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Thursday, March 18, 2004
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
    The subcommittee met, pursuant to call, at 10:04 a.m., in Room 1310, Longworth House Office Building, Hon. Bob Ney [chairman of the subcommittee] presiding.
    Present: Representatives Ney, Miller of California, Renzi, Waters, Velazquez, Lee, Clay, Scott and Davis.
    Chairman NEY. [Presiding.] Everybody got quiet before I banged the gavel. What a great group of people. It is because you are in smaller quarters. We could not have the hearing in the regular hearing room so we are here in House Administration, so we are just in a little bit tighter quarters.
    Today, the subcommittee meets to discuss the importance of housing counseling, specifically on H.R. 3938, Expanding Housing Opportunities Through Education and Counseling. I would like to thank the gentlelady from New York, Ms. Velazquez and her staff for their hard work and diligence in helping draft this important piece of legislation. I want to thank the gentlelady. We also worked in conjunction with the gentleman from Georgia, Mr. Scott, and we produced a bill designed I think that enhances the counseling programs currently operating through HUD and to foster other private counseling activities which I really firmly believe are so important to so many people.
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    Currently, HUD laws and various documents show a variety of counseling activities scattered throughout the agency. This year, the Bush administration's budget proposal recommends increasing funding for the housing counseling assistance program to $45 million and funding it through a separate program dedicated to housing counseling. In previous years, counseling was funded as a set-aside within the HOME program. In fiscal year 2005, it is estimated that this $45 million will support 550,000 families with home purchase and homeownership counseling and about 250,000 families with rental counseling. During the previous 3 years, this administration more than doubled funding for the program.
    H.R. 3938 will consolidate all HUD counseling services and programs under a single office within HUD entitled the Office of Housing Counseling. The mission of this office will be to coordinate and oversee HUD's many housing counseling programs, to improve the efficiency and effectiveness of the counseling services provided through the HUD programs. The director of this office will be responsible for the oversight and coordination of both homeownership and rental housing counseling programs.
    Today, homeownership and counseling programs take on a variety of forms. Counseling is provided with grants through separately administered programs, nonprofit organizations, government agencies and lenders. The programs offered are delivered through a wide variety of different means, including telephone, classroom, home study, and individual counseling. Information provided and the timing of the counseling also varies I think significantly, but can be generally divided into two separate categories, pre-and post-purchase.
    Pre-purchase counseling education prepares families for the responsibility of homeownership by providing information on the home buying and the financing process. Counseling also can include information on financial planning, money management and home maintenance and repairs. Post-purchase includes the above-mentioned items, but often has a greater emphasis on issues pertaining to maintenance and repair and to individual budgeting techniques.
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    Extending homeownership opportunities to American families continues to be a primary focus of this housing subcommittee. I want to thank the members I mentioned previously, and the two members that have joined us, Mr. Renzi of Arizona and Mr. Miller of California. They have been also great members on a wide variety of issues. Last year, our bipartisan approach to legislation in 2003, and I want to thank everybody, and our Ranking Member, Maxine Waters, on this subcommittee, and of course the full committee Chairman Oxley and Ranking Member Barney Frank.
    Last year, our bipartisan approach to legislation in 2003 led to the enactment into law of 11 pieces of legislation out of here, which I think was a tremendous effort. I also want to thank the staff from both sides of the aisle for that.
    In December of last year, the President signed into law the American Dream Down Payment Act, which will assist an estimated 40,000 low-income families each year to share in the dream of owning their first home. Critical to increasing homeownership is helping families learn more about the important elements in the purchase or retention of a home, which for people is the most major thing practically that could happen in their lives.
    With that, without objection, I have more for the record. I do not want to take up the time of other statements and also the witnesses.
    Does the gentlelady have remarks?
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Mr. Chairman, achieving the American dream of owning a home is unfortunately still out of reach for many hard-working families across the nation. Despite that more than 68 percent of Americans now own a home, minorities still lag behind. Only 50 percent of Hispanic and Afro-American families own a home, as compared to 76 percent of Caucasian families.
    The number of foreclosures are increasing nationwide, and are skyrocketing in many local communities. In Queens, New York, which is part of my congressional district, over 200 families defaulted on their mortgages last year and the foreclosure rate is twice the national average. Housing counseling is not just an important initial step in the process of purchasing a home. It is critical to ensuring that new homeowners know what is on the table and what is at stake when they sign on the bottom line.
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    In neighborhoods across the country, certified housing counselors are meeting with low-income families helping, them determine if they are ready to purchase a home. They walk potential homeowners through the buying process, clarifying loan terms, fees and costs, as well as their rights and responsibilities. Housing counseling empowers individuals to meet with mortgage lenders knowing what that they have the information they need to successfully purchase and maintain a home for their families.
    However, many families caught up in the excitement of purchasing their first home are often ill-informed or misinformed about the loan agreement they are signing. As a result, they end up with mortgage payments they cannot afford and, with alarming frequency, face default or foreclosure. While not a solution to curbing predatory lending, housing counseling is an important part of educating families about all aspects of purchasing, maintaining and refinancing a home.
    I want to thank Chairman Ney for working together to draft this bill, which we believe is the first step in strengthening housing counseling services at the federal level. The Expanding Housing Opportunities Through Education and Counseling Act will elevate the importance of housing counseling at HUD. With establishment of the Office of Housing Counseling, the bill consolidates and expands the existing patchwork of counseling-related services under one roof. The director of housing counseling will be charged with strengthening services and ensuring that the agency is providing comprehensive assistance to counseling organizations in all neighborhoods across the country.
    The federal investment in housing counseling is critical to local agencies seeking to deliver their services to more families in more neighborhoods across the country. The Expanding Housing Opportunities Through Education and Counseling Act authorizes federal grants to provide a central source of funding to local agencies and not-for-profit organizations. The bill also targets low-income families, the elderly, individuals who face language barriers and other consumers who are more vulnerable to the predatory practices of unscrupulous lenders. This will ensure that these individuals are better prepared for the home-buying process and know the benefits and risks of their loan options.
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    Today, we will hear testimony from HUD, housing counseling agencies, and lenders. Their testimony will help highlight just how important a strong federal investment in housing counseling is for families in underserved neighborhoods. I look forward to hearing everyone's testimony today and I am sure that it will provide momentum to move this legislation forward and enact it into law.
    Thank you, Mr. Chairman.
    Chairman NEY. I thank the gentlelady.
    The gentleman from Arizona?
    Mr. RENZI. No comments here.
    Chairman NEY. Thank you.
    The gentleman from Georgia, Mr. Scott?
    Mr. SCOTT. Thank you very much, Chairman Ney. I want to commend you for the sterling leadership that you have provided on this issue. Ms. Velazquez, it has certainly been a pleasure working with you, and certainly our ranking member, Ms. Waters, for the leadership that she has provided on this issue over many years, and to other members of this committee.
    I do not think that there is a more pressing issue today that we can deal with than how we can assist our citizens in first purchasing a home, maintaining that home, and then keeping that home. Our country is plagued from one end to the other with unscrupulous lending practices, with predatory lending, with threats coming from every direction. So much of this is targeted, it is targeted at the most vulnerable people; it is targeted at our senior citizens; it is targeted at our minority communities; it is targeted at those places where people believe that they do not have the information, that they are not armed with the essentials to be able to protect themselves, protect their homes, and make sure that their dreams are manifested.
    Throughout my career in the State of Georgia, I have been working on this very important and serious issue. Any of us sitting at this table and in this room that have been familiar with this issue knows that Georgia has been at the forefront unfortunately of so many abusive practices. In many respects, it represents a trend across the nation. One of the things that we have learned has been, one, that an ounce of prevention is worth a pound of cure; and that we must prepare for the storm before the hurricane is raging.
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    That is why I am so proud to work with this bill because that is exactly what we are doing. We are putting counseling in place. We are putting in a very important feature that I think is somewhat the basis of this legislation, which is a toll-free 800 number. This toll-free 800 number will provide a help-line for many of our constituents to be able to have access to help. We know that this is a targeted activity, so why not try to target the information and target the help-line to those communities. To have a toll-free 800 number where individuals can reach out and call for help, and then to have grants that we can put down to the local community levels, so that groups who have the credibility with many of these targeted groups will be able to get this information to them.
    The NAACP, with a sterling history of working in this area, has certainly utilized the grants to work to get the toll-free number. Many church groups, senior citizens groups, AARP, folks that have the credibility of these individuals, and grassroots organizations that can use these grants to get the toll-free number out. We can use it to advertise. We can use it to put this number on radio stations, in newspapers, and those entities where these individuals listen and receive their information.
    And then the bottom line, ministers, senior citizens who hold ministers in high regard, can say in their pulpits, before you sign on the dotted line, call this 1-800 number. I think this is going to go a long way to help with a very needed, needed problem.
    So Mr. Chairman, I appreciate this opportunity. I want to thank you for letting me work with you. I am especially pleased that we have put forward a bill with the help of many members on this committee, that we have authored, called the Prevention of Predatory Lending Through Education Act, and Mr. Chairman, you have seen fit to include a number of the features of our bill in this bill. I want to say on the record how much I appreciate that.
    Chairman NEY. Thank you.
    Mr. SCOTT. As a freshman Democrat coming on the committee, I appreciate certainly the opportunity of working with you, Mr. Frank, Ms. Waters and all of the leadership in a bipartisan way to move this issue forward.
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    I close my remarks by just recalling the words of Alexander Hamilton, one of the great founders of this country. As we know, Alexander Hamilton founded the cornerstone of our commercial and enterprising activities. He said that a country that remains illiterate of its commerce and handling of its money will not remain free and enterprising for long.
    I think that this measure goes a long way to take charge of those words from Hamilton and build on them because, Mr. Chairman, there is nothing more important than getting the information to this needed targeted group, and providing the counseling and the funding to make sure we can put a serious dent into many of these financial abuses by protecting and giving our targeted constituencies the armor to defend themselves. There is no greater armor than education and counseling.
    Thank you.
    Chairman NEY. I thank the gentleman for his comments.
    The gentleman from California, Mr. Miller?
    Mr. MILLER OF CALIFORNIA. Thank you, Mr. Ney.
    I would like to applaud you for this legislation. I have been involved in the housing industry privately for over 30 years and I have watched the industry change dramatically and the impact on the private sector and how that has really had direct correlations to the cost of housing. Much of the reason for the scarcity of housing and the cost of housing is government and government regulations and processes.
    I remember 25 or 30 years ago in California, and California is unusual because about 56.9 percent of the population in 2000 own a home in California. That is more than 10 percent under the national average. But I remember 25 or 30 years as a young builder, I could apply for a tentative tract map and in 58 days they had to say yes or no; 59 days, if they did not act, the government, you were approved by law. Now, with CEQA and the EIR process and the application and the way the law is drafted, your application is not even deemed complete until every 'i' is dotted and 't' is crossed in the perspective of government. What used to be a 2-month process to be able to move forward to provide housing can be a 2-, 3-, 5-, 8-, 10-year process, as you know.
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    That is extremely disturbing from any perspective, especially from California. We are going to discuss things that I think should be discussed. Predatory lending is huge, but I think we need to move very cautiously because there are individuals out there in society who have less than perfect credit. Borrowers generally understand that if you pose a somewhat higher risk, there should also be reasonable expectations that the fees are going to be somewhat higher. But there is a huge difference between predatory and sub-prime. I think we are moving in a direction to really make it very difficult for predatory lenders, and understand that if you are a predator, that there is going to be a consequence and a price to be paid.
    We need to move gingerly to not impact in any fashion the sub-prime market, because that sub-prime market is absolutely essential and important to homeownership for those who have less than perfect credit, and there are a lot of people in this country who have less than perfect credit for different given reasons and different problems.
    But a real concern I have, and I hope you will address this, is RESPA. I worked with Secretary Martinez 3 years ago and I think we were moving I think very well through the RESPA process, the concept of bundling, other ones were thrown out there and debated back and forth, and compromise occurred. I really believed at that point in time we were heading in a reasonable direction on RESPA that would benefit consumers and provide the information that they needed and an understanding of how to best be able to proceed with the acquisition of a home, and clarify all the processes and such.
    But I am really, really concerned, and I have always had a great relationship with HUD, as you know. We have never had disagreements. We have always been able to work problems out. But the new process that you are going through really disturbs me because we do not know what it is. All I know is I have a letter here that FTC has come out with and said that the new RESPA reform proposal that they reviewed, which we have not reviewed, could cost mistakenly buyers $400 million and $800 million per year.
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    Now, I do not know what that breaks down to per applicant, but when we are talking about $400 million to $800 million a year impact on people trying to get a loan because the new RESPA proposal is perceived from their perspective to be vague and ambiguous and could lead people to make the wrong decision rather than the right decision, it really concerns me because I thought we were really off in a good direction. Right now, I do not know if we are off in a good direction or we are off in a bad direction. All we can glean is that from what we are getting it could be concerning. So I hope you would address that.
    Again, Chairman Ney, thank you very much for this hearing and I look forward to hearing the testimony.
    Chairman NEY. Thank you. I do not know what direction we are in RESPA, period. I know that issue will continue and we will go down the road at some point in time with that.
    The gentlelady from California, Ms. Lee?
    Ms. LEE. Thank you, Mr. Chairman, and I want to thank Ranking Member Waters for convening this hearing today on this very important issue.
    Last year when we were marking up the American Dream Down Payment bill, we discussed and offered amendments to provide not only foreclosure assistance, but also foreclosure counseling to participants in the program of the American Dream Down Payment bill.
    Mr. Chairman, one thing that I wanted to just note for the record is that we all recognize that the key to successful wealth-building is comprehensive counseling for both homeowners and renters and also increasing the stock of affordable housing. We were pleased to know that this bill was in the hopper and that this hearing was going to be held today, but Mr. Chairman I wanted to ask you a couple of things, and just mention them in my opening statement, with regard to specifically section six of the bill that requires the preliminary report and study as it relates to foreclosure and default of home loans, and report back within 24 months.
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    Some States I believe have conducted these studies and I would like to work with you as this bill moves forward to possibly talk about the States that have already conducted studies with regard to default and foreclosures, how we can provide maybe a provision for real foreclosure assistance and counseling in those States so that in fact we do not have to wait for 24 months. People are losing their homes right and left, and I think it would really be very helpful. Yes, the national study, but also, Mr. Chairman, I think it would be an added element to this bill where we can add some real help in terms of foreclosure assistance to those States that already have the studies in place.
    I think this is an excellent first step. It will streamline housing counseling services in HUD and I think it is a starting point. I look forward to this hearing and I hope to work with you to try to add some language to this bill.
    Chairman NEY. I want to thank the gentlelady. I am assuming you would like to go towards foreclosure counseling and you want to get also some of the state statistics that are out there to find out how many people are losing their homes and what can be done about it.
    Ms. LEE. Mr. Chairman, yes, but also some States already have conducted those studies and we know what the issues are and what the problems are. For those States that already have studies relating to this, I would like to provide a provision that says we are going to provide some foreclosure assistance and counseling, rather than just the study.
    Chairman NEY. I am sure we will have further discussions on the issue as it progresses.
    Ms. LEE. Okay. Thank you, Mr. Chairman. I would like to work with you on that, as we move this bill forward.
    Chairman NEY. Thank you.
    Ms. LEE. Okay, thank you.
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    Chairman NEY. Our Ranking Member, the gentlelady from California.
    Ms. WATERS. Thank you so much, Mr. Chairman, for scheduling this hearing on the important subject of housing counseling and on H.R. 3938, the bill that you introduced last week with Congresswoman Velazquez and Congressman Scott to expand housing opportunities through education and counseling.
    You have assembled large, balanced, and diverse panels of witnesses for this hearing, and I appreciate the care and attention that went into assuring that a wide range of views will be presented here today. I also commend you, Mr. Chairman, for making good on the pledge that you made last year to Congresswoman Velazquez to work with her on homeownership counseling legislation.
    Pre-purchase housing counseling is extremely important to ensuring that consumers are well informed and protected when they evaluate whether, when and how to purchase a home. Post-purchase housing counseling and foreclosure prevention counseling are essential to protecting consumers in times of financial stress. Yet it is critical to emphasize that housing counseling must be supported by strong, effective laws and regulations against predatory lending. Housing transactions are complex, intimidating transactions for many consumers, and counseling will better prepare consumers to deal with the unethical.
