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U.S. House of Representatives,
Committee on Banking and Financial Services,
Washington, DC.

    The committee met, pursuant to call, at 10:19 a.m., in room 2128, Rayburn House Office Building, Hon. James A. Leach, [chairman of the committee], presiding.

    Present: Chairman Leach; Representatives Roukema, Lazio, Barr, Ose, Biggert, LaFalce, Vento, Goode, Inslee, Schakowsky, Moore and Jones.

    Chairman LEACH. The committee meets today to review the Year 2000 status of the Department of Housing and Urban Development and to assess the efforts that it is making to ensure that housing services to the American public continue uninterrupted by the Year 2000.

    Why is the Year 2000 computer problem relative to the housing sector, you might ask. Quite simply, computers play a role in the delivery of Federal and State housing assistance in the private sector real estate and mortgage business and in embedded chips which control building systems affecting heating and lighting, security, cooling and other functions.

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    From a Federal prospective, HUD is to be congratulated for being able to confirm that it has met the highly publicized March 31, 1999, deadline for Federal agencies to finish fixing and testing their mission critical systems checking. It is also to be commended for its outreach to thousands of business partners, ranging from investors and lenders to State governments, public housing agencies, the multi-family industry, real estate brokers and grantees.

    Yesterday, the full committee held a hearing dealing with the Year 2000 problem in the banking industry. With the Year 2000 rollover just eight months away, the public and the media are demanding assurance that financial services will weather any potential Y2K problems.

    Similarly, in the housing sector, we should be prepared to devote all efforts necessary to ensure that all of HUD's disbursement systems will work and that timely payments are delivered to mortgage lenders, public housing authorities, State agencies and others. We should take all steps necessary to ensure that residents in HUD-assisted housing are secure when January 1, 2000, roles around in the dead of winter.

    Clearly, one thing can be known with certainty. There will likely be some temporary inconvenience or difficulty associated with the Year 2000. What one cannot forecast with certainty is how significant the problem will be, either for individuals or for the economy as a whole.

    It is our expectation that, come December 31, 1999, HUD will be able to carry out its responsibilities such as booking premiums for FHA mortgage insurance and making payments under the Section 8 rental assistance program with few problems. However, no one can guarantee that there won't be errors, delays or other snafus.
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    That uncertainty makes critical the development and implementation of contingency plans to ensure the continuity of HUD services under any scenario. It is up to HUD and its business partners to educate Americans affected by HUD programs precisely how their housing situations could be affected by Y2K. For that reason, we are honored to have with us today HUD Deputy Secretary Saul Ramirez and HUD Inspector General Susan Gaffney, who have been working together on Y2K at HUD. We are also pleased to hear from three organizations representing several of HUD's business partners discuss their coordination with the department.

    [The prepared statement of Hon. James A. Leach can be found on page 38 in the appendix.]

    With that, let me introduce our panel formally.

    The Honorable Saul Ramirez is the Deputy Secretary of the Department of Housing and Urban Development. Mr. Ramirez is the department's chief operating officer overseeing the day-to-day operations of an agency with budget authority of $25 billion and 9- to 10,000 employees through the administration of all of its programs, functions and authorities.

    Mr. Ramirez is accompanied by Gloria Parker, the Chief Information Officer at HUD.

    The Honorable Susan Gaffney is Inspector General of the Department of Housing and Urban Development. Ms. Gaffney conducts, supervises and coordinates audits and investigations relating to problems in operations of the department.
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    Ms. Gaffney is accompanied by Ben Hsiao, who is Director of Information Systems Audit Division at the Office of the Inspector General with HUD.

    We will begin with you, Mr. Ramirez.


    Mr. RAMIREZ. Thank you very much, Mr. Chairman. Good morning.

    Let me, on behalf of Secretary Cuomo and the department, thank you for the opportunity to testify on the Year 2000 computer challenge as it affects HUD's and the agency's business partners in housing and real estate. If it pleases the committee, I would like to include my oral testimony as part of the written testimony that was submitted.

    Chairman LEACH. Thank you. The full statement will be in the record, as will that of Ms. Gaffney.

    Mr. RAMIREZ. Thank you very much.

    First, let me start by saying what I think you would like to hear from me this morning about the Year 2000, Mr. Chairman, and that is that HUD is ready. HUD's Year 2000 readiness is evident by the ''A'' that HUD received on the last Year 2000 Progress Report Card.
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    To display HUD's Year 200 readiness, I will focus my remarks specifically on the three areas that we were asked to address: first, the Year 2000 remediation and testing of internal mission-critical systems at HUD; second, business continuity and contingency plans at HUD to reduce the risks of Y2K business failures; and, third, HUD's communication with business partners.

    First, let me start with the Year 2000 remediation and testing on internal mission critical systems at HUD.

    Mr. Chairman, HUD is proud to announce that it met on or ahead of schedule all of OMB's Year 2000 application systems goals.

    On September 25, 1998, we fulfilled our commitment and completed the Year 2000 renovation of all of our computer applications five days ahead of OMB's Year 2000 renovation goal.

    On January 28, 1999, HUD completed validation testing and certified our entire application inventory as Year 2000-compliant three days ahead of OMB's Year 2000 validation testing goal.

    On March 31, 1999, we completed the implementation of all these compliant applications into HUD's Year 2000-compliant production environment on schedule with OMB's Year 2000 implementation goal.

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    The point that I would like to emphasize here is that HUD addressed its entire application inventory, both mission critical and nonmission critical, within OMB's Year 2000 mandated goals, even though OMB focused only on mission critical application systems. HUD will continue to recertify all major enhancements and date-related modifications to its legacy application systems, as well as certify all new applications built during calendar year 1999.

    Renovating, testing and implementing our application inventory is the first step in ensuring that HUD's business will continue to operate in the Year 2000. In order to further validate that HUD's business will continue to operate on January 1, 2000, we are currently performing an Integrated Certification Test, or ICeT, also know as an end-to-end testing of our nine most critical business processes.

    In order to properly certify that these business processes will be performed correctly in the new century, the applications that support the critical business functions will be tested together. Applications which interface with HUD's external business partners are included in the ICeT in order to further ensure and encourage the readiness of our data exchange partners.

    Second, business continuity and contingency plans are being developed at HUD to reduce the risk of Y2K business failures. As you may surmise, it is not enough just for HUD to be ready. The thousands of banks, mortgage companies, public housing authorities, State, local and tribal governments with whom HUD does business need to be ready, too. While we can't do the work for them, we are providing them with a vital tool, information.

    Obviously, remaining in full operation after January 1, 2000, is everyone's goal; and HUD is highly confident that the work that we are doing with our computer systems, as stated previously, will see us safely into the other side of the millennium. The successful operation of HUD's core business functions depend heavily on complex information systems and a wide range of internal and external products and services and the uninterrupted operation of the major information technology infrastructure. Therefore, we have developed contingency plans that support our core business processes.
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    HUD has developed specific, detailed steps the department will take to work around the Year 2000-induced failures, including identifying what would cause HUD to initiate a work-around and how we would resume normal operations.

    We are continuing to refine our business contingency plans on a bimonthly basis to ensure the processes will continue or resume in the case of internally or externally related Year 2000 technology failures with minimal impact to the customer and to the department.

    Finally, HUD's communications with business partners.

    The next area I would like to speak about today is the extensive Year 2000 outreach program that HUD has undertaken over the past year-and-a-half. The goal of this campaign is not only to raise awareness of the problem in general, but to let our partners know what HUD is doing about it and what they can do about it as well and what resources are available to help them.

    On March 30, 1999, HUD sponsored a nationwide broadcast titled: Six Steps to Year 2000 Readiness. Over 2,000 individuals from housing authorities, tribally designated housing entities and public housing authorities viewed the broadcast from 151 sites nationwide. A copy of the video and accompanying workbook was distributed to 18,000 of our business partners.

    In addition, we have created a brochure outlining the Year 2000 challenge to HUD and our business partners and posted Y2K information at several sites on the World Wide Web, including information on specific data exchanges with HUD systems. We have sent Year 2000 awareness letters to our business partners. Along with the Office of the Inspector General, we have conducted briefings for groups such as housing authorities and housing management associations across the Nation and look forward to working in the future with them.
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    There is other important outreach work being done collectively by the Administration, such as that being done by the President's Council on Year 2000 Conversion. We are leading an interagency assessment with the Departments of Agriculture and Interior that is evaluating the housing sector's preparations for the Year 2000. Based on our initial survey December of 1998, the housing sector as a whole is aware of the Year 2000 problem, but it is largely unaware of the scope of the problem, Mr. Chairman, particularly when it comes to embedded microchips.

    There is also an immediate need to define critical milestones for the assessment, renovation, validation and implementation of mission critical applications and embedded chips in order to be Year 2000 ready well before December 31, 1999.

    Overall, Mr. Chairman, 25 percent of those surveyed have completed work on their mission critical systems and only a meager 8 percent have completed work on their embedded chips.

    Because of our business partners' needs, we have identified critical milestone activities that must be completed for them in the Year 2000 so that they can be ready. These milestone activities are distributed in our ''Six Steps to Year 2000 Readiness'' video and workbook.

    As a follow-up to the initial housing sector assessment, HUD has distributed a Year 2000 assessment survey to 14,000 business partners, with a response due back by April of 1999. The results will be available toward the end of May of 1999, and the housing sector will be reassessed in June of 1999.
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    So, in conclusion, as I have stated, HUD has taken major steps in ensuring that our business will operate in the Year 2000 and during the calendar year. We will continue to focus on minimizing HUD's Year 2000 risk.

    I want to thank you for the opportunity to be before you, Mr. Chairman, and stand ready to answer any questions as you deem necessary.

    [The prepared statement of Saul Ramirez can be found on page 41 in the appendix.]

    Chairman LEACH. Thank you, Mr. Ramirez.

    Ms. Gaffney.


    Ms. GAFFNEY. Thank you, Mr. Chairman, Mr. LaFalce, Mr. Vento.

