H.R. 1776--the American Homeownership and Economic Opportunity Act of 1999

SPEAKERS       CONTENTS       INSERTS

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H.R. 1776—THE AMERICAN HOMEOWNERSHIP AND ECONOMIC OPPORTUNITY ACT OF 1999

WEDNESDAY, SEPTEMBER 15, 1999
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Banking and Financial Services,
Washington, DC.

    The subcommittee met, pursuant to call, at 10:00 a.m., in room 2128, Rayburn House Office Building, Hon. Rick Lazio, [chairman of the subcommittee], presiding.

    Present: Chairman Lazio; Representatives Leach, (ex officio), Ney, Campbell, Barr, Kelly, Terry, Metcalf, Roukema, Frank, Velazquez, J. Maloney of Connecticut, Hooley, Weygand, Carson, Vento, Lee, Goode, Schakowsky, Jones, and Capuano.

    Also Present: Representatives LaFalce and Gutierrez.

    Chairman LAZIO. The hearing shall come to order.

    Good morning, I want to welcome everybody to the Subcommittee on Housing and Community Opportunity hearing on the American Homeownership and Economic Opportunity Act of 1999.

    I want to welcome our two distinguished colleagues who have graced us with their presence. I have had a discussion with the Ranking Member, Mr. Frank, and for the courtesy of the two Members testifying who have other pressing legislative business, if we can withhold all opening statements, and go straight to them.

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    I want to acknowledge Mr. LaFalce as well, and welcome him as the Ranking Member of the full panel here.

    And I now acknowledge Mr. Aderholt from the great State of Alabama, and Mr. Etheridge from the great State of North Carolina, who I understand is facing some uncertainty about the weather in his home State. We are certainly thinking about folks back home for you.

    If we can, I would like to turn directly to Mr. Aderholt and welcome you here and compliment your fine work in the House of Representatives since you have been elected. You are recognized.

STATEMENT OF HON. ROBERT B. ADERHOLT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA

    Mr. ADERHOLT. Thank you. Thank you, Chairman Lazio, Ranking Member Frank, thank you for all of the Members of the subcommittee for the opportunity to speak before you today on legislation that will help consumers achieve homeownership, while at the same time strengthening the standards-making process by which some of the most affordable homes are built.

    I will be speaking specifically about Title VII, the Manufactured Housing Improvement Act. Manufactured homes are one of the only truly affordable homeownership options available to many Americans. As representatives of the Federal Government, we should be doing as much as possible to ensure that construction and safety standards are updated on a timely basis. This will be done with enactment of the Manufactured Housing Improvement Act.

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    This legislation will, entirely at the industry's expense, establish a private sector consensus committee composed of homebuyers, industry experts, consumer groups, public officials, engineers and technical experts. The committee would make recommendations to HUD, and the recommendations would be published in the Federal Register for public comment.

    The HUD Secretary will have the final authority to accept, to reject or to modify the recommendations for any reason and must act within one year of receiving the consensus committee's recommendations. Industry will also pay for additional HUD staff to help administer programs, along with additional funding for the travel and for a non-career administrator to oversee the program.

    The current HUD code was enacted in 1974, when manufactured homes were predominantly trailers and were in the transition period to the mobile homes of yesteryear. Today's manufactured homes are predominantly permanent structures that contain most amenities found in site-built homes. Unfortunately, the HUD code hasn't kept pace with the many safety innovations and technologies of today's marketplace.

    Recommendations made over several years by the advisory committee to HUD staff hasn't been acted on due in part to loss of two-thirds of its staff over the last decade. While staff size has diminished over the past decade, the industry has grown 100 percent during the 1990's.

    At a time when more than 5.3 million Americans are paying more than 50 percent of their incomes on rent, it is essential that we enhance the affordable housing options that are available. Not only will these Americans who are currently paying such a high percentage of their incomes on rent benefit, the taxpayers will also benefit as fewer people will be in need of subsidized housing.

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    This legislation has two taxpayer benefits: First, it will strengthen the manufactured housing program at HUD without cost to the taxpayer; and, second, it will ultimately allow taxpayer subsidized housing to independent homeownership.

    Title VII is supported by such groups as the Seniors Coalition, 60 Plus Association, United Seniors Association, TREA Senior Citizens League, the North American Steel Framing Alliance, the Council for Affordable and Rural Housing, the National Association of Affordable Housing Lenders and the American Homeowners Foundation.

    I urge my colleagues to support this legislation, to move it quickly through Congress. Many Americans will benefit from the stronger standards-making process for manufactured housing, and a strengthened program will give more people an even better option in their attempt to move away from dependency on subsidized housing to that of homeownership.

    Thank you.

    Chairman LAZIO. Thank you, Congressman.

    Again, I want to thank you for your great work in the Congress and, more particularly, on manufactured housing and providing alternative affordable housing opportunities for folks throughout the country.

    And I could say the same thing about your colleague to your right, Mr. Etheridge, and welcome you to the subcommittee again and now acknowledge you for your testimony.

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STATEMENT OF HON. BOB ETHERIDGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA

    Mr. ETHERIDGE. Thank you, Mr. Chairman. Let me thank you and Ranking Member Frank and the Members of the subcommittee for allowing me the opportunity to testify this morning on this very important piece of legislation.

    I apologize for the raspiness of my voice, but I hope I make it through.

    I will limit my comments this morning to Title VII of H.R. 1776, which really deals exclusively with manufactured housing. Whether you may know it or not, I represent the people of the Second District of North Carolina, and I have some knowledge of this industry, because I have probably the largest concentration of manufactured housing plants in my district. And they have done a wonderful job for our local economy in terms of jobs, affordable housing, and the community at large. They have been great community supporters.

    I also serve as co-chair of the House Manufacturing Caucus with Representative Ken Calvert.

    Mr. Chairman, with an average home price of about $43,000, excluding land, manufactured housing is an affordable way for housing to be made available to people of low- or modest-income so they can own their own homes. These homes have undergone a radical transformation in appearance and performance from the trailers and mobile homes of yesteryear to the truly attractive homes that they are today.

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    Each of these factors has contributed to the appeal and success of manufactured housing. Today manufactured housing represents one in four of the new housing starts in America, 25 percent. However, this situation is not entirely rosy. HUD by its own admissions has fallen behind in keeping the manufactured housing construction and safety codes up to date. As a direct result, many safety features and new technologies that should be included in the construction and safety codes have fallen by the wayside.

    Title VII of H.R. 1776 would change this. The consensus approach embodied in the bill represents a common-sense solution in updating the manufactured housing code in a timely manner at absolutely no cost to the taxpayer. For the very first time, consumers will have a real voice in setting new housing standards and deciding how this Federal program should be regulated. I think that is very attractive.

    These improvements will alter neither the authority of the Secretary of HUD nor the current structure of the HUD inspection system which I think is important. The Secretary will retain full and final authority to accept, reject or modify the consensus of committee's recommendations or interpretations.

    Under Title VII the Secretary will also retain the right to propose manufacturing housing standards, regulations and interpretations.

    In closing, Mr. Chairman, this legislation calls for reform that we in Congress really should embrace. Today's manufactured housing provides millions of Americans with the opportunity to realize the American dream of homeownership. In an era of diminishing Federal resources for housing, manufactured housing offers non-subsidized housing that people truly can afford.

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    I encourage each of you to help move this valuable legislation to the full House so that we can in Congress exploit this opportunity and provide people with an opportunity to own their homes.

    Thank you, Mr. Chairman.

    Chairman LAZIO. Thank you, Congressman.

    Do any Members have any questions for Mr. Etheridge?

    Mr. Aderholt, I apologize, had told me previously he was in the middle of a subcommittee markup in the Appropriations Committee and had to leave.

    Are there any questions?

    Mr. FRANK. Does that mean they are marking up the Labor-HHS bill? That is good news.

    Chairman LAZIO. We are working on it, Mr. Frank.

    Mr. FRANK. What month is this?

    Chairman LAZIO. Imagine all of those offsets.

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    I want to thank you very much, Congressman.

    Mr. ETHERIDGE. Thank you, Mr. Chairman.

    Chairman LAZIO. I am going to move to opening statements.

    For the purposes of kicking that off, I just want to make a few remarks and acknowledge myself and then turn to Mr. LaFalce for his comments.

    We are now moving forward with the consideration of the American Homeownership and Economic Opportunity Act. It builds on our efforts of last year. And while we are at all-time highs in terms of national homeownership, we are still experiencing challenges in certain communities and in certain demographic groups—especially lower-income, minority and first-time homebuyers are struggling with the promise of the American dream of homeownership.

    Many Americans that could successfully reap the financial and sociological rewards of owning a home are continuing to be shut out of the home buying market, because they don't have the right tools or opportunities.

    This bill, I think, addresses some of these concerns and takes major steps towards increasing opportunities for a wider spectrum of Americans. For example, it helps the private sector to produce affordable housing without excessive Government regulations. It also encourages more creative use of Federal and local resources to increase the availability of capital for homeownership and housing production. So we do a better job of leveraging.

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    Furthermore, it fine-tunes existing homeownership programs to ensure increased opportunities within those programs.

    The first step, working to reduce the costs of housing production, will help eliminate excessive regulation and unnecessary regulation that can stifle the production of affordable housing by adding literally thousands of dollars to the cost of a new home. All Federal agencies will be required to include a housing impact analysis with any proposed regulations in order to detect any significant negative impact on the availability of affordable housing.

    I want to acknowledge and salute our colleague, Tom Campbell, for his outstanding work in bringing this to the committee's attention and being stalwart in terms of affordability.

    The second step, increasing flexibility for the use of Federal and local resources in homeownership efforts, will allow State and local governments to leverage home funds for local homeownership initiatives and create a home loan guarantee program so communities can tap into the future HOME grants for affordable housing development.

    We do this through Section 108 loan guarantee now. For other economic development projects the idea is to have that same leveraging and commitment and planning for the HOME program.

    The third step, fine tuning existing homeownership programs, will help those who are already benefiting from Federal homeownership programs to actually stay homeowners. It certainly is a tragedy when individuals and families are shut out of the home-buying process or, even worse, they lose their homes, because they didn't have adequate prepurchasing counseling, failed to get proper inspection of their homes or didn't have access to loss mitigation resources.

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    This bill will commission a study on the impact of requiring a mandatory inspection under the Single Family Mortgage Insurance Program, something that my colleague, Mr. Gutierrez, has been deeply interested in;

    Creates a neighborhood teacher program endorsed by the National Education Association designed to encourage and reward teachers that serve students in our most-needed communities by providing them with a discount and down payment assistance on HUD-held properties in the teacher's respective school districts;

    Grants flexibility to local officials within CDBG programs to create homeownership programs designed to help uniformed city employees, such as firemen and police officers, to buy homes in their jurisdiction;

    Another provision allows residents in public housing authorities to use Section 8 rental vouchers, that would otherwise be used to pay rents, for down payment assistance toward mortgage payments;

    Improve the quality, safety and affordability of manufactured homes, which our colleagues just testified to, by ensuring uniform standards and codes for construction across the Nation and improving the Federal management of the program by establishing a consensus committee to advise HUD on regulation enforcement. I want to acknowledge our colleagues Darlene Hooley, Bob Ney, Ken Calvert, David McIntosh and the two that spoke earlier for their work on this.

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    Establish the Indian Land Status Commission to recommend improvements in the Bureau of Indian Affairs title reviews in connection with the sale of Indian lands and provide Congress with methods to address these concerns.

    This bill, H.R. 1776, promises to build upon the current dedication and hard work of public/private partnerships, communities and individuals with increased homeownership opportunities into the 21st Century.

    I want to thank our colleagues for all of their work in bringing different ideas and concepts to the bill. Let us continue to work together to try to find common ground to increase the opportunities for Americans to own a home and ensure that Congress gets the job done for Americans.

    I would like to now turn to the Ranking Member of the full committee, Mr. LaFalce, for any comments he might have.

    Mr. LAFALCE. I thank you very much, Mr. Chairman, and Mr. Frank for deferring to me so I might make this opening statement. I appreciate your courtesy very much.

    The first question we should ask is why we should be concerned about our basic homeownership and economic development policies and programs. After all, under the Clinton Administration, we have achieved a record homeownership rate: 8 million new homeowners created in the last seven years. We continue to experience an economic boom with strong economic growth, rising incomes, huge increases in wealth, vibrant job creation.

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    But, in spite of all of this, there are millions of Americans and countless communities that have been left behind. They are not in that same boat. The homeownership rate amongst young families has actually fallen over the last few decades. And discrimination, whether past or present or both, continues to limit homeownership opportunities for minorities.

    Further, many communities and many neighborhoods are not participating in an economic boom. Government has a role especially in promoting homeownership and economic development opportunities for those individuals and those communities that have been left behind. So the focus of this bill is entirely appropriate.

    Turning to H.R. 1776, the area that has received the most attention is manufactured housing, Title VII. We do not need a consensus committee to tell us that there is a consensus that our manufacturing housing regulations must be updated. That is a given. And last year a very conciliatory effort went into trying to craft a balanced approach, to authorize a private sector consensus committee procedure to develop manufactured housing recommendations while maintaining final control over manufactured housing regulations in HUD, where it ought to reside.

    Consumer groups like AARP warned us that the original draft bill ran the very serious risk of ceding too much control over the regulatory process to industry groups, potentially jeopardizing the safety of millions of Americans who live in manufactured housing; and, therefore, both sides of the aisle spent a great amount of time and effort to negotiate changes to the bill in an effort to strike an appropriate balance of jump-starting the process, of updating standards while maintaining adequate consumer safeguards and vesting final authority with HUD.

