[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
PROMOTING THE AMERICAN DREAM
OF HOMEOWNERSHIP THROUGH
DOWNPAYMENT ASSISTANCE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
APRIL 08, 2003
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-21
U.S. GOVERNMENT PRINTING OFFICE
90-836 WASHINGTON : 2003
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North CHARLES A. GONZALEZ, Texas
Carolina MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona STEVE ISRAEL, New York
VITO FOSSELLA, New York MIKE ROSS, Arkansas
GARY G. MILLER, California CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota ARTUR DAVIS, Alabama
TOM FEENEY, Florida RAHM EMANUEL, Illinois
JEB HENSARLING, Texas BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey DAVID SCOTT, Georgia
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Housing and Community Opportunity
ROBERT W. NEY, Ohio, Chairman
MARK GREEN, Wisconsin, Vice MAXINE WATERS, California
Chairman NYDIA M. VELAZQUEZ, New York
DOUG BEREUTER, Nebraska JULIA CARSON, Indiana
RICHARD H. BAKER, Louisiana BARBARA LEE, California
PETER T. KING, New York MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North BERNARD SANDERS, Vermont
Carolina MELVIN L. WATT, North Carolina
DOUG OSE, California WILLIAM LACY CLAY, Missouri
PATRICK J. TOOMEY, Pennsylvania STEPHEN F. LYNCH, Massachusetts
CHRISTOPHER SHAYS, Connecticut BRAD MILLER, North Carolina
GARY G. MILLER, California DAVID SCOTT, Georgia
MELISSA A. HART, Pennsylvania ARTUR DAVIS, Alabama
PATRICK J. TIBERI, Ohio
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
C O N T E N T S
----------
Page
Hearing held on:
April 08, 2003............................................... 1
Appendix:
April 08, 2003............................................... 47
WITNESSES
Tuesday, April 08, 2003
Couch, Robert M., President and CEO, New South Federal Savings
Bank, Birmingham, Alabama, on behalf of the Mortgage Bankers
Association of America......................................... 31
Gay, Lori R., Executive Director, Los Angeles Neighborhood
Housing Services, Los Angeles, California...................... 32
Griffin, Darrell V. Sr., Division Chief, Housing Services
Division, City of Jacksonville, Florida........................ 34
Hilgers, Paul, Director, Neighborhood Housing and Community
Development Department, City of Austin, Texas.................. 36
Martinez, Hon. Mel, Secretary, Department of Housing and Urban
Development.................................................... 11
Nickerson, Craig S., Vice President, Community Development and
Lending, Freddie Mac, Washington, DC........................... 38
Thompson, Barbara, Executive Director, National Council of State
Housing Agencies............................................... 40
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 48
Carson, Hon. Julia........................................... 49
Clay, Hon. Wm. Lacy.......................................... 51
Lee, Hon. Barbara............................................ 53
Rogers, Hon. Mike............................................ 56
Waters, Hon. Maxine.......................................... 58
Couch, Robert M.............................................. 59
Gay, Lori R.................................................. 63
Griffin, Darrell V. Sr....................................... 73
Hilgers, Paul................................................ 77
Martinez, Hon. Mel........................................... 84
Nickerson, Craig S........................................... 88
Thompson, Barbara............................................ 93
Additional Material Submitted for the Record
Consumer Mortgage Coalition, prepared statement.................. 102
National Association of Realtors, prepared statement............. 103
PROMOTING THE AMERICAN DREAM
OF HOMEOWNERSHIP THROUGH
DOWNPAYMENT ASSISTANCE
----------
Tuesday, April 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 2:09 p.m., in
Room 2128, Rayburn House Office Building, Hon. Robert Ney
[chairman of the subcommittee] presiding.
Present: Representatives Ney, Miller, Tiberi, Harris,
Renzi, Waters, Velazquez, Carson, Lee, Capuano, Watt, Clay,
Frank (ex officio), Miller, Scott and Davis.
Chairman Ney. [Presiding.] The subcommittee will come to
order.
This is a hearing on the American dream downpayment
initiative. I want to welcome Secretary Martinez. Many times he
has been to the Hill and we appreciate all his ideas and work
on a lot of important issues to Americans.
Today, we are here to examine the president's American
dream downpayment initiative, which is designed to assist
thousands of low-income families to realize the American dream
of homeownership. The benefits of homeownership for families,
communities and the nation as a whole, as all of you know, are
profound. Homeownership has been the single biggest creator of
wealth in our nation.
When the stock markets were declining, home values were
rising. When citizens own homes, they establish roots and
therefore have a greater stake in their communities, growth,
safety and development. As I said today at the press
conference, homeownership is America. It is the vital part of
American life. While the national homeownership rate has
steadily risen--it is at 68 percent, and that is tremendous--
there are sections of population for whom homeownership remains
unattainable. That is something that we cannot tolerate as a
country or society. In fact, the homeownership rate for African
Americans and Hispanics is less than 50 percent.
Clearly, more can and should be done to help all of our
citizens realize the dream of home ownership. The president has
committed to this nation to create 5.5 million new minority
homeowners by the end of the decade. In June, 2001, President
Bush proposed establishing the American dream downpayment fund,
and it is again one of the cornerstones of the Administration's
homeownership agenda in the 2004 budget.
The Millennial Housing Commission report recognizes the
lack of savings and the inability to afford the downpayment and
closing costs on a house as one of the biggest barriers to home
ownership. A lot of people can struggle and they can go out to
work and the families work, and they can make the payments, but
the downpayment is truly a dilemma. The Millennial Housing
Commission also underscored the importance of homeownership
rates to a growing economy. On page 21 of the report, the
commission states, ``lagging minority homeownership rates are a
serious concern. Minority households are expected to account
for two-thirds of household growth over the coming decade.
Improving the ability of such households to make the transition
to homeownership will be an especially important test of the
nation's capacity to create economic opportunity for minorities
and immigrants, and to build strong, stable communities.''
The American dream downpayment fund will provide $200
million in grants to help homebuyers with the downpayment and
closing costs. This has the potential of assisting 40,000
families annually to achieve the dream of homeownership. The
initiative would make available subsidy assistance averaging
$5,000 per family to help low-income, first-time homebuying
families. To be eligible, the recipients' annual income may not
exceed 80 percent of the area median income.
I really want to commend the president and Secretary
Martinez for pushing this great initiative. It is a good thing
to do, as I mentioned, economically, but it is the right thing
to do for the citizens of this country, our constituents, and
people that have immigrated into the United States, to help
them achieve a piece of the American dream. I also want to
commend Congressman Rogers in the 107th Congress. I was a co-
author with him. I want to note Congresswoman Katherine Harris
from Florida, Congressman Davis, for their leadership on this
important issue and for introducing H.R. 1276, the American
Dream Downpayment Act.
Again, we are fortunate to have the Secretary with us.
Without objection, I would also like to include the testimony
of the National Association of Realtors, who are not with us
today, in the record. Hearing no objection, it will be part of
the record. Also without objection, the statements of all
members will be included in the record. Hearing no objections,
they will be included in the record.At this time, I would turn
to my colleague from Massachusetts, Mr. Frank.
Mr. Frank. Thank you, Mr. Chairman.
Welcome, Mr. Secretary. I particularly appreciate your
making an exception to the normal rule and appearing here
before a subcommittee. We may call on you from time to time in
that regard. We have big subcommittees on this committee. So we
are entitled.
Secretary Martinez. Happy to be here, sir.
Mr. Frank. I want to express my support for the notion that
we should make some new money available for home ownership.
Obviously, our laws favor home ownership. When low-income
individuals and low-income minority group members are having
difficulty buying homes, they are disadvantaged even vis-a-vis
renting, because of the way that works. I am particularly
pleased, and I had a chance to speak to the main sponsor, the
gentlewoman from Florida, and I think we are in agreement that
this is additional money. I raise that because in the last
Congress, there was a proposal that came forward that would
have earmarked existing HOME money for this purpose. That did
not seem to many of us a good idea. The HOME program is a good
program and we did not want to interfere and the Mayors
objected to that.
My understanding is we are talking now about an additional
authorization of funding. I think that would get virtually
unanimous support. I hope that we will stick with it. As a
matter of fact, as I recall in the housing bill that cleared
the committee last year, there was an authorization of $200
million in new money for home ownership. That housing bill
disappeared into the ether, so it never got anywhere, but I
would look forward to doing this. So I just want to make that
explicit, I believe it is something about which we are all in
agreement. This I think should go very quickly.
But Mr. Secretary, I do want to take advantage of your
being here to raise an issue which was just called to my
attention by the new Governor of Massachusetts. I do not expect
you to have an off the top of the head answer, but I ask you to
look at this. We literally a couple of hours ago received a
kind of crisis phone call from Mr. Micciche, who is the
Director of federal relations, about instructions that were
given regarding Section 8. Now, Congress adopted in the
appropriations bill this year what I believe are unduly
restrictive language about Section 8 dealing with over-leasing.
The problem is that, as you have pointed out, that you do not
want Section 8 going under-utilized, and you have said if
people do not utilize them, they are going to lose them.
The housing authorities, and this is my Republican
Governor's people, are telling us that you cannot always hit
100 percent right on the mark. So if sometimes you are a little
under and sometimes you go a little over to compensate, you
average out. But language we put into the appropriations bill
says you can never go over. Well, since you rarely can hit 100
percent, this means you can go under and not over, but that
also then means that you lose out because you will always
average out to less, and we are going to have a declining cycle
here. Now, I realize that part of the problem was the
legislation, which some of us tried to get changed. But it does
not seem to me that the legislation in the appropriations
bill--not done by the authorizing committee--requires this
balance to be so tightly done month by month. The problem, as I
understand it from my Governor, is that HUD is now telling them
that we are going to take this balance month by month, and if
you over-lease at all in one month, then you are frozen.
They, at least it seems to me, ought to be given the
ability to do this on a yearly basis. That would also give us
the time, frankly, to revisit this in the appropriations bill,
because I think we have put them in an impossible bind. That
is, as I said, they can never over-lease to make up for under-
leasing, and since you can never hit 100 percent exactly, we
are going to have a problem. So I am going to be sending you a
letter, and I hope you can look into this, to urge you to get a
little more flexibility here. Let's not do this month by month,
and let's see if we can work with you and with the Governors,
because I am told other States are having the same sort of
situation, to see if we can get some flexibility into these
appropriations bill.
As I said, I have had this for a couple of hours. You have
just had it for a couple of minutes. But I do not think
Governor Romney is an alarmist on this and I do not think he is
interested in wasting money. I think they have pointed to a
problem which many of us foresaw with the appropriations bill.
We opposed that language and we have been unfortunately proven
righter than we wanted to be, sooner than we wanted to be. So
we will be looking to work with you on that.
Secretary Martinez. Thank you. Yes, I will reply to you.
Chairman Ney. Thank you.
The gentlelady from Florida.
Ms. Harris. Thank you, Mr. Chairman. This is an exciting
time for all of us. I want to express my appreciation to you,
Mr. Chairman, for your enthusiasm in hosting this hearing
today. As well, I want to thank all the members of the panel
for appearing, particularly my dear friend from Florida,
Secretary Martinez. I also want to thank Congressman Mike
Rogers for his sponsorship of the bill and the great idea last
year, as well as my colleague, the gentleman from Massachusetts
for his support. I am really enthusiastic about the
opportunities that this bill is going to provide.
Today marks an important milestone in our nation's efforts
to address the moral imperative of extending affordable quality
housing opportunities to every American. H.R. 1276, the
American Dream Downpayment Act, implements President Bush's
visionary plan to extend the dream of home ownership to tens of
thousands of low-income families and individuals across our
nation. I have consulted with housing advocates throughout my
district, and have heard that a great number of low-income
Americans could afford that monthly mortgage payment, yet
cannot overcome that initial impediment, that obstacle of the
downpayment and closing costs that are associated with the
standard residential loans.
This legislation creates new funding authority to remove
barriers by annually providing an estimated 40,000 low-income
families and individuals with an average subsidy of $5,000 to
assist their buying their first home. I understand that there
are concerns that exist regarding whether the formula that HUD
presently has proposed for distributing grants adequately
reflects the jurisdiction's past efforts in promoting home
ownership. I share those concerns and I anticipate that our
witnesses will help us address them here today.
Let us not, however, permit issues that we can address
through the legislative process to divert our attention from
the extraordinary potential that this bill creates in terms of
the opportunity to strengthen our communities in a nation that
enjoys an unprecedented level of wealth and material comfort,
that is unprecedented in human history. This state of affairs
is unconscionable. We can no longer tolerate circumstances in
which a steep entry fee stands between thousands of low-income
Americans and the dignity, stability and economic empowerment
of home ownership.
I look forward to our consideration of this critical
legislation today.
Thank you, Mr. Chairman.
Chairman Ney. I thank the gentlelady, and our ranking
member.
The gentlelady from California.
Ms. Waters. Thank you very much, Mr. Chairman. I am
delighted to be here and to have you hold this meeting. I thank
the Secretary for being here.
As you know, we held a hearing on the faith-based
initiative, and they failed to invite you. So we were looking
forward to you coming because we thought we would have some
opportunities first to just let you know how strongly some of
us feel about the civil rights concerns of the faith-based
initiative and the fact that we do not want to see our
religious organizations basically discriminate in hiring
against anybody in a program such as it has been designed.
Secondly, we are concerned about churches and religious
organizations who already have 501(c)(3)s who can do this. They
do not need another initiative. They can use their 501(c)(3)s,
but they will be competing, for example, with CDBG money with
some of the 501(c)(3)s that are already out there struggling
and competing. So we just want you to know about our concerns
and to take a look at all of that, and be sure that you pay
attention to ways by which you can provide some technical
assistance to the organizations that will help them become
competitive, and then urge the Administration to put some more
money in so that we will not all be competing for the same bit
of CDBG-type dollars with new entities that we empower through
technical assistance. So those are our concerns.
Having said that, you are here today also to talk about
this downpayment home ownership program, et cetera, et cetera.
As you know, you may have heard, I think that our financial
institutions should have more products. One of those products
should be no downpayment or very little downpayment. We have
not done enough work. We have brought down downpayments in any
number of ways, and we have programs with low downpayment--3
percent, 2 percent--rather than 10 percent. We have that
already, and I think we ought to be encouraging our private
institutions, our financial institutions to have more products
where you have no downpayments.
