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95–010 PDF 2004

H.R. 3755—ZERO DOWNPAYMENT ACT OF 2004

HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MARCH 24, 2004

Printed for the use of the Committee on Financial Services

Serial No. 108–74

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

RICHARD H. BAKER, Louisiana 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

RAHM EMANUEL, Illinois 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

CHRIS BELL, Texas 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

ROBERT W. NEY, Ohio, Chairman

MARK GREEN, Wisconsin, Vice Chairman 

DOUG BEREUTER, Nebraska 

RICHARD H. BAKER, Louisiana 

PETER T. KING, New York 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

PATRICK J. TIBERI, Ohio 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

JULIA CARSON, Indiana 

BARBARA LEE, California 

MICHAEL E. CAPUANO, Massachusetts 

BERNARD SANDERS, Vermont 

MELVIN L. WATT, North Carolina 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

(V)

C O N T E N T S 

Page 

Hearing held on: 

March 24, 2004 ................................................................................................. 1

Appendix: 

March 24, 2004 ................................................................................................. 55

WITNESSES 

WEDNESDAY, MARCH 24, 2004

Ashburn, Ann, President and Chief Executive Officer, AmeriDream, Inc., 

Gaithersburg, MD ................................................................................................ 47

Crowley, Sheila, President National Low Income Housing Coalition ................. 23

Dolben, Deane, President, The Dolben Company, Burlington, MA, on behalf 

of the National Multi-Housing Council and National Apartment Association ........................................................................................................................ 38

Egan, Conrad, President and CEO, National Housing Conference ..................... 40

Finnegan, Thomas J. III, President, Huntington Mortgage Group, Columbus, 

OH ......................................................................................................................... 27

Henry, Warren L. Sr., Vice-Chair, Housing Authority of Fulton County, Atlanta, GA ............................................................................................................... 25

Petrie, Michael F., President, P/R Mortgage & Investment Corporation, Indianapolis, IN, on behalf of the Mortgage Bankers Association .......................... 29

Petrou, Basil N., Managing Partner, Federal Financial Analytics, Inc. ............. 41

Rayburn, James R., President, National Association of Home Builders ............. 30

Syphax, Scott, President & Chief Executive Officer, Nehemiah Corporation 

of America, Sacramento, CA ............................................................................... 43

Weicher, Hon. John C., Assistant Secretary for Housing-Federal Housing 

Commissioner, U.S. Department of Housing and Urban Development ........... 1

Witcher, Jerome, Real Estate Agent, Art Lee Realtors, Columbus, OH ............. 45

APPENDIX 

Prepared statements: 

Ney, Hon. Robert W. ........................................................................................ 56

Oxley, Hon. Michael G. .................................................................................... 58

Clay, Hon. Wm. Lacy ....................................................................................... 59

Lee, Hon. Barbara ............................................................................................ 60

Sanders, Hon. Bernard ..................................................................................... 63

Tiberi, Hon. Patrick J. ..................................................................................... 67

Ashburn, Ann .................................................................................................... 68

Crowley, Sheila ................................................................................................. 73

Dolben, Deane ................................................................................................... 84

Egan, Conrad .................................................................................................... 89

Finnegan, Thomas J. III .................................................................................. 92

Henry, Warren L. Sr. ....................................................................................... 98

Petrie, Michael F. ............................................................................................. 102

Petrou, Basil N. ................................................................................................ 108

Rayburn, James R. ........................................................................................... 116

Syphax, Scott .................................................................................................... 125

Weicher, Hon. John C. ..................................................................................... 129

Witcher, Jerome ................................................................................................ 133

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

The American Society of Home Inspectors, Inc., prepared statement ................ 135

Page

VI

National Association of Housing Cooperatives, prepared statement .................. 138

National Association of Realtors, prepared statement ......................................... 141

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H.R. 3755—ZERO DOWNPAYMENT ACT OF 2004

Wednesday, March 24, 2004

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

OPPORTUNITY, COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 10:03 a.m. in Room 

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

of the subcommittee] presiding. 

Present: Representatives Ney, G. Miller, Hart, Tiberi, Renzi, Waters, Carson, Lee, Sanders, Watt, Clay, B. Miller, Scott, and Davis. 

Chairman NEY. We will go ahead and come to order. And members will be coming in, the Subcommittee on Housing and Community Opportunity. And today is, I think, a very, very important 

hearing. 

And we will start today with the Honorable John Weicher, Assistant Secretary for Housing-Federal Housing Commissioner, U.S. 

Department of Housing and Urban Development. 

Thank you. 

STATEMENT OF THE HONORABLE JOHN C. WEICHER, ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Mr. WEICHER. Thank you, Mr. Chairman and distinguished 

members of the subcommittee. And thank you for the opportunity 

to testify today regarding the Administration’s zero downpayment 

initiative. 

This major new mortgage insurance product is specifically designed to help first-time home buyers purchase a home. 

I also want to thank Congressman Tiberi for introducing H.R. 

3755, the Zero Downpayment Act of 2004, and the 30 members, 

both Democrats and Republicans, who have co-sponsored this important bipartisan legislation. 

Under this new program, FHA will insure 100 percent of the cost 

to acquire the home for first-time home buyers. We would allow 

them to finance the full purchase price, as well as all of the closing 

costs. Potential home buyers would not have to make the minimum 

down payment of 3 percent that is required in our regular Home 

Mortgage Insurance Program, Section 203(b). 

Studies have consistently shown that the single biggest obstacle 

to homeownership for most families is the inability to come up with 

enough cash to meet downpayment and closing costs. Many potenVerDate 0ct 09 2002 15:05 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\DOCS\95010.TXT FIN1 PsN: MICAH
2

tial home buyers pay the equivalent of a monthly mortgage in rent, 

but are unable to save toward a downpayment on a home. Minority 

families in particular are burdened by high downpayment requirements. 

This Administration is committed to helping all Americans address this barrier to home ownership, including minority families 

who have been shut out of home ownership opportunities in the 

past. We are proud of this effort, and we are proud of the results. 

In the fourth quarter of last year, the homeownership rate stood 

at an all-time record of 68.6 percent, and minority homeownership 

also set records. For the first time ever, over half of all minority 

families are now homeowners, with a record rate of 50.6 percent in 

the fourth quarter of last year. 

This is a good record, and we want to improve on it. There remains a significant home ownership gap between non-Hispanic 

whites and minority families. 

In June, 2002, President Bush announced the blueprint for the 

American Dream Partnership to create 5.5 million new minority 

homeowners by the end of this decade. Some of the participants in 

the partnership are here to testify today on this legislation. 

The Zero Downpayment Program would move the nation significantly closer toward this goal. 

We project that the new zero downpayment program would serve 

about 150,000 new home buyers in the first year alone. It would 

be structured to assist those credit-worthy but cash-poor working 

individuals and families who have been excluded from purchasing 

their first home. 

We have designed this program to minimize defaults, and to protect the Mutual Mortgage Insurance Fund. FHA has made conservative financial assumptions regarding the program. In order to 

cover the costs of the program, families who qualify for the zero 

downpayment program would be charged a higher insurance premium on their home loan. 

There would be no net cost to the MMI fund. The President’s 

budget projects that the additional $19 billion in mortgage commitments will generate revenue of about $184 million in the first year. 

Borrowers would be held to the same underwriting guidelines as 

those who apply for FHA standard 3-percent downpayment mortgage. They must meet the same payment income and debt-to-income ratios, and the same credit standards. 

We propose to add two additional requirements to help families 

become, and remain, homeowners. 

First, our new FHA total mortgage scorecard must be used to 

evaluate the overall creditworthiness of borrowers. The total scorecard allows FHA lenders to better predict which borrowers are good 

risks, and which are bad risks. This will help lenders and help 

FHA determine which families are most likely to remain homeowners after they buy their home. 

Also, it will require any home buyer to have homeownership 

counselling. And as we discussed at your hearing last week, Mr. 

Chairman, housing counselling can be very effective in reducing 

mortgage delinquency. 

3

Over the last three years funds for housing counselling have dou- bled, from $20 million to $40 million. The Administration has requested increases, and Congress has appropriated the money. 

The proposed fiscal year 2005 HUD budget proposes a further in- crease, to $45 million. We estimate that about half of this $5 million increase will be spent on counselling in conjunction with the 

zero downpayment mortgage. 

The Administration and the Department are firmly committed to 

helping more American families achieve the dream of homeownership. We believe that the Zero Downpayment Mortgage will be a 

financially sound and effective means to help them. 

That concludes my statement, Mr. Chairman. I want to thank 

you again for the opportunity to meet with you today to discuss 

this exciting new initiative. 

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

on page 129 in the appendix.] 

Chairman NEY. I want to thank you gentlemen. I would note we 

are going a little bit irregular here, but I wanted to get your testimony in because we have another panel. 

Also, as far as statements, we will entertain some. And then as 

members come in, we would not do that except for the ranking 

Member. But we entertain as we speak, and for the members 

present, I am going to be brief and ask, without objection, the rest 

of mine be submitted for the record. 

I just want to say that this bill by Congressman Tiberi and Congressman David Scott I think is extremely important, and it reflects the legislative proposal by the Bush Administration that they 

have got into their fiscal year 2005 budget for HUD. And this, of 

course, as you said, would eliminate the downpayment in some 

cases. 

I think the downpayment is a very difficult thing for many people to, as we know, to get. They can pay the payment, they can 

watch their budget, they can work a second job, and they have got 

their part of the American dream. But they might have to wait 

eight, nine, 10 years to get that. And that is why I think this bill 

by Congressman Tiberi is one of the most important bills. I credit 

Congressman Tiberi for pushing this bill and being out front on it, 

and Congressman Scott, also. 

And I would note with the racial divide in homeownership, it remains wide. It is 75.5 percent of white households owning their 

own home, compared with 49.4 percent of African-American households, and 47.7 percent of Hispanic households. I know we can do 

a lot better. I think this bill will also help with that important 

issue. 

With that, the gentleman from Vermont, do you have a statement? 

Mr. SANDERS. Thank you, Mr. Chairman, and I am delighted 

that our guest is here with us today. 

This is an important hearing, and I appreciate you holding it. 

Making homeownership available to more people certainly is a goal 

that we all share. And the idea of having people not having to 

make any initial downpayments is a step in the right direction. 

But I think there is a lot more to be done in addressing what, 

to my mind, is one of the major crises facing our country. And that 

4

is the fact that millions and millions of Americans today are paying 

a very substantial part of their income for housing. 

Not only do we have a major homeless problem in America, a 

growing problem, but we should recognize that there are millions 

of Americans today who are paying 40, 50, or 60 percent of their 

incomes in housing. That is unacceptable. 

And while this particular piece of legislation addresses some 

problems, it certainly does not go anywhere near as far as it has 

to go in addressing the major housing crises facing our country. 

Mr. Chairman, I am also delighted that you have invited, as a 

member of one of the panels, Sheila Crowley, who is the President 

of the National Low-Income Housing Coalition. That coalition, to 

my mind, has done an extraordinarily good job in raising consciousness on the housing crisis in bringing not only low-income and 

working people into this issue, but many business people as well. 

And I look forward to hearing what Ms. Crowley has to say. 

Mr. Chairman, owning your own home is the American dream. 

But having a bank foreclose on your home because you did not 

have enough money to make your monthly mortgage payments 

could quickly turn the American dream into a nightmare. And I 

think our guest understands that foreclosure today is at an all-time 

high, and is one of the major problems facing homeowners, especially lower-income homeowners, in this country. 

Mr. Chairman, Ms. Lee and I, and some 211 Members of the 

United States Congress, in a very strong tripartisan effort, have introduced the National Affordable Housing Trust Fund. That is H.R. 

1102. And that legislation would provide the resources necessary 

for states and localities to produce, rehabilitate, and preserve at 

least 1.5 million affordable housing rental units in the next decade, 

targeted to those families most in need. 

It is the legislation which in fact would go a long way to solve 

the real housing crisis in this country. 

In addition to that, and importantly, given the job situation in 

this country, that particular legislation, because we would invest 

substantial sums of money in the construction of affordable housing, would put an estimated 1.8 million people to work. 

Mr. Chairman, let me end by simply asking you if you would 

allow those of us, the 211 Members of the House who are on this 

legislation, to have a hearing on this important bill. I would be 

very appreciative. Is that something you think we could do? 

[The prepared statement of Hon. Bernard Sanders can be found 

on page 63 in the appendix.] 

Chairman NEY. The time of the gentleman has expired. I will 

take it under advisement. I will take a look at it. I cannot make 

a decision on the spot. 

I am going to try to hold to the time very strictly, for a couple 

reasons. We have three panels. And so as I call the time, both 

sides, I just want to hold to it strictly. 

Mr. Tiberi. 

Mr. TIBERI. Thank you, Mr. Chairman. I appreciate the opportunity to talk a little bit about the Zero Downpayment Bill which 

I recently introduced with 32 other individuals who are co-sponsoring the bill, including Congressman Scott. 

5

But I am going to ask if I can submit my comments for the 

record, but just say, as a former realtor, I have personally witnessed what homeownership can do to a person, to a family. Homeownership has the incredible ability to not only build wealth for a 

family, but have a positive impact on a neighborhood. 

And I look forward to working with not just this Subcommittee, 

but the full Committee in the Congress and the folks at HUD. 

Commissioner, I look forward to working with you. I hope my experience in working with you on this is better than our previous experience. I will leave it at that. 

But I would like, Mr. Chairman, to submit my comments for the 

record, because I know the Commissioner’s time is important, as 

are the members of the panels that we are going to be hearing 

from. 

Chairman NEY. Without objection. 

[The prepared statement of Hon. Patrick J. Tiberi can be found 

on page 67 in the appendix.] 

Chairman NEY. The gentlelady from California. 

Ms. LEE. Thank you, Mr. Chairman. I, too, would like to submit 

my statement for the record. And I just want to say to you, this 

is a very interesting approach to solving a chronic affordable housing problem in this country, specifically when you look at the 

homeownership rates in terms of ethnic minorities. You see about 

75 percent for white households, 49 percent for African-American 

households, and about 47 percent for Latino households. So hopefully this bill will just begin a process of trying to close those disparities. 

Thank you. And I would like to, again, submit my statement. 

Chairman NEY. Thank you, gentlelady. Without objection, we 

will enter it for the record. 

[The prepared statement of Hon. Barbara Lee can be found on 

page 60 in the appendix.] 

Chairman NEY. Mr. Miller? 

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

Secretary Weicher, I would like to applaud you on RESPA. That 

is something that we started working with Secretary Martinez, 

when he first took over. We thought we were going in the right direction, and I don’t know what happened. But I want to applaud 

you on what you have done on drawing that. And hopefully we can 

work together to resolve this. This is a critical link in the homeownership process, and I think we need to do everything we can 

to make sure that the final product overhauls the process without 

really confusing home buyers. But I wanted to applaud you for 

doing that. 

The last few times we have talked, it was the only time we ever 

had a disagreement, HUD and I, on an issue, so that was a problem for us. 

But there is a huge housing crisis in affordability in this nation. 

I have been in the building industry for over 30 years, and was a 

real estate broker in the past. And in California we have about a 

56.9 percent homeownership rate, which is about 10 percent under 

the nation. The median home price in California is about $35,000 

higher than the second- and third-place portions of this nation, and 

it is really a huge problem. 

6

And if you look at most people who have to put 20 percent down in California, that is $75,000. Less than 5 percent of this nation 

can afford that on their capital, other than what they have invested 

in real estate. And this is really a critical issue. And the zero downpayment assistance hearing I think is very important. 

A good friend of mine, Frank Williams, he is the Director of the 

Building Industry Association of—he started a group called Heart, 

which is a non-profit. He started it in 1995. And in 1998 they started the zero downpayment assistance, where they would give virtually grants to people coming in. It was done without any assistance from the federal government at all. And they put about 40,000 

families in homes, with zero downpayment, where they would have 

the private sector pick up the downpayment for them. And it was 

started with just a couple developers that invested some money. 

They give a grant to this Heart Foundation, and they have built 

that, through loans and such, where they are helping a tremendous 

amount of people who have never owned a home before. 

They have taken quite a few mothers who were on welfare, didn’t 

have jobs, and they have hired them. They are working in their office now, and have put them in homes. And there is a lot to be done 

in this nation to get people in homes. 

This is a great start. This is just a beginning. I mean, yes, we 

have to look at entry level, but we have to look at where do they 

go past that. And we have done nothing to encourage affordable 

housing, anything other than just a Section 8. And if you don’t 

have affordable move-up from Section 8, you don’t have adequate 

Section 8 as we know. 

So I am not going to protract this. I look forward to this. I know 

later this year we are going to try to be working with Mr. Frank 

on FHA, dealing with a loan limit, so we must increase there because it is just not kept up. You can’t even get an FHA loan in 

California because of the limits that we have. We have to do something about that. 

But I thank you for today, and thank you for your testimony. 

Chairman NEY. Well, thank you. Mr. Scott. 

Mr. SCOTT. Yes, thank you very much, Mr. Chairman. And I appreciate this opportunity. This is an important piece of legislation, 

for there is nothing more important and vital to a person than to 

be able to purchase a home. It enriches their lives and begins them 

on the path of very good significant wealth-building. 

