before we start hearing we get we're waiting just for a few more minutes for maxine waters the chairwoman of one of the subcommittees that's sponsoring this thank you we'll start hearing shortly we've been waiting for congresswoman waters when she arrives will immediately revert back to her opening statement so thank you us in the interest of time and out of respect for our panelists we're going to start and i'm the committee will come to order this is a joint hearing of the domestic policy subcommittee of oversight and government reform 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 were 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 sub prime mortgages now without objection the chair and the ranking minority member will have five minutes to make opening statements followed by opening statements not to exceed three minutes by any other member who seeks recognition and without objection members and witnesses may have five 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 sub prime mortgage meltdown and foreclosure crisis neighborhoods while awareness has grown that the default of millions of sub prime loans has been a genuine tragedy for individual borrowers and a significant cost to lenders we've 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 and those houses loss of rental units for renters loss of sales to neighborhood merchants rise in crime rising costs for public services like municipal costs for police and fire due to vandalism and arson in particular increased demolition and building inspection costs increase legal expenses increased demand on city social services and a direct loss of property tax revenue the costs imposed on neighboring property owners renters and taxpayers by vacant and abandoned houses stemming from the collapse of millions of subprime mortgages well tally into the many billions of dollars significant costs are signs of failure in the market there are 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 problem they are now facing two weeks ago house passed h r fifty eight eighteen the neighborhood stabilization act of two thousand and eight this bill creates a new federal program to address the effects on neighborhoods caused by the foreclosure crisis the bill authorizes fifteen billion dollars in grants and loans to be spent by localities variety of strategies including vacant property property acquisition building rehabilitation and demolition nevertheless the president has promised a veto and as i said yesterday i can understand that and i hope that today 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  should we help today this committee will be pleased to be joined by chairwoman maxine waters who is the primary author of fifty eight eighteen 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 sub prime mortgage meltdown this hearing will concern the various kinds of data that should they 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 in 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've 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 oversight and that is gentleman from california mr i said thank you for the ongoing partnership which you have shown in this endeavor and i'm grateful for your stay well thank you mr chairman and thank you for holding this important hearing you know i might note that yesterday was the one year anniversary of the two of us being at a field hearing in cleveland ohio at the federal building little did we know in may of two thousand and seven how the foreclosure problems which was then an epidemic in cleveland which spread beyond cleveland the meadow 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 will continue to focus on the dynamics of this crisis and how it affects neighborhoods and suggestions on how we could help solve these furthermore we will look at how each community is affected differently and i think that's probably the most important point that all of us on the day of us are going to want to learn more about because senate and i are both native clevelanders but i now represent san diego california we couldn't be more similar in our background and our families and in the ethnic neighborhoods 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 led to foreclosure rates in stockton california in temecula california which i represent and others being just as catastrophic as they are in c in cleveland orange county california denver colorado 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 hundred thousand dollars or even seventy thousand dollar 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 two 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 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 that when refinanced they refinanced only out of surplus equity today we find that 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 all as fifteen 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 policy partisan politics get in the way finally i also ask unanimous consent that my colleague mike turner turner the former mayor of dayton ohio and himself no stranger to the problems that foreclosures and a community can cause would be allowed to sit on this committee today and ask questions as appropriate so ordered without objection i want to say that one of the strengths of the subcommittee is that we've been able to have them mr i sense a ranking member because it's not just your experience in cleveland but the business background you develop that 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 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 congressm 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're pleased to be joined by congresswoman waters and the invitation was extended other members of her subcommittee i thank you so much for being here congresswoman waters and we look forward to your statement thank you so much mr chairman i appreciate the opportunity that you have a port  red me to jointly chair this hearing today and i'm sorry i was a little late we are in a special task force of the judiciary committee where we have the executives of the largest oil companies in america testifying before a senate to be a little bit longer to get here but i'm delighted to be here you have been holding these hearings for two days this is the second day and i was unable to attend yesterday's hearing but i know that the witnesses painted a clear picture of the devastating impact of the boer closure wave on neighborhoods which the hearing title accurately identified as a blameless victims of this debacle notably it was clearly  community are type of housing market is immune to the spillover effect a foreclosure is professor bain was able to quantify in the context of new york city the tremendous effect on neighboring home prices that has as well as highlight another group of innocent victims of the foreclosure crisis perhaps fifteen thousand renters facing eviction in the nearly sixty percent two thousand and seven new york city foreclosure filings that in bob two to four pm lee almost a family buildings meanwhile professor bet illustrated the equally damaging impact of foreclosures in the very different housing market of memphis tennessee where the slowly but rising foreclosure rate has led to foreclosure filings on fully one quarter of memphis single family housing stock since the year two thousand in short yesterday's hearing reaffirmed by putting into the record introduce that we provide such assistance h r fifty eight eighteen the neighborhood stabilization act which authorizes hud to administer at fifteen billion dollar grant and known program to state and local governments to purchase rehabilitate and resale or rent for closed homes through the amended process chairman