Segment 1 Of 3     Next Hearing Segment(2)

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

    The subcommittee met, pursuant to call, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding.

    Present: Chairwoman Roukema; Representatives Kelly, Miller, Cantor, Grucci, Tiberi, Frank, Carson, Lee, Schakowsky, Jones, Sanders, LaFalce, and Israel.

    Chairwoman ROUKEMA. Today, we're having this hearing obviously on H.R. 3995, the Housing Affordability Act, we hope will be of 2002. These issues are certainly at the top of my agenda and always have been, because I guess I come from that old-fashioned school where my parents always taught me that owning your own home was the American dream. It was part of being a true American to own your own home, and I keep thinking that every time we have a new piece of housing legislation. Certainly the country is facing, however, despite the fact that we have a growing number, 68 percent of the homeownership rate, which is an amazing increase in homeownership, nevertheless, we still have an affordability problem for low- and moderate income families and that certainly is what this series of hearings that Mr. Frank and I have been sponsoring or focusing on. Our subcommittee hearings have focused on what community activist housing experts, local and Federal Government officials and representatives of the real estate industry and the homebuilding industry, as well as mortgage industries. We've had a few of those hearings already, and this is a continuation of that.
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    Certainly we believe that, or I believe that H.R. 3995, the legislation that's under consideration today, is a good one and not necessarily perfect, but we would like to hope that we can have a really solid piece of legislation in this Congress so that we can get what we would I guess call mid-course corrections in housing programs that are some are under-used, and some are duplicative, and we want to have less regulation if possible.

    The bill includes a housing production program and preservation program within HOME that is targeted toward low-income families. In addition, this legislation provides flexibility and increases opportunities for local governments and local decisionmakers so that they can better meet the needs of their individual communities. That's certainly what we're hoping to do here.

    There has been under FHA the program that was originally designed to encourage lenders to make credit available, we have been notified or recently learned that there needs to be strength added to it and less regulation, because the needless regulation—at least it seems to be needless in some respects—are adding to the cost of homeownership and we would hope that this legislation H.R. 3995 requires Federal agencies to do a housing impact analysis of any new rule that has an economic impact of $100 million or more.

    The Homeownership Opportunities Act for Public Safety Officers and Teachers, H.R. 3191, has also been incorporated into this legislation to make homeownership more available to those public servants.

    Today's hearing will specifically focus on the HOME Program Housing Production. New production of affordable single and multi-family housing is essential to the goal of expanding homeownership and affordable rental opportunities. H.R. 3995 creates a separate production program within HOME targeted toward low-and extremely low-income levels. HOME is the largest Federal block grant to State and local governments and it is designed exclusively to create affordable housing for these low-income households. And so we are amending the HOME program to establish a housing production program to increase the production and preservation of mixed income rental housing for the very low, 50 percent of median income, and extremely low-income families, 30 percent below the level of median income in the area.
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    I won't go into more of that, I mean, of those specifics. I'm sure they will come up in the discussion with the people who are testifying today. But let me just say that H.R. 3995 includes a provision that establishes—and here I'm going to ask some questions hopefully, or listen very carefully for what is being said by our panelists concerning a thrifty production voucher. This thrifty voucher could be used in conjunction with the new construction or substantial rehabilitation. I don't believe that this thrifty voucher is carefully identified and defined as a different type of voucher, because it's based on the property operating costs, but we're going to be asking, exploring if not in questions today, certainly exploring through the legislative process how those vouchers would work and who would approve the vouchers and how they specifically are differentiated from the other vouchers that are presently in the law.

    It has been stated that the thrifty production vouchers can be combined with any capital subsidy program so as home or low-income housing tax credits, but I'm not quite sure exactly how that would work and we'll have to explore that in more detail. We will go into a lot of these questions. They're not insurmountable problems. They're not unanswerable questions, but we will use this hearing today to refine some of the parts of the program and certainly those who are here with us today have good, practical experience in the real world with these issues. So it's not theoretical, but it's a real world explanation of how we can increase the American dream and expand the American dream for all of our citizens.

    And with that, I would turn to the Ranking Member Congressman Barney Frank.

    Mr. FRANK. Thank you, Madam Chair. I am very pleased that we are moving into a stage where we are actually going to be marking up legislation. We have a housing crisis, and it's important to note that we have a debate in this country, as to whether or not when you get great private sector performance, and when the level of prosperity in the private sector, as we measure it, is fairly high. The question is does that then not mean that Government doesn't have to do anything? I am generally skeptical of that proposition, but nowhere is it less valid than regard to housing. We have just come through a period in which we have proven results, given the inevitable unevenness of prosperity. Great prosperity, even for most Americans, exacerbates the housing crisis for many Americans.
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    We have a housing crisis in many parts of this country today for lower income people, which leaves them worse off than they were before the great decade of economic prosperity happened. And so it is obvious that if the Government does not significantly increase its role, then we will not achieve that goal of housing. And I agree very much with what the Chair said. I was pleased when she said in the middle that we're talking about homeownership and rental housing. I do think we have to guard against the tendency to devalue rental housing. Low-income people need to have good rental housing; the American dream is a home, not homeownership. Homeownership is good for some people, it is heavily tax favored. If we have a subsidized rental housing for low-income people the way we subsidize through the Tax Code homeownership, we would have probably a surplus of low-income homes. No one is thinking we're going to get there, but it is important to mention rental housing.

    Now there will be some specific questions that we will have; our colleagues have got a proposal which I have cosponsored. There are some things in the bill. We'll be hearing from the Millennium Housing Commission. I thought that was supposed to be this millennium, I'm not sure, they were uncertain.


    Mr. FRANK. But we will hear from them at some point and all of those specifics will be very important, and I thank the Chair for the hearings last year and for responding, because basically almost everybody, I think all but one witness last year over a broad range, said you need a production program. And the Chair and I have both over the years noted that while the Section 8 program does some good, in some markets it is not suitable and is not the best way to go and that you need a range of housing programs, because not every housing market has a one-size-fits-all.
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    Indeed, I think it's very clear and we ought to do a little classic economics here. Given the voucher program as a tenant-based-only, as long as there is no project based where it's not an incentive to build, in tight housing markets, what you do with Section 8 is add to demand in a way that is guaranteed not to add supply. Now that helps equity, but it also drives up costs. So that in tight housing markets, a voucher-only program by classical economic supply and demand is a very insufficient policy.

    The question though that really has to be addressed if it's not fully within our jurisdiction, but we're what, more than ten percent of the House, so we can influence this; it's money. You can't build bricks without straw and you can't build houses without money. And we can all try to be efficient and we can all talk about thrifty vouchers and cheap this and inexpensive that, but you still need some money.

    And I just want to summarize a statement. We've been having meetings with a variety of groups, a wide variety of groups, advocacy groups, business groups that are in the housing business, people who are trying to get housing rented, local officials, and I want to read the statement and particularly I want to read the list of signers.

    More than 15 million families in this country have critical housing needs. Too many are homeless. About one in every seven households do not have a decent affordable place to call home. We believe that to correct this problem, a significant and sustained commitment to increased funds for housing in both urban and rural areas should be made at the national level. A reasonable downpayment on that commitment would be an increase of $15 billion in the coming fiscal year's budget for housing and community development. This can include both tax expenditures and outlays benefiting low- and moderate income families which can leverage State, private and local funds beyond the $15 billion. This is signed by the National Housing Conference, the Mortgage Bankers Association of America, the American Association of Homes and Services for the Aging, the Public Housing Authorities Directors Association, National Affordable Housing Management Association, National Alliance to End Homelessness, the Council of Large Public Housing Authorities, Citizens Housing and Planning Association of Boston, the Housing Assistance Council, the National Leased Housing Association, the National Low Income Housing Coalition, the Council for Affordable and Rural Housing, the McAuley Institute, the Consortium for Citizens with Disabilities Housing Task Force, the National Community Development Association, the Local Initiatives Support Corporation, the U.S. Conference of Mayors, the Enterprise Foundation—I bet for once you're glad I talk too fast—the National Rural Housing Coalition, the Corporation for Supportive Housing, the National Fair Housing Alliance, the Alliance for Retired Americans, the National Association of Counties, the National Association for County Community and Economic Development, National Association of Local Housing Finance Agencies, Network, a National Catholic Social Justice Lobby, National Community Reinvestment Coalition, National Council of State Housing Agencies, the Center for Community Change, the National Housing Trust, the Council of State Community Development Agencies, the National Multi-Housing Council, the National Apartment Association and the National Association for Affordable Housing Lenders.
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    This is the key question that has to be part of our deliberations. Yes we have some good proposals on the table to go forward, but without increased resource it won't work, and we simply cannot have a policy of cannibalizing existing programs to support new ones. There is a need for new money and this is part of what we have to do, but it has to be put in the context of the need for resources.

    Chairwoman ROUKEMA. I thank the Ranking Member. I will acknowledge the fact that Congressman LaFalce, the Democratic leader on the Full Committee has joined us today and although I'm going to ask unanimous consent that all other opening statements be included in the record and that we go directly to the panel, I would give Congressman LaFalce the opportunity as the leader of the Committee Ranking on the Full Committee to make his opening statement.

    Mr. LAFALCE. Well, I thank the gentlelady very much, and I would like to begin by commending the Chairwoman of the Housing Subcommittee for her diligence in developing an Omnibus Housing Bill, H.R. 3995. The bill includes a great number of very constructive provisions to address the issue of housing affordability, and I think that by the time we report it out of subcommittee, Full Committee, and the floor of the House and get it signed into law, the Roukema Housing Bill will be a great testament to your great congressional career.

    I also personally appreciate the inclusion in the bill of a number of individual bills that I've introduced: specifically, H.R. 674, with respect to FHA loans for teachers, police and firemen; H.R. 858, to permanently authorize the FHA downpayment simplification formula; and H.R. 3926, which would prohibit the implementation of the 50 percent hike in the fees charged by Ginnie Mae. And I have a few others too that I think should be included in order to make it an even better bill, Madam Chairman, and will make an appointment with you for a cup of coffee to perhaps discuss those in your office.
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    But before I close, I'd like to address the issue of affordable housing production, which is the major focus of today's hearing. Clearly in many parts of this country, rents are skyrocketing, vacancies are near zero percent, and low-income families and seniors are having an extremely difficult time finding an apartment to rent. And in many areas, simply having a Section 8 voucher is not enough for a low-income tenant to be able to find a place to live. So we need to build new affordable housing, and the provisions that are the subject of today's hearing certainly address such needs.

    But I'd also like to point out that these types of housing conditions do not exist in every part of the country and do not exist even in every urban area. There are a great many older urban areas, like those I represent, where a more pressing need is not building new housing but rehabilitating the existing housing stock. And there are many, many parts of the country where affordable housing preservation, in the narrower sense of the word, is not a critical concern because it's just not that attractive to opt out of assisted housing when market rents are not an attractive option.

    Therefore, I reiterate some of the comments that the Ranking Member, Mr. Frank, made. As we deliberate proposals to create new HUD programs, and as we consider proposals to revise existing programs, we must maintain flexibility in our policies to make sure they work for all communities nationwide. Where in one community the highest priority may be to build new housing, in another it may be to rehabilitate the housing we have. Where in one community it may be the highest priority to find new housing for the very lowest income families, in another, a major priority may be to bring middle income families into communities that are concentrated with poverty or to bring individuals who are extremely low-income into middle income communities.
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    We need to do a better job to facilitate a more integrated society and I don't know that we've done a good enough job there. One size does not fit all. In order to sustain support for whatever we authorize, our policies have to work for all communities, for all local market conditions. I look forward to these hearings, and I look forward to working with you in further subcommittee consideration of an excellent start in H.R. 3995.

    I thank the Chair.

    Chairwoman ROUKEMA. I thank Congressman LaFalce for his insightful statements. We will have more of a discussion or a debate whether public or private, but there are issues that we would want to discuss. Now I would ask unanimous consent that we go on to the panelists, but that all——

    Ms. JONES. Madam Chairwoman.

    Chairwoman ROUKEMA. Excuse me. Excuse me, but I was just going to say we're very limited in time with the votes that will be coming up, and we do want to begin to hear the panelists, but that all the opening statements would be made part of the record. Yes?


    Chairwoman ROUKEMA. Congresswoman Jones has a personal point to make for all the Members of the subcommittee for their information.

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    Ms. JONES. Thank you, Madam Chairwoman.

