U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office,

http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,

U.S. Government Printing Office. Phone 202–512–1800, or 866–512–1800 (toll-free). E-mail, gpo@custhelp.com.

61–994 PDF 2010

S. HRG. 111–773 

LEGISLATIVE PROPOSALS IN THE DEPARTMENT 

OF HOUSING AND URBAN DEVELOPMENT’S 

FISCAL YEAR 2011 BUDGET REQUEST 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

ON 

DISCUSSING LEGISLATIVE PROPOSALS IN THE DEPARTMENT OF 

HOUSING AND URBAN DEVELOPMENT’S FY 2011 BUDGET 

APRIL 15, 2010 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

CHRISTOPHER J. DODD, Connecticut, Chairman 

TIM JOHNSON, South Dakota 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

EVAN BAYH, Indiana 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

RICHARD C. SHELBY, Alabama 

ROBERT F. BENNETT, Utah 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

KAY BAILEY HUTCHISON, Texas 

JUDD GREGG, New Hampshire 

EDWARD SILVERMAN, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director and Counsel 

BETH COOPER, Professional Staff Member 

JONATHAN MILLER, Professional Staff Member 

DEVIN HARTLEY, Legislative Assistant 

DREW COLBERT, Legislative Assistant 

CHAD DAVIS, Republican Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

LEVON BAGRAMIAN, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)
C O N T E N T S 

THURSDAY, APRIL 15, 2010 

Page 

Opening statement of Chairman Dodd .................................................................. 1 

Opening statements, comments, or prepared statement of: 

Senator Shelby .................................................................................................. 4 

WITNESSES 

Shaun Donovan, Secretary, Department of Housing and Urban Development . 5 

Prepared statement .......................................................................................... 32 

Response to written questions of: 

Chaiman Dodd ........................................................................................... 48 

Senator Shelby ........................................................................................... 50 

Senator Schumer ....................................................................................... 51 

Senator Menendez ..................................................................................... 54 

Senator Bennet .......................................................................................... 54 

Senator Crapo ............................................................................................ 60 

Senator Corker .......................................................................................... 61 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Prepared statement of Marty Shuravloff, Chairman, National American Indian Housing Council ........................................................................................... 66 

Letter from the National Association of Housing and Redevelopment Officials 71 

(III)

(1) 

LEGISLATIVE PROPOSALS IN THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT’S FISCAL YEAR 2011 BUDGET 

REQUEST 

THURSDAY, APRIL 15, 2010 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee convened at 9:39 a.m. in room 538, Dirksen Senate Office Building, Christopher J. Dodd, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

Chairman DODD. The Committee will come to order this morning, and let me welcome all of you who are gathered here in our 

hearing room this morning, my colleagues who are here, as well, 

and, of course, to welcome the Secretary of Housing. We are going 

to have a hearing this morning on legislative proposals in the Department of Housing and Urban Development for their 2011 budget 

request, and we are delighted, Mr. Secretary, to have you with us 

once again in the Committee hearing. 

I am going to take a couple of minutes with some opening comments. I will turn to my friend and colleague from Alabama, Senator Shelby. There are not a lot of us here, so Jack and Jim, if either of you want to make a couple of opening comments, I would 

be glad to entertain those, as well, before we hear from the Secretary if you so desire. 

Let me first of all begin by thanking the Secretary for being with 

us again today. I have had the pleasure of traveling with him in 

my own State, as I am confident some of you have, as well, meeting 

with housing authorities and some of the families and community 

leaders on the front lines of the foreclosure crisis that we have 

been dealing with over the last 38 or 39 months that I have been 

Chair of this Committee. 

I know the Secretary is passionate about creating affordable 

housing and economic opportunity for all Americans and I am looking forward to this discussion about legislative proposals in the 

HUD budget request. Secretary Donovan brings us this budget and 

these legislative priorities at a time of great need, as we all know, 

for American families and the local governments they rely on for 

basic services across our country. 

The March 2010 unemployment rate stood, as we all know, just 

shy of 10 percent, 9.7 percent, an improvement over previous 
2 

months, but still way too high, as all of us would acknowledge. Unemployment, of course, puts a severe strain on families’ ability to 

afford housing. And sadly, recent HUD data indicates a troubling 

increase in family homelessness. Homeless service organizations in 

my State alone, and I am sure in States around the country, report 

that shelters are full, way beyond their capacity today, tragically. 

In Connecticut, organizations coordinating the Homeless Prevention and Rapid Rehousing funding provided by the Recovery Act 

tell me they are overwhelmed with requests for assistance. With 48 

of the 50 States facing budget shortfalls and local governments 

struggling in the face of declining revenue, there simply aren’t resources available at those levels to address the problem properly. 

And that is why HUD’s work is so important. For far too many 

American families, these Federal programs alone will make the difference between hope and homelessness, between prosperity and 

poverty. 

The Transforming Rental Assistance, TRA as it is called, proposal is an effort to streamline HUD’s rental assistance programs, 

preserve affordable housing, and provide more choices for families 

receiving assistance. In the initial stage, as I understand it, this 

proposal would convert 300,000 units of public and assisted housing to Rental Assistance Contracts better positioned to leverage 

private funding. I know that this proposal is still under development, but I hope you can update us on its progress. 

And let me just add here, if I can, editorially, I want to commend 

you, Mr. Secretary. You know, one of the things we don’t get 

enough of in this town is creative and imaginative thinking, how 

to address issues. I was going over last evening very late the estimated cost of just maintenance of public housing, and the number 

you hear is $20 billion, but many tell me that number is way below 

what it actually may be when you consider the units around the 

country. We need to be more creative. We are never going to have 

an appropriation year—unfortunately, I might add, others may disagree with this—to have a maintenance of the kind of dollars we 

need to put that housing stock in better shape. 

So being creative about how you do this, convert this in a way 

that gives some leverage and some opportunity for equity to move 

into this thing, I commend you for. I think it is the kind of an idea, 

as you develop this, and working with all of us up here, you might 

develop some very broad bipartisan support for what you are 

achieving. And I know there are groups out there that are anxious 

about what you are suggesting. I commend you for it. I think it is 

terrific we have got someone in this job who is trying to figure out 

ways creatively to sort of get this stuff in a better position than it 

is in. Others may want to comment on this, but I just have a lot 

of high regard for what you are suggesting. As I say, I know it is 

in development. We look forward to hearing from you today about 

it. 

I am also very excited to know more about your Choice Neighborhoods Initiative, which would expand HOPE VI public housing revitalization efforts to a more comprehensive approach that also includes assisted housing and critical community facilities. Meanwhile, the Catalytic Investment Grants will provide competitive 
3 

funds to communities embarking on economic development 

projects. 

The Secretary’s budget also proposes recapitalizing the FHA Mutual Mortgage Insurance Fund. FHA is playing an important role 

in our housing market during this downturn and I am interested 

in the Secretary’s thoughts on how we can strengthen not just the 

program’s fiscal health, but its risk management and enforcement 

tools to protect consumers going forward. 

I would also like to hear more about the recently announced 

changes to programs like the HOME Affordable Mortgage Program 

and the FHA that helps out underwater borrowers. 

Finally, I would like to offer a few thoughts, if I can, on some 

of the numbers that accompany the legislative proposals in the 

HUD budget. First of all, Mr. Secretary, on behalf of the families 

helped by these programs, I want to thank you and your office and 

your staff for the efforts to maintain funding levels in the Section 

8 tenement-based voucher and project-based assistance programs 

as well as the Public Housing Operating Fund. In addition, I welcome the Administration’s support for $1 billion to capitalize the 

Housing Trust Fund to create and preserve affordable housing for 

the lowest-income families in our country. I strongly support this 

funding and want to work with you and the Administration to see 

to it we get it done before this Congress adjourns. 

And it wouldn’t be a Banking Committee hearing if I didn’t mention my excitement, as well, regarding the Sustainable Communities Initiative, closely aligned with the legislation I have offered, 

the Livable Communities Act. This important initiative, which 

helps communities develop integrated transportation and development plans, would greatly benefit from the $150 million requested 

in the HUD budget. 

However, I am concerned about some of the proposed cuts, and 

I would be remiss if I didn’t mention them to you, as well, especially in the 202 and 811 housing programs for seniors and persons 

with disabilities, particularly in light of our recent hearing that 

demonstrated tremendous needs for such housing. I have similar 

concerns about proposed cuts in the Public Housing Capital Fund, 

Native American Housing Block Grants, and the HOME funds, 

each of which help preserve or create affordable housing in our 

communities. 

Obviously, there is an awful lot to talk about with all of these 

initiatives, but again, we are, I think, truly fortunate to have you 

in the job that you are in. I know Jack Reed is probably going to 

want to talk about the flood issues, but we weren’t hit as hard in 

Connecticut, although parts of my State were, and I will leave that 

to him. But there were some hard-hit communities in our States 

in the Northeast—Massachusetts and Rhode Island particularly— 

and we want to raise some issues with you there, as well. But 

nonetheless, you should know we have had some cooperation from 

your office on looking at our issues in these States and it will be 

important to us, as well. 

With that, Senator Shelby. 
4 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Mr. Chairman. Good morning, Mr. 

Secretary. 

Secretary DONOVAN. Good morning. 

Senator SHELBY. While our hearing today is intended to cover 

the HUD budget for the next fiscal year, I would like to begin by 

highlighting the fact that the budget does not—does not, Mr. Secretary, as you know—address the future of the GSEs, Fannie Mae 

and Freddie Mac. For over a year and a half now, the Federal Government has been running Fannie Mae and Freddie Mac in conservatorship. Together, they represent combined books of business 

of nearly $5.5 trillion and own mortgage investments of nearly $1.5 

trillion. The taxpayer exposure to these entities is massive, as you 

well know. 

While these entities were at the center of the facility crisis, they 

were not included in the Administration’s financial regulatory reform proposal presented to the Congress last fall. We were told 

then that we could expect it to be submitted with the President’s 

budget around February of this year. I don’t believe that happened. 

Shortly after the budget submission arrived, Secretary Geithner 

indicated that there would not be any proposals coming prior to 

2011. In fact, just yesterday, the Administration finally asked for 

public comment on the issue. And while this is a much needed step 

in this process, I believe it should have occurred at least a year 

ago. The GSE question, Mr. Secretary, as you well know, is simply 

too important to be treated as an afterthought. 

Secretary Donovan, I also look forward to hearing your thoughts 

regarding the status of the FHA Fund and your legislative proposals to address its financial stability. The FHA capital ratio has 

fallen to a record low of 53 percent, barely covering a slip in the 

negative territory. You have taken steps to address this situation, 

and I appreciate that, and it is important for you to discuss, I 

think, how you arrived at those measures, and perhaps most importantly, for you to describe what dangers you see for the future 

of the fund if no action is taken. 

I look forward to your testimony today. 

Chairman DODD. Thank you very much, Senator. 

Do any of my colleagues want to make any comments here at all? 

None at all? 

Mr. Secretary, the floor is yours. We are anxious to hear your 

thoughts. You are our only witness today, but we would ask you 

not to go on too long. There is a lot of ground to cover. All your 

materials and things that will be important for the record will, of 

course, without objection be included in the record, as it will be for 

all of my colleagues, any thoughts, comments, materials, whatever. 

Senator SHELBY. Mr. Chairman? 

Chairman DODD. Certainly. 

Senator SHELBY. I have got to go to an appropriations hearing to 

deal with the FBI in a few minutes and I wondered if I could ask 

that my questions of the Secretary be included in the record. 

Chairman DODD. Absolutely. 

Senator SHELBY. Thank you. 

Chairman DODD. Absolutely. 

Welcome. 
5 

STATEMENT OF SHAUN DONOVAN, SECRETARY, DEPARTMENT 

OF HOUSING AND URBAN DEVELOPMENT 

Secretary DONOVAN. Thank you, Mr. Chairman, Ranking Member Shelby, Members of the Committee. Thank you for the opportunity to testify regarding the fiscal year 2011 budget for the Department of Housing and Urban Development, ‘‘Investing in People 

and Places.’’ 

I appear before you to discuss this budget and HUD’s related legislative proposals in a far different environment from just 1 year 

ago. At that time, the economy was hemorrhaging over 700,000 

jobs each month, housing prices were in freefall, and credit was frozen solid. Many respected economic observers warned that a second 

Great Depression was a real possibility. Meanwhile, communities 

across the country, from central cities to newly built suburbs to 

small town rural America, struggled to cope with neighborhoods 

devastated by foreclosures, even as soaring jobless rates and an 

eroding tax base crippled their ability to respond. 

One year later, though, while there is still clearly a long way to 

go, the nation’s housing market has made significant progress toward stability and there are growing reasons for optimism about 

the economy more broadly. Through coordinated efforts by Treasury, HUD, and the Federal Reserve, the Administration’s goal has 

been to promote stability, both for the housing market and homeowners. 

To meet these objectives, the Administration developed a comprehensive approach using State and local housing agency initiatives, tax credits for homebuyers, Neighborhood Stabilization and 

Community Development programs, mortgage modifications and refinancing, as well as support for FHA and the broader mortgage 

market. 

Allow me to briefly explain what halting the slide in home prices 

and the Administration’s measures to assist responsible homeowners have meant to America’s families and communities. 

Homeowner equity started to grow again in the second quarter of 2009 and to date has increased by over $1 trillion, or $13,000 

on average for the nation’s nearly 78 million homeowners, bolstering seniors’ retirement savings, restoring an important source 

of college tuition support, and helping entrepreneurs start small 

businesses. And, of course, the economy created 162,000 jobs last 

month, the best jobs report in 3 years. 

The Federal Housing Administration, or FHA, has been essential 

to the improved outlook, in the past year helping more than 

800,000 homeowners refinance into stable, affordable fixed-rate 

mortgages, protecting an additional half-million families from foreclosure through its own foreclosure mitigation program, and guaranteeing approximately 30 percent of home purchase loan volume 

and fully half of all loans for first-time homebuyers. 

Nonetheless, it must be acknowledged that with FHA’s temporarily increased role in the housing market comes increased risk 

and responsibility. That is why FHA’s fiscal year 2011 budget represents a careful, calibrated balancing of FHA’s three responsibilities. First, providing responsible home ownership opportunities; 

second, supporting the housing market during difficult economic 

times; and third, ensuring the health of the MMI Fund. 
6 

FHA recently proposed a series of measures to mitigate risk and 

augment the MMI Fund’s capital reserves: First, to increase the 

mortgage insurance premium and recalibrate the relationship between the up-front and annual premiums; second, to raise the combination of FICO scores and downpayments for new borrowers; 

third, to reduce seller concessions to industry norms; and fourth, to 

implement a series of significant measures aimed at increasing 

lender responsibility and enforcement. We look forward to working 

with this Committee on legislation in this area. 

The changes to FHA programs proposed in the budget will lead 

to increased receipts. As you know, the Congressional Budget Office recently released its re-estimate of the President’s 2011 budget, 

including their view of the impact of the foregoing steps. Although 

the CBO re-estimate included a more conservative assessment of 

how new loans made through FHA’s MMI Fund would perform in 

coming years, both CBO and the Administration forecast that with 

our proposed FHA changes, such activity will result in net receipts 

to the government. This will help the fund get back on track to be 

capitalized with the statutorily mandated 2 percent of insurance in 

force. 

With my remaining time, allow me to highlight some key legislative initiatives in the budget proposal. The first is HUD’s multiyear effort called Transforming Rental Assistance, or TRA, and I 

want to thank you, Mr. Chairman, for your supportive comments 

about it in your opening statement. It does not take a housing expert to see that HUD’s rental assistance programs desperately need 

simplification. HUD currently provides rental assistance to more 

than 4.6 million families through more than 13 different programs, 

each with its own rules administered by three different operating 

divisions. 

In my career both in the public and private sectors, it was a constant struggle to integrate HUD’s rental assistance streams and 

capital funding resources into the local, State, and private sector 

financing that was necessary to get the job done. The status quo 

for these programs is no longer an option. With a public housing 

program that has unmet capital needs upwards of $20 billion, now 

is the moment to permanently reverse the long-term decline in the 

nation’s public housing portfolio and address the physical needs of 

an aging assisted stock. 

This initiative is anchored by four guiding principles. First, that 

the complexity of HUD’s programs is part of the problem and that 

we must streamline and simplify them so that they are governed 

by a single, integrated, coherent set of rules and regulations that 

better aligns with the requirements of other Federal, State, local, 

and private sector financing streams. 

Second, that the key to meeting the long-term capital needs of 

HUD’s public and assisted housing lies in shifting from the Federal 

capital and operating subsidy funding structure we have today to 

a Federal operating subsidy that leverages capital from private and 

other sources. 

Third, that bringing market investment to all of our rental programs will also bring market discipline that drives fundamental reforms. Only when our programs are built, financed, and managed 
7 

like other housing will we be able to attract the mix of incomes and 

uses and stakeholders that we need. 

And fourth, we must combine the best features of our tenantbased and project-based programs to encourage resident choice and 

mobility. TRA reflects HUD’s commitment to complementing tenant mobility with the benefits that a reliable, property-based, longterm rental assistance subsidy can have for neighborhood revitalization efforts and as a platform for delivering social services. 

To be clear, this commitment to tenant mobility isn’t about old 

ideological debates about place-based versus people-based strategies. To help vulnerable families living in neighborhoods of concentrated poverty and segregation, we need the best of both approaches, complementary rather than oppositional strategies that 

both empower families with a real choice to move to other neighborhoods of lower poverty and greater opportunity with the supports they need to succeed or to remain where they are and benefit 

from successful revitalization efforts. 

Accordingly, in addition to this mobility element of TRA, the 

budget proposal includes significant place-based investments. First, 

we have transmitted to the Committee a legislative proposal for 

Choice Neighborhoods, an initiative that seeks to make the redevelopment of distressed public and assisted housing the anchor of 

broader community development efforts. Choice Neighborhoods 

builds and expands on the lessons of HOPE VI, not only that investment at scale can affect dramatic change at the community 

level, but also that for an investment to be game changing, it must 

take into account more than just distressed public housing and 

more than housing alone. Communities must be able to revitalize 

a problem project that is dragging down a neighborhood without regard to the arbitrary distinction of which HUD funding stream 

happens to fund it. Similarly, without provision of the supportive 

services that participating families need to improve their lives or 

ready access to the community assets that help build social and 

human capital, from parks to transit and others, comprehensive 

neighborhood revitalization initiatives are doomed. 

Second, in attempting to carry out such comprehensive initiatives, communities have long been hampered by the lack of a placebased targeted tool for creating jobs, an economic development 

counterpart to HOPE VI, if you will. That is why our budget proposes $150 million for a catalytic investment fund designed to help 

distressed communities reorient their economies for the 21st century. 

Third, HUD can’t afford to make housing investments in isolation from community development investments, particularly when 

so many communities are ahead of us in terms of combining housing, economic development, and transportation. That is why it is so 

important that we launched our Sustainable Communities Initiative in 2010 to support these efforts. Chairman Dodd, I know how 

deeply you understand and are committed to encouraging integrated, environmentally sustainable, and socially and economically 

inclusive planning and investments in all of these areas. I look forward to working with you on your legislation relating to the Department’s new Office of Sustainable Housing and Communities 

and a broad range of related issues. 
8 

With that, Mr. Chairman, let me cover one more issue and then 

finish my testimony. As you said at the beginning, we have had to 

make difficult choices in this budget, but I believe that we have 

targeted resources where the Department gets the biggest bang for 

the buck, and nowhere is this more clearly reflected than in the 

area of homelessness. I would like to thank Senator Reed and the 

leadership of this Committee for literally years of work to restructure and modernize these programs to reflect over two decades of 

research and on-the-ground experience. 

As you know, these efforts came to fruition in May of last year 

with enactment of the Homeless Emergency Assistance and Rapid 

Transition to Housing, or HEARTH, Act. Fiscal year 2011 marks 

the first year of implementation of the HEART Act, and the Department’s proposed funding level, an increase of nearly $200 million, will enable local homeless assistance planning and implementation collaboratives known as continuums of care to begin to do so 

by better addressing the unique dynamics of homelessness in rural 

communities and by implementing evidence-based practices, such 

as permanent supportive housing and homelessness prevention. We 

look forward to working with the Committee to facilitate smooth 

implementation of the HEARTH Act. 

With that, let me conclude my testimony and I look forward to 

your questions. 

Chairman DODD. Well, thank you very much, Mr. Secretary. 

Let me express apologies for Senator Shelby. He has a hearing 

with the Director of the FBI in the Appropriations Committee at 

this hour, beginning in 2 minutes, and so he apologizes for not 

staying. He has a series of questions that he will submit for the 

record and I would ask for you to respond to them as soon as you 

have a chance to, as well. We thank you for that. 

Chairman DODD. Let me just begin, if we can, and thank you for 

your testimony. There is a lot of ground to cover. But obviously, the 

issue of foreclosure prevention is still an issue. It was the subject 

of, I think, almost a—well, Jim Bunning and Jack Reed were having hearings on it before I became Chairman. In 2006, I think, Jim, 

was when you were talking about some of those issues. When I became Chairman in January of 2007, they were the first series of 

hearings we had, on the foreclosure issue, and regrettably, it is still 

with us. 

I would like to commend the Administration. I know you are trying very hard on the expansion of the tools to address this crisis 

and I want to delve in a bit deeper, if you can, to these issues, if 

I may. The tail is still wagging the dog, it seems to us in many 

ways, and it seems that the holders of the second mortgages, who 

happen to be the services, as well, in many cases, are making the 

decisions regarding loan modifications. And we all knew about 

that. This wasn’t a surprise. It was one of the real concerns we had 

in the various legislative proposals, how are we going to get over 

that hurdle of the second mortgage holders in order to protect their 

interest. They are hurting both, of course, we believe, the homeowners and the first lien holders by preventing more substantial 

forgiveness. I wonder what we might do about that. Have you given 

some thought to that, to get over that hurdle? 
9 

And second, the new FHA program you announced to help underwater borrowers has some real potential to help, but it carries with 

it real risk to the FHA fund. And again, this is subject matter others have raised here. I wonder if you might address how you protect the fund, which, as you know, is in somewhat precarious 

shape, to put it mildly. Both those questions. 

Secretary DONOVAN. Sir, to begin with your question, the first 

piece around the issue of modifications and the second liens, the 

second liens are a critical issue. Our estimate is that about half of 

troubled borrowers have second liens, and for underwater borrowers, the deeper underwater they are, the more problem that the 

second liens are in terms of the extent of debt that is on those 

properties. 

I do think that there are issues around how those second liens 

are being valued and held on the books of many of the banks, and 

that is an issue that I know both here and on the House side that 

there has been discussion of. Obviously, that is not something that 

is within HUD’s power or even the Administration’s power, given 

the independence of the regulatory bodies, to be able to change. 

However, I do think that is a piece of the issue. 

We are attacking the problem, however, with a second lien program that went into effect a few weeks ago. All of the major banks 

have agreed to participate, which means that they are required 

when they evaluate—a first lien is evaluated for a modification, 

that the second lien must be modified, as well, if it meets the criteria of the program. And so I think that will be an important step 

in helping us. I think that, combined with a number of other steps 

that we have taken, is accelerating the pace of modifications. 

There is no doubt the program was slower than we would have 

liked to get started. It took quite some time for the servicers to add 

staff and to tool up for the program. But as we announced yesterday, we did 60,000 permanent modifications over the last month 

and have over 100,000 that are completed and awaiting signature 

from the homeowners, which means that we have a total of over 

330,000 permanent modifications that have been completed in 

terms of processing. So substantial progress that we have made. 

And I would add that the pace—there is much confusion about 

this. The number is often quoted of millions and millions of homeowners at risk. Those are often delinquent homeowners. When we 

really look at the number of foreclosures that are happening, the 

number of permanent modifications we are doing a month now 

roughly equals the number of foreclosures. So we are getting to a 

significant scale in terms of the program. 

And finally, I would just add, it was clear from the beginning of 

this program—the President said it himself when he announced 

it—we can’t stop every foreclosure, nor should we. We have a significant number of foreclosures that are second homes, investor 

properties, that are vacant already, and so we will—and, frankly, 

some homeowners who simply cannot afford, even with reduced 

prices and modification, their homes. So we believe that we are getting to a scale that this program was targeted at. It is not a silver 

bullet, but that combined with the other efforts, we believe, can 

make a real difference. 
10 

Finally, just on the FHA fund, we did announce a targeted effort 

to expand our refinancing to make sure that underwater borrowers 

could get some assistance, given that is an increasing problem leading to foreclosures today. But I want to be very clear. This is 100 

percent fully underwritten FHA loans. We will not be taking onto 

the FHA Fund any of the underwater amounts. We are requiring 

private write-downs of the debt in order to qualify. At least 10 percent of the debt must be written off. And FHA will only insure our 

traditional amount under the program. 

