[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
MULTIFAMILY HOUSING:
MORE ACCESSIBLE HUD DATA
COULD HELP EFFORTS TO PRESERVE
HOUSING FOR LOW INCOME TENANTS
=======================================================================
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
__________
JULY 20, 2004
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-102
U.S. GOVERNMENT PRINTING OFFICE
97-285 WASHINGTON : 2004
____________________________________________________________________________
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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 BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
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 WM. 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
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Page
Hearing held on:
July 20, 2004................................................ 1
Appendix:
July 20, 2004................................................ 37
WITNESSES
Tuesday, July 20, 2004
Bodaken, Michael, President, National Housing Trust.............. 23
Delgado, Charlotte, Vice President/West National Alliance of HUD
Tenants........................................................ 26
Kargman, William M., President, First Realty Management
Corporation.................................................... 28
Moreno, Gene, Policy/Advocacy Director, Chicago Rehab Network, on
behalf of the National Low Income Housing Coalition............ 30
Nwanodi, O. Angie, Director of Policy, National Housing
Development Corporation........................................ 25
Trehubenko, Todd, Senior Vice President, Recapitalization
Advisors, Inc.................................................. 31
Weicher, Hon. John C., Assistant Secretary, Housing/Federal
Housing Commissioner, U.S. Department of Housing and Urban
Development.................................................... 9
Wood, David G., Director, Financial Markets and Community
Investment, General Accounting Office.......................... 8
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 38
Waters, Hon. Maxine.......................................... 39
Bodaken, Michael (with attachments).......................... 41
Delgado, Charlotte........................................... 83
Kargman, William M........................................... 91
Moreno, Gene................................................. 95
Nwanodi, O. Angie............................................ 104
Trehubenko, Todd............................................. 116
Weicher, Hon. John C......................................... 126
Wood, David G. (with attachments)............................ 132
Additional Material Submitted for the Record
Trehubenko, Todd:
Written response to a request from Hon. Mark Green........... 212
American Association of Homes and Services for the Aging......... 215
National Housing Conference, prepared statement.................. 220
Rural Housing Service, U.S. Department of Agriculture, prepared
statement...................................................... 222
MULTIFAMILY HOUSING:
MORE ACCESSIBLE HUD DATA
COULD HELP EFFORTS TO PRESERVE
HOUSING FOR LOW INCOME TENANTS
----------
Tuesday, July 20, 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 10:07 a.m., in
Room 2128, Rayburn House Office Building, Hon. Robert Ney
[chairman of the subcommittee] presiding.
Present: Representatives Ney, Green, Hart, Tiberi, Waters,
Lee, Capuano, Frank (ex officio) and Scott. Also present was
Representative Emanuel.
Mr. Ney. [Presiding.] The subcommittee will begin, and we
will entertain opening statements--I will begin mine--as
members come in. That way, we will get this sitting out of the
way and, hopefully, give us more time for the panelists.
This morning, the Housing Subcommittee meets to discuss the
January 2004 General Accounting Office report dealing with the
preservation of this country's affordable housing units.
Beginning in the 1960s, the federal government began to
contract with the owners of privately owned multifamily
buildings to increase the number of units available to low-
income renters. Offering voluntary incentives to prevent the
erosion of the country's affordable housing units was another
enticement to further encourage the development of affordable
housing for low-and moderate-income people.
Many of these mortgages for these developments have or will
soon reach contract maturity. In addition to contract maturity,
tight rental markets, low fair market rental levels and
landlords who are choosing to opt out of the programs are
reducing the supply of available housing for the program
participants, which, I think, of course, will be creating a
problem. Thus, many Americans living in these at-risk
developments could find themselves unable to find affordable
housing.
Properties subsidized under the programs represent a
significant source of affordable housing across the country.
Many of the commitment periods will be completed within the
next 10 years. When owners pay off mortgages, in most cases,
the subsidized financing ends and so does the requirement, and
that requirement, of course, is to keep those units affordable.
This raises the possibility that rents will increase. In
many areas, families simply cannot find an affordable place to
live, so I think we have to look for ways to keep these units
affordable and also, obviously, available.
In December of 2002, Chairman Oxley and Ranking Member
Frank requested that the General Accounting Office conduct a
study of the preservation of low-income housing rental
developments that are scheduled to reach maturity in their
mortgage.
The GAO report states that over the next 10 years, low-
income tenants in over 101,000 units may have to pay higher
rents or move to more affordable housing when HUD-subsidized
mortgages reach maturity, and, of course, the question would
be: Where would they move to find affordable housing?
Nationwide, 21 percent of the subsidized properties with
HUD mortgages are scheduled to mature through 2013. This is a
significant portion of this country's affordable and available
housing stock.
While HUD does not offer incentives to keep properties
affordable after mortgage maturity, there are a variety of
programs available to States and localities to assist them in
keeping these properties affordable, such as CDBG and HOME.
The trick is for States and localities to have this
information, I think, in a timely manner so they have
sufficient time to use the tools and the incentives available
to them that we already have to help keep the properties
affordable.
Today, families across this nation often find it difficult
to find decent affordable housing where they live. Policemen,
firemen and schoolteachers can no longer live where they work.
That is why we have to work together to preserve our
existing stock and to find ways to work with private groups,
state and local governments and businesses to determine how
best to provide affordable housing to low-and moderate-income
families.
Now is the time, obviously, to begin to talk about this,
find out the facts and try to get some solutions. That is the
purpose of today's hearing.
And, with that, I yield to the gentleman from
Massachusetts.
Congressman Frank?
Mr. Frank. Mr. Chairman, I appreciate your calling this
hearing.
The housing crisis that we face is a very serious one.
There are problems in our economy, problems of people not being
able to afford basics that we think every American should be
able to have, which are alleviated when we have economic
prosperity. Jobs, rising wages, those things do a great deal to
help.
Housing, sadly, in some parts of the country is less
beneficially affected. Obviously, it helps when the economy
improves, but, in fact, the very prosperity that we enjoyed in
the 1990s exacerbated the housing crisis in many parts of the
country, and it is particularly relevant to today.
I know there are people who like to argue that the rising
tide lifts all boats, but if you are standing on tiptoe in the
water because you cannot afford a boat, the rising tide is not
good news. Or if you do not own the boat, but you are
temporarily in it because you are paying a certain amount of
money and somebody else can outbid you, you can go over the
side. We are talking now about a problem of people being tossed
over the side because of that very rising tide.
Enough metaphors. It is getting too complicated.
Here is the problem: We subsidize housing in a very
sensible way. People who oppose federal efforts in the housing
area often point to the mistakes we made--Codigo, Cabrini
Green, Columbia Point, the large excessively institutional
warehouses for large numbers of low-income people with no
services. The poor people did not ask to be put there. The
society did that because that was the cheapest way to kind of
ease our conscious pangs.
But we learned that that was not a good idea, and one of
the things we have done is to harness the private sector in a
very useful public-private cooperation through various
programs, 221(d)(3) below market interest rate program, 236
program and other forms of subsidy.
Now, in many cases, obviously, that housing was built in
areas that were not quite so desirable, and the very prosperity
that we all welcomed has made some of the areas which used to
not be so desirable much more desirable.
The South End in Boston, when I got involved in Boston
government 35 years ago, was not a great place to live. Today,
it is a very high-end place to live. Now we built a lot of
housing in the South End, subsidized housing, for people of low
and moderate means. They now can be priced out.
In other words, if we do not act, the very prosperity that
we welcome will become a source of displacement for many low-
income people.
We have budget problems. We want to do things as
economically as possible, as inexpensively as possible without
minimizing quality. It seems to me overwhelmingly clear
preserving existing units of affordable housing per dollar is
by far the best way to deal with the housing stock problem.
I think we need to go beyond that. I think we should get
back into a production program. But it ought to be the minimum
that we could agree on, that preserving existing affordable
housing is not only the least expensive financially, it is the
least expensive socially. We are talking about people not being
displaced.
Now we recognize that the owners have a constitutional
right to the terms of the contracts into which they entered. We
cannot order private owners to breach the terms of their
contracts. It, therefore, becomes important for us to work
together with the tenant groups, the owners, state and
municipal officials cooperatively to try to preserve this
housing.
By definition, by the way, we are going to be talking about
housing with high consumer satisfaction because if we were
talking about properties that are unattractive that no one
wants to live in, there will be no concern about preserving
them. They will not be the ones that could be rented out more
expensively.
So this is, Mr. Chairman, as you know, a very, very
important subject. It is one that calls for us all to work
together cooperatively with the private sector, with tenant
groups, with state and local governments, and I believe a
relatively small amount of money per unit will go further to
preserving affordable housing here than anywhere else.
One last point: We all pay tribute to the notion of
deconcentrating poor people, of integrating our society, of
avoiding the segregation of poor people by economics and, to
some extent, by race. If we lose the current stock of
affordable housing because the neighborhood gets more
desirable, we will be perpetuating that trend.
We ought to welcome this and say, ``Yes.'' Isn't it an
important thing to our society and our goal of integration
economically, racially and every other way that as various
neighborhoods change character, as they become places where
wealthier people will want to live, we will preserve within
those neighborhoods areas where lower-income people can live?
That is the best way to achieve this goal.
So, Mr. Chairman, in this, as in other things, I am very
appreciative of the willingness you have had to take the lead
in trying to discharge our housing obligation.
Mr. Ney. I want to thank the gentleman from Massachusetts.
The gentleman from Wisconsin, Mr. Green.
Mr. Green. I have no opening statement, Mr. Chairman.
Mr. Ney. The gentleman from Georgia, Mr. Scott.
Mr. Scott. Thank you very much, Mr. Chairman.
To you, Chairman Ney, and Ranking Member Waters, Ranking
Member Frank, I want to thank you for holding this important
hearing today regarding affordable housing preservation.
There is an extraordinarily great need for this nation to
preserve the existing inventory of federally assisted housing.
For about 50 years, HUD has subsidized the development of
about 1.7 million low-income rental units by offering property
owners favorable mortgage financing, long-term rental
assistance contracts or both in exchange for owners' commitment
to house low-income tenants for 20 to 40 years. According to
the GAO, over 193,000 subsidized units will be lost in the next
10 years when the mortgage matures and the mortgage subsidy and
low-income affordability restrictions related to the property
terminate.
About 77 properties, or 26 percent, of subsidized
properties in Georgia alone are scheduled to mature by the year
2013. Owners will be permitted to raise the rents for units not
covered by a rental assistance contract to market levels.
Approximately 200,000 individuals in 101,000 units with no
other subsidy attached to the property will be at risk of
paying higher rents because there are no existing tenant
protections, such as enhanced vouchers, to protect the tenants
from paying higher rents or being evicted when the mortgage
matures.
To help address these concerns, I have signed on as an
original co-sponsor of H.R. 4679, the Displacement Preservation
Act of 2004, and I want to thank Ranking Member Frank of
Massachusetts for his sterling leadership on this critical
issue and this important piece of legislation. Our bill H.R.
4679 will maintain the affordability of units and protect
tenants in these units in cases where owners choose not to
adhere to the existing affordability restrictions upon mortgage
maturity.