    We also should emphasize that while homeownership is an important goal for many Americans, there are millions of Americans who choose to rent and will always be renters. We need a balanced approach that recognizes that housing counseling is broader than just homeownership counseling. H.R. 3938 has some very attractive components. It establishes an office of housing counseling within HUD to consolidate and strengthen housing counseling offered by the federal government. It directs that standards be developed for materials used by counseling agencies in providing rental housing counseling and homeownership counseling.
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    Based on legislation that was introduced by Representative Scott, H.R. 1865, the bill includes a toll-free number and Web site for a listing of housing counseling information. It provides that only HUD-certified housing counseling programs may receive assistance. It also has provisions for multi-media outreach to vulnerable populations at greatest risk of predatory lending, such as seniors, people with language barriers, low-income households, and ensures that all counseling materials and outreach are language and culturally appropriate.
    I know that some concerns have been raised about what culturally appropriate materials would mean in this context. I hope that our witnesses will address this issue in their testimony. While H.R. 3938 has many valuable elements, it also appears to me that certain aspects of the bill may require some fine-tuning. Some have raised concerns about the work of the proposed advisory council. It is important to determine what role, if any, such body would play in granting housing counseling funds. I believe that it is important that housing counseling funds be awarded on a competitive basis, and that the advisory council have no role in awarding these funds.
    H.R. 3938 also mandates the use of housing counseling software, that is on page 13 beginning at line 15, and carrying over to page 14. This legislation mandates the Secretary to certify mortgage software programs for consumer use and authorizes the development of such mortgage software systems using private sector software companies. During the pilot phase, these mortgage software programs can only be offered in conjunction with counseling by a housing counselor. Following the pilot phase, they do not need to be.
    The Secretary is encouraged to make them widely available in public places and throughout the Internet. Thus, while initially the bill would require face-to-face counseling, the door is left open for this software to replace this human contact. Research suggests that this type of virtual counseling is far less effective than human contact.
    The legislation also appears to open the door to groups other than nonprofits and government bodies doing counseling. On page 17, line 10, the legislation authorizes HUD to make financial assistance to States, units of local government, nonprofit organizations and other entities. These other entities could include for-profit businesses, including affiliates of lenders. Given the huge potential for conflicts of interest, if we allow those with an interest in profiting from this industry to provide advice that should be given by impartial groups, we need to proceed with great caution in this area.
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    Finally, it is worth noting that this bill provides no new money for housing counseling beyond what President Bush has already proposed. We should be discussing the scope of the unmet needs for housing counseling and how best to address those needs.
    I look forward to hearing from our witnesses and hearing them examine many of these issues in the course of this hearing. I want to thank you, Mr. Chairman, and if I have to leave early, it is because H.R. 1375, the Financial Services Regulatory Relief Act, is on the floor and I have offered an amendment as you know that would retain the 15-day waiting period after the department of justice has signed off on a bank merger or mergers between bank holding companies. That is important to our consumers and I will have to go up and present my amendment. So if I leave early, it is because of that.
    Thank you.
    Chairman NEY. We understand. Before you came in, I thanked you and also want to do it again for all your work, last year working with us, and producing I think some good bills, about 11 or so that got to the floor. We appreciate that.
    Ms. WATERS. Thank you.
    Chairman NEY. Before we move directly on to the witnesses, I did want to clarify to the gentlelady from California, Congresswoman Lee, because you and I had not discussed it previously, but are you talking about, I have no problems with the counseling and also the counseling on foreclosure and looking at what the States have done, but are you talking about grants directly in the bill for foreclosure?
    Ms. LEE. That is part of it, Mr. Chairman. When there is a real need, if an individual or family can stay in their house based on 30 days of assistance while they go through foreclosure counseling and restructure their loan or whatever is necessary, then I think we should be able to provide something to tide them over for those 30 days or 60 days.
    Chairman NEY. I do not want to mislead you at all. The scope of this bill, and I will work with you on this and I will be glad to talk to you later about that other issue, but the scope of this bill is counseling. I do not know if we could place into here something that directly funds, I am not saying it is not a good issue, but I do not know if it will fit in the counseling bill. I did not want to mislead you.
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    Ms. LEE. No, Mr. Chairman. I understand that. I just would like to work with you on it. I know under section six we do talk about the preliminary report that should be submitted to Congress on the root causes of default and foreclosure of home loans. So because this provision with regard to foreclosure is in there, I would like to see if there is any way we can figure that out under that section.
    Chairman NEY. Again, I do not think probably in this bill we will be able to go beyond counseling. I do not think we will be able to get into the direct grants, although it is an issue I would like to talk to you about. I think it is something important.
    Ms. LEE. Yes. Last year, we discussed this during the markup of the American Dream Homeownership bill, and I think that is a very important issue concept that this committee needs to address, because we could save a lot of homes and a lot of families from being thrown out as a result of a 30-day or a bridge kind of assistance.
    Chairman NEY. On the history of this issue, I am trying to recall, has there been a bill or do you have a bill or does anybody have a bill?
    Ms. LEE. We had amendments to the American Dream Down Payment bill that would have provided the framework for this kind of assistance. I would like to talk to you about those amendments and maybe turn that into some form of a bill. We talked about this during committee and said we would do that.
    Chairman NEY. We will talk later then.
    Ms. LEE. Because the point I believe you made at the hearing was that you did not want to tinker with the American Dream Down Payment bill, but most members understood the validity and the necessity to ensure that families stay in their homes. Sometimes it may be necessary just to help them through that 30-day or 60-day period.
    Chairman NEY. That is what actually led us here today, because I did not want on the counseling, I made a commitment on the counseling that I did not want to in fact take the counseling issue into that particular area. That is why I just wanted to clarify. I do not know if this bill would be the appropriate vehicle, because it is counseling, of direct grant assistance for foreclosures, but maybe we ought to look at a piece of legislation, or further discuss the issue. I just did not want to mislead you that when I realized you were talking about direct grants, I do not know if this would be the vehicle for it.
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    Ms. LEE. Okay. No, Mr. Chairman. I understand that. I would just like to look at an appropriate vehicle so we can bring that to the committee because I think the time is now to do that.
    Chairman NEY. Thank you. I appreciate it. Thank you.
    We will move on to Mr. Weicher. Thank you for being here. He is Assistant Secretary for Housing and Federal Housing Commissioner at the United States Department of Housing and Urban Development, HUD, a post he has held since June of 2001. Prior to his appointment to HUD, Mr. Weicher was the Director of Urban Policy studies at the Hudson Institute and a member of the Millennial Housing Commission.
    Welcome, thank you.
    Mr. WEICHER. Thank you, Mr. Chairman and members of the subcommittee. It is a pleasure to testify this morning regarding HUD's housing counseling programs.
    Housing counseling plays a key role in support of the administration's goal to increase homeownership and close the ownership gap between minority and non-minority households. The President's blueprint for the American Dream Partnership establishes a goal of 5.5 million additional minority homeowners by the end of the decade, and specifically recommends educating more people regarding the home buying process to help achieve this goal.
    Counseling funds have doubled in this administration and we have requested a further increase to $45 million for fiscal year 2005. We have gone from $20 million to $40 million already and we think this is part of the President's continued commitment to expanding homeownership opportunities in this country.
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    About half of HUD's housing counseling funds support pre-purchase counseling and homebuyer education. Based on our experience in recent years, we project that the fiscal year 2003 funds will help about 60,000 families become homeowners this year. An additional 140,000 families will continue to work with their counselors so that they will become ready to buy a home during the following year.
    The counseling program also helps to ensure that these new homebuyers remain in their homes. About 20 percent of the housing counseling grant funds support the delivery of post-purchase counseling to help families pay their bills on time, perform basic home maintenance and make their mortgage payments. The fiscal year 2003 funds will help about 135,000 families to stay in their homes.
    The housing counseling programs accounts for more than two-thirds of HUD's direct grants for counseling. There are only two other programs within HUD that directly fund counseling-related activities. The fair housing initiatives program will devote $3.8 million in fiscal year 2004 for education and outreach grants to nonprofits and the resident opportunities for self-sufficiency program will provide $13.2 million in grants for life skills training, including financial literacy.
    In addition, funds from a number of other programs may be used to pay for counseling services, including HOME, CDBG, HOPE VI, Self-Help Homeownership, the SHOP program, and special needs assistance grants for the homeless. The decision to allocate any of those funds for counseling, however, is up to the grantees.
    I would like to describe some aspects of the program. To participate, an organization must first be approved by HUD as a housing counseling agency. Approval involves meeting various requirements relating to experience and capacity, including nonprofit status, a minimum of 1 year of housing counseling experience in the community, and sufficient resources to implement a housing counseling plan. We maintain a list of HUD-approved housing counseling agencies so that individuals and families in need of assistance can easily access the nearest HUD-approved housing counseling agency through HUD's Web site or through our automated 1-800 hotline.
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    Currently, there are almost 1,700 HUD-approved housing counseling agencies, including over 600 local housing counseling agencies, with another 600 branch offices, and almost 500 affiliates and branches of national and regional intermediaries. The national and regional intermediaries provide and manage sub-grants to networks of affiliated local housing counseling agencies and they also provide training and technical assistance. In addition, 16 state housing finance agencies provide counseling services with HUD housing counseling grant funds.
    Every 2 years, HUD performs an on-site review of every HUD-approved housing counseling agency to ensure that their performance is consistent with their housing counseling plan and that they are in compliance with program requirements. Reviewers may provide technical assistance based on their findings and results of the review are factored into grant application scores.
    For the past 3 years, HUD has given the AARP Foundation significant funding to develop training and quality control measures for congressionally mandated counseling related to home equity conversion mortgages. The money has supported development of a network of specially trained counselors who are employees of local HUD-approved nonprofit agencies. Based in part on this successful partnership, HUD will soon publish an $8 million housing counseling training notice of funding availability to train counselors, produce training and educational materials on a broad array of housing counseling topics.
    Also, we are in the process of procuring an Internet-based client management software system that is designed to improve the analysis of a client's financial situation and readiness for home purchase, and also improve the collection of program-related activity data.
    Finally, a draft housing counseling regulation is making its way through HUD's clearance process. This will be the first set of regulations for the housing counseling program. I hope that this overview of our counseling program clearly demonstrates the department's commitment to the program and to the delivery of high quality counseling services across the nation.
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    This concludes my statement, Mr. Chairman. Thank you again for the opportunity to meet with you today to discuss this important program.
    [The prepared statement of Hon. John C. Weicher can be found on page 11 in the appendix.]
    Chairman NEY. I want to thank the gentleman for his testimony and move to questions.
    Ms. Velazquez?
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Mr. Weicher, as you know, there has been discussion of creating a mortgage software system to be used to supplement housing counseling services. It has been suggested that HUD could use resources from the working capital fund for such an activity. Could you please clarify whether or not the funding for HUD's working capital fund could be used for the creation of a mortgage software system?
    Mr. WEICHER. Ms. Velazquez, very simply, yes it can, and further, we are in the process of doing that. We are in the process of acquiring a client management system. I alluded to this a bit in my statement. We are very excited by this opportunity. We think this will enable us to track the performance of individual counseling agencies more precisely than we can now, and we think it will also enable us to track the outcomes of individual families who receive housing counseling far more precisely than we can now.
    We are very excited by this and we hope to complete that procurement as expeditiously as we can. As you know, the continuing resolutions that we have had in each of the last 2 years have complicated, for us in particular, IT procurement. Things have gone more slowly than we would like.
    Ms. VELAZQUEZ. Thank you. It is my understanding that current HUD guidelines prevent local nonprofits from combining community development block grant funding and housing counseling funding for housing counseling activities. HUD considers this double-dipping. While this requirement is to prevent organizations from getting paid twice for providing the same service, it severely limits funding sources for local housing counseling agencies. It is also my understanding that CDBG requires rigorous reporting standards to prevent the misuse of federal funds, and therefore the double-dipping guideline is unnecessary. It has been brought to my attention that this issue has been raised to HUD by housing counseling organizations. Can you please explain HUD's thoughts on this issue and how the agency plans on addressing these concerns?
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    Mr. WEICHER. Certainly, Ms. Velazquez. I think there may be some confusion about our position on this issue. We certainly encourage agencies to seek out and use as many sources of funding as possible. We do not provide all of the funding for any of the agencies which we fund. They have to use other sources besides ours.
    However, the issue becomes that funds from two different sources cannot be used to pay for the same service to the same client. And that is a government-wide policy. It is not simply a HUD policy. It is a policy of the federal government. You cannot pay twice for the same service to the same client. I know that from the standpoint of an individual counseling agency this may be a complication in terms of record keeping, but it is a government-wide requirement. It is not simply a HUD requirement.
    Ms. VELAZQUEZ. So if we want to change that, then we will have to do it through legislation.
    Mr. WEICHER. I believe you will, Ms. Velazquez. It is not something we at the department can change.
    Ms. VELAZQUEZ. Okay. Thank you.
    As you are aware, it has been proposed that housing counseling services should be consolidated under one roof. The intent would be to create a more efficient system that better meets the needs of counseling organizations and the families that benefit from those services. Can you please comment on what your views are of the benefits in consolidating housing counseling services at HUD?
    Mr. WEICHER. Let me start by saying that in each of the last three budgets, we have requested a separate account for housing counseling funding. As you know, the housing counseling program which I administer is in fact funded as a set-aside in the HOME block grant. The funds are transferred from that block grant to my office for purposes of awarding the funds and managing the program.
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    We felt all along that housing counseling should have a more elevated position in policymaking. We do have some concerns with the proposal, and Assistant Secretary Roy Bernardi for Community Planning and Development, and I have both testified on this subject previously. We both have expressed concerns that we think a shift in the program operations of this sort would disrupt the service delivery for some period of time. We think it would well be counterproductive.
    We have ourselves revised the standards and performance measures relating to the 1,700 HUD-approved counseling agencies that participate in our program. We do not think there is a reason for another office to assume these responsibilities and begin to operate them. We think it is easier and quicker for us to continue to manage our program, and we as I said are over two-thirds of the total direct grants for housing counseling in the department. There are small programs in Fair Housing and in Public and Indian housing for specific clients, for specific purposes. We think they work well enough separately.
    Ms. VELAZQUEZ. Mr. Weicher, I have a list here of all the housing counseling programs that I want to make part of the record. Do you think that this is more manageable and that it would allow for you to provide better assistance to those counseling services organizations in our districts?
    Mr. WEICHER. Yes, because there are only three counseling programs which directly fund counseling, and our program is 70 percent of it. All the other programs on that list, counseling is an optional use of funding at the discretion of the grantee. That is true for CDBG; that is true for HOME; that is true for the Indian housing block grant. It is all at the discretion of the grantee. In some cases in addition, there is a requirement in a program that someone receive counseling, but there is not a requirement that the counseling be provided with HUD funds.
    We have a requirement that any borrower receiving a home equity conversion mortgage should receive counseling before obtaining that mortgage, but we do not make direct grants for that purpose. We leave that to the lender and the buyer to obtain the counseling. It comes down to three programs, and our program is over two-thirds of the total.
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    Ms. VELAZQUEZ. The foreclosure rate is getting worse, not better, in our communities. It seems something is not working.
    Thank you, Mr. Chairman.
    Chairman NEY. Your time has expired.
    Mr. Miller?
    Mr. MILLER OF CALIFORNIA. Thank you, Mr. Chairman.
    Whenever I look at legislation, I say how can anybody in the private sector be held liable in court by mistake and oversight on our part. Under the Section 8 updating and simplification of mortgage information booklet, you put out a book on RESPA currently, correct?
    Mr. WEICHER. We put out a special information booklet which is to be distributed to any——
    Mr. MILLER OF CALIFORNIA. Is that given to everybody who wants to buy a house, they are given a copy of the booklet in the process?
    Mr. WEICHER. They are supposed to receive that, yes. We do not ourselves distribute that booklet, but it is supposed to be provided by the lender.
    Mr. MILLER OF CALIFORNIA. The concern I have, in my community probably 12 years ago when my son was in elementary school, they spoke 37 different dialects. Among those dialects there were basic differences in cultural backgrounds even. This section talks about preparing a booklet to help consumers applying for federally related mortgage loans to understand the nature and cost of real estate settlement services. It says they have to be accessible to homebuyers of different ethnic and cultural backgrounds.
    Now, we can talk about that here and we might think that is very simple. In California, in reality it could be very difficult and complex to do this. How is this information to be distributed once HUD prepares it?
