[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
TARGETING FEDERAL AID TO NEIGHBORHOODS DISTRESSED BY THE SUBPRIME
MORTGAGE CRISIS
=======================================================================
JOINT HEARING
before the
SUBCOMMITTEE ON DOMESTIC POLICY
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
and the
SUBCOMMITTEE ON HOUSING AND
COMMUNITY OPPORTUNITY
of the
COMMITTEE ON FINANCIAL SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
MAY 22, 2008
__________
Committee on Oversight and Government Reform
Serial No. 110-118
Committee on Financial Services
Serial No. 110-115
__________
Printed for the use of the Committees on Oversight and Government
Reform and Financial Services
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
47-391 PDF WASHINGTON : 2009
----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania DAN BURTON, Indiana
CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri CHRIS CANNON, Utah
DIANE E. WATSON, California JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of PATRICK T. McHENRY, North Carolina
Columbia VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota BRIAN P. BILBRAY, California
JIM COOPER, Tennessee BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
------ ------
Phil Schiliro, Chief of Staff
Phil Barnett, Staff Director
Earley Green, Chief Clerk
Lawrence Halloran, Minority Staff Director
Subcommittee on Domestic Policy
DENNIS J. KUCINICH, Ohio, Chairman
ELIJAH E. CUMMINGS, Maryland DARRELL E. ISSA, California
DIANE E. WATSON, California DAN BURTON, Indiana
CHRISTOPHER S. MURPHY, Connecticut CHRISTOPHER SHAYS, Connecticut
DANNY K. DAVIS, Illinois JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts MARK E. SOUDER, Indiana
BRIAN HIGGINS, New York CHRIS CANNON, Utah
BRUCE L. BRALEY, Iowa BRIAN P. BILBRAY, California
------ ------
Jaron R. Bourke, Staff Director
HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California DEBORAH PRYCE, Ohio
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 RON PAUL, Texas
BRAD SHERMAN, California STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas WALTER B. JONES, Jr., North
MICHAEL E. CAPUANO, Massachusetts Carolina
RUBEN HINOJOSA, Texas JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York GARY G. MILLER, California
JOE BACA, California SHELLEY MOORE CAPITO, West
STEPHEN F. LYNCH, Massachusetts Virginia
BRAD MILLER, North Carolina TOM FEENEY, Florida
DAVID SCOTT, Georgia JEB HENSARLING, Texas
AL GREEN, Texas SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin, JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois
BILL FOSTER, Illinois THADDEUS G. McCOTTER, Michigan
ANDRE CARSON, Indiana KEVIN McCARTHY, California
JACKIE SPEIER, California DEAN HELLER, Nevada
DON CAZAYOUX, Louisiana
TRAVIS CHILDERS, Mississippi
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Housing and Community Opportunity
MAXINE WATERS, California, Chairwoman
NYDIA M. VELAZQUEZ, New York SHELLEY MOORE CAPITO, West
STEPHEN F. LYNCH, Massachusetts Virginia
EMANUEL CLEAVER, Missouri STEVAN PEARCE, New Mexico
AL GREEN, Texas PETER T. KING, New York
WM. LACY CLAY, Missouri JUDY BIGGERT, Illinois
CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut
GWEN MOORE, Wisconsin, GARY G. MILLER, California
KEITH ELLISON, Minnesota SCOTT GARRETT, New Jersey
CHRISTOPHER S. MURPHY, Connecticut RANDY NEUGEBAUER, Texas
JOE DONNELLY, Indiana GEOFF DAVIS, Kentucky
MICHAEL E. CAPUANO, Massachusetts JOHN CAMPBELL, California
CHARLES A. WILSON, Ohio THADDEUS G. McCOTTER, Michigan
DON CAZAYOUX, Louisiana KEVIN McCARTHY, California
C O N T E N T S
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Page
Hearing held on March 22, 2008................................... 1
Statement of:
Alexander, Frank S., professor of law, Emory University
School of Law; Todd M. Richardson, Director, Program
Evaluation Division, Office of Policy Development and
Research, U.S. Department of Housing and Urban Development;
G. Thomas Kingsley, senior researcher, Housing and Urban
Policy and Governance Issues, the Urban Institute; and
Christopher Walker, Local Initiatives Support Corp......... 14
Alexander, Frank S....................................... 14
Kingsley, G. Thomas...................................... 57
Richardson, Todd M....................................... 25
Walker, Christopher...................................... 64
Letters, statements, etc., submitted for the record by:
Alexander, Frank S., professor of law, Emory University
School of Law, prepared statement of....................... 16
Davis, Hon. Tom, a Representative in Congress from the State
of Virginia, prepared statement of......................... 93
Kingsley, G. Thomas, senior researcher, Housing and Urban
Policy and Governance Issues, the Urban Institute, prepared
statement of............................................... 59
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio, prepared statement of................... 4
Richardson, Todd M., Director, Program Evaluation Division,
Office of Policy Development and Research, U.S. Department
of Housing and Urban Development, prepared statement of.... 27
Walker, Christopher, Local Initiatives Support Corp.,
prepared statement of...................................... 67
TARGETING FEDERAL AID TO NEIGHBORHOODS DISTRESSED BY THE SUBPRIME
MORTGAGE CRISIS
----------
THURSDAY, MAY 22, 2008
House of Representatives, Subcommittee on Domestic
Policy, Committee on Oversight and Government
Reform, joint with the Subcommittee on Housing
and Community Opportunity, Committee on
Financial Services,
Washington, DC.
The subcommittees met, pursuant to notice, at 2:15 p.m., in
room 2154, Rayburn House Office Building, Hon. Dennis J.
Kucinich (chairman of the Subcommittee on Domestic Policy)
presiding.
Present from the Subcommittee on Domestic Policy:
Representatives Kucinich and Issa.
Present from the Subcommittee on Housing and Community
Development: Representative Waters, Lynch, Green, and Cleaver.
Also present: Representative Turner.
Staff present from the Subcommittee on Domestic Policy:
Jaron R. Bourke, staff director; Jean Gosa, clerk; Charisma
Williams, staff assistant; Leneal Scott, information systems
manager; John Cuaderes and Larry Brady, minority senior
investigators and policy advisors; and Benjamin Chance,
minority professional staff member.
Mr. Kucinich. In the interest of time and out of respect to
for our panelists, we are going to start. The committee will
come to order.
This is a joint hearing of the Domestic Policy Subcommittee
of the Oversight and Government Reform Committee and the
Housing and Community Opportunity Subcommittee of the Financial
Services Committee. The title of today's hearing is,
``Targeting Federal Aid to Neighborhoods Distressed by the
Subprime Mortgage Crisis.''
In addition to being joined by more of our colleagues, we
are joined today by a distinguished group of panelists who will
be able to provide this subcommittee with information that we
think will be helpful in helping to shape Federal policy with
respect to the effects of the subprime mortgage crisis.
Today's joint hearing concerns the availability of relevant
data and how best to use those data to target Federal funds to
neighborhoods distressed by the default of millions of subprime
mortgages.
Now, without objection, the Chair and the ranking minority
member will have 5 minutes to make opening statements, followed
by opening statements not to exceed 3 minutes by any other
Member who seeks recognition. And without objection, Members
and witnesses may have 5 legislative days to submit a written
statement or extraneous materials for the record.
Yesterday, the Domestic Policy Subcommittee heard testimony
about a largely unrecognized, deeply suffering, and totally
blameless victim of the subprime mortgage meltdown and
foreclosure crisis: neighborhoods.
While awareness has grown that the default of millions of
subprime loans has been a genuine tragedy for individual
borrowers and a significant cost to lenders, we have learned
that not all foreclosures pose a lethal threat to
neighborhoods. Some foreclosed properties have new buyers, and
when they do, the property tends to be maintained and the
neighborhood preserved. But many foreclosures do not attract
new owners. Instead, they become vacant and are often neglected
by the lenders. When this happens, surrounding neighborhoods
and local municipalities suffer significant consequences.
Those effects include falling property values of
surrounding houses, loss of equity held by neighbors in those
houses, loss of rental units for renters, loss of sales to
neighborhood merchants, rise in crime, rise in costs for public
services like municipal costs for police and fire, due to
vandalism and arson in particular, increased demolition and
building inspection costs, increased legal expenses, increased
demand on city social services and a direct loss of property
tax revenues.
The costs imposed on neighboring property owners, renters,
taxpayers, by vacant and abandoned houses stemming from the
collapse of millions of subprime mortgages will tally into the
many billions of dollars. These significant costs are signs of
failure in the market. Their long-term consequences will be
severe in some regions; and without Federal intervention, the
future for many individuals and neighborhoods is bleak.
This Congress has taken a significant step to help the
neighbors deal with the problems they are now facing. Two weeks
ago, the House passed H.R. 5818, the Neighborhood Stabilization
Act of 2008. This bill creates a new Federal program to address
the effects on neighborhoods caused by the foreclosure crisis.
The bill authorizes $15 billion in grants and loans to be spent
by localities on a variety of strategies, including vacant
property acquisition, building rehabilitation and demolition.
Nevertheless, the President has promised a veto. And as I said
yesterday, I can't understand that, and I hope that today's and
yesterday's hearings will do something to change his mind; for
if we can't help the totally innocent--and the neighbors of
vacant properties are innocent victims of the foreclosure
crisis--then whom should we help?
Today this committee will be pleased to be joined by
Chairwoman Maxine Waters who is the primary author of 5818. And
when she arrives I will provide her with a suitable
introduction.
In this joint hearing, we will be receiving testimony from
experts on the question of how we can optimize the targeting of
Federal aid to distressed neighborhoods to deal with the
problem of rising rates of vacant and abandoned buildings that
are caused by the subprime mortgage meltdown. This hearing will
concern the various kinds of data that should be utilized to
target new Federal funds, a discussion of the limitations of
available data, opinion to which data are most appropriate, and
how they may be best used, and thoughts about what an optimal
formula might look like.
We have some of the Nation's leading analysts here to help
our subcommittees and committees achieve the purposes of the
Neighborhood Stabilization Act. They have all done a lot of
work to prepare for this hearing and I want to say how grateful
we are for your presence.
At this point, I will recognize the distinguished ranking
member of our Subcommittee on Domestic Policy and Oversight,
and that is the gentleman from California, Mr. Issa.
Thank you for the ongoing partnership that you've shown in
this endeavor and I am grateful for your statement.
