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39–911 PDF 2008

H.R. 647, THE MARK-TO-MARKET

EXTENSION ACT OF 2007

HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 23, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–73

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

THADDEUS G. McCOTTER, Michigan

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

MAXINE WATERS, California, Chairwoman

NYDIA M. VELA ́ ZQUEZ, New York 

JULIA CARSON, Indiana 

STEPHEN F. LYNCH, Massachusetts 

EMANUEL CLEAVER, Missouri 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

CAROLYN B. MALONEY, New York 

GWEN MOORE, Wisconsin, 

ALBIO SIRES, New Jersey 

KEITH ELLISON, Minnesota 

CHARLES A. WILSON, Ohio 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

BARNEY FRANK, Massachusetts 

JUDY BIGGERT, Illinois 

STEVAN PEARCE, New Mexico 

PETER T. KING, New York 

PAUL E. GILLMOR, Ohio 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

GEOFF DAVIS, Kentucky 

JOHN CAMPBELL, California 

THADDEUS G. McCOTTER, Michigan 

(V)

C O N T E N T S 

Page 

Hearing held on: 

October 23, 2007 ............................................................................................... 1

Appendix: 

October 23, 2007 ............................................................................................... 25

WITNESSES 

TUESDAY, OCTOBER 23, 2007

Anthony, Amy, President and Executive Director, Preservation of Affordable 

Housing, Inc. ......................................................................................................... 13

Faith, Bill, Executive Director, Coalition on Homelessness and Housing in 

Ohio ....................................................................................................................... 17

Foster, Paula, Vice President Western Region, National Alliance of HUD 

Tenants ................................................................................................................. 18

Malynowski, Sheila, President, National Leased Housing Association, and 

President of Preservation Management, Inc. ..................................................... 15

Toon, Theodore K., Deputy Assistant Secretary, Office of Affordable Housing 

Preservation, U.S. Department of Housing and Urban Development ............. 5

APPENDIX 

Prepared statements: 

Anthony, Amy ................................................................................................... 26

Faith, Bill .......................................................................................................... 47

Foster, Paula ..................................................................................................... 50

Malynowski, Sheila .......................................................................................... 59

Toon, Theodore K. ............................................................................................ 66

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Waters, Hon. Maxine: 

Letter from the California Housing Partnership Cororation ........................ 70

(1)

H.R. 647, THE MARK-TO-MARKET 

EXTENSION ACT OF 2007

Tuesday, October 23, 2007

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HOUSING AND

COMMUNITY OPPORTUNITY, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 2 p.m., in room 

2128, Rayburn House Office Building, Hon. Maxine Waters [chairwoman of the subcommittee] presiding. 

Members present: Representatives Waters, Cleaver, Green; 

Capito, and Neugebauer. 

Chairwoman WATERS. This hearing of the Subcommittee on 

Housing and Community Opportunity will come to order. Good 

afternoon, ladies and gentlemen. 

I would like to thank Ranking Member Shelley Moore Capito and 

the members of the Subcommittee on Housing and Community Opportunity for joining me for today’s hearing on H.R. 647, the Markto-Market Extension Act of 2007. 

I would like to start by noting that, without objection, all members’ opening statements will be made part of the record. I am looking forward to hearing from our two panels of witnesses on the 

mark-to-market mortgage restructuring program. 

As we learned last week in a hearing on project-based Section 8 

and the importance of timely and sufficient payments to participating owners, project-based Section 8 is a critical part of the affordable housing continuum. Project-based Section 8 allows us to 

meet the affordable housing needs of families in urban and rural 

areas, especially the elderly, persons with disabilities, and those 

who are trying to get back on their feet after being homeless. 

Indeed, without this program, many communities would not have 

units targeted to these families. The program helps us to keep 

project-based units in our inventory at a reduced cost to the Federal Government, while protecting tenants who would otherwise 

be—without mark-to-market restructuring. 

The mark-to-market program works by allowing the owners of 

project-based Section 8 properties with FHA-insured mortgages to 

mark their rents to market. This means that owners who have 

been charging above-market rents can lower their rents to those 

that are more comparable to rents charged in the local housing 

market. 

In addition to saving valuable Federal resources, the program ensures that these properties are more competitive, are more finanVerDate 0ct 09 2002 10:28 Jan 16, 2008 Jkt 039911 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\39911.TXT HFIN PsN: TERRIE
2

cially sound, and better for tenants in the long run. Because the 

mark-to-market program requires owners with restructured mortgages to keep their units affordable for low-income renters for at 

least 30 years, the program secures affordable housing for the long 

term. 

Through mid-2006, almost 250,000 units and over 3,200 properties remained affordable as a result of the mark-to-market program. Given the importance of this program in maintaining our affordable housing stock, I was pleased to introduce H.R. 647, ‘‘The 

Mark-to-Market Extension Act of 2007,’’ with Financial Services 

Committee Chairman Barney Frank and Representative Deborah 

Pryce of Ohio. 

This bill would assist us in our goal of preserving the 1.3 million 

project-based Section 8 units currently housing low-income families. Although the extension of the mark-to-market program has already been addressed in H.J. Res. 20, H.R. 647 is still needed, because it reforms the program, so that more properties can take advantage of its restructuring features. 

First, H.R. 647 would build upon the success of the mark-to-market program by expanding eligibility to include properties with 

rents that don’t exceed the average per-unit rent of comparable 

units in the same area. 

I am aware of concerns that have been raised about this provision, especially concerns that allowing properties that do not have 

below-market rents to restructure under mark-to-market could impact Section 8 renewal policy. I am interested to hear the views of 

our witnesses on this provision. 

Second, the bill also takes into account the impacts of natural 

disasters on affordable housing. As we saw in the aftermath of 

Hurricane Katrina, thousands of project-based units were severely 

damaged or destroyed. By allowing disaster-impacted properties eligible for a mark-to-market program to set their restructured rents 

at 100 percent of the fair market rent, instead of the usual 90 percent of the fair market rent, these properties will be able to recover 

from the effects of disasters. 

Also, since the rent is at 100 percent of fair market rent, it remains competitive with other local rents, and accessible to lower 

income families. 

Finally, the bill increases the percentage of mortgages that can 

have exception rents or rents up to 120 percent of the fair market 

rent from 5 percent of all mortgages to 9 percent of all mortgages. 

This change is especially necessary, in light of concerns that the 

department is already within a few hundred units of meeting the 

5 percent cap, and may actually reach this cap before the end of 

this calendar year. 

During this congressional session, this subcommittee has examined the different terms and resources needed at the Federal, 

State, and local level to preserve and expand on our supply of affordable housing. We quickly identified the mark-to-market program as one of these tools, introducing H.R. 647 earlier on in the 

110th Congress. I am pleased to note that the Administration also 

agrees with us on the importance of this program, and maintaining 

our inventory of affordable housing units. 

3

I look forward to hearing the witnesses’ views on this very important topic, and I would now like to recognize Ranking Member 

Capito for her opening statement. 

Mrs. CAPITO. I would like to thank Chairwoman Waters for holding this hearing, and I would like to express my appreciation to the 

witnesses today for coming to talk about the Mark-to-Market Extension Act. I will ask unanimous consent to submit my full statement for the record. 

But just briefly, I would like to also take an opportunity to thank 

Chairman Frank and Congresswoman Pryce for all of their work on 

this important program. As you will recall, we passed this bill last 

year, as it was introduced by Congresswoman Pryce in the 109th 

Congress, H.R. 6115, ‘‘The Mark-to-Market Extension Act of 2006,’’ 

by a vote of 416 to 1. So we might not have too much controversy 

here, and that is a good thing. 

As the chairwoman has said, this mark-to-market program was 

created in 1997 to reduce the cost to the Federal Government of renewing Section 8 contracts. An examination of the FHA portfolio 

found that nearly 10,000 properties were also receiving Section 8-

based rental assistance, and their rents were higher than the rents 

of comparable, unassisted rental units in the same area. Also, 

many of these projects were discovered to be financially and physically distressed. 

