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AFFORDABLE HOUSING PRESERVATION 

AND PROTECTION OF TENANTS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

JUNE 19, 2008 

Printed for the use of the Committee on Financial Services 

Serial No. 110–122 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

DON CAZAYOUX, Louisiana 

TRAVIS CHILDERS, Mississippi 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

June 19, 2008 .................................................................................................... 1 

Appendix: 

June 19, 2008 .................................................................................................... 43 

WITNESSES 

THURSDAY, JUNE 19, 2008 

Bodaken, Michael, President, National Housing Trust ........................................ 25 

Burns, Laura, President, Signal Group/Eagle Point Properties .......................... 27 

Donovan, Shaun, Commissioner, City of New York Department of Housing 

Preservation and Development ........................................................................... 10 

Garvin, John L., Deputy Assistant Secretary for Multi-Family Housing Programs, and Senior Advisor to the Federal Housing Commissioner, U.S. 

Department of Housing and Urban Development ............................................. 8 

Joseph, Reverend Laverne R., President and Chief Executive Officer, Retirement Housing Foundation, on behalf of Stewards of Affordable Housing 

for the Future (SAHF) ......................................................................................... 30 

Leung, Ricky, President, Cherry Street Tenant Association ............................... 32 

Pagano, J. Kenneth, Secretary, National Affordable Housing Management 

Association ............................................................................................................ 34 

Poulin, Brian, Partner, Evergreen Partners, LLC ................................................ 36 

Seward, Amanda, Counsel, Lincoln Place Tenants Association .......................... 29 

Snuggs, Clarence, Deputy Secretary, Maryland Department of Housing and 

Community Development .................................................................................... 12 

APPENDIX 

Prepared statements: 

Velazquez, Hon. Nydia ..................................................................................... 44 

Bodaken, Michael ............................................................................................. 46 

Burns, Laura ..................................................................................................... 77 

Donovan, Shaun ................................................................................................ 98 

Garvin, John L. ................................................................................................. 102 

Joseph, Laverne ................................................................................................ 106 

Leung, Ricky ..................................................................................................... 116 

Pagano, J. Kenneth .......................................................................................... 126 

Poulin, Brian ..................................................................................................... 145 

Seward, Amanda ............................................................................................... 150 

Snuggs, Clarence .............................................................................................. 156 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Frank, Hon. Barney: 

Written statement of Senator Edward W. Brooke ......................................... 161 

(1) 

AFFORDABLE HOUSING PRESERVATION 

AND PROTECTION OF TENANTS 

Thursday, June 19, 2008 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:05 a.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank, Waters, Velazquez, 

Watt, McCarthy, Lynch, Scott, Green, Cleaver, Murphy, Speier; 

Manzullo, Capito, and Neugebauer. 

The CHAIRMAN. This hearing of the Committee on Financial 

Services will come to order. 

This is a continuation of an interest I have had for some time. 

When I was chair of the Subcommittee on Manpower and Housing, 

as it was then called—we changed the name—of the Committee on 

Government Operations back in 1983, I began hearings on the 

issues of expiring use, because coming from Massachusetts, I had 

experienced this. 

As a matter of fact, one of the first projects done under this program dating back to the 1960’s was the Castle Square project in 

the South End of Boston. And when I ran for the State legislature 

in 1972 in downtown Boston, the heart of the only reliably Democratic precinct in my business, so I became quite attached to it and 

worked with it. People here who know of it, who would said it was 

an example of the importance of this housing, how many? 

In 1972, Boston was going through difficult times, in particular, 

racially. This project, affordable housing, was located in the South 

End, then a poor, working class neighborhood on Tremont Street 

between Arlington and Berkley in the South End. And it was a 

haven, I found, for a number of interracial couples, because we 

were in Boston at the time in a period where, frankly, there was 

a lot of racial tension; and, interracial couples, to be honest, could 

face problems if they lived in certain neighborhoods. One or the 

other partner could have encountered some hostility. 

Now, if you were rich enough and you were interracial, you could 

move to a suburb where that was less likely to be a problem. But 

I was struck by the fact that this publicly-aided resource became 

a place where people of limited income and interracial couples 

could live in a kind of social peace. It was an example of how the 

public sector can behave appropriately. 

We moved them well beyond that, but it was important at the 

time, and I learned at the time, too, that these were projects which 

2 

were affordable temporarily. But because of decisions made years 

ago—none of us here made them—they could expire. Now, here is 

the problem, and it is an interesting one. 

We now face a serious problem in trying to get affordable housing built in addition to the problem of resources. And it is what in 

my judgment is an excessively negative view towards people in 

neighborhoods. There is an unduly critical approach. Whenever you 

talk about building any kind of affordable housing, you run into, 

‘‘Oh, not near me,’’ and, ‘‘It’s going to ruin my neighborhood.’’ 

The fact that we have this problem with preservation is one example of how inaccurate that perception is, because what we are 

now facing is this: We are talking about preserving in an affordable 

way housing that was built 30 or 40 years ago. I know at the time 

it was built, not today’s neighbors—they probably weren’t around— 

but people very much like the people who today object to the erection of subsidized housing, were complaining about this housing 

saying, ‘‘Don’t build this in my neighborhood. You’re going to deteriorate my neighborhood! I don’t want those projects in my neighborhood.’’ 

And what do we have today? The contemporary equivalent of the 

people who objected to the housing in the first place now want to 

buy up the housing and move the poor people out. In other words, 

contrary to this objection that it was going to ruin the neighborhood, it is now deemed to be so attractive that we have to protect 

the poor people economically against being priced out of this housing by people who objected to its construction in the first place on 

the argument that it was going to be a blight. 

I hope people will understand this. I was particularly struck by 

that, and so obviously there was an overwhelming logic to this. Indeed, the fact that we still do have this problem of where to locate 

housing, there is an overwhelming argument for preserving this 

housing, because it averts the debate about where to put it. 

Preserving existing affordable housing greatly improves our ability to get the housing done. It is also almost certainly going to be 

economical. Now, there has been some difference here. In the late 

1980’s, my colleague Joe Kennedy and I, under the leadership of 

one of the great housing advocates in our country’s history, Henry 

B. Gonzalez, adopted some legislation to try to preserve the affordable housing. 

Let me be clear. I wish they hadn’t passed a law that gave the 

owners the right to opt out, but I also wish I could eat more and 

not gain weight. My wishes are often not binding, and so, we have 

to accommodate ourselves to reality. We cannot abrogate people’s 

constitutional rights. We can give people inducements to keep this 

housing, and, fortunately, in many cases, the people who did this 

are people who want to do this. 

What we did was to provide the best inducements we could to 

stay in. Now, when party control changed, there was a difference 

in philosophy. And beginning in 1995, the legislation that we had 

in place to preserve the tenancies was replaced by legislation to 

protect the tenants. But as those tenants die or move out, the units 

are lost. 

It is also kind of expensive, and here is my problem: It was part 

of this voucher thing, and I think the voucher program is a good 

3 

one. Enhanced vouchers, of course, are costly, but the basic problem is if you have a voucher only program, and it is a program 

where you only have annual vouchers, you are adding to the demand for housing in a way that does not help the supply. And 

when that provides some equity, it generates upward price pressure. 

I am for the voucher program, but it should be accompanied by 

efforts to deal with the supply as well. We are now going back to 

that, and I hope that we will be able to come up, and I know various groups are working on it and I appreciate that. But from HUD 

to the tenant groups to others, we want to preserve the housing. 

People may not understand that until it happens, but we saw in 

New York State, in New York City, the outcry when it looked like 

Starrett City might go out of the inventory. And we worked together, the House and Senate, and we have language in the bill 

that I hope is going to pass that will preserve Starrett City. We 

have had others come to us, as well. 

Our colleague here on this committee, the gentlewoman from 

Ohio, Ms. Pryce, has sponsored a bill that would protect some 

housing from going out of the inventory in Columbus, work done 

by Ohio State. Mr. Dingell from Michigan, Mr. Markey, we have 

been doing it ad hoc. The time has come to do the best we can overall. 

Now, let me just say, and I appreciate the indulgence, I invited 

a witness who couldn’t come for health reasons, but let me read an 

excerpt of his statement. 

‘‘Preservation of affordable housing is an issue we have been 

grappling with for many years. I have been strongly committed to 

the idea, since 1967. In 1977, I was approached by a group of tenants from Methunion Manor, a HUD-assisted, church-sponsored, 

nonprofit property located in Boston’s South End.’’ Not the one I 

talked about, but one I visited last Monday—Methunion Manor and 

the church, it’s mainstay. 

‘‘Methunion Manor was built in 1970 when the South End was 

a low-income neighborhood undergoing urban renewal. Seven years 

later, in part because of the lack of adequate HUD asset management tools, the property had fallen into financial default and physical distress. At the time, like many urban communities in America 

today, the South End had begun to gentrify. The Department of 

HUD which insured the mortgage was about to foreclose on the 

property.’’ By the way, this is in a Democratic Administration. This 

is a nonpartisan issue. He is talking about 1977, the Carter Administration. 

‘‘The tenants believed, and rightly so, that their buildings would 

be sold to the highest bidder without the existing, long-term, affordability requirements, and they would all be pounced out of 

their homes. I worked with members of this committee to enact a 

provision, housing and community development amendments of 

1978, that for the first time required HUD to sell properties facing 

foreclosure to groups that would preserve affordable housing, including local governments and tenant nonprofit organizations, or 

nonprofits, and provided adequate resources to ensure affordability 

and decent quality. As a result of that legislation, and with HUD’s 

subsequent cooperation, Methunion Manor is today a thriving, afVerDate Aug 31 2005 16:05 Sep 22, 2008 Jkt 044187 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\44187.TXT TERRIE
4 

fordable, limited equity cooperative that is only controlled by its 

residents and which continues to contribute to the South End’s historic diversity.’’ 

And, it closes with a plea: ‘‘The time to act is now. I commend 

the committee for examining ways to maintain the existing supply 

of affordable rental housing and allow us to focus our efforts on 

preserving units protecting the tenants.’’ 

And there is a statement submitted by former Senator Edward 

Brooke, who served in the United States Senate for 12 years and 

was, as he indicates here in 1977–78, one of the first to get legislation enacted to preserve affordable housing. 

So I want to stress again; this is a bipartisan issue. This began 

with a Republican Senator preserving affordable housing from an 

effort that was going to be undertaken by a Democratic Administration; and, what Senator Brooke acted on, and what he urged us 

to do, he was of course also the author of the Brooke amendment, 

which is the basis for limiting the rents that are charged in public 

housing and subsidized housing. 

So I am very much moved. Senator Boucault, when he heard 

about what we were doing and volunteered that he would like to 

be helpful in the effort, hoped to be able to come. For health reasons, he wasn’t able to come, but he did submit this statement, because, as I said, he is really the pioneer in what we are trying to 

do. He was a Republican Senator who was very concerned about 

housing. And I hope we can continue these efforts. 

I appreciate the indulgence of my colleagues and I now recognize 

the ranking member of the subcommittee, the gentlewoman from 

West Virginia. 

Mrs. CAPITO. Thank you, Mr. Chairman, for your leadership on 

this issue and for holding today’s hearing on affordable housing 

preservation. 

As we know, since the 1950’s, the Federal Government, mainly 

through HUD, has subsidized $1.7 million in rental units and over 

23,000 privately-owned properties that are generally affordable to 

low-income tenants, those with incomes 80 percent or less of an 

area’s median income. 

HUD supported the development of affordable housing by offering property owners favorable mortgaging financing, long-term 

rental assistance contracts, or both, in exchange for the owner’s 

commitment to house low-income tenants for at least 20 years, and 

in some cases up to 40 years. In addition, through the favorable financing provided through these years, many of the properties received long-term rental assistance provided under various programs such as Section 8, rent supplements, and rental assistant 

payment programs. 

The properties subsidized under these programs represent a significant source of affordable housing across the country. Many of 

the commitment periods will be completed within the next several 

years, and when owners pay off the mortgages, the subsidized financing ends and so does the requirement to keep these units affordable. Therefore, the end term of the mortgage could result in 

increased rents, a source of great concern to all of us. 

One of our responsibilities here today will be to understand what 

happens to all of those tenants, many of them elderly, when these 

5 

mortgages expire or mature. In some cases, there are provisions, either through the State or Federal or local governments that will 

assist in finding or preserving affordable housing. In other instances, however, there will be no assistance, and development 

owners will be free to charge market rates that could be and would 

be, in a lot of cases, out of the tenant’s reach. 

Today’s hearing will begin to lay the foundation for our understanding of this very complex matter. Notwithstanding the tenants’ 

concerns, however, I think we should applaud the owners of these 

developments for their participation in these affordable housing 

programs. In a country such as ours, free enterprise allows owners 

of private property to use the property as they please. I am hopeful 

that some of these owners will find it fruitful to continue to provide 

affordable housing to low-income tenants. 

How we address their needs as owners will greatly impact how 

we can preserve a very successful private/public partnership that 

leverages private capital to achieve public policy goals. 

Mr. Chairman, thank you again for your leadership on this issue, 

and I look forward to hearing today’s testimony. 

The CHAIRMAN. Are there any further members who wish to 

make opening statements? 

The gentleman from Massachusetts. 

Mr. LYNCH. Thank you, Mr. Chairman. 

Mr. Chairman, as you know, I grew up in public housing in the 

Old Colony Housing Project in South Boston, so I have a special 

place in my heart for the families who now rely on affordable housing. I appreciate you holding this hearing today to try and analyze 

the impact of the loss of affordable housing in our communities. 

