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S. HRG. 110–1002 

NOMINATION OF STEVEN C. PRESTON 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

ON 

NOMINATION OF: 

STEVEN C. PRESTON, OF ILLINOIS, TO BE SECRETARY OF THE DEPARTMENT

OF HOUSING AND URBAN DEVELOPMENT

THURSDAY, MAY 22, 2008 

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

( 

Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html 


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(II) 

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 

THOMAS R. CARPER, Delaware 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

ROBERT P. CASEY, Pennsylvania 

JON TESTER, Montana 

RICHARD C. SHELBY, Alabama 

ROBERT F. BENNETT, Utah 

WAYNE ALLARD, Colorado 

MICHAEL B. ENZI, Wyoming 

CHUCK HAGEL, Nebraska 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

BOB CORKER, Tennessee 

SHAWN MAHER, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director and Counsel 

AMY S. FRIEND, Chief Counsel 

MARK OSTERLE, Republican Counsel 

DAWN RATLIFF, Chief Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 


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C O N T E N T S 

THURSDAY, MAY 22, 2008 

Page 

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

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 5 

Senator Casey ................................................................................................... 5 

Senator Allard ................................................................................................... 5 

Senator Dole ...................................................................................................... 7 

WITNESSES 

Steven C. Preston, of Illinois, to be Secretary of the Department of Housing 

and Urban Development ...................................................................................... 8 

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

Response to written questions of: 

Senator Dodd ............................................................................................. 36 

Senator Dole .............................................................................................. 39 

Senator Tester ........................................................................................... 39 


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(1) 

NOMINATION OF STEVEN C. PRESTON, OF 

ILLINOIS, TO BE SECRETARY OF THE 

DEPARTMENT OF HOUSING AND URBAN 

DEVELOPMENT 

THURSDAY, MAY 22, 2008 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10:09 a.m., in room SD–538, Dirksen Senate Office Building, Senator Christopher J. Dodd (Chairman of the 

Committee) presiding. 

OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

Chairman DODD. The Committee will come to order. I apologize 

to you all for being a couple minutes late starting this morning. Let 

me welcome all of you here to the Committee hearing as we consider the nomination of Steven Preston to be the Secretary of the 

U.S. Department of Housing and Urban Development. 

The Committee will come to order this morning, and today we 

are going to hold this hearing. Steven Preston has been nominated 

by the President to be the Secretary of this very important Department. It is always important, but at these times even more important, I would make the case, because of the obvious housing crisis 

we are facing in our country, and this Department plays a very important and critical role in all of that. 

Mr. Preston currently serves as the Administrator of the Small 

Business Administration, where for the past 2 years he has focused 

on a number of challenges, including reforming the Disaster Loan 

Program and increasing employee morale. These efforts will serve 

him well if he is confirmed, as there are serious challenges facing 

the Department of Housing and Urban Development. And we 

talked about that in my office a few days ago, Mr. Preston, as you 

will recall. 

Before I talk about those challenges, I want to acknowledge, as 

I expressed to Mr. Preston, some concerns that the nominee does 

not have a strong background in housing or housing finance—by 

his own admission, in fact. He has other talents and abilities he 

brings to this nomination. And while you possess certain other 

skills of great importance, I do believe that a working knowledge 

and background in housing is valuable, especially for the Secretary 

of HUD, a position of incredible importance even in normal times. 

But, unfortunately, we are not in normal times at all. We are in 

the midst of the largest housing crisis our country has experienced 


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in at least 75 years, possibly ever, given the global implications of 

this housing crisis. When Northern Rock, a bank in Great Britain, 

fails because of subprime mortgages, you get an idea of how widespread this domestic problem has become even beyond our own 

shores. 

Millions of families, of course, here at home are facing the prospects of losing their homes and their dreams. Millions more are experiencing significant home price depreciation, putting them in the 

position of owing more on their mortgages than, of course, their 

homes are worth. Homeowners are seeing the wealth that they 

have built in their homes over years evaporate literally within 

days. 

According to Martin Feldstein, the Chairman of President Reagan’s Council of Economic Advisers, every 10-percent fall in home 

prices causes household wealth in our country to decline by $2 trillion and household spending to fall by $100 billion. So if home 

prices drop 10 to 15 percent, as they are expected to—and some 

even go beyond that. We have had the Shiller Index—Mr. Shiller 

has indicated he thought it may get as high as 30 percent, which 

would equal the decline between 1929 and 1935, which was a 30- 

percent decline in housing values. But in a speech that Dr. Shiller 

gave at Yale University a few days ago—best known as the Shiller 

Index, by the way, in real estate, highly regarded—he is suggesting 

that number may equal that of the Depression at 30 percent. So 

you do your own math on Martin Feldstein’s projections of what a 

10-percent decline in value does to household wealth. So we could 

be looking at household spending will fall somewhere between $100 

to $150 billion, and household wealth could fall anywhere between 

$2 to $3 trillion this year alone. 

Now, this problem in the housing market is obviously having a 

contagion effect throughout the economy. A HUD Secretary is urgently needed at this time, one who understands the magnitude of 

these problems and one who can effectively act to solve them. A 

HUD Secretary who will take strong and decisive action to help 

strengthen the housing market and assist families facing the loss 

of their homes and the wealth that they have worked hard to buildup over the years. 

As I said, I do have some concerns about Mr. Preston’s lack of 

experience in this area. However, meeting with him personally and 

speaking with Senator Kerry of Massachusetts, who chairs the 

Small Business Committee, he speaks very highly of Steven Preston, and the members of that Committee, and the job you have 

done at SBA. I am very hopeful that you will have what it takes 

to begin to address the major challenges of HUD and the larger 

housing market. 

I want to touch on a few of those challenges, if I can, that you 

are going to face if confirmed, that we face if you are confirmed, 

and these are areas that demand, I think, your immediate attention. 

First, we need a HUD Secretary who will restore confidence in 

the Department. And I do not want to dwell on that. I think all 

of us here on the Committee appreciate what has been going on 

over there over the last while, and, again, I do not want to get into 

the weeds on this issue, but suffice it to say the Department could 


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use a lift, and they are looking for someone to come on in and give 

them that lift. These are hard-working people. Many of them have 

dedicated their entire lives, their professional lives, to this Department. And they play a very critical role, and they want to know 

that the work they are doing is appreciated for the value that they 

give to it. 

There are investigations into a number of allegations of impropriety at the highest levels. This is not only demoralizing the staff, 

but it has cast a rather large shadow over the entire agency, and 

we want to see that stopped, if I can. 

HUD plays a very critical role in assisting families and communities around the country. Millions of families are in stable housing 

and in safe neighborhoods, and homeownership is a reality for millions more of Americans because of HUD. It is unacceptable for 

HUD to be undermined by unethical actions of senior HUD officials. And while Secretary Jackson is gone, the problems he helped 

to create appear to remain. Just this weekend, the Washington 

Post contained rather alarming details about millions of dollars 

worth of contracts being given to a handful of firms despite staff 

objections. This trend and others at HUD are very disturbing and 

indicate that taxpayer dollars are being improperly used at the Department. We have an obligation to ensure that taxpayer funds are 

wisely and properly used and that contracts for Federal funds are 

being fairly awarded. 

If confirmed, Mr. Preston, you will only be in office a short time, 

unless, of course—well, who knows what may happen here? 

[Laughter.] 

Chairman DODD. In fact, you are from Illinois. I fully expected 

Barack Obama to be here to introduce you this morning as your 

Senator. He is busy. 

Senator SHELBY. He is busy. 

Chairman DODD. He is busy this morning in Florida. But I urge 

that your first order of business be to begin to clean up and restore 

the confidence in HUD among employees. I have been on this Committee 27 years, and I have worked with various Secretaries over 

the years. We have a former Secretary as a Member of our Committee, in fact—Mel Martinez. And there are some great people 

here. In fact, the overwhelming majority are fantastic people who 

are doing just a remarkable job, and they deserve to have a Secretary who is worthy of the effort they make every single day. 

Second, we need a strong voice for helping families facing foreclosure. And, again, Senator Shelby and I and Members of this 

Committee—and I commend my colleagues once again and thank 

them immensely this past week for doing what no one thought we 

could do, and that is, come together as Democrats and Republicans 

and address the major economic crisis in our country in a comprehensive and thoughtful manner. But, obviously, we need an 

agency out here that is going to be a partner in all of this to help 

us work our way through all of this. Passing bills is nice, but a lot 

more needs to be done to make this work. 

Earlier this week, as I mentioned, with a vote of 19–2, we established a mechanism through the FHA which would allow families 

to stay in their homes—at least many, we hope. This is a reasonable and meaningful proposal that will help halt the downward spiVerDate Nov 24 2008 01:17 Mar 23, 2010 Jkt 050403 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 E:\HR\OC\A403.XXX A403

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ral of home prices and foreclosures. Unfortunately, we have not yet 

secured the administration’s support for this. I hope that you will 

view this proposal with a fresh set of eyes and are able to bring 

a strong and effective voice within the administration for this and 

other sensible solutions to the mortgage crisis. 

Third, we need a strong Secretary who will fight for HUD initiatives. The administration’s budgets over the past 7 years have undermined critical housing and community development commitments to many working Americans. And while we talk about the 

mortgage crisis, these days there is a second, a silent crisis, if you 

will, facing low-income Americans. They struggle every day to afford rising rents while also putting food on the table and paying 

for needed medical and child care. HUD efforts to address this crisis, such as public housing, housing vouchers, and project-based 

rental assistance, ensure that millions of Americans, including 

many children, seniors, and people with disabilities, are able to live 

in stable and safe housing. 

The cuts contained in the budgets have led to significant shortfalls in each of these programs. Public housing operations are only 

funded at 80 percent of need, and there is a $2.8 billion shortfall 

in project-based rental assistance. Low-income families deserve better, and we need a Secretary who will work to fully fund critical 

housing and community development initiatives. 

Mr. Preston, if confirmed, you will only have a few short months 

to take a troubled agency that has sorely lacked in leadership and 

make it more effective, a tool for meeting the critical housing needs 

of our Nation. I look forward to hearing from you today and working with you in these coming weeks and months to see what we 

can do to get this on track. Maybe the great legacy you could leave, 

in fact, would be to turn this over to a new administration coming 

in with an agency that is ready to take up the work that you have 

created and started here and carry it forward. That would be a remarkable contribution in many ways. 

Again, you come highly recommended, I must tell you. For a fellow who came to town without people knowing much about you, 

you have scored some very significant points with the people who 

have worked with you, and I admire you for that. So I thank you. 

Very briefly, I would just say Mr. Preston, prior to becoming the 

Administrator of SBA, was the chief financial officer at 

ServiceMaster Company, headquartered in Illinois. He joined 

ServiceMaster in 1997. It is a large company that provides home 

maintenance services around the country through such names as 

TruGreen-ChemLawn, Terminix, and Merry Maids. Before 

ServiceMaster, Mr. Preston served as senior vice president and corporate treasurer of First Data Corporation. From 1985 to 1993, he 

was an investment banker at Lehman Brothers. He has a BA from 

Northwestern University and an MBA from the University of Chicago. So you have a busy background. 