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    Significant progress was made, but the relevant question before us is now whether the current proposal in H.R. 1776 is good enough, whether it can be improved. Now many people on both sides think it is good enough, but it is not a universal opinion.

    For example, AARP continues to raise concerns about this proposal with regard to the composition of the consensus committee, the lack of a minimal Federal requirement for manufacturer's warranty and a State recovery fund. There is, to my knowledge, now no minimum Federal requirement for a manufacturer's warranty, no State requirement for a State recovery fund and also a concern about the lack of a nationally mandated, performance-based installation standard. So we are passing a Federal bill, really facilitating the development in growth of manufactured housing all to the good, but without the requirement of a warranty, without the requirement of some performance-based installation standards.

    So I urge the subcommittee and the full committee Members to consider these issues. Listen especially closely on this point to AARP's testimony today.

    With regard to other sections of the bill, I want to concur with HUD's testimony there is some very good provisions within it, but also some that aren't quite as good. A number of provisions of the bill promote homeownership opportunities, including permitting the use of Section 8 assistance for down payment purposes, authorizing grants for homeownership zones, authorizing home investment partnership loans and mixed-income local loan pools, and Section 204 provides for a streamlined refinance of FHA reverse mortgage loans, which would help senior citizens better utilize such loans when changed circumstances increase financial need.

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    I view those provisions positively. And I point out to HUD and Mr. Apgar, who is here, too, that, with respect to reverse mortgages, at least, you have the independent authority to do by regulation what is called for in this bill. And I think that is something that should be seriously considered by you. And I wish to talk to you further about creative uses of reverse mortgages.

    The bill also includes positive provisions to strengthen neighborhoods and communities, including the reauthorization for the Neighborhood Reinvestment Corporation, which I think does a terrific, great job. We tend to overlook it in the Congress. I am so pleased that its executive director is going to be testifying today.

    But there are a number of provisions that I have some personal concerns about both that are in and not in it. Notably Section 901 of H.R. 1776 establishes a redundant and potentially costly new requirement on HUD to offer foreclosed FHA properties to local governments and CDCs at steeply discounted prices.

    Perhaps there should be a pilot program. But should this be a mandatory requirement—and how deep is this discount? Is this going to delay the process tremendously, a process that in a good many communities has already been delayed tremendously?

    There are some management difficulties right now, so much has been contracted out to the private sector. There are some real problems there. I don't want to make those problems worse.

    With regard to economic development, my concern is not about what is in the bill, but what is not in the bill, Mr. Chairman. For example, H.R. 1776 authorizes $4.7 billion for CDBG for fiscal 2000. Yet our recently passed appropriations bill underfunds that by a quarter-of-a-billion dollars. And H.R. 1776 would authorize Brownsfield reinvestment activities as a permanently eligible activity under CDBG, but the VA-HUD appropriations bill cuts the funding by 20 percent for Brownsfield. And also, significantly, this bill does not address the issue of the APICS New Markets New Development Initiative of President Clinton. Whether it is in this bill or not, the President of the United States has proposed it, a number of us have introduced it, the President's proposal is worthy of a separate hearing on its own merits, whether in conjunction with this bill or separately, and I would encourage you to do that.

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    In closing, I commend you and Mr. Frank and the Housing Subcommittee for holding hearings and considering legislation on the reauthorization of a number of HUD programs, including the CDBG Home Neighborhood Reinvestment, and so forth. And I urge you to continue and do more.

    Chairman LAZIO. I thank the Ranking Member.

    Other Members wishing to make an opening statement?

    Mr. Campbell.

    Mr. CAMPBELL. Very briefly.

    Thank you, Mr. Chairman. I wouldn't be here but for your diligence and concern for the issue.

    Second, I have enjoyed working with Secretary Apgar. It has been profitable so far and I went to his office about a year-and-a-half ago, so this has been a long time in coming. But I hope that we can make some progress with him. I think he is conscientious, and I look forward to the progress with him.

    And, lastly, that the National Association of Home Builders has been very important allies in crafting the Title I to which you very graciously alluded; and I wanted to recognize their help and support for making low-income housing more available in this country.

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    I yield back. Thank you, Mr. Chairman.

    Chairman LAZIO. Thank the gentleman.

    Mr. Frank.

    Mr. FRANK. Thank you, Mr. Chairman.

    First, I just want to stress the importance of manufactured housing. I must say that I have had an abstract appreciation of it for some time, and I worked in the State legislature in trying to improve financing rules, because I think the owners of manufactured housing have been put at severe and unfair disadvantages. The most recent redistricting put many more such units into my district, so I now have a very concrete appreciation of what an important housing resource this is for various people.

    I think it is very important that we go forward; and I appreciate the cooperation that you showed last year, Mr. Chairman, and some things that we put in here to improve the financing. I think that the financing is a major thing. There ought to be equality of treatment between manufactured housing and other forms of housing.

    Having said that, I must note with some dismay that the organizations by which I am being contacted that represent the residents don't like the bill in its present form; and I hope to work with you to make some changes to accommodate their reasonable criticisms, because I would hate to see this whole good bill lost.

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    I would therefore ask to put into the record right now a letter from the Mobilehome Federation of Massachusetts signed by its President, John Flaherty, calling for some changes in the bill.

    Mr. FRANK. I also received a statement from the National Foundation of Manufactured Homeowners, signed by Debra Chapman, who is the Vice President for Government and Industry Relations. I would also like to put that into the record.

    Mr. FRANK. These indicate to me areas where I hope we can make some changes so we can get a bill.

    I note that there is some overlap between some of what they have to say and what the AARP has to say, and that would be reinforcing.

    Then, finally, Mr. Chairman, at the request of a former colleague of some of us longer-serving Members, Mr. Tim Shannon, who represents the National Fire Protection Association, on an unrelated set of subjects, I would like to enter into the record the statement from the National Fire Protection Association, which is a contractor to HUD with regard to some of this. I suppose I should say that in deference to our rule, which says you have to disclose financial contacts with the Federal Government, these people are contractors to HUD. They have a general statement that I would like to put into the record.

    So I would ask that all of these of items be put into the record.

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    Chairman LAZIO. Without objection, that is so ordered.

    Any other comments?

    Mrs. Kelly.

    Mrs. KELLY. Thank you, Mr. Chairman. In the interests of time, I request the permission to insert my opening statement in the record.

    Chairman LAZIO. Without objection, that is so ordered.

    Mr. Vento.

    Mr. VENTO. Thanks, Mr. Chairman.

    Just briefly, I think you have done a lot of work on the bill, and I commend you for it and others that have worked on it. I, too, share some concerns about the manufactured housing standards and the way that this would be implemented and hope that we can further refine that, but I think you are very close.

    I do think that some problems will be raised in anew here. I am especially concerned on the impact on the FHA, the MMI Fund, which has been designed to be, and has been, self-sustaining.

    As you may well remember, Mr. Chairman, we went through a period in the 1980's in which there were questions about the quality of the portfolio of that FHA MMI single family fund, and this proposal and the Secretary's reporting—the Assistant Secretary's reporting to us that there is—there could be, under the transfer of occupied and substandard HUD-held housing, a $3 billion loss annually, and the no-cost financing issue with HECM-type of home equity conversion mortgages and the testimony with regards to, apparently, the interest inserting further provisions in, such as those in H.R. 595, which I am open to explore with the Chairman and the others, but it could be a $200- to $300-million problem.

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    Clearly, if we want those programs to sustain that type of a loss in terms of the fund, we can't expect a self-sustaining fund to, in fact, absorb that. So I hope we can continue to work on those provisions.

    I think we have had a chance of doing some policy work this year, which has been a rare commodity, frankly, coming through the committee and passed on the floor and enacted finally. I hope we can do that, rather than leave this fall between the cracks.

    I don't want to take any more time. I want to hear from the witnesses. I look forward to learning from them their views on this matter.

    Thank you, Mr. Chairman.

    Chairman LAZIO. Thank you very much.

    Any other Members?

    Yes, Mr. Gutierrez.

    Mr. GUTIERREZ. Yes, thank you, Mr. Chairman.

    I want to say thank you to the Chairman for allowing me to participate in this hearing, and thank Mr. Barney Frank for all of his help.

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    I just want to quickly recognize and welcome John Dodds, the Director of the Philadelphia Unemployment Project. Since 1998, I worked with Mr. Dodds in the Chicago-based National Training Information Center to address the growing problem of foreclosure on homes ensured by the Federal Housing Administration.

    And I just wanted to echo some statements that have already been made about HUD's willingness to look for solutions to many problems and, in particular, I want to say thank you to Mr. Apgar from HUD for working with me on looking for solutions to the foreclosure rate of FHA.

    And I want to say, Mr. Chairman, you know, premiums less expenses, we still made $1.5 billion, you know, on the FHA programs still. It is a successful program. It is still a money-maker. And the problem that I find is, as I go out is, that people are adverse to the program. If you can afford a mortgage and you don't need FHA and you don't understand its importance in getting in, people say, ''Well, that is that low-income housing that is boarded up on my block; that is that federally-insured house that got boarded up that screwed up the whole block.''

    So I think that, while we do those things, we have to work in a more expeditious manner to recapture that home and put it back on the market so that we can help people before they lose their homes. I think we can do something, and I think that HUD is looking at ways to change, and I hope that the subcommittee would be helpful in getting and allowing HUD to change the manner in which it can help communities recapture those FHA foreclosed homes and how we get these delinquent developers out there.

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    Most people go out there, build fine homes, people move into them. But let us face it, in this day and age, when everybody seems to be a mortgage broker and everybody has—people come together and they glue a house together and six months later, you know, as a first-time homeowner didn't know what was going on, there wasn't an inspection, because we don't require one, although I'm sure everybody in this room just about wouldn't buy a home without an inspection, and then all of a sudden these unscrupulous people, you know, they take advantage of the program as it is fully insured.

    So, Mr. Chairman, I want to say thank you for helping and putting together this excellent witness list and for working with me and thank you, Mr. Barney Frank, and Mr. Apgar. And I look forward to hearing the witnesses.

    And I would ask that my entire statement be included in the record. I ask unanimous consent.

    Chairman LAZIO. Without objection.

    Mr. GUTIERREZ. Thank you, Mr. Chairman.

    Chairman LAZIO. Ms. Hooley.

    Ms. HOOLEY. Thank you, Mr. Chairman, for putting this together. This is one of those pieces of legislation that really does allow people to, you know, have that great American dream of owning their own home and all of the good things that that does. And I am particularly pleased about the language in this bill dealing with manufactured housing. I mean, it is—I have been dealing with this issue since 1976, and I know the rules haven't been changed since 1974, so it has been a long time coming. And, as you heard before, one out of every four homes in the United States is a manufactured home.

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    Now I know there are still some people that have a little problem with this on some consumer issues; and, hopefully, we will hear those concerns; and we will be able to work those out as we address the issues on this legislation.

    I also am looking forward to the Assistant Secretary's testimony in regard to FHA and how do we do that and about inspections and foreclosures and loss mitigation, those kinds of things. But this is a good piece of legislation that we need to move forward; and I am looking forward to everyone's cooperation in moving this piece of legislation forward and addressing some of those issues.

    Again, I would ask that my complete testimony be put in the record. And, Mr. Chairman, and, Mr. Frank, thank you so much for all of the work you have done on this.

    Chairman LAZIO. Without objection.

    Chairman WEYGAND. Mr. Weygand.

    Mr. WEYGAND. Thank you, Mr. Chairman. I want to again applaud your efforts and Mr. Frank's efforts.

    I want to echo some of the comments of my friend, Luis Gutierrez, about the concerns of the inner city and some of the boarded-up abandoned housing. That really does impact many of our communities.

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    But I, first of all, want to welcome my good friend who is the Vice Chairman of the National Affairs Committee for the National Association of Home Builders, Antone Giordano. He is here testifying on behalf of the national association.

    He has got over 36 years experience in home building, and he comes not only from my district, but my hometown, and I am pleased he is here today with us to share the testimony.

    I was looking at his testimony, Mr. Chairman, and it brought to mind that 26 years ago my wife and I, when we were about 25 years old, bought our first home. We were middle-income, middle America, I thought. I was a draftsman. She was a medical secretary. We paid $21,700 for our first home, and we put down $2,170 for that home, 10 percent. It was about 14 percent of our annual income.

    Today the average home costs around $150,000. For the middle American family, that means they have to have an income of well over $100,000 to qualify for the same kind of percentage my wife and I did back in 1973. In other words, to try to compare apples to apples, we in 1973 had an income of around $14,000. Today that same couple, doing the same kind of things we did, would have to have an income over $100,000 to qualify for an average home at 10 percent down.

    That is not possible for the average Rhode Islander, for the average American. There is something wrong in what is happening with the cost of housing, and a lot of it has to do with overregulation. It also has to do with the availability of housing.

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    We often talk about livable communities, making communities more livable, and we talk about urban sprawl. But a lot of it has to do with making our cities more available and more livable. And it is taking the same housing stock that Luis just talked about, looking at how we can turn that around, making it profitable and making it available.

    That is what this bill is about, Mr. Chairman. I am very pleased that you brought it before us today, and I look forward to the testimony. Thank you.

    Chairman LAZIO. Thank you very much.

    Ms. Lee.

    Ms. LEE. Thank you, Mr. Chairman; and I also want to thank you for this hearing and for working so assiduously on this bill, even though we do have concerns from several organizations. And I would like to submit to the record some of those concerns, one of which is from Golden State Mobilehome Owners League.

    Ms. LEE. However, let me just say that I come from one of the highest housing costs areas in the country, the Bay area of California. Not only do we not have the ability anymore to purchase homes, people in the Bay area barely can afford now the rents. The homeless population is increasing. The American dream is quickly turning into the American nightmare.

