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RURAL HOUSING IN AMERICA
Tuesday, July 8, 2003
U.S. House of Representatives,
Subcommittee on Housing and
Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:07 a.m., in Room 2127, Rayburn House Office Building, Hon. Robert W. Ney [chairman of the subcommittee] presiding.
Present: Representatives Ney, Bereuter, Renzi, Waters, and Davis.
Also Present: Representative Frank.
Chairman NEY. Today's subcommittee holds its second hearing to discuss the importance of rural housing in America. Two weeks ago we heard from multiple witnesses, including the Department of Agriculture's Inspector General and the General Accounting Office, concerning the Rural Housing Program, RHS. My goal is to continue to review Rural Development's programs to look into ways to increase their proficiency and cost effectiveness. I have said this to quite a few groups involved with rural housing: I think we need to energize it and get the tone level up and get people involved, and we need to do it in urban areas, we need to do it in general housing, minority housing. There is a lot of work that we need to work together on.
From our previous hearing it was evident that RHS faces a number of management challenges to carry out its mission. It is critical that USDA's Rural Development programs have access to accurate, relevant performance data and measures to assess program efficiency and effectiveness. Without timely and precise information, Rural Development will be unable to determine how well it is accomplishing its mission of delivering safe and affordable rural housing programs.
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However, questions have risen in recent years about the effectiveness of rural economic development policies in creating new opportunities for rural residents as agriculture and other resource-based economic sectors decline in overall importance to most rural communities. A wide-ranging set of often overlapping programs target rural areas and their special needs, but according to some critics there remains little overall coordination of these various programs to produce a coherent rural policy. Over 88 programs administered by 16 different Federal agencies target rural economic development. The U.S. Department of Agriculture administers the greatest number of Rural Development programs and has the highest average of program funds going directly to rural counties. That is approximately 50 percent.
I look forward to hearing from our sole witness today, Under Secretary Dorr. We appreciate you coming to the Hill to discuss the various ways in which home ownership can strengthen our rural communities and contribute to the overall quality of life for rural families. So thank you for appearing before the subcommittee this morning. We look forward to working with you.
I do want to mention, too, in closing my statement that things have changed in the rural areas and so we have to adapt with that change. I was recently in Los Angeles. And I mean, I have been in the Congress 9 years. I have dealt with housing in the State legislature. But until you go out and you actually hear some of the things—I mean, there are some amazing challenges in the urban centers, absolutely amazing, and in rural, too. So there is a lot of work to be done, but we do appreciate you coming to the Hill.
Chairman NEY. I now recognize the gentlewoman from California.
Ms. WATERS. Thank you very much, Mr. Chairman. I am just anxious to hear from our witness today. We have received quite a bit of information about Rural Housing Services and we want to know more about their preservation of multifamily housing efforts. I am a little bit concerned about the Inspector General's report. I am anxious to hear about the management of the 521 Rental Assistance program. If we have unspent money there, why do we have it when we know that the needs are so great?
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I come from an urban community and I, of course, I have spent all of my time, most of my time dealing with the housing crisis as it impacts Los Angeles and urban areas. But I have come to understand that we need to do a lot more to ensure that we have adequate housing in rural communities. And if we have some administration problems or oversight or management problems, we need to get on with straightening those problems out so that we can provide more housing assistance in the rural community.
So with that, I am anxious to hear from you today and thank you for coming.
Chairman NEY. I want to thank the gentlelady for her statement. And the gentleman from Arizona. I thought I was rural, but I am New York and Los Angeles compared to some parts of your district. We appreciate you also chairing this for us the previous time.
Mr. RENZI. Thank you, Mr. Chairman. I am grateful. I am especially grateful for the fact that here we are again, in just less than 2 weeks, in the second in a series of rural housing hearings. And I represent about 58 percent of the land mass of the State of Arizona, and in particular I represent probably the fifth poorest county in America and one of the poorest regions, the sovereign State of the Navaho Nation, which parts of it compare to a Third World country.
In addition, I am privileged to represent some of the barrio regions, poor Hispanic regions of Casa Grande, Arizona. So I deal in particular with needs of the families, the basic necessities of life where we have many of our rural homes that are during the wintertime—even though Arizona is warm most of the time during the wintertime—we have had some tough situations where our children have been frostbitten, particularly this year I think. I have complained in the past, some of the tragedies that our children have gone through.
So I am very interested in particular in the housing program as it relates to the 523, the Mutual Self-Help program. I look forward to your testimony also, Mr. Dorr. Thank you for coming today.
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Thank you, Mr. Chairman.
Chairman NEY. I want to thank both of our members.
Mr. Dorr, welcome.
STATEMENT OF THOMAS C. DORR, UNDER SECRETARY, RURAL DEVELOPMENT
Mr. DORR. Thank you, Mr. Chairman, members of the committee. I do appreciate the opportunity to come before this committee to share with you an update of USDA Rural Development and its related programs. I look forward to answering the questions from your July 1 correspondence both in today's testimony and by follow-up written response.
Rural Development in my view is the venture capitalist for rural America. It is with this vision in mind that we carry out our mission of, first, increasing economic opportunity and, secondly, improving the quality of life for all rural residents through programs that are administered by the Rural Housing Service, the Rural business Cooperative Service, and the Rural Utility Service.
The Rural Housing Service serves as a foundation for helping rural families build wealth through home ownership and by providing safe, decent, and affordable rental housing. Working with oversight agencies we are implementing a number of improvements to build a stronger housing program. I appreciate the opportunity to share a few of those with you today.