    Just on behalf of the family of my staff of Rodney Pulliam, who was killed in a car accident in Frederick, Maryland, about 3 weeks ago, on behalf of his family, I wanted to thank all of the Members of the subcommittee who expressed their sympathy and sent cards and the like, and just ask for a moment in support of his family from all the staffers, just a fine young staffer for the Banking Committee, and particularly for Housing.

    Chairwoman ROUKEMA. Yes, there'll be a moment of silence.

    Ms. JONES. Thank you, Madam Chair.

    Chairwoman ROUKEMA. Thank you, that was a terrible tragedy and we do appreciate your bringing to the attention so that we could properly pay homage to him and his family.

    All right, the opening statements will be included in the record, and with that I will open the hearing for our two colleagues, Congressman Bernie Sanders from Vermont, and Congresswoman Barbara Lee from California. From east to west, shall we do that? East to west. Congressman Sanders.


    Mr. SANDERS. Madam Chair, thank you very much for holding this important hearing, and I am particularly grateful to you for allowing me to testify in support of the legislation that I introduced last June, to create a national affordable housing trust fund and that is H.R. 2349, and I also want to acknowledge the extraordinarily good work for many years that Mr. Frank has done in fighting for affordable housing as well.
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    The legislation that I introduced currently has 172 cosponsors. It is tripartisan—162 Democrats, 9 Republicans, and 1 Independent, and has been endorsed by more than 2,000. Mr. Frank started reading off a long list of people. Well, if I listed all of the people who endorsed this bill, we'd be here all day.

    Chairwoman ROUKEMA. Please we'll include them in the record.

    Mr. SANDERS. I will not. But I do want to say this. These 2000 groups represent national, State, and local organizations from one end of this country to the other. This is an effort that has been spearheaded by the National Low Income Housing Coalition and the National Coalition for the Homeless, and I want to applaud them for their grassroots efforts. But let me, just to give you an example of the diversity of support for this legislation, we have the AFL/CIO Housing Investment Trust Fund, the United Way, the Silicon Valley Manufacturing Group, the U.S. Conference of Catholic Bishops, Children's Defense Fund, Smart Growth America, Habitat for Humanity, Charter One Bank in Ohio, the Sierra Club's Challenge, the Sprawl Campaign, and the National Coalition Against Domestic Violence.

    As you can see, H.R. 2349 is supported not only by low-income groups, not only by business leaders and by unions and by religious groups, it is supported by almost every type of organization that you can imagine. And the reason for that is that all over this country, in urban areas and in rural areas, people understand that we have a major housing crisis that has been neglected for too long and that the time is now for the United States Congress to step up to the plate and protect the interests of millions and millions of families.

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    Madam Chair, it is almost unprecedented to have an outpouring of support from such a broad array of groups, and I am very grateful for their support. According to the accounting firm Deloit and Touche, profits generated by the Federal Housing Administration are expected to exceed $26 billion over the next 7 years. Now Mr. Frank a moment ago said that if we are serious about building housing, we've got to be serious about putting real money into housing, and I agree. And this legislation puts real money into housing, and it begins in a serious way to address the national crisis that affects people in Congresswoman Lee's district, on the West Coast, and affects people in the State of Vermont.

    HR 2349 would use the surplus to create an affordable housing trust fund, a trust fund. And by creating a trust fund, the United States Congress says, we are serious, there will be a dedicated amount of money every year to address the crisis in housing. And this trust fund allows States and non-profit organizations to build affordable housing rental units in mixed income locations, to construct affordable homes for low-to middle income citizens and to provide rental subsidies to low-income individuals. According to housing experts, if the FHA surplus was used to build affordable housing, we could more than triple, more than triple affordable housing construction next year and provide accommodations to more than 200,000 families every single year. In other words, we will be taking a serious step forward to address the housing crisis facing this country.

    Madam Chair, there is an affordable housing crisis in this country. Millions of low-income citizens, the elderly, the disabled, and families with children are increasingly unable to afford decent housing. According to a study by the National Low Income Housing Coalition, 48 percent of the renters in my own State of Vermont are unable to afford the State median fair market rent of $619 including utilities for a two-bedroom apartment. What is going on in Vermont is going on throughout the United States of America.
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    Nationally, the affordable housing crisis is getting worse. According to a survey by the U.S. Conference of Mayors, requests for emergency shelter in 27 cities increased an average of 13 percent over the last year. In 75 percent of the cities surveyed, request for shelter from families with children increased by more than 30 percent. In the United States of America, children should not be sleeping out on the street, should not be sleeping in shelters; they should be sleeping in safe, affordable housing.

    In New York City and Boston, they are experiencing a record number of homeless people. While homelessness is up by more than 20 percent in Kansas City, Chicago, Denver, New Orleans, and right here in Washington, DC.

    In addition, according to a recent report by the National Housing Conference, 13 million Americans are paying more than half of their limited incomes on housing or are living in severely substandard housing. And that's an important point to reiterate. You know everyone, the TV cameras focus on homelessness. That is a national tragedy. But what we don't pay enough attention to is that millions of people are spending 50, 60 percent of their incomes on housing, and how do you have money available for other needs when you're spending so much on housing.

    Madam Chair, H.R. 2349 begins to address this crisis by providing a reliable source of funding dedicated solely to producing affordable housing. Just as Congress provided a commitment to fund our highways and airports by creating a highway trust fund and an aviation trust fund, the time is long overdue to create a national, affordable housing trust fund.

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    Highways are important, airlines are important, housing in fact is more important. I should add that not only would a national affordable housing trust fund help solve the housing crisis, it would generate approximately $1.8 million decent paying new jobs and nearly $50 billion in wages according to a Center for Community Change Study.

    As today's economy continues to sputter with layoffs and as millions of Americans are paying 50 percent or more of their limited incomes on housing, the creation of a national affordable housing trust fund is needed now more than ever.

    Madam Chair, thank you very much for this opportunity. Let us go forward in a serious way, let's develop a national affordable housing trust fund. Thank you very much.

    Chairwoman ROUKEMA. I thank the Congressman.

    And Congresswoman Barbara Lee, be conscious of the time limit.


    Ms. LEE. Thank you, Madam Chair, and thank you very much for allowing us to present this morning or at least be witnesses this morning, and also want to thank you for really addressing the affordable housing crisis that affects millions of all our constituents from coast to coast in a very bipartisan fashion, and I want to thank and commend the leadership of our Ranking Member also for making sure that both sides of the aisle really continue to move in a bipartisan fashion in addressing this major issue.
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    Like my colleagues like yourself, I believe that the Congress must take action immediately. We just must make this housing crisis I believe a national priority. Certainly homeownership is key to realizing the American dream. This is the primary way that families individuals send their children to college, acquire some form of wealth to start a small business, but also, like yourself, I believe that any housing strategy must include provisions for those who may not necessarily be able to afford or want to purchase a home, and must include affordable rental programs as well as housing for the homeless as part of any housing initiative.

    Now I represent a portion of Alameda County, which is in the East Bay on the sometimes I say the sunny side of San Francisco. It includes the cities of Oakland, Berkeley, Alameda, Emoryville, Albany and Piedmont. My district—and I share this with you, because I think this is an example of what's going on in California—we benefited from the high tech boom of the 1990s, but it dramatically increased the housing costs which spread from Silicon Valley throughout the region. So even though the housing market now has leveled off, housing still remains unaffordable.

    According to the California Housing Law Project, one-third of California families spend over half of their income on housing. Data from the fourth quarter of the year 2000 indicates that nine of the ten least affordable metropolitan areas in California, of course led by San Francisco, Oakland, and my home city comes in at number eight. Now the housing wage in California is approximately $18.33 an hour. That's the wage that's required to afford the average two-bedroom apartment. The problem of course is that in California, our minimum wage is $6.25. So what do people who make the minimum wage? What do they do for housing? Where do they live?

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    We, as policymakers, must ask these questions, and more importantly we must come up with solutions. We have 1.45 million housing units in need of replacement in California and 60 percent of substandard housing is rental housing.

    I could go on and on, but I want to save time for our rental housing experts to testify. But I think the point of it all is that we need a national housing production program. The National Housing Conference is recommending a $15 billion transfusion into our housing programs for this purpose to build, rehab, and preserve affordable rental housing, and I want to thank and commend my colleague from Vermont, Congressman Sanders, for introducing H.R. 2349. We've worked together on this and I think that he is exactly right when he talks about the fact that we need the resources and the funds. Using the funds from FHA and Ginnie Mae accounts that are above the statutory requirement makes sense because these funds have grown dramatically because of the housing boom. And it is sensible policy to put excess funds in these accounts back into affordable housing plans to help those who are being squeezed out of their home neighborhoods and away from their job centers.

    On Monday of this week, the California legislature, in fact, I believe it was the Assembly, we approved a $2.1 billion housing bond to help deal with this issue. The Housing Trust Fund would help leverage this money, so this is just a start. California, like most States, is now facing serious budgetary pressures, so it's time that the Federal Government really helped States with this burden.

    Finally, let me just say my colleague, our Ranking Member on the Ways and Means Committee, Congressman Charlie Rangel, he has introduced legislation making housing a constitutional right. And I fully support this. We live in the richest country in the world, and we should ensure that each and every person has access to decent affordable housing. To do that, however, Congress must put its money where its mouth is and dramatically increase funding for affordable housing programs nationwide.
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    I want to thank you, Madam Chair, for this opportunity to be with you today and thank you for the privilege of serving on your subcommittee, and I look forward to working with you on H.R. 3995 as well as H.R. 2349.

    Chairwoman ROUKEMA. Thank you, Congresswoman. We greatly appreciate your insights and your contribution to this discussion from both of the Members and we look forward to working with you as we go through. And hopefully before this session is concluded in the fall, we will have a bill up on the floor. Thank you very much.

    Mr. SANDERS. Thank you very much.

    Chairwoman ROUKEMA. Now will the second panel come forward, please.

    Thank you, we welcome you here today, and I will introduce each member in the order in which they are speaking, but I would like to State to those of you the usual procedure here, and that is that you will have 5 minutes in which to make an opening statement. Your written statements will by unanimous consent be introduced into the record, and your 5 minutes, of course, will be used to summarize your full statement, and then we will recognize Members, each of the Members of our subcommittee who have questions for you, and we will give them a maximum of 5 minutes to ask questions before this panel discussion is complete.

    Also, I might also note that each Member of our subcommittee has the opportunity and the right to submit in writing further questions so that you can submit the answers in writing to those questions for the full record and those responses, those questions and responses will be available not only to the public, but to every Member of the subcommittee.
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    That having been said, I will now introduce you members in the order in which you will be heard. And our first witness is Javier Gonzales. Mr. Gonzales is the Commissioner on the New Mexico County Board of Commissioners in Santa Fe. He is testifying today on behalf of the National Association of Counties and the National Community Development Association for County, Community and Economic development. Mr. Gonzales you have considerable experience in your State of New Mexico and you are speaking out on behalf of counties across the country. Mr. Gonzales.


    Mr. GONZALES. Thank you, Madam Chair. My name is Javier Gonzales and I'm a County Commissioner from Santa Fe County, New Mexico. Madam Chair, as you indicated, I currently serve as the President of the National Association of Counties. I'm appearing before you today on behalf of the National Association of Counties, the National Association of County Community and Economic Development, the National Association of Local Housing Finance Agencies, the National Community Development Association, and the U.S. Conference of Mayors.

    We applaud the subcommittee's leadership on the important issue of affordable housing and thank you for inviting us to speak today on H.R. 3995, the Housing Affordability for America Act of 2002. The groups that I represent here today would like to congratulate you, Madam Chair, on the introduction of H.R. 3995. More importantly, we appreciate the advocacy and leadership that you have provided over the years on the issue of affordable housing. Today, I'd like to address three themes; the need for more affordable housing, elements of a housing production program, and our support of homeless assistance programs.
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    It is undisputed that communities are in need of more housing that is affordable for families and individuals. Research presented in 2001 by the U.S. Department of Housing and Urban Development indicates that nearly five million render households still pay more than half of their income for housing, or live in severely substandard housing. Many of these families are with children, the elderly, or they are disabled. In addition, HUD data states that the number of affordable housing units available to these households continues to diminish. The lack of housing availability causes demands and rents to increase. Further the report concludes that the private market is not producing enough affordable housing to meet demand.

    It is clear that additional housing that is both affordable and available to low-income individuals must be produced. For this reason, we support H.R. 3995. It is an important piece of legislation because it provides additional resources to local governments to create affordable housing. Our organization strongly supports provisions of H.R. 3995 that create a program for the production and preservation of rental housing within the Home Investment Partnerships Program. We are long supporters of the Home Program, as you are aware, Madam Chair. The Home Program is already targeted toward low-income families, flexible for local jurisdictions to utilize and has a demonstrated track record of success.