I am worried about this idea before us today because again
there is no new money. We already have the HOME program, I
believe it is, where the cities are using some of their dollars
to reduce the cost of the downpayment, but they have
flexibility in the use of these dollars, so that they can use
it any number of ways. They have the handy-person program to
fix up the homes. They have other kinds of things that they do.
We do not want to limit that flexibility and we want to
encourage them to keep on doing what they are doing. Again, if
you want a program that is basically going to be a duplication
of something that is already going on, you have got to get more
money and not rob from Peter to pay Paul.
So I welcome your comments and your thoughts about it. I am
delighted that you are here. I know that you have got your
hands full. We do not make it any easier for you, but it comes
with the territory. I thank you for being here today.
Secretary Martinez. Thank you.
Ms. Waters. You are welcome.
Chairman Ney. I want to thank the gentlelady, the ranking
member, for her comments.
The gentleman from Arizona.
Mr. Renzi. Thank you, Mr. Chairman. Good to see you again,
Mr. Secretary.
I want to compliment my colleague from Florida for helping
develop this legislation which I think is a major step in
reaching so many of the low-income prospective homebuyers and
allowing Americans to achieve that American dream and find
security in their neighborhoods. You look at the root of our
society, it is about family and homes and community first, and
then we build up from there and becomes states and a nation. So
thank you for going to the root of what makes us a nation.
I want to thank you for coming to Arizona. You came at a
time when many of the people in our community down in the Casa
Grande area, many of our Hispanics, our native Americans were
worried about their own ability to achieve and get loans. I
wanted to ask you, would you be able to see or foresee in the
future through this work and similar legislation, if we are
going to be able to have the downpayment apply to the old FHA
235 program, which, you know, when I was just out of college
with a bunch of kids, I got an FHA 235 program; bought a home.
I eventually borrowed against the home and started my first
business and eventually employed several Arizonans. So it is
through home ownership and being able to leverage that home
ownership with the equity in there that I was able to create a
small business and eventually be fortunate enough to serve
here.
So would we be able, do you think, to use the downpayment
program in some of the specialty programs, or would it have to
be traditional mortgages?
Secretary Martinez. No, sir. They would be available for
all types of arrangements and opportunities. It would be in
combination with everything else that is available in the
assistance for families who want to reach home ownership. So it
would not be instead of, but it would be in addition to all of
the other available programs.
Mr. Renzi. So we here we have a means to provide over $200
million.
Secretary Martinez. Of new money, by the way.
Mr. Renzi. New money.
Secretary Martinez. It is totally new money.
Mr. Renzi. Right. In addition to $200 million of new
money----
Secretary Martinez. Absolutely; totally.
Ms. Waters. Would the gentleman yield?
Mr. Renzi. I would be happy to yield.
Ms. Waters. We need to straighten this point out. Wait just
a minute. We did not see this new money in the budget.
Secretary Martinez. It is absolutely in the budget. It is
$200 million of new money. It does not take one dime from
current HOME allocations, but it is totally a new money
program. It is $75 million in the 2003 budget. Our request at
that time was $200 million. This time, our request again is
$200 million, even though only $75 million was funded in 2003.
Every dime of that money is new dollars; totally.
Chairman Ney. We have 10 seconds remaining. Very
interesting Q&A on opening statement, but that is good.
[Laughter.]
Maybe it is a new approach we will take. We can get more
done.
Secretary Martinez. I just did not want to lose the
opportunity to clarify what I think is a very important point.
Chairman Ney. It was entertaining. I thank the gentleman
from Arizona.
The gentleman from North Carolina.
Mr. Miller. Thank you, Mr. Chairman.
I also agree wholeheartedly with the purpose of this
legislation. Homeownership is a huge step into the middle class
for a lot of low-income families. It is the most important
investment most American families will ever make, and I
certainly want to help make homeownership available for lower
income families. My only concern is the one that we dwelt on
already, but I would like to continue to dwell on it, and that
is the importance of this being new money; that this was not
going to be another shoe that drops later on whether in this
budget or the next budget or the year after, that there will
not be another instance of a working program being cut back or
even eliminated to create a block grant program with less
money.
I have very much enjoyed the discussion so far. I have
heard the phrase ``totally new money'' and ``every dime of new
money'' about 15 times in a 30-second period. I was very
pleased to hear that. If the rest of today's hearing continues
in that pace, it would be a wonderful afternoon.
Thank you, Mr. Chairman.
Chairman Ney. I thank the gentleman.
Now, the gentleman from Georgia.
Mr. Scott. Thank you very much, Mr. Chairman. I certainly
appreciate this opportunity and am delighted to be a cosponsor
of this legislation, along with my colleague from Florida,
Katherine Harris. It is certainly a delight working with her on
this and I commend her for providing leadership on this
important issue.
I want to thank the distinguished panel of witnesses that
are before us today, and certainly Secretary Martinez, thank
you for coming before this committee. I signed on to cosponsor
H.R. 1276 because we have to eliminate barriers to
homeownership for low-income families. The most recent issue of
Business Week highlights a new Ohio state study that says
homeownership helps boost school achievement and reduce
behavioral problems of students, compared to those children who
live in rental units. The barriers to minority homeownershp
study that was recently done by your organization, HUD, pointed
out some very, very startling facts.
Your study showed that the nation's overall homeownership
rate is 68 percent. However, the homeownership rate for African
Americans, Hispanics and other non-Hispanic minorities is only
49 percent. Between 1994 and 2001, the gap between these two
homeownership rates has only narrowed by just 1.5 percentage
points. There is something very morally wrong with that. The
report concluded that if this persistent gap in minority
homeownership is to be substantially narrowed, then the
structural barriers to homeownership, particularly lack of
capital for downpayment and closing costs must be eliminated.
In addition to helping more families own their homes, this
proposal is also expected to strengthen communities by
enlarging the number of stakeholders and thereby stabilizing
and revitalizing our neighborhoods. Nearly half of all minority
children are missing out in the benefits of living in a more
structured home environment. These are underpinnings in our
society that could be devastating for the future of our nation.
In addition to providing downpayment assistance, we also must
educate consumers to help prevent predatory lending practices
and provide continued homeowner counseling.
I certainly look forward to hearing from you on these
issues and the panel. They are very important issues. I also
want to ask you to, if we can find time, I too want to stress
the importance of why we are in the faith-based initiatives--
doing away with the protections against discrimination. We held
a hearing and you were not there. I understand you had other
pressing matters. But I do hope that you may find a way while
you are here, because I would like to know why, and certainly
hope we will be allowed to do that.
One other point I do want to make while I am here, and I
will finish this opening statement, is that I would also like
to again impress upon you the importance of maintaining and
helping us to revitalize HOPE Six.
Thank you very much.
Chairman Ney. I thank the gentleman.
The gentleman from California.
Mr. Miller. Thank you, Mr. Chairman.
I agree with a lot of what the previous speaker had to say.
In fact, I think our housing market tends to discriminate
against everybody who wants entry-level housing. It goes beyond
race. The entire system, specifically in California, is anti-
opportunity for individuals who want to own a home. I have a
friend who has a nonprofit. It is called Heart, in Rancho
Cucamonga, California. Since 1998, they have given downpayments
to 40,000 families. Many of these families might be just a
mother with children, people who have never been in a home
before, just to help individuals overcome the obstacles of
downpayments that they generally do not have, and closing
costs, which are a major issue in this country.
In this committee, we talk about a lot of things that are
important and a lot of things that are good, but in many ways
we only scratch at the problem that people face in this country
trying to gain the principles and the concept of homeownership.
I was a developer for over 30 years, and many of my good
friends are developers today. The largest obstacle that they
face today trying to provide affordable housing is government.
It is really sad because many things we do, they sound good,
they feel good, we hug each other and pat each other on the
back when we get through doing it, and when you place that law
into reality, it just stifles the private sector.
A lot of things that we should do, I think we fail to do.
We look at Section 8 vouchers, and I agree there is absolute
need for Section 8 housing in this country, but the problem is
we have no where for people to move out of Section 8 housing
into because there is no affordable move-up market beyond
Section 8, because the jump is so dramatic in many cases that
when we get people into Section 8, they are relegated to that
almost forever, because they have no place to move to. If we
are ever going to be able to provide entry-level affordable
housing in this country, we have to look to the next level of
marketplace and try to figure out how to make that affordable
also. That is a goal I have had.
I have been very involved in the endangered species act and
many other issues out there that I believe are just breaking
the back of industry when they try to apply affordable housing
in reality rather than in concept. I have been looking at
predatory lending in previous years and I believe predatory
lending is an abhorrent process, but I think we need to be very
cautious not to mix sub-prime with predatory, because there is
a sub-prime market that there is a huge need for and a demand
for. If we start blurring the concept of predatory and sub-
prime, I believe we can hurt people that we are genuinely
trying and attempting to help.
I am looking forward, Mr. Secretary, to your presentation
today at this hearing, and I commend the chairman for offering
us this opportunity.
Thank you and I yield back the balance of my time.
Chairman Ney. I thank the gentleman.
The gentleman from Alabama.
Mr. Davis. Thank you, Mr. Chairman. Mr. Secretary, good
afternoon to you.
Let me say at the outset that I am one of the 35 cosponsors
of this legislation. In that spirit, let me thank my friend,
the gentlelady from Florida for her leadership. One of the
happy things about this job is that we occasionally do get to
reach across the aisle and form a bipartisan alliance. We do
not get to do it every day. The nature of the institution is
that we should not do it every day, but occasionally we do get
to do it. If I can pause on this for just a moment, I do not
think there is any member of this House of Representatives who
frankly has probably been over the course of the last several
years victimized more by the ugly side of bipartisanship than
my friend from Florida. It is a compliment to her. It is a
compliment to her spirit that she has chosen this issue as one
of the first statements that she makes as a member of Congress,
one of the first pieces of legislation that she introduces. It
is also a testament to the fact that sometimes you have to look
beyond the labels in this city. So Ms. Harris, I thank you for
your leadership.
Let me welcome my friend Rob Couch from the New South
Federal Savings Bank. I have to always look down to remember
the name of the bank, Rob, but there is no more outstanding
bank CO in the country and I am honored to have him here today.
His bank has played a significant role in the city of
Birmingham in this very area of finding ways to expand
homeownership, finding ways to expand what I think all of us
view as being a major corner of the American dream.
Let me make these general points to you, Mr. Secretary. The
bipartisanship that has allowed this legislation to come to
fruition and the bipartisanship that I think will result from
this legislation becoming law in several weeks ought to be a
hallmark for what we can do in these areas. I am struck as I
have attended a number of these hearings how many of us across
the aisle agree on Hope Six; how many of us across the aisle
agree on Section 8; how many of us across the aisle agree that
if we can find ways, frankly, to expand housing, that we are
giving people a chance to climb the economic ladder. There is
nothing more important in this country right now.
I would encourage you and the president to take that spirit
of bipartisanship into account as this budget winds its way
through its final stages and to take it into account as you
formulate housing policy. There is a very broad consensus on
this issue. It reaches across party lines and this hearing
ought to be an example of that to you.
I yield back the balance of my time.
Chairman Ney. I thank the distinguished gentleman for his
statement.
Mr. Secretary, welcome.
I am sorry. I did not see the gentlelady from New York.
Ms. Velazquez. Thank you, Mr. Chairman. I welcome the
Secretary to these important hearings.
I just would like to say that it is important that we
realize downpayment assistance is not a silver bullet. It is
but one piece of the puzzle of increasing minority
homeownership rates. Studies and anecdotal evidence both
indicate that there are several additional barriers that we
must confront. Minority borrowers are also more likely to face
a lack of access to credit and poor credit histories; a lack of
understanding and availability of information about the
homebuying process; and continued housing discrimination. Many
low-income and minority communities do not have local access to
commercial bank branches. This severely limits access to
lenders and increases the possibility of families not having
traditional banking services.
Accordingly, many potential low-income homebuyers have not
established credit or maintained a good credit history.
Families with poor credit history are either rejected for
mortgage credit or given loans with high interest rates.
Additionally, homebuyers who do not understand the homebuying
process or for whom English is a second language, are less
likely to be successful in their search for a home of their
own. Worst still, those who achieve homeownership are more
likely to be victims of predatory lending, thereby increasing
the chances of foreclosure. It is not enough to increase the
number of minority families who achieve homeownership. They
must have equal opportunity to maintain that status.
Thank you, Mr. Chairman.
Chairman Ney. I want to thank the gentlelady.
The gentlelady from Indiana, for an opening statement if
you wish?
Ms. Carson. I have a little opening statement here. Is
anybody after me, Mr. Chairman?
Chairman Ney. No.
Ms. Carson. That I could yield the balance of my time to?
Chairman Ney. If the gentlelady wishes.
Ms. Carson. Well, nevertheless, I got a bad book, but I
want to thank you very much for coming and for the work that
you continue to do to enable us to do our work here. Having
said that, Mr. Chairman, I will yield back.
Chairman Ney. I thank the gentlelady from Indiana.
With that, Mr. Secretary?
STATEMENT OF HON. MEL MARTINEZ, SECRETARY, DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
Secretary Martinez. Thank you very much, Mr. Chairman.
Chairman Ney and Ranking Member Waters and distinguished
members of the committee, it is a real pleasure to be with you
today to discuss this very powerful initiative. I am also
delighted to be enjoying this sense of bipartisanship. I have
always felt that much of the work that HUD does is a bipartisan
effort and I think it is something that can best be
accomplished when we all work together across party lines to
help Americans of all walks of life to reach that American
dream of homeownership and better housing.
I want to thank Congresswoman Harris for introducing the
legislation, H.R. 1276. It already has, as we see here today, a
number of cosponsors, and we look forward upon clarifying some
of the perhaps misconceptions from the bill, that we might even
have more participants and sponsorship of what I believe will
be a real positive piece of legislation. We know that
homeownership is a cornerstone of the American dream. The
president has acknowledged this, and from early on in our
administration we have been pursuing this American dream
downpayment initiative as being a hallmark and a cornerstone of
what can help more and more American families own a home.
As has been pointed out by some members of the committee,
homeownership can provide families with the kind of wealth, the
kind of family self-empowerment that can then propel a family
into the middle class. It can allow someone to borrow against
that home equity to start a business; it can send a child to
college; or it can simply be passed on to another generation
who can then begin life in a little better shape than the prior
generation. All of these benefits which come to American
families as a result of the dream of homeownership are well
recognized and well acknowledged.