Last month we celebrated National Homeownership Month by hosting the first housing summit at the Press Club here in Washington. Rural Housing Services has undertaken a major consolidation of 13 Rural Development regulations, which was published in the Federal Register on June 2nd of 2003. The goal of this proposed rule is to make the multifamily housing programs more customer friendly, streamline the process, reduce cost to the taxpayers and increase the Agency's level of customer service.
The Rural Housing Service Section 515 Program, used in conjunction with the Section 521 Rental Assistance Program, provides a source of funding for the construction, repair and rehabilitation of affordable housing to families who need it most. The section 515 program helps to avert homelessness and operates with an extremely low delinquency rate of 1.7 percent.
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With regard to the 514/516 Farm Labor Housing Programs, the Agency has committed a total of $46 million to fund 27 proposals in fiscal year 2003 and we will produce 925 units. Of these units, 696 are off-farm which receive nearly 100 percent rental assistance.
The Multifamily Guaranteed Loan Program, which is known as Section 538, serves moderate-income families that typically do not qualify for very low-income rental housing, but still they cannot afford the expense of home ownership. It should be noted that 80 percent of the Section 538 projects contain tax credits, which means that the housing serves people making less than 60 percent of the area's median income.
A proposed rule was published on June 10th to allow the Rural Housing Service to buy back guaranteed loans from the investor as well as to reduce the minimum level of rehabilitation work from $15,000 per unit to $6,500 per unit on loans for acquisition and rehabilitation. In March of this year, we began the formation of a multifamily housing advisory group to oversee completion of a comprehensive assessment of our multifamily housing portfolio. The study will provide data and analysis for evaluation of the entire portfolio.
Prepayments continue to challenge Rural Housing's ability to retain needed affordable housing in rural America. Over 64 percent of our borrowers are eligible to prepay their loans because of expiring use restrictions. We continue to look for creative solutions to address limitations that have resulted in litigation from borrowers who wish to exit the program. The capital assessment will assist us in determining the likelihood of a property to be prepaid based on market data analysis.
Rural Development has also taken significant steps toward automating its multifamily portfolio information as well as modernizing the forecasting of rental assistance usage.
Rural Housing Service has formed a working group to seek improvements to the rental assistance forecasting process. We plan to implement this improved process by November 1st of this year. Rural Development continues to work closely with GAO and other oversight agencies to improve program delivery. Many of the issues raised in oversight reviews will be addressed through issuance of the final rule 3560 and the implementation of the rental assistance forecasting tool.
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I want to make this point: Rural Development is uniquely qualified to meet the housing needs of rural America through our network of nearly 800 field offices across the United States and by incorporating cross-cutting programs offered by the Rural Housing Service, the Rural Utility Service, as well as the Rural Business Service. It is our intent to make significant progress on the administration and servicing of multifamily housing programs, thus enabling us to run a strong, viable housing program.
With your continued support, Rural Housing Service looks forward to working with Congress to provide decent, affordable housing to low- and moderate-income rural Americans.
Mr. Chairman, this now concludes my oral testimony. We would like to submit a lengthier testimony for the record. I look forward to answering any questions you or the committee may have.
Chairman NEY. Without objection, the complete written statement will be submitted for the record.
[The prepared statement of Thomas C. Dorr can be found on page 196 in the appendix.]
Chairman NEY. I would also note that, as usual procedure, members may have certain questions and we will keep the record open for 30 days for members to ask questions to be submitted in writing and also returned by the witness. I will have some questions that we will submit for the record to you.
I wanted to ask about—there was just two areas it has shown, I think it was 1981, which would have been 3 years after the program began—trying to remember which program it was—but one of the programs that began in 1981, and it showed that really the portfolio wasn't being assessed correctly way back at that time, rental assistance. And so it was kind of getting off to a nonaccurate, calculated start 3 years after its inception. Do you have any comments on that, on that program?
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Mr. DORR. We have two major issues that we have to deal with in this multifamily housing Program. One of them is the rental assistance issue, and the other is what we generically term our ''capital needs assessment,'' which essentially is to determine the housing stock that we have available, and, in the rental programs, where it is needed, the quality of it, and whether or not there are things we can and should do to make sure they are properly placed.
On the rental assistance side of the issue, my understanding is that in 1982, up and through 1982, new construction rental assistance projects were automatically authorized a 20-year rental assistance contract. There was a formula developed determining how many of the units in a project would qualify for rental assistance. There was a commitment made for rental assistance for up to 20 years. On renewed projects, the contracts were 5 years. It has taken some time to essentially try to ascertain what has gone on in that, but the short of it is that after a fair amount of digging—which let me make one other very quick point—when I was appointed last August, the No. 1 priority on my list was to get a handle on these multifamily programs. So we have been working aggressively, trying to answer these questions since last September. But the bottom line is that we determined that there was a large amount of unliquidated obligated rental assistance to a number of projects.
I will give you an example. On March 15th of this year, if my memory serves me correctly, we still had approximately 111 months of unliquidated rental assistance on contracts that were written in 1978 for 20 years. Five-year contracts that were written in 1999, also that would expire September 30th of this year, on March 15th still had 21 months of unliquidated rental assistance. What I determined was that our systems were not fully automated and our algorithms and calculations to determine how much rental assistance should be obligated to these projects, quite frankly, weren't as accurate as they should be. We have determined as a result, that we have $700-plus million of obligated unliquidated rental assistance, of which about 500 million plus is tied to these 20-year-old plus contracts. We are in the process now of trying to ascertain a fix to that because there are contracts which these are tied to, and there is a lot of difficulty to rework those contracts to fix the issue.
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Chairman NEY. Thank you. The gentlelady from California.
Ms. WATERS. I will yield to the gentleman from Alabama so that he will have more time to deal with the rural housing concerns in his area.