    My principal role here this morning is to introduce Ben Hsiao to you. Ben, as you said, is head of our ADP audit division. He has very significant expertise in Y2K issues, which I do not have. He is going to be making the introductory remarks on behalf of the Office of Inspector General.

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    I would just like to say two quick things: One, I think it is fair to say that the Office of Inspector General and HUD have been working together pretty well to resolve the Y2K issues. But second, there is one area where I think there is apparent disagreement, and that has to do with the chief information officer position at HUD.

    As that position is now established, it is only a policy position. It doesn't have operational authority. The OIG believes that if that position had policy and operational authority, we could do better on our Y2K progress and do better in information technology overall. We believe that that approach would be consistent with the Clinger-Cohen Act, and it would also parallel what HUD has done with its chief financial officer and chief procurement officer positions.

    Chairman LEACH. Thank you, Mrs. Gaffney.

    Mr. Hsiao.


    Mr. HSIAO. Good morning, Mr. Chairman and Members of the committee. My name is Benjamin Hsiao, and I am the Director of Information Systems Audit Division for the HUD Office of Inspector General.

    I am pleased to appear before the committee today to discuss our work on possible Year 2000 problems facing HUD. I have submitted my full statement to the committee, which I ask to be made part of the hearing record; and I will now give a brief opening statement.
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    The inability of the automated systems to handle the Year 2000, or Y2K, date change is a well-publicized problem. There is a real possibility that numerous computer systems within HUD will malfunction or produce incorrect information simply because the century date has changed. As a result, HUD's systems that use dates to process payments, loans and other needed information are at a risk of generating incorrect results. These failures at HUD will interrupt the process for homeowners seeking mortgages, the distribution of subsidies to tenants and landlords and the filing of insurance claims.

    With respect to its internal systems, the department recognized the century date change problem early and started a Year 2000 project in 1996. Since then, HUD has allocated over $64 million through Fiscal Year 2000 to address the Y2K problem. Significant progress has been made.

    HUD has increased the management attention by placing the Y2K project management with a Chief Information Officer who now reports directly to the Deputy Secretary. HUD has also renovated and certified 100 percent of its systems; initiated a quality control measure called Independent Verification and Validation for the Y2K work; and prepared a high-level departmental Y2K contingency plan.

    However, we believe a number of issues must be addressed. Senior level management control over the entire Year 2000 project is essential. The CIO should be given the direct authority over HUD's Office of Information Technology and Contract Personal performing Y2K work to ensure that the best practices and standards are followed. In addition, the CIO must have the necessary IT resources to rapidly respond to catastrophic problems caused by Year 2000 failures.
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    The department also needs to implement an industry-wide accepted best practice, called configuration management, which is a tool used for preventing errors in the renovation process and maintaining the integrity of the already renovated millions of codes within HUD's systems.

    There are also a number of other improvements needed in the renovation and testing areas that are more fully described in the submitted testimony.

    Failures of HUD's computer systems will have a significant and costly effect on HUD's operations. However, the consequences of Year 2000 system failures of housing units managed by HUD business partners would be even greater. Housing residents could face serious risk to their health, safety and welfare and place HUD and its business at risk of costly litigation.

    Every year, HUD allocates millions of dollars to various housing authorities and project owners that develop, own and operate assisted housing developments. Their primary responsibility is to assist low-income families in obtaining decent, safe and sanitary housing.

    We surveyed a sample of housing authorities and project owners and found a majority had neither performed a risk and impact assessment for Y2K compliance nor prepared a Y2K contingency plan. More troubling is that a majority of the housing authorities and project owners had not completed an inventory of equipment with date sensitive controls that use embedded microprocessing chips. These embedded computer systems control, monitor or assist in housing operations that include building security systems, elevators and air-conditioning and heating equipment. The failure of these embedded systems would jeopardize the safety, health and welfare of housing tenants.
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    This is a complex problem because the microprocessors that are embedded in building and operating and control systems are hidden, numerous and frequently interconnected. For example, buildings that house tenants may have their heating, ventilation, air-conditioning, security and fire alarm systems interconnected by various microprocessors where a failure of one would affect the others. Failures of these systems would result in tenants being without heat, high security risk areas become unsecure, and fire alarm systems malfunctioning. In addition, elderly or disabled residents are at risk if the medical devices that they depend on cannot work because of power outages.

    Because of the risk and cost of potential failures could be extremely high, contingency measures are needed to mitigate these risks.

    Although HUD has taken a number of commendable actions such as sending out thousands of survey letters and broadcasted and distributed an informative videotape, we believe more proactive actions are needed. We suggest the department, one: systematically assess and monitor Y2K readiness of its business partners; two, determine additional funding needs and, if necessary, establish a special emergency fund for Y2K; and, three, set up fast response technical teams and hotlines to help business partners.

    In conclusion, I would like to say that our office has and will continue to actively participate in reviewing and assisting HUD's efforts to correct the Year 2000 problem. We must all work together to minimize the impact of the millennium date change on HUD's services and the health and safety of those that rely on these services.

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    Mr. Chairman and Members of the committee, I would be happy to respond to any questions that you or other Members of the committee may have.

    [The prepared statement of Benjamin K. Hsiao can be found on page 47 in the appendix.]

    Chairman LEACH. Thank you very much.

    Mrs. Parker, did you want to add anything to the panel discussion?

    Ms. PARKER. No, thank you.

    Chairman LEACH. Thank you.

    Let me just thank you all, and I appreciate the cooperative attitude between the two offices present as well as the recommendation that appears to be an administrative one that the Inspector General has made.

    Let me ask, does HUD plan to ask the committee for any Y2K-related legislation that might assist in contingency planning for the ability to prepay or waive penalties or, for that matter, to limit liabilities which is the rage and counter-rage of Congress at the moment?

    Mr. RAMIREZ. Yes.

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    Chairman LEACH. Do you have any legislative proposals for us?

    Mr. RAMIREZ. Yes, I do. And I would like our CIO to give you a bit more detail on what we are going to be turning in to the committee.

    Chairman LEACH. Ms. Parker.

    Ms. PARKER. Yes. We are in the process of working with other agencies and, through Mr. Koskinen, to request prepayment at the end of the year prior to the Year 2000. In the event that there might be a problem we would already have those things prepaid. That is ongoing at this point.

    Chairman LEACH. Thank you.

    Is there a date for which HUD will not insure, subsidize any properties whose systems or equipment is not Y2K-compliant?

    Mr. RAMIREZ. Is there a date that we will not——

    Chairman LEACH. Not insure or subsidize. You haven't—I mean, let us say that there is a project that is coming up for renewal or a new proposal.

    Mr. RAMIREZ. We don't have any plans to cut off services as a result of our partners not being Y2K compliant. What we are going to do is set up contingency plans to be able to work around them and to assist them in bringing them back online.
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    What we will be doing is that if we find ourselves in a situation where there is a major meltdown with one of our partners, through our special actions division, we will be dispatching on the scene folks who assist in coordinating whatever work needs to get done to build a work-around and to get us back into working order and Y2K-compliant. This is being coordinated through our Chief Information Office and through Ms. Parker.

    Chairman LEACH. Mr. Hsiao, you delineated a number of things that could happen in a building, embedded chips and other problems. It strikes me that, in the broad issue of shelter, it is awfully critical that heat be delivered, and people understand that. It also strikes me that, with all of the talk, no one knows how serious it is, that there may be an elevator or two or 200 or 2,000 or 200,000 that may malfunction in the country.

    It is no big deal if an elevator in a well-to-do building or a building with well-to-do inhabitants in New York doesn't work for an hour or two, although there might be lawsuits and that sort of thing. But I would sure hate the idea of—that there ends up or if there were to end up being an income class delineated result, that is that buildings housing well-to-do worked and buildings housing low income didn't. I think that would be potentially, I think, an embarrassment for HUD and I think an embarrassment for the country.

    Maybe the elevator issue could be the symbol issue of HUD. I don't know. Do you have a list, for example, of all elevators in the country and are you giving particular attention to the elevator issue?

    Mr. HSIAO. We did some research on the embedded systems. Most elevators that are not computer controlled—that means that they were built probably pre-1960's-1950's era, and so forth—are not going to have any problem. They are leftover electromechanical driven.
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    However, a lot of buildings, hospitals in particular, have computer-controlled systems that interconnect these electromechanical devices with a computer controlled by microprocessor chips. That is when date functions may or may not be an issue.

    But the encouraging news is that only about 5 to 10 percent of the chips have date functions. The question is, which 5 or 10 percent? That is the reason why assessments, particularly assessments of buildings, is essential.

    The housing providers need to do an assessment, do an inventory to find out just exactly whether or not there is an issue or problem. Some of these assessments could be done very quickly.

    The other thing they could certainly leverage—there is a wide range of buildings that have already been tested by various electrical engineers, and so forth, and that information is available through all kinds of media—particularly through the internet—which lists manufacturers and products with embedded chips that have problematic date functions.

    No, I do not have a list of all of the elevators, and so forth. But it is certainly a worthwhile question to ask if you own and operate a building with elevators: Are the elevators controlled by microprocessors that may have a date function?

    Chairman LEACH. Fair enough. I don't want to dwell on this subject. But I will tell you if the elevator at the HUD main building here doesn't work, if the elevator here at the HUD building doesn't work, that is no big deal. But it would be awful in a major housing project that elevators didn't work, and they would seem to be working elsewhere.
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    I just think in terms of social cohesion that we ought to have a major understanding that Government-assisted programs are going to work as well as any that are not Government assisted.

    Ms. PARKER. Mr. Chairman, may I add to the response to that question?

    Chairman LEACH. Yes, Ms. Parker.

    Ms. PARKER. We mentioned in our testimony that a survey is being conducted this month, and we will have the result of that in May, with all of the housing authorities and business partners. That survey will very specifically tell us the situation with embedded chips in elevators and other devices that include embedded chips.

    We will also do a survey beyond that one, I think, in the month of June, with those results coming back as well.

