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Thursday, May 20, 2004
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
    The committee met, pursuant to call, at 10:08 a.m., in Room 2128, Rayburn House Office Building, Hon. Michael Oxley [chairman of the committee] presiding.
    Present: Representatives Oxley, Baker, Royce, Ney, Kelly, Green, Shays, Miller of California, Tiberi, Feeney, Hensarling, Garrett, Barrett, Harris, Renzi, Frank, Waters, Sanders, Maloney, Gutierrez, Velazquez, Watt, Carson, Meeks, Lee, Inslee, Moore, Capuano, Hinojosa, Lucas of Kentucky, Clay, Israel, Baca, Miller of North Carolina, Emanuel, Scott, Davis and Bell.
    The CHAIRMAN. [Presiding.] The committee will come to order. The committee is meeting today to hear from the Secretary of Housing and Urban Development on the operations of the department and its budget request for fiscal year 2005.
    Pursuant to rule 3(f)(2) of the rules of the Committee on Financial Services for the 108th Congress, the Chair announces that he will limit recognition for opening statements to the Chair and Ranking Minority Member of the full committee and the Chair and Ranking Minority Member of the Subcommittee on Housing and Community Opportunity, or their respective designees to a period not to exceed 16 minutes, evenly divided between the majority and minority. Prepared statements of all members will be included in the record.
    The Chair recognizes himself for an opening statement.
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    Today, the Financial Services Committee welcomes the newly confirmed Secretary of Housing and Urban Development, Alphonso Jackson, on the occasion of his first time testifying as the HUD Secretary. Secretary Jackson, congratulations on your confirmation. We look forward to working with you to address America's housing needs and to improve our nation's communities.
    The committee has jurisdiction over the budget for the Department of Housing and Urban Development. The department administers programs such as the Community Development Block Grants, HOME, HOPE VI, public housing, section 8 voucher programs, the Federal Housing Administration and the housing goals for both Fannie and Freddie. Over the past few years, this committee and the Administration have continued to seek bipartisan ways to make existing housing programs work better. In 2003, we enacted the American Dream Downpayment Act that would benefit 45,000 new homeowners annually. The committee enacted legislation to increase FHA multifamily loan limits, which addresses the acute issue of affordable rental housing in high-cost areas.
    At a time when our homeownership rate is the highest ever at 68 percent, President Bush has inspired us to make homeownership happen for even more Americans. We must address the lagging minority homeownership rates since less than 50 percent of African Americans and Hispanics are homeowners. The zero downpayment legislation would allow zero downpayment loans and financing of the settlement costs for an estimated 150,000 first-time homebuyers each year. I want to thank Congressman Tiberi and Congressman Scott for introducing that legislation.
    While ownership policy is the best avenue for strengthening families and improving communities, part of American society is not yet ready to pursue homeownership. There are several ways to create new rental housing opportunities, however any new approach is hampered by the potential hemorrhaging of the section 8 rental housing subsidy program. Unless we take dramatic steps to reform the section 8 voucher program, it would eventually consume the entire HUD budget. Without meaningful reform, the good work achieved by other housing programs could be compromised.
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    Recently, articles have appeared in local newspapers stating that the section 8 housing voucher program in some communities is running out of money. I am concerned that vouchers are being revoked and that tenants may have to leave their homes. Equally troubling is the impact on conventional lenders and rating agencies's decisions to finance assisted housing. Members on both sides of the aisle are anxious to hear from you about what steps are being taken to address this situation.
    This committee has been following GSE regulatory reform efforts closely. Thanks to Subcommittee Chairman Baker's hard work, over 100 witnesses have testified on these issues and several policy goals have been achieved. The Senate Banking Committee approved a bill that was not supported by the Administration or the GSEs. We will be interested to know if the Administration's perspective on GSE reform evolved since the Senate activity. It seems the Administration does not want a viable legislative product that could move through the House and Senate, but would rather attempt to enforce discipline on the GSEs through regulation. I am very interested in HUD's efforts to improve its role in the oversight of the GSEs.
    HUD has proposed several new affordable housing targets for the GSEs and has eliminated the ability of the GSEs to receive additional credits for certain projects. These new proposals significantly raise the levels of affordable housing transactions the GSEs must meet. The stated purpose of these changes is to encourage Fannie and Freddie to be lenders in the affordable housing field. I look forward to your analysis of why these changes are needed and how these goals will be achieved.
    HUD is in the process of reviewing unusual transactions by the GSEs to meet the previous affordable housing goals. This committee is also looking at these transactions and examining whether they were appropriate. I hope that we can work together to ensure that the affordable housing goals are properly met.
    I also want to bring to your attention an issue raised at the Housing Subcommittee field hearing in Columbus, Ohio that was chaired by Subcommittee Chairman Bob Ney. While the hearing was primarily focused on affordable housing issues and the section 8 program, there was a call from the majority of the witnesses about the Community Development Block Grant Program. Many believe the allocation formula is outdated and does not account for the growth of cities. I understand that the department has conducted a study of the CDBG formula. I am hopeful that you will discuss whether the formula is in need of a change either today or in writing at a later date.
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    I would be remiss not to mention reform of the real estate settlement procedures act. I sent a letter in December to your predecessor regarding the department's proposed rule, which was later withdrawn. We all support the goal of simplifying the homebuying process and making it less expensive for consumers. I am hopeful that you will address the department's future intent regarding the development of a new proposed rule.
    Just before I conclude, I applaud the Administration for continuing to work on its goal to end homelessness. Representatives Renzi and Matheson have introduced the Samaritan Initiative Act. This initiative combines HUD's permanent housing funding with assistance from the Departments of Health and Human Services and Veterans Affairs for services like substance abuse treatment and primary care.
    Mr. Secretary, thank you again for being here today. Again, congratulations on your confirmation and we look forward to your testimony.
    I now recognize the Ranking Member, the gentleman from Massachusetts, Mr. Frank.
    [The prepared statement of Hon. Michael G. Oxley can be found on page 62 in the appendix.]
    Mr. FRANK. Thank you, Mr. Chairman and Mr. Secretary.
    We are in the midst of a serious crisis involving the section 8 voucher program. I know that Assistant Secretary Liu has said that a handful of the nation's housing agencies would not have enough money, but either they cannot count or he can't. I guess maybe I would suggest as a fundraising device we display Assistant Secretary Liu's hands because they are apparently an interesting phenomenon. They must have dozens and dozens and dozens and dozens and dozens of digits, because I have been besieged, as have other members, with concerns from both parties. We have, and I would ask to put this into the record, a resolution from the standing Committee on Economic Development, Trade and Cultural Affairs, from the National Conference of State Legislatures, in which they are strongly critical of the department's section 8 program. ''Be it resolved that the National Conference of State Legislatures calls on HUD to withdraw the April 22 notice about section 8 and begin a consultation process.''
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    [The following information can be found on page 98 in the appendix.]
    I know that others have said, well, this is what the appropriators have said, but of the two Chairs and two Ranking Members on the Appropriations Committee, to my knowledge only one has really said that he is in agreement with what HUD is doing. Senator Mikulski, the Ranking Democrat, has been very critical. Senator Bond, the Chairman in the Senate, has said he thought that it was not being carried out in the right way. Senator Sarbanes has been very critical, and I ask unanimous consent to put all their statements in the record.
    The CHAIRMAN. Without objection.
    Mr. FRANK. What we have is this: From Richard Nixon until a few months ago, the section 8 program, the voucher program, was one in which municipalities and States, whoever administered it, housing authorities, were given money and guidelines to run the program. If they kept within the guidelines, they were reimbursed for their costs. And I believe since the program was begun at the initiative of the Nixon Administration, the number of people served by the voucher program has never dropped from one year to the next. We have never gone back in terms of the number. The level of increase has varied.
    The municipalities have been told to do the right thing in terms of how they administer it, but then having done that, they got their costs. Last November, HUD worked with some of the appropriators, bypassing entirely this authorizing committee, and secured a fundamental change in this program, section 8. For the first time, the program was capped and housing authorities and others who administered it were not given, we are now told, the authority to continue the number of people who they had been serving, but had a limited amount of money capped by last August's amount of money plus an inflation factor, a very rigid one.
    The way in which this was promulgated is very troubling. HUD, which helped draft this legislation, probably drafted it, did this on November 30. It was not in either bill, as I recall. It was put in in conference. So HUD knew this from November 30 on. The appropriations were not actually passed until February. It was part of the overall bill. It was April 22 when this really quite new interpretation went to the communities. There was a great deal of disruption and upset and I ask unanimous consent to put in the record lists of dozens and dozens of communities in 25 States which have felt seriously disarranged by this.
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    [The following information can be found on page 104 in the appendix.]
    It is not simply the way in which it was done. It is the consequence. Essentially communities were told on April 22 of this year that retroactively they were going to have less money for section 8 vouchers than they thought they were going to have. The response of many of them was they would have to evict people. We had a very serious problem with some of the most vulnerable people in this society now being told that they faced eviction. A great deal of chaos ensued.
    Now, as I understand it, HUD recently, and I am going to have to ask you to explain this to us because there is still a great deal of uncertainty, ambiguity and confusion about this, HUD is now telling people, well, they are going to redo the formula in ways that while there will still be limits, it may not in the best case require any evictions.
    But communities continue to tell us, recent articles about Houston, about other places, that they are going to be faced with too little money to continue to serve the number of people they are serving, so that even if evictions are avoided, and I guess there have been a couple of evictions already and people threatened with eviction, but even if evictions can be avoided, which I hope, because that would be particularly cruel, housing authorities are going to face the following choices.
    Either they are going to have to, when people give up their vouchers in the normal attrition, retire those vouchers from circulation, so they will be serving fewer people, or they will have to reduce the rents to landlords, greatly damaging this program by making the responsible landlords less willing to participate; or they will have to raise minimum rates on the poorest people around; or, and I just got this from the city of Fall River, they will have to go against one of the fundamental purposes of this program. That is, they will have to find cheaper apartments.
    Fall River is suffering, they tell me, Fall River, Massachusetts, because some of their section 8 certificate holders, their voucher holders, have gone from the city of Fall River to wealthier areas where the rents are higher, but because they were not in those areas a year ago, they do not get compensated for that. So Fall River is now telling people, well, you cannot move out of the city elsewhere. The purpose of de-concentration, of avoiding packing poor people is now being undercut. The result of this is the most substantial damage to the section 8 program, people not wanting to participate.
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    I will say in closing, Mr. Secretary, I am troubled because reading some of your quotes on this, one, you referred to the fact that we have a wartime budget, which confirms what some of us fear, that the demands of Iraq and elsewhere are cutting into important domestic needs. But secondly, you said in the Dallas Morning News on April 14, quote, Mr. Jackson said he sympathizes, but we have to restructure section 8. The poorest recipients stay in the program five to eight years, tying up vouchers that higher income people could shed more quickly. The suggestion that one way to resolve this problem of housing the poor is to house people who are less poor seems to me to go directly contrary to what we ought to be doing.
    I will be asking you for some specifics, but I am very troubled that as a result of HUD's actions, pre-dating your secretaryship, but continuing under it, we have this section 8 program which has been a major source of housing assistance now major source of chaos and trouble and difficulty for tenants, for landlords, for lenders and for municipal officials.
    The CHAIRMAN. The gentleman's time has expired.
    The Chair is pleased to recognize the Chairman of the Housing Subcommittee, the gentleman from Ohio, Mr. Ney.
    Mr. NEY. Thank you, Mr. Chairman.
    I want to also welcome Secretary Alphonso Jackson to his first authorizing hearing, and also Chairman Oxley for holding this important hearing to examine both the programs and the budgets specific to the Department of Housing and Urban Development.
    Last year through bipartisan cooperation, the committee and the Administration were able to enact 11 bills into law that today are making housing programs work better than they have, again, on a bipartisan basis and through your leadership, Mr. Chairman and Ranking Member, we have been able to do that.
    Of those enacted, of course, last year the American Dream Downpayment Act and the proposal to raise the FHA model family loan limits are helping thousands of individuals and families to realize the dream of homeownership. In an effort to continue the goal to increase minority homeownership, on May 5 of this year the Housing Subcommittee approved H.R. 3755, the FHA Zero Downpayment Act. I want to commend our Ranking Member, Congresswoman Maxine Waters of California for her leadership, and members from both sides of the aisle working on this bill. It was introduced by Congressman Tiberi and Congressman Scott and would eliminate the downpayment requirements for certain families and individuals who buy homes with FHA-insured mortgages. It is a fiscally prudent bill and represents I think another important step forward in helping all Americans achieve the dream, and working with this committee and with the Administration we have been able to move this bill along the path.
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    While homeownership is a desired goal, for many Americans and many in today's society they are not yet ready for one reason or another to own their own home. It is therefore prudent that we continue to pursue all alternatives to make sure that affordable rental housing is also available. As you know, the section 8 housing assistance program is the major vehicle for providing rental assistance to low-income families and individuals. Today, the section 8 program encompasses I believe half of HUD's budget. The rising costs of providing rental assistance is due in varying degree to expansion in the program, the costs of renewing expiring long-term contracts, and the rising costs in housing markets across the country.
    The day of reckoning is coming fast. If we do not address the increasing costs of this program, it will continue to consume the HUD budget. I trust we can engage in a meaningful dialogue with all of our colleagues, both sides of the aisle and the Administration to find a solution to the escalating costs of the section 8 program. Of course, that is going to also have to involve the housing authorities and the advocacy groups that deal with housing. Not a day goes by that I do not talk to a constituent or a person who has a concern about the problems inherent to the program.
    I am anxious to hear from the Administration about their latest proposal for a flexible voucher program which I know the Secretary will be speaking about. I believe aspects of this proposal have some merit, but it remains to be seen whether this is the solution or not to the section 8 program. Nevertheless, we have to find a solution and it has to be done soon.
    Before I close, I also want to turn my attention to a proposed rule to raise Freddie's and Fannie's housing goals. It is clear this is an issue that will have a profound impact on America's housing policy and profound ramifications. In 1992, Congress passed legislation establishing the existing housing goal structure. In my estimation, these goals have been a tremendous success story for the department, and more importantly for the homebuying consumer and those renting apartments in the United States. Recently, HUD proposed raising the low-mod goal from 50 percent up to 57 percent by 2008.
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    I look forward to hearing from the Secretary this morning on the rationale for the increase. I represent rural Ohio, as a lot of people know, where the average loan purchased by Fannie Mae and Freddie Mac is still around $100,000. My focus is to make sure these companies fulfill their congressional mandate, and that is important that they do fulfill their mandate to serve as a liquidity source in markets at all times.
    I intend to pay careful attention to this proposed HUD rule, as I know everybody else will be, to make sure there is no adverse impact on the well-functioning housing market in the United States. I want these companies to serve more families and they should. I also worry about a rule where companies are on the point of forcing a potential credit allocation to the low end of the market, and negatively affects middle-income and also middle-class America.
    So I do have some concerns. I have other items in here, Mr. Chairman, so I will come to a conclusion, but if I could put them in for the record without objection.
    The CHAIRMAN. Without objection.
    Mr. NEY. My concern is that this proposed rule could force the GSEs to set higher interest rates for mortgage refinancing, which is what we do not want.
    In closing, let me say that the federal government, consumers and the housing industry are linked by our mutual goal of creating housing opportunity for Americans. We have much to achieve together for the American people, and our best hope of being successful is to work in close concert with each other, guided by the same high standards and principles. I do appreciate the Secretary being here today, and thank you for my time, Mr. Chairman, and your work on this issue.
    [The prepared statement of Hon. Robert W. Ney can be found on page 70 in the appendix.]
    The CHAIRMAN. The gentleman's time has expired.
    The gentlelady, the Ranking Member of the Housing Subcommittee, Ms. Waters.
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    Ms. WATERS. Thank you very much, Mr. Chairman.
    Good morning, Secretary Jackson. While I congratulate you on your confirmation as HUD Secretary, I do not know whether you should be happy or sad. You have been given control of an agency with a disastrous proposed budget that takes us backwards in so many important ways. A budget that, for example, seeks $1.633 billion below the amount that HUD itself projects is needed to renew all section 8 housing vouchers. If enacted, your section 8 budget proposal will dislocate households and force many public housing authorities to raise rents and lower subsidies to needy seniors, persons with disabilities, and families with children.
    This funding level would result in 250,000 fewer vouchers being funded if housing authorities choose to maintain the current level of subsidy for those vouchers that they do maintain. If housing authorities choose instead to maintain the same number of vouchers currently authorized nationally, the average section 8 tenant's rent would have to increase by an average of about $850 per year. In Los Angeles, the city housing authority would have to issue 5,336 fewer vouchers and the county housing authority would have to issue 2,457 fewer vouchers if they choose to make up the funding shortfall by reducing the number of vouchers that they fund.
    If they issued the same number of vouchers, the city of Los Angeles would have to raise the average tenant's rent by $933 per year, and the county housing authority would have to raise the average tenant's rent by $977 per year in order to absorb the impact of the Bush Administration's proposed funding level.
    Mr. Secretary, I would need at least an hour to talk to you about all of the ways that this proposed budget fails to meet America's pressing needs for housing, but let me try and summarize some of my principal concerns. Hopefully, we can cover more of the issues during the question period.
    HUD's budget for CDBG block grants fails to keep pace with inflation, and zeroes out funding for brownfields, empowerment zones and CDBG section 108 loans, a program that is especially important to me. I put a lot of time in on section 108, and the city of Los Angeles has been able to use section 108 as have cities in this country for economic development. I am really concerned about that.
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    Your budget cuts public housing funding by $182 million, rescinds $675 million in funds that could be used to preserve affordable housing; zeroes out funding for HOPE VI and proposes to let 50 housing authorities operate without statutory tenant protections. It proposes a $35 million cut for lead paint grants, and to zero out funding for rural housing and economic development grants which received $25 million in funding year 2004.