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    Mr. WEICHER. The information is distributed by the lender. It is to be provided by the lender, by the loan originator, by the broker at the time that the borrower obtains the mortgage. It is intended to be useful to the borrower.
    Mr. MILLER OF CALIFORNIA. To a borrower in RESPA, if they do not, what liability do they face for that?
    Mr. WEICHER. I cannot tell you what the specific liability is for failure to provide a booklet. I can certainly provide that for the record, but I cannot tell you what the penalty is on that particular matter.
    Mr. MILLER OF CALIFORNIA. Mr. Chairman, I would strongly suggest that we try to get an answer to that question and define in this bill clearly that we are not intending to propose a significant impact upon an unintentional mortgage broker or a lender who might not necessarily have the proper information to deal with different ethnic and cultural backgrounds. A lot of people I know specifically in the Muslim community, for example, and in that community even though the dialect is similar, the cultural backgrounds and beliefs are completely different. What is acceptable in one is not acceptable in another. I know certain Muslims, the women are not allowed to shake your hand, because I am heathen, basically. That is the rule.
    So this concerns me because I think we are making an effort to do something good, but can we accomplish this and create legal roadblocks for the private sector down the road. I would like to see, at least consider it, I do not know if we can do it here, but consider trying to come up with something to add to this what the intent is and not create a tort issue out there that in the future some attorney is just going to try to make a fortune off some little guy who went out there and tried to help a person get a loan and did not give him or her the proper information based on this legislation.
    Chairman NEY. One comment, I would like to take credit for this, but our counsel, Clinton Jones, actually slipped the idea here to me. If you are going in to deal with a broker or anybody that is dealing with this issue, I do not know if HUD does this now, they all have the computers. Can't this be put on the Web in all languages, you know, Creole, Farsi, Spanish, you name it? It could be put on the Web and then you click it and it prints off and you print one of 50 languages. Is that done now? Do you have things on the Web?
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    Mr. WEICHER. We have many things translated into Spanish, in particular, and many of them on the Web. I know that in the previous administration there was an attempt to translate some basic material into a number of languages, which proved out in a couple of cases to be badly translated. The department recognizes that if you are going to provide information in other languages, you have to be very careful about the quality of the translation.
    Mr. MILLER OF CALIFORNIA. Perhaps we need to also consider in there that if we had that available on the Web, that it is to be supplied to the buyer in what the buyer perceives to be the most appropriate form available. That way the mortgage broker is not responsible if the mortgage broker shows the buyer a list of different languages and information that would be applicable, the buyer has the opportunity to pick one that he or she deems most appropriate for their needs. That way, we remove the liability from the middleman.
    Chairman NEY. We will explore the issue because it depends on which area of the country you are in. Florida has Creole.
    Mr. MILLER OF CALIFORNIA. I agree. I would appreciate some consideration of that area.
    Thank you.
    Chairman NEY. On to Mr. Scott.
    Mr. SCOTT. Thank you very much, Mr. Chairman.
    Secretary Weicher, can you tell the committee how many home education programs currently exist in HUD and how currently they are coordinated?
    Mr. WEICHER. We have three housing counseling programs. Our housing counseling grants provided by the Office of Housing, which we provide grants to over 400 agencies a year, and they total about $38 million this year. There are only two other programs. There is a $3.8 million program for fair housing initiatives counseling operated by the Office of Fair Housing and Equal Opportunity. There is a $13.2 million program, resident opportunities for self-sufficiency operated by the Office of Public and Indian Housing for residents of public housing. Those other two programs are both small, targeted to specific clienteles for specific purposes. Our program is the only general housing counseling direct grant program in the department.
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    There are a number of other programs where funds can be used for counseling, but they are to be used at the discretion of the grantee. In the cases of CDBG, they are to be used at the discretion of the city or county that receives the funds. That is also true in the case of HOME. Funds are available in the Indian housing block grant and can be used in the Indian housing block grant for that purpose. But funds do not have to be used for that purpose in any of those programs. It is at the discretion of the grantee. So the Office of Housing provides over 70 percent of the funds for housing counseling that the department provides in the form of direct grants, and we operate the only broad national housing counseling grant program in the department.
    Mr. SCOTT. So we are setting up in this legislation a new Office of Housing. How will that help you coordinate these programs?
    Mr. WEICHER. As I was saying, it is not clear either to me or to my colleague, Assistant Secretary Roy Bernardi, that a new office is necessary for the management of our counseling grant program. We have only the one broad program which I now manage, and we have the two smaller grant programs which are managed in separate offices because they have separate purposes. These programs all run effectively, and we think that the transitional costs of combining management of all three programs into one office is not really likely to yield substantial benefits and is likely to have costs during the period of transition.
    Mr. SCOTT. Okay. Let's look at section three and section four here which I think are the heart of this legislation, the counseling procedures and the money. Let's take one of these, and work with me here on how you see this working in this new department. Let's look at the toll-free number and the Web site. Let's see how we tie that to the granting at the local level and then secondly, is $45 million sufficient to do some of this.
    I happen to believe that one of the most critical needs in dealing with this whole issue for our constituency is beating the predatory lenders to the punch and giving our folks out there some help. So we have this 1-800 number. It is coming to you. How do you envision this new office handling this 1-800 number?
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    Mr. WEICHER. We have a 1-800 number now, as well as a Web site, and the number is 1-800-569-4287. A caller who uses that number is prompted to enter a zip code, select the type of counseling service needed from a menu, and the system will provide the caller with the names and the phone numbers of three agencies that offer these services that the caller wants in the caller's area.
    On the Web site, we provide a list of all of the HUD-approved housing counseling agencies, categorized by state, then categorized by city in alphabetical order, listed by name. The Web site has the name of the organization, the address, the phone number and the types of counseling services provided.
    Mr. SCOTT. Mr. Weicher, could I ask you one question.
    Mr. WEICHER. Certainly, Mr. Scott.
    Mr. SCOTT. If it is clear that the people who need the help the most are elderly, one of the very reasons why they are so vulnerable and why we have this problem is that they do not have the sophistication. Don't you think it would be helpful if we had a 1-800 number and that we targeted this 1-800 number using some of these grants to get that number targeted to these elderly folks who simply want to be able to dial the phone number and get a human being, get somebody on the phone that they could talk to. Don't you think that would be helpful? I mean, if they call a 1-800 number and they get a recording, they get a lot of confusion, and they get a Web site, we are dealing with people who we want to help the most, but people that if we get this 1-800 number to them, we want to get them to talk to a human being. What is it going to take for us to get that?
    Mr. WEICHER. I think that the 1-800 number that we have now tells you what counseling agencies are available in your neighborhood, in your community. I think that information can be provided either on an automated basis or by an individual answering the phone, but I think that over the phone that really is about all the information that can be provided by a single 1-800 number. An elderly person calling and asking for help on a home equity conversion mortgage or a problem with a predatory loan will obtain from the 800 number or from the Web site the names, addresses and phone numbers of organizations which can provide help to them on their specific concerns. We believe that works reasonably well. We do think that process works.
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    We yield to no one in our opposition to predatory lending. I testified before Senator Craig in the Senate Committee on Aging about 6 weeks ago on the activities that we have taken at FHA to combat predatory lending in our FHA insurance program, which is the only place that HUD has direct authority to combat predatory lending. We have been aggressively pursuing that with literally half a dozen rules which we have put out as final rules in this administration and we continue to work on that problem.
    Chairman NEY. If I could, the time has expired and I have no problem coming back, but I think Mr. Renzi has a commitment, so if we can get him into the questioning, and then we will come back.
    Mr. Renzi?
    Mr. RENZI. Thank you, Mr. Chairman.
    I represent a district where actually I actually represent more Native Americans than anyone else in Congress that has one single district that is not a whole state. While I am not in favor of growing government, I would applaud Mr. Scott's comments. I do not care if you have to add 100 people in this new office, if it takes that to reach out to particularly Native Americans who are the lowest of all minorities in the country as far as homeownership goes.
    In the Indian housing block grant program you have the ability on an optional basis to spend money for counseling. Can you help me understand that optional basis, please?
    Mr. WEICHER. I am not an expert on the Indian housing block grant. It is managed by my colleague, Assistant Secretary Mike Liu, the Office of Public and Indian Housing. I do know that counseling is an eligible activity in that program as it is in our other block grant programs. It is an eligible activity at the discretion of the grantee. I do not know to what extent the recipients of that block grant choose, the tribes choose to devote funds to counseling. We may be able to provide you with that information for the record, but I do not know that myself.
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    Mr. RENZI. One of the things that I commend Mrs. Velazquez for teaching me when I first came on this committee was, many times first generation Americans trying to go to college and have their sons and daughters enter into the university system, the first impediment they meet is the application process. Of course, that is the same that we are seeing here as it relates to housing. For the first time, generations and generations of Native Americans who live on sovereign land do not even have the concept of a modular home. So they are having to break through cultural barriers in order to embrace the benefits that homeownership have that we have all seen.
    In the area of funding and the formula as it relates to Indian housing block grants, and again this is not so much counseling, but I have you in the door and since we opened it up, you know we are going through a tough time here as far as what kind of funding and everything, that housing will take in the block grant program. Many times, those monies are spent, are allocated to individuals in the census who check that they are Native American in their blood. They might live in Chicago, but because they checked the box that they are Native American, those monies that are specifically intended towards tribes or sovereign lands are then diverted into even inner-city areas.
    While I do not want to be a person who impedes their ability to get monies, there has got to be a focus as to how much money is being diverted away from the tribes, and the monies that are really needed on the reservation. The conditions on the Navajo Nation's 18 million acres are absolutely deplorable. You do not have to go to Africa. You do not have to go to the third world countries to see poverty like we have on the reservation.
    So I would just, since I had you in front of me today, I wanted to take the time to ask you to look at that. In my final couple of seconds here, could you just go ahead and expand upon any kind of HUD programs or any kind of counseling programs that you see that are going to really help Native Americans? Thank you.
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    Mr. WEICHER. Let me say, Mr. Renzi, that I am not an expert on Indian housing and I do not manage the Indian housing programs at all. I certainly do not manage the Indian housing block grant. I do know that my colleague, Assistant Secretary Liu, spends a great deal of time addressing the Indian housing issues, and indeed has been much involved personally in the development of the formula for allocating funds under the Indian housing block grant. I know he spent a lot of time on that earlier this calendar year.
    What I can certainly do is express your concerns to him and I will certainly do that. I cannot tell you how that block grant program works. I cannot tell you of my own knowledge. We can certainly provide information for you for the record from the department. I can do that.
    Chairman NEY. Thank you.
    The gentlelady from California, Ms. Lee?
    Ms. LEE. Thank you, Mr. Chairman.
    First, thank you, Mr. Secretary, for being here. Let me just ask you a couple of questions about the current housing program, given the fact that we have such a high rate of foreclosures and of course cases of predatory lending. How effective are these existing housing counseling programs?
    Mr. WEICHER. We think they are effective. We track performance of clients in various kinds of programs in a number of ways. I can provide you with very detailed information for the record, but I can say, for instance, that the agencies which we have funded have provided help to clients who are trying to avoid a mortgage delinquency or resolve a delinquency without going to foreclosure. The HUD funds that we have provided have been successfully used to avoid foreclosure in 90 percent of the cases, here I am using data based on fiscal year 2002, in 90 percent of the cases where there has been a conclusion to the person's concern, foreclosure has been avoided.
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    Here we are dealing with people who are at serious risk of foreclosure. To start, there are a lot of families for whom we do not know at the end of the year whether they have successfully avoided foreclosure. The jury is still out. We do not know the end of the situation.
    Ms. LEE. So you have not done any national studies?
    Mr. WEICHER. Yes, we have tabulations of outcomes in a number of aspects, and this I think is a good indication of the effective use of our funds. It is also I think a good indication of the effectiveness of the housing counseling agencies who receive our funds and use our funds and other funds as well, to provide help. I think the funds are used effectively for the important purposes of keeping people in their homes and helping people buy homes.
    Ms. LEE. So you have the raw data, but you do not have the compilation of this data into any studies that would show us how effective these programs are?
    Mr. WEICHER. I can provide you with the tabulations. There are a number of studies which have been done. Two economists at Freddie Mac did a study 3 years ago looking at Freddie Mac's data and measuring the effectiveness of counseling. There is a study done by The Ohio State University where I used to teach, not done by me, but done by The Ohio State University which shows the same pattern. I do not think there is any question about the effectiveness of housing counseling. We track it in our own program, in the FHA programs as well, and we know that counseling is effective in preventing foreclosure.
    It is on the basis of that research that the administration made the decision to ask Congress for additional funding for counseling. We started with a $20 million appropriation at the beginning of this administration. We have gone to $40 million with Congress acting favorably on our request, and we are now asking to go to $45 million.
    Ms. LEE. Okay. Given the number of assistance programs that you have, what do you think the impact would be if all of these counseling assistance programs were under one umbrella or were consolidated, streamlined, and that office, for example, takes responsible for really executing and maintaining these programs?
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    Mr. WEICHER. There is only one direct grant program that provides housing counseling and that is the program I administer. That provides over two-thirds of the funding that the department has for housing counseling. There are only two other direct grant programs in the department. They are both much smaller and they both have very specific purposes. One is the Fair Housing Initiative grants for fair housing counseling, and one is the Resident Opportunities Self-Sufficiency Program for residents of public and Indian housing. One is managed by the Office of Fair Housing, the other by Public and Indian Housing. They are both small and they both have very specific purposes.
    The list that I know CRS has provided is largely a list of programs in which funds may be used for counseling at the discretion of the grantee. Unless you change those programs, unless you change CDBG or the Native American housing block grants, the decision to spend money on counseling rests with the grantee.
    Ms. LEE. I see. May I just quickly have an additional 30 seconds, Mr. Chairman?
    I just wanted to ask you about creating more affordable housing in terms of the housing production initiative, given the mission of HUD in terms of its goal to provide more affordable housing for everyone. How do you see the establishment of a national housing trust fund? We have had the bill here in committee. We have talked about it. We have support throughout the country, but somehow it just goes away. I am just wondering what your thoughts are on that.
    Mr. WEICHER. I have seen a number of proposals to use the reserves, the net worth of the FHA mutual mortgage insurance fund for a national housing trust, and those funds are the reserves that we use to pay claims when we have foreclosures. We certainly do not believe that the funds that FHA has collected from moderate income home buyers as part of a mutual mortgage insurance fund should be used for other purposes.
    Ms. LEE. About how much is in the reserves now? Do you know?
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    Mr. WEICHER. The reserves are about $22 billion.
    Ms. LEE. $22 billion?
    Mr. WEICHER. At this point, yes.
    Ms. LEE. So just taking maybe $2 billion a year to create more affordable housing would impact this fund?
    Mr. WEICHER. Yes. Those reserves are to pay the costs of defaults, the cost of foreclosures. We have built them up through effective management of the program and we do our very best to minimize foreclosures and minimize losses on the foreclosures, but these are the reserves.
    Ms. LEE. No, I understand that, but I am just saying on the reserves, if we took $3 billion, $5 billion, left the reserve fund at $15 billion, that would create a major impact in the ability to use the reserves in the way——
    Mr. WEICHER. It would put the fund at some risk that we do not believe that there is any purpose in putting the fund at that risk.
    Ms. VELAZQUEZ. Would the gentlelady yield for a second?
    Ms. LEE. May I yield, Mr. Chairman?
    Chairman NEY. Ms. Lee, the time has expired.
    Ms. VELAZQUEZ. Just a quick question. Sir, out of the $20 billion reserve, what is the default rate?
    Mr. WEICHER. The default rate is not measured against the reserve. For a given book of business, we expect to have about 8 percent of the loans, the book of business being the loans underwritten in one year, we expect to have about an 8 percent claim rate over the life of that book of business, and we expect most of those claims to occur between about the third year and the fifth year after the loan is originated. After that, people have equity in the home and they are well established and they know how to do it.
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    So we believe that the funds that we have are appropriately maintained for the MMI fund and we do not really see the public policy advantage of taxing moderate income first-time home buyers for the provision of housing for other people through charging premiums on the MMI fund.
    Chairman NEY. The time has expired.
    I want to note, the default rate is 12 percent?
    Mr. WEICHER. I am referring to the FHA. Over the life of a book of business, the loans we underwrite in any year, over the life of that book of business those loans will default, about 8 percent of those loans will default, and most of them will default in the first 5 years.
