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H.R. 3995—THE HOUSING AFFORDABILITY FOR AMERICA ACT OF 2002
WEDNESDAY, APRIL 24, 2002
U.S. House of Representatives,
Subcommittee on Housing and
Community Opportunity,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 2:00 p.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding.
Present: Chairman Roukema; Representatives Ney, Kelly, Miller, Grucci, Rogers, Tiberi, Frank, Velazquez, Lee, Schakowsky, Capuano, Waters, Sanders, Watt and Israel.
Chairwoman ROUKEMA. I am going to call this hearing to order, although it is more than a little embarrassing here. Unfortunately, this hearing is in conflict with legislation that is on the floor from this committee, the CARTA, the Corporate and Auditing Accountability Responsibility and Transparency Act. And many of our Members are over on the floor now as we speak—oh, good, we have one more Member anyway. As we speak, they are currently, as a matter of fact, debating Congressman LaFalce's substitute on the floor as we speak, and we may be interrupted shortly with some roll call votes.
But I do want to welcome our panel here today and assure them—and, fortunately, Mr. Frank, our Ranking Democrat is here, and that is a welcome contribution, but I can assure the panel that even though there are few Members here today, there has been an intense interest throughout these hearings. This is the third of three hearings, and there has been an intense interest on the part of our Members, and I can assure you that all of your testimony will be forwarded and presented to each of the Members individually, and I am sure that they will be paying close attention, because we fully expect that this is going to be a priority piece of legislation hopefully before the Congress adjourns this fall.
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But I welcome Mr. Frank and our other Members here, and I will simply say that for the panelists that—I am sorry, first, of course, we know that all the opening statements will be included in the record, and we will see if there are any opening statements, but that each of the panelists will be introduced, and you should know that you will be limited to 5 minutes, and the little recorder in front of you or clock in front of you will tell you about your time and we'll try to keep you as close to 5 minutes as possible. But I will introduce each one of you individually.
But now I ask my colleagues, are there any opening statements? I do not have one. Is there an opening statement? All right.
Mr. Frank.
[The prepared statement of Hon. Marge Roukema can be found on page 426 in the appendix.]
Mr. FRANK. Madam Chairwoman, I appreciate the chance to talk with the Administration officials who have responsibility here. I will be interested in their comments on the legislation. I want to use this opportunity, though, to reiterate some questions that I will further elaborate on. First, to Mr. Weicher, I had gotten a letter from the——
Chairwoman ROUKEMA. Excuse me, is this your opening statement?
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Mr. FRANK. Yes.
Chairwoman ROUKEMA. This is not the questioning period. All right.
Mr. FRANK. It is the opening statement in which I will ask some questions.
[Laughter.]
I may make a statement during the question period. I got a letter from the Massachusetts Legislative Leadership on Housing over the whole question of risk sharing, FHA 202, in which they were not getting from the regional office permission to go forward with risk sharing under 202. Now, your office appeared to have intervened and allowed that to go forward. The law clearly calls for it to be able to happen, and your office did intervene, and one of the projects is going through, but one of the things I hope you will be able to address is giving guidance to all the regional offices on this. Again, Congress spoke very clearly that risk sharing should be allowed with 202, and I would hope that we could get that one cleared up.
Second, the Ranking Member of the full committee and I, Mr. LaFalce, sent a letter to the Secretary on March 26, so this is not something that we are complaining about since it is only a few weeks ago, having been accepted as a matter that has already been holding off, and that is the ability of people to benefit from a provision that we had in a previous report from the 105th Congress allowing recaptured interest reduction payment subsidies to be used for rehab grants for properties for deferred maintenance. And those are two very important issues.
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And I mention these, Madam Chairwoman, in my statement, because my statement is basically to lament a condition over which this panel has no control and that is the absence of money to do new things. You presided over and basically structured a very useful set of hearings last year in which we had virtual unanimity. I think there was literally one witness, whether from the Democratic or Republican side, who didn't agree that we needed a new production program. There is clearly the need for increased production. Now I know you have got legislation which tries to address that need, and we will deal with that in another context. But, part of the problem is of trying to do a new housing production program without money is like making bricks without straw. And many people tried that, and it wasn't much fun. I don't want to have to go through that again.
So, I really have to say there is this problem that we have, I think, a budget allocation, thanks to other decisions that were made that leaves us with too little money. But that is why I asked the two questions that I did. Both of those deal with our ability to do the best we can with existing resources and at a time when money is clearly inadequate for the kind of production program we need, that makes it all the more important that whatever we can do we do and without a great deal of delay. So 202 risk sharing, recapture of interest payments under the interest reduction, those are very important programs. And I stressed them in my opening statement, because they are the best we can do in the current context. I would like to change the current context, but as long as we are in that context, we have to focus on those.
And so I am hoping that I can talk further with the witnesses about them, and I meant by this, in part, to give them some notice so that when we get to the question period there won't be kind of surprise answers, and maybe there are some of those diligent people who came over with them for the ride sitting behind them who can work on some of these things, and by the time we get to the question period we won't have to have the usual whispered conferences, they will have already written it out. Not that these individuals aren't capable of doing it on their own, but not everybody can remember everything at all times, which is why my chief staff person is sitting behind me, and they all make our conversations more fruitful. Thank you.
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Chairwoman ROUKEMA. Thank you. Are there any other opening statements?
Mr. Grucci.
Mr. GRUCCI. Thank you, Madam Chairwoman. I do have a formal statement that I would like to have entered into the records, but I would just like to make a few brief remarks if I may about the crisis of affordable housing in the district that I represent, which is eastern Long Island, New York, an area that has seen pockets of extraordinary wealth, but more commonly are pockets of middle-class America and pockets of poverty. And what I am very concerned about, with the CDBG block grant reallocation of the formula, is what kind of an effect will it have on my community, and I will certainly be interested in hearing that if it does come up in the testimony here today. Most assuredly, it will come up in the question section.
But, I wanted to bring out another point that I think, that I would like the Administration to be considering, as it is helping to forge forward in creating affordable housing. Affordable housing is kind of like art: It is in the eye of the beholder. In a community where you have very high cost of real estate, you have high tax burden on the people, you have high cost of energy, you have high cost of transportation, high cost of living, what is affordable by us, or I should say is what is affordable in other areas of the country is poverty level in certain areas of my district. And I just encourage you all to think about how we can make affordable housing a reality in suburban America.
I represent the County of Suffolk where the median income is high, but the cost of living is higher, and therefore the ability to access the affordable housing subsidy programs are out of the reach of the people who earn greater than $30,000 or $40,000 for a family. But in my area, if you earn that kind of money, you are certainly not living in the lap of luxury. You are struggling to get by, you are working two or three jobs in order to be able to put food on the table, and certainly affordable housing, housing of any kind, including rental housing, is just completely out of their reach.
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I would encourage you to think about that in the crafting of any regulations or policies. I would like you to consider ways to widen that net so we can capture more people who are truly in need of affordable housing. And I thank you, Madam Chairwoman, and I will yield back the remainder of my time, but ask that my official comments be entered into the record.
[The prepared statement of Hon. Felix J. Grucci Jr. can be found on page 430 in the appendix.]
Chairwoman ROUKEMA. So moved. Are there other opening statements? Yes, Ms. Sanders? Well, I was going in the order in which you came, but all right, if you want to yield to Ms. Schakowsky, fine. It is up to you.
Mr. SANDERS. Yes.
Ms. SCHAKOWSKY. I thank the gentleman, and I thank you, Madam Chairwoman, and Ranking Member Frank for convening this hearing. The lack of affordable housing has a tremendous impact on families in my home State of Illinois. One out of five renters in Illinois spends more than 50 percent of their income on rent, and in Chicago we are short over 150,000 units of affordable housing for extremely low-income households. Thirty thousand units of project-based housing are going to be expiring within the next 5 years, many of them in my district, and the problem will grow worse if we don't do something about it now.
Low- and moderate-income families face several barriers to finding a safe and affordable place to live. I wanted to emphasize one of those barriers, and that is discrimination. Landlords across the country discriminate against Section 8 holders. Back in my home city of Chicago, the City Council passed ordinance that prohibits landlords from rejecting a tenant based on source of income, yet I have talked to too many tenants who were rejected despite this law. And I am concerned that our efforts to address the affordable housing crisis will be fruitless or at least hampered if we don't address the widespread discrimination in our housing markets.
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Unfortunately, the Administration wants to provide only $46 million for fair housing enforcement and investigations. Fair housing programs have received flat funding during the past 2 years, which, actually, if you index it for inflation, represents a significant cut, and that is really unacceptable. Our committee needs to this issue.
Toward that end, I am going to ask the General Accounting Office to conduct a study to investigate the problem of housing discrimination and HUD's response. I hope that all of my colleagues on this subcommittee, at the very least, will join me in this request, and I hope very much that Chairwoman Roukema will call a hearing to investigate this problem of housing discrimination. Thank you very much, Madam Chairwoman.
Chairwoman ROUKEMA. Thank you. Are there other statements, Mr. Miller or Ms. Tiberi? No opening statements?
Mr. MILLER. I would submit a statement in the record. I prefer to hear the witnesses today. Thank you.
[The prepared statement of Hon. Gary G. Miller can be found on page 433 in the appendix.]
Chairwoman ROUKEMA. All right. Yes. I think we would all like to get to that, especially with the votes coming up. Yes, Mr. Sanders. Excuse me, Mr. Sanders.
Mr. SANDERS. Thank you, Madam Chairwoman, and thank you very much for holding this important hearing. And I would like to submit my full statement for the record. And I look forward to dialoging with Mr. Weicher and Mr. McCool later on.
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As you know, Madam Chairwoman, I have introduced H.R. 2349, which is the National Affordable Housing Trust Fund. Just this morning we had a press conference where over 200 prominent religious leaders signed a letter to the President urging support for this legislation. It currently has 174 co-sponsors, including a number of Republicans. And most interestingly, because of the severity of the housing crisis in this country, over 2,000 national, State and local groups, from business groups to religious groups, to trade unions, to low-income groups are supporting this bill.
Others have already talked about, and I don't need to go into great depth, there is, gentlemen, as I hope you know, a severe housing crisis in this country. In the United States of America, children should not be sleeping out on the streets. That is a national disgrace. In the United States of America, millions of working families should not be force to pay 50 or 60 percent of their limited incomes on housing. That is a national disgrace. People are working in my State of Vermont, they are working in California, in the Midwest. They are working incredibly hard, and in many parts of this country, because of the limitation in terms of affordable housing, they are paying a large chunk of their paycheck for rent of for their mortgages.
The bottom line is that the housing crisis is not caused, in all due respect, by the Endangered Species Act, it is not caused by overregulation; that may be a problem here or there. It is caused by the fact that the cost of housing for a variety of reasons is high and millions and millions of people are earning inadequate wages. Millions of people are earning below what we consider to be a living wage for the American worker. So you have got a crisis, and there is no other way that that crisis is going to be solved, to my view, unless the Federal Government puts in substantial sums of money.
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Now, I believe very strongly that we have got to step up to the plate and put in real money, which is what the National Affordable Housing Trust Fund is about. It is my view that given the fact that Congress and the White House are not addressing this crisis, it is appropriate that there be a trust fund. It is appropriate that that money come from the Mutual Mortgage Insurance Fund.
Now, I will later on dialogue with you, but I understand that the White House is very concerned that that money now, which would be some $26 billion over a 7-year period, is now being used for deficit reduction, which raises a very fundamental issue. This is an Administration which apparently thinks it is OK to give hundreds of billions of dollars in tax breaks for the richest 1 percent of the population, people who are earning $375,000 a year minimum, but somehow when some of us want to use money which is now going into the general fund to build affordable housing, and by the way, put millions of American workers to work at decent wages, my goodness, we are impacting deficit reduction.
Chairwoman ROUKEMA. Mr. Sanders, can you conclude, please? You are well over the 5-minute time limit.
Mr. SANDERS. I conclude. Thank you.
Chairwoman ROUKEMA. Thank you.
Mr. Miller, Congressman Miller.
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Mr. MILLER. Thank you, Madam Chairwoman. There are varying opinions. To begin with, nobody at the top levels of the tax bracket gets a cut for another 4 years. So I am tired of listening to the rhetoric on the Minority side about all this money being spent on rich people who did not get a tax cut.
Mr. SANDERS. Will a friend yield?