    Creating a funding stream for the production of housing within HOME makes sense, and mirrors a proposal developed jointly by our organizations. To date, there have been a number of bills introduced in Congress to increase housing production. These proposals are mainly focused on creating a national housing trust fund, a new and separate program from existing HUD programs that targeted all of the resources directly to just States.

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    In effort to avoid a situation where such a program would compete with HOME and to provide a fair share of funds to both local governments and States, our associations support a housing production element within the HOME program. Our proposal seeks to dramatically increase the production of affordable mixed income rental housing, and relies on the infrastructure currently in place within the HOME program. Our proposal would provide grants and loans for the construction, rehabilitation, and preservation of multi-family housing. All of the resources made available under our proposal would benefit very low-income families. Funds would be appropriated 60 percent to local participating jurisdictions, and 40 percent to States. That is what is proposed in H.R. 3995.

    We also support the creation of the thrifty production voucher which can be used with capital subsidy programs such as HOME, the low-income housing tax credit, and the community development block grant program. This new voucher will work particularly well with the new home production program by providing a means for housing voucher recipients to access housing units made available through the program. Our organization also supports aspects of the bill addressing homeless housing assistance. We believe that Federal resources allocated toward programs that create temporary and permanent housing as well as supportive services for the homeless will enable local governments to better serve their communities.

    We're very supportive of provisions in H.R. 3995 that shift the renewals for the supportive housing program and the shelter plus care program to HUD's housing certificate fund. This shift will allow more of HUD's homeless assistance funding to be used to create new permanent housing for the homeless as well as provide a consistent source of renewal funds.

    In conclusion, Madam Chair, I want to commend the subcommittee for bringing attention to the issue of affordable housing and urge you to pass H.R. 3995 as quickly as possible. As local government leaders and community development practitioners, we are fully aware that decent affordable housing is crucial to the health, safety, and welfare of the citizens whom we represent. We appreciate the opportunity to be with you today. Thank you once again for your leadership and for inviting our testimony. I'd be happy to answer any questions that you or the subcommittee might have.
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    [The prepared statement of Hon. Javier Gonzales can be found on page 148 in the appendix.]

    Chairwoman ROUKEMA. Thank you.

    Our next member of the panel is Mary Brooks. Ms. Brooks is with the Center for Community Change, and she directs, as I understand it, you are the Director for the National Housing Trust Fund Project, is that correct? Yes. And we've been talking a lot about trust funds here so maybe you can give us some of your insights with respect to your own experience. Ms. Brooks.


    Ms. BROOKS. Thank you.

    Chairwoman ROUKEMA. Again, I ask you to be conscious of the time limit.

    Ms. BROOKS. Yes, I will. Thank you for inviting me to testify and I too applaud you for taking serious consideration of addressing critical housing needs in this country. I have been directing the Housing Trust Fund Project for nearly 20 years and have followed and worked with housing trust funds all over the country. I have been asked to testify about the experience of local housing trust funds, and attached to my written testimony are maps indicating where housing trust funds exist throughout the country.
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    There are few elements in life that are more pivotal than having a decent, affordable home, and housing trust funds address this need very directly. My intent today is to give you a picture of what the experience has been with local housing trust funds. There are presently more than 250 housing trust funds across the country in cities, counties, and States. These unique funds secure a dedicated source of public revenue to support critical housing needs. That single factor about housing trust funds is what is critical about their ability to succeed in addressing housing needs throughout the country.

    The earliest of these housing trust funds was created in the 1970s, so we now have decades of experience with local housing trust funds. Today they commit nearly $750 million each and every year to addressing affordable housing.

    In my written testimony, I've outlined the key characteristics of local housing trust funds, but the element that I want to focus on is indeed the dedication of a revenue source. Identifying public revenue that can be committed to local housing trust funds is at the core of these housing trust funds. For most city housing trust funds they have committed developer fees, property taxes, excise taxes, hotel/motel taxes. County housing trust funds have relied on document recording fees. State housing trust funds have used real estate transfer taxes, interest from real estate escrow accounts and also document recording fees. More than two dozen different sources of public revenue has been committed to local housing trust funds. These revenue sources come from businesses, from real estate, and from citizens themselves. And in fact some housing trust funds, while most of them are passed by a vote of the State legislature or county commissioners or city council, some of them have been passed by a public vote. St. Louis' housing trust fund recently was passed by 58 percent of the voters; St. Louis County an astounding 78 percent.
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    You don't need me to tell you how successful housing trust funds are. I can let them speak for themselves. Nebraska has awarded nearly $16 million to provide more than 800 units of housing and created more than 1700 jobs. New Jersey has committed almost $300 million to provide 16,000 affordable homes. Illinois commits $16-to $20 million each and every year from its housing trust fund. Vermont has committed more than $38 million through its trust fund to provide nearly 2500 homes. Sacramento, California has committed more than $19 million to provide another 2,000 homes. St. Paul has put more than $27 million into 260 affordable housing projects, providing nearly 500 jobs. Chicago $37 million to subsidize 11,000 units. Pennsylvania has created a model program enabling counties within that State to create their own housing trust funds and it amounts to about $15 million a year.

    We cannot do a meaningful housing program in this country without dedicating revenue to it. Increasing dollars for these housing trust funds has occurred over time. Their dollars are growing rather than reducing in more than half of the housing trust funds. We cannot solve the housing crisis without making a serious commitment of revenue. These 250 communities throughout the country have made a decision to dedicate revenue. They're asking the Federal Government to do the same, to do what they have done, to make a permanent commitment to providing decent housing for every American. The benefits are real, but they won't be real unless our commitment is real. If you create a national housing trust fund with a permanent stream of on-going revenue, we can make significant gains in addressing the housing crisis in this country. I think it's time to do so and I hope you do too. Thank you.

    [The prepared statement of Mary E. Brooks can be found on page 155 in the appendix.]
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    Chairwoman ROUKEMA. I thank you, Ms. Brooks.

    Our next panelist is William Faith. Mr. Faith is from Columbus, Ohio, and he's the Executive Director of the Ohio Coalition on Housing and Homelessness. And Mr. Faith it is my understanding that you are representing the National Low Income Housing Coalition today and speaking on their behalf. Mr. Faith. Again, 5 minutes.


    Mr. FAITH. Thank you, Chairwoman Roukema. I want to thank you for the opportunity to testify today. I am Bill Faith. I'm testifying as the Chair of the Board of Directors of the National Low Income Housing Coalition. I am, in my day job, the Director of the Coalition on Housing Homelessness in Ohio. We have over 600 organizational members in the State of Ohio representing a range of organizations providing housing assistance to our citizens. Before I get into some of the details, I just want to acknowledge and express my gratitude to yourself and your staff as well as members of the Ohio Delegation, Mr. Tiberi, Ney, Oxley, Ms. Jones for your ongoing intervention with HUD to free up the OTAG and ITAG funding. I promised Mr. Jones I would not speak about this today in depth. I do think, though, that your help and intervention has moved that process along and we're hoping we're getting a lot closer to resolving the situation.

    But I want to commend you also, Ms. Roukema, for convening this hearing today to discuss H.R. 3995 as well as H.R. 2349. I'm pleased to follow the testimony of Mary Brooks who is really the mother of the housing trust fund movement in the United States. She is the nation's foremost expert on housing trust funds and this valuable source of funding for affordable housing across the country. She has worked with us in Ohio where do have a State housing trust fund and several of our cities do as well. What Mary's research validates is that the critically important role that State and local trust funds play to the overall inventory of housing production and preservation that is required. However, we did a calculation over the last few days and in Ohio, all of our housing trust funds that we have generate about $30 million a year, which is probably better than average in the States. But that's only about 40 percent of Ohio's total home allocation, so while it's an important contribution, it does not come close to meeting the need. A substantial increase in investment is also required.
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    The National Low Income Housing Coalition understands that there's not a single solution to the affordable housing crisis, but rather multiple layers of interventions are required. First, we must preserve the viable subsidized housing stock that we already have. Gains made in adding to the supply of affordable housing through new production should not be offset by losses in the existing stock. Ohio has the third highest number of Section 8 project-based units in the country outside of California and New York. Despite efforts by our State in dedicating tax credits, bond financing, home dollars, housing trust fund dollars, and other resources to preserving this stock, we still have 58,000 units with over 150,000 elderly, disabled, or low-income residents that are in jeopardy of being lost to the affordable housing supply. More money's needed to be able to purchase and renovate these buildings and to keep them affordable over the long term. We are pleased that your bill, as well as H.R. 2349, recognize preservation as an eligible activity and we applaud that.

    Second, we must increase low wage workers' purchasing power in the housing market with increased housing assistance or housing vouchers. We must improve the housing market's response to voucher holders by breaking down barriers to successful voucher use by low-income people.

    Third, we must build new housing, and I also want to emphasize in some markets it's equally important to rehabilitate existing housing. In many parts of my State in the old industrial areas, the stock is there; it's just not in a condition that's desirable. There are housing affordability problems for many low-and moderate income people, the data is overwhelming. The most acute affordable housing shortage is for households that are extremely low-income or incomes less than 30 percent of the area median. Both your bill, H.R. 3995, and H.R. 2349 create new sources of funding for housing production and preservation that serve the lowest income people.
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    Chairwoman ROUKEMA. Mr. Faith, your time is up. Can you summarize, please?

    Mr. FAITH. Well, I want to quickly, one thing I'd like to do for the record is update the list of endorsers that Mr. Sanders talked about for the National Housing Trust Fund proposal.

    Chairwoman ROUKEMA. We will put them in the record. We will put them in the record.

    Mr. FAITH. There's now 2101 endorsers from throughout the United States.

    Chairwoman ROUKEMA. Don't read all of them please.


    Mr. FAITH. I won't read any of them, but I would like to submit the list for the record.

    Chairwoman ROUKEMA. Thank you. Thank you. Thank you.

    [The prepared statement of Willaim Faith can be found on page 166 in the appendix.]
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    Chairwoman ROUKEMA. Now, Ms. Hadley. Ms. Hadley is a Commissioner from Minnesota Housing Finance Agency and she is here today testifying as representing the National Council of Housing Finance Agencies. And as you know, or as we should all remember and be refreshed that National Council of Housing Finance Agencies is at least 30 years old or longer and has coordinated and has been a Federal advocate for the programs for all of those 30 years, and we look forward to working with you in the foreseeable future endlessly. Ms. Hadley.


    Ms. HADLEY. Thank you, Madam Chairwoman and Members of the subcommittee. I'm Kit Hadley, Commissioner of the Minnesota Housing Finance Agencies. I'm testifying on behalf of the National Council of State Housing Agencies which represents the Housing Finance Agencies in the 50 States. First I want to thank you, Madam Chair, Congressman Frank, and the many other Members of the subcommittee who have cosponsored H.R. 951, the Housing Bond and Credit Modernization and Fairness Act and encourage those of you who have not yet cosponsored to consider supporting this important legislation.

    NCSHA commends the Chair for recognizing the urgent housing needs of the lowest income families and households, and for proposing new Federal resources for producing rental housing for them. My comments this morning are focused on our belief that the HOME program is not the best mechanism for delivering these resources.
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    I want to address three of the reasons why we recommend that any new rental production program be delivered by the States. First, States are uniquely positioned to coordinate and target scarce resources. States are close enough to real housing issues and needs that have enough perspective to bring a statewide or regional focus to problems that cannot be solved within municipal boundaries. Housing markets, labor markets, transportation and transit systems extend beyond municipal boundaries. Human services are funded by States and counties. The challenge of producing very affordable housing near new jobs and transportation, promoting economic integration in communities throughout the metropolitan area, and coordinating homeless prevention and assistance efforts on a metro-wide basis cannot be addressed as efficiently and effectively by numbers of separate local jurisdictions. State housing agencies can bring together resources, sister stage agencies, and local partners in ways that the Federal Government and local governments cannot.

    States are partnering now with organizations that use TANF funds in welfare reform efforts, Medicaid waiver funding and other types of human services funding to produce assisted living and supported housing for people with mental illness, chemical dependency and developmental disabilities.