to sinuiju was extraordinarily helpful in ensuring that states counties and cities receiving funding under h r fifty eighteen would 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 consented to make sure that in the planned states cities and counties submit to hug priorities given to low and moderate income neighborhoods with concentrations of vacancies coupled with large increases in the rate of vacancy during the past two years and a high incidence of sub prime loans at risk of foreclosure i see today's joint hearing as the logical and necessary next step to the work chairman  together on a joint fifty eight eighteen as we hope to forward quickly to conference on h r big data eighteen with that senate counterpart which provides four billion and c d g grant for similar purpose we need to continue to examine the best data 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 i thank the gentle lady one of the things that members of congress one of the strengths members bring as their experience prior to becoming a member of congress councilwoman waters was well known in southern california  an activist and a public servant and i know that you would agree that the lessons that we learn at the local level of really prepared us to be able to bring some new perspective that can help resolve this crisis this also relates to the next person about to introduce to a congressman from ohio former mayor of the city of dayton who's quite familiar with these issues and i want to and i want to thank you for your efforts in highlighting this issue as we got here yesterday and as each of us know from our experience in working in urban issues the foreclosure crisis for but america is a crisis of abandoned structures and negative impacts 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 by neglect and the scar that it makes in the neighborhood  results in everyone being in the neighborhood being subject to the catastrophic effects of that foreclosure not just the family that's there not just our financial markets in the loss of capital but the increased crime the blighting influence the reduced property values on the difficulty of those in the neighborhood that see this happen and when it happens in the magnitude we're seeing then the spiral impact on our neighborhoods is extraordinary the the measures that congress recently has taken in looking to try to help families that are entering the foreclosure process and the 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 in are not different in in what their experience has been and i'm very appreciative that we're 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 to we know we aid families and that's why appreciate this hearing because we're going to go into the the steps of hearing ways in which we might be able to tailor responses to areas to effectively address their needs so because he represents the houston area and we're grateful for your presence and you may proceed with your opening statement thank you mr chairman i also thank your ranking member for his bipartisan support on these efforts thank  my chairman congresswoman maxine waters for her stela 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 of economic issues as a result of the crisis but also the quality of life issues that have 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 sub prime neighborhoods because we have sought prime 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 of course taxes maintenance fees or 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 eight eighteen it's a great piece of legislation that the chair lady has presented to provide seven point five billion dollars in loans seven point five billion dollars in grants these monies 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 made their will not have the opportunity to own a home acquire a piece of property so it has a  from texas and if there are no additional opening statements from members of 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 is also the director of the project of photo 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 twenty awards for his teaching and public service next we'll hear from m richardson mr richardson welcome mr richardson is the the director of the program evaluation division of the office of policy development 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 departments research efforts related to homelessness assisted housing that include section eight in public housing fair housing equal opportunity crime community development anomic development empowerment zones housing rehabilitation homeownership housing for the elderly you cover a broad area we're glad that you're here next is mr g thomas kingsley welcome mr kingsley is senior researcher in housing urban policy and governance issue at the urban institute he's the author of numerous publications in the seals he currently directs the national neighborhood indicators partnership and initiated the further development of advance debt assistance for policy analysis and community building in the united states cities finally will hear from mr christopher walker thank you for being here mr walker welcome mr walker's the director of research for the local initiative support corporation he's responsible for assembling conducting sponsor going to salmon aiding research and community development contributions to the wellbeing of individuals families and communities he also supports the research activities of the thirty three las sea field offices throughout the united states currently mr walker's working on the value of low income housing tax credits to neighborhood revitalization and a new ways to measure the market potential 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 hand witnesses now give a brief summary of your testimony keep in mind this we ask that the summer be kept the five minutes in duration your complete written statement will be including the hearing hearing record so we're going to will be members have access to these and they become part of our permanent archives a very important so mr alexander you're going to be our first witness and we ask that you proceed thank you very much chair members of the committees my name is frank alexander and i'm delighted and honored to be here today what i would like to do first is express my deep appreciation for your leadership on fifty eight eighteen the congress has undertaken in recent months several significant steps to deal with our housing crisis but fifty eight eighteen addresses something quite different than the basic housing stimulus package most of the housing stimulus package now under consideration in the senate is oriented towards foreclosure prevention appropriately so to avoid foreclosure whenever possible one of the two things that makes fifty eight eighteen different is that it is not focused on foreclosure prevention it is focused on real estate post foreclosure and 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 where as many people may debate the moral hazards imbedded in the housing stimulus package those moral hazards are not present and fifty eight eighteen 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 cost to local governments the cost to the neighborhoods of these properties one of your witnesses yesterday was alan malik in another context he testified that vacant property is not a victimless crime and that is the basic thrust of fifty eight eighteen we heard yesterday that vacant abandoned properties increase property tax deterioration resulting in reduced property values reduced property tax revenues higher police and fire as representative greene alluded to vacant abandoned properties also destroyed the fabric of neighborhoods