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OVERSIGHT OF THE DEPARTMENT OF 

HOUSING AND URBAN DEVELOPMENT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INSURANCE, HOUSING AND 

COMMUNITY OPPORTUNITY 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

FEBRUARY 28, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–102 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

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 

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 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON INSURANCE, HOUSING AND COMMUNITY OPPORTUNITY

JUDY BIGGERT, Illinois, Chairman 

ROBERT HURT, Virginia, Vice Chairman 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

PATRICK T. MCHENRY, North Carolina 

LYNN A. WESTMORELAND, Georgia 

SEAN P. DUFFY, Wisconsin 

ROBERT J. DOLD, Illinois 

STEVE STIVERS, Ohio 

LUIS V. GUTIERREZ, Illinois, Ranking 

Member 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

EMANUEL CLEAVER, Missouri 

WM. LACY CLAY, Missouri 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

MICHAEL E. CAPUANO, Massachusetts 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

February 28, 2012 ............................................................................................ 1 

Appendix: 

February 28, 2012 ............................................................................................ 43 

WITNESSES 

TUESDAY, FEBRUARY 28, 2012 

Bostic, Hon. Raphael, Assistant Secretary, Policy Development and Research, 

U.S. Department of Housing and Urban Development ..................................... 14 

Galante, Carol, Acting Federal Housing Administration Commissioner and 

Assistant Secretary for Housing, U.S. Department of Housing and Urban 

Development ......................................................................................................... 7 

Henriquez, Hon. Sandra B., Assistant Secretary, Office of Public and Indian 

Housing, U.S. Department of Housing and Urban Development .................... 10 

Marquez, Hon. Mercedes M., Assistant Secretary, Community Planning and 

Development, U.S. Department of Housing and Urban Development ............ 12 

Trasvina, Hon. John, Assistant Secretary, Fair Housing and Equal Opportunity, U.S. Department of Housing and Urban Development ........................ 15 

APPENDIX 

Prepared statements: 

HUD joint statement ........................................................................................ 44 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hurt, Hon. Robert: 

Letter from the Housing Coalition on Project-Based Section 8 Short 

Funding, dated February 23, 2012 .............................................................. 63 

McHenry, Hon. Patrick: 

Article from The Wall Street Journal entitled, ‘‘Squeezed in St. Paul,’’ 

dated February 12, 2012 .............................................................................. 65 

(1) 

OVERSIGHT OF THE DEPARTMENT OF 

HOUSING AND URBAN DEVELOPMENT 

Tuesday, February 28, 2012 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INSURANCE, HOUSING

AND COMMUNITY OPPORTUNITY, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:01 a.m., in room 

2128, Rayburn House Office Building, Hon. Judy Biggert [chairwoman of the subcommittee] presiding. 

Members present: Representatives Biggert, Hurt, Miller of California, Capito, Garrett, McHenry, Westmoreland, Dold, Stivers; 

Gutierrez, Waters, Velazquez, Watt, Sherman, and Capuano. 

Also present: Representatives Neugebauer and Green. 

Mrs. CAPITO [presiding]. This hearing of the Subcommittee on Insurance, Housing and Community Opportunity will come to order. 

I want to welcome the witnesses and welcome the Members. And 

without objection, all Members’ opening statements will be made a 

part of the record. 

Subcommittee chairs and Minority and Ranking Minority Members will be recognized for 5 minutes each. All other Members will 

be recognized for 3 minutes each. And we are going to alternate between the Majority and the Minority. 

So without objection, I am going to give my opening statement. 

Again, I would like to thank the witnesses and the members of 

the subcommittee for joining us this morning. Over the past year, 

the Insurance, Housing and Community Opportunity Subcommittee, under the leadership of Chairwoman Biggert, has 

worked diligently to address the problems facing our committee 

and the obstacles preventing a full housing recovery. 

Today’s hearing will allow us to review programs within the Department of Housing and Urban Development (HUD), as well to examine HUD’s Fiscal Year 2013 proposed budget. 

In a climate of tighter budgets and limited resources, it is essential that we find smarter ways to spend our dollars without sacrificing assistance to those in need. Many housing programs can benefit from cost savings through reform, by eliminating inefficiency 

and needless requirements. 

As a member of this subcommittee during this Congress and the 

last Congress, we have made headway in dealing with the ever-increasing portion that public and assisted housing occupies in 

HUD’s budget, by introducing legislation that will reduce costs and 

implement needed improvement. 

2 

I am concerned that without reform, rental assistance will continue to grow as a percentage of HUD’s budget, and an opportunity 

could be missed. 

Finally, to follow up on a hearing held last year when Secretary 

Donovan sat before the full committee, FHA’s Mutual Mortgage Insurance Fund still sits at a dangerously low level, and seems headed towards insolvency, where it would then be forced to draw down 

from the Treasury. 

To me, this is an intolerable scenario. We have heard about the 

pending issue. Is it coming, will it come, and in what form can it 

come? 

I would like to avoid the final scenario. 

But seeing the budget outlined by the Administration further re- inforces my concern. Anticipating a $668 million bailout says to me 

that the problem is no longer fixable without additional actions to 

shore up the fund. 

Since that hearing, we have heard that funds from the attorneys 

general’s settlement with mortgage servicers, along with increased 

premiums—and I understand premiums were increased yesterday—and a better book of business will prevent assistance from the 

Treasury. 

I would like to believe this, but I have heard too many times that 

we have been assured that FHA was in a stable position only to 

find out that is not the case, as we now know. 

I hope our panelists here today can address these concerns. And 

I would like to say that I appreciate the Administration moving 

yesterday to try to mitigate some of these issues and to offer solutions as we move forward. 

Again, I would like to thank our witnesses for their time. I look 

forward to their testimony. 

And I would like to yield 5 minutes to the ranking member, Mr. 

Gutierrez. 

Mr. GUTIERREZ. Thank you, Madam Chairwoman, and thank you 

to all of the witnesses for joining us this morning to discuss the 

oversight of HUD and its budget. 

Today, we are looking into how HUD proposes to meets its mission to streamline funding levels and policy constraints that create 

greater efficiencies in this time of fiscal constraint. 

I am very pleased that while remaining fiscally responsible, the 

Administration has been able to increase HUD’s overall budget by 

$1.4 billion. I am also happy that the Mutual Mortgage Insurance, 

MMI Fund, will not have to draw down an emergency authority 

from the Treasury, as OMB had initially anticipated, thanks mostly to the $1 billion from the recent mortgage abuse settlement. 

However, I looked through the Administration’s proposed budget, 

and there are a few points that do concern me. 

First, I would like to see guarantees that the requested capital 

and operating flexibilities will not lead to public housing authorities funding their operating costs at the expense of capital improvement. There is currently $3.4 billion in capital improvements needs 

in public housing. And want to be sure that these protections are 

in place so they can meet their needs. 

Second, I am also concerned about the proposed short funding of 

10,600 project-based rental assistance contracts which will create 

3 

uncertainty among providers. We tried this once before in Fiscal 

Year 2007, and it resulted in late payments and a funding shortfall 

that we had to fill in the Recovery Act. 

Most concerning, however, is the proposed increase in the minimum rent. The budget proposes to increase minimum rent from 

$50 to $75. In multifamily programs, where residents currently pay 

$25, this would be an increase of 200 percent. 

We are talking about a rent increase on about 500,000 individ- uals who make $250 or less a month. So that we put it in perspective, who is it that is getting the raise—$250 or less. And many of 

them are in the ‘‘or less’’ per month. Now, $25 to $50 may not sound like much when being discussed 

in terms of government executives or for many Members of Congress who make $174,000. If I had to pay another $25, it wouldn’t 

mean that much to me. 

We make $725 a day. So, you can imagine—I think I could do without $25 to $50 in 1 day out of $725. We are talking about people who make $250 or less a month. 

HUD claims that this is an effort to adjust a 1998 minimum rent level for inflation to bring the number to around $69. How did we 

get to $75? And how was it decided to tack another $6 onto the rent of the 

poorest families? 

HUD has also decided to eliminate the discretion of PHAs as to 

whether going below the minimum rent would be in the best interest of their residents. This is particularly important in areas where 

incomes have not increased with inflation, areas with high unemployment, for example. 

At the end of the day, I just don’t see the logic of arbitrarily closing budget holes on the backs of the most vulnerable families in 

our community, that if we fail, day after day, to discuss revenue 

options from America’s least vulnerable, the people with the highest incomes. 

I thank Madam Chairwoman, and all of the witnesses. And I 

look forward to the discussion that we will have today. 

I yield back the balance of my time. 

Mrs. CAPITO. Thank you. 

I would like to now recognize the vice chair of the subcommittee, 

Mr. Hurt from Virginia, for 3 minutes. 

Mr. HURT. Thank you, Madam Chairwoman. 

I want to thank Chairwoman Biggert for holding today’s hearing 

and for her commitment to good stewardship of taxpayer dollars in 

the context of housing issues programs. 

The people that I represent in central and south side Virginia 

continue to deliver the urgent message that if we are truly serious 

about revitalizing our economy and preserving this great country 

for our children and grandchildren, we must put an end to Washington’s out-of-control spending. 

My colleagues and I on the Financial Services Committee recognize the need to rein in spending and to make Federal programs 

more efficient and less costly. We have advanced many proposals 

to reform the Federal housing programs and reduce the financial 

risks to which taxpayers are exposed by outsized Federal participation in the housing market. 

4 

However, the President’s budget proposal does not appear to recognize the depth of our fiscal crisis. Instead, this proposal is full 

of more government programs, mandates, and spending, at a time 

when we can least afford it. 

This proposal seeks $1.4 billion in increased spending, or 3.2 percent in increased spending, compared to the current fiscal year. 

With our Nation’s debt exceeding $15 trillion, we must closely 

scrutinize Federal programs and policies, and cut wasteful spending to force the government to live within its means. 

I want to thank Chairwoman Biggert for holding this hearing. I 

want to thank each of the witnesses for being here and for helping 

guide us through this difficult process. 

And I yield back the balance of my time. 

Mrs. CAPITO. The gentleman yields back. 

My understanding is that Mr. Capuano passes on an opening 

statement, so we will go to Mr. Miller for 3 minutes. 

Mr. MILLER OF CALIFORNIA. Madam Chairwoman, excuse me. 

I am really concerned about the budget proposal we have before 

us today. What we have in front of us really is more of the same. 

Billions have been spent. We must stop the overregulation that 

drives up the cost. And we must stop spending. We need a new direction. From the programs that serve the lowest income to creating the move up market, what I see is inefficiency and regulatory 

barriers. This must change to get our housing market back on 

track. 

Unfortunately, what has been proposed here is the status quo, 

additional spending of programs that don’t work, coupled with misguided policies that further disrupt the housing market. 

The Section 8 Program is growing so rapidly that HUD’s other 

programs are suffering as a result. In 2002, Section 8 accounted for 

46 percent of HUD’s annual budget. Now, it accounts for over 60 

percent. 

It is not feasible for the Federal Government to continue to increase funding for the programs without enacting meaningful reforms. 

What makes this even worse is that we aren’t even seeing results 

from what we have done today. The average length of time families 

spend on the waiting list in subsidized housing in the United 

States is 2 years. In cities like Los Angeles, it is actually 10 years. 

How can we justify a situation where one person is given unlimited Federal housing assistance while another who might have a 

greater need is on the waiting list and forced to fend for themselves 

for that many years? 

The answer is not to allow the program to continue to grow out 

of control. Rather, we must reform the program so that participants can transition into self-sufficiency within a reasonable period 

of time, giving more families the ability to benefit from our Nation’s temporary helping hand. 

I want to congratulate you on some of the reforms you have enacted, though: increasing minimum rents; allowing PHA’s flexibility when it comes to use of capital and operating funds; and 

changing some Administration rules. 

But this isn’t enough. 

5 

This committee recently marked up a Section 8 reform bill. The 

bill included a provision I had in it that allowed the Moving to 

Work (MTW) Program to expand. 

MPW has proven that public housing authorities could help more 

people, improve the quality of the system, and reduce costs at the 

same time. HUD should have embraced this program rather than 

put roadblocks in front of it. 

For far too long, we have accepted the notion that a compassionate housing system is defined by how many dollars we spend, 

rather than the way the money is actually used. At this time of 

considerable budget constraint, it makes sense to give PHAs flexibility that helps them improve the quality and effectiveness of their 

programs without increasing costs. 

I have also been disturbed by FHA’s policy to drive up the cost 

of rental housing. These regulatory barriers do nothing but make 

the next step for individuals to transition out of rental assistance 

even more difficult. By driving up the cost of housing, it puts taxpayers at risk. 

To get an FHA construction loan, you have to use a prevailing 

wage that drives up the cost 20 percent to 25 percent. I don’t know 

who that helps. It doesn’t help the renter. And it doesn’t help the 

taxpayer because it puts the taxpayers more at risk for making 

higher loans than we need to make. It doesn’t help taxpayers at all. 

And it doesn’t help the housing market to get back on track. All 

it does is drive up the cost of housing. 

On top of this, you proposed an increase of premiums for builders, not for safety and soundness, but to claw back private capital. 