And we have also worked with Treasury. They will be providing 

some support from TARP to ensure that a portion of the losses on 

those loans are covered, not by the FHA Fund but by TARP. So 

that will help to ensure that the progress we are making on the 

FHA Fund continues. 

Chairman DODD. Well, I thank you for that response, and I want 

to commend you again for the efforts being made. It has been a 

long time coming. An awful lot of people suffer terribly because we 

did not have more aggressive action early on where this could have 

made a difference. 

Let me just quickly, and then I will turn to my colleagues. I have 

a number of questions. But the Section 8 Voucher Reform Act, I 

know you are familiar with this. In the coming weeks, I am going 

to reintroduce that Section 8 program. In previous Congresses, 

when you were in a previous position, you actually appeared to testify about SEVRA as a witness at the table. Can you tell us how 

this legislation might work? And, again, just take a minute or two 

here to address the value of this particular program. 

Secretary DONOVAN. SEVRA is absolutely critical, and I think 

really there are two things that I would highlight about it above 

the other elements of the bill. There are many things in there; I 

will not touch on all of them. But, first of all, one of the things that 

it does is to streamline and simplify the Section 8 voucher program, eliminating some of the complexity in income calculations, 

eliminating some of the unnecessary oversight that we have, for example, with senior properties or other properties that are in good 

condition, not requiring the same frequency of inspections and focusing our enforcement efforts more frequently on those properties 

that truly have physical issues, so a better targeting of our resources and a simplification that will allow the program to function 

more effectively and, frankly, allow more private owners to participate because it will remove barriers to participation. 

The second thing I would highlight is that for too many years we 

have seen changing rules and requirements about the funding formula for Section 8, which has led to substantial gyrations in the 

program. Many families have either lost their vouchers or have 

been at risk of losing their vouchers because of that. And we need 

to get to a simple. stable, effective funding formula for the voucher 

program. SEVRA would accomplish that, and I think that is an absolutely critical thing going forward during a time of real fiscal constraints, as you know. 

Chairman DODD. And last, I just want to—because I made such 

a point of your transforming the rental assistance program—and, 

again, I think I like this idea so much because it gets us away from 

this notion that we are going to—I think politically unrealistically 
11 

that we are going to provide the kind of resources for maintenance 

in these areas. But the program is contingent upon a private sector 

interest in the program to generate the kind of investment necessary to preserve public housing. Give us some reason why we 

ought to have some confidence and faith in that, in this idea, because obviously that is the critical component, it seems to me. 

Secretary DONOVAN. Well, I think it clearly is about attracting 

capital, and just to be clear, it is not just private capital. There are 

a whole range of other sources—low-income housing tax credits or 

others—which are, frankly, almost impossible to use today in concert with public housing. And so we want to open it up so that 

there is a broad range of sources that are available. 

The second thing that I would say is that one of the real fundamental problems that we have had is that it is very, very difficult 

with public housing not just to integrate a mix of incomes, have 

working families, moderate-income families, even market rate 

units, that could be mixed with those units, which I think we have 

seen through HOPE VI and other efforts is enormously effective in 

creating more sustainable communities. But the other problem is 

if you want to locate a grocery store, if you want to locate a whole 

range of other uses within public housing, because it is financed, 

developed, managed, frankly, in a parallel universe from the rest 

of the way that all other real estate is created, managed, financed 

in this country, it is extremely difficult to create the kind of diverse 

viable neighborhoods out of public housing that I think we would 

all want. 

And so really what we are talking about, I think, this has happened in every other kind of affordable housing, in tax credits and 

everything else, where you can integrate it effectively into a community. What we are talking about is bringing public housing and 

our other legacy programs into the 21st century, really, and getting 

them away from this parallel universe that they exist in today to 

create really viable neighborhoods in the long term. 

Chairman DODD. Well, that is great. I am very impressed by it. 

Jim? 

Senator BUNNING. Thank you, Mr. Chairman. Welcome, Secretary Donovan. 

Secretary DONOVAN. It is good to be with you. 

Senator BUNNING. Some disturbing news just was released at 

8:30 this morning that new claims for unemployment went up 

28,000 from last week to 478,000. I know that does not do anything 

but say that, oh, my God, maybe the holidays had something to do 

with it. But the trend has been the other way, going down. And I 

listened to Chairman Bernanke’s assessment of the economy in the 

speech he made yesterday, and he was pretty optimistic, as optimistic as I have ever seen him, which is not very optimistic. He 

said some things, that we are in a sustained recovery, unemployment is going to lag, and all these good things that most of us that 

are sitting around this dais understand fairly well. 

My question to you is: If we are going to do a financial reform 

bill and we have got these GSEs, especially these two giant GSEs 

that deal with most of the mortgages that we have in this country 

right now, Fannie and Freddie, I am troubled that the Administration has not put any plan or any complete plan to deal with them, 
12 

but for now, in your humble opinion, do you have any idea how 

much it is going to cost the taxpayers in respect to Fannie and 

Freddie in whatever we do? 

Secretary DONOVAN. What I would say—— 

Senator BUNNING. I know that is not in your bailiwick, but I am 

asking you as a person who deals with housing. 

Secretary DONOVAN. Absolutely. Currently, under the agreements that were created when Fannie Mae and Freddie Mac were 

taken into conservatorship, as you know, before we came into office, about $125 billion has been advanced to the GSEs. So it is an 

enormous sum. And that is why reform of the GSEs is so critically 

important. And I want to be clear. I testified yesterday in front of 

the House. We discussed the four key principles and objectives for 

reform, nine different characteristics that we think the future 

housing finance system needs to have, and launched a public comment process, as we had mentioned earlier. 

Senator BUNNING. Do you actually believe that we can reform 

Fannie and Freddie in their current form? 

Secretary DONOVAN. I think it is pretty clear that the form of not 

just the GSEs but of the broader housing finance system must 

change. Let me just say one thing, though, and make a point. 

One of our concerns, while reform is absolutely essential, is that 

the market is still quite fragile. In fact, in Bernanke’s testimony, 

he said that housing was still one of the areas of concern. 

Senator BUNNING. Yes, he did. 

Secretary DONOVAN. And to be clear, all of those—the losses that 

I talked about of the GSEs are losses on loans that—the terrible 

loans that they should never have taken on, before they were taken 

into—loans that were made before they were taken into conservatorship. So every indication we have is that loans they are 

making today with improved underwriting standards are not going 

to result in losses to the taxpayer. 

Senator BUNNING. I have a follow-up then on that because you 

mentioned FHA. 

Secretary DONOVAN. So let me just—I think the key point is that 

if we do something that is too precipitous with the GSEs that 

causes at this point—because they are critical to our stability right 

now—that causes the market to take another downturn, we risk actually increasing the losses to the taxpayer. And that is why we believe while reform is absolutely essential and we are moving forward on that, we have to be careful and deliberative about how we 

achieve that reform and what the transition is because we do not 

want to increase losses to the taxpayer based on creating a double 

dip in the market given how fragile it—— 

Senator BUNNING. As long as there are GSEs, though, we have 

that risk. As long as there are government-sponsored enterprises, 

we are on the hook. 

Secretary DONOVAN. I would also point out, though, that we believe strongly we want to get the private market to come back as 

quickly as possible. Many of the changes that we are making in 

FHA and otherwise are helping to do that. I would be happy to talk 

about some of the early signs of that. But until the private market 

fully comes back, eliminating the GSEs would mean a significant— 

today eliminating them—— 
13 

Senator BUNNING. There has got to be a transition time. 

Secretary DONOVAN. Right. 

Senator BUNNING. We all know that. I mean, most of us do, anyway. Right now, FHA is the only source of low down payment mortgages. It is the only source. In effect, FHA has replaced at a smaller scale the subprime mortgage market for home purchases and refinances. Does it concern you that the only way to prop up the 

housing market is to put the taxpayer on the hook and allow the 

banks to keep writing mortgages without taking any risk? 

Secretary DONOVAN. Senator, let me just disagree with you on a 

fundamental point that you made. FHA is not making subprime 

loans. 

Senator BUNNING. I did not say they were. I said they are the 

only source right now—— 

Secretary DONOVAN. I would not describe any of the loans that 

we are making as subprime. 

Senator BUNNING. Then there is not any. 

Secretary DONOVAN. These are fully underwritten, 30-year fixedrate loans, and to be clear—and I mentioned this in my testimony—— 

Senator BUNNING. At 100 percent of value? 

Secretary DONOVAN. We do not make a single loan at 100 percent 

of value. 

Senator BUNNING. I did not think so. 

Secretary DONOVAN. And, in fact, we have—— 

Senator BUNNING. But Fannie did, Freddie did. 

Secretary DONOVAN. And, unfortunately, FHA did through sellerfunded down payment and other means, which have been stopped. 

In fact, we increased our down payment requirements recently, and 

I think it is critical to say that we are strengthening risk management, taking a number of steps, and all observers who have looked 

at this believe—our independent actuary, CBO, others—that we 

will actually return money to the taxpayer on loans that we are 

making today. 

Senator BUNNING. You talked about—do you anticipate any loss 

out of the money you are going to get to use from TARP? Or is that 

going to be money that is going to return money to the taxpayer? 

Actually, it does not return money to the taxpayer because it is all 

borrowed. But the fact of the matter is, is there any return anticipating on the TARP money you were talking about a little before? 

Secretary DONOVAN. What I can tell you is we do expect some 

losses on these loans, as you would with any kind of lending. We 

have established that funding as a backstop in case the losses are 

higher than we would have otherwise expected. 

Senator BUNNING. The last question. Mr. Chairman, I know I 

went over. 

Do you agree that low down payment and no down payment 

loans were a significant contributor to the housing bubble? 

Secretary DONOVAN. I would agree, yes, they were a contributor. 

Senator BUNNING. Well, if that is the case, then we have got to 

make sure that we do not do it over again. 

Secretary DONOVAN. I agree, and that is why we have strengthened our requirements and are continuing to do so. 

Senator BUNNING. OK. Thank you. 
14 

Chairman DODD. Thank you very much, Senator. 

Senator Tester, you are next. 

Senator TESTER. Well, thank you, Mr. Chairman. Are you sure? 

I think Senator Reed came in ahead of me. 

Chairman DODD. I am just following—— 

Senator TESTER. Yes, I know you are, but in a sense of fairness— 

and, Senator Reed, we live on the same floor, and I do not want 

him working me over. 

[Laughter.] 

Chairman DODD. You are going to do so well here in the years 

ahead. Jack, go ahead. 

Senator REED. I can just visualize me punching Jon in the knee. 

[Laughter.] 

Senator REED. Thank you very much, Senator Tester. 

Chairman DODD. Although a guy who is airborne, I would be 

careful on the punches in the knees, though. 

Senator REED. Thank you, Mr. Secretary, not only for your testimony but for your leadership. I also want to thank you and your 

staff for the assistance around the flood that Senator Dodd mentioned. Nancy Smith Greer, who is the HUD representative, has 

done a remarkable job. 

Secretary DONOVAN. She is terrific. 

Senator REED. She has been on the ground. I am trying to keep 

up with her as she runs around to different communities to see 

what can be done, and we really appreciate the effort. I also want 

to thank you for the assistance you have given to us in the new 

hardest hit fund going to Rhode Island for foreclosure. We have 

12.7 percent unemployment, and as I said in a previous meeting, 

we have houses that are under water that are under water now, 

and we appreciate what you are doing to help us very much. 

In this discussion of the foreclosure issue—and we had a very 

good discussion the other day with Secretary Geithner—I think we 

came down to saying that if we define the problem simply as foreclosure, there are certain steps we can take, but they will not totally resolve the issues that are affecting communities across the 

country. Another way, and I think maybe a more appropriate way, 

to look at this is not so much just foreclosure, but it is housing stabilization or neighborhood stabilization. 

Secretary DONOVAN. Absolutely. 

Senator REED. And to that effect, we appreciate what you are 

doing in terms of your efforts, but I think we have to do more in 

terms of neighborhood funding. We have several programs, one of 

which Senator Dodd and I—the Neighborhood Stabilization Program, et cetera. But just the point I want to make because it captures, I think, our discussion, which is when it came to the crisis 

of the lending institutions, we did not take an approach and define 

a problem, well, it is bad, it is just bad loans, because we would 

have stopped with the TARP programs. We took the approach that 

unless we stabilize the entire system, put a floor in, and then begin 

to see them sort of work out their problems, we were going to collapse. 

I think in terms of the housing problem, we have taken a more 

narrow focus. It is foreclosure and we are doing our best. But, in 

fact, this is part of the problem, because if we do not get stabiliza-
15 

tion and appreciation—we are starting to see that in the housing 

markets—my constituents, regardless of flood waters, are not going 

to think we are stabilized and we are making progress and the 

economy is co ming back. 

So in that regard, one, I thank you for the efforts you have made 

to date. And I want your comments on the neighborhood stabilization fund. Do we need more resources? Do we need to even think 

beyond that fund to go in and—and we talked about, you know, 

purchasing houses that are about to foreclose, wiping out the 

owner, particularly the absentee owner, using community organizations to do that, then selling those homes or renting them in a way 

in which the owner can support the mortgage. Do we need to do 

that? I think we do, but let me ask you. 

Secretary DONOVAN. You raise a very important question, and 

part of this goes back to the FHA, the GSEs that we have talked 

about, keeping interest rates low, a broader range of efforts. I will 

also add counseling as an important piece of an overall solution, 

but absolutely this issue, you know, of foreclosure—in other words, 

foreclosure does not just affect the family that loses their home. It 

affects all of their neighbors. 

Senator REED. Right. 

Secretary DONOVAN. And their values drop as well. It affects 

renters. It affects a whole range of people. So neighborhood stabilization is critical. The $2 billion that you put in the Recovery Act 

was incredibly important in helping to really target some of the 

places that are hardest hit, but as you well know, we had over $15 

billion of applications for just $2 billion. It is a real indication of 

the scale of the need. 

And so I would absolutely say that there is a need for further efforts on that front. We are looking actively at that and would love 

to discuss with you more specific ideas that we have around that 

going forward. 

Senator REED. I think in some respects—and these are not completely identical, but, you know, we faced judgments in 2008 

whether we were going to take an incremental approach or we 

were going to go more than we thought was necessary, with the 

idea we could always pull back. I think in housing we have taken, 

frankly, not just your—in fact, from the beginning, in 2008, 2007, 

an incremental step, Hope for Homeowners, hope for this, hope for 

that, and we never decided to use what, you know, we might refer 

to as the shock and awe, like let us go in there and really stabilize 

these neighborhoods, not just urban but also rural areas. And I 

think we have to begin to think about that. 

The resource issue is absolutely critical. The only obvious place 

you would begin to think about would be recycling TARP funds. 

That has some challenges. But I think we have to think about that. 

But thank you again. 

I want to also thank you for including within the budget the 

funding for the National Housing Trust Fund. I have worked very 

closely with Senator Dodd and Senator Shelby to get that enacted. 

I think it is a very good program, and we would ask you to keep 

fighting the good fight in the appropriations process, and the President, to make sure we get the funding. 
16 

There is one other point I want to commend you about, and that 

is that HUD has imposed a 90-day moratorium on foreclosures in 

Rhode Island because of the flood. Also, we understand that GMAC 

and Wells Fargo have done the same thing. But I would urge other 

financial institutions to do the same thing, to give us a chance, give 

people a chance to get back on their feet. 

Finally, I will give you an opportunity to talk about, as you have, 

these issues related to just the difficulty of getting banks and services to follow through at these foreclosure mitigation initiatives. 

Are we making progress on that front? Is there something that we 

have to do either with carrots or sticks—and maybe we have 

reached the point of sticks because there are some carrots out 

there—to get everyone focused on the criticality of this? Because if 

they are not doing this, then we are at the point where this 

incrementalism will not work. 

Secretary DONOVAN. Certainly, as I mentioned earlier, I do think 

some of the accounting and valuation issues remain significant, 

and that is—I do not know whether you would call it a carrot or 

a stick, but it certainly could be either. It is certainly an issue that 

is worth discussion again, not in our sort of portfolio at HUD or 

even within the Administration, but an important one. 

I do think we are making progress. The numbers indicate that 

we are making progress, the acceleration of permanent modifications that I talked about earlier. Part of this, frankly, was just adding literally thousands and thousands of staff and servicers. But we 

still are not satisfied at the pace we are today. And so what we 

have done on that front as sticks is to implement very specific 

timelines: here is how long you have before you can get back to a 

homeowner with a clear answer. 

And I think another important change that we made recently is 

anyone who signed a contract—and that represents 90 percent of 

the loans being serviced today—you cannot initiate a foreclosure 

until you have evaluated someone for a modification, because we 

heard too many stories of people falling through the cracks and 

they were, you know, in process in a modification, and a foreclosure 

went ahead while they were on the verge of getting a modification. 

That cannot happen anymore, so we have just within the last few 

weeks made clear and required all the servicers to do that modification before they—or evaluate someone before they move forward 

with a foreclosure. 

Senator REED. Just finally, all of my colleagues get the same 

complaints that I do, which is, you know, people want to do it, they 

call, and they say, well, call us next week, and next week it is another person on the phone, or they are all set to go, oh, I am sorry, 

we must have lost your paperwork, you have to apply again. The 

volume of these complaints suggests it is not something being made 

up, that quality control, you know, by supervisors of the people 

needs to be improved. I think there is a lot of checking the boxes 

going on: Yes, we made contact, yes, we made the NPV evaluation, 

yes, yes. But actually sort of getting it done is lagging, and that 

is going to require vigorous oversight by these institutions. And, 

again, if there is something we can do to encourage that, please let 

us know. 
17 

Secretary DONOVAN. We have begun audits of the servicers to 

make sure that we are getting better quality control along with the 

standards that we have imposed. 

Senator REED. Thank you. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much. 

Senator Tester. 

Senator TESTER. Thank you, Mr. Chairman, and I want to thank 

Secretary Donovan for being here today. 

Secretary DONOVAN. Good to see you. 

Senator TESTER. I appreciate you and I very much appreciate the 

work that you have done. I appreciate you coming to Montana—a 

lot of appreciation here. I appreciate you coming to Montana last 

year and your openness to speak to everybody that you visited with 

in the time that you had there. 

One of the areas that you went to is Northern Cheyenne and Indian country. You saw firsthand the challenges there as far as 

housing, and I want to talk about the Indian housing block grant 

program for a bit. 

The Administration—and, quite honestly, I appreciate the Administration looking for any areas in which they can save money 

and reduce costs. One of the areas they did that was in the Indian 

housing block grant. It was reduced by $122 million. It is at a 

level—a 15-year low. Nineteen-ninety-six was the last time it was 

that low. 

Can you talk to me about why that was done and how you see 

Indian housing moving forward from your agency’s perspective into 

the future? 

Secretary DONOVAN. Absolutely. As I said earlier, we did have 

some very difficult choices to make in this budget. The approach 

that we took broadly was as a first priority to protect all existing 

units and families, and so whether it was existing Section 8 vouchers, project-based Section 8, all of those, even which had increasing 

costs, to make sure those were protected before funding capital or 

other grants that go generally to create new units or renovate 

units. So that was a general decision that we made, which led to 

cuts not just in the block grant but also a number of other capital 

programs as well. Again, very difficult choices that we made. 

Specifically on the Indian housing block grant, one of the things 

I was proudest of in the Recovery Act is that we were able to get, 

working with you, half a billion targeted to Native American, Native Alaskan, Native Hawaiian housing, and at this point that 

funding, you know, relative to the scale of the gap that you talked 

about, has allowed tribes around the country to invest at a scale 

that they had not been able to before. 

At this point that funding is about 28 percent spent, and it is 

available for spending for about another 18 months, through September of 2011. So our sense, while it was not the choice I would 

have wanted, is that there are resources available, and I want to 

be very clear on that. One of the reasons I say it is some of the 

tribes have been concerned that this indicates a longer-term potential for a reduction in level. That was not our expectation. This was 

not an indication from our point of view that this needed less 

money. In fact, the Recovery Act investment indicated the opposite. 
18 

Senator TESTER. OK. From an accountability standpoint, not only 

the Recovery Act dollars but as these budget dollars go out, is your 

agency able to do accurate oversight to make sure this money is 

hitting the ground and being spent in the way it needs to be spent? 

Secretary DONOVAN. I get—it would probably be good bedtime 

reading for all of you. I get a regular report from my recovery team. 

I sit down with them on a monthly basis. I go through every single 

program, where it is, the progress we have made, weekly updates 

on spending, and I am happy to say that we were able to obligate, 

to sign contracts on specific projects with 98 percent of our funding 

by a year after the signing of the bill. Just a few weeks ago, we 

met our first significant deadline for commitment of funds to specific units and buildings for the public housing capital fund; 99.9 

percent of that money met that deadline, and so we are tracking 

it very, very closely. 

Senator TESTER. So you are tracking it beyond just the expenditure to actually the product hitting the ground and being built. 

Secretary DONOVAN. Absolutely. 

Senator TESTER. OK. Good. I want to talk about vouchers for just 

a second, and I want to approach it, as I do just about everything 

that I do in the U.S. Senate, from a rural perspective. In a lot of 

the areas—well, let me ask you this: Is moving to the vouchers 

going to save money or is it more for integrating communities? 

Secretary DONOVAN. Let me just be very clear. We are not—there 

are tenant-based vouchers and there are also project-based contracts. We are not proposing to move all of this housing to vouchers. What we are proposing to do is move it to project-based contracts that would allow it to raise other funds. So it is not going 

to be a shift toward a voucher, and I say this because I know in 

rural areas from my own work, from discussing this with you, that 

vouchers can be more difficult to use in rural areas. 

So if there is a specific building with a contract in that community, we would continue that contract, but in a way that would 

allow that building to raise other funds and perhaps integrate 

other kinds of units with it going forward. 

Senator TESTER. OK, good. So in Montana, we have got a 2-year 

backlog on vouchers. How is this program going to impact that 2- 

year backlog? Positively? Negatively? And ultimately how is it 

going to impact the housing for those folks that are in that situation? 

Secretary DONOVAN. In total, this would in the short run keep 

the same number of units available in Montana. My hope would be 

in the long run that it would actually preserve more units and keep 

more units available. So we are working on some specific issues on 

prioritization of vouchers for families that want to move and how 

we do that so that we are fair in terms of those who are on the 

waiting list. But, fundamentally, the most important thing is are 

there more vouchers, and I want to be clear. We have proposed in 

the budget the highest level of funding for vouchers in the history 

of the program that would include most likely, our sense is, about 

30,000 new vouchers nationally that we would be able to fund. So 

this does help significantly with the waiting list, the budget more 

broadly, in Montana. 
19 

Senator TESTER. OK, good. And in places where there are not the 

rental units available, which happens in many, many areas, and in 

a rural State like Montana, it will not have impact on the existing 

public housing that is there. 

Secretary DONOVAN. That is right. It will have a positive impact, 

I think, in terms of that, but it will not convert that to vouchers. 

Senator TESTER. OK. All right. The last thing is that you continue to have a standing invitation in August. I have a seat available for you to my left in the combine if you want to come out. 

[Laughter.] 

Secretary DONOVAN. Thank you. I appreciate it, Senator. 

Senator TESTER. Thank you, Mr. Chairman. 

Chairman DODD. Thank you. 

Senator Bayh. 

Senator BAYH. I think Senator Menendez was here before me. 

Chairman DODD. Oh, were you here before? I apologize. 

Senator MENENDEZ. Thank you. 

Chairman DODD. I am sorry. I didn’t recognize when you came 

in. I screwed up twice now this morning on that. 

Senator BAYH. He was either here before me or my staff threw 

me under the bus. 

[Laughter.] 

Chairman DODD. No—— 

Senator BAYH. And no one would ever do that. 

Chairman DODD. No, no. I am not going there. 

[Laughter.] 

Senator MENENDEZ. I was here before, but I am getting so thin, 

the Chairman missed me. 

[Laughter.] 

Senator MENENDEZ. Mr. Secretary, thank you for coming today 

and for your service. 

I want to talk about housing for persons with disabilities. The 

Chairman and myself, we had a hearing here about this issue. One 

of his colleagues from Connecticut came and talked about it, a pretty dramatic need. And your budget allocates just $90 million to 

housing for persons with disability. That is a decrease of 70 percent 

from the 2010 appropriations, which were $300 million. 

So it just seems to me that the cut strikes me as very bad, particularly for the most vulnerable people in our society who already 

should be at the top of the list in terms of who should have access 

to housing. They already face enormous challenges. We have 1.3 

million low-income disabled households that have to spend more 

than half of their limited income on rent, and so the cut is, at the 

end of the day—I don’t quite understand how you justify it. 

Now, I know you will probably tell me that the programs weren’t 

working. The problem is that a cut isn’t a reform. It is a cut. If you 

reform the program and you use the money under a new reformed 

program, that is different. But a cut is a cut and I don’t know how 

that necessarily moves to reform. 