I recently, like the chairman, had an opportunity to visit one of 

the affordable housing communities in my district in Boston—the 

Georgetown Homes community—and when visiting there, it underscored for me why changes to our housing preservation system are 

so important at this time. 

For more than 35 years, Georgetown Homes has provided quality 

housing to more than 3,500 residents, and nearly 1,000 affordable 

apartments, and they currently have a waiting list to get in. When 

I compare the public housing that I lived in to Georgetown Homes, 

it is a vast improvement. However, in the next 3 to 5 years, 

Georgetown Homes will have fulfilled its pledge to provide affordable housing for 40 years, and, in the absence of changes to the 

current law, many of the Georgetown Homes units will become 

unaffordable for their current residents. 

Georgetown was originally created as two separate developments 

back in the 1960’s, and some resident apartments receive projectbased Section 8 rental assistance, while others do not. These two 

developments that were merged have always been maintained by 

one management, and very well by the way, and they were formally, financially merged together under one mortgage when the 

original loan for the development was pre-paid in 2004. 

But because they were originally purchased in separate transactions, when the affordability restrictions for the property end in 

a few years, some residents will be protected while others will not. 

This is just one example, and I’m sure this is replicated thousands 

of times across the country. So I appreciate our efforts here to try 

6 

to come up with legislation that will address these situations so 

that we can proactively reassure the tenants that they are not 

going to be tossed out of their homes when these restrictions expire. 

With that, Mr. Chairman, I will yield back. 

The CHAIRMAN. If the gentleman would yield, let me just say 

that he raised a very important point. 

I know how seriously he has been working on these issues and 

I will address this to HUD and I did have a conversation, in fact, 

with the new Secretary on the question of Detroit. I hope that help 

is on the way for these projects, and I hope that no one wants to 

be the last person to die in a war. We don’t want any group of tenants to be the last ones who were evicted before help arrived. 

So I am hoping that we can work with HUD to show some flexibility and maybe extend this period and there is always the option 

of bill-by-bill. But I think it would probably be better if we could 

get some understanding of how to approach these things, and I do 

expect—and I think there is a lot of bipartisan support for this— 

that we will be able to deal with something next year. 

I should add, by the way, that this is not only a city problem, 

but there’s a rural preservation piece, which goes through the Agriculture Department that the gentleman from Tennessee, Mr. Davis, 

and the gentleman from Kentucky, Mr. Davis, have collaborated on 

and that will be part of it. So we will be working to try to avert 

any irrevocable actions before that. 

The gentleman from Texas. 

Mr. GREEN. Thank you, Mr. Chairman, and I thank you for your 

insightful analysis. I thank the ranking member as well for her 

comments. 

Mr. Chairman, I am concerned about a number of things. The 

Section 8 vouchers are a plus but we do have circumstances wherein they don’t meet needs. For example in Louisiana, down in New 

Orleans, the Section 8 vouchers were available but there were no 

properties available to use the vouchers such that you could have 

shelter. That caused some consternation. 

I am also concerned about the waiting list. Some of our authorities will literally suspend the waiting list, and, when this is done, 

then you have no way of knowing how many people are actually 

in need, because the list has been suspended and they suspend it 

sometimes for long periods of time, such that people who actually 

need housing can’t record this in such a way that we here will have 

empirical evidence of what the actual need is. That causes me some 

concern. 

In this country, homelessness is a real problem: 800,000 people 

are homeless; and about a quarter of them are veterans. In my 

State alone, we have 16,000 veterans; in my City, 2,400. I am concerned that we do have the Section 8 vouchers to help people move 

from the streets of life to shelter as quickly as possible, but I do 

think that the notion of one-for-one replacement with the housing 

stock that we have in certain areas is of paramount importance. 

So I come back again to Louisiana and to post-Katrina housing 

wherein we have actually had some units to be raised, and we have 

not had a raising after having had a razing, meaning demolition. 

But we haven’t started the construction, and I remember the chairVerDate Aug 31 2005 16:05 Sep 22, 2008 Jkt 044187 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\44187.TXT TERRIE
7 

woman of the Housing Subcommittee being very vocal about trying 

to have one-for-one replacement. 

She speaks well for herself, but I do want to join her in this notion that one-for-one replacement is of paramount importance, especially in an area like New Orleans, Louisiana, or Louisiana in 

general, where people are trying to get back home and we are 

eliminating the housing stock. 

I thank you very much for the time, Mr. Chairman. I will have 

to leave at some point and I apologize for this. But I assure you 

I will be monitoring the witnesses and the activities of the committee. 

I yield back. 

The CHAIRMAN. Are there any further members who wish to 

make opening statements? 

The gentleman from Missouri. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I only have a short statement. I, like my colleague, grew up in 

public housing, and sometimes experienced some very ugly living 

conditions. But, at least, we had housing. I left the office of Mayor 

of Kansas City in 1999. Shamefully, we have not had a single, affordable housing unit come online since 1998—the largest City in 

the State of Missouri, and not one unit. I speak with the heads of 

CDCs who are all outraged and at a time when the subprime crises 

is causing all kinds of housing problems all over the country, the 

neediest people in our community are experiencing even more trauma, and I am very anxious to explore with you ways in which the 

largest city in my congressional district can do something about the 

construction of affordable housing. It is woefully inadequate and 

embarrassing. 

I yield back the balance of my time. 

The CHAIRMAN. If there is no further discussion, we will hear 

from our witnesses, and I am pleased that we have a very balanced 

panel. 

First, we have Mr. John Garvin. Let me say that when I raised 

this issue initially with Secretary Jackson some time ago, he told 

me that Mr. Garvin, who was the Deputy Assistant Secretary for 

Multi-Family Housing, would be the responsible individual. I have 

found him to be exactly that, and I appreciate the chance to discuss 

this with him. 

We also have Shaun Donovan, the commissioner of the City of 

New York where we have just, I think, managed to show how this 

can be done with Starrett City. 

And Mr. Clarence Snuggs from the Maryland Department of 

Housing and Community Development, who has worked with us 

before on the questions of foreclosed property. So, I think, having 

the Federal, State, and City is exactly the appropriate balance. And 

let me just say as we go forward, it would be my hope that whatever legislation we adopt would offer these incentives, not just to 

the federally-funded programs, but to the State programs as well. 

Tenants are tenants and affordable housing is affordable housing, 

and those States that stepped up and tried to do something should, 

I think, get the cooperation and recognition as well. 

Mr. Garvin, we will begin with you. 

8 

STATEMENT OF JOHN L. GARVIN, DEPUTY ASSISTANT SECRETARY FOR MULTI-FAMILY HOUSING PROGRAMS, AND 

SENIOR ADVISOR TO THE FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Mr. GARVIN. Thank you, Chairman Frank, Ranking Member 

Capito, and members of the committee. 

I am very pleased to be here today to talk about the Housing 

Preservation and Tenant Protection Act of 2008. Secretary Preston 

and Commissioner Montgomery both send their regards and their 

thanks for holding this hearing. 

As our policies illustrate, we are very committed to preserving 

safety and affordable housing when feasible; and, I have to admit, 

I haven’t read this whole legislation. Even the summaries are very 

long and it’s intensive, but I really thank you for taking serious 

recognition of the need for a national, affordable housing preservation policy, and I think this moves us much closer to that. 

Well, you know, we do not have an official position on this legislation yet. I am very, very pleased, and I think it is real progress 

that this bill does propose to give the Secretary of HUD the authority to provide enhanced vouchers to eligible tenants from 236’s and 

221(d)(3), below market rate/interest rate developments, is an excellent move for tenant protection. 

As I said, this is a powerful step and I really thank you, Chairman Frank, and your staff, for taking such an intense position on 

preserving affordable housing. Even before I came to HUD, I ran 

a great organization of tax credit developers and syndicators, investors, and property managers. We appreciate all of your efforts to 

preserve and construct new, affordable housing. 

As you know, one of our strongest preservation tools at HUD, 

and it has been extremely successful and it even comes the closest, 

I can say at HUD, to being a fine running machine, is the Markto-Market program, that to date would preserve 200,000 units and 

save taxpayers more than $2.1 billion. It is definitely our strongest. 

On our project-based, Section 8 portfolio, I am also pleased to say 

that we do have more than a 90 percent retention rate, and while 

a 10 percent loss isn’t good, 90 percent preservation is really good. 

As I mentioned earlier, working with that multi-family development group, I met with them before I decided to come up to HUD 

and take this job. And I said, you know, what is up with HUD and 

FHA multi-family? 

One of my board members runs a nonprofit in San Antonio, and 

she looked at me and she said, ‘‘FHA is the best game in town if 

you can take the headache out of it.’’ And so since I have been 

there, and I’m not promising any miracle, but since I have been 

there, I have really enjoyed working with Commissioner Montgomery and my multi-family staff to take some of this headache 

out. 

As you know, most of these maturing mortgages are in need of 

recapitalization well before the maturity date, and a lot of them, 

if not most of them, go for low-income housing tax credits to recapitalize and rehabilitate the properties. If they do that, that is preservation. HUD has not always had a good reputation of mixing lowincome housing tax credits with preservation deals, so I asked my 

9 

staff. And it has been excellent, that really increases their flexibility. I asked them to look at ways, if we could all get together 

and get with the industry, a lot of the folks who were here today, 

to figure out how to make HUD more attractive to owners for refinancing deals, so they would come to HUD, and get rid of that 

headache. And we have been doing a lot over the last several 

months to make HUD more attractive. 

Yesterday, the Commissioner signed off on a policy to get into 

clearance, to really streamline the process for using tax credits 

with mainly our 221(d)(4) program. We took a serious look at the 

100 percent tax credit equity escrow situation, which back when I 

was on the tax credit side was the biggest barrier, why none of my 

members would ever use (d)(4) insurance, because no one wanted 

to put 100 percent of the equity up front. 

We took a serious look at that, and I can’t make the announcement yet, because it is still being cleared, but I think you will all 

be pleased. 

The CHAIRMAN. Mr. Garvin, I am going to interrupt you at this 

point because I want to ask you for your help. 

Mr. GARVIN. Sure. 

The CHAIRMAN. As you may know, Chairman Rangel and I, 

through our staffs, worked hard to do exactly what you are talking 

about, which is to make these more interactive. 

Mr. GARVIN. Right. 

The CHAIRMAN. Some of that is in the Senate Bill. When we get 

to a final conversation, I think at no cost to anybody we have language that if it survives, is going to build on the work you do. And 

I realize you are doing as much as you can without a statutory 

change, and we want to do statutory change that is similar. 

So we will look for your help in making sure we maximize this. 

Mr. GARVIN. Definitely, definitely, and we look forward to it. 

But in the new guidance, we took a lot of issues that I think the 

development community will turn back to FHA and we will be able 

to preserve a lot more units than originally thought of. 

When I first started in the multi-family side, we were not allowing any reduction in the number of units when they would refinance it. I know one-for-one replacement is of utmost importance, 

but we were seeing that folks were getting out of the affordable 

business, because we were putting restrictions that you had to 

have. If it was an efficiency, it had to stay an efficiency. Well, in 

a lot of markets, efficiencies were not leasing, so we did a conversion. It was a unit conversion policy that said you can turn a vacant efficiency into a one bedroom. It’s a more marketable unit. 

The developers made it again more attractive to refinance these in 

FHA (d)(4). 

I see my time is almost up. I look forward to questions, and 

thank you again for this opportunity to testify. 

[The prepared statement of Mr. Garvin can be found on page 102 

of the appendix.] 

The CHAIRMAN. Thank you, Mr. Garvin, and I think this is an 

ongoing project with a lot of cooperation. 

Mr. Donovan? 

10 

STATEMENT OF SHAUN DONOVAN, COMMISSIONER, CITY OF 

NEW YORK DEPARTMENT OF HOUSING PRESERVATION AND 

DEVELOPMENT 

Mr. DONOVAN. Good morning, Mr. Chairman, Ranking Member 

Capito, and members of the committee. I am Shaun Donovan, commissioner of the New York City Department of Housing Preservation and Development, the Nation’s largest municipal housing development agency. And while our mission to promote quality housing and viable neighborhoods for New Yorkers has not changed 

over the years, our challenges have changed dramatically. 

The crisis of abandonment that plagued many New York communities in the 1970’s and 1980’s was solved by rebuilding neighborhoods, driving down crime, and improving schools. But today we 

face the challenge of affordability in those very same neighborhoods. There are about 250,000 Federal- and State-assisted housing units in New York City. The programs that finance these units 

developed decades ago for a different housing market all include 

expiring use restrictions. The units represent a safety net of affordable housing for hundreds of thousands of New Yorkers, but the 

City is at risk of losing them. Given the strength of the City’s housing market as the use restrictions expire in some of these developments, owners face great temptation to leave the programs and 

raise rents to market levels. 

In other cases, properties face physical deterioration so severe 

that units risk becoming uninhabitable. In both of these situations, 

residents of these units may face displacement, and as the chairman said before, we lose those units permanently for the affordable 

housing stock when an owner either opts out or fails out of the program. 

Mayor Bloomberg’s expanded new Housing Marketplace Plan, 

the largest city affordable housing plan in the Nation’s history, recognizes the need and the opportunity to focus on these units. Out 

of the 165,000 units that will be created or preserved under the 

plan, 73,000 are preservation and 37,000 are affordable assisted 

units with expiring uses and subsidies. And HPD has designed a 

series of initiatives that will allow the agency to achieve this goal. 

