```

[Senate Hearing 108-573]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 108-573
 
                 EXPANDING HOMEOWNERSHIP OPPORTUNITIES

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   ON

 INCREASING MINORITY HOMEOWNERSHIP, AND EXPANDING HOMEOWNERSHIP TO ALL 
                         WHO WISH TO ATTAIN IT

                               __________

                             JUNE 12, 2003

                               __________

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

                 U.S. GOVERNMENT PRINTING OFFICE

95-410                 WASHINGTON : 2004
_________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866)512-1800: 
DC area (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, 
Washington, DC 20402-0001

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman

ROBERT F. BENNETT, Utah              PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado               CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming             TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania          CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky                EVAN BAYH, Indiana
MIKE CRAPO, Idaho                    ZELL MILLER, Georgia
JOHN E. SUNUNU, New Hampshire        THOMAS R. CARPER, Delaware
ELIZABETH DOLE, North Carolina       DEBBIE STABENOW, Michigan
LINCOLN D. CHAFEE, Rhode Island      JON S. CORZINE, New Jersey

             Kathleen L. Casey, Staff Director and Counsel
     Steven B. Harris, Democratic Staff Director and Chief Counsel
                  Sherry Little, Legislative Assistant
                        Mark Calabria, Economist
                    Jennifer Fogel-Bublick, Counsel
                  Jonathan Miller, Professional Staff
   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
                       George E. Whittle, Editor

                                  (ii)

                            C O N T E N T S

                              ----------                              

                        THURSDAY, JUNE 12, 2003

                                                                   Page

Opening comments of Chairman Shelby..............................     1

Opening statements, comments, or prepared statements of:
    Senator Reed.................................................     4
        Prepared statement.......................................    40
    Senator Allard...............................................     5
    Senator Stabenow.............................................     6
        Prepared statement.......................................    40
    Senator Dole.................................................     7
        Prepared statement.......................................    42
    Senator Sarbanes.............................................     7
    Senator Hagel................................................     9
        Prepared statement.......................................    42
    Senator Corzine..............................................     9
        Prepared statement.......................................    43

                               WITNESSES

Katherine Harris, A United States Representative in Congress from 
  the State of Florida                                                1
Mel Martinez, Secretary, United States Department of Housing and 
  Urban Development..............................................    10
    Prepared statement...........................................    43
    Response to written questions of:
        Senator Shelby...........................................    66
        Senator Chaffee..........................................    67
        Senator Reed.............................................    69
Terri Y. Montague, President and Chief Operating Officer, The 
  Enterprise Foundation..........................................    26
    Prepared statement...........................................    45
    Response to written questions of:
        Senator Shelby...........................................    75
        Senator Sarbanes.........................................    80
        Senator Reed.............................................    84
Cathy Whatley, President, The National Association of Realtors...    28
    Prepared statement...........................................    50
    Response to written questions of:
        Senator Shelby...........................................    86
        Senator Sarbanes.........................................    88
Thomas L. Jones, Vice President, Habitat for Humanity 
  International..................................................    29
    Prepared statement...........................................    55
James R. Rayburn, First Vice President, The National Association 
  of Home Builders...............................................    32
    Prepared statement...........................................    59

                                 (iii)

                 EXPANDING HOMEOWNERSHIP OPPORTUNITIES

                              ----------                              

                        THURSDAY, JUNE 12, 2003

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:05 a.m. in 
room SD-538 of the Dirksen Senate Office Building, Senator 
Richard C. Shelby (Chairman of the Committee) presiding.

         OPENING COMMENTS OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. The hearing will come to order.
    We have Congresswoman Katherine Harris from Florida here, 
who will introduce Secretary Martinez. I thought we would do 
this because she has something going on in the House, Mr. 
Secretary, if you do not mind, and then we will make our 
opening statements after Congresswoman Harris.
    Representative Harris.

                 STATEMENT OF KATHERINE HARRIS

               A U.S. REPRESENTATIVE IN CONGRESS

                   FROM THE STATE OF FLORIDA

    Representative Harris. Thank you, Mr. Chairman. It is an 
honor to be here today, and especially to appear before the 
Committee to address the moral imperative of our great Nation.
    Across America, families and individuals are confined to 
deplorable conditions in substandard public housing. In a 
Nation that enjoys a level of wealth and material comfort 
unprecedented in human history, this state of affairs is 
intolerable.
    President Bush has articulated a bold new plan that attacks 
this problem by creating 5.5 million new minority homeowners by 
the end of the decade. Studies show that the average net worth 
of low-income persons, which is $900 when they rent, skyrockets 
to over $70,000 when they own their own home. The fulfillment 
of this vision will add $256 billion to the American economy. 
In fact, just last year, the economic activity associated with 
homeownership amounted to $80 billion.
    I was honored to introduce a bill that helps implement the 
President's plan. I have sponsored H.R. 1276, the American 
Dream Downpayment Act, which is on its way to the House floor 
after passing the full Financial Services Committee this month.
    I have repeatedly heard from housing advocates that a great 
number of low-income Americans could meet a monthly mortgage 
payment, but they cannot surmount the initial obstacle of that 
downpayment and closing costs. These circumstances have created 
a steep entry fee that we have the power to abolish. The 
American Dream Downpayment Act will help tens of thousands of 
low-income Americans attain the dignity, stability, and 
economic empowerment of homeownership.
    But I have the opportunity this morning to recognize 
Congressman Mike Rogers from Illinois for his extraordinary 
leadership on the issue. He sponsored similar legislation in 
the House last year, obtaining $75 million in funding for this 
fiscal year, although the actual bill did not reach the floor. 
I also want to thank Senator Wayne Allard for his sponsorship 
of the companion bill in the Senate, Senate bill 811, as well 
as the House Financial Services Committee Chair Mike Oxley and 
Housing Subcommittee Chairman Bob Ney for their steadfast 
support of this legislation. Further, I wish to commend 
Congressman Artur Davis from Alabama for his passionate 
commitment to this issue. His bipartisan leadership reminds us 
all of what can be accomplished if we work together to make a 
difference.
    Yet today, I have the distinct honor and privilege to 
introduce the very embodiment of this American dream. As a 
fellow Floridian, I can attest to the pride Mel Martinez has 
brought to our State due to his outstanding performance as 
President Bush's Secretary of Housing and Urban Development. 
Having confirmed his appointment, you well know that Secretary 
Martinez compiled an outstanding record as Chairman of the 
Government of Orange County from his election in 1998 until his 
selection in 2001 as the first Cuban American to serve in the 
President's Cabinet.
    Many of you may not have heard the amazing story that 
underlies all of these achievements. Mel Martinez was born in 
Sagua la Grande, Cuba. As a teenager, he fled the tyranny of 
Castro's Cuba as a part of Operation Pedro Pan, a Catholic 
humanitarian effort that eventually brought 14,000 children 
safely to the United States.
    Mel Martinez came to this country alone, knowing very 
little English. As a result of an unparalleled drive, 
perseverance, and vision, he soared upon the wings of his new-
found freedom. Upon his graduation from the Florida State 
University College of Law, he became an eminent attorney, 
community activist, and leader in Orlando. As our Nation's top 
housing official, Secretary Martinez has reenergized HUD as a 
powerful force for the extension of quality affordable housing 
to every American.
    He has restored public confidence by making ethics, 
accountability, and program effectiveness his top priorities. 
Moreover, he has forcefully and effectively implemented the 
Bush Administration's compassionate conservative agenda through 
initiatives that spur community development, increase minority 
homeownership, and galvanize our Nation's armies of compassion.
    I wish to thank Secretary Martinez and his staff for their 
guidance and support during this legislative process. I wish I 
could stay for the duration, but we have a markup. And, again, 
Mr. Chairman, and the balance of the Senators on this 
Committee, thank you so very much for inviting me and for 
conducting this hearing.
    Chairman Shelby. Thank you, Representative Harris.
    In March of this year, the Committee heard Secretary 
Martinez offer the Administration's budget proposal on housing 
for fiscal year 2004. An important part of this proposal is the 
Administration's goal of increasing minority homeownership by 
5.5 million households by the end of the decade. I fully share 
this goal.
    Homeownership is an important tool in lifting low-income 
and minority families out of poverty. Providing homeownership 
opportunities for low-income families not only provides them 
with an opportunity for wealth building, it also increases 
community pride and has a stabilizing effect on children.
    Today, 68 percent of American families own their home. They 
have achieved a piece of the American dream. I will note that 
even more impressive is the fact that 74 percent of the people 
in my State of Alabama own their home. This is an amazing 
achievement considering that in 1940, my State, Mr. Secretary, 
my State of Alabama had a homeownership rate of 33.6 percent, 
less than half of today's. I am very proud of that.
    Mr. Secretary, you might want to take a close look at what 
we have done there, not just what I have done but what others 
have done way before I came along.
    Despite the incredible gains that have been made, 
homeownership still remains very much out of reach for many. 
Only 42 percent of families headed by persons 35 years or 
younger own their own home, while homeownership of persons 65 
years or older is over 80 percent.
    Homeownership rates also differ significantly by race and 
income. For white households, the national homeownership rate 
is 75 percent, while for African American households it is 47.7 
percent. A greater gap is found across incomes. If a family's 
income is at or above the median, the rate of homeownership is 
83.3 percent, Mr. Secretary, as you know. For families earning 
less than the median income, the rate of homeownership is 51.3 
percent.
    One of the many obstacles to achieving homeownership is 
coming up with the downpayment. A 1999 Census Bureau report 
finds that for almost a third of renter families that could not 
afford to purchase a home, their only obstacle was lacking the 
up-front cash necessary for a downpayment.
    The President has proposed one solution to the obstacle, 
the ``American Dream Downpayment,'' which authorizes $200 
million in grant assistance to families wanting to own a home. 
Senator Allard, my colleague, has taken the leadership of 
introducing this proposal in the Senate.
    Saving for a downpayment is not the only obstacle families 
face in achieving homeownership. Other families lack access to 
affordable credit or even lack an understanding about the 
mortgage and home buying process.
    These are just a few of the issues, Mr. Secretary, I hope 
we will be able to cover today. I encourage our witnesses to 
offer their perspectives on how we, as a country, can expand 
the homeownership opportunities to all who wish to attain it.
    Our first witness is Secretary Martinez. After we hear from 
Secretary Martinez, we will hear from several of the 
Administration's partners in expanding homeownership. This 
second panel includes Mr. Bobby Rayburn, First Vice President 
of the National Association of Home Builders; Ms. Cathy 
Whatley, President of the National Association of Realtors; Mr. 
Tom Jones, Managing Director for Habitat for Humanity's 
Washington DC office; and Ms. Terri Montague, President and 
Chief Operating Officer for the Enterprise Foundation.''
    Mr. Secretary, we welcome you again to the Committee. We 
look forward to your remarks. Your written statement will be 
made part of the record in its entirety.
    Senator Reed.

                 STATEMENT OF SENATOR JACK REED

    Senator Reed. Well, thank you very much, Mr. Chairman, and 
we are pleased to see Secretary Martinez here today, as always.
    This is a very appropriate moment to talk about 
homeownership. June is Home Ownership Month. We are pleased 
that we have made progress over the last several years, and the 
work that continues is one that I think is very important.
    This program the President proposed is a very useful one, a 
helpful one, but I do not think it alone will deal with the 
issue of affordability and homeownership. The average price of 
a home in the United States during the first quarter of 2003 
increased 6.48 percent from the previous year, so we are seeing 
increased prices. In my State of Rhode Island, home prices have 
shot up 15 percent over last year. We are seeing, in fact, that 
of the many homes for sale around, only 216 are classified as 
affordable given the standard measure of affordability, and 
that is that a family making $47,000 could afford to buy that 
home.
    Indeed, as a result of these market pressures, our 
homeownership numbers have fallen to 59.6 percent, much less 
than the national average. So there are many issues that have 
to be addressed. This is a useful approach, but not the 
exclusive and sole approach.
    There are several areas which I would like to comment on 
that raise concerns with respect to the current proposal. One 
of the real problems is even if you have access to a 
downpayment, you have to have an affordable home to buy. And as 
I pointed out, in Rhode Island there are only 216 out of the 
thousands that are on the market. So, we need also to think 
about production.
    The second point I would raise is that this is only one 
rung on the ladder of homeownership. It is an important rung, 
but if we do not have access to good, affordable public 
housing--and I notice Congresswoman Harris pointed out 
substandard public housing--that is a first-order 
responsibility. And if we do not do that, then I think we won't 
have the ability to put people in decent housing until they can 
afford to buy a home.
    Section 8 vouchers, preserving existing affordable housing, 
stabilizing distressed neighborhoods--all of these must be 
addressed as well as providing downpayments for homeownership.
    And, finally, I am concerned about the generality of the 
Administration's proposal. There is no formula for providing 
this downpayment assistance, and, in fact, I think under some 
present programs, like the HOME Program, States have the 
flexibility to use the money for downpayment assistance. So I 
wonder why we would embark on a new program when, in fact, the 
States have the authority already to do that, and they can use 
their judgment and their local perspective to make sure that 
the money is being spent well and wisely.
    But anything that can be used to help people get in homes 
is commendable, and I hope working through the process we can 
address some of these concerns.
    Again, I thank the Secretary for being here today.
    Chairman Shelby. Senator Allard.

               STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. First off, Mr. Chairman, I would like to 
thank you for convening today's hearing. I think it is very 
timely considering that June is Home Ownership Month.
    I believe that housing and, in particular, homeownership is 
one of the most important areas of our jurisdiction. All those 
stories like weapons of mass destruction in Iraq and monkeypox 
outbreaks in America might grab the headlines. Housing is 
actually the bigger story and, I might add, successful story. 
Sixty-eight percent of Americans own their own home. This is a 
record-high level. However, we have significant room for 
improvement. Although 75 percent of whites own their own home, 
only 48 percent of minorities live in an owned home. I strongly 
believe that this homeownership gap should be eliminated, and I 
want to commend both President Bush and Secretary Martinez for 
their efforts to do just that.
    I am pleased to work with them to expand homeownership 
opportunities by introducing the American Dream Downpayment 
Act. This bill will dedicate $200 million to downpayment 
assistance through HUD's HOME Program. Because the downpayment 
is one of the biggest obstacles to homeownership, this bill 
will allow 40,000 families each year to become new homeowners. 
This program is structured with a great deal of flexibility to 
allow it to complement existing homeownership programs.
    I would agree with my colleague from Rhode Island that we 
have to be concerned about the rising costs of homes, but this 
is not something that is the sole responsibility of the Federal 
Government. The local governments have a big stake in this, and 
the State government has a big stake in this. The nice thing 
about this particular piece of legislation is that it is not 
intrusive into those areas, but it is a supportive effort in 
order to help get more people into homeownership, particularly 
minorities.
    I am hopeful that the Committee will be able to quickly 
report out the American Dream Downpayment Act. That would be 
one of the most fitting ways possible for us to mark National 
Home Ownership Month.
    I also would like to welcome our witnesses today. They have 
all done a great deal of work on homeownership. I am eager to 
hear their comments about what else can be done.
    I will conclude by welcoming Secretary Martinez back to the 
Banking Committee. I would just note an addendum at this point 
that I have received the Government Results and Procedures Act 
report on my desk. This is something I request every time a 
witness from HUD testifies. I am in the process of going 
through that, and I appreciate HUD's response and yours, Mr. 
Secretary, to my request in that regard.
    I appreciate your efforts to promote homeownership, and I 
look forward to working with you to help make the American 
dream a reality for more families.
    Chairman Shelby. Senator Stabenow.

              STATEMENT OF SENATOR DEBBIE STABENOW

    Senator Stabenow. Thank you, Mr. Chairman. Good morning. It 
is good to have you back with us, Mr. Secretary. And thank you, 
Mr. Chairman, for holding this very important hearing.
    I do have a full statement I would like to put in the 
record.
    Chairman Shelby. It will be made part of the record, 
without
objection.
    Senator Stabenow. Thank you. And I do have some comments I 
would like to make.
    I appreciate your efforts on homeownership. There are a 
number of challenges, as we all know, in the housing sector 
today that require our attention and our leadership both on the 
demand side of housing as well as the supply side. And as we 
are talking about specific bills, I wanted to make sure to 
bring to your attention this morning--hopefully you are aware 
of legislation that I have teamed up with Senator Gordon Smith 
to introduce, two different bills--one addressing supply side, 
one the demand side--on homeownership that we are looking 
forward to working with you on and would certainly welcome your 
support of as well that builds on the efforts that you are 
working on.
    We have introduced what we call the First-Time Homebuyer's 
Tax Credit, which is S. 1175. Our bill authorizes a one-time 
tax credit of up to $3,000 for an individual or $6,000 for a 
married couple. It is similar to the existing mortgage interest 
tax deduction in that it creates an incentive for people to buy 
a home. It is available to those in the 25 percent tax bracket 
or less.
    What makes it different and unique and what we are excited 
about is that normally, as we know, tax credits are an after-
the-fact benefit, and for young families, for individuals that 
are struggling to put together that downpayment and the closing 
costs that are associated with it, it can be oftentimes an 
insurmountable barrier on the front end to come up with the 
dollars to do that. And so Senator Smith and I have designed a 
tax credit that would actually be available at closing. There 
would be a mechanism to have that available as cash at the 
closing and would be redeemed by the lender.
    So it is a different approach. We are excited about it. We 
have received a lot of support from a variety of places. We 
really appreciate the National Association of Home Builders as 
well as Habitat for Humanity, who are here today, who have 
offered their support for this proposal. And they have joined a 
long list of groups including the Mortgage Bankers Association 
of America, the American Bankers Association, American 
Community Bankers, Fannie Mae, Freddie Mac, National 
Association of Affordable Housing Lenders, and the National 
Council of La Raza, who have offered their support to the 
concept of a transferable tax credit.
    So, Mr. Secretary, I would like very much to work with you 
on this concept, and also indicate that Senator Smith has 
introduced another bill that I am cosponsoring with him to spur 
the revitalization of neighborhoods through a development tax 
credit, which is the only side of that. I know that Senators 
Santorum and Kerry, among others, have been strong proponents 
of this concept, and I am glad that the Administration supports 
it as well in order to eliminate the economic mismatch between 
current market prices and the costs of rehabilitation in our 
blighted communities, and certainly this is true in many 
communities in Michigan as well as all across the country.
    And so we have, again, a tax credit that would address 
those who invest in restoring homes and then returning them to 
private homeownership so that we can together rebuild 
communities.
    I would mention only one other issue that I continue to 
work on, and I know other colleagues do as well, and we have 
had hearings in the past before this Committee, and that is the 
question of predatory lending. As we have seen an explosion in 
refinancing and certainly efforts to create more homeownership, 
we want to make sure that we are not continuing to see an 
explosion in predatory lending as well. And there are important 
ways that we need to work together to address that, and I look 
forward to doing that with you as well.
    So thank you, Mr. Chairman, and to the Secretary, we would 
like very much to work with you on these two bills that Senator 
Smith and I have introduced that we believe are positive steps 
as we look at the whole issue of homeownership and how we can 
support families to be able to get into that first home.
    Chairman Shelby. Thank you.
    Senator Dole.

               COMMENT OF SENATOR ELIZABETH DOLE

    Senator Dole. Mr. Chairman, in the interest of time, I will 
submit my opening statement for the record.
    Chairman Shelby. Without objection.
    Senator Dole. Welcome, Mr. Secretary.
    Secretary Martinez. Thank you, Senator.
    Chairman Shelby. Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Despite Senator Dole's striking example, 
I am not going to follow it.
    [Laughter.]
    Senator Sarbanes. With all due respect to my colleagues.
    Mr. Secretary, we are pleased to have you here again, and I 
want to thank the Chairman for scheduling this hearing.
    We talk a lot about homeownership, and I think there is a 
danger that it may become a cliche, and I want to spend just a 
moment reminding us why we put so much effort into achieving 
this very important goal.
    Homeownership is an asset-building engine for families and 
neighborhoods, indeed for society as a whole. When a family 
buys a home, they are buying more than brick and mortar. They 
are really buying into the neighborhood. With each homeowner, 
we create another anchor in a community, another advocate for 
better schools, safer streets, small business development. 
Common sense tells us and the evidence actually confirms that 
homeowners are more engaged citizens and more active in their 
communities.
    Expanding homeownership, particularly in struggling areas, 
will help replace the vicious cycle of decline that we see in 
some neighborhoods with a virtuous cycle of wealth accumulation 
and economic growth. Once you own a home, you are able to build 
equity--equity which can be used to send your children to 
college, finance your retirement, and serve as a needed reserve 
to protect against emergencies.
    Increasing homeownership, and especial minority 
homeownership, has long been a national goal. In fact, the 
Joint Center for Housing Studies at Harvard points out that the 
1990's was a period of significant growth in minority 
homeownership and in mortgage lending to minorities. 
Unfortunately, over the last few years, we have seen that 
progress level off as the economy has cooled down.
    There are a number of proposals that have been made in 
hopes of reigniting the progress that we have seen. Senator 
Stabenow alluded to efforts that she has undertaken along with 
Senator Smith. The Administration itself has come forward with 
proposals which we will be hearing about very shortly.
    As we discuss ways to encourage new homeownership, though, 
I want to just raise a couple of concerns.
    One, we need to keep in mind the importance of protecting 
existing homeowners. Today, delinquency and foreclosure rates 
are higher than they have been in many years despite an 
extremely favorable interest rate environment. We are 
confronted with predatory lenders stripping equity and driving 
owners into foreclosure. We see many homebuyers paying 
significant amounts in extra costs in the form of yield spread 
premiums. In some neighborhoods, we see high concentrations of 
foreclosed FHA homes, which attract unscrupulous investors and 
brokers, and they become a tool for neighborhood disinvestment 
and decay. And it is especially painful to watch this because 
FHA has traditionally been and, in fact, continues to be one of 
the main tools for first-time families to achieve the dream of 
homeownership. A foreclosed home, particularly if it sits 
around boarded up, becomes a magnet for crime and drugs.
    The wealth of groups like Habit, The Enterprise Foundation, 
LISC, and many others help create over years of work can be 
lost in just a few months if their effort is surrounded by this 
panoply of predatory practices. That is why pre- and post-
purchase homeownership counseling, improved protections against 
predatory practices, foreclosure prevention activities, home 
repair and improvement programs, and others must be considered 
as an integral part of any homeownership strategy, and I urge 
the Department to broaden that focus.
    Finally, Mr. Secretary, I want to note that while striving 
toward homeownership, we cannot really achieve it for 
everybody. I mean, people face in many instances a financial 
situation that at least currently places it beyond their reach. 
So affordable rental housing is an important step on this path 
toward the ultimate goal. We can do all the downpayment 
assistance we want to do, but, you know, we are still going to 
have the negative effects on a neighborhood if you have a 
deteriorating public housing project, with all that that 
implies. And obviously, therefore, we are concerned about the 
cut in public housing capital funds that have been reflected in 
the budgets.
    The proposal to eliminate the HOPE VI Program, which has 
actually been a crucial tool in transforming neighborhoods of 
despair into vital mixed-income communities, that program has 
worked extremely well in some communities, not so well in 
others, and it seems to me the focus of attention should be on 
what needs to be done to make it work well in those places that 
have not had such a successful performance rather than zero it 
out. And I am hopeful that Congress will sustain that program 
and that the Administration, that you and your Department will 
then be able to continue to have this important tool for 
upgrading our neighborhoods.
    It is a tremendous challenge, and we know you are facing 
it, and we are facing it, and we look forward to working with 
you in this respect.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Hagel.

                 COMMENT OF SENATOR CHUCK HAGEL

    Senator Hagel. Mr. Chairman, thank you. Secretary Martinez, 
welcome.
    I have a statement, Mr. Chairman, that I would ask to be--
--
    Chairman Shelby. It will be made part of the record, 
without
objection.
    Senator Hagel. Thank you. I look forward to your testimony 
and that of the second panel.
    Thank you
    Secretary Martinez. Thank you, Senator.
    Chairman Shelby. Senator Corzine.

              STATEMENT OF SENATOR JON S. CORZINE

    Senator Corzine. Thank you, Mr. Chairman. And, Mr. 
Secretary, welcome. I do have a full statement I will put in 
the record.
    Chairman Shelby. Without objection, it is so ordered.
    Senator Corzine. I do want to make the point, reiterate a 
few of the points that Senator Sarbanes commented on. I am very 
much in agreement with the concept of expanding homeownership 
through aid to people for downpayments. I think the idea of the 
HOME Program, the concept of the program, is terrific. 
Unfortunately, many times what we see in New Jersey, it has 
actually been diverted to other areas, even in rental issues, 
and maybe appropriately. But given the needs of the community, 
we need to really get focused programs, in my view, toward 
actually expanding the housing stock.
    In that vein, I am very concerned--and I will be a lot more 
long-winded in my formal statement--about the HOPE VI Program, 
which is basically being wound down under the Administration 
policies. And I do not understand it. The HOPE VI Program has 
funded the creation of more than 21,000 units of homes owned by 
individuals, at least 3,000 of those people that came out of 
public housing. It is a program that worked. You know, it is 
doing what it is that we are all about. So I have a particular 
frustration that I think is reflective of what I hear in my 
community and State and what I hear around the country, when we 
are trying to expand homeownership, why that is not the case.
    There are other elements with regard to assisted living and 
Section 8 programs that I am concerned about. I think probably 
others have mentioned the public housing capital fund. All of 
this that increases housing stock ultimately gets at the 
ability to, I think, provide for low-income homeownership.
    There are lots of root causes of this, but I in many ways 
think we are taking a step back, particularly in the context of 
this HOPE VI issue, which is one that I hope the Administration 
will review and reconsider.
    I do want to acknowledge that I know the Secretary is 
interested in this, and I believe that quite sincerely. But I 
think we need to review some of the things that we are pulling 
back from that have shown great success and move forward.
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you.
    Mr. Secretary, you proceed as you wish. As I said, your 
written statement will be made part of the record.

                   STATEMENT OF MEL MARTINEZ

                           SECRETARY

        U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Secretary Martinez. Thank you. I will just make some brief 
opening comments, and thank you very much for holding this 
hearing. I am delighted that we are doing it in Home Ownership 
Month. I think that the benefits of homeownership, which have 
been so appropriately highlighted by many Members of the 
Committee, are on the record. I do believe that as we look to 
the future, while the housing picture is a complex one, today, 
properly so, I think focusing on homeownership is an 
appropriate and a good thing to do.
    In 2001 alone, Americans took $80 billion out of the equity 
they had accumulated in their homes to make investments in 
education, consumer goods, and new businesses, and there is no 
question that homeownership helps families to lift themselves 
into a better quality of and a more secure future.
    But the benefits of building a Nation of homeowners extend 
well beyond the individual families and also into their 
communities. As Senator Sarbanes pointed out about the many 
good things that flow to a community as a result of encouraging 
homeownership, also we know it has a powerful impact in the 
economy. This past economic slowdown which we have seen has 
been essentially kept from going deeper and has essentially 
been brought back as a result of a very strong housing sector. 
And I am very pleased at gatherings of my colleagues when the 
economy is discussed, and we can talk about the strength of the 
housing market and all that it has done.
    The Administration wants every family to benefit from our 
emphasis on homeownership. However, because they face special 
obstacles on the road to owning their own homes, we are 
specifically reaching out to minority communities. The minority 
homeownership gap, Mr. Chairman, you pointed out during your 
comments
exists. We want to see what we can do to contract it and to 
reduce it, while at the same time improving the lives of so 
many more families.
    The barriers that we have found include the inability to 
come up with enough cash for a downpayment, a lack of credit 
history or a blemished credit record, discrimination, and the 
unfamiliar terms and unreliable information that are often part 
of the homebuying process.
    President Bush and I consider removing these barriers and 
eliminating the homeownership gap to be a top priority for HUD 
and one that is fundamental to our mission as the Nation's 
housing agency.
    The President launched America's Homeownership Challenge 
last June and announced his goal of boosting minority 
homeownership by 5.5 million families by the end of the decade. 
In response, HUD created the Blueprint for the American Dream 
Partnership. Each partner has made specific commitments that 
will help us reach our goal of dramatically boosting 
homeownership.
    One way we are clearing away the barriers to homeownership 
is by offering new tools and new resources to the homeowners of
tomorrow.
    For example, the American Dream Downpayment Initiative will 
help make homeownership a reality for 40,000 families. The 
initiative, which is currently moving through the Congress--and 
I am
so pleased that Congresswoman Harris was here today. She has 
introduced it in the House, Senator Allard in the Senate. We 
believe this is a proposal that will make a real difference in 
people's lives.
    We have proposed increasing funding for our housing 
education program to $45 million, which would allow HUD to 
counsel 250,000 first-time homebuying families to avoid some of 
the very problems Senator Sarbanes alluded to in predatory 
lending and the like.
    The Administration is also boosting funding for the HOME 
Investment Partnerships Program by $113 million, a total of 
$2.2 billion in fiscal year 2004. Both HOME and the Community 
Development Block Grant programs are popular, successful, and 
locally driven initiatives that communities can tap into to 
create affordable homes for low-income families.
    Our proposals also include a $1.7 billion Single-Family 
Affordable Housing Tax Credit to encourage developers and 
nonprofit
organizations to produce affordable homes. The tax credit will 
make some 100,000 homes available for purchase in low-income 
neighborhoods.
    During the 2000 campaign, the President announced a plan to 
give another 2 million low-income Americans the opportunity to 
move into their own homes with help from HUD's Section 8 
Housing Choice Voucher Program. We currently allow local 
housing officials to offer future homebuyers the option of 
applying their vouchers toward a home mortgage. Our fiscal year 
2004 budget proposal would expand the program by allowing 
families to also put their vouchers toward a home downpayment.
    These initiatives, Mr. Chairman, reflect just part of what 
has grown into an Administration-wide commitment to making 
homeownership an affordable option for every family that seeks 
it. With our assistance, and the support of the Congress, low-
income families across the country who at one time never 
considered homeownership an option are becoming homeowners 
today, and will do so into the future.
    Thank you for holding this hearing, and I look forward to 
answering the Committee's questions.
    Chairman Shelby. Thank you, Mr. Secretary.
    Mr. Secretary, mentioned briefly in HUD's budget proposal 
was the creation of a FHA subprime mortgage product. Could you 
share with the Committee what is the status of that proposal 
and when Congress will see more details?
    Secretary Martinez. Yes, sir. That proposal is still 
working its way through. We are looking forward to launching it 
because we think it will be yet another vehicle to allow for 
the subprime market to also participate in the FHA program.
    I am making sure with Mr. Weicker, our Housing 
Commissioner, that that is the case.
    Chairman Shelby. Sure.
    Secretary Martinez. But we are looking forward to bringing 
that to you for consideration.
    Chairman Shelby. Will it be a few months?
    Secretary Martinez. It will be very quickly. We are looking 
at weeks rather than months.
    Chairman Shelby. Mr. Secretary, I believe that the Bush 
Administration's goal of 5\1/2\ million additional minority 
homeowners is commendable. We have talked about that before. 
What would be in the increase in minority homeownership at the 
end of 10 years, at the end of this decade if this goal is not 
set? That is, what is the baseline we are starting from? What 
is the baseline?
    Secretary Martinez. The disparity that exists today is only 
going to be exacerbated if we see the demographic patterns 
continue because you see most homeowners today, 70 percent, are 
white majority Americans. As inheritance and things of that 
nature take place, the disparity could grow even wider. I 
believe that it is essential that we encourage these efforts to 
try to close that gap. While knowing that we may slightly close 
it or at least keep it from widening, all of our efforts really 
cannot combat what are long-term established demographic 
trends.
    So, I am not wedded to a number. What I am wedded to is the 
effort. We are doing all that we can, not only with the things 
that we are asking the Congress's help in and the things that 
we can do as Government, but also partnering with the private 
sector, with the realtors, with the homebuilders, the mortgage 
bankers and all that are involved in the home buying and 
financing process, to ensure they pay special care to improving 
the numbers of minority homebuyers get a shot at being a 
homeowner. We need to combat issues like predatory lending. We 
need to make sure that we have a process that is also fair and 
equitable and allows families a shot at the American dream.
    As we do that, Senator, the value in it is that we are 
going to be able to lift so many families to self-sustaining 
status and not really a dependent status which too often is the 
case.
    Chairman Shelby. Which is a commendable goal.
    Could you describe for the Committee how you see the 
American Dream Downpayment working in practice?