they destroyed the community the very thrust of fifty eight eighteen 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 you all 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 fifty eight eighteen allocates fifteen billion dollars it does so using primarily three variables the first variable is the relative percentage of foreclosures nationwide over the past twelve months the second variable for allocating the formula is the relative percentage of delinquencies on sub prime mortgages and then there is a third sub burial adjusting first median sale price differences across the states well i fully support fifty eight eighteen what it is designed to accomplish and i certainly hope it passes i would like to recommend and response to councilwoman 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'm concerned that the allocation of the fifteen 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 hi concentration of foreclosures this can be done by census tract perhaps by either five digit or nine digit zip code an individual foreclosed home may not pose a great deal of burd 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 for closed 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 fifty a 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 thank you very much mr o xander mr richardson  potential grantees while there are promising datasets that may be able to achieve the congressional goal of targeting neighborhoods with increasing vacancy an 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 a vacancy and in and in only certain conditions will that vacancy translate into a nuisance property or abandon properly property combining information from several public datasets has the greatest potential for accurately targeting funds to areas with vacant and potentially abandoned properties till straight 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 a vacancy in potential abandonment i will follow this with a detailed discussion of how we can measure changes in vacancy rates at the neighborhood level with a great one respect factor for vacancy is mining home price metropolitan statistical areas or emma say as 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 zero faile housing price index for metropolitan areas on this map all of the m  green have had a fall in value since two thousand and five but those with the darkest green have had the sharpest fall california michigan florida northern ohio and nevada jump out on this map i want to point out that falling home values in foreclosures in themselves are only a major of risk a vacancy many foreclosed properties will never become vacant or 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 in the orange on this map shows data from the bureau of labor statistics and counties with declining labor force participation between two thousand and five and two thousand and seven rural counties jump out on this map as do 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 how home abandonment set census two thousand and american community survey two thousand and six data can provide some of this information next map place a fourth risk factor could be measured at the census track level for borrowers who have high cost loans or highly leveraged as measured by a high loan to income ratio these households are risk for foreclosure or abandoned or abandoning their homes activator from two thousand and four to two thousand and six can provide this information this map of cleveland for example shows census tracks with their percentage of loans that are either high cost or highly leveraged the darker errors areas have higher rates for communities or neighborhoods identified as having structural or economic conditions that might lead to long term vacancy an abandonment it is possible to track neighborhood change in vacancy rates using data provided to hud by the united states postal service the u p s provides these data to hud every quarter at the block level and hud makes them available at the census track level publicly the u s p s data reflect addresses that have been vacant and not taking mail for at least ninety days well these imagery have data have anomalies they have some useful tools as well this map of cleveland here for example where the orange bands are show neighborhoods we have two which had a three percentage point increase in their vacancy rates between two thousand and five and two thousand between december two thousand and five and march two thousand and eight as you can see many of these overlap with with where a high proportion of higher live risk loans were made next met in contrast w 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 and this final map entitlement jurisdictions by the percent of census tracks within the jurisdiction that have 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 growing neighborhood concentrations of vacant housing in some eight in our veil veil public data can first identify the communities and neighborhoods that have the factors placing them at risk for vacancy in abandonment and then target the neighborhood actually experiencing increasing weight vacancy thank you very much thank you and mr kingsley please proceed thank you chairman to senate which chairwoman waters and members of the subcommittees i'm 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'm 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 an anticipated cost for residents 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 and support six points related to that goal the first is that neighborhood level spillover costs are likely to spend on how heavily the problem is concentrated as opposed to being spread out evenly across the neighborhoods in any jurisdiction 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 m 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 for closures vacancies per thousand 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 is selected basis for targeting to be reliably developed and frequently updated by federal agencies three provide data collected under rigorously enforced uniform standards nationwide and for be collected so that information can be made available for small geographic areas like  my next point is that of the data sets that meet these requirements the two probably best suited to address this septimus purposes are the home market mortgage disclosure act tom the dataset on mortgage originations and the united states 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 to 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 context most importantly the variations between comparatively strong v really weak housing markets my fifth point is to recognize that over the past few years the quality and accessibility of hyundai u s p s and other relevant data sets have market really improved i'm very different position than we were a decade ago when the us 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 systems  e c for their work with hunter and hud for its work with the u s p s 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 affective programs to address neighborhood spillover effects at the urban institute as noted we coordinate the national neighborhood indicators partnership a network of data intermediaries and thirty 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 this is the subcommittees will encourage support for the work of local groups like these since their ability to shed light on the pattern and magnitude of the 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 get microphone close here and let's make sure 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 support corporation my my organization as one of the nation's leading nonprofit investors and low