I believe that this committee and HUD should continue to
focus on the overall problem of the lack of affordable housing
in America. To that end, I am also a co-sponsor of the National
Housing Trust Fund, H.R. 1102, which will provide funding for
1.5 million units of affordable housing over the next 10 years.
I also am concerned with the loss of $1.6 billion from the
Section 8 housing voucher program. Last week, our Financial
Services Committee held a hearing on homelessness. Every one of
the witnesses on the panel agreed that cutbacks in Section 8
vouchers will contribute to an increase--a dramatic increase--
in homelessness in this country.
What could provide better assistance to help families
become self-sustaining than helping them with rental
assistance? These cuts are misguided, and they should be
reversed.
Thank you, Mr. Chairman, and I look forward to the panel's
testimony.
Mr. Ney. I want to thank the gentleman from Georgia.
Gentlelady? Ranking Member Ms. Waters?
Ms. Waters. Thank you very much, Mr. Chairman, for
scheduling this hearing to consider both the recent GAO report
that Ranking Member Frank and Chairman Oxley requested on
affordable housing preservation and H.R. 4769, the Displacement
Preservation Act of 2004, a bill offered by Mr. Frank that I am
proud to have co-sponsored.
Mr. Chairman, as Mr. Bodaken correctly observed in his
prepared testimony, the nation's supply of decent affordable
housing for the poor and elderly does not meet the demand for
such housing, yet the Bush administration has no real
production program to create additional affordable housing, and
it also has taken many steps that jeopardize the Section 8
program.
These dire circumstances make it all the more urgent that
we preserve our existing inventory of federally assisted
affordable housing. We must do all that we can to prevent the
loss of any affordable housing units. Yet the recent GAO
report, the April 2004 report of the National Housing Trust and
the testimony of our witnesses today will clearly demonstrate
that we are, indeed, failing to do so.
The April 2004 report of the National Housing Trust
establishes that 300,000 project-based affordable units have
been lost in the past 8 years. The additional vouchers funded
during this time period to prevent displacement of tenants have
not been sufficient to prevent a loss of affordable housing.
The National Housing Trust estimates that there has been a net
loss of at least 74,000 rental subsidies between 1995 and 2003.
Mr. Chairman, there is every reason to believe that this
problem will worsen as more mortgages mature if we do not act
decisively to address it. As the recent GAO report observes,
HUD does not offer incentives to keep properties affordable
upon mortgage maturity, and tenants in over 101,000 units
without rental assistance are at risk of paying higher rents
after mortgage maturity because no requirement exists, such as
enhanced vouchers, to protect tenants when HUD mortgages
mature.
According to the GAO, over 193,000 subsidized units will be
lost in the next 10 years when the mortgage matures and the
mortgage subsidy and low-income affordability restrictions
related to the property terminate.
Tenants who live in units financed through Section 221(d)3,
Below Market Interest Rate program, or Section 236 program will
risk having to pay market-level rents when the mortgages for
these properties mature because these units have no rental
assistance contract attached to them.
Mr. Chairman, with the administration's support, a total of
$703 million in Section 236 funds have been rescinded in the
funding year 2004, funding year 2003 appropriations and in the
funding year 2002 supplemental appropriations bill. These were
funds that were authorized for the rehabilitation of low-income
subsidized housing units that could have been used to preserve
the supply of affordable housing.
In its funding year 2005 budget, the administration
compounds the prior injury by proposing to rescind an
additional $675 million in funds previously appropriated for
Section 236 subsidized housing projects. H.R. 4679 would help
to preserve affordable housing where the owners of Section
221(d)3 or Section 236 properties chose not to observe prior
affordability restrictions when the mortgages matured.
It would make low-and certain moderate-income tenants in
units not covered by rental assistance contracts eligible for
enhanced vouchers if owners choose not to continue the
affordability restriction. It would require notice to tenants
at least 9 months prior to mortgage maturity, if an owner
chooses not to maintain affordability restrictions when the
mortgage matures.
Finally, the bill would authorize the use of $675 million
in Section 236 funds targeted by the administration for
rescission to provide one-time rehab grants to owners, one-time
grants to help non-profit organizations purchase properties and
continue them as affordable and to make annual payments to
owners to cover the difference between subsidized and market
rents for low-income and certain moderate-income tenants.
Affordable housing preservation initiatives, like H.R.
4679, are a cost-effective method to maintain our affordable
housing stock, while avoiding the ``not-in-my-backyard''
problems that sometimes attach to new housing projects. I urge
my colleagues to support H.R. 4679.
And, finally, Mr. Chairman, when you factor in the impact
of the proposed cuts to the Section 8 program on affordable
housing inventory, it is clear that we will continue to lose
units at a rapid rate if we do not act to remedy these ongoing
problems.
HUD must do more than simply take steps to make data about
properties with maturing mortgages more accessible to the
public. They need to fund the preservation of these units.
I thank you, Mr. Chairman, for allowing me to enter this
statement into the record, and I know that you want to continue
with the testimony from our witnesses today.
[The prepared statement of Hon. Maxine Waters can be found
on page 39 in the appendix.]
Mr. Ney. Without objection.
Any additional opening statements?
The gentlelady from California?
Ms. Lee. Thank you, Mr. Chairman.
Let me thank you and Ranking Member Waters, Ranking Member
Frank for convening this very important hearing to review the
GAO findings from the recent report on preservation and data
collection of privately owned affordable rental units for low-
income tenants.
This report and hearing is very important because it
highlights the harsh reality of HUD's lack of State and local
data collection, its poor recordkeeping and really very dismal
efforts to track privately owned subsidized properties where
our most vulnerable families live.
As we all know, the need to preserve the nation's existing
inventory of federally assisted affordable housing is critical.
As more and more families fall victim to our economy in terms
of losing jobs, losing their health care and much more, we must
do everything we can do to protect their basic shelter.
If we cannot pass simple legislation to create a national
affordable housing production program similar to H.R. 1102, the
National Affordable Housing Trust Fund, the least we can do is
to maintain, preserve and work in conjunction with landlords to
keep people in the limited affordable housing that we currently
maintain.
Unlike the administration's efforts in terms of its efforts
to cut affordable rental housing by block-granting the Section
8 program, I fully support legislative fixes that will keep
families in their homes. It is this committee's obligation to
change the current direction of HUD policies toward the poor
and moderately incomed individuals and families.
Homeownership or homelessness is not the option families
should have to face. Instead, we must invest in affordable
rental programs like Section 8, Section 202, Section 221 and
Section 236.
The problems that we are discussing today can be fixed in
the short term by passing H.R. 4679, the Displacement
Prevention Act of 2004.
Ranking Member Frank's legislation realistically uses $675
million in previously appropriated housing rescissions for one-
time-only grants to owners for rehabilitation of affordable
properties in desperate need of repair.
The $675 million could also be made available for non-
profit organizations to purchase properties in order to keep
them affordable.
Lastly--and probably most importantly to owners--this
funding can cover the difference between subsidized and
comparable market rents in the area.
This legislation is realistic and a good first step to
looking at the problem of national affordable rental units.
So I wish we actually were discussing the National
Affordable Housing Trust Fund today, but I am sure that many of
the witnesses here will provide all of the background as to why
we need to preserve the current housing stock and create a
national production program. The housing bubble in many of our
communities is bursting, and we must act now to protect those
who are most vulnerable.
I look forward to the testimony of our witnesses, and I
want to thank you again for convening this hearing, Mr.
Chairman.
Mr. Ney. I thank the gentlelady.
Are there any additional opening statements? If not, we
will move on to the panel.
The first member of the panel is Mr. David G. Wood,
director of financial markets and community investment, General
Accounting Office, and the second is the Honorable John C.
Weicher, Assistant Secretary, Housing/Federal Housing
commissioner, U.S. Department of Housing and Urban Development.
I want to welcome both of you, and we will begin with Mr.
Wood.
STATEMENT OF DAVID G. WOOD, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, GENERAL ACCOUNTING OFFICE
Mr. Wood. Thank you, Mr. Chairman, and thank you for
inviting me today.
Our report to Chairman Oxley and Ranking Member Frank on
properties with HUD mortgages scheduled to mature over the next
decade provides information in three areas: first, the scope of
the issue in terms of the numbers of properties affected, their
location by state and other characteristics; second, the
impacts that low-income tenants may experience as a result of
maturing HUD mortgages; and, third, tools or incentives
available from HUD, states or localities that could be used to
preserve affordability for low-income tenants.
Regarding the scope, I will briefly note a few highlights.
Using HUD's databases, we identified a total of 2,328
properties with HUD mortgages that are scheduled to mature by
December 31, 2013. These properties contain over 236,000 rental
units, slightly over half of which are subsidized with project-
based rental assistance provided by HUD, and every state has at
least a few of these properties. The range is from three in
Vermont to 273 in California.
We found that the potential impact on tenants could vary at
these properties. Among other things, the impact may depend on
protections against rent increases, if any, that may exist and
owners' decisions regarding the use of their properties.
A little over 134,000 of the units of these properties are
covered by rental assistance, mostly project-based Section 8.
As long as the rental assistance contract covers the unit, the
tenant is basically shielded from any increase in rent, even
after the mortgage matures. If the rental contract expires and
property owners decline to renew them, often referred to as
opting out, then tenants of rent-assisted units are generally
eligible for housing vouchers, which help pay the rent at their
existing units or at other units.
Meanwhile, over 101,000 units in properties with HUD
mortgages scheduled to mature by 2013 are not covered by rental
assistance. No statutory requirement exists to protect tenants
in these units from increases in rent after the HUD mortgages
mature. Thus, tenants of those units could face having to pay
higher rents or moving.
The impacts on tenants will depend not only on protections
against rent increases, but also on property owners' decisions
after their HUD mortgages mature. Such decisions could be
affected by a number of factors, including the income level of
the property's neighborhood, the physical condition of the
property, and the owner's mission.
Profit-motivated owners, for example, may find it desirable
to turn a building into condominiums or rental units for
higher-income households. On the other hand, non-profit owners,
which own about 38 percent of the 2,328 properties, generally
have a mission of providing housing affordable to lower-income
households.
At the time of our study, the HUD mortgages on 32
properties had matured. Half of these properties had units
covered by rental assistance contracts, thus shielding those
tenants from rent increases.
We were able to contact 10 of the remaining properties and
found that all were still offering rents affordable to low-
income tenants. However, because of the small number, we do not
know the extent to which these properties are indicative of
properties with mortgages yet to mature.
Our survey of state and local agencies showed that a number
of tools or incentives might be used to preserve the
affordability of properties with maturing HUD mortgages.
However, the survey also clearly showed that this was an issue
not on the radar screen. In fact, most agencies do not track
the status of HUD properties.
For example, about three-quarters of the 226 agencies that
responded said that they do not track the maturity dates on HUD
mortgages, and over half reported that they have no tracking
system to systematically identify properties that are eligible
to leave HUD's subsidiary programs. However, a number of
respondents said that it would be helpful and useful to have
this information.
Accordingly, we recommended that HUD take steps to make its
data more available to help state and local agencies track
subsidized properties that are eligible to lead HUD's programs.
As an example of one approach, we also developed an interactive
CD-ROM containing a database of the properties included in our
study, which may be searched using a variety of criteria,
including mortgage maturity date.