    We worry about our children's future. We know that homeownership is generally the only access to capital and to building a nest egg for our families here in America. It is the only investment many of us will ever have.

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    So this subcommittee is very important. This subcommittee is a very important subcommittee, not only to my district, but in the entire country in making sure that our children's future is secure.

    So thank you very much. And I would like to be able to submit the rest of my comments for the record.

    Chairman LAZIO. Thank you very much.

    If there are no other opening statements, let me please ask the second panel to approach the witness table, be sworn in—I am kidding.

    I want to thank all of you for traveling today in varying degrees to Washington to testify before this subcommittee and for your previous help in molding this bill, which has gotten some high marks from both sides of the aisle.

    I want to acknowledge the Assistant Secretary for Housing—actually, I will ask for your statement first. But before I do, I just want to mention that Mr. Apgar oversees the Administration's National Homeownership Strategy. He serves on the Federal Housing Finance Board, the Board of the Neighborhood Reinvestment Corporation and the Advisory Board of the Community Development Financial Institutions Fund.

    I have to personally say that I have had the pleasure of working with Mr. Apgar, and, from some of the comments that were made by this committee, that Members generally enjoy working with you. I appreciate greatly your willingness to try and find common ground to work through problems and get to the solutions.

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    I have had a chance to review some of the written testimony, and though I am disappointed in parts of it, my respect for you and for the working relationship that we have had should not be diluted.

    So, with that being said, I would like to move first to the Secretary and ask for your testimony.

STATEMENT OF HON. WILLIAM APGAR, ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD), WASHINGTON, DC.

    Mr. APGAR. I thank you.

    As Federal Housing Commissioner, I understand the importance of homeownership in America. As you know, for more than 65 years the Federal Housing Administration has been one of the Nation's leading providers of mortgage insurance. This fiscal year FHA will help 1.3 million Americans purchase a home and secure a record $120 billion worth of mortgage insurance.

    With two weeks left to go in the fiscal year, FHA has already made more mortgage insurance commitments than any year in our history. More than 80 percent of FHA-purchased mortgages this fiscal year will go to first-time buyers, families who for the first time are achieving the dream of owning their own home.

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    Mr. Chairman, I am particularly proud of our current performance in mitigating losses to the FHA fund by helping more borrowers who are in default stay in their homes. This year our loss mitigation program will help close to 22,000 families get back on track with their mortgage by restructuring their mortgages or forgiving some of their indebtedness, in addition to another 5,000 families will be able to avoid foreclosure through negotiated sales process that protects the family from the adverse implications of foreclosure. This activity is nearly two-and-a-half times greater than our loss mitigation actions taken just the last fiscal year.

    Clearly, Mr. Chairman, under Secretary Cuomo's leadership, HUD is back in the business of promoting homeownership. Still there is much more to do.

    I would like to commend the subcommittee for its desire to reduce regulatory barriers to developing affordable housing and promote an inclusive process for setting manufactured housing standards. Secretary Cuomo and I support attempts to reduce barriers to affordable housing development. Moreover, we support provisions in H.R. 1776 that would create grants to support barrier removal strategies, establish an information clearinghouse and involve local governments in barrier removal.

    While the Administration remains concerned that the proposed housing impact analysis may duplicate existing requirements and delay the rulemaking process, we believe this bill represents a useful effort to focus national attention on the important task of removing Federal level regulatory barriers to affordable housing.

    Secretary Cuomo and I also generally support provisions of the bill that relate to manufactured housing. Manufactured housing plays an increasingly vital role in providing affordable housing to American communities, as was heard here this morning. But it is important to develop a statutory framework for an inclusive, consensus approach to developing building standards so that manufactured housing can move forward.

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    It also provides important resources to the Department to help ensure effective oversight of the industry, and I look forward to continue working with you and other Members of the subcommittee to broaden support for the bill that pertains to manufactured housing.

    Despite many of the good elements of this bill, there are other provisions that have significant and negative impacts. The worst of these I fear are the ill-conceived and unnecessary provisions that require HUD to offer every vacant or substandard real estate owned, or REO, single family and multi-family property to local governments or community groups at a discount. These provisions could trigger more than $3 billion in annual losses to the FHA fund from foregone sales revenue.

    As you know, Congress created the FHA single family insurance fund to be financially self-sustaining, with revenues collected from premiums and proceeds from property disposition used to offset the expense of paying insurance claims. This proposal, however, could reduce Federal revenues by as much as $3 billion annually, threatening the fund's stability.

    In addition to being extremely costly, we believe these provisions are unnecessary. HUD already has an aggressive program this year that will sell more than 6,000 properties at a discount to local governments, and to non-profit groups. Moreover, over the last two years, 29 of the 44 of HUD REO multi-family properties were sold to local governments, and local public housing authorities or community-based organizations.

    Moreover, just last year, Congress enacted property disposition legislation that allows FHA to enter into agreements to transfer all REO properties within designated revitalization areas to local governments. This new approach will give local communities greater control over the homes in their community. We think it is a solution to many of the problems that have been noted by Members here this morning of addressing the concern of HUD-held properties and neighborhoods.

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    As outlined in my written testimony, there are other areas of the legislation that HUD opposes, or at least wonders whether they are necessary. But rather than discuss these matters, I would like to close by commenting on a proposal that would incorporate into this bill the provisions contained now in H.R. 595. I believe this would be a mistake.

    As I mentioned previously, HUD's new loss mitigation program works. This fiscal year, the program will help more than 27,000 families avoid foreclosure. H.R. 595 would require HUD to adopt a Pennsylvania-style program that has experienced modest success serving a highly select, but small, group of conventional homebuyers. Applying this model to HUD borrowers, who tend to have significantly poorer credit quality than conventional borrowers and, therefore, pose a greater risk of default, would cost FHA anywhere between $200- and $300-million annually.

    Furthermore, H.R. 595 in many respects mirrors the old HUD mortgage assignment program. The program was judged by Congress, HUD's Inspector General, the General Accounting Office and others to be an absolute failure. Rather than adopt this costly and cumbersome approach, I would suggest that any interested parties—and, of course, I include in that Congressman Gutierrez, Mr. Dodds, who we will hear from later, and NTIC and others—work with HUD to improve on our existing program.

    While I am excited about our program's results to date, there is more that we can do, but I fear that the costly provisions in H.R. 595 would not be workable.

    In conclusion, I would like to reiterate my general support for many of the provisions of H.R. 1776 and commend the committee for its work to date.

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    Chairman LAZIO. Thank you very much, Mr. Secretary.

    Mr. Giordano, I want to welcome you to the subcommittee, and Mr. Weygand made some introductory comments. Again, I want to emphasize you are testifying on behalf of the National Association of Home Builders; and I know you have been very active in the Rhode Island Home Builders as the long-time Hospitality Chairman. So I hope you will bring some of that hospitality to Washington.

    Welcome to the subcommittee.

STATEMENT OF ANTONE GIORDANO, NATIONAL ASSOCIATION OF HOME BUILDERS (NAHB), VICE CHAIRMAN, FEDERAL GOVERNMENT AFFAIRS COMMITTEE, PROVIDENCE, RI

    Mr. GIORDANO. Good morning Chairman Lazio and Ranking Member Frank and also to my Congressman, Congressman Weygand, and all other Members of this Subcommittee on Housing.

    My background is unique, since I have dealt with residential housing for many years and most of it through the area of affordability in housing, that with FHA, HUD, and also worked with the health care industry for many years and developed over 10,000 beds in that area. I not only built them, financed them.

    I have offices here in Bethesda as well as in Rhode Island, and I am very familiar with the affordability and the maintenance of it as it deals with barriers. I am the founder of the local programs dealing with affordability and worked with the State Housing Mortgage Financing Corporation in Rhode Island as to much of the language involved in our legislature to bring about some unique treatment so we can add more units to individuals who were in need of housing.

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    On behalf of the 200,000 members of National Association of Home Builders, I thank you for this opportunity to be here this morning and to address the American Homeownership and Economic Opportunity Act of 1999, H.R. 1776.

    The greatest element we are dealing with in this particular bill is the fact that we have so much bipartisan support. The American Homeownership and Economic Opportunity Act currently, I understand, has 120 co-sponsors. This is a true testament to the nature of homeownership and its issues. Increasing the homeownership rate in America is certainly a universal goal.

    NAHB supports H.R. 1776 and is eager to participate in the exchange of ideas and to work with you in developing an acceptable bill. Homeownership plays a critical role as a stepping-stone to prosperity. We applaud you, Mr. Chairman, for highlighting greater homeownership opportunities. H.R. 1776 certainly has and will contain many programs to assist hard-working, dedicated public servants, especially young entry-level workers, purchase a home for the first time.

    NAHB strongly supports provisions in the bill to allow the communities the options under Community Development Block Grants and the HOME Investment Partnerships Programs to provide down payment assistance, closing costs assistance, reduced mortgage rates or homeownership counseling for uniformed municipal employees and teachers. This would keep, of course, an integral part of that urban revitalization that we need in all of our cities.

    NAHB is pleased that the homeownership option extends to uniformed municipal employees and teachers whose family incomes do not exceed 115 percent of the area median. However, NAHB would like to see the option extended to employees whose family incomes do not exceed 150 percent of median in high-cost areas. So many cities that we live in would not be applicable to the 115 percent criteria, and this would assure that even two wage earners in a family could participate in this important program and make a greater investment to their community.

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    NAHB also commends you, Chairman Lazio, for instituting the Neighborhood Teacher program which will allow for the sale of FHA single family properties at reduced prices to teachers.

    NAHB is delighted to work with you on this legislative program and bill addressing barriers to housing affordability. NAHB is very pleased that H.R. 1776 contains the barrier removal provisions that were included last year in H.R. 3899, the American Homeownership Act of 1998, and in Congressman Tom Campbell's bill, H.R. 3435, removing barriers to affordable housing.

    In particular, the barrier removal provisions are intended to raise the level of awareness about how regulations can drive up the cost of housing. Addressing these issues is one of our Association's top priorities, and we support all that you are working on to accomplish. Among the provisions that we support are: One, a housing impact analysis; grants for States and localities to develop barrier removal strategies; and a clearinghouse established at HUD to act as a repository for successful barrier removal strategies.

    The housing impact analysis would require the Federal agencies to evaluate any regulation to determine if it has an impact on the cost of housing. The housing impact analysis is intended to focus the attention of Federal agencies on the question, how does this policy affect home prices? Every time it tries to solve a problem by instituting a new rule or a regulation, obviously there are effects of that, and somebody has to review if that effect is eliminating its original intent, which was to provide housing that was affordable.

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    H.R. 1776 authorizes barrier removal grants to act as incentives for States and localities. That is an important aspect of the follow-through in the monitoring and the implementation of this bill. Since in the initial stage of the impact analysis we are dealing with that which has not yet taken place, there certainly has to be an incentive for all of the barriers that exist today. They have to be in some way removed, lightened, modified, and this incentive will demonstrate a good-faith effort in removing barriers when they submit their consolidated plan to HUD for Federal home and CDBG funding. Hopefully, this will bring together all the parties involved in the production of housing and those who regulate them to discuss the barriers and how to remove them.

    NAHB supports the provisions to establish a clearinghouse with HUD and strategies from all parts of the country for those who are planning to develop for a purpose, and these individuals will be able to control the information and assimilate it so we get the most from this clearinghouse as it holds all of the problems dealing with barriers to housing.

    NAHB is pleased the manufactured housing industry responded to our concerns about manufactured housing improvement act provisions, including H.R. 3899 last year, and NAHB acknowledges the role that manufactured housing plays in providing needed shelter to families with a variety of incomes and supports the concept of modernizing the manufactured housing code.

    Mr. Chairman, we are anxious to work with you to make housing a national priority. By acknowledging the existence of regulatory barriers to housing affordability and developing a specific legislative plan of action to alleviate them, more families will be able to achieve the American dream of homeownership.

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    Thank you again for your time and allowing us to speak today.

    Chairman LAZIO. Thank you, Mr. Giordano.

    I would like to now turn to Mr. Brice—Rutherford ''Jack'' Brice of Decatur, Georgia, who is testifying on behalf of the American Association of Retired Persons.

    I am wondering whether your timing up here is very good, Mr. Brice, because of what is happening offshore in Georgia.

    Mr. Brice is a member of the AARP Board of Directors, as well as Vice Chair of the Board of Operations Committee, a member of the Board Committee on Communications, and the AARP Foundation Board of Directors. He was a member of the State Leadership Council and the Social Security Medicare Steering Committee in AARP's southeast region.

    I welcome you to the subcommittee. Thank you very much for your written testimony, and we now turn to you for your presentation.

STATEMENT OF RUTHERFORD ''JACK'' BRICE, MEMBER OF THE BOARD OF DIRECTORS, AMERICAN ASSOCIATION FOR RETIRED PERSONS (AARP), DECATUR, GA

    Mr. BRICE. Good morning.

    Chairman LAZIO. Good morning.

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    Mr. BRICE. Good morning, Mr. Chairman; and I thank you and Ranking Member Frank and the other Members of the subcommittee for inviting us to participate in today's hearing regarding H.R. 1776, the American Homeownership and Economic Opportunity Act of 1999.

    Before commenting on H.R. 1776, I would like to take this opportunity to thank the Chairman and other Members of this subcommittee for your continuing bipartisan support for legislation designed to assist our older citizens in meeting one of their essential needs: housing.

    Mr. Chairman, H.R. 1776 addresses a number of important homeownership issues. Today I will limit my remarks to two aspects of the legislation that are particularly significant to older Americans: Title VII, Manufactured Housing Improvement; and Title II, Section 204, insurance for mortgages to refinance existing home equity conversion mortgages.