    Chairman NEY. There was an article in the New York Times and the Journal of 12 percent. So you are all saying 8 percent.
    Mr. WEICHER. The New York Times was talking, what is commonly looked at is the default rate right now, and the default rate is higher during economic downturns, and the default rate tends to peak after the economy has turned up because people do their best to hang onto their homes when they become unemployed, so they avoid losing their home as long as possible. Typically, that means that some of the people who do not run out of resources after the economy as a whole has turned up, but their own position remains negative. We have seen this in every economic cycle back for 30 years.
    Chairman NEY. I think it is 12 percent, but I will move on to Mr. Clay.
    Mr. WEICHER. But not in our program.
    Mr. CLAY. Thank you, Mr. Chairman, for allowing me to claim my time. I appreciate that.
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    Chairman NEY. We appreciate your patience.
    Mr. CLAY. Let me follow the same line of questioning of Ms. Velazquez and Ms. Lee. You know, Mr. Secretary, when people sign paperwork on predatory loans, they often do not understand what they are signing. Does your counseling program provide legal assistance to homeowners that enter into predatory loans? I would think that should be a point of any comprehensive counseling that your department provides.
    Mr. WEICHER. Yes, we do. The counseling agency may provide legal assistance directly or may refer the borrower to legal aid or to an organization which specializes in legal assistance, but that is one thing that happens for those borrowers who appear to be victims of predatory lending. Yes, that happens.
    Mr. CLAY. Okay, so if we change that setup and you go to a software program instead of a one-on-one session with a trained housing counselor who can really review the paperwork and figure out if there are alternatives available to those people seeking counseling, how does that help this situation?
    Mr. WEICHER. That is not what we are doing. The software program that Ms. Velazquez asked about is a software program which enables us to track the performance of housing counseling agencies and the experience of their clients much more specifically, much more directly than we are able to do now. It relates to Ms. Lee's question about what kind of data we have and what the data shows. We are not proposing to replace any one-on-one counseling with a software program. The software program is an information tool for us and for the agencies that receive our funds. It is not a software counseling program.
    Mr. CLAY. Does that mean that when someone calls, will they speak to a person or speak to a machine? That can be frustrating, I know.
    Mr. WEICHER. Our 1-800 number is intended to direct you to a counseling agency. The counseling agency that provides you with help is providing you help through one-on-one counseling or perhaps through group counseling, but the counseling is being provided by human beings.
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    Mr. CLAY. Okay. Along the same lines that others have asked you today, help me and describe the effectiveness of the post-homeownership counseling. Has your department been able to stave off foreclosures and keep families in homes? Along with that, should local communities that receive the grants and CDBG funds be required to provide counseling? You stated earlier that it was discretionary. Being from St. Louis, Missouri, I realize how local communities can abuse the CDBG funds. It happens every day in my community, where they go for unintended purposes. So should that be part of any law, that we require these local communities who receive these grants to provide the counseling necessary?
    Mr. WEICHER. I think there are two questions there. Let me take them in the order in which you asked them.
    We know that of those counseling clients who come to our counseling agencies and are trying to avoid losing their home, we know that 90 percent of them are successful in keeping their home. I think that is a good performance. With respect to requiring counseling in the CDBG, the rationale behind the CDBG program for the 30 years since it was enacted has been that the decision on how to use the funds should be left to the local government, the county, the city, the rural community that receives funds through the state CDBG portion. It becomes up to them to decide which purpose of the purposes of the funds are the most important to them.
    If you have abuses of funds, that becomes an issue for the HUD office of inspector general and perhaps the Justice Department, but it has not been our view and I do not think it has been a very popular view that CDBGs should be earmarked for specific purposes, rather than being left at the discretion of the local government to decide what is the most important local purpose.
    Mr. CLAY. You find local governments abusing funds every year.
    Mr. WEICHER. I am sure that is true. I think the abuses should be considered separately from the question of how the program is organized. There are abuses in categorical grant programs as well. It is in all of our interests to combat those abuses.
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    Mr. CLAY. You have broad guidelines now in CDBG funding, so to make this a requirement you would see it to be problematic?
    Mr. WEICHER. I think I would like to defer to Assistant Secretary Bernardi who runs the program, but certainly our view has been that the program, and the view of I think all previous administrations has been that the program is intended to provide funding for local governments to make local decisions as to what they need. It came after a very unhappy experience with a number of categorical programs, most notably urban renewal.
    Mr. CLAY. Okay. That is a subject for another hearing, but I thank you for your answers.
    Chairman NEY. Would you like some extra time, Mr. Clay?
    I feel bad. That is why I am offering it. We will have some other rounds here. I have one quick one and I will yield to any question you have.
    The one I wanted to ask about is, you were talking about the success of the pre-purchase housing counseling. Do you collect data on that, the number of people who were counseled and it was a successful situation for them?
    Mr. WEICHER. Yes, we do, Mr. Chairman. We can certainly provide that information to you for the record. As I said, I think to Ms. Lee, we have a very detailed tabulation. Of the families who received pre-purchase counseling last year, we count 150,000 families, of whom 30,000 bought a home; 70,000 are continuing the process of counseling with the clear expectation that they will be buying a home this year; and 10,000 decided not to buy a home, which is fine, too. It is one way of avoiding making a mistake. As a result of the counseling, they decided that they really were not ready to buy a home or this was not what they wanted to do.
    So a large number of families who received homeownership counseling either buy a home or are about to buy a home. The data stops at the end of that fiscal year. We think it is a successful program.
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    Chairman NEY. What I will do, because we have two more panels, and Mr. Davis has yet to ask a question, I will just put some things in writing to you. I want to look at ways how we measure the effectiveness of the programs we have and the counseling.
    Mr. WEICHER. I would be glad to respond.
    Chairman NEY. Thank you.
    Mr. Davis?
    Mr. DAVIS. Thank you, Mr. Chairman. I appreciate the Chair letting me sit here. I was not sure which would upset Ms. Waters more, seeing me on the Republican side or in her seat.
    Chairman NEY. We could talk about sitting you over there if you would like to.
    Mr. DAVIS. At least we would get a roll call tomorrow.
    Let me, Mr. Weicher, pick up the spirit of the last round of questions you have been asked about predatory lending. One of the things that is always very striking to me is that obviously we would expect to find a fairly active sub-prime market in low-income communities. I suppose that is the purpose of the sub-prime market. One of the things that is really striking to me, though, is that as I understand the statistics, the incidence of sub-prime lending is double in affluent black communities what it is in low-income white communities. That, I think, is a significant thing that we ought to very much try to get a handle on. I hope that your program is able to address some of those disparities.
    Let me ask you, what can your counseling program do to proactively seek out upper-income black homeowners who for whatever reasons are still being steered into the sub-prime market? Do you recognize that as a problem and what does your program do to specifically get at that concern?
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    Mr. WEICHER. Mr. Davis, I believe that next week I will be testifying in front of this subcommittee on two program initiatives that we and FHA have in this year's budget to create more opportunities, particularly for minority families, to buy homes with FHA-insured mortgages, and also for families which now own homes which have sub-prime loans, to refinance into FHA mortgages. We think both of those initiatives will go far toward addressing the concern that you raise. This is we think an important program initiative, and I very much hope you will be here next week, on either side of the aisle.
    Mr. DAVIS. I will be on this side of the aisle.
    Let me try to ask a slightly more pointed question than that. How do you structure a counseling program to not just reach people who are low income and who recognize that they have problems buying a home? That is an obvious target group for you to reach. I am sure there are fairly easy ways to reach them. How do you take it a step further, though, to proactively reach what may be affluent, but discriminated-against homeowners who may be African American or Latino, Puerto Rican? How do you go about telling them about the sub-prime market and the potential abuses in the sub-prime market? Is there anything in this counseling program that can really aggressively reach out to target not just your easy group of people to reach, the low income, but maybe some of your higher income individuals who still may be affected?
    Mr. WEICHER. I am not quite sure I would agree that it is easier to reach low-income people than it is high-income people, but setting that aside, there are two things here. Our program is intended to serve anyone who wants to buy a home. Our counseling agencies are prepared to help anyone who wants help. When we get into concerns about discrimination, that is where the program that I mentioned, one of the other two grant programs in the department, the Fair Housing Initiatives counseling program, comes into play as well. If there is a case of discrimination, that is something that they are prepared to help with.
    I can provide you for the record with the income levels of the individuals who we have helped last year. I cannot tell you what that looks like right now.
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    Mr. DAVIS. Let me ask you one final set of questions on a different topic. There has been some concern that has been raised around what happens in the context of apartment owners. Can you clarify for me exactly how this program is going to be administered for people who are living in apartments?
    Mr. WEICHER. About 20 percent of the funds that we have for counseling are in fact used to provide rental counseling; provide counseling to individuals who either have problems where they are renting or are looking for help and advise in how to rent and what to look for.
    Mr. DAVIS. Who does the counseling?
    Mr. WEICHER. It is the same agencies. It is the same set of agencies. Some agencies will specialize more in homeownership counseling; some will specialize more in rental counseling; some will do both. But we make grants to agencies which are providing counseling assistance, housing counseling assistance, which may be homeownership counseling, buying a home, maybe keeping a home; maybe renting a home. We provide funding and our agencies provide assistance to people with any of those problems, and indeed there is homeless counseling in there as well.
    Mr. DAVIS. Okay. Mr. Chairman, I think my time has expired.
    Chairman NEY. Thank you.
    Ms. Velazquez and then Mr. Scott.
    Ms. VELAZQUEZ. Mr. Weicher, according to the U.S. Census Bureau statistical abstract the number of homes in foreclosure in the year 1980 was 114,000, while the number of homes in foreclosure in the year 2001 was 555,000. This is an increase of over 250 percent. Yet even this statistic masks the more dramatic increases in foreclosures in some neighborhoods; cities such as Philadelphia and Chicago, where the foreclosures have tripled in recent years, and in New York it is twice the national average. Are those numbers alarming to you? What do you have to say to those 555,000 people who lost their homes?
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    Mr. WEICHER. I think with respect to the comparison over time, in 1980 we had experienced a long period of inflation which had resulted in substantial increases in house prices and made it for those people who owned homes much easier to avoid foreclosure. We have a significantly higher homeownership rate now than we had in 1980, and that means that we can expect there will be some more foreclosures for that reason as well. In 2001, we were in the recession that started at the end of 1980, and we will have higher foreclosure rates in a recession than we have in a period of good economic experience.
    That being said, we certainly are not happy when people lose their homes. We have a very active loss mitigation program in FHA where we require lenders to offer loss mitigation to families who are at risk of losing their homes. In the last 2 years, we have had as many families in loss mitigation as we have had foreclosures. Of those families who have loss mitigation, more than half of them have brought themselves current on their loan and avoided foreclosure within a year. That is an extremely important activity and it is something we are continuing. We monitor that. We monitor the performance of our lenders both in offering loss mitigation and in avoiding foreclosure.
    Ms. VELAZQUEZ. Given the high percentage of foreclosure, are you contemplating putting more funding into the prevention of foreclosure?
    Mr. WEICHER. This is something that is addressed in the notice of funds availability. We want a balance between promoting homeownership, preventing foreclosure, providing rental counseling, and to some extent that is at the discretion of the counseling agencies, which know what their clients, what their communities need. To some extent, it is based on guidance that we will provide as well.
    Certainly we believe in promoting homeownership, and we also know that it does not do anybody any good to put them in a home which they are going to lose in a couple of years through no fault of their own.
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    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Chairman NEY. Any other questions?
    Mr. SCOTT. Two very quick ones here. The first question, I do not want you to leave without answering this. What is your opinion of this legislation before us?
    Mr. WEICHER. As I believe I said earlier, we certainly applaud the purpose of the legislation. We have asked Congress, asked the Appropriations Committee to create a separate account for housing counseling and take it out of the home block grant. We do believe that the program that we have operates well. The program that I operate constitutes the large majority of the housing counseling grants that HUD makes. We do not really see a particular advantage to consolidating the three grant programs that we have into a single agency, since they serve different purposes and have different clienteles. I do know from my own experience that a reorganization within the department takes time and resources, and can be a complication while it is going on. I would be glad to try to explain it more thoroughly if you would like.
    Mr. SCOTT. Well, you are aware of a serious problem that requires our attention, that is going to require us to do more draconian measures to try to get at, to stop much of the abuses that are happening there. It is clear that there needs to be improvement in specific areas. Of course, the reason I asked you that question was, when I asked you the previous question about just one simple application of this new bill that we are pushing, which was the application of the toll-free number, clearly mandates that a toll-free number be established and that it be operated and that it be language-friendly, and that we have these other programs implemented so that it reaches these targeted groups of low-income senior citizens and so forth.
    In other words, this bill goes to the heart of the matter of getting at it. We must have a corresponding attitude within this administration than when help is coming, it needs to have a receptive nature, or else we will be forced to have to deal with more draconian measures of which mortgage bankers, mortgage banks, legitimate operators who are not in these activities, get caught up in this net.
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    So it is my hope that as a result of this hearing, that HUD will go back and understand that this bill is vitally needed; that we need to get programs and outreach out there that target this; and currently what is being done is not getting the job done.
    Mr. WEICHER. Mr. Scott, we are the administration which has requested a doubling of housing counseling funds in the first 3 years and a further increase this year. We know housing counseling is important. We have made a point of requesting Congress and Congress has granted additional funds to support housing counseling. We have asked for a separate account in the budget for housing counseling which we believe would be valuable as well.
    Whatever abuses you are aware of or problems you are aware of in the performance of specific agencies, please let us know. We believe that the agencies are doing a good job. We believe that the funds that are being spent are helping people who need help now. They are helping them to buy homes. They are helping them to avoid foreclosure. They are helping to find and maintain and continue to live in decent rental housing. We think the program works well. It can always be improved, but we believe the program works well. I really would like specific examples of the problems that you allude to and I will address them if it is at all within my authority.
    Mr. SCOTT. Well, they are all over the place. They are in the news daily. We hope that as a result of this hearing that we have taken this opportunity to share with you the need for this, and this is the whole genesis of this counseling bill that we are putting forward. We look forward to working with you on it and receiving it, and making this an integral part of not taking what you are doing, but adding to it and making it a collaborative effort. But clearly and surely, we must get programs directly to these targeted groups, or else failing this, will come more draconian measures that many of the industries will not like.
    So it is my hope that you will be, and HUD will be very receptive to this bill and work with us to get it through, and that you will implement it and follow through with the directives in the legislation.
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    Chairman NEY. Additional questions?
    I want to thank you, Mr. Weicher for your time today.
    Mr. WEICHER. Thank you, Mr. Chairman.
    Chairman NEY. We will move on to panel two if we could. Could I remind you as you speak to please turn the mikes on. We will start with panel two, Mr. Kenneth Wade, executive director, Neighborhood Reinvestment Corporation. We want to welcome you here today. You are the new executive director of the Neighborhood Reinvestment Corporation. The corporation is a national nonprofit organization created by Congress 25 years ago to develop effective systems of public and private sector support for community revitalization efforts. The corporation supports a network of more than 220 locally based affordable housing and community development organizations.
    The next witness will be introduced by Congresswoman Velazquez.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    I would like to take this opportunity to personally welcome and introduce Lisa-Nicolle Grist, the executive director of Neighbors Helping Neighbors, a community-based housing counseling agency in my district. Neighbors Helping Neighbors serves tenants, homebuyers and owners of small properties and small businesses. The agency, which was founded by community residents in 1990, helps tenants retain and improve their homes, succeed in purchasing affordable first homes, and repair their homes and resolve mortgage delinquencies.
    The critical housing counseling Neighbors Helping Neighbors provides, and their leadership, has a huge impact on the families they serve. I appreciate your coming here to share the experiences you and your staff have had working with families in Sunset Park and Park Slope, Brooklyn.
    Thank you and welcome.
    Chairman NEY. We also want to welcome Lautaro Diaz, the deputy vice president for community development of the National Council of La Raza, a national Hispanic advocacy and research organization. La Raza seeks to improve opportunities for Hispanic Americans by supporting and strengthening local Hispanic groups. We want to welcome you.
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    The next witness is Mr. Rodney Jordan, vice chairman of the Norfolk Redevelopment and Housing Authority in Norfolk, Virginia. We want to welcome you also.