So we believe that as we seek to break down the barriers to
the dream of homeownership, one of the most important things we
can do is to give people a chance to become homeowners by
helping with the downpayment. There is no question that a high
downpayment and the closing costs that go with it is one of the
most difficult steps that a family will find in reaching that
dream of homeownership. Coming up with enough cash to pay the
up-front costs of homeownership is often the single greatest
barrier to buying a home. In Fannie Mae's 2002 national housing
survey, a high downpayment was the barrier most frequently
cited by those polled. Thirty-two percent of Americans said
they would have a major difficulty making a downpayment. The
lack of savings is a problem for many lower income and minority
families. Oftentimes, the transfer of family assets from
parents to their children can mean the difference on whether a
family can buy a home. These intergenerational wealth transfers
serve as a boost to homeownership by helping many younger
families afford their first home.
In many cases, however, lower income and minority families
simply lack the accumulated wealth that can provide for a
downpayment and closing costs. To help families overcome this
barrier to homeownership, the Administration proposed the
American Dream Downpayment Initiative for fiscal year 2002 and
is asking Congress to boost its funding level to $200 million
for fiscal year 2004. The president's commitment to lifting
families into homeownership through downpayment assistance
dates back to his campaign in the year 2000. The American Dream
Downpayment Initiative fulfills one of his longstanding housing
goals. The initiative is housed within the home investment
partnership program, which helps communities across the country
expand the supply of decent and affordable housing.
Although the initiative is administered through HOME, I
want to make it clear to the subcommittee that the dollar
funding is not being taken away from any current HOME-funded
programs. The American Dream Downpayment Initiative is funded
through dedicated new dollars. Grants will be awarded to state
and local governments to assist low-income first-time
homebuyers with their closing costs and downpayments. To
receive assistance, a family must have an annual income that
does not exceed 80 percent of the median annual income. We
anticipate that the initiative will help make homeownership a
reality for some 40,000 American families, and this is year to
year, providing an average subsidy of $5,000 per family.
Although the American Dream Downpayment Initiative is not
targeted specifically at minorities, we believe that it will be
particularly effective at reaching minority populations, based
upon the history of the HOME program. The HOME program today
serves 55 percent of all the families that are served are from
minority communities.
Congress appropriated $75 million for the American Dream
Downpayment Initiative for the current fiscal year. We thank
the Congress for doing so. As a result of your support, 15,000
families who have perhaps only dreamed of homeownership, will
soon have homes of their own. We expect to complete the
rulemaking process within the next few months, and have the
entire $75 million appropriation delivered by the end of fiscal
year 2003.
So I want to make it very clear that the $200 million is
all new money. The HOME program, in addition to the $200
million of American Dream Downpayment assistance, has an
increase in this year's budget of $113 million. So we are
seeing an increase in HOME program of $113 million over and
above the $200 million which we are asking as a separate item
for the American Dream Downpayment Initiative. So none of these
monies are coming from another HOME program or are being sifted
out from anything that HOME does currently. This is not a set-
aside within the HOME program. It is going to be the
opportunity for this program to run alone. It also does not
interfere or conflict with current things that HOME does or
with CDBG dollars and the continued flexibility of the HOME
program will continue to be visited in the way this program is
administered.
We believe, as I know many others do, that self-sufficiency
can come through homeownership and increase wealth for
families. I know that the Congressional Black Caucus is very
committed to the WOW initiative, with homeownership wealth, and
I can heartily endorse that. As you know, I have in the past
been supportive of that program. We believe that in order for
families to fulfill their opportunity to live the American
dream that this is a wonderful way in which to do so. It is not
a silver bullet. It is not the only answer. It is just one of
many measures that we believe are important in order for us to
help families fulfill that dream.
If I might, Mr. Chairman, just digress for one second on a
separate item which has come up a couple of times on the issue
of the faith-based and the issue of civil rights protections.
Let me say that I am not aware, although I think there is maybe
some misunderstanding, but I am not aware of anything in our
rulemaking approach to the faith-based situation in which we
are attempting to change any of the civil rights protections as
I understand them to be available to all Americans. So I would
look forward to discussing that more thoroughly with any of you
that might be interested on an individual or collective basis.
But I assure you that I am not interested, and I believe this
administration is not interested in utilizing what is a very
good concept, the faith-based initiative, to in any way abridge
civil rights protections.
[The prepared statement of Hon. Mel Martinez can be found
on page 84 in the appendix.]
Chairman Ney. I thank the Secretary for his time and his
testimony.
The question I wanted to start with, and this has come up
several times, I know, to you and in phone calls today to our
office some people asked questions about this general
direction. Is the money for the New American Dream Downpayment
fund new money? As you know, people have expressed concerns
that the money for the downpayment program will be subtracted
from the current HOME program. We have already discussed that a
little bit today. So I just though for the record and one more
clarification statement, you might want to address, and can you
assure us that the money will not be taken from the existing
HOME program to pay for the new program?
Secretary Martinez. The best evidence I can give you of
that is not only to say that you are correct, it is not going
to be taken from anything else--just to be very, very clear--
but in addition to that, the HOME program is increasing this
year by $113 million. So everything HOME has done in the past
we will continue to do, only that it will be enhanced by $113
million or 5 percent additional new dollars. Over and above
that, we are asking for $200 million, which if it was not for
this very important initiative of President Bush's which goes
back to his campaign pledges, would just simply not be part of
the HUD budget. So this is all new money which will only be
available to administer the American Dream Downpayment
Initiative.
Chairman Ney. So, Mr. Secretary, it is not a set-aside?
Secretary Martinez. It is not a set-aside.
Chairman Ney. Okay. I would also want to ask you, any ideas
of what type of approach you would take on outreach to get the
message out on this if it is passed?
Secretary Martinez. One component part of our broad-range
set of initiatives to achieve homeownerships goals that we have
set is to also do homeownership education. Our budget this year
has a record number of dollars that we are asking for
homeownership education--$45 million. It is the most that has
ever gone into this arena and it is substantially more than
what it was when we began our work in this administration. That
money, along with other purposes and efforts, will attempt to
reach out to families and explain to them that they, too, can
be homeowners; that in fact, there are ways to get assistance
with the downpayment; that in fact there are ways to help them
with their credit history; there are ways to find a vehicle by
which they can become homeowners. And then stay with the family
and continue to give them the support and counseling that is
necessary to ensure that they can be stable homeowners.
Chairman Ney. Thank you, Secretary.
The last question I had is, you mention in your testimony
there was $75 million included, and therefore you are
completing a rule.
Secretary Martinez. Correct.
Chairman Ney. Now, in that rule, as I understand it, the
Department would be using only HOME and CDBG as the criteria.
Is that accurate?
Secretary Martinez. The current formula that we are working
on, a rule which by the way we hope to have out this summer to
ensure that it gets out the door timely, is a formula that will
be based on the same basis as the regular HOME program formula,
which is used to establish a need component and determines most
of the participating jurisdiction allocations under the
American Dream Downpayment Initiative.
Chairman Ney. The reason I mention it, I just wondered if
in this process, and I understand you are looking at HOME and
CDBG, but in this process, would there also be an effort to be
able to look at, for instance, to just throw one item out
there, mortgage revenue bonds? I am just wondering what
flexibility would be there. I do understand part of an argument
that would be, if something does not have a certain verifiable
track record, that would create a problem. But I just wondered
if you thought at this point in time in the process it will be
just CDBG and HOME, or if there would be an opportunity to look
at other things?
Secretary Martinez. We understand that there are a number
of other things out there that folks are doing that are good
things. The problem at this current moment in time is that we
do not have the availability of reliable data to be able to
utilize it in this year's formulation. As we go forward, we
look forward to finding a good tracking of other things that
are being done so that we can incorporate those things into the
formula. We just do not think that we can accomplish that in
this initial year with the $75 million, which we almost feel is
like a pilot sort of program.
Chairman Ney. I understand. Thank you.
Ranking Member Waters?
Ms. Waters. Thank you very much.
Mr. Secretary, I know that your intentions are good. The
bill certainly does not clarify that there will be new money. I
take your word for it that there will be new money in this
program and that the HOME budget is not being reduced in any
way to account for this new money.
Let me just say this, there is an obvious need for
homeownership and downpayments certainly are obstacles to
homeownership. There are any number of programs that provide
homeownership downpayment assistance that are already in
government--Fanny Mae, Freddie Mac, all of that. I have not
done enough research to understand how many people they are
helping and how those programs are doing. I know that when you
take a look at the need, you mention and you agree that $75
million is just a drop in the bucket and $200 million is not an
awful lot either, dealing with the size of this country and the
need that we have.
I look at these programs this way. What I do not
particularly like is, I do not like a kind of political
response with a nice name to a serious problem. I do not like
programs that basically put the right title on it, and then you
have nothing else to go with it. For example, I could sit here
for the next 10 or 15 minutes and talk about what it takes to
get somebody into a home. It has been mentioned here. It is not
just a $5,000 downpayment or $10,000, we really do believe that
there is something to dealing with the lack of access to credit
to begin with. In this kind of program, what you will get is
you will get the cream of the crop, people who can qualify
without a lot of help, and they will be credit-worthy or
whatever you want to call it, and they will get their $5,000 or
$10,000. Our problem really lies with a lot of what Nydia
Velazquez talked about--access to credit and a lot of other
things.
Again, and I want to tell you, in addition to all those
problems, the need for counseling, the need for education--all
of that that is not designed within this program--this is a
very simplistic way of looking at it. I think if you want to do
something comprehensive, that we certainly should have a real
comprehensive program of assistance to get people into homes
that would include not only the counseling and the education
and the access to credit problems and the red-lining and the
predator lending and all of that that goes along with it. But
we would also include the private sector. The federal
government will never be able to have enough downpayments to
make a dent. Hopefully, some people will be able to be helped;
a few people will be able to be helped. But it seems to me if
we couple this with a way by which we encourage the private
sector to come up with products, and we have. The chairman and
I were just sitting here talking about how some people can get
mortgage assistance without downpayments depending on the
institutions and who you are when you talk to them and all of
that. Then I think that if we get the private sector involved,
then it becomes a product that is offered, that is used, where
people evaluate it in ways that they can get no downpayments, I
think we really would be doing something.
I want to tell you something, when you look at the
philosophy behind why downpayments, it just does not make any
sense anymore. It used to mean that you were more worthy; that
if you somehow put up a little bit more money, then you are
likely to make your payments. Not true. The fact of the matter
is there are people who will never have a downpayment, who make
their rental payments every month on time, and they would be
just fine if they could get a product that could be offered to
them by the people who really do the financing, who do the
mortgages.
So all I am saying to you is this, fine. This is a nice
program with a nice name and it looks very, very good. It is a
drop in the bucket compared to the need and it does not have
going along with it the other kinds of things to make for
successful homebuyers that will keep people from being
foreclosed on. But I thank you for your effort.
Thank you.
Secretary Martinez. May I reply please?
Ms. Harris. [Presiding.] Yes. Her time is up, but please go
ahead and reply, Mr. Secretary.
Secretary Martinez. Ranking Member Waters, I appreciate
what you are saying and I agree with you wholeheartedly, that a
fancy name and a do-nothing program is not anything that I am
interested in doing. That is why that is not what we are doing.
We are doing a comprehensive program just as you described. We
do have a partnership with the private sector just as you
describe. We have another fancy name for it. We call it the
Blueprint for the American Dream Partnership. We had a White
House conference in October to launch this effort with the
president participating and endorsing it and giving it his
commitment. What we have done is, we have done exactly what you
are suggesting. We are reaching out to the private sector, to
mortgage bankers, to Fannie Mae, to Freddie Mac, to the
realtors, to the homebuilders, to everyone involved in the
housing process to reach out to them and get them all to begin
to do things that are going to be meaningful and that are going
to bring more and more families into homeownership.
This drop in the bucket program will not be just a drop in
the bucket to the 40,000 Americans who will now own a home
because they will get downpayment assistance. To them, it is
the world, it is everything.
Ms. Waters. Will the gentleman yield?
Ms. Harris. Your time has expired.
Ms. Waters. My time is over.
Secretary Martinez. In addition to that, I think you
diminish the importance of all that we are doing, because it is
not just about a downpayment program. This is what this bill is
about. It is what this hearing is about. All of our programs
are comprehensive in nature. They attempt to do more
availability of affordable housing, for instance, through the
single family housing tax credit proposal that is a part of
this year's budget. So we are reaching out, I believe, in a
very comprehensive way that I believe does in fact go to the
poor families of America--52 percent of the recipients of this
downpayment assistance will have a median income of less than
60 percent. I believe that it is significant in terms of the
type of Americans that it will be reaching out to.
So I would not want to be sounding too defensive about it,
but I do think that it is important that at least we set the
record straight. Besides that, I want to just tell you that in
terms of assurance to you that this is new money and it is not
going to come from existing HOME program, the best I can give
you is the president's budget submission where this is included
in that. I believe the budget documents submitted by the
president to the Congress clearly delineates how much the HOME
program is getting and over and above that, there is $200
million for the American Dream downpayment.
I hope that not only will we have your enthusiastic support
for this effort, but that I might even see you as a sponsor of
the bill.
Ms. Harris. Thank you, Mr. Secretary.
Ms. Waters. If you had invited me to the White House
conference that you all had; if you invite the co-authors who
are Democrats----
Secretary Martinez. Would you come?
Ms. Harris. Thank you, Secretary. Thank you.
Ms. Waters. We may have something going, then I would know
what you know.
Secretary Martinez. You have a standing invitation. I will
see to it.
Ms. Harris. I will recognize myself since I am next.
Thank you, and for the ranking member, I thank you for
those questions. Secretary Martinez, I am thrilled to know some
of the more expansive role that you are playing and the White
House. I think it is important to know the context of the
American Dream Downpayment Act.
Now that we have seen that it is going to be new money and
we are really focusing on some of the educational aspects as
well, and the 80,000 people that it will assist--families. We
think that it is so important. Can you highlight three things
for me that you believe in your own words will occur?: Number
one, the wealth that you believe will be generated through this
homeownership act; second, how you see the move from Section 8
into that personal homeownership; and then third, how you see
it bolstering our nation's housing industry and expanding the
tax base.
Secretary Martinez. Let me touch on that third issue,
because frankly we have dwelt on the other two a little bit
already, but I want to make sure that I hit on that third
before I might forget my train of thought.