Under this new program, or extension program, Section 8 owners 

are screened to see if their programs are economically viable and 

in good physical condition. If selected, the owners work together 

with participating administrative entities to develop a rental assistance program for development. All eligible owners are allowed 

to participate in the mortgage restructuring plan. And in exchange 

for debt restructuring, owners must agree to keep the property affordable—which I think is the crux of this—for low-income tenants 

for at least 30 years. 

This restructuring, when completed, saves the Federal Government money by extending affordable housing units for future generations. Madam Chairwoman, I appreciate you holding this hearing today, and hope that we can expedite consideration of H.R. 647, 

‘‘The Mark-to-Market Extension Act of 2007,’’ to ensure that HUD 

will continue to have the tools necessary to not only save Federal 

dollars, but most importantly, to preserve critical affordable housing resources. 

I look forward to the hearing, and I yield back the balance of my 

time. 

Chairwoman WATERS. Thank you very much, Ranking Member 

Capito, and I want to thank you for your presence. This is a very 

active subcommittee, and I know it is drawing on a lot of your 

time, but I do appreciate your attendance at each hearing. 

And the same thing is true of Mr. Cleaver, whom I would like 

to recognize for a 3-minute opening statement, for his presence always at these committee hearings. Thank you so very much, Mr. 

Cleaver. 

Mr. CLEAVER. Thank you, Madam Chairwoman, and Ranking 

Member Capito. This, I believe, is a critically important hearing. 

And it relates to a very valuable proposal, H.R. 647, ‘‘The Markto-Market Extension Act.’’ Under your leadership, Madam ChairVerDate 0ct 09 2002 10:28 Jan 16, 2008 Jkt 039911 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\39911.TXT HFIN PsN: TERRIE
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woman, as well as the chairman of the Financial Services Committee, Chairman Barney Frank, previously voiceless, 

disenfranchised poor people in need of affordable housing now have 

champions. And I think that includes our ranking member, Ms. 

Capito. 

And so, today, we will receive some testimony from the Administration’s housing advocates. And I have to say that last week’s 

hearing captured the fact that multi-family owners operating on 

project-based Section 8 contracts have been experiencing widespread Section 8 funding shortages. 

And housing—the House Financial Services Committee staff indicated that HUD realized that they had a funding problem in February of 2007, and yet there were no attempts to address this problem at least until August, which has just confused me. I cannot understand why there wasn’t some urgency to that program. 

And the hope is that today, as we get into discussing the markto-market program, we won’t stumble upon any unnecessary 

delays. I am always concerned when it appears as if poor people 

always end up being placed in a position where they are simply not 

that important. 

And so, I appreciate your presence here, and I look forward to 

raising some questions later on during the hearing. Thank you, 

Madam Chairwoman. 

Chairwoman WATERS. You are certainly welcome. Also, I would 

like to thank you, Mr. Green. You are always here, and I know this 

is a drain on your time, but I thank you for your participation in 

this. 

Mr. Neugebauer came in? Oh, there you are. Mr. Neugebauer before Mr. Green. Thank you for being here. You too, are a regular 

participant in these hearings, and I just want to thank you, too, because I know this is a very active subcommittee, and it takes a lot 

of your time. But I thank you for all that you have added. And now 

we will recognize you for an opening statement. 

Mr. NEUGEBAUER. Not at this time. 

Chairwoman WATERS. Not at this time? All right, thank you. We 

are back to Mr. Green. Thank you very much, Mr. Green, for being 

here. And I recognize you for 3 minutes. 

Mr. GREEN. Thank you very much for your leadership, Madam 

Chairwoman, and it is an honor to serve with you at the helm. I 

thank the ranking member, as well, for her leadership, and also 

our full committee chair and ranking member. 

I am exceedingly pleased to associate myself with the comments 

of the chairwoman, and I look forward to the mark-up of the bill. 

I do have one concern that I will try to address today, to the extent that we can, and it has to do with the technical assistance for 

tenant organizations. I understand that OTAG, which is the outreach and technical assistance grants, along with ITAG, which is 

the intermediary technical assistance grants, there is an effort to 

replace this with TRIO, the tenant resources information outreach 

program. 

And I am interested in knowing where we are with this. The organizations that monitor these activities, the tenant-based organizations, and the consumer advocacy groups, are very much concerned about the money that is to go toward this technical assistVerDate 0ct 09 2002 10:28 Jan 16, 2008 Jkt 039911 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\39911.TXT HFIN PsN: TERRIE
5

ance. My understanding is that we are sort of in a hiatus right 

now, and I would like to know how we will extricate ourselves from 

the hiatus. 

So, I thank you for being here, sir, and I thank the ranking 

member, and of course my chairwoman, for having this most important hearing. And I yield back. 

Chairwoman WATERS. Thank you very much. I would now like to 

introduce our first panel. I would like to ask Mr. Theodore Toon 

to be prepared to share his testimony with us. Mr. Toon is the Deputy Assistant Secretary at the Office of Affordable Housing Preservation for the United States Department of Housing and Urban Development. 

Without objection, your written statement will be made a part of 

the record. And now you will be recognized for a 5-minute summary of your testimony. Welcome, Mr. Toon. 

STATEMENT OF THEODORE K. TOON, DEPUTY ASSISTANT SECRETARY, OFFICE OF AFFORDABLE HOUSING PRESERVATION, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Mr. TOON. Thank you, Chairwoman Waters, Ranking Member 

Capito, and all the members of the subcommittee, for inviting me 

here today to testify on ‘‘The Mark-to-Market Extension Act.’’ 

The preservation of affordable housing continues to be a top priority for Secretary Jackson, Commissioner Montgomery, and the 

Department of Housing and Urban Development. 

The mark-to-market program was originally created by Congress 

in 1997. It was extended in 2001, and again in 2007, now through 

2011. HUD contracts with private owners of rental properties to 

ensure units for occupancy by low-income residents. When those 

contracts expire and are renewed, if the contract rents are above 

comparable market rents, mark-to-market reduces those rents to 

market levels in the renewal of the contract. By bringing Section 

8 rents into line with the market, HUD controls Section 8 costs, 

and maximizes the number of families that can be assisted through 

these housing programs. The bill that you have introduced proposes modifications to the mark-to-market program. 

Over the past 9 years, HUD has successfully balanced the dual 

mark-to-market goals of reducing the Section 8 subsidy costs while 

preserving much-needed affordable housing. Today, we have preserved 2,300 properties around the country with over 200,000 affordable housing units. And in doing so, we have promoted the 

long-term physical and financial viability of these properties. The 

program has generated savings totaling over $2.1 billion to HUD 

and the American taxpayer. 

Not all the property can or will be preserved. While preservation 

is a primary goal of the program, Congress has made it clear that 

prudent use of limited resources is equally important. HUD has 

taken this charge seriously. There have been, and will continue to 

be, properties that simply cannot be responsibly preserved. These 

projects may be too expensive, functionally obsolete, or may be located in markets with ready availability of replacement housing. 

In other situations, properties that the Department believes 

should go through restructuring cannot enjoy those benefits beVerDate 0ct 09 2002 10:28 Jan 16, 2008 Jkt 039911 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\39911.TXT HFIN PsN: TERRIE
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cause the owner refuses to accept the terms and restructure. In 

these cases, HUD makes the determination that the project is infeasible. These are difficult decisions for us to make, and they are 

made in consultation with our local field office, the residents, and 

the community. 

These properties are closely monitored to allow for early intervention, in the event that they begin to fail. And they retain their 

eligibility to come back in for a restructuring, and many, in fact, 

do so. 

By preserving affordable housing in all 50 States and the District 

of Columbia, including long-term use agreements through which 

the properties are preserved as affordable for at least 30 years, we 

have provided stability for many low-income families, and for their 

communities. This is a win-win situation. 

