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97–285 PDF 2004

MULTIFAMILY HOUSING:

MORE ACCESSIBLE HUD DATA

COULD HELP EFFORTS TO PRESERVE

HOUSING FOR LOW INCOME TENANTS

HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JULY 20, 2004

Printed for the use of the Committee on Financial Services

Serial No. 108–102

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

RICHARD H. BAKER, Louisiana 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

RAHM EMANUEL, Illinois 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

CHRIS BELL, Texas 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

ROBERT W. NEY, Ohio, Chairman

MARK GREEN, Wisconsin, Vice Chairman 

DOUG BEREUTER, Nebraska 

RICHARD H. BAKER, Louisiana 

PETER T. KING, New York 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

PATRICK J. TIBERI, Ohio 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

JULIA CARSON, Indiana 

BARBARA LEE, California 

MICHAEL E. CAPUANO, Massachusetts 

BERNARD SANDERS, Vermont 

MELVIN L. WATT, North Carolina 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

(V)

C O N T E N T S 

Page 

Hearing held on: 

July 20, 2004 ..................................................................................................... 1

Appendix: 

July 20, 2004 ..................................................................................................... 37

WITNESSES 

TUESDAY, JULY 20, 2004

Bodaken, Michael, President, National Housing Trust ........................................ 23

Delgado, Charlotte, Vice President/West National Alliance of HUD Tenants ... 26

Kargman, William M., President, First Realty Management Corporation ......... 28

Moreno, Gene ́, Policy/Advocacy Director, Chicago Rehab Network, on behalf 

of the National Low Income Housing Coalition ................................................. 30

Nwanodi, O. Angie, Director of Policy, National Housing Development Corporation ................................................................................................................. 25

Trehubenko, Todd, Senior Vice President, Recapitalization Advisors, Inc. ........ 31

Weicher, Hon. John C., Assistant Secretary, Housing/Federal Housing Commissioner, U.S. Department of Housing and Urban Development .................. 9

Wood, David G., Director, Financial Markets and Community Investment, 

General Accounting Office ................................................................................... 8

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 38

Waters, Hon. Maxine ........................................................................................ 39

Bodaken, Michael (with attachments) ............................................................ 41

Delgado, Charlotte ............................................................................................ 83

Kargman, William M. ....................................................................................... 91

Moreno, Gene ́ .................................................................................................... 95

Nwanodi, O. Angie ............................................................................................ 104

Trehubenko, Todd ............................................................................................. 116

Weicher, Hon. John C. ..................................................................................... 126

Wood, David G. (with attachments) ................................................................ 132

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Trehubenko, Todd: 

Written response to a request from Hon. Mark Green ................................. 212

American Association of Homes and Services for the Aging ................................ 215

National Housing Conference, prepared statement .............................................. 220

Rural Housing Service, U.S. Department of Agriculture, prepared statement .. 222

(1)

MULTIFAMILY HOUSING: 

MORE ACCESSIBLE HUD DATA 

COULD HELP EFFORTS TO PRESERVE 

HOUSING FOR LOW INCOME TENANTS 

Tuesday, July 20, 2004

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HOUSING AND

COMMUNITY OPPORTUNITY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 10:07 a.m., in Room 

2128, Rayburn House Office Building, Hon. Robert Ney [chairman 

of the subcommittee] presiding. 

Present: Representatives Ney, Green, Hart, Tiberi, Waters, Lee, 

Capuano, Frank (ex officio) and Scott. Also present was Representative Emanuel. 

Mr. NEY. [Presiding.] The subcommittee will begin, and we will 

entertain opening statements—I will begin mine—as members 

come in. That way, we will get this sitting out of the way and, 

hopefully, give us more time for the panelists. 

This morning, the Housing Subcommittee meets to discuss the 

January 2004 General Accounting Office report dealing with the 

preservation of this country’s affordable housing units. 

Beginning in the 1960s, the federal government began to contract 

with the owners of privately owned multifamily buildings to increase the number of units available to low-income renters. Offering voluntary incentives to prevent the erosion of the country’s affordable housing units was another enticement to further encourage the development of affordable housing for low-and moderate-income people. 

Many of these mortgages for these developments have or will 

soon reach contract maturity. In addition to contract maturity, 

tight rental markets, low fair market rental levels and landlords 

who are choosing to opt out of the programs are reducing the supply of available housing for the program participants, which, I 

think, of course, will be creating a problem. Thus, many Americans 

living in these at-risk developments could find themselves unable 

to find affordable housing. 

Properties subsidized under the programs represent a significant 

source of affordable housing across the country. Many of the commitment periods will be completed within the next 10 years. When 

owners pay off mortgages, in most cases, the subsidized financing 

2

ends and so does the requirement, and that requirement, of course, 

is to keep those units affordable. 

This raises the possibility that rents will increase. In many 

areas, families simply cannot find an affordable place to live, so I 

think we have to look for ways to keep these units affordable and 

also, obviously, available. 

In December of 2002, Chairman Oxley and Ranking Member 

Frank requested that the General Accounting Office conduct a 

study of the preservation of low-income housing rental developments that are scheduled to reach maturity in their mortgage. 

The GAO report states that over the next 10 years, low-income 

tenants in over 101,000 units may have to pay higher rents or 

move to more affordable housing when HUD-subsidized mortgages 

reach maturity, and, of course, the question would be: Where would 

they move to find affordable housing? 

Nationwide, 21 percent of the subsidized properties with HUD 

mortgages are scheduled to mature through 2013. This is a significant portion of this country’s affordable and available housing 

stock. 

While HUD does not offer incentives to keep properties affordable after mortgage maturity, there are a variety of programs 

available to States and localities to assist them in keeping these 

properties affordable, such as CDBG and HOME. 

The trick is for States and localities to have this information, I 

think, in a timely manner so they have sufficient time to use the 

tools and the incentives available to them that we already have to 

help keep the properties affordable. 

Today, families across this nation often find it difficult to find decent affordable housing where they live. Policemen, firemen and 

schoolteachers can no longer live where they work. 

That is why we have to work together to preserve our existing 

stock and to find ways to work with private groups, state and local 

governments and businesses to determine how best to provide affordable housing to low-and moderate-income families. 

Now is the time, obviously, to begin to talk about this, find out 

the facts and try to get some solutions. That is the purpose of today’s hearing. 

And, with that, I yield to the gentleman from Massachusetts. 

Congressman Frank? 

Mr. FRANK. Mr. Chairman, I appreciate your calling this hearing. 

The housing crisis that we face is a very serious one. There are 

problems in our economy, problems of people not being able to afford basics that we think every American should be able to have, 

which are alleviated when we have economic prosperity. Jobs, rising wages, those things do a great deal to help. 

Housing, sadly, in some parts of the country is less beneficially 

affected. Obviously, it helps when the economy improves, but, in 

fact, the very prosperity that we enjoyed in the 1990s exacerbated 

the housing crisis in many parts of the country, and it is particularly relevant to today. 

I know there are people who like to argue that the rising tide 

lifts all boats, but if you are standing on tiptoe in the water because you cannot afford a boat, the rising tide is not good news. 

Or if you do not own the boat, but you are temporarily in it beVerDate 0ct 09 2002 11:20 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 G:\DOCS\97285.TXT FIN1 PsN: MICAH
3

cause you are paying a certain amount of money and somebody else 

can outbid you, you can go over the side. We are talking now about 

a problem of people being tossed over the side because of that very 

rising tide. 

Enough metaphors. It is getting too complicated. 

Here is the problem: We subsidize housing in a very sensible 

way. People who oppose federal efforts in the housing area often 

point to the mistakes we made—Codigo, Cabrini Green, Columbia 

Point, the large excessively institutional warehouses for large numbers of low-income people with no services. The poor people did not 

ask to be put there. The society did that because that was the 

cheapest way to kind of ease our conscious pangs. 

But we learned that that was not a good idea, and one of the 

things we have done is to harness the private sector in a very useful public-private cooperation through various programs, 221(d)(3) 

below market interest rate program, 236 program and other forms 

of subsidy. 

Now, in many cases, obviously, that housing was built in areas 

that were not quite so desirable, and the very prosperity that we 

all welcomed has made some of the areas which used to not be so 

desirable much more desirable. 

The South End in Boston, when I got involved in Boston government 35 years ago, was not a great place to live. Today, it is a very 

high-end place to live. Now we built a lot of housing in the South 

End, subsidized housing, for people of low and moderate means. 

They now can be priced out. 

In other words, if we do not act, the very prosperity that we welcome will become a source of displacement for many low-income 

people. 

We have budget problems. We want to do things as economically 

as possible, as inexpensively as possible without minimizing quality. It seems to me overwhelmingly clear preserving existing units 

of affordable housing per dollar is by far the best way to deal with 

the housing stock problem. 

I think we need to go beyond that. I think we should get back 

into a production program. But it ought to be the minimum that 

we could agree on, that preserving existing affordable housing is 

not only the least expensive financially, it is the least expensive socially. We are talking about people not being displaced. 

Now we recognize that the owners have a constitutional right to 

the terms of the contracts into which they entered. We cannot 

order private owners to breach the terms of their contracts. It, 

therefore, becomes important for us to work together with the tenant groups, the owners, state and municipal officials cooperatively 

to try to preserve this housing. 

By definition, by the way, we are going to be talking about housing with high consumer satisfaction because if we were talking 

about properties that are unattractive that no one wants to live in, 

there will be no concern about preserving them. They will not be 

the ones that could be rented out more expensively. 

So this is, Mr. Chairman, as you know, a very, very important 

subject. It is one that calls for us all to work together cooperatively 

with the private sector, with tenant groups, with state and local 

governments, and I believe a relatively small amount of money per 

4

unit will go further to preserving affordable housing here than anywhere else. 

One last point: We all pay tribute to the notion of 

deconcentrating poor people, of integrating our society, of avoiding 

the segregation of poor people by economics and, to some extent, 

by race. If we lose the current stock of affordable housing because 

the neighborhood gets more desirable, we will be perpetuating that 

trend. 

We ought to welcome this and say, ‘‘Yes.’’ Isn’t it an important 

thing to our society and our goal of integration economically, racially and every other way that as various neighborhoods change 

character, as they become places where wealthier people will want 

to live, we will preserve within those neighborhoods areas where 

lower-income people can live? That is the best way to achieve this 

goal. 

So, Mr. Chairman, in this, as in other things, I am very appreciative of the willingness you have had to take the lead in trying 

to discharge our housing obligation. 

Mr. NEY. I want to thank the gentleman from Massachusetts. 

The gentleman from Wisconsin, Mr. Green. 

Mr. GREEN. I have no opening statement, Mr. Chairman. 

Mr. NEY. The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

To you, Chairman Ney, and Ranking Member Waters, Ranking 

Member Frank, I want to thank you for holding this important 

hearing today regarding affordable housing preservation. 

There is an extraordinarily great need for this nation to preserve 

the existing inventory of federally assisted housing. 

For about 50 years, HUD has subsidized the development of 

about 1.7 million low-income rental units by offering property owners favorable mortgage financing, long-term rental assistance contracts or both in exchange for owners’ commitment to house lowincome tenants for 20 to 40 years. According to the GAO, over 

193,000 subsidized units will be lost in the next 10 years when the 

mortgage matures and the mortgage subsidy and low-income affordability restrictions related to the property terminate. 

About 77 properties, or 26 percent, of subsidized properties in 

Georgia alone are scheduled to mature by the year 2013. Owners 

will be permitted to raise the rents for units not covered by a rental assistance contract to market levels. Approximately 200,000 individuals in 101,000 units with no other subsidy attached to the 

property will be at risk of paying higher rents because there are 

no existing tenant protections, such as enhanced vouchers, to protect the tenants from paying higher rents or being evicted when 

the mortgage matures. 