and moderate income communities we strongly support h r fifty eight i mean part of my job is to provide research support or thirty local offices throughout the country in the past few months my colleagues and 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 nee naturally we've learned a few things about the strengths and weaknesses of these data so at the urging of 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 the 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've made what i believe is a promising start and pinpointing the places where foreclosures and vacancies appear to be related to one another these of course are the places where it 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 examine the patterns of loan foreclosure and bank o rate across all zip codes in the twenty largest states these data came from two proprietary sources first american loan performance news data were tabulated and supplied by the federal reserve and make dash analytics whose data service we subscribe to our analysis show that these sources are in basic agreement they generally identify the same neighborhood those places were concentrated foreclosures have occurred this is no surprise since they come from more or less the same source the largest loans securitized was in the united states now  well known that these data are incomplete the loan performance data for example are thought to cover about fifty percent of the subprime market we worried that this incomplete coverage might distort our view of where foreclosures take place to find out whether this was so we check these data against home mortgage disclosure act data on so called high cost loans including those that are sub prime a ridge nadirs of the great majority of mortgage loans are up obliged to report this information each year so their coverage of the market disappeared to that of our proprietary sources our analysis shows remarkable agreement among these sources at least in the twenty states we studied this is important for two reasons it means that data on loan performance obtained from securitize does appear not to display fatal geographic bias ease it also means that the use of the widely available honda data as a substitute for proprietary data should yield good results second we examine the patterns and housing vacancy across all census tracks in the united states using data from the united states postal service the availability of these data to researchers like me is an extremely valuable service that would provide 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 that said we got the data to behave reasonably well at least well enough to allow a test of its probable value third and finally we return to our three sources of mortgage data and examine their relationship to the vacancy data which of course was our primary goal frankly our initial reserves weren't that good producing relationships that were significant in statistical terms but weren't much better than random we made good progress so by developing neighborhood classifications that take account of typical housing patterns it's 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 aiken addresses can increase too as other new units await their first occupants this explain why we found out why we found that in some neighborhoods an increase in sub prime lending and resulting foreclosures was associated with an yes 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 sub prime loans for example the first map i show you depicts the location of high cost mortgage loans made to investors in single family housing in the detroit metropolitan area the red and orange areas others it goes 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 increase as you can see there's a pretty good correspondence between the two although it's not perfect there are some red areas that don't have a can see increases there are green and yellow areas that do we have tame slightly better results in northeastern ohio as depicted in map two so i think we've made a considerable amount of progress in a short period of time a stablish ing 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  in my view there are three basic tasks remain which i believe can be completed over the next several months first we need to expand our analysis of mortgage loan pattern performance pattern to all fifty states and improve our models so we can predict the location  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 result in don't come from foreclosures various factors affect the conversion rate from foreclosure to vacancy certain 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 are going to straighten how this would work so in sum i believe we've made great progress in a short period of time towards an effective approach to identify areas of foreclosure driven vacancy i look forward to working further with my colleagues on the panel and the support and task thank you for inviting me to speak today and i'll be happy to answer any questions you may have and thank you  to begin with the questioning and chair recognizes ms waters for five minutes 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  information that's been reported to us and many of the visits that i've had in some of these cities that the conclusions that you are arriving at mr walker are basically what i think i'm saying out there in terms of and i appreciate the fact that chairman kasich is happening us to understand how to best use these resources when we talk about fifty billion dollars it sounds like a not a lot of money but it is not a seven  had one hundred twenty three billion in property 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'm concerned about something purpose 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 up factories like cetera that's 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 factors like in st louis i was there and of course all of you know about the poor and i go projects in st louis and all of that acreage right in the middle of the city that's been abandoned for over twenty thirty years now we saw two such areas so as i understand it you recommend the land bank in and demolition be eligible use for better list systems they have state and local would governments address the foreclose that abandoned property issue i think that may be legitimate but i worry in saying though is it appears that as they approached before the foreclosure crisis this land banking not doing anything would foreclosed properties or abandoned properties for a long period of time with the idea that they would land bank and be able to plan and develop communities what we find that out of displacement people who you know were displaced nobody knows where they are and many of these areas homelessness certainly increased and this land banking the way that they have done it is they have allowed some of their properties to just deteriorate in an effort to you know come up with this ideal situation that they're going to develop some day and so land bank and 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 the stuff so that you can come up with these ideal communities how do we deal with all of that and why should we use this money for land bacon and demolition if in fact we are not going to realize some relatively quick turnaround in development and stabilization you raise a number of excellent questions one waters your points about the st louis the land bank there are quite accurate it had the same number of properties in its inventory fifteen years asked after it began as it did the day it began in contrast to tech we heard testimony yesterday from treasure daniel killed the flint michigan genesee county they are they have acquired twelve