    In our videotape that went out to 18,000 business partners along with a workbook that went out to them, this clearly gives them the steps that they need to take to address the embedded chip problem not only in elevators, but heating and ventilation systems and other areas. We have covered that, and we will have detailed information back from them with the surveys.

    Chairman LEACH. Mr. Ramirez, you don't think that it is a sign from heaven, the embedded chip problem, that we ought to have lower-rise buildings?
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    Mr. RAMIREZ. Yes.

    Chairman LEACH. Maybe it could be.

    Mr. RAMIREZ. Absolutely. We are working toward that.

    Chairman LEACH. Fair enough.

    Mr. LaFalce.

    Mr. LAFALCE. Thank you, Mr. Chairman; and again I want to commend you for having this technical, but very important hearing nevertheless.

    What I propose to do is read portions of my opening statement that I would have made and then ask you to comment on some of the points and questions that I raise within it so, if you would make some notes, that would be my statement and questions, if you will.

    The written testimony today offers considerable hope that there won't be any crash. Deputy Secretary Ramirez knows that the department has complied with the repair schedule established by OMB and has its internal systems remedied, tested and implemented.

    I am pleased that HUD has laid the groundwork for its external testing where it checks to see if it can communicate with its many clientele. This is end testing, more specifically, an integrated certification test. Its success is crucial, since a functioning HUD assumes its computers are talking to those of lenders, loan services, Ginnie Mae services, landlords, public housing authorities, the mortgage insurance community, and many others, including disbursing agents such as the Treasury.
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    I was also pleased that this ICeT, if you will, includes another pass at the basic computer code by persons independent from those that develop that code. However, the entire ICeT is slated to be completed in August, which gives little time should there be problems to be ready for January 1. So I think it would be appropriate to request HUD to supply the committee or the Subcommittee on Housing with periodic updates on how well that testing is going on a schedule that could be worked out with the department and the appropriate committee staff.

    My request is based on the observations and testimony of the HUD IG. Although the testimony is generally favorable—it commends HUD for improving the Year 2000 efforts—there are certain reservations.

    For example, the remediation of software was conducted without the use of automated configuration management, or CM, a technique used to assure the changes of software in one place do not produce distortions and lack of integrity at another point. I know there was a legitimate difference between the department and the IG over this item, with the department believing that CM would take too much time to deploy and delay corrective action.

    I also realize that HUD attempted to compensate for this by using another manual checking technique and independent verification and validation, for example, which I believe was done by Price Waterhouse. However, the IG maintains there was a lack of consistency in that review.

    They have also expressed reservations that possibly defective data fields might have been missed due to the manual as opposed to the automated interventions of their mediation process. This is something that we should be on top of.
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    And I would also like more comment on the Mortgage Bankers Association tests to be conducted on external data exchanges between HUD, including FHA and outside parties. I believe that the Ginnie Mae outside interfaces are to be done next week and the FHA checks are to be conducted sometime in May and June. As I understand, the Mortgage Bankers test will be the only opportunity that outsiders will have to check their interfaces with HUD in these important areas. So we need to know the results of these as soon as they are available. These are all-at-once trials as opposed to one-on-one interchanges and pose an array of difficulties that come from lessened individual attention.

    Above and beyond that, non-HUD mortgage operations, such as for Fannie and Freddie, also appear to be bound up in the Mortgage Bankers test. Mass testing may not be inherently inadequate. The securities industry has been proceeding in that manner and, I believe, well. But Congress should know how well they are going, specifically with HUD and HUD-related activities, since we are such significant stakeholders in HUD's activities.

    In this regard, I hope that the department can adopt the suggestion by Norwest Mortgage with conference calls with the lender and issuer communities during the coming months, including the opportunity for questions. HUD needs to be especially aware that many of those with whom it interfaces are insured depositories, their subsidiaries are affiliates under the strictures of the Federal Financial Institutions Examination Council, and their examiners will not take kindly to any delay when it comes to Y2K fixes.

    Additionally, quite a few of the firms with which HUD exchanges data must meet in some area of the businesses the demands of Freddie Mac or Fannie Mae. They are both imposing severe penalties for falling behind in remediation.
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    Consequently, given this overall picture in housing and finance, it would be smart, I think, for HUD to heed the Norwest idea as an expediter of testing and contingency planning.

    Would any of you care to comment on any of the points that I have made?

    Mr. RAMIREZ. If I may, Ranking Member LaFalce, on the ICeT and certification and configuration approach, it was pointed out to us by the Office of Inspector General—and, again, let me restate that this has been one of those projects where we have worked hand in hand and the collaboration has been quite fruitful for the department and also to reach our partners, so much so that we are redoubling our efforts in the future to work with the Inspector General's Office so that, when they are out making their calls on housing authorities and others, they will also be following up with additional information to see if embedded microchip problems and others, that they are Y2K compliant.

    We did take their concern to heart. In fact, we updated our risk mitigation plan to include establishing the baseline under this configuration management process of which we will start testing at the end of this month to be able to capture any of that slippage that may exist, understanding that we have over 50 million lines that we work with and just in spot checks that both the IG and we have made that the slippage is minimal, that we will be able to capture them, go back to the original baseline and make the necessary modifications posthaste.

    But I think your idea to give you a periodic report is one that is well worth our effort in putting it together to submit it to the committee to let you know where we are in that regard.
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    On the single family premium programs, recognizing that we are putting in a major system, what we have done is put the current system up to speed and made it Y2K compliant so that if, for whatever reason, we slip on the new system, of which you mentioned we start testing in May for buildings, in June for payment, and move into an entire industry-wide process by September, that we have that additional backup to go back to the old system with those institutions that aren't able to match up to the new system as a result of them not being Y2K-compliant so that we can have some workaround during that time.

    But the idea of having regular communications with them is an excellent one and one that we will be working through the Chief Information Officer, Ms. Parker, to set up with the industries to make sure that they are kept in the loop.

    Ms. PARKER. May I add to that comment?

    First of all, I think it is a great idea for us to continue to communicate in whatever format is required by the House. We would be happy to do that.

    Our ICeT testing, the integrated certification testing, which includes testing of our nine major functions within HUD, those tests will, in fact, go so far as to test all of the data exchanges with the business partners that exchange data with us through those nine major business functions of HUD. So that testing will be done.

    In terms of configuration management, your statement is absolutely correct in that, had we done what was being asked of us, we would have slipped on our schedule to complete the deadlines that were given to us. So we did a manual configuration management. However, we have always planned to continue to move toward an automated configuration management, and we have been doing that. We are implementing that right now.
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    We are also, in terms of checking code after testing was done, we have been working with the Department of the Treasury as well as the Department of Agriculture, I believe—no, Social Security Administration. They have been using a product called CCD Online which tests all of the code after we put it back into production. We are in the process of bringing that code in to test all of our code to make sure that everything that was put back into production will work.

    Those things that have been addressed by the IG we have implemented into our plans; and we are, in fact, pursuing those enhancements through the processes that we are going through.

    Mr. LAFALCE. Mr. Hsiao.

    Mr. HSIAO. I just want to add a couple of points about that.

    We have been reporting on the problem with the configuration management since 1996. It is something that HUD needs to do. But recognizing that at this late stage a full configuration management with all of its inventory of codes and production, and so forth, it is probably going to be difficult. However, there are automated tools, and so forth, that HUD had already purchased and will purchase for some other platforms that certainly could help in the process.

    You always want to try to use automated tools as much as possible, so certainly you could cut down on the intensive manual approach, because manual approaches generally are intensive and error prone.
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    Let me just add something about configuration management, and you are right-on about the importance of that. In industry, very often a lot of the departments do not gain full control of their systems, simply because people who are developing the code write programs. They do not like to go through a check-in and check-out process. However, as everyone knows that if you are working on the same version of a particular document or anything, very easily if many people are working on it, you lose the version and what kind of changes is the one that is the appropriate one.

    And for this reason, configuration management is absolutely essential and particularly in the Year 2000 process because there are a lot of changes being made. Once you place it back to production, if you do not have a strong configuration management, there is a chance if there are some other errors introduced and you construct that same code, that you could have messed up what you corrected already. And that is essential, why it was important.

    Your idea about coordinating on the interface testing is absolutely important and absolutely essential. The interface testing is another very, very serious concern that we have and, that is, that those testing results will have to depend on people with programmatic knowledge. The results—you can pass a test, but not necessarily know whether or not the results were produced correctly. The calculation, and so forth, needs someone who knows the intimacy of the programs to be able to tell you, yes, it produced the right results. It didn't introduce errors. Because when you pass data back and forth during the Year 2000 renovation process, there are various ways to handle the problem. There is the expansion method, what they call the windowing technique, and that depends on what type of pivot you use. All of those technical details could foul up the data exchange, and you have to make sure that it is done correctly. So coordinating with the business partners before you do the test is absolutely essential and crucial.
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    And HUD has, I believe, sent out its requirement for the testing, but you have got to make sure all the other sides understand and know how their programs, or how their data, is going to be sent as well, you know.

    Mr. RAMIREZ. If I may, just in regard to the outreach work we are doing, we have been holding conference calls and we would be glad to include Norwest in any call as well. We have been working with MBA testing both FHA and Ginnie Mae, and our ICeT plans actually include tests beyond the MBA test, and we have worked with other financial institutions; and we will be glad to coordinate with Norwest and others that are interested in getting material information, and they do allow for an opportunity to interchange.

    Now, in regards to what was mentioned on how we are verifying what we are doing and whether it works within the business environment, our teams are made up by the business end and not the technical side to make sure that we are capturing the business process in an effective way. And so it is one where we have included as a full participant as verification of these systems the business process and not just the technical side.

    Chairman LEACH. Thank you.

    Mrs. Roukema.