Mr. MILLER. No, I will not yield. You had your time, you had your moment, sir. Endangered Species Act some believe not to be an issue. There was a project in Colton, California that I am just dealing with today that Fish and Wildlife set aside 33,000 acres of habitat for a rat that just wiped out 2,500 units of affordable housing that were approved after a 6-year project and process through the county that was approved 5-0 by the Board of Supervisors. And now, because of Federal law, rats are more important than people. You know, there was a time in this country when we used to swat flies and poison rats. Now we set aside habitat for them on private property, and Government is too stingy to pay the cost of the private land. We want taxpayers who pay for that property to take and foot the bill for habitat for flies, rats, mosquitos, frogs, lizards, snails, everything you can imagine, and I am tired of hearing the rhetoric from socialists about Government not being the problem. If the builders could——
Mr. SANDERS. Who is the gentleman referring to?
Mr. MILLER. I don't think I am speaking to you, and I prefer you hold your speech till you have time, sir. I am tired of individuals talking about Government not being the problem when builders in this country are trying to provide housing for people who need it, yet, because of the red tape and the process they have to go through, it is almost impossible to keep up with the demand, that when you don't meet the demand, as you all know, what happens to the prices? When the demand outproduces the supply, when there are more people wanting to live in a home than we have houses for, prices artificially increase, and that is what is happening in California. And I applaud the Chairwoman, and I applaud the Bush Administration for trying to deal effectively with the housing crisis in this country.
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But, we are dealing with another issue that I talked about yesterday, and that is Canadian lumber. Forty percent of all the softwood coming into this country that is needed on the West Coast comes from Canada, because of a bunch of wackos who don't want us to cut down any trees in this country, so we can't go out and provide lumber to build houses. We have to buy it from Canada or other countries who are willing to sell it to us. So I am tired of us blaming the private sector for Government interference and Government mandates and Government restrictions when we are the problem for affordable housing, and we would need to resolve it. And I applaud the Chairwoman for making that effort, and I yield back what time I had left.
Chairwoman ROUKEMA. Thank you. Thank you. We didn't set the time correctly, but I think you were very mindful of your time limitation.
Now, we do have a vote on the floor, but Congresswoman Schakowsky—I am sorry, Velazquez or Schakowsky, who would like to be next, and would you like to take your time now? Yes, yes, Velazquez.
Ms. VELAZQUEZ. I could do it now.
Chairwoman ROUKEMA. Yes.
Ms. VELAZQUEZ. Well, thank you, Chairwoman. I would like to thank you and Ranking Member Frank for holding this hearing. The home ownership opportunities afforded by the Fair Housing Administration are important cornerstones of our national housing policy. I am eager to hear the testimony of our two panels on the various proposals put forth in this bill. Title II of the Housing Affordability for America Act deals with the FHA authorizing and qualifying a number of very important proposals which have long been advocated by Members from both sides of the aisle. I was glad to see that it included such provisions as downpayment simplification, incentives for teachers and public safety officers to purchase homes and increases in the loan limits for high-cost areas. I strongly support each of these provisions and commend the Chairwoman for including them in this bill.
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In fact, my concerns with Title II lie not as much with what it includes as with what it excludes. It is a well-established fact that unfortunately a large percentage of FHA loans are targets of predatory lending, yet there is no attempt to take simple steps to ensure this issue is dealt with effectively. Specifically, in my district, this has become an increasing scourge. Twenty years ago, we couldn't get lenders to invest in much of central Brooklyn. Today, the investment exists. But it is frequently in the form of loans that have unfair and unrealistic terms.
More alarming still is the growing pattern of foreclosures on FHA-insured properties in this area. Nationwide, default rates on federally insured mortgages are up more than 100 percent in the last decade alone. This year, in the New York region, default rates on these same loans are three times the national average. Of particular concern for me is the fact that three-fourths of the FHA-insured mortgages in this region are located in Brooklyn and Queens and centered in minority communities.
From property flipping of FHA-insured homes to inflated appraisal prices on these properties, to the recent 203(k) crisis in New York City, we are seeing a growing number of predatory lending scandals in minority communities. In many of these, HUD and FHA reveal their quiet complicity simply through their lack of aggressive action. One thing that has been consistent among all of these problems has been the realization that when HUD or FHA delegates any obligation imposed upon it to an interested party in a loan, we are asking for trouble.
The bill before us today gives us an opportunity to fix some of the problems that have been plaguing our communities, but we need to take additional steps, perhaps aggressively, to stop the growing practice of predatory lending. I look forward to working with Chairwoman and the Ranking Member to put an end to these troubling practices. I commend the Administration for its commitment to increasing minority home ownership. However, equally important must be insuring that those who enter the ranks of homeowners have the ability to remain there. I hope that before this bill moves forward, we take a few simple steps to ensure this goal becomes a reality. Thank you.
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Chairwoman ROUKEMA. Thank you. Now I must apologize to the panelists. You have heard that the lights are on and the 5-minute vote rang. We are having a series of votes on the floor, and Congressman Frank and I agreed that we should adjourn this hearing until the three votes are voted upon. There is a 15-minute vote, a motion to recommit and final passage. So we will adjourn this hearing until those three votes are concluded. And I would simply ask please to have the Members return as soon as possible so that we can give the courtesy to our distinguished panelists here. At that point in time, I think we will have uninterrupted time. Thank you so much.
[Recess.]
Chairwoman ROUKEMA. Our votes are concluded on the floor so there should be no more interruptions. And I would specifically outline to the panelists the rules of engagement, so to speak. Your written statements will be made a part of the record, your full written statements. But your testimony will have to be limited to 5 minutes. I will recognize each of you individually for your statements, and of course every Member who is here will be able to ask questions, and they will also be limited to 5 minutes for their questioning period.
With that, I would like to introduce each of our panelists individually, as you are speaking and testifying. And with that, I will introduce our first panelist, and I hope I am pronouncing his name correctly. Is it Weicher?
Mr. WEICHER. Yes.
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Chairwoman ROUKEMA. John Weicher. Mr. Weicher is the—excuse me, excuse me, you do know, I think I outlined to you earlier the time limit and the timers that are on the desk up there on the table so that you will be alerted to the time constraints. John Weicher is the Assistant Secretary for Housing and the Federal Housing Commissioner at HUD. And we certainly appreciate the fact that he has just recently been appointed, within the past year, by President Bush, and he at that time—prior to this appointment he was director of Urban Policy at the Hudson Institute. I believe, Mr. Weicher, also you held a policy position when Jack Kemp was Secretary, correct?
Mr. WEICHER. That is correct. I was the Assistant Secretary for Policy Development and Research.
Chairwoman ROUKEMA. And with that, I will welcome you here today and look forward to your testimony.
STATEMENT OF JOHN C. WEICHER, ASSISTANT SECRETARY FOR HOUSING/FHA COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. WEICHER. Thank you, Chairwoman Roukema. I was the Assistant Secretary for Policy Development and Research with Secretary Kemp. I appreciate the opportunity to testify on behalf of the Department and the Office of Housing concerning the Housing Affordability for America Act of 2002. The bill contains 23 sections on housing programs, which works out to 13 seconds apiece to discuss them. And in your letter of invitation, you also asked me to discuss several specific questions about FHA programs. So I will confine my answers to those questions and comment on just a few of the corresponding sections in the bill. My full statement talks about all of the bill in detail.
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I'll begin with FHA's basic Section 203(b) Home Mortgage Insurance Program. As you know, the President and the Secretary have made promoting home ownership a cornerstone of domestic policy, especially for minority households. FHA is very much a part of this policy. About 80 percent of our mortgages serve first-time home buyers and about 35 percent serve minority households. The national home ownership rate and the minority home ownership rate both set new records last year.
FHA's business this year is running well ahead of expectations. If the second half of the year matches the first, we will need to seek an increase in our $160 billion commitment limitation for the MMI Fund. The fund had a net worth of 3.75 percent at the end of Fiscal Year 2001, and having been personally involved in developing the FHA reform legislation, as was Chairwoman Roukema and Ranking Member Frank 12 years ago, I am very pleased to report this.
The bill contains several provisions to improve FHA's ability to operate our single-family programs. Section 221 would make permanent the 1998 Downpayment Simplification Act. Secretary Martinez supported this proposal during his testimony before the Appropriations Subcommittee last month. Similarly, Section 227 should help FHA establish our hybrid ARM Program as the Administration proposed last year.
Sections 229 to 231 will help us prevent a recurrence of the 1998/1999 Section 203(k) fraud problem in New York City where a number of unqualified non-profits were persuaded by unscrupulous lenders to buy small, multi-unit buildings in Harlem and Brooklyn, supposedly to rehab them for owner occupancy. This fraud will cost the taxpayer some $268 million. And may I say in response to Ms. Velazquez' opening statement, we did not countenance fraud, we have prosecuted it. Moreover, we have worked closely with the City to develop a plan that will fix that housing, make it livable, and protect the tenants and the neighborhoods in which they live.
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The committee has asked about our single-family REO activities. Since the introduction of the management and marketing contracts in March of 1999, the Department has greatly improved our disposition process. As of March 2002, the inventory of HUD-owned homes is at its lowest level since 1996, 28,000 homes compared to a March 1999 inventory of 42,000. Moreover, the inventory has been stable during the recession instead of rising, as has been typical in the past. Currently, homes remain in inventory an average of 183 days compared to 221 days for this same period in 1999, and losses per claim have been reduced from 39 cents to 29 cents on the dollar. That loss rate is the lowest in at least 20 years. With this record, we do not think that additional statutory authority for property disposition is required.
FHA's basic multifamily insurance program, Section 221(d)(4), has required credit subsidy ever since credit reform was enacted in 1990. Three times in the last 8 years, the program was closed down because the available credit subsidy was exhausted. To end this stop and start cycle and place the program on a breakeven basis, the Department raised the premium from 50 basis points to 80 for Fiscal Year 2002. There were concerns that the program would be hamstrung by this increase. That has not happened. Already in this Fiscal Year, FHA has insured over $1.5 billion worth of (d)(4) projects, more than we did in all of last year. Moreover, with the 25 percent increase in mortgage limits that was proposed by the Secretary and enacted by Congress, we are seeing the first applications in years from several high-cost metropolitan areas, including at least one in New Jersey.
In addition, we have conducted the first systematic analysis of the premium and credit subsidy since credit reform was enacted. We concluded that (d)(4) can be operated on a breakeven basis at a much lower premium—57 basis points. The President's budget contains an announcement of this premium reduction, effective in October. We are also reducing either the premium or the credit subsidy for nearly every other multifamily program.
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Sections 201 and 202 address the question of who should be served by the programs. FHA generally serves moderate-income renters. Most FHA-insured projects are affordable to families in the lower half of the income distribution. And about half are in underserved areas. These are important markets. These families and these communities need FHA. To state our views very briefly, we favor Section 201, indexing the multifamily mortgage limits. We would prefer to wait on Section 202, analyze our experience with the new limits and the future effects of indexing before proceeding with any additional increase.
I just want to mention in conclusion that we support the housing impact analysis proposed in Title VIII. This was advocated by President Bush during the campaign 2 years ago. And then thank you for the opportunity to testify, and I will answer any questions.
[The prepared statement of John C. Weicher can be found on page 437 in the appendix.]
Chairwoman ROUKEMA. Thank you, Secretary Weicher.
Our second panelist here today is Mr. Roy Bernardi. Mr. Bernardi currently serves as HUD Assistant Secretary for Community Planning and Development, and with that kind of experience we welcome you here today, but I also understand that you served as Mayor of Syracuse, New York, elected at that time and re-elected, served—you were obviously a very popular elected representative and a Republican at that, as I understand. We are not making this partisan, but for Syracuse it is my understanding that that was a rather renowned tribute to the party. All right. And with that, Mr. Bernardi, we give you your 5 minutes of testimony.
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STATEMENT OF ROY A. BERNARDI, ASSISTANT SECRETARY, OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. BERNARDI. Thank you, Madam Chairwoman, for your efforts, and Minority Member Frank, for all of your efforts to bring the issue of affordable housing this attention through legislation. We thank you for your leadership and your compassion for the less fortunate among us.
H.R. 3995 proposes some significant changes to many programs in the Office of CPD. I have addressed these changes fully in my prepared statement, but I would like to summarize for you this afternoon these proposed changes. Starting with the HOME Program, the HOME Program has demonstrated remarkable success in developing affordable housing, particularly in producing rental units to serve extremely low-income families. We believe reforms of this program should build on its notable successes. I can indicate to you that of the number of units that are produced, 41 percent are for extremely low-income individuals, who pay up to 30 percent of median income in rent.
We have a concern that the proposed Production and Preservation Program and other significant proposed changes for the HOME Program will have consequences that will not help the worthy objective of H.R. 3995 which is to provide affordable housing for extremely low-income families. Abandoning the FMR standard and adopting the State median income as a floor for determining rents could actually, in many instances, increase rents generally across the country and have unintended consequences.
