[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
SUCCESSFUL HOMEOWNERSHIP AND
RENTING THROUGH HOUSING COUNSELING
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MARCH 18, 2004
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-73
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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 MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio ARTUR DAVIS, Alabama
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida BRAD MILLER, North Carolina
JEB HENSARLING, Texas DAVID SCOTT, Georgia
SCOTT GARRETT, New Jersey CHRIS BELL, Texas
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:
March 18, 2004............................................... 1
Appendix:
March 18, 2004............................................... 59
WITNESSES
Thursday, March 18, 2004
Bibby, Douglas M., President, National Multi Housing Council..... 48
Canfield, Anne C., Executive Director, Consumer Mortgage
Coalition...................................................... 49
Couch, Robert M., President and CEO, New South Federal Savings
Bank, on behalf of the Mortgage Bankers Association............ 46
Diaz, Lautaro, Deputy Vice President for Community Development,
National Council of La Raza.................................... 31
Grist, Lisa-Nicolle, Executive Director, Neighbors Helping
Neighbors, Inc................................................. 32
Jordan, Rodney, Vice Chairman, Norfolk Redevelopment and Housing
Authority, Norfolk, VA......................................... 34
Obloy, Gary F., Executive Director, Community Action Commission
of Belmont County, Inc., Clairsville, OH....................... 36
Smith, William, President and CEO, Mutual Community Savings Bank,
on behalf of America's Community Bankers....................... 51
Spriggs, William E., Executive Director, National Urban League
Institute for Opportunity and Equality......................... 52
Wade, Kenneth D., Executive Director, Neighborhood Reinvestment
Corporation.................................................... 29
Walsh, Chapman, Housing Director, Green Forest Community
Development Corporation, Decatur, GA........................... 38
Weicher, Hon. John C., Assistant Secretary for Housing-Federal
Housing Commissioner, U.S. Department of Housing and Urban
Development.................................................... 11
Williamson, Odette, Staff Attorney, National Consumer Law Center. 54
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 60
Bibby, Douglas M............................................. 61
Canfield, Anne C............................................. 69
Couch, Robert M.............................................. 77
Diaz, Lautaro................................................ 83
Grist, Lisa-Nicolle.......................................... 92
Jordan, Rodney............................................... 101
Obloy, Gary F................................................ 104
Smith, William............................................... 109
Spriggs, William E........................................... 113
Wade, Kenneth D.............................................. 118
Walsh, Chapman............................................... 130
Weicher, Hon. John C......................................... 151
Williamson, Odette........................................... 158
Additional Material Submitted for the Record
Bibby, Douglas M:
Written response to questions from Hon. Nydia M. Velazquez... 172
Canfield, Anne C.:
Written response to questions from Hon. Nydia M. Velazquez... 173
Couch, Robert M:
Written response to questions from Hon. Nydia M. Velazquez... 176
Williamson, Odette:
Written response to questions from Hon. Nydia M. Velazquez... 182
AARP, prepared statement......................................... 185
American Financial Services Association, prepared statement...... 191
American Society of Home Inspectors, Inc......................... 194
Association of Community Organizations for Reform Now, prepared
statement...................................................... 198
Financial Services Roundtable, prepared statement................ 200
Housing Partnership Network, prepared statement.................. 207
The National American Indian Housing Council, prepared statement. 212
SUCCESSFUL HOMEOWNERSHIP AND
RENTING THROUGH HOUSING COUNSELING
----------
Thursday, March 18, 2004
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:04 a.m., in
Room 1310, Longworth House Office Building, Hon. Bob Ney
[chairman of the subcommittee] presiding.
Present: Representatives Ney, Miller of California, Renzi,
Waters, Velazquez, Lee, Clay, Scott and Davis.
Chairman Ney. [Presiding.] Everybody got quiet before I
banged the gavel. What a great group of people. It is because
you are in smaller quarters. We could not have the hearing in
the regular hearing room so we are here in House
Administration, so we are just in a little bit tighter
quarters.
Today, the subcommittee meets to discuss the importance of
housing counseling, specifically on H.R. 3938, Expanding
Housing Opportunities Through Education and Counseling. I would
like to thank the gentlelady from New York, Ms. Velazquez and
her staff for their hard work and diligence in helping draft
this important piece of legislation. I want to thank the
gentlelady. We also worked in conjunction with the gentleman
from Georgia, Mr. Scott, and we produced a bill designed I
think that enhances the counseling programs currently operating
through HUD and to foster other private counseling activities
which I really firmly believe are so important to so many
people.
Currently, HUD laws and various documents show a variety of
counseling activities scattered throughout the agency. This
year, the Bush administration's budget proposal recommends
increasing funding for the housing counseling assistance
program to $45 million and funding it through a separate
program dedicated to housing counseling. In previous years,
counseling was funded as a set-aside within the HOME program.
In fiscal year 2005, it is estimated that this $45 million will
support 550,000 families with home purchase and homeownership
counseling and about 250,000 families with rental counseling.
During the previous 3 years, this administration more than
doubled funding for the program.
H.R. 3938 will consolidate all HUD counseling services and
programs under a single office within HUD entitled the Office
of Housing Counseling. The mission of this office will be to
coordinate and oversee HUD's many housing counseling programs,
to improve the efficiency and effectiveness of the counseling
services provided through the HUD programs. The director of
this office will be responsible for the oversight and
coordination of both homeownership and rental housing
counseling programs.
Today, homeownership and counseling programs take on a
variety of forms. Counseling is provided with grants through
separately administered programs, nonprofit organizations,
government agencies and lenders. The programs offered are
delivered through a wide variety of different means, including
telephone, classroom, home study, and individual counseling.
Information provided and the timing of the counseling also
varies I think significantly, but can be generally divided into
two separate categories, pre-and post-purchase.
Pre-purchase counseling education prepares families for the
responsibility of homeownership by providing information on the
home buying and the financing process. Counseling also can
include information on financial planning, money management and
home maintenance and repairs. Post-purchase includes the above-
mentioned items, but often has a greater emphasis on issues
pertaining to maintenance and repair and to individual
budgeting techniques.
Extending homeownership opportunities to American families
continues to be a primary focus of this housing subcommittee. I
want to thank the members I mentioned previously, and the two
members that have joined us, Mr. Renzi of Arizona and Mr.
Miller of California. They have been also great members on a
wide variety of issues. Last year, our bipartisan approach to
legislation in 2003, and I want to thank everybody, and our
Ranking Member, Maxine Waters, on this subcommittee, and of
course the full committee Chairman Oxley and Ranking Member
Barney Frank.
Last year, our bipartisan approach to legislation in 2003
led to the enactment into law of 11 pieces of legislation out
of here, which I think was a tremendous effort. I also want to
thank the staff from both sides of the aisle for that.
In December of last year, the President signed into law the
American Dream Down Payment Act, which will assist an estimated
40,000 low-income families each year to share in the dream of
owning their first home. Critical to increasing homeownership
is helping families learn more about the important elements in
the purchase or retention of a home, which for people is the
most major thing practically that could happen in their lives.
With that, without objection, I have more for the record. I
do not want to take up the time of other statements and also
the witnesses.
Does the gentlelady have remarks?
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Chairman, achieving the American dream of owning a home
is unfortunately still out of reach for many hard-working
families across the nation. Despite that more than 68 percent
of Americans now own a home, minorities still lag behind. Only
50 percent of Hispanic and Afro-American families own a home,
as compared to 76 percent of Caucasian families.
The number of foreclosures are increasing nationwide, and
are skyrocketing in many local communities. In Queens, New
York, which is part of my congressional district, over 200
families defaulted on their mortgages last year and the
foreclosure rate is twice the national average. Housing
counseling is not just an important initial step in the process
of purchasing a home. It is critical to ensuring that new
homeowners know what is on the table and what is at stake when
they sign on the bottom line.
In neighborhoods across the country, certified housing
counselors are meeting with low-income families helping, them
determine if they are ready to purchase a home. They walk
potential homeowners through the buying process, clarifying
loan terms, fees and costs, as well as their rights and
responsibilities. Housing counseling empowers individuals to
meet with mortgage lenders knowing what that they have the
information they need to successfully purchase and maintain a
home for their families.
However, many families caught up in the excitement of
purchasing their first home are often ill-informed or
misinformed about the loan agreement they are signing. As a
result, they end up with mortgage payments they cannot afford
and, with alarming frequency, face default or foreclosure.
While not a solution to curbing predatory lending, housing
counseling is an important part of educating families about all
aspects of purchasing, maintaining and refinancing a home.
I want to thank Chairman Ney for working together to draft
this bill, which we believe is the first step in strengthening
housing counseling services at the federal level. The Expanding
Housing Opportunities Through Education and Counseling Act will
elevate the importance of housing counseling at HUD. With
establishment of the Office of Housing Counseling, the bill
consolidates and expands the existing patchwork of counseling-
related services under one roof. The director of housing
counseling will be charged with strengthening services and
ensuring that the agency is providing comprehensive assistance
to counseling organizations in all neighborhoods across the
country.
The federal investment in housing counseling is critical to
local agencies seeking to deliver their services to more
families in more neighborhoods across the country. The
Expanding Housing Opportunities Through Education and
Counseling Act authorizes federal grants to provide a central
source of funding to local agencies and not-for-profit
organizations. The bill also targets low-income families, the
elderly, individuals who face language barriers and other
consumers who are more vulnerable to the predatory practices of
unscrupulous lenders. This will ensure that these individuals
are better prepared for the home-buying process and know the
benefits and risks of their loan options.
Today, we will hear testimony from HUD, housing counseling
agencies, and lenders. Their testimony will help highlight just
how important a strong federal investment in housing counseling
is for families in underserved neighborhoods. I look forward to
hearing everyone's testimony today and I am sure that it will
provide momentum to move this legislation forward and enact it
into law.
Thank you, Mr. Chairman.
Chairman Ney. I thank the gentlelady.
The gentleman from Arizona?
Mr. Renzi. No comments here.
Chairman Ney. Thank you.
The gentleman from Georgia, Mr. Scott?
Mr. Scott. Thank you very much, Chairman Ney. I want to
commend you for the sterling leadership that you have provided
on this issue. Ms. Velazquez, it has certainly been a pleasure
working with you, and certainly our ranking member, Ms. Waters,
for the leadership that she has provided on this issue over
many years, and to other members of this committee.
I do not think that there is a more pressing issue today
that we can deal with than how we can assist our citizens in
first purchasing a home, maintaining that home, and then
keeping that home. Our country is plagued from one end to the
other with unscrupulous lending practices, with predatory
lending, with threats coming from every direction. So much of
this is targeted, it is targeted at the most vulnerable people;
it is targeted at our senior citizens; it is targeted at our
minority communities; it is targeted at those places where
people believe that they do not have the information, that they
are not armed with the essentials to be able to protect
themselves, protect their homes, and make sure that their
dreams are manifested.
Throughout my career in the State of Georgia, I have been
working on this very important and serious issue. Any of us
sitting at this table and in this room that have been familiar
with this issue knows that Georgia has been at the forefront
unfortunately of so many abusive practices. In many respects,
it represents a trend across the nation. One of the things that
we have learned has been, one, that an ounce of prevention is
worth a pound of cure; and that we must prepare for the storm
before the hurricane is raging.
That is why I am so proud to work with this bill because
that is exactly what we are doing. We are putting counseling in
place. We are putting in a very important feature that I think
is somewhat the basis of this legislation, which is a toll-free
800 number. This toll-free 800 number will provide a help-line
for many of our constituents to be able to have access to help.
We know that this is a targeted activity, so why not try to
target the information and target the help-line to those
communities. To have a toll-free 800 number where individuals
can reach out and call for help, and then to have grants that
we can put down to the local community levels, so that groups
who have the credibility with many of these targeted groups
will be able to get this information to them.
The NAACP, with a sterling history of working in this area,
has certainly utilized the grants to work to get the toll-free
number. Many church groups, senior citizens groups, AARP, folks
that have the credibility of these individuals, and grassroots
organizations that can use these grants to get the toll-free
number out. We can use it to advertise. We can use it to put
this number on radio stations, in newspapers, and those
entities where these individuals listen and receive their
information.
And then the bottom line, ministers, senior citizens who
hold ministers in high regard, can say in their pulpits, before
you sign on the dotted line, call this 1-800 number. I think
this is going to go a long way to help with a very needed,
needed problem.
So Mr. Chairman, I appreciate this opportunity. I want to
thank you for letting me work with you. I am especially pleased
that we have put forward a bill with the help of many members
on this committee, that we have authored, called the Prevention
of Predatory Lending Through Education Act, and Mr. Chairman,
you have seen fit to include a number of the features of our
bill in this bill. I want to say on the record how much I
appreciate that.
Chairman Ney. Thank you.
Mr. Scott. As a freshman Democrat coming on the committee,
I appreciate certainly the opportunity of working with you, Mr.
Frank, Ms. Waters and all of the leadership in a bipartisan way
to move this issue forward.
I close my remarks by just recalling the words of Alexander
Hamilton, one of the great founders of this country. As we
know, Alexander Hamilton founded the cornerstone of our
commercial and enterprising activities. He said that a country
that remains illiterate of its commerce and handling of its
money will not remain free and enterprising for long.
I think that this measure goes a long way to take charge of
those words from Hamilton and build on them because, Mr.
Chairman, there is nothing more important than getting the
information to this needed targeted group, and providing the
counseling and the funding to make sure we can put a serious
dent into many of these financial abuses by protecting and
giving our targeted constituencies the armor to defend
themselves. There is no greater armor than education and
counseling.
Thank you.
Chairman Ney. I thank the gentleman for his comments.
The gentleman from California, Mr. Miller?
Mr. Miller of California. Thank you, Mr. Ney.
I would like to applaud you for this legislation. I have
been involved in the housing industry privately for over 30
years and I have watched the industry change dramatically and
the impact on the private sector and how that has really had
direct correlations to the cost of housing. Much of the reason
for the scarcity of housing and the cost of housing is
government and government regulations and processes.
I remember 25 or 30 years ago in California, and California
is unusual because about 56.9 percent of the population in 2000
own a home in California. That is more than 10 percent under
the national average. But I remember 25 or 30 years as a young
builder, I could apply for a tentative tract map and in 58 days
they had to say yes or no; 59 days, if they did not act, the
government, you were approved by law. Now, with CEQA and the
EIR process and the application and the way the law is drafted,
your application is not even deemed complete until every `i' is
dotted and `t' is crossed in the perspective of government.
What used to be a 2-month process to be able to move forward to
provide housing can be a 2-, 3-, 5-, 8-, 10-year process, as
you know.
That is extremely disturbing from any perspective,
especially from California. We are going to discuss things that
I think should be discussed. Predatory lending is huge, but I
think we need to move very cautiously because there are
individuals out there in society who have less than perfect
credit. Borrowers generally understand that if you pose a
somewhat higher risk, there should also be reasonable
expectations that the fees are going to be somewhat higher. But
there is a huge difference between predatory and sub-prime. I
think we are moving in a direction to really make it very
difficult for predatory lenders, and understand that if you are
a predator, that there is going to be a consequence and a price
to be paid.
We need to move gingerly to not impact in any fashion the
sub-prime market, because that sub-prime market is absolutely
essential and important to homeownership for those who have
less than perfect credit, and there are a lot of people in this
country who have less than perfect credit for different given
reasons and different problems.
But a real concern I have, and I hope you will address
this, is RESPA. I worked with Secretary Martinez 3 years ago
and I think we were moving I think very well through the RESPA
process, the concept of bundling, other ones were thrown out
there and debated back and forth, and compromise occurred. I
really believed at that point in time we were heading in a
reasonable direction on RESPA that would benefit consumers and
provide the information that they needed and an understanding
of how to best be able to proceed with the acquisition of a
home, and clarify all the processes and such.
But I am really, really concerned, and I have always had a
great relationship with HUD, as you know. We have never had
disagreements. We have always been able to work problems out.
But the new process that you are going through really disturbs
me because we do not know what it is. All I know is I have a
letter here that FTC has come out with and said that the new
RESPA reform proposal that they reviewed, which we have not
reviewed, could cost mistakenly buyers $400 million and $800
million per year.
Now, I do not know what that breaks down to per applicant,
but when we are talking about $400 million to $800 million a
year impact on people trying to get a loan because the new
RESPA proposal is perceived from their perspective to be vague
and ambiguous and could lead people to make the wrong decision
rather than the right decision, it really concerns me because I
thought we were really off in a good direction. Right now, I do
not know if we are off in a good direction or we are off in a
bad direction. All we can glean is that from what we are
getting it could be concerning. So I hope you would address
that.
Again, Chairman Ney, thank you very much for this hearing
and I look forward to hearing the testimony.
Chairman Ney. Thank you. I do not know what direction we
are in RESPA, period. I know that issue will continue and we
will go down the road at some point in time with that.
The gentlelady from California, Ms. Lee?
Ms. Lee. Thank you, Mr. Chairman, and I want to thank
Ranking Member Waters for convening this hearing today on this
very important issue.
Last year when we were marking up the American Dream Down
Payment bill, we discussed and offered amendments to provide
not only foreclosure assistance, but also foreclosure
counseling to participants in the program of the American Dream
Down Payment bill.
Mr. Chairman, one thing that I wanted to just note for the
record is that we all recognize that the key to successful
wealth-building is comprehensive counseling for both homeowners
and renters and also increasing the stock of affordable
housing. We were pleased to know that this bill was in the
hopper and that this hearing was going to be held today, but
Mr. Chairman I wanted to ask you a couple of things, and just
mention them in my opening statement, with regard to
specifically section six of the bill that requires the
preliminary report and study as it relates to foreclosure and
default of home loans, and report back within 24 months.