To help address these concerns, I have signed on as an original 

co-sponsor of H.R. 4679, the Displacement Preservation Act of 

2004, and I want to thank Ranking Member Frank of Massachusetts for his sterling leadership on this critical issue and this important piece of legislation. Our bill H.R. 4679 will maintain the affordability of units and protect tenants in these units in cases 

where owners choose not to adhere to the existing affordability restrictions upon mortgage maturity. 

5

I believe that this committee and HUD should continue to focus 

on the overall problem of the lack of affordable housing in America. 

To that end, I am also a co-sponsor of the National Housing Trust 

Fund, H.R. 1102, which will provide funding for 1.5 million units 

of affordable housing over the next 10 years. I also am concerned with the loss of $1.6 billion from the Section 

8 housing voucher program. Last week, our Financial Services 

Committee held a hearing on homelessness. Every one of the witnesses on the panel agreed that cutbacks in Section 8 vouchers will 

contribute to an increase—a dramatic increase—in homelessness in 

this country. 

What could provide better assistance to help families become 

self-sustaining than helping them with rental assistance? These 

cuts are misguided, and they should be reversed. 

Thank you, Mr. Chairman, and I look forward to the panel’s testimony. 

Mr. NEY. I want to thank the gentleman from Georgia. 

Gentlelady? Ranking Member Ms. Waters? 

Ms. WATERS. Thank you very much, Mr. Chairman, for scheduling this hearing to consider both the recent GAO report that 

Ranking Member Frank and Chairman Oxley requested on affordable housing preservation and H.R. 4769, the Displacement Preservation Act of 2004, a bill offered by Mr. Frank that I am proud to 

have co-sponsored. 

Mr. Chairman, as Mr. Bodaken correctly observed in his prepared testimony, the nation’s supply of decent affordable housing 

for the poor and elderly does not meet the demand for such housing, yet the Bush administration has no real production program 

to create additional affordable housing, and it also has taken many 

steps that jeopardize the Section 8 program. 

These dire circumstances make it all the more urgent that we 

preserve our existing inventory of federally assisted affordable 

housing. We must do all that we can to prevent the loss of any affordable housing units. Yet the recent GAO report, the April 2004 

report of the National Housing Trust and the testimony of our witnesses today will clearly demonstrate that we are, indeed, failing 

to do so. 

The April 2004 report of the National Housing Trust establishes 

that 300,000 project-based affordable units have been lost in the 

past 8 years. The additional vouchers funded during this time period to prevent displacement of tenants have not been sufficient to 

prevent a loss of affordable housing. The National Housing Trust 

estimates that there has been a net loss of at least 74,000 rental 

subsidies between 1995 and 2003. 

Mr. Chairman, there is every reason to believe that this problem 

will worsen as more mortgages mature if we do not act decisively 

to address it. As the recent GAO report observes, HUD does not 

offer incentives to keep properties affordable upon mortgage maturity, and tenants in over 101,000 units without rental assistance 

are at risk of paying higher rents after mortgage maturity because 

no requirement exists, such as enhanced vouchers, to protect tenants when HUD mortgages mature. 

According to the GAO, over 193,000 subsidized units will be lost 

in the next 10 years when the mortgage matures and the mortgage 

6

subsidy and low-income affordability restrictions related to the 

property terminate. 

Tenants who live in units financed through Section 221(d)3, 

Below Market Interest Rate program, or Section 236 program will 

risk having to pay market-level rents when the mortgages for these 

properties mature because these units have no rental assistance 

contract attached to them. 

Mr. Chairman, with the administration’s support, a total of $703 

million in Section 236 funds have been rescinded in the funding 

year 2004, funding year 2003 appropriations and in the funding 

year 2002 supplemental appropriations bill. These were funds that 

were authorized for the rehabilitation of low-income subsidized 

housing units that could have been used to preserve the supply of 

affordable housing. 

In its funding year 2005 budget, the administration compounds the prior injury by proposing to rescind an additional $675 million 

in funds previously appropriated for Section 236 subsidized housing 

projects. H.R. 4679 would help to preserve affordable housing 

where the owners of Section 221(d)3 or Section 236 properties 

chose not to observe prior affordability restrictions when the mortgages matured. 

It would make low-and certain moderate-income tenants in units 

not covered by rental assistance contracts eligible for enhanced 

vouchers if owners choose not to continue the affordability restriction. It would require notice to tenants at least 9 months prior to 

mortgage maturity, if an owner chooses not to maintain affordability restrictions when the mortgage matures. Finally, the bill would authorize the use of $675 million in Section 236 funds targeted by the administration for rescission to provide one-time rehab grants to owners, one-time grants to help nonprofit organizations purchase properties and continue them as affordable and to make annual payments to owners to cover the difference between subsidized and market rents for low-income and 

certain moderate-income tenants. 

Affordable housing preservation initiatives, like H.R. 4679, are a 

cost-effective method to maintain our affordable housing stock, 

while avoiding the ‘‘not-in-my-backyard’’ problems that sometimes 

attach to new housing projects. I urge my colleagues to support 

H.R. 4679. 

And, finally, Mr. Chairman, when you factor in the impact of the 

proposed cuts to the Section 8 program on affordable housing inventory, it is clear that we will continue to lose units at a rapid 

rate if we do not act to remedy these ongoing problems. 

HUD must do more than simply take steps to make data about 

properties with maturing mortgages more accessible to the public. 

They need to fund the preservation of these units. 

I thank you, Mr. Chairman, for allowing me to enter this statement into the record, and I know that you want to continue with 

the testimony from our witnesses today. 

[The prepared statement of Hon. Maxine Waters can be found on 

page 39 in the appendix.] 

Mr. NEY. Without objection. 

Any additional opening statements? 

The gentlelady from California? 

7

Ms. LEE. Thank you, Mr. Chairman. 

Let me thank you and Ranking Member Waters, Ranking Member Frank for convening this very important hearing to review the 

GAO findings from the recent report on preservation and data collection of privately owned affordable rental units for low-income 

tenants. 

This report and hearing is very important because it highlights 

the harsh reality of HUD’s lack of State and local data collection, 

its poor recordkeeping and really very dismal efforts to track privately owned subsidized properties where our most vulnerable families live. 

As we all know, the need to preserve the nation’s existing inventory of federally assisted affordable housing is critical. As more and 

more families fall victim to our economy in terms of losing jobs, losing their health care and much more, we must do everything we 

can do to protect their basic shelter. 

If we cannot pass simple legislation to create a national affordable housing production program similar to H.R. 1102, the National Affordable Housing Trust Fund, the least we can do is to 

maintain, preserve and work in conjunction with landlords to keep 

people in the limited affordable housing that we currently maintain. 

Unlike the administration’s efforts in terms of its efforts to cut 

affordable rental housing by block-granting the Section 8 program, 

I fully support legislative fixes that will keep families in their 

homes. It is this committee’s obligation to change the current direction of HUD policies toward the poor and moderately incomed individuals and families. 

Homeownership or homelessness is not the option families 

should have to face. Instead, we must invest in affordable rental 

programs like Section 8, Section 202, Section 221 and Section 236. 

The problems that we are discussing today can be fixed in the 

short term by passing H.R. 4679, the Displacement Prevention Act 

of 2004. 

Ranking Member Frank’s legislation realistically uses $675 million in previously appropriated housing rescissions for one-timeonly grants to owners for rehabilitation of affordable properties in 

desperate need of repair. 

The $675 million could also be made available for non-profit organizations to purchase properties in order to keep them affordable. 

Lastly—and probably most importantly to owners—this funding 

can cover the difference between subsidized and comparable market rents in the area. 

This legislation is realistic and a good first step to looking at the 

problem of national affordable rental units. 

So I wish we actually were discussing the National Affordable 

Housing Trust Fund today, but I am sure that many of the witnesses here will provide all of the background as to why we need 

to preserve the current housing stock and create a national production program. The housing bubble in many of our communities is 

bursting, and we must act now to protect those who are most vulnerable. 

8

I look forward to the testimony of our witnesses, and I want to 

thank you again for convening this hearing, Mr. Chairman. 

Mr. NEY. I thank the gentlelady. 

Are there any additional opening statements? If not, we will 

move on to the panel. 

The first member of the panel is Mr. David G. Wood, director of 

financial markets and community investment, General Accounting 

Office, and the second is the Honorable John C. Weicher, Assistant 

Secretary, Housing/Federal Housing commissioner, U.S. Department of Housing and Urban Development. 

I want to welcome both of you, and we will begin with Mr. Wood. 

STATEMENT OF DAVID G. WOOD, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, GENERAL ACCOUNTING OFFICE 

Mr. WOOD. Thank you, Mr. Chairman, and thank you for inviting 

me today. 

Our report to Chairman Oxley and Ranking Member Frank on 

properties with HUD mortgages scheduled to mature over the next 

decade provides information in three areas: first, the scope of the 

issue in terms of the numbers of properties affected, their location 

by state and other characteristics; second, the impacts that low-income tenants may experience as a result of maturing HUD mortgages; and, third, tools or incentives available from HUD, states or 

localities that could be used to preserve affordability for low-income 

tenants. 

Regarding the scope, I will briefly note a few highlights. Using 

HUD’s databases, we identified a total of 2,328 properties with 

HUD mortgages that are scheduled to mature by December 31, 

2013. These properties contain over 236,000 rental units, slightly 

over half of which are subsidized with project-based rental assistance provided by HUD, and every state has at least a few of these 

properties. The range is from three in Vermont to 273 in California. 

We found that the potential impact on tenants could vary at 

these properties. Among other things, the impact may depend on 

protections against rent increases, if any, that may exist and owners’ decisions regarding the use of their properties. 

A little over 134,000 of the units of these properties are covered 

by rental assistance, mostly project-based Section 8. As long as the 

rental assistance contract covers the unit, the tenant is basically 

shielded from any increase in rent, even after the mortgage matures. If the rental contract expires and property owners decline to 

renew them, often referred to as opting out, then tenants of rentassisted units are generally eligible for housing vouchers, which 

help pay the rent at their existing units or at other units. 

Meanwhile, over 101,000 units in properties with HUD mortgages scheduled to mature by 2013 are not covered by rental assistance. No statutory requirement exists to protect tenants in these 

units from increases in rent after the HUD mortgages mature. 

Thus, tenants of those units could face having to pay higher rents 

or moving. 

The impacts on tenants will depend not only on protections 

against rent increases, but also on property owners’ decisions after 

9

their HUD mortgages mature. Such decisions could be affected by 

a number of factors, including the income level of the property’s 

neighborhood, the physical condition of the property, and the owner’s mission. 

Profit-motivated owners, for example, may find it desirable to 

turn a building into condominiums or rental units for higher-income households. On the other hand, non-profit owners, which own 

about 38 percent of the 2,328 properties, generally have a mission 

of providing housing affordable to lower-income households. 

At the time of our study, the HUD mortgages on 32 properties 

had matured. Half of these properties had units covered by rental 

assistance contracts, thus shielding those tenants from rent increases. 

We were able to contact 10 of the remaining properties and found 

that all were still offering rents affordable to low-income tenants. 

However, because of the small number, we do not know the extent 

to which these properties are indicative of properties with mortgages yet to mature. 

Our survey of state and local agencies showed that a number of 

tools or incentives might be used to preserve the affordability of 

properties with maturing HUD mortgages. However, the survey 

also clearly showed that this was an issue not on the radar screen. 

In fact, most agencies do not track the status of HUD properties. 

For example, about three-quarters of the 226 agencies that responded said that they do not track the maturity dates on HUD 

mortgages, and over half reported that they have no tracking system to systematically identify properties that are eligible to leave 

HUD’s subsidiary programs. However, a number of respondents 

said that it would be helpful and useful to have this information. 