I want to thank Chairman Ney and Ranking Member Waters for 

holding this hearing today on House Resolution 3755, the Zero 

Downpayment Act. And I am very, very proud to join with Congressman Tiberi to introduce this legislation, which would eliminate the downpayment requirement for families and individuals 

who buy homes with FHA-insured mortgages. 

This legislation, as you may recall, follows the Committee passage of the American Dream Downpayment Act last year, which I 

was also a co-sponsor of. 

It is very important, I just want to highlight just a couple of 

points, why this program is so important. This new Zero Downpayment Program will be available to first-time home buyers seeking 

loans insured by the Federal Housing Administration. It will make 

homeownership possible for those who meet FHA underwriting reVerDate 0ct 09 2002 15:05 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\DOCS\95010.TXT FIN1 PsN: MICAH
7

quirements, and who could easily afford a monthly payment, but 

because of their circumstances, have simply not had the opportunity to save for a downpayment. 

FHA loans typically require a minimum downpayment of 3 percent. Families who qualify for zero downpayment mortgages will be 

charged a modestly higher insurance premium on their home loan. 

For example, on a $100,000 mortgage, a zero downpayment borrower will pay approximately $50 a month more than a regular 

FHA borrower. The higher premium will completely cover the costs 

of the program, meaning there is no additional cost to the taxpayer. 

Now, while downpayment assistance is an important tool to help 

increase homeownership, we must also provide home counselling 

programs. And I am sure that our first panelist, of course, the Honorable John C. Weicher, Assistant Secretary of Housing-Federal 

Housing Commissioner of the United States Department of Housing Development, knows the importance of housing counselling. We 

talked with him last week on a hearing on our other bill. 

Last week this Committee discussed that bill. House Resolution 

3938, which was introduced by Chairman Ney, Representative 

Velasquez, and myself. This legislation will create a new homeowner counselling office within HUD. It would create a nationwide 

toll-free number to receive consumer complaints regarding predatory lending, and refer victims to consumer protection agencies, 

provide for a multi-media outreach program to vulnerable populations, and provide grants to community counselling organizations. 

I mention that because this Zero Downpayment Program is wonderful. And it is very important that we put folks in their homes. 

But if we do not provide that counselling, if we do not provide a 

way for them to make sure they can keep the home, that they have 

the necessary information and counselling information to help, it is 

much like giving a man a rope on which he can either pull himself 

up, or he can hang himself. 

So I want to make sure that as we move forward with the zero 

downpayment, to know that it is equally important to make sure, 

as we help to get people out on this first step, that we understand 

the importance of providing them with housing counselling as we 

move along. 

And African-American families and other minority families in 

particular are burdened by high-downpayment requirements. 

Chairman NEY. Time has expired. 

Mr. SCOTT. Homeownership, of course, is a major step, as I said, 

in wealth accumulation and movement up the economic ladder. 

And it is very important, this is a very important step. I am very, 

very excited and energized on our move on this. 

Thank you, Mr. Chairman, for allowing me to make that statement. 

Chairman NEY. Thank you. Gentlelady from California, our 

Ranking Member. 

Ms. WATERS. Thank you very much, Mr. Chairman and members. I thank you for scheduling this hearing to consider the many 

important issues raised by H.R. 3755, the Zero Downpayment Act 

of 2004, introduced by Congressman Pat Tiberi and Congressman 

Scott. 

8

This bill would eliminate the downpayment requirement for families and individuals who buy homes with FHA-insured mortgages. 

While the homeownership rate has risen, the racial divide in 

homeownership remains wide, with 75.5 percent of white households owning their own home, compared to 49.4 percent of AfricanAmerican households, and 47.7 percent of Hispanic households. 

During the past part of 2003, presently section 203(b)(9) of the 

National Housing Act requires that each FHA borrower to make a 

cash downpayment of at least 3 percent of the cost of the home. 

While H.R. 3755 does not explicitly waive this 3-percent minimum 

cash downpayment requirement, it is clear that it is the sponsor’s 

intent. 

Currently, depending upon the state in which they reside, FHA 

borrowers may borrow from 97.15—15 percent, that is—up to a 

ceiling of 99.25 percent of appraised value. H.R. 3755 is intended 

to let a borrower put zero cash down, and borrow around 104.5 percent to 105 percent of the value, depending on the closing costs. 

H.R. 3755 is identical in language to the legislative proposal submitted in the Administration’s funding year 2005 budget. The bill 

authorizes HUD to insure mortgages for one-family residences that 

are loan-to-value in excess of 100 percent of appraised value by 

specifically allowing a loan equal to the sum of the home’s appraised value, the up-front FHA premium, and all approved closing 

costs. 

The Administration projects that this loan product will create 

150,000 home buyers in the first year alone. OMB projects that the 

proposal will make money for the government; that is, it will have 

a negative cash subsidy. 

FHA borrowers pay both an up-front premium and an annual fee 

on single-family loans. The Administration’s budget proposal assumes increased revenue from charging a higher premium to those 

potential borrowers who utilize the zero downpayment option. 

According to the budget proposal, those higher premiums would 

be sufficient to cover any anticipated losses expected by FHA’s 

mortgage insurance funds. Although H.R. 3755 does not include 

any language addressing the fees to be charged for this new loan 

product, HUD has indicated publicly that it plans to charge an upfront premium of 2.5, 25 percent, and that is versus the current 1.5 

charge for all FHA loans, plus an annual fee of .75 percent for the 

first five years of the loan, versus what is now .5 percent charge 

for all FHA loans. 

The bill also authorizes the HUD secretary to establish any additional requirements as may be necessary or appropriate, including 

requirements regarding mortgage and/or property eligibility. 

If this bill is enacted, HUD has indicated an intention to use this 

authority to establish several additional requirements through administrative regulation. For example, while the bill itself does not 

require it, a January 19, 2004 HUD press release on the Zero 

Downpayment Proposal states that HUD would also require families to undergo pre-purchase housing counselling. 

The questions included in our invitation to today’s witnesses 

cover many of the issues that I hope will be addressed today. I 

would like to raise a few more policy questions. 

9

I hope that our witnesses will discuss whether they believe this 

product should be limited to those who lack the resources to come 

up with the current downpayment requirement, or whether it also 

should be available to those who can come up with the downpayment, but prefer not to do so. 

Simply put, is some kind of certification of financial necessity an 

appropriate condition for access to this product? If not, why not? 

Secondly, will this product expose the mortgage insurance fund 

to unreasonable risk? Given that FHA delinquency and foreclosure 

rates have risen steadily in recent years, and that FHA past-due 

rate, as of the third quarter of 2003, is now 12.13 percent, don’t we 

need to proceed cautiously in this area? What role, if any, do downpayment requirements play today in avoiding defaults of foreclosures? 

While it is the subject of considerable controversy, a recent audit 

by the HUD Inspector General also suggested that mortgages made 

through gift assistance programs carry default rates far above average. How do gift assistance programs fit into the equation? 

Finally, there are several technical issues that require clarification, such as whether the bill should be limited to first-time home 

buyers. And if not, whether refinancing should be covered. 

Mr. Chairman, above all else, as we consider this bill and other 

potential legislation before our subcommittee, we need to ensure 

that we pursue a balanced agenda that makes fair and affordable 

housing opportunities to all of our people, whether they are renters 

or owners. H.R. 3755 raises important questions, but it is only one 

piece of a far larger puzzle. 

I look forward to our witnesses. And I thank you again for scheduling this hearing. 

Chairman NEY. Well, thank you, gentlelady. We will move on to 

questions. The witness, Mr. Weicher, has testified. 

The one question I have is, what is the relevance of 

downpayments in truly assessing the creditworthiness of a person? 

How relevant do you think they are? 

Mr. WEICHER. Mr. Chairman, we certainly know that downpayment initial loan to value is an important aspect of risk. And as 

you all have mentioned, we have, in our basic 203(b) program, a 

statutory requirement of a 3-percent downpayment. 

But we also know that there are other factors which are more 

important. In particular, credit history, credit experience. That is 

the most important predictor of the ability of a family to maintain 

a home once they have moved into it. And we are requiring, in our 

proposal, that all mortgage applications for the program would be 

risk-assessed by our new total scorecard, which is the best indicator we have found, best predictor of whether a borrower will default on the mortgage or not. 

And in addition, we are requiring counselling for any borrower 

who participates in the program. And we know that families who 

receive counselling are better able to stay in their home. Pre-purchase counselling, our default rates on families with pre-purchase 

counselling are lower, significantly lower, than the default rates for 

families who do not. 

10

So while LTV is important, there are other factors that are important, too. And we are taking them all into account as we make 

this proposal to you. 

Chairman NEY. Do you think underwriting is relaxed when no 

downpayment is required? 

Mr. WEICHER. It is not our intention to relax our underwriting 

criteria at all, in the Zero Downpayment Program, Mr. Chairman. 

We will use the same underwriting standards, the same paymentto-income and debt-to-income ratios, the same credit history standards. And we add the additional requirements of counselling and 

the Total Scorecard. 

We have no intention to relax our underwriting standards in this 

program. 

Chairman NEY. Does the bill cover condominiums and cooperatives? 

Mr. WEICHER. No, Mr. Chairman, it does not. Condominiums and 

cooperatives are insured under a different insurance fund, the 

GSRI fund, General and Special Risk Insurance fund. As such, 

their premiums are established on a different basis than we establish the premiums for single-family home purchases. And we believe it is appropriate to start with single-family homes in this program in the MMI fund. And if it is successful, then we would certainly look to extend it to condominiums and cooperatives. 

Chairman NEY. The reason I ask that question, I wanted to follow up with one last one, but, in rural areas in particular you don’t 

have a lot of condominiums, obviously. It is not that popular. You 

have spatterings. In the urban centers you will have condominiums. 

And I just wondered, is there receptivity from HUD to consider 

condominiums, to include them? And also, let us go a step further. 

If there is a rental unit in the situation, and somebody could actually come in, buy with no downpayment, and they have got a rental 

unit, like two or three units. And so they almost become their own 

entrepreneur. Would you take a look at that, be willing to? Or is 

there a problem with that? 

Mr. WEICHER. Well, with respect to your first point on condominiums and cooperatives, we would be willing to look at that. It 

would require a different scoring, because it is in a different insurance fund and has a different premium structure. 

With respect to allowing zero down for families that are buying 

two- to four-unit properties and planning to live in one and rent 

out the others, we have limited, in our suggestion, the bill to single-family homes. We certainly don’t object to people buying twoto four-unit properties and becoming landlords, as you indicated. 

That is one way to build wealth. We do think that one ought to 

have some equity to take on a bigger project than owning your own 

home. We would think that looking at two to fours would be something we would do I think farther down the road. 

Chairman NEY. My time is running out, and I haven’t talked to 

the gentleman from Columbus, Ohio, Mr. Tiberi. But I just think 

personally we have got to be open-minded in the sense that if you 

have a low-income person, and they don’t have a downpayment, but 

they have that rental stream in there, you are almost creating, I 

don’t want to say wealth, but you are almost creating an instant 

11

type of infusion of money into their checking account to help them 

pay for something. 

It is almost like if you are on a low income, you have to take this 

step first, and you have to have a downpayment, and then you 

have to get your own unit, and then you can go on to something 

that has a rental attached. I just think personally we ought to keep 

an open mind to that type of thing. 

The gentlelady? 

Ms. WATERS. Mr. Chairman, I want to question how you set the 

criteria for other persons who would be requesting no downpayment. I recognize that you would be looking at the credit history, 

the same way that you would do in a regular lending situation. 

But given that there is no money on the front end, and I like 

that, does that mean now that it is going to be a little bit more 

difficult? Are you going to look a little bit closer? And who is eligible? Exactly who is eligible for this, and how do you review this 

person’s ability to pay their mortgage? 

Mr. WEICHER. Ms. Waters, the people that we expect to be helping would be typically young families, people with good jobs, people 

who have not built up the cash, the assets to put down the normal 

downpayment and closing costs. 

Ms. WATERS. Excuse me if I interrupt you. Young families with 

good jobs. Define that a little bit better for me. 

Mr. WEICHER. Well, I think steady jobs, jobs where the income 

from the job will cover the mortgage payment that is necessary to 

support homeownership. Families with stable jobs, but families 

who have not yet built up the equity to become homeowners. We 

expect to enable families. Some families will become homeowners 

sooner, and other families will become homeowners who would perhaps never become homeowners at all. 

We establish our criteria in terms of income and credit history, 

and we look at the debt that the family currently is supporting. 

And we require counselling for any family buying a home in the 

Zero Down Program. And we assess the creditworthiness of the 

borrower through our new mortgage Scorecard, the Total Mortgage 

Scorecard, which becomes part of a lender’s automated underwriting system, and is the best predictor we have seen of the ability of a family to support a home. 

We can distinguish who is a good risk for us, and who is not as 

good a risk for us, better with that than we have ever been able 

to do before. And so we can reach a little farther down in the risk 

spectrum than we have been able to do. 

Ms. WATERS. One of the problems we have had with predatory 

lending is, we have racial minorities who compare equally with 

whites in terms of income and what appears the ability to pay. And 

they are driven into sub-prime lending, while their counterparts, 

who are non-minority, are not. How do we avoid that kind of thing 

with giving consideration to who gets the no downpayment opportunity? 

Mr. WEICHER. Well, I think you will hear from a number of representatives of industry groups who are certainly not predatory 

lenders about their interest in marketing this program to potential 

home buyers. I think you will hear that they see this as a way of 

reaching people that they are not now able to reach. 

12

I might say also that we have a second proposal, which is not directly the subject of this hearing, a legislative proposal called Payment Incentives Program, which is intended to reach families who 

would be in the sub-prime market, or in some cases who are in the 

sub-prime market, and enable them to access FHA as home buyers 

or as refinancers. And in that we are reaching down into the subprime market and helping families finance or refinance into FHA 

with the lower rates that FHA provides, compared to the sub-prime 

market. 

Ms. WATERS. Thank you. 

Chairman NEY. Thank you. And I am going to ask also, Mr. 

Tiberi, Chair to the subcommittee, I have to go to Transportation. 

We have a markup. If I don’t get to that markup, Columbus, Ohio 

may also lose some money somewhere, and LA, and other parts of 

the country. So, thank you. 

Mr. TIBERI. Commissioner, Ms. Waters mentioned the all-time 

high of 12-percent default coming in the end of last quarter of 

2003. How do you explain the default at 12 percent? And do you 

have concerns about this bill maybe contributing to what some opponents might say is an even higher default rate? 

Mr. WEICHER. Mr. Chairman, the 12-percent figure is actually 

the mortgage bankers’ reported overall delinquency rate; not defaults, but 30-day delinquencies, 60-day delinquencies, and 90-day 

delinquencies and longer. And defaults start at 90 days’ delinquencies, certainly for FHA they do. 

Our 90-day delinquency rate, our default rate, if you will, is 

under 3 percent. The measure we use is our claim rate, foreclosures 

and claims. And when a lender forecloses on an FHA mortgage, we 

pay a claim, and the family loses the home. That rate, our claim 

rate, is running at 1.5 percent. And I might say that the rates 

peaked, all of those rates peaked in fiscal year 2003, and in the 

first part of fiscal year 2004. The year to date, all of those rates 

are down. Our claims are down slightly from where they were in 

2003, our defaults are down from where they were in 2003. And 

this is what we expect. 

Claims, foreclosures are a lagging economic indicator. The economy turns up before the claim rate, the FHA claim rate, the foreclosure rate hits its peak, because families try to hang onto their 

home as long as they can, and they hang on during the downside 

of the cycle, but some of them are just unable to keep it up in the 

early stages of the recovery. 

So we see, in 2004, a normal pattern of improving defaults, improving foreclosures, improving claims, and we expect that to continue. 

Mr. TIBERI. How do the FHA rates compare with the conventional market rates? 

Mr. WEICHER. Our rates are higher than the conventional market because we are there to take risks that the conventional market is not able to take. We have, of course, the full faith and credit 

of the Government of the United States behind FHA. We have it, 

we exist in order to help people who the conventional market cannot help because the risk is too great. We can do that. And we can 

do it, and we do it, without losing money. 

13

Mr. TIBERI. On the same subject, is the Department proposing 

any revisions of the Loss Mitigation Program as part of this effort? 

Mr. WEICHER. Mr. Chairman, I am very happy to say that we 

have sent to you, to the Congress, for the 15-day review period a 

new proposed rule to establish treble damages for lenders who fail 

to engage in loss mitigation. 

We think this will certainly get the attention of the small number of lenders who, in our experience, are not actively pursuing loss 

mitigation as much as other lenders are, and we think this will 

help. 

But overall, we track the loss mitigation activities of all of our 

lenders. We have 25,000 lenders, and we have the data on the loss 

mitigation that each of those 25,000 is undertaking. And we track 

both whether they are engaging in loss mitigation and what the 

outcome is of loss mitigation. 

Our outcome on loss mitigation is very successful. Over half of 

the families who participate in loss mitigation have cured their default, are current on their mortgage within a year after they have 

gone into default and started loss mitigation. And we have never 

seen anything as successful as that. 

Mr. TIBERI. That is great. The mortgages in this area are understandably a bit more risky than the FHA standard 203 product. 

How will your Total Scorecard assess the risks with this new program? 

Mr. WEICHER. Well, the Total Scorecard takes into account a 

number of pieces of information about the loan, and about the borrower, and provides a judgment of whether the loan meets our 

standards automatically or should be referred for manual underwriting. The specific how is complicated, because it is a mathematical algorithm which produces the results. 