    The second argument in favor of State administration is that small allocations to many jurisdictions will dilute a new rental housing production effort. Funds available under any reasonably anticipated budget scenario will be too scarce to be divided among more than the 50 States. We need production at scale. New construction and substantial rehabilitation is expensive and small allocations of money won't get us there. For example, in the Twin Cities' metropolitan area, four urban counties formed a consortium to become a participating jurisdiction for the HOME program. Given the allocation agreement among the four of them, even if a new Federal housing production program is funded at the $2 billion level, the jurisdiction that receives the most money under this formula could fully fund eight units of housing for extremely low-income people.
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    Small allocations to the nearly 600 jurisdictions that receive home funds will add to the fragmentation and cost of affordable housing development, both in the development phase and in the long-term compliance and oversight phase.

    Finally, the third reason for State administration has to do with capacity. Look at the biggest production financing tools of the last 20 years, the ones that have actually produced real housing. States have consistently been the only parties that have delivered all three of these; the housing credit, rental housing bonds, and certain FHA multifamily insurance programs. States have the sophisticated underwriting finance and asset management capability to ensure the responsible use of scarce Federal resources. At whatever level a new Federal rental production program is funded, it will still be necessary to bring together multiple sources of mortgage and subsidy funding. States already do this, and in fact are the only point in the funding and delivery system where all the major resources can be accessed in one place.

    I appreciate the opportunity to comment on this important proposal. NCHSA looks forward to working with the subcommittee as it considers H.R. 3995. Thank you.

    [The prepared statement of Katherine G. Hadley can be found on page 189 in the appendix.]

    Chairwoman ROUKEMA. I thank you for your testimony, and the focus at the State agencies.

    Now, our final panelist today, at least on this panel is Catherine Racer. Ms. Racer is the Director of the Massachusetts Department of Housing and Community Development. I might observe that I believe Congressman Frank thought he would be back by this time. Perhaps he's been unavoidably delayed undoubtedly, but perhaps he will come in as you continue to testify. And you are testifying today not only on behalf of the experience you've had in Massachusetts, but also on behalf of the Council of State and Community Development Agencies, and you certainly have worked long and hard on community development of affordable housing with these State agencies, yes, the State Community Councils, yes.
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    Ms. RACER. Right. Thank you very much. Thank you, Madam Chair and distinguished Members of the subcommittee. Thank you so much for the opportunity to testify.

    Chairwoman ROUKEMA. Turn your microphone on, please? Yes. All right, we'll start over. We'll give you a couple of extra seconds.

    Ms. RACER. Sure.

    Chairwoman ROUKEMA. Go ahead.

    Ms. RACER. I used up about 15 seconds. OK. Thank you, Madam Chair and distinguished Members of the subcommittee and thank you so much for the opportunity to testify before you today. My name is Catherine Racer. I'm an Associate Director of the Massachusetts Department of Housing and Community Development. And, as the Chair indicated, I am testifying today on behalf of the Council of State Community Development Agencies or CSCDA regarding H.R. 3995. It was a particular honor for me to hear both Madam Chair's opening remarks and the opening remarks of Congressman Frank since I live and vote in the Massachusetts Fourth CD.

    First I want to thank the subcommittee for holding this hearing and drafting a bill that addresses many of our country's housing problems. We appreciate your efforts greatly and our State member agencies stand ready to work with you to address our collective housing needs. With a strong proven track record of successfully administering housing programs, States are uniquely positioned to address the myriad housing needs facing America's communities. Today, CSCDA would like to focus its remarks on three primary components of H.R. 3995; first, proposed changes to the HOME program, second, the need for a separate rental housing production program, and third, the thrifty production vouchers.
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    CSCDA fully supports the changes to the HOME program proposed in H.R. 3995 with the exception of the proposed set aside for a new production program within HOME, which I will address in a moment. HOME is an extremely efficient and effective housing program responsible for creating hundreds of thousands of units across the country while leveraging nearly four dollars for every HOME dollar invested. The flexibility in the HOME program that allows States to address varying housing needs is the key to its success and H.R. 3995 will enhance the existing program. We applaud your efforts to streamline the program and promote the flexibility necessary for States to effectively address the unique housing needs of their communities.

    Specifically, we support your proposal allowing the use of State or area median income for rent determinations. This flexibility will spur the development of affordable housing particularly in rural areas currently under served. Along the same lines, the removal of fair market rents as the basis for home rents will enable more housing development in the areas where the FMR is artificially low and cannot support the required debt service for housing projects. In addition, we strongly support the provision allowing States to charge monitoring fees to cover compliance monitoring costs. This will provide States with the ability to ensure that HOME projects remain in compliance and affordable to low-income people over time.

    Second, while HOME is an excellent housing resource, and we greatly appreciate your focus on rental housing production, we oppose any set asides within the existing HOME program. COSCDA agrees there is a need for rental housing targeted to very low-and extremely low-income people, but we believe that a set aside within HOME is not the best mechanism for targeting extremely low-income people. In addition, we are concerned that this proposal would result in a set aside for production without adequate additional funding. Instead, we strongly support the creation of a separate, State administered rental housing production program. COSCDA firmly believes that States have a proven effective delivery system for producing affordable housing, particularly rental housing for extremely low and very low-income people. States have the resources and tools necessary to significantly leverage other funds to maximize Federal resources for rental housing production. States also are uniquely positioned to develop a comprehensive strategy for rental housing production that is fully integrated with existing housing programs.
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    The creation of a separate production program administered by States will allow for strategic targeting of significant resources on a statewide basis. In Massachusetts we fully commit all our HOME funds each year with a significant percentage going to rental housing. Even so, the need for additional housing production remains immense. We welcome a separate production program which would complement the production efforts already underway with HOME. We hope you will consider endorsing a separate program as the bill moves forward.

    Third, in order to develop housing targeted to extremely low-income people, H.R. 3995 creates thrifty production vouchers. Capital subsidies alone generally cannot support housing for extremely low-income people. Therefore COSCDA believes these vouchers may serve as valuable and a cost effective tool for reaching extremely low-income people. COSCDA believes that any effort to create a thrifty production voucher should assure maximum compatibility with existing production programs as well as any new housing production initiatives.

    Lastly, while the focus of this hearing is HOME and thrifty production vouchers, because the bill contains provisions related to the Community Development Block Grant, and the McKinney-Vento Homeless programs, we would like to offer a few brief comments. First, with regard to CDBG, we hope the subcommittee will consider authorizing a dedicated stream of funding within CDBG for training similar to the current structure under HOME. With this training personnel from HUD, the State and local agencies, as well as non-profits, will be better able to effectively meet CDBG's goals.

    Madam Chair.
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    Chairwoman ROUKEMA. Can you summarize, please.

    Ms. RACER. Yes. In addition, COSCDA urges the subcommittee to provide States with flexibility between administrative and technical assistance funds within CDBG. Finally, H.R. 3995 reauthorizes the existing structure of the McKinney-Vento Homeless Assistance programs. COSCDA firmly believes that consolidating these programs and distributing the funds by formula allocation is a better approach.

    We hope the subcommittee will reconsider its position and we will look forward to an opportunity to testify before your subcommittee on these issues. Thank you very much, Madam Chair.

    [The prepared statement of Catherine Racer can be found on page 198 in the appendix.]

    Chairwoman ROUKEMA. I thank you. Now we'll go through the subcommittee questioners please. I'm going to relinquish my question period to Mrs. Kelly from New York.

    Mrs. KELLY. Thank you, Madam Chair. I am interested and would like each one of you to respond to the problem that I've seen happening in the areas that are represented.

    Chairwoman ROUKEMA. Mrs. Kelly, I think you'll have to push the microphone up.
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    Mrs. KELLY. Does this help?

    Chairwoman ROUKEMA. Yes, that's much better. Thank you.

    Mrs. KELLY. I'm interested in having you respond to the problem that I see in the areas that I represent which involves ''NIMBY-ism.'' We can provide funding, but the problem is people don't want affordable housing in their neighborhoods. I would like to ask what experience you've had and if you feel that this bill is going to help address that. I think it would be helpful to us. I'd like to start with you, Mr. Gonzales.

    Mr. GONZALES. Madam Chair, subcommittee Member thank you for that question. I've been a county official. Currently we're faced with those issues where people are concerned about developments in their communities. We maintain our support for the way the bill's allow for money to come directly to local communities, because local communities deal with a number of issues. We deal with planning and zoning issues.

    We have the ability to sit down with communities and talk about where should housing go, how do we integrate every social fabric of our community so that we don't have, in one part of our town, a lot of low-income housing, and in another part of the town middle income housing, and then upper income housing. We at the local community do our very best and continually do it better and better daily to integrate the social and the economic fabric of our communities. You can't run that from the State. You don't have the ability to do it from the State. So you're able at the local level to address the challenges of NIMBY-ism, of the not-in-my-back-yard syndrome by planning, by zoning, by conducting local hearings. In my community of Santa Fe, affordable housing is one of our top priorities. We have people who understand the importance of making sure that the issues of low-income housing as well as upper income housing need to be part of our social fabric. It needs to be part of our planning, it needs to be part of our zoning. At the local level, you can address it. It is a challenge, it's something that is real, but it's best to be confronted as we're going through our planning and zoning process.
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    Mrs. KELLY. Thank you very much. I'd like to ask another question, and that has to do with the so-called surplus. The CBO said there isn't an FHA surplus. And I think that it's interesting about if there isn't a surplus, that we need to think about, if we're reaching into the FHA money, how we would replenish that pool. Would we then tax people, the people who are getting the supported mortgages? You think that the people borrowing should be taxed to refill and replenish the pool if we use a pool of money that's designated for FHA?

    Anyone can answer that. Anyone on the panel is welcome to jump in here. Ms. Brooks?

    Ms. BROOKS. The issue of where the money comes from is indeed important. The independent study by Deloit and Touche certainly indicates that that fund is sound and that the available funds would be there, so I think we can also look to that report as some indication. I actually think this is a quite—I mean, as you know from my testimony, I'm quite serious about how important I think it is to find a dedicated source of public revenue and to have an on-going commitment of resources. And I think this is actually a good revenue source to look at for a Federal housing trust fund.

    As you know, we provide a far greater subsidy to homeowners in this country for their opportunity to own homes than we do in any other Federal assistance that we provide. So it seems to me appropriate to look to this revenue source as a way to support those who have yet been able to move into a homeownership position.

    Mrs. KELLY. Ms. Brooks, I'm running out of time here so I'm just going to ask you another follow-up question on that. What would you do if the default rate went up and we needed those FHA loans? Did Deloit and Touche talk to you about that. I mean, was that in their report?
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    Ms. BROOKS. Well, they did not talk to me.

    Mrs. KELLY. But was that in their report?

    Ms. BROOKS. I actually do not know. I don't think there's any suggestion that looking at the FHA surplus as a source of revenue for the trust fund would jeopardize. The intent is not to jeopardize and in fact there is a protection for that fund, and so I think the intent is to use what the surplus is.

    Mrs. KELLY. Thank you. My time is over. I hope someone else will go back to that one. Thank you.

    Chairwoman ROUKEMA. Thank you.

    Now, Congresswoman Lee from California.

    Ms. LEE. Thank you, Madam Chair. Let me just ask any of the panelists really about some what-ifs. If in fact the $15 billion, if that was funded, which is based on the National Housing Conference's recommendation, do you see that as actually putting a dent in the homeless problem or a dent in the affordable housing crisis, or is $15 billion too little?

    And then the second question I have is if we actually moved forward and developed a full housing production program using whatever vehicle which was appropriate, how do you see using these funds for creative types of housing developments such as transit villages, land trusts, congregate housing, housing that creates more sustainability and more of a livable communities concept. Do you think utilizing the resources to develop livable communities makes sense in a housing production program?
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    Ms. BROOKS. I can certainly speak quickly to the experience of local housing trust funds in that regard. I am working—in fact, I should be working right now—on completing a survey of the 250 housing trust funds that exist around the country and their ability to address critical housing needs in an innovative way is really quite astounding, and so we're seeing them not only create housing opportunities that remain affordable for low-income people, they have supported community land trusts, they have supported housing for people with disabilities, and have done even homeownership for very low-income people. So we're seeing a lot of innovative approaches to addressing a wide variety of housing needs.

    Ms. RACER. Representative, in answer to your question about the $15 billion, COSCDA definitely believes the $15 billion would make a dent. I can tell you that my division in Massachusetts gives out about $100 million a year. We're able to do about 2,000 rental production units in a very good year, perhaps 1500 in a less good year. Therefore, just doing quick arithmetic, $15 billion clearly could make a dent.

    I also think that to the extent the subcommittee is interested in having us behave, think very clearly about trying to fund innovative programs through a new production program that you certainly can direct us to do that in any statute that gives us a new production program. The States have been very respectful of the statute of Cranston-Gonzales and some of the direction that was given to us in 1990 through Cranston-Gonzales and we would be very respectful of any desire on the part of the subcommittee to have us be particularly aware of innovative uses of the money.