Why would you increase the cost if it is really not for safety and 

soundness? To get the housing market back on track, capital must 

come back. 

On condominiums, the next one—for someone who has been a 

renter and wants to become a homeowner, we see regulatory barriers that impact the ability to get credit. Specifically, the current 

requirement FHA has recently imposed on condominium units has 

dried up the availability of credit in this sector. There are 25,000 

condominium projects in the country that used to be FHA-approved. Today, there are only 2,100. 

Without this certification, no one can buy a condo unit using 

FHA in these projects. Now, maybe some of these projects shouldn’t 

be FHA-certified, but it is good to weed them out if they are bad. 

But this significant drop, only 8.4 percent of condos that used to 

be approved by FHA are now approved. Something is wrong with 

this regulation. We need to figure out how to fix it the right way. 

This is a needless drag on the market. 

What we do know is that the regulation is having a dramatic impact on the market. The lack of availability of financing is driving 

down the value of condominium units nationwide. 

Those low- and moderate-income individuals in rental housing 

have a hard time moving up to homeownership in a condominium 

because of unnecessary regulatory burdens placed on them. 

The FHA Single Family Program has major problems too. For 

the first time in the history of the program, the budget— 

Mr. GUTIERREZ. The time of the gentleman has expired by a 

minute and seven-eighths seconds— 

6 

Mrs. CAPITO. The Chair is extending— 

Mr. MILLER OF CALIFORNIA. I don’t believe that you are the 

chairman of the subcommittee. And the chairman will notify me, 

Mr. Ranking Member. 

I yield back the balance of my time. 

Mr. GUTIERREZ. Well, I object. 

Mr. MILLER OF CALIFORNIA. I object to your interrupting me 

when you are not the chairman— 

Mr. GUTIERREZ. I object— 

Mrs. CAPITO. I object to this conversation. 

Mr. GUTIERREZ. Watch the clock. Simply watch the clock. 

Mr. MILLER OF CALIFORNIA. Mind your own business. 

Mrs. CAPITO. Gentlemen, suspend. 

Mr. GUTIERREZ. All the gentleman has to do is watch the clock. 

Mr. MILLER OF CALIFORNIA. All you have to do is mind your own 

business. 

Mr. GUTIERREZ. It is my business. I can chair this meeting— 

Mrs. CAPITO. Ms. Velazquez does not have an opening statement, 

correct? Okay. I want to recognize Mr. Westmoreland for 2 minutes. 

Mr. WESTMORELAND. Thank you, Madam Chairwoman. 

As expected in the President’s budget released this month, FHA 

will need a taxpayer bailout. Although this may not be important 

to the witnesses testifying today, there is not one single Federal 

housing program yet that has not needed a bailout to survive. 

If FHA were a community bank in Georgia, you would have all 

been put down a long time ago. To add insult to injury, the President has requested an overall 3.2 percent increase in HUD’s budget, mostly in the Section 8 and public housing budget. 

In fact, 83 percent of HUD’s budget goes to paying people’s rent. 

Unfortunately, HUD says its programs create jobs. But no one 

testifying today can tell me exactly how many people have left the 

Section 8 Program over the last 5 years because they got a job and 

became self-sufficient. 

I urge this committee to find additional savings in these programs, as reform proposals continue moving through this committee. In the absence of more savings, I urge the committee to seriously explore block granting these programs to return control of 

these out-of-control programs to the States where they belong. 

I have 45 seconds left, and I will yield those back to the chairwoman. 

Mrs. CAPITO. Thank you. The gentleman yields back. 

Mr. Dold, for 2 minutes. 

Mr. DOLD. Thank you, Madam Chairwoman. And I certainly 

want to thank the witnesses for being here today. 

These congressional oversight hearings, I think, are absolutely 

critical to our government system. They help ensure that the laws 

are implemented and executed as Congress intended. They also 

promote government transparency, accountability, and efficiency. 

They allow us to have productive discussions about areas of concern and also about areas of agreement between Congress and the 

Administration. 

In this case, we see several areas of agreement between the Administration and Congress. I can mention only a few of these areas 

7 

of broad bipartisan agreement. But I think it is important to highlight them. 

First, we all agree that our most vulnerable and disadvantaged 

citizens should receive government housing assistance that is reliable, meaningful, efficient, and effective. 

Second, the government assistance should be, whenever possible, 

there to promote independence and self-sufficiency. 

Third, taxpayer liability, risk to potential FHA losses, should be 

carefully monitored, limited, and minimized, which includes encouraging private sector capital to become our primary source of 

mortgage financing. 

And finally, HUD, like every other government agency, should 

consistently or constantly improve and streamline its operations to 

prevent fraud, and to contribute to meaningful deficit and debt reduction. 

These kinds of objectives have nearly unanimous support in both 

Congress and the Administration. And we should hold each other 

accountable for constantly working towards these objectives along 

with others of bipartisan agreement. 

I have some concerns which I certainly hope will be reflected in 

some questions. And I know we are not going to be able to get to 

all of them in 28 seconds, but I do want to just touch on a few. 

First, HUD regulations seem to be unnecessarily damaging to 

the condominium market. 

Second, certain proposed rules would exceed HUD’s jurisdiction 

under Federal law by seemingly attempting to regulate homeowners insurance which is legally reserved to State regulators. 

Third, my concern is whether HUD accurately estimates the risk 

that FHA poses to taxpayers. 

Fourth, my concern relates to HUD’s bedbug regulations, which 

seem to require eradication while simultaneously prohibiting the 

necessary steps for eradication. 

And with that, I will yield back. 

Mrs. CAPITO. The gentleman yields back. 

I believe that concludes our opening statements. 

So without further ado, I would like to introduce our panel of 

witnesses. 

Without objection, your written statements will be made a part 

of the record, and you will each be recognized for a 5-minute summary of your testimony. 

Our first witness is Mrs. Carol Galante—who is no stranger to 

this committee and subcommittee—the acting Federal Housing Administration Commissioner and Assistant Secretary for Housing at 

HUD. 

Welcome. Mrs. Galante? 

STATEMENT OF CAROL GALANTE, ACTING FEDERAL HOUSING 

ADMINISTRATION COMMISSIONER AND ASSISTANT SECRETARY FOR HOUSING, U.S. DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

Mrs. GALANTE. Thank you, Chairwoman Capito, and Ranking 

Member Gutierrez, for the opportunity to testify on the 2013 budget request for HUD’s Office of Housing. 

8 

Our office is critical to ensuring more Americans have the opportunity to realize or maintain the economic security of the middle 

class. And the work this Administration has done has established 

a strong foundation upon which an economy built to last will be 

constructed. 

Three years ago, with the housing market collapsing and private 

capital in retreat, we took decisive action to address the crisis and 

lay the groundwork for recovery. 

Since the start of this Administration, FHA has helped nearly 2.8 

million families buy a home, and over 1.7 million homeowners refinance into stable, affordable loans. 

And with your help, we have taken the most significant steps in 

FHA’s history to reduce risk to the taxpayer and reform FHA’s 

practices. 

We have ensured the FHA has the flexibility necessary to price 

its products appropriately for current risks and market conditions. 

And we have transformed FHA’s risk management system to better 

align with the needs and realities of the 21st Century mortgage 

market. 

These reforms are responsible for the most profitable books of 

business in FHA’s 78-year history. 

Even still, we recognize FHA continues to be strained by past 

loans. That is why we continue to take actions to strengthen FHA’s 

MMI Fund. 

Our budget reflects the implementation of the 10 basis point annual increase to FHA’s single family premiums enacted by Congress, as well as an additional 25 basis point annual increase on 

jumbo loans. FHA is projected to add $8.1 billion in receipts to the Capital Reserve Account in 2013. And just yesterday, we announced that FHA 

will also increase its upfront premium by 75 basis points. This increase, which will cost borrowers only about $5 on average a 

month, is expected to yield more than $1 billion in additional receipts to the MMI Fund in this fiscal year and next, beyond the receipts anticipated in the President’s budget. 

The budget also proposes the first premium increase for FHA’s 

market rate multifamily and health care programs in 10 years. 

These modest increases ensure that premiums charged for these 

products are appropriate. 

While FHA will continue to play an important role in supporting 

the housing recovery in the year ahead, we are committed to reducing the government’s footprint over time. With loan volume already 

down 34 percent from its peak in 2009, and FHA’s current market 

share declining for the first time since 2006, we have set the stage 

for more private capital to return while ensuring that FHA remains a vital source of financing for underserved borrowers and 

communities. 

We also continue to take steps to strengthen accountability for 

FHA lenders. We recently issued a final rule detailing the process 

by which FHA will require indemnification for improperly originated loans. 

And we continue to seek expanded authority via legislation that 

will further enable us to protect the MMI Fund. Further evidence 

of this Administration’s commitment to hold lenders accountable 

9 

can be seen through the recently announced settlement with some 

of America’s largest banks, through which FHA will receive almost 

$1 billion in compensation. 

While additional risks remain for FHA as the economy is fragile, 

the recovery is fragile, the significant reforms and strong enforcement efforts undertaken are yielding sound and profitable business, positioning FHA well for the future. 

Despite FHA’s important work throughout the recent crisis, there 

remain sectors of the housing finance market where additional liquidity is needed. One of those areas is in small building finance 

for rental homes. 

Nearly a third of the Nation’s renters, more than 20 million 

households, live in small properties of 5 to 49 units. That is why 

as part of the President’s budget, HUD is proposing legislative 

changes to the risk-share program to provide qualified entities such 

as State housing finance agencies, the ability to securitize multifamily risk-share loans through Ginnie Mae. 

And HUD remains committed to protecting current residents and 

improving the programs that serve them. HUD is requesting a 

total of $736 million to fund two programs that will directly support housing and services for very low-income elderly and persons 

with disabilities through the Sections 202 and 811 Programs. 

New investments will now fully leverage State and local affordable housing resources. 

And as we work to achieve savings and to operate efficiently and 

effectively, the Project-Based Rental Assistance Program (PBRA) is 

improving oversight of market rent studies, capping certain annual 

subsidy increases, and offsetting excess reserves. 

Even with these savings, protecting current families required us 

to make choices we would not have otherwise made in a different 

fiscal environment. One of these difficult choices can be seen in 

HUD’s request of $8.7 billion for the PBRA Program. 

As we look to make all of our programs more efficient and effective, the FHA transformation initiative will enable us to replace 

outdated systems with modern technology. 

And so, Madam Chairwoman, this budget reflects this Administration’s belief that the recovery of our housing market is essential 

to the restoration of our economy by targeting resources where they 

are most needed, making tough choices in order to do more with 

less, and ensuring the protection of taxpayer interests. HUD’s Office of Housing is doing its part to create and sustain communities 

built to last. 

Thank you. 

[HUD’s joint prepared statement can be found on page 44 of the 

appendix.] 

Mrs. CAPITO. Thank you. 

Our next witness is the Honorable Sandra B. Henriquez, Assistant Secretary, Office of Public and Indian Housing, U.S. Department of Housing and Urban Development. 

Welcome. Thank you. 

10 

STATEMENT OF THE HONORABLE SANDRA B. HENRIQUEZ, ASSISTANT SECRETARY, OFFICE OF PUBLIC AND INDIAN 

HOUSING, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Ms. HENRIQUEZ. Good morning, Chairwoman Capito, Ranking 

Member Gutierrez, and members of the subcommittee. 

I want to thank you for the opportunity to testify before you this 

morning regarding the Fiscal Year 2013 budget for the Office of 

Public and Indian Housing (PIH) at HUD. 

We remain focused on making strategic investments in our communities while taking responsibility for our deficits. 

For PIH, that has meant remaining focused on three core objectives: one, protecting current residents and improving the programs 

that serve them; two, continuing progress on signature initiatives 

to speed redevelopment and economic growth; and three, reducing 

regulatory burdens and increasing efficiency. 

Our commitment to fiscal discipline means that our 2013 budget 

makes extremely tough choices, ones that we would not have normally made under different fiscal circumstances. 

For instance, we have proposed an increase in minimum rents 

across our program, a decision that despite the continued availability of hardship exemptions was extraordinarily difficult to 

make. 

At a time when more than one-third of all American families rent 

their home, and 7.1 million of these families spend more than 50 

percent of their income on rent, it remains more important than 

ever to provide a sufficient supply of affordable rental homes for 

low-income families. 

HUD’s Fiscal Year 2013 budget maintains HUD’s core commitments to providing rental assistance to some of our country’s most 

vulnerable households. This proposal provides $19.07 billion for 

HUD’s Section 8 Tenant-Based Rental Assistance Program to assist 

approximately 2.2 million families by renewing existing vouchers 

and issuing new incremental vouchers to homeless veterans and 

other vulnerable populations. 

The budget also provides a total of $6.59 billion to operate public 

housing and modernize its aging physical assets, a critical investment that will help 1.1 million households to obtain or retain their 

housing. 

In addition, $731 million has been requested to support housing 

and development initiatives in Native American, Alaskan, and Hawaiian communities, supporting more than 560 tribes across this 

country. 

Our 2013 budget provides $150 million for the Choice Neighborhoods Initiative to continue transformative investments in distressed, high-poverty neighborhoods. 