But we will require it to be used for every family who is participating in this program. And we know, from a lot of research that 

we did as we were developing the Scorecard, that this does a better 

job of predicting risk than anything we have seen, anything of ours 

or anything that we have seen from anyone else. 

At the high-risk end of our market, if I can put it this way, we 

can do a better job of distinguishing who is a good high risk and 

who is a bad high risk. And we can provide loans to families who 

we otherwise would not be able to provide it to. We think that will 

fit with Zero Down very, very nicely. 

Mr. TIBERI. Just a quick follow-up, and then I am going to turn 

it over to Ms. Lee. On that particular subject, what factors do you 

weigh most heavily? 

Mr. WEICHER. We look at the terms of the loan. We look at the 

borrower’s credit history. We look at the borrower’s income and obligations against the income. There are half a dozen factors which 

we look at that fit into the Scorecard. 

Mr. TIBERI. Thank you. Ms. Lee. 

Ms. LEE. Thank you very much, Mr. Chairman. First let me just 

say this is, as I said earlier, a very interesting proposal, and I really do applaud HUD for attempting a program to target low- and 

moderate-income families with the Zero Downpayment incentive, 

really. 

14

But it does take a risk. Much like the affordable housing programs presented and performed by Fannie May and Freddie Mac 

take on actually the same target families. So that is why I think 

that the HUD mission of creating affordable housing is so important, and must stay in HUD. 

A couple things I would like to just ask you with regard to the 

counseling aspect of that. I am not sure, you said earlier that in 

the bill, or at least in the implementation of the program, you are 

going to require counseling. But I am not sure that that requirement, as the bill is written, is in that. 

And I would just like to ask you, Mr. Weicher, if you are familiar 

with the language in the bill that backs up what you said with regard to requiring the counseling for this new program. 

Mr. WEICHER. Ms. Lee, the counseling requirement is in the Administration’s proposal, and we are certainly prepared to work with 

you all to establish the counseling requirement in the legislation. 

It is certainly our intention. 

We believe, we know that counseling is important to enable borrowers to stay in their home, to buy the right home and stay in 

the home. And we included that requirement in our proposal. And 

we included it in our analysis of how the program would work. 

Mr. TIBERI. Good, okay. So Mr. Chairman, I would like to work 

on an amendment to this legislation that would put it, at least 

write it into the law. Because I think it is very important for you 

to have those tools, whatever you have, to ensure that you are covered on that front. 

Secondly, let me ask you how this whole issue with regard to 

predatory lending works with regard to this new program. 

Now, I understand that you will only allow lenders to participate 

in an FHA program if the loan is at a certain interest rate. But 

in a refinance position, how do you prevent an individual, a family, 

from being, say, targeted by predatory lenders who have received 

this downpayment assistance under this new effort? Is there any 

provision that says that we will not allow predatory lenders to participate in this no downpayment assistance program? 

Mr. WEICHER. What we have is, we have the requirements that 

we have built into the program, which we think will discourage 

predatory lending. I think this relates to your previous question 

about counseling. 

The counseling requirement we believe will help borrowers know 

a predatory loan when they see one. And we also think that the 

Scorecard will identify whether a family is qualified for that loan. 

Beyond that, what we have been doing consistently is attacking 

predatory lending practices through FHA rule-making. We and 

FHA and this Administration have issued literally half a dozen 

final rules combating predatory lending, preventing flipping, preventing the sale of a property by anyone other than the owner of 

record, establishing qualifications for appraisers. And you can’t 

really have a really predatory loan in many cases without an appraiser being involved in it. Qualifications for home inspectors. 

We think that we are attacking predatory lending across the 

board. And when we find predatory lenders, we sanction them, and 

we get them out of our program. I preside over the Mortgagee Review Board in the Department, which is six of the senior policy offiVerDate 0ct 09 2002 15:05 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 G:\DOCS\95010.TXT FIN1 PsN: MICAH
15

cials in the Department. And every two months we meet and discuss cases which our staff have developed about particular lenders 

who are abusing FHA’s programs. And we sanction them, and we 

throw them out of the program, and we assess civil money penalties. And we certainly intend to do that here. 

Ms. LEE. So you think existing law then covers this new program? 

Mr. WEICHER. We think it does. And we certainly intend to monitor it very closely, and we intend to monitor our lenders, some of 

whom are sitting behind me, very closely as this program unfolds. 

If I may say, the first time I came to HUD, Ms. Lee, which is 

literally 31 years ago, I came in the aftermath of a scandal where 

a homeownership assistance program was being abused by some 

builders and some lenders. And I was part of the group that 

cleaned up afterwards. And I am very cognizant of the importance 

of running this program for the benefit of the people that we are 

all here to help. 

Mr. TIBERI. The gentlelady’s time has expired. 

Ms. Hart? 

Ms. HART. Thank you, Mr. Chairman. You actually began to ask 

a question that I would like to have a more comprehensive answer 

to, if we can get it. 

Secretary Weicher, you started to talk about the criteria regarding the way an applicant is approved. And in your testimony you 

mentioned this FHA total technology open to approve lenders that 

you use as a Scorecard? 

Mr. WEICHER. Yes. 

Ms. HART. And you say that there are half a dozen criteria, but 

obviously they are ones that we typically would expect. 

Is there anything that is unique to this Scorecard that is different than a normal credit check that would be done for an applicant? 

Mr. WEICHER. Well, we look at more than a credit check. We look 

at credit scores, we look at things like FICO scores. We look at the 

borrower’s position. We look at the reserves that the borrower has. 

We look at the debt/income ratios and payment/income ratios. We 

look at the terms of the loan, as well. We are looking both at the 

borrower and at the purchase, at the loan, and seeing that they fit 

together. 

You could be a borrower with a very good credit score and all the 

other criteria, and be in a loan which you could not afford. We 

meld them together in looking at whether this borrower is a good 

risk in this loan. And we know that it works. There was a lot of 

research done on this, in this Administration and in the previous 

Administration, before we put Total in place last year. 

Ms. HART. Can you elaborate on the kind of success it has had? 

Like why has it eliminated more people? Or what has it done to 

show you that it is successful? 

Mr. WEICHER. On the one hand, it has identified some borrowers 

to whom we should not be making loans that we otherwise would 

have. And on the other hand, it has identified borrowers who we 

do make loans to, who we should make loans to, who we would otherwise have not done. 

16

It doesn’t cut in one direction or the other. It allows finer distinctions as to degrees of risk, and it works both ways. 

Ms. HART. Then would you say that the Zero Downpayment Program is something that would benefit——

Mr. WEICHER. Yes. And that is why we are requiring lenders to 

use the Total Scorecard in underwriting borrowers for this program. 

Ms. HART. Are the lenders that you have discussed this with 

really excited about seeing something that can actually reduce 

their risk, as well? Is that what you think? 

Mr. WEICHER. Yes. I think you will certainly hear from them, but 

we have certainly heard from major lending organizations and individual lenders, that they think this is a very good idea. 

I announced this on behalf of the Administration at the National 

Association of Home Builders convention around the time the 

President’s budget was announced. And there was substantial enthusiasm there. 

I have spoken at the mortgage bankers’ meetings, heard enthusiasm there, as well. And I have stressed that we are going to be 

monitoring performance under this program carefully, and I 

haven’t heard anybody object. 

Ms. HART. Okay, thank you. I yield back. 

Mr. TIBERI. Mr. Scott from Georgia. 

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

Mr. Weicher, how significant is the impact of home buyer education to the success of being a homeowner, in your opinion? 

Mr. WEICHER. Mr. Scott, let me first say that we appreciate your 

co-sponsorship of the Zero Downpayment Act. 

Mr. SCOTT. Thank you. 

Mr. WEICHER. And I want to say we appreciate the bipartisan 

support that we have had, the 32 Members, I believe, from both 

sides of the aisle who have supported this legislation. 

Answering your question directly, we think counseling is important, and that is why we are requiring it. We know that the families who have counseling in FHA have a better experience than the 

families who do not. And we know from studies which Freddie Mac 

has done and which analysts at a number of universities have 

done, including the Ohio State University, that counseling works. 

And we stress it. 

And as you know, of course, we have increased the funding for 

counseling in this Administration. We and the Congress, working 

together, have doubled the funding for counseling in this Administration. And we are asking you all for an additional increase, an 

increase of $5 million this year, half of which we anticipate will go 

to supporting counseling in the Zero Downpayment Program. 

Mr. SCOTT. This is an extraordinary program. I do believe that 

we could very well create six million new homeowners by 2010, 

most of whom I believe could very well be minorities and AfricanAmericans. This is an excellent opportunity to close this gap. 

But there is a risk. There is a considerable risk. You have had 

a program, a gifting procedure, non-profit groups who, through 

gifts, have been able to provide downpayments. And you did a 

study, your Inspector General. And it determined that there was 

17

tremendous downward pressure on foreclosures and defaults, and 

the risks were up. 

That could very well be exacerbated and increased when we 

move to Zero Downpayment, the potential for risk on foreclosure 

goes up. Counseling is extraordinarily important in this regard. 

Last week, before our Committee, we had a bill which my hope 

is that this Zero Downpayment legislation proves even more so, 

and your comments a few minutes ago, the need for housing counseling. 

However, when the question was put to you concerning getting 

additional help, if I am not mistaken, and hopefully you might correct that at this point, you left me with the impression that you 

might not be in favor of this office. You might not be in favor of 

this help. You might not be in favor of the toll-free number. You 

might not be in favor of these additional resources that Chairman 

Ney’s housing counseling bill would offer. 

I certainly hope that you would take this opportunity to say that 

that is not so. 

Mr. WEICHER. Let me comment on several points that you make 

there. 

We certainly support housing counseling, and I hope I made that 

clear last week and this week both. We believe that the program 

we are operating in the Office of Housing is a very successful program. That program represents more than two-thirds of the housing counseling grant programs of the Department. There are only 

two others, and both are much smaller and are targeted to specific 

populations for specific purposes. 

Our program has a toll-free number which we believe works well. 

Since the program does work well, we don’t see an advantage to 

a restructuring of the offices that provide, that manage those programs. 

That being said, let me say that with you, we very much believe 

that what we are doing with Zero Down, what we want to do with 

Zero Down, what you all want to do with Zero Down is a very important way to promote homeownership for all Americans. 

We think, as you may know, 40 percent of FHA’s first-time home 

buyers are members of minority groups. And we think with Zero 

Down that proportion will be higher. I certainly hope you are right 

that we can reach six million by the end of the decade. 

We are on track to meet and exceed the goal that the President 

announced a year and a half ago of five and a half million additional minority home buyers by the end of the decade. And this is 

going to be one important way of doing that. 

Mr. TIBERI. The gentleman’s time has expired. 

Mr. SCOTT. May I—just one final point? 

Mr. TIBERI. One quick question. 

Mr. SCOTT. One quick point is that one of the reasons why this 

program and this Zero Downpayment Program will work is because 

of increased emphasis on financial literacy and homeowner counseling. 

I think you and I are certainly on the same path. However, if we 

do not make some alterations, say for instance within the toll-free 

number, to have, as I said before, a human being on the other end, 

and to be able to have the website, and be able to have these other 

18

things that are components, I think you will agree that our chances 

for success of this program goes down. 

My point is this. That one of the beauties of this program is the 

safeguards that are in it. One, limiting the program to potential 

borrowers who have been screened through the automated underwriting, and the use of credit scores. The increased borrower premium, which we are putting more responsibility on them. 

But the most important is that it will require the financial counseling. And if we do not have a two-way street, you can’t counsel. 

So I do want to take this as another opportunity to allow you to 

work with us as we move our financial literacy and home counseling bill forward, to have an expanded open mind to understand 

that the success of the Zero Downpayment Program that you are 

embracing and I am embracing needs an additional infusion of 

housing counseling to be successful, that is tailored to this day and 

time to the very lower income and minority groups that you are 

trying to reach. 

Mr. TIBERI. Mr. Davis. 

Mr. DAVIS. Mr. Weicher, let me return to the area of questioning 

raised by Ms. Lee from California before she left. 

She had asked, I think, about why this particular bill doesn’t 

contain anti-predatory provisions, why it doesn’t contain specific 

stipulations or restrictions that would prevent entities that engage 

in predatory lending practices from participating or benefiting from 

this program. And I think that your answer was that HUD is already a very vigilant advocate against predatory lending, so it 

would somehow be redundant to include those provisions in this 

bill. 

Our colleague and Ranking Member, Mr. Frank, is sometimes 

fond of pointing out that this is not exactly an institution noted for 

its aversion for redundancy. 

Let me give you another crack at answering that question. Do 

you object to, or would you object to an amendment that included 

anti-predatory provisions in this bill? 

Mr. WEICHER. I think the question would turn on what kind of 

provisions you all think would be appropriate. 

Mr. DAVIS. Give us a little bit of guidance. 

Mr. WEICHER. Well, let me say, we have gone after predatory 

lending, and we continue to go after predatory lending——

Mr. DAVIS. Well, when I say give us some guidance, give us——

Mr. WEICHER. I know. In all of our programs. I don’t really see 

what we would add here in this program that we are not doing 

across the board in our current programs. 

I would need to sit down and talk with you and work with you 

to see if there are specific changes that would be appropriate for 

this program beyond it. But because we are vigilant in combating 

predatory lending, and we work at it hard, we don’t make a particular distinction in this program. 

Mr. DAVIS. What are the three most significant things that you 

think HUD is doing right now to combat predatory lending? Don’t 

give me a sermon on it, but just give me one, two, three. 

Mr. WEICHER. The anti-flipping rule, which says that we won’t 

insure a mortgage if it has been sold twice in 90 days. 

Mr. DAVIS. All right, so anti-flipping is one. 

19

Mr. WEICHER. That is one. We prohibit the sale by anyone other 

than the owner of record. We will not insure a mortgage if you are 

selling a home that is owned by Mr. Scott.government 

Mr. DAVIS. That is number two. 

Mr. WEICHER. Number three is we have established tighter 

qualifications for appraisers to qualify for the FHA appraiser right. 

That is three. 

Mr. DAVIS. That is number three. Would you object to including 

those three provisions in this bill? 

Mr. WEICHER. I do not think they would be necessary in this bill, 

but we can talk about that. 

Mr. DAVIS. Would they be hurtful? 

Mr. WEICHER. They would be putting in statute provisions which 

are regulatory, and provisions which are easier to improve by regulation than they are by statute. I think we would want to sit down 

and look at specifics with you. 

Mr. DAVIS. Well, one of the reasons we enact statutes around 

here is because we are trying to codify certain things that right 

now don’t have the force of being law. And I think all of us on this 

Committee would certainly share your commitment and your attachment to these issues. And just to speak for one Member, I 

would encourage you to look favorably on an amendment to incorporate the things you described. 

And let me come at this in a little bit of a different way. I understand that HUD has touted its success in combating predatory 

lending. Let me try to go a little bit empirical instead of anecdotal 

about it. 

Over the last three years, can you give me some estimate to the 

degree to which predatory lending has declined, let us say beginning in 2001 with the beginning of the Bush Administration, to 

today, 2004, three years into the Administration? Can you give me 

some kind of an empirical assessment of what the extent of predatory lending would have been in the industry three years ago, and 

what improvements have been made in the last three years? 

Mr. WEICHER. I think we would need to take it, if you will permit 

me, provision by provision, regulation by regulation. 

Predatory flipping was a particular problem in the Baltimore 

area at the beginning of this Administration. Our work on predatory lending, specific work with folks in Baltimore, and our new 

regulation have cut flipping down in Baltimore very sharply. I 

would have to give you the numbers for the record, but have cut 

it down very sharply. 

Mr. DAVIS. Well, let me ask this question to save time, because 

the clock is running on us. 

Mr. WEICHER. Sure. 

Mr. DAVIS. Can you get for this Committee in writing a statistical analysis, nationwide, the degree to which predatory lending 

has lessened, and how the Administration’s programs have helped 

reduce predatory lending in the last three years? Is that data that 

you think can be obtained and provided to us? 

Mr. WEICHER. We can give you some data, Mr. Davis. We will 

give you what we can. 

Mr. DAVIS. And if I can just sum up this way, Mr. Weicher. The 

frustration I think some of us have on this side of the aisle is we 

20

understand the Administration’s commitment, and we understand 

the statement that progress has been made, but I think some of us 

want to see what that means when you say that progress has been 

made. Because if we are going to take the position that we don’t 

need additional statutory protections because the regulations are 

working, I would like to see what working means. I would like to 

see what empirically that means. 

I think other people on this side of the aisle would probably 

share that. 

Thank you, Mr. Tiberi. 

Mr. TIBERI. Thank you, Mr. Davis. Mr. Clay. 

Mr. CLAY. Thank you, Mr. Chairman, for this hearing, and I 

thank Mr. Weicher for being here. 

Mr. Weicher, sometimes in our homeownership initiative we find 

that first-time home buyers have accumulated some savings. Under 

this bill, could this savings be applied to keep some of the costs 

down for first-time home buyers? Instead of them getting negative 

equity, couldn’t they get positive equity under this bill? 

Mr. WEICHER. Yes, Mr. Clay. If you have some savings to begin 

with, then you can certainly apply those savings to the downpayment and the closing costs. And if you have enough, you can certainly move into our regular program, and the insurance premium 

will be lower. 