Mr. Chairman, that concludes my prepared remarks, and I
will be happy to answer any questions you have.
[The prepared statement of David G. Wood can be found on
page 132 in the appendix.]
Mr. Ney. I want to thank the gentleman.
Mr. Weicher?
STATEMENT OF HON. JOHN C. WEICHER, ASSISTANT SECRETARY,
HOUSING/FEDERAL HOUSING COMMISSIONER, U.S DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT
Mr. Weicher. Thank you, Chairman Ney, Ranking Member
Waters, Ranking Member Frank and distinguished members of the
subcommittee, and, on behalf of Secretary Jackson, thank you
for inviting the department to testify this morning. We
appreciate this opportunity to provide the committee with the
department's comments on this GAO report.
This administration is firmly committed to preserving
affordable housing. Historically, HUD's subsidized rental
projects have had rent affordability requirements for a fixed
term. In recent years, the department has worked with Congress
to create incentives to maintain affordability if the rental
assistance contract expires. Some of these incentives programs
have extended the affordability restrictions beyond the
maturity of the insured mortgage.
To date, the department has been very pleased with the
success of these programs in preserving the affordable housing
stock. Under this administration, the department has preserved
the affordability of over 2,000 projects with about 200,000 in
the Mark to Market, Mark Up to Market and Section 236
decoupling programs.
Although these programs do not directly address the
termination of the affordability requirements resulting from
mortgage maturity, the GAO reports shows that they are, in
fact, preserving affordable units for an extended period beyond
the original maturity date.
The Section 202 prepayment program also promotes long-term
affordability. Owners can refinance the loans and obtain funds
for modernization in return for keeping the affordability use
restriction until the maturity of the original loan.
To promote preservation of these affordable elderly housing
projects, the department has announced that we will allow these
loans to be underwritten at the current Section 8 rent even if
it is higher than the market rent. This change should enable
substantially more Section 202 projects to be refinanced
through FHA and improve long-term viability.
As the GAO report states, there are over 230,000 units in
2,300 properties where the mortgages are scheduled to mature
through 2013. About 75 percent of these properties will not
mature until 2011 or later. About 225 will mature in the next 5
years.
About 57 percent of the units in these properties receive
project-based Section 8 assistance or other rental assistance.
These residents are protected for the term of the assistance
contract and will receive vouchers if the contract expires and
is not renewed.
The remaining 43 percent of the units benefit from a
mortgage interest rate subsidy, but the tenants do not now
receive rental assistance. These are Section 221(d)(3) BMIR and
Section 236 projects. The question has been raised as to
whether unassisted residents in these projects would be able to
afford increased rents when the mortgage matures.
It should be noted that the income limits are higher in
these programs than in Section 8. There is, in fact, no income
limit in Section 236. Residents in the Section 221(d)(3) BMIR
projects can have incomes of up to 95 percent of area median in
contrast to project-based Section 8 which limits residents'
incomes to less than 80 percent of area median income.
Also, as the GAO report points out, unassisted residents of
these projects have higher incomes than residents who do
receive rental assistance. These unassisted residents should
have the ability to afford higher rents, and, in the case of
the Section 236 program, many of these residents may have been
paying higher rents throughout the mortgage term.
Actual history shows that many projects remain affordable
after loan maturity. The GAO report includes information on 26
rental properties where the HUD-insured mortgage had matured
between 1993 and 2002. After maturity, all 26 remain affordable
to low-and moderate-income residents.
Therefore, few affordable housing units appear to be at
risk in these projects. When the mortgages do mature, the
projects are remaining affordable.
The department certainly concurs with GAO that it is
helpful to notify our partners in State and local governments
when HUD-insured properties have the potential to leave HUD
programs. In accordance with GAO's recommendation, within the
past 30 days, the department has begun posting on our web site
a list of HUD-insured mortgages and Section 202 loans that are
expiring in the next 10 years.
The department is also planning to solicit comments from
our industry partners on the information that is being provided
so that we are able to improve the usefulness of the data.
That concludes my testimony, Mr. Chairman, and I would be
happy to answer your questions.
[The prepared statement of Hon. John C. Weicher can be
found on page 126 in the appendix.]
Mr. Ney. I want to thank the gentlemen.
And also, the Chair notes we need to keep to the 5-minute
time today. I will notify members when they are out of time, if
they want to wrap up their part of the questions, just so we
can get on with this panel and the second one.
A question I had, Mr. Weicher--I want to start with you--
is, in light of the department's July 12 letter that they sent
stating that the GI/SRI fund is at 75 percent capacity and the
administration's recent budget amendment submission requesting
a $4 billion loan commitment increase, do we have enough
commitment authority to last through the fiscal year? I wonder,
if there is a continuing resolution, what does it do to that?
Are the current funds sufficient?
So can we last through with the statement about the $4
billion, and I wonder, if we do go to a continuing resolution,
how does that affect that, and would the current funds be
sufficient?
Mr. Weicher. As you know, Mr. Chairman, we said last week
in that July 12 letter that we would reach the 75 percent mark
for the fiscal year at the end of last week. We actually are
reaching it either yesterday or today. That is just about where
we reached it a year ago.
So, while we are running at a rate which would not exhaust
the funds in this fiscal year, that is where we were last year
at this time.
Mr. Ney. I do not mean to interrupt, but, last year, we ran
out in August.
Mr. Weicher. In September, actually.
Mr. Ney. Was it September?
Mr. Weicher. Yes.
Mr. Ney. I think I said August, which is the second part,
you know. I think we got a notice sometime in our final days
before the August recess that the fund might not be adequate to
address all the eligible applicants for the FHA loan
guarantees, and I guess my question is: Will that happen again?
Mr. Weicher. You have received the notice on the 75 percent
mark, and I can assure you, Mr. Chairman, I am tracking the
obligations of that fund every day. We will certainly keep you
apprised if there is any move in either direction from where we
are now.
I think the $4 billion additional commitment authority will
be helpful because we have not yet seen any additional business
to speak of from the increase in the multifamily limits in
high-cost areas, which Congress enacted in December and which
we made available to lenders in April.
So we have not yet seen any real business from that. If we
see a significant amount of business there, then we could,
indeed, need the supplemental.
The first 2 months of last year, in each month, we ran at a
rate of about $2-1/2 billion, which would be, for the year,
more than $29 billion. So, even at $29 billion, we could run
out of funds at the end of the month and the first couple of
months.
Mr. Ney. But I note to you, last year, when the department
called--I cannot remember who called, but the department
called--it was so late. It was like the last 1 or 2 days left,
and there was no way we could do anything, which then put us in
a position beyond recess, and, you know, people are definitely
going to be hurt.
But with the notification we received, should we have done
a stand-alone bill this week? Were there steps we should have
taken?
Mr. Frank. Mr. Chairman? Mr. Chairman, would you give me 15
seconds, if you would yield on that, because it is so
important?
Mr. Ney. Yes.
Mr. Frank. I mean, here is one where there is no down side
to this. My understanding is the bill has been filed in the
Senate for the $4 billion, and I would hope maybe the
administration could speak in favor of that. If they could do
that quickly, we could have it sent back here, held at the
desk, do it by UC. I mean, there is zero down side, only up
side.
So I would just encourage it. You know, I know we are
working for it here. If the Senate would just get that through,
we could get it over here, and it would be done before we get
out of here.
Mr. Ney. Yes, that is the point I want to make again. We do
not want to get into the final days. Should we have, you know,
done this this past week? Is there something we need to do
permanently to ensure these funds?
Mr. Weicher. Well, the President sent a letter to the
speaker a week ago proposing the additional $4 billion in
commitment. The administration certainly supports that
additional $4 billion in commitment authority, and we are
prepared to work with both Houses in any way that is useful to
bring that to pass. We do not want to close down these programs
any more than anyone else wants to close down these programs.
Mr. Ney. But do you think we should do a stand-alone bill?
Mr. Weicher. If you can do it quickly.
Mr. Ney. I mean now.
Mr. Weicher. If you can do it quickly, I think that would
be prudent. The question might be: If you come back at the
beginning of September and we have a potential problem, how
quickly can Congress act in that situation?
Mr. Ney. My time is expiring, but, you know, that is
something that we need to look at. Also, I think we need to
look at some type of more permanent solution to ensure the
funds.
The gentlelady of California?
Ms. Waters. Mr. Chairman, I may have missed something here,
but I do not understand what HUD is saying to us about the
expense of this problem. I really want to understand as clearly
as I can how many affordable housing units are actually being
lost, how many do we anticipate are going to be lost, and when
are we going to get the data and the formats for the data so
that it can be viewed and printed without the need for a
separate database management software.
I understand that HUD said that, by May 31, 2004, it would
solicit the comments and suggestions from the four trade
associations. To date, it appears that that has not been done,
that HUD has not created a page on its Web site that provides
relevant data on all the projects that are available in this
format.
So I am trying to understand what does HUD know, what kind
of a handle does HUD have on the problem, and how can we have
access to all of that information and that data.
Mr. Weicher. Ranking Member Waters, we do have the
information on the Web site, and the information is accessible.
I personally accessed it from my home computer to prove that it
was accessible to the average not particularly computer
literate individual.
The data is there for all of the 200,300 mortgages which
will expire in the next 10 years. The data can be organized by
year. It can be organized by State. It can be organized by
congressional district. I can give you the link which we have
provided to the trade associations.
It is accessible. I made a point of looking at that because
I know from working with the HUD Web site and with other agency
Web sites that sometimes it is hard to find what you are
looking for.
Ms. Waters. Well, my staff is telling me they are having
problems because of the format, that it is not in PDF format,
it is only available in Access 2000 and Dbase 3. Do you know
anything about this format and whether or not it makes it less
available?
Mr. Weicher. I accessed it in PDF format myself, Ms.
Waters.
Ms. Waters. I beg your pardon.
Mr. Weicher. I personally accessed it in the PDF format
myself.
Ms. Waters. Oh, you did? Okay. Well, that is very good. I
will get to my staff and tell them to access it so that we can
see what you have.
Mr. Weicher. If there is a further problem, they should
contact us directly, and we will sort it out. But I accessed it
myself.
Ms. Waters. Okay. Good. I am sure if you got it, we should
be able to get it, too. Thank you very much.
Mr. Ney. The gentleman from Wisconsin, Mr. Green?
Mr. Green. Thank you, Mr. Chairman.
First, Mr. Chairman, I want to concur with your remarks and
the remarks of the ranking member on the action we can and
should take with respect to the additional commitment
authority. I think it does warrant immediate action. It would
make a difference.
Secondly, I was pleased to hear of the confidence that HUD
has with respect to the units that are covered by mortgages
reaching maturity. I think the concern that all of us have is
that up to 2013 the number of units, the sheer volume will
present challenges to us that, obviously, we will all have to
work towards together.
I want to turn to a portion of your written statement that
I would like to learn more about. I am looking at page 2 on at
least what was handed out to us.
It says, ``Due to the increasing number of sponsors
desiring FHA insurance to refinance these aging projects, the
department has been reviewing its procedures to provide more
flexibility in underwriting an FHA-insured loan to replace the
Section 202 loan. In recognition of the great need, the
department is preparing a notice to allow these loans to be
underwritten at the existing Section 8 rent, even if above
market levels.''