Accordingly, we recommended that HUD take steps to make its 

data more available to help state and local agencies track subsidized properties that are eligible to lead HUD’s programs. As an 

example of one approach, we also developed an interactive CDROM containing a database of the properties included in our study, 

which may be searched using a variety of criteria, including mortgage maturity date. 

Mr. Chairman, that concludes my prepared remarks, and I will 

be happy to answer any questions you have. 

[The prepared statement of David G. Wood can be found on page 

132 in the appendix.] 

Mr. NEY. I want to thank the gentleman. 

Mr. Weicher? 

STATEMENT OF HON. JOHN C. WEICHER, ASSISTANT SECRETARY, HOUSING/FEDERAL HOUSING COMMISSIONER, U.S 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Mr. WEICHER. Thank you, Chairman Ney, Ranking Member Waters, Ranking Member Frank and distinguished members of the 

subcommittee, and, on behalf of Secretary Jackson, thank you for 

inviting the department to testify this morning. We appreciate this 

opportunity to provide the committee with the department’s comments on this GAO report. 

This administration is firmly committed to preserving affordable 

housing. Historically, HUD’s subsidized rental projects have had 

10

rent affordability requirements for a fixed term. In recent years, 

the department has worked with Congress to create incentives to 

maintain affordability if the rental assistance contract expires. 

Some of these incentives programs have extended the affordability 

restrictions beyond the maturity of the insured mortgage. 

To date, the department has been very pleased with the success 

of these programs in preserving the affordable housing stock. 

Under this administration, the department has preserved the affordability of over 2,000 projects with about 200,000 in the Mark 

to Market, Mark Up to Market and Section 236 decoupling programs. 

Although these programs do not directly address the termination 

of the affordability requirements resulting from mortgage maturity, 

the GAO reports shows that they are, in fact, preserving affordable 

units for an extended period beyond the original maturity date. 

The Section 202 prepayment program also promotes long-term 

affordability. Owners can refinance the loans and obtain funds for 

modernization in return for keeping the affordability use restriction 

until the maturity of the original loan. 

To promote preservation of these affordable elderly housing 

projects, the department has announced that we will allow these 

loans to be underwritten at the current Section 8 rent even if it is 

higher than the market rent. This change should enable substantially more Section 202 projects to be refinanced through FHA and 

improve long-term viability. 

As the GAO report states, there are over 230,000 units in 2,300 

properties where the mortgages are scheduled to mature through 

2013. About 75 percent of these properties will not mature until 

2011 or later. About 225 will mature in the next 5 years. 

About 57 percent of the units in these properties receive projectbased Section 8 assistance or other rental assistance. These residents are protected for the term of the assistance contract and will 

receive vouchers if the contract expires and is not renewed. 

The remaining 43 percent of the units benefit from a mortgage 

interest rate subsidy, but the tenants do not now receive rental assistance. These are Section 221(d)(3) BMIR and Section 236 

projects. The question has been raised as to whether unassisted 

residents in these projects would be able to afford increased rents 

when the mortgage matures. 

It should be noted that the income limits are higher in these programs than in Section 8. There is, in fact, no income limit in Section 236. Residents in the Section 221(d)(3) BMIR projects can have 

incomes of up to 95 percent of area median in contrast to projectbased Section 8 which limits residents’ incomes to less than 80 percent of area median income. 

Also, as the GAO report points out, unassisted residents of these 

projects have higher incomes than residents who do receive rental 

assistance. These unassisted residents should have the ability to 

afford higher rents, and, in the case of the Section 236 program, 

many of these residents may have been paying higher rents 

throughout the mortgage term. 

Actual history shows that many projects remain affordable after 

loan maturity. The GAO report includes information on 26 rental 

properties where the HUD-insured mortgage had matured between 

11

1993 and 2002. After maturity, all 26 remain affordable to low-and 

moderate-income residents. 

Therefore, few affordable housing units appear to be at risk in 

these projects. When the mortgages do mature, the projects are remaining affordable. 

The department certainly concurs with GAO that it is helpful to 

notify our partners in State and local governments when HUD-insured properties have the potential to leave HUD programs. In accordance with GAO’s recommendation, within the past 30 days, the 

department has begun posting on our web site a list of HUD-insured mortgages and Section 202 loans that are expiring in the 

next 10 years. 

The department is also planning to solicit comments from our industry partners on the information that is being provided so that 

we are able to improve the usefulness of the data. 

That concludes my testimony, Mr. Chairman, and I would be 

happy to answer your questions. 

[The prepared statement of Hon. John C. Weicher can be found 

on page 126 in the appendix.] 

Mr. NEY. I want to thank the gentlemen. 

And also, the Chair notes we need to keep to the 5-minute time 

today. I will notify members when they are out of time, if they 

want to wrap up their part of the questions, just so we can get on 

with this panel and the second one. 

A question I had, Mr. Weicher—I want to start with you—is, in 

light of the department’s July 12 letter that they sent stating that 

the GI/SRI fund is at 75 percent capacity and the administration’s 

recent budget amendment submission requesting a $4 billion loan 

commitment increase, do we have enough commitment authority to 

last through the fiscal year? I wonder, if there is a continuing resolution, what does it do to that? Are the current funds sufficient? 

So can we last through with the statement about the $4 billion, 

and I wonder, if we do go to a continuing resolution, how does that 

affect that, and would the current funds be sufficient? 

Mr. WEICHER. As you know, Mr. Chairman, we said last week in 

that July 12 letter that we would reach the 75 percent mark for 

the fiscal year at the end of last week. We actually are reaching 

it either yesterday or today. That is just about where we reached 

it a year ago. 

So, while we are running at a rate which would not exhaust the 

funds in this fiscal year, that is where we were last year at this 

time. 

Mr. NEY. I do not mean to interrupt, but, last year, we ran out 

in August. 

Mr. WEICHER. In September, actually. 

Mr. NEY. Was it September? 

Mr. WEICHER. Yes. 

Mr. NEY. I think I said August, which is the second part, you 

know. I think we got a notice sometime in our final days before the 

August recess that the fund might not be adequate to address all 

the eligible applicants for the FHA loan guarantees, and I guess 

my question is: Will that happen again? 

Mr. WEICHER. You have received the notice on the 75 percent 

mark, and I can assure you, Mr. Chairman, I am tracking the obliVerDate 0ct 09 2002 11:20 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\DOCS\97285.TXT FIN1 PsN: MICAH
12

gations of that fund every day. We will certainly keep you apprised 

if there is any move in either direction from where we are now. I think the $4 billion additional commitment authority will be 

helpful because we have not yet seen any additional business to 

speak of from the increase in the multifamily limits in high-cost 

areas, which Congress enacted in December and which we made 

available to lenders in April. 

So we have not yet seen any real business from that. If we see 

a significant amount of business there, then we could, indeed, need 

the supplemental. 

The first 2 months of last year, in each month, we ran at a rate of about $2-1/2 billion, which would be, for the year, more than $29 

billion. So, even at $29 billion, we could run out of funds at the end 

of the month and the first couple of months. 

Mr. NEY. But I note to you, last year, when the department 

called—I cannot remember who called, but the department called—

it was so late. It was like the last 1 or 2 days left, and there was 

no way we could do anything, which then put us in a position beyond recess, and, you know, people are definitely going to be hurt. 

But with the notification we received, should we have done a 

stand-alone bill this week? Were there steps we should have taken? 

Mr. FRANK. Mr. Chairman? Mr. Chairman, would you give me 15 

seconds, if you would yield on that, because it is so important? 

Mr. NEY. Yes. 

Mr. FRANK. I mean, here is one where there is no down side to 

this. My understanding is the bill has been filed in the Senate for 

the $4 billion, and I would hope maybe the administration could 

speak in favor of that. If they could do that quickly, we could have 

it sent back here, held at the desk, do it by UC. I mean, there is 

zero down side, only up side. 

So I would just encourage it. You know, I know we are working 

for it here. If the Senate would just get that through, we could get 

it over here, and it would be done before we get out of here. 

Mr. NEY. Yes, that is the point I want to make again. We do not 

want to get into the final days. Should we have, you know, done 

this this past week? Is there something we need to do permanently 

to ensure these funds? 

Mr. WEICHER. Well, the President sent a letter to the speaker a week ago proposing the additional $4 billion in commitment. The 

administration certainly supports that additional $4 billion in commitment authority, and we are prepared to work with both Houses 

in any way that is useful to bring that to pass. We do not want 

to close down these programs any more than anyone else wants to 

close down these programs. 

Mr. NEY. But do you think we should do a stand-alone bill? 

Mr. WEICHER. If you can do it quickly. 

Mr. NEY. I mean now. 

Mr. WEICHER. If you can do it quickly, I think that would be prudent. The question might be: If you come back at the beginning of 

September and we have a potential problem, how quickly can Congress act in that situation? 

Mr. NEY. My time is expiring, but, you know, that is something 

that we need to look at. Also, I think we need to look at some type 

of more permanent solution to ensure the funds. 

13

The gentlelady of California? 

Ms. WATERS. Mr. Chairman, I may have missed something here, 

but I do not understand what HUD is saying to us about the expense of this problem. I really want to understand as clearly as I 

can how many affordable housing units are actually being lost, how 

many do we anticipate are going to be lost, and when are we going 

to get the data and the formats for the data so that it can be 

viewed and printed without the need for a separate database management software. 

I understand that HUD said that, by May 31, 2004, it would solicit the comments and suggestions from the four trade associations. To date, it appears that that has not been done, that HUD 

has not created a page on its Web site that provides relevant data 

on all the projects that are available in this format. 

So I am trying to understand what does HUD know, what kind 

of a handle does HUD have on the problem, and how can we have 

access to all of that information and that data. 

Mr. WEICHER. Ranking Member Waters, we do have the information on the Web site, and the information is accessible. I personally 

accessed it from my home computer to prove that it was accessible 

to the average not particularly computer literate individual. 

The data is there for all of the 200,300 mortgages which will expire in the next 10 years. The data can be organized by year. It 

can be organized by State. It can be organized by congressional district. I can give you the link which we have provided to the trade 

associations. 

It is accessible. I made a point of looking at that because I know 

from working with the HUD Web site and with other agency Web 

sites that sometimes it is hard to find what you are looking for. 

Ms. WATERS. Well, my staff is telling me they are having problems because of the format, that it is not in PDF format, it is only 

available in Access 2000 and Dbase 3. Do you know anything about 

this format and whether or not it makes it less available? 

Mr. WEICHER. I accessed it in PDF format myself, Ms. Waters. 

Ms. WATERS. I beg your pardon. 

Mr. WEICHER. I personally accessed it in the PDF format myself. 

Ms. WATERS. Oh, you did? Okay. Well, that is very good. I will 

get to my staff and tell them to access it so that we can see what 

you have. 

Mr. WEICHER. If there is a further problem, they should contact 

us directly, and we will sort it out. But I accessed it myself. 

Ms. WATERS. Okay. Good. I am sure if you got it, we should be 

able to get it, too. Thank you very much. 

Mr. NEY. The gentleman from Wisconsin, Mr. Green? 

Mr. GREEN. Thank you, Mr. Chairman. 

First, Mr. Chairman, I want to concur with your remarks and 

the remarks of the ranking member on the action we can and 

should take with respect to the additional commitment authority. 

I think it does warrant immediate action. It would make a difference. 

Secondly, I was pleased to hear of the confidence that HUD has 

with respect to the units that are covered by mortgages reaching 

maturity. I think the concern that all of us have is that up to 2013 

14

the number of units, the sheer volume will present challenges to 

us that, obviously, we will all have to work towards together. 

I want to turn to a portion of your written statement that I 

would like to learn more about. I am looking at page 2 on at least 

what was handed out to us. 

