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47–391 PDF 2009

TARGETING FEDERAL AID TO NEIGHBORHOODS

DISTRESSED BY THE SUBPRIME MORTGAGE CRISIS

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

AND THE

SUBCOMMITTEE ON HOUSING AND

COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

MAY 22, 2008

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

Serial No. 110–118

COMMITTEE ON FINANCIAL SERVICES

Serial No. 110–115

Printed for the use of the Committees on Oversight and Government Reform

and Financial Services

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

——— ———

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

LAWRENCE HALLORAN, Minority Staff Director

SUBCOMMITTEE ON DOMESTIC POLICY

DENNIS J. KUCINICH, Ohio, Chairman

ELIJAH E. CUMMINGS, Maryland

DIANE E. WATSON, California

CHRISTOPHER S. MURPHY, Connecticut

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

BRIAN HIGGINS, New York

BRUCE L. BRALEY, Iowa

——— ———

DARRELL E. ISSA, California

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

CHRIS CANNON, Utah

BRIAN P. BILBRAY, California

JARON R. BOURKE, Staff Director

(III)

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 A. 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

THADDEUS G. McCOTTER, Michigan

KEVIN McCARTHY, California

DEAN HELLER, Nevada

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel

(IV)

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

MAXINE WATERS, California, Chairwoman

NYDIA M. VELA ́ ZQUEZ, New York

STEPHEN F. LYNCH, Massachusetts

EMANUEL CLEAVER, Missouri

AL GREEN, Texas

WM. LACY CLAY, Missouri

CAROLYN B. MALONEY, New York

GWEN MOORE, Wisconsin,

KEITH ELLISON, Minnesota

CHRISTOPHER S. MURPHY, Connecticut

JOE DONNELLY, Indiana

MICHAEL E. CAPUANO, Massachusetts

CHARLES A. WILSON, Ohio

DON CAZAYOUX, Louisiana

SHELLEY MOORE CAPITO, West Virginia

STEVAN PEARCE, New Mexico

PETER T. KING, New York

JUDY BIGGERT, Illinois

CHRISTOPHER SHAYS, Connecticut

GARY G. MILLER, California

SCOTT GARRETT, New Jersey

RANDY NEUGEBAUER, Texas

GEOFF DAVIS, Kentucky

JOHN CAMPBELL, California

THADDEUS G. McCOTTER, Michigan

KEVIN McCARTHY, California

(V)

C O N T E N T S

Page

Hearing held on March 22, 2008 ............................................................................ 1

Statement of:

Alexander, Frank S., professor of law, Emory University School of Law;

Todd M. Richardson, Director, Program Evaluation Division, Office of

Policy Development and Research, U.S. Department of Housing and

Urban Development; G. Thomas Kingsley, senior researcher, Housing

and Urban Policy and Governance Issues, the Urban Institute; and

Christopher Walker, Local Initiatives Support Corp. ................................ 14

Alexander, Frank S. .................................................................................. 14

Kingsley, G. Thomas ................................................................................. 57

Richardson, Todd M. ................................................................................. 25

Walker, Christopher .................................................................................. 64

Letters, statements, etc., submitted for the record by:

Alexander, Frank S., professor of law, Emory University School of Law,

prepared statement of ................................................................................... 16

Davis, Hon. Tom, a Representative in Congress from the State of Virginia, prepared statement of ........................................................................ 93

Kingsley, G. Thomas, senior researcher, Housing and Urban Policy and

Governance Issues, the Urban Institute, prepared statement of .............. 59

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio, prepared statement of .................................................................... 4

Richardson, Todd M., Director, Program Evaluation Division, Office of

Policy Development and Research, U.S. Department of Housing and

Urban Development, prepared statement of .............................................. 27

Walker, Christopher, Local Initiatives Support Corp., prepared statement

of ..................................................................................................................... 67

(1)

TARGETING FEDERAL AID TO NEIGHBORHOODS DISTRESSED BY THE SUBPRIME

MORTGAGE CRISIS

THURSDAY, MAY 22, 2008

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON DOMESTIC POLICY, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, JOINT WITH THE SUBCOMMITTEE ON

HOUSING AND COMMUNITY OPPORTUNITY, COMMITTEE

ON FINANCIAL SERVICES,

Washington, DC.

The subcommittees met, pursuant to notice, at 2:15 p.m., in room

2154, Rayburn House Office Building, Hon. Dennis J. Kucinich

(chairman of the Subcommittee on Domestic Policy) presiding.

Present from the Subcommittee on Domestic Policy: Representatives Kucinich and Issa.

Present from the Subcommittee on Housing and Community Development: Representative Waters, Lynch, Green, and Cleaver.

Also present: Representative Turner.

Staff present from the Subcommittee on Domestic Policy: Jaron

R. Bourke, staff director; Jean Gosa, clerk; Charisma Williams,

staff assistant; Leneal Scott, information systems manager; John

Cuaderes and Larry Brady, minority senior investigators and policy

advisors; and Benjamin Chance, minority professional staff member.

Mr. KUCINICH. In the interest of time and out of respect to for

our panelists, we are going to start. The committee will come to

order.

This is a joint hearing of the Domestic Policy Subcommittee of

the Oversight and Government Reform Committee and the Housing and Community Opportunity Subcommittee of the Financial

Services Committee. The title of today’s hearing is, ‘‘Targeting Federal Aid to Neighborhoods Distressed by the Subprime Mortgage

Crisis.’’

In addition to being joined by more of our colleagues, we are

joined today by a distinguished group of panelists who will be able

to provide this subcommittee with information that we think will

be helpful in helping to shape Federal policy with respect to the effects of the subprime mortgage crisis.

Today’s joint hearing concerns the availability of relevant data

and how best to use those data to target Federal funds to neighborhoods distressed by the default of millions of subprime mortgages.

Now, without objection, the Chair and the ranking minority

member will have 5 minutes to make opening statements, followed

2

by opening statements not to exceed 3 minutes by any other Member who seeks recognition. And without objection, Members and

witnesses may have 5 legislative days to submit a written statement or extraneous materials for the record.

Yesterday, the Domestic Policy Subcommittee heard testimony

about a largely unrecognized, deeply suffering, and totally blameless victim of the subprime mortgage meltdown and foreclosure crisis: neighborhoods.

While awareness has grown that the default of millions of

subprime loans has been a genuine tragedy for individual borrowers and a significant cost to lenders, we have learned that not all

foreclosures pose a lethal threat to neighborhoods. Some foreclosed

properties have new buyers, and when they do, the property tends

to be maintained and the neighborhood preserved. But many foreclosures do not attract new owners. Instead, they become vacant

and are often neglected by the lenders. When this happens, surrounding neighborhoods and local municipalities suffer significant

consequences.

Those effects include falling property values of surrounding

houses, loss of equity held by neighbors in those houses, loss of

rental units for renters, loss of sales to neighborhood merchants,

rise in crime, rise in costs for public services like municipal costs

for police and fire, due to vandalism and arson in particular, increased demolition and building inspection costs, increased legal

expenses, increased demand on city social services and a direct loss

of property tax revenues.

The costs imposed on neighboring property owners, renters, taxpayers, by vacant and abandoned houses stemming from the collapse of millions of subprime mortgages will tally into the many

billions of dollars. These significant costs are signs of failure in the

market. Their long-term consequences will be severe in some regions; and without Federal intervention, the future for many individuals and neighborhoods is bleak.

This Congress has taken a significant step to help the neighbors

deal with the problems they are now facing. Two weeks ago, the

House passed H.R. 5818, the Neighborhood Stabilization Act of

2008. This bill creates a new Federal program to address the effects on neighborhoods caused by the foreclosure crisis. The bill authorizes $15 billion in grants and loans to be spent by localities on

a variety of strategies, including vacant property acquisition, building rehabilitation and demolition. Nevertheless, the President has

promised a veto. And as I said yesterday, I can’t understand that,

and I hope that today’s and yesterday’s hearings will do something

to change his mind; for if we can’t help the totally innocent—and

the neighbors of vacant properties are innocent victims of the foreclosure crisis—then whom should we help?

Today this committee will be pleased to be joined by Chairwoman

Maxine Waters who is the primary author of 5818. And when she

arrives I will provide her with a suitable introduction.

In this joint hearing, we will be receiving testimony from experts

on the question of how we can optimize the targeting of Federal aid

to distressed neighborhoods to deal with the problem of rising rates

of vacant and abandoned buildings that are caused by the

subprime mortgage meltdown. This hearing will concern the varVerDate 11-MAY-2000 15:57 Mar 09, 2009 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\DOCS\47391.TXT KATIE PsN: KATIE
3

ious kinds of data that should be utilized to target new Federal

funds, a discussion of the limitations of available data, opinion to

which data are most appropriate, and how they may be best used,

and thoughts about what an optimal formula might look like.

We have some of the Nation’s leading analysts here to help our

subcommittees and committees achieve the purposes of the Neighborhood Stabilization Act. They have all done a lot of work to prepare for this hearing and I want to say how grateful we are for

your presence.

At this point, I will recognize the distinguished ranking member

of our Subcommittee on Domestic Policy and Oversight, and that

is the gentleman from California, Mr. Issa.

Thank you for the ongoing partnership that you’ve shown in this

endeavor and I am grateful for your statement.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

4

5

6

7

8

9

Mr. ISSA. Well, thank you, Mr. Chairman, and thank you for

holding this important hearing. I might note that yesterday was

the 1-year anniversary of the two of us being at a field hearing in

Cleveland, OH at the Federal Building. Little did we know in May

2007 how the foreclosure problems, which were then an epidemic

in Cleveland, would spread beyond Cleveland and the Midwest;

that, in fact, it would lead to the collapse of some of our oldest and

theoretically some of our most stable financial institutions.

Yesterday and today we have focused—and today we will continue to focus—on the dynamics of this crisis and how it affects

neighborhoods, and suggestions on how we can help solve these.

Furthermore, we will look at how each community is affected differently. And I think that is probably the most important point

that all of us on the dais are going to want to learn more about,

because Mr. Kucinich and I are both native Clevelanders, but I

now represent San Diego, CA. We couldn’t be more similar in our

background and our families and the ethnic neighborhoods that we

grew up in. We couldn’t be more different in the cost of homes, the

size of those mortgages, or the characteristics that have lead to

foreclosure rates in Stockton, CA, in Temecula, CA—which I represent—and others, being just as catastrophic as they are in Cuyahoga County in Cleveland; Orange County, CA; Denver, CO. The

list is endless and each of these areas has huge differences.