Could you elaborate on that a little bit? It is
interesting, and I think it is something that warrants
discussion.
Mr. Weicher. Yes, I would be happy to, Representative
Green.
HUD put out a notice on the refinancing of Section 202s
last year, and, at that point, we said that we would permit
underwriting at the lesser of the Section 8 rent or the market
rent. We heard from many people in the industry that that was
too restrictive. We saw not very much business under that.
So we are in the process of issuing a notice which will
liberalize that and will permit loans to be underwritten at the
existing Section 8 rent, even if it is higher than the market
rent. So, from the people I have talked to in the industry,
that will enable a lot more project owners and sponsors to
refinance the loans on a basis which makes it possible for them
to get the funds that they need to rehabilitate the project and
to continue operating as affordable housing for the elderly.
Mr. Green. So the initial feedback has been good?
Mr. Weicher. Yes.
Mr. Green. Any projections on what that will do for the
challenge that we are all here to discuss today as we go out
toward 2013, what kind of numbers that will help with?
Mr. Weicher. Well, the Section 202 projects amount to about
one-third of the total number.
Let me put it this way, Mr. Green. We have about 7,000
Section 202 projects, we have about 7,000 other projects which
receive FHA insurance and a subsidy, and we have about 7,000
projects which are subsidized but are not insured by FHA. So
Section 202 was about one-third of the total in terms of number
of projects, less than that in terms of number of units. These
tend to be a little smaller on average.
But this should enable those older projects, the ones
financed as direct loans from the Treasury from 1959 through
1990, to go on providing affordable housing.
Mr. Green. Are those older projects a greater percentage of
the overall projects that are coming to maturity in the next 5
years? You indicated there was a group.
Mr. Weicher. They are not particularly coming to maturity
in the next 5 years, but they are projects which have wanted to
take advantage of the lower interest rate environment, as we do
as homeowners, to take advantage of that environment to
refinance at a lower interest rate and to use the difference,
the savings to rehabilitate the property and provide affordable
rental housing for the elderly for quite a while to come.
So it is a straight refinancing to obtain funds for
rehabilitation on a basis which makes it feasible for the
project sponsor.
Mr. Green. Great. Very good.
That is all I have, Mr. Chairman. I yield back.
Mr. Ney. Ms. Lee? The gentlelady from California?
Ms. Lee. Thank you, Mr. Chairman.
Let me just ask, Mr. Weicher. I wanted to find out how the
Section 8 program can help with subsidizing the potential cost
to tenants affected by mortgage maturity when, in fact, the
administration is really, it appears, dismantling the Section 8
program.
Then, secondly, I know in the report there were no real
recommendations in terms of the GAO report as to what to do,
i.e. additional funding, additional vouchers, enhanced
vouchers, just what exactly will happen once these mortgages
are lost. What are your thoughts on that?
Mr. Weicher. Well, as I think we both said in our
statements, Ms. Lee, if an owner of one of these properties
opts out of the program, the residents by statute receive
enhanced vouchers, and those vouchers will be provided. That is
part of the department's ongoing program.
Ms. Lee. They will be provided, but is the money there?
Mr. Weicher. The money is there. The money is part of the
administration's budget proposal.
Ms. Lee. To cover the entire problem.
Mr. Weicher. To cover the enhanced vouchers.
Ms. Lee. One hundred percent of those that we would lose?
Mr. Weicher. Yes, if the owner opts out. If the mortgage
simply goes to maturity, then we have been providing vouchers
to the residents going forward. Those are not enhanced vouchers
because those residents may or may not have been receiving
subsidy, but we have been able to do that, and we expect to
continue to do that within the Section 8 program. That part of
the Section 8 program as well.
This is a relatively small share of the total of Section 8,
which amounts to most of the 1.7 million units which are in
Section 8 projects and the 1.9 million units which receive
vouchers. We are not talking about a large number here. Opt-
outs have been running less than 10,000 a year for the last 7
years. So it is not a large number of vouchers that are at
issue here.
Ms. Lee. So you are saying we should not really worry about
it?
Ms. Waters. Will the gentlelady yield?
Ms. Lee. Yes.
Ms. Waters. Would you ask him if this is for more than 1
year?
Ms. Lee. Mr. Weicher, is this for more than 1 year in terms
of the dollars that you have for the enhanced vouchers?
Mr. Weicher. We provide enhanced vouchers. We have been
providing enhanced vouchers while the residents remain in the
project in which they were receiving assistance, and that is
for as long as they stay there.
Ms. Lee. What if the mortgage matures and if they have to
move?
Mr. Weicher. Well, we have been providing vouchers for them
in that situation as well, and those vouchers renew year by
year, depending on congressional appropriation. The funds have
been requested, and they have always been appropriated year by
year.
Ms. Lee. Yes. Okay. Is it actually for 1 year or not,
though?
Mr. Weicher. A voucher is by statute a 1-year voucher
because it is subject to appropriation, but it is renewable
each year if funds are available.
Ms. Lee. If funds are available.
Mr. Weicher. Funds have been available each year. Congress
has funded the outstanding number, provided funds for the
outstanding number of vouchers, and the vouchers have continued
for those residents. We are on a 1-year funding cycle and have
been for, I believe, 10 years now.
Ms. Lee. Okay. So, in high-cost areas, such as
Massachusetts, New York, California, the enhanced vouchers for
these families that are losing their units in the subsidized
mortgage unit, the funding will be there year by year to ensure
that they have the proper shelter?
Mr. Weicher. Yes. Pardon me. The funding is there if the
funds are appropriated, and the funding is at a level to enable
the resident to stay in the property even as the property goes
to a market rent.
Ms. Lee. So you do not see efforts to dismantle the Section
8 program at this point?
Mr. Weicher. No, I do not. I do not think we are doing
that. I know there are matters of concern between the
administration and many members of Congress about that, but I
do not think we are trying to dismantle the program.
Ms. Lee. And the block-granting of Section 8 does not
affect the individuals?
Mr. Weicher. There is a statutory right for an enhanced
voucher established by Congress in 1998, I believe. I am not
sure of the year.
Ms. Lee. That will continue?
Mr. Weicher. That should continue.
Ms. Lee. That will continue. Okay.
But you do not see any reason to be alarmed?
Mr. Ney. The time has expired.
Mr. Weicher. I am not going that far, Ms. Lee. I am
answering the specific question. We certainly agree on the
number of units at issue.
Mr. Ney. The time has expired.
Ms. Lee. Yes. Okay. Thank you very much.
Mr. Ney. Thank you.
The gentlelady from Pennsylvania?
Ms. Hart. Thank you, Mr. Chairman.
Thanks, Mr. Wood and Mr. Weicher, for your testimony.
I come from an area that has a really high percentage of
senior citizens, and it is probably going to get higher. Can
either of you from your experience tell me out of all these
dwellings that we are talking about, are there a significant
number of them or can you give me a ballpark percentage of how
many of them are available specifically toward senior citizens,
to serve senior citizens?
Where I am, in my home county, there is a 6-month waiting
period for HUD-assisted senior housing, and I am sure that we
are not unique. Can either of you can enlighten me a little bit
on the specific service to seniors situation?
Mr. Wood. I can tell you that of the properties in our
study with mortgages that are going to be maturing by 2013, 41
of them were Section 202, which, by definition, is for the
elderly, and those properties had a total of 3,200 units. That
is the only real data I have.
I have also seen estimates that an even greater number of
seniors are served by Section 8 than are served by the 202
program, and a fair number of the properties in our database of
those with expiring mortgages also have Section 8.
Ms. Hart. Go ahead.
Mr. Weicher. Ms. Hart, we have about 7,000 Section 202
projects which are by definition to serve the elderly, and I
believe the average number of units to be about 80. In
addition, as Mr. Wood is saying, a substantial number of
families served in the Section 8 projects and, for that matter,
in the voucher program and in public housing are elderly.
We can provide you with those numbers. I do not know them
off the top of my head, but a substantial fraction of our
assistance does go either explicitly as in 202 by statute to
the elderly or goes to the elderly in programs which are not
restricted to the elderly.
I would be happy to provide that.
Ms. Hart. Thank you. I would like to know that.
Are there specific things being done? I am not 100 percent
certain about the demographic estimates, you know, down the
road, but I expect that you are going to find some more demand
for senior housing. Is that something that you are planning
for?
Mr. Weicher. Well, I think we all can see that coming. The
baby-boom generation will be turning 65 at the end of this
decade and beyond, and I think we continue to fund Section 202,
and we continue to maintain the level of incremental funding
from year to year. Certainly, for projects that are funded by
tax credits and the preservation efforts, we are doing our best
to make sure that there is housing available for the low-income
elderly as those numbers increase.
Ms. Hart. It is a little off the subject, but not really.
What is specifically being done for areas like ours where there
is such a long waiting list? Are they targeting critical areas
like ours to make sure that there is going to be more housing
available?
Mr. Weicher. We are not targeting specific areas in that
respect. Within the 202 program, we have a fund that we
allocate funding by a HUD program office based on a formula
which takes account of the number of elderly in a jurisdiction,
and then we fund the highest scoring applications in each of
those areas.
Then, with funds that are left over, we combine them
because the dollars never quite add up to the dollars of the
successful applications. Then we go on funding, as far as we
can, the highest ranking remaining applications. So funds are
allocated roughly in proportion to the need as best we can do
it by formula.
Ms. Hart. Okay. I have time for another quick question, and
it kind of goes to the whole issue of the likelihood of the
increase in rent after the mortgage expires. I mean, obviously,
the assistance to the owner for the financing for this kind of
housing is required. Otherwise, these buildings, in a lot of
cases, would not be made available. I assume that is still a
valid reason for doing the HUD-assisted mortgages.
So, once the mortgage expires, I mean, just generally, is
there any reason why we should have an expectation that the
rents should remain low? I mean, these people are in the
business of renting property.
Mr. Ney. The time has expired.
Mr. Weicher. There can be projects where the market demand
has risen, and so the market rents would be significantly
higher than they were when the project was built. The GAO
evidence is that the projects where mortgages have expired,
those projects have remained affordable.
Mr. Ney. The gentleman from Massachusetts?
Mr. Frank. Mr. Weicher, as I understand it, your view is
that this question of expiring use is really not a problem
because the administration's voucher policy will meet whatever
need exists in this area? Is that correct?
By problem, I mean people not being able to afford to
continue to live where they were living.
Mr. Weicher. Mr. Frank, let me state the policy. For opt-
outs, we provide enhanced vouchers, as you know, for families
who have been receiving assistance. If the mortgage matures,
then there are not enhanced vouchers, but we have been
providing vouchers to the residents when the mortgage matures.
Mr. Frank. Okay. And you think that takes care of the
problem?
Mr. Weicher. It takes care of the problem of the
individuals who are affected by mortgage maturity or by opt-
out.
Mr. Frank. I have a couple of questions. I am told, in the
budget this year, the administration has proposed a curtailment
of enhanced vouchers. Is that accurate in your budget proposal
for the next fiscal year?
Mr. Weicher. We are proposing to continue to provide
enhanced vouchers year by year.