But New York City and cities like us across the country cannot 

preserve this resource on our own. We need the commitment and 

partnership of the Federal Government. That is why I am so 

pleased to be able to testify on the importance of the Housing Preservation and Tenant Protection Act of 2008. 

The committee’s bill is a comprehensive set of measures to stem 

the tide of affordable housing loss. We are extremely supportive of 

Congresswoman Velazquez’ bill, H.R. 44, and I am pleased that it 

is contained in its entirety in the Housing Preservation and Tenant 

Protection Act of 2008. If enacted, this bill would give HUD and 

local governments new tools and the flexibility needed to maintain 

our stock of affordable housing. 

These tools are needed now more than ever. The problems in the 

subprime market have risen to the top of the national agenda. 

Homeowners and neighborhoods are threatened by this crisis, and 

it has highlighted again the importance of having a supply of decent and safe rental housing available to moderate- and low-income 

people. There is much in this bill to be applauded, but my testiVerDate Aug 31 2005 16:05 Sep 22, 2008 Jkt 044187 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\44187.TXT TERRIE
11 

mony will focus on those provisions which most directly complement the work we are doing in New York City. 

On June 2, 2008, Deputy Secretary Bernardi, Senator Schumer, 

Congressman Towns, Congresswoman Velazquez, Governor 

Paterson, and City and State officials announced that a deal had 

been reached with the owners of Starrett City to keep the development affordable. Starrett City, a nearly 6,000-unit project in East 

New York, is the largest federally subsidized project in the country. 

The owner’s initial attempt to sell the development and opt out of 

the various State and Federal subsidies was met with public outcry 

and ultimately with HUD’s rejection of the sale. 

The agreement reached with government represents a framework 

for preservation of Starrett to which the buyer of the development 

will have to adhere. And I would just like to depart from my testimony for a moment to recognize John Garvin and all of the work 

that he and his staff did to make this possible. 

Perhaps the most important part of the agreement is on the Federal subsidies there. Converting the Rental Assistance Payment 

contract to a project-based Section 8 contract is a lynchpin of preserving affordability at Starrett. We are very grateful to the committee for including the Starrett City-specific legislation in H.R. 

3221. 

Passage of the committee’s bill before us today would extend the 

possibility to the 470 other developments with these type of contracts. There are around 35,000 units nationally that are covered 

by rental assistance payment or rent supplement contracts. These 

subsidies, commonly referred to as ‘‘RAP and Rent Supp,’’ are decades old, antiquated programs. Unlike the newer project-based Section 8 program that replaced them, ‘‘RAP and Rent Supp’’ contracts 

are not renewable. 

In the next 20 years, all of these contracts will expire, and 35,000 

units of affordable housing will be lost. The committee’s bill would 

rectify this problem by giving owners the option to convert their 

‘‘RAP and Rent Supp’’ contracts to project-based Section 8. 

In exchange for a commitment to longer-term affordability, the 

owners get the ability to mark rents to market and the option to 

renew the contract. 

Allowing enhanced vouchers, which are tenant-based in nature to 

be converted to project-based Section 8 at the request of an owner 

is another significant preservation tool created by this bill. This is 

a good example of a low-cost means to preserving thousands of 

units of housing. In New York, the cost of an enhanced voucher is 

more than the cost of project basing, so while saving public funds, 

we could create a permanent source of affordable housing. 

HPD is currently negotiating with HUD to purchase a portfolio 

of loans on multi-family properties. The sale would allow HPD to 

buy all the notes on subsidized properties being held by HUD in 

New York City. Instead of waiting for the properties to fall into 

greater disrepair and enter foreclosure for an opportunity to purchase them through a right of first refusal, this sale will allow 

HPD to purchase the entire portfolio and be proactive in partnership with HUD about the property’s preservation. 

The New York City note sale is being watched closely by other 

States and cities for possible replication. There are two impediVerDate Aug 31 2005 16:05 Sep 22, 2008 Jkt 044187 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\44187.TXT TERRIE
12 

ments to the sale, both of which your bill addresses, and we’re 

grateful to you for including those as well. 

There are many other noteworthy provisions in the bill, but in 

the interest of time, a discussion of them is included in my written 

testimony. 

Thank you for the opportunity to testify before the committee 

today. I look forward to answering any questions you may have. 

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

98 of the appendix.] 

The CHAIRMAN. Mr. Snuggs? 

STATEMENT OF CLARENCE SNUGGS, DEPUTY SECRETARY, 

MARYLAND DEPARTMENT OF HOUSING AND COMMUNITY 

DEVELOPMENT 

Mr. SNUGGS. Good morning, Chairman Frank, Ranking Member 

Capito, and distinguished members of the committee. I am Clarence Snuggs, deputy secretary of the Maryland Department of 

Housing and Community Development. I want to thank you for giving me the opportunity to testify before you on the Housing Preservation and Tenant Protection Act of 2008. I also want to thank you 

for your leadership on this issue and your commitment to crafting 

tools to help preserve affordable housing for the Nation’s low-income families. 

The State of Maryland and DHCD are strongly committed to preserving affordable rental housing. Over the past 5 years, DHCD 

has preserved over 4,300 affordable rental units through the use of 

mortgage revenue bonds, low-income housing tax credits, State financing, and other resources. We have committed $75 million in 

bond authority for preservation this year, and we are currently a 

finalist for the McArthur Foundation funding for both our past and 

future commitments to preservation efforts. 

Additionally, we have re-engineered our State-funded lending 

and insurance products to facilitate preservation. We have been 

proactive in stepping out of the box to preserve affordable housing 

opportunities in Maryland, and we look forward to working with 

the Federal Government to do the same. DHCD, in addition to 

being a cabinet agency, is also the State’s housing finance agency. 

We support the language in the bill that gives States and State 

housing finance agencies greater control and participation in the 

preservation process. 

State HFAs are the right place to direct Statewide preservation 

authority. Because we have the favorable track record of supporting preservation, we know the variations of the State, preservation cannot be a one-size-fits-all approach. 

What we need most from the Federal Government is flexibility 

and timely decisions. Regional and field HUD offices where most 

decisionmaking should occur with the ability to delegate decisionmaking to State HFAs. We have an excellent working relationship 

with the Baltimore HUD office and have been able to sit down and 

negotiate the first in the Nation inter-creditor agreement designed 

to streamline the process of financing packages that involve both 

Federal and State resources. 

The FHA risk-share program and MOUs for subsidy layering requirements are similar examples of coordinated and delegated deciVerDate Aug 31 2005 16:05 Sep 22, 2008 Jkt 044187 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\44187.TXT TERRIE
13 

sion-making between HUD and State agencies. These agreements 

have a longstanding history of protecting the Federal Government’s 

interests while facilitating timely and prudent production and preservation of affordable rental housing. 

What’s most important is that the bill enabled HUD’s field offices 

to defer to HFA’s request for changes in existing loan terms and 

rental assisting contracts that are approved by the State HFA that 

is refinancing the project. 

We would also ask that the bill language allow for a delegated 

underwriting and approval of changes in project-based rental assistance within some broad parameters. This could be developed 

following the successful FHA risk-share and subsidy layering models. There is precedence for this intergovernmental partnership. It 

is efficient and effective government in action. 

In that light, we would ask that the legislation include provisions 

that would establish a demonstration program to waive the numerous rules and regulations of the preservation process. The amount 

of time it takes to preserve properties is one of the biggest obstacles in actually doing deals. We think the provision should be modeled along the FHA risk-share model that sets basic parameters regarding what protection HUD has to have, but gives the field office 

and State HFAs the ability to move more quickly when preservation opportunities arrive. 

We are pleased to see the requirement that HUD and USDA 

Rural Housing Services work together to create a database of subsidized properties. What we would like to see is language that calls 

for the coordination of rules and financing between HUD and RHS. 

Therefore, we would also like to see a requirement for HUD and 

RHS to develop an inter-creditor agreement that we can all use if 

the project is funded by both. 

Lastly, while we have some resources to finance preservation, we 

need more. This would include increases and caps on MRBs, an increase in the Federal low-income housing tax credit, as well as 

more Federal funding for home program or other new sources of 

funding which can finance the improvements and repairs preserved 

properties often need. 

It would be particularly useful to see provisions that would fund 

a program to provide short-term preservation funding to enable 

quick acquisition of at-risk properties before MRBs and tax credits 

are used as permanent financing options. 

The new resources would also be flexible and be designed to work 

in concert with or in deference to existing programs and requirements. 

Thank you again for giving me the opportunity to testify. I have 

submitted more extended remarks for the record, and would be 

happy to take any questions that you may have. 

[The prepared statement of Mr. Snuggs can be found on page 156 

of the appendix.] 

The CHAIRMAN. Thank you, Mr. Snuggs. 

Before we get to the questions, several of our colleagues have to 

go to a very important meeting at 11:00, and one of our witnesses 

is here at the invitation of the Chair of the Housing Subcommittee, 

who has been a leader on all these issues, so I am now going to 

14 

defer to her, so she can make the early introduction of the witness, 

which we will all remember when the witness testifies. 

Ms. WATERS. Thank you very much, Mr. Chairman. Before I introduce the witness, let me thank you. This was something that 

you identified early on, when I came onto this subcommittee. And 

it is perhaps one of the most important efforts we’re going to make 

to preserve housing. I was very pleased to be involved in the hearing up in New York; I think that was alluded to today. 

And I thank you also for this hearing today. I have an extraordinary witness who will be on the next panel, Ms. Amanda Seward. 

She is currently serving as counsel for the Lincoln Place Tenants’ 

Association, and as part of the team of attorneys who have been 

representing the tenants and their eviction cases brought by the 

owner of Lincoln Place. She is the author of the California State 

Historic Resource nomination of Lincoln Place, which was approved 

by the State Historic Resources Commission in 2005. It was 

through this nomination that she learned of the plight of the tenants. 

She was an elected member of the board of the Marvista Community Council Board of Directors, and she is a founding member of 

the Marvista Historical Society, and former chair of the Residential 

Council of the Los Angeles Conservancy’s Modern Committee. She 

has been active in the preservation community in Los Angeles for 

10 years, and is especially focused on the preservation of modern 

architectural housing. 

Ms. Seward received her JD from Georgetown University Law 

Center, and received her BA in philosophy from Spelman College. 

She is a member of the State Bar of California, and the State Bar 

of Georgia. 

And I am sorry that I am going to have to leave early, because 

the story of what these wonderful people have done, fighting for 

preservation, is just absolutely wonderful. 

The CHAIRMAN. Well, if the gentlewoman would yield, I appreciate that. And it’s nice to have a lawyer who works for tenants 

here, because I think some of our colleagues could benefit from 

maybe the de-demonizing of that role, as our colleague from North 

Carolina had been fighting for. We hope that people recognize that 

there are a number of cases where a lawyer working with tenants 

makes a very constructive contribution. 

With that, I’m going to begin the questioning, and we have a 

great deal of substantial agreement. One of the things I am going 

to be asking, Mr. Garvin, I anticipate some issues here as we go 

forward with this, with the scoring under the Congressional Budget 

Office. And I think what will be important for us to work together 

is, yes, there will be some initial outlays here. But if you look at 

policy going forward, it seems to me that we ought to be able to 

deduct from those outlays what the cost would have been of enhanced vouchers, going forward. Because enhanced vouchers are 

very expensive. 

Now the problem, of course, is that there is no legal obligation 

to provide the enhanced vouchers, so CBO can theoretically say, 

‘‘Well, you’re putting out this money and you know next year you 

could have them all evicted.’’ I’m hoping we could prevail on CBO 

to take a more realistic view of this, and to look at what the costs 

15 

would be of preserving those tenants, because obviously when you 

do that, you bring down the cost. Would you agree? 

Mr. GARVIN. 100 percent, yes, definitely. 

The CHAIRMAN. One of the things I think would be helpful for 

HUD to prepare for us would be estimates of what the actual cost 

would be in some of these cases, if we were to continue enhanced 

vouchers, rather than preserve the tenancies. And it might not be 

binding, but it would help me with my colleagues. 

Mr. Donovan, do you— 

Mr. DONOVAN. I would just want to chime in there for a moment, 

Mr. Chairman. One of the reasons why the effort on Starrett City 

has been successful is we worked very closely with HUD and with 

Senator Schumer to look at the scoring of the conversion of the contract at Starrett City. And in fact the CBO did recognize that there 

was zero cost to that, because the owners had in fact made it very 

clear that they were going to opt out and there would be enhanced 

vouchers— 

The CHAIRMAN. Well, that’s very helpful— 

Mr. DONOVAN. In fact, the cost of the conversion to project-based 

Section 8, because it’s only 60 percent of the units and 40 percent 

of the units will remain below market, the cost of the conversion 

is actually saving the Federal Government— 

The CHAIRMAN. Well, that’s—I’m glad that we have that precedent, and that’s going to be a very helpful factor for us to do this 

going forward. 

It is also the case—and I know you looked at this, Mr. Snuggs, 

as well—I want to make sure that I’m working with your colleagues at the State level that we are not discriminating between 

State and Federal here; and that is something that we want to 

make sure has been totally integrated. 

But let me just ask, do you think you know the answer to the 

question: What are the comparative costs of preserving a unit— 

even without the enhanced voucher situation—but what are the 

comparative costs of preserving a unit versus constructing one from 

scratch? 