Beyond those properties that are currently assisted through 

mark-to-market are other preservation needs. And that brings us 

to the discussion before us today, which is the modification of the 

mark-to-market legislation. While the Administration has not 

taken a formal position on H.R. 647, and is still analyzing the 

budgetary impacts, I can discuss the likely programmatic impact of 

these legislative proposals. 

The first is exception rents. For projects that cannot be preserved 

at market rents, but provide desperately needed housing, Congress 

provided authority to use above-market, or exception rents. The estimated need for this authority was based on projections made 10 

years ago, and that has served us well until now. 

While HUD has exercised prudent discretion in using this authority, only in the cases where it is absolutely necessary, we are 

today within a couple of hundred units—not buildings, but a few 

hundred apartment units—of that cap, and we expect to hit it before the end of the year. The proposal to increase that cap from 5 

percent to 9 percent of the portfolio would, by our projections, allow 

HUD to continue to use this authority through the sunset of the 

program in 2011. 

The second modification deals with at-market or below-market 

properties. Extending mark-to-market eligibility to these projects, 

at the owner’s option, will make eligible approximately 1,500 properties over the next 4 years. And the profile of these projects illustrates the need for a restructuring in many cases. Over half of the 

projects have at least one trouble indicator, either in physical condition or financial health. And these are the best statistical predictive measures of a future default. 

By requiring that the cost of such a restructure be less than the 

cost of a default on the property, the proposed language would 

charge my office with ensuring that we continue to exercise fiduciary responsibility in implementing these preservation efforts. 

The third provision would allow HUD to utilize the restructure 

tools of mark-to-market toward the repair or rebuilding of properties that are damaged or destroyed in presidentially-declared disaster areas. 

The final modification extends the period of eligibility for nonprofit purchasers requesting debt relief to 5 years. To date, we 

have completed 57 such transactions, with debt relief totaling over 

$85 million. Today, nearly three-quarters of our closed portfolio is 

7

now beyond the reach of this type of transfer. The proposed change 

would make over 1,000 properties eligible for acquisition by nonprofit owners. 

In conclusion, on behalf of Commissioner Montgomery, I want to 

thank you for affording us the opportunity to testify today on this 

legislation. Congress’s intent in creating and twice extending the 

mark-to-market program was to preserve housing and save money. 

The program has been successfully implemented, resulting in the 

restructuring of over 200,000 affordable housing units around the 

country, improving the lives of tens of thousands of the low-income 

families who call these units home. 

Thank you, and I stand prepared to answer any questions you 

may have. 

[The prepared statement of Mr. Toon can be found on page 66 

of the appendix.] 

Chairwoman WATERS. Thank you very much for your testimony, 

and I will recognize myself for 5 minutes. First, I would like to 

share with you my general thinking about this mark-to-market, 

and about the subcommittee hearing that we had last week, relative to the late payments of the project-based housing assistance 

payments. 

This committee is concerned about the fact that we have lost Section 8 project-based units over the last several years. Someone gave 

me a figure of about 300,000; that is a lot of units. We don’t want 

to lose any more, and we don’t want to squeeze the owners. 

Their payments are late. We discovered how you do it, and that 

you are basing the payments on the fiscal year, rather than the full 

year, and you are making owners wait not only for those 3 months 

that are not calculated for the full year, but in addition to that, you 

have technology problems that cause late payments. And this 

makes it very difficult in trying to maintain those units. 

So, on the one hand, you cannot talk about repair and keeping 

the units in proper condition, when the payments are not getting 

to the owners on time for them to make those investments in the 

units, and they are not being paid the proper amounts. 

I am not interested in mark-to-market driving down the rents. 

We are interested in better market rents. And we would hope that 

we don’t get a lot of complaints from our owners, that: First, they 

are being unfairly negotiated with; second, their payments are not 

being made in a timely way again; and third, they’re not being negotiated with in a way that would help them to restructure their 

debt, so they can continue to provide these units. 

We wish to have a happy scenario, where we will learn that you 

have not only helped to realign these rents so that they are truly 

market, whether they were above or below, that the owners are 

getting paid on time, that we’re not losing properties, and that the 

monies are timely in such a way that they can invest in the rehabilitation and the upkeep of these properties. We don’t want to 

keep fighting with HUD about all of this. 

So, can you tell me, what problems do you anticipate? What 

problems have you run into before? Have you had owners who say 

that you’re not calculating the market rents properly? Do you have 

owners who say that they’re in locations where there are not a lot 

of units available, and that they are doing everything that they can 

8

to provide you with these units, and they should not have to—they 

should be over the market rates? Tell me what kind of problems 

you encounter. 

Mr. TOON. Sure. We have certainly heard, in various cases from 

owners, all of the concerns that you have raised. I think it is important to point out that the restructuring process is a transparent 

process. 

So, at every step of the process where we are collecting physical 

data—we go out and do a physical inspection of the property—that 

information is shared with the owners and the residents, so that 

we can fully understand the physical needs. On the financial side, 

we send out an independent appraiser to do an appraisal of the 

market, and determine what the market rents are. Again, that is 

transparent, and that is shared with the owner. 

So, if they have concerns about the comparable properties that 

have been selected, or adjustments that have been made, there is 

an opportunity for them to have that conversation prior— 

Chairwoman WATERS. Let me just interrupt you for a moment. 

Are the appraisers from the local area, or do they come from Washington? 

Mr. TOON. The appraisers are from the local area. We have a 

network of appraisers across the country that are utilized, private 

appraisers. 

Chairwoman WATERS. But the network represents the appraisers 

who work in that area? 

Mr. TOON. Yes. 

Chairwoman WATERS. And I would like the members of this committee to see a list of those appraisers, and I would like it made 

available for every member of this committee, so they can understand who the appraisers are, so that when we get our complaints, 

we are going to have the tools by which to raise the question. So 

we would like that information. Thank you. Go ahead. 

Mr. TOON. Certainly. In addition to that, once all of that information is loaded into the final restructuring plan that is presented, 

the owner has two levels of appeal that are available to them. 

Now, we go through two levels of approval within our office to 

review all of the rent comparability information, etc. When that is 

offered to the owner, they have two opportunities to appeal that. 

So, if they disagree with our determination of rents, and they have 

more current, or different, or better information that they can provide, that is considered by our appeal committee. And there are 

two levels, as I mentioned, of appeal. So there are opportunities for 

the owner to have those conversations, and— 

Chairwoman WATERS. And they’re advised of the appeals process? It is very well set-out, and given to them? 

Mr. TOON. It is very well set-out. They are notified in writing, 

as well as— 

Chairwoman WATERS. I would like this committee to have a copy 

of the information that you supply to the owners about their ability 

to appeal, also. 

Mr. TOON. Absolutely. And I think that the other questions that 

you have raised, or the other issues as potential problems that you 

have raised, I think, similarly, throughout the course of the restructuring, it is not done in a black box, it is done very transVerDate 0ct 09 2002 10:28 Jan 16, 2008 Jkt 039911 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\39911.TXT HFIN PsN: TERRIE
9

parently, with the input from the owners, with two tenant meetings, so we are hearing, sometimes independent, opinions from the 

residents about what is going on at the property, or what the physical needs are of the property. So we are getting input from a variety of sources, prior to putting our— 

Chairwoman WATERS. I hate to keep interrupting you, but I am 

trying to make use of our time today. You have not been finding 

the tenants to be organized and to be effective. And so, I don’t expect a lot of participation, unless they have the technical assistance 

by which to do this. 

So, are you committed to funding the tenant organizations, so 

that they can be involved in this kind of discussion? 

Mr. TOON. We are. In the last fiscal year, in 2007, Commissioner 

Montgomery charged my office with creating a new program, a new 

grant program, to replace the ITAG/OTAG program. We met with 

stakeholders, we developed and drafted that program to be a grant 

program in 2007. 

The legislation says the Secretary shall spend up to $10 million 

on this program. And, because of that, we came to Congress to ask 

for the approval to use that funding, and requested, in our operating plan to Congress, $10 million in fiscal year 2007. That— 

Chairwoman WATERS. I’m sorry. You didn’t need a special alloca- tion. This is $10 million that comes from your budget that you just 

have to do. You just have to spend it, is that right? 