    I do not know how much you were involved in this budget, but I know some of your reputation. I have met and talked with you before, and I expect that you will provide the leadership to correct what are many problems with this budget. This is a very serious business. As I sit talking to you today, there are 1,500 households in Los Angeles who are not receiving assistance, whose vouchers were cancelled by the city housing authority because the vouchers that they waited so many years to receive were not funded. This is just not acceptable. HUD should be using its central reserve fund and taking whatever other steps are required to ensure that these families receive housing assistance.
    Your proposal is to block grant section 8 funds to the local PHAs, eliminate the guarantee that at least the same number of units will continue to be served, and end the targeting requirements that helped to ensure that section 8 vouchers are directed to those low-income residents with the greatest needs. Again, it was mentioned on April 22 of this year. HUD announced that it will no longer reimburse housing agencies for their actual costs, but instead will renew quarterly voucher funding based on an agency's per cost in August, 2003, adjusted only by a regional housing inflation factor.
    It is completely improper and unacceptable for HUD not to renew vouchers at payments high enough to keep pace with rent increases. It is simply unconscionable for HUD to adopt policies that will result in evictions, the non-renewal of vouchers, or require greater contributions from low-income section 8 tenants who really cannot afford it. HUD's contract renewal policies must cover the true increases in housing costs in Los Angeles and other communities. HUD must replenish PHA reserves as the department has done in the past, as the department has not only done in the past, but to cover unanticipated cost increases. HUD should rescind the April 22 notice and return to policies that will protect those that Congress intended to help through the section 8 program.
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    Finally, let me say a word about homeownership and GSEs. Now, I know some people are going to take great exception to this.
    The CHAIRMAN. Could the gentlelady conclude please?
    Ms. WATERS. One additional minute.
    The CHAIRMAN. Without objection.
    Ms. WATERS. In addition to this very difficult budget that you have to deal with, there is a fight that is going on that has been going on here with the GSEs. You all know and you understand very well what the confrontation is with FM Watch and the GSEs. It is about market share. There are any number of ways that have been concocted by the Administration to try and weaken the GSEs.
    This business of increasing the goals for low-income housing looked like it was a good thing when I first looked at it. But now that I have examined it, and I was involved in 1994 in increasing those goals, and I believe in increasing the goals and getting as much as we can, but when you take away the points that the GSEs receive for reaching those goals, it makes me wonder whether or not this is just another FM fight, or whether or not you are really serious about this, Mr. Secretary.
    The purchase of these mortgages from Washington Mutual and other places expands housing ownership opportunities. If you are going to take away the points and redefine how they can reach the goals, I am not sure that you are really serious about expanding the goals and having them reach them. I want you to think about that, and I certainly do not want you to be used as a point person in this fight against the GSEs. Let the markets work. Either these other financial institutions can step up to the plate and do what they need to do, but coming to government in so many ways to do this is totally unacceptable.
    Thank you, and I yield back the balance of my time.
    The CHAIRMAN. The gentlelady yields back.
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    The Chair recognizes the gentleman from Texas for the purpose of introducing our witness.
    Mr. HENSARLING. Thank you, Mr. Chairman.
    It is a great privilege and honor that I welcome my friend, my fellow Texan and fellow Dallasite, Secretary Jackson, before this committee. I want to congratulate him on his recent confirmation. I want to share with the committee my belief and the belief of many others that no one has brought more housing experience to this position as has Secretary Jackson. Specifically, he brings over 25 years of housing experience in both the private and public sectors to this office. From 1989 to 1996, Secretary Jackson was the president and CEO of the housing authority of the city of Dallas, which constantly ranked as one of the best-managed large-city housing agencies in the country during his tenure. He has served with distinction on a number of national and State commissions, including the National Commission on America's Urban Families and the National Commission on Severely Distressed Public Housing.
    On a more personal background note, Secretary Jackson I know grew up in a family of very modest means. He was the youngest of 12 children, but through hard work, through principle, through opportunity he has risen. He has managed not only the Dallas housing agency, but also was the president of the American Electric Power Company, a $13 billion utility company in Texas. All of Dallas, all of Texas is proud of you, sir. We welcome you to this committee and we look forward to hearing your testimony and look forward to your principled leadership at HUD.
    Thank you, Mr. Chairman.
    The CHAIRMAN. I thank the gentleman.
    So we will turn now to Secretary Jackson. Mr. Secretary, welcome to the committee and you may proceed.
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    Secretary JACKSON. First, thank you, Congressman Hensarling.
    Chairman Oxley, Ranking Member Frank, distinguished members of this committee, thank you very much for inviting me here this morning. I am honored to discuss with you the fiscal year 2005 budget proposed by President Bush for the Department of Housing and Urban Development.
    Mr. Chairman, in order to reserve time for the possible questions that I will be asked, I would like to focus my opening statement on some key priorities that I think are very important to discuss. I would like to ask you to allow me to submit the full statement for the record.
    The CHAIRMAN. Without objection.
    Secretary JACKSON. Thank you.
    Before I start the testimony, I would like to say this morning that I am concerned with some of the issues that were raised. So in that effort, I think it is important for me to first state that in an effort to be more effectively implementing the provisions of the 2004 omnibus bill act, I have directed Mr. Michael Liu, the Assistant Secretary for Public and Indian Housing, to apply the full 2004 inflationary factor, what HUD refers to as the annual adjustment factor, to each housing authority agency's funding level of 2004. This adjustment to the funding formula will be retroactive to January 1, 2004 and will provide housing agencies more of their funding up front, rather than late in 2004. Again, this is good news for those agencies that have fiscal years ending in June and even in September. All agencies were notified of this funding calculation change on May 18 of this year.
    The second piece of good news I want to announce is that HUD is going to replenish the program reserve for approximately 500 housing agencies, depleting their reserves in 2003 and qualifying for restoring of funding. HUD is using approximately $150 million in carryover central fund money from 2000 for this purpose. I want to be clear, HUD is not restoring 2004 reserves, but only 2003 reserves for legitimate costs incurred in 2003. HUD will notify the agencies eligible for the 2003 reserves fund to date.
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    These two new actions by HUD, as well as additional clarification of information already sent to the agencies this week regarding their funding, will significantly improve the financial situations for most, if not all, of the agencies. It will enable them to manage their programs within the funding amount provided by Congress for 2004 and provide the needed assistance to their families that they serve.
    The program funding within the $31 million HUD budget will create new opportunities for those seeking affordable housing and the American dream of homeownership, while generating stability and prosperity in many communities in this country. The key priorities it addresses are central to the President's plan to help make America a more secure, more prosperous and more hopeful country. Housing, of course, is vital to our national prosperity and remains the linchpin of the economy today.
    The housing market generated robust activities through 2001's recession and today housing continues to fuel the ongoing economic recovery of this country. Homeownership last year reached an all-time high of 68.6 percent, and fourth quarter 2003 statistics reveal that for the first time a majority of minorities own their homes in this country, 50.3 percent. HUD's fiscal year 2005 budget will empower our department to build on these successes as we seek to increase homeownership, promote decent affordable housing free of discrimination, encourage participation of faith-based and community organization, and HUD's grant program and embrace the highest standard of ethics, management and accountability.
    Let me first discuss homeownership. In June 2002, President Bush announced an aggressive plan to increase the number of minority homeowners by 5.5 million by the end of this decade. Today, more than 1.5 new minority homeowners have been created in the United States since we initiated this proposal in 2002. HUD is proposing several new and expanded initiatives to continue increasing overall homeownership, while targeting assistance to help minority families experience the economic and social benefit of owning a home.
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    As a first step, HUD proposed to fund the American Dream Downpayment initiative at $200 million in the coming fiscal year. The Congress showed great leadership in enacting President Bush's American Dream Downpayment proposal last year. By fully funding the fiscal year 2005 initiative, we will help 40,000 families cross what has been represented as the single biggest hurdle in homeownership, that is high downpayment and closing costs.
    The Administration is proposing legislation that would create a new mortgage product targeted at first-time homebuyers. That is the zero downpayment mortgage, which would allow consumers to qualify for an FHA loan without having to come up with cash for downpayment and settling costs. The zero down proposal has generated a great deal of interest among the industry and the consumers. We estimate that it will help 150,000 families a year purchase their first home.
    It would be structured to assist the creditworthy, cash-poor working individuals who have been excluded from purchasing their first homes. Most of these families can afford monthly payments, but because of the circumstances have simply not had enough to save for the downpayment. HUD has designed this program to minimize default and to protect the mutual mortgage insurance fund. FHA has made a conservative financial assumption regarding this program.
    In order to cover the cost of the program, families who qualify for the zero downpayment plan would be charged a modestly higher insurance premium on their home loan. For example, for a $100,000 mortgage, a zero downpayment borrower would pay approximately $50 a month more than a regular FHA borrower. There would be no net cost to the FHA mutual mortgage insurance fund.
    The President's budget projects that an additional $19 billion in mortgage commitment will generate revenues of about $180 million the first year of this program. Borrowers would be held to the same underwriting guidelines as those for FHA standard 3 percent downpayment mortgages. They must meet the same payment-to-income, debt-to-income ratio and the same credit standards.
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    To further minimize the risk, the proposal for the zero downpayment program includes a housing counseling requirement. Specifically, participants would be required to satisfactorily receive one-on-one housing counseling from HUD-approved housing counseling agencies before they enter into a sales contract. I want to thank Representative Tiberi for introducing the zero downpayment legislation in the House, and I want to congratulate Chairman Oxley for holding a successful bipartisan full committee markup yesterday.
    To promote the production of affordable single-family homes in the area where such housing is scarce, the Administration is proposing a tax credit of up to 50 percent of the cost of constructing a new home or rehabilitating an existing home. Our request of $65 million for the Self-Help Homeownership Opportunity Program, as we call SHOP, would more than double the funds SHOP received in 2004, to help produce 5,200 new homes for very low-income families.
    Along with boosting homeownership, HUD proposed a budget that will continue to promote the production and accessibility of affordable housing for families and individuals to rent in this country. Three major rental programs collectively help approximately 4.5 million households nationwide. Our major program is the section 8 program, which provides both tenant-based funding through the housing choice voucher program, and project-based rental assistance through HUD's public housing program. The Administration is proposing to reform the housing choice voucher program to make it more effective, efficient and able to meet the needs of low-income families that depend on this program.
    Today, the section 8 program lacks any incentive for families to transition out of the program and begin to live independent lives. In addition, the program is unsustainable at the current growth level. Pre-voucher costs have increased at an alarming rate of 23 percent in just the last two years. The Administration's new flexible voucher program will serve at least as many Americans at the 1.9 million families currently serving through the housing choice voucher program.
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    More importantly, our proposed reform will help families move out of assisted housing and into self-sufficiency. The HOME program is a key initiative for addressing this shortage of affordable housing in America. In fiscal year 2005, we are proposing a total of $2.1 billion, which includes $200 million for the American Dream Downpayment initiative to help expand the nation's supply of affordable housing. Participating jurisdictions have substantial discretion to determine how to spend and use the funds.
    HUD is committed to providing American cities as a viable hub of commerce in making the communities better places to work and to raise our families in. The fiscal year 2005 budget provides States and localities with tools they can use to improve their economic health and promote community development. Perhaps the greatest strength of these economic development tools, which include the highly successful Community Development Block Grant Program, is the way in which they encourage local decision making to address developmental priorities.
    Through our budget, HUD will strengthen its efforts to protect the nation's most vulnerable, those individuals and families who truly need government assistance. The HUD budget for 2005 will benefit adults, children from low-income families, the elderly, those with physical and mentally handicapped disability, victims of predatory lending, families living in housing contaminated by lead-based paint hazards, and persons living with HIV-AIDS.
    In the coming fiscal year, the Administration will continue to work to meet the challenge of homelessness that confronts many Americans. The President has made an unprecedented Administration-wide commitment to eliminate chronic homelessness. This commitment is reflected in the fiscal year 2005 budget request through proposals such as the Samaritan initiative, which will provide additional options and services to homeless people living in the streets.
    Finally, Mr. Chairman, our budget creates new opportunities to improve HUD's performance in its critical-need housing and community development programs. I know that this subject is particularly important to the committee. I can assure you that we share your concerns. We continue to make progress. This will remain the top priority in the years to come. I want to thank each of you for supporting our efforts and we welcome your guidance as we continue to move forward.
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    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Alphonso Jackson can be found on page 75 in the appendix.]
    The CHAIRMAN. Thank you, Mr. Secretary.
    Let me begin by asking about RESPA reform. We all share the goal of simplifying the home buying process. I constantly hearken back to when I was practicing law and involved in real estate closings and the madness that occurred in that process, and my clients not understanding what was going on. I know that the RESPA reform effort was withdrawn. What plans, if any, do you have of revisiting that issue? And could you give us a timeline if that is the case?
    Secretary JACKSON. Surely. Thank you very much for the question.
    I made a decision after critically reviewing the proposal and the process that had taken place. I asked at that point in time that OMB return the RESPA proposal back to us. It was my feeling, even though I cannot discuss the specifics with you, it was my feeling and my belief that the proposal had not had the necessary input, and a consensus that would be appropriate to move it forward.
    We have the staff at this point still reviewing it internally. We have a meeting weekly discussing the RESPA proposal. We expect that after having conversation with the industry, with Congress, as I assured you, Mr. Chairman and Chairman Allard, we will then look at the possibility of coming back out with a new proposed rule after having input from you and the industry. I have not set a timetable because still we have not answered a number of questions that have been asked of us by OMB.
    We hope to have those questions answered probably in the next 30 to 45 days, and at that point in time we will get in to discuss with you and others your concerns that you have and take those concerns into consideration. Then I will be in a position to give you a timetable of when we expect to reissue the rule.
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    The CHAIRMAN. I thank you, Mr. Secretary. I think you will find some willing participants on this side in regard to a solid RESPA reform effort, with input from the Congress. I appreciate your openness and ability to work with us. We look forward to that effort.
    Let me ask you about the GSE programs. We have recently received documents relating to HUD's examination of GSE programs. The documents comment on proposed guidelines for some programs and seek additional information on others. Is this an effort by HUD to exercise its program approval authority over the GSEs?
    Secretary JACKSON. Yes, it is. I think it is very unique because we have been criticized over the years for not exercising that program authority. I think the GSEs serve a real functional purpose, but Mr. Chairman, the GSEs have an implicit government guarantee. Their goals are to serve low-and moderate-income people in this country. What I am about to say to you today are not figures that we have invented. They are figures that they have conveyed to us. They are not leading the market. They are following the market. Our position is that they should be the leaders of the market in addressing the needs of low-and moderate-income people.
    Today, I want to make it very clear because people have said that this is a new effort. No, since Secretary Martinez and I have been there, and I have been the Deputy Secretary and the Chief Operating Officer, we have spoken on numerous occasions with the heads of the GSEs and told them our concerns about not leading the market, and what we expected out of them. We still expect that. The difference is that as the Secretary, I am going to make every effort to enforce it. We do not care, nor do we have any desire to regulate this top-end of their market. But what we are saying in essence is that we want you to serve low-and moderate-income people in this country, which your charter mandates that you do. That is the only thing we asked them.
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    The CHAIRMAN. Some would say that the program approval process may indeed stifle innovative products going to market. How would you answer that?
    Secretary JACKSON. If their investments in derivatives have not stifled them, I do not see how we are going to stifle them asking them to serve low-and moderate-income people.
    The CHAIRMAN. Do you think that HUD needs new tools to review GSE programs? If so, what would they be?
    Secretary JACKSON. I think that the Administration has put forward a proposal for regulating the GSEs. We are in full support of that proposal. I think our responsibility is to set the housing affordable goals to make sure that the GSE meets those.
    The CHAIRMAN. Are you referring to a legislative proposal or an administrative proposal?
    Secretary JACKSON. Administrative, which was put forth this year. We are very supportive of a strong regulator still today. But our goal today is to make sure that the GSEs simply meet their housing goals and their mandate to serve low-and moderate-income persons. That is what I am most concerned about today, and that is why we have been making every effort since I have been here to work with the GSEs. It is very different today because I guess I come with a very tremendous knowledge and background with the GSEs, having been in housing for so long. I do believe that they have the capability to meet those goals without any reservations at all.
    The CHAIRMAN. Thank you, Mr. Secretary.
    The gentleman from Massachusetts.
    Mr. FRANK. Mr. Secretary, in my 24th year, I do not startle easily, but you have accomplished that. I think I heard you say that there was an implicit government guarantee of the GSEs. One, I must tell you as a high government official, when you say it, it is not implicit anymore. You just made it explicit. But secondly, I do not think there is, and I understood it was the policy of the Administration that there was not. Are you now promulgating a new Administration policy, having said that there is an implicit government guarantee?
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    Secretary JACKSON. No, I am not. I am just repeating what the GSE said to me when I was speaking to them, and I have met them on a number of occasions.
    Mr. FRANK. They think there is an implicit government guarantee? And you agree with that? You just stated it.
    Secretary JACKSON. No.
    Mr. FRANK. Mr. Secretary, you did not say you were quoting them.
    Secretary JACKSON. Congressman, yes, I repeated exactly what they said. I am not going to debate with you, Congressman.
    Mr. FRANK. Well, do you think there is an implicit government guarantee?
    Secretary JACKSON. That is not for me to decide. I just recounted what they said.
    Mr. FRANK. Excuse me, Mr. Secretary, it is for you to decide. You are a high government official here. I think it is very important for us to make clear that there is not. I think you are adding to confusion here. You will not tell me that you do not think there is an implicit government guarantee?
    Secretary JACKSON. I think my responsibility, Congressman, is what I said to the Chairman. I am here to make sure that the GSEs effectuate the affordable housing goals and that is what I am here to speak about.
    Mr. FRANK. Let me say, Mr. Secretary, I am glad about that. In fact, I was very critical. HUD delayed a year in promulgating new goals. HUD had the right to promulgate new goals that could have taken effect this year, and delayed. So I am glad they are doing it. We are pushing for even more.