Mr. Garvin? 

Mr. GARVIN. I really couldn’t generalize on the answer, because 

you could go into a building and it could be in pretty good condition, and have some rehab and preserve it. You could go into a 

building, not knowing what— 

The CHAIRMAN. No, I’m talking in general—suppose we did this 

under the Affordable Housing Trust Fund, or Section 811, or building from scratch new units. 

Mr. GARVIN. In general, it is obviously cheaper to rehab an existing unit. I mean— 

The CHAIRMAN. And in some cases, it seems to me we don’t even 

have to rehab. 

Mr. GARVIN. Right. 

The CHAIRMAN. When I talk about preserving, I guess I phrase 

it too ambiguously. I’m not talking about necessarily physically 

preserving it, but legally preserving it in the inventory, as opposed 

to building a new unit. 

Mr. GARVIN. Right. 

16 

The CHAIRMAN. Mr. Donovan, in New York City what is the comparative cost? 

Mr. DONOVAN. I think Mr. Garvin is correct; it obviously depends 

on the extent of the rehab, but in general what we find is that the 

cost of new construction is roughly twice what it costs to preserve 

in terms of public subsidy that we provide. 

The CHAIRMAN. Mr. Snuggs? 

Mr. SNUGGS. I would concur, but I would suggest that in Maryland, construction of a new unit would run somewhere around 

$150,000 a unit. 

The CHAIRMAN. And you could preserve for less. 

I thank you. I have no further questions. Ms. Capito? 

Mrs. CAPITO. Thank you, Mr. Chairman. I want to thank the 

panel. 

Mr. Garvin, in your statement you mentioned something that it’s 

90 percent of the Section 8 vouchers had been preserved, 10 percent loss. Can you— 

Mr. GARVIN. That’s the project-based portfolio, not the voucher. 

Mrs. CAPITO. Okay. What does that result in? Does that result 

in 10 percent fewer tenants or fewer units? Or can you expound on 

what that actually means in terms of folks living there? 

Mr. GARVIN. Sure. Private owners of those properties that receive 

project-based Section 8 have an affordability period, and then they 

can opt out. And some want to opt out and do. Others realize it’s 

a very good business decision to stay with a guaranteed cash flow, 

the renewing project-based Section 8. 

But like Chairman Frank mentioned earlier, some markets people really want these properties to make them upscale condominiums, and it’s very, very hard to preserve them. 

Mrs. CAPITO. So you’re saying in terms of the ones who had the 

expiring tax provisions, 90 percent of those stayed in the program; 

10 percent left. Is that— 

Mr. GARVIN. Yes. I think it’s a little higher than 90, but my staff 

wouldn’t let me say that. So I think it’s a little bit higher. 

Mrs. CAPITO. Okay. Let me ask you, if you’re in that 10 percent 

where they’re going to out to free-market prices, if you’re a tenant 

in one of those units or one of those buildings, what is the notification requirement? And is there any HUD program that comes in 

and works with folks to try to help them find alternative units? 

Mr. GARVIN. Yes. I think the notification is either 1 year or 9 

months; I don’t remember. I think it is a year. And then it is 

project-based Section 8, so they do get an enhanced voucher to pay 

a higher level— 

Mrs. CAPITO. I’m sorry, they get what? 

Mr. GARVIN. They will get an enhanced voucher to pay a higher 

level of rent. 

Mrs. CAPITO. At that same unit? 

Mr. GARVIN. Right. 

Mrs. CAPITO. That same unit. Okay. Thank you. 

The CHAIRMAN. Ms. McCarthy? 

Mrs. MCCARTHY. Thank you, Mr. Chairman. Listening to the talk 

about preserving and everything, as we renovate some of them to 

preserve them, are we doing anything about increasing access for 

handicapped people? 

17 

Mr. GARVIN. Well, we have good laws such as 504 accessibility 

guidelines that new construction has to deal with. And if it’s a significant rehab, they have to put accessibility into an existing development. 

Mrs. MCCARTHY. And the other area is foreseeing housing in 

apartments or whatever. Are you bringing them up to grade, you 

know—actually I personally think every apartment that you do 

should already be incorporated for the showers, handles, everything— 

Mr. GARVIN. Grab bars, yes. 

Mrs. MCCARTHY. As we look at our senior citizens getting older, 

there is nothing wrong with having handles in the bathtub and the 

shower and things like that for safety— 

Mr. GARVIN. Or at least the supports behind the wall, so that 

when they— 

Mrs. MCCARTHY. Right— 

Mr. GARVIN. I remember I worked in Texas at the Housing Finance Agency, and we had accessibility features like that built into 

our new construction, that it would be prepared to put in accessibility features and doorways and such. 

Mrs. MCCARTHY. Two of my colleagues unfortunately aren’t here 

right now. Mr. Ellison, Mr. Capuano, and myself, have introduced 

legislation, H.R. 5963, which really goes towards the protection of 

the tenants, especially under a foreclosure or anything else like 

that. I don’t know if you have had a chance to look at it. I hope 

you have. If you have, could you give me some feedback on it? 

Mr. GARVIN. I haven’t seen it yet, but I will look at it and make 

sure you get my comments. 

Mrs. MCCARTHY. I appreciate that. 

Going back to my own district, my area—I live on Long Island, 

and the surrounding districts are really high cost. I mean apartments are extremely expensive to start with. How will the Housing 

Preservation and Tenant Protection Act of 2008 address the difficulties in preserving affordable housing in areas like the one I 

represent? 

Mr. GARVIN. I think I’ll let my friend from New York here take 

that one. 

Mr. DONOVAN. Well, I think there are a couple of very important 

provisions that are contained in the bill that will help that. But 

just to step back, I think overall one of the things that HUD has 

done very effectively that has kept the rate of preservation that 

you heard about over 90 percent is in markets like New York to 

allow rents to be marked up to market under Section 8. In other 

words, it goes to this very principle the chairman was talking 

about, that if in fact the government is going to be required to pay 

a market rent through a voucher, and that it is not going to preserve the housing long term, why not look at the opportunity to actually raise the rents to market under the project-based program, 

particularly in areas where the housing is hardest to preserve, 

which is where the mark-up to market program has been focused. 

And that has been very, very successful in New York, both within 

the five boroughs, but also in Long Island and other areas in preserving existing housing. 

18 

One of the great threats that we face right now is that there has 

not been adequate funding over the last few months to renew all 

the Section 8 contracts for a full year. And it is absolutely critical, 

no matter what we do in this bill, that there be the resources to 

be able to preserve that housing. 

We have about half of all the RAP and Rent Supp units nationwide in New York State. And it is absolutely critical in order to 

preserve that housing that we get the ability to convert those to 

project-based Section 8, because right now not only do you not have 

the opportunity to mark those up to market, so there’s a huge incentive for owners to get out of those properties and convert them 

to market, but in fact you can’t even renew those contracts. So 

when they end, there’s nothing you can do currently to be able to 

preserve those properties. 

So that’s one of the very important things specifically for Long 

Island and New York State in general in terms of preserving 

project-based housing. 

Mrs. MCCARTHY. And I agree with you on that, because I’m looking at some of my areas that actually are doing very well with Federal help on bringing back their towns and the villages. Now we 

are looking at where the affordable housing is, and it is prime location now to build condos and to have higher-income families coming 

into the area. I think we need to do what we need to do to preserve 

the housing, because there is no place on Long Island that we 

can—we can’t ship them out to Montauk and have them drop off 

the island. 

[Laughter] 

Mrs. MCCARTHY. So it’s an important issue. 

Mr. DONOVAN. Congresswoman, you also mentioned foreclosures. 

At the other end of the spectrum—not properties that are at risk 

of converting to market rate, but ones that are at risk of deterioration and foreclosure—we have worked very cooperatively with HUD 

and over a dozen properties have been preserved through the foreclosure process. One of the things the bill would fix—right now it 

was language in the Deficit Reduction Act of 2005, which stops 

HUD from being able to value properties and loans at a proper 

price. 

Just to give you an example, we have a property in the South 

Bronx that needs a huge amount of rehabilitation. It has a negative market value, if you look at it correctly. In fact, the current 

language in the Deficit Reduction Act required HUD, when we 

wanted to buy it under our right of first refusal, to value it at close 

to $7 million. So we would have to take $7 million of New York 

City taxpayer money to buy a property that was actually worth less 

than zero because of the rehabilitation you had to put in. With the 

change in language that is in the bill, we could value that property 

correctly; we could buy it for a dollar, put our own resources in, 

and fix it up, just as we have been doing. And that is something 

that is affecting cities all over the country. Nobody has been able 

to use this right of first refusal—in Syracuse and a whole range of 

other places around the country—since this language was put in 

place. This bill would rectify that problem. 

Mr. GARVIN. And that is important. We have not done one since 

this legislation took effect. And it baffles the cities when they want 

19 

to preserve units, and we say, ‘‘You have to spend $12 million for 

a property that’s not worth anything.’’ Can I say that? 

The CHAIRMAN. Try to address that going forward. 

The gentleman from Connecticut? 

The CHAIRMAN. Oh, I’m sorry. I didn’t see that the gentleman 

from Texas has joined us. A distinguished housing advocate here, 

the gentleman from Texas. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

I appreciate the chairman bringing this bill up before this hearing today. You know, we talk a lot about it as we have hearings. 

We have hearings on this existing program, and one of the things 

this bill does is it tries to make an existing program somewhat better and more flexible. 

I think the question I want to ask the panel this morning is if 

you had a clean piece of paper today and, you know, you didn’t 

have the confines of the existing programs and all of those, what 

would the new program—what would the program moving forward—what would that program look like? Because we have 

projects. We have vouchers. We have tax credits. We have all of 

these different scenarios out there and we are always trying to fit 

them together. And the question I have with a lot of Federal programs, I think we keep trying to fix something. And some of these 

programs are over 40 years old. 

The question I have is, if we started over, what works best? 

Mr. GARVIN. I have to be a little careful here, and this is just my 

opinion, but I have to tell you, I have been at HUD for 21⁄2 years 

and Shaun knows, because he was there before me. I guess legislation changed every year between the 1970’s and the 1990’s, that 

changed each existing program, so someone will come in with a refinance. And, it will be like, no. They have, you know, gas, electric, 

utility or something, so it operates this way. Or, they have five 

windows extra, so it operates another. There’s no deal. 

There is no one deal that is ever alike. So I think streamlining; 

I think the low-income housing tax credit program has been just 

such a huge success, because it basically stays the same—mixed 

tax credits with some rental assistance and it’s much cleaner and 

easier to do. 

Mr. NEUGEBAUER. Mr. Donovan? 

Mr. DONOVAN. I would agree that I think the tax credit has become a very, very effective model. And I do believe that the work 

that Chairman Frank and Chairman Rangel are doing together to 

try to integrate those programs better is extremely important. We 

waste, frankly, way too much public funding in hiring lawyers and 

hiring consultants, and hiring a whole range of folks just to make 

programs work together, and, so simplification, to make the existing programs work, I think is very, very important. 

Beyond that, what I would say is what we have learned in New 

York City is that mixed income housing works best. And we have 

been able to find ways to do that, but I think there are ways to 

make the tax credit program, and also in particular to use vouchers 

more creatively, project-basing them as a percentage of units within developments. That can be extremely effective. 

What is interesting is that most of the affordable housing we 

produce in New York today, and we are doing a lot of it, is absoVerDate Aug 31 2005 16:05 Sep 22, 2008 Jkt 044187 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\44187.TXT TERRIE
20 

lutely invisible to most people. Just as Chairman Frank was saying 

earlier, housing that was fought against 20 years ago is now highly 

valued in the neighborhoods. This isn’t being fought against, because people don’t differentiate it at all from unsubsidized housing 

in the neighborhood because of the mix of folks who are there. And 

that has allowed us to really be successful in a way that I think 

with some changes to the tax credit program, and in addition to 

some changes in the voucher program, we would have the right 

combination going forward. 

Mr. NEUGEBAUER. Mr. Snuggs? 

Mr. SNUGGS. It’s difficult to go back to that white piece of paper, 

which I guess is the ultimate in simplicity. But I mention in my 

testimony that we work well with the local HUD office in Baltimore, and I think out of that we have been able to get additional 

flexibility, a desire to get the decisions quicker. And I think having 

the authority at the local level to work with the State as we work 

with our developers, I think that is critical. And that is what I 

would suggest. 

Mr. NEUGEBAUER. You know, one of the things I heard some of 

you saying is that some of these projects, over 20, 30, or 40 years, 

you know, the neighborhoods have changed. The dynamics of the 

community have changed; and, I appreciate the fact that Mr. Garvin said that he had been working with the developers themselves. 

And, I assume, Mr. Donovan, you have been doing the same as this 

partnership that the mayor is putting together, you know, offering 

some kind of innovative thoughts of mitigation. 

In other words, one of the things we know is that as Mr. Donovan says, having these huge concentrations of low-income housing, 

we found that that was not necessarily a good thing. And so having 

mixed projects and being able to refine the financing and in using 

some of the tax credit programs to help facilitate that, even to the 

point where if that developer can go buy an additional piece of 

property and be able to change the dynamics of the one that’s currently under the Federal program, but being able to move some of 

that to another location, possibly makes sense. 

And I think that’s where I said I don’t want to throw the baby 

and the bathwater out, but what I do know is that a lot of those 

programs that we’ve had had some constraints on them that are 

causing the development community, for example, just to say, you 

know, I’m not going to fool with that. And certainly the streamlining is one of them, and I don’t know if it is still as large as it 

used to be. 