We believe that by increasing the ranks of homeowners in
America by 5.5 million minority families between now and the
end of the decade, which is part of what this effort here is
about, that is what the American Dream Downpayment Initiative
will help to do, that we will generate $256 billion of economic
activity. So while we see the housing industry today as one of
the strongest if not the strongest segment of our economy, in
what is we know a bumpy economic time, we look forward to the
American Dream Downpayment Initiative playing a part in this
overall effort to improve America's families, while at the same
time providing a tremendous economic boost of $256 billion.
Now, in terms of Section 8 families, we see there a group
of people who have been under rental subsidy programs, but now
have a couple of avenues in which to get themselves into
homeownership and begin to build the kind of equity that we
will talk about in a moment as well. These families now have a
vehicle of accumulating their Section 8 vouchers towards a
downpayment, but in addition to that, they also can get
assistance from the American Dream Downpayment Initiative so
that they can at times, for no more than they are paying for
rent, be able to reach into the homeownership ranks and begin
to build the kind of family wealth that the first part of your
question implies, which is the fact that the way middle class
America has reached financial self-sufficiency has been in
large part through homeownership. Long before there were
retirement accounts and long before the average American family
found investment in the stock market, the only and the real way
in which America's families became self-sufficient economically
was through the equity in their home. This is what I want to
see and what the president is seeking to bring about for 5.5
million more minority families.
Ms. Harris. Thank you, Secretary.
I recognize Mr. Scott from Georgia.
Mr. Scott. Yes, thank you very much.
Mr. Secretary, bad credit scores are also a major barrier
to homeownership. What steps do you recommend to educate
potential homebuyers in order to improve their credit scores?
Secretary Martinez. Sir, I think that through our
homeownership education programs, a lot of organizations in our
communities, whether they be faith-based or otherwise, are
working with families to try to improve their credit history.
Many times we find that there is also the, and this month we
are celebrating fair housing month, where we focus and
emphasize in our department the historic ties to the Equal
Housing Act of 1965 and the fact that through this act, we
began to be empowered at HUD to ensure that all Americans had a
fair opportunity in the arena of housing.
One of the things that we must look at is how difficult
sometimes it is for families with atypical credit histories to
get access to credit and how they might sometimes be treated
differently just because the way their earnings are reported,
because of perhaps coming from another place in our planet or
things of that nature. In addition to that, we also have to
work with families to improve their credit scores.
Homeownership education, the $45 million that we have in our
budget, will assist in doing so.
So we look at it, again, comprehensively. It is not just
about improving credit scores by education, by teaching
families how to better order their finances or how to erase a
past credit history, but also through, frankly, the problems of
discrimination which while obnoxious and part of our history,
are also really part of our present as well, and we need to
continue to work hard to ensure that that is not a problem that
is keeping families from becoming homeowners.
Mr. Scott. And just a second part of my question is that,
given now that the average interest rates on a fixed-rate 30-
year mortgage are at a 30-year low, as it is right now, do you
believe that this is the most important or opportune time to
provide some downpayment assistance to low-income families?
Secretary Martinez. With the low interest rates, obviously
the monthly payment becomes less and less of a burden, but
there still are those insurmountable downpayment and closing
costs. So precisely, this is a time when a shot in the arm with
downpayment help of $5,000 to a family, in addition to what
they can save themselves, would make a big difference. So I
believe that the downpayment issue, which frankly I do not
think is just an issue of ensuring that it is a better credit
or more worthy individual. I think it is in fact a partnership
that financial institutions like to see. They like to see their
investment be equally an investment to the homeowner. So
building an equity interest in a home at the time of ownership
is an important component.
So we want to see families give a little something of
themselves, but we want to be able to also give them that
bridging to homeownership. Never has there been an opportune
moment, or certainly not in the past 30 years, like there is
today.
Mr. Scott. Very good. Thank you, sir.
Secretary Martinez. Thank you for your question.
Ms. Harris. Thank you.
The chair recognizes Mr. Renzi, the gentleman from Arizona.
Mr. Renzi. Thank you, Madam Chair.
I want to point out to the gentlelady from California that
it might help. On page four, line 19, the legislation itself
authorizes $200 million in the language for fiscal years 2004
and 2005. In moving this out of committee and onto the floor,
we would actually be authorizing the appropriation of the $200
million and that you do not need just to refer to the
president's budget, but you can refer to the actual language to
get this done.
I want to go back to my opening statement where we talked a
little bit about the low-income assistance program that helped
me get to Congress. I remember back to the days of the FHA-235,
and we talked about some of the other types of programs that
exist out there for low-income, underprivileged, strong,
growing Americans to be able to reach out, get those programs
and gain homeownership. I am not aware of a program that was
developed for low-income prospective buyers that allows you now
to put another program on top of it and provide you with a
downpayment. Now, that does not mean that they not out there,
but for me what it says is you are getting something on sale
and you are getting the coupon to go with it, almost double
off. That kind of incentive, along with the historical low
interest rates that my friend from Georgia talked about, I
think that combines to make this an incredible time and an
incredible opportunity.
One of the questions that I have is when we talk about some
of the old FHA programs, when we talk about some of the new
incentive-type low-income programs, I know that I was able to
achieve not only homeownership, but borrowing against my home
to build my business on a second mortgage. I realize looking at
the language of the bill that the eligibility would now allow
for you to borrow the downpayment or get the downpayment from
this program and apply it to a second mortgage. Am I correct in
that assumption?
Secretary Martinez. I believe that you could ultimately get
a second mortgage on your home. You could not at the outset
have--I mean, the downpayment assistance program would be
independent of whatever you might do with your mortgage.
Mr. Renzi. Okay. So the downpayment assistance program
would apply to the principal purchase of the home.
Secretary Martinez. That is correct. Then later on----
Mr. Renzi. Then later on once you have the equity, you
could borrow against it.
Secretary Martinez. Right.
Mr. Renzi. Okay. It is that second mortgage, borrowing
against that equity, that then I think lifts individuals to the
next level.
Secretary Martinez. You have to have a margin of equity
before you can do that, but at that time, yes, I think that
would be permissible under the program.
Mr. Renzi. Is that something that we are thinking about in
the future, where we would actually develop programs to assist
with second mortgages. I realize, as the gentlelady from
California pointed out, we have so many people who need first
mortgages.
Secretary Martinez. I think the marketplace would
accommodate that. I do not think that we would need a
government program. I think that the marketplace would probably
pick that up because at that point the collateral for the loan
would be sufficiently secure with the equity in the home. We
might defer to our banking friend visiting here today from
Alabama for that answer, but I think that that would be the
case.
Mr. Renzi. Okay. Thank you, Mr. Secretary.
Secretary Martinez. Yes, sir.
Ms. Harris. The chair recognizes Mrs. Lee from California.
Ms. Lee. Thank you, Madam Chair. Let me thank you and our
ranking member for this hearing, and I thank the Secretary for
being here.
I want to ask you a couple of questions. I think our
ranking member, Congresswoman Waters, really summarized the
complexity and the multi-faceted approach that is required to
increase homeownership. One is, of course, the development of a
production program to increase the stock of affordable homes.
Of course, we are working to create a national housing trust
fund and would like to get your take on if that would or would
not be useful in terms of creating homeownership.
Secondly, let me ask you about a point you made in your
statement. Yes, $75 million was a drop in the bucket, however
you note that 15,000 families have participated. I would like
to find out of those 15,000 families what you are seeing in
terms of Northern California, the State of California,
Massachusetts, New York, because of course in many of our
areas, a $5,000 downpayment when the average cost of a home is
$400,000, $450,000, average income $35,000 to $50,000--how do
these 15,000 families break down in terms of where they are
located and what in fact is HUD doing to ensure that the
affordability gap is addressed between income and cost of
housing?
Secretary Martinez. First of all, our rulemaking is still
in process and the monies have not begun to go out yet, but
they will go out in accordance with the formula, which formula
is dictated in large measure by population. So to whatever
degree your state, your district today receives HOME dollars,
there will be a very close parallel to what they will receive
in their proportionate share of the $75 million in this year's
allocation or the $200 million in the future.
Ms. Lee. But Mr. Secretary, though, a $5,000 downpayment--
what I want to know is, even based on the formula we receive,
whatever funding allocation that there is based on the average
cost of a home, a two-bedroom house being over $400,000 and the
average income $35-50,000, how does this $5,000 address that
gap?
Secretary Martinez. It would have to do it in conjunction
with the other aspect of the HOME program and the CDBG program,
which then--the HOME program, we have $2.2 billion, I believe
if my memory serves me correctly, going out this year, with a 5
percent increase of $113 million. That will go towards creating
more affordable housing opportunities throughout the country,
so then your local jurisdiction would have whatever programs
they use their HOME dollars currently for in order to provide a
stock of affordable housing that families then could go to and
use their downpayment.
Ms. Lee. Is that in the bill? Because--and the same thing
with CDBGs, that is not on the chopping block this year at all?
You are fully funding that?
Secretary Martinez. Yes. CDBG and HOME is full funding.
Ms. Lee. Is it authorized?
Secretary Martinez. Of course.
Ms. Lee. Have you reauthorized it or sent up a proposal?
Secretary Martinez. CDBG, of course it is, yes.
Ms. Lee. And it is reauthorized?
Secretary Martinez. Reauthorized and fully funded, and HOME
is reauthorized and will receive an increase of 5 percent or
$113 million new money.
Ms. Lee. So for example, if a person finds a house in any
of our areas and they do not qualify, the average downpayment
would be--they do not qualify in terms of income--average
downpayment is at least $25,000 to $30,000. You are saying they
can piece together that $25,000 to $30,000 to be able to
participate in this and to get the downpayment for a $450,000
house?
Secretary Martinez. What I am saying to you is that in your
local jurisdiction, you now receive HOME dollars. HOME
investment and partnership dollars are designed to provide
affordable housing availability. So whatever they are doing to
provide availability of affordable housing in your community,
that program is there and available. Hopefully, there are homes
that they are putting on the market that are reachable to
families in the area for the type of low and moderate income
that we are looking at.
Ms. Lee. But in most communities in high cost of housing
areas, they are not. And that is what I am asking you. How does
the $5,000 fit into that?
Secretary Martinez. Let me ask my Assistant Secretary, Roy
Bernardi, for Community Planning and Development, and address
that issue more specifically.
Ms. Lee. Thank you.
Mr. Bernardi. Good afternoon, congresswoman. In the fiscal
2003 budget for HOME, the allocation will this year provide
98,000 production units. Of that, the rental units that will be
constructed will be about 42,000; homebuyer units at 37,000,
and homeowner rehabilitated units at 19,000. That is about
98,000 units. As the Secretary was indicating, with the
increase in the HOME allocation for fiscal year 2003, about
$100 million more than fiscal year 2002, and with the 2004
budget that you are going to be looking at from now until
obviously you pass it, there is $113 million increase in the
HOME formula program. Those monies can be used by the
participating jurisdictions obviously to create the kind of
affordable housing, both homeownership and rental housing, that
would be affordable to folks that you mentioned that are
perhaps in the $35,000 to $45,000 a year income range.
Ms. Lee. What I am saying is that the average cost of a
house--are you----
Ms. Harris. Ms. Lee, I am sorry. Your time is up.
Ms. Lee. I will submit the questions to you in writing,
because if the average cost of a house is $450,000, and the
average income it $35-50,000, how does that gap get closed?
Secretary Martinez. By the HOME program building homes,
subsidized homes with assistance from HOME dollars that are not
going to be at the market rate of $400,000. There are going to
be some substantial number below that, so that they are
affordable to poor and low to moderate income families.
Ms. Harris. Thank you, Secretary. Ms. Lee, if you could
follow-up with some written questions, that would be great. We
will get those answers for you. Thank you, Secretary.
Mr. Miller from California?
Mr. Miller. Thank you very much.
We have been discussing in recent years, and I always
supported the concept of doing anything we can do to get people
out of renting Section 8 homes. That would be, I believe the
president was talking about using housing choice vouchers. If
we can--I do not know how great it is going and I would like to
get an answer--I know we talked about allowing them to have 12
months worth of vouchers they could use towards a downpayment
on a home. I mean, in the long run it seems to make a lot more
sense if we can get people out of Section 8 homes into their
own home, the rent does not increase over the next 20 years.
They have a stable rent if they buy today, where if we keep
them in Section 8 houses, the rent is going to increase every
year for the next 20 years and we relegate those individuals to
Section 8 houses. So how is the--I believe it was called the
housing choice voucher program that is in the budget--how is
that going at this point?
Secretary Martinez. We have a Section 8 voucher for
homeownership program. That program allows the family to
accumulate their vouchers and then put them towards a
downpayment so that they----
Mr. Miller. So they can acquire 12 months and put that
towards the downpayment on a home?
Secretary Martinez. Exactly. And then that gives them--you
see, we are very convinced that in spite of some who may
suggest that this is insignificant, that the greatest single
barrier to homeownership--I mean the facts show it--is the
downpayment. So if you can give a family assistance in getting
that downpayment, they can then more likely than not in many
instances get themselves into homeownership. So the Section 8
move-up opportunities----
Mr. Miller. So the program we were talking about two years
ago has been enacted. They can still use their Section 8
vouchers to make a payment, but that creates a stabilized
payment structure over the 30-year loan or whatever it might
be, instead of having to increase those vouchers yearly as you
have to do in the open market on rentals.
The other question I have is, you have seen an increasing
amount of nonprofits get into buyer downpayment assistance in
recent years. Heart, that I previously mentioned, from 1998,
they started in 1995, but in 1998 they got into downpayment
assistance which provides a buyer with up to $15,000, depending
on the need of the individual. They have put about 40,000
people in new homes in that period from 1998 to date. How does
this program complement the private sector assistance program
that we currently see out there that we are proposing now?
Secretary Martinez. I am sorry, congressman. I lost your
question along the way somewhere.
Mr. Miller. There are numerous nonprofits today that have
started up in recent years to provide downpayment assistance to
homeowners. It is all private sector money. There is no
government involved. We are now creating a government program.
I am asking how that government program complements the private
sector programs that currently exist.
Secretary Martinez. What it does is it creates a larger----
Mr. Miller. I do not want them working against each other.
I would rather see something expand opportunity, rather than
prohibit it.
Secretary Martinez. It does expand opportunity and it is a
flexible program and it will work to enhance those already
existing programs. In fact, some jurisdictions, you will hear
in the next panel I am sure, already utilize HOME dollars
towards the downpayment, which is great. The president's
commitment to homeownership is focused, so therefore we want to
make sure there is at least $200 million going out every year
from every jurisdiction towards the downpayment assistance
program. There are others already doing it. The private sector
is already doing it. Because we know it is the single greatest
key towards putting a family in homeownership. So this is just
a focused program that is going to be there for $200 million
new money just to do that program.