    Secretary Martinez. This is a program that would be 
implemented through the Home Program. The Home Program already 
is a very successful program administered by the States and 
other funding jurisdictions. What we find in it is that it has 
a lot of local flexibility in focusing it on down payment 
assistance, and there have been some who have suggested that 
perhaps it should be unfettered use of this money to the 
locals. The fact is that we know the down payment is one of the 
key barriers to homeownership for minorities and families that 
are poor. So if we find that in this environment of low 
interest rates that sometimes a mortgage payment can be less 
than the actual rent a family would pay, that if we can just 
jump start a family with the assistance and the down payment 
and the front-end cost, that we can launch a family into 
homeownership and be successful homeowners. We are coupling 
that of course with the homeownership education part of it.
    Chairman Shelby. Mr. Secretary, will the nonprofit groups 
select families to be assisted or will local and State 
governments, or will it be a combination?
    Secretary Martinez. It will be a combination of the two 
working together. The HOME program already utilizes a vast 
array of community organizations. They will continue to do 
that. The American Dream Downpayment uses the established order 
of what is out there today, working very successfully, just 
giving them one additional tool.
    Chairman Shelby. How is the level of assistance determined? 
Is there a formula for that?
    Secretary Martinez. There would be, in other words, how the 
money is distributed will be by a formula, but how the local 
assistance is provided will be done by the local entities by 
the participating jurisdictions. The formula is based on need, 
for the local entities it will be based on need as demonstrated 
by census data and others, but it will also be done by 
performance, prior down payment assistance programs, and other 
incentives that already have been provided to minority 
homeowners by their participating
jurisdiction.
    Chairman Shelby. Thank you, Mr. Secretary. I will come back 
in another round.
    Senator Reed.
    Senator Reed. Thank you very much, Mr. Chairman. Thank you 
again, Mr. Secretary, for coming by.
    First, no one here is going to argue against helping people 
get into homes. I mean that is a fundamental goal that we all 
have. I find it interesting thought that the mechanism you are 
choosing has run into some criticism. Yesterday the Committee 
received a letter from the National Council of State Housing 
Agencies, and as you know, this is an agency that represents, 
or the organization represents those State housing officials 
who seem to be closer, who are closer to the issue. They say in 
their letter in opposition to the proposal, that the down 
payment initiative would force States and localities to use a 
portion of their HOME fund for Federally mandated down payment 
activities rather than their own identified needs and 
priorities. It ignores the fact that down payment assistance is 
already a HOME eligible activity. In fact, the letter went on 
to note that about 40 percent of the units assisted through 
HOME have been homeownership units, and according to HUD data 
collected by minority staff, 45 percent of all HOME funds 
already go to homeownership activities, approximately 11 
percent are used on down payment assistance already, and 
indeed, following on Senator Sarbanes' comment about it today, 
we have to keep people in the homes that already own them, 
because of adverse conditions. At least in the HOME program 
they have the flexibility for counseling and other activities. 
They may not be able to provide mortgage payments, but they 
certainly can counsel.
    I think this raises an obvious question of why is this not 
just additional funding for HOME under the same rules, same 
formula, same guidance, same flexibility to the States?
    Secretary Martinez. Normally it would continue to provide 
all of the funding that HOME has received in the past. We have 
boosted it this year, as I pointed out in my testimony, by 5 
percent. But what we felt was important was to make an added 
commitment with new money, new dollars, dedicated solely to the 
purpose of down payment assistance. The fact of the matter is 
that down payment assistance is an eligible activity under 
HOME. Not all jurisdictions utilize it. We just thought that to 
give a boost to the HOME program by adding money to the 
program, putting in additional resources, and focusing them on 
down payment because the statistics show, the data shows that 
it is so crucial to homeownership to provide down payment, that 
we thought this was a good way to do it and a good way to focus 
on the importance of down payment by providing additional 
funding.
    I would think that argument made would have more merit if, 
in fact, we were reducing the funding of the HOME program in 
order to segregate some funds for this purpose, but when the 
funding is not only at current levels, but being increased 
substantially in a difficult budget year, and then on top of 
that add new funding, I just think that frankly it is just not 
a complaint that I find well founded.
    Senator Reed. Well, it is certainly a complaint of 
interested parties and dedicated parties, who spend a great 
deal of their time trying to put people in homes, as you do.
    Also, I note in the legislation that you will not use the 
HOME formula, that you delegated the responsibility to 
establish a formula, which is different than the HOME program, 
where I believe there is a legislatively mandated formula. How 
are you going to distribute this money, Mr. Secretary?
    Secretary Martinez. Senator, let me find my answer on the 
formula here. It is back to what I mentioned earlier. It is 
going to be based on need and performance. In other words, the 
formula will look to the need in the area, which is the 
traditional HOME formula, but in addition to that, it will look 
to performance. For instance, if a jurisdiction already has 
been engaged in a HOME program, where they have devoted some of 
their HOME dollars to down payment assistance, we will then 
take that into account, and it will be of additional assistance 
in providing additional funding to that jurisdiction. In other 
words, those who already are engaged in down payment assistance 
programs will have an opportunity to get specific funding based 
on the fact that they have already been engaged in this and 
found it to be useful for them.
    Senator Reed. Like everything here, there is a contrary 
argument. That is that you could use the funds to encourage 
people to do things they are not doing.
    I think this formula issue is one that we should address. 
Although we all trust your judgment, I think it would be better 
to have something more specific in terms of your intentions.
    Let me just turn to a final point, and that is, you said--
and this is encouraging--40,000 families will be able to access 
a home, which we are all in favor of. But just to put it in 
context, I am told by staff there are 1.3 million families in 
public housing. There are about 1.9 million families using 
Section 8 vouchers. As I said, and I think it is a concern 
echoed by others, the relatively flatline funding for Section 8 
vouchers cuts in public health operating expenses and capital 
improvements. In terms of the need, in terms of the number of 
people we have to serve, it seems that we have to do more there 
just as well as we are trying to do something for these 40,000 
families. There are close to 3 million families that depend 
upon us for Section 8 vouchers and for public housing, and the 
budget is cutting those programs.
    Secretary Martinez. It is not Section 8 though.
    Senator Reed. Level funding.
    Secretary Martinez. Thank you.
    Senator Reed. Thank you, Mr. Chairman.
    Chairman Shelby. Senator Allard.
    Senator Allard. Mr. Chairman, I would like to lay it out 
here very simply. It has been alluded to in our comments that 
there are many barriers to homeownership, but the most 
significant barrier, in my view, is coming up with a down 
payment.
    You said that in some cases the payment for a home might be 
less than the rent, and with changing interest rates I can see 
how that can be the case. I have seen it in the past that when 
interest rates were higher, rent and downpayments usually run 
about the same. This downpayment barrier is affecting 
responsible families. They just need to get over that hump in 
order to own their own home. I think that is very important. I 
would like to hear from you what you feel are the social and 
economic benefits that accrue to a family or individuals who 
end up owning their own home in this investment?
    Secretary Martinez. Senator, the benefits are broad and 
many. I think that there are social benefits, things that one 
would expect or perhaps not expect, but it shows that children 
that live in homes that are owned by their parents perform 
better in standardized testing, for instance, in schools, which 
is an indication of better school performance that might have 
to do with the stability they feel or the fact that they may be 
going to the same school for a number of years.
    But I think to me, in addition to the very obvious social 
benefits, I think the thing that I would find the most 
encouraging is the economic opportunity it gives a family in 
creating equity. I think it takes a family out of the second-
class citizenship that poverty so often inflicts upon people, 
and it gives them a chance to be in control of their own 
financial lives, and as such, to really rise in the way that 
America has for so many others provided that kind of 
opportunity. So, I think it is not only a social benefit, but I 
think very, very importantly, it is also the economic benefit 
that it provides for self-sustainability to a family.
    Senator Allard. Mr. Chairman, I would also like to point 
out to the Committee that you have a lot of practical 
experience in housing programs, and I think you are very much 
aware, from your own personal experience, in the challenges, 
particularly at the local level. I personally strongly believe 
in incentives rather than mandates. I cannot help but think 
that maybe you share that concern because you have been so 
active in local housing, dealing with people on a one-on-one 
basis.
    I want to inquire a bit further on what my colleague was 
concerned about. The American Dream Downpayment formula is 
structured to consider jurisdictions past homeownership 
activities.
    Secretary Martinez. Right.
    Senator Allard. Why do you believe it is important to 
reward those areas that have demonstrated a commitment to 
promoting homeownership?
    Secretary Martinez. One of the things that I think we need 
to look at is that the participating jurisdictions had already 
engaged in good, successful, active homeownership programs. 
Those should be encouraged. In fact, I know that there are 
those who may not be doing it as well, and they should also be 
encouraged. I think the fact that the opportunity is there for 
increased funding should also be an encouragement, even to 
those that are not doing it. But the fact is that as well at 
the communities that are already engaged in very proactive 
efforts to provide homeownership, that those communities should 
be rewarded for their past efforts and what they have been 
doing successfully. I think too often, frankly, programs that 
can be very successful, like HOPE VI which has been mentioned 
here today, too often get bogged down by jurisdictions that are 
recipients of funds that do not handle them well, and that can 
be in any number of areas. The beauty of the HOME program is 
that it is so flexible to localities, so I think that formula, 
providing that kind of boost to the people who are engaged in 
active homeownership programs is a positive thing.
    Senator Allard. It should be an incentive for those 
jurisdictions that are not doing such a good job to do a better 
job.
    Secretary Martinez. Exactly.
    Senator Allard. As part of your blueprint for the American 
Dream to expand homeownership, you reached out to a large 
number of trade associations, private organizations, nonprofits 
and others. Could you briefly describe the role of these 
partners in the initiative to create new minority homeowners?
    Secretary Martinez. Senator, we have an acknowledgement 
that all that can be done in this area cannot be done by the 
hand of Government, that we really have to engage the private 
sector, the people who are in the business, and ask of them an 
equal commitment. So mortgage bankers, secondary mortgage 
marketers, people in the real estate and other industry have 
all come forward to try to do what they could to make an 
additional commitment of lending in minority areas, to make an 
additional commitment of reaching out through their marketing 
programs to people in minority communities.
    In addition to that, we have found very willing partners 
and very positive partners in professional associations of 
minorities who are in the real estate business, and they are 
undertaking now a more aggressive approach of homeownership 
education. This is good for business. This is good for what 
they do. But at the same time it can have an impact of reaching 
into communities that too often, frankly, have just not had the 
vision that homeownership can also be for them. And this is one 
of the things that I insist on, is that we should not look at 
any America and suggest to them that homeownership just is not 
for them, that they are not ready for it or they are not 
capable of it. I think homeownership is a dream that should be 
available to every American.
    Senator Allard. Mr. Chairman, my time has expired.
    Chairman Shelby. Thank you.
    Senator Corzine.
    Senator Corzine. Thank you, Mr. Chairman.
    I want to go back to--I guess I will premise it with the 
same thing as my colleague from Rhode Island, we all want to 
encourage homeownership. That is a positive value that I think 
is widely understood and accepted by all. Do you disagree with 
the statistics, with the factual understanding that the HOPE VI 
Program has actually broadly been a part of expanding 
homeownership and transitioning individuals and families from 
public housing to private homeownership?
    Secretary Martinez. I do not think of HOPE VI as a 
homeownership program. I think of it as an urban revitalization 
program which includes homeownership as a component of it. But, 
yes, it is an important effort to improve not only 
homeownership numbers, particularly people who have lived in 
public housing, but also in addition to that, of urban 
revitalization of improving communities as a result of 
transforming areas that have been too often blighted into what 
can be more vibrant neighborhoods.
    Senator Corzine. But am I mistaken, in 21,000 units of 
homeownership that flowed out of HOPE VI?
    Secretary Martinez. No, I am not disputing the number, no, 
but I think far more than that though. I mean it is not just 
homeownership. Many units have returned as rental units, but 
that is still a good thing.
    Senator Corzine. And actually changes the shape of a 
marketplace, the availability, the revitalization of the whole 
neighborhood actually puts more housing stock onto the market.
    Secretary Martinez. Right. One of the issues, Senator, that 
we are looking at. In fact, today, a group is convening at HUD 
for the second time to discuss what the future of the HOPE VI 
Program should be, and one of the issues that we need to 
address is whether all of those 21,000 homeowners are coming 
out of the ranks of those who used to previously reside in 
public housing, or are they others who are now availing 
themselves of this opportunity, while at the same time those 
who resided in public housing are somehow displaced. So 
providing continuity of opportunity for people who are 
residents of public housing has not been a perfect solution 
coming out of the existing HOPE VI.
    Senator Corzine. Perfect should not be the enemy of the 
good. And if you check around the country, which--I happen to 
have a strong sense of desire to see changing of neighborhoods 
as well as homeownership, these holistic programs have a very 
meaningful impact. I would continue to want to encourage the 
Administration yourself to review some of the thoughts about 
this particular program, which among almost all seem to be 
moving in the right direction on both urban renewal, urban 
redevelopment, and moving to the objective of homeownership in 
many, many instances.
    Secretary Martinez. Senator, just so you know, we have a 
very active group looking at the HOPE VI, what the future of it 
should hold. Senator Mikulski was eager in suggesting that this 
be done, and she and others have made suggestions of this 
bipartisan group to come together, people in the academic 
world, people with practical experience, so that we can take a 
good look at what the past successes of HOPE VI have been, 
where we have fallen short of the mark, and how as we look to 
the future of an urban revitalization program like this, where 
it should go and how it should be done.
    Senator Corzine. I would encourage you to keep our office 
posted as it goes along, and if there are ways that we can be 
helpful, there are a number of demonstration issues that have 
been very successful in New Jersey, and I think both under 
Republican and Democratic Administrations, there has been broad 
support within the community on the direction that this was 
taking.
    Secretary Martinez. We will do so, sir.
    Senator Corzine. Several recent studies dealing with the 
question of affordable housing have looked at FHA multifamily 
mortgage insurance rates, and we continue to have--well, we 
increased the threshold on loan limits 2 years ago, and I was 
happy to be a part of that. We continue to have this one-size-
fits-all, and in some of our high-cost areas we are still 
dealing with thresholds that actually are keeping people from 
having access at getting into the mortgage market, and clearly 
in the Newark, New York, Boston market, this continues to be a 
problem. Have you looked at--are we thinking about ways that we 
can recognize the reality of what costs are in different 
marketplaces?
    Secretary Martinez. Yes, sir. FHA has committed and at the 
present is undertaking a study of high-cost areas and how those 
are impacted, and how the FHA program can more effectively work 
in those high-cost markets. So we are in the process of that 
study. We will be glad to keep you advised as we go forward on 
it, and then that should lead us to maybe some policy changes 
once we know what the data shows.
    Senator Corzine. Good. I think this is a practical area 
where we can actually be working to recognize the reality of 
the marketplace in different areas.
    Secretary Martinez. Which can only inure to the benefit of 
increasing the availability of affordable housing, and that is 
part of our goal.
    Senator Corzine. I would like to work with you on that.
    Secretary Martinez. Thank you.
    Chairman Shelby. Senator Dole.
    Senator Dole. Mr. Secretary, HUD is completing the 
rulemaking for the $75 million in the 2003 appropriations bill 
for down payment assistance. Could you tell us when we might 
expect to see that rule published in the Federal Register, and 
will this rule govern how future monies will be distributed?
    Secretary Martinez. Senator, this is currently at the 
Office of Management and Budget for their review. We have 
concluded our work at HUD, and sent it over to them for their 
approval and review. It is in that process right now. I am not 
going to try to forecast for you how long that might take, but 
we do anticipate that it be--you being a former Cabinet member, 
understand the interplay between OMB and Cabinet offices.
    Senator Dole. I certainly do.
    Secretary Martinez. But in any event, I believe that in the 
near future we will have the publication of the rule, and then 
that should guide our steps as we go forward with this 
particular portion of the American Dream Downpayment plan.
    Senator Dole. Good. The current period of low interest 
rates has helped efforts to get more first-time homebuyers into 
homes. What type of mortgage do most of these families get 
these days, fixed rates, adjustable rates, the hybrid? Could 
you give us an idea of how that is working, and do you foresee 
any challenges to these new homeowners should mortgage rates 
increase in the future?
    Secretary Martinez. I am going to seek a little help on 
that in terms of the statistical data.
    Senator Dole. Okay.
    Secretary Martinez. Because of the low rates right now, 
most families are getting the fixed rate loans. The adjustable 
rates seem to be more favored in times of more volatility or 
higher interest rates. So right now fixed rates seem to 
prevail. Typically a 30-year fixed rate mortgages is what most 
families seem to be attaining.
    Senator Dole. Okay. One of the real barriers certainly to 
homeownership has been a lack of understanding and information 
about the home buying process, and there are a variety of down 
payment assistance programs available to first-time homeowners. 
How do the potential homeowners and the lenders find out about 
the variety of opportunities here, and do lenders provide 
information about these programs to their clients?
    Secretary Martinez. That is part of our partnership with 
the private sector. We are increasingly seeing more and more 
lenders that are aggressively going into communities to explain 
the services that they have available, the variety of 
opportunities that are available for home financing. But in 
addition to that, by continuing to increase the funding, which 
we have done now 3 years in a row, to this year's level of $45 
million, we are also providing local community organizations 
with the grant money to conduct outreach and education programs 
in the communities where they work so that we can ensure that 
more and more homebuyers are well informed as they go into the 
process.
    Senator Dole. And with regard to HUD Section 8 Housing 
Choice Voucher Program, can you tell us what results you have 
seen from this in the 2 years?
    Secretary Martinez. We are delighted with the results that 
have been forthcoming on that program. More and more families 
that are Section 8 recipients are choosing to go forward and 
obtain a home through their options that are provided for them 
in the Section 8 voucher program. We are continuing to 
encourage all providers of Section 8, which now are an 
increasing number that are doing this, to do that for their 
people, to try to provide for them the option to purchase a 
home through their Section 8 voucher.
    The success has been very, very positive. We continue to 
encourage more participating jurisdictions to avail themselves 
of the
opportunity.
    Senator Dole. Thank you, Mr. Chairman.
    Chairman Shelby. Senator Hagel.
    Senator Hagel. Thank you, Mr. Chairman.
    Mr. Secretary, in light of the recent Freddie Mac problems, 
a report is out today. I noted yesterday some speculation that 
these problems could result in higher mortgage rates, and the 
consequences flowing from that. Home prices might be affected. 
Could you give us your analysis of that report, speculation or 
any other observation that you might want to offer regarding 
what happened to Freddie Mac?
    Secretary Martinez. I think first of all, Senator, we are 
concerned about the situation and we are closely monitoring it. 
I do not believe that I have seen or heard enough at this point 
for me to be able to make any comments about the future, 
although I have spoken with Mr. Falcon, who is the Director of 
OFHEO, and he has assured me as to the financial soundness of 
the company, that there is no problem there or no risk there.
    But let me also clarify for the record that with respect to 
the safety and soundness of these GSE's, that by statute, this 
is the responsibility of OFHEO, which is an independent 
organization and out of HUD's control. I frankly find that the 
issues that this situation raises are probably, as they relate 
to safety and soundness of the enterprises, better addressed by 
OFHEO and not by the HUD Secretary.
    Senator Hagel. I agree with that, but you certainly have a 
stake in all of this, and your analysis is important, which I 
appreciate.
    Secretary Martinez. As I say, we are closely monitoring it, 
and we are hoping that this situation will not aggravate itself 
and are certainly not anticipating that it will have an impact 
upon the mortgage market as we see it today.
    Senator Hagel. You mentioned GSE's in general. As your 
agency is dealing with all the dynamics of housing, and 
financing is certainly part of that, in your opinion, have the 
GSE's stayed within the boundaries of their original charters, 
their intentions--are they relevant today? It is a different 
world, different dynamics, Freddie Mac, Fannie Mae--across the 
board.
    Secretary Martinez. As it relates to their housing goals 
and their mission oversight, that is something that falls 
within the purview of HUD, and we do exercise that oversight 
responsibility.
    I think the GSE's have been a tremendous impetus to 
maintaining the sufficient supply of money in the mortgage 
markets to allow for a very healthy mortgage market environment 
which allows us to be talking about homeownership like we are 
today.
    So, I think they have been a very important component in 
terms of the mix that they have provided. I think they are the 
envy of many other countries. As I meet with other foreign 
leaders, they are keenly interested as they discuss housing 
issues in their countries in how the secondary mortgage market 
has worked in America and the benefits that it has brought.
    I also think, without commenting on the whole complex issue 
that they represent, they have provided a very, very positive 
element toward the availability of inexpensive mortgage money 
to the American consumer.
    Senator Hagel. Thank you.
    The Federal Housing Administration of course has played a 
historic role in creating homeownership opportunities over the 
years. There might be some sense that its role is diminishing. 
What is your take on that? I have read reports on that. Is it 
relevant? Is it more important, less important, today?
    Secretary Martinez. I think FHA continues to be a very 
important tool, particularly as we are talking about reaching 
into poverty communities and allowing them to taste the dream 
of homeownership. I think that the FHA programs are extremely 
busy and well utilized, and we find that increasingly, the 
availability of FHA mortgages is sought out, particularly in 
the multifamily housing.
    So, I think that while it can always be further modernized, 
it can always be improved--and I am pushing hard for us to do 
all that we can in terms of modernizing and bringing it up-to-
date. We have done a number of things in that during the time 
that this Administration has been in office--I do believe that 
it is not only relevant but a very important component of what 
the housing sector should be in the future.
    Senator Hagel. Thank you.
    Do we have a vote, Mr. Chairman?
    Chairman Shelby. We are going to have a vote in 
approximately 5 minutes, yes.
    Senator Hagel. Well, I will withdraw. You probably have 
some other issues you want to cover.
    Mr. Secretary, thank you.
    Secretary Martinez. Thank you, sir.
    Chairman Shelby. Mr. Secretary, I have a number of 
questions that I would like to submit to you for the record, 
and I know you will be prompt in getting the answers back to 
the Committee.
    Secretary Martinez. Yes, sir.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Mr. Secretary, we have had a number of discussions both at 
Committee hearings and also in meetings about the misuse of 
yield spread premiums, and you yourself have testified about 
the fact that consumers pay an estimated $7.5 billion in excess 
yield spread premiums. This is really the borrowers' money, but 
it does not end up to the borrowers' advantage.
    In October 2001, HUD put out a policy statement that was 
seen by many as undercutting the effective ability of borrowers 
to seek redress for excessive yield spread premiums, but you 
indicated at the time that you were going to take action to 
address the issue. You recognized the issue, and you have 
proposed a very comprehensive RESPA regulation which would, at 
least in terms of disclosure--although I am concerned about 
enforcement--address the yield spread premium problem, and a 
number of us have applauded you for this effort.
    But that is a complicated regulation, that RESPA 
regulation. It affects a lot of issues other than the yield 
spread premium issue. And there is talk that nothing is going 
to be done on the regulation for a while and so forth.
    The question I want to put is what about acting more 
quickly on the narrow question of giving consumers the full 
benefit of yield spread premiums--the industry has actually 
testified that they should be the full beneficiaries--without 
tying that action to the more complex questions of 
comprehensive RESPA reforms?
    Secretary Martinez. Would you suggest doing that through 
rulemaking, or are you suggesting some other mechanism for 
doing so?
    Senator Sarbanes. Well, we would have to look at that. The 
policy statement in October of 2001 said the courts should 
examine yield spread premiums on a case-by-case basis. This 
effectively undermined the ability to bring class action suits. 
Each borrower loses maybe $1,000, $2,000, $3,000 on a yield 
spread premium. That is not enough to warrant a case-by-case 
action, and if you preclude the class actions, you do not have 
much incentive for the participants in the market to drop this 
practice.
    One would be to open again the possibility of class action 
suits; another would be to move ahead with the yield spread 
premium part of your proposal.
    Secretary Martinez. Senator, I think the premise of the 
question is that the whole issue of RESPA may not move forward, 
and I do not think that is the right premise--it is not the 
right premise.
    Senator Sarbanes. Well, all right. I do not particularly 
want to go to that premise, but there are press reports that it 
may be under consideration for another year.
    Secretary Martinez. Let me say this, Senator. I consider 
the yield spread premium to be an integral part of why we are 
doing RESPA reform. I think it is a broker issue, broker fees, 
and yield spread premium is a very important thing to be 
addressed, and I will take your suggestion under consideration 
if there is a vehicle by which that issue alone could be 
addressed in a more timely fashion. If the other issues are to 
be delayed, which is not clear at this point, anyway, maybe 
that should be looked at.
    I am concerned about yield spread premium. As I said, it is 
one of the reasons why I thought it was important to address 
the whole issue of the Real Estate Settlements and Procedures 
Act, and I agree with the Senator that all too often there is 
tremendous abuse in this area and is something that should be 
addressed.
    So if you have any--other than to assure you that I am 
interested in moving the entire process forward, I will be 
happy to visit with you and hear whatever suggestions you might 
have.
    Senator Sarbanes. I want to touch one final thing, Mr. 
Chairman, if I could very quickly.
    Chairman Shelby. Go ahead, Senator.
    Senator Sarbanes. We are continuing to have a problem with 
HUD in obtaining data and information. I have raised this issue 
in the past. HUD required all PHA's to submit up-to-date data 
on their voucher utilization rates and costs by April 9. We 
asked HUD for the submitted data as soon as possible. We need 
it to properly analyze the budget appropriations for Section 8 
vouchers and the proposal to block-grant the voucher program 
and other proposals that are in to improve the voucher program, 
and we were told by HUD that the data would be forwarded to us 
as soon as HUD compiled the information.
    Secretary Martinez. Senator, may I just reply to that? I am 
not certain that I have the up-to-date information on that. I 
do believe that there has been some delay in obtaining from the 
participating PHA's all the data, but as soon as we receive it, 
we have to turn it around and understand it and compile it and 
then offer it to you.
    If there is some issue there that I am not aware of, we 
would be happy to look into it.
    Senator Sarbanes. Well, the issue very simply put is that 
we understand that HUD has provided the data to other Members 
of the Senate while continuing to tell us that the data was not 
yet available. We did finally get it this Tuesday, but only 
after repeated requests and only after confronting HUD staff--
and I appreciate this has not reached your level, but you know, 
you have that sign on your desk that says ``The Buck Stops 
Here.''
    Secretary Martinez. I understand, sir.
    Senator Sarbanes. We finally got it, but only after 
repeated requests and after confronting them with the knowledge 
that we knew that other Senate staff had received this 
information. So, I hope you will take that back to the 
Department with you.
    Secretary Martinez. I appreciate you bringing it to my 
attention, and I will do that. Senator, I apologize if that 
occurred, and I will look into it and try to do better in the 
future.
    Senator Sarbanes. All right. Thank you very much--well, it 
is not you; it is the people below you who have to do better.
    Secretary Martinez. I understand--you are right about the 
sign on the desk, though.
    [Laughter.]
    Chairman Shelby. Senator Carper.
    Senator Carper. When I became Governor, I got rid of that 
sign on my desk.
    Secretary Martinez. Did you?
    [Laughter.]
    Senator Carper. You may want to consider the same.
    I just want to reiterate a couple of points that have 
already been made, I think by Senator Reed, before I got here.
    Governors and mayors are especially mindful of the need for 
flexibility with funds that they receive, particularly from the 
Federal Government. And one of the concerns that I think 
Senator Reed raised is at its heart a flexibility issue. As I 
understand it, the $200 million that you are proposing to take 
and create the American Dream Downpayment Fund is actually 
money that is coming from--well, where does that money come 
from?
    Secretary Martinez. That is new money, Senator. That is not 
in any way impacting already existing funds that the HOME 
Program receives. So all the funding that the HOME Program 
currently receives will continue to flow in the same way as 
before. In addition to that, this year, we have a 5 percent 
increase to the HOME Program, which is very vital to creating 
more affordable housing.
    We are creating a new program which is the American Dream 
Downpayment, and we are funding it with new dollars which are 
not funded or coming from any other source that currently is 
receiving it. So while coming from local government, I do agree 
with your appreciation for local flexibility. What we are doing 
with this is not only providing all the local flexibility that 
HOME Program already provides, but also adding a new thing 
where we are highlighting what we believe to be the remarkable 
importance of downpayment assistance toward helping families 
become homeowners.
    Senator Carper. OK, good. That is an important 
clarification, and I thank you for it.
    What does the Administration propose with respect to the 
HOPE VI Program?
    Secretary Martinez. Senator, the HOPE VI Program was a 10-
year program, and it had a beginning and an end, and this was 
the last year of the current authorization. In addition to 
having been very successful, we have also seen that much of the 
money that was appropriated and has been awarded to different 
communities remains yet to be utilized by many communities. And 
also, over time, we have heard things like displacement issues, 
about what happens to people who are in public housing and now 
have to move out, and where do they go, and what are their 
chances of coming back to the new development--things of that 
nature. And we thought it was, after a 10-year experience, 
largely positive, and it was a good time to take a good look at 
the program, continue to fund, obviously--all the awarded 
communities will continue to receive the funding for the 
projects that they have been awarded--but before awarding new 
projects beyond the current and the next year's budget program, 
that we should take a good look at where the program was and 
how we might improve it.
    We have convened a group of people with suggestions from 
Members of Congress on both sides of the aisle to provide some 
insights and some inputs. Some people have been involved with 
the program from the inception. Others have been involved in 
the participation in the program now, and----
    Senator Carper. Fine, fine. I appreciate that. Roughly what 
is the level of funding for HOPE this year; do you recall?
    Secretary Martinez. In this upcoming budget year?
    Senator Carper. No--in this current fiscal year.
    Secretary Martinez. Five hundred seventy-four million.
    Senator Carper. Five hundred seventy-four million. And for 
next year, what are you proposing?
    Secretary Martinez. We are not proposing any funding for 
that at all.
    Senator Carper. So it would be zero?
    Secretary Martinez. That is correct.
    Senator Carper. OK, thank you. And one of the add-ons or 
additions to your proposal for next fiscal year is for this 
$200 million American Dream Downpayment Fund?
    Secretary Martinez. Correct.
    Senator Carper. All right. Let me just reiterate another 
point that Senator Sarbanes has made. In the briefing materials 
that have been provided to me--I am just going to read them, if 
I could, and then ask you to respond--``The Administration put 
out a policy statement in October of 2001 that undermined the 
ability of consumers to protect themselves against the yield 
spread premiums that lenders pay brokers to steer borrowers to 
higher-rate loans. HUD's own data say borrowers pay $7.5 
billion more in yield spread premiums than they should. This 
problem hits minorities especially hard. Secretary Martinez has 
reiterated this point himself at a number of hearings, yet HUD 
has still not done anything to address this problem.''
    And the assertion here--the bottom line--is that ``HUD 
could solve this problem immediately without resolving all the 
other issues involved in RESPA.''
    My hope is that we move forward on RESPA as well, and 
again, the assertion that has been made here, the one that 
Senator Sarbanes raised, is in addition to moving forward with 
respect to RESPA, why can't we do something on this without 
legislation.
    Secretary Martinez. Senator----
    Senator Carper. Excuse me. I just want to let you know that 
at least two Senators are concerned about this----
    Secretary Martinez. I hear you.
    Senator Carper. --and want you to look hard at it.
    Secretary Martinez. And let me say that I would translate 
that into a call for us to continue forward with reform of 
RESPA, which I appreciate, and I look forward to working with 
all who are interested in the subject to move it ahead.
    Senator Carper. But there are two tracks we can go here. 
One is the regulatory, and one is the legislative. I think we 
should do both, and I would ask that you and your people 
consider that.
    Secretary Martinez. I have no problem with any potential 
legislative fixes that could be obtained that would take care 
of the yield spread premium problem. I think there are serious 
problems that have to be addressed.
    Senator Carper. Thank you.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Reed, do you have a quick 
question?
    Senator Reed. If I may make two quick points, Mr. Chairman. 
First, with respect to the formula gain, Mr. Secretary, the 
presumption that I think you are operating on is that every 
area of the country has an equal opportunity to engage in a 
homeownership program. But I think it is very difficult for a 
place like New York City, Long Island, Rhode Island, Boston, 
Los Angeles, and Atlanta metro area to do those things. So if 
you are rewarding for past performance, you might miss out on 
the opportunity to help these communities. And I think the 
biggest difference, obviously, is between the price of homes in 
some of these areas versus other parts of the country where you 
can assemble a lot and build a home rather inexpensively and 
put somebody in that home.
    So that is one point. The second point is that over and 
over again, we have made the point that the biggest hurdle to 
homeownership is the downpayment. Well, I think the biggest 
hurdle physically is income. You can go out and win the lottery 
and you will have $20,000, which will cover the closing cost 
for lots of home, but if you do not make $70,000 or $80,000 a 
year, you are not going to be put in a home.