The five Choice Neighborhood implementation grantees funded in 2011 have leveraged a combined $1.6 billion in private funds, 13 

times their total grant award amount. 

To address a rapidly shrinking public housing portfolio, and an 

estimated $26 billion in capital backlog of unmet needs, HUD’s 

2012 Appropriations Act authorized the rental assistance demonstration to test new preservation tools for its public housing, Mod 

Rehab, Rent Supp, and RAP assisted housing stock. 

11 

These strategies offer housing authorities and owners a platform 

to better leverage current Federal appropriations with other private and public capital. 

This budget also provides critical flexibilities to local housing authorities to deal with the challenging economic environments by 

streamlining public housing operating and capital funds. The budget provides that all housing authorities have this flexibility to use 

their operating and capital for any eligible capital and operating 

expense. 

We also propose the consolidation of the Family Self-Sufficiency 

Program to enable housing authorities to more uniformly serve participants in the voucher and public housing programs. The budget 

authorizes housing authorities to use their public housing and 

voucher funding to augment case management and supportive services provided through FSS or other programs to increase opportunities for residents. 

Finally, it is clear that an economy built to last requires a Federal Government that is efficient, streamlined, and transparent. 

This budget proposal reforms the PIH Program that would save 

$208 million without reducing the number of families served. 

I want to express my appreciation for the bipartisan work the 

subcommittee and full committee is engaging in with the Department and with stakeholders on the Affordable Housing and SelfSufficiency Improvement Act. 

At this critical moment, it is essential that we collaborate to 

streamline the Department’s largest rental assistance programs. 

Nowhere is the relationship between housing and supportive 

services clearer than in our efforts to address homelessness, especially among our veterans. And that is why we are requesting $75 

million for 10,000 vouchers for the HUD–VASH program. 

Thanks to the congressional support for the transformation initiative, past fiscal year appropriations are today funding a wide 

range of groundbreaking projects. 

PIH TI-funded projects include the development of enhanced 

tracking tools to better monitor progress and outcomes for troubled 

PHAs, a financial forecasting simulation tool that allows PHAs to 

adjust financial scenarios to project impact, and peer-to-peer analytical tools that compare average revenues and expenses of peer 

PHAs of comparable size and geography. 

Central to this is the development of the next generation management system which will improve the way we manage and administer all of our programs by streamlining processes and improving business performance starting with the voucher program. 

Madam Chairwoman, through targeted streamlining and some 

major policy reforms on which we will continue to work with this 

committee, PIH is able to realize cost savings while serving the 

same number of families. 

Thank you. 

[HUD’s joint prepared statement can be found on page 44 of the 

appendix.] 

Mrs. CAPITO. Thank you. 

Our next witness is the Honorable Mercedes M. Marquez, Assistant Secretary, Community Planning and Development, U.S. Department of Housing and Urban Development. Welcome. 

12 

STATEMENT OF THE HONORABLE MERCEDES M. MARQUEZ, 

ASSISTANT SECRETARY, COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING AND URBAN 

DEVELOPMENT 

Ms. MARQUEZ. Thank you very much. 

Chairwoman Capito, Ranking Member Gutierrez, and members 

of the subcommittee, thank you for the opportunity to testify today 

on Community Planning and Development’s (CPD’s) budget. 

CPD programs are foundation stones for our Nation’s community 

development, affordable housing finance, and homeless service systems. These programs make it possible for State and local governments to leverage other public and private dollars to implement 

large-scale, long-term solutions to pressing community challenges. For example, HOME leverages $4 of private or other public dollars for each own dollar invested. The Fiscal Year 2013 proposal requests flat funding compared to Fiscal Year 2012 for CDBG and 

HOME formula funds. 

We know that State and local governments are strained in addressing job creation, infrastructure, and affordable housing needs. 

And we would not have made this difficult decision under different 

circumstances. We made this choice because we are committed to 

the Administration-wide effort to reduce the national deficit. 

In Fiscal Year 2011, over 28,000 Americans found or retained 

permanent jobs that businesses directly supported by CDBG and 

Section 108. CDBG provided public service activities to 10.1 million 

people and benefited approximately 4.1 million people through public improvement investments. 

HOME has completed more than 1,040,000 units of affordable 

housing. At the requested level, grantees can produce 43,000 units 

of affordable housing and help 10,500 families with tenant-based 

rental assistance. 

CDBG and HOME dollars created jobs in the community, multiplying the direct investment. 

At the requested funding levels, these programs would create or 

retain nearly 80,000 jobs. Results show that CDBG Recovery Act 

funds created twice as many jobs per dollar as other Recovery Act 

programs. 

The Project Rebuild request for $15 billion in the President’s Job 

Act and Fiscal Year 2013 budget creates jobs and mitigates the impacts of the foreclosure crisis by providing funds to purchase or rehabilitate foreclosed or abandoned properties. 

Project Rebuild innovates based on the success of the Neighborhood Stabilization Program, allowing grantees to use up to 30 percent for redevelopment of commercial properties. It would support 

more than 190,000 jobs and treat more than 195,000 properties. 

I especially want to acknowledge and thank Congresswoman 

Waters for her leadership in introducing Project Rebuild legislation 

in the House. 

Our homelessness request reflects a $330 million increase compared to Fiscal Year 2012. However, decreases in CDBG and 

HOME create gaps in homeless services at the local level. 

$2.23 billion enables us to implement key components of the 

HEARTH Act, though we will not be fully able to implement all of 

the provisions. The increase reflects the Administration’s commitVerDate Nov 24 2008 18:28 Aug 15, 2012 Jkt 075074 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\75074.TXT TERRIE
13 

ment to the Federal Strategic Plan to prevent and end homelessness. 

The Homelessness Prevention and Rapid Re-Housing Program 

funded by the Recovery Act and ending in Fiscal Year 2012 has 

helped to prevent or end homelessness for more than 1.2 million 

people nationwide. ESG will absorb the successful prevention and 

rapid rehousing functions in Fiscal Year 2013. 

These strategies are working. Overall, homelessness on a single 

night across all categories has declined by 5.3 percent since January 2007. And homelessness among veterans has declined by nearly 

12 percent since January 2010. 

This funding will create 3,450 new units of permanent supportive 

housing and serve over 800,000 homeless families and individuals. 

The request for the Housing Opportunities for Persons with 

AIDS Program (HOPWA) is $330 million, $2 million less than Fiscal Year 2012. 

The proposed funding will assist local communities in continuing 

housing assistance for 56,400 households with people living with 

HIV or AIDS, supporting the Administration’s national HIV–AIDS 

strategy, and maintaining stability and improving health outcomes 

for this vulnerable population. 

We also propose to update the HOPWA formula to reflect the 

current understanding of HIV–AIDS, distributing funds based on 

the current population of HIV-positive individuals, fair market 

rents, and poverty rates to target to the highest need. 

We also request $100 million for Sustainable Housing and Communities grants, enabling innovation and challenging communities 

to creatively use existing resources at a time when the fiscal environment has required us to flat fund CDBG and HOME, dollar for 

dollar the most effective job creators in our budget. 

Sustainable Communities grants are particularly essential because they leverage increasingly limited Federal dollars. Under our 

proposal, rural areas would receive nearly $700 million in CDBG 

and $300 million in HOME. Together, these funds would support 

nearly 33,000 jobs directly and indirectly in rural areas, and provide infrastructure economic development and affordable housing. 

The Rural Housing Stability Assistance Program funds a $5 million program implemented for the first time in Fiscal Year 2012 

which is targeted to rural areas that have minimal Federal funds 

invested for homelessness. 

CPD plays a critical role in helping communities recover, creating jobs, and rebuilding our economy. 

Thank you for this opportunity to testify today. 

[HUD’s joint prepared statement can be found on page 44 of the 

appendix.] 

Mr. HURT [presiding]. Thank you, Ms. Marquez. 

Our next witness will be the Honorable Raphael Bostic, Assistant 

Secretary for Policy Development and Research at HUD. 

Thank you, sir. You are recognized for 5 minutes. 

14 

STATEMENT OF THE HONORABLE RAPHAEL BOSTIC, ASSISTANT SECRETARY, POLICY DEVELOPMENT AND RESEARCH, 

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Mr. BOSTIC. Thank you. Chairman Hurt, Ranking Member 

Gutierrez, and members of the subcommittee, good morning, and 

thank you for the opportunity to speak today. 

The Fiscal Year 2013 budget request for Policy Development and Research (PD&R) is $52 million. This represents an increase over 

the $46 million that was appropriated in Fiscal Year 2012. 

I also oversee much of the transformation initiative book of business. For Fiscal Year 2013, we are requesting a transfer authority 

of up to $215 million. And our request highlights the flexible use 

of an estimated $120 million. 

In my brief remarks, I would like to take a few moments to highlight how the proposed Fiscal Year 2013 budget continues this Administration’s emphasis on delivering effective and efficient programs, and promoting evidence-based policy. 

The Fiscal Year 2013 budget request includes important investments to ensure that the Department moves ever closer to these 

priority goals. 

One major effort for the Department has been how it delivers its 

technical assistance. The Congress has been incredibly supportive 

of the Department’s efforts to better leverage this technical assistance dollar. 

A high profile example of this support is for our OneCPD Program, which consolidates many program level technical assistance 

programs into a single integrated framework that considers the 

broad needs of a place in developing a technical assistance approach tailored to those needs. 

Based on our success with this approach, we again seek funds for 

OneCPD in this budget proposal. 

In addition, we have shaped our request to highlight TA needs 

in three areas: standardized skills training; intensive space capacity building; and building capacity for new programs and priorities. 

As is clear in this request, important needs exist in all of these 

areas. 

An important effort for the Department has been reform of its 

antiquated information technology infrastructure. That HUDs information and data systems have long been in need of an overhaul 

has been noted by many, including the Government Accountability 

Office (GAO). 

HUD has been working with GAO to establish new oversight 

processes for systems development that conform to industry standards. And a September 2011 GAO report validated the fact that 

significant progress has been made on this front. 

However, this progress represents only the first few steps of 

what will necessarily be a marathon. HUD must continue to make 

significant investments in IT, and the Fiscal Year 2013 budget request reflects this reality. 

Turning to evidence-based policy, with the Congress’ help, this 

Administration has made significant investment to ensure that as 

much evidence as possible is available to inform the decisions that 

the Department and our partners make regarding HUD’s programs. 

15 

For example, past year appropriations have provided funds to 

support research designed to provide many insights that can help 

improve HUD’s performance in delivering grants and services, and 

ultimately strengthening communities and increasing family quality of life. 

This budget request continues in this tradition. 

First, it includes a request to invest in a program, Jobs-Plus, 

that has been experimentally demonstrated to produce tremendous 

benefits to those families in the program. 

And what did we learn from this? Those in the program saw 

earnings increase an average of $1,300 per year, providing a firm 

foothold on self-sufficiency in a time when too many Americans 

continue to struggle. 

Investment in a proven program like Jobs-Plus does not just 

make sense; it becomes an imperative. 

The budget also requests funding to complete existing ongoing 

research projects as well as support research on key Departmental 

interests. In the latter category, our request is to support evaluations such as the rental assistance demonstration. 

Experience has shown that putting a framework for evaluation 

in place at the outset of demonstration results in our being able to 

learn the lessons of those demonstrations in a clearer way. These 

requests are made with that perspective in mind. 

We also seek in Fiscal Year 2013 to advance research in other 

topics of interest to the Administration and to Members of Congress. These sorts of activities, TA, IT, and research and demonstration, are crucial to HUD’s stewardship of its resources. 

The reality is that no effective organization, and that includes 

private sector organizations, remains a high performing unit without: one, monitoring its performance to identify successes and areas 

for potential improvement; two, training its staff and affiliated 

business partners to make sure they have the skills to be effective; 

and three, updating and maintaining its technology to make sure 

that its well-trained staff can continue the identified successes, and 

implement policies targeted towards improvement. 

Every effective and high-performing operation does these things, 

every one. And if HUD is to become a high performer and remain 

so in its own right, it must as well. 

Thank you for this opportunity to testify before you today. 

[HUD’s joint prepared statement can be found on page 44 of the 

appendix.] 

Mr. HURT. Thank you, Mr. Bostic, for your testimony. 

Our final witness today is the Honorable John Trasvina, Assistant Secretary for Fair Housing and Equal Opportunity at HUD. 

Thank you, sir, for being here this morning, and we will recognize you for 5 minutes for your testimony. 

STATEMENT OF THE HONORABLE JOHN TRASVINA, ASSISTANT SECRETARY, FAIR HOUSING AND EQUAL OPPORTUNITY, 

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Mr. TRASVINA. Thank you, Mr. Chairman, Ranking Member 

Gutierrez, and members of the subcommittee. 

16 

I appreciate the opportunity to discuss with you the current and 

Fiscal Year 2013 priorities of the Office of Fair Housing and Equal 

Opportunity (FHEO) at HUD. 

Forty-four years after this House’s passage of the Fair Housing 

Act, the Nation has made substantial progress. But we must not 

be satisfied until housing discrimination is ended in America. 