It says, ‘‘Due to the increasing number of sponsors desiring FHA 

insurance to refinance these aging projects, the department has 

been reviewing its procedures to provide more flexibility in underwriting an FHA-insured loan to replace the Section 202 loan. In 

recognition of the great need, the department is preparing a notice 

to allow these loans to be underwritten at the existing Section 8 

rent, even if above market levels.’’

Could you elaborate on that a little bit? It is interesting, and I 

think it is something that warrants discussion. 

Mr. WEICHER. Yes, I would be happy to, Representative Green. 

HUD put out a notice on the refinancing of Section 202s last 

year, and, at that point, we said that we would permit underwriting at the lesser of the Section 8 rent or the market rent. We 

heard from many people in the industry that that was too restrictive. We saw not very much business under that. 

So we are in the process of issuing a notice which will liberalize 

that and will permit loans to be underwritten at the existing Section 8 rent, even if it is higher than the market rent. So, from the 

people I have talked to in the industry, that will enable a lot more 

project owners and sponsors to refinance the loans on a basis which 

makes it possible for them to get the funds that they need to rehabilitate the project and to continue operating as affordable housing 

for the elderly. 

Mr. GREEN. So the initial feedback has been good? 

Mr. WEICHER. Yes. 

Mr. GREEN. Any projections on what that will do for the challenge that we are all here to discuss today as we go out toward 

2013, what kind of numbers that will help with? 

Mr. WEICHER. Well, the Section 202 projects amount to about 

one-third of the total number. 

Let me put it this way, Mr. Green. We have about 7,000 Section 

202 projects, we have about 7,000 other projects which receive FHA 

insurance and a subsidy, and we have about 7,000 projects which 

are subsidized but are not insured by FHA. So Section 202 was 

about one-third of the total in terms of number of projects, less 

than that in terms of number of units. These tend to be a little 

smaller on average. 

But this should enable those older projects, the ones financed as 

direct loans from the Treasury from 1959 through 1990, to go on 

providing affordable housing. 

Mr. GREEN. Are those older projects a greater percentage of the 

overall projects that are coming to maturity in the next 5 years? 

You indicated there was a group. 

Mr. WEICHER. They are not particularly coming to maturity in 

the next 5 years, but they are projects which have wanted to take 

advantage of the lower interest rate environment, as we do as 

homeowners, to take advantage of that environment to refinance at 

a lower interest rate and to use the difference, the savings to rehaVerDate 0ct 09 2002 11:20 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 G:\DOCS\97285.TXT FIN1 PsN: MICAH
15

bilitate the property and provide affordable rental housing for the 

elderly for quite a while to come. 

So it is a straight refinancing to obtain funds for rehabilitation 

on a basis which makes it feasible for the project sponsor. 

Mr. GREEN. Great. Very good. 

That is all I have, Mr. Chairman. I yield back. 

Mr. NEY. Ms. Lee? The gentlelady from California? 

Ms. LEE. Thank you, Mr. Chairman. 

Let me just ask, Mr. Weicher. I wanted to find out how the Section 8 program can help with subsidizing the potential cost to tenants affected by mortgage maturity when, in fact, the administration is really, it appears, dismantling the Section 8 program. 

Then, secondly, I know in the report there were no real recommendations in terms of the GAO report as to what to do, i.e. additional funding, additional vouchers, enhanced vouchers, just what 

exactly will happen once these mortgages are lost. What are your 

thoughts on that? 

Mr. WEICHER. Well, as I think we both said in our statements, 

Ms. Lee, if an owner of one of these properties opts out of the program, the residents by statute receive enhanced vouchers, and 

those vouchers will be provided. That is part of the department’s 

ongoing program. 

Ms. LEE. They will be provided, but is the money there? 

Mr. WEICHER. The money is there. The money is part of the administration’s budget proposal. 

Ms. LEE. To cover the entire problem. 

Mr. WEICHER. To cover the enhanced vouchers. 

Ms. LEE. One hundred percent of those that we would lose? 

Mr. WEICHER. Yes, if the owner opts out. If the mortgage simply 

goes to maturity, then we have been providing vouchers to the residents going forward. Those are not enhanced vouchers because 

those residents may or may not have been receiving subsidy, but 

we have been able to do that, and we expect to continue to do that 

within the Section 8 program. That part of the Section 8 program 

as well. 

This is a relatively small share of the total of Section 8, which 

amounts to most of the 1.7 million units which are in Section 8 

projects and the 1.9 million units which receive vouchers. We are 

not talking about a large number here. Opt-outs have been running 

less than 10,000 a year for the last 7 years. So it is not a large 

number of vouchers that are at issue here. 

Ms. LEE. So you are saying we should not really worry about it? 

Ms. WATERS. Will the gentlelady yield? 

Ms. LEE. Yes. 

Ms. WATERS. Would you ask him if this is for more than 1 year? 

Ms. LEE. Mr. Weicher, is this for more than 1 year in terms of 

the dollars that you have for the enhanced vouchers? 

Mr. WEICHER. We provide enhanced vouchers. We have been providing enhanced vouchers while the residents remain in the project 

in which they were receiving assistance, and that is for as long as 

they stay there. 

Ms. LEE. What if the mortgage matures and if they have to 

move? 

16

Mr. WEICHER. Well, we have been providing vouchers for them 

in that situation as well, and those vouchers renew year by year, 

depending on congressional appropriation. The funds have been requested, and they have always been appropriated year by year. 

Ms. LEE. Yes. Okay. Is it actually for 1 year or not, though? 

Mr. WEICHER. A voucher is by statute a 1-year voucher because 

it is subject to appropriation, but it is renewable each year if funds 

are available. 

Ms. LEE. If funds are available. 

Mr. WEICHER. Funds have been available each year. Congress 

has funded the outstanding number, provided funds for the outstanding number of vouchers, and the vouchers have continued for 

those residents. We are on a 1-year funding cycle and have been 

for, I believe, 10 years now. 

Ms. LEE. Okay. So, in high-cost areas, such as Massachusetts, 

New York, California, the enhanced vouchers for these families 

that are losing their units in the subsidized mortgage unit, the 

funding will be there year by year to ensure that they have the 

proper shelter? 

Mr. WEICHER. Yes. Pardon me. The funding is there if the funds 

are appropriated, and the funding is at a level to enable the resident to stay in the property even as the property goes to a market 

rent. 

Ms. LEE. So you do not see efforts to dismantle the Section 8 program at this point? 

Mr. WEICHER. No, I do not. I do not think we are doing that. I 

know there are matters of concern between the administration and 

many members of Congress about that, but I do not think we are 

trying to dismantle the program. 

Ms. LEE. And the block-granting of Section 8 does not affect the 

individuals? 

Mr. WEICHER. There is a statutory right for an enhanced voucher 

established by Congress in 1998, I believe. I am not sure of the 

year. 

Ms. LEE. That will continue? 

Mr. WEICHER. That should continue. 

Ms. LEE. That will continue. Okay. 

But you do not see any reason to be alarmed? 

Mr. NEY. The time has expired. 

Mr. WEICHER. I am not going that far, Ms. Lee. I am answering 

the specific question. We certainly agree on the number of units at 

issue. 

Mr. NEY. The time has expired. 

Ms. LEE. Yes. Okay. Thank you very much. 

Mr. NEY. Thank you. 

The gentlelady from Pennsylvania? 

Ms. HART. Thank you, Mr. Chairman. 

Thanks, Mr. Wood and Mr. Weicher, for your testimony. 

I come from an area that has a really high percentage of senior 

citizens, and it is probably going to get higher. Can either of you 

from your experience tell me out of all these dwellings that we are 

talking about, are there a significant number of them or can you 

give me a ballpark percentage of how many of them are available 

specifically toward senior citizens, to serve senior citizens? 

17

Where I am, in my home county, there is a 6-month waiting period for HUD-assisted senior housing, and I am sure that we are 

not unique. Can either of you can enlighten me a little bit on the 

specific service to seniors situation? 

Mr. WOOD. I can tell you that of the properties in our study with 

mortgages that are going to be maturing by 2013, 41 of them were 

Section 202, which, by definition, is for the elderly, and those properties had a total of 3,200 units. That is the only real data I have. 

I have also seen estimates that an even greater number of seniors are served by Section 8 than are served by the 202 program, 

and a fair number of the properties in our database of those with 

expiring mortgages also have Section 8. 

Ms. HART. Go ahead. 

Mr. WEICHER. Ms. Hart, we have about 7,000 Section 202 

projects which are by definition to serve the elderly, and I believe 

the average number of units to be about 80. In addition, as Mr. 

Wood is saying, a substantial number of families served in the Section 8 projects and, for that matter, in the voucher program and 

in public housing are elderly. 

We can provide you with those numbers. I do not know them off 

the top of my head, but a substantial fraction of our assistance 

does go either explicitly as in 202 by statute to the elderly or goes 

to the elderly in programs which are not restricted to the elderly. 

I would be happy to provide that. 

Ms. HART. Thank you. I would like to know that. 

Are there specific things being done? I am not 100 percent certain about the demographic estimates, you know, down the road, 

but I expect that you are going to find some more demand for senior housing. Is that something that you are planning for? 

Mr. WEICHER. Well, I think we all can see that coming. The 

baby-boom generation will be turning 65 at the end of this decade 

and beyond, and I think we continue to fund Section 202, and we 

continue to maintain the level of incremental funding from year to 

year. Certainly, for projects that are funded by tax credits and the 

preservation efforts, we are doing our best to make sure that there 

is housing available for the low-income elderly as those numbers 

increase. 

Ms. HART. It is a little off the subject, but not really. What is 

specifically being done for areas like ours where there is such a 

long waiting list? Are they targeting critical areas like ours to 

make sure that there is going to be more housing available? 

Mr. WEICHER. We are not targeting specific areas in that respect. 

Within the 202 program, we have a fund that we allocate funding 

by a HUD program office based on a formula which takes account 

of the number of elderly in a jurisdiction, and then we fund the 

highest scoring applications in each of those areas. 

Then, with funds that are left over, we combine them because 

the dollars never quite add up to the dollars of the successful applications. Then we go on funding, as far as we can, the highest ranking remaining applications. So funds are allocated roughly in proportion to the need as best we can do it by formula. 

Ms. HART. Okay. I have time for another quick question, and it 

kind of goes to the whole issue of the likelihood of the increase in 

rent after the mortgage expires. I mean, obviously, the assistance 

18

to the owner for the financing for this kind of housing is required. 

Otherwise, these buildings, in a lot of cases, would not be made 

available. I assume that is still a valid reason for doing the HUDassisted mortgages. 

So, once the mortgage expires, I mean, just generally, is there 

any reason why we should have an expectation that the rents 

should remain low? I mean, these people are in the business of 

renting property. 

Mr. NEY. The time has expired. 

Mr. WEICHER. There can be projects where the market demand 

has risen, and so the market rents would be significantly higher 

than they were when the project was built. The GAO evidence is 

that the projects where mortgages have expired, those projects 

have remained affordable. 

Mr. NEY. The gentleman from Massachusetts? 

Mr. FRANK. Mr. Weicher, as I understand it, your view is that 

this question of expiring use is really not a problem because the 

administration’s voucher policy will meet whatever need exists in 

this area? Is that correct? 

By problem, I mean people not being able to afford to continue 

to live where they were living. 

Mr. WEICHER. Mr. Frank, let me state the policy. For opt-outs, 

we provide enhanced vouchers, as you know, for families who have 

been receiving assistance. If the mortgage matures, then there are 

not enhanced vouchers, but we have been providing vouchers to the 

residents when the mortgage matures. 

Mr. FRANK. Okay. And you think that takes care of the problem? 

Mr. WEICHER. It takes care of the problem of the individuals who 

are affected by mortgage maturity or by opt-out. 