In short, the foreclosures which were a problem to a few cities

have now become a problem to us all.

Mr. Chairman I applaud you on being one of the handful of

Members who highlighted this problem early on when it was the

problem of a community that had $100,000 or even $70,000 homes

being foreclosed on; neighborhoods that had previously been on the

mend becoming blighted. You were quick to recognize it.

In fairness to the rest of us, I believe we didn’t heed your warning soon enough that this was going to spread throughout America.

Mr. Chairman, these 2 days of hearings, however, are as important in dealing with where we are today as they are in where we

will be in the future. I believe that this crisis is a crisis that could

repeat itself. The fundamental underpinnings of how we create financial instruments in America are in doubt.

Homes, which have always been about a substantial piece of capital investment normally, with the exception of special governmentbacked loans, these have been with substantial equity placed by

the potential homeowner, and, when refinanced, they were refinanced only out of surplus equity.

Today we find that is not the case. But worse than that, the financial instruments on which these home loans were based in

some cases were based on margins as small as 15 percent real underlying equity.

Mr. Chairman, I look forward to the testimony today and to our

continuing to work, as we have been for more than a year on a bipartisan basis, on this important issue, too important to have partisan politics get in the way.

Finally, I also ask unanimous consent that my colleague, Mike

Turner, the former mayor of Dayton, OH—and himself no stranger

to the problems that foreclosures in a community can cause—would

10

be allowed to sit on this committee today and ask questions, as appropriate.

Mr. KUCINICH. So ordered, without objection.

I want to say that one of the strengths of this subcommittee is

that we have been able to have Mr. Issa as ranking member, because it is not just your experience in Cleveland, but the business

background that you developed that then enables you to bring a

perspective here that sometimes we don’t have, and we need to

hear it in order to come up with an approach that actually gets to

the truth. So I appreciate your participation.

I have the honor, the pleasure, of making an introduction for the

next speaker. Chairwoman Maxine Waters is the primary author

of H.R. 5818. She knows that when Wall Street sneezes, America’s

neighborhoods get pneumonia. And Congresswoman Waters has

used her position as chairwoman of the Housing and Community

Opportunity Subcommittee to come to the aid of America’s neighborhoods. Congresswoman Waters has made a significant contribution to the future of our communities with her work on the bill, and

I hope that bill will soon be enacted into law.

In this joint hearing we are pleased to be joined by Congresswoman Waters, and the invitation is extended to other members of

her subcommittee. I thank you so much for being here, Congresswoman Waters, and we look forward to your statement.

Ms. WATERS. Thank you so much, Mr. Chairman. I appreciate

the opportunity that you have afforded me to jointly chair this

hearing today. And I am sorry I was a little late. We were in a special task force of the Judiciary Committee where we have the executives of the largest oil companies in America testifying before

us, and it took me a little bit longer to get here, but I am delighted

to be here.

You have been holding these hearings for 2 days. This is the second day. And I wasn’t able to attend yesterday’s hearing, but I

know that the witnesses painted a clear picture of the devastating

impact of the foreclosure wave on neighborhoods, which the hearing title accurately identified as the blameless victims of this debacle. Notably, it was clearly established that no community or type

of housing market is immune to the spillover effect of foreclosures.

Professor Been was able to quantify, in the context of New York

City, the tremendous effect on neighboring home prices that a foreclosure has, as well as highlight another group of innocent victims

of the foreclosure crisis, perhaps 15,000 renters facing eviction in

the nearly 60 percent of 2007 New York City foreclosure filings

that involved two to four-family or multifamily buildings.

Meanwhile Professor Betz illustrated the equally damaging impact of foreclosures in the very different housing market of Memphis, TN, where slowly but inexorably rising foreclosure rates have

led to foreclosure filings on fully one-quarter of Memphis’ singlefamily housing stock since the year 2000.

In short, yesterday’s hearing reaffirmed, by putting into the

record rigorous research and indisputable data, the clear need for

Federal intervention to assist States and localities in addressing

the neighborhood destabilization impacts of the foreclosure crisis.

On May 12th, of course, the House passed a bill I introduced that

would provide such assistance, H.R. 5818, the Neighborhood StaVerDate 11-MAY-2000 15:57 Mar 09, 2009 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 C:\DOCS\47391.TXT KATIE PsN: KATIE
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bilization Act, which authorizes HUD to administer a $15 billion

grant and loan program to State and local governments to purchase, rehabilitate, and resell or rent foreclosed homes. Through

the amendment process, Chairman Kucinich was extraordinarily

helpful in ensuring that States, counties, and cities receiving funding under H.R. 5818 will target the funds wisely, bringing to bear

the policy knowledge he has gained from his work as Chair of the

Domestic Policy Subcommittee and his hard-earned real-world experience as a Member representing the city of Cleveland.

Chairman Kucinich made sure that in the plans States cities and

counties submit to HUD, priority is given to low- and moderate-income neighborhoods with concentrations of vacancies coupled with

large increases in the rate of vacancy in the past 2 years and a

higher incidence of subprime loans at risk of foreclosure.

I see today’s joint hearing as the logical and necessary next step

to the work Chairman Kucinich and I did together on H.R. 5818

as we, I hope, move forward quickly to conference on H.R. 5818

with the Senate counterpart that provides $4 billion in CDBG

grants for a singular purpose. We need to continue to examine the

best data and strategies available to States and localities to target

any resources they receive from Congress in such a way that they

have the maximum impact.

I look forward to hearing from today’s witnesses about the tools

at our disposal to do so. I thank you and I yield back.

Mr. KUCINICH. I thank the gentlelady.

One of the things that Members of Congress—one of the

strengths Members bring is their experience. Prior to becoming a

Member of Congress, Councilwoman Waters was well known in

southern California as an activist and a public servant. And I know

that you would agree that the lessons that were learned at that

local level have really prepared us to be able to bring some—a new

perspective that can help resolve this crisis.

This also relates to the next person we are about to introduce

who is a Congressman from Ohio, the former mayor of the city of

Dayton, who is quite familiar with these issues. And I want to

thank Mr. Turner for his participation in this hearing and we ask

that you proceed with your opening statement.

Mr. TURNER. Thank you, Mr. Chairman. I was able to participate

yesterday in the first part of these joint hearings that you are having, and I want to thank you for your efforts in highlighting this

issue.

As we got to hear yesterday, and as each of us know from our

experience in working in urban issues, the foreclosure crisis for

urban America is a crisis of abandoned structures and negative impacts to neighborhoods. We see that when a house goes into foreclosure, the spiral of a house on its way to abandonment, on its

way to demolition and neglect, and the scar that it makes in the

neighbor results in everyone in the neighborhood being subject to

the catastrophic effects of that foreclosure; not just the family that

is there, not just our financial markets and the loss of capital, but

the increase in crime, the blighting influence, the reduced property

values, and the difficulty of those in the neighborhood that see this

happen. And when it happens in the magnitude we are seeing,

then the spiral impact on neighborhoods is extraordinary.

12

The measures that Congress recently has taken in looking to try

to help families that are entering the foreclosure process and to

help neighborhoods and communities to respond to the scars of this

foreclosure are going to be very important.

I appreciate your work on this. Cleveland and Dayton are not different in what their experience has been, and I am very appreciative that we are moving into the issue of looking at the problem,

but how do we find solutions and how do we look at how do we aid

communities, how do we look at how do we aid families. And that

is why I appreciate this hearing, because we are going to go into

the steps of hearing ways in which we might be able to tailor responses to areas to effectively address their needs.

So, Mr. Chairman, I want to thank you and I look forward on

the testimony.

Mr. KUCINICH. I thank the gentleman. We are pleased to be

joined by a member of the Subcommittee on Housing and Community Opportunity, Congressman Al Green from Texas.

He brings an important perspective because he represents the

Houston area, and we are grateful for your presence and you may

proceed with your opening statement.

Mr. GREEN. Thank you, Mr. Chairman. I also thank your ranking

member for his bipartisan support on these efforts. I thank my

chairman, Congresswoman Maxine Waters, for her stellar efforts to

help us with the concerns that have been raised in this crisis that

we are confronting.

It is my opinion that we are confronting social issues as a result,

economic issues as a result of the crisis. But also there are qualityof-life issues to be contended with because we sleep in houses and

live in neighborhoods. Neighborhoods are being impacted by what

we are doing. Parks will be impacted. The quality of life in and

around your home may very well be impacted.

And we should not allow ourselves to believe that there are

subprime neighborhoods, because we have subprime loans in prime

neighborhoods. And all neighborhoods could very well be at risk because the housing market is very much akin to a giant condo. And

in this giant condo, we all have a stake. And if something happens

to one unit, it impacts the maintenance fees for everyone. And

maintenance fees are, of course, taxes. Maintenance fees are, of

course, services that are rendered pursuant to trying to maintain

this giant condo.

So I think we have to see this as something that all of us should

be concerned with and all of us should try to do what we can to

make a difference.

With reference to H.R. 5818, it is a great piece of legislation that

the chairlady has presented. It provides $7.5 billion in loans, $7.5

billion in grants. These moneys will be utilized to take the properties that people are walking away from and put them back into

the marketplace, and to help some persons, who may very well not

have the opportunity to own a home, acquire a piece of property.

So it has a multifold purpose.

And I am honored to be supportive of my Congresswoman, the

chairlady of the Housing Subcommittee, and I think she has a

great piece of legislation.

And I yield back the balance of my time.

13

Mr. KUCINICH. I thank the gentleman from Texas.

If there are no additional opening statements from Members, the

subcommittee will now receive testimony from the witnesses before

us today.

I would like to start by introducing our witnesses. From my left

to right, Mr. Frank Alexander. Welcome.

Mr. Alexander is a professor at Emory University School of Law

and founding director of the Center for the Study of Law and Religion. He is also the director of the project of affordable housing and

community development. His work focuses on affordable housing,

urban redevelopment, and State and local government. Mr. Alexander has published numerous articles in his area of specialty and

has received more than 20 awards for his teaching and public service.

Next we will hear from Todd Richardson. Mr. Richardson, welcome.