Some States I believe have conducted these studies and I
would like to work with you as this bill moves forward to
possibly talk about the States that have already conducted
studies with regard to default and foreclosures, how we can
provide maybe a provision for real foreclosure assistance and
counseling in those States so that in fact we do not have to
wait for 24 months. People are losing their homes right and
left, and I think it would really be very helpful. Yes, the
national study, but also, Mr. Chairman, I think it would be an
added element to this bill where we can add some real help in
terms of foreclosure assistance to those States that already
have the studies in place.
I think this is an excellent first step. It will streamline
housing counseling services in HUD and I think it is a starting
point. I look forward to this hearing and I hope to work with
you to try to add some language to this bill.
Chairman Ney. I want to thank the gentlelady. I am assuming
you would like to go towards foreclosure counseling and you
want to get also some of the state statistics that are out
there to find out how many people are losing their homes and
what can be done about it.
Ms. Lee. Mr. Chairman, yes, but also some States already
have conducted those studies and we know what the issues are
and what the problems are. For those States that already have
studies relating to this, I would like to provide a provision
that says we are going to provide some foreclosure assistance
and counseling, rather than just the study.
Chairman Ney. I am sure we will have further discussions on
the issue as it progresses.
Ms. Lee. Okay. Thank you, Mr. Chairman. I would like to
work with you on that, as we move this bill forward.
Chairman Ney. Thank you.
Ms. Lee. Okay, thank you.
Chairman Ney. Our Ranking Member, the gentlelady from
California.
Ms. Waters. Thank you so much, Mr. Chairman, for scheduling
this hearing on the important subject of housing counseling and
on H.R. 3938, the bill that you introduced last week with
Congresswoman Velazquez and Congressman Scott to expand housing
opportunities through education and counseling.
You have assembled large, balanced, and diverse panels of
witnesses for this hearing, and I appreciate the care and
attention that went into assuring that a wide range of views
will be presented here today. I also commend you, Mr. Chairman,
for making good on the pledge that you made last year to
Congresswoman Velazquez to work with her on homeownership
counseling legislation.
Pre-purchase housing counseling is extremely important to
ensuring that consumers are well informed and protected when
they evaluate whether, when and how to purchase a home. Post-
purchase housing counseling and foreclosure prevention
counseling are essential to protecting consumers in times of
financial stress. Yet it is critical to emphasize that housing
counseling must be supported by strong, effective laws and
regulations against predatory lending. Housing transactions are
complex, intimidating transactions for many consumers, and
counseling will better prepare consumers to deal with the
unethical.
We also should emphasize that while homeownership is an
important goal for many Americans, there are millions of
Americans who choose to rent and will always be renters. We
need a balanced approach that recognizes that housing
counseling is broader than just homeownership counseling. H.R.
3938 has some very attractive components. It establishes an
office of housing counseling within HUD to consolidate and
strengthen housing counseling offered by the federal
government. It directs that standards be developed for
materials used by counseling agencies in providing rental
housing counseling and homeownership counseling.
Based on legislation that was introduced by Representative
Scott, H.R. 1865, the bill includes a toll-free number and Web
site for a listing of housing counseling information. It
provides that only HUD-certified housing counseling programs
may receive assistance. It also has provisions for multi-media
outreach to vulnerable populations at greatest risk of
predatory lending, such as seniors, people with language
barriers, low-income households, and ensures that all
counseling materials and outreach are language and culturally
appropriate.
I know that some concerns have been raised about what
culturally appropriate materials would mean in this context. I
hope that our witnesses will address this issue in their
testimony. While H.R. 3938 has many valuable elements, it also
appears to me that certain aspects of the bill may require some
fine-tuning. Some have raised concerns about the work of the
proposed advisory council. It is important to determine what
role, if any, such body would play in granting housing
counseling funds. I believe that it is important that housing
counseling funds be awarded on a competitive basis, and that
the advisory council have no role in awarding these funds.
H.R. 3938 also mandates the use of housing counseling
software, that is on page 13 beginning at line 15, and carrying
over to page 14. This legislation mandates the Secretary to
certify mortgage software programs for consumer use and
authorizes the development of such mortgage software systems
using private sector software companies. During the pilot
phase, these mortgage software programs can only be offered in
conjunction with counseling by a housing counselor. Following
the pilot phase, they do not need to be.
The Secretary is encouraged to make them widely available
in public places and throughout the Internet. Thus, while
initially the bill would require face-to-face counseling, the
door is left open for this software to replace this human
contact. Research suggests that this type of virtual counseling
is far less effective than human contact.
The legislation also appears to open the door to groups
other than nonprofits and government bodies doing counseling.
On page 17, line 10, the legislation authorizes HUD to make
financial assistance to States, units of local government,
nonprofit organizations and other entities. These other
entities could include for-profit businesses, including
affiliates of lenders. Given the huge potential for conflicts
of interest, if we allow those with an interest in profiting
from this industry to provide advice that should be given by
impartial groups, we need to proceed with great caution in this
area.
Finally, it is worth noting that this bill provides no new
money for housing counseling beyond what President Bush has
already proposed. We should be discussing the scope of the
unmet needs for housing counseling and how best to address
those needs.
I look forward to hearing from our witnesses and hearing
them examine many of these issues in the course of this
hearing. I want to thank you, Mr. Chairman, and if I have to
leave early, it is because H.R. 1375, the Financial Services
Regulatory Relief Act, is on the floor and I have offered an
amendment as you know that would retain the 15-day waiting
period after the department of justice has signed off on a bank
merger or mergers between bank holding companies. That is
important to our consumers and I will have to go up and present
my amendment. So if I leave early, it is because of that.
Thank you.
Chairman Ney. We understand. Before you came in, I thanked
you and also want to do it again for all your work, last year
working with us, and producing I think some good bills, about
11 or so that got to the floor. We appreciate that.
Ms. Waters. Thank you.
Chairman Ney. Before we move directly on to the witnesses,
I did want to clarify to the gentlelady from California,
Congresswoman Lee, because you and I had not discussed it
previously, but are you talking about, I have no problems with
the counseling and also the counseling on foreclosure and
looking at what the States have done, but are you talking about
grants directly in the bill for foreclosure?
Ms. Lee. That is part of it, Mr. Chairman. When there is a
real need, if an individual or family can stay in their house
based on 30 days of assistance while they go through
foreclosure counseling and restructure their loan or whatever
is necessary, then I think we should be able to provide
something to tide them over for those 30 days or 60 days.
Chairman Ney. I do not want to mislead you at all. The
scope of this bill, and I will work with you on this and I will
be glad to talk to you later about that other issue, but the
scope of this bill is counseling. I do not know if we could
place into here something that directly funds, I am not saying
it is not a good issue, but I do not know if it will fit in the
counseling bill. I did not want to mislead you.
Ms. Lee. No, Mr. Chairman. I understand that. I just would
like to work with you on it. I know under section six we do
talk about the preliminary report that should be submitted to
Congress on the root causes of default and foreclosure of home
loans. So because this provision with regard to foreclosure is
in there, I would like to see if there is any way we can figure
that out under that section.
Chairman Ney. Again, I do not think probably in this bill
we will be able to go beyond counseling. I do not think we will
be able to get into the direct grants, although it is an issue
I would like to talk to you about. I think it is something
important.
Ms. Lee. Yes. Last year, we discussed this during the
markup of the American Dream Homeownership bill, and I think
that is a very important issue concept that this committee
needs to address, because we could save a lot of homes and a
lot of families from being thrown out as a result of a 30-day
or a bridge kind of assistance.
Chairman Ney. On the history of this issue, I am trying to
recall, has there been a bill or do you have a bill or does
anybody have a bill?
Ms. Lee. We had amendments to the American Dream Down
Payment bill that would have provided the framework for this
kind of assistance. I would like to talk to you about those
amendments and maybe turn that into some form of a bill. We
talked about this during committee and said we would do that.
Chairman Ney. We will talk later then.
Ms. Lee. Because the point I believe you made at the
hearing was that you did not want to tinker with the American
Dream Down Payment bill, but most members understood the
validity and the necessity to ensure that families stay in
their homes. Sometimes it may be necessary just to help them
through that 30-day or 60-day period.
Chairman Ney. That is what actually led us here today,
because I did not want on the counseling, I made a commitment
on the counseling that I did not want to in fact take the
counseling issue into that particular area. That is why I just
wanted to clarify. I do not know if this bill would be the
appropriate vehicle, because it is counseling, of direct grant
assistance for foreclosures, but maybe we ought to look at a
piece of legislation, or further discuss the issue. I just did
not want to mislead you that when I realized you were talking
about direct grants, I do not know if this would be the vehicle
for it.
Ms. Lee. Okay. No, Mr. Chairman. I understand that. I would
just like to look at an appropriate vehicle so we can bring
that to the committee because I think the time is now to do
that.
Chairman Ney. Thank you. I appreciate it. Thank you.
We will move on to Mr. Weicher. Thank you for being here.
He is Assistant Secretary for Housing and Federal Housing
Commissioner at the United States Department of Housing and
Urban Development, HUD, a post he has held since June of 2001.
Prior to his appointment to HUD, Mr. Weicher was the Director
of Urban Policy studies at the Hudson Institute and a member of
the Millennial Housing Commission.
Welcome, thank you.
STATEMENT OF HON. JOHN C. WEICHER, ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
Mr. Weicher. Thank you, Mr. Chairman and members of the
subcommittee. It is a pleasure to testify this morning
regarding HUD's housing counseling programs.
Housing counseling plays a key role in support of the
administration's goal to increase homeownership and close the
ownership gap between minority and non-minority households. The
President's blueprint for the American Dream Partnership
establishes a goal of 5.5 million additional minority
homeowners by the end of the decade, and specifically
recommends educating more people regarding the home buying
process to help achieve this goal.
Counseling funds have doubled in this administration and we
have requested a further increase to $45 million for fiscal
year 2005. We have gone from $20 million to $40 million already
and we think this is part of the President's continued
commitment to expanding homeownership opportunities in this
country.
About half of HUD's housing counseling funds support pre-
purchase counseling and homebuyer education. Based on our
experience in recent years, we project that the fiscal year
2003 funds will help about 60,000 families become homeowners
this year. An additional 140,000 families will continue to work
with their counselors so that they will become ready to buy a
home during the following year.
The counseling program also helps to ensure that these new
homebuyers remain in their homes. About 20 percent of the
housing counseling grant funds support the delivery of post-
purchase counseling to help families pay their bills on time,
perform basic home maintenance and make their mortgage
payments. The fiscal year 2003 funds will help about 135,000
families to stay in their homes.
The housing counseling programs accounts for more than two-
thirds of HUD's direct grants for counseling. There are only
two other programs within HUD that directly fund counseling-
related activities. The fair housing initiatives program will
devote $3.8 million in fiscal year 2004 for education and
outreach grants to nonprofits and the resident opportunities
for self-sufficiency program will provide $13.2 million in
grants for life skills training, including financial literacy.
In addition, funds from a number of other programs may be
used to pay for counseling services, including HOME, CDBG, HOPE
VI, Self-Help Homeownership, the SHOP program, and special
needs assistance grants for the homeless. The decision to
allocate any of those funds for counseling, however, is up to
the grantees.
I would like to describe some aspects of the program. To
participate, an organization must first be approved by HUD as a
housing counseling agency. Approval involves meeting various
requirements relating to experience and capacity, including
nonprofit status, a minimum of 1 year of housing counseling
experience in the community, and sufficient resources to
implement a housing counseling plan. We maintain a list of HUD-
approved housing counseling agencies so that individuals and
families in need of assistance can easily access the nearest
HUD-approved housing counseling agency through HUD's Web site
or through our automated 1-800 hotline.
Currently, there are almost 1,700 HUD-approved housing
counseling agencies, including over 600 local housing
counseling agencies, with another 600 branch offices, and
almost 500 affiliates and branches of national and regional
intermediaries. The national and regional intermediaries
provide and manage sub-grants to networks of affiliated local
housing counseling agencies and they also provide training and
technical assistance. In addition, 16 state housing finance
agencies provide counseling services with HUD housing
counseling grant funds.
Every 2 years, HUD performs an on-site review of every HUD-
approved housing counseling agency to ensure that their
performance is consistent with their housing counseling plan
and that they are in compliance with program requirements.
Reviewers may provide technical assistance based on their
findings and results of the review are factored into grant
application scores.
For the past 3 years, HUD has given the AARP Foundation
significant funding to develop training and quality control
measures for congressionally mandated counseling related to
home equity conversion mortgages. The money has supported
development of a network of specially trained counselors who
are employees of local HUD-approved nonprofit agencies. Based
in part on this successful partnership, HUD will soon publish
an $8 million housing counseling training notice of funding
availability to train counselors, produce training and
educational materials on a broad array of housing counseling
topics.
Also, we are in the process of procuring an Internet-based
client management software system that is designed to improve
the analysis of a client's financial situation and readiness
for home purchase, and also improve the collection of program-
related activity data.
Finally, a draft housing counseling regulation is making
its way through HUD's clearance process. This will be the first
set of regulations for the housing counseling program. I hope
that this overview of our counseling program clearly
demonstrates the department's commitment to the program and to
the delivery of high quality counseling services across the
nation.
This concludes my statement, Mr. Chairman. Thank you again
for the opportunity to meet with you today to discuss this
important program.
[The prepared statement of Hon. John C. Weicher can be
found on page 11 in the appendix.]
Chairman Ney. I want to thank the gentleman for his
testimony and move to questions.
Ms. Velazquez?
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Weicher, as you know, there has been discussion of
creating a mortgage software system to be used to supplement
housing counseling services. It has been suggested that HUD
could use resources from the working capital fund for such an
activity. Could you please clarify whether or not the funding
for HUD's working capital fund could be used for the creation
of a mortgage software system?
Mr. Weicher. Ms. Velazquez, very simply, yes it can, and
further, we are in the process of doing that. We are in the
process of acquiring a client management system. I alluded to
this a bit in my statement. We are very excited by this
opportunity. We think this will enable us to track the
performance of individual counseling agencies more precisely
than we can now, and we think it will also enable us to track
the outcomes of individual families who receive housing
counseling far more precisely than we can now.
We are very excited by this and we hope to complete that
procurement as expeditiously as we can. As you know, the
continuing resolutions that we have had in each of the last 2
years have complicated, for us in particular, IT procurement.
Things have gone more slowly than we would like.
Ms. Velazquez. Thank you. It is my understanding that
current HUD guidelines prevent local nonprofits from combining
community development block grant funding and housing
counseling funding for housing counseling activities. HUD
considers this double-dipping. While this requirement is to
prevent organizations from getting paid twice for providing the
same service, it severely limits funding sources for local
housing counseling agencies. It is also my understanding that
CDBG requires rigorous reporting standards to prevent the
misuse of federal funds, and therefore the double-dipping
guideline is unnecessary. It has been brought to my attention
that this issue has been raised to HUD by housing counseling
organizations. Can you please explain HUD's thoughts on this
issue and how the agency plans on addressing these concerns?
Mr. Weicher. Certainly, Ms. Velazquez. I think there may be
some confusion about our position on this issue. We certainly
encourage agencies to seek out and use as many sources of
funding as possible. We do not provide all of the funding for
any of the agencies which we fund. They have to use other
sources besides ours.
However, the issue becomes that funds from two different
sources cannot be used to pay for the same service to the same
client. And that is a government-wide policy. It is not simply
a HUD policy. It is a policy of the federal government. You
cannot pay twice for the same service to the same client. I
know that from the standpoint of an individual counseling
agency this may be a complication in terms of record keeping,
but it is a government-wide requirement. It is not simply a HUD
requirement.
Ms. Velazquez. So if we want to change that, then we will
have to do it through legislation.
Mr. Weicher. I believe you will, Ms. Velazquez. It is not
something we at the department can change.
Ms. Velazquez. Okay. Thank you.
As you are aware, it has been proposed that housing
counseling services should be consolidated under one roof. The
intent would be to create a more efficient system that better
meets the needs of counseling organizations and the families
that benefit from those services. Can you please comment on
what your views are of the benefits in consolidating housing
counseling services at HUD?
Mr. Weicher. Let me start by saying that in each of the
last three budgets, we have requested a separate account for
housing counseling funding. As you know, the housing counseling
program which I administer is in fact funded as a set-aside in
the HOME block grant. The funds are transferred from that block
grant to my office for purposes of awarding the funds and
managing the program.
We felt all along that housing counseling should have a
more elevated position in policymaking. We do have some
concerns with the proposal, and Assistant Secretary Roy
Bernardi for Community Planning and Development, and I have
both testified on this subject previously. We both have
expressed concerns that we think a shift in the program
operations of this sort would disrupt the service delivery for
some period of time. We think it would well be
counterproductive.
We have ourselves revised the standards and performance
measures relating to the 1,700 HUD-approved counseling agencies
that participate in our program. We do not think there is a
reason for another office to assume these responsibilities and
begin to operate them. We think it is easier and quicker for us
to continue to manage our program, and we as I said are over
two-thirds of the total direct grants for housing counseling in
the department. There are small programs in Fair Housing and in
Public and Indian housing for specific clients, for specific
purposes. We think they work well enough separately.
Ms. Velazquez. Mr. Weicher, I have a list here of all the
housing counseling programs that I want to make part of the
record. Do you think that this is more manageable and that it
would allow for you to provide better assistance to those
counseling services organizations in our districts?
Mr. Weicher. Yes, because there are only three counseling
programs which directly fund counseling, and our program is 70
percent of it. All the other programs on that list, counseling
is an optional use of funding at the discretion of the grantee.