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Production results as well as feedback that we received from housing providers indicate the changes made over the 10 years to this program to improve its effectiveness have been largely successful. One hallmark of the HOME Program has been the close and continuing communication between HUD and the recipients of HOME funds and their representatives. Certainly, we are receptive to further improvements and when the report of the Millennial Housing Commission is published next month, HUD will be eager to work with this subcommittee to build on your efforts and those discussed by the Commission to expand affordable housing opportunities under the HOME Program.
I would also like to address our Homeless Assistance Program. The McKinney-Vento homeless assistance provisions of the bill are carefully crafted and correctly recognize the important elements of current law that should be retained. Specifically, we support the goal of reauthorization for the support of housing, Shelter Plus Care, Section 8 moderate rehabilitation and the emergency shelter grants. However, the Department will propose the consolidation of these programs into one that is needs-based and performance-driven. We also are pleased with reauthorization of the Interagency Council on the Homeless and the transfer of the Emergency Food and Shelter Program to CPD.
In the 2003 budget process, the Department reviewed proposals, now in the bill's language, to transfer the costs of renewing expiring Shelter Plus Care projects and projects funded under the permanent housing component into the Certificate Housing Fund. We believe they would be better addressed as part of a consolidation of homelessness funding.
Now, I have comments on the community and development block grants, and the CDBG Program provisions of H.R. 3995. Section 902 on housing counseling programs would require the Secretary to consolidate housing counseling under a single HUD office. The cornerstone of the CDBG Program is local discretion of program design and implementation. We would caution against adopting a one-size-fits-all approach that would take away discretion from the CDBG grantees. We would rather urge support for the Administration's request of $35 million for a new categorical counseling program, nearly doubling the current level of funding and removing the program from the home block grant.
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Section 905 concerns the funding eligibility for secular activities carried about by religious organizations. HUD strongly supports the involvement of faith-based organizations in our programs. HUD supports Section 906, adding a new eligibility criteria category to the CDBG Program to authorize the construction of tornado or storm-safe shelters in manufactured housing and parks. We do that in public property right now. We support this new eligibility category; however, we do not want to see it as a set-aside.
Now, Section 907, CDBG renewal communities. CDBG right now does provide assistance to empowerment zones, and we agree that there should be assistance to renewal communities through the CDBG Program. And HUD also supports reauthorization of the self-help ownership opportunities Program (SHOP). The President's request to triple to $65 million for SHOP in Fiscal Year 2003 reflects its popularity and success in helping low-income families become home owners.
I think I am within two seconds of my time being up, so I want to thank you for the opportunity, and I will be happy to answer any questions.
[The prepared statement of Roy A. Bernardi can be found on page 447 in the appendix.]
Chairwoman ROUKEMA. Thank you. I appreciate your cooperation.
Our next panelist is Mr. Michael Liu, Assistant Secretary for Public and Indian Housing at HUD. It is my understanding that you have had considerably experience as a member of the Federal Home Loan Bank of Chicago; is that correct?
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Mr. LIU. Yes, ma'am.
Chairwoman ROUKEMA. But I hope you can help us give us some insights of yours during the time period in which you are serving at HUD on this subject of Section 8 rental housing and assistance for Native American programs at HUD. I thank you.
STATEMENT OF MICHAEL LIU, ASSISTANT SECRETARY, OFFICE OF PUBLIC AND INDIAN HOUSING, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. LIU. Thank you, Madam Chairwoman. We appreciate you and your co-sponsors developing and introducing the Housing Affordability for America Act of 2002. The bill contains many proposals that will allow us to do a better job of providing the most effective low-income housing assistance possible with the funds available. With respect to vouchers, Section 401 of the bill proposes a new Thrifty Production Voucher Program. This program is patterned after the current project-based voucher program, but assumes that the capital for production will be found from other programs or sources and provides for reduced subsidy designed to cover only operating costs. HUD generally supports additional tools that may help public housing authorities (PHAs) meet their community's housing needs, and in that context will work with the subcommittee to develop a means of offering vouchers that can be combined easily with capital subsidies.
The current proposal, however, seems rather complex and differs from the project-based voucher program in ways that may not be necessary, such as waiting list administration and development of requirements by location, to name just a few. I look forward to further discussions on this matter.
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The bill also contains several initiatives designed directly or indirectly to increase the successful use of appropriated voucher program funds. HUD supports the increase in allowable rent to 40 percent of gross income, but believes PHAs also need flexibility to address compelling situations. For example, where a family already in the program would like to move into a significantly less expensive unit, they cannot do so because the family still would be paying more rent than the current limit.
HUD would consider allowing the use of some program funds to help increase voucher utilization for PHAs that are effectively using their administrative fees solely for the Section 8 Program. However, at the proposed maximum limit of five percent, this could translate into $500 million which may affect the administration of the core program. Any such reauthorization should be substantially narrower and structured to include appropriate oversight.
With respect to administrative fees, HUD recommends that it be given broader guidelines, not just to provide a bonus for high performers, but also to restructure the fees to promote performance in general and the accomplishment of specific program priorities, including families' movements to self-sufficiency and home ownership.
With respect to public housing, HUD appreciates that Title V contains the Administration's Public Housing Reinvestment Initiative, because that initiative can provide a new and effective means of improving public housing. The Public Housing Reinvestment Initiative provides a means of addressing this problem with the dollars available. The Public Housing Reinvestment Initiative allow PHAs that choose to participate to trade their public housing subsidies for project-based vouchers on a property-by-property basis. PHAs could then borrow money for capital improvements on the same individual property basis now used for Section 8 developments and multifamily housing generally. The bill contains a proposal to suspend the PHA plan requirement for 3 years for the smallest PHAs, up to 100 units. HUD has provided some streamlining of PHA plan requirements for these PHAs, but we need to go further, and we are developing a regulation that we believe will accomplish this. This bill's proposal is certainly along the same lines.
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The bill would also require HUD to develop and test a third party system for public housing performance evaluations through an outside contractor. This year, HUD has implemented a binding public housing management assessment that contains an independent inspection of physical conditions. However, experience with the Public Housing Assessment System (PHAS), during its extended advisory period raised so many questions regarding the adequacy of its physical inspection and finance components that HUD has substantially simplified and in some respects pared back these components prior to implementation. HUD is committed to working with public housing groups in an effort to revise the system, and this includes research into a third party system that would be accepted as appropriate by all stakeholders and parties concerned.
The bill provides for a 2-year reauthorization of HOPE VI and for measures to ensure that a broader group of communities in terms of size and location have a realistic possibility of receiving HOPE VI awards. HUD supports reauthorization and the effort to promote broader program participation. Title VII reauthorizes both the Native American Block Grant Program and its related Loan Guaranty Program, and HUD supports the reauthorization of both of these.
I look forward to working closely with the subcommittee as you continue to develop this important legislation.
[The prepared statement of Michael Liu can be found on page 453 in the appendix.]
Chairwoman ROUKEMA. I thank you very much.
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Now our final panelist is Mr. Thomas McCool. Mr. McCool is the Managing Director of Financial Markets and Community Investment at the General Accounting Office, which analyzes cost factors in the legislative branch of our Government, and we are happy to have you here today, because you had considerable responsibility and experience in analyzing Federal housing and financial matters and their relationship. With that, Mr. McCool, for you.
STATEMENT OF THOMAS J. McCOOL, MANAGING DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GENERAL ACCOUNTING OFFICE
Mr. MCCOOL. Thank you, Madam Chairwoman, Members of the subcommittee. We are here today to discuss H.R. 3995, the Housing Affordability for America Act, and in particular we are here to discuss Section 226, which would establish risk-based capital requirements for the Mutual Mortgage Insurance Fund of the Department of Housing and Urban Development's Federal Housing Administration.
We first presented the results of our analysis last year and suggested ways to better evaluate the financial health of the fund, so I won't go into details as we presented those last year. I will sort of cut to the chase, as it were. When we did our work last year, we concluded in our report that 2 percent capital ratio appeared sufficient to withstand moderately severe economic downturns that could lead to worse than expected loan performance. Some more severe downturns that we analyzed also did not cause the estimated capital ratio to decline by as much as two percentage points. However, in the three most severe scenarios that we used in that particular analysis, an economic value of 2 percent would not have been adequate. Nonetheless, because of the nature of such analysis, we urge caution in concluding that the estimated value of the fund implies that the fund would necessarily withstand any particular economic scenario under all circumstances.
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Determining an appropriate capital ratio depends in part on the level of risk Congress wishes the fund to withstand, as well as the composition and performance of the portfolio and the way the fund is managed in the future. We believe that to evaluate the actuarial soundness of the MMI Fund, one or more scenarios that the fund is expected to withstand needs to be specified. As a single, static capital ratio, does not measure actuarial soundness.
Once the scenarios are specified, it would be appropriate to calculate the economic value of the fund or the capital ratio under the scenarios. As long as the scenarios result in a positive estimated economic value, the fund could be said to be actuarially sound. However, it might be appropriate to leave a cushion to account for factors not captured by the model, especially those related to managing the fund and the inherent uncertainty attached to any forecast.
Our view is that Section 226 of H.R. 3995 will permit FHA to develop capital standards that more adequately reflect the risk the fund faces. By establishing what it calls a minimum risk-based capital ratio based upon economic scenarios that could adversely affect defaults and prepayments, the act would more fully capture the credit risk the fund faces. By establishing a 1 percent minimum basic capital ratio, the act recognizes the unknown risk, such as operational risk, that the fund faces.
Overall, Section 226 of H.R. 3995 seeks to provide a method for determining whether the fund has capital adequate to cover its credit risk under defined conditions and provides a cushion to cover continuing operational risk, thus clarifying what is meant by actuarial soundness and helping FHA manage the fund to achieve that goal.
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Madam Chairwoman, this concludes my statement. We would be pleased to respond to any questions.
[The prepared statement of Thomas J. McCool can be found on page 460 in the appendix.]
Chairwoman ROUKEMA. I thank you for your testimony. And I have a couple of questions, and they may relate to a number of the testimonies here, but I did note that Mr. Roy Bernardi talked about, and I wasn't quite sure the exact connection that you were making, about the unintended consequences that might be out there in terms of actually raising rents. And I guess you were talking about the HOME Program or what was the connection? Would you amplify that, please, for me?
Mr. BERNARDI. Right now, rent is determined by either the fair market rent or the median—30 percent or 60 percent of the median income by county. And the proposal, as we read it, indicates that the substitute would be the statewide median income, which would be higher and would make the maximum rents higher for the people that is intended to serve. And I think the chart here gives some examples as to what would occur if the State median income were used as opposed to the present fair market rent.
Chairwoman ROUKEMA. Staff is telling me that it was recognized in our preliminary discussion, and this should be something that we will have to go back and look at, but I would appreciate your help in specific terms as to how you think we should be addressing this to correct the legislation. Yes?
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Mr. BERNARDI. We would be more than happy, obviously, to work with your staff.
Chairwoman ROUKEMA. Please.
Mr. BERNARDI. And we know there are areas where there is a production difficulty. And if we can identify those areas, maybe we can work within the fair market rent in those areas and tweaking that, if you will, so that we can have more productivity in the areas that presently don't have as much production.
Chairwoman ROUKEMA. Is there any other member of the panel that has had some experience with this or insight, a perspective on it? If you do, please contact us by phone, e-mail or even in written form.
But I do have another question, and that is Ms. Velazquez is not here, but she had asked earlier today or in her introductory statement, and I acknowledge that that was an important issue, and I didn't hear, but maybe some of you referenced the predatory lending question. Do any of you have any comments or help or observations to give us about the questions raised regarding predatory lending? Yes, Mr. Weicher?
Mr. WEICHER. Madam Chairwoman, we have been concerned at HUD about predatory lending in this Administration and the previous Administration. Efforts go back at least to 1997, to my knowledge, to address the concerns. We have done a number of things with respect to FHA programs, and we can really only deal with FHA. But Ms. Velazquez mentioned her concerns about FHA in her district in central Brooklyn. We have issued, this fall, a proposed rule to prevent flipping in FHA programs. If the rule becomes final, you will not be able to obtain insurance on the second transaction involving a home within a 6-month period, unless there is a case to be made that this is a legitimate second transaction. We issued that, I believe, in November. We received a number of comments, and we are in the process of putting a final rule together.
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We have established a program that we call Credit Watch where we i dentify the FHA lenders with high early default and early claim rates on the loans that they have originated for FHA. We know that early defaults and early claims within the first year to 2 years in large numbers is evidence that something is fundamentally wrong. Anybody can have a default, a claim or two, and anybody will have claims as time goes on. But a lot of claims right after the loans have been made is a warning sign.
We have conducted Credit Watch investigations of lenders on a quarterly basis, those lenders with these high rates. We have sanctioned, removed from our roster, over 100 lenders over the space of 4 years. We have another 100 lenders who have been given warnings that we are particularly concerned about their performance. We are now extending that same approach to appraisers in something that we call Appraiser Watch that the Secretary mentioned, I believe, in his Senate appropriations—Senate-authorizing testimony last month. Again, this involves looking at the early default and claim rates on loans based on who the appraisers were on the loan.