Secretary DONOVAN. So thank you for the question. This was one 

of the, probably the most difficult choice that we made in the budget, and ultimately, as I said earlier, we decided to focus resources 

on existing units and there were cuts on capital in many different 

areas. We made a commitment to renew every one of the existing 
20 

811 units that are there, the disabled units. But there is no doubt 

that this will have a negative impact. 

Two things I would say about it. First of all, if you look broadly 

at the budget and affordable housing, the vast majority of housing 

for people with disabilities is not produced by this program. The 

tax credit produces more than ten times the number of units for 

people with disabilities. The number of vouchers, public housing 

units that serve people with disabilities vastly outweigh the number of units that are produced by 811—not to say that those units 

aren’t important, but I want to be clear that we will still produce 

and provide a substantial amount of housing for people with disabilities. 

The second thing I would say is that given the difficulties with 

the program, the period of time and the complexity of producing 

those units today, we have gotten to the point—and I have this experience directly myself prior to coming to HUD of trying to 

produce these units—the complexity of them, the low level of funding per unit in the program requires raising all kinds of other capital, tax credits, a range of other things, and yet the rules are still 

set up as if the program was a 100 percent funding program. 

We felt that given all of those difficulties and complexities, as 

hard a choice as it was, that not continuing to fund the units under 

the way the program currently operates was the decision that we 

would go forward with in the budget. I recognize that that is hard, 

but I do want to make clear that we are committed to funding the 

program when we can get reforms that actually will make it as effective as possible. 

Senator MENENDEZ. Well, we have a difference of opinion in 

terms of reform and then having the resources. Once you cut the 

resources, reform doesn’t really ultimately solve the problem because then you don’t have the resources to implement that reform. 

And even leaving $90 million in the Section is—at the end of the 

day, I don’t know what the purpose is if you don’t believe the program is worthy of spending any money based upon the way it operates. 

I heard what you had to say as it relates to other programs that 

we have ultimately provided housing for people with disabilities; 

but clearly, this one, which was focused on the question of providing housing for people with disabilities, is a driver. The other 

ones produce some housing for people with disabilities, but are not 

dedicated to that, right? 

Secretary DONOVAN. In fact, much of the housing, whether it is 

tax credits or others, there are lots and lots of projects that are 

dedicated to people with disabilities, as well. So those aren’t just 

mixed projects that happen to go to people with disabilities. There 

are many, many units that are targeted—— 

Senator MENENDEZ. Can you provide to me and the Committee, 

under all of your other existing projects, what it is that gets produced for people with disabilities against what it is that you have 

overall produced for different forms of housing—— 

Secretary DONOVAN. Yes. 

Senator MENENDEZ.——so that we can make a determination. 

You know, Senator Johanns and I, working with the Chairman, 

have developed legislation to reform 811 and to leverage other af-
21 

fordable housing resources, streamline the application process, accelerate development, build additional units with the same appropriation. Have you looked at that? Is that something that—— 

Secretary DONOVAN. We have and we think that legislation, as 

well as companion legislation in the House, is a good start toward 

that. We have had some discussions with the Committee as well as 

on the House side about suggested changes that we would have 

and we hope that we could get that legislation passed as quickly 

as possible. 

Senator MENENDEZ. With reference to housing for the elderly, 

you also have a large cut, a decrease of 67 percent. There are now 

an estimated ten seniors for every Section 202 unit that becomes 

available. What is the story there? 

Secretary DONOVAN. The 202 program and the 811 program operate very similarly and have the same fundamental issues. And so, 

again, we looked at, broadly, the number of units that are produced, how quickly and effectively additional capital for 202 or 811 

would produce units relative to the other programs, and decided— 

again, in a year of very difficult choices—that it made sense to try 

to make the program work more effectively before investing further 

capital in those—— 

Senator MENENDEZ. I am just trying to understand how 60, 70 

percent cuts mean more housing for people who are disabled and 

elderly. I just don’t get it. It doesn’t add up for me as simple math, 

but then again, that wasn’t my strongest forte. 

Secretary DONOVAN. As you just suggested, let us get you the 

numbers of what, whether it is increased funding in vouchers, in 

these range of other—the new tax credits that will be funded, how 

all of those produce units. 

Let me be clear. I am not arguing that this is a good thing for 

seniors or people with disabilities. These were difficult choices. Had 

we not had the budget pressure that we had, I would have made 

different choices. But this was a prioritization that we needed to 

do given the broader fiscal circumstances, and we felt given the 

way that the program is currently operated in this kind of budget 

pressure—and I want to be very clear again that this does not 

mean long-term we are not committed to 202 or the 811 program 

that can produce units in an effective manner. 

Senator MENENDEZ. Let me ask you finally, if I may, Mr. Chairman—— 

Chairman DODD. OK. 

Senator MENENDEZ. I heard you respond to the foreclosure modification issues. I look at the numbers, 168,000 homeowners who 

have received final 5-year loan modifications under the Administration’s plan. It is a tiny fraction of 6 million people who are more 

than 60 days late on their loans. You know, we have gone through 

various iterations. What makes us believe that—what have we 

learned to try to do this better and provide a greater solution at 

the end of the day, understanding not everybody is going to be able 

to be saved? I fully understand that. But 168,000 out of 6 million? 

I don’t know that that is success. 

Secretary DONOVAN. So before you arrived, we talked about some 

of these numbers more specifically. We did release new numbers 

yesterday, an increase of over 60,000 permanent modifications last 
22 

month. So the pace of permanent modifications has accelerated. An 

additional more than 100,000 that have been completed and are 

only awaiting signature from the homeowner. So in total there you 

have got over 330,000, and so we are making substantial progress. 

But just to be clear, and this often, I think, the numbers in terms 

of delinquent loans compared to modifications, the vast majority of 

those loans that are delinquent will not end up going to foreclosure. 

Right now, the pace of our permanent modifications is almost equal 

to the number of actual foreclosures that are happening each 

month. 

So I do believe we are having an impact on the problem at a significant scale. Did it take us too long to get there? Yes. Are there 

further changes that we continue to make and to push? Yes. Has 

the problem changed and we need new tools? That is why we announced some changes a few weeks ago. 

But this is an enormously difficult problem. Many of these homeowners, had we acted earlier, I think, and begun to get these systems in place years ago, we would have been able to reach more 

of them earlier. But we still will not, even with our programs, not 

be able to reach everyone. There are some folks who simply cannot 

afford the homes they are in even with lower prices and a modification. And we have many of these homes are investor owners or second homes or others, and we would be happy to share the details. 

A large fraction of those are not eligible for the program for reasons that we decided. 

So in total, our estimate is that of the roughly 5.4 million people 

that we would expect over the 3 years to be at real risk of foreclosure, not the 6 million today, but over time, we are—our program is targeted to reach about 2 million of those that are eligible, 

that are owner occupants, that have modestly priced homes, that 

aren’t the other ones that would be excluded. So we are reaching 

a very large fraction with the more than 1.1 million modifications 

we have done to date, trial modifications. We are reaching a very 

large portion of that overall—— 

Chairman DODD. Thank you, Mr. Secretary. Thank you. 

I apologize to my colleagues. When we started the hearing, I had 

two colleagues here, so I was rather liberal in my time. The good 

news is, everyone is showing up, so I apologize to those. I didn’t 

set a time on myself or anyone else, for that matter. So to Evan, 

to you, and to Jeff, who just arrived, and Bob coming in the door, 

I apologize to you in a sense in that I was guilty of it myself. And 

again, we have had great participation and good questions, so we 

will try and just be—we have got a couple more members to go. 

Bob, you are up next. 

Senator CORKER. I will be far more brief, and thank you, Mr. 

Chairman. 

Chairman DODD. Again, I apologize. 

Senator CORKER. Mr. Secretary, and by the way, I enjoyed hearing the long questions, so no offense taken there, I hope. 

Mr. Secretary, I first of all want to thank you for doing what you 

do. I think you are one of those folks that we are lucky to have in 

Committee and I thank you for your service. 

Secretary DONOVAN. Thank you, Senator. 
23 

Senator CORKER. I appreciate the way you have reached out to 

people on both sides of the aisle to try to build relationships and 

cause us to understand where you are going. 

As it relates to the mortgage modification piece, to be candid, I 

have always thought it was kind of a Keystone Cop effort, that we 

would never catch up, and the only thing that really would make 

this all work out would be the economy coming back and employment coming back and, as you mentioned earlier, home values coming back. We probably wasted a lot of money and have certainly 

gone through a lot of effort, and I know some of it has borne fruit. 

Most of it has not. So I am certainly not going to weigh in on that. 

Hopefully, this effort will end soon and employment will be back 

and home values will be back up and people will have jobs, and 

that is the only real solution to the problem that we have. 

So what I would like to move to is this. I am not going to talk 

about the budget. I thank you for coming in. You and I had a conversation several weeks ago, and this does tie into the foreclosure 

issue, regarding underwriting. I asked you some questions. What 

should we, what should all of us be looking at as it relates to underwriting for residential mortgages? I mean, at the end of the day, 

we have got a big bill, 1,336 pages, that I think a lot of smart people have put effort out to create. Hopefully, it is going to be 

changed to where we end up with a bipartisan bill. I think there 

is a desire by many for that to occur. 

But the thing that we really don’t address in that bill adequately 

yet, even though I think everybody is still noodling at it and trying 

to figure out the best way to do it, we don’t address the core issue 

of the fact that there were a lot of loans written for people that 

should never have been written, that they never could have paid 

back, that the loan-to-value ratios were way out of whack from the 

very beginning, and if we don’t get at that core issue in this legislation somehow, if we don’t get at that, we really haven’t accomplished much. I mean, we have had a lot of fancy discussions, but 

we aren’t getting at the core issue. 

I wonder if you could help. I asked you before. I know you have 

been very busy, but since I now have you as a public witness, help 

us understand—we talked some, and I know that Chairman Dodd 

is trying to get at it through risk retention. I think the way we are 

approaching it right now doesn’t work. I think it shuts down the 

securitization markets, personally. That is not, I think, what our 

goal is. I think our goal is to make credit available. And I know 

we are in discussions maybe to try to resolve that, but what is the 

best way for us as policymakers to ensure that people are actually 

putting money down on their homes, that a loan-to-value ratio is 

not 100-to-100, OK, and yet at the same time, I came from a world 

civically where I wanted people to own homes. I think your efforts 

at HUD are valiant and I understand the mission. 

How do we deal with that in the appropriate way without being 

overly prescriptive? I think it is an essential piece in this legislation that we have not yet debated. We keep talking about consumer. We keep talking about derivatives. We keep talking about 

resolutions. This is a pretty core issue that I don’t think we have 

addressed. I think it is an issue that is pretty complex and I would 

love for you to tell us right now how to solve it. 
24 

Secretary DONOVAN. How long have you got? No. It is, as always, 

Senator, an incisive question about a key issue. All kidding aside, 

I don’t think I can do justice to it just here. What I would suggest, 

and you and I talked recently about the risk retention issue, I have 

gone back with my colleagues at HUD and at Treasury and what 

we would like to do is come back and sit down with you perhaps 

in more detail about your question on that and talk through. 

Because I do think while you raise, I think, an important point 

about capital requirements, what the impacts of that are going to 

be, having real skin in the game, whether it be some capital, 

whether it be ensuring that brokers or others making these loans 

have incentives that are aligned with the homeowner, et cetera, all 

of those, I think, are very important points. 

I do think that there is—consumer protection is a piece of this, 

because at some level, having real requirements about—and limits 

about the types of products that can be available that are damaging, all of those are important, in addition to the issue about 

more specific underwriting. 

What I would say is my concern about this in terms of setting 

sort of across-the-board standards is that when you start to dig into 

loan performance—this is true for FHA as for any other kind of 

loan—as you start to get beyond the sort of initial frame of just 

downpayment, just a FICO score or range of other criteria, the 

truth is that loans that can be risky for a risky borrower might not 

be risky for a different kind of borrower. So I think we have to 

have a fairly nuanced set of ways that it can be underwritten, and 

setting it too clearly or specifically in legislation in a way that 

wouldn’t allow some flexibility, I think can be problematic. 

I know that is a very general—— 

Senator CORKER. It is, and I know we are out of time and I certainly want to be courteous to our other members. Let me just say 

this. I don’t know when you are coming to see me, but my understanding is Chairman Dodd is getting ready to introduce a bill on 

the floor. And coming to see me after that does no good. 

If the Secretary of HUD cannot tell us—the Secretary of HUD, 

Housing and Urban Development, cannot tell us what he thinks is 

appropriate as it relates to underwriting, and what we are doing, 

let us face it, I mean, we are talking all around the issue, but what 

we are not talking about is skin in the game from homeowners. It 

is semi-important. We want to pass the buck. We want to get a 

piece of hide of Wall Street because that is a popular thing to say 

today and do. We want to get a piece of hide of this. We want to 

get a piece of it. But the one thing we are not talking about is how 

do we ensure that homeowners have some skin in the game. It is 

a pretty important concept. 

I don’t want to be overly strong with you, but if you are waiting 

to come see me in 3 weeks, that doesn’t do any good. So I would 

hope that since this is a very central issue to the debate that we 

are having that we could see each other this week or early next 

week, because we have got to develop legislative language. 

Chairman Dodd may not agree and Members of the Committee 

may not agree, but I think for a smart guy like you who is in 

charge of housing—you know, you are the Housing Czar, as they 

say—for a smart guy like you to tell us what you think ought to 
25 

happen there is pretty important. And I have tremendous respect 

for you, but I hope we don’t filibuster beyond this and miss an opportunity to deal with this core issue which is very important as 

it relates to financial regulation. 

So I thank you very, very much for your service. Please come see 

me. 

Secretary DONOVAN. I will, and let me just emphasize, I think 

you are absolutely right, and perhaps I wasn’t as clear as I should 

be. We have changed the standards at FHA. We do have clear 

standards—— 

Senator CORKER. That is what—— 

Secretary DONOVAN.——downpayment and a range of other 

things. My only concern is that doing it in this forum in a quick 

answer, it is going to be hard to get to the—do justice to the question. 

Senator CORKER. We met three or 4 weeks ago, and again, I 

know you are busy, but let us talk in the next few days. 

Secretary DONOVAN. Yes. 

Senator CORKER. Thank you. 

Chairman DODD. Thank you, Secretary. 

Let me just editorially say on this, we do actually address the 

issue, now not to the satisfaction of my friend from Tennessee, but 

by requiring skin in the game early on, they then have a vested 

interest in seeing underwriting standards. I think you did address 

the question, and that is there is some danger in applying rigid 

standards, underwriting standards, in a piece of legislation such as 

we are contemplating here considering the variations that exist. 

Now, clearly, with CRA, FHA, again, you are dealing with certain constituencies. Underwriting standards are critical and they 

have proven to be so. But I want to be careful about having sort 

of a one-size-fits-all approach to that as we look forward. We have 

got to be careful about that. But I think you do need to have risk, 

skin in the game, what we didn’t have. Of course, brokers and 

lending institutions were securitizing and moving on, being paid, 

had nothing left in the game and cared little or nothing about underwriting standards because they were being compensated very 

quickly and therefore had no interest in insisting that that borrower meet certain standards. If they had skin in the game, I think 

you are going to find a heightened degree of interest in what that 

borrower is going to be capable of paying. So we addressed the 

issue to some degree. 

Anyway, Senator Bayh? 

Senator BAYH. Thank you, Mr. Chairman. 

Mr. Secretary, let me echo what my colleague from Tennessee 

said with regard to my gratitude for your service to the public. I 

think you know I hold you in high regard and you are one of the 

exemplary people who have devoted your life to helping others. 

With that by way of background, I hope you will take everything 

I am about to say in context. 

As you know, there is an issue with regard to the city of Gary, 

Indiana, that I am not terribly happy about. And as I have told you 

more than a year ago, I was assured by a high-ranking official in 

the White House that there would be funds for the Neighborhood 

Stabilization Program through the stimulus bill to help tear down 
26 

blighted areas in Gary. It is terrible. These are people without 

means. The city is struggling. I mean, these aren’t rich people. 

They are not contributors. They are folks who need a helping hand 

to make a go of it. 

As I think you know, there were no funds, zero, for the city of 

Gary in the second wave of the Neighborhood Stabilization Program that came out of the stimulus, isn’t that correct? 

Secretary DONOVAN. That is correct. 

Senator BAYH. They got zero. Why was that? 

Secretary DONOVAN. We ran a competition for that $2 million— 

$2 billion. We had $15 billion worth of applications—— 

Senator BAYH. Why weren’t they—— 

Secretary DONOVAN.——and their application fell short. 

Senator BAYH. Why weren’t they deserving? This is your opportunity to tell the people of Gary why they weren’t good enough. 

Secretary DONOVAN. We evaluated the application and felt that, 

frankly, they did not have the capacity necessary to be able to— 

for us to be assured that they could quickly and effectively bring 

those houses down and accomplish the other things in their application. 

Senator BAYH. What do you mean by capacity? 

Secretary DONOVAN. The strength in the government agencies or 

partners working with them that would be able to quickly and effectively bring down those homes. And that is why, as you know, 

we have worked with them. We have reallocated $2 million out of 

existing funding that they had to begin demolishing homes with 

partners that we felt had capacity. Homes have, in fact, begun to 

come down in Gary as a result of your efforts and your focus on 

this—— 

Senator BAYH. How many? 

Secretary DONOVAN. At this point, I don’t have the precise numbers in front of me. My guess would be it would be in the range 

of a dozen, but the funding that we have provided—— 

Senator BAYH. There are thousands of blighted homes in Gary. 

Secretary DONOVAN. The funding that we have been able to reprogram would be able to get to the scale of hundreds of homes. 

Senator BAYH. Two-million dollars? 

Secretary DONOVAN. That is right. 

Senator BAYH. So by lack of capacity—we may as well use plain 

English—you don’t think the city is competent to administer those 

funds effectively. Is that your opinion? 

Secretary DONOVAN. What I said was, in a very difficult competition, $15 billion of applications, we thought that others had higher 

capacity to be able to implement the program. 

Senator BAYH. Twenty-eight other States received funding and 

the District of Columbia. Three-hundred-and-sixty-five million dollars went to national not-for-profit organizations. Why were the national organizations given priority over the 20-some States that received zero? 

Secretary DONOVAN. We had a number of States that got direct 

funding. We chose the applications that we thought were strongest 

based on the criteria of the competition. 

Senator BAYH. So there were that many other places in the country that are more hard-pressed and more deserving than Gary, in-
27 

cluding these not-for-profit organizations were more deserving of 

these funds than Gary, Indiana? 

Secretary DONOVAN. Again, I agree with you that the need is 

substantial in Gary. That is why we have worked hard to try to reprogram funds. We talked earlier about the need for more Neighborhood Stabilization funding that would allow cities like Gary and 

others to be able to move forward with these types of activities. But 

again, in a very competitive situation, we did not think that their 

application was as strong as the other ones that were funded. 

Senator BAYH. Well, I am not accustomed to being promised 

things by high-ranking officials that then are not fulfilled and 

won’t allow that situation to happen again. I don’t lay this at your 

doorstep. I am not referring to you. As a matter of fact, I think you 

have been put in a somewhat difficult situation by all of this. But 

$2 million isn’t going to be enough to solve the problem in Gary, 

Indiana. It is just not. And they feel like they have been let down 

by this Administration and I feel like they have been let down by 

this Administration. Again, not you. But something has to be done 

about this. 

I guess I will just put it this way. I am contacted all the time 

by people from the Administration, including in this instance I am 

referring to, to ask for my help on things. Some of these decisions 

are tough calls. There are factors on either side. I am just not going 

to take those phone calls anymore. I am going to have them call 

the Department until there is some momentum here for the city of 

Gary, Indiana. 

Again, I know your heart is in the right place. This is not you, 

OK. I want to make that absolutely clear. I think you are doing an 

exemplary job. But these are thousands of hard-pressed people who 

really aren’t getting the helping hand they deserve, and I can’t go 

home and explain to them how there were 28 other States that 

were more deserving, national not-for-profit organizations that 

were more deserving, when you walk down the streets of Gary, Indiana and see the blight that exists there. Two million dollars isn’t 

going to get the job done. They have a right to feel like they have 

been hung out to dry. And I think by the word ‘‘capacity,’’ we 

talked about providing them some funds so they could build capacity. 

Secretary DONOVAN. And we have done that. 

Senator BAYH. Well, if they are now capable, are we going to get 

more than the $2 million? 

Secretary DONOVAN. I would be happy to talk with you about 

other ways that we could increase the help that they would get for 

demolishing properties. 

Senator BAYH. OK. Well, I will just take—the Chairman has left, 

but I am just not accustomed—and it is not you, but I am not accustomed to being lied to. It is not going to happen again. So when 

I get these calls, I am going to redirect them to the Department. 

These people deserve the kind of help that I was led to believe they 

were going to get. It is not your fault. I think you are a devoted 

public servant and an exemplary public servant and the country is 

fortunate to have you. But there is a disconnect here and we just 

need to address it. 
28 

I think we have got a meeting coming up a week from tomorrow. 

At least, I am told that is on my schedule. I hope after my questioning we will still have a meeting and maybe we can identify 

some ways we could make progress. But I just needed to get on the 

record how strongly I feel about this, and you can understand that 

I feel pretty let down. We need to find a way, even if we have to— 

let us help the people. Let us figure out a way to do it, even if we 

have got to think creatively about how to get that done in ways 

that you have confidence in, the Department has confidence in. As 

I have said repeatedly, all I care about is that the blight comes 

down and the people get helped. How we do that, I could care less. 

So hopefully we can get a little more momentum going here, and 

again, I think you have been put in a bad spot, but it is something 

we have got to address. So I appreciate your tolerance here today. 

I will look forward to seeing you next week. 

Secretary DONOVAN. OK. 

Senator TESTER. [Presiding.] Senator Merkley. 

Senator MERKLEY. Thank you very much, Mr. Chair. 

First, I would like to echo the concerns that Senator Menendez 

put forward. There are so many groups across the country that 

have been working on projects in the pipeline on both senior housing and housing for the disabled and the compete cutoff of funding 

for new construction projects leaves a tremendous number of 

projects hanging. It is just something for us to wrestle with, because it would be a shame to waste pre-development efforts in our 

nation in that fashion. 

But I want to turn—because most of the other questions I had 

about the budget have been asked, so I want to turn back to the 

foreclosure issue, which I know that I raise quite often because it 

remains a concern. And I appreciate all the efforts that you have 

been making to improve the HAMP program, but there is an inherent challenge in HAMP and that is that it requires negotiations between first and second lien holders, between services who don’t 

own the mortgages, between trusts that own the mortgages but 

don’t really have people administering them because it is a corporate entity, if you will, to hold the mortgages, and then, of 

course, the bond holders who have claims against the cash-flow of 

those pools of mortgages. It is complex and it is messy. 

Yesterday, a real estate attorney told me he spent 6 months calling every day on behalf of his sister to try to work out one modification, and he said, how do people without either the time and 

ability to make those phone calls every day, without the expertise 

I have as a real estate attorney, how does anyone ever get through 

this? 

I know that you see this from the numbers that are completed, 

and it looks like it is improving, but please listen to the comments 

that come from every single one of us and our constituents that it 

is so difficult. So many people give up after their files are lost, time 

and time again, and that hasn’t been resolved. So many give up 

after transfer to yet a new person who knows nothing about the 

issue and doesn’t have that single point of contact. And there is 

only so much one can do within that complex legal structure to 

make it work better. 
29 

So I have been urging, and I know others have been urging, for 

the Department to look at other approaches, other ways of getting 

to address the foreclosure problem. You have seen the maps with 

some inner cities covered with red dots of foreclosures in process, 

where entire communities are being blighted by this. And for each 

one of those dots, it is a family that probably won’t recover financially until their kids are up and out of school, and that maybe 

their kids don’t go to college or don’t have certain opportunities as 

they grow up, a family that if they have one other disaster befall 

them may be just a stroke away from homelessness. It is a tremendous problem. 

There are ideas that have been put forward. One of the ideas 

that I have put forward has been to give families the ability to buy 

back their home at foreclosure auction where there is a market 

price set, with a lot of details, and your team has looked at those 

details. I want to keep pressing that conversation because I keep 

hearing, it makes sense, but we are working on HAMP modifications, or so forth. This would be based on the ability for a family 

to pay, taking into context the fact that anyone who has gone 

through foreclosure isn’t going to have standard FICO scores that 

one would look for, but we can address that through FHA. And 

isn’t it better for a family to be able to stay in their house and reown it on a standard 30-year amortizing mortgage. Their house 

would no longer be underwater. There are issues that have been 

raised about adverse consequences and motivations, but those are 

solved by using the HAMP program as a filter. There are things 

that we can do in that regard. 