    Mr. GONZALES. Just to say very briefly from a local perspective, innovation is at its best at the local level through our—again, I can't emphasize enough local leaders are trying to establish strong, sustainable communities whether through in-fill in their communities, or through new development. And I assure you that with these types of funds, we will see integration where it's important and communities where people can live, work, go to school, without having to charge many of resources that are currently placed at the local level.
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    Ms. LEE. Thank you. Madam Chair, do I have one more second?

    Chairwoman ROUKEMA. OK. Just let me say, in H.R. 3995, do any of you feel that the bill is flexible enough to provide for this innovation or do we need Madam Chair put a provision in to ensure that these types of creative, innovative housing production programs would be allowed?

    Ms. HADLEY. Madam Chair and Congresswoman Lee, I think the other side of the question about is $15 billion would it make a dent, and I think the answer is yes, is the issue of this flexibility. There are innovative production going on now, supported housing for extremely low-income people, mixed income housing that has some housing for extremely low-income people, in suburbs near transit hubs. There's all kinds of new urban village projects going on, a huge variety. With the kinds of resources that aren't so categorical that they force you into particular kinds of developments, I think that is a key part of any housing production program is to have that kind of flexibility that can really meet the local needs.

    Chairwoman ROUKEMA. I think that's an excellent question, Congresswoman, and I would like to ask each one of the panelists to submit in writing your own assessment as to how strong this legislation is and if there is a loophole or a weakness that you think should be tightened up and stressed further. So if you'll submit that for the testimony, it's something that we really have to look at in depth. Thank you. Mr. Grucci, please.

    Mr. GRUCCI. Thank you, Madam Chair and thank you for holding these hearings today. I believe that they are very important to the quality of life in our communities.
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    The question that I want to ask this esteemed panel, where I come from it's a suburb of New York City, it's got a pretty affluent area, it's got some very high rent areas, it's got some very high priced homes. In fact, the average home price is about $240,000, and in that we're a victim of our own successes. You can imagine that means that someone earning a sum of money at about $30,000 can't afford to buy a home. They can't afford to find rentals because of the situation that Congresswoman Kelly talked about, NIMBY-ism, and maybe that's something for this panel to think about. I know one of the things that we faced in local government, which is where I was from, was a phrase given to a program, known I believe it was the Low Income Housing Tax Credit Program. As soon as people heard that, they wanted no part of the program. And even though it was a great program that afforded great opportunities, for a lot of young families starting out, it never had a chance to get off the ground simply because of its name and I think the Congresswoman pointed out very adequately and very appropriately that NIMBY-ism is a huge problem.

    My question for you is, in those areas where there's high cost of living, again referring back to the district that I represent, the average price of a home being at about $240,000; the average tax paid on that home is about $10,000 a year, most of which is school taxes. Do you think H.R. 3995 addresses the needs of affordable housing in those types of markets? Do you think the eligibility levels are adequate? Do you think it should be raised?

    I'd be interested in hearing you opinions on that and anyone on the panel can certainly respond.

    Mr. GONZALES. Congressman Grucci you've described, in many respects, my own community of Santa Fe, New Mexico, where Santa Fe, in many respects has been discovered by many people from all over this great country and all over the world, and they've gone into the community, they've purchased homes, and we've seen the price of housing go up. Consequently, we've had what we call at the local level this economic gentrification where people from a very nice part of town had to move out to another part of town because they couldn't afford their property taxes. So what happened over the period of the eighties is we saw a lot of mobil home communities go up, and once people find their way into mobile home communities, it's difficult for them to come out of that. Santa Fe right now has made affordable housing their top priority, but it takes a couple elements. One, it takes the community's will to address it. The community needs to step up to the plate and say we want to solve this issue of affordable housing, and it takes the political will of the local leaders to say, through our own local jurisdiction powers, the ability to plan and zone and be able to create capacity so we can develop innovative public/private partnerships, we will make sure that every individual living in our community's going to have an opportunity and have access to housing, no matter what form. And when they get access to that housing, that it's quality of nature.
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    To answer your question specifically, yes, this bill provides the flexibility to allow our community to be as innovative as possible to be able to address the huge needs of our community to make sure that citizens who can't afford to either rent or buy a home have access to a quality home to raise their children in a safe environment.

    Mr. GRUCCI. What would the median income in your community be?

    Mr. GONZALES. The median income is probably about $40,000 I believe, between $30,000 and $40,000. But the average price of a house, which there's not a direct correlation, is somewhere in the vicinity of about $270,000 to $280,000. So you have people who are involved in State government jobs, people who are involved in the tourism industry earning minimum wages that are just not getting access. Now our own community housing trust has been great and through their innovativeness they've been able to provide subdivisions where people can get entry level homes in place.

    Mr. GRUCCI. So it's your feeling that H.R. 3995 would address the problem of people not being able to qualify because their income levels would be higher than say a national average and therefore preclude them from being able to get housing grants or be able to have municipalities access, the funding necessary to help create affordable housing. You believe that this bill addresses those issues?

    Mr. GONZALES. Yes. And in our case in Santa Fe for someone who is even earning $11 or $12 an hour, hopefully there'd be taxes like this to afford some rents. It's quite expensive, the renting in our community.
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    Mr. GRUCCI. It certainly is. Does anyone else on the panel wish to respond?

    Chairwoman ROUKEMA. I'm afraid we're rather short of time. You'll have to make it very brief.

    Mr. FAITH. Very briefly, Madam Chair, one of our concerns about the HOME proposal that's in this bill is it relies on recaptured Section 8 funds as its source of funding, and that's not a very reliable source of funding. I think a key to addressing the diverse housing needs of this country is to have a sufficient source of funds that would provide a level of funding that would be appropriate. I think the FHA source is a more appropriate source. It would generate much more revenue, and we also believe we should figure out what's wrong with the Section 8 program to make sure that we do a better job fully utilizing resource because that's very important. We should look to additional sources of funds for a production program that could work with the very diverse needs of our country because the local needs do vary, as you point out, all across the nation.

    Mr. GRUCCI. Thank you, Madam Chair.

    Chairwoman ROUKEMA. All right, thank you, Congressman Grucci.

    Now we have Congresswoman Schakowsky.

    Ms. SCHAKOWSKY. Thank you very much, Madam Chairman, and I appreciate the direction of H.R. 3995 and many of its important provisions. A couple of points I want to make before I ask a question. One I wanted to just mention a couple, in my view, of troubling provisions and one is that the bill, as I read it, allows religious organizations to use taxpayer funds to carry out religious purposes, an element that I think is unconstitutional. The separation of church and State I believe to be critical aspect of our first amendment and while religious organizations often do incredibly valuable work on affordable housing issues, they are already funded by HUD and they're free to use their own money to carry out their religious missions. But they shouldn't be allowed to use Federal money for those purposes. So I hope that we can have a discussion on that and perhaps reconsider that inclusion in the bill.
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    I wanted to say one thing about where's the money going to come from. And I'm sitting here feeling really frustrated, because we're engaging now in a serious budget debate and budgets aren't just about money, they're about priorities. And we're questioning where's the money going to come from. And we're looking, for example, at a $400 billion defense budget with a $48 billion increase.

    Now I sit as the Ranking Member on the Government Efficiency Subcommittee. We just had a hearing where the Inspector General of the Department of Defense said, we cannot account accurately for $1.2 trillion, trillion, trillion dollars in transactions at the Department of Defense. We had a hearing on $9 billion worth of credit card bills. We've issued 1.2 million credit cards to civilian and military personnel, and among the bills that you all are paying for are bills for gambling debts, travel, designer bags, breast enhancement surgery, bills at Hooters, those kinds of things, never mind whether you think some of the more supposedly legitimate expenditures are really going to make us safer and fight terrorism and provide homeland security. And we are here asking in the face of a housing crisis where in my city alone we're short 150,000 units of affordable housing, where there's been a 37 percent increase in the number of people seeking emergency shelters, where five million people are facing the worst housing crisis in the United States, and we are asking you where are we going to get the money. Is this a priority? And it just infuriates me that we don't have our priorities straight and that we can't find room to do it all, because I believe that we can make our nation safer, we can fight terrorism, we can provide homeland security, and for god sakes, we can provide housing for people.

    And the civility of this discussion, Ms. Brooks, after 20 years of fighting for affordable housing trust fund, amazes me at some level. You know, why we're not pounding on the tables and people trying to break down the doors to try and get a reasonable amount of money. I've been told by the Homeless Coalition that $1.5 billion could really make a dent in homelessness in this country, a lousy $1.5 billion compared to a $2.2 trillion budget for this year.
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    So if I sound emotional, believe me, I am, and I think that we need to ask whether or not—you know, we're going to look at the Section 8 recapturing that money to put it into—now maybe there is some money available this year, but what if we were to really use that Section 8 money?

    Let me leave that as the question. And I think Mr. Faith you answered it somewhat. Is this, is this a reasonable way or a sufficient way, I don't want to say unreasonable, but is it a sufficient way—let me hear from some of the others of you—to fund a program for the next fiscal year and anything else you might want to comment on. I've had my say, thank you.

    Chairwoman ROUKEMA. Excuse me, excuse me. But your time is just about up, and I would suggest that you're speaking to the choir here, they probably agree with you, they'd like to see a higher priority given to housing. But I would just then suggest, in terms of the last question, if you would submit your answer to the subcommittee in writing in answer to the last question.

    Ms. SCHAKOWSKY. That's fine, thank you.

    Chairwoman ROUKEMA. There's simply not time for us now, particularly since I'm concerned that we haven't gone through this panel yet and we have a second panel that we're waiting to hear from today, and hopefully we can do that before we get over to a number of voting sessions.

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    All right, now we have Mr. Miller from California.

    Mr. MILLER. Thank you, Madam Chairwoman.

    I've enjoyed your testimony today, but there will never be an affordable housing market unless there's an affordable move-up market and an adequate move-up market that has to be addressed. The talk was that we need to look at these recaptured Section 8 vouchers and that's unreliable for this program so let's look at spending those, but I think Ms. Kelly brought an interesting issue and I think it needs to be expanded. If Deloit and Touche is correct, if you want to believe that assumption that there's this pot of money from the FHA Insurance Fund out there. We have to understand where that money came from. It came from homeowners and it came from homeowners who obviously are being overcharged. So if we're overcharging homeowners through FHA insurance, then maybe we ought to rebate those funds back to those homeowners who are paying too much rather than just look at this redistribution of income that we're talking about today.

    You can't help one homeowner who wants to be a homeowner to the detriment of another homeowner. And unless, like I said, you have a move-up market where these people can move out of affordable housing into a better home at a reasonable price, we're never going to resolve this country's problems; we're just going to say let's throw more Federal dollars at it, and the Federal dollars we're throwing at it today, there's no pot of money. It's like the Social Security Trust Fund, it's at the Treasury. We have got to go to the Treasury and get the money back. If we're going to take the money back, let's give it back to the people who we're overcharging.

    But you mention the ability of States in housing, Mrs. Hadley, and I appreciate that. I think there's what, about 24 States that are involved in housing trust funds, and they control development at the State and local level; we don't. So the problem I have is why should the Federal Government get involved in it when you admitted the States are much better at it than we ever could be. Why do we need a Federal bureaucracy involved in this housing issue and looking at Los Angeles marketplace, probably 59 percent of Section 8 voucher recipients aren't able to even find a home because there are no homes out there. They're not being built because of Government red tape as you know and this NIMBY issue that Mrs. Kelly brought up, which was a great issue, and I guess I'd like to ask the one question to Mr. Gonzales, you seem to be very knowledgeable in this.
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    Why isn't there an adequate amount of housing being built out there?

    Mr. GONZALES. I think, Madam Chair, subcommittee Member, there's a number of reasons and it's different in every community. In our community, it's an issue of supply and demand in many respects. We know that there's a need for more affordable housing for many people in the community, but you know, we try to the best that we can, to create an environment through our own bureaucracy where we can creative incentives for the development community to actually step up the supply of housing so that we can use some of the market to adjust some of the housing prices, so that people, and I'm talking about homeownership.

    Mr. MILLER. Are you cutting red tape and fast tracking?

    Mr. GONZALES. We're providing density incentives.

    Mr. MILLER. I applaud you for that.