Mr. DAVIS. Thank you, Ms. Waters. Thank you for yielding.
Mr. Dorr, let me thank you for being here today. Let me, if I can, turn to something that you said was I believe your priority of the section 515 multifamily housing units. As I understand the section 515 units, their primary purpose I suppose is to rehabilitate and to renovate a lot of the housing stock that exists right now in rural housing areas. Is that essentially correct?
Mr. DORR. The 515 program essentially was a construction program, started out years ago. And we built affordable housing for low income households, or those that had diminished resources in rural America, frequently dealing with single family parents or the elderly, or young couples who quite frankly didn't have the resources either.
Over the years that program has grown, and projects were built. And to that were tied rental assistance contracts. Rental assistance contracts have become quite onerous and they have become a large portion of our budget. At this point, although I think we are this year building something in the neighborhood of $24 or $25 million worth of new 515 projects in the 2004 budget, we are simply focusing on trying to spend funds for rehabilitation and repair so that we can maintain and keep these projects in the program.
Mr. DAVIS. Let me tell you one thing that I have noticed regarding the funding for the program. Obviously I am not going to try to compare the current budget climate with 1994, but there have been some significant decreases over a period of time. For example, in fiscal year 1994 there was a 540 million appropriation under this program. It is down to 115 million in the last fiscal year. I think there is a marginal increase to 116.5 or something for the current fiscal year.
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I understand a lot of the conceptual problems that you have outlined regarding the way this program functions; but as a general rule, would you agree that the mission of this program has been compromised by some of the funding cutbacks over the last 10 years; it would be easier to do your job if you had more money instead of less money?
Mr. DORR. It is always easier to run any household or any program if have you more money than less money. I think one of the dilemmas with this program was that rental assistance grew so expansively that people were, generally speaking, looking to the source of resources to keep the new construction side going as well.
My feeling is that we are on the threshold of determining a better tool to project rental assistance that should mitigate some of this growth in rental assistance requirements. That leaves everyone involved some flexibility to determine how they wish to handle the new construction or the rehabilitation preservation issues.
This administration is very committed to the preservation of this housing stock in rural America. We understand the critical need for it. And so I would not suggest that we couldn't use more money, but I would also suggest that we are getting a handle on certain management issues that may make things more clear when we get finished.
Mr. DAVIS. Let me ask you a fairly basic question. What do you consider the main thrust of section 515 to be right now? If you had to delineate what are the one or two most important goals, what would they be? Give me some indication consistent with that of exactly how this appropriation of 116 million is going to be apportioned between those goals.
Mr. DORR. Number one, we are very sensitive to the needs of those who need housing in rural America. Number two, we are very focused on stewardship and management issues. As a result, we hope to be able to develop the kind of efficiencies and administrative efforts that make the program viable, strengthen it, and keep it doing what it is supposed to be doing over a long period of time. I don't see that that would change.
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Mr. DAVIS. How much input—and my time is about to run out, but let me ask you one final question. One of the criticisms that I often hear of this program, a lot of the other various rural housing programs around the country, is that there is not a lot of effort to integrate the opinion or to solicit inputs from a lot of the people who do local housing work on the ground, people who are connected with various housing advocacy organizations, people who run the various public housing units in a lot of rural areas.
Can you talk with me about whether you think that is a problem—if the Chair would indulge me enough to finish my question and you can answer it—can you tell me if you would agree that that is a problem, not getting adequate input from people on the ground, and what your Department is doing to address that concern?
Mr. DORR. Well, that is a great segue. I just happened to be in your district last week. I was at EPS with Ralph Paige down at the Federation of Southern Co-ops facility. We went over to one of our projects, Windy Hills.
Mr. DAVIS. You didn't give me a call. I am disappointed.
Mr. DORR. This was an effort that Reverend Paige and I put together over a period of months. It was not designed to be anything other than to get-to-know-one-another and look at the issues. I am from a rural area. Until 2 years ago I spent all my life in rural Iowa in a small town of 1,200 people. I know what housing is all about in these rural areas. I have had some direct involvement with my own with folks in my local community. I was very impressed with Windy Hills. There is no question that they could always use more resources, but in the case of Windy Hills and a number of others, we are spending a lot of time putting together task forces of State directors, multifamily directors, to get direct input from them on how better to handle and manage these programs in ways that make them not only effective but sensitive to the families and the folks that live in these communities.
I don't know what it has been like in the past. My sense is that there were probably some management issues that should and could have been dealt with. But I can truthfully say that our team under Mr. Garcia and the folks at Rural Housing and the folks at USDA Rural Development are very, very interested in making sure these programs work and work effectively.
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At our Rural Housing Summit we inked an MOU with HUD to specifically work with the four corners area of the Colonias to make sure we collaborate effectively in areas where we have programs that overlap or we know of folks that have other needs. It is a long-winded answer and I apologize, but we are in fact very serious about getting on-ground input and doing it on a regular basis.
Mr. DAVIS. Thank you, Mr. Chairman.
Chairman NEY. Thank you. Mr. Renzi.
Mr. RENZI. Thank you, Mr. Chairman.
Mr. Dorr, thank you for your testimony. I was real fortunate, I grew up in southern Arizona, along the Mexican border. Came from a family where we were taught ''never rent,'' whether we had the money or not. I didn't come from the lap of luxury, but we were taught not to rent. Do whatever you can to buy a house, hang on to the house even if you are house poor, borrow from the equity in the house, and then eventually use that equity either to have your own business or whatever to prosper and grow a family. I got a family of 12 children so I needed to borrow a lot of equity in order to pay grocery bills.