Mr. FRANK. I have a couple of questions. I am told, in the budget 

this year, the administration has proposed a curtailment of enhanced vouchers. Is that accurate in your budget proposal for the 

next fiscal year? 

Mr. WEICHER. We are proposing to continue to provide enhanced 

vouchers year by year. 

Mr. FRANK. What does that mean, year by year? What is the current law? 

Mr. WEICHER. I am sorry. The current law is that enhanced 

vouchers are provided for the resident while the resident remains 

in the project. 

Mr. FRANK. In a prepaid project? 

Mr. WEICHER. In a project which has opted out, yes. 

Mr. FRANK. And you are proposing we change that how? 

Mr. WEICHER. We are proposing to change that so that the 

voucher is provided on a year-by-year basis as funds are available 

to the individual rather than determined in advance. 

Mr. FRANK. Okay. So now that is the first problem I have because one of the things we are trying to do here is to avoid displacement, and we now have a policy in effect that says to the tenant, ‘‘If your mortgage has been prepaid, you can continue to stay 

there with this enhanced voucher.’’ You would change that to say 

to the tenant, ‘‘You have a year, and we cannot tell you what is 

going to happen next year.’’ Is that correct? 

Mr. WEICHER. That is approximately correct. 

19

Mr. FRANK. I think that is a significant problem. When you have 

elderly people, as the gentlewoman from Pennsylvania mentioned, 

to tell a 77-year-old man or woman who has been living in this 

place for 15 or 20 years, ‘‘Well, here’s the change we are making 

in the law. You are good for next year, but we cannot tell you about 

the following year. It depends on the budget. It depends on all 

these other things. It depends on whether those people in Washington ever get around to adopting a budget on time,’’ that seems 

to me, Mr. Weicher, unnecessary cruelty. 

I do not know how much money you are going to save from that, 

but it would introduce that element of extreme uncertainty into the 

lives of these older people. Again, we are talking about them having to leave their homes, and you acknowledge that there are cases 

where the rents are high or otherwise we would not need enhanced 

vouchers. I mean, the enhanced vouchers by definition go to where 

the rents are above the regular Section 8, and to introduce that 

level of uncertainty seems to me very unfortunate. 

My second point: With regard to enhanced vouchers, once the 

mortgage has matured under your proposal or under existing policy, as you would have it, there would be no enhanced voucher? Is 

that correct? 

Mr. WEICHER. Under existing policy, there are vouchers, but they 

are not enhanced vouchers. 

Mr. FRANK. They are not enhanced vouchers. So, if the mortgage 

matures and at that point the rents go up, there are individuals 

who might be forced to leave, even people who are on rental assistance, because you say here, ‘‘We only give enhanced vouchers if 

there is already rental assistance.’’

I am glad you are getting some help here because we may get 

into serious stuff. You can sit down. You do not have to kneel. Why 

do you not sit? I do not want you to get a cramp. You can sit next 

to him. It is okay. I do not want to worry about your knees. 

You are changing the policy this way: You say, right now, you 

can get an enhanced voucher if you have rental assistance and 

there is a prepayment, but, if the mortgage matures, after the 

mortgage matures and the landlord is under no further constraint, 

the situation the gentlewoman from Pennsylvania was mentioning, 

you know, I do not blame the landlord. They are in business to 

make money. They have loans. They have obligations. They may 

have stockholders. 

They then raise the rent to market levels, and, if the market levels should be above the Section 8 level, then that person has to 

move out, is that correct, or find some other resources? Why deny 

enhanced vouchers in those situations, at least to the existing tenants? 

Mr. WEICHER. Well, of course, enhanced vouchers as a legal matter were established to address——

Mr. FRANK. I understand that. I am talking about the policy now. 

We are not in court arguing the point. 

Mr. WEICHER. Going forward——

Mr. FRANK. As a matter of public policy, why should we not say 

people here—you know, they have been living there 15, 16, 18, 

maybe 23 years, it is a 40-year-old mortgage, and as a result of this 

program expiring—these people are in their maybe 70s, maybe 

20

80s—the Section 8 voucher will no longer cover the rent for that 

place. They have to move. Why do we not give them an enhanced 

voucher? What is the policy reason not to change the law to allow 

them enhanced vouchers in that situation? 

Mr. WEICHER. Our judgment based on both the GAO study and 

our own analysis is that residents of these projects are typically in 

better position to be able to afford higher rents if higher rents 

occur. 

Mr. FRANK. Okay. Typically, right, but there is an income level 

here. So that is typically. You see, it seems to me your argument 

is somewhat contradictory. What you are saying is there would not 

be that much need for enhanced vouchers. You have confidence 

that these landlords would not be raising the rents in many cases. 

Mr. NEY. The time has expired. 

Mr. FRANK. You have said that the rents would not be going up. 

Given that it would not be likely to cost much, in the atypical situations, why have a situation where these 70-and 80-year-old people 

will be forced to move? 

Mr. NEY. The time has expired, but please answer the question. 

Mr. WEICHER. Our feeling is, Mr. Frank, that with the limited 

funds that we have available, the funds should go first to the people who are going to be the most in need, and those are the people 

who have been receiving Section 8 assistance and whose incomes 

are generally lower than the residents of these projects who have 

not previously been receiving assistance. 

Mr. FRANK. I would like to just for 10 seconds, Mr. Chairman, 

say this is part of the problem. 

This is where we differ. We think the existence of these units as 

affordable units is a real asset. You are prepared to let these units 

go out of the affordable inventory and then shift whatever burden 

remains on to a voucher program, which is already overstrained. 

That is the problem. 

We think that, in fact, exactly that, that it would be cheaper in 

terms of providing affordable housing to try and preserve some of 

these units in a variety of ways as affordable, and your alternative 

is let them all go out of the inventory and let’s pick up some of 

these people on the voucher program, which, as I said, is already 

overstrained. 

Thank you, Mr. Chairman. 

Mr. NEY. I thank the gentleman. 

Before we go to the second panel, I have an order question for 

the committee, if I could. I just want to clarify the August deadline 

so I have it, you know, straight in my mind. 

On one hand, we are told that the program should be good 

through October. Now that would be without the $4 billion. Is that 

correct, that the program will work through October without the $4 

billion? 

Mr. WEICHER. At this point, Mr. Chairman, at the continuing 

rate, the program would be all right until the beginning of October, 

but that is exactly the situation we were in last year at this time. 

Mr. NEY. Well, it was not okay. 

Mr. WEICHER. It was not all right because there was an upsurge 

in the latter part of August and September. 

Mr. NEY. So we are not guaranteed then. It could. 

21

Mr. WEICHER. That is right. 

Mr. NEY. It could maybe not be. 

Mr. WEICHER. There is no guarantee. Mr. Chairman, at this time last year, we were reasonably sure that we would not hit the $23 

billion limit at the time, and we did. 

Mr. NEY. So a stand-alone bill would be a backup. I mean, I cannot speak for appropriations, but I am trying to imagine how in the 

next 3 or 4 days they can do that. Maybe they can, and that is why 

I am just wondering about a stand-alone bill. 

Mr. WEICHER. Well, we are prepared to work with Congress to 

alleviate the concern, whatever you and the appropriators think is 

useful. 

Mr. NEY. Well, I thank the panel. Appreciate your time. 

We will move on to the second panel. 

I want to thank the panel for being here today with the Housing 

Subcommittee. 

The first panelist is Michael Bodaken, and he is the president of 

the National Housing Trust, a position he has held for over eight 

years. During his tenure, he has seen the trust rise to become the 

primary national non-profit organization dedicated to the preservation and improvement of affordable multifamily homes. 

O. Angie Nwanodi is the director of policy at the National Housing Development Corporation. The corporation seeks to preserve affordable housing by working with local communities to empower individuals and revitalize neighborhoods by raising capital to purchase large-scale, at-risk properties, renovating and repositioning 

these properties, and then distributing ownership of these properties to qualified local organizations capable of providing highquality asset management. 

Charlotte Delgado is the western vice president of the National 

Alliance of HUD Tenants. Since its creation in 1991, the alliance 

has worked to preserve and improve affordable housing, protect 

tenants’ rights, promote residential control and ownership, as well 

as develop tenant empowerment and improve the quality of life in 

HUD-assisted housing, while at the same time, making HUD more 

accountable to those living in HUD-assisted homes. 

I am going to defer to Congressman Frank of Massachusetts to 

introduce the next panelists. 

Mr. FRANK. Thank you, Mr. Chairman. 

I am particularly pleased to introduce two witnesses from Massachusetts, although I am also particularly glad to see the National 

Alliance of HUD Tenants represented because that is an organization that is very well represented and very active and very helpful 

to us in Massachusetts. 

But the two witnesses I am about to introduce are not only from 

Massachusetts, but they both represent the private sector. They 

both represent the business community, and I think this is important to note. We are talking here about trying to preserve one of 

the best examples of private-public cooperation for general good 

that we have, and it is one where we have taken the profit motive, 

we have taken socially responsible effective and efficient business 

people, and it would be a shame if we were the ones to preside over 

the dissolution of this program by just letting this go out of business. 

22

The first witness, William Kargman, is a man with a very distinguished record in housing development. His entire family has, in 

fact, been very active in this regard. He is president and CEO of 

First Realty Management, and he is a member of the Massachusetts and federal bar. He is a former president of the Rental Housing Association. 

He owns and manages a significant number of units in Massachusetts, and I have worked with him and benefited from his advice for a very long time, going back at least to 1961 when we graduated from college together. So he has a very distinguished pedigree here, but he has been very important, and we in Massachusetts have taken so advantage of his programs. He has been very 

helpful. 

In addition, we have another businessman who has done great 

work here, Todd Trehubenko, who leads Recapitalization Advisors, 

and they have been very important in getting private capital into 

this and the importance of harnessing private capital. We are talking here about both people who build, people who manage and people who invest, and maintaining this cooperation is very important. 

Now let me just say Mr. Trehubenko and Recap have done an excellent job, and, once again, we have benefited both from their specific work and from their advice. 

One of the things that most troubles many of us about the problems now with the Section 8 voucher program is the extent to 

which responsible private business people, investors, property managers, landlords are being driven out of the program. We do not 

want to be left with those private-sector people who cannot find 

other uses for their money and their property, and it is very important that we show our appreciation and willingness to take advantage of them. 

So I am delighted to welcome both Mr. Kargman and Mr. 

Trehubenko here, and I thank you for your courtesy, Mr. Chairman. 

Mr. NEY. The gentlelady from California? 

Ms. WATERS. Thank you very much, Mr. Chairman. 

I certainly appreciate your introduction of the Californian who is 

here, but I wanted to add just a few comments. 

Ms. Delgado is a resident of Sacramento who has been the National Association of HUD Tenants’ vice president for the West for 

most of the past decade, and she was a co-founder of the organization in 1991. Ms. Delgado also serves as the president of the Statewide Alliance of Tenants, known as SWAT, in California, which 

represents HUD tenants from across the state. 

She is also the president of the Washington Squares I and II 

Tenants Association where she lives in Sacramento. Washington 

Squares is a 103-unit complex where the owners prepaid their 

HUD mortgage and converted the property to high-market rent. 

Ms. Delgado was able to stay in her home at Washington Squares 

only because she received aid through an enhanced voucher. 

I would like to thank her for coming, and I appreciate an opportunity to add a few comments about her, Mr. Chairman. Thank 

you. 

Mr. NEY. Well, I thank the gentlelady. 

23

And to introduce the last witness, the gentleman from Illinois, 

Congressman Emanuel. 

Mr. EMANUEL. Thank you, Mr. Chairman. Thank you for this opportunity, and I also thank Ranking Member Waters for allowing 

me this opportunity. 

Gene Moreno serves as director of advocacy for the Chicago 

Rehab Network, where she coordinates policy advocacy at the national, state and local level. 