    I just think that is a point to grasp, because one of the 
reasons over the last decade that I think we have seen some 
progress in minority homeownership is because we have seen 
increases in minority income. And unless we maintain and 
sustain those increases, a lot of what you are doing, admirable 
though it is, will not be able to achieve the goal.
    Secretary Martinez. I think that is an excellent point.
    Senator Reed. Thank you, Mr. Chairman.
    Chairman Shelby. Mr. Secretary, we appreciate your 
appearance today and appreciate your candor with us, and we are 
going to continue to work with you.
    Secretary Martinez. It is good to be with you, sir. Thank 
you very much.
    Chairman Shelby. We have a vote pending, and we are going 
to introduce the second panel if we can.
    The second panel consists of Ms. Terri Montague, President 
and Chief Operating Officer at The Enterprise Foundation; Ms. 
Kathy Whatley, President, National Association of Realtors; 
Thomas Jones, Vice President, Habitat for Humanity 
International, and Mr. Bobby Rayburn, First Vice President, 
National Association of Home Builders.
    We appreciate the second panel's patience this morning. You 
are going to have to be a little more patient, because we have 
a vote on the floor, but we wanted to introduce you and get you 
seated, and we are going to go vote and come back, so be at 
ease.
    The Committee will be in recess until we get back.
    [Recess.]
    Chairman Shelby. The Committee will come to order.
    All of your written statements will be made part of the 
record without objection.
    Ms. Montague, we will start with you. If you will briefly 
sum up--you can tell how dragged out we are today--your 
pertinent testimony.

                 STATEMENT OF TERRI Y. MONTAGUE

             PRESIDENT AND CHIEF OPERATING OFFICER

                   THE ENTERPRISE FOUNDATION

    Ms. Montague. Thank you, Senator Shelby, for inviting me.
    Just a brief bit of background. Enterprise is a national 
nonprofit organization that supports community-based 
revitalization, and we are currently investing in excess of 
half a billion dollars a year to support a wide range of 
community renewal initiatives.
    We commend President Bush and Secretary Martinez for their 
continued commitment to increasing low-income and minority 
homeownership.
    Very briefly, I would like to emphasize how homeownership 
is helping to stabilize and strengthen low-income communities. 
I will use one real-life example that is very familiar to 
Senator Sarbanes. It is in the Sandtown-Winchester neighborhood 
in West Baltimore.
    Enterprise and local residences have been working for a 
decade to help restore health and vitality to this historic 
African American community. Sandtown had fallen on hard times 
when Enterprise and our partners committed to a holistic 
revitalization effort about a decade ago.
    The good news is that 10 years later, Sandtown is now 
starting to turn around, as evidenced by homeownership rates 
that have more than doubled during the 1990's, median incomes 
that have risen 22 percent on an inflation-adjusted basis, 
unemployment and vacancy rates that have fallen by one-third, 
crime rates that are significantly lower, and student 
achievement and test scores that are substantially higher.
    After decades of disinvestment and decay, hope--and new 
investment--is returning to Sandtown. This is true largely due 
to large-scale development of affordable for-sale housing. 
Enterprise has developed nearly 400 for-sale homes in the area, 
with another 200 more in the pipeline. We have also provided 
financing to help Habitat for Humanity build another 200 homes 
in Sandtown. Virtually all of these homes are being provided to 
working African American families. And, to be sure, Sandtown 
still faces many daunting challenges, but its progress and its 
momentum are undeniable.
    We have learned three important lessons in Sandtown that 
apply to our and others' community revitalization experience 
across the country. The first is that there is not nearly 
enough affordable for-sale housing. Harvard's Joint Center for 
Housing found that the number of for-sale homes affordable to 
low-income people in this Nation dropped by half a million 
between 1997 and 1999.
    Enterprise's experience is that the shortfall is especially 
acute in predominantly low-income and minority communities. 
Even though, as we see in Sandtown, many current and potential 
residents are ready and willing to purchase in those areas. A 
major reason for the homeownership supply shortage in many low-
income neighborhoods is that it costs much more to build the 
homes than the homes can sell for in those areas. For this 
reason, grassroots groups need desperately to have many more 
resources to help bridge this gap.
    We are encouraged by the proposed homeownership tax credit 
and feel that that would be such a resource. The credit would 
help meet one of the major barriers to expanding minority and 
low-income homeownership while creating jobs and stabilizing 
neighborhood revitalization.
    We urge the Committee Members who have not already done so 
to cosponsor the bipartisan Senate bill to enact the credit, S. 
875. We thank Senator Reed and the Committee Members who 
supported his efforts to protect the rental housing tax credit 
from harm in the recent tax bill.
    In addition, we are urging Congress to continue to fully 
fund and strongly support effective programs for spurring 
affordable homeownership development and community-based 
groups. The HOME Program that has already been referenced, the 
CDFI fund, and the Section 4 Program, are three important 
examples.
    The second homeownership lesson that we have learned in 
Sandtown is that acquiring abandoned buildings for 
redevelopment is enormously difficult. Sometimes it is local 
policies that are often the strongest impediment. But the 
Federal Government can help grassroots groups gain control of 
vacant buildings as well.
    One example is the Federal Housing Administration's Asset 
Control Area Initiative, which allows for local governments and 
qualified community-based groups to acquire vacant government-
owned homes for rehabilitation and resale to buyers in very 
distressed
communities.
    We and others have been working with HUD to ensure that the 
ACA Initiative operates in a timely and flexible manner. We 
have been making good, if sometimes slow, progress in this 
regard.
    The third and final lesson that Sandtown offers for today's 
hearing is that homeownership alone is not enough--it is not 
enough for families, for neighborhoods, or for a Federal 
housing policy that truly spans the full spectrum of housing 
needs.
    For families, homeownership will only be beneficial if they 
can stay in their homes. Pre- and post-purchase counseling and 
fair loan terms are critical to sustain homeownership. For a 
community, homeownership only contributes to true 
revitalization if homeownership can build wealth. That usually 
requires additional investment in the neighborhood.
    For Federal housing policy, homeownership only makes sense 
as one option for solving housing problems. Public housing, 
rental assistance, and new rental apartments are all as 
essential to a holistic housing policy.
    Many families will need supports for these types of housing 
before they can become homeowners. We urge the Federal 
Government and this Committee to help sustain and expand these 
forms of support. From Enterprise's point of view, it is time 
we broadened our idea of the American dream to include every 
decent, affordable home whether it is rental or whether it is 
for sale, and to dedicate sufficient resources to make that 
dream a reality for more American families.
    Thank you for the opportunity to testify.
    Chairman Shelby. Thank you very much.
    Ms. Whatley.

                   STATEMENT OF CATHY WHATLEY

        PRESIDENT, THE NATIONAL ASSOCIATION OF REALTORS

    Ms. Whatley. Thank you, Mr. Chairman, Senator Sarbanes.
    As the 2003 President of the National Association of 
Realtors, representing more than 900,000 members, it really is 
an honor and a privilege to be able to testify today.
    Realtors strongly believe in the fundamental benefits of 
homeownership. Homeownership gives families a sense of 
belonging, an emotional connection to the community. It 
instills pride and a sense of purpose. It helps build a 
stronger social fabric. It sustains vibrant neighborhoods, and 
it contributes to economic growth.
    NAR supports strong national housing policies that expand 
affordable housing for all Americans. We stand ready to 
continue to work with Congress and specifically 
with you and your Committee Members to enact favorable policies 
that benefit our Nation.
    We support a number of legislative and regulatory proposals 
including, first, Senate Bill 811, The American Dream 
Downpayment Act, which would help close the gap between income 
and housing affordability by providing downpayment assistance 
to 40,000 first-time home buyers every year. As has been 
mentioned here today, securing a downpayment remains one of the 
biggest obstacles to homeownership.
    We support Senate bill 875, the Renewing the Dream Tax 
Credit Act, which would provide a significant tax credit for 
developers and investors to construct or renovate homes in 
distressed neighborhoods for low- and moderate-income families 
to purchase. Approximately 50,000 homes would be generated each 
year, and while this bill is not under your Committee's 
jurisdiction, it is our hope that you will support it.
    Also, we support an FHA sub-prime mortgage product, which 
was proposed in the President's fiscal year 2004 budget. After 
24 months of on-time payments, the premiums on this new product 
for borrowers with poor credit would be reduced. We also 
believe that providing an FHA alternative would protect home 
buyers who are customarily at risk for predatory lending. It 
would also make homeownership available to an estimated 62,000 
credit-impaired home buyers in the first year alone.
    Furthermore, we support congressional hearings to review 
insurance scores that are keeping an increasing number of 
consumers from becoming home buyers. Amending Section 214 of 
the National Housing Act to add more States to the list of 
high-cost areas has been mentioned here.
    We support a technical correction to the new FHA Hybrid 
Adjustable Rate Mortgage Program, and preservation of the FHA 
203(k) Rehabilitation Program.
    In conclusion, Mr. Chairman, we strongly believe that 
homeownership is the cornerstone of our democratic system of 
government; it continues to be a strong personal and social 
priority in this country, and it is a huge economic force as 
well, driving and leading the Nation's economic activity.
    We appreciate the opportunity to share our viewpoints. 
Going forward, we stand ready to work with you to fashion 
legislation that will enable more Americans to stake their 
claim in the American dream.
    Thank you.
    Chairman Shelby. Thank you.
    Mr. Jones.

                  STATEMENT OF THOMAS L. JONES

                         VICE PRESIDENT

               HABITAT FOR HUMANITY INTERNATIONAL

    Mr. Jones. Mr. Chairman, Ranking Member Sarbanes, very much 
appreciated staff, colleagues and friends--Habitat volunteers 
all, thank you for the opportunity to represent Habitat for 
Humanity to share some of our convictions about expanding 
homeownership opportunities.
    Habitat for Humanity's basic premise is that every human 
being should have the opportunity to have a decent place to 
live, if possible by experiencing the dream of homeownership. 
Habitat for Humanity cares for those at every place along the 
whole spectrum of need, and there is a spectrum, from those who 
are homeless on the street to those who are living in short-
term shelters to transitional housing to various types of 
rental housing. But for most, the ultimate still is to own your 
own home.
    Habitat for Humanity's niche is for homeownership for low-
income and minority persons who perhaps in no other way could 
ever own their own homes. But we believe in practice that the 
public, the private, the nonprofit, the faith-based, organized 
labor--all the sectors--all need to support and respect those 
who focus on every part of the whole spectrum. We all need to 
be in all of it together.
    But in that context, Habitat for Humanity's goal is to 
bring us all together, to be certain that that commitment to 
homeownership includes all persons regardless of economic 
standing or race or culture or national background or religion 
or political beliefs--that all should have the opportunity to 
live the American dream of homeownership.
    At the time of the purchase of their homes, 100 percent of 
Habitat for Humanity homeowner partners are at or below 50 
percent of median income. And I cannot overemphasize the 
importance of targeting for low-income persons in Federal 
legislation for decent housing.
    We in Habitat for Humanity are so thankful that during this 
National Homeownership Month, all of us in this room and other 
housing leaders across the country are committed to leading to 
narrow the gap for homeownership between minorities and others. 
After 27 years and 50,000 houses built in the United States (of 
the 150,000 houses built worldwide), the regular criteria for 
choosing Habitat homeowner partners has resulted in 100 percent 
of these partners being low-income at the time of their 
purchase; with 71.8 percent of these being minority 
homeowners--Hispanic, African American, Native American, or 
Asian.
    Mr. Chairman, Senators, thank you for your support of this 
mission by which, through homeownership, wonderful life-
changing results are being achieved by low-income families, 
with marvelous results of improved education of children and 
youth, economic asset-building and equity-building of families, 
better health, improved communities--growing citizens in so 
many ways. And now, across the country, through enhanced human 
dignity, increased self-worth, new hope for the future is 
resulting in these homeowners gathering together to build their 
own communities and do community development on their own.
    We are appreciative of your support and we ask for your 
increased support of programs such as SHOP (Self-Help 
Homeownership Opportunity Program) and Capacity-Building for 
Habitat for Humanity. Habitat is one of the four organizations, 
including Enterprise and LISC, who are eligible for Section 4 
funding.
    We encourage you to support the single-family homeownership 
tax credit now before you, and we strongly urge that you 
include in that legislation modest set-asides to assure level 
playing fields for nonprofits.
    No words can say it adequately, but our hearts can feel it 
when we are relating together to these homeowners. So before I 
quit, I need to express genuine, heartfelt thanks to you for 
the program we inaugurated last week called ``Congress Building 
America,'' in which most of you participated and which you 
unanimously approved with your Senate Concurrent Resolution 
Number 43. By your expressed participation in that, you have 
said that ``we are going to show America in these years 
ahead.'' And we appreciate our colleagues here, the Home 
Builders and the Realtors, who are two of the 13 CBA National 
Underwriters from the private sector for this important 
program; and we are grateful for HUD Secretary Martinez, who 
has led the way in developing ``Congress Building America'' 
from the first discussion of it.

    We will, we hope, in the remainder of this session, and in 
the 109th Session of Congress, continue to be together, not in 
hearing rooms like this, but on Habitat for Humanity building 
sites, as together we build with a cross-section of Americans 
and with Habitat for Humanity homeowner-partner families.

    Mr. Chairman, if I may, I would like to conclude with a 
brief story that happened this week in your home State in the 
City of Anniston. This week, the Jimmy Carter Work Project is 
in Anniston with about 4,000 volunteers, ``blitz-building.'' 
They are going to blitz-build over 100 houses in Anniston and 
two other communities in Georgia. Anniston is the first city to 
make a commitment to the 21st Century Challenge. They have said 
that by the year 2013, a date certain, we will eliminate 
substandard housing from our community. And the first houses 
toward that are being built this week in the blitz-build in 
Anniston.

    A family named Washburn gave 80 acres of land to develop a 
new community. One hundred of those houses will be Habitat 
houses, including parks and the like. Thirty-five of those 
houses are being blitz-built this week. And believe it or not, 
on Monday morning at 5:30, I had Bobby Rayburn's predecessor, 
Kent Conine, this year's President of the National Association 
of Home Builders on site at 5:30 in the morning! We started 
building with President and Mrs. Carter and the other 4,000 
volunteers.

    We were on Building House 15 with the Carters. On House 14 
was Millard Fuller, one of your law school classmates, Mr. 
Chairman, at the University of Alabama Law School. At about 
noon, Millard got called out--we had a lot of media there--to 
do an interview with CBS radio. Near the end of the interview, 
the reporter asked, ``Who is the homeowner on the house you are 
building?''

    Millard replied, ``It is a wonderful woman named Charlene 
Kincaid and her two sons, Donarius, 17, and Darryl, 13.''

    The reporter asked, ``Do you think I could talk to them?'' 
and Millard said, ``I will ask them. We let them decide.'' They 
were glad to do it.

    Charlene Kincaid told how she and her two teenage sons had 
never had a home. They were living in one, single room--two 
teenage sons and a mother, no privacy, cramped space--and now 
they will have their own home. She told what that meant.

    The reporter asked the 13-year-old, ``Do you know where 
your room is?'' We were on the deck of that house. He said, 
``This is my room. I have never had a room of my own. And this 
is the closet. I have never had a closet of my own.''

    And then, the reporter said, ``Mrs. Kincaid, have you 
decided how you are going to decorate the inside of your 
house?''

    She said, ``No. I am very carefully considering that, 
because I want to do it right, because you see, this is going 
to be my home for the rest of my life.''

    There are so many Charlene's and Dinarius' and Darryl's out 
there, deserving homes for the rest of their lives. That is 
why, all together, we have just got to expand homeownership 
opportunities.

    Thank you.

    Chairman Shelby. Thank you.

    Mr. Rayburn.

             STATEMENT OF JAMES R. (BOBBY) RAYBURN

                      FIRST VICE PRESIDENT

             NATIONAL ASSOCIATION OF HOME BUILDERS

    Mr. Rayburn. Good morning. My name is Bobby Rayburn, and I 
am a builder from Jackson, Mississippi. I am also the First 
Vice President of the National Association of Home Builders. I 
am proud today to present the views of our 211,000 members.
    Thank you, Mr. Chairman and other Members of this 
Committee, for having this hearing on expanding homeownership 
during National Homeownership Month. Housing affordability and 
extending homeownership opportunities to all who desire to own 
their home are important to the mission and agenda of NAHB. 
These are also priorities of my own home building business.
    My written statement reflects the numerous initiatives 
taken by NAHB at the local, State, and Federal levels to expand 
homeownership opportunities. This morning, I will confine my 
remarks to our Federal legislative priorities.
    Barriers to homeownership manifest themselves in two 
primary ways. First is the difficulty faced by the potential 
home buyers in raising the cash necessary to make a downpayment 
and cover the closing costs. The second impediment to 
homeownership is the oftentimes cumbersome and duplicative 
regulations at all levels of government that inflate land, 
construction, and ultimately, housing prices.
    The initiatives we focus on today alleviate these barriers. 
At the top of our legislative agenda are two very similar 
bills--S. 198 and S. 875. Both bills create a tax credit for 
the development and rehabilitation of housing in difficult-to-
develop areas for low- to moderate-income families. I am 
pleased to thank so many Members of the Committee for your 
support and cosponsorship.
    Both bills reflect and complement the Administration's 
proposal to expand homeownership opportunities for minority 
populations. This legislation uses the Tax Code to bridge the 
gap between construction costs in underserved areas and the 
market price so as to make the home more affordable to those 
families with incomes at or below 80 percent of the median.
    Not only would this homeownership tax credit close the gap 
between homeownership rates among these distinct population 
segments--it would also revitalize communities. Existing 
buildings in distressed areas frequently are not renovated 
because the costs involved are so excessive that they cannot be 
sold at an affordable price.
    This credit would also give a positive economic impact by 
resulting in the production of 50,000 homes per year and 
creating 120,000 jobs annually.
    A complementary bill just introduced by Senator Stabenow 
would facilitate homeownership for the first-time home buyers 
by producing a source of assistance for up-front home-buying 
costs. The bill creates a refundable tax credit of $3,000 for 
singles and $6,000 for married couples. The credit could be 
assigned during the purchase negotiations to cover the 
purchase, financing, and closing costs incurred by the buyer.
    We also support Senator Allard in his efforts to move the 
American Dream Downpayment Assistance Act. This bill provides 
$200 million to assist lower-income families in achieving 
homeownership. This legislation targets funding under the Home 
Investment Partnerships Program to provide State and local 
governments with resources for programs to provide critical 
downpayment and closing cost assistance.
    We do believe, however, that the HOME Program is a highly 
successful program and a vitally important source of gap 
financing in supporting affordable housing production in 
conjunction with the low-income housing tax credit, tax-exempt 
bond financing, and other affordable housing programs. Our 
strong preference would be that additional funds be allocated 
to support the American Dream Downpayment Assistance Act.
    Finally, in the context of FHA modernization, one area 
where FHA can add significant value is through the insurance of 
single-family construction loans. Most builders, particularly 
smaller companies, which account for three-quarters of annual 
new home production in this country, must rely exclusively on 
insured depository institutions for construction credit. There 
is no secondary market to attract new lenders and investors to 
the market. The development of a secondary market would lower 
the cost of construction credit, help attract more capital to 
underserved areas, and help home builders avoid the type of 
severe credit crunch experienced in the early 1990's.
    The availability of FHA insurance for new home construction 
loans would help create such secondary market outlets by 
opening up the Ginnie Mae Mortgage Securities Program to 
single-family construction loans. This is already in place on 
the multifamily side of FHA's and Ginnie Mae's business. NAHB 
feels that an FHA-insured home construction loan program would 
improve competition in the housing production loan market by 
attracting new lenders such as mortgage banking companies.
    Mr. Chairman, that concludes my statement, and we applaud 
the Committee for its leadership on these issues and look 
forward to working with you and the rest of the Committee as 
these ideas and proposals go forward to help promote additional 
homeownership in this country.
    Chairman Shelby. We thank all of you for your testimony.
    Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman. I am 
going to have to excuse myself, and I appreciate you letting me 
go first to ask just a couple of questions.
    First of all, I want to say to all four witnesses that 
these are enormously helpful statements that you have 
submitted. I have looked through them--I have not studied them 
yet--but I have looked through them, and obviously, a great 
deal of effort went into preparing them, and they are very 
comprehensive and obviously very thoughtful, and we very much 
appreciate that contribution to the deliberations of the 
Committee.
    I want to say to Mr. Jones that first of all, I was very 
pleased to hear about what is being done in Anniston; it is 
pretty exciting, and you can take a lot of pride in that.
    Chairman Shelby. It sure is; my home State.
    Senator Sarbanes. Mr. Jones, two very able employees of 
this Committee left the Committee's employ to go to graduate 
school, and now they are working at Habitat for Humanity. So 
the first question I want to put to you is when are you going 
to stop stealing our employees.
    [Laughter.]
    Mr. Jones. I just want to express appreciation for the good 
training you gave them, for the fact that they have seen the 
light.
    Senator Sarbanes. You got yourself two terrific people.
    Mr. Jones. We do--Amy Randel and Christen Wiggins.
    Senator Sarbanes. Yes, they are terrific people.
    Ms. Whatley, it is nice to have you back. You have been 
before the Committee before, and you always do a very good job, 
and I am pleased to welcome you.
    I just want to touch very quickly on the insurance and 
credit scoring. Ken Harney, a national syndicated real estate 
columnist, wrote a column about this. I understand that 
insurance companies are increasingly using FICA and other 
credit scores to determine the availability and price of 
homeowner's insurance even though no causal connection between 
credit scores and claims has been demonstrated. Some States 
have limited or prohibited--Maryland has prohibited--``the use 
of credit scores in the pricing of insurance.''
    I also understand that insurance companies are using 
another private database known as CLUE, which apparently 
results in certain homes getting electronically stigmatized so 
the current owner may not be able to buy any insurance, nor 
could a new buyer, regardless of his or her credit or insurance 
history, get insurance on the particular property.
    How serious a problem is this?
    Ms. Whatley. We have seen and heard a lot of anecdotal 
stories from the field. I can tell you that personally, 2 days 
ago, I got a notice from my insurance company that all of my 
rental properties are not going to be renewed, although I have 
filed no claims.
    So there are real issues out there in the marketplace. And 
we understand that insurance companies have to deal with some 
of their own circumstances that they have found themselves in. 
But the National Association of Independent Insurance Agents 
and Brokers actually did and released a survey that said that 
more than 2.5 million households lost their homeowner's 
coverage in the last 24 months, and that more than half of 
those were households in the South; that about 73 percent of 
those were able to find other coverage, but that is 27 percent 
who were not able to find other coverage, and that 73 percent 
found increasing prices.
    Part of the challenge in the homeowner market is that if 
you have filed any type of previous claim, especially if it was 
a water-related claim, many insurance companies are not wishing 
to issue new coverage because of their potential exposure and 
risk, and that is a challenge even for homeowners who may have 
called and just asked, inquiring about deductibles. For 
instance, if I had a water leak and I wanted to call my 
insurance company and ask what was my deductible--I am trying 
to determine whether I want to fix it myself or whether the 
claim is significant enough that I want to file with the 
insurance company--some companies, even by just making that 
call, are logging me in as a claim, even though--it is called a 
``zero dollar claim.'' But the insurance company then has that 
information that they are reviewing and calculating that my 
home may be a potential risk down the road, so I am not even 
getting the benefit of having been a good citizen and not 
having caused any type of financial hardship for the insurance 
company.
    So there are a lot of things stemming around insurance that 
are causing challenges in the affordability and the 
availability side. State legislatures have to look at some of 
those issues because insurance is State regulated, but there 
are some things that may have some focus within your purview, 
and we would ask you to be aware that there are real concerns 
out in the marketplace.
    Senator Sarbanes. That is very helpful.
    My time is up. Ms. Montague, I just want to thank you for 
your strong testimony on Sandtown-Winchester. I know that 
neighborhood well, and I know the work that Enterprise has done 
there.
    Actually, maybe all of the panel members could submit for 
the record their view of the role that HOPE VI places in 
revitalizing neighborhoods and how important you regard that 
program as being, because we obviously have an issue here 
because, regrettably, it is not in the President's budget 
submission.
    Mr. Rayburn, I found your testimony very interesting, and 
we are going to submit a couple of questions to you for the 
record.
    Mr. Rayburn. Good. And we would be glad to respond on the 
HOPE VI question also.
    Senator Sarbanes. Yes, we would very much like that. The 
Home Builders to their credit have always taken a keen interest 
in these issues, and we appreciate that very much.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Carper.
    Senator Carper. Thank you, Mr. Chairman.
    I want to follow up, Ms. Montague, on your comment that 
Senator Sarbanes just mentioned with respect to the Sandtown-
Winchester neighborhood. I understand that some new rules that 
HUD has proposed for this program may be overly restrictive and 
might diminish the impact that you could otherwise have through 
these kinds of initiatives.
    Do I have that right? If not, correct me, and if so, please 
explain in a little more detail how the proposed rules would 
affect this kind of initiative.
    Ms. Montague. Yes. I believe you are referring to the Asset 
Control Area Initiative.
    Senator Carper. That is right.
    Ms. Montague. I appreciate the question. Just by way of a 
little bit of background, the Asset Control Area Initiative is 
an important FHA program that effectively enables local 
governments and qualified community-based organizations to take 
abandoned Federally owned properties off the government's 
hands, rehab and resell those properties to low-income 
residents.
    The program was initially implemented on a pilot basis in 
16 jurisdictions by the prior Administration. In 2002, as the 
program was just getting under way, HUD suspended it after the 
inspector general found that there were some concerns about 
lack of management controls and potentially some administrative 
irregularities.
    The program is just in the process right now of restarting, 
and we are optimistic that they will be back in business very 
soon. In the meantime, there have been some very active 
conversations with HUD about two areas of concern. One area, as 
you noted, has to do with HUD's narrow interpretation of the 
flexible statute that created the program. We and other ACA 
participants have been disappointed that HUD has to date not 
allowed us to sell homes for full market value. Another 
restriction is that we have been restricted in our ability to 
sell properties at 110% of eligible expenses on a portfolio 
versus an individual property basis. And finally, we are eager 
to see HUD view more favorably our recommendation that we are 
able to convert a limited portion of the multiunit properties 
into rental housing as opposed to simply reserving them for 
for-sale housing to investors.
    So those are the three prongs. They affect different 
geographies in different ways, but in total, those are the 
concerns that are being raised by the 16 participants.
    Senator Carper. Thank you for each of those three prongs.
    I am going to telegraph not my next pitch but the one 
coming right after this. I am going to ask each of our 
panelists to be thinking about this, and then I will come back 
and ask the question. We have just heard, and I believe you 
were here when Secretary Martinez presented and defended the 
Administration's proposals to increase homeownership, some of 
which I think have great merit, some of which I think may be 
more suspect. And the question I am going to ask you before you 
leave and before I leave is: Of the Administration's proposals 
to foster greater homeownership, what do you think is a really 
terrific idea? And the second half of the question is: Of the 
Administration's proposals, which do you think represents a 
place that we do not want to go?
    I will give you those two thoughts, and while you are 
thinking about that, Mr. Rayburn, I have a different question 
for you. On page 10 of your testimony, you discuss the work 
that Home Builders are doing with local governments to 
encourage, I think, some innovative development around transit 
facilities.
    I just want to ask you if you could describe some of those 
activities and maybe your goals in that regard. We have just 
seen an interesting partnership, Mr. Chairman, of Fannie Mae 
with some of our local lending institutions, where we actually 
offer some people help on more affordable loans, help on 
interest rates, help on closing costs, as I recall, for people 
who are purchasing a home that is closer to a transit facility 
or to a place where they can catch a bus or take a train.
    Just take a minute and tell us a little bit about what you 
all are doing in this area if you would.
    Mr. Rayburn. Those are partnerships, Senator, that we have 
with our local Home Builders Associations, and they are doing a 
number of different types of various programs, as I understand, 
and they are working very well. But in an effort to continue to 
focus in a local area--and all of our members are locally 
based--they know best what the exact need is in the area.
    Senator Carper. I am just pleased to hear that you have 
taken some interest in this issue----
    Mr. Rayburn. Yes.
    Senator Carper. --and I just want you to know that some 
others are as well. And I like to say that the States are 
laboratories of democracy, and we are trying to provide one up 
in Delaware.
    Mr. Rayburn. And we agree also.
    Senator Carper. All right. Back to the rest of the panel. 
What do you really like about the President's--I guess they are 
the President's proposals--those presented by the Secretary, 
and then maybe an area that you think we ought not go?
    Ms. Montague. The really great idea is the homeownership 
tax credit because it is going to create another investment 
vehicle and foster a true ownership stake in these communities 
and draw additional investment and resources into underserved 
markets.
    The not-so-great idea, and in fact downright bad idea, from 
our perspective is the elimination of HOPE VI. In order to 
revitalize these communities, it is vitally important to bring 
mixed-income investment, and to revitalize what is often the 
blight in these kinds of neighborhoods--the public housing 
stock.
    Senator Carper. Thank you very much.
    Ms. Whatley, how are you doing?
    Ms. Whatley. I am doing great.
    Senator Carper. It is nice to see you again. You are a 
regular here, aren't you? We are going to have to start paying 
her to show up, Mr. Chairman.
    [Laughter.]
    Ms. Whatley. It is a privilege to be here.
    I think several things are great ideas--certainly the 
American Dream Downpayment Act. Downpayment assistance is a 
critical component for people to be able to get into housing.
    Second, I would echo Ms. Montague's tax credit proposal. It 
is absolutely essential that we begin to drive some directive 
to providing the actual housing abilities themselves. Housing 
prices themselves cannot sustain without some incentives 
provided to developers and investors. That is a must.
    Third, I think that HUD's FHA sub-prime mortgage product is 
a good idea, because that can help to begin to shape an 
environment in which predatory lending can begin to diminish as 
there are reasonable alternative products for those who have to 
be in the sub-prime market, and there is an incentive there for 
them to be able to pay on time and to have reduction in 
programs.
    I cannot say that I see any downright bad. I can only say 
that we should go anywhere and everywhere, as far as we can, 
with anything that promotes homeownership and rental programs. 
So as far as you can expand it and as many things as you can 
commit to, it is time for housing to get its stake, real stake, 
in the pie, and I would ask you to expand it.
    Senator Carper. Thank you, ma'am.
    Mr. Jones.
    Mr. Jones. We are very much appreciative of this whole 
homeownership, particularly narrowing the gap between 
minorities and low-income persons and others. That is really 
the business that Habitat for Humanity is in, and this is a 
great help in terms of making it a matter of conscience across 
our whole country that this is the right thing to do. We may 
debate on some of the ``hows'' but it is the right thing to do.
    We are also very appreciative of the tax credit for 
homeownership legislation possibilities. We think this has huge 
potential. We do think it is important that there be a modest 
set-aside for nonprofits, for reasons that we can get into if 
we need to.
    I guess I would reiterate what Terri said in terms of HOPE 
VI. In various places, that has been very helpful in terms of 
community development aspects of Habitat for Humanity 
development.
    Senator Carper. Thanks.
    Mr. Jones, I would be remiss if I did not just add that I 
have been mentoring the same young man for 6 years. Darryl 
Burton is his name. He is one of five boys raised by a single 
mom who 5 or 6 years ago was on welfare and now works and 
supports the family. Her oldest son just graduated from high 
school last weekend. They are going to move into a Habitat for 
Humanity house this summer. It is the first home they will have 
ever owned, so it is a source of great pride and joy for them 
and for us.
    Mr. Jones. That is great.
    Senator Carper. Mr. Rayburn, you get the last word.
    Mr. Rayburn. We are thrilled about the homeownership tax 
credit. We think that will go a very long way in helping a lot 
of very deserving families in this country while at the same 
time producing new construction. The production program is 
always welcome amongst NAHB's membership.
    As far as the American Dream Downpayment Program, we are 
not exactly super-thrilled with that program because we believe 
that those dollars could probably be better used in some other 
way. Also, we believe that additional dollars should be 
allocated to the program, instead of coming from home.
    We have concerns with the proposal of block-granting the 
Section 8 Program. We would also like swifter progress, if 
possible, by HUD on the multifamily high-cost area proposal 
that you are looking at.
    Senator Carper. Thanks very much.
    Mr. Chairman, you have been generous with the time. Thanks.
    Chairman Shelby. Thank you.