That is true for CDBG; that is true for HOME; that is true for
the Indian housing block grant. It is all at the discretion of
the grantee. In some cases in addition, there is a requirement
in a program that someone receive counseling, but there is not
a requirement that the counseling be provided with HUD funds.
We have a requirement that any borrower receiving a home
equity conversion mortgage should receive counseling before
obtaining that mortgage, but we do not make direct grants for
that purpose. We leave that to the lender and the buyer to
obtain the counseling. It comes down to three programs, and our
program is over two-thirds of the total.
Ms. Velazquez. The foreclosure rate is getting worse, not
better, in our communities. It seems something is not working.
Thank you, Mr. Chairman.
Chairman Ney. Your time has expired.
Mr. Miller?
Mr. Miller of California. Thank you, Mr. Chairman.
Whenever I look at legislation, I say how can anybody in
the private sector be held liable in court by mistake and
oversight on our part. Under the Section 8 updating and
simplification of mortgage information booklet, you put out a
book on RESPA currently, correct?
Mr. Weicher. We put out a special information booklet which
is to be distributed to any----
Mr. Miller of California. Is that given to everybody who
wants to buy a house, they are given a copy of the booklet in
the process?
Mr. Weicher. They are supposed to receive that, yes. We do
not ourselves distribute that booklet, but it is supposed to be
provided by the lender.
Mr. Miller of California. The concern I have, in my
community probably 12 years ago when my son was in elementary
school, they spoke 37 different dialects. Among those dialects
there were basic differences in cultural backgrounds even. This
section talks about preparing a booklet to help consumers
applying for federally related mortgage loans to understand the
nature and cost of real estate settlement services. It says
they have to be accessible to homebuyers of different ethnic
and cultural backgrounds.
Now, we can talk about that here and we might think that is
very simple. In California, in reality it could be very
difficult and complex to do this. How is this information to be
distributed once HUD prepares it?
Mr. Weicher. The information is distributed by the lender.
It is to be provided by the lender, by the loan originator, by
the broker at the time that the borrower obtains the mortgage.
It is intended to be useful to the borrower.
Mr. Miller of California. To a borrower in RESPA, if they
do not, what liability do they face for that?
Mr. Weicher. I cannot tell you what the specific liability
is for failure to provide a booklet. I can certainly provide
that for the record, but I cannot tell you what the penalty is
on that particular matter.
Mr. Miller of California. Mr. Chairman, I would strongly
suggest that we try to get an answer to that question and
define in this bill clearly that we are not intending to
propose a significant impact upon an unintentional mortgage
broker or a lender who might not necessarily have the proper
information to deal with different ethnic and cultural
backgrounds. A lot of people I know specifically in the Muslim
community, for example, and in that community even though the
dialect is similar, the cultural backgrounds and beliefs are
completely different. What is acceptable in one is not
acceptable in another. I know certain Muslims, the women are
not allowed to shake your hand, because I am heathen,
basically. That is the rule.
So this concerns me because I think we are making an effort
to do something good, but can we accomplish this and create
legal roadblocks for the private sector down the road. I would
like to see, at least consider it, I do not know if we can do
it here, but consider trying to come up with something to add
to this what the intent is and not create a tort issue out
there that in the future some attorney is just going to try to
make a fortune off some little guy who went out there and tried
to help a person get a loan and did not give him or her the
proper information based on this legislation.
Chairman Ney. One comment, I would like to take credit for
this, but our counsel, Clinton Jones, actually slipped the idea
here to me. If you are going in to deal with a broker or
anybody that is dealing with this issue, I do not know if HUD
does this now, they all have the computers. Can't this be put
on the Web in all languages, you know, Creole, Farsi, Spanish,
you name it? It could be put on the Web and then you click it
and it prints off and you print one of 50 languages. Is that
done now? Do you have things on the Web?
Mr. Weicher. We have many things translated into Spanish,
in particular, and many of them on the Web. I know that in the
previous administration there was an attempt to translate some
basic material into a number of languages, which proved out in
a couple of cases to be badly translated. The department
recognizes that if you are going to provide information in
other languages, you have to be very careful about the quality
of the translation.
Mr. Miller of California. Perhaps we need to also consider
in there that if we had that available on the Web, that it is
to be supplied to the buyer in what the buyer perceives to be
the most appropriate form available. That way the mortgage
broker is not responsible if the mortgage broker shows the
buyer a list of different languages and information that would
be applicable, the buyer has the opportunity to pick one that
he or she deems most appropriate for their needs. That way, we
remove the liability from the middleman.
Chairman Ney. We will explore the issue because it depends
on which area of the country you are in. Florida has Creole.
Mr. Miller of California. I agree. I would appreciate some
consideration of that area.
Thank you.
Chairman Ney. On to Mr. Scott.
Mr. Scott. Thank you very much, Mr. Chairman.
Secretary Weicher, can you tell the committee how many home
education programs currently exist in HUD and how currently
they are coordinated?
Mr. Weicher. We have three housing counseling programs. Our
housing counseling grants provided by the Office of Housing,
which we provide grants to over 400 agencies a year, and they
total about $38 million this year. There are only two other
programs. There is a $3.8 million program for fair housing
initiatives counseling operated by the Office of Fair Housing
and Equal Opportunity. There is a $13.2 million program,
resident opportunities for self-sufficiency operated by the
Office of Public and Indian Housing for residents of public
housing. Those other two programs are both small, targeted to
specific clienteles for specific purposes. Our program is the
only general housing counseling direct grant program in the
department.
There are a number of other programs where funds can be
used for counseling, but they are to be used at the discretion
of the grantee. In the cases of CDBG, they are to be used at
the discretion of the city or county that receives the funds.
That is also true in the case of HOME. Funds are available in
the Indian housing block grant and can be used in the Indian
housing block grant for that purpose. But funds do not have to
be used for that purpose in any of those programs. It is at the
discretion of the grantee. So the Office of Housing provides
over 70 percent of the funds for housing counseling that the
department provides in the form of direct grants, and we
operate the only broad national housing counseling grant
program in the department.
Mr. Scott. So we are setting up in this legislation a new
Office of Housing. How will that help you coordinate these
programs?
Mr. Weicher. As I was saying, it is not clear either to me
or to my colleague, Assistant Secretary Roy Bernardi, that a
new office is necessary for the management of our counseling
grant program. We have only the one broad program which I now
manage, and we have the two smaller grant programs which are
managed in separate offices because they have separate
purposes. These programs all run effectively, and we think that
the transitional costs of combining management of all three
programs into one office is not really likely to yield
substantial benefits and is likely to have costs during the
period of transition.
Mr. Scott. Okay. Let's look at section three and section
four here which I think are the heart of this legislation, the
counseling procedures and the money. Let's take one of these,
and work with me here on how you see this working in this new
department. Let's look at the toll-free number and the Web
site. Let's see how we tie that to the granting at the local
level and then secondly, is $45 million sufficient to do some
of this.
I happen to believe that one of the most critical needs in
dealing with this whole issue for our constituency is beating
the predatory lenders to the punch and giving our folks out
there some help. So we have this 1-800 number. It is coming to
you. How do you envision this new office handling this 1-800
number?
Mr. Weicher. We have a 1-800 number now, as well as a Web
site, and the number is 1-800-569-4287. A caller who uses that
number is prompted to enter a zip code, select the type of
counseling service needed from a menu, and the system will
provide the caller with the names and the phone numbers of
three agencies that offer these services that the caller wants
in the caller's area.
On the Web site, we provide a list of all of the HUD-
approved housing counseling agencies, categorized by state,
then categorized by city in alphabetical order, listed by name.
The Web site has the name of the organization, the address, the
phone number and the types of counseling services provided.
Mr. Scott. Mr. Weicher, could I ask you one question.
Mr. Weicher. Certainly, Mr. Scott.
Mr. Scott. If it is clear that the people who need the help
the most are elderly, one of the very reasons why they are so
vulnerable and why we have this problem is that they do not
have the sophistication. Don't you think it would be helpful if
we had a 1-800 number and that we targeted this 1-800 number
using some of these grants to get that number targeted to these
elderly folks who simply want to be able to dial the phone
number and get a human being, get somebody on the phone that
they could talk to. Don't you think that would be helpful? I
mean, if they call a 1-800 number and they get a recording,
they get a lot of confusion, and they get a Web site, we are
dealing with people who we want to help the most, but people
that if we get this 1-800 number to them, we want to get them
to talk to a human being. What is it going to take for us to
get that?
Mr. Weicher. I think that the 1-800 number that we have now
tells you what counseling agencies are available in your
neighborhood, in your community. I think that information can
be provided either on an automated basis or by an individual
answering the phone, but I think that over the phone that
really is about all the information that can be provided by a
single 1-800 number. An elderly person calling and asking for
help on a home equity conversion mortgage or a problem with a
predatory loan will obtain from the 800 number or from the Web
site the names, addresses and phone numbers of organizations
which can provide help to them on their specific concerns. We
believe that works reasonably well. We do think that process
works.
We yield to no one in our opposition to predatory lending.
I testified before Senator Craig in the Senate Committee on
Aging about 6 weeks ago on the activities that we have taken at
FHA to combat predatory lending in our FHA insurance program,
which is the only place that HUD has direct authority to combat
predatory lending. We have been aggressively pursuing that with
literally half a dozen rules which we have put out as final
rules in this administration and we continue to work on that
problem.
Chairman Ney. If I could, the time has expired and I have
no problem coming back, but I think Mr. Renzi has a commitment,
so if we can get him into the questioning, and then we will
come back.
Mr. Renzi?
Mr. Renzi. Thank you, Mr. Chairman.
I represent a district where actually I actually represent
more Native Americans than anyone else in Congress that has one
single district that is not a whole state. While I am not in
favor of growing government, I would applaud Mr. Scott's
comments. I do not care if you have to add 100 people in this
new office, if it takes that to reach out to particularly
Native Americans who are the lowest of all minorities in the
country as far as homeownership goes.
In the Indian housing block grant program you have the
ability on an optional basis to spend money for counseling. Can
you help me understand that optional basis, please?
Mr. Weicher. I am not an expert on the Indian housing block
grant. It is managed by my colleague, Assistant Secretary Mike
Liu, the Office of Public and Indian Housing. I do know that
counseling is an eligible activity in that program as it is in
our other block grant programs. It is an eligible activity at
the discretion of the grantee. I do not know to what extent the
recipients of that block grant choose, the tribes choose to
devote funds to counseling. We may be able to provide you with
that information for the record, but I do not know that myself.
Mr. Renzi. One of the things that I commend Mrs. Velazquez
for teaching me when I first came on this committee was, many
times first generation Americans trying to go to college and
have their sons and daughters enter into the university system,
the first impediment they meet is the application process. Of
course, that is the same that we are seeing here as it relates
to housing. For the first time, generations and generations of
Native Americans who live on sovereign land do not even have
the concept of a modular home. So they are having to break
through cultural barriers in order to embrace the benefits that
homeownership have that we have all seen.
In the area of funding and the formula as it relates to
Indian housing block grants, and again this is not so much
counseling, but I have you in the door and since we opened it
up, you know we are going through a tough time here as far as
what kind of funding and everything, that housing will take in
the block grant program. Many times, those monies are spent,
are allocated to individuals in the census who check that they
are Native American in their blood. They might live in Chicago,
but because they checked the box that they are Native American,
those monies that are specifically intended towards tribes or
sovereign lands are then diverted into even inner-city areas.
While I do not want to be a person who impedes their
ability to get monies, there has got to be a focus as to how
much money is being diverted away from the tribes, and the
monies that are really needed on the reservation. The
conditions on the Navajo Nation's 18 million acres are
absolutely deplorable. You do not have to go to Africa. You do
not have to go to the third world countries to see poverty like
we have on the reservation.
So I would just, since I had you in front of me today, I
wanted to take the time to ask you to look at that. In my final
couple of seconds here, could you just go ahead and expand upon
any kind of HUD programs or any kind of counseling programs
that you see that are going to really help Native Americans?
Thank you.
Mr. Weicher. Let me say, Mr. Renzi, that I am not an expert
on Indian housing and I do not manage the Indian housing
programs at all. I certainly do not manage the Indian housing
block grant. I do know that my colleague, Assistant Secretary
Liu, spends a great deal of time addressing the Indian housing
issues, and indeed has been much involved personally in the
development of the formula for allocating funds under the
Indian housing block grant. I know he spent a lot of time on
that earlier this calendar year.
What I can certainly do is express your concerns to him and
I will certainly do that. I cannot tell you how that block
grant program works. I cannot tell you of my own knowledge. We
can certainly provide information for you for the record from
the department. I can do that.
Chairman Ney. Thank you.
The gentlelady from California, Ms. Lee?
Ms. Lee. Thank you, Mr. Chairman.
First, thank you, Mr. Secretary, for being here. Let me
just ask you a couple of questions about the current housing
program, given the fact that we have such a high rate of
foreclosures and of course cases of predatory lending. How
effective are these existing housing counseling programs?
Mr. Weicher. We think they are effective. We track
performance of clients in various kinds of programs in a number
of ways. I can provide you with very detailed information for
the record, but I can say, for instance, that the agencies
which we have funded have provided help to clients who are
trying to avoid a mortgage delinquency or resolve a delinquency
without going to foreclosure. The HUD funds that we have
provided have been successfully used to avoid foreclosure in 90
percent of the cases, here I am using data based on fiscal year
2002, in 90 percent of the cases where there has been a
conclusion to the person's concern, foreclosure has been
avoided.
Here we are dealing with people who are at serious risk of
foreclosure. To start, there are a lot of families for whom we
do not know at the end of the year whether they have
successfully avoided foreclosure. The jury is still out. We do
not know the end of the situation.
Ms. Lee. So you have not done any national studies?
Mr. Weicher. Yes, we have tabulations of outcomes in a
number of aspects, and this I think is a good indication of the
effective use of our funds. It is also I think a good
indication of the effectiveness of the housing counseling
agencies who receive our funds and use our funds and other
funds as well, to provide help. I think the funds are used
effectively for the important purposes of keeping people in
their homes and helping people buy homes.
Ms. Lee. So you have the raw data, but you do not have the
compilation of this data into any studies that would show us
how effective these programs are?
Mr. Weicher. I can provide you with the tabulations. There
are a number of studies which have been done. Two economists at
Freddie Mac did a study 3 years ago looking at Freddie Mac's
data and measuring the effectiveness of counseling. There is a
study done by The Ohio State University where I used to teach,
not done by me, but done by The Ohio State University which
shows the same pattern. I do not think there is any question
about the effectiveness of housing counseling. We track it in
our own program, in the FHA programs as well, and we know that
counseling is effective in preventing foreclosure.
It is on the basis of that research that the administration
made the decision to ask Congress for additional funding for
counseling. We started with a $20 million appropriation at the
beginning of this administration. We have gone to $40 million
with Congress acting favorably on our request, and we are now
asking to go to $45 million.
Ms. Lee. Okay. Given the number of assistance programs that
you have, what do you think the impact would be if all of these
counseling assistance programs were under one umbrella or were
consolidated, streamlined, and that office, for example, takes
responsible for really executing and maintaining these
programs?
Mr. Weicher. There is only one direct grant program that
provides housing counseling and that is the program I
administer. That provides over two-thirds of the funding that
the department has for housing counseling. There are only two
other direct grant programs in the department. They are both
much smaller and they both have very specific purposes. One is
the Fair Housing Initiative grants for fair housing counseling,
and one is the Resident Opportunities Self-Sufficiency Program
for residents of public and Indian housing. One is managed by
the Office of Fair Housing, the other by Public and Indian
Housing. They are both small and they both have very specific
purposes.
The list that I know CRS has provided is largely a list of
programs in which funds may be used for counseling at the
discretion of the grantee. Unless you change those programs,
unless you change CDBG or the Native American housing block
grants, the decision to spend money on counseling rests with
the grantee.
Ms. Lee. I see. May I just quickly have an additional 30
seconds, Mr. Chairman?
I just wanted to ask you about creating more affordable
housing in terms of the housing production initiative, given
the mission of HUD in terms of its goal to provide more
affordable housing for everyone. How do you see the
establishment of a national housing trust fund? We have had the
bill here in committee. We have talked about it. We have
support throughout the country, but somehow it just goes away.
I am just wondering what your thoughts are on that.
Mr. Weicher. I have seen a number of proposals to use the
reserves, the net worth of the FHA mutual mortgage insurance
fund for a national housing trust, and those funds are the
reserves that we use to pay claims when we have foreclosures.
We certainly do not believe that the funds that FHA has
collected from moderate income home buyers as part of a mutual
mortgage insurance fund should be used for other purposes.
Ms. Lee. About how much is in the reserves now? Do you
know?
Mr. Weicher. The reserves are about $22 billion.
Ms. Lee. $22 billion?
Mr. Weicher. At this point, yes.
Ms. Lee. So just taking maybe $2 billion a year to create
more affordable housing would impact this fund?
Mr. Weicher. Yes. Those reserves are to pay the costs of
defaults, the cost of foreclosures. We have built them up
through effective management of the program and we do our very
best to minimize foreclosures and minimize losses on the
foreclosures, but these are the reserves.
Ms. Lee. No, I understand that, but I am just saying on the
reserves, if we took $3 billion, $5 billion, left the reserve
fund at $15 billion, that would create a major impact in the
ability to use the reserves in the way----
Mr. Weicher. It would put the fund at some risk that we do
not believe that there is any purpose in putting the fund at
that risk.
Ms. Velazquez. Would the gentlelady yield for a second?
Ms. Lee. May I yield, Mr. Chairman?