    I want to get back to section 8. On the reserves, very important, you said that you are going to provide $150 million, is that accurate, to replenish reserves, and the authorities will know as of today whether they are getting new reserves?
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    Secretary JACKSON. Yes.
    Mr. FRANK. And where does the $150 million come from?
    Secretary JACKSON. The $150 million, if I remember right, it came from carryover from 2003.
    Mr. FRANK. Did you just find it? When did you find out that we had this carryover from 2003? Is it a carryover in section 8 funding?
    Secretary JACKSON. Yes, it is.
    Mr. FRANK. And how long have you known that you had the section 8 funds?
    Secretary JACKSON. We have known it from the beginning, but that is always——
    Mr. FRANK. Why did you wait until now?
    Secretary JACKSON. Every housing authority has a right at the beginning of the year to make a request for replenishing, when they spend 50 percent or more, and we answer that. A number of authorities did not do it this year, but still we felt it was imperative——
    Mr. FRANK. I am troubled that you waited so long. I am glad that we are finally getting it.
    Let me ask you now on the inflation-adjusted. You say what you basically decided to do, you are sticking with the 2004 fiscal year formula, but basically the housing authorities are going to get, am I correct, the same amount of money, but they are going to get more of it early than they would otherwise get?
    Secretary JACKSON. Yes.
    Mr. FRANK. What does that mean later? Are they going to run out of money? Does that mean that they are going to have trouble sustaining this, if you give them more money up front? Let me put it to you this way. Do you believe that all of the housing authorities that you deal with will be able with this funding formula and the new reserves to maintain the current level of section 8 certificate holders? That none of them will have to cut back on the number of vouchers they offer?
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    Secretary JACKSON. Surely. I do believe that. You asked a very important question. One of the reasons that we are doing it up front at this point, there are a number of housing authorities, as with my housing authority when I was in Dallas, that operate on a June-to-June schedule. This will help to empower those——
    Mr. FRANK. I am glad you mentioned that.
    Secretary JACKSON. May I finish please?
    Mr. FRANK. Yes.
    Secretary JACKSON.—who operate on a September-to-September schedule.
    Mr. FRANK. Okay. But I just want to make clear, you do not believe now that any housing authority will have to either freeze vouchers, regain them by attrition or cut rents, or do any of that?
    Secretary JACKSON. No, because I just received a letter from your housing authority in Boston who thanked us for making sure that would not occur.
    Mr. FRANK. The city of Boston?
    Secretary JACKSON. Yes.
    Mr. FRANK. It is not mine. Mr. Capuano represents Boston. You can talk to him.
    The city of Fall River, on the other hand, is very concerned, and I just heard from them. They have this problem where by your formula, they are being penalized because people who used to take vouchers in Fall River have now moved to more expensive areas and the formula does not pay for it. So I have to ask you this question. The language that is in the bill that made some changes, HUD supports that language? Does HUD think that is good language?
    Secretary JACKSON. I am not sure what you are asking me.
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    Mr. FRANK. The language that was put in the bill, the language that has been somewhat controversial. Does HUD think that is good language? Do you want to keep that in the bill next year?
    Secretary JACKSON. My position is this, I understand clearly article I, section seven. It simply says that Congress is the appropriator and the authorizer.
    Mr. FRANK. And HUD has no position on this, Mr. Secretary?
    Secretary JACKSON. May I finish?
    Mr. FRANK. No, not with that silliness.
    Secretary JACKSON. You asked me a question. Do you want we to answer?
    Mr. FRANK. Yes, the question is, do you have a position on the language?
    Secretary JACKSON. I carry out the mandate of Congress. That is what HUD's responsibility is.
    Mr. FRANK. No, Mr. Secretary, you are not answering the question. And that is just disingenuous. I am sorry. The fact is that we all know what the Constitution is. You are trying to run out the clock by quoting the Constitution and we all know it. I asked you, does HUD have an opinion on this? The notion that the Constitution somehow prevents you from expressing your opinion is a dodge. What is HUD's opinion on the language? Do you want to continue it next year? The Constitution, I promise you, it is not unconstitutional for you to give your opinion. I guarantee it. I will get Scalia in here to reassure you.
    What is your opinion as the chief housing officer on the desirability of including that language and continuing it?
    Secretary JACKSON. My opinion as the Secretary of Housing and Urban Development is I am going to carry out the wishes of Congress.
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    Mr. FRANK. And you will not tell us what your wishes are?
    Secretary JACKSON. I am going to carry out the wishes of Congress.
    Mr. FRANK. And you will not express an opinion on what the policy ought to be?
    Secretary JACKSON. Well, my position is——
    Mr. FRANK. I am asking you what your position is.
    Secretary JACKSON. I guess, Congressman, I do not think my position is really relevant at this point.
    Mr. FRANK. All right. I am sorry, Mr. Secretary. I have another minute. You do not believe that the position of the Secretary of HUD on matters of housing policy is relevant? What do you do down there?
    Secretary JACKSON. No, I do not think it is relevant to contradict the Congress. The Congress has said what it wanted done.
    Mr. FRANK. Okay. Then let me ask you this, so you are telling me now that HUD will express no position on this issue when we take it up?
    Secretary JACKSON. I am going to carry out the mandate of Congress.
    Mr. FRANK. Do you really think just repeating that mantra when it is not relevant to the question is helpful, Mr. Secretary? My question is, do you have an opinion? I know you will carry out the mandate. The question is, do you think it is an appropriate mandate? Do you think we should change it or keep it going?
    The CHAIRMAN. The gentleman's time has expired.
    Mr. FRANK. So has his patience.
    The CHAIRMAN. The gentleman from Ohio, Mr. Ney?
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    Mr. NEY. Thank you.
    Let me move on to vouchers for a second. On page six of your testimony, you state that the current system fails to support families making the transition from public assistance to self-reliance and work, and doing so produces a number of families that could have been helped for a given amount of money. I am just wondering if you could elaborate a little bit of your view of the mission of section 8, but also, what do we envision people transitioning to? That is the real thrust of my question.
    Secretary JACKSON. Congressman, if we go back to the history of the section 8 program, we know the history of the section 8 program has come in two phases. First, it was basically section 23, which was supposed to help construct, build, and we would support those private developers through a section 8 project-based program. In the 1980s, we decided that that program was absolutely too expensive so we said why don't we go to a voucher program. We did go to a voucher program, which in essence said, no longer are we going to be relegated to charging 30 percent of the adjusted gross income. If a family can afford to pay 40 percent or 50 percent, let's do it.
    One of the mandates during that process, when we started the voucher program, was that it was to be a transition program between public housing and self-sufficiency. It was never envisioned as the QHWRA proposal in 1998 did, that said it has to be 30 percent or less of median in order for you to be qualified.
    So initially, the program was set up as a transitional program. From my perspective, I think that it should be. I do not think that the section 8 program should be a secondary or substitute for the traditional public housing program, which in my mind has perpetuated a system where people have lived in it two or three generations. Does that mean that people are going to be able to immediately move out of public housing? No, I am not foolish enough to believe that. Does that mean that we should not make every effort to help families who can afford to move out of public housing or off of section 8 to do it, yes, I believe we should.
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    See, I come with a very different perspective. I do not come in dealing with public housing residents or low-income people from a position of paternalistic and patronizing. I believe that low-and moderate-income people are human beings with the same sense of worth that I have and I should work with them. I do not think, having run three major housing authorities, I have never seen anybody who consistently and constantly wants to stay in public housing or stay on the certificate.
    So my goal when running those authorities was to help them move. Did we move all of them? No, but in the end I think we have made enough progress. I think we should make that our objective, the same as we have done with the American Dream Downpayment Program to try to make homeownership a major initiative. I think we should do the same thing when we are talking about moving people from public housing through section 8. If we can avoid section 8, let's try to avoid it, but to self-sufficiency.
    Mr. NEY. Thank you. The other interesting thing for our Subcommittee, we had hearings and we were in different spots, Los Angeles and Columbus, Ohio and different areas, hearings here, on the proposal that Secretary Martinez had, which was the block granting. We did not get a lot of reactions from Governors, obviously, on that issue. Now, we have this proposal. I do not know what happens in quick session here or with the authorizing and appropriations.
    Who knows what is going to happen with this whole proposal. But I do know either we add money, or if we do not add enough money, then that section 8 pie still grows, and then it starts to come down to taking money away, if there is limited amount of money, from some of the homelessness programs and AIDS. Then you have entities fighting each other.
    So I know it is a balancing act in the amount of time that is left this year, and the appropriations process, and I do not know what all happens here again, or what makes it through the system or not in the Congress this upcoming year. But I do think at some point in time, we are going to have to get people together for more than just a hearing, but people together on all sides of this issue for, I do not want to say a debate, but a reasonable civil dialogue back and forth until we can try to see what is going to be happening to this, versus always trying to do it at the appropriations process or the authorizing process, every year for a 3-or 4-month period. Because it is either add money, and if we are not going to add ''sufficient'' money for what people say the demand is out there in the housing authorities, then that pie will continue to shrink the programs, and get programs pitted against programs.
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    Thank you, Mr. Chairman.
    The CHAIRMAN. The gentleman's time has expired.
    The gentlelady from California, Ms. Waters?
    Ms. WATERS. Thank you very much.
    Mr. Secretary, my staff took down your comments on the changes that you are proposing for section 8 and how you propose to deal with the crisis that we have now. We are going to check with our housing authority to see what this is going to do for those outstanding vouchers that we have. I am pleased that you are moving forward to try and deal with this problem.
    Let me ask you something about your overall budget. When did the budget that you submitted to OMB change to this budget that has now been proposed?
    Secretary JACKSON. I am not sure what you are asking.
    Ms. WATERS. HUD submitted a budget.
    Secretary JACKSON. This is our budget.
    Ms. WATERS. No, I am talking about the original budget to OMB. When did it change?
    Secretary JACKSON. No, this is our budget.
    Ms. WATERS. This is the one you submitted to OMB?
    Secretary JACKSON. This is the budget that we worked with OMB to formulate. In answering your question, I do not think anyone is more concerned at serving the needs of low-and moderate-income people in this country than I am. You might be, but I guess I have run three housing authorities, so I am real concerned.
    Ms. WATERS. No, you came from a family of 12. I came from a family of 13.
    One of those housing projects, my family lived in in St. Louis.
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    Secretary JACKSON. I never lived in one. Okay.
    Ms. WATERS. So you do not care more about this than I do. Okay?
    Secretary JACKSON. All right. Well, we care almost equally, then.
    So I am very concerned, and I will defer to you that you care more.
    Ms. WATERS. Okay. Well, let me just say this. I was trying to find out, because I know that if you put together a budget, you did better than this, and somebody messed with it. Somebody changed it, but I am not going to keep on that.
    You said you know a lot about GSEs. I am really concerned about this, because again in 1994, I worked to increase the goals and they have been increased over about three times since 1994. I am looking at what is happening now, and I am concerned that you are taking away points and credits that should be given to the GSEs, and that you are doing away with bonuses for some of the most challenging housing projects. You are raising the goals. I am trying to find out why you are doing this. Are you familiar, for example, with the WOW program that the Congressional Black Caucus is involved in?
    Secretary JACKSON. Yes.
    Ms. WATERS. Do they get points for that? Do the GSEs get points for that?
    Secretary JACKSON. I cannot answer that. I have been with a number of your colleagues in their cities promoting the WOW program.
    Ms. WATERS. You know, it is heavily supported by the GSEs. Also, do they get points for the $1.7 billion in low-income housing tax credits?
    Secretary JACKSON. Yes, I think they do.
    Ms. WATERS. That is a question that we really do have to resolve, because as I understand it, they will not.
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    What about the mortgage revenue bonds? I understand there are about $6.2 billion in 2003 in mortgage revenue bonds. Do they get credit for that?
    Secretary JACKSON. I will have to get back to you on that.
    Ms. WATERS. Okay. What do you know about the anti-predatory lending guidelines that come out of Fannie Mae, for example?
    Secretary JACKSON. We work well with them on that.
    Ms. WATERS. Do you know that they do much better than some of the institutions in FM Watch. We are concerned about some of those institutions in FM Watch, who have some very, very discouraging predatory lending practices.
    What about manufactured houses? We have beat up on them about manufactured housing. They are transforming manufactured housing. Do they get credit for that?
    Secretary JACKSON. They have not really transformed manufactured housing. That is not true.
    Ms. WATERS. Oh, yes, they are working with us.
    Secretary JACKSON. They might be working with you.
    Ms. WATERS. This effort was led by Mr. Benny Thompson of the Congressional Black Caucus, working with Mr. Ney and others.
    Secretary JACKSON. I think they are working with you, but you said they had transformed. They have not. We have not transformed manufactured housing.
    Ms. WATERS. Well, if they had, would they get credit for it?
    Secretary JACKSON. Yes. And the same, as I said before, if it qualifies as low-and moderate-income, we are not going to hesitate to give them credit, Congresswoman.
    Let me say this, because I think it is very, very important. No one, especially at HUD, is trying to penalize the GSEs. I can assure you of that. You asked about, is this new. No. I only use their figures. Now, they report the figures to us. We are not at liberty to discuss those figures publicly. If the chairmen of each one of those GSEs would like for us to submit those figures to you, then you would see what I am saying today, they are not leading the market.
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    They are lagging behind the market. If you pay close attention, just the other day the Chairman of one of the GSEs specifically said that his organization was not doing or coming close to doing what they should be doing for low-and moderate-income people in this country and that he was restructuring it to make sure that he addresses the needs that were raised by HUD on the affordable housing efforts. Those are their words.
    Ms. WATERS. I do not know who said that, and I cannot debate with you about figures and information that I am not privy to or you say that I cannot have. Simply let me just say this, I join with anybody who is interested in expanding low-income housing opportunities. Let me must say that the no downpayment, low downpayment, all of that, that is good stuff, but it is a drop in the bucket.
    Most of the folks who are poor are going to be renting and they need some assistance and this is not enough. We do not want people to believe that all of a sudden because we have these very minimal programs that we are going to transfer everybody into homeownership. We have to do everything that we can. We cannot make it harder.
    I do not know why when you look at these points or these bonuses, or however you calculate this, that if one of these GSEs buys a lot of paper, lots of paper from Washington Mutual or anybody else, why they will not count. I mean, to the degree that they can get rid of that paper, that expands homeownership opportunities.
    The CHAIRMAN. The gentlelady's time has expired.
    Secretary JACKSON. Congresswoman, that does not expand homeownership, buying mortgages from Washington Mutual.
    The CHAIRMAN. The gentleman from Wisconsin, Mr. Green.
    Mr. GREEN. Thank you, Mr. Chairman.
    Let me join with others in welcoming you, Mr. Secretary, to the committee. We appreciate your time.
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    Secretary JACKSON. Thank you.
    Mr. GREEN. I do not get this opportunity very often, Mr. Secretary, so if you will indulge me, I want to ask you a couple of very specific questions that hopefully you can answer or perhaps have someone get back to me with.
    Mr. Secretary, your office I think is aware that in Janesville, Wisconsin, which is in Congressman Ryan's congressional district, the city council recently passed a resolution to provide the Salvation Army with federal funds in order to purchase an apartment building to use for transitional housing for the homeless. It has since been reported, unfortunately, that an amendment was added by the city council which forbids any and all religious activity conducted by the Salvation Army personnel related to this project. As far as I know, there is nothing in federal regulations that would preclude a faith-based organization from using federal dollars for this type of project as long as any voluntary religious activities are not paid for with the federal funds.
    I do know that my colleague, Congressman Ryan, has been in touch with folks in your office, and we are aware, both of us, that you are crafting a response for the city. My question is, I am wondering what the response might be. Do you know if your office has been able to provide that yet?
    Secretary JACKSON. We have not sent the response back, Congressman, but I can answer it this way. Your interpretation of the regulation is absolutely clear. We will make that clear to the city that as long as the prohibition is not to be able to push any specific or one religion, but as long as it is providing a service to persons within that respective community, yes, it qualifies under our proposals and grants.
    Mr. GREEN. Great. I appreciate that. Obviously, the sooner we can get a formal written opinion, the better off. I agree with your view, and obviously neither Congressman Ryan or myself want to see this great project sidelined.
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    Secondly, as your office also knows and you have stated on a number of occasions, the FHA Title I insurance program is in need of reform. The program is very important to the manufactured housing industry. I am concerned with some developments that have recently been brought to my attention. I am aware that HUD has contracted with Frontline Systems to prepare a report on ways to reform the FHA title I program. I also understand that Frontline submitted its report to HUD almost a year ago. As you may know, the manufactured housing industry has made a number of requests to try to see this report. Apparently, so far all those requests have been denied.
    I am anxious that this important information is not being shared with the very folks who want to find ways to reform the system and to stop the loss of lenders, which obviously is a concern for all of us. This report has apparently now been sitting in an in-box for almost a year, and there are lending shortages that are going on in the manufactured home market that I think are hurting the low-income borrowers that obviously all of us want to serve. Can you give us some idea when this report might be made public?
    Secretary JACKSON. Congressman and Mr. Chairman, if it is okay, may I have Dr. Weicher, who is the Assistant Secretary of Housing, answer this for me?
    Mr. WEICHER. Thank you, Mr. Secretary. I am John Weicher, Assistant Secretary for Housing and FHA Commissioner and responsible for the Title I program. We have been reviewing the report. It made a number of recommendations on both the manufactured housing program and the home improvement program. They are both part of Title I. We have made a commitment to provide that, to make that report public within the next 2 to 3 weeks. We have had conversations with folks on the Senate side about this, and it will be out shortly.
    Mr. GREEN. Great. I appreciate that. That is very helpful indeed.
    Next, I would like to talk briefly about the section 811 tenant-based funds. Mr. Secretary, as you know, several months ago a group of us on this committee wrote to you regarding HUD's implementation of the section 811 mainstream tenant-based rental assistance program. In the letter, we raised a number of issues related to the absence of any programmatic guidelines to housing agencies and nonprofit grantees that receive these funds.