Finally, for loans which are in default, we have established a loss mitigation program. We expect lenders to take any of several steps to try to help families who are delinquent on their loans from going into foreclosure. Our National Loan Servicing Center in Oklahoma City works with lenders all over the country and tracks the performance of the loans by lender to see which lenders have been successful in keeping people in their homes and which have not. Last year, we cut our claims by 10,000 loans at the same time that we increased our loss mitigation activities by 20,000 loans around the country. We are working in a lot of ways to prevent predatory lending and to help people who are the victims of predatory lending.
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Chairwoman ROUKEMA. Well, we have no more time now, but for you or any other member of the panel, if you have any recommendations as to how the law can be improved to make it more effective in terms of dealing with predatory lending, please forward that to us, and I am sure that there will be others that have questions regarding predatory lending. With that, I will yield to Mr. Frank.
Mr. FRANK. Let me begin by asking on the two points I raised before, Mr. Weicher, on the availability of risk sharing FHA under 202, have we got a definitive Department policy on that?
Mr. WEICHER. Yes. The Department is working on specific instructions to our mortgagees for the process of implying that. We expect to have a revised letter out in 60 to 90 days.
Mr. FRANK. And that will go to the regional offices.
Mr. WEICHER. That is right. In Massachusetts, I know we have had one project which has been under consideration for 18 months, and we are giving specific instructions regarding that project.
Mr. FRANK. I appreciate that, but we can tell them that is a harbinger of good news to come.
Mr. WEICHER. Yes. And we know MHFA has other projects that they want us to move forward.
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Mr. FRANK. Yes. They have changed their name now to Mass Housing.
Mr. WEICHER. I know, but it is still——
Mr. FRANK. Yes, I agree with you.
[Laughter.]
Now, on the interest reduction payments being made available for maintenance, where are we on that?
Mr. WEICHER. Well, we have been discussing that with OMB for the last 2 months.
Mr. FRANK. Ah, the magic words; we know what the problem is.
Mr. WEICHER. And those discussions are continuing, and we do expect that we will be able to advise you in the not very distant future.
Mr. FRANK. But this is a congressional mandate. We are not talking about an option here.
Mr. WEICHER. I understand that.
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Mr. FRANK. I know they do. Does OMB understand it?
Mr. WEICHER. Yes. I think the Administration understands this, Mr. Frank.
Mr. FRANK. OK.
Mr. WEICHER. And if I may say, I think there are some technical issues here, because we are dealing with money which was originally a stream of payments, and the legislation turns it into a capital grant to avoid scoring, and you were talking about that problem in your opening statement. You can't spend the capital grant any faster than you can spend the original payment, and it is complicated.
Mr. FRANK. Let me just say this, because I think this is important. Again, it is important for us to have maximum flexibility. Is it a possibility that some statutory change is needed or do you think you can work this all out when you say technical problems?
Mr. WEICHER. I think we will either get the technical problems resolved reasonably quickly or we will tell you we can't.
Mr. FRANK. In which case, I hope you will do it in time, and I think—you know, I would be prepared to go to our friends, the appropriators, and ask them if they can clean it up there. But this really, obviously, is important to get it forward. I thank you for that.
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Let me ask now, Mr. Liu, in your comments, you talked about thrifty vouchers. We are agreed in this room most of the time that we need a production program. Thrifty vouchers can't vote. Here is what you said in your written statement about thrifty vouchers: ''The current proposal seems rather complex and differs from the project-based voucher program in ways that may not be necessary. I look forward to further discussions on this matter.'' I guess I would put you leaning against if I was whipping this. So that sounds fairly negative about the thrifty vouchers. What are your problems with them and what could we do to make them less complex and less not necessary?
Mr. LIU. Congressman Frank, my comments should not be an indication of a negative stance toward the proposal. It is a tool.
Mr. FRANK. Well, Mr. Liu, could I ask you a question?
Mr. LIU. Yes, sir.
Mr. FRANK. When you do feel negative, can I see that? That will be great reading.
Mr. LIU. Sure, sure. It will be——
Mr. FRANK. If these aren't negative, I want to see when you are negative what you say.
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Mr. LIU. Absolutely, sir.
Mr. FRANK. No swearing is allowed.
Mr. LIU. Absolutely, absolutely, absolutely. No, it should not be viewed as a negative statement. It really is a statement, on its face, that we would like to work with the subcommittee to develop another tool to try and deal with the issue.
Mr. FRANK. I understand, but you—I mean, did something happen between the time you wrote this and now? You say it doesn't—I shouldn't take it as negative. ''It seems rather complex and differs in ways that may not be necessary.'' There is nothing favorable in here. Oh, and you also say, ''It assumes that capital will be found from other programs and sources and provides for reduced subsidies.'' I mean what is good in here?
Mr. LIU. Well, I think the good part is that we are saying that we are willing to work with the subcommittee to make the tool, at least in our view, workable.
Mr. FRANK. So, what is good in there is that the American Constitution has not been suspended, and you will continue to work with Congress. But I must say this is not a very ringing endorsement of the program.
The next question I have has to do with Section 505, and in particular on the public housing. I understand the flexibility, but what bothers me is about every fourth line there is an ability of the Secretary to waive restrictions. And what bothers me is that if you had a Secretary who was not too happy with public housing, you could wind up with a lot fewer units. And the fear that many of us have is that the best units will be put to a use which is good as far as it goes, but if you waive all these use restrictions, then they go out of the stream of being affordable. Some of them could be, and we all know housing developments in public housing that could, in fact, be very desirable. And I am concerned. Do you contemplate—what do we do to prevent under this, if we enact 505, a loss over time of some of the best public housing units on into the future?
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Mr. LIU. Well, we believe that there is an adequate dynamic at the local levels, in combination with HUD approval, that will prevent an abuse of the situation. On the other hand, if there are specific ideas that your staff or that the subcommittee might have so that we might inject some balance, if there is need for that, we are willing to discuss those.
Mr. FRANK. Just to finish up, in other words, to quote a phrase, you look forward to further discussions on this matter too.
Mr. LIU. That is a nice phrase, sir. Thank you.
Mr. FRANK. Thank you. Thank you.
Chairwoman ROUKEMA. That is the purpose of these hearings, I believe, at least I hope so. I hope so. Yes, Congressman Miller.
Mr. MILLER. Thank you, Madam Chairwoman. I have a phrase I would like to use. I call it the ''new homeless.'' And it is not people who are unemployed, it is people who, husband and wife, are out there working very hard. One might be a school teacher, one might be a fireman. And there is a lack of affordability for those people too. I mean, I like good examples. I had one of my staffers that happened to put in a bid for a small condo over here in Arlington yesterday. It was an 874 square foot condo for $199,000. So we would consider that a move-up home for people getting out of affordable, low-income house being able to move up. The problem was in 2 days they received 26 bids and that $199,000 listing sold for $260,000, because we are just not providing enough units to meet the demand out there. And I am just firmly convinced if there is no place for people to move up to, there is never going to be affordable housing in this country.
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Now, in L.A. County, 59 percent of the Section 8 voucher holders have no place to use that voucher because there is no place for them to move because there is no place people can reasonably afford to move up to and buy a home. And in my comments earlier, I got a little excited. I talked about a builder in Colton that because of a ESA, Endangered Species Act, application for a rat on 33,000 acres, it is going to wipe out a 600-acre development that was going to provide 2,500 affordable units that would have been probably from $120,000 to $150,000 price range, the first move up for people from low-income Section 8 affordable housing. The first place they can go to buy a home. And that is what I think is wrong with this Government, and I have a real problem with that.
But on your status report of select programs, your note that public housing is ineffective. What could be done from the Federal perspective to create an effective program for Federal housing? That may be a difficult question, and maybe you will require more time than you have.
Mr. LIU. Well, specifically, Congressman Miller, we have been spending a lot of time addressing this issue—and I think the comments that you read are really based on a lot of managerial issues that we have within HUD and within Public and Indian Housing. We must do a better job of working with the housing authorities to ensure that there is both timely and effective use of their dollars, both operating and capital fund dollars. We have seen an improvement, but things could certainly be a lot more effective.
For instance, in our HOPE VI Program, which comes up for reauthorization this year, we have allocated for the life of the program over $4.3 billion, close to $4.4 billion. Less than $1.6 billion has been actually spent on hard units coming up. Now, there are dollars that are ostensibly obligated, there are dollars which are ostensibly in the pipeline working on very complex financing. When we look at the promises that these types of dollars hold for the program, we have to revisit that as we look at it going forward. And, again, we were heartened to see a comment made in this bill that attempts to address one of the fundamental issues of our program for HOPE VI. Take for example, the housing stock, and is it today the same that we talked about 10 years ago? So it gives you an idea of the type of challenge that we have in getting these dollars out the door and dollars used to benefit the people out there.
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Mr. MILLER. See, a lot of the problem I have is a lot of individuals who care about housing are well-intended. I am not an attorney and I could read all the books associated with law that I could gather. And for me to stand up here and debate trial procedure having never been an attorney would be rather ridiculous. I have spent 30 years in the development industry from when it was a process 30 years ago that was very simplistic and you could rapidly gain permits and approvals to build. And I have many friends that are in that industry, and I talk to them repeatedly about the process they are going through and the difficulties. The 2,500 units I talked about were proposed by personal friends of mine, I know what they have gone through for 5 years.
Another issue on the FHA charge that we have borrowers insurance premiums. We are running a surplus on that. We have an excess of funds on that, which some Members believe that money should be taken and used for other programs. To me it means people who are paying that premium to buy homes are being overcharged, and perhaps we need to refund some of that money back to them or drop those rates in the premium so they are not paying more than they should be. Maybe you can address that.
Mr. WEICHER. Well, Mr. Miller, we certainly think that the FHA funds should be used for FHA purposes.
Mr. MILLER. Yes.
Mr. WEICHER. For the purposes of the home buyer.
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Mr. MILLER. Of the fee.
Mr. WEICHER. The premiums that they are charged a fee for are charges we levy on individuals for their benefit and not charges that we levy to finance other activities.
Mr. MILLER. But if they are not needed for that, some Members, I have heard, want to use that money for another purpose.
Mr. WEICHER. Yes.
Mr. MILLER. Rather than taking that money that belongs to somebody who paid it and giving it back to them, because it is their money, it is not our money, and then going in the future and saying, ''Let us drop that rate to an amount we need.'' Is there something to be done in that line?
Mr. WEICHER. As I mentioned in my opening statement, the Congress spent a great deal of time 12 years ago establishing a set of premiums and policies for FHA to prevent the fund from going the way of the S&L industry, which there was some concern about in 1989 and 1990. And we have built up the fund to the point where our net worth is higher than the levels that Congress mandated back in 1990. There is a question— and Mr. McCool's testimony goes into this in some detail— whether the capital standards that Congress established in 1990 are adequate to protect the fund against serious economic downturns of a kind we have not seen in the last 10 years and more, but of a kind we have seen once or twice in the past.
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Mr. MILLER. So you think they should be applicable to the service they were——
Chairwoman ROUKEMA. Excuse me. We are much over time.
Mr. MILLER. Thank you, Madam Chairwoman, and I hope Mrs. Kelly will address the issue on appraisals.
Chairwoman ROUKEMA. Let Mr. Weicher finish his response to you, and then we will move on.
Mr. WEICHER. I think that does finish it, Madam Chairwoman.
Mr. MILLER. Thank you for your graciousness, Madam Chairwoman.
Chairwoman ROUKEMA. Thank you. Thank you. I am going to try to go in the order in which people arrived, and I think Mr. Sanders was one of the early arrivals.
Mr. SANDERS. Thank you, Madam Chairwoman. Let me start off, if I might, with Mr. Weicher. Mr. Weicher, according to Deloitte & Touche, over the next 7 years the FHA Fund balance is projected to grow from over $18 billion in Fiscal Year 2001 to $44 billion in Fiscal Year 2008. If Deloitte & Touche is correct, the FHA surplus will exceed $26 billion over the next 7 years. And I just wanted to ask you, and most of us are not actuaries or accountants here, but in English is that roughly correct, would you agree with that?
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Mr. WEICHER. I would not call it a surplus, Mr. Sanders. It is the net worth of the MMI Fund. It is the——
Mr. SANDERS. But is that figure from Deloitte & Touche correct?
Mr. WEICHER. That is the best estimate that Deloitte——
Mr. SANDERS. OK. So we agree on that.