Gene says she is a little nervous today. I have seen her at work 

in the city. Do not let that fool you. It is a good head fake because 

I have seen her be a tenacious advocate on behalf of people for affordable housing. In my own district in Albany Park and other 

parts of my district, they have done wonderful work. 

Chicago Rehab Network is a coalition of non-profit housing organizations working to create and preserve affordable housing in the 

Chicago area. It was founded in 1977. Over 40 organizations are 

member organizations of CRN, and it represents well over 60 different neighborhoods in the City of Chicago. 

They have built and are responsible for well over tens of thousands of affordable housing for Chicago citizens. I’d like to specifically cite one area, Albany Park, only because that was the neighborhood that, when my grandfather came over in 1917 from Russia, 

he settled in. My uncle is now a sergeant in the police force in that 

neighborhood, I now represent it, and I often say, ‘‘We have traveled many miles, but never gone very far.’’

You have done a wonderful job in Albany Park, and it is coming 

back as a strong neighborhood in part because of what we have 

done on affordable housing. So I appreciate CRA’s great work, and 

I am glad Ms. Moreno is taking the time to be with us today. 

Thank you, Mr. Chairman. 

Mr. NEY. I thank the gentleman from Illinois. 

I want to thank the panelists for coming here to the capital today 

on a very important topic. I would also note I want to thank Congressman Green from Wisconsin who will be chairing the subcommittee. 

We begin with Mr. Bodaken. 

STATEMENT OF MICHAEL BODAKEN, PRESIDENT, NATIONAL 

HOUSING TRUST 

Mr. BODAKEN. Good morning. 

Thank you, Chairman Ney, Ranking Member Waters and Ranking Member Frank, for allowing the trust to testify today. 

I am Michael Bodaken. I am head of the National Housing Trust, 

and we are the only national non-profit organization in the nation 

dedicated solely to the preservation of federally assisted and insured housing. As mentioned in the opening, we have preserved 

and improved over 16,000 apartments, 90 percent of which are Section 8 subsidized or the subject of H.R. 4679, and I want to thank 

you for the opportunity to testify today. 

Today’s testimony covers really only two discreet areas, one is 

the context in which H.R. 4679 is being introduced, and the second 

are a few minor suggestions that can make the already excellent 

work of the committee perhaps achieve its ends at a cost acceptable 

to the American taxpayer. 

24

Ranking Member Waters mentioned in her remarks that we find 

ourselves in a situation not unlike one of vanishing housing resource. The GAO report, which provided the catalyst for, in fact, 

this bill, mentions a number of 1.7 million units that are subject 

to HUD’s programs. 

What the GAO failed to point out is that that number has 

shrunk to 1.4 million units. Yes, over 300,000 of that existing stock 

has now been converted to market rate rental. Already, we have 

lost over 15 percent of what we are talking about. 

So the numbers we are talking about are important. 

It is also important to note that this stock is not stand-alone 

stock. Markets affect whether or not owners are going to stay in 

the program. This stock is very economically well integrated and is 

located in nearly every nook and cranny of our nation. 

H.R. 4679 attempts to stem this rising tide of affordable housing 

loss. The state of the nation’s housing put out by Joint Center for 

Harvard said it best: ‘‘The already scarce supply of low-cost housing continues to shrink because of physical deterioration and 

gentrification. Long-term Section 8 contracts for subsidized rental 

units continue to expire, placing huge demands on our limited supply.’’

Nor is this housing isolated to California or to Massachusetts or 

Illinois. Take a look at the GAO’s own statistics. Over half the 

States of this nation stand to lose about 20 percent of their existing 

HUD stock if something is not done about maturing mortgages. 

In the State of California, it is 25 percent. In the State of Wisconsin, represented here by Mr. Green, it is 15 percent. In the 

State of Pennsylvania, it is over 17 percent. In the State of Ohio 

where Mr. Ney is from, it is 17 percent. Again, in Wisconsin, it is 

15 percent. 

Hundreds of thousands of units are really at risk throughout the 

nation. It is not isolated to one place, not isolated to California or 

Massachusetts at all. 

There are two things, I think, that could be done to help the bill 

with its impact, and they are very simple fixes to the bill. 

When we look at affordable housing loss, we sometimes treat our 

society as if we are just managing a decline. It is kind of a pessimistic kind of matter. But, in fact, State and local agencies are 

stepping up to the plate and preserving this housing en masse. 

We did a study approximately a year ago which shows over 40 

states are preserving housing with low-income housing tax credits. 

In the State of Wisconsin, 40 percent of your long-term housing tax 

credits are being used to preserve this housing stock. 

One simple fix for the bill would allow developers who are using 

tax credits to take the funds as either a loan or a grant so they 

can get more equity to preserve this stock. In the State of California, there is a plethora of programs available at the local and 

state level that would be benefited by this 1 technical change. 

There is two other problems with the bill that affect non-profits. 

The first is non-profits need to be allowed to raise rents as do forprofits. The second is non-profits should be allowed to use the 

funds for acquisition. 

I will close by asking the subcommittee to support H.R. 3485. It 

is a tax bill which allows the owners of this housing to benefit. It 

25

has been introduced by Congressman Ramstad and Cardin on the 

tax side. I know you do not have jurisdiction of tax, but the subcommittee is very important with respect to housing matters generally in Congress. It is a bipartisan bill introduced in the Ways 

& Means Committee, it has significant industry support, and I 

would urge the subcommittee to consider supporting it. 

Adoption of H.R. 4679 today can mitigate the affordable housing 

laws that we have tomorrow. I urge its adoption, and I thank you 

for allowing me to share my remarks with you today. 

[The prepared statement of Michael Bodaken can be found on 

page 41 in the appendix.] 

Mr. NEY. I thank you for your testimony. 

Ms. Nwanodi? 

STATEMENT OF O. ANGIE NWANODI, DIRECTOR OF POLICY, 

NATIONAL HOUSING DEVELOPMENT CORPORATION 

Ms. NWANODI. Good morning. 

Thank you very much for the opportunity to be here and share 

testimony with the committee regarding this very important issue 

of preserving affordable housing. 

The GAO report focuses on one subset of the stock, which is 

stock with maturing mortgages, and the fact that that stock faces 

some of the same challenges that the opt-out and prepayment stock 

faced in previous years. The National Housing Development Corporation, which I represent, is a non-profit organization that is 

dedicated to preserving existing affordable housing using innovative mechanisms. 

The GAO report, although it does address one issue of preservation, as some of the members have mentioned, does not address the 

broader issue, which is the fact that existing affordable housing 

with federal subsidy in it will always expire. 

There is a contract associated, there is a finite resource, a finite 

commitment that an owner makes, and so we are always going to 

be in the position, unless we look to more comprehensive policies 

for preservation, to respond with incentives for owners to stay in 

for an extended period of time with regulatory changes that make 

it more likely that folks will stay in the program. 

The National Housing position is that the committee ought to 

consider ways to break this cycle of rapid response to crises that 

are foreseeable, based on the fact that these are contracts or that 

these are finite programs, and create tools, including funding, that 

will help to permanently address the problem of all kinds of multifamily housing that at some point will face a preservation crisis. 

One of the things that we focus on at National Housing are the 

unique factors attributable to preservation. Representative Frank 

mentioned some of those. That is on a per-unit basis, it is cheaper 

to preserve the existing housing and the subsidies that over the 

years the federal government has placed into this housing than it 

is to produce a new unit. 

That is not to say that new construction, whether it is through 

the tax credit program or any other program, is not necessary to 

meet our ongoing housing needs. But in a situation where we are 

losing units—as Michael said, 15 percent of them already gone, out 

the back door—one of the most cost-effective ways for the federal 

26

government to continue to provide housing is to spend what is necessary to re-up these units into long-term affordability. 

Preservation is also more politically palatable in many neighborhoods, and that is not a good or a bad thing. That is a matter of 

fact. It is a lot more difficult for the NIMB elements that Congresswoman Waters mentioned to come in and say to the city council, 

‘‘We do not want that building fixed. We do not want that building 

preserved,’’ versus trying to oppose something that is ground up. 

So, in many States where the tax credit is available, deals die. 

Community opposition, various reasons, and federal dollars at a 

much lower per-unit rate could be preserving units that already 

exist in these communities. 

One of the other issues that I think is very important to note in 

light of some of the findings of the GAO report is that the existing 

federal funding programs, in many ways, increase the costs of preservation, even though preservation is already cheaper than new 

construction. The fact that groups have to wait to get tax credit, 

have to hope that they get HOME or CDBG drives up the cost of 

housing when you are talking about acquiring an existing property 

because owners do not want to take that risk. 

So, if you have an owner that may want to wait and may be interested in retaining affordability but still wants out, there is a disincentive with the current funding programs that are being used 

for those folks to stay involved with buyers that do want to preserve affordability. 

What we recommend, therefore, is that a new program of some 

sort be created that creates an interim source of funding so that 

organizations like ours, like Michael’s, like Recap Advisors’ clients 

can access interim capital to preserve these properties when they 

are at risk and give them the opportunity to go through the normal 

channels of tax credits and so on and so forth to be preserved. 

Finally, we support Representative Frank’s bill that addresses 

this particular issue and would also urge the passing of H.R. 3485, 

the exit tax provisions, recognizing again that this committee does 

not have jurisdiction over that issue, but it will be very difficult to 

solve preservation challenges in the long run without addressing 

the tax side as well. 

[The prepared statement of O. Angie Nwanodi can be found on 

page 104 in the appendix.] 

Mr. NEY. Thank you for your testimony. 

Ms. Delgado? 

STATEMENT OF CHARLOTTE DELGADO, VICE PRESIDENT/

WEST NATIONAL ALLIANCE OF HUD 

Ms. DELGADO. Thank you. 

On behalf of the National Alliance of HUD Tenants, I am pleased 

to testify before this committee today and to express our strong 

support for H.R. 4679, the Displacement Prevention Act, filed by 

Representative Frank and other committee members. 

Founded in 1991, NAHT is the only nationwide membership organization that represents over two million families who now live 

in private-owned, HUD-assisted, multifamily housing. Our membership today includes voting member tenant groups and area-wide 

coalitions in 26 states. 

27

NAHT strongly supports the extension of enhanced vouchers for 

the currently unprotected 101,000 or more families in non-Section 

8 units who would otherwise lose their homes when HUD mortgages mature. 

For me and about 180,000 others who have already received enhanced vouchers to date, I can personally tell you that this has 

made all the difference in the world, the difference between having 

a decent home and a roof over our head to being out on the street. 

We would also urge Congress firmly to reject the proposals now 

before you to abolish enhanced vouchers after one year and to reduce the Section 8 Voucher program by 600,000 families by the 

year 2009. These proposals, if adopted, will inevitably lead to tenant displacement, increased homelessness, and the further destruction of the nation’s affordable housing stock. 

Homeland security should begin with a home and must begin 

with a home. The elderly, disabled and low-income working families who live in these buildings, many of us veterans who have 

served our country and worked all of our lives to build our communities, deserve nothing less. 

H.R. 4679 would also help preserve at-risk housing. Enhanced 

vouchers are clearly not enough. In my own development, only 21 

apartments with enhanced vouchers remain out of 103 units since 

the owners prepaid, and the rest have been converted to high-market rents. 

A NAHT report in October 2002 documents the permanent loss 

of 199,764 privately owned, HUD-subsidized housing units lost due 

to owners’ decisions to opt out of HUD contracts between 1996 and 

2001. The NAHT report also showed that the Mark Up to Market 

program, which Congress adopted in 1999, has failed to slow the 

loss of affordable housing. 