Let me turn to Senator Shelby and then any other Members who 

want to make some opening comments, and then we will hear from 

you. 


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STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Mr. Chairman. I just want to add, 

too—I was reading his resume. It is very impressive. Also he was 

a Phi Beta Kappa at Northwestern. That is in there, too. We do 

not have them everywhere. 

Thank you, Mr. Chairman, for calling today’s hearing on the 

nomination of Mr. Steven Preston to serve as Secretary of the Department of Housing and Urban Development. 

As Senator Dodd has, and I will, too, I want to welcome you and 

your family to the Committee. In addition, I would also like to recognize your service as the Administrator of the Small Business Administration. Everybody that I have talked with about this said you 

have brought leadership and integrity there, which is very important. That is what we want you to do at HUD. 

When Mr. Preston arrived at the SBA, it was an agency, as we 

all know, in desperate need of reform and strong management. As 

Administrator, Mr. Preston played a key role in reforming the SBA 

and improving its Disaster Loan Program. With this experience 

and your work experience and your background, I am hopeful that 

you will be able to address some of HUD’s longstanding deficiencies 

and some of the current problems in our Nation’s mortgage market. 

I am specifically concerned with the financial health of the Federal Housing Administration. This Committee has already passed, 

as Senator Dodd mentioned, FHA modernization legislation, which 

I believe will help strengthen the program, but I also believe your 

immediate attention as HUD Secretary is necessary as well. 

Unfortunately, the FHA is not HUD’s only troubled program. 

Rather than mention every troubled program now, I will touch 

upon a few in my questions. 

Once again, we welcome you. I believe you could be the linchpin, 

assuming we pass our legislation and get it through the Senate and 

get it to the President’s desk and he signs it, in dealing with a lot 

of this mortgage mess that we have on our hands. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you. 

Any other Members want to be heard? Bob. 

STATEMENT OF SENATOR ROBERT P. CASEY 

Senator CASEY. I will save my time for questions, but I do want 

to welcome Mr. Preston. We had a good meeting in our office a couple weeks ago. I am grateful for your presence here and your willingness to serve. 

Chairman DODD. Yes. 

STATEMENT OF SENATOR WAYNE ALLARD 

Senator ALLARD. Thank you, Mr. Chairman. I do have a statement I would like to make. 

I want to thank you and Ranking Member Shelby for holding 

this hearing in a timely manner. I am pleased that we are moving 

promptly to fill the secretarial vacancy at the Department of Housing and Urban Development. 

I recently had the opportunity to sit down with Mr. Preston, and 

one of the first things I asked him was why on Earth would he 

want a crazy job like this. Heading up HUD would be a challenging 


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job even in the best of times. However, that challenge has increased exponentially with the turmoil in our housing market. And 

I was impressed by his enthusiasm for the challenge before him. 

Some have questioned Mr. Preston’s credentials to lead HUD, 

given his lack of housing experience. I believe this argument is a 

red herring. Mr. Preston brings managerial, financial, and capital 

markets experience to the table, and I can think of nothing HUD 

needs more. 

At its core, HUD is about money and business. Compassion of 

housing causes alone does little to cause HUD programs to necessarily serve more people or to serve them better. Rather, a managerial and financial perspective with a focus on outcomes will yield 

a better Department. 

Mr. Preston’s experience as Administrator of the Small Business 

Administration clearly shows that he is focused on results. During 

his time in SBA, he has made significant reforms at a troubled 

agency. That experience is directly applicable to HUD. 

Over recent years, including under the leadership of former Secretary, now Senator, Martinez and former Secretary Jackson, HUD 

has made some major strides in reform. Make no mistake, though. 

By its very name, HUD will always be susceptible to fraud, waste, 

and abuse. The Department needs a strong leader like Mr. Preston 

who can ensure that the positive changes continue at HUD. He has 

a demonstrated history of the kind of leadership HUD needs to continue its progress. 

I am hopeful that we will be able to move Mr. Preston’s nomination quickly and get him confirmed. I would, though, like to bring 

up a serious concern. When Mr. Preston takes over as Secretary, 

he will be faced with a seriously reduced core of principal staff. The 

Department currently has three Assistant Secretary vacancies and 

also a vacancy at Ginnie Mae, and I think this is unacceptable. 

I am sure there will be plenty of criticism of the Department 

today and its inaction on various matters, but this Committee, I 

think, must share the blame. We have failed to even have a hearing on these key HUD nominees. To be effective, HUD needs staff. 

These are not recent nominees either. These nominations have 

been languishing for months, including one from last fall. It is especially puzzling to me that we keep shifting more and more responsibility to FHA, including new authority under modernization, 

increased loan limits, and the Hope for Homeowners bill we reported just last week. Yet we have failed to provide a President for 

Ginnie Mae. The success of FHA is very closely linked to Ginnie 

Mae, yet we are failing to provide the leadership we need during 

this critical time. This Committee must move to provide a President for Ginnie Mae if we are serious about the ability of FHA and 

HUD to function during these troubled times. 

I believe that if we genuinely care about having an effective Department of Housing and Urban Development and allowing Mr. 

Preston to have the tools to be effective, we will get all the HUD 

nominees confirmed in the very near future, not just the Secretary. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator. 

Yes, Senator Dole. 


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STATEMENT OF SENATOR ELIZABETH DOLE 

Senator DOLE. Mr. Chairman, Ranking Member Shelby, thank 

you for holding this hearing on the nomination of Steven Preston 

to be the next Secretary of Housing and Urban Development. In 

light of the current housing market conditions, obviously, as we all 

know, the importance of capable leadership at HUD is critical. 

I am a member of the Armed Services Committee. General 

Petraeus and General Odierno are testifying at this moment, so I 

am going to have to leave very shortly. But I also serve as a member of the Committee on Small Business and Entrepreneurship, 

and so I just want to underscore what has already been said. From 

my experience on that panel, I would say that Mr. Preston has 

done a very commendable job as Administrator of the Small Business Administration, and I look forward to working with you, Administrator Preston, as the next HUD Secretary. 

Right now this Committee is working on a number of issues that 

will affect offices within HUD, as we all know. Most recently, we 

were able to work in a bipartisan manner on the regulatory overhaul of the GSEs, and this is an issue that I have been concerned 

about since my first day here and certainly have sponsored legislation throughout that period of time. Along with some of my colleagues, we have been really pushing hard for improved oversight 

for a first-class regulator, and I think it is critical to the long-term 

stability of the housing and credit markets. And I look forward to 

this legislation being considered on the Senate floor. 

Another issue of importance, of course, is the modernization of 

FHA. The Banking Committee originally approved the legislation 

last September, and it was agreed to by the full Senate in December. Included in this measure and agreed to by unanimous consent 

on the Senate floor is a 1-year moratorium on credit score riskbased pricing to help ensure that minority and first-time homeowners can access FHA products and not be unnecessarily priced 

out of the housing market. I hope that we can get the FHA modernization act to the President in the very near future. 

Mr. Chairman, I will submit my full statement for the record as 

well as I have questions that I would like to have Mr. Preston answer. 

Thank you very much. 

Chairman DODD. Thank you very much, Senator. 

Mr. Preston, before we ask you to make any comments, is this 

your staff right behind you there off your right shoulder? 

Mr. PRESTON. This is my home base staff. 

Chairman DODD. Would you like to introduce the home base 

staff? 

Mr. PRESTON. Actually, I would like to introduce my wife, Molly, 

and three of my five children. I have Anna, Madeleine, and Gibson. 

We thought if we had all five, you might question both my judgment and my planning skills. 

Chairman DODD. No, no. 

[Laughter.] 

Chairman DODD. I am one of six. 

Mr. PRESTON. Oh, you are? OK. Well, we also did not want you 

to feel outnumbered. 

Chairman DODD. That is good. 


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Mr. PRESTON. Thank you. 

Chairman DODD. All right. Let me ask you to stand, if you will, 

and take an oath. I would ask you to raise your right hand, if you 

would. Do you swear or affirm that the testimony you are about to 

give is the truth, the whole truth, and nothing but the truth, so 

help you God? 

Mr. PRESTON. I do. 

Chairman DODD. And do you agree to appear and testify before 

any duly constituted Committee of the U.S. Senate? 

Mr. PRESTON. Yes, I do. 

Chairman DODD. Again, let me congratulate you, Mr. Preston, on 

the President’s nomination, and let me underscore something Senator Casey said. We also admire the fact you are willing to serve. 

We do not recognize that enough, people who are willing to step up 

and take on tough jobs as worthwhile. 

Let me say to Senator Allard as well, my plan is to have a rather 

large hearing with a lot of these nominees right after the Memorial 

Day break. Some of the Senator’s criticism is absolutely appropriate. In other cases, it is not. I would say the reason is we have 

been tied up with a lot of things, but my intention is to get to as 

many of these as we can. 

Yes, sir. 

Senator SHELBY. Mr. Chairman, just one word, and I mentioned 

it to you privately, and you know it very well. We have a real housing crisis here. We need a HUD Secretary, and I think the sooner 

we can get him confirmed and get him over there, I believe that 

he could help implement a lot of the stuff that we are hoping to 

get done, passed here in the next few weeks. 

Chairman DODD. Well, that would be my hope as well. 

Mr. Preston, welcome. The floor is yours. 

STATEMENT OF STEVEN C. PRESTON, SECRETARY-DESIGNATE, DEPARTMENT OF HOUSING AND URBAN 

DEVELOPMENT 

Mr. PRESTON. All right. Thank you, Chairman Dodd, Ranking 

Member Shelby, other Members of the Committee. It is really an 

honor to be here to discuss my nomination to be the next Secretary 

of Housing and Urban Development. 

I would also like to thank you for the speed with which you have 

held this hearing, and I also want to tell you how grateful I am 

for the time that each one of you gave me in preparation for today, 

to give me your views, your recommendations. I appreciate your 

candor in all cases. And let me just say that if I am confirmed, I 

absolutely intend to keep the lines of communication and consultation open and to work as a partner with all of you here on the 

Committee on the issues that are so important to us that we face 

today. 

A number of you have mentioned and I think we all understand 

how critical leadership is in a time of great need—especially when 

bold measures are required—and I also think we all understand 

how important management depth is in leading large organizations. 


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As many of you know, I have spent 24 years in the private sector 

in financial and operational leadership positions in organizations 

as large as 75,000 people. 

Most recently, my team at the SBA and I have spent 2 years reforming and revitalizing a Federal agency that has faced many 

challenges in its ability to serve America’s entrepreneurs and disaster victims. 

I am not going to get into a lot of detail on disaster issues. I 

thank a number of you for having acknowledged those. It is in my 

written testimony. 