Mr. WEICHER. We——
Mr. SANDERS. Excuse me. I will ask you questions. If I might, sir, OK? You do not call it a surplus but others might. I understand where you are coming from; you have made your point before. It is a fair question as to what we do with that money. Now, the President, as I understand it, and the Administration believe that that money should be used to counter the deficit, that it is a surplus, I call it a surplus, to be used to counter the deficit. Other people have different ideas. But, in fact, what we are looking at is $26 billion more that some people believe that, in fact, we need to protect that fund. It is an honest debate as to what we should do with that money. I understand that there are different points of view on that issue. I would strongly suggest that given an—and I will use the word ''surplus''— that we have that surplus, that this comes, in fact, from housing transactions. Given the fact that this Administration, and, in fact, previous Administrations, have not adequately dealt with the crisis in affordable housing, given the fact that some are proposing and have supported huge tax breaks for the wealthiest people in this country, I believe that it is appropriate in order to address the housing crisis that I think almost everybody in this room perceives to exist, to put that money into affordable housing. And I would like you to tell me if there is anything extraordinary—you may not agree with it, but there has been some confusion on this issue—if the United States Congress decided, as I hope that they will, and we have 174 co-sponsors on this legislation, to create an affordable housing trust fund using this surplus, dedicating this stream of money for affordable housing if it passed the House of Representatives, if it passed the Senate, if the President signed the bill, am I correct in saying that we would have a National Affordable Housing Trust Fund with that money, sir?
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Mr. WEICHER. I think what you are asking is will the Department of Housing and Urban Development abide by legislation that is passed by the Congress and signed by the President.
Mr. SANDERS. That is right. And I hope the answer is——
Mr. WEICHER. You can hardly expect any of us to say, ''No, we will reject the decisions of the Congress and the Administration that we serve.''
Mr. SANDERS. Of course, and I appreciate that answer, and I knew that would be your answer. But I did ask you that because we have heard some discussion in the past from various authorities that suggest that somehow this can't be done. And the answer is if the Congress deems it and the President signs it, that is, in fact, what can be done.
And, Madam Chairwoman, let me just suggest that what this issue really comes down to, in one sense it is very complicated and so forth, in the other sense it is really pretty simple. And that is you have a pot of money and honest people have honest differences of opinion what you do with that money. My feeling is that that money should be directed into dealing with the affordable housing crisis, that one of the spin-offs of that will be the creation of large numbers of decent paying jobs and that children will not have to sleep out on the streets of this country, and millions of people will not have to pay 50 or 60 percent of their income in housing. So I would hope that we will use that money for affordable housing, and we look forward to moving that bill forward. Thank you.
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Chairwoman ROUKEMA. All right. I thank the congressman from Vermont. Now we have Congresswoman Kelly from New York.
Mrs. KELLY. Thank you, Madam Chairwoman. Mr. Liu, a little while ago, I went to New Orleans and held an oversight hearing in New Orleans. That was a situation where the New Orleans Housing Authority had over $800,000 available to them. They had knocked down a huge amount of housing and they had not had a HOPE VI grant since 1994. There were people who were displaced, but there was no new housing being built. And yet there was $800,000 available to that housing authority that wasn't being utilized. Now not all of that was HOPE VI money, but I noticed that you have talked just quickly about HOPE VI in your testimony, and, again, Mr. Miller brought up some things. I would like you to address what exactly you are doing, and if you are not able to do that, perhaps you could work with my office. I would like you to address what is happening with the availability of a public housing authority to move money that is available into that HOPE VI rebuild program if they have this need to rebuild housing.
In addition to that, that flexibility I hope would happen, but I also am thinking about a timeliness, and you addressed that a bit. Are you thinking about time certain after something is knocked down? And I am not talking about one-for-one replacement, but just simply the fact we are dislocating families, we need to rebuild something, and I, in New Orleans, found it appalling that all that money was there and yet we had people living in such terribly substandard housing. Could you address that for me, please?
Mr. LIU. Yes, Congresswoman. You have touched on a subject which is of great concern to the Department, and as we move forward in looking at the issue of reauthorization of HOPE VI, we welcome ideas and suggestions and certainly welcome the chance to work with you and other Members of the subcommittee on that. Project readiness is an issue. For instance, currently under the HOPE VI Program, under the 2001 NOFA, and prior NOFAs, a ''successful housing authority'' need not have put in as part of its application a project schedule. I will repeat that again. You could win a HOPE VI grant and not have a project schedule. And most of our HOPE VI awardees proceeded in that fashion. After they get the award, we would then negotiate or work with them to develop a project schedule.
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Now sometimes that could take years so that we have projects today 2 or 3 years after the award where the housing authorities don't even have a developer partner. We have situations where grants were made in 1995, and not a dollar has been spent, nor a subsequent revitalization plan, which is also not necessarily required under the current NOFA, is there. So these are issues that we hope to address as we talk about reauthorization, because you are absolutely right, it is a shame to have these dollars available and not used.
Mrs. KELLY. I thank you very much, and I know that this subcommittee will work with you on this. One other thing, Mr. Weicher, I heard you mention quickly about going back and looking at what the appraisers have done and so forth. I am very interested in pursuing that a little bit with you simply because appraisal can often not necessarily mean the same thing from one appraiser to the next, and I wish you would elaborate a little bit on what controls you are thinking about with regard to appraisals. Could you do that for me, please?
Mr. WEICHER. Certainly, Ms. Kelly. In the last 2 years, we have insured 1.8 million loans that have appraisals on them. We are looking at our early default and claim experience on those loans, classified by who the appraiser was on the loan. And we have the name of the individual appraiser, John Weicher, if I were an appraiser. We would have the name of the individual appraiser. We then look at those appraisers whose default rates and claim rates are high compared to the default rates and claim rates of the field office area, which is either a State or part of a State in the larger States, and we look at those who are high relative to the markets in which they are working. Those give us a group of appraisers who are creating risks for the FHA Fund and putting people in houses where they are not able to sustain the mortgage. We then will go in and look at the appraisers on an individual field review basis and see whether this is bad luck, whether this is incompetence, or whether it is something worse.
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Mrs. KELLY. How long does that process take?
Mr. WEICHER. Well, in the——
Chairwoman ROUKEMA. Excuse me. I am sorry. I am sorry, but let us conclude this. Give a short answer and conclude, please.
Mr. WEICHER. In the first 3 months of the year, we have identified 24 appraisers for field office review.
Mrs. KELLY. Thank you. Thank you, Madam Chairwoman.
Chairwoman ROUKEMA. All right. Thank you. I am sorry. I don't like to be forcing people to comply with the 5-minute rule, but I will tell you it is my opinion that we are going to have conclude this hearing at five o'clock, so that if we are going to get through this next panel, we are going to have to use some discretion here and adhere to the 5-minute rule. Otherwise we will never get through to the second panel. Yes. And with that, Congresswoman Lee.
Ms. LEE. Thank you, Madam Chairwoman. Let me just ask Mr. Weicher with regard to the HUD's budget, it is my understanding that it does not include any funding for rehab of federally assisted housing programs. And I wanted to find out if that is so, and if it is, what do you think in terms of your recommendations to address this need? And then also, in your response to our Ranking Member, Congressman Frank, with regard to Section 236, if all of the difficulties and issues are worked out with, is it OMB, would you actually go back to the drawing board and put a request in for those funds for Section 236?
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Mr. WEICHER. The answer to the latter question is, yes, if we can work out the complications with this, then we would expect to have funds which we would be able to make available through the usual process. We would need regulations, and we need a NOFA if these were to be made available competitively, which they probably would be. But the short answer is, yes, we would make those funds available. With respect——
Mr. FRANK. Would the gentlewoman yield, because she asked a very good question? Would that have to be reflected in appropriation or have you got sufficient authority to do that now without any further appropriation?
Mr. WEICHER. It is a question of the timing. The 236, the interest reduction payments have already been scored as a stream of payments over time, and the OMHAR legislation in 1997 established that these funds could continue to be spent but on the same basis. And that, as I think I mentioned, is part of the problem. What was a stream of payments needs to be somehow handled as a capital grant, and if the timing of the outlays changes, the scoring would change, and that is part of the complication.
Mr. FRANK. But if necessary, you would then request the authority to spend it if that were necessary.
Mr. WEICHER. Yes.
Ms. LEE. OK. Thank you very much, Madam Chairwoman. So then is it safe——
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Chairwoman ROUKEMA. Your time is not yet concluded if you have a follow-up.
Ms. LEE. OK. Thank you.
Chairwoman ROUKEMA. Brief, brief.
Ms. LEE. Very quick. With regard to the proposed rule, with regard to predatory lending, in conjunction with FHA insurance, it would generally prohibit the use of FHA to finance homes that were resold within the 6-month period. And I just wanted to know if you plan on issuing a final rule on this or what is the status of that?
Mr. WEICHER. Yes. We do plan on issuing a final rule. We are reviewing the comments now, and we expect to have a final rule out this summer.
Ms. LEE. This summer.
Mr. WEICHER. If not sooner.
Ms. LEE. OK. Thank you very much, Madam Chairwoman.
Chairwoman ROUKEMA. I thank you. And now Congressman Watt.
Mr. WATT. Thank you, Madam Chairwoman. Mr. Liu, I confess a little concern about your approach to one or two things that suggest that the subcommittee should be making proposals to HUD. I think maybe we got this backward, and we are trying to write a piece of legislation, and we are having trouble getting input from the Department that we are trying to be responsive to in writing that legislation. We write the legislation over here.
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And so I want to, first of all, without asking for a response from any of you, just ask you all to please encourage Secretary Martinez to respond to a list of questions that this subcommittee sent to him after he testified on February 13 that have never been responded to. If we don't get the responses to the questions we ask, then we can't be sensitive to the concerns or how you as a—how HUD would like to have this done. So please take that message back to him. I had three questions that I still haven't gotten the answers to. The subcommittee asked a bunch of questions that the subcommittee has not gotten answers to, and it is just very difficult to be responsive to concerns that HUD has.
Now I am going to segue into your testimony——
Chairwoman ROUKEMA. Excuse me. Mr. Watt, I just want to concur with you, because I also, as Chairwoman of the subcommittee, have, on two occasions, requested those responses from Mr. Martinez and we haven't gotten them.
Mr. WATT. I am aware of that. And Mr. Frank was making the same point here. If this is not your position, then what is your position, and your position seems to be, well, let us have some more discussions, and the problem with that is very soon now we are going to be marking up legislation that really doesn't have your input in the process. And this is the opportunity to give that input. One thing in particular, and this will drive home the point, and Ms. Kelly made it, if you look at page 5 of your testimony, you say about HOPE VI, ''More discussion of concepts ion regard to reauthorization of HOPE VI will be constructive.''
And then you say a report on HOPE VI lessons learned is due to Congress on June 15, 2002. This bill may be gone by June 15, 2002 somewhere else out of this subcommittee, and we have nothing other than, yes, the two things that we do that the Chairman's bill does with regard to HOPE VI you think are good, but we don't know what else you would like to have, other than that you want to have some more discussions about concepts in regard to the reauthorizations which you think would be constructive inputs right now.
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So having said that, and I don't mean to lecture you on this, but we had a hearing yesterday in this subcommittee about HOPE VI, and we had some people who have actually been out there in the field dealing with HOPE VI and they raised several things. And what I would like to do is get kind of a general response about whether you think these are good ideas. Is this part of the constructive discussion that we are having?
You give points now to applicants for HOPE VI funding, and then you rank them according to points. Would you think it would be helpful to have some provision in this legislation which says that HUD would reward an application that has a project schedule already in place, that minimizes displacement or provides for one-for-one replacement of housing—because yesterday our witnesses said that is a serious problem in HOPE VI communities—that addresses the issue of timeliness? What would you think about us writing some criteria into the HOPE VI reauthorization that addressed some of those points that seem to be lacking now?
Mr. LIU. First, Congressman, let me say that under the——
Chairwoman ROUKEMA. Excuse me, I want you to note that the time has been concluded, so, Mr. Watt, I am sorry, but given our limited——
Mr. WATT. Are you going to ask him to give us our response 90 days from now?
Chairwoman ROUKEMA. No. I am going to ask them that they give the response within a time period of a week or two.
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Mr. WATT. But Madam Chairwoman, you did take about 45 seconds of my time, so at least give him 45 seconds to——
Chairwoman ROUKEMA. I already gave you 42.
Mr. WATT. No, the red light just went on as I got through asking my question.
Chairwoman ROUKEMA. All right. We will conclude this, please, and now we will go on to—if you will please get the responses back ASAP, which I think, from our point of view, Mr. Watt's and mine, means within the next 2 weeks.
Mr. FRANK. Madam Chairwoman, under the category that hope springs eternal, I ask unanimous consent that Members be allowed to ask further questions of HUD in this hearing so we will have a longer list that we are waiting for.
Chairwoman ROUKEMA. I am sorry?