Mr. Miller. HUD's goal I would assume in the future is
talking about the quality nonprofits. I know there are some
rascals out there we need to deal with occasionally. But the
quality nonprofits out there, HUD is working in good
cooperation with them. You and I met about two years ago, and
about three or four years ago we had some problems out of
certain HUD offices, that people would put certain things on
the Internet that caused difficulty for nonprofits when they
went out to get loans to help people. I notice that problem has
been resolved. I applaud you for that. I just hope that the
program being implemented will complement everything that
currently exists to really expand opportunities that we have in
the marketplace.
Secretary Martinez. They will be a partner and an aider;
not to be in any way a competer or a detractor.
Mr. Miller. Thank you, Mr. Secretary.
I yield back.
Ms. Harris. Thank you, Mr. Miller.
Mr. Davis from Alabama?
Mr. Davis. Thank you, Ms. Harris.
Let me, if I can Mr. Secretary, go back to an observation
you made earlier, as I think it is important and I want to make
sure that you are agreeing with me on this. You were making the
point in your colloquy with Ms. Lee about the fact that states
will continue to receive under this initiative the same rough
percentages that they were receiving under the old HOME
initiative. That is an important point, and just to make it
clear to you and to the panel why that is important, there are
some States that have used a lot of the HOME funds for
downpayment assistance. There are other States that have had
the exact same commitment to downpayment assistance, but they
have relied on what Chairman Ney described earlier, the
mortgage revenue bonds or any of a number of other funding
schemes that may be available. Alabama happens to be one of
those states that has not necessarily been heavily relying on
the HOME formulas, but they have used other means, the mortgage
revenues, for example, to meet this commitment.
It has been a concern under one of the subsections, the
formula allocation subsection, that when you go about computing
your new formula under this statute that you will look at,
quote, a participating jurisdiction's need for and prior
commitment to assistance to homeowners. There has been some
concern that if that is measured, as you said in your opening
statement, by what has been spent under the HOME initiative,
that that could actually result in a loss of funding for some
States, Alabama being one of them.
Now, you have said, and I think what you have said has been
sufficient to correct this, that it is the commitment of HUD
and the commitment of the Administration to make sure that the
percentages are kept constant. Is that correct?
Secretary Martinez. It is not only our commitment, it is
what the law will dictate that we do.
Mr. Davis. All right. I would simply ask, and I have
discussed this with Ms. Harris before, but would you be
amenable to a friendly amendment to this legislation that would
just clarify what you have said, that the percentages will be
kept constant so that in an effort to expand we do not end up
unintentionally contracting states like Alabama?
Secretary Martinez. Sir, I would work with you on the
language to make sure that we do not do something that we would
not want to do, but at the same time the concept here is that
this would flow through the HOME dollar formula in a way that
would not diminish what already goes to any given state. So I
would agree to work with you on that.
Mr. Davis. All right. We will certainly do that, because I
think again your commitment is that jurisdictions be rewarded
for engagement in this area and that engagement can obviously
come in different forms.
Let me completely digress because we do not get the benefit
of questioning you every day, so I want to take advantage of
this time and ask you a few other things. I want to go to
something Ms. Waters and Ms. Velazquez said earlier about
discrimination that exists in the housing market that might
obviously lie on top of any economic barriers to obtaining
downpayments. Obviously, as I move around my district,
occasionally I run into people who do not necessarily agree or
do not necessarily understand that there is still current and
present discrimination that goes on. So for the benefit of some
of those folks, Mr. Secretary, would you delineate what you
consider to be the primary types of discrimination that still
go on in a very specific sense so that we can get a better idea
of how we might address some of those things?
Secretary Martinez. I would be happy to have further
information provided to you by our Office of Fair Housing and
Equal Opportunity. Carolyn Peoples, our Assistant Secretary,
would be certainly available to you at any time. But let me
just say clearly that there is discrimination as we speak today
in rental housing. It is more pronounced today and with less
improvement as it relates to Hispanic discrimination than it is
even as to other ethnic or racial groups. In addition to that,
in homeownership there continues to be discrimination. There is
clearly discrimination in the opportunities for credit the
families have. I think what the gentlelady has indicated is the
true fact and the correct fact.
We believe that while, you know, we do our own studies, so
these studies are available to you and we would be happy to
provide them. But without question, there exist problems and
there continues to be a need for us to enforce our fair housing
laws; for us to do outreach and be out there vigilant and
working with community organizations to improve the chances of
families not being victims of discrimination.
Mr. Davis. And let me just ask you this couple of follow-
ups, if I will. Given the fact that we have an acknowledgement
that there is still continuing institutional discrimination in
these areas, give me some specific legislative guidance or give
this committee some specific legislative guidance of where we
might go if we wanted to mount an attack on what you
acknowledge is ongoing discrimination. Is it not pervasive. It
is not everywhere, but exists in some limited pockets. Give me,
based on your expertise as HUD secretary, give me some guidance
on what direction you think we might take, specifically, to
address the problem.
Secretary Martinez. I think in the question of fairness, I
should do it more comprehensively and I think I should have
Carolyn Peoples involved, who is day-to-day charged with this
task. So I would hate to incompletely answer your question. So
I would love an opportunity to sit with you and discuss it.
I think frankly also I have to tell you, a lot of the laws
are already there. What we need is enforcement opportunities
and continued outreach in this area, working through our FIBS
and our FAPS, our community organizations, state organizations
that pursue issues of discrimination. I think one of the issues
frankly in very surprising numbers is Hispanic rental
discrimination. While other forms in other groups has dropped,
it has remained constant over the last however the period of
years that the study covered. I think a lot of that is a lack
of information, a lack of outreach, a lack of knowledge.
So we need to continue. I think an area where we need to do
it is to be very proactive in informing people that they do
have access; that our offices at HUD are charged with the
responsibility of enforcing fair housing laws; and that we do
have proactive activities going on about this. So I would love
to have Carolyn and I sit down with you and provide maybe a
workshop where we could discuss ways in which we can work
together towards improving the chances.
One thing I will point out is that HUD does not regulate
financial institutions. So when it comes to a lot of these
issues on lending discrimination, which Ms. Velazquez very
appropriately pointed out, they really do not come under the
jurisdiction of our department, but really lie in other areas.
But to the extent that we can deal with the issues, I would be
happy to sit down with you.
Mr. Davis. Would you yield me 15 seconds, Ms. Harris?
Secretary Martinez. I am sorry. I was long on my answer.
That is my fault.
Ms. Harris. Yes.
Mr. Davis. Once Ms. Peoples produces the study that you
talked about, would you be amenable to stiffening the penalties
that do exist for practicing discrimination in these areas? I
recognize HUD does not govern the area, but just as a public
servant----
Secretary Martinez. I absolutely believe that it is
something that is insidious. It is something that prevents our
families from----
Mr. Davis. But do you support stiffened penalties?
Secretary Martinez. Absolutely, I would. Yes, sir.
Mr. Davis. Okay. All right. Thank you.
Ms. Harris. Thank you very much, Mr. Davis, Mr. Secretary.
Ms. Velazquez from New York?
Ms. Velazquez. Thank you.
Mr. Secretary, while I appreciate your earlier statement
that 55 percent of HOME funds currently aid minority families,
I would like to know what assurance can you give us that the
same will hold true with this new initiative?
Secretary Martinez. The first thing I can tell you is that
our whole initiative is geared towards minority homeownership.
The whole focus of what we are doing, particularly with our
private sector partners, is geared towards reaching into
minority communities. So I cannot tell you because it would be
I think in violation of the formula that this will only help
minority families or will be given any given percentage, but
the best I can give you is the historical background of how
HOME dollars have been spent in the past. I think that would be
at least a bottom number of where we will be in the future as
it relates to this. My hope, my goal and my expectation is that
more than 55 percent of the families served with this
downpayment assistance will be in minority communities.
Mr. Bernardi. Ma'am, the numbers in the HOME program since
its inception is 270,000 families have been assisted
homebuyers. Of that amount of money that has gone to the HOME
program, that is about 25 percent that the participating
jurisdictions in the state used for homebuying programs. As the
Secretary mentioned earlier, about 52 percent of the people
that are assisted, their income is less than 60 percent of
median. And of the total amount, under 80 percent, there is
another 47 percent between 60 and 80 percent. So this money
obviously is going to go to the people that need it the most.
Congresswoman Lee, I was told that when it comes to downpayment
assistance, that $5,000 is an average. Obviously, we use that
to compute the 40,000 homeowners that we would assist with $200
million. But the participating jurisdiction can change that.
They can make it $10,000, $15,000; I believe up to $20,000. So
to buy a home in an area where home prices are a little higher,
that would obviously have less people that could participate in
the program, but they could give more money.
Ms. Velazquez. Mr. Secretary, what will HUD do to ensure
that those families who receive downpayment assistance will
receive homebuyer counseling?
Secretary Martinez. I think the HOME program as it is
administered by the states will ensure that the families they
work with are receiving homeownership counseling. What we have
done to help that along is to provide $45 million, the largest
amount ever, in our budget request for homeownership education.
So whatever has been going on in the past should be enhanced by
this particular new budget request, but Mr. Bernardi can
probably add a little something to that.
Mr. Bernardi. In the HOME program, there is approximately
$16 million for technical assistance that we provide to our
participating jurisdictions and to the states to make sure that
they do the things that are necessary and have the capacity to
provide the homebuyer education programs that you are speaking
of--both the counseling and the education. What we need to
obviously make sure is not only that we place someone in a
home, but they are able to maintain that home.
Ms. Velazquez. Is there any way that you can measure to
what extent they provide counseling and education?
Mr. Bernardi. I can get back to you on that and let you
know exactly the progress that we make with those programs.
Yes, ma'am.
Secretary Martinez. I think, without being specific, as a
practical matter I think that that is a component part of what
just about every jurisdiction does. Everybody recognizes the
importance of homeownership education as a component part of
bringing someone to homeownership.
Ms. Velazquez. Thank you, Madam Chair.
Ms. Harris. Thank you, Ms. Velazquez.
Mr. Watt from North Carolina?
Mr. Watt. Thank you, Madam Chair.
Welcome, Mr. Secretary. I am sorry I was not here for your
testimony, but I had another hearing that I was involved in and
could not get there.
I just have one question. I fully support homeownership and
I know that downpayments have historically been a major
impediment to homeownership. I have one question, and if you
have already answered this question, just tell me you have and
I will go back and look at the record. I will not take your
time. There is $75 million in the 2003 fiscal year budget for
something called the American Dream Downpayment Fund, for which
HUD is currently writing regulations. How would this bill
differ in what you are able to do under the bill than the
regulations that you anticipate writing under--I guess the
question is, do you already have the authority to do everything
that this bill would authorize?
Secretary Martinez. No, we do not. The one-year allocation
of $75 million for which we are writing regulations is for the
one single year. In order for this program to go into the
future, we need the new legislation which is now being moved.
So the regulation that we are putting forth in terms of how it
administers the program will be very similar to the legislation
we are proposing. But the two are necessary, one, for the 2003
$75 million allocation, the legislation, H.R. 1273, for going
forward with the Administration of the program.
Mr. Watt. I guess my question is, if you have the authority
to do it in 2003 without a bill, couldn't you exercise that
same authority to do it in 2004 and 2005?
Secretary Martinez. No, because there was authorizing
language for specifically taking care of the 2003, but not for
the future.
Mr. Watt. Oh, so it got authorized. Okay.
Secretary Martinez. We are starting over.
Mr. Watt. Okay. But in effect, the bill would statutorily
frame a program that you are currently framing through
regulations? Is that correct?
Secretary Martinez. Right. That is correct.
Mr. Watt. All right. I will yield the balance of my time to
Representative Barbara Lee.
Ms. Lee. Thank you. I thank the gentleman from North
Carolina for yielding.
Let me just ask a couple of follow-up questions. I am glad
to hear you say that the money can be used, it does not
necessarily have to be $5,000, but I think it is important for
us to know that $20,000 even is about 5 percent of a $400,000
home, so what does that mean in terms of regional differences
and how many people or how many families will be eligible if
that is the case. You mentioned earlier that by combining HOME,
CDBG, and now the downpayment assistance, that there would be
additional funds available for this kind of effort. I have to
assume that you believe that if you create more affordable
housing or more housing, the prices go down. So my question is,
with regard to the trust fund that we have proposed, in
attempting to try to get support for that, because by creating,
by using $2 billion a year out of the FHA reserves, we can
create over 1.5 million new affordable housing units, and given
the nature of our recession at this point, create thousands of
jobs.
So why isn't this part of a homeownership strategy in terms
of a full-fledged housing production program, when we have the
resources to do that?
Secretary Martinez. I think because we have a philosophical
difference in whether the utilization of the FHA reserves is an
appropriate pool of money from which to draw for this program.
I think in a number of instances I have expressed my concern
that the FHA reserve is for the soundness of the FHA program,
which only a few years ago was in difficult financial
circumstances and which, if there was to be an economic
downturn and an excessive amount of foreclosures could again be
in a difficult circumstance. So I believe that FHA, being kind
of a cornerstone of bringing homeownership opportunities to
poor and first-time homebuyers, that it is something that we
should be very cautious in terms of utilizing their reserves.
Ms. Lee. Sure, Mr. Secretary, when we presented to you the
information, in terms of the soundness of the fund and those of
us who support a production program using these funds care
about the safeness and soundness of the fund also. We have
shown over and over again that this would not be impacted the
way you say it would be. So I urge you to look at that.
Ms. Harris. And also if you wish, any of these questions or
further statements can be put forward in the record. Thank you.
Ms. Carson from Indiana.
Ms. Carson. Thank you very much.
Mr. Secretary, again thank you so very much for your
indulgence. I appreciate very much your being here today to
support this initiative. Homeownership instills pride and
stability and new families, fosters the creation of wealth and
completes for many the picture of the American dream.
Let me, without sounding too skeptical, I come from
Indianapolis, Indiana where the foreclosure rates remain
unabated--6,000 homes foreclosed in the last year; bankruptcies
at an all-time high; job loss, unemployment skyrocketing. While
the free downpayment has some appeal, do you believe, Mr.
Secretary, that it is ideal in these economic times of economic
constraints where people can get the downpayment and then lose
the home?
Secretary Martinez. That certainly would not be the long-
term goal.