[The prepared statement of Hon. Dennis J. Kucinich
follows:]
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Mr. Issa. Well, thank you, Mr. Chairman, and thank you for
holding this important hearing. I might note that yesterday was
the 1-year anniversary of the two of us being at a field
hearing in Cleveland, OH at the Federal Building. Little did we
know in May 2007 how the foreclosure problems, which were then
an epidemic in Cleveland, would spread beyond Cleveland and the
Midwest; that, in fact, it would lead to the collapse of some
of our oldest and theoretically some of our most stable
financial institutions.
Yesterday and today we have focused--and today we will
continue to focus--on the dynamics of this crisis and how it
affects neighborhoods, and suggestions on how we can help solve
these. Furthermore, we will look at how each community is
affected differently. And I think that is probably the most
important point that all of us on the dais are going to want to
learn more about, because Mr. Kucinich and I are both native
Clevelanders, but I now represent San Diego, CA. We couldn't be
more similar in our background and our families and the ethnic
neighborhoods that we grew up in. We couldn't be more different
in the cost of homes, the size of those mortgages, or the
characteristics that have lead to foreclosure rates in
Stockton, CA, in Temecula, CA--which I represent--and others,
being just as catastrophic as they are in Cuyahoga County in
Cleveland; Orange County, CA; Denver, CO. The list is endless
and each of these areas has huge differences.
In short, the foreclosures which were a problem to a few
cities have now become a problem to us all.
Mr. Chairman I applaud you on being one of the handful of
Members who highlighted this problem early on when it was the
problem of a community that had $100,000 or even $70,000 homes
being foreclosed on; neighborhoods that had previously been on
the mend becoming blighted. You were quick to recognize it.
In fairness to the rest of us, I believe we didn't heed
your warning soon enough that this was going to spread
throughout America.
Mr. Chairman, these 2 days of hearings, however, are as
important in dealing with where we are today as they are in
where we will be in the future. I believe that this crisis is a
crisis that could repeat itself. The fundamental underpinnings
of how we create financial instruments in America are in doubt.
Homes, which have always been about a substantial piece of
capital investment normally, with the exception of special
government-backed loans, these have been with substantial
equity placed by the potential homeowner, and, when refinanced,
they were refinanced only out of surplus equity.
Today we find that is not the case. But worse than that,
the financial instruments on which these home loans were based
in some cases were based on margins as small as 15 percent real
underlying equity.
Mr. Chairman, I look forward to the testimony today and to
our continuing to work, as we have been for more than a year on
a bipartisan basis, on this important issue, too important to
have partisan politics get in the way.
Finally, I also ask unanimous consent that my colleague,
Mike Turner, the former mayor of Dayton, OH--and himself no
stranger to the problems that foreclosures in a community can
cause--would be allowed to sit on this committee today and ask
questions, as appropriate.
Mr. Kucinich. So ordered, without objection.
I want to say that one of the strengths of this
subcommittee is that we have been able to have Mr. Issa as
ranking member, because it is not just your experience in
Cleveland, but the business background that you developed that
then enables you to bring a perspective here that sometimes we
don't have, and we need to hear it in order to come up with an
approach that actually gets to the truth. So I appreciate your
participation.
I have the honor, the pleasure, of making an introduction
for the next speaker. Chairwoman Maxine Waters is the primary
author of H.R. 5818. She knows that when Wall Street sneezes,
America's neighborhoods get pneumonia. And Congresswoman Waters
has used her position as chairwoman of the Housing and
Community Opportunity Subcommittee to come to the aid of
America's neighborhoods. Congresswoman Waters has made a
significant contribution to the future of our communities with
her work on the bill, and I hope that bill will soon be enacted
into law.
In this joint hearing we are pleased to be joined by
Congresswoman Waters, and the invitation is extended to other
members of her subcommittee. I thank you so much for being
here, Congresswoman Waters, and we look forward to your
statement.
Ms. Waters. Thank you so much, Mr. Chairman. I appreciate
the opportunity that you have afforded me to jointly chair this
hearing today. And I am sorry I was a little late. We were in a
special task force of the Judiciary Committee where we have the
executives of the largest oil companies in America testifying
before us, and it took me a little bit longer to get here, but
I am delighted to be here.
You have been holding these hearings for 2 days. This is
the second day. And I wasn't able to attend yesterday's
hearing, but I know that the witnesses painted a clear picture
of the devastating impact of the foreclosure wave on
neighborhoods, which the hearing title accurately identified as
the blameless victims of this debacle. Notably, it was clearly
established that no community or type of housing market is
immune to the spillover effect of foreclosures.
Professor Been was able to quantify, in the context of New
York City, the tremendous effect on neighboring home prices
that a foreclosure has, as well as highlight another group of
innocent victims of the foreclosure crisis, perhaps 15,000
renters facing eviction in the nearly 60 percent of 2007 New
York City foreclosure filings that involved two to four-family
or multifamily buildings.
Meanwhile Professor Betz illustrated the equally damaging
impact of foreclosures in the very different housing market of
Memphis, TN, where slowly but inexorably rising foreclosure
rates have led to foreclosure filings on fully one-quarter of
Memphis' single-family housing stock since the year 2000.
In short, yesterday's hearing reaffirmed, by putting into
the record rigorous research and indisputable data, the clear
need for Federal intervention to assist States and localities
in addressing the neighborhood destabilization impacts of the
foreclosure crisis.
On May 12th, of course, the House passed a bill I
introduced that would provide such assistance, H.R. 5818, the
Neighborhood Stabilization Act, which authorizes HUD to
administer a $15 billion grant and loan program to State and
local governments to purchase, rehabilitate, and resell or rent
foreclosed homes. Through the amendment process, Chairman
Kucinich was extraordinarily helpful in ensuring that States,
counties, and cities receiving funding under H.R. 5818 will
target the funds wisely, bringing to bear the policy knowledge
he has gained from his work as Chair of the Domestic Policy
Subcommittee and his hard-earned real-world experience as a
Member representing the city of Cleveland.
Chairman Kucinich made sure that in the plans States cities
and counties submit to HUD, priority is given to low- and
moderate-income neighborhoods with concentrations of vacancies
coupled with large increases in the rate of vacancy in the past
2 years and a higher incidence of subprime loans at risk of
foreclosure.
I see today's joint hearing as the logical and necessary
next step to the work Chairman Kucinich and I did together on
H.R. 5818 as we, I hope, move forward quickly to conference on
H.R. 5818 with the Senate counterpart that provides $4 billion
in CDBG grants for a singular purpose. We need to continue to
examine the best data and strategies available to States and
localities to target any resources they receive from Congress
in such a way that they have the maximum impact.
I look forward to hearing from today's witnesses about the
tools at our disposal to do so. I thank you and I yield back.
Mr. Kucinich. I thank the gentlelady.
One of the things that Members of Congress--one of the
strengths Members bring is their experience. Prior to becoming
a Member of Congress, Councilwoman Waters was well known in
southern California as an activist and a public servant. And I
know that you would agree that the lessons that were learned at
that local level have really prepared us to be able to bring
some--a new perspective that can help resolve this crisis.
This also relates to the next person we are about to
introduce who is a Congressman from Ohio, the former mayor of
the city of Dayton, who is quite familiar with these issues.
And I want to thank Mr. Turner for his participation in this
hearing and we ask that you proceed with your opening
statement.
Mr. Turner. Thank you, Mr. Chairman. I was able to
participate yesterday in the first part of these joint hearings
that you are having, and I want to thank you for your efforts
in highlighting this issue.
As we got to hear yesterday, and as each of us know from
our experience in working in urban issues, the foreclosure
crisis for urban America is a crisis of abandoned structures
and negative impacts to neighborhoods. We see that when a house
goes into foreclosure, the spiral of a house on its way to
abandonment, on its way to demolition and neglect, and the scar
that it makes in the neighbor results in everyone in the
neighborhood being subject to the catastrophic effects of that
foreclosure; not just the family that is there, not just our
financial markets and the loss of capital, but the increase in
crime, the blighting influence, the reduced property values,
and the difficulty of those in the neighborhood that see this
happen. And when it happens in the magnitude we are seeing,
then the spiral impact on neighborhoods is extraordinary.
The measures that Congress recently has taken in looking to
try to help families that are entering the foreclosure process
and to help neighborhoods and communities to respond to the
scars of this foreclosure are going to be very important.
I appreciate your work on this. Cleveland and Dayton are
not different in what their experience has been, and I am very
appreciative that we are moving into the issue of looking at
the problem, but how do we find solutions and how do we look at
how do we aid communities, how do we look at how do we aid
families. And that is why I appreciate this hearing, because we
are going to go into the steps of hearing ways in which we
might be able to tailor responses to areas to effectively
address their needs.
So, Mr. Chairman, I want to thank you and I look forward on
the testimony.
Mr. Kucinich. I thank the gentleman. We are pleased to be
joined by a member of the Subcommittee on Housing and Community
Opportunity, Congressman Al Green from Texas.
He brings an important perspective because he represents
the Houston area, and we are grateful for your presence and you
may proceed with your opening statement.
Mr. Green. Thank you, Mr. Chairman. I also thank your
ranking member for his bipartisan support on these efforts. I
thank my chairman, Congresswoman Maxine Waters, for her stellar
efforts to help us with the concerns that have been raised in
this crisis that we are confronting.
It is my opinion that we are confronting social issues as a
result, economic issues as a result of the crisis. But also
there are quality-of-life issues to be contended with because
we sleep in houses and live in neighborhoods. Neighborhoods are
being impacted by what we are doing. Parks will be impacted.
The quality of life in and around your home may very well be
impacted.
And we should not allow ourselves to believe that there are
subprime neighborhoods, because we have subprime loans in prime
neighborhoods. And all neighborhoods could very well be at risk
because the housing market is very much akin to a giant condo.
And in this giant condo, we all have a stake. And if something
happens to one unit, it impacts the maintenance fees for
everyone. And maintenance fees are, of course, taxes.
Maintenance fees are, of course, services that are rendered
pursuant to trying to maintain this giant condo.
So I think we have to see this as something that all of us
should be concerned with and all of us should try to do what we
can to make a difference.
With reference to H.R. 5818, it is a great piece of
legislation that the chairlady has presented. It provides $7.5
billion in loans, $7.5 billion in grants. These moneys will be
utilized to take the properties that people are walking away
from and put them back into the marketplace, and to help some
persons, who may very well not have the opportunity to own a
home, acquire a piece of property. So it has a multifold
purpose.
And I am honored to be supportive of my Congresswoman, the
chairlady of the Housing Subcommittee, and I think she has a
great piece of legislation.