But we have also made many other changes throughout the 

agency. We call it our Reform Agenda, and that agenda is designed 

to improve the service that we give to Americans while at the same 

time streamlining operations and increasing the transparency. And 

these changes are helping small businesses get capital, they are 

helping them get training, they are helping them get access to Federal contracts because of the value that we are providing. 

Something else I would like to mention, we have focused very 

heavily on providing our employees with better training and tools, 

and also a better work environment at the SBA. When I came into 

the SBA, employee morale was rated 30th out of 30 among Federal 

agencies. One year later, our survey showed very strong improvements in virtually every category, with the most dramatic gains in 

areas that relate to leadership effectiveness as well as workforce effectiveness—things like training and people’s ability to perform 

their jobs effectively. 

I would like to also take a second to link my background more 

specifically with the needs at HUD. As we consider the issues that 

the country is facing today, the head of the Housing and Urban Development Department will need to be able to address uncommon 

challenges, like a turbulent housing market and its impact on the 

economy; the related issues that we see in our financial institutions 

as well as our capital markets; and the very specific issues that individuals face who are going through these challenges, whether it 

be with the initial contract they have in a mortgage or the refinancing, which many of the proposals will require; in addition to 

the issues facing specific communities with public housing, the ongoing challenges of homelessness, and agency management needs, 

which many of you have referenced. 

I have spent most of my career in the private sector in financial 

and operational leadership positions. My background has given me 

the tools and the hands-on experience to handle the broad spectrum of very complex issues that I think the next HUD Secretary 

will face. 

As SBA Administrator, I have also overseen loan programs very 

similar to some of the programs run by HUD. Much like HUD, our 

lending programs reach people that are underserved by the traditional markets. In fact, SBA loans are five times more likely to go 

to minority-owned businesses than conventional loan, and about a 

third of our loans are in distressed rural and urban areas of our 

country. 

Another important goal of SBA is to expand homeownership 

much—or, excuse me, business ownership, much as HUD’s goal is 

to support homeownership. And we obviously are a critical source 


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of economic support in communities suffering from a disaster, 

much as HUD. 

At SBA, we have also focused very heavily on initiatives aimed 

at underserved rural and urban markets. And as a result, we have 

designed more relevant products, we have expanded our outreach, 

we have focused our goals on how to support those businesses in 

underserved communities. Energizing entrepreneurship helps those 

communities by bringing lasting and sustainable economic activity 

that creates jobs and generates investment in those communities 

across our country that need it the most. 

Earlier this year, SBA launched its Emerging 200 initiative to 

identify high-potential, inner-city growth companies and provide 

them with the training and the resources to reach their full potential. 

In addition, the agency established a pilot with Operation HOPE, 

Inc. in Harlem to provide training and business education, and we 

hope to expand that pilot to other cities. We are also partnering 

with the Initiative for a Competitive Inner City to help bring venture capital dollars to inner-city businesses. And I am very proud 

to say that we received the 2008 National Inner City Economic 

Award at SBA for our dedication to promoting free, competitive enterprise, especially in the inner city. 

However, on a more personal note, you know, I am here because 

the issues at HUD matter to me. I left the private sector. I came 

to Washington because I wanted to use my experience to make a 

different kind of contribution in life. Certainly the SBA experience 

has allowed me to do that. I believe deeply that individuals are better off and communities are more stable when people own their 

own business or own their own home or have a nest egg. And to 

me also this is the route of sustainable progress against poverty, 

and I think it is at the heart of true compassion. 

I also believe that for those who cannot afford a home, having 

decent, safe, and affordable housing is a basis for stability in so 

many other areas of their lives. I have come to realize that while, 

you know, I have talked a lot about business and metrics and operations, that stuff might sound dry, but it is actually another central 

part of true compassion. As you think about a lot of the initiatives 

that we are talking about, the effective implemention of those initiatives in a way that touches people’s lives effectively is part of 

making them successful. 

So, you know, when people use Government programs, they often 

do so because other help is not available, and often it is when they 

are stressed, often it is when they are upset, and often it is during 

a time of great need. And I think that the most compassionate response at that moment is service that is caring, that is efficient 

and professional. And the recipients of Government services, especially those in need, deserve that, and that is certainly part of my 

vision for Government service. 

So I thank you once again for having me here. I think my record 

shows a deep commitment to the needs of hard-working Americans 

as well as institutions like HUD and SBA that can improve their 

lives. I believe I have a proven history of successful change management at large, complex organizations. And I also have a track 


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record of working with urban communities to improve their economic conditions and the quality of life in them. 

I also believe my record indicates a commitment to transparency, 

to accountability, to bipartisan cooperation, and if confirmed, I look 

very much forward to working with you on the Committee and elsewhere in Congress to continue the efforts to resolve the Nation’s 

housing crisis, to support people in their time of need, and ensure 

we have a Department of Housing and Urban Development that 

serves the country effectively at this crucial time. 

So thank you, and I look forward to any questions you might 

have. 

Chairman DODD. Thank you very much, and I am going to advise 

the clerk to put these clocks on at about 6 minutes, 7 minutes, so 

we do not run over. And we will give everyone a chance here to get 

a couple of good rounds in here, if we can, before wrapping up. 

Let me pick up on the point that Senator Shelby made in his 

opening statement, and obviously we have got work to be done yet 

here. We have got to get through the full Senate with our bill. We 

have got to work out differences with the House. 

Let us just fast forward, if we can here, and if things move as 

we hope they do, I know the two of us would love to be able to put 

a bill on the President’s desk by the July 4th break, if we could. 

There is an urgent need out there and we want to—— 

Senator SHELBY. We are going to work together. 

Chairman DODD [continuing]. Respond to—yes, it is our goal to 

get there. 

What is going to be very important, what Senator Shelby raised 

with you, Mr. Preston, is the importance of the role that the Secretary at HUD will play. Because this is going to be—this will work 

if FHA helps make it work. We can write the law, but at the end 

of the day if we have an agency that is reluctant or not as enthusiastic about the idea, about trying to keep people in their homes 

and do so in a way that is fair and equitable, setting standards in 

here that will make it—some of the moral hazard issues that others have raised. 

So it is really going to be very determinative in the end. We can 

do a great job writing a bill, but if we do not have an administrator 

and an agency committed to it, then all of that work could basically 

go for little or naught. 

And so my question for you is I would like your commitment this 

morning that you will do—first of all, I would like to get your comments on it. I do not know what your general thoughts are about 

this. There has been resistance to the idea of this—having a 

writedown of these mortgages, these adjustable rate mortgages, to 

the point where people can afford them and requiring the lender 

obviously to take a haircut. The borrower pays insurance, among 

other things. And we are trying to balance—this ought not to be 

an easy ride for anybody but we do not want to make it so difficult 

that people walk away, either. 

So I wonder if you have had a chance to take kind of a look at 

this broadly, what your own reactions are to it, and what commitments you will give us here that if we get this done as we hope 

to in the coming few weeks that we will be looking at an administrator that is prepared to make this work? 


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Mr. PRESTON. Well, first of all, I appreciate all of the work that 

you have done very quickly on a lot of these policy initiatives because obviously we are facing a very urgent situation in the country. 

You know, Senator, I come into this with a very open mind and 

I think I have the tools to evaluate a lot of the policies that you 

are looking at. I think the President is asking me to take this job 

because he wants somebody to come in who will be a good advisor 

and a good partner to Congress, as well as an important voice in 

the Administration. And I intend to serve both of those, to fulfill 

both of those roles. 

And certainly, you can expect that if I am confirmed, I am going 

to be at the table working collaboratively with you all. You can also 

expect that if you have a bill that is passed and the President signs 

into law, you will have my full effort in implementing an operational solution at the other end that serves those people who need 

that help. 

My view is once that lands on our desk, we have got a job to do. 

And our job is to make it happen and make it happen effectively 

for Americans who need that help. 

Chairman DODD. Well, it is—I am going to suggest to you that 

you might want to get some rest over the Memorial Day break, because this is going to require a lot of hard work. Mr. Montgomery 

is sitting a few seats behind you here in this hearing room today, 

and he has been before the Committee already. And he is going to 

be getting an expanded mission, we hope, fairly quickly and we are 

going to need some people to roll up their sleeves and go to work 

on this. 

You were at Lehman Brothers before. This is not an issue or 

area you are unfamiliar with, generally speaking, here. Do you 

have any thoughts you want to share with the Committee about 

the general direction we are heading with all of this? 

Mr. PRESTON. Well, I think—I think we have some very complex 

issues. And this whole set of challenges we have is complex. I 

mean, it sits in the complexity of the contract that sits with the 

borrower. It sits in the decisionmaking process of the financial institution. It sits in a public market that was absorbing stuff that 

they probably should not have. And it also sits in the follow-on effects of the housing market decline. 

So I think it is a very broad, very complex issue. I do appreciate 

the fact that the work that you all are doing is focused on helping 

individuals who want to stay in their homes and who want to be 

committed to paying their bills. And I think we all want people to 

be able to retain their home to the extent that they can afford it 

and they desire that. And I really appreciate that aspect of what 

you all are working on. 

And I also appreciate the fact that you are working toward a solution with the GSEs that both considers their mission and their 

need to be financially viable, because they have very significant importance to enabling working class and middle class Americans get 

mortgages and they have a mammoth impact on our capital markets, multi-trillion organizations. So we need financial stability 

over there. 


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And I think we have to bridge those two missions, which can be 

in tension at times. 

Chairman DODD. And that is what our goal is and I think we 

have come close, we hope, to achieving that with our legislation. 

Let me jump, if I can, to the affordable housing issue. Jack Reed 

of Rhode Island has been a champion on our Committee of the affordable housing issues. In fact, as part of this bill, we establish in 

perpetuity an affordable housing trust, which we think is going to 

be very exciting in the years to come to address the issues of affordable housing in the country. 

There is, according to reports now, there is a $2.8 billion shortfall 

in project-based rental assistance. This helps 1.3 million low-income families afford stable housing. This is a result of HUD, we 

feel, not being terribly forthcoming with Congress about its needs 

for housing. In fact, it was not until after the budget submission 

that HUD admitted the amount of the shortfall. A $2.8 billion 

shortfall should show up in the Administration’s budget, we would 

predict. So I have two questions related to this. 

I am concerned about the inaccuracy of information. The one 

thing that we on this Committee will insist upon, all of us here, 

we may not like the numbers we are looking at but we want to 

know what they are. And we may argue about whether or not we 

want to go forward or go backwards, but we need to have accurate 

information. We cannot function otherwise. 

And I know there are a lot of pressures that can come to bear 

on various agencies and departments, but in the past we have had 

some difficulty getting timely and accurate information from HUD 

in areas that this Committee oversees. And I would like a commitment from you that we are going to receive accurate and timely information from the Department. That should never, ever again be 

an issue. As long as I am in this chair, I want to make darn sure 

we are getting the best information, the most accurate information 

you have. 