Mr. Richardson is the Director of the Program Evaluation Division of the Office of Policy Development and Research, U.S. Department of Housing and Urban Development. The Program Evaluation

Division conducts research, evaluations and demonstrations across

a wide range of topics. It carries out most of the Department’s research efforts related to homelessness, assisted housing that includes section 8 and public housing, fair housing and equal opportunity, crime, community economic development empowerment

zones, housing rehabilitation, home ownership, housing for the elderly. You cover a broad area. We are glad that you are here.

Next is Mr. G. Thomas Kinglsey. Welcome.

Mr. Kingsley is senior researcher in housing and urban policy

and governance issues at the Urban Institute. He is the author of

numerous publications in these fields. He currently directs the National Neighborhood Indicators Partnership, an initiative to further

the development of advanced data systems for policy analysis and

community building in U.S. cities.

Finally we will hear from Mr. Christopher Walker. Thank you for

being here, Mr. Walker. Welcome.

Mr. Walker is the director of research for the Local Initiatives

Support Corporation. He is responsible for assembling, conducting,

sponsoring and disseminating research on community development’s contributions to the well-being of individuals, families and

communities.

He also supports the research activities of the 33 LISC field offices throughout the United States. Currently Mr. Walker is working on the value of low-income housing tax credits to neighborhood

stabilization and new ways to measure the market potential of lowincome urban neighborhoods.

Now, gentlemen, it is the policy of the Committee on Oversight

and Government Reform to swear in all witnesses before they testify. I would ask that each of you rise and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Let the record reflect that each of the witnesses

has answered in the affirmative.

I would ask that each of the witnesses now give a brief summary

of your testimony. Keep in mind that we ask that the summary be

kept to 5 minutes in duration. Your complete written statement

14

will be included in the hearing record. Members have access to

these and they become part of our permanent archives. They are

very important.

Mr. Alexander, you are going to be our first witness and we ask

that you proceed.

STATEMENTS OF FRANK S. ALEXANDER, PROFESSOR OF LAW,

EMORY UNIVERSITY SCHOOL OF LAW; TODD M. RICHARDSON, DIRECTOR, PROGRAM EVALUATION DIVISION, OFFICE

OF POLICY DEVELOPMENT AND RESEARCH, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; G. THOMAS

KINGSLEY, SENIOR RESEARCHER, HOUSING AND URBAN

POLICY AND GOVERNANCE ISSUES, THE URBAN INSTITUTE;

AND CHRISTOPHER WALKER, LOCAL INITIATIVES SUPPORT

CORP.

STATEMENT OF FRANK S. ALEXANDER

Mr. ALEXANDER. Thank you, very much. Chairman Kucinich,

Chairwoman Waters, members of the committees, my name is

Frank Alexander and I am delighted and honored to be here today.

What I would like to do first is express my deep appreciation for

your leadership on H.R. 5818. The Congress has undertaken in recent months several significant steps to deal with our housing crisis. But 5818 addresses something quite different from the basic

housing stimulus package. Most of the housing stimulus package

now under consideration in the Senate is oriented toward foreclosure prevention, appropriately so, to avoid foreclosure whenever

possible.

One of the two things that makes 5818 different is that it is not

focused on foreclosure prevention. It is focused on real estate postforeclosure. In focusing on this inventory, this dramatic rise in all

of our neighborhoods, it is also then focusing on the rest of us who

bear the burdens of this property. Whereas many people may debate the moral hazards embedded in the housing stimulus package,

those moral hazards are not present in 5818. We, the neighbors,

the communities, the cities, the counties, are the victims of this

large increase in foreclosed, vacant, and abandoned housing.

Yesterday’s testimony focused on the costs to local governments,

the cost to the neighborhoods of these properties. One of your witnesses yesterday was Alan Mallach. In another context, he testified

that vacant property is not a victimless crime. And that is the basic

thrust of 5818.

We heard yesterday that vacant and abandoned properties increased property deterioration, resulting in reduced property values, reduced property tax revenues, higher police and fire costs. As

Representative Green alluded to, vacant, abandoned properties also

destroy the fabric of neighborhoods, they destroy the community.

The very thrust of 5818 is to acknowledge for the first time in

this country the huge problem being imposed on our cities and our

communities by the foreclosure crisis. The debate for all of us is not

the question of the predatory loan or how to avoid the foreclosure.

Those are relevant to the stimulus package.

The question before us now is how to save our neighborhoods

from these foreclosures.

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H.R. 5818 allocates $15 billion. It does so using primarily three

variables. The first variable is the relative percentage of foreclosures nationwide over the past 12 months. The second variable

for allocating the formula is a relative percentage of delinquencies

on subprime mortgages. And then there is a third subvariable: adjusting for median sales price differences across the States.

While I fully support 5818, what it is designed to accomplish—

and I certainly hope it passes. I would like to recommend in response to Representative Waters’ intimation that there will be continued discussions about this, the possibility of further refining the

allocation formulas to target them most effectively. First and foremost, I am concerned that the allocation of the $15

billion does not go to the areas of greatest need. It allocates the

money according to foreclosures, not to where the foreclosures are

occurring in a concentrated fashion.

I recommend the addition of a variable for allocating the money

which would be based upon high concentration of foreclosures. This

can be done by Census tract, perhaps by either by 5-digit or 9-digit

zip code. An individual foreclosed home may not pose a great deal

of burden; multiple foreclosures create the problems exponentially.

The second modification I would recommend is the priority of

uses of the money. Under the current bill, the money can be used

to acquire qualified foreclosed housing, but that could include occupied housing. For the most part, occupied housing does not impose

the external cost.

The final change I would recommend is that the grant funds be

available for acquisition of the real estate, not just the loan funds.

I do hope that 5818 becomes the hallmark of legislation, not for

foreclosure prevention, but for saving our cities from the burdens

of this foreclosure crisis. Thank you very much.

Mr. KUCINICH. Thank you, very much Mr. Alexander.

[The prepared statement of Mr. Alexander follows:]

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Mr. KUCINICH. Mr. Richardson, you may present.

STATEMENT OF TODD M. RICHARDSON

Mr. RICHARDSON. On behalf of HUD Deputy Secretary Roy

Bernardi, thank you, Chairman Kucinich and Chairwoman Waters,

for the invitation to appear at this joint hearing. I have worked on

issues related to allocation formulas at HUD since the mid-1990’s.

My experience with research and development of allocation formulas identifies two key ingredients for a successful formula: clearly defined goals of the need that Congress intends to target and

available data that is uniformly collected across all potential grantees.

While there are promising data sets that may be able to achieve

the congressional goal of targeting neighborhoods with increasing

vacancy and abandonment, further analysis of the data is required

to ensure accuracy and targeting funds to all communities across

the country. This is especially tricky when it comes to vacant and

abandoned housing because there are many causes of vacancy, and

in only certain conditions will that vacancy translate into a nuisance property or an abandoned property.

Combining information from several public data sets has the

greatest potential for accurately targeting funds to areas with vacant and potentially abandoned properties. To illustrate this point,

I would like to present the committee with a few maps that identify communities with some of the economic and structural risk factors that lead to vacancies and potential abandonment. I will follow

this with a detailed discussion on how we can measure changes in

vacancy rates at the neighborhood level.

One risk factor for vacancy is declining home price. Metropolitan

statistical areas [MSAs], with falling home values means more

property owners will have negative equity in their properties, thus

increasing the risk of foreclosure. We can use data on house price

changes in recent years from the OHFEO housing price index for

metropolitan areas.

On this map all the MSAs in green have had a fall in value since

2005, but those with the darkest green have had the sharpest fall.

California, Michigan, Florida, northern Ohio, Nevada, jump out on

this map.

Now I want to point out that falling home values and foreclosures in themselves are only a measure of risk of vacancy; many

foreclosed properties will never become vacant or will only briefly

be vacant. The next map, please.

A second risk factor is local economics and population flows. Reduced employment or a decline in number of households occurring

in an environment where it is difficult to sell a home increases the

risk for housing vacancy and abandonment. The red and the orange

on this map show data from the Bureau of Labor Statistics on

counties with declining labor force participation between 2005 and

2007. Rural counties jump out on this map as a few urban areas

currently in economic distress.

A third risk factor, which I don’t have a map for here today, relates to characteristics of the housing stock. Examples might include low home values, very high fractions of single-family rental

stock or existing high-vacancy rates. These are indicators of neighVerDate 11-MAY-2000 15:57 Mar 09, 2009 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\DOCS\47391.TXT KATIE PsN: KATIE
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borhoods and communities with properties that tend to be at the

tail end of the filtering process, putting them at greater risk for

home abandonment.

Census 2000 and American Community Survey 2006 data can

provide some of this information.

Next map, please. A fourth risk factor could be measured at the

Census tract level for borrowers who have high-cost loans, are

highly leveraged as measured by a high loan-to-income ratio. These

households are at risk for foreclosure or abandoning their homes.

Home Mortgage Disclosure Act data from 2004 to 2006 can provide this information.

This map of Cleveland, for example, shows Census tracts where

the percentage of loans are either high cost or highly leveraged.

The darker areas have higher rates.

For communities or neighborhoods identified as having structural

or economic conditions that might lead to long-term vacancy and

abandonment, it is possible to track neighborhood change in vacancy rates using data provided to HUD by the U.S. Postal Service.

The USPS provides these data to HUD every quarter at the block

level, and HUD makes them available at Census track level publicly. The USPS data reflects addresses that have been vacant and

not taking mail for at least 90 days.

While these data have anomalies, they have useful tools as well:

this map of Cleveland here, for example, where the orange bands

show neighborhoods which have had a 3 percentage point increase

in their vacancy rates between December 2005 and March 2008. As

you can see, many of these overlap where a high proportion of

higher-risk loans were made.

Next map. In contrast, while Los Angeles shows some concentrations for high-risk loans, it does not also show a big jump in rate

of vacancy.

Next map, please. Converting this neighborhood-level data into a

community-level indicator, this just final map shows CDBG entitlement jurisdictions by the percent of Census tract within a jurisdiction that has increasing vacancy rates. Dark purple indicates a

worsening problem. Not surprisingly, communities in central California, Nevada, southeast Michigan, northern Ohio, Indiana, and

Florida jump out on this map as having neighbor concentrations of

vacant housing.

In summation, our available public data can first identify the

communities and neighborhoods that have the factors placing them

at risk for vacancy and abandonment, and then target the neighborhoods actually experiencing increased rates of vacancy. Thank

you, very much.