In that regard, we have taken on new challenges since the 1968 

law including gender, disability, and familial status discrimination. 

And most recently, ensuring that HUD housing and HUD programs are open to all irrespective of sexual orientation, gender 

identity, and marital status. 

At FHEO, our employees enforce the Federal fair housing law 

and work closely through public sector partners, 97 State and local 

civil rights agencies, the Fair Housing Assistance Program (FHAP), 

and the private sector, including 120 fair housing councils, legal 

aid agencies, and community-based organizations in 40 States in 

the Fair Housing Initiatives Program (FHIP). 

In addition to promulgating regulations, issuing guidance, investigating cases, overseeing the FHIP and FHAP Programs, and ensuring that all communities and housing providers know about 

their rights and responsibilities under the Fair Housing Act and related laws, my FHEO staff members review HUD’s own programs 

and housing to ensure that we abide by the same civil rights requirements and fair housing principles that we expect of State and 

local jurisdictions, and the private market. 

While some discriminatory practices are less blatant and prevalent today, housing discrimination remains in America. Last year, 

my FHEO staff filed more Fair Housing Act charges than in any 

year in the past decade, and did this with a staff 25 percent smaller than it was 10 years ago. 

And I am proud to report that HUD collaborated with the Department of Justice, which entered into the largest residential fair 

housing lending settlement ever, providing $335 million in relief to 

African-American and Latino customers at CountryWide. 

Our Fiscal Year 2013 budget request seeks continued support of 

$41.1 million for the FHIP partners, and $26.4 million for the 

FHAP partners to further the Department’s goal to create inclusive 

and sustainable communities free from discrimination. Cases that 

your constituents bring to FHIP organizations benefit from their 

expertise and screening. 

The cases that FHIPs file with my office are twice as likely to 

result in a charge or settlement as other cases filed directly with 

us. 

Similarly, under FHAP, local and State agencies investigate fair 

housing cases and make determinations when their law is substantially equivalent to Federal law. FHAPs investigate three-quarters 

of the cases nationally. 

Without this vigorous State and local partnership, our offices 

would be overwhelmed with cases and would not be able to provide 

timely determinations for complainants or housing providers. 

Two other new facets to our Fiscal Year 2013 budget request are 

small, but play an important role in improving the quality and 

availability of our services. We are moving the $1.8 million request 

for funding of the National Fair Housing Training Academy outside 

17 

of the FHAP Program in order to expand the number of classes and 

better serve more of our fair housing partners. 

In addition, we request $0.5 million to continue the Department’s 

limited English proficiency initiative which has provided for telephone interpretation, generally, and translation of more than 100 

vital HUD documents in up to 19 different languages to better 

serve housing providers and the general public. 

Fair housing testing results show that approximately one in five 

housing transactions still result in less favorable treatment for racial or ethnic minorities. We recognize that our job requires taking 

systemic relief beyond one-by-one cases, as we have done, for example, on behalf of women denied mortgages because they were on 

maternity leave. 

Finally, HUD has placed a new priority on compliance of Section 

3 of the HUD Act to ensure that our investments create jobs and 

contracting opportunities for local low-income individuals and the 

companies who hire them. We have quadrupled reporting on Section 3 compliance. And are pleased that in the last reporting period, almost half of the new jobs created by HUD funds went to 

Section 3 residents, and $0.5 billion went to Section 3 contractors. 

We are continuing our support of HUD-funded government agencies to increase Section 3’s impact by funding locally hired Section 

3 coordinators, developing a registry for businesses in five pilot cities, and developing a new rule, and we look forward to working 

with the committee on further action. 

And next week, after a year of development and public comment, 

our Equal Access to Housing Rule will go into effect, which means 

that lesbian, gay, bisexual, and transgender people will not be excluded from HUD housing or programs or denied FHA back loans 

because of who they are. 

Thank you for your support of fair housing. 

I am available to answer any of your questions. 

[HUD’s joint prepared statement can be found on page 44 of the 

appendix.] 

Mr. HURT. Thank you, Mr. Trasvina, for your testimony. 

I now recognize myself for 5 minutes as we enter this period of 

questioning. 

This is kind of a tough question, probably, and I would like to 

obviously observe our time limits. So, I am going to ask everybody—each one to answer this question. 

My concern is this—as I traveled over the last week across the 

5th District as a part of our district work week, what I heard from 

folks who are struggling more and more every day with gas 

prices—we have extremely high unemployment in my district, in 

many places it is way more than the national average. People look 

at Washington and they say, ‘‘I have less and less money to spend 

to feed my family and to get to work. And why is it that you in 

Washington can’t cut spending just 1 percent?’’ How can we not 

spend 1 percent less this year than we did last year? 

I recognize the important work that you all do. And I also understand the fact that the worse off the economy is, the greater the 

need is for the services that you provide, but help us with this. 

18 

How do I answer that constituent who asks, ‘‘Why can’t you 

spend 1 percent less than you did last year? I am having to spend 

a lot less than I did last year.’’ 

If I could just go down the line—and I apologize because it is 

probably a complicated question—but if you could try to make 

enough time for everybody to be able to answer that question, I will 

start with you. 

Mrs. Galante? 

Mrs. GALANTE. Thank you. 

Let me just say, I believe that HUD has cut spending in a number of places. I know in the Office of Housing in the Project-Based 

Rental Assistance Program, we are saving $400 million to $500 

million in this budget by different regulations that save dollars for 

the Federal Government. So, there are savings. 

The other thing I would say, however, is in some of the rental 

assistance programs, because of the stresses that these renters are 

under, and some of their incomes are going down, that may mean 

that our subsidy amount is going up. 

And so, we are filling a safety net issue for some of these renters 

that makes it difficult to control those kind of expenditures. 

Mr. HURT. Thank you. 

Ms. Henriquez? 

Ms. HENRIQUEZ. Thank you. I would echo Mrs. Galante. 

But I would also say that when we as a nation put money together so that we don’t have homeless individuals and families, 

particularly our veterans and people who serve this country, on the 

street, at risk, in jeopardy, that is dollars well-spent. 

And so, we too, in public housing, have saved money, but we 

have also then said we want to make sure that everyone who is 

served now continues to be served. And our programs really rely 

on market forces as well. 

Mr. HURT. Thank you. 

Ms. Marquez, how do I answer that constituent who asked me 

that question? 

Ms. MARQUEZ. Thank you. 

First, let us clarify the HUD budget as a good response. Our budget provides $44.8 billion for HUD programs, an increase of 

$1.4 billion or 3.2 percent above Fiscal Year 2012. This program funding level is offset, however, by $9.4 billion in 

projected FHA and Ginnie Mae receipts leaving net budget authority of $35.4 billion, or a 7.3 percent below the Fiscal Year 2012 enacted level of $38.2 billion. 

So, we have cut. 

Speaking for CPD, I can tell you that we have streamlined in 

many areas. 

My colleagues spoke about OneCPD, how long—what we have 

done to streamline all of the ways that we provide technical assistance. 

We have also seen a decrease—we took a decrease—requested a 

decrease in S&E as we have come forward to streamline. This is 

a time when we are all making sacrifices, and HUD is fully committed to shoulder its share of the burden. 

Mr. HURT. Thank you. 

Mr. Bostic? 

19 

Mr. BOSTIC. I would agree with my colleagues. 

And I would also just emphasize that these are incredibly difficult times for everyone. The Secretary has given us a direct 

charge to make sure that we scrub every program, everything that 

we do, to make it as efficient and as effective as possible. 

I will just highlight a couple of places in terms of administrative 

fees for housing authorities. 

My office is in charge of doing a detailed analysis to find out 

what the best practices are so we can reduce our costs in terms of 

how we operate our programs. Those things happen across-theboard. And we are committed to the realities that we are going to 

have to do more with less. And that is the message we get. 

Mr. HURT. Thank you. 

I have about 30 seconds. 

Mr. TRASVINA. Mr. Chairman, I would say that we are spending 

less, but also spending better. 

Now, I have been to your district, to the beautiful art building 

downtown, talking to your constituents about Section 3, making 

sure that HUD dollars that are going to the community aren’t just 

going to the infrastructure, but they are going to the people, and 

being able to provide local programs to hire public housing residents, low-income residents, as well as contracting opportunities 

for the companies right in your district. 

That extends the impact of HUD dollars. 

Mr. HURT. Thank you very much. 

It is now my pleasure to recognize the ranking member, Mr. 

Gutierrez, for 5 minutes. 

Mr. GUTIERREZ. Thank you very much. 

Assistant Secretary Marquez, the Administration has proposed a 

$2 million reduction in funding for housing opportunities for persons with AIDS. 

How many fewer people will be served? And has it been demonstrated that HIV interventions are less effective when the individual does not have stable housing? 

Currently, there are 145,000 households in need that go 

unserved. How will HUD meet this need with a reduction in funding? 

Ms. MARQUEZ. Thank you for the question. 

The HOPWA Program this year, I think, comes full circle. We 

are working with the Administration and many other agencies on 

an integrated approach for our first Federal plan on dealing with 

folks and helping them. 

I think—we are not going to serve less. I think what is important 

is where we are focusing. 

Part of what is going on here is that we are asking for a change 

in the formula so that it more specifically focuses on where the 

need is. So, we are updating. We are going to continue to focus in 

on the lowest-income folks. 

In fact, our program very specifically targets those who are extremely low income. So, we are taking care to help them and to understand that someone who is struggling and moving forward with 

HIV doesn’t just need housing; they need all the other services that 

come from an integrated approach. 

20 

Mr. GUTIERREZ. Yes, and that is why it surprises me that given 

inflation and given the higher cost and the higher demand, and the 

fact that 140,000 people go unserved, that you would reduce that 

part of the budget. Especially when I take into consideration your 

comment about how you have reduced it 7 percent, taken other incomes that are coming in that at a time that we would reduce that. 

So, that is one point. 

Secondly, to Commissioner Galante, HUD has proposed a $10 

million increase in funding for housing counseling. But that $55 

million is still far below the $87.7 billion for Fiscal Year 2010. 

Can you explain to us how—given that you are going to come 

into money, especially $1 billion, that you would spend less money 

on counseling when people will probably need it? 

I guess that is the reason everybody agreed to the $25 billion because they were screwing people over if they wouldn’t have agreed 

to the $25 billion. And some of us even believed that the $25 billion 

really doesn’t go far enough. 

So, how is it that you are going to have less money this year for 

housing counseling? 

Mrs. GALANTE. Thank you for the question. 

Let me just say that we do believe in the importance of housing 

counseling and know that housing counseling has a great effect on 

borrowers and their decision-making, particularly through the loss 

mitigation process. 

We are working hard to ensure that the new Office of Housing 

Counseling, which we are in the process of setting up, will be operated efficiently and get the money out quickly to the grantees. 

And, the $55 million is in the category of a tough choice. We obviously would like to provide even more housing counseling dollars. 

However, I would say that we are working with the State attorneys general on that settlement agreement. As you mention, there 

are significant dollars in the settlement that can be used separately from HUD’s housing counseling program to fund housing 

counseling agencies— 

Mr. GUTIERREZ. I would think that would probably be a wise 

choice of the dollars, given that you are decreasing the amount of 

money that you are targeting to counseling. 

I think counseling, as you and others who have come before this 

community from HUD have testified, is very cost-efficient and very 

important in order to keep people in housing. 

So, I just have a little bit—there is some other stuff here, especially given the fact that—the minimum rent. HUD had one standard and PHA had another. They were 50. You guys had 25. 

For 14 years, you guys had 100 percent less minimum rent. And 

now, you are telling everybody there is going to be no discretion. 

And I know that a lot of people just tend to think that it is not 

a lot of money, especially if you make, like a Congressman, $725 

a day. It doesn’t seem like a lot of money. 

But for someone who makes less than $250, I would hope that 

you would take a look at that. Otherwise, we are going to continue 

to hear—and you are going to continue to hear from people who 

say, ‘‘There are all these people in the Section 8 Program, and if 

they would simply move off the Section 8 Program so that other 

21 

people could get on the Section 8 Program, it would be a great Section 8 Program.’’ 

That is kind of like saying, there are all these sick people, and 

there is only so much money to cure them. So, let us stop curing 

them. Get those people off who are sick. Let us get those people 

off who need an education. Let us get those people off. 

So, I just hope that we could do that and look at it that way. 

Thank you very much. 

Mr. HURT. Thank you, Mr. Gutierrez. 

I now recognize the gentlelady from West Virginia, Mrs. Capito, 

for 5 minutes. 

Mrs. CAPITO. Thank you, Mr. Chairman. 

I want to thank the witnesses as well. 

Mrs. Galante, we have talked a lot about HUD’s capital ratio, the 

concerns that we all have on this committee and that the Administration has as well. 

The budget, the 2013 budget, shows a potential draw-down of the 

Treasury of $688 million. 

Am I understanding this—so, first of all, my main question is, 

is FHA broke? That is a concern in simple language. 

But is the $688 million that is reflected in the budget, is that the 

hole that is being plugged by the $1 billion servicer agreement, and 

if that is the case, what about next year? 

What are you looking at as you look over the rainbow a little bit? 

Mrs. GALANTE. Thank you for the question. 