    Mr. GONZALES. Everything that we can possibly do to create a positive environment. We're balancing that also with the needs to balance our resources, to make sure that we keep a strong quality of life. But making sure that every new development that comes forward has an element for every member of our community. We don't want to create exclusive communities in our community. We want to make, and it's through innovation, through communication up front letting the development community know this is what we expect from you, this is what we're going to provide from you. In the end we are creating hopefully environments that again every member of our community will be living in sustainable communities where they can live and work.
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    Mr. MILLER. I guess exclusive communities varies from city to city and State to State. My concern is that in this country, we focus on just the low end, people at the bottom end. Yet, there's no place for those people to move to when their situation increases, they become a little more affluent, yet there's no place for those people to move so they can't get out of the low-income housing, because no housing is being provided to them at the local level for them to move into, because a sales price of a home in this country, 30 percent of that cost is Government fee directed.

    Fish and Wildlife finally did something good recently. A judge said you have to take economic impact into the analysis when you're setting aside habitat and he overturned about a half million acres in California for just one little bird, and about 17 of the 25 least affordable housing areas in the country are California. And I applaud your response and your comments and your concern and I wish more locals would look at providing an overall housing economy and an overall housing and marketplace so people at the bottom end could find a place to live. And if any others would like to respond, I think that's an area we need to go.

    Mr. GONZALES. I just want to say in closing, so they can respond, that more locals are doing that, Congressman.

    Mr. MILLER. I'm glad to see that.

    Ms. HADLEY. Madam Chair.

    Chairwoman ROUKEMA. Yes, you'll have to make it short.
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    Ms. HADLEY. Congressman Miller, if I could address your point about Federal involvement. There has been a huge, in the last 15 years, shift of capital from the Federal level in terms of the HUD appropriation, in terms of changes made in the 1986 Tax Act with respect to tax treatment of rental housing and the tax exempt bonds. Whatever people's politics were around this change, it has represented a huge shift away of Federal support essentially for both the housing industry generally and affordable housing. And what we've seen in Minnesota is that the private market over the last 15 years has been increasingly unable to meet the needs of people. That people who can't buy housing or rent an apartment with 30 percent of their income is a bigger group of people and more middle class at the upper end. While we feel strongly about the role of Federal funding for the housing needs of very low-income people, we on the State level are taking a lot of steps to try to increase the production of privately unsubsidized housing at the low end of the market and working with local communities to try to do that.

    Mr. MILLER. That's a good issue, and I wish there were more time, but I know she's been very generous with me to this point. Thank you, Madam Chairwoman.

    Chairwoman ROUKEMA. Thank you.

    Mr. Sanders please, from Vermont.

    Mr. SANDERS. Thank you, Madam Chair. Before I asked my question, I did want to comment on something that Ms. Kelly said and Mr. Miller said. Ms. Kelly is right about NIMBY-ism, and I share that concern, but you are not right about whether FHA profits can be used to create a national affordable housing trust fund. President Bush apparently has disagreed with CBO on this issue. The President used the projected $2.4 billion in FHA profits in his fiscal year 2002 budget proposal to lower the net level of funding for housing and to increase the Federal surplus. I think if the President can use the FHA profits for that purpose, for other purposes, we can use it for a trust fund.
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    In terms of Mr. Miller, Mr. Miller raises a question about the wisdom of tapping the source of funding that we have tapped. He is not here, I think. I'm sorry. He may have a point. A better source of funding may be the $500 billion in tax breaks that the President and Congress recently gave to the wealthiest one percent of the population, and maybe he and I can work on diverting some of that money into affordable housing. But given the fact that that's not likely to happen, I think it's important that we do develop a reliable source of funding for a significant housing program and FHA profits are as good as any source that I can think of. I wonder if Ms. Brooks or Mr. Faith would want to comment on the use of FHA surplus for funding sustainable housing.

    Mr. FAITH. Thank you, Mr. Sanders, Madam Chair. Attached to my testimony is actually a more recent report from Deloit and Touche.

    Mr. SANDERS. Put the mike closer to you.

    Mr. FAITH. Attached to my testimony is a more recent report from Deloit and Touche using data as of March 31st, and it shows that the FHA fund is of high quality and very healthy. I won't go into the details, but they run through a variety of worst case scenarios back on page 7 of their executive summary, and still show that the surplus ratio that's required, the amount of money that'll be there far exceeds any safety for existing homeowners. Current homeowners that use FHA will be protected. In fact, we have to remember that current homeowners receive a substantial subsidy, and myself as a homeowner, in tax season, am well aware of that subsidy, in order to be able to afford a home. What we're talking about with this bill with your trust fund legislation is to help those who are more in the rental side of the equation, who have no access to that subsidy, who don't get the benefits from the FHA Fund and who could. This is simply a scenario to identify a pot of money.
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    And I agree with you, Mr. Sanders, that there may be other sources. This is just one idea. It just needs to be a substantial source so that when we talk about addressing the affordable housing crisis in this country, we're serious about it.

    Mr. SANDERS. And the truth is that it is a strong source and a reliable source. Ms. Brooks, your organization, as I understand it, did a study on job creation in terms of building a significant amount of affordable housing. Do you want to say a few words about what this would do to the economy in creating decent paying jobs for Americans?

    Ms. BROOKS. Well you make a good point and thank you for doing that. We did study what the impact would be of a proposed Federal housing trust fund, and you cited from that study earlier. It clearly indicates that by making an investment in the housing production program that we would generate substantial jobs and wages in this country. That study is important, but it is also important to note that most of the housing trust funds around the country can document the same kinds of benefits from their own trust funds. So we know from the experience of existing housing trust funds that indeed putting money into a housing production program generates substantial jobs, it provides resources to a local community in terms of increased taxes, and it also increases wages. So the expanded economic benefit from a Federal housing trust fund would be a substantial boost to the economy in this country.

    Mr. SANDERS. Thank you. Lastly, Madam Chair, I would just say again thank you very much for this hearing. I would say in response to Mr. Miller, the reason that low-income people cannot afford housing is not because of the Endangered Species Act. It is because they are low-income. And when you make $6 and $7 an hour, you just cannot afford decent housing for your family and the Federal Government must play an active role in making sure that all families in this country have decent and affordable housing. Thank you, Madam Chairwoman.
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    Chairwoman ROUKEMA. All right, thank you Mr. Sanders. Now we have Congressman Tiberi from Ohio.

    Mr. TIBERI. Thank you, Madam Chair. I apologize. I had two other committee meetings to go to. My friend Bill Faith, welcome. I wish I was here to introduce you. I apologize for missing everyone's testimony, but I'll throw this question out. Bill's probably most familiar with it when we talk about a national housing trust fund.

    In Columbus recently I've received some phone calls in my office, Bill, over an issue that you're probably familiar with that maybe came up in somebody's testimony, maybe did not, but an issue in Columbus where money was approved by the local housing trust fund for homeownership at a level that some people in my neighborhood were astounded by. In my neighborhood, housing generally runs from about $90,000 to $150,000, a working class neighborhood in Columbus' north end, and some of this housing trust fund money was allocated for property that was incentives for people to move in certain areas of the city that was double, my understanding, that level. Is there any concern that as we move in the direction of trying to provide more dollars for affordable housing that we lose what I think was initially or originally the focus of affordable housing, rather than using precious dollars—and there's never enough to go around for everything—to subsidize what some of my neighbors say is excessive amounts of cost in housing.

    Does that make any sense, Bill?

    Mr. FAITH. Yes. Madam Chair, Congressman Tiberi, it's very good to see you today. Let me respond to the local trust fund issue first. You have to understand this is local revenue and had nothing to do with the Federal Government. This is a purely Columbus, Franklin County trust fund. Also it was a loan at above market rate terms to encourage middle income people to move into a low-income census tract in the central City of Columbus. So I have to defend the project even though my eyebrows went up a bit initially. But it's purely a short-term loan at a higher-than-market interest rate to attract middle income homeowners back into the core central city.
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    And as the Chairwoman noted, the homeownership rate in the United States is now 68 percent. However, in the central City of Columbus, like many cities, our homeownership rate is below 50 percent. So I think we do need to look at strategies to address that. However, local governments are doing more of that. We already have incentives in the Tax Code to help homeowners. As you know, in our city in Columbus, we're now going to use tax abatements to help attract homeowners into the central city.

    What the Federal Government needs to focus, I think where you were headed, which is, to use the precious resources that we can identify and prioritize those of the most modest means because that's where the need is greatest. That's where the local governments aren't able to do as much because of the level of subsidy involved and the need for ongoing rental assistance to keep that housing affordable and of high quality.

    I think Mrs. Kelly's point earlier about the NIMBY issue is critically important, and if we don't have the resources to build high quality housing, with sufficient operating funds to manage that housing well, we're going to run into even further NIMBY problems.

    Mr. TIBERI. Yes, go ahead.

    Ms. RACER. Representative, I'm not familiar with the program in Columbus, but I wanted to make two comments. First, while we can all be very proud of the homeownership rate, it is not equally high among different racial and ethnic groups, and that should remain a concern for all of us. Second, that the State administering agencies I believe are very capable of being careful not to over subsidize any homeowner through a variety of qualification tests. That's extremely important to us in Massachusetts. I'm sure it's equally important to Kit in Minnesota and to others who administer the homeownership programs.
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    Mr. TIBERI. Madam Chair, no follow-up questions, just a comment. Bill I agree with you in terms of the precious resources. I think however, as we move in this direction, my only point is—and I know it's a local decision—but when you expand programs there's always a possibility that the Federal Government could get involved in the same thing. My only point is, is when you have middle class advocates suddenly raise their eyebrows and say, wait a second, I don't live in the greatest neighborhood and someone now is getting an incentive to purchase a house double the cost of mine. My only concern is that we don't throw the baby out with the bath water. The NIMBY issue is we've talked about it before. I'd like to follow up with you on this issue as well, because I just have some concerns about the messages it sends to those who are trying to go from no housing or rental housing into homeownership at the first level.

    Chairwoman ROUKEMA. Yes. The time is up now, but if you have further comments to make in writing you can submit them for the record and we'll all read them, but I do thank you for those questions. Now Congressman Israel from New York.

    Mr. ISRAEL. Thank you, Madam Chair. I'd like to continue to focus on a concept of an affordable housing trust fund and would like to direct my question to Ms. Brooks who noted that there are about 250 housing trust funds throughout the country. One of those trust funds is located in my home town, Huntington. I was a town councilman for 7 years and one of the final acts that I engaged in before coming to Congress was to pass legislation that created an affordable housing trust fund, funded it with town dollars, but also imposed a requirement on developers that to my surprise the development community supported. And the requirement was any time they came to the town board for a down zoning and realized a density bonus from that down zoning, they were required to deposit into the trust fund an amount of money equivalent to the enhanced value that they were receiving from that density bonus, in addition to dedicating a portion of the zoning on-site for affordable housing. It was an innovative program, the first of its kind on Long Island, but there were problems with its effectiveness and I'd like you to comment on this.
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    Our experience was that when you're living on Long Island, as my colleague, Mr. Grucci, said, those kinds of trust funds, which I support, aren't as effective as you would like them to be because we live in a high-cost, high-property value area. Mr. Grucci's district is adjacent to mine. He gave you some statistics. The fact of the matter is that the conventional wisdom that affordable housing is more a crisis in New York City than Long Island is just plain wrong. The average rental for a two bedroom apartment in New York City is $949. The average rental for a two bedroom apartment on Long Island is $1,173. Monthly housing payments are consuming well over 30 percent for about 300,000 households on Long Island. So my question to you is, as much as I support affordable housing trust funds, I'm a cosponsor of Mr. Sanders' bill, what can be done to ensure that in these high cost, high property value areas, those trust funds are effective.

    Ms. BROOKS. It's an excellent question and thank you. The experience with housing trust funds around the country I think really demonstrates that there is potential for addressing critical housing needs in virtually any housing market. You may have noticed from the list of housing trust funds that there are housing trust funds, for instance, in a place like Aspen, Colorado, where they tell me the median cost of a home there is one million dollars. Most of us can't afford that kind of housing, yet they have created a trust fund that is making some impact in that community where people who work in restaurants and dry cleaning establishments and other places have to commute great distances because they can't afford to live in the community. So they have begun to address that issue. I'm working with some folks in California communities where the median price of a home is above $500,000.

    And so we are seeing housing trust funds that are able to address a wide variety of housing needs. To me that's the beauty of the housing trust fund model is that it enables, we do know how to provide housing for low-income people in this country, we have the capacity to do that. What we don't have are the resources to do it.
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    Mr. ISRAEL. Would you follow up with my office? Perhaps we can meet to talk about how those trust funds are effectively working in those higher wealth areas.