    AARP's interest in manufactured housing and in this legislation is based on the fact that over two million persons age 65 and older live in manufactured homes. And, according to 1998 U.S. Census data, 44 percent of the manufactured homeowners are age 50 and older. Manufactured homes are an important source of affordable housing for Americans generally, and for older Americans particularly.

    AARP believes that no matter where the home is manufactured or where it goes, it is essential that it at least meet the minimum national standards provided for under the National Construction and Safety Standards Act of 1974, the 1974 Act. Unfortunately, it appears that those construction and safety standards under the existing Federal system for ensuring a consistent national level of manufactured housing quality may be again severely tested as Hurricane Floyd, its high winds and heavy rains, threaten to strike a half dozen States in the southeast today and tomorrow.

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    AARP also supports the goal of establishing a process for regularly updating the standards based on the 1974 Act as long as the process provides for a balanced representation of consumer, industry and general public views and interests.

    And, finally, AARP shares a concern with industry and others that manufactured housing be affordable. But, clearly, affordability has at least two dimensions: The purchase price of the manufactured home and the cost of repairs due to its improper manufacture, transport, storage or installation.

    In support of this year's renewed legislative efforts to update the 1974 Act and in the interest of securing relevant data, AARP sponsored a telephone survey conducted from May 21st to June 3rd, 1999 by National Family Opinion Research, NFO, of 933 mobile homeowners who had purchased their homes within the past eight years.

    The purpose of the survey was to document the extent to which recent homeowners have experienced problems with the construction and/or installation of their manufactured home and to explore how they dealt with those problems. The list of possible problems was derived from Part 3280 of the existing Federal Manufactured Home Construction and Safety Standards.

    Key survey findings include these observations:

    While homeowners' overall satisfaction with the quality of their homes was comparable to levels found in other national surveys—nearly 80 percent reported being ''very'' or ''somewhat'' satisfied in this survey. However, a closer analysis of responses showed that ratings varied significantly by whether or not a problem was reported and by the type of the problem reported.

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    Nearly 8 in 10 manufactured homeowners, 77 percent, reported problems with either the construction, installation or other problems related to the use and enjoyment of their home. Nearly 6 in 10, 57 percent, reported more than one problem.

    Nearly all, 89 percent, of the particularly troublesome problems identified by homeowners reportedly developed within the first five years of ownership, while 6 in 10, 61 percent, were reported for the first year.

    Virtually all of those surveyed, 95 percent, said they received warranties with their new manufactured home. However, two-thirds of homeowners reporting problems either paid for the repairs themselves or the problems remain unfixed. And, remember, those problems are, in theory, covered by existing HUD regulations.

    Finally, among those who reported out-of-pocket expenses for repairs, those expenses averaged $1,140 per problem.

    Doesn't the purchaser of a new manufactured home deserve better service, regardless of where—or by whom—the home was manufactured?

    With regard to the housing legislation that is pending before the subcommittee, Title VII of H.R. 1776, the Association has three basic concerns. AARP urges the subcommittee to address these concerns by providing for:

    First, a balanced consensus committee for making recommendations to the Secretary of HUD to periodically update standards under the 1974 Act. A reformulated committee would reflect a better balance between consumer and industry views on enforceable national construction and safety standards than is currently proposed;

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    Second, Federal minimum level requirements for a manufacturer's warranty and for a State recovery fund; and,

    Third, a nationally mandated, performance-based installation standard.

    Next, I would like to address Section 204 of H.R. 1776. Section 204 would create a refinancing option for Home Equity Conversion Mortgages, HECM are insured by FHA. When home values and FHA mortgage insurance limits increase or interest rates decline, borrower interest in refinancing HECM loans goes up. Unfortunately, borrowers seeking to refinance HECM loans currently must go through the entire process and expense of loan origination.

    AARP supports the goals of Title II, Section 204, in making refinancing less expensive and easier to process for HECM borrowers. However, we believe that the specific provisions of that section might create serious problems for the financial security of the program and for the essential consumer protections. Specifically, AARP is concerned about the following aspects of Section 204: the elimination of the counseling requirements for all refinances; and, two, provisions governing the setting and refunding of premiums.

    Accordingly, AARP urges the committee to delete Section 204 from H.R. 1776 and, instead, include legislative language directing the HUD Secretary to take the following actions, including, one, institute a refinancing program for HECM loans that gives borrowers credit for premiums already paid on an actuarially sound basis; and, two, develop a new disclosure form for refinances that fully discloses total new costs and changes in the net principal limit so that consumers will be able to see clearly the potential benefits and costs involved.

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    Thank you, Mr. Chairman.

    Chairman LAZIO. Thank you very much, Mr. Brice.

    Now I would like to turn to an old friend of the subcommittee and myself, George Knight, who is the Executive Director of the Neighborhood Reinvestment Corporation, a public non-profit corporation that renews distressed communities through affiliated resident-led partnerships known as NeighborWorks organizations. He is one of the more creative people I know in the business. Mr. Knight worked as a field service officer for Neighborhood Reinvestment Corporation from 1976 through 1991, and he has served as executive director since 1991. He also serves as the Chair of the American Homeowner Education and Counseling Institute.

    I want to welcome you to the subcommittee.

STATEMENT OF GEORGE KNIGHT, EXECUTIVE DIRECTOR, NEIGHBORHOOD REINVESTMENT CORPORATION, WASHINGTON, DC.

    Mr. KNIGHT. Thank you, Mr. Chairman, and thank you, Members of the subcommittee. It is a pleasure to be here to testify and encourage your efforts on behalf of homeownership, especially as it relates to increasing homeownership opportunities for low- and moderate-income Americans.

    As you know, the mission of the Neighborhood Reinvestment Corporation and the NeighborWorks network is to revitalize distressed communities by working with local partnerships of residents, representatives from the private sector and public government. Additionally, we operate a secondary market, Neighborhood Housing Services of America—NHSA—which purchases non-conforming revolving loan fund loans made by local NeighborWorks organizations for families that can't qualify for conventional financing; and, we provide information, training and replicable revitalization approaches to many, many communities seeking such information.

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    Most of our work is carried out through the 190-member NeighborWorks network now serving over 825 local communities in urban, suburban and rural places. Today, flexible revolving loan funds, innovation, private-public partnerships and local control remain the hallmark of our work.

    The engine that drives this work is the flexible revolving loan funds that each NeighborWorks organization holds. Each local board of directors sets its own criteria for loans, including terms, rates, and so forth, and uses the fund to fill the gaps in an otherwise fragmented set of resources that are available to low-income homeowners. When all is said and done, in fiscal year 1999, the NeighborWorks network will have lent right around $1 billion. Thirty-eight percent of that lending would not have been originated or even possible if it wasn't for tandem lending, conventional financing, coupled with secondary loans made from NeighborWorks organizations' revolving loan funds. The remainder comes through intense one-on-one counseling, and technical assistance, and the NeighborWorks private sector partners.

    Two years ago, in 1998, a group of NeighborWorks organizations got together to see if they could promote and increase homeownership, specifically in the most distressed places they worked. They set a five-year goal of 35,000 families achieving the dream of homeownership, and they knew they had to secure $2.5 billion in financing. At 15 months into the 60-month effort, I am pleased to tell you that 95 percent of the homebuyers are first time and many are first generation; 69 percent earned less than 80 percent of the local median income; 60 percent are minority; and 42 percent are female-heads of households. 8,700 families have become new homeowners; and, to date, $730 million in total reinvestment has been secured for some of our Nation's most distressed communities.

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    The keys to success have been the access to a flexible revolving loan fund, a focus on neighborhood revitalization and support by the Neighborhood Reinvestment Corporation, through training, access to the secondary market, NHSA, and the national private partners that we have been able to attract. Your proposed reauthorization will assist us in continuing this work, and I would urge its passage.

    Thank you.

    Chairman LAZIO. Thank you very much, once again, George Knight.

    Ed Hussey is also an old friend of this subcommittee and me personally. He will testify on behalf of the Coalition to Improve the Manufactured Housing Act.

    Mr. Hussey is the Chairman of the Government Affairs Committee of the Manufactured Housing Association for Regulatory Reform. In 1985, Mr. Hussey helped to organize the Association for Regulatory Reform to represent manufacturers' views and interests in Washington, DC. He also served as a member of the National Commission on Manufactured Housing from 1993.

    I have to personally say Mr. Hussey has always provided input to me and the committee in a balanced and fair way and has been very, very helpful. We welcome you to the committee, and we look forward to your testimony.

STATEMENT OF EDWARD J. HUSSEY JR., CHAIRMAN, GOVERNMENT AFFAIRS COMMITTEE, MANUFACTURED HOUSING ASSOCIATION FOR REGULATORY REFORM, ON BEHALF OF THE COALITION TO IMPROVE THE MANUFACTURED HOUSING ACT, WASHINGTON, DC.

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    Mr. HUSSEY. Thank you, Mr. Chairman.

    Mr. Chairman, distinguished Members of the subcommittee, staff members and guests, I am vice president of Liberty Homes, Incorporated, which has its headquarters in Goshen, Indiana. Liberty Homes has ten manufacturing facilities in eight States around the country, servicing 47 of the 50 States. We have been a producer of manufactured homes since the birth of the industry more than 50 years ago.

    For the last 23 years, our homes have been subject to Federal regulation under the National Manufactured Housing Construction Safety Standards Act of 1974. I am appearing here today on behalf of the Coalition to Improve the Federal Manufactured Housing Act. The Coalition is comprised of the manufactured housing industry's two national trade associations, the Manufactured Housing Institute and the Manufactured Housing Association for Regulatory Reform.

    I am here today to express the Coalition's enthusiastic support for Title VII of H.R. 1776, the Manufactured Housing Improvement Act of 1999. Title VII is also included in a stand-alone legislation, H.R. 710, also introduced by Chairman Lazio; and, as of today, H.R. 710 has 159 cosponsors, 96 Republicans and 63 Democrats. We believe this indicates the strong bipartisan nature of the support for this legislation.

    Mr. Chairman, manufactured homes today account for almost one-third of all new single family home sales in the United States. It is because of this unique and important role that manufactured housing plays for America's housing consumers that its Federal regulatory law must be both effective and up to date.

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    After 25 years, though, the current law is in need of modernization. When the current Act was signed into law in 1974, manufactured homes were still perceived as a type of vehicle rather than a permanently sited home. But today, in 1999, there can be no question manufactured homes are houses. As a result, the Federal program today unnecessarily limits technical innovation and imposes artificial and unnecessary restrictions that have prevented the industry from meeting the needs of all consumers who seek affordable homeownership.

    Mr. Chairman, Title VII of the bill before the subcommittee would substantially improve the Federal program. In fact, the same legislation was passed by the House in 1998.

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

    Under the pending bill, by contrast, code updates will be statutorily required at least once every two years. In addition, under this legislation, manufactured housing consumers, for the first time, will participate directly in the consensus process.

    In addition to establishing the consensus process, the proposed legislation would strengthen the existing HUD program. In recent years, the program, which is needed at the Federal level to ensure the uniformity of standards and regulation that was one of the primary goals of the original Act, has been harmed by significant personnel reductions and a lack of emphasis upon manufactured housing in HUD. Updates of the standards have also lagged behind other building codes.

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    Let there be no mistake. The industry supports a strong Federal program and is willing to back up this support with its own funds. Consequently, the bill before you would authorize HUD, for the first time, to use the certification label fee paid by manufacturers under the Act to hire additional Federal personnel for the program and pay for the travel of Federal personnel.

    This program, therefore, will be put back on course and will be enhanced under this legislation with virtually no general budget funds being utilized. This will be a benefit to everyone, consumers, Government and industry alike.

    Also related to the strength of the program is the issue of preemption and HUD's relationship with the States.

    The pending bill reaffirms what courts have already said about preemption by adding to the expressed language of the Act a statement that preemption is to be broadly and literally construed.

    Let me also address for a moment the issue of warranties. In my 22 years of experience in the industry, I know of no manufactured home builder that does not provide a warranty; and many offer extended warranties or optional extended warranties. In addition, many States require warranties under State law. This is as it should be. This system allows States to mandate the protection that they deem necessary consistent with the doctrine of federalism. It also gives the consumers the freedom to choose a longer warranty if they so desire.

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    With these extensive productions already in place, there is no need for a federally-mandated warranty that will raise the cost of our homes beyond the reach of low- and moderate-income American families who can least afford such increases.

    Finally, the pending bill leaves to the States the right to regulate the installation of manufactured homes. This makes sense, because local conditions and needs inevitably vary. It is also consistent with Congress' intent in passing the 1974 Act and HUD's interpretation of the Act since its passage.

    Mr. Chairman, Members of the subcommittee, this legislation would update and improve the Federal program to better serve the growing number of American families who choose to purchase affordable manufactured homes. It deserves Congress' support, as it had last year; and I would like to thank you for this opportunity to address you on the Coalition's views.

    Chairman LAZIO. Thank you very much, Mr. Hussey.

    Now, finally, I would like to turn to John Dodds, who is the Director of the Philadelphia Unemployment Project—''PUP'' as it is referred to. Mr. Dodds drafted and played a key role in the passage and implementation of Pennsylvania's Homeowner Emergency Mortgage Assistance Program that has provided loss-mitigation assistance to nearly 25,000 Pennsylvania families since 1983. I want to congratulate you on your work.

    I turn to you now for your testimony.