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    In response to the letter, HUD has indicated that it has no plans to issue any guidance to these agencies. I wanted to hear from you your reasoning as to that, and I was hoping that you would reconsider. I think these guidelines are extremely important to grantees and others who are involved in the section 811 mainstream tenant-based program.
    Secretary JACKSON. I wanted to make sure that I was correct. I am sorry, Congressman. Since we provide those funds to public housing agencies, and they utilize them under their guidelines that they have set up. That is basically the way that we have done basically with the section 8 program.
    Mr. GREEN. Okay. Mr. Chairman, if I may have a chance to submit further questions for the record.
    The CHAIRMAN. Without objection.
    Mr. GREEN. Thank you, Mr. Secretary.
    Secretary JACKSON. Thank you so much, Congressman.
    The CHAIRMAN. The gentleman from Vermont, Mr. Sanders.
    Mr. SANDERS. Thank you, Mr. Chairman.
    Secretary Jackson, thank you very much for being with us this morning.
    Secretary JACKSON. Thank you.
    Mr. SANDERS. I must start off by saying that I regard it as slightly disingenuous for anybody here to be suggesting in any way that this Administration is serious in trying to deal with what amounts to a major crisis in this country in terms of affordable housing, a crisis that every American and certainly the Bush Administration should be ashamed of. More than 14 million Americans are paying over 50 percent of their limited incomes in housing; 3.5 million people in this country will experience homelessness this year, including 1.3 million children and 500,000 veterans. And people are suggesting that we are serious about addressing the housing crisis?
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    We have a ''war'' budget, but we have hundreds of billions of dollars for tax breaks for millionaires and billionaires while children sleep out on the street and people with a straight face tell us that we are addressing the housing crisis.
    The National Millennium Commission, which was chaired by a former Republican Member of Congress, Susan Molinari, suggested that we needed to build 150,000 affordable housing units every year. Last year, I asked Secretary Martinez, who was sitting where you are, how many affordable housing units HUD was going to build. He said 5,000. We need 150,000, and we are building 5,000. Briefly, Mr. Secretary, how many affordable housing units are you going to build this year?
    Secretary JACKSON. Let me say this to you, and I will answer your question.
    Mr. SANDERS. I am asking you the question.
    Secretary JACKSON. Okay. I said I would answer your question.
    Mr. SANDERS. Okay.
    Secretary JACKSON. If you will help us pass the single-family housing tax affordable credit, we can build a lot of houses. With that, I want you to understand that the greatest barrier to affordable housing in this country is not the federal government. It is state regulatory barriers.
    Mr. SANDERS. I have heard that speech 100 times.
    Secretary JACKSON. Whether you want to hear it or not, I am just telling you.
    Mr. SANDERS. I have heard it. We have all heard it.
    Thank you. My time, sir.
    Now, if you want to build affordable housing, you could support the legislation that I have introduced which has 212 bipartisan cosponsors; which would build 150,000 units of housing every year, that is the National Affordable Housing Trust Fund.
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    Let me go to another area, which has, by the way, support of 5,000 organizations throughout this country. Yesterday, Mr. Secretary, public housing authorities throughout my State of Vermont contacted my office to express their outrage by a HUD notice announcing the following cuts in section 8 administrative expenses retroactive to January 1 of this year. We are a small state, not California; this is Vermont; a $262,000 cut representing 14.4 percent of the section 8 administrative budget for the Vermont State Housing Authority; $180,000 cut for the Burlington Housing Authority, 19 percent of their budget; 17 percent for Winooski, 13 percent for Montpelier; et cetera.
    How are agencies supposed to administer programs when they are experiencing draconic administrative cuts?
    Secretary JACKSON. I would say this, Congressman. We are administering the pro-rata share of the money based on what Congress has told us to do. I think that clearly your housing authority will benefit in Vermont like all of the others. I think I said that in the beginning of this hearing.
    Mr. SANDERS. You said about the voucher program.
    Secretary JACKSON. Right.
    Mr. SANDERS. I understand that. You did not say about the administrative. What I am telling you is that the housing authorities in Vermont have told us there are going to be cuts by between 15 and 20 percent.
    Secretary JACKSON. Okay.
    Mr. SANDERS. This is not what Congress mandated.
    Secretary JACKSON. We are distributing the money on a pro-rata basis that Congress mandated.
    Mr. SANDERS. That is not my understanding.
    Secretary JACKSON. Well, that is a fact.
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    Mr. SANDERS. Can you justify to this committee how people are supposed to do their jobs when they are getting up to a 19 percent cut in administrative allowances?
    Secretary JACKSON. I can tell you that is the money that we have been allocated to pro-rata and that is what we are doing, Congressman.
    Mr. FRANK. Would the gentleman yield?
    Mr. SANDERS. Yes, I would.
    Mr. FRANK. The gentleman is correct. What the Secretary talked about was the voucher funding and the reserves, but not administrative funding. So what the Secretary said earlier does not respond to the gentleman's question.
    Mr. SANDERS. You did not answer my question, sir. Are you telling us you are concerned about affordable housing and you are cutting housing authority administrative capabilities by up to 19 percent? I assume this is national. I am sure it is not just Vermont.
    Secretary JACKSON. What I am saying to you is that we are pro-rata-ing the money on the basis for the administrative fees that have been allocated by Congress, and your housing authority will receive their monies, too.
    Mr. SANDERS. Can you give the members of this committee any assurances that you are going to look at that issue and you are going to try to rectify what is potentially a disastrous situation?
    Secretary JACKSON. Congressman, you have my word. I will be happy to look at it. We are going to make every effort.
    The CHAIRMAN. The gentleman's time has expired.
    Mr. SANDERS. Can I give you a call and you and I will chat about this?
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    Secretary JACKSON. You may, sir.
    Mr. SANDERS. Okay. Thank you very much.
    The CHAIRMAN. The gentleman from Connecticut, Mr. Shays.
    Mr. SHAYS. Thank you, Mr. Chairman. I am happy to swap my time with my Chairman of the Capital Markets Subcommittee.
    Mr. BAKER. I thank the gentleman for his courtesy.
    Mr. Secretary, I think you are doing an outstanding job. I regret the treatment you have received to date in this committee this morning because of your aggressive leadership in making changes that really count.
    Let me speak first to the GSE issue very quickly. GSEs are underperforming the market and the way to get to this number is to go look at what loans are held in portfolio. Those people who are low-income with lack of resources would be those people who would have low amounts of downpayment. They would be 95 percent to 100 percent of LTV ratios. When you look at the GSEs's annual reports, which I have done, you find that less than 5 percent in Fannie and less than 4 percent in Freddie are typified by those types of loans. When you go to a commercial bank, it averages 11 to 13 percent nationally.
    Now, I am going to write the letter you asked for somebody to write, to make full disclosure of how HUD views now the conformity with those low-income housing goals which you stipulated you do not have the authority to release without a congressional request, because I think it is important for this committee to have the facts, whether they want to understand them or read them or not.
    Now, some will say the GSEs do not have the authority to initiate or originate loans. That is in fact the case, but they have the black box by which they determine who is approved or required to move into the secondary market, and you have to hit a certain score. The reason why those banks have 13 percent of those low-income loans in portfolios is because the GSEs will not buy them.
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    So if they were innovative in leading the market instead of worried about double-digit rates of return for their shareholders and paying their executives, the top 20 which I happen to know make in excess of $1 million in salaries and benefits, we could help low-income people in this country by making a meaningful departure and taking the subsidy, which is valued by many at multi-billions of dollars for multi-years, including Alan Greenspan, the President, the OCC, the FDIC, anybody who has a ''C'' after their name who is a financial regulator. They will tell you that this deal is running sideways.
    We are taking taxpayer guarantee, implicit-explicit, it does not matter. You talk about removing the line of credit, markets go crazy. Gary Gensler in the Clinton Administration sat where you sat and said we ought to repeal line of credit. In that day, the stock price went down. Did it affect the interest rates on homeownership? Absolutely not. Did it hit the executives in their pocket? Absolutely. Why are they squealing? Because they are worried about losing their profit, not about helping poor people get housing.
    I have simply just had it. This argument is about not protecting market share. It is about protecting the way a corporate entity operates that makes profit at taxpayer guarantee. There is nobody that can convince a rational person that the explicit guarantee, the implicit guarantee, the sideways guarantee, does not in fact result in that enterprise making huge profit. If they were ever to lose money, is there a doubt by anyone on this committee that the taxpayer would be called on to pay off that?
    Let me jump one quick second. You are doing some innovative things. You have taken a look at a project down at Carville, Louisiana which provides resources between Job Corps, the National Guard and helping kids 16 to 18 years of age on the streets who otherwise would not get educational opportunity, by giving them a GED course in 5 months, giving them job training; 90 percent graduate or are fully employed.
    It is a remarkable program, and I am asking, with the time I have left, on page 12 of your testimony which I have read thoroughly and I really appreciate. I think it is outstanding testimony. The department will provide $55 million in funds to support the resident opportunity and self-sufficiency program for residents of public and Indian housing. The main purpose of these funds is to provide a link between residents and services that can help them achieve self-sufficiency.
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    We care about people. We do not want to house them in public housing and leave them there without the tools necessary to succeed in life. That $55 million is going to give people job skills. What I hope you will be able to take a look at that program, the youth challenge program down in Carville, Louisiana, and replicate that wherever you think advisable.
    I want to yield back my time to Mr. Shays for whatever use he might care to make of it.
    Secretary JACKSON. Congressman Shays, may I say I have had a chance to view the program and it is a phenomenal program. He is taking persons who had no perspective of what was going to happen to their lives and made them productive citizens. I would hope that that would be replicated around this country in every congressional district in this country. I think it is a very excellent program, especially where you have a high concentration of African Americans and Hispanics, the low-and moderate-income person.
    If you will notice, I never use the term ''poor'' because ''poor'' is a State of mind, not a condition. That is what it is. I have a lot of wealthy friends who are poor. So I always say low-and moderate-income people because I think we should think about making them as middle-class as we can. I think that the program that the Congressman is talking about is one of those programs that is productive.
    Mr. SHAYS. Thank you. With the 15 seconds I have left, I just want to say that I wish that the other side of the aisle had let you respond to the questions they asked, because they are important questions. They ask you the questions, and then they do not allow you the chance to respond. I just wish you had that opportunity.
    I will look forward to questioning you in my round.
    Secretary JACKSON. Thank you.
    The CHAIRMAN. The gentleman's time has expired.
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    Mr. FRANK. Mr. Chairman, can I just ask unanimous consent that the pace at which Mr. Baker spoke be established as the norm for the committee. I would feel a lot more comfortable.
    The CHAIRMAN. Without objection.
    Mr. BAKER. Mr. Chairman, I have a further request. The pace of speaking is one thing. The pace of understanding is entirely something else.
    Mr. FRANK. There are limits to what you can accomplish by unanimous consent.
    The CHAIRMAN. I think we have proven that time and again.
    The gentlelady from New York, Ms. Maloney.
    Mrs. MALONEY. Thank you. Welcome, Mr. Secretary.
    I would like to be associated with the comments of Ranking Member Frank on the overall section 8 program, the GSEs and other factors. But I would like to question you primarily on what this new formula, the devastating effect that it is having in New York City. I would say that every housing authority across the country, like New York City, is up in arms and their challenges are probably very similar to New York City's.
    Under this new formula, New York City alone will lose $55 million out of their current budget for section 8. There are over 141,000 people on the waiting list for section 8, and 83 percent of them have incomes less than $16,000 a year. They are no longer able to distribute vouchers available through attrition, and it has truly caused chaos in the tenants lives. I would say it has caused chaos in the private sector, those people that are willing to finance and work with the city and State and federal governments for affordable housing. They are now wanting to run away from their commitments.
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    It has undermined the confidence in section 8 and one of its goals to de-concentrate the poor, but not only section 8. I am getting phone calls on section 202 saying, I no longer want to go forward with my 202 program that may be treated like the section 8 program, not funded and totally changed. This is a very, very serious problem. I agree with my colleagues who say you need a city, State and federal effort to build affordable housing.
    You came forward with two proposals today to try to be helpful, but in all due respect it appears to be more of spinning a problem than fixing a problem. In New York City, the annual adjustment factor which you mentioned, they were already counting on that. It seems that that was what they were supposed to get anyway. The only concession to the PHAs was basically nothing more than giving them their full year's inflation factor, their annual adjustment factor, throughout the year instead of making it at a graduated rate leading up to the total AAF. So they tell me that that does not help them at all with the $55 million gap.
    Then the second item that you mentioned, Secretary Jackson, that you would free up more of the 2003 central reserve funds to be used to reimburse the public housing authorities that had their own program reserves depleted in 2003. Well, that is New York City and probably many more public housing authorities across the country. But this money was always supposed to be replenished from the city's own depleted reserves. So New York City's public housing authority, your two new programs do not help them at all with the $55 million gap that they are facing. I understand from press report that there are eviction notices going out across the country because of this new formula change.
    So my question to you is, what are you going to do for the poor families in public housing in New York City and in other places across the country to make up this tremendous cut in the budget this year that is harmful? Then the next question is, what in the world are you going to do next year? Are you going to cut even more?
    In all due respect, your answer that the problem with building affordable housing is problematic regulation, we need affordable housing, we need the federal government. We need the continuation of one of the most successful programs for the poor this country ever developed, from President Nixon to the present. Every specialist will tell you it has been the most successful program for the poor.
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    So this is a devastating change. But my question, your two points will not help New York City's crisis at this point. I predict it will not help other cities in the same position.
    Secretary JACKSON. First of all, I appreciate your Statement, but I can tell you that there will not be an alarming number of cities who are facing the crisis that you just said. Secondly, it is important that we will address the issue in New York City and we have begun to address the issues in New York City. I think that we will reach conclusion on those. But I think it is important to understand how you say we are devastating the program. Until 1999, the program was budget-based. You got a budget. You did not get units. When I ran housing authorities, there was no unit-based authority. That was after 1998.
    So I got a pile of money and the money simply said that you have to allocate your units based on whatever we give you. We changed that and we have had an exponential growth in the program since then. The question is, the program cannot keep going at the rate that it is going. It is about 53 percent of our budget today. If we continue to go to program, then I would be facing you tomorrow with you saying to me, what are we going to do about the homeless programs; what are we going to do about HOME; what are we going to do about the CDB grants.
    The CHAIRMAN. The gentlelady's time has expired.
    The gentleman from New Jersey, Mr. Garrett.
    Mr. GARRETT. Greetings.
    Secretary JACKSON. Thank you.,
    Mr. GARRETT. Just a couple of questions on some of the testimony that you have already given, some along the line from both sides of the aisle. It is my understanding that with regard to the rules that you have promulgated with regard to GSEs, that because of the existing housing goals, there is already in certain areas, not in every area of course, an over-capacity of multi-family rental units that are currently left vacant. It is suggested that these high vacancy rates are basically an example of whenever the government becomes involved in trying to allocate scarce resources from one location to another, that you are going to have inefficiencies in the system that is better left to the marketplace to derive.
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    So wouldn't it be better than to exacerbate this problem by placing additional burden on the system by stepping back?
    Secretary JACKSON. No, because Congressman, if we do not ask the GSEs to adhere to their missions, it is clear from the past that they will not adhere to those missions. We believe clearly what we are asking them to do is to, under the congressional mandate, be the leader in providing low-and moderate-income affordable units under the mandate. We are not asking them to do anything differently. It was said a few minutes ago that, well, they buy portfolios. Well, those portfolios that they bought are already in use. They have not expanded the base. We are asking them to address the issues the congresswoman just said, the congresswoman from New York, to provide more affordable housing. The only way we can do that is say that we are not going to continually give you points for something that is artificial and not realistic, but we want you to lead the market.
    They come back and say, well, this is going to put us in jeopardy. I do not see how it is going to put them in jeopardy. We are not talking about the high end of their market that they do the secondary writing. We do not really care. We are just saying, address the charter mandate, and if you do that we will work with you. I do not think we are stifling. I am with you. I do not think we should stifle the enterprise market, but I think we should make them carry out their mandate.
    Mr. GARRETT. Let me go to the other end of the line then. One of your opening comments, which drew some response, was the implicit government guarantee. Earlier on in hearings that we had last year, I guess it was, was discussion with regard to the line of credit, which I guess I am always told as a freshmen here, is just a small line of credit and one of the expressions they use, it is only a day's impact of revenue as far as the GSEs are concerned. So one of the questions in earlier hearings at the time was, if it is such a de minimus amount, why does that line of credit still exist? If you remove that, would that obviate the whole question that seems to go back on the other side of the aisle as far as whether there is or is not an implicit line of credit there?
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    Secretary JACKSON. I would think you would have the two chairmen of the GSEs. I do not think I am at liberty to really discuss that.
    Mr. GARRETT. I will do what the other side said, do you have an opinion on it?
    Secretary JACKSON. I think they should answer that question, Congressman, not me.
    Mr. GARRETT. Does he have an opinion on it?
    Secretary JACKSON. No.
    Mr. GARRETT. Okay.
    Secretary JACKSON. I did not want to say it, but I think it is a good point to say it, as Dr. Weicher just said, as I told the congressmen here in my talking initially when I came in here with the GSEs, initially what was said to me about the implicit, but the market also believes that there is an implicit guarantee. I think you have heard it a number of times in the last 5 or 6 months in different papers. Whether there is or not, I think the people to answer that would be the GSEs.
    Mr. GARRETT. Okay. Let me go down a totally different road on this. In the discussion of the burden that is placed by the States, not by the Congress, not by the federal governments, as far as the housing restrictions. Some make light of this, but I certainly see it from the realtor community, from the building community back in my home State in New Jersey, and I certainly see it from not only the regulatory side of the equation, but the entire taking side of the equation as well.
    That is, we see it in our State right now, the whole taking of private property, taking it off the lists entirely so you just cannot build any housing, whether it is high priced housing or even affordable housing even less, considering where they are trying to do this. Is there anything that either you are able to do or is there any suggestion that you may be able to make to Congress that we are able to do on the federal level vis-a-vis the States as far as this taking issue and also the regulatory side, that we could step up to the plate to make sure that there is land there and less restriction on the costs?