Back over 30 years ago, I used to work for a developer that put 

together some Federal projects, and the soft costs were so much 

higher doing one of those types of developments than a normal development that the lawyer fees and the consulting fees, I mean, it 

was astronomical. That takes away a lot of the feasibility for a lot 

of those deals. 

Mr. DONOVAN. I just mentioned there is one provision in the bill 

which I think could be very helpful and exactly the kind of flexibility that you are talking about. I think, currently, HUD has just 

current-year, legislative approval to move Section 8 contracts from 

existing properties to new properties. As you said, there are places 

where the building is so deteriorated that preservation may not 

21 

make sense, or that it is so concentrated or there are other features 

and general preservation is the right strategy. 

But that doesn’t mean that in 100 percent of the cases it is, and 

it would give HUD permanently the ability to move Section 8 contracts to new developments where that makes sense. It is a great 

outcome, because it preserves affordable housing. Right now, we 

are losing those units. But it also recognizes that a one-size-fits-all 

strategy doesn’t work for every city or state. 

The CHAIRMAN. Well, if the gentleman would yield, I would add, 

first of all, in terms of areas where it doesn’t make sense, and let’s 

be honest, there are probably some cases where the increase in 

property values is such, and there may not be a lot of those, that 

the amount of money it would take to keep that one in the affordable inventory isn’t worth it, and that you would be better off given 

that we have limited resources. 

So some have deteriorated so much, and there may be a few 

cases where it is just better to take that money and be able to use 

it elsewhere. The other thing I would say is from the standpoint 

of that flexibility, I have been told by every developer—the nonprofits, the religious groups, the for-profits—that harmonizing the 

HUD appropriations programs and the low-income, tax credit program with zero appropriation increase is one of the best things we 

can do. 

And that is one of the things that is in our legislation. The staff, 

bipartisan, worked this out. Our staff on a bipartisan basis worked 

with the Ways and Means staff on a bipartisan basis. It wasn’t 

fully in the Senate bill. I think it was more of an oversight than 

anything else, but that’s another very important piece that we can 

do to get that full integration. 

Let me just say to my colleagues—I don’t think it is a big secret—we have a lighter than usual attendance, because many of 

our colleagues who have a great interest in this who are members 

of the Congressional Black Caucus, had another engagement, 

namely a meeting with Senator Obama. So I think people will 

think that their absence from this meeting might be understandable. It shows no lack of interest in this subject. 

The gentlewoman from California. 

Ms. SPEIER. Thank you, Mr. Chairman. 

Mr. Donovan, in your prepared testimony, you referenced that oftentimes the rehabilitation costs for HUD properties are as much 

as $100,000 per unit, which is a lot of money. Now, in certain 

areas, in high-cost areas, you are probably better off rehabilitating 

those properties, but in lower-cost areas, I would think $100,000 

would be a windfall to those who are somehow rehabilitating those 

properties. 

Do you happen to know whether this figure is flat-rate or is this 

a figure that varies from area to area? 

Mr. DONOVAN. It absolutely varies from area to area. When I 

heard my colleagues say that they could construct a new unit for 

$150,000, I almost fell off my chair. We are at least double that in 

the five boroughs, simply because of the constraints on space, the 

cost of moving materials, labor, and a whole range of things. 

So, $100,000 would be a very high number. That would be at the 

top end of the spectrum. We have HUD properties that we preserve 

22 

where we only need to put in $10,000 or $20,000 a unit; and, absolutely, I think that top figure, New York City, San Francisco, there 

are few of the highest cost areas where $100,000 would be at the 

top end. But in most other places it would be significantly lower 

than that, simply because of the cost of materials and labor and 

other things are lower. 

Ms. SPEIER. Because the market changes so radically from period 

to period, and many of these programs have been on the books for 

10, 20, 30, or 40 years, I wonder if you know of any provisions that 

really should just be terminated, that no longer fit the bill, that 

may in fact be boondoggles, that we should just strip out of the existing programs? And maybe this is a question to both Mr. Garvin 

and to Mr. Donovan. 

Mr. DONOVAN. I was going to say that I think one of the things 

that has been very refreshing to us in the world trying to preserve 

these properties is to see HUD over the last few years really try 

to simplify some of the programs and streamline some of those requirements. I think with Mark to Market, for example, distribution 

restrictions and certain things that are really, I think, frankly, 

anachronistic at this point in terms of the way these deals get done 

today that can really help create incentives for owners to stay in, 

while, you know, actually benefiting residents, because the programs do remain. 

I think one of the provisions I would very much point to is that 

there are programs like ‘‘Rent Supp’’ and ‘‘RAP’’ that are out there 

today, where compared to the project-based, Section 8 program, 

which has well over a million units, there are 35,000 units in RAP 

and Rent Supp. There are other lingering programs that are older, 

and what we are recommending and is included in the bill is to 

simply take those programs and roll them into the current programs. 

Whenever you can have one program instead of three or five or 

seven programs, it is going to make administration much simpler 

and preserve units in the long run. So I think in particular this 

RAP and Rent Supp conversion is a very good example of where 

we can just say, ‘‘You know what? It is just not worth retaining 

those whole programs. Let’s just put it into project-based Section 

8 program that is working well today to preserve property.’’ 

Ms. SPEIER. So, are there any other programs that aren’t working that should be addressed? 

Mr. GARVIN. I will take that one. 

Ms. SPEIER. All right. 

Mr. GARVIN. There are definitely programs that have the issues, 

and that is why, as Chairman Frank hit it on the head earlier, the 

more flexible HUD can be working with folks with low-income 

housing tax credits or tax exempt bond financing, making us not 

such an obstacle. And I’m very impressed with staff, like Shaun 

was saying, over the last year or so, that they have opened up and 

want to be a partner, less a harsh regulator. 

But they want to get the deal done and make it efficient, and I 

think that is going to be with using other programs, is going to be 

the best change for production and preservation. 

Ms. SPEIER. One final question, Mr. Chairman. 

23 

The foreclosure scenario that is alive and well in our communities across the country could avail HUD and local housing programs of opportunities to pick up properties. And I am curious 

whether or not you are nimble enough, whether or not we have created the opportunity for you to take advantage of those opportunities. And, if we haven’t, what can we do quickly to address that? 

Mr. GARVIN. I think what we are doing now, which is the most 

responsible thing, and I didn’t expect a single-family question, but 

is we have come up with FHA secure, which is our refinance mortgage insurance product, and our volume has tripled since October. 

So I think presenting foreclosure is the most important thing, and 

the HOPE Now Alliance has done a phenomenal job too working 

out something to prevent foreclosures. 

The CHAIRMAN. If the gentleman would yield, I would say in the 

bill, actually, that our colleague from California carried on to the 

Floor and then to the Senate, we have two versions of funding to 

go the cities, precisely to buy-up foreclosed property, somewhat contrary. The Senate wanted to put this in a package, and it may go 

into a later package, but we have been trying. Both the House and 

the Senate provided additional funding to the cities for exactly that 

purpose. 

Mr. GARVIN. And it is a double-edged sword, because in one way, 

knowing that there is going to be a possibility for cities and States 

to purchase foreclosed homes might make the lenders less interested in trying to work-out the loan and take it right down. So it 

is a double-edged sword. 

The CHAIRMAN. What we did in our bill, to respond to that, was 

to limit it to property that has already been foreclosed; there is 

enough of that out there that we could use. 

Mr. DONOVAN. I would also just add, I think there is a model out 

there that the single family side of HUD has put together that can 

show how this is done well: the ACA program or asset control area. 

We are, like many localities around the country, buying foreclosed 

FHA homes for 50 cents on the dollar or less; and, we are able to 

take those, add in local funds, renovate them, and sell them 

affordably. 

I completely agree that keeping folks in their homes is absolutely 

the first option, but not everybody will be able to, and it is very 

important. The funding that Chairman Frank talked about is absolutely critical. What’s interesting in New York City, we found we 

had a rash of tax foreclosures on properties. My agency owned 

more than 100,000 units in 1980 around New York City. 

We put billions of dollars of City capital into renovating those 

buildings and working with the private sector either as homeownership or as rental housing. Studies have found that the increase in property taxes the City collected from the surrounding 

properties was larger than the billions of dollars we spent in City 

capital to renovate those properties. The billions of dollars may 

seem like a lot of money in the Federal bill, but in fact the ripple 

effects of that investment can more than pay back the government. 

It’s a good investment in stopping the decline of nearby properties 

and resulting property tax declines for states and localities and the 

Federal Government. 

24 

Ms. SPEIER. My question was about foreclosures on apartment 

buildings and whether or not we have the means to move quickly 

into the purchase of those in a foreclosed setting. 

Mr. GARVIN. We do auctions and such. 

The CHAIRMAN. Pull the microphone closer to you. Just pull it 

close. It won’t hurt. 

Mr. GARVIN. This is about as close as I can do it. 

Ms. SPEIER. He doesn’t want to kiss it. 

Mr. GARVIN. Right, right, right. We will do auctions relatively 

quick. And multi-family is nowhere near as bad as single family. 

I mean, there is very, very little foreclosure relative to single family. 

Ms. SPEIER. Thank you. 

Mr. DONOVAN. I would definitely compliment HUD, too, in the 

work that they have done. As I mentioned earlier, we have had 

more than a dozen properties in foreclosure that we have bought. 

This provision in the bill that we are discussing today would be 

critical in terms of allowing HUD to value those properties correctly. But, also, this loan sale that we are working on, I think, is 

a preventive measure to stop properties from getting to foreclosure 

in the first place. 

If we can take control of those loans, invest local assets, and 

work to bring in new owners, hopefully those properties will never 

get to foreclosure in the first place, and we save public dollars. We 

save an enormous amount of heartache and terrible conditions for 

residents. I think it’s a great model and HUD is being innovative 

in terms of looking to that as a new model for being able to deal 

with the next generation of foreclosed properties. 

The CHAIRMAN. We have some votes. 

So I thank this panel, and we appreciate this. 

Let me introduce the next panel now, and then we are going to 

take a break. We have four votes, I’m told, which should take about 

40 to 45 minutes. There is nothing we can do about it. If people 

want to get a cup of coffee or an early lunch or something, you can 

do that. We will be resuming in about 40 to 45 minutes, and we 

will start as soon as we can. 

I am going to introduce the panel now and that will save us time 

later: Mr. Michael Bodaken, president of the National Housing 

Trust; Laura Burns, president of Signal Group/Eagle Point Properties; Amanda Seward, previously introduced by our colleague, 

Ms. Waters; Laverne Joseph, president and chief executive officer 

of the Retirement Housing Foundation; Ricky Leung, president of 

the Cherry Street Tenant Association; J. Kenneth Pagano, secretary of the National Affordable Housing Management Association; and Brian Poulin, a partner with Evergreen Partners. 

We will be in recess. We may have some more of our members 

when we come back, and as soon as we come back, we will continue. 

[Recess] 

The CHAIRMAN. I regret the fact that this took as long as it did, 

but we will now presume. Unfortunately, the votes also interrupted 

a meeting that the Congressional Black Caucus was having with 

Senator Obama. There are members who very much regret not 

25 

being here, but they will be reading your testimony and benefitting 

from what you say. 

We will begin with Michael Bodaken, the president of the National Housing Trust. 

STATEMENT OF MICHAEL BODAKEN, PRESIDENT, NATIONAL 

HOUSING TRUST 

Mr. BODAKEN. Chairman Frank, Ranking Member Bachus, thank 

you for inviting me to testify today. My name is Michael Bodaken 

and I am president of the National Housing Trust. 

Since 1986, the Trust has been dedicated exclusively to the preservation and improvement of existing affordable subsidized housing. The Trust acts on a fundamental belief, preserving existing affordable rental housing is an essential first step in solving our Nation’s housing dilemma. Our public policy advocacy is informed by 

our direct experience in the field. 

The Trust has helped preserve and improve more than 22,000 affordable rental units in 41 States and the District of Columbia. 

Today, I also testify on behalf of the National Preservation Working Group, a coalition of 24 organizations dedicated to preservation 

of our Nation’s rental housing stock. 

Let me begin by thanking you for this draft comprehensive legislation. Federally subsidized housing is an essential housing resource in nearly ever community in the United States of America. 

Our analysis demonstrates that in this committee alone, over 

190,000 federally subsidized housing units are located, and will expire over the next decade. We have a committee district by district 

list located in Attachment A to our testimony. 

Mr. Chairman, our Nation is currently undergoing a massive 

foreclosure crisis in the single family housing stock. A clear implication of those foreclosures is that many will result in families 

shifting from home ownership to rental housing. We will need that 

rental housing stock as a backstop to the situation that we are in 

today. 

Funded by the MacArthur Foundation, the Joint Center at Harvard just published a study which indicated that as displaced owners are forced into the rental market, a growing number of renters 

are competing for a limited supply of affordable housing. 

By addressing this challenge, it begins with preserving rental 

housing and preserving rental housing will be much helped by the 

legislation drafted by this committee. 

At one time, we had a one-size-fits-all Federal housing program. 

That is certainly no longer the case. Over the past decade, State 

and local governments have increasingly devoted scarce resources, 

including low-income housing tax credits and an array of other resources to save tens of thousands of Section 8 units throughout the 

Nation. 

These decisions to emphasize preservation are particularly sensible because preserving an existing home is significantly less expensive than constructing new affordable housing. 