    Mrs. ROUKEMA. Thank you, Mr. Chairman. I apologize both for my voice and the fact that I was not here when you made your full report. But I will go over your testimony in detail. I want to return to the question that the Chairman asked originally, because I didn't really hear with specificity the answer. That was, does HUD need any legislation from this committee to deal with contingency planning or temporary authority that you might need that relates to prepayment, waiver of penalties, financial penalties? I am not completely informed on that, but I do understand from staff and others that there are some requirements of the law that might be restrictive to you.
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    In addition to that question, does the configuration management that you have just stressed in answer to Mr. LaFalce require some statutory authority that you might need, particularly in coordination with the business community? Do you feel completely confident that nothing else is needed, or is there a way that we can sponsor some legislation that would be supportive and expedite your problem?

    Ms. GAFFNEY. I think others can answer better than I on the technical issues. I don't know what this committee can do about it, but there may be funding needs among the people that HUD deals with. That is, they really were not prepared to address this issue, and now they need money. We are hearing about shortfalls.

    Mr. HSIAO. Right. We did a sample survey and found that most of them didn't plan for this and there is a shortfall for some of the housing authorities and perhaps the project owners as well.

    Mrs. ROUKEMA. And does that relate to the penalties that are existing and required under the law, or is that a completely separate issue?

    Ms. GAFFNEY. It is simply for them to do the work.

    Mr. HSIAO. Right.

    Mrs. ROUKEMA. Well, then it sounds to me as though maybe you are saying that you will give this a little further thought and get back to us if it is necessary.
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    Mr. RAMIREZ. There is no question that we do need some additional legislation to further enhance our efforts to get our partners, in particular, to participate in these activities. Although our surveys indicate that they are aware of the Year 2000 problem that may exist, they have done very little to actually address it themselves.

    And I would concur with the statements that were made by the IG that there are housing authorities and others that have not planned any sort of resources to deal with the problem, and that is something that they are going to be facing in the very near future.

    We are working with the President's Council on the Year 2000 on specific legislation that would be governmentwide to set certain policies that we would need to implement as a result. But specific to HUD, there is some legislative amendment that would be required, and we are working with our program areas to present several proposals to this committee.

    Mrs. ROUKEMA. And time is running out, isn't it?

    Mr. RAMIREZ. We recognize that.

    Mrs. ROUKEMA. Ms. Parker, do you have anything to add?

    Ms. PARKER. I agree.

    Mrs. ROUKEMA. Does this apply in any way to Mr. LaFalce's reference to the cooperation that Norwest, for example, is requesting? Do we need to do anything legislatively with respect to that kind of coordination?
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    Mr. RAMIREZ. Well, we have been wrestling with that one internally as far as setting policy as to what do we do to encourage our partners to become Y2K compliant. And it can get to the point where, if we start to insert penalties or withholding of funds, that it would be counterproductive to our effort in delivering our programs or our service in that regard. And it is a tough balance that we are trying to deal with. But we are making every effort and are looking for any possible avenue to be able to make our partners more aware, give them the information that they need, the step-by-step process they need to follow in order to make sure that they are Y2K compliant.

    Mrs. ROUKEMA. Thank you. We look forward to working with you in the near future.

    Mr. HSIAO. I would just like to add, I don't know specifically what kind of penalty. I am mainly focused on the technical issues, but I have seen a lot of fear of liability within the industry. In fact, the big six accounting firms will not conduct testing because they fear liability. I just hired an auditor in Texas and he used to work for a utility company as an auditor, and he says they are holding people responsible by having them personally signing off on embedded chips on the system that they have. So it becomes a personal responsibility.

    That goes a long way to make sure that someone doesn't do anything else but focus on this particular issue. So I think that should be required, if anything could help to make them more accountable, the housing providers, and so forth, I think it would help them to focus on this particular issue.
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    Mrs. ROUKEMA. Thank you. That is very helpful. Thank you, Mr. Chairman.

    Chairman LEACH. Mr. Vento.

    Mr. VENTO. Thank you.

    Mrs. JONES. Mr. Vento, I am your colleague way over here on the other side of the room.

    Mr. VENTO. I yield to the gentlewoman.

    Mrs. JONES. Would you give me a privilege just for one moment? Chairman Leach, Deputy Secretary Ramirez, seated in the back of the room are some young people from the Youth Build program that is funded by HUD. They stopped by. Stand up, folks, so that they have a chance to see you. And since we were talking about HUD, I thought it would be nice to have them have an opportunity to say hello to you, even though you are in a hearing. And so I thank you very much for that opportunity that you would yield, my colleague, Mr. Vento.

    Chairman LEACH. Will the gentleman yield?

    Mr. VENTO. I yield further, Mr. Chairman.

    Chairman LEACH. Are these youth from the State of Ohio?
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    Mrs. JONES. Yes, they are. All over from the State of Ohio. I didn't say that.

    Chairman LEACH. Are they extraordinarily well represented in Congress?

    Mrs. JONES. Unfortunately, only one is from the 11th Congressional District of Ohio. Some are from Dayton, Tony Hall's district; some Columbus, other districts. But they are here for a two-day conference, Mr. Chairman; and I thought it was a wonderful opportunity for them to lay their eyes on you and me. And they say that the program is a wonderful program, by the way. Thank you very much, Mr. Chairman,.

    Chairman LEACH. Well, we welcome them; and I apologize that their introduction to a congressional hearing is on such an esoteric subject as Y2K. The war and peace function is not at issue.

    Mr. Vento.

    Mr. VENTO. Thanks, Mr. Chairman. I think they are all pretty well represented, based on my knowledge. And I am happy to yield to Representative Jones to, in fact, introduce them, and I welcome them personally myself.

    My question really relates—I don't think this necessarily has been answered specifically, Mr. Ramirez, but it looks like the Assistant Secretary for Housing, Federal Housing Commissioner Apgar, has pointed out in his letter that we had of November 12, that the system should be modified and tested. This was sent to all multifamily owners, apartment agents, and interested parties: ''In keeping with the schedule set by the White House Council on the Year 2000 systems, it will be tested by March 31, 1999. Proof of these modifications or certification that they are not needed should be provided to your local multifamily HUD office or program office no later than April 15th, 1999.''
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    So can you give us any type of insight as to what is happening with this?

    Mr. RAMIREZ. Well, we are conducting an extensive survey to make sure that we address those particular complexes that may not be Y2K compliant. And I know that each assistant secretary has taken responsibility for their own program areas, and what I would like to do is have our CIO comment a little more on that.

    Mr. VENTO. My concern would be if there has been a lot of contact with regards to that, such is not needed. It sounds to me like there is a major misunderstanding. At least you obviously point out in your testimony that the GAO overstated the problem, so I am interested in whatever type of feedback. We are not quite to April 15, that magic date.

    Mr. RAMIREZ. It has been a little slow coming back. That is probably one of the biggest problems, and I think that the IG would concur that, again, people are aware of this Y2K phenomenon; but they don't relate it to their own activities per se.

    And, for example, our response to that letter, there has only been about a 20 percent response rate in regards to that. So it is not one of those things that our partners are focusing on. We are making a concerted effort that is nationwide to build up additional awareness of the importance of them doing that. The latest step that moved it up a notch was that we have had a broadcast that deals with very specific tests, a video that we sent out to 18,000 partners with a workbook so that they could follow through with it. But it is a challenge for us to engage our partners in this process of them verifying on their own that they are Y2K compliant, Congressman.
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    Mr. VENTO. Ms. Parker, did you have any comments?

    Ms. PARKER. If I can add to that, the Deputy Secretary is absolutely correct. The challenge is to get the housing authorities, our business partners, to focus on fixing this problem the way we have. And with the 20 percent response, that indicates that we do need to continue to do outreach. I agree that the workbook, the videotape, the website addresses that give them a lot of information about what they need to do, we have done all of those things. We continue to do surveys to try to track where they are. The letter by Mr. Apgar got 20 percent response rate, but we will continue to pursue that.

    So I think that kind of goes back to the question of should we place penalties. And the answer was, if we place penalties, we are actually hurting the recipients. So we are kind of in a position where we need to just continue to do the outreach and try to encourage and educate and do the awareness to get the business partners to adhere.

    Mr. VENTO. One of the things, of course, we heard just most recently was that when there is a further probing of this issue that takes place, there are concerns about inadequate resources to, in fact, accomplish these particular objectives. Of course, HUD has no special funding other than putting out the educational and doing the other type of work in terms of yourself, like, for instance, the desktop modifications that you are talking about to your many computers that you have apparently at the various offices throughout the system.

    Right, Mr. Ramirez?
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    Mr. RAMIREZ. You are correct, Congressman. We have been working within the resources that we have been provided through our IT and S&E accounts to deal with the Y2K issue as it relates to HUD; first, our processes internally, but also with our partners. And the question that we are wrestling with at this very moment is how far should we push outside of dissemination of information, coordination of the effort with our business partners to engage them to a greater extent. So you are correct, Congressman.

    Mr. VENTO. I know my time has run over, Mr. Chairman; but what about other entities, for instance, a building owner and managers' associations or other such private sector groups, are your efforts coordinated with theirs? I assume that they are, based on the type of material that we have.

    Mr. RAMIREZ. Yes.

    Mr. VENTO. They don't have a regime or protocol that is different from the protocol that HUD is recommending; is that correct?

    Mr. RAMIREZ. That is correct. And we have, in fact, with the help of NAHRO and other organizations been highlighted in their monthly or quarterly magazines on what we are doing, what they can do; and we will continue to work with our association partners and others to get that information out to their members.

    Ms. PARKER. BOMA has participated with us in a satellite broadcast that we did across the country. BOMA was on the panel and is working with us to ensure that the message is going out.
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    Mr. VENTO. I don't want to delay my colleagues; but the other issue is the CM issue, the configuration program that the OIG has recommended. And I note that they also had talked to the fact that the office of information should have a different status.

    Did you have any response to that, Mr. Ramirez? I heard that there is some logical differences on configuration management. Do you want to address the authority placed in the information office?

    Mr. RAMIREZ. Well, the chief information officer—and we believe we have met not just the spirit, but the intent of the Clinger/Cohen Act and delegating the authority that we have to the CIO. We have, as a result of that—she has now approximately 50 staff that have been assigned to her to primarily focus on policy development and information.