If we cannot get that, if we do not have that trust here, then it 

makes it awfully difficult for us to have the kind of debate we 

should have about where we need to move. 

Mr. PRESTON. Right. Yes, I do not know how accurate the information is within HUD right now, or if there are specific information challenges. But what I can commit to you is I have run the 

SBA very transparently. I believe every Federal organization has 

an absolute duty to be fully transparent to Congress as well as 

more broadly to the public. And I think my background as a chief 

financial officer has helped me in that area at SBA. It has helped 

me to figure out with my team how to pull information out and 

make it public. 

But the other thing I would highlight, Senator, is I think we 

have had a lot of challenges at the SBA, frankly, that nobody knew 

about until I raised my hand and said look, we have got a real 

problem here. I am not going to hide it, we have got to get after 

it. I have a firm view that if you have got a problem in any organization, getting it on the table and letting everybody understand it 

is the most important first step to getting a solution in place. 


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So I am absolutely committed to transparency. That is how I 

lead, and I certainly think that is the only way you can move an 

organization forward. 

Chairman DODD. I thank you for that. 

Let me continue along this line. I am also concerned that the 

short-term funding agreements that HUD is signing with owners 

as a result of this shortfall threatens hundreds of thousands of affordable housing units. Owners of this critical housing are already 

indicating they cannot continue to operate affordable housing without assurances of funding. We have called on the Appropriations 

Committee here to fill this gap, and we will continue to push for 

that. 

I would like your commitment to look into this problem, if you 

are confirmed, and quickly let us know the Department’s plans to 

address the shortfall and the loss of housing that may result. We 

need to know what direction you are going to go in. May I have 

that commitment from you? 

Mr. PRESTON. Absolutely, yes. 

Chairman DODD. The affordable housing crisis has been worsening and I am pleased, as I say, that the bill we passed this week, 

thanks to Jack Reed—and others on the Committee, but Jack really has been a champion on this for a long time—are going to establish that program. 

According to the Joint Center for Housing Studies, between 2006 

and 2007, in just 1 year, the number of severely cost-burdened 

households, those who pay more than half of their income toward 

rent, jumped by 1.2 million to a total of 1.7 million households in 

this country. That is one in 7 households in America. That is a remarkable increase. 

This increase is disturbing and I am concerned that we pay far 

too little attention to this problem. We have talked about home 

ownership, and that is a very legitimate issue. But for an awful lot 

of people—in fact, one of the things we learned is we have got a 

lot of people into home ownership that probably should not have 

been in home ownership. That is one of the problems we are looking at. 

But in the alternative, having decent affordable shelter rental 

housing has got to be there. And this is a growing problem. So I 

wonder if you have any initial views on how we might meet these 

critical needs? 

Mr. PRESTON. This is actually something that a number of you 

have brought up during the pre-confirmation process, and I agree 

with you 100 percent. We cannot focus all of our effort on the housing situation because we have millions of people in America who 

rely on HUD and its services to have a safe, decent, affordable 

place to live. So I think that is going to be a very important part 

of my focus, if I am confirmed. 

Chairman DODD. I appreciate that. We would like to hear from 

you very quickly on this, so thank you. 

Last, and I will stop with this one, I have introduced legislation 

to modernize the Section 8 Housing Voucher Program. It is one of 

the most successful housing assistance tools to codify an efficient 

reasonable housing funding formula. The bill would help agencies 


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focus more of their time on helping people and less time on administration. 

Again, I do not expect you to comment on the bill that I have introduced, but I would like to have you take a look at that in the 

Department, and get back to us as to what your thoughts are about 

it and any suggestions you would have for it, so that we might be 

able to try and move that this year. 

Mr. PRESTON. I look forward to doing that. 

Chairman DODD. Let me stop there and turn to Senator Shelby. 

Senator SHELBY. Thank you, Mr. Chairman. 

Mr. Preston, the majority of HUD’s programs consist of passing 

through Federal dollars to State and local Governments. The success of these programs, such as CDBG and HOME, depends on 

HUD’s ability to serve both as a partner to local governments and 

also to hold local governments accountable for results. 

How important do you believe it is to ensure accountability on 

the part of the State and local Governments dealing with our programs, in other words our money? 

Mr. PRESTON. Yes, I think any time you have a grant recipient 

from the Federal Government, it is important to both understand 

how effectively those funds will be used and to look at their effectiveness and the accountability of those funds. And I know the 

Community Development Block program is designed to provide 

States or the recipients with a lot of latitude on how to use that 

within their discretion, but certainly within guidelines. 

But somehow, I think every dollar that we provide to any grant 

recipient should have an accountability attached to it, and that is 

a very important part of—— 

Senator SHELBY. You just cannot send the money out there and 

that it is, can you, without some oversight into what they are doing 

with that money? 

Mr. PRESTON. I would agree with that. 

Senator SHELBY. The Katrina CDBG delays, I do not know if you 

are familiar with some of this. SBA’s Disaster Loan Program has 

not been the only assistance program facing delays and backlogs as 

a result of Hurricane Katrina. 

For instance, my State of Alabama has yet to award the majority 

of CDBG funds targeted for housing assistance, my own State. 

What role do you believe HUD can play in encouraging State and 

local Governments to expedite the process of awarding housing assistance to Katrina victims? 

Mr. PRESTON. Well, that is a great question, and I know from my 

time down there, Senator, that all of the different States who have 

received this money have taken a somewhat different tack, both in 

terms of who gets the money and how they provide it to them. 

Senator SHELBY. Sure. 

Mr. PRESTON. And also, in sort of the process around it. And I 

think—I do not have enough specific insight into HUD’s oversight 

of those funds and I would very much look forward to working with 

you and your staff if you have specific ideas or specific concerns for 

us to look into and certainly to understand whether you think a 

higher degree of accountability and oversight is required. 

Senator SHELBY. We just want the program to work for the people it is intended to. And we want to, in these situations like 


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Katrina, Mississippi and Louisiana took the bulk of it but my State 

of Alabama took some hit, too, as you well know. 

Mr. PRESTON. Yes, I do know. 

Senator SHELBY. Fraud and lending. On several occasions, HUD’s 

Inspector General has raised concerns regarding FHA’s approach to 

reducing fraud in its mortgage insurance programs. For instance, 

the Inspector General recently reported that FHA does not consistently refer potentially fraudulent loans to the Inspector General’s 

office. 

I suspect the SBA’s lending program would also be susceptible to 

fraud in the absence of appropriate safeguards. What are some of 

the methods SBA—and you are head of SBA—has used to monitor 

and to eliminate fraud in its lending programs? And could you use 

some of this perhaps in your background to help meet that challenge at HUD? 

Mr. PRESTON. Yes, I certainly think that there are a lot of analogies between the two programs and there may be a great opportunity to share best practices. I also think that the Inspector General has to be a very important partner in eliminating fraud, because ultimately they are the ones that are charged with actually 

looking into potential fraud and uncovering it. 

So I think one of the most important things was to have an effective mechanism at the point where the agency receives an application or other documentation from a lender. And often there are 

flags. You see certain types of activities with certain lenders which 

may indicate fraud. You see certain kinds of other kinds of red 

flags, which then you should use to support your relationship with 

the IG so that they come in and follow up on it. 

I do not know if I am being clear here. But I think when you are 

dealing with a very large scale, very high volume operation like the 

FHA, it is important to have things that you are looking for on a 

regular basis that automatically would lead you to refer to an IG. 

Senator SHELBY. Where there is money, a lot of money, there is 

going to be fraud. It is a question of how to deal with it. 

Mr. PRESTON. Exactly, and where there is a high volume there 

is a consistency of indicators that you can look at. 

Senator SHELBY. The Agency Disaster Response Coordination. In 

the aftermath of a disaster, such as Hurricane Katrina that I referenced, families receive recovery assistance from a variety of 

sources: SBA, HUD, FEMA, and so forth. How well coordinated are 

agencies such as HUD and SBA in providing assistance to families 

impacted by natural disasters? And do you believe that there are 

ways that maybe something you learned at SBA that you can carry 

over and help improve that coordination? 

Mr. PRESTON. Yes. In some cases it is extremely well coordinated. And I think certainly in the last couple of years we, in 

FEMA, for example, have taken a lot of actions to coordinate much 

more effectively. I think when you look at the Community Development Block Grant program, they need to coordinate with other 

agencies. And they do need to coordinate with SBA, for example, 

We did it extensively across the Gulf. 

Because every program is a little bit different, it is not as cookie 

cutter as it is, for example, where you have got the same type of 


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assistance in every situation. CDBG is a little different in every situation. 

So it is really critical right at the front end, when you have got 

a disaster and those funds go to that local area, to understand who 

is getting them, the basis upon which they are being conveyed, and 

how that interaction needs to happen with other Federal agencies, 

and get working groups in place immediately, figure out where 

technology needs to coordinate because information has to flow 

back and forth, and get those working groups absolutely linking 

arms. Because otherwise people go in different directions and there 

is confusion and you miss things. 

And that coordination also has to be at the highest level. So we 

have worked through this at SBA very extensively in a number of 

situations. I think there are some models that work very well. But 

the challenge, I think, with Community Development Block Grant 

money is every situation is a little bit different and you have to 

identify those differences right away and accommodate them. 

Senator SHELBY. With any Federal loan guaranty program, FHA, 

there is the conflict between encouraging lender participation and 

protecting the taxpayers from losses. For instance, efforts to reduce 

fraud or relieve some risk to the lender may reduce the incentives 

for lenders to participate. Without these protections, however, there 

is a greater chance for fraud and negligence on the part of the lender. 

Your oversight of the FHA will require writing the right balance, 

and I would like to hear you went about addressing these conflicts 

in SBA’s loan programs? 

Mr. PRESTON. Well, there is a conflict. We face it. And so I certainly would not deny that there is. 

First of all, organizationally, we had different leaders, one that 

provides the oversight function and one that provides the outreach 

function. And it is important to keep some separation between 

those two so that you can have independent judgment. 

The other thing is I think it is important to have very clear triggers in an organization that would say look, if a lender gets to this 

point, either in terms of the quality of their portfolio or concerning 

activities, we are going to begin to take a hard look at it. We are 

going to send somebody in to investigate this situation. We are 

going to put them on a shorter leash. We are going to review their 

portfolio more frequently to determine whether or not we need to 

pull back the reins a little bit more. 

So it is important to have triggers that kick in that enable the 

agency to provide greater oversight and then determine what the 

right actions are. 

One thing I would caution against is automatic triggers that say 

that if somebody’s portfolio is of X quality, immediately we are 

going to cut them off. Because you do not know, they may be in 

a troubled area of the country. They may be in a disaster zone. But 

you have to have those triggers kick in and then people will come 

in with judgment and analysis and then make the decisions based 

on that. 