And I yield back the balance of my time.
Mr. Kucinich. I thank the gentleman from Texas.
If there are no additional opening statements from Members,
the subcommittee will now receive testimony from the witnesses
before us today.
I would like to start by introducing our witnesses. From my
left to right, Mr. Frank Alexander. Welcome.
Mr. Alexander is a professor at Emory University School of
Law and founding director of the Center for the Study of Law
and Religion. He is also the director of the project of
affordable housing and community development. His work focuses
on affordable housing, urban redevelopment, and State and local
government. Mr. Alexander has published numerous articles in
his area of specialty and has received more than 20 awards for
his teaching and public service.
Next we will hear from Todd Richardson. Mr. Richardson,
welcome.
Mr. Richardson is the Director of the Program Evaluation
Division of the Office of Policy Development and Research, U.S.
Department of Housing and Urban Development. The Program
Evaluation Division conducts research, evaluations and
demonstrations across a wide range of topics. It carries out
most of the Department's research efforts related to
homelessness, assisted housing that includes section 8 and
public housing, fair housing and equal opportunity, crime,
community economic development empowerment zones, housing
rehabilitation, home ownership, housing for the elderly. You
cover a broad area. We are glad that you are here.
Next is Mr. G. Thomas Kinglsey. Welcome.
Mr. Kingsley is senior researcher in housing and urban
policy and governance issues at the Urban Institute. He is the
author of numerous publications in these fields. He currently
directs the National Neighborhood Indicators Partnership, an
initiative to further the development of advanced data systems
for policy analysis and community building in U.S. cities.
Finally we will hear from Mr. Christopher Walker. Thank you
for being here, Mr. Walker. Welcome.
Mr. Walker is the director of research for the Local
Initiatives Support Corporation. He is responsible for
assembling, conducting, sponsoring and disseminating research
on community development's contributions to the well-being of
individuals, families and communities.
He also supports the research activities of the 33 LISC
field offices throughout the United States. Currently Mr.
Walker is working on the value of low-income housing tax
credits to neighborhood stabilization and new ways to measure
the market potential of low-income urban neighborhoods.
Now, gentlemen, it is the policy of the Committee on
Oversight and Government Reform to swear in all witnesses
before they testify. I would ask that each of you rise and
raise your right hands.
[Witnesses sworn.]
Mr. Kucinich. Let the record reflect that each of the
witnesses has answered in the affirmative.
I would ask that each of the witnesses now give a brief
summary of your testimony. Keep in mind that we ask that the
summary be kept to 5 minutes in duration. Your complete written
statement will be included in the hearing record. Members have
access to these and they become part of our permanent archives.
They are very important.
Mr. Alexander, you are going to be our first witness and we
ask that you proceed.
STATEMENTS OF FRANK S. ALEXANDER, PROFESSOR OF LAW, EMORY
UNIVERSITY SCHOOL OF LAW; TODD M. RICHARDSON, DIRECTOR, PROGRAM
EVALUATION DIVISION, OFFICE OF POLICY DEVELOPMENT AND RESEARCH,
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; G. THOMAS
KINGSLEY, SENIOR RESEARCHER, HOUSING AND URBAN POLICY AND
GOVERNANCE ISSUES, THE URBAN INSTITUTE; AND CHRISTOPHER WALKER,
LOCAL INITIATIVES SUPPORT CORP.
STATEMENT OF FRANK S. ALEXANDER
Mr. Alexander. Thank you, very much. Chairman Kucinich,
Chairwoman Waters, members of the committees, my name is Frank
Alexander and I am delighted and honored to be here today.
What I would like to do first is express my deep
appreciation for your leadership on H.R. 5818. The Congress has
undertaken in recent months several significant steps to deal
with our housing crisis. But 5818 addresses something quite
different from the basic housing stimulus package. Most of the
housing stimulus package now under consideration in the Senate
is oriented toward foreclosure prevention, appropriately so, to
avoid foreclosure whenever possible.
One of the two things that makes 5818 different is that it
is not focused on foreclosure prevention. It is focused on real
estate post-foreclosure. In focusing on this inventory, this
dramatic rise in all of our neighborhoods, it is also then
focusing on the rest of us who bear the burdens of this
property. Whereas many people may debate the moral hazards
embedded in the housing stimulus package, those moral hazards
are not present in 5818. We, the neighbors, the communities,
the cities, the counties, are the victims of this large
increase in foreclosed, vacant, and abandoned housing.
Yesterday's testimony focused on the costs to local
governments, the cost to the neighborhoods of these properties.
One of your witnesses yesterday was Alan Mallach. In another
context, he testified that vacant property is not a victimless
crime. And that is the basic thrust of 5818.
We heard yesterday that vacant and abandoned properties
increased property deterioration, resulting in reduced property
values, reduced property tax revenues, higher police and fire
costs. As Representative Green alluded to, vacant, abandoned
properties also destroy the fabric of neighborhoods, they
destroy the community.
The very thrust of 5818 is to acknowledge for the first
time in this country the huge problem being imposed on our
cities and our communities by the foreclosure crisis. The
debate for all of us is not the question of the predatory loan
or how to avoid the foreclosure. Those are relevant to the
stimulus package.
The question before us now is how to save our neighborhoods
from these foreclosures.
H.R. 5818 allocates $15 billion. It does so using primarily
three variables. The first variable is the relative percentage
of foreclosures nationwide over the past 12 months. The second
variable for allocating the formula is a relative percentage of
delinquencies on subprime mortgages. And then there is a third
subvariable: adjusting for median sales price differences
across the States.
While I fully support 5818, what it is designed to
accomplish--and I certainly hope it passes. I would like to
recommend in response to Representative Waters' intimation that
there will be continued discussions about this, the possibility
of further refining the allocation formulas to target them most
effectively.
First and foremost, I am concerned that the allocation of
the $15 billion does not go to the areas of greatest need. It
allocates the money according to foreclosures, not to where the
foreclosures are occurring in a concentrated fashion.
I recommend the addition of a variable for allocating the
money which would be based upon high concentration of
foreclosures. This can be done by Census tract, perhaps by
either by 5-digit or 9-digit zip code. An individual foreclosed
home may not pose a great deal of burden; multiple foreclosures
create the problems exponentially.
The second modification I would recommend is the priority
of uses of the money. Under the current bill, the money can be
used to acquire qualified foreclosed housing, but that could
include occupied housing. For the most part, occupied housing
does not impose the external cost.
The final change I would recommend is that the grant funds
be available for acquisition of the real estate, not just the
loan funds. I do hope that 5818 becomes the hallmark of
legislation, not for foreclosure prevention, but for saving our
cities from the burdens of this foreclosure crisis. Thank you
very much.
Mr. Kucinich. Thank you, very much Mr. Alexander.
[The prepared statement of Mr. Alexander follows:]
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Mr. Kucinich. Mr. Richardson, you may present.
STATEMENT OF TODD M. RICHARDSON
Mr. Richardson. On behalf of HUD Deputy Secretary Roy
Bernardi, thank you, Chairman Kucinich and Chairwoman Waters,
for the invitation to appear at this joint hearing. I have
worked on issues related to allocation formulas at HUD since
the mid-1990's. My experience with research and development of
allocation formulas identifies two key ingredients for a
successful formula: clearly defined goals of the need that
Congress intends to target and available data that is uniformly
collected across all potential grantees.
While there are promising data sets that may be able to
achieve the congressional goal of targeting neighborhoods with
increasing vacancy and abandonment, further analysis of the
data is required to ensure accuracy and targeting funds to all
communities across the country. This is especially tricky when
it comes to vacant and abandoned housing because there are many
causes of vacancy, and in only certain conditions will that
vacancy translate into a nuisance property or an abandoned
property.
Combining information from several public data sets has the
greatest potential for accurately targeting funds to areas with
vacant and potentially abandoned properties. To illustrate this
point, I would like to present the committee with a few maps
that identify communities with some of the economic and
structural risk factors that lead to vacancies and potential
abandonment. I will follow this with a detailed discussion on
how we can measure changes in vacancy rates at the neighborhood
level.
One risk factor for vacancy is declining home price.
Metropolitan statistical areas [MSAs], with falling home values
means more property owners will have negative equity in their
properties, thus increasing the risk of foreclosure. We can use
data on house price changes in recent years from the OHFEO
housing price index for metropolitan areas.
On this map all the MSAs in green have had a fall in value
since 2005, but those with the darkest green have had the
sharpest fall. California, Michigan, Florida, northern Ohio,
Nevada, jump out on this map.
Now I want to point out that falling home values and
foreclosures in themselves are only a measure of risk of
vacancy; many foreclosed properties will never become vacant or
will only briefly be vacant. The next map, please.
A second risk factor is local economics and population
flows. Reduced employment or a decline in number of households
occurring in an environment where it is difficult to sell a
home increases the risk for housing vacancy and abandonment.
The red and the orange on this map show data from the Bureau of
Labor Statistics on counties with declining labor force
participation between 2005 and 2007. Rural counties jump out on
this map as a few urban areas currently in economic distress.
A third risk factor, which I don't have a map for here
today, relates to characteristics of the housing stock.
Examples might include low home values, very high fractions of
single-family rental stock or existing high-vacancy rates.
These are indicators of neighborhoods and communities with
properties that tend to be at the tail end of the filtering
process, putting them at greater risk for home abandonment.
Census 2000 and American Community Survey 2006 data can
provide some of this information.
Next map, please. A fourth risk factor could be measured at
the Census tract level for borrowers who have high-cost loans,
are highly leveraged as measured by a high loan-to-income
ratio. These households are at risk for foreclosure or
abandoning their homes.
Home Mortgage Disclosure Act data from 2004 to 2006 can
provide this information.
This map of Cleveland, for example, shows Census tracts
where the percentage of loans are either high cost or highly
leveraged. The darker areas have higher rates.
For communities or neighborhoods identified as having
structural or economic conditions that might lead to long-term
vacancy and abandonment, it is possible to track neighborhood
change in vacancy rates using data provided to HUD by the U.S.
Postal Service. The USPS provides these data to HUD every
quarter at the block level, and HUD makes them available at
Census track level publicly. The USPS data reflects addresses
that have been vacant and not taking mail for at least 90 days.
While these data have anomalies, they have useful tools as
well: this map of Cleveland here, for example, where the orange
bands show neighborhoods which have had a 3 percentage point
increase in their vacancy rates between December 2005 and March
2008. As you can see, many of these overlap where a high
proportion of higher-risk loans were made.