Also, there is more we can do in regard to having facilitated 

short sales, and this is the type of structure where you say to a 

bank, look, you will get—there will be a third-party appraiser to establish the market value of this house. You will get 95 percent of 

the value of that third-party appraisal. They take a loss in the 

short term, but probably less than they have already marked that 

mortgage down on their books, so their capital standing actually 

improves, and the whole risk that goes with losing 50 percent of 

the value through a future foreclosure is lost. These type of sales 

could be greatly facilitated by the weighing in of the Administration. It can be changed when there is a second. 

I know the Administration has come forward with a new plan 

that involves within HAMP negotiating between the first and the 

second holders, but that sort of negotiation is inherently complex 

and messy in a system just not set up—again, who really owns that 

second mortgage? Who are the bond holders on the pool of second 

mortgages? And you have got the first mortgage. You have got the 

complexity of both put together. How many deals are really going 

to get worked out in that context? 

So my plea is that much more creative, energetic, robust thinking go into trying to address this foreclosure issue. It will haunt 

our families and it will haunt our communities and there really are 

other ways that could be pursued if the Administration takes a robust attitude toward this. 

Secretary DONOVAN. I think there are lots of pieces to what you 

have described and I would hope that we could continue the conversation more, but let me just try to focus on it. I think you are 
30 

absolutely right that the complexity of the existing structures is a 

big part of the problem, the conflicts between the first and the second, et cetera. 

The issue is—for the case that you described, it is far more beneficial to that family to be able to keep them in the home to begin 

with than to have them go through the foreclosure, and I think 

given the current ability we have to bring down their payment, reduce principal now with our increased emphasis, the likelihood 

that a family does not qualify for a modification but could successfully afford—leave aside get financing, but afford that home at the 

end of the process when a net present value test has already been 

done that would allow them to be eligible for a modification, I think 

my sense is that that group is likely to be relatively small. 

And so I think the question is, how many people would we be 

able to help with an approach like that? How many would we be 

able to reach, because I—— 

Senator MERKLEY. Keep in mind, the net present value test is a 

test for a bank to decide if it is in their best interest, not if it is 

in the family’s best interest. 

Secretary DONOVAN. But it does look at the value of the home, 

and so that is the key variable. So if the ability to pay is higher 

than the value of the home sold on the market, and they don’t 

qualify under that test, it is extremely unlikely that they would be 

able to pay for the value of the home at the back end of the process. 

Remember, the costs of foreclosure are already sunk costs at that 

point. In other words, the bank would have spent the money to go 

through the foreclosure and then would be expecting to get the full 

market value of the property, and that is the value that we use in 

the net present value test, as well as including a discount for some 

of the foreclosure costs. We should discuss this—— 

Senator MERKLEY. Let me give you a real example, the types of 

examples that we hear. 

Secretary DONOVAN. Yes. 

Senator MERKLEY. You have somebody with an exploding interest rate. It has gone from 5 percent to 9.5 percent. Maybe the home 

is now worth $200,000. They have a mortgage for $250,000. There 

is a huge difference in the monthly payments between $300,000 at 

9.5 percent and $250,000 at 5.5 percent—an enormous difference. 

And then turn around and the house is auctioned off and an investor buys it at a fraction of the price and the family goes, boy, if we 

could only have bought that house. But it at least gives you an additional tool in the toolbox. 

I mean, how many of those families, how many of those red dots 

that are in foreclosure right now, when those houses are sold to investors are going to say, you know what? If we had been offered 

a 5.5 percent loan at that rate, we would have been able to buy 

that house. That is every one of those families who you would be 

helping. 

But it is this resistance to considering other tools, just the resistance I am hearing from you right here, right now, that could help 

families, the type of family stories we are seeing that I am trying 

to ask you and the Administration to say, well, you know what? 

That is an additional approach that could be helpful. Let us pursue 
31 

it. Let us take it and see what we could do with it, because we had 

enormously generous, creative thinking about how to save large financial institutions. We need equally aggressive approaches to addressing the success of our families. 

Secretary DONOVAN. Senator, I don’t want to give you the impression that I am dismissing it, by any means. I am trying to understand how likely it would be that a family would be able to purchase a home having not been able to successfully make a modification work, particularly when we are able to bring down the interest 

rate substantially. I understand the 9 percent point. We would be 

able to bring it much lower. 

But again, let me follow up with you. There is, I hope you would 

agree, been a real attempt as you have seen over the last few 

weeks and months to continue focusing on this, to introduce new 

tools like the refinance option that we introduced, the Neighborhood Stabilization option, other things that we have been doing, 

more counseling funding, a broad range of things. 

I understand it is frustrating and that we certainly have not 

been able to make the progress that you would like or that we 

would like in terms of the pace that we have been able to implement these. But I do want to make sure I understand the reasons 

behind why you think this could be successful—— 

Senator MERKLEY. Absolutely—— 

Secretary DONOVAN.——so that we can arrive at a decision about 

it and a program that would be effective. 

Senator MERKLEY. We have talked to your team members, laid 

out a lot of details, a fairly comprehensive type of approach, and 

we keep hearing, makes sense. I need for the Secretary of Housing 

to say, I am going to get engaged on other strategies to assist families in foreclosure. 

The modifications of HAMP are appreciated, but the HAMP process is inherently complex and messy. It only works for a family if 

it is the best option for a bank—not if it is the best option for the 

family, but if it is the best option for the bank. We need to look 

at this through the lens and success of our families. That is my emphasis. Thank you. 

Secretary DONOVAN. Thanks. 

Senator TESTER. Thank you, Senator Merkley. 

I want to thank you for being here today, Secretary Donovan. 

Thank you for your leadership in the Department. 

This meeting is adjourned. 

Secretary DONOVAN. Thank you, Senator. 

[Whereupon, at 11:20 a.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 
32 

PREPARED STATEMENT OF SHAUN DONOVAN 

SECRETARY, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

APRIL 15, 2010 

Mr. Chairman, Ranking Member Shelby, and Members of the Committee, thank 

you for the opportunity to testify today regarding the fiscal year 2011 Budget for 

the Department of Housing and Urban Development, ‘‘Investing in People and 

Places.’’ 

A Changing Environment 

I appear before you to discuss this Budget and HUD’s related legislative proposals 

in a far different environment from that faced by the Nation and the Department 

just 1 year ago. At that time, the economy was hemorrhaging over 700,000 jobs each 

month, housing prices were in free fall, residential investment had dropped over 

forty percent in just eighteen months, and credit was frozen nearly solid. Many respected economic observers warned that a second Great Depression was a real possibility, sparked of course by a crisis in the housing market. Meanwhile, communities 

across the country-from central cities to newly built suburbs to small town rural 

America-struggled to cope with neighborhoods devastated by foreclosure, even as 

their soaring jobless rates and eroding tax base crippled their ability to respond. 

One year later, though there is clearly a long way to go, it is clear that the nation’s housing market has made significant progress toward stability, and there are 

growing reasons for optimism about the economy more broadly. 

Through coordinated efforts by Treasury, HUD, and the Federal Reserve, the Administration’s goal has been to promote stability for both the housing market and 

homeowners. To meet these objectives, the Administration has developed a comprehensive approach using state and local housing agency initiatives, tax credits for 

homebuyers, neighborhood stabilization and community development programs, 

mortgage modifications and refinancing, and support for Fannie Mae and Freddie 

Mac. The Administration’s efforts for homeowners have focused on giving responsible households an opportunity to remain in their homes when possible while they 

get back on their feet, or relocate to a more sustainable living situation. 

This comprehensive, multi-faceted strategy has had a real impact on the market. 

As measured by the widely referenced FHFA index, home prices have been rising 

more or less steadily since last April. As recently as January of 2009 house prices 

had been projected to decline by as much as 5 percent in 2009 by leading major 

macroeconomic forecasters. 

More importantly, allow me to briefly explain what halting the slide in home 

prices and the Administration’s measures to assist responsible homeowners have 

meant to middle-class families. 

First, money in families’ pockets. Mortgage rates which have been near historic 

lows over the past 10 months have spurred a refinancing boom that has helped 

nearly 4 million borrowers save an average of $1,500 per year—pumping $7 billion 

annually into local economies and businesses, generating additional revenues for our 

nation’s communities and benefiting our economy more broadly. 

Second, security. As a result of stabilizing home prices and lower financing costs, 

home equity had increased by over $900 billion over the first three quarters of 

2009—more than $13,000 on average for the nation’s 78 million homeowners. 

Third, increasing confidence about the future. Homeowner equity is key to consumer confidence and to bringing new borrowers back into the market. This dynamic has helped the economy to grow at the fastest rate in 6 years, and, in March, 

to create 162,000 jobs the largest job growth figures in 3 years. 

The Federal Housing Administration (FHA) has been essential to this improved 

outlook—in the past 16 months helping more than 1.1 million homeowners refinance 

into stable, affordable fixed-rate mortgages, assisting more than half million families to avoid foreclosure, guaranteeing approximately 30 percent of home purchase 

loan volume, and approximately one-third of all loans for first-time homebuyers. In 

addition, last month, the Administration announced important changes to both FHA 

and HAMP aimed at increasing the focus of our foreclosure mitigation efforts on 

homeowners who are under water and those who are facing challenges meeting 

their mortgage payments because of unemployment. 

Of course, just as this crisis has touched different communities in different ways, 

so, too, have they rebounded at different paces. As a result, some regions continue 

to face difficulty, even as others are moving toward recovery. That is one reason 

why the President recently announced $2.1 billion in funding to help families in 10 

states that have suffered an average home price drop of over 20 percent from the 

peak—including an innovation fund that will expand the capacity of housing finance 

and similar agencies in the areas hardest-hit in the wake of the housing crisis. 
33 

These announcements continue the Administration’s response to assist homeowners and stabilize neighborhoods, including through the nearly $2 billion that 

HUD has obligated under the Neighborhood Stabilization Program to address the 

problem of blighted neighborhoods, targeting hard-hit communities across the country and including major awards in Ohio, Illinois, New Jersey, Pennsylvania and 

other areas that have been deeply affected by the current housing problems. The 

Administration continues to explore and refine ways to assist homeowners and stabilize neighborhoods struggling with foreclosures. 

HUD has also played a key role in implementing the American Recovery and Reinvestment Act (ARRA), which, according to the nonpartisan Congressional Budget 

Office is already responsible for putting as many as 2.4 million Americans back to 

work and has put the Nation on track toward a full economic recovery. And, I am 

appreciative of the support for our efforts in this area that Congress and the Members of this Committee have shown. 

HUD has now obligated 98 percent of the $13.6 billion in ARRA funds stewarded 

by the Department—and disbursed $3.7 billion. I would note that a portion of 

HUD’s ARRA funding is fully paid out, or expended, only when construction or other 

work is complete—just as when individual homeowners complete payment after they 

have work done on their homes. Therefore, some of HUD’s obligated, but not yet 

expended, funds are already generating jobs in the hard hit sectors of housing renovation and construction for the purposes of modernizing and ‘‘greening’’ public and 

assisted housing, reviving stalled low-income housing tax credit projects, and stabilizing neighborhoods devastated by foreclosures. Additional HUD-administered 

ARRA funds are providing temporary assistance to families experiencing or at risk 

of homelessness in these difficult economic times. 

While the economy has a long way to go to reach full recovery, and the promising 

indicators emerging steadily are not being experienced by all regions or communities 

equally, it is clear that we have pulled back from the economic abyss above which 

the Nation stood a year ago. 

Roadmap to Transformation 

HUD’s fiscal year 2010 Budget, then, reflected a singular economic moment. During the last Administration, the Department’s annual budget submissions chronically underfunded core programs, and many observers came to regard the agency 

as slow moving, bureaucratic, and unresponsive to the needs of its partners and customers. HUD’s fiscal year 2010 budget request, $43.72 billion (net of receipts generated by FHA and the Government National Mortgage Association, or ‘‘Ginnie 

Mae’’) was a 7 percent increase over the fiscal year 2009 enacted level of $40.72 billion and sent the clear message that HUD’s programs merited funding at levels sufficient to address the housing and community development needs of the economic 

crisis. It also reflected this Administration’s belief that HUD could transform itself 

into the more nimble, results-driven organization required by its increased importance. 

In response to HUD’s fiscal year 2010 budget proposal, Roadmap to Transformation, Congress—with important support from this Committee—provided a vote 

of confidence for which I want to express my deepest appreciation. The fiscal year 

2010 appropriations legislation provided HUD programs $43.58 billion (net of receipts), funding needed to stabilize the Department’s programs across-the-board. 

Critically, the Budget also targeted $258.8 million to the Department’s proposed 

Transformation Initiative, the cornerstone of the agency’s efforts to change the way 

HUD does business. For the first time, HUD has the flexibility to make strategic, 

cross-cutting investments in research and evaluation, major demonstration programs, technical assistance and capacity building, and next generation technology 

investments to bring the agency fully into the 21st century. 

Investing In People and Places 

As a result of all this work—by Congress, HUD and across the Administration— 

we no longer confront an economy or a Department in extreme crisis. Still, much 

work remains, in much changed fiscal circumstances. Now that the economic crisis 

has begun to recede, President Obama has committed to reducing the Federal deficit, including a 3-year freeze on domestic discretionary spending. HUD’s fiscal year 

2011 budget reflects that fiscal discipline. Net of $6.9 billion in projected FHA and 

Ginnie Mae receipts credited to HUD’s appropriations accounts, this Budget proposes overall funding of $41.6 billion, 5 percent below fiscal year 2010. Not including 

FHA and Ginnie Mae receipts, the budget proposal is $1.6 billion above the 2010 

funding levels. These figures meant that we had difficult choices to make—and we 

chose to prioritize core rental and community development programs, fully funding 
34 

Section 8 tenant-based and project-based rental assistance, the public housing Operating Fund, and CDBG. 

At the same time, the Budget cuts funding for a number of programs, including 

the public housing capital fund, HOME Investment Partnerships, Native American 

Housing Block Grants (NAHBG), the 202 Supportive Housing Program for the Elderly, and the Section 811 Supportive Housing Program for Persons with Disabilities. In some instances, these are programs that received substantial ARRA funding 

(e.g., public housing capital and NAHBG), reducing the need for funds in fiscal year 

2011. In the case of reductions to new capital grants—in public housing, Section 

202, and 811—the Department is recognizing that HUD’s partners must increasingly access other private and public sources of capital as HUD and the Federal 

Government are facing severe resource constraints. During this fiscal year, we will 

take administrative steps and work with this Committee on legislative reforms 

needed to modernize the 202 and 811 programs. Simultaneously, the Department 

has made the difficult decision to target HUD’s housing investments to their most 

crucial and catalytic uses, primarily rental and operating assistance that best enable those partners to leverage additional resources. 

As such, we believe this is a bold budget, with carefully targeted investments that 

will enable HUD programs to: house over 2.4 million families in public and assisted 

housing (over 58 percent elderly or disabled); provide tenant based vouchers to more 

than 2.1 million households (over 47 percent elderly or disabled), an increase of 

more than 100,000 over 2009; more than double the annual rate at which HUD assistance creates new permanent supportive housing for the homeless; and create 

and retain over 112,000 jobs through HUD’s housing and economic development investments in communities across the country. In total, by the end of fiscal year 

2011, HUD expects its rental assistance programs to reach nearly 5.5 million households, over 200,000 more than at the end of fiscal year 2009. 

And in terms of reform, this Budget proposes fundamental change beyond the Department’s fiscal year 2010 proposal. A year ago, urgent circumstances called for 

HUD’s programs to be taken largely ‘‘as is’’ in order to pump desperately needed 

assistance into the economy in time to make a critical difference. With the infusion 

of ARRA and fiscal year 2010 funding having stabilized HUD’s programs, the time 

has come to begin transforming them—to make HUD’s housing and community development programs, and the administrative infrastructure that oversees them, 

more streamlined, efficient, and accountable. 

This Budget is a major step in that direction. Specifically, it seeks to achieve five 

overarching goals, drawn from an extensive strategic planning process that engaged 

over 1,500 internal and external stakeholders in defining the Department’s transformation priorities and strategies. 

Goal 1: Strengthen the Nation’s Housing Market to Bolster the Economy and 

Protect Consumers 

With housing still representing the largest asset for most American households, 

it is essential that home prices continue to stabilize in order to restore the confidence of American consumers. Americans held roughly $6.2 trillion in home equity 

in the third quarter of 2009, up from its lowest point of $5.3 trillion in the first 

quarter of 2009. The central role of housing in the U.S. economy demands that Federal agencies involved in housing policymaking rethink and restructure programs 

and policies to support housing as a stable component of the economy, and not as 

a vehicle for over-exuberant and risky investing. 

With that in mind, the fiscal year 2011 Budget represents a careful, calibrated 

balancing of FHA’s three key responsibilities: providing homeownership opportunities to responsible borrowers, supporting the housing market during difficult economic times and ensuring the health of the Mutual Mortgage Insurance (MMI) 

fund. 

FHA provides mortgage insurance to help lenders reduce their exposure to risk 

of default. This assistance allows lenders to make capital available to many borrowers who would otherwise have no access to the safe, affordable financing needed 

to purchase a home. As access to private capital has contracted in these difficult 

economic times, borrowers and lenders have flocked to FHA and the ready access 

it provides to the secondary market through securitization by Ginnie Mae.FHA insures approximately thirty percent of all home purchase loans today and nearly half 

of those for first-time homebuyers. The increased presence of FHA—and other institutions like Fannie Mae and Freddie Mac—in the housing market, has helped support liquidity in the purchase market, helping us ride through these difficult times 

until private capital returns to its natural levels. 

Not only is FHA ensuring the availability of financing for responsible first time 

home purchasers, it is also helping elderly homeowners borrow money against the 
35 

equity of their homes through the Home Equity Conversion Mortgage (HECM). This 

program has grown steadily in recent years, to a volume of $30.2 billion in fiscal 

year 2009. 

FHA is also providing several outlets of relief for homeowners in distress. First, 

and perhaps most significantly, it is helping homeowners refinance from 

unsustainable mortgages into 30 year, fixed-rate FHA-insured loans at today’s much 

lower rates. On March 26th, as part of the Administration’s continued efforts to assist homeowners to avoid foreclosure, HUD announced adjustments to the FHA program that will allow lenders to provide additional refinancing options to those borrowers who owe more on their home than it is worth, in conjunction with a mandatory principal write down by their lender or mortgage investor. These adjustments 

will provide more opportunities for qualifying mortgage loans to be responsibly restructured and refinanced into FHA loans as long as the borrower is current on the 

mortgage and the lender reduces the amount owed on the original loan by at least 

10 percent. We have also expanded the FHA loan modification program, known as 

FHA HAMP, to provide incentives for servicers to modify loans insured by the FHA. 

With the issuance of new rules on March 26 (Supplemental Directive 10–03), TARPfunded incentives will be available to borrowers and servicers whose loans are modified under the FHA–HAMP guidelines, corresponding to the pay-for-success HAMP 

incentive structure. 

And finally, FHA is playing an important role in protecting homeowners and helping prospective homeowners make informed decisions. It is providing counseling to 

homeowners to help them avoid falling into unsustainable loans. And it is fighting 

mortgage fraud vigorously on all fronts, having suspended seven lenders, including 

Taylor, Bean and Whitaker, and withdrawn FHA-approval for over 300 others since 

last summer. 

To support these important efforts, the Budget includes $88 million for the Housing Counseling Assistance program, which is the only dedicated source of Federal 

funding for the full spectrum of housing counseling services. With these funds we 

also plan to continue our work to expand the number of languages in which counseling is available. In addition, the budget continues FHA’s Mortgage Fraud initiative ($20 million) launched in fiscal year 2010 as well as implementation of sweeping reforms to the Real Estate Settlement and Procedures Act (RESPA) beginning 

in January 2010 and the Secure and Fair Enforcement (SAFE) for Mortgage Licensing Act beginning in June 2010. 

With this Budget, HUD is projecting that FHA will continue to play a prominent 

role in the mortgage market in fiscal year 2011. Accordingly, it requests a combined 

mortgage insurance commitment limitation of $420 billion in fiscal year 2011 for 

new FHA loan commitments for the Mutual Mortgage Insurance (MMI) and General 

and Special Risk Insurance (GI/SRI) funds. The proposed total includes $400 billion 

under the MMI Fund, which supports insurance of single family forward home 

mortgages and reverse mortgages under HECM; and $20 billion under the GI/SRI 

Fund, which supports multifamily rental and an assortment of special purpose insurance programs for hospitals, nursing homes, and Title I lending. The budget requests a direct loan limitation of $50 million for the MMI fund and $20 million for 

the GI/SRI fund to facilitate the sale of HUD-owned properties acquired through insurance claims to or for use by low- and moderate-income families. 

With FHA’s temporarily increased role, however, comes increased risk and responsibility. That is why FHA has rolled out a series of measures over the last year to 

strengthen its risk and operational management. It has hired its first chief risk officer in its 75-year history and created an entire risk management organization and 

reporting structure, tightened its credit standards significantly and, as I mentioned, 

expanded its capacity to rein in or shut down lenders who commit fraud or abuse. 

On January 20th of this year, FHA Commissioner Stevens proposed taking the 

following steps to mitigate risk and augment the MMI Fund’s capital reserves: increase the mortgage insurance premium (MIP); update the combination of FICO 

scores and down payments for new borrowers; reduce seller concessions to industry 

norms; and implement a series of significant measures aimed at increasing lender 

responsibility and enforcement. And to strengthen its operational capacity, FHA has 

begun implementing a plan to significantly upgrade its technology infrastructure 

and increase its personnel, to ensure that both are in keeping with the growth of 

its portfolio and the increase in responsibility. 

These changes merit additional explanation, as they not only put FHA on firmer 

footing and increase reserves, but also generate additional revenues in fiscal year 

2011 to contribute to deficit reduction. First, insurance revenues from single family 

loan guarantees will grow by increasing the upfront premium to 225 basis points 

across all FHA forward product types (purchase, conventional to FHA refinances, 

and FHA to FHA refinances). The upfront premium increase was implemented by 
36 

mortgagee letter issued on January 21, 2010 and will apply to all applications received on or after April 5, 2010. 

Second, FHA is also proposing a ‘‘two-step’’ FICO floor for FHA purchase borrowers, which would reduce both the claim rate on new insurance as well as the 

loss rate experienced on the claims incurred. Purchase borrowers with FICO scores 

of 580 and above would be required to make a minimum 3.5 percent down payment; 

and those with FICO scores between 500–579 would be required to make a minimum down payment of 10 percent. Applicants below 500 would be ineligible for insurance. These changes are being proposed after an exhaustive review of FHA’s actual claim performance data, which demonstrates that loan performance is best predicted by a combination of credit score and downpayment—simply raising one element without recognizing the impact of the layering of risk factors is not sufficient. 

We are considering how these changes might be applied to refinancing borrowers 

as well. FHA is proposing to publish the two-step FICO proposal in the Federal Register in short order with implementation later in 2010. In combination, these reforms—which are already permitted under current law—can be expected to produce 

$4.2 billion in offsetting receipts in fiscal year 2011. 

In addition, as noted in the proposed budget, while HUD is moving to increase 

the upfront premium to 225 basis points we are ultimately planning to reduce that 

premium to 100 basis points, offset by a proposed increase in the annual premium 

to 85 basis points for loans with loan-to-value ratios (LTV) up to and including 95 

percent and to 90 basis points for LTVs above 95 percent. These changes to the annual premium will require legislative authority, and we are looking forward to 

working with this authorizing committee as part of that effort. This new premium 

structure more in line with GSE and private mortgage insurers’ pricing, which facilitates the return of private capital to the mortgage market. Indeed, if these 

changes are adopted during the current fiscal year, the estimated value to the MMI 

fund would be $300 million in additional funds each month, providing better underwriting for FHA loans and helping to replenish capital reserves. 

If implemented, in combination with the two-step FICO floor, this change in the 

premium structure is projected to result in the $5.8 billion in offsetting FHA receipts for fiscal year 2011 that is reflected in the Budget Appendix. In sum, FHA 

has taken the kinds of steps necessary to make sure that it will remain strong and 

healthy enough to continue to fulfill its mission of serving the underserved and playing a vital counter-cyclical role in the housing market. 

Goal 2: Meet the Need for Quality Affordable Rental Homes 

Several recent national indicators have pointed to increasing stress in the U.S. 

rental housing market. Vacancy rates are on the rise as a result of the dampened 

demand and additional supply repurposed from the ownership market. Spreads between asking rents and effective rents are widening. Asking rents are now $65 higher than effective rents (6.6 percent of the effective rent)—the largest gap over the 

past 4 years. While some new renters have been the beneficiaries of this softness, 

drawing concessions from distressed property owners, the budgets of many more 

low-income renters have been strained as household incomes fall, due to unemployment and lost hours worked. 