    I just want to comment and say that all of your testimony 
has been compelling today--Ms. Montague, Ms. Whatley, Mr. 
Jones. We appreciate the good news from Anniston, Alabama. I 
like their goal there.
    Mr. Jones. If you are going to be in town tomorrow night, 
they are going to dedicate 35 houses, and the families will 
move in
Saturday.
    Chairman Shelby. You called it a ``blitz.''
    Mr. Jones. They started Monday morning, and they are going 
to move in Saturday.
    Chairman Shelby. And Mr. Rayburn, we appreciate your candor 
here.
    I have a number of questions, and because of time, I would 
like to submit them for the record, but I want to ask you this 
question. What would you quickly say would be the single 
biggest obstacle keeping families from obtaining homeownership 
outside of income.
    Quickly, Ms. Montague.
    Ms. Montague. Downpayment assistance.
    Chairman Shelby. Ms. Whatley.
    Ms. Whatley. Actually, the availability of affordable homes 
in many communities.
    Chairman Shelby. She got into that, too; both.
    Ms. Whatley. Yes.
    Chairman Shelby. Mr. Jones.
    Mr. Jones. The availability of land.
    Chairman Shelby. So the family that gave the acreage----
    Mr. Jones. That is a huge thing.
    Chairman Shelby. Mr. Rayburn.
    Mr. Rayburn. Credit.
    Chairman Shelby. Thank you.
    We appreciate what you are doing. We are going to continue 
to work with you. We think this hearing today has been 
beneficial to us as Members and, we think, to everybody.
    Senator Carper. Mr. Chairman.
    Chairman Shelby. Yes, sir.
    Senator Carper. May I ask our first witnesses to the left--
is it Ms. ``Montag'' or ``Montague''?
    Ms. Montague. Montague.
    Senator Carper. I apologize. I have been calling you the 
wrong name all morning here, so please forgive me.
    Thank you, Mr. Chairman.
    Chairman Shelby. We thank all of you for participating.
    Give my best to Millard.
    Thank you. The hearing is adjourned.
    [Whereupon, at 12:25 p.m., the hearing was adjourned.]
                PREPARED STATEMENT OF SENATOR JACK REED
    It is appropriate that we are holding this hearing at the beginning 
of June, which has been declared National Homeownership Month. 
Homeownership is a cornerstone of the American Dream. It is the chance 
to set down roots, build equity, and get involved in a community. I 
want to commend Secretary Martinez for continuing the focus we saw 
under the Clinton Administration on increasing homeownership 
opportunities, particularly for minorities.
    However, programs like the proposed American Dream Downpayment Fund 
cannot solve our Nation's affordable housing crisis on their own. 
Housing is becoming less and less affordable around the country. 
According to the latest Housing Price Index (HPI) Report from the 
Office of Federal Housing Enterprise (OFHEO), the average price of a 
home in the United States during the first quarter of 2003 was 6.48 
percent higher than a year ago, almost triple the rate of inflation.
    In my own State of Rhode Island, homes appreciated 15.7 percent 
this past year--the Nation's fastest rate and more than twice that 
national median of 6.89 percent. Only 216 of the single-family homes 
currently for sale in the entire State of Rhode Island are considered 
affordable by our State Housing Finance Agency, meaning a family 
earning $47,280 or 80 percent of our State's Median Family Income can 
afford them. This represents only 9 percent of the homes on the market. 
Rhode Island's homeownership rate fell for the second year in a row to 
just 59.6 percent in 2002. This is 8.3 percent below the national 
homeownership rate of 67.9 percent.
    As a result, I have several overarching concerns about some of the 
homeownership initiatives we will be discussing today.
    First, downpayment assistance for low-income families is of 
``little assistance'' if they cannot find an affordable home to buy 
with it.
    Second, downpayment assistance is only one rung of achieving 
homeownership. If some of the lower rungs on the ladder to 
homeownership are ripped out, such as public housing, Section 8 
vouchers, preserving existing affordable housing, stabilizing and 
revitalizing distressed neighborhoods, and creating new units of 
affordable housing, very few working families are going to be able to 
climb up the ladder and achieve the American Dream.
    Finally, I am concerned about the vagueness of the Administration's 
proposal, in particular, the lack of a transparent formula for 
distributing the downpayment assistance and the lack of local 
flexibility in determining how the money can be used to expand 
homeownership.
    Of course, that begs the question of why the $200 million in 
downpayment assistance is not just added to the existing HOME formula. 
This would allow State and local governments to determine how best to 
provide homeownership assistance in their communities.
    Needless to say, I look forward to today's testimony and hope it 
can clarify some of my concerns.
                               ----------
             PREPARED STATEMENT OF SENATOR DEBBIE STABENOW
    Thank you, Mr. Chairman. I am glad that you have called this 
hearing today on encouraging homeownership. The topic is a priority of 
mine and one to which I believe that this Committee, and this Congress, 
should be dedicating a greater proportion of time.
    Let me begin by welcoming our witnesses today, HUD Secretary 
Martinez and the representatives of our second panel. I thank you for 
being with us today and I look forward to hearing your comments today.
    Mr. Chairman, there are a number of challenges in the housing 
sector today that require Federal attention. Both on the demand supply 
of housing and on the supply side.
    On the demand side, there are still far too many barriers to 
homeownership. In particular, one of the biggest barriers to 
homeownership is the upfront costs for first time homebuyers trying to 
buy a home. According to the Mortgage Bankers Association, typical 
total costs for downpayment and closing can approach over $9,000. This 
is an impossible amount to save for those who are working hard to make 
ends meet.
    That is why I recently teamed up with Senator Gordon Smith to 
introduce our First-Time Homebuyers' Tax Credit Act, S. 1175. Our bill 
authorizes a one-time tax credit of up to $3,000 for individuals and 
$6,000 for married couples. This credit is similar to the existing 
mortgage interest tax deduction in that it creates incentives for 
people to buy a home.
    To be eligible for the credit, taxpayers must be first-time 
homebuyers who were within the 25 percent tax bracket or lower in the 
year before they purchase their home ($68,800 for single filers, 
$98,250 for heads of household, $114,550 for joint returns). There is a 
dollar-for-dollar phase-out beyond the cap.
    Normally, tax credits like this are an after-the-fact benefit. They 
do little to get people actually into a home. What is particularly 
innovative and beneficial about the tax credit in this bill, however, 
is that the taxpayer can either claim the credit in the year after he 
or she buys a first home or the taxpayer can transfer the credit 
directly to a lender at closing. The transferred credit would go toward 
helping with the down payment or closing costs. As mandated in the 
bill, the lender would receive the money from the government in a 
timely fashion.
    What we are proposing, I believe is pretty bold. Senator Smith and 
I want to work with our colleagues to send a message to lower and 
middle income people all over the country that if you are working hard 
to save up enough to get into that first home, the Federal Government 
will make a strategic investment in your family--it will offer a hand 
up.
    This is not unlike what we already do through the mortgage interest 
tax deduction for millions of people who are fortunate enough already 
to own their own home.
    We certainly won't do all the hard work for you. You must be frugal 
and save and do most of the work yourself, but we, in Congress, 
understand that it is good for America to enhance homeownership.
    We also understand that this investment in working families 
stimulates the economy. No one can deny that when the First Time 
Homebuyers' Tax Credit is enacted and used by millions of people, every 
single time the credit is used, it will stimulate the economy.
    Why?
    Because it means someone bought a house. And that generates 
economic activity for multiple small business people--realtors, 
lenders, house appraisers, inspectors, title insurers, and so on. And 
there is a ripple of economic activity by the new homeowners as they 
fix up their new homes and get settled in.
    I would like to thank the National Association of Home Builders and 
Habitat for Humanity today for the support they have offered to the 
legislation. They join a long list of groups including: the Mortgage 
Bankers Association of America, the American Bankers Association, 
America's Community Bankers, Fannie Mae and Freddie Mac, the National 
Association of Affordable Housing Lenders, and the National Council of 
La Raza who have all offered their support to this concept of a 
transferable tax credit.
    Mr Chairman, as you know, it is not enough to address the demand 
side of housing. That is why I am also a strong advocate of increasing 
the supply of affordable housing. I have teamed up with Senator Smith, 
again, this time on a tax credit to spur the revitalization of 
neighborhoods through development tax credits. I know that Senators 
Santorum and Kerry, among others, have been strong proponents of this 
concept and I am glad that the Administration supports this as well. We 
must eliminate the economic mismatches between current market prices 
and the costs of rehabilitation if we are ever going to see many of our 
blighted communities reborn. This is as true in Flint and Detroit as it 
is in Philadelphia or Portland.
    There is absolutely no reason that this Senate should fail to pass 
a development tax credit bill for these challenged neighborhoods. With 
bipartisan support in Congress and the backing of the White House, I 
want to work with all of my colleagues to see such a bill enacted into 
law in the 108th Congress.
    Finally, Mr. Chairman, let me just touch briefly on a critical 
issue related to homeownership and that is abusive mortgage lending 
practices. With the rapid rise in homeownership over recent years and 
with record levels of mortgage refinancing--which involve an increasing 
number of less creditworthy borrowers entering the market--the problems 
with predatory lending have grown explosively. To address this problem, 
some have argued that a Federal law is needed. Others would prefer to 
let States and localities pass antipredatory lending laws.
    At this time, there is not yet consensus in Congress on additional 
legislative remedies. While we may differ in our views of appropriate 
additional legislative measures to address the problem of predatory 
lending, I think one thing that all of us can agree on is a strong 
desire to see current laws more effectively enforced. That is why I am 
glad that Senator Santorum has joined me in preparing a letter to send 
to Senate appropriators calling for a doubling of monies at the Federal 
Trade Commission to enforce antipredatory lending laws. I am glad that 
the Ranking Member and others have agreed to sign on and I hope still 
that other Members of this Committee will decide to join us in sending 
this letter next Monday.
    As all of us know, the Federal Trade Commission (FTC) is one of the 
principal government entities with an enforcement role over predatory 
lending. The FTC oversees many relevant laws including the Federal 
Trade Commission Act, the Equal Credit Opportunity Act, the Truth in 
Lending Act, and the Home Ownership and Equity Protection Act. I 
believe that enhanced enforcement would staunch many of these illegal 
activities and have a chilling effect on future abusive lending 
practices.
    Thank you again, Mr. Chairman, for calling this hearing. I 
appreciate your leadership on this issue and the leadership of Ranking 
Member Sarbanes. I look forward to working with all of my colleagues on 
an aggressive housing agenda to keep the housing sector a bright light 
in what has been a difficult economy.
                               ----------
                  PREPARED STATEMENT OF ELIZABETH DOLE
    Thank you Mr. Chairman.
    I want to thank you and Ranking Member Sarbanes for agreeing to 
hold this hearing on expanding homeownership opportunities. Increasing 
homeownership is one of the best ways to help both families and our 
economy.
    This hearing will highlight many statistics with regard to the 
barriers, needs and status of homeownership in America. However, I 
believe there is one statistic that truly stands out. Sixty-eight 
percent of Americans own their own homes. Among white households about 
seventy-four percent own their own homes; however, minority households 
average far worse at about forty-seven percent. That is a stunning 
difference and highlights where our efforts should be focused.
    I cannot say enough good things about the positive results that 
homeownership provides for families. Households that own their own 
homes have been proven to provide a more stable environment for their 
children. These children are more apt to do better in school and to 
become more involved in the community. These families are able to build 
wealth--many for the first time, thereby helping to secure retirement 
needs or pay for higher education. Families who own their own homes are 
more likely to spend the money necessary to properly maintain the home. 
These positive results have a ripple effect and impact the rest of the 
community and the economy.
    The President and Secretary Martinez are to be applauded for 
recognizing the importance of homeownership and working to reduce the 
barriers which have kept many families from realizing this dream. One 
such proposal before this Committee is the American Dream Downpayment 
Initiative. This proposal focuses on the difficulties families have in 
saving enough money for the downpayment on a home. This proposal has my 
full support, and I look forward to voting for it in this Committee and 
on the Senate floor. It is my hope that we can all work together to 
move this important legislation as soon as possible. There are many 
other barriers to homeownership and many other problems that families 
face after they purchase their first home. I hope to discuss these 
issues with our witnesses today, and I look forward to working with you 
all to expand homeownership opportunities. Thank you.
                               ----------
               PREPARED STATEMENT OF SENATOR CHUCK HAGEL
    Thank you Mr. Chairman for holding this hearing today on the 
important and timely issue of Homeownership.
    Owning a home is not just the preferred way of life for most 
Americans; It is ``the American dream.'' For most Americans, their home 
is their largest asset--their primary source of wealth. It provides a 
financial cushion to families who can use home equity to invest in 
things like education and small business opportunities.
    Home ownership is not just good for individuals and families--it is 
also good for the community. It stabilizes neighborhoods. It is a 
source of pride for the owners, and that translates to community 
involvement and a safe place for children.
    While a record 68 percent of American families do own their home 
today, there are many more who would if it were not for a few barriers 
standing in their way. Congress, working with the Administration and 
the private sector, must do more to educate people on the home-buying 
process, to provide more downpayment and closing cost assistance to 
first time homebuyers and to grow home financing options for low and 
moderate income Americans.
    Last year, Secretary Martinez announced the Blueprint for the 
American Dream in response to the President's call to create 5.5 
million new minority homeowners by the year 2010. I have joined my 
colleagues on this Committee in cosponsoring a number of bills which 
would advance several elements of that blueprint.
    Senator Dorgan and I have also introduced, along with Senator 
Johnson and others, The New Homestead Act, which would help individuals 
and families who make a commitment to live and work in rural America to 
afford a home in their community. It is by helping families establish 
roots in our rural communities that we will enable small town America 
to survive. I hope that my colleagues on this Committee will take a 
look at that bill and help us in our efforts there.
    I look forward to hearing from today's panel about the progress 
that has been made on the Blueprint.
    Thank you, Mr. Chairman.
                               ----------
              PREPARED STATEMENT OF SENATOR JON S. CORZINE
    Thank you, Mr. Chairman. I commend you for holding this hearing 
today. I know that we all agree that every American should have access 
to the tools they need to become homeowners. Homeownership allows 
families to build equity that will help them build the financial 
security critical to sending their children to college and achieving a 
sound retirement.
    As you know, homeownership rates in the United States are at an all 
time high of 68 percent. Despite the significant growth in minority 
homeownership rates in the 1990's--much of which can be attributed to 
public-private incentives--the dream of homeownership remains out of 
reach for too many minorities. In addition to rising housing prices 
that have quickly outpaced inflation, a lack of wealth and income, 
discrimination, and a general lack of affordable units contributes to 
this gap.
    It is that last point, Mr. Chairman that I would like to emphasize. 
We are facing an enormous affordable housing crisis in this country. 
This crisis is at the root of so many of the issues this Committee has 
held hearings on. It causes homelessness; it forces families to spend 
more than 30 percent of their income on housing; and it decreases 
access to homeownership. We must do more to address this issue.
    Mr. Chairman, we cannot expand access to the American homeownership 
dream, as it were, unless we take critical steps to increase the number 
of affordable housing units in this country. Earmarking $200 million of 
the HOME program to provide downpayment assistance to families wanting 
to buy a home will only go so far when there is no affordable home to 
buy. As we all know, States can already use their HOME dollars to 
provide downpayment assistance and many do. However, many States, 
including New Jersey, also use their HOME funds to assist renters who 
are unable to afford rental housing and to construct affordable housing 
units. Certainly, expanding existing downpayment assistance programs is 
a worthy goal that I support; however, we must not do so at the expense 
of other critical housing programs.
    Mr. Secretary, I have to admit that I am a little confused about 
the Administration's priorities. If the President truly wants to expand 
homeownership, then why has he proposed eliminating the HOPE VI 
Program, a program that has significantly expanded homeownership for 
low- and moderate-income families? In addition to revitalizing our 
urban communities and improving our Nation's public housing, the HOPE 
VI Program has funded the creation of more than 21,000 units of 
homeownership. At least 3,000 of these units have been sold to families 
that previously lived in public housing. Mr. Secretary, isn't this the 
kind of program we should be expanding, not eliminating?
    Furthermore, the Administration's proposed cuts to our other vital 
public and assisted housing programs, including Section 8, will only 
serve to push those families we want to help achieve self-sufficiency 
and, hopefully, homeownership further into poverty. Cutting the Public 
Housing Capital Fund will only serve to deteriorate existing 
properties, and will likely lead to decreased property values and crime 
increases. Of course, this Administration has already eliminated the 
Public Housing Drug Elimination Program (PHDEP), which public housing 
administrators relied upon to address these problems.
    Mr. Chairman and Mr. Secretary, all of these issues are 
interconnected. While expanding downpayment assistance programs is a 
laudable goal, we must do more, and we have to start by protecting our 
existing safety net and homeownership programs, not destroying them.
    Thank you.
                               ----------
                   PREPARED STATEMENT OF MEL MARTINEZ
                     Secretary, U.S. Department of
                     Housing and Urban Development
    Chairman Shelby, Ranking Member Sarbanes and Distinguished Members 
of the Committee, I appreciate the Chairman's invitation to appear 
before you this morning. The Administration welcomes any opportunity to 
meet with the Members and discuss the many ways in which we are working 
with the Congress to expand homeownership for America's families.
    The fact that June is National Homeownership Month, and a time when 
we are taking the homeownership message to communities across the 
country, makes the scheduling of this hearing especially appropriate.
    President Bush is focused on helping more families discover for 
themselves the security and sense of pride that comes with 
homeownership. This is a long-time commitment of this President that he 
highlighted during the presidential campaign in his ``New Prosperity 
Initiative.'' In remarks he gave in Cleveland, Ohio, on April 11 of 
2000, then-Governor Bush noted that the concept of ``ownership'' is 
central to American life, and that our history has been intertwined 
with the expansion of homeownership rights since the Nation's earliest 
days.
    He pledged that in the spirit of the Homestead Act of 1862, his 
Administration would help Americans to own a part of the American 
Dream.
    The President understands that homeownership is a profound and 
life-changing experience.
    For the vast majority of families, homeownership serves as an 
engine of social mobility and the path to prosperity. Americans see a 
home not only as shelter, but also as a safe investment, and one that 
can be leveraged to finance family priorities. In 2001, Americans took 
$80 billion out of the equity they had accumulated in their homes to 
make investments in education, consumer goods, and new businesses.
    There is no question that homeownership helps families lift 
themselves into a better quality of life and a more secure future.
    But the benefits of building a Nation of homeowners extend well 
beyond individual families and into their communities. Homeownership 
creates stakeholders who tend to be active in charities and churches. 
It inspires civic responsibility. It offers children a stable living 
environment that influences their personal development in many positive 
ways--including improving their performance in school. Studies by 
housing experts show a clear link between an increase in homeownership 
and a decrease in crime rates.
    Of course, homeownership also has a powerful impact on the national 
economy. Where many sectors of the economy performed below expectations 
over the past 2 years, the housing market has remained extremely 
strong. In fact, housing helped to cushion many areas of the country 
from recession, as home sales and refinancings pumped hundreds of 
billions of dollars into the economy.
    But beyond the statistics, increasing homeownership is good public 
policy. This Administration wants every family to benefit from our 
emphasis on homeownership. This includes reaching out to minorities who 
sometimes face special obstacles on the road to owning their own homes.
    At the end of last year, the national homeownership rate remained 
at record-high levels. The minority homeownership rate reached a record 
high as well. But those statistics mask a deep divide--what we call the 
``homeownership gap.'' Across the board, minority homeownership is 
about 20 percentage points below the rate for the population as a 
whole.
    Many minority families find the pathway to homeownership blocked by 
persistent barriers. These barriers include the inability to come up 
with enough cash for a down payment, a lack of credit history, or a 
blemished credit record . . . discrimination, and the unfamiliar terms 
and unreliable information that are often part of the homebuying 
process. Minority families often face discrimination in conjunction 
with or in addition to these other barriers.
    President Bush and I consider removing these barriers for all 
families, including minority families, to be a top priority for HUD, 
and one that is fundamental to our mission as the Nation's housing 
agency.
    The President launched America's Homeownership Challenge last June 
and announced his aspirational goal of boosting minority homeownership 
by 5.5 million families by the end of the decade. In response, HUD 
created the Blueprint for the American Dream Partnership. Each partner 
has made specific commitments that will help us reach our goal of 
dramatically boosting minority homeownership.
    One of the ways we are clearing away the barriers to homeownership 
is by offering new tools and resources to the homeowners of tomorrow.
    For example, the American Dream Downpayment Initiative will help 
make homeownership a reality for 40,000 families. The Initiative is 
currently moving through the Congress, and we are working with Members 
to get it passed and signed into law. Congress appropriated $75 million 
for the American Dream Downpayment Initiative for the current fiscal 
year.
    We have proposed increasing funding for our housing education 
program to $45 million, which would allow HUD to counsel 250,000 first-
time homebuyers next year. Helping families learn about the loan 
products and services available to them and how to identify and avoid 
unscrupulous lenders is critical to increasing homeownership.
    The Administration is boosting funding for the HOME Investment 
Partnerships Program by $210 million from the 2003 enacted level, to a 
total of $2.2 billion in fiscal year 2004. Both HOME and the Community 
Development Block Grant programs are popular, successful, and locally 
driven initiatives that communities can tap into to create affordable 
homeownership opportunities for low-income families.
    We are proposing a new Federal Housing Administration mortgage 
insurance product, designed to create homeownership opportunities for 
families with poor credit records who are served at a higher cost in 
the subprime market or not served at all.
    Our proposals also include a $1.7 billion Single-Family Affordable 
Housing Tax Credit to encourage developers and nonprofit organizations 
to produce affordable homes. The tax credit will make some 100,000 
homes available for purchase in low-income neighborhoods.
    During the 2000 campaign, the President announced a plan to give 
another 2 million low-income Americans the opportunity to move into 
their own homes with help from HUD's Section 8 Housing Choice Voucher 
Program. We currently allow local housing officials to offer future 
homebuyers the option of applying their vouchers toward a home 
mortgage; our fiscal year 2004 budget proposal would ``expand the 
program'' by allowing families to also put their vouchers toward a home 
down payment.
    These initiatives reflect just part of what has grown into an 
Administration-wide commitment to making homeownership an affordable 
option for every family that seeks it. With our assistance, and the 
support of the Congress, low-income families across the country who at 
one time never considered homeownership an option are becoming 
homeowners today.
    We are proud of our accomplishments over the past 2 years, but we 
do not intend to rest on them. There is much more we plan to do, and by 
working closely with you, we will continue to open up our communities 
to new opportunities for growth and prosperity, and encourage more 
families to seek homeownership and begin traveling the road to 
prosperity.
                               ----------
                PREPARED STATEMENT OF TERRI Y. MONTAGUE
                 President and Chief Operating Officer
                       The Enterprise Foundation
    Thank you, Chairman Shelby, Ranking Member Sarbanes and Committee 
Members for this opportunity to share with you The Enterprise 
Foundation's views on expanding homeownership for low-income and 
minority families.
    Enterprise is a national nonprofit organization that puts private 
capital to work in low-income communities across the country, primarily 
to produce affordable housing for working families. We have invested 
nearly $4 billion to produce more than 144,000 affordable homes 
nationwide. We are currently investing half-a-billion dollars a year in 
the people, community-based groups and bricks and mortar developments 
that are revitalizing some of our Nation's most disinvested 
neighborhoods. Affordable homeownership is an increasingly important 
activity for Enterprise and our local partners.
    Before addressing the subject at hand, a word of thanks is in 
order. No Federal policy is more effective in producing affordable 
rental housing than the Low Income Housing Tax Credit (LIHTC). We thank 
Housing Subcommittee Ranking Member Reed for his efforts to ensure that 
the recent tax bill did not adversely affect the LIHTC. We are also 
grateful to Committee Members, Senators Bayh, Chafee, Corzine, Johnson, 
Sarbanes and Stabenow for expressing their strong support for this 
critical program during Senate consideration of the bill. We urge all 
Senators to ensure that any future tax proposals hold harmless the 
LIHTC and other community development tax incentives, such as the New 
Markets and Historic Rehabilitation Tax Credits.
    We thank the Committee for its interest in the important subject of 
affordable homeownership. We commend President Bush and Secretary 
Martinez for their commitment to increasing minority homeownership by 
5.5 million families by 2010. We are working with the Administration 
and many other organizations to help achieve that ambitious goal.
    Our testimony addresses four issues: 1) homeownership's importance 
in revitalizing low-income communities; 2) the need for more affordable 
for-sale housing in those areas; 3) Federal policies to expand low-
income homeownership and community development; and 4) other important 
elements of a holistic housing policy. Our experience draws from many 
urban areas, but our testimony particularly addresses our experience in 
one community: Sandtown-Winchester in Baltimore, Maryland. We also 
reference recent research that shows that Sandtown's homeownership 
successes and challenges reflect larger trends and lessons.
Homeownership's Importance in Revitalizing Low-Income Communities
    We suspect that the Committee will hear a great deal in connection 
with this hearing about homeownership's benefits for families, which 
can include wealth accumulation, greater stability and increased civic 
engagement. These benefits may be especially pronounced for low-income 
families. Homeownership also can have important benefits for low-income 
communities, especially as part of broader revitalization strategies.
    Enterprise's experience in Sandtown-Winchester provides a good 
example. Sandtown is a 72 square block community in West Baltimore that 
was once one of the most vibrant African American neighborhoods in the 
city. By the time Enterprise, the City and Sandtown churches and 
residents began a comprehensive community revitalization initiative in 
the early 1990's, however, Sandtown had become one of Baltimore's most 
troubled neighborhoods. All the indicators of distress--inadequate 
housing, widespread blight, high crime, poor schools, rampant 
unemployment and drug abuse--were present at alarmingly high levels.
    Today, Sandtown is starting to turn around. In the 1990's, 
Sandtown's homeownership rate more than doubled and property values 
increased dramatically. Median family incomes rose 22 percent, after 
accounting for inflation. Unemployment and property vacancies each 
declined by one-third. In recent years, crime has decreased 
substantially. Elementary school test scores have improved 
significantly.
    After decades of disinvestment and decay, hope, and new investment, 
is coming back to Sandtown. Large-scale development of affordable for-
sale housing is at the heart of Sandtown's recent progress. Enterprise 
has developed nearly 400 for-sale homes in the area. Another 200-plus 
are in the pipeline. We also have provided
financing to help Habitat for Humanity build another 200 homes in the 
neighborhood. Virtually all of these homes have sold to low-income 
working African American families.
    To be sure, Sandtown still faces many daunting challenges. 
Homeownership, incomes, employment and educational attainment levels 
are still too low. Crime and addiction are too high. But the progress 
and momentum in Sandtown is undeniable and homeownership is a big 
reason why. Researchers from the Johns Hopkins University Institute for 
Policy Studies concluded:

        This analysis suggests that Sandtown-Winchester's increase in 
        median sales prices between 1990 and 1999 is associated with 
        its comprehensive approach to neighborhood revitalization, in 
        general, and its successful physical capital improvements, in 
        particular. Sandtown's approach centers on public-private-
        nonprofit partnerships that incorporate--in order of descending 
        importance--physical capital, CDC's [community development 
        corporations], homeownership and social capital. It has 
        succeeded in physical capital development, and in combining 
        homeownership initiatives with the development of social 
        capital through CDC's and other neighborhood-based 
        organizations.i
---------------------------------------------------------------------------
    \i\ The Johns Hopkins University Institute for Policy Studies, 
Neighborhoods Moving Up: What Baltimore Can Learn From its Own 
Improving Neighborhoods, 2001, p. 34.
---------------------------------------------------------------------------
    Sandtown is far from the only place where housing investment--
homeownership and rental--is helping drive broader neighborhood 
improvements. In its year-long, comprehensive analysis of housing 
challenges and solutions, the bipartisan Millennial Housing Commission 
found:

        Both theory and empirical evidence suggest that when several 
        owners fail to maintain their properties, others nearby follow 
        suit because their neighbors' inaction undermines property 
        values. Rundown and abandoned properties can have a contagious 
        effect that accelerates neighborhood decline.

        Replacing or upgrading distressed properties is, therefore, a 
        precondition for neighborhood revitalization. Public investment 
        in housing often triggers private investment that ultimately 
        lifts property values. Although larger economic and social 
        forces can undermine such efforts, recent comprehensive 
        community development projects suggest that concentrated public 
        investment in mixed-income housing can initiate neighborhood 
        reclamation.ii
---------------------------------------------------------------------------
    \ii\ Millennial Housing Commission, Meeting Our Nation's Housing 
Challenges, 2002, p. 11.
---------------------------------------------------------------------------
The Need for More Affordable For-Sale Housing in Low-Income
Communities
    The magnitude and impact of the homeownership development in 
Sandtown is especially striking in light of the conditions the 
community faced as the revitalization initiative began a decade ago. 
The homeownership rate was less than 11 percent and more than 600 
vacant homes in various States of distress blighted the neighborhood. 
By necessity, large-scale homeownership development was central to the 
revitalization strategy from the outset.
    Other parts of the country face a supply shortage of decent, 
affordable for-sale housing as well. According to Harvard's Joint 
Center for Housing Studies and the Brookings Institution:

        Many low-income renter households may be in a position to 
        overcome the wealth and income constraints on buying a home, 
        but will still be constrained by a lack of adequate housing 
        units at an appropriate price in a desirable location. Supply 
        side constraints on homeownership deserve greater attention 
        from researchers and policymakers.

        Affordable homes for ownership are being lost to house price 
        inflation and vacancies. . . On net there were about a half-
        million fewer affordable owner-occupied homes in 1999 than in 
        1997. The result, based on one set of underwriting assumptions, 
        is that the share of owner-occupied homes affordable to low-
        income households fell from 47 percent to 44 percent of the 
        stock from 1997 to 1999.

        When adjustments for variables that usually affect 
        homeownership are made, the stock of homes plays a significant 
        role in determining homeownership for low-income households. 
        The presence of single-family and new homes contributes to 
        higher homeownership by low-income households. Yet very few 
        nonmobile units are being added to the stock at affordable 
        levels. Policymakers need to recognize the failure of filtering 
        as a mechanism to expand the supply of affordable 
        homes.iii
---------------------------------------------------------------------------
    \iii\ Collins, Crowe and Carliner, ``Supply Side Constraints on 
Low-Income Homeownership,'' in Retsinas and Belsky, eds., Low-Income 
Homeownership: Examining the Unexamined Goal, 2002, pp. 197-198.

    Several years ago, the National Housing Conference's Center for 
Housing Policy found that between 1997 and 1998, 200,000 working renter 
families in 17 major metropolitan areas could afford to purchase three-
plus-bedroom houses priced between $50,000 and $75,000. But only 30,000 
homes in that price range were available in those 
locations.iv Just last month, the Center released a new 
report on homeownership and rental housing needs in 60 of the Nation's 
largest housing markets. The report found that families who depend on a 
teacher or police officer's salary are priced out of homeownership in 
roughly half those jurisdictions. Families that depend on the salaries 
of a janitor or retail sales person cannot reasonably afford the median 
priced home in any of those 60 metropolitan areas. (Nurses are shut out 
in 57 of the 60 areas.) The report notes that these professions are 
often occupied by people entering the workforce for the first time, 
perhaps transitioning from welfare, and that they play vital roles in 
their communities.v
---------------------------------------------------------------------------
    \iv\ National Housing Conference Center for Housing Policy, Housing 
America's Working Families, 2000, p. 21.
    \v\ National Housing Conference Center for Housing Policy, Paycheck 
to Paycheck: Wages and the Cost of Housing in America, 2003, p. 2.
---------------------------------------------------------------------------
    Enterprise's experience is that the shortfall of for-sale housing 
is especially acute in low-income and minority neighborhoods. One of 
the biggest barriers to expanding the supply of affordable, for-sale 
homes in many of these communities is that it often costs more to build 
or rehabilitate housing than market prices will support. This market 
failure denies low-income people homeownership opportunity and prevents 
low-income neighborhoods from reaping the broader benefits that often 
accompany increased homeownership.
    As we have seen in Sandtown and elsewhere, the market can work--
low-income people will buy in ``distressed'' communities, to their and 
the neighborhoods' benefit--if homes are available. We also see in 
Sandtown, as in many other communities, the need for more homeownership 
resources. The next major phase of homeownership development has moved 
slowly largely due to a lack of resources.
Federal Policies to Expand Low-Income Homeownership and Community
Development
    The largest Federal subsidies for homeownership--the Federal income 
tax deductions for mortgage interest and property taxes and the capital 
gains tax exclusion for home sales--overwhelmingly benefit upper income 
homeowners and more affluent communities. In fiscal year 2003, these 
provisions cost $110 billion, three-and-a-half times the size of the 
entire budget for the Department of Housing and Urban Development 
(HUD).