STATEMENT OF JOHN DODDS, DIRECTOR, PHILADELPHIA UNEMPLOYMENT PROJECT, PHILADELPHIA, PA

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    Mr. DODDS. I would like to thank the subcommittee for giving me the opportunity to appear today on the critical issue of homeownership in the United States. The Philadelphia Unemployment Project under my direction has been deeply involved in helping families preserve their homes since the early 1980's. We are all too well aware of how temporary economic problems such as unemployment or illness can lead to the loss of a family's most basic and important possession, its home.

    We are a HUD approved housing counseling agency and provide mortgage default counseling to families threatened with foreclosure. We have also been deeply involved with policy regarding foreclosure prevention. We have worked with Representative Gutierrez on H.R. 595 to provide foreclosure assistance to FHA homeowners. We think that the purpose of H.R. 1776, which is to expand homeownership in the United States, is extremely important. Unfortunately, in the FHA market foreclosures have been rising dramatically since the elimination of HUD's former foreclosure prevention program, the assignment program.

    Since that time HUD has been implementing a new loss mitigation program. Our experience and research have indicated to us that this program has not been effective and has led to an increase in foreclosures despite a booming national economy. To illustrate, we have a chart here that tracks the national unemployment rate and the national FHA foreclosure rate.

    Since 1992, the peak of the recession, unemployment and foreclosures dropped at the same rate. In 1996, the assignment program ended, unemployment continued to drop, while foreclosures immediately took a dramatic increase, from 60,884 in 1996; 71,599 in 1997; 76,033 in 1998 as unemployment, as I said, continued to drop.

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    There is no projection that foreclosures will drop in 1999. So we are seeing that, despite the better economy, which should lead to and did lead to lower foreclosures, without an assistance program, families in this country have been losing their homes. These foreclosures are very costly to the FHA insurance fund. Each foreclosure costs about $31,000. And costs to the fund have risen commensurate to foreclosures, from $4 billion in 1996, $5.3 billion in 1997, $6.1 billion in 1998.

    When the assignment program was replaced with loss mitigation, it was based on the concept that market forces would prevent foreclosures. Homeowners applied to their mortgage companies for help in preventing foreclosures and HUD offers lenders modest and financial incentives to use loss mitigation tools. Unfortunately, the tools have not been effective.

    Housing counselors who attempt to assist families to use the tools have had little luck in getting mortgage companies to offer help under the program. Almost invariably a family must already be back on its feet financially to have any hope of getting help under the loss mitigation program. HUD did not design loss mitigation to prevent foreclosures, but to reduce costs by cutting staff. Of the families who formerly had been provided ongoing assistance under the assignment program, HUD anticipated that 69 percent of them would lose their homes when they designed loss mitigation.

    Under pressure from Members of Congress, HUD is now pushing for homeownership retention under loss mitigation; however, the nature of the loss mitigation program design makes this very difficult. Surveys of mortgage default counselors from around the Nation have found that foreclosure prevention tools have been difficult to use.

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    The people on the front lines know that this program only helps families who are already back on their feet. Numerous local housing and counseling agencies have signed on to letters supporting H.R. 595 to provide longer term aid to deserving families.

    Now, Commissioner Apgar has pointed to an increase in the use of loss mitigation tools. However, foreclosures are not down despite the excellent national economy. We have seen no indication that these tools are being used for the families most in need of mortgage assistance, the family facing the period of extended unemployment or illness who cannot project an ability to make a full mortgage payment at the time of application for assistance.

    While the use of loss mitigation for families that have recovered is positive, the families who most need and are most in jeopardy of losing their homes are not being assisted. The tools are—I will just list them briefly: special forbearance, which is a repayment plan; loan modification, which is a refinancing, where interest rates are reduced on the mortgage and arrears are included in the loan; a partial claim, which allows defaulted mortgage payments of up to twelve months to be loaned to the family; a deed in lieu of the foreclosure, where the mortgage is handed back in, and a preforeclosure sale.

    The decision to utilize these tools is made by the lender who often has little interest in serving a troubled loan. This is especially so since HUD provides a complete loan guarantee and takes the property off the lender's hands in the event of a foreclosure. Very often a collection mentality pervades the decisions of lenders, and homeowners have no resource to a lender's arbitrary refusal to offer assistance.

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    Homeowners usually don't even know about the program. On top of this, funding for housing counseling to help families through the loss mitigation process is limited and a further reduction in funds has occurred in the fiscal year 2000 HUD budget.

    The individual loss mitigation tools have serious problems when it comes to preserving homeownership. As I have previously mentioned, they only work for families who have already financially recovered, also the foreclosure process proceeds at the same time that loss mitigation is being considered, which means that large legal fees begin to accumulate. The homeowner must pay these legal fees before they can be approved for one of these tools. These fees can range from $1,000 to $5,000 or higher, which puts a tremendous burden on an already financially-strapped homeowner.

    The loan modification tool is the most heavily utilized of the home preservation options. However, it only works when the homeowner's interest rate is higher than the current market rate. Since mortgage interest rates have been low for several years and are now rising, this tool will be less effective in the future, even for families who have recovered from their financial losses, and only those families who can make a full mortgage payment can qualify for loan modification.

    Special forbearance allows lenders to set up payment plans for delinquent homeowners. Our experience and that of dozens of counseling agencies throughout the country is that lenders expect a full payment plus additional funds in order to qualify. Families who can't make a mortgage payment cannot make double payments, and reduced payment plans are very rare.

    Partial claim, the preforeclosure sale and deed in lieu of foreclosure, those are some of the other tools. And I will move more quickly. But it is very important to consider the implications of this program, loss mitigation, when the next economic downturn hits the country, and millions of hard-working people are thrown out of jobs for extended periods of time.

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    Loss mitigation, with its imperative that people be back to work in order to receive assistance would be even more inadequate and thousands more will lose their homes. The FHA insurance fund will also be greatly impacted with increased claims and costs if families aren't given enough time to recover.

    What I am pointing out now is there is a large gap in the loss mitigation program. It has led to increasing foreclosures, loss of hundreds of millions of dollars to the FHA fund and great misery to thousands of American families.

    This is why we have been working with Representative Gutierrez and many members and organizations from around the country to add another level to the loss mitigation program. We want to assist the families who are not back on their feet, and who need a period of time before they can resume mortgage payments.

    H.R. 559 is modeled on Pennsylvania's highly successful Homeowners Emergency Mortgage Assistance Program. If added to H.R. 1776, it would be a feature that would make the bill an even better vehicle for increasing and preserving homeownership in the United States.

    I would like to indicate that HUD in 1995 gave a very positive review of the HEMAP program prior to their implementation of loss mitigation. In that study by their PD&R Department they said that ''Since 1984, Pennsylvania State Housing Financing Agency has run a HEMAP program called Homeowners Mortgage Assistance Program which has enjoyed much greater success than the HUD assignment program and rehabilitating borrowers. Fewer than 5 percent of the loans accepted in the HEMAP have been foreclosed. Two key differences in the programs are their approaches to entering criteria servicing.''

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    HEMAP was enacted in 1983 during the recession year, it was signed into law by Governor Richard Thornburgh, it has been reauthorized four different times by the legislature, in unanimous fashion. The last time it was made a permanent Pennsylvania program.

    Families get up to 36 months to recover. And it operates on the assumption that working families, if given enough time to get back on their feet, will get back on their feet and will make their mortgage payments. This confidence has been rewarded by the fact that 90 percent of the people assisted in this program have been able to maintain their homes long-term. That is a fabulous record, and it means that if people have time they will succeed.

    They apply for assistance in the housing counseling agencies throughout the State for——

    Chairman LAZIO. Would you summarize, please?

    Mr. DODDS. Yes. Let me just say that this program is one that is the model for H.R. 595, it has worked very well in Pennsylvania. And if it is added to the Homeownership Act, we think it will make a great contribution to saving homes. We think it is needed to be added to loss mitigation, not to replace, but to add it to the family that is not already recovered financially.

    So thank you very much. I am sorry for going over.

    Chairman LAZIO. Thank you, that is OK. Thank you very much.

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    I want to thank the panel for some excellent testimony.

    We move directly, if I can, to Mr. Knight. And I may want some comments from Mr. Giordano, because I think you both commented on several issues involving loan pools, the leveraging of the HOME program, the loan guarantee program for HOME, the HOME issue, and two others, the discretionary program that would allow mayors to facilitate homeownership opportunities for uniform employees, and municipal workers, and the provision that is directed to teachers.

    In your opinion, Mr. Knight, if communities could leverage HOME funds, would it be a prudent thing to do? And my second question is to both Mr. Giordano and Mr. Knight. What is your opinion of providing more homeownership opportunities for municipal employees, in particular, teachers? Why is that good from your perspective?

    Mr. KNIGHT. From a neighborhood revitalization perspective, you are hoping to have—in fact you almost always have had—a community that contains people of a variety of incomes. Now, it may be a preponderance of very low-incomes, but there is always going to be a mix of people with both low- and moderate-incomes in that neighborhood.

    Often, as you work with those families, there are situations where you want to assist them in a way that the private sector can only partially, or perhaps in some cases, not at all. Let me give you one example. In a neighborhood that contains a large and dilapidated home, let's assume you have a moderate-income family that may be at 85 or 90 percent of the median, and this family has the wherewithal, the drive, and the interest in purchasing and rehabilitating that home. However, when you consider the purchase price, and you factor in the construction costs to bring it up to community standards, oftentimes, you will have more money invested in that home than its current market value.

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    The hope is that by taking those actions, overall property values will rise and eventually it will become a home within the market value. Unfortunately, no conventional lender will make a 120 percent loan-to-value loan with those assumptions in mind. By having the flexibility of a locally-operated NeighborWorks revolving loan fund, the conventional lender can make that 90 percent loan and you can make up the difference through a secondary revolving loan made by the NeighborWorks organization.

    These are individual situations that have to be approached by an individual board of directors, knowing their neighborhood, and knowing their borrowers. Through the revolving loan fund, they have the flexibility to be able to solve those kinds of everyday practical problems.

    The leverage you can achieve though this tandem lending process with private sector capital is enormous, because they will put up 90 percent of the value. Therefore, flexible public sources fund just that small portion needed to make the deal work, with private capital being the primary source of funding.

    Chairman LAZIO. Mr. Giordano, will you comment on the magnet for municipal workers, uniformed municipal workers and teachers?

    Mr. GIORDANO. Yes, Chairman Lazio.

    Chairman LAZIO. I noted in your testimony that you would have liked to have seen it not set at 115 percent, but at 150 percent in high cost areas.

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    Mr. GIORDANO. We think that is very important, because obviously in certain areas of the United States you cannot have the same criteria of a percentage, even in the HUD criteria, for that of single family or multi-family processing. They have a separate and distinct percentage for high cost areas as opposed to that of the lower cost segments of their programs.

    We feel that the 150 percent would allow two working people to qualify, which therefore would generate more enthusiasm and therefore gives a broader spectrum to the entire success of the program. Also it is very important, we feel, that the municipal workers who are the backbone of the revitalization of our cities be included in this program. And the reason for us working toward this goal with you, Mr. Chairman, is because we can see the end result of our inner city revitalization.

    Right now our problems with the inner city revitalization is growing. We have all kinds of problems dealing with vacant homes. We have all kinds of problems with blight areas. We have a lot of people moving out of the cities because of that. We feel to hold them or entice them within our inner cities, it is important to have a solid core of police, fire and teaching and protections dealing with our school systems, and also the education is of utmost importance to all of us who have families, and family housing is what we are talking about.

    So it is a way of keeping people within our city structures and enticing them to stay and motivate the overall program of home buying.

    Chairman LAZIO. Thank you.

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    I am going to turn to the Secretary, if I can. And as I mentioned earlier, I have great respect for you and greatly appreciate your support of certain of the provisions of the bill, but I am confounded by your position on a couple of these initiatives, including the neighborhood teachers provision. This was developed obviously through a consensus by the Congress, the Administration, which I was very pleased to see went ahead, and HUD took some lead in beginning the process of implementing this short of legislation.

    Why in the world would you not want to see this in the legislation? It almost seems politically petty, which I think is well beneath you, and I can't imagine that that position would come from you.

    My second question has to do with the flexibility under the CDBG and HOME programs for municipal employees. I think there are a lot of us who would like to give mayors the ability to attract and retain municipal employees in their own city boundaries where they would have a greater stake in their communities.

    This is already being done in certain communities, such as high-cost areas, on an experimental or demonstration basis. Why would you not want to extend that to working class people who are municipal workers to help stabilize the community, help our people's incomes who have not necessarily kept up with that of some of the Wall Street folks and others who have done so well in this economy?

    Mr. APGAR. Well, I am glad to see that the Chairman carefully read all of my testimony, because these were in the category of other and somewhat more minor matters. In the case of the teachers, we just noted that we didn't believe it was necessary, we already have a program in place, and we didn't believe that it was necessary to add that feature.

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    Our own ''teacher-next-door'' policy follows our ''officer-next-door'' program, which we believe provides an effective——

    Chairman LAZIO. I believe you would be enthusiastically in support of it. If you like the concept, you obviously picked it up from the work that was done here, which I am thrilled about. Why wouldn't you just endorse this and say, ''Fantastic, we are on board with this, we are trying to implement this, this is legislation and a concept that we strongly endorse,'' as opposed to opposing it?

    Mr. APGAR. We have endorsed it by our actions. We just noted it wasn't needed. We already have the authority to do that, and we were acting on that.

    Chairman LAZIO. I would only note that I think it undermines credibility, and I think it sort of suggests to some who might be more cynical about this, that there is something political in nature about that, when there ought not to be, it ought to be an enthusiastic partnership.