Chairman Ney. Ms. Lee, the time has expired.
Ms. Velazquez. Just a quick question. Sir, out of the $20
billion reserve, what is the default rate?
Mr. Weicher. The default rate is not measured against the
reserve. For a given book of business, we expect to have about
8 percent of the loans, the book of business being the loans
underwritten in one year, we expect to have about an 8 percent
claim rate over the life of that book of business, and we
expect most of those claims to occur between about the third
year and the fifth year after the loan is originated. After
that, people have equity in the home and they are well
established and they know how to do it.
So we believe that the funds that we have are appropriately
maintained for the MMI fund and we do not really see the public
policy advantage of taxing moderate income first-time home
buyers for the provision of housing for other people through
charging premiums on the MMI fund.
Chairman Ney. The time has expired.
I want to note, the default rate is 12 percent?
Mr. Weicher. I am referring to the FHA. Over the life of a
book of business, the loans we underwrite in any year, over the
life of that book of business those loans will default, about 8
percent of those loans will default, and most of them will
default in the first 5 years.
Chairman Ney. There was an article in the New York Times
and the Journal of 12 percent. So you are all saying 8 percent.
Mr. Weicher. The New York Times was talking, what is
commonly looked at is the default rate right now, and the
default rate is higher during economic downturns, and the
default rate tends to peak after the economy has turned up
because people do their best to hang onto their homes when they
become unemployed, so they avoid losing their home as long as
possible. Typically, that means that some of the people who do
not run out of resources after the economy as a whole has
turned up, but their own position remains negative. We have
seen this in every economic cycle back for 30 years.
Chairman Ney. I think it is 12 percent, but I will move on
to Mr. Clay.
[Laughter.]
Mr. Weicher. But not in our program.
Mr. Clay. Thank you, Mr. Chairman, for allowing me to claim
my time. I appreciate that.
Chairman Ney. We appreciate your patience.
Mr. Clay. Let me follow the same line of questioning of Ms.
Velazquez and Ms. Lee. You know, Mr. Secretary, when people
sign paperwork on predatory loans, they often do not understand
what they are signing. Does your counseling program provide
legal assistance to homeowners that enter into predatory loans?
I would think that should be a point of any comprehensive
counseling that your department provides.
Mr. Weicher. Yes, we do. The counseling agency may provide
legal assistance directly or may refer the borrower to legal
aid or to an organization which specializes in legal
assistance, but that is one thing that happens for those
borrowers who appear to be victims of predatory lending. Yes,
that happens.
Mr. Clay. Okay, so if we change that setup and you go to a
software program instead of a one-on-one session with a trained
housing counselor who can really review the paperwork and
figure out if there are alternatives available to those people
seeking counseling, how does that help this situation?
Mr. Weicher. That is not what we are doing. The software
program that Ms. Velazquez asked about is a software program
which enables us to track the performance of housing counseling
agencies and the experience of their clients much more
specifically, much more directly than we are able to do now. It
relates to Ms. Lee's question about what kind of data we have
and what the data shows. We are not proposing to replace any
one-on-one counseling with a software program. The software
program is an information tool for us and for the agencies that
receive our funds. It is not a software counseling program.
Mr. Clay. Does that mean that when someone calls, will they
speak to a person or speak to a machine? That can be
frustrating, I know.
Mr. Weicher. Our 1-800 number is intended to direct you to
a counseling agency. The counseling agency that provides you
with help is providing you help through one-on-one counseling
or perhaps through group counseling, but the counseling is
being provided by human beings.
Mr. Clay. Okay. Along the same lines that others have asked
you today, help me and describe the effectiveness of the post-
homeownership counseling. Has your department been able to
stave off foreclosures and keep families in homes? Along with
that, should local communities that receive the grants and CDBG
funds be required to provide counseling? You stated earlier
that it was discretionary. Being from St. Louis, Missouri, I
realize how local communities can abuse the CDBG funds. It
happens every day in my community, where they go for unintended
purposes. So should that be part of any law, that we require
these local communities who receive these grants to provide the
counseling necessary?
Mr. Weicher. I think there are two questions there. Let me
take them in the order in which you asked them.
We know that of those counseling clients who come to our
counseling agencies and are trying to avoid losing their home,
we know that 90 percent of them are successful in keeping their
home. I think that is a good performance. With respect to
requiring counseling in the CDBG, the rationale behind the CDBG
program for the 30 years since it was enacted has been that the
decision on how to use the funds should be left to the local
government, the county, the city, the rural community that
receives funds through the state CDBG portion. It becomes up to
them to decide which purpose of the purposes of the funds are
the most important to them.
If you have abuses of funds, that becomes an issue for the
HUD office of inspector general and perhaps the Justice
Department, but it has not been our view and I do not think it
has been a very popular view that CDBGs should be earmarked for
specific purposes, rather than being left at the discretion of
the local government to decide what is the most important local
purpose.
Mr. Clay. You find local governments abusing funds every
year.
Mr. Weicher. I am sure that is true. I think the abuses
should be considered separately from the question of how the
program is organized. There are abuses in categorical grant
programs as well. It is in all of our interests to combat those
abuses.
Mr. Clay. You have broad guidelines now in CDBG funding, so
to make this a requirement you would see it to be problematic?
Mr. Weicher. I think I would like to defer to Assistant
Secretary Bernardi who runs the program, but certainly our view
has been that the program, and the view of I think all previous
administrations has been that the program is intended to
provide funding for local governments to make local decisions
as to what they need. It came after a very unhappy experience
with a number of categorical programs, most notably urban
renewal.
Mr. Clay. Okay. That is a subject for another hearing, but
I thank you for your answers.
Chairman Ney. Would you like some extra time, Mr. Clay?
[Laughter.]
I feel bad. That is why I am offering it. We will have some
other rounds here. I have one quick one and I will yield to any
question you have.
The one I wanted to ask about is, you were talking about
the success of the pre-purchase housing counseling. Do you
collect data on that, the number of people who were counseled
and it was a successful situation for them?
Mr. Weicher. Yes, we do, Mr. Chairman. We can certainly
provide that information to you for the record. As I said, I
think to Ms. Lee, we have a very detailed tabulation. Of the
families who received pre-purchase counseling last year, we
count 150,000 families, of whom 30,000 bought a home; 70,000
are continuing the process of counseling with the clear
expectation that they will be buying a home this year; and
10,000 decided not to buy a home, which is fine, too. It is one
way of avoiding making a mistake. As a result of the
counseling, they decided that they really were not ready to buy
a home or this was not what they wanted to do.
So a large number of families who received homeownership
counseling either buy a home or are about to buy a home. The
data stops at the end of that fiscal year. We think it is a
successful program.
Chairman Ney. What I will do, because we have two more
panels, and Mr. Davis has yet to ask a question, I will just
put some things in writing to you. I want to look at ways how
we measure the effectiveness of the programs we have and the
counseling.
Mr. Weicher. I would be glad to respond.
Chairman Ney. Thank you.
Mr. Davis?
Mr. Davis. Thank you, Mr. Chairman. I appreciate the Chair
letting me sit here. I was not sure which would upset Ms.
Waters more, seeing me on the Republican side or in her seat.
[Laughter.]
Chairman Ney. We could talk about sitting you over there if
you would like to.
[Laughter.]
Mr. Davis. At least we would get a roll call tomorrow.
Let me, Mr. Weicher, pick up the spirit of the last round
of questions you have been asked about predatory lending. One
of the things that is always very striking to me is that
obviously we would expect to find a fairly active sub-prime
market in low-income communities. I suppose that is the purpose
of the sub-prime market. One of the things that is really
striking to me, though, is that as I understand the statistics,
the incidence of sub-prime lending is double in affluent black
communities what it is in low-income white communities. That, I
think, is a significant thing that we ought to very much try to
get a handle on. I hope that your program is able to address
some of those disparities.
Let me ask you, what can your counseling program do to
proactively seek out upper-income black homeowners who for
whatever reasons are still being steered into the sub-prime
market? Do you recognize that as a problem and what does your
program do to specifically get at that concern?
Mr. Weicher. Mr. Davis, I believe that next week I will be
testifying in front of this subcommittee on two program
initiatives that we and FHA have in this year's budget to
create more opportunities, particularly for minority families,
to buy homes with FHA-insured mortgages, and also for families
which now own homes which have sub-prime loans, to refinance
into FHA mortgages. We think both of those initiatives will go
far toward addressing the concern that you raise. This is we
think an important program initiative, and I very much hope you
will be here next week, on either side of the aisle.
Mr. Davis. I will be on this side of the aisle.
Let me try to ask a slightly more pointed question than
that. How do you structure a counseling program to not just
reach people who are low income and who recognize that they
have problems buying a home? That is an obvious target group
for you to reach. I am sure there are fairly easy ways to reach
them. How do you take it a step further, though, to proactively
reach what may be affluent, but discriminated-against
homeowners who may be African American or Latino, Puerto Rican?
How do you go about telling them about the sub-prime market and
the potential abuses in the sub-prime market? Is there anything
in this counseling program that can really aggressively reach
out to target not just your easy group of people to reach, the
low income, but maybe some of your higher income individuals
who still may be affected?
Mr. Weicher. I am not quite sure I would agree that it is
easier to reach low-income people than it is high-income
people, but setting that aside, there are two things here. Our
program is intended to serve anyone who wants to buy a home.
Our counseling agencies are prepared to help anyone who wants
help. When we get into concerns about discrimination, that is
where the program that I mentioned, one of the other two grant
programs in the department, the Fair Housing Initiatives
counseling program, comes into play as well. If there is a case
of discrimination, that is something that they are prepared to
help with.
I can provide you for the record with the income levels of
the individuals who we have helped last year. I cannot tell you
what that looks like right now.
Mr. Davis. Let me ask you one final set of questions on a
different topic. There has been some concern that has been
raised around what happens in the context of apartment owners.
Can you clarify for me exactly how this program is going to be
administered for people who are living in apartments?
Mr. Weicher. About 20 percent of the funds that we have for
counseling are in fact used to provide rental counseling;
provide counseling to individuals who either have problems
where they are renting or are looking for help and advise in
how to rent and what to look for.
Mr. Davis. Who does the counseling?
Mr. Weicher. It is the same agencies. It is the same set of
agencies. Some agencies will specialize more in homeownership
counseling; some will specialize more in rental counseling;
some will do both. But we make grants to agencies which are
providing counseling assistance, housing counseling assistance,
which may be homeownership counseling, buying a home, maybe
keeping a home; maybe renting a home. We provide funding and
our agencies provide assistance to people with any of those
problems, and indeed there is homeless counseling in there as
well.
Mr. Davis. Okay. Mr. Chairman, I think my time has expired.
Chairman Ney. Thank you.
Ms. Velazquez and then Mr. Scott.
Ms. Velazquez. Mr. Weicher, according to the U.S. Census
Bureau statistical abstract the number of homes in foreclosure
in the year 1980 was 114,000, while the number of homes in
foreclosure in the year 2001 was 555,000. This is an increase
of over 250 percent. Yet even this statistic masks the more
dramatic increases in foreclosures in some neighborhoods;
cities such as Philadelphia and Chicago, where the foreclosures
have tripled in recent years, and in New York it is twice the
national average. Are those numbers alarming to you? What do
you have to say to those 555,000 people who lost their homes?
Mr. Weicher. I think with respect to the comparison over
time, in 1980 we had experienced a long period of inflation
which had resulted in substantial increases in house prices and
made it for those people who owned homes much easier to avoid
foreclosure. We have a significantly higher homeownership rate
now than we had in 1980, and that means that we can expect
there will be some more foreclosures for that reason as well.
In 2001, we were in the recession that started at the end of
1980, and we will have higher foreclosure rates in a recession
than we have in a period of good economic experience.
That being said, we certainly are not happy when people
lose their homes. We have a very active loss mitigation program
in FHA where we require lenders to offer loss mitigation to
families who are at risk of losing their homes. In the last 2
years, we have had as many families in loss mitigation as we
have had foreclosures. Of those families who have loss
mitigation, more than half of them have brought themselves
current on their loan and avoided foreclosure within a year.
That is an extremely important activity and it is something we
are continuing. We monitor that. We monitor the performance of
our lenders both in offering loss mitigation and in avoiding
foreclosure.
Ms. Velazquez. Given the high percentage of foreclosure,
are you contemplating putting more funding into the prevention
of foreclosure?
Mr. Weicher. This is something that is addressed in the
notice of funds availability. We want a balance between
promoting homeownership, preventing foreclosure, providing
rental counseling, and to some extent that is at the discretion
of the counseling agencies, which know what their clients, what
their communities need. To some extent, it is based on guidance
that we will provide as well.
Certainly we believe in promoting homeownership, and we
also know that it does not do anybody any good to put them in a
home which they are going to lose in a couple of years through
no fault of their own.
Ms. Velazquez. Thank you, Mr. Chairman.
Chairman Ney. Any other questions?
Mr. Scott. Two very quick ones here. The first question, I
do not want you to leave without answering this. What is your
opinion of this legislation before us?
Mr. Weicher. As I believe I said earlier, we certainly
applaud the purpose of the legislation. We have asked Congress,
asked the Appropriations Committee to create a separate account
for housing counseling and take it out of the home block grant.
We do believe that the program that we have operates well. The
program that I operate constitutes the large majority of the
housing counseling grants that HUD makes. We do not really see
a particular advantage to consolidating the three grant
programs that we have into a single agency, since they serve
different purposes and have different clienteles. I do know
from my own experience that a reorganization within the
department takes time and resources, and can be a complication
while it is going on. I would be glad to try to explain it more
thoroughly if you would like.
Mr. Scott. Well, you are aware of a serious problem that
requires our attention, that is going to require us to do more
draconian measures to try to get at, to stop much of the abuses
that are happening there. It is clear that there needs to be
improvement in specific areas. Of course, the reason I asked
you that question was, when I asked you the previous question
about just one simple application of this new bill that we are
pushing, which was the application of the toll-free number,
clearly mandates that a toll-free number be established and
that it be operated and that it be language-friendly, and that
we have these other programs implemented so that it reaches
these targeted groups of low-income senior citizens and so
forth.
In other words, this bill goes to the heart of the matter
of getting at it. We must have a corresponding attitude within
this administration than when help is coming, it needs to have
a receptive nature, or else we will be forced to have to deal
with more draconian measures of which mortgage bankers,
mortgage banks, legitimate operators who are not in these
activities, get caught up in this net.
So it is my hope that as a result of this hearing, that HUD
will go back and understand that this bill is vitally needed;
that we need to get programs and outreach out there that target
this; and currently what is being done is not getting the job
done.
Mr. Weicher. Mr. Scott, we are the administration which has
requested a doubling of housing counseling funds in the first 3
years and a further increase this year. We know housing
counseling is important. We have made a point of requesting
Congress and Congress has granted additional funds to support
housing counseling. We have asked for a separate account in the
budget for housing counseling which we believe would be
valuable as well.
Whatever abuses you are aware of or problems you are aware
of in the performance of specific agencies, please let us know.
We believe that the agencies are doing a good job. We believe
that the funds that are being spent are helping people who need
help now. They are helping them to buy homes. They are helping
them to avoid foreclosure. They are helping to find and
maintain and continue to live in decent rental housing. We
think the program works well. It can always be improved, but we
believe the program works well. I really would like specific
examples of the problems that you allude to and I will address
them if it is at all within my authority.
Mr. Scott. Well, they are all over the place. They are in
the news daily. We hope that as a result of this hearing that
we have taken this opportunity to share with you the need for
this, and this is the whole genesis of this counseling bill
that we are putting forward. We look forward to working with
you on it and receiving it, and making this an integral part of
not taking what you are doing, but adding to it and making it a
collaborative effort. But clearly and surely, we must get
programs directly to these targeted groups, or else failing
this, will come more draconian measures that many of the
industries will not like.
So it is my hope that you will be, and HUD will be very
receptive to this bill and work with us to get it through, and
that you will implement it and follow through with the
directives in the legislation.
Chairman Ney. Additional questions?
I want to thank you, Mr. Weicher for your time today.
Mr. Weicher. Thank you, Mr. Chairman.
Chairman Ney. We will move on to panel two if we could.
Could I remind you as you speak to please turn the mikes on. We
will start with panel two, Mr. Kenneth Wade, executive
director, Neighborhood Reinvestment Corporation. We want to
welcome you here today. You are the new executive director of
the Neighborhood Reinvestment Corporation. The corporation is a
national nonprofit organization created by Congress 25 years
ago to develop effective systems of public and private sector
support for community revitalization efforts. The corporation
supports a network of more than 220 locally based affordable
housing and community development organizations.
The next witness will be introduced by Congresswoman
Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
I would like to take this opportunity to personally welcome
and introduce Lisa-Nicolle Grist, the executive director of
Neighbors Helping Neighbors, a community-based housing
counseling agency in my district. Neighbors Helping Neighbors
serves tenants, homebuyers and owners of small properties and
small businesses. The agency, which was founded by community
residents in 1990, helps tenants retain and improve their
homes, succeed in purchasing affordable first homes, and repair
their homes and resolve mortgage delinquencies.
The critical housing counseling Neighbors Helping Neighbors
provides, and their leadership, has a huge impact on the
families they serve. I appreciate your coming here to share the
experiences you and your staff have had working with families
in Sunset Park and Park Slope, Brooklyn.
Thank you and welcome.
Chairman Ney. We also want to welcome Lautaro Diaz, the
deputy vice president for community development of the National
Council of La Raza, a national Hispanic advocacy and research
organization. La Raza seeks to improve opportunities for
Hispanic Americans by supporting and strengthening local
Hispanic groups. We want to welcome you.