    Ms. BROOKS. I'd be glad to.

    Mr. ISRAEL. That'd be great. Thank you.

    Chairwoman ROUKEMA. Well I'd like to say that I'm going to be the cynic here and express reservations and I come from a high income area, but I don't know, I have a problem with this idea that somehow you're using limited trust fund money in areas like Bergen County, New Jersey, or Long Island or Aspen, Colorado. And I know something about Aspen, Colorado, and don't tell me that the waitresses need housing money there. They can just go a very short distance outside of Aspen and get all the housing they need. This is a problem that we're going to have to work through obviously, because I think we're really kind of shooting ourselves in the foot if we go to very high income areas, because then you're depriving the low-income areas and the moderate income areas of money that they need desperately. You put that in writing in terms of how you think that this can be spread out, and then we'll talk about it further as we go through the legislative process.

    And now we have a final questioner is Julia Carson from Indiana.

    Ms. CARSON. Thank you very much, Madam Chair. This is so interesting and I know you have a limit on time and probably I'm asking the right question to the wrong group of experts here. I come from Indianapolis, Indiana. We've experienced the highest rates of foreclosures than in any other parts of the country. I recognize that a lot of that comes from three things. Number one, predatory lending. I'm trying to help a lady save her home now. They're white, retired income $1,006 a month from Social Security, she has a mortgage payment of $1,600 a month and the people that loaned her the money knew there was no way in the world with her income that she was going to be able to meet that payment and she's in the middle of an eviction at this particular time. She's blind and she's 80 years of age. I want to know if you could write me and tell me how does one offset that kind of abusive behavior on the part of banking institutions when people are comfortable in their homes and then suddenly something happens. Somebody knocked on the door and she signed her name; that's what happened.
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    Then number two, I live in a low-income community historically, but over the years my low-income community has become a high income community and they just did a reassessment of property taxes. My personal property taxes on my home quadrupled, which is something I guess that was expected, but we got older people in that neighborhood who've been settled and we're going to have another Hilton Head where the people aren't going to be able to keep their homes because of this humongous tax increase on their property. You know what I'm saying? It's the value of the home. And there's been some building in my neighborhood called a homeownership zones and the empowerment zones where builders have come in and built houses and it's elevated the value of homes in the whole neighborhood, but we've got all these people out here who thought they were OK now, they've got their homes bought, and all of a sudden this high tax bill comes and they're not going to be able to meet it. And if you could sort of share with me what some of those experiences are in other parts of the country so I can try to deal with those on a local level, I would appreciate it. I'm Julia Carson from Indianapolis. We just have a preponderance of——

    Ms. HADLEY. Madam Chair and Congresswoman Carson, the rising property values in the poorest neighborhoods in the Twin Cities and in your community are real double-edged swords. On the one hand, it represents that there's more private investment in this community and that it's healthier in terms of the economics of the community. On the other hand, as you say, it's really wiping out people who are on fixed incomes, people who are on low incomes. At the State level, I'm not sure this is an appropriate Federal response, but have provided some tax relief for people against sort of multi-digit increases in property tax, just a State tax kind of relief. We're experiencing the same problems with predatory lending. I know there's some legislation under consideration at the Federal level and some States have passed laws regarding predatory lending, and it's forced us within the State to really strengthen our foreclosure prevention network around the State which is having some impact.
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    Ms. BROOKS. You correctly indicate that the predatory lending is just an abominable factor here in our culture, and I know Mr. Faith wants to speak to that. There are several housing trust funds that have actually focused on the issue that you are talking about where——

    Ms. CARSON. Indianapolis doesn't have one.

    Ms. BROOKS. Not yet. They're working on it I might say, and have provided emergency housing assistance to enable people to stay in their homes when they have purchased them, yet the cost of maintaining that home becomes out of reach, and some housing trust funds have addressed that issue in particular to address exactly the kind of housing need that you're talking about.

    Ms. CARSON. I've lived in my home 35 years. When I moved into the neighborhood it was mixed racially, income was sort of moderate up, and then there was an abandonment of the neighborhood. People fled, cut beautiful homes up into apartments which were ultimately destroyed after they had bled out all that they could out of them. And the neighborhood became crime-ridden, etc., but I hung in there and obviously it was worth my hanging in. But now it's in the reverse and the people that stayed there with me, which were quite a few, are not going to be able to even pay tax bills now.

    Ms. BROOKS. There is a housing trust fund proposed in Indianapolis. In fact, it's on the books there. It has not yet been funded, but the mayor just indicated that he intends to fund that as a priority.
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    Ms. CARSON. Indiana's one of the broke States, so they don't have a lot of latitude in terms of doing——

    Chairwoman ROUKEMA. I'll give you just one minute, Ms. Racer, because then we have to go to the second panel.

    Ms. RACER. Surely. Madam Chair, thank you. Congresswoman, I believe there are several communities in Massachusetts with very, very high average and median sales prices where the communities willingly are providing some degree of tax relief to elderly homeowners. I will try to get you some information on that. Thank you.

    Chairwoman ROUKEMA. All right. I do thank this panel, and obviously the answers are not easy or simple answers, and we're going to have to balance out the competing needs here. But we do appreciate your testimony and we look forward to the added testimony that you're going to submit to those questions that were submitted to you for further detail. Thank you very much and we look forward to working with you and getting this legislation passed in record time.

    If the second panel will come forward. I can't believe that we haven't been called over for votes yet, but let's see how far we can go now. Panel two.

    Ms. CARSON. I keep hearing, Madam Chair, they're going to be voting pretty soon.

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    Chairwoman ROUKEMA. I know. I've been hearing that since 11:15.

    I don't know what's happened to our panelists—not the panelists, I mean the subcommittee Members. Hopefully, they'll be returning shortly, at least some of them. We're all concerned about when these votes are coming up, but hopefully we'll be able to hear your testimony before that happens.

    I'd like to introduce the panel. Barbara Sard is here with us today again from the Boston area. Massachusetts is overly represented today, aren't they?

    I'm sorry, I can't hear you.

    Ms. SARD. There are very many ''housers'' per capita in Massachusetts.

    Chairwoman ROUKEMA. Oh, I see, I see.

    Ms. SARD. It hasn't solved the problem.

    Chairwoman ROUKEMA. You're reflecting yourselves as standards for the nation, something simple like that. All right. But Ms. Sard is from the Boston area and is the Director of Housing Policy at the Center on Budget and Policy Priorities, something that we're going to be very interested in hearing about today, so we'll let you give your testimony and then I'll introduce each of the panel members as they testify.

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    Ms. SARD. Thank you very much for inviting me to testify today. We applaud the recognition in H.R. 3995 of the need for additional resources for rental housing production and that a substantial share of any new resources should be targeted on extremely low-income households who are the families and individuals within our country with the most severe housing needs.

    Unfortunately, because their incomes are so low, capital subsidies do not work well alone to assist extremely low-income people and that is the conundrum that the bill has tried to deal with through the thrifty production voucher proposal which you've asked me to talk about.

    In the past with capital subsidies, either commonly extremely low-income households were not admitted at all, which has often happened in the tax credit program, because many owners have a rule that you have to have income of three times the rent, and if your income is very low, you don't have income of three times the rent, so you don't get in, or you are admitted and recent data in the HOME program shows that extremely low-income households who don't have rental assistance pay nearly 70 percent of their income for rent. By my calculations using data from FHA properties, it would take an income of about $18,000 a year on average merely to afford the operating costs without debt service of an average rental property in this country. H.R. 3995 attempts to deal with this tension between the need to assist extremely low-income people and the shallowness of a capital subsidy, by setting a rent cap that the rent would be, under the new Production and Preservation Program, no more than 40 percent of a household's income.
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    It's a good attempt at a compromise, but like many compromises, it's unsatisfactory to either side. It is not going to provide enough of a rental stream to the owners when the households are extremely low-income because 40 percent of an extremely low-income household's income is not enough to cover the owner's costs, and yet it's still too much of an extremely low-income household's income to pay, and that's the role of rental assistance to fill. That shows that in addition to capital subsidies, you need rental assistance.

    Why thrifty production vouchers, to get to the question. The premise behind thrifty production vouchers, unlike other vouchers, is that it is preferable to have a major infusion of capital dollars, which is a one-time expenditure. It is easier for the Federal Government to plan for, to budget, to be basically heavy on the capital side in order over time for the rental subsidy that extremely low-income households need to be lower.

    And if we look at the average costs, again the data are in my testimony, we estimate that on average, the operating costs without debt service for new rental housing or newly rehabilitated rental housing would be below 75 percent of the fair market rent. And in the regular voucher program, rents are generally pegged to the fair market rent. The reason you can do it for less is by paying more on the capital side. It isn't just something for nothing. It's a choice that it is better policy to invest once on the capital side and then lower the on-going operating subsidy.

    And, because of that approach, the rent payment, the maximum rent for a unit would be pegged to the operating costs of the unit without debt service. And that is different from what has been done before. To make sure that it is cost effective, the proposal includes a cap of 75 percent of the local housing agency's payment standard, which is what's now used in the voucher program and in some cases that's slightly above the fair market rent, so that would be the cap. But the rent itself would be pegged to the operating subsidy cost.
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    The proposal includes a new distribution mechanism which makes it easier to use these vouchers in combination with new capital money. Even though only housing authorities that run a voucher program would be eligible to administer these subsidies, the notion is that the vouchers ought to be allocated if Congress funds new ones in the same way that the capital dollars are allocated.

    Now there are some complex issues and my testimony includes some alternatives to the way the bill is drafted.

    [The prepared statement of Barbara Sard can be found on page 207 in the appendix.]

    Chairwoman ROUKEMA. Yes. Your time is up and I'm going to have to be as strict about it. Perhaps there will be a question, but we're really running into a conflict here. The bell has rung and there will be a vote that we'll have to leave for on the floor, but evidently only one. I thought there were going to be a series of votes.

    Mr. Benson Roberts, I believe we can give you 5 minutes before we have to recess to go over to vote, and you of course are representing the Local Initiatives Support Corporation, and it's a creation of community leadership and it's a good example really of forward thinking with community leadership setting the standard. Go ahead, Mr. Roberts, please.

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    Mr. ROBERTS.Thank you very much, Madam Chair, and good afternoon. My name is Benson Roberts and I am with the Local Initiatives Support Corporation. We operate low-income community development programs in New Jersey, Indianapolis, Cleveland, and 35 other parts of the country. Our job is to help grassroots community organizations to rebuild their communities. We've raised $4 billion from the private sector in this effort and have used that money to help in community stabilization activities. We deeply appreciate the subcommittee's attention to housing production and the need to add more money for housing production.

    Indeed, we believe that the real issue here is money, rather than program design. We certainly have no objection to the proposal you've made in H.R. 3995 or to Representative Sanders' Housing Trust Fund and we appreciate the fact that they would generate new sources of money. But the existing programs, particularly HOME, work just fine in terms of moving money out to serve low-income people. If you look at HOME, 40 percent of HOME funds in rental housing serve extremely low-income people; 80 percent serve very low-income people. So States and localities are really exercising great stewardship there while retaining some flexibility to meet other needs as well.

    Incidentally, about a third of the homeowners receiving rehabilitation assistance under HOME are also extremely low-income and two-thirds are very low-income.

    Chairwoman ROUKEMA. Would you talk a little bit more into the microphone, please.

    Mr. ROBERTS. So HOME is really meeting that need. The principal limitation is money. HOME was authorized at $2 billion 12 years ago. In today's dollars that would be $2.9 billion. The current appropriation is about 35 percent short of that. And if we really want to increase production of housing for low-income people, we just need to find some way, any way to get more money into the system. We'd argue that the best delivery system for that is the existing one that works extremely well. There's no need to create a new program, we would say.
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    The one thing that capital subsidies cannot really do, as Barbara suggests, is that they cannot address a situation where poor tenants cannot afford to pay in rent even enough money to cover the operating expenses of a property. Obviously it's very important that the housing that is built be affordable to the people whom it's intended to serve. So there are sometimes efforts, we've seen it in both H.R. 3995 and in the Trust Fund bill, to peg maximum rents based on the tenant's actual income. Well, neither we nor anybody else in the private sector can underwrite a property on that basis. Everyone has to have some kind of certainty about how much money is going to be available to the property, and if we just don't know until the tenants show up and we can take a look at their income, then we can't make the loans or the investments to begin with.

