a mortgage. How do you see this working and how effective might this be, do you think?
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    Mr. KNIGHT. As you know, for the past five years the NeighborWorks campaign for home ownership focused on putting families of very modest income into home ownership. It involved in the end about 16,000 families. The average loan size was $68,000. The median was $60,000. The typical home buyer was at $25,000. Section 8 in many communities—and now this is less doable in high cost areas than in modest cost areas—but Section 8 payments can frequently be $700, $800, $900 a month.

    If three years of that was used to, if you will, come in as a second mortgage or as down payment assistance into that home, you would put many families down even below $10,000 into a situation where they could go and borrow conventionally, without any continuing subsidy. It would then be upon them to make those continuing loan payments.

    We know from the campaign for home ownership that nearly 11 percent of all the buyers had incomes below $15,000 and 5 percent had incomes below $10,000. In many cases these were families who were able to purchase a home in a distressed community for a very affordable amount. As I mentioned before, the typical price in many communities was $40,000, $50,000, $30,000 in some cases. These are homes that we need to reclaim for our communities, for our tax bases, and serve as a wonderful reservoir for home ownership for very modest income families.

    Chairman LAZIO. Thank you very much.

    Mr. Boston, you have some very riveting personal testimony with respect to the need for inspections, and that is an issue that came up in earlier testimony that we've had, voiced by a number of members of this panel, and was included in this bill. As I understand it now, actually HUD has also supported that, but there is some disagreement as to whether it ought to be a requirement or not, and the Association of Home Builders—you heard testimony here by Mr. Martin—has suggested that he had some concerns about that.
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    Do you think that it's possible to have a provision involving FHA inspections that were not a requirement? Is there something else that we could be doing that we're not thinking about right now that would also provide the peace of mind of knowing that when you buy a home and move into it you'll have a home that actually has systems that are working and a roof that doesn't leak and windows that are in decent repair?

    Mr. BOSTON. Mr. Chairman, the inspection process doesn't happen in quite—when a house is appraised in a typical neighborhood in Chicago, FHA basically looks at the market value more so than the structure of the house. Yes, they come out and they take a look. And maybe if the appraisal process were fixed where it itself was part of an inspection, maybe yes, maybe then you could work something out whereas the situation would warrant a better look at how the home is found, because right now as it is, an appraiser doesn't really give the whole background of what's standing in the house.

    Chairman LAZIO. Is there any process right now that is in place for HUD to notify consumers, home buyers, if they find a problem, in terms of inspection problems, something having to do with the quality of the home?

    Mr. BOSTON. Right now there is nothing in place. That's the main focus of the reason of why I was asked to come here. Now, Mr. Knight said something that was very impressive that it is the market value and the people who can afford houses, the people that sit on that very edge like myself—I was right on the very edge of affordability—borderline. Maybe I could afford a house and maybe I couldn't.

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    And if some of these things were fixed into this bill as far as the inspection and reappraisal of the house—maybe the appraisal process needs to be looked at. If there's a problem with the inspection part of this bill, but if that is looked at, then the appraisal must be appraisal inspection. I don't know how to word that properly, but it should be all in one, you know, to give the buyer an opportunity to say, ''Well, maybe I don't want to purchase this house.''

    Chairman LAZIO. Thank you very much. Let me just also say to Ms. Blacker, thank you very much for your testimony and for the work that AARP does and for your support of reverse equity mortgages.

    I had the great experience of visiting a couple of sisters in Long Island. One was 84 and one was 90. They'd lived together for 50 years. They had some problems with their house though. They had been there so long, their income was so low, they didn't have enough money to replace their heating system, and the roof was starting to leak, their windows needed to be weather stripped.

    They had paid off their home, but they were to the point where they couldn't make the repairs. So, there were plans for one to move out to a nursing home, breaking up these sisters who had lived together for all these years, and the community was so saddened. Well, in came the Reverse Equity program, and that's the promise that this program has, to keep people in place in their own communities, to keep families together. So I just want to express my appreciation for AARP support of these provisions today and your past support as I have introduced legislation to move this in the past. Thank you.

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    I would now recognize Mr. Vento.

    Mr. VENTO. Thanks, Mr. Chairman. As a nonmember, I appreciate the opportunity and the privilege to participate today. I've had a long interest in this. I'd like to say with regard to the FHA changes, as incorporated here, as you know, we've been exploring for some time more of a market-oriented role, or a less-regulated role, for FHA in terms of an FHA authorization. I had introduced legislation along those lines earlier in this Congress.

    So many of the FHA problems that you see here I think could be, with oversight, remitted from FHA, which has obviously gone through a strenuous process to try to adjust itself in the light of—or the lack of action on the part of Congress to deal with some of the floor in the ceiling for the FHA loan program.

    There are a number of things in the bill, especially with the FHA—I might say to Mr. Boston, your problem in terms of housing inspections with regard to FHA and just in general with regard to housing inspections, that's one that's been echoed in some articles that have appeared in the Minnesota press as well.

    And of course the dilemma, Mr. Chairman, is whether we add to the threshold question of home ownership, especially for persons like Mr. Boston, who probably, as he said, had a tough situation in terms of buying a home, it was a real sacrifice, but I think the right decision.

    Mr. Boston, unfortunately, it didn't turn out. There were problems, but, adding to the cost of all the other threshold questions, an inspection process, and of course FHA is looking at the appraisal and the value of the property.
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    I think there are some legitimate questions here, fraud and other aspects, that could and should be pursued, and there is legal recourse in some instances, but the presumption of course that the FHA is involved, that somehow there is an inspection process that is in some ways certifying the structural integrity and the workability and guaranteeing something about the quality of the house. I think that we've come a long way in terms of trying to deregulate some of this and permitting self-certification and taking this out of the sphere of regulation. I think, however, this begins to suggest to us that there is another side to what can happen in terms of a person who purchases these homes.

    And part of this revolves to whatever the local governments and local requirements are, with regard to, you know, the workability, the heating system in Chicago or in Minnesota. That's an important consideration.

    I do note, too, that the FHA issue with regard to Ms. Blacker and AARP is concerned about limiting that to $5 billion, it would mean 50,000 reverse mortgages generally or thereabouts. Again, putting that type of limit, I think we have to look at what the risks are, rather than letting it grow.

    I think this is really a new, innovative means that many individuals would avail themselves of, and I think that we could look at what the safeguards are already in law, but I think again both of these questions revolve around the issue in terms of trying to deregulate and getting FHA out of the Congress and into the marketplace so that is can adjust rather than having us try to micromanage some of these aspects.

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    I have more misgivings about the adjustable rate mortgage than others, but, again, I think that that type of response, that marketplace type of response would be good in terms of giving that type of freedom, and we'd escape the problems, as I said, of the floor and the limits and many other things.

    Mr. Campbell had mentioned something about the issue of the housing impact statement, and the information I had received back is that HUD has not signed off on this, Mr. Campbell, and I wanted to——

    Mr. CAMPBELL. Would the gentleman yield?

    Mr. VENTO. Yes, as soon as I—that they had not signed off.

    Mr. CAMPBELL. Just to say I did not say so. I was careful to say that I was not speaking for——

    Mr. VENTO. OK. I wasn't here, so I don't know what was said. I just wanted to——

    Mr. CAMPBELL. It's important to say that what I did say was I was not speaking formally. It was informal, but that I was very pleased to report that we had had very positive negotiations. That is exactly what I said.

    Mr. VENTO. Yes, I wasn't here. So, I appreciate that, but there has not been a sign-off on this and that my understanding from the literal reading of your legislation is that it does place new responsibilities and burdens on HUD, and apparently you had suggested that it does not, because first of all, they would need to at least come up with a methodology and means for these rules to be implemented in terms of the consideration of a housing impact statement.
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    Mr. CAMPBELL. Would the gentleman continue to yield?

    Mr. VENTO. Yes, I'd yield to the gentleman.

    Mr. CAMPBELL. Thank you. The proposal is that HUD provide advice that other agencies may use. There is no obligation on HUD at all to review the housing impact analyses. Indeed, the whole object is that other agencies begin to realize that what they do has an effect on housing. HUD already knows that. It's the impact on other agencies that's missing. For example, Mr. Martin referred to OSHA or——

    Mr. VENTO. No, I understand—just to reclaim my time—this legislation requires that they list each month the rules for which housing impact analysis, that is a responsibility, a new responsibility for HUD, a new administrative, and it does require HUD to establish a model, initial and final housing impact analysis within 120 days. So, it does require them to put the model out.

    It does require them to list them on a monthly basis and to summarize what housing impact analyses have been done, and furthermore, as an agency or a department, it would require them to in fact do such a housing analysis. But I expect what you are looking here for is that, if the Corps of Engineers is putting a rule that they would have to do a housing impact analysis, in addition to the other rule, or if the Department of Transportation is putting through a highway, that they would have to do one to deal with the sound and the other effects of that. So, I mean the question is all this would come back to HUD. It's a very comprehensive and ambitious matter, but one that I think ought to be taken with great care.
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    Thank you, Mr. Chairman.

    Chairman LAZIO. Mr. Bereuter.

    Mr. BEREUTER. Thank you, Mr. Chairman. Again, thank you, panel, for your testimony today.