Mr. TOON. It could either be a special allocation, or it could come 

from our budget, in which case— 

Chairwoman WATERS. You have the discretionary money to do it? 

Mr. TOON. I don’t believe so. I believe that we need to request 

specific permission in our operating plan to use funds from any 

source to fund the program— 

Chairwoman WATERS. Okay, all right. 

Mr. TOON. —2007. 

Chairwoman WATERS. Okay. 

Mr. TOON. That was not granted. 

Chairwoman WATERS. Okay. 

Mr. TOON. Permission was not granted. We will again request 

that in 2008, and are prepared to fully implement that program 

in— 

Chairwoman WATERS. Let me try and understand correctly. You 

have already designed the new program. 

Mr. TOON. That is— 

Chairwoman WATERS. For 2007? 

Mr. TOON. Correct. 

Chairwoman WATERS. But it is not to be implemented until 

2008? 

Mr. TOON. Well, again, we requested the funding in 2007. But 

that was not approved. So we— 

Chairwoman WATERS. Okay. 

Mr. TOON. —could not implement— 

Chairwoman WATERS. So you need approval of funding. The 

same reorganized program you were requesting for 2008? 

Mr. TOON. Correct. 

Chairwoman WATERS. And our committee does have a copy of 

your new program? 

10

Mr. TOON. Pardon? 

Chairwoman WATERS. Make sure that our committee has a copy 

of what you are—what you have organized, and what you are recommending for the new program for involvement by the tenants, 

okay? 

Mr. TOON. Yes. 

Chairwoman WATERS. All right. I am sorry to keep interrupting, 

but this is the only way I can get the information quickly. 

Mr. TOON. Absolutely— 

Chairwoman WATERS. Please continue. 

Mr. TOON. I think I was finished. 

Chairwoman WATERS. All right. Thank you very much. Ms. 

Capito, for questions? 

Mrs. CAPITO. I will ask one question. On the disaster relief provisions of H.R. 647, is this considered an expansion of the original 

mission of the mark-to-market program that was enacted in the 

late 1990’s? 

And, as I understand, for disaster-related units, the mark-tomarket can be applied, regardless of the costing, or the more expensive, or the most damage, or—how is that going to work? And 

is that going to be able to—I mean, that—of course, we are very 

keen and very well aware of the issues of Hurricanes Katrina and 

Rita and Wilma, but will this be going forward? And can you just 

enlighten me a little bit on the disaster relief area? 

Mr. TOON. Sure. The rent levels that would be determined, as I 

read the language, would be based upon the fair market rents prior 

to the disaster hitting, largely because one of the great challenges 

that we have certainly found in the Gulf region is that, for a very 

long time afterwards, establishing what a market rent is can be exceedingly difficult. 

All of the properties that we would be approaching through this 

program—and our estimate is anywhere from 10 to 15, on average, 

if you sort of look at a 10-year history of disasters that have hit—

those would all be subject to the exception rent cap. So, again, any 

very expensive restructurings would be subject to the cap that we 

have been discussing here today. 

I think the advantage of applying— 

Mrs. CAPITO. That would—the new cap, or the 9 percent? 

Mr. TOON. The new percent—the new 9 percent, cap, correct. 

I think that the advantage to using this authority for these properties is that one of the great challenges is that being able to have 

the contract vehicles and the network of professionals to get people 

on the ground immediately to do assessments—and even if you can 

rebuild the property, it may still be overburdened with its debt. So, 

the debt restructuring authority, to be able to restructure the debt 

at the same time that we are repairing or rebuilding, and establishing this for the long term, gives us the opportunity, also, to set 

out the 30-year use agreements for affordability. 

Mrs. CAPITO. I yield back. 

Chairwoman WATERS. Thank you very much. Mr. Cleaver? 

Mr. CLEAVER. Thank you, Madam Chairwoman. I have a number 

of questions, but we have been called to vote. So it is probably—

did they tell you last week what a nice time we had here, and did 

anybody— 

11

Mr. TOON. I heard something about that, yes. 

Mr. CLEAVER. Yes? Okay. It’s so refreshing, that an answer—one 

question. 

What happens if—or are you concerned about what happens if 

the highest income tenants legally possible, in order to mitigate the 

missed or reduced assistance payments? 

Mr. TOON. I’m not sure that I understand the question, sir. 

Mr. CLEAVER. Don’t you think that there may be some owners 

who would select the highest income tenants they can legally select, in order to mitigate the impact of the missed or reduced assistance payments? 

Mr. TOON. Well, I think the reduced assistance payments—I 

think it’s important to know that, in the course of the restructuring, all of the debt of the property is sized to be serviceable by 

those reduced rents. 

So, in most cases, in fact, the income produced by the property 

after a restructuring is greater than it was before. So, we do a topdown analysis, where we start with what are the market rents, the 

fair market rents, or the market rents, the true market rents, what 

are the operating expenses of the property, what is the serviceable 

debt load, and we back into that debt load. 

So, at the time that we’re reducing the rents, we’re also reducing 

the debt to be serviceable by those reduced rents. So, hopefully we 

are not creating that sort of incentive. 

Mr. CLEAVER. Okay. I yield back the balance of my time, in order 

to give my colleague a chance before we go vote. 

Chairwoman WATERS. Thank you very much. Mr. Green? 

Mr. GREEN. Thank you, Madam Chairwoman. Sir, you indicated 

that the appropriators did not appropriate for the Section 514 program, the technical assistance programs, is that correct? 

Mr. TOON. That is correct. 

Mr. GREEN. And you, of course, were authorized, but you did not 

have appropriations. And what was the rationale for not appropriating, please, as tersely as you can give it? 

Mr. TOON. I do not know. The answer is simply that it was not 

approved, as I understand it. 

Mr. GREEN. Okay. Could it be that the appropriators were concerned about the money being extracted from the project-based program, and not having enough money to complete that program? 

Mr. TOON. That is entirely possible. 

Mr. GREEN. Is it true that HUD could ask for the separate assistance for the technical program, and not tamper with the projectbased program, and could have done that in Fiscal Year 2007? 

Mr. TOON. As a separate appropriation? 

Mr. GREEN. Yes. 

Mr. TOON. I suppose that is possible. 

Mr. GREEN. Did you spend any of this technical assistance 

money? Did you have money set aside for fiscal year 2006? 

Mr. TOON. No, we did not. 

Mr. GREEN. What about 2005? 

Mr. TOON. No, we did not. 

Mr. GREEN. What about 2004? 

Mr. TOON. No. 

Mr. GREEN. What about 2003? 

12

Mr. TOON. No. 

Mr. GREEN. 2002? 

Mr. TOON. No, sir. 

Mr. GREEN. 2001? 

Mr. TOON. No. I believe 2000 was the last year. 

Mr. GREEN. So, we have gone these many years without the technical assistance program that was authorized. And all of these 

years, it was not because of the appropriators, because it was just 

in 2007, I believe, that you decided that you were going to ask the 

appropriators, as you were going to combine OTAG and ITAG into 

TRIO. 

Why wasn’t the money spent in all of these other years that we 

appropriated, we authorized? 

Mr. TOON. You will recall that the ITAG/OTAG program ran into 

a number of challenges and problems. Congress asked the Inspector General’s office to do a full audit of all grantees in the program, 

and found that the program fell short of its original goals. 

There were a number of audit findings that we spent a couple 

of years resolving, and we were also continuing to administer the 

remaining grants. In fact, we continue to administer, I believe, 

three grants that are remaining from that original program, and 

funds that were appropriated in 2000. 

In fiscal year 2007, again, Commissioner Montgomery asked that 

we put a replacement program in place. That was the Commissioner’s first year in his position, and he asked us to take that responsibility— 

Mr. GREEN. If I may, let me just share this, as I have to leave. 

Mr. TOON. Sure. 