But I want to segue into Congressman Davis's thoughts. That mentality that I was taught at a young age in my family and that economic model of owning a home, having an appraiser come out and appraise the home, borrowing against the equity, trying to move myself up, is that the kind of model you are seeing? I know you have been around and seen a lot in your travels. Is that same mentality shared particularly in the regions that we are talking about?
GAO came out and said that Mississippi Delta, Appalachia, the Colonias on the Mexican border, and Native American trust lands—I have got two of the four in the worst rural and most severe rural housing quality programs in our country, those four regions. I know Congressman Davis shares one of those regions, too. So could you tell me, that mindset that I just described with you, are you seeing that around the country?
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Mr. DORR. Well, that is an interesting question. And I think generally speaking, yes, there is a mindset that home ownership and equity in a home goes a long way toward building communities, building and securing strong families and strong family relationships.
I will tell you my experience with the minority community coming from Iowa was fairly minimal until I got in this position. And I think the one thing that I have observed is that the minority community, generally speaking, probably have been disadvantaged because of a lot of historical reasons. You know, I have some observations on that, but I think it is an issue that needs to be resolved. I think we need to be more aggressive in making sure that minorities have the same opportunities of home ownership and equity building, just like those of us that had the opportunity to do it.
The Section 523 Self-Help Program is one of the most interesting and effective programs we have. And we are doing everything we can to run that program long and hard; because through grant programs working with nonprofits, it enables young couples, single parents, families and singles, to actually expend sweat equity and ultimately move into their own home and move into it with an equity position. I concur with your observation.
Mr. RENZI. When you look at some of the travels that you have had in the South, in particular what kind of impediments are you seeing when we talk—I think you have got some good research as far as the appraisals. I grew up in a small community, I played football with the local boy who is the appraiser. I know he is going to come over and give me a fair shake on my appraisal. If I can get him in a headlock, I will get a couple more bucks out of him. What are you seeing particularly in the South on that?
Mr. DORR. Let me go back to my visit last week with Mr. Paige. At the Federation of Southern Co-ops they are running a number of informational and training programs that will result in the development of new business opportunities. A number of credit union initiatives are underway, a lot of training and people development as well. Much to my surprise, when they were talking about their credit union initiative, I think in the neighborhood of 20 credit unions that he put together, they had slightly more than $20 million in assets. As they were going around the table discussing their various programs, one of the things that came up was that issue. So I looked at them and said, ''Explain something to me. How many dollars do you think are under pillows or buried in backyards; that is, aren't in banks or credit unions?'' Ralph looked at me and smiled and said, ''There is a lot.''
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So then it moved on down the table to another young woman who was running a land development program. She talked about the inability to aggregate quantities of agricultural real estate, which essentially was impeding their ability to have an asset base to grow.
I finally looked at them and I said, ''If I am hearing what I think you are telling me, answer this question. How many black surveyors are there? How many black title companies, black-owned title companies are there out here?'' The gentleman down the table looked at me and said, ''I can't find any.'' He said, ''I have looked in North Carolina, South Carolina, Arkansas, Alabama, Mississippi,'' I don't know if he mentioned Louisiana, ''I can't find a black-owned surveying company.''
Mr. RENZI. No African American surveyors, no African American appraisers; am I right? So if you are African American in the South and you do have the ability to own a home, and then you are trying to borrow against that, your ability to possibly—or your worry, I am sure, of trying to get a fair shake on the appraisal—I mean, you got to be—.
Mr. DORR. The ability to secure the property, to get a fair title, to get an appraisal, all of those issues are mitigated. As a matter of fact, I suggested to Ralph we need to sit down and work out a training program just in that exact area. Quite frankly, folks have to have trust in the people that they are dealing with and they have to have trust that the property is properly titled. That would go a long way toward mitigating a number of these home ownership issues.
Ms. WATERS. Would the gentleman yield?
Mr. RENZI. Yes, ma'am.
Ms. WATERS. Where did you get your information that leads you to conclude that minorities don't aspire to home ownership in the same way as whites?
Mr. DORR. If I gave that impression, it was wrong. I think they absolutely aspire to it.
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Ms. WATERS. I am sorry. What did you say?
Mr. DORR. What I intended to say was that their ability to think they can aspire to it, based on their experience, is probably diminished relative to whites or to the majority race, simply because of the experiences that they have had, as we have discussed concerning their lack of trust in the system that will enable them to acquire homes and property.
Ms. WATERS. Well, I am not sure what you are trying to say, but let me just give you a bit of my experience with the desire for home ownership, the desire for land ownership, and the desire for farmland ownership, all of those issues. You are from USDA. As you know, it was just less than 2 years ago that there was a class action lawsuit brought by African American farmers because of the discrimination in the Department of Agriculture. And that has been the most horrendous experience that I have ever had in trying to straighten out a problem of unfairness. And we still have farmers, for example, who are struggling with the way that they have been treated by USDA and the Department of Justice.
I point that out to you because if what you are trying to say—and I think as you explained it a little bit better, what you may be trying to say is because of lack of opportunity, because of discrimination, because of redlining, all of these issues that some of us have been fighting for years, it has limited the ability of minorities to be able to own homes and property and farms in the way that they should have been able to had there not been the kind of discrimination that is documented through the actions like the class action lawsuit.
And let me say this to you: Even today as we sit here and we talk about the Mississippi delta, it is shameful what still happens in the Mississippi delta. There are still shacks without running water, without partitions. Why do we continue to have those kinds of situations? Given what I am looking at now, all these programs and all the opportunities that we are supposed to have, why do we still have such substandard housing in places like the Mississippi delta?