    There are, however, a few Federal initiatives that expand 
homeownership opportunity for low-income people and help strengthen 
low-income neighborhoods and the grassroots groups that serve them. 
Among the most effective existing programs are the following:
    The HUD ``Section 4'' program, which provides operating support and 
technical assistance to community-based groups through national 
intermediaries that must leverage at least three dollars of private 
matching funds for every Federal dollar. Section 4 funds help 
grassroots groups hire and retain staff, invest in technology, improve 
management and operations, enhance staff expertise and form new 
partnerships. Many of the community-based partners Enterprise assists 
with Section 4 funds are increasing their homeownership activities as a 
result of Section 4 assistance. Enterprise is requesting that Congress 
provide $40 million in Section 4 funds for Enterprise and the Local 
Initiatives Support Corporation to split equally for fiscal year 2004.
    The HOME housing block grant, provides flexible funds to States, 
cities and grassroots groups for homeownership development, repair and 
downpayment assistance, as well as rental apartment development and 
tenant rental help. Nearly 60 percent of HOME funds have been used for 
affordable homeownership, assisting more than 418,000 low-income 
people.vi Enterprise is recommending that Congress fund HOME 
at $2.9 billion for fiscal year 2004. Enterprise supports the 
Administration's proposed expansion of the homeownership downpayment 
set-aside program. We would note that the set-aside is unnecessary, 
since HOME already allows jurisdictions to provide downpayment 
assistance. We urge Congress to refrain from enacting any additional 
set-asides within HOME and to fund existing set-asides only to the 
extent they do not reduce formula funding for the block grant.
---------------------------------------------------------------------------
    \vi\ HUD website (www.hud.gov), ``HOME Program National Production 
Report as of 5/31/03.''
---------------------------------------------------------------------------
    The Treasury Department's Community Development Financial 
Institutions (CDFI) Fund, leverages private sector support for 
community-based financial institutions that provide a variety of 
affordable homeownership development, financing and counseling 
services, as well as rental housing support. The CDFI Fund is placing 
priority on expanding homeownership in the current fiscal year. 
Enterprise is requesting that Congress provide $80 million for the Fund 
for fiscal year 2004.
    The Federal Housing Administration's Asset Control Area initiative, 
enables local governments and qualified community groups to take 
abandoned, foreclosed homes off the Federal Government's hands for 
rehabilitation and resale to buyers in distressed areas. The ACA 
initiative has the potential to boost low-income and minority 
homeownership and help stabilize neighborhoods ravaged by large numbers 
of vacant properties. ACA participants in 15 jurisdictions have been 
operating under individual agreements with HUD. The Department is 
currently negotiating new agreements with participants under more 
uniform criteria. In general, those negotiations have been productive.
    Enterprise remains concerned about two issues, however: 1) HUD has 
been slow in negotiating final agreements, which is threatening the 
progress of the private-public partnerships that most ACA participants 
had carefully developed under their prior agreements; and 2) the 
Department has in some instances applied a narrow interpretation to the 
flexible statute that limits the program's potential. We and other ACA 
program participants are disappointed that HUD has not to date allowed 
ACA participants to sell homes for market value, receive reasonable 
compensation for development activities and convert a limited portion 
of multiunit properties into rental housing where necessary. We 
continue to work with the Department on these issues and will keep the 
Committee fully informed. We greatly appreciate the strong support 
Senators Sarbanes and Reed have shown for the ACA program.
    In addition to these existing initiatives, Enterprise strongly 
supports the proposed Homeownership Tax Credit. An unusually broad 
coalition of housing organizations supports the proposal (please see 
list below). Bipartisan bills have been introduced in the House and 
Senate to enact the Credit. The Senate bill, S. 875, is sponsored by 
Senators Kerry and Santorum. We thank Committee Members Allard, Bayh, 
Crapo, Hagel, Johnson, Sarbanes, Schumer and Stabenow for cosponsoring 
this bill. We urge the other Committee Members, and all other Senators, 
to join them.
    The Credit is designed to address the market failure mentioned 
above that shuts out so many low-income families and communities from 
homeownership opportunity: the gap between development costs and market 
value of affordable, for-sale housing in low-income areas. The proposal 
is based on the highly effective Rental Credit (LIHTC) and could do for 
homeownership what the Rental Credit has done for affordable apartment 
development. The Homeownership Credit has the same sound principles as 
the Rental Credit of State administration and flexibility, private 
sector competition and oversight and a strong role for community-based 
groups. The same highly efficient system of State administrators, 
corporate investors and community-based and for-profit developers that 
have made the Rental Credit so successful would readily embrace and 
effectively utilize the Homeownership Credit.

    In addition to expanding homeownership opportunity for low-income 
people, the Credit would help stabilize disinvested neighborhoods and 
contribute to their revitalization. The Credit recognizes the critical 
role homeownership can play in community development by targeting 
resources to low-income and economically disadvantaged communities, 
including rural and Native American areas. The Credit also would have 
significant economic benefits. The 50,000 homes it would produce each 
year would generate 122,000 jobs, $4 billion in wages and $2 billion in 
Federal, State and local revenue annually. For these reasons, the 
Homeownership Credit is just what Sandtown and so many other urban and 
rural low-income communities need to help them continue their progress.
Homeownership as Part of a Holistic Housing Policy
    We are grateful for this opportunity to share our views on how 
homeownership can help revitalize low-income communities. We urge 
Congress to support the policies we have mentioned to help achieve that 
goal. Our Nation needs more affordable, for-sale housing, especially in 
neighborhoods that did not share in the recent national prosperity and 
have been hit hardest by the economic slowdown.
    As important as homeownership is, it is only one component of a 
holistic housing policy that addresses all our housing needs. Public 
housing, tenant rental assistance and tools to produce more affordable 
rental apartments are equally important, if not more important. Low- 
and extremely low-income renters face by far the most acute housing 
needs. At current funding levels, the programs that produce rental 
apartments these families can afford can barely keep up with the 
apartments lost every year to rent increases, abandonment and 
deterioration--let alone meet chronic and worsening shortages.
    As the LIHTC and HOME programs have shown, rental housing 
development can provide similar community revitalization benefits to 
homeownership development. Again, Enterprise's Sandtown experience is 
instructive: hundreds of new rental apartments have complemented the 
homeownership development and contributed as well to the neighborhood's 
improvement. Without substantial additional investments in the 
surrounding community, including decent, affordable rental housing, 
many homebuyers in low-income areas may not benefit from the stability 
and wealth building homeownership promises.
    Homeownership is not for everyone. Many low-income renters will 
remain renters by choice. Others will need to rent for a period of time 
to amass savings, repair credit history and learn the responsibilities 
of homeownership before they can make their first downpayment. Others 
may never be ready or able to become homeowners. A holistic housing 
policy--and a compassionate country--cannot afford to ignore the needs 
of these families and individuals.
Community Homeownership Credit Coaliton
Coalition Members
    America's Community Bankers
    Bank of America
    CEO's for Cities
    Coalition for Indian Housing and Development
    Council of Federal Home Loan Banks
    Council of State Community Development Agencies
    The Enterprise Foundation
    Fannie Mae
    Federal Home Loan Bank of Pittsburgh
    Financial Services Roundtable
    Freddie Mac
    Habitat for Humanity International
    Housing Assistance Council
    The Housing Partnership Network
    Local Initiatives Support Corporation
    Manufactured Housing Institute
    McAuley Institute
    Mortgage Bankers Association of America
    National Association of Affordable Housing Lenders
    National Association of Counties
    National Association of Home Builders
    National Association of Local Housing Finance Agencies
    National Association of Real Estate Brokers
    National Association of Realtors
    National Coalition for Asian Pacific American Community Development
    National Cooperative Bank/NCB Development Corporation
    National Community Development Association
    National Congress for Community Economic Development
    National Council of La Raza
    National Council of State Housing Agencies
    National Hispanic Housing Council
    National Housing Conference
    National League of Cities
    National Neighborhood Housing Network
    National Rural Housing Coalition
    National Urban League
    Neighborhood Reinvestment Corporation
    Stand Up for Rural America
    United Way of America
    U.S. Conference of Mayors
                              ------------
                  PREPARED STATEMENT OF CATHY WHATLEY
                               President
                  The National Association of Realtors
    On behalf of more than 900,000 Members of the NATIONAL ASSOCIATION 
OF REALTORS', we are pleased to submit this testimony 
promoting homeownership and housing opportunities. The NATIONAL 
ASSOCIATION OF REALTORS' represents a wide variety of 
housing industry professionals committed to developing and preserving 
the Nation's housing stock and making it available to the widest range 
of potential homebuyers. The Association has a long tradition of 
support for innovative and effective Federal housing programs and we 
work diligently with the Committee and the Congress to fashion housing 
policies that ensure Federal housing programs meet their mission 
responsibly and efficiently.
    We commend the Committee for its continuing efforts on behalf of 
American families who need and desire affordable housing opportunities. 
Even today, where we have seen the greatest boom in homeownership 
rates, many working families are not able to find decent affordable 
housing. This hearing is very timely, as June is National Homeownership 
Month, where we recognize the value of having all citizens reach the 
American Dream. The NATIONAL ASSOCIATION OF REALTORS' (has 
consistently maintained that homeownership serves as a cornerstone of 
our democratic system of government and that homeownership continues to 
be a strong personal and social priority in the United States. Living 
in one's own home is central to the concept that a person has achieved 
a measure of security and success in life.
    As America's greatest tangible asset, real estate plays a critical 
role in our Nation's economy. Home sales and mortgage originations have 
set two successive record-breaking years in 2001 and 2002. Directly and 
indirectly, the housing sector has been instrumental in keeping the 
overall national economy afloat, contributing 68 percent of the U.S. 
economic growth in the past 2 years. The construction of new homes, 
value added contributions of REALTORS', and mortgage banking 
activity all directly add to economic output, job creation, and income 
generation. Given the stronger than expected home sales activity so far 
this year, we predict that new home sales will set a historic record in 
2003.
    As you can see, the current system of our real estate market is 
making substantial contributions to our Nation's economic well-being. 
That is why the National Association of REALTORS' opposes 
tampering with our real estate system. Allowing financial holding 
companies and subsidiary national banks to engage in real estate 
brokerage and management could put the safety and soundness of the U.S. 
economy at risk. We oppose such an untested regulation. Serving as the 
pillar of our Nation's economy in 2001 and 2002, our current system of 
real estate commerce is poised to do so again in 2003.
    Achieving the American dream increases financial stability for 
American families as well. Homeownership is the primary source of a 
household's net worth and the fundamental first step toward 
accumulating personal wealth. At the urging of Federal Reserve Chairman 
Alan Greenspan, in 2001 NAR examined the wealth effect of housing and 
determined that home equity is the largest source of wealth for 3 out 4 
homeowners. Additionally, our research determined that gains realized 
by homeowners from the sale of their homes average $30,000-$35,000, and 
between 76 and 85 percent of those gains are reinvested for the next 
home purchase.
    As we look forward, change is on the horizon that challenges 
Congress, the Administration and the real estate industry to step 
forward and collectively produce favorable and responsible public 
policies that continue to promote homeownership, provide real estate 
investment opportunities and protect the free market system to further 
America's growth and prosperity.
    For example, our U.S. population will continue to expand, reaching 
310 million by 2010 and 340 million by 2020, supporting strong housing 
demand. In each year of this new decade, we anticipate between 1.1 
million and 2.1 million new households will form. Baby Boomers, born 
between 1946 and 1964, will be the prime market for trade-up, upscale 
and vacation homes. Their children will be the main source of future 
homeownership growth, particularly as they begin looking for starter 
homes after 2010. In fact, we expect 7.6 million people between the age 
of 25-34, and 6.7 million aged 35-44, will represent the greatest 
growth in homeownership through 2010. Because of the expected increases 
in population, we believe homeownership will surpass 70 percent by 
2010.
    But, the biggest source of household growth in this decade will 
come from minorities and immigrants. Very simply, minorities will 
account for 64 percent of all new households. Between 1993 and 2000, 
minorities accounted for 44 percent of homeownership growth while 
accounting for 25 percent of all households. Today, an immigrant or a 
first-generation American heads one in five U.S. households. By 2020, 
the number of minority households will grow to over 41 million. The 
creation of these additional households will require more home 
construction as well as favorable economic conditions to lure potential 
homebuyers. The real estate industry and our Federal policymakers have 
a responsibility and obligation to ensure these groups are not ignored 
in their quests for housing opportunities.
    Chairman Shelby, and Members of the Committee, this is why the 
National Association of REALTORS' is committed to ensuring 
that our industry is positioned to expand and deliver broader housing 
opportunities benefiting all Americans. We have launched a new Housing 
Opportunity Program aimed at making a commitment and sharing 
responsibility for the health and well-being of our communities 
nationwide. Soaring housing values have made the housing sector the 
brightest light in a gloomy economy. But, it has also put affordable 
housing beyond the reach of millions of American families. Today's 
housing costs are dividing America into two Nations, one of ``housing 
haves''--families that purchased property before the price explosion
or who can afford high prices--and another of ``housing have nots,'' 
families who must scale down their expectations and make lifestyle 
sacrifices to afford adequate shelter.
    Not only is the NATIONAL ASSOCIATION OF REALTORS' 
addressing the problem in a comprehensive manner, but I have challenged 
each of the REALTORS' organization's 1539 local and State 
boards and associations to develop their own affordable housing project 
or housing opportunity response. Already, quite a few have taken steps 
to make a difference and make the American dream a reality in their 
communities. For example, the REALTORS' Association of 
Mobile, Alabama requires that all homes for sale in the Mobile area 
have listing information available in about 10 different languages. 
This assists immigrants and non-English speaking minorities in 
purchasing a home. In Maryland, a number of local REALTOR' 
associations, including in Anne Arundel County, Howard County, Prince 
George's County, and the Greater Baltimore Board of 
REALTORS' have partnered with Freddie Mac to develop 
CreditSmartsm, a credit education workshop. 
REALTOR' instructors teach the course to renters, 
homebuyers, students, and others, on how to manage critical money 
skills. Obtaining and keeping good credit is an essential step in 
buying a home, and this program gets people off on the right foot.
    Mr. Chairman, as you know, homeownership rates for minorities lag 
far behind that of white families. We applaud the President's 
initiative to increase minority homeownership by 5.5 million over the 
next 10 years. REALTORS' are doing their part to make this 
goal a reality. The National Association of REALTORS' is an 
original partner in the White House initiative, and are proud to be a 
party of the WOW (With Ownership Wealth) program of the Congressional 
Black Caucus Foundation. In addition, our REALTORS' At Home 
with Diversity' program provides real estate agents with 
training tools which help develop and expand their outreach to growing 
minority and immigrant markets, markets in which two thirds of our 
Nation's households will come from this decade. To date, we have 
certified almost 10,000 REALTORS' in this program, which one 
participant described by saying, ``My attitude toward clients from 
other cultures has changed dramatically. The best way I know to 
describe it is that I lost the `fear' of dealing with other cultures.''
    In April, the NAR, along with The National Association of Real 
Estate Brokers, the National Association of Hispanic Real Estate 
Professionals and the Asian Real Estate Association of America entered 
into a historic partnership with HUD to promote fair housing and 
increase minority homeownership. This partnership builds upon our work 
with the White House and the HOPE Awards, which we jointly sponsor with 
these and several other minority real estate organizations.
    The HOPE (Home Ownership Participation for Everyone) Awards 
recognizes up to seven organizations and individuals who are making 
outstanding contributions to increasing minority homeownership. We have 
honored two organizations for their work advancing public policies to 
promote minority homeownership. In 2002, the Greater Baltimore Board of 
Realtors was recognized for its public campaign to educate residents 
and policy leaders in Baltimore regarding abusive real estate and 
lending practices. This year, the brokerage award went to Emily 
Moerdomo Fu of RE/MAX Greater Atlanta International. Minority 
homeownership always has been the focus of Emily Fu's company, which 
she located in Atlanta's Asian Square Shopping Center, where the Asian 
and Hispanic communities come together. Her staff speaks 16 different 
languages and comes from 19 different cultural backgrounds. The 
brokerage provides a full array of services and since 1990 has helped 
thousands of minority families close on their first homes.
    We are also working on a number of research products to review 
differences in homeowership rates. We have commissioned a study to 
evaluate the reasons for the homeownership gap between whites and 
minorities. We have completed the first phase of this study and expect 
to conclude our research early next year. We welcome the opportunity to 
share the results of this report with the Committee at that time.
    As part of our commitment to President Bush's Homeownership 
Initiative, The NATIONAL ASSOCIATION OF REALTORS' is 
convening the National Summit on Housing Opportunities on September 25, 
2003 in Washington, DC to build a consensus for action. The Summit will 
bring together the country's housing leadership to consider the future 
of the Nation's affordable housing opportunities and how to elevate 
affordable housing on the national policy agenda. A cross section of 
the Nation's foremost housing and community development leaders will 
examine the critical questions that will determine the future shape of 
the American dream. I would like to invite you Mr. Chairman, and the 
Members of this Committee, to join us at this special event.
    In addition, we have an ongoing partnership with Habitat for 
Humanity. We are a national underwriter of the Congress Building 
America program. This program is designed to highlight the importance 
of volunteerism, produce new affordable single-family homes, and 
strengthen the network for affordable housing support. Also since 2001 
we have agreed to build a new Habitat home in each of the cities where 
we hold our Annual Convention. We are currently working on a new home, 
in San Francisco, the site of our 2003 Annual Convention.
    Clearly, those of us involved in the process of helping people 
achieve the American dream of homeownership can and must find more ways 
to encourage innovation and inspire investment in housing. 
REALTORS', particularly, are in a unique position to parlay 
the need for affordable housing, both in the rental and homeownership 
sectors of the market, into something tangible, concrete and livable.
    The NATIONAL ASSOCIATION OF REALTORS' believes now is 
the time to address new and innovative approaches to stimulating 
homeownership opportunities. Although housing remains strong in our 
Nation's economy and has helped to increase our Nation's homeownership 
rate to a record 68 percent, many deserving American families continue 
to face obstacles in their quest for the American dream of owning a 
home.
    Consider the following:

 One out of every seven American families--13 million 
    families--has critical housing needs;
 More than 7.5 million renters nationwide face critical housing 
    needs, either living in substandard properties or paying more than 
    50 percent of their income toward housing;
 Six million families--nearly half of those with critical 
    housing needs--earn at least some, if not all, of their income from 
    working;
 Most of these people earn less than half of the median income 
    for their area. They do not receive government assistance, and they 
    pay more than half of their income for housing or live in bad 
    conditions;
 In 24 States, a household with two full-time minimum wage 
    earners cannot afford a 2-bedroom apartment without spending more 
    than 30 percent of their income;
 Many who lack decent affordable housing are not what most of 
    us would consider poor. Among those hardest hit are schoolteachers, 
    police officers and municipal workers;
 Our Nation's housing shortage is a major contributor to 
    sprawl, forcing people to move farther and farther away from the 
    urban core to find homes they can afford;
 Nationwide, the inventory of affordable homes has shrunk to 
    the lowest level in a decade;
 Statistics show that the waiting list for public housing has 
    grown to approximately 1 million households with wait times as long 
    as 10 years in some cities, while the average wait for a rental 
    voucher in some cities is 5 years;
 Finally, there are approximately 270,000 households with 
    disabled Members on waiting lists for Federal housing assistance.

    As we seek to address critical challenges affecting housing 
affordability, minority homeownership, housing supply and community 
revitalization, REALTORS' stand ready to work with Congress 
to enact favorable real estate policies that benefit our Nation. To 
that end, we offer our support for a number of legislative and 
regulatory proposals that serve as a viable solution to the challenge 
of increasing homeownership opportunities and we respectfully encourage 
Congress to consider these additional initiatives to inspire investment 
in housing, share responsibility for our communities and expand housing 
opportunities--rental as well as ownership--for all Americans.
Support and Enact S. 811--American Dream Downpayment
    With one out of seven families in the Nation facing critical 
housing needs and low- and moderate-income working families virtually 
shut out of the housing purchase market, the NATIONAL ASSOCIATION OF 
REALTORS' commends Senator Wayne Allard (R-CO) for 
introducing S. 811, The American Dream Downpayment Act. It will provide 
assistance permitting up to 40,000 families a year to buy their first 
home. The initiative would provide grants to States and local 
governments under the Department of Housing and Urban Development's 
HOME Investment Partnership program. Enacted in 1992, the HOME program 
has successfully helped expand the supply of decent, affordable housing 
for deserving families by providing funds to communities to address 
housing shortages and needs.
    The NATIONAL ASSOCIATION OF REALTORS' has long 
recognized that the initial accumulation of cash remains the most 
challenging hurdle for many prospective homebuyers. We wholeheartedly 
support legislation that reduces homebuying costs and helps people 
achieve the American dream of homeownership. S. 811 is good, sound 
legislation that will not only stimulate new housing opportunities but 
will also help to sustain the momentum in our Nation's housing boom.
Support and Enact S. 875--Renewing The Dream Tax Credit Act
    Although this bill is not under the jurisdiction of this Committee, 
we call to your attention S. 875. It provides a new, innovative tool 
for increasing the supply of affordable housing. Nearly half of the 
Members of this Committee have cosponsored the bill, and Senator 
Santorum (R-PA) has joined Senator Kerry (D-MA) as the primary sponsor. 
This legislation builds on a framework provided in each Bush 
Administration budget since 2001. It provides a substantial tax credit 
for developers and investors who construct or rehabilitate housing for 
low- and moderate-income families to purchase. The credit is needed 
because in lower-income distressed and gentrifying urban neighborhoods 
the cost of building and rehabilitating homes far exceeds the prices at 
which these homes can be sold to lower income families. Similarly, 
older or inner ring suburbs that need revitalization and updating would 
qualify for the credit.
    The homeownership credit will fill the gap between development 
costs and home prices, promoting home purchase and halting further 
neighborhood deterioration. In gentrifying neighborhoods the credit can 
provide affordability to existing lower-income residents, preventing 
displacement. And, in rural communities and on Indian reservations the 
credit will attract development investment and enhance housing
capacity.
    Several Senators, including most recently Senators Smith (R-OR) and 
Stabenow (D-MI), have introduced a variety of tax credits and 
incentives directed at buyers. NAR welcomes all ideas and solutions for 
increasing homeownership. We note, however, that in today's market, the 
most serious affordable housing issue is the intense shortage of entry-
level housing. The marketplace has developed a host of products to 
assist prospective purchasers qualify for a mortgage. These products, 
combined with enactment of the American Dream Downpayment grants, make 
a wide variety of financial support available to buyers. More and more 
frequently, however, these individuals who have qualified for different 
types of mortgages are simply unable to locate homes that are 
affordable, appropriate and accessible to jobs. Accordingly, NAR is 
presently focusing its advocacy efforts on increasing that supply of 
housing. We are focusing our advocacy efforts on securing the enactment 
of S. 875 so that more housing alternatives will be available for 
purchase.
FHA Subprime Mortgage Product
    The President's fiscal year 2004 Budget request proposed a new FHA 
mortgage product. This would be a sub-prime loan to borrowers who have 
poor credit. Borrowers would be required to meet debt, income, and 
repayment ability standards, but are not required to meet traditional 
underwriting standards due to their credit rating. The loans would have 
a higher premium, but after 24 months of on-time payments, the premium 
would be reduced. HUD estimates that an estimated 62,000 credit-
impaired homebuyers would receive financing in the first year. The 
program is also expected to generate $7.5 billion annually in 
additional insurance volume for FHA. We support the development of such 
a product, which would expand home purchase opportunities for more 
borrowers. Homebuyers with impaired credit are customarily at risk for 
predatory lending. We believe an FHA loan of this type would protect 
these borrowers, and offer them more opportunities for home purchase 
without subjecting them to a lifetime of higher premiums. We welcome 
the opportunity to work with the Administration and Congress to develop 
an FHA subprime loan product.
Property/Casualty Insurance
    Property casualty coverage is an underwriting requirement for all 
home mortgages. In reaction to rising claims and losses, insurers have 
recently taken a number of steps to limit their risk. These steps 
include limiting the number of new policies written, increasing 
premiums, instituting new policy exclusions for some hazard claims and 
tightening their underwriting criteria for both borrowers and 
properties. Insurers now use insurance scores and claims databases to 
underwrite insurance applications. An insurance score is a credit-based 
statistical analysis of a consumer's likelihood of filing an insurance 
claim within a given period of time in the future. According to the 
insurance industry, studies have shown a correlation between a 
consumer's financial history and his/her future insurance loss 
potential. Thus, insurance companies believe the use of credit helps to 
underwrite an applicant at a cost that reflects their specific risk. 
The result of this is that homebuyers with impaired credit could find 
themselves in a situation where they can qualify for a loan product, 
but not qualify for property casualty insurance, thus rendering them 
unable to purchase a home. We encourage Congress to hold hearings on 
this important issue to review the implications of insurance scoring on 
prospective homebuyers and homeowners.
Amend Section 214 of the National Housing Act
    The median price of an existing, single-family detached home in Los 
Angeles during 2002 was $290,000. In San Francisco that number is 
$530,900. In the New York Metropolitan area the median home price was 
$328,000. The current FHA maximum high-cost mortgage insurance limit is 
$280,749, meaning that for many working families--teachers, police 
officers, firefighters--FHA is not a useful homeownership tool. We 
strongly support amending Section 214 of the National Housing Act to 
add other States to the list of high cost areas, permitting FHA 
mortgage limits to be adjusted up to 150 percent of the statutory 
ceiling.
    When Congress authorized Section 214 of the National Housing Act, 
it did so upon finding that higher costs prevailed in Alaska, Guam, 
Hawaii and the Virgin Islands because it was not feasible to construct 
dwellings without sacrificing sound standards of construction, design 
or livability. As a result, the Secretary of HUD was given authority to 
prescribe a higher maximum for the principal obligation of mortgages 
insured covering property in these areas. Today, many cities and States 
have housing costs that are higher than these designated high cost 
areas. We therefore believe it is appropriate for Congress to amend the 
list of areas where the maximum mortgage amount may be adjusted upward.
    In addition, under the conventional market the secondary market 
conforming loan limits have not kept pace in the same high cost areas. 
In some jurisdictions, area median home values far outstrip the 
conforming loan limit. The economic dynamics that lead to the 
designation of the current high costs States and jurisdictions have not 
been revised in nearly 30 years. We urge Congress to reexamine the 
current system of GSE loan limits, and recognize that Alaska and Hawaii 
are not the only areas that require higher loan limits to provide 
affordability benefits conferred by the secondary market.
Creation of Hybrid Adjustable Rate Mortgages
    The NATIONAL ASSOCIATION OF REALTORS' strongly supports 
legislation passed in the 107th Congress creating a series of hybrid 
FHA adjustable rate mortgages (ARM's). These new products will help 
close the homeownership gap for the majority of first-time, low-income 
and minority households who need FHA insurance to qualify for 
homeownership. The new ARM products will provide borrowers with the 
security of fixed-rate mortgages. By combining elements of a fixed-rate 
mortgage and a traditional 1 year ARM, the new products will serve as a 
convenient and affordable tool for FHA homebuyers seeking a hedge 
against any potential rise in the cost of traditional fixed-rate 
mortgages. Additionally, the ARM products will lessen consumer worries 
stemming from the initial ``teaser'' rates of traditional ARM's, which 
customarily convert to a higher interest rate after the first 
adjustment. With a fixed interest rate period of at least 3 years, the 
users will experience less ``payment shock'' offering homebuyers the 
opportunity to save money during the early years of the mortgage. We 
applaud the Administration for acting quickly in developing this new 
product.
    However, the enacting legislation capped the first interest rate 
adjustment for
3/1 and 5/1 hybrid ARM's at 1 percent. A maximum 1 percent increase in 
the interest rate at the time of the first rate adjustment for a 5/1 
hybrid ARM does not offer sufficient interest rate flexibility for a 
lender to offer this type of ARM product at a lower interest rate than 
a traditional 30-year fixed rate mortgage. As a result, FHA borrowers 
are not afforded the benefit of a hybrid ARM loan that features a 
starting interest rate lower than a 30-year fixed rate mortgage. We 
hope to work with the Committee and the Administration to develop a 
technical correction to make all FHA ARM products a much more 
available, affordable alternative for
homebuyers.
Preservation of the 203k Rehabilitation Program
    The 203(k) program is the primary Federal Housing Administration 
(FHA) program for the rehabilitation and repair of single-family 
properties. Section 203(k) loan insurance enables homebuyers and 
homeowners to finance both the purchase (or refinance) of a house and 
the cost of its rehabilitation through a single mortgage.
    NAR supports the current FHA 203(k) program as viable source for 
expanding homeownership and revitalizing neighborhoods. The need for 
this program to remain as Congress intended is as real today as it was 
when the program was created in the 1960's. The lack of affordable 
housing and reasonable housing opportunities is still an important 
factor in the lives of many people, especially minorities, immigrants, 
seniors, the disabled and the homeless. Without affordable and 
available housing opportunities, neighborhoods decline, families are 
stressed, jobs go unfilled and the quality of life deteriorates for 
all. The 203(k) program has allowed many lenders over the years to 
partner with State and local housing agencies and nonprofit 
organizations to rehabilitate properties and revitalize communities. We 
urge the Committee to preserve this important and vital program.
    In closing, the NATIONAL ASSOCIATION OF REALTORS' 
appreciates the opportunity to share its viewpoints regarding important 
legislation before the Committee that promotes the dream of 
homeownership through downpayment assistance. We applaud the Committee 
for its leadership and commitment in stimulating housing opportunities 
nationwide, and we stand ready to work with the Committee in fashioning 
legislation that helps deserving American families fulfill their 
housing needs.
                               ----------
                 PREPARED STATEMENT OF THOMAS L. JONES
                             Vice President
                   Habitat for Humanity International
    Thank you, Chairman Shelby, Senator Sarbanes and Members of the 
Committee for this opportunity to discuss expanding affordable 
homeownership in our country. I am Tom Jones, Vice President of Habitat 
for Humanity International (HFHI) and Managing Director of its 
Washington Office for the past eleven years. The Washington Office is a 
branch of the executive offices of Habitat for Humanity International, 
located in Americus, Georgia. The Washington Office serves as Habitat 
for Humanity International's presence in the Nation's capital. We are 
privileged to represent Habitat for Humanity International with 
Congress and Administration, professional and industry groups, NGO's, 
international groups, embassies, other nonprofits, labor unions, 
business corporations, and others.
    On behalf of Habitat for Humanity International, I am deeply 
grateful for the opportunity to testify before the Committee. The 
Members of this Committee continue to demonstrate their commitment to 
expanding housing opportunities for all persons by passing meaningful 
legislation and by holding hearings, such as this one--during National 
Homeownership Month--to highlight affordable homeownership as one of 
the single most important tools that a family can use to improve their 
quality of life and build wealth.
    Just last week, Habitat for Humanity was honored to be joined by 
Secretary Martinez and many of you and your colleagues to kick-off 
National Homeownership Month by announcing our new, National initiative 
designed to offer Members of Congress an opportunity to have hands-on 
experiences with families around the country seeking to build their 
dreams through the ``self-help'' model of homeownership. The ``Congress 
Building America'' program is a partnership between Habitat for 
Humanity, HUD, the U.S. Congress, and national corporate and nonprofit 
sponsors who will join forces with local Habitat affiliates to 
construct hundreds of affordable single-family homes. This initiative--
modeled on the highly successful ``The Houses That Congress Built'' and 
``The Houses The Senate Built'' in which many of you recently 
participated--is supported by congressional resolutions, already passed 
in the Senate and soon to be passed by the House. These resolutions 
express the sense of Congress in support of ``Congress Building 
America'' and increased access to affordable homeownership 
opportunities. Members of Congress are encouraged to participate in 
``Congress Building America'' events with Habitat homeowner families 
and local Habitat affiliates in their districts or States during the 
108th and the 109th sessions of Congress. We are confident that this 
partnership with Congress will strengthen the network of housing 
supporters, place the issue of affordable housing at the forefront of 
the Nation's social agenda, highlight the importance of volunteerism, 
and raise public awareness that access to affordable, decent and safe 
housing is an opportunity every person and family should have.