Senator SHELBY. Thank you, Mr. Chairman. 

Chairman DODD. Thank you, Senator. Senator Allard. 

Senator ALLARD. Thank you, Mr. Chairman. 


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I would like to hear you comment a little bit about what you 

learned at the Small Business Administration and how you might 

apply some of those lessons to HUD, and talk a little bit about 

what you see are the greatest challenges in HUD and what you 

might see would be the solutions to those challenges? 

Mr. PRESTON. Well, I have learned a lot at the SBA but let me 

just kind of make a couple of highlights. 

First of all, one of the most exciting things, I think, about coming 

into the SBA was the ability to pull a team together and drive lasting, sustainable change in a way that changes people’s lives in our 

country in every relevant way. And I think we were able to do that 

through a number of ways. 

First of all, I think we were really able to energize the work 

force, energize the work force by laying out a clear vision for where 

we were heading, by providing them with much better training and 

tools to do their jobs, by communicating that mission to them much 

more effectively, and then holding people accountable for results. 

I firmly believe that as a leader, any time you have got a big job 

to do you have got to communicate that to people and get them to 

buy on. And then everything you do needs to support that. Major 

initiatives, what you track, what you talk about, how you hold people accountable, how you pay them. And I think the systems we 

put in place at SBA did all of that. And it enabled us to do some 

things, I think, that we are all very excited about. 

So as I come into this opportunity at HUD, I think it is going 

to be very important for me to understand what is working effectively, what is not, bring the team together to set out the path forward. We do not have much time. But I am a firm believer you can 

get a lot done in 8 months, and I certainly think we did at the 

SBA. 

The other thing that I have learned, as sort of a sideline, is people want to be led. And when you get out there with a vision and 

give people an opportunity to participate in a vision, people rise to 

the top. And they are part of driving it forward. They are part of 

making it happen. They are part of bringing the excitement into 

the organization. 

And I have to tell you, you know, when I look at what is going 

on, the opportunities in the housing market right now—and certainly I have had a chance to meet with a number of the employees 

at HUD just learning about it, many of the career employees— 

there are some terrifically talented people there, and people that 

I really look forward to having on a team that works very hard 

over the next 8 months to address a lot of these challenges. 

Senator ALLARD. You come from the Small Business Administration. Obviously, you are used to having a focus on small business. 

The SBA’s Office of Advocacy has raised concerns that HUD’s proposed RESPA rule—you are, I think, familiar with their proposed 

RESPA rule? 

Mr. PRESTON. Yes. 

Senator ALLARD. Which would perhaps impact small business. 

Are you familiar with those concerns raised by the Office of Advocacy? And do you share these concerns? 

Mr. PRESTON. As I understand it, some of the concerns raised by 

the Office of Advocacy are being dealt with in this comment period. 


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I know RESPA, the Agency just announced a 30-day extension period of the comment period. 

Senator ALLARD. I appreciate that, yes. 

Mr. PRESTON. As I understand it, many of the SBA advocacy concerns have been addressed in the more recently proposed rule. 

But I think more importantly, Senator, you raise a very important issue. Any time we look at regulations we have intended value 

that we are trying—intended benefits that we are trying to convey. 

In this case, the intention is to provide people with a more transparent, more understandable closing process and give them the opportunity to potentially find a better closing process or a better 

deal. While on the other side, we are imposing some burdens on the 

community, the business community, to be able to fulfill that. 

And so it is very important for us to balance the value of any regulation with the unintended burdens that it can create. And I think 

as we go forward through this comment period, it is going to be 

critical that HUD considers all those issues. 

And certainly, coming from the Small Business Administration, 

oftentimes small businesses are the ones that are hit hardest by 

new regulations. 

Senator ALLARD. What do you think we need to do to help meet 

consumer needs as they may apply to the various participants, both 

large and small? 

Mr. PRESTON. I look forward to reading those comments, to meeting with the team and reading what came out of the comment period. So Senator, I do not know that I have got a detailed enough 

notion to understand exactly what that reform should look like. 

But I do think it is important for individuals, when they come 

to a closing process, to understand what they are getting to and for 

there to be clarity in that. And I am hopeful that that can be done 

in a way that is not overly burdensome to the industry. Once 

again, I think that is the balancing act here. 

But I look forward to hearing what many people have provided 

in terms of comments on the regulations so I can get a better sense 

of that. 

Senator ALLARD. You and I had some discussion about the PART 

program and I just want to commend you for the results demonstrated under PART with the Small Business Administration. 

Mr. PRESTON. Thank you. 

Senator ALLARD. Can you please discuss your views on the PART 

program? And how can it be helpful to managing and budgeting for 

results, particularly in HUD? 

Mr. PRESTON. What I appreciate about the PART program and 

other efforts is that it focuses all on the effectiveness of our programs. And if our programs are deemed not to be effective, it helps 

us understand where the people who are doing the measuring have 

deemed those not to be effective so that we can improve them, reform them, or take whatever measures we need to make. 

So certainly, I think PART, as well as other management tools, 

are very important for all of us who have great responsibility in the 

Federal Government to make sure that we are operating effectively. 

Senator ALLARD. Senator Jack Reed and I have been working for 

quite some time on legislation to consolidate HUD’s homeless proVerDate Nov 24 2008 01:17 Mar 23, 2010 Jkt 050403 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 E:\HR\OC\A403.XXX A403

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gram into a flexible, streamlined program. Our legislation also 

takes steps to recognize the important distinction between the solutions for homelessness in rural and urban areas. 

The Administration has been, I think, very helpful in this effort 

and I would like to commend the staff. 

Do you share our belief that it makes sense for the HUD providers, and most importantly those who rely on HUD’s homeless 

programs, to consider consolidation in a single, flexible program? 

Mr. PRESTON. I would very much look forward to understanding 

your concerns in that area, Senator. Certainly, it has been my experience in my almost 2 years here in the Federal Government that 

many times we have programs that do very similar things. But 

they are done separately. They are administered separately, and 

they can be inefficient. 

And so I would look forward to spending time with you and your 

staff to see if that is the case for the homelessness programs we 

have in place and to determine what the best path forward is. But 

I certainly understand where your concerns are. 

Senator ALLARD. My time has expired, Mr. Chairman. Thank 

you. 

Chairman DODD. Thank you very much. Senator Casey. 

Senator CASEY. Mr. Chairman, thank you for arranging this 

hearing, and Ranking Member Shelby as well, thank you. 

Sir, I wanted to thank you for the time you spent in our office, 

just as you did with other Members of this Committee. Mr. Preston 

was in our office, and we—I think I mentioned this to the Chairman—had a good meeting about Philadelphia, and I will get to that 

in a moment. But I do want to ask you a couple of questions, first 

of all, about standards that apply to the appraisal issue and other 

issues as well. 

It is my understanding that HUD has eliminated the test for appraisers, and I just want to get your sense of that. I have been 

deeply concerned about this aspect of the challenge we have with 

housing that we get independent appraisals, that we get them done 

in a very professional way, that people who are doing the appraisal 

work have the kind of skill and background and education. I had 

an amendment on that that was included in the legislation we 

passed Tuesday. Senator Martinez and I worked together on appraisal issues generally, and we have been working together on 

that, and I appreciate his work on that as a former HUD Secretary 

as well as now a United States Senator. 

But I wanted to get your sense of that in terms of the testing 

issue and then also with regard to the relaxing of repair and inspection requirements, just to get your perspective on both those 

issue. 

Mr. PRESTON. Well, I think it is important when you are lending 

or guaranteeing money to ensure that you have the right standards 

in place, and there are many people in the process of buying a 

home that are charged with reviewing aspects of that transaction 

and effectively helping the borrower—or the lender, rather, make 

good decisions. So I think it is very important that there is integrity in the process and that we can rely on information that we get. 

And certainly if you have concerns in that area based on the two 

that you just mentioned, I would love to spend time with you and 


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understand more specifically where you think that may be leading 

to, either a lack of quality in the process or financial risk or otherwise. 

Senator CASEY. Thank you. I wanted to ask you also about the 

issue of counseling. I have spent and other Senators have spent a 

good deal of time on the issue of making sure that we have adequate funding for foreclosure prevention counseling, and it has 

been a concern of many of us. And hundreds of millions of dollars 

now have been committed to that effort in the last year. But I 

wanted to get your sense of, A, the dollar amounts that we have 

in place now, but also the fact that I think in 2007, fiscal year 

2007, HUD only awarded $41.5 million for housing counseling. 

So there are two issues: one is the funding levels, which have increased dramatically, and we know that, for example, by some estimates—I think it is a Treasury Department estimate—that people 

who get counseling, 96 percent do not have a problem after that, 

even in the subprime context, even people who are in subprime 

mortgages, if they got counseling ahead of time, by and large, a 

high percentage of them do not have any problems. So the funding 

is one issue, but the other issue is the type of counseling and the 

work that is done by counselors as it pertains to homebuyers, because I think the original authorization for counseling goes back to 

1968. And, of course, the market has changed, the housing market 

has changed dramatically. 

So I want to get your perspective on the funding issue and ask 

you to commit to advocating for funding, but also making sure it 

is spent expeditiously and in a very targeted way; and then, second, on the program itself, how we do the counseling. 

Mr. PRESTON. Well, one of the things, certainly, as you may 

know, we provide training to a million entrepreneurs a year, people 

who come in and want to figure out how to start a business or grow 

a business. When you look at a complex financial situation—which 

for most Americans a mortgage is. I mean, I think we think of it 

as sort of an everyday thing, but, you know, I have got an MBA 

in finance, and I have been in finance for 25 years, and I still sometimes have to scratch my head when I look at the pile of documents, you know, and walk through what I am signing. And we are 

in a situation where we are not only trying to help people buy a 

first home or enter the market. We are in a situation where we 

have a dramatic need for people who need to refinance and get into 

a different situation. 

I have a real concern, as I have read a lot of the industry research, that lenders are seeing backlogs. It is difficult for them to 

get through it. And now I do know that HUD has expanded funding. I know through the Hope Now Alliance, a lot of lenders have 

expanded funding for it. I think that is an essential element. It is 

hard for me, Senator, to understand if that is sufficient just because, you know, I am not in the job and I have not been able to 

work through that with the staff. But I certainly would echo the 

importance of helping people understand what they need to do 

through this process in a way that is effective. 

I did not mention this in my testimony, but, you know, as we 

chatted a little earlier, one of the—our primary function in a disaster is to provide homeowners with loans—not business owners, 


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homeowners. And one of the things we did when we worked to repair this big Katrina challenge we had is we gave every homeowner 

in our loan program a case manager. That case manager was effectively a counselor. 

Now, people said, you know, how can it be efficient? You want 

to do everything kind of automatically. But the problem was people 

did not understand what they were getting in. They were sending 

us documents that were wrong. We would send them something 

back. We would have four or five communications with them. That 

led to frustration. That led to delays. Once we gave them a case 

manager, they could get it right the first time. 