Mr. FRANK. I would ask unanimous consent that Members would be allowed to submit questions in writing.
Chairwoman ROUKEMA. Oh, of course. Absolutely, absolutely. You understand that we will each submit questions in writing if we have them.
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Mr. WATT. But, Madam Chairwoman, I hope that that doesn't mean that I have got to submit my question.
Chairwoman ROUKEMA. Oh, no. No, your question is on the line there, but Mr. Frank is talking about additional questions. And with that, we will conclude with Ms. Velasquez. I already did ask your question if you want to have a follow-up on the subject of predatory lending.
Ms. VELAZQUEZ. I was watching on TV.
Chairwoman ROUKEMA. All right.
Ms. VELAZQUEZ. And I was in a meeting, so please excuse me. But I wasn't satisfied with your response, Secretary Weicher. I just want to say that I do appreciate HUD's recent actions to address the 203(k) crisis in New York City. However, my statement was meant to address the fact that HUD's response to predatory lending, in this case and others, has been reactionary rather than preventative. For this reason, I was happy to see the proposed rule issued by HUD this fall to prohibit the resale of FHA-insured homes within 6 months. I understand we can expect a final rule this summer; is that correct?
Mr. WEICHER. That is correct.
Ms. VELAZQUEZ. Furthermore, I think the situations I outlined in my statement highlight the need for this rule and further preventative measures: Steps such as mandatory home buyer counseling for first-time home buyers in high foreclosure neighborhoods or allowing a good-faith challenge to FHA appraisal values. Would you be willing to consider these proposals?
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Mr. WEICHER. Ms. Velasquez, we have requested in the budget a separate categorical counseling program funded at $35 million in place of the $20 million set aside within HOME, which has been the practice in the past. And if Congress approves this, this will be the first free-standing counseling program in HUD in 30 years. We very much hope you will support that.
With respect to 203(k), may I say that as soon as Secretary Martinez came in, he was aware of this problem. The loans were originated in 1998 and 1999. They began to default in 2000. I do take exception, if I may, to the suggestion that we have been reacting to this. We have been working very hard for a year with the people in New York to address the problem. We have reached a solution in which we are putting up $268 million of the taxpayers' money for 514 properties in New York, and the City is putting in another $125 million.
Ms. VELAZQUEZ. Well, what we had in New York was a real mess.
Mr. WEICHER. It was indeed, and I think we have also been prosecuting. The government of the United States and the government of New York have been prosecuting lenders and other participants there, and we are continuing that as well.
Ms. VELAZQUEZ. You mentioned in response to Representative Kelly's question that when identifying appraisers and lenders who are less than scrupulous, you compare their foreclosure rates with others in the region. How are you dealing with this in the New York region where the foreclosure rate in last year's—it was three times the national average?
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Mr. WEICHER. The comparison is to other appraisers in the HUD field office area, which is the New York Metropolitan Area in your case, and so we are looking not at the fact that foreclosure rates are three times as high in New York as they may be in the country as a whole, but on whether the foreclosure rate on the loans you have appraised is three times as high as the foreclosure rate in the New York Metropolitan Area.
Ms. VELAZQUEZ. So it is acceptable that we have more unscrupulous appraisers?
Mr. WEICHER. I don't think all the foreclosures in New York relate to unscrupulous appraisals or unscrupulous lenders. There was a large volume of adjustable rate loans that were underwritten in 1996 and 1997 under what turned out to be lax ARM's underwriting procedures and which were changed in 1998. But the loans that were underwritten under the earlier procedures are reaching the stage at which they are most likely to default.
Mr. FRANK. If the gentlewoman would yield, I wonder if Mr. Liu now—we have a couple of minutes left—could respond to Mr. Watt.
Mr. LIU. The answer, Congressman Watt, is we would be open to working with you on those concepts, as I mentioned in my answer to the congresswoman. Project readiness and all of the issues that you mentioned are certainly issues that we want to have addressed. Now we can address them——
Mr. WATT. But do you think it is a good idea for us to write it into the statute?
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Mr. LIU. We think that it can be done in an effective way. We also think that we can implement by rules and regulations to the NOFA under a strict reauthorization.
Mr. WATT. But you haven't done that, and HOPE VI has been around for a while.
Mr. LIU. The 2002 NOFA is not yet out.
Mr. WATT. Is there any way to get a heads up or a preliminary draft of this HOPE VI lessons learned report? Because by June 15 I don't think we are going to be still dealing with this?
Mr. LIU. We will do our best to get it done before the deadline.
Chairwoman ROUKEMA. I thank Mr. Watt and all our colleagues here. We do appreciate your testimony here, and we will be submitting to you follow-up questions, I am sure, but you will be presenting to us your quick responses. I hope Mr. Watt is accurate in predicting when we are going to have this legislation up. I would like to think we would have it up that soon. But in any case, we are going to try to expedite consideration of this legislation by the House of Representatives. We do thank you for your testimony here today. And with that, we call up the second panel.
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Mr. WATT. Madam Chairwoman, while they are coming forward, I would just say to you that I wasn't projecting that we would deal with it on the floor, but I think these kinds of considerations really need to be dealt with in the subcommittee and in the full committee. And if we don't get the information we need, it is hard to deal with it.
Chairwoman ROUKEMA. I would like to—that is right, in the subcommittee, and then I would like to think that that foundation would be laid so that we could take it up and conclude it on the floor of the House before the Congress goes into election recess.
Very good. I am going to give a short introductions so that we will permit more time for you to testify and less time for me to discuss your backgrounds. But each of you are very well-qualified to represent the private sector in terms of how the private sector is relating to Federal legislation. And you have heard the rules. We are going to try to limit you and ourselves each to 5 minutes. And the yellow light goes on, which is the sum up warning light before the red light goes on after 5 minutes.
And with that, I will introduce Mr. John Courson, who is president and CEO of Central Pacific Mortgage Company, and he is here today as the Chairman-elect of the Mortgage Bankers Association of America, and we greatly appreciate your being in attendance here today and look forward to working with you as the Chairman of the Mortgage Bankers Association as we move through this process. Mr. Courson.
STATEMENT OF JOHN COURSON, PRESIDENT, CENTRAL PACIFIC MORTGAGE COMPANY, ON BEHALF OF THE MORTGAGE BANKERS ASSOCIATION OF AMERICA
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Mr. COURSON. Madam Chairwoman, thank you very much. You obviously have my statement, and so in the interest of time I am going to just summarize, and I would like to talk just briefly about three key principles of FHA, as both a representative of the mortgage lenders, mortgage bankers and a practitioner who makes FHA loans. Really there is three things that guide FHA, in our mind. It needs to be sound, it needs to be consistent, and it needs to be innovative. And as you have heard earlier today, obviously, FHA, 80 percent last year of the first-time home buyers were—80 percent of FHA's business were first-time home buyers, 40 percent were minorities, and 80 percent of the FHA loans that were made were made by members of the Mortgage Bankers Association. In my own company that is a retail mortgage banker with retail branches, over 40 percent of our business was FHA business. And so the idea that FHA needs to be sound, fiscally sound and viable, is key to me personally and to our members to keep it viable to be there in the times that it is needed.
Which brings me to talk a little bit about FHA must be consistent. You know, FHA is always and has always been there. It is there for creditworthy borrowers in challenging times when the private industry may exit certain markets. I had the experience, and quite an experience it was in 40 years, of being in Texas in the energy crisis days of the mid-1980s, and we saw private mortgage insurance companies exiting the State, exiting a number of States that had the economic distress that was related to the energy crisis. And as they exited or as they increased their underwriting requirements, who was there for those borrowers? FHA. They were there with a consistent premium, they were there in a counter-cyclicle role to help first-time home buyers and those who needed housing at the time. So the consistency is key in those marketplaces.
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Having left Texas, I went to California. Maybe it is me, maybe it is not the marketplace. I go to California and we have an economic distress situation in the early nineties. A key part of our business is FHA. The same repeat thing, even in California, a different marketplace than Texas. FHA is consistently there. So we believe that the soundness, the consistency, the level of premium that is counter cyclical to help those borrowers that need the help are key.
And, of course, thirdly, FHA must continue to be innovative if it is going to be viable to serve the marketplace, first-time home buyers, minority home buyers that it helps, it has to innovate to give those borrowers the same tools that are available in the conventional marketplace. We applaud H.R. 3995; it has those tools: downpayment simplification.
We were in Alaska at the time this program was there in a demonstration program about 5 years ago and substantially saw our ability to qualify people who have the biggest challenge of cash to buy a home in Alaska. We also saw the problem of when that program started to sunset and not being able to help borrowers for a period of 30, 60 days not knowing what their downpayment or cash requirement was going to be. We need to make that permanent. Clearly, the 5/1 hybrid ARMs, which were authorized last year, we need to deal with that issue on one segment of those, the 5/1 ARM, which was treated differently than the 7/1 or the 10/1s and give that tool to these borrowers.
And thirdly, of course, the FHA multifamily loan limits, which were also enacted last year, and they need to be put on the same par as the single family. Let us not have to go through every 3 years coming back to get a multifamily loan limit. Let us index it so that it can move as the market moves, just as we do in the single family.
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Outside of innovation the third thing that I would like to mention very quickly is the Ginnie Mae guaranty fee. Obviously, there was passed in 1998 a 50 percent increase in that fee. Ginnie Mae is a viable program, it is profitable, and if that is not rolled back, somebody is going to have to pay for that, and the fear is that somebody will be the American borrower from FHA. Thank you very much.
[The prepared statement of John Courson can be found on page 474 in the appendix.]
Chairwoman ROUKEMA. I thank you very much, Mr. Courson.
Now, Mr. Martin Edwards, who is a realtor from Memphis, Tennessee, but you are here representing the National Association of Realtors as the new President of the National Association of Realtors?
Mr. EDWARDS. I wouldn't say new, 3 months old, yes.
Chairwoman ROUKEMA. No? All right.
Mr. EDWARDS. 2002 president. Thank you, Madam Chairwoman.
Chairwoman ROUKEMA. All right. Thank you. Thank you and we appreciate your attendance.
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STATEMENT OF MARTIN EDWARDS, JR., PRESIDENT, NATIONAL ASSOCIATION OF REALTORS
Mr. EDWARDS. Thank you, Madam Chairwoman, and I will try to be as brief and stay with our time limit. On behalf of more than 800,000 realtors, I want to take this opportunity to thank you and Ranking Member Frank to appear and testify on this bill.
We believe it takes a creative approach to reducing barriers to affordable housing while stimulating much needed housing opportunities for American families. As you well know, there is a housing crisis, and I have heard this several times today, in this Nation, and it will not go away. That is why this legislation is both timely and appropriate. It is why the National Association of Realtors has joined in a fight to make affordable housing one of our national priorities. Realtors are in a unique position to champion this cause, because we can make a difference at the local level. We are extremely committed to ensuring that every American has the opportunity to live in a safe, decent and affordable home, because we want to see our communities that we serve survive.
Which is why last year the National Association of Realtors began working on a comprehensive housing opportunity of initiatives to identify and find three ways to do things better: One, stimulate affordable housing, which is what we have been talking about, improve access to housing and close the home ownership gap. Through a Presidential Advisory Commission of the National Association of Realtors, we have started working on those in a comprehensive plan. Our focus is geared toward meeting some of the greatest needs and unmet needs of the housing market, keeping in mind minority outreach, rental housing opportunities, immigrants, the disabled, low- and moderate-income citizens and senior housing. While the Nation's home ownership rate is at 68 percent, the highest level ever, the gap between those who can and those who cannot afford decent housing has grown.
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Going forward, the biggest source of household growth in this decade will come from minorities and immigrants. Minorities will account for 64 percent of all new households. Between 1993 and 2000, minorities accounted for a 44 percent increase in home ownership. By 2010, African Americans will account for 19 percent of home ownership growth; Hispanics, 38 percent of home ownership growth; and non-whites, 37 percent of home ownership growth. This creation of additional housing households will require some more construction, more innovative ideas and favorable economic conditions to move forward. We believe that the real estate industry and the Federal policymakers have responsibility, all of us, and really an obligation to ensure that groups are not ignored in this plight.
Again, Madam Chairwoman, I want to commend you and this subcommittee for your outstanding leadership. Specifically, the National Association of Realtors strongly advocates language under Title II of H.R. 3995, Section 8 that seeks to index FHA multifamily home limits and allow maximum high-cost percentage to be increased in high-cost markets. We believe these provisions ensure FHA multifamily loan limits will not be outpaced by inflation or growing construction costs and make multifamily programs more favorable in the Nation's worse-case scenarios.