Mr. KUCINICH. Thank you.

[The prepared statement of Mr. Richardson follows:]

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Mr. KUCINICH. Mr. Kingsley, please proceed.

STATEMENT OF G. THOMAS KINGSLEY

Mr. KINGSLEY. Thank you, Chairman Kucinich, Chairwoman Waters and members of the subcommittees. I am honored to come before you today to testify on an issue that is critical to the future

of our metropolitan regions.

My name is Tom Kingsley. I am a researcher at the Urban Institute where changing conditions in urban neighborhoods is the focus

of our research.

Our experience certainly confirms that neighborhoods with high

concentrations of foreclosures and increasing vacancy rates are

likely to generate substantial unanticipated costs for resident families and jurisdictions. Any formula distributing resources to help

cover those costs must be carefully constructed if it is to be equitable.

In my written testimony, I introduced and support six points related to that goal: The first is that neighborhood-level spillover

costs are likely to depend on how heavily the problem is concentrated as opposed to being spread out evenly across the neighborhoods in any jurisdiction. Preliminary research at the Urban Institute corroborates the view that such concentration is much higher in some metropolitan areas than others. This implies that a formula distributing funds simply in proportion to the total number

of loans or foreclosures in a jurisdiction is not likely to be equitable.

Second, much of the research on this crisis so far has used the

subprime percentage of all loans as the measure of incidence. That

measure is actually not very good for this purpose, since it might

give a very high score to neighborhoods that only have a very few

loans. Better measures of concentration are those that calculate the

numbers, loans, foreclosures, and vacancies per1,000 units in the

housing stock.

My third point relates to the criteria for selecting data sets for

this purpose. I believe they should do four things: one, provide indicators that closely approximate Congress’ selected basis for targeting; two, be reliably developed and frequently updated by Federal

agencies; three, provide data collected under rigorously enforced

uniform standards nationwide; and four, be collected so that information can be made available for small geographic areas like Census tracts.

My next point is that of the data sets that meet these requirements, the two probably best-suited to address this subcommittee’s

purposes are the Home Mortgage Disclosure Act, HMDA, data set

on mortgage originations and the U.S. Postal Service data set on

vacant properties.

However, in developing a formula, further research using these

data sets is needed to gain a better understanding of, one, the relationship between subprime loan concentrations under various

neighborhood conditions and the probability of foreclosure; two, the

relationship in time between foreclosures and vacancy rates, and

three, how the risk of foreclosures and their effects in a given type

of neighborhood are likely to vary in different metropolitan market

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contexts, most importantly the variations between comparatively

strong versus comparatively weak housing markets.

My fifth point is to recognize that over the past few years, the

quality and accessibility of HMDA, USPS and other relevant data

sets have markedly improved. We are in a very different position

than we were a decade ago when the U.S. Census was about all

that was available as a reliable basis for funding formulas.

I think congratulations are due in particular to the Federal Reserve System’s FFIEC for their work with HMDA, and HUD, for

its work with the USPS.

My final point is that whatever happens to the allocation formula, good work with data at the local level is going to be essential

to support the design and monitoring of effective programs to address neighborhood spillover effects.

At the Urban Institute, as noted, we coordinate the National

Neighborhood Indicators Partnership, a network of data intermediaries in 30 cities, many of whom are already working on this

issue. Two of our partners from Memphis and New York City provided testimony to you yesterday.

I hope these subcommittees will encourage support for the work

of local groups like these, since their ability to shed light on the

pattern and magnitude of impacts in their own areas is going to

be critical to the development of really cost-effective local solutions.

Thank you. I look forward to responding to your questions.

Mr. KUCINICH. Thank you, Mr. Kingsley.

[The prepared statement of Mr. Kingsley follows:]

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Mr. KUCINICH. Mr. Walker, please proceed.

STATEMENT OF CHRISTOPHER WALKER

Mr. WALKER. Thank you, Chairman Kucinich and other members

of the subcommittees, for the opportunity to present the results of

our work. My name is Chris Walker and I am director of research

and assessment for the Local Initiative Research Corp. My organization is one of the Nation’s leading nonprofit investors in low- and

moderate-income communities. We strongly support H.R. 5818.

Part of my job is to provide research support to our 30 local offices throughout the country. In the past few months, my colleagues and I have worked extensively with several sources of

mortgage loan performance data to identify neighborhood concentrations of foreclosed loans and real estate-owned properties.

Our local staff uses this information to help move resources to

areas of greatest need.

Naturally we have learned a few things about the strengths and

weaknesses of these data, so at the urging of the subcommittee

staff we turned our attention to how these data could be used to

help direct aid to areas with concentrations of vacancies due to

foreclosure. We found that although there remains work to be done,

we are able to do a pretty good job in identifying neighborhoods

where foreclosures are prevalent and where vacancies have increased.

We have made what I believe is a promising start in pinpointing

places where foreclosures and vacancies appear to be related to one

another. These, of course, are the places where aid would be directed.

Let me briefly walk through the sequence of analyses we carried

out, summarize our conclusions at each stage, and then point out

some of the challenges that remain.

First we examined the patterns of loan foreclosures and bankowned real estate across all zip codes in the 20 largest States.

These data came from two proprietary sources. First American

Loan Performance, whose data were tabulated and supplied by the

Federal Reserve and McDash Analytics, whose data service we subscribe to.

Our analyses show that these sources are in basic agreement.

They generally identify the same neighborhoods as places where

concentrated foreclosures have occurred. This is no surprise since

they come from more or less the same source, the largest loan

securitizers in the United States.

Now it is well known that these data are incomplete. The loan

performance data, for example, is also covered by 50 percent of the

subprime market. We worry that this incomplete coverage might

distort our view of where foreclosures take place. To find out

whether this was so, we checked these data against Home Mortgage Disclosure Act data on so-called high-cost loans, including

those that are subprime. Originators of the great majority of mortgage loans are obliged to report this information each year, so the

coverage of the market is superior to that of our proprietary

sources.

Our analysis shows remarkable agreement among these sources,

at least in the 20 States we studied. This is important for two reaVerDate 11-MAY-2000 15:57 Mar 09, 2009 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 C:\DOCS\47391.TXT KATIE PsN: KATIE
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sons. It means the data on loan performance obtained from

securitizers appear not to displace fatal geographic biases. It also

means that the use of the widely available HMDA data as a substitute for proprietary data should yield good results.

Second, we examined a pattern in housing vacancy across all

Census tracts in the United States, using data from the U.S. Postal

Service. The availability of these data to researchers like me is an

extremely valuable service that HUD provides. To make these data

ready for analysis, we had to make sense of some of the anomalies

that Mr. Richardson described earlier. We had to try to understand

the ebb and flow of both occupancies and vacancies captured by the

data, and I assure you that was not an easy task.

On that standard, we got the data to behave reasonably well; at

least well enough to allow a test of its probable value.

Third and finally, we returned to our three sources of mortgage

data and examined their relationship to the vacancy data, which of

course was our primary goal. Frankly, our initial results weren’t

that good, producing relationships that were significant in statistical terms, but weren’t much better than random. We made good

progress, though, by developing neighborhood classifications that

take account of typical housing patterns. It is not uncommon, for

example, for the numbers of occupied units and vacancies to rise

simultaneously. In growth areas, construction of new units creates

new addresses. And as people move in, the number of occupied addresses goes up. At the same time, the number of vacant addresses

can increase, too, as other new units await their first occupants.

This helps explain why we found that in some neighborhoods, an

increase in subprime lending and resulting foreclosures was associated with an increase in the number of occupied units and an increase in vacancies at the same time, as developers sold units to

those who bought with subprime loans.

In other neighborhoods, we saw a decline in occupied addresses

and an increase in vacant ones as foreclosures emptied out units.

This is the pattern we expect to find in many inner city areas

where homeowners purchased existing homes with subprime loans.

For example, the first map I show you depicts the location of

high-cost mortgage loans made to investors and single-family housing in the Detroit metropolitan area. The red and orange areas are

the zip codes with the highest numbers of these loans relative to

other areas of Michigan. The hatched areas are places where the

numbers of occupied addresses went down and the numbers of vacancies increased. As you can see, there is a pretty good correspondence between the two, although it is not perfect. There are

some red areas that don’t have vacancy increases. There are green

and yellow areas that do. We obtained slightly better results in

northeastern Ohio as depicted in map 2.

So I think we made a considerable amount of progress in a short

period of time, establishing the value of available mortgage loan

data for geographic targeting uses and developing some of the classifications we need to make so that the Postal Service data becomes useful for our purpose.

In my view, there are three basic tasks remaining which I believe can be completed over the next several months. First, we need

to expand our analysis of mortgage loan performance pattern to all

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50 States and improve our models so we can predict the location

of mortgage payment problems pretty well in every State.

Second, we need to do a better job in accounting for the factors

that produce housing vacancies. We know that all subprime foreclosures don’t result in vacant units. We know that all vacant units

don’t come from foreclosures. Various factors affect the conversion

rate from foreclosure to vacancy.

Third and finally, we need to continue developing better classifications of communities according to their occupancy and vacancy

trends. We can then overlay our foreclosure data to arrive at a

workable targeting approach. The maps I showed you illustrated

how this would work. So, in sum, I believe we made great progress

in a short period of time toward an effective approach to identifying

areas of foreclosure-driven vacancy.

I look forward to working further with my colleagues on the

panel on this important task. Thank you for inviting me to speak

today, and I will be happy to answer any questions you may have.

Mr. KUCINICH. And thank you, Mr. Walker, for your testimony.

[The prepared statement of Mr. Walker follows:]

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Mr. KUCINICH. We are going to move now to questions from

members of the two subcommittees. I am going to begin by asking

my colleague, the chairwoman, to begin with the questioning. And

the Chair recognizes Ms. Waters for 5 minutes.

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

thank you again for holding this hearing and our presenters who

are here today who are sharing very valuable information with us.

As I have looked at the subprime meltdown and the foreclosure

mess, I have gleaned from all of the information that has been afforded to us and many of the visits that I have had in some of

these cities, that the conclusions that you are arriving at Mr. Walker, are basically what I think I am seeing out there in terms of

the—and I appreciate the fact that Chairman Kucinich is helping

us to understand how to best use these resources.