percent of the digest of the city of plant but they've 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 and l b a or a city government would always use it in the most productive fashion i'm not aware of any such guarantee but fifty eight eighteen self embodies a number of critical points that will keep that from being a likelihood first it is time limited it is sunset is designed as 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 fifty 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've got the features in fifty eight eighteen that can allow our local governments to preserve our neighborhoods it's 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 thirty and forty percent foreclosure rate thank you very much let me just ask  list would be interested in some of this rehabilitation work because like mr alexander has said that may be the highest priority rather than stablish demolition demolishing too much and you know trying to stabilize it it appears that rehabilitation a certain has great possibilities has lisbeth involved in rehab rather that new development would you willis be interested in this kind of thing is this the kind of thing that would make good sense for you chairman waters we we have left pride ourselves in supporting community based solutions to problems of neighborhoods in some communities new construction is the right solution and other communities rehabilitation is made it is more appropriate sometimes even within the same city different neighborhoods require different solutions so that's 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're prepared with the kinds of investments including the kinds of investments which would go in tandem with of the resources made available from fifty eight eighteen to support those decisions thank you very much and  government be of more support to you in the work that you're doing is there something that we could be doing over and hugged that would be more helpful over on the congressional side of government office of research inc cetera 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 is some fairly effective national level research that is supportive of the interests and supportive of helping people to do a better job of implementing fifty eight eighteen i think i'd like to give stress to giving finding a 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 and 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's 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 what to do in each of these neighborhoods in some cases is  mr walker said it's going to be rehab versus demolition but it's also how do 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 pdraig foot in san diego so i'll do the best i can to try to to use them both to our advantage when you talk about local involvement and so on is beyond fifty eighteen but  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's no state the union that doesn't have money they all have deficits but they all have money how much what's the what's the ratio you think should we be in there with fifteen billion at ten percent or twenty percent because if we get a hundred percent fifteen billion doesn't go very far can you help us understand that i think that it's 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 i would certainly the indorse the idea of some leveraging and in some sense of incentives because if local governments have a stake in this process they're obviously going to use money more wisely and i certainly endorse that well following up on that question assuming that the reason that that they wouldn't do more is that they don't have more for a moment and looking at both california with a twenty billion dollar deficit and ohio with about a twenty billion dollars budget ok so fortunately ohio as a smaller deficit but they both have downturns right now if we are to go beyond one hundred percent funding would it be better for us to if let's say we take the fifteen billion if we in fact for example made sixty billion but made forty five billion in the form of loans recognizing that better times are coming so that in fact so that they would still have equity in it in the form of debt but it wouldn't simply be it's other people's money goes spend it and if it doesn't work you have lost nothing again i think the loan grant mix combination is an awfully difficult thing  to settle across across the board but i do think that there is there is clearly a notion related to timing and the principles here out of be such that they do i think move in the direction you're talking about i mean we have a short term crisis that in which the budgets of localities are being hurt very badly in the short term so the the principle of getting them to pay for everything up front in 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 is the economy's improved that they're able to participate  mr richardson as a steward of our money if we put it out there we trust you to be a good steward of it have the programs like that historically a more effective way to leverage dollars recognizing that an empty home or a foreclosed home in cleveland ohio powered back in the california represents no revenue to the city or reduced even if it's held by a bank can we 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'd like to share in the benefit of us getting those revenues back up by loan repayment or some other process in required jurisdictions are required to have a home match but it can be waived if they can show that that they can't meet that requirement so as in this case some jurisdictions may be more able to be able to to provide assistance than others  in terms of the allocation formula another way to handle it is if you're allocating funds is to target funds in such a way that you take into account physical capacity so that a jurisdiction with higher physical capacity with perhaps equal need to another cases and these are still hardworking people who have regular jobs the homes are simply more expensive we have full confidence that we're going to have a snap back and that homes in ten years will be worth your medically more than they are today the same homes that are empty and in foreclosure should the congress be considering schemes and i mean that in a 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 would say paid back with interest when christ was restored can we in a place like san diego or temecula california in my district used techniques like that presently i don't know of any but is that something congress should be trying to make available so that we not simply throw money at a time when it's which is down and then be surprised in which those same homes are now earning people huge returns fifty eight eighteen where you have the shared appreciation concept and i'm not aware of that in any other federal loan program that a loan or grant carries with it a shared appreciation 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 a quarter of the appreciated dollar value now it's not going to be a political 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 appreciation mortgages with recapture or to focus much more deeply on the extremely low income rental housing thank you mr chairman and thank you for focusing for so long for this year and beyond on on this problem which we share although in different here the investor high cost loans by zip code you're 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're looking at the city of cleveland over those areas where they had the subprime loans and now you know this subcommittees looking at you know what's the most effective way to target any resource that would be available that's in these maps are very helpful because what it appears is that