There are other provisions we strongly endorse in H.R. 3995, and they fall under the single-family area. Specifically, we back provisions that would, as John mentioned, make permanent the FHA downpayment plan, simplification calculation plan, reduce FHA downpayments for teachers and public safety officers as well as permit them to purchase HUD-foreclosed homes at a discount in neighborhoods that they work in, eliminate the cap on the FHA 5/1 hybrid adjustable rate mortgages, create a 3-year pilot program for no downpayment FHA loans to qualified public service officers if they buy homes in designated high crime areas.
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In conclusion, Madam Chairwoman, let me say that real estate has been one of the pillars of American prosperity. It provides the capital that makes it possible for families to build and own their own homes. We discovered much last year when Federal Reserve Chairman Alan Greenspan asked us and urged us to examine the wealth effect of housing. We found that home equity is the largest source of wealth for three out of four homeowners. Housing is also important to our national economy. Its overall share of GDP is 14 percent. Between 15 and 24 cents of every dollar realized in capital gains from home sales goes into goods and services or savings. Plus 40 percent of disposable income is spent in housing-related goods and services. These are all benefits of home ownership that cannot be ignored, and I appreciate the opportunity to visit with you this afternoon.
[The prepared statement of Martin Edwards Jr. can be found on page 482 in the appendix.]
Chairwoman ROUKEMA. I thank you, Mr. Edwards.
Now Kevin Kelly, President of Leon Weiner Associates in Wilmington, Delaware, and he is testifying on behalf of the National Association of Home Builders. Mr. Kelly.
STATEMENT OF KEVIN P. KELLY, PRESIDENT, WEINER & ASSOCIATES, WILMINGTON, DEL, ON BEHALF OF THE NATIONAL ASSOCIATION OF HOME BUILDERS
Mr. KELLY. Thank you, Madam Chairwoman, for this opportunity to speak to the subcommittee today. I will confine my remarks, per your letter to the association, to Title II of the Housing Affordability for America Act. I am speaking, as you indicated, on behalf of the 205,000 members of the National Association of Home Builders.
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Specifically, Title II of the bill contains important reforms to both multifamily and single family FHA programs. Together these proposals will increase the availability of affordable housing and expand home ownership and rental housing opportunities across the country. The FHA multifamily mortgage insurance programs are a critical component in addressing the Nation's affordable housing needs. Last year, Congress took the first step in making the FHA multifamily insurance programs more workable in most markets in the country by passing legislation to increase multifamily loan limits by 25 percent. The limits had not been adjusted for 10 years; however, NAHB's analysis indicates that there are high-cost urban centers where these increases simply are inadequate and that costs exceed the current limits. We believe we can and should do more.
Two provisions in Title II would make the necessary adjustments so that programs can be fully utilized throughout the country. First, we would strongly support the inclusion of Section 201 of Subtitle A, which would require HUD to index FHA mortgage loan limits each year beginning in 2003. The index is the annual construction cost published by the Bureau of the Census of the Department of Commerce. Indexation will help stabilize the programs, give builders and lenders the confidence that they will be able to use the programs in their communities every year despite increases in construction and land costs.
NAHB also strongly supports Section 202 of Subtitle A, which addresses the need for high-cost markets where the base loan limits are still too low. Current law permits the HUD Secretary to increase base limits by up to 110 percent in geographic areas where construction costs are very high and up to 140 percent on individual projects. Section 202 would give the Secretary greater latitude to raise mortgage limits in areas where construction costs are high. It further provides the Secretary of HUD the discretion to increase high-cost factors from 140 to 170 percent on a project-by-project basis. These provisions, allowing for indexation and adjustment upward for high-cost areas, will make the FHA multifamily programs more workable throughout the entire country.
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On the single family side, NAHB supports the provisions of H.R. 3995 that are aimed at improving the FHA single family mortgage insurance programs by making permanent the simplified downpayment calculations, the revisions to the hybrid ARM as well as the proposal to facilitate to home ownership opportunities for teachers and public safety workers. With regard to what is referred to as the downpayment simplification, this actually offers a simplified method to arrive at a maximum mortgage calculation. The simplified method results in a greater loan to value than currently permitted under current programs and will ultimately expand home ownership opportunities.
NAHB also supports Title II, making of a hybrid adjustable rate ARM available at competitive rates and terms for FHA borrowers who otherwise would be unable to obtain funding in the conventional ARM programs. The bill amends current law to shorten the allowable timeframe for the first adjustment of the FHA hybrid adjustable rate mortgage to 3 years from its present 5.
In closing, Madam Chairwoman, I would also applaud Chairman Oxley, yourself and Congressman Green for including Title VIII in H.R. 3995. Title VIII, as you are aware, requires the Federal Government to conduct housing impact analyses for any new proposal or final rule if that rule has an economic impact of $100 million or more on housing affordability. This measure will help raise awareness to the extent to which regulatory barriers impede housing.
That concludes my remarks, Madam Chairwoman, and we thank you for the opportunity to speak.
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[The prepared statement of Kevin P. Kelly can be found on page 495 in the appendix.]
Chairwoman ROUKEMA. Thank you very much. Everyone is being very considerate of the time constraints here.
Mr. Shapoff, Vice President and senior member of the Health Care Group at Goldman, Sachs & Company. And Mr. Shapoff is here today, I guess, representing your company and the Health Care Group at Goldman, Sachs. And giving us some insight with your experience of 13 years in the health care—as a manager in the Health Care Group. Thank you for coming here today, and we are happy to have you.
STATEMENT OF EDWARD L. SHAPOFF, VICE PRESIDENT, GOLDMAN, SACHS & COMPANY, ON BEHALF OF THE HEALTHCARE FINANCING STUDY GROUP
Mr. SHAPOFF. Good afternoon, Madam Chairwoman and distinguished Members of the subcommittee. I thank you for the opportunity to testify in support of H.R. 3995. In addition to being a member of Goldman, Sachs, I am also here on behalf of the Healthcare Financing Study Group, an association of national and regional investment bankers and municipal bond insurers. We welcome and appreciate your support and thank you for including in H.R. 3995 legislative provisions which are so important to America's aging and ill populations.
Sections 203 through 206 of H.R. 3995 would amend the FHA health care and assisted living programs of the act to modernize and make them more consistent with today's methods of delivering quality affordable health care service to rural and urban American communities, which have been unable to enjoy the benefits of the act in its present form and, importantly, where conventional financing may not be readily available. The Study Group, whose members have worked with FHA programs for three decades, strongly support these amendments.
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As you know, two sections of the National Housing Act, Section 232, for nursing homes, and Section 242, for hospitals, provide mortgage insurance for health care projects. Enacted over 30 years ago, these two sections have netted hundreds of millions of dollars to the Treasury from FHA fees and mortgage insurance premiums. Furthermore, these programs do not compete with private sector financing but have fostered a sound working relationship between Government and private industry, which has materially reduced the cost of financing, thereby helping to assure repayment of the insured loan and reducing FHA's insurance risk. Debt service savings realized under these programs have also resulted in lower Federal and State Medicare and Medicaid reimbursements.
At the same time, FHA insurance is available to fill a void left by the conventional private sector, which traditionally has preferred to lend only to the very best investment grade credits. That is not to say, however, that all health care projects should or do have free entitlement to FHA. Indeed, few high-risk mortgage insurance applications would survive FHA's rigorous underwriting process.
Enacted over 30 years ago, Section 232 and 242 have been modified only slightly so that the act does not entirely reflect or accommodate today's methodology and regulation of health care and assisted living delivery. For example, the narrow definition of eligible facilities fails to reflect the continuum of care now commonly provided within an individual facility or in a campus environment for the purpose of operational and cost efficiency and continuity of care. This is a shortcoming that would be corrected by the amendments.
Another important element deals with Certificates of Need. Mortgage insurance under the hospital and nursing home programs require receipt of Certificates of Need. In fact, many States have eliminated all or part of their certificate of need programs or the agencies that would, in fact, issue these certificates. Examples of these States are Arizona, California, Colorado, Iowa, Kansas, New Mexico, Oregon, Texas and Wyoming and others. While the act contains alternative requirements for such States, and while well-intended, these alternative requirements have proven unworkable or difficult to implement. This impediment has made it difficult for FHA to diversity its own loan portfolio geographically and made it difficult, if not impossible, for critical-access hospitals and rural hospitals to modernize facilities, which may date back to the mid-1900s. The amendments would solve this problem as well.
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Without in any way intending to slight or diminish the stature of any portion of the amendments, all of which we support, I would like to summarize the more important accomplishments of the amendments. Mortgage insurance is authorized for integrated service facility projects for the sick, injured, disabled, elderly or infirm or which provide services for the prevention of illness. Such projects may furnish outpatient services, including community health, clinical services and medical practice facilities to serve those people and achieve that purpose through individual facilities, which may incorporate a continuum of care. The alternative Certificate of Need procedures of Section 232 and 242 would be updated to make them more workable and would help to assure that States without CON laws or implementing agencies would not be excluded from the programs.
Third, under current law an assisted living facility does no qualify for FHA insurance if it is located in a State or political subdivision which does not issue licenses for such facilities. The amendments authorize FHA to formulate alternative underwriting standards in such cases so that the benefits of mortgage insurance will be available.
In conclusion, Madam Chairwoman, this concludes my testimony. I thank you very much for your time.
[The prepared statement of Edward L. Shapoff can be found on page 504 in the appendix.]
Chairwoman ROUKEMA. I thank you.
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And now our final panelist is Mr. Lou Cannon. Mr. Cannon is an inspector with the United States Mint Police here in the District of Columbia, but he is here today testifying on behalf of the National Fraternal Order of Police and its more than 300,000 members. We welcome you here today.
STATEMENT OF LOUIS P.CANNON, PRESIDENT, DISTRICT OF COLUMBIA STATE LODGE, FRATERNAL ORDER OF POLICE,
Mr. CANNON. Thank you. Good afternoon, Madam Chairwoman, Ranking Member Frank. I am an inspector with the United States Mint Police and president of the DC. Lodge of the Fraternal Order of Police. I am here today on behalf of National President Steve Young and the more than 300,000 members of our organization in support of Sections 222 through 224 of H.R. 3995, the ''Housing Affordability for America Act.'' This legislation contains a three-pronged approach to increasing home ownership among our Nation's public safety personnel, and we appreciate the opportunity to appear before you here today.
The FOP is no stranger to this issue. Since 1997, our organization has been proud to support and work with HUD on the Officer Next Door Program. In the 106th Congress, the FOP also supported the inclusion of public safety officer home ownership assistance language in the ''American Home Ownership and Economic Opportunity Act of 2000.'' And last year, we joined Representative LaFalce and Leach for the introduction of H.R. 674, the ''H.O.U.S.E. Act.''
As we begin this new millennium, it is more important than ever to find innovative ways to improve the ties between America's law enforcement officers and the communities they serve. Like most Americans, police officers and other public safety employees work hard to realize the dream of owning their own home. But, because these men and women often sacrifice higher-paying jobs in the private sector to serve our communities, it is often difficult to make this dream a reality. And while the high cost of living in many areas does affect officer morale, it also has a noticeable impact on the ability of local governments to recruit and retain public safety personnel and on the ability of the individual officer to make a difference in his or her community. Most officers who have chosen to make a career of law enforcement also become involved in the life of the neighborhoods they serve.
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The three programs contained in H.R. 3995 are designed to facilitate these goals and activities, and all represent a tremendous tool for local communities to recruit and retain public safety personnel. The first initiative provides for the establishment of reduced downpayment requirements through the National Housing Act for mortgage loans to law enforcement officers and other public safety personnel to purchase homes within the jurisdiction that employs them. This provision will serve to encourage officers to continue to work in their local communities.
The second initiative, entitled, the Community Partners Next Door Program, provides discount and downpayment assistance for teachers and public safety officers. Like HUD's Officer Next Door Program, this provision authorizes a 50 percent discount for those law enforcement officers purchasing certain homes designated as eligible assets, and who agree to use the home as their primary residence for at least 3 years. Section 223 further authorizes the sale of these properties to units of local government and non-profit associations who can then resell or transfer that property directly to the officer, again, improving their ability to recruit and retain these vital public servants.
The third and final program under this legislation authorizes a 3-year pilot program to assist Federal, State and local public safety officers purchase homes in locally designated high crime areas. Like Section 223, this provision requires officers to agree to use the home as their primary residence for at least 3 years. Eligible law enforcement personnel would then qualify to purchase a home in one of these communities with no downpayment required. Like the other two initiatives, this will not only help law enforcement officers achieve home ownership, but by purchasing homes in troubled neighborhoods, it will also assist communities to begin the process of reclaiming distressed areas from the effects of crime.