Mr. Frank. What does that mean, year by year? What is the
current law?
Mr. Weicher. I am sorry. The current law is that enhanced
vouchers are provided for the resident while the resident
remains in the project.
Mr. Frank. In a prepaid project?
Mr. Weicher. In a project which has opted out, yes.
Mr. Frank. And you are proposing we change that how?
Mr. Weicher. We are proposing to change that so that the
voucher is provided on a year-by-year basis as funds are
available to the individual rather than determined in advance.
Mr. Frank. Okay. So now that is the first problem I have
because one of the things we are trying to do here is to avoid
displacement, and we now have a policy in effect that says to
the tenant, ``If your mortgage has been prepaid, you can
continue to stay there with this enhanced voucher.'' You would
change that to say to the tenant, ``You have a year, and we
cannot tell you what is going to happen next year.'' Is that
correct?
Mr. Weicher. That is approximately correct.
Mr. Frank. I think that is a significant problem. When you
have elderly people, as the gentlewoman from Pennsylvania
mentioned, to tell a 77-year-old man or woman who has been
living in this place for 15 or 20 years, ``Well, here's the
change we are making in the law. You are good for next year,
but we cannot tell you about the following year. It depends on
the budget. It depends on all these other things. It depends on
whether those people in Washington ever get around to adopting
a budget on time,'' that seems to me, Mr. Weicher, unnecessary
cruelty.
I do not know how much money you are going to save from
that, but it would introduce that element of extreme
uncertainty into the lives of these older people. Again, we are
talking about them having to leave their homes, and you
acknowledge that there are cases where the rents are high or
otherwise we would not need enhanced vouchers. I mean, the
enhanced vouchers by definition go to where the rents are above
the regular Section 8, and to introduce that level of
uncertainty seems to me very unfortunate.
My second point: With regard to enhanced vouchers, once the
mortgage has matured under your proposal or under existing
policy, as you would have it, there would be no enhanced
voucher? Is that correct?
Mr. Weicher. Under existing policy, there are vouchers, but
they are not enhanced vouchers.
Mr. Frank. They are not enhanced vouchers. So, if the
mortgage matures and at that point the rents go up, there are
individuals who might be forced to leave, even people who are
on rental assistance, because you say here, ``We only give
enhanced vouchers if there is already rental assistance.''
I am glad you are getting some help here because we may get
into serious stuff. You can sit down. You do not have to kneel.
Why do you not sit? I do not want you to get a cramp. You can
sit next to him. It is okay. I do not want to worry about your
knees.
You are changing the policy this way: You say, right now,
you can get an enhanced voucher if you have rental assistance
and there is a prepayment, but, if the mortgage matures, after
the mortgage matures and the landlord is under no further
constraint, the situation the gentlewoman from Pennsylvania was
mentioning, you know, I do not blame the landlord. They are in
business to make money. They have loans. They have obligations.
They may have stockholders.
They then raise the rent to market levels, and, if the
market levels should be above the Section 8 level, then that
person has to move out, is that correct, or find some other
resources? Why deny enhanced vouchers in those situations, at
least to the existing tenants?
Mr. Weicher. Well, of course, enhanced vouchers as a legal
matter were established to address----
Mr. Frank. I understand that. I am talking about the policy
now. We are not in court arguing the point.
Mr. Weicher. Going forward----
Mr. Frank. As a matter of public policy, why should we not
say people here--you know, they have been living there 15, 16,
18, maybe 23 years, it is a 40-year-old mortgage, and as a
result of this program expiring--these people are in their
maybe 70s, maybe 80s--the Section 8 voucher will no longer
cover the rent for that place. They have to move. Why do we not
give them an enhanced voucher? What is the policy reason not to
change the law to allow them enhanced vouchers in that
situation?
Mr. Weicher. Our judgment based on both the GAO study and
our own analysis is that residents of these projects are
typically in better position to be able to afford higher rents
if higher rents occur.
Mr. Frank. Okay. Typically, right, but there is an income
level here. So that is typically. You see, it seems to me your
argument is somewhat contradictory. What you are saying is
there would not be that much need for enhanced vouchers. You
have confidence that these landlords would not be raising the
rents in many cases.
Mr. Ney. The time has expired.
Mr. Frank. You have said that the rents would not be going
up. Given that it would not be likely to cost much, in the
atypical situations, why have a situation where these 70-and
80-year-old people will be forced to move?
Mr. Ney. The time has expired, but please answer the
question.
Mr. Weicher. Our feeling is, Mr. Frank, that with the
limited funds that we have available, the funds should go first
to the people who are going to be the most in need, and those
are the people who have been receiving Section 8 assistance and
whose incomes are generally lower than the residents of these
projects who have not previously been receiving assistance.
Mr. Frank. I would like to just for 10 seconds, Mr.
Chairman, say this is part of the problem.
This is where we differ. We think the existence of these
units as affordable units is a real asset. You are prepared to
let these units go out of the affordable inventory and then
shift whatever burden remains on to a voucher program, which is
already overstrained. That is the problem.
We think that, in fact, exactly that, that it would be
cheaper in terms of providing affordable housing to try and
preserve some of these units in a variety of ways as
affordable, and your alternative is let them all go out of the
inventory and let's pick up some of these people on the voucher
program, which, as I said, is already overstrained.
Thank you, Mr. Chairman.
Mr. Ney. I thank the gentleman.
Before we go to the second panel, I have an order question
for the committee, if I could. I just want to clarify the
August deadline so I have it, you know, straight in my mind.
On one hand, we are told that the program should be good
through October. Now that would be without the $4 billion. Is
that correct, that the program will work through October
without the $4 billion?
Mr. Weicher. At this point, Mr. Chairman, at the continuing
rate, the program would be all right until the beginning of
October, but that is exactly the situation we were in last year
at this time.
Mr. Ney. Well, it was not okay.
Mr. Weicher. It was not all right because there was an
upsurge in the latter part of August and September.
Mr. Ney. So we are not guaranteed then. It could.
Mr. Weicher. That is right.
Mr. Ney. It could maybe not be.
Mr. Weicher. There is no guarantee. Mr. Chairman, at this
time last year, we were reasonably sure that we would not hit
the $23 billion limit at the time, and we did.
Mr. Ney. So a stand-alone bill would be a backup. I mean, I
cannot speak for appropriations, but I am trying to imagine how
in the next 3 or 4 days they can do that. Maybe they can, and
that is why I am just wondering about a stand-alone bill.
Mr. Weicher. Well, we are prepared to work with Congress to
alleviate the concern, whatever you and the appropriators think
is useful.
Mr. Ney. Well, I thank the panel. Appreciate your time.
We will move on to the second panel.
I want to thank the panel for being here today with the
Housing Subcommittee.
The first panelist is Michael Bodaken, and he is the
president of the National Housing Trust, a position he has held
for over eight years. During his tenure, he has seen the trust
rise to become the primary national non-profit organization
dedicated to the preservation and improvement of affordable
multifamily homes.
O. Angie Nwanodi is the director of policy at the National
Housing Development Corporation. The corporation seeks to
preserve affordable housing by working with local communities
to empower individuals and revitalize neighborhoods by raising
capital to purchase large-scale, at-risk properties, renovating
and repositioning these properties, and then distributing
ownership of these properties to qualified local organizations
capable of providing high-quality asset management.
Charlotte Delgado is the western vice president of the
National Alliance of HUD Tenants. Since its creation in 1991,
the alliance has worked to preserve and improve affordable
housing, protect tenants' rights, promote residential control
and ownership, as well as develop tenant empowerment and
improve the quality of life in HUD-assisted housing, while at
the same time, making HUD more accountable to those living in
HUD-assisted homes.
I am going to defer to Congressman Frank of Massachusetts
to introduce the next panelists.
Mr. Frank. Thank you, Mr. Chairman.
I am particularly pleased to introduce two witnesses from
Massachusetts, although I am also particularly glad to see the
National Alliance of HUD Tenants represented because that is an
organization that is very well represented and very active and
very helpful to us in Massachusetts.
But the two witnesses I am about to introduce are not only
from Massachusetts, but they both represent the private sector.
They both represent the business community, and I think this is
important to note. We are talking here about trying to preserve
one of the best examples of private-public cooperation for
general good that we have, and it is one where we have taken
the profit motive, we have taken socially responsible effective
and efficient business people, and it would be a shame if we
were the ones to preside over the dissolution of this program
by just letting this go out of business.
The first witness, William Kargman, is a man with a very
distinguished record in housing development. His entire family
has, in fact, been very active in this regard. He is president
and CEO of First Realty Management, and he is a member of the
Massachusetts and federal bar. He is a former president of the
Rental Housing Association.
He owns and manages a significant number of units in
Massachusetts, and I have worked with him and benefited from
his advice for a very long time, going back at least to 1961
when we graduated from college together. So he has a very
distinguished pedigree here, but he has been very important,
and we in Massachusetts have taken so advantage of his
programs. He has been very helpful.
In addition, we have another businessman who has done great
work here, Todd Trehubenko, who leads Recapitalization
Advisors, and they have been very important in getting private
capital into this and the importance of harnessing private
capital. We are talking here about both people who build,
people who manage and people who invest, and maintaining this
cooperation is very important.
Now let me just say Mr. Trehubenko and Recap have done an
excellent job, and, once again, we have benefited both from
their specific work and from their advice.
One of the things that most troubles many of us about the
problems now with the Section 8 voucher program is the extent
to which responsible private business people, investors,
property managers, landlords are being driven out of the
program. We do not want to be left with those private-sector
people who cannot find other uses for their money and their
property, and it is very important that we show our
appreciation and willingness to take advantage of them.
So I am delighted to welcome both Mr. Kargman and Mr.
Trehubenko here, and I thank you for your courtesy, Mr.
Chairman.
Mr. Ney. The gentlelady from California?
Ms. Waters. Thank you very much, Mr. Chairman.
I certainly appreciate your introduction of the Californian
who is here, but I wanted to add just a few comments.
Ms. Delgado is a resident of Sacramento who has been the
National Association of HUD Tenants' vice president for the
West for most of the past decade, and she was a co-founder of
the organization in 1991. Ms. Delgado also serves as the
president of the Statewide Alliance of Tenants, known as SWAT,
in California, which represents HUD tenants from across the
state.
She is also the president of the Washington Squares I and
II Tenants Association where she lives in Sacramento.
Washington Squares is a 103-unit complex where the owners
prepaid their HUD mortgage and converted the property to high-
market rent. Ms. Delgado was able to stay in her home at
Washington Squares only because she received aid through an
enhanced voucher.
I would like to thank her for coming, and I appreciate an
opportunity to add a few comments about her, Mr. Chairman.
Thank you.
Mr. Ney. Well, I thank the gentlelady.
And to introduce the last witness, the gentleman from
Illinois, Congressman Emanuel.
Mr. Emanuel. Thank you, Mr. Chairman. Thank you for this
opportunity, and I also thank Ranking Member Waters for
allowing me this opportunity.
Gene Moreno serves as director of advocacy for the Chicago
Rehab Network, where she coordinates policy advocacy at the
national, state and local level.