    Mr. APGAR. Fair enough. And our concern with the municipal employee provision was more technical in nature. We appreciate the fact that HOME dollars and Community Development Block Grant dollars are scarce. We would like to see this provision more carefully crafted to be more effectively targeted. Many of the spokespeople have talked about the importance of providing incentives to allow an income mix within certain very low-income communities to encourage higher income folks, teachers, police officers, others to move in.

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    We would just like to see more careful targeting of that provision to make sure that we don't allocate funds to areas which wouldn't meet the intent, I am sure, of the NAHB and others who have testified on behalf of this provision.

    Chairman LAZIO. I just finally would note, even our own home area right now, I am talking about Mayor Williams in DC., is struggling with the need to attract teachers in the city with both salary and other incentives, and it seems like that is being paralleled in a lot of parts of the country. As we struggle to try and hire more teachers, there is also an issue of retaining and properly compensating teachers and keeping them in areas where they are most needed, both as role models and to stabilize the communities.

    I will leave it at that.

    Mr. APGAR. That is why our teacher-next-door program has been met with such universal support. There clearly is a focus on maintaining the best teachers in inner-city schools. That happens to be where HUD-owned properties are located. We think we can both do a good job for those communities and assist in our disposition of our HUD-owned properties all in one program.

    Chairman LAZIO. Thank you.

    Mr. Frank.

    Mr. FRANK. Let me just pick up there, Mr. Apgar. Your last comments about the need to target this and craft it well are perfectly plausible. And I take it that is the real reason.

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    I just want to say, too, as a general principle, I shared the Chairman's skepticism when you said you were opposed to it, because it was unnecessary. Those of us in Government are not by temperament opposed to redundancy. And I must tell you that in the nineteen years that I have been in the Congress, and in the eight years in the legislature, I have never seen anyone genuinely be opposed to something simply because it was unnecessary. There is always another reason.

    We are a group of people who often do things that are unnecessary. We say things that are unnecessary. We write legislation that is unnecessary. So just a general piece of advice, no one believes you when you say you are just trying to save paper. If you have substantive changes to be made, let us hear about them.

    Now, let me just say to Mr. Dodds, I was glad to work with Mr. Gutierrez in having you as a witness, and I think what you are dealing with is a very important point. It goes beyond equity for individuals, although equity and fairness to the individuals is certainly enough for me. It doesn't appear to be enough for the country.

    I want to put this in a broader context. We do a very good job in America of creating the conditions in which capitalism can flourish, and capitalism is indeed flourishing, and that is increasing the overall wealth, and that is a good thing. And it is beginning—if the Fed will simply keep its hands off our necks—to reach people in the lower echelons, but we have still a problem with the equity and the distribution.

    And the best, most flourishing capitalist system in the world does not automatically take care of everybody. And we have this problem. Alan Greenspan himself in April noted that there is an increasing resistance to the policy of globalization and free trade, because some people feel threatened by it.

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    Well, some of the people who feel threatened by it are the people losing their homes. It is acknowledged now that globalization and technical change create winners and losers. People without high technical skills, people who live in areas of the country where globalization has not come forward, whether in the inner cities or other places geographically, they don't do well, and, well, we are told they shouldn't worry, they will get another job, and yeah, they may get another job, it might pay a lot less, and in addition to a reduced income, they suffer some traumas, they may lose their health care and they may lose their homes.

    Alleviating the distress that people feel when the globalization and technical change in the economy reduces their economic circumstances is not only important in itself, which it certainly is to me as a moral value, but people ought to understand it is essential if the country is going to move forward.

    Mr. Greenspan said in his speech in April we shouldn't start objecting to globalization and free trade simply because of our inability to help the people who are hurt by it. His error is to say ''inability.'' It is not inability, it is unwillingness. This very wealthy country has the ability to help people.

    So, I would urge those who want to see increased national cooperation for these kinds of economic changes help us take care of those who are being left behind, or they will combine with others and stop you. And if we don't do programs that help people who would otherwise be losing their homes, if we don't keep them in their homes, pending their making a transition to a new job, then you are not going to have the support that you want.

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    There really is kind of a double deadlock here. We have people who have enough political power to prevent us from extending what we think are equity measures, but they, in turn, have got the power to stop globalization, international movement of capital, and so forth. And that is really the context in which I want to put Mr. Dodds' comments.

    The other thing I want to do is address both Mr. Hussey and Mr. Brice. Mr. Hussey, to be honest, you seem to me to have a somewhat on-again off-again view about preemption; that is, you are for complete Federal preemption with regard to manufacturing, but then you become much more of a States' righter when it comes to whether or not there should be warranties and installation.

    Now you say that installation, after all, that is a local matter, different conditions and different States; couldn't you make that same argument that manufacturing standards are different, that if you were going to be on the Outer Banks of North Carolina, you might need a different kind of standard than you might in some other parts of the country? I mean, I am a little troubled by your being simultaneously 100 percent preemptor and Thomas Jefferson.

    Mr. HUSSEY. Thank you for that comment, Congressman Frank. Thomas Jefferson I think would be a great compliment. I think that what we are talking about here are two separate issues. We do have separate building standards for the Outer Banks of North Carolina. We have passed some wind standards in the last six years.

    Mr. FRANK. Nationally, should they be national?

    Mr. HUSSEY. They are national, that is part of our building standard.

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    Mr. FRANK. Excuse me. You are talking about Federal preemption. You think the Federal Government should prevent North Carolina from having its own standards?

    Mr. HUSSEY. That has been the law since 1974, and there was good reason for that building code to take place.

    Mr. FRANK. Let me put it this way, you are recognizing there are some separate circumstances then that affect them? Why does that then mean there have to be no Federal standards on installation?

    Mr. HUSSEY. Federal standard on installation would require that we include installers, retailers, local contractors in the Federal preemption. In addition, under the current system, we have in 33 States installation standards that work and work locally. I think that to extend the preemption to installation of manufactured homes and require that Washington determine how a home is to be sited in the Outer Banks of North Carolina or in Florida, where you might have coral or sand or rock in which to tie the home down would be stretching it much further than needs to be stretched.

    The economy of the preemption for the building code allows us to build the home to the same basic building code around the country and save money. I think it would cost more.

    Mr. FRANK. Irrelevant to the installation issues. There is no linkage between the kind of building you build and the installation requirements?

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    Mr. HUSSEY. There is linkage certainly. The manufacturer——

    Mr. FRANK. I don't understand why one is entirely Federal and one is entirely State. You seem to me to be acknowledging in seventeen States we don't have good installation standards.

    Mr. HUSSEY. That's correct. We are working on getting good installation standards.

    Mr. FRANK. How much longer should we wait?

    Mr. HUSSEY. As a manufacturer, Mr. Frank, I would love to have an installation standard that was effective to make sure the home is properly installed. That is my business as a manufacturer.

    Mr. FRANK. You don't want the Federal Government to do anything about that?

    Mr. HUSSEY. I don't think the Federal Government can be effective in an installation. Thirty-three States that have installation standards, that installation standard is very effective.

    Mr. FRANK. But you could, it seems to me, do some minimum. Preemption doesn't have to be complete. The issue also has to do with warranties. One of the problems, as I understand it, is we have complaints coming from the owners of the manufactured homes, your customers, that while there are national standards, if they find that the standards aren't lived up to, there can be some enforcement problems.

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    Mr. Brice, I would be interested in your views on this whole question about whether this division between a national standard of manufacturing, but everything else left totally to the States is an appropriate division of labor.

    Mr. BRICE. Yes. Actually, we feel that if you put the safety and construction standards into the warranties, plus the installation standards into a warranty, that there should be national consistency with it.

    Mr. FRANK. You don't see a problem with—I mean, in fact, you believe that in the absence of a national requirements for warranty we have enforcement problems in people getting the benefit of the standard.

    Mr. BRICE. Yes, I agree with that.

    Mr. FRANK. Thank you. That is it, Mr. Chairman.

    Mr. NEY. Thank you, Mr. Chairman. I wanted to follow up with Mr. Hussey just on the point on the federally-mandated installation warranties, which is what the AARP would support on federally-mandated installation warranties. What would that do—you know, what good or bad effect does it have on the consumers and the industry, your industry, if it is federally mandated warranties as the AARP advocates?

    Mr. HUSSEY. Federally-mandated warranty, I think, if we are talking about a five-year comprehensive warranty, which I believe that is what AARP is advocating, I think that would increase the cost of the house substantially, take a lot of people out of the ability to buy the home. The situation that we are in now is that we, each manufacturer has a one-year comprehensive warranty, many manufacturers have five-year warranties, and many of our homes qualify for an optional ten-year warranty if the consumer so desires.

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    The vast majority of the problems, as the AARP study showed, occur in the first year of the homeownership, and that warranty should cover those problems. Many of the problems that we saw—that AARP identifies in their study, they are also punchlist type items, those are items that you are going to find on any home.

    Those are items that should be covered by the warranty and should be taken care of by the warranty. I think, in addition, we have a Section 615 of the current code that requires the Secretary to make a determination if a manufacturer is found to have a defect in the home during the life of that home and if that defect cannot be cured, that the Secretary can order the replacement or repair of that home for the life of the home. That is not found on any other building code anywhere else in the country.

    The Secretary now has the power to make a determination that the home was not constructed in accordance with the code and to order a manufacturer to replace that home if necessary. I think that that is a very strong part of the current law in addition to the warranties that are currently being offered by the manufacturers.

    Mr. NEY. So your argument against the federally-mandated installation warranties then——

    Mr. HUSSEY. The installation warranty, Mr. Ney, would require us to bring in to the Federal bureaucracy, to bring it under the control of the Federal Government the retailers and the installers who are not currently covered by the Federal act. That would create a much bigger Federal program than we have now and a much more expensive Federal program.

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    In addition, I don't think that it would be a very effective program if run from Washington. As I said before, we have a lot of local concerns involving installation, and our installation manuals provide for enough flexibility to install the home properly under local building codes.

    And if the Outer Banks of North Carolina desires to have their homes installed in excess of what is required under our installation manuals, they can do that.

    Mr. NEY. Back to the first part. You stated about the problems that occur with the homes. There was a survey that the AARP did and three-fourths of the respondents said they had some sort of problem, if I remember correctly, with the manufactured housing homes. Of the—or maybe I should ask the AARP this, but those problems they had with the homes, were those problems that occurred after delivery of the homes and were covered under the warranty?

    Mr. HUSSEY. I assume that is what the respondents said, they were talking to homeowners. So I assume that that would be right.

    Mr. BRICE. Yes, we were talking about the homeowners. And the problem is that there are inconsistences with regard to the warranties, wherein the homebuyer would go with the warranty to the seller who would indicate, ''Well, no, that is an installer problem,'' then go the the installer, who would say, ''that is a manufacturer's problem.'' And it was very difficult for them to get resolution on the problems.

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    As a matter of fact, you mentioned that having a national standard warranty would probably incur additional costs, and if you look at what our survey indicates, there was an average $1,140 of per-problem costs that existed within the first year in many of the homes, and these were new homes.

    Mr. NEY. Excuse me. And are those costs borne under the warranty by the manufacturer then?

    Mr. BRICE. Actually, they were not. The problem was in the home as they bought it. It could have been stress, or it could have been windows, or it could have plumbing, or it could have been anything. But, it should have been included in a standard, a national standard.

    Mr. NEY. I thank both the gentlemen.

    Chairman LAZIO. Ms. Velazquez.

    Ms. VELAZQUEZ. Thank you, Mr. Chairman.

    Mr. Dodds, I was very much impressed with your testimony. And I would like to address my question to Mr. Apgar. In light of his testimony, I would like for you to explain to me why did HUD replace the assignment program with the loss mitigation, and have you done any study or analysis to show that it is working?

    Mr. APGAR. OK. Just a little bit of history, of course. The assignment program was widely judged to be a failure, not just by HUD, but by the GAO, the IG and others. Congress mandated that we terminate the program. But I would like to point out even at its highest period of operation, the assignment program only included 12,000 homeowners, a significant number.

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    But our own loss mitigation efforts that we have underway now have already more than doubled the annual amount of activity that was operating under the assignment program. So we don't think there is any relationship between the termination of the assignment program and the chart that Mr. Dodds shows.

    In terms of our own studies, we are seeing broad adoption of the loss mitigation approaches. We see it growing every month. Last year we did about 10,000 cases. This year we are up to 27,000 cases. Our own internal analysis suggested that next year we will be at 33,000 cases. So we see the loss mitigation efforts growing quickly.

    There is more that we can do. I also share Mr. Dodds' concern that loss mitigation efforts are important. Lenders, borrowers, HUD all have a common interest of keeping the homeowner in the house, it clearly is in the financial interest of the fund, it is best for the lender, it is best for the homeowner, and we need to continue to work to enrich our loss mitigation efforts.

    We don't disagree with the need for additional tools. We just fundamentally disagree with the provisions that is contained in H.R. 595 as being a mix that is right. The cost estimates on H.R. 595 that we believe are reasonable would cost anywhere between $200- and $300-million in lost revenue. We think for that amount of money it is just not worth the effort, that there are better loss mitigation tools we can use.

    Ms. VELAZQUEZ. I don't have too much time. I just would like to ask Mr. Dodds to comment on your reaction.

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    Mr. DODDS. One of the things is that loss mitigation activity does not necessarily lead to someone saving their house. When a lender offers somebody two payments a month to catch up on the mortgage, that is a loss mitigation tool. And we know for sure the families will agree to any kind of deal to save the home.

    What we need to see is whether that tool led to the family preserving their home. In the HEMAP-style program when you give people enough time, 90 percent of the people recover. If you tell people who are out of work, ''We will let you pay double mortgage,'' they will say, ''OK, I will do that.'' Do they succeed?