Next map. In contrast, while Los Angeles shows some
concentrations for high-risk loans, it does not also show a big
jump in rate of vacancy.
Next map, please. Converting this neighborhood-level data
into a community-level indicator, this just final map shows
CDBG entitlement jurisdictions by the percent of Census tract
within a jurisdiction that has increasing vacancy rates. Dark
purple indicates a worsening problem. Not surprisingly,
communities in central California, Nevada, southeast Michigan,
northern Ohio, Indiana, and Florida jump out on this map as
having neighbor concentrations of vacant housing.
In summation, our available public data can first identify
the communities and neighborhoods that have the factors placing
them at risk for vacancy and abandonment, and then target the
neighborhoods actually experiencing increased rates of vacancy.
Thank you, very much.
Mr. Kucinich. Thank you.
[The prepared statement of Mr. Richardson follows:]
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Mr. Kucinich. Mr. Kingsley, please proceed.
STATEMENT OF G. THOMAS KINGSLEY
Mr. Kingsley. Thank you, Chairman Kucinich, Chairwoman
Waters and members of the subcommittees. I am honored to come
before you today to testify on an issue that is critical to the
future of our metropolitan regions.
My name is Tom Kingsley. I am a researcher at the Urban
Institute where changing conditions in urban neighborhoods is
the focus of our research.
Our experience certainly confirms that neighborhoods with
high concentrations of foreclosures and increasing vacancy
rates are likely to generate substantial unanticipated costs
for resident families and jurisdictions. Any formula
distributing resources to help cover those costs must be
carefully constructed if it is to be equitable.
In my written testimony, I introduced and support six
points related to that goal: The first is that neighborhood-
level spillover costs are likely to depend on how heavily the
problem is concentrated as opposed to being spread out evenly
across the neighborhoods in any jurisdiction. Preliminary
research at the Urban Institute corroborates the view that such
concentration is much higher in some metropolitan areas than
others. This implies that a formula distributing funds simply
in proportion to the total number of loans or foreclosures in a
jurisdiction is not likely to be equitable.
Second, much of the research on this crisis so far has used
the subprime percentage of all loans as the measure of
incidence. That measure is actually not very good for this
purpose, since it might give a very high score to neighborhoods
that only have a very few loans. Better measures of
concentration are those that calculate the numbers, loans,
foreclosures, and vacancies per1,000 units in the housing
stock.
My third point relates to the criteria for selecting data
sets for this purpose. I believe they should do four things:
one, provide indicators that closely approximate Congress'
selected basis for targeting; two, be reliably developed and
frequently updated by Federal agencies; three, provide data
collected under rigorously enforced uniform standards
nationwide; and four, be collected so that information can be
made available for small geographic areas like Census tracts.
My next point is that of the data sets that meet these
requirements, the two probably best-suited to address this
subcommittee's purposes are the Home Mortgage Disclosure Act,
HMDA, data set on mortgage originations and the U.S. Postal
Service data set on vacant properties.
However, in developing a formula, further research using
these data sets is needed to gain a better understanding of,
one, the relationship between subprime loan concentrations
under various neighborhood conditions and the probability of
foreclosure; two, the relationship in time between foreclosures
and vacancy rates, and three, how the risk of foreclosures and
their effects in a given type of neighborhood are likely to
vary in different metropolitan market contexts, most
importantly the variations between comparatively strong versus
comparatively weak housing markets.
My fifth point is to recognize that over the past few
years, the quality and accessibility of HMDA, USPS and other
relevant data sets have markedly improved. We are in a very
different position than we were a decade ago when the U.S.
Census was about all that was available as a reliable basis for
funding formulas.
I think congratulations are due in particular to the
Federal Reserve System's FFIEC for their work with HMDA, and
HUD, for its work with the USPS.
My final point is that whatever happens to the allocation
formula, good work with data at the local level is going to be
essential to support the design and monitoring of effective
programs to address neighborhood spillover effects.
At the Urban Institute, as noted, we coordinate the
National Neighborhood Indicators Partnership, a network of data
intermediaries in 30 cities, many of whom are already working
on this issue. Two of our partners from Memphis and New York
City provided testimony to you yesterday.
I hope these subcommittees will encourage support for the
work of local groups like these, since their ability to shed
light on the pattern and magnitude of impacts in their own
areas is going to be critical to the development of really
cost-effective local solutions.
Thank you. I look forward to responding to your questions.
Mr. Kucinich. Thank you, Mr. Kingsley.
[The prepared statement of Mr. Kingsley follows:]
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Mr. Kucinich. Mr. Walker, please proceed.
STATEMENT OF CHRISTOPHER WALKER
Mr. Walker. Thank you, Chairman Kucinich and other members
of the subcommittees, for the opportunity to present the
results of our work. My name is Chris Walker and I am director
of research and assessment for the Local Initiative Research
Corp. My organization is one of the Nation's leading nonprofit
investors in low- and moderate-income communities. We strongly
support H.R. 5818.
Part of my job is to provide research support to our 30
local offices throughout the country. In the past few months,
my colleagues and I have worked extensively with several
sources of mortgage loan performance data to identify
neighborhood concentrations of foreclosed loans and real
estate-owned properties. Our local staff uses this information
to help move resources to areas of greatest need.
Naturally we have learned a few things about the strengths
and weaknesses of these data, so at the urging of the
subcommittee staff we turned our attention to how these data
could be used to help direct aid to areas with concentrations
of vacancies due to foreclosure. We found that although there
remains work to be done, we are able to do a pretty good job in
identifying neighborhoods where foreclosures are prevalent and
where vacancies have increased.
We have made what I believe is a promising start in
pinpointing places where foreclosures and vacancies appear to
be related to one another. These, of course, are the places
where aid would be directed.
Let me briefly walk through the sequence of analyses we
carried out, summarize our conclusions at each stage, and then
point out some of the challenges that remain.
First we examined the patterns of loan foreclosures and
bank-owned real estate across all zip codes in the 20 largest
States. These data came from two proprietary sources. First
American Loan Performance, whose data were tabulated and
supplied by the Federal Reserve and McDash Analytics, whose
data service we subscribe to.
Our analyses show that these sources are in basic
agreement. They generally identify the same neighborhoods as
places where concentrated foreclosures have occurred. This is
no surprise since they come from more or less the same source,
the largest loan securitizers in the United States.
Now it is well known that these data are incomplete. The
loan performance data, for example, is also covered by 50
percent of the subprime market. We worry that this incomplete
coverage might distort our view of where foreclosures take
place. To find out whether this was so, we checked these data
against Home Mortgage Disclosure Act data on so-called high-
cost loans, including those that are subprime. Originators of
the great majority of mortgage loans are obliged to report this
information each year, so the coverage of the market is
superior to that of our proprietary sources.
Our analysis shows remarkable agreement among these
sources, at least in the 20 States we studied. This is
important for two reasons. It means the data on loan
performance obtained from securitizers appear not to displace
fatal geographic biases. It also means that the use of the
widely available HMDA data as a substitute for proprietary data
should yield good results.
Second, we examined a pattern in housing vacancy across all
Census tracts in the United States, using data from the U.S.
Postal Service. The availability of these data to researchers
like me is an extremely valuable service that HUD provides. To
make these data ready for analysis, we had to make sense of
some of the anomalies that Mr. Richardson described earlier. We
had to try to understand the ebb and flow of both occupancies
and vacancies captured by the data, and I assure you that was
not an easy task.
On that standard, we got the data to behave reasonably
well; at least well enough to allow a test of its probable
value.
Third and finally, we returned to our three sources of
mortgage data and examined their relationship to the vacancy
data, which of course was our primary goal. Frankly, our
initial results weren't that good, producing relationships that
were significant in statistical terms, but weren't much better
than random. We made good progress, though, by developing
neighborhood classifications that take account of typical
housing patterns. It is not uncommon, for example, for the
numbers of occupied units and vacancies to rise simultaneously.
In growth areas, construction of new units creates new
addresses. And as people move in, the number of occupied
addresses goes up. At the same time, the number of vacant
addresses can increase, too, as other new units await their
first occupants.
This helps explain why we found that in some neighborhoods,
an increase in subprime lending and resulting foreclosures was
associated with an increase in the number of occupied units and
an increase in vacancies at the same time, as developers sold
units to those who bought with subprime loans.
In other neighborhoods, we saw a decline in occupied
addresses and an increase in vacant ones as foreclosures
emptied out units. This is the pattern we expect to find in
many inner city areas where homeowners purchased existing homes
with subprime loans.
For example, the first map I show you depicts the location
of high-cost mortgage loans made to investors and single-family
housing in the Detroit metropolitan area. The red and orange
areas are the zip codes with the highest numbers of these loans
relative to other areas of Michigan. The hatched areas are
places where the numbers of occupied addresses went down and
the numbers of vacancies increased. As you can see, there is a
pretty good correspondence between the two, although it is not
perfect. There are some red areas that don't have vacancy
increases. There are green and yellow areas that do. We
obtained slightly better results in northeastern Ohio as
depicted in map 2.
So I think we made a considerable amount of progress in a
short period of time, establishing the value of available
mortgage loan data for geographic targeting uses and developing
some of the classifications we need to make so that the Postal
Service data becomes useful for our purpose.
In my view, there are three basic tasks remaining which I
believe can be completed over the next several months. First,
we need to expand our analysis of mortgage loan performance
pattern to all 50 States and improve our models so we can
predict the location of mortgage payment problems pretty well
in every State.
Second, we need to do a better job in accounting for the
factors that produce housing vacancies. We know that all
subprime foreclosures don't result in vacant units. We know
that all vacant units don't come from foreclosures. Various
factors affect the conversion rate from foreclosure to vacancy.
Third and finally, we need to continue developing better
classifications of communities according to their occupancy and
vacancy trends. We can then overlay our foreclosure data to
arrive at a workable targeting approach. The maps I showed you
illustrated how this would work. So, in sum, I believe we made
great progress in a short period of time toward an effective
approach to identifying areas of foreclosure-driven vacancy.
I look forward to working further with my colleagues on the
panel on this important task. Thank you for inviting me to
speak today, and I will be happy to answer any questions you
may have.
Mr. Kucinich. And thank you, Mr. Walker, for your
testimony.
[The prepared statement of Mr. Walker follows:]
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Mr. Kucinich. We are going to move now to questions from
members of the two subcommittees. I am going to begin by asking
my colleague, the chairwoman, to begin with the questioning.
And the Chair recognizes Ms. Waters for 5 minutes.