    Mr. VENTO. It may not have been that there is an inadequate amount of staff or resources or responsibility, but that the designation with regards to the office or the character may be somewhat inappropriate.

    Mr. RAMIREZ. I think that the biggest disagreement that we have in this regard with the Inspector General's Office is that they feel that the administration of the day-to-day IT operations should also fall under the chief information office. And the way that our system is currently set up managerially, we feel that it could be much more effectively coordinated through our administration office and the assistant secretary for administration.

    Mr. VENTO. Ms. Gaffney, has he accurately portrayed the circumstance?
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    Ms. GAFFNEY. Well, I guess he has. It is just hard for me to understand why that situation exists where you would have the entire information technology staff, the operations, reporting to an assistant secretary for administration who is not presumably a technology person, who would then have to interface with the CIO—I don't understand why that promotes efficiency.

    Mr. VENTO. Well, I don't know either, except that this is a short-term, and I assume not a long-term type of an issue, so it is something that is going to come up that maybe there should be some flexibility. I don't know.

    I know my subcommittee Chairman has been waiting to ask some questions and he has other matters that are pressing. So I will at this point, Mr. Chairman, yield back as he assumes the chair.

    Mr. Lazio.

    Mr. LAZIO [Presiding]. I thank the gentleman and thank you very much.

    Mr. Secretary, Madam Inspector General, Mr. Hsiao, Mrs. Parker, welcome. I will recognize myself for a few minutes.

    I understand that most of the ground has been covered, so I don't want to be redundant. I thank you all for your fine work. Obviously, this is of significant concern not just from a governmental standpoint, but its impact on people in the private sector. There are some things that are beyond the control of HUD that could well affect the management of buildings and the effect on tenants, everything from utilities and transportation and the various reliance on services, Social Security checks, and Medicare. All of these things are going to be very much—and have been very much—a part of the governmental oversight on the Y2K issue.
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    Let me, if I can, ask Mr. Hsiao this: There have been certain critiques by the Inspector General's Office involving Y2K issues from a management standpoint. I am wondering, beyond these concerns that you have raised which are sort of organizational and configuration management technical issues, is there any other concerns that you have about the ability of the department to correct the Y2K problem?

    Mr. HSIAO. Yes, there is. As you well know, the department has gone through a tremendous downsizing. A lot of the programmatic knowledge is perhaps not completely lost, but certainly at risk as a lot of the people with the knowledge are not available to be able to participate in a test. As the deputy and the CIO pointed out, it is really crucial to have the business people in HUD, the people who are knowledgeable about the programs, to be able to take a look at the results of the test and be able to determine whether or not they have in fact produced the right results. That involvement is going to be time consuming, and it is something that we have to plan very carefully and hopefully leverage it as much as we can. But there is a risk that that portion of the test may not properly be completed as it should be to mitigate the risk.

    Mr. LAZIO. Does that speak to institutional knowledge and longevity of people in these tasks involving testing on an informational basis?

    Mr. HSIAO. Yes.

    Mr. LAZIO. Madam Inspector General, anything that you would like to add to that in terms of additional concerns that we should be aware of beyond, again, the sort of organizational problems or concerns that you might have with the department and its ability to tackle Y2K?
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    Ms. GAFFNEY. It sounds, I know, as if we are saying that everything is pretty much wonderful. No one should be getting that message. We are not going to know until we complete the end-to-end testing, what kind of problems there are. So you need to stay with this effort, on top of it. And I think that Mr. Ramirez would agree with that.

    Mr. HSIAO. I would like to also add that this does not come around very often, the century date change.

    Mr. LAZIO. Thank goodness.

    Mr. HSIAO. We didn't have any automated systems the last time. There is very little experience to go on. It is an unknown. It is kind of like waiting for a hurricane or snowstorm. You don't know how many inches or how strong the wind is going to be. We don't know. The key is to be able to assess and figure out where the vulnerabilities are; but to make predictions to say that we are low risk or high risk, I don't think it is proper to do that.

    Mr. LAZIO. Let me ask, if I can, both the Secretary and the Inspector General: Are there incremental goals that you have established that will allow you to sort of demark whether benchmark goals are being met?

    Mr. RAMIREZ. Yes, sir.

    Mr. LAZIO. And do you have—is that committed to writing? Do you have that by way of an agreement? Is that something that you can share with the committee?
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    Mr. RAMIREZ. Yes, sir, be glad to.

    Mr. LAZIO. That would be very helpful. Let me ask both of you again: What do you think is the most appropriate time for us to revisit whether these benchmarks are being adequately met?

    Mr. RAMIREZ. Well, we will—the majority of our verification process will be done in August. But we will be—it is not an all or nothing, and I wouldn't want to say that we are living in an environment that we have pushed perfection in addressing the Y2K problem. But we have taken every reasonable step to anticipate the difficulties we may run into. We will be—as we go through our verification process, end-to-end verification, we will be capturing any weaknesses as we go through that process. So by August everything will be tested, but it is not all or nothing in August. We would be working through that and capturing it. And we will be summarizing what we have done on a monthly basis to make sure that we are capturing not just the progress that we have made and the verification is succeeding but also where we may be weak, sir.

    Ms. GAFFNEY. Mr. Chairman, I think we keep going from the internal HUD systems issue to our business partners issue, and answering sometimes not consistently. I think it is true that with respect to internal HUD systems, we are on track. We have some problems and some reservations, but we are working with HUD. I think if you listen to everything that has been said about the interface with the external business partners, that is a whole different story. There needs to be a whole lot more communication. We don't really know, to be fair—and we are trying—but we don't know where that stands. It seems to me that that is an area that the Congress could help HUD with, perhaps in convening the industry groups and trying to get a real dialogue started.
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    Mr. RAMIREZ. We have mounted a major effort, and it didn't just start. We have sent out over 100,000 pieces of correspondence to our partners. In our most recent effort and accelerated push we have actually sent out a step-by-step process to deal with the Y2K problem. And our current survey and the response to that survey, by the way, that we have set it up will allow us to, at this point, be able to focus on the ones that did not respond to the survey and target our efforts much more intensely at those that didn't respond than to those that did, as a result of this current survey that is being sent back into the department, Mr. Chairman.

    Ms. PARKER. If I can make a comment, the integrated certification testing process that we are going through tests all the business functions. We have done systems testing. We are now testing to make sure the business processes work the way they are supposed to. The people that make up that test group are people from the business offices, the program offices, and the business partner community. These are not technicians who are doing the business tests; these are the businesspeople with the institutional knowledge to do that testing.

    That testing will also test our interfaces with all of the business partners that come through those business processes that are being tested. So we will be more than happy to give a monthly report, or whatever frequency you would like, on how that testing is going; but all the nine major processes of HUD with the program offices and business partners—we are all going through that process together, and we will report on that.

    Mr. LAZIO. That would be wonderful. If we could get a monthly report, that would be helpful and give us a little peace of mind to know that things are on track.

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    Mr. HSIAO. May I add something?

    Mr. LAZIO. Yes.

    Mr. HSIAO. That is fine. I think it is good to have progress reports, but that is mostly focused on internal systems that is related to passing data to the business partners. But the housing providers is what really needs our attention to be focused on. Our surveys showed that there is a lack of—for lack of a better word—progress in that area.

    And I think, as Mr. Ramirez pointed out before, it may be beneficial for you to ask some of them to come to the hearing and ask what they have done so far in regard to the Year 2000. In particular, focus on the contingency plans. If they are too late to be able to renovate and assess their embedded chips or even their internal financial systems, then fine. They need to develop contingency plans. If you look at the video, one of the housing authorities that has really done a lot of that is in Anne Arundel County in Maryland. It shows that they have made arrangements to have fuel delivered and water, and so forth. They have thought of a lot of things to be able to help the residents in case services are disrupted.

    Mr. RAMIREZ. I would just like to further elaborate on those contingency plans, Mr. Chairman. Again, as it was mentioned by the IG, we don't know the full impact. It is like Ben mentioned, anticipating a hurricane, what the impact is going to be. But what we have done outside of our internal effort and the heightened awareness push that we have made and training push that we have made to get people up to speed is that we have also set up within our contingency plans how to work around the possibility of one of our partners not being ready, their systems collapsing, and us still being able to do business with them so that they do not, in essence, have interrupted financing for their activities in the process, and not just a work-around but also a plan to assist them in bringing them back up to the point that we have gone through our special actions division people ready to dispatch to those areas to help deal with them more effectively.
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    But this is a crap shoot. We really don't know the complete impact, and all we can do is continue to push toward additional awareness, additional training by way of preparing them for the Year 2000 and then wait for January 1, 2000 and see what is going to crash or not. But I couldn't agree more with the IG that our big push now—and where we need your help the most is to bring those partners before you to see what they have done and what they need to do to bring them up to Y2K compliance.

    Mr. LAZIO. They are in the room, I think, some of them. So we will begin that dialogue with the next panel. Thank you very much.

    Mrs. JONES. I have no questions. You all did such a great job that I don't need to ask a question.

    Mr. LAZIO. Thank you, Mrs. Jones. I know that you have been here throughout the hearing so I appreciate that. Any other Members have any questions? If not, I thank the panel for their excellent testimony and the tone of their testimony and commit to work with you to try to ensure that the other participating entities are integrated into this effort to solve the Y2K problem. Thank you.

    Chairman LEACH. [Presiding]. There being a vote on the floor, the hearing will be in recess pending the outcome of the vote.


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    Chairman LEACH. The hearing will reconvene.

    Panel two is composed of Kathy Gray, who is the Vice President of Norwest Mortgage, the Nation's leading retail lender, providing funding for approximately one in every fifteen homes financed in the United States.

    The second witness is George Caruso, who is the Executive Director of the National Affordable Housing Management Association, an organization that represents over half of the privately assisted housing nationwide. George is accompanied by Ben Asmus, the President and CEO of IPM Software in Dallas, Texas.

    The fourth witness is Julio Barreto, Director of Legislation and Program Development, National Association of Housing Redevelopment Officials, representing housing and community development administrators.