    Mr. Martin, I would like to begin with you. We've heard testimony repeatedly from consumers and consumer advocates pleading for Congress to require home inspection of FHA-insured properties. We've heard from Mr. Boston a few minutes ago and in response to questions as well. And these homes of course have mortgages secured at 100 percent level. How can we be assured that they're going to be free from major structural difficulties?

    Mr. MARTIN. Our objection is not to the—it's an objection to the mandatory requirement and essentially has to deal with the fact that I think the bill talks about homes over a year old. New homes undergo a very rigid inspection process by local building officials all through the construction phase. They essentially are signed off as to heating codes and that the building has been properly and constructurally correct.

    In times of recession sometimes homes are built brand new that do, in fact, get to be over a year old. So, we're just asking that a new home that's just gone through an inspection process shouldn't have a mandatory requirement on it to be inspected again, after it's just gone through that process a very short time before that.

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    Mr. BEREUTER. By local officials?

    Mr. MARTIN. Yes, sir.

    Mr. BEREUTER. Exercising their housing code responsibilities?

    Mr. MARTIN. Yes, sir.

    Mr. BEREUTER. And this would be homes that have not been occupied before, is that correct?

    Mr. MARTIN. Yes, sir. That's correct. That's our only objection. An objection came because of the year stipulation. Most people would think, ''Well, a new home shouldn't be affected by that,'' but, in fact, in times of downturns some homes do in fact sit for over a year before they are sold.

    Mr. BEREUTER. So, you see this as a matter of definitional responsibility of us to work on to make sure we're talking about a home that is new, entered into an inspection process, but still has not been sold or occupied?

    Mr. MARTIN. Absolutely.

    Mr. BEREUTER. All right. Now, do you think, in your own judgment, FHA is exercising the FHA appraisal process adequately to give home owners some assurance that what they're buying is appropriate and does not have major deficiencies in it?
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    Mr. MARTIN. I can't address that directly as the FHA inspection process, because they often rely on the local building inspection process, as I just referred to in the case of new homes. I think in the case of used homes, I really don't have an opinion. I think that's an opinion that probably will be expressed by people that are involved in that business.

    Mr. BEREUTER. All right. Thank you.

    Mr. Knight, I wonder—you've noticed, of course, H.R. 3899 allows Section 8 funds to be used by the recipient as a down payment and as mortgage payments. How would you see that working? Your ideas about that concept?

    Mr. KNIGHT. Thank you, Mr. Bereuter. My initial leaning would be to principally use it as a down payment or second mortgage capacity, so that the family is then in a situation which, based on their income, they can now affordably pay off a mortgage through the regular amortization process.

    I think it would be very difficult, although you might be able to—I have a lot of confidence in the creativity of people. You might be able to figure out a way in which the three years could be used as a copayment to get the total cost down, but I think it would be very difficult. I would lean toward the down payment approach.

    Mr. BEREUTER. Thank you.

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    Just quickly, Ms. Blacker, before my time runs out, you claim, as I understand it, Title VII of the legislation takes away the State's ability to regulate installation in accordance with the manufacturer's installation instructions. Where do you see that in the legislation? How do you reach that conclusion, if you can recall?

    Ms. BLACKER. I think that we talked about the installation process. Under this Act we're talking about the idea that setting installation standards and making them a State function would really preempt the Federal standards, and whether or not the States will be making legislation that probably would not be uniform, if they even did it at all. And our main concern about installation is the fact that improper installation of the manufactured units is a major source of construction defects and consumer complaints.

    Mr. BEREUTER. So, are you worried about Federal preemption or you would like to have Federal preemption?

    Ms. BLACKER. We are worried that there will be Federal preemption, and there will not be a national standard regarding installation of the unit.

    Mr. BEREUTER. All right. If you can show us where your concern is generated by the language in the bill, we would appreciate it.

    Thank you, Mr. Chairman.

    Chairman LAZIO. I thank the gentleman.

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    Mr. Weygand, I think you are next for five minutes.

    Mr. WEYGAND. Thank you, Mr. Chairman. My comments are rather brief. I would like to address both Mr. Martin and Mr. Boston about housing inspections, particularly with regard to the qualifications of those people certified by HUD for inspections and also the comments Mr. Boston had about trying to combine both appraisal and inspection processes. One process, therefore, would be more effective, efficient and certainly less costly for the home buyer.

    If you could, Mr. Martin, I'd like you to comment about what you envision as the process for determining qualifications. Would they be based upon existing State statutes and legislation and cover people that would be already qualified? Or do you envision a totally new cert?

    Mr. MARTIN. First of all, I want to state emphatically that we're not against the inspections. In fact, my experience is much different than Mr. Boston's. In our community it's generally the realtor community itself that has in their contract to a builder that they would like to have a home inspection. This is a buyer option. We don't object to that. We just think to make it on new homes that have undergone an inspection process is probably unnecessary.

    The code and building officials in my estimation across this country are generally very professional and well qualified to make those inspections and sign off on the house. Generally, they're pretty darn tough, and you better know what you are doing or you are not going to pass the inspection.
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    Mr. WEYGAND. You, therefore, don't believe that we should have mandatory inspections for every purchase?

    Mr. MARTIN. No, I didn't say that. I don't believe that you should have mandatory inspections for homes that are new that have just been through an inspection process and that just happens, because of market conditions, to be more than a year old.

    Mr. WEYGAND. We agree. Thank you.

    Thank you, Mr. Chairman.

    Chairman LAZIO. I thank the gentleman. The gentlelady from New York is recognized.

    Mrs. KELLY. Thank you, Mr. Chairman. I am going to continue on this line of questioning with regard to inspections, because I know for a fact that the building codes everywhere are not the same.

    In New York they are very stringent, and we have some very positive and strong inspections, and added to that, a new home can sit, as you pointed out, Mr. Martin, for maybe well over a year before it's sold, and things can happen to that new home. The pipes can freeze. Something strange can happen to the plastic piping in there. Because of those things, I think it might not be bad for us to have some sort of a mandated inspection. Now, how do you really feel about that?
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    Mr. MARTIN. I feel certainly things can happen in a house that sits. I feel that generally a builder would be very aware of that and take care of the problem before he offered it on the market. That's how I really feel about it, but in answer to your question, certainly that can happen. Although codes aren't exactly the same all across this Nation, they are very, very similar, and most of the basic code requirements are very, very close across this country.

    There are very able code bodies, and we are working with them on a residential code at this very moment that would be presented as a uniform basis across the country, addressing the fact that there are unnecessarily regional and State differences, just because of climatic conditions and things like that that do have to differ.

    So, I think to make mandatory is probably unnecessary. As I said, I know what Mr. Boston said, and I absolutely would not want to see that happen to anyone. It's just the opposite in our area. Frankly, the people that sell used homes also sell new homes and are very, very careful today about misrepresenting and in fact almost always in their contracts that are presented to us, say they'd like to have an inspection, even though it's just been inspected. We've generally agreed to that stipulation.

    Mrs. KELLY. Mr. Boston, you obviously disagree. Do you think there's something that's just short of a mandated inspection that might have helped you?

    Mr. BOSTON. Ma'am, let's clear the record here. We're talking about FHA insured loans, 100 percent insured to the bank. Therefore, if the house is inspected before a loan is given, then that insurance policy is much stronger. How do you insure a property for 100 percent and not know the condition of the property? I mean, my whole thing was to—and I was asking the Senator's question as to what else could be done.
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    I didn't want an appraisal/inspection combination thing, you know, for FHA purchases only. There must be mandatory inspection for the simple fact that they're guaranteeing this money 100 percent. If you're guaranteeing a loan for 100 percent, wouldn't you want to have a policy stating that this loan will live the life?

    Mrs. KELLY. Owing to the fact that it's taxpayers' money, yes, Mr. Boston, I kind of see it your way.

    I want to go on just quickly in the interest of time to Ms. Blacker. Ms. Blacker, I am really concerned about a part of your testimony that you raised with regard to the scam artists that are out there that I believe that seniors are being charged excessive fees when they get the reverse mortgages.

    I am concerned about that, and I know AARP is trying to do things, but is there other counseling available to try to help people understand that this can happen to them and teaching them how to protect themselves?

    Ms. BLACKER. Well, I wasn't really talking today about scam artists, but AARP is involved in nationwide consumer fraud programs, which I did tell you about at another time. Our concern right now is with the cap that would be in place because of this legislation, as far as the money is concerned, to be released to cover these loans. We feel that cap could be reached very quickly and then the people who would be—not come under those funds—would then be in jeopardy and have to go search in other places and probably would be vulnerable and have to pay more expenses or fees for the service.
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    So, for this reason, we would feel very strongly about removing the cap and allowing everybody the protection, because the home is paid for; there is equity there.

    Mrs. KELLY. And AARP is doing what they need to do to counsel?

    Ms. BLACKER. Oh, yes.

    Mrs. KELLY. Thank you.

    Thank you, Mr. Chairman.

    Chairman LAZIO. I thank the gentlelady.

    Mr. Campbell.

    Mr. CAMPBELL. Thank you, Mr. Chairman. I have two questions.

    First, for Mr. Boston, your example is terrible, and I am sorry to think that it might have occurred to many others than just you and your family. I want to focus on one aspect to understand it better, if I might.

    There was a point in your recitation where you said your wife was taken down to the bank and some party—and I am tempted to say it was the lender, but I don't know—some party deposited $8,500 into her account and then immediately withdrew it—I take it, in order to establish a fraudulent appearance of wealth in your wife's account which would then be used to lie to FHA to qualify.
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    If I have that right, could you tell us who was the party who deposited the money and then took it out?