When we talk about $15 billion it sounds like an a lot of money, but it is not; $7.5 for grants, $7.5 in loans. When I contrast that

to the meeting that I just left where one company had $40 billion

in profits and five had $123 billion in profits, this is very little in

terms of what we should be doing to stabilize these neighborhoods.

And everything that you have testified to just rings absolutely true.

But I am concerned about something, Professor Alexander. I

want so very, very much for many of our areas, particularly in our

urban areas, that have been devastated for a long period of time

where you have huge blocks of properties, land, closed factories,

etc., that have been sitting there for a long time. And then on top

of that, for those homes that have kind of remained there, they

have fallen into the foreclosure mess.

And now you have an opportunity for the city to take a look at

what they can do to revitalize these neighborhoods, utilizing some

of the abandoned properties from these factories, like in Saint

Louis. I was there. And of course all of you know about the projects

in Saint Louis and all of that acreage right in the middle of the

city that has been abandoned over 20, 30 years now. We saw two

such areas.

So as I understand it, you recommend that land bank and demolition be eligible use for Federal assistance to help State and local

governments address the foreclosed and abandoned property issue.

I think that may be legitimate, but I worry. In Saint Louis, it

appears that as they approached, before the foreclosure crisis, this

land banking not doing anything with foreclosed properties or

abandoned properties for a long period of time, with an idea that

they would land bank and be able to plan and develop communities

where they find a lot of displacement; people who, you know, were

displaced. Nobody knows where they are. And in many of these

areas, homelessness certainly increased.

And this land banking, the way that they have done it is they

have allowed some of the properties to just deteriorate in an effort

to, you know, come up with this ideal situation that they are going

to develop someday. And so land banking has been going on for a

long period of time. Properties have been vacant that nothing has

been done with.

So how do we avoid the kind of displacement? And how do we

avoid these long-range plans for development, with the idea that

you don’t put any money in now because you want to dismantle all

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this stuff so that you can come up with these ideal communities?

How do we deal with all of that? Why should we use this money

for land banking and demolition if in fact we are not going to realize some relatively quick turnaround in development and stabilization?

Mr. ALEXANDER. You raise a number of excellent questions,

Chairwoman Waters. Your points about the Saint Louis LBA the

land bank there are quite accurate. It had the same number of

properties in its inventory 15 years after it began as it did the day

it began.

In contrast, we heard testimony yesterday from Treasurer Daniel

Kildee of Flint, MI, Genesee County. They have acquired 12 percent of the digests of the city of Flint, but they have also put more

homes into occupied housing than anyone, any other entity in Flint

or in Genesee County.

I wish there were a guarantee that we could come up with that

an LBA or a city government would also always use it in the most

productive fashion. I am not aware of any such guarantee. But

5818 itself embodies a number of critical points that will keep that

from being a ikelihood.

First, it is time-limited. It is sunset. It is designed as an emergency aid. This is not an ongoing program. This is one designed to

get the excess inventory and put it back into productive use very

quickly.

The demolition feature that you have in the bill does permit the

demolition of things that are not cost-efficient to rehab. I agree

with the purposes in the bill, that rehab is the first priority. Demo

and demo costs should occur only when necessary to stabilize the

neighborhood.

So I think you have the features in 5818 that can allow our local

governments to preserve our neighborhoods. It is not going to cure

all the problems. In a very weak market where the population continues to flee, this and this alone will not be enough. But it is an

absolutely vital stage for saving those cities and neighborhoods

that are going to have a tough time surviving in the face of 30 and

40 percent foreclosure rates.

Ms. WATERS. Thank you very much. Let me just ask our presenter from LISC.

Mr. Walker, do you envision that LISC would be interested in

some of this rehabilitation work, because like Mr. Alexander has

said, that may be the highest priority, rather than establishing, demolishing too much and, you know, trying to stabilize it. It appears

that rehabilitation certainly has great possibilities. Has LISC been

involved in rehab rather than new development? Would LISC be

interested in this kind of thing? Is this the kind of thing that would

make good sense for you?

Mr. WALKER. Chairwoman Waters, we at LISC pride ourselves in

supporting community-based solutions to the problems of neighborhoods. In some communities new construction is the right solution.

In other communities rehabilitation is more appropriate. Sometimes even within the same city, different neighborhoods require

different solutions. So that is one of the primary reasons why we

support community-based organizations that have attachments in

the community already and are able to make those decisions for

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themselves. So either way our partners choose, we are prepared

with the kinds of investments, including the kinds of investments

which would go in tandem with the resources made available from

5818, to support those decisions.

Mr. WATERS. Thank you very much.

And to Mr. Kingsley, you have been involved, the Urban Institute has been involved in an awful lot of research, it appears. And

how can our agencies of government be of more support to you in

the work that you are doing? Is there something that we could be

doing over in HUD that would be more helpful, or over in the congressional side of government, Office of Research, etc? Because it

is very important that we know where to best spend money and

where it will be most helpful and where it would stabilize neighborhoods the best. What do you need? Perhaps money.

Mr. KINGSLEY. Well, Chairwoman Waters, I think you have

touched on a lot of things that could possibly be helpful. I think

the testimony you have heard today suggests that there is already

some fairly effective national-level research that is supportive of

the interests and supportive of helping people to do a better job of

implementing 5818. I think I would like to give stress to finding

ways to support local entities more than national ones to do good

local research. The decisions that get made that affect most of what

happens in America, and especially at this level, are decisions that

are made by people in communities and localities. And even though

I think, as my colleagues here have talked about, that there is a

pretty good basis and a promising basis for doing a national allocation formula, I would argue that really making sensible decisions

about exactly what to do in each of these neighborhoods—in some

cases, as Mr. Walker said, it is going to be rehab versus demolition,

but it is also how to efficiently target resources; which neighborhoods to go into and how to do that. You want to get good people

locally who are capable of producing data-driven decisions. So I

think consideration of ways to allow some focus to support analytics locally, as well as simply bricks and mortar, would not be a bad

feature. Thank you.

Mr. WATERS. Thank you very much.

Mr. KUCINICH. I thank the gentlelady for her work on this and

also for her questioning. The Chair recognizes our ranking member, Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman. Mr. Kingsley, I think I am

going to take the opportunity to sort of followup on my colleague’s

question, recognizing that I have one foot in Cleveland, the place

of my birth and the home of the Cleveland Indians, and then I

have this Padres foot in San Diego, so I will do the best I can to

try to use them both to our advantage.

When you talk about local involvement and so on—this is beyond

5818, but in a sense it isn’t—how much local equity, and what I

mean is real money, should cities, counties, and States have in this

process? How much should the Federal Government insist on

leveraging of real participation by the—you know, there is no State

in the Union that doesn’t have money. They all have deficits, but

they all have money. How much, what is the ratio, you think?

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cent? Because if we get to 100 percent, $15 billion doesn’t go very

far. Can you help us understand that?

Mr. KINGSLEY. I think it is a complicated answer because of the

variations in both fiscal circumstances that exist around the country as well as the variations in the extent of the problem at the

neighborhood level. So I don’t really—I don’t really have an easy

answer. I would certainly endorse the idea of some leveraging and

some sense of incentives, because if local governments have a stake

in this process, they are obviously going to use money more wisely.

And I certainly endorse that.

Mr. ISSA. Well, following up on that question, assuming that the

reason that they wouldn’t do more is that they don’t have more for

a moment, and looking at both California with a $20 billion deficit

and Ohio with about a $20 billion budget, OK, so fortunately Ohio

has a smaller deficit, but they both have downturns right now. If

we are to go beyond 100 percent funding, would it be better for us

to—let’s say we take the $15 billion—if we in fact, for example,

made it $60 billion but made $45 billion in the form of loans, recognizing that better times are coming, so that they would still have

equity in it in the form of debt, but it wouldn’t simply be it is other

people’s money, go spend it, and if it doesn’t work you have lost

nothing?

Mr. KINGSLEY. Again, I think the loan/grant mix combination is

an awfully difficult thing to settle across the board. But I do think

that there is clearly a notion related to timing. And the principles

here ought to be such that they do, I think, move in the direction

you are talking about.

I mean, we have a short-term crisis in which the budgets of localities are being hurt very badly in the short term. So the principle

of getting them to pay for everything up front ain’t going to work.

I think we have to inject some money into them. But certainly the

principle of doing that in ways where, over the long term as the

economies improve, that they are able to participate is good.

Mr. ISSA. Mr. Richardson, sort of as a steward of our money, we

put it out there, we trust you to be a good steward of it; are programs like that historically a more effective way to leverage dollars, recognizing that an empty home or a foreclosed home in

Cleveland, OH or in Temecula, CA represents no revenue to the

city, or reduced even if it is held by a bank, can we expect that program proposals coming from the administration would include

some sort of leveraging of we understand you have reduced revenues, but we would like to share in the benefit of us getting those

revenues back up by loan repayment or some other process in order

to make our 15 billion, as the gentlelady suggested, hopefully a far

greater number?

Mr. RICHARDSON. Well, I can’t speak to the policy of the administration on this specific bill——

Mr. ISSA. But you are the administration sitting here. Trust me,

feel free. It is the end of an administration. Do your best to put

your CEO hat on.

Mr. RICHARDSON. But I can speak to other programs that have

match requirements.

Mr. ISSA. Thank you.

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Mr. RICHARDSON. And programs like the HOME program, where

a jurisdiction can be required—jurisdictions are required to have a

HOME match, but it can be waived if they can show that they can’t

meet that requirement. So as in this case, some jurisdictions may

be more able to be able to provide assistance than others.

In terms of an allocation formula, another way to handle it is—

if you are allocating funds—is to target funds in such a way that

you take into account fiscal capacity so that a jurisdiction with

higher fiscal capacity, with perhaps equal need to another jurisdiction, gets somewhat less funds than a jurisdiction with low fiscal

capacity.

Mr. ISSA. And if I could, Mr. Chairman, if I could just ask one

exit question. You know, being from California with our $700,000–

$800,000 homes in foreclosure in many cases—and these are still

hardworking people at regular jobs, the homes are simply more expensive—we have full confidence that we are going to have a snap

back and that homes in 10 years will be worth dramatically more

than they are today, the same homes that are empty and in foreclosure.

Should the Congress be considering schemes—I mean that in the

good sense—in which we extend what it takes to stabilize those

markets, get people back into them on some sort of a basis they

can afford today, but the Federal Government or other agencies

take equity so that when they snap back we can expect a recovery?