    Let me first apologize. This is an extraordinary week on Capitol Hill. The issues from Bosnia and other parts of the former Yugoslavia are rife with committee hearings on this subject at this time. In addition, there is a vote in the International Relations Committee that I am obligated to be at at some moment. So I may call this to a halt rather abruptly and then reconvene.

    Let us begin, unless you have decided on another order, with the order of introduction. Is that all right with the panel? We will begin then with you, Ms. Gray.

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    Ms. GRAY. Thank you. Mr. Chairman, Members of the Committee, I am Kathy Gray, Vice President of Norwest Mortgage. Norwest Mortgage appreciates the opportunity to present testimony today regarding Year 2000 readiness communications from one of our largest third-party business partners, the Department of Housing and Urban Development and its agencies, the Government National Mortgage Association and Federal Housing Administration. Our relationship with HUD has been important to us for more than twenty years and will continue to be so in the future.

    As you can tell by my written testimony provided to you, Norwest Mortgage was the largest mortgage loan originator in 1998, second largest mortgage loan servicer, the largest issuer of Ginnie Mae securities, and the largest servicer of Ginnie Mae MBS. The importance of this relationship is evidenced by numbers warranting the careful monitoring of HUD's overall Year 2000 preparedness, as well as specific testing of electronic exchanges of data integral to conducting routine business activity. As part of our standard process for ensuring that our business partners have taken appropriate measures for Year 2000 compliance, a process that I manage for Norwest Mortgage, we review all available information from the business partners. You can read about the overview of our third-party relationship process within our Year 2000 project in my written testimony.

    Now I will provide an overview of HUD's communication to us regarding the Year 2000. In assessing the Year 2000 readiness status of HUD, we are considering the overall availability of information and willingness to communicate with respect to the following factors and criteria: Overall Year 2000 project status, external interface or data exchange test results, and the adequacy of business continuation plans.
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    Regarding communication concerning project status, in August of 1998 I sent to HUD, FHA and Ginnie Mae a letter and questionnaire requesting information on their Year 2000 readiness. On November 18, 1998, I received a response from Pamela Woodside, HUD Team 2000 project manager. Her letter included HUD's plans for completion of Year 2000 activities at a very high level. The letter also referred to their website, where further information and project updates would be posted. The response for FHA was included as part of the HUD response. Ginnie Mae had already sent all issuers a letter dated July 22, 1998, that Ginnie Mae planned to complete its Year 2000 testing and implementation in December of 1998. All of this information allowed us to make a preliminary assessment of the Year 2000 project status of HUD, FHA, and Ginnie Mae.

    Continued monitoring of a third party's progress is also part of our standard process. Since we received HUD's letter advising lenders to use the website for updates, we reviewed HUD's website. My written testimony provides information about data contained on that website that we used.

    Our follow-up with Ginnie Mae included a discussion with Deborah Holmes, the CIO with Ginnie Mae, about their project status. This discussion gave us more detail than the written letter. This discussion occurred in October of 1998 and at that time Ginnie Mae was done with remediation and testing and was working on contingency plans.

    Regarding the communication concerning data exchange testing, during the discussion with Deborah Holmes of Ginnie Mae we learned that the only external testing they would participate in would be in conjunction with the MBA test. If we wanted to test our external interfaces with Ginnie Mae, the MBA testing would be our only opportunity. On April 5, the MBA's Year 2000 website was updated to reflect that HUD would be testing default reporting and FHA mortgage insurance claims through the MBA test. The test cases for these were almost complete and testing dates in May and June were provided.
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    Regarding communication concerning contingency planning, our process for evaluating a third party's business continuation planning, or what we call BCP, is twofold. First, through discussion or document review we will determine if a third party has developed, tested, and implemented BCP. Second, we discuss touch points we have with the third party. Touch points are methods by which Norwest Mortgage communicates with a third party. The means of communication could be via fax, phone, modem or electronic interface. As we have built contingency plans around these touch points, so have our third parties. It is important for us to know if the activities within our plans will coordinate and this precludes creating plans in a vacuum only to find out later that they could not be supported.

    In relation to HUD, FHA, and Ginnie Mae we have reviewed the BCP on the HUD website. The Year 2000 business continuity contingency plan dated December 8, 1998, outlines the methodology HUD used, identifies HUD's critical business processes for which they are generating contingency plans and confirms that plans have been developed. To obtain information on our touch points, we are planning conference calls with the appropriate parties within FHA, HUD, and Ginnie Mae. We had an initial conversation with FHA last week and a conference call with HUD and Ginnie Mae is scheduled for this week.

    In summary, to date the pertinent information received has been with respect to HUD's remediation and testing of their internal systems. During the rest of 1999 the communication should emphasize activities planned throughout the remainder of the Year 2000 initiative in addition to completed activities. Included in the planned activity should be HUD's test plans for external interfaces, techniques to be used in testing whether directly or via proxy as allowed by the FFIEC, and contingency planning information specifically as it impacts Norwest Mortgage as a lender and issuer. With this information we will be better able to coordinate our plans for testing with HUD and establish workable, executable contingency plans.
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    We understand that HUD cannot speak one-on-one or test external interfaces with all their third parties. At the same time, the timely sharing of this information is critical to overall project success. So how can the information reach those with the need to know? HUD's website is a great place for this type of information. Timeliness of posting of information is critical, and we would also recommend HUD establish conference calls with the lender and issuer communities to explain their plans for external interface testing and business contingency and to entertain questions. In this way HUD will achieve greater efficiencies in communicating a consistent message to a large audience at one.

    Thank you for the opportunity to address you.

    [The prepared statement of Kathy Gray can be found on page 57 in the appendix.]

    Chairman LEACH. Thank you, very much.

    Mr. Caruso.


    Mr. CARUSO. Good morning, Mr. Chairman, Congressman Lazio, Congressman Schakowsky. I am glad to be here and we appreciate the invitation. You have our written statement.
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    In looking at Year 2000 we would like to break the issue really into four pieces, if we could. The four pieces are financial management, building payment and reporting issues, building components and systems—we are going to get to elevators in a minute—safety and security systems within the buildings, and then finally resident services, because that is really how we see the issue working for us.

    On the private side those of us who work with HUD in privately owned assisted housing, we are already well into the Year 2000 with regard to the financial management and reporting systems. The reason for that is fairly simple and that is that we are required to submit the paperwork related to leases, income certifications and other materials to the department roughly 60 days in advance of the initiation of a lease period. All leases run a year. So effectively for most of our members we started working in the Year 2000 in early November of 1998. At this point we have roughly five months of data in the can with HUD regarding resident certifications and leases and other matters. And to the best knowledge we have, most of this data has gone in and stayed in.

    Since October of 1998 we are told that the department has not been accepting data that we submit that is not Year 2000 compliant. I am only getting occasional episodic information from my members that they are getting information that is known as edit kickbacks. That is the term of art that they use within the department.

    One of the benefits of Year 2000 for us is we look at the wider system that the department uses, which is known by the acronym of TRACS, is when the system was brought online about five years ago, it is a very complex system. It works reasonably well most of the time, but it has a fairly high rate of not working. So as a consequence of that, most of our members are fairly well trained in the art of, ''Well, the payment didn't arrive this month, what do we do?'' And we have worked out pretty good systems over the years. That is not to suggest that TRACS is a disaster system and people are able to send anything to HUD and things fall apart regularly. That is not the case. What it is though is that it doesn't work just often enough that we have had to set up good backup systems, cash management systems, and other regimens.
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    In that connection I found out in some conversations yesterday and today in preparing for this testimony that HUD will have its first live test ready for us in late May and early June of this year. To this point we have not been able to take live data in a test format, run it down the telephone line to the department, and see if it actually works. We are sending it down the telephone line, we are not hearing much come back on the telephone line, but we are not entirely certain that it all works. The first live test where we will be able to set up a dummy contract and dummy data and ship some data to see how well it works is, we understand, scheduled for late May, finishing up in early June. Our members would be most interested to run some tests when the test site comes up.

    Secondarily, because the TRACS system is a little fussy and we have had some payment difficulties, we have, working with Frank Malone and the Office of Housing, set up good systems with the HUD field offices to bridge payment problems if there are payment problems. So effectively where we are on the financial side is, unless there is a very significant meltdown that would last more than 30 to 45 days at the first of the year, most of our members are in pretty good shape because we already have most of the systems in place necessary to weather that kind of a delay. That isn't to suggest that we would enjoy it. But it is to suggest that we would be able to handle it.

    Let us talk a little bit about building components and systems. Mr. Chairman, you mentioned earlier that you were concerned that there might be an income class delineation with regard to whether or not elevators work on assisted properties. I can give you a piece of good news on that, and that is that it is highly likely that the elevators in the Section 8 elderly property in Boone will work better than those on Park Avenue. The reason very simply being is when these properties were designed we were for the most part using the lower cost electromechanical systems, and for the most part the embedded chip technology, which there has been earlier conversation about, doesn't pertain to us nearly as much in the vast majority of the portfolio. There is a small slice of high rise buildings, predominantly located in Chicago, Boston and New York that will be affected and we can talk more about those later.
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    Chairman LEACH. If I could interrupt you there, my point is very simple and I appreciate you hearing that. It is all right for me if the HUD buildings' elevators don't work and if a few buildings in New York of well-to-do people don't work—I am sorry, Mr. Lazio. It would be awful in high-rise apartments in Chicago and Boston.

    Mr. CARUSO. I couldn't agree more. I just wanted to reassure you, not in any disrespectful sort of way, that because of the nature of the design of those buildings, most of those systems are electromechanical and they pretty much don't know what year it is anyway, so they will work reasonably well. We are reasonably confident there is not going to be much of a delineation in that regard. We do feel that we need to look at the small slice of buildings, but for the most part, most of the rest of them are OK.