    Mr. BOSTON. You want to know who these people were?

    Mr. CAMPBELL. Yes, sir.

    Mr. BOSTON. They were agents of Ace/Easy Life Real Estate.

    Mr. CAMPBELL. Ace/Easy Life Real Estate.

    Mr. BOSTON. They were working in conjunction with Dependable Mortgage.

    Mr. CAMPBELL. And Dependable Mortgage was the mortgagee?

    Mr. BOSTON. That's right.

    Mr. CAMPBELL. And did this instance get reported to FHA for the fraud that it is?

    Mr. BOSTON. We've reported it to a number of people. I have documents in my file here that we reported it to the State's Attorney of Illinois. We reported to—oh, we reported it to a number of people. Actually, FHA has suspended their license to do business.
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    Mr. CAMPBELL. Ace/Easy Life Credit?

    Mr. BOSTON. Ace/Easy Life. To do business with HUD, insured loans and what have you, prior to me buying my house a year or two before. But then they reinstated their license, because this practice was going on long before I even came along. So, this particular question you asked me has nothing to do with the Senate hearings right now, except for the fact that it all helps FHA to put a loan together that is strenuous on my back right now.

    Again, just ask Mr. Knight there, I was borderline. I was sitting on that fence that maybe I qualified and maybe I didn't, because I had a job and I made a few dollars, but they boosted it up a little bit by the things they did to make FHA say, ''We will insure this loan.''

    Mr. CAMPBELL. Do you believe FHA knew what was going on?

    Mr. BOSTON. Yes, because they fined these people before. I would have to say yes.

    Mr. CAMPBELL. Well, I am not a Member of the subcommittee, but from what I hear, it's something that might commend itself to the Chairman's pursuit with FHA of this example. This is fraud. It hurts the taxpayers. It hurts Mr. Boston and Mrs. Boston, and it's about as blatant an example of defrauding the taxpayers and causing harm to an individual as one could imagine.

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    Your solution may well be right, and I am not criticizing at all a requirement for an inspection. But as you told the description of what occurred, it struck me that this fraudulent bank deposit was a very important element in what happened also. Had they not put in that $8,500 and then withdrawn it, this could not have gone ahead either.

    Mr. BOSTON. I wouldn't be in the situation right now.

    Mr. CAMPBELL. So the system allowed that. Well, thank you, Mr. Boston, and I do refer that to the Chairman for his good consideration. I did want to ask one more question if I still have the time.

    Mr. Martin, I appreciate very much your testimony, and as you see, it's important for us to convince our colleagues on both sides of the aisle of the value of involving all Federal agencies in lowering barriers to housing. I'll take this moment just to reiterate because my friend from Minnesota was not here in my colloquy before. Mr. Kennedy spoke and he left. Then I spoke, hopefully getting the word to Mr. Kennedy. And then you came in. So, regrettably, no three of us were in the room at the same time to speak.

    But my point is that we are progressing positively on this legislation with HUD, and that the burden, if any, of any material kind is on the agencies other than HUD, who for the first time would have to realize that what they do does impact affordable housing and that the burden is not by any means a heavy one on HUD.

    It is not a zero burden, nor did I maintain it was zero, but it was Mr. Kennedy's remark, that I would be creating an obligation in HUD to do these housing impact analyses, and that is not the case. And I conclude in just a moment to give you, Mr. Martin, a chance; the other part of my provision of the bill says that HUD will serve as a clearinghouse for how various States and cities overcome their barriers, or improve upon the problem that their barriers cause to affordable housing.
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    I wonder if you might speak to that. You've spoken to Federal barriers, but I also grant that the State and localities impose barriers, and if you might just give a few examples of those, it might be helpful.

    Mr. MARTIN. I gave, of course, a couple of examples in the Chairman's home State, but they deal with things like impact fees and things that impact oftentimes will add as much cost to the cost as sometimes the cost itself of the house, depending on what area that you're in.

    Exclusionary zoning requirements. Requirements that in some cases new housing not only pay for the infrastructure within their own community but for an infrastructure large enough to serve other communities are some examples of that.

    We really want people to start talking about it and realize that a portion of the American public, particularly low-income, first-time home buyers are not being served as well today as we would like, because costs are too high to address many of their affordability questions. We need to address that part of America to make sure they once again can participate in the American dream.

    Even though the home ownership percentage is at an all time high, if you look at the written testimony you'll see that certain age groups, particularly those from 30 to 34, which are generally in the first-time buyer range, their home ownership rates have dropped over the last couple of decades, and much of that is due to regulatory over-requirement.

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    I heard a statement long ago that has always stuck with me that you shouldn't needlessly irritate people, and I think that obviously we should not needlessly regulate people..

    Mr. VENTO. If the gentleman will just yield briefly, Mr. Chairman. I know his time has expired but——

    Chairman LAZIO. Well, let me grant the gentleman another 30 seconds.

    Mr. VENTO. Well, if the gentleman would yield, I would just suggest that I understand what your intent it, but the effect of the language in the bill which I could point out to you in detail does require HUD to go through a housing impact analysis itself. It is an agency or department, and many of its actions do affect housing.

    So, any rule that you put out, any agency now I think probably the scope of this is much too broad for what you intend, listening to the dialogue, but so that's something that has to be addressed, but I accept your good faith.

    Mr. CAMPBELL. Will you yield to me?

    Mr. VENTO. Well, certainly I'd yield to you.

    Mr. CAMPBELL. I accept your good faith, too, and if we have good faith we can make this work. If however, you want to say that asking HUD to consider the impact of what it does on housing as onerous, I'd say we have a problem with the definition of HUD.
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    Mr. VENTO. I think the problem is every rule that they put out and every rule that local governments and every rule that the Federal Government put out has to have this, you know.

    Chairman LAZIO. The time has expired.

    The gentleman from Pennsylvania, Mr. Fox.

    Mr. FOX. Thank you, Mr. Chairman. I first want to take this opportunity to thank you for your leadership and going forward with this important bill, which will improve housing opportunities for all Americans, especially with the low-income housing and manufactured housing and the fact that you have emphasized affordability and accessibility as the testimony of your leadership, Mr. Lazio.

    As to questions, I would like to first start with Mr. Boston if I could, and say that the subcommittee is very sensitive to the issues you raised, and we want to work in a bipartisan fashion to address them. I wanted to ask, because it was a Government-insured loan, did you have the assumption that because the Government's stamp was on it, therefore there wouldn't be any problems with the house as far as its having secure in any way the facilities within it?

    Mr. BOSTON. Is that my perception?

    Mr. FOX. Yes.

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    Mr. BOSTON. No, my perception is that if the Government is going to insure the loan, then the Government must surely go the extra mile to make sure that they're insured. Why insure a loan if you don't know if the life of the loan is going to live the life, or if the individual is capable of holding a 15- or 30-year fixed loan of that magnitude or for that time period?

    I mean the foreclosure rate in Chicago is quite high, and FHA-insured loans are defaulted on more so than any. It's not the conventional loans that's being foreclosed on. They are being foreclosed on, but FHA is being foreclosed on twice as much. That's due to a lot of different reasons, but the inspection process would ensure that the loan goes the distance.

    The members of ROHO, half of them already lost their homes due to not being able to keep up with the mortgages because they have to fix stuff that's conducive to their health.

    Mr. FOX. Let me ask you this: Other than the inspection, is there any other advice you'd give the subcommittee as far as positive change?

    Mr. BOSTON. Other than inspection, sure there is. There's a number of things I could talk about, but I would take——

    Mr. FOX. Well, the next main one, if you would tell us. Is there another main one? Or is that pretty much——

    Mr. BOSTON. The lending institution needs to be regulated a little more, because there are practices that are happening that a lot of people don't know about that cause a loan to be insured, such as the practice of the $8,500 with my wife and I. If these practices are not deterred, then FHA is defrauded, the program is defrauded anyway.
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    Mr. FOX. So overall management would also be part of it. Thank you, Mr. Boston.

    I would ask Ruth Blacker from AARP a couple of questions. I appreciate your being here as well. Could you describe from your perspective, Ms. Blacker, what precipitated the need for the additional authority to prevent seniors from being charged excessive fees when obtaining a reverse mortgage?

    Ms. BLACKER. I am sorry. What is the question?

    Mr. FOX. What precipitated the need for stopping the excessive charges on the reverse mortgages for seniors?

    Ms. BLACKER. We are not concerned about excessive charges. We are concerned that making the program permanent is a very fine idea because it is a successful program.

    We are wondering whether putting a tax on the program and limiting the funds available is the best thing to do, because that cap is going to be reached, and once it is reached then people who want to avail themselves of such things as reverse mortgages will have to go to other areas to get their funding and perhaps they will be asked to pay more for that particular purpose.

    Mr. FOX. We obviously want to see it be available to as many seniors as possible. How important is the counseling component for seniors with regard to the reverse mortgage?
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    Ms. BLACKER. I cannot answer that question, but I think that staff would be able to tell very quickly, and we will do that as soon as we get the results.

    Mr. FOX. OK, fine. Have you had questions from seniors about how the program works? Or is that handled pretty much at the inception by literature and meetings with appropriate officials?