Gene says she is a little nervous today. I have seen her at
work in the city. Do not let that fool you. It is a good head
fake because I have seen her be a tenacious advocate on behalf
of people for affordable housing. In my own district in Albany
Park and other parts of my district, they have done wonderful
work.
Chicago Rehab Network is a coalition of non-profit housing
organizations working to create and preserve affordable housing
in the Chicago area. It was founded in 1977. Over 40
organizations are member organizations of CRN, and it
represents well over 60 different neighborhoods in the City of
Chicago.
They have built and are responsible for well over tens of
thousands of affordable housing for Chicago citizens. I'd like
to specifically cite one area, Albany Park, only because that
was the neighborhood that, when my grandfather came over in
1917 from Russia, he settled in. My uncle is now a sergeant in
the police force in that neighborhood, I now represent it, and
I often say, ``We have traveled many miles, but never gone very
far.''
You have done a wonderful job in Albany Park, and it is
coming back as a strong neighborhood in part because of what we
have done on affordable housing. So I appreciate CRA's great
work, and I am glad Ms. Moreno is taking the time to be with us
today.
Thank you, Mr. Chairman.
Mr. Ney. I thank the gentleman from Illinois.
I want to thank the panelists for coming here to the
capital today on a very important topic. I would also note I
want to thank Congressman Green from Wisconsin who will be
chairing the subcommittee.
We begin with Mr. Bodaken.
STATEMENT OF MICHAEL BODAKEN, PRESIDENT, NATIONAL HOUSING TRUST
Mr. Bodaken. Good morning.
Thank you, Chairman Ney, Ranking Member Waters and Ranking
Member Frank, for allowing the trust to testify today.
I am Michael Bodaken. I am head of the National Housing
Trust, and we are the only national non-profit organization in
the nation dedicated solely to the preservation of federally
assisted and insured housing. As mentioned in the opening, we
have preserved and improved over 16,000 apartments, 90 percent
of which are Section 8 subsidized or the subject of H.R. 4679,
and I want to thank you for the opportunity to testify today.
Today's testimony covers really only two discreet areas,
one is the context in which H.R. 4679 is being introduced, and
the second are a few minor suggestions that can make the
already excellent work of the committee perhaps achieve its
ends at a cost acceptable to the American taxpayer.
Ranking Member Waters mentioned in her remarks that we find
ourselves in a situation not unlike one of vanishing housing
resource. The GAO report, which provided the catalyst for, in
fact, this bill, mentions a number of 1.7 million units that
are subject to HUD's programs.
What the GAO failed to point out is that that number has
shrunk to 1.4 million units. Yes, over 300,000 of that existing
stock has now been converted to market rate rental. Already, we
have lost over 15 percent of what we are talking about.
So the numbers we are talking about are important.
It is also important to note that this stock is not stand-
alone stock. Markets affect whether or not owners are going to
stay in the program. This stock is very economically well
integrated and is located in nearly every nook and cranny of
our nation.
H.R. 4679 attempts to stem this rising tide of affordable
housing loss. The state of the nation's housing put out by
Joint Center for Harvard said it best: ``The already scarce
supply of low-cost housing continues to shrink because of
physical deterioration and gentrification. Long-term Section 8
contracts for subsidized rental units continue to expire,
placing huge demands on our limited supply.''
Nor is this housing isolated to California or to
Massachusetts or Illinois. Take a look at the GAO's own
statistics. Over half the States of this nation stand to lose
about 20 percent of their existing HUD stock if something is
not done about maturing mortgages.
In the State of California, it is 25 percent. In the State
of Wisconsin, represented here by Mr. Green, it is 15 percent.
In the State of Pennsylvania, it is over 17 percent. In the
State of Ohio where Mr. Ney is from, it is 17 percent. Again,
in Wisconsin, it is 15 percent.
Hundreds of thousands of units are really at risk
throughout the nation. It is not isolated to one place, not
isolated to California or Massachusetts at all.
There are two things, I think, that could be done to help
the bill with its impact, and they are very simple fixes to the
bill.
When we look at affordable housing loss, we sometimes treat
our society as if we are just managing a decline. It is kind of
a pessimistic kind of matter. But, in fact, State and local
agencies are stepping up to the plate and preserving this
housing en masse.
We did a study approximately a year ago which shows over 40
states are preserving housing with low-income housing tax
credits. In the State of Wisconsin, 40 percent of your long-
term housing tax credits are being used to preserve this
housing stock.
One simple fix for the bill would allow developers who are
using tax credits to take the funds as either a loan or a grant
so they can get more equity to preserve this stock. In the
State of California, there is a plethora of programs available
at the local and state level that would be benefited by this 1
technical change.
There is two other problems with the bill that affect non-
profits. The first is non-profits need to be allowed to raise
rents as do for-profits. The second is non-profits should be
allowed to use the funds for acquisition.
I will close by asking the subcommittee to support H.R.
3485. It is a tax bill which allows the owners of this housing
to benefit. It has been introduced by Congressman Ramstad and
Cardin on the tax side. I know you do not have jurisdiction of
tax, but the subcommittee is very important with respect to
housing matters generally in Congress. It is a bipartisan bill
introduced in the Ways & Means Committee, it has significant
industry support, and I would urge the subcommittee to consider
supporting it.
Adoption of H.R. 4679 today can mitigate the affordable
housing laws that we have tomorrow. I urge its adoption, and I
thank you for allowing me to share my remarks with you today.
[The prepared statement of Michael Bodaken can be found on
page 41 in the appendix.]
Mr. Ney. I thank you for your testimony.
Ms. Nwanodi?
STATEMENT OF O. ANGIE NWANODI, DIRECTOR OF POLICY, NATIONAL
HOUSING DEVELOPMENT CORPORATION
Ms. Nwanodi. Good morning.
Thank you very much for the opportunity to be here and
share testimony with the committee regarding this very
important issue of preserving affordable housing.
The GAO report focuses on one subset of the stock, which is
stock with maturing mortgages, and the fact that that stock
faces some of the same challenges that the opt-out and
prepayment stock faced in previous years. The National Housing
Development Corporation, which I represent, is a non-profit
organization that is dedicated to preserving existing
affordable housing using innovative mechanisms.
The GAO report, although it does address one issue of
preservation, as some of the members have mentioned, does not
address the broader issue, which is the fact that existing
affordable housing with federal subsidy in it will always
expire.
There is a contract associated, there is a finite resource,
a finite commitment that an owner makes, and so we are always
going to be in the position, unless we look to more
comprehensive policies for preservation, to respond with
incentives for owners to stay in for an extended period of time
with regulatory changes that make it more likely that folks
will stay in the program.
The National Housing position is that the committee ought
to consider ways to break this cycle of rapid response to
crises that are foreseeable, based on the fact that these are
contracts or that these are finite programs, and create tools,
including funding, that will help to permanently address the
problem of all kinds of multifamily housing that at some point
will face a preservation crisis.
One of the things that we focus on at National Housing are
the unique factors attributable to preservation. Representative
Frank mentioned some of those. That is on a per-unit basis, it
is cheaper to preserve the existing housing and the subsidies
that over the years the federal government has placed into this
housing than it is to produce a new unit.
That is not to say that new construction, whether it is
through the tax credit program or any other program, is not
necessary to meet our ongoing housing needs. But in a situation
where we are losing units--as Michael said, 15 percent of them
already gone, out the back door--one of the most cost-effective
ways for the federal government to continue to provide housing
is to spend what is necessary to re-up these units into long-
term affordability.
Preservation is also more politically palatable in many
neighborhoods, and that is not a good or a bad thing. That is a
matter of fact. It is a lot more difficult for the NIMB
elements that Congresswoman Waters mentioned to come in and say
to the city council, ``We do not want that building fixed. We
do not want that building preserved,'' versus trying to oppose
something that is ground up.
So, in many States where the tax credit is available, deals
die. Community opposition, various reasons, and federal dollars
at a much lower per-unit rate could be preserving units that
already exist in these communities.
One of the other issues that I think is very important to
note in light of some of the findings of the GAO report is that
the existing federal funding programs, in many ways, increase
the costs of preservation, even though preservation is already
cheaper than new construction. The fact that groups have to
wait to get tax credit, have to hope that they get HOME or CDBG
drives up the cost of housing when you are talking about
acquiring an existing property because owners do not want to
take that risk.
So, if you have an owner that may want to wait and may be
interested in retaining affordability but still wants out,
there is a disincentive with the current funding programs that
are being used for those folks to stay involved with buyers
that do want to preserve affordability.
What we recommend, therefore, is that a new program of some
sort be created that creates an interim source of funding so
that organizations like ours, like Michael's, like Recap
Advisors' clients can access interim capital to preserve these
properties when they are at risk and give them the opportunity
to go through the normal channels of tax credits and so on and
so forth to be preserved.
Finally, we support Representative Frank's bill that
addresses this particular issue and would also urge the passing
of H.R. 3485, the exit tax provisions, recognizing again that
this committee does not have jurisdiction over that issue, but
it will be very difficult to solve preservation challenges in
the long run without addressing the tax side as well.
[The prepared statement of O. Angie Nwanodi can be found on
page 104 in the appendix.]
Mr. Ney. Thank you for your testimony.
Ms. Delgado?
STATEMENT OF CHARLOTTE DELGADO, VICE PRESIDENT/WEST NATIONAL
ALLIANCE OF HUD
Ms. Delgado. Thank you.
On behalf of the National Alliance of HUD Tenants, I am
pleased to testify before this committee today and to express
our strong support for H.R. 4679, the Displacement Prevention
Act, filed by Representative Frank and other committee members.
Founded in 1991, NAHT is the only nationwide membership
organization that represents over two million families who now
live in private-owned, HUD-assisted, multifamily housing. Our
membership today includes voting member tenant groups and area-
wide coalitions in 26 states.
NAHT strongly supports the extension of enhanced vouchers
for the currently unprotected 101,000 or more families in non-
Section 8 units who would otherwise lose their homes when HUD
mortgages mature.
For me and about 180,000 others who have already received
enhanced vouchers to date, I can personally tell you that this
has made all the difference in the world, the difference
between having a decent home and a roof over our head to being
out on the street.
We would also urge Congress firmly to reject the proposals
now before you to abolish enhanced vouchers after one year and
to reduce the Section 8 Voucher program by 600,000 families by
the year 2009. These proposals, if adopted, will inevitably
lead to tenant displacement, increased homelessness, and the
further destruction of the nation's affordable housing stock.
Homeland security should begin with a home and must begin
with a home. The elderly, disabled and low-income working
families who live in these buildings, many of us veterans who
have served our country and worked all of our lives to build
our communities, deserve nothing less.
H.R. 4679 would also help preserve at-risk housing.
Enhanced vouchers are clearly not enough. In my own
development, only 21 apartments with enhanced vouchers remain
out of 103 units since the owners prepaid, and the rest have
been converted to high-market rents.
A NAHT report in October 2002 documents the permanent loss
of 199,764 privately owned, HUD-subsidized housing units lost
due to owners' decisions to opt out of HUD contracts between
1996 and 2001. The NAHT report also showed that the Mark Up to
Market program, which Congress adopted in 1999, has failed to
slow the loss of affordable housing.