The next witness is Mr. Rodney Jordan, vice chairman of the
Norfolk Redevelopment and Housing Authority in Norfolk,
Virginia. We want to welcome you also.
The next witness is Gary Obloy. He is from the great State
of Ohio and the greater county of Belmont and the even greater
city of St. Clairsville, which happens to be my hometown. So I
have known Gary Obloy for a long time. He is executive director
of Community Action Commission of Belmont County in St.
Clairsville, Ohio. I personally know about the contributions
that he has made and the commission and the people that they
have helped in our county and its low-income residents, and the
more than 25 federal, State and locally funded programs that it
manages. So it is a pleasure to have you here today, Gary.
The last witness will be introduced by Mr. Scott.
Mr. Scott. Thank you very much, Mr. Chairman. We are
delighted to have Mr. Chapman Walsh from the Green Forest
Community Development Corporation in the great State of Georgia
in my district. Mr. Walsh was appointed director of the
homeownership program, the Green Forest Community Development
Corporation in 1999. Prior to that, he served as the
coordinator from 1997 to 1998.
Just very briefly, Green Forest Community Development
Corporation is a private nonprofit faith-based community
economic development corporation created by the Green Forest
Community Baptist Church of Georgia.
Good to have you with us. Thank you.
Chairman Ney. Thank you very much. We will begin with Mr.
Wade.
STATEMENT OF KENNETH WADE, EXECUTIVE DIRECTOR, NEIGHBORHOOD
REINVESTMENT CORPORATION
Mr. Wade. Good morning, Chairman Ney and Representatives
Velazquez and Scott. I am pleased to be here today. As was
commented earlier, I am the executive director of Neighborhood
Reinvestment. I am here today to share our achievements in the
housing counseling area.
While I am new to the executive director role here at
Neighborhood Reinvestment, I have been with the corporation for
13 years, serving in a variety of capacities. Prior to becoming
executive director, I was our director of National Programs. In
that role, I oversaw our homebuyer education counseling
efforts. So I am particularly proud to be here to share with
you the accomplishments that we have achieved.
We are authorized by the House Committee on Financial
Services. We thank you for your continued support.
NeighborWorks is over 220 community development organizations
nationwide providing housing counseling and promoting
neighborhood revitalization in 2,500 urban, suburban and rural
communities, such as an organization you will hear from a
little later today, Neighbors Helping Neighbors. We also work
very extensively with HUD as they serve on our board, and we
are one of the intermediaries that HUD funds in the housing
counseling arena, and we do work with a number of the other
panelists that you will hear from today in a number of
capacities. Over the last 10 years, the NeighborWorks Campaign
for Homeownership has set national standards for pre-purchase
homeownership counseling. NeighborWorks has established a 5-day
training and certification course for housing counselors. With
the committee's support, NeighborWorks has certified more than
3,000 counselors nationwide. And the NeighborWorks network has
provided housing counseling to nearly 500,000 families.
NeighborWorks does this by creating a system that
effectively educates low-income customers about the home buying
process. This system, known as Full Cycle Lending, includes
pre-purchase counseling, flexible loan products, and post-
purchase counseling. Essentially, here is how it works. All the
potential homebuyers receive a minimum of 8 hours of group
counseling with follow-up individual counseling. In addition,
NeighborWorks housing counselors are certified by completing a
5-day home buyer education methods class at our national
training institute, where they are also required to pass an
exam. In addition, NeighborWorks uses the widely endorsed
Realizing the American Dream curriculum, which I would like to
submit for the record today.
Because of these high standards, families across the
country from Ohio to Queens, New York to all the communities
you represent have received over 4 million hours of counseling
in the last 10 years. The demand for housing counseling
continues to rise and we plan to significantly increase the
number of housing counselors we train and certify. This will
reach more underserved communities and ensure effective
education and counseling to a vast number of additional
families and individuals.
NeighborWorks housing counseling achievements are even more
impressive when you consider that the home buyers directly
assisted by the NeighborWorks system are traditionally
underserved populations: 51 percent of those home buyers were
non-white; 67 percent earned less than their area's median
income; and 44 percent were female-headed households.
NeighborWorks adheres to strict housing counseling standards
that have proven to lower delinquency and default rates.
Mortgage delinquency among NeighborWorks customers is lower
than for all mortgage loans in the United States. This is
amazing when you consider that these borrowers are often viewed
by the conventional market as too risky.
Moreover, only 0.25 percent of NeighborWorks borrowers were
foreclosed upon. This is less than the foreclosure rate for
conventional borrowers. NeighborWorks borrowers are thoroughly
educated about the responsibilities of owning a home and
therefore have a stabilizing impact on their communities. This
is why NeighborWorks insists on Full Cycle Lending.
I thank the subcommittee for the opportunity to speak about
the housing counseling successes of NeighborWorks. Your support
and guidance have been crucial to our effectiveness. We look
forward to greater success in the future and we look forward to
working with you in any way we can.
Thank you. I am prepared to answer any questions you might
have.
[The prepared statement of Kenneth D. Wade can be found on
page 29 in the appendix.]
Chairman Ney. Thank you. We will get to the testimony and
then we will come to questioning.
Mr. Diaz?
STATEMENT OF LAUTARO DIAZ, DEPUTY VICE PRESIDENT FOR COMMUNITY
DEVELOPMENT, NATIONAL COUNCIL OF LA RAZA
Mr. Diaz. Thank you, Chairman Ney, Ranking Member Waters
and Congresswoman Velazquez and the rest of the members of the
subcommittee. My name is Lautaro Diaz. I am NCLR's deputy vice
president for community development. I have spent the last 16
years developing and operating community development programs,
including small business lending, single-family and multi-
family housing development and homeownership programs.
As the nation's largest national Hispanic constituency-
based organization, NCLR serves all Hispanic national groups in
all the regions of the country through a network of more than
300 affiliated community-based organizations. We have a long
history in the housing industry. We have been producing
research, policy analysis and advocacy on affordable housing
issues for more than two decades. We partnered with Fannie Mae
and First Interstate Bank in the early 1990s to pilot one of
the first counseling programs called Home To Own. NCLR has
since become a national intermediary designated by HUD to
distribute funds to community-based organizations providing
housing counseling services.
NCLR has concluded that housing counseling is a powerful
tool that effectively moves low-income families into
homeownership. Homeownership is critical to building wealth in
the Latino community. However, Latinos are still significantly
less likely than other Americans to be homeowners. Hispanic
families have unique financial service needs that are not being
met by the marketplace. In fact, we estimate that more than one
million Hispanic families are mortgage-ready, yet do not own
their own homes. There are four key barriers to this, to
increasing Latino homeownership: lack of information regarding
the process; lack of affordability in many of the mortgage
markets around the country; systemic barriers to obtaining a
mortgage; and other market failures.
This brings me to NCLR's homeownership network, or NHN. The
mission and purpose of NHN is to increase Latino homeownership
in a manner that does not endanger the family financially. The
NHN consists of 35 NCLR affiliates in 15 States that provide
bilingual pre-purchase homeownership counseling to low-income
families. NCLR counsels over 20,000 families per year and
closes approximately 3,000 mortgages with those families.
Today, more than 13,500 families have achieved homeownership
through NHN agencies.
The success of the network is based in large part on the
NCLR model which focuses on a single goal: increasing the
number of Latino homeowners. NHN counselors may spend 6 months
to 3 years helping a family prepare for this goal. Once the
family is ready to purchase their home, counselors help
families evaluate products, navigate the closing process, and
help the family package a loan and send it on to the lenders
for verification and processing.
As we all know, the home buying industry is expanding. In
the midst of these changes, community-based housing counseling
agencies are becoming more critical to the home buying process.
They are often the first point of contact for Latino and
immigrant families looking for trustworthy information. The
counseling agencies play a critical role in filling the market
gap that exists for low-income Hispanic families.
It is imperative that all levels of government recognize
the important role the organizations play. It is important that
the mortgage industry reward families that receive counseling
and recognize the value-added provided by counselors. It is
equally important that the regulatory environment does not
discourage this role.
NCLR has forged many sophisticated national partnerships
with financial institutions. These partnerships have allowed us
to expand our capacity by, first, increasing funding to
counseling agencies by leveraging NCLR's HUD grant funds with
private mortgage company contributions to NCLR's network. We
have been able to develop innovative database technology
designed for counseling agencies to increase staff efficiency.
They have helped create fee-for-service relationships that will
allow agencies to become more self-sufficient.
Now let me turn to our recommendations. NCLR applauds H.R.
3938 for promoting the visibility and work of housing
counselors. However, NCLR would like to make the following
recommendations to improve the bill and advance the counseling
field. First, we suggest increased funding. The program has
proven its capacity and effectiveness. In order to reproduce
this success on a larger scale, increased support is necessary.
Second, develop a pilot program with FHA clients. FHA and VA
loans have the highest delinquency and foreclosure rates.
Proven counseling methods can be used to mitigate the risk for
both the homeowner and the taxpayer. Finally, support fee
income. Agencies must develop ways to generate fee income to
become self-sustainable. This committee should encourage HUD to
affirm counseling agencies' ability to earn fees.
Thank you and I would be happy to answer any questions
afterwards.
[The prepared statement of Lautaro Diaz can be found on
page 31 in the appendix.]
Chairman Ney. Thank you very much.
Ms. Grist?
STATEMENT OF LISA-NICOLLE GRIST, CHIEF EXECUTIVE DIRECTOR,
NEIGHBORS HELPING NEIGHBORS, INC.
Ms. Grist. Thank you very much. I am Lisa-Nicolle Grist. I
am the executive director of Neighbors Helping Neighbors in
Brooklyn, New York.
It is a great honor for me to be invited to join this panel
of leaders whose work I have long admired, and to be asked to
share a Brooklyn street-level perspective on both the
importance and the mechanics of housing counseling.
The home is the base from which families climb the
socioeconomic ladder. It is a key to health, educational
attainment, business opportunities and intergenerational
wealth. Thus, housing counseling helps residents not only to
stabilize their housing situations, but also to advance the
quality of their lives. As housing counselors, we envision a
society where all people are secure in their ability to find,
afford and keep good homes.
Housing is typically a person's largest expense and
investment. The price and quality of housing is affected by a
complex set of institutions. Therefore, housing counseling
helps educate consumers and level the playing field between
individuals and institutions that naturally have very different
amounts of information and power. For example, housing
counseling creates confidence for first-time home buyers facing
mortgage banks, tenants facing housing court, and homeowners
facing foreclosure attorneys.
Neighbors Helping Neighbors, which is also called NHN or
sometimes VAV, is a community-based organization that advocates
and serves tenants, homebuyers and owners of small properties
and small businesses. Our mission is to enable low-and
moderate-income people to build assets for their families and
Brooklyn communities by securing, improving and owning their
homes and businesses. NHN's most quantifiable results come from
helping low-income people get money to buy, keep or improve
their homes.
In the course of our history, we have facilitated 148 home
repair loans worth almost $2.5 million; 463 mortgages worth
over $64 million; and in the past 2 years, NHN has saved over
50 families from becoming homeless by securing rent subsidies
worth nearly $485,000. Since housing and money are inseparable,
we also measure the difference that we make in people's lives
by giving them the information and tools to take charge of
their personal finances. NHN is a HUD-certified local housing
counseling agency. We have received housing counseling grants
each year since 1999 and our experience in applying for and
administering the HUD grants has generally been excellent, even
though the processes can be somewhat complicated.
The HUD housing counseling grant program offers ample
flexibility for us to adjust to changing community needs. NHN's
housing counseling work is also funded by New York City and New
York State, the Neighborhood Reinvestment Corporation, the New
York Mortgage Coalition and its member banks. Our partnerships
with banks are very important to NHN's home buyer and homeowner
counseling programs. These partnerships give us legitimacy in
the eyes of the public and enable us to offer real products,
not just words, to people who might otherwise succumb to the
aggressive marketing by predatory lenders.
NHN's one-on-one home buyer counseling ensures that people
have sufficient income, savings and credit to qualify for a
mortgage, and that they shop for homes they can afford. Once a
customer has identified an affordable property, NHN calls
several banks, helps them complete the application, and helps
them through closing. NHN also counsels homeowners on how to
seek loan forbearance or pursue other loss mitigation
strategies.
Homeowners who miss FHA mortgage payments are advised by
their lenders to contact HUD's housing counseling
clearinghouse, that 800 number, which refers them to local
agencies through zip codes. Sometimes this is less than ideal
because homeowners often delay in seeking help because the
mortgage delinquency is just one of many disheartening factors
that create more stress and chaos in their lives.
Unfortunately, the delay means precious time is lost.
Counseling is most effective in the first 3 months of a
mortgage delinquency, but is very difficult after a lender
starts legal proceedings.
Some large counseling agencies have built relationships
with loan servicers so that the agency gets notification of
missed mortgage payments and can reach out to homeowners
proactively. Although our organization does not participate in
that system, I imagine that it is very successful. It requires
substantial staff capacity.
Our homeownership counselors must continuously become more
efficient, knowledgeable and professionally skilled in order to
meet our banking partners' increasing expectations. To help us
meet those expectations, NHN receives superb technical
assistance from Neighborhood Reinvestment in the person of
management consultant Jose Perez.
In addition to homeownership counseling, the need for
rental counseling is overwhelming. A person earning the minimum
wage would have to work 154 hours a week to afford the average
one-bedroom apartment in New York City, or would have to earn a
wage of almost $20 an hour to afford a typical two-bedroom
apartment. At NHN, we focus on preventing homelessness by
helping people to afford and improve their current rental
situations. The median annual household income of NHN's tenant
customers is less than $7,000; 44 percent of the tenants who
seek our help are having problems making rent payments. Due to
the high cost of housing and the excess of demand over supply
in rental housing in New York, displacement counseling is one
of our most important types of work.
I hope this helps address the committee's interests and my
written testimony offers more detailed descriptions of our work
and the ways that we measure our success, as well as some case
studies about people that we have helped.
Thank you for giving me this opportunity to participate in
the process.
[The prepared statement of Lisa-Nicolle Grist can be found
on page 32 in the appendix.]
Chairman Ney. Thank you.
Mr. Jordan?
STATEMENT OF RODNEY JORDAN, VICE CHAIRMAN, NORFOLK
REDEVELOPMENT AND HOUSING AUTHORITY, NORFOLK, VA
Mr. Jordan. Good afternoon, Chairman Ney and honorable
committee members. I am Rodney Jordan, vice-chair of the board
of commissioners of Norfolk Redevelopment and Housing Authority
in Norfolk, Virginia. With me today are Lori Burden and LaShawn
Fortes of the NHRA Homeownership Center, and in the audience is
Robert Jenkins, our deputy executive director.
As one of the oldest redevelopment housing authorities in
the country, we at NRHA are well aware of the benefits of
raising the rate of homeownership. Not only does it strengthen
Norfolk's neighborhoods and help maintain a healthy economy, it
also contributes to wealth creation and has positive effects on
our city's social and educational cultures. That is why we
created the NHRA Homeownership Center. It is just one of the
many innovations we have brought to our industry in recent
years.
Another example of how NHRA innovates is that we were the
only housing agency in the nation to be awarded an allocation
of new market tax credits by the U.S. treasury in the program's
first round. These tax credits are enabling us to bring
amenities such as fitness centers and grocery stores into the
neighborhoods we build, and those amenities in turn attract the
homebuyers that we counsel to those neighborhoods.
Today, through our one-stop homeownership center, we
demonstrate our commitment to bringing the great American dream
of homeownership to more people every year, especially
minorities. We do this by providing comprehensive and
customized homeownership counseling to any prospective Norfolk
homebuyer. Our center is designed to reach families from all
economic backgrounds to the variety of housing choices
available in Norfolk, including the homes that we build.
The counseling we offer provides potential homebuyers with
the tools and resources they need to become homeowners. We have
programs that cover everything involved in the process of
purchasing a home, from restoring credit and finding the right
mortgage, to builder selection, home inspections and
foreclosure prevention. To bring a complete range of home
buying services to our clients, we form partnerships with
banks, developers, mortgage companies, attorneys, real estate
firms and other government agencies.
Another important benefit is that through our Homeownership
Center, we are able to match buyers with homes in the
neighborhoods that we build as a redevelopment authority.
Another plus is that our center also creates demand for other
NHRA services such as rehabilitating homes and selling real
estate. Our housing counseling ultimately increases
homeownership in Norfolk, especially among minorities, by
educating potential home buyers about the issues involved in
buying and owning a home. Our goal is to remove the barriers to
homeownership by preparing clients to become mortgage ready,
enable them to pre-qualify for loans, and informing them of the
range of special financing and mortgage programs available.
The post-homeownership counseling we offer enables clients
to handle issues that may come up after loan closing. For some
of our clients, this counseling is the first time they have
learned anything about homeownership because they come from
families caught in the cycle of poverty that has prevented
previous generations from becoming homeowners.
Our housing counselors are certified through the
Neighborhood Reinvestment Corporation's NeighborWorks Institute
and by the Commonwealth of Virginia. We offer a 22-month
counseling program through our five home buyer clubs, 6 hours
of group counseling through the VHDA home buyers program, and
individual counseling customized to each client's needs. We now
provide counseling to more than 350 families and individuals
annually. Of those, more than 50 are considered mortgage-ready,
and at least half of those end up buying new homes that we
build in mixed-income neighborhoods. For example, as a result
of our homeownership counseling in our new neighborhood of
Westchurch, we have former public housing families living next
door to homeowners who earn six-figure salaries.