Mr. GREEN. I want to commend Commissioner Montgomery. I 

have a lot of respect for him, and a great appreciation for what he 

does. My disappointment is in allowing all of this time to pass before we continue what I believe is a good program. 

And let’s just use this as an extreme example. We may have 

some problems with some things that are happening at HUD, but 

we don’t freeze HUD and cease to do the things that have been authorized. And to freeze this program, as it was done, I think has 

done a disservice to the tenants, the people who could benefit from 

it. And I would yield back, as we have to go vote. 

Chairwoman WATERS. Thank you very much. Mr. Toon, I want 

to thank you for coming. We are going to break now, and go to a 

vote on the Floor. 

I would like the record to reflect that we made a request of you 

for the list of appraisers that are broken down by the districts that 

are represented by all the members of this committee, so that we 

can see who these appraisers are. We want a copy of your tenant 

program, so that we can understand how you formulated that. 

And also, another request. I would like the total list of all of the 

project-based Section 8 participating owners for each of the members of this committee made available to us also. I understand 

there was a technological problem, but that does not prevent me 

from wanting you to straighten it out, so that if you know who you 

pay, you know who they are. And we want a list of all of them for 

each of the members of this committee. 

13

Mr. TOON. Of all Section 8, or those that are participating in 

mark-to-market, specifically? 

Chairwoman WATERS. Participating in the Section 8, the projectbased Section 8 mark-to-market program that you are going to restructure. 

Mr. TOON. Sure. 

Chairwoman WATERS. Okay? 

Mr. TOON. Very good. 

Chairwoman WATERS. Thank you very much. 

Mr. TOON. Thank you. 

Chairwoman WATERS. And, members of the second panel, we will 

be right back after we take the votes. Thank you. The committee 

is in recess. 

[Recess] 

Chairwoman WATERS. While our members are rejoining us, I 

would like to note that some members may have additional questions for the last panel, which they may wish to submit in writing. 

So, without objection, the hearing record will remain open for 30 

days for members to submit written questions to our witness, and 

to place their responses in the record. 

This panel that we just heard from that basically had our—Mr. 

Toon, the Deputy Assistant Secretary of the Office of Affordable 

Housing. 

We are going to move on to introduce the witnesses of our second 

panel. I know that Mr. Frank wanted to introduce Ms. Anthony, 

but he is not present yet, so I am going to proceed. 

Our first witness will be Ms. Amy Anthony, who is the president 

and executive director of Preservation of Affordable Housing, Incorporated. Our second witness will be Ms. Sheila Malynowski, president of the National Leased Housing Association, and president of 

Preservation Management, Incorporated. 

And I know that Ms. Pryce was interested in recognizing and introducing Mr. Faith. She is not here, so I will proceed with the introduction of our third witness, Mr. Bill Faith, who is executive director of the Coalition on Homelessness and Housing in Ohio. 

And our fourth witness will be Ms. Paula Foster, vice president 

of the western region of the National Alliance of HUD Tenants. 

Without objection, your written statements will be made part of 

the record. You will now be recognized for a 5-minute summary of 

your testimony. We will just start with our first witness, Ms. Anthony. 

STATEMENT OF AMY ANTHONY, PRESIDENT AND EXECUTIVE 

DIRECTOR, PRESERVATION OF AFFORDABLE HOUSING, INC. 

Ms. ANTHONY. Good afternoon, and thank you for having us come 

together today. My name is Amy Anthony, and I am president of 

Preservation of Affordable Housing, Inc., or POAH. My organization, which is based in Boston, is a national nonprofit, which is focused, exactly as our name says, on the preservation of affordable 

housing, specifically privately owned housing with deep public subsidy to make rents affordable to those on the lowest rung of income. 

POAH has been in existence for just over 6 years, and currently 

owns and manages around 4,600 units, rental homes, in 8 States 

14

and the District of Columbia. The more than 10,000 residents who 

live in POAH-owned homes typically earn between 30 and 50 percent of area median. Generally, they are low-waged workers and 

their children, seniors on fixed incomes, or the disabled. 

POAH is also a founding member of Stewards of Affordable 

Housing for the Future, or SAHF, an organization representing 

seven of the largest national nonprofit owners of affordable rental 

housing. Drawing on the practical experience of its members, 

SAHF has developed a set of policy proposals to preserve properties 

within the HUD inventory. I speak to you today on behalf of my 

SAHF colleagues, as well. 

I thought that, as I talked about—I think the importance of preservation is well understood by this committee. We all know that 

preservation is responsible. It is good stewardship, it is environmentally friendly. It wastes less, it conserves more. Preservation 

recognizes that properties should not be—are a resource that 

shouldn’t be thrown away thoughtlessly. And billions of Federal 

dollars have been invested already in these homes, and it is important for us to take care of them for the future. 

Today, though, we are here to talk about, particularly, the markto-market program. I want to support its extension, generally, and 

talk specifically about some methods of improving this important 

and forward-looking program. 

POAH has purchased 15 mark-to-market properties in 3 States 

and the District of Columbia. Collectively, these transactions have 

preserved and physically restored 1,900 rental homes across the 

country. We found that the underwriting for mark-to-market transactions is sound, and that the refinanced properties are, therefore, 

better positioned to survive fluctuations in operating expenses, 

such as utility and insurance costs. 

I thought I would give a profile of one of the properties that we 

restructured, under the program, to give a sense of it. The Hawthorne Properties in Independence, Missouri, is 745 units of family 

housing in Independence, Missouri. This was restructured, using 

the mark-to-market program. We not only were able to physically 

renovate the property, which was tired and very much in need of 

renovation, but we were also able to construct a 2,500 square foot 

community building on this large public-assisted housing site, to 

serve the residents. There had been no community space at all, 

prior to that time. 

That community center is now a thriving center with a day care 

center, with a Boys and Girls Club, with a very active computer 

program for residents. And it was able to be done through the combination of the use of State-allocated resources and the mark-tomarket program. And we have seen in many of our transactions 

where that joint effort of State resources and the Federal resources 

in mark-to-market can come together in very positive ways to make 

revitalization possible. 

While mark-to-market is important for its results—and that is 

just one of the properties that we have taken through the program—it is also, I believe, important as a prototype of what HUD 

can achieve. The mark-to-market program, in my mind, is central 

to the good news from HUD. Mark-to-market is deal-oriented. It 

15

aims for a bottom line outcome which benefits the agency, the new 

owner, the residents, and the community. 

Mark-to-market deals have a give and take calculus which mirrors that in the broader real estate marketplace. This is important, 

because staff are not paralyzed by precedent. The program was created with the benefit of advice from the private market, and from 

a panel of real-world practitioners. 

Mark-to-market is further bolstered, I think, by the use of PAEs, 

participating administrative entities, which investigate deals, and 

offer a timely resolution that is grounded in what is on the ground. 

I think the staff has also been flexible and original and efficient, 

and we have found them to be responsive, as we have tried to get 

deals saved. 

There are a couple of things that I think are critical to adding 

to the program. HUD’s primary goal should be preservation, not 

improving its own balance sheet. To that end, Congress indicated 

that the secondary debt after a mark-to-market transaction could 

be either forgiven or assigned to nonprofit purchasers. HUD—we 

believe that HUD should not demand repayment of a portion of secondary debt from these nonprofit purchasers when State and local 

dollars have to be used to give that HUD debt back. We believe 

HUD’s efforts are contrary to moving the program forward, and we 

would like to have that clear in the future. 

[The prepared statement of Ms. Anthony can be found on page 

26 of the appendix.] 

Chairwoman WATERS. Thank you very much. We are going to be 

a little bit strict about our timing, in that we have members who 

must be out of here by a certain time. Thank you. 

Ms. Malynowski? 

STATEMENT OF SHEILA MALYNOWSKI, PRESIDENT, NATIONAL 

LEASED HOUSING ASSOCIATION, AND PRESIDENT OF PRESERVATION MANAGEMENT, INCORPORATED 

Ms. MALYNOWSKI. Madam Chairwoman, Ranking Member 

Capito, and members of the subcommittee, my name is Sheila 

Malynowski, and I am president of Preservation Management, out 

of Portland, Maine. Our company manages over 6,000 units of assisted housing in 11 States. I am appearing before you on behalf 

of the National Leased Housing Association. 