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Mr. DORR. Well, I think you have framed my observations very well. It is a limited ability due to discrimination and due to the lack of capability relative to the system giving them the opportunity that everyone else has. So you are right. You are absolutely correct.
Now, in defense of USDA—and I am not defending their past actions and a number of the issues that have been clearly outlined—but I would draw your attention to what I think is a stellar example of positive action that we have just completed at USDA's Rural Development. I don't know if you are familiar with a community called Bay View, Virginia. Bay View, Virginia is on the eastern shore of Virginia, just across the Chesapeake Bay Bridge from Norfolk. Last week, Deputy Secretary Mosley attended an open house there. Bay View is a minority community that had ramshackle houses with no running water and no sewer system. The water systems that they had were next to septic tanks. This occurred before I got there. But somehow residents connected with the folks at Rural Development.
Within Rural Development we have three agencies: Rural Utility Service, Rural Housing Service, and Rural Business Service. The first entity that they engaged was Rural Utility Service. We have subsequently been involved and drilled wells, put in water and waste systems, so that they have water, waste, and livable conditions. Then last week our Rural Housing Service completed the opening of 35 brand new multifamily housing units in that community, and there are now on the drawing board a number of single family housing units. That is all tied to a farming operation of which I quite frankly don't know all the details.
So we are mitigating these issues where we have the resources, where we have the opportunity, and where we can engineer things of this sort to happen.
Ms. WATERS. Well, I appreciate your example. And I would hope that under your watch you will expand that.
I don't have a rural community, but I go to Selma and down through Alabama every year as we commemorate the March across the Edmonds Pettis Bridge. I am still appalled at some of what I see. I go down in the delta with Benny Thompson who invites us down from time to time for various reasons. I am still appalled at what I see. I listen to my chairman of this committee talk about communities that don't have water. And I am still appalled at some of what is happening in Appalachia. So we got a lot of work to do.
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And while I appreciate what you are telling me, some of the images of rural housing, the lack of rural housing, still appear on television from time to time as stories come out in various ways, and the camera is panning shacks where people are sitting on broken-down porches and the mention of no running water, et cetera.
So it seems to me that there is a lot of support in this Congress for rural housing. And I don't know what is going on with all of the programs, which I am going to try and pay a lot more attention to. But I think that those images that we constantly see, and I have been seeing practically all my life, we are just a few years beyond Sugar Ditch in Mississippi, these have to be gotten rid of.
This administration can't afford to talk about housing in Afghanistan and Iraq until it gets something done in Mississippi and Alabama and Appalachia. So I am one person that is going to be pretty persistent in trying to pursue the opportunities for the rural poor, because I am not simply concerned about the urban poor, I am concerned about the rural poor as well.
Chairman NEY. Thank the gentlelady. Mr. Renzi.
Mr. RENZI. Reclaiming my time, I wanted to—.
Chairman NEY. Your time has expired, therefore—.
Mr. RENZI. I want to thank you. I think you did an excellent job of calling out some of the impediments that you observed during your trip to the South.
Do you see within the community, within the leaders that you met down there, the ability for the African American community to now put in place in their training programs new programs that will bring about more appraisers, more land surveyors, so that won't be an impediment, is I think what you described?
Mr. DORR. It clearly now on the table of issues that we need to address through the number of programs that we are involved in. I would intend to do that. I frankly am appalled by the fact that there aren't black appraisers, surveyors, abstract companies, et cetera. Maybe there are someplace; we just haven't found them.
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Mr. RENZI. I am sure with Congressman Davis's knowledge of this now, he will also be a leader on it.
If I could move real quick, I think we will do a second round of questioning, to the Mutual Self-Help Housing Program. In southern Arizona along the border, we have got a great amount of labor. We have got a lot of Hispanics who have been involved in the construction industry. We have the Navaho, the Apache, the Hopi, all of which I represent and am fortunate to represent. Represent the largest Native American Indian population in America. So we have plenty of labor, plenty of people out of work.
We have plenty of timber, if it is not burning in our forests out there. And I like this idea of being able to take the labor that we have available, take the materials, the building materials that we have available, these natural resources, and being able to use this 523 Mutual Self-Help Program.
And I would like you to just expand in the remaining time that I have on the 523 program and in particular the amount of money that is available that was used—that is not used. And I will finish with that question. Thank you, sir.
Mr. DORR. In our Self-Help 523 Program, we have an appropriation of $35 million. That is budget authority that is used to make grants to nonprofits or other housing assistance councils or authorities that are collaborators who work with Rural Development to bring together, usually in tranches of 8 or maybe 16 potential homeowners, provide them guidance, construction oversight and assistance in building, through the use of sweat equity, their own homes. This is a marvelous program because it uses local supplies, and local labor.
When we get all done, these young people have homes of their own with equity usually when they walk in the door. It is a program that we intend to push and push aggressively, because it doesn't use a lot of government resources.
Mr. RENZI. How much left over from the 35 million?
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Mr. DORR. Last year I believe we had 16 million left over. There is a reason for that, quite frankly.
Mr. DAVIS. If I could ask a quick question—will you permit a second round of questions?
Chairman NEY. We will go to Mr. Bereuter and then start a second round.
Mr. BEREUTER. Thank you, Mr. Chairman. Mr. Dorr, welcome to the subcommittee.
Mr. DORR. Thank you.
Mr. BEREUTER. With the help of my colleagues, I am the person that took the initiative in developing the 502 program and the 538 Guaranteed Loan Programs authorized initially. So I am very interested in these two programs and their successor programs.
I would like to go to the 538 Multifamily Loan Guarantee Program first. I understand that a rule was published on June 10th which would hopefully make two changes to improve the program's secondary market participation. But mortgage bankers came before this subcommittee lately—let's see, I think I actually have the date—and they suggested that we need statutory language to make it clear that Ginnie Mae could ensure—could securitize loans under the 538 program.