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In light of the positive impact this legislation will have in cities across the Nation, I would also like to point out a provision which the FOP believes should be amended during the future markup of H.R. 3995. Under the definition of ''public safety officer'' found in Section 222, the term is defined as specifically excluding Federal law enforcement officers from participation. Although these officers would qualify for home ownership assistance to purchase property located in high crime areas, they would be ineligible for the other two programs. The current Officer Next Door initiative operated by HUD allows Federal, State and local enforcement officers to participate. Therefore, we request that the definition in Section 222 be amended to ensure that nothing will affect the participation of Federal law enforcement officers in any program authorized by this legislation.
All three of these programs contained in the ''Housing Affordability for America Act'' are designed to strengthen local communities and assist public safety officers and their families achieve the dream of home ownership. This legislation builds on the success of the Officer Next Door Program and will enhance our ability to protect our neighborhoods from crime and violence.
On behalf of the membership of the Fraternal Order of Police, let me thank you again, Madam Chairwoman, for affording us the opportunity to testify before the subcommittee. I would be pleased to answer any questions you may have at this time.
[The prepared statement of Louis P. Cannon can be found on page 515 in the appendix.]
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Chairwoman ROUKEMA. Thank you very much. I must tell you that I am very glad that my staff was intelligent enough to put Mr. Edward Shapoff here on the panel, because he opened up a component of this discussion that I was not at all aware of. And I am not going to ask you a specific question at this point in time, but I am not quite sure why FHA insurance is needed under those circumstances. But I will go through your testimony, but I do appreciate the fact that they have recognized and you have recognized that there would be a problem here if we weren't to make that connection and understand its relationship, Section 232 and Section 242. All right. So I appreciate your being here today. But that was new information for me, I must tell you.
What I am concerned about, and one of the previous panelists, Mr. Bernardi, made the point that there were unintended consequences that some of this legislation was going to add to increase in rents. Now, three of our Members here deal with rental production and home building and so forth. Can you address that? Do you think that this is a potential problem, that it is really going to increase the rents? And at the same time, the contingent question that I have, and that others have said, there really isn't enough incentive here for new housing production. How would you address those two components of the issue? Who would like to be first? Mr. Kelly? Who wants to be first? And keep your responses short, because I would like to hear from all three if they each have a comment to make. Yes?
Mr. KELLY. Madam Chairwoman, I am not sure what the previous speaker was alluding to in terms of the issue of the unintended consequences of increasing rents. I mean our position is that the production and the supply of housing will have the reverse effect, be it in the arena of home ownership or rental housing, and that is why we strongly advocate some of the positions taken here in Title II of the legislation.
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Chairwoman ROUKEMA. Will that provide enough housing production to meet those needs?
Mr. KELLY. I am not sure that——
Chairwoman ROUKEMA. Because they are related. I mean they are definitely related. Go ahead.
Mr. KELLY. Yes. It is certainly a very positive step forward. On the multifamily side, I think the most significant step taken in the last decade was the increase in the FHA mortgage insurance limits. That program was encountering problems across the country. We view the availability of rental housing as the first step on the ladder to home ownership, and increasing the supply is critical.
In addition, where many, many significant shortages occur in major metropolitan areas where the cost is so high to develop housing, we think that giving the Secretary the discretion, first of all, to raise the limits first and, second, to give the Secretary discretion to approve projects up to 170 percent of those mortgage limits is critical to ensure that there is supply in those communities.
Chairwoman ROUKEMA. Mr. Courson, what is your perspective as a mortgage banker? What is your perspective on this?
Mr. COURSON. Well, and I certainly agree with the gentleman. The key is, and obviously being from close to the San Francisco area, as we see in Boston and certainly in areas in New Jersey and the east, the new FHA loan limits are helpful, but not in those marketplaces. We still can't produce enough housing.
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There are two components here. One is there is the affordability issue, and the affordability index we have all talked about, and the other is the lack of supply. And until you solve both of those, particularly the supply is going to help the affordability issue, we have got to have the affordability and we have got to get the program into those high-cost areas.
Chairwoman ROUKEMA. But, you don't have any specific as to how we could improve this bill to deal with that question.
Mr. COURSON. Well, we actually—I know you had a hearing and we did testify on a production program about 2 weeks ago, I believe.
Chairwoman ROUKEMA. Yes, it was.
Mr. COURSON. And, frankly—and at that time what we said was we think that there needs to be a mixed use program. Certainly, there are programs, and there need to be programs to address those renters and those people who are below the 60 percent of median. But there also needs to be production program there to talk to those folks and provide housing for those who are the 60 to 100 percent of median, and our production program recommendation, as we testified to in the previous hearing, was that there needs to be a mixed use. We have examples of successful mixed use projects, and we would advocate that.
Chairwoman ROUKEMA. I am glad you referenced that to me, because that was helpful in that first hearing that we had. Mr. Edwards, do you want to add anything?
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Mr. EDWARDS. I don't think I can add anything to what the gentlemen on my right and left said, other than the fact that it is a crucial issue. When you think that there are 7.5 million renters in this country that have a critical housing need and that 7.5 million people pay up to 50 percent of their income toward their housing costs. Not included in your bill, but you are going to have to someday face the issue that you are going to have to renovate and retain existing housing, whether it be rental or home ownership in existing infrastructures. We keep continuing to go out and build new, new, new. America's cities are going to have to retain the existing infrastructure and we are going to have to come up with some solution to retain existing housing where people work, where people live, where people want to go to school and church, and that is the issue that you are really—that is one of the issues you are really talking about. Thank you.
Chairwoman ROUKEMA. Thank you. One that we may not be able to deal with completely, but it is important for us to recognize that as a component of this discussion. Mr. Frank?
Mr. FRANK. This has been very useful, because I think we want to be very clear. Affordability at the low end requires money, and I think this country can afford it. That is a value question. I think one of the things we have learned is prosperity is a very good thing, but it is not equal in its effects on everybody. And in areas, Mr. Courson alluded to that, in the San Francisco Bay area, in the Boston area, New York Metropolitan area, increasingly in some other areas, for many people prosperity was bad news. Law enforcement officers, their incomes have not gone up proportionately with economy so that as the economy, as a whole, prospers and as land values go up in particular areas, people who are not benefiting, they are not only not benefiting they are worse off. The rising tide has swamped their boat, it hasn't lifted it, and the question is do we have the social responsibility in this society to take some small part of that wealth that is created and help out?
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But the fact is that is no reason not to go forward with the FHA. And the issues of affordability and supply are obviously linked. Yes, for some people there is going to need to be subsidy, but we are also talking about a spectrum. We are talking about a housing market, and supply and demand do function, and at whatever level of income people have, if there is a short supply, we are going to have higher prices. I mean that is one of the most important reasons for a production program, frankly, is in the absence of a production program a very well-intentioned program that does some good from the equity standpoint probably overall exacerbates things in other ways. That is the voucher program. Because if all you have is a voucher program in some areas, you have got a program that adds to the demand for housing in a way that is guaranteed not to increase the supply. Because if you have got annual vouchers, no one can build housing based on a year-by-year voucher. No one would lend to them. No one is going to commit to them. So what you are doing with the vouchers is you are increasing the demand, but in a way that does not increase the supply and the price goes up.
Now that has got an equity justification. So it does seem to me we then have a responsibility to couple it with a production program. And the FHA is one production program. FHA is a production program for moderate-income and even upper-income people. And am I correct there are some of you who study this more closely than we do, that, in fact, the more you raise the FHA limits, the more money the FHA Fund makes. Isn't that correct, Mr. Courson?
Mr. COURSON. Yes, that would be correct.
Mr. FRANK. Yes. I mean sometimes you have these difficult decisions, but the FHA is priced to make a little bit of a profit, more of a profit than it ought to, in fact. And we have had the testimony, once again, that the FHA Fund is significantly in surplus. It is in surplus beyond what is needed for an economic disaster. And as we have raised the limit on the FHA, what we get is more money. So unlike other situations where you have to choose, raising the FHA limits is very reasonable.
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So let me ask, to follow up Ms. Roukema's question, should we, in the judgment of particularly the first three of you, raise the FHA limits not just incrementally, but fully to the point where they could be operational, the FHA, in the highest cost housing markets? Let me put it to you this way: Knowing what you know about public policy, can you think of any negative, any downside, to raising the FHA limits so they are fully operational in San Francisco and Boston and Manhattan? Let us start with you, Mr. Courson.
Mr. COURSON. Well, Congressman, if in fact, and I think the bill is going to address, if we go to 140 percent, which is from the 110——
Mr. FRANK. That is not what I asked. What about going above—why 140 percent?
Mr. COURSON. The question really becomes on the production—for our production program, for example, there was a utilization of dollars that we are talking about in this mixed use project that would be an interest rate subsidy. We use an example in there. So the question becomes then what is the authorizers, the Congress and public policy is how high do you want to authorize that subsidy right now?
Mr. FRANK. But I am asking you can you see any negative from any important value that we ought to be concerned about if we got to the level that make it usable in Boston, San Francisco and in Manhattan?
Mr. COURSON. No. As a matter of fact, we recommend really the Secretary has the right to raise those limits to the same as right now they are in Alaska and Hawaii for the single family. So we don't see any negative to that.
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Mr. FRANK. And that would then accommodate the rest of the country if you got to Alaska and Hawaii?
Mr. COURSON. As far as I am aware.
Mr. FRANK. All right. Mr. Edwards.
Mr. EDWARDS. I agree.
Mr. FRANK. Mr. Kelly.
Mr. KELLY. I agree.
Mr. FRANK. Well, I think we ought to—that means that if we just pass the bill, the bill is an improvement, but it is not enough of an improvement, and we shouldn't be—we have allowed people—let me put it this way: We have allowed the general sort of rules that apply to restrain us. In general, the higher you go in eligibility, the more it costs the Government. But the FHA is different. The higher you go in eligibility, the more you help housing get built less expensively than it might otherwise and the Government makes money. So what I am saying is that the bill doesn't go high enough. And you heard what the GAO said, you listened to his testimony, we ought to go up even further. And so I am all for that.
One other question now to the inspector. I am all in favor of this, and I voted for it before on the floor, on the question of certain people who have decided to dedicate themselves to public service. I would point out we have a particular problem, because in some cities we have residency requirements, and then the police officers and the fire fighters and the teachers are caught in a bind. They are legally required to live in a city where they can't afford on the salary they are getting paid to buy a house. The one concern I have is, I think it is mentioned somewhere, that there be a 3-year minimum. That seems kind of little to me. If we had a 7-year minimum, would that be a problem? Or maybe you could have less of a minimum if people have emergency situations, but then there ought to be some sort of a recapture. I mean the notion of getting a very significant subsidy, but only living there for 3 years seems to me insufficient. Do you think that would be a problem if we tried to raise it?
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Mr. CANNON. I think that you might want to go halfway and do about a 5-year mimimum. To be honest with you, if you look at your national averages, most people, after 5 years, start to look at turning over their home and moving up. So I would say 5 years would probably be more——
Mr. FRANK. I think that is a reasonable point. All right. Thank you. My time is expired. I thank the witnesses, because I agree with them.
Chairwoman ROUKEMA. I thank Mr. Frank. You agree with them. I agree with them in principle as well, but I am not quite sure about the particulars. But I think we see here, both on this panel, the previous panel and certainly with Mr. Frank and I and the questions that have been asked that we have a lot of common understandings and mutual goals here. But we have made it sound a little too simple, I think, right at this point in time to deal with it and how we can correct it. But with the sincerity of purpose that I think we all have, I think we can work with you and with HUD and other consumer groups and housing groups to get a good bill out and really improve not only the production, but the availability of home ownership and we will deal with it and hopefully it will be a great accomplishment in this Congress. Mr. Frank, you want to conclude?
Mr. FRANK. Well, only just again to say—and it is not really a quip, but it is important—it is not home ownership, it is home, because we do want to—rental housing is every bit as important as home ownership.
Chairwoman ROUKEMA. Well, that too.
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Mr. FRANK. And we are talking about people having homes that are decent and affordable.
Chairwoman ROUKEMA. That is, of course, also true. But I think it is a combination of things here, and if we can get that question of home ownership more properly addressed and appropriately addressed, maybe we have been putting in our own impediments against it, I don't know.
Mr. FRANK. Well, again——
Chairwoman ROUKEMA. I don't know.
Mr. FRANK. I would object. We will lose the consensus if we try to kind of put home ownership ahead of a home, because there are different segments of the population and different needs, and I think, in fact, when we talk about multifamily housing, I think we are talking about residences that people live in. Some will want to own, and if people can own, fine. But I am afraid that we will stint people at the lower end if we focus it only on home ownership.
Chairwoman ROUKEMA. all right. We shall deal with this, and I appreciate the panel here because it has been very constructive. And I know that one way or another Mr. Frank and I are going to come to agreement. You just stand by and watch. Thank you very much.
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[Whereupon, at 5:17 p.m., the hearing was adjourned.]