Although we are not a HUD-approved agency, our mission is
comparable. As with those agencies, we give advice on buying a
home, renting, defaults, foreclosures and credit histories. Our
counseling programs are very similar to those offered by HUD-
funded agencies and cover virtually all of the same issues.
Preventing foreclosure is addressed through the home buying
classes we offer in conjunction with VHDA. For more intensive
foreclosure counseling, we refer clients to one of our
homeownership center partners, Catholic Charities of Hampton
Roads.
We offer a 22-month counseling program through our five
homebuyers clubs, as I mentioned before, and additional
training as well. One important way that we measure our success
is through the number of clients who graduate from our
counseling programs. We also track our clients' successes
through their improved credit scores, increased savings and
reduced debt, loan pre-qualification, and ultimate goal of
achieving homeownership.
The classes we offer with VHDA educate our clients about
the issues of questionable and predatory lending, as well as
foreclosure prevention. Even if the financial institutions we
partner with did not require that these issues be addressed, we
believe that it is our responsibility to educate and inform our
clients about these unfair lending tactics.
I would like to thank you for inviting me here today and I
would be free to answer questions at the appropriate time.
[The prepared statement of Rodney Jordan can be found on
page 34 in the appendix.]
Chairman Ney. Thank you, Mr. Jordan.
Mr. Obloy?
STATEMENT OF GARY OBLOY, EXECUTIVE DIRECTOR, COMMUNITY ACTION
COMMISSION OF BELMONT COUNTY, INC., CLAIRSVILLE, OH
Mr. Obloy. Good afternoon. My name is Gary Obloy and I am
the executive director of the Community Action Commission of
Belmont County. We are located in Appalachian Ohio. I wish to
thank Chairman Ney and members of the subcommittee for giving
me the opportunity to address you today.
I would like to begin by describing for you the mission of
the Community Action Commission and by explaining what we do in
an attempt to improve the lives of the people we serve. The
Community Action Commission of Belmont County is a private
nonprofit organization governed by an 18-member board. The
agency's mission is to combat poverty, its causes and
consequences. The Community Action Commission administers over
20 federal, state and privately funded programs targeted to
low-and moderate-income residents of Belmont County. Specific
programs include the LIHEAP Program, the Home Weatherization
Assistance Program and the Homebuyers Counseling Program.
In January 1997, the Community Action Commission received a
certification from the Department of Housing and Urban
Development in first-time homebuyer education and for home
equity conversion mortgages. In May 2000, the Community Action
Commission received certification from HUD as a local
comprehensive housing counseling agency. The Community Action
Commission's program provides services in four areas: homebuyer
education; budget counseling; foreclosure prevention; and home
equity conversion mortgages. Resource materials used include
the HUD publication, the Home Buyer Education and Learning
Program Guide, also known as HELP, various handouts which have
been compiled into booklet form, and a locally designed
PowerPoint presentation. Homebuyer education includes general
sessions on budgeting, home selection, financing, the closing
process, knowing and understanding credit, post-closing, and
foreclosure prevention.
General sessions are offered eight times per year with an
average class size of 10. In 2003, 25 customers who attended
homeownership sessions purchased their first home. From 1996 to
2003, persons attending the sessions have purchased 215 homes.
While the purchase of a home is a significant measure of
success, it is not the sole indicator of the benefits of a
homeownership counseling program. Currently, 27 families are in
pre-purchase status, meaning they lack a sufficient down
payment or have not been able to identify a home which is
financially affordable. This status ranges up to 18 months.
Thirty-one families have been working on credit issues for the
last 6 to 12 months. Eleven families have contacted the
Community Action Commission after becoming delinquent.
Seventeen families who purchased a home have contacted the
agency requesting additional information on such topics as home
repair and insurance.
For the grant year ending September 30, 2002, 96 households
completed the home buyer education workshops; 28 purchased
housing; 9 decided not to purchase; 2 obtained a home equity
conversion mortgage; 3 initiated forbearance agreements or
repayment plans; and 1 mortgage was foreclosed upon.
Participants are also schooled in renting versus ownership.
A participant's involvement includes an analysis of the
household income and expenses, a credit report and discussions
on the impact of an immediate purchase as opposed to remaining
a renter. If the participant chooses to continue renting, he or
she is provided with information aimed at increasing his or her
knowledge of their rights and obligations in a landlord-tenant
relationship. If safe and affordable rental housing becomes the
goal of the participant, a referral is made to the Belmont
Metropolitan Housing Authority.
The Community Action Commission views success with its
housing counseling efforts not only in terms of homes
purchased, but also in delivering services which are needed by
the customer. Part of the value of homebuyer education
workshops is that participants are given the opportunity to
objectively judge whether or not purchasing a home is in their
best interest. Statistics show that if they choose to do so,
their success in maintaining homeownership is strengthened.
Other successes can be seen in the customer who is motivated to
purchase, but does not have the down payment or is experiencing
credit problems. He or she is provided with the mechanism to
address issues that may lead to future ownership. Those who
find themselves in a financial dilemma have somewhere to turn
and someone to intervene on their behalf.
Key partners in offering a successful program are banking
institutions. The relationships are mutually beneficial in that
the counseling programs offered by the agency enhances the
ability of banks to make good loans. Program participants are
educated about banks and lending practices, and are made aware
of what banks require from potential loan customers. The
partnership also serves to educate participants who might
otherwise look to predatory or sub-prime lenders for loans.
In summation, the Community Action Commission has been
involved in homebuyer education and homeownership counseling
for nearly 8 years. Through the concerted efforts of many
partners, we as the community of Belmont County, Ohio have
witnessed many families become homeowners. We applaud those
families and individuals for their true grit, hard work and
dedication in claiming a piece of the American dream. We look
forward to a continuing relationship with funding agencies such
as the Department of Housing and Urban Development and urge you
to consider enhancing the federal government's efforts in the
arena of homebuyer education and counseling.
Once again, thank you for the opportunity you afforded me
today, and I would be happy to answer any of your questions.
[The prepared statement of Gary F. Obloy can be found on
page 36 in the appendix.]
Chairman Ney. Thank you for your testimony.
Mr. Walsh?
STATEMENT OF CHAPMAN WALSH, HOUSING DIRECTOR, GREEN FOREST
COMMUNITY DEVELOPMENT CORPORATION, DECATUR, GA
Mr. Walsh. Thank you, Chairman Ney and to all you other
members of the subcommittee, especially Congressman Scott from
our great state.
My name is Chapman Walsh and I am the housing director at
the Green Forest Community Development Corporation, a faith-
based community development corporation located in Decatur,
Georgia, right outside of metro Atlanta. Green Forest Community
Development Corporation was really created and born out of the
need that the Green Forest Community Baptist Church felt. The
cries coming from the community led that organization to fund
and go forward with a move to get granted a 501(c)(3) in 1996.
Green Forest Community Development Corporation is a nonprofit
and it really focuses on economic development and housing.
The mission of the Green Forest Community Development
Corporation is to create empowerment and networking for people
through economic development, housing, youth, senior, and
health initiatives, social ministries, education, and
comprehensive preventive programs for persons of all ages. You
can see that is a pretty lengthy list. I am really here today
to talk about the housing division. That was the first division
started in the Community Development Corporation at Green
Forest. Basically, we started because everyone realizes the
great need to create safe matriculation from renting to housing
in society and communities.
We started really with the Expanding the Dream initiative,
which is a homebuyer education program, what many people look
at as a first-time homebuyer program, but in fact many times
people who have purchased homes before need housing counseling
and need homebuyer education.
During the first year of the program, we were able to help
over 300 families move to homeownership either directly or
indirectly. At this point, we are well over 700 families who
have directly gained benefit from working with Green Forest and
from having us help them to understand the process of
homeownership and key role players what they should be doing
for you and exactly how to acquire a team that works for you.
Green Forest uses a HUD-certified, Freddie Mac-certified
and Fannie Mae-certified lecture series. We call that our
education piece. Those classes teach potential homebuyers about
the key roles of the realtors, what sort of realtor you should
have if you are purchasing, the mortgage process, and the
appraisals. It talks about renting versus buying. I think
everyone wants to know how much it costs. We go on to talk
about repairing your credit. I think that what we find is that
that is the area that people have most difficulty with.
Clearly, every successful entity in America works on a
budget, but very few of our community members are taught
formally anywhere how to budget. Consequently, financial
illiteracy is a real issue with many people who come into and
want to purchase a home. It goes across the board. No matter
what their educational background, there are problems with
budgeting.
Credit is another issue. What we feel is that anyone who we
interface with should be able to come in, learn the process of
home purchase, understand who the sharks are, who to stay away
from, who to get close to. We feel that the strength of housing
counseling is really one-on-one meetings with the clients after
this education period. Anyone can help someone move to
property, but in fact I think the one-on-one counseling is what
helps build a roadmap for an individual that allows that person
to find success. As I said, financial illiteracy is a real
issue. We use the CreditSmart curriculum. It is a Freddie Mac
program to help people to understand the purpose of credit and
to help them strengthen their credit profiles.
Our housing counseling program was asked to go and get
certified to provide loss mitigation counseling some years ago
because of the great foreclosure rate in DeKalb County. That is
where most of our work is done right now. Loss mitigation
allows people to work out something with the servicers and stay
in their homes. I think that the bottom line is that people who
are facing foreclosure are really at a loss for which way to
turn. Many times, they are taken advantage of. So again, one-
on-one counseling is what works with that situation.
To sum it up, the bottom line is one-on-one counseling is
what works. Group counseling does not. One-on-one counseling is
very, very expensive. We need help.
Thank you.
[The prepared statement of Chapman Walsh can be found on
page 38 in the appendix.]
Chairman Ney. I want to thank the panel for some very good
testimony.
I want to ask Mr. Obloy, according to the testimony, you
take individuals from West Virginia that come over to Ohio for
counseling, too?
Mr. Obloy. Correct.
Chairman Ney. I know Canton, you mentioned in your
testimony. Where is the closest in West Virginia to us?
Mr. Obloy. I believe that the family services in Wheeling
was recently awarded or recently certified as a HUD-certified
counseling agency. I did a check of the HUD Web site before I
came to Washington and their name appeared there.
Chairman Ney. Okay.
Mr. Obloy. Other than that, the nearest HUD-certified
agency would be in the Pittsburgh area.
Chairman Ney. Is every single group here certified by HUD
to do counseling officially?
Mr. Jordan. No.
Chairman Ney. You are not? Okay. Did you want to be? I was
just curious. Did I ask a bad question?
[Laughter.]
Maybe we better get Mr. Weicher back here.
Mr. Jordan. As I mentioned, Mr. Chairman, we are a
redevelopment housing authority and we created this
homeownership center under those auspices. While we do meet the
criteria, we are pleased with our current standing.
Chairman Ney. Okay. Of the groups that have the HUD-
certified counseling, the question I wanted to ask, if anybody
can answer, does HUD tell every single group the same thing,
that this is how you counsel; this is what you say? Is there a
laid-out criterion that is given to you all? Gary, do you want
to start? I am sorry. Mr. Walsh?
Mr. Walsh. Mr. Chairman, in the loss mitigation area, there
are parameters set by HUD to the servicers, but the people who
call are all in different situations. So I think that we have
to deal with them on a one-on-one basis. The counseling is
different for each client.
Chairman Ney. Do you ever get stumped? Is there somebody
you have to call? Or have you dealt with the issues so long you
are able to do it?
Mr. Walsh. I think you have to work your way through. There
is usually an answer and working with the HUD guidelines and
the servicers as best we can. We usually can come up with a
solution for the community member.
Chairman Ney. But it is standard. HUD gives all of you the
same guidelines; nothing changes.
Mr. Wade. I would just like to clarify that a little bit.
HUD provides broad guidelines for each of the eligible program
activities. One of the things that we do is train the
counselors who are actually doing the training in the
neighborhoods. We have a defined curriculum that we use at our
national training institutes. It is broadly available. We do
five of those throughout the year, all over the country. The
most recent was in Atlanta the last week of February.
Essentially, this is the curriculum that we provide to all of
the folks who we train and certify as homebuyer education
counselors.
Mr. Diaz. I would just like to add, what HUD said, as
Kenneth mentioned, broad standards. When we apply for HUD
funds, we have to present the program curriculum, how it is
delivered, when it is delivered, processing in between. The HUD
staff approves that as meeting their standard.
Chairman Ney. Okay. And do you think counseling is defined
as much as it can be? Or does it need more definition? The
reason I say that, in Cleveland, Ohio there was an article and
the Cleveland Council decided they were going to have
counseling. This gentleman thought his mortgage was going to be
$447. It was actually $600 and some. He was in terrible
jeopardy and there was a newspaper article on it. The counselor
said, well, I don't know; I was hired by the Council. The
Cleveland Council put this together; I was hired; I was paid
$79; I thought I was telling the right thing.
I do not think they made a clear point of definition, and
this was not HUD. This was the Cleveland City Council. I do not
think they made clear definition, but do you think counseling
has been defined, or in HUD's eyes has been defined enough?
Mr. Diaz. I would imagine so. I guess when you were saying
the question, the services that are provided in counseling,
they tend to slide from one to another; for a homebuyer
education to pre-purchase; to default counseling. There are a
variety of services. So we took some pains to separate those,
which HUD has accepted as definition for discrete counseling
services.
Chairman Ney. I have one brief last question because I know
other members want to ask question, and we do have a third
panel, and we appreciate your testimony.
Ms. Grist, I wanted to ask you, you mentioned displacement
counseling. What is that? Is that different than regular
counseling?
Ms. Grist. Displacement counseling is a category that was
in this most recent year's HUD notice of funding availability
as one of its eight eligible activities. In New York and in
many cities, and I only know the urban areas, as the local
economies have improved, as the real estate markets have heated
up, low-income, often long-term residents can no longer afford
market rents. One of the side effects of neighborhood
improvement which we have all participated in is that a lot of
people are now being displaced as their neighborhoods have
become more attractive.
So helping people to preserve their rights to the extent
that they have them, to stay in their homes, to ensure that
abuses are not taking place as people may be forced out of
their homes by landlords who are eager to collect market rents,
that is part of what we would call displacement counseling. It
might even include getting people rent subsidies or even
helping people figure out how to relocate.
Chairman Ney. That has happened here in the District of
Columbia. I have watched it in the 10 years I have been
commuting. We probably ought to talk at some point in time.
This bill has not addressed displacement counseling. It is not
something we particularly thought of. That is why I wanted to
see how much of it you were doing and maybe we will address it
in this bill.
Ms. Grist. It is one of the eligible activities under the
current housing counseling program. That is one of the nice
things about the program, is that is has offered a great deal
of flexibility, both for us to define what the needs are in our
local community and pick among a menu, and to sort out where to
place our emphasis.
Chairman Ney. Thank you.
The gentlelady from New York?
Ms. Velazquez. Thank you, Mr. Chairman.
Ms. Grist, in your testimony you mentioned how homeowners
who miss payments on their mortgages are currently advised by
their lenders to contact HUD's housing counseling
clearinghouse, which refers them to local agencies. You said
that this process is not necessarily ideal. Can you explain a
little bit further?
Ms. Grist. Sure. It is wonderful that people are given
access to this 800 number, but it comes in an envelope from
their lender which they might not want to open. One
characteristic of people who are falling behind on their
mortgage is they stop opening their mail, especially their
bills. It requires that the homeowner make at least two phone
calls, one to the clearinghouse and one to the counseling
agency.
So it is a good idea. It is a wonderful idea, but it has
its sort of natural pitfalls for homeowners who are avoiding
taking care of their situation as quickly as they might. The
delay is really what causes problems.
Ms. Velazquez. You also stated that some large counseling
agencies have developed relationships with loan servicers in
which they contact the counseling agency when one of their
clients becomes delinquent. The housing counselor then contacts
the delinquent borrower to provide assistance. You stated that
you felt this system is more successful than waiting for the
borrowers to contact HUD. Can you talk more about these
agreements and explain their effectiveness?
Ms. Grist. A little bit. Our organization is too small to
engage in that kind of operation because it requires
considerable staff capacity, but I know that one of our
colleagues in New York, Neighborhood Housing Services, which is
also part of the NeighborWorks network, has had that kind of
relationship. The advantage of it is that, particularly with
conventional lenders, it gives an additional support to the
homeowner. It takes some of the obligation off of the homeowner
to reach out and make that first call. It can avoid that delay
period. The key in default counseling is to get the homeowner,
counselor and lender talking in a three-way conversation within
the first 3 months of delinquency. So a process that allows a
counselor to know who is falling behind early is in general a
process that I think can work better. Maybe Neighborhood
Reinvestment might know how that works other places.
Ms. Velazquez. Would you?
Mr. Wade. Sure. Yes, we have a number of groups who have
that kind of relationship with servicers. Typically, you do
need the customer's consent in order for them to allow the home
buyer education counselor to contact the customer. Oftentimes,
we have encouraged our groups to use a simple release form. We
have samples that we have provided to our groups that they can
use with their customers, allowing them to be designated as the
homebuyer educator.
Ms. Velazquez. And that will happen at the time of the
closing?
Mr. Wade. It is best done at time of closing. Then
obviously if you are doing follow-up work for customers, you
can also have it done at that time.
Ms. Velazquez. Mr. Diaz, a key issue for housing counselors
is their ability to expand their work and build capacity to
meet the needs of growing demands from individuals hoping to
purchase a home for their families. Counseling agencies also
need technical assistance to build their infrastructure and
efficiently serve and attract more families. Can you comment on
how support from HUD for capacity building and technical
assistance will help housing counselors serve more families?