    Habitat for Humanity has spent the past twenty-seven years building 
affordable homes for homeownership with families who cannot qualify for 
mortgages in the conventional market. Home construction is supported by 
private donations, government partnerships for seed monies for land and 
infrastructure development, volunteer labor and homeowner's ``sweat 
equity.'' Habitat homes are sold for no-profit and financed by zero-
interest, long-term mortgages that each family can afford. The average 
Habitat house selling price in the United States was $51,219 in 2002. 
We have now built nearly 150,000 homes worldwide, and are working to 
complete another 50,000 homes by 2005, using 1,671 affiliates in all 
fifty States and over 500 international affiliates in 87 countries 
worldwide.
    Our homeowner families are typically first-time homebuyers who earn 
wages below 50 percent of the area median. Just over 71 percent of 
Habitat homeowners are minority and almost half are single parents 
raising school-aged children. Homeowners contribute 250-500 hours of 
their own labor as ``sweat-equity'' in the building of their homes and 
other Habitat homes. By partnering with Habitat, families are able to 
move from substandard, deteriorating, overcrowded, and unsafe housing, 
sometimes even homelessness, into their very own homes which they 
purchase with an affordable mortgage and build with their own hands.
    The success of Habitat for Humanity in creating homeownership 
opportunities for thousands of Americans who would otherwise never have 
the chance to own their own home is, in part, due to the generous 
support of Congress and the Administration. Since 1996, Congress has 
appropriated funding for the Capacity Building for Habitat for Humanity 
program, part of the Section 4 Capacity Building funds that benefit 
other housing and community development organizations, and the Self-
Help Homeownership Opportunity Program, commonly known as SHOP.
Capacity Building for Community-Based Housing Groups
    Capacity Building assistance is the key to increasing the 
organizational strength of community-based nonprofits. The Capacity 
Building for Habitat for Humanity program, as part of Section 4 funds 
which benefit the notable groups of LISC and the Enterprise Foundation, 
enables Habitat affiliates to improve communities on an even more 
significant scale by jumpstarting house production. Habitat affiliates 
essentially operate as local Community Development Corporations, with 
their own locally elected board and individual 501-c-3 nonprofit 
statuses. Many affiliates have no paid staff and must rely on the good 
will and hard work of volunteers. Thus the challenge for Habitat for 
Humanity is to provide affiliates with technical assistance, training, 
information, and access to new technology.
    The Capacity Building for Habitat for Humanity program, in its 
sixth year of funding, increases the capacity of our affiliates to 
leverage outside funding sources, assists in the development and 
implementation of comprehensive training, brings technical assistance 
closer to affiliates, and creates new, innovative programs. More 
specifically, our Capacity Building funds have been used to:

 Provide local volunteers with the skills, training, and 
    knowledge for developing resources through fundraising and securing 
    gifts-in-kind from the private sector--including faith-based 
    organizations, businesses, foundations, civic clubs, labor unions, 
    individuals, and others;
 Foster new local, regional, and State official partnerships 
    with organizations and groups such as college and university campus 
    chapters, faith-based groups, civic clubs, prisons, professional 
    groups, including realtors, bankers, home builders, local 
    government, and labor unions to enhance the productivity of local 
    affiliates;
 Recruit and train local volunteers in communication skills and 
    in ways to use media opportunities to raise public awareness to 
    eliminate substandard housing and to provide opportunities for 
    every American to achieve the dream of homeownership;
 Recruit and provide development opportunities to persons for 
    local board membership who have the leadership skills and the 
    diversity needed to pursue the mission of increasing affordable 
    homeownership at the local level;
 Provide funding on a diminishing basis for affiliates to hire 
    first time staff or staff for new positions that contribute to the 
    affiliate's growth, so that more people are working at the local 
    level to make housing happen;
 Provide training opportunities via electronic, web-based 
    communication targeted at securing resources, understanding new 
    methods of construction, discovering sources for training and 
    technical advancement, etc;
 Focus efforts on the special housing needs and challenges in 
    rural areas, Native American Indian communities, the Colonias, and 
    other populations traditionally underserved by current housing 
    programs and resources.

    Within the context of regulations established for Capacity Building 
for Habitat for Humanity funds, HFHI also conducts training and 
development of affiliates at the local level, working with groups of 
30-40 affiliates through its affiliate support system; at the State 
level in all fifty States; through its seven regional offices; and 
nationally. The program includes conferences, training events, 
specialized technical assistance instruction, and provision of 
leadership at every possible level. Because many Habitat affiliates are 
located in rural locations, a major focus is on the unique rural needs 
for training and technical assistance. Likewise, special focus is made 
on training and assistance for crucial urban areas where housing needs 
are so great and which present unique challenges, calling for 
specialized training and technical assistance.
    The success of the Capacity Building for Habitat for Humanity 
program is measured by the increase in numbers of families housed. In 
the first two rounds of the Capacity Building grant program, 118 
Habitat affiliates built 3,336 homes over the course of the three-year 
grants--52 percent more houses than they built in the 3 years prior to 
receiving the grant. In addition, affiliates must match every Capacity 
Building dollar with three dollars of private, nongovernmental funds 
and increase their building capacity by a minimum of 15 percent. This 
requirement has also been far surpassed. It is our hope that Congress 
will appropriate $15 million for the Capacity Building for Habitat for 
Humanity program, as it is crucial to increasing the building efforts 
of our local affiliates.
Self-Help Homeownership Opportunity Program (SHOP)
    The Self-Help Homeownership Opportunity Program (SHOP) was created 
by Congress in 1996 for the purpose of alleviating one of the largest 
obstacles faced by self-help housing developers in the production of 
affordable housing--the high cost of acquiring land and developing 
infrastructure before house construction even begins. SHOP funds are 
used exclusively for this purpose and have proven to be instrumental in 
jumpstarting affordable home building programs among self-help housing 
developers. The success and impact of the SHOP program is measured by 
numbers of homes produced: with the inclusion of the fiscal year 2002 
awards, SHOP funds will result in more than 9,000 new Habitat homes, 
changing the lives of over 34,000 Americans. This is an extraordinary 
accomplishment when one considers that for every $10,000 SHOP grant, on 
average, one home must be constructed, requiring additional resources 
of 4 to 10 times the amount of the initial investment to be raised in 
the private sector.
    HUD's SHOP grants are competitively awarded based upon an 
organization's experience in managing a sweat-equity program, a 
grantee's community needs, the capacity to generate other sources of 
funding and the soundness of its program design. Groups compete 
annually for SHOP funds, designated solely for expenses related to 
acquiring and developing land for building homes that sell at costs 
below the prevailing market rates. SHOP funds can be used for land and 
infrastructure expenses such as streets, utilities, water and sewer 
connections, and for environmental clean up. SHOP families invest 300+ 
hours in sweat equity--although some families invest hundreds of 
additional hours--and must earn below 80 percent of the area median 
income.
    SHOP funds have been used to support the work of self-help housing 
organizations in every State, resulting in the development of thousands 
of affordable homes. The labor of volunteers and partner families, 
efficient building methods, modest house sizes and a zero- or low-
interest loan makes it affordable for low-income families to purchase a 
home of their own.
    The SHOP program is an important element of the Administration's 
national homeownership strategy, as it not only expands the ranks of 
low-income and minority homeowners, it requires the personal 
contribution of its recipients, increases volunteerism and community 
participation, and efficiently utilizes Federal dollars by requiring 
the amount of the initial investment to be significantly leveraged.
    Habitat for Humanity, along with the other large user of SHOP 
funds--the Housing Assistance Council--believes that SHOP will be even 
more effective if the amount of the average award per house is 
increased from $10,000 to $15,000 to more accurately reflect the costs 
of land and infrastructure development. Nationally, the combined 
average of land and infrastructure expenses exceeds $21,000 for homes 
built by both Habitat for Humanity and the Housing Assistance Council. 
This amount must be raised by affiliates before house construction can 
even begin. Both of our organizations strongly believe this change will 
make SHOP even more competitive and attractive to affiliates and other 
self-help housing groups, who will work even harder to find the 
additional private resources necessary to pursue their building 
programs.
Single-Family Homeownership Tax Credit
    Habitat for Humanity International also strongly supports the 
Administration's proposal to increase homeownership and affordable 
housing production through a single-family homeownership tax credit, 
modeled after the highly successful Low-Income Housing Tax Credit. The 
proposed credit of up to 50 percent for the costs of constructing new 
homes for homeownership or rehabilitating existing properties for 
families in low-income urban and rural neighborhoods will enable our 
local affiliates and other housing developers to bridge the gap between 
the cost of developing affordable housing and the price that low-income 
homebuyers can pay for a home.
    The proposed homeownership tax credit legislation will create 
incentives for affordable housing development and infuse new resources 
into areas where the costs of construction and rehabilitation places 
homes beyond the reach of low- and moderate-income families. The 
current legislative proposals in Congress are structured to generate 
the resources sufficient to cover the gap between the cost of 
development and the price at which a home can be sold to an eligible 
buyer, resulting in the construction of more affordable housing and the 
strengthening of families and the communities in which they live.
    Habitat for Humanity International specifically supports two tax 
credit bills, S. 875 and H.R. 839, as both provide for a 10 percent set 
aside for qualified nonprofits. This provision, also included in last 
year's H.R. 5052 and S. 3126, will help ensure that nonprofits, like 
HFHI and other community and faith-based organizations, will be 
competitive applicants during the credit allocation process. A 
nonprofit set-aside--as successfully demonstrated in the current rental 
credit and HOME programs--has empowered nonprofit builders, often with 
fewer resources and serving lower income families, to be competitive 
for tax credits with their for-profit counterparts. Modest set-asides 
are established elements in the country's strongest housing programs 
for low-income families and encourage a ``level playing field'' for 
nonprofits.
    This is especially important for many other faith-based and 
community organizations who are often deeply rooted in communities and 
are particularly committed to providing housing for people with special 
needs--including the homeless, elderly and disabled. Many of these 
groups have proven track records of successful housing development in 
blighted urban and rural areas, often seen as unprofitable ventures for 
the for-profit sector. In fact, faith-based and community organizations 
are sometimes the only providers of affordable housing in such areas. A 
10 percent set-aside will help ensure that the contributions of faith-
based and community organizations in affordable housing production and 
related supportive services will continue to enhance the Federal 
Government's commitment to provide adequate housing for its citizens.
    In conclusion, Habitat for Humanity believes that now more than 
ever, during this period in our country when homeownership rates are 
the highest in history, that the government should invest its resources 
in those segments of our population that have been left behind and left 
out of the financial mainstream. This country has the resources to 
adequately house the millions of Americans living in overcrowded, 
substandard and unaffordable conditions, but no one organization by 
itself can eradicate substandard housing. The solution lies in 
collaboration, with all sectors of society working together, including 
faith-based and community organizations.
    I would encourage Congress to strengthen its resolve to protect the 
least among us and preserve funding for affordable rental and 
homeownership opportunities, education, healthcare and other social 
services at precisely the time when it is needed most. Healthy 
neighborhoods require HUD's investment in quality housing--rental and 
homeownership. Failure to maintain a range of affordable housing 
options will create obstacles for families seeking to become homeowners 
in the future. As you review the funding proposals for fiscal year04 
and other related housing legislation, it our hope that you would 
support additional resources to enable low-income families to move from 
often overpriced, inadequate rental housing into affordable 
homeownership and continue your support of organizations, such as 
Habitat for Humanity, that help make the dream of affordable 
homeownership a reality for thousands of families each year.
                               ----------
                 PREPARED STATEMENT OF JAMES R. RAYBURN
                          First Vice President
                 National Association of Home Builders
Introduction
    Thank you Mr. Chairman for the opportunity to testify before the 
Committee on Banking, Housing and Urban Affairs on homeownership 
barriers and solutions. I am Bobby Rayburn, a home builder and 
developer from Jackson, Mississippi. My company, Rayburn Associates, 
has constructed more than 3,000 single and multifamily homes. Expanding 
homeownership opportunities is, and has been, a major focus of my 30 
years in home building. I also serve as the 2003 First Vice President 
of the 211,000 member National Association of Home Builders (NAHB), 
which I am here to represent today. NAHB represents more than 800 State 
and local home builders associations across the country, and NAHB 
members will build approximately 80 percent of the nearly 1.7 million 
new housing units that are projected for construction in 2003.
    Homeownership is the preferred housing option for most Americans. 
Surveys consistently put the desire to own one's home at the top of the 
list of life preferences. The latest figures from the Census Bureau 
confirm that many have been able to accomplish that dream: 68 percent 
of all households do own their home, up 4 percentage points in the past 
10 years.
    Americans have many reasons for wanting to become and remain 
homeowners. Home equity is a major and, in most cases, singular source 
of wealth. According to the latest data from the Federal Reserve, home 
owner equity totals $13,889 billion and accounts for 35 percent of 
household wealth. As a comparison, household's holding of corporate 
equity, for example their investment in the stock market, totals $4,166 
billion or 11 percent of their worth. The equity in owned homes serves 
as homeowners' savings for college educations for their children, 
opening new businesses and retirement. Home equity also provides a 
financial cushion and source of funds for large expenditures like home 
remodeling, furnishing and landscaping. Over the past year, Freddie Mac 
estimates that homeowners extracted $166 billion from their homes when 
they refinanced. This additional consumer spending made a substantial 
contribution to keeping the economy going and recovering from the 2001 
downturn.
    Homeownership also has proven positive impacts on the nonfinancial 
side of households. Research published in social science and economic 
journals show that children raised in owned homes have higher test 
scores and remain in school longer. Other studies show that homeowners 
are more likely to be active in community affairs, more likely to vote 
and more likely to socialize with their neighbors. Neighborhoods of 
homeowners provide positive impacts on the neighborhood through higher 
maintenance expenditures and lower negative influences.
    Building owned homes provides economic stimulus to the communities 
where they are located and to the economy as a whole. The typical new 
single family home spawns new economic activity in the community beyond 
the actual construction. NAHB estimates that the construction impact of 
building 100 homes and the attendant ripple effects add $11.6 million 
of economic activity, $1.4 million of new tax and fees to local 
governments and 250 new jobs. And the ongoing impact from a new 
household living and spending in the community adds $2.8 million in 
additional income to the area every year, about one-half million 
dollars to local government treasuries and 65 jobs.
Barriers to Homeownership
    A little less than one-third of all households are renters and many 
chose renting because it fits their lifestyle, location preference or 
family situation. Many would prefer homeownership, but find barriers 
too large to jump. In addition, roughly 1.2 million additional 
households are formed every year, and many of these households search 
for but are unable to find affordable homeownership opportunities.
    Barriers to affordability result from two sources: potential home 
buyers have insufficient savings to make a downpayment and cover the 
closing costs and/or home prices are too high because of unnecessary 
layers of restrictions, requirements, delays and other causes of added 
costs without benefit.
    On the financial side, many households find the cash needed for a 
downpayment and the closing costs significantly exceed their savings. 
Even with existing programs sponsored by Federal agencies, FHA, VA and 
the RHS, the final downpayment and another 2 to 4 percent of the 
mortgage amount, or more, in closing costs is a very large sum for 
young families. Programs that reduce upfront costs are the most 
critical in getting first-time home buyers into housing. NAHB estimates 
that an extra $1,000 in downpayment assistance would allow 230,000 
additional renters to buy a home.
    On the regulatory barrier side, homes cost more than they should 
because local, State and Federal Governments erect obstacles and add 
costs that are unnecessary and without sufficient benefit. A large 
component of the costs are caused by delays and lengthy processing 
times at the local government level. There also are local policy 
barriers to affordable housing, including restrictions on multifamily 
housing, large-lot zoning, density restrictions, excessive impact fees, 
excessive street-width requirements, building moratoria and residential 
growth caps, among others.
    Federal regulatory actions also add costs without corresponding 
benefits. For instance the Environmental Protection Agency recently 
reopened the designation of isolated wetlands even though a court 
decision provided sufficient definition. The Fish and Wildlife Service 
persistently designates very large tracts of land for critical habitat, 
which eliminates development from these areas and increases the cost of 
the remaining lands. There are many other examples like these where 
well-intended efforts to protect the environment or humans have 
unintended but significant negative impacts on housing, affordability 
and homeownership.
    The U.S. Department of Housing and Urban Development (HUD) has 
established a new office to serve as a clearing house for efforts to 
identify and remove barriers to affordable housing. NAHB looks forward 
to working with this new office in this important effort.
Solutions
NAHB Support for the President's ``Blueprint for the American Dream''
    NAHB fully supports President Bush and his ``Blueprint for the 
American Dream'' initiative to increase homeownership opportunities for 
minority families. In support of the President's initiative, NAHB has 
committed to promote homeownership education, improve minority access 
to credit, and remove barriers to the production of affordable housing.
    At the Federal level we are pursuing the enactment of a number of 
legislative proposals that will significantly address both the cost and 
cash resources barriers to homeownership. These measures include a 
homeownership tax credit to support the production of affordable homes 
in underserved areas; a refundable first-time home buyers' tax credit 
that can help lower upfront cash hurdles; more Federal grants to States 
for downpayment assistance for lower-income home buyers; and, several 
other initiatives to expand homeownership opportunities. NAHB is also 
pursuing changes in Federal regulations that will increase the 
incentives of lenders to address homeownership gaps and reduce the 
costs of Federal regulations.
    The members of the National Association of Home Builders (NAHB) are 
committed to removing barriers to homeownership for minority families. 
Many of NAHB's State and local affiliates have engaged in initiatives 
to promote minority homeownership. NAHB has been working with its 
network of State and local affiliates to find markets that could most 
benefit from education and outreach initiatives. NAHB is also working 
with other Blueprint partners to identify opportunities for cooperative 
outreach efforts. NAHB is dedicated to increasing public education 
regarding the many existing programs--public and private--that can help 
families achieve the dream of homeownership.
NAHB Legislative Priorities
Homeownership Tax Credit
    NAHB's top legislative priority in the 108th Congress is the 
Homeownership Tax Credit (HOTC). The credit was first proposed by the 
Administration and has been included in each of the President's last 
three budget proposals. Three bills have been introduced in this 
Congress that reflect the Administration's proposal. The bills have 
more than 20 sponsors in the Senate and 100 sponsors in the House. The 
first bill introduced in the Senate was S. 198, the ``New Homestead 
Economic Opportunity Act'' and was sponsored originally by Senators 
Gordon Smith (R-OR), Rick Santorum (R-PA) and Debbie Stabenow (D-MI). 
The second bill introduced in the Senate was S. 875, the ``Community 
Development Homeownership Tax Credit Act'' and was introduced by 
Senators John Kerry (D-MA) along with Senator Rick Santorum (R-PA), 
Senators Wayne Allard (R-CO), Debbie Stabenow (D-MI), and Paul Sarbanes 
(D-MD). The House bill is H.R. 839, the ``Renewing the Dream Tax Credit 
Act'' and was originally sponsored by Representatives Rob Portman (R-
OH), Ben Cardin (D-MD) and Henry Bonilla (R-TX).
    NAHB is working with nearly 30 national organizations to support 
the pending HOTC legislation in the Community Homeownership Credit 
Coalition. These groups include nonprofit and for-profit developers, 
State allocating agencies and corporate investors. These groups include 
the National Council of State Housing Agencies, Fannie May, Freddie 
Mac, and the National Realtors' Association.
    All three HOTC bills provide a tax credit up to 50 percent of the 
construction or rehabilitation costs of building owner occupied homes 
in hard-to-develop areas that must be sold to low- and moderate-income 
buyers. Although NAHB opposes one provision in two of the bills that 
creates a preferential set aside for nonprofit developers, we support 
all three bills. We believe that an exceptionally fine HOTC program can 
be crafted from the proposals during the legislative process that will 
benefit Americans most in need.
    The HOTC is needed to improve the quality of life in distressed 
neighborhoods through increased homeownership of quality housing. 
Existing buildings in distressed areas frequently are not renovated 
because the costs exceed the prices at which the housing units can be 
sold. Similarly, the costs of new construction may exceed the market 
values of the homes. Projects will not be built and neighborhoods will 
remain blighted unless the gap between development costs and market 
prices can be closed.
    The HOTC proposals seek to close the gap in homeownership rates 
among Americans. While 82 percent of households earning 100 percent or 
more of the national median income now own homes, only 53 percent of 
households earning less than the national median are homeowners. The 
homeownership rate for families earning 80 percent or less of the 
national median is only 40 percent to 45 percent. Homeownership for 
whites is 75 percent while the ownership rate for African Americans is 
just below 48 percent and 48 percent for Hispanics.
    According to the U.S. Census Bureau, there are an estimated 34.2 
million renter-households in the United States but only about 3.5 
million of them (10 percent) can afford to buy a modestly priced home, 
for example a home that is less expensive than 75 percent of owner-
occupied homes in a given area.
    The tax loss estimated by adding the HOTC to the Internal Revenue 
Code is expected to be $2.5 billion over the first 5 years and $16.1 
billion over 10 years. For that tax expenditure the HOTC is expected to 
produce 50,000 new and rehabilitated homes annually, $2 billion of 
private equity investment, $6 billion in total investment generated, 
122,000 jobs, $4 billion in wages, and $2 billion in taxes and fees.
    The funding and administration of the HOTC is modeled on the Low 
Income Housing Tax Credit (LIHTC) that is used to finance rental 
properties. Each year a State is eligible for HOTC's of $1.75 per 
capita, or a minimum of $2 million. The State allocates credits to 
developers through a competitive allocation process administered by 
State agencies. A developer can obtain a HOTC for up to 50 percent of 
the development cost of each home. Developers can sell credits to 
investors to raise financing for construction or rehabilitation costs. 
The tax credit is claimed over 5 years and is not subject to recapture 
by the developer or investors, or any other obligation after the home 
is sold to an eligible buyer (generally a family with an income that is 
80 percent or less than area median gross income).
    The structural difference between the LIHTC and the HOTC is that 
the HOTC can only be used in distressed areas (location based) while 
the LIHTC can be used in all areas (income based) to provide housing. 
The location based HOTC is needed to increase homeownership in low- and 
moderate-income neighborhoods.
    The three pending bills would apply the tax credit to a single-
family home containing one to four housing units, a condominium unit, 
stock in a housing cooperative, modular housing, or manufactured 
housing. Qualifying residences would be located in a targeted census 
tract, in a chronic economic distressed area as defined in section 
143( j)(3) of the Internal Revenue Code, a reservation for a Federally 
recognized Indian tribe, or in a rural area as defined by section 520 
of the Housing Act of 1949. As defined, rural areas mean any open 
country, or any place, town, village, or city which is not part of or 
associated with an urban area and which (1) has a population not in 
excess of 2,500 inhabitants, or (2) has a population in excess of 2,500 
but not in excess of 10,000 if it is rural in character, or (3) has a 
population in excess of 10,000 but not in excess of 20,000, and (A) is 
not contained within a standard metropolitan statistical area, and (B) 
has a serious lack of mortgage credit for lower and moderate-income 
families, as determined by the Secretary of Agriculture and Secretary 
of Housing and Urban Development. The basis of the credit should 
include rehabilitation expenditures (excluding land).
    NAHB generally favors giving States the maximum possible latitude 
in administering the HOTC program. In this regard, NAHB believes that 
the program will be more efficiently operated if all developers are 
treated equally at the Federal level. The creation of a Federally 
required 10 percent set aside for tax-exempt developers in S. 875 and 
H.R. 839 is an unnecessary intrusion on the States administrative 
authority. States should be allowed to choose to administer a fully 
competitive HOTC program in order to build the greatest quantity of 
quality housing possible. A statistical analysis by the U.S. General 
Accounting Office (GAO) found that there is a better than 85 percent 
chance that for-profit developers will build LIHTC rental properties 
(the model program for the HOTC) at lower cost than tax-exempt 
developers. It should be noted that tax-exempt developers now are 
awarded approximately 32 percent of the Low-Income Housing Tax Credit 
(LIHTC) awards for rental property developments. As a result they can 
be expected to have a very substantial involvement in the HOTC program 
without a Federal preference.
    NAHB believes that the HOTC is a needed compliment to the LIHTC 
program. The LIHTC program serves residents that are at 60 percent or 
less of area median income (AMI). The HOTC program would serve 
homebuyers at 80 percent or less of AMI. As tenants move up in income 
and establish a credit rating, they need the option of moving into 
their own homes and start building equity capital for themselves. The 
HOTC provides this opportunity.
    The complimentary relationship between the two credits is clearly 
illustrated in their administration. The two credits have separate 
allocation pools for agencies to use in allocating the tax credits to 
the two different types of property. State agencies can offer different 
rates of return to investors to reflect the structural differences 
between the credits. The LIHTC is paid over a 10-year period to 
investors. The investors are subject to a recapture of their tax 
benefit if property is not used as a low-income rental property during 
a 15-year compliance period. The HOTC is paid out over a five-year 
period to the developer or investors who own the property prior to its 
sale to a qualified buyer. After the sale, only the buyer of a HOTC 
home is subject to a possible recapture or loss of tax benefits if the 
property is sold or converted to a rental property during the five-year 
credit period. As a result of the differences between the credits, 
there is more risk associated with investments in the LIHTC than the 
HOTC. Rates of return are expected to reflect the risk differences.
    None of the nearly 30 national associations supporting the HOTC 
legislation in the Homeownership Tax Credit coalition want to advocate 
any proposal that would have adverse long-term harm on the LIHTC. It 
would be contrary to many of the organizations' fundamental interests 
because they are stakeholders in the rental credit program. Coalition 
partners who are investors believe that the equity market for housing 
is large enough to support efficient tax credits for both rental and 
ownership housing. In fact, they issued a public statement to that 
effect. For example, the rental credit market remained very strong 
during the past 2 years despite declining corporate earnings among many 
corporate investors and a 40 percent increase in available credits.
First-Time Homebuyers' Tax Credit
    NAHB supports a bill recently introduced by Senators Debbie 
Stabenow (D-MI), Gordon Smith (R-OR) and Mark Dayton (R-MN), the 
``First-Time Homebuyers' Tax Credit Act of 2003'' (S. 1175) that would 
create a first-time homebuyer tax credit for low- and moderate-income 
homebuyers. The bill proposes to create a refundable tax credit of 
$3,000 for single taxpayers and $6,000 credit for married couples 
buying their first home. The credit could be assigned during the 
purchase negotiations to cover purchase, financing or closing costs 
incurred by the buyer. The credit can only be claimed once and is 
subject to an income phase out starting at $67,700 for single 
taxpayers, $96,700 for heads of household, and $112,850 for joint 
returns, with a dollar-for-dollar phase-out of the tax credit beyond 
the cap.
    NAHB is one of the original organizations supporting the bill. We 
believe the legislation will help mitigate the major hurdles most 
American's face when buying their first home--having a sufficient down 
payment and covering closing costs. The proposal also compliments the 
HOTC program. It has been estimated that the program would help as many 
as 17 million people become homeowners over the next 7 years.
Tax Deductibility for Mortgage Insurance Premiums and Guarantee Fees
    NAHB supports legislation introduced in the House of 
Representatives and the Senate that would make premiums paid for FHA 
and private mortgage insurance (PMI), and guarantee fees paid for 
Department of Veteran Affairs (VA) and Rural Housing Service loans tax 
deductible. The deduction for the fees is phased out for families with 
annual incomes greater than $100,000. Lower- and moderate-income 
homebuyers are the most frequent users of the insurance. Higher income 
families have alternative financing mechanisms that can be used in lieu 
of insurance. The deduction would result in an estimated revenue loss 
of $228 million over 5 years and $553 million over 10 years.
    Senators Gordon Smith (R-OR), Blanche Lincoln (D-AR) and Wayne 
Allard (R-CO) introduced S. 846, the ``Mortgage Insurance Fairness 
Act''. An untitled bill to provide a tax deduction for mortgage 
insurance and other similar expenses (H.R. 1336) was introduced by 
Representatives Paul Ryan (R-WI), William Jefferson (D-LA), Clay Shaw 
(R-FL), John Lewis (D-GA), Philip English (R-PA), John Tanner (D-TN), 
Mark Foley (R-FL), Eric Cantor (R-VA), Bob Ney (R-OH), Mark Green (R-
WI), Robin Hayes (R-NC), George Radanovich (R-CA).
    The provisions of S. 846 were added as an amendment to H.R. 2, the 
``Jobs and Growth Tax Relief Act of 2003'' in the Senate Finance 
Committee mark up of the economic stimulus legislation and was passed 
by the full Senate. Unfortunately, the provision was not reported out 
of the Conference Committee that resolved the differences between the 
House and Senate bills.
    Currently, an estimated 7 million-plus homeowners pay premiums on 
FHA-insured mortgage loans and another 5.5 million pay private mortgage 
insurance premiums. Making mortgage insurance tax deductible would save 
FHA and PMI borrowers about $200 a year, while VA borrowers would 
receive a one-time benefit of $700. The proposed legislation would 
lower the after-tax cost of mortgage borrowing enough to enable 300,000 
additional renters to buy a home.
American Dream Downpayment Initiative
    NAHB supports the ``American Dream Downpayment Act,'' which was 
introduced in the Senate as S. 811 by Senators Wayne Allard (R-CO) and 
Jeff Sessions (R-AL). Representative Katherine Harris (R-FL) introduced 
a companion bill (H.R. 1276) in the House along with 31 cosponsors. The 
bills provide $200 million to assist lower-income families in achieving 
homeownership. This legislation targets funding under the HOME 
Investment Partnerships Program specifically to lower-income families 
seeking to purchase a home. The funds flow through the existing HOME 
block grant framework to State and local governments for programs 
providing downpayment and closing cost assistance. The program is 
expected to assist 40,000 households each year.
    While we strongly support the intent of this legislation, NAHB has 
concerns with the proposed funding source. We believe that 
appropriations for the program should be above and beyond the funding 
appropriated for the HOME program, and not a set-aside within HOME's 
budget. NAHB is an ardent supporter of the HOME program, which is a 
vitally important source of gap financing supporting affordable housing 
production in conjunction with the Low-Income Housing Tax Credit 
program, tax-exempt bond financing, and other State and Federal 
affordable housing programs. In addition, HOME program already funds a 
significant portion of homeownership assistance efforts. NAHB has 
enthusiastically endorsed proposals to further increase HOME funding in 
the fiscal year 2004 budget and feels additional funds, outside of 
HOME, should be allocated to support the ``American Dream Downpayment 
Act.''
FHA Modernization
    Federal Housing Administration's (FHA's) single family insurance 
programs are vital to the housing finance system in serving borrowers 
and homeownership needs not addressed by the private sector. FHA has 
become increasingly less effective and efficient, however, as statutory 
and regulatory restrictions, as well as the constraints of the HUD 
bureaucracy, have caused FHA to lag behind the pace and standards set 
in the conventional housing finance industry. FHA is hamstrung by 
substandard operating and information systems and a short-handed and 
inexperienced workforce. As a result, FHA is not able to respond 
promptly and appropriately to developments in the mortgage marketplace 
or to foster innovations in housing finance products and programs. 
These problems are most severe in the area of new home production.
    To regain its role as an effective and innovative leader in the 
affordable housing finance arena, FHA must gain greater autonomy from 
bureaucratic and political influences. FHA's mission should continue to 
focus on supporting liquidity, innovation and continuity in the housing 
finance markets, and on supporting financing needs not adequately 
addressed by the private sector, through the provision of mortgage 
insurance representing the full faith and credit of the U.S. 
government. However, FHA should have the authority, without further 
Congressional action, to create or alter specific insurance programs in 
order to have the flexibility to react promptly to changes in market 
and other conditions. Hiring, salaries, personnel management, and 
procurement would be freed from current, confining Federal Government 
constraints in order to be more consistent and competitive with the 
private sector.
FHA Insurance of Construction Loans
    One area where FHA can add significant value is through insurance 
of single family construction loans. Most builders, particularly 
smaller companies (those building fewer than 500 homes a year), which 
account for about three-quarters of annual new home production, must 
rely exclusively on insured depository institutions (mostly commercial 
banks) for construction credit. There is no secondary market to attract 
new lenders and investors to this market. The development of such a 
market will lower the cost of construction credit, help attract more 
capital to underserved areas and help home builders avoid the type of 
severe credit crunch that occurred in the early 1990's. In addition, 
the availability of secondary market liquidity support would assist 
current market lenders, many of which are restricted by loans-to-one-
borrower limits required by Federal banking statutes.
    Availability of FHA insurance for home construction loans would 
enhance efforts to find secondary market outlets by opening up the 
Ginnie Mae program to issuers using housing production collateral. FHA 
has a construction-to-permanent mortgage insurance program, which is 
currently inactive. Under this program FHA does not insure the 
construction segment of the loan. There is clear precedent for this on 
the multifamily side where FHA insures construction loans that convert 
to permanent mortgages.