Loss of income stemming from the recession is likely offsetting affordability gains 

from declining rents. Vacancies in the lower end of the market remain considerably 

lower than market levels overall, and the number of cost burdened low-income renters is on the rise. Based on estimates from the 2008 American Community Survey, 

8.7 million renter households paid 50 percent or more of their income on housing, 

up from 8.3 million renter households in 2007. These figures do not include the over 

664,000 people who experience homelessness on any given night. 

As HUD Secretary, as well as the current Chair of the Interagency Council on 

Homelessness under President Obama, I am committed to making real progress in 

reducing these tragic figures. To do so requires substantial investment even in this 

difficult fiscal year. For this reason, the Budget provides $1 billion for capitalization 

of the National Housing Trust Fund, to increase development of housing affordable 

to the nation’s lowest income families. I look forward to working with the Members 

of this Committee to secure the funds. 

In addition, HUD’s rental assistance and operating subsidy programs have never 

been more needed, nor has the imperative to operate them efficiently been clearer. 

This budget takes three critical steps to meet this challenge. 

• Increases investment in core rental assistance and operating subsidy 

programs 

This Budget invests over $2.2 billion more than in fiscal year 2010 to 

meet the funding needs of the Tenant-based Rental Assistance (TBRA) pro-
37 

gram, the Project-based Rental Assistance (PBRA) program, and the public 

housing Operating Fund. 

Tenant-based Rental Assistance 

The Section 8 TBRA or Housing Choice Voucher (HCV) program is a cost-effective 

means for delivering decent, safe, and sanitary housing to low-income families in 

the private market, providing assistance so that participants are able to find and 

lease privately owned housing. In fiscal year 2009, HUD assisted over 2 million families with this program; and, in fiscal year 2010, we plan to assist over 76,000 more 

families through new incremental vouchers. 

This Budget continues HUD’s bedrock commitment to its largest program. The 

calendar year request for 2011 is $19.6 billion, a $1.4 billion increase over the 2010 

Consolidated Appropriations Act and an amount estimated to assist 2.2 million 

households. This represents an increase of 34,466 families from fiscal year 2010 projections and 112,304 more than at the end of fiscal year 2009. 

Of the $19.6 billion request, $17.3 billion will cover the renewal of expiring annual contribution contracts (ACC) in calendar year 2011; with $1.8 billion for Administrative Fees; $125 million for Tenant Protection vouchers; $60 million to support Family Self-Sufficiency (FSS) activities; and up to $66 million for disaster 

vouchers for families affected by Hurricanes Ike and Gustav. In addition, this Budget requests $85 million for incremental vouchers to help homeless individuals, atrisk families with children, and families with special needs stabilize their housing 

situation and improve their health status, as well as $114 million for the shift of 

the renewal of mainstream vouchers from the Section 811 account to the TBRA account. 

Through this Budget, the Department reaffirms its commitment to improving the 

Section 8 program by designing a comprehensive development strategy to improve 

HUD Information Technology systems to better manage and administer the Voucher 

program; implementing an improved Section 8 Management Assessment Program 

(SEMAP) that will ensure strengthened oversight, quality control, and performance 

metrics for the voucher program; continuing the study to develop a formula to allocate administrative fees based on the cost of an efficiently managed PHA operating 

the voucher program; developing a study to evaluate current Housing Quality 

Standards and improve the unit inspection process; and eliminating unnecessary 

caps on the number of families that each PHA may serve. 

Project-based Rental Assistance (PBRA) 

PBRA assists more than 1.3 million low- and very low-income households in obtaining decent, safe, and sanitary housing in private accommodations. This critical 

program serves families, elderly households, disabled households, and provides transitional housing for the homeless. Through PBRA funding, HUD renews contracts 

with owners of multifamily rental housing—contracts that make up the difference 

between what a household can afford and the approved rent for an adequate housing unit in a multifamily development. 

HUD is requesting a total of $9.382 billion to meet PBRA program needs. This 

includes $8.982 billion to be available in fiscal year 2011 (in addition to the $394 

million previously appropriated) and $400 million to be available in fiscal year 2012. 

For fiscal year 2011, HUD estimates a need of $8.954 billion of new Budget Authority for contract renewals and amendments. The need for Section 8 Amendment 

funds results from insufficient funds provided for long-term project-based contracts 

funded primarily in the 1970s and 1980s, when long-term contracts (up to 40 years) 

made estimating funding needs problematic, leading to frequent underfunding. The 

current practice of renewing expiring contracts for a 1-year term helps to ensure 

that the problem of inadequate funded contracts is not repeated. However, some 

older long-term contracts have not reached their termination dates and, therefore, 

have not yet not entered the 1-year renewal cycle and must be provided amendment 

funds for the projects to remain financially viable. The Department estimates that 

total Section 8 Amendment needs in 2011 will be $662 million. The Budget request 

continues the Department’s commitment to provide full 1-year funding for contract 

renewals and amendments. 

Public Housing Operating Fund 

The public housing Operating Fund provides operating subsidy payments to over 

3,100 public housing authorities (PHAs) which serve 1.2 million households in public housing. The fiscal year 2011 Budget requests $4.8 billion, which will fully fund 

the Operating Fund. Full funding is essential to the proper operation of public housing, provision of quality housing services to residents, and effective use of Capital 

Fund resources. 
38 

1 HUD is currently conducting a definitive Capital Needs study of the public housing portfolio. 

2Preserving Safe, High Quality Public Housing Should Be a Priority of Federal Housing Policy, Barbara Sard and Will Fischer, October 8, 2008 (noting that ‘‘ninety percent of developments meet or exceed housing quality standards, although most developments are more than 

30 years old, and many will need rehabilitation.’’). 

• Begins to streamline the Department’s rental assistance programs 

It does not take a housing expert to see that HUD’s rental assistance programs 

desperately need simplification. HUD currently provides deep rental assistance to 

more than 4.6 million households through thirteen different programs, each with its 

own rules, administered by three operating divisions with separate field staff. Too 

often over time, additional programs designed to meet the needs of vulnerable populations were added without enough thought to the disjointed system that would result. This unwieldy structure ill serves the Department, our government and private 

sector partners, and-most importantly the people who live in HUD-supported housing. 

In my last job, as Commissioner of the New York City Department of Housing 

Preservation and Development, I personally experienced the challenges of working 

with HUD rental assistance to preserve and develop affordable housing at a large 

scale. While implementing the City’s 165,000 unit New Housing Marketplace plan, 

it was a constant struggle to integrate HUD’s rental assistance streams, and capital 

funding resources for that matter, into the local, state, and private sector housing 

financing that was absolutely necessary to leverage to get the job done. 

But I was willing to deal with the transaction costs of engaging with HUD’s lessthan-ideally aligned subsidy programs for a simple reason: the engine that drives 

capital investment at the scale needed, in a mixed-finance environment, is typically 

a reliable, long-term, market-based, stream of Federal rental assistance. Historically, no other mechanism—and no other source of government funding—has ever 

proven as powerful at unlocking a broad range of public and private resources to 

meet the capital needs of affordable housing. While highly imperfect, HUD’s rental 

assistance programs are irreplaceable. 

This said, tolerating the inefficiencies of the status quo is no longer an option. The 

capital needs of our Nation’s affordable, federally assisted housing stock are too substantial and too urgent. The Public Housing program in particular has long wrestled 

with an old physical stock and a backlog of unmet capital needs that may exceed 

$20 billion.1 To be sure, nearly two decades of concentrated efforts to demolish and 

redevelop the most distressed public housing projects, through HOPE VI and other 

initiatives, has paid off. The stock is in better shape overall than it has been in 

some time,2 and the $4 billion in ARRA funds targeted to public housing capital improvements are further stabilizing the portfolio. But this very progress has created 

a unique—but time limited—opportunity to permanently reverse the long-term decline in the Nation’s public housing portfolio and address the physical needs of an 

aging assisted housing stock. 

My many years of experience in dealing with affordable housing on a large scaleboth in New York and overseeing HUD’s multifamily assisted housing programs 

during the 1990s—have drilled home two key lessons. First, it is far more costly to 

build new units than to preserve existing affordable housing. And, second, an affordable housing project can limp along for some time with piecemeal, ad hoc strategies 

to address its accumulating capital backlog, but eventually the building will reach 

a ‘‘tipping point’’ where its deterioration becomes rapid, irreversible and expensive. 

This moment in time calls for a timely, crucial Federal investment to leverage other 

resources to the task of maintaining the number of safe, decent public and assisted 

housing units available to our nation’s poor families-an objective that at some point, 

soon, will cost the taxpayer substantially more to achieve by other means. 

Nor can we afford to sustain the disconnect between HUD’s largest rental and operating assistance programs, given the disproportionate impact of the recession on 

the recipients of HUD assistance and the communities where much of HUD’s public 

and assisted housing stock remains. More than ever, communities of concentrated 

poverty need their public and assisted housing stock—even the most distressed 

projects that are the targets of our proposed Choice Neighborhoods initiative—to 

serve as anchors of broader neighborhood revitalization efforts. Simultaneously, in 

this challenging economy, tenants of HUD-subsidized projects also need the option 

to pursue opportunities for their families in other neighborhoods and communities 

as and when they arise, without losing the subsidy that is so crucial to maintaining 

their housing stability. Today, we lack the seamless connection that should exist between HUD’s largest project-based assistance programs—PBRA and public housingand the Housing Choice Voucher program, which leaves tenants of PBRA and public 

housing with limited ability to move to greater opportunity. 
39 

To address these issues and move HUD’s rental housing programs into the housing market mainstream, HUD proposes to launch an ambitious, multi-year effort 

called the Transforming Rental Assistance (TRA) initiative. 

This initiative is anchored by four guiding principles: 

First, that the complexity of HUD’s programs is part of the problem—and we 

must streamline and simplify our programs so that they are less costly to operate 

and easier to use at the local level. Ultimately, TRA is intended to move properties 

assisted under these various programs toward a more unified funding approach, 

governed by an integrated, coherent set of rules and regulations that better aligns 

with the requirements of other of Federal, state, local and private sector financing 

streams. 

Second, that the key to meeting the long-term capital needs of HUD’s public and 

assisted housing lies in shifting from the Federal capital and operating subsidy 

funding structure we have today—which exists in a parallel universe to the rest of 

the housing finance world—to a Federal operating subsidy that leverages capital 

from other sources. 

Third, that bringing market investment to all of our rental programs will also 

bring market discipline that drives fundamental reforms. Only when our programs 

are truly open to private capital will we be able to attract the mix of incomes and 

uses and stakeholders necessary to create the sustainable, vibrant communities we 

need. 

And fourth, that we must combine the best features of our tenant-based and 

project-based programs to encourage resident choice and mobility. TRA reflects 

HUD’s commitment to complementing tenant mobility with the benefits that a reliable, property-based, long term rental assistance subsidy can have for neighborhood 

revitalization efforts and as a platform for delivering social services. And in a world 

where the old city/suburb stereotypes are breaking down, and our metropolitan 

areas are emerging as engines of innovation and economic growth, we have to ensure our rental assistance programs keep up. Under the 2011 budget, the first phase of TRA will provide $350 million to preserve approximately 300,000 units of public and assisted housing, increase administrative efficiency at all levels of program operations, leverage private capital, and 

enhance housing choice for residents. With this request, we expect to leverage over 

$7.5 billion in other public and private sector capital investment. PHAs and private 

owners will be offered the option of converting to long-term, market-based, propertybased rental assistance contracts that include a resident mobility feature, which we 

are working to define in close collaboration with current residents, property owners, 

local governments and a wide variety of other stakeholders. Most of the fiscal year 2011 downpayment on TRA, up to $290 million, will be 

used to fill the gap between the funds otherwise available for the selected properties—in most cases the public housing Operating Fund subsidy—and the first-year 

cost of the new contracts. As noted above, a reliable funding stream will help place 

participating properties on a sustainable footing from both a physical and a financial standpoint, enabling owners to leverage private financing to address immediate 

and long-term capital needs, and freeing them from the need for annual capital subsidies. 

Under this voluntary initiative, HUD will prioritize for conversion public housing 

and assisted multifamily properties owned by PHAs. Notably, in this regard, TRA 

delivers on the promise of over a decade’s worth of movement in the field of public 

housing toward the private sector real-estate model known as ‘‘asset-management,’’ 

by finally providing public housing authorities with the resources to successfully implement this model in the projects they will continue to own. Three types of privately owned HUD-assisted properties will also be eligible for conversion in this first 

phase: Section 8 Moderate Rehabilitation contracts administered by PHAs, and 

properties assisted under the Rent Supplement or Rental Assistance Programs. 

With this step, we can eliminate three smaller legacy programs that have become 

‘‘orphans’’ as new housing programs have evolved. This consolidation will preserve 

these properties for residents, improve property management, and streamline HUD 

oversight to save the taxpayer money. Much of the remaining funding, up to $50 million, will be used to promote mobility by targeting resources to encourage landlords in a broad range of communities 

to participate in the housing voucher program and to provide additional services to 

expand families’ housing choices. A portion of these funds also may be used to offset 

the costs of combining HCV administrative functions in regions or areas where locally designed plans propose to increase efficiency and effectiveness as part of this 

conversion process. 

By late April, the Administration plans to transmit to this Committee proposed 

legislation to authorize the TRA initiative and the long-term property-based rental 
40 

assistance contracts and resident choice policies that are its cornerstone. Enactment 

of a number of the provisions in the Section 8 Voucher Reform Act is also an integral part of the Transforming Rental Assistance initiative. The Administration looks 

forward to working with Congress to finalize this vital legislation. 

Without Congress’ work on HOPE VI and the Quality Housing and Work Responsibility Act, this opportunity would never have arisen. This year, we can together 

begin to put both public and assisted housing on firm financial footing for decades 

to come, and start to meld HUD’s disparate rental assistance and capital programs 

into a truly integrated Federal housing finance system. I hope that you will help 

HUD make this breakthrough by enacting these key pieces of legislation. 

• Increases investment in proven and restructured HUD homeless assistance programs 

The budget also proposes to increase funding for HUD’s highly effective Homeless Assistance Grants by nearly $200 million fiscal year 2010, to $2.055 billion in fiscal 

year 2011. I would like to thank Senator Reed and the leadership of this Committee 

for literally years of work to restructure and modernize these programs to reflect 

over two decades of research and on-the-ground experience combating homelessness. 

As you know, these efforts came to fruition in May of last year, with enactment of 

the Homeless Emergency Assistance and Rapid Transition to Housing, or 

‘‘HEARTH’’ Act. 

Fiscal year 2011 marks the first year of implementation of the HEARTH Act, and 

the Department’s proposed funding level will enable local homeless assistance planning and implementation collaboratives—known as Continuums of Care—to do so 

by better addressing the unique dynamics of homelessness in rural communities, 

improving performance-management and outcome focus within local homeless assistance systems, and implementing evidence-based practices such as permanent 

supportive housing and homelessness prevention. The Department looks forward to 

working with you to making minor adjustments to HEARTH to facilitate this implementation process in light of some practical obstacles our Special Needs Assistance 

Programs and Services office is confronting. 

With respect to homelessness prevention, I would call to the Committee’s attention the recent publication of a significant study by HUD’s Office of Policy Development and Research entitled ‘‘Costs Associated With First-Time Homelessness for 

Families and Individuals.’’ This examination of the costs incurred within homeless 

and mainstream service delivery systems in six communities as diverse as upstate 

South Carolina to large cities like Houston and Washington, D.C. provides compelling support for continuing to apply the old adage ‘‘an ounce of prevention is worth 

a pound of cure’’ in the context of homelessness—which ARRA did by providing $1.5 

billion in Homeless Prevention and Rapid Re-housing Program (HPRP) grants and 

the HEARTH Act continued through the permanent authorization of a similar prevention program. 

We have long known that chronic homelessness generated such substantial costs 

within homeless and mainstream systems that evidence-based interventions to end 

chronic homelessness, such as permanent supportive housing, generate savings 

across systems nearly equal to their costs (efficiently capturing these savings across 

executive branch and legislative ‘silos’ at various levels of government is, of course, 

an ongoing challenge). This is why recent Federal efforts have focused on ‘‘moving 

the needle’’ on chronic homelessness, with the result that chronic homelessness 

dropped 30 percent in the 4 years from 2005 through 2008, certainly one of the 

greatest social welfare policy achievements of the past decade. It is now increasingly 

clear that even first time homelessness incurs substantial costs, and that the best 

way to avoid these costly interactions is to keep vulnerable households from becoming homeless in the first place. 

In sum, the Department’s fiscal year 2011 Homeless Assistance Grants funding 

request reflects the paradigm shift this Committee helped to produce within the nation’s homeless system, through the HEARTH Act, and will allow the Administration to continue making progress in ending chronic homelessness and meet the 

growing need among homeless families during this economic downturn. Finally, as 

the current Chair of the Interagency Council on Homelessness, I look forward to 

submitting to Congress next month, and working with you to implement, the 5-year 

Federal strategy to address homeless mandated by the HEARTH Act. 

Goal 3: Utilize Housing as a Platform for Improving Quality of Life 

A growing body of evidence points to the role housing plays as an essential platform for human and community development. Stable housing is the foundation upon 

which all else in a family’s or individual’s life is built—absent a safe, affordable 

place to live, it is next to impossible to achieve good health, positive educational out-
41 

comes, or reach one’s full economic potential. Indeed, for many persons with disabilities living in poverty, lack of stable housing as discussed above, leads to costly cycling through crisis-driven systems like emergency rooms, psychiatric hospitals, 

detox centers, and even jails. By the same token, stable housing provides an ideal 

launching pad for the delivery of healthcare and other social services focused on improving life outcomes for individuals and families. As noted above, a substantial 

level of research has established, for example, that providing permanent supportive 

housing to chronically ill, chronically homeless individuals and families not only 

ends their homelessness, but also yields substantial cost savings in public health, 

criminal justice, and other systems-often nearly enough to fully offset the cost of 

providing the permanent housing and supportive services. More recently, scholars 

have focused on housing stability as an important ingredient for children’s success 

in school—unsurprisingly, when children are not forced to move from place to place 

and school-to-school, they are more likely to succeed academically. 

Capitalizing on these insights, HUD is launching efforts to connect housing to 

services that improve the quality of life for people and communities. The fiscal year 

2011 budget proposes the following important initiatives: 

• Connects formerly homeless tenants of HUD-housing to mainstream supportive services programs 

The Department requests $85 million for incremental voucher assistance for the 

new Housing and Services for Homeless Persons Demonstration to support 

groundbreaking collaborations with the Department of Health and Human Services 

(HHS) and the Department of Education. This demonstration is premised on the Administration’s firm belief that targeted programs alone cannot end homelessness. 

Mainstream housing, health, and human service programs will have to be more fully 

engaged to prevent future homelessness and significantly reduce the number of families and individuals who are currently homeless. Two separate initiatives will be 

funded in an effort to demonstrate how mainstream programs can be aligned to significantly impact homelessness. 

One initiative will focus on individuals with special needs who are homeless or 

at risk of homelessness. This initiative is designed to model ways that resources 

across HUD and HHS can be brought to bear to address the housing and service 

needs of this vulnerable population. Recently released data shows that over 42 percent of the homeless population living in shelters has a disabling condition. The 

demonstration would combine Housing Choice Vouchers with health, behavioral 

health and other support services to move and maintain up to 4,000 chronically 

homeless individuals with mental and substance use disorders into permanent supportive housing. 

Vouchers will be targeted to single, childless adults who are homeless and who 

are already enrolled in Medicaid through coverage expansion under state Medicaid 

waivers or state only initiatives. In addition, HHS is seeking $16 million in its fiscal 

year 2011 budget request to provide wraparound funding through grants administered by the Substance Abuse and Mental Health Services Administration to promote housing stability and improvements in health outcomes for this population. 

HUD and HHS will jointly design the competitive process and conduct an evaluation 

to determine: (1) the cost savings in the healthcare and housing systems of the proposed approach, (2) the efficacy of replication, and (3) the appropriate cost-sharing 

among Federal agencies for underwriting services that increase housing stability 

and improve health and other outcomes. 

Another initiative will establish a mechanism for HUD, HHS and Department of 

Education programs to be more fully engaged in stabilizing homeless families, ultimately resulting in reducing the costs associated with poor school performance and 

poverty. This initiative strategically targets these resources to: (1) identify families 

who are homeless or at risk of homelessness, (2) intervene with the appropriate 

array of housing assistance, income supports, and services to ensure that the family 

does not fall into the shelter system or onto the street (or if already homeless that 

the family is stably housed and does not return to homelessness), and (3) provide 

the tools necessary to assist the family to build on its resources to escape poverty 

and reach its highest possible level of economic security and self-sufficiency. 

HUD will make available a minimum of 6,000 Housing Choice Vouchers on a competitive basis and jointly design the competitive process with HHS and the Department of Education. Winning proposals will have to show that the new vouchers are 

being targeted to communities with high concentrations of homeless families. With 

guidance from HHS, states will need to demonstrate how they will integrate HUD 

housing assistance with other supports—including TANF—these families will need 

to stabilize their housing situation, foster healthy child development, and prepare 

for, find, and retain employment. HHS will provide guidance to state TANF agencies 
42 

and other relevant programs to explain this initiative and their role in both the application for the vouchers and the implementation of the program. DoE will assist 

with identifying at-risk families with children through their network of school-based 

homelessness liaisons, and providing basic academic and related supports for the 

children. Locally, applicants will need to show that they have designed a well-coordinated and collaborative program with the TANF agency, the local public schools, 

and other community partners (e.g., Head Start, child welfare, substance abuse 

treatment, etc.). 

Collectively, these initiatives represent an unprecedented, ‘‘silo-busting’’ alignment of Federal resources to address the needs of some of the country’s most vulnerable individuals and families. At the same time, we believe they will save the taxpayer significantly in the long run. This innovative approach will also involve some 

collaboration across subcommittee jurisdictional lines, and we look forward to working with the members of this panel in determining how best to facilitate that joint 

action. 

• Modernizes the 202 and 811 Supportive Housing Programs for the Elderly and Disabled 

As the Department begins the process of restructuring its rental assistance programs, it must also ensure that its programs providing capital grants and rental assistance that are sized to the actual costs to operate a project (‘budget-based’ or ‘operating cost-based’) are well designed for the world of housing finance in the 21st 

century. Beyond public and assisted housing—the focus of the TRA initiative—the 

most prominent examples of such funding streams are the Section 202 and 811 programs, which couple housing and services for the nation’s poor elderly and disabled, 

respectively. 

Although they have provided critical housing for thousands of residents, these 

programs are in need of modernization. Project sponsors no longer receive enough 

funding per grant for the 202 and 811 programs to be a ‘‘one-stop shop’’ to capitalize 

and sustain a project, yet they are subject to a level of bureaucratic oversight that 

suggests they are. This regulatory structure also makes it difficult for project sponsors to work with other financing streams, such as low income housing tax credits, 

even as the average grant size requires accessing other capital sources. As a result, 

project development is slowed and, coupled with outdated geographic allocation formulae, limited resources are spread too thin to reach scale at either the project or 

national programmatic levels. In 2009, the 202 program produced only 3,049 units 

with an average project size of 44 units and the 811 program produced only 661 

units with an average project size of 10 units. 

Approximately 10 times as many units are produced under the Low Income Housing Tax Credit program. And under the status quo, the total annual production of 

units will continue to decrease as the cost of supporting existing 811/202 properties 

consumes more and more of the overall funding allocation. This threatens to make 

the programs increasingly marginal for the nation’s elderly and disabled. 

Accordingly, HUD requests a suspension of funding for Section 202 and 811 Capital Advance Grants in fiscal year 2011 in order to redesign the programs to better 

target their resources to meet the current housing and supportive service needs of 

frail elderly and disabled very low-income households. The redesigned programs will 

maximize HUD’s financial contribution through enhanced leveraging requirements 

and will also encourage or require partnerships with HHS and other services funding streams to create housing that, while not medically licensed, still effectively 

meets the needs of very low-income elderly and disabled populations unable to live 

fully independently. The program reforms for both 202 and 811 will include the following: 1) new requirements to establish demand to ensure meaningful impact of 

dollars awarded; 2) raised threshold for sponsor eligibility to ensure the award of 

funds only to organizations with unique competency to achieve the program goals; 

3) streamlined processing to speed development timeframes; 4) broader benefits of 

program dollars achieved by facilitating supportive services provided by Medicaid/ 

Medicare Waiver programs such as the Program of All-inclusive Care for the Elderly 

(PACE) model services to 202 project residents, 5) encouraging better leveraging of 

other sources of funding, such as low income housing tax credits, and 6) integrating 

811 programs within larger mixed-finance, mixed-use projects. 