Ms. Carson. I know you do not plan to do that.
Secretary Martinez. But I think that it is an ideal time
because first of all we have historically low interest rates,
and with that opportunity at hand, I think that it is a very
opportune moment in which to do that. I think that this is a
difficult economic moment, but I think as we look at all the
different things that are being done to try to improve our
economic condition, the president's proposals in that regard I
think are designed to put more Americans back to work and to
improve our economic condition. So I do not believe that this
housing initiative should wait until things are perfect
economically in every segment of the country because that may
never be the case.
Ms. Carson. Do you support the idea that is floating around
Congress now of not foreclosing on people who are unemployed,
through no fault of their own?
Secretary Martinez. I am certainly in favor of the idea
that foreclosures for our men and women in uniform who have
been called to serve need to be stopped, and we have
effectively done that through the Soldiers and Sailors Relief
Act. In terms of broader policy in terms of foreclosure, I am
not prepared to answer that because I have not studied all the
implications of your question.
Ms. Carson. Madam Chair, I yield back.
Ms. Harris. Thank you.
Mr. Capuano from Massachusetts.
Mr. Capuano. Thank you, Madam Chair.
Mr. Secretary, again, as everybody else, thank you for
being here. I want to say just one thing about the program. I
like the program. I like the concept. We will have
disagreements--I do not think we are going to settle them
here--as to how to fund it. I actually think it would be a
great add-on. I am not so sure about a carve-out.
Secretary Martinez. It is not a carve-out.
Mr. Capuano. I understand that at this point in time, but
we will see how it happens as we go down the road. I understand
that may not be your preference, but it is the issue we have
had in the past about it.
I really wanted to come today to underline an issue that I
believe Mr. Frank brought up during his opening statement that
I wanted to make sure came to your attention. It has only
recently come to my attention in Massachusetts relative to new
interpretations of Section 8 certificates and how they are put
out there. I do not think this is the appropriate place to go
through the details. We will be contacting you for a later
time, but I just wanted to make sure that you understand that
it is a serious problem. Many of us think that it is an
unnecessary interpretation of current law and we look forward
to working with you to try to get people into homes as we think
the program was intended.
Secretary Martinez. Thank you, sir.
Mr. Capuano. Thank you.
Secretary Martinez. Ranking Member Frank did bring that up
and we will be looking into it and be looking forward to
responding to you and working with you on it.
Ms. Waters. Madam Chair? I ask unanimous consent for 30
seconds to ask the Secretary a final question.
Ms. Harris. Yes, sure.
Ms. Waters. What do we need to do to get CDBG and HOME and
now this new program authorized? You know, none of this is
authorized since 1993, 1994. There could be a point of order
against this at any time on the floor.
Secretary Martinez. Is that right? Well, I thought every
year through the budget process that we got an authorization.
Ms. Waters. No. This could go through the appropriations
committee and there could be a point of order on the floor on
any of this, including CDBG. Why don't we get some leadership
to get this stuff authorized?
Secretary Martinez. That is something--not being that
familiar with all of your parliamentary intricacies, I was not
aware of that and I am very concerned, now that you bring it
up. So I will be giving that some thought and maybe get back to
you.
Ms. Waters. Thank you.
Secretary Martinez. That is not a comforting thought.
Ms. Waters. Thank you.
Ms. Harris. Thank you.
Mr. Secretary, thank you so much for your testimony today,
for all of your help, for the great ideas, and we look forward
to working with you and your staff in the future.
Secretary Martinez. Thank you very much. It is a real honor
to have an opportunity to not only testify before the
committee, but to have it be chaired by you, my friend.
Ms. Harris. Thank you, Secretary.
And now we call the next panel.
Chairman Ney. [Presiding.] I want to thank the gentlelady
from Florida for running the hearing. We will move on to panel
two. The first witness is Robert Couch. He is the president and
CEO of the New South Federal Savings Bank in Birmingham,
Alabama. It is the largest thrift in Alabama. The bank is one
of the area's leading mortgage lenders. Mr. Couch is testifying
today on behalf of the Mortgage Bankers Association, whose
2,800 members include mortgage companies, brokers, commercial
banks, thrifts, credit unions and life insurance companies. I
want to welcome the witness.
Darrell Griffin is Chief of the Housing Services Division
for the city of Jacksonville, Florida. The Housing Division is
located within Jacksonville's Planning and Development
Department and is focused on expanding the availability of
affordable housing for very low-and moderate-income families by
leveraging state and federal funds with local resources.
Welcome.
Lori Gay is president of the Los Angeles Neighborhood
Housing Services, a nonprofit lender, developer and neighbor
revitalization corporation. Under her leadership, the
corporation has developed and rehabilitated over 6,000 housing
and commercial units and has educated and counseled 68,000
homebuyers. I want to welcome you to the capitol.
Paul Hilgers is the Director of the Neighborhood Housing
and Community Development Department for the city of Austin,
Texas, the Department which provides housing, community
development and small business development services and is
focused on expanding its partnerships with profit and nonprofit
organizations in order to leverage all available resources.
Welcome to the committee.
Craig Nickerson is Vice President for community development
and lending at Freddie Mac, a stockholder-owned corporation
chartered by Congress in 1970 to create a continuous flow of
funds to mortgage lenders in support of homeownership and
rental housing. Mr. Nickerson has worked in the affordable
housing area for more than 25 years, serving as the Executive
Director of the city of Boston's Office of Housing and the
National Director of Housing Rehabilitation at HUD. I want to
welcome Mr. Nickerson.
And the last witness is Barbara Thompson. She is Executive
Director of the National Council of State Housing Agencies, a
national nonprofit organization representing housing financing
agencies in all 50 states and committed to increasing the stock
of affordable housing nationwide. Housing finance agencies
issue tax exempt housing bonds, allocate the low-income housing
tax credit, and administer home investment partnership funds. I
want to welcome Ms. Thompson.
I want to thank the panel and we will begin with Robert
Couch.
STATEMENT OF ROBERT M. COUCH, PRESIDENT AND CEO, NEW SOUTH
FEDERAL SAVINGS BANK
Mr. Couch. Good afternoon, Mr. Chairman and members of the
subcommittee. My name is Rob Couch. I am president and CEO of
New South Federal Savings Bank in Birmingham, Alabama. I am
here today as chairman-elect of the Mortgage Bankers
Association of America. MBA members have played a large role in
the success of today's housing market. Our members, who number
2,600 nationwide, are involved in all aspects of real estate
finance and constantly strive to develop policies and programs
to enhance the sophisticated housing finance system the U.S.
enjoys today.
Mr. Chairman, I am pleased to offer MBA's hearty support
for H.R. 1276, the American Dream Downpayment Act of 2003, and
to commend Representative Katherine Harris for her recent
introduction of the bill. H.R. 1276 will make grants to
communities that are to be used only for downpayment assistance
towards the purchase of single-family homes by low-income
families who are first-time homebuyers. With this laudable
goal, the American Dream Downpayment Act will help the
homeownership rate keep growing. This program will help many
more low-income Americans join the ranks of homeowners and it
will help build communities. HUD estimates that 40,000 more
families per year will be able to become homeowners under this
program.
Mr. Chairman, understanding where people want to live and
in what type of neighborhood is the first step in mapping the
patterns of growth for America in the decade ahead. The federal
government's role should be to encourage local communities to
adopt long-term comprehensive plans that will meet the demand
for homeownership and other housing needs. The American Dream
downpayment program will be another tool in the arsenal of
communities to assist potential homebuyers as there is still
much work to be done. The American Dream Downpayment Act
represents an investment in those who have yet to achieve the
dream of homeownership. The federal resources used in fostering
additional homeowners will be returned many times over as
families build wealth and communities fill with residents who
have a stake in their neighborhoods.
MBA believes offering downpayment assistance is the next
logical step in reaching those who are not currently
homeowners. The American Dream downpayment program will address
one of the primary obstacles to homeownership for minorities
and low-income families. That obstacle is the accumulation of
funds to make a downpayment. By placing the downpayment program
under the HUD HOME program umbrella, it is recognized that the
strength of the HUD program lies in the fact that it empowers
communities to identify needs in a locally created plan and
then seek federal funds matched by local resources. One goal of
the HOME program is to foster public-private partnerships,
especially with lenders. In fact, HOME communities are strongly
encouraged to engage lenders in local programs. The American
Dream downpayment program will provide a perfect vehicle for
engaging lenders. MBA was pleased to see funding for this
program in the president's fiscal year 2004 budget as
additional funding above the HOME program's regular funding.
Mr. Chairman and members of the subcommittee, MBA looks
forward to working with you to make this program a success.
Thank you for allowing me the opportunity to testify today.
[The prepared statement of Robert M. Couch can be found on
page 59 in the appendix.]
Chairman Ney. And the next witness is Ms. Gay.
STATEMENT OF LORI R. GAY, EXECUTIVE DIRECTOR, LOS ANGELES
NEIGHBORHOOD HOUSING SERVICES, LOS ANGELES, CALIFORNIA
Ms. Gay. Good afternoon, Subcommittee Chairman Ney and
Ranking Member Waters. My name is Lori Gay and I am the
president of the Los Angeles Neighborhood Housing Services,
where I have worked for the past 13 years. We have been about
the business of getting families into homes and keeping them in
homes. I am here this afternoon to talk with you about the
benefits of downpayment assistance for low-to moderate-income
families and to support H.R. 1276.
Let me first say a word about L.A. NHS. We have assisted
more than 1.4 million families since 1984; developed and
rehabilitated over 6,400 housing and commercial units;
established 150 block clubs; and counseled over 72,000
homebuyers; employing over 200 neighborhood youth; and
investing more than $1.1 billion back into some of L.A.'s most
troubled neighborhoods. We are now the largest comprehensive
provider of affordable homeownership in Southern California,
putting 42 families a day on the road to homeownership.
We are a member of the Neighborhood Reinvestment
Corporation's NeighborWorks Network. The Neighborhood
Reinvestment Corporation strengthens communities and transforms
lives across America by supporting innovative local
partnerships of residents, business and government,
collectively known as the NeighborWorks Network, and by
advancing broader community development goals. In fiscal year
2002 alone, the NeighborWorks system generated nearly $1.7
billion of direct investment in more than 2,300 lower-income
urban, suburban and rural communities nationwide. We assisted
more than 35,000 lower-income families to purchase, improve and
maintain their homes; provided pre-purchase and post-purchase
homebuyer counseling to more than 72,000 families.
NeighborWorks organizations also owned and managed 34,000
rental units or mutual housing units. The corporation provided
more than 188,000 contact hours for training participants and
purchased more than $60 million in nonconventional loans
through its affiliated secondary mortgage market operation. We
also operate something called the Campaign for Homeownership
Initiative. Since 1992, that campaign has assisted more than
60,000 low-to moderate-income families to purchase their homes,
52 percent of which are minority; 67 percent of which have been
low-income.
Just a few quick stories about our Los Angeles experience,
which I believe may be helpful to you as you consider this
bill. We assisted Jae and Naomi Beck in Los Angeles, who happen
to be Korean. They purchased a home, not with $5,000 of
assistance, but with $75,000 of downpayment and closing cost
assistance in conjunction with the city of Los Angeles and the
Los Angeles Neighborhood Housing Services revolving loan fund.
That family was able to purchase a home and only spend $68 more
for their mortgage than they were spending on rent at the time.
They were able to purchase and rehabilitate a home in
neighborhood where the wife and the family had grown up. We see
that every day. Similarly, the Espinoza family did not use
government-assisted grants, but in fact the Sears Corporation
provided $25,000 of downpayment assistance so that that family,
who was living in a hotel at the time, operating off of a hot
plate to eat, had never had a Thanksgiving. They were able to
purchase a home last December with the $25,000 in downpayment
assistance.
So what we have seen locally is that in fact the private
and public sector cooperation really makes the difference, and
in fact, Congresswoman Waters, it does take this layering that
you mentioned and a comprehensive approach to affordable
homeownership to make it happen. We believe the $5,000 of
assistance that is projected per family will be of great
assistance. It just won't be the only assistance needed in
high-rent districts like Los Angeles or California statewide.
We have ongoing issues which do require more subsidy.
What I would also like to note is that we estimate that our
national network will utilize about $10 billion in downpayment
assistance funds next year alone. So we see this critical
funding as essential to get the work done. We also feel it is
our job and duty to protect and serve families throughout our
communities by ensuring that sub-prime lending does not
increase and that in fact if we are able to conventionalize
families, wherever appropriate we should do that. Sub-prime
lending and predatory lending are not the same thing, but in
fact we have found that we have to look out for our families,
financially educate them, and spend time making sure that they
have the proper hand-holding to be successful.
I would like to thank this committee for the opportunity to
speak today about our work and the broader NeighborWorks
network. The addition of a national downpayment assistance pool
will greatly assist our work, but we do not want to just create
more homeowners. We also want to make sure that they are
financially educated and that they have sound mechanisms to
build their wealth and transfer these intergenerational assets
to their children over time.
Thank you.
[The prepared statement of Lori R. Gay can be found on page
63 in the appendix.]
Chairman Ney. I want to thank the witness for her
testimony. Without objection, your written statements will be
made part of the record. Of course, each of you will be
recognized for a five-minute summary of your testimony. Hearing
no objection, any written statements you have will be made part
of the record. I also ask for unanimous consent to be given to
allow the Consumer Mortgage Coalition to be able to submit
testimony for the hearing record in support of the American
Dream Downpayment Act. Hearing no objection, it will be part of
the record.
[The following information can be found on page 102 in the
appendix.]
Mr. Griffin?
STATEMENT OF DARRELL V. GRIFFIN, SR., DIVISION CHIEF, HOUSING
SERVICES DIVISION, CITY OF JACKSONVILLE, FLORIDA
Mr. Griffin. Good afternoon, Mr. Chairman and members of
the subcommittee. My name is Darrell Griffin and I am the
division chief with the city of Jacksonville's Planning and
Development Department. I bring you greetings from Mayor John
Delaney and Jeannie Fewell, who I am sitting on behalf of. She
had a death in the family and was not able to speak, so I am
sitting on her behalf. I am here today speaking in support of
the proposed legislation, H.R. 1276.