This is confusing information. And so just to be clear, FHA is not 

broke. 

The capital reserve is a $688 million would be to essentially top 

off a capital reserve for expected 30 years’ worth of claims. So, we 

have currently $33 billion in an account for paying claims. 

The budget had projected that in order to meet our full obliga- tions over that 30 years, we would need to draw $688 million to 

put into the capital reserve account. 

And as a result of the work that we did on the settlement, as 

a result of the premium increases that we talked about and announced yesterday, that will more than fill that gap for Fiscal Year 

2012. 

But also if you look at the budget, the projection for where the 

capital reserve account will be by the end of 2013, with all the book 

of business we are doing throughout 2012 and 2013, and with all 

the premium increases baked into the budget plus the additional 

ones, we expect to be at a capital reserve of $8 billion by the end 

of 2013. 

That still isn’t up to the 2 percent. But it is significant progress. 

Mrs. CAPITO. So, do you anticipate that 2014 will have another 

shortfall projected? Or can you tell? 

You are saying that—but if you combine the $1 billion servicing 

agreement along with the fee increases, that should put you over 

the hump to then move forward for the next 30 years after—on a 

sight unseen of what the future but— 

Mrs. GALANTE. Yes. So, that is correct— 

Mrs. CAPITO. Okay— 

Mrs. GALANTE. Again, I do want to say that we are in a dynamic 

situation and economy here. We do look at these numbers on a regVerDate Nov 24 2008 18:28 Aug 15, 2012 Jkt 075074 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\75074.TXT TERRIE
22 

ular basis. We do the actuarial study where we will again look at 

what the house price projections are, what interest rates are. 

And all of those things will factor into our future projections of 

what we need in the capital reserve account. 

Mrs. CAPITO. So, the most precarious FHA loans are the ones 

that went forward in 2006, 2007, and 2008? What are you finding 

in terms of the default rate? Is it rising? Is it falling? Is it steady? 

Mrs. GALANTE. Our default rate and our delinquency rate on the 

new book of business is— 

Mrs. CAPITO. New book being after— 

Mrs. GALANTE. I would say the second half of 2009 forward essentially. 2009 was a bit of a transition— 

Mrs. CAPITO. Right. 

Mrs. GALANTE. —year. So, the second half of 2009 and 2010, 

2011, and 2012 have very low early payment default rates compared to previous years where I think it was 0.37 percent in 2011 

compared to 2.5 percent in early payment default in those other 

years that we talked about. 

And delinquency rates—seriously delinquent loans again even if 

the—with the same seasoning effect are substantially lower for this 

newer book of business. 

Mrs. CAPITO. So, I guess—I didn’t mean to interrupt, but I am 

kind of running out of time here. 

What I am wondering here is as you look at the current book of 

business from 2006, 2007, 2008, and the first part of 2009, are 

those defaults and delinquencies growing, or are they staying 

steady as to what they were say last year from that book of business? 

In other words, are those getting worse as time goes on, or are 

they steadying out? 

Mrs. GALANTE. We have projected those loss rates and the delinquency rates. Part of the issue right now is they have been persisting. There are loans that are 90-plus days delinquent that 

haven’t gone to foreclosure. They are kind of stuck. 

But generally, I would say they are not getting better at this 

point. And we have projected substantial losses from those books. 

Mrs. CAPITO. All right. Thank you. 

Mr. HURT. The gentlelady from New York, Ms. Velazquez is recognized for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Mr. Bostic, the agency proposed to combine the public housing 

capital and operating funds into a single funding subsidy. And is 

it possible that this will shift the focus away from tenants’ needs, 

and allow housing authorities that are facing budgetary constraints 

throughout the country to divert limited resources to overhead and 

administrative costs? 

How can we ensure that the needs of repairing and tenants are 

addressed? 

Mr. BOSTIC. I actually think this is a question better directed to 

Secretary Henriquez. 

Ms. HENRIQUEZ. Thank you for the question. 

The ability of our requests to have housing authorities combine 

operating and capital so that they can meet for eligible expenses 

23 

on the operating side and the capital side, we don’t see this as diverting money from the capital. 

Capital needs remain— 

Ms. VELAZQUEZ. —the possibility that it could happen. 

Ms. HENRIQUEZ. So, I would never say it will never happen. But 

I think we have tools and monitoring and assessments in place to 

prevent that from happening. 

The capital needs are real. And housing authorities’ first and 

foremost mission is to make sure that their residents are housed 

appropriately. 

We have created a number of tools, peer-to-peer, comparability 

tools, so that we can go in, we can assess and look at how money 

is being spent, making sure that it is spent appropriately and that 

the unmet capital needs do not continue to increase disproportionately to the amount of money available. 

I would also say that currently, housing authorities of 250 units 

or less already have the ability to merge and use their capital and 

operating together. And what they find when they do that is generally a shift to try and amass enough cash so that they can do 

capital work that is significant to enhance their properties moving 

forward. 

We score them. We monitor that on an annual basis as well, so 

we can keep track of how things are going and what those portfolios look like, and how those units are being improved. 

Ms. VELAZQUEZ. I have no issue with that. I just want to make 

sure that oversight is going to be in place. And that the tools that 

you have will be used to make sure that you monitor the situation. 

Ms. HENRIQUEZ. We agree with you. 

Ms. VELAZQUEZ. Ms. Marquez, in the Fiscal Year 2013 budget, 

Community Development Block Grants will be flat funded at $2.6 

billion. However, this is $300 million less than Fiscal Year 2011. 

My question is, how will basic services in cities like New York 

be affected by continuing this cut to a program that has helped revitalize and empower communities, especially urban communities, 

through job creation, economic development, and expansion of 

homeownership? 

Ms. MARQUEZ. Thank you for the question. 

There is no doubt that local communities are feeling a very powerful pushback from the cut in funding. And there is no question 

that HUD was faced with very difficult choices this year. 

As your question to Assistant Secretary Henriquez really does 

point out, our focus is first on ensuring appropriately safe housing 

for those for whom we already have this responsibility. 

Having said that, for CDBG this year flat funding, what we are 

committed to making sure is that we are providing all the help necessary to help local communities make smarter choices, streamline 

when necessary, restructure. 

Assistant Secretary Bostic spoke about OneCPD. We have spent 

the last 21⁄2 years completely revamping how it is that we actually 

help local communities with professional cutting-edge consulting 

and technical assistance. 

So, OneCPD is already fully functional. We are in many large 

and small places helping them take a look at their markets. 

24 

But at some point, you are correct that it is not enough just to 

be efficient. They will have to reprioritize. And there will be some 

things that they can’t do— 

Ms. VELAZQUEZ. So, you agree with me that at a time when the 

economy is still fragile, and we are not creating the jobs that we 

need in order to get the economy to grow, this is not the time for 

this investment in programs that provides jobs, that creates jobs, 

and revitalize our communities? 

Ms. MARQUEZ. I agree with you that had we had any other choice 

to make, we would not be cutting CDBG and the HOME Program. 

Ms. VELAZQUEZ. Maybe we need to look into closing tax loopholes, and that will give us the revenues that we need. 

Thank you, Mr. Chairman. 

Mr. DOLD [presiding]. The gentlelady yields back. 

The Chair recognizes the gentleman from California, Mr. Miller, 

for 5 minutes. 

Mr. MILLER OF CALIFORNIA. Thank you, Mr. Chairman. 

I want to thank all of you for your testimony. I know you are in 

a difficult time, and you said difficult times in your opening statement. These are tough times for our industry out there. 

And I agree. You need to reduce the risk to taxpayers. Mrs. 

Galante, you mentioned that, and I support you in that. 

Fee increases, if they are applied to safety and soundness and 

making sure the FHA is solvent, I think that is a reasonable approach. But there are some problems I have with the way the system is structured. 

I support Section 8. I think Section 8 needs some reforms, but 

I have always been supportive. So, I am not your opponent up here. 

Don’t get me wrong there. 

But people move from Section 8, usually to apartments. They 

move from apartments to condominiums, townhomes, and then 

move to single family homes. 

And the problem I have is the structure that you are applying 

to loans today. Between the GSEs and FHA, you are the only group 

in the market. If it wasn’t for you, we would be in serious trouble. 

And if it weren’t for the GSEs, there would be no money out there 

available. 

But if you look at the residential marketplace, the majority are 

built under a non-Davis-Bacon period. If you are looking at the 

commercial/industrial, the vast majority are built under DavisBacon. So we wouldn’t be arguing that on commercial/industrial. 

But your mandate is that a builder who wants to go out and finance a construction project through FHA must build in a DavisBacon rule. So an apartment complex, let us say if a unit costs 

$60,000 to build, based on what it is costing today, that apartment 

is going to cost $72,000 to $75,000 to build today. If you are dealing 

with a condo that would cost $80,000 under non-Davis-Bacon, you 

are talking about $96,000 to $100,000 to build it under DavisBacon. 

But when you say we need to reduce the risk to taxpayers by the 

mandate of Davis-Bacon, you are increasing the risk to taxpayers. 

Because if you increase the cost that you are financing, if something goes wrong, you are picking up the losses. 

25 

So, if we are really trying to help people at the bottom end to 

get out of Section 8, and to help more people, then they are going 

to the next level; by increasing the cost of construction, you are increasing the risk. By increasing the cost, you are increasing the 

risk to the taxpayers. 

And that doesn’t make any sense to me why we are doing that. 

If forcing privately financed projects to be subject to Davis-Bacon 

is driving up the cost and decreasing affordability, why does DavisBacon have to apply to FHA? 

Mrs. Galante, maybe you can explain that to me? 

Mrs. GALANTE. Thank you for the question. 

There is no doubt that in order to have appropriate wages paid 

on construction projects that may cost more— 

Mr. MILLER OF CALIFORNIA. Wait, wait, let us stop right there. 

If the vast majority of residential projects, and it is without a 

doubt the vast majority of them, what you write, are non-DavisBacon. That is a fact. 

The vast majority of commercial/industrials are Davis-Bacon. I 

won’t argue that. 

I am not against you. That is not what I am saying. But your 

mandate increases costs, increases the loan amounts, and thereby 

if something goes wrong, increases the risk. 

Your job is to make sure you are accountable to the taxpayer to 

be able to serve the most people you can serve out there, and decrease the risk, decrease the cost, and make sure the FHA is solvent. 

But what you are doing is counter to solvency. So, I don’t want 

to get into your argument. Your job is not to determine what the 

construction industry does. That is the construction industry’s job. 

Your job is to make sure you write safe and sound loans. 

How can you justify increasing the costs, thereby increasing the 

risk, when if you are going to conventional lenders, they don’t do 

that? But there are no conventional lenders out there today in the 

marketplace—that is my question. 

I am not trying to be mean. I am just—that is not your concern. 

Your concern is making the safest loans you can make. Is that not 

true? 

Mrs. GALANTE. Absolutely— 

Mr. MILLER OF CALIFORNIA. And making sure that FHA is solvent. Is that not true? 

Mrs. GALANTE. Absolutely. 

Mr. MILLER OF CALIFORNIA. Then, please address that. That is 

my question— 

Mrs. GALANTE. Let me just say, the developments are underwritten based on their—not just their construction costs, but also 

their economic value based on their rent. So, we are looking at an 

appropriate value for that property based on appraisal, based on 

underwriting techniques. So, we are taking that into consideration 

when we are insuring these loans. 

Mr. MILLER OF CALIFORNIA. Okay. But the other side is if you 

do build a unit under conventional financing, 3 years later you can 

finance it through FHA. 

26 

And there is no doubt there is a benefit to the FHA loan guarantee. You will get a better rate, because the lender knows there 

is a guarantee at the end. 

So, if it is good 3 years later, why isn’t it good from the onset, 

when you could reduce costs and provide more affordability? 

Mrs. GALANTE. Again, I need to say that this is a longstanding 

important policy of the FHA to encourage this kind of— 

Mr. MILLER OF CALIFORNIA. And I think that is good. But some 

policies have gone wrong. 

You coming back to Congress and saying that your default rate 

has reduced your reserves to the level they are at, means something needs to change. And I would strongly encourage you to look 

at this and look to Move to Work. 

And I am out of time. 

I yield back. Thank you very much. 

Mr. DOLD. The gentleman yields back. 

The Chair recognizes the gentleman from Texas, Mr. Green, for 

5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

And thank you for allowing me to be a part of the subcommittee. 

I also thank the witnesses for appearing today. 

Ms. Marquez, I would like to thank you especially, because I am 

most appreciative for the hands-on approach that you have taken 

to resolving some of the concerns that we have. 

I especially thank you for working with our Houston Housing Authority. It means a lot that you have embraced it the way you have. 

So, thank you very much. 

Mr. Trasvina, I want to thank you for the report that you have 

given concerning the language translations. I think it is important. 

In my district, the ballot is printed in four languages: English; 

Spanish; Vietnamese; and Chinese. And it is printed in these languages for citizens so that they can make intelligent choices when 

they are voting. 

And it seems appropriate that people who need counseling, people who may be at risk of losing a home. would have an opportunity to make some intelligent choices by having language that 

they can understand. 

So, I thank you for your report. 