The Trust recently concluded that it cost approximately 40 percent less to preserve a multi-family rental unit than to preserve 

one in the same community. In more expensive communities, the 

26 

cost of building new affordable housing is almost double that of 

preserving affordable housing in the same neighborhood. 

However, in order for federally assisted housing to stand the test 

of time, the Federal Government must act as a fair and consistent 

partner by honoring its commitments. 

The stock of privately owned affordable housing is the result of 

a successful 4-decade partnership between the Federal partnership 

and the private sector. However, last summer, many owners went 

month after month while their Section 8 payments were either delayed or paid very, very late and often in not the amounts that 

were required. For the tenants and owners, this is unacceptable. 

The first principle of preservation is for the Federal Government 

to provide prompt reliable funding for existing housing assistance 

contracts. Without full appropriations to fund existing contracts, 

your efforts to preserve affordability faces a daunting challenge. 

Mr. Chairman, I brought with me a Tzedakah box today that I 

received this morning from a Jewish organization, and as you 

know, every Friday night, we give to some charity by depositing a 

gift into the Tzedakah box. We provide a little bit of money to remind ourselves of the responsibility we owe the world. 

There are many of us out there who are accepting our responsibility to preserve and improve affordable rental housing. We are 

observing our obligation. We ask the Federal Government to satisfy 

its obligation halfway, and if we do that, we can save a lot of this 

housing. 

We believe the principles form an useful framework for thinking 

about policy change that can and will improve the number and 

quality of preservation transactions. 

We have three principles that we would urge you to consider in 

your legislation. Number one, to encourage and support responsible 

long-term ownership of affordable rental housing. Number two, to 

encourage and streamline sales and transfers of at-risk housing, to 

qualify preservation owners, and number three, to provide appropriate support to existing residents of affordable rental housing 

who seek to remain in their homes. 

We have many more detailed recommendations, many of which 

are included in the draft legislation. The Preservation Working 

Group’s recommendations are included in Attachment B. 

I cannot thank you enough, Mr. Chairman, and the entire committee, for putting this legislation in place at this particular time. 

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

46 of the appendix.] 

The CHAIRMAN. Thank you. For the benefit of the reporter, I 

think the common spelling of ‘‘Tzedakah’’ is T-z-e-d-a-k-a-h. 

Mr. BODAKEN. Well spelled. 

The CHAIRMAN. Thank you. I think that is the commonly accepted translation from the Hebrew. 

Next we have Laura Burns, president of the Signal Group/Eagle 

Point Place Properties. 

By the way, we have been joined by the leaders of the Small 

Business Committee, who were elsewhere because the Small Business Committee was working on other things. Small businesspeople 

would actually be involved in some of these units, so we have the 

gentleman from Illinois, Mr. Manzullo, and the gentlewoman from 

27 

New York, Ms. Velazquez, whose sponsorship of one of the major 

bills was already commented on very favorably by Mr. Donovan. 

Ms. Burns? 

STATEMENT OF LAURA BURNS, PRESIDENT, SIGNAL GROUP/ 

EAGLE POINT PROPERTIES 

Ms. BURNS. Mr. Chairman, members of the committee, my name 

is Laura Burns and I am the president and CEO of the Eagle Point 

Companies and a board member of the National Leased Housing 

Association. 

My affordable housing experience began in the public sector in 

1985 at the Boston Redevelopment Authority and later as a consultant and a developer. 

My company is dedicated to the preservation of affordable housing stock, and over the last 6 years, we have acquired and/or rehabilitated 23 properties and 5,300 apartments in six States and 

Washington, D.C., which will remain affordable for the next 30 

years. 

NLHA has been working with the committee staff to create workable legislation to facilitate the preservation of the existing housing 

stock. However, I would like to spend my time today sharing several experiences that highlight particular barriers to my company’s 

ability to complete preservation transactions. 

Eagle Point has enjoyed some very successful and satisfying experiences in coordinating the complex world of State agency programs, the low-income housing tax credit program, and HUD. 

In 2004, my company acquired a property known as Delsea Village Apartments in Millville, New Jersey. This 100-unit family 

property originally built in 1971 under the HUD Section 236 program also had a Section 8 project-based assistance contract. The 

property had been well cared for by the prior owner, but as with 

any property that is 30-plus years old, certain systems needed to 

be replaced and all of the apartments were dated and tired, leading 

to a declining quality of life for the residents. 

We gathered the financial commitments necessary to acquire and 

renovate the property, and gained approvals for tax-exempt bond financing, low-income housing tax credits, New Jersey low-interest 

loans, and other State agency assistance. 

We provided HUD with an independent study showing the expected market rents after our planned $20,000 per unit renovation. 

As a Section 236 project, HUD guidance allows a budget based 

rent increase up to the as improved market rents. HUD allows that 

budget to include the new debt service and the cost structure after 

the renovation. HUD approved the rent increase and the use of the 

236 IRP subsidy and that project was successfully acquired and 

renovations began in April 2004. 

In order to arrive at Delsea Village, our residents and their visitors must drive straight through another HUD-assisted complex 

known as Delsea Gardens. Although the names and dates of construction are similar, the prior owners were different, and Delsea 

Gardens was in much worse condition. 

Instead of mowing the grounds, the owner had decided to simply 

pave the front yards, and the exterior of the buildings, the play 

areas, and the manager’s office all reflected minimal maintenance. 

28 

Delsea Gardens also has 100 units and has project-based Section 

8 assistance, so it seemed to us a natural and obvious decision to 

acquire and renovate Delsea Gardens. 

We negotiated a purchase and sale agreement, obtained the same 

set of subsidies from the State of New Jersey, and looked forward 

to the day our residents at Delsea Village would drive through an 

improved neighborhood property, and we looked forward to the day 

that both properties would have the same level of services and improvements so that no child would wish he or she lived next door 

at the nicer property. 

However, Delsea Gardens was constructed and financed under a 

different HUD program, and HUD does not allow rents to be set 

at the ‘‘as improved’’ market rent, only at the current inferior condition. 

Furthermore, HUD rules limit this project to a budget based review using old debt service and the old cost structure. This, of 

course, would not have allowed enough funds to improve the property. 

Therefore, the approved subsidy was returned to New Jersey, the 

seller terminated the purchase contract, and shortly after, the 

property was sold to an owner who continues to operate it at the 

current level. The pictures that you see before you were taken last 

week. 

HUD established this rule which differentiates outcomes for different properties without the direction of Congress. The proposed 

draft legislation before you would correct this inconsistency and 

allow a property that is to undergo rehabilitation to request a rent 

increase based on a budget with increased debt service and the new 

cost structure. 

We have been attempting to preserve another property for almost 

5 years. We had our first meeting with HUD 4 years ago to discuss 

the need to renovate a 118-unit elderly project in Connecticut, 

which happens to be owned by a nonprofit organization. 

For these last 4 years, we have waited for HUD’s policy decision 

and direction relative to whether the seller may accept some or all 

of the sales proceeds. Five-and-a-half years from now, this seller, 

a rotary business group, has the unilateral right to sell the property at market rates, terminate the Section 8 contract, and accept 

all of the sales proceeds. 

This seller has been patient in working with us and has agreed 

to defer over $1.5 million in value. The residents have had no 

choice but to be patient as they enter their fourth summer without 

renovations and they might expect continued plumbing problems, 

broken elevators, and deteriorating windows. 

We think that we are finally close to getting an approval with 

HUD, but a different seller might have decided to walk away from 

this preservation transaction and instead just simply waited another 5 years and accepted significantly increased financial benefits. 

Again, this unwritten policy to limit sales proceeds to nonprofits 

has been HUD’s misinterpretation of current law and results in 

properties that would otherwise have been renovated and preserved today, instead to be put at risk of loss in the future. 

29 

This draft legislation would address the issue so that more properties will be preserved and renovated when the need is there and 

a preservation buyer is willing and able to purchase the property. 

Thank you for the time. I am happy to answer any questions. 

[The prepared statement of Ms. Burns can be found on page 77 

of the appendix.] 

The CHAIRMAN. Ms. Seward? 

STATEMENT OF AMANDA SEWARD, COUNSEL, LINCOLN PLACE 

TENANTS ASSOCIATION 

Ms. SEWARD. On behalf of the tenants of Lincoln Place Apartments in Venice, California, I am pleased to be here. We applaud 

you for recognizing this critical issue. 

The tenants of Lincoln Place have been victimized by the failure 

to protect the government’s investment in affordable and workforce 

rental housing, and their story will hopefully lend support to the 

position of HUD tenants speaking before you today. 

Lincoln Place is not currently a HUD property, but because of 

rent control and long-term tenancies at a 795 unit, it provided 

much of the affordable housing available in Venice. The property’s 

subsequent sale to investment speculators and the forced eviction 

of the tenants tell of the horror communities face when we do not 

take steps to protect our investment in low- to moderate-income 

housing. 

Lincoln Place was financed under Section 608 of Title VI of the 

National Housing Act of 1934. It was an aggressive program enacted by Congress which was designed to stimulate investment in 

low- and moderate-income rental housing, during a period in which 

private enterprise was reluctant to invest in such housing. 

Lincoln Place was the largest 608 development in California. It 

was a particularly successful development due to the progressive 

design ideas of the multi-cultural team that created it. The team 

included a Jewish developer, an African-American architect, and an 

Asian-American draftsman, all working in an unusual combination 

in post-World War II California. 

Their goal was to create luxury on a budget. Their effort in 1949 

was designated a historic resource in 2005. Lincoln Place is a wonderful example of how architecture and site planning can be a successful social took in creating ideal communities. 

The tenants varied ethnically and in age. There was economic diversity including Section 8 households, teachers, postal workers, 

architects, designers, and lawyers. 

It flourished under the ownership of the original developer until 

the 1980’s when it was first sold. In 2003, AIMCO, a REIT, and 

one of the largest owners of HUD-subsidized housing in the country, purchased the property and shortly thereafter, eviction proceedings began. 

On December 6, 2005, the Sheriff’s Department locked out 52 

households, including 21 children. It was the largest lockout in a 

single day in Los Angeles’ history. These tenants were not evicted 

because they did not pay their rent. They were evicted because 

they were not paying enough rent. 

Some of these tenants have still not found housing. Some have 

had to move out-of-State. Families report that their children still 

30 

suffer nightmares. Some have moved to areas in Los Angeles where 

their children often hear gunfire at night. 

After the 2005 lockout, many of the remaining tenants who because of age and disability were entitled to a longer notice period, 

now felt they had no choice but to move, but they did not give up 

hope, and their struggle has not been in vain. 

The California Court of Appeals recently ruled the evictions were 

unlawful. Negotiations are now underway to find a friendly buyer 

who will reinstate the tenancies of those who were evicted and rehabilitate the property. 

The City is now posed to enforce habitability standards. While 

we are hopeful about the future, the fight has been long and it is 

not over yet. 

The success of our efforts to save Lincoln Place is due to an 

unique set of circumstances that cannot be easily replicated across 

the Nation. It took a group of tenants who loved their community 

so much they simply refused to move. They risked their credit 

standing. They organized community meetings, established a tent 

city, they pursued the court system, and an activist community 

supported them when it was not fashionable to do so. A team of 

lawyers worked on a pro bono basis or at reduced fees to defend 

their rights. Some politicians lent their support including, notably, 

a member of this committee, Congresswoman Maxine Waters. 

The personal sacrifice made by so many people has been extraordinary, but it should not have been this hard and it should not 

have taken this long. 

You have the opportunity to give tenants the tools they need to 

save their homes. In my view, the most important protection is the 

national right to purchase and the definition of a ‘‘nonprofit’’ should 

be broad enough to cover tenant based cooperatives and land 

trusts. 

Other important provisions include the tenant empowerment 

measures, particularly those which provide that tenants are third 

party beneficiaries under HUD contracts so that they can require 

enforcement. 

Legal fees should be awardable to prevailing parties in the HUD 

contracts in order to encourage legal support for efforts to enforce 

legitimate tenant rights. 

Thank you for holding this hearing and allowing us to participate. We would be happy to answer any questions that you may 

have. Thank you. 

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

150 of the appendix.] 

The CHAIRMAN. Mr. Joseph? 

STATEMENT OF REVEREND LAVERNE R. JOSEPH, PRESIDENT 

AND CHIEF EXECUTIVE OFFICER, RETIREMENT HOUSING 

FOUNDATION, ON BEHALF OF STEWARDS OF AFFORDABLE 

HOUSING FOR THE FUTURE (SAHF) 

Mr. JOSEPH. Chairman Frank, and members of the committee, 

thank you for the opportunity to testify this morning on one of the 

most critical issues in affordable housing. I have submitted my 

written comments for the record. 

31 

My name is Laverne Joseph, and I am president and CEO of the 

Retirement Housing Foundation headquartered in Long Beach, 

California. RHF owns and operates about 15,000 affordable rental 

homes, assisted living units, and nursing beds in 24 States. 

I am testifying today on behalf of Stewards of Affordable Housing 

for the Future, known as SAHF. 

RHF and SAHF together provide affordable housing to more than 

100,000 persons in 48 States, the District of Columbia, Puerto Rico, 

and the Virgin Islands. RHF is also an active member of the American Association of Homes and Services for the Aging and a member of AAHSA’s affordable housing finance committee, and SAHF 

and AAHSA collaborate on policy issues that affect low-income seniors. 

The need for affordable housing in our society is a very pressing 

issue and yet we are losing, as you know, much of what we have. 