Ms. Waters. Thank you, very much. Mr. Chairman, let me
thank you again for holding this hearing and our presenters who
are here today who are sharing very valuable information with
us.
As I have looked at the subprime meltdown and the
foreclosure mess, I have gleaned from all of the information
that has been afforded to us and many of the visits that I have
had in some of these cities, that the conclusions that you are
arriving at Mr. Walker, are basically what I think I am seeing
out there in terms of the--and I appreciate the fact that
Chairman Kucinich is helping us to understand how to best use
these resources.
When we talk about $15 billion it sounds like an a lot of
money, but it is not; $7.5 for grants, $7.5 in loans. When I
contrast that to the meeting that I just left where one company
had $40 billion in profits and five had $123 billion in
profits, this is very little in terms of what we should be
doing to stabilize these neighborhoods. And everything that you
have testified to just rings absolutely true.
But I am concerned about something, Professor Alexander. I
want so very, very much for many of our areas, particularly in
our urban areas, that have been devastated for a long period of
time where you have huge blocks of properties, land, closed
factories, etc., that have been sitting there for a long time.
And then on top of that, for those homes that have kind of
remained there, they have fallen into the foreclosure mess.
And now you have an opportunity for the city to take a look
at what they can do to revitalize these neighborhoods,
utilizing some of the abandoned properties from these
factories, like in Saint Louis. I was there. And of course all
of you know about the projects in Saint Louis and all of that
acreage right in the middle of the city that has been abandoned
over 20, 30 years now. We saw two such areas.
So as I understand it, you recommend that land bank and
demolition be eligible use for Federal assistance to help State
and local governments address the foreclosed and abandoned
property issue.
I think that may be legitimate, but I worry. In Saint
Louis, it appears that as they approached, before the
foreclosure crisis, this land banking not doing anything with
foreclosed properties or abandoned properties for a long period
of time, with an idea that they would land bank and be able to
plan and develop communities where they find a lot of
displacement; people who, you know, were displaced. Nobody
knows where they are. And in many of these areas, homelessness
certainly increased.
And this land banking, the way that they have done it is
they have allowed some of the properties to just deteriorate in
an effort to, you know, come up with this ideal situation that
they are going to develop someday. And so land banking has been
going on for a long period of time. Properties have been vacant
that nothing has been done with.
So how do we avoid the kind of displacement? And how do we
avoid these long-range plans for development, with the idea
that you don't put any money in now because you want to
dismantle all this stuff so that you can come up with these
ideal communities? How do we deal with all of that? Why should
we use this money for land banking and demolition if in fact we
are not going to realize some relatively quick turnaround in
development and stabilization?
Mr. Alexander. You raise a number of excellent questions,
Chairwoman Waters. Your points about the Saint Louis LBA the
land bank there are quite accurate. It had the same number of
properties in its inventory 15 years after it began as it did
the day it began.
In contrast, we heard testimony yesterday from Treasurer
Daniel Kildee of Flint, MI, Genesee County. They have acquired
12 percent of the digests of the city of Flint, but they have
also put more homes into occupied housing than anyone, any
other entity in Flint or in Genesee County.
I wish there were a guarantee that we could come up with
that an LBA or a city government would also always use it in
the most productive fashion. I am not aware of any such
guarantee. But 5818 itself embodies a number of critical points
that will keep that from being a ikelihood.
First, it is time-limited. It is sunset. It is designed as
an emergency aid. This is not an ongoing program. This is one
designed to get the excess inventory and put it back into
productive use very quickly.
The demolition feature that you have in the bill does
permit the demolition of things that are not cost-efficient to
rehab. I agree with the purposes in the bill, that rehab is the
first priority. Demo and demo costs should occur only when
necessary to stabilize the neighborhood.
So I think you have the features in 5818 that can allow our
local governments to preserve our neighborhoods. It is not
going to cure all the problems. In a very weak market where the
population continues to flee, this and this alone will not be
enough. But it is an absolutely vital stage for saving those
cities and neighborhoods that are going to have a tough time
surviving in the face of 30 and 40 percent foreclosure rates.
Ms. Waters. Thank you very much. Let me just ask our
presenter from LISC.
Mr. Walker, do you envision that LISC would be interested
in some of this rehabilitation work, because like Mr. Alexander
has said, that may be the highest priority, rather than
establishing, demolishing too much and, you know, trying to
stabilize it. It appears that rehabilitation certainly has
great possibilities. Has LISC been involved in rehab rather
than new development? Would LISC be interested in this kind of
thing? Is this the kind of thing that would make good sense for
you?
Mr. Walker. Chairwoman Waters, we at LISC pride ourselves
in supporting community-based solutions to the problems of
neighborhoods. In some communities new construction is the
right solution. In other communities rehabilitation is more
appropriate. Sometimes even within the same city, different
neighborhoods require different solutions. So that is one of
the primary reasons why we support community-based
organizations that have attachments in the community already
and are able to make those decisions for themselves. So either
way our partners choose, we are prepared with the kinds of
investments, including the kinds of investments which would go
in tandem with the resources made available from 5818, to
support those decisions.
Mr. Waters. Thank you very much.
And to Mr. Kingsley, you have been involved, the Urban
Institute has been involved in an awful lot of research, it
appears. And how can our agencies of government be of more
support to you in the work that you are doing? Is there
something that we could be doing over in HUD that would be more
helpful, or over in the congressional side of government,
Office of Research, etc? Because it is very important that we
know where to best spend money and where it will be most
helpful and where it would stabilize neighborhoods the best.
What do you need? Perhaps money.
Mr. Kingsley. Well, Chairwoman Waters, I think you have
touched on a lot of things that could possibly be helpful. I
think the testimony you have heard today suggests that there is
already some fairly effective national-level research that is
supportive of the interests and supportive of helping people to
do a better job of implementing 5818. I think I would like to
give stress to finding ways to support local entities more than
national ones to do good local research. The decisions that get
made that affect most of what happens in America, and
especially at this level, are decisions that are made by people
in communities and localities. And even though I think, as my
colleagues here have talked about, that there is a pretty good
basis and a promising basis for doing a national allocation
formula, I would argue that really making sensible decisions
about exactly what to do in each of these neighborhoods--in
some cases, as Mr. Walker said, it is going to be rehab versus
demolition, but it is also how to efficiently target resources;
which neighborhoods to go into and how to do that. You want to
get good people locally who are capable of producing data-
driven decisions. So I think consideration of ways to allow
some focus to support analytics locally, as well as simply
bricks and mortar, would not be a bad feature. Thank you.
Mr. Waters. Thank you very much.
Mr. Kucinich. I thank the gentlelady for her work on this
and also for her questioning. The Chair recognizes our ranking
member, Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman. Mr. Kingsley, I think I
am going to take the opportunity to sort of followup on my
colleague's question, recognizing that I have one foot in
Cleveland, the place of my birth and the home of the Cleveland
Indians, and then I have this Padres foot in San Diego, so I
will do the best I can to try to use them both to our
advantage.
When you talk about local involvement and so on--this is
beyond 5818, but in a sense it isn't--how much local equity,
and what I mean is real money, should cities, counties, and
States have in this process? How much should the Federal
Government insist on leveraging of real participation by the--
you know, there is no State in the Union that doesn't have
money. They all have deficits, but they all have money. How
much, what is the ratio, you think? Should we be in there with
$15 billion at 10 percent or at 20 percent? Because if we get
to 100 percent, $15 billion doesn't go very far. Can you help
us understand that?
Mr. Kingsley. I think it is a complicated answer because of
the variations in both fiscal circumstances that exist around
the country as well as the variations in the extent of the
problem at the neighborhood level. So I don't really--I don't
really have an easy answer. I would certainly endorse the idea
of some leveraging and some sense of incentives, because if
local governments have a stake in this process, they are
obviously going to use money more wisely. And I certainly
endorse that.
Mr. Issa. Well, following up on that question, assuming
that the reason that they wouldn't do more is that they don't
have more for a moment, and looking at both California with a
$20 billion deficit and Ohio with about a $20 billion budget,
OK, so fortunately Ohio has a smaller deficit, but they both
have downturns right now. If we are to go beyond 100 percent
funding, would it be better for us to--let's say we take the
$15 billion--if we in fact, for example, made it $60 billion
but made $45 billion in the form of loans, recognizing that
better times are coming, so that they would still have equity
in it in the form of debt, but it wouldn't simply be it is
other people's money, go spend it, and if it doesn't work you
have lost nothing?
Mr. Kingsley. Again, I think the loan/grant mix combination
is an awfully difficult thing to settle across the board. But I
do think that there is clearly a notion related to timing. And
the principles here ought to be such that they do, I think,
move in the direction you are talking about.
I mean, we have a short-term crisis in which the budgets of
localities are being hurt very badly in the short term. So the
principle of getting them to pay for everything up front ain't
going to work. I think we have to inject some money into them.
But certainly the principle of doing that in ways where, over
the long term as the economies improve, that they are able to
participate is good.
Mr. Issa. Mr. Richardson, sort of as a steward of our
money, we put it out there, we trust you to be a good steward
of it; are programs like that historically a more effective way
to leverage dollars, recognizing that an empty home or a
foreclosed home in Cleveland, OH or in Temecula, CA represents
no revenue to the city, or reduced even if it is held by a
bank, can we expect that program proposals coming from the
administration would include some sort of leveraging of we
understand you have reduced revenues, but we would like to
share in the benefit of us getting those revenues back up by
loan repayment or some other process in order to make our 15
billion, as the gentlelady suggested, hopefully a far greater
number?
Mr. Richardson. Well, I can't speak to the policy of the
administration on this specific bill----
Mr. Issa. But you are the administration sitting here.
Trust me, feel free. It is the end of an administration. Do
your best to put your CEO hat on.
Mr. Richardson. But I can speak to other programs that have
match requirements.
Mr. Issa. Thank you.
Mr. Richardson. And programs like the HOME program, where a
jurisdiction can be required--jurisdictions are required to
have a HOME match, but it can be waived if they can show that
they can't meet that requirement. So as in this case, some
jurisdictions may be more able to be able to provide assistance
than others.
In terms of an allocation formula, another way to handle it
is--if you are allocating funds--is to target funds in such a
way that you take into account fiscal capacity so that a
jurisdiction with higher fiscal capacity, with perhaps equal
need to another jurisdiction, gets somewhat less funds than a
jurisdiction with low fiscal capacity.