you have a high number of sub prime loans and then people are just leaving one of the things that has come up in the work of this committee and i just want to share this with members of the subcommittee you are with us today from congress and water s if you take the map that hud provides which maybe staff could put that up there go go back further take a look over v approximates the african american community in cleveland if you look at if you look at this where the 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  to our map staff go back to this map when you look at the overlaid areas of r d yes that's that should try to large that a little bit but for those of you 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 ohio large african american population you look at the areas to the south there is a red that have increasing vacant or decreasing occupied addresses same thing with the african american community in akron ohio when you look east of cleveland there's a little french of red there that's that is overlaid for increasing vacant a decreasing i q but addresses that you could ohio large african american population in your in the work of any gentleman here have you done any research that has looked at the data that has identified the racial characteristics of the people who have had this the avalanche of sub prime loans falls anybody or done that work hard there's been quite a lot of research actually on sub prime loans and its relationship to race and borrower and certainly the rate of subprime loans for minority borrowers is much much higher than it is  what has had to your knowledge ever considered a civil rights action take this data and wrap it up into a civil rights action is that a ruben talked about hud has has a new division that is looking at lending patterns of discrimination and they're using these data to try to identify lenders that look like they do and they do activities that may suggest that they're doing their lending money in an illegal fashion but i'm not the expert on that i want the subcommittee and perhaps we could do this in conjunction with this water subcommittee as well to go into this little bit more in terms of these patterns and when we had our initial work in this committee we identified that those vectors that we saw and what that what the stirs me is this and i just want to put this card on the table i was mayor of cleveland over thirty years ago i was one of the first ma america to use a community reinvestment act to see that there would be investing in inner city neighborhoods that had not had investments but it put money into banks banks were lending into community and over the years banks tried to skirt the responsibility to follow the community reinvestment act and in the sense render an analogy later on it was very apparent there were wide areas which were starved for credit they came in with the subprime products no documentation loans people are desperate to have a home now we can say you know well ok some responsibility but you know there's the issue of financial literacy that enters into this and  know it's 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 words the biggest room in people's lives my my parents never own a home where they're renters but when i had my first home huge and so we we have something that goes much deeper here than just you know i want to there's a lot of great analysis here and i appreciate it but there is a 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 in hard was aware of that because i think that we really should be looking at some of the civil rights dimensions of this because because there were lending institutions or you know where they regulate or not that's another thing we have to determine if you know regulated or not their 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 are people have lost everything i mean i mean neighborhoods in cleveland that are falling apart they're just falling apart and people who are remaining we've talked about them are having a great deal of difficulty holding on their equity so we're going to get my colleague i just want to do 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 under served 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 vice that you've accorded us again i'd like to make mention that the bipartisanship that we are witnessing is most refreshing and most appreciative to be part of it today and play some small role before going to the comments that i wanted to make in the question that i'd like to ask i think it appropriate to say also as an addendum to what you've said hundred percent right thank you and there was also another element of this that causes a great degree of consternation something called the yield spread premium y s p the you'll spread premium for purposes is a lawful kickback that an originator receives if the originator can calls the borrower to acquire a loan higher than the one the borrower qualified for qualify for a five percent get the borrower to take out an eight percent loan that originator receives now a lawful return if you will  kind that is and a monument that would he would not ordinarily receive that the person received a five percent loan that that caused a great degree of consternation as well but i want to compliment the panel you have done what intellectuals should do and that is called lay people like me to think you really have because you've given me at a level of intelligence that i had not considered prior to your comments and one of the things that i'd like to ask you is are you contemplating a bifurcated system one wherein we acquire a certain amount of imperial empirical evidence at the federal level and utilize this evidence to target a local area where and we require some entity to then share with us empirical data that we will plug into a formula is that the methodology that you contemplate or do you consummate 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 will start with you as i recognize you first and then mr alexander i think that the gist of most of our comments here suggests that there is promising in using national data to develop a formula that you could use to officially 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 to support local intermediaries to use local data to help in targeting the expenditure of those funds and also devising a fixed efficient strategies to use those funds so i guess my view was clearly that i think there's promise in being able to use national data sets to develop an equitable formula for allocating funds nationally thank you mr alexander professor representative in a sense fifty eight eighteen already good approach what you're hearing from the four of us and we really aren't in essence speaking in one voice recommending that the basic allocation formula be modif focus on concentrations of foreclosures and vacant abandoned properties in the house in fifty eight eighteen as it passed two weeks ago it has a bifurcated approach in that the approved  plan requires a focus on vacancies and likelihood of increased vacancies and higher foreclosures so you have two different levels already present in the basic structure of fifty eight eighteen and i think that's beneficial 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 leave in place the emphasis that you have placed 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 in following up on representative waters early question to me it allows for the local government to identify their action plans in order to receive the money i think preserving that local flexibility is so important thank you as i yield back my time as a chairman i sincerely thank you for your thought provoking comments that you made because again at some