If you are talking in terms of having some assets, some savings, 

but you don’t apply them to the downpayment, then we do take 

into account, in the total Scorecard, the resources that the family 

has, the reserves that the family has which can be used for housing 

or other purposes down the road. 

Mr. CLAY. Which may push them into a better program, as far 

as——

Mr. WEICHER. Right, sure. 

Mr. CLAY.—interest rates and what-have-you, and insurance premiums. 

Well, perhaps we should build a sliding scale into this bill. What 

do you think about that? 

Mr. WEICHER. Well, I think that we would prefer to see the Zero 

Downpayment Program enacted. That would enable families to participate with something more than zero down if they chose to. 

I think it would start to get very complicated to start modifying 

the premium structure, to make that kind of fine gradation on the 

premium structure, and still make sure of what the consequences 

are for FHA and for the home buyer. 

Mr. CLAY. Well, you know, I guess I am thinking a little pessimistically. What if somebody qualifies under this program, and 

then within the first six months they lose their job and have to sell 

their home? They may end up owing money. And I guess I am kind 

of trying to preclude all of that from happening, and to at least 

leave somebody with something. I guess that is the way I am looking at it and approaching it. 

Mr. WEICHER. Well, that is a reasonable concern. And we certainly try, in all of our programs, as do other lenders, to make sure 

that the people who are borrowing money from us are good risks 

to make the payments and maintain the home. 

21

And we all also know that some of the people to whom we loan 

money or whose mortgage we insure will not make it. And we have 

thought long and hard about that in developing this proposal. And 

we do take into account the buyer’s overall financial resources in 

this program, and in any of our programs, as we consider whether 

or not they should qualify for it. And we expect the counselors will 

be looking at that, as well. 

Mr. CLAY. Thank you for that. Do you support a national affordable housing trust fund to put more affordable housing online? 

Mr. WEICHER. Mr. Clay, the proposals that I have seen would use 

the reserves of the FHA MMI fund to support a national housing 

trust. And those are the reserves we have to pay the claims and 

to cover the losses that we have on those families that do default 

on their mortgages, and that do lose their homes. 

And those resources, we have a statutory mandate to have an 

adequate capital reserve in the program. We are in excess of that 

mandate as established by the Grant and Gonzalez National Affordable Housing Act in 1990. 

But I don’t see the social benefit of taking money that is intended 

to serve moderate-income, lower-income, middle-income first-time 

home buyers, and using it for low-income and moderate-income 

renters. 

And I might say also that the FHA reserves, if spent for any purpose, including a national housing trust fund, do score as federal 

outlays. That sometimes gets lost in some of the discussions I have 

heard about the national housing trust. 

Mr. CLAY. Although the cap is at a surplus, you don’t necessarily 

favor using that. 

Mr. WEICHER. No, I do not. The last time I was at HUD in the 

Administration of the first President Bush with Secretary Kemp, 

we had to put the FHA MMI program on an actuarially-sound 

basis, because the fund was very close to being insolvent, and was 

not run, in the opinion of the outside auditors, on a sound basis. 

We, working with the Members of Congress at that time, working with such folks at Senator Sarbanes, who is still here, and Mr. 

Frank, we put a lot of effort into working out a balance between 

continuing to serve the people that we were all trying to serve, and 

making sure that the taxpayers were not put at risk. And I would 

like not to run that risk. 

Mr. CLAY. Thank you for your answer. Thank you, Mr. Chairman. 

Mr. TIBERI. Thank you. Mr. Secretary, thank you for spending an 

hour and 15 minutes with us today. I look forward to working with 

you and officials at HUD on this proposal, and hopefully we can get 

something done for folks who would like to get into a house and 

can’t at this point in time. 

Mr. WEICHER. Thank you, Mr. Tiberi. Thank you and Mr. Scott 

for your introducing and supporting this legislation. 

Mr. TIBERI. Thank you. I will ask now that the second panel be 

seated. In the interim, I am going to submit for the record a letter 

from the National Association of Realtors, without objection. 

[The following information can be found on page 141 in the appendix.] 

22

Mr. TIBERI. Okay, thank you all. I am going to have a couple 

folks introduce a couple individuals. And I am going to start by introducing Ms. Carson from Indiana, who is in the middle of a 

markup, and I will allow her to introduce her guest. 

Ms. CARSON. Thank you very much, Mr. Chairman. And thank 

you very much to the esteemed panelists for being here today. 

Unfortunately, I am not going to be able to hear all of your testimony, because I am in a markup in Transportation. But I assure 

you that I will refer to the record in terms of your invaluable input 

that you will leave for the edification of this Committee. 

During the interim, I want to welcome my constituent here, Mr. 

Michael Petrie, who is President of the PR Mortgage and Investment Corporation of Indianapolis, and he is also Chairman of the 

Greensfort Township State Bank in Spartasburg, Indiana. And he 

is also Chairman-elect of the Mortgage Bankers’ Association. Welcome. 

Mr. Petrie began his mortgage banking career in 1980 at Merchant’s Mortgage Corporation, as a commercial loan originator, and 

rose to the position of Executive Vice President in charge of the 

Commercial Real Estate Division. Petrie co-founded P/RMIC in August of 1990, which specializes in multi-family and health care financing through programs provided by FHA, DNMA, RHS, and 

Freddie Mac. 

Mr. Petrie currently serves as a member of the MBA Board of 

Directors, the Commercial Real Estate Multi-Family Finance Board 

of Governors, where he serves as Chairman of the Residential 

Board of Governors Resbag. 

He has previously chaired the MBA Board of Directors Technology steering, legislation, and MARPAC committees. He is currently a member of all these other wonderful things that I won’t 

belabor at this particular time. 

Mr. Petrie received his Bachelor’s in business administration, 

with a concentration in finance, and his MBA from our prestigious 

Indiana University. And it is certainly a joy to have you here, Mr. 

Petrie. Thank you so much for coming, as well as the rest of you, 

also, individuals. Thank you. 

Mr. TIBERI. Thank you, Ms. Carson. I am going to ask Mr. Scott 

to introduce a constituent of his from Georgia. 

Mr. SCOTT. I certainly will. Thank you very much, Mr. Chairman. 

We are delighted to have with us Pastor Warren L. Henry, Sr. 

He is the senior Pastor of the Kingdom of God Evangelistic Church 

Ministry, which is located in my district in Georgia, in College 

Park, Georgia. 

Pastor Henry also serves as the Vice Chairman of the Housing 

Authority of Fulton County, which is located in the Atlanta metropolitan area. 

Pastor Henry is also a chaplain for the Fulton County Sheriff’s 

Department, performs invocation activities for the Fulton County 

Board of Commissioners. 

Pastor Henry is also very active in the community as a social activist. He chairs the faith-based organization that has been connected with the Housing Authority of Fulton County’s Red Oak 

Renaissance Hope Six Project. He has also been active in commuVerDate 0ct 09 2002 15:05 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 G:\DOCS\95010.TXT FIN1 PsN: MICAH
23

nity activities connected with the redevelopment of Red Oak, Roosevelt Highway, Ben Hill Road, and Washington Road, outstanding 

communities in my district located in South Fulton County. 

He also has several ministries which his church has focused on, 

in housing, child care, community and economic development activities. 

We are delighted to have this distinguished Pastor and leader of 

our community, Reverend Warren L. Henry. We look forward to 

your testimony. 

Mr. TIBERI. Thank you. I will speak loudly. Can everyone hear 

okay? 

Sheila Crowley is the President and CEO of the National Low Income Housing Coalition. Warren L. Henry, Sr., Vice-Chair of the 

Housing Authority of Fulton County in Atlanta Georgia. Thomas J. 

Finnegan, III, President of the Huntington Mortgage Group in Columbus, Ohio. Michael F. Petrie, President, P/R Mortgage and Investment Corporation, on behalf of the Mortgage Bankers Association and James R. Rayburn, President of the National Association 

of Home Builders. 

STATEMENT OF SHEILA CROWLEY, MSW, PH.D., PRESIDENT, 

NATIONAL LOW INCOME HOUSING COALITION 

Ms. CROWLEY. Thank you, Mr. Tiberi. And I appreciate the invitation to testify today. 

This hearing on H.R. 3755, the Zero Downpayment Act of 2004, 

provides a good opportunity to begin a discussion about the core assumptions surrounding the Bush and Clinton Administrations’ policy of expanding homeownership in the United States. 

Homeownership is highly valued in our culture, and expanding 

access to homeownership for members of racial minorities who 

have historically been excluded from doing so is fair and just. 

The policy seems to be working. The rate of homeownership in 

the United States is higher than it has ever been, and the resources that the federal government expends to underwrite homeownership are immense. And they range from the combined value 

of the mortgage interest tax deduction, the real estate tax deduction, and reduced taxes on capital gains, which equalled $109.3 billion in 2003. All the way to the fact that we even use Section 8 

vouchers for homeownership now. And last year Congress created 

the American Dream Downpayment Program. 

An FHA zero downpayment mortgage insurance product would 

add one more tool to the considerable two blocks that Congress has 

filled over the years to build homeownership. 

The main question seems to be whether or not potential homeowners should be able to obtain mortgages without putting any 

money down. Conventional wisdom is that they should not. A 

downpayment has traditionally been used to signal a borrower’s 

commitment to the loan and ability to save enough funds in reserve 

to make payments on the loan, even if income is reduced. 

The lack of a downpayment has traditionally been used to prevent borrowers from obtaining a home mortgage, and therefore limiting access to homeownership only to people who already have developed a nest egg or who have family members who will give them 

24

a loan or give them the money. Many of us bought our first homes 

that way. 

Breaking down this barrier to homeownership is the objective of 

most homeowner assistance programs today, and I think there is 

no functional difference between a zero downpayment loan and a 

loan made possible because of a downpayment assistance grant to 

the borrower. 

The more important question is whether or not homeownership 

is the best form of housing tenure for all the families who are targeted by these programs. The idealization of homeownership with 

promises of wealth accumulation can push people into taking out 

mortgages before they are ready or they are able. 

The financial and emotional damage to a family from failure at 

homeownership is catastrophic. All the counseling—and counseling 

is extremely important—but all the counseling in the world doesn’t 

manufacture income where it doesn’t exist. Anyone whose income 

is anything short of reasonably permanent should be counseled to 

approach homeownership with caution, not enticed into taking a 

risk. 

There are 55 million low-income people in the United States 

today who live in homes they cannot afford, and almost half, 48 

percent of them, live in homes that are owned by the families that 

live there. 

The problem with this legislation is not what it does, but how far 

off the mark it is in addressing the most serious housing problem; 

that is, the shortage of rental housing stock that is affordable and 

available to the lowest-income families. And while the federal government is directing hundreds of billions of dollars into homeownership, the lack of basic rental housing causes millions of 

Americans to live precariously close to the edge of homelessness. 

Twenty-nine million low-income people in the United States live 

in rental housing they can’t afford. Ten million of them live in 

renter households that have incomes at 30 percent of the area median income or less; that is about $19,000 a year in Columbus. And 

they pay more than half of their household income for their housing. 

Moreover, during the nineties, when we had the most expansive 

economy imaginable, analysis of rental housing cost changes in the 

last decade show slight improvements for all income groups but the 

very lowest. The shortage of rental housing units affordable for 

families with incomes of 30 percent of the area median income or 

less actually grew by 15 percent in the last decade. 

In 2000, for every 100 renter households in the United States 

with incomes less than 30 percent of the area median, there were 

only 43 affordable and available rental housing units. In Ohio the 

number is 53 affordable and available rental housing units for 

every 100. In California it is 22. 

What does it matter that low-income renters can’t afford basic 

housing? Besides the obvious negative social consequences for the 

families, it is the renters who become homeowners. And renters 

who are unable to find and maintain stable rental housing that 

they can afford will never be in a position to become homeowners. 

If for no other reason than to expand the pool of potential homeVerDate 0ct 09 2002 15:05 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 G:\DOCS\95010.TXT FIN1 PsN: MICAH
25

owners, it is good public policy to invest in rental housing that the 

lowest-income families can afford. 

Once again, I urge this Committee to take up H.R. 1102, the National Affordable Housing Trust Fund Act, which will create capital 

grants to go to states and localities to distribute, through competition, to capable developers to build and operate affordable housing 

for extremely low-income renters. 

This is the missing tool in the affordable housing toolbox today. 

The premise of H.R. 3755 and all other federal housing programs 

is that the affordable housing problem in the United States will not 

be solved by the market and economic growth alone, and public 

intervention is required. H.R. 3755 is simply not enough. 

Thank you. 

[The prepared statement of Sheila Crowley can be found on page 

73 in the appendix.] 

Mr. TIBERI. Thank you, Ms. Crowley. Pastor Henry. 

STATEMENT OF PASTOR WARREN L. HENRY, VICE-CHAIRMAN, 

HOUSING AUTHORITY OF FULTON COUNTY, ATLANTA, 

GEORGIA 

Mr. HENRY. Good morning, and thank you, Mr. Chairman and 

Ranking Members for holding this hearing and inviting me to 

speak on behalf of our Fulton County Housing Authority, based in 

Atlanta, Georgia, on H.R. 3755, the Zero Downpayment Act of 

2004, introduced by Representative Patrick Tiberi, and co-sponsored by our esteemed Georgia Congressman David Scott. 

I do feel that our housing authority is uniquely qualified to speak 

on this piece of legislation. Our housing authority was one of the 

first public housing authorities in the state of Georgia to utilize the 

Section 8 Housing Homeownership Voucher Program to give our 

residents the opportunity to move from dependency to self-sufficiency through homeownership. 

However, the hurdle of bringing together the downpayment required to access this opportunity has often been challenging. 

Fulton County has been at the forefront of trying to find creative 

ways to address this issue. FHA programs have been used by our 

housing authority residents to gain access to homeownership opportunities. In fact, we believe the FHA programs are one of the best 

and cost-effective approaches to expanding lending opportunities to 

low- and moderate-income families, first-time home buyers, and minorities. 

In 2002 more than one-third of the FHA origination loans in recent years were made to minority householders, compared to just 

18 percent of conventional loans. 

Additionally, more than half of FHA loans approved in 2002 went 

to households earning less than $50,000, compared with 27 percent 

of conventional loans in that same span of time. 

H.R. 3755 provisions which would allow for FHA to provide approved zero downpayment mortgages for first-time home buyers 

would allow FHA to maximize its fullest potential in assessing historically undeserved minority and economically-challenged communities. This would be achieved by using this new financing tool to 

help create and promote sustainable communities. 

26

Additionally, the obvious financial and social benefits with homeownership are self-evident. Homeowners can build the equity and 

potential capital liquidity that is the essence of full inclusion within our economic and social system. 

Obviously the acquisition of a home is an important responsibility that must be engaged with reverence and commitment. As 

such, we believe it is extremely important that anyone seeking to 

access FHA funding through this initiative should have the opportunity to seek housing counseling, where appropriate. 

Additionally, potential beneficiaries of this program should have 

the ability to access FHA, HUD, or other counseling programs, 

services, before during and through the loan approval process. 

H.R. 3755 is also important because it allows FHA to operate 

with the same efficiencies, objectives, and resources that will allow 

it to maximize its fundamental mission: providing housing resources to all Americans. 

Additionally, programs such as the Zero Downpayment Act of 

2004 have the ability to be revenue-generating. This is achieved 

through the eventual Federal Mortgage Insurance Premium revenues, that will be charged to the home buyers and/or property owners, that go directly to the Federal Treasury. 

As a member of the faith-based community and as a member of 

the Housing Authority of Fulton County Board of Commissioners, 

I know first-hand the transforming impact homeownership can 

bring to both individuals and to a community. 

Fulton County is blessed to have a number of areas where homeownership opportunities are expanding. However, in order for our 

county to truly fulfill its promises, as indicated in the HUD comprehensive planning document, which makes affordable housing 

the number-two priority of the county government, we will need to 

have the tools available to maximize the opportunity to expand 

housing options and choices for our residents. 

We believe, we truly believe the provisions contained in H.R. 

3755 have the potential to take us a long way in achieving this 

goal, by allowing FHA to broaden its lending powers to more individuals desirous of homeownership. 

Consequently, we believe H.R. 3755 is a bill that takes FHA in 

the right direction. FHA has done a great deal of good work, but 

its principle mission to expand homeownership opportunities for all 

Americans has yet to be fulfilled. 

We believe the goals and objectives contained in H.R. 3755 is an 

important step in this process, and would like for the Committee 

to give due consideration to this important legislation. 

On behalf of the Board of Commissioners of the Housing Authority of Fulton County and its Executive Director, Ms. Betty A. 

Davis, thank you again for the opportunity to testify today. We look 

forward to working with you to expand the opportunities of homeownership to as many deserving Americans as possible. 

Thank you again for this opportunity to speak with you this 

morning. 

[The prepared statement of Warren L. Henry Sr. can be found on 

page 98 in the appendix.] 

27

Mr. TIBERI. Thank you, Reverend Henry. I would like to introduce again my constituent, who used to be a Pennsylvanian, and 

their loss is our gain. Mr. Finnegan. 

STATEMENT OF THOMAS J. FINNEGAN, III, PRESIDENT, 

HUNTINGTON MORTGAGE GROUP 

Mr. FINNEGAN. Thank you very much, Mr. Chairman. And 

thanks to Chairman Ney and Ranking Member Waters, and the 

other members of the subcommittee, to give me the opportunity to 

testify here this morning in strong support of H.R. 3755, the Zero 

Downpayment Act of 2004. 