I checked with a Nebraska USDA rural office in my home State and found that there were none of the 538 properties in Nebraska involving the Ginnie Mae program. I did make an inquiry of your Agency with respect to the 502 Single Family Loan Guarantee Program. I understand that your response was that the 502 program can be securitized under Ginnie Mae.
Do you have any feelings about whether or not this subcommittee should advance legislation which would make Ginnie Mae an eligible securitizer for the 538 Multifamily Loan Guarantee Program?
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Mr. DORR. We are in the process of working to get Ginnie Mae as a securitized underwriter of this 538 program. If it takes statutory language, that is something that we would obviously have to run by our counsel, et cetera, to determine where we are at on that. But anything that would make the program more liquid and more effective would make sense.
Mr. BEREUTER. I think that is one of the problems now. I am inclined to introduce legislation to make it clear that they have the authority to proceed in that area.
Can you give me some idea as to whether or not the appropriations in recent years have been sufficient to meet the demand for the 538 program?
Mr. DORR. Well, in a cursory overview, it appears that it has up to this point. It is because of the lack of liquidity and some of the underwriting issues that I think it has been slower to take off than perhaps one would have hoped. By the same token, we are in the process right now, among other things, of engaging a couple of folks with very, very substantial background in the multifamily area; It is my hope they will help us understand better how to operate this program in a way that makes it function as it was designed by the statute.
Mr. BEREUTER. Without the ability to securitize loans, it has been very difficult. We have had to be very innovative in the few projects we have made work in Nebraska. The 502 program, do you have any idea how many families have been provided housing either by purchasing an existing home or building a new home, or a 502 program nationwide?
Mr. DORR. Last year we were able to work with right at 44,000 homeowners.
Mr. BEREUTER. Got any overall figures since the first pilot program in 1991?
Mr. DORR. Yeah, I do. It is quite substantial.
Mr. BEREUTER. I think it has been substantial. I think it has a successful program.
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Mr. DORR. I believe to date the 502 guarenteed program has assisted over 260,000 rural families with homeownership.
Mr. BEREUTER. Most of that I think is in the guaranteed program.
Mr. DORR. Actually, the majority of our portfolio is still in the direct, although the guaranteed portfolio is growing rather substantially.
Mr. BEREUTER. I see. All right. The difference, it seems to me, as to whether low- and low/moderate-income people take advantage of this program oftentimes comes down to whether or not there is an aggressive local banker that works the program. I want to congratulate you on keeping the program simple to use at this point. In fact, most bankers and other financial institutions cannot believe how easy it is compared to some of the loan guarantee programs related to agriculture. So they are reluctant to even look at it. When they do, they can really make a go, make it work. Some of the smaller banks are some of the most successful in using it. That has been my experience at least.
Now, in fiscal year 2003, I think the ceiling was set at 4.528 billion. And because of the low default rate, the low administrative cost, you were able to operate, I gather, meeting demand with only 32.6 million budget authority. The current administration request for fiscal year 2004 is down dramatically, only 2.5 billion, but the budget authority level is suggested at 39 million there. Why was it so low in fiscal year 03 compared to 04? Has there been a recalculation of risk? Or what is the difference, if you can help me with that question?
Mr. DORR. Are you talk talking about the direct or—.
Mr. BEREUTER. Talking about the loan guarantee program.
Mr. DORR. The loan guarantee program. I don't have a precise answer on that for you. We requested a 32 percent increase in our direct 502 program appropriations. I can get you an answer on what caused the guaranteed program BA requirement to change in 2004.
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Mr. BEREUTER. If you have a budget authority level of 39 million, will you be able to meet the demand for the 502 Loan Guarantee Program for fiscal year 04?
Mr. DORR. It may be difficult, but I think we will.
Mr. BEREUTER. Very difficult. Were you able to meet this thus far in 2003? Do you expect to be able to meet it in 2003?
Mr. DORR. Yes, we hope to. It is going to be tight. We were able to move 11 million of carryover from the Section 523 Program into our direct program with the appropriation last February. That gave us an additional 900 million in single family guaranteed authority, gave us about over 10,000 homes. So that is clearly what kept us running.
Mr. BEREUTER. Why do we use the direct program when we have such a larger payoff, so to speak, from the loan guarantee program? Why does there continue to be the demand on the direct program when we can leverage so dramatically the Federal funds involved by the loan guarantee program?
Mr. DORR. Essentially the direct program addresses the needs of a tranche, of lower income families which we think merit an opportunity to acquire a home. If we can do that, we think that is worthwhile.
Mr. BEREUTER. So these would be people largely below 50 percent of the average income level in the region?
Mr. DORR. Yes.
Mr. BEREUTER. Whereas we designed the loan guarantee program for 85 percent.
Mr. DORR. 80 percent of average median income.
Mr. BEREUTER. Sixty, I should say.
Mr. DORR. I am sorry; it is up to 115 percent of median income.
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Mr. BEREUTER. We had 100 at one time, and it was moved to 115 as I recall. The multifamily housing Program, the 538 program, the budget includes $100 million—excuse me—proposes to build 2,700 units. Without some changes, some changes coming through the rules changes, perhaps by getting Ginnie Mae authorization you will be able perhaps to build more. Will you be able to come up to the 2,700-unit level for the next fiscal year? Do you have any thoughts about that?
Mr. DORR. There has been some misunderstanding in terms of the funds obligated and ultimately used in this program over the last several years. I think the key to it is what you identified early on, and that is the ability to securitize and make these projects liquid. If we can resolve that issue, we could use these funds in their entirety. But the speed of the resolution of that issue I think will drive it.