The first order of business is to keep affordable housing that we 

have already built at great expense to the taxpayer. 

Your letter of invitation lays out many of the discouraging statistics. I am not going to repeat them. I would only add that the loss 

of project-based Section 8 housing is particularly damaging since 

tax credit housing without Section 8 cannot serve the very poor. 

Moreover as a rule, preservation is cheaper, faster, and greener 

than new construction. The importance of preservation is underlined by the decision of the John D. and Catherine T. MacArthur 

Foundation to invest $150 million in an initiative entitled, ‘‘Window of Opportunity, Preserving Affordable Housing.’’ 

MacArthur is making a difference by: One, strengthening the 

nonprofit sector; two, supporting the policy analysis; three, researching the impact of affordable housing on residents and communities; and four, stimulating the preservation work of State and 

local government. 

Any legislation to preserve affordable housing inventory will be 

complicated because as we have heard here today, all of the programs are very complex. 

This morning, I would like to briefly emphasize just four themes. 

First, Congress should extend the availability of tenant protection 

vouchers to residents in a much wider range of properties. When 

despite all efforts, a federally assisted or insured property is lost 

to affordability, we have a moral obligation to give the residents access to affordable housing, and current law falls well short of meeting this obligation. 

Secondly, we need long-term project-based assistance. For example, with RHF, we have had direct experience when the need for 

20-year project-based assistance to preserve affordable housing in 

tight markets made it possible for us to buy and preserve 10 properties with nearly 1,600 apartments. Without passage of preservation legislation, we would be blocked from acquiring the rest of this 

inventory. We look forward to its passage. 

When older Section 202 properties without Section 8 are refinanced or their mortgages mature, they should also be eligible for 

project-based rental assistance or they will continue to deteriorate 

in weak markets or be converted to expensive rentals or condos in 

strong markets. 

32 

Legislation should permit the use of project-based assistance in 

place of enhanced vouchers and the conversion of Rent Supp and 

RAP contracts to Section 8. 

Third, Congress should recognize the key role played by social 

enterprises like SAHF members in preserving affordable housing. 

We operate efficiently at a scale to serve nonprofit missions. We 

have invested heavily in professional staff and technology and in 

training, and yet HUD sometimes continues to treat us as if we 

were captive organizations without a need for capital to deal with 

problem properties and to grow our missions. 

Where a for-profit owner could not make distribution of funds to 

investors for personal use, a nonprofit subsidiary is barred from donating funds to its nonprofit parent corporation to expand the mission. Legislation should remove these restrictions so that the distribution of cash flow can make it possible to re-use these proceeds 

from recapitalization. 

Finally, we must secure long-term preservation. In the 1960’s 

and 1970’s when America first began to attract developers to affordable housing, Congress offered a big upside on eventual conversion of the housing to market rate in order to attract the necessary 

capital. 

Today, we are often forced to use scarce tax credit resources to 

buy out huge appreciation. Now, there is a mature industry, both 

nonprofit and for-profit, interested in owning affordable housing 

and there is no need for windfall rewards to attract investors. 

To conserve tomorrow’s resources, SAHF suggests that Congress 

create a new category, preservation owner. In return for preservation incentives, these owners would be required to keep properties 

affordable for at least 40 years, assuming continued availability of 

rental assistance. 

Thank you for inviting me to testify today. Thank you for the 

work that you have done on affordable housing for more than 2 

decades, and we look forward to continuing to work with you and 

the committee and its staff on this very critical preservation initiative. 

[The prepared statement of Reverend Joseph can be found on 

page 106 of the appendix.] 

The CHAIRMAN. Mr. Leung? 

STATEMENT OF RICKY LEUNG, PRESIDENT, CHERRY STREET 

TENANT ASSOCIATION 

Mr. LEUNG. Good afternoon to you all. Thank you, Chairman 

Frank. My name is Ricky Leung. I am a tenant leader of the Lower 

East Side of Manhattan, New York City, and also a board member 

of the National Alliance of HUD Tenants, a national tenant union 

representing families living in privately owned HUD-assisted 

multi-family housing. 

Since the Title VI preservation program ended in 1996, our Nation has lost at least 360,000 units of affordable low-income housing. We commend you and Chairwoman Waters for including the 

first right of purchase in the draft preservation bill to stop this 

loss. 

We also thank my own Representative, Congresswoman Nydia 

Velazquez, for filing H.R. 44, now Title IV in the bill. Title IV 

33 

comes back full circle to center Ed Brooke’s original vision for preserving HUD’s troubled housing in 1978. For 30 years, I have lived 

at Cherry Street Apartments in a Section 8 unit with my parents, 

a secure home for our family. We would not survive long in the 

overheated Manhattan market. 

The 488 families at Cherry Street are the diverse working and 

middle class, a microcosm of the City and the Nation. 

In 2003, our project-based Section 8 contract was set to expire. 

We were fearful what would happen given the super hot real estate 

market in Manhattan. Our tenant association persuaded the owner 

to renew, but he did so for only 5 years. In August 2008, he will 

decide again what to do. 

Passage of a first right of purchase will at least give our tenant 

association and the City a fighting chance to save our homes. By 

itself, a first right of purchase would not add to Federal costs. It 

would simply allow a city or a nonprofit to purchase an at-risk 

property using existing programs like Mark Up to Market. 

There is ample precedence besides Title VI. For 20 years, Congress has provided a Federal right of purchase for rural housing, 

and several States have adopted similar laws. 

The need for this measure is urgent in New York City. We are 

losing affordable housing to real estate speculators at an alarming 

rate. Since 2001, over 32,000 units have already been lost and the 

rate has spiked dramatically. 

A national first right of purchase will help save 20,000 more 

apartments at immediate risk. In the wake of 9/11, the loss of 

54,000 affordable apartments in New York City is a tragedy which 

we can neither bear nor ignore. 

Behind this crisis is a surge of global predatory investors taking 

advantage of the declining dollar and the de-regulation of HUD 

housing since 1996. Just three investors have recently converted 

13,000 subsidized apartments in New York City alone. In Harlem, 

one investor flipped the sales price of 400 units from $300 million 

to $1 billion in just 2 years. 

Radical de-regulation has failed in the mortgage industry and 

the subsidized multi-family industry alike. We have lost too many 

affordable homes and communities. It is time to push back with judicious moderate regulation to save affordable rental housing, as 

the committee has recommended for the single family stock. 

Congress dismantled Title VI in 1996 due to concerns about excessive costs. Under Title VI, residents and HUD negotiated major 

repairs, permanent affordability, and transfers to nonprofits and 

tenant organizations. 

Today, the enhanced voucher or Mark Up to Market options 

available to owners are just as costly as Title VI, but with none of 

these benefits. 

As long as owners like mine have an unrestricted choice to opt 

out, they can extort ever increasing subsidy payments from HUD. 

Taxpayer-financed windfall profits is the alternative of losing affordable housing. It is unacceptable. 

A first right of purchase will save money in the long run by moving housing from the speculative spiral owner windfalls and guarantee benefits for investment of any Federal funds. 

34 

The Section 8 funding shortfall reinforces these opt out trends 

and makes the loss of HUD housing a nationwide crisis. As many 

as 500,000 units could be at risk due to funding uncertainty. 

NAHT also supports tenant empowerment provisions in the bill. 

These no cost measures will allow tenants to join HUD as partners 

to improve and save our homes. 

Tenants have the greatest stake and the firsthand knowledge to 

make sure that public subsidies are used well. Owners and agents 

who provide quality housing should welcome us as partners in this 

mission. 

We urge the committee to retain and strengthen these tenant 

empowerment provisions and the first right of purchase. When 

Senator Ed Brooke initiated principles for preserving at-risk HUD 

housing in 1977, the year I was born, he understood that a combination of judicious regulation, tenant protection, and empowerment was essential to save our homes. 

We commend the committee leadership for crafting a bill which 

reaffirms these principles and addresses the new challenges we 

face today. 

To conclude, in the three main languages that are spoken in my 

community, I would like to say in Spanish, ‘‘gracias.’’ In my native 

tongue, Chinese, ‘‘siur siur,’’ and in English, ‘‘thank you.’’ Thank 

you very much. 

[The prepared statement of Mr. Leung can be found on page 116 

of the appendix.] 

The CHAIRMAN. Mr. Pagano? 

STATEMENT OF J. KENNETH PAGANO, SECRETARY, NATIONAL 

AFFORDABLE HOUSING MANAGEMENT ASSOCIATION 

Mr. PAGANO. Thank you, Chairman Frank, for holding this important hearing to examine preservation of affordable rental housing. My name is Ken Pagano. I am honored to be here today to 

speak on behalf of the National Affordable Housing Management 

Association. 

I am currently serving as secretary of NAHMA, chairman of the 

regulatory committee, and vice chairman of the tax credit committee. I am also president and CEO of Essex Plaza Management 

and president of NAHMA’s Regional Chapter, JAHMA. 

Chairman Frank, I would like to begin by commending your leadership on this issue. Preventing the loss of affordable rental houses 

is an important public policy goal and you have made a considerable effort to make preservation a national priority. 

Preservation is the heart of what NAHMA members do. Our organization represents managing agents and owners in both the forprofit and nonprofit community who participate in Federal rental 

assistance programs. 

My written statement has been submitted for the record. The testimony I offer today will summarize the major obstacles to preservation and NAHMA’s recommendations for overcoming these challenges. 

The most common factors working against preservation, NAHMA 

members report, are market forces, undependable project-based 

Section 8 funding, poor experiences with HUD as a business partner, and concerns about long-term sustainability of projects, insuffiVerDate Aug 31 2005 16:05 Sep 22, 2008 Jkt 044187 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\44187.TXT TERRIE
35 

cient operating costs adjustment factors, and overall complexity of 

preservation transactions. 

It was very nice to hear HUD say this morning that they have 

worked out all their problems. They seem to be relying on figures 

and statistics that were before the debacle last summer when many 

operators were faced with 3 or 4 months of no subsidy. 

The number of property owners that are going to be opting out 

this year remains to be seen. We received a lot of indication from 

our members that, in fact, they will be opting out because they are 

receiving pressure from limited partners. Limited partners are 

looking at no return, a risky project that is not receiving its regular 

funding, and no rental adjustments to make corrections either in 

the Mark to Market program underwriting or to make up for operating costs that are unforeseeable. 

Many municipalities, as they have been cut back over the years 

by State aid, have resorted to different methods of passing expenses off to property owners. They are requiring costly security 

measures. They are requiring trash pick up on the unit owner as 

opposed to being done by the municipality. They have also sold off 

water and sewer formerly municipal held to private vendors who 

are now raising rates which are unaccountable for. 

There is no way under the current system of HUD for us to adjust for those increases. Many of the projects that went through the 

Mark to Market process have in fact been operating at a deficit and 

the investors are getting nervous. 

The program is at a crossroads, based on last summer’s debacle. 

Restoring confidence in the guarantee of timely full funded projectbased Section 8 payments is a cornerstone of preservation. 

To achieve this, NAHMA recommends full funding 12 month 

HAP contracts in Fiscal Year 2009, ensuring HAP payments are 

not interrupted due to insufficient funds or administrative problems, addressing regulatory issues that affect timeliness of HAP 

payments, and swift approval of Representative Maxine Waters’ 

Mark to Market Extension and Enhancement Act, H.R. 3965, 

which includes a section requiring HUD to pay interest on late 

HAP payments to owners. 

It is getting more difficult for managing agents to convince owners to stay in the program. My owners, especially the limited partners, are looking at a situation where their costs are increasing, returns are diminishing, and the uncertainty of HAP funding is putting the project at risk for default on the mortgages. 

NAHMA recommends creating incentives which encourage voluntary transfer preservation. Congress should quickly pass H.R. 

1491 which would provide tax relief to owners whose buyers preserve the affordability. 

We also believe a grant program which provides gap financing to 

qualified preservation entities, whether for-profit or nonprofit, 

would facilitate more successful preservation. 

A successful preserved property should be physically and financially sustainable for 20 to 30 years. Properties will have to be recapitalized. Many owners have used the Mark to Market program 

but the assumptions used to underwrite these properties have been 

obsolete due to skyrocketing utility costs. 

36 

NAHMA presented a proposal for HUD to recognize cost increases. HUD has been sitting on that proposal now for over a 

year-and-a-half, and they have made no comment on it. 

We would like to thank you for allowing NAHMA here to testify 

and I would be happy to answer any questions you have. 

[The prepared statement of Mr. Pagano can be found on page 126 

of the appendix.] 

The CHAIRMAN. Mr. Poulin? 

STATEMENT OF BRIAN POULIN, PARTNER, EVERGREEN 

PARTNERS, LLC 

Mr. POULIN. Mr. Chairman, thank you for inviting me to testify 

on this important topic of affordable housing preservation. 

My name is Brian Poulin and I am a partner in Evergreen Partners which is based in Portland, Maine. My partners and I solely 

focus on the acquisition, rehab, and preservation of federally assisted affordable housing properties. We currently own and manage 

4,800 affordable units in 11 States. 

I am here today in my capacity as the president of the Institute 

of Responsible Housing Preservation. Members of the Institute 

worked with this committee and HUD in structuring the first Section 236, interest reduction payment preservation transaction, now 

known as the IRP de-coupling transaction, back in 1998. 

Using that program, more than 750 Section 236 properties, approximately 75,000 units, have been substantially rehabbed and 

preserved. HUD recognizes the de-coupling program as one of its 

premiere preservation initiatives. 