It turned out to be a very efficient thing to do because 15 minutes on the phone saved everybody a world of hassle, a world of 

time, and, you know, within a month of launching our new re-engineered process, we were doubling disbursements. 

So having the right kind of up-front support I think is very important to helping people through a process that for them is very 

complicated. So I appreciate your concern. 

Senator CASEY. And we will talk more about it. I know we do not 

have time to delve deeply into the Philadelphia situation, but my 

understanding is that progress is being made, and that is a great 

development. And we will have more time to explore that, but I 

thank you for your commitment to trying to move that forward. 

Mr. PRESTON. Thank you. 

Senator CASEY. In the remaining seconds that I have, I wanted 

to address your family, your wife and your children who are here, 

to thank them, because I know that, for your children, when your 

father makes a commitment to do a job like this, you have to help 

him as well. So we thank you for helping him, and thank you also 

for being so attentive. This is not easy for anyone, and we are 

grateful for the contribution of your family to the work that you 

have to do. 

Thank you very much. 

Chairman DODD. That is pretty good. You got to stay out of 

school today, too, though, didn’t you? You begin to wonder which 

is worse—school or listening to this. 

[Laughter.] 

Chairman DODD. School is looking pretty good. There is no quiz 

at the end of this for you, though, I should tell you. 

Senator SHELBY. Not for them. 

Chairman DODD. Not for them, no. 

[Laughter.] 

Chairman DODD. The former Secretary of HUD, our colleague. 

Senator MARTINEZ. Mr. Chairman, thank you very much. 

First of all, welcome. Congratulations and welcome to all the 

members of your family. I cannot help but reminisce to the day of 

my hearing. At the time my youngest was 6 years of age, and by 

the time I had heard from all of the distinguished Senators, as they 

were all telling me how I should run HUD—which I took to heart, 

of course, I want you to know. 

[Laughter.] 

Senator MARTINEZ. This went on for a while, and by the time I 

was to introduce my family at the beginning of my statement, I 

turned around to introduce my family, and I noticed my 6-year-old 


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was gone. So, anyway, I encourage your perseverance, and thank 

you for being here, and I congratulate all of you on this important 

moment in your lives. 

Let me just say that I believe you have a challenge ahead in 

many respects and a short time to accomplish them. But I believe 

it is a terrific place in which to make a difference in people’s lives. 

You have a terrific group of people that are there ready to help 

you. 

Mr. PRESTON. Thank you. 

Senator MARTINEZ. The career staff are terrific. They are dedicated. They are committed. Many of them have dedicated their entire lives to the mission of HUD and know it well. 

In addition to that, I know behind you are a number of political 

appointees, Schedule C’s, that I have had in some cases an opportunity to work with. They are also very committed, terrific, and 

dedicated people, and I think you will find in them a ready resource to help you meet the challenges that you will face. 

One of the things I am proudest of from my time at HUD is the 

initiative to end chronic homelessness. It is a terrific initiative, and 

I think it has had immeasurable success. And I guess rather than 

ask a question, I would ask for you to put your caring hands on 

that program and take a look at how it is going. I agree with Senator Allard that streamlining the grant process would be a good 

thing. I thought, frankly, we had accomplished some of that, and 

sometimes accomplishments can be elusive in a bureaucracy. So I 

would encourage that as well. This is one of those areas of HUD 

that is not often talked about or looked at, but it is terribly important. That is an initiative that I think has had a nationwide impact, and I commend it to you. 

Undoubtedly, something that I worked very hard on as well was 

the issue of RESPA, and I was delighted that a rule has been forthcoming. In my view, I think that in terms of RESPA, transparency 

for the potential homeowner—I think if we had passed the RESPA 

rule that I proposed, while not everyone would have been happy, 

I think we might have avoided some of the problems we have seen 

in the current housing crisis. But I think transparency, less paperwork, the ability for folks to go to a transaction which is the most 

important in their lives and actually understand the documents 

that they are signing and to have them be of a number that is reasonable in number so they can actually get their arms around it 

as opposed to just signing a stack of meaningless paper because 

HUD makes you do it, I think these would be things that would 

be helpful. Consumer friendliness in that process I think would be 

also great. So I hope when these comments come back, you will 

look at it and not be reticent to move aggressively in the area of 

that. 

I think junk fees need to be also looked at. Folks ought to know 

what they are paying for, and they ought not be paying for things 

that are just there because someone could tack another couple hundred dollars onto the deal and no one is really going to be the 

wiser. People ought to get a benefit and a value for what they pay 

for. 

So, in any event, let me stop the lecture and only commend to 

you one other very important program at HUD that I had a part 


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in the initial stages of, which is the faith-based initiatives. The 

partnership between the community of faith and Government I 

think, again, has been very successful, and I hope you will look at 

that as something that can be an adjunct and an ally in what you 

do. 

I hope that you will consider me a resource. If I can be of help, 

I am there to help in any way I can, and I look forward to you having a very successful tenure. 

We just recently did some very important things in this Committee. You are going to have a hand in the implementation of 

those. Have you had an opportunity at all to familiarize yourself 

with the Government-sponsored enterprises and HUD’s hold in 

their regulatory scheme? 

Mr. PRESTON. Broadly, yes. 

Senator MARTINEZ. We enacted some very far-reaching reforms 

in that scheme. Have you had an opportunity to become familiar 

with them at all? And do you have any views on their implementation? 

Mr. PRESTON. Yes, one of the things that I think is very important with the GSEs is that we have a—obviously, they were created 

to fulfill a mission, and I think it is important that we work with 

them to ensure that that mission is fulfilled. And they obviously 

have a significant, very significant role in getting capital to people 

who need it and people who might not be able to get it if they did 

not provide the liquidity in the capital markets that they provide. 

At the same time, I think we have got—and we chatted about 

this a little earlier—two organizations that are absolutely massive 

in scale and massive in their impact on the financial markets and 

in their potential risk. So I think it is very important that we balance those two things. Sometimes they are in tension, but I think 

actually by doing them both right, you know, ultimately you get the 

best of both worlds. 

So I look very much forward to working with you and the Members of the Committee to ensure that the path forward for the 

GSEs accomplishes those goals. 

Senator MARTINEZ. Well, the bill still has a path forward itself, 

but assuming that it becomes law in some form similar to what we 

passed here, I think it will be a great step forward. And I think 

the implementation of this, working closely with the existing 

OFHEO, as well as with the Department of Treasury, will be very 

important as you attempt to get your arms around a transition to 

a new regulatory scheme of these very, very important institutions. 

The other thing is that we are currently—you know, when I was 

at HUD, we were in the business of putting more people into homeownership, particularly minority families, where they were underrepresented among homeowners. Tremendous strides were made 

over the last many years, in part by things that the administration 

did, in part by the economy and the nature of what interest rates 

were doing, and the creative financing that now has become a problem. 

How do you envision helping families stay in their home—working, I know, with FHA and Mr. Montgomery and others, but how 

do you intend to approach providing leadership at this very crucial 


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moment to not diminish the gains we made in putting people into 

homeownership, particularly in the minority communities? 

Mr. PRESTON. Well, certainly, I would look forward to being a 

good partner with you all as some of these policy initiatives are advanced. I think you need a strong partner at the table. I intend to 

be that. I intend to look at the various policy solutions that you all 

are proposing with a fresh mind and to be an important player in 

that process. 

I also think it is important that whatever the path forward be, 

that FHA have, you know, the operational wherewithal to be able 

to handle the increased volume. Their volume has already gone up 

tremendously. Certainly it may go up even more should some of 

these policies be passed. And I think it is going to be important for 

me to engage with the operational team. 

So often I think we have got, you know, great policies and great 

programs, but if we fall down on the operational side, ultimately 

those great ideas do not get conveyed and fulfilled at the front end. 

And I know with the volume increase, in my operational background, I am looking forward to being a good partner with Commissioner Montgomery and his team. I know they have been working very hard on a number of these things recently, but in addressing the need there. 

Senator MARTINEZ. I know my time is up, but I want to also— 

the next area I would have talked with you about if I had more 

time is the PHAs, public housing authorities, and they continue to 

have challenges throughout the country. And I know that ensuring 

their integrity and their operation in a way that is not only competent but also honest is a huge key to the success of the PHAs 

around the country. 

Anyway, I commend you for your willingness to serve. I thank 

you for that and wish you the very, very best. And know that I am 

here for you at any time. 

Mr. PRESTON. Thank you. 

Senator MARTINEZ. And you are welcome into the HUD family, 

which is a great group of people. 

Mr. PRESTON. Well, I want to thank you for the advice you have 

given both here and in our meeting, and I look forward to getting 

more of that, if I am confirmed. And do not be surprised if you are 

on my speed dial. You might regret the offer. 

Senator MARTINEZ. I am glad to be a resource any time I can. 

Good luck. 

Mr. PRESTON. Thank you very much. 

Chairman DODD. Thank you, Senator. 

Senator Carper. 

Senator CARPER. Thank you, Mr. Chairman. 

Mr. Preston, welcome. Good to see you again and to be able to 

welcome your wife. And you said three of your five children are 

here? 

Mr. PRESTON. Three, yes. 

Senator CARPER. That would be a quorum, so we are glad. Obviously, I have been watching your son especially as you speak. I can 

barely see his lips move while you speak. He is pretty good at— 

he has the brains in this family, I tell you. 

[Laughter.] 


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Senator CARPER. No, we are glad you are all here. And to your 

family, especially your wife, thanks so much for your willingness 

to share your husband and, to the children, to share your father 

with our country. It is a critical time and an important time, and 

we are deeply grateful to each of you for your sacrifice and for your 

willingness to miss a day of school. I know my boys—my boys are 

a little bit older than you—would not be as well behaved, and they 

are wonderful boys, but they would have appreciated the chance to 

miss a day of school. I know that. 

Senator Martinez has left, but he has offered whatever assistance he can to you as you settle into this new position for which 

I think we all believe you will be confirmed. And he is quite serious 

in that offer, a good mentor. He is a good colleague for us, but a 

good mentor for anyone who has been nominated and will have a 

chance to serve as HUD Secretary, and I would urge you to take 

him up on that. 

When you and I met, I indicated that if you are confirmed, I suspect that there will be a number of senior positions at HUD that 

may be vacant at this point in time. I am not sure that that is the 

case, but there may be some, and there may be some that require 

Senate confirmation. Have you had a chance to look at the landscape and see if that is the case or not? 

Mr. PRESTON. I think that there are four open positions. I believe 

that there are three nominees right now in place for them. 

Senator CARPER. All right. So three out of the four, we have 

nominees? 

Mr. PRESTON. Yes. 

Senator CARPER. I will do some checking to see if we schedule 

hearings or see where we are. But I think one of the things that 

we have to do is to move expeditiously to make sure you have the 

team around you. Whether you are HUD Secretary for 8 months 

or 8 years, we want to make sure you have the human resources 

and the help to get off to a good start. 