Goal 4: Build Inclusive and Sustainable Communities Free from Discrimination 

The Department’s approach to this objective is informed by the Obama Administration’s landmark, Federal Government-wide review of ‘‘place-based’’ policies for 

the first time in over three decades. 
43 

Place is already at the center of every decision HUD makes. HUD’s programs 

today reach nearly every neighborhood in America—58,000 out of the approximately 

66,000 census tracts in the U.S. have one or more unit of HUD assisted housing. 

But we have taken this opportunity to renew our focus on place, with the result that 

the proposed fiscal year 2011 Budget allows HUD to better nurture sustainable, inclusive neighborhoods and communities across America’s urban, suburban, and 

rural landscape. 

One aspect of HUD’s refined place-based approach involves making communities 

sustainable for the long-term. Sustainability includes improving building level energy efficiency, cutting carbon emissions through transit-oriented development, and 

taking advantage of other locational efficiencies. But sustainability also means creating ‘‘geographies of opportunity,’’ places that effectively connect people to jobs, 

quality public schools, and other amenities. Today, too many HUD-assisted families 

are stuck in neighborhoods of concentrated poverty and segregation, where one’s zip 

code predicts poor educational, employment, and even health outcomes. These neighborhoods are not sustainable in their present state. 

This Budget lays the groundwork for advancing sustainable and inclusive growth 

patterns at the metropolitan level, communities of choice at the neighborhood scale, 

and energy efficiency at the building scale. Specifically, the fiscal year 2011 Budget 

calls for the following series of programs and funding levels. 

• Supports and improves the Federal Government’s premier community 

development program 

The economic downturn and foreclosure crisis have significantly depleted resources in state and local governments while increasing demand for services. Revenue declines often turn quickly into layoffs and cuts in services for the poor. Meanwhile, community development investments have a heightened role in economic redevelopment and stabilization for neighborhoods and regions across the country. 

During these difficult economic times, it is critical that the Administration support 

and enhance community development programs, and partner with grantees in developing strategies to increase economic vitality, build capacity, and build sustainable 

communities and neighborhoods of opportunity. Since 1974, the Community Development Block Grant (CDBG) program has provided formula grants to cities and 

states to catalyze economic opportunity and create suitable living environments 

through an extensive array of community development activities. 

The fiscal year 2011 Budget proposes a total of $4.380 billion for the Community 

Development Fund, which includes: 

• $3.99 billion for CDBG formula distribution, to meet the President’s campaign 

promise to fully fund CDBG. Simultaneously, the Department proposes a number of improvements to the CDBG program, including revamping the consolidated plans developed by state and local governments, greater accountability, 

and better performance metrics. 

• $150 million in funding for the second year of the Sustainable Communities Initiative. The initiative has four components in 2011, described below. HUD looks 

forward to working with the Committee and in particular the Chairman, who 

has played an important leadership role on this set of issues, to refine these 

proposals. 

1. Sustainable Communities Planning Grants administered by HUD in collaboration with the Department of Transportation (DOT) and the Environmental Protection Agency (EPA). These grants will catalyze the next generation of integrated metropolitan transportation, housing, land use and 

energy planning using the most sophisticated data, analytics and geographic information systems. Better coordination of transportation, infrastructure and housing investments will result in more sustainable development patterns, more affordable communities, reduced greenhouse gas 

emissions, and more transit-accessible housing choices for residents and 

firms. 

2. Sustainable Communities Challenge Grants to help localities implement 

Sustainable Communities Plans they will develop. These investments 

would provide a local complement to the regional planning initiative, enabling local and multi-jurisdictional partnerships to put in place the policies, codes, tools and critical capital investments to achieve sustainable development patterns. 

3. The creation and implementation of a capacity-building program and tools 

clearinghouse, complementing DOT and EPA activities, designed to sup-
44 

port both Sustainable Communities grantees and other communities interested in becoming more sustainable. 

4. A joint HUD–DOT–EPA research effort designed to advance transportation 

and housing linkages at every level our agencies work on. 

• $150 million for the Catalytic Investment Competition Grants program to create 

jobs by providing economic development and gap financing to implement targeted economic investment for neighborhood and community revitalization. For 

too long, communities have lacked the kind of place-based, targeted, ‘gamechanging’ Federal capital investment program in the community and economic 

development arena that HOPE VI has proven to be with respect to severely distressed public housing. The Catalytic Investment Competition would rectify that 

imbalance by providing ‘gap financing’ for innovative, high impact economic development projects at scale that create jobs. The program will create a competitive funding stream that is responsive to changes in market conditions, 

leverages other neighborhood revitalization resources (including formula CDBG 

funds), and ultimately increases the economic competitiveness of distressed 

communities and neighborhoods. 

Under this proposal, my office would be permitted to consider how much and 

to what extent projects complement and leverage other community development 

and revitalization activities such as the Choice Neighborhoods Initiative, Promise Neighborhoods, HOPE VI, Sustainable Communities, or other place-based 

investments in targeted neighborhoods to improve economic viability, extend 

neighborhood transformation efforts, and foster viable and sustainable communities. Applicants must develop a plan that includes measurable outcomes for 

job creation and economic activity, exhibit capacity to implement the plan, and 

demonstrate approval for the plan from the local jurisdiction. Applicants will 

be required to leverage other appropriate Federal resources, including but not 

limited to, Community Development Block Grant formula funding and Section 

108 Loan Guarantees. This will support HUD’s effort to partner with grantees 

to more effectively target community development investments toward neighborhoods with greatest need, disinvestment, or potential for growth. 

• Enhances and broadens capacity building for our partners 

The fiscal 2011 Budget provides $60 million for a revamped Capacity Building 

program. HUD must embrace a 21st century vision for supporting the affordable 

housing and community development sector and will reframe the Section 4 program, 

including renaming the program ‘‘Capacity Building’’, in order to reflect that vision. 

The objective is to expand HUD’s funding capabilities, and encourage open competition through mainstream and consistent program funding for these activities. 

Working with cities and states to readily understand how to meet the needs of 

their communities, leverage private and other kinds of resources, and align existing 

programs is fundamental to building resilience in tough economic times. Increasing 

capacity at the local level is critical as jurisdictions partner with the Administration 

in implementing key initiatives such as Choice Neighborhoods, Sustainable Communities, and the Catalytic Competition and work to restore the economic vitality of 

their communities. This enhanced program will include local governments as technical assistance service recipients. 

• Takes Choice Neighborhoods to scale 

The Administration has also proposed authorizing legislation for Choice Neighborhoods, funded at $65 million in fiscal year 2010 on a demonstration basis, and at 

$250 million in the 2011 Budget. I am appreciative that Congress was willing to 

fund Choice Neighborhoods on a demonstration basis in fiscal year 2010, and HUD 

is now requesting that the program be expanded to a level where its impact can 

be significantly broader. 

This initiative will transform distressed neighborhoods where public and assisted 

projects are concentrated into functioning, sustainable mixed-income neighborhoods 

by linking housing improvements with appropriate services, schools, public assets, 

transportation, and access to jobs. A strong emphasis will be placed on local community planning for school and educational improvements including early childhood 

initiatives. Choice Neighborhood grants would buildupon the successes of public 

housing transformation under HOPE VI to provide support for the preservation and 

rehabilitation of public and HUD-assisted housing, within the context of a broader 

approach to concentrated poverty. In addition to public housing authorities, the initiative will involve local governments, non profits and for profit developers in undertaking comprehensive local planning with input from the residents and the community. 
45 

Additionally, HUD is placing a strong emphasis on coordination with other Federal agencies, with the expected result that Federal investments in education, employment, income support, and social services will be better aligned in targeted 

neighborhoods. To date, the Departments of Education, Justice and HHS are working with HUD to coordinate investments in neighborhoods of concentrated poverty, 

including those targeted by Choice Neighborhoods. We have forwarded our legislative proposal to this Committee and its House counterpart and look forward to 

working with you to enact it. 

• Protects consumers from discrimination in the housing market and affirmatively furthers the goals of the Fair Housing Act 

The Budget proposes $61.1 million in support of the fair housing activities of 

HUD partners. Some sources estimate that more than 4 million acts of housing discrimination occur each year. To meaningfully address that level of discrimination, 

the Department, in addition to directing its own fair housing enforcement and education efforts, must engage outside partners. Therefore, this budget funds state and 

local government agencies to supplement HUD’s enforcement role through the Fair 

Housing Assistance Program (FHAP) and provides funding also to nonprofit fair 

housing organizations that provide direct, community-based assistance to victims of 

discrimination through the Fair Housing Initiatives Program (FHIP). The entities 

participating in the two programs both help individuals seek redress for discrimination they have suffered and help eliminate more wide-scale systemic practices of discrimination in housing, lending, and other housing-related services. This Budget 

provides $28.5 million to state and local agencies in the FHAP and $32.6 million 

to fair housing organizations through the FHIP. 

This budget does not continue a $10 million initiative within the FHIP program, 

funded in fiscal year 2010, specifically directed at mortgage lending discrimination. 

However, fair housing funding, generally, and FHIP funding, in particular, remain 

substantially higher than in fiscal year 2009. Overall, the $61.1 million requested 

this year for fair housing activities overall represents a 12 percent increase over fiscal year 2009’s enacted level of $53.5 million, and the $32.6 million requested for 

FHIP, in particular, is fully 18 percent above the $27.5 million in FY2009. 

Since its passage in 1968, the Fair Housing Act has mandated that HUD shall 

‘‘affirmatively further fair housing’’ in the operation of its programs. This requires 

that HUD and recipients of HUD funds not only prohibit and refrain from discrimination in the operation of HUD programs but also take pro-active steps to overcome 

effects of past discrimination and eliminate unnecessary barriers that deny some 

populations equal housing opportunities. To assist recipients in meeting these obligations, the Department is revising its regulations to clearly enumerate the specific 

activities one must undertake to ‘‘affirmatively further fair housing’’ and the consequences for failure to comply. To support this effort, $2 million of the FHIP budget 

will support a pilot program whereby fair housing organizations help HUD-funded 

jurisdictions comply with these regulations. 

Finally, I want to emphasize that as HUD works through the Choice Neighborhoods initiative and across all of its programs to revitalize neighborhoods, and to 

enable families to choose to move to other neighborhoods with lower poverty and 

greater economic opportunity, HUD will strive to ensure that newly revitalized 

neighborhoods remain affordable, inclusive places for low-income people to live. 

Goal 5: Transform the Way HUD Does Business 

In light of recent natural disasters and the housing and economic crises, last year 

HUD saw a pressing need for adaptability and change. To become an innovative 

agency with the capacity to move beyond legacy programs, shape new markets and 

methods in the production and preservation of affordable housing, green the nation’s 

housing stock, and promote sustainable development in communities across America, the Department had to remake itself. 

To accelerate the Department’s transformation, the fiscal year 2011 Budget makes 

the following vital reforms. 

• Develops a basic data infrastructure and delivers on Presidential research and evaluation priorities 

HUD requests $87 million for the Office of Policy Development and Research, an 

increase of $39 million from FY 2010, to continue the transformation of PD&R into 

the nation’s leading housing research organization. The role of housing in starting 

the economic crisis, and the importance of housing issues to the nation’s economy, 

shows the urgent need for this research. These funds would be used for three critical 

activities: 
46 

Basic Data Infrastructure. Continue the investment made in fiscal year 2010 to 

support the collection and dissemination of the core data needed to support effective 

decisionmaking about housing. HUD’s request for this purpose is $55 million, which 

is $7 million more than the fiscal year 2010 appropriated level of $48 million. This 

will be used to conduct housing surveys—including full funding for the American 

Housing Survey—support enhanced research dissemination and clearinghouse activities, and underwrite a Young Scholars research program. Presidential Research 

and Development Initiative. As part of the Administration’s Research and Development initiative that is tied to the President’s national goals of energy, health and 

sustainability, the Department proposes to administer $25 million for research on 

the linkages between the built environment and health, hazard risk reduction and 

resilience, and the development of innovative building technologies and building 

processes. 

Presidential Evaluation Initiative. Also for fiscal year 2011, the President is proposing to fund rigorous evaluations of critical programs to inform future policy discussions. The $7 million proposed will supplement funding from the Transformation 

Initiative set-aside to support rigorous evaluations of the Family Self-Sufficiency 

Program, potential Rent Reform strategies, and the Choice Neighborhoods program. 

• Maintains the Department’s existing technology infrastructure 

HUD requests $315 million for the Working Capital Fund, to cover the steady 

state operations, corrective maintenance of HUD’s existing technology systems, and 

the re-competition of HUD’s infrastructure support contract. As with fiscal year 

2010, this does not include the ‘‘next generation technology’’ development that would 

be funded through the Transformation Initiative, as described below. The bulk of 

the fiscal year 2011 request ($243.5 million) would be in the form of a direct appropriation. In addition, HUD seeks a $71.5 million transfer from FHA to pay for its 

share of infrastructure costs and system maintenance. 

• Provides flexibility and resources needed to fuel agency transformation 

As in fiscal year 2010, the Department again seeks the authority to set-aside up 

to 1 percent of HUD’s total budget for an agency wide Transformation Initiative. 

HUD’s FY 2010 Transformation Initiative was intended to indeed be transformational. The resources it provides are allowing us to take long-overdue steps to 

upgrade and modernize our department and allow it to function as a 21st century 

organization. As one example, it is helping us replace computer programs written 

in COBOL in the 1980s with those written in the flexible and powerful languages 

of 2010. In addition, HUD has not conducted a major demonstration since the 1990s, 

when the Moving to Opportunity study was conducted. This demonstration is still 

yielding important evidence on how mobility and rental assistance interact that 

guides policy. And local government capacity to effectively use Federal resources 

varies widely and leaves some communities at risk of always lagging the pack. 

Further, even in the instance that efforts such as technical assistance were adequately funded, they were funded in silos—making cross-cutting initiatives that 

achieve the biggest bang for the buck next to impossible. 

The TI approach we propose—allowing for the flexibility to take up to 1 percent 

of our budget and devoting it to four key areas—is similar to the approach applied 

by many cutting-edge institutions. This recognizes not only the need to have funding 

targeted to overhead—but the ability to respond to changing circumstances that 

may require overhead to consume an increased share of the budget, a change in the 

mix of activities funded and cross-cutting initiatives. 

The flexibility inherent in this TI structure allows for the more nimble, responsive 

agency required in a long budget process where individual research ideas or investment proposals made in January might have been usurped by developments through 

the course of the year. A good example would be the $50 million in Neighborhood 

Stabilization technical assistance HUD made available to communities through 

ARRA. Full funding of the Transformation Initiative will enable HUD to take such 

an approach to scale and continue the delivery of a new level of technical assistance 

and capacity building to Federal funding recipients, recognizing that human capital, 

technical competence and institutional support are critical for the success of HUD’s 

partner organizations. 

And while we appreciate that fact that Congress did recognize this reality in funding this effort for FY 2010 at $258 million, which has begun an important process 

of increasing investment and bridging silos, we renew our request for authority to 

use up to 1 percent. I would note that this past year we received 110 

groundbreaking research, information technology and technical assistance proposals 

internally—but we were only able to fund a little over half of these requests. Further, of the demonstrations and IT projects that were funded in 2009, many were 
47 

multi-year projects that we have had to plan and operate, in all but the most urgent 

circumstances, with single-year funding. 

Salaries and Expenses Central Fund: Building on the principle of the Transformation Initiative, the Budget requests the creation of a Salaries and Expenses 

Central Fund, funded through a 1-percent transfer from each of HUD’s salaries and 

expenses accounts. The Fund will provide targeted, temporary infusions of resources 

to any of HUD’s program offices in order to increase our responsiveness to unanticipated crises and new challenges through the hiring of staff with appropriate expertise. One example of how this type of funding might be used would be in the instance of a national disaster—in response to which HUD would be expected to play 

a key role. Another would be FHA, which inside of 3 years has temporarily expanded from insuring 2 percent of the market to, as mentioned previously, approximately a third. 

Conclusion 

In sum, this Budget continues the transformation begun with the 2010 Budget. 

With the housing market showing signs of stabilization, our economy beginning to 

recover and the need for fiscal discipline crystal clear, now is the moment to reorient HUD for the challenges of the 21st century—retooling its programs and initiatives so it can better fulfill its mission to serve American households and communities more effectively and more efficiently over decades to come. I am proud of the 

progress we have begun to make in these areas with the support of Congress, and 

I look forward to our continued progress through the proposals outlined in the fiscal 

year 2011 Budget. Thank you again for the opportunity to appear before you to discuss HUD’s proposed budget. And with that, Mr. Chairman, I would be glad to answer any questions. 
48 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM SHAUN DONOVAN 

Q.1. In Connecticut, in addition to cities like Hartford and New 

Haven, we have many small towns. 

It seems clear that promoting transit-oriented development can 

benefit large suburban communities and cities, but how can this 

sustainable communities agenda benefit small towns, such as 

Torrington, CT, as well as rural communities? 

A.1. Our Sustainable Communities Initiative is designed to assist 

both metropolitan and rural communities to address the challenges 

that of population growth or decline, land use, housing, transportation and other critical environmental issues. Rural communities 

face special challenges. Past transportation policies resulted in 

Main Streets in many rural communities being bypassed by the 

interstate highway system, contributing to the decline of once-vibrant business center. Closer in, many rural communities are 

struggling with the loss of farm land and open space as a result 

of our current dispersed patterns of development. Transportation 

costs are often significantly higher for residents of rural communities, especially with longer commutes to employment centers, and 

housing choices tend to be more limited in these areas. 

For that reason, we have specifically targeted rural communities 

and small towns in our proposed initiatives. In 2000, over 50 percent of all people living in what the Census Bureau defines as 

‘‘rural areas’’—places with relatively low population density—actually lived within the boundaries of metropolitan areas. That percentage was up from 40 percent in 1980. These communities will 

benefit from sustainable planning grants that will be made available to up to 20 metropolitan areas. One outcome of these grants 

will, we hope, be the preservation of open space and farmland in 

rural areas, as well as increased transportation and housing 

choices that benefit these outlying communities. Better coordination of housing and transportation will lead to policies and programs that protect and safeguard open space and agricultural land 

in rural areas. 

We also propose to provide planning grants to rural areas outside 

metropolitan areas: up to 10 grants will be specifically set aside for 

these areas. In addition, we have proposed a $25 million Rural Innovation Fund that will focus on high poverty distressed rural 

areas that have a good chance of revitalization given their location. 

The Rural Innovation Fund will encourage communities to employ 

a more integrated approach dedicated to addressing the problem of 

concentrated rural housing distress and community poverty. Similar to the Choice Neighborhoods Initiative, the Fund will specifically target areas of high economic distress that demonstrate the 

potential of revitalization given their location. 

These commitments are contained in the sixth—and perhaps the 

most important—of the six ‘‘Livability Principles’’ that we announced in June, along with DOT and EPA. This principle specifically addresses the value we attach to rural communities: 

• Value communities and neighborhoods: Enhance the 

unique characteristics of all communities by investing in 
49 

healthy, safe and walkable neighborhoods—rural, urban suburban. 

The bottom line, we believe, is that we are developing new, unprecedented approaches to incentivize the use of Federal funds toward 

investments in existing infrastructure and existing communities 

that will benefit rural as well as urban communities. 

Housing Affordability 

Q.2. In the recent housing crisis, foreclosure rates on homes near 

transit have been lower when compared to homes not near transit, 

and housing prices near transit have remained relatively stable. 

This suggests that the affordability of housing is not just about 

housing cost, but about the combined cost of housing and transportation. 

What can the Federal Government do to help consumers get the 

housing and transportation cost information they need to make informed housing choices? 

A.2. There is increasing evidence that high transportation costs, 

while not a cause, may be a contributing factor to high foreclosure 

rates in outlying communities. In my testimony before this Committee I reaffirmed my commitment to redefining our definitions of 

affordability to address high transportation costs. We are looking 

closely at a variety of models, such as the Housing and Transportation Index, developed by the Center for Neighborhood Technology, in partnership with the Brookings Institution, the Urban 

Land Institute and others, as well as other models, that can provide consumers with the ‘‘true’’ cost of housing—including transportation costs—when they make critical choices when buying or renting a home. A simple measure of the ‘‘location efficiency’’ of a home, 

which would provide consumers an indication of the cost of transportation associated with particular locations will go a long way to 

helping them make informed decisions. It can also help lenders incorporate location efficiency in their mortgage underwriting decisions. The HUD–DOT–EPA Interagency working group is also looking at the policy implications applications for this tool. 

I am committed to working with DOT and EPA to develop a 

transportation ‘‘index’’ for homes, just as I have committed to a 

standard energy ‘‘label’’ for homes that can provide a simple measure of energy efficiency, and for the same reason: to provide consumers with better information about the costs associated with 

their homes—both transportation and energy costs—and to provide 

lenders with a tool that will enable them to address these costs 

(and perhaps provide attractive financing) when underwriting 

mortgages. 

We will need to research and then implement ways to provide 

this kind of information to all stakeholders, including consumers, 

planners, and local officials, financial services institutions and 

other officials. We will need to work with the real estate industry 

and lending community to identify the best strategies for getting 

this information to consumers in the most useful way. 

We also will need to close data gaps that will strengthen these 

tools, by collecting additional data through the American Housing 

Survey, and forming an exploratory partnership with the Census 
50 

Bureau and Bureau of Labor Statistics to improve the data we collect on housing and transportation costs associated with locations. 

Current sample sizes appear to be too small to gather data below 

the metropolitan level, and we don’t have a good way to distinguishing between households with different numbers of cars. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM SHAUN DONOVAN 

Q.1. Secretary Donovan, many of the goals set forth by the Sustainable Communities Initiative would seem to further priorities 

that would result from decisions traditionally made by state and 

local officials, such as the type of zoning and city planning required 

for many of these high density projects. While some communities 

will certainly wish to pursue these designs, other may not believe 

this would be in their best interests. What safeguards will be put 

in place within HUD to ensure the continued independence of local 

officials in the design of their communities? If state and local officials do not pursue the initiatives and priorities of this office, will 

there be any negative consequences as it relates to other Federal 

programs or funding? 

A.1. HUD does not intend to mandate new zoning or city planning 

requirements. HUD is ensuring the continued independence of local 

officials by encouraging innovative local and regional plans to guide 

local and regional decisions. The design and implementation of 

these plans will occur in the context of that community’s preferences or priorities. In addition, communities have the choice to 

seek funding under HUD’s proposed Sustainable Communities programs. Applying will be purely voluntary, and compliance with program requirements will be dependent on whether or not the community seeks funding to support their own innovative planning 

projects. 

More broadly, as a former city housing commissioner, I am all 

too aware of the need to preserve local prerogatives when it comes 

to land use and zoning, and other planning decisions. We do not 

intend to pre-empt this local role. Nor will there be negative consequences for those who do not pursue the initiatives and priorities 

of the office. 

Q.2. Secretary Donovan, one of the factors cited as a reason for the 

Federal Government to take action in promoting housing, which offers the convenience of the option to walk for many goods and services, is an identified pent-up demand for these types of communities. Given this, and given the goal of including affordable housing within these developments, how does HUD plan to ensure that 

affordable housing goals do not crowd out other Americans who are 

seeking to reside in these communities? Additionally, how do the 

costs of providing affordable housing within these settings compare 

with the cost of providing affordable housing in other types of communities within the same metro areas? 

A.2. Some of the earliest developments featuring transit oriented 

development (e.g., Fruitvale, CA, Lake-Pulaski, Chicago) were initiated by nonprofits interested in providing affordable housing. A key 

reason for these developments is the understanding that access to 
51 

transit is essential for low and moderate income people to reach 

employment and shopping. However, anecdotal evidence suggests 

that just the opposite is happening. Upper income housing is 

crowding out affordable housing in transit oriented development 

sites. There are a number of reasons but the cost of land and site 

development around transit sites appears to be chief among them. 

Transit oriented development is perceived by the market as being 

amenity rich and, therefore, desirable as a place to live. 

In fostering transit oriented development, we see the issue not 

as one where middle and upper income families would be unable 

to live in the developments, but one where low and moderate income families could not afford the cost of housing in such developments. Costs for land acquisition, potential brownfields remediation, provision of parks and open space, and community outreach, 

that are part of transit oriented development can be prohibitive for 

an affordable housing developer. We also have anecdotal evidence 

that existing affordable housing in a transit oriented development 

area becomes attractive and the prices for acquisition and/or rent 

escalate beyond the ability of low- and moderate-income families to 

pay. We are looking for a situation where all income groups can 

benefit from transit oriented development, and no group is disadvantaged as a result of the development 

Q.3. Secretary Donovan, obviously the needs and capabilities of 

rural communities are going to differ greatly from the needs and 

capabilities of more urban areas. If a larger mixed use development 

may not be economically viable in a smaller, more rural community, how will HUD ensure that these communities will be able to 

participate in the Sustainable Communities Initiative if they wish 

to do so? 