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    Secretary JACKSON. Before Secretary Martinez left, and I followed, we both agreed that in order for us to be effective in going to States in different locales to insist that they begin to relieve developers of these regulatory barriers, whether they are environmental, permit-wise or otherwise, is that we have to first do it at HUD. We are cleaning up our own process at this point.
    If you take, for example, California, the Congresswoman is leaving, before you leave, before you can even bring a house out of the ground, you are looking at somewhere between $105,000 and $115,000 with the regulatory barriers that you face. It is about $96,000 in New Jersey. So if we can break down those barriers with States, then I think we can make inroads.
    That is what we are doing with the single family affordable housing tax credit. We are giving those incentives to developers to go into the urban areas to develop and write-down almost 50 percent of what it takes to get that house out of the ground. But even if we do that, we are still going to have to have flexibility from the States, from the cities, and say that we are going to work with you to make sure that we can create affordable housing, as the Congresswoman from New York said.
    The CHAIRMAN. The gentleman's time has expired.
    Mr. GARRETT. Thank you.
    The CHAIRMAN. The gentlelady from New York, Ms. Velazquez.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Mr. Jackson, in your testimony you stated that ''HUD's lead-based paint program is the central element of the President's efforts to eradicate lead-based paint poisoning.'' You also stated that ''Funding for the lead-based paint will increase to $139 million from $136 million requested by the President for fiscal year 2004.'' When it comes to numbers that are provided by the Administration, they always make me uneasy, because I remember quite fresh the Medicare prescription bill numbers that were provided to us. Isn't it true that the program was funded at $174 million last year, so the President's request is in fact a cut of more than 20 percent, not an increase?
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    Secretary JACKSON. I am sorry. Yes it was, but Congress added the money to it. You all did.
    Ms. VELAZQUEZ. I am sorry?
    Secretary JACKSON. You all added the money to it. It was at, I think, $136 million or $136 million.,
    Ms. VELAZQUEZ. $136 million.
    Secretary JACKSON. Yes, and you all added the extra money, Congress did.
    Ms. VELAZQUEZ. But if the President is so concerned about protecting children in our nation, why didn't you request to at least maintain current funding levels for these programs?
    Secretary JACKSON. That is because you all added the money because you wanted us to do some demonstration programs and we did.
    Ms. VELAZQUEZ. Because of us, so do not come here and tell us that the President's priority is to protect our children, when the President's request is totally inadequate.
    Secretary JACKSON. That is from your perspective. I am saying that we think it is quite adequate, and I think it addresses what we are trying to do. I think that the programs around the country, a number of cities and States, have given us great accolades for addressing the lead problem.
    I guess that, again, I appreciate your asking that question because probably nobody has had to deal with lead more than I have in two specific areas, both St. Louis and in Washington, D.C. This Administration has funded the lead hazardous program better than any Administration in the years that I ran public housing. That is a fact.
    Ms. VELAZQUEZ. Well, you come here and you say that you had a request to increase funding, when in fact it was not. It seems to me that there is a contradiction, sir, in the Administration's demand to hold our schools accountable while retreating on efforts to protect children from lead poisoning, so that they can start school ready to learn.
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    Secretary JACKSON. I agree with you wholeheartedly, Congresswoman, and I am saying to you that——
    Ms. VELAZQUEZ. Okay. Let me ask you another question about the 203(k) scandal in New York, Harlem and Bushwick, one is part of my district, where so many people lost their homes, and now again you are going into the second round of selling those properties. Can you tell me whether the agency is implementing safeguards with these auctions to prevent a repeat of the 203(k) scandals?
    Secretary JACKSON. If it is okay, I would like Dr. Weicher to answer it. I know the answer, but I think he can give you more details.
    Ms. VELAZQUEZ. Sir, what is your plan to ensure that these families are not victimized one more time? We love to talk about accountability, but you created that mess in New York, so what are the safeguards that you are putting in place to protect those families?
    Mr. WEICHER. Ms. Velazquez, let me start by saying that the mess was created in 1998 and 1999 and 2000. We in this Administration have been addressing that and cleaning it up. We have been working with the City of New York, with HPD, in their established programs and with developers that they have worked with who know how to do the job of rehabilitating these properties and who are ethical developers with solid reputations, to make sure that the work is done and done properly.
    Ms. VELAZQUEZ. Sir, let me say this to you.
    Mr. WEICHER. Yes.
    Ms. VELAZQUEZ. I have been writing to you. I have been visiting with these tenants. I have been seeing these properties, and you are not taking care of that situation back in my district. It is a shame that either you or the City of New York, because you cannot just say I am going to give it back to the City of New York, and you just go ahead and do whatever. No one is accountable. I write to you. You do not deal with the issue. I write to HPD in New York. So you are giving these properties to New York with no type of federal regulations or anything. This is going to happen again.
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    The CHAIRMAN. The gentlelady's time has expired.
    The gentlelady from Florida, Ms. Harris.
    Ms. HARRIS. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. I am pleased to see you here. Thank you for taking the time to be with us today.
    Secretary JACKSON. Thank you.
    Ms. HARRIS. As you know, I was honored to sponsor the American Dream Downpayment Act last year that the President has signed. As I travel the country, people are so anxious to begin the opportunity of homeownership, including where I pick up my dry-cleaning every single week on Capitol Hill. They say, when can we start?
    I understand you are in the process of crafting the regulations, but can you give us an update as to when you expect that people can begin this opportunity?
    Secretary JACKSON. We have allocated the money to a number of cities. We hope that they will begin to disburse the money immediately.
    Ms. HARRIS. In the American Dream Downpayment Act, we also reauthorized HOPE VI with more accountable standards and allowing authorized Main Street programs throughout the country to be able to access some of those funds for affordable housing so our first responders can live in these small communities near where they work. I was disappointed to see that those funds were not allocated in the President's budget. Hopefully, we will address that.
    A second quick question, we are working in obviously a tight fiscal environment, much accountability, many efficiencies. I am a member in the freshman class, a co-founder of the Washington Wastewatchers Club. There was at one point $7 billion that was identified by the HUD inspector general that was not used for its intended purposes. What types of programs do you have in place or are you planning to have in place to fight the waste, fraud and abuse which is at taxpayers's expense?
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    Secretary JACKSON. I think that is a very honest question. I must say that the Inspector General at HUD has been absolutely phenomenal. We have not always agreed, but he has kept HUD ethically true to the mission. Where there have been problems, he has brought them to us and we have worked with him. In the end, we might not have agreed from the HUD perspective, but he had to make a report. I can tell you that Ken Donohue, who is the Inspector General, has been absolutely excellent. We have not had any serious problems at HUD the last 3 years.
    We have tried to clear up those problems that we have had each time we found them. It does not mean that some of the problems we have had in the field or region have not been, I do not want to say not serious, that is not the question. We have had problems, but we have addressed them very quickly and worked with the inspector general to clear them up. So please excuse me for saying ''not serious.'' I think that anytime we have fraud, waste and abuse, it is serious, but we have worked with him.
    Ms. HARRIS. Now to my real question, I want to turn you attention to HUD's new proposed affordable housing goals for the GSEs, the 57 percent of the loan purchases that are going to be made to borrowers that are below the area median income. I have a strong record of desperately caring about affordable housing, but I am concerned that these goals may put the GSEs's portfolio at risk. On the one hand we are constantly talking about the concerns that we have for the safety and soundness of these GSEs, and on the other hand I am concerned that we may be setting these goals unrealistically high.
    Secondly, if the targets and assumptions for these targets that are established are not correct, would the GSEs be forced to voluntarily lower their conforming loan purchase limits in order to assure that they hit those targets? Because if that were the case, I think it would be devastating in arenas such as Florida, New York and California where the costs are much higher.
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    Secretary JACKSON. I think that is a very legitimate question. But let me say this to you, Congresswoman, I think asking them to address their mandate to serve low-and moderate-income people is less risky than investing in derivatives. I really do.
    Secondly, it is amazing to me that when you ask them to meet their mandate, they would say that it is going to affect their ability to carry out their mission or lower their abilities to make loans. That is their chartered mission, to address the needs of low-and moderate-income people in America. I would love to meet that mandate if I were doing as well as some of their top executives are doing. I would love to address the needs of low-and moderate-income people.
    Ms. HARRIS. You are not concerned that it is going to put their portfolios at risk at 57 percent?
    Secretary JACKSON. No, I do not. I can tell you honestly, if I thought that, I would not do it. I do not want to jeopardize any one of the two GSEs, because I think they serve a very vital purpose for this country. I also think that it is their responsibility to address the needs. As I said before you came in, they keep talking about what they cannot do. They report to us quarterly.
    If we are wrong when we are saying they are not leading the market that they should be leading, all I would ask the two GSEs is give us permission to provide you with the data that they provide us. If they give us permission, then you will see they are not coming close to addressing the needs of low-and moderate-income people in this country. All we are saying is to do it.
    The CHAIRMAN. The gentlelady's time has expired.
    Ms. HARRIS. Thank you.
    The CHAIRMAN. The old right-hander from North Carolina.
    Mr. WATT. I assume that is me, Mr. Chairman.
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    The whole right-hander. I think that is the wrong characterization. Do not take that from my time.
    Welcome, Mr. Secretary and thank you for being here today.
    Secretary JACKSON. Thank you.
    Mr. WATT. Mr. Chairman, may I start by asking unanimous consent to submit for the record a report prepared by the Urban Institute and the Brookings Institution entitled A Decade of HOPE VI Research Findings and Policy Challenges.
    [The following information can be found on page 106 in the appendix.]
    The CHAIRMAN. Without objection.
    Mr. WATT. I get a lot of questions about the whole budget, but I have spent a lot of time focusing on this HOPE VI issue. I would like to focus my questions solely on that issue.
    Back in 1989 or 1990, something called the National Commission on Severely Distressed Public Housing did an assessment of public housing to identify severely distressed public housing units. It indicated that there were 86,000 severely distressed public housing units.
    This report that I have just submitted for the record indicates that approximately 19,000 public and market-rate housing units have been generated under the HOPE VI program in the last 10 years. Giving the benefit of the doubt, let's round that to 20,000 units. What happened to the other 66,000 severely distressed housing units that were identified?
    Secretary JACKSON. Let me say this, because——
    Mr. WATT. I don't want you to say. I just want you to answer my question, Mr. Jackson.
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    Secretary JACKSON. I think I should clarify.
    Mr. WATT. I have a series of questions. I would like for you to answer the questions. I have heard you give speeches. I love to hear you speak. Today, I want you to answer my questions.
    Secretary JACKSON. First of all, there are not 66,000. There are about 126,000 that are unbuilt today.
    Mr. WATT. Okay.
    Secretary JACKSON. What has happened to this is that we have allocated the money to the housing authorities and the housing authorities have spent most of the administrative fees, but not spent on building the units. Secondly, what is important here is this, that there have only been 26 successful HOPE VI developments out of——
    Mr. WATT. Is your answer that instead of 86,000 today, after 10 years there are one-hundred-and-some thousand severely distressed housing units?
    Secretary JACKSON. That is what we funded.
    Mr. WATT. Okay. All right. The question is, how many severely distressed housing units do we have today?
    Secretary JACKSON. That is very difficult to answer.
    Mr. WATT. But the Administration apparently has concluded that the mission of HOPE VI has been met, I mean, I am quoting the President, and the gentleman behind you there, the last time he testified, told me that the mission of HOPE VI has been accomplished. I thought that mission was to replace those 86,000 starting off, and any that were added subsequently.
    Secretary JACKSON. The mission has been accomplished.
    Mr. WATT. Okay. So you are saying there are no severely distressed public housing units in the country?
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    Secretary JACKSON. Not according to the initial 86,000. We are well above that. Congressman, I think you have to understand you are talking to the person who wrote the legislation.
    Mr. WATT. I do not care who I am talking to, Mr. Jackson. I just want you to answer my question. I did not come here to hear you give me a speech. I am trying to find out how many severely distressed public housing units you have.
    Secretary JACKSON. There were 86,000 in 1989.
    Mr. WATT. How many do we have today? That is the question I am asking, Mr. Jackson.
    Secretary JACKSON. We funded more than 86,000.
    Mr. WATT. I did not ask you how many you funded. I asked you how many severely distressed public housing units do we have in the country today.
    Secretary JACKSON. I will tell you, Congressman, we have, according to what the HOPE VI program was set out to be, we have none, if we said back in the study it was only 86,000.
    Mr. WATT. So your testimony is that there are no severely distressed housing units left in the country today. Is that what your testimony, Mr. Jackson?
    Secretary JACKSON. I am not going to say that to you. I am not going to say that.
    Mr. WATT. Then please answer the question. How many severely distressed public housing units do we have in the country?
    Secretary JACKSON. You answered the question yourself. You said there were 86,000 and I am telling you, we funded above 86,000.
    Mr. NEY. [Presiding.] The time has expired.
    The gentleman from Connecticut?
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    Mr. SHAYS. I am happy to pass a bit to hear my other colleagues ask questions. So I reserve my time.
    Mr. WATT. Would the gentleman yield me enough time to get my question answered?
    Mr. NEY. Does the gentleman yield?
    Mr. SHAYS. No. I am not using my time now. I am reserving my time, so ask another Republican.
    Mr. NEY. That is fine, the gentleman does not yield.
    Mr. Renzi?
    Mr. RENZI. I thank the Chairman.
    I want to let you know that Chairman Ney and Ranking Member Waters were kind enough to come out to the Navajo Nation. I appreciate your sending a representative out. I want to talk to you about Native American housing which is severely depressed.
    Secretary JACKSON. That is true.
    Mr. WATT. Oh, no. None of that exists anymore in this country, apparently.
    Mr. NEY. Is the gentleman requesting time or saying something?
    Mr. WATT. I have been requesting an answer for the last 5 minutes. I just have not gotten it.
    Mr. NEY. The gentleman's time has expired.
    Mr. FRANK. The gentleman from North Carolina is just severely distressed.
    Mr. WATT. I am severely distressed, right.
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    You are absolutely right. I am severely distressed because we cannot get an answer. I thought this was a hearing to get the facts about what was going on.
    Mr. NEY. All Members of Congress are distressed at this point in time.
    The gentleman, Mr. Renzi.
    Mr. RENZI. Within section 184 of Title VI we have a situation where we are looking at a rescission of funds as it relates to programs that were supposed to be used extensively by Native Americans. I am sure you are aware of it.
    Secretary JACKSON. Yes.
    Mr. RENZI. We are coming up on that time where that money is supposed to be going back. What are we doing to make sure we do not lose that money? What are we doing to make sure that we, next time the money is available, that we are fully able to utilize it?
    Secretary JACKSON. I will ask Assistant Secretary Liu to help me, but it is clear we put the money back in place, because we realized that we had some serious problems, and I would like to let him speak to it.
    Mr. RENZI. Okay. I am not going to cut you off, but I had your answer at my hearing. Go ahead.
    Mr. NEY. Please state your name for the record.
    Mr. LIU. Assistant Secretary Michael Liu of the Office of Public and Indian Housing.
    Mr. RENZI. Go ahead.
    Mr. LIU. Congressman, I appreciate the time that we had a few weeks ago in Arizona. We are aggressively working with the Indian tribes to promote the section 184 program. We are having regional workshops and summits to build capacity among the tribes. We are expressing our concern with banks that are not currently——
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    Mr. RENZI. I got it. I got it. I would appreciate it if you would look at putting as many counselors, opening up offices. I do not care what you have to do, but the idea that we are going to rescind $54 million, okay, that we did not use, there are a lot of conservative fiscal hawks around here who enjoy that on my side, but the reason we are not using it is because we do not have Native Americans who can even use the Internet to get a mortgage.
    Let me go into a situation we have over at BIA. I realize it is not under your jurisdiction, but I want you to be made aware of, there is a 113-year backlog at BIA on closing escrows on trust land, not fee simple land, but trust land. So we give sovereignty to the Native Americans. We then have to do the research to close the title. We have 113 man-year backlog, which means escrows are taking over 2 years. So even if we are Native American and we can qualify for the loan, sir, even if we can get through and get the 184 money, we still have 2 years to close on our home. Okay? I just want to make you aware of it that you have to help and you have to help put pressure on BIA to get this, because it is unacceptable out there.
    Ms. Waters said that the conditions are so deplorable in the Navajo Nation that they are as bad as they are in South Africa. Those are her words. We do not have to go and see third world conditions. We can see it right here in America, up on the Navajo.
    One of the things I also wanted to ask you real quick before I run out of time is, I think you have been kind enough to reach out and look at the possibility that under title VI, we are now looking at increasingly the guarantee, reducing it to 80 percent coming off that 95 percent guarantee, are you with me on this?
    Mr. LIU. Yes.
    Mr. RENZI. Okay. What is your position? What is your opinion on the idea of us going back to 95 percent guarantee so that we can have more private investments, better economic development, more jobs and more people owning homes in Indian Country? Are you willing? That is not a big stretch, is it?
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    Mr. LIU. Yes. Congressman, we think that is certainly an issue that we will review and take back and work on.
    Mr. RENZI. If Congress came out and legislatively moved it back to 95 percent, would you oppose it?
    Secretary JACKSON. We are going to carry out what Congress says.
    Mr. RENZI. Thank you, Mr. Chairman.
    Mr. NEY. The gentleman, Mr. Meeks?
    Mr. MEEKS. Thank you, Mr. Chairman.
    We are working on a HOPE VI project, and I know that they are talking about eliminating some of the money, time is running out, the project is not finished. By the way, how many distressed housing is still currently in the United States of America? Severely distressed?
    Secretary JACKSON. I will say this, that the 1989 study from the National Commission on Severely Distressed Housing says that there were 86,000 units.
    Mr. MEEKS. In 2004, how many are there?
    Secretary JACKSON. I would say that we have funded under the HOPE VI program to date 129,000 units.