And I would contrast it maybe in a way to what we did for

Chrysler many years ago. We actually didn’t give them a penny.

We provided loan guarantees which they paid back, with interest,

when Chrysler was restored. Can we, in a place like San Diego or

Temecula, CA in my district, use techniques like that? Presently I

don’t know of any, but is that something Congress should be trying

to make available so we not simply throw money at a time in which

it is down, and then be surprised in which those same homes are

now earning people huge returns?

Mr. RICHARDSON. If I could ask Frank to answer that question,

he seems to have——

Mr. ISSA. You are a natural-born leader. Yes, sir.

Mr. ALEXANDER. Representative Issa, you have already got it in

a small form in 5818, where you have the shared depreciation concept. Now, I am not aware of that in any other Federal loan program, that a loan or grant carries with it a shared depreciation for

repayment to the Federal Government. So in that sense in some jurisdictions, yes, you are going to be capturing a portion of the upside, not only for repayment of the initial loan but of the appreciated dollar value.

Now, it is not going to be applicable across the board where you

are locking it in, where the disposition of the property is to lock

it into affordable housing. Odds are there will not be as much upside appreciation. But that, again, the good thing is it allows the

local jurisdiction the flexibility to do shared depreciation mortgages

with a recapture, or to focus much more deeply on the extremely

low-income rental housing.

Mr. ISSA. Thank you, Mr. Chairman. And thank you for focusing

for so long, for this year and beyond, on this problem which we

share, although in different ways, between our two districts.

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Mr. KUCINICH. Thank you very much, Mr. Issa. And I am going

to exercise my prerogative as Chair, having yielded the time to Ms.

Waters to begin to ask questions, to ask my questions. And I will

make it as expeditious as possible so we can get our other members

of the subcommittee involved here.

You know, one of the things, I would ask the members of the

subcommittee, if you take this overlay, the page that has northeastern Ohio, I just want to—this is Mr. Walker’s work. We thank

you for that. When you look at this, what we have here, the Investor High Cost Loans by ZIP Code, you are really talking about the

subprime loans. And when you overlay, as you have, the increasing

vacant and decreasing occupied addresses, they fit rather neatly, if

you are looking at the city of Cleveland, over those areas where

they had the subprime loans.

Now, this subcommittee is looking at, you know, what is the

most effective way to target any resource that would be available.

And these maps are very helpful, because what it appears is that

you have a high number of subprime loans and then people are just

leaving.

One of the things that has come up in the work of this committee—and I want to just share this with the members of the subcommittee that are with us today from Congresswoman Waters’

subcommittee—if you take the matter that HUD provides, which

maybe staff could put that up there—go back. Further. Take a look

over—that’s it. Can you enlarge that a little bit? A little bit more?

If you can enlarge it?

You look at it, it actually looks like a V, like this. If you look at

the map, it looks like a V. That V approximates the African American community in Cleveland. If you look at this, where the concentration is in the red areas, particularly the red areas where you

have the overlay of increasing vacant and decreasing occupied addresses, that also is the African American community. When you

look at, going back to our map, staff, go back to this map, when

you look at the overlaid areas of red—yes, that’s it, try to enlarge

that a little bit—for those of you who have the map, I just want

to point something out. When you look at the overlaid areas of red

in the Cleveland area, and then you look at the other areas to the

west, that’s Lorain, OH, large African American population. You

look at the areas to the south, the areas of red that have an increasing vacant or decreasing occupied addresses, same thing with

the African American community in Akron, OH.

When you look east of Cleveland, there is a little fringe of red

there that is overlaid for increasing vacant and decreasing occupied

addresses. That is Euclid, OH, a large African American population.

In the work of any of the gentlemen here, have you done any research that has looked at data that has identified the racial characteristics of the people who have had this avalanche of subprime

loan defaults? Anybody here done that work? HUD?

Mr. RICHARDSON. There has been quite a lot of research actually

on subprime loans and its relationship to the race of borrower. And

certainly the rate of subprime loans for minority borrowers is

much, much higher than it is for white borrowers.

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Mr. KUCINICH. Has HUD, to your knowledge, ever considered a

civil rights action? Take this data and wrap it up into a civil rights

action? Has that ever been talked about?

Mr. RICHARDSON. HUD has a new division that is looking at

lending patterns of discrimination. And they are using these data

to try to identify lenders that look like they do activities that may

suggest that they are lending money in an illegal fashion. But I am

not the expert on that.

Mr. KUCINICH. I want this subcommittee—and perhaps we could

do this in conjunction with Ms. Waters’ subcommittee as well—to

go into this a little bit more in terms of these patterns.

You know, when we had our initial work on this committee we

identified those vectors that we saw. And what disturbs me is this,

and I just want to put this card on the table. I was mayor of Cleveland over 30 years ago. I was one of the first mayors in America

to use the Community Reinvestment Act to see that there would

be investing in the inner city in neighborhoods that had not had

investments in the neighborhoods but had put money in the banks.

Banks weren’t lending in the community. And over the years,

banks tried to skirt their responsibility to follow the Community

Reinvestment Act, and, in a sense, render it a nullity.

Later on, it was very apparent there were wide areas which were

starved for credit. They came in with these subprime products, no

documentation loans. People were desperate to have a home. Now

we can say, you know, well, OK, take some responsibility. But you

know what? There is an issue of financial literacy that enters into

this. And you know, it is one thing to market a product to people

who are aware of exactly all the parameters. But when you have

the desire for a home ownership so powerful where it is the biggest

dream in people’s lives—my parents never owned a home. They

were renters. But when I had my first home, huge.

And so we have something that goes much deeper here than

just—there is a lot of great analysis here, and I appreciate it. But

there is a human dimension here with part of the ugly underside

of America’s social life tied to the economics that this subcommittee

is going to continue to explore.

And I just wanted to know if anybody at HUD was aware of that,

because I think that we really should be looking at some of the civil

rights dimensions of this. Because there were lending institutions,

whether they were regulated or not—that’s something we have to

determine, regulated or not—there were lending institutions that

were out there marketing these products, capitalizing on the perhaps lack of savvy financially, getting these no-document loans.

And now these people have lost—and people have lost everything.

I am in neighborhoods in Cleveland that are falling apart. They are

just falling apart. And people who are remaining, we have talked

about them, are having a great deal of difficulty holding onto their

equity. So let me get my colleague.

Mr. ISSA. I just wanted to remind us both that in the hearings

a little over a year ago, that was very much what we heard was

on one hand banks and other institutions had been availing themselves of, finally, the requirement that they stretch to make loans

to underserved communities; but at the same time the loan failure

rates were high, some of it because of the very nature of subprime

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loans. And so in a sense they were not doing a favor to people unless, as you said—and I think, Mr. Chairman, you said it very well,

that may be a part of what this committee has to look into—you

have to have that sort of financial check-and-balance on first time

homeowners, people with jobs that are perhaps right on the edge

of being lost in a downturn. And we saw that a year ago in your

hearings.

Mr. KUCINICH. Well, the buyer beware and the lender be prudent. Mr. Green.

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

wisdom and the sage advice that you have accorded us.

Again, I would like to make mention that the bipartisanship that

we are witnessing is most refreshing. And I am most appreciative

to be a part of it today and play some small role.

Before going to the comments that I wanted to make and the

question that I would like to ask, I think it appropriate to say, also

as an addendum to what you have said, we have a lot of persons

who qualify for prime loans and were steered into the subprime

market.

Mr. KUCINICH. Exactly. If the gentleman would yield, you are absolutely 100 percent right.

Mr. GREEN. Thank you. And there was also another element of

this that causes a great degree of consternation, something called

the yield spread premium [YSP]. The yield spread premium, for edification purposes, is a lawful kickback that an originator receives

if the originator can cause the borrower to acquire a loan higher

than the one the borrower qualified for. Qualify for 5 percent, get

the borrower to take out an 8 percent loan, that originator receives

now a lawful return, if you will. So as to be kind, that is an emolument that he would not ordinarily receive if the person received the

5 percent loan. That causes a great degree of consternation as well.

But I want to compliment the panel. You have done what intellectuals should do, and that is cause lay people like me to think.

You really have. Because you have given me at a level of intelligence that I had not considered prior to your comments.

And one of the things that I would like to ask you is are you contemplating a bifurcated system, one wherein we acquire a certain

amount of empirical evidence at the Federal level and utilize this

evidence to target a local area wherein we require some entity to

then share with us empirical data that we would plug into a formula? Is that the methodology that you contemplate, or do you contemplate a holistic approach at this level that will direct us specifically to an area that is in need?

And I welcome comments from whomever would like to respond.

Mr. Kingsley, we will start with you. I recognized you first, and

then Mr. Alexander.

Mr. KINGSLEY. I think that just as most of our comments here

suggest, that there is promise in using national data to develop a

formula that you could use to efficiently target these resources

without having to rely on any specialized local or proprietary data

sets to do that.

The remark I made about data is that once the funds are allocated, then it really makes sense to support local intermediaries to

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use local data to help in targeting the expenditure of those funds

and in also devising efficient strategies to use those funds.

So I guess my view was clearly that I think there is promise in

being able to use national data sets to develop an equitable formula

for allocating the funds nationally.

Mr. GREEN. Thank you. Mr. Alexander, sir. Professor.

Mr. ALEXANDER. Representative Green, in a sense, 5818 already

has the bifurcated approach. What you are hearing from the four

of us, and we really are in essence speaking in one voice, recommending that the basic allocation formula be modified to focus

on concentrations of foreclosures and vacant and abandoned properties.

In 5818, as it passed 2 weeks ago, it has a bifurcated approach

in that the approved plan requires a focus on vacancy and likelihood of increased vacancies and higher foreclosures.

So you have two different levels already present in the basic

structure of 5818. And I think that has been official. I think the

basic formula for allocation to the States, qualified municipalities,

and qualified urban counties can be improved upon. But then I

would still even place the emphasis that you have put in the current bill, which is that the distribution must be in response to a

plan of the municipality that will address the highest-risk neighborhoods, and so it does allow local flexibility.

And following up on Representative Waters’ earlier question to

me, it allows for the local governments to identify their action

plans in order to receive the money. I think preserving that local

flexibility is so important.