    Ms. BLACKER. I think that mostly that has been handled on an upper level. In my own community, yes, we have information on this in my own community, but it's not through AARP.

    Mr. FOX. OK, well, we appreciate your coming today, and I yield back the balance of my time. Thank you, Mr. Chairman.

    Chairman LAZIO. I thank the gentleman.

    The gentleman from the State of Washington, Mr. Metcalf, is recognized for five minutes.

    Mr. METCALF. I want to thank you very much for holding this hearing on H.R. 3899, the American Home Ownership Act. I am deeply concerned about the increasing access to home ownership, reducing excessive redtape while maintaining our commitment to safety will make housing more affordable.

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    We have a group of our Members who are members of the Housing Opportunity Caucus dedicated to home ownership, and this will be another step toward that goal.

    I want to thank Representative Campbell for his work on reducing Federal barriers. We worked together on his legislation, and I am glad the housing impact analyses is included in this legislation today. H.R. 3899 increases access to home ownership for low-income families who use FHA adjustable rate mortgages, the ARMS.

    Earlier this year HUD informed creditors and consumers that the agency would reach the 30 percent cap on FHA ARMS before the end of the Fiscal Year. This legislation will allow the Secretary to increase the FHA ARMS cap to 40 percent to meet the greater demand in the market.

    Furthermore, H.R. 3899 improves manufactured housing regulations by establishing uniform codes and standards for construction. I believe that manufactured housing is an affordable option for many people who are seeking a home.

    Growing up during the Great Depression I have seen many families struggle to keep their homes. Some were successful, but many of our neighbors were not. If not for the generosity of the former owners, from which we were buying the property, we would have lost our home on Woodbee Island in the early 1930's. She just said, ''Well, if you can't make the payments for a while, we'll just sort of wait and see what happens,'' and that's the only way we kept that place.

    In fact, the log home that I built is on the same property that my parents bought in 1928 and we were fortunate enough to hold. Lack of financing, high down payments and increasing housing costs could have made it harder for many people to own a part of the American dream. As we move forward with this legislation, let's not lose sight of the goal of making safe and affordable housing accessible to more people.
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    And if I still have time, I do have a question for Mr. Martin. Can you discuss the impact that increasing the FHA ARMS would have on the housing industry?

    Mr. MARTIN. Yes, sir, Mr. Metcalf. The reason that we're for increasing that cap or doing away with the cap is that it serves a very vital portion of our housing industry, which I just indicated earlier in some testimony, the first-time buyer and the low-income buyer. And with the lead time that's required between a sell and completion of a home and the time that's required to go through that process, to arbitrarily set some percentage cap that cuts off the need, just doesn't work.

    I mean you have to plan several months in advance and if you don't know that financing is going to be there when that home is completed to address the needs of that buyer, it's not a good situation.

    For the last several years, that cap has been reached before the end of the reappropriation process. So, we think it serves a very needed portion of the American public and needs frankly just to do away with it.

    Mr. METCALF. OK, thank you. I have another question, and this is for all the panel. With the economy doing so well, and it appears that it is, why are we still having the problems with affordability? If you have any comments on that, I'd appreciate them. Any member?

    Mr. BOSTON. Yes, sir. I got into the real estate business because I bought this house and I wanted to help some other people obtain affordable housing, but a lot of times we run into the situation that income doesn't match market price, and in Chicago the market is steadily climbing, but the income is not climbing as fast.
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    So, when you have an individual only making $30,000 a year, that keeps him under the $100,000 price line. He would have to essentially make $40,000 to $45,000 a year to climb over the $100,000 price line. Most of the homes on the West Side and North Side of the city are over $100,000.

    Mr. METCALF. OK, thank you.

    Mr. KNIGHT. Mr. Metcalf, I believe Mr. Boston, although it wasn't coordinated, is making the very point that use of Section 8 payments would assist, if you will, in bringing down that cost so that a family could afford, on a flat amortization basis, the home. The use of loan pools allows structuring of first and second mortgages to enable families to move into homes. These tools help bridge the gap between income level and home prices, particularly in the higher cost areas.

    Mr. METCALF. OK, thank you. I see my time has expired. So, thank you, Mr. Chairman.

    Mr. NEY. [presiding]. Thank you, Mr. Metcalf.

    I have one question of the National Association of Home Builders. The NAHB has expressed some concern that the legislation calls for HUD to possibly act in a basically advocacy role for manufactured housing.

    Do you feel that manufactured housing should be included in the plan or I am just curious as to the position?
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    Mr. MARTIN. Yes, really we think that that's an issue that needs to be addressed, and without holding up progress on the bill, we think that you should bring all the interested parties to discuss that whole issue.

    Mr. NEY. You think there's room in the market for everybody?

    Mr. MARTIN. Yes.

    Mr. NEY. I want to thank the panel for your time in coming here to the Capital, and we'll move onto the second panel. Thank you.

    Chairman LAZIO. [presiding]. While the second panel is coming in, I'd like to acknowledge some outstanding work that has been done on behalf of this subcommittee and this Congress. This has been one of the most active agendas that we've ever had in housing, and without the strong support of professional staff, we would not be at the point where we are now.

    One of the most instrumental members of the staff, to the success of the subcommittee and to the housing issues, has been Shanie Geddes, who is our professional staff assistant and will be leaving the subcommittee at the end of this month to attend UCLA Business School and her loss will be surely felt. But I wanted to acknowledge publicly the outstanding work that she has done for this subcommittee. The professionalism, the dedication, the hard work, the commitment that she has shown, and I'm going to miss her dearly. But she is in Chapter Two of a great career at UCLA Business. I only regret that it wasn't NYU or Columbia.
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    Hope your family was watching.


    I want to welcome the second panel. I understand that one of our witnesses has a time problem, so we are going to take Mr. McMillan up first, but, Mr. Ney, did you want to be recognized?

    Mr. NEY. One second, if I could.

    Chairman LAZIO. Sure. Of course.

    Mr. NEY. I would be remiss if I didn't mention that Karen Christian of our office, who has been with our staff for a couple of years and who has served the subcommittee well, is going to be at Ohio State University Law School entry next week.

    Chairman LAZIO. Congratulations.

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    Well, congratulations to both.

    Let me begin by introducing the second panel. The first witness on the second panel is a very good friend of mine, an outstanding Long Islander. Somebody who has participated at many levels of government is Bob McMillan, whose the Chairman of the Long Island partnership and a partner in the law firm McMillan, Rather, Bennett, and Ragano.

    He previously held the position of Corporate Vice President at Avon Products and served in the Antitrust Division of the United States Department of Justice, served as counsel to United States Senator Kenneth Keating of New York and as special assistant to President Richard Nixon. I also want to mention that he served in a wide range of public interest capacities ranging from the board at the Long Island Power Authority, involved in many different public interest issues and health issues, and is the former Chairman of the Panama Canal Commission, if I have gotten it right. Anyway, he has served the Nation with high distinction.

    I want to introduce you—thank you, Bob, very much for being here. Bob has to catch a plane and get back, so we're going to take his testimony first, and if there are any questions, maybe we'll take them at that time. So we're going to take it a bit out of order. I'm going to introduce the rest of the panel though. And, Bob, let me just tell you, whenever you need to leave, you can excuse yourself.

    Edward Hussey is the Chairman of the Government Affairs Committee of the Manufactured Housing Association for Regulatory Reform. He is also somebody I've gotten to know well and have enjoyed working with.
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    In 1985, Mr. Hussey helped to organize the Association for Regulatory Reform, currently MHARR, to represent manufacturers' views and interest in Washington. He also served as a member of the National Commission on Manufactured Housing from 1993 to 1994. I welcome you here today.

    Hubert Emerick is the founder and Chairman of the Rio Grande Valley RV Manufactured Housing Owners Association in Mercedes, Texas. I am proud that you're here as an honorary Texan. I am proud that you are here. You might not know that but I, in fact, am. Mr. Emerick is also a consumer member of the Citizens Advisory Commission on Manufactured Housing for the State of Texas. You may want to introduce who you are with as well.

    Mr. Tom Jones, another great friend of mine, does wonderful work throughout America. He is the Managing Director of the Habitat for Humanity, Washington office. Habitat for Humanity International builds simple, decent, affordable houses built mainly by volunteers and sold to home owners at no-profit, no-interest loans, through the local affiliate board.

    Before coming to his present position at Habitat, Dr. Jones served as pastor of a large Presbyterian congregation in Washington, DC., one in Louisville, Kentucky, and Orlando and Miami, Florida. One of the great joys in life is to witness a Habitat home going up and see someone walk through the threshold. So I am delighted to have you here and for the work that we have done together in the past. So I welcome the panel, another great outstanding panel.

    I want to turn first to Mr. McMillan. You are recognized for five minutes.
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    Mr. MCMILLAN. Mr. Chairman, Members of the subcommittee, my name is Bob McMillan, I'm an attorney and the founder and the Chairman of Board of Directors of the Long Island Housing Partnership. The Partnership is the largest suburban coalition of businesses, labor unions, churches, not-for-profits, and banks in the country, to build and facilitate the construction of affordable housing and to provide financial counseling for first-time home buyers.

    From our inception in 1988, we have been responsible for the construction of some 428 homes and have provided technical assistance to other not-for-profits, in the construction of 870 units. We also have another 192 units in the planning process at this time. In addition, we have provided mortgage counseling to some 1,500 first-time home buyers just in the last three years. To date we have experienced one foreclosure. I do appreciate the opportunity to be here this morning and will focus my remarks primarily on the reduction of barriers to affordable housing.