    The other thing is the refinancing only works when interest rates are low. Interest rates, as we all know are rising. The refinancing tool is out the window right now for people that have reasonably low mortgage rates, which we have been low in the past, now we are going higher. And lastly, the family has to qualify for a mortgage at that point and be able to make a full payment. So a lot of the tools, one, that were used we are not sure they are effective; and, two, they only work in certain circumstances.

    Ms. VELAZQUEZ. Thank you, Mr. Dodds.

    Mr. Apgar, some of the tools depend on the disposition like mortgage companies to be willing to work with the borrowers.

    Mr. APGAR. It is not an option for mortgage companies to offer a loss mitigation tool. It is a requirement. We monitor lenders. Our mortgagee review board process has sanctioned lenders who have engaged in inappropriate loss mitigation efforts. We are aware of the fact that lenders have a responsibility to participate in this program. And we intend to enforce those provisions strictly.

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    Ms. VELAZQUEZ. Mr. Apgar, I am pleased to see that this bill extends CDBG to Brownsfield development. And I would like for you to explain to me how do you envision this money being spent or being used in light also of the recent cuts in the VA-HUD to CDBG, how this will effect implementation of this part of the bill?

    Mr. APGAR. Well, of course, at some level many of these issues are about the appropriations matters. We understand that Brownsfield is an important program. Mayors have endorsed it. It is a critical program to providing a cleanup to make development-ready parcels in inner city communities. And while we appreciate the authorization of these activities, of course, we are most concerned about the cuts that would make these additional provisions not useful.

    Ms. VELAZQUEZ. How would you envision to implement CDBG funds to be used for the cleanup of Brownsfield?

    Mr. APGAR. Currently, of course, we have a competitive program working with communities. We have a series of best practices activities. And, again, our sense is the need for these resources far exceeds our capacity to provide them under the limited funding we have available.

    Ms. VELAZQUEZ. Mr. Chairman, I just have one more question. Mr. Knight, I am going to make the same question that the Chairman made before, but it is going to be in reverse. I come from New York City. It is one of the most expensive real estate markets in the Nation. And, of course, in my district there is a great need for affordable housing for low- to moderate-income families.

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    And I am concerned that this provision would allow localities to spend CDBG funds on members of the community who are not in great need of affordable housing.

    Tell me what should I tell my constituents when they ask me why CDBG funds are being spent on people who are not low- to moderate-income? And, Mr. Apgar, I would like for you to comment on the same question based on the recent study that HUD findings in terms of the disparity that exists between mortgage rates for minorities and whites is growing with minorities paying ever increasingly higher mortgage rates than whites, and what is HUD going to do about this growing disparity?

    Mr. Knight, if you could comment.

    Mr. KNIGHT. I think if I were in a church basement answering that question, I would say if you have got $100 in CDBG money and I put those funds out in a single loan or a grant to a low-income family, I have spent $100. If I use those same funds in a loan pool and can attract another thousand dollars of private capital, I now have $1,100. I believe under this legislation, 75 percent of that would have to be used for low-income families.

    According to my math off the top of my head, it has got to be approximately $800 that would be available for low-income families. So instead of spending $100 to assist one low-income family, I now have $800 to spend for several low-income families. And the price of that or the opportunity for the neighborhood is that with the loan pool I now have a few dollars available to help a family that is in a moderate-income status.

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    Mr. APGAR. Clearly this issue of targeted scarce resources is important. We are not opposed to the concept, we just want to make sure that the resources of HOME and block grant money are still targeted. Relative to your question of mortgage lending disparities, it is an area of great concern. Of course, despite the rising economy and the growth of homeownership opportunities, many groups are being left behind.

    I think I can safely say without preempting our announcement that HUD today will be releasing a study that documents some of the continuing discriminatory practices in America today, and we will join with ACORN, who has also released a study, which provides similar commentary. This is a call for us and others to redouble our efforts at fair lending and fair housing enforcement and to work with those parts of the mortgage industry that are trying to root out discrimination from every corner of their businesses.

    Ms. VELAZQUEZ. What does HUD intend to do?

    Mr. APGAR. We continue to press to double our fair housing enforcement effort, to continue to form alliances with State and local groups around fair housing outreach efforts, and to continue on Secretary Cuomo's commitment to make discrimination a thing of the past.

    Ms. VELAZQUEZ. Thank you, Mr. Chairman.

    Chairman LAZIO. Mrs. Kelly.

    Mrs. KELLY. Thank you, Mr. Chairman. I have several questions, and I am going to address most of them to you, Mr. Apgar. So I am going to ask you, because of my limited time, to focus your answers and respond as quickly as possible.

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    One of the things you testified about involved Title I of this bill, Section 102, which is the housing impact analysis. It is my understanding that back sometime in the mid-1980's, there was passed in Congress the Regulatory Flexibility Act, under which every agency was supposed to do an impact analysis of rules and regulations that they promulgate.

    How is this requirement any different from what you are already mandated to do?

    Mr. APGAR. We think this is very similar to what we were required to do, and that is part of our concern, whether this will be duplicative of other efforts.

    Mrs. KELLY. You said it is similar, sir?

    Mr. APGAR. Yes.

    Mrs. KELLY. How is it any different?

    Mr. APGAR. HUD is also required to do an economic analysis, and clearly housing affordability concerns are also of economic impact.

    Mrs. KELLY. Are you saying that you don't now do an economic analysis?

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    Mr. APGAR. We do.

    Mrs. KELLY. Then you are already doing this. This is hardly an additional onerous provision as I see it.

    Mr. APGAR. Yes, that is correct, that we are concerned that the interaction of these two will produce some regulatory delays in approving regulations, and the goal is to make sure that they complement one another, and that is our area of concern.

    Mrs. KELLY. If you are doing an analysis on an economic basis, how can this request add to that problem? If you look at what is required here, you are required only to add some descriptive analysis and have a succinct statement of the objectives of the legal basis for your role. I mean these things are already required, I believe.

    Mr. APGAR. I know. I worked very closely with Mr. Campbell to bring the legislation to the form in which it is, to make sure it is not conflicting with existing regulatory requirements. I think we are almost there. We just need to continue to work on this to make sure that others share this view.

    Mrs. KELLY. I think most of us are interested in making sure that what you are doing is transparent. And I believe very strongly that this impact analysis is exactly designed to do that.

    The other aspect that I am very interested in is the transfer of unoccupied and substandard HUD-held housing. I believe that everybody in this room is interested in making sure that more people in the United States of America are able to own their own homes. I believe that it is extremely important that we take out of the HUD ownership and put into some other purview homes that HUD is no longer using.

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    I do not understand again why there is a problem for you in the transfer; that is, in Title IX of this bill, it seems to me there is perfectly good limiting language in that bill. And in your testimony, I clearly do not understand why you say that requiring HUD to offer every vacant or substandard real estate owned single family or multi-family property to local governments or community-based development corporations is a problem. I don't understand why that is costing you money.

    Mr. APGAR. OK. HUD acquires these properties through the payment of insurance claims. We incur costs while holding these properties.

    Mrs. KELLY. Why hold them?

    Mr. APGAR. OK. So we have a program to sell them, which is effectively recovering these costs. This bill would require us not to sell these homes off to new homeowners, but sell them at a deep discount to a community-based group, therefore, denying HUD the opportunity to recover its costs through an ordinary sales process to a new home buyer.

    Mrs. KELLY. Are you currently selling to the current homeowners?

    Mr. APGAR. This year we will sell approximately 60,000 homes at a market or a price that approximates market; this bill would prohibit us from engaging in those transactions, requiring us to set these homes aside. That is where we got the cost implication of up to $3 billion worth of lost revenue to the FHA fund.

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    Mrs. KELLY. How many units of your inventory are currently boarded up, not being used?

    Mr. APGAR. We now have 50,000 homes that we have an inventory, 40 percent of them are under contract; most of the rest are listed in the process of being sold.

    Mrs. KELLY. I am sorry, you have only 50,000 that are boarded up across the Nation?

    Mr. APGAR. We have 50,000 in the inventory; most of them are not boarded up. Most are being presented for sale. In inner city neighborhoods there are some that we board up in order to protect the units from vandalism.

    Mrs. KELLY. I clearly am not getting from you—I am sorry, I do not understand somehow what the totality of that figure is. I am getting a couple of different figures, maybe it is just me, but I really don't understand.

    Mr. APGAR. We have 50,000 units in our current inventory.

    Mrs. KELLY. You have 50,000 in what current inventory?

    Mr. APGAR. In our current inventory of HUD-owned real estate, single family properties.

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    Mrs. KELLY. How long have they been boarded—I am sorry, Mr. Chairman. I will need a little more time if possible.

    Chairman LAZIO. I will give you an additional one minute with unanimous consent.

    Mrs. KELLY. Thank you very much.

    How many have been boarded up for years? I go through parts of my district and I see units that have been boarded up for years. The perfectly good buildings apparently could be rehabilitated if they were offered on the open market or put into community rehabilitation. And they are still boarded up, they are still owned by HUD.

    Mr. APGAR. Fair enough. Of our single family homes approximately 10 percent are in the inventory for more than twelve months; 90 percent of those are purchased and sold before a year.

    Mrs. KELLY. I am sorry, I am still not getting the full number; perhaps you and I can talk later.

    Mr. APGAR. That is good. It is a complicated process, and I am not explaining it well. I am getting whispers of other things that I should tell to clarify this. Just simply we take homes in through a foreclosure process, we pay the mortgage insurance a claim. We then offer those homes for sale to the general public. Those homes then are marketed and sold. The typical home is held by us about 180 days before it is sold back to another home buyer.

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    Some homes do remain in the inventory for which we hold them, because we can't find a buyer. Those homes can be held as long as a year; 12 percent of the homes that we currently have in inventory have been in the inventory for more than a year.

    Mrs. KELLY. I am sorry, I thought you said 10 percent.

    Mr. APGAR. 10 to 12 percent. I have to get the exact number.

    Mrs. KELLY. Maybe you could get the subcommittee that figure.

    Mr. APGAR. We have detailed statistics on that.

    Mrs. KELLY. That is the figure I am really interested in; that is the figure that I think we need to focus on. And I would like to see more activity. I would really like to know what you are doing about getting them out of your inventory.

    Mr. APGAR. We can explain the legislation that we got enacted last year by the targeted program for disposing of the difficulty of selling properties of which those ones that we are talking about are the ones that have been in the inventory for some period of time are exactly the type we are working through the new legislation.

    Mrs. KELLY. It is my understanding and belief that is what this legislation is designed to do.

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    Thank you, Mr. Chairman.

    Chairman LAZIO. Thank you very much.

    Ms. Hooley.

    Ms. HOOLEY. Yes. Thank you, Mr. Chairman. I have a couple of questions. First of all, Commissioner Apgar, in your written testimony you oppose, or you said it wasn't necessary, that there is a study for mandatory inspections, and it wasn't necessary, because HUD has already created a home buyer inspector plan. However, this plan as you describe it only deals with appraisals. And I understand that better appraisals will help protect the value of that home.

    But there is a difference between inspection and appraisal. And while I am not fully endorsing board mandatory inspections for all of FHA, I don't understand your resistance to a study.

    Mr. APGAR. Just under the category of things we think that aren't necessary. We have a national home inspection awareness campaign. We formed a partnership with the National Association of Realtors, the mortgage banking industry, the campaign is called ''For Your Protection, Get a Home Inspection.'' Real estate agents and brokers across the country are disseminating information. It includes a sheet that we distribute to all perspective FHA borrowers explaining to them the importance of home inspection.

    Ms. HOOLEY. You don't think a study would tell you anything?

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    Mr. APGAR. A study would tell us that home inspections are very important; we agree with that. A study would tell us that consumer awareness is key to getting folks to do an inspection; we agree with that. I don't know what additional informational study would turn up other than what we know already. And we are taking actions in those areas.

    Ms. HOOLEY. Thank you.

    I have a question for Mr. Brice and Mr. Hussey. And so I would like an answer from each of you, because I have a feeling that you are going to have a different answer for me, and, that is, on the Consensus Committee for Manufactured Housing, help me understand on that committee why it is or is not biased toward industry and commercial interests?

    Mr. Brice, do you want to go first?

    Mr. BRICE. Yes, I had a question about that.

    Ms. HOOLEY. Do I need to repeat it?

    Mr. BRICE. I understand the question. And actually we feel in the current proposal, it would be simplier and fairer if each of three groups were equally represented, and that would be consumer, industry and public interest. That was our statement.

    Ms. HOOLEY. OK.

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    Mr. Hussey.

    Mr. HUSSEY. Congresswoman Hooley, I think that the proposal is very fair. We have had that 1/3\-1/3^-\1/3\ division before in the National Commission of Manufactured Housing that resulted in nothing much happening, and that was an organization that was created by this subcommittee and this committee six to eight years ago, and I served on that commission. That 1/3\-1/3^-\1/3\ breakdown did not result in any good product.

    I think that the balance of the consensus committee under the proposal were 40 percent of the committee members can be industry-related with 60 percent being not industry-related. Clearly it favors the non-industry-related individuals who will get their input in. In addition, one-fifth of the members of this consensus committee would be for the first time consumers who would get direct input from consumers, not through State agencies as has been done in the past.

    Furthermore, any approvals under the consensus committee require a two-thirds vote; therefore, the 40 percent that could theoretically be industry controlled cannot pass anything over the other fifteen members of the committee and, furthermore, HUD has the absolute veto as to anything that might come out of the consensus committee.

    I think that it is important that all of the members of the consensus committee though be technically competent, that they understand what manufactured housing, manufactured housing construction, the enforcement of manufactured housing code is all about so that they can give good guidance to provide great guidance to HUD on updating the manufactured housing code.