A.3. Addressing the needs and concerns of rural communities is a 

critical element of our Sustainable Communities Initiative. Larger 

mixed use developments are clearly viable only with sufficient population, services and amenities that are typically associated with 

urban areas. Since more than half of residents living in what the 

Census Bureau defines as rural communities also live within metro 

area boundaries, these developments mean less demand for greenfield sites—open space and agricultural land—that in turn will 

benefit these rural areas. In addition, HUD has proposed setting 

aside a portion of the regional planning grants requested in our fiscal year 10 budget for rural communities, to address the unique 

challenges and solutions to housing and transportation issues and 

land use in these communities. 

Please refer to our response provided to Senator Dodd in Question #1 for further discussion of how we intend to address the 

needs of rural communities. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR SCHUMER 

FROM SHAUN DONOVAN 

Q.1. Secretary Donovan, as you know well from your time as Commissioner of the Department of Housing Preservation and Development in New York City, urban areas face particular challenges in 

trying to make their existing housing stock, and especially their affordable housing, more green. 
52 

What plans does HUD have to try and incentivize owners of affordable housing to undertake these green efforts in existing 

projects? 

A.1. HUD is taking an aggressive role in ‘‘greening’’ our own housing programs, as well as creating partnerships with other agencies 

that have energy efficiency or green funds that can be used for 

housing. For example, the Department recently executed a Memorandum of Understanding with the Department of Energy that, 

once a final rule is published, will make it easier for owners of 

HUD-assisted projects to qualify for DOE’s weatherization program, by eliminating duplicative income verification requirements. 

In privately owned assisted housing, the Department is working 

on regulations to provide incentives to owners that ‘‘green’’ their 

properties, including increased distributions to for-profit owners, allowing distributions to non-profit organizations, and increased fees 

to the property management agents for implementing energy improvement plans. Under the Recovery Act, the Department also received $250 million for a green retrofit program for existing HUD-assisted projects 

that provides grants and soft loans to owners to complete the necessary ‘‘green’’ improvements. This is an expansion of the Mark to 

Market green retrofit program, which incentivizes energy efficiency 

and green by lowering the matching contribution required from the 

owner from the standard 20 percent to just 3 percent of the cost 

of rehabilitation. This is a strong incentive for owners participating 

in the Mark to Market program to ‘‘go green.’’ 

The Department’s FY 2010 budget request for an Energy Innova- tion Fund includes $25 million to retrofit multifamily projects 

through HUD’s existing mortgage insurance programs. These funds 

will reduce or offset mortgage insurance premiums and/or reduce 

application and inspection fees if owners achieve greater levels of 

energy efficiency in their projects. 

Public housing is also getting additional resources to green their housing stock. Housing authorities are receiving $4 billion this year 

in additional Recovery Act capital funds for energy efficiency, green 

and other upgrades—$3 billion in formula grants, and $1 billion in 

competitive funds. $600 million has been made available specifically for high-performing green projects that meet Enterprise 

Green Communities standards, and for other high performing energy retrofit projects (i.e., that achieve 30–50 percent in energy savings). 

These efforts are just the beginning of a broad-based effort that 

we expect to undertake, under the leadership of Deputy Secretary 

Ron Sims and the new Office of Sustainable Housing and Communities, to incentivize energy efficiency in the affordable housing sector. With outlays of more than $5 billion annually, this is an area 

where there is room for more significant savings, both for the owners of public and assisted housing, as well as the taxpayer. We expect to undertake an extensive review of current incentives (or lack 

thereof) and to strengthen these, as well as to set strong energy efficiency performance goals that have been missing from the Department’s efforts in the past. We will also work closely with national 

intermediaries, such as LISC and Enterprise Community Partners, 

Habitat for Humanity, as well as Housing Finance Agencies and 
53 

others to build energy efficiency and green into affordable housing. 

We will keep the Committee apprised of these proposals and initiatives. 

Q.2. Each of you have outlined the need for coherent national policy, with long-term goals and indicators of success in working to develop more sustainable, energy efficient and clean communities, 

that needs to be coordinated across each of your agencies. 

As you know, my state has one of the largest urban areas in the 

country, as well as some of the most rural. How are the policy initiatives that your respective agencies are undertaking going to affect both urban and rural areas? How do they fit into the vision 

of a coherent national policy on greening, energy efficiency, and 

emissions reduction? How can Congress help you to achieve this 

goal? 

A.2. Addressing the needs and concerns of rural communities is a 

critical element of our Sustainable Communities Initiative. 

We have specifically included rural communities and small towns 

in our proposed initiatives. First, many of these small towns are in 

metropolitan areas, so they will be covered as part of a larger 

metro area-wide strategy. Second, we will be committing a share 

of our proposed regional planning grant funds to rural areas, outside metropolitan areas. They have special needs and challenges. 

That’s why we have proposed a $25 million Rural Innovation Fund 

that will specifically focus on high poverty distressed rural areas 

that have a good chance of revitalization given their location. 

Beyond the specific funds that we hope Congress will appropriate 

for our Sustainable Communities Initiative, the Livability Principles that HUD, EPA and DOT adopted in June and announced 

before this Committee are very clear about the importance of sustaining rural communities. 

These principles, and the Sustainable Communities partnership 

that we have formed to implement them, represent a sea-change 

for the Federal Government in its interactions with local governments, both rural and urban. They are about restoring the centrality of place in Federal policies and programs, and the need to 

better coordinate Federal investments to support environmentally 

and economically sustainable visions of growth in our urban and 

rural areas. With 40 percent of carbon emissions coming from 

buildings, and another 23 percent from transportation, more attention to compact forms of urban development, and sustainable transportation policies, will be critical elements of both a national climate change strategy as well as national urban policy. 

Fundamentally, we can no longer afford to have housing, transportation and environmental policy operate in separate silos. The 

$150 million in planning, research and community development 

initiatives included in our fiscal year 10 budget request are intended to support models that can be replicated in other parts of 

the country of joint housing, transportation and land use planning. 

Both the regional metropolitan and rural area planning grants 

($100 million) and the community challenge grants ($40 million) 

are intended to provide models that can be replicated elsewhere. 

We hope to develop a template that other communities can use to 

show that more coordinated regional and local planning will result 
54 

in better use of housing and transportation funds that address location efficiency and land use concerns. This will, we hope, translate 

into expanded housing choices near transit, and preservation of existing affordable housing near transit. 

Congress can assist us in achieving these goals by providing support for our Sustainable Communities Initiative, along with complementary proposals from DOT and EPA; by supporting improved 

data collection and research that will enable both the Federal Government and local communities to better assess and measure the 

combined costs of housing and transportation, and develop indicators of success; by incorporating livability principles in reauthorization of our nation’s transportation programs; and by supporting 

more disclosure of the true costs of location choices, through the development of such tools as the Housing and Transportation Affordability Index; by enabling HUD to offer enhanced underwriting 

through location, and energy efficient mortgages, that recognize the 

lower costs associated with location and energy efficiency; and by 

enabling HUD and DOT to better coordinate their respective planning requirements. 

Please refer to the response provided to Senator Dodd in Question #1 for further discussion on rural communities. 

RESPONSE TO WRITTEN QUESTION OF SENATOR MENENDEZ 

FROM SHAUN DONOVAN 

Q.1. Let me recognize and applaud the Administration’s sustainable and livable communities’ effort to bring together transit, housing, and environmental benefits. Which agency will serve as the 

base for this multi-agency effort? Have you thought about coupling 

HUD and DOT’s efforts with additional funding from sources such 

as the Community Development Block Grant program? 

A.1. With regard to the Sustainable Communities Partnership between HUD, EPA and DOT, this is a co-equal partnership with no 

single lead of this multi-agency effort. 

However, with regard to the Sustainable Communities Initiative, for which HUD has requested $150 million to provide planning 

grants and innovative challenge grants to local communities, HUD 

will be the lead agency in administering those funds, in partnership with DOT and EPA. HUD’s new Office of Sustainable Housing 

and Communities will be responsible for administering the planning grants, as well research and data systems development which 

are central to the program’s mission. 

With regard to coupling additional funding from other sources, 

such as CDBG, we are exploring how we can encourage local communities to tap these funds. One way to move in this direction is 

to coordinate HUD’s Consolidated Plan, which governs the use of 

CDBG funds, with DOT metropolitan planning requirements. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR BENNET 

FROM SHAUN DONOVAN 

Q.1. A nice, new neighborhood that is far away from good jobs and 

good schools will not be a nice neighborhood for long. How can 

Washington’s policy expertise and resources be harnessed most ef-
55 

fectively with local leaders who understand a local jobs market and 

who know where the good schools are? I’m impressed with what 

I’m seeing from this panel—the Administration obviously intends 

to take an integrated approach. But local housing and urban planning experts have the applied knowledge of how particular communities work—how transit can interact with affordable housing, for 

instance. In short, how does Washington do a better job of helping 

particular cities integrate their planning decisions? 

A.1. We share your view that local officials have the best knowledge of their communities and are in the best position to make 

these linkages. The Federal Government can support local leadership and expertise in several ways: 

• By providing support for coordinated planning and investments. Local leaders often do not have the resources to undertake the planning and policy reviews necessary to develop 

more sustainable regional plans. The purpose of HUD’s Sustainable Communities Initiative is to provide funding to these 

localities for coordinated regional housing and transportation 

planning. In joint collaboration with DOT, HUD has requested 

$100 million to enable metropolitan and rural areas to set a vision for growth and then apply Federal transportation, housing, and other investments. Funds would be used to support 

the development of integrated, state-of-the-art regional development plans that use the latest data and most sophisticated 

analytic, modeling, and mapping tools available. We have also 

asked for $40 million in Community Challenge grants to entice 

metropolitan and local leaders to make market-shifting 

changes in local zoning and land use rules. The grants will also 

assist states and localities to design and implement a variety 

of planning reforms at the local and regional levels. 

• By removing its own barriers to coordination at the local level. 

With few exceptions, neither HUD nor DOT examine location 

efficiency (e.g., the potential location of affordable housing developments near transit) nor encourage smart zoning and planning reform when allocating resources under a broad array of 

programs. 

Federal requirements for transportation and housing planning are 

particularly disconnected. HUD requires states, cities and counties, 

as a condition to receiving formula grants, to prepare a 5-year Consolidated Plan, as well as an annual Action Plan, estimating housing status and needs. These plans do not take land use or transportation into account, and are for cities and urban counties (and 

states), not regions. At the same time, DOT requires states and 

metropolitan areas to develop a 20-year Long Range Transportation Plan and a 4-year Transportation Improvement Program 

(TIP). HUD and DOT are currently assessing how these disconnected planning processes can be better coordinated. Ideally, a single housing-transportation plan would eliminate any and all duplication. 

• By developing information sharing platforms, analytic and 

mapping tools to facilitate local coordination. HUD has requested $10 million in fiscal year 10 funds to support such activities as the development and dissemination, for example, of 
56 

the Housing and Transportation Index, which would enable 

communities to better understand the role that transportation 

expenditures play in housing choices, and to enable them to 

plan for more compact, walkable, mixed use development. 

• Finally, the Federal Government can incentivize local communities to integrate planning decisions through its various grant 

programs. HUD and DOT are currently assessing how, for example, which programs might accommodate additional points 

when scoring competitive grant applications. For example, 

HUD recently included several points in its $2 billion Neighborhood Stabilization Program competitive grant program 

(‘‘NSP 2’’) for proposals that either had or proposed to increase 

access to transit. This is an important precedent for other programs. HUD’s Section 202 Supportive Housing Program for the 

Elderly also has transportation provisions. But these are the 

exceptions, not the rule; we will be looking for further opportunities for such incentives through our grant programs. 

Q.2. Efforts to support mixed income development fall short without good schools. Secretary Donovan, how can you work with local 

education officials to strategically support school reform and to construct new schools in locations that complement innovative development efforts? 

A.2. The link between housing and schools is a priority for HUD. 

Incentivizing communities to include schools in neighborhood revitalization plans is the best strategy for HUD to strengthen the 

linkage between housing and education. We know we cannot break 

the cycle of poverty without good schools. From another perspective, communities and cities themselves cannot attract residents 

and businesses needed for revitalization without good schools. 

These principles were incorporated in the HOPE VI program, 

with significant success, in several locations. In King County, 

Washington state, the King County Housing Authority (KCHA) 

deeded over land, at no cost, to the King County United School District so the School District could build a new elementary school as 

part of Greenbridge, the new HOPE VI public and affordable housing community. A Boys and Girls Club and a Head Start facility 

were also built on the land donated by KCHA and HUD. In addition, KCHA worked with the school district in connection with relocation of residents and their school age children to allow flexibility 

and choice in where kids attended school. That same model of donated land for public school construction, the providing of social 

services for at-risk children, and flexibility and choice in where 

school kids were able to attend school in connection with relocation 

activities was repeated in many HOPE VI developments across the 

country including: Salishan, the HOPE VI development in Tacoma, 

Washington where Lister Elementary School was built; the William 

Wells Brown Elementary School was built and located at the heart 

of the Bluegrass HOPE VI Revitalizationsite, Lexington Housing 

Authority, Lexington, Kentucky; Centennial Place Elementary 

School was built in cooperation with the Atlanta Housing 

Authority’s HOPE VI Centennial Place Community; Rosa Parks Elementary School was built at Portland Housing Authority’s New 

Columbia HOPE VI; High Point Elementary School is located di-
57 

rectly adjacent to the Seattle Housing Authority HOPE VI (and 

green) community of High Point; and many more schools and 

school support facilities were built as a result of HOPE VI development. 

A key HUD FY 2010 budget proposal, Choice Neighborhoods, the 

successor program to HOPE VI, continues this focus on schools as 

a critical element of neighborhood revitalization. Choice Neighborhoods will help build neighborhoods that are safer, stronger, and 

have access to good educational opportunities as well as community 

facilities, institutions and services. Local partnerships will be required to include an education component to cover a gamut of possible local approaches for early childhood initiatives, health education, and resources for parents, school improvements and other 

education-related services. 

Q.3. I am glad you include rural communities in your plans for sustainable development. Can you talk specifically about the challenges to employing sustainable development initiatives in rural 

areas? Are there opportunities to work with the Department of Agriculture on these efforts? 

A.3. Addressing the needs and concerns of rural communities is a 

critical element of our Sustainable Communities Initiative. There 

are significant opportunities to partner with the Department of Agriculture. Secretary Vilsack and I have discussed this partnership, 

and HUD staff have met with senior USDA staff to identify possible linkages, in the area of economic development, health, water 

infrastructure, housing and transportation planning and policies. I 

am hopeful that we can formalize this partnership in the near future. 

Please see response to Senator Dodd (Question #1) for a further 

discussion of the challenges that face rural areas in developing sustainable communities, and our plans to address their needs and 

concerns. 

Q.4. A critical component of effective development is buy-in and 

participation from residents. Will the incentives for regional planning include incentives to integrate local residents into the planning process? 

A.4. Yes. Clearly, for planning to be meaningful and sustainable, 

buy-in from local citizens and stakeholders is critical if not decisive 

for its long-term success. Without sufficient participation at every 

step of the way, plans will not reflect local ideas, local interests, 

or diversity of local views, nor are they likely to secure commitments for implementation. HUD’s Consolidated Plan already has 

significant public participation requirements and we would expect 

our regional planning efforts to have at least that level of public 

participation. 

There are additional ways to secure participation, through such 

tools as the design charrette, which has been used successfully by 

‘‘New Urbanist’’ and other architects, designers and planners in engaging local residents and stakeholders, as well as other techniques 

that have been successful in enabling local citizens to begin to envision alternative futures. In California, the Sustainable Blueprint 

process pioneered in Sacramento involved extensive citizen participation, that resulted in developing alternative growth scenarios for 
58 

that region, and the state has subsequently adopted this model for 

transportation planning statewide. 

Q.5. As you know, most HOPE VI projects have been successful at 

leveraging public and private resources to displace the concentrations of poverty we have seen in our cities. But initiatives like 

HOPE VI, though critically important, can run into local trouble 

when local residents worry that losing affordable housing stock will 

displace people and break apart communities. In short, what’s good 

for a community in the long run can be terribly disruptive in the 

short run. What lessons have we learned from past setbacks at 

managing local expectations, that we can apply moving forward? 

How can HOPE VI be made to work better at managing local expectations? 

A.5. Our experience has shown that it is important to actively involve residents and other community stakeholders throughout the 

entire redevelopment process, from early discussions on the design 

plan through occupancy after all units have been completed. 

The more each party is aware of the goals and objectives of the 

plan, as well as the obstacles and constraints, the more in sync everyone is. This is especially true for the residents. As such, the 

HOPE VI program requires applicants to hold extensive planning 

sessions with affected residents and community partners prior to 

submitting the grant application. 

Applications that commit to continuing outreach and involvement 

are more competitive. Grantees are required to begin case management activities with residents within 30 days of grant award. Case 

managers help residents throughout the redevelopment process, especially during relocation. 

Q.6. The HUD budget proposal for the Sustainable Communities 

Initiative to provide $100 million for Metropolitan Planning Organizations and cities or counties that receive CDBG and HOME 

funds to collaborate on regional plans that integrate housing, land 

use, and transportation, and $40 million to provide challenge 

grants for local land use changes that support regional objectives. 

I can see the value of these from recent Denver experience. For 

example, the City, MacArthur Foundation, Enterprise Communities, Denver Foundation, and local banks have capitalized a $15 

million 10-year Transit-Oriented Development (TOD) Fund, which 

will provide financing to preserve and create affordable housing 

within 1⁄2 mile of rail service and a quarter mile of high-frequency 

bus routes. The fund will target existing federally assisted rental 

properties; existing unsubsidized rental properties currently affordable to households below 60 percent of area median income; and 

currently vacant or commercial properties with desirable locations 

for new affordable housing. The Fund will enable holding properties for up to 5 years, which is considerably longer than most 

similar funds allow, but given the market conditions near transit 

stations, it will provide the maximum flexibility to secure long-term 

subsidies to preserve existing rental housing. But at $15 million, 

it still is underfunded for the need and impact. 

Is that the type of programmatic activity you would seek to finance under these programs? Can you give specific examples, the 
59 

funding criteria and outcome measures you would expect to apply, 

and how would you operationalize them? 

A.6. The Denver investment in land acquisition and housing preservation—with support from the MacArthur Foundation and others—is exactly the kind of investment that we would hope to see 

result from HUD’s Sustainable Communities Initiative grants. It’s 

a model of what is needed to preserve existing affordable housing, 

as well as assist communities to address the high cost of housing 

often found near transit to acquire land at affordable prices for future development. At this time, it is not HUD’s intention to directly 

fund implementation grants for specific projects of this kind, but 

rather to provide funding for planning and technical assistance 

that will result in communities directing Federal, state and local 

housing and transportation funds for these kinds of projects. 

Sustainable Communities grants will enable metropolitan regions 

to develop integrated housing, land use, and transportation plans, 

and to use those plans to drive decisionmaking with regard to investments in transit, location efficient housing, and other sustainable community projects. Similarly, Community Challenge grants 

will enable local communities to develop innovative land use, zoning and other strategies. HUD’s CDBG, HOME, and FHA multifamily housing programs, among others, as well as DOT-funded 

programs, could then play a role in funding the specific implementation projects that are identified in the initial plans. 

With regard to funding criteria, HUD proposes to give preferences to applications that: 

• demonstrate capacity for long-term structural collaboration between the disparate housing, transportation and planning 

agencies; 

• engage business, government and civic leaders and the general 

public in shaping a shared vision; 

• demonstrate the intent to use planning to drive both local land 

use decisions and allocation of Federal resources; and 

• go beyond transportation, housing, and land use issues to integrate other key elements of the built environment, including 

economic clustering, energy usage and environmental impacts. 

• how communities have responded to the issue of land acquisition; applicants will be encouraged to include a description of 

how land is acquired—through various approaches, including 

CDBG funding—for the purpose of developing and providing 

housing near transit. 

Outcome measures will include but are not limited to: 

• increasing the percentage of very low-income households for 

which the combined sum of housing and transportation costs 

falls within affordability thresholds; 

• decreasing the mean transit time between rental units affordable to very low-income renters and major employment nodes 

in each metropolitan area (or similar accessibility metric to be 

developed); 

• reducing vehicle-miles traveled in each metropolitan area; and 
60 

• increasing the percentage of households commuting to work by 

public transit, bicycle, or on foot. 

HUD is currently working with DOT and EPA to develop a more 

detailed set of performance measures. We expect to share these 

with the Committee once they are developed. Grantees will be expected to track and report on performance indicators as a requirement of grant funding. 

RESPONSE TO WRITTEN QUESTION OF SENATOR CRAPO 

FROM SHAUN DONOVAN 

Q.1. As you know, there is a Section 8 funding shortfall happening 

to a number of PHA’s around the country. The Boise City/Ada 

county Housing authority has notified me that based on the funding notice it received in May from HUD, for the period retroactive 

to January 1, 2009, it is approximately $1 million short and is preparing to terminate 400–500 families from assistance. While I don’t 

have information to indicate the full scope of the problem nationwide, it is my understanding that a significant number of PHA’s 

are facing similar decisions. While some appeal funding has been 

set aside, considering that families receiving assistance are among 

our most vulnerable, and landlords count on rental payments to offset their property costs, and communities stand to lose more economic stability in an already unstable economic climate, what is 

the Department prepared to do to address a crisis which may 

greatly exceed the funding that has been made available to honor 

existing assistance contracts? 

A.1. The Boise/Ada County Housing Authority sent letters to 95 

families the week of June 29, 2009 informing them that after July, 

they would no longer receive vouchers under Section 8. However on 

July 8, 2009, the housing authority rescinded the notices. 

Per Federal regulations, housing authorities are required to use 

reserves in the event of a funding shortage. HUD ordered the 

Boise/Ada County Housing Authority to use its administrative reserves to help cover the cost of keeping these families on assistance, rather than terminating them from the program. 

HUD determined that by engaging Boise/Ada County’s administrative reserves coupled with $187,000 in emergency funding, we 

could gap the shortfall and keep those 95 families off the street. 

It is true that Boise/Ada County is not the only Section 8 housing 

authority experiencing a shortfall this year. Much of our challenge 

is due to additional leasing by the housing authorities in response 

to increased housing need as well as per unit cost expenses that 

are, in some cases, 25 percent higher than historic levels. 

Based on data from the housing authorities themselves, of the 

2,400 that administer Section 8, less than 10 percent are experiencing a shortfall. HUD is aggressively working with each of these 

housing authorities to identify the best possible solutions to minimize the impact on families. 

HUD’s sole focus and commitment is to ensure that the families 

who are currently being assisted do not face the financial burden 

of termination. 
61 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER 

FROM SHAUN DONOVAN 

Q.1. Due to the challenges in the financial sector, hospitals that 

are looking to expand their facilities or construct new facilities that 

are needed in certain areas are unable to get the financing necessary for these projects. Two HUD loan programs, Section 232 and 

Section 242, provide much needed assistance to our health care facilities and have played an important role in filling the credit void 

that exists for many borrowers. 

Based on your interpretation of eligibility, is it possible for psychiatric hospitals to be eligible for either of these programs? If so, 

what are the terms of eligibility? If they are not, please offer your 

comments on the expansion of these programs to include these facilities. 

A.1. Language in the Section 242 statute rules out the use of this 

section to insure loans to psychiatric hospitals: 

(1) the term ‘‘hospital’’ means a facility— 

* * * * 

(B) not more than 50 per centum of the total patient days of which during 

any year are customarily assignable to the categories of chronic convalescent and rest, drug and alcoholic, epileptic, mentally deficient, mental, 

nervous and mental, and tuberculosis, unless the facility is a critical access 

hospital (as that term is defined in section 1861(mm)(1)of the Social Security Act (42 U.S.C. 1395x(mm)(1))); 

Section 242 has been used to insure loans to acute care hospitals 

that provide psychiatric services along with other services, but in 

these hospitals fewer than 50 percent of the patient days are psychiatric. The 50 percent rule does not apply for critical access hospitals; however, these are small, rural hospitals that principally 

provide primary hospital medical care. 

Q.2. We’ve heard from constituents who were informed by HUD 

that Section 232 mortgage program would soon, if not already, stop 

insuring qualified medical facility loans. If this is the case, can you 

explain HUD’s rationale for this decision? 

A.2. This is not the case. However, the circumstances of each such 

facility (referred to as ‘‘Special Use Facility’’ in HUD Handbook 

4600.1) vary greatly by geographic location, state licensing requirements, available third-party reimbursement, level of acute care 

provided, and many other factors. Depending on these factors, a facility project may or may not be covered under Section 232. Also, 

in order to be eligible for mortgage insurance under Section 232, 

the proposed facility must meet the statutory definition found in 

Section 232 (b) of the National Housing Act. 