    The next witness is Gary Obloy. He is from the great State of Ohio and the greater county of Belmont and the even greater city of St. Clairsville, which happens to be my hometown. So I have known Gary Obloy for a long time. He is executive director of Community Action Commission of Belmont County in St. Clairsville, Ohio. I personally know about the contributions that he has made and the commission and the people that they have helped in our county and its low-income residents, and the more than 25 federal, State and locally funded programs that it manages. So it is a pleasure to have you here today, Gary.
    The last witness will be introduced by Mr. Scott.
    Mr. SCOTT. Thank you very much, Mr. Chairman. We are delighted to have Mr. Chapman Walsh from the Green Forest Community Development Corporation in the great State of Georgia in my district. Mr. Walsh was appointed director of the homeownership program, the Green Forest Community Development Corporation in 1999. Prior to that, he served as the coordinator from 1997 to 1998.
    Just very briefly, Green Forest Community Development Corporation is a private nonprofit faith-based community economic development corporation created by the Green Forest Community Baptist Church of Georgia.
    Good to have you with us. Thank you.
    Chairman NEY. Thank you very much. We will begin with Mr. Wade.
    Mr. WADE. Good morning, Chairman Ney and Representatives Velazquez and Scott. I am pleased to be here today. As was commented earlier, I am the executive director of Neighborhood Reinvestment. I am here today to share our achievements in the housing counseling area.
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    While I am new to the executive director role here at Neighborhood Reinvestment, I have been with the corporation for 13 years, serving in a variety of capacities. Prior to becoming executive director, I was our director of National Programs. In that role, I oversaw our homebuyer education counseling efforts. So I am particularly proud to be here to share with you the accomplishments that we have achieved.
    We are authorized by the House Committee on Financial Services. We thank you for your continued support. NeighborWorks is over 220 community development organizations nationwide providing housing counseling and promoting neighborhood revitalization in 2,500 urban, suburban and rural communities, such as an organization you will hear from a little later today, Neighbors Helping Neighbors. We also work very extensively with HUD as they serve on our board, and we are one of the intermediaries that HUD funds in the housing counseling arena, and we do work with a number of the other panelists that you will hear from today in a number of capacities. Over the last 10 years, the NeighborWorks Campaign for Homeownership has set national standards for pre-purchase homeownership counseling. NeighborWorks has established a 5-day training and certification course for housing counselors. With the committee's support, NeighborWorks has certified more than 3,000 counselors nationwide. And the NeighborWorks network has provided housing counseling to nearly 500,000 families.
    NeighborWorks does this by creating a system that effectively educates low-income customers about the home buying process. This system, known as Full Cycle Lending, includes pre-purchase counseling, flexible loan products, and post-purchase counseling. Essentially, here is how it works. All the potential homebuyers receive a minimum of 8 hours of group counseling with follow-up individual counseling. In addition, NeighborWorks housing counselors are certified by completing a 5-day home buyer education methods class at our national training institute, where they are also required to pass an exam. In addition, NeighborWorks uses the widely endorsed Realizing the American Dream curriculum, which I would like to submit for the record today.
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    Because of these high standards, families across the country from Ohio to Queens, New York to all the communities you represent have received over 4 million hours of counseling in the last 10 years. The demand for housing counseling continues to rise and we plan to significantly increase the number of housing counselors we train and certify. This will reach more underserved communities and ensure effective education and counseling to a vast number of additional families and individuals.
    NeighborWorks housing counseling achievements are even more impressive when you consider that the home buyers directly assisted by the NeighborWorks system are traditionally underserved populations: 51 percent of those home buyers were non-white; 67 percent earned less than their area's median income; and 44 percent were female-headed households. NeighborWorks adheres to strict housing counseling standards that have proven to lower delinquency and default rates. Mortgage delinquency among NeighborWorks customers is lower than for all mortgage loans in the United States. This is amazing when you consider that these borrowers are often viewed by the conventional market as too risky.
    Moreover, only 0.25 percent of NeighborWorks borrowers were foreclosed upon. This is less than the foreclosure rate for conventional borrowers. NeighborWorks borrowers are thoroughly educated about the responsibilities of owning a home and therefore have a stabilizing impact on their communities. This is why NeighborWorks insists on Full Cycle Lending.
    I thank the subcommittee for the opportunity to speak about the housing counseling successes of NeighborWorks. Your support and guidance have been crucial to our effectiveness. We look forward to greater success in the future and we look forward to working with you in any way we can.
    Thank you. I am prepared to answer any questions you might have.
    [The prepared statement of Kenneth D. Wade can be found on page 29 in the appendix.]
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    Chairman NEY. Thank you. We will get to the testimony and then we will come to questioning.
    Mr. Diaz?
    Mr. DIAZ. Thank you, Chairman Ney, Ranking Member Waters and Congresswoman Velazquez and the rest of the members of the subcommittee. My name is Lautaro Diaz. I am NCLR's deputy vice president for community development. I have spent the last 16 years developing and operating community development programs, including small business lending, single-family and multi-family housing development and homeownership programs.
    As the nation's largest national Hispanic constituency-based organization, NCLR serves all Hispanic national groups in all the regions of the country through a network of more than 300 affiliated community-based organizations. We have a long history in the housing industry. We have been producing research, policy analysis and advocacy on affordable housing issues for more than two decades. We partnered with Fannie Mae and First Interstate Bank in the early 1990s to pilot one of the first counseling programs called Home To Own. NCLR has since become a national intermediary designated by HUD to distribute funds to community-based organizations providing housing counseling services.
    NCLR has concluded that housing counseling is a powerful tool that effectively moves low-income families into homeownership. Homeownership is critical to building wealth in the Latino community. However, Latinos are still significantly less likely than other Americans to be homeowners. Hispanic families have unique financial service needs that are not being met by the marketplace. In fact, we estimate that more than one million Hispanic families are mortgage-ready, yet do not own their own homes. There are four key barriers to this, to increasing Latino homeownership: lack of information regarding the process; lack of affordability in many of the mortgage markets around the country; systemic barriers to obtaining a mortgage; and other market failures.
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    This brings me to NCLR's homeownership network, or NHN. The mission and purpose of NHN is to increase Latino homeownership in a manner that does not endanger the family financially. The NHN consists of 35 NCLR affiliates in 15 States that provide bilingual pre-purchase homeownership counseling to low-income families. NCLR counsels over 20,000 families per year and closes approximately 3,000 mortgages with those families. Today, more than 13,500 families have achieved homeownership through NHN agencies.
    The success of the network is based in large part on the NCLR model which focuses on a single goal: increasing the number of Latino homeowners. NHN counselors may spend 6 months to 3 years helping a family prepare for this goal. Once the family is ready to purchase their home, counselors help families evaluate products, navigate the closing process, and help the family package a loan and send it on to the lenders for verification and processing.
    As we all know, the home buying industry is expanding. In the midst of these changes, community-based housing counseling agencies are becoming more critical to the home buying process. They are often the first point of contact for Latino and immigrant families looking for trustworthy information. The counseling agencies play a critical role in filling the market gap that exists for low-income Hispanic families.
    It is imperative that all levels of government recognize the important role the organizations play. It is important that the mortgage industry reward families that receive counseling and recognize the value-added provided by counselors. It is equally important that the regulatory environment does not discourage this role.
    NCLR has forged many sophisticated national partnerships with financial institutions. These partnerships have allowed us to expand our capacity by, first, increasing funding to counseling agencies by leveraging NCLR's HUD grant funds with private mortgage company contributions to NCLR's network. We have been able to develop innovative database technology designed for counseling agencies to increase staff efficiency. They have helped create fee-for-service relationships that will allow agencies to become more self-sufficient.
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    Now let me turn to our recommendations. NCLR applauds H.R. 3938 for promoting the visibility and work of housing counselors. However, NCLR would like to make the following recommendations to improve the bill and advance the counseling field. First, we suggest increased funding. The program has proven its capacity and effectiveness. In order to reproduce this success on a larger scale, increased support is necessary. Second, develop a pilot program with FHA clients. FHA and VA loans have the highest delinquency and foreclosure rates. Proven counseling methods can be used to mitigate the risk for both the homeowner and the taxpayer. Finally, support fee income. Agencies must develop ways to generate fee income to become self-sustainable. This committee should encourage HUD to affirm counseling agencies' ability to earn fees.
    Thank you and I would be happy to answer any questions afterwards.
    [The prepared statement of Lautaro Diaz can be found on page 31 in the appendix.]
    Chairman NEY. Thank you very much.
    Ms. Grist?
    Ms. GRIST. Thank you very much. I am Lisa-Nicolle Grist. I am the executive director of Neighbors Helping Neighbors in Brooklyn, New York.
    It is a great honor for me to be invited to join this panel of leaders whose work I have long admired, and to be asked to share a Brooklyn street-level perspective on both the importance and the mechanics of housing counseling.
    The home is the base from which families climb the socioeconomic ladder. It is a key to health, educational attainment, business opportunities and intergenerational wealth. Thus, housing counseling helps residents not only to stabilize their housing situations, but also to advance the quality of their lives. As housing counselors, we envision a society where all people are secure in their ability to find, afford and keep good homes.
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    Housing is typically a person's largest expense and investment. The price and quality of housing is affected by a complex set of institutions. Therefore, housing counseling helps educate consumers and level the playing field between individuals and institutions that naturally have very different amounts of information and power. For example, housing counseling creates confidence for first-time home buyers facing mortgage banks, tenants facing housing court, and homeowners facing foreclosure attorneys.
    Neighbors Helping Neighbors, which is also called NHN or sometimes VAV, is a community-based organization that advocates and serves tenants, homebuyers and owners of small properties and small businesses. Our mission is to enable low-and moderate-income people to build assets for their families and Brooklyn communities by securing, improving and owning their homes and businesses. NHN's most quantifiable results come from helping low-income people get money to buy, keep or improve their homes.
    In the course of our history, we have facilitated 148 home repair loans worth almost $2.5 million; 463 mortgages worth over $64 million; and in the past 2 years, NHN has saved over 50 families from becoming homeless by securing rent subsidies worth nearly $485,000. Since housing and money are inseparable, we also measure the difference that we make in people's lives by giving them the information and tools to take charge of their personal finances. NHN is a HUD-certified local housing counseling agency. We have received housing counseling grants each year since 1999 and our experience in applying for and administering the HUD grants has generally been excellent, even though the processes can be somewhat complicated.
    The HUD housing counseling grant program offers ample flexibility for us to adjust to changing community needs. NHN's housing counseling work is also funded by New York City and New York State, the Neighborhood Reinvestment Corporation, the New York Mortgage Coalition and its member banks. Our partnerships with banks are very important to NHN's home buyer and homeowner counseling programs. These partnerships give us legitimacy in the eyes of the public and enable us to offer real products, not just words, to people who might otherwise succumb to the aggressive marketing by predatory lenders.
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    NHN's one-on-one home buyer counseling ensures that people have sufficient income, savings and credit to qualify for a mortgage, and that they shop for homes they can afford. Once a customer has identified an affordable property, NHN calls several banks, helps them complete the application, and helps them through closing. NHN also counsels homeowners on how to seek loan forbearance or pursue other loss mitigation strategies.
    Homeowners who miss FHA mortgage payments are advised by their lenders to contact HUD's housing counseling clearinghouse, that 800 number, which refers them to local agencies through zip codes. Sometimes this is less than ideal because homeowners often delay in seeking help because the mortgage delinquency is just one of many disheartening factors that create more stress and chaos in their lives. Unfortunately, the delay means precious time is lost. Counseling is most effective in the first 3 months of a mortgage delinquency, but is very difficult after a lender starts legal proceedings.
    Some large counseling agencies have built relationships with loan servicers so that the agency gets notification of missed mortgage payments and can reach out to homeowners proactively. Although our organization does not participate in that system, I imagine that it is very successful. It requires substantial staff capacity.
    Our homeownership counselors must continuously become more efficient, knowledgeable and professionally skilled in order to meet our banking partners' increasing expectations. To help us meet those expectations, NHN receives superb technical assistance from Neighborhood Reinvestment in the person of management consultant Jose Perez.
    In addition to homeownership counseling, the need for rental counseling is overwhelming. A person earning the minimum wage would have to work 154 hours a week to afford the average one-bedroom apartment in New York City, or would have to earn a wage of almost $20 an hour to afford a typical two-bedroom apartment. At NHN, we focus on preventing homelessness by helping people to afford and improve their current rental situations. The median annual household income of NHN's tenant customers is less than $7,000; 44 percent of the tenants who seek our help are having problems making rent payments. Due to the high cost of housing and the excess of demand over supply in rental housing in New York, displacement counseling is one of our most important types of work.
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    I hope this helps address the committee's interests and my written testimony offers more detailed descriptions of our work and the ways that we measure our success, as well as some case studies about people that we have helped.
    Thank you for giving me this opportunity to participate in the process.
    [The prepared statement of Lisa-Nicolle Grist can be found on page 32 in the appendix.]
    Chairman NEY. Thank you.
    Mr. Jordan?
    Mr. JORDAN. Good afternoon, Chairman Ney and honorable committee members. I am Rodney Jordan, vice-chair of the board of commissioners of Norfolk Redevelopment and Housing Authority in Norfolk, Virginia. With me today are Lori Burden and LaShawn Fortes of the NHRA Homeownership Center, and in the audience is Robert Jenkins, our deputy executive director.
    As one of the oldest redevelopment housing authorities in the country, we at NRHA are well aware of the benefits of raising the rate of homeownership. Not only does it strengthen Norfolk's neighborhoods and help maintain a healthy economy, it also contributes to wealth creation and has positive effects on our city's social and educational cultures. That is why we created the NHRA Homeownership Center. It is just one of the many innovations we have brought to our industry in recent years.
    Another example of how NHRA innovates is that we were the only housing agency in the nation to be awarded an allocation of new market tax credits by the U.S. treasury in the program's first round. These tax credits are enabling us to bring amenities such as fitness centers and grocery stores into the neighborhoods we build, and those amenities in turn attract the homebuyers that we counsel to those neighborhoods.
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    Today, through our one-stop homeownership center, we demonstrate our commitment to bringing the great American dream of homeownership to more people every year, especially minorities. We do this by providing comprehensive and customized homeownership counseling to any prospective Norfolk homebuyer. Our center is designed to reach families from all economic backgrounds to the variety of housing choices available in Norfolk, including the homes that we build.
    The counseling we offer provides potential homebuyers with the tools and resources they need to become homeowners. We have programs that cover everything involved in the process of purchasing a home, from restoring credit and finding the right mortgage, to builder selection, home inspections and foreclosure prevention. To bring a complete range of home buying services to our clients, we form partnerships with banks, developers, mortgage companies, attorneys, real estate firms and other government agencies.
    Another important benefit is that through our Homeownership Center, we are able to match buyers with homes in the neighborhoods that we build as a redevelopment authority. Another plus is that our center also creates demand for other NHRA services such as rehabilitating homes and selling real estate. Our housing counseling ultimately increases homeownership in Norfolk, especially among minorities, by educating potential home buyers about the issues involved in buying and owning a home. Our goal is to remove the barriers to homeownership by preparing clients to become mortgage ready, enable them to pre-qualify for loans, and informing them of the range of special financing and mortgage programs available.
    The post-homeownership counseling we offer enables clients to handle issues that may come up after loan closing. For some of our clients, this counseling is the first time they have learned anything about homeownership because they come from families caught in the cycle of poverty that has prevented previous generations from becoming homeowners.
    Our housing counselors are certified through the Neighborhood Reinvestment Corporation's NeighborWorks Institute and by the Commonwealth of Virginia. We offer a 22-month counseling program through our five home buyer clubs, 6 hours of group counseling through the VHDA home buyers program, and individual counseling customized to each client's needs. We now provide counseling to more than 350 families and individuals annually. Of those, more than 50 are considered mortgage-ready, and at least half of those end up buying new homes that we build in mixed-income neighborhoods. For example, as a result of our homeownership counseling in our new neighborhood of Westchurch, we have former public housing families living next door to homeowners who earn six-figure salaries.
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    Although we are not a HUD-approved agency, our mission is comparable. As with those agencies, we give advice on buying a home, renting, defaults, foreclosures and credit histories. Our counseling programs are very similar to those offered by HUD-funded agencies and cover virtually all of the same issues. Preventing foreclosure is addressed through the home buying classes we offer in conjunction with VHDA. For more intensive foreclosure counseling, we refer clients to one of our homeownership center partners, Catholic Charities of Hampton Roads.