Before telling you about our fantastic homeownership
programs we administer in the city of Jacksonville, allow me an
opportunity to provide you with some demographic data about our
city, which is located in southeast Florida. Jacksonville is
approximately 840 square miles of land mass, with a population
of 807,000 people. According to the 2000 census, Jacksonville's
racial composition is as follows: 65.8 percent white; 27.8
percent black; 4 percent Hispanic; and 2.4 percent categorized
as other. There are 303,000 households in Duval County, of
which 63 percent are owner-occupied. Of those owner-occupants,
76 percent are owned by whites; 19 percent by blacks; 3 percent
by Hispanic; and 4 percent are other nationalities. In
Jacksonville, the area median income for a family of four is
$55,400.
The city of Jacksonville Planning and Development
Department Housing Services Division's strategy to provide
affordable housing is to encourage public and private
partnerships to stimulate construction and reconstruction of
residential properties, to increase and improve the supply of
affordable housing. The Planning and Development Department
administers several homeownership programs which are designed
to encourage homeownership and make the purchase of a home
possible for low-to moderate-income residents who are 80
percent of the median income and below. The city of
Jacksonville anticipates allocating from its 2004 funding $1
million of its $3.8 million in home investment partnership
program funds to our award-winning downpayment assistance
program called the Headstart to Home Ownership or H2H program,
and the new program, Home Purchase and Rehabilitation,
affectionately called HOME-PAR. The H2H program has twice been
awarded the Department of Housing and Urban Development's
prestigious Best Practice Award.
The H2H program targets qualified applicants whose income
is 80 percent of the median income. H2H offers finance
assistance up to $14,999 to provide downpayment and closing
costs and principal reduction assistance to eligible families
and individuals who currently do not own a home, but wish to
purchase a home as their primary residence. Prospective
homeowners may purchase any single-family housing unit, newly
built or existing, including patio homes, townhomes or
condominiums, located within the consolidated city of
Jacksonville. In addition to meeting the income criteria, the
applicant must have a minimum downpayment of $500.
The maximum purchase price for one family unit for Duval
County as of February, 2003 is $154,600. That is the maximum
allowed under HOME in our area. Local lenders provide first
mortgages for the purchase of the property. The lender will
offer their funding at par market rate, without origination of
discount points, and a 30-year fixed rate conventional loans
and FHA-insured loans at a maximum loan-to-value of 97 percent.
The city of Jacksonville will provide a subsidy in the form of
downpayment and closing costs and principal reduction for the
eligible persons. The amount of financial subsidies received
will be based on the total household size and income. The
city's financial assistance will be in the form of a second
mortgage at zero percent interest and forgiven after five
years, with repayment of the subsidy deferred to the end of
that five-year term. All homes sold under the H2H program are
inspected by licensed home inspection companies and must be in
compliance with the Section 8 housing quality standards prior
to closing.
The goal of the HOME-PAR program, which is our second
program, is to encourage and support homeownership and
revitalization within the Mayor's intensive care neighborhoods
and target areas in which adopted neighborhood action plans
have been implemented. Implemented in March, 2003, the HOME-PAR
program offers financial assistance up to $25,000 to families
and individuals with 80 percent of the median income who wish
to acquire and rehabilitate sub-standard homes which after
rehabilitation will become their primary residence. Like the
H2H program, the city's subsidy may be used for downpayment and
closing costs and principal reduction.
In addition, funding may be used to provide gap financing
when the cost to acquire and renovate the home exceeds the
after-rehab appraised value. The applicant has a minimum
downpayment of $500 and again, the lender will provide 97
percent loan-to-value. The city subsidy will be in the form of
a second mortgage, not to exceed 120 percent loan-to-value.
Chairman Ney. Excuse me, sorry to interrupt, but the time
has expired. If you would like to conclude, and then we can
accept the rest written for the record.
Mr. Griffin. Yes, I would like to. Homeownership is the
largest and in many cases the only source of wealth-building
for most families and individuals, especially to the
prospective homebuyers we target at 80 percent of the median
income and below. Successful revitalization of Jacksonville's
intensive care neighborhoods and neighborhood action plan areas
demonstrate that public funding delivered to homeownership in
neighborhoods as part of a well-organized reinvestment strategy
can leverage private financing and other valuable resources to
produce lasting benefits, physical, economic and social.
However, it is imperative to continue Federal and State funding
to sustain a base of capital investment and program delivery to
ensure the continued success of these programs and initiatives.
[The prepared statement of Darrell V. Griffin Sr. can be
found on page 73 in the appendix.]
Chairman Ney. Thank you.
Mr. Hilgers?
STATEMENT OF PAUL HILGERS, DIRECTOR, NEIGHBORHOOD HOUSING AND
COMMUNITY DEVELOPMENT DEPARTMENT, CITY OF AUSTIN, TEXAS
Mr. Hilgers. Thank you very much, Mr. Chairman and members
of the subcommittee.
My name is Paul Hilgers, and I am the Director of the
Department of Neighborhood Housing and Community Development
for the city of Austin, Texas. I am honored to have the
opportunity to testify before you today regarding H.R. 1276,
the American Dream Downpayment Act. Being from Texas, I am
particularly honored to be here in the shadow of the picture of
former Chairman Henry B. Gonzalez. I had to mention that.
My testimony today is to summarize the written testimony
provided to you, and I appreciate your accepting that. It
provides an overview of our locally developed comprehensive
housing investment strategy, and how using the tool of
downpayment assistance as one element in that strategy has
improved our ability to assist low-and moderate-income families
in becoming homebuyers, many for the first time.
The written testimony describes in a little more detail the
city of Austin's housing continuum, which is an investment
strategy which allows for collaborations and partnerships, the
SMART housing program, which is a locally designed program
designed to eliminate regulatory barriers to housing
production; how the city of Austin has increased its
investments from local general fund revenue; and the creation
of our Austin Housing Finance Agency. All of those initiatives
have created a toolbox to address the needs of all levels of
our housing continuum.
In Austin, we also believe that homeownership is an
integral part of the American Dream that is out of reach for
many low-income families because of the high cost of single-
family, owner-occupied housing. H.R. 1276 is a step in the
right direction to address this reality. It is a step in the
right direction because it provides the additional resources
for cities like Austin to provide downpayment assistance to
families to purchase a home. Oftentimes, this is the major
barrier to families owning their first home. I support the $200
million in funding requested in H.R. 1276, and it is important
that this legislation add $200 million to the HOME program and
that it is not a set-aside. I cannot express enough the
importance of the HOME program to my city and others in
providing the flexibility and resources to fill the gaps in
funding for our downpayment assistance program and other
affordable housing initiatives.
I believe strongly in the delivery system established by
the Community Development Block Grant and HOME programs. These
programs allow local governments to design the kind of
innovative programs you have heard about today, and to make
local decisions about how the funds should be used to impact
the most significant needs within their communities.
The city of Austin's downpayment assistance program is
designed to meet its economic realities. It provides deferred
zero interest loans to assist with downpayment assistance and
closing costs. The loan is non-amortized, non-assumable, non-
interest-bearing, and secured by a lien on the property. The
loan is repaid at the time the owner sells the home,
refinances, pulls equity from the property, transfers title or
moves out of the property. Repaid funds are used to help future
homebuyers in the program. H.R. 1276 would help the city
provide more resources to assist families with their
downpayment assistance needs through this highly successful
program. In the past five months, an average of five families a
week have become homeowners through our program. In the past
three years, we have helped 619 households through our
downpayment assistance programs.
Briefly, by way of recommended improvements for the
committee to consider, I would recommend that H.R. 1276 be
expanded to include pre-purchase counseling. That issue has
been discussed here today, and if we could establish 10 percent
as an amount of funds available to local communities to be able
to use those funds for pre-purchase counseling to ensure that
they fully understand every aspect of the process and what it
means to maintain homeownership. H.R. 1276 could also be
amended to allow up to 10 percent for administrative costs. To
ask HOME staff and administrative cost limits to absorb the new
effort may under cut its success. I also respectfully request
the subcommittee to examine the current Uniform Relocation Act
provisions and the potential disincentive to first-time
homebuyers since they are triggered with the very minimal
amount of homebuyer assistance that could be possible through
this program.
Finally, I support the legislation because it brings
attention to the need for affordable housing assistance, even
if it is just the downpayment assistance component. Federal
leadership is needed badly for us at the local level trying to
implement these programs. I would urge you, Mr. Chairman, and
other members of the subcommittee to continue to pursue
affordable housing assistance in other areas, such as providing
additional funding to HOME for housing production and the other
activities that come before this committee.
I thank you again for the opportunity to testify.
[The prepared statement of Paul Hilgers can be found on
page 77 in the appendix.]
Chairman Ney. I thank the witness and appreciate your
coming from Austin, and also recognizing Congressman Gonzalez.
I had the pleasure of serving a couple of years when he was
here, and also one of your other former residents actually has
moved down the street a couple of years ago to a little bigger
house.
Mr. Hilgers. Yes, I understand that. Thank you, sir.
Chairman Ney. Mr. Nickerson?
STATEMENT OF CRAIG S. NICKERSON, VICE PRESIDENT, COMMUNITY
DEVELOPMENT AND LENDING, FREDDIE MAC, WASHINGTON, DC
Mr. Nickerson. Good afternoon, Chairman Ney and Ranking
Member Waters, and Congresswoman Harris and members of the
subcommittee. I am delighted to be here on behalf of Freddie
Mac. My name is Craig Nickerson. I am Vice President of
Community Development lending at Freddie Mac.
This is a matter that I take a genuine interest in. It is
part of what I have been doing for actually over 30 years now.
I think your bio said 25. It is either an old bio or I am just
getting older, or both. This is also, though, an issue that is
very important to Freddie Mac. It is what we do. We are a
shareholder-owned corporation chartered by Congress back in
1970, designed to create a continuous stable flow of capital
back to the local markets. By purchasing mortgages from
lenders, we increase market liquidity. The result of that is
interest rates are lower, mortgage money is more plentiful. It
allows us to create more flexible products, including products
that can be offered on very low downpayments, and has in part
been one of the reasons we have such a high homeownership rate
in America.
More needs to be done. More needs to be done by Freddie Mac
and by the entire industry. The gap between the overall
homeownership rate or the white homeownership rate and minority
homeownership rates is unacceptable. We need to do more. That
difference is not just a function of demographics or income
levels. Even if you separate out for lower incomes, or for
example the age of households being younger, that difference
cannot be explained away. We need to be doing more to increase
homeownership opportunity for minority families.
Part of that is a lack of an ability to save, when you are
focused on meeting life's necessities. Part of it is the lack
of intergenerational--parents providing capital so someone can
buy their own home as a young family. Homeownership is much
more than what we have discussed today. It is much more than
just a very vital means of stabilizing communities, a means of
creating family security and a sense of well-being. As
indicated earlier by both Chairman Ney and Ranking Member
Waters, it is also a very important means of accruing wealth in
America. It is the most important means of accruing wealth. Let
me cite just one statistic to underscore that. Case in point:
the median wealth of low-income and minority homeowners in
America right now as of 2001 was $70,000. That is the net
wealth. The low-income median wealth for low-income renters,
$900--$70,000; $900. We simply need to be focused more on this
issue.
For our part, what is Freddie Mac doing? Well, we are doing
a number of things. Last year, we created something called
Catch the Dream. We are very proud of it. It is a very
comprehensive new approach to try to meet specifically the
needs of minority homebuyers in America. We are focused on
mortgage products, certainly--flexible mortgage products--but
also on more innovative ways of reaching out to the community,
meeting their needs; not waiting for them to come to us. We are
focused on financial literacy and better educational tools, and
we are focused on using technology in creative new ways.
But despite how proud we are of Catch the Dream and our
efforts to support the Administration's blueprint for the
American Dream, we know much more needs to be done. We do
believe the American Dream Downpayment fund is a very important
shot in the arm for the industry and its entire effort. Let me
suggest just three brief reasons why we think this new fund can
add significant value. First, it does in fact address one of
the key barriers to homeownership--the lack of cash for
downpayment and closing costs. That is both a real problem and
a psychological problem. To the extent families save a few
dimes, a few dollars every week, it is a daunting challenge to
invest those hard-earned funds in downpayment and closing costs
and not have any safety net after you are done making that
investment for that rainy day, for that time when you need some
extra capital. The Wharton school has recently indicated that
notwithstanding high housing costs in many markets, that the
downpayment is three times more constraining than the monthly
mortgage payment as a barrier to homeownership.
The second reason we think this is a good idea is that this
program can be implemented quickly. The American Dream
downpayment fund, because it is part of the HOME program, will
allow these participating jurisdictions to implement without
having to understand new regulations and adopt them. Having
worked at the local level and at the federal level, I know from
experience that it takes years to adapt and develop and
understand new program regulations. Even the HOME program back
in the early 1990s, it took years before we saw any significant
volume. Given the design of this fund, making it a part of the
HOME program, ensures flexibility, but also an understanding so
that we can adopt the program quickly.
And then lastly, this program provides focus. Because it is
focused explicitly on first-time homebuyers and those with
incomes below 80 percent of median income, we think it is
targeted to the very constituency that needs the money the
most.
So in conclusion, let me suggest that Freddie Mac does
support the American Dream downpayment fund. We think it is a
very important new tool in our homebuyers assistance tool kit
that will help revitalize more communities; help lenders
leverage their dollars; and most importantly, put more
underserved families and minority families on the path to
homeownership.
Thank you.
[The prepared statement of Craig S. Nickerson can be found
on page 88 in the appendix.]
Chairman Ney. Thank you.
Ms. Thompson?
STATEMENT OF BARBARA THOMPSON, EXECUTIVE DIRECTOR, NATIONAL
COUNCIL OF STATE HOUSING AGENCIES
Ms. Thompson. Chairman Ney, Ranking Member Waters,
Congresswoman Harris, thank you for having me here today and
good afternoon to you.
I am Barbara Thompson, Executive Director of the National
Council of State Housing Agencies. CSHA represents the Nation's
State housing finance agencies. State HFAs issue tax-exempt
bonds, allocate the low-income housing tax credit, and
administer HOME funds in nearly every state. Every year, they
help tens of thousands of lower-income families buy their first
homes.
NCSHA is very grateful to the Congress and to the
Administration for your support of affordable homeownership. We
agree more must be done to expand homeownership, particularly
among low-income and minority families. In this spirit, we
support the goals of the Administration's homeownership agenda.
However, we do not support the creation of the American Dream
Downpayment Initiative within HOME. State HFAs are devoted to
making low-income families homebuyers. Essential to their
efforts is the mortgage revenue bond program. State HFAs have
issued $170 billion in MRBs to finance 2.3 million below-market
rate mortgages for lower-income families. Each year, they help
another 100,000 low-income families become homebuyers.