The GAO Report on expiring mortgages notes that in the next 10 

years, project-based Section 8 contracts aiding 1.1 million families 

will expire. Even in the absence of the expiring mortgage problems, 

the steady erosion of affordable housing will likely continue at the 

rate of approximately 41,000 units a year. 

The new crisis in expiring HUD mortgages will only accelerate 

the loss. Housing for up to 101,000 families could be lost if owners 

convert their non-Section 8 units to market rents on their mortgage 

maturity. 

In addition, many of the 135,000 project-based Section 8 units in 

expiring mortgage buildings could be subject to owner opt-out decisions as regulatory agreements linked to the mortgage expire. So 

we can expect to see an increase in the overall rate of Section 8 

opt-outs as their mortgages expire. 

In my own state, California, who has the highest number of developments affected by this crisis, 278 apartment complexes, fully 

12 percent of the national total, the superheated housing market 

touches all corners of my state. People making $85,000 a year are 

living out of their cars in the Silicon Valley because they cannot 

afford an apartment. We can expect a huge number of these apartments converting to high rent as soon as their owners have a 

chance. 

There is some evidence also that your GAO has been undercounted with expiring mortgages. 

28

In Massachusetts alone, we found 10 developments with expiring 

HUD mortgages totaling 3,222 units, which are not included in the 

GAO report at all, fully 44 percent of the 7,297 units reported by 

the GAO in that State. 

And, by the way, one of them, the Milliken apartments is in Mr. 

Barney Frank’s district. 

This is a potentially large undercount and, if that error is systematic, we would urge the committee to request that HUD and 

the GAO take another look at this issue and make it much more 

closely and to make appropriate corrections where needed. 

Clearly, voluntary incentives, such as the Mark Up to Market 

programs, are insufficient to deter owners who choose not to extend 

expiring HUD contracts, especially in high-market areas. 

NAHT believes that Congress should reestablish a national regulatory framework to limit owners’ ability to opt out, prepay or to 

extend the programs such as the Title VI that was phased out by 

Congress in 1996. Title VI was a mandatory program that provided 

additional HUD——

Mr. NEY. Ms. Delgado, if you could summarize your testimony, 

please. 

Ms. DELGADO. All right. Thank you. 

We would also like to say that while we are asking for you to 

support this bill completely, we want to make clear that we need 

to refund our advocacy. They are absolutely the only ones that are 

tracking these throughout the United States. Neither HUD nor 

your local government is. 

Thank you again for allowing me to testify and we support your 

bill. 

[The prepared statement of Charlotte Delgado can be found on 

page 83 in the appendix.] 

Mr. NEY. Thank you for your testimony. 

Mr. Kargman, welcome. 

STATEMENT OF WILLIAM M. KARGMAN, PRESIDENT, FIRST 

REALTY MANAGEMENT CORPORATION 

Mr. KARGMAN. Thank you, Mr. Chairman, and members of the 

committee, I also would like to acknowledge that the committee 

has recognized and taken an interest in a very important issue 

with respect to certain federally subsidized housing programs 

whose mortgages are due to be fully paid in the next few years. 

There is currently no protection for certain tenants residing in this 

housing, as evidenced by the GAO report and by the testimony of 

the previous panel. 

Some residents living in Section 221(d)(3) and Section 236 housing are currently paying below-market rents and do not receive 

Section 8 subsidies. Their rents remain below market because of 

FHA-interest subsidy which reduces the debt-service payment and, 

therefore, reduces the amount of rent. 

Some of the other residents of these properties do receive Section 

8 assistance and this was added during the mortgage term. The 

purpose of adding the Section 8 assistance was to address rising 

operating costs impacting low-income families and as an incentive 

under the Emergency Low-Income Housing Preservation Act now 

known as ELIHPA and its successor, the Low-Income Housing 

29

Preservation and Residential Home Ownership Act of 1990, called 

LIHPRHA. 

I mention these Section 8 units for two reasons. First, tenants receiving Section 8 are not impacted by the expiring mortgages or by 

the subject of H.R. 4679. This is because their subsidy is separate 

from the mortgage and continues as long as the owner renews the 

Section 8 contract. If the owner does not renew the Section 8 contract, the current law provides for enhanced vouchers to be used 

to protect those Section 8 tenants or residents. 

Second, those properties under Title VI, as mentioned by my colleague, the LIHPRHA program, are locked in for the remaining life 

of the housing, and, therefore, they are not in jeopardy. When the 

mortgage itself will be paid off, they are still locked in by law and 

have Section 8 subsidies. 

My concern here today is with the ELIHPA properties—the properties are mentioned in H.R. 4679—and those with affordability restrictions that expire in the Section 221(d)(3) and 236 mortgages 

and where the residents do not have Section 8. 

I am a general partner and manager of 10 such properties which 

contain 2,494 family apartments. Nine of these properties have 

some Section 8 subsidies as a result of our participation in 

ELIHPA. The remaining units are occupied by families with incomes ranging from 51 percent to 95 percent of area median income who will be affected by the expiration of the mortgage and 

its accompanying restrictions. The oldest mortgage in my portfolio 

is scheduled to be fully amortized as early as September 2006. The 

rest will follow between 2006 and 2013. 

The legislation’s intent to provide enhanced vouchers to the nonSection 8 families in these buildings is essential to their being able 

to remain in what are their homes. I am familiar with enhanced 

vouchers because I prepaid a Section 236 mortgage in 1996 when 

Congress restored the right to prepay. At that time, 177 residents, 

both elderly and families, received enhanced vouchers that allowed 

them to remain in an upgraded apartment in a low-vacancy area 

without a change in their rent. Ninety of these tenants still reside 

in the property today. 

When Congress provided enhanced vouchers for prepayment and 

Section 8 opt-outs, the mortgage maturation issue was not on their 

radar screen. We appreciate this committee and the GAO recognizing the problem and proposing to provide enhanced vouchers to 

affected residents. 

I want to be able to say to our residents, as I did to those who 

reside in the building I prepaid in 1996, that they can look forward 

to living in the community they call home as long as the federal 

government will help them pay the comparable market rent. 

Naturally, as we have heard in prior testimony, I am concerned 

about the current voucher funding shortfall, and its impact on the 

ability of our residents to feel confident that they will not be subject to a loss of these funds. 

H.R. 4679 has other notable provisions involving grants and 

other assistance to maintain affordable rents. These may be attractive to other for-profit and non-profit owners. However, for owners 

such as myself whose properties do not need rehabilitation, the enVerDate 0ct 09 2002 11:20 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 G:\DOCS\97285.TXT FIN1 PsN: MICAH
30

hanced vouchers remain the key to protecting our current residents. 

Thank you very much for your consideration of my view. 

[The prepared statement of William M. Kargman can be found 

on page 91 in the appendix.] 

Mr. NEY. Thank you for your testimony. 

Ms. Moreno, welcome. 

STATEMENT OF GENE MORENO, POLICY/ADVOCACY DIRECTOR, CHICAGO REHAB NETWORK, TESTIFYING ON BEHALF 

OF THE NATIONAL LOW INCOME HOUSING COALITION 

Ms. MORENO. Good morning, and thank you for inviting me to 

testify at this hearing. 

Better? Okay. Great. 

The Chicago Rehab Network is a coalition of community development organizations. I am testifying today on behalf of the National 

Low Income Housing Coalition which is dedicated solely to ending 

America’s affordable housing crisis. The Chicago Rehab Network is 

a proud member of the National Low Income Housing Coalition. 

We would like to thank Chairman Oxley and Ranking Member 

Frank for having the foresight to request the GAO study released 

January 2004. The study provides a critical snapshot of a pressing 

preservation problem. 

I am here to discuss the 100,000 families who will be left without 

any protection from rising rent, unlike their counterparts in properties with Section 8 rental assistance. This is a key issue that 

Congress will need to address. 

Additionally, I would like to thank the GAO for their work in 

putting together the report as well. 

We are pleased to see that in response to the GAO report, Ranking Member Frank has introduced the Displacement Prevention 

Act of 2004. In Illinois, there are more than 3,100 units of rental 

housing financed through the Section 236 and 221 programs. We particularly applaud the authorization of $675 million in previously appropriated housing funds that can be instrumental in 

preserving those units for seniors, disabled people, and other vulnerable population in need of affordable housing. 

The legislation allows tenants in these properties to be eligible 

for enhanced vouchers. It also requires notice be given to tenants 

9 months in advance of mortgage maturity and offers owners three 

forms of grant assistance: rehabilitation assistance, assistance to 

facilitate purchase by not-for-profit entities, annual payment assistance to cover the difference between subsidized rents and comparable market rents. 

We offer several specific recommendations for making the bill 

even more valuable in our written statement which has been handed to you. 

Nationally, local entities are creating public and private partnerships to deal with this issue of preservation. We are working closely with our state agencies and other entities to create policy 

changes in administration and resources to preserve existing affordable housing units. 

Just last week in Illinois, Governor Blagojevich signed extensive 

preservation legislation that we had been working on for several 

31

years. Among other things, the Illinois law increases the number 

of situations in which owners of assisted housing must give tenants 

notice and extends the notice period from 6 months to 12 months. 

While this new law is ground-breaking for its scope and the tenant protections, there is no resources attached to it. H.R. 4679 will 

go a long way in providing those critical resources to allow for the 

rehabilitation and acquisition of these buildings. 

A current tool that is vital for any preservation effort is the Section 8 choice voucher program. The National Low Income Housing 

Coalition contends that all 236,000 households in projects with either maturing mortgages or expiring Section 8 rental assistance 

contracts between 2003 and 2013 described in the GAO report are 

at risk of rising rent. The Section 8 program is at risk, and, thus, 

any reliance on enhanced vouchers to protect Section 8 residents is 

at risk as well. 

The fiscal 2004 and 2005 budgets that attacks the voucher program can only lead to uncertain and reduced resources as local 

communities struggle to preserve affordable housing units. While 

Ranking Member Frank’s legislation is a major tool, there are a 

few others I would like to mention to be included in a federal preservation strategy. 

H.R. 3485 introduced by Representative Ramstad and Cardin 

provides tax incentive to preserve affordable housing. Another is 

H.R. 4289. It was introduced by Representative Frank Lucas that 

would allow mod rehab projects to use low income housing tax 

credits for preservation efforts. 

And a simple legislative change to amend the Low Income Housing Preservation Resident Home Ownership Act, known as 

LIHPRHA, would halt the preemption threat to States and local 

preservation laws. 

We also urge the committee to consider H.R. 1102, the National 

Housing Trust Fund Act of 2003. A National Housing Trust Fund 

would provide much needed dedicated resources of funds to acquire 

at-risk affordable housing properties, something H.R. 4679 does not 

do at this time. 

Mr. NEY. If you could wrap up, Ms. Moreno. 

Ms. MORENO. Okay. 

Preserving affordable housing stock is not an easy task, but, with 

strong leadership, we believe that the tide on our battle to preserve 

affordable housing would work, and we look forward to working 

with you in this effort. 

Thank you. 

[The prepared statement of Gene ́ Moreno can be found on page 

95 in the appendix.] 

Mr. NEY. Thank you for your testimony. 

Mr. Trehubenko, welcome. 

STATEMENT OF TODD TREHUBENKO, SENIOR VICE 

PRESIDENT, RECAPITALIZATION ADVISORS, INC. 

Mr. TREHUBENKO. Thank you. 

Mr. Chairman, Representative Waters, members of the subcommittee, I am pleased to be invited here today. 

My name is Todd Trehubenko. I am senior vice president of 

Recap Advisors in Boston. We are a private consulting company 

32

that specializes in the revitalization and preservation of the housing stock described in the GAO report. Since 1989, we have directly 

preserved directly over 450 properties covering approximately 

60,000 apartments located in 39 states. 

We are grateful for the interest in this portfolio shown by the 

Committee on Financial Services and this subcommittee, and we 

agree with many of the observations in the GAO report. But we respectfully suggest that lack of access to data is not the problem. 