    Mr. FRANK. Will the gentleman from New York yield?
    Mr. MEEKS. I yield.
    Mr. FRANK. Let me just point out, Mr. Secretary, that assumes that even if you take that formulation, that no units became severely distressed in the 15 intervening years. Using the 1989 figure as the figure assumes that nothing became severely distressed in the last 15 years. So even on its own terms, it does not make sense.
    Secretary JACKSON. Well, we have done 136,000, so obviously there have some that have been distressed. He asked me how many there were. I said clearly, Congressman, there were 86,000 when we began writing the legislation. To date, we have done 136,000. Of those 136,000, we have only had 25 of those HOPE VI completed.
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    Mr. MEEKS. Do you know if there are any severely distressed housing in America today? Do you know? Yes or no?
    Secretary JACKSON. I am sure there is distressed housing in America today.
    Mr. MEEKS. Do you have any idea approximately how many there are?
    Secretary JACKSON. I can tell you that there are 136,000. We funded that many.
    Mr. MEEKS. There were 136,000.
    Secretary JACKSON. There are 136,000, and of that probably——
    Mr. MEEKS. So if there are 136,000 today, then the mission has not been completed with reference to HOPE VI, because there continues to be 136,000 severely distressed developments today.
    Secretary JACKSON. No. I do think the mission has been completed, and I will tell you why I think it has been completed. I suggested that the program be discontinued and I will stick with that. That is because the program was started to address the need to integrate people both socially and economically into the fiber of this country.
    We have had 25 of those completed in the last 12 years. We have over $3.2 billion outstanding after allocating $5 billion. My position is this, some of these cities have had the money 7 years, 8 years in the program. The HOPE VI have not been completed, nor has it been started. I do not think we should continue to fund the program that does not work.
    Mr. WATT. Will the gentleman yield?
    Does this reflect at all on HUD's oversight of HOPE VI? Or you are just saying HUD does not have anything to do with this, I guess.
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    Secretary JACKSON. No, I do not think it does because I have run housing authorities. You represent a city where you had probably the most illustrious HOPE VI other than Dallas. You had a person who made it work, and they did not have any impediment. Other cities have not.
    Mr. WATT. So the program does not work, then, because other cities did not make it work. That is what you are saying. And HUD did not oversee it to make the other cities make it work. That is what you are saying. So therefore it ought to be discontinued.
    Secretary JACKSON. Let me say this to you, I think your analysis is correct.
    Mr. MEEKS. Taking back my time. Let me ask another question. Let me go to New York City real quick with the time that I have left. You know, and I guess you told my colleague Carolyn Maloney that you will look into the $55 million shortfall that New York City has. But do you know that, going back to section 8, that right now that the HPD is not issuing any section 8 vouchers anymore?
    I have heard the conversation here today, the dialogue about reducing the amount of money that goes into section 8. That means that individuals who are now new people, we have some young people who were in foster homes, who are now turning 18 years old, they are not eligible. They cannot obtain any section 8 housing, any section 8 vouchers because there are none, because of the shortfall in New York. Does HUD have any suggestion what we do with those kinds of individuals, or do we just allow them to be homeless?
    Secretary JACKSON. Until 1998 under the QHWRA Act, persons like that took priority. That is not the case today. The law was changed. Everyone has to rise on the list.
    Mr. MEEKS. So they should just be homeless.
    Secretary JACKSON. You asked the question. I am saying, since 1998, you are asking us if we can do something about it, that is something that Congress has to do something about. If you want to change it.
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    Mr. MEEKS. So that is not part of HUD's mission at all.
    Secretary JACKSON. Our mission is to implement any program as you say so.
    Mr. MEEKS. Let me ask another quick question. You talk about homeownership, and I believe in home ownership——
    Mr. NEY. The time has expired.
    The gentleman, Mr. Miller of California.
    Mr. MILLER. Thank you, Mr. Chairman.
    Welcome, Mr. Jackson. It is good to have you here today.
    Secretary JACKSON. Thank you very much.
    Mr. MILLER. I have enjoyed working with HUD over the years. RESPA is a huge issue for me. I have been in the development industry for over 30 years, and I will agree with you that the largest impediment to housing in this nation is state and local regulatory barriers. If you add ESA to that, I will agree 100 percent with you.
    You started your talk today off with your goal is to make sure HUD meets their housing mandate. A lot of what we have said today would be applicable, because HUD is responsible for trying to build housing out there. But GSEs, Fannie Mae particularly, their goal is not to build houses. They do not build houses.
    Secretary JACKSON. That is correct.
    Mr. MILLER. They provide funding in the marketplace. In that area, they are restricted on how much they can loan. We call them conforming loan limits. As a matter of fact, I think conforming loan limits need to be raised in high-cost areas. I would really ask you to revisit this 57 percent mandate because what we are effectively doing is saying in a marketplace such as California, if you take a 57 percent mandate, of those loans that are made 57 percent have to be below the median, that means last year, for example, 49 percent of the loans made in California could not have been made. I want to speak positively about this, because this is very serious in California. The current median home price in California is $428,000.
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    Secretary JACKSON. That is correct.
    Mr. MILLER. Based on that 57 percent mandate, last year the loan limits would have been nothing above $195,000. So what we are doing, instead of trying to provide housing in this nation, we are dealing with rationing the amount of funds available to the marketplace. That really, really bothers me because I think it creates a shortage of competition, because Fannie is going to apply this based on the mandate placed upon them, and that is 57 percent, when in areas like Barney Frank represents, Maxine Waters, Barbara Lee's and mine in California, we are going to wipe people out of the marketplace.
    If we want to provide affordable housing, that is HUD's oversight, but to take and limit the amount of money and basically calling it credit allocation does not make sense. If we had a limited pool of funds here that Fannie was dealing with in a year, and they were having to take and reject borrowers because they did not have the money. So we are trying to make sure that more low-income people, medium-income people receive the funds available through a GSE, if there were a limited pool of money, it would make a tremendous amount of sense to do what you are trying to do.
    But there is no shortage of funds out there. Fannie is able to make every loan requested upon them each year. So if that is the fact and it has been proven to be, why in the world would we go to Fannie and say, we want you to basically restrict the amount of loans you make because we are going to require an allocation of 57 percent to be below the median?
    If you were talking today about HUD meeting their housing goals, and there is an affordability crisis in this nation beyond belief. You have section 8 and then between section 8 and what is available is a huge, huge difference in price. We are unable to fill this price range of homes because of what you said about state and local regulatory barriers and restrictions placed upon property owners. But for us to go into this 57 percent requirement on GSEs, it just seems like it is going to have a drastic impact on the market out there. If I am incorrect, please explain to me how it is incorrect.
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    Secretary JACKSON. Sure. Congressman, what I would like to do, because I think to give you a greater analysis of this would entail taking some time.
    Mr. MILLER. I will take the time privately with you.
    Secretary JACKSON. Okay. I will be happy to do that, because let me say this. The interpretation which you have given is not our interpretation. We are saying that we are not concerned with Fannie Mae or Freddie Mac, the high-end of the market. We are saying that that end of the market that you serve, we expect you to serve according to the three sub-categories that we have given. I would like to just sit down with you and go through it. I think that we can make it very clear to you.
    Mr. MILLER. I think I understand what you are saying, but the problem is you are dealing with an allocation and a restriction of funding within the marketplace when there is no shortage of funds. If there were a shortage of dollars and we are trying to force money into a given sector of the marketplace, then I would say okay, let's look at a formula. But when there is no shortage of money, to falsely create a percentage out there that has to be complied with by the lenders to force money into an area that there is no shortage of money in, means you are going to take money and restrict it in another area. You cannot meet 57 percent, and yet provide for those in the other area.
    Mr. NEY. The time of the gentleman has expired.
    Mr. MILLER. I would love to talk to you privately.
    Secretary JACKSON. I think we can. Thanks.
    Mr. NEY. The time has expired.
    The gentlelady from California, Ms. Lee.
    Ms. LEE. Thank you, Mr. Chairman.
    First, Mr. Secretary, let me just say quite frankly I am very amazed at some of the callous nature of your responses. When I was out of the room, and I just want to clarify that you said or did not say that being poor was not a condition, but a State of mind. Is that an accurate statement that you made, first of all, as the Secretary of HUD who is responsible for providing a safety net for the poor?
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    Secretary JACKSON. I do. I think ''poor'' is really a State of mind, not a condition, because if that was the case, I would not be sitting here.
    Ms. LEE. Yes, oh boy. Mr. Secretary, do you know there are over 3.5 million people who will experience homelessness. I guess that is the reason that you guys are cutting the homeless budget, the McKinney-Vento budget. I know there is $50 million in this new Good Samaritan initiative and it is something you are going to respond to, but that still does not get us to the $128 million that we need every year to end chronic homelessness. I assume that is why you seem to be just dismantling programs for the homeless.
    Secretary JACKSON. We are not dismantling programs.
    Ms. LEE. Well, cutting programs for the homeless.
    Secretary JACKSON. We have not cut. We have level-funded all of the programs.
    Ms. LEE. But don't you know that that is a cut?
    Secretary JACKSON. No.
    Ms. LEE. Mr. Secretary, okay, you know, the second point. In California, 12 percent of the black population is unemployed; 7.9 percent of Latino population unemployed. The average income, for instance, in some areas, $38,000 or $39,000 a year; average cost of a house, $400,000 to $450,000. Now, how do your initiatives which you are focusing on in terms of homeownership address these people who are barely surviving and need you?
    Secretary JACKSON. I do not think necessarily that, if you are talking about homeless people, it addresses that.
    Ms. LEE. I am not talking about homeless. You answered on the homeless issue. I understand it is a State of mind. You clarified that in your budget.
    Secretary JACKSON. No, I did not say that about homeless people.
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    Ms. LEE. I am talking about now the working poor, and African Americans and Latinos in high-income areas where they need HUD, they need a safety net, they need section 8, they need low-income housing assistance, they need Shelter Plus, they need HOPE VI, they need all of the programs that your agency is supposed to be responsible for, and here you see these numbers just in California alone.
    Secretary JACKSON. I am glad you asked that question, Congresswoman, because I too agree with you when you are talking about the working class, those who are 60 percent, but above 30 percent of median. I think they should have accessibility to the section 8 certificates and vouchers too, but under the present configuration of the QHWRA rule of 1998, they do not have it. So I am saying that if you agree with me, I think we should move toward the flexible voucher program which will address that issue.
    Ms. LEE. I am talking about expanding this. I am talking about not cutting. I am talking about your focus on homeownership. How do you intend for these people to become homeowners when in fact that is what your priorities are? That is what I asked.
    Secretary JACKSON. I am saying to you that I do believe that with the flexible voucher program, which we have used in this country, we can move people toward homeownership because they will not be on those vouchers and certificates for a long time.
    Ms. LEE. When the average cost of a house is $400,000 to $450,000, how are you going to allow section 8 homeowners to qualify for that kind of a house and handle the note with no subsidies?
    Secretary JACKSON. I think your question, again, is valid. I think there are two ways. First of all, I talked about the single-family affordable housing tax credit, which will basically help developers develop in areas like California, New Hampshire, Vermont.
    Ms. LEE. You will make the developers do affordable housing?
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    Secretary JACKSON. Do affordable housing. Second of all, if we can get rid of many of the regulatory barriers that we have, just in your State alone, as I said to the Congresswoman, before a home comes out of the State of California, somewhere between $104,000 and $115,000. If we can cut that in half, yes we can create affordable housing for people to live in. But we have to decide that this is what we want to do, and we have made the decision through the single-family affordable housing tax credit, and pushing States to get rid of the——
    Ms. LEE. Then why don't you take $3 billion or $4 billion out of the FHA reserves and do a production program and create some real affordable housing that can be done overnight?
    Secretary JACKSON. Because those people who are paying their mortgage every day to FHA, that reserve is to cover them in case we have a catastrophe. I think that is what it should be.
    Ms. LEE. Yes, but the reserves are way over $3 billion right now.
    Mr. Secretary, final question is, just on the section 8 vouchers, you have been responding to questions about that. I just want to ask you, in my area, the city of Alameda, there are going to be $800,000 or so under just in June based on the formula that you had come up with. I would like some clarification from your department with regard to certain areas, including the city of Alameda. Okay? I have just got to say to you I am very disappointed in your responses today, Mr. Secretary, and I hope that you begin to understand that ''poor'' really is not a State of mind, but there are some economic conditions that create poverty.
    Mr. NEY. The time has expired.
    The gentleman from Ohio.
    Mr. TIBERI. Thank you, Mr. Chairman. Mr. Secretary, thank you for being here today. Thank you for your call yesterday. Congresswoman Pryce and I want to thank you for your dealing with the Columbus situation.
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    Secretary JACKSON. Thank you.
    Mr. TIBERI. I actually would like you, and I know you are pretty busy, to come out to Columbus because we have a housing authority that has been pretty innovative in dealing with section 8 vouchers. We have a Rebuilding our Lives program with an organization called the Community Shelter Board that has really been a leader in attacking homelessness.
    Homelessness is not just about shelter. It is about many other things dealing with services to these folks who are homeless. This program has just been an outstanding national model. We would love to have you to look at not only that, but also some of the innovative things our housing authority is doing with section 8.
    A concern I have with the section 8 program, I think you mentioned it; I think Chairman Ney mentioned it; is how the budget of section 8 is expanding so rapidly it is impacting other programs. One of those programs that I have expressed a concern about is the community block grant program. I have the 2000 study in front of me. We had a hearing in Columbus and the mayor and the council and other community leaders in Columbus, Ohio rightfully made an argument that the current formula for community block grant really negatively impacts newer cities. For instance, in your own numbers, the 2000 numbers, Columbus is the largest city in Ohio. The metropolitan area of Columbus is the second largest in Ohio, to Cleveland, but yet Akron, Cincinnati, Cleveland and Dayton all receive more CDBG money than Columbus.
    So I would hope that the study that you have undertaken most recently that we have not seen yet, that has not been released yet, takes a look at this hopefully, and hopefully will address the needs of cities like Columbus, growing new cities that are mostly in the south and west, but happen to be in other parts of the country as well, and how your budget is going to impact the growth of CDBG.
    Secretary JACKSON. Thank you, Congressman. We are extremely sensitive and well aware of that. We are trying to make sure that we address it in a very equitable and fair manner.
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    Mr. TIBERI. The only other point, and I will yield back the balance of my time, is I want to thank you. I was a realtor before I came to Congress. I understand homeownership is a dream for many who unfortunately have not gotten there yet. Congressman Scott and I have introduced a bill. I heard the President this morning talk about the keys to homeownership, and certainly support your efforts at HUD to promote the zero downpayment bill. I want to thank you personally.
    Secretary JACKSON. Thank you very much.
    Mr. TIBERI. I yield back.
    Mr. NEY. The gentleman yields back the balance of his time.
    I would note there are three votes, 15, 5 and 5 minutes. What we will do is we will take another question. We are going to hold strict to the time. But also, when we come back, only the members that are currently here, they will have the obvious priority to ask their questions. With that, I recognize the gentleman, Mr. Capuano.
    Mr. CAPUANO. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for coming today. I want to focus on the section 8 issue that we just passed up. As I understand it, in April HUD notified various state and local agencies across the country that an interpretation of some language would require them to retroactively cut certain parts of the section 8 program. The result of that was widespread, nationwide panic among at least 60,000 to maybe 200,000 people. The result of that was then that everybody was in a hue and cry across the country, all across party lines.
    In May, HUD basically said, no, we found the money, which to me indicates the money was never the issue, which is what I thought at the first part, and I do not think HUD ever said the money was the issue, but there was a language issue. I am just curious, what changed between April and May to have HUD change its opinion?
    Secretary JACKSON. No, and I think that is a very fair question, Congressman. I do not think anything changed. I think that when we made the announcement according to our reading of the congressional mandate by Congress, we felt that clearly we had the reserves that were there to replenish for those who had asked for a replenishment, but there had not been very many who asked.
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    Secondly, we felt that everyone who did not over-lease could operate within the guidelines that were set. It was clear that there were a number of agencies that over-leased. One of the first agencies that we heard from was from Los Angeles. We went out and worked with them and got them back basically into compliance.
    So the question was not that we did not feel that we could address the needs. It was that we felt that with the mandate that Congress had put forth, that the housing authorities could operate under it. Now, I want to clear it up because I have heard a lot of people say ''nationwide.'' We have almost 2,600 housing authorities around this country. We have a number of housing authorities in major urban areas who are in the process of over-leasing or had vouchers on the street at the time. Clearly, most of those agencies had reserves that could address that need. Where we could, we worked with those agencies.
    So we have not in any way stopped working with agencies. We have been working with them from the inception.
    Mr. CAPUANO. So in the final analysis, and I appreciate that, there was never any real need to get well over 200,000 families upset at the prospect of being evicted within a couple of months. I will tell you that in Massachusetts, well over 2,000 families, actually more than that because no one knew how it was going to be implemented, went through two months of hell. I will tell you, I appreciate the fact that it has been worked out.
    I do not appreciate the fact that it was not worked out before an announcement was made. You drove these people through hell that they were going to lose their house, and it was unnecessary. I think it just simply shows some of the attitude in HUD.
    I will tell you that I had a whole series of other questions, but your comment that ''poor'' is a State of mind, I will tell you, stopped me in my tracks. I find it so offensive, I am almost speechless. I am actually speaking slower than Representative Baker for the first time in history.
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    Apparently, you do not know anyone, right now, as we speak, within America, who is without a job, without the prospects of a job, facing eviction, not being able to pay their rent, not being able to pay their heat bill, not being able to pay their auto insurance bill, with no prospects of a job because they may or may not be non-white, living in an area with 15 to 20 percent unemployment.
    If they are not poor, what is? I understand the definition of ''poverty of spirit,'' and that is a wonderful concept that has some place in our society for a wonderful after dinner discussion. But to not recognize the fact, the indisputable fact that there are real serious honest-to-God poor people in America disgusts me. The fact that you do not recognize maybe that any of them, that somehow simply by changing their concept of mind, they could get out of poverty. That is all it takes. Close your eyes and wish; change your attitude.