And as you just mentioned, I am Tom Finnegan, President of 

Huntington’s Mortgage Group. Huntington Bank is a subsidiary of 

Huntington Bank Shares, Inc., which is a $30 billion regional bank 

holding company in Columbus. And through our affiliated companies, we have more than 138 years’ experience serving the financial 

needs of customers. 

We provide innovative retail and commercial financial products 

and services through more than 300 regional banking offices in Indiana, Kentucky, Michigan, Ohio, and West Virginia. 

I have been with Huntington for approximately eight years, and 

have over 25 years of experience in the mortgage industry and in 

working with FHA-insured loans. 

In 2003 my company funded $6.1 billion in mortgage loans, including $425 million in FHA-insured loans. And we currently service approximately $600 million in FHA-insured loans. 

And while of course the mortgage industry has experienced an 

exceptional upturn over the last few years, there are still many 

Americans who have not yet achieved the dream of homeownership. H.R. 3755 will significantly enhance the housing market by 

allowing lenders, such as ourselves, to extend mortgages to hardworking Americans with good credit who simply cannot afford the 

lump-sum downpayment traditionally required with FHA loans. 

At our company, our mortgage specialists, who are the folks who 

are responsible for counseling home buyers each day about their financing options, they report that saving for a downpayment is the 

single most common roadblock for first-time home buyers. And we 

find that many of these potential customers easily qualify for a 

mortgage payment that equals what they are currently paying in 

rent. These first-time home buyers have long rental histories, have 

made their payments on time, have solid income sources, and they 

do have the desire to purchase now. But they don’t have the additional money saved for a downpayment. 

For example, if a potential buyer were purchasing a $190,000 

home in Columbus, Ohio, the buyer’s downpayment for an FHA 

loan in today’s program would be 3 percent of the purchase price, 

or $5,700. In the event that this family was able to put aside $100 

a month, it would take over five and a half years for them to save 

the downpayment and achieve their goal. The Zero Downpayment 

Act would allow this family to move into a home today. And lenders such as ourselves would embrace the program because the FHA 

would back the Zero Down Program, and borrowers would pay a 

slightly higher insurance premium to cover that exposure. 

28

And as an example for conventional 3-percent-down products 

backed by the FHA, Huntington charges, of course, the initial premium of 1.5 percent of the loan amount, or $2,850 on the $190,000 

home in my example. The Zero Down loans would require a premium at 2.25 percent, or $4,275 on that same home, a difference 

of just $1,425. The premium, of course, would be added to the principle of the loan, and would be included then in the mortgage financing. 

Zero Down borrowers would see an increase from half of 1 percent to three-quarters of 1 percent in their annual insurance premiums for the first five years of the loan. For our family purchasing the $190,000 home, this increase in monthly payment is 

under $100 a month. 

The option to pay higher insurance premiums instead of paying 

a large lump-sum downpayment will allow families to avoid losing 

the benefit, the time value of investing today, and begin immediately to build wealth and equity in their home. 

In addition, when families are not forced to spend their savings 

balances down to zero, they have the resources to cover unexpected 

emergencies and other expenses that are typically associated with 

homeownership. 

H.R. 3755 contains a number of safeguards to protect both borrowers and the housing market. As a lender, managing our credit 

portfolios and mitigating risk determines the success of our business, and our support and confidence in the Zero Downpayment Act 

is based on two important factors. 

First, the families that will be served by this program will still 

have to qualify for the financing, and meet at least the same credit 

standards as all Huntington FHA program borrowers would need 

to meet. 

In addition to meeting Huntington’s and FHA’s underwriting requirements, the borrower must be able to easily afford the monthly 

mortgage payment. Certainly underwriting of the Zero Down loans 

either manually or through the FHA’s Total Scorecard, should 

focus on the borrower’s capacity to make the monthly payment, as 

well as their credit history and their cash reserve position. 

As I mentioned previously, by substantially lowering the up-front 

cash required for the downpayment by the borrower, the program 

enhances the individual’s ability to conserve cash for future needs. 

Second, the Zero Downpayment Act will build upon the track 

record and success of current FHA programs in expanding the 

dream of homeownership to low- and moderate-income families, 

which is a goal of ours, of course, at Huntington. 

As a lender that partners actively with the FHA, we have the 

confidence in FHA’s ability to create a program structure that will 

protect and educate consumers, maintain a healthy lending environment, and grow the housing market. 

The built-in safeguards afforded by H.R. 3755 are preferable, in 

our opinion, to current market solutions to the downpayment roadblock. Like many mortgage loans, the current FHA program allows 

for gift funds to cover the required 3-percent downpayment. Many 

non-profits have recognized this need for downpayment assistance, 

and provide these gifts in partnership with home builders and 

home sellers. 

29

And we believe that the more direct approach offered by H.R. 

3755 is preferable. It eliminates the need for additional involvement of third parties. It eliminates extra paperwork, and allows for 

the direct negotiation of a sales price with a home seller, without 

regard to the financing method being chosen. 

In closing, I reiterate Huntington’s strong support for H.R. 3755. 

And we certainly thank Chairman Ney and you, Congressman 

Tiberi, for your leadership on this important legislation. By acting 

quickly, Congress can provide stimulus to the housing market, and 

help working families, particularly those in the low- and moderateincome communities, to achieve the American dream of homeownership. 

So again, thank you for providing Huntington the opportunity to 

testify today, and I welcome any questions. 

[The prepared statement of Thomas J. Finnegan III can be found 

on page 92 in the appendix.] 

Mr. TIBERI. Thank you. Mr. Petrie. 

STATEMENT OF MICHAEL F. PETRIE, PRESIDENT, P/R 

MORTGAGE AND INVESTMENT CORPORATION 

Mr. PETRIE. Good morning, Mr. Chairman, Chairman Ney, Ranking Member Waters, and Members of the Committee. 

Thank you for inviting the Mortgage Bankers Association to 

share its views on H.R. 3755, the Zero Downpayment Act of 2004. 

The Mortgage Bankers Association represents over 2700 members, 

with over 400,000 employees. Our members represent 70 percent of 

the residential mortgage market. 

As you know, the U.S. currently enjoys an all-time-high homeownership rate, 68.6 percent. However, MBA would like to draw attention to the 31.4 percent of households that do not own their own 

homes. The challenge that keep these families from reaping the 

benefits of homeownership include insufficient income poor credit, 

lack of information, and the problem we are addressing here today, 

the lack of an ability to provide the downpayment. 

The gaps in homeownership rates of minority households need to 

be addressed. In the fourth quarter of 2003, while 75.5 percent of 

non-Hispanic white households owned their own homes, only 49.4 

percent of black households and 47.7 percent of Hispanic or Latino 

households owned their own homes. 

MBA believes these minority homeownership gaps are a problem, 

and has provided every Member of the Committee with the exact 

size of the problem in his or her district. 

The downpayment hurdle disproportionately affects minority and 

low- and moderate-income families who may be able to make 

monthly housing payments, but find it difficult to save for the 

downpayment. MBA believes that in order to expand homeownership opportunities, we must overcome the downpayment challenge. 

We believe the FHA Zero Downpayment Loan Program can help 

address this specific challenge. In the past the amount of downpayment was considered an indicator of credit risk; that is, the willingness and ability of a borrower to make monthly payments on a 

mortgage. 

30

But lenders have learned over time that a borrower’s credit profile is a much better indicator of the performance of a loan than 

is the amount of a downpayment. 

The national credit information system, preserved under the Fair 

and Accurate Credit Transactions Act of 2003, allows lenders to efficiently assess a borrower’s credit information, and effectively 

evaluate risk. Automated underwriting systems have allowed lenders to accurately gauge multiple risk factors with less reliance on 

benchmarks like downpayments. 

MBA understands that FHA Zero Downpayment loans will be required to be underwritten through FHA’s automated underwriting 

system, the Total Mortgage Scorecard, which specifically takes into 

account a borrower’s credit score and cash reserves, among other 

criteria. 

MBA believes that using the Total Mortgage Scorecard will allow 

FHA to ensure a sound program. 

FHA has been an innovator in the mortgage market. By reducing 

the downpayment from 20 percent to 3 percent today, as it will insure mortgages up to 97 percent of the value of a property. MBA 

supports H.R. 3755 as an important, innovative next step for FHA 

to reduce the downpayment challenge. It will serve those families 

who, but for a wealth constraint, would otherwise make good borrowers, and will serve these families without cost to the taxpayers. 

It is important to note the benefits of FHA’s Zero Downpayment 

Program will be realized without any cost to the taxpayers. 

Even with the higher default rates FHA is currently experiencing 

due to the recent recession, MBA believes that FHA currently has 

ample resources to cover these expenses. And the proposed higher 

mortgage insurance premium has been calibrated to cover any 

costs associated with the program. 

The fact is, with H.R. 3755, FHA could reach additional minority 

and low- or moderate-income families than it does today, and do so 

in a financially responsible manner. 

MBA applauds Congressman Tiberi for introducing this bill and 

demonstrating his commitment to closing the homeownership gap. 

Once again, thank you for allowing MBA to testify today. We 

would be happy to furnish any additional needed information to the 

Committee as it considers this bill. 

Thank you. 

[The prepared statement of Michael F. Petrie can be found on 

page 102 in the appendix.] 

Mr. TIBERI. I am impressed, right under the five minutes. That 

is very good. 

Mr. Rayburn. 

STATEMENT OF JAMES R. RAYBURN, PRESIDENT, NATIONAL 

ASSOCIATION OF HOME BUILDERS 

Mr. RAYBURN. Mr. Chairman, Ranking Member Waters, Members of the Committee. On behalf of the more than 215,000 members of the National Association of Home Builders, thank you for 

the opportunity to testify before you today. 

My name is Bobby Rayburn, and I am the President of NAHB. 

I am a home builder and developer of affordable single-family and 

multi-family housing from Jackson, Mississippi. 

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Let me begin by saying that NAHB supports H.R. 3755, introduced by Representatives Pat Tiberi and David Scott. This legislation continues a long tradition of innovation at FHA by addressing 

a primary obstacle preventing many minority and low- and moderate-income families from becoming homeowners. They simply do 

not have the money for a downpayment. 

H.U.D. estimates that 150,000 families would be able to achieve 

homeownership if this proposal is enacted. Furthermore, it enables 

FHA to do so in a prudent manner, without negatively impacting 

the Mutual Mortgage Insurance Fund. 

According to a Census Bureau study, one of the top reasons why 

families and individuals could not afford to purchase a home was 

the inability to come up with the up-front cash needed for closing. 

Recent data from the Federal Reserve indicate 87 percent of all 

renters have less than $50,000 in wealth available for making a 

downpayment. For minority renters, that figure rises to 94 percent. 

With so little wealth and absent some downpayment assistance, it 

is difficult for large numbers of renters, especially minority renters, 

to become homeowners. 

Also, many of these families are not served by conventional mortgage products. Currently, the chief way to address downpayment 

barriers for FHA borrowers is through downpayment assistance 

programs facilitated by non-profit third parties. While these programs have contributed positively to homeownership expansion efforts, more options are needed. H.R. 3755 addresses the downpayment hurdle, while allowing FHA to establish mortgage insurance 

premiums, underwriting and counseling requirements targeted to 

this financing program. 

Since a significant portion of the population is not served by existing downpayment assistance options, NAHB believes a zero 

downpayment program will meet these needs, and fits well into the 

mission of FHA. 

I would like to take a moment to expand on why NAHB further 

believes that this program can be carried out in a safe and sound 

manner, without harm to FHA. 

First, the ability to differentiate between high and low credit risk 

borrowers has been enhanced through technological improvements 

in automated underwriting. This allows better evaluation of borrowers before bringing them into the program. 

Second, the risk to FHA has been mitigated through risk-based 

pricing, such as proposed by HUD, in the form of higher up-front 

and annual mortgage insurance premiums. HUD estimates that 

this approach results in no net cost to FHA, and increases the 

monthly payment on a $100,000 mortgage by only $50. 

Finally, housing counseling can lower the risk to FHA by ensuring that prospective first-time home buyers understand the responsibilities of actually being a homeowner. The value of these programs is well documented. However, NAHB believes that HUD’s 

approach to counseling could be more effective. 

The building industry supports the methodology to centralize and 

streamline and enhance housing counseling services at HUD, taken 

under H.R. 3938, Expanding Housing Opportunities Through Education and Counseling Act, introduced by Chairman Ney. This proVerDate 0ct 09 2002 15:05 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 G:\DOCS\95010.TXT FIN1 PsN: MICAH
32

posal provides tools to open doors to homeownership, while putting 

forth the resources to help keep home buyers in their homes. 

In an effort to expand homeownership opportunities even further, 

NAHB suggests that H.R. 3755 be amended to include condominiums and cooperatives as eligible options. In many communities 

these homeownership alternatives are more within the reach of 

low- and moderate-income families than single-family detached 

homes, and can provide the same wealth-building and community 

development benefits. 

Mr. Chairman, thank you again for the opportunity to share our 

views on the Zero Downpayment Act of 2004. The members of 

NAHB daily work with families who want to achieve the American 

dream and own their own first home. As NAHB’s President, I have 

made housing America’s working families a priority, and I believe 

that H.R. 3755 will expand the number of those who can share in 

the dream of homeownership, and help address our nation’s work 

force housing problem. 

We look forward to working with this Committee, the Congress 

and the Administration on expanding homeownership opportunities. 

Thank you. 

[The prepared statement of James R. Rayburn can be found on 

page 116 in the appendix.] 

Mr. TIBERI. Thank you, sir. I want to thank all of you for your 

testimony today, and again reiterate what Chairman Ney said at 

the outset of the hearing. Unfortunately, we are competing with a 

number of Committees that have votes today, and that is why only 

Mr. Scott and I are left. But we will try to make up for the lack 

in numbers here with you today. 

But thank you, your testimony was very, very good. 

Mr. Finnegan, I will begin with you. You and I had an opportunity to be at an event together with Chairman Ney in Columbus, 

and also the President of the Columbus Urban League, who stated 

that they have a housing expo every year, minority homeownership 

expo. And they have found consistently, on a yearly basis, that the 

number one roadblock to homeownership is coming up with the 

downpayment. And you stated so as well in your written testimony. 

Also in your written testimony, on page three, you stated that 

families served by this program, meaning the Zero Downpayment 

Proposal, will still have to qualify for the financing and meet at 

least the same credit standards as all Huntington FHA program 

borrowers. 

Could you kind of explain to us the underwriting process that 

lenders like Huntington go through? And the differences between 

an FHA mortgage-backed insurance product and a conventional 

one? 

Mr. FINNEGAN. Well, the FHA underwriting process has historically been a manual process, going back in time, where the underwriter would take into consideration the traditional elements of 

risk, including a capacity to pay. There are, of course, FHA underwriting guidelines that are promulgated that underwriters of these 

products have to follow. 

And the capacity of the person to pay, the reserve position that 

they do have, and their unique circumstances in terms of their emVerDate 0ct 09 2002 15:05 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 G:\DOCS\95010.TXT FIN1 PsN: MICAH
33

ployment, stability of employment, and so on are factored into the 

underwriting process by the FHA-delegated or direct endorsement 

underwriter. 

And it differs from the conventional underwriting process to the 

extent that the FHA program is, in fact, a program that has set 

out to enable people to reach deeper into the population in terms 

of the ability to own a home, and that is factored into the underwriting process in terms of the credit background and so on, compared to conventional underwriting guidelines. 

The new FHA Total Scorecard will now automate that process to 

a degree. And as has been mentioned a number of times today, including in my testimony, Mr. Chairman, the FHA Total Scorecard 

will be a great assist to our FHA underwriters in making the determination about creditworthiness of the borrowers. So that in this 

program, where the downpayment is being eliminated as part of 

the process, the Scorecard will help us to look at the other factors 

more carefully, so that risk is mitigated, despite the fact that it is 

a zero down program. 

Mr. TIBERI. Are there any products in the private sector or in the 

general market that can meet some of the demand for zero downpayment, in your opinion? 

Mr. FINNEGAN. Mr. Chairman, there are some products like that 

out there. Certainly market forces have been at work. And including the FHA program itself has been mentioned there are gift programs that are available, where somebody can supply a gift to the 

homeowner, and that can be used in lieu of the downpayment. 

During that process, though, other factors are at work. That 

money has to be funded from someplace, and typically there is a 

housing price adjustment that may be necessary in those programs 

in order to allow the funds to be available for the non-profit or the 

gift giver to make the gift. 

And again, we feel that the direct approach offered by H.R. 3755 

is preferable, because it eliminates the additional effort associated 

with trying to negotiate into the sales price of a home the fact that 

there is going to be a gift required. And in the bill, the seller of 

the property will just be allowed to do that direct approach. 

There are also conventional programs, zero down. Huntington, in 

its efforts to serve low- and moderate-income communities, does 

have programs that are at or near zero down that we do in targeted low- and moderate-income census tracts for the benefit of 

low- and moderate-income buyers in those communities as a way 

for us to reach deeper into those communities. And we are perfectly 

willing to do that in the appropriate circumstances. 

But again, an additional tool in the form of the FHA program is 

most welcome by us as a way to expand our resources to reach into 

those communities. 