The problem that faces this portfolio is that existing preservation 

programs do not work well with these assets. 

The maturing mortgage problem is bigger than GAO suggests, in 

that there are an additional 814 mortgages that will mature in the 

three years after the period studied by GAO, covering 93,000 apartments, and the loss of affordability will likely occur sooner. The report mentions that there are 100 properties covering 13,000 households that will mature through 2007, but what it does not describe 

is that owners are motivated to exit the portfolio in many cases 

prior to maturity. 

Right now, HUD does not offer any incentives to extend the affordability of these properties when the mortgages mature. HUD’s 

commitment to the properties is unclear, and owners cannot be 

sure now, what resources HUD will offer. This type of ad hoc approach is influencing owner behavior even now in some cases many 

users before the mortgage matures, as they make decisions about 

the future of their property. In other words, just getting to mortgage maturity is a significant problem with this inventory. 

We know that these properties are good housing. These complexes were built under the same programs and served the same 

resident groups as many other properties that Congress has already moved to preserve through other programs, specifically the 

ELIHPA and LIHPRHA preservation programs, enhanced vouchers 

for mortgage prepayment, the Mark to Market program, the Mark 

Up to Market program and other initiatives adopted by HUD, with 

support from Congress such as 236 decoupling, and most recently, 

the Section 202 refinancing program. 

Each of these programs delivered a set of benefits to the properties and to the residents and to their communities, including new 

rents at levels that are sufficient to properly maintain the properties going forward, new financing to address property needs and 

partnership needs, new funding for reserves, and new or revitalized 

ownership of the property. 

The portfolio of properties that we are discussing today is what 

has been left behind out of these other initiatives. It is a problem 

of adverse selection, and the portfolio is easier to describe with negatives than it is with positives. 

The properties we are talking about today are defined by low 

cash flow, very low budget-based rents in properties without Section 8 sufficient to maintain the property, low upkeep as a result, 

low reserves for future needs and, in many cases, unmotivated 

owners because it is not clear that the current situation can be sustained in the years remaining to mortgage maturity. 

We have a strange policy situation where, for many of these 

properties, a prepayment of the mortgage would introduce enhanced vouchers into the property to protect residents, but yet simVerDate 0ct 09 2002 11:20 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 G:\DOCS\97285.TXT FIN1 PsN: MICAH
33

ply waiting through the remaining term of the mortgage and paying off the mortgage the day that it is due does not extend those 

same tenant protection benefits to the residents. 

The properties may be a bit dated, but they provide a good quality of life for their residents, the seniors and families that live 

there. They serve a real important need in the communities. As another panelist has observed, in many communities where it is difficult to build new housing, communities are very quick to defend 

and want to preserve the stock that they do have. 

We know from our experience the tools that are needed to preserve these properties. We use them on other properties all the 

time. We need Section 8 enhanced vouchers to permit rents to increase to market while still protecting residents, we need projectbased rents at market also protecting the residents to improve the 

cash flow and support new financing, and we need rehabilitation 

funding through new financing or grants. 

These solutions should be offered to owners in exchange for new 

affordability covenants, and it should be discretionary. Only the 

best properties should be targeted. Properties that do not deserve 

preservation should not be preserved. 

Congress has acted before to preserve other cohorts in this inventory. We ask that Congress now act again to ensure preservation 

of these remaining properties. 

Specifically, we urge Congress to adopt the measures described 

in H.R. 4679; we urge Congress to extend Section 8 enhanced 

voucher eligibility to properties that currently do not qualify, such 

as non-profit-owned properties or properties with rent supplement 

assistance or older Section 202 properties; we urge Congress to encourage HUD to expand its current preservation initiatives, such as 

Mark Up to Market and 236 decoupling to cover more properties; 

and we encourage HUD to develop clear policies to set the rents for 

properties with maturing mortgages but continuing rent subsidy. 

We need these measures now to help preserve this housing stock 

and protect vulnerable low-income families and seniors. 

That concludes my remarks. I would be delighted to answer your 

questions. 

[The prepared statement of Todd Trehubenko can be found on 

page 116 in the appendix.] 

Mr. NEY. Great. Thank you for your testimony. 

Thanks to all the witnesses for their testimony. 

Mr. Bodaken, if I understand your testimony correctly—HUD 

testified that they were not at all certain that as these mortgages 

matured there would be the loss in units that many of us fear—

I take it you are a little more pessimistic than HUD is in that assessment. 

Mr. BODAKEN. Yes. I mean, the facts are the facts. We know over 

the last seven-and-a-half years we have lost over 300,000 of the 

self-same stock, mainly through conversion to market rate rentals, 

some to physical deterioration, but mainly through market-rate 

rentals. For those units that we have been able to track, the average rent hike is 45 percent. That is a significant chunk. 

I do not believe it is fair to say that a small slice, a study by 

GAO of some 16 properties, is anywhere indicative of what we are 

seeing in the private market today. I mean, the facts are the facts. 

34

The cruel irony is that in the rest of real estate inflation helps 

many of us in this room who own homes. It helps us very much. 

Subsidized housing renters are put at more risk because owners 

have options that they did not have before. 

Mr. NEY. A number of the witnesses have cited or mentioned favorably the Ramstad tax legislation. Is there anyone on the panel 

that opposes that legislation? I mean, if we take a look at this 

problem, I am also sensing from the witnesses that perhaps one of 

our deficiencies in the past has been a piecemeal approach, and 

maybe it is time to do a number of things, and I guess this seems 

to be part of it. Does anyone on the panel oppose or see flaws with 

that legislation? Okay. 

Ms. Nwanodi, a couple of witnesses have talked about the importance of providing flexibility to non-profits in terms of rental levels. 

What are your thoughts on that? Do you see that as being a useful 

tool here? 

Ms. NWANODI. Absolutely. I think one of the lessons that we have 

learned from the way that we have approached this issue in the 

past is that not-for-profit does not mean you do not need to make 

a profit. Particularly as properties age, they will develop capital 

needs and more complicated management needs that non-profits 

need access to as well. 

So, on the one hand, you have privately owned for-profit owners 

that are struggling with lack of incentives to rehabilitate properties, and, on the other hand, where you have a non-profit that 

is dedicated to keeping the property affordable, in many cases, they 

are denied the very tools that would allow them to maintain the 

stock in a manner that prevents it from being lost to affordability 

due to deterioration. 

Mr. NEY. I am assuming you would be looking for some sort of 

index in terms of what the rental adjustment could be? 

Ms. NWANODI. I think there are a number of ways to look at it, 

but we absolutely would oppose any structure that would discriminate between what works for a for-profit and what works for a nonprofit because, as the report indicates, the critical issue, the most 

important factor surrounding the entire preservation issue, regardless of the kind of housing, is the fact that the market is what will 

drive the owners’ decisions. So the market does not recognize that 

you are a non-profit, and those tools need to be available to owners 

regardless of their tax status. 

Mr. NEY. Thank you. 

Mr. Trehubenko, in your testimony, you talked about the losses 

that we have already suffered, and you also laid out in your written statement some of the tools that we do have and that have 

been available over the last 15 years that perhaps have not worked 

as well as we had hoped in terms of preserving some of these units. 

Do you have recommendations as to how some of these measures 

can be enhanced? Again, I bring it up because it seems to me that 

we need a comprehensive approach to this challenge, not a single 

piece of legislation but a number of pieces. Do you have thoughts 

have some of those other tools can be enhanced? 

Mr. TREHUBENKO. I do, and I would speak first about enhanced 

vouchers. When that program was created, it was directly in response to the end of the LIHPRHA preservation program and imVerDate 0ct 09 2002 11:20 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 G:\DOCS\97285.TXT FIN1 PsN: MICAH
35

plemented to protect residents as owners prepaid their mortgages. 

The original definition of properties eligible to receive the enhanced 

vouchers reflected that reality. 

Over time, the definition was changed to also include Section 8 

opt-outs, which were not in the original definition. And later, flexible subsidy properties were added as eligible as long as it was in 

the context of a preservation transaction. That has been helpful 

and more properties have been preserved. 

If we now extended that to other types of properties which need 

HUD approval to prepay, the key definitional point, such as nonprofit-owned properties, properties owned by profit-motivated owners with rent supplement, which is a forerunner to the Section 8 

program, and also the earliest Section 202 properties, which did 

not initially have Section 8 where really it was like a 236 property 

in many ways, there is no way to get enhanced vouchers into any 

of those three cohorts right now. 

Mr. GREEN. My time has expired, but the committee would appreciate it if you could offer some further written thoughts on those 

particular measures because I think they are of interest to us. 

Mr. TREHUBENKO. I will do that. 

[The following information can be found on page 212 in the appendix.] 

Mr. NEY. I would appreciate that. 

The Chair recognizes the gentlelady from California, Ms. Waters, 

for her questions. 

Ms. WATERS. Thank you very much, Mr. Chairman. Let me just 

say that this hearing is very informative,. 

I am appreciative, first of all, for the owners who wish to provide 

low-income housing and who work through these complications in 

order to do it, and I think a real lesson for us today is to see the 

kind of discrimination that is occurring. As far as I am concerned, 

whether you prepay the mortgage or the mortgage matures, it is 

one and the same, and it should be treated the same. 

I think there is an equal protection question here that even if, 

for some reason, we did not fix it, I would think the owners would 

want to go to court and make the argument for equal protection because, again, whether it is maturity or prepaying, it seems to me 

it is almost synonymous. 

Now, having said that, the fact that owners and tenants are 

aligned and together on these issues, I think, is extremely important to both sides of the aisle, and it seems to me it is that kind 

of unity that is going to force this Congress to deal with this issue 

of maintaining affordable housing. 

I think that Ms. Delgado makes a point, and we are going to 

learn about this, Ms. Delgado. We were told that the information 

was available to us that has done the assessment for what the loss 

is going to look like. But you are telling me we need to look a little 

deeper and a little further at this, and we are going to take your 

recommendation for doing that so that we can have a true picture 

of what is going on here. 

So let me just use this as an opportunity to thank everybody for 

being here. I think that your input has been tremendously important. 

36

I, some years ago, began to explore with some of the non-profits 

their ability to take over and manage some of these properties, and 

that is a tall order. It is a tall order. 

As you said, the market does not recognize that you are non-profit as opposed to profit, and you do need the kind of capital to keep 

up these places and to make sure that you do not just end up with 

properties that become another part of a barrio, a ghetto where you 

have not had the money to do what was necessary to keep them 

safe and secure. 

So, you know, any proposed formulas for transition of housing to 

non-profits, do not even look at them unless the assistance is there 

from HUD to make sure you do not fail. I do not know what those 

formulas should be and we would look to the non-profit community 

for that advice, but I would just hope that non-profits would not 

fall into the trap of trying to preserve this housing. 

Again, I think we made a commitment, Ms. Delgado, to try and 

get advocacy funding to make sure that you are protected, and we 

are going to follow through with that. 

So, again, thank you all very much. 

Mr. NEY. And I wish to concur with the comments of the 

gentlelady from California. I think this has been an excellent hearing, and I have learned a great deal. 

Without objection, three additional sets of comments will be inserted for the record: a testimony or a statement from the National 

Housing Conference; a statement from the American Association of 

Homes and Services for the Aging; and a statement from the Rural 

Housing Service Department of Agriculture. 

The Chair notes that some members may have additional questions for this panel which they wish to submit in writing. Without 

objection, the hearing record will remain open for 30 days for members to submit written questions to these witnesses and to place 

their responses in the record. 

Seeing no other business before us, this hearing is adjourned. 

[Whereupon, at 12:05 p.m., the subcommittee was adjourned.] 

(37)

A P P E N D I X

July 20, 2004

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