In addition to using MRBs to reduce monthly costs, HFAs
also use MRBs to overcome the downpayment hurdle that many low-
income families face. State HFAs also provide many other forms
of downpayment and closing costs assistance, soft second
mortgages, lease-to-own options, acquisition, rehab and
construction financing, and homebuyer education and counseling.
They do these things to help families not only attain, but to
sustain homeownership. HFAs use many resources to finance these
activities. One of the very most important is the HOME program.
NCSHA is grateful for Congress' support of MRBs and HOME and
other resources upon which they rely to provide homeownership
help. Congress has steadily, though modestly, increased HOME
funding. It recently increased by half the bond cap.
The most significant step Congress could take to expand
low-income homeownership is to repeal the 10-year rule and
update MRB purchase price limits. The 10-year rule costs states
$3 billion in mortgage money annually. Ohio loses $450,000 a
day; California, $1 million. Eighty-two percent of the Congress
cosponsored the bill that contains these changes last year.
This year, it is H.R. 284. We urge you to cosponsor this bill.
We thank you, Mr. Chairman, for your early cosponsorship. We
urge you all to cosponsor and help enact it this year.
NCSHA does not support a separate homeownership program
within HOME. Congress designed HOME as a block grant to allow
States and localities, not Washington, to decide how to best
meet their needs. Allocating funding within HOME for a single
Washington-prescribed purpose irrespective of state and local
judgment of need is contrary to the purpose and spirit of HOME.
States already can and do use HOME funds to support
homeownership. In fact, they have used HOME funds to support 40
percent of all HOME-assisted units. Congress does not need to
create a separate pot of money within HOME to help more
families become homeowners through HOME. It need only increase
HOME funding. This subcommittee could help most by
substantially increasing the authorization for HOME and working
with appropriators to assure its increased funding. HOME just
finally achieved in fiscal year 2003 funding equal to its 1990
authorization level of $2 billion.
Some argue the proposed $200 million for the downpayment
program is new money--funding that Congress would not otherwise
allocate to HOME. We believe a dollar available for downpayment
is a dollar that Congress could invest in HOME without
restriction. We are also deeply concerned Congress would fund
the downpayment program this year or in future years within
HOME's current or even a reduced HOME appropriation. The
subcommittee tried and we appreciate your efforts to protect
against this outcome last year in H.R. 3995, but with all due
respect, the language you wrote would not have prevented
appropriators from reducing state and local HOME funding or
foregoing HOME funding increases to finance the downpayment
program.
If you authorize downpayment assistance within HOME, we
urge you to direct HUD to base funding allocations on need, and
not also on a jurisdiction's prior homebuyer commitments. Why
should jurisdictions that directed scarce housing dollars to
meet other affordable housing needs they judged more urgent be
penalized under this program?
We urge you to reject the downpayment set-aside. We
encourage you to work instead to enact other initiatives that
would have a much greater impact on low-income homeownership
without threatening the very successful HOME program.
Thank you.
[The prepared statement of Barbara Thompson can be found on
page 93 in the appendix.]
Chairman Ney. I want to thank the witness. I also want to
note Mr. Couch has a commitment which he will have to be
excused to leave. If there are any questions of Mr. Couch, they
can be put in writing and you could respond, if you so wish.
Mr. Couch. I would be glad to do that, Mr. Chairman.
Chairman Ney. Thank you.
Mr. Couch. Or I can respond now. I have got a few minutes.
Chairman Ney. I know you have got----
Mr. Couch. I appreciate the indulgence.
Chairman Ney. You can go ahead and go. Thank you.
Mr. Couch. Thank you.
Chairman Ney. I appreciate it.
I have got a question, but before I ask the question, I
have been talking with Ms. Waters, the ranking member, and I
think we ought to explore about some cases of no-downpayment. I
think that it is worth exploring. We were just having some talk
about it, and I would like to see if we could work on that.
The question I have, first of all, I wanted to ask Ms.
Thompson, because I talked to OHFA today, Ohio Housing Finance
Agency. Actually, I called them and then they called me back
and they asked me the question, would they be able to
administer the fund for the American Dream. Do you have any
comment?
Ms. Thompson. Well, it is up to the Governor of each State
as to what agency administers the HOME program. I would assume
the way you would write this bill would be to allow that
discretion. I would assume most Governors would choose the HOME
administrating agency, which in the case of Ohio is not the
HFA, but obviously the Governor I would assume, Mr. Chairman,
could change that.
Chairman Ney. The Governor could change that.
Ms. Thompson. Yes.
Chairman Ney. The other thing I wanted to ask you is, you
know, you have the worry about detracting from the HOME
program.
Ms. Thompson. A serious worry, yes.
Chairman Ney. But the Secretary did testify earlier, it is
new money. That still gives you heartburn?
Ms. Thompson. Mr. Chairman, with all due respect to the
Secretary and to you, you have no control over what the
appropriators finally do on this. The Administration itself, as
you know, just three years ago----
Chairman Ney. Not to interrupt, but we deal with that in
every case.
Ms. Thompson. I know you do. But if I could just say this,
when they first proposed this program, this $200 million in the
fiscal year 2002 budget, they did propose it as a set-aside
within the current HOME appropriation. They moved away from
that because of opposition, frankly, to that approach from our
group and others. I would ask you, how would you control the
appropriators from doing just that, in this very tight budget
environment, from taking flexible State and local money to fund
this program? They managed to come up with $75 million, not
$200 million last year, without doing that. But would they be
able to do that in this budget environment this year? Who
knows? We are rolling the dice.
I would also suggest to you that it is not just a matter of
setting aside existing State and local HOME funding. This is a
program, HOME, that is enormously successful and that needs
more funding. Therefore, we would argue any dollar that you put
into this new program, which in our view is not necessary
because you can do downpayment now with HOME, any dollar you
put into that is a flexible dollar that you deny states and
localities.
Mr. Chairman, as important as homeownership is, what if a
community judges that they desperately need a transitional
housing property for homeless people? What if they judge they
desperately need a low-income rental property? You are taking
away that choice by forcing them to use it for homeownership
assistance, whether that is their priority need or not.
Chairman Ney. Thank you.
A question I have for Ms. Gay, I fully understand that the
needs of the residents of Los Angeles are very, very different
than other markets and very different than the area that I
have. So what type of local flexibility do you think you would
need in a national downpayment assistance program, due to the
situation of the higher prices, et cetera?
Ms. Gay. If you added the money to our locale, I think that
what it would do is leverage the number of buyers potentially
that could be assisted. If it is a flexible dollar, as was
noted by Ms. Thompson, the only concern someone like me would
have is that it might get used for things other than
homeownership, and we are trying to increase the number of
minorities and low-income families who participate in our city
in the homeownership dream. So if you said to our city through
this bill in some way that they had another $50 million a year
to spend, just a nice fat number, I think that that would add
another 3,000 or 4,000 people, and that is the way we would
look at it.
Chairman Ney. Anybody generically might want to answer this
from the panel. What type of outreach programs do you think
would have to be put in place or enhanced, to let people know
about the downpayment assistance programs? Any thoughts on
that?
Ms. Thompson. Mr. Chairman, I would say that that is in
place. It is amazing what states and localities and their
nonprofit partners are already doing in this area. The issue is
not the need for a new apparatus, for a new program. The issue
is resources.
Chairman Ney. But my question I am trying to focus on--I
appreciate that, but I am trying to focus on, let's say that
this passes today, hypothetically, are there additional things
we need to do on outreach for American Dream? Mr. Nickerson or
Ms. Gay?
Ms. Gay. I was going to say, Mr. Chairman, that one of the
pieces of the story I did not give on the Becks was that word-
of-mouth referrals tend to work almost best in our communities.
We had 3,200 Korean families walk into our offices in two weeks
when the Becks went on television for 60 seconds. So the kind
of outreach mechanisms that are available through many
community partners I think will get the word out, if people
know that they really have a chance. That is the issue--do I
really have a chance to buy the home, or is it a gimmick? If we
can get a message out that entrusts people into this game, that
in fact they think they can really participate, we will be
successful.
Chairman Ney. My time has expired. I appreciate your
answer. I also want to note that just about a week ago,
somebody happened to be down by our district office in St.
Clairsville, and was walking by and said hello. I said, What
are you doing? He said, I am going down to look at a house. I
said, Is it your first home for you and your wife? He said yes.
I said, Have you called FirstTime homebuyers? And he said, What
is that?
You know, it is very interesting that a lot of people do
not know about it, so I think word-of-mouth would help, but I
also want to be sensitive to the fact that if we have another
program, to make sure that the outreach mechanisms are also
there advertisement-wise or financial institutions, whoever is
involved.
Ranking member, Ms. Waters?
Ms. Waters. Thank you very much, Mr. Chairman.
As you know, my initial concern has been duplication of
effort under a new name and wondering why. Let me just ask,
even though the Secretary said that the local jurisdictions
could decide how much money they spend on downpayment, even
though it seems as if $5,000 is some kind of amount that has
been used in the past and may be something that is being
suggested. How many jurisdictions would spend $25,000 instead
of $5,000?
Mr. Griffin. In Jacksonville, our objective not only is for
homeownership, but also neighborhood revitalization. At times,
you are going to need more than just $5,000 toward downpayment.
I did not get a chance to finish my presentation, but
oftentimes, especially in acquisition and rehabilitation
programs, the costs to acquire and rehabilitate the home
exceeds the appraised value. Therefore, there has to be some
type of entity, and generally it is the city or some funding
agency, that would bridge that gap. In other words, if you
acquire a home for $20,000, renovate it for $50,000; $70,000 is
what you have, but it may only appraise at $60,000. So we have
to bridge that gap. That is called a development subsidy.
In addition to that, we also may have to bridge what we
call an affordability gap. Using those same numbers, the
applicant may only qualify for $50,000. So that is another
$10,000 in subsidies. So you combine the two, and you have
$20,000. So there it is very likely, especially in our city and
in the areas that we service, that you will exceed that $5,000.
Ms. Waters. What about Los Angeles, Ms. Gay?
Ms. Gay. I think the $75 million is the number that we have
been able to get through our council. All I keep hearing, we
have created our own housing trust fund now at $100 million a
year. We have been saying, just get us more resources--an
increased HOME allocation. If you target it, I do not know that
advocates would be against that. The issue just becomes, we are
going to cap the amount at some point and $75 million is the
number that I have been told by every council member is as far
as they think they will go.
Mr. Hilgers. In Austin, what we would do is add the $5,000
to a layering strategy, if it was $5,000, to add to additional
HOME dollars, additional mortgage credit certificates and
whatever other creative financing mechanism we could add to it.
We also, when it comes to larger subsidies for mortgage write-
down, our concern at the local level is the ability for that
family to stay in the home. So we do that kind of mortgage
write-down through our community housing development
organization, so that our nonprofits are able to work with the
families on a longer-term basis so that we are more confident
that they would be able to maintain that home.
So the general public who is looking for homes at the more
moderate income levels, the idea of our structure is to invest
in those people according to their need. If all they need is
$3,000 to $5,000 or $5,000 to $10,000--whatever that might be--
then that could be available to them. Our problem has been the
production side, there has not been housing available in the
last few years to meet the demand. So we have to attack it on
all of those different levels, but specifically if we could
have an extra $5,000 from this program, then it would free up
$5,000 from our HOME allocation, not to argue against the
perfect, which would be an increased HOME allocation.
Mr. Nickerson. I think the key here, congresswoman, is that
that discretion is available to the locality or the state that
is receiving the money. So in Los Angeles, your elected
officials within the city and the Los Angeles Housing
Department could determine whether it is $1,000, $5,000, or in
your instance many times more than that, given the high cost of
housing in the city. That local discretion is essential, rather
than it being prescribed by HUD or by Congress.
Ms. Waters. Ms. Thompson?
Ms. Thompson. First of all, it would be very important to
assure that the legislation was written in a way that HUD knew
it could not put artificial limits, as it so frequently does on
programs, to have the kind of flexibility that Craig is
describing. In addition, I agree with the city of Austin that
that is not going to be enough to make homeownership happen in
very high-priced housing markets. You are going to need to
layer with other things. In fact, I would argue one of the
beautiful things about the existing HOME program, and not this
separate set-aside or separate program, whatever we are calling
it, is that you can do all kinds of things--soft second
mortgages, closing costs; you can layer that with MRB
financing. Whereas I guess we are just talking about
downpayment assistance, which is not going to solve the whole
problem, and certainly not in your district.
Ms. Waters. Thank you very much.
Chairman Ney. Thank you.
The gentlelady from Florida?
Ms. Harris. Thank you, Mr. Chairman.
I suppose in closing, since we are the last ones, I just
wanted to thank the panelists for traveling so far and giving
so much pertinent information. I love to hear the success
stories. It is really encouraging. It makes me feel like we are
on the right track with this. I think if you just look at what
we have said before--the dignity, the stability, the economic
empowerment, the wealth creation that homeownership creates is
a goal that we should all strive for. In this unique economic
environment, with low interest rates, if we have a chance for
this augmentation of funds, if we can infuse more with the
prioritization of purchase of those first homes for low-income
buyers, I think it is going to be an extraordinary opportunity,
not only for tens of thousands that we are projecting in this
bill, but as the president has advocated, millions.
So if we can truly get focused in that arena, I think that
is very vital, and that we do not just get bogged down in the
lack of perfection, but let's focus on how we can really make
some good things happen with this. There are opportunities from
what we have heard today. I concur that I do want to see that
the past effort's issues are evaluated, because so many local,
private and State groups may be focused on that. But the issue
of homeownership is still there, and really vital and makes
such a dramatic difference from educational levels, lifestyles,
quality of life and issues for the rest of the people's lives
that it affects.
So I just want to thank you all for your input, for your
interest, and for being here today. Thank you.
Chairman Ney. Thank you.
Any further questions of the witnesses? I want to thank you
for a very important hearing. We appreciate you coming to the
Capitol. Thank you.
Also, without objection, the opening statement of--I defer
to the ranking member.
Ms. Waters. I ask unanimous consent to submit my opening
statement to the record.
Chairman Ney. Without objection.
The chair notes that some members may have additional
questions for this panel which they may wish to submit in
writing. Without objection, our hearing record will remain open
for 30 days for members to submit written questions to these
witnesses and place their response in the record.
This hearing is adjourned.
[Whereupon, at 4:35 p.m., the subcommittee was adjourned.]
A P P E N D I X
April 8, 2003
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