Mr. TIBERI. Thank you. I just want to take a few extra minutes. 

Mr. Rayburn, if you could answer this question quickly. 

You mentioned in your testimony about adding condos and cooperatives. Chairman Ney earlier today mentioned that, as well. 

How about two-families, doubles, tri-families, four-families, in 

terms of getting some folks to help you, renters helping you meet 

the mortgage payment? Is that something that you think we should 

look at, as well? 

34

Mr. RAYBURN. While those are always attractive, it just brings on 

additional management skills and the like. But we would certainly 

welcome that as an alternative, yes, sir. 

Mr. TIBERI. And one final question. On Monday your organization was at a forum to discuss housing affordability, and there was 

a considerable amount of discussion regarding local zoning and government regulation and what that does to increased housing costs. 

As a former realtor, I certainly saw how local government and state 

government can sometimes add to the cost of affordable housing. 

Is there anything that Congress can do? What are your thoughts? 

Mr. RAYBURN. Well, we would certainly welcome that opportunity, I can assure you, Mr. Chairman. Because local units of government, in some cases state governments, add a lot of dollars to 

all housing, let alone the entry-level and affordable housing, both 

on the ownership side, as well as rental. 

Now, when it comes to impact fees, large-lot zoning and the like, 

we would certainly be glad to have our staff sit down with you and 

come up with better ways that the Congress could address that. We 

would be glad to do so. 

Mr. TIBERI. And you would agree that sometimes some of those 

regulations would add a barrier to downpayments? 

Mr. RAYBURN. Most often. 

Mr. TIBERI. Thank you. I appreciate that. 

Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Let me ask Pastor Henry. I certainly appreciate your statement 

and coming up, we are delighted to have you. 

There are some who are concerned that this no downpayment 

program will have an unintended effect of enticing people into 

homeownership who are simply not ready for this awesome responsibility, and feel that it will result in foreclosures, and could very 

well put the FHA insurance fund at risk. 

What is your response to that? And how could that be prevented? 

Mr. HENRY. Congressman Scott, there are thousands of citizens 

that have a desire to become homeowners, that if we just looked 

at those numbers, we would never be able to entertain those who 

may cause that kind of problem. 

But be that as it may, such as the Housing Authority of Fulton 

County, we have provided what we think is one of the best-recognized housing programs, due to the fact that we provide counseling. 

We provide excellent housing counseling that will take our residents from their present state of being, with their problems with 

credit, their debt problems, and begin to work them through a process to eliminate and remove those creative challenges that they 

have, allowing them to save their money and understand the responsibilities of becoming a homeowner. 

Since 2002 we have successfully put a number of residents into 

homes. And even at this present time, they have no problem paying 

their mortgage, because we constantly stay with them. 

I think that housing counseling for individuals who have the 

American dream to own a home, that that provision should be provided. And this bill certainly will do that. 

But I think the housing counseling, as you reiterated and 

stressed, is a key. And I think again that our housing authority is 

35

an example of the success, that it does work when you first give 

individuals the sense of having dignity, to own a home, and working with them, helping them to believe that they can become that 

homeowner. 

Mr. SCOTT. Thank you very much. 

Mr. Rayburn, you had mentioned—and incidentally, we appreciate the plug you put in for the Ney/Scott Housing Counseling Bill. 

Mr. RAYBURN. Thank you, sir. 

Mr. SCOTT. We are eagerly moving ahead for that very strongly. 

The safeguards that we have built in here to try to make sure 

that these foreclosures and the risks that we are taking is limited, 

out of the four of them, three are basically policy items to do: the 

credit scores, the automatic underwriting, the increasing of the borrower’s premiums, and limiting eligibility to first term. 

But the other safeguard is the housing counseling and the financial literacy. And you pointedly made reference to the Ney/Scott 

bill. How essential do you feel it is that, as we move forward with 

this additional venture, especially when we are dealing with persons that have not had a home before, one of the requirements is 

that this be a first homeowner, how important do you feel the Ney/

Scott bill would be as an adjunct to this? 

Mr. RAYBURN. Congressman, I believe it is very important. As I 

testified, it is so essential that we help train those families and 

educate those families in the responsibilities and opportunities of 

homeownership. 

As I stated earlier in the very first of my testimony, I am an affordable housing builder of both single-family homes for owner occupancy, as well as for multi-family rental opportunities. 

While the goal is always to move families from those rental units 

to homeownership, and not all of them will make it, but even in 

the rental units what we do is to work with the various different 

agencies that already provide the case management, the GED education in so many areas, and on and on and on, to help and promote the idea that you, too, can become a homeowner. 

And we do not practice what is probably being alluded to in some 

of the written testimony, and maybe some of the oral testimony. 

We don’t believe it is the right thing to do to park people in a rental unit forever, and not give them an opportunity. We believe that 

it is the right thing to do to educate them and help them become 

a homeowner. Always have the goal of homeownership there. But 

you have to provide the education first. 

Mr. SCOTT. Absolutely. Thank you very much. 

Mr. TIBERI. Mr. Scott, if you could wrap up the question, we will 

give Mr. Sanders an opportunity. 

Mr. SCOTT. Yes. Ms. Crowley, you mentioned your concern about 

the rental aspect of housing in your statement. But I wasn’t clear 

where you came down on this bill. 

Most of your comments were on what you felt was the real issue 

here in affordable housing, as dealing with the affordable rental 

housing. What is your opinion of this legislation we have before us, 

the Zero Downpayment? 

Mr. TIBERI. The gentleman’s time has expired. Ms. Crowley, go 

ahead and answer the question. 

36

Ms. CROWLEY. We don’t have any particular objection to the bill. 

We have some concerns about the lack of specificity around some 

of the requirements in the bill itself. We have looked at the bill. 

We have many members who have weighed in on this bill, and 

there are varying opinions about it. 

As I said, our concern is, as one of our members said to me, this 

is like taking an eyedrop to fill up a bucket. And it is a small piece 

to add to all the larger pieces. But it is still off-target. 

And if we really want to do something about expanding homeownership in a significant way in this country, and we really want 

to have a healthy, solid housing system, you can’t neglect rental 

housing at the cost of homeownership. 

So we think that there needs to be balance. And that is what the 

basis of our statement is from. 

Mr. TIBERI. Mr. Sanders. 

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

Ms. Crowley, I agree with your assessment of the Zero Downpayment concept. I don’t think it is a bad idea; I think it may help 

some people. 

The negative of it might simply be that it will deflect attention 

from the real crisis facing this country. 

I know your organization has been working very hard on the National Affordable Housing Trust Fund, which now has 211 co-sponsors in the House. 

What has amazed me about the work that your organization has 

done in support of this is the number of organizations from all 

walks of life that have jumped in to support the Affordable Housing 

Trust Fund concept. 

How many organizations are there? And why would even many 

business groups show the kind of support that they have? 

Ms. CROWLEY. The exact number at this point is 4,960-something. They come in every day. We are adding elected officials. The 

most recent elected official who came on was the Mayor of Dayton, 

Ohio. So we not only have non-profit and faith-based groups, but 

growing numbers of state and local officials who are interested in 

this. 

And you know, the simple answer to your question about why 

businesses would care about this is that they are in a community 

where there is insufficient housing for everybody that they need in 

their work force, then they have a hard time filling out the jobs 

that they offer. And you can see in any community, for any community to be viable there is a range of jobs that have to be filled. And 

if you don’t have a range of housing that matches the people and 

the income in those jobs, then you have some kind of, there is a 

mismatch. And you end up with people who have serious commutes 

that inhibit their ability to do their job. All those kinds of things. 

So there should be balance in any community between what the 

work force is and what their housing needs are, and we are out of 

balance. 

Mr. SANDERS. Let me just pick up on that point. We have heard, 

appropriately enough, the importance of education in terms of 

homeownership, and I think nobody argues with that. 

But in order to have decent housing, you need decent income. 

And the reality is that in America, poverty is growing pathetically, 

37

in my view. The minimum wage here in Washington has not been 

raised for many years, and people are earning $5.15 an hour. 

Now, your organization did a study which talked about housing 

accessibility for lower-income people. If I am out working for six, 

seven bucks an hour, am I able to afford decent housing for my 

kids in many parts of America? Could you touch on that? 

Ms. CROWLEY. You are referring to our study called ‘‘Out of 

Reach,’’ where we calculate the housing wage. And that is what one 

must earn per hour, if you work full time, in order to be able to 

afford modest rental housing. And on a national basis, that is 

$15.21 an hour. 

Mr. SANDERS. Say that again. You need to earn more than $15 

an hour to be able to, what, rent? 

Ms. CROWLEY. Yes. To be able to afford basic rental housing, 

meaning that $15 an hour, if you work full time, 40 hours a week, 

52 weeks a year. In order to be able to afford basic rental housing, 

meaning you don’t pay more than 30 percent for your housing, 

which is the standard of affordability. 

Mr. SANDERS. And I think there is no argument up here, or I 

would trust down there, that there are tens of millions of American 

workers who do not make that. 

Ms. CROWLEY. And that is aggregated on a national basis. It ranges from about $8 an hour in rural places to the San Francisco 

Bay area, $33 an hour. And minimum wage, full-time minimum wage work is $10,700 a 

year. And so in all cases, there is no place where a minimum wage 

worker can afford basic housing. 

So there is a huge gap. And people often think when we are talking about extremely low-income people that we are not talking 

about people who are in the work force. And that is simply not the 

case. 

As I said, in Columbus, the extremely low-income level is $19,000 

a year. Well, you know, there is a big difference between minimum 

wage at $10,700 and $19,000 a year. And those are all the people 

who go to work every day, to do the things that are required for 

the rest of us to do our work every day. 

Mr. SANDERS. Right. 

Ms. CROWLEY. So they are an integral part of our economy and 

our system. They are the people who work in day care centers, they 

are the people who work in nursing homes, who serve you your coffee when you go to the coffee shop in the morning, a whole range 

of people. 

Mr. SANDERS. Mr. Chairman, I thank you for this hearing. I 

think it has been useful, and I think this legislation is a reasonable 

idea. 

But I don’t think there is a lot of disagreement that, given the 

enormity of the housing crisis, that this legislation addresses it. I 

would appeal to you, as I did to Mr. Ney, to have a hearing on the 

National Affordable Housing Trust Fund, which has 211 co-sponsors. 

Mr. TIBERI. Thank you. 

Mr. SANDERS. Thank you very much. 

Mr. TIBERI. The gentleman’s time has expired. I want to thank 

the witnesses of the second panel. Unfortunately, we have four 

38

votes. So if the third panel can get ready, we will be back, at least 

I will be back, in 30 minutes—I can’t speak for anybody else—to 

reconvene the third panel. Thank you for your patience. 

And again, thank you, second panel. 

We will officially be recessed for 30 minutes. 

[Recess.] 

Mr. TIBERI. Welcome back. I guess you guys have probably been 

here. Let me apologize again. I am sorry for the—boy, not only did 

it clear out up here, it cleared out over there, as well. 

Thank you for your patience. I really appreciate it on this very 

busy day. 

Let me just go ahead and introduce the third panel. 

Deane Dolben is the President of the Dolben Company, Inc. He 

is testifying today on behalf of the National Multi-Housing Council 

and the National Apartment Association. Thank you very much for 

being here. 

Conrad Egan is the Executive Director of the National Housing 

Conference, having previously served as Executive Director of the 

Millennial Housing Commission. Thank you for being here, sir. 

Basil Petrou is the Managing Partner of Federal Financial Analytics, Inc., providing financial and analytical services on legislative 

and regulatory issues. Thank you for being here. 

Scott Syphax is President and CEO of the Nehemiah Corporation 

of America. The Nehemiah Corporation is one of the largest nonprofit community development organizations in the country. Thank 

you for being here. 

Let me pass on the next person just for a second, and go to the 

final person. 

Ann Ashburn is the President and CEO of AmeriDream, Inc. Ms. 

Ashburn has also served as the Co-Chairman of the National Association of African-Americans in Housing Homeownership Task 

Force. Thank you for being here. 

And finally, a constituent of mine, live and in person from Columbus, Ohio. I would like to thank Jerome Witcher, who is a realtor for Art Lee Realtors in Columbus, Ohio. Thank you for being 

here today, Mr. Witcher. 

With that, I would like to remind everybody that, without objection, your written statements will be made part of the record. You 

will be recognized for a five-minute summary of your testimony, 

and afterwards you will be asked questions by Members of the 

Committee, or at least, me. 

With that, let us begin with Mr. Dolben. 

STATEMENT OF DEANE DOLBEN, PRESIDENT, THE DOLBEN 

COMPANY, AND DIRECTOR, NATIONAL MULTI-HOUSING 

COUNCIL 

Mr. DOLBEN. Thank you very much. Chairman Tiberi and distinguished members of the subcommittee, my name is Deane Dolben. 

I am President of the Dolben Company, which operates approximately 8,000 apartment homes in Massachusetts, Maryland, Michigan, New Hampshire, Rhode Island, and Virginia. 

I am also the 2004 President of the National Apartment Association, and a Director of the National Multi-Housing Council. 

39

It is my pleasure to testify today on behalf of the NMHC and the 

National Apartment Association. NAA’s than 30,000 members provide rental homes to more than 5 million families across America. 

We commend you for your leadership, and we thank the members of the subcommittee for your valuable work addressing the important issue of housing in America. 

You may wonder why two rental housing organizations are testifying on a bill to create zero downpayment mortgages for homeownership. Actually, we also support homeownership. In fact, many 

apartment firms sponsor rent-to-own programs. 

But we also believe that there is such a thing as too much homeownership. And the time has come to ask whether a homeownership above all else, and at any cost policy, is wise. 

Three key facts have been overlooked, as the homeownership 

bandwagon has gained steam. 

First, not everyone has the means to own and maintain a house. 

Second, too much homeownership is not good for local communities. 

And third, not everyone wants to own a house. 

I know some will assume that we are only concerned about our 

profits. But the impact of this initiative on our profits is negligible. 

Harvard University estimates that even if the homeownership 

rate rose by 3 percentage points over the current decade, there 

would still be up to 6 million new renters, more than enough to fill 

the nation’s apartments. When it comes to profitability, housing is 

not a zero-sum game. 

However, the federal budget is a zero-sum game. And every dollar allocated to homeownership incentives is a dollar taken away 

from other housing programs that can more effectively address our 

most pressing housing needs, such as suburban sprawl, urban decline, the affordable housing shortage, and the need to house our 

aging citizens. 

We also risk harming hard-working families when we oversell 

homeownership. Currently, 51 percent of working families with 

critical housing needs are owners, not renters. And the only group 

whose housing conditions worsened between 1999 and 2001 were 

low- and moderate-income homeowners. 

FHA foreclosures are already at record levels. In fact, in Philadelphia some people are trying to suspend the city’s foreclosure 

auctions, because they say that ‘‘this is the worst time for foreclosures basically since the Great Depression.’’ And that hundreds 

of people are losing their homes every week. 

With no cash reserves, a growing number of households are one 

paycheck away from financial disaster. Therefore, at a minimum, 

any new homeownership incentive needs to be supported with substantial counseling resources. 

Too much homeownership is also not good for our communities. 

If new owners cannot afford to maintain their homes, the value of 

nearby homes drops. Communities also lose much-needed tax revenue, and incur high costs associated with vandalism and other social problems when homes are abandoned. 

One research report says that total losses to all stakeholders conservatively average $73,300 per foreclosed FHA-insured loan, and 

$26,600 per foreclosed conventional loans. 

40

Too much homeownership creates other economic costs. One 

study estimates that a Minneapolis/St. Paul region forgoes $265 

million per year in consumer spending and business income because it lacks sufficient housing for essential employees. 

This country has a real housing problem it needs to solve, but 

it cannot be solved exclusively on the back of homeownership. 

Further, while homeownership can be fantastic, unsustainable 

homeownership does not serve anyone. We need to refocus our limited resources on those programs that can serve the most families 

dealing with critical housing needs. 

We urge you to support a housing policy that is balanced, encourages production, and reduces overall housing costs. 

Thank you for the opportunity to testify today. 

[The prepared statement of Deane Dolben can be found on page 

84 in the appendix.] 

Mr. TIBERI. Thank you. Mr. Egan. 

STATEMENT OF CONRAD EGAN, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, NATIONAL HOUSING CONFERENCE 

Mr. EGAN. Thank you, Mr. Chairman, for the opportunity to appear before you and other members of the subcommittee about H.R. 

3755, the Zero Downpayment Act of 2004, on behalf of the National 

Housing Conference. 

First of all, let me state very strongly that the Conference supports H.R. 3755, but even more strongly with a great sense of caution. 

Let me, first of all, tell you why we support 3755. First, by reducing the FHA single-family downpayment to zero under certain circumstances, more families would be able to purchase homes. These 

families would otherwise be unable to begin to accumulate assets 

and grow wealth through homeownership. 

Secondly, to the extent that homeownership stabilizes and improves communities, H.R. 3755 would support those positive outcomes. 

Third, when administered in a safe and sound manner, H.R. 

3755 would add value to FHA’s book of business and its volume, 

thus increasing its viability. 

And finally, fourth, an FHA Zero Downpayment Program would 

bring FHA’s national standardization in underwriting, pricing, and 

practices to a newly-emerging segment of the market. 