The Multi-Family Assisted Housing Reform and Affordability 

Act—or MAHRA, for short—which was enacted in 1997 and substantially amended in 1999, provides a comprehensive framework 

for the renewal of Section 8 project-based contracts. Prior to 

MAHRA, only temporary, stop-gap legislation permitted 20-year 

Section 8 new construction and substantial rehabilitation contracts 

to be renewed, as well as 15-year moderate rehabilitation contracts 

to be renewed. 

MAHRA has two main divisions. The first is a temporary renewal program that has been extended twice by Congress, most recently in the fiscal year 2007 HUD appropriations bill. This temporary program applies to a specific class of projects when their 

original Section 8 contracts expire, and provides the authority to 

restructure the debt on Section 8 projects with FHA-insured mortgages, and with Section 8 rents in excess of market levels. This 

16

part of the statute is called the mark-to-market, or mortgage restructuring program. The authority for HUD to restructure mortgages on these properties expires in 2011. 

The second part of the statute is permanent, in the sense that 

there is no expiration date, and it applies to the renewal of all Section 8 contracts that are not eligible for, or in the need of mortgage 

restructuring. This section is referred to as the section 524 renewals, and provides the framework for renewing the Section 8 contracts. 

In both parts of MAHRA, Section 8 renewal rents are set at rents 

not exceeding market levels, or on a budget basis. In the mark-tomarket program, or debt restructuring program, a reduction in 

rents is made feasible, in general, by the payment by HUD of a 

non-default insurance claim on the FHA-insured mortgage, and the 

replacement of that mortgage with another mortgage with lower 

debt service requirements. 

In the course of this process, some funds are generated for any 

needed project repairs and necessary replenishment of reserves. 

The amount of the rehabilitation accomplished is modest, averaging about $1,800 per unit. An owner’s obligation to repay the cost 

to HUD of the mark-to-market is secured by a second and sometimes a deferred payment third mortgage on the property, with potential repayment from a portion of surplus cash income to the 

project, or refinancing or sales proceeds. 

MAHRA, which reaches its tenth anniversary later this month, 

expresses to us, the users of the Section 8 program, a congressional 

policy to preserve Section 8 projects into the indefinite future, and 

in that way provide stability, and therefore predictability, to the renewal and preservation process. 

Nevertheless, experience with the renewal program, and perhaps 

changing conditions, may warrant modifications to MAHRA such 

as some of those to the mark-to-market program contained in H.R. 

647. In addition, and in an exhibit to our testimony, we describe 

additional suggested statutory changes to the mark-to-market program and to the Section 8 renewal process, in general, that will 

help preserve Section 8 projects for the long term. 

With respect to the provisions in H.R. 647, as we mentioned, the 

extension, the main purpose of the bill, has already been accomplished. However, there are several other provisions in the bill that 

would benefit the mortgage restructuring program, and should be 

considered. 

We support section five of the bill that would increase the 5 percent to 9 percent of all restructured units, the number of units that 

can have exception rents in excess of 120 percent of the fair market 

rent for that area. Exception rents are budget-based. That is, they 

are the rents needed to operate the projects. Such rents are used 

as part of mortgage restructuring when a reduction to debt to zero 

will not be enough to yield economically viable rents at market. 

The 5 percent limit was basically an educated guess when it was 

enacted in 1997, and HUD’s experience with that limit should be 

acknowledged. 

This amendment is important to ensuring that properties with 

rents above market that need substantial debt relief can continue 

to provide safe and decent housing for very low-income people. 

17

National Leased Housing strongly supports Section 8 of the bill, 

which extends from 3 years to 5 years after mortgage restructuring, and the provisions that the members have expressed great 

concern with include—have expressed concern with is section 6, 

which would move some properties from the section 524 renewal 

universe to the mark-to-market debt restructuring. These are Section 8 projects with FHA-insured mortgages, but with rents at or 

below. This is a major alteration to the MAHRA, and has the owners concerned with the future course of the Section 8 renewal policy. 

NLHA and HUD negotiated changes to HUD’s original proposal 

to provide safeguards to the owners, including a requirement that 

owners consent to being put into the debt restructuring. However, 

National Leased Housing members remain concerned about some 

language in H.R. 647. 

I thank you for the opportunity to testify, and I will be happy 

to answer questions. 

[The prepared statement of Ms. Malynowski can be found on 

page 59 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. Faith? 

STATEMENT OF BILL FAITH, EXECUTIVE DIRECTOR, 

COALITION ON HOMELESSNESS AND HOUSING IN OHIO 

Mr. FAITH. Thank you, Chairwoman Waters, for this opportunity 

to be here. I also want to thank you for your leadership in bringing 

this bill forward. It is a critically important bill to the State of 

Ohio. I think that’s one of the reasons that Deborah Pryce also 

passed this bill in the last Congress, and I want to recognize her 

efforts, as well. 

Not to beat a dead horse, but I do want to raise the HAP contract issue again. I know you did a great job having that heard last 

week, but when I took kind of a survey of what are the current 

issues with this legislation, universally, whether they’re bankers, 

syndicators, anybody involved in these deals say, ‘‘Make sure they 

deal with this HAP contract problem.’’ 

And you have to understand that, in our State, preservation of 

this Section 8 project-based stock is a big deal. We have more of 

this stock than any other State, outside of California and New 

York. We commit some of our tax credits to this, our home money. 

We have a State housing trust fund. We have a receivership program. We use loan money to help get these projects preserved, 

many in conjunction with the mark-to-market program. 

That involves lots of lenders, investors, syndicators, and others, 

and their confidence is shaken when they’re making 30-year commitments, 20-year commitments, and HUD will only make a 3-

month commitment. So, it was bad enough when it was only a 

year. Now we are down to 3 months. 

I commend you for holding that hearing last week, and we need 

to act promptly, and in conjunction with this legislation, to make 

sure that there is sufficient funding to keep the HAP contracts 

fully funded. 

I also—the committee sent me out some questions in advance of 

the hearing. I actually wanted to respond to a couple of those quesVerDate 0ct 09 2002 10:28 Jan 16, 2008 Jkt 039911 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\39911.TXT HFIN PsN: TERRIE
18

tions. Many of them are addressed in my testimony. One of the 

questions was, how has reorganization used and benefitted from 

mark-to-market? 

We were one of the OTAG organizations. Originally, we were a 

direct recipient of the 514 funding in 2 different rounds. We 

haven’t had funding under that program since, I believe, the last 

contract, which was in 2001. But it was a very important resource 

to engage the community and engage the tenants in the process of 

all these mortgage restructures that we have had. And we have 

had 361 properties sent through the mark-to-market program, either as light or as full restructures. The vast majority of those have 

been completed. There are still some in the pipeline. 

But if this bill were to be passed because it opens up new opportunities, there would be another 175 properties in our State alone 

that could be eligible for a mark-to-market restructuring. 

I also want to point out that we have—one of the very good efforts that this bill could open up is to address better the belowmarket properties. I mean, we looked at that in the State of Ohio. 

Over 9,300 units could be impacted, and the quality of that housing 

could be improved if we included those below-market properties in 

the mark-to-market process. 

The other point I would like to make is that, you know, one of 

the questions was how—provide examples of ways in which the restructured properties are better off. I think there are three tangible 

benefits from the mark-to-market program. 

One, it affects the health and safety of the properties, themselves. I mean, they get rehabbed, they’re fixed up, and it improves 

life for the tenants. You know, there are other ways. They beef up 

operating reserves, and they set, as other people have said, they set 

operating costs at a more realistic level. 

But there are other, less tangible ways that it improves, because 

the tenants gain a better understanding—well, provided that there 

is a 514-funded entity working with the tenants—but they gain a 

better understanding of how their properties are structured, how 

they work. The community stakeholders have more buy-in, and it 

also attracts additional State and local dollars into preserving this. 