I would like to move on to something that is somewhat rhetorical. It may not require a response. But we have a lot of people approach us with questions. 

And I rarely have people approach me and say, ‘‘Why are you 

spending so much money on poor people?’’ As a matter of fact, I 

have never had anybody approach me about overspending on poor 

people. 

I have never had anybody approach me about families making $250 a month, which is about $3,000 a year. With this increase, 

they will be paying a third of their income, $75, a third of their 

income, 30 percent of their income toward their rent. But these are people who legitimately are making $250 a month. 

And it is hard for some, I think, to understand that there are people who actually have families and are making $250 a month. 

We live in a world here that doesn’t allow us to always go into 

areas where there are people who really do make $250 a month— 

27 

a lot less, to be quite candid, for some others. And they really do 

need help. 

This country is not ultimately going to be measured by how 

many millionaires we lend money to. My suspicion is that when 

people look back through the vista of time, the question will be, 

how did you treat people who were living in the streets of life, as 

opposed to people living in the suites of life? 

So, doing things to help poor people has never really been a question that I have had a lot of people ask me. 

Here is what I have had people broach with me. People ask me, ‘‘Why is it that people who make over $1 million a year get all of 

the breaks?’’ This is what I hear. 

Now, we know that they don’t get all of the breaks. But people want to know why is it that people who make over $1 million a 

year can’t pay a little bit more when they have had a reduction in 

the rate that they pay, why can’t they pay a little bit more on what 

they make over $1 million a year? 

Some things bear repeating. 

We are not talking about what they make up to $1 million. But let us talk about what they make over $1 million a year. Why is it that people who make over $1 million, who have a tax 

rate that is lower than their secretaries and other persons who 

work with them, why is it that you can’t raise their rate so that 

they can pay a little more, given that they at one time paid this 

little more that we are talking about, and the country did quite 

well? 

This is the kind of thing that people approach me with. And 

quite frankly, I don’t expect any of you to answer the question. I 

just want to put things in a different perspective, so that we can 

understand that this is about this country, not just about poor people getting all of the breaks. 

There are poor people who need these services that are being 

provided. And this is what separates America from the rest of the 

world to a certain extent. 

There are some other countries that do well. But we treat people 

who are not in the best of circumstances with a degree of dignity 

and respect. And I respect what you are trying to accomplish with 

this budget. 

I thank you for the time, Mr. Chairman, and I thank the witnesses for appearing. I yield back. 

Mr. DOLD. The gentleman yields back. 

The Chair recognizes himself, at this point in time, for 5 minutes. 

And I certainly want to thank the witnesses again for taking 

time to join us today, and for the work that you are doing. 

Last October, the Washington Post published an article detailing 

some of HUD’s condominium regulations and the damage that they 

were inflicting on the condominium owners, sellers, buyers, and association members. 

These regulations included prohibiting condominium purchases 

in a property with more than 25 percent of commercial space, even 

though HUD seems to also be promoting a town center model. 

HUD also prohibits condominium purchases if more than 15 percent of the association dues are delinquent for 30 days, regardless 

28 

of the association’s financial health, and even though bank-owned 

units always get paid off when the unit is sold. 

And many State laws prevent the association collection actions 

until dues are 90 days delinquent. 

HUD also requires that 50 percent of the units on a property be 

owner-occupied. And this ratio includes bank-owned properties. 

This policy makes it very difficult to reach. The ratio is those who 

can’t sell quickly are forced to also rent out their units. 

Finally, association board members are subject to severe personal 

liability if they make any mistakes in the time-consuming, expensive, and complicated certification process, which generally means 

that they won’t even attempt to certify their units. 

Meanwhile, my understanding is that FHA’s condominium portfolio is performing better than the single family home portfolio. 

And condominiums are frequently the most affordable option for 

first-time homebuyers. 

So, what is the purpose of these seemingly severe and counterproductive restrictions? 

Is there anyone reviewing the sensibility and efficacy of these 

condominium regulations? 

Mrs. Galante, we will start with you. 

Mrs. GALANTE. Yes, thank you very much for the question. 

And let me just start by saying that there is no reason you would 

know. I actually was involved in building and managing and financing condominiums in California for a number of years. So, I 

do understand the importance of condominiums to first-time homebuyers and to the market in general. 

And I would say that there was a group of proposed rules on condominiums that were consolidated and proposed. Since I have come 

in, I am looking at a number of these issues very closely. 

We will be issuing a proposed regulation that will be able to get 

public comment on. In the meantime, we had put out this mortgagee letter that had some of the restrictions and issues that you 

raise. 

And again, I will just commit to you here without going through 

every one of them, some of these, I think, we can make some adjustments in. There are others that, frankly, we do have to walk 

an important line here in terms of ensuring that the condominiums 

in which there are FHA-insured loans are stable operating concerns, because there obviously is a concern about the risk of that 

for the FHA fund. 

Mr. DOLD. Okay, good. I am delighted to hear that. 

My next question relates to the Fair Housing Discriminatory Effects Standard, a proposed rule issued for comment last November 

16th. 

As I understand the proposed rule, HUD takes the position that 

the Fair Housing Act provides for the liability based only on discriminatory effects without requiring any finding of actual discrimination. 

And in the preamble, HUD provides examples of housing policies 

or practices that may have a disparate impact. One of these examples is: ‘‘the provision and pricing of homeowners insurance.’’ 

At the same time, though, the McCarran-Ferguson Act of 1945 

clearly gives State regulators jurisdiction to regulate homeowners’ 

29 

policies. Which includes: the provision and pricing of homeowners 

insurance.’’ 

So, it seems that HUD’s recent proposed disparate impact rule 

regarding homeowners, and more specifically homeowners insurance, conflicts very directly with well-established Federal law leaving such regulations to the States. 

This leads to my questions, which I will kind of make into a 

three-part question. 

First, what is HUD’s intent in issuing the proposed rule? And 

what objectives does HUD intend to accomplish with it? 

Second, does HUD’s intent interfere with the way the State-regulated insurers underwrite homeowners insurance? 

And third, in its final rule shouldn’t HUD clarify that HUD is 

not exceeding its legal jurisdiction, and is not infringing on other 

State regulator jurisdiction by clearly stating that this rule doesn’t 

apply to State-regulated insurance products such as homeowners 

insurance? 

Mr. TRASVINA. Mr. Chairman, this rule is—the disparate impact 

rule that, as you know, was promulgated in November of last year 

is intended to clarify the coverage of actions taken of policies and 

practices taken that have a disparate impact on the protected 

classes and under the Fair Housing Act. 

This essentially makes clear what every circuit court of appeals 

that has reviewed the coverage of disparate impact has already declared, which is that disparate impact standard is covered under 

the Fair Housing Act. 

It also establishes what the real requirements of a complaint 

must show, and what a defendant can show as a defense, as these 

cases are going before the courts. 

On the issue of insurance, insurance has always been covered 

under the Fair Housing Act, and in your part of the country in Illinois, in the 7th Curcuit, Judge Easterbrook made it clear that the 

Fair Housing Act covered insurance issues. 

So, we do not see it as going into a new area or an extension of 

the current parameters of the Fair Housing Act. 

Mr. DOLD. We might have a little bit of a disagreement on that, 

but my time has expired. 

The Chair recognizes the gentleman from North Carolina, Mr. 

McHenry. 

Mr. MCHENRY. Thank you, Mr. Chairman. 

And to follow up on the chairman’s question, Assistant Secretary 

Trasvina, has the Supreme Court ruled on disparate impact? 

Mr. TRASVINA. All of the circuit courts have ruled. 

Mr. MCHENRY. So, the answer is no? 

Mr. TRASVINA. The answer is no. 

Mr. MCHENRY. Okay. Are you familiar with the City of St. Paul’s 

decision to withdraw their petition for review from the Supreme 

Court? 

Mr. TRASVINA. Yes. 

Mr. MCHENRY. The Magner v. Gallagher case. 

Mr. TRASVINA. Yes. 

Mr. MCHENRY. Did you have any interaction with or consultation 

with the City of St. Paul in that process? 

Mr. TRASVINA. No. 

30 

Mr. MCHENRY. Has anyone at HUD had conversations in that regard with the City of St. Paul? 

Mr. TRASVINA. I am not aware of any conversations with the City 

of St. Paul on that matter. We have worked with the City of St. 

Paul on a number of matters related to fair housing. 

In fact, we are about to add them to our Fair Housing Assistance 

Program because they have a substantial equivalent for a housing 

law. 

Mr. MCHENRY. Have you had any conversations with former Vice 

President Mondale who apparently, according to press reports, did 

connect and reach out to the City of St. Paul and request that they 

withdraw their petition to the Supreme Court? 

Mr. TRASVINA. I would love to have talked to Vice President 

Mondale, but no, I have not. 

Mr. MCHENRY. Okay, all right, good answer. That is good. 

But do you—apparently the City of St. Paul believed that they 

would have won the case at the Supreme Court level, and that was 

regarding the disparate impact analysis rule within HUD. 

Do you agree? 

Mr. TRASVINA. I take the mayor of St. Paul—whom I have been 

in press conferences with—at his word and his attorney’s word that 

the issue for them was not to narrow the Fair Housing Act. They 

were dealing with a situation that his predecessors had brought up 

in previous years to deal with conditions of rental housing in St. 

Paul. 

So, I don’t think their intent was to narrow the Fair Housing 

Act. They were going to take this matter to court. And it will be 

decided there. 

Mr. MCHENRY. Okay. Are you aware of HUD, DOJ, or any other 

Federal entity providing advice or influence to the City of St. Paul 

on this matter? 

Mr. TRASVINA. I am not aware of any advice or influences being 

given. 

Mr. MCHENRY. Do you have any concerns in terms of your regulatory movement within your oversight about codifying the disparate impact analysis and what the legal ramifications would be 

and the uncertainty that it would create? 

Mr. TRASVINA. No, in fact quite the opposite, Congressman. 

Having a regulation will clarify, again as I said, what the 10 circuit courts have already ruled. They will give due notice to complainants and to respondents what—how we will examine Fair 

Housing Act disparate impact matters under the Fair Housing Act. 

And it will give them due notice as to what kind of evidence they 

need to provide and what kind of defenses they have available. 

Mr. MCHENRY. Okay. 

Mr. TRASVINA. It will bring clarity rather than bring confusion. 

Mr. MCHENRY. So, do you believe that use of the disparate impact claim under the Fair Housing Act has solid legal ground? 

Mr. TRASVINA. As I said, it has been upheld by virtually every 

circuit court that has reviewed it, yes. 

Mr. MCHENRY. Okay. Mr. Chairman, if you wanted to continue 

your line of questioning on that, I would be happy to yield back to 

you. 

Mr. DOLD. I thank the gentleman, but I am good at this point. 

31 

Mr. MCHENRY. Okay. Thank you for answering these questions. 

And with that, I would like to ask unanimous consent to submit 

for the record a Wall Street Journal piece from February 12, 2012, 

entitled, ‘‘Squeezed in St. Paul,’’ that details that under pressure 

from the Obama Administration, the City pulled their Supreme 

Court case, the Magner v. Gallagher case, on the disparate impact 

claim. 

Mr. DOLD. Without objection, it is so ordered. 

Mr. MCHENRY. Thank you. 

And with that, I yield back the balance of my time. 

Mr. DOLD. The gentleman yields back. 

The Chair recognizes the gentleman from Georgia, Mr. Westmoreland, for 5 minutes. 

Mr. WESTMORELAND. Thank you, Mr. Chairman. 

I just want to ask my friend from Texas one quick question about 

clarification. When you said people make $250 a month, are you 

talking about from wages? 

Mr. GREEN. Speaking of the persons who are impacted with the $75 and their families, they are making $250 per month. Or that 

is what they have as an income. 

Mr. WESTMORELAND. But you used the word ‘‘make.’’ Is that from 

wages or is that just from income? 

Mr. GREEN. Quite candidly, I don’t have the information as to 

how they make the money. I can draw some assumptions, but I 

don’t have actual evidence of how they make it. 

Mr. WESTMORELAND. Thank you, sir. 

Mr. GREEN. Thank you. 

Mr. WESTMORELAND. I was reading the testimony, and I know 

that you all did a combined testimony. 

On page three, it talks about the hundreds of thousands of jobs 

that this budget creates. How did you come up with the numer of 

jobs? And do you have an exact figure? Hundreds of thousands of 

jobs is a lot of jobs. And I was just wondering if any of you has 

an answer as to exactly how many jobs it was and how you came 

up with the estimate. 

Mr. BOSTIC. I would be happy to speak to that— 

Mr. WESTMORELAND. Yes, sir— 

Mr. BOSTIC. —and I thank you for the question. 

I can’t tell you an exact number today, but I can get that information for you. 

My staff has— 

Mr. WESTMORELAND. What do you think? Is it 100,000, 200,000, 

300,000, 400,000? 

Mr. BOSTIC. I don’t remember the exact numbers. It is several 

hundred thousand. And I can get you an exact number. 

But let me just explain sort of what we do. We have some details 

and physical models that look historically at what has happened 

with certain sorts of activities, and how that is translated into job 

creation. And we have compiled that information, crunched some 

fairly detailed models that my staff has taken quite some time to 

develop. And it offers projections and estimates about what certain 

sorts of activities should generate in terms of jobs. 