NAHB Regulatory Priorities
Fannie Mae and Freddie Mac Housing Goals
    Fannie Mae and Freddie Mac are required by law to meet annual 
housing goals established by HUD. The goals compel Fannie and Freddie 
to purchase loans on affordable homes, including those in underserved 
markets such as high-minority and low-income census tracts. Revisions 
to the goals for the years 2004-2006 are currently under review by HUD.
    The housing goals track the firms' purchases of mortgages for low- 
and moderate-income people (the low/mod goal); loans in underserved 
geographically targeted areas (the geographically targeted goal); and, 
mortgages for very low-income people and neighborhoods (the special 
affordable goal).
    The Administration's 2004 budget analysis suggests that HUD may 
incorporate new factors into the housing goals to spur increased 
minority homeownership rates. Senior HUD officials have requested input 
from the housing industry in the development of new housing goals.
    NAHB is a strong supporter of the affordable housing goals for 
Fannie Mae and Freddie Mac. The goals have encouraged Fannie and 
Freddie to reach deeper into the affordable housing market with 
tangible benefits. NAHB supported HUD's increase in the goals for the 
2001-2003 period, from the original goals put in place in 1995. NAHB 
feels that more needs to be done to encourage the GSE's to increase 
their activities in some market segments, such as rural areas and 
multifamily production.
    At the same time, proposed changes to the housing goals should 
undergo careful examination. NAHB believes that Fannie Mae and Freddie 
Mac were created to serve a broad range of housing needs and we would 
not want overly stringent goals to impede that mission. Additionally, 
continual increases in the percentage targets will have diminishing 
returns and run the risk of adversely impacting other housing programs, 
such as FHA's single family program. The Mutual Mortgage Insurance Fund 
that backs the FHA program relies on a cross subsidization of loans 
within the program for ongoing self-sufficiency. FHA has been 
experiencing higher default experience in recent years as Fannie Mae 
and Freddie Mac have captured more of the better performing loans in 
the first-time home buyer, lower-income part of the market. Excessive 
housing goals for Fannie Mae and Freddie Mac would exacerbate this 
trend and could have damaging effects on the FHA fund.
Efforts to Remove Homeownership Barriers
NAHB Efforts
    NAHB is firmly committed to removing barriers to affordable 
housing. NAHB and its more than 800 State and local affiliates have 
been active at the Federal, State and local level, working with law 
makers to identify policies and bureaucratic hurdles that make it 
difficult to build affordable housing or that add to the cost of such 
housing.
    Representatives of NAHB and its affiliates have met with 
legislators and regulators at all levels of government to explain how 
these barriers can be removed without compromising the quality of 
development. NAHB has also been active in demonstrating the negative 
effects of not-in-my-backyard (NIMBY) resistance to infill development, 
and in working for Federal and State legislation to encourage cleanup 
and redevelopment of brownfield sites.
    At the Federal level, NAHB has been one of the strongest proponents 
of reform of existing brownfields redevelopment laws that fail to 
provide adequate liability protections for private sector firms seeking 
to clean and redevelop brownfields sites.
    At the State level, NAHB's affiliates have worked with State 
legislatures and regulatory agencies to encourage policies that provide 
incentives for the production of affordable and eliminate excessive 
fees and regulations that drive up the cost of housing and price 
hundreds of thousands of families out of home ownership.
    NAHB's local affiliates have been working with local elected 
officials and planning agencies to revise zoning and development 
regulations that discourage innovative land use practices such as 
mixed-use developments, cluster developments and higher-density housing 
near mass transit facilities.
Partnership Efforts
    NAHB is actively working to facilitate affordable housing 
partnerships involving our federation of State and local home builders 
associations. We have ongoing partnerships in many areas of the 
country, including Lincoln, Nebraska; Nashville Tennessee; Albuquerque, 
New Mexico; Fresno and Sacramento, California; San Antonio, Texas; 
Pittsburgh, Pennsylvania; and, Portland, Oregon.
    Our most recent initiative involves a partnership with Nueva 
Esperanza, a major Hispanic faith-based community development 
corporation, to build affordable housing in several cities across the 
United States. The first of these is taking place in Orlando, where 
NAHB, Nueva Esperanza and Esperanza USA are working to achieve the 
affordable housing production goals of the Hispanic Capacity Project in 
Mid-Florida.
    Nueva Esperanza and its affiliates have an outstanding record of 
developing and operating successful programs addressing a wide range of 
needs of Hispanic households. NAHB looks forward to a partnership with 
Nueva Esperanza in the home building efforts of the Hispanic Capacity 
Project. Through the Orlando Project, the partners hope to develop a 
model for community partnerships that can be used to address affordable 
housing needs throughout the country.
    Within the partnership, NAHB will:

 Work through NAHB's federation of more than 800 State and 
    local home builders associations to identify home builders with 
    interest and expertise in affordable housing production and 
    encourage their participation in the Hispanic Capacity Project.
 Provide information to NAHB's members on the benefits of 
    affordable housing partnerships and information and technical 
    assistance on available financing programs and approaches as well 
    as on innovations in design and building materials and techniques.
 Participate in communication and education efforts with 
    communities and prospective home buyers.
 Assist in identifying and involving financing resources.
Conclusion
    Mr. Chairman, thank you for the opportunity to present testimony to 
the Committee on the issues of concern to home building industry during 
Homeownership Month. We appreciate being able to focus attention on 
ways to increase homeownership in the United States. Although the home 
building industry has been a key to the national economy, we believe 
the proposals we support are needed to bring the benefits of 
homeownership to the largest possible segment of the our population. 
NAHB looks forward to working with you, as well as the other Members of 
Congress and the Administration in making the dream of homeownership 
come true for as many people as possible. Thank you again.

        RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY
                       FROM MEL MARTINEZ

Q.1. The Bush Administration has proposed a single-family tax 
credit that would go to builders to help offset the cost of 
construction. Senator Stabenow, along with Senator Gordon 
Smith, has also introduced a homebuyer tax credit. What do you 
see as the relative merits of this proposal as compared with 
the Administration's relative merits?

A.1. This question should be referred to the U.S. Department of 
the Treasury, as the issue is not directly under HUD's 
jurisdiction. The Administration is firmly committed to helping 
Americans in economically distressed communities. However, 
because there are limits on what the Federal government alone 
can accomplish, a more comprehensive approach is necessary. 
This approach calls for initiatives to encourage further 
involvement by individuals, businesses, and community-based and 
faith-based organizations in working to completely eliminate 
conditions of economic distress in this country.
    Administration tax proposals benefiting low-income 
individuals or distressed communities that have already been 
enacted include the following: (1) extension of the work 
opportunity tax credit through 2003; (2) extension of the 
welfare to work credit through 2003; (3) extension of authority 
to issue qualified zone academy bonds through 2003; (4) 
authorization of tax-exempt private activity bonds to finance 
reconstruction in the area surrounding the World Trade Center 
in New York City devastated by the September 11, 2001 terrorist 
attacks; (5) creation of a new 10 percent income tax bracket; 
and (6) doubling of the child tax credit to $1,000.
    The President's Budget for fiscal year 2003 contains 
additional proposals on both the spending and tax side. The tax 
proposals include creation of a new tax credit, similar in 
design to the Low-Income Housing Tax Credit, for developers of 
affordable single-family housing, and making the brownfields 
tax incentive permanent.

Q.2. One of the more innovative approaches to leveraging 
existing housing programs in order to increase homeownership is 
the use of the Section 8 voucher program for homeownership. How 
many families has HUD moved to homeownership under this 
program, and does the Administration have any proposals to 
increase its effectiveness?

A.2. As of June 2003, over 350 public housing agencies have 
implemented the homeownership option in the housing choice 
voucher program, and almost 1500 new homeowners are 
participating in the program. This represents a significant 
increase in activity over the last six months, with the numbers 
increasing from 200 PHA's and 600 participants, respectively. 
As the program is still in its relative infancy and given the 
marked increase in success over the past year, HUD is not 
proposing any major changes to the current monthly assistance 
option at this time. However, HUD's fiscal year 2004 Budget 
Request does provide for the implementation of the voucher 
downpayment grant option in order to increase the program's 
flexibility to help families achieve the American Dream of 
homeownership.

Q.3. It has been a decade since the Kemp Report identified a 
variety of regulatory barriers to the construction of 
affordable housing. Yet, little progress appears to have been 
made since the Kemp Report. How will HUD's new Office of 
Regulatory Reform go beyond what was learned in the Kemp 
report?

A.3. In attempting to create a new Office of Regulatory Reform, 
it became obvious that a more comprehensive approach was to 
create a Department-wide Initiative on Affordable Housing. The 
Initiative consists of a team of senior officials and dedicated 
staff who are knowledgeable in the field of affordable housing 
and who represent the various offices within HUD. They are 
required to meet on a weekly basis to address the issue of how 
best to break down the regulatory barriers at all levels of 
Government and to develop plans to educate and work with States 
and local governments, as well as other interest groups and 
Federal agencies. The Director of the Initiative reports 
directly to the Secretary and Chief of Staff. An update to the 
Kemp Report is being prepared which will include a number of 
goals and recommendations. However, this list may not be all-
inclusive, as the Initiative team will continue to work on 
developing new plans and concepts.
    As opposed to creating another layer of bureaucracy by 
trying to establish an Office of Regulatory Reform, the 
Initiative team was able to hit the ground running in creating 
a unified and Department-wide effort to breakdown regulatory 
barriers to affordable housing. This Initiative will remain a 
top priority for Secretary Martinez.

        RESPONSE TO WRITTEN QUESTIONS OF SENATOR CHAFEE
                       FROM MEL MARTINEZ

Q.1. While I support efforts to encourage homeownership, I am 
very concerned about the shortage of affordable housing. What 
steps is HUD taking to encourage the production of affordable 
housing units?

A.1. A number of HUD's programs and initiatives help to 
annually increase the number of affordable rental housing units 
available to low-income families. These programs include 
incremental housing vouchers, the HOME Investment Partnerships 
program (since 1992, participating jurisdictions have spent 
more than 55 percent of their HOME funds on rental housing), 
the Supportive Housing for the Elderly (Section 202) program, 
the Supportive Housing for the Disabled (Section 811) program, 
the HOPWA program, the
Native American Housing Block Grant program, the CDBG program 
and FHA multifamily insurance. HUD has consistently over the 
years requested funding increases for programs that have been 
successful in increasing the supply of affordable housing, and 
has targeted millions of dollars in technical assistance, 
through programs such as HOME, for training, direct assistance, 
and the development of written and web-based products to 
increase the capacity of local housing providers to develop 
additional affordable housing units.
    HUD also works to ensure that the stock of assisted housing 
is not diminished as a result of opt outs and prepayments so 
that the extent to which these events adversely affect tenants 
is minimized.
    Finally, HUD plans to continue its on-going efforts to 
expand families' access to affordable private-market housing 
through activities such as: multifamily mortgage insurance, 
research that seeks to reduce the construction and operating 
costs of housing, and the maintenance of a regulatory barriers 
clearinghouse for sharing information on how to address local 
regulatory barriers to the development of affordable housing.

Q.2. Why does the Administration oppose the National Affordable 
Housing Trust Fund Act (S. 1248 in the 107th Congress and H.R. 
1102 in the 108th Congress), which is intended to create 1.5 
million new units of affordable housing over 10 years? What 
alternative strategies do you endorse that would generate the 
same level of production?

A.2. As you are aware, H.R. 1102, the National Affordable 
Housing Trust Fund Act of 2003, was introduced in the House in 
March. This Administration is strongly committed to increasing 
minority homeownership and opportunities for affordable 
housing, however, we do not support the proposal to create a 
national Housing Trust Fund. The Home program, which has been 
in place since fiscal year 1992, expands the supply of decent, 
affordable housing for low- and very low-income families by 
providing grants to States and local governments to acquire, 
construct or rehabilitate housing. The Administration believes 
that the HOME program is the proper tool to increase the 
availability of affordable housing.
    From fiscal year 1992 through the first quarter of fiscal 
year 2003, HOME funds have been committed to produce over 
728,000 units; of these, nearly 465,000 units have been 
completed. Income targeting of HOME funds substantially exceeds 
statutory requirements, reaching those most in need of 
affordable housing. Forty-one percent of HOME rental units are 
occupied by families who are extremely low-income (i.e., 
families with incomes below 30% of area median income) and 
eighty percent of families receiving HOME tenant-based rental 
assistance qualify as extremely low-income. In addition, HOME 
funds have assisted nearly 275,000 low-income families with 
homebuyer assistance. The Administration's 2004 budget request 
increases HOME funding by $210 million from the 2003 enacted 
level.
    HOME is an integral part of financing affordable rental 
housing. On average, the HOME program leverages three private 
dollars for every dollar of federal investment. State and local 
governments also match HOME funds with their resources. 
Furthermore, HOME creates no long-term Federal liability and 
works with community-based nonprofit and faith-based 
organizations.
    The Low-Income Housing Tax Credit (LIHTC), which is 
administered by the States and is the largest federal 
affordable housing production program, also leverages 
substantial private investment. The program was expanded in 
2001 to give the States over $5 billion in annual authority to 
issue tax credits for the acquisition, rehabilitation, or new 
construction of rental housing for low-income families. 
Currently, over $10 billion in private funds has been invested 
in projects resulting in the production of over 800,000 rental-
housing units--roughly 100,000 units each year. The LIHTC is 
often used in concert with the HOME program to enable 
developers to build more units for those with the lowest 
incomes.
    The National Affordable Housing Trust Fund legislation 
seeks to ``assist the development, rehabilitation, and 
preservation of affordable housing'' but would duplicate 
activities under existing programs. The HOME and LIHTC programs 
currently provide a substantial amount of affordable housing 
opportunities.

         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
                       FROM MEL MARTINEZ

Downpayment Assistance
Q.1. Many communities, such as ones in my home State of Rhode 
Island, have chosen to use their HOME funds to provide gap 
financing or assist in the production of affordable housing 
instead of downpayment assistance because of greater need for 
these HOME program uses. Since communities such as these would 
have less ``prior commitment'' to funding downpayment programs 
according to your formula and thus be disadvantaged in the 
funding formula. How do you expect such communities to be able 
to establish new downpayment programs with such a disadvantage?

A.1. A projected 549 of the 602 PJ's having received a HOME 
allocation in fiscal year 2003 would receive American Dream 
Downpayment Initiative (ADDI) funding at the $200 million 
appropriation level using the formula HUD proposes to be used 
for the distribution of fiscal year 2003 funds. The need 
portion of the formula is the main determinant of funding with 
the past commitment component serving largely to redistribute 
funds among the funded PJ's. With inclusion of prior commitment 
in the formula, the Department believes that an incentive to 
fund homebuyer assistance will be created and that funds will 
be directed to communities most likely to use them.
    At the $200 million funding level, all PJ's, including 
those not receiving an allocation of ADDI funds, will be able 
to establish a new downpayment assistance program using either 
ADDI funds or their regular HOME allocation.

Q.1.a. HUD is in the process of formulating rules for the $75 
million allocated for downpayment assistance in the fiscal year 
2003 HUD Budget. When will the rules be published in the 
Federal Register? How soon after the rules are published will 
communities be able to access such funds?

A.1.a. The Department intends to send the rule to OMB. 
Following their approval, we would send the rule to Congress. 
After the 15-day Congressionally mandated review period, the 
Department would plan to publish the rule in the Federal 
Register. The rule would be effective 30 days after the 
publication date and it is anticipated that funds will be made 
available to HOME participating jurisdictions soon thereafter.

Q.1.b. As previously acknowledged, downpayment assistance is a 
HOME eligible activity. Which participating jurisdictions 
(PJ's) currently have active downpayment assistance programs? 
How much of their HOME allocation goes for downpayment 
assistance? What is the average downpayment assistance grant 
per family? If the American Dream Downpayment Initiative (ADDI) 
passes, how many PJ's that have not used their HOME funds for 
Downpayment assistance previously do you expect to obtain 
funding under the formula as currently proposed?

A.1.b. Five hundred out of the 602 PJ's receiving HOME funds in 
fiscal year 2002 have used these funds as part of a local 
homebuyer program, and would get credit for past commitment to 
``homebuyer activity'' in the ADDI formula. Homebuyer activity 
includes new construction, rehabilitation, and ``acquisition 
only'' (for example, downpayment assistance, and assistance to 
purchase ``standard'' properties requiring no rehabilitation). 
Of the 500 PJ's reporting homebuyer activity, 414 have used 
HOME funds for ``acquisition only''.
    As of May 31, 2003, 189,978 households have been or are in 
the process of being assisted with HOME funds to acquire homes 
either, through downpayment assistance or assistance to 
purchase standard properties. To date, approximately 12 percent 
of total HOME allocations have been committed to either 
downpayment assistance or the purchase of standard homes. IDIS, 
HUD's information and data collection system, is now in the 
process of being upgraded to distinguish between these two 
categories of ``acquisition only'' assistance. The improved 
system is scheduled to be in place by the time fiscal year 2003 
ADDI funds are distributed. $7,284 is the average assistance 
per homebuyer for ``acquisition only.'' Since ``acquisition 
only'' currently includes both downpayment assistance and the 
more costly assistance needed to fund the purchase of standard 
properties, the per family average for downpayment assistance 
only would be lower than $7,284, and we will be able to report 
the exact figure once the above mentioned improvements to IDIS 
are in place.
    At the $200 million funding level, 49 out of the 102 HOME 
PJ's that have not used their HOME funds for homebuyer 
activities in the past are projected to be funded under ADDI, 
based on the formula to be used in the distribution of fiscal 
year 2003 ADDI funds.
Affordable Housing Production
Q.1. According to the most recent Housing Price Index (HPI) 
Report from the Office of Federal Housing Enterprise Oversight 
(OFHEO), the median price of a home in the United States during 
the first quarter of 2003 was 6.48 percent higher than a year 
ago. In my own State of Rhode Island, homes appreciated 15.7 
percent last year--the Nation's fastest rate and more than 
twice the national average of 6.89 percent. My State housing 
finance agency says that only 216 of the single-family homes 
currently for sale in the entire State of Rhode Island are 
considered affordable (meaning a family earning or 80 percent 
of our State's median family income can afford them). This 
represents only 9 percent of the homes on the market. I would 
like to note for the record that if you added $200 million to 
the existing HOME program, States like Rhode Island could use 
the additional money to help build housing and/or provide gap 
financing--making many more homes affordable to low-income 
families in my State.
    Why aren't you just adding $200 million to the existing 
HOME formula so that States and local governments can have the 
flexibility in deciding how to expand homeownership 
opportunities?

A.1. The American Dream Downpayment Initiative (ADDI) is a key 
building block in the President's Blueprint for Homeownership 
along with the proposal for the homebuyer tax credit and 
increased funding for homebuyer counseling. The Department has 
proposed an increase of $113 million in the regular HOME 
Program. By using the current HOME rules and delivery system, 
the Department intends to make the downpayment initiative a 
success by focusing attention on this important wealth building 
opportunity for low-income families to own their own homes.

Q.2. In 2000, Congress authorized HUD to provide regulatory 
barrier removal grants to States, localities and nonprofits to 
encourage them to remove impediments to the production of 
affordable housing in their communities. When you announced the 
creation of the Office of Regulatory Reform, you acknowledged 
the fact that regulatory barriers impede the production of 
affordable housing, especially for minority families. Why 
haven't you requested funding for this useful tool to help 
communities to remove barriers to affordable housing?

A.2. After thorough review by our Office of General Counsel, 
HUD is unaware of such regulatory barrier removal grants. 
However, in attempting to create a new Office of Regulatory 
Reform it became obvious that a more comprehensive approach was 
to create a Department-wide Initiative on Affordable Housing. 
The Initiative consists of a team of senior officials and 
dedicated staff who are knowledgeable in the field of 
affordable housing and who represent the various offices within 
HUD. They are required to meet on a weekly basis to address the 
issue of how best to break down the regulatory barriers at all 
levels of Government and to develop plans to educate and work 
with States and local governments, as well as other interest 
groups and Federal agencies. The Director of the Initiative 
reports directly to the Secretary and Chief of Staff. An update 
to the Kemp Report is being prepared which will include a 
number of goals and recommendations. However, this list may not 
be all-inclusive, as the Initiative team will continue to work 
on developing new plans and concepts.
    As opposed to creating another layer of bureaucracy by 
trying to establish an Office of Regulatory Reform, the 
Initiative team was able to hit the ground running in creating 
a unified and Department-wide effort to breakdown regulatory 
barriers to affordable housing. This Initiative will remain a 
top priority for Secretary Martinez.

Q.3.a. I commend HUD's goal of increasing minority 
homeownership nationwide. Among the many barriers to minority 
homeownership, discrimination is a significant one. I have seen 
from HUD's Housing Discrimination Study 2000 that 
discrimination in rental housing continues at an unacceptable 
rate. And the Urban Institute study contracted by HUD entitled 
``All Other Things Being Equal: A Paired Testing Study of 
Mortgage Lending Institutions'' (April 2002) found that 
``African American and Hispanic homebuyers in both Los Angeles 
and Chicago face a significant risk of unequal treatment when 
they visit mainstream mortgage lending institutions to make 
preapplication inquiries.'' Housing discrimination in 
homeownership is manifested in racial steering, mortgage 
lending discrimination, and insurance discrimination, 
especially with insurance rates rising.
    What steps is HUD taking to address and fight steering, 
lending and mortgage insurance discrimination?

A.3.a. President Bush and Secretary Martinez have committed to 
increasing minority homeownership by 5.5 million by the end of
the decade, but observe that there are many obstacles to 
achieving this goal. Housing discrimination is one of them. 
Recent HUD studies show that many minority persons face 
discrimination throughout the homebuying process. One study, 
revealed the troubling high rate of discrimination by real 
estate agents who provide different information to minorities 
or discriminate in recommending houses. Then, another study 
shows that minorities, once they have selected a home, face 
discrimination when inquiring about mortgage loans. We cannot 
close the minority homeownership gap without addressing these 
problems. The following summarizes some of the efforts the 
Department has undertaken to respond to these specific 
concerns.
Steering
 The Department has awarded $1 million for follow-up 
    tests of agents and housing providers with significant 
    patterns of discrimination in HDS 2000. If HUD uncovers 
    evidence of unlaw-
    ful steering or other discrimination, HUD will take 
    enforcement
    action.
 The Department is awarding a contract of about 
    $500,000 to conduct enforcement testing in regions where 
    our 2000 Housing Discrimination Study (HDS 2000) showed 
    high levels of rental and sales discrimination. Because the 
    study showed an increase in discriminatory steering of 
    African Americans, we will be sure that our testing of 
    discrimination in home sales emphasizes investigation of 
    racial steering. If discrimination is found, HUD will 
    exercise its authority to bring a Secretary-initiated 
    complaint under the Fair Housing Act.
 In April 2003, HUD signed a Memorandum of 
    Understanding (MOU) with The National Association of 
    Realtors, The National Association of Real Estate Brokers, 
    The National Association of Hispanic Real Estate 
    Professionals, and The National Association of Asian 
    American Real Estate Professionals. The MOU calls upon all 
    signatories to educate their members on the importance of 
    compliance with the Fair Housing Act and its prohibition 
    against steering.
 The HDS 2000 finding that the practice of racial 
    steering has increased since 1989, coupled with the finding 
    in HUD's awareness study that nearly half the public is 
    unaware that such practice is unlawful, has warranted that 
    HUD's fair housing enforcement program devote more 
    attention to the problem, in general (in addition to the 
    specific enforcement contracts identified above).
Lending Discrimination
 HUD is examining patterns of prime and subprime 
    lending and will bring enforcement actions where there is 
    evidence of redlining or steering to subprime lenders. More 
    specifically, we are awarding a contract of about $500,000 
    to identify lenders and mortgage companies that may be 
    engaged in lending discrimination or predatory lending.
 Because of the time and resource-intensive nature of 
    lending investigations, HUD has acquired WIZ, a computer 
    software program that can rapidly analyze loan data for 
    discriminatory patterns. This will decrease the time and 
    resources necessary to investigate lending discrimination.
 HUD's Office of Fair Housing and Equal Opportunity 
    (FHEO) has developed materials to alert people to the more 
    common forms of lending discrimination and has posted this 
    information on its website, www.hud.gov/fairhousing. FHEO 
    is also creating an office of Outreach and Education wholly 
    dedicated to educating the public about fair housing and 
    fair lending rights and remedies.
 HUD's $45 million housing counseling grant program for 
    fiscal year 2004 encourages housing counselors to include a 
    fair housing component.
 Predatory lending poses a significant danger to 
    minority and women homeowners targeted for equity-stripping 
    loans. Senior level staff from FHEO regularly provide 
    public education on this subject. HUD also serves on a 
    Federal interagency lending taskforce that meets regularly 
    to discuss methods for combating lending discrimination, in 
    general, and predatory lending, in particular. Together, 
    the members of the task force have developed pamphlets to 
    educate consumers about the dangers of predatory lending, 
    how to identify a predatory loan, and what to do if they 
    are victims.
Insurance Discrimination
 HUD continues to investigate complaints of 
    discrimination in the provision of homeowners insurance, as 
    part of its fair housing enforcement program, and as in 
    other cases, will issue charges where such practices 
    violate the Fair Housing Act. In fiscal year 2002, HUD and 
    its State and local agency partners received 13 complaints 
    of insurance discrimination. HUD has already received 21 
    such complaints in fiscal year 2003.

Q.3.b. What steps is HUD taking to identify and eliminate 
marketing tactics and schemes in lending (including refinances 
and home equity loans) that adversely affect women and 
minorities?

A.3.b. Subprime loans play a significant role in today's 
mortgage lending market, making homeownership possible for many 
families who would otherwise fail to qualify for conventional 
loans. However, a subset of subprime lenders, often referred to 
as predatory lenders, sometimes target minorities and women for 
home equity loans with abusive terms and conditions.
    The Department believes that in some instances, predatory 
lending may violate the Fair Housing Act, especially if the 
primary purpose of the loan is to deprive minorities or women 
of housing. Wherever HUD finds a lender has engaged in a 
predatory loan practice because of race or sex whether it 
involved the making of a primary loan or a refinancing--we will 
take enforcement action. We are presently examining patterns of 
prime and subprime lending to determine whether any lenders are 
engaged in redlining, steering, or discriminatory predatory-
lending practices. In addition, HUD's Office of Policy 
Development and Research continues to conduct research to shed 
light on the prevalence and practices of subprime lenders and 
possible bad actors in that market.
Insurance Discrimination
Q.4.a. Subsection 4 of Section 100.70 ``Other prohibited sale 
and rental conduct'' of the regulations for the Fair Housing 
Amendments Act of 1988 states that it should be unlawful to 
refuse ``to provide municipal services or property or hazard 
insurance for dwellings or providing such services or insurance 
differently because of race, color, religion, sex, handicap, 
familial status or national origin.''
    What types of investigations does HUD have underway 
regarding sales, lending and insurance discrimination?

A.4.a. Most of HUD's fair housing enforcement activities arise 
from complaints individuals file with HUD or the State or local 
agencies that administer laws that are substantially equivalent 
to the Federal Fair Housing Act. In fiscal year 2002, HUD and 
these part-
ners received 491 complaints of sales discrimination, 454 
complaints of discriminatory financing, and 13 complaints of 
insurance discrimination. Thus far in fiscal year 2003, HUD and 
its partners have received 341 complaints of sales 
discrimination, 347 complaints of discriminatory financing, and 
21 complaints of insurance discrimination.
    HUD investigates each of these complaints while 
simultaneously attempting to conciliate. If no conciliation 
agreement is reached and the investigation finds reasonable 
cause to believe a violation has occurred, HUD issues a charge.
    The Department also has the authority to conduct Secretary-
initiated investigations. To determine the need for this, HUD 
is awarding contracts totaling $1.5 million for enforcement 
testing to follow up on the results from research testing in 
HDS 2000. We are also in the process of awarding $500,000 for 
enforcement and education efforts to address lending 
discrimination.

Q.4.b. What type of private enforcement efforts is HUD 
supporting or instituting to help potential victims of sales, 
lending and insurance discrimination?

A.4.b. Every year HUD awards monies to private fair housing 
groups to address the full range of practices prohibited by the 
Fair Housing Act, including discrimination in sales, lending 
and homeowner's insurance. In fiscal year 2003, HUD provided, 
overall, $10.2 million for the Private Enforcement Initiative 
(PEI) of the Fair Housing Initiative Program (FHIP). Rather 
than provide issue-specific grants, the Department requires the 
private, tax-exempt fair housing enforcement organizations that 
receive these funds to address the full range of discriminatory 
practices that arise in their communities.

Q.4.c. In recent months, many insurance companies have 
increased the cost of their homeowner's coverage, especially in 
integrated and minority neighborhoods. Some real estate agents 
have even complained of a decrease in their client base due to 
the rising cost of homeowner's insurance. What efforts is HUD 
undertaking to investigate these increases?

A.4.c. The Department has not received any complaints alleging 
that insurance companies are raising insurance rates in a 
discriminatory manner. The Department stands committed to 
investigate any matter that may violate the Fair Housing Act. 
We would be interested in any additional information you may 
have regarding these rate increases.

        RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY
                      FROM TERRY MONTAGUE

Q.1. Ms. Montague, you spoke in your testimony of the 
importance of HUD's Asset Control Area program. You also 
mentioned in your written testimony that the Sandtown community 
was initially characterized by 600 vacant homes. I am concerned 
that in many instances, vacant homes are already owned by 
nonprofits or local governments. We have seen here in 
Washington, DC several vacant homes, received by nonprofits 
under the Asset Control Area program, simply remain eyesores. 
What changes can be made to the Asset Control Areas program to 
improve its effectiveness?

A.1. We appreciate this opportunity to update the Committee on 
the progress HUD and participants in the Asset Control Area 
(ACA) program have made in making it much more accountable and 
effective during the past 10 months. The program today is 
substantially stronger than when it was initially implemented 
by the prior Administration.
    The prior Administration executed individual ACA agreements 
with varying terms and conditions with each of the 16 initial 
participating jurisdictions in the program, rather than 
promulgate uniform regulatory guidance. Most initial 
participants were making progress under their agreements at the 
time HUD temporarily suspended the program in the spring of 
2002.
    The Department's primary reason for suspending the program 
was an audit by its inspector general (IG) that alleged HUD had 
inadequate staff capacity and management controls to assure 
that the program fulfilled congressional intent.\1\ The audit 
also found that some ACA agreements allowed local governments 
and/or nonprofits to engage in activities ``contrary to 
specific provisions of the Act,'' including buying and selling 
homes outside qualified areas; permitting sale of homes to for-
profit developers at discounted prices and allowing sale of 
homes to buyers before homes were rehabilitated. Finally, the 
audit alleged a group in Washington, DC had violated its 
agreement in several areas.
---------------------------------------------------------------------------
    \1\ HUD Inspector General ``Nationwide Audit, Asset Control Area 
Program, Single Family Housing,'' February 25, 2002.
---------------------------------------------------------------------------
    The audit recommended that, if HUD restarted the program, 
the Department should promulgate final regulations; establish 
stronger monitoring, oversight, reporting and sanctions; and 
require more documentation from ACA participants on how they 
would implement their revitalization plans.\2\ In the fall of 
2002, after an intensive internal review and consultation with 
program participants, HUD invited those entities (except the 
one from Washington, DC, which was barred from participating in 
any Federal Housing Administration [FHA] program) to apply to 
participate in a revised program. HUD reported that it had 
``worked aggressively to revise program policy and to 
strengthen program controls . . . consistent with prudent 
program management.''\3\
---------------------------------------------------------------------------
    \2\ The audit also recommended that HUD seek a statutory change to 
limit the number of homes in an ACA.
    \3\ HUD letter to ACA participants, September 13, 2002.
---------------------------------------------------------------------------
    HUD's revised program guidance provides uniform policies 
and procedures for all participants. Current ACA participants 
(listed below) are applying under HUD's new guidance to resume 
their ACA initiatives, or, in the case of new applicants, start 
programs. In order to participate, nonprofit organizations must 
certify that they are acting on their own behalf and not under 
the control or direction of any party seeking to derive profit 
from their ACA
initiatives.
    In addition, they must submit extensive organizational 
documents (by-laws, articles of incorporation, verification of 
tax-exempt status), evidence of approval to participate in FHA 
programs and information on their board members and staff. 