If a facility is determined to be eligible, HUD will process an application to the best of its ability. However, current capital market 

realities related to the access to capital, combined with improvements HUD has made in processing Section 232 applications, have 

resulted in very high industry demand for Section 232 mortgage insurance. Unique applications, such as those for a psychiatric or 

other Special Use Facility, necessarily require significantly more 

underwriting evaluation and review than do typical applications for 

nursing homes or assisted living facilities. Under these circumstances, the FHA has alerted lenders that the staff available 
62 

for the Section 232 program may not be able to provide processing 

of applications for Special Use Facilities as timely as for other Section 232 applications. 

Q.3.a. We certainly believe that there are still significant challenges in the real estate market, and until confidence in this market returns, buyers will be sidelined and our economy will continue 

to experience stress. Contributing to the uneasiness some buyers 

feel about conditions in the market are certain HUD positions that 

may have exacerbated the uncertainty currently existing in the 

housing market. One example has been HUD’s position regarding 

home service contracts, treating them as a settlement service under 

RESPA. 

What rationale does the Department have for classifying these 

contracts as a settlement service? 

A.3.a. Home service contracts, more familiar to the public as homeowner warranties, have been expressly and clearly included in the 

definition of ‘‘settlement service’’ in HUD’s RESPA regulations 

since 1992. Homeowner warranty services are listed in the same 

paragraph that includes the provision of services involving hazard, 

flood, and other casualty insurance. 24 C.F.R. § 3500.2(11). RESPA 

establishes requirements applicable to such services that are provided in connection with a prospective or actual settlement. Inclusion of homeowner warranties (or home service contracts) as ‘‘settlement services’’ means that the disclosure, anti-kickback, and 

anti-referral fee requirements in RESPA protect consumers’ interests in the procurement of these services in connection with a covered real estate transaction. 

Q.3.b. Why did HUD question the propriety of selling these contracts in residential real estate transactions? Does HUD believe 

they afford consumers protection against unexpected home repairs? 

A.3.b. HUD, in its implementation of RESPA, does not judge the 

utility of a particular service or product that a consumer may wish 

to purchase, nor would it be appropriate to do so here. Rather, 

HUD and RESPA are concerned with protecting consumers from 

unnecessarily high settlement charges, primarily through the use 

of appropriate disclosures that are mandated by RESPA and by 

prohibitions on kickbacks, referral fees, and unearned fees for settlement services. 

In the context of homeowner warranties, HUD has previously addressed the question about whether real estate agents may be paid 

a fee for placing a home warranty contract with a homebuyer. In 

response to such inquiries, HUD has explained that its regulations 

do not prohibit a person from receiving more than one fee in a 

RESPA-covered real estate transaction. However, where a person is 

receiving an additional fee and is in a position to refer settlement 

service business (as is a real estate agent), the additional payment 

must be for services that are actual, necessary, and distinct from 

the primary services provided by that person. 24 

C.F.R. § 3500.14(g)(3). In addition, the additional fee must not be 

for nominal services. 24 C.F.R. § 3500.14(c). As long as these requirements are met, the additional fee is permitted. If the additional fee is, in effect, for the referral of the homeowner warranty 
63 

business, however, both the giving and the accepting of that payment would be violations of RESPA and HUD’s regulations. 

Q.3.c. Does HUD believe that homes services contracts, unrelated 

to the lawful consummation of a residential real estate transaction, 

should be exempt from RESPA, or should Mr. Ceja’s letter be rescinded? 

A.3.c. As explained, HUD applies the requirements of RESPA and 

its implementing regulations to homeowner warranty contracts in 

the same manner that HUD applies those requirements to services 

involving hazard, flood, and other casualty insurance, as well as 

services involving other types of property-related insurance, home 

inspections, pest inspections, and other transaction-related activities. HUD believes that its application of those requirements in 

connection with a prospective or actual settlement is consistent 

with the purposes and requirements of RESPA. 

Q.4. In urban centers across the country, there are obsolete corridors—particularly commercial ones—where the population has 

moved along, but we still have infrastructure in place and not 

being utilized. We see this in places across my own state of Tennessee where large retail centers or strip mall type areas stand 

abandoned. 

How do we find ways to create appropriate incentives for private 

sector development in these types of areas that help overcome the 

costs associated with EPA or ADA regulations that often point 

builders in a different direction? 

A.4. Many communities around the county confront the challenge 

that Tennessee faces of redeveloping older, commercial centers as 

a result of demographic and economic shifts that have made oncevibrant and lively retail centers no longer viable. Tax incentives 

and housing trust funds can promote redevelopment or infill development for affordable housing. Many of these cities have used Tax 

Increment Finance (TIF) districts or Business Improvement Districts (BIDs) which allow businesses to capture the ‘‘added value’’ 

of the improvement, or to set special taxes or fees and use the resulting revenue to provide special services. Special Improvement 

Districts (SIDs) are a variation on the theme. 

HUD’s Regulatory Barriers Clearinghouse identifies examples of 

innovative strategies that cities and counties have adopted to revitalize these older communities. The city of Akron has a program 

where it sells vacant lots within the city to developers to construct 

new houses or to homeowners to increase the size of their lot. Some 

communities in the state of Michigan are encouraging construction 

of small live-work units to revitalize downtown areas and increase 

housing affordability. An Urban Lank Bank Demonstration Program in Dallas, Texas, will promote infill housing development 

throughout the city. Baltimore’s Maryland’s Project 5000 promotes 

rehabilitation and redevelopment by obtaining abandoned housing. 

Our FY 10 budget request includes increased funding for the 

Community Development Block Grant program, the HOME program, as well as funding for a Choice Neighborhoods Initiative that 

could support revitalization of these older and underutilized urban 

areas. We are strongly committed to new approaches to redeveloping these sites, that result in walkable, compact, mixed-use com-
64 

munities, where possible with links to transit and other transportation choices. Our partnership with the Department of Transportation will enable us to coordinate the use of transportation and 

housing funds to support these kinds of projects. 

Q.5. In the city of Memphis, an estimated 10 percent of the residential, buildable lots are vacant and the difficulties in land consolidation and the environmental clean-up often required is prohibitive for new builds. On the residential side of things, do you have 

any suggestions as to what are the most appropriate incentives to 

encourage development and utilization? Should there be any distinction between residential areas and commercial areas in your 

view? 

A.5. As noted in our response to Question #4, like Memphis, many 

cities are looking at ways to overcome the barriers to infill development, both commercial and residential, by utilizing financing tools, 

such as Tax Increment Financing or Business Improvement Districts. However, the time and cost of acquiring vacant lots, and the 

associated clean up costs, present significant challenges. Property 

tax, demolition or other liens on these properties, as well as uncertain and in some cases unknown title of the properties, often make 

it difficult to assemble these properties in sufficient scale to have 

the needed benefits. 

In our view, what is needed to overcome these barriers are 

strong local tax incentives for preservation or redevelopment of existing properties, streamlined permitting and building inspection 

(linked where possible to transit zones and green building measures), and additional resources for brownfields cleanup and remediation. In New York, for example, the J–51 tax abatement on property taxes, properly use, has been a critical ingredient for redevelopment. 

Q.6. Do you believe that coordination between land use and transportation infrastructure use needs to be mandated when planning 

occurs? Far too often such planning happens in a vacuum. How can 

we encourage reinvestment in aging infrastructure instead of building new? 

A.6. HUD is not proposing to mandate this type of coordination, 

but to encourage and incentivize it. Preference for funding-assistance applications will be given to those that demonstrate capacity 

for long-term collaboration between housing, transportation, and 

planning agencies. 

The goals adopted by the three-agency partnership include supporting existing communities through planning and technical assistance grants. The partnership is fully devoted to such strategies 

as mixed-use development and land recycling to increase community revitalization, improve the efficiency of public works investments, and safeguard rural landscapes. 

Q.7. Do you believe that under the Uniform Relocation Act the 

rules and regulations have made the replacement of older multifamily units prohibitive, even with multiple incentives included? 

Do you believe that such regulations promote an acceptance of very 

substandard housing in certain urban areas? 
65 

A.7. Despite the additional requirements placed on federally funded projects in order to comply with the Urban Relocation Act 

(URA), these projects continue to produce decent, safe, and sanitary 

units of affordable housing. In 2008, CDBG funds were used to rehabilitate 21,418 rental units, and HOME program funds were 

used to complete 23,170 rental units. 

Without the URA protections, a low-income family renting an 

apartment from month to month would most likely get nothing except an eviction notice. In enacting the URA, Congress recognized 

that the lack of adequate and affordable rental housing for displaced lower income individuals and families ‘‘presents the most 

difficult of all relocation problems.’’ H.R. Rep. 91–1656, at 12 

(1970). These are the persons who would generally receive nothing 

from an eminent domain taking. 

Recognizing the hardship that often follows when families are 

uprooted against their will, the URA was based on the premise 

that families forced to move due to federally assisted projects 

should not be left worse off economically than before the displacement, and should be able to relocate in a comparable dwelling, 

which is decent, safe, and sanitary. 

At the same time, when faced with time constraints on implementing an acquisition, rehabilitation, or construction program tied 

to spending Federal funds in a short amount of time, applying full 

URA requirements may impede moving forward quickly because of 

the sensitive nature of working with people. It is time-intensive 

work which requires the recipient of the Federal funds to conduct 

personal interviews, provide notices, and find comparable housing. 

Some families may not want to be relocated and will resist efforts 

to help them. The elderly can be the most vulnerable and most difficult to move especially if they have a built-in community, which 

addresses their needs and may not exist in a new location. The possible shortage of appropriate decent, safe, and sanitary housing 

near a family’s known resources and support systems can also 

present difficulties. 

In addition, the costs for relocating families can add to the bottom line cost of a HUD-assisted project (approximately $22,000 per 

household based on 2007 FHWA data), plus higher administrative 

costs. Because relocation payments for low-income families take 

into account affordability, the lower the income of the household 

moved, the higher the relocation cost largely due to the replacement housing payment covering a period of 42 months. However, 

these relocation expenses are eligible project costs that can be paid 

with HUD grant funds. More importantly, the alternative would be 

for HUD-funded programs to eject families from affordable housing 

(no matter how dilapidated) and place them into a better, but 

unaffordable location (or force them onto the streets, thereby increasing instances of homelessness). 
66 

1There are approximately 561 federally recognized Indian tribes and Alaska Native villages 

in the United States, all of whom are eligible for membership in NAIHC. Other NAIHC members include state-recognized tribes that were deemed eligible for housing assistance under the 

1937 Act and grandfathered in to the Native American Housing Assistance and Self-Determination Act. 2See http://www.bls.gov/news.release/empsit.nr0.htm. 3 Bureau of Indian Affairs Labor Force Report (2005). 

4Many of these reservations are in the state of South Dakota, which has one of the lowest 

unemployment rates in the nation. On some SD reservations, the unemployment rate exceeds 

80 percent. 5 U.S. Census Bureau, American Indian and Alaska Native Heritage Month: November 2008. 

See http://www.census.gov. 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

PREPARED STATEMENT OF MARTY SHURAVLOFF 

CHAIRMAN, NATIONAL AMERICAN INDIAN HOUSING COUNCIL

APRIL 22, 2010 

Introduction 

Good afternoon Chairman Dodd, Ranking Member Shelby, and distinguished 

members of the Senate Committee on Banking, Housing, and Urban Development. 

My name is Marty Shuravloff and I am the Chairman of the National American Indian Housing Council (NAIHC), the only national tribal non-profit organization 

dedicated solely to advancing housing, physical infrastructure, and economic development in tribal communities in the United States. I am also an enrolled member 

of the Leisnoi Village, Kodiak Island, Alaska. I want to thank the Committee for 

the opportunity to submit written testimony expressing NAIHC’s perspective on 

funding for Indian Housing Programs, particularly the Indian Housing Block Grant 

program, for the Committee’s consideration as it reviews the fiscal year 2011 legislative requests from the U.S. Department of Housing and Urban Development (HUD). 

Background on the National American Indian Housing Council (NAIHC) 

The NAIHC was founded in 1974 and has, for 36 years, served its members by 

providing valuable training and technical assistance (T/TA) to all tribes and tribal 

housing entities; providing information to Congress regarding the issues and challenges that tribes face in terms of housing, infrastructure, and community and economic development; and working with key Federal agencies in an attempt to address such issues and meet such challenges. The membership of NAIHC is expansive, comprised of 271 members representing 463 1 tribes and tribal housing organizations. The primary goal of NAIHC is to support Native housing entities in their 

efforts to provide safe, quality, affordable, culturally relevant housing to Native people. 

Brief Summary of the Problems Regarding Housing in Indian Country 

While the country has been experiencing an economic downturn in general, this 

trend is greatly magnified in Indian communities. The national unemployment rate 

has risen and has hopefully passed its peak at an alarming rate of nearly 10 percent;2 however, that rate does not compare to the unemployment rates in Indian 

Country, which average 49 percent.3 The highest unemployment rates are on the 

Plains reservations, where the average rate is 77 percent.4 Because of the remote 

locations of many reservations, there is a lack of basic infrastructure and economic 

development opportunities are difficult to identify and pursue. As a result, the poverty rate in Indian Country is exceedingly high at 25.3 percent, nearly three times 

the national average.5 These employment and economic development challenges exacerbate the housing situation in Indian country. Our first Americans face some of 

the worst housing and living conditions in the country and the availability of affordable, adequate, safe housing in Indian Country falls far below that of the general 

U.S. population. 

• According to the 2000 U.S. Census, nearly 12 percent of Native American 

households lack plumbing compared to 1.2 percent of the general U.S. population. 

• According to 2002 statistics, 90,000 Indian families were homeless or underhoused. 

• On tribal lands, 28 percent of Indian households were found to be over-crowded 

or to lack adequate plumbing and kitchen facilities. The national average is 5.4 

percent. 
67 

6 Eligible activities include but are not limited to down-payment assistance, property acquisition, new construction, safety programs, planning and administration, and housing rehabilitation. 7See Appendix A, attached hereto. 

8Part of the rationale for reducing IHBG funding was what may appear to be a delay in use 

of available tribal housing funds. However, such apparent delay is an aberration. Since 

NAHASDA was initially funded in FY1998 through FY2009, tribal expenditure rates are 88 percent. Based on a HUD ARRA spending report dated March 20, 2010, tribes are spending HUD 

and ARRA funds at a rate that at least equals and, in some cases, exceeds the national average. 

• When structures that lack heating and electrical equipment are included, 

roughly 40 percent of reservation housing is considered inadequate, compared 

to 5.9 percent of national households. 

• Seventy percent of the existing housing stock in Indian Country is in need of 

upgrades and repairs, many of them extensive. 

• Less than half of all reservation homes are connected to a sewer system. 

There is already a consensus among many Members of Congress, HUD, tribal leaders, and tribal organizations that there is a severe housing shortage in tribal communities; that many homes are, as a result, overcrowded; that many of the existing 

homes are in need of repairs, some of them substantial; that many homes lack basic 

amenities that many of us take for granted, such as full kitchens and plumbing; and 

that at least 200,000 new housing units are needed in Indian Country. 

These issues are further complicated by Indian land title status. Most Indian 

lands are held in trust or restricted-fee status; therefore, private financial institutions will not recognize tribal homes as collateral to make improvements or for individuals to finance new homes. Private investment in the real estate market in Indian Country is virtually non-existent. Tribes are wholly dependent on the Federal 

Government for financial assistance to meet their growing housing needs, and the 

provision of such assistance is consistent with the Federal Government’s centuriesold trust responsibility to American Indian tribes and Alaska Native villages. 

The Native American Housing Assistance and Self-Determination Act 

In 1996, Congress passed the Native American Housing Assistance and Self-Determination Act (‘‘NAHASDA’’) to provide Federal statutory authority to address the 

above-mentioned housing disparities in Indian Country. NAHASDA is the cornerstone for providing housing assistance to low-income Native American families on 

Indian reservations, in Alaska Native villages, and on Native Hawaiian Home 

Lands. The Indian Housing Block Grant (‘‘IHBG’’) is the funding component of 

NAHASDA. Since the passage of NAHASDA in 1996 and its funding and implementation in 1998, NAHASDA has been the single largest source of funding for Native 

housing. Administered by the Department of Housing and Urban Development 

(‘‘HUD’’), NAHASDA specifies which activities are eligible for funding.6 Not only do 

IHBG funds support new housing development, acquisition, rehabilitation, and other 

housing services that are critical for tribal communities; they cover essential planning and operating expenses for tribal housing programs. Between 2006 and 2009, 

a significant portion of IHBG funds, approximately 24 percent, were used for planning, administration, housing management, and services.7

American Recovery and Reinvestment Act (ARRA) and FY2010 Indian Housing Funds 

NAIHC would like to thank Congress for its increased investment in Indian housing in FY2010. AARA provided over $500 million for the IHBG program. This additional investment in Indian Country supports hundreds of jobs, has allowed some 

tribes to start on new construction projects, and has assisted other tribes in completing essential infrastructure for housing projects that they could not have otherwise afforded with their IHBG allocations. Tribes have complied with the mandate 

to obligate the funds in an expedient manner, thus helping stimulate tribal and the 

national economies. 

In addition to ARRA funding, Congress appropriated $700 million for the IHBG 

in FY2010, the first significant increase for the program since its inception. This 

positive step reversed a decade of stagnate funding levels that neither kept pace 

with inflation nor addressed the acute housing needs in Native communities. 

The President’s FY2011 Budget Request for the Indian Housing Block Grant 

On February 1, 2010, President Obama submitted to Congress a $3.8 trillion 

budget request. It proposes $580 million for the IHBG, which is a decrease of $120 

million (–17 percent) from the FY2010 funding level.8 At the same time, HUD’s 
68 

9See Appendix B, attached hereto. 

overall budget was reduced by only 5 percent. Should Congress accept the President’s budget proposal, it would be the lowest, single-year funding level for the 

NAHASDA since it was enacted in 1996. To put this in proper perspective, funding 

appropriated by Congress in FY1998, 12 years ago, was $20 million more than the 

President’s Budget Request for FY2011. 

While the NAIHC and its members are aware of and appreciate the large investments made in Indian housing, we are disappointed that the current request fails 

to continue the positive budget trajectory of recent years. Therefore, the NAIHC 

strongly urges Congress to not only appropriate funds above the President’s Budget 

Request, but to fund the IHBG at $875 million due to the increasing costs for housing development, energy efficiency initiatives, and other inflationary factors. Since 

the President’s Budget Request was released, many of our members have expressed 

their deep concerns. They believe, and we agree, that this budget impacts not only 

housing, but also the very hope for self-sustaining economies in Indian Country. 

Reduced funding would result in the loss of jobs for our people, reversing the positive impact of ARRA; the deterioration of existing housing units; and the curtailment of many housing projects that are currently under development. Without sufficient funding and proper training and technical assistance, progress regarding tribal 

housing will not only cease; years of hard work will be reversed, as tribes will lack 

the funds to maintain and operate existing housing units, much less provide new 

ones. Many tribes are at risk of losing between a quarter and a third of their housing budgets if the President’s Proposed Budget were to take effect, the impact of 

which would be devastating.9

Other Indian Housing and Related Programs 

The Title VI and Section 184 Indian Housing Loan Guarantee Programs 

The President’s proposed budget request includes $2 million for the Title VI Loan Guarantee program and $8.25 million for the Section 184 program. The Title VI program is important because it provides a 95 percent guarantee on loans made by private lenders, which is an incentive for lenders to get involved in the development 

of much-needed housing in tribal areas. Section 184 is specifically geared toward facilitating home loans in Indian Country. We request that these programs be funded 

at $2 and $9 million, respectively. 

Indian Community Development Block Grant (ICDBG) 

While appreciated, proposed funds of $65 million for the ICDBG are insufficient 

to meet the current needs for essential infrastructure, including sewer and running 

water, in Indian Country. We request that this program be funded at $100 million. 

Native Hawaiian Housing 

Low-income Native Hawaiian families continue to face tremendous challenges, 

similar to those that tribal members face in the rest of the United States. The President’s funding request of $10 million for the Native Hawaiian Housing Block Grant 

is appreciated, but the budget includes no funding for the Section 184A program in 

Hawaii. While it has taken some time to get this program started-because lenders 

are not familiar with the Section 184A program-providing no funding would be a 

step backward for Native Hawaiian families working toward homeownership. We 

urge Congress to consider this before agreeing to the Administration’s proposal to 

eliminate funding for the program. 

Training and Technical Assistance (T/TA) and the Proposed Transformation 

Initiative 

The President’s proposed budget eliminates entirely the much-needed, exceptional 

T/TA that has been provided by NAIHC since NAHASDA was implemented. The 

provision of T/TA is critical for tribes to build their capacity to effectively plan, implement, and manage tribal housing programs. Eliminating funding for T/TA would 

be disastrous for tribal housing authorities and would be a huge step in the wrong 

direction. Tribes need more assistance in building capacity, not less. Since NAIHC’s 

funding for T/TA was restored in 2007, requests for T/TA have steadily grown. The 

funding that NAIHC is currently receiving is insufficient to meet the continuous, 

growing demand for T/TA. Therefore, we are forced to make difficult decisions regarding when, where, and how to provide the most effective T/TA possible to our 

membership. 

The budget request proposes an agency-wide Transformation Initiative Fund 

(‘‘TIF’’) with up to 1 percent of HUD’s total budget, which would draw funds away 

from essential housing programs, including $5.8 million from the IHBG account, ‘‘to 
69 

10See http://hud.gov/offices/cfo/reports/2011/cjs/nahb-grants2011.pdf. 

continue the on-going comprehensive study of housing needs in Indian Country and 

native communities in Alaska and Hawaii.’’ While the NAIHC membership believes 

the TI may have merit, we do not believe that transferring nearly $6 million from 

the IHBG account to conduct a study on housing needs is a wise or even defensible 

use of Federal taxpayer funds. More importantly, the $6 million affects funding that 

has historically been appropriated to NAIHC for T/TA. Through resolutions, the 

NAIHC membership has repeatedly taken the position that a portion of the IHBG 

allocation should be provided to NAIHC for T/TA, which is a reflection of their confidence in NAIHC and the continuing demand for the essential capacity-building 

services that we provide. We request that funding in the amount of $4.8 million for 

T/TA be included in the FY2011 budget. 

Conclusion 

NAHASDA was enacted to provide Indian tribes and Native American communities with new and creative tools necessary to develop culturally relevant, safe, decent, affordable housing. NAIHC has very specific concerns, enumerated above, with 

the President’s proposed Indian housing funding levels and hopes that Congress, 

with the leadership of this important Committee, will not allow the NAHASDA program to take an enormous step backwards and devastate the progress that has been 

made in the past 12 years to improve housing conditions in Indian Country. Based 

on the facts outlined above and the potentially devastating impact a dramatic cut 

to Indian housing funds will unquestionably have on Indian country, NAIHC requests funding in the amounts outlined above in order to meet the immense needs 

in Indian country. 

Thank you, Chairman Dodd, Ranking Member Shelby, and the members of this 

Committee for allowing us to express our Fiscal Year 2011 budgetary priorities and 

concerns regarding Native American housing needs. Your continued support of Native American communities is truly appreciated, and the NAIHC is eager to work 

with you and your professional staff on any and all issues pertaining to Indian housing programs and living conditions for America’s indigenous people. 

Appendix A: How NAHASDA Funds Are Being Spent 

The following chart shows how tribes spent NAHASDA funds from 2006–2009.10
70 

11These numbers are based on a simulation using the President’s proposed funding figure of 

$572 million compared to the FY2010 budget without any adjustments. The numbers are a 

rough estimate and subject to change based on a variety of factors, but they do offer a good 

summary of the potential impact of the President’s FY2011 budget, if passed. 12Per Lumbee tribal member and attorney Edward K. Brooks, Patterson Dilthey, Attorneys 

at Law, Raleigh, NC, 3/22/2010. 

Appendix B: Specific Examples of Potential Housing Funds Losses:11

Tribe and State 

Grant Simulation 

Using President’s 

Proposed FY2011 

Budget 

FY 2010 Housing 

Funds 

(Before Repayments 

and Grant Adjustments) 

Difference in Grant 

Amount 

Holy Cross Village, Alaska ........................................................ $121,563 $181,111 –$59,548 

Organized Village of Kake, Alaska ........................................... $227,631 $339,475 –$111,844 

Ft. McDowell Reservation, Arizona ............................................ $70,326 $104,448 –$34,122 

Navajo Nation, Arizona, New Mexico, and Utah ....................... $73,402,755 $93,816,159 –$20,413,404 

Western Band of the Cherokee Nation, Oklahoma ................... $25,843,314 $31,684,864 –$5,841,550 

Not all tribes stand to lose the same percentage of funding under the President’s 

proposed budget because of the way the funding formula works for the IHBG. For 

example, the Lumbee tribe of North Carolina stands to lose roughly 45 percent of 

their total housing budget because 92 percent of it is needs-based.12
71 
72 
73 
74 
75 
76