Mr. Issa. And if I could, Mr. Chairman, if I could just ask
one exit question. You know, being from California with our
$700,000-$800,000 homes in foreclosure in many cases--and these
are still hardworking people at regular jobs, the homes are
simply more expensive--we have full confidence that we are
going to have a snap back and that homes in 10 years will be
worth dramatically more than they are today, the same homes
that are empty and in foreclosure.
Should the Congress be considering schemes--I mean that in
the good sense--in which we extend what it takes to stabilize
those markets, get people back into them on some sort of a
basis they can afford today, but the Federal Government or
other agencies take equity so that when they snap back we can
expect a recovery?
And I would contrast it maybe in a way to what we did for
Chrysler many years ago. We actually didn't give them a penny.
We provided loan guarantees which they paid back, with
interest, when Chrysler was restored. Can we, in a place like
San Diego or Temecula, CA in my district, use techniques like
that? Presently I don't know of any, but is that something
Congress should be trying to make available so we not simply
throw money at a time in which it is down, and then be
surprised in which those same homes are now earning people huge
returns?
Mr. Richardson. If I could ask Frank to answer that
question, he seems to have----
Mr. Issa. You are a natural-born leader. Yes, sir.
Mr. Alexander. Representative Issa, you have already got it
in a small form in 5818, where you have the shared depreciation
concept. Now, I am not aware of that in any other Federal loan
program, that a loan or grant carries with it a shared
depreciation for repayment to the Federal Government. So in
that sense in some jurisdictions, yes, you are going to be
capturing a portion of the upside, not only for repayment of
the initial loan but of the appreciated dollar value.
Now, it is not going to be applicable across the board
where you are locking it in, where the disposition of the
property is to lock it into affordable housing. Odds are there
will not be as much upside appreciation. But that, again, the
good thing is it allows the local jurisdiction the flexibility
to do shared depreciation mortgages with a recapture, or to
focus much more deeply on the extremely low-income rental
housing.
Mr. Issa. Thank you, Mr. Chairman. And thank you for
focusing for so long, for this year and beyond, on this problem
which we share, although in different ways, between our two
districts.
Mr. Kucinich. Thank you very much, Mr. Issa. And I am going
to exercise my prerogative as Chair, having yielded the time to
Ms. Waters to begin to ask questions, to ask my questions. And
I will make it as expeditious as possible so we can get our
other members of the subcommittee involved here.
You know, one of the things, I would ask the members of the
subcommittee, if you take this overlay, the page that has
northeastern Ohio, I just want to--this is Mr. Walker's work.
We thank you for that. When you look at this, what we have
here, the Investor High Cost Loans by ZIP Code, you are really
talking about the subprime loans. And when you overlay, as you
have, the increasing vacant and decreasing occupied addresses,
they fit rather neatly, if you are looking at the city of
Cleveland, over those areas where they had the subprime loans.
Now, this subcommittee is looking at, you know, what is the
most effective way to target any resource that would be
available. And these maps are very helpful, because what it
appears is that you have a high number of subprime loans and
then people are just leaving.
One of the things that has come up in the work of this
committee--and I want to just share this with the members of
the subcommittee that are with us today from Congresswoman
Waters' subcommittee--if you take the matter that HUD provides,
which maybe staff could put that up there--go back. Further.
Take a look over--that's it. Can you enlarge that a little bit?
A little bit more? If you can enlarge it?
You look at it, it actually looks like a V, like this. If
you look at the map, it looks like a V. That V approximates the
African American community in Cleveland. If you look at this,
where the concentration is in the red areas, particularly the
red areas where you have the overlay of increasing vacant and
decreasing occupied addresses, that also is the African
American community. When you look at, going back to our map,
staff, go back to this map, when you look at the overlaid areas
of red--yes, that's it, try to enlarge that a little bit--for
those of you who have the map, I just want to point something
out. When you look at the overlaid areas of red in the
Cleveland area, and then you look at the other areas to the
west, that's Lorain, OH, large African American population. You
look at the areas to the south, the areas of red that have an
increasing vacant or decreasing occupied addresses, same thing
with the African American community in Akron, OH.
When you look east of Cleveland, there is a little fringe
of red there that is overlaid for increasing vacant and
decreasing occupied addresses. That is Euclid, OH, a large
African American population.
In the work of any of the gentlemen here, have you done any
research that has looked at data that has identified the racial
characteristics of the people who have had this avalanche of
subprime loan defaults? Anybody here done that work? HUD?
Mr. Richardson. There has been quite a lot of research
actually on subprime loans and its relationship to the race of
borrower. And certainly the rate of subprime loans for minority
borrowers is much, much higher than it is for white borrowers.
Mr. Kucinich. Has HUD, to your knowledge, ever considered a
civil rights action? Take this data and wrap it up into a civil
rights action? Has that ever been talked about?
Mr. Richardson. HUD has a new division that is looking at
lending patterns of discrimination. And they are using these
data to try to identify lenders that look like they do
activities that may suggest that they are lending money in an
illegal fashion. But I am not the expert on that.
Mr. Kucinich. I want this subcommittee--and perhaps we
could do this in conjunction with Ms. Waters' subcommittee as
well--to go into this a little bit more in terms of these
patterns.
You know, when we had our initial work on this committee we
identified those vectors that we saw. And what disturbs me is
this, and I just want to put this card on the table. I was
mayor of Cleveland over 30 years ago. I was one of the first
mayors in America to use the Community Reinvestment Act to see
that there would be investing in the inner city in
neighborhoods that had not had investments in the neighborhoods
but had put money in the banks. Banks weren't lending in the
community. And over the years, banks tried to skirt their
responsibility to follow the Community Reinvestment Act, and,
in a sense, render it a nullity.
Later on, it was very apparent there were wide areas which
were starved for credit. They came in with these subprime
products, no documentation loans. People were desperate to have
a home. Now we can say, you know, well, OK, take some
responsibility. But you know what? There is an issue of
financial literacy that enters into this. And you know, it is
one thing to market a product to people who are aware of
exactly all the parameters. But when you have the desire for a
home ownership so powerful where it is the biggest dream in
people's lives--my parents never owned a home. They were
renters. But when I had my first home, huge.
And so we have something that goes much deeper here than
just--there is a lot of great analysis here, and I appreciate
it. But there is a human dimension here with part of the ugly
underside of America's social life tied to the economics that
this subcommittee is going to continue to explore.
And I just wanted to know if anybody at HUD was aware of
that, because I think that we really should be looking at some
of the civil rights dimensions of this. Because there were
lending institutions, whether they were regulated or not--
that's something we have to determine, regulated or not--there
were lending institutions that were out there marketing these
products, capitalizing on the perhaps lack of savvy
financially, getting these no-document loans. And now these
people have lost--and people have lost everything. I am in
neighborhoods in Cleveland that are falling apart. They are
just falling apart. And people who are remaining, we have
talked about them, are having a great deal of difficulty
holding onto their equity. So let me get my colleague.
Mr. Issa. I just wanted to remind us both that in the
hearings a little over a year ago, that was very much what we
heard was on one hand banks and other institutions had been
availing themselves of, finally, the requirement that they
stretch to make loans to underserved communities; but at the
same time the loan failure rates were high, some of it because
of the very nature of subprime loans. And so in a sense they
were not doing a favor to people unless, as you said--and I
think, Mr. Chairman, you said it very well, that may be a part
of what this committee has to look into--you have to have that
sort of financial check-and-balance on first time homeowners,
people with jobs that are perhaps right on the edge of being
lost in a downturn. And we saw that a year ago in your
hearings.
Mr. Kucinich. Well, the buyer beware and the lender be
prudent. Mr. Green.
Mr. Green. Thank you, Mr. Chairman. And I thank you for
your wisdom and the sage advice that you have accorded us.
Again, I would like to make mention that the bipartisanship
that we are witnessing is most refreshing. And I am most
appreciative to be a part of it today and play some small role.
Before going to the comments that I wanted to make and the
question that I would like to ask, I think it appropriate to
say, also as an addendum to what you have said, we have a lot
of persons who qualify for prime loans and were steered into
the subprime market.
Mr. Kucinich. Exactly. If the gentleman would yield, you
are absolutely 100 percent right.
Mr. Green. Thank you. And there was also another element of
this that causes a great degree of consternation, something
called the yield spread premium [YSP]. The yield spread
premium, for edification purposes, is a lawful kickback that an
originator receives if the originator can cause the borrower to
acquire a loan higher than the one the borrower qualified for.
Qualify for 5 percent, get the borrower to take out an 8
percent loan, that originator receives now a lawful return, if
you will. So as to be kind, that is an emolument that he would
not ordinarily receive if the person received the 5 percent
loan. That causes a great degree of consternation as well.
But I want to compliment the panel. You have done what
intellectuals should do, and that is cause lay people like me
to think. You really have. Because you have given me at a level
of intelligence that I had not considered prior to your
comments.
And one of the things that I would like to ask you is are
you contemplating a bifurcated system, one wherein we acquire a
certain amount of empirical evidence at the Federal level and
utilize this evidence to target a local area wherein we require
some entity to then share with us empirical data that we would
plug into a formula? Is that the methodology that you
contemplate, or do you contemplate a holistic approach at this
level that will direct us specifically to an area that is in
need?
And I welcome comments from whomever would like to respond.
Mr. Kingsley, we will start with you. I recognized you first,
and then Mr. Alexander.
Mr. Kingsley. I think that just as most of our comments
here suggest, that there is promise in using national data to
develop a formula that you could use to efficiently target
these resources without having to rely on any specialized local
or proprietary data sets to do that.
The remark I made about data is that once the funds are
allocated, then it really makes sense to support local
intermediaries to use local data to help in targeting the
expenditure of those funds and in also devising efficient
strategies to use those funds.
So I guess my view was clearly that I think there is
promise in being able to use national data sets to develop an
equitable formula for allocating the funds nationally.
Mr. Green. Thank you. Mr. Alexander, sir. Professor.
Mr. Alexander. Representative Green, in a sense, 5818
already has the bifurcated approach. What you are hearing from
the four of us, and we really are in essence speaking in one
voice, recommending that the basic allocation formula be
modified to focus on concentrations of foreclosures and vacant
and abandoned properties.
In 5818, as it passed 2 weeks ago, it has a bifurcated
approach in that the approved plan requires a focus on vacancy
and likelihood of increased vacancies and higher foreclosures.