    We offer a 22-month counseling program through our five homebuyers clubs, as I mentioned before, and additional training as well. One important way that we measure our success is through the number of clients who graduate from our counseling programs. We also track our clients' successes through their improved credit scores, increased savings and reduced debt, loan pre-qualification, and ultimate goal of achieving homeownership.
    The classes we offer with VHDA educate our clients about the issues of questionable and predatory lending, as well as foreclosure prevention. Even if the financial institutions we partner with did not require that these issues be addressed, we believe that it is our responsibility to educate and inform our clients about these unfair lending tactics.
    I would like to thank you for inviting me here today and I would be free to answer questions at the appropriate time.
    [The prepared statement of Rodney Jordan can be found on page 34 in the appendix.]
    Chairman NEY. Thank you, Mr. Jordan.
    Mr. Obloy?
    Mr. OBLOY. Good afternoon. My name is Gary Obloy and I am the executive director of the Community Action Commission of Belmont County. We are located in Appalachian Ohio. I wish to thank Chairman Ney and members of the subcommittee for giving me the opportunity to address you today.
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    I would like to begin by describing for you the mission of the Community Action Commission and by explaining what we do in an attempt to improve the lives of the people we serve. The Community Action Commission of Belmont County is a private nonprofit organization governed by an 18-member board. The agency's mission is to combat poverty, its causes and consequences. The Community Action Commission administers over 20 federal, state and privately funded programs targeted to low-and moderate-income residents of Belmont County. Specific programs include the LIHEAP Program, the Home Weatherization Assistance Program and the Homebuyers Counseling Program.
    In January 1997, the Community Action Commission received a certification from the Department of Housing and Urban Development in first-time homebuyer education and for home equity conversion mortgages. In May 2000, the Community Action Commission received certification from HUD as a local comprehensive housing counseling agency. The Community Action Commission's program provides services in four areas: homebuyer education; budget counseling; foreclosure prevention; and home equity conversion mortgages. Resource materials used include the HUD publication, the Home Buyer Education and Learning Program Guide, also known as HELP, various handouts which have been compiled into booklet form, and a locally designed PowerPoint presentation. Homebuyer education includes general sessions on budgeting, home selection, financing, the closing process, knowing and understanding credit, post-closing, and foreclosure prevention.
    General sessions are offered eight times per year with an average class size of 10. In 2003, 25 customers who attended homeownership sessions purchased their first home. From 1996 to 2003, persons attending the sessions have purchased 215 homes. While the purchase of a home is a significant measure of success, it is not the sole indicator of the benefits of a homeownership counseling program. Currently, 27 families are in pre-purchase status, meaning they lack a sufficient down payment or have not been able to identify a home which is financially affordable. This status ranges up to 18 months. Thirty-one families have been working on credit issues for the last 6 to 12 months. Eleven families have contacted the Community Action Commission after becoming delinquent. Seventeen families who purchased a home have contacted the agency requesting additional information on such topics as home repair and insurance.
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    For the grant year ending September 30, 2002, 96 households completed the home buyer education workshops; 28 purchased housing; 9 decided not to purchase; 2 obtained a home equity conversion mortgage; 3 initiated forbearance agreements or repayment plans; and 1 mortgage was foreclosed upon.
    Participants are also schooled in renting versus ownership. A participant's involvement includes an analysis of the household income and expenses, a credit report and discussions on the impact of an immediate purchase as opposed to remaining a renter. If the participant chooses to continue renting, he or she is provided with information aimed at increasing his or her knowledge of their rights and obligations in a landlord-tenant relationship. If safe and affordable rental housing becomes the goal of the participant, a referral is made to the Belmont Metropolitan Housing Authority.
    The Community Action Commission views success with its housing counseling efforts not only in terms of homes purchased, but also in delivering services which are needed by the customer. Part of the value of homebuyer education workshops is that participants are given the opportunity to objectively judge whether or not purchasing a home is in their best interest. Statistics show that if they choose to do so, their success in maintaining homeownership is strengthened. Other successes can be seen in the customer who is motivated to purchase, but does not have the down payment or is experiencing credit problems. He or she is provided with the mechanism to address issues that may lead to future ownership. Those who find themselves in a financial dilemma have somewhere to turn and someone to intervene on their behalf.
    Key partners in offering a successful program are banking institutions. The relationships are mutually beneficial in that the counseling programs offered by the agency enhances the ability of banks to make good loans. Program participants are educated about banks and lending practices, and are made aware of what banks require from potential loan customers. The partnership also serves to educate participants who might otherwise look to predatory or sub-prime lenders for loans.
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    In summation, the Community Action Commission has been involved in homebuyer education and homeownership counseling for nearly 8 years. Through the concerted efforts of many partners, we as the community of Belmont County, Ohio have witnessed many families become homeowners. We applaud those families and individuals for their true grit, hard work and dedication in claiming a piece of the American dream. We look forward to a continuing relationship with funding agencies such as the Department of Housing and Urban Development and urge you to consider enhancing the federal government's efforts in the arena of homebuyer education and counseling.
    Once again, thank you for the opportunity you afforded me today, and I would be happy to answer any of your questions.
    [The prepared statement of Gary F. Obloy can be found on page 36 in the appendix.]
    Chairman NEY. Thank you for your testimony.
    Mr. Walsh?
    Mr. WALSH. Thank you, Chairman Ney and to all you other members of the subcommittee, especially Congressman Scott from our great state.
    My name is Chapman Walsh and I am the housing director at the Green Forest Community Development Corporation, a faith-based community development corporation located in Decatur, Georgia, right outside of metro Atlanta. Green Forest Community Development Corporation was really created and born out of the need that the Green Forest Community Baptist Church felt. The cries coming from the community led that organization to fund and go forward with a move to get granted a 501(c)(3) in 1996. Green Forest Community Development Corporation is a nonprofit and it really focuses on economic development and housing.
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    The mission of the Green Forest Community Development Corporation is to create empowerment and networking for people through economic development, housing, youth, senior, and health initiatives, social ministries, education, and comprehensive preventive programs for persons of all ages. You can see that is a pretty lengthy list. I am really here today to talk about the housing division. That was the first division started in the Community Development Corporation at Green Forest. Basically, we started because everyone realizes the great need to create safe matriculation from renting to housing in society and communities.
    We started really with the Expanding the Dream initiative, which is a homebuyer education program, what many people look at as a first-time homebuyer program, but in fact many times people who have purchased homes before need housing counseling and need homebuyer education.
    During the first year of the program, we were able to help over 300 families move to homeownership either directly or indirectly. At this point, we are well over 700 families who have directly gained benefit from working with Green Forest and from having us help them to understand the process of homeownership and key role players what they should be doing for you and exactly how to acquire a team that works for you.
    Green Forest uses a HUD-certified, Freddie Mac-certified and Fannie Mae-certified lecture series. We call that our education piece. Those classes teach potential homebuyers about the key roles of the realtors, what sort of realtor you should have if you are purchasing, the mortgage process, and the appraisals. It talks about renting versus buying. I think everyone wants to know how much it costs. We go on to talk about repairing your credit. I think that what we find is that that is the area that people have most difficulty with.
    Clearly, every successful entity in America works on a budget, but very few of our community members are taught formally anywhere how to budget. Consequently, financial illiteracy is a real issue with many people who come into and want to purchase a home. It goes across the board. No matter what their educational background, there are problems with budgeting.
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    Credit is another issue. What we feel is that anyone who we interface with should be able to come in, learn the process of home purchase, understand who the sharks are, who to stay away from, who to get close to. We feel that the strength of housing counseling is really one-on-one meetings with the clients after this education period. Anyone can help someone move to property, but in fact I think the one-on-one counseling is what helps build a roadmap for an individual that allows that person to find success. As I said, financial illiteracy is a real issue. We use the CreditSmart curriculum. It is a Freddie Mac program to help people to understand the purpose of credit and to help them strengthen their credit profiles.
    Our housing counseling program was asked to go and get certified to provide loss mitigation counseling some years ago because of the great foreclosure rate in DeKalb County. That is where most of our work is done right now. Loss mitigation allows people to work out something with the servicers and stay in their homes. I think that the bottom line is that people who are facing foreclosure are really at a loss for which way to turn. Many times, they are taken advantage of. So again, one-on-one counseling is what works with that situation.
    To sum it up, the bottom line is one-on-one counseling is what works. Group counseling does not. One-on-one counseling is very, very expensive. We need help.
    Thank you.
    [The prepared statement of Chapman Walsh can be found on page 38 in the appendix.]
    Chairman NEY. I want to thank the panel for some very good testimony.
    I want to ask Mr. Obloy, according to the testimony, you take individuals from West Virginia that come over to Ohio for counseling, too?
    Mr. OBLOY. Correct.
    Chairman NEY. I know Canton, you mentioned in your testimony. Where is the closest in West Virginia to us?
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    Mr. OBLOY. I believe that the family services in Wheeling was recently awarded or recently certified as a HUD-certified counseling agency. I did a check of the HUD Web site before I came to Washington and their name appeared there.
    Chairman NEY. Okay.
    Mr. OBLOY. Other than that, the nearest HUD-certified agency would be in the Pittsburgh area.
    Chairman NEY. Is every single group here certified by HUD to do counseling officially?
    Mr. JORDAN. No.
    Chairman NEY. You are not? Okay. Did you want to be? I was just curious. Did I ask a bad question?
    Maybe we better get Mr. Weicher back here.
    Mr. JORDAN. As I mentioned, Mr. Chairman, we are a redevelopment housing authority and we created this homeownership center under those auspices. While we do meet the criteria, we are pleased with our current standing.
    Chairman NEY. Okay. Of the groups that have the HUD-certified counseling, the question I wanted to ask, if anybody can answer, does HUD tell every single group the same thing, that this is how you counsel; this is what you say? Is there a laid-out criterion that is given to you all? Gary, do you want to start? I am sorry. Mr. Walsh?
    Mr. WALSH. Mr. Chairman, in the loss mitigation area, there are parameters set by HUD to the servicers, but the people who call are all in different situations. So I think that we have to deal with them on a one-on-one basis. The counseling is different for each client.
    Chairman NEY. Do you ever get stumped? Is there somebody you have to call? Or have you dealt with the issues so long you are able to do it?
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    Mr. WALSH. I think you have to work your way through. There is usually an answer and working with the HUD guidelines and the servicers as best we can. We usually can come up with a solution for the community member.
    Chairman NEY. But it is standard. HUD gives all of you the same guidelines; nothing changes.
    Mr. WADE. I would just like to clarify that a little bit. HUD provides broad guidelines for each of the eligible program activities. One of the things that we do is train the counselors who are actually doing the training in the neighborhoods. We have a defined curriculum that we use at our national training institutes. It is broadly available. We do five of those throughout the year, all over the country. The most recent was in Atlanta the last week of February. Essentially, this is the curriculum that we provide to all of the folks who we train and certify as homebuyer education counselors.
    Mr. DIAZ. I would just like to add, what HUD said, as Kenneth mentioned, broad standards. When we apply for HUD funds, we have to present the program curriculum, how it is delivered, when it is delivered, processing in between. The HUD staff approves that as meeting their standard.
    Chairman NEY. Okay. And do you think counseling is defined as much as it can be? Or does it need more definition? The reason I say that, in Cleveland, Ohio there was an article and the Cleveland Council decided they were going to have counseling. This gentleman thought his mortgage was going to be $447. It was actually $600 and some. He was in terrible jeopardy and there was a newspaper article on it. The counselor said, well, I don't know; I was hired by the Council. The Cleveland Council put this together; I was hired; I was paid $79; I thought I was telling the right thing.
    I do not think they made a clear point of definition, and this was not HUD. This was the Cleveland City Council. I do not think they made clear definition, but do you think counseling has been defined, or in HUD's eyes has been defined enough?
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    Mr. DIAZ. I would imagine so. I guess when you were saying the question, the services that are provided in counseling, they tend to slide from one to another; for a homebuyer education to pre-purchase; to default counseling. There are a variety of services. So we took some pains to separate those, which HUD has accepted as definition for discrete counseling services.
    Chairman NEY. I have one brief last question because I know other members want to ask question, and we do have a third panel, and we appreciate your testimony.
    Ms. Grist, I wanted to ask you, you mentioned displacement counseling. What is that? Is that different than regular counseling?
    Ms. GRIST. Displacement counseling is a category that was in this most recent year's HUD notice of funding availability as one of its eight eligible activities. In New York and in many cities, and I only know the urban areas, as the local economies have improved, as the real estate markets have heated up, low-income, often long-term residents can no longer afford market rents. One of the side effects of neighborhood improvement which we have all participated in is that a lot of people are now being displaced as their neighborhoods have become more attractive.
    So helping people to preserve their rights to the extent that they have them, to stay in their homes, to ensure that abuses are not taking place as people may be forced out of their homes by landlords who are eager to collect market rents, that is part of what we would call displacement counseling. It might even include getting people rent subsidies or even helping people figure out how to relocate.
    Chairman NEY. That has happened here in the District of Columbia. I have watched it in the 10 years I have been commuting. We probably ought to talk at some point in time. This bill has not addressed displacement counseling. It is not something we particularly thought of. That is why I wanted to see how much of it you were doing and maybe we will address it in this bill.
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    Ms. GRIST. It is one of the eligible activities under the current housing counseling program. That is one of the nice things about the program, is that is has offered a great deal of flexibility, both for us to define what the needs are in our local community and pick among a menu, and to sort out where to place our emphasis.
    Chairman NEY. Thank you.
    The gentlelady from New York?
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Ms. Grist, in your testimony you mentioned how homeowners who miss payments on their mortgages are currently advised by their lenders to contact HUD's housing counseling clearinghouse, which refers them to local agencies. You said that this process is not necessarily ideal. Can you explain a little bit further?
    Ms. GRIST. Sure. It is wonderful that people are given access to this 800 number, but it comes in an envelope from their lender which they might not want to open. One characteristic of people who are falling behind on their mortgage is they stop opening their mail, especially their bills. It requires that the homeowner make at least two phone calls, one to the clearinghouse and one to the counseling agency.
    So it is a good idea. It is a wonderful idea, but it has its sort of natural pitfalls for homeowners who are avoiding taking care of their situation as quickly as they might. The delay is really what causes problems.
    Ms. VELAZQUEZ. You also stated that some large counseling agencies have developed relationships with loan servicers in which they contact the counseling agency when one of their clients becomes delinquent. The housing counselor then contacts the delinquent borrower to provide assistance. You stated that you felt this system is more successful than waiting for the borrowers to contact HUD. Can you talk more about these agreements and explain their effectiveness?
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    Ms. GRIST. A little bit. Our organization is too small to engage in that kind of operation because it requires considerable staff capacity, but I know that one of our colleagues in New York, Neighborhood Housing Services, which is also part of the NeighborWorks network, has had that kind of relationship. The advantage of it is that, particularly with conventional lenders, it gives an additional support to the homeowner. It takes some of the obligation off of the homeowner to reach out and make that first call. It can avoid that delay period. The key in default counseling is to get the homeowner, counselor and lender talking in a three-way conversation within the first 3 months of delinquency. So a process that allows a counselor to know who is falling behind early is in general a process that I think can work better. Maybe Neighborhood Reinvestment might know how that works other places.
    Ms. VELAZQUEZ. Would you?
    Mr. WADE. Sure. Yes, we have a number of groups who have that kind of relationship with servicers. Typically, you do need the customer's consent in order for them to allow the home buyer education counselor to contact the customer. Oftentimes, we have encouraged our groups to use a simple release form. We have samples that we have provided to our groups that they can use with their customers, allowing them to be designated as the homebuyer educator.
    Ms. VELAZQUEZ. And that will happen at the time of the closing?
    Mr. WADE. It is best done at time of closing. Then obviously if you are doing follow-up work for customers, you can also have it done at that time.
    Ms. VELAZQUEZ. Mr. Diaz, a key issue for housing counselors is their ability to expand their work and build capacity to meet the needs of growing demands from individuals hoping to purchase a home for their families. Counseling agencies also need technical assistance to build their infrastructure and efficiently serve and attract more families. Can you comment on how support from HUD for capacity building and technical assistance will help housing counselors serve more families?
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    Mr. DIAZ. Yes, our relationship with HUD and with the counseling agencies that are part of our network, HUD has been, rightfully so, taking on a role of making sure that all the dollars that we have invested are getting to the family, which is really critical. We have taken on the role primarily for technical assistance to make sure the efficiency quality of service things have occurred.