    To say that is a disregard of the history of mankind. To say that to me in my presence is insulting to the constituents that I represent that are poor. That does not mean they have a poverty of spirit. I do not know where or how you were raised, and I have no doubt that maybe you have had some struggles in your life and your family has, too. And you have risen above that and I appreciate it, but there are many who have not and you have insulted them.
    Thank you, Mr. Secretary.
    Mr. NEY. The time has expired. Let me just note, we are going to take a recess. The committee will go over and vote, and please come right back. Let me just make it clear who is up on the docket. We have on the majority side, Shays and Royce; on the minority side Israel, Scott, Davis, Carson, Hinojosa and Clay.
    The committee is in recess.
    Mr. NEY. The committee will come to order. We will begin again. The order that we have is Mr. Shays, Mr. Israel.
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    Secretary JACKSON. Mr. Chairman, may I ask a favor of you please?
    Mr. NEY. Yes, sir.
    Secretary JACKSON. At the end of the hearing, one of the congresspeople was speaking to me. I would like to ask your permission or indulgence if I might be able to really elaborate on exactly what I said, because I do not want what I said to be misinterpreted.
    Mr. NEY. Without objection. Yes, Mr. Secretary?
    Secretary JACKSON. I think I made a statement earlier when asked by one of the congresspeople my perception. I said that ''poor is a State of mind, not a condition.'' That in no way eliminates my perception that there are people in poverty. I am well aware of that. But I think it goes back to a sense of how I was raised in the sense that as was stated when I was introduced that I am the last of 12 kids. My father had a fifth-grade education.
    I wonder if you will understand this. I think it was my ninth-grade year when I had just gone to Catholic school and many of the kids had a lot more than I had, and I came home and asked him why were we poor. Well, today with what he did to me, he would probably be accused of being a child abuser. He informed me that we were not poor. I will never forget what he said. He said that ''poor is a State of mind, not a condition.'' He said as long as there is hope, you can clearly make it in this country.
    Lastly, if you notice what I said when I said that, I said that I have a lot of friends who are very wealthy, but poor. I am talking about a mindset, not a person's economic set in this country, because I am well aware that there is poverty in this country and I want to do everything as Secretary of Housing to eradicate that poverty.
    Mr. NEY. Thank you for the clarification, Mr. Secretary.
    Mr. Israel?
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    Mr. ISRAEL. Thank you, Mr. Chairman.
    Mr. Secretary, welcome. I appreciate your clarification. I am sure you do not really believe that being poor is a State of mind.
    I want to share with you the plight of 50 families in my district who may be poor, not because of their State of mind, but because of the State of the bureaucracy at HUD. This is a unique situation in my district. This is not about funding or the lack of funding, and it is not about formulas. It is about 50 people who are about to be thrown out on the street because a bureaucrat at HUD, perhaps not even while you were Secretary, told one of my community development agencies something which turned out not to be true. This is a crisis that needs to be solved.
    Let me briefly take you through this. This is my only opportunity to do that. Several years ago, the Community Development Corporation of Long Island was awarded 75 vouchers under the HUD section 811 mainstream tenant-based rental assistance program. Before that agency submitted its budget to HUD for the first year of the program, it became clear that the award figure provided by HUD was insufficient to support a lease-up of the full 75 units. The agency spoke with HUD and HUD indicated to the agency that at the time they could only lease-up 32 units, far below the 75, and the agency resubmitted their budget to HUD, again projecting 32 leased-up units.
    When HUD received this agency's budget, a HUD official contacted the Community Development Corporation and indicated both verbally and in writing that a higher authorized amount would be made available to this agency on Long Island, and that the agency should request a budget modification later in the year. HUD later approved that budget, and based upon that assurance the Community Development Corporation of Long Island proceeded to lease-up the full 75-unit allocation. Got me so far?
    Now, after that allocation has been leased-up to the 75 units, HUD has said, well, we were wrong and the likelihood of obtaining an allocation for additional funding is bleak. Without sufficient funding to cover these rental costs, 50 households face the specter of homelessness. From my perspective, this situation was caused simply because somebody at HUD gave somebody at the Community Development Corporation of Long Island wrong information, wrong advice, and the victims should no be these 50 families.
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    So my question to you, Mr. Secretary, is rather simple. How can we work together in a constructive fashion to address this problem and ensure that these 50 families are not thrown out on the street, not because it is their State of mind, not because of funding formulas, not because of a broad national debate on the amount of available funds for section 8, but because of a simple bureaucratic mistake. How can we work together and what specific actions can I expect your office to take to work with me to solve this problem?
    Secretary JACKSON. I cannot tell you right now the specific actions, but let me say this to you. I have encountered on a number of occasions where we have committed to something and reneged. Each time, we have tried to rectify it. I would like to know the specifics and I would ask you to get with Dr. Weicher and to let us know that. We will work through it with you. If it is our fault, then we will do everything in our power to rectify it. And that is a very different situation than we were talking about earlier today.
    Mr. ISRAEL. It is different, and Mr. Secretary, I do have a letter that I will give to you to give to your staff, and my staff will be following up within several days. Thank you.
    Thank you, Mr. Chairman. I yield back the balance of my time.
    Mr. NEY. I thank the gentleman.
    Secretary JACKSON. Thank you.
    Mr. NEY. Thank you.
    The gentleman from California, Mr. Royce.
    Mr. ROYCE. Thank you, Mr. Chairman.
    Firstly, I would like to commend our witness today on his good service to this country.
    Secretary JACKSON. Thank you, sir.
    Mr. ROYCE. I think you have an outstanding background in housing. I think we are very fortunate to have you. I want to commend you also on your testimony and on your presence this morning in the face of Capitol Hill.
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    Secretary JACKSON. Thank you.
    Mr. ROYCE. I hope you do not take my following question as critical of your overall efforts, because you have done an outstanding job.
    I do, however, have a few concerns about an initiative HUD is currently proposing. I am concerned that the zero downpayment program may not be an appropriate policy to be enacted by the government per se. I am somewhat sympathetic to the goals of this program, but I am afraid that if we enact this zero down, we may be suffering from what Friedrich Hayek called the fatal conceit, where there is a belief that, in his words, ''man is able to shape the world around him according to his wishes.''
    Hayek and pretty much every other economist would tell us that a command-and-control role for government in the marketplace does not usually bring desired results over the long term. Many have argued for some time that to retain its market share, the FHA resorts to some questionable underwriting practices, and that those practices might put both the homebuyer and the taxpayer at greater risk.
    So to look at this new program, here you have a buyer that would be financing in essence more than 100 percent of the value of the home. I am afraid that this program might actually result in many more families being placed into default because some may not be able to afford over 100 percent of the value of their homes.
    Alternatively, I understand the FHA believes and predicts that it is going to make $180 million in profits on this program. My question is, Mr. Secretary, is FHA saying it is smarter than the market, which gives me great hesitation, or does the lack of participation from the marketplace in the zero down product suggest that there are more risks to the program than FHA's financial modeling predicts?
    Secretary JACKSON. Thank you very much for the question. I do not think we are smarter than the marketplace. I will be the first to say that. But Congressman Royce, I really believe from my experience, and it might be limited, but my experience in Texas when I was running the Dallas Housing Authority, and then had the chance to sit for the Governor on a number of committees, that when a person or family is paying 50 percent or 55 percent or 60 percent of their income for rent, that if we can give them an opportunity to own their homes, even at 40 percent of their budget, it is much better.
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    So we are not going to change the underwriting guidelines. What we are saying is this, these persons will qualify. I have encountered so many families, especially Hispanic families, that want to own a home, but they do not have the downpayment or the closing costs. Now, I will tell you, the American Dream Downpayment Program which you all passed is excellent. But in my effort to be innovative and creative, we are trying to find other ways to get people into homes.
    To me, we are going to strictly scrutinize the persons that are coming in. I do not think our default rate will be any higher than it is in our regular program. If we see it, believe me, I had your same reservations when I was sitting down talking about the program. If it is, and I am the Secretary, I will come back and cut the program immediately. I think it is our responsibility to be very judicious with the taxpayer's money.
    Mr. ROYCE. Secretary Jackson, I thank you. I thank you for appearing again here today.
    Secretary JACKSON. Thank you.
    Mr. NEY. I thank the gentleman.
    The gentleman, Mr. Scott.
    Mr. SCOTT. Thank you very much, Mr. Chairman.
    Secretary Jackson, I have two phases to my period of questioning.
    Secretary JACKSON. Yes, sir.
    Mr. SCOTT. The first one concerns legislation that I am working on and this committee is taking very seriously, and we have put forward. The major lead sponsor is Chairman Ney. Of course, Chairman Oxley is working on this and also our Ranking Member, Barney Frank, and also myself. It has to do with financial literacy. In its form in our housing counseling program, we have put forward a very significant measure.
    As you know, we are having a serious problem with predatory lending. We have a serious problem with financial abuses. It is all targeted as a part of this program, the cornerstone of which is a 1-800 toll-free number with a live person on the other end. In addition to that, we set up local councils; we set up grants that could be made available to some of the groups, NAACP, AARP, other groups with credibility there.
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    We would like to get your commitment today to this committee, to myself, that wants this bill passed and signed by the President, that you will implement this; the two-way 800 number in its entirety.
    Secretary JACKSON. When it is passed, you can be assured that I will do that, Congressman. We faced this before in another incident at HUD where we had numerous numbers and no one answered the phone. I am totally averse to that. I think that there should be a live person on the other end of the phone when people call.
    Let me say this to take it a little further. I cannot reiterate enough my feelings about if we are going to help low-and moderate-income people own homes, that counseling is absolutely imperative that they have, because they have to understand, first of all, what occurs at closing and what to look for, and second of all, how they have to have reserves to make sure that they stay in their homes.
    Mr. SCOTT. I am so glad to hear you give that response. I appreciate your commitment. This committee does as well, because that two-way 800 number, to have that person, to get a human being on the other end of that phone is going to go a long way. That is the major infrastructure piece that we have in place.
    It also serves to help us have a good measuring device. We will be able to receive input, and therefore be able to design the literacy programs to fit the target group. If we have a way of them initiating the communications to us, we will know that. So I really appreciate that and look forward to working with you.
    The other part of my question goes to HOPE VI.
    Secretary JACKSON. Yes.
    Mr. SCOTT. I represent Georgia, the Atlanta metro area. I think you may know Renee Glover, the director of our Atlanta Housing Authority, a wonderful program, one of the great, great success stories, as you know, in Carver Homes and the Centennial Olympic Village that we have, Eastlake. All of those are great programs.
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    What we have, though, is we are in the middle of this. I want to lean on you, and I have been very, I do not want to say entertained, but I have been very well informed with this morning's presentation and your interaction with this committee. I want to establish as best we can a partnership. It is very interesting that you made the point that you helped to write this law. As you know, it was founded as a Republican vehicle. It was founded by Jack Kemp out of New York.
    Secretary JACKSON. That is correct.
    Mr. SCOTT. It is one of the great stories, one of the great successes of the Republican Party in its efforts. Therefore, I am somewhat disappointed that there is any means of canceling this program. I can see adjustments. I can see where there have been some abuses. But why throw out the baby with the bath? In my own state, in Georgia, we would be very dramatically affected because we have programs in process. We have had great success there. I want to impress upon you to review your decision to be against this and do it in the name of your father's advice that you just said he gave to you, just 20 minutes ago, when you gave your Statement to correct an impression that you gave.
    You said, ''my father told me that as long as there is hope, you can make it in this country.'' Let us keep HOPE VI alive, in the name of your father.
    Secretary JACKSON. Thank you.
    Mr. NEY. The time of the gentleman has expired.
    Mr. Shays.
    Secretary JACKSON. Thank you, Congressman. Thank you very much. I will look at it.
    Mr. SCOTT. Thank you.
    Mr. SHAYS. Mr. Secretary, welcome.
    I have been wrestling with a number of questions that I want to ask you, but HOPE VI was kind of on the top of my list. I have been trying to understand the Administration's opposition to HOPE VI for a number of years, because I find it bizarre. I speak from just the experience. We have a HOPE VI project in Stamford where upper-income, upper-middle-income, middle-income, lower-middle income, lower-income and destitute people live in the same units. When an upper-income person leaves that unit, you do not know who may go in, but it could be someone with no income.
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    You see young African Americans and Hispanic kids seeing someone get into a nice car, but guess what, they are going to a nice job. They are seeing firemen and policemen. They are seeing what I think is just an extraordinary experience. They are seeing the real world that they were cut out from seeing when they lived in public housing.
    Secretary JACKSON. That is true.
    Mr. SHAYS. What I am hearing as an argument is that the money has not been spent quickly enough. But when it is spent, it is spent well, is it not?
    Secretary JACKSON. Yes. I will tell you, Congressman, that of the 136 projects that we funded, the 25 that have been completed have done very well. I would like to say something in answering your question to Congressman Scott and to Congressman Watt, nine of the successful 25 programs have been done within two cities, Atlanta and Charlotte.
    But at the same time, I think it is only fair for me to be candid with you. When we sat down, the five of us, at the request of the Congress and Secretary Jack Kemp, we envisioned this program to work extremely well very quickly. We have not had that.
    Mr. SHAYS. I accept that, but what I want to know is, you know, the money is not spent until the projects are under way, so the worst that happens is it is not spent, but when it is spent, it is spent so well. Of all the projects I have ever seen the government do, I am not exaggerating, this is the best. It is the best program. I feel real pride in it. And what was there before? What was there before was public housing that was smelly, dirty, just lots of poor kids. There was drug dealing. And now there is a swimming pool; there is a weight room; there are a lot of neat things.
    I just would again, in the name of your father or your mother or your grandmother or your great-grandmother, I would like you to review this. I think this is an awesome program. It is something that I think Jack Kemp and you and others did well. I think for some reason your assumption that it is not being spent has made you think that maybe we do not need it. I just would try to say, well, why isn't it being spent as quickly and what can we do to make it be spent more quickly.
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    The other thing I just want to touch base with you on is, I have always questioned the logic of eliminating all public housing, which seems to be the direction, because when you have public housing, you know you have locked yourself in to a certain cost. We replaced it with section 8 vouchers in many cases. But it is just logical that the section 8 vouchers are going to cost more each year as the market goes up. It is kind of like why I bought my own home. I bought my own home so I did not have to pay more exorbitant rent. That same logic, it seems to me, applies with public housing.
    Don't you have a bit of concern that we have become so reliant on section 8s that ultimately we will not be able to afford them?
    Secretary JACKSON. Yes.
    Mr. SHAYS. Okay. Thank you, Mr. Chairman.
    Mr. NEY. I thank the gentleman.
    Mr. Miller?
    Mr. MILLER. Thank you, Mr. Chairman.
    Good morning, Mr. Secretary. Mr. Secretary, on page 17 or your testimony at the top of the page you devote two paragraphs to predatory lending. I would like to direct your attention to that. First of all, the rules that you talk about there, they apply only to FHA programs. Is that not correct?
    Secretary JACKSON. I do not have the testimony.
    Mr. MILLER. Can we stop the clock, Mr. Chairman?
    Mr. NEY. We have a copy that is coming to you.
    Secretary JACKSON. Which page now?
    Mr. MILLER. Page 17, the top two paragraphs, predatory lending.
    Secretary JACKSON. Yes, thank you.
    Mr. MILLER. First of all, the regs that you are talking about just apply to FHA programs. Isn't that right?
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    Secretary JACKSON. Yes.
    Mr. MILLER. They do not apply more broadly to what is going on in the economy or happening to consumers generally.
    Second, a definition. There does not appear to be an agreed-upon definition of predatory lending. We have had hearings at which lenders have testified the operating definition of predatory lending appeared to be something bad that I do not do. I would like to get at what your definition of predatory lending is.
    These two paragraphs seem to mix up two things. One is selling houses at fraudulently inflated rates based upon fraudulent appraisals, et cetera. And then also borrowing by someone who is, as I think Mr. Weicher testified to in February, a consumer who owns their home, who is house-rich and cash-poor, who is in a home with a lot of equity, but is strapped for cash, and practices that target those consumers. That is what I am talking about. Could you tell us what of the regs that FHA or your department has enacted get at that second situation, the consumer who is in their home and is refinancing?
    Secretary JACKSON. I can tell you, if you would like to go into detail, I think you would want a detailed answer for a short period. I will ask Dr. Weicher to do it for you.
    Mr. MILLER. Okay.
    Mr. WEICHER. Mr. Miller, we have a number of regulations. You are quite right. There is a distinction between the flipping regulations and the regulations addressing lending proper. We have a flipping regulation which we think is very effective.
    With respect to the lending regulations, what we have been doing is identifying individual practices of lenders which are damaging to people who are buying homes with FHA-insured mortgages. We have been either prohibiting those practices or we have been establishing rules as to what is exactly permitted.
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    With respect to situations where people are borrowing more than they should be, what we have is essentially ratio guidelines as to how much of your income can be devoted to your mortgage payment. If your payment-to-income ratio is above our guidelines, then either there has to be a very good reason or we will not insure that mortgage.
    Mr. MILLER. How about equity-stripping practices, up-front fees, the financing of up-front fees, single-premium insurance policies, credit insurance, otherwise, are those prohibited by your rules?
    Mr. WEICHER. Single-payment premium credit life insurance certainly is prohibited. Excessive up-front fees are either prohibited or they come under the provisions of the HOPE, the homeowners equity protection act. In that situation, at that point, it is in the province of the Federal Reserve as to what is permissible. Those are not FHA loans.
    Mr. MILLER. If you know some Federal Reserve regs on this, you know more than I do.
    Mr. WEICHER. I am sorry?
    Mr. MILLER. I am not aware of any Federal Reserve regs on that point.
    Mr. WEICHER. I cannot give you the reference right here, but I can give it to you, Mr. Miller.