That being said, not much has been done to take the lessons 

learned in that program and apply them throughout the HUD portfolio. 

There is no question that we need more affordable housing and 

there is no question that we have a lot of expiring units. 

Notwithstanding the benefits of that 236 program, we need to 

take those lessons and actually apply them to the (d)(4)’s, the 

(d)(3)’s, and other programs out there. Many of these properties 

continue to be at risk to convert to market rate housing or are in 

crucial need of updating repairs. These aging properties are approaching the end of their use restrictions. 

As we discussed earlier today, it is much less expensive to preserve an existing asset than to build a new one. The HUD preservation tools used in the 236 program that were critical to make 

that a success included budget based rent increases, which includes 

new debt service. 

Many of the programs today do not allow for using budget-based 

rent increases to set rents nor do they allow the use from new debt 

service. It is critical to get lenders and equity providers comfortable 

with any preservation transaction to know what the rents are 

going to be once the renovation is done. Many lenders and equity 

providers are willing to take market risk. They are not willing to 

take HUD risk. We need to know what the rents are going to be. 

Unfortunately, the Section 8 guidelines do not allow for it. 

The second item that worked in the 236 program was the increase of annual distributions for preservation owners, both forprofits and nonprofits. Both the Section 236 de-coupling and the 

37 

Section 202 preservation programs permit an owner to receive a 

distribution of 6 percent of new equity, 6 percent of the new money 

they are putting into the transaction. That annual distribution is 

a critical incentive to owners. 

Again, the Section 8 guidelines do not allow for updating of the 

annual distribution and today, in many preservation transactions, 

the new owner must accept the original owner’s annual distribution 

limitation. 

HUD has the regulatory authority to make this change but has 

chosen not to do so. This is a no cost item to HUD and to the Federal Government. The rents are not set based on an owner distribution. They are based on expenses or on market factors. This really 

is not a cost implication to HUD. It basically incentivizes wholly to 

keep people in the affordable program versus converting to market 

where there is no distribution limitation whatsoever. 

My partners and I personally have experience with that issue 

and find it difficult to justify the purchase and rehab of HUD properties because of that. We have worked through many of the program issues and have been successful in some but there are others 

that we have not been successful in pushing through the HUD limitation. 

Lastly, there is a rollover of certain HUD debt. Oftentimes when 

properties are being transferred to new ownership, there are certain HUD debts, including flex supp loans and Mark to Market soft 

debt that cannot be paid off in full. HUD guidelines actually allow 

for this to be rolled over. However, HUD seems to have a policy 

where they are not allowing it to happen, in which case they have 

an older property with non-servicing debt where all they needed to 

do was allow the rollover and we would have a long-term preservation transaction where the units can be preserved and rehabilitated. 

Mr. Chairman, your draft legislation incorporates many of the 

lessons learned in this 236 de-coupling program and it sends a 

clear message to HUD that preservation should be a priority. It is 

unfortunate that it takes legislation to make this happen. 

We applaud a lot of the things you have put in your bill, including converting Rent Supp and RAP contracts to Section 8, so thank 

you very much. We are here for questions. 

[The prepared statement of Mr. Poulin can be found on page 145 

of the appendix.] 

The CHAIRMAN. Thank you. I do want to note that I am pleased 

at this because it is our practice that the Majority selects most of 

the witnesses. The Minority on the committee is always allowed to 

request at least one. We had Administration officials, and I think 

the degree of unanimity we have had on the core here is very encouraging. 

Mr. Joseph, I appreciate your noting that the tax credit program 

alone cannot get the rents affordable enough without Section 8, etc. 

Some people do not understand that. In high-cost areas with lowincome people, you have to put some of these programs together to 

reach the level that you need. 

Mr. Poulin and others have mentioned some things that HUD 

could do. We are going to take another shot at it. We will write a 

letter to HUD. If there are things that are within HUD’s adminisVerDate Aug 31 2005 16:05 Sep 22, 2008 Jkt 044187 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\44187.TXT TERRIE
38 

trative authority to do, particularly if we can say they are not big 

budget items, get that list to Mr. McCoy. We will then, maybe on 

a bi-partisan basis, write a letter to HUD to urge them to do that. 

On the slow pay issue, the half payments and others, you know, 

we did pass a bill in the House that would correct that situation. 

It has been held up in the Senate. 

Let me say with regard to that and some other issues, I know 

you have some very decent people, if people were simply interested 

in maximizing their profit, they would not be in the affordable 

housing business. There are easier ways to make money than dealing with the government, with the tenants, etc. That does not mean 

they are ready to throw their money down the drain, but I appreciate the fact that we are dealing with socially responsible business 

people. 

I know it is tough. If I can send them a message through many 

of you, it would be to give us a year. They have done good work. 

Depending on what happens in November, we may be in a position 

a year from now where we will have done some of the things that 

they want to do, so if they can hang on for another year, help may 

be on the way. 

The one thing that is somewhat controversial, and there is no 

point in ducking it, one of the issues Mr. Leung mentioned—the 

first right of purchase. He represents an organization that I have 

worked with for many years, which does a lot of good work in Boston. I have worked with them both on policy advocacy and in individual cases. 

I understand that is problematic to some owners. I acknowledge 

the fact that first of all, nothing in that requires anyone to sell, if 

he or she wants to continue to own. Secondly, nothing in there I 

would hope—and I would think we were capable of drafting it this 

way—requires somebody who has decided to sell to lose a nickel. 

That is it should be written so that the right of first purchase is 

only operational with someone who will meet any other offer. 

Given that, I understand there are some concerns about it. Could 

people explain to me if we did it right, if we did it in a way that 

did not require the owner who had independently of this decided 

to sell, to lose any of the purchase price, what are the problems 

with it? 

Mr. Pagano? 

Mr. PAGANO. There are no problems. The biggest problem now is 

there are several companies that are buying up limited partners. 

They are going out and paying exorbitant prices to get their foot 

in the door. They are then ignoring the long-term affordability requirements either causing the project to default and forcing the 

general partners to sell. 

I think if we can come up with some exit strategy for the existing 

partners, that the affordability would last longer. 

The CHAIRMAN. I appreciate it. That is not in our jurisdiction. Affordable housing has no better friend than the chairman of the 

Ways and Means Committee. He is one of the fathers of the lowincome housing tax credit and a great defender, Mr. Rangel. We 

will work on that. I agree, the exit strategy is very important. 

Mr. PAGANO. I think a lot more people would stay in the program 

or if the second generation and third generation had an exit stratVerDate Aug 31 2005 16:05 Sep 22, 2008 Jkt 044187 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\44187.TXT TERRIE
39 

egy to get out. Right now, they are driving—you can have an appraisal on a property. We have an 110-unit property in Jersey City, 

a senior citizen building. I have an appraisal that says the property 

is worth $4 million. 

The group that came in to buy up some of the limited partners 

has just forced us to put it on the market, and they are claiming 

they can get us $9 million. 

When you are making those types of representations to limited 

partners that they are going to double the money that they thought 

they could get, it is just untenable and it will be a problem for any 

tenants group that wants to go in because I cannot make the number work at $9 million. 

The CHAIRMAN. I probably know the property. 

Mr. Poulin? Is it possible for us to do a first purchase right in 

a way that would not impinge on the owner’s rights? 

Mr. POULIN. I think it is. There is always that tradeoff of an 

owner having fulfilled his obligation to HUD, having kept the property affordable, which I am a big proponent of, and frankly as I 

said, that is all we do. 

As long as it is done correctly where the tenant group is qualified 

and can do it— 

The CHAIRMAN. You have to be assured they are getting paper 

that is going to be paid. We are not asking people to take—I understand we have an obligation, there is almost a burden of proof on 

us to show that it is being done correctly. 

Mr. POULIN. I think so. 

The CHAIRMAN. Ms. Burns? 

Ms. BURNS. Washington, D.C., as you may know, has a right of 

first refusal legislation in place for the tenants, and we have 

worked on several transactions where, sometimes it is just an additional tool such that it may not end up where the tenants purchase 

the property, but the tenants do have a much greater say in who 

the purchaser is; we have joint ventured in several cases. 

The CHAIRMAN. Let me invite everyone here, and I want to be 

clear, there are very few owners in this program who were not 

somewhat socially motivated, you know, if you just want to make 

the money—I do think the right of first purchase is important. I 

understand constitutionally if for no other reason it has to be done 

in a way that does not deprive the owners of any revenue. 

I believe we should be able to come up with a program that will 

not unduly delay, because delay can be a cost, it will not put you 

at risk of taking bad paper, I am encouraged by this. I hope we can 

work that out. 

The gentlewoman from New York. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. I would ask unanimous consent for my statement to be entered into the record. 

The CHAIRMAN. Without question, since it is your bill, your statement should be in the record. 

Ms. VELAZQUEZ. Mr. Bodaken or any other member of the panel, 

if you wish to comment, in New York, we are seeing a number of 

HUD-subsidized buildings being bought by private equity firms and 

flipped to other buyers soon thereafter. My concern is that some of 

those of those deals are financially unsustainable under current operating income. 

40 

I have an example here where a development was sold, almost 4,000 units of housing was sold for $295 million. Two years later, 

it was sold for $918 million. This definitely poses a real threat to 

current low-income tenants. 

Have you seen this kind of transaction take place elsewhere in 

the country? Can you share your insights from those transactions? 

Mr. BODAKEN. Congresswoman, I have not seen that magnitude 

of difference, but I think it is not unusual to see, in very hot real 

estate markets, owners buy HUD-subsidized properties with the 

notion of eventually making a significant profit by flipping them. 

Just coincidentally, both the right of first purchase and some of 

the other tools that are in the bill that has been introduced would 

very much focus on that particular issue and I think it would make 

it much more difficult for that to take place. That is number one. 

Number two, I think it is important that in those situations, 

HUD has the ability, and I am not sure about this particular situation, but HUD has the ability certainly as we have learned in other 

situations, to make owners more responsible in how they convey 

their properties, and as you know, we worked with Congress and 

everyone else to try to save that property, and I think in those situations, we need to keep a very alert eye until this legislation becomes law. We need to very much focus on those properties because 

once lost, they are irreplaceable. 

Ms. VELAZQUEZ. Definitely. Does anyone else wish to comment on 

that? 

[No response] 

Ms. VELAZQUEZ. In your opinion, is it more important to focus on 

preserving buildings that are at risk of losing their affordability 

status or instead to concentrate on programs to create new affordable housing options? 

Mr. Poulin? 

Mr. POULIN. The new programs that are out there today do not 

have the ability, as was said earlier, to really help the tenants 

most in need. The tax credit program is wonderful but without 

HUD and Section 8 behind it with the vouchers, it does not hit the 

tenants most in need. 

Project-based Section 8 is only in preservation deals. They have 

not offered project-based Section 8 in years. Preserving those transactions both from a cost standpoint and from who you are servicing 

standpoint, I think ought to be the top priority of what HUD is 

doing. 

Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. I thank the gentlewoman very much. 

Mr. Joseph? 

Mr. JOSEPH. I was just going to comment on that. I think it is 

both. We need both new construction and we need preservation. 

One of the most successful programs which used to produce 20,000 

new units a year in the late 1970’s and 1980’s, the HUD 202 program for seniors, is now producing less than 4,000 units a year, 

while the age tsunami is sweeping through. 

As Chairman Frank already mentioned, the tax credit program 

is a very important program, but for an elderly woman getting a 

Social Security income, even though the tax credit rent is a bargain 

in that market area, she simply cannot afford it on Social Security. 

41 

I think we need both. 

The CHAIRMAN. Mr. Bodaken? 

Mr. BODAKEN. Very briefly, Congresswoman, I think in an unconstrained resource environment, both are essential. We live in a constrained resource environment. Unless we are ready and able to 

construct tens of thousands of new affordable units, I think the 

preservation imperative is obvious. 

We know that preservation is about 50 percent less in most 

States and in your City, new construction has doubled the price of 

preservation. 

I think in this environment, both have to be looked at, but I 

think preservation is the essential first step. 

Ms. VELAZQUEZ. Thank you. 

The CHAIRMAN. I thank the panel. Mr. Leung, I was able to help 

the reporter with ‘‘Tzedakah,’’ but with ‘‘thank you’’ in Chinese, you 

are going to have to help him. I will not even try to pronounce it 

and get that wrong. 

Thank you. I appreciate this. It has been very useful. Again, the 

members of the Congressional Black Caucus, in particular, expressed to me on the Floor that they regret not being able to be 

here, because this is a high priority for many of them, but meeting 

with Senator Obama obviously was also a priority. 

The staff has been here. We were listening. I appreciate the degree of agreement we have on the goals here. We are in a serious 

drafting phase. 

There is no chance that the bill is going to become law before the 

end of the year, but I think it would be helpful in the process if 

later in July or the first week in August, I would hope the House 

could pass a good version of this. That would get us off to a good 

start. 

I would hope if the House passed it, that would help some of you 

who are fighting the good fight and trying to persuade people not 

to flee the program, not to sell out, but that would be a kind of earnest of our good faith. I am not asking them to wait indefinitely. 

If we can get a bill passed this summer, that would be a pretty 

good indication that we may well have one into law by the fall of 

2009. 

I am hoping that we can work together to try to persuade people. 

Thank you very much. This is an enterprise worth a lot of our 

effort. 

[Whereupon, at 1:03 p.m., the hearing was adjourned.] 

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