So you have two different levels already present in the
basic structure of 5818. And I think that has been official. I
think the basic formula for allocation to the States, qualified
municipalities, and qualified urban counties can be improved
upon. But then I would still even place the emphasis that you
have put in the current bill, which is that the distribution
must be in response to a plan of the municipality that will
address the highest-risk neighborhoods, and so it does allow
local flexibility.
And following up on Representative Waters' earlier question
to me, it allows for the local governments to identify their
action plans in order to receive the money. I think preserving
that local flexibility is so important.
Mr. Green. Thank you. As I yield back my time, Mr.
Chairman, I sincerely thank you for your thought-provoking
comments that you made, because, again, some things will escape
one who is not familiar with the regions and the maps. And but
for your comments, I may not have picked up on this. Thank you.
Mr. Kucinich. I thank the gentleman. The Chair recognizes
Congressman Cleaver.
Mr. Cleaver. Thank you, Mr. Chairman. The research you are
doing, I think, is going to be critically important for many
mayors. And like the chairman, Mr. Kucinich, I served as mayor
of Kansas City, MO. And I am always looking, even now, at what
is happening in the urban core. And the depreciation of
housing, of the housing stock didn't begin with the subprime
crisis. It has accelerated because of the subprime crisis and
added some new dimensions.
One, and I haven't seen this in the research, maybe you are
dealing with this, and I guess maybe in a way you have, but
this is somewhat anecdotal except that I know I can call some
names of people, insurance companies will not insure a vacant
piece of property in Missouri more than 60 days. And so even if
the house had not been just damaged and torn apart, after 60
days the chances are high that either someone will strip the
copper out and the kitchen and bathroom furnishings. But in
many of those houses, the drug industry will move in. And so
there is a factor with insurance.
And you know, it didn't occur to me until I saw someone who
wrote down the value of their home by $50,000 in order to sell
it--I am sorry, $50,000 loss because they were afraid after 2
months that, you know, the house was going to be torn up. So
they just took a big loss. And after seeing that, I realized
that there is one component that we haven't addressed, and that
is the whole issue of insurance.
No one likes to force anybody to do anything, and the
people who are forced regret it and hate it more. Insurance
companies. But I think we are going to have another problem
around the country related to the properties that are taken off
the insurance rolls, because that is going to really create
some serious problems.
And then when you deal with, you know, demolition versus
rehabilitation in an urban core, I think, Mayor Kucinich, would
agree you try to rehabilitate? The reason you try to
rehabilitate is because if you want to look at demolition, you
go to the urban core and you will see, you know, a house,
vacant lot, house, two vacant lots, because of demolition. And
it is difficult to get developers to come in and do an in-fill
housing development project. And even when they do, it creates
a problem because the new housing in the older neighborhoods
generally don't match the majestic old houses, even in the
urban core. I mean, you know, you will have some cardboard
housing put up next to housing that was put up 100 years ago,
but it was really well built.
Anyway, I am not sure that's much of a question, but I
would like to get your response to what I have just laid out.
Any of you. Yes, Mr. Alexander.
Mr. Alexander. Representative Cleaver, you are absolutely
right in identifying that as one of the unspoken topics right
now. As we look at the tremendous growth of REO that lenders
are now acquiring as a result of these foreclosures. They are
quickly discovering the insurance costs, or the lack of
insurance, as it becomes vacant for extended periods of time.
The good news in that is that the lenders holding this REO are
going to have to wake up pretty quickly and be willing to
convey that property to local government entities or to
nonprofits to then rehab it and put it back into productive
use.
I think that one of the challenges you are giving to us,
which I am delighted to accept, is to start pressing the
insurance industry and the lenders on their REO policies to
find out the loss of coverage or how much it is going to cost
them to continue coverage when they hold property for 6 months
and a year post-foreclosure.
Mr. Cleaver. Anyone else?
One final question, Mr. Chairman, to Mr. Walker. In your
testimony you suggest that more research is needed before we
will know exactly how to use the data sets that are available
to achieve what we have done with 5818. How close are we today
to having the detailed knowledge of whether vacancies are
increasing due to the subprime mortgage crisis?
Mr. Walker. My response, sir, is we are talking a few
months and not a few years.
Mr. Cleaver. That is good news. I was trembling over the
fact--I am accustomed to having witnesses do the Capitol Hill
dance. And it is just refreshing to hear somebody say it is
coming.
Mr. Walker. Well, I am a researcher, so if you ask me a
question I am always going to tell you that more research is
needed.
Mr. Cleaver. Thank you. Thank you, Mr. Chairman.
Mr. Kucinich. Thank you, Mayor Cleaver. I just would like
to do just one more brief round of questions here. Before I get
into this question about the data sets, I just want to point
something out about what Mr. Cleaver said. I will talk to
Chairwoman Waters about this. This might be another opportunity
for our two subcommittees to cooperate. Because when we are
talking about insurance--and you are the first person that
mentioned that, and that is really important that it is
mentioned--you know, we were already grappling years ago with
the issue of redlining. When you look at this map again, and
there is red, there is lines across that red. You can almost
bet insurance companies, which are very savvy about their
premiums and their investments, are a step ahead of us on this.
And we should look at the insurance implications. Because if
people cannot get their property insured, as you point out,
they are looking at a fire-sale price for their property. And
when that happens, the surrounding property also begins to
drop. And businesses in the area will find their rates go up if
they can get insurance. So we are looking at the beginning of a
vicious cycle.
And if we are talking about neighborhood restoration, that
discussion of insurance has to be part of it. And I appreciate
you bringing it up.
I would like to ask all the members of the panel this
question. The purpose of the aid authorized in H.R. 5818 is to
help neighborhoods. Now, most of the data sets that you have
discussed focus at the county or the ZIP Code levels. It is a
much lower level of resolution than the neighborhoods. Or
should I say it is a much higher?
Mr. Walker. Lower.
Mr. Kucinich. Lower resolution than the neighborhoods.
Somewhere there has to be a common denominator or a high enough
level of resolution that you are targeting needs to needy
neighborhoods, but low enough that it is comparable among
different data sets. So what is that level of resolution? Is it
a State or county or Census tract? Would you like to offer your
opinion on that? I will start with Mr. Alexander.
Mr. Alexander. For purposes of determining concentration of
foreclosures I think you must go either with Census tract or
with ZIP Code, either five or nine-digit ZIP Code, to be able
to really determine which communities or neighborhoods are the
hardest hit. I think you can then back into the aggregate
relative percentages of the concentrated neighborhoods and
still do State-by-State allocations. But the variable of
concentration needs to be present.
Mr. Kucinich. Mr. Walker.
Mr. Walker. I think one of the beauties of the correlations
we have established between the foreclosure data from the
proprietary sources, which is available to us generally at the
ZIP Code level, and the HMDA data, which is available to us at
the Census-tract level, is I think we can feel pretty confident
in using Census tract level data in order to establish the
kinds of concentrations we have just talked about. The Postal
Service data is also available to us at the Census tract level.
And so that gives us the possibility of doing what I think
is critically important in this regard, to identify the numbers
of neighborhoods within communities that are subject to and
cross some threshold of concentrated foreclosure.
Mr. Kucinich. Mr. Kingsley, you have anything to add there?
Mr. Kingsley. No, I would endorse that. We do a lot of work
on neighborhoods around the country. And most people even think
in terms of really responding to what people think of as a
neighborhood, the Census tract is about right and the ZIP
Codeis often too big, too much an amalgam of very different
circumstances. And I would endorse, I think, what my colleagues
here have said, we are very fortunate because we have HMDA data
and the Postal Service data at the Census tract level.
Mr. Kucinich. Mr. Richardson, would you like to add
anything there?
Mr. Richardson. Well, I think as you pointed out when you
were showing the map of Cleveland, and being able to show the
pattern here with the map we prepared, this is Census tract
level data. And it is very--it tells you a much stronger
picture about what is going on in your community if you can do
it at the Census tract level.
Mr. Kucinich. So you would say Census tract data.
Mr. Richardson. Yes.
Mr. Kucinich. In your opinion, what makes a good formula
then? What are the elements of a good formula?
Mr. Richardson. Elements of a good formula. First off, that
it has to be well-targeted to the goal that the Congress has
established. Second, that it has to be fair. Communities with
similar levels of need need to get similar amounts of money.
Mr. Kucinich. How do you know if you have a good formula,
then?
Mr. Richardson. How do you know if you have a good formula?
You want to compare it against a variety of--you can establish
a formula based upon the best data that you have that is
consistently collected across the country, and then you can
compare it against other data sets that you might not have for
every part of the country.
For example, Tom Kingsley at the Urban Institute, they have
the NNIP partners for a select number of communities. They have
more data at the local level than we have nationally. But if
our stuff matches up well with what they have, that gives us
some confidence.
Mr. Kucinich. So if the Neighborhood Stabilization Act is
going to be effective and equitable, we want to make sure that
we are targeting at the most discrete level that we can
possibly do that would hold up for data analysis. Is that what
you are saying?
Mr. Richardson. Not speaking specifically to that act. If
you want to target funds to the needs of vacancy and abandoned
housing and concentrate on vacant and abandoned housing, that
is pretty much what you have to do.
Mr. Kucinich. Mr. Kingsley, would you agree with that?
Mr. Kingsley. Yeah. I think I would agree with that.
Mr. Kucinich. Mr. Walker.
Mr. Walker. Certainly.
Mr. Kucinich. Mr. Alexander.
Mr. Alexander. Yes, sir.
Mr. Kucinich. OK. Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman. You got four yeses. I
should quit now.
Mr. Kucinich. That is why I stopped.
Mr. Issa. The problem is now I am next. You are a hard act
to follow. Let me followup on that line, though, because I am
very intrigued by it.
First of all, I guess it is pretty easy to see from charts
that we can figure out how many impacted people there are in a
given ZIP Code.
But when we are looking at on a local control--Mr.
Kingsley, I think I want to focus on that--wouldn't it be true
in some cases, and we will take Cleveland, Cleveland Heights,
these areas--particularly the east side that I am more familiar
with--I can think of neighborhoods where three or four streets
the last time I was there, and I am about to go back and see it
again, and I understand it is worse, but three or four streets,
if they were put into an economic redevelopment zone, the
dollars, many less dollars could dramatically change that
neighborhood. Now, it might not be as gratifying to the person
just outside the line, but if a city is trying to take a
limited amount of dollars and get the maximum bang for the
buck, it would seem that they would discretely draw, in some
cases, just a few streets here and a few streets here and a few
streets here. And although they would not serve everyone, they
would serve the best interests in reversing a trend.