However, and here comes the qualifications, NHC’s support of 

H.R. 3755 comes with a strong cautionary note. Although we applaud HUD’s intentions to require pre-purchase counseling, to raise 

the up-front MIP to 2.25 percent, and to maintain high credit quality standards, we would further suggest that HUD incorporate additional safeguards in its administration of the program. Including, 

first of all, additional post-purchase counseling and crisis intervention assistance, paid for by HUD funding, and provided by bonafide 

HUD-approved agencies with mandatory referrals of loans more 

than 30 days delinquent. 

I, too, want to add my support to the Ney/Scott Bill, H.R. 3938, 

and would note that it does specifically include post-purchase counseling. 

41

Secondly, without diminishing availability to creditworthy borrowers, higher than usual credit standards for both payment ratios 

and FICO scores accompanied by higher than normal sampling ratios of lending practices. 

Third, tight appraisal standards. 

Fourth, careful and quick attention to any concentrations of defaults and foreclosures that may occur. 

And finally, fifth, effective collaboration with local officials, agencies, and organizations to ensure positive community outcomes. 

In summary, Mr. Chairman, we would suggest that following enactment, this product be treated as a trial program, with careful 

attention to ensuring the ongoing actuarial viability of the product, 

and very close monitoring, possibly by third parties, to ensure positive outcomes for borrowers and communities. 

Assuming that these safeguards and procedures are implemented, NHC would suggest that this product be expanded to include condominiums and co-ops. 

In conclusion, Mr. Chairman, let me make a separate, but related, point that others have also made here today. 

N.H.C. strongly supports expanding homeownership opportunities for more Americans. We are therefore, based upon that position, compelled to note that a continuing lack of good, affordable 

rental housing is diminishing that potential for a growing number 

of this nation’s families. Many remain mired in unstable, costly, inadequate rental housing, without the ability to develop good credit 

histories, and to accomplish those resources necessary to achieve 

homeownership. 

Therefore, Mr. Chairman, NHC strongly urges you and your colleagues to also pay priority attention to preserving and increasing 

the supply of good, affordable rental housing in this nation. 

Thank you, Mr. Chairman 

[The prepared statement of Conrad Egan can be found on page 

89 in the appendix.] 

Mr. TIBERI. Thank you. Mr. Petrou. 

STATEMENT OF BASIL N. PETROU, MANAGING PARTNER, 

FEDERAL FINANCIAL ANALYTICS, INC. 

Mr. PETROU. Thank you, Mr. Chairman. 

I am Managing Partner of Federal Financial Analytics, a consulting firm that advises financial institutions and trade associations on the implications of legislation and regulation on the mortgage and housing markets. 

There are a few points I would like to make regarding the benefits and risks associated with the new FHA Zero Downpayment 

Program. 

First, I strongly support the Administration’s goal of increased 

homeownership, with the focus especially on low-income and minority individuals. It is critical that new programs to accomplish these 

goals focus not only on giving borrowers a mortgage in the short 

term, but also on helping them keep their homes for the long term. 

Second, zero downpayment loans are viewed by the private sector 

as higher risk, resulting in reliance on careful underwriting. FHA 

entry into these loans must be carefully structured to prevent risk 

to borrowers, communities, and the rest of the MMI fund. 

42

Third, to protect borrowers, communities, and the MMI fund, 

HUD should consider limits beyond those currently proposed for 

the new program. These could include targeting the program to 

low- and moderate-income borrowers, reliance only on proven FHA 

lenders, and increased sampling. 

The borrower’s initial downpayment is a major factor in limiting 

first-time homeownership for low- and moderate-income buyers, 

but it is also a proven major risk factor, especially during periods 

of economic stress. 

For the past five years lenders working with private mortgage insurance companies, community groups, and government-sponsored 

enterprises, have tailored zero downpayment programs to balance 

the risks and the rewards to homeowners. 

Failure by FHA to tailor underwriting criteria to the unique nature of these mortgages could harm those it wants to help. 

Once closing cost fees and the FHA’s own up-front financable insurance premium are added to the loan amount, the zero downpayment borrower starts homeownership owing 103 percent or more of 

the property’s value. In a neighborhood with very low or no home 

price appreciation, this borrower has to wait a long time before 

they can rely on the proceeds from the sale of the house to pay off 

the mortgage. 

For this reason, the new program should be tested to ensure that 

poor loan performance will not put the MMI fund in jeopardy, since 

the cumulative claim rates and loss severity rates on foreclosed 

properties likely will be higher during periods of stress for these 

mortgages than for other FHA loans. 

Certainly higher claim rates and loss rates are the experience of 

the private sector when dealing with very low downpayment mortgages, and the same appears to be true for FHA. 

Also, the program should be designed to bring new borrowers 

into the FHA, rather than serve as a means for those borrowers 

who have the wherewithal to make a 3-percent downpayment simply to avoid doing so. An FHA fund with a relatively large share 

of zero downpayment borrowers would significantly increase the 

MMI fund’s risk exposure during periods of regional house price declines. 

Neighborhoods are also at risk from a poorly-planned program. 

The combination of a bad appraisal, economic problems for the borrower, and stagnant home values can result in a high level of foreclosures in those neighborhoods where these mortgages will be concentrated. The result of concentrated foreclosures is further downward pressure on home prices that escalate the downward spiral 

for that neighborhood. 

To assure the success of the Zero Downpayment Program, I urge 

that HUD consider applying the following criteria. 

First, HUD should target the program to borrowers with incomes 

below area median income, focusing on borrowers seeking properties in low- and moderate-income census tracts, and/or setting 

the area maximum loan amounts for this program below the current applicable FHA limits. 

Two, to prevent inappropriate use of this new program, the FHA 

lender should be required to attest that the borrower did not have 

sufficient cash to qualify for another FHA loan. 

43

Three, during the early years of the program, HUD should limit 

it to those lenders proven to be careful underwriters of FHA loans. 

These lenders are most likely to carefully review the quality of the 

appraisal being given for the property. 

Finally, as part of its quality control process, FHA currently reviews 10 percent of the post-endorsement loans in its single-family 

program. Given the significantly higher risk associated with zero 

downpayment loans, the sampling of FHA loans within this program should be higher for at least the first several years. 

Thank you. 

[The prepared statement of Basil N. Petrou can be found on page 

108 in the appendix.] 

Mr. TIBERI. Thank you. Mr. Syphax. 

STATEMENT OF SCOTT C. SYPHAX, CHIEF EXECUTIVE 

OFFICER OF THE NEHEMIAH CORPORATION OF AMERICA 

Mr. SYPHAX. Thank you, Mr. Chairman. My name is Scott 

Syphax, and I am the President and CEO of the Nehemiah Corporation of America. 

It is an honor to be here today to submit testimony to the House 

Community Opportunities Subcommittee regarding H.R. 3755. I 

particularly appreciate the opportunity to provide my thoughts on 

where we can add to the effectiveness of this bill. 

Before I address the legislation specifically, I would like to give 

you a bit of background on the industry we founded and my company. 

Nehemiah Corporation is a nationwide, self-supporting, faithbased non-profit. We receive no money from local, state, or federal 

government sources. 

We started in 1997 with a goal of providing deserving families, 

seeking to be homeowners, a downpayment. Starting with a $5,000 

loan from a small Baptist church in Sacramento, we piloted the 

country’s first privately-funded downpayment assistance program. 

In our seven years we have been able to help over 170,000 families become homeowners across all 50 states and many U.S. territories. We have given away over $675 million in downpayment 

gifts, resulting in over $23 billion in real estate sales. 

On a monthly basis, Nehemiah helps more than 3,000 families 

achieve the American dream of homeownership by providing them 

with a downpayment gift. This week alone we have helped so far 

over 600 families achieve that dream. And this is at no additional 

cost or burden to the U.S. taxpayer. 

In fact, according to a soon-to-be-published independent study by 

a well-known Washington, D.C. think tank, our default rates are 

in line with traditional FHA rates. 

In short, ladies and gentlemen, downpayment assistance works 

for buyers, sellers, and America. 

In addition, a recently-completed study by another think tank 

demonstrated that downpayment assistance has also had an enormous positive impact not only on the individuals and families 

served, but on entire communities and local governments. In towns 

and cities across this nation a rebirth is happening, thanks to 

downpayment assistance and removing downpayment barriers. 

44

In Columbus, Ohio, for example, Nehemiah recently testified before a local city council meeting, in that we were able to help over 

7,300 families become homeowners since 1998. In that process of 

giving away nearly $35 million in downpayment assistance, resulting in the purchase of over $1 billion worth of homes, the families 

that we have served—and this is the important part—have seen 

their equity increase by more than $3,100 per family, with a cumulative impact of that equity and wealth appreciation of over $23 

million. 

This, in turn, has resulted in over $100 million in property taxes 

for the Columbus metropolitan area. In Franklin County alone, Nehemiah recipients have contributed $72 million in property taxes. 

With downpayment assistance and the removal of downpayment 

barriers, that benefit is not confined just to individuals, but it has 

spread throughout the community. 

Our industry has grown so quickly because it provides a vital 

role in helping people overcome what I believe to be the artificial 

barrier of homeownership: the downpayment. I have long felt, and 

publicly stated, that the removal of this barrier to homeownership 

for creditworthy applicants should be a national priority. And I 

want to applaud you, Congressman Tiberi, and the Bush Administration, for taking such bold leadership in addressing this area. 

I can tell you that when Nehemiah started, this was an extremely controversial subject, opposed by many. 

Having said that, I do have to share with you a couple of concerns about this proposed legislation, in order that we can have a 

dialogue about the potentially unintended negative consequences 

that might impact working-class families unless these are fully vetted and addressed. 

In January of this year, when Commissioner Weicher announced, 

as part of HUD’s fiscal reauthorization, that FHA would eliminate 

the statutory requirement for the 3 percent down, we were elated. 

We celebrated this announcement, and we publicly reached out to 

offer our support, believing that our experience in helping over 

170,000 families was the clearest validation that the approach that 

the Administration was taking on the subject was indeed valid. 

Mr. Chairman, our primary concern with the current draft of 

3755 is that the burden of coming up with the downpayment, as 

opposed to historic downpayment assistance, is now going to be 

borne by the homeowner. We don’t think that that is altogether a 

bad thing, but let me explain the dilemma. 

In using private downpayment assistance and other sorts of programs such as ours, the home buyer walks into a minimum of 3-

percent equity into that house from the day that they receive their 

keys. 

In this particular program as it is proposed today, they will likely walk in with zero equity, or, as the gentleman who spoke before 

me referenced, potentially negative equity. 

While there is a risk/reward tradeoff that has to take place, and 

that is fine, the beauty of H.R. 3755 is that it makes downpayment 

assistance ubiquitous. Anyone can participate in this program, 

given that they meet the financial wherewithal and the other criteria that are being developed by HUD. 

45

However, our concern is that in the increased fees that potentially are put in place to finance the program, that you disadvantage the least among us able to pay. That extra $25 to $50 a 

month, while maybe not meaningful to some of us, for those that 

we are all attempting to serve with this legislation in the low- and 

moderate-income categories, that money is very, very dear. 

And because of our experience, and the studies that we have 

done in showing that downpayment-assisted families can successfully be homeowners, we suggest that it be carefully evaluated before any decision is made as to what the increase in the MIP that 

is imposed on this program. We want to ensure not only that we 

get people into the program, but that we guarantee their long-term 

success. 

We are heartened that this tool, that this particular product as 

it is conceived, will, in fact, add another tool to the toolbox of homeownership, and move more families into homeownership. 

However, we are also committed to ensuring those families will 

be successful using this program. 

To restate in conclusion, Nehemiah believes that this legislation 

is an important step forward for America. And we congratulate 

you, Congressman Tiberi, in taking this initiative. 

However, we would like to work with you and the Administration 

in ensuring, one, that no additional monthly surcharges that are 

unnecessary are imposed upon home buyers. 

Two, that there is a limitation and careful analysis to ensure 

that there are not excessive mortgage premium pricing actions taking place that are predatory in nature. 

And that three, that there be a sunset on whatever mortgage insurance premium uptick there is for these particular borrowers. 

With these changes, we believe that H.R. 3755 will be a positive 

step forward in public policy, and help move more families into 

homeownership. 

Thank you for the opportunity to address the Committee. 

[The prepared statement of Scott Syphax can be found on page 

125 in the appendix.] 

Mr. TIBERI. Thank you for your insights. Mr. Witcher? 

STATEMENT OF JEROME WITCHER, REALTOR, ART LEE 

REALTY, INC. 

Mr. WITCHER. Mr. Chairman, Members of the Committee, thank 

you for allowing me to take a few minutes of your time. 

I think it is a very good idea to offer zero downpayment to qualified persons that have a desire to own a home, but do not have a 

downpayment of their own. The passage of this bill will allow more 

potential buyers to acquire their own home. I know that with the 

proper guidelines, this could be a blessing to those that wish to 

purchase a home of their own. 

The downpayment is the biggest hurdle that most people have to 

face when acquiring a property. 

The purchase of homes for families not only improve the neighborhoods, but also increase the tax base for the local communities, 

and can have a ripple effect on the whole area. And therefore, we 

should see a decrease in crime, and a rise in property values. 

46

The value of requiring downpayments for potential FHA-insured 

borrowers for the reason, if you have something invested in a 

project, you are less likely to let that property go. However, no one 

can ever be sure, when certain situations arise, such as job loss, 

illness, or divorce. 

There are several programs that are currently out on the market 

today. Most require some type of counseling to the potential buyer. 

The lenders do credit reports, background checks, work history, 

et cetera. Some may charge slightly higher fees to offset the costs 

of providing this service, but most home buyers are happy to get 

in without coming up with a downpayment. The purchases are still 

from the buyer’s range of financing. 

The underwriting of loans for conventional and jumbo markets is 

a difficult one with no downpayment, because of the loan size. I 

think it could be possible, but to me, it requires a very strong individual with a lot of reserves. 

The market today finds a good number of higher-priced homes in 

the foreclosure market, whether due to downpayment or other unknowns. 

The differences between minority applicants and other groups 

are, most minorities have very few liquid assets available for the 

use of a downpayment. However, just because funds for a downpayment are not available does not mean that they are not able to 

repay their mortgage loans. 

Note, this group is one of the fastest-growing segments because 

it includes Latinos, African-Americans, women, and a lot of these 

women are single mothers. 

I would only recommend that FHA not insure a mortgage without a downpayment only in cases where the job time is short and 

other negative items may appear. 

However, everyone has had some type of bad experience in their 

life, and to focus just on them is wrong. We should focus on what 

people have done since having these negative experiences. There is 

so much interest in things that have happened five to 10 years ago, 

that it still affects some people today. 

The approved loans today look primarily at credit scores from 

computers to see if someone qualifies. And if the computer says you 

did not meet that score, you are automatically rejected without any 

personal touch by another person. They flat-out reject you. That 

keeps a lot of possible buyers out of the market, which I think is 

wrong. 

We need to not just rely on the reports, but to have someone review the application—and this is review an application if it was rejected—and talk to the buyer to find out what they found, and the 

necessary things that need to be done so that we can still keep this 

person in the loop. It may take a little grooming, so to speak, but 

we can put these people there. If not, they kind of go back. 

We need to not only rely on reports, but review the application. 

And that way we can keep people in order to buy a house. No, I 

don’t think so, because some people will always rent, regardless of 

their incomes, because they do not want the responsibility of taking 

care of something. And this should not effect the rental market. 

I think it may have some effect, but nothing major relating to the 

FHA insurance fund. I think that if the people are screened and 

47

counseled properly in the beginning, the losses that will occur will 

be minor. 

First of all, the lenders should all come under state rules and licenses, and have inspections done by state authorities to constantly 

monitor their business practices. 

The FHA foreclosures in low-income neighborhoods could be lessened if the buyers are properly educated about the pitfalls about 

borrowing and repaying of funds. The biggest problem that has 

been happening is that the appraisal of properties have been overpriced, and the lenders are giving more than 100 percent loan to 

value. For example, 103-percent loan programs and higher. 

There have also been higher loan rates for areas of inner-city 

purchases than in other areas. Yes, I think you would find some 

actual buyers willing to purchase some of these units, these are 

multiple units, two to four units, if they were available for income 

property. Like I would buy one, and I would rent out the other 

three units and live in one, and I would have equity and income 

coming in. So I think if that program was available, it would be 

a good deal. 

In summary, I feel that the Zero Downpayment Program would 

be a great shot in the arm to increase homeownership, improve 

neighborhoods, and to help move the economy towards a more productive one. 

Thank you. 

[The prepared statement of Jerome Witcher can be found on page 

133 in the appendix.] 

Mr. TIBERI. Thank you, Mr. Witcher. I appreciate it. 

Ms. Ashburn, last but not least. 

STATEMENT OF ANN ASHBURN, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, AMERIDREAM, INC. 

Ms. ASHBURN. Thank you, and good morning, Mr. Chairman and 

distinguished members of the subcommittee. Thank you for the opportunity to testify today in support of the subcommittee’s efforts 

to break down a major barrier to homeownership downpayment 

costs. 

My name is Ann Ashburn, and I am President and CEO of 

AmeriDream, a national non-profit organization committed to increasing homeownership opportunities. AmeriDream provides a full 

range of homeownership-related services, including downpayment 

assistance, home buyer education, loss mitigation, community redevelopment, charitable contributions, and soon, mortgage payment 

protection. 