    How HUD could be supportive, and they have been supportive with us before, is as mentioned earlier, promote technology usage. We think it is a critical part. It is not replacing the one-on-one contact, but encouraging efficiency within the agencies because database technology can be a really useful tool once it is learned and used well. I think they can also support that activity. One of the key aspects with that is to get people using the database technology requires training. That sometimes is forgotten when they have this great technological thing.
    And then finally, HUD does have a lot of technical expertise, particularly on foreclosure counseling; some other technical areas that could be utilized by counselors in terms of training programs, but it has to be offered in a way that is useful to the agency. By that I mean it follows a work-flow. Sometimes that connection is a little harder to make than just offering the training once a month or whatever.
    Ms. VELAZQUEZ. So you feel that resources that are available to agencies that offer housing counseling services are not enough in the area of capacity building and technical assistance?
    Mr. DIAZ. Yes, that is definitely true.
    Ms. VELAZQUEZ. And that will go to the heart of the question that was asked by the Chairman regarding the information that was provided by the counselor to the Virginia person. I do not know, the question that he asked to Mr. Obloy. So Mr. Chairman, I think that this is an area that I think that we need to really look at. If we want to have counselors that are not only providing the information, but on top of what is happening, so that they could provide the effective services.
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    Mr. OBLOY. May I say something?
    Ms. VELAZQUEZ. Yes.
    Mr. OBLOY. I appreciate your comment. To take that perhaps a step further as laws change, rules change, regulations change.
    Ms. VELAZQUEZ. Sure.
    Mr. OBLOY. In order to deliver a quality product, you need that technical assistance to keep the housing counselors up to date on what is happening with credit reporting; what may be happening with insurance underwriting; what may be happening with all changes in rules and regulations.
    Ms. VELAZQUEZ. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman NEY. Mr. Scott?
    Mr. SCOTT. Thank you very much, Mr. Chairman.
    Mr. Walsh, thank you again for coming up and being a part of this for all members of the panel. One of the reasons why we are so delighted to have you, Mr. Walsh, is because the area that you are concentrating your counseling services is the highest in the nation in three very critical areas: delinquency, predatory lending, and foreclosure.
    It would be very revealing if you could share with us why this is so in South DeKalb, Atlanta, and especially given the fact that this area in the nation is not low income. It is more moderate and middle, and in some degrees higher income. In so doing, could you share with us in responding to those three areas of difficulty, how you feel this legislation, this housing counseling bill can be helpful?
    Mr. WALSH. Thank you, Congressman. I do feel that it is critical that the emphasis be placed on more counseling. You are right. In the zip code where my organization is located, 30034, it is a notorious area for predatory-type activities. Many of the homes are owned by elderly people who have really paid most of the mortgage down. They are great targets for people who can come in with some kind of scam, whether it be home improvement or some other type of scam; you know, flip the house and before you know it, they take all that is contained in the house. There is nothing left. There is no equity. These people many times are senior citizens and really do not have the ability to pay a second mortgage or a mortgage at the rate that these predatory-type lenders are offering.
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    What we see in our area is that our phones are ringing off the hook with people who have reached a 90-day delinquency mark and have received this pamphlet from HUD, or from their servicer. Many times it is ambiguous because the servicers take this pamphlet and they kind of adjust it. It is very hard for some of the people to peruse through this minutiae and get to the HUD hotline and get to a certified counseling agency.
    Consequently, many of them get to us when they are 5 or 6 months behind. It is very hard. I just know that our phone is ringing off the hook. We are following the HUD guidelines. We are using the remedies that are available to us, but I think more education and more information for our community is certainly necessary.
    Mr. SCOTT. How many families have you helped, certainly if it is measurable on an annual basis?
    Mr. WALSH. I think that we average probably over 200 counseling hours a month. That is split between housing counseling and loss mitigation counseling. But I think one of the things that we see is most of the people who are facing foreclosure or 60-or 90-day delinquencies have not gone to housing counseling. They have been targeted by someone that they trusted who put them many times in a sub-prime loan or charged high fees. That is a big part of the problem.
    Obviously, we are in very tough economic times and we are seeing a host of people who have lost their jobs, who have lost income. That is a factor also, but I think many of the times it is a matter of mis-education and no education.
    Mr. SCOTT. Thank you very much.
    Mr. Wade, in your testimony you mention a terminology, ''full cycle lending.''
    Mr. WADE. Yes.
    Mr. SCOTT. I think you mentioned it also in connection with delinquency and foreclosure. Could you elaborate on what that means in relationship to foreclosure?
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    Mr. WADE. Sure. What we have done in the development of our homebuying education efforts is develop what we call the full cycle lending approach. Essentially, it includes an organization that has a partnership with local lenders, local government in their local community. They have a pre-purchase homebuyer education program, and their staff received certification and training at our training institutes.
    We also typically have flexible loan products. Oftentimes it includes the provision of down payment and closing cost assistance to assist the homeowner. It would typically provide property services where the organization would provide home inspections and construction management if the home needs repair. And then it requires a post-purchase counseling component as well, so that the customer to a certain extent is helped all the way through the process on the front end, and then has some assistance on the back end as well.
    Mr. SCOTT. Thank you.
    Those are my questions for now, Mr. Chairman.
    Chairman NEY. I want to thank the panel. I appreciate your testimony and appreciate your coming to the Capitol. Thank you.
    We will move on to the third panel now. We have Doug Bibby, who is the president of the National Multi Housing Council. The Council is the national association representing the interests of the nation's apartment firms. Previous to joining the National Multi Housing Council, he spent approximately 16 years with Fannie Mae, including having served as the organization's chief administrative officer. Welcome.
    We welcome Anne Canfield who is executive vice president of the Consumer Mortgage Coalition, a trade association of national resident mortgage lenders and service providers. Welcome.
    Robert Couch is the 2004 chairman, kind of brand new, of the Mortgage Bankers Association, an association of 2,700 members representing mortgage companies and brokers, commercial banks and thrifts, and life insurance companies. Mr. Couch is the president and CEO of New South Federal Savings Bank in Birmingham, Alabama. New South is the largest thrift in Alabama with $1.4 billion in assets.
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    William Smith is president and CEO of the Mutual Community Savings Bank in Raleigh, North Carolina. He is testifying today on behalf of America's Community Bankers, a trade association representing the nation's community banks of all charter types and sizes.
    William Spriggs is executive director of the National Urban League Institute for Opportunity and Equality.
    Odette Williamson is a staff attorney with the National Consumer Law Center. The center seeks to help consumers utilize the nation's consumer laws on behalf of low-income Americans. One of the Center's top priorities is providing support on issues involving consumer fraud, predatory lending and sustainable homeownership.
    We want to welcome the entire panel. Thank you for your patience. Does anybody have a flight, I should ask? Someone wrote me a note. I know you do. Anybody else? We will start out of order. Mr. Couch, and then we will go down the line, if that is okay.
    Mr. COUCH. Thank you, Congressman. Good morning, Chairman Ney, Congressman Scott. My name is Rob Couch. I am president and chief executive officer of New South Federal Savings Bank in Birmingham, Alabama. I am here today as chairman of the Mortgage Bankers Association. Thank you for inviting MBA to testify today on H.R. 3938, the Expanding Housing Opportunities Through Education and Counseling Act. That is a mouthful, I know.
    MBA strongly supports H.R. 3938, as it elevates and expands upon the Department of Housing and Urban Development's current housing counseling activities. We applaud your efforts and those of Representatives Velazquez and Scott for introducing this bill and highlighting the important role that homebuyer education can play in combating predatory lending and assisting American families in making wise housing choices. While there has been a great focus on laws, regulations and stepped-up enforcement, the absolute best defense against predatory lenders is a knowledgeable and empowered borrower in a competitive marketplace.
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    MBA is also pleased that H.R. 3938 recognizes the importance of housing counseling for those families who live in rental housing. Renters often have significant housing needs and the ability to discuss housing options with a competent housing counselor can stabilize families and help them avoid homelessness. Purchasing a home is often the biggest investment that the typical American family makes. It can bring great financial and social rewards, helping families to build wealth while they put a roof over their heads.
    However, buying a home is often also one of the most complicated transactions they ever undertake. H.R. 3938's provision for a toll-free number and Web site will ensure convenient access to information that will assist them with the benefits and responsibilities of homeownership. Through the funding of HUD-approved counseling agencies and the certification of counselors, families across the country who require more personal counseling will have access to it.
    We support H.R. 3938 and again applaud your timely effort. In that spirit, I would like to share two important suggestions that MBA believes are essential to the effective implementation of the bill. First, the bill calls for updating and simplifying the mortgage information booklet. This booklet is provided to all borrowers at time of application. While HUD would be responsible for updating and expanding the booklet into several languages and cultural styles, the bill States that lenders would be required to provide the booklet in a format that is language-appropriate and culturally appropriate for the borrower. This requirement may give borrowers the impression that because they were offered a booklet explaining aspects of home financing in a language other than English, they could expect further documents, communications or assistance in a language other than English. This is just not practicable.
    Additionally, the term ''culturally appropriate'' is far too vague to be used as a reliable compliance standard. MBA believes a mandate requiring lenders to deliver the most language-appropriate or culturally appropriate booklet could become a litigation risk. MBA would like to work with the subcommittee on language that would achieve the intent of H.R. 3938, without the above-cited problems.
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    There is a second issue I would like to raise. MBA believes that while software programs can be a great tool for consumers to use during the mortgage process, they can fall short in assisting a specific consumer with a specific transaction. A software program will not be able to accurately measure subjective issues. MBA suggests report language be included stating software programs certified by the office of housing counseling should not replace the sound advice of a financial or mortgage services professional.
    H.R. 3938 is a bill that takes HUD and housing counseling in the right direction. MBA applauds the efforts that HUD has made to date in prioritizing housing counseling and believes that it can have an even greater impact under the proposed office of housing counseling.
    Thank you again for the opportunity to present MBA's views. We look forward to working with you and the subcommittee as it considers this bill.
    [The prepared statement of Robert M. Couch can be found on page 46 in the appendix.]
    Chairman NEY. I want to thank you. One quick question, in case you have to take off. I have raised this already. Would you all accept the fact that if you had a Web site you could go to and you print it and it prints in Creole or Farsi or Spanish. Would that work in the technological end of it?
    Mr. COUCH. It certainly has some possibilities as an intriguing notion, provided that HUD is responsible for the translation and the compilation of all the different languages that would need to be posted there.
    Chairman NEY. I understand about you putting the book together versus somebody else putting the book together because you could make a horrific mistake and it would not be good. What is your current liability? Do you have current liability on a certain amount of the information you distribute?
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    Mr. COUCH. Unfortunately, just like Secretary Weicher, I cannot tell you the exact liability, but we are required to provide a notice to borrowers within 45 days of going into foreclosure. So there are requirements on us to provide HUD-mandated information to all borrowers, whether they are HUD borrowers or not.
    Chairman NEY. Thank you.
    Mr. Bibby?
    Mr. BIBBY. Thank you.
    Chairman Ney and distinguished members of the subcommittee, I am Doug Bibby. I am president of the National Multi Housing Council, a national association representing the nation's most prominent apartment firms.
    NMHC operates a joint legislative program with the National Apartment Association which represents over 30,000 apartment executives and professionals who own and manage close to five million apartment homes. It is my pleasure to testify on behalf of both organizations today.
    We commend you for your leadership and we thank the members of the subcommittee for your valuable work addressing the important issue of housing in America, and particularly the topic of today's hearings, successful homeownership and renting through housing counseling.
    I know some of you may be thinking, why is the head of an apartment trade group here discussing housing counseling? Well, as a matter of fact many of our members across the country partner with housing counseling agencies to do just that. They counsel people on a variety of issues important to the entire housing sector. Renters are the homebuyers of tomorrow and vice versa. Many homeowners become renters. Rental housing is a great benefit to many people in America, and our housing policy should not be so lopsided with tax incentives that it distorts what should be our over-arching goal in America: good quality housing for everyone, both owned housing and rental housing.
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    Let me highlight today the Columbus Housing Partnership, a nonprofit housing provider. They offer various types of housing to meet the needs of individuals and families throughout central Ohio. CHP provides counseling to renters on a variety of topics: how to rent and maintain their apartment home; financial counseling; and homeownership counseling. CHP also provides residents with programs that bring computer labs, resident councils and meals to apartment communities. CHP, a member of the Columbus Apartment Association, partners with Wallick Properties Midwest, a private property management organization and a member of NMHC to manage most of its rental portfolio. Such partnerships not only provide housing-related counseling services, but also other valuable community services. CHP's program is a commitment to provide a start-to-finish approach to housing services.
    We feel that appropriate counseling is especially necessary in light of the recent spike in the foreclosure rate, particularly among individuals who participate in homeownership programs with low down payment requirements. We support Congress in your quest to address this issue. NMHC and NAA feel that the time has come to ask whether homeownership above all else and at any cost is wise public policy and sound financial policy.
    It is essential that proposed homeownership initiatives include strong and substantial counseling and education provisions to educate consumers about the considerable responsibilities that accompany successful homeownership. No one is born a successful homeowner. To be a successful first-time homeowner, an individual should understand all of the factors that go into purchasing and owning a home, especially the financial considerations.
    If I were counseling someone or a family that is now renting an apartment on whether or not they should buy a house with zero down, I would say, if you have a marginal income, few cash reserves, and impaired credit history, I would be very comfortable in advising you to be cautious and be very sure you want to take on the huge emotional and financial challenge of owning a home.
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    NHMC and NAA urge Congress to include programs that will benefit both renters and potential homebuyers in the proposed office of housing counseling, such as those I have outlined today.
    Thank you for the opportunity to testify.
    [The prepared statement of Douglas M. Bibby can be found on page 48 in the appendix.]
    Chairman NEY. Thank you very much.
    Ms. Canfield?
    Ms. CANFIELD. Chairman Ney, thank you very much for the opportunity to testify today. I would like to request that our full written statement be made a part of the record. Thank you.
    We applaud your efforts, Mr. Chairman, and the efforts of Congresswoman Velazquez, as well as Congressman Scott in introducing this legislation. The CMC has believed since its inception in the mid-1990s that housing counseling and education, if done correctly, is a key component to helping individuals first become and then remain successful homeowners.
    When the CMC first became actively engaged in this issue some years ago, we found that there was an enormous amount of counseling services that were available to consumers, but, consumers often did not know where to go for the counseling; and very importantly, the quality of counseling services varied dramatically.
    Our solutions to these two issues were several-fold. First, in order to address the problem of letting consumers know where to find qualified counselors, we suggested that the government publish an online list of qualified counselors or counseling services and their location. In addition, we suggested the government set up 1-800 numbers that consumers could call and find out where to access these services. Furthermore, we suggested the government engage in a public advertising public relations campaign to let consumers know where these services are; that these services are available and within their reach by simply calling the 1-800 number that would be advertised, or by visiting the HUD Web site.
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    Second, in an effort to improve the quality of counseling services being provided, we initially suggested having the government develop and make publicly available smart computer systems to be used as a tool to help counselors provide quality counseling services. In addition, we also proposed that these systems be available online so that consumers who had access to computers could use the systems themselves.
    Since the concept of utilizing a smart computer system to help improve the quality of counseling services was thought of some years ago, the industry has actually developed a number of similar programs that are available for consumers online. However, these systems are not necessarily being widely used by the housing counselors themselves to counsel consumers. Rather, the consumers who are computer literate are using them online themselves.
    Our third proposal was to have HUD create a counseling certification process to at least ensure that HUD-funded counselors would meet uniform high standards. That HUD certification process could eventually lead to a system whereby counselors would actually seek to be certified by HUD to prove to their customers or consumers that either they or their organization were providing quality services by utilizing the latest technology tools.
    Fourth, we suggested that HUD's special information booklet that is required to be given to consumers under RESPA should be available online and that the booklet should include examples illustrating various loan products and how consumers might evaluate which products best fit their needs. While not the only solution, helping consumers understand a loan product and its terms and the responsibilities of homeownership will help to prevent consumers from falling prey to abusive lending practices.
    Finally, we suggested that the lender provide information to its mortgage applicants on how they could reach a qualified counselor. This legislation that you have introduced, which is very important, incorporates many of these proposals and we believe it is a very good start to making timely high-quality counseling services available to consumers across the nation.