things will escape one who is not familiar with the regions and the maps and but for your comments i made not have picked up on this thank you thank you gentlemen chair recognizes congressman cleaver  and i'm always looking even now at what's 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  insurance companies will not insure a vacant piece of property and missouri more than sixty days and so even if the house had not  been just damaged and torn apart after sixty days the chances are high that either someone stripped the copper out or and the kitchen and bathroom and and i you know when it didn't occur to me until i saw someone who wrote down that the value of their home by fifty thousand dollars in order to sell it i'm sorry fifty thousand dollars lost because they were for a after two months that you know the house is going to be torn up so they just took a big loss and after seeing that i realize that that there's one component that we we haven't addressed and that's the whole issue of of insurance no one likes to force anybody to do anything and the people who are forced really really regret it and hate it more just companies but i think we're going to have another problem around the country related to the properties that are taken off the interest rolls because that's going to that's going to really create some some serious problems here and then when you because of demolition and it's difficult to get developers to come in and do and feel housing development projects and even when they do it creates a problem because the new housing and the older neighborhoods generally don't match the majestic old houses even in the urban core i mean you know you have a some you know cardboard housing put up next to housing that was put up one hundred years ago but it was really real well built anyway i'm unconcerned i'm not sure that's much of a question but i would like to get your response to what i've just laid out any any of you mr alexander representative cleaver you're absolutely right in a den of find that as one of the unspoken topics right now as we look at the tremendous growth of our radio 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 news in that is that the lenders holding this ario are going to have to wake up pretty quickly and be willing to convey that property to local government entities or to non profits to then rehab it and put it back into productive use i think that one of the challenges you are giving to us i think which i'm delighted to accept is to start pressing the insurance industry and the lenders on their ario policies to find out the loss of coverage or how much it's going to cost them to continue coverage when they hold property for six months and a year post foreclosure suggested that more research is needed before we'll know exactly how to use the data sets of that are available to achieve what we've done with fifty eight fifty  and it's just refreshing to hear somebody say it's coming when i'm a researcher and so if you ask me a question i'm always going to tell you that more research is needed so thank you  you mayor cleaver i just would like to do just one more for a friend of questions here before i get into this question about the datasets i just want to point something out about what mr cleaver said i'll talk to chairwoman waters about this this might be another opportunity for our two subcommittees to cooperate because we're talking about insurance and you're first person that mentioned that and it's really important that it's 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 the 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 that we're looking at a at  at the beginning of a vicious cycle and if we're talking about neighborhood restoration that discussion of insurance has to be part of it and i appreciate you bring it up i'd like to ask all the members of the panel this question the purpose of the eight authorized in r fifty eight eighty eight is to help neighborhoods now most of the data sets that you have to scotched focus at the county or the zip code levels it's a much lower level of resolution than the neighborhood or should i say it's a much higher lower so lower resolution than that than a neighborhood somewhere there has to be a common denominator a high enough level of resolution that you're targeting need to in neighborhoods but low enough that it's comparable among different data sets so what is that level of resolution is it a state or county or census tract if you like to offer your opinion on a starter mr alexander for purposes of determining concentration of foreclosures i think you must go either with census track or with zip code the 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 allocation but the variables of concentration needs to be present mr walker i think one of the beauties of the correlations we've we've pressed stablished between the foreclosure data from the proprietary sources which is available to us generally it is a code level and honda data which is available to us at the census track level is i think we can feel pretty confident using census track level data in order to establish the kinds of concentrations we've just talked about the postal service data is also available to us the census track level and so that gives us the possibility of doing which is you know i think critically important in this regard to the fire the numbers of neighborhoods within communities that are subject to that cross some threshold of concentrated foreclosure no i 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 tracts about about right and formula first off that it has to be well targeted to the goal that the congo has established second that has to be fair communities with similar levels of need to give similar amounts of money how do you know how do you know if you've got a good formula  how do you know if you have a good formula you you want to compare it against variety of you can establish a formula based on the best data that you have that's 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 a dear miss if they have the an i p 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 they give us some confidence so if we if the neighborhood stabilization act is going to be effective in equitable we want to make sure that we're targeting at the most discrete level that we can possibly do that would hold up for data analysis is that what now that's why what the problem is now i'm next your heart act to follow let me follow up on that line though because i'm very intrigued by it first of all i guess it's pretty easy to see from charts that we can figure out how many in impacted people there are in a given zip code but when we're looking at on a local control of mr kingsley i think i want to focus on that wouldn't it be true in some cases and will take cleveland cleveland heights these areas basically the side that i'm more familiar with i can think of neighborhoods where three or four streets the last time i was there and i'm about to go back and see it again and i understand it's worse but three or four streets if they were put into an economic redevelopment zone the dollars money 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 discreetly 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 interest in reversing a trend and i see a lot of heads waving did i get a four in a row here to this 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 the legislation a llows the local government discretion to spend the funds on the street level and not the next street it makes a relatively gross but pretty targeted allocations to the states and then to the qualified 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 i heard that but i didn't