    Finally, finishing up on safety and security, most of the buildings that we have in our portfolio, the safety and security systems are fairly rudimentary, non-computer related. Even in those cases where they are computer related, most everybody in the building still has a key to the front door and, even if there is a total failure, will work reasonably well. I am not trying to be a Pollyanna here, but many of the problems that are anticipated for the higher end commercial and office buildings just simply won't be a problem given that the vast majority of the stock that we are dealing with was built 20 to 30 years ago and has systems common at the time.

    Finally, we live to serve and assist the residents. That is what we do. We are making every effort to make sure that the residents are comfortable and that things are going to work. Most of our members will be working on January 1.
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    Related to those issues, one of the positives that we do have is since almost no transactions in our business occur in cash anymore, resident fears about not being able to obtain cash or make rental payments, or what have you, are largely nonexistent because it is not much of an issue.

    We appreciate the invitation. We stand ready to address your questions.

    [The prepared statement of George Caruso can be found on page 63 in the appendix.]

    Chairman LEACH. Thank you very much.

    Mr. Barreto.


    Mr. BARRETO. Thank you, Mr. Chairman. Thank you very much for the opportunity to testify. I would also like to give a special thanks to Mr. Lazio for the work he has done in the last four years in putting together the Public Housing Reform Bill. We certainly believe that it provides a framework for housing authorities in particular to operate more efficiently on the local level. We still have some issues that we think need to be addressed, but again, we appreciate the time and effort that you put into passing that bill.
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    What I want to do is cover three issues. The members of NAHRO represent the organizations that administer all forms of housing and community development programs on the Federal, State, and local level. When it comes to Y2K and technology generally, there are three things that concern us. We have been working very well, I think, with HUD in the last year or year-and-a-half. HUD has done a fairly good job of trying to address the problems on their end and really not as much as identifying the problems that exist for local agencies.

    If there is one concern that we have, it is that there really hasn't been a clear analysis of what the problems are in dealing with Y2K and across-the-board technology issues with the end users in mind. Our members again are the principal providers of the various services that low- and moderate-income households receive from the department. The department has really spent a lot of time and tried to address and identify what the concerns are on their end, but really not enough in terms of really identifying where housing authorities are, for example.

    In our experience with housing authorities, many of them did not start to address the Y2K issue until the middle or the latter part of last year. Some of the assistance that HUD has attempted to provide really didn't occur until the latter part of last year or really some of the early parts of this year. So the amount of time and attention that has been devoted to it, while it is improving, is really not where we think it should be. In terms of the partnership with the department there is still more that needs to take place.

    Second, it would be helpful to housing authorities in particular if the department establishes some clear priorities on what needs to get done as far as technology is concerned. Many housing authorities are expending a great deal of time right now complying with the department's dictate to submit data with the multi-family tenant characteristic systems. There are still a lot of glitches in that system and housing authorities have until tomorrow to submit the data or face the threat of penalty. The department has said they will not penalize agencies, the threat exists to the point where agencies are devoting a lot of time and money to MTCS that they could be devoting to Y2K compliance.
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    So there is a concern that the department is not really giving the kind of guidance and establishing the kind of priorities to Y2K that we feel is appropriate. We feel that it should take a higher priority over MTCS, particularly when you consider that of the 3400 housing authorities, more than 1800 are staffed by four or less.

    In 1997, when the department began its effort to become Y2K compliant, it was able to do that because it was able to devote staff to that effort. Many housing authorities can't do that. They have staff that are wearing a number of hats. If there is an analogy that I could use, in 1997, Y2K was sort of to housing authorities what going to the moon was to people who were watching Buster Crabbe movies. It was entertaining, it was a nice little thought, but it was not a reality that people could see. As we get closer to Y2K people are certainly devoting a lot more time to it. But again, because of the multiple things that people have to do, they haven't been able to devote as much time as they want to to Y2K. Most housing authorities are attempting to at least complete the work toward compliance by the end of the summer. Because of a variety of reasons, we think that a good portion of them are going to miss that target date.

    The other is a question of support. There certainly needs to be more financial and technical support available to housing and CD agencies. HUD has developed various hot lines. There have been a lot of meetings with housing authorities and with CD agencies trying to meet the Y2K compliance, but there still needs to be more done. We have one agency that spent three weeks tracking down someone at HUD who could answer their questions on MTS. Even then there were some issues unresolved and more work that needs to get done.

    Financial housing authorities are finding that they are getting bids from consultants that range from $25,000 to $500,000 to help the agency to become Y2K compliant. Obviously, there aren't resources that are available there for these agencies. We are told that we can use existing resources, operating funds, and so forth, to meet that need, but there is already a concern that there isn't enough money, particularly in the operating fund, for housing authorities to do day-to-day operations. Again, you are asking housing agencies to take limited resources devoted to Y2K which could create problems on the administrative end as well.
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    I would also just like to finally say that we would certainly support the efforts to give HUD's chief information officer greater authority to determine what happens technologically within the agency. What we are finding is that you have offices such as PIH or even CPD that are developing software that in some cases can't even talk to each other within those offices. So there really isn't a person that can really dictate what can get purchased or developed within the department to make sure that there are integrated systems that can work with the end users in particular. Sometimes the department develops things that are appropriate for itself, but not necessarily are workable and manageable on the end user side.

    With that, we appreciate the opportunity to testify.

    [The prepared statement of Julio Barreto Jr. can be found on page 69 in the appendix.]

    Mr. LAZIO. [Presiding.] Thank you for your testimony.

    Mr. Asmus.

    Mr. ASMUS. I don't have anything to add other than what George has already mentioned.

    Mr. LAZIO. Thank you very much.

    Let me thank the panel for their excellent testimony. All of their written testimony will be included in the record. I am just going to ask for unanimous consent for my opening statement to be included in the record, and without objection that is going to be entered.
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    [The prepared statement of Hon. Rick Lazio can be found on page 40 in the appendix.]

    If I can, I would just like to yield to myself for a few moments of questions.

    First of all, let me comment on the concern that not enough personnel at HUD know the Y2K issue well enough to respond expeditiously to questions from business partners. The focus by HUD is on internal systems, but HUD needs to reach out and make sure that its partners externally are also prepared for Y2K. That obviously is a common issue that continues to come up and one which HUD needs to redouble its efforts on.

    I am going to address this question to Mr. Caruso, please. If there is a situation where a partner and provider is not Y2K-compliant on January 1 of 2000, what is your understanding of HUD's posture in terms of whether HUD is going to be willing to continue to insure, subsidize a property with its portfolio if its systems are not certified to be Y2K-compliant?

    Mr. CARUSO. That is a very interesting question, Congressman Lazio. Our understanding at present is that Y2K compliance one way or the other doesn't come into the issue of continued payments under the contract. Number one, the contract that virtually all of our members have presently with the department is silent on that issue. Number two, we would assume since a cessation of payments would disadvantage the residents considerably more than it would disadvantage the owners, that that is not a viable option. There will be some small—I am positive that there will be some small portion of the operators out there that won't be compliant when the date arrives. There always is. But they have really said very little to us. I have had a number of conversations with Dawn Kuhn and a lot of people in her shop at the department and Sam regularly communicates with them, and we are not aware of anything in regard to that.
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    Mr. LAZIO. So you haven't had any dialogue either with HUD with respect to whether or not there would be an effect on reimbursement as a result of compliance?

    Mr. CARUSO. No, sir, we have not. You can be assured that coming out of this meeting I am going to make some phone calls and initiate some dialogue, but we haven't had any dialogue to date on that matter.

    Mr. LAZIO. You mentioned that only a small percentage of the overall portfolio have large, complex, very modern buildings where you have chips and Y2K relevancy. Do you think that HUD ought to focus its efforts on that part of the inventory and what could we do to target its outreach to the right inventory?

    Mr. CARUSO. I would absolutely suggest that HUD probably ought to target that group. It is reasonably easily definable. HUD has made a huge effort in the last year with their physical inspection system to develop a good inventory of where they are. They are about halfway through that process at this point, and the system that they have over there can kick out almost instantaneously lists of all of the buildings, for example, that are more than six or seven stories in height. That would pick up the elevator and complex systems issue. As you are aware because of your work on the subcommittee, the vast bulk of the portfolio, as you know, is about 70 units in four or five buildings, two-story walkups. That is one way of doing it.

    The second way of doing it that we have been thinking about is given that a significant number of the community builders that the department has are ex-office and multi-family folk—I was in Des Moines just the other day. The former director of multi-family loan management for Des Moines is now a community builder in Iowa. If you were to detail some of those to the New York, Chicago, and Boston offices to work for outreach on the larger buildings in those areas, you would pick up very rapidly much of that stock that is potentially at risk.
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    Mr. LAZIO. You testified earlier, and I guess my question is really for the whole panel. Particularly on the project-based Section 8 side and the public housing side, the industry in general is well trained in emergency procedures due to their frequent delay in payments for reasons other than Y2K. Doesn't that sort of signal that there is an inherent weakness in the TRACS system and that there are problems even without the Y2K bug, that the system is more vulnerable than most, that is, as the Year 2000 approaches?

    Mr. CARUSO. Would you like me to or Mr. Barreto to——

    Mr. LAZIO. I would like to hear from both of you, actually.

    Mr. BARRETO. One issue dealing in terms of disbursement of funds that is a Y2K issue has to do with the Integrated Disbursement Information System, IDIS, that the department has. It is not Y2K compliant. Many of our CD agencies are extremely concerned about the ability to access those funds to report the information that is necessary in order to receive funding and the impact that that will have on nonprofits, small businesses, general contractors, and so forth. We certainly believe that there is more that HUD needs to do on its end to really shore up the disbursement of funds, the system that it uses to disburse funds. Part of it again has to do with the fact that HUD is developing systems that aren't integrated, they are incompatible in many cases with local agencies that will disrupt the flow of the administration of many programs.