Mr. BEREUTER. Just for your information, Mr. Dorr, I go to the Appropriations subcommittee each year and ask for more funds for the loan guarantee programs, the 538 and 5902 program. And while the staff there probably understands this program rather well, I find that members are intrigued to learn about the program, even though it has been ongoing for a number of years, and about its potential and about its growth in number of houses that are being made available to low- and moderate-income Americans.
So I encourage you to have even more contact within your Agency with the appropriators in both houses on this issue and give them some of the charts that I have provided from your Agency to them this time to show them the growth in the programs. That is my suggestion to you. Thank you very much for your response.
Chairman NEY. Thank you. Mr. Davis.
Mr. DAVIS. Thank you, Mr. Chairman.
Let me try to globalize this discussion a little bit, Mr. Dorr. One of the things that is evident to me, if I can follow up on my colleague from Nebraska's observations, is not just that few Members of Congress are relatively acquainted with the various 528s, 538s, whatever the various numbers are. Much more importantly in my experience, a very, very thin fraction of the people that these programs are meant to serve know anything about them.
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That I think is a very significant gap that speaks to some extent to Ms. Waters' questions earlier about why, despite the existence of all of these programs, despite the funding for all of these programs, which at one point was at a fairly respectable level though it is not now, there has still been this persistent housing crisis that is concentrated in parts of the country, the areas Mr. Renzi represents and the Mississippi Delta, Alabama Black Belt area. Do you agree that that's a significant problem, making the potential clientele for these programs aware of them and what, if anything, is USDA doing to aggressively go, not just to the Ralph Paiges of the world, but to the people who are living in these counties in addition to Mr. Page, the people who actually are going to benefit from these programs? What is being done to go into the local communities to make people aware of these various benefits? Because I'd make an observation to you. My colleague from Nebraska mentioned the necessity of the banks implementing a lot of these programs, the guaranteed loan programs. I will represent to you that in major parts of the area that you represented last week, there is a very small banking presence. I think in the whole of Sumter County, there may be all of about two banks, maybe really one bank that is really capitalized in a significant degree. You can go through major portions of my district that you represented last week, and you don't run into any banking presence, and maybe even more pernicious than that, when you run into banks, when the people in those communities run into banks, the banks are not a friendly face to them. The banks are the people who keep them from getting loans in their perspectives. The banks are the people who are not friendly to them when they come in needing money to get some new agricultural equipment. The banks do not have a great reputation in lot of these communities. So given the fact that the banks are not going to be the best purveyor of information, what do you suggest, I mean, what do you suggest to get these programs into the heart of the people who would benefit from them?
Mr. DORR. That is a tough question. People have looked at it for a long time. Naively, perhaps, I would make a couple of observations.
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First of all, these credit unions, between them had I think $20 or $22 million. You could convert that $20 or $22 million into black-owned banks that would have an asset base of a billion dollars. With proper security and the types of securitization possibilities, there would be a lending base there. We have entered into an MOU with the National Association of Credit Unions to try to work more closely with them to market our programs, as well as to use their ability to help provide home ownership loans and that sort of thing.
When you are dealing with a credit union with a million dollars and a lot of volunteer staff, the sale of a home loan into a secondary market involves complex and sometimes more involved issues than the staffs sometimes have.
We, at Rural Development, have to do a better job of marketing. Statutorily there are some limitations in our ability to go out and quote/unquote market government services. But I think a more effective marketing effort must be made. We are in the process of taking a very close look at what we can do within the framework of our authority to make sure that we are doing a better job.
We have also initiated, a year ago, something called the Five-Star Initiative, which is part of a Rural Development effort in conjunction with a Credit Education Program through the FDIC. Our Five-Star Initiative essentially amounts to an enhanced marketing strategy to bring minority homeownership more front and center in ways that involve marketing, education, and an aggressive attempt to increase minority homeownership within our programs by 10 percent in the near future.
We are doing a number of things. There are a lot of issues that have to be dealt with. Are they all right? Are they all the most effective? I am not sure that I know, but we are sensitive.
Mr. DAVIS. Let me just close on this observation that follows up on Mr. Renzi's observations earlier about the absence of minority participation in a lot of aspects of the rural housing market. One thing that is always striking to me, Mr. Dorr, that if you look at the largest banks in my district, and we have a number, and if you look at the next tier of banks in my district, we have a number of those, to my knowledge, not counting the one or two minority-owned banks, at the majority-owned banks in my district, there are about six or seven of them, there is a combined total of one African American who sits on the board of directors of all six or seven of those institutions. I am sure if I am wrong, I will hear about it by the end of the day. But I think that that number is about right. That is a significant problem that I think all of us, certainly on this committee, should recognize. You do not have a significant amount of participation by individuals in the minority community or a significant amount of participation by folks who even have relatives who live in some of these areas, frankly, until we get a handle on that phenomenon. Because I would describe the phenomenon this way. It is the perspective of people whose economic interests are primarily directed outside of the community still making the bulk of the economic decisions about the distressed communities. That is certainly the perception of the people on the ground in these areas. And I think until we get a handle on that problem, until we find some way to inject more of a feeling of participation because whatever the reality, if a given community feels that its needs are ignored and neglected, that will certainly weaken their ability to take advantage of the programs that do exist.
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So I will close on that note and certainly thank the Chair for calling this hearing. And thank Ms. Waters for her engagement in this issue. She has been, despite the absence of a rural presence in her district, she has been way before I got here, a persistent voice on these kinds of issues, and we need more urban voices engaging this question. Thank you.