Mr. GREEN. Thank you. As I yield back my time, Mr. Chairman,

I sincerely thank you for your thought-provoking comments that

you made, because, again, some things will escape one who is not

familiar with the regions and the maps. And but for your comments, I may not have picked up on this. Thank you.

Mr. KUCINICH. I thank the gentleman. The Chair recognizes Congressman Cleaver.

Mr. CLEAVER. Thank you, Mr. Chairman. The research you are

doing, I think, is going to be critically important for many mayors.

And like the chairman, Mr. Kucinich, I served as mayor of Kansas

City, MO. And I am always looking, even now, at what is happening in the urban core. And the depreciation of housing, of the housing stock didn’t begin with the subprime crisis. It has accelerated

because of the subprime crisis and added some new dimensions.

One, and I haven’t seen this in the research, maybe you are dealing with this, and I guess maybe in a way you have, but this is

somewhat anecdotal except that I know I can call some names of

people, insurance companies will not insure a vacant piece of property in Missouri more than 60 days. And so even if the house had

not been just damaged and torn apart, after 60 days the chances

are high that either someone will strip the copper out and the

kitchen and bathroom furnishings. But in many of those houses,

the drug industry will move in. And so there is a factor with insurance.

And you know, it didn’t occur to me until I saw someone who

wrote down the value of their home by $50,000 in order to sell it—

I am sorry, $50,000 loss because they were afraid after 2 months

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that, you know, the house was going to be torn up. So they just

took a big loss. And after seeing that, I realized that there is one

component that we haven’t addressed, and that is the whole issue

of insurance.

No one likes to force anybody to do anything, and the people who

are forced regret it and hate it more. Insurance companies. But I

think we are going to have another problem around the country related to the properties that are taken off the insurance rolls, because that is going to really create some serious problems.

And then when you deal with, you know, demolition versus rehabilitation in an urban core, I think, Mayor Kucinich, would agree

you try to rehabilitate? The reason you try to rehabilitate is because if you want to look at demolition, you go to the urban core

and you will see, you know, a house, vacant lot, house, two vacant

lots, because of demolition. And it is difficult to get developers to

come in and do an in-fill housing development project. And even

when they do, it creates a problem because the new housing in the

older neighborhoods generally don’t match the majestic old houses,

even in the urban core. I mean, you know, you will have some cardboard housing put up next to housing that was put up 100 years

ago, but it was really well built.

Anyway, I am not sure that’s much of a question, but I would

like to get your response to what I have just laid out. Any of you.

Yes, Mr. Alexander.

Mr. ALEXANDER. Representative Cleaver, you are absolutely right

in identifying that as one of the unspoken topics right now. As we

look at the tremendous growth of REO that lenders are now acquiring as a result of these foreclosures. They are quickly discovering

the insurance costs, or the lack of insurance, as it becomes vacant

for extended periods of time. The good news in that is that the

lenders holding this REO are going to have to wake up pretty

quickly and be willing to convey that property to local government

entities or to nonprofits to then rehab it and put it back into productive use.

I think that one of the challenges you are giving to us, which I

am delighted to accept, is to start pressing the insurance industry

and the lenders on their REO policies to find out the loss of coverage or how much it is going to cost them to continue coverage

when they hold property for 6 months and a year post-foreclosure.

Mr. CLEAVER. Anyone else?

One final question, Mr. Chairman, to Mr. Walker. In your testimony you suggest that more research is needed before we will

know exactly how to use the data sets that are available to achieve

what we have done with 5818. How close are we today to having

the detailed knowledge of whether vacancies are increasing due to

the subprime mortgage crisis?

Mr. WALKER. My response, sir, is we are talking a few months

and not a few years.

Mr. CLEAVER. That is good news. I was trembling over the fact—

I am accustomed to having witnesses do the Capitol Hill dance.

And it is just refreshing to hear somebody say it is coming.

Mr. WALKER. Well, I am a researcher, so if you ask me a question I am always going to tell you that more research is needed.

Mr. CLEAVER. Thank you. Thank you, Mr. Chairman.

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Mr. KUCINICH. Thank you, Mayor Cleaver. I just would like to do

just one more brief round of questions here. Before I get into this

question about the data sets, I just want to point something out

about what Mr. Cleaver said. I will talk to Chairwoman Waters

about this. This might be another opportunity for our two subcommittees to cooperate. Because when we are talking about insurance—and you are the first person that mentioned that, and that

is really important that it is mentioned—you know, we were already grappling years ago with the issue of redlining. When you

look at this map again, and there is red, there is lines across that

red. You can almost bet insurance companies, which are very savvy

about their premiums and their investments, are a step ahead of

us on this. And we should look at the insurance implications. Because if people cannot get their property insured, as you point out,

they are looking at a fire-sale price for their property. And when

that happens, the surrounding property also begins to drop. And

businesses in the area will find their rates go up if they can get

insurance. So we are looking at the beginning of a vicious cycle.

And if we are talking about neighborhood restoration, that discussion of insurance has to be part of it. And I appreciate you

bringing it up.

I would like to ask all the members of the panel this question.

The purpose of the aid authorized in H.R. 5818 is to help neighborhoods. Now, most of the data sets that you have discussed focus at

the county or the ZIP Code levels. It is a much lower level of resolution than the neighborhoods. Or should I say it is a much higher?

Mr. WALKER. Lower.

Mr. KUCINICH. Lower resolution than the neighborhoods. Somewhere there has to be a common denominator or a high enough

level of resolution that you are targeting needs to needy neighborhoods, but low enough that it is comparable among different data

sets. So what is that level of resolution? Is it a State or county or

Census tract? Would you like to offer your opinion on that? I will

start with Mr. Alexander.

Mr. ALEXANDER. For purposes of determining concentration of

foreclosures I think you must go either with Census tract or with

ZIP Code, either five or nine-digit ZIP Code, to be able to really determine which communities or neighborhoods are the hardest hit.

I think you can then back into the aggregate relative percentages

of the concentrated neighborhoods and still do State-by-State allocations. But the variable of concentration needs to be present.

Mr. KUCINICH. Mr. Walker.

Mr. WALKER. I think one of the beauties of the correlations we

have established between the foreclosure data from the proprietary

sources, which is available to us generally at the ZIP Code level,

and the HMDA data, which is available to us at the Census-tract

level, is I think we can feel pretty confident in using Census tract

level data in order to establish the kinds of concentrations we have

just talked about. The Postal Service data is also available to us

at the Census tract level.

And so that gives us the possibility of doing what I think is critically important in this regard, to identify the numbers of neighborhoods within communities that are subject to and cross some

threshold of concentrated foreclosure.

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Mr. KUCINICH. Mr. Kingsley, you have anything to add there?

Mr. KINGSLEY. No, I would endorse that. We do a lot of work on

neighborhoods around the country. And most people even think in

terms of really responding to what people think of as a neighborhood, the Census tract is about right and the ZIP Codeis often too

big, too much an amalgam of very different circumstances. And I

would endorse, I think, what my colleagues here have said, we are

very fortunate because we have HMDA data and the Postal Service

data at the Census tract level.

Mr. KUCINICH. Mr. Richardson, would you like to add anything

there?

Mr. RICHARDSON. Well, I think as you pointed out when you were

showing the map of Cleveland, and being able to show the pattern

here with the map we prepared, this is Census tract level data.

And it is very—it tells you a much stronger picture about what is

going on in your community if you can do it at the Census tract

level.

Mr. KUCINICH. So you would say Census tract data.

Mr. RICHARDSON. Yes.

Mr. KUCINICH. In your opinion, what makes a good formula

then? What are the elements of a good formula?

Mr. RICHARDSON. Elements of a good formula. First off, that it

has to be well-targeted to the goal that the Congress has established. Second, that it has to be fair. Communities with similar levels of need need to get similar amounts of money.

Mr. KUCINICH. How do you know if you have a good formula,

then?

Mr. RICHARDSON. How do you know if you have a good formula?

You want to compare it against a variety of—you can establish a

formula based upon the best data that you have that is consistently

collected across the country, and then you can compare it against

other data sets that you might not have for every part of the country.

For example, Tom Kingsley at the Urban Institute, they have the

NNIP partners for a select number of communities. They have

more data at the local level than we have nationally. But if our

stuff matches up well with what they have, that gives us some confidence.

Mr. KUCINICH. So if the Neighborhood Stabilization Act is going

to be effective and equitable, we want to make sure that we are

targeting at the most discrete level that we can possibly do that

would hold up for data analysis. Is that what you are saying?

Mr. RICHARDSON. Not speaking specifically to that act. If you

want to target funds to the needs of vacancy and abandoned housing and concentrate on vacant and abandoned housing, that is pretty much what you have to do.

Mr. KUCINICH. Mr. Kingsley, would you agree with that?

Mr. KINGSLEY. Yeah. I think I would agree with that.

Mr. KUCINICH. Mr. Walker.

Mr. WALKER. Certainly.

Mr. KUCINICH. Mr. Alexander.

Mr. ALEXANDER. Yes, sir.

Mr. KUCINICH. OK. Mr. Issa.

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Mr. ISSA. Thank you, Mr. Chairman. You got four yeses. I should

quit now.

Mr. KUCINICH. That is why I stopped.

Mr. ISSA. The problem is now I am next. You are a hard act to

follow. Let me followup on that line, though, because I am very intrigued by it.

First of all, I guess it is pretty easy to see from charts that we

can figure out how many impacted people there are in a given ZIP

Code.

But when we are looking at on a local control—Mr. Kingsley, I

think I want to focus on that—wouldn’t it be true in some cases,

and we will take Cleveland, Cleveland Heights, these areas—particularly the east side that I am more familiar with—I can think

of neighborhoods where three or four streets the last time I was

there, and I am about to go back and see it again, and I understand it is worse, but three or four streets, if they were put into

an economic redevelopment zone, the dollars, many less dollars

could dramatically change that neighborhood. Now, it might not be

as gratifying to the person just outside the line, but if a city is trying to take a limited amount of dollars and get the maximum bang

for the buck, it would seem that they would discretely draw, in

some cases, just a few streets here and a few streets here and a

few streets here. And although they would not serve everyone, they

would serve the best interests in reversing a trend.

I see a lot of heads waving. Did I get a four in a row here, too?

Does this act empower them to do that, or is that one of the areas

in which administration may be difficult to make sure that a city

could make that decision without being sued by the person just

outside the line?