Mr. Diaz. Yes, our relationship with HUD and with the
counseling agencies that are part of our network, HUD has been,
rightfully so, taking on a role of making sure that all the
dollars that we have invested are getting to the family, which
is really critical. We have taken on the role primarily for
technical assistance to make sure the efficiency quality of
service things have occurred.
How HUD could be supportive, and they have been supportive
with us before, is as mentioned earlier, promote technology
usage. We think it is a critical part. It is not replacing the
one-on-one contact, but encouraging efficiency within the
agencies because database technology can be a really useful
tool once it is learned and used well. I think they can also
support that activity. One of the key aspects with that is to
get people using the database technology requires training.
That sometimes is forgotten when they have this great
technological thing.
And then finally, HUD does have a lot of technical
expertise, particularly on foreclosure counseling; some other
technical areas that could be utilized by counselors in terms
of training programs, but it has to be offered in a way that is
useful to the agency. By that I mean it follows a work-flow.
Sometimes that connection is a little harder to make than just
offering the training once a month or whatever.
Ms. Velazquez. So you feel that resources that are
available to agencies that offer housing counseling services
are not enough in the area of capacity building and technical
assistance?
Mr. Diaz. Yes, that is definitely true.
Ms. Velazquez. And that will go to the heart of the
question that was asked by the Chairman regarding the
information that was provided by the counselor to the Virginia
person. I do not know, the question that he asked to Mr. Obloy.
So Mr. Chairman, I think that this is an area that I think that
we need to really look at. If we want to have counselors that
are not only providing the information, but on top of what is
happening, so that they could provide the effective services.
Mr. Obloy. May I say something?
Ms. Velazquez. Yes.
Mr. Obloy. I appreciate your comment. To take that perhaps
a step further as laws change, rules change, regulations
change.
Ms. Velazquez. Sure.
Mr. Obloy. In order to deliver a quality product, you need
that technical assistance to keep the housing counselors up to
date on what is happening with credit reporting; what may be
happening with insurance underwriting; what may be happening
with all changes in rules and regulations.
Ms. Velazquez. Thank you very much.
Thank you, Mr. Chairman.
Chairman Ney. Mr. Scott?
Mr. Scott. Thank you very much, Mr. Chairman.
Mr. Walsh, thank you again for coming up and being a part
of this for all members of the panel. One of the reasons why we
are so delighted to have you, Mr. Walsh, is because the area
that you are concentrating your counseling services is the
highest in the nation in three very critical areas:
delinquency, predatory lending, and foreclosure.
It would be very revealing if you could share with us why
this is so in South DeKalb, Atlanta, and especially given the
fact that this area in the nation is not low income. It is more
moderate and middle, and in some degrees higher income. In so
doing, could you share with us in responding to those three
areas of difficulty, how you feel this legislation, this
housing counseling bill can be helpful?
Mr. Walsh. Thank you, Congressman. I do feel that it is
critical that the emphasis be placed on more counseling. You
are right. In the zip code where my organization is located,
30034, it is a notorious area for predatory-type activities.
Many of the homes are owned by elderly people who have really
paid most of the mortgage down. They are great targets for
people who can come in with some kind of scam, whether it be
home improvement or some other type of scam; you know, flip the
house and before you know it, they take all that is contained
in the house. There is nothing left. There is no equity. These
people many times are senior citizens and really do not have
the ability to pay a second mortgage or a mortgage at the rate
that these predatory-type lenders are offering.
What we see in our area is that our phones are ringing off
the hook with people who have reached a 90-day delinquency mark
and have received this pamphlet from HUD, or from their
servicer. Many times it is ambiguous because the servicers take
this pamphlet and they kind of adjust it. It is very hard for
some of the people to peruse through this minutiae and get to
the HUD hotline and get to a certified counseling agency.
Consequently, many of them get to us when they are 5 or 6
months behind. It is very hard. I just know that our phone is
ringing off the hook. We are following the HUD guidelines. We
are using the remedies that are available to us, but I think
more education and more information for our community is
certainly necessary.
Mr. Scott. How many families have you helped, certainly if
it is measurable on an annual basis?
Mr. Walsh. I think that we average probably over 200
counseling hours a month. That is split between housing
counseling and loss mitigation counseling. But I think one of
the things that we see is most of the people who are facing
foreclosure or 60-or 90-day delinquencies have not gone to
housing counseling. They have been targeted by someone that
they trusted who put them many times in a sub-prime loan or
charged high fees. That is a big part of the problem.
Obviously, we are in very tough economic times and we are
seeing a host of people who have lost their jobs, who have lost
income. That is a factor also, but I think many of the times it
is a matter of mis-education and no education.
Mr. Scott. Thank you very much.
Mr. Wade, in your testimony you mention a terminology,
``full cycle lending.''
Mr. Wade. Yes.
Mr. Scott. I think you mentioned it also in connection with
delinquency and foreclosure. Could you elaborate on what that
means in relationship to foreclosure?
Mr. Wade. Sure. What we have done in the development of our
homebuying education efforts is develop what we call the full
cycle lending approach. Essentially, it includes an
organization that has a partnership with local lenders, local
government in their local community. They have a pre-purchase
homebuyer education program, and their staff received
certification and training at our training institutes.
We also typically have flexible loan products. Oftentimes
it includes the provision of down payment and closing cost
assistance to assist the homeowner. It would typically provide
property services where the organization would provide home
inspections and construction management if the home needs
repair. And then it requires a post-purchase counseling
component as well, so that the customer to a certain extent is
helped all the way through the process on the front end, and
then has some assistance on the back end as well.
Mr. Scott. Thank you.
Those are my questions for now, Mr. Chairman.
Chairman Ney. I want to thank the panel. I appreciate your
testimony and appreciate your coming to the Capitol. Thank you.
We will move on to the third panel now. We have Doug Bibby,
who is the president of the National Multi Housing Council. The
Council is the national association representing the interests
of the nation's apartment firms. Previous to joining the
National Multi Housing Council, he spent approximately 16 years
with Fannie Mae, including having served as the organization's
chief administrative officer. Welcome.
We welcome Anne Canfield who is executive vice president of
the Consumer Mortgage Coalition, a trade association of
national resident mortgage lenders and service providers.
Welcome.
Robert Couch is the 2004 chairman, kind of brand new, of
the Mortgage Bankers Association, an association of 2,700
members representing mortgage companies and brokers, commercial
banks and thrifts, and life insurance companies. Mr. Couch is
the president and CEO of New South Federal Savings Bank in
Birmingham, Alabama. New South is the largest thrift in Alabama
with $1.4 billion in assets.
William Smith is president and CEO of the Mutual Community
Savings Bank in Raleigh, North Carolina. He is testifying today
on behalf of America's Community Bankers, a trade association
representing the nation's community banks of all charter types
and sizes.
William Spriggs is executive director of the National Urban
League Institute for Opportunity and Equality.
Odette Williamson is a staff attorney with the National
Consumer Law Center. The center seeks to help consumers utilize
the nation's consumer laws on behalf of low-income Americans.
One of the Center's top priorities is providing support on
issues involving consumer fraud, predatory lending and
sustainable homeownership.
We want to welcome the entire panel. Thank you for your
patience. Does anybody have a flight, I should ask? Someone
wrote me a note. I know you do. Anybody else? We will start out
of order. Mr. Couch, and then we will go down the line, if that
is okay.
STATEMENT OF ROBERT COUCH, PRESIDENT AND CEO, NEW SOUTH FEDERAL
SAVINGS BANK, ON BEHALF OF THE MORTGAGE BANKERS' ASSOCIATION
Mr. Couch. Thank you, Congressman. Good morning, Chairman
Ney, Congressman Scott. My name is Rob Couch. I am president
and chief executive officer of New South Federal Savings Bank
in Birmingham, Alabama. I am here today as chairman of the
Mortgage Bankers Association. Thank you for inviting MBA to
testify today on H.R. 3938, the Expanding Housing Opportunities
Through Education and Counseling Act. That is a mouthful, I
know.
MBA strongly supports H.R. 3938, as it elevates and expands
upon the Department of Housing and Urban Development's current
housing counseling activities. We applaud your efforts and
those of Representatives Velazquez and Scott for introducing
this bill and highlighting the important role that homebuyer
education can play in combating predatory lending and assisting
American families in making wise housing choices. While there
has been a great focus on laws, regulations and stepped-up
enforcement, the absolute best defense against predatory
lenders is a knowledgeable and empowered borrower in a
competitive marketplace.
MBA is also pleased that H.R. 3938 recognizes the
importance of housing counseling for those families who live in
rental housing. Renters often have significant housing needs
and the ability to discuss housing options with a competent
housing counselor can stabilize families and help them avoid
homelessness. Purchasing a home is often the biggest investment
that the typical American family makes. It can bring great
financial and social rewards, helping families to build wealth
while they put a roof over their heads.
However, buying a home is often also one of the most
complicated transactions they ever undertake. H.R. 3938's
provision for a toll-free number and Web site will ensure
convenient access to information that will assist them with the
benefits and responsibilities of homeownership. Through the
funding of HUD-approved counseling agencies and the
certification of counselors, families across the country who
require more personal counseling will have access to it.
We support H.R. 3938 and again applaud your timely effort.
In that spirit, I would like to share two important suggestions
that MBA believes are essential to the effective implementation
of the bill. First, the bill calls for updating and simplifying
the mortgage information booklet. This booklet is provided to
all borrowers at time of application. While HUD would be
responsible for updating and expanding the booklet into several
languages and cultural styles, the bill States that lenders
would be required to provide the booklet in a format that is
language-appropriate and culturally appropriate for the
borrower. This requirement may give borrowers the impression
that because they were offered a booklet explaining aspects of
home financing in a language other than English, they could
expect further documents, communications or assistance in a
language other than English. This is just not practicable.
Additionally, the term ``culturally appropriate'' is far
too vague to be used as a reliable compliance standard. MBA
believes a mandate requiring lenders to deliver the most
language-appropriate or culturally appropriate booklet could
become a litigation risk. MBA would like to work with the
subcommittee on language that would achieve the intent of H.R.
3938, without the above-cited problems.
There is a second issue I would like to raise. MBA believes
that while software programs can be a great tool for consumers
to use during the mortgage process, they can fall short in
assisting a specific consumer with a specific transaction. A
software program will not be able to accurately measure
subjective issues. MBA suggests report language be included
stating software programs certified by the office of housing
counseling should not replace the sound advice of a financial
or mortgage services professional.
H.R. 3938 is a bill that takes HUD and housing counseling
in the right direction. MBA applauds the efforts that HUD has
made to date in prioritizing housing counseling and believes
that it can have an even greater impact under the proposed
office of housing counseling.
Thank you again for the opportunity to present MBA's views.
We look forward to working with you and the subcommittee as it
considers this bill.
[The prepared statement of Robert M. Couch can be found on
page 46 in the appendix.]
Chairman Ney. I want to thank you. One quick question, in
case you have to take off. I have raised this already. Would
you all accept the fact that if you had a Web site you could go
to and you print it and it prints in Creole or Farsi or
Spanish. Would that work in the technological end of it?
Mr. Couch. It certainly has some possibilities as an
intriguing notion, provided that HUD is responsible for the
translation and the compilation of all the different languages
that would need to be posted there.
Chairman Ney. I understand about you putting the book
together versus somebody else putting the book together because
you could make a horrific mistake and it would not be good.
What is your current liability? Do you have current liability
on a certain amount of the information you distribute?
Mr. Couch. Unfortunately, just like Secretary Weicher, I
cannot tell you the exact liability, but we are required to
provide a notice to borrowers within 45 days of going into
foreclosure. So there are requirements on us to provide HUD-
mandated information to all borrowers, whether they are HUD
borrowers or not.
Chairman Ney. Thank you.
Mr. Bibby?
STATEMENT OF DOUGLAS BIBBY, PRESIDENT, NATIONAL MULTI HOUSING
COUNCIL
Mr. Bibby. Thank you.
Chairman Ney and distinguished members of the subcommittee,
I am Doug Bibby. I am president of the National Multi Housing
Council, a national association representing the nation's most
prominent apartment firms.
NMHC operates a joint legislative program with the National
Apartment Association which represents over 30,000 apartment
executives and professionals who own and manage close to five
million apartment homes. It is my pleasure to testify on behalf
of both organizations today.
We commend you for your leadership and we thank the members
of the subcommittee for your valuable work addressing the
important issue of housing in America, and particularly the
topic of today's hearings, successful homeownership and renting
through housing counseling.
I know some of you may be thinking, why is the head of an
apartment trade group here discussing housing counseling? Well,
as a matter of fact many of our members across the country
partner with housing counseling agencies to do just that. They
counsel people on a variety of issues important to the entire
housing sector. Renters are the homebuyers of tomorrow and vice
versa. Many homeowners become renters. Rental housing is a
great benefit to many people in America, and our housing policy
should not be so lopsided with tax incentives that it distorts
what should be our over-arching goal in America: good quality
housing for everyone, both owned housing and rental housing.
Let me highlight today the Columbus Housing Partnership, a
nonprofit housing provider. They offer various types of housing
to meet the needs of individuals and families throughout
central Ohio. CHP provides counseling to renters on a variety
of topics: how to rent and maintain their apartment home;
financial counseling; and homeownership counseling. CHP also
provides residents with programs that bring computer labs,
resident councils and meals to apartment communities. CHP, a
member of the Columbus Apartment Association, partners with
Wallick Properties Midwest, a private property management
organization and a member of NMHC to manage most of its rental
portfolio. Such partnerships not only provide housing-related
counseling services, but also other valuable community
services. CHP's program is a commitment to provide a start-to-
finish approach to housing services.
We feel that appropriate counseling is especially necessary
in light of the recent spike in the foreclosure rate,
particularly among individuals who participate in homeownership
programs with low down payment requirements. We support
Congress in your quest to address this issue. NMHC and NAA feel
that the time has come to ask whether homeownership above all
else and at any cost is wise public policy and sound financial
policy.
It is essential that proposed homeownership initiatives
include strong and substantial counseling and education
provisions to educate consumers about the considerable
responsibilities that accompany successful homeownership. No
one is born a successful homeowner. To be a successful first-
time homeowner, an individual should understand all of the
factors that go into purchasing and owning a home, especially
the financial considerations.
If I were counseling someone or a family that is now
renting an apartment on whether or not they should buy a house
with zero down, I would say, if you have a marginal income, few
cash reserves, and impaired credit history, I would be very
comfortable in advising you to be cautious and be very sure you
want to take on the huge emotional and financial challenge of
owning a home.
NHMC and NAA urge Congress to include programs that will
benefit both renters and potential homebuyers in the proposed
office of housing counseling, such as those I have outlined
today.
Thank you for the opportunity to testify.
[The prepared statement of Douglas M. Bibby can be found on
page 48 in the appendix.]
Chairman Ney. Thank you very much.
Ms. Canfield?
STATEMENT OF ANNE CANFIELD, EXECUTIVE DIRECTOR, CONSUMER
MORTGAGE COALITION
Ms. Canfield. Chairman Ney, thank you very much for the
opportunity to testify today. I would like to request that our
full written statement be made a part of the record. Thank you.
We applaud your efforts, Mr. Chairman, and the efforts of
Congresswoman Velazquez, as well as Congressman Scott in
introducing this legislation. The CMC has believed since its
inception in the mid-1990s that housing counseling and
education, if done correctly, is a key component to helping
individuals first become and then remain successful homeowners.
When the CMC first became actively engaged in this issue
some years ago, we found that there was an enormous amount of
counseling services that were available to consumers, but,
consumers often did not know where to go for the counseling;
and very importantly, the quality of counseling services varied
dramatically.
Our solutions to these two issues were several-fold. First,
in order to address the problem of letting consumers know where
to find qualified counselors, we suggested that the government
publish an online list of qualified counselors or counseling
services and their location. In addition, we suggested the
government set up 1-800 numbers that consumers could call and
find out where to access these services. Furthermore, we
suggested the government engage in a public advertising public
relations campaign to let consumers know where these services
are; that these services are available and within their reach
by simply calling the 1-800 number that would be advertised, or
by visiting the HUD Web site.
Second, in an effort to improve the quality of counseling
services being provided, we initially suggested having the
government develop and make publicly available smart computer
systems to be used as a tool to help counselors provide quality
counseling services. In addition, we also proposed that these
systems be available online so that consumers who had access to
computers could use the systems themselves.
Since the concept of utilizing a smart computer system to
help improve the quality of counseling services was thought of
some years ago, the industry has actually developed a number of
similar programs that are available for consumers online.
However, these systems are not necessarily being widely used by
the housing counselors themselves to counsel consumers. Rather,
the consumers who are computer literate are using them online
themselves.
Our third proposal was to have HUD create a counseling
certification process to at least ensure that HUD-funded
counselors would meet uniform high standards. That HUD
certification process could eventually lead to a system whereby
counselors would actually seek to be certified by HUD to prove
to their customers or consumers that either they or their
organization were providing quality services by utilizing the
latest technology tools.
Fourth, we suggested that HUD's special information booklet
that is required to be given to consumers under RESPA should be
available online and that the booklet should include examples
illustrating various loan products and how consumers might
evaluate which products best fit their needs. While not the
only solution, helping consumers understand a loan product and
its terms and the responsibilities of homeownership will help
to prevent consumers from falling prey to abusive lending
practices.
Finally, we suggested that the lender provide information
to its mortgage applicants on how they could reach a qualified
counselor. This legislation that you have introduced, which is
very important, incorporates many of these proposals and we
believe it is a very good start to making timely high-quality
counseling services available to consumers across the nation.
In addition, we are particularly pleased that the
legislation places a high degree of importance on the public
awareness campaigns that you have referenced in your bills.