    The biggest complaint we get from housing authorities is the lateness in receiving payments from the department to go to Section 8 owners. When those payments are delayed, the housing authorities are the ones that get, if you will, the flak from the owners for late payments. Typically, the problem is on the department's end. The department particularly, at least historically has been very slow in addressing the issues that need to be addressed on their end to make sure that payments are provided in a timely fashion. As we enter into Y2K we are extremely concerned about what will happen on those project-based Section 8 developments, the 202s particularly, with the elderly and the disabled, who are assuming they would be adversely affected by that.
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    Mr. LAZIO. Somebody in the end has to finance those delays. I don't know who is in the best position to do that, but obviously the ideal situation is to straighten that out right now so that we don't have that kind of liability that has to be financed by other property owners or other providers.

    Mr. CARUSO. On the private side, particularly the private for-profit side, it is troublesome, but less of a problem than it is for our nonprofit owners because, obviously, on the for-profit side we generally have some working capital reserves we can fall back on. To reach back and address your earlier question, I am not sure that the fact that TRACS, that there are delays with it and data glitches necessarily signals a weak system. The system sucks up, and Sam can address it, an enormous amount of data. There is a lot of data pieces. Effectively, if all of the little pieces aren't exactly in a row when it goes in, the record tends to get kicked for edit and you look at it again. I would be cautious in drawing the conclusion that because we tend to have delays and problems with it that it necessarily implies a weak system that is more vulnerable going into the Year 2000.

    Mr. BARRETO. Congressman, if I may, I think this may also underscore the importance of the notion of prepayments prior to December 31, 1999. It is certainly better to be safe than sorry. My wife and my brother-in-law, each of them have about twenty-plus years of computer programming experience and they are both working five, sometimes six days a week, twelve hours a day in trying to make sure that the Government agency they work for is Y2K compliant. Even working in those amount of hours they are still not sure if they are going to be in compliance at the end of the year. Again, when it comes to providing shelter in the middle of winter in some portions of the country, I think it probably best that we really look more seriously to this prepayment idea to ensure particularly the elderly and disabled—and certainly families—are taken care of once the turn of the century occurs.
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    Mr. CARUSO. That is a notion that we could sure get behind as well.

    Mr. ASMUS. One other thing in terms of defending TRACS. It is not the TRACS part of the program that tends to be the problem. It has enough checks and balances in it to be Y2K compliant and has been that way since the late 1980's, when it was designed to file formats. It is movement of that data into other systems that are dependent upon human input; the approval of the contracts in a timely fashion, getting that into another computer system by the name of LOCCS, and I can't remember what it is an acronym for. That is a major holdup for our customers. If we hit that not being approved in a timely fashion, not having funds allocated from the budget in a timely fashion, they are doing this six months worth of dancing with reserves in order to pay bills to keep the property open waiting for HUD to get there. I think that might be a result of the reduction in staff.

    Mr. LAZIO. My time has expired. I would like to follow up on that, but I will do that privately. I also wanted to just acknowledge Ms. Gray's comment about establishing some conference calls with lenders and I am going to be encouraging the department to do that. It is very doable, number one, and would be the responsible thing to do. It would bring the industry, the lending industry in in an effective way so that we could compare notes. That needs to be coordinated. So I want to thank you for that suggestion.

    I want to ask now, if I can, if other Members have questions.

    Ms. Schakowsky, you are now recognized.
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    Ms. SCHAKOWSKY. Thank you, Mr. Chairman.

    Mr. Caruso, I represent the City of Chicago and I was wondering if we could get a list of those buildings in Chicago that are your members, that you said there are some there?

    Mr. CARUSO. Yes, ma'am. You certainly can. I would be happy to provide that to your office.

    Ms. SCHAKOWSKY. I would appreciate that.

    Mr. Barreto, I was a little disturbed by your testimony and the tone of it which focused a whole lot more on all of these reasons why you are—there is a good chance many of the housing authorities are going to miss the deadline, and all of the problems that they are having, that you are having, rather than focusing on what is it that is being done. For example, I guess—maybe I don't understand your association, but if you have a member that is taking three weeks to get an answer, what role do you play then in helping to expedite, to be a liaison, to focus on Y2K and serve some sort of function to ease the way?

    Mr. BARRETO. We have actually been meeting with the department in trying to improve the information that is available to our members to address these issues. Whenever we hear those issues from our members, we have been talking to the department. We work with them in the development of some of the information that they have distributed to our members. We have HUD attending the various State and regional chapter meetings that we have and national conferences to address this thing. We have been working with the department on this.
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    The concern again that we have is that HUD's focus on us has been much later than we would have preferred in terms of the kind of information that they are sending, even in terms of really understanding both the issues that they need to address as well as some of the issues that our members need to address.

    Ms. SCHAKOWSKY. But here we are now and it is April. The Year 2000 has been predicted to come for a very long time. So what is it now that you would recommend? I feel like I am hearing a lot of whining about what HUD is not doing, but what should we be doing, what should HUD be doing?

    Mr. BARRETO. The first thing is that we think that HUD needs to—the information they have sent out, I think, has been very helpful. The next thing that we are working on our end and also working with the department is clearly identifying where people are at in their efforts to become Y2K compliant. We have some surveys that are going out in the next couple of weeks. The department has done its survey to monitor its program progress, and we are doing some work at our summer conference in terms of identifying some individuals that can help our members. Once we have identified the problem areas, if it is a question of resources we are trying to talk to the department to make resources available so that housing authorities can hire the consultants they need for the work that needs to get done. There are a wide range of things that we are doing both with the department and with Congress in terms of trying to identify and make available resources.

    Ms. SCHAKOWSKY. When you say that there is a good chance of many missing that deadline, what deadline are we talking about and what is it that is not going to be done?
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    Mr. BARRETO. For many of the housing authorities, they are looking at the end of the summer in terms of completing all of the work that they need to do in order to become Y2K compliant so they can start doing a testing of their own systems to determine where they fall. We have heard from some members who feel that they may not be able to make it toward the end of August, that it may be the end of September or early October before they have completed everything that they needed to do.

    Ms. SCHAKOWSKY. You are saying that you are just now surveying—how come you didn't survey your members earlier?

    Mr. BARRETO. What we have done is survey our members to try to find out where they are technologically; how many of them are using Windows-based software versus still on—if you will—a mainframe system. That was the first set of surveys that we did. Now we are doing the next phase to look at where people are with Y2K compliance. Even in terms of trying to identify and trying to get a better sense of how many people are online, have access to the internet, versus those that don't. We have been doing, in some steps, if you will, trying to identify where——

    Ms. SCHAKOWSKY. Do you have any estimation of the 3400 housing authorities, how many will not be in compliance by the deadline?

    Mr. BARRETO. No, we don't, not right now. Hopefully, the latter part of the summer we will and I can get that information to you.

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    Ms. SCHAKOWSKY. That is when the deadline is, so we will all know.

    Mr. BARRETO. Right.

    Ms. SCHAKOWSKY. You don't have any prediction in advance who is going to have trouble meeting the deadline?

    Mr. BARRETO. Possibly one-third is our best guess right now.

    Ms. SCHAKOWSKY. So we are talking over a thousand.

    Mr. BARRETO. Right.

    Ms. SCHAKOWSKY. That is a problem. Thank you.

    Chairman LEACH. Thank you.

    Mr. Barr.

    Mr. BARR. I have no questions. I appreciate the panelists being here and I appreciate your leadership and Chairman Lazio's leadership on these issues to monitor the situation, Mr. Chairman.

    Chairman LEACH. Thank you, Mr. Barr.
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    I just have one question for you, Mr. Barreto. You said that, as I understand it, that IDIS is not Y2K compliant. I thought that HUD had said that everything was. Could you elaborate?

    Mr. BARRETO. In talking to our members who have tried to access IDIS and their interactions with the department, HUD—IDIS is not right now Y2K compliant. It is not even accessible over the internet. So right now what people have to do is dial up on sort of a single modem, if you will, in order to access it. I know that HUD is working on it, but it still has not, to our understanding, come to the point where it is Y2K compliant.

    Chairman LEACH. The norm of the committee is not to have witnesses who have smart sisters-in-law. Is anyone from HUD still present? Yes, sir. I hope that you take this back to your department, this concern.

    Norwest, Ms. Gray, do you have any comments on the IDIS issue?

    Ms. GRAY. No.

    Chairman LEACH. Does anyone else? You don't have sisters-in-law?

    Mr. BARRETO. If I could just stress one other point, referring to Mr. Asmus on the human error, I think that again the importance of ensuring that the department has systems that are integrated and that can talk to each other, I think that that will help to minimize the amount of human error and save time really in terms of the whole process before disbursement of funds occur. Again, within CPD, I think the only software that the CPD has that is Windows-based is Community 2020 and most of the software within that office cannot talk with each other. I think that it is an issue that really needs to be addressed within the department.
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    Chairman LEACH. I appreciate that. Mr. Lazio has a little bit of conflict with this statement, but this committee has a little competition with the Commerce Committee on some issues. What you have testified is that the SEC may be in difficulty. We have a vested interest to make sure that HUD is ahead of the SEC. Is that a fair concern to reflect?

    Mr. LAZIO. That is a fair concern for you to have, Mr. Chairman.

    Chairman LEACH. We will be informally in touch with HUD about the IDIS problem.

    Is there anything else that anybody wants to raise that relates to HUD compliance that hasn't been raised at this point?

    Mr. CARUSO. I think not. We are very pleased that you saw fit to invite us, Mr. Chairman. You can be assured that on the private side we are working very hard to make sure that this transition will not affect our residents in any way.

    Chairman LEACH. I appreciate that. I appreciate you all agreeing to come. This is an oversight responsibility of the committee and we take it very seriously. As I said at the Banking Committee yesterday, our goal is to at this time next year have the public wonder if all of this Y2K concern was, ''Why so much?'' On the other hand, if we don't pay attention to the problems, it appears that this is one of these extraordinary modern issues for which ramifications can, based on something rather small, prove to be very extraordinary. It is almost as if Y2K was a virus. That is a bad analogy, but it is a grave difficulty.
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    In any regard, I thank you very much. The hearing is adjourned.

    [Whereupon, at 12:42 p.m., the hearing was adjourned.]

    [insert offset folios 37 to 88 here]