Mr. ALEXANDER. The legislation, Representative Issa, allows the

local government discretion to expend the funds on the street level

and not the next street. It makes relatively gross but pretty targeted allocations to the States and then qualifying municipalities

and counties, but then leaves the municipality or the county with

discretion to target the usage of those funds in the transitional

neighborhoods to stabilize them.

Mr. ISSA. I heard that, but I didn’t hear the last part, without

being sued. The question is: Is it challenge-proof? Which is always

a question for us. I hate to see any of this $15 billion eaten up with

legal fees.

Mr. ALEXANDER. Well, as a law professor, nothing is challengeproof.

Mr. ISSA. Move it over to the administration, probably.

Mr. ALEXANDER. And we recognize the ability of anyone to bring

a challenge, but it is hard for me to see any constitutional or statutory challenge, given the way you have drafted this bill.

Mr. ISSA. OK. Mr. Kingsley, you are chomping at the bit, or am

I good?

Mr. KINGSLEY. Yes, I think you are going to get another winner

here, because I think that is clearly the case, and the principles we

talked about with using the Census tract data even for the national

allocation. But I was certainly advocating that once the allocations

to jurisdictions are made, that other data and local knowledge be

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dominant in deciding exactly how to spend those resources in a

cost-effective manner.

Mr. ISSA. OK. Now I am going to tell my good friend next to me

that we are going to have to realize that our hearts may both be

in Cleveland, but our constituencies are in very different parts of

the country.

And I have to ask a very difficult question. A postal worker making a postal worker salary in Cleveland is, from a standpoint of a

postal worker in San Diego, rich. He is doing great. He has access

to $70,000, $80,000, $90,000 homes, $150,000 seeming mansions

compared to a $400,000 home in California. How do we deal—and

I am using a postal worker because Federal workers tend to be

paid substantially similar, with very small differences throughout

the country—how do we make sure that my person with the

$400,000 home or $320,000 threshold for what might be half that

cost in Cleveland and even less in Mississippi, how do we deal with

that fairly so that what we consider to be our blighted neighborhoods and our problems are treated equally, even though they cost

twice as much per home to fix? Please, Mr. Richardson.

Mr. RICHARDSON. Generally speaking, when we look at this issue,

we do have to take into account that it costs different amounts of

money to provide services in different parts of the country. So you

can establish a formula that takes into account different costs so

it adjusts an allocation up or down based upon relative costs.

Similarly, you can take into account whether a jurisdiction has

the tax resources or capacity, the fiscal capacity to address the

problems itself versus another jurisdiction, and you can adjust resources up or down in a formula.

Mr. ISSA. We often see that as Mississippi can’t afford it, but

California can.

Closing on my question, though, if it takes twice as many dollars

to fix the same 12,000 homes in Temecula as it takes in East

Cleveland, how am I going to be made whole; or am I going to be

made whole? In other words, am I, by definition, under this act

going to get the same amount of dollars for twice the dollar problem, and be told California will have to deal with the difference

whether or not California is richer or the homes do cost twice as

much?

And that’s what I told my good friend, that we have this dichotomy so often that we have to bring out.

Mr. RICHARDSON. Well, if you are crafting language for a formula, the guidance to be provided is to tell us that you—those of

us who might have to develop that—is generally speaking, is to say

you need to take into account the different costs of services.

Mr. ISSA. Thank you. And, Mr. Chairman, we are never apart in

ideology. We are often, though, in the strange conundrum that our

homes simply cost different amounts these days.

Mr. KUCINICH. I think that’s true. And let it be said that being

the case, that the home that I live in, which probably lost a quarter

of its value because of foreclosures in our neighborhoods since last

October, is like a lot of my neighbors; you know, they are just

struggling to hold on. And the house that I live in is, you know,

today probably worth $75,000, if I am lucky. And I have had it for

36 years.

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And so, you know, we live with this, you know, wherever we are.

We are living with this. So I want to recognize Mr. Green for a

final round of questions.

Mr. GREEN. Thank you, Mr. Chairman. And following up on what

the ranking member has just called to our attention, we also have

regions that have different economic recovery schemes, if you will.

In Las Vegas, there may be a dependency upon job growth to move

them out of the enigmatic situation they find themselves in; whereas in another part of the country, they can’t rely on that circumstance because it doesn’t exist.

So I know we have to consider all of these things, and I am not

sure how the formula will adjust for this, for the variations in economic status of various regions of the country. Does someone care

to give a comment on this?

Professor Alexander? Of course, you know your name means help

of human kind.

Mr. ALEXANDER. You are quite a guy, Representative Green, and

indeed I view the legal profession as first and foremost a service

profession. The goal is that the allocation formula being based, at

least in significant part, upon foreclosures will be a rough indicator

of economic vitality or weakness according to different regions, both

at the State level and then within the State level. So it is certainly

not a perfect indication of the different economic strengths or hot

market/weak markets. But by using the three, four, or five variables that you have already put in the bill and that we are recommending, it allows that the economic data will be reflected in

those variables: the strength of the community or the weakness of

the community. That is the goal.

Mr. GREEN. Yes, Mr. Richardson.

Mr. RICHARDSON. I may have a little different opinion than Mr.

Alexander. I am not sure that foreclosures are exclusively a measure of the economic health of an area. And I think that if you want

to take into account economic health, you need to specifically state

that in a formula that you want to take into account, whether it

be job loss or job growth, to make sure that is accounted for. Because certainly in a place where you have job loss and foreclosures,

the risk of the house becoming vacant and abandoned is much

higher than an area, really, of job growth and foreclosures, where

that house will probably be purchased by someone fairly quickly.

Mr. GREEN. Anyone else? Quickly, I will make one additional

comment and then a question.

We understand the number of homes that may go into foreclosure. We have a lot of empirical evidence on this. But do we

have any intelligence on the number that may just be walked away

from? Has anyone been able to come up with a prognostication as

to how many homes may just be abandoned in this process?

Mr. ALEXANDER. That is why we recommend, Representative

Green, that we focus on vacancies, which do pick up those who simply walk away, or do a deed in lieu of foreclosure, or turn the keys

in. Foreclosure is a—foreclosure data that we have is a very rough

proxy. Not all foreclosures yield vacancies; not all vacancies yield

abandonment. But our measures of foreclosures are not of foreclosure sales, the data is of foreclosure filings. And that is quite different than the number of sales. And it is really between those two

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that we pick up what you are referring to as simply the families

that turned in the keys and walked away.

Mr. GREEN. Anyone else?

Mr. WALKER. Well, we do know where bank-owned properties

are. And if there is a rough measure of the vulnerability of a property to eventual vacancy, I mean that would be it.

But I would like to second what Mr. Alexander said earlier, that

the fact that we are focusing on vacancies captures quite a lot, if

we think of the economic performance of a region already. So that

is exactly the right thing to do.

Mr. RICHARDSON. I might add, however, we might be able to

get—we do have data—the Post Office data tells us how long an

address has been vacant. So we can know if it has been vacant 6

months or 12 months, which certainly is a greater predictor of

abandonment.

And we may be able to get data from—certainly from FHA, but

also from Fannie Mae and Freddie Mac, perhaps, on how long their

real estate-owned properties are sitting vacant. And so in areas

where you have high lengths of time where a property is vacant,

that certainly is more suggestive of risk of abandonment.

Mr. GREEN. Thank you, Mr. Chairman. I yield back.

Mr. KUCINICH. I thank the gentleman from Texas. The Chair recognizes Mr. Cleaver for a final round of questions.

Mr. CLEAVER. I don’t have any additional questions, Mr. Chairman. Thank you.

Mr. KUCINICH. Would you yield, then, to me for a final question?

Mr. CLEAVER. I would like to yield a final question to the chairman of the subcommittee, Mr. Kucinich.

Mr. KUCINICH. I appreciate it. Thank you.

Mr. Richardson, as your agency would be tasked with implementing H.R. 5818, and in view of the time you and your colleagues

need to finish your research, would you have any suggestions as to

how Congress should craft its funding allocation if we were to do

so?

Mr. RICHARDSON. My general recommendation with crafting language for a formula, I like to look at the language for the HOME

formula that was passed in the Cranston-Gonzalez National Affordable Housing Act of 1991. That language is very specific about

what goals they wanted the formula to accomplish and the types

of data that they thought we might be able to use. But it didn’t—

it allowed us the flexibility to actually design the formula to reflect

what kinds of information we were able to gather after the law was

passed.

So I advise you to look at section 217 of 42 U.S.C. 12747. It certainly has a pretty model language for a formula that gets you

what you want, but gives us some flexibility to make sure we can

accomplish what you want.

Mr. KUCINICH. Any other comments before we move to adjourn

this?

I want to thank all of the panelists. Your expertise has been

quite valuable in getting these two subcommittees the opportunity

to focus in on what is the appropriate way we proceed in the situation we are in. And I want to thank each of you for the dedication

that you have to this very serious question. It is inevitable that

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when we make these decisions we want to make sure that it is

grounded in solid research and that the research is available as we

try to craft the appropriate formula. So thank you.

I am Congressman Dennis Kucinich, chairman of the Domestic

Policy Subcommittee. This has been a joint hearing of the Domestic

Policy Subcommittee, which is a subcommittee of Oversight and

Government Reform, and the Housing and Community Opportunity

Subcommittee, which is a subcommittee of the Financial Services

Committee, which is chaired by Congresswoman Maxine Waters. I

want to thank my colleagues from that subcommittee who were

here today, and including Mr. Green and Mr. Cleaver. Thank you

for your presence and your participation.

The title of today’s hearing is, ‘‘Targeting Federal Aid to Neighborhoods Distressed by the Subprime Mortgage Crisis.’’ This has

been one in a series of hearings which this subcommittee has had.

And I want to thank the minority and the majority staff for the

work that they have done on this, and Mr. Issa, who has been very

supportive, as has Mr. Turner, who is a guest member, very supportive of this, reached deeply into meeting the challenge of this

subprime mortgage matter.

This subcommittee will continue to delve even deeper into these

issues. And Mr. Cleaver came up with a good suggestion today,

looking at the insurance angles. And that’s something that we are

going to start looking at immediately.

So I want to thank the attendance of the witnesses, those in the

audience, staff. Thank you. And this committee, these two subcommittees are adjourned. Thank you.

[Whereupon, at 4:05 p.m., the subcommittees were adjourned.]

[The prepared statement of Hon. Tom Davis follows:]

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