Mr. PRESTON. Thank you. 

Senator CARPER. Let me just ask you, and this question may 

have been asked of you already, but just talk to us a little bit about 

how your experience at SBA—some people had real doubts about 

my ability to be Governor or to be a Senator, and I hope I have 

addressed some of those, at least some of those questions that people had of me with my service in those roles. But there may have 

been some people who had misgivings about your ability to do well 

at SBA. You have obviously done very well. What were some of the 

lessons that you learned at SBA in your experience there providing 

leadership and helping to take that agency to a higher level? How 

does that experience inform and improve your ability to do well in 

this role? 

Mr. PRESTON. Well, I think there are—just let me give you sort 

of a short list of things I would highlight. 

First of all, I think as a leader of any organization, you have to 

be very clear about the mission of the organization, where the team 

is heading, and ensure that people are going with you. And there 

are a number of ways to do that, but that was very important for 

us at the SBA. 


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Second, you have to dig deep enough into what is happening in 

the organization to understand what the impediments are to getting there. In many cases, you are looking at operational processes. 

In many cases, you may have program impediments. In many 

cases, your employee base may not be trained or have the tools to 

deliver. 

So we focused very heavily on designing very specific initiatives 

that we felt were required to help us reach those objectives, No. 1, 

and we put in place tracking tools, we put in place a management 

structure to manage those initiatives, and we held people accountable for them. 

Second, we worked very hard to understand where the employee 

base had needs. We had very significant training needs. People 

were not in the right places, and we were not communicating with 

our people well enough. And to the extent that you do those things, 

the employee base really kind of rises to the occasion. I think that 

has been one of the most exciting things for us. And then you have 

to hold people accountable through the process. 

The last thing I would say is it is very important in an organization when you are making progress, to celebrate that progress, to 

thank people for the progress, and to engage them in that. And so 

I can get into how we got metrics and how we reengineered processes and all kind of the detailed stuff. But I think it really hangs 

on a few principles. 

Senator CARPER. Thank you. I do not know if you—you are not 

confirmed, and this may be putting the cart before the horse, but 

if you are—as I said before, I think you will be. But if you are, talk 

to us a little bit about what—since you do not have—you may not 

have but 8 months in this role. Talk to us about how—what your 

first 30 days might focus on, maybe your first 60 or 90 days. Just 

give us an idea what your initial priorities have to be. 

Mr. PRESTON. Well, I think one of the most important things for 

me to do right off the bat is to get in front of the employee base. 

A large employee base needs to know who their new leader is, what 

that person stands for, what that person believes in. When I came 

into the SBA, the first day I walked in the door, I cut an employee 

video that was broadcast nationally the next day, and so I would 

hope to do something similar to that at HUD. 

Second, very quickly, what I have found is most of the best ideas 

are already out there somewhere. They are either with your employees, they are with the people that care about your programs, 

they are with the people that you serve. So I would hope to get out 

and about and listen very hard to what other people think we need 

to get done. 

And the third thing I would do is I would take all that information and would hope to work with the leadership team there to 

kind of begin to lay out the path forward. 

The other thing I would highlight is we have a lot on the table, 

on the legislative agenda right now, and if things move quickly 

with my confirmation, I think I will be coming right into the middle of that. I think I need to be a great partner for this body. I 

think I need to be an important voice within the administration on 

the issues we face. And I would look forward to being a collaborative, you know, new, fresh partner in that process. 


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Senator CARPER. Good. Let me just mention that—Delaware is in 

Region 3, and the Region 3 offices are up in Philadelphia. We have 

had just quite a positive relationship during my time in the Senate 

with the folks at Region 3, but also a women who runs HUD’s operation in Delaware, her name is Diane Lello. I think it is L–E–L– 

L–O. But I know at SBA one of the things you did is you looked 

out around the country at some people who were doing an especially good job, and you were not shy about bringing them into 

other positions. And you just need to know you have got a good operation in Delaware in our part of Region 3. 

Mr. PRESTON. That is good news. 

Senator CARPER. You may want—feel comfortable relying on 

them. 

The last thing I would ask is—Senator Martinez has offered his 

help. He has already provided some guidance and assistance and 

counsel. What can the rest of us do to help you? We want you to 

be successful. We want HUD to be successful. And, again, whether 

you are there for 8 months or 8 years, what can we do, aside 

maybe from confirming your nomination? Does anything else come 

to mind? 

Mr. PRESTON. Well, one of the things, I think the most important 

thing is many of you have already begun to share with me your 

recommendations, your concerns, where you see the opportunities 

are. I know that you and your staffs have done a lot of work to sort 

of develop those issues. 

One of the first things I did when I came to the SBA was get 

down to the Gulf because of the disaster loan problems we had, and 

one of the most important conduits of information to me in those 

visits were people’s staff. You all get phone calls all the time from 

your constituents. You all are a—you know, you all have over the 

last 2 years for me been an incredibly effective conduit of information. And I have really valued my relationships with people in the 

Senate and their staffs because frequently you all see things before 

we see things. And so it is really twofold: 

No. 1, when you know something, I want to know, because sometimes little problems within individual constituents are reflections 

of much bigger problems, and when we start kind of peeling away 

the paint a little but we find something behind it that we can address. 

Second, to the extent that you understand sort of the depth of 

an issue or the challenges that we face, I would love to meet with 

you and your team to get the depth of that insight, because I will 

potentially have a very short tenure. I think it is going to be very 

important for me to hit the ground running and figure out really 

what is at the top of the list for the next 8 months and get on the 

path of making it happen. 

Senator CARPER. Good luck. Thanks very much. Again, a real 

pleasure to meet your family. 

Mr. PRESTON. Thank you. 

Chairman DODD. Thank you very much, Senator, and I would 

just note to my colleagues, there was a quorum call, but I am told 

there are going to be some votes beginning around 11:30, and so 

I appreciate that, Senator Carper, very much. 

Jack Reed, we have been talking about you in your absence. 


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Senator REED. I am here to restore my reputation. 

[Laughter.] 

Chairman DODD. You do not have to. It may just go downhill 

with so many glowing things that were said about you. 

Senator REED. I should rest my case? 

Chairman DODD. Rest your case. 

Senator REED. Thank you very much, Mr. Chairman. And welcome. 

Mr. PRESTON. Thank you. 

Senator REED. We have been over the last few weeks, under the 

leadership of Senator Dodd and Senator Shelby, able to accomplish 

something which we hope will rapidly become law with respect to 

foreclosures, and just to note that house prices have fallen 3.1 percent in the last quarter. Sales of existing homes fell in 43 States. 

In California and Nevada, it is an 8-percent drop, significant, and 

it is estimated that mortgage originations this year will drop 18 

percent. This is the crisis in the housing market, and you are going 

to be the principal housing official in the Cabinet of the President. 

My general question is I would hope by the time or shortly after 

you take over, you will have new legislation to implement, but I 

would hope that your top priority would be to deal with this housing crisis, implementing legislation that is passed, giving the 

FHA—and I see the Commissioner—the power and also not just 

the theoretical power but actually get down and start helping people. Is that your intent? 

Mr. PRESTON. Yes, you know, let me just mention one example. 

We have talked a lot about the disaster program at SBA, but when 

we came into that crisis, we brought the entire leadership into a 

room. We had a 3-day lockdown. We actually started it with a video 

of people telling their stories about how tough it was to do business 

with us. And I was directly engaged in mapping out new processes, 

changing policies, dealing with technology issues. I expect to be a 

very engaged leader on the ground with the team as we look at any 

operational issues. 

Senator REED. I know there are limitations in terms of your involvement in current operations, but are you accumulating a list of 

advice that you can implement immediately without new legislative 

authority, you know, feedback from people in the field as to how 

you can make the program better, all these programs better? 

Mr. PRESTON. Yes, that is something I would expect to do very 

shortly. I have asked a number of the people I have met to provide 

me with that list. I have asked them to provide me with a list that 

helps me understand what is an operational solution and what is 

a regulatory solution, and then begin thinking about the impact of 

the recent legislation—the potential legislation that we see. And I 

would expect to expand that very shortly after coming into the role. 

Senator REED. And will you establish at least an objective goal 

of helping so many households, something tangible that you can 

measure and you can encourage your colleagues at HUD to strive 

for? 

Mr. PRESTON. I think that is an important thing to—I am not exactly sure what that goal should look like, Senator. I think in any 

initiative, having very clear goals in place and measuring those 

and looking at them consistently with your leadership team is imVerDate Nov 24 2008 01:17 Mar 23, 2010 Jkt 050403 PO 00000 Frm 00033 Fmt 6633 Sfmt 6602 E:\HR\OC\A403.XXX A403

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portant. I just do not know what the exact goal would be specifically. And certainly to the degree that you would have advice on 

that, I would look forward to hearing it. 

Senator REED. I think one of the observations is that there are 

many well-intentioned initiatives, but the endpoint is some generic 

helping people or helping et cetera, et cetera. 

Mr. PRESTON. Sure. 

Senator REED. And there is not a specific kind of calculation of 

if we can help 100,000, then we have succeeded; if we are only 

helping 20,000, we have not. So it is hard to quantify, but I would 

suggest that if you drive that analysis to measurable points, it 

would be helpful. 

Let me just turn quickly, because the next major task I think you 

have is really to start—not just assembling but working through 

the budget of HUD for the next fiscal year, and there, there are 

some issues. I will just make the point I believe that the efforts 

with respect to lead prevention, lead mitigation have been very important at HUD, but they are underfunded. So I hope you would 

look very closely at that. And as some of my colleagues might have 

mentioned, Senator Allard and I have a homelessness bill which we 

hope is law and we hope it gives you additional tools. But that is 

another area I would hope that you would devote yourself to in the 

next few weeks and months in terms of policy and budget priorities. Good luck. 

Mr. PRESTON. Thank you. 

Senator REED. Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator Reed. 

I just have one additional question I wanted to raise with you, 

and it is one I would like you to get back to the Committee about 

as soon as you can once you are confirmed. There have been some 

articles written about reportedly staff concerns were sort of dismissed out of hand regarding contracts. You may have seen the article yourself in preparation for being here this morning. It provides some details about contracts given to companies with ties to 

HUD officials over the objections of HUD staff. And we have heard 

similar allegations in the past and so forth, but apparently this 

seems to be ongoing, at least as I read the article. And if it is, obviously you are going to want to get your—find out about it very 

quickly, I would presume. 

Mr. PRESTON. Yes. 

Chairman DODD. And this Committee would like to know as well 

what your observations are and whether or not this problem is as 

serious as the articles indicate it may be and what steps you are 

going to take to remediate it as soon as you could. 

Mr. PRESTON. Certainly. 