    When the median price of a home reaches the $180,000 level as it is on Long Island, it's very difficult for Long Islanders to purchase a home even with current programs providing for three percent down payments. Obtaining a mortgage for $174,000 with an income of $40,000, $60,000, or even $70,000, on Long Island becomes impossible unless there is a solid credit history and some kind of parental subsidy. There are many first-time home buyers on Long Island who live in subsidized housing through the generosity of parents or grandparents. For many other families home ownership is only a dream.
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    Let me compliment you, Chairman Lazio, for raising the issues in this legislation. Providing grants for use in redeveloping the stressed communities would not only be a help in our cities, but would be welcome in the reclamation of suburban areas as well. It takes only one or two distressed homes on a block to start a downward spiral of a neighborhood. I also like the concept in this legislation of providing greater flexibility in defining metropolitan areas. High home prices in the New York City area are not confined to the city. They clearly impact Long Island.

    Turning to the position provision also of your proposal which would eliminate red tape, I would also hope that the subcommittee could look at the volume of paperwork required in the grant process. For example, the current Islip project, that you know we're involved in, has paperwork amounting to one foot in height. So the volume of paper is not necessarily a testimonial to quality of the housing that's going to be developed. The volume and complexity of Federal regulations is as much a bar to the construction of affordable housing as NIMBY-ism. And make no mistake about that. In that connection, I'd be delighted to have the staff of the housing partnership work with your subcommittee staff to simplify the process without leaving the taxpayers who support these programs vulnerable.

    Now, I'd like to offer some specific questions for you to consider in the legislation.

    Local governments, for the most part, have to process applications for all housing—a part of zoning and land use of the community. Coupled with environmental laws—many communities are not staffed to deal with applications for large numbers of affordable housing or the redevelopment of distressed areas. It can take anywhere from two years to four years to complete the process on Long Island, mostly attributable to overworked and overwhelmed local government employees. I am not advocating the Federal Government's involvement in local laws. I am suggesting, however, that consideration be given to providing Federal grants to local governments for contracting with supplemental staffing while affordable housing is under consideration. Speeding up the process can save money and it can help make that developer provide better affordable housing, particularly when the savings are passed on to the home buyers. Our estimates show that the carrying charges for land while awaiting local government approvals can add up to ten percent to the cost of a home.
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    One of the most important barriers—and I emphasize, the most important barriers to affordable housing—is the ability of low- and moderate-income families to secure mortgage financing. Because of poor credit practices we have seen an even greater challenge in minority communities with regard to that point. Credit histories may be weak and banks can understandably fail to take on the risk of making questionable loans.

    The heart of this challenge is the lack of understanding about the mortgage process and the importance of good credit. At the Long Island Housing Partnership we have found that mortgage counseling can help qualify families. The problem is that the understanding comes too late. I would urge this subcommittee to see what can be done, as early as high school, in terms of mortgage counseling. Strengthening mortgage counseling is in everyone's best interest.

    Finally, allow me to support one other provision of this legislation. Inspections of homes before the closing of a mortgage is critical. Mr. Boston, in the previous panel, makes that abundantly clear. One of the challenges is to insure the quality even when an inspection is done. Often items like leaking pipes or the quality of the heating unit are overlooked. If a low- to moderate-income home buyer is stretched financially through the financing of a home, repairs can get out of hand after the closing and lead to delinquency and foreclosure. ''Buyer beware'' is not good enough in today's world, particularly in the purchase of a home. Strengthening the inspection process is extremely important.

    Thank you, Mr. Chairman, for providing me this opportunity.

    [The prepared statement of Robert R. McMillan can be found on page 88 in the appendix.]
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    Chairman LAZIO. Thank you, Mr. McMillan. Great testimony from great experience.

    Because of time constraints, I'm going to withhold my questions right now. Is there anybody else in the panel that would like to question Mr. McMillan at this time? And presuming that we can move through the panel and possibly I don't know how long you can stay, but will you have time to come back? Does that work with your schedule? I don't know if anybody has questions right now, but we're going to move on to other panelists. If we can come back, will you have a——

    Mr. MCMILLAN. Mr. Chairman, as you know, I have to return to New York for that television——

    Chairman LAZIO. Let me turn to a couple of Members for quick questions right now then.

    Mr. Campbell is recognized.

    Mr. CAMPBELL. Thank you, Mr. Chairman.

    You mentioned mortgage abuse. That was the fundamental point. The need for improved mortgage credit practices. But I wasn't sure where you saw the problem. Is it in the private sector side or is it in the Government side?

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    Mr. MCMILLAN. You can pick out any—you can do horror cases with regard to anyone. I really think the biggest challenge is young people don't have a clue when it comes to what good credit practices mean. They have no idea what it means to build up a good credit rating. They get themselves in trouble. The gratuitous sprinkling of credit cards to young people in college, I think, is also part of the problem. So just the counseling that I think has to take place as early as possible, and later is better than never.

    Mr. CAMPBELL. Thanks, Mr. Chairman.

    And one other quick question was, you said that the cost of $180,000 is the average or the median price on Long Island. To what extent is that $180,000—does it reflect impact fees of State and local municipalities on Long Island?

    Mr. MCMILLAN. Well, on top of that the State real estate taxes on Long Island are some of the highest in the Nation. The $180,000 median price of the house means just the median price to walk in and buy a house in most communities on Long Island.

    Mr. CAMPBELL. But do you know how much of that $180,000 was caused by impact fees imposed by local jurisdictions?

    Mr. MCMILLAN. Probably some, but I think the biggest part of the price of the house, the increases, the delay in processing the applications, which can take two to four years, partly because of NIMBY-ism. I think Mr. Kennedy points that out. But beyond NIMBY-ism, just the process, the overworked local government official, and that's why I recommend as a part of the grant process, that there could be the ability to provide funding to the local governments, which will entertain affordable housing for cleaning up a distressed neighborhood. The grants would enable governments to contract with the support that they need to process the paper.
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    Mr. CAMPBELL. Thank you, Mr. Chairman.

    Chairman LAZIO. Thank you, gentlemen. Perhaps a greater issue for New Yorkers, and for many other States perhaps, are the taxes that are assessed on mortgages and fees that are assessed. And I know in California impact fees are a significant problem. It is a barrier to home ownership.

    Let me just mention one quick thing in recognizing myself. The Housing Partnership does wonderful work. It uses the Federal program, the home program, for home ownership. One of the things that we do in this bill is to allow the home program to be used, in the same manner that the Community Development Block Grant Fund can be used, which is to say we can leverage over a longer number of years. We can up-front some of that money.

    How much of a difference do you think that makes for a nonprofit like the Long Island Housing Partnership and other housing partnerships?

    Mr. MCMILLAN. It would make a very big difference. It would be another source of funding that we could look to, and while a lot of our funding comes from the State in terms of the housing that we build, any other door open to help fund our housing developments would be very much in order.

    Chairman LAZIO. And do you find it is more effective in terms of community revitalization to do this sort of larger-scale redevelopment, block-long development, for example, as opposed to an in-fill—a house here, a house there, a house——
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    Mr. MCMILLAN. Yes, I think the Central Islip example, which is one of the first efforts to revitalize a suburban downtown on Long Island. And without block grants, the effort would be impossible. Just the challenge of taking the property, even with eminent domain, which is something that you don't like to do, and negotiating with people who are there. It's a tremendous effort, beyond what I had even envisioned when we first went into that Islip project.

    Chairman LAZIO. It reminds me of the fact that last Congress we were able to pass and sign into law a major change in reform improvement in Native American housing. And one of the things that we found with Native American housing was that when you only authorize enough money to do one or two houses in an area that need massive infrastructure—new roads and lighting and electricity need to be built—it became cost prohibitive to do one or two houses. But where you could leverage it, where you could borrow against further future revenue streams without costing the taxpayer one dime, by up-fronting that money so that you could plan and have a more effective long term development, you really did increase the overall impact of the Federal dollar in terms of converting it to housing. That's exactly what we're trying to do to other communities throughout America.

    Mr. MCMILLAN. It cost less money to build many homes in a community than it does only one or two. And that's the problem with some of the rehab programs right now. We do a spot rehab here and there and you might as well tear the house down unless you do a group of them together.

    Chairman LAZIO. Well, I want to thank you for participating in this hearing today for the great work that you do on many different fronts, but in particular in housing, and I wish you a safe travel back to New York.
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    Mr. MCMILLAN. I'm sorry I have to leave, Mr. Chairman.

    Chairman LAZIO. I understand. Thank you.

    Let me introduce the remainder of the panel. Actually, I have.


    And now I turn to the presentation point, and I want to first turn to Ed Hussey. You are now recognized for five minutes.


    Mr. HUSSEY. Thank you, Mr. Chairman. Distinguished Members of the subcommittee, staff members, and guests, my name is Edward Hussey. I'm Vice President of Liberty Homes, Inc. Liberty has its headquarters in Goshen, Indiana and manufacturing facilities in eight States around the country. Liberty has been a producer of manufactured homes since the birth of the industry more than 50 years ago. For the last 22 years, our homes and those homes that are produced by the industry have been subject to Federal regulation and the National Manufactured Housing Construction and Safety Standards Act of 1974.