It also incorporates some of the spillover effect. So as you know, 

when there are jobs that are created, there are other support sorts 

32 

of activities that will emerge to help make sure that those jobs are 

successful. 

So, the model incorporates all of those things. And we spend a 

fair amount of time going back and forth with a number of experts 

both in academia and labor fields and the like, to try to validate 

that. 

Mr. WESTMORELAND. If you can come up with those numbers, 

like I said, whether it is 100,000, 200,000, 300,000, 400,000, I just 

think it would be interesting to find out how many jobs it is, and 

what creates them within the budget. 

I know from reading some of your biographies that at least one 

person on the panel has had some involvement with the Community Reinvestment Act. And a lot of people believe that was a leading contributor to the mortgage crisis that we have had, was the 

fact of really some people being able to get loans who shouldn’t 

have qualified. And maybe some things have been adjusted to do 

that. 

And on the same page, on page three, when you are talking 

about ensuring every American plays by the same rules, it mentions homeownership opportunities. Are we going back to some of 

the Community Reinvestment Act? And are we looking at homeownership opportunities by lowering some of the standards for getting a home loan? 

Mr. BOSTIC. That is a multipart question, so, let me speak to 

them in pieces. 

First, to the charge that CRA caused the housing crisis, I actually don’t think there is very much evidence to support that. 

If you look at the source of—to the uncertainty, subprime loans, 

no-doc loans, all the crazy stuff that we have acknowledged, much 

of that was done by institutions, particularly in the early years, 

that were not even covered by CRA. So, the rush into that sort of 

product and the expansion of that was unrelated to CRA. And so, 

I think that the claim that CRA caused the crisis is somewhat misplaced. 

The second thing I would say is that it is really important to understand that homeownership that doesn’t work is a disaster. This 

Administration has been fairly clear from the outset of its time 

here that sustainable homeownership is what we are seeking. And 

that reducing standards just to get people into a house, such that 

homeownership fails 6 months or a year from now, is a bad idea. 

We certainly don’t want to do that. 

I have a great deal of confidence that we are not going there. 

And we will make sure that when people get to homeownership, it 

is in a way that they can stay there and we don’t see the disruptions that we have seen in years past. 

Mr. HURT [presiding]. Thank you, Mr. Bostic. 

Thank you, Mr. Westmoreland. 

Mr. Stivers from Ohio is recognized for 5 minutes. 

Mr. STIVERS. Thank you, Mr. Chairman. And I have some questions mostly for Mrs. Galante. 

You said earlier, in an answer to Representative Capito, that you 

didn’t think FHA was broke. But I am really worried about the exposure to the taxpayers. I do have some questions, many of which 

33 

are answered in your testimony. And the first couple are pretty 

simple ‘‘yes or no’’ questions. 

FHA is congressionally mandated to maintain a 2 percent capital 

reserve ratio in the Mortgage Insurance Fund. Is that correct? 

Mrs. GALANTE. That is correct. 

Mr. STIVERS. And in 2010, that capital ratio was at half of 1 percent. At the end of last year, there was the GAO report that found 

it at about 0.24 percent or about a quarter of 1 percent. Is that correct? 

Mrs. GALANTE. It was actually the independent actuary. 

Mr. STIVERS. Oh, I am sorry, the independent actuary—but is 

that about where you would say it is today, at about a quarter of 

1 percent—0.240, I think, is what I saw. 

Mrs. GALANTE. That is correct. 

Again, that actuary is done once a year and is based on a variety 

of economic inputs including how much insurance enforcement we 

have. So, it is not possible, like on a monthly basis, to— 

Mr. STIVERS. I understand. 

So, if that is not broke, I guess, is it not broken until it gets to 

zero? Because we lost half the value of the reserve fund last year, 

and if we lose at the same rate this year, it will be at zero or below. 

I understand there is the settlement agreement with the 

servicers. And you are finally raising your insurance rates. 

But what does constitute ‘‘broke’’ if that is not ‘‘broke?’’ 

Mrs. GALANTE. Again, to be clear, the capital reserve account 

is—and the 2 percent is for ‘‘Excess reserves beyond what the actuary predicts we need for 30 years’ worth of losses.’’ So, we do have some $30 billion in our account to pay for losses. 

I am not saying that it is a good place to be on the edge— 

Mr. STIVERS. Right, but it is congressionally mandated. It is the 

law of the land that you have to have 2 percent. 

My next question is—and maybe I am wrong about this—but I 

believe in 2009—and I wasn’t here in 2009—Congress gave FHA 

the authority to raise their rates. 

You are finally going to raise your rates by 10 basis points this 

year on basic loans, and an extra—on jumbo loans. But the way my 

math works, you are actually authorized to raise your rates by 

about 30 basis points on all loans this year. 

And if your financial condition is where it is, and you are not 

meeting the 2 percent law that you are required to meet, why are 

you not raising your rates by the maximum allowed under law? 

Mrs. GALANTE. Yes, thank you for the question. 

Let me just say, it was in 2009 when we got additional flexibility 

to raise our premiums. We did not have it before then. We have 

more than doubled our rates since then. What is in the latest budget is just the additional amount. 

Mr. STIVERS. But you haven’t raised it the maximum amount 

every time you can? 

Mrs. GALANTE. We have not. And let me just explain why we 

have not. Because there is an important tenet here, which is we 

do want to raise the premiums as one place to go in terms of ensuring the health of the fund. 

But we are raising premiums on new borrowers to essentially 

deal with problems of the past. And at some point, you get into a 

34 

very difficult situation in terms of the impact of that on borrowers 

and on this market that is in a very fragile recovery. 

So in our judgment, we are doing everything we can by raising 

premiums, by going after lenders, and ensuring that we are covering dollars that way, by ensuring that our REO process is recovering what we should be recovering through that. 

And so, we are using multiple measures, not just premium increases, to ensure that we will get the fund back to the capital reserve of 2 percent. 

Mr. STIVERS. Right. And, there are three parts of the mortgage 

market: Fannie Mae and Freddie Mac; the private market; and 

FHA. Fannie and Freddie have raised their guarantee fees (g-fees) 

already. And you have not actually even kept up with the raises 

in the g-fees that Fannie and Freddie. 

So, doesn’t that actually just drive volume to FHA, and make 

FHA potentially even more vulnerable over time because you are 

not raising your rates to an actuarially sound point? 

Mrs. GALANTE. Again, I would, I guess, need to differ somewhat 

on whether what we are doing is actuarially sound. We believe that 

again— 

Mr. STIVERS. Can private mortgage insurance match your rates? 

Mrs. GALANTE. Pardon me? 

Mr. STIVERS. Can private mortgage insurance match your rates? 

Mrs. GALANTE. I don’t believe they are doing so. But— 

Mr. STIVERS. Do you think that they are—are you saying that 

they are doing something that is more than actuarially sound then? 

That is what I would use that as a—certainly as a measure to 

say what is actuarially sound is what happens in the private marketplace. And government has a really bad history of mispricing 

risk. 

I know my time has expired. But I would ask you to take a serious look at that. 

Thank you, Mr. Chairman. Sorry for going over. 

Mr. HURT. Thank you, Mr. Stivers. 

We now recognize Mr. Neugebauer from Texas for questions for 

5 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Secretary Marquez, as you know, our oversight committee had 

some hearings looking into the HOME Program. 

And on November 15th, we sent your office a request for some 

information that we felt would give the committee a lot more insight into some of the things that you are doing and the agency is 

doing to make some corrective action for some of what we felt were 

the deficiencies. 

Now, the response that your office gave us back is that if we did 

that, it would cost us $8.4 million to furnish you that information. 

Do you think it would cost $8.4 million to furnish that information? 

Ms. MARQUEZ. Congressman, there have been several discussions 

with your staff and HUD over the months since November. We 

have been happy to work with your office and the staff of the committee. 

We have provided thousands of pages of documentation on time. 

We have responded to every letter and continue—and I understand 

35 

we now have a meeting scheduled for this Friday to continue our 

discussion. 

Mr. NEUGEBAUER. We thought— 

Ms. MARQUEZ. We put the question to the contractor precisely 

that your office requested. And it was forwarded this week. It is 

in the hundreds of thousands of dollars, not millions. 

We corrected that. There was a miscommunication. It is now 

nearly $800,000. 

If you like, if you have other questions of the contractor, a contractor that I want to note—a contract that was entered into with 

the prior Administration, we would be happy to bring it forward. 

But regardless of the cost issue, we are happy to continue to 

work with your staff. And that is why we have a meeting now, several meetings, but one scheduled this Friday to continue. 

And if we can reach an agreement, we would like to. 

Mr. NEUGEBAUER. Yes, I appreciate that. 

I felt like that was very inconsistent. For example, in 2010, for 

all freedom of information requests that you had, you spent $1.2 

million. And then you send me back this letter that says it is going 

to cost $8.4 million to do it. 

Now, maybe you are saying that the contractor is—it is $700,000 

and some odd. 

This is a credibility problem for government. When the taxpayers 

say, hey, we have Members of Congress trying to do their job of 

doing oversight, asking for information that will help us make sure 

that the checks and balances that the founders put in place here. 

And yet your agencies over there are worried about furnishing us 

information. 

I felt like it was a stonewalling to throw up such a ridiculous 

number of $8.4 million. 

And so, I hope—and what I heard you just say is that you understand the importance of oversight. You understand the importance 

of what we are trying to accomplish. And that you are going to cooperate with us and make sure that you furnish this—what we 

think was very straightforward. 

We are not trying to create busy work over there. But we are trying to do what we are charged to do, and that is to make sure that 

the taxpayers’ interests are appropriately represented. 

And so, are you all going to cooperate with us? 

Ms. MARQUEZ. One of the things that I appreciate about you, 

Congressman, is that you and I are both straightforward. 

And we, in writing, corrected the estimate. It is now under 

$750,000. We have had several meetings. And I want to, again, 

note that the estimate comes from a contractor that was bid and 

approved by the Bush Administration. 

We are all bound by it. And they have corrected it. We put precisely the question you asked. They responded. We have provided 

you with their response. 

If you have any other requests, we have made clear, we are 

happy to forward them. And we have a meeting scheduled this Friday to continue this straightforward discussion. 

Mr. NEUGEBAUER. Yes. I appreciate that. And I hope that will be 

a productive meeting because we think that the information that 

we requested is very important. 

36 

We still think that these numbers are way too high. And I hope 

that you are taking action to make sure that: one, you furnish the 

documents; and two, you do it in the most cost-effective way that 

you can for the benefit of the taxpayers. 

Ms. MARQUEZ. Our commitment is to continue to work with you 

as we have been—and we provided thousands and thousands of 

pages. 

We continue to be completely transparent. And we look forward 

to the meeting this Friday. 

Mr. NEUGEBAUER. I thank you, and I yield back, Mr. Chairman. 

Mr. HURT. Thank you, Ms. Marquez. 

Thank you, Mr. Neugebauer. 

Our next questioner will be Mr. Sherman from California. You 

are recognized for 5 minutes, sir. 

Mr. SHERMAN. The initial part of my time will be the very best 

part of that time, because I yield 30 seconds to the gentleman from 

Texas. 

Mr. GREEN. Thank you. 

One of my colleagues posed a question earlier about the $250 and 

how this is acquired. 

I think it is a fair question. And I would like for someone to address the question. 

My assumption is that this is earned income. But if there is some 

other type of income that I am not aware of that we recognize as 

lawful income, I would like to hear someone talk about it, please. 

Ms. HENRIQUEZ. I will be responsive to your question. 

The $250 or whatever that dollar amount is for a family on a 

monthly basis is tied to either wages or it is lawful income through 

Social Security, TANF, or a variety of incomes, depending on the 

household, its size, the age of the head of household, and so on. 

If I might just take a moment, as we have talked about minimum rents, I want to make sure that it is very clear that— 

Mr. GREEN. I have to interrupt because I am on borrowed time. 

Ms. HENRIQUEZ. All right— 

Mr. GREEN. This is interest— 

Ms. HENRIQUEZ. —thank you. 

Mr. GREEN. I want to thank you for allowing me to apologize to 

you. I mispronounced your name earlier. 

Thank you, Brad. 

Mr. SHERMAN. Thank you. 

I have heard concerns about the FHA’s policy concerning strategic defaults. Under the current FHA policy, homeowners who 

strategically default on their mortgage will not be able to obtain 

another FHA loan for at least 3 years. 

Alternatively, Fannie Mae’s policy is to prevent the borrower 

from strategically—who has strategically defaulted from obtaining 

a Fannie Mae-backed mortgage for 7 years. 

I wonder if you can explain, Mrs. Galante, the FHA policy of 3 

years rather than 7 years? 

And also, clarify whether—if you strategically default on an FHA 

loan, can you get a Fannie Mae loan the next day and vice versa? 

Mrs. GALANTE. Thank you. Let me just be clear about this question of a strategic default. 