Chairman DODD. So I will not dwell on it. I do not expect you 

necessarily to have detailed knowledge about it today, but I would 

expect you to be able to respond very quickly. And if we can, maybe 

Senator Shelby and I will prepare a letter to ask you about it, but 

I will make—in place of a letter, I am asking about it today on the 

assumption you are going to be confirmed, and if you are, we need 

to find out and get to the bottom of it. 

Mr. PRESTON. Right. 


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Chairman DODD. With that, I appreciate you being here. Again, 

my congratulations to you, and all of us mean this. It is not easy 

to step up and serve in the public eye today in these appointed positions. And so I admire anybody who is willing to do it, step out 

of the private sector to come and do this. 

Mr. PRESTON. Thank you. 

Chairman DODD. And I want to echo the plaudits that have been 

given to your wife and your family as well. It is not easy duty, and 

I am very impressed. I do not know what your other two siblings 

are like, but they must be the raucous ones. 

Mr. PRESTON. There is a reason they are not here. 

[Laughter.] 

Chairman DODD. You do not let them out in public, is that it? 

You keep them boxed up at home? 

Well, anyway, we are delighted to have you with us, and we will 

try and move this as quickly as we can, but thank you very much 

for being with us. 

Mr. PRESTON. Thank you. 

Chairman DODD. I will leave the record open because there are 

Members who are not here, and we scheduled this fairly quickly 

and had to change the schedule. But Members may have some 

questions, and if they do, we would like you to respond to them 

very quickly. 

Mr. PRESTON. Thank you. Sure. 

Chairman DODD. The Committee will stand adjourned. 

[Whereupon, at 11:38 a.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 


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RESPONSE TO WRITTEN QUESTIONS OF SENATOR DODD 

FROM STEVEN C. PRESTON 

Q.1. There have been a number of reports that under your leadership, the Small Business Administration would not disclose information about the companies awarded small business contracts, and 

that this was done because small business contracts were going to 

large firms. According to the American Small Business League, as 

well as investigations by various news outlets, Fortune 500 firms 

receive billions of dollars in small business contracts. In addition, 

the American Small Business League has said that although an annual recertification of companies was endorsed by the Inspector 

General at SBA, the Office of Federal Procurement Policy and the 

OMB, you implemented a 5-year recertification process, which 

would allow the government to report awards to large companies 

as small business contracts for 4 additional years. Mr. Preston, can 

you respond to this? 

A.1.

PART A

During my tenure at SBA there has been a significant increase 

in transparency, accountability, and integrity of data in federal 

contracting well beyond where it has been. 

1. In September 2006, the Office of Management and Budget and 

SBA required agencies to review their 2005 procurement data, 

identify discrepancies, and correct the records, as necessary. This 

process was completed in March of 2007. During this clean up process agencies found $4.6 billion dollars that were ‘‘miscoded’’ as 

small business. On August 17, 2007, SBA re-issued the FY 2005 

Small Business Goaling Reports which correctly reclassified the 

$4.6 billion as other than small. 

2. In 2007 OMB began to require that agencies establish comprehensive data verification procedures and that they certify data 

accuracy and completeness to the General Services Administration 

each year. The statements of data verification and validation must 

be submitted to OMB. 

3. All contract data is now available to the public at 

www.usaspending.gov. 

4. Last summer, SBA issued the first Small Business Procurement Scorecard. The Scorecard is modeled after the one used to 

track the President’s Management Agenda. Notably, the scorecard 

includes an element addressing agencies efforts to ensure data integrity and is the first time agencies’ contracting work has been 

graded publicly. 

5. Also last summer, the federal government changed the rules 

to require companies that become large through merger or acquisition to say so officially. Under these rules, the contracts they hold 

can no longer be counted by federal agencies as small business contracts. 

What has been happening in federal contracting since the mid 

1990s is that a large volume of federal contracts awarded originally 

to small companies have been taken over by large companies that 

have purchased or merged with the small companies that originally 

won those contracts. 


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The difference between this and the government supposedly diverting small business contracts to large companies is important. 

These contracts were awarded to small businesses, some of them 

as set-asides, but most of them in full and open competition. About 

20 percent were ‘‘set aside’’ for small businesses, but the rest were 

won by small companies in full and open competition. 

Over time, those small businesses merged with or were acquired 

by large businesses—it’s a common business strategy for both small 

companies and large ones. As a result, the contracts originally 

awarded to small businesses are recorded in the federal database 

as being owned by large companies. 

Because of the rules that were in place at the time—under my 

leadership we changed them—the federal agencies that awarded 

those contracts were allowed to continue to count them toward 

their goals as contracts that were awarded to small businesses. 

Under the old rules, federal agencies that awarded contracts to 

small businesses, whether it was through set-asides or full and 

open competition, were coded as small business through the life of 

the contract, whether the vendors remained small, grew to be 

large, or were acquired by large firms. 

This became a problem when the length of contracts increased 

from an average of five years to 20 years and beyond, and as acquisition of small firms became a major growth strategy for large businesses. 

Therefore, last summer SBA enacted a rule to require periodic 

recertification of small business size standards on long-term contracts, and when ownership of any contracts, originally awarded to 

small firms, changes through merger or acquisition. 

These regulations prevent agencies from claiming credit against 

small business goals for contracts that were originally awarded to 

small businesses that are no longer held by such firms. In turn, 

this will compel agencies to provide new genuine opportunities to 

small businesses in order to meet their goal. 

Under the rule, which took effect July 30, 2007, any small business that merges or is acquired must immediately ‘‘recertify’’ its 

size. If the company is no longer small, the contract continues, but 

the federal government can no longer count it as a ‘‘small’’ contract. 

There are no responsible parties in the contracting discussion who 

have recommended taking contracts away from large companies 

which acquired them through merger or acquisition. 

The new rules also require that all existing contracts over five 

years duration be modified to require small businesses to recertify 

their size status for acquisitions, mergers requests and to recertify 

their size status prior to an option being exercised. All existing contracts of less than five years must recertify when their first option 

is exercised. The vast majority of these contracts have one-year options. 

Collectively, these measures will result in improved contracting 

data integrity. It may take time for the full benefits of these improvements to show results. But, we believe the data has been 

made substantially more reliable than that of prior years, and that 

with these steps, the quality of data will increase measurably each 

year, well into the future. 


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In regards to specific requests for contracting data, SBA has 

worked with the GSA, which controls this information, to see it is 

publicly available. 

PART B

As with any public rule, the recertification rule was subjected to 

public notice and comment. The strong indication from the comment period—including substantial congressional comment—was 

that an annual recertification period would diminish small business growth and was too expensive and onerous for small businesses and federal agencies. 

As mentioned above, the five-year rule applies to companies with 

current federal contracts that grow large over that period; for 

mergers, acquisitions or new contracts, the small business certification must occur immediately. 

Q.2. In addition, can you tell us whether you released the list of 

actual recipients of federal small business contracts for 2005 and 

2006? 

A.2. Federal contracting data is neither managed by nor controlled 

by SBA. The General Services Administration maintains the Federal Procurement Data System-Next Generation, which is data repository of record. All information in FPDS–NG is available to the 

public. 

SBA has assisted people who desire such information by describing it in public forums, providing a link on its web site, and in certain cases (as in the case with ASBL) actually obtaining that information and providing it to the party. 

Q.3. Mr. Preston, last year, the U.S. Women’s Chamber of Commerce complained that a proposed rule published under your leadership would have made it more difficult for women-owned businesses to receive contracts. They also put out a statement to say 

they were alarmed by your statements, which they believed misrepresented the findings of reports on which the proposed rule was 

based. Mr. Preston, did you follow up with the Women’s Chamber 

of Commerce after this dispute, and was the proposed rule implemented or were changes made? 

A.3. The proposed set aside rule for Women Owned Small Businesses (WOSB) in no way restricts federal opportunities available 

to WOSBs, but rather expands them. Today, there is no ability for 

WOSBs to received set-asides. The proposed rule would enable 

WOSBs to benefit from those set asides in four industries. In 2006, 

federal contracts to WOSBs reached a record level ($11.6 billion) 

and achieved record growth ($1.5 billion) in part due to the efforts 

of SBA. 

Prior to my arrival at the SBA, the Women’s Chamber of Commerce initiated a law suit against the SBA which is ongoing. At the 

advice of counsel, we have not deemed it appropriate for a direct 

meeting to take place. SBA has considered testimony by the Women’s Chamber of Commerce and will consider any response they 

make in the federal rulemaking process. 

I and my team understand the details of the reports very thoroughly and I am confident that our statements reflect both the factual information and their implications for the rule. 


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RESPONSE TO WRITTEN QUESTIONS OF SENATOR DOLE FROM 

STEVEN C. PRESTON 

Q.1. Administrator Preston, as you might be aware, HUD has proposed revisions to their regulations on the Real Estate Settlement 

Procedures Act (RESPA) by a lengthy proposed rule to simplify and 

clarify the real estate transaction to make it more understandable 

to consumers. The proposal seems to make the transaction more 

complicated, adds additional layers of disclosures, and may severely burden small businesses. Additionally, this proposal seems 

like it would transform the closer from an independent third party 

fiduciary to the transaction into an agent to the lender. Administrator Preston, if you are confirmed as the Secretary of HUD would 

you look into some of the ramification of the proposed RESPA regulations and make changes to this regulation if needed? 

A.1. Yes. With the extension of the public comment period to ninety days, HUD expects to receive a vast amount of public comment. 

If confirmed, I will work with staff to take each comment into serious consideration. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR TESTER 

FROM STEVEN C. PRESTON 

Q.1. As you may know, HUD recently sent letters to tribal leaders 

that provides information about the annual Indian Housing Block 

Grant (IHBG) formula allocation; funds that Congress appropriates 

to address the housing needs of all 562 tribes nationwide. The 

March 24, 2008 letter states that HUD plans to withhold nearly 

$20 million of the allocations to pay for ‘‘preliminary relief for 

plaintiffs that have filed suit against the Department regarding 

their Formula Current Assisted Stock (FCAS) count’’. The letter 

identifies 17 tribes as plaintiffs or potential plaintiffs. 

From this language, it appears that pursuant to the decision of 

Ft. Peck Housing Authority v. HUD, 435 F.Supp. 2d1125 (D. Colo. 

2006), HUD anticipates losing similar cases filed by those 17 tribes. 

I understand the anticipation. However, I am concerned that this 

action effectively punishes every tribe in the nation because 17 

tribes are seeking to uphold their legal rights recognized by the Ft. 

Peck decision. 

Can you please identify alternative mechanisms to pay for the 

judgments without negatively impacting Indian tribes nationwide? 

Do you agree that use of Indian Housing Block Grant dollars is an 

appropriate way to address this longstanding disagreement? 

A.1. I am not familiar with all of the details of this situation, but 

if confirmed, I will consult with HUD’s Office of the General Counsel and report back to you promptly. And if confirmed, I look forward to working closely with you and your staff to more fully understand this issue, and your concerns. 


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