Nonprofits must prove they have adequate space for employees 
and records through photographs and floor plans of their 
offices. They also must provide evidence of their 
organizational, administrative and financial capacity to carry 
out their ACA initiatives, as well as two consecutive years of 
development experience. This information must include
audited financial statements, sources and stability of 
capitaliza-
tion, information on accounting and banking systems and 
internal and external audit and monitoring procedures. And 
nonprofits must provide information on any business partners or 
consultants involved in their ACA initiative and disclose the 
terms of the
relationship.
    The revised ACA requirements also require nonprofits to 
provide detailed information on their actual ACA initiatives, 
including a business plan that provides a comprehensive two-
year neighborhood revitalization strategy describing the 
acquisition, management and, rehabilitation of the homes in the 
ACA. The business plan must show the geographic area of the 
initiative, the targeted buyers and how they will benefit from 
the initiative, including through any homeownership counseling. 
It must list all properties the nonprofit owns and intends to 
purchase, provide a timeline for purchasing, rehabilitating and 
selling properties and describe standards for rehabilitation.
    Finally, the revised ACA agreement requires ACA 
participants to provide certified monthly, quarterly and annual 
reports to HUD. The reports list all ACA properties not yet 
sold or leased by the purchaser, including the property 
address, the transfer date and the status of the repair costs, 
with a separate itemization of costs incurred to complete work 
in the repair reports, and the marketing status with an 
anticipated resale or lease date. The reports also include 
information on each property, including the acquisition date 
and purchase price; total repair and rehabilitation costs, with 
a separate itemization of costs incurred to complete the work 
in the repair report; marketing and sales costs; the date the 
property was sold to an eligible buyer; whether the buyer is a 
police office or teacher; the sales price; and the buyer's 
name, family size and income as a percentage of area median.
    In addition, purchasers must submit reports to HUD to 
ensure consistency with the ACA business plan. Repair reports 
must include a ``valuation condition'' form; a list of all 
repairs required to fix any deficiencies noted in it; 
photographs of all deficiencies in excess of $2,000; and a 
certification from the person completing the repair report that 
they are either a FHA 203(k) qualified consultant or a property 
inspector with similar qualifications.
    We support HUD's new safeguards to ensure an efficient, 
effective and accountable ACA program. We are recommending two 
statutory changes to the program that will ensure it achieves 
Congress' intent in creating it. These changes are described in 
our answer to Senator Sarbanes' second question.
Asset Control Area (ACA) Program Participants as of
July 10, 2003
Enterprise Home Ownership Partners, Inc. (Los Angeles, CA)

Cleveland Housing Network, Inc. (Cleveland, OH)

Corporation for Independent Living (Hartford/Manchester, CT)

Our City Reading (Reading, PA)

City of Rochester (Rochester, NY)

Hispanic Housing Development Corporation (Chicago, IL)

Neighborhood Housing Services of Chicago (Chicago, IL)

County of San Bernardino (San Bernardino, CA)

Mi Casa (Washington, DC)*

City of Camden (Camden, NJ)*

St. Ambrose Housing Aide Center (Baltimore, MD)*
---------------------------------------------------------------------------
    * Note: New applicants to the ACA program per HUD's revised program 
policy of September 13, 2002.

Q.2. You mentioned your support for the Kerry-Santorum tax 
credit proposal. Senator Stabenow, along with Senator Gordon 
Smith, have also introduced a homebuyer tax credit. The 
Stabenow-Smith tax credit, however, goes directly to the 
homebuyer. What do you see as the relative merits of this 
proposal as compared to the Kerry-Santorum proposal?
    The Kerry-Santorum proposal (S. 875) and the Stabenow-Smith 
proposal (S. 1175) are intended to address two totally 
different barriers to affordable homeownership.
    S. 1175 is designed to provide additional resources to 
prospective homebuyers to enable them to pay downpayment and 
closing costs associated with buying a home. The subsidy the 
tax credit would provide would increase the affordability of 
for-sale housing that already exists. Certainly, insufficient 
savings for downpayment and closing costs are a significant 
barrier to homeownership for many low-income families. 
Providing a tax credit to homebuyers to alleviate the 
``affordability gap'' may be an effective tool to expand 
homeownership opportunity. A similar tax credit to the one in 
S. 1175 for people in Washington, DC has had success in 
increasing homeownership in the District.
    S. 875 would provide additional resources to developers to 
enable them to provide new affordable for-sale housing. The 
subsidy the tax credit would provide would increase the 
availability of for-sale housing where little or no such 
housing exists.
    As we noted in our written testimony, there is a severe 
short-
age of affordable for-sale housing in many communities. 
According to Harvard's Joint Center for Housing Studies and the 
Brookings Institution:

        Many low-income renter households may be in a position 
        to overcome the wealth and income constraints on buying 
        a home, but will still be constrained by a lack of 
        adequate housing units at an appropriate price in a 
        desirable location. Supply side constraints on 
        homeownership deserve greater attention from 
        researchers and policymakers.

        Affordable homes for ownership are being lost to house 
        price inflation and vacancies . . . On net there were 
        about a half-million fewer affordable owner-occupied 
        homes in 1999 than in 1997. The result, based on one 
        set of underwriting assumptions, is that the share of 
        owner-occupied homes affordable to low-income 
        households fell from 47 percent to 44 percent of the 
        stock from 1997 to 1999.

        When adjustments for variables that usually affect 
        homeownership are made, the stock of homes plays a 
        significant role in determining homeownership for low-
        income households. The presence of single-family and 
        new homes contributes to higher homeownership by low-
        income households. Yet very few non-mobile units are 
        being added to the stock at affordable levels. 
        Policymakers need to recognize the failure of filtering 
        as a mechanism to expand the supply of affordable 
        homes.\4\
---------------------------------------------------------------------------
    \4\ Collins, Crowe and Carliner, ``Supply Side Constraints on Low-
Income Homeownership,'' in Retsinas and Belsky, eds., Low-Income 
Homeownership: Examining the Unexamined Goal, 2002, pp. 197-198.

    Several years ago, the National Housing Conference's Center 
for Housing Policy found that between 1997 and 1998, 200,000 
working renter families in 17 major metropolitan areas could 
afford to purchase three-plus-bedroom houses priced between 
$50,000 and $75,000. But only 30,000 homes in that price range 
were available in those locations.\5\
---------------------------------------------------------------------------
    \5\ National Housing Conference Center for Housing Policy, Housing 
America's Working Families, 2000, p. 21.
---------------------------------------------------------------------------
    Enterprise's experience is that the shortfall of for-sale 
housing is especially acute in low-income and minority 
neighborhoods. One of the biggest barriers to expanding the 
supply of affordable, for-sale homes in many of these 
communities is that it often costs more to build or 
rehabilitate housing than market prices will support. This 
market failure denies low-income people homeownership 
opportunity and prevents low-income neighborhoods from reaping 
the broader benefits that often accompany increased 
homeownership.
    S. 875 would address this market failure by helping close 
the gap between development costs and market value of 
affordable, for-sale housing in low-income areas. The proposal 
is based on the highly effective Rental Credit (LIHTC) and 
could do for homeownership what the Rental Credit has done for 
affordable apartment development. The Homeownership Credit has 
the same sound principles as the Rental Credit of State 
administration and flexibility, private sector competition and 
oversight and a strong role for community-based groups. The 
same highly efficient system of State administrators, corporate 
investors and community-based and for-profit developers that 
have made the Rental Credit so successful would readily embrace 
and effectively utilize the Homeownership Credit.
    In addition to expanding homeownership opportunity for low-
income people, the Homeownership Credit would help stabilize 
disinvested neighborhoods and contribute to their 
revitalization. The Credit recognizes the critical role 
homeownership can play in community development by targeting 
resources to low-income and economically disadvantaged 
communities, including rural and Native American areas. The 
Credit also would have significant economic benefits. The 
50,000 homes it would produce each year would generate 122,000 
jobs, $4 billion in wages and $2 billion in Federal, State and 
local revenue annually.
    Importantly, S. 875 and H.R. 839 contain a small set-aside 
to help ensure community- and faith-based organizations have a 
fair chance to participate in the new program. Specifically, 
the bills provide that States must award at least 10 percent of 
their annual Homeownership Credit allocations to nonprofit 
groups.
    The nonprofit set-aside would ensure the Homeownership 
Credit reaches the neediest people and communities. Faith-based 
and community groups are more likely to build housing in areas 
of high poverty, unemployment and housing costs. They are much 
more likely to develop housing for people with special needs, 
such as the homeless.\6\ Even though they provide the hardest 
to produce housing, community-based groups are as cost-
effective as for-profit builders doing less difficult 
developments. In evaluating performance with the rental housing 
credit, the General Accounting Office found ``the difference in 
estimated per-unit costs for nonprofit and for-profit 
developers was not statistically significant.''\7\
---------------------------------------------------------------------------
    \6\ See the General Accounting Office report, Tax Credits: Reasons 
for Cost Differences in Housing Built by For-Profit and Nonprofit 
Developers, October 1999.
    \7\ General Accounting Office, pp. 1-2.
---------------------------------------------------------------------------
    The set-aside also would help assure homeownership in 
healthy, holistic communities. Grassroots groups build 
communities as well as housing, as part of comprehensive 
revitalization efforts. In addition to for-sale homes, they 
produce rental apartments, start small businesses and develop 
retail centers. They help people get good jobs and move up the 
career ladder. They partner with police departments to make 
neighborhoods safer. And they provide essential services such 
as childcare, mentoring and financial literacy. These 
activities help ensure families and communities can fully 
benefit from homeownership opportunities.
    Nonprofit set-asides are an established element of 
successful housing programs. The Rental Credit on which the 
Homeownership Credit is based requires States to award at least 
10 percent of their annual supply of credits to qualified 
nonprofit organizations. The HOME housing block grant requires 
States and cities to award at least 15 percent of their annual 
grants to housing developed, sponsored or owned by qualified 
nonprofit organizations with community development experience 
and local accountability.
    States still could allocate Homeownership Credits to 
grassroots groups without a set-aside and many probably would. 
But the set-aside sends a strong signal that all States must 
address their most difficult housing needs through the 
organizations most committed to solving them with a portion of 
limited Federal housing resources every year.
    A small set-aside for community- and faith-based groups 
does not unfairly disadvantage for-profit developers. In 2001, 
States awarded more than two-thirds of their Rental Credits to 
for-profit developers. These figures do not include the $137 
million in Rental Credits allocated in 2001 to bond-assisted 
developments, which are mostly done by for-profit builders.

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES
                      FROM TERRI MONTAGUE

Q.1. I would like to ask each witness to share his or her 
general views of the HOPE VI Program. In addition, please 
address the impact HOPE VI may have on furthering the goal of 
low-income homeownership. Does HOPE VI help in this regard, 
either by making new units directly available to low-income 
buyers, or by improving the neighborhoods sufficiently to allow 
other homeownership efforts to succeed?

A.1. The HOPE VI public housing revitalization program has 
enabled local jurisdictions to form private-public partnerships 
to turn dysfunctional, detrimental living environments into 
healthier communities. As a community revitalization program, 
HOPE VI has had significant successes in many areas.
    Enterprise strongly opposes the Administration's proposal 
to
provide no funding for HOPE VI in its fiscal year 2004 budget 
request. We urge Congress to maintain HOPE VI funding at the 
fiscal year 2003 level of $574 million in the coming fiscal 
year. We have been pleased to work with HUD, Members of 
Congress and other program stakeholders to explore potential 
improvements to the program.
    Congress designed HOPE VI to accomplish several purposes: 
1) improve living conditions for public housing residents 
through demolition, rehabilitation and replacement of obsolete 
public housing; 2) revitalize distressed public housing sites 
and surrounding neighborhoods; 3) provide housing that avoids 
or decreases concentration of very low-income families; and 4) 
build sustainable communities. Homeownership directly 
contributes to the last three of those four objectives.
    Not surprisingly, homeownership has been an important 
element of many HOPE VI communities. According to HUD, HOPE VI 
funds appropriated between 1993 and 2001 will support 
construction of 15,000 for-sale homes, in addition to 41,500 
new public housing apartments. The for-sale housing includes 
market rate homes and homes affordable to low-income working 
families.
    Enterprise has developed for-sale housing as part of two 
successful HOPE VI communities:

 In Baltimore, MD, the Heritage Crossing development 
    will bring 185 for-sale homes (plus 75 rental apartments 
    and a community center) to a site that was once home to one 
    of the city's most dysfunctional, crime ridden public 
    housing complexes. Homes at Heritage Crossing have sold for 
    as low as $81,000 to buyers earning as little as $28,000 
    and as high as $130,000 to households earning as much as 
    $70,000. Over 45 percent of the market-rate housing 
    involves homebuyers coming from outside the city back into 
    the city. This redevelopment continues Enterprise's ground-
    breaking work to revitalize mostly African American 
    neighborhoods in West Baltimore.
 In Washington, DC, the Wheeler Creek development 
    replaced abandoned, dilapidated public housing and FHA-
    insured apartment buildings with 314 new homes, including 
    104 for-sale homes and 30 ``lease-purchase'' homes that 
    renters will buy after achieving sufficient savings, 
    completing homeownership counseling and qualifying for a 
    mortgage. First mortgages range from $45,000 to $145,000. 
    Homes have sold to buyers earning between $18,000 and 
    $150,000. The typical buyer has been a single mother 
    earning $37,000.

    Without HOPE VI, it is highly unlikely that either of these 
communities would have benefited from this scale of affordable 
homeownership development.
    HOPE VI's support for comprehensive community 
revitalization is critical to its homeownership successes. By 
providing and attracting additional funds for rental housing, 
community facilities and supportive services, HOPE VI helps 
strengthen neighborhoods. Strong neighborhoods are essential 
for families to fully realize homeownership's broader benefits, 
especially wealth appreciation.
    Recent research has found that HOPE VI developments in 
certain neighborhoods have been associated with lower crime 
rates and higher incomes, education levels and employment rates 
than were the case before redevelopment. HOPE VI also has 
spurred increased private investment in these communities. 
Significantly, both residential loan rates and single-family 
housing values in these HOPE VI neighborhoods have risen more 
quickly than in their cities overall. The researchers conclude 
that, ``[a]lthough there are many non-HOPE VI factors 
contributing to change in these communities, the nature of HOPE 
VI development has helped determine the extent and pace of that 
change.\8\
---------------------------------------------------------------------------
    \8\ Zielenbach, The Economic Impact of HOPE VI on Neighborhoods, 
Housing Research Foundation, 2002, p. 3.
---------------------------------------------------------------------------
    For public housing residents HOPE VI's results are more 
mixed. The majority of residents live in better housing in 
lower poverty neighborhoods as a result of HOPE VI. Many more 
are employed now than before redevelopment, although the vast 
majority still has very low-incomes. Regrettably, a significant 
percentage of former residents still have housing problems or 
are simply unaccounted for.\9\ These issues merit Congress' 
close attention.
---------------------------------------------------------------------------
    \9\ See Popkin, et. al, HOPE VI Panel Study: Baseline Report and 
HOPE VI Resident Tracking Study, Urban Institute. 2002.

Q.2. Ms. Montague, you raised some concerns in your testimony 
about the problems with the new rules for the Asset Control 
Area program. Please detail your concerns, and any proposals 
---------------------------------------------------------------------------
you may have to address the problems you have identified.

A.2. As we stated in our written and oral statement for the 
Committee, we generally have been pleased with HUD's 
Administration of the ACA program since the Department 
restarted it last fall. HUD staff in Washington and the 
regional Homeownership Centers generally have been responsive 
to specific (mostly technical) concerns we and other ACA 
participants have raised regarding the new ACA agreements for 
each jurisdiction.
    Our most significant continuing concern with HUD is what we 
believe is the Department's narrow interpretation and 
implementation of the ACA program statute. HUD seems to view 
the ACA initiative strictly as an affordable homeownership 
program. ACA participants always have viewed the program as one 
that should help stabilize struggling communities through 
affordable homeownership. The later interpretation is 
consistent with the program's statutory purpose, which is: ``. 
. .to require the Secretary to carry out a program under which 
eligible assets (as such term is defined in paragraph (2)) 
shall be made available for sale in a manner that promotes the 
revitalization, through expanded homeownership opportunities, 
of revitalization areas'' [Section 204(h)(1)].
    Over the past several years, ACA stakeholders have proposed 
to HUD a variety of regulatory provisions that would provide 
more flexibility to local governments and community-based 
groups to stabilize neighborhoods through homeownership. HUD 
has refused to implement most of these proposals. For that 
reason, we are seeking two simple statutory changes that would 
allow the ACA initiative to meet the statutory purpose Congress 
intended with the flexibility Congress provided.
    The first change would enable ACA participants to sell 
rehabilitated homes for what they are worth. Under current HUD 
policy, ACA participants cannot sell rehabilitated homes for 
more than 115 percent of total development cost, even if this 
amount is below market value. This home sales-price limit is 
counterproductive and unnecessary. Selling homes for less than 
they are worth, especially in depressed markets, hampers 
neighborhood stabilization and may exacerbate market 
weaknesses--precisely the problem Congress created the ACA 
program to address. HUD's regulatory cap on eligible homebuyer 
income (115 percent of area median income) and narrow 
definition of allowable development costs (generally, 
acquisition price plus construction costs minus any public 
subsidy and certain soft costs and professional fees) contains 
costs.
    The second change would provide ACA participants the 
flexibility to convert a limited portion of homes in their 
ACA's to rental housing for low-income people. In some ACA 
revitalization areas,
two-, three- and four-unit properties constitute a substantial 
share of the government-owned vacant homes blighting the 
neighborhood. ACA participants are required to acquire and 
rehabilitate all ``eligible assets'' in their revitalization 
areas. Not all such multiunit properties are feasible for 
homeownership, however. Low-income, first-time homeowners may 
not be ready to assume the responsibilities and meet the 
requirements (significant in some cities) of being a landlord.
    Unless ACA participants can convert these properties into 
affordable rental apartments for low-income people, which would 
have similar stabilizing effects for the neighborhood as 
homeownership, the properties will continue to blight the 
community. This change is consistent with the ACA statute, 
which authorizes the Secretary to modify or waive homeownership 
goals in an ACA business plan upon ``a determination by the 
Secretary that a good faith effort has been made in complying 
with the goals through the homeownership plan and that 
exceptional neighborhood conditions prevented attainment of the 
goal'' [Section 204 (h)(5)(A)(ii)].
    Statutory language to enact these changes is attached.
Recommended ACA Statutory Changes
Amendments to the National Housing Act
Part VIII, Title 11, Section 204 (h)
Sales Price:
as new:
    (J) SALES PRICE AFTER REHABILITATION. The average sales 
price after rehabilitation of designated properties sold in any 
calendar year shall not exceed 115 percent of eligible 
development costs as defined by HUD. Purchaser may elect to 
sell an individual property for more than 115 percent of 
eligible development costs provided that the 115 percent limit 
is met for the portfolio of sales reported by purchaser to HUD 
in each calendar year.
Multifamily Rental
add to existing: (5)(A)(iii)
    The Secretary shall allow the preferred purchaser to 
rehabilitate a limited number of eligible assets in the 
revitalization area for rental housing for low-income people or 
sell such eligible assets for development of rental housing for 
low-income people, provided that rehabilitation of such 
eligible assets for homeownership is infeasible and 
rehabilitation of such eligible assets advances the purpose of 
stabilizing the revitalization area.

Q.3. The National Association of Homebuilders in its written 
statement argued against the set-aside for ``tax-exempt 
developers'' contained in the Homeownership Tax Credit 
legislation (S. 875 and H.R. 839). Habitat for Humanity 
expressed support for the provision in its statement. What is 
Enterprise's view?

A.3. Enterprise strongly supports the small set-aside to ensure 
community-based organizations can compete fairly for 
homeownership credits in above-referenced bipartisan House and 
Senate bills.
    As the Committee is aware, community organizations, 
including faith-based groups and Habitat affiliates, are the 
primary providers of affordable housing in many low-income 
urban and rural areas. The homeownership credit, if enacted, 
would enable these groups to continue their remarkable 
community and family renewal efforts provided grassroots groups 
are able to access this promising new tool.
    S. 875 and H.R. 839 contain a small set-aside to help 
ensure nonprofit organizations have a fair chance to 
participate in the new program. Specifically, the bills provide 
that States must award at least 10 percent of their annual 
homeownership credit allocations to nonprofit groups. We 
believe this provision must be part of the legislation to enact 
the credit for three simple reasons.
    Nonprofit set-asides ensure resources reach the neediest 
people and communities. Faith-based and community groups are 
more likely to build housing in areas of high poverty, 
unemployment and housing costs. They are much more likely to 
develop housing for people with special needs, such as the 
homeless.\2\ Even though they provide the hardest to produce 
housing, community-based groups are as cost-effective as for-
profit builders doing less difficult developments. In 
evaluating performance with the rental housing credit, the 
General Accounting Office found ``the difference in estimated 
per-unit costs for nonprofit and for-profit developers was not 
statistically significant.''\3\
---------------------------------------------------------------------------
    \2\ See the General Accounting Office report, Tax Credits: Reasons 
for Cost Differences in Housing Built by For-Profit and Nonprofit 
Developers, October 1999.
    \3\ General Accounting Office, pp. 1-2.
---------------------------------------------------------------------------
    Nonprofit set-asides assure healthy, holistic communities. 
Grassroots groups build communities as well as housing, as part 
of comprehensive revitalization efforts. In addition to for-
sale homes, they produce rental apartments, start small 
businesses and develop retail centers. They help people get 
good jobs and move up the career ladder. They partner with 
police departments to make neighborhoods safer. And they 
provide essential services such as childcare, mentoring and 
financial literacy. These activities help ensure families and 
communities can fully benefit from homeownership opportunities.
    Nonprofit set-asides are an established element of 
successful housing programs. The rental housing credit (Low-
Income Housing Tax Credit) on which the homeownership credit is 
based requires States to award at least 10 percent of their 
anilual supply of credits to qualified nonprofit organizations. 
The HOME housing block grant requires States and cities to 
award at least 15 percent of their annual grants to housing 
developed, sponsored or owned by qualified nonprofit 
organizations with community development experience and local 
accountability.
    States still could allocate resources to grassroots groups 
without a set-aside and many probably would. But the set-aside 
sends a strong signal that all States must address their most 
difficult housing needs through the organizations most 
committed to solving them with a portion of limited Federal 
housing resources every year.
    A small set-aside for community- and faith-based groups 
does not unfairly disadvantage for-profit developers. In 2001 
States awarded more than two-thirds of their rental housing 
credits to for-profit developers. These figures do not include 
the $137 million in credits allocated in 2001 to bond-assisted 
developments, which are mostly done by for-profits.

         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
                      FROM TERRI MONTAGUE

Q.1. The Administration has requested no money for HOPE VI in 
its fiscal year 2004 Budget request. How will the elimination 
of HOPE VI affect the rate of homeownership among minority 
families? How will it affect the Enterprise Foundation's 
homeownership programs?

A.1. As noted in our response to Senator Sarbanes' first 
question, HOPE VI has directly supported 15,000 affordable for-
sale homes. While this number of homes has had little impact on 
the national homeownership rate, HOPE VI is an important part 
of Federal homeownership policy. First, the families and 
communities that benefit from HOPE VI homeownership would 
likely not have realized those benefits without the program. 
Second, as noted in our response to Senator Sarbanes' question, 
HOPE VI development in some areas has been associated with 
higher housing values in the surrounding community. Third, 
public housing residents and low-income renters in HOPE VI 
redevelopments may be able to move into homeownership over time 
with sufficient supports, including homeownership counseling, 
as in Enterprise's aforementioned Wheeler Creek development. 
Eliminating funding for HOPE VI, as the Administration has 
proposed, would severely constrain Enterprise's ability to 
provide affordable for-sale housing in low-income areas.
    For more general comments on HOPE VI, please see our answer 
to Senator Sarbanes' first question.

Q.2. The Administration also has proposed converting the 
Section 8 tenant-based voucher program into a block grant 
called ``Housing Assistance for Needy Families'' (HANF). How 
would this HANF proposal affect the rate of homeownership among 
minority families, including the use of Section 8 homeownership 
vouchers. How will this proposal affect the Enterprise 
Foundation's homeownership programs?

A.2. We are very concerned that the Administration's HANIT 
proposal would lead to substantially less funding for Section 8 
vouchers over time. Funding for Federal block grants has not 
kept pace with inflation.\10\ Apartment rents typically rise 
much faster than inflation. Less funding from a shrunken block 
grant would force local housing authorities to serve fewer 
families overall, provide less assistance to the neediest and/
or increase housing cost burdens on voucher recipients. Any of 
these outcomes, which could apply to families receiving both 
Section 8 rental and homeownership assistance, would impose 
severe strain on low-income families' finances.
---------------------------------------------------------------------------
    \10\ According to the Center on Budget and Policy Priorities, 
aggregate funding for 11 major Federal block grants fell 11 percent 
after adjusting for inflation over the past decade. Excluding the child 
care block grant, for which funding increased substantially under 
welfare reform, funding fell 22 percent accounting for inflation. See 
Robert Greenstein's remarks at ``Ending the Safety Net as We Know It?'' 
symposium, June 13, 2003, www.brookings.edu.
---------------------------------------------------------------------------
    The Administration's HANF proposal also could undermine 
innovative uses of Section 8 for affordable homeownership--an 
Administration priority. Developers and lenders may be less 
likely to participate in a program, or only continue to 
participate at a premium, under a block grant with uncertain 
funding. We would be particularly concerned about the 
proposal's impact on initiatives such as our ``Home of Your 
Own/Portland'' partnership with the Federal Home Loan Bank of 
Seattle and the Housing Authority of Portland, which will 
enable low-income public housing residents to become first-time 
homeowners.
    In addition, the Senate version of the Administration's 
proposal (S. 947) would provide that families currently 
receiving Section 8 homeownership assistance would be 
guaranteed to continue receiving that same assistance for only 
5 years, shorter than the typical mortgage term. Families that 
received Section 8 homeownership assistance after enactment of 
the block grant would have even less stability under the Senate 
bill.

        RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY
                       FROM CATHY WHATLEY

Q.1. Ms. Whatley, as you are aware, immigrant and first-
generation Americans will make up a significant share of any 
growth in minority homeownership. Since a real estate agent is 
often a consumer's first contact, could you share with the 
Committee some of the things Realtors are doing to make 
immigrant families more comfortable with the home buying 
process?

A.1. In 1998 NAR created the At Home with Diversity course 
which has provided over 10,000 REALTORS' with 
strategies, training and tools to reach emerging markets and 
expand homeownership. The course is intended to build diversity 
awareness and provide the skills, to more effectively 
communicate across cultural boundaries. Using the foundation of 
fair housing laws, the course helps 
REALTORS' develop personal and professional business 
strategies to reach out to minorities and immigrants in their 
communities. (See attached document.)
    The course has two general thrusts. The first is to 
heighten the REALTORS' awareness of and sensitivity 
to the social and cultural constituencies of local real estate 
markets: who is there; what their values, customs, norms, and 
real estate needs are; and what they expect from the 
REALTORS'.
    The second is to provide practical skills and tools to 
increase the professional's effectiveness in servicing all 
social groups, taking into account their cultural differences. 
Specifically, the course provides skills in cross-cultural 
communication and strategic business planning that together 
embrace the diversity of local real estate markets and bring 
real estate professionals and local communities into productive 
contact.
    NAR issues a diversity certification, ``At Home with 
Diversity: One America'' to those licensed real estate 
professionals who meet the eligibility requirements and 
complete the course. The certification signals to customers 
that the real estate professional has been completely trained 
on working with diversity in today's real estate markets.
    REALTOR' members spend time with minority 
customers to familiarize them with the entire real estate 
process, to assist them with understanding the loan process and 
often times to help connect them with various city or State 
programs that offer financial assistance and/or homeownership 
counseling. NAR has initiated the translation of many documents 
used in the real estate transaction process into foreign 
languages to help make them more understandable, especially at 
the local level for specific market needs. Also, one of NAR's 
public awareness radio ads has been produced in Spanish.
    This year, NAR, along with The National Association of Real 
Estate Brokers, the National Association of Hispanic Real 
Estate Professionals and the Asian Real Estate Association of 
America entered into a historic partnership with HUD to promote 
fair housing and increase minority homeownership. This 
partnership builds upon our work with the White House and the 
HOPE Awards, which we jointly sponsor with these and several 
other minority real estate organizations.
    The HOPE (Home Ownership Participation for Everyone) Awards 
recognizes up to seven organizations and individuals who are 
making outstanding contributions to increasing minority 
homeownership. We have honored organizations for their work 
advancing public policies to promote minority homeownership. 
For example, this year, the brokerage award went to Emily 
Moerdomo Fu of RE/MAX Greater Atlanta International. Minority 
homeownership always has been the focus of Emily Fu's company, 
which she located in Atlanta's Asian Square Shopping Center, 
where the Asian and Hispanic communities come together. Her 
staff speaks 16 different languages and comes from 19 different 
cultural backgrounds. The brokerage provides a full array of 
services and since 1990 has helped thousands of minority 
families close on their first homes.

Q.2. An innovative approach to leveraging existing housing 
programs in order to increase homeownership is use of the 
Section 8 Voucher program for homeownership. I know the 
National Association of Realtors continues to be a strong 
supporter of this program. Does the National Association of 
Realtors have any suggestions for improving the effectiveness 
of this program?

A.2. NAR is a strong supporter of the Section 8 homeownership 
program. This program allows people who may have thought they 
could never achieve homeownership become homeowners. We are 
strong advocates of this program, and applaud HUD's initiative 
in this area. However, only a small percentage of housing 
authorities are offering the program to their residents. We 
believe two factors are causing this.
    First, housing authorities have limited resources with 
which to work. The Section 8 housing voucher program offers no 
additional fees to housing authorities despite an additional 
workload required to enact the program. While the down payment 
program provides a fee, the housing voucher program does not. 
We believe that additional responsibilities, administrative and 
operational, are required for both of these programs; and 
therefore, PHA's should not have to shoulder that burden alone. 
Given the positive policy implications of moving these families 
to homeownership, we believe PHA's should be compensated for 
their participation in either the housing voucher or down 
payment programs. In addition, potential housing voucher 
participants may need to be counseled through the home buying 
process, which is another cost the PHA may have to incur.
    The second reason for a lack of usage of the program 
relates to a lack of understanding. Many housing authorities 
have never dealt with homeownership previously, and there is a 
lack of knowledge about the program. NAR has published a 
handbook (Section 8 Homeownership: A Guide for 
REALTORS'), which has been used by many housing 
authorities, local HUD offices, and 
REALTOR' associations nationwide. (See attached 
document).

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES
                       FROM CATHY WHATLEY

Q.1. I would like to ask each witness to share his or her 
general views of the HOPE VI Program. In addition, please 
address the impact HOPE VI may have on furthering the goal of 
low-income homeownership. Does HOPE VI help in this regard, 
either by making new units directly available to low-income 
buyers, or by improving the neighborhoods sufficiently to allow 
other homeownership efforts to succeed?

A.1. Neighborhoods are extremely complex environments subject 
to a variety of influences so it is rare for one program to 
have a disproportionate influence on its future shape and 
fortune. However, one such program may be HOPE VI. The program 
has helped to transform lives by increasing homeownership 
opportunities for low-income families and creating jobs and 
entrepreneurial activity in distressed urban and rural areas.
    For example, a member of NAR's Housing Opportunity Program 
Advisory Board, Vincent White, is involved with a HOPE VI 
project called ``The Villages of East Lake'' in Wilmington, DE. 
The project is being built on the site of a former low-rise 
high-density public housing development called Riverside. The 
development consists of 80 public housing rental units, 90 
affordable for-sale units and 24 market rate for-sale units. 
The development costs $32 million utilizing a number of 
Federal, State, and local programs such as FHA guaranteed 
mortgages, Federal Home Loan Bank's down payment and settlement 
assistance and/or Affordable Housing Program, subsidized 
purchase prices, silent second mortgages, State Revenue Bond 
Programs and homebuyer education and counseling. It is
estimated that more than 35 former public housing residents and 
their families will have a place of there own secured via a 
deed within the next 24 months. In addition, they will be 
living in Delaware's first designed mixed-income neighborhood, 
with no discernible distinction between their home and that of 
the fair market value units.
    An important component of the HOPE VI Program that has 
helped it succeed is the Family Self-Sufficiency Program. This 
program provides public housing residents the necessary 
training in budgeting, employment training and educational 
attainment that allow them to become good candidates for 
homeownership. It also mandates post homeownership counseling 
for up to 1 year after purchase.

```