The GAO Report on expiring mortgages notes that in the next
10 years, project-based Section 8 contracts aiding 1.1 million
families will expire. Even in the absence of the expiring
mortgage problems, the steady erosion of affordable housing
will likely continue at the rate of approximately 41,000 units
a year.
The new crisis in expiring HUD mortgages will only
accelerate the loss. Housing for up to 101,000 families could
be lost if owners convert their non-Section 8 units to market
rents on their mortgage maturity.
In addition, many of the 135,000 project-based Section 8
units in expiring mortgage buildings could be subject to owner
opt-out decisions as regulatory agreements linked to the
mortgage expire. So we can expect to see an increase in the
overall rate of Section 8 opt-outs as their mortgages expire.
In my own state, California, who has the highest number of
developments affected by this crisis, 278 apartment complexes,
fully 12 percent of the national total, the superheated housing
market touches all corners of my state. People making $85,000 a
year are living out of their cars in the Silicon Valley because
they cannot afford an apartment. We can expect a huge number of
these apartments converting to high rent as soon as their
owners have a chance.
There is some evidence also that your GAO has been
undercounted with expiring mortgages.
In Massachusetts alone, we found 10 developments with
expiring HUD mortgages totaling 3,222 units, which are not
included in the GAO report at all, fully 44 percent of the
7,297 units reported by the GAO in that State.
And, by the way, one of them, the Milliken apartments is in
Mr. Barney Frank's district.
This is a potentially large undercount and, if that error
is systematic, we would urge the committee to request that HUD
and the GAO take another look at this issue and make it much
more closely and to make appropriate corrections where needed.
Clearly, voluntary incentives, such as the Mark Up to
Market programs, are insufficient to deter owners who choose
not to extend expiring HUD contracts, especially in high-market
areas.
NAHT believes that Congress should reestablish a national
regulatory framework to limit owners' ability to opt out,
prepay or to extend the programs such as the Title VI that was
phased out by Congress in 1996. Title VI was a mandatory
program that provided additional HUD----
Mr. Ney. Ms. Delgado, if you could summarize your
testimony, please.
Ms. Delgado. All right. Thank you.
We would also like to say that while we are asking for you
to support this bill completely, we want to make clear that we
need to refund our advocacy. They are absolutely the only ones
that are tracking these throughout the United States. Neither
HUD nor your local government is.
Thank you again for allowing me to testify and we support
your bill.
[The prepared statement of Charlotte Delgado can be found
on page 83 in the appendix.]
Mr. Ney. Thank you for your testimony.
Mr. Kargman, welcome.
STATEMENT OF WILLIAM M. KARGMAN, PRESIDENT, FIRST REALTY
MANAGEMENT CORPORATION
Mr. Kargman. Thank you, Mr. Chairman, and members of the
committee, I also would like to acknowledge that the committee
has recognized and taken an interest in a very important issue
with respect to certain federally subsidized housing programs
whose mortgages are due to be fully paid in the next few years.
There is currently no protection for certain tenants residing
in this housing, as evidenced by the GAO report and by the
testimony of the previous panel.
Some residents living in Section 221(d)(3) and Section 236
housing are currently paying below-market rents and do not
receive Section 8 subsidies. Their rents remain below market
because of FHA-interest subsidy which reduces the debt-service
payment and, therefore, reduces the amount of rent.
Some of the other residents of these properties do receive
Section 8 assistance and this was added during the mortgage
term. The purpose of adding the Section 8 assistance was to
address rising operating costs impacting low-income families
and as an incentive under the Emergency Low-Income Housing
Preservation Act now known as ELIHPA and its successor, the
Low-Income Housing Preservation and Residential Home Ownership
Act of 1990, called LIHPRHA.
I mention these Section 8 units for two reasons. First,
tenants receiving Section 8 are not impacted by the expiring
mortgages or by the subject of H.R. 4679. This is because their
subsidy is separate from the mortgage and continues as long as
the owner renews the Section 8 contract. If the owner does not
renew the Section 8 contract, the current law provides for
enhanced vouchers to be used to protect those Section 8 tenants
or residents.
Second, those properties under Title VI, as mentioned by my
colleague, the LIHPRHA program, are locked in for the remaining
life of the housing, and, therefore, they are not in jeopardy.
When the mortgage itself will be paid off, they are still
locked in by law and have Section 8 subsidies.
My concern here today is with the ELIHPA properties--the
properties are mentioned in H.R. 4679--and those with
affordability restrictions that expire in the Section 221(d)(3)
and 236 mortgages and where the residents do not have Section
8.
I am a general partner and manager of 10 such properties
which contain 2,494 family apartments. Nine of these properties
have some Section 8 subsidies as a result of our participation
in ELIHPA. The remaining units are occupied by families with
incomes ranging from 51 percent to 95 percent of area median
income who will be affected by the expiration of the mortgage
and its accompanying restrictions. The oldest mortgage in my
portfolio is scheduled to be fully amortized as early as
September 2006. The rest will follow between 2006 and 2013.
The legislation's intent to provide enhanced vouchers to
the non-Section 8 families in these buildings is essential to
their being able to remain in what are their homes. I am
familiar with enhanced vouchers because I prepaid a Section 236
mortgage in 1996 when Congress restored the right to prepay. At
that time, 177 residents, both elderly and families, received
enhanced vouchers that allowed them to remain in an upgraded
apartment in a low-vacancy area without a change in their rent.
Ninety of these tenants still reside in the property today.
When Congress provided enhanced vouchers for prepayment and
Section 8 opt-outs, the mortgage maturation issue was not on
their radar screen. We appreciate this committee and the GAO
recognizing the problem and proposing to provide enhanced
vouchers to affected residents.
I want to be able to say to our residents, as I did to
those who reside in the building I prepaid in 1996, that they
can look forward to living in the community they call home as
long as the federal government will help them pay the
comparable market rent.
Naturally, as we have heard in prior testimony, I am
concerned about the current voucher funding shortfall, and its
impact on the ability of our residents to feel confident that
they will not be subject to a loss of these funds.
H.R. 4679 has other notable provisions involving grants and
other assistance to maintain affordable rents. These may be
attractive to other for-profit and non-profit owners. However,
for owners such as myself whose properties do not need
rehabilitation, the enhanced vouchers remain the key to
protecting our current residents.
Thank you very much for your consideration of my view.
[The prepared statement of William M. Kargman can be found
on page 91 in the appendix.]
Mr. Ney. Thank you for your testimony.
Ms. Moreno, welcome.
STATEMENT OF GENE MORENO, POLICY/ADVOCACY DIRECTOR, CHICAGO
REHAB NETWORK, TESTIFYING ON BEHALF OF THE NATIONAL LOW INCOME
HOUSING COALITION
Ms. Moreno. Good morning, and thank you for inviting me to
testify at this hearing.
Better? Okay. Great.
The Chicago Rehab Network is a coalition of community
development organizations. I am testifying today on behalf of
the National Low Income Housing Coalition which is dedicated
solely to ending America's affordable housing crisis. The
Chicago Rehab Network is a proud member of the National Low
Income Housing Coalition.
We would like to thank Chairman Oxley and Ranking Member
Frank for having the foresight to request the GAO study
released January 2004. The study provides a critical snapshot
of a pressing preservation problem.
I am here to discuss the 100,000 families who will be left
without any protection from rising rent, unlike their
counterparts in properties with Section 8 rental assistance.
This is a key issue that Congress will need to address.
Additionally, I would like to thank the GAO for their work
in putting together the report as well.
We are pleased to see that in response to the GAO report,
Ranking Member Frank has introduced the Displacement Prevention
Act of 2004. In Illinois, there are more than 3,100 units of
rental housing financed through the Section 236 and 221
programs.
We particularly applaud the authorization of $675 million
in previously appropriated housing funds that can be
instrumental in preserving those units for seniors, disabled
people, and other vulnerable population in need of affordable
housing.
The legislation allows tenants in these properties to be
eligible for enhanced vouchers. It also requires notice be
given to tenants 9 months in advance of mortgage maturity and
offers owners three forms of grant assistance: rehabilitation
assistance, assistance to facilitate purchase by not-for-profit
entities, annual payment assistance to cover the difference
between subsidized rents and comparable market rents.
We offer several specific recommendations for making the
bill even more valuable in our written statement which has been
handed to you.
Nationally, local entities are creating public and private
partnerships to deal with this issue of preservation. We are
working closely with our state agencies and other entities to
create policy changes in administration and resources to
preserve existing affordable housing units.
Just last week in Illinois, Governor Blagojevich signed
extensive preservation legislation that we had been working on
for several years. Among other things, the Illinois law
increases the number of situations in which owners of assisted
housing must give tenants notice and extends the notice period
from 6 months to 12 months.
While this new law is ground-breaking for its scope and the
tenant protections, there is no resources attached to it. H.R.
4679 will go a long way in providing those critical resources
to allow for the rehabilitation and acquisition of these
buildings.
A current tool that is vital for any preservation effort is
the Section 8 choice voucher program. The National Low Income
Housing Coalition contends that all 236,000 households in
projects with either maturing mortgages or expiring Section 8
rental assistance contracts between 2003 and 2013 described in
the GAO report are at risk of rising rent. The Section 8
program is at risk, and, thus, any reliance on enhanced
vouchers to protect Section 8 residents is at risk as well.
The fiscal 2004 and 2005 budgets that attacks the voucher
program can only lead to uncertain and reduced resources as
local communities struggle to preserve affordable housing
units. While Ranking Member Frank's legislation is a major
tool, there are a few others I would like to mention to be
included in a federal preservation strategy.
H.R. 3485 introduced by Representative Ramstad and Cardin
provides tax incentive to preserve affordable housing. Another
is H.R. 4289. It was introduced by Representative Frank Lucas
that would allow mod rehab projects to use low income housing
tax credits for preservation efforts.
And a simple legislative change to amend the Low Income
Housing Preservation Resident Home Ownership Act, known as
LIHPRHA, would halt the preemption threat to States and local
preservation laws.
We also urge the committee to consider H.R. 1102, the
National Housing Trust Fund Act of 2003. A National Housing
Trust Fund would provide much needed dedicated resources of
funds to acquire at-risk affordable housing properties,
something H.R. 4679 does not do at this time.
Mr. Ney. If you could wrap up, Ms. Moreno.
Ms. Moreno. Okay.
Preserving affordable housing stock is not an easy task,
but, with strong leadership, we believe that the tide on our
battle to preserve affordable housing would work, and we look
forward to working with you in this effort.
Thank you.
[The prepared statement of Gene Moreno can be found on page
95 in the appendix.]
Mr. Ney. Thank you for your testimony.
Mr. Trehubenko, welcome.
STATEMENT OF TODD TREHUBENKO, SENIOR VICE PRESIDENT,
RECAPITALIZATION ADVISORS, INC.
Mr. Trehubenko. Thank you.
Mr. Chairman, Representative Waters, members of the
subcommittee, I am pleased to be invited here today.
My name is Todd Trehubenko. I am senior vice president of
Recap Advisors in Boston. We are a private consulting company
that specializes in the revitalization and preservation of the
housing stock described in the GAO report. Since 1989, we have
directly preserved directly over 450 properties covering
approximately 60,000 apartments located in 39 states.