    I am appearing here today on behalf of the Coalition to Improve the Manufactured Housing Act. The Coalition is comprised of manufactured housing industries, two national trade associations, the Manufactured Housing Institute, and Manufactured Housing Association for Regulatory Reform. Together these two associations and their affiliated State manufactured housing associations represent every producer of manufactured housing in the United States. In addition, MHI represents the vast majority of other businesses related to the industry.
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    With me here today is Mr. William Lear. Mr. Lear is Vice President and General Counsel of Fleetwood Homes. Fleetwood is the Nation's largest producer of manufactured homes and is a leading member of MHI. They are based in Riverside, California, and currently operate 43 manufacturing facilities in 15 States. We are here today together to enthusiastically support Title 7 of H.R. 3899, the Manufactured Housing Improvement Act of 1998.

    Mr. Chairman, today manufactured homes account for approximately one-third of all new single family home sales in the United States. Currently, some 18 million Americans live in manufactured homes. What makes manufactured housing unique is its affordability. The average price of a manufactured home today per square foot is less than half that of per square foot cost of site-built homes. Because of this affordability, manufactured housing is often the only path to home ownership and all of its social benefits for millions of Americans with fixed and moderate incomes and needs no Government subsidies to fulfill its important role in the housing market.

    It is precisely because of this unique and important role that manufactured housing plays for America's housing consumers, that it's Federal regulatory law must be both effective and up to date. After 24 years, though, the current law is in need of modernization.

    When the current Act was signed into law in 1974, manufactured homes were still widely regarded to be more of a vehicle than a permanently sited home. This perception is reflected in the original statutory language which referred to our homes as ''mobile homes.'' It is also reflected in reference to manufactured home accidents and insurance costs. Indeed the Act itself is based upon Federal automobile legislation that Congress had enacted in the 1960's.
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    But, as we sit here today in 1998, there can be no question that manufactured homes are houses. The vast majority are transported to the home site, which is more and more often a private, full size lot, and never again moved. Many are installed with full basements and other amenities. Multi-sectioned manufactured homes, some with 2,000 square feet or more of living space, now comprise more than one-half of all manufactured homes sold.

    What this demonstrates is that both the marketplace and the evolution of manufactured housing construction technology have left the 1974 Act behind. The program unnecessarily today limits technological innovation and imposes artificial and unnecessary restrictions that have prevented the industry in meeting the needs of all consumers who seek affordable home ownership.

    The most important feature of this bill is that it will mandate a consensus base process for the development of manufactured home standards. Consensus procedures have been used successfully for years to develop every other residential building code in the United States. This consensus procedure will replace an outdated system of standards development by HUD that has allowed the standards to languish for years without timely updates.

    Under the pending bill, by contrast, coding updates will be statutorily required at least once every two years. In addition, under this legislation, manufactured housing consumers will participate directly in the consensus process. At present, consumers do not sit as members of any other residential housing consensus committee. This direct participation will empower our consumers. It will provide them with a forum to express their view as to the practical effect of standards and regulations on their day-to-day lives.
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    In addition to establishing this consensus process, the proposed legislation would strengthen the existing HUD program. In recent years, the program which is needed at the Federal level to ensure the uniformity of standards and regulation—that was one of the primary goals of the original Act—has been harmed by significant personnel reductions and a lack of emphasis of manufactured housing at HUD.

    Let there be no mistake. The industry supports a strong Federal program and is willing to back up the support with its own fund. Consequently, the bill before you would authorize HUD, for the first time, to use the certification label fee paid by manufacturers under the Act, to hire additional personnel for the program. The program, therefore, will be put back on course and enhanced under this legislation with virtually no general budget funds being utilized. This will be a benefit to everyone—consumers, Government, and the industry alike.

    Also related to the strength of the program, is the issue of Federal preemption and HUD's relationship with it stays. When Congress adopted the 1974 Act, it recognized that the Federal standards need to be preempted in order to maintain uniformity and regulation so that the same home could be shipped anywhere in the country. Congress expressly provided in the Act for preemptive effective standards. Over the years, the courts that have considered this provision have unanimously said it should be broadly construed in order to accomplish the purposes of the Act.

    Finally, the impending bill specifically reserves to the States the right to regulate the installation of manufactured homes. This makes sense, because local conditions and needs inevitably vary. We would certainly agree with Mr. Martin, who testified earlier, that the affordable housing initiative is an important step and we are proud to be part of that initiative.
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    I'd like to thank the Chairman and the subcommittee for this opportunity to express our views.

    [The prepared statement of Edward Hussey can be found on page 92 in the appendix.]

    Chairman LAZIO. I thank you.

    Gentlemen, we had just had an announcement that we have votes on the Floor, so I'm going to just move off regular order. I want to also acknowledge Bill Lear, who you are aware is the Vice President and General Counsel of Fleetwood Enterprises, one of the largest manufactured housing enterprises that we have in America.

    Mr. Frank has some time constraints, so he would like to ask a couple of questions right now. I think that's appropriate, so I'm going to recognize Mr. Frank for the purpose of questions.

    Mr. FRANK. Thank you, Mr. Chairman. I am very interested in our moving on legislation here. I know that there are some, I think, legitimate concerns that have been raised by the AARP and I will say that the group known as the Mobile Home Federation suffers from the cultural lag that Mr. Hussey referred to which represents a significant group of residents in Massachusetts who have some of the same concerns and I'm hoping we can work those out. But there is one other issue that I am going to pose now, and I would ask the panelists if they could get back to me and other Members of the subcommittee in writing, because we are going to have to run off and there are other things conflicting.
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    One of the major concerns I hear—obviously, it's familiar to you—is the financing problem. Now I know that we have this commission report that makes a series of recommendations involving financing. The ability of the homeowner to get financing. I have been told that people have serious problems with the private sector in the way in which they regard this property. We have problems from people, for instance, who own the home but don't own the land, in the nature of the case. In many cases in Massachusetts, that's the arrangement that they're in.

    I am interested in doing everything that we can here to facilitate people's ability to take advantage of the manufactured home situation. And I would be interested in recommendations about what we could do to improve financing. There is a series in the Commission report about Ginnie Mae, Fannie Mae, and so forth, amending various programs for eligibility. I'd be also interested, are there things we should be doing with the private sector? People tell me they just have trouble with banks in getting home mortgages. And fortunately, this is both the housing and the banking subcommittee. Though it does seem to me if there are proposals that could enhance the ability of borrowers, homeowners, to get bank financing we could do both of them in the full committee.

    I'd be very interested and I would hope when we got to marking up legislation here we would include some things because, as I said, people tell me a major obstacle is their inability to get the kind of financing for their homes that other people would get for homes built differently. If that could be submitted I would hope, Mr. Chairman, we could act on that. I don't know if anyone would want to respond now, but I would hope to get it in writing.

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    Mr. EMERICK. We weren't prepared, Mr. Frank, to deal with that issue and it's our sense that bank and consumer financing in the private market is relatively readily available at this time. However, there are issues with respect to Fannie Mae and Freddie Mac and the Government programs and——

    Mr. FRANK. Right, those are listed in the Commission report. We may submit to some of you some of the concerns we've had raised to us in Massachusetts involving Fannie and Freddie and Ginnie Mae. But also some private financing issues, because I would hope we would take advantage of this opportunity to deal with some of the recommendations of the commission which deal with the area you mentioned. But also, in some cases, at least give some reassurance to the banks. I guess part of the problem is sometimes the banks tell us, ''Yes, you say you want us to lend to them, but what's the controller going to say, what's the FDIC, what are the Federal regulators going to say?'' At the very least, we could give some guidance to Federal regulators here. I hope we could all work on that, Mr. Chairman.

    Chairman LAZIO. I would ask the witnesses if they would just respond to some of these points that Mr. Frank is making in writing.

    We have a vote on the Floor right now. We're going to come back. I'm going to try and be back here at about 12:05. Does that work with—why don't we come back at 12:30? We'll adjourn until 12:30. We'll hear the testimony of the two remaining witnesses. We'll open up to questions and I appreciate everybody bearing with us.


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    Chairman LAZIO. The hearing shall come to order.

    I want to, first of all, acknowledge the fact that several Members are on the House Floor. We've just had three votes stacked up and there are other committees that are now hearing testimony and so some of the Members who really wanted to be here are not able to be here and that's no reflection on the testimony that we are going to hear. I understand that Mr. Emerick has got a 2:00 p.m. flight, so we are going to try and move things along. Let me begin by doing that, by moving to you, and recognizing you for five minutes for your statement.

    Thank you, first of all, for being here. We appreciate your effort.


    Mr. EMERICK. May I thank you for your invitation and opportunity to present my Association's comments and suggestions on the manufactured housing section of the proposed legislation before you.

    I'm the founder of, and was the Chairman of the Recreational Vehicle and Mobile Home Owners Association of the Valley for four years. I'm now Legislative Chairman of the association. We are a registered, non-profit corporation under the Texas law and chartered to represent the interests of our members and owners in what is commonly called ''the valley.'' This is the valley composed of four counties along the lower Rio Grande River.