Part of the problem right now is that most consumers do not
know that a 1-800 number exists at HUD. We also believe it is
critical that consumers understand what options are available
to them after closing, an item that has been discussed
considerably today, particularly when they miss a payment. One
of the biggest difficulties that mortgage servicers have is
getting delinquent customers to communicate with them about
their situation right away and work out a resolution or plan to
bring the loan current. If a consumer is reluctant to call and
becomes many months delinquent, it is much harder to craft a
solution that works for both the consumer and the note-holder.
The availability of timely counseling can be of immense help to
consumers in this situation. Thus, we are very supportive of
the legislation's recognition of the importance of default
counseling.
Mr. Chairman, I would like to close with an example of how
a housing counseling program can work effectively to help
consumers make the right decisions. Some years ago, I used to
work for GE Capital and one of the GE Capital companies was GE
Mortgage Insurance Company. The late Gale Cincotta came to us a
few years ago. She wanted private sector capital and resources
in her neighborhood. She helped us understand the people in her
neighborhoods and the neighborhoods and the communities
themselves. We helped her understand what a financial
institution needed in order to make things work on our end.
Together, we created a series of affordable housing
products. In fact, I think those were the core of the GSE's
affordable housing products some years ago. The first product
was a community homebuyers product. It was an expanded-risk
product where GE Mortgage Insurance agreed to insure loans with
higher debt-to-income ratios for first-time Low-to-moderate-
income homebuyers. However, in order for consumers to qualify
for that product, they had to go through a counseling program.
We test-marketed the product in five major Midwest cities. The
product was distributed through various participating banks and
thrifts. GE contributed counseling materials and the
participating lenders put up the people, time and space to
counsel.
In the first year, we had 1-800 numbers running off the
hook. People came into the lender's offices, went through the
counseling programs. At the end of the year, only 250 loans had
been made. So we were wondering what went wrong. It turned out
that everything was right. Many of the consumers, they actually
went through the counseling, determined that they were not
ready for homeownership yet. So the smart lending institutions
actually helped those consumers straighten out their credit
records, set up a savings accounts, and many of those consumers
actually became successful homebuyers a year later. So we look
at that and say that was not only a successful counseling
program, but it was a successful homeownership program.
With that, Mr. Chairman and Congressman Scott, thank you
again for the opportunity to testify. We want to work with you
to get this legislation enacted this year.
[The prepared statement of Anne C. Canfield can be found on
page 49 in the appendix.]
Chairman Ney. Thank you.
Mr. Smith?
STATEMENT OF WILLIAM SMITH, PRESIDENT AND CEO, MUTUAL COMMUNITY
SAVINGS BANK, ON BEHALF OF AMERICA'S COMMUNITY BANKERS
Mr. Smith. Good afternoon, Mr. Chairman and other members
of the committee. My name is William Smith and I am the
president and CEO of Mutual Community Savings Bank in Durham,
North Carolina. I am representing America's Community Bankers
and its MBank Council.
ACB represents the nation's community banks of all charter
types and sizes. ACB created the MBank Council in December,
2001 as a standing committee within ACB to represent ACB's
minority-owned institutions. Mutual Community Savings Bank has
$94 million in assets. We are 82 years old and are one of only
three African American financial institutions in the state of
North Carolina. We are a premier housing lender to underserved
and emerging communities.
As part of Mutual's vision to educate customers before they
are ready to buy a home, Mutual implemented the FDIC's
MoneySmart program in October of 2002. It went right to the
heart of the community to educate consumers on the importance
of financial literacy as a crucial first step towards
homeownership.
To further our financial education and homeownership
campaign, Mutual's branch managers must conduct a financial
education session in their branches. Branch managers actively
engage customers unfamiliar with the importance of financial
education. I want all my customers to understand the importance
of sound financial management and promote those values to their
families.
Mutual also has a trainer to assist our employees in using
the FDIC MoneySmart module. This was the first step in
assisting my customers on buying a home. One of our first
financial education and housing counseling sessions was held at
Maple Temple Church in Raleigh, North Carolina. There were 20
parishioners here, including parents and students. They were
very engaged in understanding the two most important steps
needed before one actually is granted a mortgage: the
importance of understanding your credit and the value of good
credit when one qualifies for an interest rate.
This housing counseling education is especially important
due to the increase in foreclosures. As you know, the highest
foreclosure rates are for so-called sub-prime loans, which are
disproportionately made in low-income and African American
neighborhoods. In 2003, the foreclosure rate for conventional
prime loans was 0.53 percent, but for conventional sub-prime
loans, it was 6.6 percent.
In ACB's 2004 real estate lending survey, ACB asked its
members if their banks required homeowner education or housing
counseling for any of their current home mortgages or consumer
lending products. Of the 401 responses nationwide, 52 percent
required counseling for at least some loan products. Of those
that did not require counseling, about half strongly
recommended counseling. Those banks that do not require or
strongly recommend homeowner education often cite the following
reasons: it is not available in the area; it is not convenient;
or it is too costly.
I believe that housing counseling and education is a
necessity. First, counseling should be made more universally
available and encouraged by efforts to streamline the process
and lower the cost. Therefore, I am a strong supporter of H.R.
3938. Specifically, I agree with the language in the bill on
the scope of homeownership counseling the Department of Housing
and Urban Development will undertake. I also support the
language to establish a toll-free telephone number and a Web
site which anyone can access for homeownership information. In
addition, the language in the bill that addresses outreach to
vulnerable populations is essential.
In closing, owning a home is the greatest accomplishments a
person can achieve. Educating customers and consumers is one of
the greatest responsibilities we in the private sector can
undertake to decrease foreclosure rates and boost homeownership
throughout our nation.
Thanks for allowing me to testify.
[The prepared statement of William Smith can be found on
page 109 in the appendix.]
Chairman Ney. Thank you.
Mr. Spriggs?
STATEMENT OF WILLIAM SPRIGGS, EXECUTIVE DIRECTOR, NATIONAL
URBAN LEAGUE INSTITUTE FOR OPPORTUNITY AND EQUALITY
Mr. Spriggs. Thank you, Chairman Ney and thank you to
Congresswoman Velazquez and to Congressman Scott, for this
opportunity. The National Urban League runs a housing
department. I do not run it. So I want to say thank you to my
colleagues Marvin Owens, who is our vice president for economic
development and housing and Cy Richardson who directs the
housing program under him.
The League, first off, is a housing counselor funded by
HUD. We were an initial partner in the design of the housing
counseling program in 1968 with HUD. As such, we are designated
as a national intermediary. Our affiliates are certified to do
this work through us, and our experiences with the program have
been good with regard to implementation. We have generally
found that education and counseling services are of broad value
for homeowners and can improve the market by facilitating
effective consumer use and demand for a very wide range of
housing and mortgage products.
One of the key areas our affiliates concentrate on is
mortgage delinquency and foreclosure counseling. Others have
already talked about this rising problem in the country. We
primarily offer delinquency counseling which specifically
targets homeowners who are delinquent in repayment of their
mortgage and who may or may not have been served a notice of
foreclosure. Delinquency counseling usually occurs in one-on-
one settings. The National Urban League seeks to assist
delinquent borrowers as opposed to efforts from loan officers
to structure a repayment plan.
Our program also includes components that assist families
looking to rent affordable housing. The affiliates serve as an
information clearinghouse for affordable rental opportunities,
and after determining that near-term homeownership is not
desired or appropriate for a family, we make a referral on
behalf of the family for the rental, while keeping the family
in a database and contacting the family at a later date to
encourage homeownership if requested. Housing counseling
greatly benefits the rental market by moving renters to
homeownership and thereby freeing up affordable units for other
families to move up the housing ladder.
The National Urban League does offer a narrow set of
housing counseling services in partnership with Fannie Mae,
Freddie Mac, the Bank of America and Chase Bank. With those
partners separate from our HUD-funded housing counseling
programs, we offer a program to help potential home buyers
qualify for mortgages, and National Urban League affiliates
separate from our HUD counseling program operate first-time
homeownership programs in ways that complement the HUD program.
We encourage our affiliates to develop robust and comprehensive
housing programs ranging from financial literacy, to first-time
homebuyer classes, to housing counseling, to broader asset
development strategies such as real estate investment and
capital home improvements.
We measure the success of our programs by a number of
qualitative and quantitative indicators. First, we gauge the
efficacy of the program against the National Urban League's
housing policy goals, which include, one, preserving and
expanding the supply of good, quality housing units; two,
making housing more affordable and more readily available;
three, promoting racial and economic diversity in residential
neighborhoods; and four, linking housing with the central
support of services.
Some of the short-term and long-term quantitative measures
include the number of loans and people served, the number of
new homeowners, the number of households relocating with
housing search assistance, the number of very low-and moderate-
income households paying more than 50 percent for housing.
These are some of the measures that we use.
In total from our HUD counseling activities, our affiliates
throughout the National Urban League movement service well over
19,000 clients in a year. The nonprofit program is indeed
comprehensive in nature and application.
Chairman Ney. Not to interrupt, but I would note that a
vote has been called. We have a few minutes, but we want to get
your testimony finished, and then also your testimony, and see
if there are questions, so we don't hold you.
Mr. Spriggs. Okay. Let me sum up, then.
Because of our relationship in terms of doing HUD
counseling, we are very appreciative that you have this
legislation to call attention to the need for home counseling.
We would like to just make a few suggestions. One is in the
area of certification, because we do it as an organization and
it is very costly and capacity-building at the local level is
very hard, if certification could be done at an agency level,
so that we could then certify others, would be far more cost-
effective. CBOs need to be included in all advisory capacities
within the process in order to reach the neighborhoods and the
people who most need it. It is really necessary to work through
community-based organizations. Finally, we would hope that
these wonderful ideas of using technology to reach those who
may not have a counseling agency nearby, not be a diversion of
funds away from the existing program. We really need funds on
top of the existing program. The greatest problem that we are
faced with is that while we are a successful provider of
counseling services, this program has never been funded to the
level that we could do the services at the level we know we
have the demand for.
[The prepared statement of William E. Spriggs can be found
on page 113 in the appendix.]
Chairman Ney. Thank you.
We will move on as quickly as we can, because I want to see
if there are questions by Mr. Scott.
STATEMENT OF ODETTE WILLIAMSON, STAFF ATTORNEY, NATIONAL
CONSUMER LAW CENTER
Ms. Williamson. Sure.
Good afternoon, Subcommittee Chairman Ney and members of
the subcommittee, my name is Odette Williamson. I am an
attorney with the National Consumer Law Center. At NCLC, I
focus on issues relating to sustaining homeownership for low-
income consumers, consumer credit and foreclosure prevention
issues. I testify here today on behalf of low-income consumers.
We support the committee's effort to improve the level of
housing counseling assistance offered to low-income consumers.
The achievements of the housing counseling industry are
numerous and best exemplified by the sizeable increase in the
number of low-income and minority home buyers over the last
decade. Now more than ever, a strong housing counseling
industry is needed to sustain the gains made in homeownership
among low-income consumers from the threat of predatory lending
and from the steady rise in the foreclosure rates.
One of the benefits that education and counseling can
provide is to make homeowners less vulnerable to predatory
lending. A knowledgeable counselor can steer homeowners away
from predatory lenders to affordable alternative loan products.
However, counseling is not a substitute for strong legislation
to protect homeowners from predatory lenders. Only by changing
the laws governing mortgage lending can we fully address the
problem of predatory lending. Clear prohibitions to stop the
worst practices, coupled with assignee liability, are what is
needed to tackle this problem.
Federal law must also provide additional protections to
borrowers losing their homes to foreclosure. The law should
mandate that foreclosures cannot go forward without lenders and
servicers being first required to offer counseling and to
evaluate the use of loss mitigation options. Similar
requirements are already in place for FHA-insured loans. These
requirements should be made applicable to all loans.
To assist consumers in danger of foreclosure, the capacity
of nonprofit agencies to provide default and delinquency
counseling and/or predatory lending assistance must be
expanded. Currently, only a portion of the housing counseling
agencies offer these programs. Providing these services in an
effective manner is expensive. Well-trained counselors must
meet one-on-one with consumers to assess their needs and
provide direct assistance. An effective housing counselor can
prevent foreclosure by acting as a mediator between the
homeowner and the servicer. However, nongovernment support for
this type of service is currently very limited. More funding
and other resources should be specifically allocated to default
counseling and for assistance to victims of predatory lenders.
Federal policy should also encourage the private mortgage
industry to provide more financial support for these types of
services.
More funding is necessary to support the housing counseling
industry in general. The $45 million to be appropriated for
fiscal years 2004 to 2007 under H.R. 3938 should be increased.
This does not represent a significant increase from the current
funding levels of $37.5 million. More nonprofit and for-profit
organizations are providing housing counseling services. With
more providers, the small pool of funding dedicated to housing
counseling is being spread thin.
In addition, the $45 million called for by H.R. 3938 will
fund a new agency and many new initiatives. Without a
significant increase in funding, the net result may be a
reduction in the amount of funds directed towards HUD-approved
agencies. Funding should be doubled to support this new agency
and to provide adequate funding for the nonprofit housing
counseling agencies that provide direct assistance to
consumers.
More funding should also be allocated to research.
Chairman Ney. I will note, and I hate to do this. I feel so
bad, but there are 8 minutes and 29 seconds left. So if you
want to ask a question, we are running real short on time.
Ms. Williamson. Okay. I will just sum up. In sum, the
housing counseling and education industry provides invaluable
assistance to low-income and minority consumers. A strong
industry can be a benefit to consumers.
I thank the subcommittee for the opportunity to speak today
on behalf of low-income consumers.
[The prepared statement of Odette Williamson can be found
on page 158 in the appendix.]
Chairman Ney. Thank you so much.
Mr. Scott?
Mr. Scott. Thank you very much. I apologize for this time
frame. What a fascinating panel. There is so much I really
wanted to get into.
Ms. Williams, you are absolutely right in your testimony.
That is why it is so important that if we move ahead with this
bill, and we are fortunate we are. We are going to do it. Some
of your comments are very pointed. We do have serious questions
out there. The assignee liability is an issue that is a
probability down the road. But in this legislation, we have
some things before us. It is very concerning to me that we move
forward with this, making sure that we have the resources to do
the counseling; that we indeed have a toll-free number that is
friendly, that is language-significant, that is going to do the
job.
One of the problems we need to clear up in this toll-free
number, for example, in your testimony, Mr. Couch, you referred
to the fact that through the current toll-free number and
proposed Web site, this bill directly establishes this new
department, to establish a new toll-free number; a toll-free
number that is different from what is going on. As came from
Ms. Canfield's testimony, she didn't even know a toll-free
number existed. We need a toll-free number that is friendly;
has a human being at it; that is language-specific to the
diversity that reflects; and is targeted through marketing
programs to get the number out there so we can get some help to
the people beforehand.
So it is a fight here just to get these things forward. I
know I have to run, but Mr. William Smith, I would be very
interested to know right quickly if we could, North Carolina
has one of the toughest predatory lending laws on the books. In
light of our counseling and in light of your work, very
briefly, what is the result of that? What is the implication?
Is that working? In terms of the counseling that is needed,
does not it even bring forth a greater need for more resources
to counseling?
Mr. Smith. You are right. I believe it is working in North
Carolina. Our predatory lending laws are making the leaders in
the financial institutions in North Carolina more responsive to
making sure we are providing homeownership training, counseling
and training. It is about leadership for the banks in North
Carolina, particularly in my bank. I provide leadership in my
bank by going out and doing homeowners counseling and making
sure we give back to the communities, and are doing things in
those communities to make homeownership available to the
citizens of Durham, North Carolina and Greensboro, and we are.
Mr. Scott. Thank you.
Mr. Couch, on that point, I just wanted to make sure that
we were clear that we are talking about a new toll-free number.
I think you may have put that in your statement. I do not know.
Mr. Couch. If I said that, it was inadvertent. We are in
support of a new toll-free number. There is an existing toll-
free number that is mentioned in the notice that must go out
when someone becomes delinquent, within 45 days of delinquency.
Mr. Scott. One other thing, too, while we are at it, and we
will just get out of here so we can go vote, you mentioned your
support in the Mortgage Bankers Association, for this effort in
education, financial literacy and so forth. We have $45 million
there. As Ms. Williams mentioned, we know that that is a
pittance compared to what we are going to need if we are going
to make a difference and to do this. Because once you get this
out there, we do not know what that final cost would be.
There is certainly some discussion within the private
sector of ways and means in which they can augment and assist
us with financial support for the financial literacy programs.
I certainly wanted to put that on the table as something that
you all might take back to your industry as well to see what
you could do.
Mr. Couch. Congressman Scott, I know you have to run, but
it is worth noting that many of our members, just as my
colleague Mr. Smith said, we do provide counseling services
outside of those that are required of us.
Mr. Scott. Thank you. Again, we apologize.
Chairman Ney. Thank you.
I want to apologize. I have a few technical things. First
of all, Congressman Velazquez wanted me to personally relay
that she does have questions, as I do too, but we will get them
to you in writing. Also, I have for the record statements to be
submitted without objection by Randall Pence, American Society
of Home Inspectors, the AARP, Financial Services Roundtable,
ACORN, Housing Partnership Network and American Financial
Services Association.
I also note that some members may have additional questions
for this panel which they may wish to submit in writing.
Without objection, the hearing record will remain open for 30
days for members to submit written questions to you, the
witnesses, and to place the responses in the record.
I want to apologize for these votes. You are a great panel.
I am glad you were here to get on the record. Thank you very
much.
[Whereupon, at 1:26 p.m., the subcommittee was adjourned.]
A P P E N D I X
March 18, 2004
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