hear the last part with without being sued the question is is it challenge proof which is always a question for us i hate to see any of this fifteen billion eaten up with legal fees well as a law professor nothing is a challenge this is a bit over to the administration where we recognize the ability to anyone to bring a challenge but it's hard for me to see any constitutional or statutory challenge even the way you've drafted this bill ok mr king's you're chomping at the better these are my good  yes i think you're going to get another winner here because i think that's clear clearly the case and the principles we talked about was using the census track data even for the national allocation but  i was certainly advocating that once the allocation to jurisdictions are made that that other data and local knowledge be dominant in deciding exactly how to how to spend those resources in a cost effective manner ok i'm going to tell my good friend next to me that we're going to have to realize that our hearts may both be in cleveland but our constituents of the seas are in very different parts of the country and i have to ask a very difficult question  postal worker making us a postal worker salary in cleveland is from a standpoint of a postal worker in san diego rich he's doing great he has access to seventy eighty ninety thousand dollar homes hundred fifty thousand dollars or seeming mansions compared to a four hundred thousand dollar home in california how do we deal and i'm 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 four hundred thousand dollar home or three hundred twenty thousand dollars 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 generally speaking we look at this issue we do have to take into account that cost it cost different amounts of money to provide services in different parts of the country so you can establish a fine that takes into account different costs so it's just an allocation up or down based on relative costs similarly you can take into account whether a jurisdiction has the tax resource or capacity the physical capacity to address the problems itself versus another jurisdiction and you can adjust resources up or down in a formula but we often see that is the mississippi can't afford it but california can closing on my question though if it takes twice as much many dollars to fix the same twelve thousand homes in 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 the homes do cost twice as much and that's where i told my good friend that we have this dichotomy so often we have to bring out well if you're crafting language for a formula the guidance to be provided is to tell us that you if those of us who might have to develop that a flare and if it's in generally speaking is to say we need to take into account the different cost of services thank you and mr chairman we are never a party in ideology we often though in that strange conundrum that our home simply cost different amounts of these days that's true and let it be said that that being the case that the home that i live in which probably lost a quarter of its value because of foreclosures in our neighborhood since last october is like a lot and a lot of my neighbors you know they're just struggling to hold on and house i live in is you know today probably were seventy five thousand dollars chairman 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 enigma attic situation they found 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'm not sure how the formula will adjust for this for the variations in an economic status of various regions of the  service profession the goal is that the allocation for me than 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 markets but by using the three four or five variables that you've already put in the bill and that we are recommending it allows that the economic data will be reflected in in those variables the strength of the community or the weakness of the community that's the goal rich i may have a little different in your than this child zander that i'm not sure that foreclosures are exclusively an age or 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 that's accounted for because certainly in a place where you have job loss and foreclosures the risk of the house becoming making a band is much higher than an area that only of job growth and foreclosures where that house will probably be purchased by someone fairly quickly anyone else quickly make one additional comment and then a question we we understand the number of homes that may go into foreclosure we've got 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 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 turn the keys in foreclosure is a foreclosure data that we have is a very rough proxy not all foreclosures vacancies not all vacancies yield abandonment but are measures of foreclosures and not of foreclosure sales the data is a foreclosure filings and that's quite different than the number of sales and it's really between those two that we pick up what you're referring to as simply the families that turned in the keys and walked away anyone else well we do know where bank owned properties are and we know what you know so and if there's a rough measure of the of the vulnerability of a property to you know vacancy that maybe that would be it but i'd like to second what mr alexander said earlier that the fact that we're focusing on vacancies is a good captures quite a lot of we think of the economic performance of a region already so it's the exactly the right thing to do may be able to get data from the from certainly from f h a 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 thank you mr chairman your back thank you general from texas to recognize mr cleaver fine around the question i don't have any there's  eighteen and if you have the time you and your colleagues need to finish your research how would you have any suggestions as to how congress should craft its funding allocation of if we were to do  so my general commendation with crafting language for formula i'd like to look at the language for the home formula that was passed in the cranston gonzales national forego housing act of one thousand nine hundred one that language is very specific about what goals they wanted the formula to 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 mila to reflect what kinds of information we were able to gather after the law was passed so i had for you to look at section two seventeen of forty two us the twelfth seven four seven it certainly has pretty model language for a formula that they get you what you want that gives us some flexibility to make sure we can accomplish what you want and the other comments before we move adjourn this i want to thank all of the panelists your expertise has been quite valuable in getting this these two subcommittees the opportunity to focus in on what's the appropriate way we proce in this situation that we're in and i want to thank each of you for the dedication that you have to this very serious question it's inevitable that when we make these decisions we want to make sure that it's grounded in solid research and that the research  available as we try to craft the appropriate formula so thank you i'm 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 were here today and including mr green and mr cleaver thank you for your presence and your participation the title of today's hearing was targeting federal aid to neighbor to neighborhoods distressed by the subprime mortgage member very supportive of this reach deeply into meeting the challenges of this sub prime 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're 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