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    I use the term ''mobile home'' and ''manufactured home'' rather interchangeably in my testimony. In the four-county area, there are slightly over 500 mobile home communities as well as a substantial number of mobile homes and manufactured homes, placed on property outside the 500 communities. Five hundred communities have an aggregate of about 30,000 manufactured homes spaces. We are advocates for the owners in this geographical area on local, State, and Federal matters that affect our way of life. I own and occupy two manufactured homes. One in the valley in Texas and one in Michigan. I'm a registered Democrat in Hidalgo County, Texas.

    I testify today on a non-partisan basis on behalf of our association. We were a driving force leading to the creation of the Texas Citizens Advisory Commission, who over the past year-and-a-half reviewed, revised, and rewritten the Texas rules and regulations on manufactured homes. We have submitted a final recommendation to Mr. Larry Paul Manley, the Executive Director of the Texas Department of Housing and Community Affairs. I served on that commission for the past 18 months and now our work is very near adoption.

    After 16 meetings, we reached a compromise, finally, by a vote of 12-to-0, to recommend it to Mr. Manley. Now, I'm not an expert in any of the particular disciplines involved in manufacturing mobile homes, but I believe I'm an expert down where the rubber meets the road. That is, where the final costs of housing come to rest.

    Having said all of that, Mr. Chairman, with some concerns, we support the passage of the Manufactured Housing Improvement Act of 1998. We support the establishment of a Consensus Committee to make recommendations to the Secretary of HUD on construction standards and regulations. We particularly support the provisions of H.R. 3634, which requires the Secretary to act within specified timeframes. HUD has, over the years, been notoriously slow on meeting some of their responsibilities.
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    A current example; after two-and-a-half years, HUD has still not issued the final rule, as directed by Congress on the administration of HOPA—or the Housing for Older Persons Act—of 1995, which was signed into law by the President at the end of 1995.

    We support the stressing of affordability as a prime consideration in the adoption of standards. Senior citizens, in particular, are very cost-conscious. We understand the need of construction standards to protect our safety and the durability and insurability of our homes. We object to unnecessary standards that are not cost effective and which could force us out of the market. What would be the cost of an absolutely fire-proof manufactured home? Or how much would I have to pay for a manufactured home that would withstand a tornado or a 140-mile-an-hour hurricane?

    We also support the clarification of the rights of State and local governments to establish standards for the installation of manufactured homes. Would it make sense if the Federal Government preempted these areas to force me to spend $2,000 to $3,000 on a concrete slab under my home as a foundation if the State and Federal local regulations allow a motor home or a travel trailer, having no foundation or anchoring requirements, placed on a lot adjacent to mine in a rental park?

    Now let me be specific. One, affordable housing should continue to be affordable and all revisions and modernizations to the present rule should be subject to a close, cost/benefit, examination.

    Two, we agree that label fees are viable method of maintaining adequate inspection and developing standards of regulations. However, we're concerned about the ability of the HUD Secretary to assess fees and spend fees without limitations. We are glad that increases in fees will require publication of public comment. I must say, The Federal Register is not exactly a best seller in the area that I come from.
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    We support the congressional oversight to assure that fees are reasonable and necessary. The fees are, after all, a hidden tax passed on to the consumers in added cost. While a proposed legislation directs the Consensus Committee to have a total membership of 25 members, and subparagraph B requires equal representation, we feel that specific designations be applied to each category. In other words, 25 members, five categories, should be five in each category. We also feel strongly that the five consumer appointees be owners and occupants of manufactured homes. And we propose a provision should be added that all 15 of the general interest members cannot be related to anyone in the industry.

    Finally, we believe a provision should be added to allow the homeowners appointed to the Consensus Committee, be reimbursed for their actual and reasonable expenses for attending the meetings of the committee. Otherwise, you will effectively ban their participation. This expensive trip to Washington, having not been here since I retired 20 years ago, I'm still suffering from sticker-shock about hotel costs and costs to eat a meal. If that provision isn't made, I believe there are only two, at most three, of owner associations across the country that have the resources to reimburse a committee appointee on a continuing basis.

    Again, we extend our thanks for allowing us this opportunity to testify.

    [The prepared statement of Hubert H. Emerick can be found on page 137 in the appendix.]

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    Chairman LAZIO. Thank you.

    Gentlemen, I'd just like to take this opportunity before I turn to Mr. Jones—there is often a perception, I think, by many in the public that witnesses and folks that come to assist the governmental process here to make sure that we get it right, are getting paid by the Government, in fact, taxpayers foot no bill here, that all of you are here out of your own pocket, by your own expense and in many cases, as Mr. Emerick said, there is some hardship involved in that. And so I just want to salute your patriotism in making the sacrifices of being here—all of you really. And those who have testified, I know stand behind you.

    We now turn to my friend and recognize Mr. Jones for five minutes.


    Mr. JONES. Thank you, sir. Mr. Chairman—I was going to say, ''other distinguished Members.''


    I think rather I will read the line from my written testimony that recognizes the appreciated and hard-working staff.

    It really is a privilege to testify on behalf of legislation which advances the opportunities for low-income persons to achieve the American dream for home ownership. Habitat for Humanity has only two basic goals: one is to build houses with people who in no other way could own their own home; and the second is to make it a matter of conscience worldwide, that a simple and decent place to live is an opportunity that every single human being ought to have. And we believe that many parts of the American Home Ownership Act support and advance both of these goals.
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    Habitat now has 1,447 affiliates in the United States. Each of these affiliates has Section 501(c)(3) status with its own locally elected volunteer board. Habitat now is in 59 other countries of the world, and this fall will dedicate its 70,000th house worldwide.

    Truly, Habitat for Humanity is a movement of volunteers representing most every segment of society. The thread of volunteerism is what makes America great. Habitat for Humanity attempts to exemplify diverse volunteerism at its very best. And you on this subcommittee, Mr. Chairman, through your active participation in ''The Houses that Congress Built'' this year and last, may now be recognized as Habitat's most famous volunteers.

    Mr. Chairman, on behalf of the families across the country who are coming to home ownership this very year, because of the direct Habitat for Humanity housebuilding of you and your colleagues, we say ''thank you.'' To date, three hundred and seventy five Members of the House of Representatives are formally committed and participating, actively building one to five houses in their own congressional districts across the country this year. Not only Habitat, but all America appreciates your leadership by ''doing.'' We commend you and we thank you.

    Habitat does build the houses primarily with volunteers, sells at no profit to the homeowner family, gives a no-interest, long-term mortgage at a rate that that family can afford, and requires an average of 500 hours of sweat equity of the family working on its own house and the houses of others.

    The American Home Ownership Act provides specific, creative and necessary actions, we think, for continuations of some programs which really do work, and for some new concepts, which will achieve the goal of making home ownership available for more Americans.
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    Habitat for Humanity supports specific parts of this Act, especially and foremost the reauthorization of the Self Help Housing Opportunity Program, SHOP, and the extension of time for the use of those program monies from two to three years. SHOP has become very critical for the increased house production by Habitat. The SHOP program, as you know, Mr. Chairman, can be used only for land and infrastructure. And for every $10,000 of the use of Federal funds, another house is produced. This means that we are motivated to raise three, four, or five times that amount from private sources for each Habitat house built.

    This means that the Government funds become seed money which really does involve the whole of society in what we are all about. It provides a permanent solution for a family as it provides a home.

    In the original legislation, which, Mr. Chairman, you and your folks wrote and to which you gave the leadership to see that it was passed, you granted $24 million to Habitat. From this we agreed to produce 2,500 homes. The projection now is that we will produce 2,700 homes from that original grant.

    Mr. Chairman, I would like to highlight one problem which has arisen with the implementation experience we have had from SHOP. The bill contains a provision that the use of grants must be made within 24 months of the disbursement. We have learned through experience that some Habitat affiliates will not be able to meet this deadline. Volunteers provide their service on a part-time basis. And in many cases, weather delays, local and State zoning regulations, permit needs, the necessary Federally required environmental review process, and the like, have added considerable time to the preconstruction process.
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    Consequently, Mr. Chairman, we have recommended, and you have included, an extension of the building deadline from 24 to 26 months. We would respectively encourage the subcommittee to consider extending that deadline to 36 months for all subsequent SHOP funding, not just for the original first-year grant.

    Because SHOP has been so successful, and it really is successful, we support and would again respectively urge you to consider a multi-year reauthorization of this program.

    Mr. Chairman, in writing the original legislation two years ago, you required complete accountability of Habitat to the Federal Government through reporting annually to the Secretary of HUD, and thus to you. That report was made last Friday and I have your copy to leave with you for your subcommittee today. I think you will be amazed at the success and the details of that success which are in this report.

    I mention other programs from the American Home Ownership Act for which we give support in my written testimony. The local capacity building is becoming increasingly important to Habitat as we attempt to build capacity through adding just one staff person to the three-fourths of Habitat affiliates who have no staff. We found that when you add one staff person, the productivity increases exponentially with that one staff person.

    I mentioned the home ownership zone is a concept which we think will bring together the public, private, and non-profit sectors. The Federal rental vouchers used for home ownership are something we are doing successfully in a way in other countries. We support the reauthorization of Neighborhood Reinvestment Corporation, which is a great partner of Habitat for Humanity, both nationally and in many local communities around the country. We support the importance of increased emphasis on the nurturing, counseling of home owner families, and the like.
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    This review of some of the specifics of the American Home Ownership Act is not meant to be comprehensive, but rather to indicate that parts of the Act which relate to Habitat for Humanity's approach for home ownership for low-income persons really will have positive results for Habitat and for homeowners and for the communities in which Habitat works.