    That's really where a Thrifty Voucher comes in. Because it really says to a developer, says to a lender, says to an investor, we know that you're going to have enough revenue on those units reserved for extremely low-income people to cover the operating cost of the property, and that enables you to underwrite the property. The reason why Thrifties make sense here in Congress is that when we go to the appropriators and talk about additional rent subsidy, the appropriators say well, we know that if we sign up for one year, we have to renew this year after year and the cost is so high that we don't want to get started. Thrifties are very explicitly an attempt to address that concern, and they would, we believe, be at least 35 percent cheaper than existing vouchers and perhaps even cheaper than that.That's why we think they have a great role to play in this process.

    The tenants would still pay 30 percent of their income for rent, the same as they would with regular voucher, but the reason Thrifties are cheaper than tenant-based vouchers is, as Barbara says, instead of the payment standard being a fair market rent or higher, it would be based on the actual operating budget of the property. That tends to be substantially lower than fair market rent. You can't do that for existing housing, because existing owners have a debt they have to pay.
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    [The prepared statement of Benson Roberts can be found on page 221 in the appendix.]

    Chairwoman ROUKEMA. All right, thank you. We're going to have to leave to vote, and we'll be back within 15 minutes hopefully.


    Chairwoman ROUKEMA. Let's go back on the record. I apologize profusely. I understand as soon as we got there we learned that there were successive votes on the floor that delayed us. We hope our staff made the appropriate announcement. I am terribly sorry, but we could not anticipate that. They just had the lights on for one vote. As we got out there, we learned that there were two 15-minute votes and two additional suspensions, so it took quite some time. Sorry about that.

    And given my schedule and your schedule, let's complete this. I don't know if any of the other Members are coming, but we will see if anyone else is coming. I doubt it. I think what we should do is get your statement on the record. Otherwise, you wouldn't even have the chairman here.

    OK? I'm sorry. I'm not avoiding you, but I have another commitment on for another hearing. Can you believe it? My incompetent staff scheduled me for two hearings today. I think I'll fire them all. Yes, do I have your permission to fire them all? I do that about every other week.
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    All right. Now I believe that Mr. Lawson, Robert Lawson is next and you are representing?

    Mr. LAWSON. The National Association of Home Builders.

    Chairwoman ROUKEMA. Yes, yes the National Association of Home Builders and certainly if there's one interest group that we must hear from, it's the home builders, and we welcome you here and we will listen to your comments, because I think we all share the feeling that certainly housing is a national priority. Thank you very much. Mr. Lawson.


    Mr. LAWSON. Thank you very much. On behalf of the 205,000 members of the National Association of Home Builders, I want to thank you for inviting us to speak on the Housing Affordability Act.

    My name is Robert Lawson, I'm a builder from Virginia Beach, Virginia, and President of the Lawson Companies. For almost 30 years, our company has been active in the financing, development, and management of affordable and market rates single and multi-family housing. Let me begin by thanking Chairs Roukema and Oxley for introducing the first major housing bill in many years. We appreciate your willingness to address some very complex issues in order to provide more affordable housing for low-and moderate income households.

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    I would like to confine my oral statement to the affordable housing production and preservation component of H.R. 3995. While commenting on your production proposal, I would also like to offer a different approach for the subcommittee's consideration as you begin your deliberations on the bill. Our proposal would meet the needs of affordable families at all income levels from the very low-to moderate income families.

    Section 101 of Title I creates a new affordable housing production and preservation program under HOME. The program would provide loans and grants for the production or preservation of existing affordable housing for very low and extremely low-income households funded with unobligated balances of recaptured Section 8 funds.

    While we appreciate that a funding source independent of annual home appropriation is identified, we question whether the source of money will appropriately meet the program's goal of increasing production for very low and extremely low-income households. This source of funding may prove inadequate as HUD improves the utilization rate of vouchers and reduces the amount of unobligated funds. If funding for the new program becomes problematic, there might be a temptation to require participating jurisdictions to set aside regular home funds for these purposes. NHB would oppose this unintended result.

    NHB believes that the establishment of a new rental housing product and rehabilitation program that produces 60,000 to 70,000 units annually should be a top housing priority for the Administration and Congress in the coming year. The often-cited reports by the Center for Housing Policy and Harvard University document the need for a new multi-family rental housing production program that would meet the affordable housing needs of households with incomes between 60 and 100 percent of area median income, America's working poor. These households are not eligible for housing assistance for most current Federal housing programs. NHB proposes a program to produce mixed income housing which has proven to provide greater financial stability and community acceptance than developments that concentrate on very low and low-income households. The program focuses primarily on the working poor with a portion of each property up to 25 percent reserved for very low and extremely low-income households.
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    Although there are several ways in which this program could work, our proposal relies primarily on the low interest rates available through Ginnie Mae guaranteed lower floater securities which carry very low rates of interest, currently less than four percent. These securities could be issued by a variety of entities including developers, private lenders, housing finance agencies, and local governments. Ginnie Mae would guarantee the timely payment of principal and interest to investors, which would further lower financing costs. Underlying loans could be backed by the Federal Housing Administration, the Rural Housing Services, or could be conventional loans, though use of the latter would require a change in the Ginnie Mae charter.

    Interest rate subsidies or buy-downs would be employed to achieve additional affordability. To further reduce debt coverage, developers could also use sources of equity and soft second such as tax credits, HOME, the Federal Home Loan Banks Affordable Housing Program, and State housing trust funds. The only Federal budget dollars required would be for any credit subsidy needed for Ginnie Mae participation, interest rate subsidies or buy-downs, and a marginal increase in the cost of rental assistance vouchers. The program would require only a small amount of Federal Government subsidy per development and would provide for on-going maintenance and future capital improvements by building in adequate reserves from monthly cash flow at a level sufficient to rehabilitate the development in year 2000.

    Chairwoman ROUKEMA. Mr. Lawson, I'm sorry. I don't know if you realize that your time has run out here, but I know you have a much more extensive report to give, and we'll go over it. Is there one minute that you'd like to summarize with the point that you want us most to focus on?

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    Mr. LAWSON. I think that the big thing is it's low cost program to the Government and it provides for incentives to the developers in a way to create good, mixed communities that focus on the broad range. I guess in summation, I would say if we're helping people only at 30 percent of median, where do they go when they hit 35 percent of median, because the market can only serve people starting at 100 percent of median.

    We've got to have a continuum to have a good, sound housing policy.

    Chairwoman ROUKEMA. That's a point that's interesting to be made. I don't know how we'll deal with it, but we will certainly review it..

    Mr. LAWSON. Thank you very much.

    [The prepared statement of Robert Lawson can be found on page 230 in the appendix.]

    Chairwoman ROUKEMA. Mr. Lopez. Mr. Rodrigo Lopez is from AmeriSphere, a mortgage banking company, but you're here in Nebraska nationally or is it ?

    Mr. LOPEZ. Nationally, but based in Nebraska.

    Chairwoman ROUKEMA. Based in Omaha, Nebraska. But you are here today representing the Commercial Multi-Family Board of Governors of the Mortgage Bankers Association. So we do welcome you and we want to get your advice on how we deal with this problem or these problems. Thank you.
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    Mr. LOPEZ. Thank you. Good afternoon, Madam Chairman and Members of the subcommittee. The MBA also applauds the Chair and Vice Chair of this subcommittee for introducing H.R. 3995. We believe that this legislation lays the groundwork for increasing American's access to affordable housing, both for those families buying their first home, and for those who are living in rental housing.

    There's no doubt that this country's facing a crisis in affordable housing, a significant shortage in decent, affordable housing exists in virtually every jurisdiction in America, and this problem is growing worse. The cause of the problem differs from region to region. In areas where housing prices are generally lower, the problem of affordability often stems from lack of income. The housing exists, but the rents are simply too high for lower income families. In these areas, income support programs, such as vouchers, are the most cost effective means to provide assistance. In other areas, the lack of existing rental housing has driven up rents to the point where even moderate income families cannot afford to live in the communities where they work.

    The fact that there has been little, or in some areas no new production has made many places virtually unaffordable for many families, even for some two full-time workers. The production program outlining H.R. 3995 utilizes these highly successful home investment partnership program, HOME, for production and preservation. MBA applauds the bill's provision dividing the allocation of HOME funds 60 percent to localities and 40 percent to States.
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    We do, however, have several concerns about rental housing production provisions in the bill. Our first concern is with the targeting of the production program to very low and extremely low-income constituencies. While people in these income groups undoubtedly have faced critical housing needs, there's also a need for assistance for families making between 60 and 100 percent of median income.

    Currently, there are no Federal programs to help renters in these more moderate income brackets. Many of these people are municipal employees such as teachers, police, and firefighters, who cannot afford to live in the communities they serve.

    Second, MBA does not believe that the program set out in H.R. 3995 would generate new construction or substantial rehabilitation of affordable housing. Therefore the program would not address problems in high cost areas of the country where significant new housing production is badly needed. Finally, MBA believes that a mixed income is essential. As currently drafted, the provisions of H.R. 3995 would not produce mixed income developments. It is our opinion that families would be better served and Federal housing dollars would be better spent in properties with tenants whose income range from less than 30 percent to 100 percent of median income.

    To address the need for new production, MBA proposes the creation of a new Federal interest rate subsidy program. The most successful Federal housing production programs rely heavily on public/private partnerships that encourage the private sector to produce housing with support provided by the Federal Government. FHA Mortage Insurance programs have been extremely successful in producing new and rehabilitated housing at little or no cost to the Federal Government.
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    Partnering FHA Mortage Insurance with interest rate subsidy will, in most markets, encourage private production of rental housing at rents that would be within the reach of families at 60 to 100 percent of median income. A new production program would reduce the cost of financing. The subsidy would reduce the interest rate significantly below market allowing lower rental rates. Such a program needs to work with other Federal programs including home, tax credits, and project-based vouchers to achieve a mix of incomes.

    MBA looks forward to working with the Members of the subcommittee and their staff to craft a new rental housing production program that will serve a variety of income groups. Through such a program, Government and private industry can work together to address the crisis in affordable housing.

    Thank you, Madam Chairman. We appreciate having the opportunity to present our views to you today.

    [The prepared statement of Rodrigo Lopez can be found on page 236 in the appendix.]

    Chairwoman ROUKEMA. Thank you. Now I regret having to tell you that we're going to have to bring this to a close, not only because I'm the only person here, subcommittee Member here, but also because we inadvertently and hadn't really intended to, but because of circumstances beyond our control, I have another hearing at 2:00 o'clock on another subject, but nevertheless a subject under our jurisdiction. But I think that what we've learned here today and certainly I am most encouraged—we're concluding now; I'm sorry.
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    VOICE. You are.

    Chairwoman ROUKEMA. Yes, we are. We have to leave here and I was going to say that the encouraging thing here today is that both the public groups, the community groups, the State and local governments and community groups are very consistently supportive of you and all that you're doing and reverse we haven't agreed on everything, certainly how it's going to be paid for and what the relative focus is relative to vouchers and the tax provisions, etc., and I think we can certainly come to agreement on how we target the low-income and the very low-income, and then what, if anything, and I believe Mr. Lopez, did you just mention the fact that— was it Mr. Lopez or Mr. Lawson—just mentioned the fact that there's too much targeting of the very low-income and the more middle income people are being ignored.

    That would be a subject for great debate. I heard it, but I don't know how we deal with that in terms of realistically considering the money that is available. But we'll go over it. I guess that subject had some up in one form or another previously on the panel, on the previous panel.

    But if there's one final word that you wanted to say, you may make that statement now and then we'll adjourn for the day, and again, I invite you to submit any additional material for the record, and it will be part of the open record of the hearing.

    Mr. LAWSON. Thank you very much. We will try and send additional material forward and I guess the time might be best utilized if I could answer any questions that you or any other Member might have.
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    Chairwoman ROUKEMA. No, as I said, I indicated that the time is very short and I have another hearing that I'm in charge of so I'm afraid we can't continue you it any longer.

    Mr. LAWSON. Thank you, Madam Chairman.

    Chairwoman ROUKEMA. Yes. Any final statement any one of the four Members want to make?

    [No response.]

    Chairwoman ROUKEMA. All right. I'm sorry, Ms. Valezquez, you were busy in another committee hearing. I'm sorry. But I think you will find, as you go over this information that it was very, very helpful and very consistent both from the community groups as well sa the business groups, the homebuilders and the mortgage bankers. They're not in complete agreement, but I think we're all moving in the right direction.

    Thank you very much.

    Mr. LAWSON. Thank you.

    [Whereupon, at 1:30 p.m., the hearing was adjourned.]

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