37 

I think there is a difference between FHA and Fannie and 

Freddie on—if you have gone through a foreclosure, any kind of 

foreclosure, in our world, in the FHA world, there are very strict 

servicing guidelines that if you have gone all the way through foreclosure, you have worked with your lender. You have been offered 

loss mitigation activities. So, we do not believe that these are people who are ‘‘strategic defaulters.’’ That doesn’t mean they weren’t 

foreclosed on. 

Mr. SHERMAN. So, do you treat all defaulters as strategic and 

otherwise the same, because there is no real way to tell who is 

strategic and who is just unable to pay? 

Mrs. GALANTE. Lenders are required as part of the loss mitigation activities to understand the circumstances of the individual 

borrower. So, there is some information there. 

Frankly, we are not collecting, of those who have defaulted, all 

the exact circumstances that got them into the foreclosure. 

I would say, I think, as we move forward with housing recovery 

where we want to look at people’s ability to get back in to the market, looking at some level of consistency between the various lender 

institutions on how they might actually look at foreclosure— 

Mr. SHERMAN. So, you are 3 years. They are 7 years. You are 

looking towards some consistency in the future. But you are not 

there yet. 

Mrs. GALANTE. I would just say, I don’t think we have actually 

started to have that conversation. And where the right place to be, 

I think, is still open to conversation— 

Mr. SHERMAN. And does the FHA try to distinguish between 

strategic defaults and other defaults, or just to have a 3-year rule 

with regard to defaults? 

Mrs. GALANTE. The 3-year rule—actually, there is 3 years and 

then there is a test of looking at whether there were particular extenuating circumstances. 

That will get looked at. Credit scores will definitely be affected 

when people have been foreclosed on, and so those things— 

Mr. SHERMAN. Okay— 

Mrs. GALANTE. —will get looked at— 

Mr. SHERMAN. Let me just— 

Mrs. GALANTE. —underwriting— 

Mr. SHERMAN. —squeeze in one thing. I know the question has 

already been asked. But I do want to associate myself with the concerns about condominiums. 

Certainly, the FHA rule that if you have 15 percent of the units 

delinquent with the association dues, that is a problem, and should 

be modified with regard to bank-owned units since banks typically 

pay, not monthly, although they should, but rather at the time of 

the sale. 

And also the—it seems to be that the condominiums are actually 

performing better than the single family homes. And I hope that 

FHA would accommodate those who want to buy condominiums. 

I yield back. 

Mr. HURT. Thank you, Mr. Sherman. 

We now recognize the gentlelady from California, Ms. Waters, for 

5 minutes for questions. 

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

38 

I am pleased that we have this panel before us today. 

I want to address my first question to Mrs. Carol Galante. I am 

very concerned about the Administration’s proposal to short fund 

the contracts of project-based Section 8 owners. Under this proposal, owners would be funded from the start of their contract 

through the end of the fiscal year, and not through the end of their 

contract as it is counter to practice. 

The Bush Administration tried a similar policy that led to late 

payment to owners, increased costs, errors in forecasting expenditures, and at the end of the day still required $2 billion to pay the 

back ends of the contracts. 

Also, I am aware that under your proposal in 2014, the program 

will still need the additional $1.1 billion. So, this policy doesn’t 

really save any money. 

Given these demonstrated problems with this policy, I would like 

to know why the Administration is proposing it. 

Can you state—go ahead? 

Mrs. GALANTE. Thank you for the question, Congresswoman. 

Let me say this was one of the more difficult and painful decisions that HUD needed to make in looking at how to meet our 

budgetary projections. 

But we did do this in a way that we are not going to have a situation where owners are not getting paid during their fiscal year of 

their contract, or where tenants are at risk in any way. 

What this policy does is, if you think about it more as a just in 

time funding, the funding will be for the term—for some contracts—of the fiscal year. And then a calm at the beginning of the 

next fiscal year when they are due funding, that will need to be 

appropriated from the, in this case, 2014 budget cycle. 

Ms. WATERS. So, are you telling me there will be no late payments to owners? 

Mrs. GALANTE. That is correct during the fiscal year. And I will 

say that the Department in the past couple of years has been doing 

a much, much better job, has better forecasting tools. And we will 

be fully funding during the term of the fiscal year. 

And one other thing I would say, when this happened during the 

Bush Administration, one of the things that happened was it was— 

these contracts—this is not transparent to people. 

All of a sudden, it happened over a period of a number of years. 

And all of a sudden, there wasn’t enough money to fund the contract. 

We are planning for the strategy that we are implementing here. 

Ms. WATERS. Would you tell me exactly why you have to do this? 

Why do you have to do it? 

Mrs. GALANTE. Again, it is a difficult choice in terms of the overall HUD budget, and how we are going to live within the overall 

constraints of the Budget Control Act. 

And this was a choice, as one way to do it, that again did not 

disrupt payments during the fiscal year for owners or for tenants’ 

assistance. But again, this was not an easy thing to do. 

Ms. WATERS. So, you don’t save any money doing this? 

Mrs. GALANTE. We do during the period of the fiscal year because 

the previous practice was if you had a contract that crossed fiscal 

39 

years, that is really what we are talking about, we would fund the 

full 12 months. 

So, out of 2013 appropriated dollars, we would fund 12 months’ 

worth that would go into the next year for that owner. 

What we are saying now is we are funding essentially by fiscal 

year and just enough into the next fiscal year to keep the payments 

on track until the next appropriation. 

Ms. WATERS. So in 2014, you will be asking for the whole 

amount? 

Mrs. GALANTE. Not necessarily. Again, it depends on how the 

contracts roll, and how many months of funding those contracts are 

going to need during 2014. 

So, again, at some point in time, you will end up with most of 

the contracts that have 12 months within the same fiscal year. And 

at that point in time, you will need enough appropriated dollars to 

fund all those contracts. 

And that is not likely in 2014. But it will happen at some point 

in time. 

Ms. WATERS. Thank you very much. We still think it is a problem. And we are going to have to take a close look at that. 

Thank you. 

Mrs. GALANTE. Thank you. 

Mr. HURT. Thank you, Ms. Waters. 

The next member to have questions will be Mr. Watt from North 

Carolina, for 5 minutes. 

Thank you. 

Mr. WATT. Thank you, and please accept my apologies for not 

being here. I was unfortunately delayed in a markup of bills in the 

Judiciary Committee and couldn’t get here. It was certainly not a 

reflection of the importance of what we are talking about. But 

markups do take precedence over hearings most times. 

So, Ms. Henriquez, some of my housing authorities have expressed serious concerns about the proposal to draw down ‘‘excess’’ 

reserves. I have used the word ‘‘excess’’ in quotations. They don’t 

think they are excess. They got built up in a lot of cases by housing 

authorities being told by prior Administrations that they were 

going to be required to be more entrepreneurial. 

And so, they complied with the mantra that they should become 

more entrepreneurial, built up some reserves, and now we are back 

taking those reserves from them when they could have used them 

in prior years to do something else, as opposed to building up the 

reserves, such as maintain their properties or serve more people 

with Section 8 vouchers. 

My line of questioning actually has to do with that. The budget 

is level-funded for Section 8 vouchers. Market rents are rising at 

the rate of about 2 percent per year. And new families are coming 

on to the Section 8 voucher program, which means that one could 

reasonably expect that Section 8 vouchers are going to need more 

money. 

And you propose to cover that by requiring agencies to cover part 

of these costs by spending down these ‘‘excess reserves.’’ You required housing authorities to draw down $650 million in excess reserves in 2012. So in light of that, my question is, what is HUD’s 

estimate of the amount of excess reserves that will be available in 

40 

2013? And how much does the HUD request assume that agencies 

will have to draw down to cover these costs in 2013? 

Do you think that is a reasonable source to be getting this money 

from if we are going to still expect housing authorities to be entrepreneurial or have we given up on that approach? 

Ms. HENRIQUEZ. Thank you for the question. We have not given 

up on the entrepreneurial approach for housing authorities. But I 

do want to be clear— 

Mr. WATT. Does that require some reserves— 

Ms. HENRIQUEZ. In— 

Mr. WATT. —to be entrepreneurial? 

Ms. HENRIQUEZ. It could. But let me explain— 

Mr. WATT. Okay— 

Ms. HENRIQUEZ. —further. 

Mr. WATT. I will leave you alone. Go ahead. I asked my question, 

go ahead. 

Ms. HENRIQUEZ. Okay. In 2012, the reserve or the allocation that 

we required housing authorities to draw from was from their operating reserve, on their public housing operating account. And that 

was $750 million. 

Those reserves have built up to in excess of $3.8 billion. We established a floor, a minimum under which we thought housing authorities being well-operated should not go below. And we worked 

with the system and looked at the numbers from their own audited 

financials to determine that level. 

In the 2012 budget as well, there is an offset on the net restricted assets, which comes from the Section 8 voucher program. 

That amount is set at $650 million. It allows for housing authorities to retain about a 7 percent reserve, 7 percent of their program. 

And I would say that taking this offset in that restricted assets 

from the voucher program is something that has occurred in past 

years primarily in 2007 or 2008 and 2009 as well. 

The Section 8 reserves can only be used for Section 8 voucher 

purposes and not anything else. 

We have created a tool for housing authorities to be able to use 

their net restricted assets to try to increase the number of vouchers 

that they put under—so that they are not building up ‘‘excess net 

restricted asset reserves,’’ so that we can house more people. 

And through the mechanism, using the tool, working with housing authorities in the last fiscal last year, we put more than 40,000 

or 50,000 more households in voucher-assisted units across the 

United States. 

Mr. WATT. Mr. Chairman— 

Mr. HURT. Without objection, the gentleman will be recognized 

for an additional 2 minutes. 

Mr. WATT. I just wanted Mr. Bostic—I don’t even know what his 

testimony was about—but he seemed to have a dog in this fight. 

And I wanted to at least have him have the opportunity to respond 

to this. He seemed to be on the other side just judging from his facial expression. 

[laughter] 

Mr. BOSTIC. People tell me all the time that my facial expressions get me in trouble. 

I actually have no dog in this fight. 

41 

Mr. WATT. You have no dog in this fight— 

Mr. BOSTIC. No. 

Mr. WATT. Okay, I just misread your facial expressions. Does 

anybody else have a dog in the fight, who is contrary to Ms. 

Henriquez? 

Everybody seems content. Just my entrepreneurial housing authorities that say they are now are getting whiplash, because they 

built up these reserves under prior Administrations, and now the 

policy seems to have changed about how entrepreneurial you 

should be. 

Ms. HENRIQUEZ. The policies have not changed about being entrepreneurial. What has changed is we are requiring housing authorities to spend the money. 

And for housing authorities in your State and across the Nation, 

when those housing authorities had questions about the adjustment allocation, their operating reserves, we actually asked them 

and worked with housing authorities individually— 

Mr. WATT. So, there is some discretion. If I wanted to—if they 

have good reasons to have these reserves, we could talk to you 

about it. That is what you are saying. 

Ms. HENRIQUEZ. That is correct, and if they have used them appropriately, absolutely. 

Mr. WATT. Okay, I yield back, Mr. Chairman. 

Thank you for the additional— 

Mr. HURT. The gentleman yields back. 

Thank you, Mr. Watt. 

And I would like to recognize myself for an additional 2 minutes 

just to ask a follow-up question for Mr. Bostic about the Moving to 

Work Program. 

It was certainly developed at a time when there was no research 

metric to be able to judge its effectiveness. We have heard a lot 

about effectiveness in trying to make programs more effective and 

how we measure the success of programs during this hearing. I 

think we all recognize there is something we need to do. 

But since 1998, HUD has had the opportunity to develop an evaluation tool, and has not done so. I am wondering if you could speak 

to that, and tell us what progress you are making in developing a 

research metric. 

Mr. BOSTIC. Thank you for the question. 

This is a program that is of tremendous interest to all of us because it offers—Secretary Henriquez was talking about innovation. 

It is a place where a lot of innovation happens. And we need to 

know sort of which of those innovations actually pays off. 

I would say a couple of things. First, in our budget request, 

through the transformation initiative, we make a request to do an 

evaluation of the Moving to Work demonstration Program. So, I 

think we want to do that. 

Working with the Office of Public and Indian Housing, we have 

also instituted a policy change such that new MTW agencies commit to work with a local researcher to do an evaluation of an ongoing basis about the things that they are doing. 

So, while the older program participants is something of water 

over the dam, if you will, what we are trying to do is make a marker right now to say as we move forward, we are going to do those 

42 

evaluations, so that we can learn all that we need to about how 

MTW works and what things work best. 

Mr. HURT. Thank you, Mr. Bostic. 

At this time, I ask unanimous consent to insert into the record 

a letter from the Housing Coalition on Project-Based Section 8 

Short Funding dated February 27, 2012. 

Mr. HURT. Without objection, that letter will be made a part of 

the record. 

Obviously, this hearing is very important. We appreciate your 

participation here today. And thank you for working with us as we 

try to tackle the big challenges that we face in this next budget 

cycle. 

Without objection, the panel is dismissed and the hearing is adjourned. 

The Chair notes that some Members may have additional questions for the panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. 

[Whereupon, at 12:08 p.m., the hearing was adjourned.] 

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A P P E N D I X 

February 28, 2012 

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