We are grateful for the interest in this portfolio shown by
the Committee on Financial Services and this subcommittee, and
we agree with many of the observations in the GAO report. But
we respectfully suggest that lack of access to data is not the
problem. The problem that faces this portfolio is that existing
preservation programs do not work well with these assets.
The maturing mortgage problem is bigger than GAO suggests,
in that there are an additional 814 mortgages that will mature
in the three years after the period studied by GAO, covering
93,000 apartments, and the loss of affordability will likely
occur sooner. The report mentions that there are 100 properties
covering 13,000 households that will mature through 2007, but
what it does not describe is that owners are motivated to exit
the portfolio in many cases prior to maturity.
Right now, HUD does not offer any incentives to extend the
affordability of these properties when the mortgages mature.
HUD's commitment to the properties is unclear, and owners
cannot be sure now, what resources HUD will offer. This type of
ad hoc approach is influencing owner behavior even now in some
cases many users before the mortgage matures, as they make
decisions about the future of their property. In other words,
just getting to mortgage maturity is a significant problem with
this inventory.
We know that these properties are good housing. These
complexes were built under the same programs and served the
same resident groups as many other properties that Congress has
already moved to preserve through other programs, specifically
the ELIHPA and LIHPRHA preservation programs, enhanced vouchers
for mortgage prepayment, the Mark to Market program, the Mark
Up to Market program and other initiatives adopted by HUD, with
support from Congress such as 236 decoupling, and most
recently, the Section 202 refinancing program.
Each of these programs delivered a set of benefits to the
properties and to the residents and to their communities,
including new rents at levels that are sufficient to properly
maintain the properties going forward, new financing to address
property needs and partnership needs, new funding for reserves,
and new or revitalized ownership of the property.
The portfolio of properties that we are discussing today is
what has been left behind out of these other initiatives. It is
a problem of adverse selection, and the portfolio is easier to
describe with negatives than it is with positives.
The properties we are talking about today are defined by
low cash flow, very low budget-based rents in properties
without Section 8 sufficient to maintain the property, low
upkeep as a result, low reserves for future needs and, in many
cases, unmotivated owners because it is not clear that the
current situation can be sustained in the years remaining to
mortgage maturity.
We have a strange policy situation where, for many of these
properties, a prepayment of the mortgage would introduce
enhanced vouchers into the property to protect residents, but
yet simply waiting through the remaining term of the mortgage
and paying off the mortgage the day that it is due does not
extend those same tenant protection benefits to the residents.
The properties may be a bit dated, but they provide a good
quality of life for their residents, the seniors and families
that live there. They serve a real important need in the
communities. As another panelist has observed, in many
communities where it is difficult to build new housing,
communities are very quick to defend and want to preserve the
stock that they do have.
We know from our experience the tools that are needed to
preserve these properties. We use them on other properties all
the time. We need Section 8 enhanced vouchers to permit rents
to increase to market while still protecting residents, we need
project-based rents at market also protecting the residents to
improve the cash flow and support new financing, and we need
rehabilitation funding through new financing or grants.
These solutions should be offered to owners in exchange for
new affordability covenants, and it should be discretionary.
Only the best properties should be targeted. Properties that do
not deserve preservation should not be preserved.
Congress has acted before to preserve other cohorts in this
inventory. We ask that Congress now act again to ensure
preservation of these remaining properties.
Specifically, we urge Congress to adopt the measures
described in H.R. 4679; we urge Congress to extend Section 8
enhanced voucher eligibility to properties that currently do
not qualify, such as non-profit-owned properties or properties
with rent supplement assistance or older Section 202
properties; we urge Congress to encourage HUD to expand its
current preservation initiatives, such as Mark Up to Market and
236 decoupling to cover more properties; and we encourage HUD
to develop clear policies to set the rents for properties with
maturing mortgages but continuing rent subsidy.
We need these measures now to help preserve this housing
stock and protect vulnerable low-income families and seniors.
That concludes my remarks. I would be delighted to answer
your questions.
[The prepared statement of Todd Trehubenko can be found on
page 116 in the appendix.]
Mr. Ney. Great. Thank you for your testimony.
Thanks to all the witnesses for their testimony.
Mr. Bodaken, if I understand your testimony correctly--HUD
testified that they were not at all certain that as these
mortgages matured there would be the loss in units that many of
us fear--I take it you are a little more pessimistic than HUD
is in that assessment.
Mr. Bodaken. Yes. I mean, the facts are the facts. We know
over the last seven-and-a-half years we have lost over 300,000
of the self-same stock, mainly through conversion to market
rate rentals, some to physical deterioration, but mainly
through market-rate rentals. For those units that we have been
able to track, the average rent hike is 45 percent. That is a
significant chunk.
I do not believe it is fair to say that a small slice, a
study by GAO of some 16 properties, is anywhere indicative of
what we are seeing in the private market today. I mean, the
facts are the facts. The cruel irony is that in the rest of
real estate inflation helps many of us in this room who own
homes. It helps us very much. Subsidized housing renters are
put at more risk because owners have options that they did not
have before.
Mr. Ney. A number of the witnesses have cited or mentioned
favorably the Ramstad tax legislation. Is there anyone on the
panel that opposes that legislation? I mean, if we take a look
at this problem, I am also sensing from the witnesses that
perhaps one of our deficiencies in the past has been a
piecemeal approach, and maybe it is time to do a number of
things, and I guess this seems to be part of it. Does anyone on
the panel oppose or see flaws with that legislation? Okay.
Ms. Nwanodi, a couple of witnesses have talked about the
importance of providing flexibility to non-profits in terms of
rental levels. What are your thoughts on that? Do you see that
as being a useful tool here?
Ms. Nwanodi. Absolutely. I think one of the lessons that we
have learned from the way that we have approached this issue in
the past is that not-for-profit does not mean you do not need
to make a profit. Particularly as properties age, they will
develop capital needs and more complicated management needs
that non-profits need access to as well.
So, on the one hand, you have privately owned for-profit
owners that are struggling with lack of incentives to
rehabilitate properties, and, on the other hand, where you have
a non-profit that is dedicated to keeping the property
affordable, in many cases, they are denied the very tools that
would allow them to maintain the stock in a manner that
prevents it from being lost to affordability due to
deterioration.
Mr. Ney. I am assuming you would be looking for some sort
of index in terms of what the rental adjustment could be?
Ms. Nwanodi. I think there are a number of ways to look at
it, but we absolutely would oppose any structure that would
discriminate between what works for a for-profit and what works
for a non-profit because, as the report indicates, the critical
issue, the most important factor surrounding the entire
preservation issue, regardless of the kind of housing, is the
fact that the market is what will drive the owners' decisions.
So the market does not recognize that you are a non-profit, and
those tools need to be available to owners regardless of their
tax status.
Mr. Ney. Thank you.
Mr. Trehubenko, in your testimony, you talked about the
losses that we have already suffered, and you also laid out in
your written statement some of the tools that we do have and
that have been available over the last 15 years that perhaps
have not worked as well as we had hoped in terms of preserving
some of these units.
Do you have recommendations as to how some of these
measures can be enhanced? Again, I bring it up because it seems
to me that we need a comprehensive approach to this challenge,
not a single piece of legislation but a number of pieces. Do
you have thoughts have some of those other tools can be
enhanced?
Mr. Trehubenko. I do, and I would speak first about
enhanced vouchers. When that program was created, it was
directly in response to the end of the LIHPRHA preservation
program and implemented to protect residents as owners prepaid
their mortgages. The original definition of properties eligible
to receive the enhanced vouchers reflected that reality.
Over time, the definition was changed to also include
Section 8 opt-outs, which were not in the original definition.
And later, flexible subsidy properties were added as eligible
as long as it was in the context of a preservation transaction.
That has been helpful and more properties have been preserved.
If we now extended that to other types of properties which
need HUD approval to prepay, the key definitional point, such
as non-profit-owned properties, properties owned by profit-
motivated owners with rent supplement, which is a forerunner to
the Section 8 program, and also the earliest Section 202
properties, which did not initially have Section 8 where really
it was like a 236 property in many ways, there is no way to get
enhanced vouchers into any of those three cohorts right now.
Mr. Green. My time has expired, but the committee would
appreciate it if you could offer some further written thoughts
on those particular measures because I think they are of
interest to us.
Mr. Trehubenko. I will do that.
[The following information can be found on page 212 in the
appendix.]
Mr. Ney. I would appreciate that.
The Chair recognizes the gentlelady from California, Ms.
Waters, for her questions.
Ms. Waters. Thank you very much, Mr. Chairman. Let me just
say that this hearing is very informative,.
I am appreciative, first of all, for the owners who wish to
provide low-income housing and who work through these
complications in order to do it, and I think a real lesson for
us today is to see the kind of discrimination that is
occurring. As far as I am concerned, whether you prepay the
mortgage or the mortgage matures, it is one and the same, and
it should be treated the same.
I think there is an equal protection question here that
even if, for some reason, we did not fix it, I would think the
owners would want to go to court and make the argument for
equal protection because, again, whether it is maturity or
prepaying, it seems to me it is almost synonymous.
Now, having said that, the fact that owners and tenants are
aligned and together on these issues, I think, is extremely
important to both sides of the aisle, and it seems to me it is
that kind of unity that is going to force this Congress to deal
with this issue of maintaining affordable housing.
I think that Ms. Delgado makes a point, and we are going to
learn about this, Ms. Delgado. We were told that the
information was available to us that has done the assessment
for what the loss is going to look like. But you are telling me
we need to look a little deeper and a little further at this,
and we are going to take your recommendation for doing that so
that we can have a true picture of what is going on here.
So let me just use this as an opportunity to thank
everybody for being here. I think that your input has been
tremendously important.
I, some years ago, began to explore with some of the non-
profits their ability to take over and manage some of these
properties, and that is a tall order. It is a tall order.
As you said, the market does not recognize that you are
non-profit as opposed to profit, and you do need the kind of
capital to keep up these places and to make sure that you do
not just end up with properties that become another part of a
barrio, a ghetto where you have not had the money to do what
was necessary to keep them safe and secure.
So, you know, any proposed formulas for transition of
housing to non-profits, do not even look at them unless the
assistance is there from HUD to make sure you do not fail. I do
not know what those formulas should be and we would look to the
non-profit community for that advice, but I would just hope
that non-profits would not fall into the trap of trying to
preserve this housing.
Again, I think we made a commitment, Ms. Delgado, to try
and get advocacy funding to make sure that you are protected,
and we are going to follow through with that.
So, again, thank you all very much.
Mr. Ney. And I wish to concur with the comments of the
gentlelady from California. I think this has been an excellent
hearing, and I have learned a great deal.
Without objection, three additional sets of comments will
be inserted for the record: a testimony or a statement from the
National Housing Conference; a statement from the American
Association of Homes and Services for the Aging; and a
statement from the Rural Housing Service Department of
Agriculture.
The Chair notes that some members may have additional
questions for this panel which they wish to submit in writing.
Without objection, the hearing record will remain open for 30
days for members to submit written questions to these witnesses
and to place their responses in the record.
Seeing no other business before us, this hearing is
adjourned.
[Whereupon, at 12:05 p.m., the subcommittee was adjourned.]
A P P E N D I X
July 20, 2004
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