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    In addition, we are particularly pleased that the legislation places a high degree of importance on the public awareness campaigns that you have referenced in your bills. Part of the problem right now is that most consumers do not know that a 1-800 number exists at HUD. We also believe it is critical that consumers understand what options are available to them after closing, an item that has been discussed considerably today, particularly when they miss a payment. One of the biggest difficulties that mortgage servicers have is getting delinquent customers to communicate with them about their situation right away and work out a resolution or plan to bring the loan current. If a consumer is reluctant to call and becomes many months delinquent, it is much harder to craft a solution that works for both the consumer and the note-holder. The availability of timely counseling can be of immense help to consumers in this situation. Thus, we are very supportive of the legislation's recognition of the importance of default counseling.
    Mr. Chairman, I would like to close with an example of how a housing counseling program can work effectively to help consumers make the right decisions. Some years ago, I used to work for GE Capital and one of the GE Capital companies was GE Mortgage Insurance Company. The late Gale Cincotta came to us a few years ago. She wanted private sector capital and resources in her neighborhood. She helped us understand the people in her neighborhoods and the neighborhoods and the communities themselves. We helped her understand what a financial institution needed in order to make things work on our end.
    Together, we created a series of affordable housing products. In fact, I think those were the core of the GSE's affordable housing products some years ago. The first product was a community homebuyers product. It was an expanded-risk product where GE Mortgage Insurance agreed to insure loans with higher debt-to-income ratios for first-time Low-to-moderate-income homebuyers. However, in order for consumers to qualify for that product, they had to go through a counseling program. We test-marketed the product in five major Midwest cities. The product was distributed through various participating banks and thrifts. GE contributed counseling materials and the participating lenders put up the people, time and space to counsel.
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    In the first year, we had 1-800 numbers running off the hook. People came into the lender's offices, went through the counseling programs. At the end of the year, only 250 loans had been made. So we were wondering what went wrong. It turned out that everything was right. Many of the consumers, they actually went through the counseling, determined that they were not ready for homeownership yet. So the smart lending institutions actually helped those consumers straighten out their credit records, set up a savings accounts, and many of those consumers actually became successful homebuyers a year later. So we look at that and say that was not only a successful counseling program, but it was a successful homeownership program.
    With that, Mr. Chairman and Congressman Scott, thank you again for the opportunity to testify. We want to work with you to get this legislation enacted this year.
    [The prepared statement of Anne C. Canfield can be found on page 49 in the appendix.]
    Chairman NEY. Thank you.
    Mr. Smith?
    Mr. SMITH. Good afternoon, Mr. Chairman and other members of the committee. My name is William Smith and I am the president and CEO of Mutual Community Savings Bank in Durham, North Carolina. I am representing America's Community Bankers and its MBank Council.
    ACB represents the nation's community banks of all charter types and sizes. ACB created the MBank Council in December, 2001 as a standing committee within ACB to represent ACB's minority-owned institutions. Mutual Community Savings Bank has $94 million in assets. We are 82 years old and are one of only three African American financial institutions in the state of North Carolina. We are a premier housing lender to underserved and emerging communities.
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    As part of Mutual's vision to educate customers before they are ready to buy a home, Mutual implemented the FDIC's MoneySmart program in October of 2002. It went right to the heart of the community to educate consumers on the importance of financial literacy as a crucial first step towards homeownership.
    To further our financial education and homeownership campaign, Mutual's branch managers must conduct a financial education session in their branches. Branch managers actively engage customers unfamiliar with the importance of financial education. I want all my customers to understand the importance of sound financial management and promote those values to their families.
    Mutual also has a trainer to assist our employees in using the FDIC MoneySmart module. This was the first step in assisting my customers on buying a home. One of our first financial education and housing counseling sessions was held at Maple Temple Church in Raleigh, North Carolina. There were 20 parishioners here, including parents and students. They were very engaged in understanding the two most important steps needed before one actually is granted a mortgage: the importance of understanding your credit and the value of good credit when one qualifies for an interest rate.
    This housing counseling education is especially important due to the increase in foreclosures. As you know, the highest foreclosure rates are for so-called sub-prime loans, which are disproportionately made in low-income and African American neighborhoods. In 2003, the foreclosure rate for conventional prime loans was 0.53 percent, but for conventional sub-prime loans, it was 6.6 percent.
    In ACB's 2004 real estate lending survey, ACB asked its members if their banks required homeowner education or housing counseling for any of their current home mortgages or consumer lending products. Of the 401 responses nationwide, 52 percent required counseling for at least some loan products. Of those that did not require counseling, about half strongly recommended counseling. Those banks that do not require or strongly recommend homeowner education often cite the following reasons: it is not available in the area; it is not convenient; or it is too costly.
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    I believe that housing counseling and education is a necessity. First, counseling should be made more universally available and encouraged by efforts to streamline the process and lower the cost. Therefore, I am a strong supporter of H.R. 3938. Specifically, I agree with the language in the bill on the scope of homeownership counseling the Department of Housing and Urban Development will undertake. I also support the language to establish a toll-free telephone number and a Web site which anyone can access for homeownership information. In addition, the language in the bill that addresses outreach to vulnerable populations is essential.
    In closing, owning a home is the greatest accomplishments a person can achieve. Educating customers and consumers is one of the greatest responsibilities we in the private sector can undertake to decrease foreclosure rates and boost homeownership throughout our nation.
    Thanks for allowing me to testify.
    [The prepared statement of William Smith can be found on page 109 in the appendix.]
    Chairman NEY. Thank you.
    Mr. Spriggs?
    Mr. SPRIGGS. Thank you, Chairman Ney and thank you to Congresswoman Velazquez and to Congressman Scott, for this opportunity. The National Urban League runs a housing department. I do not run it. So I want to say thank you to my colleagues Marvin Owens, who is our vice president for economic development and housing and Cy Richardson who directs the housing program under him.
    The League, first off, is a housing counselor funded by HUD. We were an initial partner in the design of the housing counseling program in 1968 with HUD. As such, we are designated as a national intermediary. Our affiliates are certified to do this work through us, and our experiences with the program have been good with regard to implementation. We have generally found that education and counseling services are of broad value for homeowners and can improve the market by facilitating effective consumer use and demand for a very wide range of housing and mortgage products.
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    One of the key areas our affiliates concentrate on is mortgage delinquency and foreclosure counseling. Others have already talked about this rising problem in the country. We primarily offer delinquency counseling which specifically targets homeowners who are delinquent in repayment of their mortgage and who may or may not have been served a notice of foreclosure. Delinquency counseling usually occurs in one-on-one settings. The National Urban League seeks to assist delinquent borrowers as opposed to efforts from loan officers to structure a repayment plan.
    Our program also includes components that assist families looking to rent affordable housing. The affiliates serve as an information clearinghouse for affordable rental opportunities, and after determining that near-term homeownership is not desired or appropriate for a family, we make a referral on behalf of the family for the rental, while keeping the family in a database and contacting the family at a later date to encourage homeownership if requested. Housing counseling greatly benefits the rental market by moving renters to homeownership and thereby freeing up affordable units for other families to move up the housing ladder.
    The National Urban League does offer a narrow set of housing counseling services in partnership with Fannie Mae, Freddie Mac, the Bank of America and Chase Bank. With those partners separate from our HUD-funded housing counseling programs, we offer a program to help potential home buyers qualify for mortgages, and National Urban League affiliates separate from our HUD counseling program operate first-time homeownership programs in ways that complement the HUD program. We encourage our affiliates to develop robust and comprehensive housing programs ranging from financial literacy, to first-time homebuyer classes, to housing counseling, to broader asset development strategies such as real estate investment and capital home improvements.
    We measure the success of our programs by a number of qualitative and quantitative indicators. First, we gauge the efficacy of the program against the National Urban League's housing policy goals, which include, one, preserving and expanding the supply of good, quality housing units; two, making housing more affordable and more readily available; three, promoting racial and economic diversity in residential neighborhoods; and four, linking housing with the central support of services.
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    Some of the short-term and long-term quantitative measures include the number of loans and people served, the number of new homeowners, the number of households relocating with housing search assistance, the number of very low-and moderate-income households paying more than 50 percent for housing. These are some of the measures that we use.
    In total from our HUD counseling activities, our affiliates throughout the National Urban League movement service well over 19,000 clients in a year. The nonprofit program is indeed comprehensive in nature and application.
    Chairman NEY. Not to interrupt, but I would note that a vote has been called. We have a few minutes, but we want to get your testimony finished, and then also your testimony, and see if there are questions, so we don't hold you.
    Mr. SPRIGGS. Okay. Let me sum up, then.
    Because of our relationship in terms of doing HUD counseling, we are very appreciative that you have this legislation to call attention to the need for home counseling. We would like to just make a few suggestions. One is in the area of certification, because we do it as an organization and it is very costly and capacity-building at the local level is very hard, if certification could be done at an agency level, so that we could then certify others, would be far more cost-effective. CBOs need to be included in all advisory capacities within the process in order to reach the neighborhoods and the people who most need it. It is really necessary to work through community-based organizations. Finally, we would hope that these wonderful ideas of using technology to reach those who may not have a counseling agency nearby, not be a diversion of funds away from the existing program. We really need funds on top of the existing program. The greatest problem that we are faced with is that while we are a successful provider of counseling services, this program has never been funded to the level that we could do the services at the level we know we have the demand for.
    [The prepared statement of William E. Spriggs can be found on page 113 in the appendix.]
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    Chairman NEY. Thank you.
    We will move on as quickly as we can, because I want to see if there are questions by Mr. Scott.
    Ms. WILLIAMSON. Sure.
    Good afternoon, Subcommittee Chairman Ney and members of the subcommittee, my name is Odette Williamson. I am an attorney with the National Consumer Law Center. At NCLC, I focus on issues relating to sustaining homeownership for low-income consumers, consumer credit and foreclosure prevention issues. I testify here today on behalf of low-income consumers.
    We support the committee's effort to improve the level of housing counseling assistance offered to low-income consumers. The achievements of the housing counseling industry are numerous and best exemplified by the sizeable increase in the number of low-income and minority home buyers over the last decade. Now more than ever, a strong housing counseling industry is needed to sustain the gains made in homeownership among low-income consumers from the threat of predatory lending and from the steady rise in the foreclosure rates.
    One of the benefits that education and counseling can provide is to make homeowners less vulnerable to predatory lending. A knowledgeable counselor can steer homeowners away from predatory lenders to affordable alternative loan products. However, counseling is not a substitute for strong legislation to protect homeowners from predatory lenders. Only by changing the laws governing mortgage lending can we fully address the problem of predatory lending. Clear prohibitions to stop the worst practices, coupled with assignee liability, are what is needed to tackle this problem.
    Federal law must also provide additional protections to borrowers losing their homes to foreclosure. The law should mandate that foreclosures cannot go forward without lenders and servicers being first required to offer counseling and to evaluate the use of loss mitigation options. Similar requirements are already in place for FHA-insured loans. These requirements should be made applicable to all loans.
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    To assist consumers in danger of foreclosure, the capacity of nonprofit agencies to provide default and delinquency counseling and/or predatory lending assistance must be expanded. Currently, only a portion of the housing counseling agencies offer these programs. Providing these services in an effective manner is expensive. Well-trained counselors must meet one-on-one with consumers to assess their needs and provide direct assistance. An effective housing counselor can prevent foreclosure by acting as a mediator between the homeowner and the servicer. However, nongovernment support for this type of service is currently very limited. More funding and other resources should be specifically allocated to default counseling and for assistance to victims of predatory lenders. Federal policy should also encourage the private mortgage industry to provide more financial support for these types of services.
    More funding is necessary to support the housing counseling industry in general. The $45 million to be appropriated for fiscal years 2004 to 2007 under H.R. 3938 should be increased. This does not represent a significant increase from the current funding levels of $37.5 million. More nonprofit and for-profit organizations are providing housing counseling services. With more providers, the small pool of funding dedicated to housing counseling is being spread thin.
    In addition, the $45 million called for by H.R. 3938 will fund a new agency and many new initiatives. Without a significant increase in funding, the net result may be a reduction in the amount of funds directed towards HUD-approved agencies. Funding should be doubled to support this new agency and to provide adequate funding for the nonprofit housing counseling agencies that provide direct assistance to consumers.
    More funding should also be allocated to research.
    Chairman NEY. I will note, and I hate to do this. I feel so bad, but there are 8 minutes and 29 seconds left. So if you want to ask a question, we are running real short on time.
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    Ms. WILLIAMSON. Okay. I will just sum up. In sum, the housing counseling and education industry provides invaluable assistance to low-income and minority consumers. A strong industry can be a benefit to consumers.
    I thank the subcommittee for the opportunity to speak today on behalf of low-income consumers.
    [The prepared statement of Odette Williamson can be found on page 158 in the appendix.]
    Chairman NEY. Thank you so much.
    Mr. Scott?
    Mr. SCOTT. Thank you very much. I apologize for this time frame. What a fascinating panel. There is so much I really wanted to get into.
    Ms. Williams, you are absolutely right in your testimony. That is why it is so important that if we move ahead with this bill, and we are fortunate we are. We are going to do it. Some of your comments are very pointed. We do have serious questions out there. The assignee liability is an issue that is a probability down the road. But in this legislation, we have some things before us. It is very concerning to me that we move forward with this, making sure that we have the resources to do the counseling; that we indeed have a toll-free number that is friendly, that is language-significant, that is going to do the job.
    One of the problems we need to clear up in this toll-free number, for example, in your testimony, Mr. Couch, you referred to the fact that through the current toll-free number and proposed Web site, this bill directly establishes this new department, to establish a new toll-free number; a toll-free number that is different from what is going on. As came from Ms. Canfield's testimony, she didn't even know a toll-free number existed. We need a toll-free number that is friendly; has a human being at it; that is language-specific to the diversity that reflects; and is targeted through marketing programs to get the number out there so we can get some help to the people beforehand.
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    So it is a fight here just to get these things forward. I know I have to run, but Mr. William Smith, I would be very interested to know right quickly if we could, North Carolina has one of the toughest predatory lending laws on the books. In light of our counseling and in light of your work, very briefly, what is the result of that? What is the implication? Is that working? In terms of the counseling that is needed, does not it even bring forth a greater need for more resources to counseling?
    Mr. SMITH. You are right. I believe it is working in North Carolina. Our predatory lending laws are making the leaders in the financial institutions in North Carolina more responsive to making sure we are providing homeownership training, counseling and training. It is about leadership for the banks in North Carolina, particularly in my bank. I provide leadership in my bank by going out and doing homeowners counseling and making sure we give back to the communities, and are doing things in those communities to make homeownership available to the citizens of Durham, North Carolina and Greensboro, and we are.
    Mr. SCOTT. Thank you.
    Mr. Couch, on that point, I just wanted to make sure that we were clear that we are talking about a new toll-free number. I think you may have put that in your statement. I do not know.
    Mr. COUCH. If I said that, it was inadvertent. We are in support of a new toll-free number. There is an existing toll-free number that is mentioned in the notice that must go out when someone becomes delinquent, within 45 days of delinquency.
    Mr. SCOTT. One other thing, too, while we are at it, and we will just get out of here so we can go vote, you mentioned your support in the Mortgage Bankers Association, for this effort in education, financial literacy and so forth. We have $45 million there. As Ms. Williams mentioned, we know that that is a pittance compared to what we are going to need if we are going to make a difference and to do this. Because once you get this out there, we do not know what that final cost would be.
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    There is certainly some discussion within the private sector of ways and means in which they can augment and assist us with financial support for the financial literacy programs. I certainly wanted to put that on the table as something that you all might take back to your industry as well to see what you could do.
    Mr. COUCH. Congressman Scott, I know you have to run, but it is worth noting that many of our members, just as my colleague Mr. Smith said, we do provide counseling services outside of those that are required of us.
    Mr. SCOTT. Thank you. Again, we apologize.
    Chairman NEY. Thank you.
    I want to apologize. I have a few technical things. First of all, Congressman Velazquez wanted me to personally relay that she does have questions, as I do too, but we will get them to you in writing. Also, I have for the record statements to be submitted without objection by Randall Pence, American Society of Home Inspectors, the AARP, Financial Services Roundtable, ACORN, Housing Partnership Network and American Financial Services Association.
    I also note that some members may have additional questions for this panel which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to you, the witnesses, and to place the responses in the record.
    I want to apologize for these votes. You are a great panel. I am glad you were here to get on the record. Thank you very much.
    [Whereupon, at 1:26 p.m., the subcommittee was adjourned.]