So, in summation, I want to commend you for your leadership on 

this. We are here to fully support this legislation, and I appreciate 

your efforts. 

[The prepared statement of Mr. Faith can be found on page 47 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Our next witness is Ms. Paula Foster. 

STATEMENT OF PAULA FOSTER, VICE PRESIDENT WESTERN 

REGION, NATIONAL ALLIANCE OF HUD TENANTS 

Ms. FOSTER. Yes. Thank you, Madam Chairwoman, and panel. 

My family and I are one of the many thousands who live and have 

been improved by mark-to-market. I was fortunate to move into 

Ingram Square in San Antonio, Texas, in 1986. After my husband 

and I divorced, and our family found ourselves living in a homeless 

shelter, I eventually found a job and got into Ingram Square. I 

knew it was the right home for us, and I have been determined to 

make it work ever since. 

19

I work with a nonprofit group home, providing service for mentally-disabled adults. At $9 per hour, I don’t make enough for a 

market-rate apartment, which would cost at least $775 per month 

in my area. Section 8 allows me to pay much less for rent, and still 

support my family. Without it, we would soon be homeless again. 

Although I was lucky to move into Ingram Square, I noticed 

right away there were serious problems. My home was plagued by 

water—roof leaks, porch leaks—and they were falling apart. In the 

playgrounds, there were rusty, rotten metal slides, endangering our 

children. In April 2000, our landlord applied mark-to-market to fix 

up our complex. 

At that time, tenants were not organized, and we were fearful to 

speak up about what we really wanted. This was where the Texas 

Tenants Union came in. The TTU staff flew in from Dallas, and 

went door-to-door to explain the program, and encourage us to get 

involved. The TTU organizers were paid out of outreach and training OTAG grant, funded by HUD at the time from section 514 of 

the 1997 Housing Act. TTU helped us get what we needed, a repair 

plan. 

AIMCO began repairs in 2001. Central air conditioning was installed in the first year, a real necessity in Texas. And, in the 

meantime, we had to really stay on Ingram’s case when they 

dragged their feet and used cheap and shoddy materials and did 

shoddy work. From 2002 to 2004, we were HUD’s ears and eyes, 

to make sure HUD got its money’s worth. Texas Union worked 

with us the whole time. There were more than 10 trips to San Antonio, just to oversee the repairs. 

AIMCO was initially hostile, and tried to make tenants fear that 

we would lose our homes. But with help from TTU, we overcame 

this fear and said, ‘‘This is our home, why shouldn’t we have some 

say-so in it?’’ 

Our homes are better and safer now, thanks to mark-to-market, 

but they are better still because of organized tenants’ involvement, 

made possible through HUD’s OTAG grants and TTU. We are not 

alone. The 32 OTAG groups prepared a report to HUD in October 

2002, showing how tenants benefit from mark-to-market across the 

country. Thanks to HUD, some grants and volunteers, I request 

permission to submit a copy of this report today. 

NAHT strong supports H.R. 647, and the reforms requested by 

HUD. There is one important amendment that is required, however. We need to get resources out to help tenants participate in 

Section 8 renewal decisions across the board. Across America, most 

HUD tenants remain unorganized and unaware of our rights. It is 

very difficult and rare for tenants to organize without some kind 

of outside assistance, because of the fear that they would lose their 

homes. 

In 1997, Congress recognized this, and created section 514. Section 514 requires the Secretary of HUD to make available not more 

than $10 million annually to help tenants get involved. Unfortunately, since 2002, HUD has failed to provide any new funds for 

section 514. Worse, in 2002, HUD illegally cut off funds and failed 

to honor contracts with VISTA, a Federal agency, and the OTAG 

grantees in most of the country. 

20

These two maps show the results. The first, from 2001, shows 

tenant outreach group cities, like Texas, around the country which 

receive either OTAG grants or VISTA volunteers to help tenants 

organize. The second, from 2003, shows the groups that remain 

after HUD’s failure to fund section 514, or to honor its contracts 

with these groups. HUD’s tenants are throughout the country. 

Our written testimony goes into what happened. Tenants in 

Texas and across America are still suffering. The end of OTAG’s 

funding has cut the organization’s staff down to one outreach worker for HUD housing with no funds for travel. 

[The prepared statement of Ms. Foster can be found on page 50 

of the appendix.] 

Chairwoman WATERS. Thank you very much. Your full testimony 

will be submitted for the record, and without objection we will include in the record the national report that you requested permission to have submitted. 

With that, we will move right into our questions. And I would 

like to direct my first question to Ms. Anthony. 

Ms. Anthony, you were trying to explain to us how nonprofits 

should be allowed to eliminate—or to be given consideration for not 

having to repay some money, and I wasn’t sure what you said. 

Would you repeat that, please? 

Ms. ANTHONY. Surely. In the case—Congress indicated in the initial legislation that when nonprofits are purchasing these properties, the secondary debt that is created in the mark-to-market 

process can be forgiven, or assigned to the nonprofit. 

That meant, in the case, for example, of the Hawthornes, that we 

were able, when the State allocated tax credits, to increase the proceeds available to renovate the property. The recent direction has 

sought to get repayment of those second loans that Congress had 

said could be forgiven when a nonprofit buys a property after the 

restructuring has occurred. 

We think it is inappropriate for that to happen when State resources have been sought, and are being used to improve the property, since that amounts to the use of State-allocated resources to 

pay back the Federal Government for something which Congress 

had indicated would be possible to be forgiven in the first instance. 

And we think it has a chilling effect on the role of the States, 

in getting involved in these efforts. 

Chairwoman WATERS. Oh. Well, I thank you for that. Do you 

have any idea how many nonprofits have attempted to get that 

consideration from HUD, and may have been denied? Is this kind 

of a general problem, in that most people don’t get any consideration? 

Ms. ANTHONY. I think that this is a new policy direction within 

the last 6 months or so. I don’t know how many have. I do know 

that—I will submit with my testimony the details of one of the 

properties that we have been working to acquire in New Hampshire, since this new policy surfaced. 

I think, though, the other statistic that I would mention is that 

when nonprofits buy these mark-to-market properties, and take advantage of available State resources, the rehab levels for the properties, for the units involved, goes from somewhere between $2,000 

and $3,000, which is what the office states, to around $25,000 

21

worth of rehab. So there is a significant increase, when States are 

involved, in doing the kind of repairs that are often required in 

these cases. 

Chairwoman WATERS. That is very interesting. And because of 

the focus on this, I will make an inquiry about nonprofits and what 

they have done in relationship to your description of nonprofits, review tax credits, and have State assistance in order to do this 

rehab. That’s a good thing to focus us on. Thank you very much. 

With that, I will turn to our ranking member, Mrs. Capito. 

Mrs. CAPITO. Thank you, Madam Chairwoman. I want to thank 

all of you all for your presentations. 

Ms. Foster, first of all, thank you for coming and representing 

the tenant point of view. I really appreciate that. I think I might 

have had somebody from the tenants association—National Alliance of HUD Tenants—testify maybe at our last hearing or the 

hearing before. 

I am curious to know about your organization. Are you part of 

a—I know you’re the western rep. Are you part of a national organization? And do they educate you on what I think are extremely 

complicated—because you have a good grasp of what’s going on 

here—extremely complicated financing issues? How have you educated yourself, and what do you do, then, once you gain this education, to try to help get the other HUD tenants to understand 

what is really going on, and how important these issues are? 

Ms. FOSTER. I try to maintain a close connection with the tenants. Texas Tenant Union has been very instrumental in having individuals come up and help us out and maintain. And, yes, I do 

work with NAHT and the Texas Tenant Union out of Dallas. 

Mrs. CAPITO. Are you in a voluntary position, or— 

Ms. FOSTER. Yes. 

Mrs. CAPITO. Yes? Okay. That’s really all I had. I was just curious about it. I thank you for your advocacy. Thank you. 