I see a lot of heads waving. Did I get a four in a row
here, too? Does this act empower them to do that, or is that
one of the areas in which administration may be difficult to
make sure that a city could make that decision without being
sued by the person just outside the line?
Mr. Alexander. The legislation, Representative Issa, allows
the local government discretion to expend the funds on the
street level and not the next street. It makes relatively gross
but pretty targeted allocations to the States and then
qualifying municipalities and counties, but then leaves the
municipality or the county with discretion to target the usage
of those funds in the transitional neighborhoods to stabilize
them.
Mr. Issa. I heard that, but I didn't hear the last part,
without being sued. The question is: Is it challenge-proof?
Which is always a question for us. I hate to see any of this
$15 billion eaten up with legal fees.
Mr. Alexander. Well, as a law professor, nothing is
challenge-proof.
Mr. Issa. Move it over to the administration, probably.
Mr. Alexander. And we recognize the ability of anyone to
bring a challenge, but it is hard for me to see any
constitutional or statutory challenge, given the way you have
drafted this bill.
Mr. Issa. OK. Mr. Kingsley, you are chomping at the bit, or
am I good?
Mr. Kingsley. Yes, I think you are going to get another
winner here, because I think that is clearly the case, and the
principles we talked about with using the Census tract data
even for the national allocation. But I was certainly
advocating that once the allocations to jurisdictions are made,
that other data and local knowledge be dominant in deciding
exactly how to spend those resources in a cost-effective
manner.
Mr. Issa. OK. Now I am going to tell my good friend next to
me that we are going to have to realize that our hearts may
both be in Cleveland, but our constituencies are in very
different parts of the country.
And I have to ask a very difficult question. A postal
worker making a postal worker salary in Cleveland is, from a
standpoint of a postal worker in San Diego, rich. He is doing
great. He has access to $70,000, $80,000, $90,000 homes,
$150,000 seeming mansions compared to a $400,000 home in
California. How do we deal--and I am using a postal worker
because Federal workers tend to be paid substantially similar,
with very small differences throughout the country--how do we
make sure that my person with the $400,000 home or $320,000
threshold for what might be half that cost in Cleveland and
even less in Mississippi, how do we deal with that fairly so
that what we consider to be our blighted neighborhoods and our
problems are treated equally, even though they cost twice as
much per home to fix? Please, Mr. Richardson.
Mr. Richardson. Generally speaking, when we look at this
issue, we do have to take into account that it costs different
amounts of money to provide services in different parts of the
country. So you can establish a formula that takes into account
different costs so it adjusts an allocation up or down based
upon relative costs.
Similarly, you can take into account whether a jurisdiction
has the tax resources or capacity, the fiscal capacity to
address the problems itself versus another jurisdiction, and
you can adjust resources up or down in a formula.
Mr. Issa. We often see that as Mississippi can't afford it,
but California can.
Closing on my question, though, if it takes twice as many
dollars to fix the same 12,000 homes in Temecula as it takes in
East Cleveland, how am I going to be made whole; or am I going
to be made whole? In other words, am I, by definition, under
this act going to get the same amount of dollars for twice the
dollar problem, and be told California will have to deal with
the difference whether or not California is richer or the homes
do cost twice as much?
And that's what I told my good friend, that we have this
dichotomy so often that we have to bring out.
Mr. Richardson. Well, if you are crafting language for a
formula, the guidance to be provided is to tell us that you--
those of us who might have to develop that--is generally
speaking, is to say you need to take into account the different
costs of services.
Mr. Issa. Thank you. And, Mr. Chairman, we are never apart
in ideology. We are often, though, in the strange conundrum
that our homes simply cost different amounts these days.
Mr. Kucinich. I think that's true. And let it be said that
being the case, that the home that I live in, which probably
lost a quarter of its value because of foreclosures in our
neighborhoods since last October, is like a lot of my
neighbors; you know, they are just struggling to hold on. And
the house that I live in is, you know, today probably worth
$75,000, if I am lucky. And I have had it for 36 years.
And so, you know, we live with this, you know, wherever we
are. We are living with this. So I want to recognize Mr. Green
for a final round of questions.
Mr. Green. Thank you, Mr. Chairman. And following up on
what the ranking member has just called to our attention, we
also have regions that have different economic recovery
schemes, if you will. In Las Vegas, there may be a dependency
upon job growth to move them out of the enigmatic situation
they find themselves in; whereas in another part of the
country, they can't rely on that circumstance because it
doesn't exist.
So I know we have to consider all of these things, and I am
not sure how the formula will adjust for this, for the
variations in economic status of various regions of the
country. Does someone care to give a comment on this?
Professor Alexander? Of course, you know your name means
help of human kind.
Mr. Alexander. You are quite a guy, Representative Green,
and indeed I view the legal profession as first and foremost a
service profession. The goal is that the allocation formula
being based, at least in significant part, upon foreclosures
will be a rough indicator of economic vitality or weakness
according to different regions, both at the State level and
then within the State level. So it is certainly not a perfect
indication of the different economic strengths or hot market/
weak markets. But by using the three, four, or five variables
that you have already put in the bill and that we are
recommending, it allows that the economic data will be
reflected in those variables: the strength of the community or
the weakness of the community. That is the goal.
Mr. Green. Yes, Mr. Richardson.
Mr. Richardson. I may have a little different opinion than
Mr. Alexander. I am not sure that foreclosures are exclusively
a measure of the economic health of an area. And I think that
if you want to take into account economic health, you need to
specifically state that in a formula that you want to take into
account, whether it be job loss or job growth, to make sure
that is accounted for. Because certainly in a place where you
have job loss and foreclosures, the risk of the house becoming
vacant and abandoned is much higher than an area, really, of
job growth and foreclosures, where that house will probably be
purchased by someone fairly quickly.
Mr. Green. Anyone else? Quickly, I will make one additional
comment and then a question.
We understand the number of homes that may go into
foreclosure. We have a lot of empirical evidence on this. But
do we have any intelligence on the number that may just be
walked away from? Has anyone been able to come up with a
prognostication as to how many homes may just be abandoned in
this process?
Mr. Alexander. That is why we recommend, Representative
Green, that we focus on vacancies, which do pick up those who
simply walk away, or do a deed in lieu of foreclosure, or turn
the keys in. Foreclosure is a--foreclosure data that we have is
a very rough proxy. Not all foreclosures yield vacancies; not
all vacancies yield abandonment. But our measures of
foreclosures are not of foreclosure sales, the data is of
foreclosure filings. And that is quite different than the
number of sales. And it is really between those two that we
pick up what you are referring to as simply the families that
turned in the keys and walked away.
Mr. Green. Anyone else?
Mr. Walker. Well, we do know where bank-owned properties
are. And if there is a rough measure of the vulnerability of a
property to eventual vacancy, I mean that would be it.
But I would like to second what Mr. Alexander said earlier,
that the fact that we are focusing on vacancies captures quite
a lot, if we think of the economic performance of a region
already. So that is exactly the right thing to do.
Mr. Richardson. I might add, however, we might be able to
get--we do have data--the Post Office data tells us how long an
address has been vacant. So we can know if it has been vacant 6
months or 12 months, which certainly is a greater predictor of
abandonment.
And we may be able to get data from--certainly from FHA,
but also from Fannie Mae and Freddie Mac, perhaps, on how long
their real estate-owned properties are sitting vacant. And so
in areas where you have high lengths of time where a property
is vacant, that certainly is more suggestive of risk of
abandonment.
Mr. Green. Thank you, Mr. Chairman. I yield back.
Mr. Kucinich. I thank the gentleman from Texas. The Chair
recognizes Mr. Cleaver for a final round of questions.
Mr. Cleaver. I don't have any additional questions, Mr.
Chairman. Thank you.
Mr. Kucinich. Would you yield, then, to me for a final
question?
Mr. Cleaver. I would like to yield a final question to the
chairman of the subcommittee, Mr. Kucinich.
Mr. Kucinich. I appreciate it. Thank you.
Mr. Richardson, as your agency would be tasked with
implementing H.R. 5818, and in view of the time you and your
colleagues need to finish your research, would you have any
suggestions as to how Congress should craft its funding
allocation if we were to do so?
Mr. Richardson. My general recommendation with crafting
language for a formula, I like to look at the language for the
HOME formula that was passed in the Cranston-Gonzalez National
Affordable Housing Act of 1991. That language is very specific
about what goals they wanted the formula to accomplish and the
types of data that they thought we might be able to use. But it
didn't--it allowed us the flexibility to actually design the
formula to reflect what kinds of information we were able to
gather after the law was passed.
So I advise you to look at section 217 of 42 U.S.C. 12747.
It certainly has a pretty model language for a formula that
gets you what you want, but gives us some flexibility to make
sure we can accomplish what you want.
Mr. Kucinich. Any other comments before we move to adjourn
this?
I want to thank all of the panelists. Your expertise has
been quite valuable in getting these two subcommittees the
opportunity to focus in on what is the appropriate way we
proceed in the situation we are in. And I want to thank each of
you for the dedication that you have to this very serious
question. It is inevitable that when we make these decisions we
want to make sure that it is grounded in solid research and
that the research is available as we try to craft the
appropriate formula. So thank you.
I am Congressman Dennis Kucinich, chairman of the Domestic
Policy Subcommittee. This has been a joint hearing of the
Domestic Policy Subcommittee, which is a subcommittee of
Oversight and Government Reform, and the Housing and Community
Opportunity Subcommittee, which is a subcommittee of the
Financial Services Committee, which is chaired by Congresswoman
Maxine Waters. I want to thank my colleagues from that
subcommittee who were here today, and including Mr. Green and
Mr. Cleaver. Thank you for your presence and your
participation.
The title of today's hearing is, ``Targeting Federal Aid to
Neighborhoods Distressed by the Subprime Mortgage Crisis.''
This has been one in a series of hearings which this
subcommittee has had.
And I want to thank the minority and the majority staff for
the work that they have done on this, and Mr. Issa, who has
been very supportive, as has Mr. Turner, who is a guest member,
very supportive of this, reached deeply into meeting the
challenge of this subprime mortgage matter.
This subcommittee will continue to delve even deeper into
these issues. And Mr. Cleaver came up with a good suggestion
today, looking at the insurance angles. And that's something
that we are going to start looking at immediately.
So I want to thank the attendance of the witnesses, those
in the audience, staff. Thank you. And this committee, these
two subcommittees are adjourned. Thank you.
[Whereupon, at 4:05 p.m., the subcommittees were
adjourned.]
[The prepared statement of Hon. Tom Davis follows:]
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