Over the last five years AmeriDream’s downpayment assistance 

program has helped more than 130,000 low- and moderate-income 

families become homeowners. Given AmeriDream’s extensive experience in putting real families into real homes, and in serving essentially the same clientele that this proposal would target, 

AmeriDream is pleased to offer itself as a resource to the subcommittee as it seeks to refine and perfect this bill. 

In that spirit, Mr. Chairman, I would like to offer two general 

observations about the bill, and then suggest three specific refinements for consideration. 

I would begin with our general observations. 

48

First, as the subcommittee considers how best to address the 

issue of downpayment costs, we would respectfully encourage members to leverage the experience and resources of the charitable sector, perhaps by ensuring a federal role for HUD-approved providers 

in a public/private partnership. 

Non-profits like AmeriDream have been meeting the downpayment challenge successfully for years. To coin a phrase, charitable 

downpayment providers have been there, and we have done that, 

over 130,000 times at AmeriDream alone, in the past five years, all 

without government funding, taxpayer dollars, or additional potential risks to home buyers or the FHA insurance fund. 

Second, we would suggest that in considering how best to promote homeownership through zero down loans, the subcommittee 

safeguard against potential concerns to home buyers, such as higher monthly payments, higher interest rates, and larger mortgages. 

Additionally, the subcommittee should bear in mind that homeowners taking on zero down loans would enter homeownership 

with zero, or even negative, equity, a position that could make 

them likely to default on their loans. 

I would note by way of comparison that purchasing a home with 

downpayment gift assistance, whether from government programs 

such as the President’s American Dream Downpayment Act, from 

relatives, or from non-profit organizations, it gives homeowners 

lower monthly payments and positive equity in their homes. 

In addition to these general observations, AmeriDream would 

also propose three specific refinements. 

First, we believe that the subcommittee should require participating borrowers to demonstrate reasonable creditworthiness. 

Second, we believe it would be appropriate to require participating borrowers to complete a HUD-certified homeownership 

counseling program, a topic we know to be of strong interest to this 

subcommittee. 

Finally, we believe that the subcommittee should require use of 

a HUD-authorized automated underwriting model. 

I elaborate on each of these suggestions in my written testimony, 

and I would be pleased to discuss these recommendations in further detail. 

In sum, AmeriDream wholeheartedly supports efforts to overcome major barriers to homeownership, and we believe that this 

bill could be made even more effective by fostering a public/private 

partnership, by including minimum credit and home buyer education requirements, and by leveraging technology to its fullest potential. 

I hope that AmeriDream’s experience and longstanding commitment to our shared objective of increasing homeownership, particularly among home buyers of modest means, has provided the subcommittee a useful perspective this morning. 

I would like to conclude with a brief testimonial from Mr. Ollie 

Hunt of Columbus, Ohio, who is one of AmeriDream’s home buying 

success stories. ‘‘We wanted to buy a house, but it seemed impossible to come up with the money for a downpayment and closing 

costs. Then we learned of the AmeriDream program. We are grateful for this program. It made it possible to own our own home, and 

49

in over two years we have not been late on our payment once. We 

love our home.’’

I applaud your leadership in calling this morning’s hearing. And 

Congressman Tiberi, I commend you for introducing this important 

piece of legislation. 

Thank you so very much for this opportunity to testify before you 

today. AmeriDream stands ready to work with the subcommittee as 

it considers this important legislation. 

Thank you. 

[The prepared statement of Ann Ashburn can be found on page 

68 in the appendix.] 

Mr. TIBERI. Thank you. Thank you all, actually, for your testimony today, and especially for your patience in waiting around for 

our vote. 

Ms. Ashburn, I am going to start with you. You mentioned in 

your written testimony, and also in your testimony today, about a 

public/private partnership with respect to this issue. How do you 

envision that? Any thoughts off the top of your head on how that 

structure would work? 

Ms. ASHBURN. We would like to work with the Committee and 

with HUD to establish guidelines on who would be appropriate 

downpayment gift providers. And some of those details we can go 

into outside of the hearing. 

And we see that, since we have all of this experience, Nehemiah 

included, we have been doing this for a very long time. We have 

gained a lot of experience. With that experience, both of us have 

implemented programs to support these home buyers. 

And I will just speak for AmeriDream, and let Scott do Nehemiah. But AmeriDream has done home buying education, loss mitigation, and soon it will be mortgage payment protection. 

We are five years old, AmeriDream is. We have learned a lot in 

five years, and we have gained a lot of speed in five years, to not 

only do downpayment assistance for 130,000 home buyers, but to 

recognize the additional needs that they need in order to be successful. We have added all these supplemental programs. So why 

have you guys waited five years to learn what we have already 

gone through? It has been a lot of pain, it has not been easy. And 

we offer that in a public/private partnership. 

Mr. TIBERI. Well, you know, it is amazing. Because I think Mr. 

Syphax mentioned it, it wasn’t too long ago, as a realtor, that even 

publicly talking about zero down was something that was even rationally thought about. 

Let us talk about Columbus, Ohio. There is no question that both 

of you, Nehemiah and AmeriDream, have provided some incredibly 

valuable resources to people who want to be homeowners. There is 

no questioning that. 

As I mentioned earlier, and you may have heard, Sam Gresham, 

who is the President of the Columbus Urban League, a supporter 

of this legislation who couldn’t testify today, publicly stated that in 

Columbus every year, the Urban League does minority home expo. 

And the number one issue that participants at the expo say or figure out is, the number one barrier for them to become homeowners 

isn’t income. It is not qualifying for the monthly payment. It is 

what Mr. Witcher said, is the assets to provide for a downpayment. 

50

And they turn away hundreds and hundreds of people every year 

just at the expo who don’t qualify, or haven’t been hooked up, I 

guess, with either Nehemiah or AmeriDream. 

Why is that, do you think, Ms. Ashburn, that there are still hundreds, or maybe thousands of people out there that aren’t being 

served? 

Ms. ASHBURN. I think we have made great efforts over the years 

to reach out to people. And speaking on behalf of AmeriDream, it 

really was no challenge at all. There were interested people out 

there that were already seeking help from their lenders. They 

would find out from their lenders that they couldn’t qualify because 

they didn’t have the downpayment. And the lender would kind of 

pull us off the shelf and say there is hope out there for you, because we have got this program, if you can meet all these other 

qualifications. 

So we experienced that this was the first round of people that 

were already thinking about homeownership, and so they were already in the lenders’ offices. 

We have recently partnered with a lot of outreach organizations 

into minority communities. As you mentioned, the Co-Chair of 

NOAH, the National Organization of African-Americans in Housing, on their round table. We partnered with NHREP, the National 

Hispanic Real Estate Professionals Association. Because we recognize that not everybody is thinking about homeownership, or people are thinking I know the way the process works, and I need a 

downpayment, and I don’t have it, so why even bother. I can qualify, I can make the payments, I can pay my rent, but why bother? 

I don’t have that pot of money. 

So we are working with these other organizations to reach out 

into these communities. 

Mr. TIBERI. Mr. Syphax, do you have any follow-up to that from 

your perspective? 

Mr. SYPHAX. Well, I think that Ms. Ashburn was very eloquent. 

We have many of those same partnerships. 

All that I would add is that, going back to the initial question 

by your local Urban League leader in Columbus, is that the reason 

that circumstance exists is because there has historically been a 

wealth disparity between ethnicities in this country. That wealth 

disparity has a cumulative effect over generations. 

The reason that Nehemiah got started, while most people focus 

on either our homeownership, our faith-based, or our community 

development programs, but really if you get behind the essence of 

why Nehemiah started, it was really about asset development and 

wealth accumulation for low- and moderate-income folks. We look 

at homeownership as a portal that takes people through, that gives 

them life possibilities. 

And what your Urban League leader is dealing with is people 

who don’t come from families with enough historical wealth that 

they can transfer that down to their children and grandchildren. 

We do work with folks like Urban Leagues and others throughout the United States. But in fact, we think that this piece of legislation, with a little bit more massaging, is really going to start to 

have an impact that hopefully will snowball into that 5.5 million 

new homeowners. But it is really the public policy step of saying 

51

it is okay not to have a downpayment, and that you are worthy of 

homeownership. 

Mr. TIBERI. Thank you. Mr. Witcher, you have been a realtor for 

many, many years; a wealth of experience. You made mention of 

the point about the build-up of wealth. How often do you see what 

Ms. Ashburn and Mr. Syphax just described in your daily work as 

a realtor? Can you give us any examples? 

Mr. WITCHER. It is every day. Every day you get calls from people that are interested in buying a property. I deal with a lot of 

first-time buyers. I deal with everybody, but especially I have been 

in affordable housing for the last 10 years or so has been the firsttimer. Because those are the ones that are struggling to get to that 

level, that second level. 

Like Scott said, a lot of them, they don’t have economic wealth. 

I mean, their family didn’t own a home, so they have rented all 

their lives. So there is no economic base. 

So the biggest problem I hear every day is well, you know, we 

got our credit cleaned up, but we don’t have the downpayment. 

What can you do? So you try to find sources that you can refer 

them to. And each source has their own particular criteria of, you 

know, you jump through this hurdle here, we can help you. 

I have worked with both of these two in the past, and they are 

both good. And we need more like them. If they can improve on 

their programs—and I think the bottom line comes out to basically 

educating the buyer. Letting the buyer know the responsibilities of 

homeownership; that it is not just a place to go party and sleep, 

but it is an investment. 

And if you can build that equity up in that one property, those 

that have the desire can take some equity out and acquire an additional property, like income property, and keep it going. And then 

instill it into their children, and their friends, their nephews, whatever, the understanding of wealth builds wealth. 

And then I think, you know, some of the disparities will disappear. 

Mr. TIBERI. Thank you. Mr. Egan, you mentioned that you would 

like to see the Zero Downpayment Program run as a demonstration, on a trial basis. Can you demonstrate to us how that demonstration should be structured? 

Mr. EGAN. Thank you, Mr. Chairman, for the question. 

First of all, I am not suggesting that this particular proposal not 

be enacted until there is a trial program or an experimental period. 

What I am saying is that after enactment, in the process of administering the program, I think that many of the recommendations that others have made here today should become a part of 

HUD’s administration of that program. Including attention to the 

qualification standards, I would suggest higher qualification standards. As Mr. Petrou has suggested, I would suggest higher sampling ratios of lending practices. I would suggest probably more-frequent-than-normal monitoring of the actuarial effect of this program on HUD’s overall insurance funds. And then many of the 

other things that were suggested here, about post-purchase counseling, and paying very close attention to possible concentrations in 

defaults and foreclosures. 

52

But I want to make very clear that I am not suggesting that in 

lieu of enactment. I think the program should be enacted. I think 

it should be fully put underway. But subject, during a two- to 

three-year period, to very close scrutiny. 

Mr. TIBERI. I wish you had a vote. Thank you. 

Mr. Petrou, you suggested in the last page of your testimony that 

FHA’s post-endorsement review of loans be increased. Can you 

elaborate on how that idea would maybe protect FHA and their 

mortgage insurance? 

Mr. PETROU. On this particular program it should be increased 

from what they do in the normal programs, because of the unique 

nature of the risk in these programs. 

FHA has to make sure that it is getting the kind of product that 

is performing the way it anticipated. Because of the high LTVs 

here, 103, 105 percent and because of FHA’s reliance on appraisal. 

Appraisal is much more important when you are dealing with a 

103-percent initial LTV loan than when you are dealing with a 95-

percent LTV loan, or an 80-percent LTV loan. 

To the extent that FHA is given an incorrect appraisal, that will 

really put the borrower in a very difficult position. Because, it 

takes years, through amortization of the mortgage, to pay that 

mortgage down to the initial value of the home. 

So if FHA is off on its appraisal, if the house is over-appraised, 

FHA has a problem. 

With sampling, FHA sees the performance of what is going on 

and it sees the performance of what the lenders have been doing. 

FHA can then make adjustments to this program. 

Mr. TIBERI. Thank you. Mr. Dolben, I have been involved in the 

business for almost 20 years, 19 years, the rental or real estate 

business. And I have got to tell you, I have never heard someone 

say what you said. I have never heard it before. Too much homeownership could be bad for the community. That is shocking to me. 

I will have to really haze my friend, Steve Gladman, over those 

comments in days and weeks to come. 

Can you expand on that? Because I am absolutely stunned by 

that statement. 

Mr. DOLBEN. Sure. I think the basic concept is that the housing 

crisis in our country, there isn’t one answer for all people. 

Mr. TIBERI. Agreed. 

Mr. DOLBEN. Homeownership isn’t necessarily the housing answer for all of the people in our country. 

Mr. TIBERI. Agreed. 

Mr. DOLBEN. We have a housing shortage, and the cost of housing makes it difficult for both homeowners and renters to afford 

quality housing. So we believe that resources should be allocated 

and policy created that have a balanced housing policy, and make 

housing more affordable. 

Mr. TIBERI. Let me ask you this question. Would you agree with 

this statement, that anyone who would like to buy a home and be 

a homeowner should have the opportunity to do so? 

Mr. DOLBEN. The question is whether or not that form of housing 

is the appropriate housing for that person; whether they have the 

financial resources, and whether it makes sense for them. 

53

Mr. TIBERI. If they have the financial resources to make the 

monthly payment and are creditworthy, should they be a homeowner? 

Mr. DOLBEN. We need to have adequate housing that is affordable to them. And the question is whether there is sufficient housing stock and rental stock that is currently affordable to all Americans. 

Mr. TIBERI. Boy, spoken like a true advocate for your members. 

Let me tell you, I own rental property, so I understand the concern. But I am with Mr. Witcher on this. I have friends who 

wouldn’t buy a home if there was a gun put to their head. I think 

there is going to be a rental market regardless of whether this bill 

passes or not. 

But I am passionate about trying to provide opportunities for 

those who really want a piece of the American dream, the American dream being becoming a homeowner and having an opportunity to build wealth with equity. And that is why I think this is 

so important. 

And I have friends in the rental industry now that jokingly say 

that they might have to throw in a car with the apartment lease 

to rent their apartments. So I understand the concern. But again, 

I don’t think that this is about anything that you all should really 

be concerned about, but I understand your perspective. And I appreciate your coming today to share that perspective. 

Mr. DOLBEN. Thank you for the opportunity to voice them. 

Mr. TIBERI. Thank you. You guys have been great. Since you 

have been so patient, I am going to break with regular order and 

say if anyone has a suggestion or one more shot at the apple here. 

Do any of you have any? Thank you, Scott. 

Mr. SYPHAX. It is more of a comment on Mr. Dolben’s comment. 

Nehemiah owns and operates over 1,800 units of income-restricted rental housing throughout the western United States, and 

we consider rental housing to be an extremely important component of an overall housing strategy. 

However, I have to tell you, based on our roots, coming from a 

small black Baptist church in Sacramento that serves low-income 

people, that homeownership, as you say, for every single person 

that is otherwise qualified in making that opportunity available to 

them is the thing, first and foremost, that will keep people moving 

into the middle class in this country. 

And the historic limits that have been placed on homeownership 

through what we consider to be invalid assumptions about you are 

somehow not worthy of homeownership unless you have a downpayment with you, I think really speaks against the ideals of this 

country. 

Homeownership should not be defined by an accident of birth, 

being lucky enough to be born into a family with means. It should 

be available to everyone who demonstrates the worthiness, creditwise and income-wise, to move into that, so that they, too, can join 

the middle class. 

Mr. TIBERI. Boy, I couldn’t have said it any better. And I am a 

product of that, being the first in my family to graduate from high 

school. My dad didn’t get a credit card until he was 60, because he 

54

didn’t really believe in credit. He believed in paying cash for everything. 

But home equity for my mom and dad today is their wealth. And 

thank God for that opportunity for them. So amen. 

Mr. EGAN. Mr. Chairman, let me build on the comment. 

Mr. TIBERI. Yes, Mr. Egan. 

Mr. EGAN. Let me build on the comments that have been made 

most recently, and go back to my statement, where the National 

Housing Conference is trying to make the connection between good, 

affordable, stable rental housing situations, and the opportunity, 

therefore, to grow the credit history, to grow the other resources 

necessary, so that those who choose can then move into homeownership. 

Or if they don’t, they can stay in a very safe, stable environment. 

And therefore, as my friend Nic Retsinas, who runs the Joint Center for Housing Studies at Harvard, often says—he, by the way, as 

you may know, was one of Mr. Weicher’s predecessors—the best 

homeownership program for this nation is a good, strong, affordable rental program. 

Mr. TIBERI. Well, thank you. Anybody else, before I give the 

order? 

All right. Let me go ahead and, for the record, statements for the 

record, American Society of Home Inspectors, National Association 

of Housing Corporations, National Association of Realtors. I will 

ask for unanimous consent. Hearing no objection, so ordered. 

And finally, the Chairman notes that some members may have 

additional questions for this panel and the previous panels, which 

they may wish to submit in writing. Without objection, the hearing 

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

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

record. 

I look forward to working with you, and I know the Chairman 

does, as well, as does Mr. Scott, to craft a piece of legislation that 

at the end of the day not only can you all support, but more importantly that will be good for those who want to become homeowners 

and get part of the American dream. 

So thank you all very much for your time. I really appreciate it. 

And this hearing is adjourned. 

[Whereupon, at 1:40 p.m., the Subcommittee was adjourned.] 

(55)

A P P E N D I X

March 24, 2004

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