    Mr. MILLER. Okay. Also, at various places in your testimony in February and the Secretary's testimony, there are various phrases used, predatory lending, abusive lending practices, deceptive and fraudulent practices. Do you use those terms interchangeably or do you mean something different by them?
    Secretary JACKSON. They are interchangeable, but also different, because you can have fraudulent transactions that might not necessarily be predatory. But usually when you have predatory transactions, they are fraudulent in many ways.
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    Mr. MILLER. Okay. Well, particularly the phrase ''deceptive and fraudulent practices,'' I cannot help but notice how close that is to the phrase ''unfair and deceptive trade practices'' in section five of the Federal Trade Commission Act. Do you regard these practices that you prohibited as in violation of section five of the Federal Trade Commission Act?
    Mr. WEICHER. Mr. Miller, it is coincidental that our definition is very close to the FTC's definition, but we have talked to them about that when we discovered that.
    Mr. NEY. The time has expired.
    We will now go on to the gentleman from Missouri, St. Louis to be specific, Mr. Clay.
    Mr. CLAY. Thank you, Mr. Chairman. It is always good to see the Secretary, to spend the better part of my morning with you. I am glad to see you again, Mr. Secretary.
    Secretary JACKSON. Thank you.
    Mr. CLAY. In St. Louis County, we are going to lose between 200 to 300 of slightly more than 6,000 vouchers in the section 8 program. It is worse than that in St. Louis City. The county is going to be forced to use up their reserves to cover the shortfall of section 8 funding. You announced on May 18 that HUD will calculate payments for the first quarter of 2004 by applying a full year inflation adjustment over an agency's average per-unit cost in May through July in 2003, and pay that same level for each and every quarter of 2004.
    The frontloading of payments supposedly will ease the crisis. This is not seen as a solution in the First Congressional District of Missouri as our figures show that this will still result in a shortfall at the end of the year. This is only postponing the manifestation of the problem. Since you are already seeing evidence of States, Oregon for example, terminating voucher contracts, how is this announced efficiency supposed to work? Is it efficient to eliminate families from housing and place them in the streets? Is this a plan of the Administration to reduce section 8 rolls and place them on the homeless rolls?
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    Mr. CLAY. Congressman, let me answer the last part. No, we are not in any way trying to reduce the section 8 rolls or to throw any person who presently has a certificate or voucher in use out of the certificate or voucher.
    I do believe that those persons who have vouchers that are on the street that have not been utilized, if they are over the cap that has been set, yes, that does present a problem. I am not going to sit here today and tell you it does not. But any person who is in the process right now, on a voucher, housing choice voucher, they are not losing their voucher. We believe that the corrections that we talked about earlier this morning, that I talked about earlier this morning, will address the need in St. Louis County as it has addressed the needs in Boston and the other places.
    I think it does clear up the problem, because the shortfall as the housing authorities foresaw it, was this year. We have corrected that problem. I think that if the flexible voucher program is approved by Congress, then clearly we will serve as many people, almost the two million people we serve today, on the present program.
    Again, I go back to what I said earlier. I did not have a unit-based section 8 program. I had a budget-based, where until 1998 they went to the unit-based. They gave us a budget. That is what we are doing to the housing authorities now. We are saying, you have a budget; utilize your budget and stay within that budget. That is the way I operated the section 8 program for almost 16, 17 years.
    Mr. CLAY. Okay. Thank you for that answer.
    Let's go to GSEs. Are you familiar with an April 28 Wall Street Journal article entitled Regulators Hit Fannie, Freddie With New Assault.
    Secretary JACKSON. Yes, I remember.
    Mr. CLAY. Okay. In 2003, at Fannie Mae alone, investment in the low-income housing tax credit supported the production and preservation of over 37,000 homes, making them affordable to very low-income families. Additionally, mortgage revenue bonds financed affordable homes for nearly 98,000 families. Why don't these numbers count toward reaching the GSEs's housing goals? Don't we want to encourage these activities?
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    Secretary JACKSON. If they qualify, they will be used to count against them. But again, Congressman, I will simply say this, because the question has come up so many times today. What I would ask you or the other members of the committee to do is to ask the persons at the GSEs to give us permission to release the figures to you and let you judge yourself if they are meeting the goals of low-and moderate-income persons. We are restricted. We cannot. They give us quarterly those figures. I am willing to release them if the Chairman of each one of those GSEs says we can. They are not meeting their goals. They are not leading the market.
    Mr. CLAY. I have heard what you said today that you follow the direction of this Congress. I find the timing somewhat peculiar, that at a time when section 8 and HOPE VI are being curtailed, and that the major force holding up the economy is housing, that OFEO and Treasury and now HUD have the GSEs in their scope. Why 6 months prior to the presidential election is there this drive for goals?
    Secretary JACKSON. Well, Congressman, I will tell you, as I said to the Congresslady from New York and Congresswoman Waters and Congressman Frank, this is not new. I have been reiterating the housing goals and the sub-goals almost from day one coming in, because I thought then and I think now that they are very, very important to meet the low-and moderate-income guidelines that were set by Congress. It is not new.
    There is not a person probably in this room that is more supportive of the GSEs than I am. I think that they can do and have done a good job, but I think that clearly they can do a lot more to address the charter mandate group of people that they should serve. I am not in any way trying to restrict, halt them or hurt them. That is not the case, I can assure you of that.
    Mr. NEY. The time has expired.
    Would Mr. Davis like to yield to Mr. Clay?
    Mr. DAVIS. Not after two-and-a-half hours, Mr. Chairman.
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    Mr. NEY. Good answer, Mr. Davis.
    Mr. DAVIS. Thank you, Mr. Chairman.
    Let me try to go back and try to identify a little bit of new ground, Mr. Jackson, or at least a new question on some old ground. One thing that no one has really asked you today is this, you have heard from a lot of people on my side of the aisle about HOPE VI and the passion that certain Democrats feel around it. What is striking to me is that frankly there are a lot of Republicans, and not just Chris Shays, who has a fairly strong attachment to this program. Ms. Harris from Florida is a strong supporter of this program.
    Maybe most tellingly, you and I have a mutual friend in common in Secretary Kemp, your former boss. Based on my last conversations with him, he remains a supporter of HOPE VI. Can you for just a moment, I do not want a filibuster on this from you, but can you just give me some quick insight on why so many Republicans are as unenlightened as you are on this issue? On why so many Republicans are, from your perspective, as unenlightened as you are on this issue? Why do so many Republicans disagree with you on HOPE VI? What are they missing that you know?
    Secretary JACKSON. I honestly do not know. I am just speaking, Congressman, from my perspective.
    Mr. DAVIS. Does that make an impression on you? Just to give you some history, as you know, last year we had the same discussion with Mr. Martinez, and ultimately the bipartisan forces that favored HOPE VI prevailed. Again, I give our colleagues on this side of the aisle their share of the credit for that. Does that move you at all, that so many people in your own party and of your own philosophy just do not agree with you on this, including Mr. Kemp?
    Secretary JACKSON. Does it give me reason to think? Yes, I have thought about it.
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    Mr. DAVIS. Does it give you reason to move?
    Secretary JACKSON. No. I think that from my perspective, when you have authorities, 75 percent of them that have outstanding balances with their HOPE VI, that have gone on for more than 6 or 7 years, no.
    Mr. DAVIS. What is the primary structural reason for that, Mr. Jackson? If you had to give me very quickly one primary structural reason why so many of these HOPE VI's have not been completed, what is it?
    Secretary JACKSON. I will tell you, in my mind it is that from the inception of the program when we wrote it, we told the housing authorities they should go out and get developers who would leverage the program and create the atmosphere that Congressman Scott just talked about, and Congressman Shays, both socially and economically integrate the communities. They did not do it. In the process of them not doing it, the money has sat there.
    Mr. DAVIS. Then Mr. Jackson, why don't you and the President simply come to Congress and give us a legislative approach that addresses exactly that problem, rather than throwing the whole program out?
    Secretary JACKSON. Well, my position is, and this is my recommendation and I do not want you to keep saying ''the President.'' I think that after reviewing the program with you——
    Mr. DAVIS. I am saying ''the President'' because he signs his budget.
    Secretary JACKSON. Yes, he does. And after a year being here looking at it, and having another chance to evaluate it, it was my perspective and the Secretary at that time, Secretary Martinez, that clearly with almost $3.6 billion outstanding then, it would be better to let the program continue in its present form. And if they show us that in fact that the program is moving in the direction, whether we reestablish HOPE VI or some program corollary to that, then we would be willing to do that.
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    Mr. DAVIS. Let me shift gears in the time I have, to the GSEs for a moment. Something that I do not understand about your position, the Administration's position, Mr. Jackson. I hear your concern that the GSEs are not doing enough to meet their goal of providing affordable housing and to serve the mission. I understand that. What does that have to do with receivership?
    I will tell you why I make that point. I looked at Secretary Snow's letter where he lays out the primary reasons he favors GSE regulatory reform. He spends the whole second paragraph talking about receivership. There is nothing in the second paragraph talking about affordable housing goals. Later on, there is a reference to affordable housing goals. Can you enlighten me on what receivership and changing over to the receivership option has been a failure as it has to do with housing goals?
    Secretary JACKSON. No, actually I cannot enlighten you about receivership. My only objective is to make sure that they meet the housing goals that they are chartered under.
    Mr. DAVIS. Have you seen the bill that was marked up in the Senate?
    Secretary JACKSON. Yes.
    Mr. DAVIS. Do you agree with me that there are very few provisions in that bill? There is a lot that deals with receivership. There is a lot that deals with the identity of the regulator. Do you agree with me that there is very little in that bill that deals with affordable housing goals and expanding that mission?
    Secretary JACKSON. The affordable housing goals were coming separate, and we have submitted——
    Mr. DAVIS. I did not ask you about that. I asked you about the Senate bill, just to get your opinion on that.
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    Secretary JACKSON. I support a strong regulator.
    Mr. DAVIS. But to answer my question, have you reviewed the Senate bill?
    Secretary JACKSON. I have reviewed it. You mean the initial one?
    Mr. DAVIS. The one that was marked up a few weeks ago.
    Secretary JACKSON. Yes.
    Mr. DAVIS. Do you agree with me that in a 39-page bill that, being charitable, maybe only two or three pages of it actually deal with the affordable housing mission, and that the bulk of it deals with receivership and the identity of the regulator?
    Secretary JACKSON. No, I thought the bulk of the bill, and this will be a difference in our interpretation, dealt with an efficient and effective way to regulate the GSEs.
    Mr. DAVIS. I agree with that, but how much of the bill deals with the phrase ''improving affordable housing'' mission or the concept of improving the affordable housing mission?
    Secretary JACKSON. I cannot get in depth of what it deals with, but I think the ultimate goal is to regulate them——
    Mr. DAVIS. I will tell you, if the chair will indulge me 30 seconds since we are wrapping up, this is why I raise this, Mr. Jackson. I think Mr. Clay does raise an interesting point. We hear that the Administration is deeply concerned about improving the affordable housing mission, but yet the Administration appears to be supportive of a Senate bill that does not really address that issue. We hear that the Administration is concerned about safety and soundness, but yet the Administration has not identified a safety and soundness crisis. Those things do raise an obvious question of why the Administration is pushing this particular agenda, absent a crisis context.
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    Just one final note, do you know of any scenario that leads you to think that the GSEs are more likely to collapse than, say, any major bank in this country?
    Secretary JACKSON. No. Let me say this. I agree with you. That is not the issue. The issue is steel.
    Mr. DAVIS. What is not the issue? When you say that is not the issue, what do you mean when you say ''that is not the issue''?
    Secretary JACKSON. You asked me if I believe that they were any more able in preventing themselves from collapsing.
    Mr. DAVIS. Right. Okay.
    Secretary JACKSON. No.
    Mr. DAVIS. So you agree with me on that.
    Secretary JACKSON. Yes.
    Mr. DAVIS. Okay.
    Secretary JACKSON. But the issue is I do think that as we regulate banks or others, that a strong regulator is very important for the carrying out of the missions and making sure that they carry out their responsibility. That is all that I think.
    Mr. DAVIS. But just to close out and summarize, you do agree with me that there is no empirical evidence that the GSEs are any more at risk than any other financial institution.
    Secretary JACKSON. I cannot tell you there is no empirical evidence. I can tell you that is——
    Mr. DAVIS. That is not your major concern.
    Secretary JACKSON. My major concern is affordable housing goals.
    Mr. DAVIS. Okay. All right.
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    Thank you, Mr. Chairman.
    Mr. FRANK. Mr. Chairman?
    Mr. NEY. The gentleman?
    Mr. FRANK. I just have to respond for 30 seconds on this Administration's concern about the affordable housing goals. The fact is that you had the legal authority to promulgate increased goals last year that would now be in effect. Your Administration failed to do that. Indeed, when we called attention to that failure, the original response from the department was, oh well, we are planning to do it. Only afterwards did they realize that the time has passed in which you could have done it for this year.
    So the fact is that there was no, a whole presidential term will have gone by in which the goals were left untouched, although you had the authority last year to increase them, and you deliberately did not exercise that authority and you promulgated them this year, but you had the legal authority to do it last year, let it go by. In fact, when we noted that, someone said, well, we are going to it, but it was too late for you to do it last year.
    So it is pretty clear to me that historically your interest in increasing the goals came after your desire to make other changes in the GSEs. Otherwise, I do not know why you would not have done it before. Let me ask you then, why did HUD not last year use its authority to promulgate those higher goals so they would already be in effect?
    Secretary JACKSON. Congressman, I think that is absolutely a fair question. I will simply answer this way. It was an oversight on our part. I believe that the rules should be promulgated.
    Mr. FRANK. It was an oversight. You forgot to raise the goals for the GSEs.
    Secretary JACKSON. It was an oversight. I think your analysis is correct. It was brought to the attention, and immediately when it was brought to our attention——
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    Mr. FRANK. We brought it to your attention.
    Secretary JACKSON. I agree with you. You brought it to our attention. But it was not that we had not been working on it.
    Mr. FRANK. It is hard for me to believe, Mr. Secretary, that if this was really an important thing to you, that something that basic you would have just lost it.
    Secretary JACKSON. It is very important to me. That is why we are working on it. I am the Secretary and that is why we are working on it.
    Mr. FRANK. But you overlooked it last year.
    Secretary JACKSON. I was not the Secretary last year.
    Mr. FRANK. Okay, the Secretary overlooked it. You are clean.
    Secretary JACKSON. No, I was part of the Secretary. I said ''we'' and you are correct.
    Mr. NEY. And wrapping up briefly, 30 seconds, Mr. Scott.
    Mr. SCOTT. Thank you very much, Mr. Chairman, for your kindness on this question.
    Let me go back to HOPE VI just for a moment. I am not giving up on you. I am still there with you.
    Secretary JACKSON. Yes, sir.
    Mr. SCOTT. Let us see if we cannot get an area with which we can work going forward. You have agreed that Atlanta is a success story. You have agreed that Charlotte is a success story; that Dallas, Mr. Shays and several of us on this committee. You also recognize the strong bipartisan Republican and Democratic effort here. It is a great success story.
    What I would like to implore of you is to look and see going forward if we cannot do what is fair. Why should we punish those projects in Atlanta and other places across this country that have been successful; that have done everything they were supposed to do, and have gone on and have made additional investments of which they are partially through with other HOPE VI projects, which would be jeopardized if the funding is cut.
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    Cannot we come up with a process in which we can evaluate each on its own basis? Those programs that are totally failures, I agree with you. If they have failed, if they have not done, then we should use a set of circumstances to deal with them, but not throw the whole baby out with the bath. Let's find a way to keep those programs going that are successful, and then separate those others that have not and have failed, and work with those communities on maybe an alternative program, but to keep this program going where it has been successful.
    Could we get your commitment to work with this committee on that?
    Secretary JACKSON. You can get my commitment to work with the committee. I cannot give you a commitment that it is going to be in the form of the HOPE VI. Maybe there will be a HOPE VII program, but we have tried and we will continue to try to look at ways to make sure that we invest in the cities, and that the cities have the opportunity to propagate programs.
    Again, I go back. Yes, I will look for ways to work with cities who have been very, very productive. We are doing that now with bond issuance that we are permitting cities like Atlanta, Chicago, Charlotte and others to do, because we realize that they have been very progressive. I think that it is our responsibility when we have progressive cities who are doing what they should be doing for low-and moderate-income persons, that we work with them in every way to make sure that they are carrying out their mission. I will continue to do that.
    Mr. SCOTT. Fine. Thank you. I look forward to working with you on that and the financial literacy.
    Secretary JACKSON. Thank you.
    Mr. SCOTT. Thank you very much, Mr. Chairman.
    Mr. NEY. Thank you.
    And I want to thank everyone for participating. I would just make a closing comment, if I could. I do not want to get into the GSE debate, but I do think frankly that Treasury, and I have written a letter. I am speaking for myself here, but I think that as the whole debate started to go forth where we were going to discuss very serious issues about the future of housing and of course the controversy that has swelled up over this. I do think that, again a personal opinion, that Treasury just took the bill and completely scrapped it. The House will was completely unacceptable and then the Senate became unacceptable. Somebody made a comment about the Senate. Treasury finds the Senate unacceptable.
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    So I do not know what they find acceptable, but I think they have put the kibosh, frankly Treasury did, on the whole ball of wax. I do not know if they intend to do it some other way. So this is not HUD. You see, I am giving you a break here. It is Treasury. I just think at some point in time we have to get together to talk the issue out. I think it was not fair, again, to a lot of the members on either side of the aisle, to do that, but it is just my opinion.
    I want to thank the members. I want to especially thank the Secretary for your time and your patience in coming before the Congress.
    Secretary JACKSON. Thank you so much.
    Mr. NEY. With that, the committee will be adjourned. The record will be open, without objection, for 30 legislative days in which members can have additional questions or revise and extend remarks.
    [Whereupon, at 1:55 p.m., the subcommittee was adjourned.]