Chairwoman WATERS. And, Mrs. Capito, that is one of the reasons that I wanted HUD to submit to us their criteria, their design 

for tenant involvement. I want us to take a look at that, and see 

what they are saying. Thank you very much. Mr. Cleaver, for 5 

minutes. 

Mr. CLEAVER. Thank you, Madam Chairwoman. Ms. Malynowski, 

does your company manage any 202 projects? 

Ms. MALYNOWSKI. We manage an 811. 

Mr. CLEAVER. But no 202’s at all? 

Ms. MALYNOWSKI. No straight 202’s, no. 

Mr. CLEAVER. Okay, this is probably a question to ask HUD, because I’m trying to figure out why the 202 projects are excluded 

from the mark-to-market. 

Ms. MALYNOWSKI. That’s a great question. 

Mr. CLEAVER. Ms. Anthony? 

Ms. ANTHONY. I believe the 202 rents have always been set on 

a budget basis, and I think that contributed to why they were not 

included as eligible housing. But HUD may have a better answer. 

Mr. CLEAVER. Yes, I apologize. It is a question I should have 

asked—because I’m just curious about the 202 project, and the fact 

that they are elderly, I would be really concerned if, somehow, 

their rents are being raised and, even adversely. And I apologize, 

22

I will follow up with one of my questions. Thank you, Madam 

Chairwoman. 

Chairwoman WATERS. Well, you are certainly welcome. Mr. 

Green? 

Mr. GREEN. Thank you, Madam Chairwoman. Ms. Foster—and to 

everyone, thank you for being here—but, Ms. Foster, I am looking 

at the maps, and my maps are not in color. I believe yours are, is 

that correct? 

Ms. FOSTER. Yes, sir. 

Mr. GREEN. They really look nice from here. 

Ms. FOSTER. May I bring it to you? 

Mr. GREEN. Notwithstanding the lack of color, the maps depict 

what I think is a very disappointing, disconcerting, discombobulating circumstance, because it becomes transpicuously, intuitively 

obvious to the most casual observer that something awful has happened. 

Ms. FOSTER. Yes. 

Mr. GREEN. The maps are so graphic. I guess my question would 

become, given that there is talk of a new program, in your opinion, 

would the new program suit the needs of the tenants? 

Ms. FOSTER. In its own structure? Yes. If we had a cap on it to 

have—the TRIO grant? 

Mr. GREEN. Right. 

Ms. FOSTER. No. 

Mr. GREEN. Well, what are some of your concerns with the new 

program, as a person who has been involved and engaged? 

Ms. FOSTER. My concern is how they are structuring this. If they 

put a cap on it, perhaps that could—working closer with the ears 

and eyes of the people, and having the people being a lot more involved, too. Because— 

Mr. GREEN. Well, let me just examine that. You said the people 

involved. Now, the representative from HUD, whom I have respect 

for, indicated that they assembled the ‘‘stakeholders,’’ that was the 

terminology utilized. Were you a part of that stakeholder meeting? 

Ms. FOSTER. Yes, sir, working with HUD as a stakeholder. 

Mr. GREEN. Are you aware of any tenant organization that was 

a part of that stakeholder meeting? 

Ms. FOSTER. No, sir. 

Mr. GREEN. Were you aware that a stakeholder meeting took 

place? 

Ms. FOSTER. The second one, yes. 

Mr. GREEN. Were you aware before the meeting, or after the 

meeting? 

Ms. FOSTER. After. 

Mr. GREEN. Would you have participated, if given an opportunity 

to do so? 

Ms. FOSTER. Yes. 

Mr. GREEN. Will you kindly explain some of your concerns with 

the program? And I know that my time is running out, so I better 

let you have some time to just tell us why you think this program 

is not going to meet the needs of the tenants. 

Ms. FOSTER. Well, we urge the subcommittee to include the attached amendment, to make sure that funds authorized by Congress for tenant outreach are spent as soon as possible. Refunding 

23

prior grantees with no audit findings and with a new inter-agency 

agreement with VISTA. 

An amendment would also close loopholes in section 514, and 

correct the design flaws in TRIO, to make sure it works in compliance with HUD’s audit recommendation, rather than the fee for activity model proposed by HUD. 

Mr. GREEN. I am trying to get the horse back in the corral, and 

to close the gate on this. If these changes are made, you would 

want VISTA incorporated into the new program. Is this correct? 

Ms. FOSTER. Yes. 

Mr. GREEN. And, currently, VISTA, because of some concerns 

that have been raised, is not a part of the program, and in fact, 

has been extricated or expelled, or expunged, or removed in some 

way. Is this correct? 

Ms. FOSTER. Yes. 

Mr. GREEN. How—why is VISTA so important to the program, as 

opposed to some other means? Why is VISTA a necessary element? 

Ms. FOSTER. Well, when it comes down to having our individuals 

being empowered, the VISTA workers were very instrumental in 

bringing us together, maintaining, and giving us the input that we 

need, in being able to further ourselves, as tenants. 

Mr. GREEN. So you had a trust level— 

Ms. FOSTER. Absolutely. 

Mr. GREEN. —the VISTA workers, and you felt that they were 

dedicated volunteers? 

Ms. FOSTER. Absolutely. 

Mr. GREEN. I am so sorry that we don’t have the opportunity to 

ask that young man from HUD more questions, but I will tell you 

that I have a lot of sympathy with what you’re saying. And I am 

just—I am grappling with how do we put this Humpty Dumpty 

back together, as opposed to create a new Humpty Dumpty. And 

I am not sure I have the answer, but I will continue to grapple 

with it. 

Thank you, Madam Chairwoman, and I yield back. 

Chairwoman WATERS. Thank you very much, Mr. Green. And 

one of the reasons I asked HUD to submit to us a copy of the recommended new program is I wanted to give us an opportunity to 

take a look at it, and see if we have input and information by 

which we want to offer some changes to it, to make it more valuable, more meaningful. So— 

Mr. GREEN. I am asking for a bit of time. I appreciate that greatly, Madam Chairwoman, and I really would like to have that opportunity, and perhaps get Ms. Foster to see if she would have a 

chance to peruse it, as well, and give us some additional comments. 

Chairwoman WATERS. Okay, thank you very much. Yes, Mr. 

Cleaver? 

Mr. CLEAVER. And this—there were about 1,600 people—this is 

not germane—1,600 people who were affected by the—in my district—by HUD’s inability, or refusal to proceed to acknowledge that 

they were out of funds and needed some help. 

Can we get a request that they provide us with the names and 

addresses of people in our prospective congressional districts? 

Chairwoman WATERS. Yes. In addition to the request that we 

made to him this morning for getting a list of all of the projectVerDate 0ct 09 2002 10:28 Jan 16, 2008 Jkt 039911 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\39911.TXT HFIN PsN: TERRIE
24

based Section 8 owners, you are specifically asking that we need 

to know those who have not been paid— 

Mr. CLEAVER. Yes. 

Chairwoman WATERS. —and who have complaints? Absolutely. 

We will make that formal request, and make sure we get that information to you. 

Mr. CLEAVER. Thank you. 

Chairwoman WATERS. Without objection, it is so ordered. Since 

some members may have additional questions for this panel which 

they may wish to submit in writing, without objection the hearing 

record will remain open for 30 days for members to submit written 

questions to these witnesses, and to place their responses in the 

record. 

Before dismissing the panel, I would like to say thank you very 

much for coming, for being here. It takes time out of your schedules, it takes resources to come here and share with us. But it certainly is very helpful to us. We deal with a lot of subjects, and we 

know a little bit about a lot of them, but we don’t know much about 

any of them. So the more you help us to understand, the better policymakers we can be. 

So we really do appreciate your being here today. Thank you. 

And this panel is now dismissed. However, before we adjourn, 

without objection, the written statement of the California Housing 

Partnership will be made part of the record. 

Now, the hearing is adjourned. Thank you very much. 

[Whereupon, at 3:48 p.m., the hearing was adjourned.] 

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A P P E N D I X

October 23, 2007

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