    Mr. Chairman, we do appreciate your leadership and the leadership of your subcommittee and your staff, for making opportunities for home ownership more available for more low-income families. And we have high hope and expectancy as we work together with you and these colleagues who are here today who represent our other partners for the private, the public, and the non-profit sectors, to work together to provide a decent place to live through home ownership for all who desire it.

    Mr. Chairman, the goal to eliminate poverty housing from the face of the earth is right. Together we will persevere until we do that. Thank you for allowing us to share some of our views.

    [The prepared statement of Thomas L. Jones can be found on page 144 in the appendix.]

    Chairman LAZIO. I thank the gentleman. It is always an inspiring statement. Let me thank the panel.

    I can't help but make this remark as we're thinking through all the different tools that we're trying to use in this bill. Everything from manufactured housing, which has changed in so many different ways where it's now multi-level and multi-sectional, to self-help housing, to using rental vouchers in the Section 8 program for home ownership, to enhancing traditional home ownership through traditional lending sources, to helping seniors, and the wide range of tools that we are looking at for different folks in different communities with different needs all trying to do that, so that we can expand the opportunity for home ownership.
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    I think about the Habitat programs and, yes, it does get—purchasing a home is wonderful, but there is something much more important than that, I think, and that is to build a sense of community, of neighborliness. And to see neighbors come together, it's like a barn raising where folks come in and they'll donate their time and they'll raise a house for their neighbor and they'll have a joy of going into that house. Then they'll go out and help build the next person's house. It's a great gift to the community. Great sense of bringing us together or giving us a great sense of place. So I so appreciate this program and it's completely bipartisan, and we've had folks support it from all strips of ideology and philosophy. So, I want to salute you.

    I also want to say, you mentioned that our investment is about $10,000 per house to get a family into a house. Now if you measure that against what we do with some of our other rental subsidy programs where we could easily spend $10,000 in one year for rent for one family without giving them a sense of owning something, a sense of space that comes with home ownership, a sense of investment in the community, the sense of building up equity that they can borrow against later on potentially to further an education for their child or for themselves or to start their own business or any number of other things that folks do, when they are able to buy their houses and just a tremendous investment for the Federal Government—a very modest amount of money per unit relative to some of the other programs, the older programs that have a very mixed history, in some cases.

    Mr. JONES. Mr. Chairman, if I may, when we talked about the $10,000 investment: the other thing that it does is to take a family off your annual worry list.

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    Chairman LAZIO. And that's not insignificant.

    Mr. JONES. When you talk about home ownership.

    Chairman LAZIO. Yes, I'm thrilled, and very supportive obviously of these provisions and we're going to take into account the suggestions that you've made to strengthen this that much more.

    I want to, if I can, turn to you, Ed Hussey, and ask you a couple of questions regarding this Consensus Committee and the precedent for it. Will there be enough consumer input? There is a concern about that, the need to have some uniformity in standards. What does that do from a consumer standpoint, in your opinion?

    Mr. HUSSEY. From a consumer standpoint, it allows us to—first of all, will there be consumer input? Yes, there will be consumer input. There is a category under the ANSI standards called ''the consumers'' and they will be well represented there. I think Mr. Emerick made a very good point when he talked about actual homeowners being involved, because they have the day-to-day feel for their home and they know what needs to be improved in the home, and they have a good feeling for the affordability of the home.

    The way that the Consensus Committee is structured now would be with five separate sections and this is allowed under the ANSI certification process. Those sections would involve producers of the homes, other industry members—five members each—and then 15 members from consumers, government entities, and from other individuals who might be interested such as academicians and engineers and folks like that. As I understand it, in the way that the Consensus Committee is structured under the proposal, there is no way that the industry can control, or any one segment of the Consensus Committee, can control the Consensus Committee. I think it's an opportunity, through a good consensus process, to have all concerns heard and resolved before any action is taken. It's also a process that allows us to update the building code in a manner that's orderly, that takes place every two years. That simply has to happen and we have a real mechanism for that happening.
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    Chairman LAZIO. Does the updating just help the manufacturers or does it have an effect on the consumers?

    Mr. HUSSEY. It has a very strong effect on the consumer. Many of the engineering advances and many of the technological advances that have taken place within the housing industry over the last few years simply have not been incorporated into the manufactured housing code because there is no vehicle to incorporate them.

    One instance that occurred to me about six or seven months ago was, I went to our engineering department and all of the homes that we're building, as you noted earlier in your presentation, Mr. Chairman, most of the homes we are building today are cathedral ceilings. And if I want to place a smoke detector where it does the most good in the house, it makes sense to me, I'd want to place it fairly high, since smoke rises. We'd put it up on the ceiling somewhere, so it would be most effective if the house caught fire, smoke would rise and it would hit the smoke detector.

    But under our current rules we can't do that. We can only put a smoke detector on the wall of a house near the sleeping area, we can't put it up there on the cathedral ceiling. Most of the homes over the years that we've built have changed from that flat ceiling to the cathedral ceiling, and we haven't been able to take advantage of that. It just didn't make sense to me. Why can't we do that? That's the way our building code is structured and there is no real way to change it now in an orderly fashion.

    Chairman LAZIO. This is—I'm sorry, go ahead.
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    Mr. HUSSEY. I just wanted to say, I think that that just makes sense from my point of view but it's also something to protect the consumer. There is no real voice for the consumer now in the process involving coming up with a building standard. This proposal would allow a real voice. As CABO has said in its submittal to the subcommittee concerning this legislation, they would be willing to work with any group within the Consensus Committee about any technical advice that that individual group needs. And I think that a consumer that's well—a homeowner especially, that has good technical advice, could be a tremendous benefit to not just the industry but to all the other consumers and users of our own.

    Chairman LAZIO. Mr. Emerick had leveled some criticism at HUD in terms of oversight in manufactured housing from a consumer standpoint. If I could summarize his comments, there was some lax oversight. From my understanding there has been some reduction in staffing over at the Department in terms of oversight and I wonder if you could walk through with me the numbers that you know and what impact that's had. And the mechanism here is basically a self-funding mechanism to add to that staff and your impressions of that.

    Mr. HUSSEY. That's correct. I think we're down to nine full-time employees.

    Mr. LEAR. The industry has grown probably three times in the last 15 years, and during that time the number of permanent staff has gone from 35 to either eight or nine, I'm not sure which the number is. In the case of engineers, there have been retirements, there have not been new engineers brought in to replace them.

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    Chairman LAZIO. The volume has tripled and staffing has went from 35 to eight or nine, so it has gone in the opposite direction?

    Mr. LEAR. Yes, the industry size went one way and the staff to administer the program went the other. One of the things that really caused this legislation, or lead us to be interested in it, is the great concern that the Federal program will go away by attrition. It's somewhat unusual, perhaps, for the industry to come in hoping to strengthen a program and to add representatives to the department where they don't exist today. But we believe it important to have an effective functioning program with real oversight and this bill will help bring that about.

    Chairman LAZIO. Well, there are about 10,000 HUD employees. You have about eight of them working on manufactured housing.

    Mr. LEAR. There may well be other people who get involved from other departments and areas, but those devoted to the regulation of the industry, it is a single figure number of professional employees.

    Chairman LAZIO. And so the industry is comfortable self-funding some of these new positions for oversight?

    Mr. HUSSEY. Absolutely, we think it would be a much more effective process to do it that way. We've always self-funded the program since the inception of the program. It's not been something that's been on the Federal budget. We're not uncomfortable with funding the individual so long as HUD will take charge of the program and move it forward. That's what Congress originally intended and that's what's fallen by the wayside. As long as the people are put on there that are going to oversee the program, make sure that the building code advances, make sure that the enforcement is reasonable. That's what we'd like to see and that's what we want to continue.
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    Chairman LAZIO. Sounds like you're looking for a better product using the current technology and the factory methods that are being used in some of the best production to ensure that you're delivering a quality product to consumers. And it seems to me that the interest of both consumers and manufacturers are together, in a sense, of wanting to modernize these codes. Deliver cost effective quality housing to folks that want to pursue this option so we will want to continue to work with you to make sure that we achieve those goals.

    Let me thank the panel for your testimony today, for your written testimony which will be included in the record, for your response to some of the questions that were raised by some Members of the subcommittee, in particular Mr. Frank; and more importantly, to all the input that you provide to subcommittee staff and to me over the course of the year. This testimony is only a small part of your participation, and your input and your contribution. And really, there are countless hours spent by all of you in helping to educate the subcommittee as to the right public policy issues so that we can do the right thing. I'm grateful for that.

    So that being said, I want—yes?

    Mr. HUSSEY. Just one more comment, Mr. Chairman.

    Mr. Kennedy raised an issue earlier to the HUD response to our portion of your legislation and HUD has raised a number of questions. We just got that response yesterday, or at least that's the first time I had seen it, and I'd like to supplement our testimony here today with some response to HUD to follow up on our testimony here today if that would be appropriate.

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    Chairman LAZIO. Without objection, that will be included in the record.

    [The information can be found on page 126 in the appendix.]

    Chairman LAZIO. We thank everybody and we wish them a safe trip back home, no matter how far it is.

    This hearing is now in adjournment.

    [Whereupon, at 1:05 p.m., the hearing adjourned, subject to the call of the Chair.]

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