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    Ms. HOOLEY. Thank you.

    Mr. Brice, I have a question. You did this homeowner satisfaction survey, which I think is an interesting survey and I am glad you did it. Do you know if any other surveys that have been done for like stick built homes—I am trying to find out if you did a survey and compared manufactured homes and their satisfaction with stick built homes, if you would get the same kind of answers, the same kind of problems? Do you have any knowledge of that kind of survey happening?

    Mr. BRICE. I am not sure that we did the survey against the other entities.

    Ms. HOOLEY. I am not trying to, you know, put one group over another group. I am just curious if there is many people that have found a new home that is built that they move into would say, ''Gee, we had this problem, we had that problem.'' So I am trying to understand the difference.

    Mr. BRICE. I am sure that they probably would; problems exist probably everywhere. But I don't have detailed information, and I can provide it to you through the staff at a later point.

    Ms. HOOLEY. If you know of that, I would be very interested.

    And, Mr. Brice, I have one other question. In your survey, you found that 95 percent, I think you said 95 percent of the manufactured homeowners had warranties and 66 percent of those with problems pay out of their pocket. If they have warranties and they pay out of their pocket, help me understand why they are paying out of their pocket.

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    Mr. BRICE. That is exactly the crux of my statement with the gentleman to my right, when I indicated that there is a conflict generally with what the warranty really means. In one instance, it might mean one thing, and in another instance another. There is no consistency about how the seller would react to a warranty. They may say, ''Well, that is not really my problem, it is an installer's problem.'' Or it may even be thrust back as an owner problem.

    There are no standards in regards to how the warranties are evaluated or the performance of the warranties. That is why the individual is paying for problems that exist to the point of $1,140 as an average for each problem.

    Ms. HOOLEY. OK. Thank you very much.

    Chairman LAZIO. Mr. Barr.

    Mr. BARR. I have no questions. I have appreciated the hearing, listening to the testimony and the questions and answers, Mr. Chairman.

    Chairman LAZIO. I thank the gentleman. I wish his district good luck.

    Mr. BARR. Thank you.

    Chairman LAZIO. Mr. Vento.

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    Mr. VENTO. Thanks, Mr. Chairman, I'd like to make a couple of points. I think it is important, Mr. Chairman, I am sure you noted, my concern about the FHA program. The FHA single family program is a self-sufficient program. Many of these proposals here, I don't know if the reverse mortgage issue is included—have costs that used to be lower in terms of doing them. I know what the costs are of doing it. But all of these may be good things to do.

    My question is—I don't know what the amount of dollars would be lost in revenue there. It could mean that any time there is a minor change in terms of interest rates or changes in terms of the contract it would be advantageous for the person that holds the home equity conversion, they would go in and change it. There would be no cost to them. I know that is not your intent, Mr. Chairman.

    But here again, looking at the mitigation versus some sort of an assignment program, whether it is H.R. 595, some of these ideas may be good, they may not be good. But if we are talking $3 billion, I know what the effect would be on the fund, and the same is true of handing over the properties to the local communities.

    And we have done programs like that under the RTC program with properties that were held by institutions that really the holding costs are much higher. And I don't know how you can get the holding costs down. We debate that all the time. Mr. Apgar—the Commissioner and I had had a discussion about heating homes in Minnesota in the winter that they are holding, because the necessity of doing so means that the properties maintain their value. And I guess we are still not over that particular issue yet, Commissioner Apgar.

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    But would you comment, Commissioner, about these three aspects. I mean if we take billions of dollars out of FHA, won't the insurance program be undercut by that and the effectiveness be undercut, efficacy?

    Mr. APGAR. That is our primary concern. In the case of HECMs, quite frankly, we think this is a good proposal. We are just now doing an actuarial study to get a handle on how much it would cost. Independent of that, we might make a prudent judgment to go ahead with some modification of the program, because we do have the authority to do that. We are not opposed to the concept. We just have be mindful of our fiduciary responsibility.

    Mr. VENTO. I will get Sam Stollen to help you a little bit. He is one of my constituents.

    Mr. APGAR. I appreciate the offer of AARP to work with us on perfecting that HECM refinance program, because we think that is a good idea if we can get a sense of what the cost implications are.

    The other provisions we are quite concerned about, the sale, wholesale disposition of HUD-owned real estate, the community based non-profits at a deep discount. We think that is a worthy purpose, but HUD now, of course, receives back as much as $60,000 per home from its sale to a new home buyer. This provision would prohibit us from collecting that revenue and substantially reduce our receipts. We estimate that we would lose under this provision as much as $55,000 per home, large numbers.

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    Mr. VENTO. I read all of this and I understand that. My concern is that FHA as the insurance program would put it into the red, it would obviously not be producing revenue and $3 billion a year is not a hit you could sustain; is that correct?

    Mr. APGAR. That is correct. We are required to maintain an actuarially-sound program. We have to run more than break-even business, and so that is why we are always concerned with these proposals to take a hit against it.

    Mr. VENTO. This might be a good way for us to proceed with housing policy to do good for mankind here in the country, but it would also undercut the important work that FHA has to do in terms of——

    Mr. APGAR. Preserving the integrity of the fund is job number one; FHA is the vehicle that has produced 27 million homeowners.

    Mr. VENTO. That is right. It is a very important program. And these programs sound like they are all right in terms of the assignment. And I think we ought to go to the appropriators and see if they want to give us $3 billion. And I think the answer is we already know.

    Chairman LAZIO. Would the gentleman yield for just a second? I will be glad to replace the time. I just want to clarify something. I am not sure I am understanding the testimony of the Secretary that testified that the exposure is $55,000 per home.

    The way the provision works is that only the premium that has already been paid by the homeowner is credited against the additional loan premium that would be requested in the case of this. I don't know how you get the $55,000.

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    Mr. APGAR. We were talking about the property disposition program. I thought—you are talking about the premium credit business is about the HECM.

    Chairman LAZIO. I am sorry.

    Mr. VENTO. I guess I am confusing you, Mr. Chairman.

    Chairman LAZIO. I apologize.

    Mr. VENTO. I don't know all of the programs. I think your concern would be—anyway, my concern would be shared by you in this, I would hope, based on keeping FHA viable.

    Just changing and shifting gears, I have two other points. One is on the appraisal issue. And there are the agreements now with regards to appraisals and home inspections, which there is a flurry of issues that are related to home inspections and that they would be a good thing, because there were some folks that have FHA mortgages that were purchasing homes that had deficiencies, serious deficiencies.

    But the appraisal issue, the effort here is to try to encourage inspections. There is some suggestion that the cost of the new appraisal program will be a detriment, in other words, there are a lot of those that are in the sales, the realtors and they suggest homebuyers, this actually will raise the costs, the new appraisal process will raise the costs of home purchase.

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    This concern obviously, Commissioner, has been brought to your attention.

    Mr. APGAR. Right.

    Mr. VENTO. And I just wanted my colleagues to be aware of that as we go down the road with perhaps a study which has an obvious answer, yes, inspections are good.

    The last thing I wanted to raise is the issue about manufactured housing. And contrary to my colleague from Massachusetts' concern about installation, it is the view of the State Department of Administration in Minnesota that the installation provisions of this bill and the incorporation of the Liberty decision, I think I am saying this right, into statutory law actually undercuts their authority with regards to installation and related matters, soil types and so forth, that they think are inherently a State or a local concern, which Mr. Hussey has done a very good job of defending that particular local or State rights type of view.

    But, nevertheless, the bill, because it incorporates this more broad language with regards to Federal preemption, they are concerned about it; I know it is a technical point. And I will put the letter in the record.

    And, Mr. Hussey, I wanted to give you a moment to respond to me concerning it. But I do think that this is something that obviously warrants our attention in terms of this. I assume that the concern that you have is that if you can't have some degree of control and voice in terms of the national standards as to installation, it does have an impact on the quality and the amenity of living in the manufactured unit.

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    Please, Mr. Hussey.

    Mr. HUSSEY. I would agree with you, Mr. Vento, Minnesota has one of the excellent programs in the country, State-based installation program. And it is not the intention of the proponents of the Manufactured Housing Reform Act to in any way interfere with either Minnesota's program or any other States that have good solid installation programs. The idea behind the language on preemption was that preemption should be broadly construed in the context of the home that is built in the plant.

    There has been some deterioration of that preemptive language over the past few years with regard to certain fire safety issues that should be left to the Federal Government to determine what the building code should do about those issues. It is not intended in any way to have any effect on the installation of the home.

    Mr. VENTO. Thank you. We will submit a longer letter for the record, Mr. Chairman, and an answer in response.

    Chairman LAZIO. Thank you very much.

    Mr. Capuano.

    Mr. CAPUANO. Thank you, Mr. Chairman. Mr. Chairman, first of all, I want to congratulate you for bringing this bill forward. I think this is exactly the right page on lots of different issues.

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    I want to preface my comments/questions with, first of all, the statement in my opinion there is not near enough money on the table relative to either homeownership or home equity, no matter how you want to say it. I don't care what housing program we are talking about, and that is a fight you all know we are having on the floor of the House regularly it seems, not even enough for me.

    So, therefore, that always begs the question which programs are the most important and where should we put limited resources. And it is always a struggle for those of us who care about housing on any level to determine where to best put it.

    My general approach has always been that we provide as many options as we can and as much flexibility that we can to local officials. As a former mayor, I was always looking for that. And I will tell you that I was one of the cities that had a program that provided homeownership opportunities for police and firefighters. And I will tell you that it worked with limited success, but limited success is better than no success.

    That is one of my reasons why the concerns I have with both the proposal before us and actually the amendments that the home builders have is—my question is why limit it at all? I understand limiting income to some percentage, you have to have some limitations. My argument is to raise limits. Why limit it to just police, firefighters, teachers and municipal workers; if there aren't enough of them who want it, why not give it to someone who doesn't work for the municipality?

    Homeownership in and of itself is a stabilizing factor in any community. I understand prioritization. And I understand let us give it to cops; if we don't have enough and have money left, let us give it to firefighters and teachers; that is fine. But it is the same thing with percentages, why limit it to 115? I understand it might be a number and I would understand there might be a disagreement.

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    But once we come up with a ceiling, why limit it? Why not see, first, priority for people up to 115; but if the community, if they desire to do so and they can justify it, I think there should be some justification, but because of the particular abnormalities of the community, why not go to 150 if they need to do that to attract them.

    I would argue there is not an issue that is addressed, namely the type of homeownership. In my community we didn't give anybody anything for single family homes. The argument to me was multiple family homes, and in return for any kind of assistance, we required people who got it to then promise to keep the rental units as affordable as possible. And we entered into agreements with them.

    And my general question is to Mr. Apgar and Mr. Giordano. Would you have any general concerns with trying to take these programs, setting priorities? I have no problems with that and many ways I would want HUD to be the lead people in setting priorities. Why not give it to the local communities? I trust the mayors in general to come up with programs that are adept to their particular community to deal with their house pricing issues, and so forth, and so forth.

    Why not do that and set the limits a little higher in order to allow the reprioritization within that on the local community level? And I guess I will start with you, Commissioner.

    Mr. APGAR. Well, we agree that local options are good. We agree that the goal of income mixing is appropriate and providing a little more flexibility here. We just want to make sure that the money is targeted. We would look for maybe some area of targeting and some other things to make sure it was an area that would really benefit from the additional focus on homeownership, as opposed to an area that already has a relatively high homeownership rate. So, sure, there is a way of doing this we think would be very productive for communities across the country. We would be happy to work with you on that.

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    Mr. CAPUANO. That is an interesting aspect too, because in a community like Boston—if you do it in Boston, all the cops will live in West Roxbury that already has a very high homeownership.

    Mr. APGAR. That is one of my concerns.

    Mr. CAPUANO. My thought is you want to get them into the lower income areas, the ones that are a little bit more stressed; therefore, if you give them an opportunity I am sure that is true for any of the other larger cities.

    Mr. Giordano, I wanted to know if I can get your reaction to those.

    Mr. GIORDANO. Congressman, we are 100 percent in favor of that. The more people we can involve in achieving their dream, which is to own a home, is our purpose and goal. And if that be stretched to a higher percentage and made available to more individuals, that only helps us achieve our goal in a more expeditious fashion.

    As to the municipality uniformed employees, that helps build also a stronger city. And that was another reason why our concerns ought to reach out for those individuals so we can entice the revitalization of some of the blatant conditions within our cities, take the families back, too.

    Mr. CAPUANO. I want to make sure—I agree with you it is an important issue, but it is not the only important issue. I just want to make sure I understand. If they were to say, for the sake of discussion, ''cops are our top priorities, teachers are our second priority,'' whatever it might be, however, if there aren't enough cops who want to take the program, if there aren't enough teachers who want to take the program, there is enough money on the table, let us give it to Mrs. Jones next door who needs it. I want to make sure I understand you, you don't object to that?

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    Mr. GIORDANO. No, we don't.

    Mr. CAPUANO. Mr. Chairman, that is unanimity of opinion; therefore, I will stop.

    Chairman LAZIO. It sounds like it will be a good amendment.

    I want to thank an outstanding panel. We have a few more questions, I think that we might have, but I think we are better to submit them if we can.

    We are going to have a vote in the next couple of minutes, as I understand it. I just want to let the Members know that they may want to go to the floor or call the floor. But let me thank both panels, and particularly the second panel for their written testimony, for their patience, for their travel, for their effort and for their thought and commitment to housing.

    Thank you very much. And this hearing is now in recess.

    [Whereupon, at 12:32 p.m., the hearing was adjourned.]