Mr. DORR. Thank you.
Chairman NEY. Thank you. Mr. Renzi.
Mr. RENZI. Thank you, Mr. Chairman.
I want to jump on the coattails of my colleague, Mr. Davis. In southern Arizona, we have been somewhat successful, not great success, but somewhat successful in using the Section 523 Program. And one of the ways we were able to get the word out was the 523 Program. For 60, 65 percent of the labor that you put into the home, we were using the Catholic churches, and I know your network of African-American churches in the South is as strong if not stronger, but the idea that we have got $18 million left in the 523 Program, a program where you can use local materials—and I was a homebuilder before I came here—use local materials and local labor to build your own home, and when you walk into this you have equity, and if we can get the local churches to get behind that kind of a program, there is—I am going to overreach here, but I can't see any reason to rent. Why is it that we had $18 million left over? And I know I am looking here at underqualified supervision. Is that a State-licensed GC, or is there a Federal qualification?
Mr. DORR. Mr. Garcia says it is a State-licensed—.
Mr. RENZI. GC?
Mr. DORR. Right.
Mr. RENZI. So it has got to be a GC?
Mr. DORR. Right.
Mr. RENZI. Okay.
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Mr. DORR. Seventy percent of the folks that go into our self-help program are minorities. That is a market tranche that we are very heavily engaged with.
Secondly though, to have the kind of oversight necessary to make sure these projects succeed. I mean the worst thing that can happen is somebody goes to work for five or six months, in addition to maintaining a 45- or 50-hour-a-week job, they spend another 30 hours a week building a home, and they have poor oversight quality because these folks don't have backgrounds in building skills and buying materials and that sort of thing, and then to get four or five months into it and have the project fail because of some lack of oversight, and we have had a couple of those.
Mr. RENZI. I would—I hope you have failure rates through the roof, because you have got $18 million left over, my friend. And I know most people out there with good supervision, as you know—and I am preaching to the choir here—can put together a home. It is not that—I mean if I could do it anybody could do it.
Mr. DORR. Well, that may or may not be the case, but I understand what you are saying. And the simple fact of the matter is that what we are not trying to mitigate all failure. I understand that. And I have identified a number of organizations around the country who can help. I intend to put them in touch with some of these folks that I met last week that can come in and provide the training and provide the support and the background to get these houses up and running.
That's the kind of marketing we need to be more forceful on, and we intend to do that.
Mr. RENZI. I am with you. There it is, the training aspect of it. The idea that maybe to train some of these supervisors and get the program out. Again, just real quick and I will wind up. The $18 million that we have left over was primarily why?
Mr. DORR. Why? Because we just didn't have enough demand for it, based on our ability to market the program and to make sure that those that were interested in this had the ability to make sure these projects would likely succeed.
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Mr. RENZI. Thank you, Mr. Dorr. It was great having you today. Appreciate it.
Mr. DORR. Thank you.
Chairman NEY. Thank you. Any other members would like to ask a question? Just in kind of a summary, would you like to say anything about the vision you have, you know, in a nutshell and how you would like to carry it out through some changes you need to make?
Mr. DORR. Well, if there is a take-away vision of what Rural Development and this administration would like to be viewed as number one, I want to make it most clear that this administration is very sensitive to the housing needs of rural Americans. Second, it is in that vein that we are trying to administer these programs effectively and to get our hands around them in a way that provides the stewardship of the resources that we are given in ways to make this program work. And thirdly, if we administer and implement these programs effectively because of good stewardship, and our sensitivity to the needs, I would like the committee to also understand that we are going to need some management flexibility relative to how we deal with rental assistance, securitization issues, and a number of the issues concerning the 523 Program. We do have these tools, but we need flexibility in how we implement them. If we can do that, then our vision of Rural Development being the venture capitalist for rural America with the goals of increasing economic opportunities and improving the quality of life will, in fact, bear fruit. We are well-positioned to do that, and with your help and cooperation, I would like to think we can attain those goals.
Chairman NEY. What I would suggest, as we try to get to where we want to be in the vision, if you have the ideas of what you need to do legislatively, you know, bring it here to the committee, and we can take a look at it and see how we could work together if there needs to be legislative changes. I know some of it is internal management, some of it is getting out the word of what's there, maybe some of the things that are there are not working so—but I just think we need to, like I said, beef the level up all the way around to get the issue out there. And I will still say it, downpayment is a problem. I mean when we talk about the housing downpayment as a problem. We have talked about it, and people can work and pay that monthly payment but the downpayment always tends to be a problem.
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Mr. DORR. Well, thank you; I want to take this opportunity to make a point about downpayment. We have a Rural Development program, right now, where we have State directors and single-family employees working with employers who are providing the downpayment on 5-year forgivable loans in conjunction with Fannie Mae buying the paper and us originating the loan. There are many of these opportunities out there. We are trying to corral them all, and when we do that, it does make housing much more affordable and available in ways that I think would satisfy everyone.
Chairman NEY. It makes a huge difference. We have talked about it with the FHA; I have talked to the ranking member. It makes a huge difference. If a person sits and it literally takes 10 years for the downpayment, I don't note what that shows about their credit worthiness in the sense of the child was in third grade, now the child is out of high school, they could have been in that house to have a better place to study, et cetera. I mean, we all know you can't maybe prove all these things with calculations, but we know it works. So some way—I am glad to hear that is happening.
Any other way I think we can directly tackle that is going to help people. The sooner people get into housing, the better off they are going to be, their families and their whole way of life.
I want to thank all the members. If there is no further questions that concludes the hearing. Thank you.
[Whereupon, at 11:17 p.m., the subcommittee was adjourned.]